Robert Peston talks to UK finance minister Alistair Darling about the fateful week in October when the UK took the lead in terms of injecting massive amounts of capital into its banking system, in the process effectively nationalizing a large part of the industry.
Clearly Darling, with hindsight, knows how to present his actions in the best possible light; his mistakes, like his public statements about Iceland, are not covered here. But equally clearly Darling had a much clearer idea of where things were going and what needed to be done than did his counterparts in the US.
I was very clear even before the turbulence of that week that whatever we did, we had to do it for the entire banking system. We couldn’t get ourselves into a situation where you’re simply fixing one problem because the problem was then moved to somebody else and, you know, we just couldn’t allow that to carry on happening. We’d seen it in America where they, no sooner had they sorted one bank’s problems out than the problems transferred to the next. So on the Wednesday, I announced a general overall plan – the scheme, if you like. Things did get worse during that week because confidence was just draining out of the system and in some ways, that made it easier for us to talk to the banks and say, "look, we’re all in this together. No one’s got any choice. Everybody’s going to have to recapitalise…
I had meetings all day on the Sunday and then at ten o’clock on the Sunday night, just when you know everything was agreed as far as I was concerned, inevitably when you deal with a bunch of bankers, they started trying to re-open it. So I said about one o’clock – "okay, re-open it if you want. I’m going to my bed. If you haven’t agreed it by five o’clock, then you’re on your own". So happily, when I woke up at five o’clock, we’d got an agreement.
I like all of this a lot. First the public announcement of principles before the bailout, then the uncowed attitude to the "bunch of bankers". Maybe this is one advantage of a parliamentary democracy: the finance minister doesn’t simply give occasionally testimony to some committee or other. Instead, he has actually been a Member of Parliament for over 20 years, and is never about to forget it.
What are the chances of Tim Geithner adopting Darling’s Scottish, no-nonsense way of running things? I’d say slim: I can’t see Geithner using a four-hour nap as a negotiating device. That’s more of a Volcker move, I think.