Hey, this should be fun.
The Treasury has just announced that one Adam Posen is to join the Monetary Policy Committee, replacing Tim Besley.
Posen has form. He’s the deputy director of the Peterson Institute in Washington and he’s the man who delivered a riveting piece of Congressional testimony at the end of February, warning the US government that it risked “hospitalization” of the US economy if it failed to apply immediate and definitive action to the banking crisis.
In short, he’s the man who has been calling for wholesale sackings — at failing banks and also amongst fumbling regulators.
An extract from Posen’s testimony:
In short, nationalization is only relevant for a part of the banking system under crisis, even for only a part of the technically insolvent banks, but it is necessary for the most systemically important banks that are insolvent. These banks must be kept in operation and have their positions and bad assets unwound in deliberate fashion. They also must have top management replaced and current shareholders wiped out. This is because the amount of capital required to restore them back to functionality is so large, and the process of restructuring their balance sheets so complex, with both having the potential to influence markets for other banks’ equity and asset prices, that only the government can do it. There will likely be private buyers a plenty for such a bank when the recapitalization and unwinding process is complete, but not before the restructuring begins.
Now, obviously, joining the MPC means this US academic will be focused on monetary policy – not restructuring the financial sector.
But if the Bank fancies getting back to direct regulation of the banks on its doorstep, Posen’s knowledge is bound to come in useful.
Related links:
A proven framework to end the US banking crisis – Adam Posen, Peterson Institute
Two takes on the zombie debate – FT Alphaville