Sir Mervyn, put it this way in the speech “Whether in this country, the United States or Europe, there was no unsustainable boom like that seen in the 1980’s” this was a bust without a boom.
Sir Mervyn Allister King blamed the recklessness of banks and a collective ‘failure of imagination’ for the huge lending from the banks which was one of the main causes for the great crash which happened in 2007-08. In a scathing attack he blamed the last Labor government for stripping the Bank of England in 1997 of its direct powers to regulate banks. The U.K., is still recovering from the debacle which has hobbled its economy. Mervyn King’s admission of the reasons for economic crisis in the Today Program Lecture gives scope for many discussions on why he is blaming the lending policies and the banks for the debacle, while there are more macro issues which caused the real debacle that has left the Britons reeling under inflation. It is very clearly evident from his last speech that he was trying to conceal the real reasons for the debacle. Phrases such as ‘light touch’ ,‘regulatory failure’ and ‘failure of imagination’ cannot be expected from a man who heads the biggest banks in the world, which has a 300 year old history, and is responsible for controlling the economy and keeping it stable. Sir Mervyn, put it this way in the speech “Whether in this country, the United States or Europe, there was no unsustainable boom like that seen in the 1980’s” this was a bust without a boom. This statement of Sir Mervyn caused huddles in the political and media circles, when Andrew Sentance, his former colleague from the Bank of England’s (BoE) tweeted “disagree with Mervyn King that financial crisis was bust without boom . It was just very long boom”. However his other tweet was really explosive to say the least, in a rather indirect attack on the Governor of Bank of England, he tweeted
“Boom in areas where the Central Bankers are not looking”.
Boom and bust is a type of cycle experienced in an economy characterized by alternating periods of economic growth and contraction. In the period of a boom an economy will oversee growth of economic activities and a significant rise in the country’s GDP. During busts an economy will see a fall in production and an increase in unemployment.
Critics argue that Sir Mervyn does not believe that the rise in house prices in Britain is as dangerous or unsustainable as what happened in Spain, Ireland or the U.S.
Secondly, the BoE did not have the tools to combat these imbalances of what happened in those countries. Sir Mervyn believes that raising interest rates to reduce consumer spending will lead to an increase in the imports and curtailing the lending boom by increasing interest rates, would have resulted in a recession in the U.K.
He is also of the opinion that the Chancellor’s idea to provide new tools and powers to the economy will help in resurrecting the economy and give more autonomy to the banks to deal in terms of economic crisis. Some of the measures include the banks having countercyclical capital buffers, ability to force banks to hold more capital against exposure to specific sectors judged risky and the power to set leverage ratios.
Early Days
Son of a railway porter, Sir Mervyn gained a first class degree in Economics, in the year 1969 from the King’s College in Cambridge. After his graduation he worked as a researcher in Cambridge Growth Project. He also began his teaching career by teaching economics at the Birmingham University and was also a visiting Professor at Harvard and MIT. His academic career reached a peak when he became the Professor in Economics in London University and was one of the critic who condemned Geoffrey Howey’s budget of 1981 by writing a letter to ‘The Times’ with other economists.
Political Affiliation
There have also been several criticisms of Sir Mervyn’s political interventions; the prominent ones include the one in Mansion House speech in 2009, in order to bolster the Conservatives during the approach to the general elections, he issued high profile criticisms of ruling party. His open criticism of the government’s move to introduce green tax and hiking university fees, has not gone well with political and media observers.