Another credit crunch looms

The threads holding up the balance sheets of the banks are growing perilously thin.

The finance sector is signalling alarm, and our politicians are once again asleep at the wheel. Another "credit crunch" may be looming. The most significant evidence emerged from the ECB's second Long Term Refinancing Operation (LTRO) on Thursday last week.

The LTRO is simply language intended to disguise the "printing of money" by the ECB for lending to private European banks at a very low rate of interest - 1 per cent. (In fact, the money is not even printed: it is created by entering digits into an ECB computer, and then transferring hundreds of billions of euros as 'bank money' to private banks.)

The fact that British banks rushed to drink from this punch bowl, tells you something about the state of their balance sheets.

For reasons that I suspect are largely ideological, the British government and HM Opposition refuse to face the reality that our private banking system and large parts of the corporate and household sectors are effectively bankrupt. Given this context - and the grave threat posed by an insolvent private finance sector - the joint and somewhat myopic focus by all political parties on the public debt is surely irrational.

Many households, firms and banks in the private sector are only kept from liquidation by a) "forbearance" - bankers hanging on in the hope that e.g. defaulting mortgage debtors will eventually repay; and b) injections of 'liquidity' by publicly-backed central banks.

But the threads of forbearance and liquidity holding up the balance sheets of the private banking system are growing perilously thin.

The ECB is by law (the Lisbon Treaty) prevented from making low-cost finance directly available to sovereign governments of the Eurozone. Whereas the Bank of England has effectively financed the government's deficit by buying government bonds at very low rates of interest from private banks, Greece and Portugal cannot rely on the ECB to purchase their bonds at low rates. Instead they have to turn to private bankers/financiers - who charge much higher rates of interest. (Readers are free to speculate as to who may have had a hand in drafting the Lisbon Treaty and the ECB's mandate.)

To avert Armageddon in the global financial system last December, the ECB turned the cheap money spigot on - in the vain hope that private banks would lend on low-cost ECB loans to governments. And that they would do so at a rate of interest a little nearer to the 1 per cent the ECB had charged them.

So much for wishful thinking.

This onlending - borrowing cheap and lending dear - is called 'the carry trade', and extremely profitable it is too. Take Portuguese 10-year bonds: private banks are using their 1 per cenr ECB loans to buy these at 14 per cent - a nice, effortless little earner. The case of Greece is of course, worse: the rate of interest the 'carry trade' extracts from Greece for short-term loans is frankly, criminal. Indeed the ECB's easy, cheap money can be said to be helping bankrupt the very governments it purports to help in its roundabout way.

But I digress. Last week big banks as well as many small banks, rushed to suck on the teat of cheap central bank funding. Our very own Lloyds Bank, already largely government-owned, borrowed €13.6bn from the ECB while Barclays, which claims it never relied on public funds, borrowed €8.2bn; RBS borrowed €18bn. In total 800 European banks rushed for help from the ECB.

This is a worrying development.

But even more disturbing are signs that banks no longer lend to each other. Just as the credit crunch of August, 2007 was heralded by a freezing up of inter-bank-lending, so history appears to be repeating itself. According to the FT, banks deposited a record €777bn overnight with the ECB last week, up nearly two thirds from the previous day.

In other words, banks were borrowing from the ECB at 1 per cent and then re-depositing funds with the ECB for less - 25 per cent.

Banks could earn a great deal more in the inter-bank market - but that market scares the hell out of them. They know a lot more about their fellow bankers' solvency than our politicians do. Which is why they are parking their (our) money with a bank that cannot go bust: the taxpayer-backed ECB.

Given that our politicians are looking the other way, this should scare us too.

Ann Pettifor is director of PRIME - Policy Research in Macroeconomics.

CREDIT: PETER DAZELEY/PHOTOGRAPHER’S CHOICE
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The overlooked aspect of patient care: why NHS catering needs a revolution

The NHS performs so many miracles every day – in comparison, feeding the sick should be a doddle. 

A friend recently sent me a photo from her hospital bed – not of her newborn baby, sadly, but her dinner. “Pls come and revolutionise the NHS” the accompanying text read, along with a plaintive image of some praying hands. A second arrived the next morning: “Breakfast: cereal, toast or porridge. I asked for porridge. She said porridge would be ‘later’. Never arrived. (sad face).”

Contrast this with the glee with which another friend showed me his menu at a Marie Curie hospice a few weeks later. He seemed to have ticked every box on it, and had written underneath his order for syrup sponge and custard: “extra custard please”. It wasn’t fancy, but freshly cooked, comforting food that residents looked forward to – “like school dinners”, he sighed, “but nice”.

To be fair, though budgets vary significantly between hospital trusts, a reliable estimate suggests £3.45 per patient per day as an average – only slightly more than in Her Majesty’s prisons, though unlike in prisons or schools, there is no legally enforceable set of minimum standards for hospital catering. As Prue Leith writes in the foreword to a 2017 report by the Campaign for Better Hospital Food, “this means hospital food is uniquely vulnerable to a race to the bottom in terms of food quality, and patient care”.

Plate after plate of disappointment is not only demoralising for people who may already be at a low ebb, but overlooks the part food has to play in the recovery process. Balanced, appetising meals are vital to help weaker patients build up strength during their stay, especially as figures released in February suggest the number of hospital deaths from malnutrition is on the rise. According to Department of Health findings last year, 48 per cent of English hospitals failed to comply with food standards intended to be legally binding, with only half screening every admission for malnutrition.

The Campaign for Better Hospital Food’s report, meanwhile, revealed that only 42 per cent of the London hospitals that responded to its survey cooked fresh food for children – even though the largest single cause of admissions in five-to-nine-year-olds is tooth extraction. Less than a third of respondents cooked fresh food for adults.

Once the means to produce fresh meals are in place, they can save trusts money by allowing kitchens to buy ingredients seasonally, when they are cheaper. Michelin-starred chef Phil Howard, recently tasked by the Love British Food organisation to cook their annual lunch on an NHS budget, explained that this, along with using cheaper cuts and pushing vegetables centre stage, allowed him to produce three courses rather than the two he’d been asked for. Delicious they were, too.

Andy Jones, a chef and former chair of the Hospital Caterers Association, who was there championing British food in the NHS, told me the same principles applied in real healthcare environments: Nottingham City Hospital, which prepares meals from scratch, saves £6m annually by buying fresh local ingredients – “I know with more doing, and voices like my small one shouting out, we will see real sea change.”

Unusually, it’s less a question of money than approach. Serving great hospital food takes a kitchen, skilled cooks and quality ingredients. But getting every hospital to this point requires universal legal quality standards, like those already in place in schools, that are independently monitored.

Nutrition should be taken as seriously as any other aspect of care. The NHS performs so many miracles every day – in comparison, feeding the sick should be a doddle. 

Felicity Cloake is the New Statesman’s food columnist. Her latest book is The A-Z of Eating: a Flavour Map for Adventurous Cooks.

This article first appeared in the 18 April 2018 issue of the New Statesman, Enoch Powell’s revenge