Tuesday, Oct 20, 2009

Is Mervyn King singing from George Soros's song book?

Telegraph: Mervyn King: bank bail-outs created 'biggest moral hazard in history'

Mervyn King tonight attacked big banking, indicating that high street banks should be separated from their risky investment banking wings and calling for a reconsideration of the whole financial system's structure warning that the support handed out by the Government had "created possibly the biggest moral hazard in history".

Posted by enuii @ 10:26 PM (1124 views)
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8 Comments

1. Cotton Eyed Joe said...

At last someone has had the balls to say the right thing. Maybe King has been waiting for some stability before saying what he really feels. Page 1 of every economics book mentions Moral Hazard, something Brown et al seem to know nothing about. After the Great Depression the Glass Steagall Act (the separation of Commercial and Investment Banking activities) was implemented and resulted in one of the biggest stable growth periods humanity has ever seen. Fast forward to 1998 and with Londons increasing light touch regulation America decided the only way to compete was to repeal that Act. Who was the leader of that light touch Brigade....Brown (and Im a disgruntled Labour voter!). Rather than save the world, he initiated its downfall. Funny how when I did my MSc in International Finance in 2005 quite a few of our courses talked about the derivatives time bomb, and also how it was unexplainable about how return on capital had increased without increasing risk. Risk must have increased, exponentially. But who wants to listen to academics.merton and scholes proved they couldnt make money in the LTCM debacle so lets listen to the guys who canmake money. Mistake! When it comes down to it, economics is about human nature and to not understand that if you give someone free money to gamble with that theyll do just that is infantile in its simplicity. Well done Mervyn, maybe at last the UK Glass steagall Act (the thing Ive been swearing to my girlfriend for the last 2 years about, and my ex girlfriend for 3 years before that) is finally going to come true and will resolve some of the inequities of this twisted new world.

Tuesday, October 20, 2009 10:49PM Report Comment
 

2. paul said...

So why didn't he say this before embarking on his money printing escapade.

Shit. Seriously.

Mervyn King and the Bank of England have acted like a walking moral hazard. I even have an email to Charlie Bean from eight months ago when he was fielding questions about QE where I stated "Aren't you quelling the effects of one moral hazard by simply creating another?"

Needless to say, my question was unanswered.

Tuesday, October 20, 2009 11:08PM Report Comment
 

3. Lucas said...

At least he's saying to do the right thing now. With bank's giving out massive bonuses nothing has changed and now will probably act even more recklessly as long as they think governments will bail them out.

Tuesday, October 20, 2009 11:32PM Report Comment
 

4. fallingbuzzard said...

Its a sad outcome when his only means of bargaining with the government is through public speaking. He always said that the day to day banking operations were best separated from investment banking / casino operations. I think he's unwilling to extend QE with the current arrangements whereby the money that does get out of the banks ends up feeding the equity markets and adds no value in the real economy. This is what he's talking about. The primary objective of QE was to get business lending going and in this its been a complete failure in that even if it has slushed a little money into consumer lending. The management of the economy has been outsourced by the Government (since Brown did it), everything other than the public spending bit which they have kept in house. The Bank has to act based on one narrow measure, CPI. Even issuing government debt is being run by a number of banks, a few of which are now not so keen since they're underwriting the whole thing and auctions are getting lower cover ratios on more attractive issues and eventually look deemed to fail.

Tuesday, October 20, 2009 11:42PM Report Comment
 

5. vacuouspolitician said...

Oh crumbs Penfold...

Wednesday, October 21, 2009 12:53AM Report Comment
 

6. cat and canary said...

...exactly Paul @1, why the sudden resurgence of Mervin´s opinions? To me, the FSA and the BoE just want to keep their jobs, nothing more.

Its the banks/governments actions not words that count. Their words say one thing but their actions another...

the bank of england and the government are responsible for...

1. making the nation angry
2. making bankers believe that state-funding is a right and that they can get away with it (based upon the drivel i keep reading from bankers on newspaper comments sections)
3. blowing what little money this nation had on propping up asset and commodity prices

and what improvements in regulation or stability has the world gained...

nothing

not one iota.

The banking system comprises of even bigger, potentially unstable banks than it did before.

its high time british people got off their a**** are started protesting

Wednesday, October 21, 2009 07:49AM Report Comment
 

7. paul said...

@fallingbuzzard

The problem is that the Bank of England has categorically not been acting on rising CPI. Haven't you noticed?

The MPC consistently cut interest rates regardless of what inflation was doing whenever house price inflation dipped below 9%:



It was this pollyannaish attitude towards inflation that created the credit boom and bust.

All on Mervyn King's watch.

Wednesday, October 21, 2009 08:10AM Report Comment
 

8. vacuouspolitician said...

"Hindsight explains the injury that foresight would have prevented"

Wednesday, October 21, 2009 11:42AM Report Comment
 

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