The Labour Party didn't vote against the 2008 Credit Institutions (Financial Support) Bill, which legislated for the bank guarantee, because it opposed the guarantee or even its scope. By Vincent Browne.
Four years ago this month, the Dáil debated and then endorsed the bank guarantee scheme, which has cost this society at least €64 billion.
The current government is spending a large part of its time trying to persuade our EU partners to help us undo the damage the guarantee did to us.
Yet, back in October 2008, all the major parties - including the Labour Party - accepted the Fianna Fáil-Green Party government guarantee. A lot of what was said then seems very silly now, although there were a few with prescience and reserve.The silly bits
Brian Lenihan, then minister for finance, speaking on the 2008 Credit Institutions (Financial Support) Bill, which legislated for the guarantee, said this was "in no way a bailout for the financial system". He said the scheme would "ensure the taxpayer gets value for money".
He said we had no need to be anxious that this would cost the state a lot of money, because there was a huge buffer of €80 billion of net bank assets available before there was any question of the state having to pay anything.
Richard Bruton, then Fine Gael spokesman on finance, was complimentary about the then financial regulator, Patrick Neary, who is now seen to have headed an organisation which failed in its job.
"The financial regulator repeatedly warned of some of the features that were exposing our banking sector in recent weeks," Bruton said.
"I recall, in the 2006 stability report, the regulator drew our attention to the excessive growth in credit, the excessive reliance on the wholesale market to support that credit growth, the excessive reliance on the property sector, as a proportion of the loan book, the falling provision for bad debt and the limitations of stress-testing that were going on in financial institutions."
However, he said Fine Gael was "offering support for this bill because we believe it will copperfasten our financial system".
But if he believed there was substance to the warnings of the financial regulator, how did he not realise that the banking guarantee almost guaranteed a massive cost to society?
Micheál Martin, then minister for foreign affairs, was fully supportive of what was done.
He said the government "took significant advice from the key authorities in this field".
The government paid Merrill Lynch €4 million for advice that took four people in Merrill Lynch four days to devise. (That works out at €250,000 per person per day - and these people were not even lawyers.)
Merrill Lynch clearly signalled that the government should not give a blanket guarantee - but the government then gave a blanket guarantee.
John Gormley, then leader of the Green Party, backed what was done: "I am proud of the role the Green Party was able to play in providing this innovative solution."
The prescient bits
Kieran O'Donnell of Fine Gael, the deputy finance spokesman, was the first to raise serious misgivings about what was being done.
He said that, while Brian Lenihan gave assurances about an €80 billion buffer, "he made no reference to potential bad debts that the banks must write off".
But the noted Green Party orator of the time, Paul Gogarty, complained: "The deputy should not be turning this into a partisan issue and scaring the bejaysus out of people in the process."
O'Donnell welcomed the proposals on the guarantee, but added: "We must ensure it is not the taxpayer who pays for them."
Leo Varadkar had similar concerns. He said: "I think there is a capital problem [with the banks] as well. The banks have squandered their capital on mistaken loans to the property sector and I really wonder whether, in all cases, their assets exceed their liabilities."
Michael Noonan questioned whether the problem with the banks was just a liquidity one. He suspected it was also a solvency issue - and, boy, was he proved right.
And as for Labour: Joan Burton, who was then spokeswoman on finance for the party, complained that the bill "proposes to [transfer] the most extraordinary powers in regard to regulation" of the financial system to the minister for finance. She then added: "I do not doubt that drastic action, national and international, is necessary to stabilise the situation. We agree with that."
Pat Rabbitte also began his speech with expressions of reservation about the solvency of the banks. He said: "We are one massive insurance policy now for some €400 billion."
The main thrust of his speech, however, was complaining about how the bill gave enormous powers to the minister for finance to introduce secondary legislation on his own initiative.
When former Tánaiste Mary Coughlan began her speech, she said: "I am trying to ascertain whether Deputy Pat Rabbitte is for or against the bill." To which Rabbitte replied: "I am not against it."
The Labour Party voted against the bill, not because it opposed the guarantee or even its scope, but on two legalistic grounds: that it gave too much power to the minister for finance and that it failed to limit the salaries and bonuses of bank high-flyers. That was why Labour voted against the bill - not the guarantee.