Bank holds rates - as banker breaks ranks

No surprises from the Bank of England today - but Goldman Sachs' boss has been raising a few eyebrows...

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Last Updated: 31 Aug 2010

Is no news good news? The Bank of England today voted to keep interest rates at 0.5% and maintain quantitative easing (i.e. money-printing) at £175bn for the next month. In other words, they’ve chosen to sit on their hands and wait a bit longer to see how effective their current efforts will be, which suggests that they’re seeing some signs of life in the economy at the very least. But if this was widely expected – apart from those pushing for Swedish-style negative rates – the fact that Goldman Sachs boss Lloyd Blankfein has been speaking out about excessive bonuses struck us as fairly extraordinary...

In its statement today, the Bank said – well, not very much actually, except that it expects the QE programme to take another two weeks to complete. It’s put about £146bn of the proposed total to work so far. And with some indications that the money supply is increasing, albeit slowly, it does seem to having the desired effect. In fact, today’s statement was only notable for what the Bank didn’t do – although with one think-tank suggesting this week that the UK economy grew by 0.2% in the three months to August, and positive signs on house prices, jobs and consumer confidence, pursuing a wait-and-see policy is probably the most sensible approach.

That’s not to say that everyone agrees with the Bank. Some want the UK to pursue the Swedish policy, where the central bank effectively charges to hold money in their reserve (although in practice this isn’t really a negative interest rate, at least in the ‘free mortgages’ sense, because it only applies to commercial banks). And Mervyn King and co have also been coming under fire from former MPC member David Blanchflower, who accused his old colleagues of failing to spot the crash and reacting too slowly when it happened.

Speaking of breaking ranks, Goldman Sachs boss Lloyd Blankfein made an extraordinary speech in Germany yesterday: he suggested (as per FSA chairman Lord Turner) that some financial instruments have outstripped their ‘economic and social utility’, admitted that massive bonuses ‘encourage excess’, and acknowledged that public anger was both understandable and appropriate. Since he himself pocketed $70m in 2007, this might seem a bit rich – although of course he was mainly referring to loss-making banks. And to be fair, Goldman is actually more transparent about its compensation practices than most – albeit just as excessive.

Blankfein’s speech should probably be seen in the context of all the bad press Goldman has been getting lately – notably Rolling Stone’s wonderful description of it as ‘a great vampire squid wrapped around the face of humanity'. And he was probably pandering to his audience to some extent, since capitalism has a rather bad name in Germany at the moment. But it may be another sign that top bankers are realising that it’s time to change their ways if they want to keep out of trouble...


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Bank holds rates - as banker breaks ranks
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