Thursday 29 September 2016

The man in the cap can save us from ourselves

Gerry O'Regan

Published 11/04/2015 | 02:30

Patrick Honohan looks more like a man going to the mart to sell a few cattle than the guy who’s in charge of all the money
Patrick Honohan looks more like a man going to the mart to sell a few cattle than the guy who’s in charge of all the money

Some people refer to him as "The Man With The Cap''.

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Patrick Honohan, over our troubled times with banks and bailouts, has become a kind of national springboard when we ache for somebody who will console us with what sounds like assured common sense.

I remember seeing him in Dublin Airport a couple of years ago, when the mad times were at their zenith. Back then we worried if the whole place would go down the tubes because of out-of-control bankers and our own feckless ways.

I stalked him - out of sheer curiosity - as he went into the newsagents, just to see what he would buy as he waited for his Brussels flight. When he topped up his bundle of newspapers with a copy of 'The Economist' and the 'Financial Times', for some reason or other, he radiated the persona of a man who was on top of things.

Complete with his trademark countryman's cap and anorak-style overcoat, he looked more like a canny farmer on his way to sell a few cattle at the local mart, rather than our best-known moneyman, whose sage words so often keep us clear on things.

The Professor was sounding off at a get-together in Paris this week - forcing us to rethink once again some of the more comfortable conclusions as to why it all went so wrong when the good years shuddered to a halt.

He wanted to start by "exposing a few myths about the crisis which led to the bailout''.

Certainly, reckless senior bankers must take their share of the blame. But he also reminded us that "for the most part'' their actions were "unwise rather than criminal'' in the run-up to the bailout.

It is nigh on impossible to designate an unwise decision to be a criminal offence.

Mr Honohan rightly called for tough new laws to ensure bankers who are deemed reckless are brought to heel. He pointed out that in the UK they have already made some strides in this area.

But, as always, the devil will be in the detail. Extreme and provable cases of wanton irresponsibility by financial institutions should be easily monitored. But is it really possible to legislate for every individual loan application - especially as in so many cases there will be unknown risk involved?

And surely the experiences of the not-too-distant past should be a reminder that borrowing and lending must always remain a two-way responsibility.

"Every loan needs a borrower'', was perhaps the Central Bank Governor's most salutary reminder to us all in his latest missive.

And, in another burst of realism, he also reminded us of the unpalatable truth that Ireland Inc had already "pretty much hit rock bottom by the time of the bailout''.

This is of small consolation to those who like to blame many of our woes on foreigners - whether it be Brussels mandarins or whoever. In other words we had blown the good times largely of our own accord.

We were already deep in the mire by the time "the notorious bank guarantee'' added fuel to an already-blazing inferno. By then we were defenceless and, according to Honohan, "without support from the ECB it would not have been possible to continue in the euro''.

This is also a sharp rebuttal for those who rage that membership of the much-maligned currency union has been responsible for nearly all our ills; he points out a borrowing spree fuelled by low interest rates also hit countries outside the euro, such as Iceland and Latvia.

Honohan makes clear that the dreaded concept of "austerity'' would have arrived in whatever guise, regardless of us being "pushed'' into the EU and IMF bailout programme. This is another reminder that it was due to our own collective behaviour we found ourselves snookered. The overwhelming tone of his latest musings is that Ireland would have done much worse, given that most of our problems were self-inflicted, had we been outside the EU club.

Meanwhile, it's difficult not to have a lingering suspicion that the travails of the recent past will all resurrect themselves sooner than we think here in Ireland. There is no doubt our economy is on the move upwards again, and soon some of the old temptations will be upon us. The banks will want to lend - and businessmen, land-speculators, and mortgage-seekers will want to borrow.

We have new watchdog operations in vogue and hopefully the Honohan-ruled Central Bank will keep a beady eye on some dark corners. But hovering in the background we have politicians from all parties, who should take their share of the blame for our past misdeeds, but who still crave the easy vote-getting sound bite. Telling us some home truths - Honohan style - is not the easiest way to get elected.

A case in point is the understandable anger of variable-rate mortgage holders who argue they have got a particularly raw deal compared to others on more favourable terms. But the unpopular thing to say is that their interest rates are variable - unfortunately, that's what they signed up for. It's the old adage - caveat emptor - let the buyer beware.

Government intervention in fixing mortgage rates is obviously fraught with risk in what is, for good or ill, a free and open market. There is always the danger of some kind of chain reaction. For example, some of the favoured tracker mortgage holders argue they bought properties at the top of the boom and can't be hauled out of their negative equity trap without a major jump in house prices. In other words, they would like some kind of repeat of the so-called bubble.

Overall, there are various strands out there which suggests an upturn is on the way. Everybody says we should take it slow and steady and not blow it on this occasion. But there has to be dormant unease that the Irish are better at managing economic failure rather than economic success.

Even Patrick Honohan - soothsayer of our times - must have more than a few secret worries what will happen if the good times roll again.

Irish Independent

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