Irish citizens will find it extraordinary that the government is using the Central Bank Governor to drip feed bad news about the Irish banks from half way across the world.

Hot on the heels of the EU Commission’s announcement last week that at least €24bn will be pumped into Anglo, the Central Bank Governor has today said that the bill for bailing out Irish Nationwide is likely to rise to €4bn.

At every stage of Ireland’s banking crisis, the government has insisted that they have the costs under control, only for this to be blown out of the water by the next multi-billion euro announcement.

Between Anglo Irish Bank and Irish Nationwide alone, we are already looking at a bill for nearly €30bn. This figure may have risen yet further by the time NAMA loan transfers are completed next year.

It is the Minister for Finance, Brian Lenihan, who bears the ultimate responsibility for Ireland’s faltering bank strategy. It is high time that he appear before a specially convened meeting of the Oireachtas Finance Committee to come clean on the true scale of Fianna Fáil’s bank bailout. Is there any bottom to the money pit into which taxpayers’ billions are being so casually thrown? Does he have any realistic idea of what the final bill will come to?

It’s as if the Minister has left the taxpayers’ credit card behind the bar for a bankers’ free-for-all. Uncertainty as to the final tab for Ireland’s bank bailout is causing bond investors to demand ever higher interest rates to finance government debt.

This announcement is one more turn of the screw for hard-pressed Irish families facing into the third horror budget in a row at a time when jobs are being lost, incomes are being cut and prices are starting to rise again.

Fianna Fáil has opted for a flood of bank inquiries, to distract attention from the fact that every single one of them is being carefully constructed to ignore the role played by Fianna Fáil Taoisigh and Ministers in Ireland’s banking collapse.

What Minister Brian Lenihan now proposes is no less than three separate inquiries: a sworn commission of investigation; a report from the Oireachtas Joint Committee on Finance; and an ‘external review’ of the Department of Finance.

However, under the Lenihan proposals, only the banks, their accountants and the Central Bank and Financial Regulator will face the rigours of a sworn inquiry into default or dereliction.

He insists that the action – or inaction – of central Government and its civil service advisers should be dealt with only by way of a 10-year performance review, dealing with systems, structures and processes.

This is a clear attempt to shield this Government from any investigation into its own accountability for blindly steering our economy and people into catastrophe, for the second time in a generation.

The most basic need for any inquiry, statutory or non-statutory, is that the outcome must be credible. This means that both the persons chosen to conduct the investigation and the terms of reference given to them must stand up to independent scrutiny and give rise to public acceptance that the report will be sound and reliable.

But an inquiry such as this one, that omits a principal participant completely from its remit, will lack all credibility.

It is unacceptable that the Lenihan terms of reference should sate baldly – and I agree with him, so far as he goes – that there were serious failures on the part of the Central Bank and the Financial Regulator but should then seek to exclude any finding of similar failure on the part of the Government, the Minister or the Department.

I agree with Governor Honohan that the sworn inquiry should concentrate with finding out what went wrong in each financial institution.

That approach must also include an inquiry into what went wrong in the bodies that were meant to regulate those institutions.

And I and the Labour Party insist that that approach must also inquire into the actions of those responsible and politically accountable for the policy framework imposed on our regulators and for the smooth and effective running of our regulatory regime.

Otherwise, there will be no credibility of outcome.

I also believe there is a political consensus that the commission of investigation should have manageable terms of reference and should operate economically in terms of time and resources. It is absolutely critical that the scope of the investigation be designed so as to bring maximum added value and avoid the waste of taxpayers’ money.

In an effort to be helpful and to further that consensus, I am publishing what I believe are the minimum changes needed to the Government’s draft terms of reference for that commission, so as to enable the exercise to be credible.

These amendments would enable the Commission’s scope to be extended to cover the role of the Minister for Finance, the Government and the Department of Finance.

If the Minister wishes to reach the necessary consensus on how to proceed, he needs to stop playing with the committee and the opposition spokespersons and to sit down and hammer out an agreement.

Commission of Investigation into the Banking Crisis

Labour Party Amendments to Draft Terms of Reference

1. In respect of the credit institutions that are covered institutions (pursuant to the Credit Institutions (Financial Support) Scheme 2008 (S.I. No. 411 of 2008) the main causes of the serious failures, within each of those institutions, to implement and adhere to appropriate standards and controls (including checks and balances), in the context of corporate governance and prudent risk management policy and procedures.

(Note: delete “such as would have avoided the requirement for the provision of exceptional financial support from the State”. Even with appropriate controls, standards, checks and balances, it is likely there would have been a need for some ‘exceptional financial support’ for the banks from the State.)

3. The nature, extent and quality of the information sought by and provided to the external auditors of each of the covered institutions in relation to the failures referred to in paragraph 1 or the business models and strategies and business and lending practices referred to paragraph 2; whether the external auditors commented in their audit reports or other communications to the institutions on those matters; and whether there was any failure to conduct external audits to the appropriate legal, regulatory and professional standard.

(Note: this is an expanded version of the Government’s draft, so as to include the issue of compliance by accountants with appropriate legal, regulatory and professional standards.)

5. The nature, extent and quality of the information available to the Minister for Finance and his officers in relation to the matters referred to in paragraphs 1 to 4, and the use made of that information.

6. Whether there were failures, and if so their main causes, in the performance of the statutory roles and responsibilities of the Minister for Finance and his officers in relation to –

a. monitoring the performance of the Central Bank and Financial Services Authority of Ireland in respect of the regulation and supervision of the covered institutions and the maintenance of financial stability,

b. policy and legislation on the regulation of the financial services sector and the stability of the financial system,

c. the response to and management of the banking crisis, up to 15January 2009, and

d. overall budgetary policy, economic policy, economic forecasting and taxation policy,

to the extent that such failure contributed to conditions leading to the banking crisis and the crisis in the public finances of the State.

(Note: paragraphs 5 and 6 are new and are focussed on the actions and inactions of the Minister for and Department of Finance, both in the run up to and management of the banking crisis.

Joan submitted at the committee stage of the Central Bank Reform Bill 2010 an amendment which would have seen the proposed Section 35 A & B deleted and replaced with an amendment which would have provided specifically that the Central Bank would be in a position to facilitate the voluntary merger of credit unions in the State in the interests of improving financial stability and management of the credit union sector.

This approach was not accepted by the Minister, although he committed to bringing forward amendments at Report stage to address these issues. In the event, he introduced a report stage amendment, 2C, which was not substantively different from Sections 35 A & B.

Joan submitted two key Report Stage amendments to this Bill in respect of Credit Unions, numbers 10 and 55.

Video link to Joan’s speech

Amendment 55, like Joan’s committee stage amendment, would have facilitated the voluntary merger of credit unions.

Amendment 10 would have established on a statutory basis a Credit Union Consultative Panel. This would have created a forum where individual credit unions, their members and their representative bodies could interact on an ongoing basis with the Registrar and representatives of the Central Bank’s Head of Financial Regulation. It would also have gone some way towards facilitating and improving the consultation process between the Regulator and the credit union sector’s representative bodies.

The Report stage debate was guillotined, with all of the Ministers’s amendments, including 2C, being accepted and all opposition amendments rejected.

The Labour Party remains committed to the continued development of the credit union sector.

Deputy Joan Burton:

I move amendment No. 10:

In page 13, after line 43, to insert the following:

14.—(1) The Bank shall establish and maintain a consultative panel to be called the Credit Unions Consultative Panel (in this section referred to as “the Panel”).

(2) As soon as practicable after establishing the Panel, the Bank shall publish in Iris Oifigiúil a notice to the effect that the Panel has been established and the date on which the establishment took effect.

(3) The Panel is to consist of not fewer than 5, and not more than 20, members.

(4) The members of the Panel are to be appointed by the Minister for Finance after consulting those organisations that, in the opinion of the Minister for Finance,represent the interests of—

(a) credit unions, and

(b) credit union members.

(5) In appointing persons as members to the Panel, the Minister shall ensure as far as possible that those persons have knowledge or experience of or as consumers of services provided by credit unions.

(6) A person is not eligible to be appointed as a member of the Panel if the person—

(a) is a member of either House of the Oireachtas or is, with the person’s consent, nominated as a candidate for election as such a member, or

(b) is a member of the European Parliament or is, with the person’s consent, nominated as a candidate for election as such a member or to fill a vacancy in the membership of that Parliament, or

(c) is a member of a local authority or is, with the person’s consent, nominated as a candidate for election as such a member.

(7) A member of the Panel holds office for such period, not exceeding 5 years, as is specified in the member’s document of appointment, unless the member ceases to hold office.

(8) A member is eligible for reappointment at the end of a period of office.

(9) The Minister shall appoint one of the members of the Panel to be chairperson of the Panel.

(10) The functions of the Panel are as follows:

(a) to monitor the performance by the Bank of its functions and responsibilities in relation to credit unions;

(b) to provide the Bank with comments with respect to the performance of its functions and responsibilities in relation to credit unions;

(c) to provide the Bank with comments and suggestions with respect to the performance of credit unions;

(d) to provide the Bank with suggestions for initiatives that, in the Panel’s opinion, the Bank should take with respect to the performance of its functions and responsibilities in relation to credit unions;

(e) to provide the Bank with comments on the impact that the conditions and restrictions imposed by the Bank on credit unions have on the competitiveness of credit unions;

(f) to provide the Bank with comments with respect to changing trends within credit unions that have implications for the functions and responsibilities of the Bank;

(g) when the Bank so requests, to comment on a policy document or regulatory document, or a proposed policy document or proposed regulatory document, prepared by the Bank in relation to credit unions.

(11) The Bank shall provide the Panel with such administrative services (including technical and legal advice), and such funds, as the Bank believes are necessary to enable the Panel to perform its functions.

(12) The Bank shall arrange for an officer or employee of the Bank nominated by it to attend a meeting of the Panel whenever the chairperson of the Panel asks the Bank to do so.

(13) Within 3 months after the end of each financial year, or within such extended period as the Bank allows, the Panel shall prepare an annual report that provides details of its activities during that year.

(14) The Bank shall arrange for publication of the annual report of the Panel.

(15) The Bank shall also arrange for publication of—

(a) comments made by the Panel to the Bank in accordance this section, and

(b) any statement of reasons given by the Bank in response to any such comments, and

(c) reports of meetings of the Panel, and

(d) any other report produced or commissioned by the Panel, and

(e) the rules of procedure of the Panel.

(16) Before making or issuing a policy document or a regulatory document in relation to or affecting credit unions, the Bank shall consult the Panel, unless the Bank believes that the document must be made or issued without delay. In that case, the Bank shall consult the Panel as soon as possible after the document is made or issued.

(17) In making or issuing a policy document or regulatory document in relation to or affecting credit unions, the Bank shall take into account the advice (if any) provided by the Panel on any aspect of the document. If the Bank declines to give effect to any particular advice provided by the Panel, it shall provide the Panel with a written statement setting out its reasons for declining to give effect to the advice and shall, if the Panel so requires, publish the statement.

(18) If the Bank makes or issues a policy document or regulatory document, a failure to comply with subsection (15) or (16) in relation to the document does not of itself invalidate the document.

(19) The chairperson of the Panel shall attend a meeting of the relevant Joint Committee of the Oireachtas whenever that Committee requires the chairperson to do so.

(20) When attending a meeting of the relevant Joint Committee of the Oireachtas, the chairperson of the Panel shall provide that Committee with such information as it reasonably requires about matters with which the Panel is or has been concerned.

(21) In this section, “relevant Joint Committee of the Oireachtas” means a Joint Committee of the Oireachtas to which the Oireachtas has assigned the role of examining matters relating to the operation of the Bank.”.

These amendments deal directly with credit unions in Ireland and, in an important and significant way, with the future of the credit union movement in this country in terms of how it is to be regulated, assisted and enhanced in its important role in Irish society in respect of industrial credit unions for people at work in various occupations and, in particular, local credit unions which provide a service not alone to people who consciously choose to bank with credit unions but, more important, people and communities that no longer have access to banking services because they do not offer enough profit to the commercial banks.

The purpose of amendment No. 10, which I urge the Government to accept, is to put on a statutory footing in this important legislation, which seeks to regulate the financial services sector and to avoid the mistakes made in the past, the credit union movement, not as an add-on in the Schedules to the Bill to be regulated at the behest of the Central Bank, but by way of recognised position within the legal framework of the legislation. This would allow for the establishment of a credit union panel. Amendment No. 10 is detailed and sets out what the Labour Party has in mind.

The panel will have the power to consult organisations which in the view of the Minister for Finance represent credit unions and, more important, credit union members who at this time have between €11 billion and €13 billion in savings. People are currently saving more because they are terrified to spend. The credit union movement is strong in terms of savings. The Labour Party supports strong regulation of the credit union movement, as does the movement. It is important that people’s savings are fully protected. We want to see introduced a code of regulation which includes the credit union movement.

On the night of the guarantee scheme the bankers were called in.
Deputy Joan Burton: Mr. Seán FitzPatrick was called up to Farmleigh. It was not necessary to call in to Farmleigh or the Department of Finance the directors of credit unions because they were not indulging in massive speculation and the ruination of their financial institutions. Why will Fianna Fáil not in this legislation give due recognition in an orderly and structured way to the credit union movement? Other countries do this.

A consumer panel is a panel made up of people with an interest and expertise in finance, credit unions and credit union members. This will ensure continuous dialogue between the Central Bank, the Regulator, the credit unions and those who represent and are members of them in terms of obtaining the best possible outcome and regulation of the credit union movement in Ireland, thus allowing it to respond to the challenging conditions of the times and putting it in a position to upgrade, improve and change structures to respond to changing times. This is what we want. We also want consultation built in and for the people at the top of the Central Bank and Financial Regulatory Authority to give due recognition to issues other than profit in banking, which as I stated earlier is well considered in this Bill.

Part of the function of this Bill is to try to make the banks profitable. The function of the guarantee scheme was to plug the hole in the banks’ balance sheets. Anglo Irish Bank has so far cost us €22 billion. What is wrong with Fianna Fáil Members that they cannot get into their head that the interests of the credit union movement should be fully recognised in this legislation? Amendment No. 10 is a modest, careful and cautious proposal which would allow credit unions to have a statutory function in this Bill. During discussion on Committee Stage the Minister said that the proposal I put forward on behalf of the Labour Party was a good one. I note that he has responded by way of amendment No. 34 which seeks to give the bank the power to, if it so wishes, establish an advisory group in respect of credit unions. It is at the disposal of the Governor of the Central Bank to establish such an advisory group which will have no statutory function. We are proposing that we, once and for all, in reshaping financial review and regulation structures in Ireland, recognise the credit union movement.

We are all aware of the reports made to committees in regard to the bad debts or bad debt potential of approximately five credit unions, which we understand to be for the most part small local area credit unions. Amendment No. 55, a Labour Party amendment, provides specifically that the Central Bank will be in a position to facilitate the voluntary merger of credit unions in the State in the interests of improve financial stability and management of the credit union sector. The amendment provides for a resolution mechanism which would assist the Financial Regulator in dealing with, as stated by him in committee, the one or two credit unions about which he is concerned. Our amendment is a sensible response to the concerns that were expressed. The State should facilitate small area credit unions that may wish to merge. This legislation should allow that to happen. If the Central Bank and the Financial Regulator deem it appropriate, it should be facilitated in a positive way. Deputies from all parties, including Fianna Fáil, are familiar with the problems encountered by people in many communities, including my constituency, in the run up to Christmas. They have to go to credit unions, to registered money lenders, who charge huge rates of interest, or to informal money lenders, who charge mega interest rates. The Central Bank is not above considering the need for social banking. As this form of business is worth between €11 billion and €13 billion, it should not be dismissed out of hand. I hope the Minister of State, Deputy Killeen, can respond positively on behalf of Fianna Fáil to the Labour Party’s moderate and modest amendments, which would uphold and strengthen this country’s credit union movement and enable it to grow. We should not allow the credit union sector to be wiped out, which is the aspiration of certain commercial banks. They would like an additional €11 billion or €13 billion to be lodged into their accounts, and let the credit unions go on the hunt.

Deputy Kieran O’Donnell: I support amendment No. 10, which has been proposed by Deputy Burton on behalf of the Labour Party. It is very worthwhile. In the short time available to me, I would like to refer specifically to amendment No. 53. I thank the Minister of State, Deputy Killeen, for allowing some additional amendments to be discussed as part of this group. The amendments before the House go to the heart of the issue with the credit union movement. The Joint Committee on Economic Regulatory Affairs and the Joint Committee on Finance and the Public Service have had lengthy debates with the various bodies in the credit union sector. I understand the credit union movement, having met the Minister on a number of occasions, has reached a general consensus on the amendment to be made to section 35 of the Credit Union Act 1997. However, we are going into the unknown with the introduction of the new section 35A, which will give the regulator wide-ranging powers with regard to credit unions, in effect.

A number of factors need to be emphasised in this regard. We all want sound and strong regulation of the credit union movement. That is also the aim of the movement itself. We want to protect the interests of deposit holders. We need to ensure we do not throw out the baby with the bath water, however. The taxpayer has bailed out the large banks. The €22 billion that has been put into Anglo Irish Bank has gone down the toilet. Money has been also put into the other banks. I do not know of a red cent that has been put into the credit union movement. There is a concern that the credit unions’ deposit base will be ravaged by the banks. The credit union movement is based on lending the money the credit unions have on deposit. They do not go to the wholesale markets to borrow the money they lend. The banks that have taken such risks have wasted the hard-earned money of taxpayers.

The community-based credit union movement works by taking deposits as part of a saving culture, lending that money back into the community and making interest from the money it lends in order to pay a dividend. If credit unions cannot pay a dividend, they will not attract deposits. In such circumstances, the deposits will go instead to the banks, which are keen to raid the credit unions in any event, and the credit union movement will not be able to provide vital services to small people throughout this country. As a chartered accountant who worked as a sole practitioner for many years, I assure the House that many of my clients would have gone out of business in the 1990s if it had not been for the credit union movement. They could not get overdraft facilities from the banks. On Monday mornings, they used to go to their local credit union to get a bank draft before continuing to their local bank to lodge the draft and thereby stay in business. We owe the credit union movement something, but we owe the banks nothing.

Last night, I asked the Minister of State, Deputy Killeen, whether the Minister for Finance met the credit union movement before amendment No. 53 was tabled on Report Stage. I have not yet received an answer. I want to hear an answer. The credit union movement has worked with the Minister. We have had various meetings with the Minister. I have drawn up an amendment on behalf of the Fine Gael Party, but it does not appear to be on the list of Report Stage amendments. I will ensure it is tabled in the Seanad. The amendment will provide that the new section proposed in amendment No. 53, which combines sections 35 and 35A, “shall not come into effect” until an order for its commencement is laid before both Houses of the Oireachtas and an assessment of its impact on the credit union movement is undertaken and published.

I want to broadly welcome the report from the Central Bank, ‘Banking Supervision: Our New Approach’, published today.

I hope that this report will represent the final death knell for the regime of ‘light touch’ regulation, which was promoted by Brian Cowen and Charlie McCreevy when they held the position of Minister for Finance and which facilitated the banking crisis that has now placed such a financial millstone around the necks of Irish taxpayers.

There is little doubt that had the more intrusive approach now being planned been in place over the past ten years, then the sort of reckless practices of the banks could have been detected and stopped.

We are paying a huge price for what was allowed to go on, both in terms of the massive financial bail out for the banks and the social crisis of families unable to meet their commitments.

A number of financial institutions encouraged people to take out 100% mortgages and many of these same families now find themselves in negative equity and in a growing number of cases unable to meet mortgage repayments. Bank officials were not just approving loans, but in many cases, irresponsibly hawking expensive financial products.

Regulation of the financial institutions can never be simply a case of ticking boxes. There has to be a far more proactive and hands-on approach. A critical requirement for restoring public confidence in the financial sector must be the integrity of the non-executive directors of the banks and other institutions. Unfortunately there has been far to little change at the top of the banks, with many of the same people who presided over the disastrous decisions that caused the crisis, still in place.

Over the past three years Irish taxpayers have had to fork out more than €100m for regulation and supervision of the banks – half the total cost. It is now time that the banks started to foot this bill in full themselves.

There is no doubt that this report represents a welcome and fundamental change in approach. My only concern is that some of the proposals will not be implemented until late 2011. I would like to see the earlier implementation of all of the proposals.

Deputy Joan Burton spoke in the Dáil this evening on a Private Members’ motion on the Honohan and Regling-Watson reports into Ireland’s banking collapse. Far from vindicating the government’s decision to grant a blanket guarantee to all bank liabilities on the night of September 30th 2008, Deputy Burton highlighted key aspects of the reports, glossed over by government spokespersons, where Honohan raises serious questions about the nature of the guarantee.

The decision to guarantee existing corporate bonds did nothing to improve the banks’ liquidity position while adding billions to the eventual cost facing taxpayers for the banking collapse.

I want to return this evening to the Honohan Report in view of the outrageous way the Taoiseach and some of his Ministers abused its findings in yesterday’s debate.

Professor Honohan enjoys an enviable and deserved reputation among his peers at home and abroad. That reputation was enhanced by the report he presented last week on the cause of Ireland’s banking collapse and he is entitled to have his findings treated with respect and due consideration by everyone in this House.

Let me say that I was pleased when Minister Lenihan chose Professor Honohan to be Governor of the Central Bank. It was a courageous and enlightened decision and I welcomed it immediately on behalf of my party.

Yesterday he expressed some scepticism on the value of a Special Commission of Enquiry. I think his reservations should be discussed between all parties in here perhaps in a private meeting with the Governor and I think there could be common ground afterwards on how to proceed.

The Governor enjoys confidence at the moment but that confidence could be eroded easily if Ministers act as they did yesterday to deliberately distort what he wrote last week.

English is a flexible language but yesterday the Taoiseach stretched the ordinary meanings of words beyond belief to extract vindication for his past actions and policies from sections of both reports that quite unambiguously said the exact opposite.

I go back again to the section on the bank guarantee. I have read it again and again because I believe the decisions that have to be made about an exit strategy from that guarantee in a few months constitute some of the most critical decisions to be made this year, of equal significance to the budgetary decisions before December.

If Ministers read the Honohan report with no other motive than to claim they were right all along on every banking decision they made, then they have a mindset that is truly frightening and dangerous for our country.

On September 30th 2008 this Government gave a blanket guarantee to the major domestic players in Irish banking including Anglo Irish and Irish Nationwide. We dissented that day from the blanket nature of the guarantee offered though we broadly supported a policy to protect depositors. I think Fine Gael were foolish to offer unconditional consent to the Government that day and ought to have joined us in seeking to limit the scope of the guarantee.

What does Governor Honohan say about the guarantee decision in his report?

Yes he acknowledged that some level of guarantee was required. He uses the words extensive guarantee to describe what was necessary in the light of the undoubted turmoil in the international markets at the time. So far so good, for beleaguered Ministers.

This is where they chose to gild the lily and to twist the meaning of the Governor’s words for their own purposes.

Now, the plain word ‘extensive’ has been stretched to a wholly new meaning. ‘Extensive’ in the FF vocabulary now means total or blanket. Yesterday the Taoiseach was bare faced in his arrogant twisting of language when he claimed the Governor’s endorsement of an extensive guarantee means total support for the specific blanket guarantee.

Read the entire section of Prof Honahan’s report and you could not fail to get a very different view. This section concerns far more than the issue of subordinated debt. That part of the guarantee was bad enough in itself and even Ministers have conceded this. But Honahan goes much further than this and questions the nature of the given guarantee in a far more fundamental way than the question of subordinated bonds.

Allow me to read into the record of this House the full paragraph.

“The scope of the Irish guarantee was exceptionally broad. Not only did it cover all deposits, including corporate and even interbank deposits, as well as certain asset backed bonds (covered bonds) and senior debt it also included, as noted already, certain subordinated debt.

“The inclusion of existing long-term bonds and some subordinated debt (which, as part of the capital structure of a bank is intended to act as a buffer against losses) was not necessary in order to protect the immediate liquidity position.

“These investments were in effect locked-in. Their inclusion complicated eventual loss allocation and resolution options. Arguments voiced in favour of this decision, namely, that many holders of these instruments were also holders of Irish bonds and that a guarantee in respect of them would help banks raise new bonds are open to question: after all, extending a Government guarantee to non-Government bonds has the effect of stressing the sovereign to the disadvantage of existing holders of Government bonds; besides, new bonds could have been guaranteed separately. The argument for simplicity also is weakened significantly by the fact that an actual dividing line between covered and non-covered liabilities was drawn at as least an equally arbitrary point; moreover, such instruments were held only by sophisticated investors”. (end of quote)

How can anyone with any grasp of plain English interpret these words as a wholehearted endorsement of Government policy?

He clearly objects to the inclusion of subordinated debt. More than that, he explicitly questions the wisdom of extending cover to pre existing bonds. Certainly, it was important to guarantee new bonds from that date but to give cover to existing bonds simply added to the level of State exposure to losses.

Ministers have asserted again and again that the Irish guarantee policy was followed by lots of countries. That is simply not true. The Irish decision to guarantee the full stock of existing debt was quite unique and reckless. Many countries certainly covered new bond issues but not in the way Brian Cowen did and his particular Irish Solution to an Irish problem has left our taxpayers on the hook for all of Anglo Irish losses.

The overhang of these losses weigh heavily on our country’s capacity to source borrowings at reasonable cost. Yesterday the NTMA has another successful bond auction but at a price that must cause ripples of anxiety in the Department of Finance.

There are none so blind as those who refuse to see. In this case, there are none so blind as those who refuse to read an official report in its entirety and want only to extract this or that paragraph they can twist and twist for their own purposes.
It is most unfortunate that Minister are unwilling to recognize the any flaws in the September 2008 guarantee. These flaws are honestly recognized by Governor Honohan . They are extremely serious and may prove to be very costly as early as this autumn when the banks have to rollover as much as €74 billion.

Speaking in the Dáil last night on the motion of no confidence in Brian Cowen and his government, coming the week after the publication of two damning bank reports, Joan Burton spoke of the bank guarantee as the costly and defining legacy of 13 years of Fianna Fáil misrule.

Well, a week is a most definitely a long time in politics.

The focus of media attention today is on Fine Gael but the focus of this debate is on Brian Cowen.
It is Brian Cowen who more than anyone else has to survey the wreckage that now surrounds him.

His supporters hoped, indeed expected, that the international examiners Regling and Watson would give the beleaguered Taoiseach a get out of jail card.

Instead, they did the exact opposite and indentified domestic policy failures by Brian Cowen himself in Finance as the primary cause of Ireland’s current economic woes.

So, the mumblings of the Cowen loyalists in defense of their hero ring hollow because he is as much the culprit as the casualty of the circumstances that now threaten to overwhelm him.
Much of the present crisis is basically of the Taoiseach’s own making.

He reminds me of Charles Dicken’s character from David Copperfield, Mr. Micawber who was always certain that “something will turn up”.

Something did turn up all right. It was called Anglo Irish but he willfully ignored it.

Warning bells about Anglo Irish rang time and again in the spring of 2008.

Governor Honohan goes back even further to show that the warning signals were known to the authorities even earlier but Minister Cowen in Finance postponed any remedial action and continued through most of 2008 to ignore the gathering clouds.

Surely the Northern Rock collapse in the UK should have been enough to force a reappraisal of policy on our own economy’s excessive exposure to construction as the country’s primary engine of growth and public revenue.

It was a love affair that had gone on too long and had become toxic.

I want to look at two aspects that feature in the reports.

The cabinet held on to the two reports for as long as 10 days before they were ready to publish them. That in itself tells its own tale of the shockwave that must have gone through Government Buildings when Ministers read the reports first.

They needed 10 whole days to go through both reports with a fine toothcomb just to find some tiny crumbs of comfort that they could use to claim vindication of their policies for the whole of the past decade.

Crumbs of comfort were few and far between. So they opted for wholesale distortion of the findings to suit their purposes, steadfastly refusing to accept any shred of responsibility for the policy errors that were the overwhelming contributing factors to our current economic and baking woes.
Let me take the example of the Honohan view of the 2008 Bank Guarantee.

Ministers have tried to claim he endorsed the kind of guarantee given on Sept 30th 2008 and that he had rejected the Labour policy.

He did no such thing. Yes he endorsed the idea of an extensive guarantee that would cover deposits and future senior bonds. He most certainly did not endorse the kind of blanket guarantee that was the key element of the Government decision that night.

Our objection was always to the notion of a blanket guarantee. We never had any objection to an extensive guarantee of deposits and had indeed sought such a guarantee a week or so beforehand in a letter I wrote to the Minister then.

We baulked at the scale of the Government guarantee proposal and nothing in Governor Honohan’s report last week disputes the wisdom of that approach.
This is what he had to say as distinct to what Ministers pretend he said.

“The inclusion of existing long-term bonds and some subordinated debt was not necessary in order to protect the immediate liquidity position. These investments were in effect locked-in. Their inclusion complicated eventual loss allocation and resolution options”.

Think even for a moment about those simple plain English sentences.

They do not sound to me like any kind of support for the Lenihan-Cowen guarantee.
Quite the reverse in fact.

It reads as though it’s written by someone with grave doubts about it.

A statement that recognizes the need to do something extensive to stabilize the banks cannot be read as tacit agreement with what was actually done, a blanket guarantee that went far beyond what was wise and prudent.

Ministers and spin-doctors refuse to read nuanced comments. They deliberately confuse the words extensive and blanket. Like in Alice in Wonderland, words mean what they choose to make them mean.

The truth is that the guarantee of the existing bonds and the subordinated bonds was a critical and expensive error that will haunt taxpayers for a generation.
Tax Breaks

Regling and Watson ranked property breaks as one of the main ingredients of the ‘home made’ triggers of the collapse. This has been my song for so long that it was a pleasant surprise to hear it sung with such gusto by others.

They estimated Irish property tax incentives were 3 times the scale of similar breaks elsewhere in the eurozone and that by 2005 the cost of these breaks was larger than the remaining income tax receipts.

Mr Cowen has tried to paint a misleading picture of himself as the great reformer who abolished them.

Raimeis I say. He did no such thing.

Brian Cowen was just as much an enthusiast for property tax breaks as Bertie Ahern and Charlie McCreevy. Under Cowen we had headline abolition tempered by small print expansion of the tax shelters.

If there was an opportunity to hold on and extend them, Brian Cowen grabbed it with both hands.

He tries to pretend otherwise now when the damage he and his colleagues did is so evident in every part of Ireland.

His claims don’t stand up to even elementary scrutiny.
Instead of accepting the amendments I proposed he opted for a softly-softly approach that allowed some of the breaks to be very gently phased out while others were actually extended beyond their original termination date.

The cost to this country has been literally billions of euro .

For this alone this motion of confidence in Brian Cowen should fail. He was reckless and cowardly in the face of mounting evidence of tax avoidance and the excessive bank lending to one sector. Indecon consultants had shown how little the tax breaks offered in fundamental economic worth.

He had the evidence before him on his desk.

He had the evidence I had accumulated about millionaires who paid no tax at all.

He procrastinated and procrastinated and caused immense damage.

These tax incentives formed a core part of the boom and bust. Brian Cowen set up a huge transfer of wealth through his tax policy to a small group of politically connected people. Now these same people have come back to him for rescue and he has enabled them to transfer their toxic debts to the people of Ireland.

His claim to have been a tax reformer is shallow and untrue.