New report reveals madness at root of Irish crisis

A third and final probe into Ireland's banking crisis reads like a psychologist's report. Groupthink, herding and a "national speculative mania" are all cited as explanations for why Irish banks' reckless lending went unchecked, leading to devastating consequences for the country and its people.
"As in most manias, those caught up in it could believe and have trust in extraordinary things, such as unlimited real wealth from selling property to each other on credit," said the 172-page report, published on Tuesday. "It appears now, with hindsight, to be almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risk they were taking."
Anglo Irish Bank and Irish Nation-wide were at the heart of the flawed lending practices which saw Dublin house prices trump Manhattan and Moscow at the height of the property bubble in 2006, the report's author, Finnish expert Peter Nyberg, concluded. But the other banks dubbed "The Herd" followed their lead, while the banks' external auditors were "The Silent Observers" and the public authorities - the central bank, the financial regulator and the Department of Finance - were "The Enablers".
A belief in the fundamentals of the Irish property market and in the efficient operation of financial markets led to Groupthink, a psychological process that reduces the likelihood of critical views being aired. "In order for a systemic crisis to happen, you will need a very large part of society to take part, not understand the risks or stay quiet," Nyberg, a former director general for financial services at the Finnish Ministry of Finance, told a news conference.
"Investors have to make bad decisions, banks have to make bad decisions. You have to have a central bank, regulator and a government that doesn't understand or care, media has to be supportive and politicians, in general, have to not understand." Ireland has since overhauled supervision of the financial sector, beefed up staffing at the central bank and is in the process of cutting its banking sector down to just two lenders to stabilise its finances.
Last month, the government put a 70 billion euros ($100 billion) pricetag on drawing a line under the banking crisis, which forced Dublin into an EU-IMF bailout last year. The previous government, booted out of office in a February election dominated by the crisis, commissioned Nyberg to look into the period leading up to the nationalisation of Anglo Irish Bank in mid-January 2009.