Robert Peston’s reporting for the BBC of the whole Northern Rock saga has had a “blame Mervyn” undertone to it. Today he basically peddles one of the two Treasury favoured spin lines;

The first point is easy to deal with, Mervyn saw it coming as did half the City, that is why Northern Rock shares halved long before the headlines. The blame really lies first and foremost with the board and management of Northern Rock. They failed to foresee the problems and they alone bear responsibility for the dash for growth and profits through securitisation which has unravelled. The LibDem’s Vince Cable was spot-on when he blamed the Northern Rock management for their own undoing. So should Mervyn King discourage or encourage bankers to make mistakes?

King thought not on September 12, yet under pressure from Alastair Darling, the very next day he supported the bail-out of the Northern Rock management. There was no systemic risk to the financial system which could justify such a move. Now with the Treasury promising to guarantee all bank deposits, the British banking industry has become Moral Hazard central. The news that King has been forced to effectively reverse a sound policy means all risks have been transferred to the taxpayer. So if today an RBS trader “did a Leeson” the Treasury would end up picking up the tab.

The second line of Treasury spin is that the Bank of England should have flooded the markets with liquidity. That is never generally a good idea for an institution obliged to fight inflation. Market participants were in any event able to borrow from the bank window at penalty rates (and some did). Northern Rock could not do it because they did not have the necessary collateral.

The blame lies not with Mervyn King but squarely with Northern Rock’s management. The Northern Rock board took the risk in their dash for profit growth, a risk that should have been spotted at board level by their risk management committee chaired by Sir Derek Wanless.

Wanless should resign immediately and be stripped of any bonuses and performance related payments.