Irish Banking Inquiry 2016: The publication of a parliamentary report on the banking crash 7 years and 4 months following the decision of Ireland's government on 30 September 2008 to provide a state guarantee for both the debts of domestic banks and deposits with no upper limits, is a useful contribution for future historians. However it's easy to be smart after the fact and there is little that can be termed new. The pertinent question is whether the delayed wisdom will result in a departure from the default glacial change in Irish governance systems?

 

The inquiry was limited by legal restrictions which prohibited adverse findings against individuals and institutions. The report says that the National Treasury Management Agency (NTMA) estimated that the ECB’s decision not to allow either Ireland to impose losses on senior bondholders cost €9.1bn. The central bank's position “contributed to the inappropriate placing of significant banking debts on the Irish citizen,” that was directly estimated in total at €64bn.

Six bank chiefs earned €14.2m in 2007 while the average industrial wage in 2007 was €37,726, according the CSO’s National Employment Survey. By comparison, the report says that average senior bank executives in AIB were receiving total remuneration of over 42 times that figure and those in Bank of Ireland were receiving 48 times that figure, in the same year.

Despite the experience of a second huge economic crash in a generation, the current governing parties, which were elected 3 months after the international bailout in November 2010, have shown no interest in significant change. Most reform has been at the Central Bank and the fact that Enda Kenny, taoiseach, has chosen to put tax cuts as the main focus of the general election campaign, again highlights the enduring lack of long-term vision in politics.

Ireland is a country with the largest percentage of its native-born living abroad, among the 34 mainly developed country members of the Organisation of Economic Cooperation and Development (OECD), and it is also unique in not giving them a vote — reflecting the fear of change among the political elites at home.

Ireland is also as reliant on the provision of ready-made jobs by foreign firms as it was in 1990 and masked by political spin, the long-term poor performance of the indigenous trading sector gets very little attention in both politics and the media.

A Google search for “Irish+reform” sees the Reform Act 1832 heading the results and it is appropriate that a nineteenth century British act of parliament should head the ranking: in 1986, John Kelly, the late UCD constitutional law professor and Fine Gael TD, wrote in The Sunday Tribune:

Ireland’s political and official rulers have largely behaved like a crew of maintenance engineers, just keeping a lot of old British structures and plant ticking over ...The challenge is to evolve structures — within which the people can be drawn to individual and community responsibility for their own development.

The Banking Inquiry report recommends:

An Independent Budgetary Office, possibly as part of the Irish Fiscal Advisory Council, to provide independent costings of budgetary and pre-election proposals of political parties and members of the Oireachtas, should be established.

Michael Noonan, finance minister, met the bailout troika's demand for a fiscal advisory council but it has been designed to be an intellectual ornament, which does not produce its own forecasts, with a membership appointed by the minister and with reporting accountability to the Department of Finance.

In Australia, the equivalent is the Parliamentary Budget Officer (PBO) who is an independent Officer of the Parliament and is not subject to direction in the performance of his/her functions.

The current incumbent has said that the "PBO has had a significant impact in helping to level the playing field for non-government parties and independent parliamentarians as they develop their policies. It has done so by helping to redress the asymmetry of access to costing and budget information services that existed prior to the establishment of the PBO."

Why would a politician who was then sixty-nine years old and who had long experience of the wilderness on the Opposition benches, once inside the tent, agree to a restrictive regime that benefits the Department of Finance, which had a disastrous record during the property bubble?

It can only be explained by innate conservatism while the rest of the Oireachtas had no interest in the issue.

The report says revenue from the property sector was a significant source of income for some media outlets, accounting for as much as 14% or 17% of all revenue for some newspapers.

Editors denied that editorial independence was affected by their advertising relationship with the property sector.

Distortions to data caused by tax avoidance and relentless official spin, continues to be recycled by the mainstream media, as it was during the bubble.

In 2013 the revelations in the US about Apple's tax avoidance, using Irish companies, showed how the denial that was seen in 2001-2007, could be deployed again when there is a mainstream consensus.

The Department of Finance for example argued that funds shifted through Irish shell companies to avoid tax were no responsibility of Ireland's. It was only when there was a realisation that the international moves towards reform were forging ahead that the Government changed its defence of the indefensible.

John Kenneth Galbraith (1908-2006), who had been a professor of economics at Harvard University for over half a century, wrote in 'The Affluent Society' (1958):

Ideas come to be organized around what the community as a whole or particular audiences find acceptable. And as the laboratory worker devotes himself to discovering scientific verities, so the ghost writer and the public relations man concern themselves with identifying the acceptable. If their clients are rewarded with applause, these artisans are qualified in their craft. If not they have failed. However, by sampling audience reaction in advance, or by pretesting speeches, articles, and other communications, the risk of failure can now be greatly minimized. [ ] Familiarity may breed contempt in some areas of human behaviour, but in the field of social ideas it is the touchstone of acceptability. Because familiarity is such an important test of acceptability, the acceptable ideas have great stability. They are highly predictable. It will be convenient to have a name for the ideas which are esteemed at any time for their acceptability, and it should be a term that emphasized this predictability. I shall refer to those ideas henceforth as the conventional wisdom.

The mainstream consensus in Ireland drowns out dissent and Derek Moran, secretary-general of the Department of Finance, struggled in testimony to the Banking Inquiry to convince that contrarian views are welcome.

In 2014 the Department commissioned Seamus Coffey, UCC economist, to co-author a report to show that effective corporation tax rates were close to the headline rate of 12.5% not in low single digits. Coffey was selected as his position was in line with the Department's.

Groupthink was judged to be a problem identified in a 2011 report on the crash.

Louis Menand, an American academic and author, wrote in 'The New Yorker' in 2005: "Our system of expertise is completely inside out: it rewards bad judgments over good ones." In a review of the book: 'Expert Political Judgment: How Good Is It? How Can We Know?' by Philip Tetlock, he wrote, "that people who make prediction their business — people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables — are no better than the rest of us. When they’re wrong, they’re rarely held accountable, and they rarely admit it, either. They insist that they were just off on timing, or blindsided by an improbable event, or almost right, or wrong for the right reasons."

A US study reported by Tetlock showed that the average expert was found to be only slightly more accurate than a dart-throwing chimpanzee. Many experts would have done better if they had made random guesses. Tetlock cites Archilochus, the Greek poet who had observed about 2,700 years ago: “The fox knows many things, but the hedgehog knows one big thing.” Isaiah Berlin in his famous 1953 essay “The Fox and the Hedgehog” contrasted hedgehogs that “relate everything to a single, central vision” with foxes who “pursue many ends connected…if at all, only in some de facto way.” This was an illustration of specialists and generalists at work.

“People are not as good at anticipating the future as they think they are,” reckons Tetlock who is a professor of psychology and management at the University of Pennsylvania.

Tetlock's conclusion: when seeking accuracy of predictions, it is better to turn to those like "Berlin's prototypical fox, those who know many little things, draw from an eclectic array of traditions, and accept ambiguity and contradictions." Ideological reliance on a single perspective appears detrimental to one's ability to successfully navigate vague or poorly-defined situations (which are more prevalent today than ever before).

Bank crash, 2016, Bank of Ireland, College Green, Dublin

Bank of Ireland was founded in 1783 and the former premises of the defunct Irish Parliament at
College Green, Dublin, were purchased for £40,000 in 1803. Photo c.1900, National Archives of Ireland

Defying conventional wisdom

So-called black swan events are rare and it usually pays — in money terms — to go with the flow.

Even in universities academic staff with tenure can have public opinions on many issues but rarely about for example reform of the place they work.

In December 2014 we published a piece on the high personal cost of dissent and in particular of whistleblowing in terms of the risk of being viewed as a pariah by even generally ethical people.

Paul Moore, who had been head of Group Regulatory Risk at Britain’s biggest mortgage lender HBOS, between 2002 and 2005  — it had to be bailed-out by the British Government — commented to a House of Commons committee: “I am still toxic waste now for having spoken out all those years ago!”

Finfacts 2005: Ireland's Celtic Tiger 2005: Built to last or on a foundation of quicksand?

Finfacts 2006: Global Survey 2006: Cost of comparable house in Dublin, Ireland, could buy 9 in Houston, Texas, 3 in Amsterdam, 2 in Sydney and Tokyo

Finfacts 2006: Irish Economy 2006 and Future of the Celtic Tiger: Putting a brass knocker on a barn door!

Finfacts 2009: The 2001 economic consensus that paved the road to economic ruin

Finfacts 2013: Last rites read for Anglo Irish Bank - - the damned builders' bank