December 23, 2009
The easy-credit drug was pushed from the top, right down to the poor debt junkies at the bottom
Could Patrick Honohan be our Noel Browne? Could Honohan’s inquiry into the fiasco of the banking mess be the 21st century equivalent of Browne’s Mother and Child scheme?
Noel Browne was opposed not just by the bishops. The bishops driven by theology would obviously be against him. But it went deeper. Browne was also opposed by the doctors who were driven by self-interest. The doctors didn’t want their incomes being determined by some quasi-socialist state scheme overseen by the government any more than the bishops wanted their hold over the family to be weakened by the State. In the 1950s, the power base of the local doctor and the local priest or bishop dominated rural Irish life. Had Browne succeeded in breaking this, he would have destroyed the central pillars of Irish society.
Browne was driven by a desire to eradicate TB. Our incidence of TB was three times higher than Britain’s. This didn’t matter to the people who ran the place. To them, Browne’s crime was that he threatened the real power nexus in Ireland — the Church and the local supportive bourgeoisie who sat up the front at Mass. Thus this uppity medic had to be stopped.
In the case of the new Central Bank governor Patrick Honohan, he is equally threatening the power base of the country. He will be opposed by some senior politicians who are opposed to upsetting the status quo — particularly when they are implicated in the affair. They were the primary cheerleaders of the boom because the more credit the banks gave out, the more tax revenue the politicians got to dole out to pet projects. Why would the senior political class have anything to gain from an inquiry, which will conclude that they are guilty?
But it goes much deeper than that. Honohan will also be violently opposed by certain senior people in the Central Bank and the Financial Regulator who now work in the same building as him. He is their boss but he is clean, whereas many of them are part of the problem. Could it be that some of the top brass in the Central Bank and the Financial Regulator, all from the same stable in Dame Street, might want to thwart the new boss in his drive for openness?
But if Honohan gets his way (which he should) lots more issues will be raised. And these are deep issues and go to the root of who runs the country. This is why Honohan is dangerous. Take for example the cosy relationship between the big auditors of the banks and the banks themselves. The auditors signed off on the balance sheets of the banks — without question — when it was clear that the banks were behaving delinquently.
Remember that the Irish banks went from having a loan to deposit ratio of 100pc in the early noughties — which was normal — to a loan to deposit ration of 160pc in 2007 — which was terrifying. Yet the auditors said nothing. Might Honohan’s probing lead to a civil case against one of the large auditors? What would happen then?
And what about the boards of these banks? What did they do to check the madness of the executives and protect the depositors? Well, they did nothing.
Today most of the bank boards remain in place despite the carnage. I remember a conversation with two board members of one of our largest banks a few years ago where I was told that I was a “dangerous voice”. These same people are still drawing salaries, having failed monumentally.
In the case of Anglo Irish alone, the scandals raise enormous questions — not just about this bank, but about the ethics of senior sections of Irish business. How could a “whip round” of the golden circle in summer 2008 — which was a totally illegal share-support scheme — be seen as normal? How could the “bed and breakfasting” arrangements of bank executives using other banks to hide their personal loans be regarded by other executives as kosher? And what about end of year massaging of deposits?
Could the inquiry examine in depth the financial journalists who were refusing to ask hard questions, and were coming out with nonsense about new paradigms and the uniqueness of Irish banking culture based on claptrap called “relationship banking”?
If Honohan’s inquiry goes deep, many bizarre practices will be exposed. So the new governor will not just have to contend with the immediate executives of the banks but he will unravel a deeply corrupted system. We will see how, at the bottom, mortgage brokers were on the boards of estate agents where one outfit was hyping prices and the other outfit financing the loans to pay these silly valuations. The brokers, working on commission, had the incentive to lend as much money as possible out. But where did they get the cash? From the big banks of course who were using the mortgage brokers as salesmen on steroids.
In my book ‘Follow the Money’, I compare the entire financial scam in Ireland to a drugs cartel where the easy-credit drug was pushed from the top and right down to the poor debt junkies at the bottom. The entire system was corrupted throughout. Although distasteful, the comparison is valid.
And this is what Honohan threatens with his inquiry. He threatens the entire system. He says he doesn’t want glib comments but rather a forensic and quick inquiry to get to the root of the problem. But like Browne, he is taking on the power in Ireland and that is why he will be opposed, stymied, and attacked at every juncture.
The spinning is starting already. For example; yesterday I was listening to RTE radio and the presenter asked a guest whether he believed that now, with the world looking at Ireland, was a good time for us to be hanging out our dirty linen regarding the banks! Here we go again; let’s not protect our own citizens because, using the perverted logic of our vested interests, protecting our citizens from a rapacious elite looks bad! What planet are these people living on?
In a sense, you can regard Honohan’s very public urging for an open enquiry as a “cry for help” from a new governor who realises that the truth will never be found by going back to the usual suspects.
He sits atop a corrupted and discredited institution, surrounded by people who have no interest in him succeeding. He realises he has to go outside, and in so doing he is rocking the boat — not just the banking boat and political boat, but the entire edifice that has governed the country for years.
The more you look at both men, Honohan and Browne, the more the similarities are striking. Browne’s objective was eradicating the disease of TB but to do this he has to overturn the system, the real power nexus. Honohan’s objective is getting to the bottom of the banking mess, but in so doing, he will need to shine a light on all areas of Irish business and politics.
In this effort, he needs all of our support.