Banking Inquiry: Bankers acted as touts for developers

Bankers acted as touts for developers during the housing boom the Banking Inquiry has been told.

Author and journalist Frank McDonald described a scene where “frequently it was the bankers who spotted the potential of a well located site” which they would then line up for a developer and provide the loan.

His impression was that there was “no control being exercised at all in relation to the lending of money” by these banks.

Mr McDonald, a former Environment Editor of the Irish Times, referred to the “frenzy” of land re-zoning at the time and said he had “no doubt that corruption lay at the heart of Dublin County Council’s most contentious land rezoning decisions” and in other local authorities too.

“Otherwise decisions made by elected representatives against the advice of planning officials are almost inexplicable”.

Mr McDonald talked about the frenzy of rezoning during the boom where so much land was being zoned it could cater for decades of development.

“The availability of lucrative tax incentives combined with cheap credit and laissez faire practices, both in the banking and planning sectors, created and sustained the property bubble,’ he said.

He suggested the Banking Inquiry needed to ask former ministers for finance of the period precisely why they decided property tax incentives should remain in place for so long.

This was at a time when the construction industry was having “its biggest, most profitable spree ever.”’

To persist with these incentives “when construction was leading the boom was the height of folly.

As more and more investors availed of them, he added, a whole sector of society had a major vested interest in ensuring that the incentives continued for as long as possible.

The Government, he said, even used escalating house prices in Dublin to promote its controversial “decentralisation” programme, urging public servants with homes in Dublin to sell and buy cheaper homes in other locations.

The advent of motorways “facilitated and encouraged the sprawl of Dublin and other urban centres”.

This led people “to imagine that they could live up to 100km from where they worked and get there and back by car”.

Ordinary people became so caught up in the bubble that “we couldn’t see it in perspective, or at all.

“It became normal that fairly average semi-detached houses could be “worth” a million euro or more.

“Every day, banks sought to persuade us to take out loans for new cars, holidays, home improvements, or whatever — and we did, in droves.”

Earlier the inquiry was told that Whistleblowers should get financial rewards and politicians should be required to publicly disclose their debts.

The recommendations were made by Dr Elaine Byrne, a specialist on corruption, governance and white collar crime.

She said monetary awards for whistleblowers were used in the US and ranged between 10pc and 30pc of the money collected where high quality information led to enforcement action of over $1m in sanctions.

Dr Byrne told Senator Sean Barrett that the whistleblower scheme was working very successfully in the US where whistleblowers working within the banks had been paid $7m.

She also said a “culture of deference” between State authorities, political representatives, banks and the property sector and pointed to the “significant increase” in disclosed financial donations to individual politicians in election years.

Fianna Fail representatives “attracted almost twice as many” of these donations as all other parties combined during the 2002 and 2007 general elections.

This was not surprising, she explained, as Fianna Fail traditionally ran more candidates, nonetheless in the 2002 election their candidates received seven times more disclosed donations than candidates from other parties.

Asked by Chairman Ciaran Lynch if the level of donation determined the outcome of the election, Dr Byrne quoted Frank Underwood of the Netflix series House of Cards.

She quoted: “power is more important than money but when it comes to elections money gives power, well, a run for its money.”

She agreed with a suggestion by Deputy Michael McGrath that political donations were sometimes related to seeking to influence power.

Dr Byrne said tax incentives for property in the run up to the crash brought much needed investment but “the problem was that they went on too long.”

She felt it would be helpful if the Banking Inquiry considered a list of tax incentives granted by Government to developers and investors between 1997-2007 and why these were extended beyond their natural life span.

It could also look at how many politicians or their close associates received interest free loans or mortgages on favourable terms or loans received outside of normal lending practices.


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