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Can Bank Of England Prevent Next Crash?

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http://www.bbc.co.uk/news/business-13750025

The creation of the Financial Policy Committee, which has its first meeting on Thursday, represents arguably the most important change to the way the British economy is managed since the Bank of England was given control of interest rates in 1997.

It will be chaired by the Governor of the Bank of England, soon-to-be-knighted Mervyn King, and its members will include his deputies, other Bank of England executives, regulators and some external experts.

What is its task? To spot where banks and other financial institutions are collectively taking excessive risks - and nip such recklessness in the bud before it causes a devastating crash of the sort we saw in 2007-8.

By the end of 2012, the Financial Policy Committee expects to be endowed by Parliament with sweeping powers, to force banks to slow down the pace of lending, if such lending were seen to be leading to a bubble in the housing market, for example.

So, as the deputy governor of the Bank of England, Paul Tucker, told me today, one of the Financial Policy Committee's tasks will be to periodically make itself unpopular, by making it harder for any of us to obtain a mortgage.

:lol::lol::lol:

Hilarious like the BoE is actually going to cut the boom dead, the City won't allow it.

At least it will have a knight heading it, we are a lucky lucky country.

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Take away the ability of the banks to pull credit out of their backsides and the problem solves itself.

A group of ex or soon to be bankers are just another cosmetic on an increasingly ugly face.

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Saw a feature on Channel 4 news about this..

http://www.channel4.com/news/can-the-bank-of-england-tame-credit-boom-and-bust

Monday 13 June 2011

Faisal Islam

Economics Editor

Exclusive: A key Bank of England official tells Faisal Islam the bank would have "pressed the brakes" in 2004 before the credit crunch began.

Credit-addled Britain and its debt-soaked economy means that the Bank of England (BoE) will this week become, in my opinion, the most powerful entity in the land. Threadneedle Street will certainly assume more power than most Government departments at the inauguration of its Financial Policy Committee.

More than that, in an exclusive TV interview with Channel 4 News Economics Editor Faisal Islam, the Bank of England's Andrew Haldane said from this week will be now accountable to "households and companies up and down the country".

He said that:

"We are setting financial policy not as a means of protecting the banks but as a means of protecting the economy from the misfortunes of the banks and the wider financial system.

"Historically, too often we thought about our stakeholders as being people within a square mile of where we both sit. That with the advent of the Financial Policy Committee will change."

BLOG: When would you have stopped the boom? Key Bank of England official 2004/5

After years where we have become used to the BoE's Monetary Policy Committee (MPC) setting monthly base interest rates, on Thursday its quarterly Financial Policy Committee (FPC) meets for the first time.

MPC vs FPC

Andrew Haldane, a key Bank of England official, occasional scourge of the banks told Channel 4 News: "The way to think about this new FPC is as the twin sister of the MPC with the MPC seeking to safeguard money and the FPC seeking to safeguard credit. That does give the Bank a degree of influence, a degree of power over the financial system and the economy. I'm not sure whether it's joystick control.

"Certainly early on we won't know for sure quite how our actions will affect credit supply. But it's certainly the aim. The aim is that someone needs to have their hands on the controls. It's the absence of that someone, it's the absence of a driver that led to the boom and bust that caused this crisis".

Turning off the music

The boss of the world's biggest bank a year before its credit-crunch collapse once famously said: "As l long as the music is playing, you've got to get up and dance. We're still dancing."

Certainly early on we won't know for sure quite how our actions will affect credit supply. But it's certainly the aim.

Andrew Haldane, Bank of England

That music had blared since the 1980s when controls on credit were scrapped. A tidal wave of credit from the City went into houses, skyscrapers, holidays - all on the never never.

So this week Britain regains the powers to take the punchbowl away from the party, a committee that can turn off the music.

Andrew Haldane told Channel 4 News: "I think this is a pretty important ideological shift - as well as an important practical policy shift.

"You're quite right that from the early Seventies onwards we used monetary policy to control the economy but we largely left to its own devices the fortunes of the financial system, the booms and the busts, the feast and the famines.

"That has now changed with the advent of the Financial Policy Committee in this country".

Asian model

In practice this means the FPC will have the ability to instigate a whole range of interfering policies. I asked one of Britain's top bankers, the Chief executive of Standard Chartered, Peter Sands, how he deals with these types of policies in his extensive lending in Asia:

"We can learn a lot from Asian countries. Asian countries did not suffer the same boom and bust that western countries did. Take Hong Kong - as a bank we cannot lend mortgages of greater than 70 per cent loan to value, so we're very unlikely to get a situation of negative equity. It puts a constraint on the amount of borrowing in the economy."

The Bank seems a little wary of setting off the political landmine of interfering with Britons' inalienable right to mortgage finance to purchase their castles and studio flats.

"This isn't a fifties sixties style quantitative restrictions on credit. This isn't hire purchase controls and mortgage queues. What it is about is a touch on the tiller of credit when things are either too racy or when they've slowed down too fast," says Haldane.

But that power is there, and was exercised in free market havens like Hong Kong as recently as last week. Haldane continues:

"Importantly people focus on the punchbowl removal part of this, the slowing down of the party but as important a dimension is - to stretch the metaphor - bringing the punchbowl back into the room when the party's going a bit flat.

"So right now it's not as if risk taking is tearing away, it's not as if credit is coursing through the arteries of the economy and in that situation it's part of the FPCs role to turn up the music to turn up the volume and to cause credit to expand somewhat, risk taking to expand somewhat," he told me.

Watering down the punch?

Peter Sands thinks that the Bank of England should go for some of the more direct macroprudential policies seen abroad.

"These will be unpopular decisions and they will be inherently political decisions.

"When you want to take the punchbowl away from the party you want to take it away with a flourish and turn the music down, you want people to know the party is over, and there's a risk we go too much to technical solutions that are the equivalent of watering down the punch," he told Channel 4 News.

Sands believes that now, with memories of the crisis still fresh, is the moment for the Bank to make the case for the democratic mandate for what will be unpopular decisions. At the Bank they describe the FPC as a fundamental break with the past and a change in Threadneedle Street's loyalties.

Suggesting that Britain needs to be protected from its banks is strong stuff. So the obvious question is when would he have stepped in, in the past?

When you want to take the punchbowl away from the party you want to take it away with a flourish and turn the music down.

Peter Sands, Standard Chartered

"It's when that risk taking becomes generalised and too toppy that the FPC is meant to step in. If I think back to 2004/2005 that was the point where bank's balance sheets were spinning - if not out of control then much faster than was the economy, then hopefully with hindsight at that point we'd have raised a flag and perhaps even backed up the raising of the flag with a pressing of the brake," answered Haldane.

Would this have stopped the credit crisis?

Well that is remarkable. If the FPC had a time machine, it would have "pressed a brake" in 2004/5, and not just on consumer credit.

I think [these powers] would have made a huge difference.

Peter Sands

"One of the biggest checks in principle we might have wanted to impose back in 2005 would have been on lending between banks rather than to households and companies," he added.

The banker, Mr Sands, has no illusions. "I think [these powers] would have made a huge difference, whether they would have completely prevented [the credit crisis] I don't know, but they certainly would have made it far less damaging than it was".

But just imagine what that means in practice. The Bank of England stepping in as the Housing boom took off before the 2005 election, where the feel-good of rising house prices drove Tony Blair to a third election victory. Is this right?

Does the Bank's team of internal and external technocrats have the democratic legitimacy to deal with this?

It seems like an experiment, but one with little downside. The politics of this, though, could get messy. As Haldane told me: "This is new, this will be new, so the framework itself is largely untried, untested certainly in this country". It most certainly will be tested in the years to come.

More on this story

Special Report: from crash to cuts

Read Faisal Islam's blog on Economics

Edited by exiges

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"This isn't a fifties sixties style quantitative restrictions on credit. This isn't hire purchase controls and mortgage queues. What it is about is a touch on the tiller of credit when things are either too racy or when they've slowed down too fast," says Haldane.

But that power is there, and was exercised in free market havens like Hong Kong as recently as last week. Haldane continues:

"Importantly people focus on the punchbowl removal part of this, the slowing down of the party but as important a dimension is - to stretch the metaphor - bringing the punchbowl back into the room when the party's going a bit flat.

"So right now it's not as if risk taking is tearing away, it's not as if credit is coursing through the arteries of the economy and in that situation it's part of the FPCs role to turn up the music to turn up the volume and to cause credit to expand somewhat, risk taking to expand somewhat," he told me.

Printy, printy.

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"households and companies up and down the country"

********, ********, ********. Where's the accountability in regards total refusal to meet the inflation target - whilst fully prepared to meet it during the bubble by lowering rates in the midst of disgraceful debt binging by the public and the banks.

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That music had blared since the 1980s when controls on credit were scrapped.

"So right now it's not as if risk taking is tearing away, it's not as if credit is coursing through the arteries of the economy and in that situation it's part of the FPCs role to turn up the music to turn up the volume and to cause credit to expand somewhat, risk taking to expand somewhat," he told me.

Oops, 50squiff beat me to it.

So, the role of the FPC is in fact to find ways to pump debt back into the system, contrary to the sales pitch.

Good to see the Thatcher legislation underpinning the problem to be clearly identified too. The Big Bang, Building Socs act, Competition/Credit Control etc etc seem to have been airbrushed out of history by the usual suspects. If they don't know why the 'system' failed they can't understand how to sort it out. This ridiculous obsession with Brown, deluded idiot though he was, obscures that understanding. This was coming for a long long time.

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This whole operation is about attempting to restore faith in our b*ggered banking system, so that foreign and national creditors regain their appetite for UK debt. Only then will we be able to crank open the spigots full bore and resume our borrowing binge. In short, this is about creating the next bubble, not stopping it.

And on a personal note, I believe with my post count, years on the board and track record of expletive self-censorship, that this would be an opportune moment to allow me to write, without fear of censorship, that I believe this FPC to be the biggest pile of ****** I've seen yet.

Edited by Sledgehead

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Well that is remarkable. If the FPC had a time machine, it would have "pressed a brake" in 2004/5, and not just on consumer credit.

I think [these powers] would have made a huge difference.

Peter Sands

"One of the biggest checks in principle we might have wanted to impose back in 2005 would have been on lending between banks rather than to households and companies," he added.

The banker, Mr Sands, has no illusions. "I think [these powers] would have made a huge difference, whether they would have completely prevented [the credit crisis] I don't know, but they certainly would have made it far less damaging than it was".

But just imagine what that means in practice. The Bank of England stepping in as the Housing boom took off before the 2005 election, where the feel-good of rising house prices drove Tony Blair to a third election victory. Is this right?

B******CKs

He thinks anybody would turn the taps off in the face of screams from the city wide-boys and media mouth pieces? No fudging likely.

WHEN the next credit boom comes, I dare anyone to bet on them turning the taps off. I dare anyone to bet on them NOT bailing out the banks again despite all the rhetoric of them getting rid of too big to fail.

No confidence. None. They were unprepared Charlatans last time.. and they will be the same next time.

[/rant] <_<

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The creation of the Financial Policy Committee, which has its first meeting on Thursday, represents arguably the most important change to the way the British economy is managed since the Bank of England was given control of interest rates in 1997.

It will be chaired by the Governor of the Bank of England, soon-to-be-knighted Mervyn King, and its members will include his deputies, other Bank of England executives, regulators and some external experts.

...

FPC, BoE, soon to be Sir M K..........the incredible Sir Merv and his cronies.

"arguably the most important change to the way the British economy is managed since the Bank of England was given control of interest rates in 1997."

Yeah, arguably... :lol:

They expect people to believe that stuff, oh for goodness sake :lol::lol::lol::lol::lol: ROTFL.

Edited by billybong

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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