From the BBC:
The governor of the Bank of England, Sir Mervyn King, has rejected blame for the financial crisis. His comments came in an interview on BBC Radio 4 on Thursday, following his delivery of the annual Today Programme Lecture on Wednesday.
"My main point is that it was my officials who were to blame for not telling me about the house price bubble - this was a failure of the system," he told BBC Radio 4's Today Programme. "Obviously, I never read the newspaper, watch television or talk to normal people, so it wasn't until 2007 when my next-door neighbour told me over the garden fence that he'd just sold his house for three times what he paid for it in the 1990s that I realised something a bit strange was going on. Surely there must have been somebody in the Bank of England who knew about this? Why didn't they think to tell me earlier?"
But there has been some criticism of Sir Mervyn's version of events.
In his speech, Sir Mervyn said: "With the benefit of hindsight, maybe we should also have wondered why banks' balance sheets had quadrupled, but as none of them had actually gone bankrupt, we assumed that all was well. I mean, why wouldn't you?"
But David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, accused Sir Mervyn of being "disingenuous".
"I distinctly remember telling him that my house had gone up by about £100,000 in 2005. He seemed pleased for me but didn't really give it another thought. And because he didn't, he must take responsibility for the fact the Bank of England missed the biggest financial crisis in a century," he told BBC Radio 5 live.
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15 comments:
Well may Blanchflower object to King's version of events. As Eddie George told MPs in March 2007, the MPC knew that by lowering rates in the early noughties that they would be stoking up both consumer expenditure and housing prices and that their message to their successors at the MPC and Bank was to "sort that out".
Disingenuous is presumably polite for "lying bastard" in this context.
Jock, yes, the late Edduie George claimed to have told Mervyn about it on their hand-over day (we only have his word for it), but Merv was probably getting all excited about his new job, and how he was going to decorate his office and so on and didn't pay attention.
The W-word comes to mind. Preceded by "Complete and utter". Is that a necessary qualification for the job?
That speech last night was a shocker. Even when questioned over UK house prices MK appeared to believe that they were realistic and sustainable. This was based purely on the fact that inflation had been low so there can't have been a boom. Despite seven years of >10% pa increases in mortgage lending including 100% LTV and 7x incomes!!!
He even seemed to suggest that the UK was in a better postion because we hadn't (yet) seen a price crash due to the benefits(!) of restricted supply. Clearly he misses the correlation between the higher growth seen in the US following their house price crash and resultant write-down of bad debts.
Nu liebour turned the BoE into a dept of the treasury and Govt. with the creation of the criminally inept FSA. They should be in the dock for it, us engineers would not get away with being so reckless.
Yup until the crash Merv was just a pen pusher, maybe if the BoE had retained the oversight over Banks balance sheets and operations they would have taken a more serious view of what was going on, instead as said they became a tool of Govt. probably why Merv hates Gordon so much.
The feedback loop in housing that was driving the lending and borrowing thus should have been spotted by the FSA.
To be fair to Merv to have predicted the crash you need one to have seen the bubble pre 2005 and second the danger to banks and the finacial system pre 2006. I got the first but I am no interest in banking thus not the second.
http://www.independent.co.uk/news/business/bank-of-england-and-imf-on-a-collision-course-over-house-prices-6160936.html
P, yes.
QP, the excerpts which they showed later on suggest that Merv is completely delusional, but they might have taken them out of context.
S, the BoE always was part of HM Treasury, historically, the two are more or less the same thing. Sure, nobody was really conscious of the credit bubble itself, but we all knew that there was a house price bubble from about 2001 at the latest, and you can't have one without the other. Merv deserves not the slightest sympathy whatsoever.
I think the point I am trying to make is that the BoE had become a political tool. Gordon and Balls ups very own empire. By just leaving them with monetary policy they had left them with the taps, but kept the plug for themselves so to speak.
Blair and Brown basically wanted the whole of the state to be as he put it labours tribune of the people.
As for the bubble, this one was a bit different, previous ones had not blown out the whole of the world economy (not recently at any rate)
Yup he is one of the pilots that crashed the plane. Fairness is a different issue to sympathy. He was flying a very shaky plane.
S, until 1997, the Chancellor decided interest rates (as advised by ???) and after 1997, George/King 'decided' interest rates (as dictated to them by Brown/Balls, who in turn were advised by ???).
What's the difference between the Chancellor deciding them officially and the Chancellor telling the BoE behind the scenes what to say?
And Blair/Brown were primarily Home-Owner-Ists, they realised that the best way to get re-elected is to keep house prices going up, you can check for yourself, but since the dawn of Home-Owner-Ism in the early 1970s, a fall in house prices was always followed by a change in government.
As an aside, the whole bloody Lib-Lab-Con oligarchy is hell bent on big state authoritarianism and kleptocracy, I am not entirely convinced that had the Tories clung on to power in 1997 that they would have behaved any differently vis a vis interest rates and house prices etc.
Yes, this bubble was slightly different in that most countries in the world were in sync, but the same can be said for the 1930s depression, what we are going through now is the same as then except with a Welfare State to mop up those who fall by the wayside.
So George (dead) and King's only get-out card is to admit that they had no power over interest rates anyway, but that would break the banker's omerta, wouldn't it?
Yep BoE remains effectively a department of the Treasury. It is democratic travesty that they obscure the reality of this arrangement and fail to come with anything more imaginative than QE in our current mess.
QP, the BoE is not "effectively" a department of HMT, it "is" a department of HMT, always was, and HMT was always a government department (and always was, obviously). It is staggering how many people refuse to accept this, and hence why QE is merely a paper shuffling exercise between two sub-departments of one single department.
"QP, the BoE is not "effectively" a department of HMT, it "is" a department of HMT, always was"
Once upon a time, the BoE was a private company. From Wikipedia: "The Bank was privately owned and operated from its foundation in 1694. It was subordinated to the Treasury after 1931 in making policy and was nationalised in 1946."
B, a little knowledge is a dangerous thing. The BoE was originally set up with the express purpose of making it easier for the UK government to finance the army/Navy, to set up the Empire etc. It has always had a quite special role and was never an ordinary private commercial bank.
King really is the spectacular numpty. Every time I see his smug complacent face I just want to punch it. For Chrisssake Kingy, some of us were yelling at you about this in 2002/2003. Unlike you we have a 'market function' and we could see that it was all going to go horribly wrong. Wanker.
The B of E was alos given the monopoly of making money for the London, and that was later extended to the whole of the UK. I had a little spat about that recently with Redwood on his blog. He said that the state monopoly of money was a Good Thing. I pointed out to him that since it has been, Sterling has lost value quicker than a hooker can drop her knickers in a car park.
We know from Hansard that George told MPs about stoking the boom in March 2007 though. So even if he hadn't told Merv in 2003 (and why would his deputy not have known anyway when the decisions were made) Merv should have picked up on it when MPs did.
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