When a UK Treasury minister departed his post in 2010, he left a note for his successor: “I’m afraid there is no money.”
I would guess that your predecessor at the Bank of England, where you start as Governor today, is far too canny to leave behind anything quite so graphic. He’s not the sort is Mervyn King to leave his thinking open and certainly not in a manner that could return to haunt him.
Nevertheless, if he was, Mervyn could have copied those words verbatim. You see, Mark, you might think you’re coming to a super-economy – one of the world’s elite, we’re never tired of telling anyone who will listen – strategically placed to act as a bridge between North America and the EU; blessed with a highly developed infrastructure; gifted with a pulsating, world-beating City of London; poised to rise again as a powerhouse of the 21st century.
The truth, Mark, is that we’ve been knocked for six. It’s not a phrase you may be familiar with, but it’s one that Mervyn would know well. He was a keen cricketer was Mervyn – yes, that’s right, he had an abiding passion for that funny game, the one where the players wear white, and sit or stand around for hours, doing very little, before the match is declared to be a draw.
What walloped us – to borrow an expression you might know from baseball – was the credit crunch. Other countries suffered in the crisis but they seem to have pulled themselves clear. Here, we’re still in the throes of it. Latest figures show the recession of 2008-09 was worse than anyone, including Mervyn, first realised; and GDP is an awful 3.9 per cent off its pre-crash peak, instead of the anticipated 2.6 per cent. Have you met John Hawksworth? He’s chief executive of PwC and he probably put it better than anyone when he said: “We fell into a big hole and it is taking us longer to get out of it than we thought.”
I’m sure you won’t be influenced by others to start jacking up our interest rates. It does not make sense – we’re in no position to begin paying more for our money. Of course, the markets are crying out for a rise. But don’t be pressured: it would be too soon; too dangerous. You run the risk of jeopardising what recovery there is. I like what you did in Canada, especially your “conditional forward guidance” approach of setting out clear parameters for the year ahead, so that everyone knew where they stood.
Please be careful, though. Mervyn also became obsessed with targets – in his case, inflation. This meant that the Governor and his cohorts were caught unawares by the banking collapse. They simply did not appreciate how much of the financial sector was dependent upon ever-increasing levels of credit. Once the worm turned and people at the bottom, in the US, stopped repaying, and the wholesale credit market stalled, there was nothing they could do.
Don’t treat real life as an academic exercise. Mervyn was of donnish, disciplined, abstemious stock and once the banks began crumbling, he lectured on the travails of “moral hazard”, believing they’d brought it on themselves and should not be rewarded for playing fast and loose.
That’s the point, however. Other people’s money. A tale quickly did the rounds in the City that when Northern Rock’s failure was leaked to the BBC, Mervyn was shocked to see on his television the bank’s customers queuing to withdraw their deposits. There’s another cricketing phrase: to play on the front foot. Mervyn chose the back foot, remaining stolid and defensive. Then, he switched, going on the attack and pumping liquidity into the system. If you get hit from left field by some calamity, Mark, will you go on the offensive at the outset? Tackle it head-on. Be upfront on what you’re doing and why.
You’ve been a Goldman Sachs star banker, so you’re well-versed in the art of silky smooth persuasion. This was never Mervyn’s strong point. Brilliant brain, massively intelligent, great sense of humour but oh boy, he did not see his calling as communication. Give him a private dinner at the Bank with some clever mates any evening rather than a microphone and camera. In an era when we have little faith in our political leaders and we’re deeply suspicious of the motives of slick wizards in banking and hedge funds, it’s not excusable to hide away, to not come forward to reassure and to explain. On this I disagree with Jim Leaviss, of M&G investors, responsible for £30bn of bonds, who says the Governor should speak in public as little as possible.
I recall a lunch with Mervyn when we sat in the bowels of the Bank. It really did feel like that, I’d been taken into the heart of the great old edifice to the Governor’s dining room. The place was furnished with antiques, the “parlour stewards” wore their traditional pink coats, and the only sound was of a clock ticking. I had a terrific time – Mervyn was his usual waspish, sharp and funny self. But it should no longer be like this.
Outside, I was aware, trading floors were humming; enormous sums were being transported in micro-seconds across the globe. We could have been in a bygone age, rather than the 21st century. Whatever is said about how important it is to maintain historical rituals and values, it must get to you working in a building like that. There’s a sense of detachment – vital, I acknowledge, in a central banker who must remain above the fray – but with the current Bank of England it’s taken to extremis.
Your Bank has to be different. It’s already becoming so, with the addition of the new Prudential Regulation Authority to oversee the biggest banks and insurance companies. There’s also the new Financial Policy Committee which must spot potential disasters and head them off before they occur. And the good work of Mervyn to bring the banks to heel, to ensure they’re adequately capitalised, cannot be allowed to go to waste and must continue.
Mark, you can’t do all that from atop an ivory tower. You’re going to have roll your sleeves up and get down and dirty. The next time I pay a visit I want a sandwich lunch, not silver service. I want to see flickering screens around me, not historical framed bank deeds. Keep the pink coats – but on a dummy in reception to remind you and us how the Bank used to be, not what it is still.
And Mark, good luck. Mervyn’s shoes are not easy to fill. He did some superb things: such as devise monetary policy with success; and restore the bank’s hegemony. Now you must take his legacy and build upon it.