The boom and bust of Mervyn King
It is odd how different people see the same event.
Last night, I heard Sir Mervyn King, in the Today Programme Lecture, largely excusing the Bank of England for its failure to prevent the great crash of 2007-8: he blamed the recklessness of banks; he blamed a collective "failure of imagination" to see that banks' huge increase in lending was the mother of all dangerous bubbles waiting to burst; he blamed the last Labour government for stripping the Bank of England in 1997 of its direct powers to regulate banks.
I had heard all of that before, in his speeches, evidence to the Treasury Select Committee and briefings, as a recurring theme since the banking and finance debacle of four years ago that has hobbled our economy.
But I was too knowing, especially about the significance of Sir Mervyn saying all that in a very public forum, on the BBC.
In a way, I underestimated the power of the BBC's Today programme, in that it provides a megaphone that turns almost anything he (or perhaps anyone) says into news.
His phrase that seems to have caught much of the media's imagination was: "We should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so called 'light-touch' regulation hadn't prevented any of this."
Put as baldly as that, it looks like a powerful admission of error on his part. But it is not all he said. That resonant phrase was preceded by "with the benefit of hindsight", which massively reduces its force.
When any of us say "if I knew then what I know now", we are excusing ourselves, rather than apologising.
Anyway, enough of semantics and the searching of my own conscience about whether and how I misread the newsworthiness of the speech. When every newspaper treats an event as news, I have to accept it is news, by definition.
That said, the speech was one of the clearest expositions that he has ever made of how he sees the boom and bust that will shape our prosperity for arguably a decade, at the very least.
Actually, I should rephrase that, he doesn't believe there was a boom - which many would say is the most contentious thing he said.
Sir Mervyn put it this way: "Whether in this country, the United States, or Europe, there was no unsustainable boom like that seen in the 1980s; this was a bust without a boom".
The moment he said it, he raised a few hackles. His former colleague from the BoE's Monetary Policy Committee, Andrew Sentance, tweeted: "disagree with Mervyn King that fin crisis was bust without a boom...it was just very long boom!"
Mr Sentance added: "Boom in areas where central bankers not looking!"
Here are what many would see as the boom, or at least manifestations of an unsustainable boom, before the bust:
- The massive increase in bank lending, from about 100% of GDP to 600% of GDP over 20 years or so;
- The trebling in house prices in the 10 years before the 2007;
- Consumer spending growing faster than the economy, fuelled by borrowing, in the 15 years before the crash;
- The UK importing more than it exports every year since 1983, not earning its way in the world.
All of these trends - which Sir Mervyn would call imbalances rather than evidence of a boom (semantics again) - help to explain the UK's current predicament, as Sir Mervyn would acknowledge.
We've recognised that living on credit is no longer sustainable: but we've done it for so long, that re-engineering the economy into one based on saving, investment and exports is the work of many years - during which we have to work very hard simply to prevent the economy from shrinking.
But Sir Mervyn is not prepared to take responsibility for these flaws in the economy, or say sorry for them, as he made clear in questions from the audience last night, for two main reasons.
First, and strikingly, he does not believe that the rise in house prices here is nearly as dangerous or unsustainable as what happened in Spain, the Republic of Ireland and the US, because we did not experience the massive construction boom of those countries (their countries are filled with empty new houses; the UK does not have this glut).
Second, he did not have the tools to deal with those imbalances (even if the BoE recognised them as clear and present dangers - which it is not clear that it did).
Raising interest rates to choke off the consumer spending that was sucking in imports, or to take the heat out of the property and lending boom, would have tipped the UK into recession and run the serious risk of inflation undershooting its target - or so Sir Mervyn believes.
Which is why much of what Sir Mervyn talked about yesterday was the new powers and tools that the chancellor is giving to the BoE, to prevent parts of the economy overheating in the way they did during the putative golden years.
In crude terms, if the BoE's new Financial Policy Committee sees banks in general lending too much, it will be able force banks to choke off the provision of credit (though if the more immediate problem is banks lending too little, it is not clear the Financial Policy Committee has the symmetrical power to encourage increased lending).
So maybe the stable door is being shut at last.
But as Sir Mervyn approaches the end of his decade as arguably the most influential figure in the UK economy, I expect the debate will run and run about what role he had in leaving the stable door open.