Saturday 18 November 2017

Bank guarantee was 'the only decision' says David McWilliams

Economist David McWilliams leaving Leinster House after his appearance at the Oireachtas Banking Inquiry yesterday. Photo: Tom Burke
Economist David McWilliams leaving Leinster House after his appearance at the Oireachtas Banking Inquiry yesterday. Photo: Tom Burke

Clodagh Sheehy

THE bank guarantee was the right decision but it should have been a temporary measure, economist and broadcaster David McWilliams has told the Banking Inquiry.

While he believed it was the "only decision that could have been made at the time which would have stopped a bank run", the key was that it need not have been permanent.

He said he had told former Finance Minister Brian Lenihan at the time that the guarantee should have been made conditional and not open-ended, so they did not end up having to pay off risk capital.

At no stage, he added, did he suggest to the minister that it should include subordinated debt.

Mr McWilliams described how he had met Mr Lenihan for the first time on September 6, 2008 and then at his own home 11 days later.

Over a period of two weeks they also had 12 to 13 phone calls, but after October 4, 2008, he had never seen him again and "I found myself back on the outside".

Mr Lenihan had told him he was getting different financial assessments from everyone and he had advised the minister he needed to do something to buy himself time to get the facts.

The economist suggested to Mr Lenihan that he introduce a temporary guarantee of perhaps two years to stem the run on deposits and give the government time to arrange audits.

He said he became worried about the guarantee eventually introduced, because it appeared less like an emergency measure to protect depositors than a blank cheque to protect bank creditors.

Bubble

The economist told the inquiry the banking crisis and property bubble were both "predictable and absolutely preventable".

Mr McWilliams said that many ordinary people could see it and they were "forced to play a game where the dice is loaded against them".

He did not believe the country was taken by surprise and described the housing market at the time as a "scam funded by overlending".

The Irish banking system - and by extension the Irish economy - was set up to fail, said Mr McWilliams. The economist said the crash was "inevitable because of the way in which the banks were financing themselves".

"I saw this earlier than anybody else and spent the best part of a decade trying to warn as many people as possible."

Asked by chairman Ciaran Lynch if he ever thought before the bust that he could have been mistaken, Mr McWilliams replied: "No, in fact I became increasingly certain."

Joe Higgins questioned Mr McWilliams about the part played by mainstream media in the crisis but the economist said he could only answer for himself.

"Never once was anything I ever said muzzled by any editor," he said, adding he had written for the Irish Independent among other publications.

Professor Terrence McDonough, an economics professor from the National University Galway, told the hearing that the light-touch banking regulation introduced with the setting up of the IFSC "persists down to the present day".

Professional politicians and professional economists in the lead-up to the crisis saw things in the same way. To avoid it they would have needed to see things differently, he said.

Irish Independent

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