Tales in Possible
— March 30, 2016
Lord Mervyn King, former Governor of the Bank of England, Baron King of Lothbury, Alan Greenspan Professor of Economics, and Professor of Economics and Law at NYU, addressed students, faculty and alumni from NYU Stern and NYU School of Law during a fireside chat on his new book The End of Alchemy: Money, Banking, and the Future of the Global Economy this March. Hosted by Peter Henry, dean of the NYU Stern School of Business, and Trevor Morrison, dean of the NYU School of Law, Lord King reflected on his experience at the Bank of England, including the financial crisis, and shared some of his observations about the banking system and global economy:
- Financial alchemy, according to Lord King, is financial power, both through the creation of paper money and the invention of banks issuing credit, which defies common sense. Faith in these financial powers, he said, has both fueled economic growth and led to economic disasters.
- Reflecting on the financial crisis, Lord King pointed to falling long-term interest rates, which led to an increase in asset prices and an uptick in borrowing, as culprits behind the fragility of banks.
- He also debunked the widely held belief in the US that the financial crisis originated in the subprime mortgage market.
- In order to reduce the likelihood of a future crisis, Lord King proposed a future in which commercial banks allow the Fed to examine their assets, assess their risk and evaluate how much insurance may be required to hold those assets through unpredictable economic swings.
- Lord King also emphasized the need for global coordination in monetary policy to address economic imbalances.