Slick Somers doesn’t quite have all the answers

Former NTMA head Michael Somers said he warned that the banks' lending practices "made no sense". But whom in power did he warn and what was their reaction? By Vincent Browne.

Taoiseach Brian Cowen bought Michael Somers a pair of cufflinks when Somers retired as head of the National Management Treasury Agency (NTMA).

They had got on great from the time Cowen became Taoiseach, but relations between them were not so great when Cowen was Minister for Finance.

Somers did not get on well with the Department of Finance generally, not just with the minister.

That is surprising, as the NTMA - which was established in 1990 - had saved the state a lot of money by the way it organised borrowings, and it had taken on more and more functions at the behest of the Department.

But that’s the way with bureaucratic politics - or was there more involved, like the NTMA giving bad news all the time, or challenging the consensus that underlay the Celtic tiger?

Last Friday afternoon Somers was speaking to the Association of European Journalists (AEJ).The association seems to be a cross between a day-care centre for aged journalists and an EU fan club.

I don’t know why Somers chose to address this small audience, in an ornate room upstairs in the Stephen’s Green Club - which, until recently at least, was a gentlemen’s inner sanctum.

But there he was and he spoke amusingly and candidly. Well, sort of candidly.

He said the house-building boom was well under way by the mid-1990s and quoted a breathless article from Business & Finance from 1996 about the scale of the boom then.

He said costs were a problem, especially now that we couldn’t devalue - the price of gin, around €28 a bottle here, compared with around €11 in Frankfurt; the cost of a GP visit here was around €60, but just €21 in France.

Then the banks.

He said in the NTMA they used to talk about the phenomenon of Anglo Irish Bank growing its lending by 45 per cent annually, Irish Nationwide by 40 per cent and AIB by 30 per cent - all at a time when the economy was growing at around 10 per cent. 

He said it made no sense, and said he used to tell this to anyone who would listen during the height of the Celtic tiger era.

But nobody seemed to be bothered.

They had a thousand people down in the Central Bank to worry about the rate of lending, and he and others in the NTMA had other things to worry about.

He said some people had recently said that the whole banking problem arose because of the collapse of Lehman Brothers in early September 2008.

(It was Bertie Ahern who said this recently on RTE’s Freefall programme.)

But Somers thought that, if Lehman’s collapse had not happened, our banking crisis might have been even worse, as they would have continued lending at a reckless rate. (He did not use the word ‘reckless’, by the way).

Somers had a few ideas about how we might get out of the mess.

On tourism, he thought we might be a bit more welcoming.

On Lufthansa flights, passengers are told it is a no-smoking flight.

On Aer Lingus, passengers are told if they smoke and interfere with the smoke alarms, they will be fined huge amounts and sent to jail for years.

Then when people get to the airport, they are told their luggage may be blown up if they leave it unattended.

He said we might be a bit more optimistic and more open to change.

Yes, our debt was rising, but from a very low base and this seemed not to be appreciated by the financial markets, which have an inflated idea of our predicament. He thought we could sell ourselves a bit better to the financial markets and the ratings agencies.

The vast amounts of money that were accumulated here in the good old days have not all gone away - or, at least, not forever.

Money does not disappear.

He said we had to be careful not to impose overregulation in response to the crisis caused by under-regulation.

We have got to be open to change.

Somers had given several taoisigh copies of the book Who Moved My Cheese? The book is about two non-analytical and non-judgemental mice and two analytical and judgemental humans.

The mice just want the cheese for sustenance, and are willing to do whatever they can to get it.

Humans see cheese in terms of their self-image, their likes and belief systems, and are therefore unable to run off to find new cheese when the old cheese runs out, or goes missing.

The point is that we have to be open to change. (I wonder what Charles Haughey would have thought if told that parable and what his response might have been?)

Somers was asked a few questions about reports that he was paid €1 million a year, and he was adroitly coy.

It was altogether an engaging performance from someone who was on the control deck when we started to prosper and was still on the control deck when we over-prospered.

Just a few questions emerge from all that.

Who was he telling about the bizarre conduct of the banks way back? Yes, yes, there were 1,000 people down in the Central Bank whose job was to analyse the credit explosion, but did he tell anybody there about his concerns? 

Did he tell anybody in the Department of Finance, even casually? 

And, even when relations with Cowen weren’t great, did he mention to him what he thought of that credit explosion and where it might lead us?

If so, what did the Department of Finance people say to him?

Mind your own business? If he mentioned it to Cowen, what did Cowen say?

But, more than that, how was it that nobody - nobody at all - in the Department of Finance thought there was anything odd about credit rising at a far faster rate than the growth in the economy?

Patrick Honohan makes the same point in an essay that he wrote for the Economic and Social Review before he became governor of the Central Bank.

How was it that none of the smart boys in the civil service spotted there was something very peculiar going on? Or did they - and were they then told to shut up? Maybe some day we’ll find out.