Inquiry! We need it now!

January 9, 2010

If a bus carrying a group of school kids crashed because of ice on ungritted roads, we’d demand an inquiry. Likewise, if a plane or ship went down,  we’d demand an inquiry. Whether the calamity is a natural or unnatural event, we would need the answers to learn from the event and hopefully to avoid that calamity repeating itself.

In the case of Ireland’s banking crisis, our political leaders have decided to avoid such an inquiry. The excuse given is that energy and time  required  to stabilise the banking system would otherwise not be available due to the distractions posed by an inquiry. The need for a public inquiry required to save our international banking reputation is being ignored. The truth needs to be told. The demand for an inquiry into our banking crisis is one that ought to be shared by every citizen on this island.

nb, related topic, see Arnold bottom of this post, must read http://www.ucd.ie/t4cms/wp09.32.pdf
“The Governor of the Central Bank Dr Patrick Honohan, on Tuesday gave testimony to the Joint Oireachtas Committee on Economic Regulatory Affairs and said the “failures of the Irish banking system have rocked the economy and the public finances, with severe effects impacting almost all members of society.” He called for a public inquiry into the causes of the crisis, similar to the investigation of security failures by the US Congress in the aftermath of the 9/11 terrorist attacks in the United States.”
“It is time to start thinking how we might learn the lessons about our society that an understanding of the crisis can give us,” the former professor of economics at Trinity College said.
“The crisis is not simply a question of discovering who did what and who knew what,” he said. “Uncovering the deep roots of the crisis will require expertise and broad social scientific understanding more than merely forensic skills.”
The Governor suggested an investigation that should involve a detailed examination of the activities of banks, the civil service and key politicians. He rejected a purely judicial probe similar to the tribunals, saying it would not be flexible enough to discover what went wrong. The investigation would require testimony from economic experts and social scientists, he said.
“CGAI lends support to Honohan’s call for banking inquiry 17.12.2009
The Corporate Governance Association of Ireland (CGAI) has lent its support to the recent call by the Central Bank Governor Patrick Honohan for a public investigation into the Irish banking crisis along the lines of the US Congressional hearings into the 9/11 attacks.

http://www.finfacts.ie/irishfinancenews/article_1018684.shtml

Further comment on the subject of an inquiry available here:

http://www.davidmcwilliams.ie/2010/01/06/iceland-shows-importance-of-putting-people-before-banks

Don’t blame the Icelandic people as a whole. or the Irish people as a whole. Both populations were victims of the scam. A scam perpetrated in both cases by the ‘insiders’ on the ‘outsiders’

According to Roger Boyes, in his excellent book, ‘Meltdown Iceland’, the financial free wheeling, wheeler dealers responsible for the meltdown in Iceland could fit on one bus.We badly need an inquiry here to at least name and shame the perpetrators of our financial mess.

Roger Boyes wrote his excellent book on foot of renting a place in in Reykjavik for some months and heading over to the university each day to talk to economists and gradually whistle blowers came out of the woodwork. We need a Roger Boyes or similar person to coordinate a research project around the fall out here.

I’m sure developers pursued for their personal guarantees would be very willing to speak. Records built up by such a research group could be the basis of an abstract that should eventually lead to a full official inquiry.

I’m willing as I’m sure many on this list would be willing to contribute voluntarily to such a research initiative, to get at the hard facts that should underlay this debate.

Our incompetent and corrupt government through the secretive operations of NAMA and their opposition to a public inquiry are hell bent on keeping our prying eyes out of it. The government won’t do it, lets begin the inquiry for them.

Hearings could be based in Trinity or UCD. An agreed questionaire could be offered to attendees willing to cooperate, with hearings before an agreed panel to ask questions based on elaborating answers.

The more scientific and forensic the inquiry, the better.”

@Malcolm

Who’s to blame? That question should be the basis for any inquiry into the mess.

I would say its a relatively small cartel of politicians, bankers (Seanie/Fingers et al) , in cahoots with developers and with a major role played by DoF, who led the charge into our Waterloo.

Bankers’ greed attracted by free availability of money, bonuses and an absent regulatory environment played another huge role in this. Also plain lack of professional expertise and smart wisdom at the political and banking levels.

Most of all though, again, just my opinion, and subject to an inquiry we badly need, is the DoF mandarins who should ultimately be responsible for a correctly functioning regulatory system given the extent of their knowledge of our economic environment.

I’d look at the role played by the ECB in particular its support of the NAMA(Not Another Mess Again) project given by Almuniahttp://ec.europa.eu/commission_barroso/almunia/index_en.html which is an albatross around our neck to do us more harm.

I doubt if RTE which often appears to be a propoganda arm of both church state in Ireland, in spite of the good work done by some broadcasters, will get anywhere near where an inquiry could go!

A relatively small group led us over the cliff. They still lead our banking, political, DoF, world of finance and politics. Its time to shine some light on their hiding places!

http://www.davidmcwilliams.ie/2009/12/27/let%E2%80%99s-give-away-big-two-banks

“cbweb says

For reasons clearly outlined in D’s article our banks are now completely rudderless. Imho the ECB needs to throw us a some innovative tow line and do it soon. Otherwise, we need asap to drop out of the euro before we’re completely banjaxed!

One of the unknown parameters in all of this is the relationship of our incompetent government with the ECB and bondholders of our banks. I suspect ECB is flagging Ireland as a potential flare point important for the euro and European banking.

If we default or renegotiate this may have ramifications for euro friendly bondholders. ECB might fear a domino effect. Brilliant if our banks could be taken over and previous management routed following public inquiry followed by Garda inquiry.

Brian Lenihan TD has distinguished himself as an admirable, brave and staunch leader of policies I personally disagree with.

Our thoughts should be with him and his family at this trying time and he should have our greatest respect and best wishes. I wish him a speedy recovery”

Bruce Arnold writing today in the Indo:

http://www.independent.ie/opinion/analysis/bruce-arnold-the-sooner-brian-resigns-the-better-for-the-economy-2006138.html

“Brian Lenihan has put us in an invidious position that cannot last. At a time of great economic crisis he has pledged himself to the crucial job at Finance while undergoing treatment for a most serious form of cancer, its prospective cure rate less than 10pc. However, he has asked that “goodwill” should not impact on “normal political processes”. One of these processes is criticism, so here goes.

The emotional revelations surrounding his illness created a huge over-reaction. This was based on an entirely meretricious belief that respect and privacy for the man and his family should prevail over crucial news. The media are not in the business of gentlemen’s agreements designed to manipulate the truth. We should not make them. If public figures have private lives it is their business to protect them.

This issue has to be seen separately from human sympathy for the man. It has also to be separated from judgment of his public performance. Such judgment has been confused by eulogies on Lenihan’s “masterly” performance as minister and his crucial future handling of the economy. Unless such eulogies stop they will grossly distort everyone’s judgment as we apostrophise the man amid the chaos of what he has done and what he intends in the future.

The truth about him, professionally, is harsh. He understands nothing about economics and he heads a department of State that has been starved of high-grade economists who now mainly work outside the public service. He claims to have been on a learning curve about absolute basics at a time when all basic theories and philosophies about running national economies are themselves bewildering great international economists who have spent their lives in the business.

He has certain pet theories and beliefs and is heavily influenced by the politics of each situation. His most pernicious instinct is a desire to side with the most venal groups or institutions in the State, the bankers and builders.

Secondly, he does not understand the dangers for Ireland of being within the eurozone and being on the shortlist of EU countries that may shortly be forced out of that shaky, imploding partnership.

Thirdly, he seems blind to the most obvious economic fact that faces Ireland, and that is its economic dependence on the UK and the US — both non-euro economies — as its biggest trading partners and most vital export markets for our indigenous producers.

Lenihan was not directly involved when Ireland made its biggest economic blunder ever, by joining the eurozone, an area with which we did just one-third of our total trade. We joined at a grossly inflated cost to the exchange rate, thereby doing untold damage in terms of borrowing and inflationary expenditure, from which we are now trying to recover. He should have absorbed the realities of this and been governed by them. He is in fact governed by the opposite: an abject, misplaced respect for the European Central Bank and a totally illusory belief that the euro and the EU are a “saving grace” for this country, the way we used to believe that the Holy Ghost favoured us above all other nations in the world.

Respect for the ECB has spawned parallel respect for the banking system in Ireland. This is mistaken and will cost the taxpayer a huge debt without producing the recovery that Lenihan blithely promises. He is given to such outlandish prognostications in part because he does not understand the realities behind what he says. This will also cause him to change his mind when it suits.

Fourthly, in budgetary terms, he has committed us to a strategy of cutting expenditure instead of broadening taxation. This will deaden initiative and investment and has already produced an envy culture among workers. His approach is like that of Wilkins Micawber: something will turn up, like a revival in the building industry or a sudden splurge of bank investment in new, job-creating enterprises.

This will not happen. Experienced economists know this, though in keeping with the trends around the world, they have mixed solutions. We are in a liquidity trap and exhortation from the minister, combined with spurious promises about having “turned the corner”, will not overcome the innate current fear of spending. If governments cut expenditure, so do ordinary people. The general result is deflation and recession, leading to slump, with job losses as well.

Lenihan has no doubt. It is a frightening capacity in any politician. It is widely expressed by members of this Government. They are infected by an over-confidence designed to counteract political unpopularity rather than address the day-to-day problems of the Irish people.

Its latest expression is over the cold-weather chaos that has revealed the unprepared ineptitude of local authorities. They cannot get the grit, the shovels, the spades and brushes to clear ice and snow from pavements. Call in the Army! Ordinary walking in towns is unsafe. Streets are nightmares where people fall and break their arms, or worse.

The floods were the previous example of stupid planning leading to building in flood-prone areas. The idea that Environment Minister John Gormley will co-ordinate fighting the cold is laughable.

Lenihan’s lack of doubt was massively inept over the disastrous guarantee he gave to bank creditors and bondholders.

It was the product of the “bubble thinking” that brought the creditors into Ireland in order to make fast money here, which they did, and were then guaranteed no loss. The UCD economist, Morgan Kelly, one of the best in the business, has just published a brilliant paper on this. The prison of the euro, allowing Irish banks to get their hands on unlimited money cheaply, led to grossly irresponsible lending, now to be repaid by the taxpayer.

Kelly says NAMA will push the country beyond the fiscal limits and will need a subsidiary support structure requiring more tax. I hope not, but either way this is the product of Lenihan’s over-optimism and his limited grasp of the briefs so ill-prepared for him by what seem to be a poor back-up team of economic advisers who go along with his facile policies.

He should resign: the sooner the better. Misplaced sympathy for his truly unfortunate state of health has nothing whatsoever to do with this case.”

Morgan Kelly http://www.ucd.ie/t4cms/wp09.32.pdf

from above, its nigh impossible to find fault with Morgan Kelly’s analysis given here. An inquiry should pay special note:

” 8 Conclusions.

In the last decade, the Irish economy has experienced an unusually large credit bubble.

Lending as a fraction of GNP increased from 60% in 1997, to over 200% in 2008, twice the level of other industrialized economies. In the aftermath of this bubble, the Irish banking system faces three inter-related problems.

The first is that it has made large losses on loans to property developers. The second is that it has large wholesale liabilities to international bond holders and, increasingly, to the European Central Bank. The final problem is that it faces likely further large losses on mortgages and business loans.

The Irish government’s policy response has been solely to address the first problem of losses on developer loans by establishing a state institution to buy these loans. However, by ignoring the second problem of the large wholesale liabilities of the Irish banks, this project will inevitably end in expensive failure.

As Irish banks are forced to repay this wholesale borrowing and to shrink their balance sheets to normal international levels, the sharply diminished supply of credit will lead inevitably to continued sharp falls in property prices. These falls in property prices will result in severe losses for the Irish taxpayer on the ill-conceived NAMA project.

Despite having pushed the Irish state close to, and quite possibly beyond, the limits of its fiscal capacity with the NAMA scheme, the Irish banks remain as zombies whose only priority is to reduce their debt, and who face complete destruction from mortgage losses.

The issue therefore is not whether the Irish bank bailout will restore the Irish banks so that they can function as independent commercial entities: it cannot. Rather it is whether the Irish government’s commitments to bank bond holders when added to its existing spending commitments, will overwhelm the fiscal capacity of the Irish state, forcing outside entities such as the IMF and EU to intervene and impose a resolution on the Irish banking system. “

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