After this week's interview with the BBC, the Governor of the Bank of England, Mervyn King, should really be called the "Not Me Guv". It was a classic of its kind, as the most distinguished figure in London's financial markets declared that, of course, he had made mistakes but these were only in not pushing more strongly for the reforms he had already been proposing, and in not stating his case more clearly. The fundamental decision not to fund a takeover of Northern Rock was made not by him but by the Chancellor, Alistair Darling.
Really? Is this all you can say about a crisis which saw the first run on a bank in 150 years and had pictures of the lines of ordinary depositors queuing to withdraw their money, humiliating a City which proclaims itself to be the financial capital of the world.
The Governor claimed to understand the reasons for the panic but never seems to have asked himself what would have happened had he done things differently. Or if he did, he has emerged from the exercise with a remarkable sense of self-satisfaction.It was left to DeAnne Julius, a former member of the Bank's Monetary Policy Committee, to point out in an interview that other countries did, in fact, do things quite differently and that, as a result of the Bank's studied inactivity, "we were the only major economic country to suffer this kind of bank run, despite the fact that Northern Rock was solvent and was not exposed to the sub-prime crisis."
Now it is perfectly true that the dive for cover has long been a feature of British public life, from the South Sea Bubble (how Robert Walpole got away with that is one of the wonders of history) to the Dardanelles, where Churchill didn't quite manage to get away with it. If you wanted to see Britain's top generals and civil servants in full flight from culpability, you had only to watch Sir Mike Jackson, the former head of the army, and Lord Jay, the former head of the Foreign Office, oiling their way out of responsibility for the Iraq fiasco in John Ware's recent television documentary, No War, No Peace.
It is also true that there is in the media a hunger for blame that amounts to bloodlust. Mervyn King spent much of Tuesday protesting that he was not trying to shift responsibility to Alistair Darling, that it was all a joint failure, and that it was only the press which made it something different. But anyone in public life should know that any hint of passing on blame is a political act, and an incendiary one.
The point of the blame game is, of course, partly ritual revenge. After some act that has brought shame on the nation, the public requires sacrifice in expiation. Black Wednesday was one such occasion. The Northern Rock crisis is undoubtedly another such occasion – you have only to see the foreign coverage of the queues to understand that.
But it is disaster that also provides a unique opportunity for the public to gain an insight into how we are governed and how we might improve upon it. The structural problems revealed by crisis are part of this and an enormous amount is made of "systemic failure", to use the fashionable phrase, in the investigations that follow. In the Northern Rock case, there were problems – the Governor has pointed them out at length – in the tripartite division of regulatory authority between Treasury, the Bank and the Financial Services Authority. There were also gaps in the rules when it came to the terms for lending in last resort, and the publication of the institutions involved. Above all, the law on depositor protection was clearly inadequate when it came to the crunch.
But there are also failures – and here the system of parliamentary scrutiny is becoming less and less effective, partly because of the partisan heat with which they are conducted – of individual decisions. At the heart of the Northern Rock debacle were people, including the Chancellor, the Governor and the head of the FSA, who could have made different decisions but didn't. Eddie George, King's predecessor at the Bank, would have knocked heads together. The present Governor preferred to knock knees.
The real charge against Mr King – as indeed the besiegedSir Ian Blair of the Metropolitan Police – is not so much that they made wrong decisions, although both could, I think, be reasonably accused of grievous sins of omission. It is that at no point do they seem to have been in control of events. On every occasion, Sir Ian has revealed he was not in command, or even in the know, of individual operations. As the credit crisis hit the market, Mr King seemed equally divorced from events, obsessed with the problem of "moral hazard" in letting institutions avoid the consequences of their own misdeeds at the expense of grappling with the crisis that was unfolding before his eyes. The armed services know the phenomenon well. Each time war breaks out, the country proves to be led by peacetime generals unable to cope with the actual fighting.
In the case of the police, we are faced not with war but a prolonged conflict. In the case of the financial world, we are faced, again not necessarily with recession, but with an extremely bumpy ride ahead where nobody seems to have either the solution to Northern Rock's woes or the true extent of the strains of the sub-prime crisis on the banking community as a whole, let alone its effect on consumer borrowing and hence economic growth.
Mervyn King, as Sir Ian Blair, should be dropped for the simple, overriding reason that they are the wrong generals to fight the battles ahead. Or, to put it another way, none of us can sleep easy in our beds so long as they are in charge.Reuse content