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'It felt great at the time. People didn't want to hear that something was wrong'

The banking inquiry heard from a former financial advisor to Brian Lenihan this afternoon.

Bertie Ahern and Brian Cowen
Bertie Ahern and Brian Cowen
Image: Laura Hutton/Photocall Ireland

Updated 5.20pm 

A FORMER ADVISOR TO the late finance minister Brian Lenihan has told the banking inquiry that the “lethal expansion” of the Irish property market could have been avoided had there been intervention in 2004.

NUIG Professor Alan Ahearne, who worked for Lenihan between 2009 and 2011, told the Oireachtas committee that 2004 would have been “the best time to get in there” and avoid the subsequent increase in property prices beween 2004 and 2006 which was “particularly damaging”.

Ahearne has been described “the economist who told you so” and is considered to have been one of the few contrarian voices during the economic boom who warned of the dangers of the bubble.

The academic said that he had heard anecdotally that the property market had stalled in mid-2006 when houses weren’t being sold. But at various points during his evidence today he spoke of the lack of will across all sectors to intervene.

“This was extremely popular and there was lots of people getting money from this,” he told the committee set up to investigate the causes of the banking collapse that led to the 2008 bank guarantee.

inquiry 2 Source: Oireachtas TV

Ahearne said that the boom “was great, it felt great at the time” and so “people didn’t want to hear that something was wrong”. He said:

Booms are very popular when they’re happening, the amount of money coming into people’s pockets is fantastic.

He was later asked by the Socialist TD if what he was saying was essentially echoing Lenihan’s infamous “we all partied” comments in 2010.

Source: alexiablogs/YouTube

Ahearne, who was working for Lenihan at the time the comments were made, insisted: “I didn’t mention anything about partying… the result of these booms and bust are devastating on people.”

He said that Ireland’s property boom and bust was one of the biggest in history and certainly in the top three alongside Netherlands and Japan.

Ahearne highlighted 100 per cent mortgages being given out by banks during the boom as having been “extremely dangerous instruments”.

He said that at the time the financial regulator did not lack the tools to intervene saying it could have increasing loan-to-value ratio and have been more intrusive with banks.

But, he said, the regulator “put a lot of trust in senior management with the bank” and said that the “the implementation of regulation failed dismally”.

Of the political climate at the time, Ahearne said that in the run up to general election in 2007 no political parties were recommending the policies that would have stopped the bubble.

Fine Gael and Labour meetings Fine Gael leader Enda Kenny and then-Labour leader Pat Rabbitte during the 2007 general election campaign Source: Mark Stedman/Photocall Ireland

He said that if any party had written down policies that would have prevented the boom, such as tax increases, they would not have got elected.

Questioned by Sinn Féin TD Pearse Doherty, he later clarified that he was referring specifically to the three main parties at the time, Fianna Fáil, Fine Gael and Labour. Of their manifestos, he said:

“If you took the covers away, it was difficult to tell which party was which.”

On the bank guarantee itself, Ahearne was asked by Fine Gael senator Michael D’Arcy if he thought it was a good idea at the time.

The academic responded: “I didn’t know, I was sitting in an office in Galway.”

Alan Ahearne said later he was puzzled as to why the guarantee included subordinated debt i.e. not burning junior bondholders. He said: “I’m sure there was a reason, I couldn’t think of one.”

Media scrutiny 

Separately, the banking inquiry is to hear evidence from current and former newspaper editors as well the former head of news at RTÉ, Ed Mulhall, later this month as part of its examination of the media’s role in the crash.

Inquiry chairman Ciarán Lynch said this evening that the hearings would focus “on the role of the media during the property boom in the lead-in to the banking crisis and any changes in approach after the crisis”.

 

Watch: The awkward moment when David McWilliams played a clip of himself to the banking inquiry

Read: Why this economist made a late-night dash for biscuits in the midst of the banking crisis

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Hugh O'Connell

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