Message in a bubble: elect a responsible government

IN his letter (July 7), Brian McDermott refers to the comments by Finance Minister Brian Lenihan as to the causes of the present economic difficulties arising to the greatest extent from the low interest rates and the influx of cheap labour from eastern Europe, going on then to say “...we need to retain and regain as much power in Ireland as possible to get us out of this sorry mess”.

It is to be expected Mr Lenihan would seek to divert our attention from the real issue — Brian McDermott misses the point. The deregulation of the financial markets to the extent allowed and encouraged by Thatcher and Reagan led to the development of commercial practices that inevitably create a bubble that is certain to burst, as was the case in Britain in the early 1970s, in the late 1980s, and as now has occurred in US and Europe.

Responsible lenders in Britain up to the early 2000s restricted lending to three times disposable income.

Lending in domestic markets as a matter of course to individuals at more than three times disposable income on repayment terms that have become common more recently, especially in Ireland, is bound to lead to those individuals finding it difficult to keep to those repayment terms. This leads to high levels of bad debt and inevitable repossessions. For the banks to invite individuals to apply for loans at up to five times disposable income and to borrow in excess of 100% of the value of the security (a practice recently defended by certain brokers), let alone to allow such lending ratios, is highly irresponsible and bound to lead to widespread repossessions from those who were reckless enough to take out loans on such terms.

It is a cruel myth that low international interest rates control the ability of the Government to regulate the lending policy of domestic banks.

The Government does have power to regulate such practices but it did not do so as it pandered to the lobbying of the reckless lenders and failed to act in the common good.

The Government has supported and encouraged rather than controlled such practices in the expectation of the banks’ and the bankers’ contributions to party funds.

A major contributory element in all this arises from the payment by banks of commissions on the volume of monies lent, not on the quality of the loans made and on the receipt of their prepayment.

The rampant pursuit of loan-making on foot of security that is overstretched in the first place leads to the debacle we now face when that security collapses as, on foot of such lending policy, it is bound to.

If those persons in positions of seniority in the Department of Finance are not aware of such dangers, and if they did not warn the minister of the impending dangers, they should not be left in those senior positions. If the minister was warned, and did nothing about it, we should be told so that we may best respond to his laying the blame in all this at the door of others.

It does look as if the Government will have no alternative now but invoke those powers that it has, and yet denies that it has, while at the same time delaying such action until it can hide behind some European directive that it does so.

The indications are that those who have led us to this parlous state will be forced to take action that they should have taken long ago, after which they will then demand to be congratulated for getting us out of the mess that they allowed to occur in the first place.

The considerable sums now foisted on the general public to bail out the banking collapse arise from the voting in of those feckless TDs who have governed for so many recent years.

The question is not who is best to get us out of the mess — we will get through it one way or the other — rather who is able to provide responsible government in the future.

Andrew Wray

Knockmullane

Innishannon

Co Cork