Mervyn prepares to play the waiting game

As public outrage continues to boil over at Goodwin's pension, Mervyn King steps up to answer questions on the current crisis

RARELY has a subject prompted such debate. Comment on the credit crunch and its origins, its impacts, its side shows is endless. But where supply is vast, value is low.

The spotlight has fallen on former RBS chief executive Fred Goodwin and his multi million pound pension.

Politicians remain defiant yet uneasy when questioned over what they had known about Goodwin’s terms when he left in October.

Bank of England Governor Mervyn King appeared before the Treasury Committee in Parliament on Thursday to answer questions about the banking crisis.

He was perhaps better placed than most to comment on the row surrounding Goodwin.

In 2008, he refused to take a £125,000 pay rise from the Bank of England Bank.

He told the committee: “The real question about Goodwin's pension is how on earth was it that the board, shareholders and financial press all thought it was a good idea in the first place.”

King joined the Bank of England in 1991, as chief economist and was appointed deputy governor in 1997. His promotion coincided with a significant moment in the bank’s history when it was given independence to set interest rates by the new Labour Government. He was appointed Governor at the central bank after Sir Edward George retired in June 30, 2003. Regarded as ‘hawkish’, he has been accused of being pre-occupied with keeping inflation low. Some have pointed to an alleged reluctance to deal more firmly with the High Street bankers, although he rebuffed the allegation on Thursday and placed the ball back with the politicians.

"It's pretty clear that you and others would expect the Bank to play more of a role than in fact we did,” he told the Treasury Committee. “You also need to recognise that we don't have any powers at all other than dealing with banks that have already failed.

“In terms of dealing with banks that are growing and living, we don't have a single power now that we didn't have before, so we literally have the power now only of our speeches, our reports and the words we use when speaking to others in the tripartite process, and I hope you will remember that when you try to hold us accountable for things where we simply have absolutely no powers to take any actions.”

King has described in some detail what he sees as the causes for the current crisis. He blames vast sums of money from growing economies in Asia that flooded financial markets from the 1990s onwards. This in turn created huge demand for assets, such as property, that offered high returns. Cheap credit also spawned a vast financial sector as new investment instruments, involving high yield loans to bad debtors, were created to satisfy the search for more profits. Describing the current problems as the worst in living memory King remains pragmatic, yet upbeat.

Speaking last month at a business dinner to members of the CBI he predicted recovery would be long: “It will take time, but time is a great healer, even of banks,” he said.

“No one can know at what point the impact of all this stimulus will have a visible effect on activity. The lags in economic policy are notoriously long and unpredictable.

“But well-designed policies implemented within a consistent policy framework will eventually work.”

Everyone has something to say, expert analysts, politicians, bankers, financiers. Above the constant chatter, King’s words offer precious. Informed, clear and common sense. Priceless.