Central Bankers Disrupt & Destroy Free Markets

I have never met a banker or central banker (both are the same types of Alpha-primates) who is not a true believer in open and free markets. However, the real truth about bankers and central bankers is something quite different. They have a long history of privatising profits and socialising losses. Huge salaries and bonuses, share buybacks, and sumptuous offices are enjoyed when profits flow, and taxpayers are left on the hook when banks needs rescuing. Bankers and their central bankers have invented the concept of “too big to fail”, a nice fairy story to hide the malfeasance of bankers and the sloppiness of the supervisors.

According to official statements central bankers are meant to keep consumer prices at stable levels, while ensuring optimal employment levels. They are also the legal guardians of banking safety, a “mission impossible” if ever such a policy could be implemented successfully. 

Again and again, there is a long history of failed attempts to stop banks going under. Bankers are always one step ahead of the banking supervisors, even when the problems are in plain sight for all to see. Just recall the last big mortgage banking crisis in 2007 and 2008, the Italian banking crisis (still ongoing after over 14 years), or the massive losses of Greek banks 2015, or the failure of Europe’s largest bank, the Royal Bank of Scotland in 2008, or more recently Germany’s wild Wirecard 2020 fraud that German bank supervisors missed even when the Financial Times had already published clear evidence. Then we have had Greensill in 2020 involving huge banks and  the Long-Term Capital Management in 1998 also involving huge banks, etc, etc… The list is far from complete but they all involved the world’s biggest banks and banking supervisors, all sleepy at the helm.

Our central banks have also failed to achieve stable prices and they have done very little to reduce high unemployment when times were bad, especially for younger people.

They have disrupted the money and bond markets by foolish policies that have given us almost 10 years of super low interest rates. This is a decsion they claim to justify by saying that low interest rates will stimulate investment in the real economy and, in Europe, they wanted to save the EuroZone from disruption! Neither objective succeeded…

Ordinary people have seen their “safe” bank deposits eaten away by inflation, while share prices and house prices have soared higher because they could be purchased with almost zero interest rate loans.

There is a religious belief that central banks must give below market price loans to banks so that they can lend to the real economy for investments. We know that this money has not gone to ordinary companies because investment activities have lagged. Banks have used this ultra cheap money to increase their investments in low risk government bonds and housing loans rather than lending to SMEs and larger companies. 

Now Ms. Lagarde, the head of the European Central Bank (EBC), (a former French politician who was convicted in France for negligence in the management of public monies), wants the ECB to buy huge amounts of Italian government debt to help Italy’s Prime Minister, Mr. Draghi, (a former head of the ECB and once a Goldman Sachs banker). The Italian government has borrowed a massive 150% of their GDP in the bond markets and are still not able to implement the necessary reforms that should have been in place 20 years ago! According to Ms. Lagarde, Italy needs ECB’s help, even though these necessary reforms never seem to appear!

The market’s view is that Italy should pay annually 5% for their 10 year bond, 5% but Ms. Lagarde says that she wants to buy practically all the Italian bonds until the yield is 4% or less! That is an huge market disruption and an illegal activity. Central banks are prohibited by their mandate from financing governments, and saving such a debt ridden country like Italy is utter madness.  

Basically we have right wing (neoliberal) central bankers saying that they no longer believe in freely operating markets. They appear to believe they are blessed with supernatural powers that allow them to intervene and place heavy bets against these markets.

They live in a fool’s paradise where they think they know better than the markets. It is easy for them top play this game when they have no skin in the game and generous salaries, because  they are putting taxpayers’ money at risk. 

There are no good reasons to have every Euro area government paying the same artificial price for borrowing in the bond markets, just like there are no good reasons for zero interest rates.

Both destroy healthy money and bond markets because of this price disruption using taxpayer’s money…

… and let’s put this in the Finnish context. You will not have heard anything from the head of the central bank of Finland about the excesses of the EBC. Mr. Rehn the head of the Finnish central bank does not want his job threatened because he sees himself in line to be the next president of Finland!

He does lecture ordinary workers that they should not be demanding big pay increases while he gets an extra 3% on his €30 000 monthly salary. He also contradicts the growth forecasts of the Ministry of Finance with a much lower forecast for 2023. It is obviously a warning shot aimed at ordinary workers to be careful about what they should wish for! So much for the easy-go-lucky politics of central bankers… This inflationary peak was starting already before Russia’s attacked Ukraine, and that war only made things worse. If you read older economic studies from the ECB you will find very little criticism of Europe’s  dependence on Russian oil and gas! The ECB has hundreds of economists who appear to live in an ivory tower..

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