October 8, 2008

Banking crisis is a case for 'The Untouchables'

Posted in International Economy · 185 comments ·
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IN Brian de Palma’s classic film ‘The Untouchables’, Elliot Ness, played by Kevin Costner, gathers around him a team of incorruptible police officers, hardened by years of crime fighting, to take on the power of the mob. The real-life hero behind the move was an old, street-wise Irish-American cop, Jimmy Malone, played by Sean Connery. The term “Untouchables” describes this particular group of men who were straight, above the temptation of both bribery and flattery and, as a result, were the only type of men capable of infiltrating the mob.

The success of the Untouchables was due to the tightness of the group, whose interest was in restoring law and order to the US. Whereas cops in the past had been bribed by the mob, these guys were driven by a sense of honesty and national duty. Their success in cracking the Mafia was due to their incorruptible nature.

Brian Lenihan might now consider putting in place his own bunch of financial untouchables to delve deep into the banking system, with the national interest to the fore.

As the financial markets’ meltdown continues, Mr Lenihan’s move last week is being seen as part of a global solution to the banking crisis. Three countries have already copied the idea and others could follow suit. All the other ideas that have been tried — such as bringing toxic assets under state control, forcing mergers or allowing banks to go bust — have failed to stop the havoc.

So what will?

Well, perspective is important. We need to know where we want to end up when all this is over. Although it is difficult to appreciate now when banks in Europe are falling like skittles, it is important to appreciate that all financial crises are temporary in nature. Eventually, they either blow themselves out, leaving huge devastation in their wake or, more often, they are blown off course and are snuffed out by the heavy artillery of government intervention. The reason the crisis in Europe has become more critical in the past 24 hours is that the prospect of coordinated government intervention does not appear likely. Not surprisingly, the markets are panicking.

Taking a step back from the hourly bad news, it is therefore crucial to stay calm and look beyond the mayhem. We know where we want to end up. Ireland needs to have a functioning, if chastened, banking system which is well capitalised and capable of shouldering the recovery. More than that, the banking system needs to be part of the State’s arsenal in fighting the downturn and ushering in a potential upswing.

In short, as a price of the State’s guarantee, Mr Lenihan has to engineer a situation where the banks are working for him. After all he just saved them, using our financial credibility as a sovereign nation rather than injecting cash.

“So what’s the problem?” you might ask. Surely a grateful banking system would aid the minister who has thrown it a lifeline? Well, unfortunately it doesn’t work like that and at the moment the banks are equally as likely to work against the State as work with it.

Let’s take a look at the State’s interest and the banks’ interests. The State needs to get the banks to write down loans as quickly as possible. It needs the balance sheets of the Irish banks to be cleaned up as soon as possible. The reason for this is that the State’s interest is in a banking system that takes a large loss now due to bad debts in property, draws a line in the sand and moves on. Such a move would allow the banks to start lending again to good Irish businesses whose dynamism is needed to ensure we pull out of the recession as soon as possible.

In this scenario, banks need to eat into shareholders’ capital and, most significantly, raise new capital.

There is likely to be significant consolidation in the banking system but this will not be enough and new capital will be needed.

As it is probably the only institution that will lend to the banks at this time, the State should take significant equity in exchange for any new injection of capital.

In addition, the State should take a substantial interest rate and equity option from the banks for this recapitalising loan.

In four years’ time, there should be a more robust banking system with shareholders who have paid for the excesses of the past and us, the State, owning a significant portion of the equity.

The key here is that the State pushes the timetable and accelerates the cleaning-up operation.

The banks lose out here because they have to give away equity for free, they will have outsiders on their boards and, more to the point, the guilty board members and senior management will pay with their jobs. Further, knowing that there are no bids in property today, crystallising losses now or at anytime soon, prevents the banks any upside in a recovery, whenever that comes. Therefore, the banks have an interest in slowing all this down. The banks’ interest is to hide behind the guarantee, not write down loans as quickly as the State would like and allow international financial markets to recover so that they can refinance without giving too much equity away to the taxpayer. This would protect individuals but most crucially, from the State’s perspective (because retribution is not particularly productive), it would retard any putative recovery. This is the Japanese solution and involves putting the vested interests of the banks and their big clients (developers) first, in an effort to avoid realising losses.

In the national interest therefore, Mr Lenihan needs to see detail of the banks’ balance sheets to assess how quickly the crunch in the credit markets can be cleared. The best solution is obviously for both sides — the banks and the government — to work together, probably meeting half way on many issues.

This can be achieved the “hard way” or the “easy way”. The easy way is for a contrite banking system to “fess up” to bad loans, and possible corporate malfeasance. This way trust can be rebuilt and the system recover. However, if the banks refuse to play ball and forget we’ve propped them up with our guarantee, then Mr Lenihan has to play hard.

This means calling in The Untouchables. These would be the toughest, straightest men in Irish finance who pledge to work in the national interest. Due to the excessive coziness of Irish banking, they will need to come from outside the banking cartel. Bring them in from abroad if needs be. Let them go into the banks and force the pace. The banks need to know the State is now in the driving seat. They can cooperate in the national interest or not. If they do, the guarantee will work smoothly and the crisis will pass. If they don’t, the Untouchables will force them. The stakes are far too high and the world too uncertain, to be left in the hands of those who brought us all to the brink last week.


  1. roc

    Where would we find these untouchables? It seems to me that the vast majority of those who have done their time in financial related industries, will be irrevocably institutionalised in one form or another. Or corrupted in some form, through proximity to the profits that were there to be had for the taking.

    Hang on… a memory is coming back to me… Yes… I think that once I heard from an old old woman in India, that there are a handful of these type of men hidden away, quietly studying in the monasteries of the Himalayas… If so, we need to send out a group of (government) scouts to undertake this important quest and see if they will help us in our time of need.

    Bloody epic.

    • James

      I nominate David and Eddie.

    • mark cullen

      Dear Roc

      Your comment is both stupid and defeatist. Then to go on and what seems to be a point of self approbation with your “Bloody Epic” comment further compounds your drivel. Your comment is not epic as it lends itself to no solution, but is merely the childish burblings of someone who may be prone to hid behind a mask and throw insults.

      Dear David
      Thank you for your insight and for communicating your understanding of the economy over the last number of years. I don’t always understand what you present, but my understanding has definitly increased thanks to your publications.

  2. MK

    Hi David,

    So, the gurriers have become the Untouchables. I agree that in a fair world, the banks would fess up and state the damage as they see it. However, turkeys do not vote for Xmas and go for the neck chop willingly. You are dealing with the same humans who created this mess on the way up. They aint gonna turn into Mother Teresa’s now for the benefit of the country or its economy. They will have to be dragged out of there kicking and screaming. Their problems are endemic culturally in their organisations from the top down. Also, a key point is that bad debts are not measurable because they are car crashes that may happen. No-one can have visibility on them, not banks, not even those paying back. All that we can estimate is the value of the asset backing the loan. That wont give any indication if someone is going to stop paying back.

    > Three countries have already copied the idea and others could follow suit. All the other ideas that have been tried – such as bringing toxic assets under state control, forcing mergers or allowing banks to go bust – have failed to stop the havoc. So what will?

    That I dont know for sure, but its a credit binge hangover and we just will have to muster on. Giving the banks more credit is not going to solve the problem. Nationalising and re-culturalising them perhaps will. Thats of course a 100% nationalisation with perhaps a large employee cull of 50%, not some wishy washy effort which helps shore them up and keep the same people in place. The problem is partly people.

    > We need to know where we want to end up when all this is over.

    You state that we need the banks to be giving out loans to aid businesses in the recovery. But wait a second, when have the banks ever really helped small businesses or taken on big risks (knowingly). They havent. They want sure-fire things. They are conservative by nature. They let their eyes off the ball with this property frenzy because everyone was on the “credit heroin”. It was an accepted thing. So like mass hysteria and buffalo’s running over a cliff, they went with the flow and are only now paying a price.

    The only solution I see are major ones, not recapitalising them yet, and not letting them off softly. Let them go down to zero values. Let them come begging literally, like Lehman had to do or Bear Stearns. Then decide. Nationalise them if there are no other buyers. Then bring in the untouchables/gurriers, if such people do exist. Then run the banks as they should be ran, as a part player in our economy, not as a licensed leach ‘heroin credit drug’ dealer living off the rest of us. Okay, such terminology is a bit extreme but it backs up the part they actually played.

    Its time for a significant cultural shake-down. I still say: LANCE THAT BOIL.

    By the way, the Irish government double-guarantee solution didnt work, at least according to the barometer of bank share valuations today, as BOI, AIB, Anglo, PermTSB, etc, are all down to where they were on that ‘terrible Monday’. The market is speaking. The banks are in trouble. Let them suffer. The economy will get by without as much credit for a few weeks/months until the banks collapse and we (Taxpayers) can poick up their franchise and bad debts and work them out over however long it takes. One advantage a government has over a bank is that it exists forever, well, at least in theory.

    MK

  3. dr

    The talent required is in such demand that you would have to pay fat-cat rates to acquire them. You’d probably have to incentivise deals with hefty performance bonuses not to mention the golden parachutes. Rince and repeat.

  4. paul

    Totally agree. However the bank chiefs have been very quiet these last few weeks and I am not aware that any reporter has had an opportunity to put this proposition to them publicly. See if any of them are brave enough to go in front of the cameras to discuss this. I would be very interested to hear what their contrary views would be.

    Time to get to the bottom so we can get on top again.

  5. Kevin

    Guys – we gave the guarantee too cheaply

    we should have extracted the equity stake / made a capital injection

    we shouldnt have waited till anglo was on the brink and have to do an emergency tactical solution

    no lenihan has no leverage over the banks.

    there was time to do this properly, and make a capital injection / take equity stake ala AIG.

    instead we took the cheap option, cheap for government in that there was no money down, cheap for banks in that there was no effect on their shareholders.

    no we go cap in hand to the banks – who apart from anglo, are going to say, oh, but we didnt use it anyway

  6. judging by the market-Anglo is still on the brink.
    Will Fianna Fail shortly have a large insolvent property portfolio on their hands.?
    If so,thankfully they have plenty of cronies with expertise in this area.

  7. Garry

    First the way needs to be cleared. Give the regulator a good hiding, then get rid of him… Shame that legally all we can do is bring him before the Dail, let the mob (junior politicians) all have a kick at him, then fire him.

    And when you’ve got everyones attention, send your boys in, accompanied by the CAB.

  8. Furrylugs

    Now there is one organisation that comes to mind where one can draw direct parallels with Elliott Ness et al. They resisted bungs from druggies and threats from gangsters just like Ness and have demonstrated a handsome success rate in attacking ne’er do wells tax accountability, just like the strategy Ness employed.
    I wouldn’t like to be answering to CAB after the cornflakes.
    If it’s tweaked, it can regulate the banks as well as it regulated the mob.

    Sorry state of affairs but it would unequivocally demonstrate the Minister is very serious indeed. The sound of the culpable jumping ship would be deafening. We would be left with those bankers and financiers with nothing (relatively to fear).And rebuild a more mature banking system in a much shorter timeframe. David suggests four years but the OCP (ordinary common paddy) can’t wait that long. The SME glue that binds the country will be bankrupt long before that.
    Whats the betting the Americans would call in the FBI and follow our model, then the Europeans.
    I thought the big four of Europe meeting without the rest of the member states, particularly when all they could do was effectively imitate the Irish model, rang very hollow for Lisbon. This is the first real post-war test for the Union and it failed miserably.
    We should carry on leading the way.

  9. Deco

    I nominate Senator Shane Ross. As evidence of his suitability I submit his record in the Seanad (he is probably the only member worth his pay there) and in his news colums.

    David McWilliams, Ray McSharry (if he young enough), Morgan Kelly, Dr. Sean Barrett, Alan Ahearne should also be considered. As much as possible it should be Academic economists who consistently criticised the culture of waste, greed and irresponsibility. Also bring in Sarah Palin one day every three months, purely for the purpose of sacking all the useless lazy old men, and breaking up the nepotism networks/golden circles :)))
    [what Shane Ross called it, the incestuous club of Irish bank directors, and senior managers]. Eliot Spitzer, the New York governor who attacked shady Wall Street practices should also be invited over to take part. Two Yanks with an uncompromising attitude on corruption could add teeth to the body. It seems Irish people are gormless in regard to getting certain tasks completed.

    I see that the head of the RBS, Fred the Shred, has been sacked as a result of pressure by the British government – good call – a cardboard cutout would have done a better job these last four years. We should do like the British,and sack the bad directors. And we should eliminate the number of directors by 50% – kind like downsizing – but especially reformulated for the scum who normally decide to implement it on everybody else. These institutions do not need directors who spend all day playing golf, talking rugger etc…

    And please, please do not put Eddie Hobbs on such a commision. He is not a serious economist and his business sense if a bit on the sly sleazy side. Also I would be very sceptical of putting Senior gardai on it, in consideration of the results of the Morris Tribunal.

  10. The Eye

    The property valuations securing the bank loans are all false now and new property ( large developments) are still being listed on the internet at height of the boom prices, logic would suggest that any developer would drop the prices in order to sell, in many cases this is not happening. Other forces are still keeping this smokesceen alive…The banks.

  11. Greetings!

    As I already mentioned in an earlier comment (to the previous post about Q&A), the idea of forming a special investigative unit in the ‘Untouchable’ style is very good, logical and – it can be done.
    However, it will need the absolute will of the government to act, and act in the national interest, and not in the interest of Fianna Fáil and their close friends in the financial sector and the construction industry.

    I fully agree that the people for this unit would have to be hand-picked, and anyone with links to the banks, the insurance industry and other relevant sectors must be excluded. So – where to find the people for such a unit?

    Well, it should not be too difficult, if the will is there. They have to be independent and must also be seen as such. I concur with a previous comment – from James – that David McWilliams and Eddie Hobbs would be good candidates. I would also look specifically for people of mature age (and thus long experience and stability), who are not looking for a ‘career’ any longer. Retired Gardai and military officers would be suitable, as well as former diplomats. I would also add a number of ‘ordinary’ people with a good grasp of politics and the economy, and first of all common sense. They should represent the normal bank customers, and this is in my opinion important to retain the confidence of the general population.

    And though I am not looking for a job, I would be willing to make myself available for such a task as well.
    As a former military officer and now for many years a political analyst, commentator and independent consultant, I could well contribute my skills to such a team. And having been a harsh critic of the banks for years, I would certainly have the right attitude.

    I think that a few people with the same ideas should meet soon and form – under David’s leadership – a lobby group that can press this agenda home with our politicians. In less than a year we have two elections (the European and local government elections) coming up, and every TD, Senator and Councillor knows what can happen to their parties if they do not act in the interest of the people. We have been thinking and talking for quite some time, now comes the time to act, and act decisively.

  12. roc

    Epic as in the search for this untouchable… I don’t know about private practice, but certainly every accountant I know of in positions of responsibility and authority in our public and regulatory sectors, would have very great difficulty rising above the ‘cleverness’ and ‘don’t rock the boat’ norms of their profession. Apologies if I was overly facetious, sarcastic, and childish in such serious times.

    Shane Ross would be a good choice if he was an accountant… He is not, regretfully (he studied history and political science).

  13. Furrylugs

    Emerald,

    “And though I am not looking for a job, I would be willing to make myself available for such a task as well.
    As a former military officer and now for many years a political analyst, commentator and independent consultant, I could well contribute my skills to such a team. And having been a harsh critic of the banks for years, I would certainly have the right attitude.”

    Throw up the old CV till we have a look at it. I’m a bit dubious (though interested) in the Military taking over.

  14. Gerard

    David,

    with each article I realise you are becoming more and more a complete fantacist…

    • Garry

      We are potentially in the hole for 400,000,000,000 so far. For very rough arithmetic, assume we have a population of 4,000,000… Now do the maths and calculate the potential liability for every man, woman and child here.

      and before you say we’ll never lose it all, remember the first thing young fingleton did was piss off our partners by hawking this guarantee in a chain mail.

      Desperate times call for desperate measures.

  15. roc

    God. For a start, need to be:

    1. A qualified and very experienced accountant (you wouldn’t ask a baker to try and fix a car, would you?)
    2. No Irish property investment interests
    3. No investment interests in the banking industry
    4. As few and superficial connections as posiible with people who have Irish property and banking interests.

  16. Garry

    Ye need to be more strategic and think big…..

    Whoever does this needs to have legislative powers. The regulator has the powers, so they need to go in, backed up by the CAB… Between them they can look anywhere. I wasn’t just being nasty in firing the current one, that was just a bonus :)

    I agree with Deco about adding an international dimension and on Eddie Hobbs… But why not invite the Germans to put someone on the job, in a senior position in the Regulator?….. I’m sure they have someone up to the job and it would reassure them we are getting our house in order, and start to repair some fences… it would also allay Decos fears on local corruption… actually it would be a good idea for cross state representation like this anyways in a common currency….

    all that said, theres a few people on here that I’m sure could do a job.

  17. Rafal Mierzwiak

    Roc,

    I’m not Irish, I’m from Eastern Europe and you can believe me I am aware how one can make living out of cheating and outrageous lies. I’d seen it so many times… that there was no other way, I’d learned ‘the internals’. On the other hand I’ve been living in Ireland for several years already, I mean long enough to understand what’s going on.

    I agree with what you said, Roc, that it’s hard to find such a person. There’s a saying In Polish, that ‘the darkest spot is often the one just under a lamp’ which applies very well to the situation. In my honest opinion you, Irish, don’t have to go overseas to find such a guy, you’re truly lucky as he’s already in here.

    I know how it’s gonna sound, a kind of a paean, but I’m used to speak straight and for me that’s just obvious. As for me there’s no doubts David is the kind of person who could lead such a team. He precisely knows what to he wants to achieve, the more is he’s got the necessary experience so he knows how to do this.

    So… just take advantage of the fact.

    I’ll keep my fingers crossed and I do hope someone actually gets the message.

    There you’ve got my (immigrant’s) 2cents.

    • roc

      Yeah, I would trust David with it as well. But he has many critics and even enemies. And he has a number of vulnerabilities to his critics (only because his critics have made them into vulnerabilities). I don’t see how it could be made happen. I’d support him in any way I could though.

      • roc

        Anyway… a huge decision needs to be taken as to what land and property SHOULD be valued at. This may need national debate… 50% over building costs (costs exclusive of VAT and profit for simplicity’s sake)?… 3 times salary?…

        Whatever value is decided upon dictates
        1. whether investors can have confidence in the sustainability of our valuation.
        2. Degree of re-capitalisation the banks will need
        3. the conditions of Irish working life ie. degree of indentured-ness to work…

      • Rafal Mierzwiak

        Roc,

        I perfectly know what you mean. But I don’t think everybody loved Ness at that time and I must say I like the analogy even more!

        As long as one is strong enough to keep up with the ideas, and – much more important – brave enough to cope with ostracism as well as possible threats it can only be seen as an advantage. Yes, it’s that simple: there’s no way to go back, nor even turn, and all of the obstacles will only make him stronger.

        That’d be 4 cents already ;)

  18. paddy cullen

    O’Leary is the only man for the job ……….

  19. The Eye

    Roc while their at it , all the “Panama Towers” of vacant apartment blocks could be bought for next to nothing as social housing and it would cost the Taxpayer a lot less money in the long run.

  20. “Roc while their at it , all the “Panama Towers” of vacant apartment blocks could be bought for next to nothing as social housing and it would cost the Taxpayer a lot less money in the long run.”

    My gut feeling tells me that there is some help coming down the line for the hard pressed irish developers in the coming budget.
    “The Eye” may be on to something.
    Will we see 10,000 derelict units taken off the builders hands, to house some of the 50,000 social housing waiting lists alongside those who have bought and overpaid(negative equity) for such apartments?.
    The thinking here is to prevent the creation of Moyross type developments, by blending in the poor and the less poor and therby reducing the likelyhood of anti social activity.
    This purchasing scheme by local councils ,is already happening on a very small scale at present.A whole block in a private development in Dublin 7,which I know of, has already been “ghettoized”.

    I am reliably informed that there is less car thievery and burglary there, than in the other private apartment blocks nearby.!
    However the cider parties continue unabated-on the pathways outside the private blocks,despite countless calls to the Gardia by hard pressed tenants who have paid 320Euros for a one bedroom dogbox.!
    I digress,apologies.
    Such a “voter friendly” exercise of magnanimity towards the homeless and those on long waiting lists-would provide some real (rather than “virtual guarantees”) taxpayers cash, for the hard presses developers to keep paying the interest on their loans (instead of borrowing more money from the banks to pay interest on the interest they can´t pay at present).
    The real purpose of the exercise (to bail out the builders) could be “plausibly denied” by the Soldiers and it could be portrayed as an example of Fianna Fail´s great charity towards the poorest -even in “Hard Times”.
    The folks abandoned by Mr McNamara in O´Devaney Gardens etc. could be winners from this budget.
    A metro or two abandoned (“Delayed” in government spin jargon) could provide a big bail-out for the Bailey types..who finance the Fianna Fail party..
    Who will bet against me?

  21. Furrylugs

    Just heard DMcW on the radio plugging the Untouchables theory. It struck me as pitiful that his intellect in these very complex times has to create simplistic imagery to get the message across.
    I wonder whats cooking in his head because he isn’t a knee jerk populist kind of guy. If his “small steps but lots of them” approach works he’ll be a national hero. If not, he’ll be vilified for ever more. But he knows that so more power to him for sticking his head above a very nasty parapet.

    It’s kind of Pee or Pot time.

  22. G

    10,000 unoccupied units in Dublin alone (RTE news report), I’m sure many more around the country and yet we have people on the streets (http://www.irishtimes.com/newspaper/ireland/2008/1002/1222815460344.html)

    People living in absolute squalor in Dublin (Dublin communities failed by Public-Private Partnership – http://www.rte.ie/news/2008/0925/primetime.html), and others crying out for affordable housing.

    The Knowledge economy!
    Estimated 40,000 children being taught in prefabtricated class rooms (http://www.labour.ie/blog/archive/2008/06/18/40000-children-being-taught-in-prefabs/)

    The Celtic Tiger bringing prosperity to all!
    300,000 on low incomes suffering malnutrition (IFront Page, Irish Examiner Sept 8th, 2008)

    Politicians take responsibility!
    “The Irish Public to Blame for housing Collapse” don’t you know – Minister of Finance, Brian Lenihan TD on RTE Radio, was that before or after he said it was a bad time for him to take the Finance portfolio, hmmmmmm………

    Our responsible Partner in Government!
    The Green Party promised it would ‘keep an eye on FF partners’ but Minister John Gormley TD belatedly & cynically proposed increasing local authority housing loans from 180,000 to 300,000 (http://www.independent.ie/national-news/digouts-agreed–for-buyers-on-lower-incomes-1477388.html), arguably driving people further into debt and keeping the dying housing market artificially inflated……..ah irony worthy of Shakespeare himself.

    Our other responsible partner in Government!
    Maybe the PD’s will shake precedence and ‘do its duty’ by the people and tax payer, with its track record of claiming all the credit for the peace process in N. Ire (see any interview with Liz O’Donnell) and a crusader for public, oh sorry, private health care with former colleagues such as the industrious friend Tom Parlon, (http://www.independent.ie/national-news/parlon-wins-uturn-with-euro150m-deal–for-builders-1490719.html) – former Minister of State at the Dept. of Finance with responsibility for Public works (http://en.wikipedia.org/wiki/Tom_Parlon)……….surely they can do something in the public, oh sorry, private interest.

    The Opposition!
    Maybe the opposition will speak effectively against their former Lisbon Treaty love-ins? Make the government accountable for presiding over the whole debacle, surely this is enough ammunition to bring down a government………….well……….maybe not……….

    The Verdict!
    Friends…….the world will go down as a result of man’s greed either through environmental catastrophe or nuclear accident (see http://www.chomsky.info/) and some ass will leave a justification in terms of a corporate statement/government press release (do they differ?)…..using some of the following catch phrases:

    “we never saw it coming, entirely new situation, unpredcedented, unchatered waters” or maybe some keen civil servant with remember to include GUBU (Grotesque, Unbelievable, Bizarre, Unprecedented).

    Maybe long after we are all gone Martians will be able to work the whole sordid tale out.

    Permit me to invoke a phrase of my own, quoting the honourable Mahatma Gandhi who was right when he said: ‘there’s enough for man’s need but not for man’s greed’.

    Good night and Good luck!

    G.

  23. Fred Dingle

    Has Fingleton Snr sacked Fingleton Jr yet?

    When that happens its time to sack Fingleton Snr.

    Who paid the fine? Probably the shareholders, poor mugs.

  24. Furrylugs

    Now. stall the digger here a minute and go back a bit.
    This mess started because the banks could offset risk to the insurance market without having to fully disclose due diligence. The insurance companies took the risk in good faith and myopia to sell the risk on to a point where there is now a blancmange of risk becoming actual hazard.So it’s a question of risk realisation.
    Ok.
    Now that the governments are acting as insurance brokers and with an Untouchable Dept for due diligence, the Govt can introduce a risk premium, refundable after the risk has demonstrably evaporated, and invest it immediately in existing toxics.If the Banks come clean, the Govt will become the steward for the Nations good, with appropriate penalties for commercial treason. Nothing can come above the good of the State ever again.
    Quite apparently not thought through but what are the immediate thoughts?

    • Garry

      @ Furrylugs, On refundable… not sure about this… I didn’t get a car insurance refund because I didn’t have an accident last year though a partial refund would be an interesting model.

      There is a danger with David’s approach that a trendy name like this will cause people to think the “untouchables” have magical powers and are incorruptible, which is never the case, and certainly not over a prolonged period of time. That kind of assumption is dangerous. And it has to be a short term thing, all institutions become institutionalised..

      If the regulator had done his job, we would not be facing this problem. We might be facing a different problem, who knows. It was a tough job admittedly but they didnt even step up to the plate. In many ways all David is calling for is strong oversight of the banks on behalf of the taxpayer, which is the job of the regulator. Now we are in this mess, the taxpayer has to take the gloves off.

      I would be very interested to hear what people think about asking Germany to send an independent team or a rising star in their financial world over to help us out, I think that has very interesting possibilities but is not without risk.

      • Furrylugs

        Funnily enough it was whilst discussing partial car insurance refunds for good driving records that the notion came to me.

  25. Shannoner Scalder

    Let the banks and property developers get whats coming to them. All was rosy when they were making huge profits, and allowed to do so from the powers that be – who got ~30% tax receipt of each new property sold, while the ordinary man/woman on the street payed over the odds just to buy their own home.

    The State must protect the huge risk now to the taxpayer with this guarantee, and must not be used as a handout for the banks/developers. For toxic loans to commercial proprty developments that now are of value in excess of current “market” value, why not let the Untouchables team assess how much loss both the banks and property developers can realistically take, then for the State to take some key strategic sites off them for a fraction of the cost (i.e. somewhere around market value or less) such that the State gets good use of Taxpayers money while the banks/property developers shoulder the loss. We can also consider taking some completed sites, again with reduced discount, for social & affordable housing and leave the loss again with the banks and developers.

    Fianna Fail must be scrutinised from now on, and if they are seen to be sympathetic to thier property developers “buddies” then lets vote them out at the next election. Taxpayers money is at stake now, so the stakes could not be higher for every citizen in Ireland.

    I have nothing against banks or property developers, and am self-employed. However business-is-business, and if your business fails then you take the hit!

    How many small Irish businesses, now facing tougher times with difficult credit & falling retail demand, will get a taxpayer handout – none ! So the banks and property developers should not expact anything more. They played the odds, took all the risks, did very well for a while and have pocketed significant gains. Nothing wrong here so far. But its now gone against them and they’ll just have to take the losses that go with it.

  26. Shannoner Scalder

    Untouchables team to consist of:

    (1) Headed by a go-getting businessman/woman, used to running a company, cracking heads when required, straight talking, takes no cr*p, no property interests………….someone like Michael O’Leary, Bill Cullen…etc

    (2) Assisted by State legal system representatives e.g. solicitor from the DPP, and member of an Garda (say CAB or the Fraud Squad). Bankers being questioned must be made to be thorough, and observed by experienced interrogaters. Any attempts by bankers to conceal the truth to be questioned.

    (3) Assisted by someone who understands the banking system, the preparation of banking accounts, finance..etc. Can ask leading questions to the bankers to assist the other team members.Say, David McWilliams or finacial advisor of the choosing of the person leading the team

    (4) Assisted by bi-partisan public representatives, say one from Fianna Fail, one from Fine Gael and one respresenting the remaining parties. These politicians to observe mostly, but crucially to communicate to the public and to be questioned by the public. Its every Irish residents money being gambled, so our elected respresentatives must take some responsibility of the decisions being taken.

  27. Lorcan Roche Kelly

    David > As it is probably the only institution that will lend to the banks at this time, the State should take significant equity in exchange for any new injection of capital.

    Seen as we are following the Swedish model from the early nineties, lets look at what they did after they guaranteed all bank deposits and creditors of the nations banks in 1992. (This guarantee extended to 114 banks in Sweden rather than the six here, but the model is still sound)

    Their banks, like ours, were in need of recapitalisation, so the Swedes set up an agency to recapitalise the banks. But before a bank could make an approach it had to fully write down its bad debts. Only when its balance sheet had suffered these losses could they get the funding. It became a bloodbath for shareholders in the banks that needed the money.

    The agency then extracted a very high price in the form of equity from the banks. The government also set up an agency to dispose of bank assets (mostly property). So any bank that took advantage of the state recapitalisation programme would get the money it needed to survive, but would also come through the process as a much smaller and semi-state institution.

    For many banks this was too high a price to pay and some, like SEB, chose not to avail of the offered facility, instead raising capital privately.

    Seems like a perfect solution.

    But. Our problems, while similiar to Sweden’s, are not the same.
    Sweden’s crisis was caused by a property bust, as has ours, but we have the added spice of excess leveraging.
    Sweden’s crisis was a ‘local’ one, making it possible for troubled banks have options for recapitalistion outside of the government. Ours is global. It’s government or bust now.
    Sweden had a fractured banking system (114 banks) we have a consolidated one. Sweden could (and did) allow some institutions to fail, we do not have this option.
    Sweden’s crisis was well-timed. It happened at the start of a decade of international economic growth, so the institutions that survived, but whatever means, could quickly trade their way back to profit thereby giving returns to the government from selling its equity stake when it reprivatised the banks.

    The economic landscape, and the fundamental problems are different. I’m not saying this means the ‘swedish solution’ is doomed to failure in the current climate – it’s way better than any other I have heard – but it will not forestall the the coming storm.

  28. Anna

    Crimnal assets bureau. Revenue. Did anyone think of these guys. They work for the state interest.

    • Furrylugs

      Anna,
      Have a browse above.
      I think there’s a unanimous agreement that a CAB involvement would be a positive step forward.

  29. Furrylugs

    The Footsie and the ISEQ have tracked each other today step by step. Someone out there is making an absolute killing since lunchtime

  30. The Eye

    How long before te .5% is passed on to the good people of Ireland?

  31. thecacarras

    What is the best outcome for Ireland & the worst? Seems to be some talk of ‘next Spring’ – are we going back to the 80′s for sure!

  32. Malcolm McClure

    Roc said “Where would we find these untouchables? It seems to me that the vast majority of those who have done their time in financial related industries, will be irrevocably institutionalised in one form or another. Or corrupted in some form, through proximity to the profits that were there to be had for the taking.”

    The United States and its financial system were founded, in large part, by stern and incorruptible Scots-Irish Presbyterians. Many left Ireland in the 18th century because of the free-loading Gombeen Men, who supported each other in their malfeasances under the double umbrellas of the Church of Ireland and the Masonic Order.

    We now call Gombeen men ‘Bankers’ and they have a wider range of religious persuasion, but I would hazard a guess that they include very few Presbyterians south of the border. This is not noticed in support of Non-conformists per se; indeed the country would be a dull place if we were all Presbyterian. But folks with that ethical background seem to be involved in fewer scams than those of other persuasions.
    We are going to need a lot of ‘Untouchables’ to oversee the activities of so many banks, as competition would prevent an individual Untouchable from serving on multiple Bank Boards.
    I still remember a Conor Cruise O’Brien piece in the Observer back in the late seventies that suggested that the main reason for seeking a United Ireland was that the Ethical people from the North would help hold in check the Gombeen men in the South from their habitual excesses in Politics and Finance.

  33. The Eye

    David how about this:
    Ireland is the pram in the Movie “The Untouchables” ..going down the stairs… step by step in the famous railway station during a gun fight between the The goodies(The Gov) and the baddies(The banks) except the stairs are a lot longer and the goodies are really gormless and they forget to catch the pram because they will forsake all else just to get re elected……….mmmm i gotta get out of this estate agency business……too much time…..no money ….mind starting to play tricks….kill…kill…flat…do you except de welfare. wha?

  34. It looks like Armageddon on the market right now-despite government guarantees (not worth the paper the contract will be printed on) and massive “real cash” injections by central banks everywhere.
    Where will it all end.?

  35. Deco

    Garry I propose including non-nationals – because in my experience when ever a committee is appointed in this country from Irish people, they are all from the same county (Dublin), all from the same side of the river(south of the Liffey), the same side of the stream (east of the Dodder), the same socio economic group, the same uni (UCD) and even possibly from the same golf club. They nearly always already know each other. As Shane Ross keeps saying it is ‘incestuous’. And the behave like the FAI. There decision making is about the same, and they love playing football with FF politicians like Bertie Ahern as well. It is better to start afresh. Apart from anything else Irish people don’t trust Irish people in authority. We know only to well. And the scandals of the last twenty years in all aspects of Irish life verify this. With 400 Billion Euro at stake (400 K for every private sector worker in the country) we cannot afford to allow a bunch of cronies who all think along the same lines to be the acting conscience of the people.

    You pointed out that it would be a good idea to have it run by Germans. There are definite strong points there. A very direct approach. The sackings will start at the top. And everything will be transparent. Very little waste. Things happen fast. All aspects that we need to bring to this. Though Swedes or Hollanders would probably be similar enough.

    Michael O’Leary would also be a good idea, because he would sack all the expensive deadwood out of their plush offices. Also Roy Keane might be a useful suggestion….the Red Mist descending on the various members of the Fingleton family who get salaries from INBS….that would be entertaining :))))
    Oh yeah, what about Sir Alan Sugar….”Michael Fingleton…wot iz it bout u dat getz up evrybodize nerves….you just don’t cut it….you have a terrible attitude….u cant even do the simplest of tasks….Fingleton….ure fired”

  36. coldblow

    Shane Ross would be ideal, but we’d miss him from the Sunday Indo. I was also thinking of a German, they are thorough, perhaps recommended by the Chancellor. A tough Yank wouldn’t go amiss. For some reason I like the idea of a bloodyminded Yorkshireman/ woman (makes no difference), preferably one with a chip on his shoulder about the banks (shouldn’t be difficult to find) or failing that John Stalker if he’s still around.

  37. The Eye

    Irish Nepotismwide building society.

  38. Furrylugs

    Eerie. If you turn todays ISEQ and Footsie chart vertically, they look like the outline of Ireland. Must take the tablets.

  39. Ire_in_Exile

    The “untouchables” is an admirable idea that would restore public faith at least.
    But the untouchables were a product of the 1940s when “honour, scruples, honesty,” were not just highly regarded in general in society but you did not get to do any business unless you could prove a personal merit of integrity.
    We now live in a every different world, where effectively nothing matters except to make profit for it’s own sake regardless of the means, and the lamentable tradition in Ireland since the 60s at least, has been that the “cute hooer” who pulled a fast one is not just accepted, but encouraged and applauded.
    There is a corrupt system in Ireland that is rotten to the core and everyone knows it.
    (and that is why I remain in exile.)
    The untouchables would have some work to do, because banks are just banks- by their nature they are primed for greedy excess, and they can by no means be blamed alone for the current plight.
    Todays “untouchables” would need to start with the politicians, the legal profession, financial services, the media and not stop until they had taken in the farmers and the publicans..

    In short, Todays problems are not money ones they are moral ones- it is the lack of morals that brought about the current debacle, throwing more money at it alone will solve nothing- The professional elite in society must prove themselves to be respectable once more- that is a much more pressing challenge.
    Bring on the untouchables…..

  40. G

    “we never saw it coming, entirely new situation, unpredcedented, unchatered waters” or maybe some keen civil servant with remember to include GUBU (Grotesque, Unbelievable, Bizarre, Unprecedented).

  41. The Eye

    Its like the Carlsberg complaints office in here must not come out of my post tiger syndrome alcohol induced trance.

  42. G

    10,000 unoccupied units in Dublin alone – People living in absolute squalor

    The Knowledge economy – Estimated 40,000 children being taught in prefabricated class rooms

    The Celtic Tiger bringing prosperity to all – 300,000 on low incomes suffering malnutrition (Front Page, Irish Examiner Sept 8th, 2008)

    Politicians take responsibility – “The Irish Public to Blame for housing Collapse” don’t you know – Minister of Finance, Brian Lenihan TD on RTE Radio

    The Green Party promised it would ‘keep an eye on FF partners – Minister John Gormley TD belatedly & cynically proposed increasing local authority housing loans from 180,000 to 300,000

    PD’s will shake precedence and ‘do its duty’ by the people and tax payer – The Government ignored its own new guidelines on key public building projects after intense lobbying from minister-turned-construction chief (Irish Independent October 06 2008)

    Political Accountability – zero

    I rest my case.

  43. Una

    As part of the presidential debate here in the US last night, both Obama and McCain were asked who they would bring in to replace Paulson as Treasury Secratary and Warren Buffet was a unanimous choice. Where the Irish financial situation is concerned, I thought Peter Sutherland would be a very good choice as the man to get the banks back on course while we all whether this financial turmoil. His experience speaks for itself.

    One thing that really irritates me is the fact that these banking chiefs – who blame the global economic downturn for the current situation all the banks that they find themselves in; have to be fired, not a case of if but when. Fine Ireland is a very open market and financially we and the rest of Europe are very dependant on what the US does but surely if our banks had enough cash reserves in their own bank vaults they would have been in a slightly better situation to absorb some of the bad debts that they are likely to incur. The book stops with these guys. In any other company whatever the industry, a CEO who brings a company to the point of bankruptcy would be fired no if, buts or what ifs. Buying shares in a company is to a certain extent about having confidence in that companys performance. At the moment buying in the banking sector has to be on the bottom of anyones list of investments. Add to that that the Irish public are the ones responsible for funding this bailout guarentee whatever you want to call it so the government should on behalf of the Irish taxpayer make someone accountable for this current situation or am I missing something.

    • Oh not, not Peter Sutherland, please!

      He has all the ‘right’ connections and plenty of experience, alright, but those connections are totally wrong in this case. Being involved with both BP and Goldman Sachs makes Sutherland one of the least qualified men to be part of the investigative unit.

      We do need people with specific expertise, of course. But more important – in my opinion – is to have people with common sense and absolute integrity on that team. People who have no political ambition and are not in any way entangled with the banks, insurance companies, construction industry and their cosy golf clubs etc.

      Such people exist in good numbers. I know plenty of them.

      I would see the ‘Untouchables’ as something between the Northern Ireland Decommissioning Board (under General de Chastelain) and a jury in a major criminal trial. We need experts, but also ‘ordinary’ people with common sense. Only then will the investigation be accepted by the population.

      If we create another faceless quango that no-one can relate to, we can as well leave things as they are. As a democratic state we need to incorporate the element of ‘demos’ (the ordinary people) into the process. It will make all the difference.

  44. The Eye

    I hope after all this Irish people will start to think how they vote from now on…i mean Cowen for gods sake cant even put a shirt on himself properly. I wouldn’t let him run a sweet shop and I don’t think his gene pool could be too hot either ( I also think he is pissed alot if not most of the time), Bertie was a finance minister without bank account (How Ironic) who bet on a horse with no name!
    The government will not feel the recession and there isn”t a days work in any of them.
    Its rotten from the top down…and now its time to pay

  45. G

    if the bankers and politicians were on the Apprentice they’d be fired, if they were present in France in 1798 then a worse fate would await them.

    The Minister for Finance is ‘serious’ alright, serious about getting away with a scandal as are the rest of the cabintet, most frustrating thing is that there is no alternative unless you are into the boys from Brazil (or mayo)…….Edna Kenny as Taoiseach, Simon Conveney as Minister for Finance, I seriously doubt it……sure Simon held two posts simultaneously, TD and MEP and claimed to represent people effectively!

    In any case it’s the senior civil servants making the call, the same guys who tried to block the IFSC and one genius who thought the Credit Union organisation was a bad idea.

    All these guys are playing the same game, out with the old wine, in with the new!

  46. Ire_in_Exile

    Many comments follow my own line- the Celtic tiger was a finely crafted extortion aided and abetted by the government, the loot has been skied away and now the public are required to bail out the culprits, while they alone will suffer the results…
    There is currently great talk an interest and excitement about the state of the economy, and schemes and percentages are touted about, and there is gaping and awe at the losses and much talk about solutions…
    and people, as on this forum, are brimming with theories and reflections…

    But the great tsunami of the crisis has not yet reached the shore- and the bottom line is that
    most ordinary people are now going to suffer appalling losses, unemployment and hardship in the extreme.
    and those responsible for this disaster have to be held accountable for it.
    For example, a friend of a friend who had a successful and growing building company which came to an abrupt halt already early this year, plunging into depth, with the business stalled and unable to get a loan to keep things afloat the owner went home one evening this week to ponder his future and realising there was none…he hung himself.
    This will be the first of sadly not a few to come I am afraid to surmise, as desperation sets in, that is the real human cost of the current crisis. It is no joke at all.

    • Furrylugs

      Sorry to hear that Exile and my condolences.
      I came back here to see everything the guys are on about. It hadn’t changed since I left.
      I’ll be off again shortly.

  47. Deco

    “The Eye” – not only is Cowen on the beer, but the Minister overseeing the biggest government body, namely the HSE, is widely rumoured to be drunk on a regular basis.

    Una – I would not put Peter Sutherland in charge. He used his wife’s name as a means of getting out of paying DIRT tax in the early 1990s. He was in AIB around the time AIB got a €140 million write off from the Irish government – involving his distant relative Garrett the Good (for nothing). He also trousered a large bonus from Goldman Sachs – currently one of the Wall Street gang responsible for causing the hollowing out of American industry. Nobody know what exactly he did that deserved it. A bit like Fred the Shred – who has been shredded by the UK Gov’t. And Suds, like Biffo, and Harney looks drunk a lot of the time !! We need if possible, a teetotaller. Somebody who does not get drunk on the job.

    There is an overwhelming need to get the entire directorship of ANIB, (Anglo Irish Bank) and put them cleaning windows for a few years. They might make less mistakes, and they will learn all about transparency :)))
    IL & P = Irish Lifestyle & Preoccupations. And the preoccupations have been silly, like property, showing off and the 2000 Mile binge drinking session (at least Californians with the Kustler’s “2000 Mile Ceasar Salad” were looking after their health).

    G – Thank you – finally somebody who can see the latest government scheme with reference to local housing for what it is – a stunt. This is a case of central government pushing the problem to local authorities. Give any local authority in the Midlands money and they already have a multimillion euro hole called debt to sink it into – as a result of Ireland’s corrupt planning process. But this will get postponed – and urgent facilities like water treatment will get postponed – because the central government has earmarked it to prop up the property market and bail out the bankers and the developers. This is a stunt. When completed the local authorities will still be saddled with debts, which will have to be cleared via stealth charges.
    This is due to the Good old fashioned CJ type politics – buy votes from one section of the electorate with money that will be stumped up by another section of the electorate. It is an attempt to inflate house prices. After spending the last ten years trying to inflate Irish house prices, Irish politics are still trying…..to inflate house prices !!!! Do these people know anything about economic competitiveness, and infrastructural costs – or are they just looking after the beneficiaries of the economic rent infrastructure that dominates all aspects of Irish life ?? (what we call vested interests) …. I actually admire the likes of Eliot Spitzer and even Sarah Palin as being superior to Irish politicians in this regard. They take these corrupt little arrangements and root them out. This never happens in dear old Ireland. Too many cosy little arrangements !!

  48. Deco

    The Eye – your abbreviation – Irish Nepotismwide Building Society wins the award for best abbreviation – your prize is a framed photo of the Fingleton Family in full uniform outside INBS HQ – surrounded by family and freinds, and their friends families, and golf club members….that should include the top three layers of the entire operation…..plus various other pals on the INBS payroll….or beneficiaries in some way…..all smiling safely and smugly. Because that is the way these things operate in Ireland !!!

  49. Furrylugs

    This is all starting to sound like Deliverance (Part Deux)
    I’m going into banjo making.

  50. Colin

    i think we need our greatest ever taoiseach back, bertie ahern. he’s a great fella for meetings and striking deals and compromising, pressing the flesh, kissing babies and all that craic. he knows exactly what caused the problems we’re currently faced with, so maybe he could have a good chance of solving them for us also.

    and he might ask the senior management in our banks to go away and commit suicide if they can’t fix this mess.

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