Book Review: “The Bankers” by Shane Ross

The Bankers: How the Banks Brought Ireland to Its Knees is an important book. It is a highly readable account of the defining political and economic story of our time. How a group of elite bankers fueled a credit bubble, fought back against government pressure in the wake of it’s collapse and ensured the survival of their culture at taxpayers expense. Shane Ross, the author, is an Irish Senator and business editor of the Sunday Independent.

An extract from the book (the prolog) can be read online here.

“Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

US President, Andrew Jackson, 1832.Starting many decades in the past, Ross takes the reader on a tour, introducing us to Irish banking culture while lining up an historical ruler that invites the reader to draw a line across the broad sweep of history to the present day. As we approach modern times we are introduced to the personalities – at each of the banks and building societies, in the government and at the ‘regulators’. Along the way, we meet young upstarts (including Ken Bates one-time chairman of Chelsea FC), outsiders and pretenders to the throne.

We learn of corruption and cover up, of tax evasion, of overcharging, of whistleblowers and of expansion and raw ambition – the story told in terms of the characters involved. The Bankers really does provide a detailed historical narrative that shows the progression of pre-Celtic Tiger Irish Banking practices that led to the culture of pressure, personality & stroke that lit the credit bubble.

He gives us lots of info on the personalities involved – Seanie Fitzpatrick and his lieutenants at Anglo, the overlap in management style with Michael Fingleton at Irish Nationwide. Both men brought their organisations from humble beginnings to the cusp of greatness and Ross describes in riveting detail the process that led to it’s unraveling. He sheds light on the bankers’ relationship with government – while the builders often made direct donations, the bankers in modern times preferred to operate through the lobby groups they funded (according to Ross the bankers were the largest backers of IBEC).

Of particular importance, he shows that the institutions of the state that had a duty to regulate the banks (the financial regulator and the central bank) had instead built up cosy relationships with them. Not a single banker had been fined by the regulator until well into this crisis, and historically the regulator appeared on occasion to regard it’s role as being that of chief bank defender.

Ross describes an incident involving Eugene McErlean a whistleblower on overcharging at AIB. McErlean had been their internal auditor. Ross says they got on well, despite that “The fifty year old Roman Catholic from Belfast, educated at St. Malachy’s and with a law degree from Queen’s, was not a natural soul mate for a TCD Prod.” When McErlean gave court evidence that he had warned the Central Bank of overcharging at AIB (who themselves did nothing) – the regulator went on the attack – McErlean was confused! Lax regulation contributed to the bubble, but also permitted a series of dodgy dealings during the crisis (e.g. banks making loans to other banks to make their deposit base appear higher), unfortunately for us taxpayers, the bill is in the post.

The book gets progressively better as the story approaches the climax. Ross builds on solid foundations, starting off by focusing on the history & development of Irish banking culture and the personalities involved helps the reader understand the complexities and challenges faced by Brian Lenihan in later chapters as, wet behind the ears, he struggles to get to grips with the crisis and the bankers themselves. It’s an important book, because it is structured in such away that it is easy to cross-reference it with the prescriptions, for the prevention of future crises, provided by experts across the globe.

It facilitates us in assessing the likelihood of success or failure of government efforts in that task. As Ross makes clear, the Fianna Fail government was not as powerful as the Bankers and the permanent government, the mandarins at the Department of Finance, combined. Risk expert Nassim Nicholas Taleb suggests that “People who were driving a school bus blindfolded (and crashed it) should never be given a new bus…

Instead, find the smart people whose hands are clean.”. As such it is important that those who created the problem be replaced by those far removed from it. As Ross tells of Lenihan’s early victories in battle, it is easy for the reader to cheer on our Cú Chulainn in his epic quest, taking pleasure as he collect scalps. But outright victory was not to be, the battle turned, the Bankers bloodied but not beaten managed to mount a formidable defence. While heads rolled, there was to be no purge that would, of itself, force a change of culture in the Irish banks.

While Taleb argues that we need to prevent the “socialisation of losses and privatisation of gains”, we learn that there too our intrepid hero did not succeed. Ross’ book provides as it’s subtext by far the best explanation for NAMA and as to why every single bank was saved. To paraphrase Taleb – In France in the 1980s, the socialists took over the banks. In Ireland in the 2000s, the banks took over the government. This is surreal.

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  • Panic, These Ones Likes It Up Em.

    This capitalism thing can work okay but every now and again some bankers have to be executed to encourage the rest.

    One of the basic tenants of Capitalism is that when the guys running the show make catastrophic errors they have to pay with something they value (only their own skins)

    Capitalism will continue to fail if we neglect this founding principal of Capitalism.

    Catastrophic Failure must mean Catastrophic Punishments for the people running the show.
    Thats actually the bankers and also some politicians for pretending that they are running the show.

    Why would todays bankers change their ways when they have been rewarded for catastrophic failure.

    Bastille the Bankers.

  • Nice review, Mack, but contrary to what appears to be the central plank of Ross’s thesis -that it was the banking culture wot done it- I would remark that it’s hardly surreal, or even uncommon, for a state operating in a neo-liberal capitalist order to guarantee the integrity of financial institutions whatever the cost to the citizens that that state is theoretically supposed to serve, and this may not have all that much to do with the self-aggrandising behaviour of prominent agents within the banking sector (even though their personal responsibility should, of course, not be minimised).

  • Katinka

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered”.
    Thomas Jefferson

  • Wilde Rover

    “Banking was conceived in iniquity, and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them, and all great fortunes like mine will disappear. And, they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of the bankers, and pay the cost of your own slavery, then let bankers continue to create money, and control credit.”

    “The money powers prey upon the nation in times of peace, and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies, all who question their methods or throw light upon their crimes.

    I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. [As a further undesirable consequence of the war…] Corporations have been enthroned, and an era of corruption in high places will follow. The money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.”

    Abraham Lincoln

  • Greenflag

    ‘In France in the 1980s, the socialists took over the banks. In Ireland in the 2000s, the banks took over the government. This is surreal.’

    Surreal denotes exceptional , unique and perhaps even unnatural . If it was surreal it was an ‘international’ surrealism
    motivated by the same principles or should that be lack of principles that has ‘always ‘ been part of the modus operandi of banking fraternities worldwide. This was only ever kept in check by governments, who while no ‘financial ‘ role models themselves, at least pre 1980 seemed to understood what was going on in banking circles . That delicate balance changed from the mid 1980’s to the present slowly at first and then with increasing tempo as the pyre was built to it’s climactic ignition with Lehman Brothers of Wall St . It’s more than a little ironic to think that what finally sparked the worldwide economic crisis was the application of one of ‘capitalism’s ‘ basic tenets .

    We were all brought up to believe that ‘banking ‘ was not just a respectable business above ethical reproach but also a societal pillar of support for whatever modest prosperity the economy would /could deliver for the country.
    Along with papal infallibility ,unquestioned clerical morality , the wisdom of experts , and the integrity of at least most of our political class that belief is consigned to history.
    Welcome to the world of the sceptic , the unbeliever and those who look at what our leaders actually do -instead of what they did or say they did or promise to do .

    Anyway I now know what Santa Claus will be delivering this Christmas although I remain sceptical that I will learn anything from Shane Ross that I haven’t ‘discovered ‘ already .

    Thanks to Shane Ross hopefully many more people on this island will be educated as to the ways and wiles of our local masters of the ‘universe ‘

  • “Welcome to the world of the sceptic , the unbeliever and those who look at what our leaders actually do”

    Have you been reading NALIL blog, Greenflag? 😉 It’s a very small world but there you’ll find what some of the ‘governors’ have been getting away with whilst our public representaives have been sleeping or been busying themselves in creative expense claiming. And I don’t think I’ve even mentioned the bankers 🙂

  • Greenflag

    Nevin ,

    Not recently but I dip in now and again and I would add that NI & ROI could do with more ‘Nevins’ and ditto our neighbouring island . For in truth it’s either we rely on ourselves as individuals to dig up the ‘rot’ or we rely on our ahem ‘betters ‘ be they political , economic or religious to do the exposing themselves. Emperors are ‘notorious ; however for not reporting their ‘nakedness ‘

    I eh stopped relying on the political and economic official soothsayers of the unvarnished ‘truth’ in the 1980’s and their spiritual supporters shortly after the frontal lobes finally ‘matured’

  • John East Belfast

    Panic

    “1.This capitalism thing can work okay but every now and again some bankers have to be executed to encourage the rest.

    One of the basic tenants of Capitalism is that when the guys running the show make catastrophic errors they have to pay with something they value (only their own skins)”

    I think you make an important point.

    Banks are now convinced that they are too big too fail – the Govt will step in if their risk taking causes collapse – the bigger the collapse the greater the chances of the Govt stepping in – the greater the risk the greater their personal reward.

    They are in a personal Win Win situation gambling with other people’s money.

    So how do you curtail this ?

    The threat of execution may work but I wouldnt advocate that ! (although I suspect in China it possibly could happen)

    I am reminded of the Construction Industry Health & Safety record and what ultimately brought the numbers down was when the Directors were made personally liable for lax proecdures leading to injury and death – basically they could go to prison for it.
    It made every Board Room in the industry put Health & Safety on the agenda and money was invested in accident prevention.

    As Banks are not “normal” capitalism – ie they cant be allowed to fail – I would bring in “Corporate Recklessness” Laws for the Banking Industry.

    I think if some of these Executives had been personally facing 10 or 15 years of their own lives in prison I dont think we would be where we are now and probably where we will be back again sometime in the next 20 to 30 years

  • Greenflag

    Mack via Ross, Katinka & Wilde Rover ,

    An informative sequencing of quotes from Andrew Jackson , Thomas Jefferson and Abe Lincoln . How perceptive those US Presidents were for their time and their words ring true even today. From here it looks like there has been a steady decline in presidential perceptiveness since those times 😉 Hopefully the present incumbent will begin a long overdue reversal .

    But before we write off ‘banking ‘ as being indelibly corrupt and an entirely negative institution , we should remind ourselves that it did help to put an end to ‘feudalism ‘. It’s unclear how economies would ever have developed to the extent they have, without access to the capital provided by banking . The aristocrats of old could not have financed mercantilism nor the later industrial revolution simply by stealing /confiscating ‘capital’ from successive generations of jewish moneylenders ? Under ‘feudalism ‘ there was social stability, magna carta , and nobless oblige . While admirable advances on what went before ‘feudalism ‘is going to work in a world of 7 billion people. And yet the ‘banking system ‘ left alone to it’s own devices would no create a world not unlike that of the feudal age with all the wealth concentrated in a few hands namely those of the ‘bankers ‘

    Wealth in feudal times could mostly be increased only by acquiring more ‘land ‘ and of course the labour input i.e the ‘peasants’ to work it. This could only be achieved via war or family nepotism / strategic marriage etc etc . Enter ‘banking ‘ and gradually the ‘feudal’ system was undermined and finally given the heave ho with the assistance of the Black Death.

    Not wishing a return to feudal times for the world could at most support a billion people under such a ‘regime’ , what then to do with the ‘banks’? I’ll take it that there is no desire for a return to the even less blissful days of the Industrial Revolution, sixteen hour work days -seven days a week until death provides relief ?

    My gut instinct like panic’s above is to see madame guillotine dragged out of retirement as at least a temporary curative agent ;). But the death penalty has not reduced capital murder rates in the USA and neither has the absence of same, increased murder rates in other western societies .

    Should the banks be ‘nationalised’ ? As ‘banks’ have proven themselves to be selfish and careless of the fortunes of the societies on which they profit, then surely it makes sense to look to our democratically elected ‘representatives ‘ to do the necessary ? . But alas as I look upon those who represent us and even unto their ‘expert advisors ‘ the mandarins of our state administrative class, I am not overwhelmed with any certain belief in the likelihood of their financial probity or ethical behaviour either .

    A conundrum indeed .

  • Greenflag

    JEB ,

    You are on the right track:) Good points . However bringing in ‘Corporate Recklessness Laws for Banking ‘ might require horror of horrors a prior passing ‘ ‘Constitutional Recklessness Laws for Politicians ‘ . The latter could prove more difficult to pass legal muster than the former .

    There are often fine lines between utter recklessness, plain recklessnes , recklessness , calculated risk , moderate risk taking , gambling and no risk economic stagnation – the latter would prove in time to be even more reckless than any of the former ?

    I agree with your overall sentiment that those who are too big to fail should not be allowed too. As there is an inexorable tendency under capitalism for the accumulation of wealth into ever fewer hands, even though in some periods the wealth base is widened , no financial institution should ever be allowed to get to the size of say Goldman Sachs or Bank of America or their British/Irish/German etc equivalents .

  • Mack

    Greenflag –

    I’m not sure given the cosy relationship that exists already between government, state institutions and bankers that nationalisation would solve anything in Ireland.

    But I agree we need banks and bankers, but probably not in such big institutions. Perhaps, we could break up the banks, & impose strict limits on what combinations of structures and practices are acceptable, that way we could split them into smaller, specialist instituitions that can fail fast and safely.

  • Mack

    Greenflag –

    As there is an inexorable tendency under capitalism for the accumulation of wealth into ever fewer hands

    I think is wrong. I remember reading somewhere that the Forbes rich list from 1980 to 2000 was almost entirely different. Even though had the original incumbents cashed out of whatever investments they held and kept their total net worth in cash, they would have comfortably held their position.

    How many firms left in the SP 500 from 40 years ago? As a proportion not many I’d wager.

    I agree with your overall sentiment that those who are too big to fail should not be allowed too

    Aforementioned risk expert Nassim Taleb argues that large instituitions (particularly financial instituitions) become large in part due to the hidden risks they have taken – with the gamble having paid off so far. Protecting them, is the surest way to ensure the validity of your statement about the accumulation of wealth. Break ’em up, if they get to big.

    TOO BIG TO FAIL = TOO BIG TO TRADE.

    Break ’em up!

  • Greenflag

    ‘Perhaps, we could break up the banks, & impose strict limits on what combinations of structures and practices are acceptable, that way we could split them into smaller, specialist instituitions that can fail fast and safely.

    The Republic could not do that alone . It would have to be a worldwide ‘effort ‘ starting from the G-20 or G-8 down or from an EU level -and I’m not sure that any among the anglophone countries in trouble have the ‘bottle’ for such a radical overhaul given that as of now they are all in ‘bondage’ to the large banks and are dependent on the latter ‘re opening their credit lines to jump start economic growth with ahem elections on the horizon and some important political careers looking terminal ?

    Despite the changing fortunes of a few or even all the mega rich in Forbes league table or a change in their relative positioning there is an more tha world of difference between say Warren Buffet downsizing from a ‘modest’ 100 billion to a measly 50 billion due to the stock market dive and say the tens of millions of the american middle class and working class losing half their retirement funds and half their housing equity and seeing their social security being plundered by a succession of administrations over the past several decades

    I think there are now very few economic commentators who would maintain that USA wealth creation over the past two decades has ended up more and more in the hands of the ‘mega rich ‘ Any relative advance made by the broad ‘middle’ of American society has since been erased for reasons of which we are all only too well aware . It may be less dramatic in Ireland or the UK but the same trend is now obvious to all bar the sheep on the Yorkshire moors or the Wicklow Hills.

  • Greenflag

    Error

    I think there are now very few economic commentators who would maintain that USA wealth creation over the past two decades has ‘NOT’ ended up more and more in the hands of the ‘mega rich ’

    As for ‘break em up’ 🙂

    I’d feel better about breaking their necks first- preferably with the assistance of madame guillotine or the knotty expertise of the late Mr Pierrepoint 😉

  • Seamus Murphy

    In that this guy does work for the Independent, is it not that case that his objectivity can be called into question, vis a vis the baggage that he will have acquired, as a result of some of his paymasters.

  • Dave

    The problem is that folks don’t understand the important role of monetary and macroeconomic policies in controlling an economy. That allows Europhile propagandists such as Shane Ross to divert attention away from the root causes of Ireland’s economic woes by focusing attention on the self-serving role of banks (as if banks and other private businesses were ever intended to further a national rather than a shareholder interest). Banks are instruments of those monetary and macroeconomic policies rather than the architects of them.

    ECB monetary and macroeconomic policy was expansionist, with the supporting role of the banks being to increase the account of money available within the Eurozone. That is why the policy rate (i.e. the rate at which money is loaned to banks) was set at a very low rate that was designed to increase borrowing and it is also why the European Commission issued the Capital Requirements Directive that allowed banks to leverage upwards to meet the demand for money that the expansionist monetary policies of the ECB was designed to create.

    It is not just the case that all of this boom-and-bust could have been predicted before joining the Eurozone, but the case that it was all exactly predicted before joining the Eurozone by a plethora of economists. Nevertheless, the Europhiles had a political agenda to integrate Ireland into the EU, and if that required that Ireland’s economy was to be sacrificed then sobeit.

    Folks also don’t understand that EU government (and virtually all of this disaster zone area is subject to EU and not Irish government) is actually non-government. That means that the monetary and macroeconomic policies are not designed according to the underlining dynamics of the Irish economy, but rather the needs of the Irish economy are ignored under an inappropriate one-size-fits-all regime. In other words, you get policies that have absolutely fuck all to do with your economy – and if those arbitrary polices bust your economy… well, that’s the political agenda that you signed up to. France and Germany needed low interest rates to stimulate their economies after the tech bubble crash whereas Ireland needed higher interest rates to stop its booming economy from overheating. Subjects Ireland to inappropriate monetary regimes caused its economy to overheat and bust. Blaming the banks is like blaming Jack the Ripper’s knife while avoiding all mention of the bold Jack himself.

    These Europhiles whores led us into this mess, and now they seek to blame others for the mess that they created by abdicating government responsibility for the most important policies of a state.

  • Dave

    One other point: the propagandist agenda of these quisling Europhiles is not to place the blame where it belongs but to place it where it doesn’t belong. That way they can argue that those areas of sovereignty that were not surrendered to the EU are the areas that created the problems rather than those areas that were surrendered. This trick allows them to perversely argue that more sovereignty should be surrendered to the EU governance in order to protect the Irish economy rather than arguing that the surrendered areas should be retrieved from the EU governance in order to protect the Irish economy. They simply don’t care about the Irish economy since their political loyalty lies with the emergent state of the EU. The more you listen to these vile whores, the worse off you will become.

  • Greenflag

    seamus murphy ,

    ‘In that this guy does work for the Independent, is it not that case that his objectivity can be called into question, vis a vis the baggage that he will have acquired, as a result of some of his paymasters.’

    Shane Ross is also an independent Senator for TCD . I think you can be assured that most Irish people find his ‘objectivity’ and ‘integrity’ above that of say Seanie Fitpatrick and the rest of our ‘bankers ‘

    Our ‘serial single transferable poster ‘ Dave would not agree and presumably would rate the Seanie Fitzpatrick’s and his ilk as being of a higher standard than Shane Ross and his ilk ? Dave may have forgotten that none of our bankers were opposed to the Euro. More dosh for them eh !

  • Mack

    Dave – Shane Ross campaigned against Lisbon I

  • Greenflag

    Dave

    ‘The problem is that folks don’t understand the important role of monetary and macroeconomic policies in controlling an economy.’

    Not the ‘folks ‘ Dave -the Government . Very few of the ‘folks’ have advanced degrees in monetary or macro economic policy or in gypsy fortune telling I hear .

    In hindsight our political leaders could have done a lot more to dampen down the property boom . They chose not to .

    ‘ECB monetary and macroeconomic policy was expansionist,’

    And so was the USA’s as instead of going into a small recession in 2000 -Alan Greenspan persuaded himself that a huge expansion of the money supply would help to keep the economy firing on all cylinders . The ECB ‘followed’ the USA lead as did other major economies .

    ‘It is not just the case that all of this boom-and-bust could have been predicted before joining the Eurozone, but the case that it was all exactly predicted before joining the Eurozone by a plethora of economists.’

    Which economists ? How many ? Where are they now ? Are they of the same school of economics as Alan Greenspan the chief guru of ‘trickle down ‘ economics ?

    ‘Blaming the banks is like blaming Jack the Ripper’s knife while avoiding all mention of the bold Jack himself.’

    I agree . Jack was just the knife holder . Those who provided him with the knife and his mission statement were so safely ensconced behind the walls of Wall St and protected behind the ivory towers of the Chicago School of Economics that no trace of suspicion could be placed on them well not until Lehman Brothers failed to attract government aid and the whole rotten edifice was exposed . Alan Greenspan’s candid admission that he was mistaken in his ‘expansionist ‘ policy was just the closing of the coffin lid on the dead US economy!

    So tell how the ‘sovereign’ USA with an ‘independent ‘ stand alone currency , and the world’s biggest consumer market, and the world’s greatest concentration of ‘trickle down ‘ expert economists managed to leap headlong into a property bubble and bust , almost 20% real unemployment, several wars , and can’t get out of recession by lowering it’s interest rates because they can’t go any lower , and can’t raise it’s interest rates because that will throw another 5 million into unemployment and throw another 10 million foreclosed homes onto an already huge inventory of unsold homes ?

    Most of the Euro economies are now pulling out of recession . German exports are on the rise and even Italy is growing again . Ireland and the UK lag behind for reasons more to do with their property owning cultures than the euro !

    In case you are not aware the new ‘laissez faire ‘ capitalists on the block -I refer to the Chinese Authoritarian School of Capitalism have set up a think tank to study the implications for the world and particularly for the Chinese of the coming American Neo Conservative Capitalist decline .

    I suppose you could call that approach a sort of constructive take on ‘creative destruction ‘ ??