The End of Alchemy

In The End of Alchemy, former Bank of England governor Mervyn King argues that the global financial system remains dangerously fragile because it is built on an illusion he calls the "alchemy of banking"—the belief that illiquid, risky assets can be converted into safe, instantly redeemable money. King, who helped steer Britain through the 2008 crisis, blends economic history, theory, and firsthand policymaking to explain how this illusion fueled repeated crises and why post-2008 reforms have not fixed the underlying problem. The book's central framework is the "radical uncertainty" of a Keynesian kind: the future is not merely risky but genuinely unknowable, so banks and investors cannot reliably price the tail events that topple systems. King traces the intellectual roots of modern central banking, from the gold standard and Walter Bagehot's lender-of-last-resort doctrine to the rise of inflation targeting and the pre-crisis "Great Moderation" consensus that he contends bred complacency. His policy proposal is distinctive: a "pawnbroker for all seasons," under which banks would pre-position collateral with the central bank, which would then lend against it at a penalty rate during stress, effectively insuring liquidity while removing the implicit taxpayer guarantee. King also examines the eurozone crisis, the tensions between national sovereignty and cross-border banking, and the distributional consequences of ultra-low interest rates and quantitative easing. The book's title captures his warning that finance's promise of turning leaden risk into golden safety is a modern form of magic—seductive, useful, and ultimately unsustainable unless the architecture of money and banking is redesigned.