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Cowen's 'Homemade Meltdown'...

Cowen on rack over 'homemade meltdown'...


THE banking meltdown that cost taxpayers billions of euro was a result of "homemade" decisions and a government that thought "the party could last forever", two official reports revealed yesterday.

In hugely damning findings, one report by two international banking experts pointed the finger of blame squarely at Taoiseach Brian Cowen for economic policies when he was Finance Minister.

The reports will now be used by a commission of inquiry and an Oireachtas committee to look at what triggered the crash.

But the inquiry will not be looking at a string of calamitous government budgetary policies to which Mr Cowen was central and it is not clear if the Taoiseach will be called before the committee.

Former International Monetary Fund officials Klaus Regling and Max Watson said alarm bells should have sounded when the property boom and lending trends in the banking sector expanded -- as far back as 2003.

They added that vote-winning economic policies during the boom "heightened the vulnerability of the economy" as the then Finance Minister -- Mr Cowen -- began spending money while taxes were cut.

And in a separate report, Central Bank governor Patrick Honohan blew a large hole in Mr Cowen's claims, which mirrored those of former Taoiseach Bertie Ahern, that Ireland's collapse began with the fall of US financial giant Lehman Brothers.

"The collapse of Lehman Brothers did not cause the Irish banking crisis," he said.

Professor Honohan also said the popularity of Anglo Irish Bank bosses, such as Sean FitzPatrick, who were "well-liked in political circles", may have contributed to them being left in their positions after the September 2008 bank guarantee.

The clear-out of Anglo management only began in December 2008 -- three months after the bank's woes almost caused the collapse of the entire system.

Mr Cowen attended a private dinner with the Anglo board earlier that same year when he was Finance Minister.

Policies

Prof Honohan found that economic and budgetary policies contributed significantly to the economic overheating, relying to a clearly unsustainable extent on the construction sector and other unreliable sources of taxes and encouraging the property boom via incentives geared at the construction sector.

"This helped create a climate of public opinion which was led to believe that the party could last forever," he said.

In his report, Prof Honohan says the system of regulation was characterised by excessive deference to the banks and timid responses when problems were found.

He said inspections discovered numerous problems with the banks, but the Financial Regulator did not follow up with rigorous actions that could have headed off the banking crisis.

In their report, Mr Regling and Mr Watson found:

*The Government's budgets during the boom years with lots of giveaway spending left the country vulnerable.

*Careful management and supervision of the public finances and banking sector could have helped steer the country towards a "soft landing" when the recession came.

*But rather than keeping a tight control on the boom, the Government spent the money -- from taxes on property and consumer spending.

Mr Cowen's 2007 budget is singled out in both reports. Mr Regling and Mr Watson concluded that overall fiscal policies encouraging the boom, particularly 2007, added "markedly to the overheating of the economy".

His spending splurges before and after the 2007 General Election were pointed to by Prof Honohan, who described them as "an unfortunate late burst of spending which boosted the underlying deficit at almost the worst possible time".

Among the most damning findings of Mr Honohan's report were:

*Excessive deference was shown to the banks by the regulators, whose responses were timid when problems were found.

*Inspections found numerous problems, but the regulator did not follow up with rigorous actions that could have headed off the crisis.

*Bad lending choices and falling property values meant that at least two banks were going to go bust anyway and two more might just have traded through, if there was no international crisis.

*The September 2008 bank guarantee was justified, but should probably not have included subordinate bonds.

Mr Cowen expressed "regret" at what happened to the country -- but he said he accepted responsibility for his decisions.

"The outcome we now face is a very challenging one for all our people and I deeply regret that. There's no Taoiseach or no politician who would have responsibility during that time who wouldn't be reflecting that reality and that fact," he said.

The opposition parties were scathing of Mr Cowen's record.

Fine Gael finance spokesman Richard Bruton said the independent experts had passed their verdict and the Taoiseach was "guilty of spectacular and catastrophic policy failures".

The former financial regulator Patrick Neary refused to comment on the contents of the report last night.



Report - Irish Independent.

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