Honohan Interview on RTE

Governor Honohan gave an extensive interview on last night’s The Week in Politics on RTE. A podcast of the interview is available here. I would note that the reaction from the government to Governor Honohan’s comments on an inquiry into the causes of the banking crisis has been disappointing, though perhaps predictable. The Irish Times reported:

In the Dáil yesterday, Brian Cowen said he had read what Dr Honohan had to say.

“From my point of view, the resources of the State are currently involved in ensuring banking stability and that we can deal with the economic and financial issues that arise.

“I am sure there will be economic historians and economists who will continue to talk about the failure of the regulatory system in this and other countries regarding the challenge faced by us.

“However, I would have to carefully consider such an inquiry before giving any commitment. As we know from the Abbeylara case, there are limitations on Oireachtas committees being able to inquire into questions of fact.’’

The “resources of the state” argument is weak. Essentially, this is the can’t-chew-gum-and-walk theory of government.  The “economic historians and economists” comment also has the suggestion that these are matters for academics to worry about while practical men like the Taoiseach worry about the present and the future (going forward). Still, I suspect that the government may end up having to yield to pressure for an inquiry and the foot-dragging will just mean that they will get no credit for having done so.

46 thoughts on “Honohan Interview on RTE”

  1. That’s right BL. Sorry.

    Hitherto, I will restrict myself to comments that help to shed light on the underlying strategies that reflect the synergies in the government’s holistic approach, which, going forward, will undoubtedly put us at the heart of Europe in a smart green economy reflecting the buy-in to the underlying processes of partnership from all the stakeholders. Going forward.

  2. Cearbhall O’Dalaigh’s link here to Spitzer speaking on MSNBC (YouTube link) is a good interview.

    http://www.irisheconomy.ie/index.php/2009/12/18/investigating-the-banks/#comment-28908

    This idea Spitzer talks about is avoidance of being distracted by the ‘illegality’ arguments to do with mis-use of money and taking of money by illegal means. But rather to focus the attention on the fundamental lack of representation which the taxpayer is entitled to on such institutions as the New York Federal Reserve board. Getting back to this argument, Geithner doesn’t think he is a regulator.

    There is nothing strictly illegal in that, and trying to solve this problem of lack of responsibility through means of a ‘legal’ type investigation (i.e. to catch possible criminals) would prove fruitless. It would enable to the directors of the Federal reserve system to continue operating without doing the full amount of their duties.

    So this ‘illegal activity’ type of investigation it seems to me, seems to be an ideal way of avoiding dealing with the real problem at all. Sure white collar criminals need to be found and dealt with. We have encountered this point of view before at Irish Economics discussion – i.e. we need a ‘Madoff-style’ of approach to deal with criminals in Ireland.

    But the pointing-fingers-at-criminal(s) type of approach seems to miss out on the real problem, by a mile.

  3. There was a couple of William K. Black interviews on PBS.org, YouTube etc linked by a contributor here at IE recently. Spitzer and Black appear to focus in a lot on the issue of Tim Geithner and his time with the Fed.

  4. As Patrick said last night, there is surely going to be an inquiry at some stage. Perhaps Cowen will delay the inevitable until such time as we have a new government, but it will just make him look worse than he already does.

  5. I lthink most people would welcome an inquiry, subject to the errors of previous tribunal design being avoided.

    One wonders are there any civil law issues that may arise. Could the state be liable to individuals for failing in its duty to regulate? Would individual bankers resist co-operating for fear they could disclose rights of actions for individual shareholders against them (sounds like a good thing)?

    @KW

    now now 🙂

  6. No one wants another tribunal of inquiry, I am sure, and Oireachtas committees have very little power – even to compel people to appear before them. Hence, without new legislation (good luck getting that!), would an inquiry actually serve any meaningful purpose?

    I think that it is self-evident that a full-blooded inquiry should be held into how we find ourselves in this unprecedented and extreme predicament. However, this is not a society that is notable for its adherence to principles of transparency, accountability, and social justice. Let us face it – there are many highly worthy reports gathering dust on shelves in government departments already – their recommendations largely ignored once the initial furore has spent itself.

    I hate myself for saying it, but if such an inquiry would just be a whitewash or token effort, then there are better uses for public money right now. No point wasting a very scarce resource just to pay lip service to what properly functioning democracies do.

  7. I think in fairness to Cowen (and I’m not generally disposed to be fair to him, but what the heck, its Christmas) I think Patrick has indicated that his preferred form of inquiry is a broad, reflective type of inquiry embracing economists, sociologists, psychologists etc as opposed to the inquisitorial type of inquiry with which we are maybe more familiar. So maybe this is what Cowen had in mind.

  8. I found this sentence in Karl Whelan’s most recent Irish Times ‘opinion’ contribution.

    “ECB president Jean-Claude Trichet has told the European Parliament that he wanted “to avoid a situation in which banks are heavily dependent on exceptional central bank financing” and that troubled banks needed to “restructure their balance sheets through recapitalisation”.

    http://www.irishtimes.com/newspaper/opinion/2009/1217/1224260833035.html

    One can understand the ECB’s point of view. It is bad enough I suppose the private sector in Ireland has been reduced to a sorry state where it barks in attendance to every bit of bone thrown to it through FF’s incentive-isation planning etc. Essentially we never had a market economy in Ireland. What we had was a very centrally driven, lame version of a market economy.

    http://www.irisheconomy.ie/index.php/2009/12/20/profile-of-this-blog/#comment-28975

    You can understand why the ECB doesn’t want to introduce another ‘macro- layer’ above that again, whereby European itself becomes a planned state/region. In other words, we must be careful so as not to breed the native instincts for enterprise and activity out of smaller member states over a period of time. That is why continued ECB support of capital supply in its members would be damaging over a prolonged period.

    But in reference to the ‘Week in Politics’ program on RTE media – there was one interesting clip where Senator Shane Ross talked of the ‘circle’ that needs to be broken. The regulator being too close to the banks. Banks being too close to developers. Developers being too close to builders. Builders being too close to politicians. Politicians too close to Dept. of Finance who in turn are too close to the regulator.

    We have to be careful now as we enter into a new European phase in banking that we do not institute these daft structures – which as Honohan mentions, are put in place to avoid risk – but turn out to be very poor at preventing it. This idea of NAMA as a means to distribute credit into the Irish system would have the hallmark of a ‘bad structure-al relationship’ between private banks, ECB and member state economies.

    But as Karl so rightly pointed out in his Irish Times article – our politicians, in practically all of the Irish political parties – were all for putting in place a ‘deal’ with ECB, whereby credit flowed into our economy through means of a daft, dangerous and dodgy relationship structure. It seems to Irish like to build such structures.

    That is the real answer to the Honohan question – the society behind the 200 hundred year old banking institution – the society seems to approve and like to build notoriously shaky financial structures. We have a lot to learn from the United States it appears. Maybe they build better foundations? We need to get out of the habit of building on floodplains and like some countries build things almost designed to collapse when there is an earthquake.

  9. @KW – “Essentially, this is the can’t-chew-gum-and-walk theory of government.”

    I think it’s worse than that Karl. I think it’s the “I’m possibly implicated so let’s use the ‘we need to move on’ theory of government/running a business.” AKA “draw a line under that,” etc.

    The ‘establishment’ (not just the bankers) really do not want this inquiry and no doubt the dark side will be looking at how they can discredit anyone who calls for it.

    A bit different to the ordinary man making a cock-up. Then it’s witch hunts galore.

    @zhou_enlain – “One wonders are there any civil law issues that may arise. Could the state be liable to individuals for failing in its duty to regulate?”

    This is a very good point zhou and I was thinking exactly that when reading the headlines in the IT today
    http://www.irishtimes.com/newspaper/frontpage/2009/1221/1224261044428.html

    Anyone out there in negative equity with a mortgage that they can’t afford who might want to be a test case? It will only strengthen your argument if the mortgage is linked to a pension or endowment and you were told that you wouldn’t be granted the mortgage unless you opened a current account with that company and bought their home/contents insurance etc.
    and that critical illness, income protection, etc. was also compulsory.

  10. @ Kevin o Rourke

    I agree. There is no way any Fianna Fail politician with links to any of Berties cabinets are going to announce a full and open inquiry of the type advocated by Prof. Honohan.

    We will have to hope for a change in Govt. to see any movement on this one.

  11. Question: do we need an inquiry/investigation now to ensure an effective negotiation of the immediate challenges – fiscal, economic, financial, reputational, etc.? or will it be sufficient to have a through-going inquiry/investigation once these challenges are met to prevent a repetition of this fisasco in the future?

  12. If it’s not a stupid question, shouldn’t the police force (GS) in Ireland already be doing their job and conducting such an inquiry? And if not, why not? Other than the laxadaisical affair that seems to be going on over in Anglo.

  13. @ Paul Hunt,

    I think we need to be very careful that Ireland does not hope to build the same kind of a messed up system we had internally on our own island of Ireland, and try to expand that to repeat exactly the same mistakes at a macro European level.

    Not that I believe the ECB will allow us to do that. But what I think the most recent chapter of our modern history, the NAMA project does highlight, that putting a couple of Irish politicians together in a debate about something, they will try to ‘export’ their own peculiarly Irish version of cute hoor-ism to our nearby European neighbours if left get away with it.

    I think we aught to concentrate our efforts at contain-ing the virus on this small island of ours and not letting it grow. I am taking fun obviously here (not so much). What I say runs contradictory to Pat Honohan’s comment – we shouldn’t look at Simon Carswell’s book (2006) on banking frauds and assume that we are unique in some respect.

    The quip about robbing banks, because that is where the money is. You could write Simon Carswell’s book about almost every country out there. But I ever so slightly disagreew with Pat Honohan. I don’t think that Ireland is unique in the sense of having financial problems. But what Karl Whelan’s article in IT points out – across our entire political spectrum, there doesn’t appear to be a great deal of difference, in that they all are lead by pressure from the constituency, to ‘fling up’ any sort of makeshift structure or deal as a temporary fix.

    Of course, we all know what happens is the temporary fix gets bedded in, and no one ever bothers to fix it again. The best people of all to ask about this are software engineers surprisingly enough. They have vast experience with this problem. The famous software architect Alan Kay, who worked at the famous Xerox Parc Labs talks about ‘late binding’.

    Basically that you have access to the engine to move and adjust things right up until the date where the product version 1.0 ships out the door. But we don’t use a late binding architecture for software. With the consequence, the best intentions are to fix the fundamental flaws in a product after version 1.0 has left dah building. But it never happens.

    That is probably our biggest problem in Ireland. We have a bunch of politicians who are able to rush version 1.0 out the door. Then it becomes the occupation of later generations of economists and civil servants to attempt to fix the thing after, but most of it is bolted down tight, un-touch-able.

  14. Maybe the solution would be to design version 1.0 as something that can collapse, be detonated and shovelled into a lorry and wheel-ed away to the dump. That would mean that Ireland could build a more solid version 2.0 in parallel.

    Have we ever tried doing anything in that sequence?

    I think that we should look at this option with regards to a lot of our state run programs. Nama should be designed to be collapsed at a certain point in the future. In that one sense, the Galway Tent does probably provide us with a fitting architype.

  15. Newstalk are reporting that Brian Cowen is saying that he has no objections to inquiry. It should happen soon.

    Interesting to hear Patrick Honohan’s comment that NAMA is “essential” to fixing the banks. He would have preferred more subordinated bonds but said that this was “a marginal issue.” His support for NAMA follows on from Saturday’s Irish Times article that the IMF are clearly very supportive of NAMA. The IMF’s chief banking expert Steven Seelig described the definition of long-term economic value as “masterful” and added that he “hoped you can retain this language” in the legislation.

    http://www.irishtimes.com/newspaper/frontpage/2009/1219/1224260980146.html

    Contributors on this blog have accussed the Government of spinning when they claim their banking policy has the full support of experts at the IMF, the ECB, the European Commission and others. Seelig’s comments look like yet more evidence that in fact these experts are fully behind the Government approach.

  16. with a view to achieving what? we already know what happened so what will a ‘9/11 style enquiry’ achieve? It’ll waste money first and foremost, and take the national eye off the ball of where the real problems rest – which is in our regulator and central bank, any decent enquiry should start there.

    The evidence is in the balance sheet! The people who worked in credit during that time all have records in HR and the various managers are all known, so there is nothing to ‘uncover’ merely the continuation of standard investigation – and with a bit of luck, a regulator who doesn’t shy away in the face of confrontation with the banks.

  17. @ Karl Deeter,

    I have heard this ‘eye on the ball’ argument before. It is a most excellent argument. It sounds very dynamic, like we need to be pro-active and keep moving. It reminds me of the kind of statement one often hears in the Irish construction industry – the party line in mid 2008 was, the residential sector is a dead duck – but guys like Dave Torpey instructed us faithful employees at Zoe, that we are ‘competing vigourously’ in the commercial sector.

    Competing vigourously.

    I’ll always remember the way in which he could deliver that beautiful phrase to a few dozen employees who were facing rapid extinction in the property industry. I actually believed it, I think. Another thing I believed at the time, commonly voiced in the same circles, was that the United States had ‘taken their eye off the ball’ and hence, Ireland had to pay for that by having to suffer with less (and more expensive) credit.

    Our problems in the property industry could always be neatly explained by the fact someone else had ‘taken their eye off the ball’.

    The real truth is, these phrases like ‘competing vigourously’ and ‘keeping the eye on the ball’ are only useful to manager within the property sector who want to sound dynamic and seem like they are grasping responsibility for a situation. When the truth is, they are only looking to find the fastest way towards the escape hatch.

    It is like the argument that we need to find criminals and place their heads on spears. Again it ‘sounds’ pro-active and like someone is taking control, managing the situation. It sounds all very fine. But it still doesn’t help with diagnosis of the problems that Eliot Spitzer talked about, in the interview videos linked here by Cearbhall O’Dalaigh.

    http://www.irisheconomy.ie/index.php/2009/12/18/investigating-the-banks/#comment-28908

    A journalist at the Sunday Tribune I think writes some excellent material is John Ihle. Although I had to voice something of an observation here:

    http://www.irisheconomy.ie/index.php/2009/12/18/safe-and-sound-banking-a-role-for-counter-cyclical-regulatory-requirements/#comment-28902

    Again, it is a case of mis-diagnosis, of the story getting warped around. Of journalists merely repeating stuff they have read from other journalism. It wasn’t so much the US administration – the White House – realised the problem was ‘so large’. As the fact the unstable and toxic assets were un-identify-able, un-track-able, un-discover-able. The patient, the US economy was on the table, kicking its last throes and the Fed had to stick the needle someplace. Why not re-capitalisation?

    These are the kinds of things that investigations can throw up. One of the most obvious break-downs to me, was the fact that George W. B had no working communication system on the faithful day in ’01, and had to resort to using a mobile phone. The story of 2008 was not dissimilar, in that, all of the prescribed steps to take in an financial emergency simply weren’t appropriate. Maybe we saw things happen in much slow-er motion in Ireland, but it still deserves to be recorded and set down somewhere for posterity to look at. I think.

    I suppose we could talk about flooding in Cork city along much the same vein also. What exactly was the sequence of events which un-folded. There is still quite major dispute over that. The flood exposes the fact woefully that we don’t have rain gauges along the Lee catchment to understand the nature of the rainfall discharging into water courses. How many bug bears like that are waiting to be uncovered in how we run a financial system here in this country?

  18. @Gary
    What he said was it was “sufficiently specific” and “sufficiently vague” at the same time which is what makes it masterful.

    Sounds like spin to me, or classic double speak. Doesn’t give me confidence. I suspect the international experts have their fingers crossed just like everyone else.

    For me time will tell

    @Karl
    My problem is the exact same people who went wild lending are the same people we have to trust to get us out of this mess and then bring about a normal banking system again. There has been no clear out of tne wrong doers. An inquiry might just flush a few of them out.

  19. Fianna Fail will only have an inquiry when some poor unfortunate lackey dies.

    Then they will have somebody to blame and with no consequences for the real perpetrators.

    Standard policy for the most corrupt political party in Europe.

  20. @Joseph:

    Can I just quote you again, as this is indeed gets to the heart of the matter in the Republic of Ireland.

    “If it’s not a stupid question, shouldn’t the police force (GS) in Ireland already be doing their job and conducting such an inquiry? And if not, why not? Other than the laxadaisical affair that seems to be going on over in Anglo.”

    Why are the forces of Law and Order not instigating a full-scale, well-resourced Criminal Enquiry into the coterie of corrupt Politicians, Bankers Business insiders and others who facilitated the perpetration of gigantic fraud, deception and criminal negligence?

    Or are we, as in the case of the Catholic Church and the Criminal abuse perpetrated by that organisation, going to have to wait for those who were the victims to take courage in their hands and take on the system?

  21. @Eoin,

    Agreed on the view that it should not be a Tribunal along the lines of Mahon. However, a committee of the Dail is what is needed. What happened was a systems failure in government, reguation and corporate governance. What better than an all party committee along the lines of the DIRT Enquiry.

    Unless we have some kind of political economy narrative about what happened, then there can be no consensus about what has to be done.

  22. Perhaps we could have a time-out from this rather tedious orgy of recrimination? My understanding is that Patrick Honohan wants basically to understand why it all happened so it doesn’t happen again. This is more useful than heads-on-plates. This is why you would need insights from a range of people perhaps psychologists for example. The balance sheets tell you what happened not why. Just why did the brightest people in the room screw up so badly? Simple accusations of greed don’t really explain much. Behavioural economics/finance may have something to offer here.

  23. @ kevin denny

    That might be what Patrick Honahan wants but the people of Ireland want justice.

    There were crimes commited in our Banks. If you defrauded them you would be prosecuted and it would be called justice but when they defraud you and you demand justice it is called tedious recrimination.

    We do not need an inquiry to find out what happened. Giving too much power to a chosen few is the reason for our economic demise.

    Power corrupts.

    We need an inquiry so the corrupt can face the consequences.

    Then we will send a message to all those in positions of power. Do not abuse your position.

  24. @ Gary

    A couple of comments.

    1. To complete the sentence you quoted from, Patrick Honohan said that NAMA was “essential as part of the process of putting the banks back on their feet”. I proposed in April (prior to the release of Peter Bacon’s report) using a NAMA as part of a process for solving the banking crisis. See http://www.irishtimes.com/newspaper/finance/2009/0403/1224243926311.html

    Does this also make me “fully behind the government approach”?

    2. Honohan’s stance on the price NAMA should pay for its assets, which he says in the interview he stands by, is that they should have paid 10 percent less in fully guaranteed government bonds. In other words, though he didn’t phrase it this way, Honohan thinks they should have paid market value of €47 billion instead of the €51.3 billion in guaranteed bonds. Perhaps Patrick thinks this is a marginal difference with the government’s approach but €4.3 billion is a lot of money to my mind (for instance, it’s about the size of the budgetary adjustment just made.)

    3. Mr. Seelig may think the government’s idea of paying some ill-defined “long-term economic value” is masterfully vague. Clearly, from point 2 above, Professor Honohan disagrees with Mr. Seelig about paying long-term economic value. Personally, I’m of the opinion that if €54 billion of taxpayer funds are being spent, then the public deserves a concrete specific description of how this money is being used. So, I disagree with the statement of Mr. Seelig as reported in this article, though I have not seen the full text of his communication.

    4. But then of course, by your definition, I’m not an expert (“these experts are fully behind the government approach”.) Funny how anyone that can be dug up to support any aspect of the government’s approach is an expert while those who disagree are ivory-tower eejits.

  25. @ kevin denny

    Personally, I am all for heads on plates, as you put it.

    I would also like to see a few Perp Walks of Shame being done.

    These Masters of the Universe need to be brought back down to Earth, with a big bang.

  26. @kevin denny
    Ah, I understand now. First we figure out what happened so it can never happen again… and then we put their heads on plates?!

  27. @ MB

    “There were crimes commited in our Banks.”

    Well thats not the real issue though it is? Regardless of the criminality or not that occurred in our banks (and at this point in time there appears to be very very few open and shut cases of illegality, something which is probably one of the core reasons for us being where we are), we’d still have the same basic problem – really really sh1tty lending standards and terrible top level regulation and management have lead to billions in really bad loans being issued by our banking sector.

    If we’re going to have a large scale inquiry into this sad sorry mess, i think i’d prefer that its ultimate aim was to figure out what went wrong and what we can do to prevent it happening again, rather than simply looking for it to be used as a blame-game to stick a few bank managers in jail so Joe Public feels justice has been served. If that happens along the way as well, all grand and good, but its not the principal purpose of any such inquiry. An inquiry is designed to find out the truth, and particularly in situations where the rest of the criminal justice system is unable to unearth the truth. If we’re also going to turn it into a bankers and developers witch hunt, you’re less likely to actually get the answers you’re looking for.

    Let me put it like this – if you’re given two possible outcomes as follows:

    1. no one goes to jail, but we figure out exactly where everything went wrong
    2. loads of people go to jail, but we havent a clue where everything went wrong

    Well, which one would you prefer?

  28. Stuart Blythman writes: “I suspect the international experts have their fingers crossed just like everyone else.” Yes, I’m sure everyone is hoping for the best. Still, I’d have more hope if policies are based on advice from experts.

    Karl Whelan writes: “Funny how anyone that can be dug up to support any aspect of the government’s approach is an expert while those who disagree are ivory-tower eejits.”

    I referred to the IMF’s Steven Seelig as an “expert” because if you search the IMF web site you’ll find a long list of publications by him on banking issues as well as evidence that he has extensive hands-on experience in resolving banking crisis all around the world. I consider Patrick Honohan an “expert” for the same reason.

    “Perhaps Patrick thinks this is a marginal difference with the government’s approach..” Perhaps Patrick Honohan thinks it’s a marginal difference because he thinks there is only a small risk that the subordinated bonds will not pay off.

    “So, I disagree with the statement of Mr. Seelig as reported in this article..”
    You’ve missed the point. It doesn’t matter whether you agree with him or not. The point I made is that you and others on this site have repeatedly accused the Government of “spin-doctoring” (your phrase) in claiming that the IMF supports their banking policies. You yourself told a meeting of the Green Party that you can read beween the lines and the IMF advice is nationalisation. But Steven Seelig’s clear support for the concept of long term economic value in the draft legislation (“I hope you can retain this language”) suggests otherwise.

  29. @ Gary

    Contrary to your suggestion that I have only made these statements about the IMF’s article IV report to a room of Green Party members — which evokes suggestions of me shooting my mouth off and you somehow being privy to me doing so — I have been clear about my interpretation of the IMF’s statements on this blog. For instance, see here:
    http://www.irisheconomy.ie/index.php/2009/07/03/the-imf-versus-the-20-economists/

    In relation to the IMF, my publicly expressed opinions on this are based on publicly available information such as the Article IV reports. I was not aware of Mr. Seelig’s opinions when I made these statements because they were not publicly available. However, as I suspect you may know, I have reasons beyond publicly available documents to support what I have said about the IMF. One must remember that the IMF is a large organisation with many people who may hold different positions. Mr. Seeling may have sent DoF a personal opinion (if this indeed is the nature of this communication) but the material in the Article IV report is the closest we have to an official statement. Other IMF statements about the need to nationalise banks if necessary are also official statements.

    As for the substance of Mr. Seelig’s opinion, I think it may be better to have a discussion of what he said when we have his statement available in full.

    Finally, in relation to “perhaps Honohan thinks there’s a small risk the subordinated bonds won’t pay off” the Governor has been clear that the costs of the banking crisis will be significant. Spinning about how we’re going to break even in the end is, frankly ridiculous.

  30. Brian O’Hanlon

    “But the pointing-fingers-at-criminal(s) type of approach seems to miss out on the real problem, by a mile.”

    Oh no, it doesn’t!!!!! Panto season?

    Spitzer was outed as he took on Bush for overruling state anti-reckless lending rules, by Federal regulation. The USA sub-prime was deliberate. Whether they foresaw the crash is debatable. What an enquiry in Ireland will reveal is that the regulators all knew of bank practices that were unlawful and dangerous to solvency. The penalties for this are unbelievably, merely commercial, civil, if at all. Only if there were bribes to look the other way is there criminal activity. The sad state of public affairs being what it is that is to be expected also.

    We need anti-corruption agencies, if we wish this not to recur.

  31. @Brian O’Hanlon: All valid points, but what I am trying to say is that it doesn’t need to be a 9/11 style investigation with lots of fanfare, in fact, it would be better to let the bankers do the job for the public – via whistle-blowing legislation (which Ireland sorely lacks), give everybody a certain amount of time to produce their own affidavit of anything they may have done wrong or thought others did and use that as a foundation.

    there are audit trails for every lending decision, just have the people who are already visiting the banks pick up on those and list the facts in the light of day, then take the affidavits and start your enquiry there.

    I’m not saying we don’t need ‘any’ enquiry, I’m saying it needs to start with the people in charge of protecting the country from systemic risk who failed miserably within their own mandate, namely the Regulator and central bank. I’m also saying that an enquiry doesn’t need a public gallery – this is dublin, not Rome, calming the people with ‘the games’ is a failed concept – the results should be public but you won’t get full participation of whistle-blowers and the like if they get brought into the circus in the process.

    Do it in a manner which gets the best results, not in the manner that appeases the public the most.

    The fact that they want to look into the banks makes me (as an industry person) feel like i’m watching a scene where a thief is pointing the finger at a pick-pocket, if they want to find culpability it should start with mea culpa, then once they have a working machine go forth and spread justice.

    our regulator doesn’t understand the very beast they claim to monitor, that’s a plain fact, Mazars commented on the lack of financial qualifications within the regulator, i would wager that a mixture of this along with a lack of actual industry experience is a recipe for disaster, there is more than one broken system that needs fixing – and if the investigators don’t know their job then what results are their investigation going to raise anyway!

  32. Karl Whelan

    You write “Contrary to your suggestion…” I made no such suggestion. Quite the opposite since I said earlier that you “on this site have repeatedly” made these statements. The point is these statements were probably false, if the Irish Times story is anything to go by.

    You write “the Governor has been clear that the costs of the banking crisis will be significant. Spinning about how we’re going to break even in the end is, frankly ridiculous.” You’re mixing apples and oranges. We may see NAMA break even and still the banking crisis cost a lot of money. If NAMA buys Anglo’s loans at a very deep discount, for example, such an outcome is quite likely.

  33. @ Karl Deeter and Pat Donnelly,

    I think that John Rowan of Anglo summed it up in the Prime Time investigates program on TV last night. As did Charlie McCreevy and probably some others if I went back to re-view the TV program.

    But John Rowan more or less worded his affidavit on the TV program. He believed in what he was doing and admits that he was wrong. McCreevy who I think attended school or worked with one of the bankers early on in his career also subscribed to a free-wheeling school of market economics.

    The way all of these men now in their middle years try to best rational-ise their years of influence in our financial system, is the like standard ‘Alan Greenspan defense’ that was filmed on US television not so long ago. That (I) developed a model of how the world worked and that turned out to be incorrect.

    Alan Greenspan added a chapter to the re-released paper version of his biographical novel ‘The Age of Turbulence’, in which he puts to writing his dis-belief in how the financial markets did nothing whatsoever to protect themselves. That completely contradicted a number of Greenspan’s fundamental beliefs about how the world operates.

    Charlie Fell in last Friday’s Irish Times wrote as usual a very interesting article. He makes reference to the 1982-2000 bull market, and to other historical record of bear markets stretching out for many years. I think the point that Charlie Fell made well in the article, is the point that so many people formed their ideas and biases during the recent bull market. It is hard to get out of that mindset.

    http://www.irishtimes.com/newspaper/finance/2009/1218/1224260888732.html

    The point I am trying to make is, any investigative interviews with bankers and regulators will probably throw up a lot of admissions of guilt and responsibility – but that a lot of them will fall into the same category of the Alan Greenspan or John Rowan testimony.

  34. The very pertinent question now, give that so many of the ‘bus drivers’ of the past decade or two admit the vehicle is now un-road-worthy (a fact that any good road cop will no doubt confirm) is how do we avoid a situation whereby Ireland has to load passengers back onto this same crocked out old vehicle?

    How can we invent a new vehicle with better transmission and engine, which can take us on a different journey the next time?

    The testimony that any inquiry is likely to throw up, will record the fact that the bus drivers say: Well I just drove the bus, I know it isn’t road-worthy. I understand that now.

    The next step of changing the mechanics is what I referred to here:

    http://www.irisheconomy.ie/index.php/2009/12/18/investigating-the-banks/#comment-28797

    It leads us back into politics strangely enough. I leads us back into the motivations of the Green party in particular. This ‘green ajenda’ is so potent (in Ireland, the US and worldwide) that it may represent the opportunity to alter the plan going forward ever so slightly. Just enough as to disrupt the inevitable re-build-ing of that same old seudo-capital-ist machine that will probably break down again somewhere in the middle of this century.

    Even a slight disruption to that normal working and implementation of the ‘plan’ might be good enough, to serve as a decent alternative and to carry us on a new journey. That would be the purpose of an inquiry I think, to provision ourselves with a slightly updated blueprint as we head back into the fray. Given that time is ticking, the old map or blueprint is always there to follow and will carry us a distance at least.

    But there needs to be something different in the new blueprint. There is €300 billion of debt this small country has to work out. That wasn’t there ten years ago in 1999. Okay, we might have the equivalent earnings per capita as we had in 1999, and an extra 700k people. But there is 3 no. times the combined debt exposure.

  35. One thing is certain without doubt in my mind. By the time the seudo-capital-ist machine does break down somewhere in the middle of this century – when that happens – we will not have the benefit of the Honohan/McCarthy working knowledge of the mechanics.

    It is a bit like Concorde. By the time it shut down its operations, realistically, how many guys were still in circulation who understood the technology the planes were built with? Think of computers etc. If you showed a 10-year old computer to someone today, would they even know how to re-boot the thing?

    There is an excellent movie starring Clint Eastwood and a couple of guys called ‘Space Cowboys’. Basically it amounts to some of the 1960s generation at NASA who never got to fly in space, getting another opportunity in their golden years. They have to explain all of the old technology to the young kids at NASA. There is quite a useful exchange of knowledge going on.

    I often wonder when Michael Somers moves from NTMA to AIB, if we could take advantage of this? I mean, the best guidance of all the young kids today in Ireland’s financial services can get, in terms of how to re-build the ‘new machine’ – call it a ‘green’ machine, or call it whatever you like – is from the folk who built the existing machine to begin with.

    There would be frictions I have no doubt. But the ‘space cowboys’ who have seen it all know precisely what worked and what didn’t work in the existing system.

  36. Bob Kahn, one of the original engineers behind the protocols and infrastructure which became the internet was interviewed for ‘Nerd TV’ by Robert Cringeley at PBS.

    http://www.pbs.org/cringely/nerdtv/transcripts/012.html

    (Podcast, videocast of interview available on same site)

    There are parallels between the financial system and the aging computer network, or network-of-networks which forms the basic for much of the same financial system today. Back when Bob Kahn got involved, they simple had no idea the thing would grow like it did. Otherwise, they would have approached the problem a lot different.

    Look at the M50 toll bridge outside Dublin City. An expected throughput of 45k per day vehicles by 2020 I think. When in reality, it reached 100k vehicles per day by 2006.

    If you look at financial systems, the transaction volume has increased off the charts. We tried to extend the life of an older system beyond what it was able to take. The world that the John Rowans and Alan Greenspans grew up in, was/is quite different to the one we live today.

    There again, the Green party ajenda for better or for worse, accepts that simple fact into its formula. Like no other party ajenda seems to be set up to do. The Greens appear to be about building a new infrastructure. Other parties appear to be about ‘keeping the eye on the ball’ and working with something that cannot cope.

  37. One of the nicer quotes from the interview:

    Bob Cringely: Wow. In retrospect, in developing the TCP/IP protocol, would you have done it differently? Is there something you wish you had done differently?

    Bob Kahn: You know, that’s a question people often ask, and it’s very hard to answer because you have all the retrospective of the history to deal with. I mean, how do you think radio and television would have been changed if we had semiconductor technology and lasers back in 1900? You can’t run that experiment.

  38. Karl Whelan

    Here’s what you wrote: “The IMF “backing” for the government’s plan is a Media Truth but, in the real world, it is essentially false. As has been discussed a few times on this site, yes the IMF has backed the use of an asset management agency but a consistent interpretation of their recommendations is that this be done in conjunction with nationalisation, which would be a very different plan to the route the government is going down.”

    http://www.irisheconomy.ie/index.php/2009/08/20/indo-op-ed-there-is-no-alternative/

    I’m just repeating myself, but its hard to reconcile your interpretation of what the IMF where recommending with the IMF’s apparent strong endorsement of the long-term economic concept in the NAMA legislation.

  39. @Brian O’Hanlon: I accept that everybody has a bias, to the degree where we take something to be true and then it is a concrete fact in our minds, it gives the likes of Greenspan his point of reference and thus bad decisions are made, but the ‘undoing’ of capitalism is farcical, capitalism is the only system that has thus far been proven to work – where ‘work’ means that people are essentially free to do as they like in a society.

    our failure was primarily (in my opinion) regulatory at heart, but the genesis lied in
    1. a worldwide glut of liquidity
    2. macro-imbalances (eg: US v China)
    3. a failed model of derisking – we got to a point where risk was ‘hedged away’ and ever bigger leverage used to get results, sadly, the risk wasn’t gone, it was almost like some rule of physics, whereby risk cannot be created or destroyed, only changed from one form into another!
    4. an over reliance on money markets (including repo’s etc.)
    5. securitization taken to too far.

    then somewhere at the end of the list is that of the actual bankers, but everybody seems to put them at number one. banks are the conduit of money, but the property boom wasn’t created by bankers, the explosion of balance sheets was within their control but in the absence of them being able to control their own actions – and there is a strong international case for believing this as banking dilemmas have been repeated elsewhere – show that when the chips are down, and the taxpayer is on the hook that the only culpable party in the room are the central bankers and regulators – banks can’t and won’t set out to protect us, so look first at why the protection we all paid good money over the years to obtain (funding for regulator & the justification of regulation being the avoidance of systemic shocks) protection we didn’t receive.

    whistle-blowing needs to come first, as mentioned yesterday, why not give everybody who wants to make a statement about any wrongdoing they know of a month or two to send their statements into the CB – and industry will oust itself and do most of the leg-work.

    the fact is, the good people in finance want the confidence of the consumer and would be more than happy to dob in the unscrupulous, but that isn’t the forum we are talking about, rather it is ‘public enquiry’ and 9/11 style investigations, that isn’t about getting a result, that is about appeasement.

  40. @ Karl Deeter,

    Thanks for your reply, and I particularly like this sentence, it is nicely put:

    “where ‘work’ means that people are essentially free to do as they like in a society.”

    Although, as I tried to argue in the Morgan Kelly working paper comments, the thing in Ireland is that we ‘cloned’ Silicon Valley and transported its culture (to the extent you can transport a culture) into Dublin, Ireland.

    http://www.irisheconomy.ie/index.php/2009/12/22/morgan-kelly-the-irish-credit-bubble/#comment-29250

    We are still doing it. Farmleigh was a perfect example. Guys such as Craig Barrett, an architypical west coast entrepreneur informed us how to model ourselves even closer to the Valley type of culture. It hasn’t worked out for us in Ireland, so it begs the question, did we fail in some way to ‘gimp’ the culture that exists in west coast United States tech-mania, bubble central.

    The answer is, we almost did clone the Valley economy and culture. A good exercise if one wants to learn about society in Ireland at a point in time is to look at the top ten best sellers inside the door at Hoggis Figgis bookstore in Dawson Street, Dublin. In 2007, I think The Power of Now by Eckhart Tolle was top of the list. A year later it was Paul Krugman’s The Return of Depression Economics.

    The dream that we would become the west coast Silicon Valley of Europe was shattered and on the floor. It was a nice dream while it lasted, and the youngest and brightest in the EU zone travelled (or made pilgrimage) to Ireland to understand our culture and our economics. Wow!

    Return-ing to the nice sentence I quoted:

    “where ‘work’ means that people are essentially free to do as they like in a society.”

    Free to do as they like in a society.

    Well there you have it. At a certain point (Schiff’s analysis of the tech-stock bubble is very important to understand Ireland) we as a society in Ireland made the logical conclusion, that working for a living in the future would only represent a minor component of our total earnings.

    In order to ‘keep one’s eye on the ball’ to use that great phrase, one had work the other and increasingly more important side to the equation – the home purchase – whereby the asset was appreciate-ing in value faster than the body themself could ever work.

    It was exactly like dot.com bubble mania. Earnings per share don’t matter. That is ancient history. Asset price appreciation, is the future.

    All one needed was a copy of Eckhart Tolle’s The Power of Now to jump into the game and compete vigourously. Only then, could the individual emerge as a winner.

    Sub-note on high-earn-ers

    Of course if you were an Irish banker, the earnings to mortgage ratio might still be 1:4 or 1:3. If you were Brian Goggin or David Drumm for instance. You made decide to live in Shewsbury Road and extend yourself to 1:5 or 1:6. Or you may decide to do something cheaper in Killiney for around €5.0 million. If you were really cheap, you could pick something up ‘on its own grounds’ in a not-so-fashionable part of town at the €3.0 million mark.

    Poor old Charlie McCreevy was reduced to sift-ing through bargain basement availability and slum-ing it like the rest of us, somewhere around the €1.5 million mark. Bear in mind that €1.5 million didn’t buy one a lot of ‘house’ back in 2006. And €1.0 million hardly bought one a house at all.

    The peverse thing now, looking back at 2006 in Ireland, is – I am surprised Charlie McCreevy didn’t take a punt on a decent €3.0 million property at the least. It displays the frugality of the ex. Minister for Finance.

    I am not joking about that. €3.0 million offered a lot more value in terms of investment at the height of the boom market. You could get an acre and a dream home. €3.0 million was a kind of ‘sweet spot’ if you were clever with your money. Anything above or below that purchased a lot less value for the money you spent.

  41. Of course, if one subscribed to this particular thesis:

    “In order to ‘keep one’s eye on the ball’ to use that great phrase, one had work the other and increasingly more important side to the equation – the home purchase – whereby the asset was appreciate-ing in value faster than the body themself could ever work.”

    The only way to get ahead completely of the rest of the pack, was to afford several homes, and enjoy the spectacle as they all simultaneously rose in value!

    I remember that old footage of speed boat racing from the early 20th century. In the beginning they combined a hull with a WWII bomber aircraft engine. Afterwards they became more ambitious, they multiplied the WWII bomber aircraft engine several times. The boat became all engine and the driver was only a speck standing at the rear of the craft with a steering wheel and this enormous wash extending out in a ‘V’ shape behind him.

    I couldn’t think of a more fitting analogy for the typical home purchaser during the Irish Celtic Tiger property boom.

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