THE Bank of England this week was revealed to be under investigation by no less than the Serious Fraud Office.
Founded in 1694, the Bank has never before been investigated for fraud, indeed it has always enjoyed the reputation of being above any grubby dealings as Britain’s central bank, made independent by the then Labour chancellor, Gordon Brown, and charged with looking after the country’s financial wellbeing along with a regulatory role over the lesser banks.
This rosy picture of financial rectitude has been shattered by the fact that a criminal investigation has been launched into the BoE, which is also the ‘lender of last resort’ to British capitalism, over the Bank’s role in bailing out the banking system at the time of its collapse in 2007/8.
In Britain, this international crisis burst into the open with the collapse of the Northern Rock bank in 2007, which had to be bailed out by the Bank of England.
It soon became apparent that Northern Rock was just the most exposed tip of a very large iceberg – other much larger banks were in just as precarious a position and facing financial annihilation.
The BoE was now forced to step in and prop up the entire banking system.
How it did this is now a major part of the SFO investigation. According to the SFO, it is: ‘investigating material referred to it by the Bank of England concerning liquidity auctions during the financial crisis in 2007 and 2008’.
At the heart of this bail-out, which saw £180 billion of taxpayers’ money handed to the banks to stop them going bust, was something called the ‘Extended Collateral Long-Term Repo (ECLTR) operation’.
This was basically an auction run by the BoE, whereby it would telephone all the banks individually and offer them bail-out money and ask them what rate of interest they were prepared to pay on this ‘loan’.
The banks offering the highest interest repayments got the cash. The criminal investigation appears to be centring on the accusation that Bank employees were colluding with the banks in rigging this auction to secure the lowest possible interest rate and so secure cheap funding at the expense of the BoE and the UK’s taxpayers.
The other main issue of course is exactly what the banks were offering as security on these loans.
The banks were offering as assets mortgage-backed loans they had made across the world – loans which in fact were as ‘secure’ as all the property loans made in the US, under the sub-prime mortgage scandal, which precipitated the whole crisis.
The recent history of banking has been one of one financial scandal and downright fraud after another – frequently involving the manipulation and rigging of interest rates or, in the case of HSBC, facilitating massive tax avoidance schemes for the super-rich.
In November last year, six big banks including RBS, HSBC and Barclays were fined £2.7 billion for fixing foreign exchange rates and fraudulently making millions for the banks and traders involved.
Earlier, Lloyds bank was fined £218 million for its role in manipulating the key Libor interest rate.
All these fines, of course, are just shrugged off and passed on to the bank customers in the form of higher charges – no banker has been called to account, let alone jailed for their crimes.
Now it is becoming clear that this corruption is believed to exist at even the highest level of banking right up to the Bank of England, the great regulator of the system and guarantor of its financial ‘morality’.
While the bankers and financial speculators rig markets to make themselves a fortune on paper, the working class is expected to pick up the tab when they collapse through pay cuts and the destruction of services in the name of ‘balancing the books’ through austerity.
The only way to balance the books in favour of the working class is through bringing down the government and nationalising all the banks and placing them under the control of the working class as part of a planned socialist economy.
With another even bigger financial crash now being prepared by the same bankers, through the anarchy of their system, this task is becoming ever more urgent and unpostponable!
