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Robert:

'Re-stocked with financial technocrats'. Is this really an improvement? Are these the same technocrats that have been sitting in the banks gambling wildly with other peoples' money? God help us if they are.

I'm not waiting for the FSA to put a brake on silly lending. Instead, I've moved all my savings into an account with a large building society which has been practising conservative lending for years. See how the banks like that.

Banks are only your friend when they need you. In a few years time when they have recapitalised they'll drop their so-called competitive savings rates and hope you won't notice.

Best of luck to Mervyn King. He's the only one to have shown any integrity in all of this. I took note of his speech -- the one about the two strong economic winds -- and fixed my utility bills, reduced my equity exposure and invested in indexed-linked gilts. All we need from you now is for you to put your inflation fighting hat back on and stop the transfer of wealth from the cautious saver to the reckless borrower.

Well done! Robert (Preston) your article about the changes being made by the present government to give the Bank of England legal and formal responsibility for finacial stability was quick off the mark.

Although it is disappointing to see that someone in your position couldn't resist some cheap point scoring by saying that this was was George Osborne's idea. It was also disingenuous of you to say that Gordon Brown would not have sanctioned these changes, to give Mevyn King and his merry men these additional powers and responsibilities if he had still been the Chancellor. In that case it seems he is being dammed for doing it and would have been dammed if he hadn't.

Had these changes been done sooner then I have no doubt that you and other city folk as well as the opposition party would have complained that he was trying to restrict the city's ability to operate as the city smart arses know best and would like to carry on doing which is, undisciplined and reckless. Also you would have said that it was just another example that Gordon Brown is some sort of control freak and he should let the city folk carry on doing what they do best. Making money for themselves at everyone else's expence.

Unlike you I have never met or spoken to Gordon Brown (no he is not a familly member) but I do believe he posseses the qualities we expect and need from someone in high office. Honesty and intgrity matched by intelligence and strong principles in the case of what is right and what is wrong. We need more people with those qualities in government. The present prime minister might lack the brilliant acting ability and eloquence of his predecessor Tony Blair but he is a much better prime minister than the would be David (style over substance) Cameron will ever be.

As the city Editor for the ´óÏó´«Ã½ carry on reporting what goes on in the city but with less bias on political prefernces. Also give Gordon Brown some praise for doing something which you and others are in favour of but you say goes against his grain.

Finally I am delighted that Mervyn King is now being given the recognition and praise that I always felt he deserved (I'm a fan of Merv) and I genuinely believe he will go someway to tightening up some of the sharp practices tha go on in the city. I can already hear the howls of anguish comming form there.

Mervyn is presiding over a huge financial industry that needs to make large amounts of money out the rest of us in order to cover its costs and pay its wages and bonuses and its shareholders.

I too wish him the best of luck.
I for one would not like his job!

Perhaps I am being naive thinking that in order for the banking industry to make money real industry has to make money.
It will be most interesting to see how a closely regulated banking regime can make money out of us down trodden out of pocket workers.

What is worrying is that all this cannot come to pass for atleast a year ...it will take that long to get all this through Parliament. By then the full shock and horror of this evolving world financial crisis will be upon us (yes... there's so much more to come).

Furthermore, when this all comes to pass, every future government will effectively have carte blanche to take credit(sic) for all that is good in the economy while pointing the finger at the BoE when things go bad. And in a way, isn't giving the BoE responsibilty for ''intrest rates and economic stability'' abdicating one of the main tenets of government?

As a consequence, what will be the point of being ''Chancellor of the Exchequer''?

And as a consequence wont the the very real power that that position currently affords have passed into unelected hands?

The FSA has lost staff the Bank has lost staff but so far the other member of the Tripartite mechanism has remained in tact.

When is the Permanent Secretary (I will not name him here - but he knows who he is!) at the Treasury going to find his scapegoat? Or are they immune? The Treasury do still have a Financial Stability function - or has this been delegated to the Bank, or not? Is it still the Treasury that is and will be in charge?

I doubt that Mr King is very new. Without reform at the top in the objectives and management and above all the underlying macroeconomic economic management I do not see that much has changed. (After all it is the Treasury that gave us its own accounting nonsenses of the PPP and PFI.)

So long as Mr. King can respond to questions about the direction of policy that his prime duty is to manager inflation and even in a more constrained way to manage to the cpi index (a very flawed index.) then nothing has changed.

If however Mr king manages for financial stability and presumable that means taking more cognizance of the money supply and how it is circulating then there is a sever risk that policy will harden and the situation will be made worse in the short term in order to rebalanced the financial system and correct the absurd excesses of the last decade.

I have to say I disagree with most of the previous comments who are in favour of Mervyn King.

In my opinion Mervyn King is part of the problem not the solution.

When money markets froze up "the greatest financial shock since the great depression" he did nothing other than give anyone who would listen a lecture on moral hazard. He just did not get it, people tried to explain it to him and he still wouldn't listen.

There still is work to be done to combat the credit crunch. The LIBOR rate is still too high and action is needed to do what is neccesary to reconnect this to the BOE base rate but unfortunately action doesn't seem to be Mervyn's strong point.

Hi Robert

Great news to hear that Mervyn King will be in charge of sorting out those City Bankers. I'm a great fan of Merv. Given the sterling job he's done so far to steer the UK economy through some very choppy waters recently, he is the very epitome of that Rudyard Kipling saying: "if you can keep your head whilst all around you are losing theirs... yours is the Earth and eveything that's in it".

Also, I'm not sure that Merv needs to go on a charm-offensive in the City. If anything, those damn bankers need their heads bashing together - repeatedly and hard. I am still spitting feathers at how their irresponsible and cavalier behaviour has caused this credit crunch. Yes, so the crunch may have originated in the USA, but those City Bankers are not exactly blame-free!

Go, Mervyn!

Chris

Hmmmm

A re organisation ?

But does that address the concerns of lack of trust in the Financial markets ?

The Ratings Agencies are the ones who need to be held to Account for the Toxic Debt that has been sold around.

Financial Technocrats

Are these the same people who created SIVs and CDOs and all those other lethal over complicated financial constructs which have been at the heart of the problem ?

Unfortunately the only way to reduce Libor is to lend money to the money Market.

The exchange Mortgage assets at a loss schemes do not actually do that.

By lending directly to the Money Market (as USA s Fed did, you can reduce Interest Rates more effectively).

Of course it all depends on how you see the problem.

But its no good telling people to cut rates when all those with money are asking for higher returns.

Robert, surely you meant "voltes face"? There can be many turns, but only one face!

The Government wants the Public Sector to exercise Wage restraint.

Okay in the interests of stability they may feel that is a good idea.

Personally I feel cost of living rises should be given.

But if they wish to stick to this policy would it not be a good idea for them to lead by example?

For them to show the People of Britain that they are prepared to make sacrifices, that they are prepared to stand side by side with those they govern as equals rather than as Masters ?

To achieve this they should take a Pay cut.

Maybe 20%.

The Business minded MP's could view this as loss of performance related pay.

After all, Britain is not performing too well.

If they did this their position their image in the eyes of the British Public would dramatically improve, and may well gain them many Votes.

Such a show of public spirited Solidarity is probably beyond the capabilities of modern Polticians.

This is merely a 're-arranging the deckchairs' exercise. The government is paving the way to regain control of interest rates from the B of E. It is doing it by giving it a task it knows it cannot turn down and it knows it will fail at - maintaining UK economic stability. That will them be the excuse to wrest full control back, including interest rates.

We have reached a critical point.

Economically we need to raise interest rates to curb inflation, politically NuLabour needs to lower them to attempt to win the next election.

These are incompatavle diametrically opposed positions and only one can survive. If the BoE wins out, Brown will be out by 2010. If NuLab win out, the destruction of the UK will continue and it will very quickly become an EU vassel state.

#12 Red

Totally agree with the deckchair business.

But how can you tell the difference between NuLabour and OldTory? Same economic policy carried out with the same level of competence.

Lets face it - career politicians, who mostly have never done anything else led by (sorry 'advised by') the same bureaucrats (Civil Servants) perpetuate the same (flawed) policies.

The Bank still works for the Treasury. The same Treasury who have had the same policy agenda since Mrs. T. got rid of anybody who was 'not one of us'. Time for a purge. A one way ticket to a gulag for the policy wonks! (Perhaps we should just relocate the Treasury away from London - say the North East or Cornwall and let them experience the real World.)

We are a member state of the EU except without the advantage of a stable currency for trading with our partners like most of the rest - so the speculators can ruin us more easily and the pay of our workers can be devalued.

#13. There is no difference between Labour and Tory.

There hasn't been a genuine Labour government since just after world war 2. Like wise there hasn't been a genuine Tory government since before then. Since the 1950's all we've had is a mish-mash that has slowly got closer to the hallow'd centre ground, become a hybrid monster and increasingly irrelevant as they both attempt to be all things to all men, women, LGBT and anything and everything else you can think of.

#6 John - you're right, it's always the fish and never the shark that gets the bullet when things go wrong.

Whilst I applaud Merv for taking on staff who have actually worked in the markets recently, it's all bolting the door once the horse has bolted.
If you believe John Moulton, he had to explain to the BoE what a CDO was - after the markets had been dealing in them for 2 years - that is wholly unnacceptable for a team (FSA, Treasury + BoE) who are supposed to be running the 5th? largest economy in the world.

The real question is who really makes the crucial decisions? We all blame GB for setting up the Tri-Partite system, for selling off the Gold reserves, for relaxing regulation that allowed excessive credit to build up, but the reality is that he was just the man that delivered it to the public.

Where are the unnaccountable civil servants and advisors that failed in their task of giving good guidance to the government. You can tell from GB's budget speeches (and from every chancellor in the past) that they don't actually know what they are on about.
Maybe the next chancellor should come from a business / economic background. I would rather see Merv as the chancellor, he may be boring and steady, but then isn't that exactly what we need to see in our economy?

Perhaps it's time to make the chancellor's position more independent of government. I know that sounds a little crazy, but look how many times in the past we have had economic turmoil because the government followed a 'popularist line' with it's economic policy to impress the public, where the long term consequences were dire for the country - the ERM, the Tri-Partie system etc.

Even the 10p tax debacle will cost us in the future - whilst I saw many concessions on the 10p band, I didn't see the change to the 22% band reversed - so where will that money come from?

...it's just another government bright idea like 'money grows on trees' - or 'If I close my eyes tight all the problems will go away'.

Do these people have any fundamental grasp of Economics, or are they just a set of blaggers like the Apprentice candidates?

No doubt the impression we of the hoi polloi are supposed to gain from this is that a key part of the control of the economy is to be transferred away from the politicians into the hands of professionals at the Bank of England.

How close is this concept to what is actually about to happen? Not very, I'd suggest.

Ask yourselves this, on a scale of 1% to 100%:-

What chance do you think there is of someone such as Gordon Brown surrendering, voluntarily, the ability to manipulate the public purse to enhance the chances of his party being re-elected at a forthcoming General Election?

Or, alternatively,

How likely is it, do you think, that someone such as Gordon Brown will, unneccessarily, give a body outside his control the ability to wreck his chances of being Prime Minister after the next General Election?

Isn't this just the latest exercise in puff to try to persuade the public that Brown is not the Stalinist control freak that he actually is?

I blame it all on the credibility crunch which started somewhere in the banks, spread to our political elite and has now made all debate on economic policy within government and the BOE a joke.

Ah making the Chancellor a career post rather than an MP's post wouldn't change a thing.


You see the Chancellor would still be a Servant of the People via their Elected Government, ie the MP's

So the Chancellor would still take orders from a Political party.

It is an imperfect system.

Hopefully they will forego raising interest rates until they have found a method of restoring stability to Libor.

I say that because right now Libor is doing its own thing with little input from the Base rate.

Resolving the confidence issue in the Money markets should be top of the agenda.

Once that is accomplished then it would make sense to review the Base rate.

The Libor divergence is too serious to be ignored, no one can say the Base Rate is functioning as it should or as would be liked.

Hopefully Mervyn has a good plan.

Obviously GB would not lightly have given away the keys to the king-domain. So what is the likely political motive?

High inflation would help Generation X, with their high mortgage costs. It would help improve their expectations that there is a light at the end of the tunnel. They would burrow, with renewed vigour, and pay, pay, pay.

But high inflation would harm the boomers, as they move into pensionable age. Most will have received the triple whammy of a bogus pension regime and the coming house price and share market crashes. High inflation would not only destroy their expectations that the sunlit uplands are possible before death, it would also inflame their bitterness, in knowing that they were sold pups every step of the way.

The boomers and Generation X are all voters. One difference is the boomers are loud-mouthed and vociferous when crossed, whereas Generation X is more namby-pamby.

So my bet is that that policy-makers have to look after the interests of the boomers. After all, they will become a growing majority, with a life expectancy of more than twenty years. Grey battalions are dramatically increasing on the web, because they are articulate, opinionated, have the time to express themselves and the technology is simple. At no time in history has this sort of communication been possible. The pamphleteers like Alexander Pope were working in a more restrictive environment.

And if you have to have people with shrinking income on the street, better that they be able-bodied than geriatric.

So perhaps GB passed the ball not simply because he did not want to get crunched in the next tackle, but because there is a canny Scot lurking underneath that stalinesque exterior.

# 19

There is a very canny Scot lurking ... and his name is Alex Salmond.

Unfortunately for us English, we are presently stuck with 'Hen Broon'.

We English always get the political 'rejects' from other countries.

Serves us right for our political apathy!

Where does all this put us in relationship to
the EU and the other mechanism designed to "save Europe" the ECB ?

Robert,
I think this is the very first item of yours, written or broadcast, which does not have a negative slant and is likely to give people some hope for the future of our economy.
Your normal stuff, I believe, has not only reported the economic situation but has contributed to the worsening of it and the decline in national confidence amongst the people. I am therfore pleased to congratulate you on this apparent upturn, long may it continue on a positive line.

I don't think Robert does mean "voltes face", Rockwell, if we're going to be pedantic. The singular form should really be a hyphenated "volte-face", and the most authoritative opinion is that the plural is....exactly the same! Please don't ask me to explain the precise etymological reasons (I don't understand them), but I suppose it must lie in the word's roots in the Italian "voltafaccia" - 'volta' means, I think, a verbal 'he turns' rather than 'a turn'.

An alternative, but less authoritative opinion is that it should be "volte-faces" - presumably on the basis that since the combining happened in another language hundreds of years ago it is time to treat it as one word.

But nobody suggests "voltes faces", I'm afraid.

The Bank Of England was granted independence in 1997 and then initiated the biggest credit boom in history. By failing to use its financial tools especially reserve asset ratios the banks which it was supposed to control, went on a lending frenzy. Hence the mess. Now Mervyn King wants more power to put right the wrongs that he and Eddie George failed to govern in the first place.
What a joke.

Dear Robert,
good piece, but why do we have to have euphoria-crash, euphoria-crash?
Surely the Bank of England is supposed to stabilise all that.
Mervyn King and Eddie George etc are out of touch with normal people and reality.
Country estate to chauffered limo to office to computer to meetings to black-tie dinner at Guildhall to chauffer to Country estate.
Ordinary folk and their debt problems are just statistics to them. Impossible house prices etc, (merely statistics). Cowboy banks (merely statistics). 125% mortgages, (instant negative equity).
No wonder it all comes crashing down.
Merv and Eddie etc CANNOT BE THAT STUPID, can they?

Dear Robert,

The FBI are arresting fraudsters for the Sub Prime Fiasco, and i hear that the Fiancial services agency are looking at this in Britain.
"How come it takes so long for British Institutions to commit to action, these peole should be arrested along with their American counter parts."?

Hello there all you bloggers,
Good stuff much of the time...and Peston has it very much on the nail. Fact is what ever we say here is very good for the ego but will not change anything out there......they that have will act, those that have-not will observe and post bloggs ad infinitum, but it is really good fun and passes the time...go well all, the rest of the world suffers while you dally! See action at our site.

At 9:24pm on 23 Jun 2008, stevewo wrote:

"good piece, but why do we have to have euphoria-crash, euphoria-crash?"

The euphoria was Brown Treasury contructed by setting the Bank to target the CPI rather than a basket of financial assets.

It's like Brown demanding a hydro-electric plant just monitor the flow of water through the turbines to produce a target load of electricity and not to concern themselves about water management when there will be a massive flood of water over the top of the dam.
The Treasury should have been selling masses of T-Bonds to sop up this 'overflow' but as Osborne says "they didn't mend the roof when the sun was shining".
Well the dam (damn?) has burst and is crumbling and just at the moment only a letter has to be sent to the new supervisor.

If Britain was in the euro area, the Northern Rock bank run would not have occurred.

Not providing liquidity meant NR had to single itself out even though liquidity was provided to other banks later.

Proclaiming moral hazard just sharpened the u-turn when NR went looking and contributed to the panic.

Leaking the request for liquidity was unforgivable.

And not pushing hard for a proper deposit scheme even when claiming to know the existing one was inadequate.....it all adds up to blistering incompetence.

Still, though, it appears that Mervyn is the best on offer in the UK regulatory system.

Unlikely in any other country but there you go.

And at least in an openly tin-pot country I would get a premium for risking my shares being nicked.

Robert,

Will this lead to mergers?

And will this cause current and future rights issue to get shelved?

Recession is the least of your worries.


It is a distraction and is made for the estrangement of mankind.


Make local money to do local trade and save that which buys imports for imports.

Lose the fear: choose love.

robert,
could you ask mr king to put a little more detail into how a family with the main income earning the minimum wage of £5.52 per hour or even as much as £6.00 per hour is expected to live (and save MORE?) above the poverty level with an increase of 2.45%.

individuals in that situation could of cause switch to working nights to earn upwards of £8.00 per hour but that of cause would be an inflationary pay rise?
it could also result in responsible parents loosing track of where and what their children are doing because they have no choice but to work unfamiy friendly hours.