Wednesday, October 21, 2009

King Calls for U.K. Banks to be Broken Apart: Biggest Moral Hazard in History

The Daily reports today that Mervin King, Governor of the Bank of England, gave a stunning speech yesterday against big banks in the U.K., calling for long overdue reform. He also warned that rapid increases in the national debt meant Britons will be paying to clear up the economic mess for a generation. No news there!

He said that the government's refusal to hive off the 'casino' investment arms from High Street banks could lead to an even worse crisis. Public borrowing has climbed to a record £77.3billion in the first six months of the financial year, which is the highest half-yearly figure since the Second World War.

Mr King says the financial crisis was caused in part by the Government's 'inadequate' regulatory system. He warned inflation will rise because of higher oil prices, falls in the currency and a reversal of the cut in VAT.

Incidentally, RBS, The Royal Bank of Scotland, bailed out and now 70% owned by the taxpayer, has hired multiple traders on high salaries for its investment arm, although it had pledged to rein in pay.

'That is what economists mean by 'moral hazard'. The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history. The 'too important to fail' problem is too important to ignore".

'The massive support extended to the banking sector around the world has created the biggest moral hazard in history'.

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