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Dan White: We get a nasty letter from the bank when we're overdrawn, so how is one man allowed to chalk up debts of €1.5 billion?

Property developer Bernard McNamara threw in the towel yesterday in the High Court.

He decided not to contest a ruling making him personally responsible for €62.5m, which one of his companies had borrowed from a group of wealthy investors.

The money had been used to help finance the purchase of the 24-acre former Irish Glass Bottle factory site in Ringsend for €412m in 2006. The site was recently valued at just €50m.

Unlike last year's Liam Carroll saga, which dragged on for more than three months and involved multiple hearings before several judges in the High and Supreme Courts, the McNamara case now looks like coming to a speedy conclusion.

Empire

With McNamara's companies owing a massive €1.5bn, it is clear that his empire -- which apart from the Ringsend site also includes the former Burlington Hotel, the Elm Park development in Mount Merrion and one of the largest construction firms in the state -- will be rapidly broken up.

The outlook for McNamara personally is grim. In a dignified radio interview yesterday, his 60th birthday, he made it clear he expects to lose everything.

While on a human level it is possible to feel a certain sympathy for McNamara, who never allowed his apparent success to generate the levels of obnoxiousness displayed by some of his competitors, we need to keep our eyes firmly on the big picture.

Last year, we learned that Carroll and his various companies owed the banks more than €3bn, while Cork property developer John Fleming was in hock to the banks for more than €1.lbn. Now we know that McNamara owes €1.5bn.

What on earth were the banks thinking about when they lent such massive amounts of money to property developers?

How in the name of bejaysus did they imagine that such enormous amounts of money would ever be repaid, particularly, as has now happened, with the property bubble burst?

Blame it on the euro. Until we joined the single European currency 11 years ago, the amount the Irish banks could lend to their customers was effectively capped by the amount they could take in by way of deposits.

As late as the end of 1998, almost 90pc of the lending of the Irish banks was covered by Irish deposits.

The euro changed all of that. With Ireland representing less than 2pc of eurozone output, the cap on Irish bank lending was, in effect, removed.

Instead of having to do that boring stuff like attracting more deposits, all the Irish banks now had to do was borrow the money from banks elsewhere in the eurozone and lend it on to their customers.

With the Irish economy and property market already overheating, this ability to borrow unlimited amounts of money from European banks was the financial equivalent of throwing petrol on the flames.

In the first 10 years after we joined the euro, while Irish bank deposits tripled, Irish bank lending grew almost seven-fold.

In the same period, the proportion of lending tied up in bricks and mortar rose from less than a third to almost two-thirds, while proportion covered by deposits fell to just 45pc.

Bust

But now the banks are on life-support, reduced to the status of zombie banks dependent on short-term ECB funding.

The property developers are bust with €77bn of bad loans set to be transferred to NAMA.

Meanwhile, hundreds of thousands of homeowners are stuck in negative equity, with many of them facing the prospect of losing their homes.

Why did this happen? Who was responsible? Where were the regulators and the Government? How can we stop it from happening again? We need answers and we need them now.

This is why it is so important that we have a thorough investigation of what went wrong with our banks.


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