Perpetua Vink had been educated in Lancre, which is not something that happens to a person so much as something that is done to them. Her teacher was Mistress Esmerelda Weatherwax, of whom it was said, mostly at a safe distance, that she was the greatest witch on the Disc, and who held that the craft came down to two things. The first was First Sight, which is seeing what is actually there, rather than what ought to be there, or what everyone agrees is there. The second was Second Thoughts, which are the thoughts that watch the thinking. Mistress Weatherwax had never mentioned that the second one would turn out to be the expensive one, on the grounds that some bills a young witch has to run up for herself. There were, she allowed, Third Thoughts, which watch the world and think for themselves, and she did not teach those, since nobody could. Fourth Thoughts, which ask what might be done about whatever the first three have found, she regarded as politics, and not her department.
The rumour arrived in the mountains the way rumours do, worn smooth by handling. The world’s money, it said, was decided in a tower beside a railway station in Basel, by people nobody had chosen, at meetings nobody could attend, and the police were not allowed in. Perpetua, who had been raised to hold that a rumour is only a fact that has not yet been made to show its papers, went to look.
The tower
The tower was easy to find, being a tower, and the first surprise was that the rumour had understated things. Every other month, on a Sunday, a few dozen people gather there. They are the governors of the world’s major central banks. The bimonthly meetings leave no public record of what was said; the Economic Consultative Committee convenes on the Sunday, and the Global Economy Meeting that follows brings together the governors of thirty central banks representing roughly four fifths of global GDP. Under its Headquarters Agreement with the Swiss state, the buildings and archives of the Bank for International Settlements are inviolable; no agent of the Swiss authorities may enter without the Bank’s consent. Finance ministers are not among them. Entry, for anyone, is by invitation.
The second surprise was where the confirmations came from. The Bank publishes its own arrangements, and the publications go back to 1930. Perpetua, who had expected to spend a week listening at windows, instead sat down and opened the first document. It handed her the next.
First sight
The Bank was created at The Hague Conference of 1930 to administer German war reparations; the reparations file led to March 1939, days after German troops occupied Prague, when gold held for the National Bank of Czechoslovakia in a BIS account at the Bank of England moved to a Reichsbank account, an instruction issued under duress that the BIS decided to honour. The gold led to Bretton Woods, 1944, where the assembled nations adopted a resolution calling for the liquidation of the Bank for International Settlements at the earliest possible moment. The liquidation never happened, and an institution that survives its own internationally recommended abolition raises the obvious next question, what power the people in it still hold. A decision of the ECB’s Governing Council can reprice markets within minutes, including markets whose interest-rate-linked contracts run into the hundreds of trillions, and its makers stand for no election. Several sit in the Group of Thirty, a private, Washington-based body where serving central bankers meet executives of banks under their own supervision; when the European Ombudsman found this to constitute maladministration and recommended that the ECB president suspend his membership, the ECB considered the recommendation and declined. Article 130 of the treaty forbids the ECB and the national central banks from taking instructions from any government, and forbids governments from trying to give them. A Dutch finance minister has no vote, no seat, and no standing to demand one. And over all of it lay the synchrony: rate moves arriving in step across jurisdictions, crisis programmes that rhymed, a profession that appeared to act as one.
Somewhere along that chain the pieces fitted, and the click was audible. A bank born of one war, compromised in the next, sentenced to liquidation and quietly reprieved; immunity from the local police; unminuted Sundays; a private club shared with the supervised; elected governments legally barred from the room; and coordinated movement across a continent. Perpetua felt the click arrive, and it felt like being right, which is a feeling with excellent manners and no references. It was not the click of a fool: every piece was documented, most of it by the institutions themselves. The picture assembled itself, and what it appeared to show was a directorate.
She wrote one word at the top of the page: directorate. She sat with that for a while, because it was warm.
Second thoughts
Then the training reasserted itself, the way training does, at the least welcome moment. Granny Weatherwax had said it once, in the voice she kept for weather and other facts, over a matter of goats that had turned out to be a matter of yew: a click only ever tells that a pattern has been found, never where it lives, in the world or in the finder.
So Perpetua asked of each piece one flat, unglamorous question: what does this piece actually require? A directing hand, or something cheaper?
The exclusion of the elected was the first piece to show its own papers, because it had a paper trail running in exactly the wrong direction for a secret. The inflation of the 1970s discredited politically steered money across the West; the Bundesbank’s record made the German model the envy of every neighbouring treasury; the academic case was built in the open, from Kydland and Prescott’s 1977 argument (“Rules Rather than Discretion”, Journal of Political Economy) that discretionary policymakers systematically produce inflation nobody wants, to Rogoff’s 1985 case (Quarterly Journal of Economics) for handing the printing press to someone more conservative than the median voter. Maastricht in 1992 turned the fashion into treaty law, ratified by national parliaments, the Dutch one included. The corridor where the minister waits was drawn deliberately, and the drawing was published in the Official Journal. Even the privacy turned out to be a published calibration: the ECB announced in December 2014 that it would publish unattributed accounts of its monetary policy meetings four weeks afterwards, while the confidential records remain subject to a thirty-year access restriction, and the Federal Reserve releases complete transcripts on a five-year lag. Perpetua noted, with a witch’s respect for the practicalities, that arrangements bent on concealment do not print their constitutions and invite commentary on the result.
The synchrony took longer, and broke open into something more interesting: the biographies. The economics of central banking passes through a handful of graduate departments, one above all. Stanley Fischer’s MIT taught or advised Bernanke, Draghi, and later governors of the central banks of Australia, Brazil and Japan; Draghi and Bernanke took their doctorates there in the late 1970s, and Bernanke and Mervyn King occupied adjoining offices as young academics in 1983, a quarter-century before facing 2008 as, respectively, Federal Reserve chairman and Governor of the Bank of England. The guild runs versions of the same models, publishes in the same handful of journals, and cites itself. Two governors reaching the same decision in separate buildings need no telephone call between them: same model, same data, same answer. Perpetua knew this mechanism from Lancre. A village where everyone was raised on the same three stories will finish each other’s sentences forever, and no meeting is ever required. Herding is observationally almost indistinguishable from coordination, and considerably easier to arrange.
And whatever steering capacity the guild possessed, 2008 had measured it. The crash arrived unforecast by nearly the entire profession, central banks included, and it took an actual queen to ask the obvious question. When she did, at the LSE, the considered reply came in a letter from the British Academy: principally a failure of the collective imagination of many bright people to understand the risks to the system as a whole. It had been written as an explanation. Perpetua read it as a verdict. A hand on the wheel is at least responsible for where it steers. A monoculture cannot notice what its shared model does not contain, and in 2008 the model did not contain the banking system.
What second thoughts keep
Second Thoughts are not an acquittal, and in several places they read harsher than the click did, which was the part Perpetua had not expected.
The distributional record of quantitative easing is a central bank finding about itself. The Bank of England’s 2012 analysis of its asset purchases noted plainly that the policy worked by raising asset prices, and that holdings were heavily skewed, with the top five per cent of households holding forty per cent of the relevant assets. The distributional effect was upward through asset prices, acknowledged in house, and the consequences did not end with the first purchase programme. Greece, 2015, sits in the press releases: on 28 June, with a national referendum called for 5 July, the ECB announced that emergency liquidity to Greek banks would stay capped at its Friday level rather than rise to meet the accelerating deposit run; the banks did not open on Monday, capital controls followed within hours, and an unelected institution had materially constrained the financial conditions under which a democratic vote would take place, announcing each step publicly as it went. Perpetua read that file twice and did not smile once. The Group of Thirty stayed too, and stayed a choice: no structure forced the ECB to decline the Ombudsman, and Perpetua noted the difference between a structural inevitability and a decision. The 2019 nomination of the ECB presidency as one item in a package deal on the EU’s top jobs, assembled over three days of horse-trading and reported live, completed the picture: the scandal was in the press releases. Nothing had required a leak. It had required reading.
No door
The directorate had not survived the question, and its absence made the picture colder, not warmer. A directorate has a door. Behind a door there can be an exposure, a resignation, a dismantling; the problem carries its own remedy inside it. Convergence has no door. There is no meeting whose exposure would fix the distributional record of asset purchases, no membership list whose publication would have put a banking system into the models of 2008. Nobody is driving, and the vehicle is real.
Third thoughts
Granny Weatherwax had said it once, over a matter of a barn fire and the boy who had been carrying a lantern through it, that explaining the hay does not explain the boy.
Herding as an explanation reaches the system level. It does not reach the Governing Council that capped emergency liquidity to Greek banks in the week of a national referendum, because that cap was the decision of specific people in a specific room at a specific hour. It does not reach the institution that received a written recommendation from the Ombudsman, replied in writing, and declined. Nor does it speak for the economists who published a distributional analysis of their own institution’s programme, or for the institution that ran the programme again in 2016 and in 2020. Herding produces convergence across jurisdictions; it does not produce every specific resolution on every specific day. Herding and discretion are not rivals: they occupy the same meeting and act together.
Fourth thoughts
Mandates can be reconsidered, accountability written into amended treaties. The argument was made at Maastricht in a form that excluded the minister, and can be made differently, at the cost of ratification in every member state. This is available.
The Ombudsman’s recommendation is in the public record. The distributional analysis is in the public record. The emergency liquidity cap and its timing are in the press releases. The Group of Thirty membership, maintained after the Ombudsman finding, is in the record. The institutions published it, under their own names, in their own documents, and the question is not where to find it but which of these decisions, made by people in a room with a door, could be made differently.
The tower beside Basel station publishes no record of its Sunday discussions. Its inviolable archive, meanwhile, has been open to researchers since 1998, thirty years after the fact, by appointment.
Perpetua made an appointment.
Perpetua Vink is an original character written in homage to the Discworld of Sir Terry Pratchett. Mistress Weatherwax, Lancre, First Sight, Second Thoughts and Third Thoughts are his, and remain the property of his estate; they appear here with gratitude, without affiliation, and without commerce. Fourth Thoughts are an addition. Everything the documents say is, probably and regrettably, real enough.