October 5, 2008

Time for phase two, Minister

Posted in Banks · 116 comments ·

In his last two columns, David McWilliams called for the introduction of a 100 per cent deposit guarantee. Now he explains what must happen next.

Ten years ago, while working in Moscow, I witnessed the collapse of the Russian banking system. I saw desperate people queuing outside main street banks. I witnessed investors losing all their wealth and I experienced what it was like to live in a society that was on the verge of psychological, as well as financial, collapse. We were a whisker away from that last week.

Make no mistake about it: last week, Ireland almost repeated the Russian experience of 1998.Had Brian Lenihan not intervened courageously to guarantee all deposits last Monday night, then at least one, if not two, Irish banks would have collapsed last Tuesday. By Thursday, we would have seen another bank fall and by Friday, the stock of the two big banks – Bank of Ireland and Allied Irish Bank – would have fallen to zero, rendering them effectively bankrupt.

There simply was no other choice. Over the past few days, commentators have queried the wisdom of Lenihan’s move, as if we had the luxury of a suite of options to pick from at our leisure. This was not the case. Ireland had run out of time, and only the most brazen and unexpected move could have prevailed.

We didn’t have time to consult our European neighbours, nor with whingeing Britain – which, incidentally, is not even in the same currency as us, let alone the same jurisdiction. The last time I checked, Gordon Brown was not the Taoiseach.

The choice was simple: either we wanted a banking system or we did not. Now that he has saved the system, the minister has to fix it. There are indeed risks, but they can be minimised. Last week, we saw phase one of this operation. Next week we will, hopefully, see the beginning of phase two.

Before we go on to phase two, it is important to deal with the moral hazard question, which many people have ‘rightly’ raised. It is legitimate to question the morality of bailing out bankers who have nearly bankrupted the country.

However, as this column has argued over the past few weeks, the time for recrimination is not now. The guilty must be punished, but this cleansing process should be planned in an orderly and logical manner. When dealing with the boards and senior management of the banks, a distinction must be made between those good people who made mistakes and the downright reckless cads, who put the country and an entire generation at risk. There are many people in the former category who deserve a second chance; there are some in the latter who don’t.

But this is not our concern today; we’ll come back to it when we have time. Our objective now is to keep up the momentum. Remember, the aim of state intervention in the financial system is not only to save the banks and prevent a catastrophe, but to make sure that the banks, as quickly as possible, re-emerge as stable providers of credit. This won’t happen on its own.

Amazingly, despite the abyss faced last week, there still seems to be a certain amount of delusion in the system. On the airwaves, the head of the Central Bank and the Regulator are suggesting that, because the Irish banks are not using their capital, there is sufficient capital in the system to legitimise asset values. This is nonsense because what they are describing is a frozen system, not a functioning system. While a frozen system might look from a distance to be healthy, it is in fact lifeless.

The only way to breathe life back into the banking system, and the economy in general, is to accept that asset values on the banks’ balance sheets are worth considerably less than what most bankers hope. You don’t have to be Einstein to figure this out. The dogs on the street know that Irish property prices are plummeting.

They were kept high by excessive bank lending and they are being driven down by excessive bank fear. We are nowhere near the floor yet. The quicker we get there, the quicker we can recover.

The minister has to accelerate this adjustment if he wants the crisis to be short and if he wants to get the full value from the stability which has been achieved by the guarantee.

If, on the other hand, he allows the political capital built up over the past four days to evaporate in indecision, then we could be facing a decade-long, Japanese-style depression.

So what do we have to do to get this over with quickly? The most important thing we must accept is that the Irish banking system is full of bad debts. The more quickly this is accepted, the better. Writing down bad debts means the banks will have to set aside enormous provisions. These have to be paid for by shareholders’ funds and this implies, at very least, that no dividends will be paid by Irish banks to shareholders for the next two years.

To make large provisions, banks need capital, and given that no one is willing to lend to the banks, the state might have to take the lead role in recapitalising the banking system.

There are many ways of doing this. However, the recent exchequer figures show that the state’s room to borrow is not enormous.

If the state decides to recapitalise the banking system using its own money, it needs to exact a very heavy price from the banks. Despite having saved the banks, history suggests that banks ‘‘don’t do grateful’’ – so the minister will have to force their hands on the terms of any recapitalisation. Expect sparks to fly in the weeks ahead, but the minister should realise that he is in the driving seat.

Lenihan has demonstrated courage. There were many options on the table last Monday night, but he took the best one. To get the full benefit of this move, he will need to wrest control of the banking system from those who nearly wrecked it. In this endeavour, he should be supported by every patriot in the country and all of us who are concerned about our future.

  1. Ger Kennedy


    Yes he had to do something.

    However I do think that the government should have gotten preferred bank shares with real horsepower and teeth so that they could get the banks to write down these bad debts. There should be appropriate government/central bank personnel sitting on the boards of these banks and monitoring the day to day activities of these banks from INSIDE the banks. I fear that this is not the case. There are two possibilities then as I see them.

    1 The banks re-package all this crap developer debt into new debt vehicles that are guaranteed by the Irish state and see these debt vehicles to who-ever will buy them in an attempt to re-capitalize and remove risk from themselves.

    2 The banks keep their builder buddies from going under by rolling up their debt and hoping that things get better.

    No matter what the government does for FTB’s the property is a dead duck. The rental market is gone which means there no investors buying. Immigration is much reduced. Emmigration is starting again further reducing demand. There are anywhere between 150K and 250K “empties” at the moment and this will take years to shift. Property is going nowhere but down for years.

    The big cahunas in the bank will realise this soon (if they dont already) and walk away from their builder buddies, sell the developer debt on and remove these risky assets from their balance sheets. The government and the Irish tax payer will be on the hook for any defaults that occur with these debts thereafter.

    You could say that the regulator and central banks will stop this. But what real teeth or competence do these people have considering what they allowed the banks to do for the past 5 years and judging by their recent media performances? You will also find that the banks, with all the clever people they have working for them, will find a way to offload this debt if they can at all. They have proven very adept at ignoring and bypassing the central bank and the regulator for the past number of years. I dont see them changing their ways.

    I know you say that it is time enough for recriminations. However I dont agree. People need to be fired. People need to be arrested (fraud) really but that will never happen in Ireland I guess. What will happen is that this will all be “forgotten about” in the weeks and months ahead as the goverment battles to keep the country going and the eegits who caused all this will quietly retire and f__k off to Portugal without one termination or arrest.

    I hope I am wrong. Time will tell.


  2. Michael Byrne

    The Financial Crisis – What caused this to occur?

    Was it due to the lack of intervention by the financial regulator and the governor of the central bank?

    Why, when it has been obvious for a number of years that over lending has been artificially increasing the value of houses and thereby development land that the people with responsibility stood back.

    Was this inaction accepted or possibly encouraged by the government as they were the main recipients of the VAT and stamp duty receipts?

    Maybe someone may need to reflect upon this!


  3. David, this article/ analysis is as accurate as your previous insight,which for years,nobody wanted to read.
    Most of those auctioneers/profiteers,etc that did so, scoffed, disparaged, and ridiculed the idea of a property meltdown-which was as inevitable as night following day.
    Nobody,-even yourself I would guess- in their wildest dreams anticipated the conjunction of events which brought matters so abruptly to a head.
    Every rational person is singing from the same hymn book you have outlined.
    The success or failure of the unprecedented intervention of Brian Lenehan will stand or fall on whether he is successful in getting the banks to wake up to reality, and get the property market moving again with drastic cuts in asking prices.
    Both developers and bankers must take the hits, the bankers re-writing their accounts so that they more resemble fact than fiction.
    If their cosy relationship with big developers remains intact this will not happen.
    The comments of the MD of Anglo Irish Bank on the Marian Finucan radio programme recently-(and his bank was probably the least deserving of a place on the Titanic’s lifeboat) do not inspire much hope, unless Brian Lenehan’s quite demeanour hides an extremely forceful personality, and his get out of jail contract empowers him to effect such changes.
    The developers have packed their suitcases and left for other lucrative regions with the obscene profits they have gleaned from the irish madness.
    The developers will be quite happy to let trees take root on their abandoned housing estates,and wait for the hoped for upturn,as long as bankers remain in denial.
    Japan here we come.!

  4. Deco

    The Minister needed to do something. Correct. He did nothing for the last five months. So eventually, as a result of doing nothing, things got worse. He jawboned. Then he panicked (“this is a terrible time to be Minister for Finance” (for a lawyer). The market understood that this was of no value. I get the picture of somebody who does not really know what is going on, but who thinks it is job to reassure the public that “everything is fine”. Despite the unquestioned support for the media, segments of the people have more confidence in the comments of Joe Duffy, Shane Ross, David, than the Minister. I listened to the Minister for State for Finance, Martin Manseragh, and I respect him for what he did for the Peace Process. But Martin Manseragh knows nothing about Finance or economics, either !!! Now Cowen is the boss of the both of them. And he knows little about economic matters !!
    So we really are depending on Senior Civil Servants, and the Irish Central Bank to help us through this. And the Irish Central Bank has to confer with Frankfurt – though it would seem that they did not do this on Monday night.

    We are pre-occuppied with the property market, and it is over. That is it – over. For another decade !! Where are FAS ? Where are the retraining programs for unemployed construction workers ? Who is the Minister for Labour, and what are the department of Labour doing ? There are still sectors of the economy where the unemployed can get work. But FAS, seem to be clueless. FAS needs especially to get it’s house in order in the provinces, where unemployment is creepin up steepest, in spite of lower wages.

    The second thing, the minister should do is sack the Financial Regulator, Patrick Neary. He was supposed to oversee the banks, and he was asleep on the job. Or maybe he was looking forward to being feted in the corporate box in Croker, or the hospitality suite in Druids glen or tickets to a Rugger international. The people have no confidence in the Financial Regulator. He is part of the problem. We heard the Central Bank issue mild warnings about Irish debt levels over the last five years. But we heard nothing about ‘reassurances’ from the Financial Regulator. Not good enough. Good luck !! I have a suggestion – Give the job to Senator Shane Ross. It seems that Shane Ross has far more of an idea of what is really going on in Irish Banking.

    So we now know that five financial institutions were in serious trouble. For the big two go down is a sign of excessive fear. The big two have enough reserves and assets to make it through. The state could have assisted the big two,and it would have cost the state nothing. But clearly the big two must have been screaming down the telephone line. The big two will survive. The EBS will probably survive also. But the middle two had very aggressive expansion plans, have taken on extreme risks that have exposed the entire banking system. Their assets and liabilities must be examined very carefully. The lending policies must be very closely watched. The behaviour of banking executives in Ireland has been reckless, irresponsible, and in some cases possibly even corrupt. The culture of the banks will have to change, and sackings starting from the very top are required. (Even though is completely aneathma to the Irish contemporary way of cleaning out the rot).
    These people have to drop their Thatcherite ethic and start to gain some humility. The taxpayer wants the prestige spending, the corruption, the deception and the arrogance to stop.


    Watch public pressure increase on the politicians to ‘clean up’ Irish banking practices. We will see the Evening Herald and the Metro hammer the malpractices of the banks in an effort to increase circulation every evening.

  5. My Lost Generation

    David, you are right in saying that the government took the appropriate step but I would not even give them the credit of doing something right for once, they just simply had no choice and I think this government is still totally uncapable of dealing with the economic situation. Why? Just simply because they have not been for the past 2 years or more. Sometimes it nearly feels like this whole mess was created on last Sunday evening and took place on Monday. This had been ongoing for months and was predictable and predicted by David too. So… you would have to be foolish to believe that this government will be able to deal with it. Three weeks ago I was chatting to a financial advisor to the government who also happens to have a sister who is financial regulator, she was bragging about how much money she was able to screw the government for her financial ‘advice’ because they are so such ‘soft targets’ her own words, well I suppose she was talking about me since I am PAYE… I guess time will change for her and a few of these low lifes. Anyway…
    What also worries me is to hear the head of central bank and the Financial Regulator both saying 2 weeks ago that our banking system was well capitalised and could stand the current crisis. Liars. Who are they lying for? Why?
    Lads since they did not seem to be aware of it for all we know it could be all over and we dont know it yet.

  6. Woodsey


    ‘To get the full benefit of this move, he will need to wrest control of the banking system from those who nearly wrecked it. In this endeavour, he should be supported by every patriot in the country and all of us who are concerned about our future.’

    For fecks sake, David, try to get a grip! This is a Fianna Fail government in bed with it’s developers, whom they’ve just discovered have been having it off with the banks!

    So these mohair-suited, mother-loving ladies and gentlemen, that we’re paying, just shovelled the last of the cash that we haven’t got straight into the hands of the banks. And they did this, because their poor little developers were having a ‘bad hair’ day?!

    Cop on, David! You used to display a small smidgen of sense when you commented that all of this was brought about by the greed of the ‘yummie-mummies’, packing their kids into massive 4-wheel drives to get them to school.

    But you’ve lost it since and gone all pompous. If there was a ‘patriot’ left in in this bone-knawed economy that’s momentarily passing as a nation, they’d have taken up arms long ago and shot this lot.

    • This is so impassioned, it’s quite funny to read :-) . But it’s also half-true!! Fair dues Woodsey as you are spotting something here.

      Eamonn Dunphy said years ago (start of the Celtic Tiger .ie. the year 1 CT), that there should be a revolution in this country, the gap between rich and poor was that bad!! And that was then. But the real poor, the poor ejits that took 35 year mortgages, they thought he was talking about the comfortable poor, with social housing and ok dole money (I jest a little, as Dunphy clearly meant the latter, but the new reality is we’re all in fact poor. Poor aul soft ejits. Get out and march for your children, when the call comes, if ye won’t do it for yourselves. This bank deal had to happen, that’s a given, but now let’s saddle the Ailing Irish Bank and the Bankrupt of Ireland and the Aggro Irish Bank, throw a decent ropes around their VERY exposed necks and make some real vulture money on the backs of their sweat equity.

      The patriotism stuff is correct though, if only to counteract Bertie’s bullshit attacks on David, so well done there David for working that (and the touchés regarding Gordon Brown into the opening premise of script, very nice indeed, the big Limey dirtbird) but I suppose David what I certainly (and I assume Woodsey might?) mean is to devise a clear roadmap for Brian Lenihan so that every patriot in the country can support timely and pertinent government interventions.

      Are you saying clearly that we should have government members on bank boards, straight-up ownership of a % of each banking institution, control over how balance sheets are detoxified, how new loanbooks are developed etc.

      The ramifications of Germany moving to protect its own banks are frightening. Taking this new development into account, how do we strategically re-capitalise our banking system?

      David, or any of you, can you give an unfolding of events in Iceland in the previous year or indeed how the current freeze is hampering their recovery trajectory, if it has started already?

      • Ruairi

        >David, or any of you, can you give an unfolding of events in Iceland in the previous year or indeed how the current freeze is hampering their recovery trajectory, if it has started already?

        Looks like Iceland is doing it for me! How in the name of God would we survive now if we were to be suddenly outside of the Eurozone? I accept that being outside of it earlier, we wouldn’t be in this credit-fed mess but to be inside for a few more quarters would seem a wise move lads.

        Andrew Mooney: – I believe that many can draw up figures for our fishing rights that can justify that we have in fact been a net (forgive the unintended pun) contributor to the European experiment for years now. Anyone?

  7. Deco

    David. The most immediate requirement is a replacement of the Financial Regulator – all this has blown up in his face !! If the Minister wants to “instill confidence” in the Irish Banking industry, and get serious about reforming it’s practices – he will appoint the biggest critic of Irish Banking as Financial Regulator. And the biggest critic of Irish Banking, has been Senator Shane Ross. He worked in Banking. He has campaigned against every form of bank indiscrepency for over two decades.

    For us, the people who work and pay taxes every week, we already have a public servant who serves us and who oversees the banks. That person is Senator Shane Ross. Shane Ross is the expert in the Oireachtas on Irish Banking. He is the foremost expert. Shane Ross has made it his business to call banks to account for a long time. If Shane Ross was the Financial Regulator for the last ten years, this problem would not have been created.

    That will instill confidence in the Irish banking system – to know that somebody who is intolerant of improper behaviour is in charge. We need to tell the international markets that now that the Irish taxpayer is in charge, improvements are in the pipeline !!!

  8. Garry

    excellent article….

    we are where we are, lets not lose focus debating what we should have done, lets keep the focus on what now needs to happen…. whether its a state representative on boards, zero dividends on shares, pay freezes/reductions at senior levels, full transparency on debts, a government audit…… whatever it takes to show the banks’ executives and directors that being saved has its price and that price includes acting in the interests of the saviours.

    I would second the call to sack the financial regulator….. to send out a clear message that people will be held accountable, that nobody is untouchable and if this problem isnt being fixed, more action will be taken. Sacking him would be the clearest signal to all involved that this is serious; it would leave his successor (and the banks he has to deal with) with a very simple message. … SORT IT OUT!!!

  9. It is rather frightening how far from reality prices have gone during the Big Boom Era.
    If Mr Lenehan just takes out a cigarette packet (a true and tested method of calculation for Fianna Fail ministers since time memorial..) and on the basis of bank lending criteria returning to the older “prudent” multiple of income- calculates how far house prices have to fall, to begin to tempt buyers back in the current climate; the present stock market share prices pretty much reflect the true worth of the banks assets.
    Denial is not an option.Eaten bread is quickly forgotten by bankers, but unless their arms are truly twisted by new regulators or whatever,and developers are threatened with foreclosure so that the banks go into the property liquidation sale business themselves- Mr Lenehan’s gambling “Ireland Inc” will count for nothing.
    Forgive my pessimism, but I can not see that happening.
    The banks will fight tooth and nail to prevent it.

  10. Malcolm McClure

    David: I agree with a lot of your suggestions but disagree when you say ” a distinction must be made between those good people who made mistakes and the downright reckless cads, who put the country and an entire generation at risk.”
    ‘Guilt by association’ is manifest here. The ‘good people’ were not promoted because of their proven financial probity, but simply to be the public skin of an apple that was rotten at the core. They might not have understood all the shenanigans going on in the back office but they were content to draw huge salaries, facing outwards with a smile, while lying through their teeth. These ‘good people’ are at least as culpable as the ‘bad’ because they acquiesced in our financial pogroms (as you know, a Russian word meaning “to wreak havoc, to demolish violently”) but turned a blind eye, just like many ‘good people’ in Nazi Germany.
    Top bankers have a special, if reluctant, warrant of trust in our society, rather like officers of the Garda Siochana. If they fail our trust they deserve a special dump of opprobrium. Therefore the whole shebang of top bankers and ‘regulators’ should be locked up immediately and released only upon payment of a fine equivalent to 50% of their salaries and capital gains over the past 10 years, or some such audited equivalent.
    Their impoverishment is the only appropriate punishment, but as someone said above, it will never happen in Ireland.

  11. Konrad Dechant

    Dear David,
    Thank you for your message and your clear exposition of phase one and phase two for dealing with our financial and economic crisis. In the heat of the present situation it is probably futile to suggest a phase three, which should address the unholy relationship between banking and land. There is one measure, which can deal with this relationship effectively, and that is the introduction of a universal land value tax. It is incomprehensible that no commentator or politician has the courage or willingness to even mention this subject. And yet such a tax, which is not a tax on production and not a tax on transaction will fundamentally crack the boom/bust cycle, which is largely based on land speculation. Fred Harrison (Author of Boom/Bust 2010) has clearly shown the regularity with which these cycles occur.

    While we are all very excited and shocked over the present crisis, is there no one with influence and courage to open up land value taxation as a serious discussion, and take steps to avoid the next boom/bust cycle?

    David, in 1994 land value as a proportion of the average house price was 12%, in 2000 it was 28%, in 2006 it was 42%, and in 2007 it was over 50%.
    Land value taxation is an extremely fair tax to among other taxes replace this dreadful transaction tax of stamp duty. Will you lend your influence and position to a land value tax campaign?

    Konrad Dechant

  12. gearoid o dubhain

    given the necessity for and enormity of the action taken by the government to support the banking system, any serving minister or minister of state of this present government should be prohibed by law from accepting positions as consultants to or directors of any of the irish banks which benefit from the government bank guarantee after their retirement from politics.
    The potential liabilities which this move has exposed the country to must preclude any politican from financially benefiting from the institutions which are being protected given that these politicians have contributed to the situation which has developed.

  13. A land tax would be futile, as the small group of powerful developers who control our destiny already have vast land banks.The tax would have to fall on windfall rezoning profits, with no escape routes or delayed implementation.
    This would ensure that land would only be rezoned-or rather rezoning applied for- according to the immediate requirements, instead of the current situation where every flood plain in the country is already zoned for the next 20 years of potential demand.
    In Norway I understand the city council of Oslo took this in hand many years ago and refused to hand farmers and speculators multi-millions in overnight gains. The land adjoining the city that was required was compulsorily purchased at agricultural value.
    A radical concept which would see farmers tractors blocking Merrion Square, and Fianna Fail out of office if ever implemented.Neither would Fine Gael countenance such a drastic measure, so it will never happen.

    • Emer O'Siochru

      Yes it did not happen and will not happen – so lets forget the tired old Kenny Report solution and move on. Compulsory purchase is a very heavy and indiscriminate tool to give to local authorities — and dangerous given their history on which I surely do not need to elaborate.

      An annual land value tax on all land in the country, could eventually replace all transactions taxes, reduce much income tax and even corporate and capital gain taxes. The free marketer economist icon, Milton Freidman had to admit that an annual land value tax is ” is the least bad tax” that any government could levy. It is really a form of rent for the value that externalities such as infrastructure, the rule of law, social capital and other people’s entrepreneurial activity adds to a location. As it is essentially unearned by the land owner, no disincentive to further investment is created by capturing this value and returning it, broadly speaking to the community that created it.

      So much for the basic and largely uncontested theory. Why if most economists are convinced, has it not been adopted all over the world This might be because of another of one of its attractive attributes – it is mercilessly effective. The free-lunch land speculators, developers and banks who gain from the current system have no way of avoiding an annual land value tax (land being difficult to move offshore or hide in a balance sheet) and therefore it garners enormous behind-the-scenes opposition. This powerful elite have distracted attention form themselves by pointing the crumbs that fall from this free lunch table that the ‘little people’ can enjoy. The media have been taken in too and contribute to obfuscation of these fundamentals. It takes a crisis like we are experiencing right now for ordinary people to see that the modest bingo game they thought they had a chance of wining through their meager property holding, was about to cost them their entire savings and their future financial security. It is in the nature of an untaxed land market to soak up both the value created by genuine productivity AND the money created by unproductive debt – to the point where it can no longer be supported by the real economy- and it crashes.

      Although we see the equivalence of a strong land value tax (LVT) used successfully in Hong Kong, Singapore and weak LVT in Scandinavian countries (and even some US cities) helping to moderate the boom bust cycles, LVT have not been systematically adopted in any western economy. Recent research suggests the reason for this lies in the money creation side of the equation. Where there is strong latent growth potential due to for instance, the availability abundant cheap energy or/and growing population, a really effective LVT would constrain the credit needed for the expansion of the money supply. So it is very difficult to introduce LVT and make it stick, without at the same time reforming the monetary system. A citizen income based on LVT might also be needed to resist orchestrated campaigns from the erstwhile property tsars and masters of the universes in the financial sectors.

      It might be, events have transpired to offer the incentive and opportunity to reform both our property and money systems now.

  14. Deco

    Konrad Dechant – we had a taxation system to tax profits made as a result of site speculation – it was called Capital Gains Tax!! It was abolished because five developers controlled all the development land on the outskirts of Dublin City. The abolition was supposed to prompt the developers, to sell their holdings to other developers, and then stimulate increased building rates to increase the supply of residential property on the market. What happened was that the larger developers created plans to increase their own level of output. But they still controlled supply. And the banks threw money and confident forecasts at customers. And they believed it. That was not tackled. The behaviour of the banking industry was the real problem. And that has not changed. The horse has already bolted.

    Second the biggest problem is the way we used development land. He built low density. And there were no amenity allocations. Except for the larger planning proposals. The blame here rests with the local authorities and especially with the Dublin Local Authorities. As usual North Dublin Fianna Fail, and to the lesser extent the Labour Party let all sorts of nonsense occur. This is the Brown Envelop tradition of in Dublin local politics. If it ever occurred in other counties, we seen to have uncovered little or no evidence.

    John McDermott. You suggestion concerning a universal land tax makes zero sense. This is because land is not all universally valuable. And besides if you use valuation that is another fluctuation. Therefore that is for the bin.
    You are right concerning your proposal that the urban authority buys land at agricultural value for building purposes. The real problem with the Irish system is the method employed concerning rezoning. The whole rezoning process is corrupt. Land is always bought at agricultural value by a developer. Then the developer ‘attains’ a rezoning. The value increases 1000% as a result of a decision by local politicians. It is inherently designed to provide additional income to local politicios :))) But again your proposal here is too late. And thanks to the Irish Law the developers will be able to sue the state and probably win for loss of capital gains. The law of unintended consequences.

    There is now an oversupply of residential property. This is driving prices downward. This is good news for anybody who did their thinking outside the box, and ignored the dominant message being repeated by those in power in politics, the media and in business. It is not cool to opt out of mainstream thinking in any society – and it is especially harshly treated in Irish social culture. The price reduction in property has been attained by the ‘crowding out’ effect which is a market mechanism. The government currently thinks it will be reveresed inside of two years. It is more likely that the market will reflect fundamentals like reluctant bargaining customers and eager sellers and stay downward looking for more than two years. The market over the long term is always more accurate than the market in the short term – like a scientific metric.

    The moral of the Irish property boom – do not let another person (representing a vested interest) do your own thinking for you !!!! Good things come to those who bide their time and wait. Too many Irish people beleived all the hype from the Estate Agents,the politicians, the media and especially the loan providers. These are economic agents who perform little activity of any true economic value, but who managed to make considerable economic gain. The Irish property market functioned as a market with a lot of extraordinary economic rent. Their entire system was driven by a Thatcherite yuppie like culture of financial incentives to sell financial and consumer products and services. This was facilitated by a buyer group behaviour that was irrational and based on a value system that was short term and rather similar in it’s ethical grounding. In other words everybody was lying, and everybody was believing in other peoples lies. And nobody opted out. It was Irish and modern to be in. And the nature of things pulled it apart because it was unsustainable. One must accept responsibility for one’s lack of scepticism concerning the entire debacle.

    • Emer O'Siochru

      Capital Gains Tax or Development Land Tax in the context of property, is a transaction tax avoidable by not transacting. It does not take a conspiracy for all landowners with ripe and zoned land to simply defer any development until the drop in construction activity and consequent unemployment, or rise in house prices forces the government to reduce the tax to the level the land owners are comfortable with – in Irelands case, 20%. Only an annual tax has a chance of rebalancing the natural monopoly power of landowners.


  15. roc

    I agree with this article. It is the only move that is of integrity and sense. However I hear Sarkosky talking about suspending mark-to-market accounting rules. And the $700-billion financial-system bailout bill voted down by the House on Monday had a passage giving the Securities and Exchange Commission authority to suspend mark-to-market accounting if the agency deemed it to be in the public interest and “consistent with the protection of investors.” Our leaders are NOT going to do the right thing, regrettably..

  16. Pat McGoldrick

    Dear David,

    Congratulations on your decisive analysis and prognosis.

    Germany has just followed the Irish example and guarantee it’s banks deposits 100%. It is inevitable that Britain and France will do so by tomorrow morning.

    Yesterday if the Irish government had thought about printing money to pump liquidity into the Irish banks, the Central European Bank would have prohibited it. But tomorrow it‘s not clear it would be prohibited.

    Question: Are we heading for hyperinflation or even stagflation?

    Pat McGoldrick

  17. “Question: Are we heading for hyperinflation or even stagflation?”
    A commentator today indicated that the government should put their money (the national treasury pension fund) where their mouth, and considering buying irish bank shares, which even the former Taoiseach Mr Ahern has recently assured us,are a great bargain at present.
    Sounds like an idea worth considering.
    If you are putting the deeds of the country on the roulette table-may as well put the last of your chips on as well.
    It would solve the liquidity problem overnight.
    Charity begins at home.

  18. Furrylugs

    It’s all very unpalatable but we’re in the middle of it so clear heads needed. If, and if is the word, outside forces bugger off to easier pickings then we need to start at the bottom. Local indigenous industry employing 2 – 10 people should receive immediate advice and assistance. They don’t need billions to survive. Most of the time they’ll work themselves out of trouble if they get a fighting chance. We’re struggling to save multi-national jobs and forgetting our home grown strengths.

    What about;
    *A short time dispensation from Europe (come on Charlie Mc) to assist home grown non-market ventures.
    *Reinstate an ACC type government backed set-up
    *An Irish Infrastructure Fund paying rates of return (DIRT free) to offset exchange losses for foreign inward investment.
    * A Government Bond Scheme for Ex-Pats

    *Close down FAS & Enterprise Ireland (OK..thats personal)

    Then the big boys can sort themselves out but at least the ordinary Joe Soap (Mise le Meas) will get a lifeline. Tax takes etc will be up, people will stay working and the local land/property/housing market will find it’s own level.

    Don’t all roast me at once.

  19. Furrylugs

    Oh yes …..apologies. We’ve only 4m people here. It’s a great country. (I spent 26 yrs abroad). If we encourage that mindset and subsequent immigration then the oversupply of housing will be soaked up. Look at Holland.

  20. AndrewGMooney

    “We didn’t have time to consult our European neighbours, nor with whingeing Britain – which, incidentally, is not even in the same currency as us, let alone the same jurisdiction. The last time I checked, Gordon Brown was not the Taoiseach.”

    Oh dear David, when was the last time you had a decent night’s kip? This post is a wacko hissy fit. Freudian slips galore, leading to ‘el plotto losto‘…

    Ireland had as much time as any other country to react to The Red Ink. Or do the clocks tick at a slower rate in Dublin? In case you haven’t noticed: Britain IS your nearest European neighbour – and your largest trading partner! So why the absurd distinction between ‘our European neighbours’ and ‘whingeing Britain’?
    Whether you like it or not, Ireland and Britain’s economies and futures are inextricably linked. Intemperate use of the word ‘whingeing’ signifies insolent fear, not confidence.

    No, Gordon Brown is not your Taoiseach: He is ‘The Prime Minister of the United Kingdom, First Lord of the Treasury and Minister for the Civil Service‘, just in case you need to crib for a future interview.
    Respect. 2 way street. Etc.
    He is also a very powerful European politician, and his timely demand for a multi-billion Euro fund to keep small businesses liquid will be noted and approved by the sensible and solvent engines of non-corporate Irish commerce.
    As for whingeing? Tell that to Angela Merkel and Nicolas Sarkosy. They were sucking salted lemons yesterday, not congratulating Ireland and Greece on their bizarre ‘masterstroke’. Didn’t you notice? Is that Gordon’s fault? He’s a Celt by the way….
    Britain isn’t in the same currency as Ireland for very good reasons which, as you very well know, are becoming ever more apparent day by day:

    “The interest spread between Italian 10-year bonds and German Bunds have ballooned to 92 basis points, the highest since the launch of the euro. Bond traders warn that the spreads are starting to reflect a serious risk of EMU break-up and could spiral out of control in a self-feeding effect.”

    You have openly discussed an ‘exit strategy’ for Ireland departing from the Euro, presumably just in time to avoid becoming a net contributor? (Ouch!)
    Having astonished the world with it’s recent ascent: If Ireland wants to permanently ‘punch above it’s weight’ it has to act like a champion with a long-term strategy when cornered in the second round: Not sulk and posture like a headstrong novice ..
    Britain IS in the same ‘jurisdiction’ as Ireland, namely a new-fangled entity called the ‘European Union‘. All parties to this aforementioned European Union have agreed to abide by certain rules, including those governing unfair banking competition. When UK Plc had to terminate Northern Crock of Shite, those rules appled. Ditto Bradford & Bingo.
    To avoid absolute ridicule, the EU will have to set stringent controls on this Graeco-Irish ‘masterstroke to ensure Irish/Greek banks are not recapitalised at the expense of other member state’s own deposit liquidity.
    A sensible step would be for Mr Lenihan to ring-fence Euro deposits within the boundaries of the Irish State: End the unseemly, undignified poaching of funds from widows and orphans. No doubt you will pass this instruction to him on my behalf.

    It may not be immediately apparent from my surname (*rollseyes*) but I have many relatives and friends in Ireland: Including some who upped sticks and left Birmingham/London/Manchester to return to take part in the Irish economic renaissance. I always expressed reservations at the gravity defying pace of the Irish economic reconfiguration: But there’s no ‘I told you so’ on this side of the sea. Most British people respect and admire Irish people and Irish culture, even it it isn’t reciprocated. But there is deep unease at this absurd stunt.
    Trust me: I’m a real Paddy, albeit heavily disguised with a Brummy accent. Not a ‘plastic’ one. In fact, I’m ‘even better than the real thing’: Hybridity being the new Authenticity and so on and so forth.
    If anyone wants to call me out on that: Make sure you have dental insurance.
    The calls I’m taking and making to and from Ireland lead me to believe there’s even more unease in the Republic than I feel in my troubled gut.
    I remember when ‘The Germans’ started to buy up properties in my ancestral village in Laois. Then it was Hans indulging his fantasy ‘pretty cottage in folkloric mystical Ireland’ nonsense. This time the stakes are much, much higher. We’re talking pension funds. Sovereign integrity.

    I sincerely hope that Ireland finds a way to weather this storm but there’s some serious delusional tendencies in the Irish ‘establishment’:

    “A few months ago I described Anglo Irish Bank as being like a building society on crack because of its excessive overlending. This prompted a series of angry legal exchanges from it’s po-faced lawyers”

    Quoted from John Waples-Business Editor UK Sunday Times 05/10/08.

    My father never recovered from having to leave rural Ireland to drive a bus in Birmingham for 35 years. He always accused me of being a ‘traitor’ for questioning ‘the miracle’. But just as I rejected his fundamentalist ‘pay, pray, obey’ version of Irish Catholicism, I also rejected his euphoric acceptance of endless Irish credit expansion. It’s entirely depressing to realise that young people from the same villages where I spent happy summers are having to consider similar ‘exit strategies’ to my father (R.I.P).

    Finally, you make the following statement regarding Mr Lenihan:

    “In this endeavour, he should be supported by every patriot in the country and all of us who are concerned about our future.”

    Are you suggesting that any Irish citizen who disapproves of this ‘masterstroke’ is, ipso facto: Unpatriotic?

    It’s a cliche, but the Chinese ideogram for Crisis means both ‘danger’ and ‘opportunity’. It surely makes sense to have a full and frank discussion of the current crisis and possible routes out of it without recourse to meaningless motifs of ‘patriotism’. Despite all it’s foibles, I’m glad I’m a product of diasporic Irish culture – and consider myself blessed to have enjoyed/endured ‘An Irish Childhood In Birmingham’.

    I really think this is a crisis of confidence amongst Irish people. Trust me: You won’t be punished for missing Mass, walking past The Holy Cross on the way to the Temples of Babylon in Dumdrum. But you will be punished by The Market if you try and pull a fast one on the biggest beast in the Euro-Jungle.

    No: Not Britain. Germany.
    You joined the Deutschmark.
    Didn’t anyone notice?

    PS: None of this this should be taken as an endorsement of UK Plc. We’re up the same creek, but with a different paddle. It won’t make much difference trading insults as we both go over the waterfall.

    Kind regards.

    • Maureen

      Well put. Ireland the land of “I’m OK Jack” Time is now well past to treat the 10 year old case of “Affluenza” this from an ex-pat enjoying live in New Zealand

  21. Lorcan Roche Kelly

    Furrylegs > It’s all very unpalatable but we’re in the middle of it so clear heads needed.

    It would be nice to think we’d made it as far as the middle! But you are right, clear heads are needed.

    I think we can go down one of two roads from here with government policy.

    We can either go for wealth preservation or wealth (re)creation.

    Wealth preservation is the more palatable route, both individually and politically, but it is not the response that will best serve the future needs of ‘Ireland inc.’ (I’m not a fan of the moniker, but it will serve here).

    As FDI dries up (the economic patriotism of FDI is not in our favour ) we need, as Furrylegs says, to start from the bottom with domestic investment. We have all seen our politician’s sycophantic genuflections at the altar of foreign investment, their ‘ribbon-cutter’ mentality not permitting them to question if the FDI short fix served our long term interests best.

    Where to start? The Pension Reserve Fund is starting to be seen by many as the national piggy bank, a dangerous assumption in my opinion. It was created as a safety-net against future payment commitments, and as such should be left alone for as long as possible.

    So we need to create an Irish investment model that will both serve our future needs and be favourable to the wealthy, who hold the capital required.

    I understand ‘favouring the wealthy’ will be an unpopular idea, but for those of you still reading I will proceed.

    I suggest the following model. Increase the rate of income tax for earners over €100,000 by 3%, but allow them a ‘start-up investment’ get out clause. Give start-ups charitable status for tax purposes for the first 18-24 months. This would have multiple benefits. Firstly it would hopefully encourage the wealthy to become venture capitalists, after all, they have the capital, and they just need a little encouragement to become adventurous with it. Secondly, the new skilled unemployed (and there will be lots of them) will have somewhere to turn to help realise their entrepreneurial ambitions. Thirdly, it would give the new ventures time to ‘bed-in’ and perfect their business models. Anyone here who, like me, has tried to get a business going knows the first two years are the hardest.

    To ease the functioning of this model we would need to set up a venture capital clearing house, which the newly taxed can relieve their burden by paying into, and the entrepreneurs can approach for funding. A national ‘Dragon’s Den’ of sorts, which would take a share in the ventures for the capital provided, possibly providing future returns, payable to the investors as dividends.

    It would be run like a PLC, with AGMs, a Board of Directors etc. Investors would have a say in the running of it and a vote at the AGM.

    But (and this one is important) it would not be a political institution. It would require legislation to create, maybe even a small donation from the dormant accounts fund to get the ball rolling, but after that it would be a private institution. Politics has a long tradition mismanaging investment; the private sector is much better at looking after its own money.

    There is no panacea for our current economic malaise; things are going to get a lot worse for most of us before they start to get better. But the decisions we make now will shape what kind of Ireland our children (the ‘property boomers’?) live in.

    PS. Great post, AndrewGMooney.

    • Furrylugs

      Kind words and I thank you…..
      Could I point out with temerity and without prejudice that as a modern Keltic Tigurrr I wax regularly. Tis Furrylugs and not Legs. I’ll be attending cosmetically to the ears in my salon once this little cashflow contretemps is sorted out.
      Life must go on chaps.

      • Lorcan Roche Kelly

        I am very sorry. Embarrassed even. No insult intended. I too suffer from hirsute aural appendages, and know your pain.

        • Furrylugs

          Very good Lorcan!! I’ll call off yer man from the perm TSB advert so. I suppose all we can do is laugh after today.
          I still reckon theres a mountain of Oriental funds sitting waiting to jump in once the West is suitably wrecked. It’s looking more like a balance of power event than liquidity.
          What thinks thee?

  22. Ger Kennedy

    Yes I agree. Great post Andrew G Mooney.

    David has certainly put the cat among the pigeons with his idea of unlimited guarantees of deposits.

    First Ireland. (However Ireland covered debt as well which none of the others seem to be doing.) Then Greece however this is looking a bit more like wishful thinking with no legal framework. Then Germany. Knowing the germans they will have the I’s dotted and T’s crossed on a legal framework before the markets open on Monday. Also another rumour that Denmark has guaranteed its deposits. They are probably s__ting bricks looking at what is happening in Iceland particularly with respect to their currency valuation.

    By the end of this week I would imagine that every country in Europe will have an unlimited Guarantee of one form or another on Bank Deposits with the possible exception of Norway. They dont need it. Their guarantee is under the North Sea.

    If/when this happens Ireland’s relative advantage wrt to deposits is gone. I mean if you had the choice between a German State Guarantee and and Irish State Guarantee which would you feel safer with? Patriotism or no patriotism? Think about it. Anyway, I wonder what happens when all the euro states have a similar deposit guarantee? That is a big question that will keep the lights on at the Central Bank and in Merrion Square in the coming weeks I think.


    • Garry

      “If/when this happens Ireland’s relative advantage wrt to deposits is gone. I mean if you had the choice between a German State Guarantee and and Irish State Guarantee which would you feel safer with? Patriotism or no patriotism? Think about it.”

      Maybe I’m naive but I think this is missing the point completely….

      The banks are in trouble, with toxic debt all over the place…. The deposit protection scheme wasn’t good enough, as shown by the flood of deposits out of Irish banks (and in a lot of cases into Northern Rock thanks to Gordon Brown making that a safer bet than our banks, we returned the favour with interest)
      So they guaranteed deposits and put the states name behind it… I think for most people, that will be ‘good enough’…. If every state does that, well except Zimbabwe, Im sure it’ll be ‘good enough’ for people with deposits in banks in that state. So, if that happens I think we will not get deposits from anywhere else but equally the British aren’t taking deposits from us via Northern Rock. Have you opened an account in a German bank this morning Ger, Thats the bottom line

      The point of Ireland guaranteeing banks debt is a good one, and whether it was the right decision or not is beyond my knowledge. My instinct is that this was the wrong call though.

      But its been done and this state debt guarantee is all the more reason to stop worrying about the horse thats bolted and keep the focus on sorting the banks out.

      This is the time for action…. Otherwise the scum running the banks here will screw us over and laugh as they report record profits and dividends next year while the taxpayer is left with the bad debts

  23. Gordon Brown, git yer snivelly Glasgae mitt off ae Ireland and her monies or I’ll give u a Scottish kiss and knock ye up and down the Cowgate, ya long strip of a mickeydazzler ya

  24. jk

    So I lost my tenner; Not Portugal but Germany itself has made the move…
    However, the talk is of an unlimited “guarantee for all savings deposits”; no mention of guaranteeing also all the bank loans as is the case here. I also find myself agreeing with AGMooney’s post.

  25. Nick

    So what’s the next step if all other Euro govts start to guarantee their nation’s deposits?

    The problem I feel here is that quick fix/bandaids can be replicated by others in such a flux environment. I just can’t see how any Govt can really get ahead of the ball in this environment. We’ve just got to let the beast run out of steam and if that means we have some creative destruction along the way then so be it. You can’t make an omlette without breaking a few eggs. Lets just get it on and over with asap and let the chips fall where they may.

  26. Nick

    ps. Wonder can I get any more cliches into the above post ! : )

  27. AndrewGMooney

    Oh dear, Angela is very angry it would appear. And when Germany gets angry: Get out of the way. The German government has now, apparently, matched the Irish ‘cast-iron guarantee’. My German isn’t so hot so I’ll wait for a detailed translation later today to check it means what the BBC are saying it means.

    It will certainly be interesting to see how these ‘anarchic capital flights across borders’ shape up. Having been triggered by The Irish Government’s decision to play poker with the Bundesbank. Let’s see who ends up the patsy. No brainer. Anyone care to put a wager on the outcome?

    How many Irish citizens/businesses will now decide to switch their funds to shelter under the enormous eagle wings of The Bundesbank? Or will they do the ‘patriotic thing’ and keep their funds in their ‘6 Banks Which Must Not Be Allowed To Fail Else The Sky Will Fall’?

    No doubt this is somehow Britain and Gordon Brown’s fault (Ireland resorts to historical victim script, etc.

    The British Depositor Guarantee covers 98% of retail deposits. However that leaves 1.1m very rich depositors who own at least 40% of deposits by value uncovered. Thanks to this headless-chicken stunt by Ireland and Greece which has now invoked the wrath of the German State: Britain will today have no option but to follow suit, costing the British taxpayers unnecessary expense in having to fund ‘insurance against default’ to provide a 100% guarantees.

    Cheers Ireland. Cheers Greece.
    Great to be part of the same world-class team as both of you.

    Of course, Ireland and Greece could always ’come to their senses’ or have a bucket of cold water thrown over their hot-head ministers by the Competition Authorities in Brussels, noted as they are for their lightning responses to unfolding dramas (*rollseyes*).

    But I guess the German’s will feel compelled now to bring the upstarts to heel.

    Stop poaching the Sterling funds of our Widows, Orphans, Pop Stars and Lottery Winners. Get your own banking system in order without spreading disorder to your ‘European Friends’. And stop panicking!

    “Ten years ago, while working in Moscow, I witnessed the collapse of the Russian banking system. I saw desperate people queuing outside main street banks. I witnessed investors losing all their wealth and I experienced what it was like to live in a society that was on the verge of psychological, as well as financial, collapse. We were a whisker away from that last week.
    Make no mistake about it: last week, Ireland almost repeated the Russian experience of 1998.Had Brian Lenihan not intervened courageously to guarantee all deposits last Monday night, then at least one, if not two, Irish banks would have collapsed last Tuesday. By Thursday, we would have seen another bank fall and by Friday, the stock of the two big banks – Bank of Ireland and Allied Irish Bank – would have fallen to zero, rendering them effectively bankrupt.”

    This is an incredibly emotive and questionable statement. Is David seriously suggesting the Ireland is equivalent to the corrupt cronyism of Yeltsin-era debauched Russia? Nonsense. This is the same Chicken Little crap that Bush came out with before Congress told him to get stuffed. The sky only fell 7% (777 points) and then stabilised whilst the American Taxpayer insisted on a more detailed explanation from it’s ‘leaders’. Are Irish citizens really so credulous?

    Ireland: You can’t go from being, allegedly one of the richest countries in the world’ to a basket case within a few weeks. Not unless something is so corrupt and rotten at the heart of the Irish Politic that it must be protected from competitive scrutiny.

    However, if there is putrefaction at the heart of the Irish banking system, Mrs Angela Merkel and the forensic glare of the German Banking System will expose it to all market participants. By this provocative action, you have just invited such scrutiny. Oh dear….

    In an earlier post on this issue I suggested that a panic response could trigger the very disaster it was seeking to avoid. It’s worth quoting Nassim Nicholas Taleb again from that earlier post:

    “By the “narrative fallacy” the turkey economics department will always manage to state, before thanksgivings that “we are in a new era of safety”, and back-it up with thorough and “rigorous” analysis. And Professor Bernanke indeed found plenty of economic explanations–what I call the narrative fallacy–with graphs, jargon, curves, the kind of facade-of-knowledge that you find in economics textbooks. This is the kind of glib, snake-oil facade of knowledge–even more dangerous because of the mathematics–that made me, before accepting the new position in NYU’s engineering department, verify that there was not a single economist in the building. I have nothing against economists: you should let them entertain each others with their theories and elegant mathematics, and help keep college students inside buildings. But beware: they can be plain wrong, yet frame things in a way to make you feel stupid arguing with them. So make sure you do not give any of them risk-management responsibilities.”

    I assume there’ll be some frantic ‘negotiations’ today between Dublin, Athens, Brussels and Berlin. Very sad. Very silly. And a waste of everyone’s time.

    I trust Mr Brown and Mr Darling to not only protect sterling from these depredations, but to order a punitive sanction against Irish opportunistic financial adventurism. Just as the Germans will surely and ruthlessly do. By whatever covert means they both decide are appropriate. Economics is War by Other Means: However genteel the arrangements may appear on the surface. I though Ireland was a neutral state? Taking on Germany is very….brave.

    The FDI from the USA is going to dry up. Totally. Much of it will return to Sweet Home Alabama. Because of this mad acts: You will not be top of the list when it comes to awarding major infrastructure contracts from the German, French and British States. I would suggest some cool, calm reflection is required in Dublin today.

    This was a daft punt (sic). The Taoiseach now has to recompose himself, bitch-slap some of his ’expert advisors’ around the room, then act decisively to limit the collateral damage to Ireland’s reputation for business integrity: Which is the most important thing to protect for your future wealth generation capacity.

    Trust me: I speak as a friend.

    Kind regards
    ‘Mad Paddy From Brum‘.

  28. Paul

    Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion; when you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favours; when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you; when you see corruption being rewarded and honesty becoming a self-sacrifice; you may know that your society is doomed.

    Ayn Rand (1905 1982), born Alisa Zinov’yevna Rosenbaum, was a Russian-born American novelist, philosopher, playwright and screenwriter.

  29. MK

    Hi David,

    We live in interesting and challenging times. I’ll address some of your points:

    > It is legitimate to question the morality of bailing out bankers who have nearly bankrupted the country.

    Lets correct that quickly. The banks did NOT nearly bankrupt the country. They may have been heading towards bankrupting themselves, but only themselves. And then only some of them. You must concede the fact that the banks are NOT the country. Indeed, in a euro denominated participant area we are in fact part of a region, we are NO LONGER “punt land” and we can draw on the resources of EVERY euro bank in Europe. It doesnt matter if EVERY bank in Ireland were to go crash bang wallop tomorrow. Or at least it didnt before the guarantee! That is the whole idea of the euro system. There will be other banks, euro banks. You have to think like it is in the US. We are in the equivalent of the united states of europe. Just becase say all S&L banks were to go bust in Nevada or whatever, the US system still survives. The same applies here in Europe. Please consider that point, and please understand it. Our banks DID NOT NEED SAVING for Ireland’s sake.

    Now with the guarantee, that has raised the risk that bank bankrupcies will have a direct effect because we as a country are now underwriting their deposits and the interbank loans they have used for their credit frenzy. So its not the banks that could had bankrupted the country, its only that (your?) new guarantee “solution”. Thanks a flaming bundle.

    > Ireland had run out of time

    This is quite ironic. Weren’t the banks themselves, the politicians, the regulators ALL telling us only a matter of weeks ago that all was well. The they ran out of time and the government had to do a shotgun solution which may only be a temorary stay of execution and which will cost Joe Public, the innocent bystander. They were in complete denial, systemic denial that their system was based on a credit leveraged model that had gone way beyond sensible levels and where price of that credit had shot up, thats if you could get it (eg: interbank Libor). You understand pyramid and ponzi systems more than most do.

    > Make no mistake about it: last week, Ireland almost repeated the Russian experience of 1998

    Not the same type of mistake. Irish banks and many banks and systems across the western world have been playing the same credit fuelled frenzy game which went completely out of hand and is crashing down around their ears now. It was unsustainable on the way up but transparent and painless. Like throwing a water filled ballon into the air, the splash only happens when it hits the ground. Its nice to look at on the way up, but what goes up must come down. This was financial system gravity. Russia was a different situation, a corrupt creaking state living beyond its means and a new participant in capitalism economics. Russia also made mistakes and was politically corrupt. The oligarchs arent complaining today.

    > the downright reckless cads

    Yes, the bankers, but also now the politicians. They have placed that reckless behaviour onto the shoulders of every child, old person and everyone else, the completle innocents. Imagine if we did the same for crimes. eg: A murder is committed in the city centre so everyone living in Dublin 2 will have to spend 1 day in prison over the next 20 years. Mindless.

    > we’ll come back to it when we have time.

    Wrong again. We should have been on top of this when the problem was happening on the way up. The regulator was absent, the government too, the banks were at fault, it was crazy. The time was then, we have missed it.

    > there still seems to be a certain amount of delusion in the system

    Thats because there is no getting around the fact that the underlying problems still remain. A credit frenzy and over valued assets. 25% of our activity was ‘wasted’ on property and other ponzi schemes. There can only be a painful correction. Its not delusion. Its market and economic realities. We have to live through the hangover or the credit ‘cold turkey’. We can reduce the pain by spreading it around, perhaps unfairly to those that had no part in it, or by extending it, like the Japanese did. But bailouts, guarantees, etc, arent magic bullets. They cant correct the problem. They cant repair the car crash that we are in the midst of.

    > to accept that asset values on the banks’ balance sheets are worth considerably less than what most bankers hope. You don’t have to be Einstein to figure this out.

    The level of the bad debts is still being worked out. I was speaking with someone in one of the big two banks before the weekend who works in the loans portfolio area and has a good handle on them and their general quality, or so he thinks. He is confident that they wont have that many bad debts. But when I put it to him that it is impossible to see when a payer will stop paying say in 3 or 6 months time, where the stesses and cash flow they are experiencing will eventually break their payments, he agreed that there is no way of knowing. The people paying dont know yet. Richard Bruton called for the banks to reveal the details of their loan portfolio’s to assess the bad debts. But what will happen is that time and a poor ecoonmic situation will create the bad debts as we go along. A trickle may develop into a torrent. We just dont know. Those that think things will be alright on their loans today have no idea what the situation will be like for them in 3 or 6 months. Mystic Meg doesnt work.

    > being driven down by excessive bank fear

    No, not bank fear, but realism. And remember, the ECB (and other CB’s) have been pumping mega-billions into the credit junkie system to keep the addicts going.

    > The minister has to accelerate this adjustment

    I dont think an adjustment should be accelerated. Now if anything the tax breaks for property should be kept on, but NEXT TIME, remove them when there is a stable floor. Let the market cool its natural self from here. Probably if anything no tinkering now is the best thing. Yes, by all means the government can expend on some infrastucture projects BUT, ones that produce bang for the buck. In hindsight, was the LUAS good value for money? Did it produce quick efficient transport for reasonable expenditure or were their cheaper and as efficient equivalents? Luas was not efficient, it was akin to a white elephant as they say and a luxury that many patients in hospitals could have done without. Medicines or LUAS, you decide. We did. People are paying with their actual early deaths.

    > the state might have to take the lead role in recapitalising the banking system.

    More bailout, no, not a good idea. The only time to bailout a bank is when they are heading to and near bankruptcy, and then we nationalise them and take all their assets, sweat the bad loans and assets over time. The difference between a country running a bank and private excecutives and owners is that a country doesnt have to pay dividends, doesnt have to think short term and can sweat the assets out until their values recover over long cycles such as 30 years or 70 years or whatever is needed.

    > Lenihan has demonstrated courage.

    Cowen and Lenihan et al have perhaps demonstrated foolishness, dutch courage more like. Other countries are guaranteeing all deposits (to prevent runs!), but none have guaranteed the banks loans (unless those that were nationalised, ala Fortis) as far as I am aware. So we have given a state guarantee with potential huge cost to Ireland Teo yet we have got zippo for it apart from some jobs saved – for now.

    Interesting as always David ….


    ps: didnt get a chance yet to read other responders, will do so later in the week.

  30. Well quoted Paul,it sounds like a summation of our own situation here in Ireland.

    Thomas Jefferson said, “The government you elect is government you deserve.” H.L. Mencken agreed, with a sardonic edge, “People deserve the government they get, and they deserve to get it good and hard.”
    And by God we have it in spades now.!

  31. jk

    Denmark is next. Again: only guaranteeing the private saving deposits, not a word of protecting any loans made by the banks. When David started talking about this subject some weeks ago, that is actually also what I thought he had in mind; that the government should protect the private depositors from loosing their lifetime savings due to imploding “derivatives”, “credit swaps” and all the other sinister bankers-trickery…

  32. Gerard

    Patriotism – last refuge of the scoundrel.

    Did the banks, mortgage lenders, money men and politicians show any patriotism to those less well off, those on low incomes, those discriminated against in terms of access to health care and education?

    Did they demonstrate their patriotism with their inflated mortgages? Cosy cartels? Risking the financial future of the country? Did the ‘establishment’ show true patriotism in the last week telling us the banks were sound when we all knew that due to predatory lending, failure to regulate that they were heavily indebted and overexposed, something markets forces showed us and not our politicians? Where has been the patriotism over the last 10 years, it has been nothing but greed and exploitation, and conspicuous consumption.

    They are all looking for a blame hound from the international market to the regulator or maybe FAS was responsible……..

    Sad, little Ireland where the few fumbled in the greasy till.

    Nothing has changed, nothing will change, we simply exchanged one master for another, colonialism for market capitalism.

  33. Anne Osborne

    Apropos Soldier of Destiny’s comment: Here are a few pithy quotations to share will you all.

    “A modest amount of liquidity will service the true needs of a civilization. A large amount of liquidity will bring out the worst in human nature.
    – Charlie Munger, Warren Buffett’s partner and octogenarian straight man

    “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.”
    – Alan Greenspan (he said this back in the 1960s before he lost his mind)

    “The current crisis is not only the bust that follows the housing boom, it’s basically the end of a 60-year period of continued credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars.”

    - George Soros, January /08

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved”.
    - Ludwig von Mises

    And if you’re still wondering why the central banks and treasury departments created so much cheap credit, why so many banks sucked it up and lent it on further, knowing the punters who borrowed it probably wouldn’t pay it back and why other financial institutions bought up their packaged toxic debts and spread it further and further afield; and finally why governments now feel compelled to bail everyone out (with more money created out of thin air) read on. (I suggest giving the other half any credit is pushing it a bit…):

    “Take a look at how dumb the average person is and then consider that half the population is not even that smart.”
    – Anon

  34. If the deposit guarantee scheme is-as suggested in some comments here- actually a scheme-not only to guarantee deposits-but also, to make the taxpayers pay for developers who default on massive loans taken out to buy land for projects such as new skyscrapers in Ballsbridge-there should be rioting on the streets of Dublin.
    This whole debacle has not yet even begun.
    Just listening to Pat Kenny on radio.He has been informed by contacts/ banking sources, that some of the worst exposed developers are already moving their irish assets abroad and reorganizing their affairs-presumably in preparation to compartmentalize their potential debts and ensure that only the government is caught(you and me) when it all unfolds.!

  35. Philip

    We can go on and on about the local yockels in banking and government. It’s becoming more of a side play. The global meltdown is merely hastening local issues with respect to credit/ liquidity issues. We can now see that the problem is everywhere and Lenihan’s formula is now is adopted everywhere.

    Locally, there should be no delay in cleaning up the mess with banks undervalued balance sheets – any whisper that the developers will have the pressure taken off them should be regarded as not only corruptive of the original intent of Lenihan’s formula but as utterly delusional. The global fallout will eventually force their hand. There is no cavalry coming over the hills from the US or ECB or whatever to save the situation.

    Need to seriously think now in terms of the distinct possibility of there being no EMU – EU countries are breaking ranks out of desperation. T’will do foot dragging attitudes will only get us into deeper trouble. Clean affirmatve action is needed to show this country stands for something solid in the eyes of the world.

  36. Furrylugs

    D’ye know it just occurred to me. The quote about the internet being an elite club since 4/5ths of the world hasn’t made a phone call.
    The poor sods walking 10 miles for a bucket of water must be creasing themselves with all this carry on.
    I mean, who’d buy the smell of the goats poo in the hope the goat would give birth to a small gnu?
    Or do I sound like Tommy Tiernan?

  37. Rebel_City

    Hi there – have been following this blog/website for quite some time. Always very informative and great to read different view points.

    I heard Angela Merkel on the news over the weekend saying (not a quote) that those who took part in wrongful behavoiur will be subject to a full investigation, that it is owed to the taxpayers of Germany. Great to hear her coming out and warning those involved in such activities to be prepared! Of course we have yet to hear Mr.Cowan come out in defense of us taxpayers! (Feel free to let me know if he has and I missed it!!)

    Also, was talking to a few friends over the weekend. We’re all in the same boat. As a 26 year working professional, I never had to opportunity to get onto the property ladder since leaving college. I had a college loan to pay off from my degree/masters, while living in Dublin, paying rent etc…! We were saying to each other, do we wait for the prices of houses to fall enough that each of us could buy a nice pad in Ranelagh (with my salary in the mid 30′s…wishful thinking!!), stay & hope our jobs are secure (marketing) or head to Oz! Time will tell. Our generation, although born in the 80′s, were too young to remember the recession back then. All through secondary school we were told ‘do IT, do a trade…’ Celtic Tiger was the hot topic. After college, jobs were a plenty. And now for the 1st time we hear all this recession talk, impending cut backs etc…. It’s a wake-up call indeed!

  38. DavidS

    Sorry to rain on the parade everybody, but are we not in trouble anyway given that the US bail-out bill of $700 billion was rejected and that the US economy- followed by the “global” economy- is going to hit bust. Add this together with increasing oil prices seen as production has hit half way point- does it really matter what we do, because we’re probably going to hit recession anyways. And whos to say that seen as the United States is facing its worst recession since possibly the 1930s, that American multinationals will stay in this country. Whats the point of having a vibrant banking system when the very hand that feeds our sucess is falling into recession, and may take a great proportion of our employment away from us. And i’m no financial economist, but I can certainly count numbers. Excuse my French but how the hell or why should the banking system in a country of a mere 4 millon get €400 billion, which is roughly $500 billion, when the bill (which was in fact REJECTED) in the United States- a country of some 300 million people of $700 billion was deemed unacceptable. And the US economy has something like $15 trillion, so that bailout was about 4% of the US economy. This countries GDP is $200 billion, so how can Minister Lenihan propose a bill for $400 billion when this would be 200% of our economy- twice the size. That just doesn’t make sense (or cents!). And what if everything fails anyway, whats the plan then!!? It seems that we may blow every last penny in the country- maybe even go into €200 billion debt.
    However looking on the bright side, with peak oil and a revived banking sector (ONLY IF) we could become the new Venice!!- we’ll all be bankers and taking water taxis lol. God speed Lenihan, you seem to be intelligent in comparison to the Fianna Fail/Fine Gael/Labour gombeen circus clown brigade (Healy Raes included of course)- but I hope that brain will actually get us out this mess, and somebody please explain to me why a bill of €400 billion is been proposed when in fact we have an economy worth €200 billion,
    And lets become a 21st century Venice- when oil dries up in a few years and we hopefully still prosper, lets become self-sufficient and actually trade exports instead of been so dependent like we are now. And for god sake is not the time to leave that blasted European Union given that the ECB will probably screw up our efforts, and there patronizing us with a second Lisbon vote. The motorway funds have dried up- be honest, is there any other reason Irish people have liked Brussels apart from the donations!? We can always join the EFTA (European Free Trade Area) which Switzerland and Iceland are in- they get to trade and prosper, but lose none of the liberties we’ve been losing those faceless eurocrats. Ireland forever.

  39. Nono

    I read a lot of posts here moaning about the fact that the decision to guarantee the banks deposits by the Irish government is terrible either because it “helps” those crooked Irish bankers wo don’t deserve it or because it is an “attack” on other countries banking system. This was neither. It was the best decision possible in an extremely difficult situation. AndrewGMooney, may I remind you that the Irish banks were actively attacked by English fund managers until Monday night last week? What was the government supposed to do? Wait until the banks collapse and bail them out, costing billions of euros to the Irish taxpayers or do what they did, restore confidence in the banks and buy some time to fix the problem AT NO COST? As to the anger of the other European countries, I suspect it’s rather because they didn’t think of it first more than anything else. The proof is that they are starting to join the bandwagon now.

    If you think that was such a bad idea, then what is your solution to the current crisis?

    • AndrewGMooney

      Hi Nono,

      Irish banks were attacked by predatory uncontrolled footloose international capital, based in London, New York, Frankfurt, Hong Kong and….Dublin.
      How many contributors to this site are hedge fund participants/investors? David can set up a little ‘confession box’ so all can go and repent and say a Hail Mary/Glory Be for shorting their own banks. There are many Irish ‘citizens’ who have enriched themselves by shorting their own banking system. I know one who opening gloats about it and doesn’t give a shite about ‘Ireland PLC’. “There’s no such thing as society” etc.

      The idea that hedge funds have any allegiance to ‘nation states’ is quaint. They seek to create chaos and disorder to profit from it. That’s why ‘something has to be done’. Warren Buffet rightly refused to have anything to do with them, and called them potential ‘financial weapons of mass destruction’ which have now been launched. He says America is facing an ‘economic Pearl Harbour’.

      You ask ‘what is your solution to the current crisis?’. Well, it was a concerted and Common European Banking and Stabilisation Project, not necessarily funded by Herman the German, but one that wouldsend a very clear signal that Europe Will Not Let This Pass: No Quarter.

      Unfortunately, Ireland and Greece broke ranks in a way that suggests that Nationalism trumps Europeanism as soon as the bombardment starts.

      Yes, Europe is ‘jumping on a bandwagon’, and there’s a few loose caboose wagons in the convoy. I really think Europe could have collectively ‘circled the wagons’ with covert discussions at ‘the highest levels’. It’s too late now. Que sera sera……

      Prepare for ‘shock and awe’ from the British Treasury. Sadly, also prepare for the rapid rise of the UKIP (the UK Independence Party).

      There’s are ‘some bad people on the rise’ to quote an old pop song. Both in Ireland and in the U.K.
      Wishing you and yours well in the coming turmoil. The ‘dark lords of the shadow financial system’ are laughing at our pitiful parochial responses. They are ready for Stage 2.
      Kind regards

  40. Ed

    I must say that I was very surprised by the reaction in Britain – Will Hutton loosing it on the politics show with Andrew Neil was not a pretty site. He maintained that our approach was a typical “beggar your neighbour” move. Listening to him, you would think that we had no right to protect our economy without his permission. No mention of any attack on our bank’s shares from London – I used to have some respect for him, but on that night, he showed that he’s only a narrow self interested twit – a spent force.
    As for you Andrew and your concern for our standing in Britain as trading partners – well if you look at our stats. you’ll see that trade with Britain is about 2 billion in your favour – so don’t come on with that patronising shite – you need us more the we need you – all those shopkeepers do very well over here.

    • Paul (Corcaigh)

      Good point Ed, in fact according to the CIA’s country stats, Ireland is Britain’s fourth largest export market after the United States, Germany and France. That is extraordinary for such a small country. The hypocrisy of the British after their actions in relation to Northern Rock is typical of them. Andrew Mooney, the days of the Catholic church dictating to us in this country are well over. They can say what they want but very few now listen, given their actions in the past they have no credibility.

  41. Deco

    AndrewGMooney – an insight perhaps – based on the real facts of what has happened in the last ten years in Ireland. The real problem is not the Catholic Church. In fact since the Bishop Casey revelations the Catholic Church has been irrelevant in Irish society. And in it’s place we have a new faith, born in the student protests of the 1960s, Californian individualism, and the mind of marketing. This faith emerged in the victory on Mary Robinson in 1990. And it has got stronger every year. You are correct. Ireland has worshipped at the Temple of Dundrum, Liffey Valley, etc.. Ireland has collected brandnames and wore them like symbols of the new faith. And those that have opted out have been stigmatized. Liberal consumerism is the new faith. Consumerism is the new religion. Consumerism has given us record levels of debt, and record levels of unnecessary junk and experiences to fill an emptiness in side that never goes away. Consumerism makes the rich richer and the poor mesmerized. Consumerism is the new opium of the people. It is based on the ego and the role of the ego in controlling human actions. Consumerism is for the ego. Our consumerist media people were telling us that we had the greatest shopping mall in Europe. And that this was the greatest acheivement.

    And now commercial property is bankrupting the banking system. Consumerism has bankrupted Ireland. And we were bombarded with it for ten years. I find the IDA adds on the ‘Irish Mind’ absolutely hilarious. No mention of three stag parties a year in Barcelona, Liverpool, Newcastle etc… No mention of bing drinking, and an unhealthy diet. No mention of substance abuse. But anyone who wants to continue worshipping and living the dream. Kunstler says it is all a fantasy. And I think he is 100% correct. The politicians need the VAT money. So by all means continue. Though the truth should not be obscured in the context of the system we operate. Otherwise we are just as free as they were in the Soviet Union. At least in the Soviet Union everybody knew they were being lied to – in the West the vast majority of the population believes in the system. This will make the collapse of the West even more socially disruptive than the the collapse of the Soviet Union.
    I do not know where we go from here. I don’t think that we have truly learned anything substantial from the current economic crisis. We have used economics to fix our social problems, and in the US Clinton started the NINJA loans in the same principle. And in Ireland we are going to bailout the builders. I think that this fuzzy problem solving continue for some time in the West. In the East they will adapt, while we continue to delude ourselves. We will only repeat the same mistakes again.

    Longterm societies like Taiwan, South Korea, Singapore, are going to thrive and emerge as winners. The scale of China and India will leave the West incapable of response. Our silly Western philosophy will not be abandoned. Instead we will have new ‘PromiseMakers’ like Obama, and Brown promise us the good life, with ease – the something for nothing philisophy. We are in a philosophical bind. One that is certain to see the East win the 21st Century, and leave much of the West behind. We will not adapt – we have too much physchological attachment to ideas that don’t add up – like high debt consumerism. And politicians like Brown in England who claim that it is the way forward, if it could only be tweaked.

  42. johninmunich

    Hi, greetings from Germany

    Germany is pissed off with Ireland for two reasons. 1) the guarantee issue. 2) Two of the companies which got into trouble had problems which originated in Dublin branches. These are Sachsen LB and Hypo Real estate. Per Steinbruck, the finance minister said he could understand the voters would find it hard to swallow having their millions thrown in to save a company which was cheating the state of millions of taxes by basing itself in Ireland. So when the Hypo Real Estate came back for more on Sunday, he stood firm and told the German banks they would have to sort it out themselves. And hey presto after pulling out their support the day before, the other larger banks such as Deutsche bank suddenly were able to come up with the extra billions.
    Steinbruck also called for the immediate resignation of the managers of Hypo Real Estate and said the bankers will pay.

    The german guarantee is for savers only. Not for those with certificates, shares etc. Not for businesses, not for banks.
    Angela Merkel has been saying for weeks that she will not stand for the fact that joe soap plumber in Germany has to play by the rules etc, but the bankers get away with it. The Germans have been warning the UK and US about this runaway train for years. Most of their banks had enough controls, apart from a few loose cannons.

    Ireland needs leadership like this, not ´patriots´ who gamble the nation.

  43. Deco

    Ed – Will Hutton gets some things right and some things wrong. He is right about workers rights. But his understanding of economics is abysmal. He is in the same state of pure fantasy as the entire New Labour movement. I remember listening to Will Hutton get entusiastic and positive about the fact that English Premiership soccer players could have a combined income greater than entire wage bill for industries like cereal production or stainless steel manufacturing. Absurd. Nobody explained that the richest players were all foreigners who were going to take it all of Britain. He failed to grasp that we need wheat, and we need steel. But we do not need Beckham. He frequently fails to grasp essential facts. This kind of fuzzy thinking is predominant in the English speaking countries and is absolute nonsense. Thomas Freidman is another exponent.

    Hutton has a belief in big government and bureacracy. I don’t mean regulation. I mean control. Committees. Lots of talk. Lots of reports – written by like minded people – for like minded people to peruse and endorse. Lots of fuzzy thinking. A fair amount of hypocrisy. And facts that are sometimes relevant – though this is not a prerequisite. He thinks that everything should be controlled by a combination of enlightened celebrity politicians and left wing think tanks. Will Hutton is not alone. He is part of a generation that are grappling to understand what is happening – and they are failing to understand. But they will still influence policy anyway !!!

  44. Lorcan Roche Kelly

    Furrylugs > I still reckon theres a mountain of Oriental funds sitting waiting to jump in once the West is suitably wrecked. It’s looking more like a balance of power event than liquidity.

    Interesting news story from the orient today that probably got lost in all the noise of crashing share prices. China today started, for the first time, to allow short selling and marging trading on shares. Is this madness? or is it China showing the rest of the world that they are still open for ‘business as usual’?

    China has been touted as the international saviour, or international bogeyman depending on what side of the fence you sit. I think it is neither. It certainly isn’t big enough to save us (the west), although the CIC may do some bargin hunting. China isn’t a bogeyman either. It is more powerful than it has been since the middle ages, but it has no tradition of expansionism. I should forestall the cries of Tibet! by saying China sees that as part of the nation. Like the Falkland Islands are to the UK.

    I have said here before that we might be seeing the end of the US hegemony, but I am starting to change my mind a bit about this.

    It is often said that a rising tide lifts all boats, well, the converse is also true. US international influence will wane as they look to sort their own affairs, but the drag on the US is a global one. Every state has had its wings clipped. There will be much posturing, but little substance.

    Globalisation doesn’t seem to be able to answer the questions the financial crisis is asking, so it has fallen on the ‘old order’ of nations to solve for their individual interests. Calls for patriotism are not unique to the Sunday Business Post.

    • Lorcan Roche Kelly

      Marging trading? Buying and selling Stork for the stir fry?

      Margin trading, of course.

    • Furrylugs

      “Globalisation doesn’t seem to be able to answer the questions the financial crisis is asking, so it has fallen on the ‘old order’ of nations to solve for their individual interests. Calls for patriotism are not unique to the Sunday Business Post.”

      One could use the analogy that global trade was fine till the “pirates” infested the waters with the CDS Jolly Roger??

  45. Malcolm McClure

    Thanks to AndrewGMooney for a couple of brilliant posts.”when Germany gets angry: Get out of the way.” And to johninmunich for insight from that all-important German perspective.
    To understand what is likely to happen in Ireland in a few weeks time, pay close attention to Iceland’s current financial collapse, where a country with a tenth of our population became indebted to a similar degree. Now Greece, Portugal and Germany have followed Ireland’s lead, and the rest of Western Europe have huge problems of their own. As I suggested in irony last week “the bosses of ECB will have enough problems to deal with in its large branches to bother much about the odd million in Ballybobeen.” I think we should just lie low for a few months and wait for global hyperinflation to solve all our debt problems (for the time being). After all, its only numbers (mostly ones and zeros) at the end of the day. The only people who will be really sad are those with seven digits plus in their wealth account. The rest of us will still find ways to make an honest living.

  46. Had Brian Lenihan not intervened courageously to guarantee all deposits last Monday night, then at least one, if not two, Irish banks would have collapsed last Tuesday……
    Brian Lenihan acting courageously , get a grip David if Mr Lenihan is to act courageously he should this week bring in the big 6 who pocketed 11 million between them and ask the questions ,why they have lent out so much to so few ?, if they don’t give the answers then remove them from their positions .
    Ireland would then be seen by our European partners to be taking a step on the road to recovery. Fundamental change of the whole system is needed there is no point in waiting , what are we waiting for ?.Presently our Regulation department might as well be sharing the same board room table as the CEO’s of the Big 6 for all the regulating it is doing.
    A courageous move would be to round up these Gangsters just like they did in the USA with Enron bosses and make examples of them, but I doubt this will happen as next week. But I don’t think The Galway tent lovers have these balls, like I commented here a few weeks back we are on the verge of hitting a financial perfect storm. As we have all been living a lie for the last few decades and robbing peter to pay paul has come to an end.

  47. “The only people who will be really sad are those with seven digits plus in their wealth account. The rest of us will still find ways to make an honest living.”
    Not so. Those lucky enough to have seven digits in a wealth account , also also have many other more tangible assets which will survive this Chernobyl event.
    The developers, the speculators, the bankers,the asset rich; are already going to ground. Rumour has it those worst affected are already moving their assets abroad.
    As a result of Mr Lenehan’s bail-out, the real losers from it all may well be ordinary working people,and particularly, about-to-be pensioners (workers approaching retirement) whose pension funds have already suffered grievously by the collapse of the prime movers-the banks-on the irish-and international stock exchanges.
    Only God knows where it will all end.
    Those who are already struggling to survive; to rear a family; to pay off a huge mortgage;- are now caught up in the maelstrom of financial fraud,and the conspiracy of inflated property prices here in Ireland,in the U.K. and of course in America.
    These are the real victims.
    We have just been presented with the bill for the “American dream” of unfettered capitalism,the “free market”.
    This has been the model for the new Europe.Fianna Fail have welcomed it with relish- but only when it has suited them. Farmers not included of course,publicans not included.National Airlines not included.! A La Carte capitalism.
    We have before us now, the bill for obscene greed,a bill long facilitated by the policies of the dominant political party in Ireland.
    Whether we live in America or in Europe-in Boston or Berlin, ordinary workers are now under siege. “We are all Berliners” in this crisis, and worse- the enemy is within.!

  48. Tony Lally


    I have followed your writings over the past few years and admired how you identified the right issues and had insights into the problems and dangers. I did not always agree with your solutions and now I have to strongly disagree with your support of the Government is rescuing the banks. Why should the Irish taxpayer subsidise these institutions and reward their leaders for their recklessness over many years. They lost touch with the basics of banking, risk management, and were seduced by the greed now endemic in all financial institutions.

    I recently watched Denis Casey on a TV interview, sprouting the most crap I have heard in a long time, blabbing on about “our franchise”, “our stong balance sheet”, “our strong position in the market”. All lifted from the cliche’d ridden management schools and books. Not once did he acknowledge these were trying times and discipline was needed to prepare for the inevitable tough times ahead. I thought this interview must be a few years old but no it was only a few weeks ago. All the banks have people like him running them. All they are interested in is the spin, keeping the charade running as long as possible and get out before you’re caught out. Well, they have been well and truly caught with their trousers down. The Emperor has no clothes. Anyone can run a bank when times are good, the test comes when times are tough. They have failed miserably.

    To address the problem the Government had two other options, let the markets take the banks out, so they would be taken over by foreigners. These has happened in other countries and the new owners get to sort out the problems. Alternatively, nationalise them by cancelling all the shares in return for the Governmemnt guarantee. In cancelling the shares, the leaders would suffer the same as the other shareholders, only in a larger way as they have more shares. Look at the behaviour of the worms running Anglo Irish Bank, now under investigation for insider trading. Why should the Irish taxpayer subsidise these invidious people.

    In nationalising the banks, the Government would then need to purge the banks of these people, everyone at the CEO level and the level directly reporting to the CEO, cancel all shares and share options owned, send them off with no pension or termination payment. They have made enough over the past 5 years to last them a lifetime, several lifetimes in some cases. The Government can them restock with new leaders and a new charter for banking, ensuring appropriate riak management practices like maximum LVRs. No more 120% LVRs. The price is a continuation of the fall in property prices until they reach the correct level, that at which the prices can be supported by supply and demand. Once an equilibrium is reached, the Government can the IPO them and receive payment for the guarantee provided.

    We are in a crisis, it takes critical measures to survive it. Ireland will go back 50 years because of this, no matter what the Government does. We will revisit the 70s and 80s. The bright young things who bought 4 houses to rent because they were so smart will learn the facts of life the hard way.The suggestion above sets a benchmark for future generations that hopefully will be long remembered.

  49. Furrylugs

    “The opening up of new markets and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one … [The process] must be seen in its role in the perennial gale of creative destruction; it cannot be understood on the hypothesis that there is a perennial lull.”
    (Quote from “The Process of Creative Destruction” by Joseph A. Schumpeter, 1942)

    So don’t get complacent, don’t encourage an old boys club,don’t persist in protectionism,constantly evolve like the seasons and don’t start believing in your own waffle.
    Be pragmatic and bring in new blood (Like DMcW).
    We’re just in the painful stage of a Schumpeter Cycle. Twill pass.

  50. Furrylugs

    With apologies to George Orwell and as regards;

    David Mc Williams
    ” Speaking the Truth in times of universal deceit is a revolutionary act. ”

    And inaction by Brian Linehan;
    ” The quickest way of ending a war is to lose it. ”

    To the doubting Thomases
    ” To see what is in front of one’s nose needs a constant struggle. ”

    To posturing by the Brits
    ” Political language. . . is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind. ”

    And lastly of myself
    ” At age 50, every man has the face he deserves. ”

    I thank you.

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