I am pleased, in my renewed position as a member of the parliamentary Labour Party, to be able to speak on the banking crisis and the financial situation. Since the outset of this crisis, when the Labour Party stood alone to oppose the blanket bank guarantee, I have always strongly opposed the entire approach of the Government and especially its policy of bailing out the casino banks, namely, Anglo Irish Bank and Irish Nationwide Building Society. These two institutions were not and are not of systemic importance to the Irish banking system and as institutions they behaved recklessly and criminally for the benefit of a small nexus of cronies.
The approximate €50 billion bank bailout figure announced by the Minister for Finance, Deputy Brian Lenihan, last Thursday week was horrific. Many people are still trying to understand how the toxic triangle of developers, bankers and Fianna Fáil and Fine Gael politicians has got us into such a mess that the Government intends to pour €29 billion to €35 billion into Anglo Irish Bank, €5.4 billion into Irish Nationwide, perhaps €11 billion into AIB, €3.5 billion into Bank of Ireland – one may not have heard the entire story in that regard – and €350 million into the Educational Building Society. A few weeks ago, a Sunday newspaper estimated the full costs of the systemic bailout to be between €45 billion and €55 billion for the recapitalisation and perhaps €45 billion for NAMA. When added together, this provides a possible total cost of €100 billion. In addition, the impact on the national debt is staggering, as the general deficit will hit 32% of GDP for 2010, even though only a few months ago, the Taoiseach was in this Chamber blathering on about how to cope with a debt of 20% of GDP.
The question being asked by all Members’ constituents is whether the mind-blowing figures announced on black Thursday constitute the final reckoning. The key concern of everyone observing Members today is whether this is the bottom line on how much the Irish banking sector will need. All the Minister’s previous estimates have turned out to be wildly incorrect, misleading, inaccurate and sometimes simply downright lies. Consequently, why or how can citizens accept this latest forecast to be definitive? A number of months ago, a financial analyst informed me of his belief that the bailout losses would be approximately €50 billion at a time when the Minister was still insisting they would reach a maximum of €35 billion. Moreover, banking expert Mr. Peter Mathews also has mentioned an incredible figure of €65 billion.
As there are so many basic pieces of information about which Members have no hard data, the Minister should respond to the questions I am about to pose. How much will the promissory notes cost each year into the future? What about the exclusion from NAMA of the loans between €5 million and €20 million? Will the €7 billion of debt represented by these smaller loans not act as a deadweight on AIB and Bank of Ireland for decades to come? Will Ireland end up as another Japan over the next two decades, that is, treading water, barely trying to keep going and with a national debt of 200% of GDP? What impact will the Hallowe’en deadline for NAMA transfers have on the figures? The original intention was to work through them carefully and slowly but it now must be done within two or three weeks and surely the entire point of NAMA was to examine forensically every bad loan. Will even more surprises emanate from NAMA after 31 October? Its chairman, Mr. Frank Daly, now appears to be stating that the final figure will not be known until February 2011.
The Minister for Finance, Deputy Brian Lenihan, told Members that one of the key objectives of NAMA was to remove the toxic loans from the banks’ balance sheets and to get liquidity back into the system. However, the bigger than expected discounts that NAMA is now applying to loans mean that the banks need much bigger sums of public money for their recapitalisation. Only yesterday, the Minister informed me that the interest figure for 2010 will be approximately €300 million less than the €5 billion he indicated to Members earlier this year. However, he stated that next year, it will be between €6.7 billion and €7 billion.
This means that a huge chunk of national taxation will go down the tube month after month into the vortex of this horrible disaster. If this is the true picture of how profoundly damaged is the Irish banking system, why is this only being found out two years down the road? Banks in the United Kingdom, which adopted a completely different policy in 2008, are already returning to profitability. The Labour Party urged early action to clean up the banks and to restore liquidity for businesses and households but what we got instead were two disastrous wasted years with soaring unemployment, emigration and misery because of the constant dissembling and gross incompetence of the Minister for Finance, Deputy Brian Lenihan, and his colleagues.
The Fianna Fáil-Green Party bank bailout has been characterised by constant misinformation and uncertainty about the true state of the banks. Incidentally, as I have stated a number of times at the Committee of Public Accounts, the Department of Finance has proved itself to be not fit for purpose. Clearly, it has a major role in the banking and economic collapse through its total failure to undertake effective economic forecasting, effective strategic plans – Deputy Reilly mentioned that point this morning – or to even moderately invigilate the banks. Shortly after the 2007 election, I asked that Mr. Neary, the then Financial Regulator, be invited before the Committee of Public Accounts to explain himself because I believed there was a fundamental problem with the banks. Mr. Neary appeared before the committee and told its members an outrageous pack of lies about the stability of the banking sector in early 2008. While a member of the aforementioned committee up to a few months ago, I read out what he had to say and every line he told members was rubbish, nonsense and lies.
Although Professor Brian Lucey first raised the issue of the lack of legislation permitting subordinated bondholders to share in the losses unless the senior bondholders are in default and a bank is in a special form of parliamentary proceedings, Members did not hear this on black Thursday. We had to wait for several days until Brian Lucey told us in The Irish Times that additional legislation was required. The Minister, Deputy Brian Lenihan, did not seem to have any idea from his briefing with the Department of Finance that there was a major problem in regard to subordinated bondholders and so on. Despite repeated statements to the contrary by various embattled Ministers, Professor Honohan’s report does not categorically find that a blanket guarantee was necessary. While he stated that it could be helpful in certain circumstances, he did not conclude that it was essential. Moreover, he questioned such a commitment to senior bondholders. That crazy decision was an act of criminal behaviour against Irish citizens.
It was amusing this morning to hear the leader of Sinn Féin speak about being a party in opposition. The Labour Party was the only party in opposition in September 2008 when our 19 Deputies voted against the blanket guarantee in this Chamber. How can we have any trust in a system that is still largely administered by the senior bankers, Ministers, accountants, auditors and regulators who contributed so much to this catastrophe?
The Minister, Deputy Brian Lenihan, has often described Anglo Irish Bank as being of systemic importance to the banking system. Yet he gave the institution a blank cheque in September 2008 without being aware of its true situation. No evidence was ever produced to support the claim of systemic importance. A pertinent footnote in Professor Honohan’s report considers the notion of a bank guarantee for all the institutions with the exception of Anglo Irish Bank. Yet we had various Ministers talking to the media who had not even read the report. Phoenix magazine has rightly raised the grave matter of whether the current regulator, Mr. Matthew Elderfield, accepted questionable figures from the board of Anglo Irish Bank in its 2009 annual report.
The folly of the Government’s blank cheque approach to Anglo Irish Bank was exposed by the recent decision to split the bank into a so-called funding bank and an asset recovery bank with plans for an eventual wind-down of the failed bank without it ever having positively contributed to economic recovery. What was the purpose of the Government decision in this case? The Government continues to refuse to address the responsibility of senior bondholders in Anglo Irish Bank. There is still a strong case to liquidate the bank and its fellow casino institution, the Irish Nationwide Building Society, as quickly as possible and with as little further cost to the Irish people as possible. We should seek to recover all taxpayer losses from the perpetrators of this disaster. People ask me every day why Sean FitzPatrick, his fellow directors and senior management have not been prosecuted as would be the case in most other countries. In the case of the Chilean disaster, for example, the director of the company in question is already in police custody.
The Fianna Fáil-Green Party Government childishly attempted to smear the Labour Party’s original banking policy to nationalise temporarily those banks that are of systemic importance, namely, Allied Irish Banks and Bank of Ireland, in order to protect ordinary depositors and to get credit moving to businesses and householders. The Black Thursday announcement by the Government reminded me of the famous description by Seamus Mallon of the Good Friday Agreement as “Sunningdale for slow learners”. It took the Government two years to realise there were fundamental problems with Allied Irish Banks and Bank of Ireland.
According to the Minister, Allied Irish Banks will require capitalisation of at least €11 billion with the result that the State will have 90% ownership of the bank. If it had been temporarily nationalised two years ago there would have been a lower cost and a reduced risk to taxpayers as well as the opportunity for the State to clear out the senior bankers who made the bank insolvent. Under a nationalised system the valuation risk is massively reduced as loans can be transferred at market value rather than according to the Minister’s fantastical notion of long-term economic value under NAMA. Both the IMF and the former Swedish Finance Minister, Bo Lundgren – who undertook a very successful temporary nationalisation programme in that country – highlighted this reduced risk factor as one of the most important advantages of nationalisation.
What has become clear in the past two years is that the appalling practices of the top bankers in Allied Irish Banks must be rooted out once and for all. That culture must be smashed. This is particularly imperative given the repeated scandals of the 1980s, 1990s and 2000s at the bank. That so-called distinguished gentleman, Mr. Peter Sutherland, has in recent weeks been lecturing the nation on the need to reduce social welfare provision, education spending and so on. Is this the same Mr. Sutherland who was chairman of Allied Irish Banks in the 1990s when acts of gross criminality were carried out against taxpayers? Is it the same Mr. Sutherland who was a director of Royal Bank of Scotland when it had to be bailed out by the British taxpayer for at least €45 billion? Is it the same Peter Sutherland who was so closely connected to Goldman Sachs, an organisation described by the last British Prime Minister as “guilty of moral bankruptcy”, a company which defrauded tens of thousands of American investors with a Ponzi scheme whereby credit derivatives were bundled into packages, floated off and then bet against? Why should we heed Mr. Sutherland’s advice about anything?
I have the same objections to being offered advice by Mr. Ray MacSharry who, as Minister in the late 1980s, implemented savage cutbacks in services. Those cuts led to desperate suffering for our most vulnerable citizens some of whom died waiting for hospital treatment. That was the legacy of the implementation of Mr. Colm McCarthy’s first programme of reductions.
If Allied Irish Banks had been temporarily nationalised two years ago it might not have had to sell its crown jewels in the form of its profitable operations in Poland and the United States. The Minister should consider the retention of the bank in public ownership as a national “good bank”. We had such a good bank in the 1980s and early 1990s when the State effectively owned the various TSB banks, together with ACC and ICC. In the 1992 general election, my party proposed a third force or people’s bank loosely based on an amalgamation of the three State banks led by TSB. There is no question that such a model would have worked and would have provided much needed domestic competition to Allied Irish Banks and Bank of Ireland.
We should explore the possibility of making all 4.25 million citizens equal shareholders in Allied Irish Banks, as one of my constituents constantly advises me. The British Co-operative Society has a membership, at 5 million, that is larger than the population of this country. We should take 100% control of Allied Irish Banks and retain it in public ownership for a long time to come. The Labour Party has also developed proposals for a strategic investment bank to provide credit facilities to small and medium-sized enterprises, invest in innovative companies and take the lead in raising finance for appropriate infrastructural products. If we lead the next Government we will implement that proposal.
Apart from Anglo Irish Bank, the failure of the Government, Central Bank and Financial Regulator to regulate the Irish Nationwide Building Society is one of the greatest financial crimes against the Irish people. Raising €2.7 billion and paying savage interest on that vast sum for years just to dump it into the black hole of INBS is a criminal policy and an act of treachery against this country. Constituents ask me all the time why Mr. Michael Fingleton and his directors and senior management have not been prosecuted.
The shocking failure of corporate governance at the Educational Building Society between 2002 and 2008 shows the contempt of Fianna Fáil, the Progressive Democrat Party and the Green Party for mutual institutions. The EBS board and all its senior executives from the pre-September 2008 era should depart immediately. Its actions in becoming involved in speculative commercial developments bankrupted this society and betrayed its 600,000 members, of whom I am one. Those leaders should be investigated by the Garda Bureau of Fraud Investigation and the Office of the Director of Corporate Enforcement.
The Minister for Finance’s proposal to sell off the EBS is a profound mistake. I have already asked him to consider retaining the EBS in State ownership until the Government can establish a strengthened mutual building society and co-operative model. This new structure could perhaps be based on models such as the John Lewis Partnership or the Banque Populaire in France. We must take control of the EBS from the bottom up. Other governments including, surprisingly, the Conservative Party-Liberal Democrats coalition in Britain are examining measures to enhance the role of mutuals and co-operatives in a reformed banking system that prioritises the needs of ordinary households and businesses. Yet here in Ireland we are privatising the EBS even though it was probably the best organisation in the financial system.
One of the broader issues that has been highlighted by the current catastrophic crisis is the rotten mortgage system that has enslaved many of our citizens. It was amusing this morning to listen to Mr. Peter Bacon speaking to Pat Kenny on the radio. He spoke on the very important subject of the huge burden of private debt, particularly on young people. Back-breaking mortgages are crucifying them. We need to look at the whole mortgage system. We should have built in a mechanism to alleviate this burden, as was done by some banks in the United States which cut the capital figure. I welcome the campaign of bodies such as London Citizens, a wonderful organisation, which is trying to address the back-breaking nature of interest payments for many families and individuals in the United Kingdom. This approach needs to be extended to the Irish mortgage market.
Auditing and accounting firms must also be held to account for their failure to detect and report out-of-control speculative and criminal activity in the banking system. Why have we not had an investigation of what went wrong in the auditing and accounting industry accompanied by major reforms to make sure it never happens again? Public confidence needs to be restored in these discredited professions. An ordinary Joe Soap would be sacked if he failed so abysmally to carry out his key work functions and responsibilities. Instead, the big four auditing and accounting firms, KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte, and many other legal, accounting and auditing companies are allowed to carry on their merry way. Not alone that, they are at the heart of the Fianna Fáil-Green Party bank bailout strategy and paid millions.
The law firm, Arthur Cox, for example, which was up to its neck in advising Anglo Irish Bank, AIB and Bank of Ireland on property deals, was, rightly, named by The Sunday Tribune as one of the untouchables who caused the financial crisis, yet, according to the Comptroller and Auditor General, this company earned €3.9 million between September 2008 and June 2009 for advising the Government on the State bank guarantee, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB and Bank of Ireland. A Greek citizen, who is a certified auditor, contacted Members of the House to ask how, if Anglo Irish Bank’s accounts were certified by auditors, it went on to collapse. Another person e-mailed me yesterday and signed himself “yours in despair”. He asked why Goldman Sachs is so heavily involved in Irish affairs, given its toxic role in the domestic and international financial crash. I have already referred to the unbelievable vapourings of Mr. Peter Sutherland.
I have already mentioned The Sunday Tribune listing of 20 untouchables. It is outrageous that so many people mentioned on this shameful list are still in their positions, yet a number of members of this group, including senior civil and public servants, may wonder how they are part of the group while their political masters in Fianna Fáil and the PDs are nowhere to be seen, except, perhaps, in cupboards advertising the News of the World . The Sunday Tribune list is like Hamlet without the prince. The princes in this case are five politicians – three right-wing ideologues: the Minister, Deputy Mary Harney, and former Ministers Charlie McCreevy and Michael McDowell and the current and former taoisigh, who are still trying to portray themselves as deluded fools, using the Bart Simpson defence. The poor former Taoiseach, Deputy Bertie Ahern, is still waiting for Mr. Neary or Mr. Hurley to call to tell him the country is going down the tubes and something needs to be done to deal with the economic bubble. He does not know how this happened. He is going around the world lecturing people about the peace process. I accept we were all involved with that, and it is a wonderful achievement, and we were all involved in the Celtic tiger. It is incredible nonsense to tell us he is waiting for that call.
It is also more than a little disturbing, as Senator Shane Ross has noted, that the Minister recruited the architects of the critical valuation system from deep within the toxic banking and property development vortex that helped to create this catastrophe in the first place. Did the Minister make any effort to recruit valuation experts internationally, especially from states such as Germany or the Netherlands that have had fairly stable property systems for the past decades? At the height of the property bubble the economist, David McWilliams, wondered how a small terraced house in Dublin 7 or 8 could be worth more than a chateau in southern France or a farm in Munster in central Germany. How could that have been possible? It is incredible that the Department of Finance, regulators, taoisigh and Ministers for Finance could not understand that this was an anomaly.
The role of the IFSC and its impact on national tax policy and the invasion by foreign banks, like Bank of Scotland, needs to be investigated. I commend the ordinary staff of banks, some of whom are facing tough futures, who looked after us day in and day out. They often point to the destabilising role of the off-shore element of the IFSC and how it damaged our larger banks. They talk, in particular, of the foreign invasion led by Bank of Scotland, which gave mortgages of more than 100%. Opposition Members raised this matter with the Taoiseach at the time but he did not seem to think he could do anything about it. Of course, he was only the Taoiseach.
Ireland has a structural fiscal deficit but it is the banks and the Fianna Fáil-Green Party blank cheque approach to bailing out banks that has wrecked our fiscal position for the foreseeable future. In 2009, the budgetary position deteriorated by approximately €11 billion of the €22 billion, simply due to the banking crisis. Colm McCarthy, and those in the media and the Government who hang on his coat tails, told us, day after day, that we had a deficit of €22 billion. However, it was the banks that wrecked us, are wrecking us this year and will wreck us next year and the following year. It is so annoying to have to impose this on ordinary people. The Fianna Fáil-Green Party slash and burn approach means we will kill the patient in 2011 by totally deflating the economy and facilitating no stimulus measures to tackle the jobs catastrophe and enhance consumer confidence.
In contrast, the policy of the Labour Party is the correct one. We have been clearly focusing on jobs and investments through our policies on the strategic investment bank and on investing in SMEs and innovative companies, retraining opportunities, schools, broadband, communications and public transport. I am a big supporter of major infrastructural investment. In my own region we have done huge preparatory work on metro north. Approximately €160 billion has already been spent on the project and it will, I hope, be passed by An Bord Pleanála in a few weeks time. The immediate preparatory works done next year will be of the order of only €50 million. As a public private partnership, it will not impose a great immediate cost as we try to get out of the fiscal crisis.
We can frame a budget for next year. I believe we should do this year by year and one step at a time. The guys and girls who got us into this mess should not try to tie us down for four, five or ten years into the future. We must get out of the mess one step at a time. With a Keynesian-Paul Krugman approach we would gradually work our way out of the debt and rebuild our country. The people who are responsible for this, including the politicians, should be held accountable.