Reading Ireland

Read our article in the Cayman Financial Review Magazine, eversion 

That the so-called PIIGS are in crisis is in many ways unsurprising – no one has seriously argued that Greece or Portugal were economically competitive at any point over the past 20 years, an Italian political system that repeatedly produced Silvio Berlusconi as the candidate of economic reform cannot possibly have avoided deep structural economic problems, and the combination of Spain’s real estate bubble and the problem of the regional banks known as cajas, which were often treated as sources of political patronage, were well known.

But Ireland was the Celtic Tiger, the role model for the rest of Europe. Reformers from around the world went to study the Irish miracle.

Ireland’s prescription of low taxes and a business climate that attracted substantial foreign investment made the country’s transformation from a nation haemorrhaging its young people since the 1845 Great Famine and the slowest growth rate and the lowest standard of living in western Europe to the Celtic Tiger a case study (literally, at Harvard Business School: Laura Alfaro’s “Ireland, FDI and the Celtic Tiger Economy”). 

The Irish boom was real, up to a point, but the Irish crash is real too. Like her boom, Ireland’s subsequent problems have spawned a substantial literature – here we provide a guide to some of the more interesting.

Among the best guides to events in Ireland are the works of Irish economics writer (in both The Sunday Business Post and The Irish Independent), former Irish central banker, and former banker (UBS and BNP Paribas) David McWilliams. His website (http://www.davidmcwilliams.ie/) provides links to his prolific output outside of his books.

Beginning with the pre-crash best-seller, The Pope’s Children: Ireland’s New Elite (2005), McWilliams has chronicled the Irish boom and bust better than anyone. In this first book, he examined the generation born after the Pope’s 1979 visit to Ireland. The Generation Game (2007), published at the peak of the boom, looked at the impact of the long boom on Ireland and, in particular, on how Ireland’s shift from a net exporter of labour to a net importer was changing the country.

McWilliams concluded with an optimistic call for “the courage to imagine a Greater Ireland that transcends geography, where the country is the mother ship and the tribe is the nation”. Despite this optimism, even then he was sounding warning notes, calling Anglo-Irish Bank “little more than an out-of-control hedge fund leveraging itself and its clients into property”.

Unfortunately, the good times chronicled in The Generation Game were almost over. To his credit, McWilliams was one of the first to diagnose the problems. In brief, he puts a great deal of blame on the failure to come to grips with the consequences of adopting the euro.

In his memorable phrasing: Paddy got Ulrich’s ATM card. His post-crash analysis culminates in Follow the Money (2009) and includes both an incisive analysis of where Ireland went wrong and a riveting account of the night of Wednesday, 17 September, 2008 when Irish Finance Minister Brian Lenihan turned up on his doorstep at 10.20pm to ask for McWilliams’ opinion on how to handle the banking crisis unfolding in Ireland, sat down at his kitchen table and began peeling cloves of raw garlic to eat. As McWilliams describes,

“He told me he’d been breaking himself into the job and economics by reading Alan Greenspan’s biography. 

“Sweet Jesus!” I thought. That was the worst place to start. That epoch was over. It was like a Minister for Transport a hundred years ago trying to learn about cars by reading a book about fast horses. Greenspan’s nonsense caused this mess and I told the minister as much.

McWilliams is not short on strong opinions about the causes of Ireland’s problems (or what it should do next), and he has the economic chops to offer a compelling analysis without resorting to jargon. He does lean a bit too heavily for my more academic tastes on characters with clever pseudonyms – Miss Pencil Skirt, Shylock – and on pop culture nicknames for demographic groups – Bono Boomers.

On the other hand, he’s sold more books than I ever will, so I defer to his judgment on this point. Ultimately, McWilliams fingers an Irish political class that allowed an incestuous network of bankers and home builders to run a financial pyramid scheme of astonishing scale. Follow the Money documents some astonishing regulatory lapses, such as Irish regulators regularly acquiescing in banks shifting loans to insiders off their books for a few hours to avoid reporting them in the name of maintaining the banks as Irish.

He describes former Anglo Irish Bank Chair Sean Fitzpatrick came right up to me, squeezed my arm practically hissed between clenched teeth, “No fucking Protestant is going to take my bank. No fucking Protestant is coming near us. Those establishment fuckers and Bank of Ireland have been running our country before we came along and those fuckers are not going to bring me down. We are the outsiders and this is our moment and those fuckers don’t own us anymore.”

McWilliams makes a compelling case that Fitzpatrick’s appeals to Irish nationalism helped him fend off meaningful regulatory oversight on several occasions.

In addition, there are several worthwhile journalistic accounts of the Irish crisis. Cearbhall O’Dalaigh’s Celtic Meltdown: Why Ireland is Broke and How We Can Fix It (2009) delivers a straightforward account of the “why” but not much on the “how to”. Like McWilliams, O’Dalaigh identifies corruption and inadequate banking regulation as key causes.

Simon Carswell’s Something Rotten: Irish Banking Scandals (2006) predates the crisis but focuses heavily on Irish banks’ use of offshore accounts (including in Cayman and the Channel Islands) to facilitate widespread tax evasion by Irish citizens in the 1990s. Peadar Kirby’s Celtic Tiger in Collapse: Explaining the Weaknesses of the Irish Model 2nd ed. 2010) offers a more academic and theoretical account, making some intriguing links between the details of the Irish political system and the systemic corruption that emerged once the Celtic Tiger economy produced wealth to loot.

Leading political commentator (Irish Times) Fintan O’Toole’s Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger (2009) is both serious and thoughtful in examining the corruption problem. Particularly interesting is the author’s ability to unearth gems like former Unilever CEO Niall Fitzgerald’s post-crash comment to some friends who had served on bank boards during the boom:

I told them: ‘You have to make a choice. Did you know what was going on? If you didn’t, you must ask yourself, are you a competent director? And if you did know, you were complicit in recklessness and fraud. So which is it? Because there isn’t anything in between.’ The conversation, Fitzgerald recalled, was ‘uncomfortable.’

Fitzgerald’s question is one the Irish (and everyone else) have largely avoided asking since the crash but one that needs to be answered if we are to avoid a repeat crisis in 20 years.

For an outsider’s view of the Irish crisis, we have USA TODAY correspondent David Lynch’s When the Luck of the Irish Ran Out: The World’s Most Resilient Country and Its Struggle to Rise Again (2010), a thoughtful “big picture” account of the crisis that sums up “Ireland, Inc.” in 2008 as “an economic edifice riddled with termites”. Like the others, Lynch details the massive corruption underlying the boom; like McWilliams and Fitzgerald, he attempts to connect the problems with larger issues in Irish politics and society.

Offshore regulators and industry leaders ought to read these books, both because they warn of the dangers of complacency and because they make clear that turning a blind eye to corruption is fatal. Ireland had real growth at first; as these books document, it was because Ireland never cleaned up its politics or built regulators willing to stand up to powerful interests and politicians that its real growth was hijacked and turned into a pyramid scheme.

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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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