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Attack on Mervyn King over Lehman Brothers
28 Apr 2009The Bank of England was today under renewed pressure over its handling of the financial crisis and the aftermath of the collapse of Lehman Brothers.
Bank Governor Mervyn King rang Britain's top bankers on the night Lehman failed in September last year to reassure them the wind-down of the Wall Street firm would be orderly.
He told them it was an American problem, and the markets would take it in their stride, according to Channel 4's Dispatches programme. The Evening Standard understands that one of the bankers contacted was Lord Stevenson, chairman of struggling lender HBOS.
But despite reassurances from King and the Financial Services Authority, shares in HBOS and other UK banks went into freefall the following morning amid fears in the City the next disaster could be in London.
Just days later, HBOS was saved from collapse by Lloyds TSB and the Government as the crisis in the US spread around the world.
In the same week, Merrill Lynch was rescued by Bank of America, and the US government had to bail out AIG, the largest insurer in the world.
Regulators, politicians and bankers have cited the collapse of Lehman as the turning point in the crisis. But Bank of England policymaker David Blanchflower said that was "crass".
"People seem to want to rewrite history, to say that the world changed with Lehmans and it wasn't predictable before that, but I think that's crass nonsense," he told Dispatches.
"It's quite clear if you look in, right through 2008 the economy was slowing, output was slowing, confidence surveys, business pessimism surveys were slowing, the labour market had slowed. This has all occurred well before Lehmans."
Reader views (1)
It might have been going to happen at some point, but Lehman was the trigger and Hank Paulson pulled it. The financial crisis was primarily caused by bad management at major banks. The assumption was that these banks would protect themselves, because they were the best at what they did and they could pay for the best financial brains in the world. Turns out they needed to be protected from themselves. The government and the BOE are guilty of naivity, the banks are guilty of greed, negligence and a whole lot more.
- Alex C, London, 29/04/2009 10:38
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