Shudder Island

June 15, 2014

Currently Ireland is reeling from revelations regarding the 796 babies buried in Tuam. Lists of names and cause of death of all who died between 1925 and 1960 are published in today’s Sunday Independent. Babies were buried in an unmarked grave. Poor healthcare, neglect or worse caused a mortality rate sometimes between 5 and ten times the normal mortality rate in the wider population. Further investigations and inquiries will reveal more. It’s thought such high mortality rates occurred in similar homes for unmarried mothers across the country during the same period.

Some of these homes appear to have been run along the lines of Japanese prisoner of war work camps and were populated by those regarded as members of Ireland’s lowest caste, unmarried mothers. Religion, politics and foot soldiers in the civil administration provided the lethal conditions under which such abuse flourished.

Archbishop Dermot Martin probed on his reaction to such revelations wondered why there were not people of insight, whistleblowers, within the church who rang alarm bells. I’m sure he equally questions reasons for genocide and ethnic cleansing in Ruanda and Nazi Germany.

Let me partially attempt an answer. Organisations and institutions can go bad for many reasons. Organisations are living organisms with foot soldiers  to follow and defend the status quo. Those who threaten the status quo are summarily executed in a worse case scenario. In a lesser context they are shown the door. Those ambitious for power like Frank Underwood in House of Cards know how to tow the line. They are rewarded for such loyalty card actions and guard the doors.

Unfortunately those with the greatest critical faculties can become victim of a zombie takeover. This can lead to a less than healthy competence emerging among leadership contenders. This may explain the government’s hand maiden of the troika, soldier- of – austerity performance in dealing with our economic collapse.

Perhaps this is also a clue to what is happening to our long-delayed Banking Inquiry. Government has already stopped the PAC committee headed by FF John McGuinness acquiring the job and instead it has given the inquiry to a new committee with a new chairman, Ciaran Lynch, Labour TD.puppets

Through mismanagement the FG/LB led government lost its overall majority on this committee and now has reimposed its own political majority stating it must have power to impose its “terms of reference”. We should shudder.

But the so-called banking inquiry was already holed below the water line. Its flaws go back to a referendum where Irish people decided politicians were not to be trusted. As a result Oireachtas committees are prohibited from holding non-public office holders to account. The difference with this inquiry and previous ones eg Honahan, Regling/Watson , Nyberg is that hearings will take place in public, not in private.

If it goes ahead, some of its hearings could prove to be farcical, with those probed in attendance with their solicitors, stonewalling and pleading the 5th Amendment. Worse still, those “terms of reference” will come from handmaidens of the troika infected with a deep compliance and subservience to bankers.

This government has defended the rights of bondholders over the rights of taxpayers. Sutherland, Bruton, Honahan, and Department of Finance officials have a lot of banking secrets to hide and are likely to use such terms of reference to steer attention away from bankers and towards political adversaries who have little to confess other than compliance, subservience and incompetence.

The fact that Oireachtas committees are already hobbled in the above way should point to the only way forward for a real Banking Inquiry to take place: it should be a proper judicial inquiry led by a high Court judge, a person of competence and good standing with proper powers of compulsion to get answers we need.

Stephen Donnelly TD was correct to spot the political stage-show trial and resign from the committee before this Banking Inquiry could manipulate him towards a darker agenda.

In a previous inquiry I suggested some terms of reference.

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. Note this has already been ruled out of order by the probe.

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? Who, where this did the ‘Guarantee’ come from?

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.

9. Many other areas not covered here require investigation as well.

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!”

Meanwhile Enda Kenny, Taoiseach, trendy handmaiden of the troika, a soldier of austerity, a poster boy of austerity and postboy for how jobs can flow from austerity, can count the days before his government breaks.

It’s not often the Irish Central Bank’s sometimes Pollyanna forecasting agrees with the views of this writer,

With another €2bn to be taken out of the budget, unease re Ukraine, disinflation in EMU, global slowdown in growth, further instability in government, there could be a perfect storm in the Autumn:

In its latest macroeconomic financial review, the Irish Central Bank points to concerns regarding our banks as a result of forthcoming ECB stress testing:

http://www.centralbank.ie/publications/Documents/Macro-Financial%20Review%202014.1.pdf

“…outcome of the ECB Comprehensive Assessment (CA), which includes a point-in-time Asset Quality Review (AQR) and forward-looking stress tests, will be important in determining the resilience of the major banks to future shocks, notwithstanding the substantial capital injections of recent years. The results of the AQR and the stress tests are due to be published simultaneously in November 2014 at the time that the Single Supervisory Mechanism (SSM) enters into force.

….The low-yielding tracker mortgage loan book and high share of impaired loans will
also limit domestic banks’ ability to increase margins on existing business

…The outcome of the ECB’s CA may also impact provisioning and,
in turn, the profitability of the domestic banks. The ECB and
relevant national authorities commenced the CA in November
2013. The assessment exercise comprises three distinct
elements: an Asset Quality Review (AQR); a Supervisory Risk
Assessment; and a stress test. This exercise will be completed
before the Single Supervisory Mechanism (SSM) enters into
force on 4 November 2014. In total, the CA will be carried out for
128 banking groups in the Eurozone. Five credit institutions in
Ireland will be subject to this assessment – AIB, Bank of Ireland,
Permanent TSB, Ulster Bank and Merrill Lynch as the ECB will
directly supervise them under the SSM. Subsidiaries of
Eurozone banking groups, such as KBC and ACC, also fall
indirectly within the scope of this CA, as they may have loan or
asset portfolios subject to the AQR.”

Banks have large bonds that are due in 2015 and a downward assessment may affect Irish banks to raise capital on external markets. But no doubt the inward rush of pirate QE vulture funds supporting our virtual zombie economy’s NAMA property sector, will attempt to buffer the financial system. Vulture fund money is the only buyer at the moment, the domestic market priced out for both commercial and residential development.

Government break up, further austerity in our budget, stress tests on our banking system, a perfect storm indeed.

Enda Kenny, trending austerity across Europe, may bail out for a job in Europe as clouds gather. Currently, Alan Dukes, Fine Gael doyen, former chairman of Anglo Irish bank, soldier of austerity and friend of bondholders, is on radio pontificating on our banking inquiry shenanigans. You may shudder! Directing the searchlight away from bankers and Department of Finance officials towards political enemies in Fianna Fail would be up his alley.

Crumbling support in polls for government incumbents shows the Irish electorate is far more sophisticated than our political masters who’ve betrayed trust.

Having been shafted by the ECB, a €67bn sinkhole loan billed to us from the troika, to bail out the euro not Ireland,  a badly designed and unworkable ECB  that sent freefall confetti  lending of euros into Ireland’s banks, setting off a false property lending boom bubble, its long past the time we ditched Europe and set up a new alliance with countries such as UK, Norway, Sweden in a new sterling zone. Other moves are worthy of consideration also.

As well as confronting our past, we need to be prepared to ditch it and not prolong its legacy of austerity and misery.

Until next time!

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