When Alistair Darling became chancellor in June 2007 the economy had experienced 10 years of sustained economic growth and stability under Labour.
But during his three years in charge the economy plunged into recession and major banks were nationalised.
Political biographies can be self-justifying, immodest works of fiction written to rejuvenate a battered reputation or make money. Darling’s book is no different, with little self-criticism but plenty of blame heaped upon others for the errors of his time in government.
Targets include former Prime Minister Gordon Brown for leading a chaotic government and Mervyn King, governor of the Bank of England, for being exasperatingly stubborn, while the Financial Services Authority carries the can for not preventing the crisis.
Although this provides a fascinating insight into life at the top of government during the crash, the absence of any mistakes by Darling beggars belief.
The run on Northern Rock is explained in detail and Darling conveys a fear at the top of government about how to stem the crisis. When the government insured depositors up to £50,000 he had no idea whether this would stop the mass withdrawal of cash from the bank.
Fortunately it did and although some £1.5bn had already been withdrawn from Northern Rock, the queues stopped and the bank survived just. Darling tried to find a private buyer for Northern Rock but received only bargain-hunting bids from Lloyds TSB and Virgin Money.
Eventually the bank was nationalised despite concerns about Labour returning to the days of rampant socialism and state ownership. He says the silver lining of these events was to be better prepared for the real chaos that was about to strike in 2008 with the UK’s biggest banks.
His first sense of trouble was a visit to his home by Sir Fred Goodwin, chief executive of the Royal Bank of Scotland, in December 2007, warning of a massive liquidity crisis in British banking.
It concerned Darling greatly and after watching the US Federal Reserve and European Central Bank pump money into their banks he wanted King to do the same. But King warned there was serious moral hazard in lending to banks without a punitive interest rate.
It was comforting to have someone at the top warning that emergency action could lead banks to believe they were invincible with government support.
But Darling was frustrated with King because the banking crisis was so serious that concerns over moral hazard were a distraction, something King later accepted.
Darling’s worst moment came on October 14 2008 with a call from RBS chairman Sir Tom McKillop telling him it was going to go bust that day.
Of course the government stepped in and nationalised RBS, thus preventing the banking system from collapsing.
In 2009 RBS made a £24bn loss but Goodwin and McKillop were gone and the liabilities fell to taxpayers. It makes one sympathise with King’s worries about moral hazard and sceptical of Darling’s claims that the bank rescue was a resounding success.
This book is worth reading by anyone interested in the financial crash and how we can move forward to better manage the economy. It provides an interesting perspective of the crisis from the man who made the big decisions at the time.
Review by Samuel Dale