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Frank Schnittger:
The Irish central bank virtually redundant.  (I have an acquaintance who used to be a senior official with the bank and who spent his time skulling pints and attending conferences.  There was never any pretence at real work)
I was re-reading this yesterday
A credit crunch and liquidity squeeze is instead the time for central banks to get their hands dirty and take socially necessary risks which are not part and parcel of the art of central banking during normal times when markets are orderly. Making monetary policy under conditions of orderly markets is really not that hard. Any group of people with IQs in three digits (individually) and familiar with (almost) any intermediate macroeconomics textbook could do the job. Dealing with a liquidity crisis and credit crunch is hard. Inevitably, it exposes the central bank to significant financial and reputational risk. The central banks will be asked to take credit risk (of unknown) magnitude onto their balance sheets and they will have to make explicit judgments about the creditworthiness of various counterparties. But without taking these risks the central banks will be financially and reputationally safe, but poor servants of the public interest.
and I got to thinking: if during good times being in certain positions of responsibility is an unchallenging job, how do you ensure that people with the necessary skills and resolve (not necessarily individually, but certainly collectively) are where they need to be in a time of crisis?

A military analogy would be, how do you maintain combat-readiness in your defence forces after two generations of peace? And if you don't, who do you turn to when the unthinkable happens and you're invaded?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Dec 3rd, 2010 at 06:23:03 AM EST
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