Gordon Brown’s defence at PMQs yesterday against banks being broken up was entirely specious. He was asked if the casino speculative investment arm of banking should not be split fromn the utility retail part of banking, as Mervyn King had forcefully argued? Wrong, he said. Northern Rock was virtually a retail bank, but that hadn’t prevented its collapse; and Lehman Brothers was a stand-alone investment bank, but that did not save it from collapse in September 2008. A casuistical response since Northern Rock was in fact by the time of its demise part of the shadow banking fraternity, drawing heavily on the wholesale international financial markets and deeply into securitisation and credit default swaps in order to generate its 125% mortgages.Its leverage ratio when it went belly-up was no less than 50:1. If it had been restricted from access to the casino, it might have survived.

Nor was his answer about Lehman Brothers any less tricky. Lehman went under because of a deliberate decision by the US Treasury (colossally unwise though it turned out to be) to allow a major bank to go bankrupt in order to send a message to the US banking sector that they had to look to their own resources for survival and could not expect an automatic bail-out. No doubt it was also the intention of Hank Paulson, the US Treasury Secretary, to make a forceful declaration that capitalist organisations and markets were self-dependent and that a Bus Administration would have no truck with socialist solutions like State take-overs. It turned out rather differently, by provoking a cataclysmic reaction that came close to collapsing the entire world finance system.
But the real point is that Gordon Brown’s somewhat jesuitical calling in aid both Northern Rock and Lehman Brothers to make his case that splitting off the investment arm of banks from the retail is not relevant fails on both counts. The real reason he is opposed to this obvious reform is that once again he has succumbed to big bank lobbying who want to keep all their cake and eat it even after the revelation of their monstrous recklessness, greed and incompetence.

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