We are way out of our depth, a banker tells Isabel Morton

THE WORLDS of property and banking are inextricably linked. It is difficult to speak about one without the other, particularly at a time when one is severely affected by the other.

In the world of finance, fear is spreading like wildfire. Whatever glimmer of hope we may have had for a quick recovery, is being rapidly eroded. Daily news of the collapse of yet another American financial institution is sending shock waves around the world. Despite repeated protestations to the contrary, we fear that that one of our own banks will be next in line to crash.

One Irish banker's off the record remark to me this week said it all - "We are way out of our depth and we haven't a clue what's going on, let alone what to do about it. You can smell it (the fear) in our office."

Confusion is rife, and the average person in the street finds it hard to figure out the logic behind the method in which Irish banks are dealing with certain situations.

One minute they are telling developers to sell their property at vastly reduced prices, in order to ensure the repayment of their huge bank loans, the next minute, they are refusing mortgages to people who are trying to buy the very same properties.

And what happens if a bank is aware of forthcoming enforced reductions in the price of certain properties? Do they warn the customers, who are potential purchasers, that the property they are about to buy is about to have its price slashed? To which client do they remain loyal? Does this type of trading not constitute a conflict of interest?

Technically, developers deal with the business banking section, which is of course separate to the residential mortgage department. However, an email or a phone call is all that it would take to communicate between the different divisions. Does is happen? Should it happen?

And what happens to property developers whose building sites lie idle because their bank withdrew development funding? The withdrawal of funding midway through a project effectively stops the developer from trading. The banks are effectively bankrupting their customers by reneging on their agreement to fund development projects.

Lack of development funds results in a wide range of people, from architects, engineers, quantity surveyors, and accountants to interior designers, solicitors, estate agents, mortgage brokers, retailers and many others,all being made redundant.

These people are then put under pressure to pay their mortgages, which in turn puts further pressure on the banks. And the vicious cycle continues. If developers reneged on their agreement to repay the banks both the capital and the interest on borrowed money, they would be taken to court. Should the same rule not apply the other way around?

Should developers sue the banks? Indeed, should we all collectively sue the banks for reneging on agreements, misappropriation of funds and irresponsible and unprofessional conduct?

A simplistic view perhaps, but had the worldwide banking system not become so overly complicated in the first place, the sub-prime disaster might never have happened.

The international banking system had become too clever by half and eventually it tripped over itself. Now we are all paying the price.

The sheer enormity of the situation is, as the Americans say, truly awesome. We have created a monster which is now so big and so potentially dangerous that we fear it while it is alive, and equally, we fear what might happen if it were dead.

If world banking were a small company, we would fire the directors, declare the company insolvent, send in the receivers and put it into liquidation. Perhaps we should treat world banks as we would any badly run, inefficient and unprofessional company. Shut them down, and start again with a new set of rules. There is no other feasible solution to the problem. The concept of banking is not complicated. We have just made it so. It is time to stop hiding behind the monster we have created and go back to simple principles.

The reality of situation is that the fallout is frightening and in some cases tragic for the individuals involved. We could do well to remind ourselves of the effects the Wall Street crash had on millions of people in 1929. It was proceeded by the Roaring Twenties, - "a time of prosperity and excess in the City" and followed by the Great Depression - "a period of economic decline in the industrialized nations, and led to the institution of landmark financial reforms and new trading regulations". (Wikipedia) Sound familiar?

By the way, has anybody noticed the recent glut of radio advertisements promoting the benefits of the various bank savings and deposit accounts? Do they honestly think the queues outside the Northern Rock bank have been forgotten?