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Friday, November 7, 2008

More Looting

Yesterday, the Bank of England cut their equivalent of the Fed Funds Rate by 1.5%. This move was completely unexpected. It was not factored into market prices ahead of time. No economists publicly predicted such a large cut, although they knew cuts were coming soon.

Suppose I were one of the insiders who control the Bank of England. Suppose I knew about this cut in advance. I could have made a *HUGE* profit by trading currency futures/derivatives/swaps/options. There are laws forbidding this sort of thing, but in practice they're unenforceable.

A surprise interest rate cut provides a massive State subsidy to insiders. This subsidy isn't free. The cost is paid by everyone else as inflation. This subsidy is in addition to the huge State subsidy the financial industry already receives.

A central bank is a price fixing cartel. Anybody who says otherwise is pro-State trolling.

1 comment:

Anonymous said...

its an amusing thought that the bank would front-run its interest rate decisions for personal gain. its true that standards have been slipping but at the end of the day the BoE staff are pretty dam straight. however, the surprise cut does benefit banks as institutions, even if no insider knowledge leaked or was acted on. following the actions of the Chancellor as he demanded the banks pass on rate cuts was quite an amusing distraction for a few days (the banks knew they were never going to keep it, and the government knew, or should have done, that it would have to shake them down to get the rate passed on). both sides win here - banks look strong to shareholders, government looks strong standing up to banks.

there are a lot of people who benefit from insider knowledge (the uk FSA has a public paper and formula for it, and admits its a high number from its own data analysis), however, there is much bigger gains to be made with wielding power - look here and you will see more truth than chasing people who try and grab a few pennies for themselves.

Also, you would be amused to read about the UK retail king Philip Green - now theres a man who can borrow money!

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