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What do we know from Nyberg that we didn’t know before?
Read more about: Economy, Scandal 
With the trilogy of Lenihan-era reports into Ireland’s financial collapse now completed (Regling-Watson, Honohan, and now Nyberg), there is now a lot of good information from which to draw. But if you were hoping that completion of the trilogy meant something on the order of Return of the Jedi in terms of closure, you’d be mistaken. To the extent that Nyberg apportions responsibility at all, it’s to institutions and not to individuals, and a collective irrationality straddling government, banks, and homebuyers plays a big role in his story. Nevertheless, I came away from the report with a better sense of particular issues that hadn’t come across before.
1. The role of preserving “independence” in the herd-lending mentality of banks. Bank of Ireland, AIB, IL&P and EBS didn’t just chase Anglo and INBS because of profits and targets, they chased them because they thought if they didn’t get bigger themselves (meaning market valuation), it would be too easy for Anglo or a foreign bank to take them over. And thus one of the great ironies of Ireland’s financial crisis — chief executives and boards wanting to keep the prerogatives of being a stand-alone bank put the banks in the hands of the state. One outstanding question: did the Irish bank mentality of “independence” affect the thinking of the government in 2008 — the extreme reluctance to get directly involved in managing the bank affairs, preferring instead the stroke of the guarantee?
2. INBS was a worse financial institution than Anglo. The shortfalls in how it was run documented in Nyberg are damning. It was missing even the basic committees that a bank is supposed to have. Furthermore, the greed driven by its prospective demutualisation was a disastrous force. The only reason it’s not an even bigger mess is because it didn’t manage to get bigger than it was. But yes Ireland, things could be worse. We could have an INBS with an Anglo-sized balance sheet.
3. A rampant press release culture is an important cameo player in Nyberg. Brian Cowen, as finance minister, did get briefed on the Central Bank’s Financial Stability Reports. But the briefing was simply speaking points for the reports — not an analysis of its contents. The eye was always on the write-up for the hacks, not the key messages for decision-makers.
4. The Sean Quinn Anglo crisis had a big influence on government thinking. Far from signalling that something was seriously wrong at Anglo, it created a siege mentality in Anglo and the government … they spent the summer of 2008 thinking “and we would have gotten away with it too if it hadn’t been for those meddling speculators”. It also just pulled staffing away from preparing for the actual crisis to dealing with the Quinn situation.
5. The Autumn 2008 Price Waterhouse Coopers was mis-read. Yes, there was a section saying that banks had enough capital for a stress test. The Central Bank and Financial Regulator latched onto that and briefed the minister accordingly (see item 3). But the actual body of the report contained many red flags on how dodgy the balance sheets of these “solvent” banks were. Someone needed to … read the actual report.
6. Although Nyberg has the expected hedging paragraphs on the guarantee (on the one hand, on the other hand), overall it’s a damning indictment. He politely but damningly subtitles that section of his report “Securing Tomorrow”. Literally — they needed the banks to be able to borrow on interbank markets the next day. The rest is history.
P,
Nyberg deals with the ‘nationalisation’ argument – no justification for nationalisation of any financial institution that is solvent and since all the expert advisors at the government’s disposal on the fateful night of 29 September were swearing blind that the problem was one of short term liquidity NOT solvency, nationalisation was not an option. Nyberg argues that it might have been better for the government of the day to provide capital via the Central Bank and try and stave off the crisis for a couple of days so that they had more time to make a rational assessment of what the true picture was, thereby most likely resulting in the nationalisation of Anglo, but goes on to say that this strategy carried its own risks. It’s also clear from Nyberg what the instructions from the ECB were i.e. ‘let no bank fail’.
That the Department decided not to proceed with the proposal for a bank resolution mechanism when they had the opportunity to do so for fear of giving off the ‘wrong’ signals to the markets is indeed a damning indictment. That the media and the opposition spent much of 2008 pursuing red herring ‘personality’ driven issues that proved a major distraction from what the system should have been concentrating on doesn’t say much about them either.
Lots of commentators last night seemed downright peeved that Nyberg failed to single out individuals for ‘blame and shame’. The Minister for Finance was quick out of the traps with his Dail Committees’ referendum proposal, which assuaged the commentariat’s anxiety about the absence of ready scapegoats somewhat. But there will need to be a very robust public debate about this proposed referendum, methinks. The notion of political ‘showtrials’ stagemanaged for the purposes of grandstanding by politicians seeking publicity has some serious implications for our democracy, human and civil rights, and the division of powers between the legislature and the judiciary.
Finally, what happened to government spokespersons? A few months ago,in opposition, they would have been elbowing each other out of the way in their rush to get into the studios to decry the actions of the then government, their advisors in the Department of Finance, the bankers, the bankers’ henchmen, the developers and Uncle Tom Cobbley and all. What was it in Nyberg’s report that had them all sitting at home watching TV instead of fighting one another to get on it? And why does that engender ever more misgivings about a government which is not only unaccountable in parliament because of its overwhelming majority and the weakness of a splintered opposition but whose members don’t feel obliged to be available to the media either to explain their response on issues of public importance?
I cannot see any point of this report. Everyone should know we were set up. Proof is in the fact that Portugal is next, then Spain and so on. We were set up with the Nice treaty and the Lisbon treaty, flooding the country with low interest rates and foreign workers. And we fell for it, hook, line and sinker.
Eddie,
It’s desperate, alright, the way Poor Paddy has been set upon by the Evil Empire which endowed him, at his own insistence, mind, with excess money and export of excess Labour at the same time. And that Poor Paddy was so greedy, he couldn’t get enough of it and gorged himself to the point of terminal illness. Blame games and waving our hands around in the air looking for a target to point the finger at are a bit pointless.
The three expert reports to date – Honohan, Regling & Watson, and now Nyberg – all point to the fact that Ireland’s problems are principally homegrown. Insofar as the international backdrop, EU or global credit crunch, has a bearing on our misfortunes, it acts more as a catalyst for the inevitable burst of the Irish property bubble than anything else. I agree with you though that Nyberg’s report is a strange piece of work in some respects: it’s exasperating in its suggestion that every actor in society is to blame so therefore no-one can be held primarily responsible.
As for the EU, it’s become abundantly clear in its handling of this crisis that political leadership throughout is just as bad as our own.
Best commentary on Nyberg so far. I also very much endorse Veronica’s remarks.
I do have a minor quibble or two, but they are minor. I may blog about them, but don’t wait up.
Veronica: Do you not think it strange that Greece, Ireland, Portugal and probably Spain and even Italy all find themselves at the mercy of the IMF within a short space of time? Do you not think it strange that the EU elite thought nothing of democracy by denying referenda in all the other countries of Europe on the Nice and Lisbon treaties (where the EU made the law and the individual countries were forced to pay for its implementation) and we were forced to keep voting until they got the answer they wanted? Do you not think it strange that privatisation is always part of the “bailout”? Do you not think it strange that it is not seen as a corrupt practice to convey public funds to private companies without a contracted legal basis for the provision of goods or services?
If I decided through greed that taking a chance on the three-card-trick was a good idea do you think that you be held responsible for my folly?
It is blindingly obvious that we were set up!
I think the only difference between us and Libya is that we rolled over without a fight.
If I may also quote a letter in today’s Irish times: “I, along with millions of fellow taxpayers, was constantly updated by Finance officials as to how much money was coming in and from whence it was coming.
All of us sat around the Cabinet table and decided how much we were to spend for the next year.
Please, Mr Nyberg, do not add insult to injury. – Yours, etc,
Emeritus Professor JOHN M SIMMIE, Furbo, Co Galway.”
So, like Mr Simmie, I do not accept any responsibility for the madness to which we were subjected.
Eddie,
What I find ‘strange’ is how it took ten years for anyone to spot the fundamental design flaw in the euro and even stranger still, that the EU poltiical establishment can’t bring themselves to face up to it, never mind deal with it. Then again, as the man said, the one thing we do know about human stupidity is that it is limitless.
As for poor Mr. Simmie, someone needs to explain to him the difference between macro- and micro-. My problem with Nyberg, as stated previously, is that in blaming everyone he has diffused responsibility for the debacle throughout society and ensured that no-one individual or institution can be held responsible for their actions or inertia, or both.
Veronica: It seems we will have to wait until the books are written. Then we may find out who got the missing billions and who we are now being told we owe the billions in debt to (not the ECB/IMf). It is all just too clever for me.
Veronica—your comment that political leadership in the EU appears as bad as our own is unfortunately too true–I cannot believe the inept level of stupidity at the top and national interest is put before EU interest- the very same as the back bench TD leading the protest about downgrading some local service–Merkil and Sarcozy have the very same mentality. Very depressing.
Betty,
Agreed. Bunch of eejits.