Cowen is joint second in table of shame for our economic shambles

By Matt Cooper

Friday, April 02, 2010

IN an unpopular government, Brian Lenihan remains a relatively popular minister, so much so that the opposition seems to have decided he is not worth attacking personally, even over NAMA or Anglo Irish Bank, issues where he has not covered himself in glory, or the public sector pay cuts which he has forced through to much divided opinion.

His gift for convincing communication – even when he may be bluffing – stands in stark contrast to the delivery of his boss, Brian Cowen, who is the opposition’s main target. There is more political capital for the opposition by attacking Cowen about his economic performance both as Taoiseach and in his previous position as Minister for Finance – as both Labour and Fine Gael have done effectively over the past week.

The bank guarantee is the obvious starting point because ultimate decision for its introduction rests with Cowen and everything that is happening with investment in the banks now is directly linked to that (if caused by the earlier reckless lending). While the introduction of the guarantee required government approval, it was effectively presented to the cabinet in the early hours of September 30, 2008 as an essential fait accompli. While Cowen had plenty of others advising him in the hours of the day before – and indeed in the run-up – the ultimate decision rested with him.

In the absence of transparent explanations the opportunity for the opposition to roast Cowen is very tempting. Labour leader Eamon Gilmore goaded the Taoiseach this week by accusing him of "economic treason". He declared: "I believe the Taoiseach and the Government made that decision in September 2008 not in the best economic interest of the nation but in the best personal interests of those vested interests who, I believe, the Government was trying to protect on that occasion."

Gilmore needs more evidence to support that contention, but his allegation that the Government had decided to introduce a bank guarantee for Anglo – "a rotten bank that acted as a piggy bank for property speculators" – simply to "save the skins" of a number of individuals, some of whom are connected to Fianna Fáil, is sure to strike a chord with many.

"If my belief is correct, and I have not been convinced to the contrary, then that decision is an act of economic treason for which this country is now paying very dearly," Gilmore said.

Not surprisingly Cowen got very angry at this. "I’m 25 years in politics. I am beholden to nobody," he said, although he might have phrased it better by saying he was beholden to the common good and all of the people of this Republic. Still smarting, Cowen issued a statement in which he once again stressed that the decision to introduce the bank guarantee scheme "was based on extensive analysis and monitoring from the Governor of the Central Bank, the Financial Regulator and senior officials from the Department of Finance and the NTMA ... The decision was taken because of the need to take effective action to restore financial stability on the opening of the markets at 7am the following morning. The need to restore confidence required that the guarantee be robust in scope and duration. Protecting the interests of the taxpayer was reflected in the decision to provide the guarantee on commercial terms, and this was also the basis for deciding that Anglo Irish Bank – a bank of systemic importance – should be covered by the guarantee. The option of nationalisation of that bank at that time would have triggered direct exposure of taxpayers to all its liabilities, whereas the guarantee gave the prospect of a resolution at a lower cost."

How clear is all that? And how explanatory? It doesn’t disclose the alternatives. It asks us to take Cowen on trust. But most of the people who got us into the mess, through poor policy and failure to regulate, made the decision that evening with the country’s top bankers, from AIB and Bank of Ireland, waiting in the wings, sticking in their oars. And the reality is that those banks were as much a cause of the crisis that night.

While Bertie Ahern has to take the greatest share of the blame for the political mismanagement of the economy during this decade, Cowen ranks alongside his own predecessor as Finance Minister, Charlie McCreevy, in joint second place on the table of shame. Much of the concentration on Cowen’s record has been on his budgets, during which he spent heavily, assuming the tax revenues would continue to flow even if the economy slowed.

As important however was his failure to act on important suggestions from his department officials and the Revenue Commissioners that could have choked off much of the speculative excess that characterised the bubble years.

In particular, Cowen was warned about the dangers of investment products known as contracts for difference (CFSs) – devices that facilitated largescale gambling on the stock markets. Following lobbying by a range of vested interests, Cowen abandoned plans to rein in the crazy practice. He showed the same lack of courage when it came to imposing stamp duty on commercial property transactions, ignoring pleas to close off a loophole whereby property developers transferred land by way of trading companies, incurring stamp duty charges of 1% on the transfer of shares rather than 9% on the transfer of land. Such taxes, had they been applied properly, would have moved to choke off inflation in land values.

He had the legislative power to act but didn’t sign the necessary orders, again after lobbying by vested interests. It is true Cowen sanctioned the closing of some of the property-based tax loopholes and incentives that McCreevy had put in place, but it was all too little and too late.

More pertinently, the failure of the regulator and the Central Bank to stop reckless lending practices during the crucial period of 2004 to 2007 is being explained by an absence of suitably empowering legislation from the Department of Finance.

COWEN sat by passively as banks doled out 100% loans, offered loans seven and eight times the true income of applicants and committed people to mortgages lasting up to 40 years, all designed to give property speculators and builders a better chance to recoup their own speculative investments.

Instead of being a wise overseer of what went on, Cowen seems to have been seduced by the game himself: how else do you explain his involvement with a bunch of pals from Offaly in buying apartments in Leeds?

This is all entirely relevant to his performance as Taoiseach now – he is reaping what he sowed, or rather suffering his failure to be proactive in his previous role. Cowen was passive to events and eventually reactive, in some cases, only when it was forced upon him. His entire ministerial career seemed based on a strategy of doing as little as possible. Cowen watched rather than acted.

Enda Kenny also hit him hard this week. "You have levied their sons and daughters for the next generation with a burden that they did not cause and for which they were not responsible," Kenny said. "Because of lack of regulation, lack of oversight by you, as Minister for Finance and now as Taoiseach, you’ve caused this cataclysmic financial consequence for every person in this country." Cowen said he would not have his "integrity challenged by Deputy Kenny". But his record stands.

This appeared in the printed version of the Irish Examiner Friday, April 02, 2010