Ethics and Mark Carney
Britain has a housing boom, partly because of the Government’s Help to Buy scheme, retail sales figures are surging, the stock market is booming, and the current account deficit is at a record 5% of Gross Domestic Product (GDP), which is 50% higher than forecast. Normally, these indicators mean that interest rates would have to go up to take the heat out of the economy. However, to make the necessary increase in interest rates now, or anytime soon, would jeopardise the feel-good factor needed for a Tory election victory in 2015.
The deputy governor of the Bank of England for monetary policy has a key role in setting interest rates, and there is a new appointment to this position, Ben Broadbent. There was little publicity about the appointment of this former senior economist at Goldman Sachs. But it is worrying, because there are other former Goldman Sachs staff in senior central banking positions, all holding immense economic and financial power and influence. They include the chairman of the European Central Bank, Mario Draghi, the president of the US Federal Reserve, Bill Dudley and, even more worrying, the governor of the Bank of England (BOE), Mark Carney.
Mark Carney’s appointment in 2013 was, we’ve been told, based mainly on how successful he’d been as the Governor of the Bank of Canada (Canada’s central bank). He navigated the Canadian economy through the choppy waters of the financial crisis, and central to his success was the claim that no Canadian banks needed to be bailed out. The Canadian Prime Minister, Stephen Harper, endorsed this claim on 23rd February 2009.1
This ‘truth’ is hotly disputed by the Canadian Centre for Policy Alternatives.2 In its report, Big Banks, Big Secrets, it states that between October 2008 and July 2010, all the main Canadian banks were bailed out by the Bank of Canada, the US Federal Reserve and the Canadian Mortgage and Housing Corporation (CMHC, the Canadian Government’s Housing Agency) The CMHC did not technically ‘lend’ to the Canadian banks, but bought a total of CAN$69 billion worth of mortgages from the banks.
At the time, the Canadian Government and the Bank of Canada described the CMHC mortgage purchase as “Providing liquidity to the Canadian Banking System”3. In other words, if it sounds like a bail-out, smells like a bail-out and looks like a bail-out, then it definitely is a bail-out!!
Big Banks, Big Secrets was published on 30th April 2012, while Carney was still Governor of the Bank of Canada. The Canadian Broadcasting Corporation and other Canadian media covered the report, but there was precious little media coverage in the UK, even after Carney became the Governor of the Bank of England.
Carney was headhunted by George Osborne, the Chancellor of the Exchequer. But is he the right person for the job, and is he independent? Or does his appointment point to another agenda? Could Carney’s real brief be to work with the Government to create an economic boom that would allow the Tories to win the 2015 general election, and to hell with the consequences for everyone else? And is the appointment of Broadbent designed to ensure that interest rates will not rise before the next election?
Who, then, is setting UK interest rates? Is it the Bank of England, the Government or Goldman Sachs? Goldman Sachs was the main player in inventing and selling the worthless sub-prime mortgage derivatives that caused the banking crash of 2007/8. It was also a major beneficiary of the US Government bail-out for the banks, and it was treated very leniently by the then US Treasury Secretary, Hank Paulson, himself a former Goldman Sachs’ senior staff member.
The relationship between governments and Goldman Sachs appears highly unethical, to say the least, and the question needs to be asked – were these two appointments to the Bank of England awarded to the best people available? What is certain is that if interest rates do not rise before the next election, they certainly will soon after the election.
Does this matter? Yes. Putting off raising interest rates can mean that when the rates are raised, the increase will be greater than if they’d been increased at the right time in the economic cycle. This will increase mortgage repayments, possibly substantially, which in turn will increase defaulting mortgages, and may well start off a chain reaction to another banking crisis.
The Tories don’t care if this happens, as long as they win the election. Another five years will allow them to complete the destruction of the Welfare State and return us to the good old-fashioned days of poverty, and a twenty-first century equivalent of the workhouse.
As for Goldman Sachs – you can safely bet that they’ll be handsomely rewarded.
Michael Gold
@radicalmic
1CNBC, Interview on the Kudlow Report, February 23rd, 2009. http://video.cnbc.com/ gallery/?video=1043703424
2http://www.policyalternatives.ca/publications/reports/big-banks-big-secret
3http://www.globalresearch.ca/canada-s-75-billion-dollar-bank-bailout/12007
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Matt Taibbi, the Rolling Stone finance writer who rose to fame with his description of Goldman Sachs as a “vampire squid,” set his sights on Canada’s Mark Carney in a blog post Thursday. (Stephen Harper and Jim Flaherty promoted Carney over others and he rose to the top very quickly at a very young age with their support.)
http://www.huffingtonpost.ca/2012/12/06/matt-taibbi-mark-carney_n_2253342.html
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In a note to clients earlier this week, Brown Brothers Harriman chief currency analyst Marc Chandler declared that Carney “is leaving Canada as the proverbial bloom is coming off the rose.”
“The economy is under-performing [and] excesses are evident in the housing market and households,” the analyst wrote.
Besides suggesting that Carney is leaving just as his legacy is about to take a hit, Chandler also seemed to be suggesting that Canada is in for a reckoning over sky high household debt levels.
http://www.huffingtonpost.ca/2013/04/18/canada-household-debt-mark-carney_n_3111268.html
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Oh, my goodness. The lie Canadian banks were not bailed out is being perpetuated world-wide. The Prime Minister of Canada insisted the Canadian banks were not bailed out although he did admit about $70 billion provided them with needed “liquidity.” Now we know that the Bank of Canada gave $114 billion to bail out the banks.
Carney didn’t do anything special: it was that some of the rules were still there to prevent the most egregious abuses. Banks have become insurance companies, investment banks and commercial banks. I have no idea whether the commercial banks are protected from those speculations in derivatives that they engage in. I do know that the top Canadian banks borrowed billions from the Federal Reserve discount window after the 2008 crisis and one bank received monies from the AIG bailout via TARP.
Flaherty and Harper were offering sub-prime loans and extending years of payment to 40. They quickly retracted these policies when they saw what was happening in the US in 2008. We need a higher interest rate to deal with that problem. Carney did not manage that well; he only threatened to raise rates and chided the citizens to not get in debt.
There are opposing points of view about the greatness of Carney: http://tinyurl.com/bwnodmx
Also: http://tinyurl.com/cs2m4qv
Goldman Sachs does NOT care about the public purpose. They are here for profit-making. Why can’t we learn from what we have seen already?
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Was it just a coincidence Goldman Sachs (aka, vampire squid) opened a Canadian branch in Toronto when Carney is head of the Bank of Canada? Is it also a coincidence that since Carney has been in charge of interest rates he has kept the rate at almost zero(1%) thereby creating spending and housing bubbles that now reflect the same numbers that existed in America just before their meltdown? Is it just a coincidence as our bubble numbers are about to burst Carney is leaving? Isn’t that what happened in the U.S. with Greenspan?
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Nadine,
Most interesting and I am going to put this up as an article under Guest Blog and promote it.
Michael