Patrick Honohan
There was one light moment at the Oireachtas banking inquiry in an otherwise depressing trawl through Ireland in the dark months of autumn 2008.
When it came to Irish Socialist Party TD Joe Higgins’ turn to question a witness — Central Bank governor Patrick Honohan — Joe pulled out his standard anti-capitalist address.
Wasn’t it the case that the ideology of the government, the banks, the speculators, most of the media, was at the heart of the problem that led to the collapse of the economy?
Wasn’t it all about an ideology involving the greedy pursuit of “super profits” by the banks? Didn’t that result in a regulatory system where the “prevailing spirit is don’t separate the lion from his prey, but let them at it”.
Then the reply that shook everybody awake. “That’s right,” said the governor. Even Joe was stopped in his tracks.
A laugh erupted. “You agree?” Joe asked, incredulously.
“Well, that’s a dramatic way of putting it,” Honohan said. But, by and large, he had no problem with Joe’s analysis of how the profit-crazed banks led the whole country into perdition.
On the third day of the inquiry it was difficult to escape the conclusion that Higgins had been right all along back in those days when he was, as he pointed out himself yesterday, a lonely voice in the Dáil, railing against the “speculators” who were driving up the cost of housing.
Honohan was a lively witness, careful to apply nuance to his utterances, but devoid of the kind of hyperactive caution that financial heads display when they are brought out in public.
He thinks the bank guarantee of September 2008 was a mistake, but an understandable one.
However, he doesn’t buy the peddled wisdom that the guarantee was to blame for the subsequent years of austerity.
“The cost of the austerity measures is much, much bigger than the cost of the guarantee.”
He also debunked the myth that the Troika which took control of the country in November 2010 were to blame for much of the austerity.
“The bailout reduced austerity measures,” he said, although that statement could have done with a little elaboration.
As for the cost of the guarantee, he puts it at around €40 billion and change, with the scope for a little more to be “whittled down” from the original cost of €64 billion.
He is of the opinion that it should have been obvious at the time of the guarantee that Anglo was a busted flush.
The management running the bank should have been removed.
“That would have been more clear had they known what the size of the problem was.
“But all the investment banks that looked at it saw that Anglo’s model was not credible in the market,” he said.
However, had the government moved to shut the thing down, they would have had to withstand a severe going over from our European partners, Honohan added.
How much that option had been explored is something that Brian Cowen, in particular, will be expected to answer when he comes in to give evidence.
The governor was quite open to speculating on the mindset of the bankers who had acted in such a reckless fashion.
These, after all, were supposed to be very brainy boys, who knew their sums.
Honohan confirmed the suspicion of many when he set out his theory.
“The conjecture I’m left with is – in the banks - they might have said ‘gosh this could all go wrong, but if it does there will be a rescue, the State will step in, or Europe will step in’,” said Honohan.
So it went, among those who were regarded as the poster boys for capitalism.
In that regard, smokin’ Joe Higgins can claim that he could see it while many had their heads in the clouds
Michael Clifford
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