Sir Nick Macpherson, the outgoing top civil servant at the Treasury, says regulators and governments around the world were guilty of a “monumental collective intellectual error” in the run up to the 2008 financial crash.
In an interview with the Financial Times Sir Nick, who has left the Treasury after a decade running the institution, says: “I see myself as one of a number of people in finance ministries, central bank regulators, in the UK and the US who failed to see the crisis coming, who failed to spot the build-up of risk. This was a monumental collective intellectual error.”
The bursting of a housing bubble in the US in 2007 sent shockwaves around the global banking system and sparked a global economic crash that began in 2008.
The 2008 financial crisis plunged the US into the worst recession since the Great Depression and forced Britain into what now looks to be a decade of austerity in order to rebuild the system. Sir Nick was the top civil servant at the time, having risen to the position under Labour Prime Minister Gordon Brown.
But Sir Nick says that things could have been even worse than they were. He told the FT: “If it hadn’t been for Northern Rock things could have been a lot worse. I think there was a period during the week leading up to the recapitalisation of the banks [in 2008] when things looked very bad indeed.”
Northern Rock collapsed in 2007, shortly before the full effects of the 2008 crisis became apparent. Sir Nick says this trial run allowed the Treasury to prepare and boost hiring in areas that would be needed. Of the Northern Rock collapse he says: “The fact is we didn’t spot it, we didn’t ask the right questions and that was a failure.”
In all, Sir Nick, who retires this week, served 31 years at the Treasury. You can read the full FT interview here.