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“Bail faster!” is the usual cry when a lifeboat springs a leak. Instead, bail-out fatigue is overwhelming. Taxpayers are irate at how leaky their countries’ bail-out packages have become. The anger is understandable, if often misdirected. Bonus and pension payments are simply the most obvious leaks. President Barack Obama wants to reclaim $165m of bonuses legally due to AIG’s catastrophically useless derivatives traders. In the UK, Sir Fred Goodwin, former chief executive of Royal Bank of Scotland, faces a similar furore over his £16m pension pot. The headlines are huge, yet the payments tiny when compared with a far larger leakage abroad. In spite of commitments to boost local lending, RBS remains a global bank with more than half its £2,400bn balance sheet invested overseas. It does not make sense to unwind that foreign lending willy-nilly – and taxpayers have exposure to RBS equity too.

Then there is fiscal leakage – when higher domestic spending boosts exports from free-riding countries. That is why bail-out packages have to be internationally co-ordinated, and why the US recently rounded on European governments to open their wallets – although at 4.2 per cent of gross domestic product over two years, Germany’s fiscal easing is similar in size to the US package.

Rather, the most subtle and perhaps most pernicious leak comes from monetary policy. This is evident in the UK’s quantitative easing policy, which involves chucking £75bn at the gilt market to bring down yields. This will supposedly push investors to look for returns further along the risk spectrum, first by buying top-rated corporate debt, then riskier loans. But QE might just as well push pension fund managers, constrained by mandates, to buy highly rated foreign corporate bonds where yields have not been compressed. This is more than an intellectual leak in the UK’s policy framework. It’s a hole.

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