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Pocketmags Digital Magazines
Pocketmags Digital Magazines

The audacity of pessimism

Years of loose monetary policy has left us vulnerable to another financial crisis, says Howard Davies

The End of Alchemy: Money, Banking and the Future of the Global Economy

by Mervyn King (Little, Brown, £25)

I have known Mervyn King for over 20 years. We worked together at the Bank of England in the 1990s. We then worked opposite each other when I was Chairman of the Financial Services Authority. I have observed him in his preferred habitats: a beautiful library attached to his home in Kent, and the Directors’ lounge at Aston Villa Football Club. Yet until now, I had never suspected that he bought his socks at Harrods.

A thrifty man, King buys only in the sale, of course, but it is a surprising fact to discover in a treatise on money and banking in the 21st century—especially one which is as far from the “kiss-and-tell” memoirs of other central bankers and politicians as is possible. So I should explain that his socks enter the story as a kind of metaphor for sub-prime mortgage securitisations. In the sale, Harrods sold socks in packs of five and “when you got home you would discover at least one pair you would never wear (in my case, orange socks)… the set of five pairs was rather like a Collateralised Debt Obligation (CDO) that bundled socks instead of sub-prime mortgages.” The analogy is not exact. In the worst-performing CDOs, four and a half of the five pairs were unwearable, so to speak, but the point is well made.

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About Prospect Magazine

In Prospect’s May issue: Simon Taylor and Bronwen Maddox on why Hinkley Point C is an expensive gamble that might not pay off. Philip Collins examines Iain Duncan Smith’s tenure as Secretary of State for Work and Pensions, and Lionel Shriver reveals why she stopped fighting being female. Alan Rusbridger responds to last month’s piece on the Guardian by Stephen Glover. Also in this issue: Nicholas Soames says there’s no such thing as "Project Fear” and Howard Davies reviews Melvyn King’s new book and suggests that we are vulnerable to another financial crisis. Plus Ruth Dudley Edwards examines the fading myths of the Easter Rising and Owen Hatherley suggests it’s time to look for a Plan B to solve London’s housing issues.