Voters will exact price for doomed Banking Inquiry
The failure to provide a candid explanation for the banking crisis will hit our ruling parties hard
Published 22/11/2015 | 02:30
The collective unpopularity of the three mainstream Irish political parties gets harder to explain. Recent opinion polls show Fianna Fail, Fine Gael and Labour commanding the allegiance of around 55pc of the electorate between them.
They commanded almost 80pc as recently as the last pre-crisis general election in 2007. The continuing weakness in Fianna Fail support is easiest to understand - the party is still in the doghouse, blamed for the crash and punished severely at the 2011 election. But the decline since then in Fine Gael support and the even greater decline for Labour is more of a puzzle.
These two parties attracted 56pc of the vote between them in 2011. On recent polls, they would get about 36pc if the election were to be held tomorrow. Discontent with austerity and general economic conditions is part of the story but the economy has been expanding rapidly for two years now, inflation is zero, the cuts and tax increases are over and employment is growing steadily. Government parties, that cannot be held responsible for causing the crisis, should be doing better.
There are reasons for the loss of esteem for the traditional political parties, additional to economic discontent. Two Irish governments in succession are perceived by the electorate to have acquiesced in an ECB-inspired raid on the taxpayer's pocket, while there has been an absence of accountability for the banking collapse.
The misbehaviour of the ECB was again highlighted in the Central Bank governor's address in London during the week. Patrick Honohan echoed the view of former IMF mission chief AJ Chopra, that forcing the Irish State to compensate unsecured and unguaranteed bondholders in bust banks was improper. The amount involved (estimates range from €4bn up to four times that amount) is enormous and the ECB action may have been illegal as well as outside its statutory mandate. But the humiliation of an elected government, most visibly in the case of the incoming Fine Gael/Labour administration in March 2011, on top of the treatment meted out to the late Brian Lenihan during 2010, was a political intervention with serious consequences.
The bomb really did go off in Dublin and the reverberations are visible in the opinion polls. The ECB cannot wash its hands of responsibility for the consequences.
The Oireachtas Banking Inquiry will report in the New Year. Judgement should ideally be suspended but it is already clear that the inquiry has been tied up in knots by lawyers. Initial doubts about the efficacy of any parliamentary inquiry have been vindicated.
The members have had access to documentation restricted by lawyers representing the banks under investigation and, intriguingly, by lawyers hired by the inquiry itself. Accountability is being frustrated by a uniquely Irish devotion to legislated, constitutional or presumed rights to confidentiality. The list appears to include the rights of people responsible for the banking disaster to be spared an effective investigation. Ireland is the only common law jurisdiction to have discovered such elaborate defences against accountability.
Ireland's banking bubble burst seven long years ago. It was one of the largest, relative to the size of the economy, ever to have occurred anywhere. Many countries that have endured damaging financial busts have long since concluded and published inquiries into the failures of bankers and regulators. In Ireland, there has been some accountability for regulators and officials (in a report produced by Patrick Honohan in 2010) and politicians (at the general election of February 2011). But not one bailed-out bank has offered an explanation to the public, never mind to its own shareholders, of what went wrong, nor has there been an official report on the failings in even a single bank. There cannot be a banking crisis without failures in the banks. Seven years on, there has simply been no proper accounting to the public, who have picked up the tab.
They do things differently in America. The bubble-burst in the USA coincided with the Irish collapse. The precipitating event was the bankruptcy of the Lehmans investment bank in New York in September 2008. Promptly in January 2009 a Chicago lawyer, Anton Valukas, was appointed to report on the causes of the collapse, producing a 2,200- page report 14 months later. The report distributes responsibility for the collapse quite liberally, naming individual bankers and documenting failures by regulatory agencies and accountants.
The report identified possible legal and regulatory breaches and facilitated subsequent regulatory enforcement and legal actions.
More recently, the largest of the US banks, JP Morgan, managed to vaporise $6.2bn on bungled trades in credit derivatives overseen by a dealer called the 'London Whale'. The losses were eventually disclosed in mid-2012, the traders having earlier concealed them from superiors and regulators. The bank's shareholders took the losses, JP Morgan did not collapse and there was no need for a taxpayer bail-out. But this is America, so there was an inquiry by a Senate committee.
The 300-page report was released after just nine months and assigned responsibility to bankers, defective risk-management processes in JP Morgan and to regulatory failings. People got fired, remuneration was clawed back and regulatory penalties were imposed.
Irish citizens can download the reports and learn all they would like to know about these US banking scandals, neither of which hurt the US taxpayer.
But they can find nothing about the internal failures in the Irish banks that have cost them so dearly. It would appear that members of the Oireachtas inquiry are no better placed, denied access to the information needed to permit a proper explanation of what went wrong inside the Irish banks.
The diminished popularity of the two Government parties since the last election mirrors the rise in support for Sinn Fein, the new left-wing groupings and a wide array of independents. Fianna Fail has not been the beneficiary.
The three parties that have dominated Irish politics for generations have collectively lost public trust to an unprecedented extent.
This is partly the fault of the ECB, an unelected and insufficiently accountable body which has done a poor job in exercise of its narrow mandate and has gone well beyond that mandate in its actions in Cyprus, Greece, Ireland and elsewhere. It has done political as well as economic damage.
But it is also due to the failure to provide the public with a thorough and candid explanation of what happened in the banks. The shorter of the two US reports cited above is the one on JP Morgan and is worth a read on its website.
Nothing comparable, unfortunately, looks likely to emerge from the Oireachtas Banking Inquiry. Some people seem to suspect that some kind of establishment cover-up is going on.
More practiced observers doubt the capacity of the same establishment, if such exists, to organise anything so coherent. The more plausible explanation is that yet another political vacuum has been filled by lawyers.
Bankers and those who oversee them are entitled to a fair hearing in whatever inquiries are instituted. Have they been gifted instead a general absolution mediated by the legal profession?