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Asymmetry of information irks Blanchflower

December 3rd, 2009

David Blanchflower, image courtesy of The Guardian

David Blanchflower, a former member of the Bank of England’s monetary policy committee, is peeved that he was kept in the dark about the £61.6 billion of secret loans that the central bank issued to RBS and HBOS to prevent them from going bust at the height of the crisis last year.

In a column in the New Statesman, Blanchflower complained that, without knowing of these loans’ existence, the MPC was effectively flying blind. Had it known about them, he argued it might have introduced policies such as ‘quantitative easing’ earlier. He also believes it is wrong that whereas internal MPC members knew about the loans, external members including himself, did not.

In the article Blanchflower, a British-born but US-based academic, said:-

Interestingly, even though I was an external member of the MPC at the time, nobody told me about these loans or how bad things were in the financial markets. The announcement by the governor during his appearance before the Treasury select committee on 24 November was the first I had heard of the loans. We were also kept in the dark about what was happening with Northern Rock. The extent to which the external members of the MPC were not provided with basic information on the crisis is only now coming out. Surely such information was relevant to our decisions on setting interest rates? If we had been told what was going on, we may have started quantitative easing sooner and cut rates faster.

As the Chancellor, Alistair Darling, made clear, and I agree, it makes sense that this information was kept secret because it was market-sensitive, but keeping it from MPC members, which was ultimately the governor’s call, is questionable at best. There is no point in having an MPC unless all members, and not just some, are given full access to vital information.

Short URL: https://www.ianfraser.org/?p=986

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