The fall of Anglo Irish Bank, the popular bank for developers, was not a great surprise. They overlent and created an unnecessary bubble in building land and house sales.
Without Anglo Irish, we may have been in less of a fall today. The Chairman’s personal loans as well as other directors were a disgrace.
Ireland was trying to become a centre for international financial services but this type of croney capitalism has hurt the country’s business reputation. The Anglo Irish Bank did need to be saved because of the after effects and inter-connectivity with other banks in Ireland. We remember once going to a presentation where they showed how a million euro approval for property loans could be acquired in a matter of hours via video conferencing, if they were happy with the proposal.
This did not allow enough time for due diligence and must have meant bad lending. Other banks would not have given the money out so easily and the Central Bank should have stopped such practices.
There was terribly bad regulation, builders and developers got the money too easily. It is reckoned that some developers owe over a billion euro to the bank, which is a crazy amount of money. The same developers would also have given political donations in the past, further complicating the rescue.
New laws are needed on borrowing and lending to make it harder for people to borrow too much.There should be more disclosure of a person’s full loan position as an individual and through companies. The rules in America, England and Ireland became too loose. The same is not the case in France, Germany or other jurisdictions.
Higher deposits on land and property purchase are needed, 20 per cent could be the guideline as it is in Europe, which does not have a property crash. This will lead to lower home ownership but also less speculation. It will also make housing cheaper in the long term.
More encouragement to save for a deposit on a house purchase is needed. It may reduce demand initially, but would lead to better lending practices. Giving out credit cards too freely is another problem that we are seeing.
Families have been divided over it, as one partner over spends on credit cards, making the other partner pick up the bills. We know where divorces have ensued. This is the latest lending problem in America and spreading here.
It was noticeable in the run up to Christmas that credit cards were used less this year as people tried to control their spending and only spend what they had. A more pragmatic approach to credit is being adopted.
It took a tough recession and a dose of unemployment for people’s habits to change. A world with more restricted credit is likely. Surely credit and banking should be on school curricula in the coming years. Young people were often the victims of credit in the last boom and were too easily sucked into a lifestyle of borrowing for a car, a house and credit cards, when incomes dropped, they were badly affected.
In a week when we honour the memory of the first Dail, held then illegally in 1919, in Dublin, we witness a special recall of the Dail to nationalise a bank uniquely called Anglo Irish Bank. Plus ca Change we are still tied into international finance and its vagaries despite our independence.
Last week we called for a national government, the voices in favour of this option have grown since this bank nationalisation and with the 90th anniversary will continue to grow, as the Taoiseach fails to deliver leadership.