Former taoiseach Brian Cowen admitted the lack of hard evidence on the highly controversial view at the first of two bank inquiry grillings yesterday.
Speaking in an afternoon session focussing specifically on the year before he became taoiseach in May 2008 – before a separate meeting next Wednesday addresses the September 2008 guarantee and November 2010 bailout – Mr Cowen said the soft landing view was widely held.
However, when asked by inquiry chair Ciaran Lynch if it was the subject of any “real or core document by you or the department” outlining if it was a genuine prospect, Mr Cowen admitted “I can’t recall one”.
He said the “central view” supported “a soft landing rather than a hard one” and that his opinion was “part of a broader consensus”.
Pressed, he said it was based on the opinions of “people working in the market” and Central Bank who said there would be a housing sales drop as the boom went bust. The soft landing term was central to tens of thousands of families continuing to buy property at over-inflated prices as the financial crisis took hold.
When this point was put to Mr Cowen by Labour senator Sean Barrett, Mr Cowen said “I regret I wasn’t more doubting”, before adding forecasts are “less than useless”.
The admission that government failed to fully assess a key element of how Ireland was meant to overcome the end of the Celtic Tiger came as Mr Cowen faced further questions over what actions he took ahead of the crash.
His party colleague, Fianna Fáil finance spokesperson Michael McGrath, began by asking about a Department of Finance group former secretary general Kevin Cardiff said was set up in “secret” to examine a guarantee among other banking measures a year before the crash happened.
Noting the body was examining “a range of scenarios” by January 2008, when ministers were continuing to cling to the soft landing mantra, Mr McGrath asked that “given the distinct possibility of State intervention in the coming months” and the Northern Rock implosion months earlier, why officials did not immediately scrutinise the health of banks.
Mr Cowen responded that “what they were doing was scenario planning” and “setting out a work schedule” including the possibility of “emergency liquidity assistance”, and that “throughout the period there didn’t seem to me to be a systemic risk”.
He said “it wasn’t clear there was a need to do anything” except “watch the situation” and “work on contingency plans” as the “liquidity problem was not pressing at that time”.
When a frustrated Mr McGrath bluntly said “these were live issues eight months before the guarantee”, Mr Cowen responded that there “wasn’t the view at the time this was a systemic threat” and there was no clear sign of a crash when he left Finance in May 2008.
The former taoiseach confirmed that in December 2007, the NTMA was asked to keep €500m in deposits in Irish banks in a bid to shore them up, but said there was no “pressure” placed on it.
He told Fine Gael senator John Paul Phelan that he met then AIB chief executive Eugene Sheehy on February 14, 2008, one month before a share price crash referred to as the St Patrick’s Day massacre he described at the time as an “international” related issue. But he insisted this was not a related meeting.
He rejected Fine Gael TD Eoghan Murphy’s claim the “green jersey agenda” of asking Irish banks to loan to each other was an attempt to disguise what Mr Murphy said “the markets knew” what was happening in early 2008 after Irish institutions lost 24% of shares in two hours.
Answering questions from Sinn Féin’s finance spokesperson Pearse Doherty, Mr Cowen said he did not learn of businessman Sean Quinn’s Anglo Irish loan exposure and the risk it posed until early summer 2008 and was “aware of certain issues but not the extent” of banks’ property exposure until “probably the autumn, after Lehman’s”.