by Paul Hoffman
‘However, for the clearers this was one trip around the bay of bogusness too many and, not to put too fine a point on it, they told the Bank of England to get stuffed. This hurtful rebuff quickly became immaterial when JMB’s accountants reported there were many more bad debts than they had originally thought. JMB was bust. The figures were of the horrific kind that bankers use to terrify their small children when they spend all their pocket money in one go on gobstoppers, Curly-Wurlys and other short-sighted investments. Bad debts equalled two hundred and fifty million pounds. Moreover, there was the matter of JMB’s eight thousand employees and the inevitable questions in the House as to who was responsible. And, of course, lurking in the shadows was the Treasury, ever hungry for revenge after the success of the IMF loan in 1976 in pushing the balance of power in the Bank’s favour.’ He walked past Winnicott and stopped in front of a nearby chair.
‘The weekend this disaster struck coincided with the annual meeting in Washington of the IMF and the World Bank. Like Actaeon to Diana in the spring, back rushed a senior director of the Bank, Robert Kingsley, only to discover that a deeply alarming prospect was about to get significantly worse.’
He turned to the man in front of him. ‘Mr Kingsley.’
‘Sir Robert Kingsley, actually.’
‘I do apologise, Sir Robert.’
‘And, to be accurate, when I first returned things actually started to look up for a while.’
The Dark Figure’s eyes filled with loathing, galled at the double correction. ‘Perhaps you could explain, Sir Robert.’
‘When we had a closer look at JMB’s books, they gave the impression that while the banking side of JMB was on the rocks, the gold bullion business was pretty healthy. In other words, JMB apparently had a life-saving asset in its vault consisting of a hoard of gold bars. A Canadian bank expressed an interest, so swearing the members of the fixings to secrecy—’
‘The fixings, Sir Robert?’ said the Dark Figure, in a tone that conveyed that while he, of course, knew what the fixings were, it was surely clear to anyone with a bit of common sense that it required explanation in a hearing involving non-specialists.
Kingsley’s face wrinkled with distaste as if he were being asked to explain a dubious sexual act to the annual conference of maiden aunts.
‘The gold bullion side of JMB was part of an informal group of similar gold bullion banks called the fixings. If one needed rescuing we had to have their advice about how to do it. The bullion business isn’t really an area in which we have much expertise. We called them in over the weekend when we were still fairly optimistic because we thought that the bullion side of JMB represented a significant asset because of all those gold bars lying about in their vaults.’
‘And why was this . . . optimism unjustified?’ the Dark Figure asked.
Kingsley paused for a moment, as if considering a distasteful family secret he would rather not have discussed in front of strangers.
‘They began to explain what you might call a somewhat delicate aspect of the gold bullion business.’ His use of the word carried a note poisonous with disdain.
‘Which is?’
‘A firm like JMB, it transpired, doesn’t actually keep all their customers’ gold in the vaults.’
‘And where do they keep it?’
‘Apparently they lease it out.’
‘Lease it out?’ said the Dark Figure in a tone that would have won the envy of Lady Bracknell.
‘Yes,’ replied Kingsley with a lofty contempt that almost matched that of the Dark Figure. ‘To companies who use gold in their manufacturing processes – jewellers and so on. Apparently they line the engine bay of the McLaren F1 with gold. I’m given to understand it’s an excellent insulator.’
‘Let me see if I understand you correctly. Individuals and governments from all over the world keep their gold in various bullion banks in London. And these banks, including JMB, then rent out some of that gold to industry?’
‘Yes.’
‘The banks’ customers are aware of this?’
‘It seems not,’ he said.
‘You mean “No”?’
Kingsley sniffed. ‘I suppose I do.’
‘What did you do, Sir Robert, when they pointed out that much of the gold you thought was in JMB’s vaults was actually honeymooning in Torremolinos on the fingers of newly-weds, or driving around Monaco in an overpriced sports car?’
Kingsley coughed, deeply uncomfortable. ‘I asked them what they thought would happen if JMB couldn’t return its customers’ gold.’
‘What was their reply?’
‘They didn’t say much at first. They seemed finally to be coming to an understanding of just how dubious this leasing business was.’
‘One commentator described it as a practice more appropriate to a gang of second-hand-car salesmen than an alliance of respectable financial institutions. Would you agree?’
‘I wouldn’t put it that way myself,’ Kingsley said in a manner that made it perfectly clear that this was altogether too generous a comparison. ‘These people were subjecting their customers to a risk of which they were unaware and for which they received no payment.’ Sir Robert drew in a deep breath of disgust. ‘However, I had a more pressing problem on my hands than the business ethics of the fixings. If the practice of leasing became widely known at that particular juncture there was bound to be a massive rush to withdraw gold. For obvious reasons customers who had deposited gold in the City would want to protect themselves from the same thing happening to them. And if there weren’t enough gold then the gold market would collapse.’ He snorted with derision. ‘It’s a fragile thing.’
‘I could think of another word, Sir Robert.’
‘I entirely agree.’
‘So what did you envisage would be the consequence?’
‘Pretty grim. It would spread to the British banking system as a whole. The Midland Bank was deeply involved with an American subsidiary that was in serious trouble. Customers lost confidence in American banks as a whole when Continental Illinois got into difficulties and a wall of money got moved out of America and ended up in Europe and Japan. If the same thing happened over JMB, then God knows where it could end.’
The Dark Figure paced back and forth for a few moments. He took a deep breath, as if steadying himself for the task ahead. ‘Sir Robert, what did you do when you realised the implications of the somewhat insubstantial nature of the gold market and its . . . delicate secret?’
Sir Robert sighed. ‘The City doesn’t exactly have nerves of steel.’
‘In a word, spineless.’
He considered this for a moment. ‘Not spineless, no.’ He looked thoughtful. ‘The notion of a run on the banks is immensely tricky. It’s not a matter of solid things. Everyone thinks banking is a dull, money-for-its-own-sake business. In fact nothing could be further from the truth. A currency isn’t just made out of solid things like economic performance.’ He stopped again. ‘Its value is based on confidence, and fear, and nerves and the soothing of nerves. It’s about belief and faith. When everyone has faith then it all works. Economics is made of emotions.’
‘So it’s an illusion.’
‘No, not an illusion. It’s difficult to explain because it’s difficult to understand. There are so many contradictions.’ He paused before continuing, as if unable to decide where to begin. ‘In 1974 this country was running a budget deficit of one per cent and no one believed in us economically so we had to borrow from the IMF who then told the government how to run its own economy as if we were a kind of banana republic. Because of unification, Germany is running a deficit of two per cent but the markets everywhere still believe in it with pretty much absolute faith.’
‘Isn’t this merely a sign’, said the Dark Figure, ‘that the herd instinct has been electronically globalised?’
Kingsley pursed his lips disapprovingly. ‘Chancellor Lawson is an able man, but it’s not altogether wise to sneer at the herd instinct: it’s one of N
ature’s most effective ways of not finding oneself isolated in the presence of lions, jackals and hyenas.’ The Dark Figure’s face fell, although Kingsley clearly didn’t realise he had intended to pass off Lawson’s remark as his own.
‘Lions, jackals, elephants,’ said the Dark Figure sourly, ‘the Square Mile seems to be a bit of a menagerie.’
‘I’m sorry,’ said Kingsley, ‘I don’t know what you’re talking about.’
The absolute confidence of this dismissal pierced the Dark Figure and he lost his temper. ‘Did you not say of the JMB crisis that the real problem was that the Bank of England left it in the hands of a damn woman?’
Kingsley was shocked. ‘Absolutely not!’
The Dark Figure opened his mouth in surprise at the genuine indignation of the man’s response. He then turned with a hah! of disbelief, his back to Kingsley, as he desperately searched through his notebook, all the while moving away from his witness and towards Winnicott. Eventually he stopped and frantically scanned a page. His eyes closed in disbelief. Winnicott heard him mutter, ‘Shit!’ under his breath just before he turned back, to Kingsley.
The Dark Figure looked at Kingsley murderously and, again keeping his back to everyone else in the court but Winnicott, took out the flick-knife from his waistcoat pocket. He walked towards Kingsley, pressing a button to flick open the knife and another to close it. Click! Click! it went, a sinister, high-pitched chirrup. Click! Click!
As with Letherby, the obviously tough-minded Kingsley was both alarmed and at a loss. He looked about for support but there was only the shadowy sightlessness of the other witnesses. He was about to call out to the judge when the judge himself intervened. His voice was not curious or irritable, but fearful and paranoid. ‘What’s that sound, Dark Figure?’
Again with magically invisible dexterity the Dark Figure returned the flick-knife to his waistcoat pocket. ‘Sound, m’lud?’
‘That chirrupy, clicky sound,’ said the judge, nervously.
The Dark Figure halted his menacing advance on Kingsley and turned with an expression of deepest concern to look up at the judge.
‘I wonder,’ he said musingly, ‘if it might be bats, m’lud.’
‘Bats!’ echoed the judge, rising alarm in his voice.
‘Yes, m’lud,’ replied the Dark Figure. ‘I wonder if perhaps your lordship has bats in his belfry.’
For a moment the judge forgot his fear, as he wondered whether the Dark Figure might be treating the court, which was to say himself, with contempt. ‘What do you mean, bats in my belfry? Are you trying to . . .’ A look of fear and loathing crossed his face and he looked into the Stygian darkness that surrounded him. ‘Do I have bats in my belfry?’
There was a brief pause, then a voice, oleaginous with many years of malign deference, spoke out of the darkness. ‘Yes, m’lud, I’m afraid you do.’
There was a gasp of terror from the judge. ‘Get rid of them at once!’ he demanded.
‘I’m afraid,’ said the unseen voice, ‘that will not be possible, m’lud.’
‘Not possible!’ replied the judge in a tone of absolute incredulity. ‘What can you mean? That the Lord High Chancellor should have bats in his belfry, it’s . . .’ The judge stopped dead, clearly at a total loss to find an adjective befitting such an affront. ‘It’s unconscionable,’ he said at last.
‘Yes, m’lud.’
‘I refuse to accept this. Remove them!’
‘Government regulations, m’lud. The 1982 Wildlife Act, which makes the bat a protected species, forbids any person to disturb a bat in any way without a licence from the appropriate regulatory authority.’
‘Then get one immediately!’ said the increasingly fearful judge, looking about for any sign of flying mammals.
‘I’m afraid that is the problem, m’lud. The appropriate regulatory authority is in the process of being sold into the private sector in line with government policy which, I am given to understand, takes the view that there should be as little public ownership as is consistent with the efficient running of the state.’
‘Then get a bloody licence from whoever bloody well bought it,’ cried the judge.
‘Unfortunately,’ said the voice, ‘no buyer has yet been found. Apparently the private sector has taken the view that public demand for bat-handling licences is unlikely to be sufficient to provide a realistic return on their investment. At the moment all traffic in bat-handling licences is at a standstill.’
The judge groaned with frustration. ‘Damn! Well, go and get me a tennis racket and be quick about it. That should keep the buggers at bay.’
There was a cough from the floor of the courtroom. The judge looked down irritably. ‘What is it, Dark Figure?’
‘I was just wondering if it was all right for me to continue questioning the witness?’
‘Yes, yes, get on with it.’
The Dark Figure was now standing next to Winnicott, a look of quiet satisfaction on his face. He spoke to Winnicott so that no one else could hear. ‘The useless old lunatic is terrified of two things: bats and ducks. I’ll teach him to give me a hard time in court.’
‘Why would anyone be afraid of a duck?’ whispered Winnicott.
‘I told you,’ replied the Dark Figure. ‘He’s a useless old lunatic.’
Then he stood up, all smiles and menaces, and readdressed Kingsley. ‘Sir Robert, I’m afraid I’m unclear as to the point you were making: are you telling us the markets believe that Germany is such a manufacturing powerhouse it will pull itself out of these problems?’
Kingsley considered for a moment, perplexed as to how he should proceed. But there was nothing obvious he could do and, warily, he said, ‘That is the general view, I would say, but it’s not mine.’
‘Which is?’
‘It doesn’t really have as much to do with how much they produce as what lies behind what they produce. It’s really . . . though I’m sure the markets wouldn’t see it like that . . . about faith in . . .’ He paused, ‘I’m not sure what the word would be – morality, perhaps, or grace.’
‘I’m afraid it isn’t any clearer.’
‘It’s what the financier Louis Bris calls the pyramid of virtue.’
From out of the dark shadows a low hiss began again. Belonging to many voices, the sibilance was filled with hatred and malice as long matured as the most exclusive single malt.
There was a furious squeaking of the judge’s gavel and he shouted, ‘No hissing. I will not have hissing in my court!’
As if turned off by a switch, the sound stopped.
‘I’m not sure that anyone in a British court of justice wants to hear what Louis Bris has to say about morality,’ said the Dark Figure. ‘Will this take long?’
‘Bris puts it succinctly in my view, in his book, The Wisdom of Crocodiles.’ Kingsley smiled like a small boy able to use rude words in the presence of disapproving but powerless adults. The Dark Figure’s nostrils flared with disdain. Kingsley, once again the government banker, continued. ‘Bris argues that behind every solid object manufactured, or service provided – a fridge, a bulldozer, insurance, a loan arrangement – there lies a pyramid of decisions, attitudes and values that are solely responsible for the kind of product it is. These values are the key to understanding the underlying strength of an economy. The reason no one wanted to invest in the British economy in the 1970s is that the tip of the pyramid consisted of things like Austin Maxis. The reason they still want to invest in Germany, despite the problems of unification, is that then, as now, the tip consisted of Volkswagen Golfs. We now see that Lloyd’s of London has been making Austin-Maxi-shaped decisions whereas, for example, the Bundesbank has been making Volkswagen-Golf-shaped ones.’ Sir Robert smiled. ‘Economics is the sum of all the strengths and weaknesses of the human heart expressed in goods and services.’
‘It’s as simple as that?’
‘If you think that building the base of a pyramid that ends up in a Volkswagen Golf is simple then you haven’t under
stood the point.’
‘Perhaps. But if you’re right then there’s no need to worry about runs on the banking system. You could have let JMB go to the wall and as long as everyone else was not similarly exposed then the run would come to an end. Or had the Bank created an Austin-Maxi-shaped banking system? Is that what you’re saying?’
Kingsley realised he had put himself in an awkward position. ‘No, I’m not saying that,’ he replied defensively, but said nothing more.
The Dark Figure enjoyed his revenge. Confidence restored, he pulled out his notebook. ‘So, the upshot of all this activity was that you couldn’t persuade anyone else to rescue JMB, so the Bank of England had to do the job itself. Would you now say that this was the right decision?’
‘How could you possibly be certain whether or not people would panic, or by how much?’
‘Many commentators argued that it was unnecessary to intervene – and also unjust. At that very moment the miners were on strike because they wanted public funds to keep open unprofitable mines. Why did JMB deserve to be saved when it had such an appalling and bizarre record of incompetence and mismanagement?’
Kingsley sighed. ‘It wasn’t a question of what it deserved.’
‘Bank employees are more important than miners, then?’
‘Don’t be ridiculous.’
‘Is it ridiculous? You don’t think you panicked, Sir Robert?’
‘JMB deserved to be sunk in the lowest pit of the inner circle of hell. It wasn’t a question of virtue, it was a question of what the consequences would be if its collapse started a run. To close down a mine involves the loss of the jobs of a few hundred people. That is to be regretted. But a bank isn’t made up of coal, it’s made up of confidence. If confidence is lost, you can’t know what will happen. There was one moment when I saw what could happen . . . with terrible clarity. First the gold markets, then one of the clearing banks, then the other clearers. A financial collapse would have brought about the worst depression since the 1920s. So, to answer your question, yes, I came pretty close to panic. But I did not. I do not know if there would have been a banking collapse . . . perhaps, perhaps not. No one else does either. I don’t mean that I felt disquiet or concern or unease or any of those bankerly expressions, I mean that I was frightened. It was easily the worst night of my life.’