Bank of England Allowed ‘Crazy Borrowing’

“We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy… and individual supervision and regulation of individual banks. 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.”

-Sir John Gieve


This appears to be a theme:

The Bank of England was warned that “crazy borrowing” was taking place during the boom years — but did nothing about it. Partly due to politicas, partly due to their failure to understand the severity of the problem. They did not understand how much the banks had abdicated lending standards, and how that led to a financial crisis.

Sir John Gieve said the Bank’s policy-makers were well aware that dramatic rises in the price of houses and other assets were unsustainable, but still underestimated the danger this posed to the long-term health of the economy.

In a television interview Sir John, who sits on the interest rate-setting Monetary Policy Committee, said that rate changes were a “blunt instrument” and admitted that the Bank’s power to alter them was not enough to control the economy.

Sir John, who is charged with ensuring financial stability and was heavily criticised last year by the Treasury Select Committee for apparently failing to control the Northern Rock crisis, admitted that taxpayers may not get all their money back from the bail-out of the bank and other institutions.

He said: “There are some books – Northern Rock, Bradford & Bingley – which the taxpayer’s now holding, which clearly have a level of defaults in them, [I’m] not quite sure how that will balance out against the residual of the capital.

“As for the more mainstream banks, yes I think they’ve got a commercial future and I’m sure that in time they will … revive and start building and growing as commercial entities again.”

Funny, there is no Fannie Mae, Freddie Mac, or CRA in the UK. However can we explain mtheir boom, bust and credit collapse?


Bank of England failed to act on ‘crazy borrowing’, deputy admits
Jon Swaine
Telegraph, 11:16AM GMT 22 Dec 2008

What's been said:

Discussions found on the web:

Posted Under