He bursts out laughing when I ask if he is the one to replace George Osborne should the shadow Chancellor be forced overboard by the Yachtgate affair. Still chuckling, Kenneth Clarke replies: "No, no, I'm not going down that route."
For now, though, the punters reckon that Clarke or William Hague, the shadow Foreign Secretary, are the two most serious contenders to succeed Osborne if the Conservative leader, David Cameron, decides he is too damaged to continue. Cantor Index, the City's top spread-betting firm, has Hague as the favourite at 9/4 while Clarke is 3/1.
A comeback by Clarke would be the most extraordinary turn of events for the 68-year-old MP, who made his name as one of the country's most successful chancellors after John Major promoted him to clear up the mess created by the UK's humiliating exit from the exchange rate mechanism on Black Wednesday. Clarke is credited with bringing recovery to the country, and with laying the foundation for the stability inherited by Labour for its first term in office.
We meet on Tuesday – the day the Osborne story breaks – in his offices at Portcullis House next to the Commons, where he has represented Rushcliffe, in Nottinghamshire, for an astonishing 38 years. He's on good form, clearly delighted that the gag on the Conservatives criticising the Government over the financial crisis has been removed, and wastes no time in attacking the Prime Minister.
"It would be completely irresponsible if Gordon Brown turned to more big spending plans to get us out of this crisis. It would be disastrous for the UK in the long term, building up even more government debt, bad for the economy and bad for sterling," he declares. Since we met, the pound has plunged to $1.52 in its biggest one-day fall in 37 years.
With customary precision, Clarke says that if Brown is going to invoke John Maynard Keynes, the economist who recommended spending your way out of a slump, then he should get his facts right. "Keynes would have encouraged governments to run a budget surplus at times of growth so that they could afford to spend their way out of a recession.
"If you were a political cynic, you could take the view that Brown's only answer to the problems is to pump more public money into the economy, so he leaves behind a poison-pill for the next government. Brown now wants the banks to go back to lending at 2007 levels, to bring back the punch bowl into the party. That seems folly to me."
Clarke has become gloomier as the seriousness of the downturn has emerged. "I am much more pessimistic about the world economy, particularly for the UK, than I was only a few weeks ago. Next year is going to be distressful and painful for many people. Unemployment is shooting up and consumer confidence is very low."
It's not just the depth of recession that worries Clarke, but whether the government bailouts of banks around the world will succeed. "We don't yet know if the recapitalisations and guarantees will work. If it doesn't, say by next week, then there will have to be more of the same. The Bank of England will have to keep putting liquidity into the system, taking whatever collateral it can, to get us out of this dreadful mess. The financial crisis will only be over when normal lending resumes to households and businesses."
What really riles Clarke is how Brown is taking credit for the bailout. "It's astonishing how he can claim to have saved the global economy. From what I hear, it was his indecision which held the plan up for so long. It was only when the markets crashed two weeks ago that he decided to allow the Treasury to go ahead with the recapitalisation and guarantee package. The first statement in Parliament by Darling didn't help either, when he merely kept saying in general terms that the Government would do everything it could to avert crisis. The next day, the markets were in freefall again and ministers were finally pushed into action."
Clarke says he first came up with the "No return to boom and bust" line when he was Chancellor from 1993 to 1997, and that Brown stole the phrase from him. "I have never believed you can abolish the economic cycle but the aim of policymakers should be to take the top off the upswing, to give you a cushion on the downturn."
While Clarke blames Brown's profligate spending for the bubble, he has harsh words for the tripartite system of regulation between the Bank of England, the Treasury and the Financial Services Authority, which took away the Bank's supervisory powers. "We had enough regulations in place to prevent this, but we just didn't have regulators who were up to it." If the FSA had been more closely in touch with the banks, he says, its staff could have spotted that the business models practiced by Northern Rock and Bradford & Bingley were flawed.
He argues that if the Bank of England had maintained it's banking supervisory powers, it would have seen and controlled the excessive lending by the banks. The FSA failed because it never really got into supervising the banking system. "All the Government's rhetoric was for a lighter touch. But the FSA is not there to be loved by bankers and ministers. It must be made of sterner stuff. It's too easy after the event to cry out for more and new regulation when, in most cases, it's already there."
Nor does he have any time for Brown's call for a better global "early warning system" for future financial crises. "It's really ironic for Brown to say this. We already have one – the International Monetary Fund actually warned us 18 months ago that the UK was heading for a housing bubble and a fiscal problem with potentially disastrous consequences. The Government ignored the warning."
Giving in to populist demands, such as curbing bankers' bonuses or banning short-selling, would be foolish, he argues. But it would be equally wrong to let the bankers drop the mark-to-market accounting standards that were introduced to allow a more transparent pricing of risk. "That would be a terrible mistake and a step back. It's the bankers, particularly the Europeans, who are trying to wriggle out of the mess they have got themselves into and blame something other than themselves."
Defending regulated free markets is not the easiest task right now: "We need to have the courage to stand by our views and make sure politicians around the world don't try to over-regulate. That could be detrimental to potential recovery and growth. Hopefully, once the hysteria dies down a bit from politicians and the media, the regulators and politicians can take a look at what needs to be done in a calm and sensible manner."
However, Clarke does want the hedge fund industry and the shadow banking system, such as the derivatives market, made more transparent, taxed and better regulated.
And to prevent overheating in the housing market, he suggests tougher limits on mortgage borrowing. Lending should be held to 90 per cent of the house value, people should not be allowed to borrow more than three times their salaries – or thereabouts – and there should be stricter checks on self-certification.
Clarke may be gloomy about the economy, but you sense that he is enjoying himself, too. Who could blame him? As the Chancellor who cut taxes, halved the budget deficit and reduced the share of GDP consumed by government spending, he has been a vocal critic on the back benches of this Government's imprudent spending, off-balance sheet as well as on, and predicted the housing bubble was exploding some 18 months ago.
Colleagues say there is a spring in his step again, as he's been sought out by TV and radio to give his views as the elder statesman on the world crisis. There's a jolly side too: "You can sense the ghost of Harold Wilson and Tony Crosland in the air. It's been rather fun – sparring with Frank Dobson on the Banking Bill while Labour attacks the City as a bunch of spivs and speculators again.
"Bringing back Peter Mandelson and Alastair Campbell is all about Brown needing to reunite the old New Labour coalition. It reminds me of fading football stars being brought back to fight off relegation."
He's as enthusiastic about Europe as ever, praising Mandelson for defending open markets during his time in Brussels as Trade Commissioner. Thankfully, he says, there is a political consensus in the UK on free trade. "That's about the only thing we do all agree on. The danger in the current crisis is that the world becomes protectionist again. Even Barack Obama, who will win the US election, has been playing the protectionist card– even though, I think, he is actually in favour of free trade. Let's hope so."
What would he do, either as shadow Chancellor or for real? He hesitates, but not for long. Keep free trade flowing, defend globalisation, bring in new fiscal rules for spending, incentives for small business, and ensure tough but fair regulation of banks. "Over the last 20 years, the human race has enjoyed the most incredible prosperity it has ever seen. This was achieved through globalisation and regulated free markets. It's helped reduce poverty, raised living standards everywhere, and brought tremendous growth to emerging economies in most parts of the world. We need to keep that going."
When I try again to fish for Clarke's view on Osborne's chances of survival, he laughs some more, adding: "I'm sure George would be thrilled to hear this!" That's it, matter closed, although he does give his take on the affair: "This looks to me like a classic piece of chattering-class gossip."
Born in Nottingham in 1940 and named after Pittsburgh bebop jazz drummer Kenny Clarke, he was educated at Cambridge, where he became chairman of the Conservative Association and later president of the union.
He was elected to Parliament in 1970 as MP for Rushcliffe in the East Midlands. Despite opposing Margaret Thatcher's leadership bid in 1975, he grew to prominence in her government, eventually rising to health secretary in 1988 and taking over at education two years later. Clarke was the first cabinet minister to tell Thatcher to go prior to her resignation in 1990.
Subsequently, he became one of the country's best-regarded chancellors, appointed in 1993 to pick up the pieces after the Black Wednesday currency collapse. Although popular with the "wet" wing of the party, Clarke's pro-European stance cost him leadership elections in 1997, 2001 and 2005.
A cigar lover, he was made deputy chairman of British American Tobacco in 1998, earning more than £100,000 a year. He is also a non-executive director of Independent News & Media, owner of 'The Independent on Sunday'. Appropriately, given his namesake, he is renowned as a jazz fan.
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