The Banking Inquiry Why Ireland Experienced a Systemic Banking Crisis Alternative Analysis and Conclusions to the Report of the Joint Oireachtas Committee of Inquiry into the Banking Crisis By Joe Higgins TD, Member of the Joint Committee1 January 27, 2016 Extreme Profiteering driven by corporate greed drove the property bubble and caused the crash; Bubble Governments of Taoiseach Bertie Ahern, Tánaiste Mary Harney, Finance Ministers McCreevy & Cowen served the interests of bankers/developers Not those of ordinary people; Enda Kenny, Fine Gael Leader, was a silent non Opposition Witness after witness at the Banking Inquiry, including bankers and developers themselves, attested to the kind of cut throat competition between them for profit that drove the reckless lending practices that inflated the property/banking bubble and led to the disastrous economic crash. Dermot Gleeson, the Chairman of AIB from 2003 to 2009 testified as to how his bank aped the methods of Anglo Irish Bank which was lending recklessly to developers and raking in major profits. He maintained that they had a problem of: Anglo being held up to us as an exemplar…Commentators in Ireland and abroad repeatedly said, “Anglo is the best bank. Why can’t you be more like Anglo?” It was determined by one international consultancy to be the best bank of its size in the world. It was the darling not just of the Irish but of European stock exchanges generally… Ethna Tinney, who was an independent Non-Executive Director of EBS 2000-2007, told the Inquiry: The belief that there were substantial profits to be made for the society from these developments led us to emulate our peers…There was a sort of feeding frenzy as the banks clambered over one another to get a piece of the action, especially as new foreign banks had entered the market as competitors…There was a sense that we were becoming a minnow as 1 With major technical assistance and research by Diana O’Dwyer 1 INBS expanded its lending and started to post profits that were up to five times the profits we were posting. Ms Tinney was highly critical of practices such as securitisation referring to herself having an image of it ‘as a shark eating its own entrails’ She further claimed that ‘The banks have absolutely no sense of guilt about what they have done. And if left unchecked, they are going to do it all over again.’ The extreme drive for profits was encapsulated in the figures given to the Inquiry whereby the six banks eventually covered by the Guarantee, increased lending exponentially from €120 billion in 2000 to almost €400 billion by 2007, raked in €25 billion in profits from 2002 to 2008 and paid those banks Chief Executives an astounding total of €71 million in salaries and bonuses. This was then adversely mirrored in the disastrous €65 billion these banks lost in the crash. The political leaders of the Fianna Fail/ Progressive Democrat Government 1997 -2007 relentlessly pushed the deregulation in financial services that resulted in this competitive race to the bottom in banking standards as major banks vied for profits. Taoiseach Bertie Ahern told an Irish Banking Federation lunch in March 2006; ‘the Government is very conscious of its role in assisting you to maintain a healthy bottom line . .there is a need to be more balanced and less negative about the essential services you provide.’ In March 2007, Mr Ahern was positively touting Ireland as a deregulated state for bankers when he told a breakfast meeting of the Financial Services Industry in New York, ‘Our commitment to supporting foreign direct investment is absolute. Ireland is very lightly regulated compared with most of our European colleagues.’ Brian Cowen who became Finance Minister in 2004, was as enthusiastic as his Leader. In a speech to the Institute of Bankers in Ireland annual dinner on 2 November 2006, he said: But, in my view it is the innovation coming from within the sector which is the most remarkable driver of change. Increasingly sophisticated derivative products seem to be arriving daily as a sector seeks to become ever more professional in the way it manages and hedges its risks and chases after that elusive higher yield. Billionaire Warren Buffet described the same derivative products as ‘time bombs’ and ‘weapons of mass destruction. Brian Cowen continued in what can only be described as an embarrassingly obsequious tone: Of course, not all of these brave new initiatives are successful. It’s a hard game, but there’s all to play for. Of course, that’s easy for me to say because you are players on the field and I’m just an ardent supporter on the sidelines. I will continue to wear your colours. Mr Cowen’s predecessor, Charlie McCreevy, who was Finance Minister from 1997 to 2004 agreed at the Inquiry that he was a ‘champion of the free capitalist markets’. He told the Financial Regulator in 2005 (now as EU Commissioner): Don’t try to protect everyone from every possible accident. .many of us in this room . were part of the ‘unregulated generation’ – the generation that has produced some of the best risk takers, problem solvers and inventors. 2 The biggest political party in opposition in the Dail during the bubble was Fine Gael. At his appearance at the Inquiry, Enda Kenny, Fine Gael Leader from 2002, wasn’t in a position to point to a single instance where he had demanded restrictions or regulation on the profiteering that was rampant in the property market. Dismal failure of Central Bank/Financial Regulator rooted in deregulation mindset of Fianna Fail/PD Government; Regulator must take full measure of responsibility but political establishment must not be allowed to scapegoat: I have no doubt that the Report of the Joint Committee which finds that the Regulator took no enforcement action against any banks for excessive lending between 2000 and 2008 will be seized on opportunistically by the political establishment – especially Fianna Fail and the Progressive Democrats – to make the Regulator the scapegoat for the bubble and crash. In fact the evidence available to the Committee demonstrated that the most senior politicians of the day championed rampant deregulation in the financial services sector to enable the banks to make massive profits. In 2003, the Fianna Fail/PD Government, gave the Financial Regulator a legal responsibility for the expansion of the financial services sector while at the same time being supposed to regulate it. This gave rise to the spectacle of the Regulator organising international ‘roadshows’ to tout for international banks coming to Ireland at the same time as it was supposed to control their profit seeking activities. In fact assisting the banks to make super profits was a constant concern of these politicians. It shouldn’t come as a surprise then that the Financial Regulator was promulgating the same message as the Government to which it was responsible when it said in 2005; ‘We as Regulator, will not introduce or impose unnecessary regulatory burdens that will affect the continued competitiveness of our financial industry and will minimise the impact of such burdens coming from Europe.’ Again in its 2006 Annual Report the Regulator showed it was merely carrying out the wishes of the political leadership when it stated, we design and operate a regulatory regime conducive to an internationally competitive financial services industry . that is profitable and growing in both the domestic sector and the international sector based in Ireland. We provide world class service to financial institutions in all our dealing with them. In not regulating, the Regulators were taking their lead from the political leadership of the State. On top of that, and really because of it, the numbers of staff assigned to track the major banks was derisory. Mary Burke, who was Head of Supervision at the Financial Regulator gave evidence to the Inquiry that only three FR staff members had responsibility for Bank of Ireland and Anglo combined while only two were tracking Allied Irish Banks and IL&P. 3 Government supposed to put interest of ordinary citizens first but FF/PD Government betrayed that trust to serve interest of bankers/speculators At Election time the major political parties pledge to represent the interests of the majority in the State, the ordinary men women and children who make up society. During the property bubble the FF/PD Government utterly perverted that pledge. The workings of the capitalist market allow cabals in the financial markets and in the property industry to gamble for super profits if conditions allow. It is considered a right to engage in flagrant speculation in building land even if this enriches the speculator at enormous cost to society. This was central to the rocketing of house prices in the bubble which evidence to the Inquiry showed increased stunningly by the equivalent of the average industrial wage EACH year for the ten years from 1996 to 2006. The championing of deregulation in the financial markets by such as Bertie Ahern and Brian Cowen and which gave financiers free reign to profit at the expense of society was enshrined in legislation. The laws that legitimised speculation and profiteering and the personal and corporate greed involved, were fashioned in Dáil Éireann under successive governments and voted for by the majority of Dáil deputies and Senators because they were believers and advocates for the capitalist ethos that underpins the economic system in which those markets play a pivotal role. When questioned about the nature of their relationship with property developers as illustrated by their annual outing to the Galway Races and the Fianna Fail hospitality tent, the former Fianna Fail Leaders strongly denied that they were in any way influenced by the demands of property developers.