Wednesday, 1 October 2008
Credit Institutions (Financial Support) Bill 2008: Committee Stage.
Michael D Higgins (Galway West, Labour)
A Cheann Comhairle, I am glad we are having this discussion at the beginning. Your observation is an accurate one. The role of the Oireachtas in dealing with this legislation is at stake. For example, if we had rattled on to section 6 of this legislation the assumption would be that one accepted the logic of section 2, which invokes the public interest. The public interest is best served by answering adequately the questions in the minds of the public, and that is the purpose of the amendments that have been put down by the Labour Party finance spokesperson, my colleague, Deputy Joan Burton.
A number of questions arise which it is only reasonable to require the Minister to answer. His assumption that a guarantee can be offered that will fall equally available to all banks assumes a homogeneity of practice that is demonstrably untrue. The banks differ in terms of their exposure and their practice.
I will speak plainly. The people in the street and those watching television programmes and listening to radio programmes absolutely reject the suggestion of the Government that this is about keeping the show on the road as it was. That is not acceptable to the public. It is to assume that one does not make an analysis on how we have arrived at this point, admittedly, some of it due to a highly speculative environment internationally, but much of it due to irresponsible lending that, when we come to deal with the Bill, we must deal with in terms of social distress on families. I have not heard a single word, for example, on the protection or guarantee that will be given to the victims of irresponsible lending by the banks. They are supposed to drag themselves through queues to social welfare offices as they seek to extricate themselves from debt in which they should never have found themselves.
Staying with the fundamental principles, and if we take Dr. Allan Kearns's conservative comment this morning, it would be assumed that the charge that will eventually be made on the banks would somehow or another be related, if one believes in market principles, to the degree of the risk being undertaken. The risk is different in a cautious, conservative bank than it is in a highly speculative bank but the Minister is asking us to blindly wave them on as they were and continue to trust those who have been guilty of a massive breach of trust, be it in terms of the Central Bank or the Financial Regulator. Members will have heard that representatives of both gave assurances to Oireachtas committees that everything was fine. Everything was fine when it was not disclosed. Those of us who believe in democracy in many cases now ask for a minimum of transparency in regard to the banks.
The question has been asked: what exactly are the public being exposed to by way of guarantee? If the Minister answers the question posed by Deputy Noonan as to whether it is a liquidity or a solvency crisis to the effect that it is the latter, how then will the Minister decide what should be the taxpayers' exposure? Does that mean that in the unlikely event, we all hope, of any aspect of insolvency, the taxpayer takes responsibility for the speculative bad debts of a bad bank that engaged in bad banking practices, that was rewarded with millions of euro and where people awarded themselves, sometimes at a slight remove by having a remuneration committee, hundreds of thousands of euro for speculative risk taking to people who in turn fed into the economy destructive principles in regard to the cost of building land, property and housing? The Minister may say that gentlemen or bankers do not talk about this and that it can all be taken for granted, but that is not good enough in terms of answering people's questions on the nature of the guarantee and its general or specific effect.
Another question will be asked of the Government, namely, if there was to be more discipline, transparency, responsibility to the Oireachtas and so forth, would it not look for pre-conditions before people were allowed to participate? This is an extraordinary club where one does not need any kind of character in terms of banking to belong. Membership is open. The only qualification for membership is perceived distress or having been caught out in one's irresponsible banking.
On the question of participation, if a bank, for example, was not willing to disclose the degree of its exposure to assets that are highly speculative or unreal, a Minister could say it cannot participate. I read the Bill and I do not see evidence of that in terms of it being a pre-condition. It is a conservative view to require that the degree of guarantee should be related to the risk and that in turn should be related to the charge. Those of us who argued for equalisation of access in terms of health insurance had to fight a battle to have older people included with people who would not have a charge in respect of the VHI and so forth.
The Minister, for the sake of the economy, may not want to be specific in his disclosure but everyone on the street wants to know which banks are exposed to highly risky speculative loans and to what extent. We are familiar with the notion that this is about the blood of the economy. It has been suggested the economy is about to freeze up. That follows on from the notion in the United States that people will be unable to get a student loan or buy a car. None of us wants the economy to grind to a halt in such a manner. There is no comparison between a person who wants some money to stock the shelves of his or her shop — a person who needs some liquidity to start a small business, to keep such a business going, or to pay his or her staff — and a person who has borrowed €500 million or €1 billion for a highly speculative development, much of which may not be in this State at all.
I wish to speak about the Minister's general approach to these matters. I assume he will reflect on the reorganisation of banking philosophy and practice during his considerations in advance of the budget etc. He will have to do so in the context of the national development plan. Is there the slightest indication that the banking system will adopt a new credit policy to assist employment-rich social projects? Is there any suggestion that there will be any shift of lending or credit into what have been described as "green technology" projects? The banking sector has not given a whit of commitment to doing anything differently. Those at the very top of the sector seem prepared to stay at the trough. It appears they are prepared to continue with the mad speculation in which they have previously engaged. Perhaps they made some kind of confession when they were in Government Buildings. Did they get down on their knees to say "we are very sorry we let the Government and the construction industry down"? Did they admit they have been caught out? I do not think they have offered a jot of admission that they brought us to this point, or suggested they will ever change.
It is entirely reasonable to ask the Minister to outline the circumstances in which he was forced to introduce emergency legislation to deal with this crisis. With respect, the Bill is rushed and sloppily drafted.
It is terribly important to point out that people need to get real when they reflect on what happens during banking transactions. I am sure the Minister, Deputy Ryan, remembers the campaigns which his party and my party ran in respect of the Tobin tax. I wish to remind him that just 2% of all international capital transactions involve goods. If one includes foreign direct investment, that figure increases to 4%. Therefore, 95% of international transactions are highly speculative. I agree with the suggestion made by the Minister, Deputy Gormley, that it is time for international regulation. When Lord Keynes suggested that in the 1940s, the institution was agreed but never came into existence.
It is time to deal with the issue of hot money. We never hear about it. It is regarded as some kind of left-wing argument, but it is not. It is a responsible argument. At a global level, hot money is having immensely destructive effects. I have every sympathy for poor people in the United States who are being asked to take on——