The Bankers, by Shane Ross

A few weeks ago now, I read Shane Ross‘s recent book, The Bankers, which I would recommend to anyone curious as to why the banking and financial crisis was so much worse here than in most countries.

Problems arose because both government and the banks were happy with a situation with only nominal financial, and the implicit assumption that they would help each other out if needed. While the regulators were supposedly independent, Sen. Ross shows how the cosy the relationship was between them and bankers. He opens with what he dubs the bankers’ last supper in Novemer 2008, to mark the retirement of the chairman of the Financial Regulator, Brian Patterson, where many of the major figures of Irish banking gathered. The event was hosted by Pat Farrell, president of the Irish Banking Federation, who also happened to be a former Fianna Fáil general secretary. Here we had a perfect case of the culture of the time, where bankers, those were supposed to regulate them, and actors in the political process mixed freely without any presumption of conflict.

Fianna Fáil doesn’t come out well in the book. In a chapter linking the triumvirate of bankers, developers and Fianna Fáil, Ross shows how entrenched property developers were as part of the party’s establishment in recent years. In the run-up to the 2007 general election, Bertie Ahern addressed the Houses of Parliament in Westminster, and one of those on the guestlist for the Irish delegation was property developer Sean Dunne. Dunne has had a long-standing relationship with Fianna Fáil, and his personal assistant, Anto Kelly, was a campaign manager for former Minister and Ceann Comhairle John O’Donoghue.

Or the Bailey brothers. Michael Bailey was famously reported by James Gogarty in the Planning Tribunal as answering “Will we, fuck” when asked if they would get a receipt for the payments they made in 1989 to Ray Burke. Justice Feargus Flood concluded in his interim report of the Planning Tribunal in 2002 that this payment had in fact occurred. To Fianna Fáil, that made little difference. They were as welcome as ever to the party tent at the Galway races, and that year Tom Bailey took time off work to canvass for the party in Roscommon. To Brian Cowen’s credit, the party tent in Galway has since been closed.

It was, of course, because they were in power that Fianna Fáil received such support from developers, but particularly because of the tax breaks for construction, which the Department of Finance had not even properly costed. These incentives artificially extended the boom years, and according to John Fitz Gerald of the ESRI, made a hard landing more likely, which had since proved to be the case. Similarly, warnings from UCD economist Morgan Kelly were also ignored, who showed that the trend in property bubbles in every economy since 1970 would predict anything other than a soft landing. I don’t mean to be partisan here, to isolate criticism of Fianna Fáil, but this is how it was. One might wonder if Fianna Fáil were more corrupt because they were in power more, or in power more because of their underhandedness and corruption. There are instances of the same with Fine Gael, who during their short stint in government from 1994 to 1997 had no difficulty finding builders to donate to clear their loan, and AIB and Ansbacher cleared a loan of £200,000 of Dr Garret FitzGerald which he had lost on shares.

Though it is what I took most from it, this book is not fundamentally about this corruption from the political side of things, but it does show how bankers managed to have such a free hand. The political process supported a system propping up their cronies in the banks and regulators. It is not a surprising statistic, given how used we have become over the past year to such facts, but John Hurley, Governor of the Irish Central Bank till a few months ago, earned more in 2008 than Ben Bernanke, Governor of the US Federal Reserve, who still has the power to set interest rates. Though not set by the public sector, the pay of the top Irish bankers is equally worthy of scrutiny. To take as an example, Brian Goggin, former Chief Executive of Bank of Ireland was paid €4 mn in 2007 and €3 mn in 2008, high even relative to his equivalent in the more successful Lloyds TSB or Ryanair’s Michael O’Leary. There is no reason to believe that the shareholders of the bank had to pay Goggin such a sum for fear that he would be snatched by a firm outside the country. Because this salary was possible with the cosy cartel of the banks supported by the taxpayer with an implicit guarantee from the government, which became real from last year, this is very much our concern.

With the government happy to see the steady trickle of revenue from stamp duty, they did little to discourage the 100% mortgages that have now left householders across the country in negative equity. We had a system of regulation that noticed none of the backdealing and switching of loans that was taking place, such that until October 2008, no bank was fined, while the Regulators found reason to fine The Irish Times and Phoenix €10,000 and €5,000 respectively. It was also a system that saw at times directors of AIB and Bank of Ireland on the board of the Central Bank.

I could go on. I’ve picked here only a selection of the facts that make it little wonder that the system went as it did. Ross does see a measure of hope because of our fortune of having Brian Lenihan, rather than one of the other members of the cabinet, as Minister for Finance. He rightly praises the departure he has made in recent appointments, such as choosing Prof. Patrick Honohan, an outsider to the old banker/regulator circles, to succeed Hurley as Governor of the Central Bank. Lenihan’s main obstacle to fiscal rectitude are his cabinet colleagues, all too eager to criticize the findings of the McCarthy Report. But Ross is strongly critical of NAMA, describing it as a bailout for the bankers.

My only minor criticism is the extent to which Ross involves himself in the analysis. As a journalist and Senator, he has been a voice in this period. While he does acknowledge (on p. 162) that he did not have the foresight to realize the perils of holding cash in Irish banks, in mentioning that our rejection of the Lisbon Treaty in June 2008 was part of the reason, as well as our bank guarantee, that we had lost favour in Europe, he does not mention his own advocacy of a No vote on that occasion. This is a minor quibble, and one of this nature is bound to occur in a commentary from someone so vocal. It is clearly well researched (and as a matter of full disclosure, I should add that I was working with Shane Ross while the finishing touches were being put on it), and stands as an entertaining, well paced and informative account of what went wrong with this sector of the Irish economy.