The government has lost its reputation for economic stability, and has seen a massive hole blown in its spin that it created an independent Bank of England, as a result of the convulsions in credit markets and the run on Northern Rock.

Ever since Gordon Brown took over as Prime Minister, things have gone badly awry in banking markets. We have lived through the end of the long financial bubble of easy credit he created as Chancellor by keeping interest rates too low and agreeing to the Basel rules for banking capital which encouraged banks to lend and lend through off balance sheet devices. The great army of regulators looked on approvingly, as all their boxes were being ticked.

This summer some in the City and I through my website, www.johnredwood.com, told the authorities that money was by then too tight. We urged them to lower interest rates and make more money available to the banking system. They ignored us, and told any bank in trouble that it served the bank right. The banks were on their own and had to sort out their own difficulties. The Chancellor was sending out this tough message on the eve of the run on Northern Rock.

Northern Rock changed all that. For the first time a UK government offered to stand behind all the bank deposits in the country if need arose. For the first time the taxpayer lent more than

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