The Special Liquidity Scheme and the Failure of Creditism
There was an almighty showdown: Mr. King found himself confronted by a powerful coalition including Chancellor of the Exchequer Alistair Darling, top Treasury officials, the Financial Services Authority led by its then-chairmen Adair Turner, and senior members of the BOE’s Court. All demanded that he do something to stem the deepening credit crunch. Much to Mr. King’s fury, Bank of England Deputy Governor Paul Tucker had circulated a paper to top officials at the BOE suggesting the central bank set up a new long-term funding facility that would allow banks to use their illiquid mortgage portfolios as collateral. A concerted effort was made to force Mr. King to agree to the plan. In a night of high drama involving a series of late phone calls, Mr. King relented and the Special Liquidity Scheme was born.
The SLS was arguably the single most successful crisis response deployed in the U.K.
Stop right there Mr. Nixon, I can’t resist this one…
The UK’s major foray into creditism co-incided with the worst collapse in aggregate demand on record, before or since. If that’s success, I’d hate to see what failure looked like.