Bank bailouts are lucrative for bankers and punitive for the governments which implement them, says Professor Sean Barrett, a member of the Oireachtas Banking inquiry.
The authors are respectively the political editors of the Irish Examiner and the Mail on Sunday. They are energetic figures about Leinster House. In this gripping volume they tell the sad tale of the decline and fall of the Irish public finances.
They emphasise in the prologue that this is not a financial and economic history. It is a political story in the words of the ministers and government members of the Dail over the fateful period between the bank guarantee of September 30, 2008 and the EU/ECB/IMF bailout of November 28, 2010.
The Hell at the Gates title is taken from a BBC interview by Finance Minister Brian Lenihan. He had fought to stave off the bailout but hell was indeed at his gates. Lenihan was humiliated. Ireland lost its economic sovereignty. Unemployment soared. Emigration resumed. Disposable incomes fell.
Only in the 2017 budget are we able to give pensioners a €5 increase, the first since 2008. Groups who feel particularly hard done by in the austerity years now threaten to undermine the public finances by the pursuit of sectoral wage claims. The harm done to this country by the events covered in this books remains to haunt us.
The book tells the inside story of a doomed government in which Fianna Fáil lost 57 seats in the 2011 election and their coalition partners, the Greens, lost all their seats. The authors’ next volume, perhaps titled Purgatory at the Gates, might cover the reductions in the 2016 election of Fine Gael from 77 to 50 seats and Labour from 37 to seven seats.
Bank bailouts are lucrative for bankers and punitive for the governments which implement them.
There were misgivings from the start of Brian Cowan’s term as Taoiseach in 2008. The book records concerns that there should have been a contest rather than a coronation.
There were concerns that Finance minister Lenihan and Enterprise minister Coughlan lacked financial and economic expertise respectively. Ministers and ministers of state are recorded in the book repeatedly briefing against one another.
The government disintegrated when the Greens departed but they were preceded through the exit door by Willlie O’Dea, Trevor Sargent, Dermot Ahern, Noel Dempsey, Martin Cullen, Mary Harney, Tony Killeen and Micheál Martin.
On page 39 a “top official” tells Minister Eamon Ryan that “the country’s f***ed. It’s going down the tubes”. The official’s linguistic eloquence was induced by revenue figures falling off a cliff in summer 2008. Yet at the same time page 40 tells us that public expenditure was growing at 11% in the first half of 2008.
Running expenditure programmes in the opposite direction to income flows is a recipe for disaster, as is making concessions to lobbyists.
The later menaces to the public finances duly turn up on page 47. We read that “extensive lobbying of senior government figures for some form of (bank) bailout began in March 2008”.
One of the lobbyists had the initials DD but nobody on the government side, elected or permanent government, had the wit to put a name on the mendicant.
The amnesia about DD noted in the Banking Inquiry persists today, The dangers to the public finances from budget maximising spending agencies and rent-seeking lobbyists are well documented in economics but seem to have caught the Department of Finance unawares in 2008.
McConnell and Lee tell us on page 53 that on September 7, 2008, the Mail on Sunday ran a splash story on the front page with the headline “Cowen to Bail out Banks” and that “the story had been leaked by the department of Finance to John Lee in an attempt to quell the jitters of the wider population.” Unmasking bodies which leak stories to the media is a vital public service.
No documentation on the bank guarantee has apparently survived the rescue night of September 30, 2008. It may have been taken away by the morning cleaners who entered government buildings after the nocturnal bank bailout groups had left. The cost of the bailout appears to never have been estimated.
The cabinet meeting to sanction the uncosted bailout was incorporeal. An official made a series of one-off phone calls to cabinet members. This is no substitute for a cabinet debate between members with costings supplied by those promoting the proposal, presumably the Department of Finance in this case.
Pat Carey, as chief whip, sat at Cabinet but was not consulted in regard to “this infamous incorporeal meeting”(page 82). His job was to secure backbench support for legislation and tto arrange for the briefing of opposition whips so that theiir spokespersons could be briefed by the Department of Finance.
Carey was in the cabinet room on the morning after the guarantee in the discharge of his duties.
McConnell and Lee on page 86 quote Carey saying that, as he was leaving the Cabinet room someone came in and whisked a draft copy of the guarantee out of his hand. I didn’t have it long enough, but it struck me that it was an unusual-looking document, because as whip I would be well used to the layout of the Oirechhtas print.
I thought it was on different-coloured paper, even though I am partially colour blind and the font was different. It may have been just a working draft they had in the AG’s office, but I still have a nagging thing in the back off my head — that it was something that came from Trichet’s office.”
It is new material that Trichet might have been involved on the night off the guarantee. The Carey hypothesis is an important one.
Trichet treated the Irish parliament with contempt in his “evidence” to the Oireachtas Inquiry in Dublin. We read on page 264 that “Trichet’s belicose language was a clear threat to Lenihan.
Trichet told Minister Michael Noonan that ‘a bomb would go off in Dublin’. The humiliation of this country on Morning Ireland on November 18, 2010, was also an ECB idea after which Lenihan and Cowen “were incandescent.”(page 261). Nigel Farage must be very impressed by the way in which Trichet and other senior eurocrats treat this country.
Bertie Ahern stated on October 18, 2011, that “even if we knew the banking crisis was coming I don’t think we could have done anything.”
This disaster for Ireland started when we sleepwalked into the single currency without debate and without regard to its well documented design faults. Abolishing a currency abolished the exchange rate described by Colm McCarthy as “the canary iin the coal mine. We shot the canary”.
The Central Bank rejected an independent agency for bank regulation.
They won that battle and then lost the war. There were three people charged with regulating both Anglo Irish Bank and Bank of Ireland.
Light touch regulation of Irish banks was in fact non-supervision. The dearth of economic expertise in the Department of Finance was widely known at the time. When we add in the conduct the banks and their auditors I fear that those directly involved in the Irish financial collapse would do the same all over again.
Colm McCarthy on page 88 describes the bank guarantee as “a blank cheque for double the country’s GNP. No bank has been deemed sufficiently reckless to be told to go off and fail”.
Setting ratios for loans to deposits, loan to value, loan to income and sectoral concentrations are vital in a country where the combination of a high cost construction sector and reckless banking landed us with huge bills.
The human side of this book is shown in the treatment of Brian Lenihan’s fatal illness. There are moving accounts of having to tell his family on Christmas Day because TV3 was about to broadcast the story.
Lenihan returned to work after each grueling session of chemotherapy, taking brief rest on a couch in his office. In the face of so much adversity we see the kindlness of Brian Cowen as Lenihan’s life ebbed away.
“Fianna Fáil is a social institution, a large club, in a way that Fine Gael, Labour, and Sinn Féin are not. Fianna Fáil members enjoy the company of other Fianna Fáil members”(page 230).
This is the background drawn by McConnell and Lee to two think-ins in Galway and an unfortunate Morning Ireland interview which seriously undermined the 2008-2011 government. Alcohol consumption in Ireland per head is falling. Many occupations do not allow alcohol and work to combine.
Those who run the country, please note.
On page 13 McConnell and Lee state that “civil servants and other sources close to the Cabinet, who wished to keep their anonymity provided their sometimes withering reflections” in the writing of this stimulating book.
One has to add words like “pot” and “kettle” in relation to any withering reflections from civil servants about Ireland’s financial collapse. Sir Humphrey was a major contributor to this economic disaster. Large parts of the economic governance of Ireland were disfunctional in the lead in to this crisis.
Briefing notes to ministers from senior bureaucrats right up to the bank collapse said that the banks were profitable, had good quality assets and were regulated to the highest international standards.
An OECD report recommendation in favour of a bank resolution mechanism was “redacted” as censored is no longer a fashionable term. Phone calls were made to the ESRI if senior officialdom disliked a contrarian view of the economy.
Redressing the immense harm done to this country by the banking and building sectors and their failed regulatory agencies and bureaucracies remains a task for decades to come. Much reform remains to be done and many of the principals in the last crisis have escaped lightly.
McConnell and Lee have given us a volume which thoroughly and enthusiastically documents Ireland’s downfall. Read it now. Keep it near you so that we do better when the forces of greed and ignorance strike again.
Hell at the Gates: The Inside Story of Ireland’s Financial Downfall
Daniel McConnell and John Lee
Mercier Press, €16.99
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