How Sir Mervyn King has rewritten history The Inflation Report press conference on August 8, 2007 is damning. One of the few occasions he had to shout, it was also held, coincidentally, the day before the credit crunch struck. "Our banking system is much more resilient than in the past," the Governor declared. Precisely because many of these risks are no longer on their balance sheets but have been sold off to people willing and probably more able to bear it. Sir Mervyn's critics point out that financial stability began to be sidelined at the Bank from the moment he took over as Governor in 2003, even though it remained a core role alongside monetary policy. The Bank's annual reports show that in 2003/2004, the budget for financial stability was £30.6m. Two years later, it was £1.5m smaller. In that time, the monetary policy budget rose from £37.8m to £40.2m. The following year, 2006/2007 - the last set of accounts before the crisis, monetary policy received a £6m budget increase, twice that of financial stability. The dwindling share of resources had a real impact. In 2004/2005, "projects spending was delayed in financial stability" and the division lost so many senior personnel that the Bank was left with "a less experienced profile of staff in place than was foreseen." When the credit crunch struck in August 2007, Sir Mervyn was so short-handed he even had to send for his recently-retired former aide Alastair Clark. Despite the shrinking budget, the division remained attuned to the dangers ahead. In 2005, both Sir Andrew Large, then deputy Governor for financial stability, and his successor Paul Tucker voted three times to raise rates - isolating themselves on the nine-strong MPC. In April that year, Sir Andrew explained that a rate rise would "help to slow households" persistently rapid accumulation of unsecured debt, hence reducing the risk of a sharp fall in demand at some later date." It was a prescient warning, which talked to the debt bubble, but one that was ignored by the Governor and the rest of the Bank until too late. Evidence for the Governor's claim that the Bank did "preach about the risks" hinges largely on the Financial Stability Report from July 2006. In the document, the Bank revealed it was conducting "war games" to plot the fall-out from a credit crunch. They found that a debt-fuelled crisis could trigger a severe UK recession, a 25pc fall in house prices and the destruction of about a third of banks" tier one capital - around £40bn at the time. But the Bank could only preach something it believed, and patently this was an extreme scenario it never envisaged. In fact, in February 2008, it predicted the economy would grow by 1pc-2pc in both 2008 and 2009, and accelerating from there. Instead, within a couple of months, the worst recession since the 1930s was underway. Economists yesterday also took issue with the Governor's view that there had been a "bust without a boom." "There are no busts without booms," former MPC member Andrew Sentance said. [You] need to look harder to find the boom - in this case [it was] global and financial, not domestic UK inflation. In house prices, household debt and consumer spending, there had patently been a boom. House prices trebled between 1997 and 2007. Household debt soared from 90pc of household income to 162pc in the same time. Driven by a sense of wealth, consumer spending fuelled the economy. There was a boom. But it was paid for by debt, particularly mortgage-backed debt," Danny Gabay of Fathom Consulting said. Sir Mervyn even took issue with this now widely-accepted analysis in his appearance on BBC radio yesterday. "We debated long and hard on the MPC as to whether house prices were at an unsustainable level, and we concluded they weren't," he said - although Sir Andew Large's position would suggest the real opinion was more nuanced. The fact that interest rates around the world had become so low meant that it was quite natural for house prices to be higher. If you looked at the household sector as a whole it didn't look as if there was any excessive borrowing. Despite the 20pc fall in house prices, the Governor went on to say: "I don't think we had in that sense a [house price] boom in the economy that was unsustainable." For Mr Gabay, it was another disingenuous comment that illustrated the Governor was complicit by accepting debt was the price of growth. Some parts of the Bank were right, but they were ignored. The Governor is trying to have his cake and eat it," he said. Danny Blanchflower, a former member of the MPC who has since become Sir Mervyn's nemesis - recently accusing him of being a "cruel tyrant" - added: "If Mervyn King had thought more regulation was important he could've done something about it. And, because he didn't, he must take responsibility for the fact the Bank missed the biggest financial crisis in a century.