What were the warnings that were ignored?

dixiefly · 24-11-2010 8:47am #1

I read last week that Bertie Aherne ignored an IMF report warning about what was going to happen if Ireland didnt put a lid on the lending / property bubble.
I remember also the mantra from Charlie McCreevy that Ireland was a "special case" when he was being warned that the economy was dangerously overheating.
Also, Brian Cowen as Finance Minister must have been aware of the fears that many economists were expressing yet he seemed to continue the existing policies and didnt seem to try to find out the facts or get proper independent advice.
Cowen, for such a bulldog personality, seems to have no ability to go against the status quo, example as recent as yesterday when Enda Kenny offered to support the prospect of an earlier Budget.

Also, why did the regulator do nothing. Was it because the regulator was told not to interfere? Was it because the regulator was incompetent? Why did Cowen only meet the regulator twice in four years?

What are the facts? Is it summarised anywhere?

Even though this will do nothing to get us out of the hole we are in, I would certainly like to known the facts about the negligence so I can speak my piece to the various canvassers that come around and also for future reference as, you can be sure, once a new government gets in a lot of FF people will try to rewrite history.

Also, in the unlikely event that Bertie does go for President, his culpability in all of this needs to be clear for all to see.

K-9 · 24-11-2010 9:02am

The Government not alone ignored warnings from the IMF, they ignored warnings from the Irish Central Bank which is far more damning:

Irish Central Bank declared its impotence before launch of the euro; Why Spain's biggest banks survived huge housing boom

Central bank governor Maurice O'Connell, told the Oireachtas Committee on Finance and the Public Service in early 1997: "There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders."
He said the Bank had warned financial institutions repeatedly of the dangers inherent in high rates of credit growth and any relaxation of lending standards.
In the following years, as Finance Minister Charlie McCreevy stoked the property boom with income and capital tax cuts coupled with a massive expansion of property tax incentives, the annual reports of the Central Bank chronicled the letters that were sent by the governor to the financial institutions, pleading for prudence.
In April 1999, the governor had issued a letter stating that an analysis of practices had shown that some lenders had no evidence as to how borrowers came by the balance of their money. The governor criticised what he called, the particularly disturbing practice of allowing large amounts of the borrowers after tax income to go towards paying off a mortgage.
The 1999 annual report notes: "Institutions were...advised that it remains vitally important for them to take a medium term perspective and to reckon with the potential consequences of rising interest rates and a return to lower rates of growth in the economy. All institutions gave assurances that there would be no slackening in prudential lending standards."

No slackening? Terms were extended to 35/40 year mortgages, 100% mortgages, counting the rent a room relief as income and 5 year interest only "investments".

Measures were introduced last year to capitalise banks so they could have had teeth, if they wanted to.

24-11-2010 12:47pm

What were the warnings that were ignored?

Answer: Don't vote FF and not to vote Yes to Lisbon, thats a start.

krd · 24-11-2010 12:52pm

K-9 wrote: »

The Government not alone ignored warnings from the IMF, they ignored warnings from the Irish Central Bank which is far more damning:

Irish Central Bank declared its impotence before launch of the euro; Why Spain's biggest banks survived huge housing boom

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No slackening? Terms were extended to 35/40 year mortgages, 100% mortgages, counting the rent a room relief as income and 5 year interest only "investments".

Measures were introduced last year to capitalise banks so they could have had teeth, if they wanted to.

Let's not forget the old chestnuts as getting a loan from the credit union as your "deposit", and the fake pay slips.

And then the "home improvement loan" - being used to pay the mortgage and fund the lifestyle.

I knew someone earning 22k a year, who had a mortgage for 275K, drove a brand new BWM, another car for his wife, and also some "investment properties". His pay cheque was cigarette money.

Just think - all the people you saw whose lifestyles didn't equate with their income. Well they didn't because it was all credit.

jmayo · 24-11-2010 1:01pm

Don't forget the tax incentives for construction in disadvantaged areas which resulted in glut of unwanted property in Leitrim, Roscommon, Limerick city, etc.

I am talking about section 23s and Section 50s which were tax incentive to landlords.
These caused property to be built where it wasn't necessary at all.
It also hugely distorted the prices in these areas.
Also AFAIK it took them nearly two years to phase out these grants under cowen's watch as minister of finance.
Lets not forget the tax incentives for private nursing homes, private hospitals and hotels.
The last one has resulted in a glut of hotels who are only staying open so that their owners do not have to pay back the taxes they avoided by building them and running them for 10 years.