Reflections on Ireland's Plight
Brendan FullamEire ar lar
by Brendan Fullam
Much has been written and spoken about the financial plight in which Ireland now finds itself.
It wasn't caused by any kind of natural disaster. It was a self-inflicted condition-a financial mess involving Billions. So let's investigate this word Billion.
Let's start with 1000 and multiply it by 10 and each subsequent product by 10
1000X10=10,000 X 10 =100,000 X 10 =1,000,000 X 10 =10,000,000 X 10 =100,000,000 X 10 = 1,000,000,000 That's it-10 digits,-a Billion.
Let's look at 1 Billion from another angle. If a newly born child was given one euro each
hour as its life progressed, it would have to live for a little over 114years to accumulate 1 Billion.
In terms of miles, one Billion would represent roughly five journeys to and from the sun.
The Republic of Ireland, in debt terms, is looking at figures of tens of Billions.
If during my years in primary banking-July 1952 to July 1993 – I had been asked, if what has happened could ever happen, I would, without hesitation, have said with emphasis, "not possible".
That answer would have been based on the controls and disciplines I saw exercised, at every level, over all matters financial. I now shake my head in disbelief – disbelief that damage on such a massive scale could be inflicted on so many by so few, with the ordinary innocent citizen left to pick up the tab for the devastation caused.
Bankers of my generation will recall the way branch leading-all aspects of it, including prudent provisions-were fine-combed for the highest of standards by inspectors/auditors/graders. And they will wonder how and where did it all go so horribly askew.
To them, the idea that depositor's funds could have been put at risk was unthinkable. The fact that they would be seen as an act beyond pardon.
A keen awareness existed of the contribution made to banking by share holders funds and depositors savings and the need to protect those sources.
There was a realisation-a proud one, let it be said - among branch staff that the contribution made by them and their Managers to the growth, development and success of a bank, was quite significant. Hard work, loyalty, dedication, local knowledge and the experience of years were key factors. And then, quite suddenly, the fruits of the work of scores and scores of years were gone - gone in a twinkling.
In 1952, the year I entered the world of banking, the following banks operated in the Republic - Bank of Ireland, Provincial, Ulster, Northern, Royal, Hibernian, Munster and Leinster, National City and The National; a total of nine. Each was perceived as a rock-solid outfit that generated confidence and stability - a safe place for your money - a safe place in which to purchase a share holding. In the bank I joined - The National - the message on the window was 'Capital £7,500,000' - a statement of financial strength, stability and security. The bank's image was further enhanced by the fact that it was founded by Daniel O' Connell, a portrait of whom hung in every branch.
So where did it all go wrong in the world of banking and finance? People will look through different lenses and from different angles and produce different answers.
During what was called the "Boom" the following forces played a role:
- Government and its Leadership
- The Banks and financial outlets
- Trade Unions
- Developers
- Central Bank
- Regulator
There was quite a lot of talent to be found in those ranks. Cross representation and cross fertilisation prevailed - all with good intent, but not with good results. Each group had the capacity to exercise an influence for better or otherwise. Collectively the same applied. So how did it all go wrong? Were they collectively and individually gripped by a wave of blindness that cloaked reality, leaving them deficient in vision, judgement and foresight.
One could pose the question: who is in charge of Household Ireland. It is, of course, The Taoiseach. And how does he keep his finger on the pulse of the various activities of the nation. Through his Ministers, of course, Take for example the area of finance. The line of control would read as follows:
- Taoiseach
- Minister for Finance
- Department of Finance
- Central Bank
- Financial Regulator
- Banks and Lending Institutions
The financial line of command failed - "Weighed on the balance and found wanting".
As I write, I am reminded of the occasion in the mid 1970s when the Banks and the IBOA agreed a pay increase for bank staff and the Government of the day moved speedily to outlaw the increase.
Among returns submitted by branches to Head Office was one called the Classification of Advances. It dealt with the amount lent to the various sectors - e.g., farming, churches and charities, local authorities, retailers, private, etc. - about ten categories in all.
It was like lending a bible - a reflection of the economy as it functioned financially - a mechanism that would flash warning lights if any sector was overheating.
When all the submissions were totalled, they showed what percentage of the lending was out to each category. In essence, the return was a photograph of the spread of risk.
Credit squeezes when imposed were strictly observed. In the 1980s a rigid squeeze on private sector lending was imposed.
Credit squeeze on private sector lending was imposed.
In any facet of life the basics apply. And when these are ignored, or cast aside, disarray in varying degrees ensues.
As it transpired in the world of lending, the sluice gates of credit were opened and not controlled - with consequent negative impacts. There were many willing - not all worthy - takers. The basics were cast aside. Profit became king. Prudence took a holiday. Greed played a role. Targets dominated and blurred the wisdom of good decision making. "The ways to enrich are many and most of them foul," wrote Francis Bacon about four hundred years ago. Really, there should be no place for targets in the field of lending - rather a professional response to needs, based on repayment capacity and other relevant factors.
Any prudent banker would have said that a 100% house mortgage was daft - yet the concept went unchallenged. The downsides of competition quickly surfaced. The soft underbelly of our financial system was cruelly exposed - as indeed was the soft underbelly of the EU structures.
All of which takes us to a school of thought that would argue, that we ought never have broken the link with sterling, and that the combined pillars of the link with sterling and membership of the EU would have been of immense benefit to Ireland, and might have saved us from the extent of our present woes.
Isn't it strange that during the "boom bubble" (one of the greatest misfortunes ever to engulf this country - similar in some ways to the plagues of Egypt - for many of the population are now living a life of strain, bordering on despair), many ordinary people could be heard saying:
It doesn't make sense?
It doesn't add up?
It cannot last?
Those comments weren't based on economic, banking, or political expertise - rather on an innate sense of reality.
Now for a true story. I knew a man who was under pressure from his family to invest some money in Shanahan's Stamps in the 1950s.The man probably didn't go beyond National school but he ran a sound business and was blessed with common sense. Shanahan's were paying great dividends - often in excess of 15%. The man loved telling me the story.
"I used to say to myself Guinness can only pay 4%. So how could Shanahan's Stamps pay 15% and more. I used to say it doesn't make sense and it can't last. Anyway, the family had me so pestered that one Friday evening I got a bank draft for £200 and said I would invest the following week. I woke up Monday morning to hear that Shanahan's Stamps had gone burst. I said to myself, it never made sense, so how could it last."
If he, and others like him, had been in positions of leadership, our story might be different.
A carpenter in the West of Ireland who admitted to doing very well in the "boom", hit the nail on the head when he declared "You can't export houses to China", as he reflected on the extent of the over-supply of housing which, of course, prompts the question, why was it there was no nerve centre into which should have been fed all the planning permissions granted nationwide - surely a centre that would have flashed warning lights.
Right now we are where we are, with a debt of gargantuan proportions - in uncharted waters, seeking a way out. Days of sacrifice and degrees of austerity lie ahead for all of us.
Bismark, the Iron Chancellor, at war with France said, he would "bleed France white". We can only hope that the proposed solution to our financial plight won't result in the Republic of Ireland and its people being bled white.
