ANTOIN E MURPHYreviews BankstersBy David Murphy and Martina Devlin Hachette Books Ireland 309pp; €14.99
‘BANKSTERS” WAS a term coined during the Wall Street crash of 1929 “to describe ruthless individuals who gambled away the country’s wealth. David Murphy and Martina Devlin resurrect the term to label the cast of characters whom they believe turned “a domestic collapse into a full-scale disaster”. The authors are quick off their starting blocks with this book. However, the story is still unfolding and it may take many years to determine exactly what happened. The authors have already determined the cast of characters who are to blame, throwing the net widely so that it includes politicians, developers, bankers, central bankers, regulators, civil servants and whatever you are having yourself.
The latter group could magnify the “banksters” group very appreciably because it could also include shareholders and commentators who urged banking directors to magnify their profits; parents who encouraged their children to step quickly on to the property ladder; and that modern-day equivalent of the man in the street, the taxi driver who was preaching the virtues of purchasing flats unseen in areas unknown. For a period most of the country became irrational. My own Joe Kennedy moment came back in 2006 when a taxi driver informed me that his brother had purchased three flats in Bulgaria and had advised all around him to do likewise! Asset market bubbles necessarily involve many people for the voyage to market euphoria has to suck in a considerable number of neophytes who start discarding an old-fashioned work ethic in an attempt to make easy money. The maxim of caveat emptor was forgotten in Ireland as the financial herd rampaged forward in search of new fields (development sites in the country, skyscrapers in Dublin 4, etc) for making profit.
The pity about this book is that it lacks historical perspective. The authors outline developments in Ireland over the last few years but there is no real effort to analyse these developments and see them as further examples of history repeating itself. There is no mention of any of the major historical precedents except for the Great Crash of 1929. A little reading in the library might have led them to Charles Mackay’s flawed 19th-century book with the wonderful title, Extraordinary Popular Delusions and the Madness of Crowds. They might have consulted Charles Kindleberger’s magisterial book Manias, Panics and Crashes which in turn was so greatly influenced by the work of Hyman Minsky. History shows that there is a long list of episodes where bubbles developed and people lost heavily. It might be a good exercise for Irish schoolchildren to be taught the history of such bubbles so that repetition does not occur.
This book presents us with a little recent history. It is valuable as a chronological aide-mémoire showing some of the damage which the big “banksters” wreaked on the economy, damage which the taxpayers of Ireland will pay for over the coming decades. However, more time was needed in order to obtain the full story of events such as the night of September 28th, 2008, when vital decisions were taken with respect to the two most rotten financial apples, namely Anglo Irish Bank and Irish Nationwide Building Society. Could these financial institutions not have been left to go bankrupt and the other banks given the 100 per cent deposit insurance guarantee that emerged on September 29th? The immediate retort to this is that it was a case of all or nothing because of the systemic risk to the Irish banking system arising from cross holdings of loans and deposits. Was this really the case? Furthermore, why, after the earlier AIB/ICI debacle, was there not a type of council of economic advisers to advise the Government on where to go?
Antoin E Murphy is an associate professor of economics in Trinity College Dublin. His latest book,
The Genesis of Macroeconomics
, was recently published by Oxford University Press