You hardly need an auditor to tell you what you can see for yourself. The unholy trinity of Central Bank, Treasury and the cabal of leading banking institutions has been operating a mutual self-help alliance that has rendered Britain’s banking capability utterly dysfunctional.

The banking sector, overjoyed at the prospect of absorbing central bank largesse, used this pseudo-dosh to rebuild balance sheets ravaged by real losses on earlier bad loans.

In 2008, taking fright at the scale of the financial crisis in which the country was mired, the Bank of England initiated its policy of quantitative easing, sometimes referred to as “asset purchasing” – itself a euphemism for buying electronic money, produced to order by a complicit Treasury.

The banking sector, overjoyed at the prospect of absorbing central bank largesse, used this pseudo-dosh to rebuild balance sheets ravaged by real losses on earlier bad loans.

As the flood of fake money led to near-zero lending rates in the market, the Treasury proclaimed that private sector borrowers would benefit. Predictably, the economic growth that monetary expansion was supposed to stimulate never materialised. There was no “trickle-down” into the real economy – instead, the gush of new fiat money produced another asset-price bubble, another rash of obscene bonuses and inflated consumer prices.

Cause and effect – everywhere

The debacle left its perpetrators in a quandary: unbelievably, some Keynesian economists even claim that it didn’t work because its implementation lacked conviction, and seriously recommend more of the same.

It’s a similar story in the USA, Eurozone, Japan or China: wherever tried, the consequences have been equally dire. Unbridled monetary expansion has led to lavish public sector infrastructure projects that bear little relation to what people want or need: empty motorways; empty state-of-the-art airports. And a trail of public debt without prospect of being repaid in real money, while desperately needed public services are decimated in a pernicious misallocation of resources.

The Treasury’s initiative for stimulating growth, “Funding for Lending”, though now expanded, is testimony only to its naivety. There will always be politicians who believe that chucking cheap money at banks will eventually shame them into undertaking some serious private sector lending. Someone should tell the Chancellor that the banks get away with daylight robbery for one simple reason: they can.

Under the latest version of Funding for Lending, institutions expanding their lending to the private sector, for which they will charge exorbitant commercial rates, are able to pay as little as 0.25% p.a. on their own borrowings. Unbelievably, the  government is actually bribing banks to lend money. Yet such coerced lending will merely generate yet another rash of bad loans.

Fees, fees, fees

Government interference unfailingly leads to resource misallocation. The economy cries out for old-fashioned lending by institutions that take the trouble to understand their customers’ needs. There would be no need for banks to “rebuild” their balance sheets if they had not been stupid enough to squander the money in the first place!

Lending at a rate of 10 times what they pay is not enough for these rogues. So-called “fees” (it sounds almost professional) are charged as a percentage of the sum borrowed; fees are charged on any additional amounts; fees on the existing amount “to reset the covenants”; fees on “change of control” even though only minorities are involved; oh, and all those legal and due diligence fees. You name it. This is robbery raised to the level of an art-form, and it dwarfs any dividend that the shareholders might get.

I am not making this up – any of it.