The programme would see the Bank of England exchange Government bonds for banks’ mortgage-backed securities in a bid to free up liquidity in the markets. It is believed Alistair Darling will introduce the plan imminently.
In a letter to Osborne, Cable calls on him to clarify his proposal and accuses him of leaving taxpayers to shoulder bank’s losses.
He says: “Since the mortgages are of variable quality and at risk in a falling housing market and the Government bonds are of the highest quality and risk free you seem to be saying that the taxpayer should shoulder the banks’ risks and potential losses.
“Those could be reduced if the mortgages are transferred at a discount – a ‘hair cut’ – but you do not say that, nor do you suggest what any discount should be. You are clearly aware of the dangers since you suggest a “built in guarantee for the tax payer”. What is the nature of the guarantee? Would it be legally binding? And who is to give it? If it is the banks, your scheme is a merry-go-round; if not it is a con.”
Cable also reminds Osborne that the role of an MP is to protect taxpayers.
He says: “You say the bankers agree with you. Of course they do. It is their job to maximise profits for themselves and lay off risks to someone else. It is our job as responsible ministers or shadow ministers to protect taxpayers, not let the banks and other businesses take us for a ride.”
According to Cable bank shareholders, not tax payers, must put their hands in their pockets to rebuild their capital base. He says the extension of the traditional lender of last resort function to embrace inferior collateral or to be market maker of last resort is necessary but must be on strict conditions laid down by the Bank of England.
He says in the letter to Osborne: “I really liked your line about fixing the broken plumbing of the financial system. But your instant rescue plan gives me no confidence that you will pass your plumbing diploma exams.”