We're paying high price for blind eyes and denial...
No event in the past 40 years, apart from the Arms Crisis of 1970, has been shrouded in as much state secrecy as the bank guarantee scheme introduced on the night of September 28, 2008.
While everyone knows the outcome of the various meetings -- €485bn of liabilities were ultimately guaranteed -- only a small circle knows precisely what happened during the shuttle diplomacy between the banks and Brian Cowen's Government that night.
Two books have been written, several newspaper accounts have been published and one or two of the participants have even spoken briefly about that fateful evening. But detailed, minuted information about the key decisions and key moments leading up to the guarantee has never been released.
In fact a slew of Freedom of Information requests seeking these details has been flatly rejected, with the Department of Finance using highly charged language to explain why the public and the media cannot see such information.
Now the information surrounding the granting of the guarantee is to be released, via a website today controlled by the Dail Public Accounts Committee. If all the relevant material is released, this is to be welcomed.
When a government decides to guarantee liabilities amounting to more than 2.5 times' the country's entire economic output, the reasons and assumptions underpinning the decision need to be publicly scrutinised.
While much attention will focus on what politicians said or did during this period, there is also a need to carefully consider the role of the Financial Regulator, even though the person in that office at the time, Patrick Neary, has already been widely castigated.
Early indications are that Neary's reputation will be further undermined by some of the records being released today. For example, it appears that even in the days just before the guarantee was drafted, Neary believed Irish banks were simply suffering from a liquidity crisis -- that is, they couldn't access funding from other banks.
Neary apparently couldn't see the wider and more deep-seated problem -- most of the banks were hopelessly insolvent because their property-heavy loan books were massively over-valued in a declining property market.
What is most baffling about Neary's comments in the days just before September 28 is that so many market players were already telling him --indirectly -- that the Irish banks were in serious trouble, and not just because of funding issues.
Anglo shares had been collapsing from March 2008 onwards and a series of highly negative stockbroker's notes had been published outlining Anglo's financial fault lines. Investors were not selling solely because of Anglo's funding issues, they were selling because the Irish/UK and US property markets had been stalling since early 2007 and Anglo had over 80pc of its assets in property.
For some reason Neary, and, yes, some of the politicians, seemed to believe that Irish banks were perfectly adequately capitalised going into late 2008 and had no wider credit quality issues. This was a dangerous mistake.
Hiding among the balance sheets of each bank were ticking time-bombs that exploded with violent force throughout 2009, leaving Ireland with a bank rescue bill expected to top about €50bn, according to Standard & Poor's.
Neary, the Government and some bank executives seemed to be paralysed with indecision in 2008 and this reaction seems to have been based on living in financial denial. In fact, Neary seemed to blame the problems of 2008 on everyone but on the Irish banks themselves.
For example a high-profile investigation was launched in March 2008 by Neary into the sale of Anglo shares by certain investors. Aggressive short-sellers were blamed for dragging Anglo's share price down, using malicious rumours to change market sentiment.
But months later, when the results of the investigation emerged, it was discovered that these investors were acting perfectly rationally and were in essence justified in dumping Anglo's shares. The bank was hopelessly under-capitalised and it is absolutely certain that if the bank had not received the benefit of the guarantee in September 2008 it would have collapsed -- Lehman Brothers-style.
For some reason the staff of the Financial Regulator could not draw the obvious conclusions from the published financial statements of Anglo Irish Bank and also Irish Nationwide.
With commercial property prices plunging from 2007 onwards and the US subprime crisis erupting throughout that year, it was very plain that Anglo was going to have serious financial challenges, but instead of facing up to these it now appears the authorities wanted to avert their gaze from the problems.
In fact the pattern of denial started much earlier than even 2008. When depositors were queuing outside Northern Rock branches in the late summer of 2007, the Irish authorities acted -- at least in public -- in a most blase manner.
This included complacent comments saying a Northern Rock could never happen here -- even though that lender was felled by the same issue that later caused the Irish banks so much trouble -- an over dependence on inter-bank lending.
Once again this was a poor piece of forecasting and another dollop of financial denial that we're now paying for.
Report by Emmet Oliver - Irish Independent