When the UK Previously Looked to a Canadian to Run the Bank of England

Just a quick historical note on the somewhat stunning news that Mark Carney, the current head of the Bank of Canada (and a Canadian citizen), has been asked and has accepted the job of running the Bank of England.

Graham Towers and Montagu Norman 

I say 'somewhat' because students of history may know that as Montagu Norman's 24 year reign at the Old Lady of Threadneedle Street was winding down the then head of the Bank of Canada, Graham Towers (also a Canadian citizen), was considered as a leading candidate to replace Norman.

Norman and Towers worked closely together during World War II to support the price of sterling during the Battle for Britain, and much of the UK's gold (as well as France's) was sent to Canada to protect it in the event of a Nazi amphibious invasion of Britain. However, for reasons possibly lost to posterity Towers was either never offered or accepted the job.

Analogies about how England's national football coach is often  foreigner and how the Carney choice really isn't all that different are of course flooding the media airwaves right now. Perhaps the economic, patriotic, and security considerations that come with heading the national football club and central bank aren't really as far apart as one might think?

An issue which isn't under much doubt is that Mark Carney, like Graham Towers in his day, is simply a very good candidate for the job.

Looking ahead, the one thing that is certain is that Mr. Carney will have very big shoes to fill. Even with the financial crisis and the challenges faced by the City of London over the past several years, there can be little doubt that Sir Mervyn King has proven to be one of the finest central bankers of his age. Sir Mervyn recently gave an excellent lecture at the LSE on inflation targeting, which can be viewed here.

Another point is that the Carney choice further confirms London's status as the most welcoming of the major financial centers to foreigners and capital alike. Take that New York!

Video: Review of 4-Part Frontline Financial Crisis Series 'Money, Power, and Wall St.'

The PolyCapitalist is kicking May off with a number of must watch videos, and this epic 4-part Frontline special follows the crisis from what is arguably its point of genesis: a 1994 JP Morgan retreat in Boca Raton, Florida which of led to the creation of the first credit default swaps.

Frontline has done an incredible job getting many of the key players and insiders, including a number of top Wall St. bankers, to go on record about what happend. Even if you've read all the books, seen the earlier Frontline financial crisis special, and think you know all you need to about the financial crisis, this is still must watch.

The big new item for me, and I'm a bit surprised this has not received more ink, was the March 2009 battle between Larry Summers and Tim Geithner over what to do with the megabanks. My prior understanding was that Summers and Geithner were two peas in a pod. Not always it turns out.

According to Frontline, in March 2009 Summers, along with fellow economist Chritina Romer, pushed for what was called 'Old Testament Justice', meaning firing a bank CEO and or possibly nationalizing one of the megabanks. In contrast, Geithner, who it would appear is more of a protege of Bob Rubin than Summers, fought hard to treat the banks with kid gloves and use stress tests to help instill confidence back into the marketplace.

Obama ultimately sided with Geithner, which seems to contradict earlier reporting that Geithner had ignored Obama's instructions to dissolve Citigroup. Frontline definitely presents Summers in a better light and Geithner and Obama in a worse one.

I have only a minor gripe with this Frontline series, which is the annoying editing. In a multi-part, complex story, reusing clips to aid telling the story is probably unavoidable. However, I felt they recycled too many from within the four part series, as well as from an earlier Frontline special on the financial crisis from a couple years ago. But this is a minor, forgivable quibble given the extraordinary job the Frontline team did to compile and document the crisis up through present day.

Overall, perhaps the key point made in the series - and one I could not agree more with - is that the financial crisis still has not ended. Where it will go from here is as much dependent now on politics as markets or economics.

Video: Meltdown - Documentary (all 4 parts) on the Financial Crisis

h/t Barry R.

Worldwide Monthly Parking Rates

The City of London takes the cake. All figures are in U.S. dollars.

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h/t Paul Kedrosky

London's Mayor Says Greece Should Leave the Euro

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London Mayor Boris Johnson's article in The Telegraph encouraging Greece to abandon the euro:

We are all still kidding ourselves that the moment of reversal can be avoided. All the other governments of Europe, including, alas, the Coalition, are pretending that Greece can remain in the euro. If only the EU finance ministers can just have a bit more lunch in Brussels; if only Nicolas Sarkozy and Angela Merkel can hammer out another plan to reschedule the Greek debt; if only UK taxpayers can stump up a bit more for the bail-out fund - then somehow the Heath Robinson contraption is supposed to limp another few miles further on down the road with the Greeks bubblegummed to the roof. 

All we need is for Athens to sack a few thousand more public sector workers, lop a few billions more off their pensions, chop more benefits, collect more taxes, and perhaps the problem will go away. If the Greeks would only change their national character, and suddenly discover a Scandinavian faith in government combined with German habits of industry and thrift - then, or so we are told, the catastrophe could be averted. 

All it would take, say the European elites, is for the government of George Papandreou to discover a crazed Thatcherite zeal that inspires them to sell every Greek asset from the Port of Piraeus to Olympic Airways to the remaining marbles of the Parthenon. That should do it, they say. That should keep the show on the road. Will it work? I have to say I now doubt that very much indeed.For years, European governments have been saying that it would be insane and inconceivable for a country to leave the euro. But this second option is now all but inevitable, and the sooner it happens the better. 

Full editorial can be found here.

Economist Tyler Cowen writes here on the mechanics of how a Greek transition out of the euro could take place.

Fareed Zakaria Needs to Study More History

Fareed Zakaria

A good geopolitical discussion with CNN host and Time magazine editor Fareed Zakaria on Charlie Rose, although I take issue with one of Zakaria's suggestions:

Charlie asked him for his prescription for preventing conflict between the U.S. and China, and his response smacked of the same arguments and thinking which were prevalent prior to World War I.

Fareed stated that if the U.S. and China can increase their "dependencies" then this would prevent war from occurring. I was surprised to hear Fareed say this as he generally gives off the impression as someone who is well versed in history.

Fareed's thinking about what will prevent conflict is identical to what was said prior to World War I, the original era of globalization when arguably the world was even more interconnected by trade than it is today. Because everything was so interconnected, because nations like Britain and Germany traded as much as they did, war was considered impossible.

Many people are not aware of the fact that today's interconnected world is not our first experience with globalization. One of the better quotes on just how bound up the world was prior to WWI comes from John Maynard Keynes. Below he describes just how eerily similar life in early 20th century London was to today:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.

Speaking of history, if you have a little extra time there was another excellent interview on Charlie Rose with the historian David McCullough about his new book, The Greater Journey: An American in Paris.

Mervyn is the Man

Anyone following the ongoing financial crisis (yes, it's not over yet) closely these past few years has probably noted the markedly different rhetoric coming from two central banks on opposites sides of the Atlantic.

BoE Governor Mervyn King

Governor Mervyn King is Ben Bernanke's equivalent at the Bank of England. This weekend he again excoriated Too Big to Fail banks, which predictably led to HSBC threatening to leave town (again).

Is Mervyn out of his mind? I mean, however will London's economy and the U.K.'s tax receipts survive if megabanks like HSBC relocate to Singapore?

The oft-repeated threat by Too 'Bigger' to Fail megabanks that they'll leave town for lax regulatory and lower tax enclaves in Switzerland, Asia, etc. shouldn't scare anyone. If in fact they do carry through on this threat I for one would be at the airport to wave them off goodbye.

For starters, many megabanks don't pay much in the way of local taxes. But that's not the main reason we should call the Too Bigger to Fail bankers' bluff.

With respect to megabanks' threatening to leave town, author Michael Lewis recently made the following analogy:

Your local utility is found to be poisoning the community's water supply, which is making people sick. However, in order to continue providing electricity the utility says that it has to be allowed to poison the water. If the community doesn't allow it to keep poisoning the water then it will leave town for another location which is ok with this. 

The obvious response to this lunacy is to tell the utility to take a hike -- our community can find someone else to provide non-polluting electricity!

Banks are like utilities. They both fulfill important functions. However, Too Big to Fail megabanks are not the only firms capable of providing banking services. If Too Big to Fail firms leave town then other smaller banks, which don't poison the local water, would gladly step into their place. There is nothing so special that Too Big to Fail banks do that can't be easily and quickly replaced. In fact, they are much, much easier to replace than an electricity utility.

Megabanks pose a risk to the health of the economy, just like the water-poisoning utility poses a risk to the well being of the community. When something goes wrong at the Too Big to Fail banks, like it did in 2007-2008, everyone suffers in the form of bigger deficits, higher taxes and lost jobs.

Meanwhile, it looks to be another record setting year for banker bonuses.

Between Governor King and the Independent Banking Commission's Sir John Vickers it would appear that the U.K., unlike the U.S., has the right people in the right place at the right time.

Bravo, Mervyn! Keep up the good fight!

P.S. Interestingly, Mervyn in his pre-BoE life was Michael Lewis' tutor at the London School of Economics.

New York vs. London vs. The World's Great Cities

A recent NY Times op-ed comparing New York's virtues to the world's great cities sparked a debate amongst friends on how The Big Apple compares to London.

I've been in London for all of seven weeks now, but here are some observations:

• Conversations in London are a lot more interesting, possibly due to the quality of the education system and high-brow media (i.e., Fox vs. BBC, or FT vs. WSJ); definitely a higher general level of awareness of what's happening around the world in London
• Food is surprisingly good and more reasonably priced than expected in London, probably due to the still favorable exchange rate of the U.S. dollar. However, New York probably has the edge here.
• Tap water is not as good in London, and Brita filtering only partially addresses its shortcomings (I came from the San Francisco Bay Area and Hetch Hetchy spoiled me)
• Tube vs. Subway: both aren't much fun; the Tube is more bearable and impressive in terms of its reach; central London is also surprisingly walkable so i rarely take the tube. London also has a nifty bike rental program.
• (Very subjective) Music is more to my liking in London; my first trip to the gym was greeted with an Armin van Buuren live set, something I don't think I've ever heard at a U.S. gym.
• Livability: London is definitely more livable than NY, and not just because the buildings are shorter. London's less densely populated and the weather is better. Nooks and crooked streets lend character; ample green space for dog lovers, and you can take your dog on public transports; citizens are trusted to drink alcohol in public, etc.
• Timing: it's a fascinating time to be in London with what's happening in Europe, although perhaps the same could soon be true for U.S.

While they both have their respective strategic advantages, here are some of London's: more cosmo/international experience sans empire. The Brits, with their global history, are a little more at home around the world than Americans, and arguably the rest of the world feels more at home in London than in NY. London perhaps also has a geographic/time zone advantage over New York: in the morning you can trade with Asia, and in the afternoon you can trade with America. Also, many of the world's most fastest growing financial products (currencies, derivatives, gold, etc.) are heavily traded or headquartered in London, not NY. Overall, London is more international than NY.

'la romantique'

In terms of NY vs. other worldly cities, with the U.S. still in the throes (and largely in denial) of its relative decline, living in NY could have the bittersweet feeling of being on location of what was until just recently the world's center of gravity. NY is obviously still good. But to use the metaphor of a great social event, you know you arrived late as the party is clearly fading. In fact, I believe NY's zenith probably was in 1962. Cities like London and Paris (here's a cute New York vs. Paris blog), which have had plenty of time to come to terms with their loss of empire, may perhaps feel more comfortable in their downsized shoes.

If you're looking for the world's the most up-and-coming dynamic places right now, then Shanghai, Singapore, Sydney, Cape Town, Dubai, Hong Kong and Mumbai would trump both New York and London. I also agree with the NY Times author that Chicago, which seems to be doing relatively well in terms of popularity, is the quintessential American city.

What do you think?