2 July 2010
Banking & bombshells – 8 things you should know about the banks
YES, banks are boring. But we should all be paying attention to them and what the Government is doing with them, because billions of our money is being poured into them while equal amounts are being subtracted from our health, education and social welfare systems.
REGULATION, shareholders, subordinated bonds, directors’ loans - these are the terms most of us never thought we’d understand let alone hear every day of the week. Yet these, or a variation of, are the very words that most of us will be using in years to come to explain to our children why they are paying 80 cent of every Euro they earn in tax.
The reasons for the billions and billions in debt that the 26-County state has incurred as a result of one of the largest (comparatively speaking) banking crises in the world were published during June with the production of two banking reports from three experts in the banking and economic world. They proved to be damning indictments of a Government under siege. Not even the mayhem in Fine Gael towards the end of the month could distract from the disastrous policies of Fianna Fáil as they were laid out in black and white.
Yes, banks are boring. But we should all be paying attention to them and what the Government is doing with them, because billions of our money is being poured into them while equal amounts are being subtracted from our health, education and social welfare systems. And it’s just the start of the payback for the ‘solutions’ to the banking crisis, ironically being implemented by the same political party that caused it.
8 things you should know about the banking reports and the economy
1)The authors of the two reports - Patrick Honahan of one, and Klaus Regling and Max Watson of the other - were expressly told not to investigate anything that happened in the banks subsequent to the night of the Guarantee in September 2008.
Since then, we have had:-
- The nationalisation of Anglo Irish Bank, one of the most corrupt banks in our history;
- The awarding of a million-euro pension to the former CEO of Irish Nationwide, Michael Fingleton;
- The establishment of NAMA, a body designed to buy €54billion worth of bad loans that are probably worth much less;
- The recapping of several banks to the tune of billions, with the result that AIB is all but nationalised;
- The signing off of apparently inaccurate, if not fraudulent, accounts at several banks by Government-appointed directors and auditing firms that were subsequently awarded contracts with NAMA.
So, not much has happened in the two years since the Guarantee worth investigating then...
2)Both reports are heavily critical of Government economic policy, the financial regulation system, and lending policies of Irish banks.
They state clearly that the crisis is domestic and that the Government’s line about the collapse of Lehman Brothers is false.
They find that the Government’s economic policies caused the crash. The banking inquiry arising from these reports will start over the summer and run for six months but its terms of reference are already compromised by the Government. It is refusing to let the inquiry investigate Government economic policies, instead appointing an Oireachtas committee which, of course, will have Government members, to do a report on the Government’s macro-economic policies.
3)These reports vindicate Sinn Féin’s economic policy and what we were warning about since 2002.
During what the Establishment parties and the media called our ‘economically illiterate’ years, Sinn Féin called for:
- Stronger regulation;
- Caps on remuneration;
- An end to property inflation;
- Fair tax policy based on stable direct taxation;
- Corporate law to be improved;
- A tax on speculative trading;
- Counter-cyclical budget policies.
Back in 2002, Arthur Morgan was raising the need to bring down property prices before a bubble grew.
In 2005, Caoimhghín Ó Caoláin pushed for and succeeded in getting an Oireachtas committee to examine flaws in the banking system. The results of his findings were never acted on.
4) Though not mentioned in the reports, the other political parties do not fare well in this review of economic policies.
Fine Gael and Labour both share an economic approach that, if implemented, would have inflated the bubble. They both wanted to lower direct taxes and abolish Stamp Duty in 2007, all of which would have added fuel to the fire. Labour was in fact first out of the blocks with its populist and dangerous tax-cutting proposals in 2007. Neither party has the economic cop-on to bring us out of the crisis. They still follow the Government’s line on fixing the economy through cutting the deficit.
5) Brian Cowen has said he takes ‘full responsibility’ for and ‘regrets’ decisions he made in the past that led to the economic crisis. But he refuses to follow through on that responsibility and resign.
The Government says it has learned from its mistakes. It hasn’t. One of the reports’ criticisms is that the Government followed a pro-cyclical budgetary approach and relied on unstable taxes. (Pro-cyclical is Charlie McCreevy economics - spend money when you have it, don’t worry about saving. A counter-cyclical approach saves in the good times so you can spend in the bad when the economy needs a boost.)
The Government is still taking a pro-cyclical approach - meaning cuts, cuts, cuts - which is the wrong approach because it is deflating the economy. If pro-cyclical was bad then, it’s worse now.
6) Honahan says the Guarantee was necessary and justified to prevent the banking system imploding and essentially Ireland becoming another Iceland - but the terms and conditions fell short.
This is Sinn Féin’s policy on the Guarantee in a nutshell.
We believed the damage was done and the Guarantee was the first step to full nationalisation and was necessary to stop the banks imploding (from the information put in front of us). We wanted to protect ordinary people, but Honahan is right - the terms and conditions fell short so we voted against them.
We wanted Anglo wound down.
We wanted taxpayers, not bondholders, protected.
We wanted the main banks taken into public ownership and turned into a state bank.
Once again, Labour took a completely populist position and opposed the Guarantee but they did not present what their alternative was. They did not say what they would have done when it looked like people would be getting up the next day and not have been able to access the wages in their bank accounts. When Labour did get round to saying they would nationalise the banks (and nationalisation is a guarantee of sorts - the state takes on all those deposits and loans), they followed it by saying they would give the healthy nationalised banks back to the private sector! The banking system is broke. With our state bank, Sinn Féin has shown we want to change the system. Labour has shown it supports taxpayers bailing out failed entities and, once they’re healthy, those entities being privatised.
7) On September 19th 2008, Patrick Neary, the Chief Executive of the Irish Financial Regulator, said:
“Irish banks are resilient and have good shock-absorption capacity to cope with the current situation.” According to economic website Finfacts.ie, Neary retired with a €630,000 pay-off. In addition, he is receiving an annual pension of €142,670.
In a recent article in The Sunday Business Post, Richard Curran highlighted the ongoing cost to the state for the mistakes of the politicians and bankers who caused the crisis.
- Bertie Ahern was Taoiseach from 1997 to 2007 but as a TD he continues to earn a salary of €83,000 per year.
- Brian Cowen was Minister for Finance from 2004 to 2007. He currently earns €228,000 per year.
- John Hurley was the Governor of the Central Bank until 2009. He received a payment on retirement of €525,000 and will receive a pension of around €175,000 a year.
- Eugene Sheehy was Chief Executive of AIB until 2009. He earned €2.1million in 2007 and €1.15million in 2008. His pension is around €450,000 a year.
- Brian Goggin was Chief Executive of Bank of Ireland until 2009. His pay peaked at €3.1 million in 2007 and his pension is around €650,000 per year.
- Seán Fitzpatrick, the former Chief Executive and Chair of Anglo Irish Bank, had much of his multimillion-euro fortune wiped out by the economic collapse. He still owed the bank €87million when he resigned in December 2008.
8) What would Sinn Féin do in the wake of these reports if we got into government?
Well, we’d remove all those bank managers and directors involved in causing the crisis who are still in positions of power.
We would also make sure the criminal aspects of what happened were prosecuted.
We would start taking care of ordinary citizens ruined by the banking crisis and being forced to pay for it when it wasn’t of their making. That entails protecting people in negative equity, facing repossession, and struggling with debt. It includes protecting viable businesses struggling to access credit.
We would nationalise AIB and Bank of Ireland and create a state bank from the two. We would wind up Anglo and let other banks fold if they could not exist on their own, taking their good assets into the larger banks.
And we would rebuild the economy.
This would be done through:-
- Saving and creating jobs;
- Altering the tax system to ensure the wealthy are paying their fair share;
- Eradicating waste, such as exorbitant salaries, in public spending;
- Reform national and local governance;
- Draw up a realistic debt repayment structure on the basis of a growing economy that will grow further if it is invested in;
- Fully regulate a new finance system with necessary secure measures like stronger capital requirements for banks and the supervision of credit rating agencies.
And - most of all - we’d give the other parties a lesson in basic economics.