07 Jul Student Column: Lord Mervyn King Visits The NCS – by Kiesha
Student Column: Lord Mervyn King Visits The NCS – by Kiesha
It was a pleasure and privilege to have been able to host Lord Mervyn King, former Governor of the Bank of England (2003-2013) and chairman of its Monetary Policy Committee. Lord King gave a very intellectual and thought provoking lecture to all Economics, Politics and History students about the current economic crisis to grip the EU and the rest of the world and gave us all a rare insight into the decisions he took as Governor to save the UK banking system following the demise of Lehman Brothers.
It was fascinating to hear Lord King discuss the possible causes of the Economic meltdown in 2008, citing political decision making both in the UK and US as significant contributors. When pressed, Lord King explained how the creation of the US state supported institutions Fannie Mae and Freddie Mac (which were set up to encourage home ownership amongst consumers who were not credit worthy) led in large part to the depression of house prices when the economic bubble finally burst. The situation was exacerbated in part due to the opaque nature of regulation in the UK and US during the time, the burgeoning growth of the securitisation industries and the low interest rates set by central banks. This lethal combination, the likes of which had not been seen created an economic cocktail intoxicating the entire landscape and blurring the boundaries of ethical and moral banking practice. Whilst the bankers received the sharp end of the stick, both the audience and myself realised that it was the artificial and somewhat fictitious economic climate created by people in authority that were the true catalyst for the global recession. The real question is after all that has happened have the bankers and people in power learnt from their mistakes? It would seem that the answer is an emphatic no! An audience member was quick to point the spotlight on the casino style banking practices of some of the major conglomerates in the city that were reported in the news on the morning of Lord King’s visit.
What was also fascinating about Lord King’s lecture was the inside information he was able to give us about the events that led up to the financial crisis and the actions of the Bank of England in the aftermath to prevent the total collapse of UK banks. Lord King drew some very interesting parallels to the Great Depression and explained that the bailout was akin to the Keynesian policies of the 1930s where the governments needed to be profligate to revive the economy from its temporary flat line. Moreover, Lord King was kind enough to explain how the Bank of England utilised Quantitative Easing (QE) which is the process of buying assets/bonds to increase the financial liquidity to boost consumption in the real economy. There were some interesting questions from the audience about the relative successes of this policy and whether he supported the use of ‘Helicopter Money’ to inject much needed money into the economic system. What was really fascinating about the lecture was as students we could really appreciate how the theories we were learning in the classroom all took on meaning and were placed in an appropriate context.
Many students were keen to find out more about the EU referendum and more pressing, Lord King’s views on the possibility of a ‘Grexit’ (Greece’s decision to leave the euro/EU). Most students were aware that Greece has been receiving money from the ‘Troika’ (EU Commission, EU Central Bank and the IMF) as part of the bail-out package. However, with any bailout there inevitable comes austere conditions focussing on structural and tax reform, which ultimately have catastrophic consequences for the population of that country. Lord King explained how sticking with the Euro prevents Greece actually devaluing their currency which would help boost their exports and lead to some economic growth. Moreover, the likely hood of Greece ever being able to repay all of its debts is unlikely and if Greece are exempt from repayment what about the other countries that have borrowed funds?
We are starting to learn about the Global economy in our economics lessons and I am thoroughly looking forward to tackling the question of whether the UK should continue to stay in the EU and more controversially, whether the UK should join the Euro? On the basis of all the evidence I have been presented with, joining the Euro at any point in the future is a gamble not worth paying. As we begin to discuss our role as Europeans and the erosion of our parliamentary sovereignty at the hands of Europe I can’t think of a better time to be an Economics/History or Politics student and I for one will be following the events unfold very closely. As Lord King said, maybe one day we will be the people sitting around the table of power making the decisions which help create a better world for us and our children!
– Kiesha Gardener, Year 13.