The Wisdom of Crocodiles

by Paul Hoffman

  A tall man stood holding out his hand.

  ‘Mr Winnicott,’ he said. ‘How do you do? I’m the Dark Figure. If you wouldn’t mind we’d better get started. I’m not sure how much time we have and there’s a lot to get through.’

  He offered Winnicott his hand and helped him to his feet.

  ‘What is all this? How did I get here?’

  The Dark Figure looked at him, raising his chin to give himself a noble aspect. ‘This’, he said in a low and stately voice, ‘is a government regulatory inquiry.’ A sudden look of panic spread across his carefully composed features and he spoke more loudly, as if to someone hidden in the darkness. ‘I mean a regulatory inquiry independent of government.’

  ‘Into what?’

  ‘An independent regulatory inquiry into the three things central to every regulatory inquiry: Who made the decision? Why did they make it? Should they have acted as they did?’

  He walked to the centre of the room.

  The couches were laid out in a narrow horseshoe shape. The Dark Figure pulled up a small chair and gestured for Winnicott to sit. As he did so, the Dark Figure pulled out a table attached to the chair and swung it over Winnicott’s lap. ‘It feels a little like a high chair, I’m afraid,’ said the Dark Figure, ‘but it was all we could come up with at short notice.’ He took out a notebook and handed it to Winnicott. ‘It’s important you take notes.’

  ‘Why?’

  ‘Because this is complicated and, I can assure you, you won’t get a second chance. Do you have a pen?’

  ‘No.’

  The Dark Figure took one from his inside pocket marked Property of United Biscuits, gave it to him and then turned away into the oval. His eyes now used to the dim light, Winnicott could see that the back of the couches, just behind their occupants’ heads, bent over to form a cowl, like the hood of a salon hairdryer. From inside a light shone onto each of them, illuminating their faces. There was only one woman, but rather than mitigating the maleness of her surroundings her presence emphasised it more strongly. A voice boomed from high up in the darkness.

  ‘THE LORD CHIEF JUSTICE! PRAY BE UPSTANDING!’

  A light flashed on from a point high above, where the roof began to curve, illuminating a figure in a judge’s wig and robes slowly emerging from the prone position on a chiropractor’s couch. The judge’s couch was motorised like the one Winnicott was used to, but this one was now folding to become a chair.

  ‘Proceed,’ said the judge, and the light went off immediately. Even though he had only seen him for an instant, Winnicott recognised him immediately. Despite an absurdly exaggerated wig, an excess of enormous, dusty legal tomes, a pair of tiny, impractical rectangular bifocals and a huge false nose, it was patently the Dark Figure addressing himself in disguise.

  He turned and raised his voice past the dimly lit oval. ‘M’lud, I would like to introduce my first witness.’ The Dark Figure walked towards the furthest couch, stopping about ten feet away. The lights went out in all the others so that the faces could no longer be seen. ‘Be upstanding!’ announced the Dark Figure. The man the Dark Figure was looking at raised his head and stared back calmly as the motorised couch moved to form a chair. He was in late middle age, dressed in clothes that belonged to a wealthy citizen of the 1860s. ‘Please state your name and profession for the record.’ The Dark Figure nodded at Winnicott to take notes.

  The man spoke firmly, the nineteenth century was in the timbre of his voice: sureness of tone, clarity of expression, the absence of any acknowledgement of doubt or neurosis. ‘I am Hugh McCulloch, Comptroller of the Currency of the United States of America.’

  ‘Is it the case that in the spring of 1863 you were deeply concerned about the declining standards of prudence and probity in the United States banking industry?’ asked the Dark Figure.

  ‘I was indeed, sir.’

  ‘What did you do about it, Mr McCulloch?’

  ‘I gave the banks some advice – by which I mean I made clear to them what would be done while I was in the office of comptroller.’

  ‘Could you possibly tell us what you said to them? And,’ the Dark Figure simpered apologetically, ‘if you could be brief – we have much to get through and very little time.’

  McCulloch stared at him. There was no change in his expression, no eyebrow raised, no alteration in his tone beyond the fact he spoke a little more quietly. ‘Sir, I am always brief.’

  McCulloch was not a handsome man: his head was slightly too large for his body and his skin was pallid against the shadow of his beard, which must have required shaving at least twice in a working day. What he knew, he knew absolutely and what he did not know was of no interest to him. He continued. ‘The essentials of good banking practice are simple enough to state. First: let no loans be made that are not secured beyond a reasonable contingency. Give facilities only to legitimate and prudent transactions – and encourage no extravagant speculations. Second: do not concentrate your loans in a few hands as large loans to single firms are generally injudicious and frequently unsafe.’

  The Dark Figure opened his mouth as if to ask a question. McCulloch stared at him and he closed his mouth. McCulloch continued. ‘Third: treat your customers liberally but never permit them to dictate your policy. If you have good reason to distrust a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you.’ He paused and again the Dark Figure waited, nervous of interrupting him.

  Hesitantly he started to speak, ‘Um . . . moving on. Would it be accurate to say that you do not accept the propriety of advancing loans to individuals?’

  For the first time uncertainty appeared on McCulloch’s face. ‘You refer to individuals wishing to finance a business enterprise who can be accounted for with regard to their integrity and who have sufficient collateral?’

  The Dark Figure, taken aback, said nothing.

  McCulloch smiled – not an altogether pleasant sight, thought Winnicott. ‘I can see you do not mean that, sir. What you refer to is a heresy little spoken of in polite banking society, and then only in hushed whispers and not in the presence of ladies.’

  ‘Personal loans to ordinary members of the public cannot, in your view, be justified?’

  ‘My view be damned.’ McCulloch was annoyed now. ‘It is not and never can be the business of banks to furnish the desires of the working man. A bank is not a shop in which a man may buy his way into the illusion that he is worth more than he is, and that he owns more than he has.’

  ‘Banks have always made loans to individuals, Mr McCulloch.’

  ‘Indeed they have, sir, just as they have always gone out of business.’

  ‘Are working men not to be trusted, Mr McCulloch, to judge for themselves?’

  ‘They may judge as they like, sir, but I will not help them to gamble without good cause. Debt is a measure of confidence in the belief that there are more sunny days in this world than those on which it rains. It is a risk, a gamble, to be undertaken by an imprudent optimist or those with a sound knowledge of the science of meteorology and a ready supply of umbrellas. In this second group should be bankers and reliable businessmen. It is my task to ensure that money is invested wisely in sound businesses in order that ordinary men may have steady work and reliable wages to put food on a table for which he has paid ready cash. Debt for the common man is a house of illusion: an easy place to build but a draughty place in which to live.’

  McCulloch sat back and calmed himself, aware that he had become heated.

  The Dark Figure began to speak, ‘Mr McCull—’

  Immediately McCulloch leant forward again. ‘Let me add’, he said, ‘that any loan made to splendid financiers who lack proper aims, soundly arrived at, is equally an illusion, however splendid the mansion they attempt to construct. Sooner or later it will fall, and when it does so the houses of many working men will fall with it.’

  ‘Let me be clear about what you are saying, Mr McCulloch.’ The Dark F
igure looked over at Winnicott to indicate that he should write this down. A shadow crossed his face as he saw that Winnicott was sitting and simply staring. ‘Are you saying it is immoral to give loans to working men and splendid financiers, as you call them, or that it is bad business?’

  McCulloch’s face stiffened and he leant forward again, one of his hands tightening around the arm of his chair. ‘I do not well understand your distinction, sir. If it is immoral it can never be good business. If a bank cannot prosper without immorality then it will eventually fail. And it will fail not because the good Lord punishes wicked bankers, sir, but because no good man was ever a greedy man and all greedy men are fools. Pursue a straightforward, upright, legitimate banking business. And as for the splendid financiers: never be tempted by the prospect of large returns to do anything but what may be done properly. Splendid financiering is not legitimate banking, and splendid financiers in banking are generally either humbugs or rascals.’

  ‘Mr McCulloch, thank you for agreeing to speak to us.’

  McCulloch sat back, and as he did so the chair folded back to become a couch and the light above him went out, covering his face in an impenetrable black. Irritated, the Dark Figure walked towards Winnicott. He stopped in front of him and spoke quietly as if he was afraid he would be overheard.

  ‘Mr Winnicott, you are acting against your own interests. You must keep the best record you are able.’

  With this he turned away and, smiling ingratiatingly, again addressed himself to the judge.

  ‘I would like to call my second witness, m’lud.’

  ‘Proceed.’

  Again a brief flash of light revealed the judge in his ridiculous ensemble: the nose, if anything, was even larger.

  ‘Thank you, m’lud,’ said the Dark Figure, eliding his last word like the sound of a stone dropping into a bucket of thick wallpaper paste. He approached a couch halfway up the oval. ‘Be upstanding and state your name and profession, sir, for the record.’

  The light above the man’s head came on as the couch folded. In his early sixties, the man’s dark suit was cut with the lack of imagination available only to the truly well-off Englishman. His skin was of a strikingly healthy pink but its warmth was diminished by the remote blue-grey of his eyes. He spoke with an authority that was part natural, part assumed, or if not assumed, certainly cultivated. He was completely bald but the shape of his head gave him a monumental authority, as if his features had been carved in stone. ‘I am Samuel Letherby, Governor of the Bank of England from 1968 to 1984.’

  The Dark Figure assumed a banker’s briskness. ‘Mr Letherby, I’d like you to outline the events surrounding the loan required by the Labour government from the International Monetary Fund to bring an end to the sterling crisis of 1976.’

  From the judge’s bench high above came a lugubrious remonstration: ‘Dark Figure, I must remind you that there is a considerable amount of evidence to be heard in the limited time we have available. Fascinating as it would be,’ he paused to allow the full judicial sarcasm to take effect, ‘I feel we must press on to matters that perhaps in your view are less stimulating, but in my view are more relevant.’

  The Dark Figure turned his face upward, smiling at himself in oleaginous appeasement. ‘I can assure you, m’lud, no one is more cognisant of the need for brevity, but I’m confident that the relevance of my request will be apparent by the close of these proceedings.’

  ‘Very well,’ conceded the judge reluctantly. The light snapped off.

  The Dark Figure motioned for Letherby to begin. ‘In 1976 it became clear to me that in the preceding five years the world economy had undergone the most radical change since it had become appropriate to speak of such a thing.’

  ‘Could you explain, briefly, why this was so?’

  ‘Just before the end of the war – at the Bretton Woods Conference – the United States, to all intents and purposes, assumed responsibility for the effective running of the international financial system.’

  ‘Why was this significant?’

  ‘It meant that the world economy was stable. Because the American economy was so vigorous it could absorb an enormous amount of pressure. The United States led, everyone else followed.’

  ‘What happened to change this impressive equilibrium?’

  ‘As always, there were many factors, but the prevailing view is that Lyndon Johnson’s response to the cost of the Vietnam War was the central cause.’

  There was a theatrical clearing of the throat from high up in the dark. Letherby stopped, irritated by the implication of the interruption.

  Alarmed, the Dark Figure hurried him along. ‘And this response was?’

  ‘In 1966 Johnson was under pressure to increase taxes to pay for the war. But he was nervous of domestic reaction and complacent, frankly, about an economy that had prospered for such a long time. So he decided he could pursue what became known as the guns and butter policy – increasing spending without raising taxation. This led to the beginnings of an inflationary spiral just as the West German and Japanese economies began to compete successfully in American markets.’

  ‘How did the Americans react?’

  ‘First they refused to convert dollars automatically into gold, and then they devalued the dollar. Then there was a free-for-all in international currency policy. By 1973 world currencies no longer stood in stable, fixed relationship to each other, which for a generation had allowed us to manage the world economy. The world of Bretton Woods was dead. Perhaps extinct would be a better word. It was a free market in money.’

  Winnicott saw the Dark Figure’s expression change to one of deepest malice. ‘I’ll remember where you live,’ he said under his breath, his eyes hooded like those of a small-time gangster.

  ‘What did you say?’ replied Letherby, aghast at what he thought he had heard.

  ‘I’m so sorry, Governor, I said, I’ve a memory like a sieve,’ said the Dark Figure pleasantly. He moved on briskly. ‘Now because my recollection of the general reaction to the sterling crisis of 1976 is not all that it might be,’ he smiled at Letherby with mock deference, ‘compared with an economist of your eminence, I was wondering if it would be fair to say that, at the time, overseas politicians and central bankers had lost confidence in the Labour government’s ability to manage the British economy?’

  Winnicott watched Letherby’s face carefully as he tried to make sense of what he had heard from the Dark Figure. Letherby was clearly unable to grasp that he had been threatened as if he were a smalltime thief. Nothing like this had ever happened to him before. It could not therefore have taken place and he must have misheard. Nevertheless, he was rattled.

  ‘They made it pretty clear, yes,’ he replied hesitantly.

  ‘And is it the case that they regarded Harold Wilson and Tony Benn as the main architects of this economic misfortune? Indeed, is it not the case that Mr Benn was described by the President of the Bundesbank as the “Bertie Wooster of economic management”?’

  ‘I couldn’t possibly comment on such a remark,’ said Letherby coldly.

  Winnicott could see that Letherby had found his feet again and wondered what else the Dark Figure would do to try to unsettle him.

  ‘What I can say,’ continued Letherby, regaining his confidence, ‘is that at that time the Labour government was spending twelve billion pounds more than it was raising in taxes, inflation was at nearly twenty-four per cent and the balance of payments was deteriorating alarmingly rapidly.’

  ‘And you feel that these somewhat terrifying figures speak for themselves?’

  ‘If they speak for themselves, there can be no point in my making any further comment.’

  The Dark Figure sniffed loudly and gave Letherby another poisonous look. ‘It is the case, is it not, that the Treasury wanted to attempt to deal with the deficit by devaluing the pound?’

  ‘Not exactly. It was considered too open an admission of government failure to devalue in such an overt manner. The Treasury attemp
ted a camouflage devaluation.’

  ‘And how was this to be done?’

  There was another loud throat clearing from the shadows.

  Letherby ignored the interruption. ‘The Treasury . . . scheme’ – he used the word as if referring to an attempt to sell deep freezers to Eskimos – ‘involved their belief that if they reduced interest rates, sterling would be made less attractive to the foreign exchange markets. In the Treasury’s view, dealers would sell sterling in a gradual, orderly manner with the result that the pound would fall gently by about five per cent or so and no one would notice the cunning subterfuge that had been worked upon them.’

  ‘What was the Bank of England’s view of this ingenious soft landing?’

  Letherby stirred in his seat.

  ‘We pointed out to them that foreign exchanges were extremely volatile for the reasons I’ve outlined already.’

  ‘The breakdown of America’s role as the guarantor of economic stability?’

  ‘Quite so. We tried to make it clear that the markets were now intrinsically unstable, and that the notion that one could reliably manipulate the currency was deeply unsound. The markets were unlikely to behave in a structured way just because ministers and civil servants thought it would be helpful to them if they did so.’

  ‘Did they take your advice?’

  ‘They did not.’

  ‘With what result?’

  ‘In early March of 1976 it became clear that there were an unusually large number of orders for sterling.’

  ‘Why was this a problem?’

  ‘It would create further demand for sterling and push up its value.’

  ‘The exact opposite of the Treasury’s intention.’

  ‘Yes.’

  ‘What did you do?’

  ‘In line with the government’s strategy we sold sterling.’

  ‘With the intention of holding the price down?’

  Letherby nodded irritably.