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The Bank of England was only ever going to be independent for as long as it was doing what the boss wanted. And for ten years, it did. Interest rates were kept nice and low, driving a housing-fuelled consumer boom and maintaining that crucial 'feel-good' factor. The Bank's apparent distance from politicians also lent a shiny patina of integrity to the whole affair.
Recently however, Mervyn King has had an attack of principles. He clearly decided that if you keep letting the financial system off the hook, then no one will ever learn that taking risks is risky. Keep doing it, and eventually banker will be taking savers' money down to the local casino and whacking it on red or black, safe in the knowledge that taxpayers will bail them out.
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But we all know what usually happens to people in power who take principled stances on political issues.
They get fired...
Mervyn King is under attack. He's been accused of flip-flopping all over the place on this banking crisis. First he wouldn't let Lloyds TSB buy Northern Rock, then he offered to lend them some money, then the government offered to lend it an unlimited amount of the public's money.
Now Mr King has also decided to pump money into the three-month money market. That's the one that's been frozen over in recent months, causing all the trouble in the banking sector - although arguably, there had been signs of the problems abating now that the Northern Rock queues have vanished. It's something of a U-turn on his previous policy stance that flooding the system with liquidity "encourages excessive risk taking and sows the seeds of a future financial crisis."
And more than a few people suspect that the government may have had a bit of a role in nudging Mr King in the right' direction.
"This has the dead hand of the Treasury all over it," said Danny Gabay, an ex-Bank official to The Telegraph.
Still, that's politics for you. Bernard Connolly of Banque AIG's words on the Northern Rock crisis summed up the whole situation beautifully. "The government guarantee of Northern Rock deposits accepts a political reality: once a Ponzi scheme has reached a certain point, risk has to be socialised."
In this context, by socialised, he basically means nationalised. The entire Anglo-Saxon economy - possibly the global economy, if you account for the fact that China's economic miracle relies a great deal on selling Americans cheap goods - is a Ponzi scheme built on houses. US and UK consumers borrowed increasing amounts of money that many of them couldn't afford to repay, driving up the prices of already overvalued houses. These bad debts were sold all the way through the financial system, and that realisation is what made banks seize up and stop lending.
Now the governments in the UK and to a very great extent in the US have declared that they will carry the can for any fall-out. That means banks will keep lending and the great Ponzi scheme will continue.
What'll happen in the end? After the Japanese bust in the early 1990s, the government had to effectively nationalise the banks, which would otherwise have collapsed under the weight of their own bad debts. That was nearly 20 years ago and Japan is still lying in the recovery position.
Could the same thing happen here? History doesn't repeat itself, but it often rhymes, as Mark Twain roughly put it. We may not be turning Japanese, but the outcome of encouraging easy lending is never pretty. And we may never ever have seen a bubble as big or as entrenched in the economy in the past as this one - which suggests that the bust, when it comes, may be equally big.
Turning to the wider markets
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In London, the FTSE 100 extended Tuesday's rally yesterday, climbing 176 points to end the day at 6,460. Miners led the blue-chips higher, as the likes of Anglo American, Vedanta and Kazakhmys were boosted by rising commodity prices. Financials including Prudential were also higher following the US interest rate cut, but mortgage bank Northern Rock fell to a record low. For a full market report, see: London market close.
Elsewhere in Europe, the Paris CAC-40 was up 181 points at 5,730. And in Frankfurt, the DAX-30 was 121 points higher, at 7,750.
Across the Atlantic, the Dow Jones rallied to its highest level since July yesterday, but gave up some of its earlier gains to end the day at 13,815, an overall rise of 76 points. The tech-rich Nasdaq was up 14 points at 2,666. And the broader S&P 500 was 9 points higher, at 1,529.
In Asia, the Nikkei made moderate gains to close at 16,413 today, a 32-point rise. And the Hang Seng was last up 146 points, at 25,701.
Crude oil had fallen back to $81.85 this morning, whilst Brent spot was down to $78.01.
Spot gold had risen to $723.50 from $721.10 in New York last night. The yellow metal hit a 16-month high of $726.00 in intra-day trade yesterday. Silver had risen to $13.01.
Turning the forex markets, the pound was at 2.0062 against the dollar and 1.4285 against the euro. And the dollar was at 0.7118 against the euro and 115.49 against the Japanese yen.
And in London this morning, Northern Rock shares fell by as much as 22% after the Treasury said it would not guarantee any new deposits made from today. Although the Bank of England will back any re-opened accounts, the Treasury said that it would be 'unfair' to other banks and building societies to cover any freshly opened accounts.
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