Banking Inquiry

May 4, 2014

 

Have you observed everywhere you go the preponderance of self aggrandising large posters at circa €10 a pop presumably pandering to and inflating the egos of all the political hopeful faces smiling collectively down upon us?image_1

On a local walkabout I recognised none of the faces. I mentally noted our post box was empty of leaflets setting out the political aspirations, beliefs and promises of candidates. I was interested in their position on water charges, property taxes, banks and bondholders, education, health, austerity and taxation in general. The media hasn’t bothered to question or elicit their views in any form of comprehensive way.

I guess they are leaving it up to me to call and connect with them to grill them on some issues. I wont be doing so. Democracy is hanging on by a thread it appears. Appearance is threatening to replace the real; real matters less and less, only appearance matters, your picture on a poster. I suppose its sufficient to gather from the banner under which the candidate seeks election, their political hue.

One way democracy can be felt and have its integrity restored is by much sought banking inquiry into our financial collapse. The demand for answers by the third estate has been grudgingly capitulated to by the current political class. Cynics may suggest it’s a political ruse and diversion to take attention away from ongoing austerity and the further €2 bn in cuts due in our next budget.

We’ve had an inquiry led by Peter Nyberg and a review by Central Bank governor Patrick Honahan both telling us what we already knew, that loose regulation and poor governance in a context of global financial meltdown led to banking collapse, but we needed substantially more than abstract conjecture based on withheld information, so we’ve a new inquiry.

Mr Lynch, who chairs the Finance Committee, will lead the nine member inquiry. There will be two members from each of Fine Gael, Labour; one from each of Fianna Fail, Sinn Fein and the independents.

In a rather ludicrous twist to the selection process those who have expressed most knowledge and interest in the issues under examination, will be excluded as ‘their bias’ will be grounds for compromising themselves during debates. Instead membership of the inquiry team will be biased in favour of those who because of disinterest, lack of informed knowledge, or some other politically inspired reason, will not compromise themselves in debates.

Ignorance and indifference may be the modus operandi of the investigating team. Lets hope this will not be so.image

In scoping out territory for specialised investigation of the intriguing subject matter in this banking inquiry, one hopes each elected member sitting on the committee will set up their own backroom investigative, research team to research and scope leads for investigation and to draw up a comprehensive list of questions to be put to those appearing before the inquiry.

The inquiry will make conclusive recommendations arising from its investigations on how mistakes made in the past, can be avoided in the future. Without speculating on the results of the inquiry, its hard not to point a finger at poor governance structures in the Irish Central Bank, The Department of Finance and the role of political interference in the banks.

The relationship between financial circles in banking and political cartels in Ireland is worthy of close examination. Sutherland, Bruton, Dukes, Spring are names that conjure up an image of this close relationship. The banking and financial world has been a lucrative head hunting ground for certain politicians whose political nous has been much coveted by the banks and turned to good use to lobby politicians from within, by those who have strong political connections.

One recommendation for this inquiry would be to strongly consider legislation requiring all politicians to undergo a period of amnesty of 5 years following their years in office, before they can be seconded to a position in the financial services industry.

This would prevent the abuse of political power by lobbyists in the financial services industry.

Some Suggestions for the Inquiry

1. Follow the money.

This should not be too difficult. Ideally, the ten largest loans handed out by each bank could be trawled through to examine the precise mechanics involved in these developer loans: who dealt with them, how were decisions made, documents in support of the loans obtained and examined. This would quickly reveal a seam of rich information that will quickly unravel the culture of lending in the banking system.

2. Examine the bonus system.

Word has it that the traditional method of classical banking with local managers intimately knowledgeable re financial matters in the local community with lifetimes of experience overseeing lending patterns responsibly, was set aside. Instead such managers were replaced by whiz kids of the bonus culture pressing loans on everyone they could find. Lending standards were lowered, the bottom line was the bonus, prudential lending was the big casualty. As long as property rose in value nobody cared.anglo

3. The role of the central bank and regulator.

Specific interest should target the Central Bank personnel who were witness to Anglo’s meteoric rise to unsustainable levels of growth during the Celtic Tiger.

4. The case against Europe.

Particular interest should focus on ECB(European Central Bank) and ICB(Irish Central Bank) relationships, correspondence and communication by email, phone, video, meetings where regulatory brakes should have been considered and monitored by ECB and ICB.

5. The Guarantee.

The inquiry should not conclude its deliberations until full and final discovery is made of the personnel and role of ECB, ICB, Dept of Finance and the political representatives  who played a role in the Guarantee.

I find it difficult to swallow the commonplace assumption the Irish Dept of Finance, Irish Central Bank, Irish politicians and representatives of the Irish financial industry acted alone in opting for the state guarantee. The Guarantee would have been new territory. In hindsight it was a rash and incompetent idea. It would be therefore easy to assume incompetent rashness on the part of that group from a relatively large background in banking and politics. But, were there other compelling forces at work?

The inquiry should examine closely the possibility of other outside influences on the Guarantee. It’s incredible to believe the ECB was not consulted on such a momentous decision.

6. The role of the credit rating agencies?

It’s incredible to believe the high credit rating afforded to Ireland and to its banks at the height of the Celtic tiger as it increasingly became more exposed to dangerous lending practices and icebergs.

7. The role of financial auditors

Anglo Irish Bank auditors, Ernest & Young, their role needs to be scrutinised.

8. The planning authorities and the role of planning legislation that fueled the boom?

There are plenty of issues not covered here, but the above is a sample of what a banking inquiry should deliver answers on so that we can learn for the future. It’s not sufficient that opaque, broad generalisations be used to obscure the truth.

The inquiry needs to yield positive results that discovers hard factual evidence that will form the concrete base of any conclusions it makes.

In the US financial meltdown has been the subject of detailed inquiries:

http://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapse

“The Report cites investment banks as a major player in the lead up to the crisis, and uses a case study of two leading participants in the U.S. mortgage market, Goldman Sachsand Deutsche Bank. The case study found that from 2004 to 2008, banks focused their efforts heavily on RMBS and CDO securities, complex and high risk financial products that they could bundle and sell to investors who did not necessarily know the composition of the product. Financial institutions issued $2.5 trillion in RMBS and $1.4 trillion in CDO securities. They created large trading desks that dealt strictly in RMBS and CDO securities. More alarmingly, their trading desks began to take out insurance policies against the RMBS and CDO securities, allowing them to wager on the fall in value of their own asset. They acted in many instances as an intermediary between two opposing parties who wished to bet on either side of the future value of a security. This practice led to a blatant conflict of interest in the securities market, as the banks used “net short” positions, in which they wagered on the fall of a security, to profit off the failure of a security they had sold to their own client.[10].”

The cause of financial meltdown in Ireland was different with focus on  banking and housing bubble meltdown. Will our inquiry into Ireland’s financial meltdown comprehensively answer the questions  explaining the legacy of financial meltdown still with us.

Can such an inquiry competently deliver the answer as to why young people in Ireland cannot afford housing, cannot afford to begin families, why the financial services industry, the banks, austerity, continue to extract from them through falling social services in health and education, a future that comes through Ireland eating its young; a politics of vampire bailiffs masquerading as democratically legitimate politicians defending the people!

Other politicians have no need to masquerade, they openly serve the financial services industry. The control of democracy and freedom is now vested in the financial services industry.

So perhaps the election posters you see about you are less meaningful than first they appear.

End

 

 

 

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