Reports leave all involved looking right tulips
The author analysed the great financial crashes of modern times, ranging from the South Sea Bubble to Wall Street, in an attempt to prove that recent crises repeat precisely the patterns of earlier crashes.
At the time, he also had a famous radio show in London that dealt totally in fiance and business matters.
He was a highly successful investor preferring bonds and other investment instruments to the stock market.
He died a very rich man in 2007, at the age of 73.
What emerges from his book is that sanity goes out the window.
People get on a roll and nothing could talk them off the high they get themselves into.
One classic case dealt with the Tulip bubble in Holland.
One story relates to the farmer who sold his entire holding to raise money to buy the only other black tulip bulb in Holland – he was the owner of the other.
Having made the purchase he took the bulb and ground it into mush.
Now he was the owner of the only black tulip bulb in all of Holland.
History doesn’t record how poor he was when he died, but if you ever wondered where the expression, “He’s a right tulip”, came from, now you know.
If we fast forward to the present day, the latest analysis of the bank crash makes clear that the banks here lost the run of themselves.
So too did the property developers and they engaged in an unholy alliance that has left the banks with bad debts of close to €100 billion for which ordinary citizens must now carry the bulk of the bailout risk.
The banks had to be saved and the Central Bank governor’s report into the banking crisis makes that very clear.
Even in the case of Anglo, Patrick Honohan, who was outside the system at the time, says the implications of letting it go were serious.
To have done so in the wake of the reaction to the Lehman Brothers’ collapse in the US, would probably have left the banks here on their knees within a week, he concluded.
In that sense, as the Government and the Central Bank combined with the top executives of AIB and Bank of Ireland to take some crucial decisions on the night of September 29/30, 2008, that decision may turn out to have been the most crucial act taken on that fateful night.
Anglo, as the Government insisted, was indeed of “systemic importance” and had to be protected in order to safeguard the other banks.
Letting it go to the wall would have spelt disaster for the entire banking system and for the entire economy.
That conclusion will hopefully shut up some of the more hysterical critics of the Anglo decision and allow us move on to a more measured view of what needs to be done to ensure we never get entangled in such a mess again.
Mr Honohan pointed out that the blanket guarantee was too much and said underpinning the subordinate debt on the books of the banks was a costly mistake.
In the end, nobody emerges unscathed from the two reports published on Wednesday.
The banks, the regulatory authorities and the Government were all found to be guilty through a failure to act to prevent the crisis getting so badly out of hand.
The information that the banks were in deep trouble was as plain as day, but through a lack of experience or cowardice, the regulators failed to act.
Bubbles of their very essence tend to be just that and those inside get trapped inside and stay in that comfort zone until the bubble bursts to leave them exposed.
Mr Honohan notes how the Central Bank and the regulator continued to talk about a soft landing, even as the entire system was falling down around them.
