Mervyn King made a big mistake last week. But it was not in his handling of the rescue of Northern Rock, which will probably be seen with hindsight as one of the more successful crisis management exercises in the chequered history of modern central banking. As Mr King noted in last week’s Treasury Committee interrogation, no depositor has lost money and a potentially catastrophic threat to the British banking system has been averted. Moreover, Mr King could have added, the crisis has been resolved at what will almost certainly be zero cost to the public purse.
Most importantly, it now looks like the British economy will not be damaged at all by the Northern Rock crisis. The global credit crunch will certainly slow the growth of global financial businesses and probably housing markets that are highly dependent on the City of London, but that has nothing to do with the specific problems of Northern Rock.
What, then, was the crime for which Mr King deserved to be pilloried on newspaper front pages and magazine covers? He was jeered by the media and the City for performing a “humiliating U-turn” because of a technical change in the terms of the money market assistance he started offering after dealing with Northern Rock. But viewed objectively, his actions were nothing more than what he described to the Treasury Committee on Thursday: a minor technical adjustment to reflect changing conditions in the money markets.
See full Article.
Posts
