Mervyn King reveals truth behind Treasury spin

Remember when Alistair Darling “announced” the £50 billion loan package to banks? That time he summoned banks to a meeting saying he wanted better fixed-rate deals and mortgage holidays “in return” for this scheme? He was talking through his hat. He has this morning been rumbled by Mervyn King, Governor of the Bank of England, who gave it straight to the Treasury Select Committee. This so-called Special Liquidity Scheme (SLS) is “a central bank scheme,” King said. The BoE, not any minister, proposed it. There are no conditions, no strings attached, no requirements for banks to ‘pass on’ Bank of England base rate. It is a facility there to provide relatively expensive emergency loans to any bank that needs it.  Treasury approval was only required for technical reasons – ie issuing special Treasury bills. (Darling, remember, told MPs the SLS had been “developed following extensive discussions with the Treasury”–it was spun as our decisive government in action).

King added that the scheme does not aim to “kickstart the mortgage market” as had also been spun. In fact, he said it was a good thing that mortgage market is becoming tighter. “That is not a process we can, or should try to, stop" Not quite the message we had from Nos 10 & 11 Downing Street. And for good measure, King voiced “concern” about the grim inflation outlook facing Britain. And this morning the BoE said home mortgage approvals collapsed to 64,000 last month – only slightly above the all-time low of 62,600 in November 1992.

Attaboy. Since that intriguing Irwin Stelzer splash in The Sunday Times recently, King has struck me as someone unwilling to sit back and let himself be lied about for governmental convenience. The £50bn scheme is (as Michael Saunders of Citibank puts it) a “modern day financial lifeboat” that only becomes operational if banks are jumping in it. It’s not going to come help the 2.75m people (inc yours truly) coming off a fixed-rate mortgage this year. Mortgage misery is here to stay, and no amount of spin can make up for it.