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The law is an ass -- but what are we going to do about it?

THE Nyberg report on the causes of the banking crisis in Ireland is fundamentally flawed. It blames everybody, but names nobody. The bankers didn't realise what was happening; the regulators thought it was someone else's job; the auditors didn't ask the right questions . . .

Not only does Peter Nyberg blame bankers and public servants, his criticism extends to politicians, entrepreneurs, experts, media and households. Nobody did their job. So why do we continue to pay such high prices for this bungling incompetence?

We all jumped on the financial bandwagon, blinded by the euphoria of our newfound wealth. Bankers led the charge, abandoning regulation, and supported in their belief that financial markets were efficient (full information in the public domain leads to best practice). But that's only one side of the argument. As Warren Buffett said, "If the market was efficient I'd be a beggar on the street with a tin cup."

This report lets the bankers off lightly. Michael Noonan, our new Minister for Finance, like Pontius Pilate washed his hands of it. He blames the previous government. There is nothing he can do about it.

Colm Doherty recently stepped down as AIB's managing director. But despite being in the middle of a massive financial crisis, he has ended up with an outrageous severance package of nearly €3m.

How can this be justified in an insolvent bank that is only kept afloat by the Irish taxpayer? Mr Noonan claims that it is legal and his hands are tied. If Mr Noonan were being paid the national minimum wage until he delivered results, his answer might be different.

The remuneration models used by the banks are seriously flawed. This has now been accepted internationally. The Nyberg report confirms that it had a large part to play in creating a crisis at the banks. Remuneration rose to mind-boggling levels. Why didn't the boards of the banks and senior management cap these packages once it was seen that they were spiralling out of control? The beneficiaries would still have been rewarded beyond their wildest dreams.

The report says that the commission of investigation was assured by bank management, non-executive board members and others that the problems in banks' loan books (unacceptable levels of risk) came as a complete surprise. Surely this confirms that they didn't do their jobs. Whatever about their basic pay entitlements, how can anybody justify the totally unconscionable remuneration levels we keep hearing about?

According to Mr Noonan, that's the law so that's that. Well if the law supposes that, Mr Noonan, then the law is an ass. Now, what are you going to do about it?

The report, while reserved in its criticism of external auditors, says there was no challenging dialogue with the banks. This is explained to some extent by saying that the auditors worked within the narrow confines of the statutory audit. In reality, audit firms work more closely with their larger clients, albeit that they need Chinese walls to separate the audit from other consultancy work and secondments. It was in everyone's interest to make more money. The Government and the Financial Regulator fully supported this approach.

The banks, with the sanction of Government, continue to impose changes and penalties on those who have lost their jobs and cannot afford to pay their bills. The Nyberg report suggests they were not fit to do their jobs. So why are we paying them so much?

Tax seems to be our answer for everything. Is it time to extend the scope of the 90 per cent tax for bankers' bonuses? It might claw back the remuneration that, while legally due, is morally and economically unacceptable.

The Department of Finance claims that the banks repeatedly misled it. The department in turn misled the minister, who misled the public. Isn't it about time that somebody was held accountable?

The same can be said about pensions at the banks. Defined benefit pension schemes are so underfunded that the Government has intervened to make up the losses. This can only be done with taxpayers' money. Senior bankers continue to get enormous pensions. It may be the case that lower level staff will bear the brunt of pension shortfalls while pension funds are used like slush funds to pay off those at the top.

It was not the commission's remit to assign individual blame for the banking crisis. However, Mr Nyberg clearly points the finger at those in public office. The Government has been changed, so has the Financial Regulator and the Governor of the Central Bank. Yet nobody at the Department of Finance has been removed.

We need a clean sweep of the boards of all banks, and the top two layers of senior management. The same should happen in the public sector. Exceptions can be considered. There is no shortage of talent out there to replace them. It just takes a willingness to act. Until now that has been the problem.

The commission says that the officials whose jobs it was to warn us assumed somebody else was taking care of it. If only people would do the job they were appointed for, we wouldn't be in this mess.

If we are not careful we could find ourselves in even worse financial trouble. Enthusiasm about the recent fire sale of properties at the Shelbourne has been lauded as the turnaround in our fortunes. It is anything but. We all know there is money out there. It just isn't spread around as much as we'd like.

Frank Daly, Nama chairman and former chairman of the Revenue Commissioners, has suggested that Nama may have €1bn to kick-start the property market. Nama should do what it was set up to do and leave banking and related financial matters to professional bankers who are fit for purpose. It should complete its work as quickly and efficiently as possible. Then it should be wound up. The last thing we need is another agency trying to nudge its way into the financial sector.

If Nama has a spare €1bn, Michael Noonan should offer it to the senior bondholders to pay them off and call it quits on any remaining indebtedness. Providing funds to people who couldn't afford to pay them back is what got us into this mess.

It is up to our own Government to lead any change. Analysing the past won't fix the problem. We need decisions that keep us moving forward in spite of the opposition that we encounter in the EU.

We must renegotiate the bailout. But first it may be necessary to change the law that favours the few at the expense of the rest.

Many may have benefited to some extent from the Celtic Tiger. Most people were only dragged along in the wake of those who had "superyachts". They had no disposable income before the boom and have none now. Worse still, they may be in negative equity. They cling to a forlorn hope of rescue by the Government. How many more reports will it take before we get action?

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Sunday Independent