Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Bill 2009 - Second Stage Debate - 5th March 2009

Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Bill 2009 -Second Stage Debate - 5th March 2009

Senator David Norris: I had not anticipated being the first speaker from the Independent group and I am certainly not the most qualified. I have some observations to make with an unusual degree of humility because I recognise my lack of expertise in this matter. I also recognise the expertise of the Minister of State in this area. However, I have some questions to ask about this legislation. As I entered the Chamber, I think I heard my distinguished colleague, Senator Hanafin, refer to the question of hedge funds. I raised this matter on the Order of Business, as did Senator Hanafin who backed up what I said. The Minister of State might be in a position to give some view on this. On the radio this morning, Mr. Brendan Keenan alleged that one of the difficulties in terms of fiscal policy for the Government was that London-based hedge funds were gambling extensively against the Irish currency. This is a particularly nasty practice so we should examine the operation of hedge funds and their ethical background. I welcome the fact that, within the past year, both archbishops of Dublin spoke on the ethics of international financial dealings. Although I am not in any sense an expert in this area, I asked a friend of mine, who is something of an expert, what was a hedge fund and he said it was basically somebody betting on failure, like betting on a football team to lose. It has been noted scientifically that the establishment of an experiment, including the process of observation and calculation, can have a damaging and detrimental effect.
Putting hedge funds aside, however, I wish to raise another question arising from that radio programme, which a large proportion of people would have heard. Mr. Keenan, who writes on these matters for the Independent Group and is usually fairly balanced, said there was not a single person in the Department of Finance who had any economic qualifications. I wonder if this could possibly be true.

Deputy Martin Mansergh: Well, I have some.

Senator David Norris: What a relief that the Minister of State has some, but he is disposable. That is the thing. He is a mere ephemera in the situation. It is like the old Robert Bridges poem which includes the line, “But I go on forever”. We have the permanent Civil Service. I am just wondering what the level of expertise is because apparently the contrast was that there are 100 civil servants in the financial section of the Northern Ireland civil service. I am not somebody who believes that one must stuff every area of life with academics. I believe in hands-on management, but an academic view is sometimes of assistance because it is impartial.
This legislation indicates the severity of the problem whereby we will have to break the piggy-bank to go to the cinema. We are basically smashing the little ceramic pig and taking out all the pennies. There has been a cautious response from Monsieur Trichet at the European Central Bank. He seems to have a number of reservations about this operation, although he is not in a position to annul it completely. A recent ECB opinion document stated that there should be a co-ordinated approach. Perhaps the Minister of State will assure us with regard to the level of co-ordination across Europe with our partner countries. It also refers to the temporary nature of this legislation and matters such as any effect to limit distortions in financial markets. I am putting these matters on the record as they are published in this ECB opinion.
The document states the common principles to be adhered to as follows:

(i) interventions should be timely and the support should in principle be temporary; (ii) the interests of taxpayers should be protected; (iii) existing shareholders should bear the due consequences of the intervention.
The latter one seems a little harsh to me. What are the due consequences? With regard to Allied Irish Banks and Bank of Ireland, the Minister might indicate what the ultimate consequences will be because many people would be interested in hearing about this. I am saying this because I have had a most horrendous time at the hands of Irish builders. I delight in the collapse of the building industry by and large. I think the builders asked for it and behaved like the French aristocrats prior to the arrival of the tumbrels.
However, there are decent builders and I ultimately came to one of them. He was a young married man who worked hard and behaved with extraordinary integrity. He, unfortunately, invested his savings in Anglo Irish Bank shares which are now wiped out. The due consequences should fall on the directors of the banks and those who took decisions. The investors, by and large, should be afforded some protection.
The ECB’s observations continued:

(iv) the government should be in a position to bring about a change of management; (v) management should not retain undue benefits [I say “Yes” to that]; (vi) governments may have, inter alia the power to intervene in remuneration[.]
I am not sure if that power is other than persuasive. I do not believe governments have a direct power to determine exact remuneration. The legislation, taken as a whole, may be somewhat lax in this regard.
The ECB’s observations continue, “(vii) legitimate interest of competitors must be protected, in particular through the State aid rules and negative spill-over effects should be avoided”. On the Order of Business, I had a fair amount to say on competition issues. It is a cautious view but it does not say we must not pursue this course of action.
Will this Bill be enough? The Government has opened the books to the Opposition parties, which I welcome. I do not agree with my colleague who said this was a cynical move to mire the Opposition in some kind of machiavellian plot. That is far too cynical a view to take of politics. However, it is an informed view for whatever reason. The Government has also opened the books to the social partners. When will the banks’ books be opened? We need to know the depth of the problem. Is it a mirage that alters all the time? It reminds me of the film “Flubber” in which a mad scientist discovers a green material which keeps altering its dimensions and shape. Is the indebtedness of the banks a kind of economic flubber that we will never get to end of and will fly around doing all kind of damage?
I must pay a compliment to the Oireachtas Library and Research Service for providing debate packs so that we can have a more informed debate. I notice in one of the articles enclosed in the pack that there was a call from a reporter wanting another prominent political person to call for the resignation of the Minister for Finance, Deputy Brian Lenihan. That is fatuous. I do not envy his job. I commend him as a person of considerable integrity and decency. I would understand if he were to resign voluntarily. How could anyone bear the responsibility of that horrible job at the moment? I welcome the fact that he is taking on board views from other people.
Returning to the breaking of the piggy bank, it suggests to me we are in difficult circumstances. The pension reserve was launched in 2000 by the then Minister for Finance, Charlie McCreevy, because of the changing demographics and age profile which would have an impact on the capacity of the State to pay pensions and social welfare benefits, especially after 2025. The fund set aside 1% of gross national product every year to provide for this perceived problem in the future. It was to remain inviolable and was legislated in such a way that it was ring-fenced so that Governments could not use the moneys for other purposes. I welcomed this provision at the time, as I welcomed any steps any Governments took to pay off the national debt and putting aside moneys for the rainy day. There was an absolute prohibition on drawdowns until 2025. Will the Minister inform the House if the Government has considered the impact from 2025 on its ability to pay pensions now that the fund is being used in this manner? Before the establishment of the fund, we had committed ourselves to a rather lackadaisical system of paying pensions out of day-to-day revenue which was found to be very unsatisfactory.
I knew the fund’s initial chairman, the late Mr. Donal J. Geaney, founder of Élan, who engaged my services to talk at Trinity College Dublin. Alas his financial experiences towards the end of his life were not entirely positive.
I hope the Minister of State will be in a position to answer the questions I have raised. I have felt for some time that we need to know the exact scale of the problem. The banks’ books need to be opened. We need to know if these will be enough funds because it is taxpayers’ money. Can we rely on the assurances of the banks that these funds will be used productively? I note 10% will be put aside by the banks to provide lending capacity to small and medium-sized enterprises and an additional 30% capacity to first-time buyers in 2009. What happens in 2010? I know interest rates are going down but a time will come when they go up again. It is all very well theoretically for the banks to say 30%.
This is taxpayers’ money going into the banks to make up for the poor decisions of their executives. Accountability is needed in this action. I am not for the creation of a toxic bank but a bank to extract the dangerous and speculative property-based loans.

An Leas-Chathaoirleach: I must ask the Senator to conclude.

Senator David Norris: I just want to come to a full stop. These loans should be put into a national property management agency. At the same time, we could bring all the banks together and have a State bank, a real bank of Ireland. That is where we could don the green jersey, roll the good elements together and put all the nasty stuff — it might be only nasty for a temporary period — into a national property management agency. It might allow the people to benefit by 2025.
I thank the Leas-Chathaoirleach for his indulgence and the Minister of State for his forbearance. Many ordinary people like me will be interested in the Minister of State’s answers to the simple questions I have asked.