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Bank's Deputy Governor Calls For 'pre-emptive Action'

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Bank's deputy governor calls for 'pre-emptive action'

Policymakers will require new tools to fend off a repeat of the worst financial crisis since before the First World War, according to the Bank of England's deputy governor.

By Angela Monaghan

Published: 10:48PM BST 25 Aug 2009

Addressing fellow economists at a conference in Barcelona on Tuesday, Charles Bean said that "pre-emptive action" would be needed to cool future credit and asset price booms after a "tumultuous" two years for the global economy.

"We have seen the eruption of a systemic financial crisis of quite unusual intensity and international reach. The nearest precedent is probably the widespread closing of international capital markets on the eve of the First World War," he said.

Mr Bean said that one option for a new instrument included the introduction of pro-cyclical capital requirements for banks, where they would be required to build up extra capital during a credit and asset-price boom, which could be run down in the event of "a bust".

Another option would be to increase the risk weights attached to lending when calculating how much capital a bank requires. "The best approach is likely to involve a portfolio of instruments," Mr Bean said.

He added that the current crisis would come to be judged as one of the defining chapters in economic history. "In all probability, the Great Panic and the Great Contraction of 2008 will join the Great Depression of the 1930s and the Great Inflation of the 1970s as discipline-defining events," he said.

Mr Bean also gave warning that financial crises should be treated as a central feature of capitalist economies, and factored into economic models as such, rather than being treated and explained as "pathologies that happen at other times or in other places". He described the initial response to the Bank's quantitative easing programme as "moderately encouraging."

http://www.telegraph.co.uk/finance/newsbys...ive-action.html

And an extract from New York Times:

Bank Says Tools Needed to Stem Asset Prices

By REUTERS

Published: August 25, 2009

.......

But he noted that monetary policy is a "blunt weapon" for this purpose and "one really needs another instrument that has a stronger and more direct impact on credit growth and asset price inflation than monetary policy. That is what so-called macro-prudential regulation is supposed to achieve.".....

http://www.nytimes.com/reuters/2009/08/25/...-bean.html?_r=1

Edited by godless

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How do they plan on spotting asset bubbles? They completely missed the last and biggest one, so how will they do better next time? :rolleyes:

What they need to do is require full bank reserves and then just leave the monetary system alone! All they do is make things worse with their meddling! :angry:

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How do they plan on spotting asset bubbles? They completely missed the last and biggest one, so how will they do better next time? :rolleyes:

What they need to do is require full bank reserves and then just leave the monetary system alone! All they do is make things worse with their meddling! :angry:

+1

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How do they plan on spotting asset bubbles? They completely missed the last and biggest one, so how will they do better next time? :rolleyes:

And yet -- it was [and still is] the BIGGEST ELEPHANT in the ROOM..........

----------------------

HOUSE PRICES!!

----------------------

Driven up by MASSIVE, MASSIVE FRAUD

i.e. PREDATORY LENDING -- aka LIAR LOANS...

You've got to be deaf, dumb & blind not to have spotted it.......

Edited by eric pebble

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Easy fix[1]. Instead of targeting a meaningless price index, target M4 money supply with interest rates. So an inflationary bubble gets squeezed down by base rates responding to it.

[1] but of course, as the Irishman said when asked for directions, "I wouldn't be starting from here".

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How do they plan on spotting asset bubbles? They completely missed the last and biggest one, so how will they do better next time? :rolleyes:

What they need to do is require full bank reserves and then just leave the monetary system alone! All they do is make things worse with their meddling! :angry:

+1

They are completely missing the current one too which they are again giving fuel to, as HPI sustains or increases yet again. The banks' dependency on house prices is obvious, what a trap they have set themselves.

Easy fix[1]. Instead of targeting a meaningless price index, target M4 money supply with interest rates. So an inflationary bubble gets squeezed down by base rates responding to it.

[1] but of course, as the Irishman said when asked for directions, "I wouldn't be starting from here".

Indeed and :lol:.

In a society where the only industry is selling property to each other and spending on tat down the shops, they can't be sensible with interest rates, utter fools that they are. All the money they have wasted on this bail-out could have been invested into setting up British industry again - surely there must be something we can still make on a large scale that other countries can't undercut us on wages and margin?? Surely?? It's pathetic. Instead, bailouts to keep people buying rubbish that ends up in the charity shop or landfill a few months down the road. And they call that an economy. By comparison with many other countries, our business communities not in the retail sector are on the same scale as if it was a hobby this country has.

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How do they plan on spotting asset bubbles? They completely missed the last and biggest one, so how will they do better next time? :rolleyes:

It was spotted, it was more political expedient to ignore it as people had perceived wealth and would continue to vote for the current incumbents and keep them in power.

The public would see the govt taking away wealth if house prices had been curbed, people don't understand asset bubbles.

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Well call me a dumb engineer, but surely a good measure would be that banks have to have the finances to cover their losses. If they can't then their directors/board should do time.

Honestly it is so simple.

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And yet -- it was [and still is] the BIGGEST ELEPHANT in the ROOM..........

----------------------

HOUSE PRICES!!

----------------------

Driven up by MASSIVE, MASSIVE FRAUD

i.e. PREDATORY LENDING -- aka LIAR LOANS...

You've got to be deaf, dumb & blind not to have spotted it.......

Agreed.

But that deaf, dumb and blind kid sure played a mean pinball.

Da da da da da daaaa

Sorry couldn't resist! :lol:

The garbage is still in the system, from the the toxic debt based on ludicrously priced shelter to the incompetents who both encouraged it and turned a blind eye to the obvious problem of a debt fuelled boom.

There is no solution until the cancer is removed - however, the prognosis remains poor.

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Easy fix[1]. Instead of targeting a meaningless price index, target M4 money supply with interest rates. So an inflationary bubble gets squeezed down by base rates responding to it.

[1] but of course, as the Irishman said when asked for directions, "I wouldn't be starting from here".

If we had full reserve banking, there would be no need for base interest rates*, nor the need to target M4 - it would be the same as M0, which the government can control easily, by just leaving it alone**. Simple(s).

* The banks would set their own rates dependant on the demand for credit (supply/demand) - a self balancing mechanism.

** Inflate/deflate based on population fluctuations alone.

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Another HPC thread finds itself addressing the fundamental issue of monetary reform.

Good, so it should.

The talk of "the introduction of pro-cyclical capital requirements for banks" and of "monetary policy being a blunt instrument" by the PTB is to be welcomed.

Either they are already on the case and trying to effect (partial) money reform through QE plus the above or they are groping blindly, but nevertheless getting nearer to some sort of restriction of commercial expansion of the money supply.

Interesting times.

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Mr Bean said that one option for a new instrument included the introduction of pro-cyclical capital requirements for banks, where they would be required to build up extra capital during a credit and asset-price boom, which could be run down in the event of "a bust".

He said that :blink: ? So, he admits that banks do create bubbles yet the solution is not to avoid them, but create them yet again except that some cushion needed while they busy expropriating the working class?

Edit:

Mr Bean also gave warning that financial crises should be treated as a central feature of capitalist economies.

FFS.... is he an idiot or just pretending?

Edited by Meerkat

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He said that :blink: ? So, he admits that banks do create bubbles yet the solution is not to avoid them, but create them yet again except that some cushion needed while they busy expropriating the working class?

Edit:

FFS.... is he an idiot or just pretending?

Strange isn't it?

I think that current monetary policy is so embedded in the minds of the "experts" that they can't see beyond it. They have studied it, grappled with it and are familiar with the (now) complexities of it. Because of this, they keep thinking about how to fix the symptoms, rather than address the fundamental problems - perhaps their minds just haven't opened up yet to what is outside this failed system?

There seems to be so much bullsh*t in economics that people have lost sight of what it is all about. This "putting money to work" by lending it out numerous times is daft. This need to fuel consumption with borrowed money is daft. The very fact that finance is both above the economy and politics is daft (and harmful). The fact high house prices are considered good is daft. The whole system is nuts and on it's head; it makes no sense when you view it with fresh eyes.

In reality, the solution is so simple and glaringly obvious when you put aside what is currently in operation. I think people just reject as it seems too simple. In the end though, money is just a commodity like any other, but is easy to exchange, simple to store, and extremely portable. We have made something very complex, which need not be.

edit: typo

Edited by Traktion

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