A portrait of a country that lost the run of itself

ANALYSIS:Despite his insistence thousands are to blame, Peter Nyberg's refusal to name names is regretful

DON’T EXPECT to be able to point a finger of blame after reading the report into the causes of the Irish banking crisis by the Nyberg Commission of Investigation.

Peter Nyberg, the former senior Finnish civil servant tasked with the latest investigation, chose not to name and shame those responsible for the banking crisis in his report – the third into the disaster.

It was difficult to assign blame, he said, because there were too many people to blame. It wasn’t down to one or two, but hundreds of thousands of people, he said.

The report, which runs to 101 pages, reads in parts like an anthropological study of bankers, borrowers and their financial and civic guardians who were gripped by “groupthink” and a herd instinct that the property market could only make everyone richer.

A former ministry for finance official from Finland has turned an awkward mirror on Irish society.

The report reflects on Ireland as a country that lost the run of itself and was obsessed with money made from a sector that would, at worst, decline only modestly.

A false consensus was created where contrarians and naysayers inside the banks and the authorities were forced to conform or were silenced by the unrelenting success of the property market.

There was “a national speculative mania” between 2003 and 2008, and behaviour that exhibited “bandwagon effects”, it said.

“As in most manias, those caught up in it could believe and have trust in extraordinary things, such as unlimited real wealth from selling property to each other on credit,” said the report.

Traditional values, analysis and rules were lost and when it all came crashing down, participants had difficulty accepting their share of the blame, the report said.

Nyberg has blamed all sectors of Irish life, saying that property buyers and banks made bad decisions, while the Central Bank, the Financial Regulator, the Government and politicians didn’t understand or care about the risks. Had one of those parties shouted stop, then the country would not have found itself in the depth of the crisis it is in, he said.

Contrarians within banking faced “sanctions, loss of independence, loss of job or loss of credibility”, said Nyberg. Managers who were strict on credit and risk with the banks were replaced. Asked further about the contrarians, Nyberg said that he had found “about a handful” – one at each “institution”, referring to either a bank or a State body.

The media also doesn’t emerge unscathed. “Much of the media enthusiastically supported households’ preoccupation with property ownership,” said the report.

Most of the ground in this report has been well-covered already, if not by the previous reports and commentators, then by bar-stool analysts who discussed this crisis for the past two years.

Nyberg acknowledged yesterday that there was no material difference in the conclusions in his report and those of banking experts Max Watson and Klaus Regling and Central Bank governor Patrick Honohan, who investigated the banking crisis last year.

This raises the question why the State has spent €1.32 million on his six-month commission of investigation when cash is scarce. In light of the cost, certainly the failure to name any names leaves the reader deeply underwhelmed.

The Government’s announcement yesterday of its decision to hold a referendum to change Oireachtas rules may see bankers put on the spot.

Minister for Finance Michael Noonan said that the Government will, following a constitutional change, seek to compel bankers to give evidence at a Dáil committee.

This may allow the public hear directly from the people that Nyberg spoke to in private and whom he declined to identify.

Nyberg said that because it was a study into a “systemic” crisis, it was not useful to name individuals and that it was his decision not to.

Regling and Watson largely examined the macroeconomic causes of the crisis, while Honohan considered the role of the Central Bank and Financial Regulator as well as the banks.

Nyberg’s investigation does, however, go deeper than the previous two “scoping” reports.

Some 200,000 bank records were handed over and his commission examined tens of thousands.

He conducted 140 interviews but declined to say which senior bankers he spoke to in the inquiry. Curiously, he spoke with some frustration about the lawyers he had “stumbled over” in his inquiry when meeting with interviewees.

Nyberg said that the bankers he met were in denial about the scale of the risks that they had taken on. Asked about whether interviewees differed widely, he said that some were “devastated” by the damage to their reputations and their financial losses, while some still blamed Lehman Brothers and others for the crisis.

Nyberg even went so far as to say that the country’s dependence on the property market would have grown even further without the failure of Lehman’s and the September 2008 liquidity crisis.

This report turns a spotlight on two areas which had not previously been probed – the role of external auditors, who were “silent observers” in the years leading to the crisis, and non-executive board members at the banks who were out of the depth of their expertise.

The boards of the banks operated on a collegiate and consensual basis. There was “disaster myopia” within the banks – bankers, and indeed most others, expected a soft landing in the property market and there was little or no contingency planning for a “hard landing” or a crash.

“It appears now, with hindsight, to be almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risks they were taking,” said the report.

The country’s worst banks, Anglo and Irish Nationwide, were singled out for particular focus under the terms of the inquiry. They had insufficient checks and balances to cope with the surge in lending from 2003 to 2008.

Nyberg’s view of the fateful night the Government chose the bank guarantee was that there had been “too much focus on” it.

Unfortunately, Nyberg discovered, there are no official minutes of what took place on the night of September 29th, 2008, though he was not surprised at the decision as it was agreed at a frantic time and as a former public servant he had experience of such a scenario.

The Government based its decision on “deficient” information on the extent of the problems, he said. Had accurate information been available, it was likely that the guarantee would have been more limited and the State would have “more seriously contemplated” taking over at least one bank.

Until a referendum and constitutional change, taxpayers are unlikely to hear from the main players themselves as to why this information was not available or why the risks were not fully understood.

Public testimony and open scrutiny of these players are now needed. There are enough reports.