Daily catch-up: Alistair Darling on the financial crash of 2008

Former Chancellor talked to Masters students at King's College, London, about how after the summer of 2007 he 'never had a good holiday since'

John Rentoul
Monday 23 November 2015 09:59 GMT
Ed Balls, Alistair Darling, Jon Davis (behind), Nick Macpherson and Mario Pisani
Ed Balls, Alistair Darling, Jon Davis (behind), Nick Macpherson and Mario Pisani

Alistair Darling spoke to students on the "History of the Treasury" course at King's College, London, on Friday. I wrote in The Independent on Sunday about some of the lessons for George Osborne's Autumn Statement of chancellors who want to be prime minister and prime ministers who have been chancellors.

Darling was talking about the financial crisis of 2007-08.

When I became Chancellor in 2007 my first interview was with the editor of the FT. He said to me: “This must be the first department you’ve taken over where nothing is going wrong.” It seemed tranquil. Perhaps instead of all these public inquiries when things have gone wrong it would be more use to have them when things are going right, to ask why they are going right and whether it can continue.

On holiday in August 2007, I was sent to get groceries and saw the FT and I thought, “I’m the Chancellor, I ought to know what’s going on.” So I bought it and that was the first inkling I had. There were two small reports, one about a French bank that had suspended two funds because it couldn’t value them, and another about a German bank in trouble. I've never had a good holiday since.

Ed Balls, a visiting professor at King's, added: "When I left the Treasury in 2007 it was all going fine." (He was Economic Secretary to the Treasury 2006-07 before being promoted to the Cabinet as Children's Secretary.)

The first problem in the UK was the run on Northern Rock in September 2007. "One of the problems was 24-hour TV news," said Darling. "A woman was interviewed saying she’d seen the queues on TV and was filmed taking her money out and crossing the street to deposit it in Bradford & Bingley." (Bradford & Bingley went bust a year later.) Sky News showed the same pictures of queues over and over again, even after the Government had announced it was standing behind Northern Rock – instead of reassuring people the announcement made them worried.

William Keegan, another visiting professor, pointed out that Northern Rock didn’t have many branches. Darling said: "Seventy, and four of them near TV studios." Catherine McLeod, who had been his special adviser as Chancellor, added: "And it was a sunny day. One branch was near a Sky studio. A reporter noticed that queues starting to form, partly because tellers were arguing with customers telling them they didn’t need to take their money out." As more banks got into trouble the next year, Darling became "obsessed" with tellers at branches, according to Nick Macpherson, the Treasury permanent secretary who co-teaches the class with Jon Davis. Banks were told to make sure they had enough tellers and that they didn’t argue with customers.

Darling said the US government should have prevented Lehman Bros from going under in September 2008:

Lehmans didn’t cause the crisis but it made it much harder to deal with. The idea that you can let a huge investment bank go down without a crisis is bollocks. In peacetime, in normal times, any company can go bust. Barings, BCCI. The thing was managed. In a crisis, you can’t let any of them go down. British savers in Icelandic banks didn’t realise they were Icelandic because they cleverly didn’t use Icelandic names. You have to treat the entire system differently: the number one objective is to stabilise the system and restore confidence. With Lehmans, what people saw was people pouring out of a building like it was on fire, and they thought, I’d better get my money out of my own bank.

He recommended two books on the crisis: Hubris by Ray Perman and Make It Happen by Iain Martin, "a bit more racy".

The former Chancellor was still annoyed about the GDP figures for the third quarter of 2009, which showed a fall but which were later revised sharply upwards: it was the turning point in the recovery. "Denis Healey came into the Treasury just before I left, he was 92, still railing at the Treasury for giving him the wrong figures in 1976 – he didn’t have to go to the IMF after all. When I’m 92 I’ll come in and rail against you," he said to Macpherson.

Darling was asked about his relations with Gordon Brown. "I shared a platform the other day with Nigel Lawson at the Cheltenham Book Festival and he brought this up. I said, You fell out with your boss over an economic adviser as well." Balls, who had been Brown's adviser, sat expressionless next to him.

Our ComRes poll in the Independent on Sunday caused a stir. Its 15-point Conservative lead was the highest since January 2010, and the highest enjoyed by the Tories in government since January 1991. That figure is not as bad for Jeremy Corbyn as it looks, because our ComRes online series had an 11-point Tory lead in August, before he became leader (that was our first post-election poll and it used the ComRes Voter Turnout Model to adjust for how different groups actually turned out to vote in the election).

But the Favourability Index is bad for him. His net favourability has gone from -18 in September, just after he was elected, to -28 now, with those having a favourable view of him dropping by 2 points to 22 per cent and those with an unfavourable view rising 8 points to 50 per cent. This contrasts with an Ipsos MORI finding last week that Corbyn had a better net satisfaction score, -3, than David Cameron, on -15.

It turns out that, "Are you satisfied or dissatisfied with the way David Cameron is doing his job as Prime Minister? [or] ... Jeremy Corbyn is doing his job as leader of the Labour Party?" is a very different question from, "Please indicate whether you have a favourable or unfavourable view of each of the following politicians..."

The Top 10 in The New Review, the Independent on Sunday magazine, is Songs Without a Chorus. The Spotify playlist is below. There were disputes, resolved with iron discipline. "Space Oddity" was chucked out at the last moment because L Phelan pointed out that "Here am I sitting in a tin can..." is a chorus. But I agree with David Wild that "Pleased to meet you..." in "Sympathy for the Devil" is "more a resolution than a chorus". "Wish You Were Here" has something that would be a chorus, "How I wish, how I wish you were here ..." But it is sung only once. A chorus has to be melodically different from the verses, and repeated.

You will notice that there is no Beatles ("A Day in the Life") and no Bob Dylan (apart from "All Along the Watchtower", which Hendrix made his own). My list, my rules. But I confess fallibility in that I missed two of my favourites, nominated too late for inclusion: “The Wreck of the Edmund Fitzgerald”, Gordon Lightfoot, nominated by Richard Moodey, and “Song To The Siren”, Tim Buckley (covered by This Mortal Coil), nominated by Barry Smith. Thanks to all.

And finally, thanks to Moose Allain for this:

"Writing an open letter about the envelope shortages."

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