Irish Financial Regulation: Guidelines Rather Than Rules

In his testimony this morning, Patrick Neary explained that the mandated bank lending sectoral concentration limits, which were seriously breached by the Irish banks during the credit bubble, could not actually be enforced since they were guidelines rather than rules. This distinction between guidelines and rules has eerie similarities to a classic scene in The Pirates of the Caribbean, where pirate captain Hector Barbossa (Geoffrey Rush) explains to Elizabeth Swann (Keira Knightley) the flexibility of The Pirates Code.

29 replies on “Irish Financial Regulation: Guidelines Rather Than Rules”

Oh what fun it is to have a titter about the way things were. But have we any assurance that the current rules are enforceable – and, more importantly, would be enforced if required?

Economic regulation in every other sector is a costly farce that facilitates the fleecing of final consumers and service users – and benefits rent-extracting special interests.

Re: Two sides to the deal

There exists an extreme interpretation in an area of the law referred to as contract, which would assume something like the following (the former chief executive, in evidence made reference to this precise area of law, when asked particularly about concentration of lending to twenty four borrowers).

“The doctrine of freedom of contract holds that the parties to a contract (in particular if they have equal bargaining power) should be free to assume whatever obligations they wish”.

In Ireland, in the decades of the 2000’s, the bank as an entity, which had something known as a ‘weg-ulator’, which governed it, . . . became an entity, which under legal interpretation was able to pursue any amount of contracting that it liked, and do so with the assistance of one of the most extreme interpretations of the level of freedom, doctrine that anyone could ever imagine.

In summary, I would draw a distinction on the one hand, between the noble attempts of a group of twelve public officials with good general knowledge, and willingness to investigate a financial collapse, . . . and something like an attorney generals office, or similar on the other hand, . . . that could go straight to the core of the question, on the interpretation of the law, and the freedom to contract, that the former chief executive of the office of the Regulator, described in evidence today.

There wasn’t anyone in the parliamentary committee, with the ability to pounce upon this today. At some point, we just might have to face reality. There are somethings things that a committee may be able to pursue. There are other core questions on the other hand, which it might be nice if our legal mechanism would pursue, but may decide it does not wish to pursue – no matter what the cost. BOH.

One has to love the way neoliberal right-wingers, whose answer to everything in the 2000s was (and in many cases continues to be) to get government off the backs of the dynamic and productive forces of society, bend over backwards to complain about the very light-touch regulation that they advocated.

This amounts to saying: “Why did you listen to us?!?”

I wonder if publishing data on each bank’s sectoral exposure might have done the job of enforcing sectoral concentration limits, even if they were not enforceable rules? I know that I would have dumped my (not very large amount of) bank shares if had had an accurate understanding of the bank’s exposure to property, and I suspect others would too. I placed wholly unwarranted confidence in reassurances that the bank in which I had shares (and now have penny stocks) was not in fact very heavily exposed to property.

Irish Financial System Piratical Corporate Governance

‘The first line of defence against bank failures is the board of each bank and the senior management to whom the board’s policy is delegated. There would have been no risk of regulatory failure, or of poor decisions at political level, if the first line of defence had held. In no other eurozone country did that first line fail so catastrophically as in Ireland.’

… and … and … the humble citizenry, forced to pick up the odious tab, have not received any explanation whatsoever of how … how … these board directors and senior bank management created the greatest financial system fu*k up in history.

Essentially, these board directors and senior bank management continue to treat the humble Irish citizenry with total contempt … while pocketing their bonuses and overly generous pensions (topped up by the said humble citizenry) as they continue to swan around with no fear whatsoever of ever being called to account as the prime function of the Irish legal system is to protect such echelons from the lumpen plebs.

This was an interesting exchange in the recent testimony by Mary Burke:

Deputy Michael McGrath

Sure. You said a few moments ago that prudential enforcement cases weren’t taken or weren’t recommended because you simply didn’t have the resources to process them and to follow through. Is that accurate?

Ms Mary Burke


Deputy Michael McGrath

Isn’t that quite an alarming point and quite a striking point? And doesn’t it go really to the heart of what your job was that you really weren’t in a position to do your job? Even if you felt that a prudential enforcement case should be taken against the bank, you didn’t pursue it because of a lack of resources. You simply weren’t able to do your job.

Ms Mary Burke

Yes, we were not able to pursue administrative sanctions cases because of a lack of resources. That was not peculiar to me, in fairness. The previous manager had flagged as much when he developed the policy for ASPs for banking supervision.

Deputy Michael McGrath

And who did you make this known to?

Ms Mary Burke

It … I didn’t make it known to anybody, in that the policy for BSD had been developed in ’05 by my predecessor and he had clearly stated it, that it was not resourced as a department to take and pursue administrative sanctions procedures. It was well known within my reporting line that we were not resourced to do that.

Deputy Michael McGrath

But did that not basically mean you couldn’t do your job in full?

Ms Mary Burke

Given that … and in talking to Senator MacSharry, we talked about the strategic approach … given that the strategic approach did not see administrative sanctions as a tool that would be regularly used, I presume people did not necessarily see a terrible inconsistency, but, at the end of the day, Deputy, I was not in a position to take administrative sanctions procedures and that is the heart of the matter.

“Under questioning from Socialist TD Joe Higgins, Mr Neary said: “The reality of this is this system failed.” ”

There was no system in place to succeed or to fail.

“Mr Neary said the authority relied on the Central Bank which maintained an economic services division with 86 staff, including a dedicated Financial Stability Department, to monitor and assess the overall health of the financial system.”

I must say that from my viewpoint the Central Bank was far more culpable in the collapse that the regulator.
In effect he was supposedly regulating that the Central Bank, with all its expertise, deemed stable and in good health.

“He said the conclusion from a number of bodies was that there would be a “soft landing”, and the Central Bank’s analysis “gave us comfort”.”

The Central Bank should never have had to wonder why any landing, soft or hard, was necessary. The job of the Central Bank was to make sure the economy was not attempting to lift off in the first place, never mind requiring a soft landing.

Re: Window to the past

@ Gregory Connor,

I am quite sure, in my mind, that the economics community in Ireland, tend to see the world from an ‘upside down’ perspective. Allow me to explain, if I can manage to do so.

Forget about what the auditors and accountants, and the financial regulator refer to as a business model. I.e. The business model of two of the six covered institutions in Ireland, for example, was giving loads of money to builders and developers. ‘Business model’, is one of those strange phrases that arose out of the ‘dot com’ era in America, in some business school and from there it managed to pollute the entire universe of literature and journalism about enterprise, until it finally arrived into sentences used by the financial regulator and accountancy professionals working in Ireland.

All that banking means, when it is peeled back to the essential legal foundations, is the ability to contract, and the extent to which that ability is either curtailed or not curtailed. What the ‘business model’ refers to, is that one bank may decide to exploit that same lack of curtailment on their ability to enter into contracts, to a greater extent than another banks does.

But here is where economists, to my mind, appear to be looking at the world, upside down.

Economists tend to believe, that the purpose of a financial regulator, is to be there to prevent a financial institution from doing something. That is not what happens, from a legal mechanics point of view at all. And I think, it would be helpful, if at some stage in the near future, that economics professionals would learn how to see that.

One has to go back to the beginning to understand the mechanics of how it works, from a legal point of view.

One has to go back roughly three centuries, to when the ‘New World’ was being discovered and explored. One has to go back to a time and a world, when everyone individual was beginning to explore newly invented freedoms. Even at that, many of those who ventured into the ‘New World’ of north America and elsewhere, were indentured servants. In other words, they had to pull themselves up by their boot straps and create a future for themselves, which was different from the one suggested by their status at birth. It was through a system and a mechanism of common law, that that same was achieved for the most parts.

What that newly developed freedom did introduce however, were new and unexpected dangers. People were able to contract themselves, and work themselves into a brighter future – and at the same time, they could also land themselves in a truck load of danger and suffering – by the exact same mechanism.

What we find, when we look at history is that over the centuries the common law basis for contract in the legal system, in most jurisdictions gets constrained and boxed in, in all manner of ways, in all kinds of niche areas of the law. The freedom to contract, was reduced to protect consumers, to protect employees and to protect all kinds of otherwise vulnerable parties. Heck, a whole century after independence, the ‘New World’ was still trying to abolish slavery. Many of the Irish who sailed from Ireland after the Great Famine at the same time, traveled in converted slave boats.

There were a lot of fine and noble reasons, why this doctrine of freedom to contract, has been curtailed over the many years.

But there was one small cohort, amongst society, for whom a ‘window’ to the past was preserved, in the law. To that cohort in society, we give them what is called a banking license, and we tell those who possess such a document, to go forth and multiply and prosper. To everyone else, except to those few who are in possession of such a window back to the original freedoms, to enter into contract under seal, this particular freedom has been curtailed for peoples’ own protection. But for the bank community, it was deemed necessary to keep that small window open.

It is using this strange window, within the law, that makes it possible for the unique corporate entity that possesses this banking license, to offer leverage to home-owners for instance, to an extent that those very same individuals would not obtain leverage of that nature, anywhere else in any other course of doing business. That is, this window within the law of contract as it exists in, not only confers magical and strange powers upon the corporate body, but also upon those parties with whom that corporate body, contracts with.

The purpose of the financial regulator, is not to prevent anything from happening, as economics professionals seem to believe. The main purpose of the financial regulator under law, is to ensure that the strange window to the past, exists and remains open for those who possess what is called the banking license. We can listen to all of the evidence and testimony in the world, that weaves into it, the language of ‘dot com’ mania circa 1990’s, and talks about ‘business models’ and new lighter approaches to regulation.

That’s all well and good for the fashion magazines.

But the fact of the matter is, is that from a strictly legal point of view, underpinning all of this, the principles based regulation was not a new invention by any stretch of the imagination. The principles based regulation, was about keeping a window to the distant past in the law of contract, open for the benefit of a small cohort of enterprise within the economy. This is why, of course, economics professionals, I believe, look at the world upside down, coming at it from their numerical and analytical perspective – while at the same time – failing miserably to analyze anything from a established legal principles point of view. BOH.

Given the growth rates the Irish economy is likely to experience this year, and probably for many years to come, the Dail inquiry is a farce. It should be wound up. It belongs to the era when everybody (except moi) believed Morgan Kelly’s prediction that the Irish economy was in ruins and unlikely to grow for a generation. Scapegoats were needed to assuage public anger at the dismal outlook. But, it was all an illusion. The Dail should be focusing on more important things, such as measures to encourage the building of more new houses to alleviate the growing housing shortage, which is likely to get much worse as population growth accelerates. For this the cooperation of the banks and the building industry is required. Instead, they are being treated like criminals by pygmy politicians.

The course of the Irish economy in recent years is no mystery. It doesn’t need a collection of TDs acting like the 1950s Senator McCarthy Committee to find out. Fraud or criminality has not been a major factor. Quite simply:

(a) For many decades (since the 1960s at least) Ireland has encouraged an entrepreneurial risk-taking economy.

(b) This approach has produced spectacular economic growth – between 1960 and 2007 Ireland had the highest growth in the developed world, its growth in that period being twice the UK and EU averages.

(c) This approach hit the buffers in 2008 when there was a global financial meltdown followed by a global recession (note the word ‘global’)

(d) Far from being destroyed for a generation, as the conventional wisdom had it, high growth (the highest in the EU) resumed in 2012-13 and super-high-growth (similar to peak Celtic Tiger growth) looks likely to occur this year.

An alternative approach to running the economy, an approach many continental EU countries follow, would be to be less entrepreneurial and less risk-taking.

Such an approach would have resulted in a much shallower recession, but would never have come close to producing the 5%-6%-7%-8% growth Ireland has experienced in the majority of years since the early 1990s, and looks likely to achieve this year.

An analogy might be with a football team.

Team A plays an ultra-cautious style, a 7-2-1 system. Every match ends 1-0 or 0-0. They never suffer a heavy defeat. Leeds Utd used to be the prime example of this approach. God, how I hated them.

Team B plays an adventurous attacking style, a 2-2-6 system. They achieve lots of 5-0, 6-0, 7-0, 8-0 victories, but occasionally everything goes wrong and they lose 5-0. Man Utd used to be the prime example of this approach. In 1998/99 they lost 6-2 and 5-0 on successive weeks, but still won the Premiership, the FA Cup and the Champions’ League in the same season.

Ideally, 2015 GDP figures will show such high growth that this absurd Dail inquiry will be wound up. Today’s retail sales figures suggest there is a good chance.

Gosh Gregory, I thought that literally nobody at all had any interest in the banking enquiry – it having been shunted successfully into that-was-yonks-ago-and-nobody-gives-a-toss-these-days territory!

As someone is evidently still awake, could I ask how it has been getting on in relation to the following points brought up on here a couple of years ago when there was still a bit of interest:

Politicians can sometimes be quite effective if, and it’s a big if, they really understand their brief. Committees comprised of politicians have the problem that no matter how much progress one questioner is making, or how superior their insight, everybody has to have a turn – which means long winded, evasive answers by the questionees often succeed in frustrating the process.

Back in summer 2008 you couldn’t pick up a Sunday newspaper without reading speculation about Anglo’s declining share price and solvency, developers’ solvency and un-saleable housing estates and commercial property.

1. What was the government’s take on this week by week?

2. Do the papers, minutes of meetings concur?

Speculation was so widespread that there was a bank run.

3. Throughout 2008, what briefing did government get about this?

4. What briefing or discussions occurred lower down the food chain (MoF, CB etc) that did not get presented to government, and how were decisions to brief or not made?

Relatively unsophisticated investors who were in no way ‘insiders’ and who had assets at Anglo were moved to ask in August “Could Anglo really actually go bust?”

5. It doesn’t seem credible regulators or government could have been so far behind events to not have at least asked of their advisers this question by that time. Did they, and what were they told, and by whom?

6. If they didn’t ask by then, how was the decision made and why, and who decided, not to brief them anyway?

As an outsider, my response to the question about Anglo going bust was ‘yes’. Remember it was “Could”, not “Will”.

7. Did anyone brief, formally or informally, that Anglo, INBS or PTSB “could not” or that “there was no realistic possibility that it could” go bust? If so, who did so and how was that conclusion reached?

The follow up to the question I was asked was: “And what about the other banks?” As a mere outsider, but with some familiarity with investment risk and having seen banks go under in the past, my answer was just the most sensible speculation I could come up with, but I would suggest should have been readily obtainable from many competent sources of advice, not as a definitive position, but as a decent starting point for further analysis. It amounted to: “Theoretically they could go too, but can you imagine the chaos – they need BOI and AIB to stay open, but at the end of the day, who really needs Anglo?”

8. Did a preliminary position that AIB and BOI had to be kept open, but that Anglo was rather different emerge? If not why not?

9. If that was the preliminary approach, precisely what information and alternative analysis was presented by whom, and under what circumstances to the contrary and who disputed it, how?

It is understood the MoF had prepared views on bank guarantees early in 2008.
10. To whom, when, and in exactly what form were the MOF views on this presented?

David McWilliams pushed the idea of a bank liabilities guarantee in (I think) Sept 2008. A minister has claimed he was told he was being asked to sign off on “the McWilliams option”.

11. Is it the case that thje MoF advice and the Merrills advice was trumped by newspaper articles by and a late night chat with a charismatic economic pundit whose stock was buoyed by his long standing bearish views of the Irish property market being proved correct?

12. What communication or representations, formal or informal were made with respect to the question of Anglo going under, to either officials or ministers, either direct or via third parties, by persons who might have held deposits with or bonds issued by Anglo or INBS?

13. Did some information or consideration not taken into account in the Merrills or MoF advice come to be considered by ministers? Was David McWilliam’s article the really persuasive thing, or did it provide ‘cover’ for something ministers or officials came to ‘prefer’?

14. What discussions were held, and what analysis was presented regarding the obvious difficulties that would arise following an ending of the guarantee should it turn out that the evident consensus market view of Irish banking was correct, prior to it being announced?

15. What were the perceptions among senior officials and ministers about how they personally would share in the risk to the state’s credit worthiness if they decided to take the bank’s liabilities on to the state’s books?

16. Were ministers panicked immediately before the guarantee was announced.? If so, why had they been able to avoid panicking earlier?

17. What effect did the Anglo share support via Quinn’s CFD contracts together with the subsequent supposedly illegal share support scheme have in disguising the strength of the market signal that Anglo’s business was fundamentally flawed and the the bank might be insolvent?

18. Did ministers and officials understand that such market manipulation would prevent or slow a share price crash and funding freeze? Were the advised on this? If not why not? Would they have panicked earlier, and thought things trough or obtained further advice if they had been so advised? Did they inquire themselves as to what the significance of this widely publicised situation might be?

19. It is said JCT left a voicemail to the Minister for Finance urging him to do something or other with regard to Irish banks. Did that happen? What other ECB communications were there, if any?

20. How was the decision to guarantee bonds and time deposits that had already been issued or taken by Anglo prior to the guarantee taken. What advice was sought on this point, who provided it, what was the logic of this course of action supposed to be?

@ JtO: “But, it was all an illusion.”

Not ‘was’ John – but ‘is’. Its both present and future tenses – simultaneously. Individuals are almost (though not invariably) incapable of accepting that their faith-based beliefs (indefinite economic expansion) are completely incorrect; are in fact delusional and will have to revert to, and acknowledge, reality. Very inconvenient all around.

No amount of political nor economic persuasion, however well intentioned, will achieve this type of mind-set reset – but Nature abides and will eventually enforce reality on recalcitrant folk. Much to their dismay, of course. “No one saw it coming!” – etc., etc.

“Such an approach would have resulted in a much shallower recession, but would never have come close to producing the 5%-6%-7%-8% growth Ireland has experienced in the majority of years since the early 1990s, and looks likely to achieve this year.”

That John, is a genuine example of a ‘faith-based’ belief. Those percentages you quote are not velocities (constant rate), they are accelerations (increase in rate/time). This sort of thing works fine as long as a minority of economies are doing it, but not if the majority attempt it.
There simply is not sufficient ‘stuff’ available – except fiat-credit. In other words, you are using your credit card, rather an ‘earned’ income, to live on.

And the nice credit card folk dutifully expand your credit-limit each month and only require you to make a minimum payment from your actual income – wherever that comes from. Now, please, do not tell me that that also comes from your credit card! It does!!

As I said. Works fine; until it doesn’t.


The period of 2008-2012 is to be written, Stalinesque like, out of history.
During that period, in case you missed it, 300,000 people were thrown out of jobs, with many having to wait 12 months to collect a statutory redundancy payment; the fastest growing economy in Europe country went bust, the banking system imploded, and people with Down Syndrome lost medical cards.
Meanwhile, the people giving evidence to the tribunal, many directly involved in running the banking system, the economy and ship of state onto the rocks, have glided off with golden pensions.
The economy is recovering rapidly, thankfully, aided to a large measure by Draghi’s ultra low interest rates and an ultra favourable sterling exchange (since 2012 coincidentally!).
But people who were involved in running the ship of state onto the rocks, owe the general public an answer, for at least as long as the general public pay their pensions.
The citizens also have a keen interest in finding out whether the present lot are capable of steering the banking system, the economy, and the social fabric of the nation away from the next-never saw them coming-set of rocks.
It is difficult to be at all confident on that score.

After all, Mr Neary believed in summer 2008 (Mark Little- interview) that all was well, the auditors believed their accounts were hunky dory in 2008 and still do believe it, the PWC Anglo report of late 2008 saw little trouble.
John Hurley (Dail Enquiry) believed that, having completely failed to see the crisis coming, the blanket guarantee was the best solution.
Trichet (thank you for sending to the more responsible among us the questions they were allowed to ask of you), having completely failed to see the crisis coming, like Hurley, believed that all large investors and banks should be bailed out by ordinary pension-less people.

Of course you want to move on. So does everybody.
But if you think that the people responsible, collectively and individually, will be left to enjoy their pension padded paradise undisturbed, think again.

Maurice O’Connell, Central Bank governor, told the Oireachtas Committee on Finance and the Public Service in early 1997: “There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders.”

He said the Bank had warned financial institutions repeatedly of the dangers inherent in high rates of credit growth and any relaxation of lending standards.

This was 2 years before the launch of the euro.

From sometime in 1999, O’Connell began issuing a series of 5 pleading letters urging restraint on the bankers. Meanwhile the Government began a series of big cuts in income , capital and corporate taxes.

@ JtO

Unfortunately Ireland’s “entrepreneurial risk-taking economy” doesn’t work, as it requires bailouts from the “ultra-cautious” Europeans.

To expand on your football analogy, team B plays with such aggressive tactics that its players regularly break their legs. They stay in the tournament only by borrowing players from cautious team A, on condition that they play more carefully in future.

Re: Deal making

@ Economics profession,

I strenuously suggest, that economists who want to get somewhat to the bottom of this, lock themselves in a room with some decent contracts lawyers for about a week, and do not emerge, before you have fully wrapped your minds around what I explained above. It is really that important. A necessary companion for such a journey into ‘the unknown’ depths of what underpins economics and banking in a place such as Ireland. It’s that important, and there has been zero important economic seminars about the same, to the best of my awareness of the conversation about economics in Ireland, in the past decade or so.

This goes absolutely to the root of the economics profession’s failure to understand even the most basic things about banking as a business. I don’t care what line of business, or how skilled or how lucky that one is, . . . there is no line of business, high up or low down in a place like Ireland, that will enable a party to accept a credit amount of one, two or more billions of euros, . . . and ever pay that back. The whole thing from the regulation, central bank, auditor, shareholder disclosure, stock exchanges and everything else, the entire way down is geared so that a long supply chain of individuals can ‘pretend’ that there is someone out there who needs a billion euros for some reason, and in some way, ‘is good for the money’.

There are these entities, that are called states, for whom borrowing, or deficit spending or whatever label that economics trained professionals want to hang off of it, is a way of life. A billion here and a billion there, and someone finds some way to roll that over, to make it appear like it works, to avoid this word known as ‘default’ from happening. In a sense, the institution called a bank, is engaging in a similar kind of relationship, one-to-one with individuals, when they extend credit to the amounts, that Irish banks are able to do, to the tune of hundreds of millions of euros, and multiples of billions of financing. We find ways to roll that over, and it weaves and winds it’s way through all kinds of spreadsheets, and ticker tape, and data reporting and charges, and fees and what not.

When an Irish bank interacts, with an individual customer, such as the twenty four customers of one of the six covered Irish banks in the previous decade, it is a pretense that is going on. And that pretense – from a financial regulator’s office perspective – is that such lending is somehow logical, and it can ‘add up’ to something, at the end of the day. It’s very like saying to an economist, I’ll give you half a million euros to mow the lawn for me. In the normal course of business, such a contract would be very difficult to enforce, or hold up through the courts. What an Irish bank is doing, when it lends to a commercial real estate speculator, is not that much different from giving someone half a millions euros to mow your lawn. It is not that different at all.

But somehow, some way, through some imaginary stretch, what happens is that contracts, which would not be held up in any court in this jurisdiction, are able to hold firm, in the situation where the contract was entered into by the Irish bank, and this customer whom it is pretended, will pay back the hundred million, or the two billion, or whatever value that one cares to place upon the contract. In the normal course of business, individuals contract with other parties, where they offer something of value in exchange for a service, and that form of trade does not require anything like ‘a Regulator’ to stand over it.

The exception is the case of banking, where the contract agreed between two parties, is so wildly implausible, unbelievable, inappropriate and one-sided, . . . where the bank knows, and a ‘regulator’ knows it would stretch imagination beyond breaking point, to expect that money changing hands will ever be re-imbursable again, . . . that this level of freedom to contract, which has long disappeared out of life in practically ever other sphere, . . . will continue to exist and be protected, by what is called ‘the regulator’.

The purpose of a financial regulator, is not to prevent something from happening, but the overwhelming basis for it’s job, from a legal point of view, is to ensure that such extremes levels of freedom to contract, will not be impeded by the state and the courts of a jurisdiction. This is what economists, never ever seem to grasp. The one thing that one will find, in common across all types of individuals who make successful financial regulators, is an in-built ability, to believe in fairy tales, to believe in ‘Alice in Wonderland’, because that is exactly, what the job requires them to do. And economists for some reason, do not get that. BOH.

Of interest in the context of why there was little reliable knowledge about the economy, this recent ESRI paper.

“The high levels of volatility and often large revisions to the Quarterly National Accounts highlight the difficulties faced by policymakers and forecasters. With such a degree of uncertainty around the state of the economy at any moment in time, forecasters are challenged to present a coherent picture of the economy.”

This has not stopped the attempts to garner votes by the government. Indeed, it seems that the only constraint is the still parlous state of the country’s finances which would also, undoubtedly, be ignored were it not for the oversight of the EU. The star pupil seems set to blot his copybook.

However, as long as the tax receipts generated by the economic bubble surged, nobody was particularly pushed to even attempt to look under the bonnet.,%20No.7.pdf

There is, however, no problem with regard to facts. The money is either there or it isn’t. At the moment, it isn’t. It is doubtful also whether QE is the sole explanation, for Ireland’s low borrowing costs, as seems to be suggested by the Governor of the CB. The lack of safe assets is the more likely explanation. In sum, governments, issuers of supposedly risk-free bonds, are a better bet than almost any other investment at the moment, a fact which has little to do with Ireland. Investors are also paying the Portuguese and Spanish governments for the privilege of holding their bonds. This is a situation that is unlikely to last.

We are in the territory of things that everyone knows but that very few are willing to admit.


We may have a ‘risk-taking, entrepreneurial’ economy, but the main risk takers were property developers and, try as we might, building houses is not a long-term source of economic growth. We are still a one-trick pony as an economy, heavily reliant on FDI (which is fine, so long as it lasts, but some day Germany and France may win the fight to create a common corporate tax base, and our attractiveness will diminish). We still have an unreformed public service, a dysfunctional health service, poor infrastructure, average education (and little if the way of vocational training) so we shouldn’t get too carried away.

@ ninap

One, but only one, important adjustment to your argument! The risk was not taken by the developers but by the banks and, by proxy, the Irish taxpayer. Waking the last-mentioned up to the fact that he/she is shooting himself/herself in the foot is the challenge of the age. I doubt that it will be met.

On taxation, I doubt equally if there will be any major change and for reasons that have nothing to do with Ireland. The bigger players are incapable of resolving the issue among themselves. The much ballyhooed financial transactions tax, for example, has been sunk; by the French!


“Of interest in the context of why there was little reliable knowledge about the economy”

The annual GDP/GNP figures are perfectly reliable and consistent with other growth indicators. The only problem is with the volatility of quarterly figures, which is due mostly to timing issues. The only reason the annual figures are being claimed to be ‘unreliable’ is because they aren’t coming out as lots of the commentariat hoped and expected.

@Brian Woods Senior

I worded it badly, but my point was that the ‘dismal outlook’ was an illusion, not the growth since.

@Joseph Ryan

“The period of 2008-2012 is to be written, Stalinesque like, out of history.”

No, it should be recognised as a period of (a) severe global recession (repeat: ‘global’ ) and (b) the Irish economy doing worse (for once) than other most western European economies.

But, it should be put in context. If that period was the norm, there would be a need for a Dail enquiry. But, it wash’t. It was an aberration. If forecasts prove accurate, it looks like between 1990 and 2020 Ireland will have had the highest growth in western Europe in 25 of those 30 years. If Ireland won the Grand Slam 25 times between 1990 and 2020, and did badly only between 2008 and 2012, there would hardly be need for an enquiry. As of 2015, many countries still have GDP and GNP well below their 2007 levels. Not just countries like Greece and Portugal, but countries also like Denmark and Finland. In contrast, Ireland’s GDP (and GNP) in 2015 will be well above its 2007 levels. Are these other countries having a parliamentary enquiry?

But, I feel your pain up to a point in that you are clearly a very moral man and are sincerely horrified by the amount of greed and fraud sweeping the world. In so far as greed and fraud exacerbated the situation, both in Ireland and globally, something is indeed badly wrong, but I’m not sure what the solution is. I think differentiating between regulation and guidelines is splitting hairs. I see the problem as a moral one. The capitalist system developed because there was a moral framework, i.e. Christianity. As this is discarded in the western world, including now sadly in Ireland, greed and fraud are growing exponentially. Its inevitable. Look at the trial for LIBOR-rigging in London. Look at FIFA. I can’t say I’m surprised. If there’s no God, if humans are just slightly more advanced monkeys, and if there’s no judgement at the end of life, why shouldn’t an ambitious man in his middle years steal ten billion dollars and use it to while away his remaining time in a yacht off Bermuda with a succession of dazzling blonds? I think we’re going to just have to live with this in the system more and more, unless Christianity makes a comeback in the west. Once the moral framework is discarded, humans are capable of anything, and no system of regulation will be able to cope with it, since the regulators themselves will be just as likely to be fraudsters and immersed in greed as those they are regulating.


Unfortunately Ireland’s “entrepreneurial risk-taking economy” doesn’t work, as it requires bailouts from the “ultra-cautious” Europeans.

Yes it does. As I said, it looks like between 1990 and 2020 Ireland will have had the highest growth in western Europe in 25 of those 30 years. The only reason Ireland needed a bailout was because markets swallowed all the doom pornography that was gushing forth back in 2010-11. Ireland’s deficit at peak was about the same as the U. States and U. Kingdom (Ireland’s is lower than both those now). Both these had no problem borrowing even when their deficits were at 11%-12% peak, similar to Ireland’s. The reason was that markets believed they could reduce the deficit in time. They believed Ireland couldn’t, because that’s what they were told by the doom pornography industry. In the event, Ireland has had no difficulty in reducing its deficit. If the markets had correctly predicted back in 2010 the actual trajectory of the Irish economy in subsequent years – in short, if they’d listened to what JTO was posting here rather than what the doom pornographers were gushing forth, -there would never have been any need for a bailout. If we’re going to have Dail enquiries by the bucketload, let there be one on why the doom pornographers got it so wrong back in 2010. Quite simply, the markets were conned by them.

A good analogy would be with Rory McIlroy. He’s missed the cut at Royal Co Down and took 80 to get round. Even I beat that once back in the 1970s on the same course. No doubt Professor Morgan Fairway, of the UCD Department of Golf, will be writing an article in the Irish Times on Moday, telling us how all his previous triumphs were frauds, and how he’s finished, and will never make the cut in any tournament again. And, if the markets believe it, Rory will be 1000/1 in his next tournament.


Hardly any houses are currently being built, but the economy is growing rapidly. Celtic Tiger 1 was never driven by housebuilding. A total myth. The early stages of the Celtic Tiger 1 saw rapid economic growth, but low levels of housebuilding. As Celtic Tiger 1 progressed, population growth soared and housing shortages developed. Housebuilding was ramped up in the second half of Celtic Tiger 1 and, towards the end of Celtic Tiger 1, supply exceeded demand. We are now in the early stages of Celtic Tiger 2 and I can see the same pattern being repeated as Celtic Tiger 2 progresses.

Regarding your other points:

Ireland came 6th in Europe (out of about 40) in the 2012 PISA tests, which I’d say is a lot better than ‘average’. It came first in Europe for literacy. Ireland also has the highest percentage of its population aged 30-34 with university degrees in the EU.

Not sure of the relevance of the health service to the economic growth outlook. I can’t comment directly on your claim that its ‘dysfunctional’ as I only used the Republic’s health service once, back in 1971. And I haven’t used the NHS since 2002. I found the treatment perfectly satisfactory in both cases. All health services are experiencing severe problems because of population ageing and the variety of new medications and treatments coming on stream. Almost everyday sees a new report on the NHS showing ways in which its falling down. An NHS nurse has just been convicted for poisoning lots of patients. But, figures do show that, since the start of Celtic Tiger 1, life expectancy in Ireland has risen more and mortality rates in Ireland have fallen more than in any other EU country (bar a couple). When I was young life expectancy was lower in the Republic of Ireland than in Northern Ireland. Today its higher.

Not wishing to boast, but I see that another of my forecasts has come true. I posted in another thread on Monday that the liberals’ euphoria of last weekend would evaporate within 48 hours and that they’d soon be back to their normal state of rage and fury. Judging by Twitter, that’s indeed the case. Enda Kenny’s ‘Republic of Love’ hasn’t lasted long. Likewise with Joan Burton’s ‘Rainbow Nation’. A week ago, both these were being acclaimed by the tumultuous throngs at Dublin Castle. A week ago, Enda could have had any man in Dublin and Joan could have had any woman. Now both are in hiding from the same twitter mobs who hailed them a week ago. With an election less than a year away, the lesson for Enda and Joan is that they need to start focusing on the economy, where they have an excellent record to put to the electorate, and one which is likely to look even better as the year progresses. Continually spitting in the face of social conservatives beyond the Pale, while offering liberals within the Pale an unending series of goodies, is the way to electoral ruin for this government. They need to start highlighting their economic success.

Re: Disconnect

The ‘experts’ in Ireland who have commented for several years from their academic viewpoints on what the purpose of financial regulation is, or is not, have been left kind of naked in my opinion, by the evidence provided by the former Irish financial regulators office chief executive on Thursday.

Namely, and pointedly because the evidence which the banking inquiry committee gathered under oath from a witness who was responsible for carrying out this job, . . . his basic outline of what the function of the regulator’s office is, . . . did not resemble in any way, that which the professors who have been talking for six years now on the subject, imagined what the job should be all about. If anyone has anything to explain, then it must be the academics, whom I am sure did not even sit down and actually understand the legislation which underpins the role of a financial regulators office in this jurisdiction.

Listening to many ‘experts’ comment once again in the past few days in the media – journalists, business school professors, economists and witnesses of all kinds and shades – who did claim to have some kind of insight or understanding into what the role of a financial regulator might be, . . . they appear now to have been completely wide of the mark, in their guess-imation all along.

The experts who write the columns and provide the commentary to the public in Ireland, are unable to explain away this wide and deep gulf, between an impression that they harboured about what a financial regulator’s office is for, and the reality of that job, on the ground. And the only defense offered on the part of, those experts today, is that the former chief executive in the office, did not understand properly, the role that they were meant to perform.

And yet, as willing and able as commentators in media, and in newsprint are to criticize the officials of the regulatory office now, . . . any and all commentators are vauge at best, and unsure themselves, when it comes to explanation of what they believe ‘regulation’ is, or is not. And none of these commentators in the past few days, in conversation seem to be able to cite any of the legislation, in which the role of a financial regulator is defined and described.

We can only assume that an account honestly provided to a banking inquiry committee on Thursday by those someone did do a job in practice, and describe what their responsibilities were, was genuine. It’s all very rich now, to listen to bandwagon-ing professors and experts, come out of the woodwork when it is save, a full decade after all horses have bolted, and bounded their way beyond the far horizon, . . . to remark after a whole decade, that someone back then, did not understand their role.

The evidence to the banking inquiry, on Thursday does raise an important question – where were all of those experts ten years ago? And furthermore, where are the economics conferences in Ireland, schedule right now, on the topic of financial regulation, and understanding what this role actually is? Shame on the academics, this week. Shame on them all. BOH.


‘… by the banks and, by proxy, the Irish taxpayer.’

Stuff and NONSENSE. There is no legal responsibility in capitalism for citizens to pick up the tab for the financial system. This has been a DICTATORIAL IMPOSITION on the humble citizen-serfs. Proxy be damned!

Such financial system spinning is tiresome …. EU Democracy has been captured in an ordoliberal dictatorial powergrab in the interests of Finance. Period.

Locally, the powerlessness of the financial regulator was designed IN by the arch Odor-Neo-Liberal Michael McDowell S.C. who chaired the report in 2002-3 which advocated LITE TOUCH REGULATION … following the same failed ideology of the brudder … and the odious Efficient Mawrket Hypothesis (SIC).

@Gregory Connor

How do finance academics model ‘PIRATICAL POWER’?

If at all!

It raises the question….’just why does the Irish State have such in effective boards of management in various industries?

PRTB… Private Residencies Tencency Board, a complete waste of oxygen group whose findings are legally unenforceable WRT disputes between a landlord and tenant. Taking over 18 months to discern that no rent has been paid to the landlord, in the end finding that the landlord is owed 18 months rent. Obviously a bunch of Einsteins at work here…not.

Environmental Protection Agency….another ineffective group whose recommendations / findings carry almost zero weight WRT serious environmental pollution…limited to a few thousand euro fine even in the event of a serious pollution incident costing hundreds of thousands of euro.

A Financial Regulator…who did not carry out a audit to discern if things were getting carried away or not! What audits did Mr Neary carry out? What were the findings? What were the audit action points / recommendations?

In any Regulation Authority….there has to be the ability to wield a big stick. If a bank is getting carried away WRT reckless lending the the threat of withdrawing their license to operate would be a card which is on the table, and letting the banker know that it will be used if the audit recommendations are not acted upon.

Otherwise the point of all these agencies is to waste oxygen and taxpayers money, whilst letting rogue managers make life difficult for everybody else, including the good managers.

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