| Northern Rockier - The admission of incompetence at last but no one pays the penalty | |
| Tue, 23 Dec 2008 Note: If they truly did not understand the dangers of the debt mountain |
they were credulous to the point of imbecility, believing in the power of the market to control as a superstition. No senior person at the Treasury, the Bank or the FSA has been sacked or resigned voluntarily since the fiasco became public knowledge. There is no meaningful way of punishing the incompetence of public servants. RH Daily telegraph Bank of England failed to act on 'crazy borrowing', deputy admits The Bank of England knew "crazy borrowing" was taking place during the boom years but did not understand the severity of the problem before it led to the financial crisis, its deputy governor has admitted. By Jon Swaine Last Updated: 9:01AM GMT 22 Dec 2008 Sir John Gieve says Bank of England aware of 'crazy borrowing' 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. "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," he told BBC Panorama. He suggested the Bank could take on powers enjoyed by other central banks, which allow them to set aside money and reduce lending during good years on the assumption that boom times will eventually make way for a downturn. "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," he said. The Conservatives have promised that they would create a new "debt responsibility mechanism" if they win the next election. Under the Tory plans, the Bank would take a broader responsibility for debt and would have to write a write a regular open letter to the Financial Services Authority assessing risk in the market. 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."
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