The 10 things welearned in 10 years since the crash
Some 10 years ago this month, the world changed forever. In August 2007, the first signals of impending financial doom rippled through markets after BNP Paribas froze access to certain funds invested in sub-prime mortgages. (see panel) In September 2008, Lehman brothers went bust and the US authorities decided not to bail it out. As Bertie Ahern once famously said: ‘Lehman Brothers had testicles (sic) everywhere.’ Indeed they had and the contagion spread around the world. Terrified that a Lehman-style scenario would repeat itself across Europe, the ECB strongarmed the Irish Government into bailing out all its banks with €64bn of taxpayers’ money. Then the property market collapsed – shutting down a critical source of income: stamp duty and other taxes on house-buying. Our credit was shot. The wages of gardaí and nurses wouldn’t get paid unless we got a bailout. Ten years on, what have we learned?
BANKS NEED WATCHING...
Bankers, like everyone else, will line their pockets wherever possible. If they get fat bonuses for lending too much money to people who can’t pay it back, that’s exactly what they will do. They need – and now have – rules in place to restrict lending, both in Ireland and globally. Banks also have additional capital requirements and greatly enhanced supervision. They need it.
...AND WATCHDOGS TOO
Auditors and credit-rating agencies failed to spot huge cracks in our financial systems. That may be because they are paid by the companies they are supposed to monitor. Regulators failed too because they were complacent and too chummy with their banker friends. Things have improved with some tougher new rules. But is this enough to prevent a new crisis? Doubts remain.
RISKS ARE STILL THERE
Some banks behaved recklessly pre-2008 because they believed they were ‘too big to fail’. No matter what they did, governments would bail them out to protect the economy. They were largely right. Since then, there has been huge pressure for massive banks to be broken up (‘If they’re too big to fail, they’re too big,’ said Alan Greenspan, former head of the US Federal Reserve) but, so far, this has not happened.
FEARS OF A NEW BUBBLE
When property prices and shares lost half of their value, it seemed like the end of the world.
But they bounced back. Shares have tripled to all-time highs since 2009 and house prices have increased 68% in Dublin and 48% elsewhere. Yet, in both cases there are now fears of new bubbles.
TECHNOLOGY TROUBLE
Bank ‘runs’ of panicked customers queuing to withdraw their money that trigger panic are extremely
rare. But new technology could also trigger crises any time. Shares are now bought by computer algorithms that can trigger massive sell-offs at once. This phenomenon is a lot more prevalent now and could exacerbate any new crisis.
BAILOUT MISTAKE
We initially paid €64bn to bail out our banks. But the final bill is likely to be half that after AIB, BoI and PTSB pay us back. The remaining tens of billions will hang over us for generations. It is all down to Anglo and Irish Nationwide. Yet, these were broken, zombie institutions of no importance to the Irish economy. Since that momentous bailout decision, the EU has changed the rules to protect taxpayers in individual countries from the burden of paying a bank bailout and instead collectively spreads it across the union. But this rule won’t be backdated. That’s a fat lot of use to us now and proves that we would have been morally and legally right to refuse to bail out Anglo and Irish Nationwide.
CO-OPERATION WORKS
ECB boss Mario Draghi showed how to shock and awe the markets by pumping trillions of euro into kick-starting the European economy.
Authorities must act quickly, massively and all together in order to tame the markets when the next crisis comes. Recent elections in France, Holland and Italy have strengthened Europe’s unity. But Brexit and the loss of 65 million EU citizens and a sizeable chunk of its budget will weaken it once more.
ARROGANT BANKERS BACK
The financial crash, which was largely their fault, ‘softened their cough’ for a while. But not for long. Bankers are ripping us off right, left and centre once more. They charge nearly double the EU average for mortgages, up to 14% for personal loans and 21% for credit debt. Yet they have the gall to pay us 0% interest on our savings.
Pre-2008, they flung money at us and ruined many lives. Now it is the opposite – but equally annoying. Banks put all our spending habits (ie, our lives) under the microscope and rule people out of buying their own home for lifestyle ‘transgressions’ such as making a bet online or going a couple of euro beyond an overdraft. This is hard to take from a profession that ruined the country with outrageously profligate lending!
...AND DEVELOPERS TOO
The last time they did it by building too many houses. This time it is by building too few. Developers are sitting on sites for over 400,000 homes nationally. But last year only around 2,000 new homes were sold. The rest – highly valuable sites – remain undeveloped as they rocket in value, as property prices are driven even higher.
BAD HOUSEKEEPING
In 2008-2010, banks went bust and were bailed out by governments. Those debts are still a millstone around our economic necks. Our State debt costs nearly €7bn a year in interest alone.
Meanwhile, Central Banks have poured €13trillion into western economies by basically printing new money and keeping interest rates at rock bottom. That has driven a massive spree of share and property buying that has sent prices shooting skywards. I’m not an economist but that doesn’t sound like sensible house-keeping to me. What will happen when they stop – and inevitably interest rates have to go up?