WITH MINISTERS ON their Paddy’s Day missions abroad and backbenchers tending to all-important constituency work this week it’s a good time to take stock of the year so far.
One of the highlights of the 2015 political year to date has been the banking inquiry.
While it hasn’t always been riveting stuff there have been a few stand out moments and we’ve learned a few things about the banking crisis along the way.
So here’s a quick recap of the story so far….
1. There was no alternative
Despite one witness describing it as “the most destructive own goal in history”, what’s cropped up consistently throughout the hearings has been the view that that there was no alternative to issuing the blanket guarantee on 30 September 2008.
Several witnesses have queried the decision to guarantee junior bondholders, but equally acknowledged that with the information available at the time, and without the sort of EU structures that exist now (permanent bailout funds etc), the guarantee was the only option.
Finnish banking expert Peter Nyberg said he understood that the government “saw no workable alternative to the guarantee”. Central Bank governor Patrick Honohan said:
In the context of the advice they were being given the decisions they were taking were quite understandable.
While former top International Monetary Fund (IMF) official Donal Donovan said of the decision: “If you are the leader of a country and in the middle of a crisis you need to do thing that won’t lead to a crisis the following morning.”
2. But did we have to protect junior bondholders?
As we mentioned above, the decision to guarantee all deposits and liabilities including subordinated (or junior) debt has left a few experts who’ve come before the committee puzzled.
Former Brian Lenihan advisor Alan Ahearne said didn’t understand why junior bondholders were not burned, saying: “I’m sure there was a reason, I couldn’t think of one.”
David McWilliams, who had written of the guarantee idea not long before it was issued, said that he “at no stage” imagined that subordinated debt would be included. While, Bill Black, an expert in banking fraud, told the committee “you would never ever bailout subordinated debt”.
Little surprise then that Central Bank governor Patrick Honohan said that guaranteeing junior bondholders was “clearly a mistake”.
3. Brian Lenihan wanted to burn bondholders – but was overruled
Patrick Honohan’s first round of evidence to the committee was perhaps the most illuminating so far. He described how the late former finance minister had wanted to burn junior bondholders and was of the view that Anglo and Irish Nationwide should have been nationalised immediately after the guarantee.
Lenihan was, however, overruled because he was “not the senior politician in the room”. Honohan wouldn’t disclose who was. But it was fairly obvious who he was talking about…
4. No one saw it coming…
Donal Donovan told the committee that the IMF got its advice on Ireland’s economy “badly wrong” before the crisis hit, adding: ”I think it is widely accepted and it would be my personal view that the IMF’s surveillance process failed in Ireland.”
The ESRI’s John FitzGerald admitted that researchers at the country’s top think tank made “a bad mistake” in not predicting the crisis and instead spoke of a soft landing. FitzGerald told the committee:
We were conscious of the fact there was a problem out there but we made a call that Ireland would probably escape it and we were totally wrong.
5. … except this guy…
Economist David McWilliams caused quite a stir with his evidence to the committee in February when he repeatedly outlined the warnings he had sounded as far back as 2003.
McWilliams said the economy was “set up to fail” in the lead-up to the financial crash and he had shared that view with anyone who would listen. He played a video of himself speaking in 2003 to underline this point:
https://vine.co/v/O2eHVK6qIXF
6. We loved property and the boom in general
Klaus Regling, who co-authored a report on the evolution of the crisis in 2010, identified an obsession that Irish people had with property:
Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college.
Alan Ahearne told the committee that the boom felt great and so few people wanted to hear alternative views, such as his, when the money was sloshing around. As he told the committee:
Booms are very popular when they’re happening, the amount of money coming into people’s pockets is fantastic.
7. Ignorance was bliss
Ahearne made an interesting observation that the regulation existed but that the implementation of it “failed dismally”.
FitzGerald told the inquiry that “appropriate prudential action” from the regulator could have prevented the rapid rise of the debt fuelled boom but alas the construction sector was instead allowed to become “like a tumour which grew and grew and squeezed the rest of the economy”.
Bill Black said Ireland’s regulators also “did an enormous disservice to the nation” when they declared the banks solvent before the infamous bank guarantee.
Finnish banking expert Peter Nyberg said far from criminality the crisis was more a result of ignorance on everyone’s part:
The excessive risks taken, and the subsequent losses, appear to have been the result of ignorance or lack of understanding.
McWilliams said it in a more McWilliamsian way, but the point was more or less the same:
In Ireland we have an inability to accept reality. It’s a national issue. In a crisis the most important thing is to define your reality not as you would like the world to be but as it actually is. Then you can do something about it. In Ireland it struck me that all the way through, 2007, 2008, the official policy was to delay and pray.
While the European Commission’s financial chief, Marco Buti, said: “Ireland is probably the most extreme example of what can happen when these problems are ignored”.
8. Politicians were to blame too
Okay that’s no revelation. But the light shed on the political decision-making has been interesting. Dr Elaine Byrne quoted Frank Underwood to make her point about the attraction of corruption and the influence of money on politics:
I’ve always said that power is more important than money, but when it comes to elections, money gives power, well, a run for its money.
She spoke of the culture of deference between State authorities, politicians, bankers and the property sector among others in the lead up the crisis.
Ahearne said none of the main political parties at the time wanting to diverge from the accepted wisdom that the boom was only going to get boomier. Of the Fianna Fáil, Fine Gael and Labour manifestos in 2007, he said:
If you took the covers away, it was difficult to tell which party was which.
9. But these politicians are doing a good job
There was much controversy over the membership of the committee last summer, but the 11 TDs and Senators who make-up the inquiry are so far going about their work in a diligent and mostly non-showboating way.
A lot of that is down to the structured nature of public hearings, which means deputies and senators are restricted in the time they have and the areas they can probe.
All of which is contributing to a hearings that don’t drag on endlessly but they are instead sharp, focussed and to the point. On the evidence so far, it’s the model for future Oireachtas committees.
To embed this post, copy the code below on your site
have your say