The bankers' banker has his say

The governor of the Bank of England appeared at the Treasury select committee yesterday to talk about the crises that afflict us. Much of the discussion was in code. "You have been very high profile on moral hazard," said John McFall, the committee chairman, making Mervyn King sound like the late Lord Longford, who was so high profile on that topic he could scarcely breathe the air.

Mr King talked about "liquid assets and illiquid assets", which may have meant drinks and dinner. He spoke of "the unnatural compression of spreads", which you thought was what happens if you put too many quilts in the drier at once.

He was wearing a dark grey suit, with a steel-blue tie and a white shirt. The whole outfit was colour-toned with his hair, and so was very apt for a central banker.

As he told the committee, there was a difference between a central banker and any old banker, by which he seemed to mean the chaps in striped shirts and red braces who wash down their curries with Chateau Petrus. Mr King is not keen on bankers, or fund managers, or any of the people who have got us into this mess.

"Geniuses" he called them, with heavy irony. He thought their huge salaries "unattractive", which I suppose they are, unless you're being paid them.

What he likes are people who make things, and so he now and again goes to the country to find them. In the past, governors and Treasury mandarins thought their job was to sit in London and guard the economic theory. Economic reality could look after itself. Mr King has been touring the actual world, where he found manufacturers who are exporting to China.

Run of the mill bankers, meanwhile, had assumed that 10 years of growth would lead to 10 more years of growth. His description reminded me of someone who says in June that because the temperature has been steadily climbing since January, it will be scorching in December.

So banks tended to assume that things would stay the same, only more so. Presently people were pulling their horns in.

"There is not much hubris around today. The question is, how we can stop hubris building up over the next 10 to 15 years?"

One thing they might do, he implied, was stop bundling up dud mortgages and flogging them off as bonds. Banks should know who the borrowers are, "not just their communities, but the streets they live on".

I reflected on all those Chinese financiers who have accepted rubbishy bonds in exchange for cheap trainers and flat screen TVs. An underling is summoned. "Why did you not check Acacia Crescent? Double-glazed porches and bird baths, always bad signs. You idiot, you're fired ..."

Siôn Simon tried, and failed, to trip him up over the monetary policy committee. Was he its "intellectual leader"? No, he said, they had nine intellectual leaders: "There just aren't any intellectual followers."

"How do you benchmark your success as a chair?" Mr Simon persisted. Or, "how do you chairmark your success as a bench?" he might as easily have asked, and as pointlessly.