An Irish-Style Banking Inquiry into the 2008 Financial Crisis
Former financial regulator Bill Black discusses his recent testimony in Ireland and the challenges the country faces in acknowledging its financial crisis
SHARMINI PERIES, EXEC. PRODUCER, TRNN: This is the Bill Black report. I’m Sharmini Peries, coming to you from Baltimore.
Joining us from Minneapolis today is Bill Black. He’s an associate professor of economics and law at the University of Missouri, Kansas City. He’s a white-collar criminologist and a former financial regulator. He is the author of The Best Way to Rob a Bank Is to Own One.
Thank you so much for joining us today, Bill.
So, Bill, you have recently gotten back from Ireland, where you were called on by a joint committee of inquiry into the banking crisis. You were there to help regulators or legislators avoid a deepening crisis and answer some questions as to whether and how Ireland and many other nations, the kind of questions they must ask and correctly answer in order to stop a reoccurrence or a deepening and intensifying of the crisis that they’re in. So what did you have to say to them?
BLACK: Well, these were legislators. All the members are legislators. So none of them have regulatory experience. And it’s an interesting thing, because under their interpretation of the Irish Constitution, you can’t name anything. You can’t name the people responsible for the crisis. So it’s a banking inquiry into the crisis in which they’re not allowed to inquire and you’re not allowed to testify about the causes of the crisis.
PERIES: You mean they could name people or banks or call them fraudulent?
BLACK: Yup. They can’t do any of those things. You can’t even talk about fraud generally in banking, they implied. Now, this is the lawyers. And it’s really Lord Voldemort rules, right? He who cannot be named in Harry Potter series stuff. It’s the weirdest surreal experience I’ve had in a long time.
PERIES: So what were their queries?
BLACK: So I did testimony that was primarily focused on regulatory theory. They asked me about principles-based regulation, which was one of the things that neoliberals had settled on as a way of appearing to support regulation while actually destroying it.
So one of the things I did in my prepared testimony–which, by the way, which has still not been, by the way, accepted because of these legalish things, was not, quote, the Irish regulators, because that was verboten, but instead, to quote the leading regulator in the world, most identified with principle-based regulation, who is a Brit and had nothing to do with the Irish crisis, at least directly, and they demand that I take all the references to his name out as well. So in Ireland you can’t even name Brits who weren’t crooks. And also they took out the–one of the name taken out of the Finn who did the earlier study in Ireland. So it was quite strange.
But, anyway, I did get–.
PERIES: Bill, just curiosity, is this because of old interpretations of the Constitution? Or are these things [that] have been regulated into Irish law over the course of the recent financial crisis in history?
BLACK: It’s a little of both, plus a bit more. So they have this Constitution that is designed to make sure that they really, really protect the rights and they don’t have any smearing of people. And so this comes from, actually, U.K. traditions, and then some Irish traditions, where the press was often very hostile to the revolutionary types.
Similarly, they have this old scar tissue against whistleblowers, because, of course, their experience was often with informers that would sell you out to the black and tans, and then you’d be tortured and murdered and such. So they have laws that are pretty hostile to whistleblowers, and regulations as well.
But on top of that, they interpret–this Constitution gets interpreted by the courts, and the courts in Ireland are notoriously sympathetic to elite white-collar criminals or alleged elite white-collar criminals. And so they use any excuse to get rid of prosecutions.
And so some prior inquiries have collapsed when there was testimony about–or at least that could be interpreted as being about individuals who might go to trial, and then the prosecutions collapse and the politicians get attacked for destroying the prosecutions, which the courts wanted to tank anyway, typically. And so it’s a huge mess. And so they all walk around on eggshells in which they’re afraid to really mention much of anything.
And as I said, they say they want a banking inquiry, and the terms of the banking inquiry are that they’re supposed to look at the causes of the crisis, but in fact, if those causes have anything to do with any individuals doing anything wrong–and, of course, that’s exactly what they have to do with–then you can’t testify about it.
PERIES: So then what did they inquire about?
BLACK: So about–the thing that really got all over the press–there was a media sensation–was not in my long testimony and it was not in my oral testimony. It was a question by one of the parliamentary folks who had obviously done his homework, and he had used a search engine, or his staff, and gotten many of the prior things that I’ve written about virulent. So, of course, I’ve read, written, and spoken that this is basically a crisis brought on by elite fraud.
But I also called the bank guarantee that the Irish government gave to virtually all debts of the Irish banks as the most destructive own goal in history. And that’s a soccer metaphor. In soccer, when you kick it in your own goal, score against yourself, that’s called an “own goal” in English. And so that, they asked me about that, and I said, yes, it was the most destructive own goal in history, and it was also the worst form of guarantee, in that they guaranteed even the subordinated debt, which is supposed to never, ever be bailed out in these circumstances.
So the thrust of all of this is Ireland had a banking crisis because of the fraud, because of the deregulation, but mostly because of this just almost complete desupervision in Ireland.
But they then gratuitously turned it into a fiscal crisis by giving this guarantee of these massively insolvent Irish banks. And they did so because (A) they were lied to by the banks, and (B) because the regulators were completely in the tank as anti-regulators. And so they came to the Irish government, they the banks and the regulators, and they said, hey, the banks are in wonderful shape. They have no asset problems, have lots and lots of excess capital. But we’re going to die 12 hours from now.
Now, those two stories, right, are not logically consistent, but the regulators said, yup, yup, yup, and that it won’t cost you anything to give this guarantee. And so they gave the guarantee. And because the banks were massively insolvent, the Irish government’s whole budget went glug, glug, glug, and they needed a bailout, and that got them into the austerity.
PERIES: Now, Bill, you have legislators looking at the banking industry and the regulators who appealed for this kind of bailout, essentially, from the–.
BLACK: Well, not really, of course, for the reasons I explained. You have legislators who nominally are supposed to do that, but in practice are not permitted to do that. So it’s very kabuki theater.
PERIES: And are they possibly considering the pursuit of investigation? And aften this inquiry, are they looking at the possibility of charges? What is the end goal of this inquiry?
BLACK: Now, the inquiry cannot lead to charges, is not allowed to look at any individual culpability, interprets it–it appears to not even look at individual banks. But it is–there are a few live investigations and threatened or actual prosecutions of a few bankers. And so those should go on.
But the defense lawyers are eagerly hoping that the banking inquiry will say something, anything about their clients, then they’ll run to the very sympathetic judges and say, you need to dismiss the case against my client under the Irish Constitution. And, again, that’s the nightmare scenario for the members of parliament.
PERIES: So what did all of this banking chaos leave for the Irish people?
BLACK: Well, it produced the largest bubble relative to GDP in the developed world. So, compared to their GDP, the Irish bubble is twice as bad as the U.S. bubble in residential real estate. And Ireland had not only a residential real estate bubble, but a massive commercial real estate bubble. And as a result, there are all kinds of what–they’re frequently called ghost estates in Ireland. These are things that are built and nobody has ever going to occupy them, all kinds of shopping centers that’ll never be shopping centers. And so that’s simply taking societal wealth and destroying it. On top of that, of course, all kinds of Irish people bought in at or near the peak of the bubble, and their home prices are drastically underwater.
Ireland has draconian bankruptcy laws, so that they can go after you, bankrupt you, and then hound you for the rest of your life if you ever make money again. So there’s no U.S. type fresh start, although there are now some changes to the Irish bankruptcy laws. Many, many people lost their jobs. They were forced into a severe recession. A huge chunk of Irish tax revenue goes to simply paying debt to the European Central Bank and other bank types involved in the bailout, IMF and such.
PERIES: So not unlike Greece, what Greece is going through right now.
BLACK: Well, it was at peak or depth of the trough, similar to Greece, not as bad. But Ireland is not like Greece. Greece has many more problems. And Greece, as the Germans have really–and the Dutch have decided to make an object lesson of Greece, Ireland was the fair-haired boy who said, oh, yes, yes, yes, do whatever you want us to do, we’ll be happy to do it. And so they got a poor deal, but they never got the animosity of the troika, which is the European Commission, the IMF and the European Central Bank.
And Ireland’s two big trading partners are the United Kingdom and United States. These are the two large nations with the best economic recoveries. So that’s helped Ireland a great deal. And Ireland is a tax haven, and Ireland has grown as a tax haven. So our viewers may recall about six months ago all this talk of tax inversions was very, very hot.
PERIES: Which are? Describe that for us.
BLACK: So a tax inversion is a merger deal that is designed to make it appear that you are an Irish Corporation, or at least a corporation that’s not a U.S. corporation based in the United States, and then you can qualify for a dramatically lower corporate income tax rate in Ireland.
Then you play all kinds of games that are called transfer pricing to make it appear that your profits were earned overwhelmingly in Ireland.
And then there are games is called the double Irish in the trade, in which you use not only this Irish scam, but a scam involving some of the former British Colonial Islands, and you can reduce your corporate income tax rate from a supposed 15 percent to as low as 1 or 2 percent in some of these cases. And then there are, until recently, super secret special deals that the Irish government would secretly cut with places like Apple, where it would have its own tax rate and a much, much, much lower tax rate it was that wouldn’t, of course, be publicized to its competitors.
So all of these things have in fact brought Ireland back to vigorous growth. Ireland has the best growth in Europe now. But, of course, it’s not a strategy that other people can follow, because if you have everybody being a tax haven, all the tax havens lose.
PERIES: Right. Well, Bill, thank you so much for mapping this Irish banking history for us. And we look forward to your next segment with us.
BLACK: Thank you much.
PERIES: And thank you for joining us on The Real News Network.
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