The Banking inquiry is now into its main investigation. It has been hearing evidence from senior bankers and department officials, and over the next couple of months we’ll finally get to hear from the politicians themselves. To date, the focus of the inquiry has been on the night of the guarantee and this is because it is still unclear as to what actually happened that night. Witness by witness, though, we are getting closer to finding out and coming to a conclusion regarding what was by far the biggest, and most disastrous, decision taken by any Southern Irish government since partition.
The guarantee of course is not the full story. National government policy from 1990 to 2007 regardless of the political makeup prioritized commercial and residential property speculation over genuine and cohesive social development. This was coupled with a loosening of financial regulation and the promotion of the south of Ireland as a de facto tax haven.
From 2002 to 2007, Irish banks started to compete with each other for the same small pool of developers. In order to grow quickly and leapfrog each other, Irish banks got involved in widely speculative land and commercial property ventures, using international wholesale funding to do so.
The shaky foundations of the growth was exposed by the 2007-2008 credit crunch. Irish banks couldn’t get access to international loans to pay off their earlier loans and this came to a head in September 2008.
Since then, the real struggle in the crisis has been not so much over its resolution – all crises come to an end sometime – but who pays for the resolution. And in the south of Ireland, those who paid were the ordinary citizens, while those who partied walked away from their obligations. And each day of the bank inquiry this becomes clearer – those who took out mortgages did not ‘party’, but the 29 developers with debts of €32 billion between them certainly did, before using the Government to dump those debts onto our shoulders.
The relationship between these developers and Irish finance is the essential dynamic of Irish capitalism, and the banking inquiry, almost in spite of itself, is looking at this institutional framework and the manner in which it operated.
The focus on individual developers and bankers, and, more recently, Denis O’Brien and Siteserv, has obscured somewhat this structural dynamic. Systems are of course operated by and developed through people, but in order for a system to reproduce itself it needs an institutional framework.
The inquiry allows us to peer under the bonnet of Irish capitalism and get a sense of how the machine works, its internal contradictions and outputs. We are beginning to see that the indigenous troika, the one that really matters, is the Central Bank, the Department of Finance and the Department of the Taoiseach.
The main clients of this apparatus are not the citizens of the State but the indigenous banks and the IFSC. The regulatory rules, tax laws and supposed strictures and censures – all are developed and written with the needs of finance in mind.
The investment opportunities within the Irish State overwhelmingly support land and construction, a situation that started to emerge in the 1960s but by the 1990s had become an almost singular state policy. The contemporaneous creation of the IFSC in the 1980s added to this policy as the needs of finance and property asset speculation became ever more entwined.
Politics alone does not explain this situation. It is those systems and institutions that operate behind the veil that make the machine work. These institutions chug along without much attention from the public and, more importantly, it is these that kick into action when a crisis hits.
The banking inquiry has already shown that rather than being the panicked reaction of a pressured midnight meeting, the discussion and noise around a blanket guarantee had been going on for months. Ever since the Northern Rock crisis in September 2007, the Irish State had been waiting for the other shoe to drop, and when it did it made sure that the burden would be carried by the citizenry instead of capital.
The Banking Inquiry may not be the process we asked for, but we should not ignore what it can tell us about Irish capital.