November 2, 2008

Irish banks must tell the truth if they are to regain our trust

Posted in Banks · 71 comments ·
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Banks are paying for the abuse of belief and trust with the loss of credibility in the fiduciary system.

Today, thousands of us will go to Mass or church service. For Irish Catholics and Protestants, the central pillar of both ceremonies is the Creed. In the Creed, which in the Catholic Church and Church of Ireland is exactly the same, we profess our belief in something. In both faiths, the Creed begins with the words, ‘‘I believe in one God’’. The word Creed comes from the Latin verb credo, which means I believe or I trust. This is what we believe; this is what we find credible.

A favourite expression of my granny, when she heard something unusual on the wireless that intrigued her, was always ‘‘Would you credit that, Dathaí Lacha?” This meant not only would you believe it, but would you trust that piece of information. Do you think yer man on Radio Eireann might be pulling your leg? Would you give that any credence?

Credo is also the root of the modern financial term, credit. To accept credit meant that you trusted the person you were dealing with.

In Roman times, people associated credit with belief and trust. Gradually, the expression found its way into medieval English. The basis of the fiduciary system comes from the Roman custom of trusting or believing the person you are dealing with. Indeed, the word fiduciary comes from the Latin word fides, meaning faith.

Today, although the financial system has become increasingly complicated, the basic bedrocks of trust and faith remain immutable. The central problem with the Irish banking system at the moment is that they have been abused.

Never mind the indecipherable chatter about CDSs, CFDs and CDOs, the problem is that people lied to each other and trust has been shattered. Without trust, there is no credibility in the fiduciary system.

For Ireland, the main task ahead is rebuilding this trust because, without credit, the recession will give way to a depression. But to get credit going again, we have to recapitalise our banks because, if we don’t inject fresh money into these institutions, they will contract their lending further.

Here is the rub. Whatever recapitalisation route we choose, we have to contend with the issue of trust. And here the picture is not pretty. ] The international financial markets do not trust the management of the Irish banks – any of them. At the moment, behind the scenes, the executives of the two big banks are working away in an effort to show they are okay. They are insisting they can sell international businesses if they need to raise capital. Their body language sends the following message: ‘‘We – AIB and Bank of Ireland – are respectable, whereas there are real delinquents.”

The subtext is that the big banks were ‘‘simply caught up in a global frenzy’’ and they insist they have the capital and the networks to survive.

This is an affectation at best, misinformation at worst. If you look at the loan-to-deposits ratio of the big banks, you see that they were all at the same game. The strategy was borrowing short from the wholesale market and lending long to property.

The bet was predicated economically on Germany remaining in recession for years and the euro offering Ireland a free lunch. As long as this was the case, the management of the Irish banks believed that the property market could go only one way.

The Irish bank bonanza wasn’t limited to Ireland. The banks were confident that this ‘cross-country credit subsidisation’ involving German subvention to Ireland, would last indefinitely, so they expanded into countries without having a commensurate deposit base.

About three years ago, I became aware of this procedure when a friend in London told me about a new concept in international banking called ‘‘Irish pricing’’. By this, he meant that the Irish banks were so keen to get business and build up their loan books that they were offering much better prices to clients on deals than the big international banks could do or were prepared to do. All this money was borrowed either from shareholders or from the market.

When it all came tumbling down, shareholders lost most of their money, and the trust and faith in the system was shattered. One thing investors in the Irish banks will remember for a long time to come was that the management of the banks was doing road shows as recently as early 2008 telling investors there was nothing to worry about.

Logic suggests that the management must have had at least an inkling that loans were going sour by that stage.

To make matters worse, the investors we now need in order to recapitalise our banks are probably the same people who have lost out. Their credo and fides have been abused, and rebuilding these precious commodities will come at a price.

Perhaps an easy way to understand this is to think of a simple personal situation that involves trust, faith and credibility.

Imagine you lent €100 to someone and you were promised not only your money back, but that you’d get a capital gain of at least 10 per cent. Instead of getting €110 back, you are now looking at €10 return because the share price is down by 90 per cent.

Would you be quick to give that character money again? Not unless he had changed his ways. The only clear signal that the Irish banks have changed their ways is to admit that the problem, is not so much liquidity, but the underlying price of property.

Irish property prices need to fall by close to 40 per cent from here before we are back to our long-run average level. Until that happens, foreigners will not be keen to put new money into the Irish banks.

Evidently, the major problem facing Irish banks in their efforts to recapitalise is that no one believes them. The state naturally wants to get them lending again but, as money is tight, the state wants its own exposure to any recapitalisation to be at a minimum.

Minister Brian Lenihan’s objective must be to get the minimum investment the state can make and the maximum return for that investment.

There is still plenty of money in Ireland that could participate in this venture. Indeed, the world is full of money waiting to be committed. However, the world is also full of bargains, and a battered and bruised Ireland is by no means the best opportunity.

Therefore, whatever structure we decide on for the great Irish bank recapitalisation, that structure must be right. We won’t get a second chance to do this. If we undertake a half-baked recapitalisation, the state’s credibility and its credit will go up in smoke.

If that came to pass, expect churches to be full again with people who swapped God for Mammon in 1999, back inside, belting out the Creed as if the boom had never happened.


  1. To grow, you have to take risk. If the risk taken by Irish banks occurred outside the realm of regulatory frameworks, you have a breach of trust. But since you’re not postulating that any of the Irish banks did anything illegal, just exactly what do you want? Do you want a tighter regulatory framework that we all help to fund? Nothing is going to change until the regulators restrain the practises we watched behind recent Irish economic expansion.

  2. Greetings!

    Another very good and informative article, David. And once again you put the finger on the sore point: Can we trust our banks?

    For the time being I have my serious doubts. And so have many others. On my own weblog I am running a poll since the banking crisis began. The simple question is “Do you trust Banks?” and so far 93% of those you answered said NO.
    This even beats a second poll – “Do you trust the Irish government?” – where so far 89% have voted NO.

    Of course these polls are not ‘scientifically selective’ as professional pollsters like ‘Red C’ do their surveys. But since I get plenty of readers and visitors from Ireland and all over the world, one can assume that these results reflect the true feelings quite accurately. Even if one would calculate a 30% margin, the result would still be a devastating 2/3 negative majority.

    So what can we do to get Ireland – and our banks – out of the big hole they have dug for themselves?

    I can see only two ways: 1) A radical change of management for both the country and the banks (with a new general election the best option for Ireland, and the sacking of all senior directors and managers in the banks the best option for our financial sector).
    2) A drastic reconfiguration of priorities for the Irish government and the banks, with the motto “People’s needs and interests first!” adopted by both.

    Only with such a substantial change of personnel and direction will confidence, trust and credit return to the two sectors in Ireland that have betrayed the people for many years and have pocketed millions of our money themselves, while squandering billions through idiotic speculations, gambling and massive incompetence and mismanagement.

    I am no doctor, but everyone knows that in case of cancer the infected cells have to be removed fully and drastically, in order to give the patient a chance to survive. Ireland as a country is currently infected by a kind of cancer, manifested in the present government and the leadership of the banking sector. The ‘cancerous cells’ in this case are the people who have failed us on such an enormous scale. If they – or any one of them – remain in the system, they can and will continue to do wrong and re-infect the body – Ireland – again in due course.

    The ‘Financial Regulator’ has recently appointed 20 extra staff and sent people into the banks to look at their books and demand new business plans. That’s a start. But it is not more than a sticking plaster on a patient that needs an urgent operation.

    The recent mass demonstrations of old people, students, farmers, teachers and parents have set the tone for the future. If we are not happy with things, we have to stand up and be counted. We can learn a lot in this regard from France, where public protest is much more common than in Ireland. The French do achieve a lot by organising protests and demonstrations, and we could do the same. Even though the winter might not be the ideal season for that, time is running out. So if we want to save our country and our financial sector, we have to act, act decisively – and act NOW!

  3. Helen

    My comment is only a short one. But the most telling sign of all to Joe Public is that the banks are finally giving out 20 Euro notes at ATM machines, for nearly a year a 50 Euro note was the lowest you could get even though there was an option for 20 Euro. How soon before they have to revert to giving 5 Euro & 10 Euro denominations…….they need get real about their customers needs….banking on Saturday and open 5pm! It may seem like a small step but it is about credibility and being customer orientated….

  4. Furrylugs

    Hit the nail on the head again David. The established churches will make you a Papal count or somesuch award for beating the moneylenders in the Temple.
    But when are the Four Horsemen of the Apocalypse, McWilliams, Ross, Kelly and McCreevy, going to horse?

    The imminent climbdown on CGT renders this budget and it’s architects defunct.
    The grinding and gnashing of teeth in Leinster House exceeds the EU noise regulations.

    We’re teetering on the edge of the abyss but can be rescued with a descent from the Mount by our best economic brains.

    An apostolic union to show the way, so to speak.

    Anyone know who the 20 men of silver brought in by the Regulator are? Or what they’re paid? Or what they’re doing?

    Must go and slay the last calf in the haggard.

  5. Deco

    David – another excellent article hitting directly on the crux of the issue. There is a bigg issue of credibility. I propose that the banks replace a lot of the unsavoury characters who caused the banks their ‘immoral decline’. However the best hop of this comes from bank shareholders. I have watched Shane Ross trying to get some transparency – and he has been checked at every turn. There is a transparency problem. You know the problem. Most people on this site know there is a problem and are prepared to trust your deductions on the matter. But there is a cliqueish network in charge of Irish banking who are incapable of reform. The emotional feedback loop that built up over the last ten years has made the high and mighty of Irish banking incapable of reforming. If they had shock therapy, then it might be possible. But the shock therapy has not been delivered – instead there was a bailout. The behaviour of Fingleton Junior shows that these people cannot be ‘converted’ to say sorry for their sins, admit to their flaws, and try to repair their ways.’ And they have no intention of learning humility. For me it is important that all bank funded involvement in ‘prestige’ spending (sponsorship) ends. No more junkets in Croker, the K-Club, Landsdowne Road, Thomond Park, etc. etc. If the banks want to get into sponsorship, then perhaps they might want to rename Tallaght Hospital the AIB Hospital(Tallaght). It would equate to taxation.

    David – you recommended letting the property bubble burst completely. I agree. And instead we should focus on the real growth sectors of the economy. This means a three pronged apporach with emphasis on exports, competition policy enforcement and on massive public sector reform.
    The stresses on the export sector are enormous – and this is the only sectors that is still standing. If we look at Dell we see the “canary in the cold mine”. Now Digital played a similar role in Galway in the 1980s. Then Digital went bankrupt. Galway went into shock. There was even a blip in the suicide rate. But eventually a network of qualified capable empoloyees set up a string of new technology small enterprises, and got things going again. Limerick will need the same sort of operation. And to facilitate this, the banks will have to chang their entire emphasis. The Minister, Mary Coughlan has the line of ‘instilling public confidence’.

    One thing worries me greatly however – this lates scheme from the government, forcing indebted local authorities to push cheap loans into the mortgage market. I mean, the EU thinks that there should be funding made available to the small business sector. We seem unconcerned. But our policy seems to be biased still towards the developers. It is absurd, expensive, unpopular, unsound, and bad economics. We seem incapableof letting the developers and bankers accept responsibilty for reckless lending.

    Responsibility in high places is required to earn the credibility that will re-establish the credit cycle. There is a deficit in responsibility – and the kick back is settling in. The predominant culture of circling the wagons, quashing dissent, silencing public criticism, dismissing all the rumours, with a news clampdown, loads of media ‘official statements’, a high level of dishonesty, baloney, and a PR suite of tricks have been sussed. Totally sussed out. Behind it there is very little. In International markets, the facts on the ground are of more importance. Putting a positive spin on it does not work. Time the government and Irish business stopped carrying on like as if it still does. They are making things worse. Even AIB, with many interesting makret ‘events’ in their recent history, seems to be realising that it cannot fool international investors, can tell that. Those who come clean the most are most likely to fix it up. The Germans are the only ones I see who readily admit to all the mistakes without delays or PR exercise. The fear of being stuck in a prison is very good at preventing all forms of deception. The jurisdiction of New York in the US is also similarly ruthless with liars, thanks to Eliot Spitzer’s short tenure in charge. I do not know what Spitzer is doing currently – but if he was put on a committe overseeing Irish banking with Shane Ross, Dave McW, Morgan Kelly, Alan Ahearne, etc.. then we would see some very quick progress on this area.

    Our business elite are not fooling anybody anymore. The legacy of Irish nepotism has become our biggest liability in re-establishing credibility. And the government seems undetermined to root it out. The people have already decided, if recent opinion polls are to be beleived, that a change of goverment is required.
    Time to get patriotic and eliminate the disease that is the old school tie, that is stiffling the Irish economy, and Irish society, by means of the reckless behaviour is condones and encourages.

  6. JuicyLucy

    Hi everyone

    I would just like to know since the value of property is dropping:

    will revenue be giving people a refund on the capital losses made, basically the opposite of the Capital Gains Tax?

    Is this a loophole in the Irish tax system, and would it mean serious trouble for Revenue in the coming years?

    It just seems like if you make a capital gain, you pay your tax, so if you make a capital loss, should you not get a refund?

    Will this not be the case for developers next year who are knocking 100k + off their asking prices to sell houses?

    Nice article david.

    • b

      No refund. And also if you inherit a house and the value drops during the probate process you pay tax on the value assessed not the value at the time you get the money out of the will.

  7. John ALLEN

    I have been abused by a prime national bank in Ireland when in my professional capacity as a qualified accountant and public auditor I reported verbally a percieved crime to the bank only to be jailed afterwards and subsequently released after questioning and then charged on false evidence ( perjury ) given by the bank . It was heard in court and and dismissed by the judge .The bank was investigated by the fraud squad subsequently and submissions sent to director of public prosecutions who decided not to prosecute or give reason to .The Central Bank do not consider the bank’s actions within their remit neither does the Secretary of the bank.
    I was the only accountant invited to make a written and verbal submission to the National Crime Forum and for all the reasons we now read today about namely ‘the abuse by Irish Banks of belief and trust ‘.

  8. Garry

    David, youre being far too ‘nice’ .. No mention that the banks exist only because we saved them, its as if it would be rude to talk about 500 billion

    The banks are untrustworthy lying incompetent scum, they have proven this over the years. Nobody believes them any more, if I was arranging to meet my bank manager and he said tomorrow will be sunny, I would turn up with an umbrella. If he recommended somewhere to put my money, I would tell him to f*** off. Same for international investors, they know our banks are lying. The only thing thats changed is now nobody reckons theres more money to be made from them.

    We have a problem, we’ve underwritten them to the tune of 500 billion, i.e. 100k for every man woman and child in the country. Changes to this scheme now mean there is an increased possibility of national bankruptcy because of their lying corrupt practices.

    So lets cut the crap…trust doesn’t come into it. We know they are scum, they know they are scum…. but we both know we need a solid banking system. Somebody needs to walk in and slap these guys around. We’ve saved them, they are our bitches now … time for them to lube up…

  9. Deco

    John ALLEN – you need to talk with Senator Shane Ross. He is also crusading to ensure all financial bodies are behaving within the remit of Irish and EU legislation. Any business that is infected with such a culture should not be receiving tax-payer bailouts – because it’s culture is already enough of a liability to the taxpayer/consumer/citizen. And it is better than we get reformed of such behaviours. Better for the banking sector, better for the economy and better for the society as a whole. It is in everybody’s interest.
    We need to make Irish society safe for whistle-blowers.

  10. Ciaran

    David, I read with interest and agreement your various columns and articles on the current problems facing the Irish economy and the difficulties facing the Irish banking system in particular.

    The Irish Government seems stuck in the mud at the moment. They clearly want the Irish banks to start lending again. But the banks are unable to do that because they need to finance their bad debt write-offs from future profits on existing good loans. So in the absence of new capital they will continue to curtail lending. The Government knows that if they have to finance the recapitalisation of the banks to the required levels they will end up in the unenviable position of being in virtual control of the banks a position they are completely incapable of succeeding at as they do not have the capabilities of managing these undertakings. Also, if the government steps in now it may well end up in the same position as the various funds who, earlier this year, stepped in to help out various international banks only to find out a few short months later that the banks in question required further equity injections in order to survive. Those funds in effect have virtually lost their entire investment in a short number of months.

    The primary objective has to be to get the banks to start lending at all costs. Failure to do so will result in existing good businesses fail due to a lack of liquidity.

    The Minister for Finance appeared to have been listening to your calls in previous articles when you suggested the state deposit guarantee. I realise this was just the first step in a process of rehabilitation of the banks. However the Minister now seems to be unsure about what he should do next. In particular he is obviously concerned about increasing public borrowing any further.

    Why not, in future articles, call on the government to increase the capital adequacy requirements which the Irish banks are required to maintain? This will force the Irish banks to double their efforts to raise new capital. The Minister can stand on the sidelines and wait for the recapitalisations to take place. The good banks should be able to obtain new equity albeit on rather expensive terms. The bad banks will fail to find any backers and the Minister will then be forced to intervene. The bailout of the banks was never going to be a painless process and the Minister needs to face up to this.

    Something needs to be done – and quickly. Bank lending needs to begin again.

  11. Malcolm McClure

    David: this is a really interesting piece as it plumbs the basis for belief, which depends not on ‘evidence’ but upon ‘the irrelevance of the lack of evidence’. This underlines the fundamental difference between faith and science, the latter which of course depends on demonstrable evidence. Economics is sometimes considered a science and economists constantly appeal to evidence from the past to support their theories. However most people prefer faith to science, as the ‘willing suspension of disbelief’ is essential to having a satisfying experience with novels, theatres, films, computer games, or in being an Everton fan, long-odds backer, startup investor, etc.
    Since people have found they are unable to place absolute trust in even their Bishops,– what hope is there for mere Bankers?
    What we need is a few Miracles, so that a nation of Doubting Thomases can regain their faith in the possibility of human progress.

  12. Stephen Kenny

    OK, so no one trusts the banks – given their appalling performance over the past 10 years, that’s hardly surprising.
    People tell me that the financial system is broken. It seems to me, that, as metaphors go, ‘broken’ is rather poor. ‘Broken’ implies that it was fine, until some ham-fisted idiot dropped it. It isn’t broken, it’s disfunctional. It doesn’t work properly.
    Everyone’s been warning about ‘moral hazard’, recently. We al know what it means: The moral hazard of bailing out a bank is that the bail out process becomes part of the bank’s business model, forcing them to behave, in the future, in a manner that looks even more reckless than previously, because they know that they can’t go broke.
    Moral Hazard, when you think about it, is actually what we might call ‘childhood’. Children are not responsible for their actions. If a child gets it’s little mitts on a line of credit, it’s the poor bloody parents who have to foot the bill. That’s why credit cards aren’t given to 8 year olds.

    So, we currently have a disfunctional financial system, run by a bunch of children.

    There is no solution to this, as it stands. You cannot make a child act like an adult, over night. You cannot fix an inherently disfunctional system, over night.

    Recapitalising the system, baiing out everyone in sight, if it works absolutely perfectly, will just transport us back in time a few years, but this time with a vast government debt. So, it’s now 2nd November 2006, and we’re all loaded up with unused credit cards. What do we do. This time we have 20/20 foresight, we know what starts to happen in 12 months time, assuming we borrow and spend like a bunch of shopaholics on acid. What we don’t know is what happens if we don’t.

    Sorry, it doesn’t work. It’s all nonsense. This entire bailout model is just an extension of the previous ‘borrow and spend’ fantasy, but this time shifted up several gears to the national level. In years gone by, we bailed out our own credit cards and loans, through a property loan. Today, everything’s being bailed out through a taxpayer loan. It’s the same thing really.

    Forget the banks, and the bankers. Burn them at the stake if you will, but they aren’t part of any solution, since their only skill is to lend money against simple, low risk,(in a manner of speaking) assets. We need proper bankers, but they aren’t just found via the classified ads in the local paper, they take time to grow.

  13. AndrewGMooney

    This is becoming surreal. The issue of the Irish banking system’s ‘credibility and trust’ was surely established before providing them with an Unlimited State Guarantee? No? Oh dear….

    Why can’t the banks involved recapitalise if they‘re so sure of themselves? If Abu Dhabi’s Sovereign Wealth Fund can rescue Barclays from the clutches of the British State (albeit with a 14% preference share offer), surely some other Asian or Gulf entity can be found willing to take a punt on AIB and/or BOI?

    Investors calculate risk in return for reward. That’s why it’s investing, not gambling – unless there’s criminal tinkering with balance sheets. The Market will, as always, decide the denouement to this. Not the Irish Government. No matter what guarantee is given / bluff called, etc.

    It’s baffling to suggest that Irish Banks have to ‘admit’ to ANYONE that property prices are the problem, given that developers are offering luxury homes on the outskirts of Dublin half-price. Coffee. Wake-up. Smell. Etc. Or is this information only available to surfers like me in the U.K? Are there masses of ‘internet censors’ beavering away in anonymous warehouses around Dublin to ensure no Irish Citizen can click the following link:

    http://www.build.ie/construction_news.asp?newsid=84409

    This article by DMcW correctly records that Irish Banks were global players in the good times, and kept the profits for themselves in the process. But now it’s all turned sour – it’s suddenly a ‘Local Problem for Local People’. And all good ‘patriotic’ Irish citizens are expected to swallow the hype of The Great Irish Bank Recapitalisation’ – as if it’s some kind of national rescue rather than a bailout to dubious interest groups. This is nonsense.

    If Irish Capital refuses to rescue it’s own banks, even with the outrageous State Guarantee: It’s sending a very clear message to any likely International Capital: Steer clear. Is the Pension Fund still up for grabs? Or has it already been thrown on to this bonfire of vanities? The credit/credibility of the system is already ‘up in smoke’. Now the credibility and reputation of the whole country is inescapably linked to it. Terrifying.

    I sincerely hope these banks can be shepherded towards the cliff without taking whole generations of taxpayers with them. If any of them deserve to survive: They will. If they don’t, other banks will step in to replace them – assuming this isn’t the end of the world as we know it. If it is, well, we won’t need banks!

    Who cares if their bank is AIB, Spanish Santander or Baclays Abu Dhabi Ltd, so long as they‘re honest and reliable? Banking is a trade. There’s no mystery to it, unless you let the Mad Scientists lose with their ‘financial instruments’.

    Banking provides a functional service to an economy. It’s worth pointing out that banks hold other people’s capital, deposited in trust. They do not own that Capital and are not the source of it, even if they ‘invent’ more of it by various fractional reserve ruses. They are also not the source of future economic prosperity, that comes from entrepreneurs and educated citizens provided by hard-working families who play by the rules. Banking is most certainly NOT a matter of National Security or National Pride. Just have your Banking Catastrophe and get over it / get on with the really important stuff. It’s not as if you’re on your own. Every country’s having their own banking catastrophe. It’s fashionable!

    Rescind the guarantee. Let them fight it out amongst themselves. This clique’s too cosy by far and they’ll capsize the lifeboat anyway. Throwing good money after bad will be the likely outcome. Over and out.

  14. jk

    Like I’ve said before, a few posts ago: Guaranteeing the loans was a mistake. Let the banks fail if that’s what the market dictates would be a far better route and have the business taken over by stronger, foreign banks.

  15. Deco

    I hope nobody minds me asking, but is there any other industry that gets recapitalised ?? If so,then mayber there might be a useful example.

    Looking at the TV and watching the Irish horseracing industry. The Irish horse trainers and jockeys seem to have winnability. Much more so than either the soccer team, the rugby team, etc.. Unfortunately it is impossible to have a discussion about this without an advertising clip from the betting industry, however subtle being sneaked in. But yeah it seems that the trainers are highly professional, extremely competitive, extremely cautious, and always generating astound results. From a low enough capital base compared with their international competitors. They are understated professionals. The type of people who slowly formulate what they are going to say, before they say anything. And the really put everything into doing the job properly. Strange thing is that you cannot hide bad performance in horseracing. It is a perfectly competitive sector, with no oligopolies, no brown envelopes, etc.. It results in best practices. The same international investors who shun our banks, love our race horse trainers and jockeys. Clearly the brains in this country are not running the banks, whatever else they are doing..

    AndrewGMooney – the British government should be monitoring Barclays Bank – chances are, the senior directors of the bank are using the Abu Dhabi play, as a means to pre-empt what happened to Fred the Shred (RBOS), happening to them. They are protecting their own directorships from exposure to left wing elements in the British Labour Party, and possibly the no-nonsense element in the British population at large. The shareholders and the consumers are the real losers there. I don’t favour, that as a solution here. We are a small country and must keep some form of sovereignty so that we can influence economic policy, in case we might ever elect capable politicians that ensure the people get proper functioning markets, and an efficient public sector. Looking at Iceland running to the Russians the type of thing that we must not replicate. There is plenty of money in Ireland – the property speculators have it in the background. Maybe they should be given the job of recapitalizing the Irish Financial Institutions.

    Stephen Kenny, the bankers have behaved recklessly and they have been rewarded. For years. There is within all of them an emotional expectation that they can get away with it. It is not going to be changed overnight. In fact, the emotional rewards inside them are so strong, that there probably is no way they can be corrected – they are like alcoholics in recovery. There is also an Alpha Male dimension, and a group behaviour and reinforcement process involved as well. Some of them will have to be replaced. I cannot understand why the shareholders of the banks are not pushing for new management – I mean look at the Dublin football team – one mistake, and the manager is under seige. Two mistakes and he resigns. I mean that is only a football team. Then we have the Eircom saga – that was a loss of 60% of the original investment – and there was uproar. For over two years. It achieved nothing. People have lost 85% on shares on some Irish Financials. There has to be a review of personnel. But there have been no shareholder revolts. This really is baffling. Shareholders should demanding that these bank directors explain the exposure incurred in the last two years. It would be a small step in the right direction. As Stephen said it takes years to train these people properly. Cleaning the fat off the system would be a good place to start. The Government actually has the possibility to apply the same reform mentality to Irish banking that Douglas McArthur applied to Japan in the late 1940s. The result was beneficial for Japan and the entire world. All the old corruption was weeded out. We need a more meritocratic system which is more respectful of all concerned. There has to be an ethos of responsibility. That is why people are annoyed at the bailout – because there is still a lapse in terms of the banks behaving with responsibility.

  16. jose antonio

    Obviously, this is simplistic but I saw a headline on reddit which at least gives some relativity on the figures involved:

    “Goldman Sachs takes $12 Billion bailout, hands out $14 Billion in Bonuses”

    Read the article here (I know its the Daily Mail)

    http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package–6bn-bail-out.html

    • Lorcan

      Goldman Sachs are set to announce over 3,000 redundancies on Wednesday, should help with their bonus bill.

      Was talking to my brother in New York who is ‘familiar with the situation’. The current passtime in Goldman Sachs is taking bets on who is going to get the chop. Most seem to bet taking bets against themselves, ie if they loose their job they win the bets.

      The final hedge for many involved. Poetic justice perhaps?

  17. Stephen Kenny

    Everyone’s been yelling about the disaster of a financial meltdown, how it would throw us into another Great Depression, with pictures of grim faced women with 22 children, and so forth. The media, politicians, pundits that would put Douglas Adam’s Magic Thighs to shame, and of course the Wall Street/City of London witch doctors themselves, have been acting as if the end of the world is indeed nigh. Just minutes away.
    As Deco has said, banking is essentially a simple business: 1. Borrow short. 2. Lend long. 3. That’s it.
    So, wherefore this world-ending disaster? To me, it all smells very fishy, indeed. Whenever politicians, and their media cohorts, start leaping up and down, pointing excitedly, saying “Look over there, look over there” I’ve found that the thing to do is to look very briefly in the direction they are indicating, and then to look, very long, very seriously, in the exact opposite direction. ‘Burying bad news’ I think they call it.

    How do banks make their money? They lend at a higher rate than they borrow. That may be described in many ways (trading on exchanges, OTC, MBOs, MBIs, investment advice, M&A, wealth management, and so on), but that’s what they do. A long term loan is more expensive than a short term loan, for very obvious reasons, and that’s what they do. Since lending is what banks do, the only reason they might not want to lend to someone is because they think that they won’t get paid back. If there’s a good loan in the offing, a bank will always find the money, that’s their job, after all.

    People say “There’s a lack of trust between banks, so the credit markets are frozen, the banks are hoarding money. If we increase confidence between banks, then they’ll start lending again, and I can buy that new SUV with granite counter top”. We all smile, and applaud, as the governments start guaranteeing transactions between banks. Just as we’re all about to start the merry waltz of the finale, Andrew Mooney whispers, from stage left, and the entire cast freezes in it’s tracks. What he said was “Fractional Reserve Banking”.

    A bank can lend a value that is a multiple of it’s capital base. The capital base is cash it’s borrowed (e.g. from us – they call it your ‘bank account’, and convince you that you’re lucky to be allowed to lend them money), and a whole bunch of other assets, mainly loans that they’ve made (e.g. your mortgage and car loan, having convinced you that you’re lucky to be allowed to borrow some money). The banking regulator says that a normal bank can lend around 12 times their capital. The Investment Banks have been lending up to 100 times their capital. Hedge Funds have been effectively lending (or ‘investing’) hundreds of times their capital base.
    Two things have happened in the last 18 months: 1. The value of a lot of those assets that make up capital bases have fallen in value, and 2. The structures that enabled these huge loan to capital ratios have disappeared, or contracted.
    The upshot of all this is that from now on, the amount of money in the system is going down. Enormously.
    So it isn’t a matter of confidence – that’s the thing everyone’s pointing at. It’s just a matter of capital. The current global system has been humming along, on, say, 100 units of capital, and the amount of capital is shrinking to 70 units? 50 units? All those cunning mechanisms that enabled financial institutions to lend 100 units of capital (CDSs and a myriad other TLAs) have fallen on their arses, as many, if not everyone, knew they would. The world has been living beyond it’s means.

    So as far as I can see, it matters not a jot what the world’s governments do, they cannot replace the trillions of capital that are disappearing from whence it came.
    There is one exception: Global inflation. They just print trillions of every currency, and then we all really get freakin’ turned over.

    It isn’t a lack of confidence, it’s a disfunctional financial system. If a sports car has a 750 cc engine, people won’t buy it, not because they lack confidence, but because it has a 750 cc engine

    I’ve probably missed something. I do hope so.

  18. Garry

    AndrewG… Spot on… it is surreal

    And you haven’t even mentioned the government are attempting an indirect bank recapitalization scheme via their developer friends…. homechoice loans. http://www.homechoiceloan.ie/

    Simply put, homechoice loan borrowers may only buy new houses which are covered by homebond. so this only applies to clearing existing stock from the big developers. Also, you must have been refused by a financial institution, so by definition its a sub prime loan. And most worrying, the valuation system is wide open to corruption… It is designed to move bad debts from big developers to the taxpayer via sub prime borrowers. Just as importantly, even if one idiot buys a house using this scheme (and crooked market valuations) this allows the banks to argue the valuations of the bad debts are in fact correct.

    Only an idiot believes prices aren’t falling right now but its probably reasonable for someone to assume they will never be evicted from a sub prime home choice loan house as its public money. So the client base for this is idiots or hard nosed crooks.

    Our leaders seem determined to protect their friends even if this means we destroy the public finances. Thank God we are in the Euro, otherwise our currency would be worthless and there would be no food in the shops.

  19. Nono

    Stephen Kenny, you’re spot on. The problem is not trust, it’s the system. There is a great video that was already posted by someone on the forum a while ago called “Money as debt”:
    http://video.google.com/videoplay?docid=-9050474362583451279&ei=DNP7SOqZBo2uiAKDiJ3vDg&q=money+as+debt&hl=en
    It explains the whole mecanism of banking and money creation. Forgive the conspirationist tone of the last 10 minutes, the rest is factually correct. This system has been governing our society for hundreds of years and yet, very few people seem to know how it works. Please, if you have a bit of time (the video lasts 52 minutes) have a look at it, it’s very educating…

  20. Philip

    If ever there was a time for the opposition to rev up, this would be it. As commented above, the surreal nature of offering state guarantees together with a budgetary decision to finance 1st time buyers (to bail out property and banks to a degree) suggests a complete disconnect from reality. But the Greens are hanging on for dear life. I’d say a few marginal seats must be quivering right now.
    It only takes a few more minor mistakes and the incumbents will fall.

    Did I hear that the go ahead has been given for lighting up the streets with Christmas Lights 3 weeks early to help get sales going. Clearly shortfalls are being anticipated. This is grossing out big time. Must be a joke surely

  21. Malcolm McClure

    Cold comfort zone: Apparently the Eskimos in Greenland are rallying to the rescue of Iceland. Soon Santa will arrive on his sleigh and everything will be cool again:
    http://www.icenews.is/index.php/2008/10/31/greenland-should-help-its-north-atlantic-neighbour/

    • Garry

      it shows how dire the situation is in Iceland if 45 million from Greenland will help. A few short months ago that would have been some bankers bonus, now it may help keep them warm and fed this winter

  22. b

    I think FF and the Greens and the PD need to be left in the fire as long as possible and that FG and Labour should run for the hills until conditions improve.

    FF and their lapdogs the PDs and their New Best Friends the Greens have built this house of cards since 1997 so they should at least stay in power to clean up the mess after their long and boozy party.

  23. Philip

    We are past quarter of 1 million unemployed – and this does not include under utilized contractors / sole traders. Exports and orders have dropped dramatically this October. I know we like to beat up the local banks, but the problems seem everywhere. And if recapitalisation is actually working anywhere, we have yet to see real evidence of it anywhere.

    I agree with DMcW’s central point about our banks here. The trust issue is a very necessary condition. But it is not sufficient. On the latter no one seems to have any real ideas. The world economy is tanking in a manner never before witnessed in living memory or in historical textbooks and we are still in the middle of it…start or middle or end of Middle…no one seems to know.

    If you are a high tech company making cars and operating out of an advanced economy, you are now staring at a lot of unsold stock right now. This is the common reality across the board. People’s means of converting the value they can generate to something that can be used to purchase other people’s output value is not working. Basically there is no trust out there. Not just Ireland…I mean anywhere.

  24. b

    Yeah well we should have prepared for the day the party ended. What we did was make an incentive for a runaway train to get faster based on greed.

    Now we are in the shit and we get an almighty kick in the nuts from those who we elected to run the place.

    • Lorcan

      And the kicks are only starting. If we are forced into following the growth and stability pact’s debt/GDP ratio we could be in real trouble for the next few years.

      http://www.rte.ie/business/2008/1103/eu.html

      • b

        We are in trouble. I think it won’t hit until January how bad it really is.

      • Garry

        This is very good news. This is not Brussels punishing us, it is the EU looking at whats going on and putting the sharp knives and boiling saucepans out of reach of the irresponsible children running the show here.

        Clearly the 2 Brians and Mary need training wheels lest they destroy the Euro as well as the Irish economy

  25. John ALLEN

    Deco : Thanks for your encouragement .I have decided to-day, to write to The Secretary of Bank of Ireland to independently investigate this serious matter and I confirm that I have copied The Minister for Finance .Should any readers of these columns be interested I will be happy to keep you all informed . It remains to be seen what kind of real culture our bankers profess in our saintly isle.

  26. Deco

    John ALLEN – you are encouragement to us all.
    If you are not happy with progress, you can contact Shane.Ross@oireachtas.ie – as he is also trying to clean up Irish banking practices. the banks. I presume that he is entitled to parlaimentary privelege, and thereby free to issue his mind on the matter.

    I think that the Department of Finance would be obliged, in current circumstances to get the issue resolved. If you are not satisfied, you can call an opposition TD. This usually has a good effect. Because of the exposure to the taxpayer, from the banking system, we should expect a different attitude from the state, and the bank. Denial of the problem, will no longer be the routine response.

  27. John ALLEN

    thanks Garry and Deco………it might be useful to note I included a seperate registered letter and enclosure to Jean Claude Trichet if that does not work I dont know what will

  28. John ALLEN

    thanks lorcan…….i still have faith in irish democracy and state laws and they must be seen to work and be transparent and accountable …this is an acid test ….will it turn blue or will turn red …..time will tell

  29. Philip

    John ALLEN, I hope the acid test shows a good result. The EU is putting Ireland between a rock and a hard place and anything could happen over the coming months raging from the lads doing the “right thing” or Ireland leaving the EU. This is no mere recession or depression we are looking at…we have in the space of 5 months (July is really when the doo doo started getting really visible) gone from not great to a complete disaster where Ireland as a sovereign country will have its credit worthiness written down as a junk bond.

    Could the EU indirectly force us to halt infrastructure programs and diminish our rickety public services? This feels like the state itself is in danger of collapse unless some gesture is made that the electorate will support that shows we are serious about sundamental change.

  30. Stephen Kenny

    from Lorcan’s ref: http://www.rte.ie/business/2008/1103/eu.html

    “Taoiseach Brian Cowen admitted that Ireland’s budget position had worsened ‘considerably’ this year as the economy reels from the global credit crunch.”

    These sorts of comments could be deemed to indicate a certain refusal to face up to the reality of the situation. The economy isn’t reeling from the Global Credit Crunch (TM), it’s reeling from it’s own excesses.
    Reading the article, you get the impression that if “them out there” sort themselves out, then we’ll automatically revert to the seemingly sunny days of a few years ago. You get idea that it isn’t our, collective, fault. You also, of course, get the idea that since it isn’t our fault, that there isn’t anything that we could, or should, do about it.
    Just pop down the pub for a beer and a bitch, and when the stupid foreigners have sorted out the mess they’ve made, we’ll all be OK.
    In fact, come to think about it, since we’re suffering from their mess, don’t they owe us something?

    • b

      Lenihan has now come out and blamed the Euro for the boom.

      He is a prize idiot.

      I am off to Paddy Power to do a yankee bet that he blames the weather, the Easter Bunny, Santa Claus and Bosco in that order next.

      The dogs on the street know that the Government encouraged developers and their cronies to harvest becasue it was in their benefit. Germany and France had the same access to the same interest rates but they didn’t go nuts like kids in a sweet shop like we did.

      They NEVER ONCE put the brakes on the property market. They bullshit us about doing the patriotic thing while they let banks and other shysters in to rob the pockets of the people they now want to be patriotic. Where was the patriotism then?

      Bullshit artists the lot of them and they don’t deserve to shine your shoes. However and it is not often that I agree with Matt Cooper, they need to be left in office to get the kicking they so deserve.

      The Greens deserve to be wiped out utterly. If you lie down with dogs you wake up with fleas and they have now got the political version of leprousy. Nobody wants to touch them.

      The credit crunch brough forward the crash and WAS NOT the cause of the crash. The market was heating up since 1998 and went absolutely and totally bananas in 2007. Nobody cared enough about their fellow citizens in 1998-2007 to protect them from the looney market nor the greed. Instead they robbed and lied.

      As far as I am concerned the Celtic Tiger era was an era of Me Feinism and profoundly anti-Irish, anti-democratic and anti-patriotic. Fianna Fail commited treason.

  31. John ALLEN

    Thanks Philip its noted …actually u can make a bet with Paddy Power ‘Ireland out of Eurozone ‘ is resigned or expelled by 31.december 2008 20 / 1 31st December 2009 6 / 1

    Help Request 45 134 – 101085

    1800721821

    Denise Roche

  32. MK1

    I agree with your post AndrewGMooney. I would’ve just written the same thing. Indeed I have in response to previous articles.

    David, lets forget about the banks (for a moment). What steps can be taken to get this economy back on track and quickly?

    We cant live at a deficit of 6.5% GDP. I’m all on for a cull of the public sector, their wage reduction, and increase taxes at the upper levels, etc. Reform of the public sector is a key, and that includes Local Government. Value for money is sorely needed.

    The country needs to do things, and sharpish …. forget about the banks woes. Increased credit will not get us out of this mess. Its what got us into it in the first place. Cant people comprehend this salient fact? The government would be better giving 3 billion to entrepreneurs than 3 billion to shore up some balance sheets that have gone south.

    MK1 (changed from MK as another MK appeared!)

    • Furrylugs

      Webmaster,
      MK is MK not MK1 the imposter.
      I am Furrylugs, not Furrylungs or Furrylegs.
      Get a grip or you’ll be accused of being Paddy the Regulator.
      Quod Erat.
      Furry

  33. Stephen Kenny

    MK1
    The difficulty, it seems to me, is first, to get broad agreement that the problem cannot be solved by ‘more of the same’.
    There is still a belief that once these rather obstruce financial problems are solved, then all will be well again. How many people are saying ‘can’t wait for property prices to fall, then I’ll get in and really clean up’, or something to that effect? Too many, I would hazard.

    After that, well, creating a strong economy is another problem.

  34. b

    If you are waiting for prices to fall and to clean up you didn’t learn your lesson the first time.

    We need strong businesses not coast to coast soft furnishing and decking.

  35. Malcolm McClure

    David said the banks’ body language sends the following message: ‘‘We – AIB and Bank of Ireland – are respectable, whereas there are real delinquents.”
    However, Bloomberg’s CDS ratings from 20th September are as follows (leaving out the compete basket cases from Iceland and elsewhere):
    Credit Suisse 118.3
    HBOS 115.4
    Bank of Ireland 111.3
    RBS 102.5
    Barclays 100.0
    Allied Irish Banks 84.8
    Lloyds 80.8
    Standard Chartered 80.0
    Fortis 79.8
    Santander 79.7
    HSBC 65.0
    The higher the rating the riskier is investment in the bank. Recently, HBOS, Barclays, RBS and LLoyds have had capital infusions from UK Government and Abu Dhabi amounting to nearly £50 Billions. Even so, RBS expects an overall loss this year–and BoI is apparently in worse shape than RBS.
    House prices in Ireland continue to fall and since the value of security backing mortgages falls correspondingly banks are obliged to take a charge to reflect this. The ECB has warned the government to cut back on borrowing, so rescue funds for failing banks cannot come from that source.
    Can someone please explain how a mere depositors guarantee, in the absence of large capital infusions, can protect Irish banks from insolvency?

  36. Lorcan

    MK1 > What steps can be taken to get this economy back on track and quickly?

    While I don’t think ‘quickly’ will be an option for getting the economy back on track, we could certainly be doing more to set the foundations for the future economy than we are.

    The recession cannot be denied anymore, so there should be a change of tack by the government. Saving the banks could have made a difference if it meant preventing a prolonged recession. But that horse has now bolted. All indicators point towards a long downturn, from commodity prices and the baltic dry index to consumer spending. Volvo trucks last year had orders for 42,000 trucks on it’s books, it now has orders for 115. The real economy is freezing up, not due to the lack of credit, but due to the lack of demand.

    The growth and stability pact will give the government very little wriggle room, especially as GDP starts to fall. So they will have to raise taxes to fund future spending. It would be political suicide to spent this money on saving the banks, even Fianna Fail are savey enough to know that.

    I was slightly heartened to see the budget grant a 3 year tax-free term to start-ups. This measure could now be backed up with real grant aid and interest free loans to the same start-ups. Ireland can’t solve the global economic crisis by itself, far from it, but it can use the coming ‘dislocation’ to put ourselves in a position where we are more self-reliant and thus more insulated from the vagries of the international money markets.

    Malcolm > Can someone please explain how a mere depositors guarantee, in the absence of large capital infusions, can protect Irish banks from insolvency?

    While I’m sure your question is rhetorical, it does point very well to the fact that the deposit guarantee has done little to restore solvency to the banks. All it has done is stop people withdrawing funds from the banks; after all it was a reaction to a Joe Duffy show. The fundamental problems remain the same. Looking at the share prices today they have gotten much worse since.

    AIB are making a trading statement tomorrow morning at 7am, IL&P are doing the same on Thursday. Bank of Ireland are releasing their six monthly figures on the 12th. Should be an interesting week.

    One thing to watch out for in the reports. Lloyds made about £200m of writedowns on Monday, but in an book-keeping excercise, they also reclassified another £140m of potential bad debts as ‘Long Term Holdings’. Hardly an example of a bank coming clean about it’s write-downs. Will we see the same from AIB and BoI? Or will they follow NIBs lead and come clean?

    Answers on a postcard to the usual address.

  37. John ALLEN

    ……..forelorn…the Euro will soon be no more ….have u ever been to the ring fort ( 10,000 years old ) on inish more and watch the remaining half circle standing perched alongside the wild atlantic and wonder what happened to the rest of what was then what mankind created ………u can read its satire in a book called Da Wu Yu Code by Dee Noblesse – published in USA a few years ago ….history has a habit of repeating itself

    Da Wu Yu Code = the code of before time and after time of another mankind ….when we had a different Euro

  38. Lorcan

    John ALLEN, interesting marketing strategy, but you could have made clear in your post that you are the author of the book..

    http://www.davidmcwilliams.ie/david-offline

    (2nd comment)

  39. John ALLEN

    Hi Lorcan……..we all like a surprise …….thats the magic of life….or should i say …the currency

  40. Deco

    Lorcan – banks are required to only report the losses that they have fully incurred. Therefore we will get a reverse view. But nobody will be to be blame. In Ireland nobody is every responsible. Though the Finance Ministers contention that the Euro is to blame is amazing – no doubt the same individual was telling us, repeatedly, in May that it was imperative that we sign up to greater EU surrender of powers in the Lisbon Treaty. The inconsistencies are telling. This is completely the wrong approach. It would be more relevant if the Finance Minister started to cull the jaguar driving, suit wearing, golf playing wasters in the HSE. It is a fact that the nuns did a better job of running the health services, with less momey, less technology, and less personnel, than the gentleman’s club of cronies currently in charge. In fact cardboard cut-outs would do a better job than the current HSE top five layers.

    What will be really interesting is the scale of bad loss provisions created for the next six months. This will indicate the scale of the hit the banks are expecting in coming months. Also, it will be interesting to hear general market commentary. And another thing – the real question, when will Anglo make their announcement ? Sean Quinn will be sweating it out. Perhaps he might move to get involved in running it. It would be an improvement. Perhaps, finally the shareholders might also start to ask tough questions of the senior officials at the banks. And replacing them with new sharper, more honest and more energetic types.

  41. b

    As long as my business stays quiet I know the banks are still fight a phoney war.

    We expect to be out the door busy starting in January.

    Unless of course someone is unpatriotic and starts the shooting early.

  42. Philip

    Have a look at today’s Indo farming article by Joe barry. http://www.independent.ie/farming/a-land-of-red-tape-and-bureaucracy-enough-to-sink-noah-and-his-ark-1520042.html

    We live in a land of Dr No. Too many people tied up doing nothing except stopping others from doing useful work in the name of the environment, health and safety etc. Nanny state nonsense. I would not mind, but little of it is to do with saving or preserving anything except rules. Is it any wonder people give up and try to find an easier way of making money…property, brokering/commissions, middlemen etc. This is the root cause of the issues we are having right now. It’s not just the banks over lending. It is the huge amount of human resources being paid to do nothing or worse…stop others for doing anything productive. 300 or 400 thousand people in this country doing nothing all day and being paid for it by Irish taxpayers.
    The bad debts mounting up, the are merely an a symptom.

    You want to get ireland Inc rolling again…fire all these goody goody agencies tomorrow (along with 50% of the admin staff in the HSE) – it would be like unblocking a sewer drain. Then you’d see trading ramp pretty quickly. People would get genuinely busy. And if the EU object – threaten to fire them as well.

  43. johninmunich

    Commerzbank in Germany will be using the German rescue plan. In order to do this, executive salaries must be limited to €500K per year for the two years the plan is used.
    As some executives of Commerzbank have already earned €750K this year, they have to pay back €250K to the State and will receive no further salary this year. Executive bonuses will be zero for the next two years. No dividends will be paid out during this period, except to the German state.
    Compared to this it feels like Ireland has written a blank cheque and said “chance her on again and better luck next time lads”. We should be kicking the Irish banks in the nuts. We should also be trying to attract one of Europes healthy banks (yes they do exist) to come into the Irish market. These guys would help small and medium enterprises – both start ups and established. Irish banks would soon follow. Competition and loss of market share is th only thing they will understand.
    As for the EU, I can give you an idea of the German viewpoint.
    Germany knows it`s a relatively small player on the global stage and that it needs to be part of a strong Europe to gain influence and be a global player. When Ireland voted no to Lisbon, the German foreign minister Frank Walter Steinmeier quickly started putting out feelers about the core countries of the EU going ahead with further integration. This guy is now the social democrat partys candidate for German chancellor in the election next year. Whether or not he makes it remains to be seen, but I`m sure his not alone in his thinking. And remember this was before we blotted the copybook further. We are becoming more and more the delinquent child. In a time of crisis, we have made more enemies than friends. We can just thank our lucky stars we are in the Euro.

    • Furrylugs

      John,
      When our Fat Controller stood up in the Dail today with his hands in his pockets, he spilt body language saying ” I don’t give a F**k, I’m alright Jack”.
      I don’t know why I’m bothered because I came here on trust to retire. Now I’m off back to the UK again albeit (perversely) I’m seconded to Dublin.
      I’ll not take a chance on Eire again. I’ve tried to “come home” twice. Both times It cost me the shirt on my back. And both times I returned to the UK and walked into prosperity.
      So I’ll put romanticism behind me and carefully keep tabs on http://www.whatthefeckisgoingon.ie.

      Am I a traitor or a realist?

      Personally, not bothered.

      My Family come first.

    • Garry

      http://us.ft.com/ftgateway/superpage.ft?news_id=fto110320080939329860&page=2 some more info confirming what john says here…. agree with your other points, for the life of me I cant understand why Patrick Neary is still in a job here and why nobody in charge has been impacted in any way by potentially bankrupting the country… What do they have to do to be fired? lose the 500 billion? At the very least there should be a mechanism that if money is lost, their salaries and pensions should be reduced, it would focus minds.

      At the time of the guarantee I suggested here we ask for a German team to help oversee the bailout, it made sense on so many levels, even more so when you read that article.

      When theres a crisis like this leadership shines through and the lack of leadership is exposed very quickly… A leader must be tough but fair in order to get everyone pulling in the same direction. The Germans are demonstrating they are serious because they have inflicted some pain on those who are costing them money. So their public will still be angry at the bailout but will have to admit the government is working for them and acknowledge some pain is necessary for everyone. The end result is the people will put up with hardship, and there is an improved chance of success. Im quite sure they will make mistakes and no system will be perfect but without demonstrating that the national interest is paramount, you wont get a united response to the problem.

      But our leaders have demonstrated competence in organising preferred positions for themselves, blaming everyone else for the crisis, an ability to pull a stroke (like the guarantee) but zero ability to follow through (like the budget, the guarantee ended up a very different beast to the announcement)….With no real alternative government, the rational response from the public is look after number 1 right now and fuck the future, The pensioners, teachers, farmers etc demonstrated this, they don’t care about anything other than their narrow interests. For people paying the bill, the rational response is to reduce the share they pay by any means necessary, i.e. starve the parasites.

  44. Deco

    Philip, – true point. There is a massive number of health and safety at work inspectors in Ireland. Now to be honest, they do very little work. It is an easy number. Qualifications are not too strict either. In fact it is a nice clean job, with no effort, and no deadlines whatsoever. And state pay and benefits.
    In fact their primary job is to turn up unannounced, terrorising everybody. Most of these health and safety officers are focussed on ‘policing’ the construction sector. Even still, accidents do happen, and occupational health is not great. But in any case there are less active sites, and far less construction workers to police. Therefore, will we now see a reduction in the number of health and safety officers now with the construction downturn. Or will they instead fill their time showing up in other workplaces ?? Chances are, that they will show up at workplaces and annoy a different occupation. I reckon that it they did the job with a normal pace, half of them would not be needed.

    The EU has created a myriad of rules in the last ten years. Many of them are stupenduously silly. The rules concerning water usage that threatened to shut down a secondary school are a classic example. But in Ireland there is a little emperor bureacratic fascist class that choose to implement these rules with considerable zeal, as they are their only economic capability. In many other parts of Europe, (just go South of Lyon in France, or east of Plzen in the Czech Republic), the rules are completely ignored, and people are allowed do whatever they like.

    “johninmunich” – thanks for informing us how to implement a proper banking practice reform program – unfortunately in Ireland, authority tends to circle the wagons – you know the Saipan affair and all that -keep the little people in their place and knock down any upstarts. It is like as if people are vetted before they get into authority, to ensure that they will not spill the beans on all the other incompetents.
    The Germans are serious about fixing their financial sector.The Germans know very well that it is important to make authority obedient to the people, instead of having the people obedient to authority, if you want a proper functioning society.

  45. Deco

    Phillip – interesting point concerning the farming sector – everytime the public sector are asked to compromise on their demands they launch all sorts of loose cannonball shots at other sectors of the economy. One of their favourites is farmers. For some reasons they like to throw muck at farmers (if you expose the pun). The more I think about this, the more absurd I realise this policy is for the economy. Farming has a very small import component in it’s end product, so it actually an entire value chain inside the country. It is also jobs intensive – the opposite to the big Pharma sector in Cork Harbour. And it is subsidised by Europe, and taxed by the Irish government. Therefore it is actually a way of getting money into the country. No, why the teachers unions choose to take pot shots at farmers, I do not really understand. But I noticed some of this last week – and it seemed illogical and disingenious.
    But the key point I would make is this. Whereas teachers work 22 hours a week inside, and get good pay, and obscene pensions at everybody else’s expense, the farmers are a different story. Agriculture is a broad sector with varying rates of return on several subsectors, and varying levels of scale and natural advantage. Ireland as a whol does not have great natural advantages in many of it’s regions for agriculture. For many participants the returns are bare enough, for a range of reasons, which cannot be fixed. Unlike bad teachers, bad farmers get punished by the market. It is impossible to generalise.
    Apart from anything else, I would not begrudge anybody who spends 364 days of the year dealing with Irish weather, and who has no choice. Forget about the construction sector, where there are ‘rain days’. Especially if the said individual has to live for a miserable income, bank repayments, participation in compulsory government schemes with all the associated bureacracy, and unhelpful civil servants etc.. From now one, when I hear a public sector outcry accompanied by complaints about farmers, I will take notice and realise that this is a complete diversionary tactic – which is a signal that in the said public sector organization there is a level of fat that needs to be investigated and removed !!!

  46. sue

    “Look at this arc of prosperity, what some commentators are now calling calling the arc of insolvency: Iceland, Ireland and Norway,” Mr Murphy told a Sunday newspaper

    looks like we are impresssing our neighbours

  47. Malcolm McClure

    David’s headline is “Irish banks must tell the truth if they are to regain our trust”
    Well, AIB reported today so it provides an opportunity to assess their grasp of current reality:
    http://www.ibtimes.com/prnews/20081105/allied-irish-banks.htm
    It attempts to reassure, giving an apparently fair picture of their present position.
    They say: “At this time, our guidance for total bad debt provisions in 2009 is in a range of 90-110 bps (i.e. about 1%) of average loans,incorporating the expected effects on our loan portfolios of ananticipated deterioration in economic and credit conditions,including lower GDP and rising unemployment.”
    (Thus it thinks deterioration of the income stream from bad debts in ireland is going to be just 1%, based on their experience in the last downturn.)
    They say “We do not expect ameaningful market recovery until the first half of 2011 and anticipate an average peak to trough fall in values of undeveloped land (c. EUR 7bn of portfolio) and completed houses (c. EUR 3.7bn ofportfolio) of c. 40% and 30% respectively.”
    This seems to imply a charge of €3 to €4 billion to reflect reduction in asset value of property held as collateral.
    There’s a lot more in the report but it doesn’t explain how they plan to balance the books next year.

  48. Deco

    Concerning the AIB announcement the Minister for Finance has disclosed that he ‘is disappointed with the results’. The indications are that he does not connect property crashes and with banking profitability declines ? This was the same individual who told us that this ‘was a terrible time to be Minister for Finance, at the end of a property boom’. He still has not sacked the Financial regulatory.

    Maybe the shareholders would start to ask hard questions of the banks. Because of the 500 Billion Euro bailout (‘it is not costing the taxpayer a penny’) we have all become shareholders in the banks. And the government as our representative has been slow in asking the tough questions. In fact they seem to prefer covering it up. We cannot have coverups and trust in the banks. The coverups must end.

  49. Lorcan

    Deco, re: the ‘It is not costing the taxpayer a penny’ fallacy.

    Ireland has just raised €4bn via a three year bond issue. But, to get it fully subscribed it had to offer a coupon rate that is above the average by .25%.

    Over three years this leads to an extra charge of €30 million on the bonds.

    In current terms €30 million doesn’t sound like much, but it is certainly isn’t ‘not a penny’.

    http://www.ft.com/cms/s/0/a7afb08e-aaad-11dd-897c-000077b07658,s01=1.html

  50. Stephen Kenny

    ‘It is not costing the taxpayer a penny’

    Where this is spent on recapitalising companies, there’s another aspect of this that seems to be ignored. Let’s consider the whole cycle:
    1. Preceding the recapitalisation (share purchase), bank share prices fall significantly.
    2. Every shareholder in bank shares has lost a busload of money (every pension find, savings scheme etc).
    3. Recapitalisation.
    4. After a decent period, government puts it’s shares in the banks up for sale.
    5. Pension funds, savings schemes etc buy the shares.
    Result: The government has ‘bought low and sold high’, but since the major funds represent almost everyone in the private sector, in some way or another, ‘everyone’ has ‘sold low and bought high’.

    The argument that it doesn’t cost a penny is an argument for a free lunch, The argument that it doesn’t cost the taxpayer a penny is true non-funded pensions and false for everyone else.

    As usual, it’s a statement that is as true as it is misleading – very ’21st century’.

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