New Policy 'toolkit' To Tame Booms

[interestrateripoff]

http://www.telegraph.co.uk/finance/economics/8148870/New-policy-toolkit-to-tame-booms.html

Monetary policy can not tame the wild credit booms that tip economies into recession, warns Andrew Haldane, the Bank of England's executive director of financial stability.

Central bankers have been using the wrong tools for more than half a century and need to design a new policy kit to combat banks' herd-like instincts to overlend and ignore risk, according to an exhaustive study by Mr Haldane.

Instead, regulators require macro-prudential policies that "target bank balance sheets directly" – making it more expensive to lend during booms and less expensive during busts.

Financial regulation is undergoing its most radical transformation since the Second World War.

Most countries are in the process of developing a macro-prudential framework, such as the Financial Policy Committee at the Bank, but Mr Haldane's research, conducted with his colleagues David Aikman and Benjamin Nelson and presented yesterday to Columbia University, is the first detailed study into how existing policy tools have failed.

Citing the boom of 2000-2007, when UK bank balance sheets trebled, Mr Haldane said raising interest rates to rein in credit growth would have destabilised the wider economy.

"Monetary policy may be an inefficient tool for calming the credit cycle, if at the same time it is to moderate the business cycle," he said.

The research also found that "among Anglo-Saxon countries, such as the US, UK and Australia, closer to 75pc of crisis years occurred following a credit boom". He said: "This is relatively concrete evidence of the credit cycle having real and damaging effects on output."

Banks' herd-like behaviour also exacerbates booms, as lenders are reluctant to move against the pack for the reputational damage it might do. "[it is] not so much of 'keeping up with the Joneses' as 'keeping up with the Goldmans'," Mr Haldane said. "It is better for your reputation to fail conventionally than to succeed unconventionally."

To soften the impact of credit cycles on the economy, Mr Haldane argued that macro-prudential tools "need to increase the long-term cost of credit extension to banks during booms and, as importantly, to lower these costs during busts".

What we need is a real radical idea how about central bankers use some fooking common sense and open their fookin eyes to see what's happening.

How about not deliberately creating a consumer boom to avoid a recession, how many of these crisis's where as a direct result of the actions of the central bank pouring petrol on to the overheating fire.

Edited November 21, 2010 by interestrateripoff

[OnlyMe]

The feckless, reckless gobshites got exatcly what they wanted - they pushed rates lower to create this and other bubbles.

[@contradevian]

The feckless, reckless gobshites got exatcly what they wanted - they pushed rates lower to create this and other bubbles.

Andrew Haldane, Head Of Stable Doors at the BoE

[Mikhail Liebenstein]

So if we get this new framework, will we be able to say (wait for it)

"No more boom and bust" "an end to boom and bust"

[billybong]

Mr Haldane said. "It is better for your reputation to fail conventionally than to succeed unconventionally."

Just more dodginess and twisting.

What he means is that they know they'll be bailed out every time by taxpayers money so any old policy will work out no matter how short lived and crazy.

Edited November 21, 2010 by billybong

[jammo]

As if the BoE want to tame booms. Their job is to fuel booms, then spend the entirety of the bust printing money for their chums in the city of London to hoover up so they can all feel special.

[Blod]

If the BoE fails to regulate the mortgage market after their review then we’ll see a crash in property that’ll be of such proportions it’ll be forever etched in the nations psyche.

I can imagine Ray Boulger urging that we have to isolate our economy from the world to protect the residual values left in the house prices, god he’s a muppet.

[Dorkins]

regulators require macro-prudential policies that "target bank balance sheets directly" – making it more expensive to lend during booms and less expensive during busts.

Yes pal, it's called raising interest rates in 1998 when HPI hit double figures instead of allowing a multitrillion pound bubble to inflate which is going to bankrupt the country.

The tool was there and the Bank chose not to use it.