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How Ireland really went bust by Matt Cooper, Dublin: Penguin Ireland, 2011, pp. 443, pb. ISBN 978 1 844 88168 0

Reviewer: Tim McCarthy*

This book should carry a health warning and is definitely not for the faint-hearted or for those suffering from hypertension. Reading it is like watching a major motorway pile-up in slow motion. Cooper parades all the bogeymen that strutted across the Celtic Tiger stage but, unlike the theatre, there are no heroes. The reader is in turn infuriated and depressed: how did we let it happen? did no one shout stop? In answering these questions Cooper brings his considerable journalistic talents to bear in producing a book that informs and traces the events that led to the present economic wasteland.

And yes, there were people shouting stop. Indeed one of the lessons from the book is the failure to listen to contrarian voices. NAMA had been conceived and promulgated at a time when the authorities still believed that the banks had only a liquidity problem. As the extent of the solvency problem unfolded the die was already cast and the Government had nailed its colours to the mast. Government policy was predicated on NAMA purchasing bad loans at a discount that reflected their market value over time while keeping the banks well capitalised and out of state ownership. Leading economic commentators, drawn mainly from academia, warned that the policy was seriously flawed and inherently catastrophic. Unfortunately, they have been proven right. While the integrity of those appointed to run NAMA was undoubted Cooper questions their expertise. He also provides interesting background on the ‘experts’ appointed to assist in the management of NAMA.

The question of the bank guarantee is dealt with at length. Why did the government not just go with a guarantee of deposits only? Why were the banks not nationalised? There are no satisfactory answers given to these questions. Indeed Cooper intriguingly hints at serious legal implications if the full truth emerged about the authorities’ dealings with the banks and Anglo Irish Bank in particular. Having gone with the bank guarantee and NAMA the Government could not admit that it got it wrong. They were seriously misled by the banks- whether deliberately or otherwise is open to debate. In seeking best international advice the Government turned to Merrill Lynch (who did not recommend the blanket guarantee). The irony of seeking this advice was that, at the time, Merrill Lynch was being taken over by Bank of America to save it from the same fate as that of Lehman Brothers!

Cooper repeatedly queries the role of the various regulatory agencies. It has been clear for some time that the Financial Regulator in Ireland was not doing his job but neither was the European Central Bank (ECB) or indeed the central banks in various countries even though they must have been aware of the enormous sums being lent to Irish banks. In a report by the International Fund in 2006 Ajai Chopra commented that the Irish banks were well ‘capitalised and profitable ... stress tests indicate adequate buffers to cover a range of shocks’. Even as late as 2008 Irish senior bank debt was estimated at 39 per cent of GDP which was lower than that of Belgium, Spain, the United Kingdom and the Netherlands. So why did the Irish banking crisis become so critical?

Part of the answer can be found in Ireland’s relationship with Europe and in particular with its major institutions. The ECB played a significant role in the establishment of NAMA and in the decision not ‘to burn the bondholders’. The rejection of the Lisbon Treaty in 2008 left Ireland with very few institutional friends in Europe and, when the banking crisis hit, Europe’s sole concern was to protect the euro and prevent contagion spreading to other larger economies. Catherine Day, the Irish woman who is Secretary General of the European Commission, is quoted as saying that ‘the more prosperous Ireland became the more arrogant Ireland became’. Irish sovereign debt was not the problem, as acknowledged by EU Commissioner Olli Rehn, but the socialisation of bank debt through the bank guarantee changed the situation and nobody wanted to know. We were friendless and relying on the kindness of strangers.

In writing this book Cooper clearly had access to many of the top people in Irish public life. Much of his information was gathered from off-the-record interviews and, whereas this may have been the only way to get the relevant information, purists will lament the lack of footnotes or attributed sources. Brian Cowen’s time as Minister for Finance and Taoiseach is dissected in great detail. Cooper paints a picture of a lonely Taoiseach who has eschewed the necessity for special advisers, does not listen to his civil servants, who fails to communicate with the public and, perhaps, sees himself first and foremost as leader of Fianna Fáil, not as Taoiseach. He also argues that Cowen must have experienced a lot of guilt over his time in the Department of Finance when he failed to act on the advice of the civil service on closing off various tax loopholes that were exploited by developers and continued with various property-based tax schemes (14 in all) long after their timeframes as originally proposed. Likewise with Contracts for Difference (CFDs) when he again ignored advice that would have prevented Sean Quinn building a 28 per cent share in Anglo Irish Bank and the subsequent bad debt of €2.8 billion at Anglo.

The blame game continues. The banks, the accountancy profession that had given a clean bill of health to the same banks, the regulatory authorities in both Ireland and Europe, the body politic, the developers who lost touch with reality – all carry a portion of the blame for what has happened. But as Cooper points out no one has gone to jail and the wheels of justice grind very slowly.

A great read but, as stated at the outset, it should carry a health warning. If you read this book and are not in turn infuriated and depressed check that you are still breathing!