Tuesday, December 4, 2012
Carney do it?
UK Chancellor of the Exchequer, George Osborne, recently appointed Mark Carney as the next Governor of the Bank of England. Carney is Canadian, and is currently Bank of Canada Governor. When I first heard about Osborne's decision, I felt a mixture of emotions - surprise, chiefly - and was soon full of theories about Carney's appointment. Carney is not an outstanding central banker, and I cannot help feeling that this is more about politics than anything else - specifically, Carney's links to Goldman Sachs and his relatively engaging persona.
Canada's crisis-proof economy owes more to structural fundamentals than to Carney's interventionist policy. Our sound financial regulations, which preceded Mark Carney's civil service record, have been hailed as a paragon by the IMF and World Economic Forum. For example, the Canadian Housing and Mortgage Corporation, a federal regulator, has strict mortgage-underwriting rules that prevented toxic sub-prime loans from blossoming. Furthermore, Canada is rich in natural resources; the Canadian economy is well-diversified and is not dependent on a bloated and rent-seeking financial sector. None of this has anything to do with Carney's policy record.
In fact, Carney's relatively loose monetary policy is contributing to a Canadian housing bubble. The BOC's historically low interest rates could lead to a U.S.-like situation in Canada, with house prices bursting abruptly. The fact that Carney is leaving the problem to his successor is a worrying sign, and suggests that his supposed policymaking expertise is illusory.
Of course, Carney has a charisma that can create illusions from clouds of stardust. At times he seems more like a politician than a central banker. It is little wonder, then, that the Liberal Party of Canada attempted to woo Carney as a contender for Liberal Leader. When the far more charismatic Justin Trudeau entered the running, Carney must have quickly backed down from any offers. This could explain why he is now accepting the BOE offer, though he previously rejected British overtures.
An oft-cited reason for Carney's appointment is that he has extensive private sector experience. Specifically, he worked for Goldman Sachs, an organisation which helped deepen the global financial crisis. Carney himself was part of a deal which unethically exploited Russian bond investors during the 1998 Russian financial crisis. Carney probably retains his Goldman Sachs connections, undermining his ability to regulate without political capture. This could also be why he received the appointment: Goldman Sachs has corrupt ties with government officials, leading Wall Street insiders to nickname it 'Government Sachs.'
My judgment may be too harsh, and it remains to be seen how Carney will handle UK monetary policy. Yet the second most powerful non-elected position in the country is no trivial matter, and Carney is no central banking guru. His mediocre record in Canada, as well as his past work with the monstrous Goldman Sachs, lead me to doubt his intentions in Britain. That being said, I can only hope that the future proves me wrong, and that George Osborne made the right decision.