Darling shreds Fred

This week's final episode of "The Love of Money", the BBC's excellent series on the credit crunch, focused primarily on the role played by politicians and public servants in trying to deal with the crisis. So we heard from the likes of Gordon Brown, President "Lula" of Brazil and the Icelandic Finance Minister -- though interestingly, not from Hank Paulson, who "declined to speak on camera".

Each of the programmes in this series has provided fresh insights. This week's came from Alastair Darling, who revealed some of what happened when the British Government met with senior bankers to figure out how the Government could inject capital into the more vulnerable institutions. According to Darling, RBS boss Sir Fred Goodwin kept insisting, to the utter disbelief of both his competitors and the politicians, that his bank didn't have a capital problem, it just had a liquidity problem.

Recounting this one year on, Darling delivered one of the most withering putdowns I've ever heard from any politician: "The first line of defence is having people in the boardroom who know what's going on in their own business". Even the unrepentant Sir Fred, if he was tuned in at home in Edinburgh, must have crawled behind the sofa when he heard that.

There's no way of knowing whether Darling thought that one up himself, or whether one of his speechwriters came up with it -- in which case, give that man or woman a raise! However, you have to hope that the Government and regulators see that it's more than just brilliant zinger: it's also a truth that needs to be kept in mind as new rules for the financial sector are drawn up. Banks aren't charities. They didn't and don't pay big bonuses out of the goodness of their hearts. They pay them because they believe they are making lots of money, and will continue to do so if they retain the big producers. The role of the "people in the boardroom" and of senior management is to ask how the money is being made. Did anyone on the board at Northern Rock question how it came to pass that a sleepy regional building society was providing more than a fifth of the new mortgage loans in the UK? Did the board at RBS try to stop Sir Fred from taking over ABN Amro at a silly price right before the crash?

Attacking the bonus culture is easy and fun, but it's only a symptom. Putting some steel into the spine of bank directors and senior management is difficult. As a minimum, it requires tighter capital requirements and more intrusive regulation. The G20 seems to be moving in that direction -- but the bankers, amazingly enough, seem likely to put up a fierce resistsnce.