They agreed a five-point plan which included a pledge to prevent the collapse of ‘systemically important banks’ by using taxpayers’ money to buy up stakes.111 The final communiqué lacked precision, but for the first time there was something resembling a plausible global framework for bank recapitalisation.
While the Chancellor was selling that to the finance ministers in America, the Prime Minister was promoting the British plan to his European counterparts at a meeting to which he had not originally been invited. Sarkozy asked Brown to join his summit of the leaders of the euro-zone at the Elysée Palace that weekend. At one point, the French President said: ‘You know, Gordon, I can’t understand it. You are Scottish, you are an economist, you don’t like food, wine, women, like I do. We have nothing in common. But somehow, Gordon, I love you.’ Just in case Brown got the wrong idea, the Frenchman quickly added: ‘But not in a sexual way.’
There was a pregnant pause before Brown covered his embarrassment with a chuckle and responded: ‘Er, obviously, er, I feel the same way you do, Nicolas.’112
Also present at the Elysée were José Manuel Barroso, the President of the European Commission; Jean-Claude Trichet, the Chairman of the European Central Bank; Silvio Berlusconi of Italy; and Angela Merkel. The scepticism of the German Chancellor had been a formidable obstacle to a comprehensive solution. At a Paris summit a fortnight before, Merkel declared: ‘It’s up to each country to clean up its own shit.’113 She was now shifting her position, not least because her officials were constantly in and out with updates about teetering German banks. To one present at this conclave, it was ‘a mad meeting’114 as Brown and his European counterparts clustered around a tiny table in the Elysée discussing what to do. At 8.30 that evening, Paris time, the French President came out to tell the media that they had broadly embraced recapitalisation schemes along the lines of the British plan.
There was a further vote of confidence in the Sunday edition of the New York Times. Paul Krugman, the Nobel Prize-winning economist, wrote in praise of the British plan:
Brown and Darling have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up. The Brown Government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. This combination of clarity and decisiveness hasn’t been matched by any other western government.115
I’d first learnt of the Krugman article from the New York Times syndication service on the Friday before publication and mentioned it to Brown during a phone conversation with the Prime Minister that afternoon. It became apparent to me soon afterwards that he was so keen for this endorsement to be widely known that he ordered his staff to do a ring-round of commentators. An hour after I’d brought the article to the attention of Brown, one of his aides rang me to ask whether I knew Paul Krugman was writing in praise of the Prime Minister.
Plaudits in the international press hailing Brown as a world saviour were highly flattering. But the cheers were not going to last beyond the weekend if the critical negotiations at the Treasury failed, Monday morning came and Britain’s own banks couldn’t open their doors.
Darling left Washington on Saturday night on the red-eye to Heathrow and landed back in London at breakfast-time on Sunday. When he arrived at the Treasury, the negotiations with the stricken British bankers had made important progress. The dynamic was changed by the fright they received on Friday. ‘When we began to have one-to-one meetings on Saturday, it was pretty clear to all the major banks that needed capital that they would have to do a deal,’ says Paul Myners.116 He and Kingman found that HBOS, Lloyds TSB and RBS were now willing to accept that they had to have immediate help. Barclays, though still preferring to recapitalise from foreign sources rather than the British Government, saw the necessity for urgent action. ‘No-one wanted to be naked on Monday morning without a deal in place.’117
According to John Gieve, ‘essentially the Treasury laid out the terms on which it was prepared to support them and they had to accept it.’118 Some of the bankers found these terms humiliating: ‘We were given a menu and there was no à la carte option.’119 It was the end of the road for Fred Goodwin. ‘Technically speaking, RBS was bust.’120 In one of the gaps between meetings in Myners’ office, someone referred to a ‘negotiation’. Goodwin remarked: ‘This is not a negotiation; it is a drive-by shooting.’121 His tone was more fatalistic than furious. ‘He said this with a rueful smile.’122
That smile was perhaps enhanced by the knowledge that the ruin of his bank would still leave him exceedingly rich. In between negotiating the rescue, and having just four hours’ sleep on Friday and Saturday night and none at all on Sunday, Myners was also supervising the terms of the departure of Goodwin and other failed executives. ‘Most of the focus on our side was ensuring that Fred Goodwin and Andy Hornby were not going to stay,’ says another minister present.123 Goodwin had smashed his bank, but the RBS board said it had advice from its lawyers that they could not sack him and Myners did not press them to take that route. Goodwin was instead paid off with an extraordinary deal, which would remain secret until it exploded into the headlines several months later, to double his pension pot to more than £16 million. What exactly passed between Myners and the representatives of RBS subsequently became the subject of intense dispute and huge embarrassment for the Government. On Myners’ later account, he knew Goodwin’s pension was ‘a large sum’ but the minister suggested that he was the victim of an ‘elaborate ruse’. This was denied by Sir Tom McKillop, as he also argued with the minister’s assertion that he was misled into believing that the pension was a ‘contractual obligation’ and not open for negotiation.124
There’s no dispute about this: Goodwin, the man who presided over the biggest corporate failure in British history, was allowed to float away on a vast golden parachute. A fellow minister felt ‘very sorry for Paul. He’d only been there for three seconds.’125 Some Labour MPs later concluded he was a political innocent who wasn’t adequately protected by officials. George Mudie, a member of the Treasury select committee, argues that ‘he should never have gone into that meeting’ without ‘the usual team of officials for a negotiation of that seriousness’.126 Myners was a peer, very new to Government, and this gargantuan pension pot might not seem so excessive in the eyes of someone from the City. He was not equipped with the antennae of an elected politician which might have twitched over the potential for the Goodwin deal to ignite voter rage. The fundamental reason that Goodwin got away with it was the very crisis that had been caused by him and his fellow bankers. The financial terms of his exit were a low-order priority that frantic weekend at the Treasury in comparison with the paramount importance of saving the banking system from implosion. ‘I wish I’d had more time to ask more questions. But I had no time,’ says Myners. ‘If we’d had more time, we would have done everything a bit better. This was the most complex and largest corporate finance transaction ever done in Britain: the recapitalisation of four banks, three of them with public money.’127
‘These were extraordinary days,’ says one Treasury official present. ‘Goodwin’s pension was a side issue compared with negotiating billions of pounds of taxpayers’ money for the banks.’128
Failure remained a serious possibility into Sunday. Lloyds talked of calling off its takeover of HBOS, a prospect which threatened the whole deal until the two banks came to agreement. Right up until the Sunday evening, some of the bankers were ‘still fighting the proposition’ that they had to agree to the terms and conditions offered by the Government. Darling eventually said to them: ‘You’ve got a choice. We’re going to offer capital and we’re going to impose conditions. If you don’t like it, there’s an alternative, but that’s too awful to contemplate.’ In a display of brinkmanship untypical of the undemonstrative and cautious Chancellor, he declared: ‘I’m staying until midnight and then I’m going to bed. If you haven’t done the deal by then, it’s too late.’129
The bankers were ‘mor
e or less signed up’ to the broad structure when the Chancellor took himself off to bed, telling officials he had to get some rest when he would be presenting the deal to MPs and on the media the next day.130 As he slept, the lights continued to burn at the Treasury as the bankers wrangled over details. Sir Victor Blank of Lloyds was arguing with Myners about bonuses in the early hours of the morning.131 Very late, at four o’clock in the morning, some bankers tried to reopen terms which ministers thought were already agreed.132 ‘That is what these people do,’ says Darling.133 They were getting ‘down to percentages’, haggling over the precise size of the stake the Government would take in the rescued banks.134 At five o’clock, with just two hours left before the deadline to announce an agreement in advance of the markets opening, Darling held a stock-taking session in his ground-floor study at Number 11. The Chancellor was joined by Kingman, Myners, Scholar and Vadera, none of whom had had any sleep at all. They were agreed they had a deal they could live with. Now they needed Gordon Brown’s sign-off.135 The Prime Minister had returned from Paris late on the Sunday night and was still asleep in the flat above Downing Street. ‘Who’s going to wake him up?’ asked Darling. Eyes fixed on Shriti Vadera, the person in the room closest to Brown. ‘You need to get him up.’ She went through the connecting door into Number 10 and sought out the night duty clerk. ‘We need the Prime Minister,’ she said. ‘Can you get Gordon up?’ ‘No,’ the duty clerk laughingly refused. ‘You go and get Gordon up.’
Vadera made her way upstairs to the Browns’ flat. She had never been in there before and stumbled around in the dark trying to locate the bedroom. Tripping over a child’s tricycle, she disturbed Sarah Brown, who assumed one of her sons was up. The Prime Minister’s wife shouted out: ‘John, go back to bed.’ Vadera identified herself: ‘Sarah, it’s Shriti.’ A familiar growl then rumbled from the Browns’ bedroom: ‘What’s going on?’136
Soon afterwards, the Prime Minister came down to join the meeting in the Chancellor’s study. A purple tie at half mast around his neck, he ‘looked like a man who had jumped out of bed and thrown his clothes on in thirty seconds’.137 Brown asked the multi-billion-pound question: ‘Will it work?’ When the rest of them sounded positive, he gave his seal of approval. They had just met the deadline. Before the markets opened on Monday, it was announced that the Government was taking stakes in HBOS, Lloyds TSB and RBS in return for a £37 billion injection of capital while Barclays would be recapitalising from private sources. The state was now the majority shareholder of RBS and would own 40 per cent of the new bank created by merging HBOS and Lloyds. Britain’s banks opened their doors that morning. The cash machines still worked. As far as most people knew, it was just business as usual.
Brown declared that morning: ‘This is the first government to do what a large number of governments are going to do over the next few days.’138 This claim to be an international leader proved to be accurate. The next day, Hank Paulson did a dramatic volte-face, put aside his TARP plan and pumped capital into the nine major US banks. Similar bail-outs were unveiled by France, Germany, Italy, Spain and Switzerland. Countries around the globe, from Australia to South Korea, followed suit. All the schemes broadly copied the rescue first announced by Britain. As John Gieve puts it:
It was an occasion when the British machine worked quickly and genuinely led the world. What we did over those two days was set a pattern which was blessed in Washington, blessed in Paris and more or less followed in a matter of days by the US and the rest of Europe.139
One very senior civil servant, in many ways a sceptic about Gordon Brown’s leadership skills, gives him much of the credit for bold action in this crisis: ‘Gordon was prepared to say: “We need to bail them out” despite the political risks. He took the lead and then allowed Alistair to do it.’140 On the account of Paul Myners: ‘Gordon displayed a phenomenal capacity to grasp the issues as he was briefed. Alistair was extraordinarily methodical in the way he worked through the details.’141 James Purnell, a Blairite member of the Cabinet who was otherwise utterly disillusioned with Brown, credits him and Darling for acting ‘faster, more comprehensively, more boldly than anybody else. The financial world was caught in the headlights and Gordon came forward with the right plan which was then broadly followed around the world.’142 Peter Mandelson, who had previously despaired of Brown’s indecisiveness, was an impressed witness. ‘He did immediately what others couldn’t, wouldn’t or didn’t have the nerve to do. He was the market leader in taking action which others have followed. Nothing will detract from his place in history in taking that action.’143
Only those at the heart of the crisis knew just how close Britain had come to tumbling into the abyss. Whatever else the rescue of that long weekend ultimately failed to do, it did successfully set an example to the world and save the country from the apocalypse of a total banking collapse.
35. Land Without Maps
Gordon Brown turned to Peter Mandelson during one of their regular meetings and inquired: ‘Are you happy?’ He had never asked that before. Mandelson was stunned into silence. The Business Secretary eventually responded: ‘I am happy if you are happy. Are you happy?’ ‘Yes,’ said Brown. ‘I am happy.’ Mandelson completed the surreal conversation: ‘We are one happy family then.’ Then they both burst out laughing.1
As the banks crashed, Brown bounced. The rescue plan also bailed out his precarious premiership. The floundering, defeated leader of the summer was re-galvanised into a man of action and conviction. Mandelson later observed: ‘Along comes this crisis and he feels equipped. He feels confident.’2 It gave Brown a mission that his premiership had lacked over the previous year. In interviews, he sounded more authoritative and appeared slightly more relaxed. As the Foreign Office Minister, Mark Malloch-Brown, puts it: ‘The international crisis stemmed the internal criticism because it so evidently needed someone with his CV in charge during this global economic storm. It came along on cue.’3 Among Labour MPs like Jon Cruddas, ‘There was a sense that he was rising to the challenge, he was ahead of the game. He was the man with the beginnings of a plan.’4
He returned to the projection of himself as the right leader in a crisis, the image that had worked well during his first summer in Number 10, but this time he did so on a much grander, global scale. He created a new National Economic Council which was explicitly described as a ‘war cabinet’ and met in COBRA. He invoked the ‘calm, determined British spirit’ of the Blitz and the Battle of Britain and implicitly cast himself as the Churchill of this Battle of the Banks when he told the country that ‘Britain will lead the way in pulling through.’5
Many hands at the Treasury, Bank of England and FSA worked on the rescue, but the bulk of the glory was refracted on to the Prime Minister. Even in the French press he was hailed as a ‘magician’ who had ‘rediscovered’ his touch.6 Mandelson went biblical in his tributes: ‘Internationally people say to me, “Your Prime Minister has been transformed. His standing has soared.” People really do look to him like some Moses figure who is going to lead them away from this economic mess to the promised land.’7
The opinion poll zero of the early autumn had, for now at least, made himself look like a global financial hero. ‘The crisis is a chance to be heard again,’ said one of his senior aides that autumn. ‘People are now willing to listen to him again.’8 He was clawing back some respect from the voters, a substantial majority of whom thought he had handled the crisis well.9 More importantly, he won back his self-respect. The hunched and hunted Prime Minister of just a few weeks previously was replaced by a confident, even swaggering figure. ‘Gordon got his mojo back,’ says one of his senior aides.10 His brow lifted, his shoulders broadened, his stride lengthened and for a while he became a nicer man to work with. ‘I have not seen Gordon so happy for years,’ remarked one minister.11 Those close to him talked of Brown finally finding his purpose as a Prime Minister.
This was paradoxically because he could go back to being Chancellor. Where he palpably struggle
d to master many of the other demands of modern leadership, this crisis played to his strengths. Stock markets might be plunging and banks tottering, but he was in his comfort zone. Global finance was an arena in which he could deploy deep knowledge, draw on years of experience and exploit the international contacts that he amassed during his decade at the Treasury. Even his bitterest enemies in the Labour Party were prepared to laurel him. Charles Clarke, who just two months earlier had suggested the Cabinet should give him the bullet, declared that Brown had shown ‘genuine economic and political leadership at a time when it was both desperately needed and difficult to do’. It had put Labour ‘back in the race’ for the next election.12
On 6 November, there was a further boost from the by-election at Glenrothes, where the headmaster of his old school was the Labour candidate. Brown took the unusual step for a Prime Minister of personally campaigning and his wife made several visits to the constituency that neighboured his own in Fife. Against earlier predictions, Labour held the seat with a reduced but respectable majority.
He displayed a sense of humour, albeit of a very clunking variety, when in the company of other party leaders on Remembrance Sunday. Before the ceremony at the Cenotaph, the trio assembled in a corridor in the Foreign Office. David Cameron was anxious to be clear about the order of precedence. ‘So you go first,’ he said to the Prime Minister. Turning to Nick Clegg, Cameron added: ‘And you follow me.’ Brown lugubriously remarked to Clegg: ‘You may be following him, but I won’t be.’13
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