We read that the two front running candidates for the very powerful new post of Governor of the Bank of England are Paul Tucker, Deputy Governor, and Lord Turner, retiring Chairman of the FSA.
The advert for the post made clear that was what the establishment wanted. The ad said “The successful candidate will have experience of working in, or with a central bank or similar institution; or will have worked at the most senior level in a major bank or other financial institution”.
As there are no similar institutions to Central banks, the ad might as well have said “Insiders only need apply”. It immediately put off talented people who do not wish to see their current jobs disrupted by a media storm over their application, and who saw their chances would be slim at best. Those few who have run large UK based commercial banks have been largely ruled out by the hurricane of criticism that have surrounded them and their institutions in recent months. No-one would want to apply to be Governor if they had been at or near the top of a leading bank through the Libor crisis. They would know that their application would bring that all out again on a large scale.
The new post will be uniquely powerful. The new Governor will have all the powers over money, interest rates and markets that the outgoing Governor has enjoyed, and most of the powers over financial institutions that the outgoing Chairman of the FSA has enjoyed. The Governor will be both chairman of the Monetary Policy Committee, and of the Financial Policy Committee, bringing together the task of setting interest rates and the job of controlling banks and near banks.
I have nothing personally against the two front runners. They are both clever and hard working men. I do have a great sense of apprehension that the UK establishment wishes to recruit an establishment figure at this time when the Central Bank has presided over disaster after disaster, and when on its own admission the FSA failed to regulate well. The leading members of the elite club have been the people who have made all the wrong calls. Why should they now be trusted to find the antidote to their collective mistakes?
Most of the financial establishment have:
1. Supported the ruinous experiment of the ERM. The Bank was in the forefront of pushing that, when a few of us explained patiently it would end unsustainably in inflation or recession. It ended in both!
2. Argued for UK membership of the Euro. They now agree that was wrong. Thank heavens we on the outside won that one, with the help of the British people.
3. Argued in 2005-7 that there was a new world where banks could borrow on a collosal scale safely, where external credit could work its magic without fear of non payment and collapse. They ignored the opposition parties and commentators who said there was excessive debt in the system.
4. Decided in 2007 to starve the markets of money, bringing down Northern Rock in an entirely predictable way. They refused to heed the warnings of those of us who said they had lurched to money that was far too tight, which would in turn undermine the whole banking system.
5. Decided in 2008 to take most of RBS into public ownership, and decided to back a takeover of HBOS by Lloyds, driving that too into the arms of the state. They ignored those few of us who said the overextended banks needed to be propped with short term lending against security, and made to slim down and realise assets there and then, to sort them out. Depositors should have been protected, and shareholders and bondholders made to pay for the losses.
6. Embarked on a massive QE programme, whilst at the same time squeezing banks further with high cash and capital demands. They declined to listen to critics who pointed out that they would not finance a private sector led recovery if the banks could not lend on the extra money created. They ignored those of us who also urged them to control inflation better, to allow real incomes to recover sooner.
Lord Turner in his latest speech now acknowledges the errors he made over the Euro and over permitting too much expansion of bank balance sheets prior to 2007. All the insider candidates should be asked to tell us what they have learned from a stunning list of long term fundamental errors in their approach to UK banking and monetary policy. Never before has so much financial damage been done to so many by so few.