Business Banking Inquiry

Tuesday 24 October 2017

From the lofty heights of hubris, Cowen gets his soft landing

'Cowen’s first day giving evidence at the Banking Inquiry was marked more by fatigue, than any freshness in the pursuit of meaningful answers'
'Cowen’s first day giving evidence at the Banking Inquiry was marked more by fatigue, than any freshness in the pursuit of meaningful answers'
Richard Curran

Richard Curran

Brian Cowen finally got his soft landing. It wasn't the economic one he had hoped for back in 2007. No, this soft landing was made possible by the seven-year delay in holding any kind of public inquiry into the banking crisis.

Cowen's first day giving evidence at the Banking Inquiry was marked more by fatigue, than any freshness in the pursuit of meaningful answers. A day earlier, Charlie McCreevy was answering questions about policy decisions he had made 11 years earlier.

Cowen was combative at times and nearly but not quite apologetic at others. He clearly carries a slice of the blame for the financial and exchequer crisis but just how much?

There were two strands to our collapse - the exchequer crisis and the banking crisis which together led to austerity and a Troika bailout.

On the exchequer crisis, Cowen accepted there should have been a lower level of current spending in the boom years. It is one thing when the State's coffers are overflowing to commit to major infrastructure projects, because you can just stop building them when the money dries up. But current spending, particularly public sector wages, remains in perpetuity. Between 2003 and 2008, average public sector earnings rose by 32pc. Between 2000 and 2008 (McCreevy/Cowen years in finance), total government spending rose by 87pc while employee costs went up by 94pc.

This was largely funded by government revenue which emanated directly or indirectly from the property market.

Cowen pointed to four things he had done to cool the property market, including abolishing property tax incentives in December 2005.

These were unnecessary subsidies which transferred €2.2bn of tax benefits to a small group of the wealthy elite. They were due to end in 2003 but Charlie McCreevy extended them until 2006.

Cowen abolished them, but on a phased basis in which he extended some of them for six months and others for a full two years to 2008.

He went for a phasing-out because so much of the qualifying construction was in the pipeline.

Surely that was the fault of the builders. If they couldn't make the deadline, with six months' notice, then tough. That is how rules are applied in medical card schemes, qualification for social welfare or education grants. But not property.

Cowen's department said afterwards there had been extensive lobbying from property interests, citing ''unavoidable hold-ups in the planning process'' and even ''health and safety concerns arising from a late rush to complete construction''. Builders falling off scaffolding while working at breakneck speed to make the deadline would be Cowen's fault. You couldn't make it up.

One of the most bizarre policy decisions Cowen did make was his U-turn on abolishing a stamp duty loophole used by developers.

A report by Goodbody Economic Consultants said that the loophole cost the exchequer €251m in 2006 alone and was used in 40pc of all land transactions in the State.

Cowen announced its abolition in the Finance Bill in February 2007 but then refused to sign the commencement order to actually do away with it for fear of interfering in the market. One law for developers, another for everyone else, applied yet again.

On the banking crisis, he simply didn't see the level of risk in the system. The housing boom figures were publicly available, as were the figures showing the over-reliance on property lending and banks' dependence on wholesale borrowing from Europe.

Perhaps Cowen was genuinely too busy to look. Perhaps others, such as the Department of Finance officials, should have looked for him. But they told the inquiry they relied too much on the Central Bank's flawed analysis. Everybody was relying on somebody else.

Despite the catalogue of costly mistakes and subsequent pain, we can see how the educated financial, political, regulatory and corporate elite collectively let us down.

But the lessons from Cowen's evidence go further. Politically, there were few cries of concern from opposition politicians. Cowen also asked how he could have justified lower spending in health, education, old age pensions or wages, when the State coffers were overflowing.

The fact is he should have held back anyway. The political reality is the government probably would have been "turfed out" by a disgruntled electorate. Restraint would have been seen as leaving an open goal for the opposition, as opposed to the sensible thing to do.

Brian Cowen was not an enlightened genius who saw the dangers of reckless government spending and reckless property lending but chose to ignore it for political survival. He was caught up in the hubris of the time as much as anybody. He didn't concoct the scenario of a "soft landing", he actually believed it would happen.

In his first budget speech as Minister for Finance in 2004, he said: "I am very honoured to introduce this, my first Budget, to the House. In doing so, I pay tribute to my predecessor (Charlie McCreevy) who made a major contribution to this country's sound budgetary position and who has left us a lasting legacy in this regard."

A year later, on December 8, 2005, he went further: "We are living in the midst of the longest and strongest era of sustained prosperity in all of Irish history….. As a nation, we now enjoy a much enhanced quality of life. We are a prosperous country."

We were 18 months away from a house price collapse and less than five years away from an IMF bailout.

When challenged about the lack of concern expressed by opposition parties during those crazy years, former Labour Party minister Pat Rabbitte said on RTÉ last week, that it isn't opposition's job to run the country.

The logic implies that it is okay for the opposition to be wrong because it is simply their job to oppose. It was as if it didn't matter that Labour, Fine Gael or anyone else called it completely wrong during the bubble, as long as it was while they were in opposition.

He may be right. But what does that say about the choreography of the Dáil, elections, manifestos and the criticism of government by opposition parties?

It says that it is simply a Punch and Judy show - a piece of theatre and all that matters is what government does. The rest is irrelevant. It isn't the most uplifting or inspiring definition of politics.

Cowen's biggest mistakes in the boom were to give people too much of what they wanted to secure re-election - at a cost we couldn't really afford - and to look after elites along the way.

His biggest mistake in the crash was that he didn't see it coming until it was far too late. Everything after September 2008 was just mopping up.

These were significant and costly mistakes but he certainly wasn't alone in making them.

Irish Independent

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