Brendan Keenan, former Independent Group Finance Editor, columnist and broadcaster


What people would like to know and what they really need to know is not always the same thing.

In this case, it would appear that what we would like to know is what exactly happened on the night of the bank guarantee.

We would like to know who came up with the idea. We would like to know if the two Brians (Cowen and Lenihan) were seriously warned not to go there.

It has taken a long time, but attitudes to the guarantee have begun to change. It has gradually dawned on people what the consequences of an imminent bank collapse would have been.  We know that deposits were flooding out to the tune of €50bn.  Something had to be done. A full guarantee was not necessarily the best decision, but there were no good ways out.

The interesting question is not so much what happened, but why the guarantee became the total centre of attention. Pundits and journalists have to ask themselves why so many people think the guarantee caused the crisis – a belief which can probably never be changed now.

To take one example, a collapse in deposits did not come in 2008, immediately after the guarantee, but just before the bailout in 2010. The 20% fall was worse than that in Greece and in a completely different league from Portugal, Spain or Italy.

That’s because the Irish banks were wrecked on a scale unlike anywhere else and pretty much unlike anything in history.  In fact, we have asked too many questions about the consequences of that extraordinary situation, and not enough about the causes.

That’s what we need to question.  It is not even why the Irish banks crashed.  Lots of banks did.  Many in Europe, especially Germany, are still hiding the scale of the crash.  The question is:  why was the Irish crisis the worst?

I think the biggest unexamined area is the construction boom.  Property price bubbles are not uncommon, are hard to quantify and hard to stop.  But, if Ireland’s bubble had not been accompanied by a gigantic building bubble employing 200,000 people which, like all construction, can stop overnight, the consequences – though still very serious – would not have been so catastrophic .

Behind that building mania were the tax breaks of absurd proportions. Behind that is the nature of Irish politics. Plenty is said and written about it but it never seems that anything can be done.

The coalition deserves admiration in many areas but ministers do not seem to have any sense that the system they inherited is seriously defective.  Like any defective machine, it keeps crashing. Any rational person would have to assume that it will crash again, each time in a different way.

Sometimes it’s better to look at simple things, rather than the arcane mysteries of economics.  For instance – as was in the news this week – citizenship. The rules for becoming an Irish citizen are vague, and therefore open to abuse. But even if you qualify, the Minister has the final say.

In Irish law, however deeply buried, the Minister nearly always has the final say. It is not good enough. As John Adams said, what is needed is a country of laws, not of men.  Ireland is a country of men (it’s usually men), not laws.

Almost everything, from the Garda Siochana down to road works, is like the citizenship process – subject finally to the Minister’s discretion.  Control must not be ceded and power must not be dispersed.

At the last moment, it would appear, the new financial regulator was appointed from outside, rather than the usual civil servant, active or retired.

That’s who fills almost every sensitive post. We need to ask if that is part of what gets us into trouble – not because of the quality of individuals – Patrick Neary and John Hurley were honourable, honest men – but because they were all part of a single, defensive, self-serving system.

This is what we need to know.  Clearly, they were not qualified for the jobs they held. Clearly many of the staff in both the Central Bank and the Financial Regulatory Authority were not suitably qualified either – although they seem to have been added to in numbers rather than replaced.

But to what extent did the regulators also deliberately avoid rocking the political boat? To the extent that they may have done so, they broke their commitment to do their jobs to the best of their ability. The responsibility for this disaster lies with them, as well as politicians who may have pressurised them.

They have the defence that the game was rigged. Incredible though it may be, there was a statutory committee of bankers which the Central Bank had to consult. The referee was obliged to ask the teams for their opinion on his judgements.

This is the formal expression of the mindset.  One question we have to ask is whether sometimes economic success, even – heaven help us – job creation,  must come second to proper government.  Of course there is lobbying, golf outings and party donations but voters also often join the chorus for jam today and to hell with tomorrow.

A really hard question, but a very important one, is whether officials enjoy tacit immunity if they were acting in their official capacities, however inadequate or improper their actions?  If the “Maple 10” operations at Anglo Irish were illegal, it is not a defence that the Regulator knew. Rather, the Regulator’s staff should be open to prosecution.

I doubt if anyone in this room believes they would be, but we accept that this is how it is. It is not how it should be.

A less dramatic question perhaps – would a traditional Irish public sector Regulator have pursued the Quinn group as tenaciously as Matthew Elderfield?  Indeed, do we fully understand the sudden, mysterious liquidation of IBRC, whose management was also making a lot of people uncomfortable?  It is much easier to answer historical questions than figure out the right questions to ask now.

With the best will in the world, this sort of thing is bound to arise in a small country with enmeshed political and personal relations. I have come to the view that senior police and regulatory posts, along with many civil service ones, should be confined to either foreigners, or those Irish who have spent some time in relevant positions abroad.

Until that revolution comes, the present system will have to deal, not with the past banking crisis, but with the present as well as the future ones. We need to ask more about what kind of solutions are available.

It is still like it was in September 2008. There are no good options. The more that is done to minimise losses at the banks, the more harm is done to the economy. But letting the banks fail is still not a realistic or sensible option.

But we may have to bring them to the brink of failure. We may have to exercise the force majeure rights of a sovereign state when it comes to tracker mortgages. One reason for being dubious about easing up on austerity is that we may need all the fiscal independence we can acquire to do what may have to be done – taking on both the bond markets and the rest of the EU over legacy debt.

To have any chance of doing so will require clarity, transparency and great courage. How much mortgage and company debt relief is required? What emergency legislation is needed to apply realistic rates to tracker mortgages? How much capital will the banks need?

How much can be raised from Irish citizens and how much from outside sources, whether official or commercial? If there is a capital shortfall which no-one will meet, what will be the processes for winding down the Irish banking system?

Even as I say this, I have the feeling of talking like a lunatic. I certainly know that it goes against the very substantial grain of not saying anything which would upset this most delicate of apple carts.

I hope that I can be fairly accused of scaremongering, because it is all very scary. But it is surely beyond doubt that asking questions like these is part of the answer to: “Where should we go from here?”

I also suggest it is beyond doubt that the answers cannot be supplied by the same secret cabals that got us here in the first place.

Book your Tickets