Opinion

Chrystia Freeland

Banker steps into the role of superhero

By Chrystia Freeland
April 23, 2013

In other ages, we have called on shamans or saints in times of crisis when the usual remedies have not worked.

In the stagnant world economy today, we have designated central bankers as our superheroes, and we are relying on their magical monetary powers to restart global growth.

As the European Central Bank president, Mario Draghi, whom some have nicknamed Super Mario, said this month: “There was a time, not too long ago, when central banking was considered to be a rather boring and unexciting occupation.”

Not anymore. No one embodies this new glamour more than Mark Carney, the 48-year-old governor of the Bank of Canada, who has been tapped to lead the Bank of England, making him the first foreign governor in the institution’s 319-year history.

The bar for Carney could not be higher. A cartoon in the British papers made the point. It showed a Bethlehem inn with Joseph leading Mary on a donkey. The caption above the innkeeper’s head declares: “Unless you’re Mark Carney, you’ll have to make do with the stable.”

Carney’s star power was reflected in the packed house that turned out in Washington on Thursday to hear him at a Thomson Reuters Newsmaker interview. Carney, who told legislators he hoped his departure from Britain would be “less newsworthy” than his arrival, continued his effort to play down heroic expectations.

He deftly dodged questions about the British economy, saying it was not his job to comment on Britain yet. And he pointed out that fiscal policy — the domain of the elected authorities — and the private sector were the true engines of economic liftoff.

“If we want to talk about ultimate sources of growth, sustainable fiscal policy is a necessary condition. Sustainable growth comes from the private sector, not from the (International Monetary Fund), the Bank of Canada or anyone else,” he said.

He also took care to delineate the proper lines of authority between the central bank and the Ministry of Finance, and steadfastly declined repeated invitations to overstep them. “Central bankers take fiscal policy as given,” Carney said. “Treasuries take monetary policy as given. That’s the separation, and I’m not going to wade in positively, negatively, neutrally.”

Within those constraints, though, Carney offered a cautiously optimistic view of the world economy.

“The important development in our opinion over the course of the last 12 months or so, is that the quality of private-sector growth in the United States has picked up,” he said. “The U.S. is moving towards that class of advanced economies that have well-functioning financial systems where private credit is growing and where there is reasonably solid investment growth.”

That is good news for Canada, as Carney said, and it is also good news for the rest of the world.

Carney believes that a crucial element in restoring sustainable global growth is finishing the job of repairing global finance and the regulatory framework in which it operates. As the head of the Financial Stability Board, set up by the Group of 20 major economies in the aftermath of the financial crisis, he is one of the leaders in that effort.

A major focus is repairing the gap that was revealed in the emergency response to 2008 — the existence of “too big to fail” banks, whose owners and executives pocket profits in the good times but get a state bailout when things go awry. Over the next few days in Washington, during the spring meetings of the IMF and the World Bank, Carney and other central bankers and finance ministers will continue to hammer out a way to let banks die without requiring taxpayers to foot the bill.

The recent crisis in Cyprus gave a messy preview of how that sort of resolution might work.

Carney hopes that global guidelines — and they need to be simple enough, he said, to be usable in the time frame in which the authorities in the real world must often operate — will make future resolutions cleaner and more predictable.

That game plan, he believes, should include bail-ins, or making stakeholders in the banks pay most of the costs.

“Bail-in broadly speaking — not bail-in as it was performed a couple of weeks ago in Cyprus — but bail-in as a component of addressing systemic risk,” Carney said, “is an absolutely necessary element. It doesn’t solve everything, but it’s absolutely necessary.”

Having lost our faith in the private sector and the bankers who dominated so many Western economies before 2008, some are looking to government bankers like Carney.

One of the analytical mistakes before the financial crisis was believing that efficient markets were perfect and that private bankers could police themselves.

Refreshingly, Carney is not making the same error in reverse. He is a believer in regulation and has embraced it at its most complex, global scale. But he said regulators need to be watchful of the unintended consequences of their rules and mindful of the feedback loops between their actions and private markets. The relationship between markets and governments is a complicated process that requires eternal vigilance and constant tweaks.

If the central bankers can pull that off, they will deserve that room in the inn after all.

Comments
8 comments so far | RSS Comments RSS

Carney should be a “hero” because he didn’t let the Canadians join in the Wall Street Casino game of gambling on known toxic mortgage-backed financial derivatives like Collateralized Debt Obligtaions (CDSs) backed up by worthless Credit Default Swaps (CDSs). They didn’t fall for the phony models from physicists that assumed that housing prices would always go up.

Isn’t this what we expect of all bankers, but not gamblers? We heed a guy or gal like that to head up the American Bankers Association (ABA) – desperately.

Posted by ptiffany | Report as abusive
 

> we have called on shamans or saints
Yes I agree comparing bankers to liars, con men, high priests and other self aggrandizing trash is an apt comparison. Recall also that at one time in human history Usury was against the law, or have you conveniently forgotten that.
Bankers as supermen?, after nearly destroying the economies of the world, still due trillions in derivative gambling positions, bailed out by taxpayers forced by governments to kiss their rear ends?
Pretty funny.

Posted by UScitizentoo | Report as abusive
 

Great stuff at the macro level. Where are the details?

Posted by skimish | Report as abusive
 

central bankers are unelected officials that have supplanted democratic institutions, with currency manipulations that benefit only those who use leveraged investments.

A popularly-alleged quote by Mayer Amschel Rothschild is displayed:
“Give me control of a nation’s money supply, and I care not who makes its laws.”

Posted by Robertla | Report as abusive
 

Have you forgotten Alan Greenspan?
Was he also a Suberhero ? We don’t need Super Heros,
we need stable institutions and Rules independent of Super Heros.

Posted by maier | Report as abusive
 

It is pure hubris for the central bankers to believe they can control the economy. The economy is the sum of all personal financial decisions made by the people of the world. More of them should spend some time reading Human Action by von Mises. They would realize economics is a study of history and not a predictive science. What they are attempting to do is impossible.

Posted by SteveTX | Report as abusive
 

Ms. Freeland points out the trend of lionizing central bankers and then piles on wholeheartedly. Money printing is inflating asset prices, which is preserving the status quos for the rich, the TBTF banks and bankrupt governments at the expense of the worker. Note that in every country practicing extreme forms of money printing, unemployment remains stubbornly high depressing wages. On the other hand, lofty stock markets fuel record prices for high end real estate, art and collectibles. This will end badly, but in the meantime mainstream media journalists will deliver breathless odes to their heroes. The rest of us know the truth:

Central Bankers are not Supermen | DARECONOMICS.

Posted by dareconomics | Report as abusive
 

Superhero bankers? What hubris for them to think they can control the world economy. The economy is the sum of all the financial decisions made daily by the population of the planet. Economics is a study of history. It is not a predictive science. The bankers should read Human Action by von Mises. They would understand the futility of trying to control the actions of billions of individuals.

I apologize if this turns out to be a double post. But after five hours from the original posting I’m wondering if I said something Reuters didn’t readers to consider.

Posted by SteveTX | Report as abusive
 

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