Merv the Swerve skids

In propping up Northern Rock, the governor of the Bank of England is tacitly condoning casino capitalism - with public money as the stake.

by Richard Reeves

A decade ago, I wrote a column calling for the installation of the Bank of England's chief economist as the governor. The piece was so positive - highlighting the candidate's intellectual rigour, financial experience and impregnable reputation in the City - that it embarrassed my editor. Now I'm the one blushing: his name was Mervyn King.

King has been badly - perhaps fatally - wounded by September's Northern Rock debacle. The damage resulted from a stunning, 180-degree about-turn. When the market for three-month debt seized up - a market on which Northern Rock's directors had been reliant - he at first insisted that it was not the job of the Bank of England to help. Northern Rock had taken some big risks, and risk, by definition, has a downside as well as an upside.

King was admired for his toughness. But then, as the queues of terrified depositors curled around the branches of Northern Rock, the Bank changed tack and pumped cheap money into the market and bailed out the flailing bank. At last count, Northern Rock had borrowed £8bn from Threadneedle Street.

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