The Financial Crisis: The Cause and the Cure?

Abstract

This discussion paper lays the foundation for formulating an effective policy to address the current financial crisis facing the United Kingdom. The paper calls for an aggressive and coordinated intervention by the Treasury and the Bank of England including (i) the creation of two Government Sponsored Entities, (a Consumer Bank with a mandate to provide loans directly to consumers and a SME Bank) and (ii) for the Bank of England to establish a taskforce to work with the troubled banks to write down the value of their illiquid and non-performing loans and that the Bank of England (as opposed to the Treasury) should directly inject capital into these troubled banks. The paper also calls for targeted tax cuts to allow the consumer to undertake an orderly deleveraging and for direct government investment to resuscitate the economy.