Daily Archives: May 17, 2011

Don Kohn, former vice chairman of the Federal Reserve, has just apologised for his errors in the financial crisis in front of the UK Treasury Select Committee, the equivalent of a Congressional committee.

He said he had “learnt quite a few lessons – unfortunately” from the financial crisis, including that people in markets can get excessively relaxed about risk, that risks are not distributed evenly throughout the financial system, that incentives matter even more than he thought and  transparency is more important than he thought. Similar to Alan Greenspan’s mea culpa of 2008:

“I made a mistake in presuming that the self interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders”.

Mr Kohn told MPs Read more

Ben Broadbent will be confirmed as an MPC member, I am sure,  after an assured performance played with a very straight bat in front of the Treasury Committee. A little like when Martin Weale appeared before the Committee, MPs got rather irritated with Mr Broadbent’s refusal to say how he would have voted at the May meeting. This is a structural difficulty of these hearings.

Asking how you would have voted is a perfectly reasonable question; avoiding giving a straight answer is also understandable so as to avoid prejudicing your time on the MPC.

The solution has to be more, rather than less, openness from the candidates, since they can always change their minds and explain changes. MPC members have to do that in any case, so evading such questions does appear shifty and does not make any material difference to an MPC stint.

The main things we learnt about Mr Broadbents views were the following:

1) He is bound to be less hawkish than Andrew Sentance, whom he replaces. He refused to say the MPC was in the wrong place at the moment, unlike Mr Sentance. That does not mean Mr Broadbent would vote for no change, but he is not as hawkish as Mr Sentance. Read more

Ben Broadbent, the new member of the Bank of England’s Monetary Policy Committee, is just about to start his confirmation hearing in Parliament (more later). But he will have to deal with today’s inflation figures for April, which have pushed CPI inflation up to 4.5 per cent from 4 per cent in March as shown in the picture.

But though Mr Broadbent did not know the following, he had little need to worry. The April CPI is heavily distorted by the timing of Easter and its effects on air fare prices. Some 0.36 percentage points of the 0.5 percentage point rise in inflation has come from air fares. Read more