Dublin Opinion

I heard this morning on Morning Ireland that Frances Ruane of the ERSI said that one reason for its failure to highlight the serious problems in the Irish banking sector was due to them “lacking expertise in macro-economics”. It was also dependent upon, she went on, “material produced by the Central Bank and the Financial Regulator”.

This explanation is provided in the context of the Dept. of Finance’s own defense that it’s failure to realize the extent of the problem was matched by institutions like the ERSI.

It’s part of the ‘no one saw this coming’ narrative – or the ‘we were acting on the best advice available to us’ line and the Central Bank and Regulator have already been junked in the Honohan report, so its safe to blame their data.

This is on top of those economists who complain that they DID see it coming and were writing paragraphs to that effect into the largely unread sections of reports that were generally very positive about the economy, as far back as ‘2006’.

What they cannot admit is that they were too much in agreement with how the system was working to apply any form of common sense, never mind critical thinking. That this independent research institute, like the Dept of Finance, had strong connections to the banking sector is never acknowledged.

There’s more on this in the Irish Times today and this bit reminded me of something:

She acknowledged there was a gap in the ESRI, particularly in the banking side of things.

“It was partly on our side a lack of specialist knowledge,” she told RTÉ’s Morning Ireland.

“There is a tendency for people in talking to each other to reinforce each other’s thoughts.”

The ESRI had tried unsuccessfully to recruit macroeconomists to fill the gap, Prof Ruane said. “I think if we had had the resources we probably could have done a better job in coming in earlier and realising there was a problem. We knew there was a gap,” she said.

Prof Ruane said the ESRI did not know what was going on behind “the wall of banking”.

Ruane says this despite the fact that it is well-known, or at least is on the public record, that she is a former non-executive director of Depfa, the German bank whose collapse was responsible for the biggest rescue of an Irish-based bank in history. Fortunately for the Irish government when Depfa was bought up by Germany’s second largest bank, Hypo Real Estate prior to the problems in the credit markets, it’s operation was no longer based financially in Ireland. There was some pressure at the time from the German government for Ireland to help out with the €102bn bailout of Hypo Real Estate. This is because the problems that lead to its instability were apparent to the German and Irish regulator at a time when Depfa was operating out of Ireland. Such a burden would have probably collapsed the Irish economy completely.

So, while the Irish taxpayer managed to avoid that bailout, German investigators into the near-collapse of HRE still feel that some Irish non-executive directors are responsible for what happened. From an Irish Times report from January of this year:

GERMAN LAWYERS investigating the near-collapse of the Hypo Real Estate (HRE) group are considering legal action against former board members of its Dublin-based subsidiary, Depfa plc.

Former directors of Depfa include ex-Central Bank head Maurice O’Connell and Frances Ruane, director of the Economic and Social Research Institute.

They could find themselves dragged into a bitter legal battle between Depfa parent Hypo Real Estate (HRE) and Georg Funke, its former chief executive and a former Depfa director.

“We are examining compensation suits against the entire boards of Depfa and of Hypo Real Estate,” Detlef Bauer of Gleiss Lutz, legal counsel to HRE, told The Irish Times.

Many of the risky activities carried out by the Dublin-based bank that brought HRE and Germany’s financial system to the brink of ruin last year took place when several prominent Irish businesspeople sat on the Depfa board.

O’Connell, who served for five years until 2007, could not be reached for comment; Ruane, a director for four years until 2006, declined to comment.

But its not like those Irish directors were given positions on the board of a German bank - that it should be noted, did no business in Ireland and was only availing of the soft regulatory regime and low corporation tax - because they knew what they were doing!