Mr Darling’s book is an important contribution to the UK debate. It confirms what was so strongly denied at the time – many in the Labour party thought Mr Brown was a disastrous Prime Minister. He argues that Mr Brown did operate through a small cabal, was extremely political in everything he did, and did try to sack Mr Darling at a crucial point in the Credit Crunch crisis.
More importantly, it argues that Mr Brown did not understand the depth and magnitude of the economic crisis which engulfed the government he led. In 2007 and 2008 this site continuously pointed out that the UK authorities were making a banking crash inevitable. I urged them to allow more liquidity in banking markets, to prevent runs on banks and to provide a substitute for the inter banking cash which had dried up. Instead we watched in horror as Northern Rock, Bradford and Bingley, HBOS and RBS got into severe difficulties and had to be rescued at much greater cost than if the authorities had lent more short term money against security earlier.
The government sought to ignore this view. When challenged over it, they claimed with the Bank of England that the errors were all the banks, and they deserved what was coming to them. It was a case of moral hazard. The regulators and the Bank had done no wrong. Later when I proposed cheaper ways of saving what needed saving from the ruined banks, I was told I wanted to take the whole system down by letting them go to the wall, by the very people who had presided over the wrecking of the system by their refusal to listen to good advice.
In Mr Darling’s book we now learn that he came round to my view, that more liquidity had to be supplied. The account of the meeting with the head of RBS in the business pages of the Sunday Times makes interesting reading. Mr Darling blames the Governor of the Bank of England for refusing to accept that there was a liquidity crisis which the Bank could do something about and had a duty to do something about. Mr Darling was told he could not override or intervene.
So far so good. I am pleased to learn that someone at the top did come to see the obvious truth, which a few of us were shouting from the sidelines. The other truth is, however, that the senior elected officials, the Chancellor and the Prime Minister, can always take aciton in such extreme circumstances if they need to. Mr Darling could have instructed the Bank to supply cash to the markets. If the Governor disagreed the Chancellor could have made the instruction public and I am sure the Bank would have done it. If it needed legal changes, they could have been put through the Commons in a day. I do not think legal changes would have been needed. Later in the crisis the MPC was effectively told to lower interest rates – rightly so- as part of concerted international action to tackle the problem. They convened a special meeting and made the change, claiming it was something they wanted to do. Their independence, we were told, had not been damaged! Under politicial pressure, the Bank could prove flexible.