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Stricter Loan Rules Needed

Written By On 10/02/2014

Lord Adair Turner, one of a select few put forward to take over from the previous Bank of England governor Mervyn King last year, is convinced that stricter mortgage and loan criteria is needed to stop further global financial catastrophe.

Lord Turner is a member of the UK's Financial Policy Committee and was the Chairman of the Financial Services Authority up until it was terminated nearly a year ago.

He believes strongly that the UK financial institution needs to go backwards by more than fifty years in order to go forwards once again in a more positive way.

Lord Turner was chairing the former city watchdog at the same time as the international banking system was floundering badly. He will be delivering a lecture in Germany addressing the global economic financial situation and will recommend more austere credit control as was the case six decades ago.

He says that short term lenders and payday companies will also need to cut down on exorbitant interest charges to help further debt problems.

He feels that really low base rates and quantitative easing plus loan allowances is what

got us into this mess in the first place,

He believes that personal debt plus global imbalances and inequality between debtor and creditor countries needs to be looked at closely to stop the same crisis from re-occurring within the next few years.

He says the economic crash was caused by central banks putting far too much importance on inflation.

He commented,

That was a major intellectual mistake. What I am suggesting takes us back to before those assumptions were in place. The 1950's and 1960's were a golden age of steady growth without crises.

He added

My argument therefore suggests that already agreed reforms to financial regulation though undoubtedly valuable, are inadequate to prevent a future repeat of a 2007 to 2008 style crisis. But it also suggests that much pre-crisis economics and finance theory presented an inadequate account of the role of credit creation within an economy, and of the consequences of resulting leverage.