Wednesday, June 16, 2010

Do we need another financial crisis inquiry?

Governor Honohan is quoted as saying "My difficulty is in understanding what the motivation, nature and goal of an inquiry would be ... I'm saying let's push that idea back and see whether we really need it."

So, is an inquiry necessary or even useful? I think it depends on how the process is structured and what the objectives are. Given the massive price paid by the average person in this country because of the actions of a privileged few, a full public accounting of why this happened and why the various actors responsible acted as they did is the least that the government can do. This bare minimum is necessary to keep any faith in a democratic rule of law society. While the scoping reports give a broad picture of the causes, they are thin on detail and do not provide any insight into the motivations of the individual actors. There are no attributed statements from key individuals. Stylised examples of bad behaviour without any names - as provided in the Honohan report - are poor substitutes for real accounts. Individuals must be required to explain their actions. This will help to apportion responsibility and blame to the right people and institutions. Without it, guilty parties will hide under familiar refrains like "the whole system was rotten", "everybody was doing it" etc. A precise account of the role played by key individuals at the banks, regulators, auditors, and lawyers will show if what we had here was caused by a few rogue actors, lazy/incompetent regulators, and complicit/incompetent auditors. It is possible that it was a different combination of these elements at each bank. Responsibility and blame must be allocated following such a process of precise identification of individual roles.

Governor Honohan also seems to be canvassing for a non-public inquiry: "If you want to get to grips with factual matters, you can make a lot of progress in private and that's the most effective way," he said, adding that people are likely to be less frank in a public arena.

This is troubling in a system already known to be lacking in transparency. As I've argued before, there is no reason why a public inquiry cannot be effective and produce results in a timely manner. Those responsible for the crisis must be required to explain their actions in public. Justice must not only be done but must also be seen to be done.