3rd May 2012
Yesterday evening the Governor of the Bank of England gave a lecture for BBC Radio’s The Today Programme. Of course there is already an obvious weakness here as it should be Mervin King receiving a lecture for his (lack of) performance! This has been followed up by an interview on The Today Programme this morning. Governor King has repeated his usual trick of discussing matters in a broad sweep in an attempt to make himself look intelligent, magisterial and dignified. He invariably avoids detail as it is often inconvenient. You know the sort of thing, inflation which is invariably above target becomes on its way down to it. Even the casual observer has started to spot that it has supposedly been on its way down to its official target for quite some time now!
Judging Mervyn King with his own words
If we go back in Doctor Who’s TARDIS to January 2005 then we see Mervyn King defining his job thus:
'The trick is to see the wood for the trees. If there is a major crisis, there’ll be a wood'
On his own count and criteria therefore he has failed. We have had the major crisis but Mervyn King did not see “the wood” as he ineffectually strolled around the trees. And we can be sure that Mervyn King has not changed his criteria because he has repeated them today:
"That means focusing on the wood not the trees"
The trouble of course is that he has just reminded everyone that he failed to do so as the biggest financial crisis of his lifetime hit. So he failed his own test.
What did he actually say?
Again we saw a familiar tactic which I note someone has already called the mea without the culpa! This is for a sort of hang-wringing apology that the more times you read it the more it looks like a non-apology. I have emphasised his attempted get-out clause.
"With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this."
My response to this is to consider the basic functions of a central bank. They are to defend the currency and protect and support the banking system. If we put aside for one moment Mervyn King’s active debasement of the currency we see that he failed in his role with regards to the banking system. If he was a football manager he would have been sacked and if his boss was Roman Abramovich this would have happened some time ago!
The Pre Credit Crunch Era
If we look back to the middle of the last decade we can see that there were warning signs that were flashing amber. Let me give you two main ones. UK house prices ( and of course ones in Ireland, Spain the US and Australia) were in the middle of an extraordinary rise or boom. Also the size of UK bank balance sheets was undertaking an extraordinary surge from being roughly the size of the UK economy to a new animal many times larger than it. What could possibly go wrong?
And yet in a rather desperate attempt at misrepresentation Mervyn King tells us this:
"Whether in this country, the United States or Europe, there was no unsustainable boom like that seen in the 1980s; this was a bust without a boom."
Really? Odd then that he talks of something several times that looks rather like a boom to me.
"The most obvious symptom was that banks were lending too much…by the end of 2006, some banks had borrowed as much as £50 for every pound provided by their own shareholders….this cheap funding fuelled lending. Banks got bigger."
Can anybody see signs of a boom there? And in a rather inconvenient truth if there was no boom the increase in bank lending looks even more dangerous and should have been responded to by the relevant central bank. At this point may guilty roads are pointing not at Rome but at Mervyn King.
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