A Report issued last Monday in New York has begun the allocation of responsibility for the collapse of the commodities and securities firm MF Global, which has left customers short of $1.6bn (€1.28bn). The 275-page report was issued by the bankruptcy court in Manhattan and is the work of a team headed by lawyer James W Giddens.
The report, available to all and sundry on the internet, is admirably detailed and explains how the company collapsed. The role of individually named officers in the disaster is explored fully.
Giddens has concluded that John Corzine, the CEO of MF Global, as well as other named senior officers, bear primary responsibility for the collapse. Briefly, the firm had been speculating on European government securities and got on the wrong side of a big market blow-out. They had placed customer funds, as well as the firm's own capital, at risk, which is in breach of regulatory rules.
MF Global did not do business in this country. The publication of the Giddens report is interesting to an Irish readership for one reason only. MF Global filed for bankruptcy, at the insistence of regulators, on November 1, 2011. The report has taken precisely seven months to reach the public.
Inquiries are under way by State agencies in Ireland into numerous financial companies where regulatory breaches, or breaches of the law, are suspected. The most prominent of these is Anglo Irish Bank, where loan losses are expected to reach €30bn; Irish Nationwide, which has lost at least €5bn; and Quinn Insurance, where the deficiency appears to be about €1bn. The losses of Anglo and Nationwide have been taken on to the State balance sheet and have contributed greatly to the current financial distress in the country. A levy on insurance premiums for many years into the future will be imposed to pay for losses at Quinn Insurance.
Anglo Irish ran out of liquidity in September 2008 and there had been regulatory concerns in both the Anglo and Nationwide cases dating from earlier years. Problems at Quinn had also come to the regulator's attention prior to that date. The Director of Public Prosecutions, the Office of the Director of Corporate Enforcement and the Garda Siochana have been conducting inquiries into these and other financial collapses since 2008.
Some Irish financial institutions appear to have gone bust without benefit of illegal behaviour. But there is prima facie evidence of serious legal breaches in others, including false accounting, share support operations, alienation of assets and concealment of insider lending. Whether any laws were broken is a matter for judge and jury but it is remarkable, given the nature of the evidence already in the public domain, that not a single prosecution in any of these cases has been instituted.
Nor has there been any detailed report on what went wrong, illegality aside, in the management of these institutions or in others, most significantly AIB, where no laws appear to have been broken but which also collapsed and had to be nationalised.
The most dramatic bank failure in the US was the demise of Lehman Brothers in September 2008. The 2,200-page Valukas report on Lehmans was released in March 2010, inside 18 months of the collapse. Just about everything you would like to know about the financial disasters in the US is documented in official reports, including reports of hearings at congressional committees that are publicly available.
In Ireland, no financial institution has prepared an account of what happened, even for their own shareholders, and there has not been a single official report devoted to an analysis of what went wrong in each of the collapsed firms.
The financial misadventures in Ireland have destroyed the State's finances, delivered the conduct of financial policy into the hands of official lenders, wiped out shareholders and destroyed businesses across the country.
There have been three official reports into what happened, all of them valuable but none which offers the kind of detailed explanations, including the assignment of responsibility, available in the US. The Honohan Report of May 2010 focused on regulatory policy and the Regling/Watson Report released at the same time on the macroeconomic background. The third (Nyberg) Report of March 2011 was restricted to the identification of broad causative factors in the systemic banking crisis and did not seek to undertake a bank-by-bank analysis.
The result is a situation in which, notwithstanding disturbing evidence of malpractice already in the public domain, not a single prosecution has been instituted. Neither has there been any narrative offered as to the sources of mismanagement in any of the banks, or indeed in Quinn Insurance.
As far as the general public is concerned, those responsible for the management and oversight of the financial system have avoided accountability. The large 'No' vote at the recent fiscal treaty referendum can be attributed, at least in part, to public dissatisfaction on this score.
The public, which has picked up the tab, is entitled to full explanations of whether or not there have been breaches of the law. The US reports are prepared as a matter of routine, an exercise in accountability to the public and separate from the prosecutorial agenda.
In Ireland, the impression has been created that only breaches of the law should merit censure, and the inordinate delay in bringing prosecutions engenders public cynicism that even this restricted notion of accountability will prevail. But holders of leadership positions in society, including senior executives in financial institutions, need to do more than stay within the law.
The Nyberg report argues as follows: "Essentially, a systemic banking crisis requires a widespread lack of understanding and/or suspension of good judgement or critical discourse in large parts of society. Nevertheless, people in positions of responsibility in financial institutions and public authorities should even in such circumstances be expected to act with regard to the responsibilities entrusted to them.
"People in a position to make decisions are and must be ultimately responsible for them regardless of what advice or suggestions they have received. The higher and more influential their position, the greater their responsibility."
The Nyberg Commission did not have the resources or the remit to allocate responsibility in this fashion. The failure to initiate a single prosecution in those cases where the prima facie evidence is in the public domain becomes increasingly difficult to understand as the years go by, and feeds the groundless suspicion that people are being protected by a Government with no incentive to do so. This perception that numerous bankers and their supervisors have failed in their responsibilities without consequences, even in the form of a proper investigation into what went wrong, continues to have a corrosive effect on public confidence in the political system.
The failure of the referendum to restore investigative powers to the Oireachtas needs to be revisited. A new investigation headed by publicity-seeking Dail deputies, under the current constraints on parliamentary inquiries, will not be adequate.
The Government's failure to get this referendum passed was another example of the political carelessness which has characterised the conduct of public business here down the years. This referendum should be run again, and it is clear from the outcome of the fiscal treaty referendum, that the Irish electorate will ignore the siren voices of populism if political leaders will take the time to explain. The referendum on the restoration of investigative powers to the country's elected parliament was hijacked, through straight political negligence, by a cabal of lawyers. The professional politicians need to re-assert their primacy, and their superior democratic legitimacy, by reopening this fundamental issue.
When the definitive report on the banking disaster is finally delivered, it should explain, patiently and fairly, how the nation's financial institutions, and their supervisers, failed in the tasks entrusted to them. Most of them did not break any laws, so far as one can see. But there has been an enormous breach of trust, compounded in the past few years by a reluctance to explain.
The simple speed of the US in dealing with the regular financial disasters which beset that country is a bulwark of American democracy. The avoidance of policy failures is too much to hope for. It is how you deal with them that matters.