At that time Darling was Chancellor of the Exchequer and Goodwin was chief executive of the Royal Bank of Scotland. Goodwin, who was born in 1958, is five years younger than Darling. Though the two of them were at the heart of the British financial community they were by no means bosom buddies. Of course, they had met from time to time but invariably it was purely to do with business.
By all accounts Goodwin is no social animal. As Darling has acknowledged in his memoir, he doesn't do small talk. "He was an awkward person," said the man whose job it was to balance the nation's books, "clearly very driven, but always warily on edge." Only at the opening by the Queen of RBS's new £350 million complex at Gogarburn, to the west of the capital, had Darling seen Goodwin "in his element". Usually, however, he attended events only because he had to, doing his duty under duress.
"I also remembered attending a meeting of the directors of RBS a few years earlier to hear an economic presentation when I was Scottish Secretary," recalled Darling. "What struck me was not so much Fred, who as ever wasn't giving much away, but that this was a remarkably Edinburgh-centric board for an organisation that was rapidly on the way to becoming one of the world's largest banks. Where was the American? Or an expert on the Far East?"
Goodwin did not have far to travel to visit Darling. At that time they lived about a mile apart, Darling in Stockbridge and Goodwin in what's known as The Grange in Edinburgh's south side, a mile-and-a-half from the city centre and bordered to the east and west by Newington and Morningside. With a surfeit of million-pound plus Victorian mansions which are invariably surrounded by high walls, it is also home to a triumvirate of bestselling writers, Ian Rankin, Alexander McCall Smith and JK Rowling.
Rankin's 2009 novel, The Complaints, was partly inspired by the banking crisis and Goodwin's part in it. According to Rankin they rarely bumped into one another, once when he was invited by RBS to a rugby international at Murrayfield. "I actually thought he was pretty quiet and shy," he said. "The image of him as Fred the Shred was a bit harsh, I thought."
Though it may not have Morningside's emblematic allure, The Grange is where many of Edinburgh's old money families reside. Goodwin, it's rumoured, persuaded the council to paint double yellow lines outside his house to stop people parking in the proximity. Who knows whether it's true. It's also said that it was at his personal intervention that a bridge was built over the road which passes RBS's Gogarburn. What is implied is that for a period Goodwin could do no wrong and that local politicians did what they could to accommodate him, in the belief that what was good for RBS was good for Edinburgh.
What Goodwin wanted to talk to Darling about was cash. Or rather the lack of it. "His message for me was clear," noted Darling. "Unless the Bank of England put more liquidity into the system, quickly, it would seize up, inevitably leading to another bank failure."
A few months earlier Northern Rock had to be rescued by the government. Darling and the then prime minister, Gordon Brown, did not want to have to save
another bank. But while Darling had sympathy for Goodwin's position he was also worried about why the markets were singling out RBS for special concern. Goodwin told him that it was because they were concerned it did not have enough capital. Although he reassured the Chancellor that he was confident it did, he was still worried.
"It occurred to me that Sir Fred had not come just as a shop steward for his colleagues. He would not admit it, but I sensed that RBS, which until that time had seemed invincible, its directors and senior staff exuding confidence verging on arrogance, was in more trouble than we thought."
That Darling's worries have, in retrospect, proved well-founded is doubtless no consolation. In the light of what has happened since, and with the cancellation last week of Goodwin's knighthood, the reputation of Scotland's premier bank has rarely been lower.
But if anything Goodwin's reputation has plummeted even further. "Love rat stripped of gong" splashed The Sun. Even its Page Three model joined the chorus of revulsion, quoting Voltaire: "No snowflake in an avalanche ever feels responsible." Other papers, such as The Scotsman and The Times, which had once asked of him "Is this the greatest banker in the world?", turned their ire on him.
Apparently, he was not only responsible for bringing RBS to its knees but he was also to blame for the entire financial crisis and international recession. Without Goodwin's ill-advised risk-taking, it seemed, Greece and Ireland and goodness knows where else would not be in such a pickle. Job losses, share drops, pension shortfalls, shop closures, negative equity, youth unemployment, spiralling national debt, suicides in the City, London's riots: you name it and Fred Goodwin was at its root.
Tried and found guilty in the court of public opinion he was fair game for any accusation, the rabble roused to fever pitch. Intemperate views, fuelled in part by his reluctance to apologise for his failings and his desire to hang on to his £700,000 a year pension (which he belatedly agreed to halve), made Goodwin the perfect whipping boy. Several windows in his house were smashed and his car was damaged by an anti-capitalist group angry "that rich people, like him, are paying themselves a huge amount of money and living in luxury".
In certain Edinburgh circles, however, there is increasing dismay about the manner in which Goodwin has been targeted and dismay at the message sent out by the stripping of his knighthood. Moreover, to many in the capital's establishment the portrait painted of Goodwin – who grew up in Ferguslie Park, Paisley and attended Paisley Grammar School before becoming the first member of his family to attend university – is far removed from the man they have come to know.
Eric Milligan, a Labour councillor who was formerly Edinburgh's lord provost, said: "I've enjoyed his company. I've found him to be very gracious. He's a very, very bright guy. There is nothing showy or ostentatious about Fred Goodwin, in terms of how he dresses, how he presents himself. A lot of his interests, in old cars and doing up their engines, it's all kind of in the real world. He's not a yahoo.
"For 10 years he was a spectacular success. But I've got to say, you've got a guy from the working class in Paisley and you put in a hostile bid for the National Westminster Bank and you're successful, you make enemies - there's a lot of people who are kind of relishing having a go at Fred because of his background. Paisley buddies don't normally become the head of global banking corporations."
It was not so long ago, recalled Milligan, that Goodwin was named European Banker of the Year. Moreover, RBS's takeover of the National Westminster Bank, during which Goodwin outfoxed his local rival, Bank of Scotland, was generally regarded as a stroke of genius and used as a model at the Harvard Business School. Consequently, Edinburgh benefited hugely from having RBS in its environs.
At the time, added Milligan, the council "fell over itself" to accommodate RBS's – and Goodwin's – demands. "It was a huge plus for Edinburgh that Royal Bank had become a huge global player and was to be headquartered here and be led by Scots."
It is a sentiment echoed by several members of that ill-defined social group, the Edinburgh Establishment, a number of whom, like Milligan and Goodwin, are in the Oyster Club, which meets bi-monthly at various venues around the city. Membership is "by invitation". At its pre-Christmas Party, for instance, it mustered at the Officers' Mess in Edinburgh Castle where among those attending were Sir Tim O'Shea, Principal of the University of Edinburgh, Lord and Lady Steel, the literary agent Maggie McKernan, and Rev Gilleasbuig Macmillan, Minister of St Giles' Cathedral.
Conspicuous by his absence was Fred Goodwin, who was one of the original members of the Oyster Club which in its most recent incarnation was founded in 2003. Simon Pia, spin doctor to the former Scottish Labour leader, Iain Gray, who has attended the club, said he'd seen Goodwin there on a number of occasions, on one of which – in the Cafe Royal – he'd neglected to buy his round, a solecism that in a less forgiving gathering could lead to eternal ostracism. "Maybe like the Queen," said Pia, "he never carried cash."
In the early months of 2007, in the days before RBS's ill-fated bid for ABN AMRO, said Pia, "there was huge cheerleading for Fred". If only we knew then what we know now. Initially, RBS was involved in a bidding war with Barclays. It was thought that it was a deal that would confirm RBS's status as one of the world's top banks. But, as Darling has said, it was to prove the opposite. Why, he asked Goodwin, did he continue to pursue ABN AMRO when many thought it was not worth what RBS had paid for it.
"He outlined what he believed to be the advantages to RBS of having an even greater global reach. He accepted that in any takeover there would be bad as well as good once you opened the books. I remember thinking it was rather like a car-boot sale. You see a box with some goodies at the top and you accept that beneath there will be some absolute junk. As it turned out, ABN AMRO was stuffed full of junk."
If we were all blessed with hindsight, said a well-known Edinburgh banker, who has known Goodwin for many years, then we might never make any mistakes. Similarly, we might never take any risks. He agreed to speak as long as he was not identified, such is the paranoia currently engulfing the banking industry. Casting his eye back to the ABN AMRO debacle, he questioned the roles not only of Alistair Darling but also of Gordon Brown and the financial regulator, all of whom, he reckoned, have "got off scot-free" while Goodwin has been remorselessly pilloried.
With regards to ABN AMRO, he said: "Barclays Bank was bidding up to the last minute. It didn't seem such a bad deal at the time." As for Goodwin, dubbed "Fred the Shred" because of his eagerness to dispense with staff: "He had a strong management style which is why he did well. There was no question at the time about his competence. He's criticised now but only in the strategic sense. His pension was a matter of entitlement. Nearly all his money in savings was put into Royal Bank shares. It's unlikely he would have put a lot of money [into something] he didn't believe in. He's a proxy for people's anger about the recession."
The prominent Edinburgh banker was aware his view is not widely shared. But not even Goodwin's stoutest defenders would argue he was blameless. What distresses them is the tenor of the criticism that he and his family have had to endure, the glee with which former adversaries have leapt on the bandwagon, and the hypocrisy of those such as David Cameron, George Osborne, Nick Clegg, Ed Miliband and others who formed an unholy coalition to ensure civil servants charged with deciding whether Goodwin should keep his knighthood had little choice but to deprive him of it.
Time was, recalled Eric Milligan, when such people were queuing up to meet Goodwin. Now the same people wouldn't put a coin in his cap if he were begging in Princes Street.
"How much public humiliation is one individual expected to take? There's not been a court in the land that's come to a view that he did anything unlawful, or that there were corrupt practices or that he stole a penny. In fact, the money that he gets is a helluva lot compared with what I get but in the world of high-powered finances people it's not really such a great deal. You've got to see these things in some perspective."