Paul Fisher had a baptism of fire when he joined the Bank of England’s Monetary Policy Committee in March 2009.
The economy was in the grip of the most severe recession in almost a century and the Bank had been slashing interest rates to stem the bleeding. But with rates at rock bottom, the Bank felt compelled to launch an unprecedented programme of asset purchases to stimulate demand. As executive director for markets, it was Mr Fisher’s job to oversee and implement what we now know as quantitative easing.
“My feet hardly touched the floor for the first six months or so because I was busy getting that programme under way and conveying to the market what was going on,” he recalls.
“I spoke to nearly all of the gilt-edged market-makers and asset managers I could find, trying to explain to them what the rationale was for the programme. What we didn’t want was operations that were unsuccessful because that would have questioned the credibility of the overall programme.”
Mr Fisher trenchantly defends those decisions made at the height of the crisis. He pays tribute to the “tremendous” efforts of his colleagues in the market team “who really did pull all the stops out to try to turn the economy round”.
Mr Fisher also argues that QE, along with the Bank’s Funding for Lending Scheme which subsidises credit to banks, were responsible for the recovery that finally kicked in last year. “A number of our policies had very big powerful effects on the recovery phase, and, without doubt, things would have been much worse if we hadn’t stuck to our guns” he says.
But it was one of Mr Fisher’s old jobs that put him in the spotlight earlier this year when a group of City traders, who have been accused of rigging foreign exchange markets, released information implying the Bank had been aware of what they were doing. Minutes of meetings emerged which showed Bank staff, including Mr Fisher in his former capacity as head of Threadneedle Street’s Foreign Exchange Division, holding meetings with traders at a host of City restaurants.
The Bank’s governing court has appointed an independent QC, Lord Grabiner, to look into the affair, but Mr Fisher makes clear he thinks the idea that the Bank behaved improperly is a “non-story”.
“I attended one [restaurant meeting] and I wouldn’t describe it as high-end,” he sniffs. “Most of those restaurants were pretty ordinary by City standards. Meeting traders at lunch time on a US holiday is one way of getting them out of the office. It’s not really the issue. The issue is misconduct that traders are alleged to have been engaged in.”
When talking about the traders’ alleged behaviour, he sounds baffled. “Why did people ever think this was the right thing to do in the first place?” he asks. “What’s really shocking is the collusion between traders across firms. These firms are supposed to be ferociously competitive, so how come their traders were talking to each other and arranging things between them?”
And Mr Fisher has no time for the idea that the boundaries of acceptable behaviour in fast-moving markets are not so clear cut. “The truth is there are certain things you know are wrong” he says. “You do not collude with other people to fix prices. You do not share client confidential information. Full stop. Everybody who works in markets knows those two things.”
Yet Mr Fisher does not think that radical solutions, such as new taxes on forex trading to make it less profitable and to reduce the financial incentives for abuse, are a part of the solution. “These markets are here for a purpose – they’re not just playgrounds for people to make money,” he says. “They actually serve a vital role in allocating resources in a capitalist system. You stop all these markets and you do damage economic growth. We need fair and effective markets.”
When I suggest that the foreign exchange market might now be too big to be socially useful, he dismisses this as speculation. “I haven’t done the calculation to show what the right size of the forex market is. The vast majority of it is to support real economic activity,” he says.
Despite Mr Fisher’s insistence that the Bank behaved entirely correctly over forex, he was transferred to a new position as deputy head of the Bank’s Prudential Regulatory Authority division last month. Did he pay a price for the Bank’s embarrassment at having its integrity questioned over forex? “I don’t think so” he says. “I wasn’t the only person to be moved. Others involved in the moves weren’t in any way involved in this. No, it was incidental.”
In his new position, Mr Fisher won’t oversee the reversal of the QE programme. That task will instead fall to the Bank’s incoming deputy governor, Nemat Shafik. “That’s one thing I’ll miss,” says Mr Fisher. “If you set up a policy and then don’t unwind it… there’s a little bit of sadness about that.” But he has clearly thought deeply about how the process should occur, saying that gilt sales should only start after rates have been lifted high enough to cut again in another emergency.
I ask about the vigorous public debate between the International Monetary Fund and the Bank for International Settlements about whether the European Central Bank should engage in its own QE programme. Has this been healthy? “Debates generally are helpful as long as they are informed and balanced,” says Mr Fisher. “You see things in the press which are just columns of unsupported assertions, of somebody’s opinion. Well, that’s not really very helpful.”
But Mr Fisher, who leaned towards the dovish end of the spectrum during his time on the MPC, dismisses the hawkish argument of the Bank for International Settlements that rates should have been higher in the UK before the crisis.
“We had the highest interest rates in the G7 for most of the 10 years leading up to the crisis,” he says.
“That had given us an overvalued exchange rate. Short-term money was flooding into the UK to take advantage. That was giving us a big current account deficit. That money went straight into the banking system. So the right policy prescription would have been to put interest rates up? I don’t think so. It would have meant more hot money coming in making the problem worse.”