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Great Expectations for Carney at Bank of England


Carney's appointment may be a very welcome development. He seems to have exactly the kind of skills that that are in need to help Britain extricate itself from a difficult economic and fiscal situation.

Many decades ago, when newly appointed Bank of England Governor Mark Carney was still a small child playing in the small town of Fort Smith in Canada's Northwest Territories, I was learning my first lessons in just how Canadians were seen by the British establishment. The establishment in question was my London day school, whose staff included in its ranks at least one member of the nobility and many of whose students came from upper-crust homes in Belgravia, Knightsbridge, and Chelsea.

When I, the resident Canadian, was caught sticking out my tongue at my headmistress behind her back (or so I thought) and sent to her office to be chastised for my bad behavior, the punishment was accompanied by a lecture. "You may be a colonial," the redoubtable woman announced, with a sniff. "That means you may well never accomplish as much as some of the other girls here. But that doesn't mean you can get along without good manners."

Flash forward four decades or so, and now Mark Carney – a fellow colonial – has been tapped to take the helm of that most British institution, the Bank of England, founded in the late 17th century. Some fusty Brits may still share those antiquated and patronizing ideas about the worth of "colonials," but even among these individuals, Carney's appointment may be a very welcome development. Not only does he have manners, but he seems to have exactly the kind of skills that that are in need to help Britain extricate itself from a difficult economic and fiscal situation.

Carney may be a colonial, but he's a particularly savvy one, well equipped to tackle the challenges associated with his new tasks: Setting and monitoring monetary policy as well as the more sweeping regulatory oversight responsibilities that the British central bank has taken on.

This is a leap into the big time for Carney, but one that shouldn't come as too much of a surprise for anyone who has monitored his career – Goldman Sachs (NYSE:GS), Canada's finance department and finally, in 2003, the Bank of Canada (TSE:RY) (NYSE:RY). The Harvard- and Oxford-educated economist has toiled in the trenches of investment banking, getting firsthand insight into some of the risks facing national governments in today's high-speed global markets, such as Russia's sovereign debt crisis in the late 1990s that brought about the collapse of Long-Term Capital Management.

Carney may have learned the messages of that crisis better than many of his peers. Certainly, under his eye, Canadian financial institutions largely steered clear of the debacles that brought their US counterparts to the edge of disaster (and sent Bear Stearns, Lehman Brothers, Washington Mutual, and others toppling over the edge.)

While it's foolish to assume that Carney can simply step in and quickly guide a country in a very different set of economic circumstances – with a very different regulatory regime and facing different problems – back to health, he does have several advantages in his new position.

Firstly, and perhaps most crucially, he carries little baggage. In contrast to some internal candidates for the job, he is tainted neither by failures to keep Britain's economy from succumbing to a double-dip recession or to prevent its financial institutions from succumbing to the financial crisis in the first place. The failed policies of the past belong to others, which means he'll enjoy a honeymoon of sorts – the more so, since while he is reasonably well known to Bank of England officials with whom he has and will be working, he won't be seen as the candidate of any particular coterie within "The Old Lady of Threadneedle Street," as the bank is often called.
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