He told the then finance minister Brian Lenihan any guarantee should be conditional, and not open-ended as that might lead to the State picking up debts from risk capital.
“I said that you have to introduce a holding guarantee to buy you time until you find out the facts,” he said. He added that at no stage did he tell the minister a guarantee should include subordinated bondholders.
Mr McWilliams was speaking before the inquiry as one of the few economists who had consistently predicted the banking and housing crashes. He told the assembled politicians the “housing and banking crash was incredibly predictable and absolutely avoidable”.
He said the problems that led up to the economic collapse in 2008 could be traced back to policies implemented over the preceding eight years.
“The guarantee, the bail-out, all of these issues are a consequence of pathetic policies since 2000,” he said.
At the outset of his evidence he played for the committee an audio tape of an appearance he made on RTÉ’s Prime Time in 2003 in which he described the housing boom as “a scam”.
The committee was told Mr McWilliams had written about 1.2m words on the Irish economy in the decade that preceded the economic collapse in 2008.
Mr McWilliams was asked on a number of occasions over the course of his two and a half hours of evidence why he had seen what others apparently didn’t in the evolving housing bubble.
“Why didn’t I keep my mouth shut and play the game? I felt that you have a patriotic duty or a moral imperative to say that these things are going to lead to catastrophe,” he said.
In evidence t the economist touched on various economic crashes that had befallen civilisations from the Romans to the Incas, who were plundered by the Spanish.
He was also asked about his contacts with the then Finance Minister Brian Lenihan in the autumn of 2008, and said that this had begun after they had met on an RTÉ current affairs panel one Saturday.
“Brian Lenihan said to me outside [after the broadcast] you got all this right in the last few years, why don’t you come in and advise me because everybody else is advising me,” he said. They exchanged numbers and met twice over the following weeks and communicated about 12 times by phone.