Alan Kelly (Tipperary North, Labour)

When reading the Nyberg report last night, I recalled a moment when the scale of the devastation the Irish banking crisis came to the fore at the European Parliament. In my former capacity as an MEP, I was attending a private meeting with Commissioner Almunia - the man in charge of state aid rules in Europe - to discuss the matter of the bailout of Anglo Irish Bank. The Commissioner, without the aid of notes, proceeded to list off every Irish bank and building society and had intimate knowledge of what he believed to be the ultimate debt of each institution. I recall feeling the blood drain from my face as he laid out, in concrete and unforgiving terms, the damage heaped onto the European financial system by the Irish banks. I remember thinking it would not be years but rather decades before we extricated ourselves from this mess.

The level of transparency from Commissioner Almunia was in stark contrast to the previous Government's claims that we had turned the corner and that ours was the cheapest bank bailout in history and its denial of accurate reports of financial problems. I remember thinking at the time that our business and political cultures were in an extremely unhealthy state. Why could Commissioner Almunia impart that information to me when the then Government and its Minister for Finance - who met the Commissioner on the day prior to my meeting with him - could not? I obtained the very distinct impression that the European Commission was entirely fed up with the misinformation of Irish banks and the then Government. The previous Government spared us, Europe and possibly themselves from the truth. Professor Nyberg certainly suggests nobody influential wanted to know the truth or communicate it to us.

If there had been more transparency and if there had been greater honesty and analysis when it came to the banking and property sectors and the economy, could we have prevented the crisis? If we had analysed matters on the basis of a simple question with regard to who we were helping, would our position now be different? Did we ever ask who was getting rich and who was doing well. Did we ask whether innovation or speculation were driving the economy. Were we creating wealth or just moving money around? In the end, it was money belonging to the European banks that was moving around rather than our own. If we had engaged in a discussion of these matters, then perhaps the hysteria, the herd and the "groupthink" to which Professor Nyberg refers may not have taken over.

There is one line in the report which, for me, best expresses the cause of this crisis. Professor Nyberg describes what happened in Ireland as "the spread of an ultimately irrational point of view". How did we permit irrationality to take over? This happened because we allowed the agenda of greedy vested interests go unchallenged. There was a culture within the banks which rewarded recklessness. Anglo Irish Bank and the Irish Nationwide Building Society were lauded as the great property pioneers of the new 21st century. Many commentators with whom Members will be fairly familiar also lauded these institutions at the time. They have, however, certainly changed their tune in the intervening years, which is amazing.

The boards of our banks were stacked not with people providing prudent oversight, but rather with those who would rubber stamp decisions and pat the back of the likes of Seánie Fitzpatrick. The concept of risk seemed to evaporate, the voices of reason were drowned out by those of greed and a feeling of invincibility pervaded the highest levels of the banks. Aggressive targets for growth became more important than the concept of sustainability. If we did not have enough deposits in our banks, we could go abroad and obtain finance on the wholesale markets, and why not? Property never loses its value. If Anglo Irish Bank was doing it, then AIB had to do it and if they are doing it then they must have been right. As a result, all the banks followed suit. If the banks were doing it and if our best builders and property developers were doing it, then it must have been right. We know now that the premise upon which these assumptions were based was entirely false.

While this culture may not have created the property bubble outright, it sought to feed and sustain it. In fact, it sustained it long past its due time. How was it sustained? Those within the culture were dealing with a complicit Government which never questioned what was going on in the way that it should have done. Said Government fed the property bubble with a series of tax breaks, whether under section 23, section 50 or whatever.

When I was a lowly executive in Bord Fáilte - what is now Fáilte Ireland - in the early 2000s, I recall listening to people who were privately of the view that the then Government's tax break policies for hotels were excessive and crazy but who felt that they had to support them. We ended up with multiple hotels in areas where there was hardly a market for one. Everyone present is aware of the areas to which I refer. I also recall being told that certain developers were becoming worried that the tax breaks would end but were confident with regard to ensuring they would be extended for a year or two by their friends in the then Government. What is the current position on the hotels to which I refer? Some hundreds of millions were spent and wasted and many of these hotels have either gone out of business, have been taken over by NAMA or remain in existence purely in order to retain the tax breaks. In normal circumstances such hotels would be unable to trade. It is in such establishments that people can avail of bed and breakfast rates of €29 per night. This, in turn, is creating an uncompetitive environment for other hotels, many of which are family owned and which are either struggling or closing their doors.

The previous Government turned a blind eye to the warning signals because it did not want to interfere with the agenda of its friends, namely, the builders and developers. A cosy consensus was adopted and the bubble grew larger and larger. The then regulator seemed to believe that upsetting the property bubble would not be a good regulatory measure and consequently bought into the consensus to which I refer. When the bank guarantee was first brought into being, Mr. Patrick Neary, the then chief executive of the Irish Financial and Services Regulatory Authority, IFSRA, stated the banks were more than fully capitalised. He was technically correct if we accept one assumption, namely, property never loses its value. The concept of a property loss seemed to be extinguished for ever, even though the boom-bust cycle typically defines the operation of the property market in a modern economy.

What did the Department of Finance do? It stated it was not its job and focused purely on the accounting aspects of government and was not encouraged to do anything else. The Department's view was that money came in and was then spent. It was no one's job to question how or why that money was coming in but rather it was the responsibility of the regulator to look after banks. The Department believed it had no responsibility at all in this matter. Everybody minded their own patch and bought into the greedy idea that property would sustain itself forever. As a result, we neglected the real wealth creators of the economy - our manufacturers and exporters. In that context, I refer to food co-operatives, farmers, software exporters and communications businesses which are the drivers of real growth and which make something tangible and then sell it. We prioritised speculators, builders, and the financial sector. The latter is the sector of the economy which merely moves money around but does not create it or distribute it fairly.

When it all came crumbling to a halt and the competitiveness of the economy was eroded, we woke up and realised that primary jobs were needed. Lost in the mania of property hysteria, the most important sector of the economy was neglected. As a result, there are now 450,000 people unemployed and some 1,000 young people are leaving the country each week. That is an absolute disgrace.

I have a final point on financial regulation which is worth making. If people believe lessons were learned once the crisis hit, they should recall the following. Last March, the Financial Regulator initiated a capital review of AIB as part of EU-wide banking stress tests. Three years after the crash started, that test gave AIB a clean bill of health in the summer of last year. I agree with my colleague, Deputy Joan Burton, in her criticism of EU institutions. They do not come out smelling of roses either. By September we had black Thursday and then the sovereign bailout. The bottom of the barrel has only now been found, four years from the start of the crisis.

I hope yesterday was a watershed moment in Irish economic history when an objective and politically neutral analysis of our crisis was carried out. Spared the showmanship of electoral politics, Professor Nyberg articulated an interpretation of events many of us know to be true. Regretfully no individuals were named. I hope this can be dealt with by the courts.

We all knew broadly what would be in the report and did not learn all that much that was new but it does provide a useful backdrop for us as a Government moving on from this crisis. As a Government, the challenge and the opportunity is to capture the knowledge and memory of Professor Nyberg's research and to nail down the right legislation, regulation and working practices that will prevent such a crisis happening again.

We have to take a number of specific actions arising from this. Oireachtas committees must be given the power of effective investigations into matters of serious public interest. Europe has already taken steps to curb the bonus culture paid by bankers. During my time in the European Parliament, we were successful in securing agreement for stronger European financial regulation of insurance, pensions, banking capital requirements and other financial products. In time this will lead to stronger financial regulation across Europe. However, there is much more to be done at home. Our financial regulation needs to be robust in order that our reputation as a place of doing business is restored. We need to re-engage with European countries, accepting and demonstrating that we learned from the mistakes of the past and that we are willing to work with them. We must not just approach them with an apology and a begging bowl but as a committed member fighting our own corner.

We need to bring a new type of thinking to the economy. We need to reward those who create real and tangible wealth over and above arrogant speculators and professional gamblers. We need to set the tone for how business is done in this country and show we are serious by having whistleblower protection legislation. Whistleblowers should be rewarded and protected, not isolated and undermined. The Government will change this. We will be more transparent, more ethical and critical in our operation of the financial system. That is what we owe the voters. As a Government we must remember that the financial regulation agencies, the banks and the wider business community all take their cue from the signals being sent from the Government. We need to demonstrate the values of fairness and community in everything we do and create a business culture that rewards innovation and hard work and where we can make the best products in the world and sell them for our own profits.

That is the future but the lesson we must learn from all of this is that we should be sceptical when things that may seem instinctively unreal become accepted conventional wisdom. Whether one is of the right or the left or independent, a lack of willingness to critique the powers that be of the day is dangerous.

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