Misjudging Risk: Causes Of The Systemic Banking Crisis In Ireland (Nyberg Report)

Scofflaw

Full Nyberg report available here: http://www.finance.gov.ie/documents/publications/reports/2011/nybergreport.pdf (thanks to later10 for improved link)

Some initial points from the Executive Summary:

The international developments that facilitated the excesses in Ireland have been exhaustively documented in previous scoping reports. Entry into the euro area markedly reduced Irish interest rates. Banks had increased access to market funding, where cheap and abundant credit was already available owing to monetary policies in major countries as well as the increasing use of securitisation.

Globalisation of markets and EU membership increased foreign competition in the Irish financial market, putting pressures on bank margins. A number of new, potentially high-risk retail products were introduced to the Irish market by new entrants (for example, tracker mortgages, 100% mortgages for first-time buyers). Last but not least, the paradigm of efficient financial markets provided the intellectual basis for the assumption that financial markets, left essentially to themselves, would tend to be both stable and efficient.

International developments, however, did not in themselves cause the crisis though they helped precipitate it. The problems causing the crisis as well as the scale of it were the result of domestic Irish decisions and actions, some of which were made more profitable or possible by international developments. Though eventually unsustainable financial risks were made attractive by outside factors, there simply was nobody abroad forcing Irish authorities, banks or investors to accept such risks. The way Irish households, investors, banks and public authorities voluntarily reacted to foreign and domestic developments was probably not very different to that in other countries now experiencing financial problems. However, the extent to which large parts of Irish society were willing to let the good times roll on until the very last minute (a feature of the financial mania) may have been exceptional.

We knew there was something special about us!

cordially,
Scofflaw

later12

That link requires a login in my case; another link here

http://www.finance.gov.ie/documents/publications/reports/2011/nybergreport.pdf

Actually quite excited right now.

Scofflaw

Urgh - governance failures at Anglo & INBS, inadequate response by the Financial Regulator, leading to the appearance that the banks' actions were OK by the Regulator:

Governance at these banks also fell short of best practice. While procedures and processes in Anglo existed on paper, in certain cases they were not properly implemented or followed in practice. It appears that, at least in the latter years, only a handful of management was aware of all activities of the bank. At INBS, a number of essential, independent functions either did not effectively exist or were seriously under-resourced.

The Financial Regulator(FR) was clearly aware of many of these problems in the two banks. Prior to the commencement of the Period, and consistently throughout, it raised significant concerns regarding governance at INBS. It also submitted a comprehensive list of procedural and portfolio problems to Anglo. It furthermore raised minimum capital ratios for both banks. However, such remedies did not prove effective to ensure sufficiently greater prudence and accountability in either of the banks. The system-wide increase in capital charges on certain property loans in 2006, while appropriate in principle, proved too modest in a situation where property lending appeared hugely profitable.

As a result, to outsiders, the two banks may have appeared to operate in ways broadly acceptable to the FR. This may have increased their importance as role models for other Irish banks. It must also have given comfort to leadership in the two banks themselves and encouraged them to continue with these practices.

And so to the other banks - and that's their title, not mine:

The Herd: Other Banks

Bank management and boards in some of the other covered banks feared that, if they did not yield to the pressure to be as profitable as Anglo, in particular, they would face loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect. The few that admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning.

And the auditors:

The Silent Observers: External Auditors

The auditors clearly fulfilled this narrow function according to existing rules and regulations. They did not, however, generally report excesses over prudential sector lending limits to the FR. Even if they had, it appears unlikely that anything would have been done about it as in general the FR was already aware of such limit excesses.

And the regulators:

The Enablers: Public Authorities

The Central Bank (CB) and the FR noted macroeconomic risks and risky bank behaviour but appear to have judged them insufficiently alarming to take major restraining policy measures. Among all the authorities a very limited number of individuals, either in boards or among staff, saw the risks as significant and actively argued for stronger measures; in all cases they failed to convince their colleagues or superiors. Thus the authorities largely continued to accept the credit concentration in the property market and avoided forcing action on the failings in the banks. The Government actively supported the market over an extended period against the apparently fairly weak but clear opposition of the Department of Finance (DoF).

The CB was not powerless; it had the right to direct the activities of the FR and it could advise the Government. There are, however, no records of such direction or advice or even efforts at such.

It's very readable, if you like horror. I'm afraid some people are going to be disappointed, because the ECB doesn't warrant even a cameo role as a villain.

cordially,
Scofflaw

dan_d

Do we not already know all of this??

And has somebody given this to Bertie Ahern for a little light reading??

later12

Going beyond localised influences, even the poor old Efficient Market Hypothesis gets another rusty nail in the palm.

Financial market and regulatory policies during the Period were influenced by the efficient market hypothesis. This paradigm was widely accepted, particularly in the US and UK, and provided the intellectual underpinning for financial innovation and reduced regulation. One important consequence of the concept was the assumption that self-regulating financial markets tended to remain stable.13

That's a contentious couple of lines right there.

I have to say, I love some of the classifications: the herd/ the observers/ the ennablers.... sounds like something from a Marlon Brando movie.

Also, an interesting paragraph on assigning blame

Assigning Blame
....the Commission’s remit is to identify the causes for failures, rather than to assign individual blame or responsibility. During the Period leadership as well as lower-level management and advisors changed repeatedly in most private and public institutions discussed; this makes apportioning individual responsibility for strategic or longer- term developments impractical. Most important, the nature of systemic banking crises rarely allows blame and responsibility to be confidently allocated. To understand why this is so, it may be instructive to, once again, consider the list of necessary contributors (paragraph 1.4.3 above) to a systemic banking crisis. Since all of these factors need to be present to generate a systemic crisis, stressing the impact of only one or two contributors would lack balance.

That won't go down well.

Also, and very interestingly, what could almost be a direct reply to Bertie Ahern's expressed desire that he wished someone had told him about the banking crisis, and which was covered quite extensively on this very board I seem to recall!

A common argument among private and public decision-makers (both in Ireland and elsewhere) has been that “they were not told”, implying that responsibility actually resides elsewhere. However, it is an essential part of the job of a decision-maker to make sure of being well informed. Accepting one’s own ignorance or inefficiency does not transfer responsibility onto others; instead it puts an extra demand on the decision-maker to obtain good advice.

I have to say I have mixed feelings on that position.

beeftotheheels

...makes interesting reading on page ix. Brian should have realized that the markets were telling him that Irish banks were over exposed to Irish property.

No $h!t Sherlock!

beeftotheheels

Scofflaw wrote: »

I'm afraid some people are going to be disappointed, because the ECB doesn't warrant even a cameo role as a villain.

cordially,
Scofflaw

The EU does though, if you look hard enough. Criticism of IFRS on provisioning and loan impairment. The EU made the rules requiring all listed companies adopt IFRS (see footnote 78).

I'd say they should pay for that! Burn the bondholders...

Scofflaw

beeftotheheels wrote: »

The EU does though, if you look hard enough. Criticism of IFRS on provisioning and loan impairment. The EU made the rules requiring all listed companies adopt IFRS (see footnote 78).

I'd say they should pay for that! Burn the bondholders...

Totally their fault:

78 International Financial Reporting Standards, IFRS or IAS and in particular IAS 39; Financial Instruments: Recognition and Measurement. All listed EU companies were required to adopt IFRS from 2005, at which time all of the covered banks became compliant with the incurred-loss standard. Following the financial crisis, the accounting standards setters are debating the introduction of inter alia the expected-loss approach. With such a change, loan losses can be anticipated by banks through building up provisions over the life of a loan for any expected future losses. In general, pro-cyclical accounting rules tend to result in higher profits in an economic upturn and higher losses in a downturn, as compared with counter-cyclical rules which could give rise to less volatile results through the use of provisioning buffers. While constrained in their audited accounts, the banks had the flexibility to include any expected losses in their Regulatory Capital Returns to the FR.

amused,
Scofflaw

later12

No prizes for guessing which infamous CEO-turned-Chairman is being alluded to here. All emphasis is my own.

Behavioural Factors
....The presence of a “strong personality” acting as Chairman, CEO or Executive Director was occasionally seen as contributing to this.59 Views of the bank as “family” or acceptance of silo strategies within the bank may have hindered critical thinking and overall risk assessment. Presentation of diverging views or initiatives were often not appreciated and only occasionally sanctioned.

PhatPiggins

Did we actually pay Nyberg for this report on the glaringly obvious, well structred that it is.

So yet again no names and no accountability

Is it time for vigilante justice?

dan_d

Maybe they figure if they ask enough people to report on what's happened, sooner or later someone will give them the answer they really want - it's the EU's fault!! The Germans did it!!:rolleyes:

Scofflaw

PhatPiggins wrote: »

Did we actually pay Nyberg for this report on the glaringly obvious, well structred that it is.

So yet again no names and no accountability

Is it time for vigilante justice?

The point of the report is that it's a report on the structural issues that created the problem - the idea being to avoid those issues arising again. Vigilante justice on the people who held the positions won't achieve either the reversal of the situation or the prevention of its repeat, because what people did was not illegal, and more importantly was judged to be the right thing to be doing at the time.

Structurally and systemically, the "best" you can hope for from retrospective justice in this case is that people become more nervous of making mistakes and doing things wrong - but that just encourages groupthink and herd safety by not making controversial decisions, which was the problem here.

cordially,
Scofflaw

hinault

As a general observation, I can well understand European reticence with regard to Ireland.

What we have learned since September 2008 is that Irish politicians, Irish bankers, Irish regulators and Irish property developers caused this country's financial crisis.

later12

PhatPiggins wrote: »

Did we actually pay Nyberg for this report on the glaringly obvious, well structred that it is.

So yet again no names and no accountability

Is it time for vigilante justice?

I don't know about vigilante justice now, but certainly the terms of reference have been criticised as being too narrow from the outset. I would agree.

I'm a particularly disappointed about how thinly examined was the decision to embark upon the original bank guarantee of September 2008. Indeed, at times, the information is a little contradictory - on the one hand the Government were supposedly not fully informed, according to Nyberg, yet on the other hand, the FR supposedly had all of the relevant information to hand the same night. I, for one, am a bit perplexed by that.

edit:
also an interesting comment which may have implications for any popularly anticipated criminal action against senior bank officials. From 4.1.2.

The Commission has not and could not assess the actions or inactions of particular individuals in the authorities and did not think it was appropriate or fair to do so.... the detailed documentation that would have been needed for this often simply did not exist. Thirdly, operations of individual staff or units in hierarchical systems are likely to be influenced by a number of factors not directly attributable to the individual concerned.88 Finally, despite an organisation being led from the top, decisions tend to be taken in a complex set of personal interactions within the institution. These interactions are virtually never documented.

Dirk Gently

Michael Noonan said in response that people found culpable should be brought before an Oireachtas committee. How Quaint.

later12

Scofflaw wrote: »

It's very readable, if you like horror. I'm afraid some people are going to be disappointed, because the ECB doesn't warrant even a cameo role as a villain.

It was the IMF whodunnit!! Many will relish this.
Nyberg 4.3.12

Finally, the IMF Financial Sector Assessment Programme (FSAP) report on the Irish financial system in 2006 rated the performance of the FR highly. It did not call for any significant changes in its overall approach or methods. It also concluded that the Irish banking system was basically sound.

beeftotheheels

One thing I think is interesting is in relation to the role of the non executive directors.

We seem to be stuck in a world where Irish Plcs draw from with a very small pool of individuals sitting on each others boards which is not ideal in terms of independence, and is an issue outside the banking sector.

The joke that was the "independent board" at DCC passing a vote of confidence in their "executive chairman" after the Supreme Court had found that he had engaged in insider trading springs to mind.

Anyone hopeful that the government may learn this lesson from the Nyburg report and strengthen corporate governance rules? I think that the time has come for putting corporate governance on a statutory footing, and doing so may ensure greater oversight of those Irish businesses which have not (yet) spectacularly gone bust.

ei.sdraob

“5.5.5. Secondly, there was a conspicuous lack of timely critical debate and analysis by bank analysts within institution and among the public at large….Doubters (the few that identified themselves as such to the Commission) in the main grew unsure over the years when nothing
seemed to go wrong. It also appears that some stayed silent in part to avoid possible sanctions. The Commission suspects, on the basis of discussions held with a wide number of people, that there may have been a strong belief in Ireland that contrarians, non-team players, fractious
observers and whistleblowers would be informally (though sometimes even publicly) sanctioned or ignored, regardless of the quality of their analysis or their place in organisations.”

We get plenty of the above here on this forum with some people (points at several posters above) in any thread or post that questions the spin being spun time and time again are told "nothing to see move along" and the "situation is contained" and so on...

... Because the parties that got us here (and identified in the report) will somehow get us out of this mess, how dare anyone doubt them!

Now lets all get back to the favourite sports of public servant bashing and corporate taxation distraction :rolleyes:

beeftotheheels

ei.sdraob wrote: »

We get plenty of the above here on this forum with some people (points at several posters above) in any thread or post that questions the spin being spun time and time again are told "nothing to see move along" and the "situation is contained" and so on...

... Because the parties that got us here (and identified in the report) will somehow get us out of this mess, how dare anyone doubt them!

Now lets all get back to the favourite sports of public servant bashing and corporate taxation distraction :rolleyes:

Relishing the irony of this post!

hallelujajordan

nyberg wrote:

*emphasis added

However, the extent to which large parts of Irish society were willing to let the good times roll on until the very last minute (a feature of the financial mania) may have been exceptional.

Professionals and non-professionals alike became convinced, and
convinced each other, that financial markets were stable by themselves, despite historical evidence to the contrary. The implications of this conviction seemed to be in the immediate interest of the overwhelming part of Irish society. The resulting activity was something that, later on, seemed quite unsustainable, puzzling and contrary to prudential requirements and
common sense.

Am surprised that he didn't specifically exonerate Liam Byrne

Worztron

It is all well and good for Nyberg to blame people but why did he not name all the individuals that caused this catastrophe? All of the greedy incompetents should be named, shamed and jailed. :mad:

Delancey

Worztron wrote: »

It is all well and good for Nyberg to blame people but why did he not name all the individuals that caused this catastrophe? All of the greedy incompetents should be named, shamed and jailed. :mad:

+ 1 . A typical Irish report - fails to name a single individual , just like the numerous reports into cock-up's in our hospitals - reports peppered with phrases like '' systemic failures '' , '' communication breakdown '' , '' inadequate oversight '' , etc , but never a single person being held to account.
But then this is Ireland - we don't ' do ' accountability here .

hinault

Worztron wrote: »

It is all well and good for Nyberg to blame people but why did he not name all the individuals that caused this catastrophe? All of the greedy incompetents should be named, shamed and jailed. :mad:

Hear hear.

We need to see bankers/auditors/regulators/directors of banks charged with financial crimes/fraud.

The shareholders in these banks have been wiped out, the taxpayer has been left on the hook for billions, the assets of the banks have been destroyed and the country has been economically destroyed as a result of this financial/banking crisis.

Extraordinary times require extraordinary emergency measures to be take.

Scofflaw

hinault wrote: »

Hear hear.

We need to see bankers/auditors/regulators/directors of banks charged with financial crimes/fraud.

The shareholders in these banks have been wiped out, the taxpayer has been left on the hook for billions, the assets of the banks have been destroyed and the country has been economically destroyed as a result of this financial/banking crisis.

Extraordinary times require extraordinary emergency measures to be take.

Hard cases make bad law. The issue of individual responsibility is addressed in the report, and has the following two answers:

1. individuals were subject to organisational pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Neither of those is an argument against punishing individuals who were particularly culpable, whether through incompetency or criminality - but they are an argument that doing so will not fix the system. They are an exercise in revenge, and quite possibly counter-productive.

cordially,
Scofflaw

hinault

Scofflaw wrote: »

Hard cases make bad law. The issue of individual responsibility is addressed in the report, and has the following two answers:

1. individuals were subject to organisational pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Neither of those is an argument against punishing individuals who were particularly culpable, whether through incompetency or criminality - but they are an argument that doing so will not fix the system. They are an exercise in revenge, and quite possibly counter-productive.

cordially,
Scofflaw

I'm all for putting systems and operations procedures in place to prevent these things happening again.

However along with implementing these systems and operational procedures we need to see those who broke the law and who perpetrated fraudulent transactions and who broke sections of the Companies Acts need to be charged.

hmmm

hinault wrote: »

We need to see bankers/auditors/regulators/directors of banks charged with financial crimes/fraud.

Incompetence is not a crime. You should read the report first before knee jerk commenting, it's a relatively easy read and contradicts your central point that this was caused by "fraud". The reports highlights poor corporate governance, poor risk management, the typical Irish failing of shafting anyone who went against the tribal thinking and utterly utterly incompetent regulation and government actions. Even so, none of these are criminal actions.

What we need to see is people losing their jobs or being at least censured (government, regulatory authorities or private sector) for incompetence.

hinault

hmmm wrote: »

Incompetence is not a crime. You should read the report first before knee jerk commenting, it's a relatively easy read and contradicts your central point that this was caused by "fraud". The reports highlights poor corporate governance, poor risk management, the typical Irish failing of shafting anyone who went against the tribal thinking and utterly utterly incompetent regulation and government actions. Even so, none of these are criminal actions.

Spare me the lecture.

What do you call transferring funds from one lending institution to another institution to artificially inflate the deposits of that lending institution?
Or what do you call a lending institution issuing loans to it's officer to buy shares in that lending institution?

hmmm

As an aside, I had to laugh at the idea that the Asset and Liability Committee of a bank is abbreviated "ALCO".

hmmm

hinault wrote: »

Spare me the lecture.

Alright. I'm not a moderator of course but perhaps you could go join any of the numerous threads that consist of factless emotive discussions and leave this one to discussion of today's report.

ei.sdraob

@hinault

Have you not got the message in the last week, first from ECB and now this?
its quite short:

"shut up and put up .. the situation is contained"

There is no point engaging or arguing with the prevailing "groupthink" here,
all that is required of you and every other taxpayer+citizen is to shut up and pay up for next few decades. Dissent and questioning is not allowed, accountability seems to have been erased from the dictionary altogether in the meantime.

Scofflaw

later10 wrote: »

It was the IMF whodunnit!! Many will relish this.
Nyberg 4.3.12

Finally, the IMF Financial Sector Assessment Programme (FSAP) report on the Irish financial system in 2006 rated the performance of the FR highly. It did not call for any significant changes in its overall approach or methods. It also concluded that the Irish banking system was basically sound.

...because naturally we should be reliant on external bodies' views of the Irish system. Someone blaming the IMF or other outside body for the Irish crisis is deeply ironic, because the accusation implicitly accepts that the regulatory capacities of Irish institutions are negligible.

cordially,
Scofflaw

hinault

hmmm wrote: »

Alright. I'm not a moderator of course but perhaps you could go join any of the numerous threads that consist of factless emotive discussions and leave this one to discussion of today's report.

The two instances I highlighted in my earlier reply are not "factless".

If you have proof that the two instances I highlighted in my earlier direct reply to you are factless and/or can be rebutted, feel free to forward that information to the forum or to the former CEO's of Anglo Irish Bank and IL&P.

In respect of today's report, I would suggest that you read it while bearing in mind the other reports published showing reckless, and in several instances criminal, practices committed in Irish commercial life in the past decade or so.

hinault

ei.sdraob wrote: »

@hinault

Have you not got the message in the last week, first from ECB and now this?
its quite short:

There is no point engaging or arguing with the prevailing "groupthink" here,
all that is required of you and every other taxpayer+citizen is to shut up and pay up for next few decades. Dissent and questioning is not allowed, accountability seems to have been erased from the dictionary altogether in the meantime.

"WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH."

For a minute there, I had a Winston Smith moment.:rolleyes:

hmmm

I'll stick to this report Hinault thanks.

I'm surprised there hasn't been much political discussion of his comments about the night the guarantee was introduced. He practically absolves the government of responsibility (on the night in question, he excoriates governance while the previous government had been in power) and largely pins the blame on the inadequate advice they were receiving.

Is there so few FF'ers left that they can't even spin what seems to be good news?

Hayte

hmmm wrote: »

Incompetence is not a crime.

Erm, criminal negligence?

You should read the report first before knee jerk commenting, it's a relatively easy read and contradicts your central point that this was caused by "fraud". The reports highlights poor corporate governance, poor risk management, the typical Irish failing of shafting anyone who went against the tribal thinking and utterly utterly incompetent regulation and government actions. Even so, none of these are criminal actions.

What we need to see is people losing their jobs or being at least censured (government, regulatory authorities or private sector) for incompetence.

Yeah I mostly got that from the report and I mostly find it agreeable. I think the issue alot of people have is that there is no real political will to change. Derivatives regulation is a dirty word and despite the grilling Goldman Sachs personnel got in front of the US Senate about a year ago, nothing seems to have come of it, despite some tough talk by the likes of Carl Levin. Outside the US, everyone just seems to follow what the US is doing. Shrugs.

I think in the case of certain fraudulent transactions there is possible criminal involvment. I'm thinking in particular of the Irish Nationwide loans to Anglo, the deliberate concealment from shareholders of some 122 million euros in loans to Fitzpatrick over 8 years and the Maple 10 investments. On the surface its hard to imagine how the Irish Nationwide loans cannot be considered false accounting and false disclosure. It is difficult to believe that there were not individuals responsible for the vetting and approval of these loans and it is impossible for this to be an accident.

I do believe that the real problem is a culture of anti regulation, non adherence to best practice (or even good practice) but there is a very specific line you have to cross where criminal liability comes into play. The only possible reason for transferring 122 million in Anglo loans to Irish Nationwide at the end of each fiscal year and then straight back at the start of the next fiscal year is so they do not appear on Anglo's annual accounts.

Now you can also argue that the Financial Regular like the Securities Exchange Commission in the US is a revolving door of bank lawyers, none of which have any desire to p**s off their future employers by nailing headshot fraud causes to their balls. I wouldn't say organisations like the SEC are corrupt so much as "completely defanged" by the legislation and born with a great conflict of interest that naturally leads people to follow where the money is.

What do you do when you identify massive systemic flaws but there is no political will to truly fix them? Everyone just carries on as normal and something like this happens again in 5 to 10 years time. Any liability is mitigated to some extent because "everyone else does it" and it is society's crime, not the individual's. Its very frustrating.

beeftotheheels

hinault wrote: »

What do you call transferring funds from one lending institution to another institution to artificially inflate the deposits of that lending institution?
Or what do you call a lending institution issuing loans to it's officer to buy shares in that lending institution?

You are right that both of these instances look like breaches of the Companies Acts if not criminal offences.

However, we don't know enough to be certain. Alas we have to wait for the director of corporate enforcement/ Gardaí to investigate, although the Garda Commissioner did say on the news this evening that they had 90% of the Anglo investigation done so fingers crossed we'll be hearing the DPP pressing charges soon.

hinault

beeftotheheels wrote: »

You are right that both of these instances look like breaches of the Companies Acts if not criminal offences.

However, we don't know enough to be certain. Alas we have to wait for the director of corporate enforcement/ Gardaí to investigate, although the Garda Commissioner did say on the news this evening that they had 90% of the Anglo investigation done so fingers crossed we'll be hearing the DPP pressing charges soon.

I'm old and weary enough to remember Ernest Saunders, Gerald Ronson, Tony Parnes and Jack Lyons being charged/tried/convicted for false accounting because of their involvement in the illegal Guinness Share support scheme.

View

Scofflaw wrote: »

Hard cases make bad law. The issue of individual responsibility is addressed in the report, and has the following two answers:

1. individuals were subject to organisational pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Neither of those is an argument against punishing individuals who were particularly culpable, whether through incompetency or criminality - but they are an argument that doing so will not fix the system. They are an exercise in revenge, and quite possibly counter-productive.

cordially,
Scofflaw

I have to confess that seems a highly dubious contention. That is a bit akin to saying wrt to drink-driving after a session in the local pub:

i) individuals were subject to peer pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Ergo, we shouldn't "engage in revenge" by prosecuting people for drink-driving.

If individuals in the organisations concerned did not carry out their fiduciary duties as directors and officers of the banks then they should be held accountable for this. It might just mean they end up being prohibited from acting as directors rather than criminal prosecutions but no action essentially amounts to officially okaying the behaviour.

After all, were you on the cusp of being promoted to director level in a bank and you see that your predecessors essentially got away scott-free with behaving recklessly, then - leaving aside any issue of personal moral responsibility - why on earth should you not do so also?

Scofflaw

View wrote: »

I have to confess that seems a highly dubious contention. That is a bit akin to saying wrt to drink-driving after a session in the local pub:

i) individuals were subject to peer pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Ergo, we shouldn't "engage in revenge" by prosecuting people for drink-driving.

If individuals in the organisations concerned did not carry out their fiduciary duties as directors and officers of the banks then they should be held accountable for this. It might just mean they end up being prohibited from acting as directors rather than criminal prosecutions but no action essentially amounts to officially okaying the behaviour.

After all, were you on the cusp of being promoted to director level in a bank and you see that your predecessors essentially got away scott-free with behaving recklessly, then - leaving aside any issue of personal moral responsibility - why on earth should you not do so also?

I agree that it's arguable. My reasons for thinking it may not be as positive as people believe is that the identified problems are largely groupthink and herd mentality, with people afraid to challenge the status quo and the prevailing viewpoint.

Now, put yourself in the position of a civil servant in a regulatory body in x years time, during a new bubble. Once again, the country is in the grip of irrational exuberance, and everyone who's anyone believes that things will only go up. You are called upon to make a choice between two options - option A is controversial, goes against the groupthink, and your name will be prominent. Option B is non-controversial, and in line with the current groupthink - a routine decision in line with all other such. Option C, of course, is to pass the buck to another regulatory body.

How much effect do you believe that the example of senior civil servants being punished for their role in the current crisis will have on you, and which option will it pre-dispose you to take?

If individuals in the organisations concerned did not carry out their fiduciary duties as directors and officers of the banks then they should be held accountable for this. It might just mean they end up being prohibited from acting as directors rather than criminal prosecutions but no action essentially amounts to officially okaying the behaviour.

I'm absolutely not arguing against that one - rigorous application of existing regulations and law is an absolute necessity - I'm arguing against the idea of "extraordinary measures", that is, of punitive action beyond the application of existing law. I would also rather see an effort made to discover those who challenged the groupthink and visibly reward them - that's how science progresses.

cordially,
Scofflaw

hinault

Scofflaw wrote: »

I'm absolutely not arguing against that one - rigorous application of existing regulations and law is an absolute necessity - I'm arguing against the idea of "extraordinary measures", that is, of punitive action beyond the application of existing law.

Unfortunately there is no rigorous application of existing regulations/laws, except in cases perhaps where people are found to have not paid their TV licence or have failed to have paid fines:rolleyes:

As regards extraordinary measures, I think extraordinary times require extraordinary measures to be introduced Scofflaw.
The fact of the matter is that the working citizens of this country are on the hook for the cost of indemnifying insolvent Irish banks.
These banks were insolvent in September 2008 and they remain insolvent in April 2011.
Every single cent that can be saved/recouped from this financial crisis to lessen that cost need to be considered.
Options like a taxation on bankers bonus would be a start.
Retrospective legislation could also be considered.

View

Scofflaw wrote: »

I agree that it's arguable. My reasons for thinking it may not be as positive as people believe is that the identified problems are largely groupthink and herd mentality, with people afraid to challenge the status quo and the prevailing viewpoint.

Now, put yourself in the position of a civil servant in a regulatory body in x years time, during a new bubble. Once again, the country is in the grip of irrational exuberance, and everyone who's anyone believes that things will only go up. You are called upon to make a choice between two options - option A is controversial, goes against the groupthink, and your name will be prominent. Option B is non-controversial, and in line with the current groupthink - a routine decision in line with all other such. Option C, of course, is to pass the buck to another regulatory body.

How much effect do you believe that the example of senior civil servants being punished for their role in the current crisis will have on you, and which option will it pre-dispose you to take?

Well, the people I was referring to in my fiduciary duties were the directors etc of the banks. However, since you raise the issue of civil servants - it is probably impossible to touch them for the current debacle but that does not mean that should be the case in future.

In an ideal world, you want to close off option c in so far as possible and reward option a rather than option b behaviour. That said, it should be crystal clear that actions and inactions carry clear legal consequences for them. Being aware that you might be called up in court to account for your time in office has a way of concentrating the mind.

(And, lest that sound harsh, I have once or twice had to "sign off" on products (in the private sector) knowing that doing so carried potentially serious legal consequences were I signing in error. I also know people who turned down positions where they would have had to face that responsibility).

Scofflaw wrote: »

I'm absolutely not arguing against that one - rigorous application of existing regulations and law is an absolute necessity - I'm arguing against the idea of "extraordinary measures", that is, of punitive action beyond the application of existing law. I would also rather see an effort made to discover those who challenged the groupthink and visibly reward them - that's how science progresses.

cordially,
Scofflaw

Just to be clear, I am advocating the "extraordinary measures" of us actually enforcing some of that legislation we have on the statute books. Not any sort of extra-judicial "lynch mob".

Scofflaw

View wrote: »

Well, the people I was referring to in my fiduciary duties were the directors etc of the banks. However, since you raise the issue of civil servants - it is probably impossible to touch them for the current debacle but that does not mean that should be the case in future.

In an ideal world, you want to close off option c in so far as possible and reward option a rather than option b behaviour. That said, it should be crystal clear that actions and inactions carry clear legal consequences for them. Being aware that you might be called up in court to account for your time in office has a way of concentrating the mind.

(And, lest that sound harsh, I have once or twice had to "sign off" on products (in the private sector) knowing that doing so carried potentially serious legal consequences were I signing in error. I also know people who turned down positions where they would have had to face that responsibility).

Just to be clear, I am advocating the "extraordinary measures" of us actually enforcing some of that legislation we have on the statute books. Not any sort of extra-judicial "lynch mob".

Yes, it's a pity that's reached the point of being, in effect, an extraordinary measure.

I largely agree with what you're saying, and in a sense I'm just following a train of thought to see where it leads. The problem I'm seeing here is that people with a culpable role in the crisis thought that they were doing the right thing, making the right choices. It's not the case that every "particular individual" was really a contrarian whose better instincts were suppressed - the group culture and the peer pressure came from the mass of "particular individuals".

But most people are willing to accept the group's judgement of what is right over and above their own opinion - there are numerous studies confirming exactly that - and it's highly unlikely that the group culture of a regulatory body or bank can be divorced from the opinions of society at large. That means, in effect, that the paradigm people will be operating under will be that of the irrational exuberance experienced by society at large (and that's before we factor in cocaine).

So it seems to me that the problem here is that option B (the safe option) isn't going to be something the average decision-maker will take on the basis that he/she really knows that it's wrong, but on the basis that they genuinely believe it to be the right decision, because they have already bought into the dominant paradigm.

The action of penalties, therefore, may be the opposite of what is desired - it may actually act to reinforce groupthink, because the risk of penalties increases the perceived riskiness of the decision, leading to additional pressure to follow the herd, and to take the decision one both believes to be correct and which is also perceived to be safer by virtue of being less exceptional.

After all, groupthink is known to be a serious potential issue in military decision-making, and the penalties don't come much higher than those available on the battlefield.

hinault wrote:

As regards extraordinary measures, I think extraordinary times require extraordinary measures to be introduced Scofflaw.
The fact of the matter is that the working citizens of this country are on the hook for the cost of indemnifying insolvent Irish banks.
These banks were insolvent in September 2008 and they remain insolvent in April 2011.
Every single cent that can be saved/recouped from this financial crisis to lessen that cost need to be considered.
Options like a taxation on bankers bonus would be a start.
Retrospective legislation could also be considered.

Following the same logic as above, the problem with retrospective legislation - apart from the ethical questions it raises - is that it creates huge additional uncertainty for the decision-maker, the result of which is to increase the likelihood of non-action over action.

cordially,
Scofflaw

later12

Hayte wrote: »

Derivatives regulation is a dirty word and despite the grilling Goldman Sachs personnel got in front of the US Senate about a year ago, nothing seems to have come of it, despite some tough talk by the likes of Carl Levin. Outside the US, everyone just seems to follow what the US is doing. Shrugs.

What has that got to do with the Nyberg report? The Nyberg report was never intended to be an examination of derivatives, because derivatives trading are not directly relevant to the Irish crisis.

As for everybody just following what the US are doing (i.e. Dodd Frank), surely this is because the major figures have to maintain coherence - otherwise problems persist.

I think in the case of certain fraudulent transactions there is possible criminal involvment. I'm thinking in particular of the Irish Nationwide loans to Anglo, the deliberate concealment from shareholders of some 122 million euros in loans to Fitzpatrick over 8 years and the Maple 10 investments.

The title of the Nyberg report is

MISJUDGING RISK: CAUSES OF THE SYSTEMIC BANKING CRISIS IN IRELAND

This has nothing to do with the banking crisis. The loans you are talking about deserve to be examined under another, more specific analysis. It is not under this report's remit, nor ought it to have been.

What do you do when you identify massive systemic flaws but there is no political will to truly fix them? Everyone just carries on as normal and something like this happens again in 5 to 10 years time.

I think you are un-necessarily mixing up the Irish crisis with the wider financial crisis that emerged alongside it. I'm not singling out your post specifically because a number of posts have referred to things like director's loans which are not directly related to causing the systemic banking crisis in Ireland.

Laminations

Nyberg is a pointless blame spreading document that tells us what we already know. Yes everyone is to blame if you are to expand the criteria out to simply living in Ireland or being part of the electorate but their are degrees of blame and that's obvious. If I brought Sean Fitzpatrick and an 8 year old into a line up I'm guessing you could all say who was most to blame, repeat this with numerous pairings and you get a hierarchy of blame (web designers see below *). And yes the ECB/IMF have some blame. I disagree with Scofflaw that seeking outside review makes our regulator meaningless. If our banks were overexposed and our regulator went off the rails and outside opinion was that 'everything is fine' then they have to shoulder some blame for perpetuating the groupthink.

Secondly, this 'groupthink' excuse doesn't exonerate anyone.


Scofflaws example of 3 options doesn't avoid groupthink but we could reform CS processes to phrase such a task differently.

• Leaders should assign each member the role of “critical evaluator”. This allows each member to freely air objections and doubts.
• Higher-ups should not express an opinion when assigning a task to a group.
• The organization should set up several independent groups, working on the same problem.
• All effective alternatives should be examined.
• Each member should discuss the group’s ideas with trusted people outside of the group.
• The group should invite outside experts into meetings. Group members should be allowed to discuss with and question the outside experts.
• At least one group member should be assigned the role of Devil’s advocate. This should be a different person for each meeting.

Individuals still may judge one option as controversial etc but whatever their choice is it is their choice - and if it's found to be a terrible choice (a mistake) then there are consequences just like in any job - not jail but loss of earnings, loss of job, loss of pension. The existence of punishments won't predispose anyone to pick any particular option, it'll predispose them to seriously evaluating the options.

Also I don't even think it's groupthink you are referring to.

Scofflaw wrote: »

1. individuals were subject to organisational pressure - the main problem was the culture and the processes rather than particular people

2. punishing individuals will not prevent such things happening again.

Neither of those is an argument against punishing individuals who were particularly culpable, whether through incompetency or criminality - but they are an argument that doing so will not fix the system. They are an exercise in revenge, and quite possibly counter-productive.

cordially,
Scofflaw

1. Is social obedience and conformity (Milgram) and if you are of the view that 'just following orders' should be a reasonable excuse here then you need to exonerate the Nazis and torturers at Abu Ghraib. 2. Punishment is not ALWAYS about prevention, nor is it about revenge. I could say that not punishing them would not prevent a repeat so that argument is weak. Punishment is just the consequences of their choices, it is justice. If is fairness that when you make a big mistake you have to deal with it, just like when you make a smaller mistake (like buying a house at the right time) you need to deal with that (pay a higher mortgage or move out) regardless of cries about 'the mood at the time'

Thirdly, this herd mentality is repeating itself and prominent members on this site are some of it's trumpeters. 'We cannot restructure our debt', 'Europe are not to blame' is the new head in the sand, nothing to see here herd mentality.

* I'd love to do up a simple website 'BlameORnot.com' which would pitch pairs of players in the Irish crash together to be judged for their culpability. Voting just like in hot or not would give these degrees of blame perceived by the public without the need for an expensive reports. Players could be broad E.g Senior CS vs. Junior CS as well as individuals E.g. Patrick Neary vs. Brian Lenihan.

fred252

jayzus, how much have we paid this guy to tell us what we already know?

this after paying those pleasant foreign civil servants to white wash our own dept of finance civil servants.

ps. apologies for bringing down the tone of the conversation

Laminations

fred252 wrote: »

jayzus, how much have we paid this guy to tell us what we already know?

this after paying those pleasant foreign civil servants to white wash our own dept of finance civil servants.

ps. apologies for bringing down the tone of the conversation

We are all to blame and must all be punished :rolleyes:

A twist on the Dodo Bird Verdict

In Lewis Carroll's Alice's Adventures in Wonderland (1865), at a certain point a number of characters become wet. In order to dry themselves, the Dodo decided to issue a competition. Everyone was to run around the lake until they were dry. Nobody cared to measure how far each person had run, nor how long. When they asked the Dodo who had won, he thought long and hard and then said "Everybody has won and all must have prizes

MonkieSocks

hinault wrote: »

As a general observation, I can well understand European reticence with regard to Ireland.

What we have learned since September 2008 is that Irish politicians, Irish bankers, Irish regulators and Irish property developers caused this country's financial crisis.

Don't forget Estate Agents who also had a hand in inflating the price of property.

Scofflaw

Laminations wrote: »

Nyberg is a pointless blame spreading document that tells us what we already know.

Apparently not.

Laminations wrote: »

Yes everyone is to blame if you are to expand the criteria out to simply living in Ireland or being part of the electorate but their are degrees of blame and that's obvious. If I brought Sean Fitzpatrick and an 8 year old into a line up I'm guessing you could all say who was most to blame, repeat this with numerous pairings and you get a hierarchy of blame (web designers see below *). And yes the ECB/IMF have some blame. I disagree with Scofflaw that seeking outside review makes our regulator meaningless. If our banks were overexposed and our regulator went off the rails and outside opinion was that 'everything is fine' then they have to shoulder some blame for perpetuating the groupthink.

As I said, that implies that outsiders had the remit to ensure our regulators were competent because we can't be trusted to do that ourselves. In fact, outsiders do not have such a remit - it's the responsibility of the Irish people. The apportionment of blame within Ireland is largely a matter of personal opinion, but the apportionment of responsibility between Ireland and the world is - from a factual point of view - cut and dried. There wasn't anyone out there with responsibility for looking after our affairs.

Laminations wrote: »

Secondly, this 'groupthink' excuse doesn't exonerate anyone.

It isn't intended to - it's an observation of the occurence of a relatively well-studied phenomenon which is known to have a negative impact on decision-making.

Laminations wrote: »

Scofflaws example of 3 options doesn't avoid groupthink but we could reform CS processes to phrase such a task differently.

• Leaders should assign each member the role of “critical evaluator”. This allows each member to freely air objections and doubts.
• Higher-ups should not express an opinion when assigning a task to a group.
• The organization should set up several independent groups, working on the same problem.
• All effective alternatives should be examined.
• Each member should discuss the group’s ideas with trusted people outside of the group.
• The group should invite outside experts into meetings. Group members should be allowed to discuss with and question the outside experts.
• At least one group member should be assigned the role of Devil’s advocate. This should be a different person for each meeting.

Individuals still may judge one option as controversial etc but whatever their choice is it is their choice - and if it's found to be a terrible choice (a mistake) then there are consequences just like in any job - not jail but loss of earnings, loss of job, loss of pension. The existence of punishments won't predispose anyone to pick any particular option, it'll predispose them to seriously evaluating the options.

Good suggestions.

Laminations wrote: »

Also I don't even think it's groupthink you are referring to.

1. Is social obedience and conformity (Milgram) and if you are of the view that 'just following orders' should be a reasonable excuse here then you need to exonerate the Nazis and torturers at Abu Ghraib. 2. Punishment is not ALWAYS about prevention, nor is it about revenge. I could say that not punishing them would not prevent a repeat so that argument is weak. Punishment is just the consequences of their choices, it is justice. If is fairness that when you make a big mistake you have to deal with it, just like when you make a smaller mistake (like buying a house at the right time) you need to deal with that (pay a higher mortgage or move out) regardless of cries about 'the mood at the time'

I think you're missing the point - the groupthink and the social conformity (already referred to) are being identified as problems, not used as excuses.

Laminations wrote: »

Thirdly, this herd mentality is repeating itself and prominent members on this site are some of it's trumpeters. 'We cannot restructure our debt', 'Europe are not to blame' is the new head in the sand, nothing to see here herd mentality.

Oh, rubbish. Some of us have reached some of those conclusions, which we're perfectly prepared to argue. One might as well claim that "burn the bondholders" and "everyone but us is to blame" are the groupthink/herd mentality of denial - and I think one would be a good deal more justified in doing so, given that that's the attitude prominent in the Irish media, to the extent that poor old Gilmore felt he had to explain it away at the recent diplomatic drive.

Laminations wrote: »

* I'd love to do up a simple website 'BlameORnot.com' which would pitch pairs of players in the Irish crash together to be judged for their culpability. Voting just like in hot or not would give these degrees of blame perceived by the public without the need for an expensive reports. Players could be broad E.g Senior CS vs. Junior CS as well as individuals E.g. Patrick Neary vs. Brian Lenihan.

What would be the point? All you would determine is popular attribution of blame.

cordially,
Scofflaw

beeftotheheels

hinault wrote: »

Retrospective legislation could also be considered.

Leaving aside the moral and ethical issues of retroactive criminal legislation, the legal aspects are in an of themselves sufficient.

Art 15.5.1. of BnahÉ provides that

The Oireachtas shall not declare acts to be infringements of the law which were not so at the date of their commission.

Were we to try and change this by referendum any legislation brought in would be subject to challenge in the European Court of Human Rights, so lets not go there.

ei.sdraob

Scofflaw wrote: »

individuals were subject to organisational pressure - the main problem was the culture and the processes rather than particular people

Hitler must be dancing in hell :mad:
someone created and directed this culture in the organisations, someone is ultimately responsible for the processes, hence why organisations have a hierarchical structure with people on top earning plenty of money for the responsibility for the organisation.

There you have it people if your restaurant business poisons people you could be sure as hell you endup in court, if your bank business puts a debt of 25,000 on each citizen of the country and trows whole economy into limbo you get a nice bonus.

Scofflaw wrote: »

2. punishing individuals will not prevent such things happening again.

And just like that with a few keystrokes you try to make it out that the whole criminal punishment system is pointless :rolleyes:

How can a society exist without responsibility for ones actions?

Apparently white collar crime is ok, sure we need more of it, why bother robbing banks and hold people hostage when you can be the director of the bank and rob much more effectively, and get a nice bonus on top.

Laminations

Scofflaw wrote: »

As I said, that implies that outsiders had the remit to ensure our regulators were competent because we can't be trusted to do that ourselves. In fact, outsiders do not have such a remit - it's the responsibility of the Irish people. The apportionment of blame within Ireland is largely a matter of personal opinion, but the apportionment of responsibility between Ireland and the world is - from a factual point of view - cut and dried. There wasn't anyone out there with responsibility for looking after our affairs.

They fed information into the system. How can you hold Irish people responsible when we only have access to national and international reviews of our institutions from which to make our judgements. It's best practice to rely on expert opinion but if the expert gets it wrong they are to blame for that - not nearly as culpable for homegrown bodies whose job it was to get it right monitoring and regulating banks.

It isn't intended to - it's an observation of the occurence of a relatively well-studied phenomenon which is known to have a negative impact on decision-making.

Well fvck my ass and call me Sally! So we paid 1 million quid to have a non psychologist profile the national psyche of the country and tell us something that's been spotted here on boards, a year ago, for free - it was the groupthink what done it... But I actually named people contributing to this 'relatively well-studied phenomenon'

Laminations wrote: »

People like Mike Aynsley are purposely hired for these jobs. They value the continuance of the bank over accountability as the continuance of the bank is the continuance of their job and they must be biased in favour of this approach from the outset. Alan Dukes is a similar appointment, all of these people would have to have been towing the government line of not closing the bank. Imagine Peter Matthews being brought in to run things - his approach would be to wind the whole thing down, hence people with this opinion are not involved in the bank. They all sing from the same tune and are all engaged in groupthink.

Good suggestions.

Thanks, they aren't mine, they are relatively well known solutions developed from the study of groupthink cases, like the Challenger Disaster. So we should have already been operating this way -who's to blame?

I think you're missing the point - the groupthink and the social conformity (already referred to) are being identified as problems, not used as excuses.

It is an excuse, because if it's framed as the problem and the individuals involved in the decision making aren't named or seen as the problem then groupthink takes the blame and how does one punish a social phenomenon?
It implies that the problem is situational, not personal and that anyone acting in those positions would have done the same. That's diluting blame and reducing individual responsibility.

Oh, rubbish. Some of us have reached some of those conclusions, which we're perfectly prepared to argue. One might as well claim that "burn the bondholders" and "everyone but us is to blame" are the groupthink/herd mentality of denial - and I think one would be a good deal more justified in doing so, given that that's the attitude prominent in the Irish media, to the extent that poor old Gilmore felt he had to explain it away at the recent diplomatic drive.

It is blatantly obvious, and will be shown so in hindsight, that just like the bust would not be a soft landing, we cannot afford our level of debt.

What would be the point? All you would determine is popular attribution of blame.

cordially,
Scofflaw

Because no other attribution of blame is forthcoming. Of course I'd prefer a Nyberg type report that looked at attributing blame accurately but instead we get a million euro Dodo Bird Verdict