More Confusion, Now From the F.T.

Yesterday, the Wall Street Journal’s editorial endorsed IMF managing director Christine Lagarde’s call to recapitalize Europe’s banks.  Today, the Financial Times’ leader, “Ugly truths from a bold Lagarde” showers Ms. Lagarde’s proposal with praise.

The F.T. speculates that “Perhaps Ms. Lagarde has seen the light with new advisers.”  There is evidence to suggest that this conjecture is not true.  In July 2011, when the IMF filed its Article IV consultation report on Mexico, the IMF made clear that increasing banks’ capital-asset ratios would act as a drag on Mexico’s money supply and economic growth.  In consequence, the IMF counseled Mexico to call a “time out” on increasing banks’ capital-asset ratios.  Contrary to the F.T.’s conjecture, the IMF (or at least important elements within the IMF) hold views that directly contradict Ms. Lagarde’s.

Author Steve H. Hanke