King blasts blunders that could last for a generation

A Bank of England Governor getting angry in public? Who'd have thought it.
But you got the feeling that underneath his mandarin reserve that's exactly how Mervyn King feels about the way years of banking irresponsibility have landed the UK economy in an almighty pickle.
This is what he said about the banks when he spoke last night in Nottingham: "I fully understand the sense of injustice that you and many other businesses up and down the country must feel about being held hostage by the banks.
"I share it."
Read it again: that's one of the most important men in the UK economy smacking the banks right between the eyes.
When you wade through the painful detail of his speech you can understand why anyone might be angry about a crucial sector of the economy which, one way or another, got completely out of control.
The bizarre thing is that is all started with one of the most common sense financial character traits of all: saving.
The saving was taking place in the Far East as the so-called emerging economies revved up, people stashing so much wealth that their banks started to look for somewhere to invest the surplus.
That somewhere was economies like ours, where an appetite for growth and low interest rates made it easy to borrow big money.
When I say big, I mean BIG: there was so much money sloshing around that the financial sector in the UK expanded massively to gorge on it. The search for higher and higher returns on that money (known as yields) saw them create fantastically complex investment products which saw loans sold on, insured, re-packaged and sold again.
So attractive did the returns on these products seem that the banks that made the original loans decide they'd like a piece of the action too. So they started investing in mortgage-backed securities - securities which mixed all sorts of loans together like a bag of Thornton's mis-shapes.
They forgot one, simple thing, said Mr King: "Investors, including banks, overlooked the fact that higher returns could only be generated by taking higher risks."
The result was that the banks had a mountain of debt balanced on a pinhead of capital reserves.
This was only ever going to end one way
The question hanging on everyone's lips is why on earth didn't the Bank do something about what now looks like an impending disaster?
It did, said Mr King. It made speeches and publications highlighting the dangers.
Do you remember any of them? Thought not.
Mr King tacitly admits that this just wasn't enough: "It is clear that policy did not succeed in preventing the development of an unsustainable position."
In the future, says Mr King, there should be rules that stop banks building up unsustainable debts. There should be global rules that mean countries with cash surpluses must keep their economies under just as much control as countries with deficits.
But that's in the future. Right now, says Mr King, we are trying to soften the thumping impact of what will be a long, painful and inevitable adjustment at the heart of our economy.
The massive scale of the money being pumped into the economy means we will have massive bills to pay. For which read higher taxes, lower public spending.
As difficult as it may seem right now for some businesses, the UK economy will stabilise. All sorts of tricks are being tried – including printing money if necessary – to force the banks to agree more lending.
But in the same way that the impact of interest rate changes can sometimes take more than a year to work its way through the economy, it may be late this year or early next year before the treatment works.
In the meantime, batten down the hatches.
And afterwards? Big bills and humbler banks mean we're in for years of slow growth. The UK Economic Express is turning into a trundler.