The Wisdom of Crocodiles

by Paul Hoffman

  ‘Then you had some bad luck.’

  ‘The Nigerian government had decided to sell an enormous amount of the sterling they’d been holding so that they could benefit from the rise in its value that we were trying to stem by also selling. You must understand that these events happened quite independently of each other. It was just a dreadful coincidence.’

  ‘With the result that now the market was flooded with people trying to sell sterling?’

  ‘Yes.’

  ‘So its price started to fall?’

  ‘Yes.’

  ‘But wasn’t that what the Treasury wanted?’

  ‘It wanted it to fall slowly to a predetermined point of about a dollar ninety . . . but the markets assumed from such a flood of sterling sellers that something was up. Not wanting to be left holding an asset whose price was falling, they also sold.’

  ‘They panicked?’

  ‘Within a week sterling had fallen to a dollar ninety.’

  ‘But forgive me, Mr Letherby, let me repeat – isn’t that what the Treasury wanted?’

  ‘Indeed it did, but it hardly needs pointing out that the fall to a dollar eighty involves going through a dollar ninety along the way. It was supposed to stop at a level agreeable to the Treasury, but it kept on dropping.’

  ‘What did the Treasury do?’

  ‘It took its lead from the markets,’ said Letherby, his eyes glinting with malice. ‘It decided to panic as well. We were instructed to stop the fall at a dollar eighty-five.’

  ‘And how was this to be done?’

  ‘We bought sterling in a rapidly falling market, spending one billion dollars in the process.’

  ‘And did this expensive strategy work?’

  ‘At the beginning of June sterling stood at, I think, a dollar seventy-one.’

  ‘So, it was not successful.’

  ‘In the same sense that you could say the maiden voyage of the Titanic was not successful, no.’

  The Dark Figure’s eyes narrowed at Letherby’s tone and he reached into a pocket on the front of his waistcoat. Carefully, so as not to be seen, he took out a metal object. He pressed a button and there was a loud click as a six-inch blade shot into view. It was a flick-knife. Without taking his eyes from Letherby, the Dark Figure began to clean under his thumbnail with the point of the blade. Because of the surreptitious way he had done this, only Winnicott could see what was going on. Letherby looked on, his face a mixture of alarm and incomprehension. Then he collected himself. He was, after all, the ex-Governor of the Bank of England. He was about to protest when the Dark Figure spoke first.

  ‘I wonder if I might interrupt you for a moment, Mr Letherby.’

  As if he had been switched off, Letherby sank back, expressionless, into his seat and his light went out. The Dark Figure closed the flick-knife and replaced it in his pocket with almost magical dexterity. He turned and walked towards Winnicott, gaining momentum as he went until he was almost running. Winnicott stood up in alarm. Impeded by the awkward table connected to his chair, he struggled to free himself as the Dark Figure descended on him, grabbed him by the hand, pulled him free of the chair and launched them both into the air. Winnicott screamed, in astonishment as much as fear. Up and up they went, circling the giant dome, gaining height and speed until they rushed towards the glass apex, and with a terrifying whoosh! shot out into the dark and snowy night.

  Hand in hand the Dark Figure and Winnicott performed one swift turn about the dome and then sped off in the direction of the Thames. They followed its grim sparkle and then suddenly banked to one side, like a fighter plane attacking an armoured column, and headed straight for the Houses of Parliament. Aiming for one of the stained-glass windows, the Dark Figure overshot and with a thunderous crash of wood, brick and glass they demolished twenty or so feet of Pugin’s masterpiece.

  The Dark Figure coughed once then strode along a corridor and through a door, still with his hand clasped around Winnicott’s wrist. He came to a dead halt in front of a man wearing a suit similar to that worn by Letherby. But this man was sleeker: self-satisfaction shone from his skin as if he had been polished with oil of smugness. His guest seemed to have come straight from a performance in a provincial theatre that required him to play a drunken journalist. His face was florid, the veins on his nose broken from a life of alcohol abuse. His fingers were stained with the dirty yellow of unfiltered cigarettes and in the ribbon of his battered trilby there was an equally battered card that bore the inscription ‘Press’.

  The journalist leered at the man in front of him. ‘So, what’s a Treasury official doing in the Houses of Parliament, as if I didn’t know?’

  The sleek man smiled. ‘You mustn’t be so suspicious, Peter. This is temporary while my office at the Treasury is being redecorated.’

  ‘Papering over the cracks, are they?’ giggled the journalist.

  ‘Very droll, Peter. What a wag you are.’

  The sleek man was irritated, but the journalist was barely sober enough to notice.

  ‘Look,’ said the sleek man placatingly, ‘all joking aside, this is a serious situation. Sterling is at a dollar seventy-one, and things could get a lot worse.’ The journalist sat forward, interested. The man from the Treasury leant forward also. ‘What really worries me’, he said softly with the tone of a concerned parent, ‘is the Bank of England’s role in this.’

  ‘Everyone knows you hate each other’s guts. That’s what you would say.’

  The Treasury official held out his hand in a gesture of acknowledgement. ‘I’ll admit we’ve often had pretty severe disagreements.’ The journalist sniggered. ‘But it’s a complicated world out there and getting more complicated by the day. The Governor and his deputy . . . their approach to things was shaped in a world of Bretton Woods agreements, fixed exchange rates.’ He made a slight but eloquent gesture to signal an etcetera of redundant notions: the theory of phlogiston, that the blood circulated via a system of buckets. ‘It’s all much trickier now, and of course that’s bound to mean we all make more mistakes, the Treasury too.’

  ‘Can I quote you on that?’

  The Treasury man smiled and went on. ‘But this wasn’t that complicated a manoeuvre. Lowering the value of the pound from two dollars to one dollar ninety was a straightforward exercise in market management. The Treasury – the country for goodness’ sake – had got to be able to rely on the professional expertise of . . .’

  The Dark Figure decided they had heard enough and, grasping Winnicott’s wrist, pulled him out of the room and along a corridor. Winnicott floated behind him like a balloon. They went through a door that led into a small gallery from which they looked down on a chamber packed with middle-aged men. It was noisy, hot and claustrophobic, and many were standing in the aisles.

  At one end, a man in a long wig was shouting, ‘ORDER! ORDER!’ and being ignored. ‘ORDER! ORDER!’ he shouted again, and slowly the muttering, loud conversation, shouting, barks, laughs and sneers dwindled to a low rumble. This was less in response to his call than from a general desire to see what would happen next. The man in the wig spoke again.

  ‘The Right Honourable Gentleman for Bolsover.’

  There were loud boos from the opposite side of the room and a brief but indistinguishable shout.

  The MP for Bolsover, a thin man with the face of a much-used hatchet, began to speak in a voice that declaimed, taunted and prosecuted all at the same time. ‘It is perfectly clear—’

  He was interrupted by loud boos and a shout of ‘that you’re an idiot’, followed by forced laughter. He carried on, clearly familiar with the routine. ‘It is perfectly clear why the Bank of England made such a monumental cock-up. It’s perfectly clear. We know who runs the Bank of England and we know his fat cat pals in the City, and what they wanted was to put an end to the government’s agreement with the trade unions on an incomes policy—’

  This brought roars of laughter from the other side of the house with cries of ‘RUBBISH!’, and more grunt
s and snarls and a gabbled ‘RAH! RAH! RAH! RAH! RAH! ORDER! ORDER!’

  The Right Honourable Member continued, ‘. . . an incomes policy. It wasn’t a cock-up at all. It was deliberate sabotage!’

  ‘RAH! RAH! RAH! RAH! RAH! ORDER! ORDER!’

  ‘The Bank doesn’t want this government coming to an agreement so we can save the economy. It wants a Labour government out!’

  ‘RAH! RAH! RAH! GOOD! RAH! HA! HA! HA! RAH! RAH!’

  ‘And it doesn’t care whether it destroys the economy to do it. I call upon the Governor to RESIGN!’

  The end was a signal for more uproar, cries of ‘WHY DON’T YOU SHOW HIM HOW?’

  As the chamber exploded into roars of hilarity and outrage, the Dark Figure pulled Winnicott away and within a few steps they were through the door and running towards the large hole in the wall made by their entrance. Then they were, off over the Thames, the City, down through the dome and back into the court.

  The Dark Figure let go of Winnicott, brushed himself down and walked over towards Letherby’s darkened couch, which lit up as he approached. The former Governor of the Bank of England eyed the brickdust-covered figure in front of him dubiously.

  ‘Mr Letherby,’ said the Dark Figure, his tone having shifted from that of knowledge-sharing interlocutor to starchy inquisitor, ‘what is your response to the comments of the Treasury official? His version of events . . . what was it?’ The Dark Figure took a notebook from his pocket and flicked his way professorially through the pages. ‘ “A straightforward exercise in market management” was how he put it.’

  ‘Whoever said that was either a fool or a liar. I wonder whether I might have a drink of water.’

  The Dark Figure curled his lip and clicked his fingers with the self-importance of a City trader ordering a bottle of champagne on company expenses. Without any visible means of support, a glass of water floated into the light and set itself down next to Letherby. He looked at the water longingly but the Dark Figure did not pause to let him drink.

  ‘Baldy!’ he whispered to Letherby.

  Letherby looked at him in horror. ‘What?’ he gasped.

  ‘Baldly speaking,’ said the Dark Figure pleasantly, ‘what was the long-term result of all this?’

  Letherby was clearly furious. ‘You said something else.’

  The Dark Figure was the picture of innocent confusion. ‘I don’t think so,’ he said jovially.

  ‘Yes, you did,’ said Letherby angrily. ‘You said . . .’ He stopped. There was no one to support him, and the Dark Figure had provided himself with an explanation that would make a complaint look hysterically paranoid.

  He was saved by the judge. ‘Dark Figure,’ he called out reprovingly, ‘this is not the first time the defendant . . . I’m so sorry, the witness has failed to catch what you were saying. You must speak up.’

  The Dark Figure nodded apologetically. ‘I’m extremely sorry, m’lud, but I fear that the necessity for so much talking has had an effect on my voice.’ He turned back to the grey-faced Letherby.

  ‘So the crisis was over?’

  ‘Yes,’ said Letherby, barely able to control his fury. ‘And what were the lessons, Mr Letherby?’

  ‘That regulating an economy isn’t like herding cats – it’s like herding cats using dogs.’ He looked at the Dark Figure coldly. ‘There’s no such thing as a simple exercise in market management.’

  ‘But your claim is that you already knew this – it was the Treasury and the government who learned that modern money markets were inherently volatile.’

  ‘Yes.’

  ‘You learned nothing?’ said the Dark Figure accusingly.

  Letherby had regained his composure. He put his hands together thoughtfully as if about to pray. ‘I’m not sure if a Governor of the Bank of England should really be heard to quote Louis Bris . . .’ A low hissing emerged from the shadows. The judge, infuriated, began banging on his bench with an enormous Day-glo rubber gavel that squeaked at every blow. Slowly the hissing ceased. Letherby continued as if he had heard nothing. ‘. . . but I remember reading something of his that struck me at the time and still does: “Economics is the sum of all the strengths and weaknesses of the human heart expressed in money”. In my opinion . . .’

  The Dark Figure interrupted by looking up at the judge. ‘I was wondering whether I could have a drink of the witness’s water, m’lud. My voice . . .’ he said apologetically.

  ‘Very well, get on with it,’ said the judge irritably.

  Smiling triumphantly, the Dark Figure took Letherby’s glass and drained it. He replaced it on the table with a hefty crack and a loud gasp of appreciation. ‘Thank you, Mr Letherby, I think we have had quite enough of your opinions. That will be all.’

  A frightened Letherby sat back and vanished into the dark again. The Dark Figure walked briskly to his next witness.

  ‘Be upstanding! Identify yourself!’ The Dark Figure was more peremptory now, growing arrogant as he became more certain that he was in control. The man in the folding chair was in his early sixties with a luxuriant head of brilliant white hair. ‘I am Harold Glover, Head of Bank Supervision at the Bank of England.’

  ‘You were a kind of Dixon of Dock Green for the City, Mr Glover, would that be fair?’

  Glover looked at him. ‘No, it would merely be sarcastic.’

  ‘You’ll forgive me, Mr Glover, but as an outsider I’m afraid it does all seem very cosy: the City as a gentleman’s club full of the right sort of people but, as with even the best institutions, regrettably marred by the occasional Terry-Thomas rotter with a gap in his front teeth and a loud check jacket.’ Glover opened his mouth to reply but was cut off by a question phrased more as an accusation. ‘What is the definition of a bank, Mr Glover?’

  This change of tone unnerved him and his reply was cautious.

  ‘Mr Letherby took the view that a definition as such was unhelpful. They were like elephants – difficult to define in the abstract but perfectly clear when you saw one.’

  ‘And in practice this meant the clearing banks and the merchant banks? Lloyds, Barclays, and Warburgs, Morgan Grenfell . . .’ he leered at the distrustful-looking Glover, ‘. . . Barings. All blue chip.’

  ‘Yes, in effect.’

  ‘Is there no definition in law of a bank?’

  ‘The power of determination is, in law, a matter for the Bank of England.’

  ‘So, a bank is a bank when the Bank says it’s a bank.’

  ‘Yes.’

  ‘I see.’ The Dark Figure smiled as if enjoying a private moment. ‘Now!’ The move to a brisk let’s-get-on-with-it unsettled Glover again. Winnicott could see him trying to work out where the Dark Figure was going with the sudden changes of direction. He realised that the Dark Figure was trying to make Glover think he knew a great deal more than he was letting on.

  ‘I wonder if you would tell us, as briefly as you can,’ again the self-absolving passing on to Glover of a reputation for prolixity he had done nothing to deserve, ‘something about the secondary banking crisis you mentioned as the cause of all this unnecessary rush to regulation. These secondary banks were companies licensed to take deposits of money from the public, but not banks as the Bank of England defined them.’

  ‘No.’

  ‘Not elephant-shaped banks?’

  ‘No.’ Glover’s face was impassive.

  ‘These secondary banks . . . these . . .’ he looked around the chamber with a waggish smirk, ‘these lesser-spotted banks were, am I correct, not banks for which you were responsible in terms of supervision?’

  ‘No.’

  ‘But you were forced to become involved, and in a central role, when twenty-one of these fringe secondary banks got into financial trouble. Why was that, if you were not responsible for regulation?’

  ‘You have to understand that banking is about confidence. Banking is a belief system interconnected in all kinds of ways which have nothing to do with things you can touch. Once fear gets into that system, th
e results can be catastrophic.’

  ‘That sounds most alarming, Mr Glover. I wonder if, again briefly, you would describe how these apparently unimportant institutions could wield such calamitous power.’

  ‘I did not say they were unimportant.’

  ‘But you did not consider them banks?’

  ‘No,’ admitted Glover flatly.

  ‘They were licensed to take deposits, make loans, all the things that banks do. I appreciate I’m not an expert, but isn’t that what a bank does, putting it simply: a bank takes deposits and makes loans?’

  ‘They’re similar but not the same thing.’

  ‘Well, Mr Glover, to pick up on the Bank’s own analogy of dumb animals, all ducks are similar but not the same. However, if it looks like a duck, quacks like a duck and swims like a duck then are we not entitled to the view, given that all ducks are similar but not the same, that what we are seeing is, in fact, a duck?’

  Glover was furious. ‘It’s absurd to—’

  The light flashed on from above.

  ‘Dark Figure! Would you please stop squabbling with the witness. For goodness’ sake get on with it!’

  The Dark Figure nodded theatrically to his disguised self and turned to Glover, whose reply had been most effectively stifled.

  ‘Mr Glover, I wonder if you would give us an account of how such a banking crisis unfolds.’

  Glover brought himself quickly under control but he spoke coldly. ‘Stage one of a crisis involves a liquidity problem in a secondary bank. Depositors get nervous about their money. They withdraw it and put it – usually – in a clearing bank.’

  ‘Lloyds, Barclays . . .’ prompted the Dark Figure.

  Glover nodded. ‘Clearing banks don’t pay as much interest as secondary banks but they are more secure. Stage two begins when the secondary bank can’t meet its obligations in the money market. No other bank will lend it money because of the same fears that led to the depositors withdrawing their cash, and so the bank doesn’t have enough money to redeem debts when they fall due. Stage three drags in the clearing banks. Their creditworthiness becomes suspect because of the loans they’ve made to the secondary banks.’