The Governor’s outspoken interview is welcome – but a sign that the endgame is in sight.

Bank of England Governor Mervyn King

 

Mervyn King’s interview granted to Charles Moore of the Daily Telegraph today is not that extraordinary if you go back to the BoE Governor’s statements of late 2007, when the Northern Rock applecart was about to tip over. This is what he said at the time:

“It is not the Bank of England’s job to bail out banks with weak – some would say reckless – lending policies”.

Very shortly after this remark for the media, King found himself the recipient of one of Gordon Brown’s more apoplectic phone calls – following which, no doubt, the new Prime Minister flung the handset at some hapless Downing Street pa.

Independent or not, since that time Mervyn King has been minded to watch his p’s and q’s, a necessity which (I think) has earned him a raw deal from the media. Like him or not – and all central bankers are deviously self-serving in the end – the Governor has been dragged through this whole farce with one good arm shoved far up his back. Now at last – with the New Labour nutters a distant memory, and faced with an essentially sloppy young Government out of its depth – Merv the Swerve has begun to speak out again: “If I wanted to reform the banking system, I wouldn’t start from here”, “Raising rates immediately would be a futile gesture”…..and now today, “Without reform, we face another serious banking crisis”.

The truth is that King – like Bernanke – is an intellectual not a banker.

While talking to Charles Moore, he mentions his preference for manufacturing over speculation; you can feel he thinks the latter not an entirely clean way to make a living.

He asserts that “too much weight is put on the importance and value of takeovers” – adding fuel to the fire started years ago by the Economist, when its research showed how little M&A ever delivers in the way of shareholder value in the end.

Ominously, he observes that “too many people have taken bets with other people’s money”. It’s ominous because he is using the imperfect tense, not the plusperfect: like the Slog three weeks ago, he means bets taken since 2007, not beforehand.

These bets – what Vince Cable quite rightly called the result of  “spivs in the casino” – involve interest-rate derivatives: silly bets made by huge investment banks on rates staying at or close to Zirp.  Merv knows we either face death by inflation if rates stay low – or banking insolvency if they go up. It’s not much of a choice.

Three weeks ago, The Slog accused him of choosing banks before people. That may have been both unfair and hasty – the jury’s out: all I can tell you is that if he didn’t care for people at all, he wouldn’t have made this statement in the first place.

Among several good things likely to come out of Mervyn King’s honesty in the Telegraph is that Ed Balls has been made to look a complete klutz. Having accused the Governor of being ‘too political’, what is the Shadow Chancellor to do now that his hate-figure has echoed many Labour Party observations – say he’s a good bloke after all? Admitting you’re wrong is not the way things work in our crazy political system, but if you piece together some of what King tells Charles Moore, they could very satisfactorily have emerged from the mouth of a Labour spokesperson:

““Why do banks in general want to pay bonuses? It’s because they live in a ‘too big to fail’ world in which the state will bail them out on the downside….Bankers were given incentives to behave the way they did. That’s what needs to change. We must resolve this problem……people have every right to be angry, because out of what seems to them a clear blue sky, the crisis comes, they find they do lose their jobs and there’s the sharpest fall in world trade since the 1930s. But surprise, surprise, the institutions bailed out were those at the heart of the crisis.”

Equally, however, such remarks quite rightly leave Cameron and Osborne looking morally disabled. King is as good as saying that – as so many of us feel – talk of an end to banker-bashing is craven, and the Government’s accession to banker blackmail spineless. One senses that he knows inevitable events are going to make them look hopeless.

One thing everyone who’s awake should note: before the credit crunch, Mervyn King was fourteen times in the minority voting for higher interest rates to calm things down. Had his way prevailed, things would not have been so bad. Since 2007, he has only once voted for higher rates. At the risk of being repetitive, King is keeping rates low because he thinks the alternative will have even more awful ramifications.

I think he’s wrong. But at least he’s now trying to be honest. When the game’s up anyway, the possibility of execution in the morning becomes increasingly academic.