News Analysis

Saturday 20 September 2014

Jody Corcoran: The real 'axis of collusion' was that of see no evil, hear no evil, speak no evil

Kenny's assertion that the blame lies solely with FF and Anglo is simplistic, and nakedly political.

Published 30/06/2013 | 05:00

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IN March 2012, in his first speech to an ard fheis as leader of Fianna Fail, Micheal Martin set out an apology:

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We made mistakes.

We got things wrong.

And we are sorry for that.

No equivocation.

No half-apology.

Just the plain, unvarnished truth.

Five months earlier, in October 2011, the former Fianna Fail leader, Bertie Ahern, in an interview with the Financial Times, had identified one of those mistakes.

He said his decision in 2003 to create a new Financial Regulator office was one of the main reasons behind the collapse of the banking sector and "if I had a chance again I wouldn't do it".

"The banks were irresponsible," he said, "but the Central Bank and the Financial Regulator seemed happy. They were never into us saying – ever – 'Listen, we must put legislation and control on the banks'. That never happened."

If the Anglo tapes tells us anything, they tell us that the failure of the regulatory authorities, the Central Bank of Ireland and the Irish Financial Services Regulatory Authority, was abject and total.

Although it was a constituent part of the Central Bank, the Financial Regulator became the single regulator of all the financial institutions here from May 2003 until October 2010.

The establishment of the authority unleashed what is known as "light-touch regulation".

In large part, the economic meltdown can be laid at the door of light-touch regulation, the offer of a "business-friendly" country to those who benefit most – big business, primarily, with a so-called trickle-down effect.

Economies are ranked on their ease of doing business: getting credit, protecting investors, paying taxes, enforcing contracts and resolving insolvency are among the headlines factored in.

In 2012, Ireland was still the highest ranked, business-friendly country in the eurozone and 15th worldwide: when it comes to 'protecting investors' and 'paying taxes' – minimal taxes – Ireland is ranked sixth.

The stated intention of the Taoiseach, Enda Kenny, is to make Ireland the best small country in the world in which to do business: to do so, it follows that regulation must, and will, remain light-touch.

In other words, five years on, the economic model is unchanged.

After the publication of the Anglo tapes last week, Mr Kenny sought to lay the blame on what he called an "axis of collusion" between Fianna Fail and Anglo Irish Bank.

It was a political assertion, but far from the whole truth.

The Anglo tapes inform us that, more than pints at the Galway Races, the real axis was of 'see no evil, hear no evil, speak no evil' among the main players, not just Fianna Fail, but between the banks and the authorities set up to regulate them – and the Department of Finance.

This was not a phenomenon unique to Ireland.

Across much of the western world, there has been a property bubble and banking crash – and bailout – fuelled by an irrational exuberance among buyers and lenders, a huge inflow of cheap credit, key players incentivised to take crazy risks and, of course, regulatory imprudence.

After a decade in power, Fianna Fail had not only outsourced the authority to regulate, but seemingly sat back while the permanent

government – the Department of Finance – ineffectively oversaw a calamity waiting to happen.

It is not as if the warning signs were not evident: in 2007, the National Treasury Management Agency had identified Anglo Irish as a potential basket case; at St Patrick's weekend in 2008, financial speculators had done likewise.

In September 2010, the then Minister for Finance, Brian Lenihan, set up a panel to examine the performance of the Department of Finance during the Celtic Tiger era. In effect, though, the Wright report was a Department of Finance review of the Department of Finance.

The review found that the Department had warned the Government about the dangers of economic policy, but that the advice had been overruled at Cabinet.

That said, not a single direct quote from a departmental document was offered in support of the report's conclusion.

Instead, the report merely asserted: "There are examples of where such advice was tendered in writing. We have also been advised of some important oral briefs that reinforced the department's concern about pro-cyclicality. But these are not part of the official record."

A central player in these events was Kevin Cardiff, the former secretary general in the Department of Finance, who was moved by the current Government – at a second attempt – to a plum €270,000 job in Europe.

Cardiff was also deeply involved in the putting together of the notorious bank guarantee scheme.

We have Wikileaks to thank for the following: "Cardiff echoed the regulator and pointed out that the auditors contracted by his department to look into the books of at least two of the institutions under pressure came away with a "favourable impression of the loans book".

"While he admitted that the amount of "speculative loans, or those that are not currently protective, is not insignificant", he stressed that all involved in putting together the package were confident that the government would not be forced to bail out the banks.

Kenny's assertion that an "axis of collusion" between Fianna Fail and Anglo Irish Bank was solely to blame is, at best, simplistic but also nakedly political.

Meanwhile, at a meeting of the Oireachtas Finance Committee last month, attention was focused of what is called the "too secretive" IFSC Clearing House Group, the financial services centre lobby organisation located at the docklands in Dublin.

In May 2010, John Bruton, the former Fine Gael leader, was appointed chairman of the then newly-formed financial services body, IFSC Ireland. He does not sit on the IFSC Clearing House Group.

But the group is chaired by the secretary general of the Department of the Taoiseach; its members include advisers to and representatives of foreign and domestic financial services industry, such as JP Morgan, Citi, State Street, IBF, Barclays, Bank of Ireland, KPMG, Bank of America, Deloitte, AIB, William Fry, PWC and Ernst and Young.

Last year a total of 21 changes to the Finance Act were made to accommodate the Clearing House Group's requirements, which Enda Kenny has claimed will "create those 10,000 jobs over the next few years".

Among the changes, however, was a contentious incentive that allowed foreign executives with companies based in Ireland, to pay tax on only 70 per cent of income between €75,000 and €500,000.

The Revenue Commissioners opposed another incentive that allowed executives to claim tax relief on school fees up to €5,000, but after further lobbying the relief was also included in the act.

Some might claim there is an "axis of collusion" between this group and the Government: whatever about that, there is no doubt the financial sector still enjoys unique access to the heart of power.

Irish Independent

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