Aideen Hayden (Labour) | Oireachtas source

The committee - especially the Senators on the committee, Senators D'Arcy, MacSharry, Barrett and O'Keeffe and its chair, Deputy Ciarán Lynch - deserve our thanks for carrying out a very difficult task, under well-publicised constraints as to who they could and could not take evidence from. They amassed a wealth of evidence and pulled together a coherent set of analysis and recommendations that need to be addressed urgently. We are all agreed on that.

I would like to address my remarks, in the time available to me, to one of the principal underlying drivers of the banking crisis as it developed, namely, the bubble in the property market and some of the messages that should be taken from that particular aspect of the debacle. The report identifies that the weak role played by the Financial Regulator and the Central Bank was central to the crisis. If anything, this is a point that needs even more attention than it has so far received, because it is quite clear that the force of competition in the market drove the banks to focus on building market share and increasing the volume of lending, driven principally by the property market, at the expense of medium-term to long-term sustainable lending.

One of the lessons we must learn from this is that markets must be regulated to put limits on that dynamic of irresponsible competition. At the height of the last boom, the prevailing orthodoxy across most of the western world was that of market fundamentalism, namely, the belief that market forces, left to themselves, will always generate the best possible outcome. We need to learn from the experience of this crisis that markets are not mysterious forces of nature; they are social institutions that have to be managed for the collective good. It was the failure to manage the Irish property market that was, perhaps, the single most important reason for the banking collapse in this country. After the turn of the century, as is well known, our economic strategy as a country went off-course. Senator Mooney has made an important point; we moved from economic growth that was essentially export-led to a phase of economic growth that was property-led. That was during the governorship of the Fianna Fáil Party. This was not something that just happened; there was a very conscious consensus behind it at senior policy levels. I am aware, for example, that one Minister remarked in a speech that the level of house-building that had taken place in that particular year had probably gone beyond a level that was sustainable into the future and he was admonished by a senior official from the Department of Finance for being off-message. I know that to be true because he told me.

The inquiry report looks, for example, at how the vested interests in a strong property market extended into the media. Whether one accepts the assurances of editors that this did not affect editorial policy substantially, the fact is that all parts of the public sector, including local authorities, for example, became increasingly dependent on the revenues generated through property development. The weight of vested interests in the property bubble prevented due attention being paid to the downside of excessive property prices. The injustices being done to a whole generation, as has been pointed out, in forcing them to incur massive debts to get onto the property ladder, if they were able to do so at all, still has not received enough attention. The impact of the property bubble on Ireland's economic competitiveness, feeding through into the cost of living and required salary levels and leading to Ireland moving from export surplus to deficit in the years before the crisis, has also never been fully considered.

One of the important recommendations of this report is to put together an official list of indicators to be kept under regular review to warn us of another impending property bubble. Some of those indicators are addressed individually in the report, such as the proportion of State revenues derived from property-based transactions and earnings, but there are others that are also relevant and should be considered, such as the proportion of the total economy accounted for by construction. Another is the price of houses in Ireland compared to other countries. For example, how could one rationally justify that a house in the leafy suburbs of Dublin is more expensive than a similar house in Belgravia in London? Another indicator to watch for is when a significant number of properties are being bought as investments and not to be lived in. When assets are bought in anticipation of future price rises without reference to any revenue they can bring in, that is normally an indicator of a bubble. We need to keep a watch on such indicators and keep them highly visible, so that our regulators will feel the due pressure to take action before it is too late the next time around.

There was consideration of the role of NAMA. It is very important to consider that NAMA has an important part to play, going forward. We cannot allow the booms and busts of the property cycle to dictate the future of the Irish economy. In that fashion, it is very important that we look to the housing sector and the construction sector to even out the flows, the rises and falls, the supply and demand. NAMA could have an important role in doing that.

A great job of work has been done by the banking inquiry and we will, particularly given the background documentation, have a great deal to consider over the next number of years.