Pearse Doherty (Donegal South West, Sinn Fein)

Too often in the clamour for ever higher profits in the years leading up to the crisis, the voice of reason was not heard and risks were ignored. The report has exposed this problem and revealed significant shortcomings in the risk control frameworks of financial institutions. In particular, the failure to assess properly the risks inherent in business models, portfolios and off-balance sheet activities has become evident.

The seeds of the crisis were sown when the financial system began to lose its focus on core services. Incentive over risk business models meant that institutions no longer fulfilled their primary function of performing due diligence on borrowers. Banks purchased risky assets but were unable to undertake adequate due diligence of the instruments they held. The risk-involved lending strategies were not properly assessed, particularly the probability and impact of tail events. Rather than relying on deposits from private savers, financial institutions began relying on wholesale funding markets which they believed would continue to be available.

The argument that markets by themselves lead to efficient outcomes has no theoretical justification today. In the past, the evaluation of regulations and regulatory regimes tended to focus more on quantifying the costs than on quantifying the benefits, to the extent that any measures that could restrict the risk-taking behaviour of financial institutions were not implemented. This was to the detriment of ordinary people. Nyberg himself states that "lending was seen (and rewarded) as selling a loan or service rather than as acquiring a risky asset".

The report has demonstrated in no uncertain terms that the behaviour of financial institutions, regulators and governments has the power to inflict great harm on the real economy. As a result of the crisis, the financial system has been completely damaged; over 440,000 people are unemployed, 1,000 people are emigrating every week and at the end of 2010, some 44,500 mortgages were in arrears for over 90 days, with 80,000 mortgages in a distressed state.

I have one serious gripe with this report. Nyberg attributes blame unfairly for this crisis to "large parts of Irish society [were] willing to let the good times roll". We can we all agree that people who were too poor to buy property, even given the lax lending standards of the day, cannot have been to blame for the speculative frenzy of the time. What about the people struggling to rent property and who were on the ever-bulging local authority housing waiting lists? Can these people be blamed? What about those who were supposed to be leading, regulating and monitoring? These apparently educated and well-informed individuals were supposed to be fiscally responsible.

Lest we forget, these supposed good times only happened because the people of this State were under a constant barrage of information from the Government, the Department of Finance, the IMF, the EU and the ECB indicating that this was sustainable; there would be a soft landing. How could anyone stop these good times when at the same time any questioning of its sustainability was dismissed and written off? Market bubbles and crashes are not the result of the unco-ordinated interactions of ordinary individuals but come from strategic actions by governments, speculators, bankers, brokers and regulators.

One of the most striking points in this report is when Nyberg asks the question that many have now asked before: why did nobody say "stop"? We have heard the reprimands before but somehow it is all the more stark when illustrated in the graphs in the Nyberg report of banking activity before, during and after the bubble. These show how the amounts loaned out by the banks covered by the State guarantee grew to dwarf the amount they had on deposit; how the amount they loaned to domestic clients shot up from €94 billion in 2002 to €262 billion in 2008; the growth of risky construction and property sector loans; how the amount of property and business loans came to around the same as half of our national GDP by 2008; and how the pay packets of bank chief executives got fatter up to 2007.

If there was a herd mentality in this State over the last decade then Sinn Féin were the black sheep. We did not support the consensus and we did not follow blindly when the property bubble was being inflated.

See this speech in context