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Analysis/Comment Last Updated: Aug 23, 2010 - 8:24:15 PM

Irish Banking Crash: Cowardice a common trait among the damned "best and brightest" but cowards are usually the winners
By Michael Hennigan, Founder and Editor of Finfacts
Jun 10, 2010 - 9:45:01 AM

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Chart 7: Private sector credit growth of the Irish banking system - - from A Preliminary Report on The Sources of Ireland’s Banking Crisis - By Klaus Regling and Max Watson, published June 09, 2010.

Irish Banking Crash: In the aftermath of the devastating indictment by two official reports of the guilty "best and brightest" responsible for the calamitous reversal of fortune for the Irish economy, cowardice has been a common trait and it extends much further than the main culprits. There is also a grim reality about life; the cowards are usually the winners.

In 1992, the late American journalist David Halberstam wrote a new introduction for the 20th-anniversary edition of “The Best and the Brightest,” his celebrated history of the hubristic Kennedy team that drew America deeper into the Vietnam quagmire and he noted that the book’s title had entered the language, but not quite as he had intended. “It is often misused,” he wrote, “failing to carry the tone or irony that the original intended.”

Halberstam highlighted “the difference between intelligence and wisdom," and said "true wisdom...is the product of hard-won, often bitter experience."

In the case of the mainly men who doomed the Irish economy, there were some ostensibly bright people, timeservers who had never taken a risk in their lives and politicians like Bertie Ahern, Mary Harney, Charlie McCreevy and Brian Cowen who had limited experience of life outside politics. Harney had worked for 9 months as a teacher and Ahern had been a bookkeeper at Dublin's Mater Hospital.

McCreevy was a chartered accountant as was Seán FitzPatrick, who built the builders' bank Anglo Irish; two boomtime governors of the Bank of Ireland, Laurence Crowley and Richard Burrows, were chartered accountants and at AIB, another chartered accountant, Lochlann Quinn, shared the boom years as chairman with Dermot Gleeson who the establishment considered an accomplished lawyer.  

In the supporting cast, were more highly-paid accountants who were conveniently myopic when it came to risky practices at banks; incomplete documentation on big value transactions and year-end window-dressing. Providing the intellectual underpinning for both the ignorant and intelligent who had skin in the game was the chief cheerleader among economists, the Dr. Dan McLaughlin of Bank of Ireland, who on May 11, 2007, told builders "that one often hears that growth is unbalanced but a glance at the data from 2001 to 2006 shows average GDP growth of 5.3%, with all components growing in a 4.5% - 5.5% range. Others complain that too many resources are being devoted to consumption but consumer spending in Ireland amounts to 46% of GDP which is not only below the eurozone norm (55%) but has fallen steadily for the past forty years. Household savings in Ireland is also relatively high (at around 10% of household disposable income), which is similar to Germany and substantially above the UK (5%) and the US (zero). This also means that many people benefit from a rising rate environment but this view is also rarely heard."

However, as Shakespeare said in the Merchant of Venice: "The devil can cite Scripture for his purpose."

Well before 2007, Finfacts highlighted inconvenient data such as the stalling of the international tradable goods and services sector; dependence on foreign firms for 90% of trade exports; chump change going into to venture capital for business as the Irish became the second biggest investors in commercial property across Europe; sham benchmarking in return for laughable aspirational targets. 

Then there were senior civil servants who must have known that benchmarking was not an honest arrangement  but pocketed the proceeds and those who are retired did not have any clawback in recent times from these illgotten gains.

Last week in response to the oil leak in the Gulf of Mexico, Tony Hayward, BP's chief executive, admitted it had to find entirely new ways of handling "low-probability, high-impact" risks.

The insiders were cowards because it paid to go with the flow.

As with churchmen turning a blind eye to abuse, nobody shouted stop.

Challenging conventional wisdom often comes at a high price and for example the whistleblower is more often than not the biggest loser. Any amount of legal protection will not change this reality.

Most times, it's a safe bet to keep the trap shut; black swans are rare and there is also plenty company sailing in the status quo boat.

Resignation on an issue of principle, would anyway be a strange development in Ireland.

While politics sometimes gives some leeway to the dissenter, business and religious organisations, show zero tolerance. The brand and the leadership cannot be endangered at all costs and even people of probity turn against the whistleblower, as he or she is seen as endangering the livelihoods of everyone else. Family may also provide no comfort, viewing the trade-off of high principle for future income, as unacceptable.

The US Government Accountability Project warns anyone thinking of exposing an employer's wrongdoing: think hard before you do because you are going to suffer. In a book called Courage Without Martyrdom, it warns that whistleblowers "pay an enormous professional and personal price for their actions - often a price they did not anticipate."

The effects will not disappear. "Long after the public has forgotten your courageous actions, your superiors will remember what you did to them," the book says.

In February 2009, Paul Moore, Head of Group Regulatory Risk at Britain's biggest mortgage lender HBOS, between 2002 and 2005, who was a barrister by profession and a former Partner in KPMG’s Financial Sector Practice in London specialising in regulatory services, told the House of Commons Treasury Select Committee in a written submission, that he and his team experienced threatening behaviours by executives when carrying out its legitimate role.

"I was strongly reprimanded by the CFO for tabling at a Group Audit Committee meeting the full version of a critical report by my department making it clear that the systems and controls, risk management and compliance were inadequate in the Halifax to control its 'over-eager' sales culture," Moore said.

He was fired in 2005 by HBOS and was subsequently paid a substantial sum, in return for signing a "gagging" order. Moore’s replacement as risk manager was a sales manager who had no experience in risk. The appointment was made personally by the CEO and against the wishes of the other directors.

As for life since, Moore commented to the House of Commons committee: "I am still toxic waste now for having spoken out all those years ago!"

In Ireland with a culture of limited accountability in governance, a small establishment of insiders given preference on public appointments and procurement, conflict of interest seldom an issue, pervasive cronyism and corruption, the risks of standing apart from the pack were greater than in some other countries.    

Where else would lawyers inquiring into petty corruption, become multimillionaires in the process?

It surely begs the question as to what is corruption?

In 2004, the then Bank of Ireland chief executive Michael Soden was swiftly fired for accessing an escort site from his office computer. However, his successor could risk bringing the venerable bank to the brink of ruin   

Soden broke a rule and it was easy for Laurence Crowley to apply but what risk rules did Crowley put in place and if Seán FitzPatrick was setting the market rules, surely he could have made a public issue of it?

It was of course easier to go with the flow.

“Rocking the boat and swimming against the tide of public opinion would have required a particularly strong sense of the independent role of a central bank in being prepared to ‘spoil the party’ and withstand possible strong adverse public reaction,” Prof. Patrick Honohan, Governor of the Central Bank said in his report which was published yesterday.

Being a coward was expected to continue to pay dividends but despite the crash and terrible human toll, most of the main culprits and cheerleaders in this drama are still laughing all the way to the bank.

Access Reports: Irish Banking Crash: Two official reports detail monumental political, regulatory and business management failures- - Patrick Neary, Chief Executive of the Financial Regulator, retired with a secret €630,000 payoff: He was given a special €202,000 pay-off, plus a retirement lump-sum of €428,000, according to terms disclosed by Finance Minister Brian Lenihan.  In addition, he is receiving an annual pension of €142,670.

Bank of Ireland chief executive Brian Goggin earned €12.46m in 2004-2009. He is on a full pension of  €650,000-a-year at less than 60.

Charlie McCreevy is on 3 pensions and has joined the director circuit with board membership at Ryanair; the other political leaders have meal tickets for life.

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