A banking inquiry by an Oireachtas committee will finally apportion blame for the mother of all recessions. It will be, to use a favoured Shinner term, “a truth recovery process”.
First in the stocks is expected to be Pat Neary, the hapless former head of the Financial Regulator, who had some shocking memory lapses while giving evidence. Now that Sean Fitzpatrick was found not guilty of proffering illegal loans, and his former colleagues, Pat Whelan and Willie McAteer, are not going to jail, the focus can move onto Neary.
All of the available evidence suggests that each shovel dug into the past will throw up further opprobrium for Neary. The trial showed him to be a man who acted with deference, rather than authority, towards the banks. At the height of the crisis, he appears to have been acting like the proverbial Chinese monkeys— closing his eyes, ears, and mouth to anything that might discommode him. Then, he walked away from the wreckage with a pay-off of €640,000, and an annual pension of €140,000. The least he might be expected to do for the State that has padded out his retirement is to rummage around his memory, and enlighten the people’s representatives on what, exactly, was going on.
A view is hardening that Neary can now move to the front of the queue as culprit-in-chief for the economic collapse. He, quite obviously, was not up to the job.
But what if he had been? What if Neary had been, in the best tradition of independent overseers, a highly competent, conscientious, and strong-willed individual? Would he have survived the culture of the times, or would he have been escorted to the door while the party was in full flow? There are plenty of examples to show that Neary was not out of line with the political and economic culture.
Take a speech given by one of the architects of boom-time Ireland — Charlie McCreevy — in December, 2005.
At the annual lunch for the Irish Financial Services Centre, McCreevy gave his view on how nation builders should be let off the leash.
His message for the regulator, on that occasion, was: “Don’t try to protect everybody from every possible accident… and leave industry with the space to breathe, and investors with the freedom to learn from their mistakes.”
McCreevy stuck his chest out, and explained how “many of us, in this room, are from the generations that had the luck to grow up before governments got working and lawyers got rich on regulating our lives. We were part of the ‘unregulated generation’ — the generation that has produced some of the best risk-takers, problem-solvers and inventors.” That was McCreevy’s island, a place for tough guys who took risks, guys who knew what they were doing and didn’t need to be regulated.
The tough guys ran the show, as was evidenced in 2006 when the Revenue Commissioners made a modest proposal on taxing the stock market instrument, contracts for difference (CFD). A punter could bet up to 10 times what was, effectively, a deposit, on the future direction of shares. It has been described as “the crack cocaine of the stock market”, and had the added incentive of provision for secrecy.
Sean Quinn secretly built up his huge stake in Anglo Irish Bank through contracts for difference. By 2006, CFDs accounted for between 30% and 50% of dealing on the Irish Stock Exchange. In a market shooting north, thousands of high-net-worth individuals in this country were raking in fortunes.
Then, along comes a modest proposal to apply a 1% tax to CDFs, as was already the case for ordinary share dealing.
After serious lobbying from a range of industry bodies, Minister for Finance Brian Cowen backed down. No tax would apply.
Off you go lads, pump up those risks, safe in the knowledge that you operate in a tax-free zone.
Cowen said he acted on foot of advice from his officials. He wasn’t obliged to take that advice, but it gave him cover, and also demonstrated that the people in the department were equally in thrall to the risk takers.
While all of that was going on, the man charged with policing the corporate world was snowed under. For two years, up to 2007, the Director of Corporate Enforcement pleaded for more resources, in a country that was being swamped by risk-takers and tough guys.
On February 28, 2007, Taoiseach Bertie Ahern told the Dáil that the director would have to wait in line.
“The reason he’s not getting all the staffing is that we made a priority in that department to create new labour inspectors,” Ahern said. Two years previously, when the scandal of the ‘slave labour’ of the Gama Turkish workers was uncovered, it had emerged that there were just two labour inspectors for the country. Now, Ahern was saying that in this low-tax, risk-taking economy, swelling with money, it wasn’t possible to properly police both the workplace and the boardroom.
That was the culture that existed. It went beyond a gormless regulator like Neary.
It went beyond even a craven politician like Ahern. It infected every echelon of the power centres that ran the country, and nobody in the main opposition parties had any problem with it.
Would a tough, or even competent, regulator have survived in those times? Well, just look at what happened in 2010, two years after the economy collapsed. A new regulator, Englishman Matthew Elderfield, was in town, doing his job to a high degree of competence.
He found it necessary, in March that year, to place the Quinn Group in administration.
For that, he was roundly criticised in the political and business arena. Quinn was a champion risk-taker, who had bet the house on Anglo and lost. All of that was known by 2010, yet the regulator, rather than reckless Quinn, was cast as the bad guy.
In the same week that Quinn was placed in administration, one TD rose in the Dáil to opine that Elderfield needed to cut the banks some slack. Yes! The same banks that had run the country into the ground.
If given time, Ned O’Keeffe said, “they (the banks) won’t be depending on the State and Mr Elderfield to tell us what to do. We don’t want foreigners in here. Michael Collins, Liam Lynch, Padraig Pearse and James Connolly wouldn’t have those foreigners running our business.”
That was the level of debate, on regulation, that informed public discourse in 2010, with the country on its knees. A few years previously, when the risk-takers and tough guys were calling the shots, would any proper regulator have been permitted to put a brake on the madness?
The hope is that the Oireachtas inquiry will be more than just a show trial for Neary and Fianna Fáil. Don’t hold your breath.