History of the crash being rewritten by the blinkered

History is said to be written by the victors but there are so few winners in recent Irish history that the battle to tell the complete boom-to-bust story is still being fought.

Claims of witch-hunts and scapegoating of those who played leading roles in events that caused the economic crisis tend to be made by the very people who believe they are being scapegoated or subjected to witch-hunts. Irish property developer Niall Mellon gave his own curious take on what caused the State’s financial crisis in an interview with this newspaper last weekend. He put it down to the collapse of the banks and, it would seem, the decision of the last government to guarantee the Irish banking sector in September 2008.

“The night the banks collapsed I went to bed a hero and woke up a villain. That’s what the Irish State did,” said Mellon.

There was no property crash in Ireland, he said: there was a bank collapse that caused a property crash. Developers built only to satisfy demand, he said, suggesting demand was fed by somebody else.

Mellon’s view of recent history is, of course, a self-serving take on the role of the developer class, of which he is a leading member, in the State’s economic collapse.

To his credit, he accepts some share of personal responsibility for what happened. He has sold assets, including his home, to try to repay his banking debts.

While his charitable work building houses in South Africa and his acceptance of a share of the blame are admirable, his attempt to distance developers from the disastrous lending of the banks is not.

Developers were far from bit-players in the story and Mellon’s theory would not be out of place in the camp that believes there was only one party driving transactions in the lender-borrower relationship.

The “well, if they hadn’t loaned me the money, then I wouldn’t have borrowed it” argument tries to shift blame from eager borrowers party to agreements that enriched both sides. Making the case that personal guarantees given by developers on vast loans drawn in the good times should now be ripped up in the bad times because of the “mental torture” they are inflicting is an extension of this defence.

Moral hazard

There is no use trying to get blood out of stones but, equally, if developers cannot be held to guarantees willingly signed, from what else will they try to walk away?

The views of an overextended developer are of little consequence to cleaning up the mess developers had a role in creating. But Mellon’s blinkered perspective raises concerns about whether those responsible have accepted their mistakes, if only to ensure they don’t repeat them.

Of course people deserve a second chance but the danger of moral hazard, where the consequences of risky behaviour are underplayed, raises the prospect of history repeating itself.

Mellon is not alone in looking at what happened in recent years through spectacles of a particular hue. You sometimes hear more prudent property players, who took only occasional big risks, say more reckless rivals and the banks ruined their business. Yet when prices paid for property went to levels that made little sense in development terms, these players chose to remain in the game even as the risks to their businesses continued to mount.

A selective reading of history is not just limited to the much-maligned developers. Members of the last government have pointed to Patrick Honohan’s conclusion in his banking report that an extensive guarantee was needed to save the banks but have overlooked his follow-up point that the scope of the guarantee narrowed options to deal with failing banks and increased the State’s share of the losses.

Fianna Fáil politicians have also attempted to pin the blame for the State’s economic crisis solely on the banks and claim they misled Brian Lenihan, the party’s crisis-period minister for finance. They have also tried to blame the European Central Bank for “bouncing” the last government into accepting the bailout.

These claims conveniently overlook the government spending/public-sector pay bubble that inflated at the greatest levels around the 2002 and 2007 general elections and burst along with the credit and property bubbles in 2008-2009.

A banking inquiry led by an Oireachtas committee comprising various party members (now expected in 2014, if it ever takes place) risks becoming a partisan battle between opposing views. But, strictly managed and free of bias, it could play a key role in filling the gaps in an impartial account of recent Irish history.