November 16, 2008

Banks can’t hide from this crisis

Posted in Banks · 77 comments ·
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Every evening, there is a little ritual in our house. Our young children, having been settled by their mother, demand dad tells them a story ‘‘from your head’’ before bed. This lark involves all classes of adventures, heroes and implausible tales starring themselves as central characters.

There are usually myriad frequently unpleasant baddies who are vanquished by our brave and incorruptible champions.

This nightly Jackanory session ends with the younger child mumbling while fighting back the tiredness: ‘‘But that’s all not true in real life, is it dad?” The older one, just eight, interrupts: ‘‘Of course it’s not true, dad makes it all up.” Sadly, by next year, they’ll both be too old for these stories. Children grow up and they stop swallowing their dad’s made-up yarns. Someone should tell the Irish banks the same applies to the rest of us. There are only so many made-up yarns we can take.

This week, two of our main banks – Bank of Ireland (BoI) and Irish Life & Permanent (ILP) – tried to spin stories to the world, yarns a dad wouldn’t tell to a six-year-old.

Not surprisingly, as a direct result, their share prices fell again. Shares fell after the chief executives of both banks indulged in more financial Jackanory, telling us there was no real problem in their accounts and that a modest bit of provisioning would do the trick.

Investors have had enough of this nonsense. Last week, AIB was at it, now BoI and ILP are at the same game. Bad enough that these people presided over a 90 per cent fall in the share prices of their banks but, to add insult to monetary injury, they are behaving as if nothing systemic has occurred. Let’s cut through this and state one basic truth: without the government guarantee a number of our banks would be in serious trouble – and some would be insolvent.

Not only are our bankers in denial but, more worryingly, their statements give the impression they don’t know what they are doing.

Last week began with the new boss of Merrill Lynch stating that the environment was as bad as it was in the 1930s.

This was followed by news that British mortgage lending in October was at its weakest in 30y ears; sterling plummeted; in the US, General Motors, Chrysler and Ford went cap in hand to Washington pleading bankruptcy. Germany was formally declared to be in recession last Thursday. Meanwhile, Banco Santander – the bank which told investors two weeks ago it did not need capital – announced it would seek to raise €7 billion immediately. All the while, it is getting more and more expensive to raise money.

Goldman Sachs paid Warren Buffett 10 per cent for money five weeks ago. Barclays Capital paid Arab investors 14 per cent for money two weeks ago. What price now for the recapitalisation of Irish banks?

Yet, despite all this, our banks’ bosses are saying everything is fine and they don’t need any new money. At this point, let’s just look at the numbers again. Last week, this column focused on AIB; this week, we’ll shine a light on BoI and ILP. All the following details of their balance sheets are freely available.

Interestingly, although both banks are in trouble, they have very different problems. ILP faces a funding problem, whereas BoI’s issue is bad debt. ILP has a loan to deposit ratio of a staggering 245 per cent. This means that, for every €10depo sit it has, it loaned €24.50.But how, you might ask, did it fund this? Its funding structure reveals that 34 per cent was through deposits, 36 per cent was short-term debt, of which one-third (or 12 per cent of total financing) came from loans from the European Central Bank (ECB).This dependence on the ECB is astounding, as it accounted for only 1 per cent of total funding in 2006.

The rest of its funding (€6.9 billion) comes from longer-term loans which have to be refinanced at the end of 2010.

This type of funding structure is simply not sustainable when the wholesale markets are shut. As a business model, the ILP approach will never re-emerge as a way to finance banks.

Looking at these figures, you have to ask yourself how they got themselves into this situation in the first place. The answer is very simple: ILP lost the plot at the tail-end of the property boom. Instead of curtailing lending when house prices reached ludicrous levels the bank went mad, giving out 100 per cent mortgages in Ireland’s own version of the sub-prime crisis.

Its loan book expanded from €21 billion to €41 billion in the three years to 2008.These loans were given to the young, working, commuting families – the ‘Juggler generation’ – who are now suffering from negative equity. Their ability to pay back these mortgages will be severely affected by rising unemployment.

Yet the boss of ILP who, incidentally, was the boss of the bank – not the life assurance – part of the company during the madness of the past four years, believes that, of ILP’s loans, less than 1 per cent will be bad over the course of the recession.

This means 99 per cent of the Juggler generation will be able, or willing, to payback their huge mortgages. Not likely. While there is little doubt that many older mortgages on the ILP books are absolutely watertight, the risk of default on new mortgages – given out when it doubled its loan book at the top of the market – must be very high. However, the major problem for ILP is that its funding model is a shambles.

Over at BoI, the difficulties are directly related to construction – where it was late to the party and took huge bets on developers in an effort to catch up. On top of this, it has funding problems, too. Its loan-to-deposit ratio is 160 per cent. This is way out of whack with the European average.

However, what makes BoI particularly degenerate is that it also went mad at the end of the boom.

Its loan book rocketed from €80 billion at the start of 2005 to a whopping €145 billion by the middle of this year. An enormous 26 per cent of the total loan book (or €38 billion) has been lent to the property sector.

This is a huge black hole which is bound to yield crippling bad debts as the property market capitulates next year. None of the mollifying nonsense we are getting from our senior bankers is credible – and the markets are responding.

In fact, these types of trading statements are about as believable as a bedtime children’s story. The only problem is that, this time, the financial bogeyman is real.


  1. Furrylugs

    Well that article blew the invites to several corporate jollies. DMcW dartboards will go down a bomb for Christmas in some quarters. Looks like the lads on here were spot on over the last few weeks.
    This blog should declare UDI and form an alternative government, methinks.

    Possible Topics for a lazy Sunday

    (1)Could someone throw some light on the state of the credit unions? They supplied the deposits for the 92% mortgages.
    Discounting the declared 100% loans, how many properties were purchased with 8% CU / 92% Bank loans prior to the peak (with 30 grand thrown in for the new SUV)?

    (2)How many people are liable for CGT having claimed the first time buyer status but then sold up inside the 5 year limit?

    (3) Is BRM’s unemployed Polish au pair going to apply for Davids researcher job?

    • Dr.Nightdub

      Credit unions’ normal lending rules are that you can borrow twice what you have saved. Given that most of them are located in areas where crime is a bigger concern than property prices, I doubt they stumped up many of those 8% deposits – average loan in 2007 was only €8k.

      Total loans from all credit unions in 2007 were €7bn versus total savings of €3bn AND, the last time I got a statement from my credit union, they were still paying a dividend. More than can be said for BOI.

  2. Woodsey

    David,

    Well done! Telling it just like it is. People form ‘La-la’ land were being interviewed on RTE all last week. Even Shane Ross could identify Brian Goggin as one of those guys trying to make it up for the nation’s ‘kids’. With your two youngsters in charge of B of I some of us might be tempted to pick up a few of their €1 shares. Way to go!

  3. Keep the weekly reality check going David.!
    As for Woodsey buying BoI shares at a euro each,I am one of many suckers who have lost virtually every penny- of considerable pennies- I invested in the main irish banks shares.
    A few friends were drawn in, along the way down, and have also lost heavily. Todays one euro BoI share could be 50 cents tomorrow.! Thats a loss of 50% overnight. Beware penny shares.
    Considering that we are not going to see any of the bank directors hang with a noose; go to jail; or even pay back their huge bonuses- we must be thankful that they are at least companies with limited liability and their creditor banks in Germany etc cannot come after us wasted shareholders, to strip us of our remaining assets.!!

  4. Without wanting to be too cynical about the whole exercise I think they’d be good value at around 60-70 c/share with the government guarantee in place. That would give a low capitalisation for a bank with reasonable if overstated assets despite a “dodgy” loan book. You’d have to feel at that price they’d either a) get bought/merged with a profit to the 70c investor b) recover c) collapse.

    I don’t think it will collapse. They were too busy playing house in Ireland to expose themselves to some of the “liquidity enhancing” (meaning explosive) investment instruments around. So they’re problems are more pedestrian and the kinds that will affect many of the smaller European banks. I believe these will be resolved but it would be nice if this was used as an opportunity for a spot of regime change! There was a joke in the FT last week about a “good banker” being a banker that was ruined the same honest way that his colleagues have been through over-leverage on overvalued assets.

    Share trading is basically gambling with the veneer of respectability and science. If BoI was a horse the rumour mill would suggest it was carrying injuries, that the jockey was incompetent and that a steward’s enquiry would probably find traces of doping (possibly in both horse and jockey). You’d need some bloody long odds to tempt you to back it and a decent suspicion the race was rigged in its favour. Hence the need for the government guarantee.

    However, if it does fall by another 40-50% that may be a good time to put as much money as you fancied losing over a year into it. It’s at least as safe as the dog track :)

    The point I’m making here is that the BoI figures are bad but not irredeemably so and there’s an element of market hubris which is already reflected in the share price. What’s irritating the market is a provision for bad debts which appears to be several billion too low, even when assessed for consistency with their own figures re property write-downs. That’s the most obvious piece of “jackanory”. However, I wouldn’t assume the market is rational as, if it was, BoI would never have reached the peaks it did.

    However, if you don’t believe this will be the end of civiliisation as we know it and have a few quid to lose, there are worse bets than sticking a few quid in BoI over the next few months.

    • Malcolm McClure

      Shane: The obvious place to get the “stables’” view of banks’ prospects is in Director’s Share Dealings listed at yahoo.
      These point to a very strange picture, as the figures for individual director’s holdings don’t always add up. (Regulator please note).
      In spite of very severe losses on their holdings, the directors of both banks kept on buying more shares; in Gleeson’s case at AIB, right up to 11 days before the Government guarantee. Those directors were sitting on paper losses of many millions, yet they continued to buy. No sales were reported during the previous year.
      Since the guarantee their shares have cratered even further. It doesn’t say much for the collective foresight of those with an inside view of banking realities. Were they hiding under the bed from David’s bogey man?

  5. Do banks all use the famous Iraqi Ali Hassan Abd al-Majid al-Tikriti aka “Chemical Ali” to write scripts for the head of banks:
    Ali : “So, Mr. Big bank man, you tell peoples that there is nothing to see and victory for us is assured”
    Mr Bankman: “When do I mention the lack of liquidity, massive jump in bad loans and the fact that once the property market sorts itself out we will be missing a few billion”
    Ali: “Ha,ha, you entertain me greatly. This is all a cloud of smoke Mr. Bankman created by the american oppressors. We have oceans of money, property prices are rising once more and the peoples have loads of jobs and are paying back their loans with extra on top. We are assured of security and there is no problems. Tell the people it is all a misunderstanding.”
    Mr Bankman: “Ok, I will tell them. Keep the office warm, I will be back in a while”
    Ali: “Of course you will be back, only people who are bad at job don’t come back… but just in case, I have prepared small hole in desert that may be suitable. One previous owner 5 metre by 5 metre, €550,000. No parking.”

  6. Dr.Nightdub

    Soldierofdestiny: “we must be thankful that they are at least companies with limited liability and their creditor banks in Germany etc cannot come after us wasted shareholders, to strip us of our remaining assets.!!”

    My current favourite revenge fantasy (requires a certain amount of dictatorial power) is to strip the banks of their limited liability status then ask them “D’yis wanna rethink that bad debt provision?”. It’d make for an entertaining AGM anyway.

  7. Johnny Dunne

    Bank directors won’t be able to ‘hide from the crisis’ at the next AGM … will the government ‘hide’ post recapitilisation?

    To get an ‘insiders’ thoughts it was interesting to read Michael Soden, he had the ‘hot seat’ before Brian Goggin….

    http://www.irishtimes.com/newspaper/finance/2008/1115/1226408687623.html

    If Mr Lenihan had ‘vision’, he would use this as an opportunity to ‘capitalise’ a “substantial Irish banking institution in a European context with its headquarters in Ireland appears to be a more ambitious strategy. This suggestion would give the many shareholders a chance to redress the substantial losses experienced over the past 18 months”

    As it seems from BOI’s report last week, 12% of their shareholders are Irish – let’s assume all pay tax in Ireland ? Instead of giving all the value of the upside post recapitalisation to a US investment bank (like Sandler O’Neill), since Irish tax payers will be ‘underwriting’ the recapitalisation why not allow Irish tax payers who are existing shareholders (with share cert!) retain an equivalent shareholding in the bank (through tax credits?). Therefore the government wouldn’t have thousands of shareholders on the streets looking for ‘heads’ as their ‘nest egg’ would be wiped out.

    Somehow I doubt the advisers such as Merrill Lynch engaged by the government will propose something like this.
    Instead it will be seen as a short term opportunity to generate fees (Eircom deal will look ‘small’) and ‘recapitalise’ the Irish banking system with not much consideration for the Irish taxpayer and access to funds now for Irish companies.

    As Michael Soden says “Apologies are a poor substitute for capital gains and dividends.”

    We’ll see – probably sooner rather than later based on current commentary ?

    • Malcolm McClure

      Michael Soden says: “Somehow a mechanism needs to be created that can reflect a current market value of property so that an accurate assessment can be made as to what is the realistic level of property values on the bank’s balance sheets. ”
      Okay, here’s a suggestion: Have auditors record the bank’s current valuation of each of its property assets; Ask the auditors to select 10% of those assets, at random, and put them up for auction. Take the average proportion of banks valuations actually realised at auction and apply factor this to the remainder of the banks property assets. Voila.

  8. shtove

    It’s not a question of whether these banks may be insolvent – they are insolvent! And bankruptcy follows.

    The government guarantee is a holding game. Note that last week the Swedes went with their early ’90s plan to liquidate and take over. It’s not too late.

    If Ireland weren’t in the euro we’d be looking at Iceland to the power of ten. But because Ireland is in the EU, we have the festering sore of the IFSC – which raised the potential blow out to the power of a hundred.

  9. Lorcan

    Very quite here today. All must be busy brushing up their cvs..

    For an outsider view on the BofI results, this gives a good picture.

    http://www.investorschronicle.co.uk/Companies/ByEvent/Results/Analysis/article/20081114/f873343e-b18b-11dd-a35d-00144f2af8e8/Profits-slide-at-Bank-of-Ireland.jsp

    I should point out that the investors chronicle is part of the FT group, and as such does include concepts such as ‘reality’ in its analysis.

    On the Jackanory theme, I love this line from the IL&P report:

    “Overall group pre-tax operating profit, including the impairment provision in
    respect of the Icelandic bank debt, is expected to be down about 30% on the 2007
    result.

    Excluding this provision, the expected group operating profit for 2008 would
    reduce by 15% on 2007.”

    Roughly translates as “If we didn’t loose so much money we would have made more profit.”

    Great stuff.

  10. shtove wrote:
    “It’s not a question of whether these banks may be insolvent – they are insolvent! And bankruptcy follows.

    The government guarantee is a holding game. Note that last week the Swedes went with their early ’90s plan to liquidate and take over. It’s not too late.

    If Ireland weren’t in the euro we’d be looking at Iceland to the power of ten. But because Ireland is in the EU, we have the festering sore of the IFSC – which raised the potential blow out to the power of a hundred.”

    Interesting.
    So will Ireland be the first little European “Tax haven island ” to “do a Titanic” .?
    Will the Soldiers of Destiny find the cash to nationalize the banks now that their developer cronies have stripped the carcass clean.?
    Will we regret ridiculing Bart Ahern´s pre-election claim to be a “Socialist leader” (a la Chavez.?)
    Is the Mary Hearney/PD party “closer to Boston than Berlin” era, at an end.?
    Many questions to be answered.

  11. Garry

    During the second world war, when armies were marching around Europe, cities were being bombed into oblivion and millions of people being killed, we quietly closed our doors and called it the Emergency. To be fair, it wasn’t the worst strategy, seeing as the only side we could support had just overstayed their welcome here.

    In a way this is similar, When banks, funds, companies and currencies and countries failing around the world, our banks, regulators politicians and government are closing their eyes and are all busy reassuring each other. Wonder how “Emergency 2.0″ will work out.

    • Claire

      My exacts sentiments both the banks and government are adopting the typical Irish attitude of burying their heads in the sand. We need a leader with balls someone like Micheal O’Leary that is not afraid to speak up and say things the public may not want to hear!!!!!!!!!!!!

  12. MK1

    Hi David – plus ‘usuals’,

    I dont think its a case that the banks dont know what they are saying. Its more of a case that to state the actual status of their financial situation would in fact make their financial situation worse. So, they are going through an ‘act’, a posturing, a performance. But such is the way of our accounting systems and it has ever been thus. Its not the first time that banks or indeed any business has ‘blemished’ the bare facts nor will it be the last. I dont blame the banks for purposefully putting their heads in the sand because to do otherwise would be folly.

    Assets in any business are never marked absolutely correctly because at any one point in time they are not all transacted or transactable. Such a situation in accounting terms is called ‘fire sale’ values. Assets are measured as to what they will produce over the long term and are reassesed based on risk models, etc. But like going down a rollercoaster blind, any risk model CANNOT predict how far or deep its going to go down. Risk Models are NOT a working mystic meg. It pays the bank to be conservative in its estimation of future woes and hence it will do so and risk models follow suit. Turkeys do not vote for Xmas! Risk Models cannot predict the future.

    > loan book rocketed from €80 billion at the start of 2005 to a whopping €145 billion by the middle of this year. An enormous 26 per cent of the total loan book (or €38 billion) has been lent to the property sector

    145 billion is a fairly sized wad, and 10% of that could go bad given a slump. Also note that around 70 billion or so of that was funded from other banks. Goggin said that they had something like 13 billion out to ‘stressed developers’. Of that, who knows what will get repaid back and what impairment BOI will have to carry. Will it be 130 million, 1.3 billion or a whopping 10 billion. Most estimators are around the 6 billion mark.

    But BOI, now valued at a mere 1 billion or so today on the stock market, is still a business that has operations that are producing profits. Whilst that situation remains, (eg: they are still able to fleece many of us in the retail sector in ireland for example), they can use those profits to help cover the bad debts, as long as this bubble puffs out slowly, as in the rate of bad debts occuring are a stream per quarter/6 months and not an instant deluge.

    Time, in this case, may save the bacon of a BOI and an AIB. If the management think there is light at the end of the tunnel if they can just trade out of it, they will aim for that, and hence the jackanory-speak.

    Night, night …. sleep tight …. ;-)

    MK1

    • I was going to suggest something very similar re banks current “optimism”. The problem is that the market is so pessimistic that they really need to come clean on how bad things are and the true extent of write downs. The institutions they borrow from will have already given them some pointers on what they believe the market value of their property assets are. They’re also aware of values at branch level and due to repossessions. It’s management a la bart simpson to suggest that they can’t give a realistic estimate.

      Anyway, the old limit order book will be triggered soon on BoI if they keep heading the way they are. Sinking faster than an idealised stone of minimum friction on the ISEQ this morning.

  13. kieran daly

    Can anybody explain how Dan Mc Loughlin still has a job?.What is his next forecast?.West Brom to win the premiership?.The head honchos have screwed up , yet no heads at head office have rolled.A great country!.

  14. Paul

    Bank of Ireland heading for penny stock, have their lies and spin backfired, or would this have happened anyway. It is tempting to pickup a few of their shares, but penny stock can go either way, you can make a killing, or be stuck with it for life.

  15. Jim

    Response to Furrylugs

    5 year clawback on CGT for First Time buyers was revoked to two in last years budget

  16. Philip

    OK, so we have busted banks. And the argument is that maybe there was some modicum of responsibility to keep the stories “positive”. I mean, is it always wise to tell the truth of Santa to the children…the market mentality is not that much more mature to be honest.

    We need to steer out of the mess. How? Guarantees, capitalisation etc. may not work. Wheels are coming off the cart everywhere. Now what? Can we “reboot” the system in any way aside from recapitalisation (print money).

    Deflation seems to have been called. close to 1% for 09.

  17. John ALLEN

    while perusing all the comments from yesterday and today it seems the viewpoints of the contributors are accurate nevertheless insular in the way of strategic thinking ….. Germany is in a recession …….this matters a lot more …..Germany contracted by 1.2% ….Germany is the World biggest Exporter ….our only reason we have not gone the way Iceland did is because of our saviour Germany – because that country underpins the strength of the Euro and makes us feel sane at the moment …presently the litmus test for the functioning of the euro is being tested – the glue that holds the Euro together in the Noughties cannot be taken for granted anymore …our existing Euro is a basket of currencies…..issued by each country seperately …and clearly indentifiable whether it is Irish, German etc …each note has been issued by the respective national country named on that Note…..indications strongly point to a break up of the Euro as we know it ….and soon ….if that happens in Ireland ….Deposits will freeze and devalue ….and the return of exchange controls commenced again……these are the real issues at stake presently and whatever our country may or may not do now or whatever we believe the banks should have or should not have done is quiet frankly ….at least for the moment this week and next … immaterial . Ireland is now one of the sunsumed members of the Euro known as the PIIGS ie Portugal Italy Ireland Greece and Spain ….and we are at the bottom of that list ……..and yes….maybe Argentina may devalue soon…….but Ireland is running as a joint favourite at the hurdles

  18. David Kenny

    I have my mortgage with ILP and all my savings with BOI. Is it worth me closing my account with BOI in view of the fact that their share price has dropped below €1 today.

    I’m also concerned that the BOI will go bust leaving my savings locked in the account and me having no access to same. Advice please!!!!

    • Malcolm McClure

      Don’t worry. It’s getting cheaper fro Lenihan to nationalize the bank with every day that passes. He’s already guaranteed your deposit but it might take a while for the guaranteed funds to be released. As BoI credit cards would also be useless on default, it could be wise to keep a month’s spending money in cash in a kitchen jar.

      • Philip

        No doubt Lenihan would use the NTMA warchest. But is the NTMA healthy? I am sure their fund management had (like all the other financial institutions) tried to invest in sound portfolios? Who’s to say they are not similarly in the doo doo.

        Also, the elephant in the room in the guise of CDFs and Derivatives seems to have become invisible of late. Has this danger passed or is there a tsunami of settlements about to hit the global scene?

        I just feel that Ireland now has to batten down the hatches as everyone else out there is starting to feel the pinch. Germans in particular. The PIIGS are just a side shown.

        • Philip

          Great article. And who know maybe the volatility in the markets (Dow etc seems to be settling a tad. Still trending down …but not bouncing about as much.

          I hail from the telecoms/ ICT business. We have been weathering a storm since 2000 after the Dot Bomb. It’s levelling out over the last 18 months and there is some growth at long last. Since that time, I know of very few of my colleagues who bought into property or flash of any sort. Indeed, many took advantage of their trade to move out of the city and work remotely. Some I know who now live in “green” houses with Wind/Solar you name it. Guess what – we are not too worried…not as much as we were 5-6 years ago.

          Ireland’s recovery will be on those industries/activities that suffered earliest – including electronics/ light hi-tech industry – things that really are not dependant on being in the continent and are immune to transport logistics costs.

          I think DMcW needs to start a different tack. The banks etc will eventually get sorted or sort themselves out as global condition improve. Let’s all pipe down a bit on running the banks & property markets down. Markets will sort it out and the less intervention by FF et al the better. How are we getting ready for the next updraft? What steps?

          Watch the Green Dragon in The Volvo Ocean Race. There’s an example of international cooperation we should be shouting for. “This is the only team that will visit two home ports, first Qingdao then Galway, and will rely on a mix of cultures from both east and west “

        • Malcolm McClure

          You might be optimistic Philip. Bank of Ireland closed at €0.83 today. Après boi le déluge?

        • b

          Philip,

          This thing is only starting. January is going to be horrific.

        • b: you might be right. It’s a bit like the whole CDS thing. It’s similar to book making in that you have to try and balance your books. You try to make your profit from the leveraged difference between the upside and the downside of the credit default. You don’t swing out there with the entire value of your CDS as one side of the risk.

          BUT, bankers make mistakes. Look at Resnick, Leeson etc. The timebomb is if someone gets it wrong. Forgets to play it safe(ish) for the sake of profits. It happened to AIG and there could be other surprises out there. It’s a bit early for the banking system to start congratulating themselves on their cleverness and prudence because the CDS didn’t bury them.

        • b

          This was no mistake. We need to clear cells in Portlaoise for some of these chancers.

  19. Furrylugs

    Odd how a 2007 report on contaminated bottled water was released today. Nothing to do with more bad news from the banks???

    • Lorcan

      Well, a bottle of water is now more expensive that a BOI share. Although, no matter how bad it is, I doubt the water is nearly as toxic as a bank share right now.

      If you’re staying in tonight, I would recommend Channel 4 at 8:00pm. Niall Ferguson’s new programme on the Ascent of Money is starting. Just finished the book, thoughtful stuff.

  20. Furrylugs

    Ah God no Lorcan. I want to watch Bertie finishing off his pitch for the Aras.

    • Lorcan

      I think you might be backing the wrong horse there (in more ways than one) but you should be able to catch up with it on the Channel 4 website.

  21. The useful website http://www.wikinfo.org rates Ireland thus:
    ” Ireland is among the richest, most developed and peaceful countries on earth, having the fifth highest Gross Domestic Product per capita, second highest Gross Domestic Product (Purchasing Power Parity) per capita and having the fifth highest Human Development Index rank. The country also boasts the highest quality of life in the world, ranking first in the Economist Intelligence Unit’s Quality-of-life index. Ireland was ranked fourth on the Global Peace Index. The state also has high rankings for its education system, political freedom and civil rights, press freedom and economic freedom; as a result it was ranked fourth from the bottom on the Failed States Index, being one of the few “sustainable” states in the world. ”

    Update needed soon..?

  22. Paul

    Yes Wikinfo needs updating, actually the Family Guy Wikia site has far more upto date information on our Island…..

    “Ireland has more drunks per capita than people”

  23. John ALLEN

    Today we watch in horror as the shares in the Bank of Ireland dive once more to near Zero eliminating a lifetimes savings for many trusting families and in particular pensioners .Their employees are worried that their future is now at stake .The tragedy is made worse when we realise that some of their Captains have been a bunch of chancers ,unqualified and suspiciously criminal in behaviour .Their reign of terror has finally become transparent and must be arrested immediately .The tax paying public must now seek full transparency into their activities because they now are becoming the new shareholders and guardians of this poisoned chalice.
    Unlike other developed countries Ireland allows this bank to be an impostor and closes a blind eye when it suits them .This can be shown on records with the Dept of Justice and the Criminal Courts .Unlike other developed countries Ireland / Eire / The State does not have a Sovereign Right to use the name ‘Bank of Ireland ‘as enjoyed by Banc de France , Bank of England and Deutsch Bank etc .The electorate need to claim that right immediately and allow the bank relinquish it . New Ethics , Regulated Codes of Practice and proper social accountability need to be legislated for to ensure that the Tax Payer no longer has to endure another nightmare.

  24. Philip

    The big concern is the damage being wrought on small and med sized businesses. Again, we blame the banks. But they are not totally to blame. There is a culture of poor ethics in business dealings here that is prodominately championed by the public service and the semi-states. I refer to the cavalier fashion in which 30day payment terms are ignored and stretch to 60, 90 and 120 days. The Banking crisis is now exposing this nonsense.

    I wonder what else will come out.

    The injustice is becoming plainer to see each passing day. Good leadership just needs a chance. They will have one hell of a mandate. I remain optimistic.

  25. MK1

    CDS

    I dont think the CDS ‘stack of cards’ is stable quite yet. We have just toppled a few cards off it and the shockwaves of Lehman falling was more than 6 billion and more like 60 billion of counter-party losses. The mantra circling in the financial sector is that Lehman should not have been ‘allowed’ to fail. If AIG would have gone bust that would have triggerred perhaps 450 billion of counter-party losses. The US Government stepped in (several times now) with financial supports to keep AIG and its CDS risks and liabilities afloat.

    And of course all of these values are estimates. There is no regulation, the actual quantities are unknown, and if banks carry large risk, are they likely to fess up voluntarily about those exotic off-balance-sheet instruments which would drive their credit ratings lower?? No, Turkeys do not vote for Xmas. Yes, there are some notional values there, and double counting, but its like notional insurance values. If all claims actually come through, it can add up to the total. Not all companies will default. They are being saved as well by governments. But this saving will come at a cost somewhere.

    CDS is a balancing act. It may topple down at some stage, but it may be unwound carefully step by step. The authorities and the institutions involved are trying to unwind it. Its still the elephant in the room, along with other derivative ‘exotic’ instruments.

    MK1

  26. Philip

    Government will recapitalise. Probably before this time next week. Expect to see a lot of trophy directorships going out the window (figuratively speaking). And then a few resignations or reassignments after that. Has to happen.

  27. “CDS is a balancing act. It may topple down at some stage, but it may be unwound carefully step by step. The authorities and the institutions involved are trying to unwind it. Its still the elephant in the room, along with other derivative ‘exotic’ instruments.”

    Re property bubbles,Japan was where Ireland now is.
    Japan successfully survived a 10 year period of stagnation (and deflation).
    The whole world (almost) now is- where Japan once was.!
    Add to this situation, the global CDS debacle.
    The so called re capitalization of the global banking system, is an unprecedented dilemma.
    In my view,at the end of the day,before the chaos subsides, It has to lead here:
    http://en.wikipedia.org/wiki/Hyperinflation

  28. Philip

    I am proposing to print my Federal European Currency Units. I’ll issue a favourable 1 per 10 euro – this week only. Next week, who knows. All are solidly backed up courtesy of the small world theory of handshakes – we are 6 away from anybody we choose.

    Must ramp up that still of mine again. Non-traditional revenue streams beckon…

  29. sue

    Hey if you want to make some real money buy some bank stock now and watch the bounce come from the recap plan…

  30. Garry

    Federal European Currency Units. also knows as – FEK U could work!

    While the domestic banks are important its time to look away from whats going on in Ireland and look at the global picture, whether its Iceland cosying up to the Euro, how sterling will cope, how China will cope with reduced demand, what if anything can Obama do…..or even to misquote Rumsfeld “what are the knowns knowns, known unknowns and unknowns unknowns to look out for”.

    .

    • b

      Garry. In fairness we just hit a very big and nasty iceberg?

      Why are you looking to the now when this time last year it was all plain sailing. we have had our black swan and trying to predict the next one is a fools errand.

  31. John ALLEN

    sue – ur dreaming …never catch a falling knife

  32. John ALLEN

    garry…its back to the earlier article….the know nothings

  33. John ALLEN

    the head of the know nothings of a political persuasion is telling merchants bearing flowers that he knows something ……after he tells us he knows nothing…./ my thoughts are on …………the Jacuzi in the Floozie ……………….( I am not a dublinese but I can tell you that the word floozie comes from …French or more precisely – francais a ‘la provencal ……meaning…………..CASH )

  34. MK1

    From the Dail:
    “Fine Gael leader Enda Kenny said if capital was provided it should not sit in the banks’ vaults. He said it should be used to extend credit and should not be used to support ‘delinquent’ developers.”

    “Mr Cowen said recapitalisation was not a panacea that would solve all ills. He said that if capital were provided to banks, it would be for capital purposes and would not automatically be used for increased credit lines for Irish business.”

    So the infusion of taxpayers (current and future) money into failing banks wont automatically be used to support developers. But this is political-speak for “it will be up to the banks discretion”. The support of developers by FF over most other things is palpable at this stage. Arent these the same developers giving donations to FF each tax year? I think a 2-yr old could smell that rat.

    I may not agree with everything that Inda says, or indeed a small proportion of what he says, but he has called this one right.

    There may be a ritual in your house every evening David, but there is also a ritual every day in the Dail house for all an sundry to see.

    David, do you think we as a country should save some of these delinquent banks? Perhaps you could expand the scenario of what would happen if we didnt ‘save’ them.

    MK1

  35. John ALLEN

    ………REVENUE….are letting go ..Staff…..

    • Malcolm McClure

      So are the County Councils: “71 members of staff at Donegal County Council are to lose their jobs after they were told their contracts would not be renewed.”
      http://news.bbc.co.uk/1/hi/northern_ireland/foyle_and_west/7737398.stm
      So it looks like thepublic service jobs are taking their share of the hits. Is this the tip of the iceberg?

    • Malcolm McClure

      So are the County Councils: “71 members of staff at Donegal County Council are to lose their jobs after they were told their contracts would not be renewed.”
      –BBC today.
      So it looks like thepublic service jobs are taking their share of the hits. Is this the tip of the iceberg?

  36. John ALLEN

    …..i am playing the …….’new’ hit release from the beatles ……..’ HELP’

  37. Lorcan

    This just out from NIB. Makes grim, if unsurprising, reading.

    http://www.nationalirishbank.ie/en-ie/About-National-Irish-Bank/Press/Press-releases/2008/Pages/Press-release-20081119.aspx

    The government seems to be looking to private capital to bail out some of the banks – http://www.forbes.com/afxnewslimited/feeds/afx/2008/11/19/afx5713782.html

    There is a chance that this will work for the ‘better’ of the six covered institutions (as we now have to call them) but I doubt it will be an option for the bad eggs among the half dozen.

    This, imo, will leave the government/taxpayers holding the can for the worst offenders. It will come down to a question of affordability. There will be costs involved in saving a ‘bad’ bank but there will also be costs involved in letting a bad bank sink. Either way it’s a lose/lose.

    Meanwhile, in the real economy, the effects of the credit freeze are causing real problems for supply chains. We still have the banks, but we have been (internationally) without effective banking since the end of September. Banks haven’t been allowed fail yet, but they have been allowed take an extended leave of absence.

  38. Philip

    I know of 2 people who are being let go today becasue the banks will not lend. Guys are working on infrastructure/ road projects – probably are waiting to be paid by Gov. And now I see this nonsense that even if the banks are re-capitalised, they will just sit on it and let small companies die or beg for money based on resubmitted business plans…

    Is someone taking in mickey here?

  39. Malcolm McClure

    Big delay in getting David’s Indo piece today up for discussion.
    “Act now, moderator, or we will all live to regret it”.

  40. Garry

    @Philip & Malcolm
    So the people losing their jobs because of this fiasco are workers for contractors.. typically these are the guys doing the real work. Expect to see drastic reductions in actual public services without a corresponding reduction in cost as the productive element are got rid of.

    Whereas in a proper accountable democracy, the Financial Regulator and Central Bank would be under new management and we would have a ministerial resignation along with sackings at executive level in the banks.

    Thats the bottom line, incompetence & dishonesty are rewarded which sows the seeds for the next fiasco

  41. Save the taxpayer not the banks !!

    We should not bailout the Dublin 4 banking sector. The banks that they have run are no longer worth saving. It would be cheaper to give the depositors their money, and sell Anglo Irish Bank and Irish Life and Permanent to the Saudis. They can ‘rescue’ the Dublin 4 bankers. Bank of Ireland should be forced to sell all non-core assets. And then sack the top three layers of management.

    Nepotism has made and destroyed the media/financial/political establishment. We are only now waking up to what these scoundrels are doing and their incompetence.

  42. “We should not bailout the Dublin 4 banking sector. The banks that they have run are no longer worth saving. It would be cheaper to give the depositors their money, and sell Anglo Irish Bank and Irish Life and Permanent to the Saudis. They can ‘rescue’ the Dublin 4 bankers. Bank of Ireland should be forced to sell all non-core assets. And then sack the top three layers of management.

    Nepotism has made and destroyed the media/financial/political establishment. We are only now waking up to what these scoundrels are doing and their incompetence.”

    I second that.The thousands of apartments, building sites, and houses now lying idle and empty should be sold off to the young people of Ireland at half the current asking price. Instead it looks like a consortium of foreign investors will buy up the distressed assets (i.e. recapitalize the bankrupt banks) and sit on them for the next 5 years, waiting for a turnaround and a massive profit.
    Outrageous.
    “Eircom Mark 2″.?

  43. chthonic

    It is very difficult at the moment to take on the role of medium on future movements of the economy. David and people like him are more able than the vast magority. And, that vast magority is trying for all it is worth to keep a continual run calories coming into their houses. What will happen, I wonder to all those who have bought out their motgages and are in a reasonable position housewise? Are they going to have their good fortune turned into loss. The whole situation has been thrown away by an unfetered greed that swept the nation like Tulip Mania that once swamped Holland. Begrudgers abound be ready to air your sniggers and smirks.
    Ireland, it seems to me, as it came towards a modern maturity, simply lost its nerve and reversed direction only to embrace its former imaturity with a glee that astonished its powerless citizens. It just couldn’t cut the mustard. The culture seems to be that of a giggling elite thhat cares noting whatever for ethics or any kind of honesty. I can barely find any true honest ethic in any proffesion that is bank, auctioneer, legal or from any other direction apart from the honest well plodding General medical practitioner. The sooner the Government gives up on the bond holders the better, but will that make very much difference?

  44. [...] Which is notorious for having ramped up mortgage lending prior to the financial crisis. As was pointed out during the actual [...]

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