Speaking at a press conference to present the BofE’s latest inflation report last week, King positioned himself as a clear obstacle in front of the prospect of extending the current special liquidity scheme or offering Government guarantees on mortgages.
King is right to highlight the potential dangers in terms of moral hazard, distortion of the market and the legal implications of transferring risk onto the Government books, dangers that Crosby himself spelt out.
He is also correct to say certain lending practises in recent times have been anything but prudent and that it would be wrong to stand in the way of the current adjustment in house prices, especially for political motives. But there is huge concern in the industry that King’s dogmatic stance will be used by the Government as an excuse to do nothing or drag its feet at the worst time.
In this week’s Money Marketing, Imla executive director Peter Williams has branded King’s comments as deliberately mischievous in the way he tries to separate funding from liquidity.
In doing so, King can use the argument that imprudent lenders should not be bailed out by the taxpayer. But Williams suggests the issue is far more complex as liquidity and funding are intertwined and, however unpalatable, it is a nettle that must be grasped.
The solutions floated by Crosby may not be perfect but with the liquidity crisis, it appears hasty for King to pre-empt both Crosby’s full recommendations and the Government’s pre-Budget report.
With arrears rising, a drought of loan products and a market almost wholly dominated by a small number of big players, strong leadership is needed by the Treasury. Action is required, not excuses for inaction.
Money Marketing welcomes the work of Cicero Consulting in campaigning for swift movement from the Government by attempting to produce clear statistics to show the economic dangers of the status-quo. The industry must hope that by placing the dangers of inaction next to King’s concerns, the Government will be spurred into acting decisively.