Mr. Brendan Walsh:

I thank the Deputy for his questions. To some extent he has echoed the issues raised by Senator Mary White. I will make one comment. There is a certain danger in seeking to identify particular individuals who acted recklessly or even in a criminal manner. Unfortunately, these crises recur with depressing regularity but, in fact, we have had relatively few of them in Ireland. However, it is clear from the history of financial institutions in the past 200 years that housing bubbles followed by reinforced by banking bubbles have recurred, perhaps, every ten or 15 years across the world and as the title of one recent authoritative study put it, This Time is Different. In each of these crises there are journalists, professionals, economists who gives reasons. They said Ireland was different because it had a young and dynamic growing population and an inflow of foreign direct investment, it needed all this extra housing and it was justified to advance loans on very small margins because of the buoyancy of the economy. That was the particular argument in Ireland. In America it was about sub-prime mortgages being extended to tranches of the population that could not otherwise afford housing.

There was a certain dressing this up as if it was altruism to bring lower income people into the housing market.

There will always be some rationalisation and some specious argument put forward on which to a certain extent it is the duty of the sceptical economist and journalist to throw cold water. It is difficult to do that. The Honohan report places a fair amount of emphasis on the psychology that develops, the psychological momentum behind these bubbles and how difficult it is for any one individual to buck the trend, to stand out and say the emperor has no clothes, that these arguments are invalid, that this time it is not different and that it will all end in tears the way it has the previous 120 times. It is difficult to do that.

I am not answering the Deputy's question immediately but digressing to say we must be aware that unfortunately there are forces in complex capitalist economies like ours that lead to these disasters periodically and we must try to restrain them in every way we can. Laws, such as the Glass-Steagall Act, were introduced in the United States to try to put the reins on investment banking but when things had settled down and people said profit opportunities could be availed of if the Act was relaxed, it was abolished and we know the consequences of that were disastrous. We must frame good laws for our banking structures to make sure that even though we operate within a European framework we still have some autonomy in regard to, for instance, the margins in which mortgages are advanced. We could have acted in that area earlier and more decisively than we did. I would emphasise the putting in place of institutional legislative constraints rather than necessarily identifying the people who were culprits. There were people who acted possibly illegally and I hope they will be brought to book, but I step back a little from that and point to there being a psychology here, a momentum that builds up and we must try to try to build institutions, which is not necessarily the role of the supervisory authority rather it is the role of the Oireachtas generally in terms of the framework within which the financial system and the banking system operate.

I think we have learned lessons. At European level, the move last week towards a European system of banking supervision is a very important step in that direction. Hopefully we will have learned lessons from this Irish and Europe-wide catastrophe that has hit us and we will be able to postpone the next crisis beyond the ten year cycle that, unfortunately, has been the pattern in many countries in the past.