Insights from the UK and beyond
No time to be boring for BoE’s King
Bank of England Governor Mervyn King has made his first public speech since the emergency bank recapitalisation programme and several newspapers commented on the change in demeanour of a man who once said his ambition as a central banker was to be boring.
The dramatic events over the past two months since the collapse of Lehman brothers have forced King into the spotlight — like it or not. Being boring is not an option now.
Speaking to businessmen in Leeds, King said the economy is probably entering its first recession in 16 years and that the outlook has not worsened as rapidly as it has in the past month for a very long time.
He called the financial crisis an “extraordinary, almost unimaginable, sequence of events” and added: “We now face a long, slow haul to restore lending to the real economy, and hence growth of our economy to more normal conditions.”
The Daily Telegraph was impressed by the language. “Mervyn King certainly wasn’t pulling his punches in Leeds last night,” it said, adding that the chances of a “quickie” recession are slim.
The Guardian said markets may well interpret his speech as further support for the idea that interest rates could go below 4 percent.
“Why? Well one way to encourage money to flow around the system is to make its price cheaper,” the paper noted. “King, the man accused of being overly concerned about ‘moral hazard’ , suddenly sounds like an arch-pragmatist.”
The Independent called his speech characteristically eloquent but took the opportunity to criticise the bank recapitalisation scheme, of which, it said, King is an admirer, accusing it of being heavy-handed.
“In forcing the banks into much more dramatic capital-raising plans than anyone other than banking supervisors think necessary, the government has ridden roughshod over shareholder rights in a way that doesn’t bode well for the future of the UK economy,” it said.
No one else, the paper said, had followed the Treasury blueprint of part-nationalisation.
“Ignoring property rights sends out a very bad message indeed about a country’s attractions as a place to do finance and business,” it added.
“The government’s overkill may well have saved the banking system from collapse but it has also helped to destroy confidence in the stock market.”
The Times, however, used the Leeds speech to attack King.
“Mr King’s tenure at Threadneedle Street has been far from boring. It has, however been inconspicuous — and that is an indictment of Mr King’s performance,” it said.
“In the credit crisis of 2007-08, Mr King has been hesitant where he has even been visible. His belated attempts at expounding the Bank’s role, notably in the rescue of Northern Rock, have conveyed querulousness at the perfomance of the government more than calmness in a near-perfect financial storm.”
It praised King for being early and right in realising that the UK’s deposit insurance scheme was inadequate to the scale of the banking crisis implied by Northern Rock’s failure.
“Yet the message during Mr King’s period of office has been too Delphic and muted,” it added. “In the bull market of the late 1990s, Alan Greenspan spoke of “irrational exuberance”. No such telling phrase has crossed the lips of Mr King. What we have learnt is that being boring is no excuse for being invisible. “