The recent history of banking is ripe for counterfactual storytelling. What if Lehman Brothers had been rescued? What if Lloyds had been allowed to buy Northern Rock? And the current favourite - what if Lloyds had not bought HBOS? All of these are interesting questions, but I predict few will matter much when the real history books are written.
The reason is that most of these "rescues" or non-"rescues" only affected the timing of the banking collapse; not its direction.
Initially, the crisis was perceived as one of confidence. America's subprime defaults had caused markets to freeze up because no one knew who was affected. Without access to these markets, banks got into trouble because they couldn't raise enough short-term cash - a classic "liquidity" crisis.
But with hindsight, this wasn't a liquidity crisis, this was a solvency crisis. All British banks were overexposed to a property and business lending bubble that was unsustainable - even Lloyds. What would Lloyds have looked like if it had stayed on the sidelines? Well, look at HSBC.
All other things being equal, Lloyds might have been in better shape if it hadn't rescued HBOS, but what about the rest of the economy? An uncontrolled collapse of HBOS would have concentrated the last six months' of anguish into six days of utter panic. The failure of Northern Rock would look like a tea party. Where would Lloyds be then?
This might sound overly gloomy, but the sooner we recognise that the banks are bust, the sooner we can get on with cleaning up the mess rather than trying to rewrite history.
