Financial regulation blues… redux… redux… March 22, 2010
Posted by WorldbyStorm in Economy, Irish Politics.trackback
In a way FitzPatrick is a diversion. It’s not all personality by any means, but in the way it’s played currently, the huddled ranks of the photographers outside the Garda station, the tip off to the press and so on, the narrative is of the man of means taken down. To which one could say… well, who cares? It doesn’t serve us well for individuals to become lightning rods. But, perhaps that’s not the whole story, because the very delay in the arrest (a point raised by Vincent Brown this weekend in the Sunday Business Post) raises intriguing questions, and it shines the spotlight back onto the processes and systems. Which are, as ever, of much greater import.
Firstly, Brown and Richard Curran (also in the SBP), both made important points as regards to a profound failure in terms of the regulatory framework. Curran, in the course of a desperately depressing article which notes that Anglo-Irish was never of ‘systemic’ importance – despite the opposite being proclaimed widely by the government and its proxies – and that the guarantee was woefully misguided in its case, writes that:
Anglo Irish Bank may have engaged in certain unseen practices, which are now being investigated, but there was enough in the public domain about the bank to raise a warning flag. The bank was funding property deals in Britain for clients that other banks simply would not touch. Irish investors were paying what were dubbed ‘‘Paddy prices’’ for British property. The Financial Regulator was asleep at the wheel. While many things were hidden from the public or investors, including the true extent of Sean FitzPatrick’s indebtedness to the bank, it was not witheld from the Regulator. FitzPatrick provided quarterly details of his director’s loans with Anglo to the Regulator every three months. But no alarm bells went off.
Brown goes further…
…there may be big problems in delivering a head [in the case of Anglo Irish]. It seems that Anglo Irish Bank regularly reported to the Financial Regulator the movement of the money concerned. Was it the case that the Financial Regulator’s office saw no problem with what was being done, and indicated its approval? Or was it the case that they never asked the right questions?
If the Regulator did know, then how could FitzPatrick be convicted of offences that the Financial Regulator either knew of and did not complain about, or knew of and approved? The recklessness of Anglo under FitzPatrick has done enormous social harm. But wasn’t he egged on in his excesses – if not explicitly, then implicitly – by the culture of rampant capitalism spurred on and glorified by the Fianna Fail/PD governments? Worse still, didn’t the government, the Minister for Finance and the Department of Finance turn a blind eye to what was unfolding at Anglo Irish Bank?
Michael Somers, then head of the National Treasury Management Agency (NTMA), told an Oireachtas committee last autumn that he had known that Anglo was in trouble from 2007, so was reluctant to deposit money with it.
The CLR touched on the nature of our Financial ‘Regulator’ in January and more recently, a nature that would make one deeply dubious about precisely what levers it was expected to employ when problems came its way.
That nature is, as much as the private financial institutions involved, going to be central to the ultimate critique of the crisis that has enveloped us. What Brown and Curran point to is hugely problematic for a range of people.
And with that thought let’s step back a way, and consider the larger partner in government.
These are the people who established the regulatory framework, a framework, as previously demonstrated that has arguably gone for the lightest touch regulation possible and seemingly put in place entities that did… well… what, precisely? We’ve heard no end of stuff about the public sector wasting taxpayers monies, some of it accurate, the vast majority of it not, but this… here is an institution that hitherto has attracted remarkably little interest. But then why should we be surprised? This was established within a dominant political discourse informed by a clear ideological approach.
An ideological approach, summarized perhaps unconciously by Colm McCarthy recently – and I paraphrase – not so much as ‘First do no harm’, as ‘first do nothing, and then second, third and fourth, do nothing’…
At the least this calls into question the capacity (not to mention the credibility) of the government to deal with the current financial crisis, indeed their ability to detach themselves from this ideological predilection, now so clearly and often expressed – as with the Commission on Taxation Report which explicitly argued in favor of a low-tax economy, one wonders whether they can deal with the financial sector in all its parts in any serious fashion, or the broader context. Or to put it another way, if the ideology itself informs a worldview that will allow for regulatory agencies who apparently can’t do that much in what we are told are strategic and essential areas of our economy that must – quite literally – be underwritten by us the taxpayers when things go wrong, what credence can we place in its broader analyses?
And let’s not ignore what those failures – driven in part, at least by ideology, have brought upon us. Richard Curran puts it succinctly.
…the losses at [Anglo Irish] are likely to cost the taxpayer around €10 billion to €11 billion. This excludes the likely losses that Nama will accrue from the €20 billion that it will spend buying nearly half of all of Anglo Irish Bank’s loan book.
To put it in perspective, the losses at Anglo Irish Bank are likely to be close to one year’s income tax collected in the entire country. So, all of our tax for one year might cover the cost of Anglo Irish Bank.
I’m still not entirely convinced about the role of the financial regulators in the financial collapse – although it does seem, as you say, that the best charge that can be levelled against them is that they were asleep on the job.
There are of course two kinds of regulation, the positive and the negative, broadly speaking. The one that was chosen in Ireland was the latter, where the regulator exists to prevent wrongdoing and illegal activity in the sector. They completely failed in this regard.
however, the former involves actively meddling in the financial system, something they supposedly elected not to do.
It can be argued that this would have prevented the reckless lending, the outcome of which underlies the suffering of many Irish people. But, then, it’s not clear exactly who is to blame for this. Many applicants simply lied on their mortgage applications, other enlisted the help of their parents to get ahead in the property market.
People bought houses with insane commutes to Dublin, just so they could have three bedrooms and a tiny garden, and now these are worth half what they paid.
Anyway, if the regulator was lax, that is NO excuse for the banks to behave recklessly. The banks in South Africa were also lending at levels the government considered too risky, and they stepped in and came up with some new regulations. This move, which was not made with any prophetic foreknowledge, actually managed to insulate the country from the recession, particularly in the property market.
Interesting point Tim, do you mean you’re unconvinced of the situation in Ireland or further afield. In a way I agree. But, surely some form of regulation could have ameliorated the situation. And I absolutely agree, this is something that really irritates me as regards the lending practices of the banks. Theirs was the ultimate responsibility. I’d better read more about the SA context. Thanks for that.
hi WbS, I was referring to Ireland in particular. I remember 110% mortgages, but am not sure how long they lasted. I also remember, in about 2004, applying for a student loan at BOI of 3 grand and being asked “do you want six?” (sadly, I said ok…)
There were some rules, I suppose, but it’s not clear what they were. Everything was premised on a permanent upward spiral, not just of property prices, but of careers too. BOI bet on me becoming an academic; they lost that bet. And now they have to pay – and they have. Last month i negotiated a settlement and they wrote off a big chunk of my loan with them.
This is one story out of many, but ultimately, they know the taxpayer is footing the bill, so they can do whatever they want!
I’m not sure what more regulation they could have had, and I have heard very few suggestions actually – just calls for ‘regulation’ – I just think they should’ve enforced the rules they DID have!
That’s interesting that they’d write off part of the loan. But I agree, even implementing the rules they had would have been good, and I guess by regulation I’d even be happy as a bare minimum with a body which did audits to ensure that that was the case (albeit there are also systemic elements that would need a broader view). I think I’ve said it before, but about ten years ago I was working in a group of companies. There were a bunch of photocopiers in the room next door to my office and the number of times I found very obviously altered copies of P60s clearly intended for the banks/mortgage providers… I know that at least some of those people were given mortgages. I often wonder how that went for them in subsequent years, although perhaps it was early enough that the passage of time defrayed the cost. And while there was a significant level of culpability on their part in making those sorts of amendments I think that banks who allowed such obvious elements past them bear a huge responsibility.
These are the people who established the regulatory framework, a framework, as previously demonstrated that has arguably gone for the lightest touch regulation possible and seemingly put in place entities that did… well… what, precisely?
Apologies in advance for an off-topic. Note that the premise of the post-2006 so-called “Dutch model” of national healthcare – as espoused by Fine Gael recently – depends entirely on very strong, effective regulation (and even then there are signs that its starting to unravel, as loopholes are identified and the insurance companies start to amalgamate).
It’s not much different from the Trojan Horse private pension accounts (for that’s what they are) of the current FF proposal, which first appeared under the Bush administration(!). Where is Labour on pointing any of this out?
Richard Curran’s last point could be further re-phrased: the entire annual net public sector pay bill, including pensions, just about covers the bail out for one, smallish, bank. The entire contribution of the public sector (health, education, justice, administration, public services etc) for one whole year costs less than the bail out for one again, smallish in Irish and in global terms, niche bank.
It says everything about the contours of the ‘debate’ here that such a comparison could not be even be contemplated; the neurons of our commentariat simply couldn’t process such thoughts.
The cliché ‘you get what you pay for’ may well be worth exploring in more detail: what are we actually getting for the Anglo bail out?
Absolutely nothing given that Curran et al say Anglo is of no systemic importance.
I agree, which raises an uncomfortable question – for the orthodoxy: why are we continuing to bail out Anglo?
When people starting making the connection that their kids will have to stay in pre-fabs at school to pay for Anglo things will get interesting…..
It keeps calling into question everything we’re told is true. I think there’s genuine nervousness in FF at just how things may go next… and of course not just in FF.
Just a thought when I make a small transaction I have to comply with anti laundering lerglisation.I wonder how Seanie filled in the form?
Just curious
I guess when you run the bank…
I have just seen this on Indymedia (no idea if it’s true)
that a group of Eirigi activists are allegedly occupying the Anglo-Irish
bank on St. Stephen’s Green :
http://www.indymedia.ie/article/96445&comment_limit=0&condense_comments=false#comment267602
RTÉ has this report: http://www.rte.ie/news/2010/0424/angloirish.html
Interesting. Got to say that that’s one thing the left should, as a whole, be keeping in the public eye. As a symptom of the failure of crony capitalism, the mixture of our political and business classes etc… an educative example.