THE fallout from the end of the trial of the
Anglo Irish bankers has spoken volumes. Now that little matter is out of the
way, the wheels of justice, we are assured, will grind a little faster.
A banking inquiry by an Oireachtas committee
will finally apportion blame for the mother of all recessions. It will be, to
use a favoured Shinner term, “a truth recovery process”.
First in the stocks is expected to be Pat Neary,
the hapless former head of the Financial Regulator, who had some shocking
memory lapses while giving evidence. Now that Sean Fitzpatrick was found not
guilty of proffering illegal loans, and his former colleagues, Pat Whelan and
Willie McAteer, are not going to jail, the focus can move onto Neary.
All of the available evidence suggests that
each shovel dug into the past will throw up further opprobrium for Neary. The
trial showed him to be a man who acted with deference, rather than authority,
towards the banks. At the height of the crisis, he appears to have been acting
like the proverbial Chinese monkeys— closing his eyes, ears, and mouth to
anything that might discommode him. Then, he walked away from the wreckage with
a pay-off of €640,000, and an annual pension of €140,000. The least he might be
expected to do for the State that has padded out his retirement is to rummage
around his memory, and enlighten the people’s representatives on what, exactly,
was going on.
A view is hardening that Neary can now move to
the front of the queue as culprit-in-chief for the economic collapse. He, quite
obviously, was not up to the job.
But what if he had been? What if Neary had
been, in the best tradition of independent overseers, a highly competent,
conscientious, and strong-willed individual? Would he have survived the culture
of the times, or would he have been escorted to the door while the party was in
full flow? There are plenty of examples to show that Neary was not out of line
with the political and economic culture.
Take a speech given by one of the architects of
boom-time Ireland — Charlie McCreevy — in December, 2005.
At the annual lunch for the Irish Financial
Services Centre, McCreevy gave his view on how nation builders should be let
off the leash.
His message for the regulator, on that
occasion, was: “Don’t try to protect everybody from every possible accident…
and leave industry with the space to breathe, and investors with the freedom to
learn from their mistakes.”
McCreevy stuck his chest out, and explained how
“many of us, in this room, are from the generations that had the luck to grow
up before governments got working and lawyers got rich on regulating our lives.
We were part of the ‘unregulated generation’ — the generation that has produced
some of the best risk-takers, problem-solvers and inventors.” That was
McCreevy’s island, a place for tough guys who took risks, guys who knew what
they were doing and didn’t need to be regulated.
The tough guys ran the show, as was evidenced
in 2006 when the Revenue Commissioners made a modest proposal on taxing the
stock market instrument, contracts for difference (CFD). A punter could bet up
to 10 times what was, effectively, a deposit, on the future direction of
shares. It has been described as “the crack cocaine of the stock market”, and
had the added incentive of provision for secrecy.
Sean Quinn secretly built up his huge stake in
Anglo Irish Bank through contracts for difference. By 2006, CFDs accounted for
between 30% and 50% of dealing on the Irish Stock Exchange. In a market
shooting north, thousands of high-net-worth individuals in this country were
raking in fortunes.
Then, along comes a modest proposal to apply a
1% tax to CDFs, as was already the case for ordinary share dealing.
After serious lobbying from a range of industry
bodies, Minister for Finance Brian Cowen backed down. No tax would apply.
Off you go lads, pump up those risks, safe in
the knowledge that you operate in a tax-free zone.
Cowen said he acted on foot of advice from his
officials. He wasn’t obliged to take that advice, but it gave him cover, and
also demonstrated that the people in the department were equally in thrall to
the risk takers.
While all of that was going on, the man charged
with policing the corporate world was snowed under. For two years, up to 2007,
the Director of Corporate Enforcement pleaded for more resources, in a country
that was being swamped by risk-takers and tough guys.
On February 28, 2007, Taoiseach Bertie Ahern
told the Dáil that the director would have to wait in line.
“The reason he’s not getting all the staffing
is that we made a priority in that department to create new labour inspectors,”
Ahern said. Two years previously, when the scandal of the ‘slave labour’ of the
Gama Turkish workers was uncovered, it had emerged that there were just two
labour inspectors for the country. Now, Ahern was saying that in this low-tax,
risk-taking economy, swelling with money, it wasn’t possible to properly police
both the workplace and the boardroom.
That was the culture that existed. It went
beyond a gormless regulator like Neary.
It went beyond even a craven politician like
Ahern. It infected every echelon of the power centres that ran the country, and
nobody in the main opposition parties had any problem with it.
Would a tough, or even competent, regulator
have survived in those times? Well, just look at what happened in 2010, two
years after the economy collapsed. A new regulator, Englishman Matthew
Elderfield, was in town, doing his job to a high degree of competence.
He found it necessary, in March that year, to
place the Quinn Group in administration.
For that, he was roundly criticised in the
political and business arena. Quinn was a champion risk-taker, who had bet the
house on Anglo and lost. All of that was known by 2010, yet the regulator,
rather than reckless Quinn, was cast as the bad guy.
In the same week that Quinn was placed in
administration, one TD rose in the Dáil to opine that Elderfield needed to cut
the banks some slack. Yes! The same banks that had run the country into the
ground.
If given time, Ned O’Keeffe said, “they (the
banks) won’t be depending on the State and Mr Elderfield to tell us what to do.
We don’t want foreigners in here. Michael Collins, Liam Lynch, Padraig Pearse
and James Connolly wouldn’t have those foreigners running our business.”
That was the level of debate, on regulation,
that informed public discourse in 2010, with the country on its knees. A few
years previously, when the risk-takers and tough guys were calling the shots, would
any proper regulator have been permitted to put a brake on the madness?
The hope is that the Oireachtas inquiry will be
more than just a show trial for Neary and Fianna Fáil. Don’t hold your breath.
Michael Clifford
