Mervyn (now Sir Mervyn) King did not cover himself with glory during the credit crunch, preferring to lecture on moral hazard while others were scrambling to prevent financial catastrophe.
Even so, the governor of the Bank of England’s words of warning about government mortgage guarantees, made in August 2008, are fascinating – in the context of Osborne now setting up a new entity to do just that. (Bear in mind that the chancellor and the governor are close allies.)
At the time Gordon Brown was pushing a UK-style Freddie/Fannie through the Crosby mortgage review. (Fannie and Freddie collapsed into US nationalisation only a month later): hat-tip Hannah Kuchler
“On the question of guarantees all I can say is the Federal Reserve, for the last 30 years have been pointing to the great dangers of offering government guarantees to mortgages.
They pointed out that if you offer a government guarantee to a mortgage, remember they spent a very long time trying to press the argument that Fannie Mae and Freddie Mac were not guaranteed by the Federal Government, they could see the risk that if people believed it then they would be able to attract funds more cheaply than any other source, mortgage funding would go through that