Iain Pears - Stone's Fall

My heart sank as the gravity of what I had started began to sink in. 'Where are we going?' I asked.

'Just round the corner.'

Just round the corner was Downing Street, and the house of the Chancellor. It was still quiet, even though it was past nine, and the policeman on duty, who had been there all night, paid us no attention at all as we strolled up the street past the Prime Minister's house and knocked on the door of Number 11. No one answered, so Wilkinson turned the knob and walked in.

Eventually someone did appear, though, looking annoyed at being disturbed so early, and Wilkinson announced himself. 'I believe the Chancellor is waiting for us.'

We were led up the stairs to a meeting room on the first floor, a surprisingly shabby place, decorated with little more than a large table, some chairs and dreary portraits of past chancellors, all of whom were striving for gravitas and gazing into eternity like statesmen rather than the politicians they were. Three men were already there: Lord Revelstoke, William Lidderdale, the Governor of the Bank, and George Goschen, the Chancellor of the Exchequer. A secretary hovered in the background, taking notes.

I was introduced; the Governor and the Chancellor acknowledged me with a nod, Revelstoke looked as though he had no idea who I was.

'Well, let's get on,' Goschen said. 'Lidderdale?'

The Governor of the Bank looked up. 'Well,' he said. 'As of this morning, we are surviving. However, it is becoming increasingly clear that this is merely a temporary respite. The full news is not yet in the market. When it is, it will sweep over the City like a tidal wave. As far as I understand it, Barings has short-term obligations of near seven million. That is what Revelstoke here has been able to discover. It is quite unbelievable. No one at present knows what its assets are; only that they are falling in value and largely illiquid. The management has been haphazard in a way which would bring any firm to grief.'

I expected Revelstoke – used to plaudits and not to criticism, who took praise of his business acumen as a matter of course – to protest at this comment. The fact that he said nothing at all brought home the seriousness of the situation even more fully.

'To sum it up, unless Barings manages to borrow a very large sum of money, it will stop,' Lidderdale concluded. 'And it will not be able to borrow without a Government guarantee to back the loan.'

'Impossible,' the Chancellor interrupted. 'Quite impossible, and you know it. Pledge the national credit to a private firm? One which has got itself into such a situation through incompetence? It would not survive the Commons and, in any case, public subsidy of the City of London would do as much damage as it was supposed to prevent. No. Absolutely not. The City must get itself out of this mess, and more importantly, must be seen to do so.'

'Then we are lost!' Lidderdale exclaimed in a tone of melodrama not normally associated with a banker.

'I didn't say the Government would not give assistance,' Goschen said tartly. 'Merely that it could not be seen to be doing so. I can pledge that anything that can be done will be, of course.'

'But not if it costs you anything.'

'Precisely.'

Lidderdale lapsed into silence and Revelstoke – who I thought might have taken leave of his senses under the pressure – continued to stare out of the window, the strange blank smile still fixed on his face. He had not said a word and did not even seem to be paying any attention to the proceedings. It appeared that he could not accept what was happening, that he had concluded he was in the middle of a nightmare and the best course was to do nothing until he woke up.

'It would have been a help,' Lidderdale said, 'if we had known about this in advance.' Here he glared at me. 'Being alerted only a few days in advance is all but useless. Aren't you paid for this?'

'No,' I snapped back. 'This is not what I am paid for at all. And I informed the Foreign Office of what I knew some time ago. My knowledge then was incomplete, but it gave a reasonable warning, had anyone paid attention to it.'

'That was the memorandum passed on to you nearly six weeks ago,' Wilkinson murmured. 'You know, the one you never got around to reading.'

Lidderdale glared, Revelstoke dreamed, and Goschen drummed his fingers on the table.

'Surely a rescue fund could be organised for Barings?' I asked, wondering whether it was my place to say anything at all.

'It could be,' Lidderdale said, 'but banks will only subscribe if they are sure that they will not need reserves to defend their own position. And they won't be able to do that unless the Bank of England can reassure them that it has the resources to maintain convertibility.'

'Which is the problem.'

'Precisely. At present we have scraped together reserves of twelve million in bullion. Which has been damnedly difficult, let me tell you. The Bank of France wishes to withdraw three million and has another three on deposit it could demand at any moment. That leaves us with a reliable six million. And six million of bills are drawn and expire daily. If investors panic and decide they want gold, we could run out in hours. Literally hours.'

'So the Bank is the problem,' Goschen said.

'No,' Lidderdale snapped. 'Barings is the problem.'

'But Barings cannot be shored up unless people have confidence in the Bank.'

'Yes, but . . .'

'Excuse me,' I said. There was a sudden silence as the bickering grandees stopped and turned to me.

'Yes?'

'You are forgetting the main point,' I said, 'which is that this is deliberate. That certain people in France are deliberately exploiting this situation to destroy the credibility of London. Barings has played into their hands and created their opportunity, but this situation would not have arisen without a conscious policy. As things stand, there is nothing you can do. You know it. The only possible option is to surrender on the best terms you can get.'

A terrible silence greeted these remarks; it was as though I had thrown a bucket of ice over the meeting.

'I beg your pardon?'

'Barings will stop unless it is saved. The banks could club together and put up enough money, but daren't. There will be a run on gold, because the French and Russians are withdrawing large amounts just for that purpose. So, at present Barings will go down, taking London's credibility and the entire funding structure of world trade with it.'

The iciness persisted.

'You need more gold and you need it by Thursday morning at the very latest. And there are only two places you can get it from. The Bank of France and the Bank of Russia.'

'Berlin, Vienna?' asked Wilkinson. 'It is the standard policy of Britain always to ally with the opponents of those attacking us.'

Here Goschen stirred. 'Impossible, I think. Even if they wished to help us, which I strongly doubt, the Bank of Berlin was set up to make it impossible – illegal – for it to operate in the international market. If it was done, it would take weeks to organise. The same goes for Austria, and the Italians have so little gold that they have none to lend. Mr Cort is correct in his judgement.'

'There are then two possibilities,' I went on. 'Either France and Russia are determined to push this to the end, in which case there is nothing we can do. We simply have to accept our fate. Or they can be persuaded to change their minds. In which case we have to discuss what they want. And give it to them.'

Goschen turned to Wilkinson. 'Your area, I think. What might they want?'

Wilkinson sucked in his breath. 'If this is as serious as you all seem to think, they can ask for anything. The Russians could demand a free hand in the Black Sea and in Afghanistan. The French could demand similar independence in Egypt, the Sudan, Thailand.'