Wednesday, November 07, 2007

Bourgeois Engineer Heads For Shredder

So would you recommend I take the job?

Those of you who've watched the Pandora's Box vid recommended and linked here, will know that Stalin routinely bulleted successive generations of engineers. Although they were the very technocrats he'd appointed to transform Soviet industry, he never trusted them. He reckoned they were too powerful and spent their weekends plotting to supplant him.

We're currently watching yet another re-run here in Bottler's Beleaguered Britain.

The bourgeois engineer in question this time is Mervyn King, Governor of the Bank of England. Until the summer of course, he was a Hero of the Soviet Union, regularly mentioned in speeches from the Attlee Mausoleum. Well, he certainly got an approving nod anyway, especially when the Great Comrade recounted yet again what a genius he must be to have made the Bank of England independent.

But post the first run on a high street bank in 150 years, things have changed somewhat. King is now a traitor, and facing the firing squad.

Now, we all know the routine- the traitor disappears from public view for a while, and then pops up looking twenty years older to make a rehearsed confession at his show trial.

And King's trial has taken place: it was before the Treasury Select Committee in September (see this blog). Unfortunately, and much to the fury of the Great Comrade, the trial judges were so incompetent they couldn't get King to speak his confession. Instead, ludicrous party hacks like Comrade Mudie were left looking lightweight and way out of their depth in technical discussions of interbank blast furnaces. Which of course, they are.

And now, even worse, King has gone on the offensive. On the state broadcaster! He's given the BBC an unprecedented interview, in which he lays the blame on Commissar Darling for failing to act quickly enough, and stymying the Lloyd's rescue bid for Northern Rock.

Naturally, Darling and his Treasury apparatchiks are white with fury. You can tell that because they've accused King of being "naive"- about as bad as it gets. And they've let it be known he won't be reappointed for a second five year term as governor. Specifically, "Treasury officials stressed Mr King’s interview would have no bearing on whether he would be appointed for a second term"- so he's finished for sure.

But more fundamentally, the whole sorry saga is still dragging on. Two months after the Northern Rock crisis broke, we taxpayers remain its unconditional guarantor on total liabilities well in excess of £100bn (see previous blogs- eg here).

There is a school of thought that argues this doesn't matter, because NR's assets- principally mortgages- are secure (eg see this article by Prof Tim Congdon). Indeed, according to that argument, taxpayers are actually making money, because the Bank prints the cash for free and lends it to NR at a penal interest rate. Lovely jubbly.


On that argument, surely we could make even more if the Bank printed even more money and went into the mortgage biz directly.

No, that isn't quite what Prof Congdon has in mind, but more fundamentally, taxpayers have no assurance at all that NR's mortgage assets are actually worth what they say. For sure, we know that their most recent accounts say their assets are high quality, and that their default experience is better than the industry average. But NR has been just about the most aggressive high street lender- both secured and unsecured- and the housing market now seems to be teetering on the cliff edge. Not the recipe for a sound night's sleep.

Taxpayers should remain very concerned about the NR guarantee, and even more concerned about the shambolic regulatory arrangements that led us into it in the first place.

They were dreamed up by Bottler and Balls, and they are the epitome of the half-baked, nobody-in-overall-charge organisation with which Big Government is shot through. They were forced on an unwilling Bank (the previous Governor almost resigned over them), and King is absolutely right to pin the blame where it truly belongs (see also this blog).

PS The Telegraph gives us a useful list of the runners and riders to succeed King. Difficult to imagine 81 year old Alan Greenspan taking the controls, and surely even Bottler wouldn't now appoint his old mucker ex-Goldmans ex-BBC Gavyn Davies to the job. Which probably means ex-FSA Howard Davis gets it, although Tyler would like to see Deputy Governor Rachel Lomax given a go. She'd be the first female Governor, and also the first to have been a room-mate of Tyler's.

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