Only a little more than a year ago, Gordon Brown was considered very clever when he had a word with Sir Victor Blank at a cocktail party and encouraged him to merge Lloyds and HBOS to help save the British banking system. Not long afterwards, Sir Victor was forced to resign after the merger produced chaos and stupefying losses were exposed. Mr Brown, however, is still here, and this week, with equal brilliance, he has ordered the break-up of the bank he merged, in order to help save the British banking system again, while he puts a further £5.8 billion of government money behind it. It is not easy to resist Mervyn King’s recent suggestion that the relationship between government and the banks is the greatest system of moral hazard ever created. I do not understand why this long-running crisis is said to have been caused by ‘market fundamentalism’. The concept of being ‘too big to fail’, which dominates the crisis, is the biggest anti-market idea there is. Surely we have not a market problem but what economists call an ‘agency’ problem — the power of those involved in the trade to skew it to their own advantage and make everyone else take the consequences of disaster. The argument that Britain needs such zombie banks is very much like the belief in the 1970s that Britain needed British Leyland. It was wholly untrue except, unfortunately, in the short term — hundreds of thousands of jobs, and therefore a good many parliamentary seats were at stake. The prospect of immediate and total collapse was — and is — too frightening. By the Leyland analogy, the government now has a dilemma: does it want able Michael Edwardes equivalents to work within the existing rotten big bank structure (at the cost of almost indefinite taxpayer-backing), or does it want creative destruction? Its answer is the former, but only because it is politically too weak to attempt the latter.