So even the conventional IS curve says the result would be stronger demand. But let’s  Page 14  suppose the “drop” is financed by a tax on other, non-monetary assets, leaving household wealth in aggregate (the “W” term) unchanged. Because people’s financial positions differ, partly by age – older people have positive net financial wealth, those who’ve just bought a house have negative “W” – this pair of transactions redistributes resources, away from long-term savers and towards borrowers. And if the latter group is “credit constrained” – if they’d like to spend and borrow more at the prevailing level of interest rates but, perhaps for want of collateral, cannot do so – then this transfer should boost demand. Net payers of the tax will cut back on their spending by less than the increase in demand from beneficiaries of the policy. Even when offset by an equal and opposite tax, and even for given interest rates, this addition of liquid assets would add to demand and inflation. To me this sounds perfectly plausible. Indeed the MPC has often argued that these constraints can matter for the transmission of more standard changes in interest rates. If borrowers are (on average) more credit constrained than savers, and therefore more sensitive to changes in cash flow, equal declines in debt interest costs on the one hand, and deposit receipts on the other, will on balance be expansionary. Nor is this the only way in which a “helicopter drop” might matter.
The group we are most concerned with are the vulnerable customers. We are focussing on cases of mis-selling to vulnerable customers and on cases where the products were clearly inappropriate for them given their circumstances. We have required the FIs to give priority to these cases. They should not take an overly legalistic approach to mis-selling in dealing with these cases. For cases where there are sufficient indications that the product was mis-sold or that it was clearly inappropriate given the investor’s profile and circumstances, the FI should take responsibility. Several FIs have assured MAS that they will take full responsibility in such cases. We welcome this commitment and expect all FIs that have sold these products to take the same approach. They must do the right thing and ensure a quick and fair resolution for these customers. We have communicated this to their CEOs. Thank you, I will now take your questions. 2  BIS Review 126/2008