Mervyn King: Wider issues about globalisation at root cause of 2008 crash
2 min read
A failure to invest in unskilled workers in the UK was at the root of the 2008 financial crash, according to the then governor of the Bank of England.
Speaking to Radio 4, Mervyn King pointed to the divide between wages and the cost of living as the main cause of the financial crisis, which started a decade ago.
“The reason the banking system got into trouble is that when it expanded very rapidly, it did so primarily with borrowed money, rather than with new equity capital issued to its shareholders – that’s what made the banking system so fragile.
“But I do think these wider issues about globalisation where at the root cause of the factors that evolved into the financial crisis.”
Lord King criticised the attitude at global banks in the run-up to the crash and claimed there was “much less hubris and much more humility” after the collapse.
“They realise they are to serve the economy and not as a representative of the elites.”
Lord King defended the Government’s controversial decision to bail out the banks using taxpayer funds, as this had prevented a global catastrophe that would have seen savers lose their pensions.
However, Lord King admitted there were some lighter moments in grappling with the fallout of the financial crisis.
“There were occasionally funny moments. I remember a meeting with the FSA (Financial Standards Authority) were briefing Alistair Darling and myself about another bank that had gotten into trouble.
“They were saying, ‘Jaguar has lost a lot of money. Jaguar is in deep trouble. It will fail if we don’t do something about it by the end of the week.
“Alistair and I looked at each other. We had no idea that the Jaguar car company was in remote trouble and of course it wasn’t! Jaguar was a code name for a bank! In these private conversations code names were used in a way that seemed to be completely pointless.”
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