Interest Rates - BoE should cut them or the governer should go!

SuperV

I have only one question: who is going to pay for this failure? Treasury employees do earn a fortune and have golden plated pensions, so what is a difference between them and greedy bankers?

Moral hazard is obvious in both cases, for Treasurers because it doesn't matter what will happen and for Bankers because failure is not painful.

http://www.telegraph.co.uk/finance/financetopics/recession/5771173/Treasury-admits-intellectual-failure-behind-credit-crisis.html

Treasury admits 'intellectual failure' behind credit crisis

The financial crisis was caused by a massive intellectual failure which ran through governments, regulators, banks and the wider financial system, the Treasury will today admit as it presents its definitive account of the past 18 months' chaos.

By Edmund Conway, Economics Editor
Published: 6:00AM BST 08 Jul 2009

The efficient markets theory which dominated the way economists viewed the world and financiers conducted business over recent decades was simply wrong and played a major part in the crisis, the Treasury is likely to conclude in its White Paper, to be presented to Parliament today.

It will claim that the intellectual foundations for the way banks' boards ran their companies, and the Bank of England and Financial Services Authority managed them, were misguided. The conclusions will form a key part of the White Paper, which will also contain detailed plans one of the biggest overhauls of UK financial regulation in decades.

However, as The Daily Telegraph revealed yesterday, the document will stop short of suggesting any legislation for macro-prudential tools to go alongside interest rates as a means of controlling the economy and financial system. It will focus instead on overhauling the existing system to clamp down on banks taking risks.

Under the new rules, banks will be forced to hold more capital and liquidity, and will be subject to a ceiling on their gross leverage. The FSA will apply these rules to ensure that companies that take excessive risks, reward their employees inappropriately or borrow too much to expand too fast will be penalised.

The FSA will be given a statutory role for maintaining financial stability, while the Bank will be permitted to use its Financial Stability Report to issue specific warnings to companies and to the FSA. However, the changes are at risk of being overshadowed by the European Union's own reforms, which may supercede some UK rules.

SuperV

http://www.telegraph.co.uk/news/newstopics/politics/david-cameron/6050271/David-Cameron-British-Government-could-default-on-its-debts.html

"Gordon Brown is running the risk that the British Government will be unable to pay back the money it is borrowing from international investors, the Conservative leader said."

A bit to late...

The easiest solution will be to abolish pension rights for all Government, local governments and para-government employees. That will transfer the pain in the future, but at least it will save the presence.

As the other cost-cutting measures that will not affect economy - cut military spendings, wars, benefits.

Help research and development. If the UK loses highly educated people that are much more mobile than the rest, it would take much more time to improve economy again as a lot of skills would be lost.

Exactly that is happening now. Immigration furore will affect the economy outcome.

And mortgages - the UK Government does guaranty for a lot of them at the moment. If the rating of the Government goes down, it will affect mortgages for not so short period of time.

SuperV

http://www.newstatesman.com/economy/2009/09/mpc-bank-recession-king-rates

In this exclusive account of decision-making at the Bank of England, David Blanchflower, who this week joins the New Statesman as our economics columnist, reveals how Mervyn King’s mistakes made the recession worse

SuperV

http://news.bbc.co.uk/2/hi/uk_news/politics/8253331.stm

"Public spending cuts would create a "double-quick, double-dip" recession and push unemployment over four million, the TUC's leader has warned."

Well, I warned last year what will happen. The possibly only way to avoid such development is to cut benefits (including pensions) and cap salaries, not to laid off estimated 700.000 public employees.

They have to be honest as well - public sector workers can't expect to be in a better position than private sector with much higher job security. Job security is probably 15-33% premium of the salary.

SuperV

http://www.ft.com/cms/s/0/a5ee3572-b272-11de-b7d2-00144feab49a.html

Cuts, cuts, cuts... a year ago it would had saved a lot. Now, the pain will last for much longer!

SuperV

http://www.ft.com/cms/s/0/03e7b0be-bc90-11de-a7ec-00144feab49a.html

"Mortgage borrowers will have to pass new affordability tests and be able to prove their income to qualify for new loans following a sweeping reform of the market by the Financial Services Authority."

What about those caught at the top of the market due to FSA relaxed approach? They should get compensation from FSA!

SuperV

Any similarity is... obvious...

"The UAE has been hit by a new form of the Dutch disease. Ample liquidity encouraged short-term speculative behaviour at the expense of longer-term strategic investments. The housing market, which was the most popular asset class in the UAE, saw prices rise by more than 40 per cent in the first quarter of 2008 alone. Investors in property could achieve supernormal and quick returns.
As a result, the boom in the housing market in effect crowded out other sectors of the economy. The spike in real estate led to higher rents and the higher cost of housing drove inflation well into double digits (estimated at 20 per cent in 2008), reducing the competitiveness of other sectors in the economy.
"

http://www.ft.com/cms/s/0/ef972c46-4ad1-11de-87c2-00144feabdc0.html

SuperV

Economists question Gordon Brown's 2pc inflation target

"Nobody knows the cost of inflation – between 2pc and 4pc – so I think people could get used to 4pc and the distortions could be small," he said. In a blog entry, Professor Krugman said: "I very much agree... Having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7237598/Economists-question-Gordon-Browns-2pc-inflation-target.html

Funny, almost two years later there is some clever thinking coming from those that were in charge in the first place...

SuperV

http://www.moralhazard.co.uk/

Site that gives you opportunity to vote what you think the interest rate should be. Tell what you think. Vote to remove Moral Hazard in the future!

Best wishes to all!

SuperV

And vote again for April

http://www.moralhazard.co.uk/