Gordon Brown has staked his claim to be the saviour of advanced economies in the crisis, by claiming in his new book that he pressed the case for recapitalising banks around the world. For this foresight, the former British prime minister has received adulatory reviews by nobel prize-winning economists.

“Hang on a second,” Mervyn King, governor of the Bank of England, has a right to say. One of the latest Wikileaks US embassy cables shows King was pressing in March 2008 for significant bank recapitalisations and a stigma-free method to allow banks to get rid of their unwanted toxic assets without resorting to central banks. That is well before Brown’s actions that Autumn.

Here is the summary from the 17 March cable:

“King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the US, UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.”

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It has been a bad week for Mervyn King. Accused of being excessively political around the time of the election last Thursday by Adam Posen and others including Kate Barker on the MPC, he has now been outed in the wikileak revelations as fond of a gossip with the US ambassador.

Embarrassing? For sure.
Damaging? I don’t think so, but I’m not sure.
Surprising? No.

The leak mostly contains views that the governor expressed publicly, or views that were blindingly obvious.

There is the obvious statement that King expressed publicly: “For the next ten months, the UK faces the challenge of adopting deficit-reduction measures, controlling inflation and addressing rising unemployment”. Read more