Bank of England’s Tough Position Absent From the Wall Street Journal

One of our forms of recreation is keeping an eye on how coverage of certain news stories in the Wall Street Journal is curiously different than elsewhere. We’ve noted before that the WSJ tends to put a happy face on economic and market news (its company reporting is considerably more evenhanded).

The latest reporting disparity comes with the written submission to Parliament by Mervyn King, the governor of the Bank of England. The document, which took a tough position against providing liquidity because it would bail out speculators and might not prove to be necessary, was covered by the Financial Times, Bloomberg, and even the New York Times, yet got no mention in the Wall Street Journal (only a short post in its MarketBeat blog, which is not the same as putting it in the paper).

The Times gave a good overview:

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

Mervyn King, the governor of the Bank of England, also hinted that the credit crisis could make further interest rate increases unnecessary — if the recent sharp increase in borrowing costs ended up hurting consumer demand. That, he said, would reduce the prospects of inflation, despite the run-up in the prices of a wide variety of commodities, including crude oil and wheat.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

The FT also picked up on the theme “Central banks split over credit squeeze action,” but put more stress on the different views of the main actors, with the Bank of England the most stringent, the ECB the most accommodative, and the Fed (at least so far) taking a middle path.

The Times also noted it may be easier for the Bank of England to take a stand:

But some analysts maintain that the bank is relying on measures taken in the United States and at the European Central Bank in Frankfurt. To the extent that British banks need pounds sterling, this view has it, they can simply borrow in dollars or euros and convert them, freeing the Bank of England from the task and allowing it to occupy the moral high ground..

Still, Mr. King has turned into the most prominent critic of those in the financial markets who have been clamoring for cheap money….. Mr. King’s fear is that cheap money will encourage investors to create anew the kind of financial house of cards that is now tumbling down.

“If risk continues to be underpriced,” he said, “the next period of turmoil will be on an even bigger scale.”

Now why is this story missing from the Journal? One might conclude that the Journal is unwilling to run any serious story that takes issue with the idea of a rate cut.

It appears that the Journal, like Greenspan, doesn’t want to upset the markets.

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  1. RN

    Yves, are you surprised at this?

    This an example of why, in the hands of Rupert Murdoch, like Fox “News”, the WSJ is essentially just a political rag, and one’s attention should be turned to entities that still attempt actual journalism, like the FT.

  2. Yves Smith

    News Corp. made a regulatory filing on September 7 regarding the pending Journal deal. News Corp entered into a definitive agreement to acquire Dow Jones on August 1. However, the filing does not indicate a specific closing date, nor have I read that the deal has closed. This language suggests the target date is October:

    On August 1, 2007, before the opening of business in New York City, Dow Jones and News Corporation issued a joint press release announcing that they had entered into the merger agreement.

    On October , 2007, News Corporation and Dow Jones entered into an amendment to the merger agreement to modify the treatment under the merger agreement of certain vested stock options and certain outstanding awards granted pursuant to the Dow Jones Reuters Business Interactive, LLC Long-Term Incentive Plan, which we refer to in this proxy statement/ prospectus as the Factiva LTIP.

    Another provision gives News Corp the right to delay closing until August 1, 2008 if they encounter regulatory issues.

    I’ve indicated often that the WSJ is already biased, and not just on its editorial pages. Imagine what it will be like when the Murdoch era begins.

  3. "Cassandra"

    I can’t wait until after Newscorp takes the reins and Pearson (FT) decides to go for the jugular running ads with a tagline something like:

    “Reading our main competitor is like standing upon quicksand: one never knows precisely where the facts end, and self-serving opinion begins.

    “Read The FT – Because life is too important to NOT know the Truth…”

  4. Anonymous

    Do as I say, not as I do?

    The Bank of England relaxed restrictions on the amount of money financial institutions need to hold with the central bank, encouraging them to lend more to each other as it tries to reduce overnight borrowing costs.

    Commercial banks, which agree to hold a specific amount of money at the Bank of England at the end of each month-long maintenance period, can now undershoot that target by 37.5 percent and still earn interest at the benchmark interest rate, the central bank said today. That compares with a previous restriction of 1 percent.

    “They’ve been more generous than we thought,” said Philip Shaw, chief economist at Investec Securities in London, who expected the bank to widen the range to 26 percent.

  5. Yves Smith


    Yes and no. The earlier WSJ article cited a quote from Mervyn on his willingness to let financial players take their lumps that he made BEFORE the credit crunch got serious. The Fed shifted its views markedly, and one could therefore not assume that the BoE’s posture was unchanged.

    Now later comments have pointed out that the BofE may not walk its talk, but the news hook was that the submission highlighted differences in approach among the three major actors. That to me is newsworthy, particularly since the Journal has more pages to fill than the FT or NYT and thus is assumed by many here to be more comprehensive.

  6. jck

    In any case it is clear by now that the BoE doesn’t walk its talk…and I don’t know anybody expecting them to.
    See the funny papers or my blog for the latest on the Northern Rock bail out. ( not a surprise btw )…nothing has changed.

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