June 15, 2013

Martin Wolf, what if Sir Mervyn King had been an engineer and a bridge he helped design had collapsed?

Sir, retiring bank regulator Sir Mervyn King explains: “I think what went wrong with regulation in the period running up to the crisis was that there weren’t any obvious problems with the banks in the sense that no one was coming to the central bank for money and none was failing. So it was very hard for anyone to argue that prudential supervision was at the heart of regulation”; and his lunch companion journalist Martin Wolf kindly comforts him with a: “I say that almost nobody thought that a failure of the British banking system on the scale we have experienced was possible”, Lunch with the FT Sir Mervyn King”, ‘I’m going to miss it enormously’, June 15.

Sir, if Sir Mervyn King had been one of the members of a group of engineers who designed a massive bridge system which had later collapsed, and caused the death of millions, would this journalistic endeavor really have been acceptable to you? 

Of course bridges and banks are not the same, but do you really think our world can afford this type of lack of accountability? No wonder the Basel Committee goes on as if nothing has happened and their bank regulation only needs some tweaking here and there.

I must say though that when Martin Wolf advances the idea so dear to him that “if people are happy to lend to the government, at negative real interest rates, the government should borrow and build something” it speaks very well of him that he clearly records Sir Mervyn King's resistance: “I’m always struck when I speak to not just ministers but people who work in the Treasury that it is actually quite difficult to produce the investment projects. It’s very easy to spend money but in a way that maybe doesn’t add to the real gross domestic product.”