ON JUNE 19 a parliamentary committee in the UK delivered a 600 page report on changing banking for the better. The headline grabber of all the proposals, which ranged from allowing regulators to claw back pay to putting more women onto trading floors, was the proposal to jail bankers who run up massive bills for the taxpayer.
On the face of it who wouldn’t like to jail a few bankers? Ireland certainly has more than its fair share of smug faced senior executives who’ve come out of the crisis sitting on pretty nest eggs, or at the very least their heretofore economically inactive wives’ suddenly well plumped pillows. If we could round up a few developers and politicians as well and reopen Spike Island prison with a detachment of homeowners in negative equity for guards I’m sure the catharsis would be invigorating.
Making risk taking illegal is a bad idea
Unfortunately, summary justice is no justice at all; and the idea of making risk taking an illegal activity in and of itself is a very bad one. The act of running a business into the ground is not, and should not be, strictly illegal by and of itself. What should be illegal are acts of malfeasance that intentionally lead to a poor outcome or exacerbate an already bad situation.
Under the proposals, a bank that makes risky lending decisions, say on property development, could lead the executives to go to prison. Of course, the executives aren’t the only people involved. Should the account manager who first proposed the lending go to prison? How about the developer who has many projects underway? What of the central banker and financial regulator who are supposed to oversee the whole thing?
You might say, sure, they all deserve a stint of slopping out too. Though it might be complicated to wonder at precisely what point their crimes began accruing. Lending in 2002 might have been okay, but at what point did we pass the line of acceptable and get to illegal?
Where does the fault lie?
And what about the person who took the biggest individual risk of all, the chump who took out a mortgage for half a million on a tiny two bed apartment? That was silly. Can’t keep up with your repayments? Off to jail with you, that was a risk you shouldn’t have taken and now the taxpayer is picking up the tab.
Stupidity isn’t a crime. A court second guessing decisions that are honestly made but wrong creates a world that’s difficult to live and work in.
But dishonesty and malice can be illegal, and this is what we ought to be catching bankers on. Let us imagine some hypothetical situation in which a bank takes a loan from another bank and then misrepresents that loan as deposits to make a woeful financial situation look better. That is an action being taken in full knowledge by those involved and ought to be criminalised. So too should a whole range of shenanigans that went on during the crash.
Banking is a complicated system
Unfortunately, banking (and life in general) is such a complex area that it’s difficult to codify and specify every little thing that ought to be illegal. It’s also difficult to trace every decision to an individual, when so many can be involved in decision making or one can later claim to know nothing of transactions that ostensibly happened below their pay grade.
Austria, Germany and Switzerland have an elastic concept called “Untreue”, or breach of trust, which is defined as a derogation of duty that causes real damage to the institution. German prosecutors have charged bankers at several firms with offences including untreue. Now this elastic concept isn’t perfect, in that people who make honest mistakes can be drawn into its net. But I think that it’s something we could seek to bring into law, the general concept that actions that are dishonest or a derogation of duty should lead to consequences.
Of course, what’s good for bankers should be equally true for regulators, civil servants and politicians. That may be a reason why we’re not seeing, even now, a rush to reform our legal system to make it easier to prosecute those who brought our economy to its knees.
The savings and loan scandal in the US in the 1980s led to hundreds of bankers being jailed. This time has been different, here and abroad, because of the complexity and scale of what went on. In Ireland we don’t fully understand who benefitted from what decisions, why they were made and so on. It’s easy to guess at who might have had a hand in things, but difficult to know what they did specifically that they could be punished for. More importantly, we may not quite know what to guard against in the future.
I’d like to see a major investigation into the guarantee and the bailouts of 2008 to present. I’d like to see the onion peeled back and I’d like to make some people cry. The chances of our present administration doing it, or a future administration featuring some of the characters who were in government in 2008 and prior, is slim.
Our politicians are too weak willed, too cowered down by their European betters and, frankly, too wound up with the people who crashed our economy to be trusted in their collective wisdom to seek justice for the Irish people.
What’s the delay?
This is one reason why I’m in favour of electing prosecutors in addition to the DPP, such as is done in many parts of the US. I’d say if we had some elected special prosecutors there would be one or two committed to finding out what went on during our banking crisis and taking those who may have committed crimes to task. On a relatively short electoral leash, I’d say they’d get it done faster than the nearly five years we’ve been waiting to see more than token arrests every few months.
Failure shouldn’t be illegal. But neglect, breaching trust and wilful blindness ought to be. If only we could get a proper investigation and jail some bankers for real crimes. Summary justice is no justice at all, but that’s what you’re most likely to see people demand if they go for years and years with no explanation and nobody to blame for all that clearly went wrong.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.