Tuesday, 23 December 2008

A new tool


There has been a lot of comment over John Gieve's comments to the BBC. The programme has not been broadcast yet, so let me confine myself to one point. Gieve apparently says
Maybe we need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand... I think we need to complement interest rates, which are a blunt instrument - you set one interest rate for the whole economy - with something which is more financial-sector specific."
I would suggest we have at least two such things already. One is capital requirements. The other is monetary policy, specifically the implementation of policy via the money supply, which collateral qualifies at the window and the exact rules concerning bank reserve balances.

Update. I have now seen the program: it is mostly a Robert Peston hagiography, which I had hoped was beneath the BBC. Still I suppose if Jonathan Ross can't get fired for what he did it is too much to expect the Corporation not to laud Peston's rumour mongering.

The most interesting remark in the program for me came from John Varley. Asked if banks had taken too much risk before the Crunch, he said that they did. But he then went on to say that regulators and politicians `acquiesced in this extraordinary boom'. As a judgement that struck me as very much on the money.

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2 Comments:

Blogger Chris said...

Not that I'm a nasty person but I would be very happy if Robert Pestilence had 'catastrophic levels of debt and was 'staring at the precipice' of bankruptcy!

My problem with the BBC's reporting of the crisis is that they try and be very partisan; but unfortunately they seem to take both sides of the argument!

Take for example Mr Pestilence’s very ill informed view that all the people who were careful and had saved are been punished (I guess they all have enough saved to not have to work) and in the next seen he talks about how the banks will not have the capital to provide financing that the economy needs. Does he not realize he's contradicting himself?

I do take issue with the fact the savers are the hero's of the world, a saver and a borrower are two sides of the same coin you cannot have one with out the other and cannot have economic growth and rising standards of living without both. Plus it ignores the fact that people tend to be both throughout the cycle and its only when the music stops that borrowers are castigated.

Great Blog BTW

9:44 am  
Blogger David Murphy said...

Thank you for your kind remarks Chris.

I have to say I agree with you about Peston's hyperbole and ignorance. His confusion of solvency risk with liquidity risk is particularly troubling. But I suppose we get the journalists we deserve: if Peston keeps on getting awards, the BBC will keep on imposing him on us.

12:29 pm  

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