Indeed, the doctrine of moral hazard is false and King's deployment of it in the crisis period was disingenuous. The truth is that King had a strong personal dislike of banking and bankers and did not want to help them. As Bagehot discussed in his 1873 classic Lombard Street, the central bank should make loans readily available to solvent organisations with a cash problem, but only at a penalty rate. In a 1993 lecture to the London School of Economics, Eddie George, King's predecessor as governor, reiterated Bagehot's principle. In George's words, "Any support will be on terms that are as penal as we can make them, without precipitating the collapse we are seeking to avoid." If the central bank makes clear to any supplicant bank that it will sting them on the loans they receive, they will not repeatedly return for more loans at a later date.

It has been widely surmised that in early 2008 Gordon Brown was reluctant to reappoint King to a second term as governor. Darling confirms that Brown would have liked someone else, but his own advice was that no obvious alternative candidate was available. At any rate, King was reappointed, and Darling worked in tandem with Brown and King in the bank recapitalisation exercise of late 2008. He shows no sign of repentance about it in this book. I have suggested elsewhere in Standpoint that the mandatory large-scale recapitalisation of October 2008 was a dreadful mistake and I am not going to repeat the argument at length here. (See "Gordon Brown's Recessional",  Standpoint, March 2011, and "Burdening banks will sink the recovery — and the Tories", September 2011.) 

Anyhow the facts speak for themselves. The six months from October 2008 were among the most calamitous in British economic history, with a sharp plunge in demand and output, and the loss of over half a million jobs. The collapse occurred despite a slashing of interest rates to virtually zero. (Imagine what would have happened if base rates had stayed at the 5 per cent level of September.) But perhaps even more eloquent is that the capital rebuilding now being implemented under the international Basle rule arrangements (and our own Vickers Commission proposals) is to be phased over almost a decade to 2019. Most sensible people have realised that to compress the process into a few months would renew the disastrous conditions of early 2009. 

So the official response to the banking crisis was not well-designed and appropriate. What about our second question? Could the severity of the downturn in late 2008 and early 2009 have been prevented? Here Darling gives the answer away, without appearing to notice the significance of his remarks or the scale of the admission that he is making. Bank recapitalisation — to add capital to banks' balance sheets, so that in principle they are more creditworthy in the inter-bank market and can lend more — purports to be one way of halting a downturn in economic activity. In fact, it is counterproductive and misguided. But a more traditional and straightforward approach is available, which is for the state to use its financial muscle to expand the quantity of money. Darling does not say much about the programme of "quantitative easing" (QE) inaugurated in March 2009, but the little he does say is fascinating. Apparently "the Bank of England and the Treasury had been working on the scheme for weeks before the announcement" (note the absence of references to Brown and King as such). For Darling "the key thing is that it worked".