Sleeping at the wheel

A nervous Mervyn King appeared before the Treasury committee to defend his performance in the weeks leading to the near collapse of Northern Rock, a mortgage lender. Legislative shortcomings, pleaded King, prevented him from acting swiftly in dealing with liquidity problems at the Rock. That single stroke of a masterpiece diverted the committee's attention to the Financial Services Authority, the UK financial services watchdog.

Earlier, Ben Bernanke had his day before a House committee to explain the ongoing turmoil in the financial markets. Whereas King had sat back to wait out the markets at the height of the liquidity crunch, Bernanke intervened with large dollops of cash to oil market machinery. Neither stance appears to have calmed the markets.

King opted for hands off crisis management to avert moral hazard, preferring tough love to bailing out wayward lenders. In the event the Bank of England Governor inadvertently left a marker unattended at a kindergarten. Bernanke, on the other hand, focussed his energy on taming inflation and ensuring that dislocations in the markets did not spread to other sectors of the US economy. In many ways, both central bank chiefs were loath to intervene in a crisis crafted by quants at Wall Street.

King and Bernanke, who worked in the same building at the Massachusetts Institute of Technology, are joined at the hip by a temperamental market.

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