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Andrew Lynch: Lying bankers have made fools of us all

Our worst fears have been confirmed. As the secretary general of the Department of Finance has now admitted, the banks effectively lied to the Government about the scale of their losses in the crucial days before the banking guarantee of 2008.

In other words, the most monumental gamble in the history of the State was taken on the back of false information -- and even if it ultimately succeeds, it will be down to pure luck rather than good judgment.

Kevin Cardiff likes to joke that he is so softly spoken he is known to his colleagues as "the mutterer". At the Dail's Public Accounts Committee yesterday, however, his testimony was so explosive, TDs ordered his microphone to be turned up.

When the financial crisis first broke, he was in charge of the department's banking section and working side by side with the newly appointed minister, Brian Lenihan -- which gave him a perfect ringside seat as the horror show unfolded.

Almost two years later, Cardiff's conclusions are blunt and terrifying. Whether they deliberately deceived the Government or were lying to themselves as well, the bailed-out banks grossly underestimated the scale of their debts during the emergency talks that eventually persuaded Lenihan to guarantee all their deposits.

In particular, the infamous Anglo Irish Bank was "extremely disingenuous" in the presentations it delivered about the strength of its loan book and its ability to raise capital.

The result, as we all know, is a €440bn bill that the public will be paying for generations -- while the spoofers who negotiated this toxic deal are still sitting pretty on the boards of these discredited financial institutions.


All these revelations add up to a damning indictment, not just of the Department of Finance, but our political system as a whole. If ministers and civil servants had known how to ask bankers the right questions, some of the guarantee's most costly elements could easily have been avoided.

Instead, Anglo and the others treated their interrogators like idiots -- and given what we now know, it's tempting to conclude that they were right.

As the moment of maximum crisis loomed, it seems that the Government was as much at sea as anyone else. They paid out €18m in an attempt to get professional advice, including €7m in fees to Merrill Lynch alone. The head of that investment bank actually ended up warning that a blanket guarantee could be a mistake, which raises the obvious question -- why keep a watchdog if you're going to bark yourself?

Last month, Lenihan ordered an independent review into how the Department of Finance does its business. He has admitted that the organisation lost influence and status over the past few years, which many people take to be an implicit criticism of his predecessor -- a certain Brian Cowen. Learning from your mistakes is always a good idea, but in this case it feels uncomfortably like locking the door of the safe after the money has already been lifted.

The upshot is we still don't know exactly what advice was given to the two Brians on the night of September 28, when they made that fateful decision on behalf of everyone in the country. Neither do we know exactly why the Department of Finance insisted that Anglo had to be bailed out along with everyone else, even after it was revealed to be rotten to the core.


We can only hope that the official inquiry will give us some answers to these questions -- but given how strenuously the Government has worked to limit its terms of inquiry, you don't have to be a conspiracy theorist to suspect the result will be just another whitewash.

When the arms crisis broke 40 years ago, Jack Lynch's government had just enough sense to pull back from the brink of a war with Britain. The financial crisis we're now in has equally serious consequences for the country's future -- and this time, there's a sickening uncertainty about whether our leaders are making the right decisions.