In February 2015, we are paying an eminent US expert on bank fraud to state that the Irish bank guarantee of 7-years ago was “the most destructive own goal in history”.
It was reported, earlier today (6th February 2015) in www.theJournal.ie that Professor William Black, from the University of Missouri-Kansas City, said that the lack of “reliable facts” from regulators and banks in the lead up to the 30 September 2008 resulted in a blanket guarantee being issued.
The inquiry also heard the European Commission’s Mario Nava this afternoon.
Earlier, responding to questions from the Oireachtais banking Inquiry, Black said he could not understand the decision to guarantee subordinated debt (junior bondholders), saying later that “you would never ever bailout subordinated debt”.
Black said the guarantee decision turned a banking crisis into a fiscal crisis “that was clearly gonna crush Ireland”. In soccer parlance, he said, this was “the most destructive own goal in history”. Not Irish history, but Global economic history.
At various stages during his evidence, Black described the decision to issue a blanket bank guarantee as “insane” and said it “sunk an entire nation”. Supporters of the late Mr Lenehan try to claim that he was over-ruled on the night that the calamitous Guarantee was signed.
Professor Black said that the assurances that the financial regulator gave about Irish banks being solvent prior to the guarantee was “preposterous” given what it knew.
“Your regulators did an enormous disservice to the nation,” he said. rational Irish people will require every one of these individuals to be be called to account & appropriately penalised for their outrageous performance.
Inquiry sources said beforehand that they expected his evidence to be “colourful”.
Black told the committee that Ireland was distinctive in the degree to which the average person blamed themselves for what happened:
“The Irish people are so low on the list of people responsible for the crash that they don’t much matter.”
On the Euro, he said the single currency was “a disaster” and said that in issuing the guarantee Ireland had taken a hit for the Eurozone. In my opinion, we all knew this at the time & still our Representatives & Regulators went ahead & signed the all-encompassing Bank Guarantee.
“Ireland tried to bail out the German banks, basically, and that was never going to work,” Professor Black said.
Black is widely-respected expert in banking fraud whose central thesis is that the leading cause of catastrophic bank failures is senior insider fraud.
He described current regulations – even since the crisis as “clearly not fit for purpose” though he also said there had been “some improvements in some areas”.
The Professor told the Committee of Inquiry that the greatest risk to a bank is its chief executive, saying that history had shown that they almost always “cause catastrophic losses”. Our Taoiseach in 2008, was the quasi-Chief Executive of the Irish State.
“Banks don’t feel, they aren’t real, they operate through bankers,” he said incisively.
He said from his experience in the United States, the best deterrents for bankers were the possibility of criminal sanctions for any wrongdoing. In my opinion this should apply to our Regulators – on that ‘night of the long knives’ when our Politicians & Regulators took our national economy to the Abattoir.
“You only get deterrents when you affect the senior executives who make the decisions,” Black told Committee Chairman Lynch.
In his opening statement, Black said he was probably “the only successful regulator you’ll have in front of you” and outlined his work in investigating and prosecuting bankers involved in the US Savings and Loan Crisis.
Professor Black also offered to provide a week of free training to Irish regulators and prosecutors in what US authorities did to prosecute in the scandal.