Watchdogs must ensure 'we say no to bankers' says Krugman
Published 09/03/2010 | 05:00
DR Paul Krugman, the Nobel prize-winning economist, has said Ireland needs regulators who see it as their duty to "say no to powerful bankers".
Dr Krugman, who penned a controversial article on Ireland last April entitled 'Erin Go Broke', says Ireland and the US both suffered from poor regulation during important periods. "The people charged with keeping banks safe didn't do their jobs," he wrote in his latest column in the 'New York Times'.
Dr Krugman said regulators in Ireland looked the other way for two reasons.
One because the country was trying to attract foreign investment and, secondly, because of "cronyism'', with bankers and property developers maintaining close links to "the ruling party".
Dr Krugman said personalities mattered as much as the system. "We have to focus as much on the regulators as on the regulations," he writes in the piece, which was being studied by Irish economists yesterday.
He said while it was important to copy what countries like Canada did, including limiting leverage, this would not be enough.
"Such measures won't matter unless they're enforced by people who see it as their duty to say no to powerful bankers.''
The economist, who has blamed "free market fundamentalism" for the crisis, wrote that Ireland suffered from a "plain-vanilla case of excess" in which banks made big loans to questionable borrowers and taxpayers ended up "holding the bag".
"We need a sea change in attitudes, recognition that letting bankers do what they want is a recipe for disaster. If that doesn't happen, we will have failed to learn from recent history, and we'll be doomed to repeat it".
Dr Krugman, known for his trenchant views in favour of Keynesian economics, last year infuriated the Irish Government when he said they had no options to get the country out of the financial crisis.
"As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery, if and when the rest of the world bounces back," he wrote at the time.