Granted, the rescheduling is quite possibly a trivial matter of a poorly communicated announcement by the White House, which the media have been only too happy to sensationalise. Nevertheless, the mere appearance of trying to avoid clashing with a season premiere of Lost gives pause for thought. Obama had better improve his public relations team in the White House. His predecessor, George W Bush, was lucky enough to have a finely tuned PR spinning machine that managed to get a weak leader re-elected for a second term. The current Administration appears to risk suffering from a reverse form of this malaise.

Have serial TV dramas become the latest opiate of the masses in the 21st century, just as religion and football were in the past? The sheer size of the television audience means a lot of people are kept occupied on matters other than politics, so it certainly acts like it. If so, those who believe in grand conspiracy could easily imagine that the strategy must have been carefully designed by previous GOP Administrations – the Democrats have yet to learn about the importance of TV scheduling. A recession, global warming, and history repeating itself in Afghanistan are no-longer sufficient reason for a quite significant section of the US public to switch over to the presidential address, missing crucial plot-defining moments in the process.

So who are these mysterious Lost viewers? Who have managed to dictate the terms of Obama’s biggest PR moment in months? My guess is Generation Y. Generation X are a little on the old side to form a large part of Lost’s audience. Generation Z are too young be bothered with such trivial matters as voting anyway. Incidentally, it seems that there really was a “Lost Generation“, but that referred to notable authors of US literature who found themselves down and out in Europe after the First World War. I’m sure that the Lost viewers would have been considered useful material for the Lost Generation’s own view of the political and social realities of the 21st century if they were with us today.

The background was a high-stakes gamble on property that Liam Carroll made with borrowed money, systematically channelled into the black hole known as Zoe Group (the parent company of Vantive Holdings and Morston Investments among others). He had made it big-time during the bubble years but a collapsing property bubble set the stage for a dramatic show-down. An imprudent speculator in many respects, he had the reliable backing of domestic banks, unconcerned for their shareholders but rather more concerned for their political allies and their network of cronies. There was, however, a dissenter in their midst in the form of ACC Bank.

The old “Agricultural Credit Corporation”, privatised in 2002 and bought by Rabobank, had gone astray in the froth of the speculative bubble, along with the rest of the banking sector. They found themselves in the unfortunate situation of having lent a vast sum to a property developer who had gambled away most of their capital through huge losses on speculative property “investments”. Unlike most of their Irish banking peers, ACC Bank have a wary foreign owner to answer to. Rabobank are a triple-A rated bank – a now rare breed of solid global banks – that can boast of a financial stability and a deep capital base they can dip into during leaner times, which is the envy of the global banking sector. It is no wonder that one of their Irish subsidiaries, ACC Bank, with its mounting provisions for loan losses, was proving to be a thorn in their side, and they needed to bring it under control. As a global bank with its headquarters in the Netherlands, Rabobank is reluctant to allow a large part of their Irish loan portfolio to rot away while the Establishment scurries about making deals to protect their own short-term interests.

In contrast, the two biggest lenders to the Zoe Group were far more willing to compromise to avoid liquidating the company. Allied Irish Banks (AIB) is Irish-owned and subject to the pressures of its fellow crony club members. Bank of Scotland (Ireland) is a subsidiary of HBOS and Lloyds TSB which have also proven their lack of aptitude for risk management. Both banks have been rescued from collapse by government bailouts. When Zoe Group finally breached its loan covenants, ACC called time and applied to the courts to liquidate the company. The other banks which had financed Carroll were still in denial about the severity of the problems of Zoe and of the wider property slump in general and focused only on the short-term consequences. Liam Carroll appealed for court protection and, according to an Irish Times article, his justification for this preferential legal treatment of his groups’ €1 billion deficit was a truly remarkable “single page outlining the hope value of his assets and two short sentences explaining the valuations and citing their source“.

Despite the Zoe Group being clearly insolvent and Liam Carroll proving unable to offer any credible plan for long-term survival, the banks were still prepared to support a deal involving examinership (a process akin to Chapter 11 bankruptcy for US readers) and reorganisation to keep Zombie Zoe on life-support – with the exception of ACC Bank. They fought a legal battle to liquidate the remaining value of their loans and were portrayed in the press as agressive.  Finally, on 11 August, the Supreme court dismissed Carroll’s appeal.

Perhaps ACC Bank is playing hard-ball to strengthen their negotiating position and force an offer from the other banks to buy out ACC’s loans on favourable terms in return for relenting on their petition for liquidation. Ironically, their own self interest is also in the interests of the taxpayer. A forced liquidation of Zoe Group companies would ensure that the banks realise the losses on the loans before they become a taxpayer’s liability when they are transferred to NAMA. It must be said, the Establishment, a crony-capitalist club of bankers, developers and politicians (predominantly Fianna Fáil) with vested interests, put up a good fight – as far as the Supreme Court, exhausting all domestic legal remedies. A continuation of legal proceedings and even a hypothetical victory involving the granting of court protection and examinership would have simply delaying the inevitable liquidation the hopelessly insolvent company. Thankfully, the result is a victory for ACC Bank and possibly even a rare victory for the taxpayer.

So, are we to congratulate our Supreme Court for upholding the rule of law for a foreign-owned company just as it would for a domestic one? Well, perhaps. That is the best answer I can give because my suspicions remain that the Supreme Court had their hands tied. Ever since Ireland joined the European Union in 1973, it has been subject to the supremacy of European Community Law which is within the jurisdiction of the European Court of Justice. The Supreme Court judges know that if they had ruled in favour of Liam O’Carroll and against ACC Bank, any appeal to the European Court of Justice would have been overruled. They would have lost much credibility.

Progress is already being made by cracking down on tax evasion such as fraudulent mortgage interest relief claims. Other positive moves include reduced relief on mortgages for rented residential property and the obolition of the special 20% tax rate applicable to companies dealing in or developing residential development land. Another important, and as yet overlooked, element of reform is the introduction of property tax.

Property tax would help to:

• moderate speculative property investment
• smooth out the wild cycles in the property market
• broaden the tax base by creating an additional source of revenue
• provide more stable tax revenue

Compared to stamp duty which can be very volatile, property tax is much more stable, dependable and predictable which are desirable traits for a source of government finance. I sincerely hope that this does not fall foul of political and public resistence. Following previous failed attempts at implementing a system of property taxation in the past, this time the government is likely to tread carefully.

The state sponsored Commission on Taxation, with inputs from the Foundation for Fiscal Studies (among others), is currently examining the possibility of introducing property tax as part of a general broadening of the tax base in Ireland. The government explicitly stated that it was to consider options for the future financing of local government. Current policy recommendations in John Gormley’s Green Paper (pdf, html) concerning local government finance defer to the conclusions that will be determined by the Commission on Taxation no later than 30 September 2009.

To ensure a fair system, means-tested measures should be included to avoid taxing residents out of their homes and excessive gentrification. Properties valued below a certain threshold should be exempt. While a change in mindset would be needed to adapt to property tax, the prospect of retirees on modest pensions having to downsize to avoid tax bills need not be the case. A Valuations and Appraisals Register would need to be established and administered by local government. This would detail property values from the obligatory registration of final agreed prices of all property sales, and would form the basis of how much tax to charge.

It would also provide the added benefit of improving the transparency of the property market in Ireland, where property values are, at best, heavily biased guesstimates thanks to the lack of public data on property transactions. Estate agents and auctioneers would no longer be able to misguide people with impunity. Considering that the main house price index available to statisticians, policy makers and house buyers, is compiled with data from a minor commercial mortgage provider in conjunction with the ESRI, an economic think-tank, much remains to be done to improve matters.

Ideally, property tax should be controlled and directly received by local government. This would provide them with an independent means of raising funds. As the structure of government in Ireland is extremely centralised, however, I’ve no doubt that central government will be the beneficiary of revenue raised from the tax. A strong mandate, not to mention political leadership with vision, would be required to implement such an important first stage of structural reform of government in Ireland. Alas, neither the people of Ireland, nor Irish politicians have any desire to support such reforms.

Also from the Local Government Finance chapter of Gormley’s Green Paper:

The Indecon Review of Local Government Financing (March 2006) also makes numerous references to the implementation of a property tax.

The institutional underpinnings of local government, along with the whole area of urban planning, would need to be reformed, of course. Tax raising powers without adequate transparency would be a dangerous combination in the already murky and opaque world of local government and planning in Ireland.

A friend emailed me a link to an article in the Independent, “Taxman ends mortgage relief for 154,000 ineligible homeowners“. The subject line of his email? – “Good news”. Both of us never jumped on the fabled property ladder and had tried, in vain, to ignore the constant smart-arsed remarks over the years about how people had “earned” so much on their property. I’m sure this was a constant conversational annoyance in any country that experienced a property bubble, be it the US, Spain, the UK or Australia, however, it really focuses your attention on what’s going on around you where you live.

For me, one of the ultimate smart arses, is Ciarán Maguire. He was lucky enough to jump on the property bandwagon in a big way with the right connections just as the credit was flowing in the right direction. His group’s website has been tamed, although I remember cringing as I read it in the past when it seemed to me as being little more than an arrogant platform of vanity and self-worship. There were lines like “one of the Worlds Youngest Chairmen and President of a Multi Billion euro Corporation” and he also shamelessly ripped off Warren Buffet with his rules of investing: “1. Never Lose Money 2. Never Forget Rule #1“. I’d love to know what the balance sheet of the Ciarán Maguire Group is like. I would wager a guess that their debt levels are stratospheric, considering how much leverage would be required for his far-fetched ventures. I digress…

For years, property as an “investment” was seen as a one-way bet. So why could a policy to remove incentives for property investment be “good news”? The establishment had tinkered with the tax system to favour property investment at the expense of other, more productive sectors of the economy. The tax authorities turned a blind eye to widespread fraudulent claims for mortgage interest relief such as claims from people who had bought undeclared “buy-to-let” investment properties which they rented out. The average man on the street firmly believed that property prices simply could never fall.

Residential investment (% of GNP/GDP) *

* Alan Ahearne, Juan Delgado, Jakob von Weizsäcker, How to prick local housing bubbles in a monetary union: regulation and countercyclical taxes, VoxEU.org, 27 June 2008

It was an understandable assumption, because Ireland had not experienced a property crash in recent history, and the authorities blatantly ignored the lessons of property crashes elsewhere with spurious justifications such as demographic trends. I can only imagine how cozy ministerial chats over pints of guinness with their construction and property developer buddies, along with the top brass of Anglo Irish Bank, must have provided the basis of their official policy. The Department of Finance extended tax incentives for property investment and the puppet Financial Regulator left open the credit taps on an already frothy economy. Words to the effect of those chimed by Chuck Prince, former CEO of Citigroup, aptly describe the economic strategy of those holding the levers of power in Ireland and top level mandarins – “as long as the music is playing, you’ve got to get up and dance. We’re still dancing…“. Ireland experienced a multi-year nationwide céilí.

Well, that was then, and this is now. As property is such a substantial and all-pervasive sector of the economy, the effects are widespread – house buyers (mortgage holders), banks, construction companies, and, in fact, everybody else, as the rippling impact of the combination of the credit crisis, property crash, and economic recession now clearly demonstrates. Another conversation with a friend of mine some time ago who was about to buy his house springs to mind. His reasoning for buying? It has to be a safe bet. If property were to crash, everybody is in the same boat and then the entire national economy would crash along with it. What he assumed, of course, was that a broad economic collapse was highly unlikely. What a prophetic statement that proved to be.

The state guarantee of the entire banking system meant that we collectively “bet the farm“. I also fear that the taxpayer will be hit yet again when the National Asset Management Agency (NAMA) takes over €80 billion of dodgy loans off the banks’ balance sheets in return for inadequate discounts.  Some reports suggest that property developers used the same assets as collateral for loans from multiple lenders. What a nightmare it will be to recover anything close to the face value of those loans. The capital injections to date have only been to counter the lack of liquidity due to the credit crunch.

For those who think it is all over, think again. Only now are the inevitable bankrupcies of the property developers starting to hit the banks (i.e. the taxpayer), so we are still in for one hell of a ride. As of 29 May 2009, the already nationalised Anglo Irish Bank requires a capital injection of up to €4 billion due to significant defaults on loans they had issued. They anticipate billions more in losses if property markets fall by just another 10%. It is likely to fall by far more.

Getting back to the article, the government has made a shrewd move by freezing existing mortage interest tax relief and “forcing” mortgage holders to re-apply. Hopefully some of those smart arses are shaken out of their comfortable complacency and are obliged to pay their dues. That, however, is not the main point. The main point is that it removes an artificial and informal stimulation of the property sector by enforcing (for once!) existing tax rules. Another important aspect is that it will allow the state to collect more taxes to help fill a gaping hole in the national budget. A common attitude is that if everyone is involved in tax-avoidance, then it’s ok. Well, this is one hell of a way to force cultural change in Ireland. It’s only the start, of course. Another important, and as yet overlooked, element of reform is the introduction of property tax.

Contrary to his namesake “Biffo” and all his past failings, I’m sure that Brian Cowen is a fairly competent political leader. The trouble is that he’s been permanently stained by the dirt that slipped off Bertie “Teflon” Ahern after having been cozily snuggled up in bed together for so long. It must be said that Brian Cowen, and of course, Brian Lenihan, who, as Minister for Finance, must have had a hand in this, are finally making sensible policy decisions. The only problem is that this is yet another case of shutting the stable door after the horse has bolted. Fianna Fáil consists of a bunch of Truman Burbanks waking up to reality.

They’re now trying to fix the problems they created (as members of the Bertie bunch), so they’d better get it right.

Good morning… and in case I don’t see ya, good afternoon, good evening, and good night!

The real news, however, was the sudden disappearance of their report from RTÉ’s website and the subsequent events. All the machinery of the state had suddenly sprung into action to defend the Taoiseach against the evil powers. According to the Sunday Tribune:

• The government press officer Eoghan Ó Neachtain was infuriated by the tone of the piece. He placed a direct call to RTÉ director general Cathal Goan… ( – which seems to have resulted in the RTÉ apology. )
• by Tuesday, Fianna Fáil TD Michael Kennedy was calling on RTÉ ’s director general to “consider his position”, while the national broadcaster made arrangements to broadcast its apology…
• plainclothes detective arrived at the studios of Today FM on Tuesday morning. He demanded access to the station’s email system and told the programme’s producer Will Hanafin that “the powers that be want action taken”…
• [Casby] was finally under real investigation on suspicion of three offences, namely: incitement, indecency and criminal damage [for hammering a nail into the wall of the National Gallery].

It really does seem like excessive government interference. If they are willing to take a heavy hand against something as trivial as that, then what hope is there for freedom of the press in Ireland? RTÉ was (IMHO) forced by the Taoiseach to retract the report and issue an apology:

“RTÉ news would like to apologise for any personal offence caused to Mr Cowen or his family, or for any disrespect shown to the Office of the Taoiseach by our broadcast”

Personal offence? Possibly – but haven’t politicians and other public figures been fair game for non-slanderous parody and satire by the formerly stifled press since Ireland threw off the shackles Charles Haughey and the Catholic Church and joined the ranks of modern Europe? Offence to the family? I don’t see how. Disrespect to the Office of Taoiseach? His Imperial Majesty, Emperor Cowen’s reaction to the prank unnervingly echoes the story of poor Australian writer, Harry Nicolaides, who was thrown in jail for 3 years in Thailand for insulting the Thai monarchy.

In the portrait, Cowen appears in all his glory parading the uniform Fianna Fáil delegates have been sporting during the bubble years. The only problem is that the crisis has unmasked bubble Ireland for what it is. A small child cries out that the emperor has no clothes on, and everybody suddenly emerges from their denial and property-inspired, taboo-enforced hysteria. The cold, unforgiving light of day lays bare the deficient, short-sighted leadership of Ireland.

I only wish the portrait had been of Bertie Ahern, although perhaps the visual impact wouldn’t have been quite the same   Thanks to his bashfulness, Cowen has been caught with his pants down – twice. Hands off, Cowen!

So, in the interest of freedom of the press (and with thanks to Damien Mulley for the YouTube upload) , enjoy:

We all know by now that the credit crunch caused a liquidity crisis at Irish banks. When the international markets effectively shut off funding, they turned to the ECB for their expensive short-term funding facility, and ultimately, to the Irish government for a recapitalisation bailout. The state itself could usually rely on foreign buyers to purchase government bonds to fund national budget deficits. Well, now it seems that the state is feeling the pinch of liquidity drying up on international markets as foreign buyers either turn up their noses or charge a huge risk premium to buy Irish government bonds. How much longer will it be until the whole desperate State of affairs buckles under its own weight?

A major flaw, however, is that Fianna Fáil do not lead by example. People on low or middle incomes will resist any cuts unless they feel that all sectors of society are hit and not just them. The privileged should be faced with severe cuts – especially the well paid banking executives and the bank directors that conveniently retired over the last few months with a windfall golden handshake and lucrative pension. Politicians and government ministers should accept particularly heavy cuts to their salary. People who exploit tax-avoidance loopholes should be brought into the fold, and, above all, tax evaders should be prosecuted. If this does not take place, the government will be faced not only with an end to social partnership, but also social unrest on the streets of the capital.

While the pensions levy is only a start, it does send the right signals that the rapidly worsening fiscal problems are being taken seriously and are being responded to. The best case scenario can only be achieved if difficult measures are taken to make a swift adjustment, however, it would still involve a severe economic contraction. If the action taken is inadequate, however, national bankrupcy may be inevitable. A consequential rescue by our European Union partners or the IMF would come with unwelcome strings attached, in addition to even tougher budget cuts and tax increases. A sharp downward adjustment in prices, spending, lifestyles and expectations cannot be avoided – we can only try to manage the adjustment to minimise the pain inflicted.

The high levels of public sector pay and an over-staffed civil service is something from an era of exuberance. During difficult economic times it is a major drain on the exchequer finances. The pensions levy partially addresses this, however, a likely rise in bad debts on the banks’ balance sheets (now guaranteed by the taxpayer) would undo all the efforts so far. More fat needs to be cut. The Health Service Executive springs to mind, however, not a single hospital bed (and corresponding staff & resources) should be cut until all idle middle management, unnecessary expenditure and pointless bureaucracy have been eliminated. Any wasted expenditure identified by the Comptroller and Auditor General should be ruthlessly eliminated.

The spiralling deficit is also due to the collapsing tax take. Ireland has quite a narrow tax base and this is now proving to be a major disadvantage. The tax base should be broadened. Perhaps a property tax (at least on those with two or more properties) would be a first step in the right direction. No longer should property be an untouchable asset class for speculators. As for corporation tax, it would be rather difficult to increase that. Ireland has nurtured a vast swathe of foreign direct investment from US companies that suckle at the nipple of predatory corporate taxation. They are not easily weaned without the risk of capital flight of a more fundamental nature. Our low tax, low public services society has created an unfortunate dependency on fickle foreign investment.

The good news is that, luckily, Ireland entered the crisis with relatively healthy public finances including low government debt, so there is some scope for borrowing to cover the deficit in the short term. The bad news is that it will be very difficult for Ireland to successfully raise the billions needed to the plug the hole in the public finances by selling government bonds. As so many “developed” countries will also be looking to the markets to finance their budget deficits more or less simultaneously, the markets will demand high interest rates to buy the (now relatively risky) Irish bonds. This is why the spending cuts (including public sector pay) will have to be all the more stringent.

I do regret the unjust nature of the cuts such as the pensions levy that uniformly hits all without considering pay levels. It only reinforces the profound inequality that exists in modern Ireland. We should remember, however, that equality is not what Fianna Fáil and their cronies have come to represent. Let them clean up the mess they created – afterall, they know best where the dirt lies. A time will come when the green shoots of recovery finally beckon us to close the chapter on a reckless gold rush and place our trust in new leaders. Hopefully, a more just society will be waiting for us when we re-emerge on the other side – with a different government. For now, however, we must choose the bitter pill that only Fianna Fáil can deliver.

please choose up to 3 answers:

In a sharp exchange, O’Toole accused the government of not pursuing the 1% top of earners who, more than likely, have their wealth hidden in off-shore tax havens. He also highlighted the injust tax system which effectively subsidises landlords (on top of the feeble tenancy rights in Ireland). While this kind of thing is going on, I can understand why public sector workers are not willing to accept the pension levy that the government is pushing through parliament. At a time when the government should be leading by example, they are protecting hidden billions of the rich, the landlords, and possibly themselves too.

The response by Cullen, consious of his audience of thousands of TV viewers, was typical  of the manner in which aloof politicians use free market economic theory, completely out of context, to scare ordinary people into submission. His argument is one that deserves a prize for practically mocking his audience for not having a degree in economics -

“You can’t at one swoop of a pen, remove all incentives that disaffect mobile investment out of this country. You have to compete in a global market for mobile investment.”

O’Toole, of course, made the point that landlords and rent is not derived from mobile investment. I would imagine that the problems associated with tax havens could be addressed with some sensible legislation requiring financial organisations to disclose more information, allowing government departments to share more data, and by encouraging the tax authorities improve their administrative and investigative processes. A bit of background is useful, however, to understand the impact of this statement on an Irish audience….

In the 1980’s, as today, the country was in a financial crisis. The difference was that, at the time, the crisis was due to economic stagnation and lack of developement – unlike the imploding credit and asset price bubble that is taking down the country today. Reforms were put in place to create an attractive corporate environment, the centrepiece of which was a sharp reduction in corporation tax, and an agressive promotion policy to attract foreign direct investment from the United States. Ireland enjoyed an economic boom (which was sustainable until the early 2000’s) thanks largely to low tax. The Irish people understand the power of using the tax system as an economic tool and have accepted this as unquestionable economic doctrine.

In Ireland, politics tend to be rather right wing with the result that the “centre” of Irish politics is comparable to the Democratic Party in the United States, and far to the right of centrist politics in other Western European states. Incumbent politicians in Ireland, having seen how effective George Bush’s “War on Terror” has been in controlling the people of the US, have invented their very own War on Economic Terror based on the right wing, free-market policies of the dominant Irish political parties. This was made possible by exploiting people’s ignorance of the mechanics of the free market and their firm belief in liberating the free market and preventing state intervention. The abuse of economic theory includes invoking fear of a demand-led collapse if spending were to be cut on a public or private level – thus realising a Keynesian Paradox of Thrift. On the contrary – the collapse is due to de-leveraging of the credit bubble and cannot be stopped. It can only be managed, to moderate its worse effects.

As a rational person, I am not in favour of terrorism in a democratic society. I strongly disagree, however, with the way politicians label any person having a suggestion that involves sustainability, economic prudence, tax reform and sensible regulation, as practically being an economic terrorist. There are people that have rather extreme left wing ideologies that would be rather damaging to implement, however, even middle ground – the centre of the economic spectrum – is choked. Until only a few months ago, it was taboo to utter any remark in public that suggested that the house price boom was a bubble and was unsustainable – they were “talking down the market”. Anyone hinting at sensible regulation or sustainable economic policy was branded a socialist or worse. Victims of this treatment included Morgan Kelly (“Dr Doom”), an economist from University College Dublin, and RTE’s Economics Editor, George Lee.

To refer to the quote of Bertie Ahern, Taoiseach (Prime Minister) of Ireland from 1997 until 2008, when he famously complained about people who warned about the consequences of the government’s consumption-based bubble economics:

“Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide“.

I rest my case.

Large investment funds which had stakes in Anglo Irish Bank are considering legal action to recoup their losses from the bank’s owners i.e. the Irish State. There maybe a valid legal basis to take action as reported by the Sunday Tribune:

Dr Deirdre Ahern, law lecturer at Trinity College Dublin, said that a possible breach had taken place of Section 60 of the Companies Act 1963 which, subject to some exceptions, prohibits the giving of financial assistance by a company for the purchase of its own shares unless this has been approved by all shareholders.

“There may also be an issue under the Market Abuse Regulations 2003 and Part 4 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 which regulate insider dealing and market manipulation and provide for both civil and criminal liability,” she added.

One memorable phrase that was sums up the situation is “economic treason”, used in comments by Senator Dan Boyle and Irish Congress of Trade Unions general secretary David Begg. The political infighting over the controversy about share price manipulation by Anglo Irish Bank comes amidst a property price collapse, a spiralling government budget deficit and a growing fear of default on Irish government sovereign debt which is now rated as riskier than Italy, Greece.

Financial regulators appear to have been to be impotent onlookers in the monetary boom and bust of many developed countries, and not the strong authoritative pillars they were meant to be. Any financial regulator or central bank chairman who are proven to not have acted upon information received about excessive risk taking by the sector under their oversight,  or even if they did not adequately investigate and monitor the sector, should, in my opinion, be held legally responsible.

United States

The monetary expansion of the past decade in the US was substantially aided and condoned by Alan Greenspan, the former chairman of the Federal Reserve. He held the post during 18 years which proved to be enough time to instutionalise a loose monetary policy of low interest rates and cheap capital despite much evidence of successive bubbles in asset prices such as stocks and property. He justified this by his belief in self-correcting markets and an upwards shift in in the level of sustainable economic growth and higher productivity for a variety of reasons such as increased investment by business in computer systems.

In the US, besides Alan Greenspan, another prime candidate is the Securities and Exchange Commission and its former chairman, William H. Donaldson. He introduced rules to substantially reduce the requirements that large investment banks were subject to. He also decided to rely on the computer models of the very banks the SEC were meant to monitor to determine the riskiness of their investments. While his successor, Christopher Cox, introduced many positive reforms, they were not strong enough to undo the damage done by his predecessors or reduce the risk of the leveraged boom in toxic securities that was underway. His subsequent reaction to the beginning of the crisis in September 2008 was relatively ineffective. They were appointed by the former US president George W Bush.

Here’s a video that describes how toxic assets were created. It’s really incredible that the Federal Reserve and Securities and Exchange Commission allowed this kind of thing to go unchecked!

The Crisis of Credit Visualized from Jonathan Jarvis on YouTube.

United Kingdom

The UK duo of the Bank of England and the Financial Services Authority were notably ill-coordinated in their response to the financial crisis. This became evident with their tentative handling of the collapse of Northern Rock and the ineffectiveness of their bank monitoring procedures despite the prior warning signals. The combination of poor regulation, the large size of its financial services sector, and the existance of a property price bubble (almost as extreme as Ireland’s) has resulted in severe strain in the stability of the UK financial system. There were very few controls on banks speculative investments in toxic assets. The pound sterling has suffered major falls against most major currencies.

Switzerland

The Swiss bank, UBS, and the Swiss reinsurer, Swiss Re, seem to have had free reign to invest any amount of capital in any class of assets. As a major global financial institutions based in a relatively small country, they have the potential to be a destabilising force for Switzerland. The recent downturn of the Swiss Franc may prove to be a sign that Switzerland is losing its status as a safe haven in times of international financial turmoil.

Austria, Italy, Belgium

The financial regulatory authorities of Austria, Italy and Belgium did nothing to react to the issuance of large amounts of , euro-denominated debt to borrowers in countries of Central and Eastern Europe. While this is normally benign, if the currencies of the respective countries is hit on financial markets, the debt becomes ever more expensive for the borrowers to service. The borrowers receive income in their own currencies, however, they must repay the debt in euros which is currently strengthing relative to those currencies. The banks at risk include Erste Bank, Raiffeisen Bank, Societe Generale, Unicredit and KBC Bank .

Ireland

A special mention goes to Patrick Neary, until recently Chief  Executive of the Irish Financial Regulator, and his predecessor, Liam O’Reilly, who held the post from November, 2002 until December 2005, along with all the board members of the Central Bank of Ireland from 2002 until 2007. During their terms, there was huge growth in mortgages that were excessive compared to combined salaries of house buyers, in addition to an explosion of speculative lending of banks to property developers and construction companies. Both were substantial factors in one of the most extreme property bubbles in the world and no effective action was taken to restrict these activities. Patrick Neary was recently forced into early retirement – a convenient move by his political appointees.

Bank directors, board members and top executives

Considering the systemic risk of collapsing banks to the entire country’s (and world’s) economy, the possibility of taking legal action should be investigated. Bank directors, board members and top executives have a duty of care to their stakeholders (including the state) which is not compatible with the unreasonable profligacy and risky speculation with depositors’ and investors’ funds that took place. Those who are proven guilty of mismanagment and breach of duty should bear legal responsibility.

People that should be investigated by law enforcement agencies include top management and board members of the following companies: In the United States – AIG, Merrill Lynch, Lehman Brothers, Bear Stearns, Washington Mutual, Countryside and Wachovia. Elsewhere – Anglo Irish Bank and many more. You many think that it is only natural that a commercial organisation, with its shares quoted on the stock market and subject to the whims of shareholders, should aim to maximise profits – except that banks are not normal companies.

Action?

If we are to discourage the kind of behaviour that led us into this mess, the people responsible should be charged with negligence on a national scale.

Governments

The state’s executive, or the government, is usually responsible for appointing the head of the country’s financial regulatory authority. While much blame lies with the government, it must be remembered that it is the people of the country who choose the politicians from whom the government is formed. It is a major disappointment that the people themselves – the electorate – repeatedly voted for the politicians who led us into this crisis. An elected official who becomes comfortable in their position does not tend to actively defend the interests of the people. It becomes too tempting to aim for short term gain to increase chances of re-election at the expense of long term prosperity and well-being.

United States

George W. Bush was voted in twice in succession by the people of the United States. I would not consider him to be the most exemplary of presidents a country could have. His appointees have overseen the spread of subprime lending and the unregulated derivatives market. The US financial system is now in severe distress and its economy is contracting.

Ireland

Fianna Fáil has been main party of coalition goverments of Ireland since 1997, having been repeatedly re-elected, and have, rather forcefully, consolidated conservative politics in Ireland. A prominent member of Fianna Fáil , Bertie Ahern was Minister for Finance and subsequently Taoiseach (Prime Minister) at the time when damaging stimulatory policies were either put in place or extended without adequate checks and balances. In April 2006, at the peak of the property bubble, he made this comment, as reported by Finfacts Ireland:

“Really we should have an examination into why so many people got it so wrong. My view is there’s not a great problem. Really, the bad advice of last year given by so many has maybe made some people make mistakes, that they should have bought last year.”

He and his party have squandered an impressive economic boom that has now faded. Ireland is currently suffering from fears that it may default on its national debt thanks to the effects of a collapse of a huge speculative property bubble.