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Allegations of Quantative Easing manipulation surface

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Yet another grubby little manipulation scandal is brewing in the ivory towers of high finance. Paul Fisher, the Bank of England’s executive director for markets, told MPs during a Treasury Select Committee meeting that a quantative easing programme may have been “manipulated” by gilt edged market makers (GEMMs) in October 2011. There is a certain irony that if proved, this would be a manipulation of a manipulation, and the effective printing of money that the phrase ‘quantative easing’ so technocratically euphemises would have been used as a license to print money.

Punch drunk with scandals such as the rigging of the LIBOR rate, financial regulators are investigating the allegations. Mr Fisher said that if the manipulation was proved, “It would be thoroughly reprehensible and appropriate actions would follow.

The irregularities concern a “reverse auction” of gilts held by the Bank on October 10, 2011, after the second round of quantative easing began. It appears that one lender tried to sell gilts to the Bank at an inflated price, before the anomaly was spotted and the deal was abandoned.

The Bank then formally warned the lender and passed the information to the Financial Services Authority, now the Financial Conduct Authority (FCA) before David Cameron took to the despatch box to say that bankers caught trying to rig gilt prices should face the “full force of the law”.

Asked whether there had been manipulation, Mr Fisher said: “There was that risk. I did not have the information to conclude that.” Despite saying that he was aware of no other flagrant examples of attempted manipulations, he did note that. “There have been other instances where we’ve wondered about other people’s behaviour, and what usually happens is they don’t do it again – even if it was totally legitimate.”

Andrea Leadso, a member of the Treasury Select Committee , summed things up, saying that it would be “utterly outrageous if an auction was being rigged, when the whole point of QE was to try an undo the damage ultimately caused by the banks themselves”.

Written by Cyrus Bozorgmehr - Google+ Profile - More articles by Cyrus Bozorgmehr

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