Risk and Financial Armageddon in Ireland: The Politics of the Galway Tent

Political Quarterly

Volumn 82, Issue 4, 2011, Pages 596-608

  Taylor, George ^a  

^a NATIONAL UNIVERSITY OF IRELAND   (Ireland)

Author keywords

Crisis; Financial regulation; Ireland; Risk

Indexed keywords

EID: 80555153912     PISSN: 00323179     EISSN: 1467923X     Source Type: Journal    
DOI: 10.1111/j.1467-923X.2011.02239.x     Document Type: Article

References (32)

1. The Galway horse races were the social event of the Irish calendar: a heady mixture of gambling and politics, where travelling by helicopter confirmed you had 'finally arrived'. While it often felt like a re-run of the fall of Saigon, the 'real action' was to be found on the ground, or rather the tent, where Fianna Fáil politicians rubbed shoulders with the elite of Ireland's property developers and bankers.
2. Welfare payments for recipients under the age of 25 have been cut by 50 per cent and pension/income levies imposed on public sector workers that have had take-home pay reduced by over 25 per cent. This will not be the end of the 'pain', with tax increases on the low paid and further 'adjustments' to welfare as part of a projected four-year austerity plan.
3. John O'Donoghue's (the Speaker of the House) taste for a champagne lifestyle at the taxpayers' expense included four visits to the United Kingdom, three of which were to attend race meetings in Cheltenham and Ascot.
4. P. Honohan, The Irish Banking Crisis, Regulatory and Financial Stability Policy 20032008: A Report to the Minister of Finance, Dublin, Stationery Office, 2010.
5. G. Taylor, 'Hailing with an invisible hand: a "cosy" political dispute amid the rise of neo-liberal politics in modern Ireland', Government and Opposition, 37, 4, 2002, 501-23
6. G. Taylor, Negotiated Governance and Public Policy in Ireland, Manchester, Manchester University Press, 2005.
7. G. Taylor, 'The reconfiguration of risk in the British state', Public Policy and Administration, 24, 4, 2009, 379-98.
8. P. Bacon et al., The Housing Market in Ireland: An Economic Evaluation of Risk and Prospects, Dublin, Stationery Office, 2000.
9. Bacon et al., The Housing Market in Ireland, 5-20.
10. T. Fahey and D. Duffy, 'The housing boom', in T. Fahey, H. Russell and C. T. Whelan, eds, The Best of Times? The Social Impact of the Celtic Tiger in Ireland, Dublin/Dordrecht: Institute of Public Administration/Springer Verlag2007124.
11. Honohan, The Irish Banking Crisis, 24.
12. P. Woodall, 'A survey of property: a house of cards', Economist, 27 May 2003.
13. Honohan, The Irish Banking Crisis,10.
14. Taylor, 'The reconfiguration of risk in the British state'.
15. Cabinet Office, Modernising Government, Cmnd 4310, London, HM Stationery Office, 2000, http://www.berr.gov.uk/files/file22967.pdf
16. R. Dahrendorf et al., Review of the Regulatory Reform Act 2001, House of Lords Papers 45 2005-06, London, HM Stationery Office, 2005
17. Better Regulation Task Force, Regulation-Less is More: Reducing Burdens, Improving Outcomes, 2005
18. P. Hampton, Reducing Administrative Burdens: Effective Inspection and Enforcement (Hampton Report), For more detail, see Taylor, 'The reconfiguration of risk in the British state'., 2005, http://www.berr.gov.uk/files/file22988.pdf
19. B. Kingsbury, N. Krisch, R. Stewart and J. B. Weiner, 'Global governance as administration: national and transnational approaches to global administration', Law and Contemporary Problems,68,42005, 1-13
20. B. Kinsbury, N. Krisch and R. B. Stewart, 'The emergence of global administrative law', Law and Contemporary Problems, 68,4, 2005, 16-62.
21. Kingsbury et al., 'Global governance as administration', 17.
22. Former Taoiseach, Charles Haughey, was one of 200 wealthy clients during the 1970s to deposit large sums of money into offshore accounts in the Cayman Islands to evade the country's punishing tax rates. In 1998, reports hit the media that Allied Irish Bank (AIB) had used bogus non-resident accounts to evade a tax on interest income calculated and collected at source by the bank-a practice 'endemic' among Irish banks (Committee of Public Accounts, 15 December 1999).
23. M. McDowell et al., Central Bank Financial Regulation: Report on Evaluation of Effectiveness (McDowell Report), Dublin, Office of the Comptroller and Auditor General, 1999.
24. Honohan, The Irish Banking Crisis, 109.
25. Ibid, all quotes in this paragraph passim. The banks also failed to ensure adequate security for many of the larger commercial property loans and encouraged developers to roll-over loans to new (and larger) projects in order to avoid tax.
26. This is evident in the tension that exists within the Vickers Commission's interim report. It acknowledges that 'lenders and borrowers took on excessive ... risks', that banks operated with excessive leverage and inadequate liquidity' and that regulation permitted the ratio of their assets to their capital base to grow far too high, but it declines to challenge the idea that decisions about risk (that could be systemically threatening) should be taken in any other place than the market. The preferred route is to adopt new risk management initiatives: improving capital base ratios (amendments to the Basel Accord). Though it mentions more radical options such as ring fencing (the separation of retail and investment banking, a return to the Glass Steagall era) and acknowledges that this 'would make it easier and less costly to sort out banks' as well as 'help shield UK retail activities from risks arising elsewhere within the bank or wider system', this is qualified by the fact that 'any policy proposal by a national regulator to impose enhanced regulatory standards on financial institutions based in its territory needs to take account of the extent to which institutions may move some or all of their activities to jurisdictions with a different (looser) regulatory regime' (J. Vickers, Independent Commission on Banking: Interim Report (Vickers Report), 2010, 3, )., http:// http://bankingcommission.independent.gov.uk/)
27. Taylor, 'The reconfiguration of risk'.
28. D. Marsh and G. Stoker, eds, Theory and Methods in Political Science, London, Macmillan, 1999.
29. D. Marsh, 'Keeping ideas in their place: in praise of thin constructivism', Mimeo, University of Birmingham, 2007.
30. As this article has gone through further drafts, the 'haircut' has become more severe, with estimates in the range of 53-63 per cent on the second and third tranche of loans. As a consequence, the asset base of the banks has been adjusted downward, undermining financial stability and prompting the Irish government to step in.
31. Like an errant schoolchild, the Irish government's handling of these events has been chastised in no uncertain terms; future policy options and financial data will be submitted according to a schedule determined by the IMF/ECB.
32. The EU approved the use of a neat little piece of financial engineering (a special purpose vehicle) that would allow this debt not to be recorded in future EU negotiations. It proved a persistently thorny issue with the opposition throughout the legislative passage of the NAMA bill, much to the chagrin of the Minister of Finance who could find little wrong with the possibility that a small group of investors (possibly those at the epicentre of the crisis) potentially making profits from this debacle. Given that NAMA was dealing with €70 billion of debt, €100 million seemed inconsequential.