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The Treasury, Bank of England and Financial Services Authority concealed important information from the International Monetary Fund and put pressure on it to tone down warnings before the financial crisis, the fund’s independent watchdog has concluded.
The IMF’s main problem in failing to spot the vulnerability of the UK economy to the financial crisis in the years 2005 to 2007 was that fund officials were too soft on British officials, and willingly participating in “groupthink”. However, their work of supervising the economy was also hindered by an aggressive attitude from British officials.
In particular, the constant sparring over the public finances between the IMF and Gordon Brown’s Treasury, when Ed Balls, now shadow chancellor, was a key figure, contributed to fund officials being insufficiently robust with the Bank and the FSA.
Quote:
The Bank and Treasury also concealed from the IMF a financial “war game” simulation they conducted with the FSA in 2006, which revealed that UK banking deposit insurance was not fit for purpose. The FSA, too, rejected IMF advice to collect more data on off-balance sheet banking vehicles after a “lively discussion”.
43. There is no evidence from internal documents or from interviews that this stance resulted from IMF Management or Board pressure on staff to soften messages. On the other hand, however, there is some written and interview evidence of pressure of this kind to tone down specific recommendations on fiscal policy issues. Fiscal issues were also the major issues of contention with the U.K. authorities (and on which there were discussions of the wording of the Article IV’s concluding statement). Some have argued that these pressures reduced staff’s appetite to challenge U.K. authorities regarding monetary policy, financial risk, or regulatory issues. There is more evidence, perhaps, that staff were influenced by the authorities’ own analysis and strong reputation and expertise in handling financial sector issues. There was a large element of “groupthink” in the staff conclusions.
Makes Balls' and indeed Milliband's comments all the more amusing given they were complicit in the above.
Glad you posted this. I heard about it on the radio a couple of weeks ago and meant to post it here (hmmm an opportunity missed to show Milliband and Balls for the opportunist hypocrites they are...... I really must be losing it.... )
Anyway, as you say, it nicely puts their current stance on the economy into perspective and is a timely reminder that some people will say and do almost anything in the pursuit of power.
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