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.

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm