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More heat than light on Finsac from Dr Davies
BY KEITH COLLISTER
Wednesday, April 30, 2008
Sometimes in Jamaica we seem to assume that we are unique as a country, and that no other country has experience that is relevant to our own. This appears to be so, even amongst knowledgeable "wise men" who claim differently.
One area where Jamaica is clearly not unique is in the area of financial crises. Numerous countries have experienced financial crisis. Even the mighty United States, having experienced the Savings and Loans crisis as recently as the early 1990s, is once again facing a financial crisis. This crisis is supposed to be limited to inappropriate sub-prime mortgage lending, but in my view will end up having been significantly wider in scope.
The issue of banker/client confidentiality has been used as an excuse not to have a commission of inquiry into the causes of the financial crisis for some time.
Indeed, the banker/client relationship was specifically mentioned in the following excerpt of the press release issued by Dr Davies the day after the budget debate, the full text of which release was quoted in last Friday's Gleaner.
The release correctly noted, "At this same stage it is important to explain why, as government, we were hesitant to appoint such a commission.
It goes on to argue that the "The main factor influencing that previous stance was that officials with intimate knowledge of information, governed by banker client relationship, are likely to be called upon to give evidence. With this in mind, it was felt that an enquiry may result in possible legal implications, in terms of possible breaches of confidence. "
It should be noted, however, that it was the Savings and Loan crisis in the United States that led to the creation of the Resolution Trust Corporation (RTC), upon which our own Finsac was loosely modelled. After the US crisis, very extensive public hearings were held by the United States Congress on the causes of their crisis, as well as a mountain of academic research.
It is interesting to note the contrast with what happened in the US and what happened in Jamaica referred to in Minister Shaw's closing budget speech. "While in Opposition, the Jamaica Labour Party made an attempt in the Senate to launch an investigation. This was blocked. We also appealed to the universities to carry out a study. This was met with a lukewarm response."
This time around, less than a year into the current mortgage crisis, Congressional hearings have already begun. Moreover, a quick Google search under the title "public hearings on financial crisis" revealed 1.79 million references, including countries from all over the world, suggesting that such public hearings are in no sense confined to the United States, and should indeed be expected as a matter of course in whichever country (at minimum all democracies) a financial crisis occurs.
So the interesting question is, why has Jamaica not considered it necessary to investigate its own financial crisis, particularly when it is one of the world's most costly as a proportion of GDP?
To say that it was because of the danger of possible breaches of the "banker client relationship" due to "breaches of confidence" is to simply confuse the public, as the purpose of a commission of inquiry would not be to personalise the issue by investigating individual loans, but to ventilate the extremely important public policy issues created by Jamaica's financial crisis and its aftermath.
Dr Davies also justified the release of information on Minister Shaw's personal financial position as follows.
"For my own part, I have at all times refrained from divulging sensitive information which came to my knowledge in my capacity as minister. However, the actions and utterances of senior members of the present Administration leave me no option but to make some important and necessary disclosures which will impact on the terms of reference of the proposed enquiry and, hopefully, ensure the integrity of the process. Moreover, it is in the public interest that these disclosures be made at this time.
"However, in a very balanced editorial last Monday, entitled "Prelude to a Finsac inquiry", the Gleaner newspaper correctly noted:
"Indeed, this need for confidentiality, as a moral imperative and legal requirement, was part of the argument used by Dr Davies to resist demands by his critics for a public inquiry into the cause of the collapse and the government's response to it, which included the establishment of the Financial Sector Adjustment Company (Finsac), the vehicle used to facilitate the bailout.
"Last Thursday, Dr Davies broke his own rule. He named the current finance minister, Mr Audley Shaw, as one of the persons whose defaulted loan at a commercial bank was acquired by Finsac and who then failed to honour terms for the heavily discounted debt.
"Whatever the provocation, perceived or real, by the present administration, we believe that Dr Davies was wrong. In any event, he may have clouded any debate about what went wrong in the 1990s with an overburden of politics to the detriment of rationality of facts. Hopefully, that was not Dr Davies' intent."
The final justification for revealing Minister Shaw's financial affairs was supposed to be his conflict of interest". To quote Dr Davies: "The position of the minister of finance and the public service, the chief advocate for this enquiry, is of particular concern to the Opposition. His involvement in the process raises serious questions of conflict of interest."
As someone who had himself been "finsaced", according to Dr Davies, "the minister therefore has no moral authority to lead the process for an enquiry and the Opposition, on behalf of the Jamaican public, demands that he completely recuse himself from any further involvement in the matter and allow the process to move forward independently."
However in his closing presentation, before announcing the intention to proceed with a commission of inquiry, Minister Shaw first correctly notes that, "Mr Speaker, a commission of inquiry can only be properly established under the Commission of Inquiry's Act and is reserved to bring to light facts and issues that are not available from civil action. A commission of inquiry must be as a result of Government action or policy intervention that does not allow the ordinary citizen to act".
Minister Shaw then goes on to say that "We maintain our stance and will implement this year a commission of inquiry that will specifically pinpoint the causes of the collapse and will assist us as a country to set down rules to avoid such a catastrophe ever befalling Jamaica again".
In short, not only does Minister Shaw stress up front that a commission of inquiry can only be established under the Commission of Inquiry Act (not under his mere ministerial direction), but his reference to "We" clearly refers to the current government and not himself, and moreover refers to the implementation of such an inquiry in the future eg "this year".
So Dr Davies' justification for revealing inister Shaw's personal financial information in the public interest on the grounds that Minister Shaw had no moral authority to lead the process for an inquiry is clearly completely unjustified. Minister Shaw had merely indicated in his budget speech that as a matter of public policy, a commission of inquiry was to be established this year under the Commission of Inquiry Act. As Minister Shaw had made absolutely no mention of his leading such a commission, there was no need for Dr Davies to demand he recuse himself, and more importantly no justification for revealing Minister Shaw's personal financial information.
BY KEITH COLLISTER
Wednesday, April 30, 2008
Sometimes in Jamaica we seem to assume that we are unique as a country, and that no other country has experience that is relevant to our own. This appears to be so, even amongst knowledgeable "wise men" who claim differently.
One area where Jamaica is clearly not unique is in the area of financial crises. Numerous countries have experienced financial crisis. Even the mighty United States, having experienced the Savings and Loans crisis as recently as the early 1990s, is once again facing a financial crisis. This crisis is supposed to be limited to inappropriate sub-prime mortgage lending, but in my view will end up having been significantly wider in scope.
The issue of banker/client confidentiality has been used as an excuse not to have a commission of inquiry into the causes of the financial crisis for some time.
Indeed, the banker/client relationship was specifically mentioned in the following excerpt of the press release issued by Dr Davies the day after the budget debate, the full text of which release was quoted in last Friday's Gleaner.
The release correctly noted, "At this same stage it is important to explain why, as government, we were hesitant to appoint such a commission.
It goes on to argue that the "The main factor influencing that previous stance was that officials with intimate knowledge of information, governed by banker client relationship, are likely to be called upon to give evidence. With this in mind, it was felt that an enquiry may result in possible legal implications, in terms of possible breaches of confidence. "
It should be noted, however, that it was the Savings and Loan crisis in the United States that led to the creation of the Resolution Trust Corporation (RTC), upon which our own Finsac was loosely modelled. After the US crisis, very extensive public hearings were held by the United States Congress on the causes of their crisis, as well as a mountain of academic research.
It is interesting to note the contrast with what happened in the US and what happened in Jamaica referred to in Minister Shaw's closing budget speech. "While in Opposition, the Jamaica Labour Party made an attempt in the Senate to launch an investigation. This was blocked. We also appealed to the universities to carry out a study. This was met with a lukewarm response."
This time around, less than a year into the current mortgage crisis, Congressional hearings have already begun. Moreover, a quick Google search under the title "public hearings on financial crisis" revealed 1.79 million references, including countries from all over the world, suggesting that such public hearings are in no sense confined to the United States, and should indeed be expected as a matter of course in whichever country (at minimum all democracies) a financial crisis occurs.
So the interesting question is, why has Jamaica not considered it necessary to investigate its own financial crisis, particularly when it is one of the world's most costly as a proportion of GDP?
To say that it was because of the danger of possible breaches of the "banker client relationship" due to "breaches of confidence" is to simply confuse the public, as the purpose of a commission of inquiry would not be to personalise the issue by investigating individual loans, but to ventilate the extremely important public policy issues created by Jamaica's financial crisis and its aftermath.
Dr Davies also justified the release of information on Minister Shaw's personal financial position as follows.
"For my own part, I have at all times refrained from divulging sensitive information which came to my knowledge in my capacity as minister. However, the actions and utterances of senior members of the present Administration leave me no option but to make some important and necessary disclosures which will impact on the terms of reference of the proposed enquiry and, hopefully, ensure the integrity of the process. Moreover, it is in the public interest that these disclosures be made at this time.
"However, in a very balanced editorial last Monday, entitled "Prelude to a Finsac inquiry", the Gleaner newspaper correctly noted:
"Indeed, this need for confidentiality, as a moral imperative and legal requirement, was part of the argument used by Dr Davies to resist demands by his critics for a public inquiry into the cause of the collapse and the government's response to it, which included the establishment of the Financial Sector Adjustment Company (Finsac), the vehicle used to facilitate the bailout.
"Last Thursday, Dr Davies broke his own rule. He named the current finance minister, Mr Audley Shaw, as one of the persons whose defaulted loan at a commercial bank was acquired by Finsac and who then failed to honour terms for the heavily discounted debt.
"Whatever the provocation, perceived or real, by the present administration, we believe that Dr Davies was wrong. In any event, he may have clouded any debate about what went wrong in the 1990s with an overburden of politics to the detriment of rationality of facts. Hopefully, that was not Dr Davies' intent."
The final justification for revealing Minister Shaw's financial affairs was supposed to be his conflict of interest". To quote Dr Davies: "The position of the minister of finance and the public service, the chief advocate for this enquiry, is of particular concern to the Opposition. His involvement in the process raises serious questions of conflict of interest."
As someone who had himself been "finsaced", according to Dr Davies, "the minister therefore has no moral authority to lead the process for an enquiry and the Opposition, on behalf of the Jamaican public, demands that he completely recuse himself from any further involvement in the matter and allow the process to move forward independently."
However in his closing presentation, before announcing the intention to proceed with a commission of inquiry, Minister Shaw first correctly notes that, "Mr Speaker, a commission of inquiry can only be properly established under the Commission of Inquiry's Act and is reserved to bring to light facts and issues that are not available from civil action. A commission of inquiry must be as a result of Government action or policy intervention that does not allow the ordinary citizen to act".
Minister Shaw then goes on to say that "We maintain our stance and will implement this year a commission of inquiry that will specifically pinpoint the causes of the collapse and will assist us as a country to set down rules to avoid such a catastrophe ever befalling Jamaica again".
In short, not only does Minister Shaw stress up front that a commission of inquiry can only be established under the Commission of Inquiry Act (not under his mere ministerial direction), but his reference to "We" clearly refers to the current government and not himself, and moreover refers to the implementation of such an inquiry in the future eg "this year".
So Dr Davies' justification for revealing inister Shaw's personal financial information in the public interest on the grounds that Minister Shaw had no moral authority to lead the process for an inquiry is clearly completely unjustified. Minister Shaw had merely indicated in his budget speech that as a matter of public policy, a commission of inquiry was to be established this year under the Commission of Inquiry Act. As Minister Shaw had made absolutely no mention of his leading such a commission, there was no need for Dr Davies to demand he recuse himself, and more importantly no justification for revealing Minister Shaw's personal financial information.
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