We are now in a bad-debt cycle, where a credit crunch is exposing reckless loans that will never be paid back. Make no mistake, millions of euros in loans will never be honoured.
An “Irish” bank has already gone under this week. Merrill Lynch, founded by two Irish Americans — Charles Merrill and Ed Lynch in 1915 — was known as the “Irish Bank” on Wall Street. On Sunday, Merrill Lynch — the bank that had such a network of brokers that when it started selling or buying an asset, it was called the “thundering herd” — ceased to exist. The bank was bought by Bank of America to avoid possible bankruptcy.
Irish Americans have long been associated with Wall Street and financial speculation. In the 1920s, when Merrill Lynch began to prosper, outsiders like the Irish and the Jews, who were not accepted by the WASP establishment, constituted leading cliques of speculators. Irish operators like Charles Mitchell, Mike Meehan, Bernard Smith and, of course, Joe Kennedy, cornered many markets and made fortunes. These men came from nothing and they conformed to the phrase that “he who values not his neck, because he is conscious it is worth nothing, may take the boldest leap”.
Maybe our collective recklessness in the past few years can be put down to something similar. We got access to cheap credit for the first time ever and we went for it. Many companies who have set up here have noted this weakness for speculation as a positive point. When asked, many managers of foreign companies suggest that the Irish willingness to take a risk and to gamble marks us out from some of our more prudent neighbours.
However, like some of the great Irish Wall Street speculators, when assets fall in value, the game changes dramatically. Tragically, Charles Mitchell ended up in jail for tax evasion in 1934, while Mike Meehan was committed to a lunatic asylum in 1936.
While these men fell spectacularly, everywhere in America people’s circumstances changed. Most significantly, in the 1930s, banks failed and failed stunningly. And this brings us to the question on everyone’s lips: what will happen here and what can be done to prevent an implosion of the Irish banking system?
The first myth to dispense with is the idea that Ireland is in some way different. When house prices were going through the roof, practically every economist in Ireland bought (at least publicly) into the canard that Ireland was different. Yarns were spun wholesale, such as we had better population growth, less debt, more immigrants, less houses.
We now know that Ireland is not different. We are the same as every other country. In recent days I have heard commentators suggest that Ireland does not have a subprime crisis and, therefore, have less severe financial problems. This is clearly nonsense.
If you believe lending people money to buy starter homes valued at 14 times the average income is not inviting a financial calamity, then you should stop reading now. If, on the other hand, you believe that we are facing a real crisis, then we must map out what form that crisis will take and how it can be minimised?
We are now in a bad-debt cycle, where a credit crunch is exposing reckless loans that will never be paid back. Make no mistake, millions of euros in loans will never be honoured.
So will an Irish bank go under? If Lehman Brothers can go bust and Merrill Lynch can be swallowed up, there is little doubt this can happen here.
Yesterday, Irish banks lost another huge chunk of their value on stock markets. This is likely to continue over the course of the next few days because the financial markets do not believe the gamble that Hank Paulson, the US treasury secretary, took over Lehman Bros this weekend.
This market reaction is important to appreciate. Mr Paulson thought that by letting Lehman Bros go to the wall he could draw a line in the sand. He gambled that the financial markets would react by thinking: “ok, Lehman was very badly run but that was one bank and now that the authorities are not going to bail banks out, the financial community will have to sort its own act out”.
Had this gamble worked, stock markets would have rallied as the market distinguished between “good” and “bad” banks. Instead, they have all tanked and they are likely to fall yet further. Indeed, next weekend could easily see another huge failure because the markets are now targeting vulnerable giants by the hour.
With that in mind, let’s come back home to the Irish banks. Our banks are no different from US banks. The only issue is one of degree. Very soon, Ireland will be faced with the same crisis as Wall Street. The reason is simple; we are a superannuated version of America. If you look at the numbers, our situation is actually worse.
Check out the chart. It reveals that residential mortgages in Ireland have risen by 522pc in nine years. In the US, the figure is only a 102pc increase, meaning we have got into debt five times faster that the US — where the situation is supposed to be diabolically unique!
Put simply, we are looking into the precipice. However, there is a solution. The first should be a shotgun marriage between two of our banks. For example (and in no particular order as this could be any of them), Bank of Ireland and AIB should be urged to take over one of the smaller banks. The objective of this is the same as the Merrill Lynch takeover — it is to shore up the balance sheet of the weaker banks before everything unravels. This marriage should be forced by the Central Bank to save the system.
At the same time, the Central Bank needs to go around Europe with a “Bank for Sale” sign and entice in a big player to take over one of our bigger banks if necessary.
In addition, and as part of a merger deal, the Central Bank should stop acting macho and provide as much credit to the banking system as it needs. This means that banks have to make public just how much money they need. At the moment, the banks are playing chicken with the market, pretending that they don’t need to go the Central Bank for money.
If we don’t see these moves quickly, there will be serious trouble. It is highly likely that a bank will go bust and the entire financial system could come crashing down. Let’s not wait for this. Let’s not repeat the mistakes of our Irish American cousins. We can act now and do it decisively.
The current volatility in bank shares is atypical of classic recession playouts.
If you get it right, bottom feeding, you can make 10-15% overnight.
If you dont sell fast though, that gain can be a 20% loss three days later.Dangerous. Right now its just casino stuff-always was to a degree-but never never like today! Its Not for me no more.
The so called “gilt edged” stocks have turned everything I ever made on speculative ones into a barely break situation -after 5 years of gambling.
Thank god I put my “pension fund” into bricks and mortar years ago-and sold out at the top of the mad market.
You win some- you lose some.!
MK > When to get in and ‘bottom fish’ like this depends on the appetitie of the investor. It is certainly only to be done with money that can be risked.
Could not agree more. Yes, I have done well, but I could just as easily have a lot of egg on my face this morning. The money I invested was money I could risk. If Bank of Ireland went bust this morning I wouldn’t have been happy, but it wouldn’t effect my day-to-day budget.
Garry > maybe our brave boys will do likewise for ya!!!
Thank you Patrick Neary.
This page is looking like Ragingbull and the like. Before you know it, there’ll be people here playing with OTC pink sheets :). Let’s face it, we all know what when the CERN lads switched on the LHC, a black hole was indeed created – except it was for financials. Higgs Bosons, Dark liquidity, Strangelets…all interchangeable terms. Cern – Centre European for Ragingbull Nutters!
Right now, it seems we have a temporarily stabilized sigularity by making shorting illegal – in other words, if you are trading stock, both you and the stock will dissappear into that blackhole. Snag is that the gravitational attraction is still there and the block hole in on the move…Can the tax payers continue to take the hit.
If the CBs can take a breather printing money for a week or two, we may be through the worst of it. And who knows, maybe Santander can butress BoI enough to avoid Cowen’s involvement. Anyone know what the effects of a Spanish bank may have here? Might BoI still be a good buy?
Did anybody see the new aib ad ?? Seen it on the bus shelter outside the bank centre
It depicts a “For Sale” sign, but on the top of the sign is says “Mortgages” … Put it all together and it says Mortgages For Sale !! Kinda ironic given how the sale of mortgages has gotten the world into this mess !!!
Maybe someone with a bit of cop on should have okayed the ad first …….
Brendan W,
did you see this article
http://www.independent.ie/breaking-news/national-news/business/engineers-warn-of-job-cuts-if-ndp-delayed-1478747.html
This is the kind of thing which will really hurt the country. Not a stupid out of wack book keeping system we
call the banking establishment which could easily be reorganized should push come to shove. Unfortunately to many so called economists confuse finance and monetary theory with economics. Economics is about figuring out how to feed ourselves and finance is just about printing the dinner tickets.
Certain radio shows and news items talking up the ISEQ and the Banks, then I looked at the ISEQ index and its at 3,712. Are they having a laugh, trying to sucker in those poor proprety owners for more misery ?.
Remember this was alway the case!!
The Media are as responsible, if not more so, than the Banks and Builders for the current debacle..They sold the advertising space and talked up the property market for their clients.
The Media has a responsibility to it’s public (something which banks have never tied themselves to!)
but they talked up the “Celtic Tiger” most, they propagated the myths that got the man in the street involved, they betrayed their best client- Joe Citizen, and now they bleat about the behaviour of banks and property developers with a sort of gasping astonishment and indignation, without admitting the first truth-They themselves were the clarion trumpet for the phoney boom- urging people along to take part in what would lead to their own inevitable doom…
The Media should now stand accountable.
David Mc Williams to his credit was not amongst them! (when it would have been most profitable to do so-) and that is why I subscribe to this site!!
There is more interesting (and real) news and views here than you will ever get from the newspapers!!
“The truth is Ireland became a country for young people to resent. Its the 40+ brigade who are looked after most. Even the pensioners are doing very well for doing sweet f.a. Who pays them thieir state pension? Young people do.
“Young People of Ireland, I Love You”, do yourself a favour and leave! And don’t come back until you’re at least over 40.”
I agree wholeheartedly with these comments.
I myself, am 31 and yes I will admit most people my age resent this country, no one I know is happy with what Ireland has to offer, none of them are content and few of them feel secure. We are the “jilted generation” , we were sold up the river by folks like Bertie Ahern, middle aged and middle class property speculators who were only too delighted to exploit us during the “housing shortage” at the beginning of the boom. Take my brother for example, although he was lucky enough to get move to Australia , marry an Aussie girl and get a good job there 5 years ago, even he hasn’t escaped “the sting in the tigers tail”.
He had bought a property in a rural part of Dundalk, a basic two bedroom apartment. He did so, in the hope that if it all went belly up in OZ, he would at least have a home to come back to. The rent covered his mortgage for the first few years as house prices and rents began to rise dramatically. In the last two years , due to interest rates rising, he had to fork out some of the mortgage payments himself as the rental wasn’t covering it. He had bought the property for 180,000 originally , and last year or so when property prices were peaking in the area, it was valued at 240,000 , nice little investment… or so he thought..
Last month he got a letter from his letting agent, his last tenant had left suddenly and had also complained of damp in the house (bear in mind this was a so called “new” apartment) , the letting agent also said they were having trouble finding someone to fill it. He then decided , maybe it was best to sell, so he had it valued. Much to his horror, the 2 bed investment he thought was worth 240,000 had suddenly dropped in value to 175,000. Having originally paid 180,000 on it, he is now in negative equity on a property which he has never even set foot in. His plans for having a home to come back to if his travels on the other side of the world didn’t work out have been well and truly squashed. He is also in debt on the property and losing money by the day. Although, I feel sorry for my brother, he , like many others were conned and duped into buying property because there is a fear of homelessness ingrained into the Irish Psyche. This fear comes from centuries of oppression, famine and land wars. The Irish government and its property developer friends is and was well aware of the fears of Irish psyche, and they exploited it and encouraged the promotion of it.
This is what makes me sick to my stomach.
I will never forget the articles in the Irish news a few years ago about the so called “housing shortage” , developers were deliberately holding back on stock in order to cause a mass panic amongst stressed out young and first time buyers. Young couples, singles and families were conned into buying extortionate and badly built houses and apartments in sprawling suburban estates with no amenities. These houses are now worth two thirds of the price they were paid for. The media encouraged this cynical sham with it endless pages of housing advertising and property supplements. Its a disgrace what has been done to this generation of young people by the generation above them. Greed is the bottom line here.
http://ghostestates.com/main.php?g2_view=map.ShowMap
Anyone who thinks my views are extreme might want to take a look at this website, it’s ghostestates.com. “Ghost estates of the Irish property bubble” The pictures speak for themselves, and they do in fact echo a thousand words, but personally what they reminded me of was – the old pictures of abandoned communities forgotten about in the west of Ireland at the turn of the century and the Goldsmith poem “the abandoned village”.
http://www.poetsgraves.co.uk/Classic%20Poems/Goldsmith/the_deserted_village.htm
Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay;
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made.
But a bold peasantry, their country’s pride,
When once destroyed, can never be supplied.”
So what does Ireland have to offer that is different to 100 years ago?
Seems that the Irish are still being exploited because of their “land fear” and “abandonment psyche”. But at least the Irish of 100 years ago had soul and spirit to sustain them through the hardship, and that’s something which I haven’t seen much of in the celtic cubs of my generation and unfortunately for them, you can’t buy it in Dundrum shopping center!
Utter tosh – The problem the younger generation had was that they never had the experience of anything other than good times. I went abroad to work as there was nothing to do here in late 80′s but do a FAS course or go on the dole – And you feel hard done by??.
I never beleived the hype as I was there first hand in the UK to see it all crumble down in the early 90′s. This was no secret and people believed what they WANTED to believe even though there was no evidence to suggest that a country could sustain such high growth rates as Ireland did over the last 10 years.
Bertie Ahern is no more culpritable than anyone else. I do wish we could get McCreevey back however. I am amazed people can blame their utter ignorance on someone else. This was not a matter if if it was a matter of when. I fear for the younger generation who are simply not equipped for this. Hoewever its time to grow up the 40+ people struggled more when they were young and it’s an insult to them to say other wise.
I didn’t say i feel “hard done by” ..
I said my generation have been exploited, if you had read my post with care, the sentiment would have resonated, but obviously you didn’t get the point..
And who ever says “utter tosh” anyhow…
Sounds very West Brit to me..
;)
Perhaps – But I actually had to leave Ireland as I couldn’t even get a job serving burgers. Your generation is no more exploited than any other, your just within that group. I did read your post and believe me I got the point. You clearly believed all the hype and did not fully inform yourself. You assumed certain things and this was unfortunate. C’est la Vie (I am west french too..)
Perhaps – But I actually had to leave Ireland as I couldn’t even get a job serving burgers. Your generation is no more exploited than any other, your just within that group. I did read your post and believe me I got the point. You clearly believed all the hype and did not fully inform yourself. You assumed certain things and this was unfortunate. C’est la Vie (I am west french too..)
And what’s your point exactly? Apart from the snide remarks?
I didn’t believe any hype, I haven’t got a mortgage, I wouldn’t be foolish enough to buy over priced shoddy houses, but a lot of my generation did. That’s not their fault though , they were conned and pressured into into it. I didn’t assume anything, I observed. I didn’t say my generation was exploited more or less than any other, I created an analogy, if you can’t grasp the total and “utter” injustice of the past ten years in regards to my generation, then that’s not my fault. Personally, I don’t think that any previous generation had to struggle to attain 12.5 times the average industrial wage in order to purchase a home. But maybe you do?
RB, Your brother is an absentee landlord. Stop painting him as a victim, F*** him
Years ago banks would not give a mortgage to a lot of people, umemployment was high and work was pooly paid with high inflation. There was an oil crisis where you could not get any and queued for hours to try and buy some. This has not happened to ‘your’ generation. Many of whom lied bareface so the bank would give them an unaffordable martgage. Gary’s point pretty much sums up what a lot who are older than you will think upon reading such nonsense. Take the chip on the shoulder and cash it in. Injustice my a***!
“RB, Your brother is an absentee landlord. Stop painting him as a victim, F*** him”
I didn’t paint him as a victim at all Garry, he was foolish to buy into the “housing shortage propaganda” , but he also had no choice as he wanted to have a home to come back to, which should be the right of all Irish people. Unfortunately, even those who stay here are conned too. If you can’t see the bigger picture and see how this greed effects every generation now and the future generations, more pity to you. And please, if you have to use strong language to get your point across, why not be a man about it and type the actual letters of the word instead of censuring yourself!
“Years ago banks would not give a mortgage to a lot of people, umemployment was high and work was pooly paid with high inflation. There was an oil crisis where you could not get any and queued for hours to try and buy some. This has not happened to ‘your’ generation. Many of whom lied bareface so the bank would give them an unaffordable martgage. Gary’s point pretty much sums up what a lot who are older than you will think upon reading such nonsense. Take the chip on the shoulder and cash it in. Injustice my a***!
I think you are the one with the chip on your shoulder Finbarr , your comments and rhetoric portray an ugly and bitter disdain , a disdain which is completely unjustified considering we are all in the same boat here. At your stage of life, you should know better… You’re really a great example of what the younger generation should aspire to aren’t you? , Twisted and mean indeed…
RB, Believe it or not I agree with a lot of what you say re exploitation of the younger generation. The Barbara Striesand concert where punters got their money shows you don’t mess with the well off older generation. I cant recall any promoter ever having to hand back money when a concert went ahead and a few punters were delayed in traffic or got their feet wet. Also the coming storm with risk equalization in health insurance will show who has clout, Ive never fully bought the argument that its different than car insurance ….. as after all we are supposed to have a public health system also. That said I dont agree with comments attacking state pensions…
I think the lives of people have improved over the past number of generations which is the way it should be. I agree with you on a macro level but I lose all sympathy when I hear stuff like “but he also had no choice as he wanted to have a home to come back to, which should be the right of all Irish people.”
and
“I myself, am 31 and yes I will admit most people my age resent this country, no one I know is happy with what Ireland has to offer,”
Thats just whinging. The Celtic Tiger started around 1995 when you were 18. The age of spending tomorrows money today is gone, the question is no longer what does Ireland have to offer, its reversed.
Rhetoric?? Give me a break, I’m 39. Get over yourself man and try the real world for a bit as idealism is great but quite useless at the moment. At least Garry was man enough to have signed his name by the way as you cant curse on here – at least grasp that bit of common sense.
Civics and banking are unlikely to mix.. I know it’s twisted and mean, but there you have it.
Nobody forced houses on anyone. Nobody put a gun to your head. And saying that rent was dead money makes me piss myself laughing now. Almost as much as the sad losers wearing the AIG sponsored football tops.
If everyone jumped over a cliff would you too? RB, by all means be my guest, we’re all behind you.
Like Finbarr I am West French as well as West of Ireland.
If Lenihan bails out the banks he is a participant in the biggest bank robbery in history. Private companies who betted wildly at the casino being given public money after they lost it all.
If I bet all of my money away I would be lucky to get into Gamblers Anonymous not a hand out from the taxpayer.
This whole debacle is obscene.
‘Your brother had no choice but to buy…it the right of all irish people to buy a home..’
What planet are you from? – I have heard better rants from George Hood or some other opulant blue shirt.
I’m done, I can read fairytales at home.
B writes
“If Lenihan bails out the banks he is a participant in the biggest bank robbery in history. Private companies who betted wildly at the casino being given public money after they lost it all.”
I wouldn’t expect Lenihan to do anything less. That is the system we have in this country.
………..Privatise Profits…………. Socialise Losses.
Philip > Might BoI still be a good buy?
I’m not so sure. The rising tide today, with the added santander rumour, gave BOI alot of gas. And we all know what too much gas leads to. I got out this afternoon.
RB, Finbarr et al. >
I refer you to the title of David’s article. Just substitute the word ‘we’ for ‘banks’. Blame is an indulgence for historians, let them sort it out.
@ Mr B, good to see you back stirring the pot and speaking some home truths which the pampered don’t like to hear.
@ Lorcan , I hope you ‘cashed’ in your 2 shares today as short term selling is now been stopped if you want to really make money it is into environmental energy companies or food producers like Kerry or Glanbia do a comparison with them against your banks, you should be looking at instead of hanging onto your fathers generation and going for the ‘solid banks’
@ Longlivetherepublics yes I had read the article , it’s a pity our banks with their blinkers go for funding developers instead of opening up venture capital into energy companies Ireland could almost be self sufficient with wind and wave power alone , but our closest conservative and corrupt bankers only go for the fast buck. But as David titled this article and ask’s our bank to stop playing chicken , this is where they have become confused as they are a shower of turkeys.!
[REMOVED BY MODERATOR - CALL PEOPLE NAMES SOMEWHERE ELSE THANKS]
RB,
your brother added fuel to the fire by buying property. too many like him did it. as it turned out for your brother – he didn’t need it because we went to live in australia. buying property in a place for sentimental reasons is just plain silly bonkers. he didn’t need it. it was a vanity purchase.
all those vanity purchases contributed to the huge increases in the cost of property. buyers were playing themsleves into the hands of the developers. buyers secretly knew that, decided to become a me feiner (fadas on the e), and gambled on rising prices with absolute no thought of what was for the greater good, leaving next year’s buyers with bigger mortgages to take out. i’m alright jack mentality. then they got caught out.
to top it all, didn’t rte run a series called “i’m an adult get me out of here” or something like that…… and the whole jist of it was to reinforce the idea that young people in their late 20s/early 30s still living in their parent’s house were losers. crazy! they should have had a programme called “i’m an adult not prepared to pay ridiculous prices for a home so get me out of here (ireland). and what’s so weird about it is that rte is infested with communists……so how they got that show going in the first place amazes me.
b,
you know we share the same analysis in general, and you borrowed my “gun to the head” quote many times, but i must let you know what the team wearing AIG on their jerseys are not losers, they are the winners of the english league and winners of the champions league. far from losers i tell ya – and certainly not receiving losers salaries for their efforts.
as for the followers of the red mancunians, of which i am one, we get great satisfaction out of watching those players playing beautiful football wearing AIG jerseys. if you can’t understand that, that’s fine.
and before anyone berates me for not supporting eircom league, let me say i have done regularly in the past, but no longer can as i’m in exile now, due to lack of career prospects and inflated house prices.
Fools, fools, fools all of you all- why have you not realised yet that you don’t even need a mortgage to have your own house. Have you not heard of the traditional method of construction in Ireland before cement etc, its called cob. All you need is to buy a tiny plot of land somewhere, and find clay, sand, earth, water and straw (a form of cement. convential cement is actually powder and water mixed until hardened). And if you share your space with somebody else you might get a little slice of land for €30,000, and no mortgage! No stamp duty- just a septic tank and a piece of land!!! No interest to those evil mortgage companies. You don’t even need a mortgage, forms of construction like cob have been used for thousands of years, including in Ireland and fare just as well as concrete homes. But the cherry on the cake is that you get to build a beuatiful house, outside or inside. Its criminal that people now are tied to tyrannical mortgage and beurocrats to pay between €500,000-€1,000,000 for an average house over 30 years including for next to nothing, when our grandfathers and ancesters built homes for next to nothing. F*ck the EBS- join the bandwagon and build yourself a beutiful mortgage free dwelling. Here are some links.
http://www.homesteadinginfo.com/building/index.html
http://64.233.183.104/search?q=cache:cOzQqkD-7BYJ:www.findaproperty.com/displaystory.aspx%3Fedid%3D00%26salerent%3D0%26storyid%3D9587+cob+cottage+mortgage&hl=en&ct=clnk&cd=1&gl=ie
http://www.cobcottage.com/
They did lose to Liverpool last Saturday no?
This gigantic bank robbery will hit the Premier League and F1.
Clearly the banks are getting scared. I’d say lot of people are ringing up about spreading the assets. That’s why Lenihan has upped the guaranteed from 20 to 100K. Monday will be interesting. When the Fed finally reveals all (I suspect it’ll be more of the same – keep bailing), the shares will be dumped wholesale -and the lack of shorters will make no difference at all. I hope I am wrong.
Speaking of gun to heads…when you have family and schools etc. you need to get a house. Pressure is on. Being foot loose and fancy free is not an option – tempus fugit. Having said that, it is dreadful how rental accomodation is so unsuitable for families.
sub
Mk,
great to get a bit of balance. O/T I’m delighted to see BOI have slashed their dividend, now they can retain capital and save the future interest cost which are becoming outrageous! Well done BOI.