Over the last several days, I have been sharing my thoughts (see here and here) on the Bank of England’s Andrew Haldane’s confession the central bank engaged in deception during the financial crisis.

Unlike the vast majority of the individuals who have responded to me about these posts, I am far less convinced the deception produced a positive result.  In fact, none of these individuals was able to point to anything specific the deception achieved on its own.  For example, it didn’t stop panic driven bank runs.  This was stopped by the governments guaranteeing unsecured interbank loans and deposits.

I am far more convinced the deception actually had only very negative consequences.

Let me talk about one of these negative consequences.  Central bankers engaging in deception undermined the credibility not just of the central bankers, but also the rest of government.

Why?

Is there any reason to believe the central bankers didn’t share with the rest of the government the information they had about the true condition of the financial system?

No.  This makes the government complicit in the deception.

Now this wouldn’t be problematic if nobody else could find out the central bankers and other government officials were trying to deceive the public.

The problem is the public had more than enough insight into the true condition of the financial system and could see the central bankers and other government officials were trying to deceive them.

By engaging in deception, the central bankers and other government officials undermined their own credibility permanently.  And this is a real problem.

When the government is providing “Fake News”, there is no longer a distinction between it and the actual purveyors of fake news.

As Hillary Clinton observed:

You know, the big lie is a very potent tool, and we’ve somewhat kept it at bay in western democracies, partly because of the freedom of the press.

Obviously there have always been newspapers who leaned right or leaned left and they kind of counterbalanced each other. But given the absolutely explosive spread of online news and sites that have sprung up that are very effective at propagating false stories, we’ve got some thinking to do … there has to be some basic level of fact and evidence in our politics. Well, frankly, in all parts of our society. [emphasis added]

Please re-read her statement.  Then read it again.

Here were central bankers and other government officials propagating false stories and hiding the facts.

When FDR introduced the idea the financial system should be based on transparency, he made disclosure of the facts the number one responsibility of government.

He also made disclosure of the facts the ONLY way governments should be involved with the facts.  In April 1933, he said the government should never be seen as endorsing or promoting a private security.

What was the deception central bankers and other government officials engaged in by hiding the facts?  It was both the endorsement and promotion of private securities.  Specifically, it was the endorsement and promotion of the banks by presenting them to be in far better financial shape than they actually were.

Brexit and Trump are the direct result of the decision to deceive.  This decision restored the power of the big lie to western democracies.