There is a lot to pick over in Gordon Brown’s testimony to the House of Commons Liaison Committee yesterday and in particular one suspects that his account of what the Financial Services Authority did or did not tell the Treasury about problems with the HBOS business model is an issue of which we have not heard the last.  But there was another claim deserving of scrutiny because it goes to the heart of the lack of preparedness for the crisis —

Mr Brown (from the non-official record): Let me tell you first of all the purpose of the Tri-partite Committee and the remit you read out. It is to look at systemic risk. It meets very regularly, as you say, at official level. I may say in 2006 we carried out a huge exercise, we examined what would happen in the event of a bank running into problems, or a major institution, in America or Britain. We did a simulation exercise, we brought in the chairman of the American Federal Reserve, the Treasury Secretary of that time, Henry Paulson, we had all the American regulatory authorities present, we had the Governor of the Bank of England, we had the chairman of the FSA, we had myself as the Chancellor, the Financial Secretary to the Treasury, and we did this video conference looking at the problems which might emerge.

Unless he’s referring to January 2006 when Alan Greenspan was still at the Fed, this means that the top policymakers in the US and UK during 2008 sat together in 2006 and did what sounds like an elaborate “war game” of a banking sector crisis.  So where were all the lessons learned from this in 2008 with all the same people still on the job (or, in Brown’s case, more senior jobs)?  In particular, what did the simulation tell them about the likely impact of a bank like Lehman Brothers failing?   There is a related issue here of whether and why the UK refused to provide support to Lehman over a critical few days in mid-September.  But most of all, it suggests (as the interrogating MPs emphasized) that there was concern in the regulatory system back in 2006 about the possibility of transnational systemic risk.  Were the people at the top listening?