The blame game for the boom is well underway, says Isabel Morton

LAST SEPTEMBER, I rather boldly suggested that we might all consider suing the banks (Talking Property, September 18th, 2008). I am now interested to hear that it is to come to pass. Investors are planning to sue Anglo Irish Bank.

Given what we now know about the specific circumstances of that particular bank, it is understandable that investors, who lost a lot of money, are now somewhat sore about it all.

However, the idea that property developers are also considering suing Anglo Irish Bank is not quite as easy to fathom, particularly as they are suing based on the grounds that the bank behaved negligently by breaching the guidelines of sensible lending practices.

My initial reaction to this news was: that the property developers have some nerve; and that they hadn’t a hope in hell of succeeding.

But, having thought about the basis of their argument, I could see that the same argument might actually be applicable to many of the loans and mortgages obtained by the rest of us mere mortals over the past decade or so.

Of those who were lucky enough (now debatable) to get a bank loan to buy property, many received a 100 per cent mortgage plus (in many cases) extra financing to cover the stamp duty, legal expenses and funds for renovating or furnishing the property.

Others were encouraged by the Government to invest in Section 23 and Section 50 properties and other enticing schemes, which enabled the investor to get tax relief on their rental income. It was, according to the Government, a win/win situation for all involved. And indeed, for a while it was.

The banks made big bucks selling loans and mortgages to the developers, builders and of course, the property buying public. The Government, in turn, raked in fortunes on stamp duty, VAT and income tax. And because the world was skipping along gaily and property prices were increasing annually, the developers were able to sell on their properties at a profit, pay back their bank loans and gear up again for future projects.

Needless to say, nobody was complaining at the time, with the exception of the first-time buyers whose attempts to get on the first rung of the property ladder became like chasing a mirage. Every time they thought they were nearly there, it would disappear from before their eyes.

The banks made sure to do their own bank valuations (for which the prospective borrower invariably had to pay) and they supposedly applied the rigours of their “stress tests” to ensure that the borrower would be able to service their mortgage.

And the borrowers were delighted that the bank had confidence in them. After all, the banks were professionals and they were giving out loans and mortgages to people all day, every day – so they should know. And, if they had faith in you and/or your project and were prepared to put their money where their mouth was, you in turn, had faith in them.

What we all forgot was that banks are just like shops, except that they sell money. And bankers are effectively salespeople: the more they sell, the higher the bonus.

Almost overnight it seemed that everyone who could borrowed to invest in property. Not just the mega rich, but the ordinary working person who felt that property would provide them with an income for their retirement, provide for them in their old age and would be an investment for their children’s future.

It was in the banker’s interest to make it easier for us to borrow money, and equally it was in the Government’s interest not to attempt to stem the flow of tax and stamp duty into their coffers. So it was in both their interests to stay silent, play the game and ignore the potential repercussions.

But in the same way as retailers and service providers are subject to the rules and regulation of the National Consumer Agency and the ombudsman, financial institutions are subject to regulations and are overseen by the financial regulator.

Did the banks break their own set of rules and guidelines?

Did the financial regulator ensure that the guidelines were being adhered to?

If the answer to either or both of these questions is in doubt, then the next step is legal action.

Borrowers could sue the banks for lending them more that the recommended guidelines.

The banks would then sue the financial regulator for failing to regulate.

The financial regulator would in turn sue the Government for failing to ensure that they, the financial regulators, were actually regulating. And the Government would then increase our taxes to cover the costs.

Simple really and perhaps not half as far fetched as it might initially appear.