October 15, 2008

Don't bank on the banks: check the balance sheets before forcing mergers

Posted in Banks · 89 comments ·
Share 

The budget strategy of our country is now more than ever dependent on what happens next to our banking system. As has been apparent to anyone who cared to look over the past 10 years, the buoyancy of our tax revenues was uniquely related to the deluge of cheap credit; money flowed in, banks lent recklessly, tax revenues rose, the government budget went effortlessly into surplus, spending increased opportunistically to catch up with this abundance of funds in the State’s coffers and, not surprisingly, the national debt went down.

But that was then and this is now. Today, the deterioration of the government’s accounts is — conversely — driven by the collapse in credit and lending in the economy. You can’t fix the economy without fixing the banks. As a consequence, if you want to analyse the Budget you have to start with the banking system and the way credit is spread around the country.

On Sunday, the minister said that “we have nothing to fear but fear itself”. Whether this is true depends on his next move in the banking system more than anything he announced yesterday. Roosevelt saw the banks as part of the solution. Let’s hope Franklin D Lenihan sees things the same way.

The unprecedented banking packages announced by the EU in the past few days have put it up to the minister to inject huge amounts of cash into the Irish banks in return for equity.

At this stage, buying straight equity with taxpayers’ money would be the wrong thing to do. There are also calls for the Irish banks to merge as soon as possible; this too would be wrong.

Nationalising banks, despite the spin from London that everyone seems to have swallowed, is not smart.

There are many more creative ways of recapitalising banks and getting the best deal for taxpayers. Again, like the bank guarantee, Mr Lenihan, should look for an Irish solution to an Irish problem, rather than a cheap import from abroad.

It would be far smarter to lend money to the banks and charge them for it.

Most analysts say that Irish banks will probably need somewhere in the region of €10bn in new capital to cover the bad loans on their books and to begin to be able to lend again.

We could use the pension reserve fund for this. There is around €18bn in the fund and if this isn’t a rainy day, I don’t know what is. But most importantly, we could get the economy moving again, recapitalise the banks and make money out of such a move.

The State could inject €10bn into the banking system and charge the banks 9pc for the cash for a five year period. They are not going to get cash anywhere else at the moment so they would go for this option. This would imply the State would get €900m every year in interest income from the banks to pay for future pensions.

In addition, the State could negotiate a preferred share deal of 25pc of total bank equity, giving us, the taxpayers, huge upside.

The repayment schedule for the banks would be strict, so that if any bank failed to meet its payments to the Government, the State would take 70pc of the shares at a deeply discounted price.

In addition, the Government — as the most secure creditor of the banking system — could lay down terms, such as debarring Irish banks from lending abroad, limiting their exposure to property, forcing them to maintain a higher ratio of tier one capital and — most crucially in terms of democratic fairness — forcing the resignation of all the boards and senior management who got us into this mess in the first place.

The reason these individuals have to go is simple: to do otherwise would mean rewarding the guilty and by extension, punishing the innocent.

More significantly, capitalism works on rewards for a job well done and sanctions for messing up. To protect the reckless would signal to the world that Ireland is not a serious country. It would imply that Ireland is a crony backwater that got lucky and that the State is characterised by gombeenism at the highest level.

Foreign investors who will need to finance us in the future will just not find it credible. Investors will run a mile if they see that the same incompetents who waltzed us into this cul de sac and lined their pockets in the process, are still in power. In addition, for the morale of those working in the banks and for the sake of the next generation’s ambition, they too will have to see that there are opportunities at the top for those who do a good job, rather than for those who simply hang out at the right golf club.

In the same spirit of competition, we need to avoid too many hasty mergers in the banking system. The upshot of this recovery programme needs to be a decent banking system with as many players as possible, not a duopoly where the two big banks swallow up all the small ones.

At the moment, the Government, working on the advice of Merrill Lynch, appears to think that we can avoid recapitalisation by forcing mergers between the two big banks and the rest. This is atrocious advice. At the moment all Irish banks are operating below the critical tier one ratio of 8.5-9pc — which the European banks have achieved as a result of yesterday’s bailout.

This means that even merging them all together into a large super bank would still mean that the balance sheet is weak. Five poor balance sheets don’t make one good one! This would lead to big fees for the adviser and a Japanese-style depression for Ireland.

One has to also question the advice and objectivity of an investment bank, Merrill Lynch, which was bust three weeks ago, is AIB’s corporate broker and has also raised money for Anglo Irish Bank. In my opinion, it simply is too close to the discredited players to give clear counsel. The best way for the present management to survive this catastrophe is not to look for fresh capital and this might be why some of the main players do not want recapitalisation. In the interests of self-preservation, they are instead vouching for forced mergers, nationalisation and state protection for banks!

Mr Lenihan has been brave before; he should be brave again. If he injects money into the banks using a loan from the pension fund he will strike the deal of the century for the taxpayer. If he goes down the route of forced mergers, he’ll ensure his place in the pantheon of politicians who made a bad situation worse.


  1. Garry

    Agree with a lot of this, we need to be smart…. yeah yeah yeah

    The only problem is our senior people. Unfortunately that is just as big a problem as if we were Iceland with a bust currency and facing terrorist laws… The people who can actually do anything are not up to the job.

    The smart thing to do is address this first

    We have just had a budget where everyone has to give up 1% of their income as a “temporary” measure to bail out the country, where the government have been forced into guaranteeing 100k on behalf of every man, woman and child in the country against bank deposits and debts, without clarifying how this will work.

    But not one person has resigned or been fired for allowing a situation to develop where this guarantee had to be given. Not alone that but nothing has happened since the guarantee announcement, which was weeks ago

    If this was China or Russia, people would be in the labour camps by now. In Britain, people have been fired and some have resigned. Who was the last person to resign here….

    Why oh why am we still paying the salary of the financhial regulator and the central banks. Why am I as a taxpayer, paying for people who when they screw up so badly our children will still be paying the bill, just shrug and collect their paychecks.

    There is no point in hiring 20 new supervisors without changing the leadership at the regulator. His position is way past being untenable, and his continuing presence is ensuring that anyone hired cannot do their job properly, because the bankers know they can ignore them with impunity, even if the regulator screws up and hires someone competent.

    How long before the situation is serious enough for someone to be fired!!!

    • diarmuid

      We must not let the banks, the regulator, and the government spin this crisis as being caused by this global credit crisis. The credit crisis was the catalyst, the final wave to tip over the already badly listing Irish banking ship. The root cause of the Irish banking problem is, of course, bad and irresponsible property loans by banks who were allowed run free by the regulator and the government while the Irish people blindly enjoyed the greatest and sharpest rise in living standards, and wealth creation. (Mostly through the property bubble.)

      The banks must declare their losses. The shareholders must suffer from the further bleeding of share price and the tax payer will pick up some part of the tab, And, we all will suffer a much longer domestic recession as a result.

      Unfortunately, the global economic news is now pretty dire, which is going to extend the recovery period for Ireland from our own peculiar self made illness. This global recession can claim a significant root-cause in the credit crisis mess.

      I believe that there will be very little joy with global equities for the next 18-24 months. The recession will be prolonged and deep, demand destruction and wealth destruction has occurred through-out the world at an incredible pace and most worryingly of all, is the unwinding of the massive leverage that has STILL to occur, and a bottom in the US housing market which is now expected in the second half of 2009 or even as late as 2010.

      Some estimates give that a 50% decline in hedge fund value still will occur when this leverage unwinds, which translates into trillions of dollars more of wealth destruction. This unwinding is only just beginning.

      The forced selling by hedge funds due to margin calls and redemptions is becoming clear to market watchers and analysts. To see evidence of this all we have to do is look at equity prices, commodity prices, energy prices , inflation, the money supply , short and long term interest rates, and how the changes in all these numbers typically relate to each other. These old relationships are no longer valid, in the short to medium term. For example gold falling, money supply increasing, equities decreasing, oil decreasing, USD increasing, inflation?

      The huge dislocations in the financial markets caused by the unwinding of leverage is causing a massive destruction in the old form book, which is catching even more leveraged positions offside, so to speak. Even some gold hedge funds are being forced to quickly unwind positions to pay for margin calls and redemptions in other associated funds. Logic goes out the window. Sell. Raise cash! Again this is going to be a long slow process, with unfortunately a global impact like we have never seen before. “The greatest period of wealth destruction” , as Warren Buffet calls it, is only just beginning.

      There is a very good article on Portfolio.com by Jesse Eisinger which explains how the derivative markets got us into this global financial mess. “The $58 Trillion Elephant in the Room” and how complicated it will be to unwind.

      This sounds like a very pessimistic take on the current situation, however we must face the truth and “understand your environment” , before you can make a plan and strategy to take advantage of this world of great opportunity.

      As a private equity and derivative trader based in US, this volatility is a huge opportunity as long as you are in control of your cash and your positions and dont get that dreaded margin call which forces your hand to fold. Thread carefully. “be fearful when everybody is greedy and be greedy when everybody is fearful”

      (Compliments to DavidMC for his stellar reporting and analysis, for many years now. One of the great immigrants to return!)

  2. Mihai

    Garry,

    Are you suggesting we should hire some young bank regulators from Russia instead?

    • Garry

      No, Ive suggested before an independent team, from a fellow Euro country, preferably Germany, is needed to save us from ourselves.

      This is needed to ensure the regulators and bankers do not owe each other favours from previous jobs, schools, golf clubs etc… And by being in the Euro, the regulatory team has a shared interest with the Irish people in having a solid banking system and a solid currency, but have no loyalties to our banks, they are just a means to an end. There will be enough Irish around to ensure the banks get a fair hearing, which they barely deserve.

      By asking the German PM or the ECB for this kind of help, we show courage, confidence the problem can be fixed and demonstrate seriousness in our approach and show leadership in creating greater stability for the Euro currency. If you think thats not important, check out Iceland, now is not the time to be fucking about.

      Instead, the existing regulator who never saw this coming, stays at the helm and gets 20 more people to ignore all the compromises and side deals with the banks that will end up costing us billions over the next 20 years….

      Haughey would have Neary swinging by the balls at this stage. He was corrupt but rewarding failure like Lenihan is doing has serious consequences also.

  3. Homer Simpson

    Garry, your dead right. Just like the politicians, there is never any repercussions for their acts. Any I doubt it will change this time

  4. Hello David,

    once again I find myself in broad agreement with your arguments outlined above. Lending money to the banks from the pensions reserve at a 9% rate would be a good idea, especially if that is combined with a taking of bank shares by the State as security. Thus the State would sit on the boards and would get 900 million a year in interest. Yes, that’s a very good idea. Let’s hope Franklin Delano Lenihan is listening.

    But the key element of this article is what you write about the architects of our current crisis:
    “More significantly, capitalism works on rewards for a job well done and sanctions for messing up. To protect the reckless would signal to the world that Ireland is not a serious country. It would imply that Ireland is a crony backwater that got lucky and that the State is characterised by gombeenism at the highest level.”

    Well, yes, you are right. But unfortunately I think – backed up by many years of experience – that Ireland is indeed “a crony backwater that got lucky and that the State is characterised by gombeenism at the highest level”. We have become a banana republic without bananas, and many foreigners do indeed not take us for serious. With the exception of Albania and Italy I could not think of any European country were conditions like the Irish exist or would be allowed to exist.

    There is of course a historical dimension to this. When Lloyd George offered the Irish Treaty, Sinn Fein, IRA and IRB were prepared for almost anything but one – governing and administering a country and running a national economy. Thus from day one the Irish Free State was a Mecca of improvisation, run on a day to day basis with no great planning and concept. (The Civil War that Eamon de Valera forced on the new state did of course not help either…)

    Sadly this ‘tradition’ of improvising and meddling on from one day to the next has survived in Irish politics as well as in many Irish businesses to the present time. I am absolutely with you that this has to be changed, and that a considerable amount of heads – especially in the top ranks – have to roll. But under the current conditions I cannot see it happen.
    A real change would have to be a change of the whole system, and that will never happen with FF in government. I have not much confidence in the changing abilities of FG either, as they are basically FF in blue. Labour has offered a few good ideas lately, but they did not see the crisis coming either and are only very recent converts. With the Greens compromised by their collaboration with FF, that leaves only Sinn Fein as an alternative, and they don’t have the numbers to form a government.
    So where should real change come from?

    After the referendum on the Lisbon Treaty the point has been raised that more than half of the electorate has no longer a political party that can really represent them. So perhaps it is time for an entirely new party – one could call it the Reform Party – which would be aiming at a change of the system in order to restore decency, efficiency, competition and trust, as well as stability and economic confidence.

    And I think that you, David, would make a good leader of such a party. Think about it.

  5. Don’t worry guys. Briano has his eye on the ball and his priorities straight. His first priority is to bail out the banks via the builders. See http://www.homechoiceloan.ie/ for more details.

  6. David an Irish Solution to an Irish Problem

    Punishing all shareholders is counter productive for future private participation and reward for continued support from institutional and retail investment shareholders.

    A more reasonable approach is for a lower charge such as 7% with dividends retained for 1 year and then dividend distribution may recommence subject to maintaining Tier 1 ratio levels.

    Paying for this from the Pension fund alone leaves out the option for retail savers and institutional pension funds to benefit from this one time opportunity.

    The solution:

    Spread the distribution beyond the Pension Fund by offering a 10bn Euro 5 year (Special Purpose) fixed interest treasury bond at 6%, underwritten by the Pension fund for of 1% per year. This gives 100m Euro to the Pension fund each year. (The Pension Fund sets up and manages a Special Purpose Treasury Vehicle (SPTV)

    These SPTV’s would contain a convertible option for shares across the Irish financial sector at expiry date of the bond held in an ETF (Exchange Traded Fund) and would give the investor (treasury holder) upside when converted at 10% below a moving average price for 3 months on expiry. Any conversion would require all banks in the scheme to issue shares to the ETF if called upon at expiry.

    These SPTV’s can also be traded on the Irish Stock Exchange.

    The SPTV and ETF will be held and managed by the Irish Pension Fund.

    This solution provides options for all savers and Irish tax payers as well as Irish and International pension funds a high interest yield bond with Triple AAA rating with cash from the Irish Pension Fund a convertible option to participate in the upside or a regenerated banking system.

  7. Lorcan

    David > You can’t fix the economy without fixing the banks.

    The current recession, like a bank run, is becoming a self-fulfilling prophecy. The ECB yesterday said that demand for euro banknotes had increased by 2.75% week-on-week. The reason? People withdrawing money from their bank accounts.

    So how will recapitalising the banks serve to fix the economy? A healthy banking system is a better than a broken one, but if demand is down because consumers have stopped spending then a return of credit will not fix much.

    Thanks to Gordon Browne’s recapitalisation of the British banks and our 100% guarantee we have a few good banks in Ireland now (Ulster and Halifax). How many more do we need during the coming retrenchment?

    Last week NIB wrote down it’s loan book by 318 basis points. Extrapolating this across the Irish banks would lead to write-downs of about 12.75 billion. This figure will only get larger as the property market continues to wander down the toilet. Bailing out the ‘big developers’ is bailing out the banks by other means.

  8. Deco

    Don’t worry folks, the Financial Regulator is on the case :[[[

    David McW – “Nationalising banks, despite the spin from London that everyone seems to have swallowed, is not smart.” The stock markets are sliding down again this morning – so you might be right.

    Let’s face it. This is an unsightly mess, and is not going to be fixed in one trick. The budget yesterday was insufficient in reining state expenditure. The capital budget might collapse, but the current account is still way out of control.

  9. VincentH

    In the 30s the then Gov went and ‘bought’ the debt owed to the UK. Land bought in the 1880s at insane prices was then effectively nationalised for a time. And they did a nice bit of slight of hand when they halved the amount to be payed but doubled the time. Why cannot something like this be done. It would pull the tooth for the banks and would protect the market. The AIB and BOI have no god given right to existence and banks are not all that hard to establish

  10. Woodsey

    David,

    This is the oldest one in the book. When things are down, sure we can always raid the pension fund. It’s not doin’ nuttin’ just lyin’ dere.

    Besides the very questionable morality of such raiding, do be careful. €18 billion? National pension funds were amongst the hugely gullible purchasers of CDO’s.

  11. John

    A bit off the point – but can anyone tell me where all of this liquidity (that was given to banks) has gone? Govornment Bonds or Gold I presume??

      • Furrylugs

        If I was sourcing a funding partner for a major project and their capability presentation under the present circumstances quoted figures from last March, I’d run them out of the room.

        • Lorcan

          I found more interesting the fact that they expected credit write-downs to be in the order of 40 basis points this year and between 60 and 90 next year. Considering NIB has made write-downs of 318 basis points for this year, the figures quoted by BOI are tantamount to fraud.

        • Furrylugs

          Ah Lorcan. Fraud is for little people. We’re talking “adjustments” here.
          Now if I fiddle the means test for the little old lady living here, thats fraud.
          If I convince the bank to lend me another few million with information based on dubious assets to service my debt, thats called High Net Worth understanding.

          Anyone checked the share prices for brown envelope manufacturers today?

  12. AndrewGMooney

    David’s proposals may well be technically elegant and represent an innovative and daring way forward for Ireland to stabilize it’s banking crisis. Although I thought that had already been achieved by giving an unlimited Sovereign Guarantee on depositor funds? *rollseyes*

    “Of the Government’s bank guarantee, Mr Neary said it has proven “successful in that it has stabilised the funding situation” and added that that there had been “substantial inflows of funds” into Irish banks following the guarantee.” : ‘Regulator admits €15bn of bank loans ‘vulnerable’

    http://www.irishtimes.com/newspaper/breaking/2008/1014/breaking40.htm

    I’m wondering how The Irish Public will react to the proposal to put the ‘Pension Reserve Fund’ into the pot on top of the previous infallible ‘solution’ of the Sovereign Deposit, Bond, Loan Guarantee. Tricky P.R issue.
    When David says: ‘Lenihan should look for an Irish solution to an Irish problem, rather than a cheap import from abroad’: Alarm bells ring. Ireland is part of the Eurozone. Solidarity. Subsidiarity. Singing from the same hymn sheet, etc. However, so long as these proposals can be defined as using spanners and wrenches from the EU agreed ‘toolbox’, and it gains public support then: Risk equals reward, etc. As with The Lisbon Treaty, Ireland is a Sovereign State and has to decide it’s own destiny regarding it’s relationship with Europe. I personally think Ireland is past the point of no return having joined the Euro and, thus, has no real choice over it’s banking system or The Lisbon Treaty, but then, I’m not ‘really Irish‘, so my opinion is probably irrelevant. Especially as I live in Great Britain where we weren’t even asked to try to understand the aforementioned treaty. Our leaders just did what was best for us. How kind of them!

    David also says: “The unprecedented banking packages announced by the EU in the past few days have put it up to the minister to inject huge amounts of cash into the Irish banks in return for equity.” This is just The Market reacting to the riposte of other market participants towards Ireland’s previous unilateral actions. It is exactly what was to be expected. I predicted ‘shock and awe’ tactics from The British Realm and it duly arrived. Following that, I’m not surprised to see a headline like ‘Irish banks fall again over issue of State take-up of shares’ in yesterday’s Irish Times. I note media reports that the Taoiseach tried but failed to limit the wording of the EU communique to say Govts ‘may’ inject capital into their banking systems, rather than ‘will’.

    “Nationalising banks, despite the spin from London that everyone seems to have swallowed, is not smart.”

    There is no ‘spin’ from London, David. The British P.M was invited to address the Eurozone meeting, which in and of itself was astonishing. The assembled National leaders could have chosen to laugh him out of the room. They didn’t. They thought his proposals merited serious examination and appear to have adopted a variation of them that fits their own situations. Ditto Dubya, Paulson and Bernanke. David, you go on to list a series of punitive sanctions under your proposals which could be applied to Irish banks in reserve for accessing the Pension Reserve Fund. In other words: They will be beholden to the Irish Government. In which case the technical niceties of when a banking system is ‘free-market’ or ‘part-nationalised’ seems moot.

    It’s hard not to see this as a bit of a mess. If Ireland was determined to go it alone, surely all parts of the package needed to be in place prior to firing a blank? Rather than offering a Sovereign Guarantee on Deposits, Bonds etc one week, followed by whatever maverick measures will be adopted to recapitalize Irish Banks in order to bring their Tier 1 ratios in line with Eurozone equivalents. I hope David’s proposals get a hearing. But more than that, I hope that Ireland gets it’s act together as regards ‘going it alone’, as The Market tends to home in on those isolated from the flock. Surely all that matters at the moment is quelling the panic and not spooking The Market any further? Ireland cannot afford to be dubbed a financial ‘Sicily In The Rain’.

    This is no time for novices or novice proposals.

    http://www.timesonline.co.uk/tol/news/world/ireland/article4926367.ece

    Kind regards

  13. Ire_in_Exile

    Once again, very well thought out and balanced points that cater not just to the economic but the social.
    Charge the banks and demand resignations, but is this punishment enough?
    Shouldn’t the government be thinking in terms of criminal prosecution?
    Remember, a citizen will go to jail for stealing 20euros, or for not paying 200euros in tax, but if you have been involved in the organised extortion of millions,( whether by intention or mismanagement), is forcing resignation enough?

    The public need to be reassured, not least if the idea of touching their pensions to bail the system out is on the agenda..
    Only if tough, determined and responsible judicial action is taken can the reputation of the government and the country be saved.
    Though I know there is hardly much of a recorded history of this so far!

    • Ire-in- Exile , you are an ould romantic , dreaming of old Ireland alas here Our Boys wouldn’t dare put a banker in jail, they are held in higher regard than even our Bishops !. Sure in a honest society there would of course be recrimination for the high scale of fraud and deception carried out by Our bankers, but the Irish physic prefers having the back been beaten down….we are a bunch of hypocritical sheep who are easily led , when the minority speak out about these injustices , we are literally shot down ,and told by the old school to shut up and if you don’t like it , well you know where the airport is . But we do need to soon wake up and stop getting drunk and just moaning on our bar stools other wise the system will never change here.

      • Ire_in_exile

        100% correct Brendan, but indeed it amazes me (and greatly irritates me) the simpleton gullibility, docility and sheepish irresponsibility of the Irish population- they take it and like it, whatever is doled out.
        One would think that centuries of oppression and abuse would have made them sharp and alert to maltreatment but all they learned was to accept it and hunch their pitiful frames in expectation of more.
        Sadly the powers that be in Ireland are aware of this, and thus this theme of betrayal is regular in my comments, they ousted the oppressor only to take on the mantle for themselves. it is an unscrupulous upper elite emboldened by the knowledge that no matter what outrage they pull, the public will turn a blind eye..
        and very sadly, they grumble and talk and chatter and grow indignant with drink- but at closing time they all heal off politely home, and nothing is done.

        With regards to Eds comments below, it is the exiles and diaspora who are most pained by the situation in Ireland because their experience abroad makes it clear that it does not have to be that way!
        Citizens on the continent simply don’t take any crap at all from their representitives in power. (Not to say that hallways of power in general contain any known degree of perfumed air )
        They demand services, health care, education not as possible future enticements- but as a damned immediate right, politics and finance can start after that.

        There is every evidence that we are living through historic times and that there is every reason to believe that the population of Ireland have been involved in a a massive swindle by their own “authorities”, but despite the catastrophe now facing the average citizen (Locked into paying a 35yr mortgage on a property worth half the value by next year for example) I still have severe reservations that anybody could be bothered to care and in doing nothing they merely line themselves up for the next oncoming slaughter.
        I am glad I am away.
        I shall have my Christmas Turkey this year on the continent, while the Irish sit at home and cook their own gooses…

  14. John Q. Public

    The heads of these banks should get the Nick Leeson treatment. Cap their earnings for the rest of their working lives to teach them a lesson.

  15. Fergus

    Would love to see criminal prosecutions, but in the meantime, what about one of the little people suing the banks/mortgage providers in a civil court for negligent misstatement? In every walk of life we rely on others for professional help and advice, and when that advice is negligent, then the “victim” can occasionally successfully sue for negligent misstatement to cover the resulting loss. There are precedents for this in the financial world.

    We might all have mixed feelings about the suckers who took out 40 year 100% mortgages at 8 times their salary, and whether they deserve to crash and burn for their stupidity and greed, but behind these naive people was a banker who told them that things were more or less hunky dory. I suppose my point is that if someone successfully sued in this way, the banks could be brought to heel at last, cos the Government certainly won’t do it.

    I still have mixed feelings about this, but talking to an ardent FFer the other he told me such people should take the hit, as it’s their fault,not the Government. He also said that the increase in the threshold amount for local authority mortgages was a good idea, as it would get the economy going again.

    These people simply do not care about this country, just their own skins.

  16. Philip

    Cheer up everyone. We’ll have the lowest taxes and the highest levies. The banks & builders are one and the same. So really guaranteeing the Banks was the same as guaranteeing the builders and it’s now becoming plain to see.

    There will be no resignations/ firings/ clearouts etc. Investors are going to run out of this place. Will the EU have any say in the nonsense that is going on here. They are quick to sue our asses off for the odd smelly beach and the bad pint of water…

    • Fergus

      The EU doesn’t say much because the EU doesn’t have as much power as people think. People vote no to Lisbon etc because they worry that we are losing power to Brussels, specifically they worry about the democratic deficit, yet they are happy to live in one of the most centralised States in the democratic world, with an emasculated lower house, a constitutionally toothless upper house and a dysfunctional system of local government. Ignorance is bliss.

  17. Deco

    Phillip – “There will be no resignations/ firings/ clearouts etc. Investors are going to run out of this place”. Exactly. That which constitutes the leadership of the established Irish commercial sector, is rotten with cronyism and nepotism.

    David McW – the banks need to be audited – get the revenue commisioners on this – they should be sharp enough to know what is going on. The Financial Regulatory Authority need to be completely cleaned up first. First step is to replace Patrick Neary. He has failed. He is the gatekeeper who is protecting the bank. It is the job of the financial regulator to find out what is happening.

    We are hearing stories about junkets from bank senior management. More will start to come forward in coming weeks. Fastest way to find out what is really going on in the banks -> send spies into South East Dublin, South East Meath, North Wicklow and North Kildare, to the golf, rugger, and GAA clubs where these cronies all congregate and backslap each other. They will keep everything from the auditors and then go for male bonding, booze, and mull over everything amongst each other.

    Also I think that if Fianna Fail are not tough on the banks and the builders, there will be councils that will be handed over to control of FG-Lab, and even FG-Independents coalitions. This will cause a massive headache to the Fianna Fail government because the new regimes at local levels will aggravate local TDs, and central government.

  18. Deco

    Fergus – thanks for the synopsis of government in Ireland. About the shortest way that it could be described accurately. It is not functioning. And it is open to external (financially lubricating) infleunces. You left out the IDA – sometimes the IDA influences economic policy. But this has not been the case since 1998. Also the don’t forget the HSE, a kind of a state system with the state system. I mean there are enough people working in the HSE to constitute the entire government of some countries.

  19. ronan craven

    http://www.homechoiceloan.ie what a joke !!!!!!

    talk about bailing builders out !!

  20. ronan craven

    david,

    can you comment on the http://www.homechoiceloan.ie website ??

    This has been completely overlooked by the media !!!!!

  21. Donal O'Brolchain

    Both David and Emerald Islander has got it right about the architects of our current crisis.

    The Taoiseach Brian Cowen has been a Cabinet member since 1997, along with others periods in office before that. During his time as Minister for Finance (2004-2008), he did nothing to reign in the policy of adding fuel to a fire that was already out of control. In this, he showed exactly the same cast of mind as during his time as Minister for Health (1997-2000), when he let it be known that it was like Angola, in a way that was not meant to be complimentary! During that time, was he told about the illegal taking of money from some nursing home residents? If so, he did not do anything about it. With this kind of form, what does this suggest for the future?

    Similarly, the current Governor of our Central Bank was the accounting officer in the Dept. of Health during the period when the State was taking money without any legal authority (ie. robbing, stealing) from some patients in nursing homes.

    This record does strike me as showing the cast of mind that puts the public interest before their own comfort. As I have not read the Travers Report on this scandal, I am not clear about the reasons for the lack of action by both these men who held powerful positions in the Dept of Health. The fact that Mary Harney dealt with the the nursing homes issue, within a very short time of becoming Minister for Health, is sufficient commentary on the inertia of powerful people in this state.

    Just as with the nursing homes situation, the powerful have been sleep-walking their way into this crisis. The shambolic performance of the Taoiseach and Tanaiste during the referendum on the Lisbon Treaty was a clear sign of complacency. The Government spin on the financial crisis as not being home-grown is an attempt to hide years of bad government here. Our ability to cope with the financial crisis has been weakened by the naivety of many public and private sector leaders with regard to the house-construction fuelled bubble in public finances.

    Hiring Merrill Lynch to advise on the current crisis fits very well with the cast of mind that thinks that we have to do very little ourselves. Or as the late Professor John Kelly put it “Ireland’s political and official rulers have largely bheaved like a crew of maintenance engineers, just keeping a lot of old British structures and plant ticking over”

    Even with our 4m people, I believe we can do a much better job of governing ourselves. To open up the possibility for considered action and to limit the scope for excess by the powerful, we need to rebalance the complete domination of the executive side of our government system with all of the following
    1) guarantees freedom of information at all levels of governemnt (eg. Sweden);
    2) separates the representative, executive and judicial branches of government, completely;
    3) fixes the residual power of the state with the citizens by means of Swiss-style direct democracy;

  22. Donal O'Brolchain

    Correction First sentence, 4th paragraph should read
    This record does not strike me as showing the cast of mind that puts the public interest before their own comfort.

  23. Some of you here may not even be old enough to remember when Bob Geldof had his punk band The Boomtown Rats, and their song Banana Republic ,.well this is what we are living in . While Mr Williams may ask here for our finance minister to take equity in our banks and monitor them from here , this evening we see what he is doing a premium of just 100 million over two years , going to put a few more directors on their boards and set up yet another quango to study the Bank managers wages and bonuses , no doubt this group will return to tell him these bankers are not been paid enough!
    Just look at the budget €10 flight tax to leave unless your flying out on a plane which carries less than twenty ( executive jets ) , Big Fat Mary is now been blamed for the medical cards been taken from the seventy year olds ( well she needs the money for the new Burger Mc Donalds are doing now ) , and Gormely wants to charge us €200 a year for driving from Carlow to Dublin car parks to keep down our Carbon out puts when the cows in the fields here put out more gasses than our cars do .
    While all our elected T.D’s even when debating the most unproductive budget in decades still manage to read from prepared scripts.
    I hope the coked up stock brokers in London wreck the Irish banks , just because they can. Then when us the tax payer is left with paying this guarantee . Brian Lenihan might after wards sack the regulator for not seeing it coming

  24. Malcolm McClure

    David’s sub-editor began his headline “Don’t bank on the banks” and I thought for a moment that David was finally going to discuss the overwhelming potential down-side risk in his (and the government’s) strategy of guaranteeing the Irish banks’ debts.
    Instead he suggests purloining €10 billions from the pension fund and charging interest on it.
    Surely that €10 billions isn’t hidden under a carpet in Leinster House? Surely it is ALREADY sitting uncomfortably in the government’s account IN AN IRISH BANK? Or, perish the thought, in a high interest Icelandic account? How on Earth does he improve the situation by robbing Peter (or the derelict Paul) to pay Peter himself?
    Don’t bank on the banks, indeed. Mainly because all those hot US corporation-tax-evading deposits are likely to be called home when Obama gets elected.
    About 25 percent of the largest U.S. companies paid NO federal income taxes in 2005 despite $1.1 trillion in gross sales in US that year. The US Government Accountability Office has just revealed that major US corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries.
    It is possible that the present crisis in the US economy will cause Congress to pass a bill forcing US companies to repatriate funds held overseas for tax reasons.
    If that came to pass, Ireland would be wiped out overnight, just like Iceland.
    What is David’s Plan B if that were to happen?

    • JN

      On the subject of “hot irish deposits” it’s not just Obama who will issue the recall, McCain specifically mentioned the low Irish Corporation Tax Rate compared to the 35% in the US in the debate tonight. No matter who is elected we are looking at a less benign view of our tax efficient “cuteness” when it comes to hosting multi-nationals, and before it is trotted out, the silicon bog argument is not compelling!

  25. JN

    I skimmed this latest drivel, not wanting to waste my time reading the detail. When will you stop comparing an economy the size of Birmingham to anywhere else. Ireland is severely over-levergaed like Iceland one of our partners in the “Arc of Prosperity”. Ludicrous – hah!

    What’s the EXACT difference between lending the money at a punative 9% and taking a direct preferential shareholding and puttting some real skin in the game? It’s easy to be a hurler on the ditch. If we fire the current leadership and ship in their subordinates who were mentored by the so-called morons do we really expect a different result?

    Holy moly, DMcW is a charming enough fellow, but he writes a column and does not have to stand up to the scrutiny of his peers every day in open assembly, let alone having the entire media chucking bricks at him. If he was sufficiently motivated he would have engaged in the political process and put his cahoonas on the block to be tested by the ballot. He’s a valuable commentator not the messiah – we’ll leave that position to Brian to apply for ;-)

    The last 10 years have enriched about 5000 people who are now living in Portugal. The rest of us will be paying a mortgage for the next 35 years to pay for their golf lessons.

  26. JuicyLucy

    Hi gents

    Everyone’s pissed off because of the budget etc……, but honestly, what did people think would happen when they put the “greens” into government?

    Gormley cycles to work in a €500 suit, on his BMX, in the pissing rain……….hello!!!…….Ireland is just a little dot on the world map.

    America, Africa, Russia, China, South America can drink, smoke and piss in the rivers as much as they want, but in Ireland you can’t even park your car.

    Go Greens, whats next, a BMX tax or a Chinese Democracy?

  27. Garry

    We should not force the pension reserve fund to be used to bail out the banks.

    The conditions should first be created where investment in Irish banks makes sense, when that happens the investment will follow.

    Using the pension fund sounds good but it is a simplistic analysis. It assumes the agencies responsible for regulating both the fund and the banks are functioning effectively and working in the public interest. It is clear that the Financial Regulator is not operating effectively, and so it is premature to invest.

    Saw this earlier, http://www.thepropertypin.com/viewtopic.php?f=4&t=14558 looks like the vast majority of people believe Patrick Neary should resign or be fired.

    Given Lenihan’s call to patriotic action, is it not time for an example of such action by Mr Neary in resigning.

    • Garry

      An idea, This money being put in by the government should be an investment, not a bailout…. Accordingly, they should be putting in money as if it were their own…… admittedly with a view to leaving it there for at least 10 years.

      What could be done to ensure that its done properly?

      Maybe remove the defined benefit portion of senior civil servants pensions and make it dependent on performance of this investment?
      Or maybe allow the public to invest on the same terms as the government, i.e. the govt invests for a % of the bank via a fund which the public can directly invest in as well as the govt.

      Why not get serious about this?

  28. Furrylugs

    Since we have the “Budget” and The Lenny is not for turning, we better get on with putting food in the fridge. The banks are effectively ringfenced against the recession so they won’t worry too much about the state of the markets overnight.
    It’s looking like the last few weeks all over again except now it’s commodities and services being hit.
    We are being bombarded with financial services adverts on RTE as though nothing has happened. There was a clown of a fool on Seoiges yesterday, Conor Lenihan, making the arguement that since the economy is in decline, retail prices will drop and so negate the new tax hikes from the budget. FFS.

    If the only thing these people regard is money, and further to calls for new political movements etc, everyone should just move their money, even for a week, to a safe UK bank.
    That’s number 1.
    Number 2.
    Cancel all direct debit mandates and pay bills in the post office by cash. Only for a short time.
    Number 3.
    Place all long term savings in the Credit Unions.
    Number 4
    Where possible, reduce credit card limits to 1000Eur or less.
    Number 5
    Miss out one payment of all loans for two weeks. Won’t really affect your credit rating but would amount to a huge amount of money withheld.

    In other words, starve them of cash until we get real tangible change and a voice.
    Any other suggestions?

  29. Philip

    Events are starting to overtake us…BBC’s Newsnight was at last making a little feature on Credit Default Swaps – 60Trillion USD of them…aka credit derivatives. With all the companies experiencing recession simultaneously, the policies are being hit simultaneously and the the whole pyramid scheme is starting to crumble. Next few days could be interesting – it seems the elephant in the room has started to make a few noises…

    A global recession – severe- seems inevitable. What this means exactly, I have no real idea. There is no where to run (another point noted in Newsnight). The way out of this mess will not be financially engineered. The sole reason of this is the homogenity of the financial and communications systems which has allowed a far too fast movement of capital. Too many distant disconnected parties are influencing people’s lives. Those who believe they have state protection of laws, rights etc. will soon wake up to the reality that they never had any real control and that their nation stands for nothing. Iceland is just the beginning. I think we are at 6 countries – 3 of which has stable governments! The 19th century methods in finance & politics have failed with 20/21st Century technology.

    This all sounds very negative. But, I think people are waking up. People are reading the financial pages and paying more attention to the politics. Lenihan & the lads are going to find it hard to gloss over the coming mess. I put me money on that FG “upstart” Varadkar making some waves soon. I think we are nearing a critical mass of such guys coming to the fore. Maybe this is all for the good

  30. The Eye

    Is It time to withdraw all cash but tinned food and a shotgun and hide?

  31. AndrewGMooney

    On BBC Newsnight an interesting piece on credit-crunched Dublin flawed by pointless emotive images of street beggars: Most of the consumers crossing the Liffey looked cheerful enough for now. There’s always been troubled souls on every city’s streets looking for loose change. Pertinent input from Dubh taxi-driver about the ‘reverse engineering’ of Polish Paddy pissing off back to Poznan.

    One bearded Paddy professor said the country was no longer a Celtic Tiger but a Clockwork Mouse and was optimistic that the Celtic Mouse still had a few turns of the wind-up to run in terms of economic growth. Seems to be having a bit of a larf, innit?

    CDS’s were prefaced by images of black holes a la Stephen Hawking. Didn’t scare me as I’d already had a catastrophic colonic event from reading up on these exotic financial instruments previously.

    Then, on BBC HardTalk, good ol’ Charlie McCreevy said he wasn’t there to defend the actions of the Irish Government over Bank Guarantees but repeated the Bruxelles mantra that “we’re all in this together”.
    Even if some of us are doing something totally different without consulting anyone else. Totally contradicting himself as he’d previously said Governments don’t have the luxury to consult when they’re in headless chicken panic mode, blah, blah.

    Is he Ireland’s Prince of Darkness about to be called back home to join the Emergency Government? Hmmmn…..

    http://www.timesonline.co.uk/tol/news/world/ireland/article4926168.ece

    • Fergus

      For crying out loud Andrew, McCreevey is the last person we need. This is the guy who famously screamed “tax is theft”, and then introduced or raised 26 taxes in the 2002-3 budgets, in order to pay for the 2002 election giveaway(never income tax of course-that would be “raising taxes”!!!) The guy seen as pro-business and entrepreneurial who dreamed up the erroneously titled “decentralisation” scam (read scattergun relocation) in order to stave off electoral meltdown in the 2004 local and euro elections, and ended up disfiguring beyond repair an already dysfunctional civil service, something which is vital for the functioning of any economy. The guy who understands the free market and competition, yet who presided over the entire privatisation of our national telecoms company, giving the private version an almost total monopoly over fixed line and broadband provision(which was then sucked dry by George Soros and Tony Reilly-payback for Independant Newspapers support of FF-PDs in 1997), and making us the ICT laughing stock of Europe.

      Like every other FF crony, he does not know the first thing about business discipline, economic management or honourable public service. It is a testament to the laziness of Irish media stereotyping over the last ten years that he has been portrayed as the buccaneering pro-business bad cop as opposed to Bertie Ahern’s socialist good cop, the champion of low taxes and deregulation as opposed to the tax and spend policies of “left wing pinkos”(rollseyes Andrew!!), and the no-nonsense straight talker as opposed to the dithering mess of his party colleagues.

      As any “elitist” French or German (that’s Brit speak for someone from the European mainland ol’ chap!) policy maker will tell you, the man doesn’t even speak English.

      Matt Cooper hasn’t a clue.

      • Furrylugs

        Well said Fergus.

        Matt Cooper ……who he? Another pundit without an independent thought.

        As for the critical comments above vis – a – vis DMcW, he’s open about his comments/policies and subject to the same criticism in the public arena as anyone else. We have the freedom on his website to comment as we please. The general commentary here is wide ranging and thought provoking. Please steer away from getting personal with the guy facilitating the dialogue.

  32. Philip

    Ah no Andrew, Sproutland is much too nice a place to live in for McCreevey to be bothered coming back to de ould sod.

    Eye: “Is It time to withdraw all cash buy tinned food and a shotgun and hide?” – I think it time to learn to cook and survive on the basics and if you have a few square metres of soil with the sun shining on it, plant a few spuds. Learn how to darn those socks, fix those leaks etc. People with trades will always be needed to keep things maintained. Repair will be the big business of the coming years.

    I’d buy plant and machinery to meet local needs for repairs in our community. The throwaway society is over. It’s CUBA and it’s goin Global…maybe the same might happen with their Heath system….now that would be a good result.

  33. P M

    Credit Default Swaps will become payable for the Lehman Bros collapse on Oct 21st. The estimate of the amount varies from 100Bn to 600Bn, (apparently no one knows how much). The organisations who will pay include AIG (thats what the 120Bn paid by the US Govnt is for) numererous unnamed hedge funds and potentially banks such as Morgan Stanley, Goldman Sachs, Credit Suisse and Deutsche Bank.

    The company who will get the money is JP Morgan.

    Apparently this “fact” is refelected in all of these companies share prices. Some commentators apparently think that with the numbers involved some organisations will go to the wall, the most likely being the hedge funds. If none of the banks involved go to the wall then things will in all likelihood be ok, if they do then there may be a further domino effect later, (further CDS payments presumably). This apparently is one of the reasons why banks are not lending to each other, (would you in these circumstances??).

    Further CDS events will take place over the next month for Washington Mutual and all three of the Iceland Banks.

    So you might want to get some beers in on next tuesday for the show.

    Are any Irish Banks involved in these Credit Default Swaps?

    • Excellent point. I read a report recently that suggested the US credit derivatives market is worth at least 50 trillion with CDS’s making up the majority. These are estimates obviously but the bottom line is a figure so large that it could collapse a country never mind a bank. Admittedly that figure is believed to be the total amount of credit derivatives swaps outstanding in the US.

      Because of the good old US belief in minimally regulated market freedom a reasonable sounding mechanism to transfer risk became the spring board for a range of financially engineered derivatives which multiplied both the number of parties involved and the net effect of any individual default. CDS’s require low capital backing so they’re risk that appears “cheap” to play with and potentially very lucrative. The multiplying affect is probably 10 as the commercial loan market in the US is supposed to be worth around 5 trillion dollars.

      So one bank fails and, simplistically, brings down another 10 financial services companies with it. It’s a ripple effect that we can’t insulate ourselves from, even with an unlimited guarantee.

      This won’t “balance out” as they say due to the multiplying affect and the scale. There’s simply more risk-based derivatives out there than assets to protect. Even more so when you consider those assets are inflated. We already know European banks have participated in this market so even if no Irish bank has partaken in the CDS market directly, it is reducing and will further reduce the ability of Irish banks to get credit. It could also devalue their other investments. No bank is an island :)

      I think the size of this black hole of risk is what’s terrifying world governments into producing these massive bail out packages. As it’s cheaper to nationalise or recapitalise one bank than it is 10.

  34. The Eye

    phillip i agree, I knew Hugh fearnley Whittingstalls’ River Cottage series would come in handy one day and its a firesale on plant and machinery.
    ….Meltdown the real pain is about 6 months away.

  35. Furrylugs

    Seven habits that help produce the anything-but-efficient markets that rule the world by Paul Krugman in Fortune.

    1. Think short term.
    2. Be greedy.
    3. Believe in the greater fool
    4. Run with the herd.
    5. Overgeneralize
    6. Be trendy
    7. Play with other people’s money

    Sounds familiar.

  36. good article again david, not sure the 9% rate would work ( they would lend to the rest of us at an even higher rate…. so kind of self defeating) but not a bad idea all the same.

    we need to recapitalise the banks, bring in appropriate lending policies – bring in responsible management – pay them in shares of the firm expiring 3 years from initial payment date, and more than anything we need dramatically reform our publuc servants – fire them andpay them less – they are like parasites living off most working people, who create nothing and don’t work towards the greater good of the country

  37. Ed

    Condemning bank bonus culture is one thing, but what about our politicians claiming excessively high salaries on the back of claims of delivering a first class economy – a 50% reduction would be appropriate now that the truth about. The argument was that high salaries would attract talent – where is it?

    http://thatsireland.com/2007/10/26/willie-o%E2%80%99dea-to-be-paid-more-than-dick-cheney/

  38. Deco

    We need to get some heads out of positions of influence to get the reform process moving. Shane Ross is correct. Get these two useful clowns off state pay/state support. These two wasters do less useful work than any unemployed person but cost the state millions. One of them costs as much as ten unemployed construction workers on the dole. The other could have been responsible for putting them on the dole, and has a lot of questions to answer to shareholders in the Bank that stupidly employed him.

    http://www.independent.ie/opinion/columnists/shane-ross/pussycat-paddy-is-for-the-birds-1496594.html

    Enough is enough… The taxpayers require
    i) a new, clued in head of the Financial Regulatory Authority
    ii) a new, more modest and hardworking head of ANIB.

  39. Donal O'Brolchain

    Lest we get carried away with looking for heads, we need to focus on the future of how we, 4m citizens of a Republic sited on an island off an island off Western Europe, organise ourselves for a common prosperity. As a way of thinking about the future, I offer two quotes:

    the first from Montesquieu “Where the legislative and executive powers are united in the same person, there can be no liberty”

    the second from Madison, one of the framers of the US Constitution ” Ambition must be made to counteract ambition. In framing a government which is to be administered by men over men, the great difficulty lies in this: first you must enable the government to control the governed and the in the next place, you must oblige it to control itself”

    As we have seen, our government has not been able to
    1) control itself with the way it came to believe the revenues from construction would last forever and
    2) control the governed with the way in which it kept tax-breaks going for housing, refused to close off tax loopholes used by the property developers etc

    Take the Budget. What is being controlled or enhanced by the imbalance in revenue generating when the Government proposes two provisions
    1) taxing employees €200 for car-parking spaces provided by employers
    2) taxing the owners of homes other than their principal private residence €200?

    One measure that adds cost to the essential task of going to work (for many, a car is necessary) is regarded as being equaled by a similar tax on an asset that is not essential nor useful nor productive, no matter how pleasant it is for those who have more homes than their principal private residence.

    How serious is that?

    This suggests that the Budget was cobbled together by a series of different Departments with no overvall coherent view being taken – just like the way public transport is run and developed in Dublin.

    The barons are out of control! We may vent out emotion by looking for heads. What we really need to do is draw up measures to ensure that we limit their scope for this kind of inanity in public policy-making and administration,

  40. Yes we should all email Libertas ( while I am aware the RTE government mouth will tell you Ganley is working for the CIA ! ) .
    I think the man has morals.
    David is here after all just an economic columnist expressing an opinion and doing quite nicely from his writings and books and public speaking and charging 25 euro to go watch the US election on a big screen. So he’s not our Saviour .
    Shane Ross is out of all the wasters in our Senate the only one speaking up now , while the rest hide behind their over inflated pay packets, so I’d back him too .
    Look at our elected cronies folding and u turning yet again for just over 100,000 seventy year olds ( voters they brain wash ) and where is the revolt from the twenty somethings or the thirty year olds ?… If we were really European this group would be marching on the streets by now .
    But not here , we are still stuck in the My Self mode . So we deserve to be rode .. It’s really that simple , every person who visits this site knows our banking mess ha nothing to do with America , or Britian Our Bankers lent 500 million to a Carlow man to buy 2 Hotels in Dublin , so he could knock them down to build his Ego Towers and there were four bidders just a few percent behind him in the bidding .
    So until we wake up , ‘They’ the old school will continue to just laugh at us when they appear on our screens or airwaves, they know we are too fickle to throw them out

  41. Garry

    Cant agree with you Donal on looking for heads, on the contrary I believe that unless some heads roll in a crisis of this magnitude, we are storing up future trouble.

    Certainly we dont want to create a culture where people are afraid to make decisions or do their jobs in case any trivial error results in sackings. that kind of approach leads to the “next quarter” syndrome where short term thinking rules all, there is no planning and fear about making a mistake drives all. But I don’t think we are anywhere near that yet with our politicians or senior public servants. I believe Ivor Calley was the last to resign over a serious incident.

    We need a happy medium where honest mistakes are tolerated but accountability is enforced and expected, somewhere around the same level as what operates in the UK. Once the line is overstepped there, the game is up, nobody is bigger than the nation.

    Without accountability and resignations/sackings when crises like this occurs, the necessary change doesn’t happen. The survivors realize they are untouchable. Similarly their people who are trying to do the right thing and others just trying to climb the greasy pole realize this also. Both learn how to adapt to the rules of the game, the former to stop showing up their untouchable boss and the latter to be yes men, that there is no future in honesty. A once functioning team are now a bunch of dead men walking.

    Bureaucracies are instinctively ‘self healing’ they tend to close ranks when errors are made, a culture that demands change at the top after serious failures is essential to stop the rot.

    Consider if a senior bank inspector was appointed to the regulator and suspected some hidden problem in the bank he was supervising. What sort of culture do you want operating in the regulator, one where this guy felt free to speak his mind at meetings knowing he would be grilled but if found to be correct he would have to be backed? Or a culture where agreeing with the boss is the only viable career move? If the boss knows that he will be held accountable, then willingly or not he will have to investigate. And either follow through or manage the inspector depending on the result. Equally speaking, the inspector cannot now hide, the boss can make them accountable….

    Similarly to “organise ourselves for a common prosperity.” requires a culture where people can contribute, can make honest mistakes but ultimately if they continually screw up they will be replaced. Otherwise the common prosperity gets restricted to those in the room doing the cover ups.

    “What we really need to do is draw up measures to ensure that we limit their scope for this kind of inanity in public policy-making and administration”

    I cant disagree strongly enough. Who does this? Why tie peoples hands? If such measures could be written, dont you think someone would already have done it?
    No, Give the freedom, authority, resources, pay them well, let them have a go but hold them accountable for success and failure

    I think that this is fundamental.

  42. Lorcan

    Had a bit of a reality check today.

    I attended the Gorta.org world food day conference in Dublin.

    Here’s my analogy for illustrating the wealth inequality exists in the 21st century.

    Most here who attended primary school in Ireland would have been in a class of about 30 pupils. Let each person your class represent 200million of current world population. Of the class of 30, 5 now live in the ‘western’ developed world (US/Canada/Europe/Japan/Anzac), 20 live in BRIC countries and their peers and 5 live in abject poverty (less than $1 a day).

    So for each of us facing a recession there is someone facing starvation.

    Lucky us.

    But, at the same time, it’s not our fault that we have been born here. While our relative wealth may be a source of some occasional personal discomfort, it is our national birthright isn’t it?

    Which quite nicely leads me to a point David made in his speech today at the conference.

    According to UN figures, world population will reach 9 billion by 2050, so the class now has 45 pupils. But the number of pupils in our group will only go up to six, leaving the other thirty nine in varying degrees of poverty. Again, lucky us and our children.

    But a population of nine billion will require more resources than a population of six, no matter how empoverished they are. Resources are limited or running out, so obtaining and holding them is going to move to the centre of national security agendas worldwide.

    I have found recent calls for patriotism more troublesome than most. By looking after our own interests we are naturally putting ourselves in competition with the interests of others. ( As the 100% guarantee succinctly illustrates ). ‘Going it alone’ strategies provide short term relief, but they move national positions back 100 years.

    Barry Buzan descibes international relations as an anarchic structure. i.e. there is no governing power, despite the (weakening) US hegemony. In such a structure international cooperation is fragile and can be easily threatened by many factors, chief among these (in my opinion) is nationalism. Cooperation requires negotiation, nationalism is too blinkered to see beyond it’s own (national) interest to fully engage in meaningful negotiation.

    So where does all this fit into Irish banks and financial crisis? The current crisis has meant latent nationalism in many countries (including our own) has come to the fore in political comment. When things are not going well, all nations look after themselves.

    The European Coal and Steel Community was founded to control the market for essential ‘war’ resources. By stopping competition for these resources, it eliminated the national security issues associated with them. It was founded to stop future European wars. Resource competition has led to war in the past, causes wars today (Iraq/Georgia) and will cause wars in the future.

    The current crisis will pass. But it will leave a legacy of national self-interest that sixty years of international negotiation has tried to stem. The next crisis, one of resources rather than finances, will be an acid test of whether we are global citizens or patriots.

    Sorry if this is a little off-topic, but I post it in the hope of giving a bigger picture view of things. Please feel free to disagree with the usual passion.

    • Furrylugs

      Lorcan,
      Intellectual view as always.
      I see they have tried to make Iceland go away quietly with some soft loans etc..
      I revert to comments I made some time ago relating to China. Silence from that quarter. If the Chinese have examined their banks and found no/little exposure to the various toxics, await the surge.

      As for patriotism, the word riot is hidden within. The anger I forecast by tomorrow is swelling as evidenced by the climbdown on medical cards.
      As a Nation, we are quite placid. We regard our neighbours with disdain because of their warlike nature but that should not be confused with indolence. There is tangible anger about. It wouldn’t take much to fan the flames.

      We are lacking and desperately need statesmanship. Who will step up?

      • Ire_in_exile

        and I repeat an earlier reply..It amazes me (and greatly irritates me) the simpleton gullibility, docility and sheepish irresponsibility of the Irish population- they take it and like it, whatever is doled out.
        One would think that centuries of oppression and abuse would have made them sharp and alert to maltreatment but all they learned was to accept it and hunch their pitiful frames in expectation of more.
        Sadly the powers that be in Ireland are aware of this, and thus this theme of betrayal is regular in my comments, they ousted the oppressor only to take on the mantle for themselves. it is an unscrupulous upper elite emboldened by the knowledge that no matter what outrage they pull, the public will turn a blind eye..
        and very sadly, they grumble and talk and chatter and grow indignant with drink- but at closing time they all heal off politely home, and nothing is done.

        With regards to Eds comments below, it is the exiles and diaspora who are most pained by the situation in Ireland because their experience abroad makes it clear that it does not have to be that way!
        Citizens on the continent simply don’t take any crap at all from their representitives in power. (Not to say that hallways of power in general contain any known degree of perfumed air )
        They demand services, health care, education not as possible future enticements- but as a damned immediate right, politics and finance can start after that.

        There is every evidence that we are living through historic times and that there is every reason to believe that the population of Ireland have been involved in a a massive swindle by their own “authorities”, but despite the catastrophe now facing the average citizen (Locked into paying a 35yr mortgage on a property worth half the value by next year for example) I still have severe reservations that anybody could be bothered to care and in doing nothing they merely line themselves up for the next oncoming slaughter.
        I am glad I am away.
        I shall have my Christmas Turkey this year on the continent, while the Irish sit at home and cook their own gooses…

    • AndrewGMooney

      One third of the classroom is Chinese. These 10 Kung Fu Kids are currently offering to help the few African kids with their studies, both in class, and by going home with them after school. They then get to see where the African kids live, what kind of home environment they live in and what else can be done to help them. They even offer to help them find useful things lying around their back gardens to sell to the Kung-Fu Kid’s parents so they can buy books and school uniforms in the local market-place. The African kids didn’t realise until recently just how valuable some of this stuff was.

      The Kung-Fu kids note that there are many kids in each African family, unlike in China where there’s usually only one. They see the parents of these African kids seem to be dying at an alarming rate for no real reason, and those parents that remain aren’t as lovingly strict (Confucian) as Chinese Moms and Dads. They let all the African kids think they’ll become Arsenal stars or Oprah Winfrey. Even though they’re poor, they have a little telly in the village hall – shack. But no physics textbooks. No library.
      The Kung-Fu Kids also see that by helping the African kids they will win brownie points from The Head Teacher (Mr Market).

      However, the Kung-Fu Kids have a problem. The class is mixed-race, mixed-age and mixed-sex. In the class there are some really bossy older prefects called Britain, France, Belgium, Italy and Portugal who say, “Hang on a minute! We’ve been ‘helping’ these ‘little black babies’ for at least a hundred years in this school. Who are you Kung-Fu Kids kids to step in and assume our role? Your only here because you all got expelled from your previous school, ‘The Mao Academy‘! ” And they all laugh heartily.

      The Kung-Fu Kids are hurt, confused but then they get angry: “You lot have come in here every day for years with your lunch boxes stuffed full of food, you don’t eat half of it, but then throw it away instead of giving it to these little African fellas. We used to have empty lunchboxes so we know how it feels. Why are you complaining that we’re trying to help them? You never did, you just stole their lunch money. That offends us. And them. Yes, our last school had to be closed down, but we’ve gone back to a very ancient method of teaching that served our ancestors very well for many centuries before you busybodies came and set up ‘The Mao Academy‘. Or are you forgetting you gave that ‘educational innovation’ to us”

      The Euro-Kids don’t quite follow the argument, they just sulk and complain that “It’s not fair! We‘re the prefects”. “Not for much longer” says the Kung Fu Kids. There’s also a really rich Arab kid who says: “All the African kids north of the equator are to report to me. For ever!” What the Arab pupil doesn’t realise is that a real wild-card kid called Israel had made a playground deal with an African kid called Ethiopia to steal the Arab kid’s water bottle! There’ll be fists flying at playtime when the Arab kid realises he’s been tricked.

      The Class Teacher enters the room, she’s called Mrs Sarah Palin Pax Americana. She’s new to the job because the previous class teacher Mr Big Mac McCain died suddenly of a heart attack, but then he was old. All the previous Class Teachers used to be able to assert discipline and order over the class and were even respected and admired by many of the pupils. But just lately this new one, she’s been getting a bit confused, especially with her Math. The Chinese pupils can’t help giggling because as far as they can tell, she’s insisting 2+2=5. They’re even starting to wonder if she actually ever did a Teacher Training Course! The Euro-Kids accept the Teacher’s word on trust, just like they accept the tuck-shop tokens called ‘Dollars’ which she’s handed out as rewards for good behaviour. Just like the previous teachers did.

      Of course, the Chinese kids have enormous amounts of these toy ‘dollars’ to spend at the tuck-shop, but they prefer to save them or give some of them to the little African kids – to show them they are their friends. This makes the Euro-Zone kids tease them as swots and egg-heads, whilst they gorge on Curly-Wurlys.

      Finally, there’s a few kids who have recently developed ADHD. They are a real problem as they openly answer back to the Teacher, the Head of Year (Ms ECB) and the Head-Teacher, Mr Market. Their Ritalin dose had been upwardly adjusted by the school nurse and it was hoped they’d return to being obedient, if somewhat placid, pupils. But it’s too late. Having been a model pupil for many years, The U.K Kid had become openly disrespectful to Ms Palin Pax Americana and won’t stop his infernal nonsense about how “We need to re-construct how we run this school! We shouldn’t be scared of the Teacher, the Head of Year or The Head-Master. And no-one’s going to push me around! I’m tough I am”

      He’s been saying this for years, but usually only when he‘d been called to the Head Master‘s office for misbehaviour. Ms Palin is promising to re-introduce corporal punishment by the slipper (sniggers). If fact, she’s now openly exploding saying “STFU! Yo ass is mine!” . After one such outburst, The Kung-Fu Kids have had enough. They leave the class en masse. So does the Arab kid. They throw their tuck-shop dollars in the bin on the way out.

      And then there’s that little bruiser called Ireland who just recently threw a chair through the window, really annoying both the Teacher, the Head of Year and the Head Master. He’s on a final warning. If he does it again, he’ll get expelled (which would be a shame as he has amazing potential). Sarah puts on some more lipstick and quietly tells him that before he leaves, he’ll have to hand back all his tuck-shop toy dollars which he‘ll never get to spend on the Meccano and Hornby Train Sets which he was hoping to buy from the tuck-shop; because he‘d got really fat on sweets and pop and isn‘t allowed any more sugar rush spending what with the Ritalin.

      After school, Ms Palin goes to shop in the Market, but all around her are signs saying ’$ not accepted’. She is confused. Ein,Zwie, Drei: Weimar.

  43. blueangel

    Good post Garry on accountability.
    As a returned emigre in my observation the customer service ethic is not consistent in the Irish public service – nor many other other parts of irish society for that matter.
    The best analysis of the Irish public service and its mindsets and syndromes I’ve read is by William Kingston at TCD. One of its many delusions according to Kingston is that it can ape profit-driven companies and be entrepreneurial, dynamic and competitive when it chooses to do so. Yet the legal, governance, financial and management practices are utterly different. Hence the various embarrassing failures to commercialise what were once technical advisory services as consulting services, and so on to the present day where a nationalised technology innovation system is being built top-down involving the universities and driven by the enterprise agencies.
    Innovation is for private enterprise and supporting people/managing the regulatory environment is for the public service. We cannot tolerate state dogs-in-the-manger in much of Irish life – transport, utilities, education, healthcare, training and technology. We must push the state back into its core function and insist that half-baked agendas to expand it into areas of ‘market failure’ be publicly discredited.
    Of course Neary will consider his position – and I’m sure he’ll make the honourable decision, and yes it will make a difference. But I can empathise with the man and the difficulties he would have faced bringing his cheer-crazed charges and political masters from euphoric over-confidence to something approximating objective prudence. Hindsight is great.

  44. Furrylugs

    BTW..why do we always have to apologise for coming home after a successful career abroad when the Nation couldn’t provide the opportunities?
    And why do we have to qualify our comments as though the repository of all wisdom is sacrosanct to the State?
    Why are the “Emigres” the first to see through the cess and relocate(sorry …Desert)?
    Why do we maintain a love and pride in this country when the indigenous ruling elite would be turfed out of Somalia?

    I’ve secured a contract today working out of London but based here. They were delighted to get hold of me.

    Yet here I’m a tainted pariah.

    Unbelievable

    • blueangel

      I suppose I feel that in the ‘real economy’ Ireland is basically a provence of Anglo-America, similar to Scotland. Lovely, but not big enough to support much so-called knowledge-based activity, and due to our FDI focus there isn’t much else going here apart from spirit-crushing state jobs. Emigres move around because they can’t ply their trade consistently in Ireland for various reasons.
      Well done Furry on your contribution to internationally-traded services – and Happy Landings!

  45. Donal O'Brolchain

    Garry, I agree that heads have to roll when things go seriously wrong, as they have now here in Ireland. The trouble I have is that the replacements come from the same culture. The question is one of appropriate experience, not of intelligence or honesty. Hence my outlining what is publicly know of the careers of the current Taoiseach and Central Bank Governor. IMO, their past record raises serious questions about their fitness for the offices they hold. In the nursing homes issue, the Secretary General of the Dept of Health was fired from that job, when Mary Harney introduced legislation to give a legal basis for the charges etc. Yet, that official was appointed Chairman of the Higher Education Authority. Why? I suspect that this was part of a deal for him to stay quiet, not take a court case for “unfair dismissal”. One can imagine how many reputations would have questioned in such a court case. After all, this is the Dept whose officials actively misled the first non-sworn enquiry into the Blood Bank scandal.

    We could spend all out time identifying who should resign, but find that the next person up is no different

    IMO, there is lack of political and administrative integrity in our elected and appointed public officials.

    My current example is the death of the 5 girls in the school bus crash near Kentstown, Co. Meath. A court found serious faults with the way the bus was maintained, so serious that it seems it was not fit for purpose. As I did not read the judgement, I cannot say if that phrase was used.

    The school bus service is provided by CIE (often using buses and drivers on contract, I believe), under contract from the Dept of Education. IMO, the following heads should still roll for the lack of duty of care shown by that accident, as confirmed by the court judgement ie. the Ministers of Education and Transport (in office when the judgement was made), the Secretary-General of the Dept of Transport (the accounting officer for both CIE – the state-controlled and wholly-owned operating agency of the school bus service and those agencies that inspect buses for fitness of purpose, along the same lines of the NCT), the Chairman and CEO of both the CIE group and the wholly-owned subsidiary Bus Eireann, which I understand manages the school bus service.

    When I have raised this, I have been told that it OTT. What I find OTT is that there is no campaign, in either the Dail or the media on this failure of public service.

    Blueangel. I too find William Kingston’s views inspiring.

    • Garry

      Employment legislation which was originally designed to protect ordinary workers, is now used extensively by very senior people in the public sector to ensure they are unsackable. Benchmarking could be used as a way to resolve this. Leave workers as they are, have a grade of ‘junior managers’ on existing contracts (like kids cycling with stabilizers, they will learn), and have grades for grown up managers with accountability, where new contracts would have to be signed for all new promotions to real decision making positions.

  46. Martin

    Hi
    A lot of doom and gloom in the posts. And things will probably get worse before they get better. A lot of talk about Ireland returning to the 1980s. But i don’t thing this will happen. over the last 10-15 years a lot of wealth has been created, admittedly it was via the property market, which is unsustainable. However it did show that the Irish have a lot of entrepreneurial spirit., a willingness to set up businesses and take a chance. This spirit must be harnessed going forward. but it must be in areas that are sustainable and that will provide real growth via exports. Take a look at the people on http://www.eoy.tv. All Irish, all competing internationally, all headquartered in Ireland. This is Irelands future. I listened to the US presidential debates, it appears that Barack Obama will win. I think this will be bad news for Ireland as regards FDI. He will give tax breaks to American companies that do not ship jobs over seas, which means that there are likely to be less jobs created by American multinationals here. So we will be on our own. It may be no bad thing, it will force us to innovate. There are companies doing this already but we hear very little about them. Only job losses make the news. It is going to be a painful next couple of years but hopefully we will come out the other side leaner and wiser.

  47. Ed

    “Why are the “Emigres” the first to see through the cess and relocate(sorry …Desert)?
    Why do we maintain a love and pride in this country when the indigenous ruling elite would be turfed out of Somalia?”
    Furry, The main problem, as I see it ,is that 1916/21 is used by our rulers as a type of calling card and as you know, it was all about pulling things down – a negative action performed in our interest. We are reminded at opportune moments that we owe everything to these people and their descendants – but at this remove, do we? Our neighbours on the other hand were all about building empires – a positive action in their own interest.
    So basically we have rulers that are in power because their ancestors became famous, for performing a destructive act and this is the root of our problems with our political system.
    When you’re abroad, the mirror of Irishness is held up in front of you and soon, you come to recognise your strengths relative to the locals – from that moment on you’re on a positive track and become very patriotic in a positive sense. It is then that you start to see through the set-up back home and on your return, you never really fit into the system here again.

  48. John H

    Maybe it is a good time to be an Internet start up

    according to Paul Graham

    http://www.paulgraham.com/badeconomy.html

    BTW well done to Polldaddy getting bought out by the people behind wordpress -not bad for a two man operation

    http://www.web2ireland.org/2008/10/15/polldaddy-acquired-by-wordpress/

  49. Ire_in_exile

    …and on the grapevine…(or the hysterical bush telegraph)
    now 2-1 that Bank of Ireland doesn’t make it to Monday!! ???

    “.Word is bank of Ireland about to go under,usually happens on a Sunday so its till close of business today if your exposed there……”

    • Furrylugs

      And 6-4 on that Harney won’t make it past lunchtime Monday. I have never seen the Government Chief Whip in open rebellion. And the grassroots are in a state of revolution.
      Brian Cowen can’t go to China. He can’t leave the country. Brian Lenihan is too green.
      Oh dear…….looks like the Irish have a voice.
      How inconvenient.

      Suck that, the Golden Circle.

    • Lorcan

      BOI? If you look at AIBs current market value, then take away the value of its overseas assets (24% of M&T bank in the US and 70% of Poland’s bank Zachodni WBK) it seems that its irish market share is valued at less than zero by the stock exchange. Remember, AIB has more commercial exposure than BOI in Ireland with the extra risk that that entails.

You must log in to post a comment.
× Hide comments