Oireachtas banking inquiry - We are all to blame for the boom to bust

Despite our predilection to blame the banks for everything bad, the reality is that, while our financial institutions were mostly responsible for our economic crash, they were by no means the only transgressors.

The Government’s ignorance, the banks’ gung-ho attitude, the Central Bank’s lassitude, the financial regulator’s laissez faire policy, and the general population’s unbridled glee during the boom all contributed to the crash.

That is the view of the Finnish financial expert Peter Nyberg who yesterday became the first person to give evidence to the Oireachtas banking inquiry.

The major responsibility for the mistakes lay with the directors and in the banks, but borrowers were also responsible for debt, he said, echoing the results of the Commission of Inquiry report into the crash issued last March.

It concluded that, while the scale of Ireland’s banking crisis was exacerbated by the worldwide economic downturn, the fundamental reason for the collapse was the “unhindered expansion of the property bubble”— which itself had emerged as a result of a “national speculative mania”.

In other words, as Taoiseach Enda Kenny reflected, “we all went a bit mad”.

Nyberg’s opinion on Ireland’s banking crisis is instructive, to say the least, and should be listened to with the greatest of care and attention.

He told the Oireachtas inquiry that the property-buying mania in Ireland was unlikely to have resulted in a soft landing, even without the impact of the liquidity crisis in the United States.

It should be borne in mind that the Commission of Inquiry report, compiled by Nyberg, concluded that the willingness of banks to issue high-value loans for risky commercial property was a fundamental cause of the banking crash.

As many will remember, the banks were also willing at the height of the boom to offer 100% loans for home mortgages, sometimes even exceeding that limit, to include finance to furnish houses and apartments.

That means there are many householders today who will be paying for their furniture and fittings for the next 30 years or more.

It was as mad as that.

That indulgence is, perhaps, part of the reason why the Central Bank is now insisting that prospective home owners save a minimum of 20% of the purchase price of their chosen property, an injunction that the ESRI yesterday branded as too restrictive.

But, with house prices now rising faster than during the boom, there is a real danger that we will have learned nothing from the crisis and will repeat those catastrophic mistakes.

It really does boil down to the fact that we — the people —mostly caused the mess ourselves and that we went ‘a bit mad with borrowing’, as the Taoiseach described the crisis in 2012 at the World Economic Forum in Davos.

The question now is — given that boom-time property prices are once again being seen — will sanity prevail?