King Is Following Greenspan Into Credit ‘Debacle,’ SocGen’s Edwards Says
Bank of England Governor Mervyn King is mimicking “ruinous” Federal Reserve monetary policies that led to the current financial crisis, Societe Generale SA’s top- ranked strategist Albert Edwards said.
“There is a healthy debate in the U.S. about the culpability of the former and current heads of the Fed for the inevitable debacle,” Edwards, who predicted the Asian currency meltdown of the late 1990s, said in a phone interview today. King is “similarly responsible for presiding over a copycat catastrophe.”
The Bank of England said today it will pump another 50 billion pounds ($79 billion) into the economy as it ramps up protection for a nascent recovery. The Monetary Policy Committee raised its target for bond purchases to 325 billion pounds, more than a quarter of current outstanding gilts.
“It is the monetary authorities in both the U.S. and U.K. who are almost wholly responsible for allowing this lax monetary environment and the boom and bust in their respective economies,” Edwards wrote in a report today. “Not the over- exuberant actions of lenders and borrowers.”
Former Fed Chairman Alan Greenspan cut interest rates at the start of the last decade in a move critics say helped create a debt bubble years later. Under current head Ben S. Bernanke, the Fed reduced rates to a record low and embarked on a policy of buying bonds, known as quantitative easing, to ease the cost of borrowing and stimulate growth.
U.K.’s Economy Shrinks
Britain’s economy shrank 0.2 percent in the fourth quarter, its first contraction in a year. Annual consumer-price inflation eased to 4.2 percent in December. Even so, the benchmark FTSE 100 Index (UKX) has rallied 19 percent from last year’s low as investors speculated that the euro area will contain its sovereign-debt crisis. Chancellor of the Exchequer George Osborne said on Jan. 25 that Britain had “substantial economic problems” and “dealing with those problems is made more difficult by the situation in the euro zone.”
More than $37 trillion was wiped off the value of equities worldwide between October 2007 and March 2009, according to data compiled by Bloomberg, as credit markets froze and governments from the U.S. to the U.K. rescued failing banks.
Edwards also said that King and Greenspan should be stripped of their knighthoods after the British government last month removed the title from former Royal Bank of Scotland Group Plc (RBS) Chief Executive Officer Fred Goodwin for leading the 285- year-old lender into the world’s biggest bank bailout.
Britain’s Honours Forfeiture Committee in January decided that Goodwin should lose his knighthood for services to banking in the light of the collapse. The Committee judges whether any individual honored has brought the system into disrepute and cites criminal offense and peer censorship as two reasons to withdraw the honor, according to its website.
“Central bankers have been working very hard,” Edwards wrote. “Working hard that is, to deflect blame away from themselves. If knighthoods are being removed for those held primarily responsible for the 2008 economic collapse, Sir Alan Greenspan and Sir Mervyn King should also be stripped of their honors.”
A spokesman at the Bank of England declined to comment, asking not to be identified in line with the institution’s policy. Katie Broom, a spokeswoman at Greenspan Associates, could not be reached for a comment.
Terry Smith, chairman of Tullett Prebon Ltd. in London, wrote on his blog on Feb. 2 that if the U.K. government is removing honors from those who may have contributed to the financial crisis, “surely attention should now focus on the honorary knighthood bestowed upon Alan Greenspan in 2002.”
The Bank of England will assume regulatory controls of lenders next year after the most sweeping reforms to banking regulation since 1997 disbanded the U.K.’s Financial Services Authority.
“King is largely more responsible than Goodwin for the collapse in the U.K. banking sector, and should be held to account,” Edwards said in the interview. “Instead, the man and the institution are being given more power.”
Edwards and colleagues at Paris-based Societe Generale were voted Europe’s best economy and strategy team in the 2011 Thomson Extel survey.
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