I regard Mervyn King, governor of the Bank of England, as a friend. I also admire him as an economist, as a man of principle and as a public servant. Over the last one-and-a-half decades he has played a central role in the emergence in the UK of a modern monetary framework under the control of an independent central bank of the highest quality.

More recently, I agreed with the tough line Mr King has taken on the provision of liquidity to the markets during the current turmoil. But I recognise that he has been gravely damaged by the last week’s events. This is not so much over the handling of the crisis at Northern Rock, for which blame is shared, as it is over the volte-face on the terms on which the Bank lends to the markets. Mr King is playing a game of chicken with the world’s most irresponsible industry. Sadly, he is losing.