November 26, 2008

Nationalise the banks but don't feed them to vultures

Posted in Banks · 90 comments ·
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Although I never thought I would say so, it would be preferable for us to nationalise our banking system than to allow a private equity consortium to own and control our major banks.

Private equity firms are probably the worst possible owners of a strategic asset like the banking system. If Mr Lenihan sanctions, at these distressed prices, a takeover of the Irish banking system by a private equity consortium, he will have used the guarantee of the Irish taxpayer to subsidise the profits of a tiny few speculators for two years.

Before he announced the guarantee he could have argued that the ownership of the banks has nothing to do with the State because they are private firms.

However, by using the sovereign name to prop up the system, he has changed the game completely. This is also acknowledged in the legislation because the minister now has a veto over who will ultimately buy the Irish banks.

He will also signal chaos in the banking system because the strategy of a private equity fund is to sell. The minute these lads buy an asset the first and only thing on their minds is how to get out of this asset, making the most money by selling to the highest bidder.

What is a private equity fund? A private equity fund is a highly leveraged takeover machine.

For the sake of simplicity, let’s say the investors put in $1bn. The private equity fund then borrows 10 times that so the fund with equity of $1bn now has $11bn to play with.

Crucially, private equity funds have a 10-year lifespan. The manager promises the investor at least 20pc back on his money, which becomes feasible when you see that the initial $1bn investment grows to $11bn with borrowing.

The fund manager spends the first four or five years raising money and buying assets and the next five or six years selling the investment. The manager takes a 1pc fee for managing the money but his real prize comes from the profits he makes when he sells everything and closes the fund after 10 years. He can’t take an extra penny out of the fund until everything is closed, the fund’s assets are re-sold and the profits are divvied up among the original investors and the fund manager after the banks are paid back their borrowings.

Therefore, it is clear that these private equity players are only in the game for the short-term and while they control the asset, they squeeze every last drop out of it in cost savings and the selling of what are called “non-crucial” assets. So, when it comes to selling the bank, the private equity fund ensures that at that particular time, the bank will be at its most profitable, irrespective of how many jobs are lost or how many branches are closed in the process.

The private equity manager doesn’t care who buys the asset, so once a private equity firm or consortium gets the controlling stake, the future of the Irish banking system is anyone’s guess.

Although this seems like a great business to be in, things have not being going well for our private equity friends of late. Many investors have been trying to get out of private equity funds in the past year because they realise that when prices are falling, the private equity managers are just as fallible as the rest of us.

Many of these “masters of the universe” have lost fortunes this year and the problem with private equity funds is you can’t take your cash out until the end of the 10- or 12-year cycle.

As a result, investors who want to get out of private equity funds are selling their stakes at 50pc discounts simply to get hold of some cash. Eighteen months ago, when the markets were soaring this would have been unheard of. Yet the Financial Times reports many such funds are in serious trouble.

If you think about it, it is not surprising that an investment vehicle designed for a bull market when credit was ubiquitous might have problems in a bear market undergoing the most violent credit contraction in history.

The fragile state of the private equity industry and the jumpy nature of previously secure investors, is another reason that Mr Lenihan shouldn’t touch these lads with a barge pole. In these conditions, a private equity owner of the Irish banks will make the debacle of Eircom seem like a honeymoon.

Most crucially, the private equity option doesn’t solve Mr Lenihan’s problem, which is the bad debts of the Irish banks stemming from property.

What happens to the private equity investment if they get their sums wrong today and run out of money to cover the debts of the banking system? They will simply walk away, leaving us with no banking reform and a bigger problem when the rest of the world is coming out of recession in a few years’ time.

Make no mistake about it: they will promise you the sun, moon and stars to get the assets cheaply, but once trouble begins they will not come to your aid and the Government will be back to square one.

Unless Mr Lenihan can quickly find proper strategic investors to take over our financial institutions, such as a large European financial player who knows how to run the business, he’d be better off waiting.

If he feels he can’t wait and private equity is his only option, we’d be better off if he nationalised the banks by taking a significant minority share using a preference share, which should generate a minimum 10pc to the State per annum.

He can also write himself an option to take more of the banks’ equity — on behalf of the taxpayer, exercisable in five years’ time — at a deep discount to today’s share price. You can use private equity money if you need a make weight, but don’t give them control. And of course, open up the recapitalisation to the Irish taxpayer as direct investors. The State can then sell its stake in a few years so the profit accrues to us the Irish people, not a bunch of private equity traders, masquerading as national saviours.

In this way we can stabilise our own ship, and solve our own mess in an orderly fashion. This was what the guarantee was about in the first place.

Private equity fund managers are not investors; they are leveraged traders. They think with a trader’s mind that tells them that as soon as they have bought, they need to arrange how to sell. Even if they wanted to invest for the medium term, the private equity time horizon is legally bound to sell during the timeframe of the fund, normally 10 years, or less.

Ireland’s degenerate bankers do not deserve to be saved.

However, we the Irish people, whose deposits, mortgages and business keep the banks open, deserve more than to be pimped out to the least suitable bidder in this, our weakest moment.


  1. As someone who works in a financial institution I can agree that this case would be very, very bad for the country (not so much for the banks per se). I’m not concerned so much for my job as I don’t intend to be in the country in a year or so anyway. I am concerned for the trail of doom that it will leave. It really is feeding the “tiger” to the lions.

  2. David I am amazed 10.30pm and 1 comment where are your loyal posters gone, could they all have left the country or are they celebrating Thanks giving early . ? This Friday in America within the retail trade is tagged as Black Friday as it is used as a gage to see what will be spent over their holiday season, well if Our Finance Minister lets in these vultures , it will be one of the Blackest days in this countries history.
    Our present Government really don’t seem to have an idea as to what they should be doing to stop the down turn here , if they only read your commentators here they could at this stage have a plan in place to get into gear for early next year.
    It looks like Obama has been visiting here as this week he has announced a plan as I had suggested with regard to rebuilding schools their infrastructure and renewable energy projects , but it seems here our leaders are blinkered and too focused on helping their Banking friends , if these venture boys are allowed get their hands on our banks and the CEO’s stay in place and if the general population here stay quite , we will fully deserve to return to the depressed times of Ireland in the 1950′s.

  3. Excellent article which pulls no punches. What’s the chance Brian Lenihan will heed your advice? Incidentally, I’ve heard nor spoken to anybody over the past week who has anything positive to say about the banks being acquired by private equity firms. It seems it’s almost unanimously regarded as an awful idea that will create new economic problems and exacerbate existing ones in the short to medium term. Being private equity, there is no long term. Based on the track record of most private equity firms (and people are talking about KKR for crying out loud) it would hurt bankers, borrowers, depositors, taxpayers & Irish businesses.

    Yet despite the gross unpopularity, it actually seems like something under serious consideration. There’s an argument to suggest that a nationalised and staidly boring bank with the very minimum of exotic investments would be a better alternative. Yet a nationalised bank suffers from a major conflict of interest. We have a largely consumption-based tax system. You’ve pointed out several times in the past that the government was reliant on stamp duty revenues and encouraged the housing boom. While a national bank can’t control interest rates, it can not just encourage but arrange reckless lending in the hope it can “inflate away” all problems including exchequer borrowing and unsustainable pay agreements! Therefore any nationalised bank should arguably have a higher capital requirement and improved borrower risk assessment. It should be perceived as safe.

  4. Lorcan

    David, spot on regarding Private Equity. Especially the line where you say “They think with a trader’s mind that tells them that as soon as they have bought, they need to arrange how to sell.”

    I worked for a company that was bought out by a private equity firm. The management hailed them as the saviours of the company, but when we finally got to meet the new owners, they sang a different tune. The man from the PE firm addressed a worker meeting where he outlined his strategy, which was this: I bought this company for €250m, I intend selling it in four years for €800m, and to do that I am going to fix the balance sheet.

    Fixing the balance sheet turned out to include closing the Irish operations.

    But Lo! what is this? The buzz now is that we might see the pension funds coming into play to save the banks, including funds administered by BOI asset management involved in a bid for BOI. (I’m sure the regulator will make sure there is no bending of pension fund rules)

  5. Garry

    Agree 100% and would go even further.

    I am nervous about the 500 billion Euro bank debts guarantee as it is, and if private equity firms had a controlling interest in enough of the institutions covered by it, that would be scary.. I think at this stage there is a higher chance of us having to pay out on the guarantee than of the guarantee actually expiring in 2010. Thats just my gut feeling, I cant see the banks letting the guarantee just expire unless there is a dramatic recovery in global liquidity.

    Should a deal go through with any private equity firm and the guarantee on bank debts not be rescinded as part of that deal, I will think very seriously about my future in Ireland. I would be very worried about having all assets within the reach of this state with a guarantee in place and vultures with the means to trigger the guarantee at their disposal.

    These firms only invest when they are sure of their exit and they have enough pressure points and control to force the exit…. and they don’t care how many bodies they need to walk over to do it, ask some company founders who have taken investment for their experiences… There are some successes where things go to plan but there are also cases where the founders end up working for very little and locked in, effectively slaves to these guys. I’d like to know what would happen if the guarantee had to be called in for say 200 billion.

  6. b

    If the banks pass to private equity its time to go. Would the last person here please turn off the lights. A black day to be Irish. Fianna Fail deserve to be utterly destroyed. This would be an act of treason.

  7. Johnny Dunne

    David – I think the ‘new’ private equity funds set up for this deal plan to have a ‘very’ short investment horizon ?

    According to today’s reports ‘Mallabraca’ is doing preliminary due diligence for 60% of the equity in BOI –

    http://www.independent.ie/business/irish/83645bnfunded-mallabraca-may-take-60pc-boi-stake-1552724.html

    Great going for a company which was registered in the CRO less than 2 week ago ! What a ‘high potential start up’, even qualifies for Minister Lenihan’s corporation tax relief for start ups announced in the budget. If it does become a serious bidder, the performance of a related company reported Cardinal Asset Management would be interesting ?

    We had the dot com boom, the property boom – is it now the turn for ‘startup buy out’ funds of state ‘assets’ boom ?

    Tonight it was also announced that a number of other ‘financial institutions’ have approached all 4 of the PLCs (BOI,AIB, IL&P and Anglo) with a view to investing. BUT named are ‘subsidiaries’ – Bank of Ireland Asset managers and Irish Life Investment managers. What are their bosses saying – ‘hey Ted will you invest in A plc and B plc will invest in us, that’ll work – sure it’s only pension funds’ !!! It seems even Goodbody’s (owned by AIB) are advising this ‘start up’ consortium on how they could buy the banks! The government are using the NTMA (lost billions in pensions!) and a US investment bank — why no ‘Irish’ private sector advisers, would they all have a conflict of interest?

    I wonder do any readers of the blog know an ‘independent’ company advising on the potential investments in the banks? If they want they could register a start up with a few ‘Irish American’s who have a CV from Wall Street so they can pretend it’s FDI ? €2 share capital to register a company… then let the media do the rest……it seems to work ?

    http://in.reuters.com/article/mergersNews/idINLQ2103120081126
    http://www.forbes.com/afxnewslimited/feeds/afx/2008/11/26/afx5744589.html

  8. Malcolm McClure

    David: ‘Fraid i don’t follow the logic of your argument here. You treat the six big banks as though they were all one entity. You posit the false dilemma that the choice is between nationalizing the entire banking system or selling its entirety to a single private equity consortium.
    I think we can afford to consider several mix-and-match solutions. For instance we could cherry-pick the best to nationalize but allow the PEC’s to compete as best they can with the others, singly or collectively. The key to capitalism is competition. Although Ireland is probably too small for six viable international banks, it would be all to the good to make sure that three survive to compete with each other. If the PECs can repack the rubbish banks and sell at a profit in ten years–good luck to them.

  9. sue

    Having seen Cowen defend the FAS boss and still failing to provide any stimulus to the Irish economy. I would bet my bottom dollar we will see a bank sale to a PEC, rememnber who sold eircom ?

  10. Simon Mahoney

    Couldn’t agree with you more David on all matters you have disscussed here since the begining of the finacial crisis. Seems like our minister for finance wants to pimp us out to a private equity consortium so lets hope he reads your arcticle and decides otherwise.

    Any chance you would run for government and become our next leader and help steer this mess of a country back on track? To be honest I’ve never properly experienced a recession before but having read a great deal about economic matters recently and realising how serious this downturn is becoming I feel the next great depression (prob. not as great as the last one but serious) is coming like it or not. I think its just a case of when will the bottom arrive and how bad will it be – 33% unemployment perhaps???

    It feels as if the country has had a great once in a life-time holiday on credit over the past decade and finally the credit card bill arrives and its too much too handle with drinks on there you don’t remember ordering and no money or job to pay it off!

  11. Micheal

    Agree that PE companies are bad news. They just don’t care. They, as one of the posters wrote, are all about “fixing balance sheets”.

    Now, a banking firm that wanted to engage in some M&A is actually concerned about entrepreneurship; improving operational efficiency in the hope of capturing new markets and selling more to existing clients. Healthy stuff. I’d look for a Pictet or an EFG, small private banks with tiny leverage and possible interest in owning a nation’s banks and making a good job of it.

    I live in Singapore where PE companies are everywhere. Their mandate is pure and simple : find a company across ASEAN run by corrupt dolts with large market share and dreadful financial inefficiencies that can be repackaged and sold. Repackaging means not “come up with new production processes that do the same for less and products and services that the market might find interesting, leveraging off the existing talent and equipment in the company” but “find interesting ways to rewrite the balance sheet that make it look profitable”. That always means cutting out loss making areas that could have been better managed. They have no interest or competence in running a business. They are, to quote someone, neither qualified nor able.

    PE guys don’t care. They Just. Don’t. Care. It’s all small money in today, big money out again soon. That’s their business. Not being judgmental about it, that’s just what they do. Hats off for getting rich under other circumstances, but now I don’t want them near the place.

    And to think that the nation’s weal could be entrusted to them… BoI and AIB are not just companies, they are part of the nation’s infrastructure same as hospitals and schools. Badly managed, and all down to greed on the part of a few. Who still want to keep their jobs and weave a tangled web in the new shenanigans described above.

    Now, another poster soberly claimed “they might be the only option”. I think that’s possible if a) we assume that the priority right now is basically a cash injection into the lumbering behemoths and then somehow we’ll get through this and b) we have mere weeks to decide and act with the consequences written in stone forever more. However I like to think that there are more and better ideas out there than selling to a PE firm, whose ONLY reason for existence is extraction of vast amounts of CASH VALUE from a company. That’s all. There’s a reason why they are called vultures. they strip away anything of use. Vultures have a role to play in their ecosystem, dealing with the detritus that needs removal, but should not be sent to mind the sheep.

    Anyway, what would I do seeing as I am so keen to pick out faults. As stated in another post on same site, the gov should create an alternative to a commercial bank with a view to attracting deposits and prudent businesses. Tell people that the new financial entity will guarantee their savings / cash deposits, and they can extract their money from BoI / AIB etc. no problem. This entity can also offer basic business loans (high interest rates, but these are the times we live in) and advisory services. People can leave their money in BoI if they want. I’m sure most people will prefer to have their nest eggs in this entity. or SMEs would prefer to have their cash there as well. There woudl be a network effect where businesses can transact through this bank with lesser risk of default as the businesses that hold accounts here have passed basic due diligence standards that commercial banks no longer apply to clients.

    I would expect that this would cause something of a run on commercial banks, but that’s only bad if the run is not caught elsewhere, in this case in the gov entity. BoI would hopefully expire, staff and premises could be picked up at fire sale rates by the new entity which can also buy debts at cents on the euro and allow people to maintain these purchased mortgages and even offer some debt relief. Perhaps charge a high rate of interest to make them work for it but reduce the principal so they have hope that they can actually pay it off someday. New FTBers can pick up houses at a lower price, and then enter the market. Other banking organisations seeing what happened to BoI would receive a strong signal that there are no bailouts, that the gov is doing what it can (it’ll never have enough resources to completely reset to where things were anyway) to protect the people who really matter (the ordinary citizens) and that to survive they have to innovate and boot out old management.

    CTRL-ALT-DEL on the banking system. In 5 years’ time after working like mad to fight our way out of this, we’ll be leaner and fitter than ever to catch the upswing. And if we get retrenched, then maybe our jobs were BS all along. Like being party of the Soviet system, sure bringing the system crashing down put people on the breadline but did the country really need seventeen layers of bureaucracy, jobs that had no actual value add at all? If there are massive retrenchments then a lot of those are because there was no reason for these jobs to exist in the first place. Hello, housing economy? New Irish, Celtic Tiger… Pah.

    The losers in all this are many retrenched bank employees (until they eventually find jobs, or take a pay cut to keep going) and the commercial bank shareholders. Oh yeah, real estate developers and some associated industries. but you know, there’s going to be losses any which way. Bringing PE firms may keep the addict going with one last shot of cash, but is ultimately going to extract a terrible price. Because PE firms are in their business to strip out value and leave.

    FF can’t manage a business. They tout themselves as the party of business, but they lack the knowledge. They are neither qualified nor able to manage a business. Middlemen for money sure. i.e. Bertie’s constituency pal with the phone number of a few people in a PE firm reckons he sees an angle is typical of how they’ve stayed alive so long, and the corruption in government, they think that a phone number and namedropping makes them somebody. But entrepreneurs, strategists, EDUCATED, TRAINED, … no.

    Let’s become a nation of hungry entrepreneurs. We’re delaying the inevitable otherwise.

    So there :)

  12. John ALLEN

    Treason on High Waters – should these vultures be arriving from the middle east allow me to remind the room about a delinquent bank formerly known as BCCI controlled by the rulers where many in Europe lost their monies and this bank had bases in London and Isle of Man and this bank is now no more .
    Should these private investors secure a stake in B of I our two B&B’s are definately two soft eggs and do an injustice to the real B&B’s in the country where you can get a real Irish Breakfast

    • Furrylugs

      Just for the record,

      Article 39
      Treason shall consist only in levying war against the State, or assisting any State or person or inciting or conspiring with any person to levy war against the State, or attempting by force of arms or other violent means to overthrow the organs of government established by this Constitution, or taking part or being concerned in or inciting or conspiring with any person to make or to take part or be concerned in any such attempt.

      Unless anyone is advocating violence, theres not much point in worrying about treason in ROI.

  13. jingojonson

    Hey?!!!

    Whats going on with our government?
    Whats going on with Lenihan?

    I’ve ceased to think that they are interested in looking after this country and its citizens but if Lenihan and company allow in private equity with a majority stake then I’m going to have to start looking at conspiracy theories and backhanders.
    Its crystal clear to the vast majority of people with a brain and some sense of nation that what is needed is
    for the state and its citizens to recapitalise the banks and in so doing to take a controlling stake.

    Does anybody else feel that our strings are being pulled?

  14. Furrylugs

    Could it be that Young Linehan knows all this but spots an opportunity for Taoiseach? Brian Cowens days are numbered but a percieved honest to God effort by the Minister would leave him in line to run for the Big Job. He sees how the moguls and mandarins have a death grip on the countries processes and knows that they have to be brought back in line, following the two cooks in the kitchen rule.They too know that in losing Bertie, they lost their mentor.
    So the Minister allows the “Vultures” to strip out the banks short term with some sort of Government control which won’t be ideal for Ireland but will suit his aspirations perfectly.
    He puts a hit squad into the public service which makes good TV but in reality is conducting a Psychometric test on the key players. I think this is the real battleground. Those with him when the putsch comes stay, the rest get a medal and retire. People will be moved around like chess pieces giving the illusion of change and patriotic discomfort but in relaity the Civil Service will remain largely unchanged.
    The media are being drip fed negative detail regarding certain faux pas which has removed one mandarin from FAS, weakened the Taoiseach by supporting said mandarin and holed Harney below the waterline to boot.Not bad for a days work.

    The Ministers honest big eyes are being used to great effect on TV when connecting with the plain people of Ireland. Brilliant PR. He’s playing to the clamour for leadership and the Taoiseach, embattled, is helpless to do anything about it less he appears even more churlish to the backbenchers and councillors.

    FF exists to control, not lead, so any hope of the good of ireland being uppermost is a little naive. This is an internal battle for power within FF. It has nothing to do with the good of the State.

  15. Stephen Kenny

    I think that one reason there are few comments here must be because, essentially, everyone agrees. Letting private equity companies in at the national banking level is incredibly dangerous. As David says, their outlook is inherently short term, and that is exactly what we don’t need at the moment. It is, in fact, the opposite of what we need.
    The argument that they may be the “only option” is very questionable, although looking at the opinion of private equity companies might be instructive.
    If it is simply impossible to sell al the banks to PE outfits, then it’s an indication that we may have too large a banking sector.
    Let’s face it, we’re must go through a period of ‘reconstruction’ of the economy. During this period, it seems sensible to me that the banks have to play their part in the reorientation of the economy. This means that they must be understand that direction, and sing from the same song sheet.
    There is no way on earth that a PE owned bank could, or would, do this. They would simply oversee the decline of the economy, and of everyone’s living standards, into a grim, grinding, new world, that would lack, above all, hope.
    We are a technological civilisation, nothing else, and we’ve spent 2,000 years getting here. The wonderful lives that we lead, or can if we chose to look up, is derived from inventing, and developing, technologies. I remember dentists in the 1960s, and believe me, I smile at 21st century dentist drills!
    Banks are supposed to allocate capital, efficiently. Fine. But first, we must decide in what general direction that allocation should occur. This is a long term, national, strategic, decision, that is literally critical to our, and our children’s, futures. Private Equity? You must be joking.

    • Furrylugs

      Stephen Kenny
      “I think that one reason there are few comments here must be because, essentially, everyone agrees.”

      Absolutely Stephen. For my part, I was stunned at the “degenerate bankers” comment. I didn’t feel I had any more to add.

      Hot off the press from Sen Ross in the Seanad.
      “……Irish Banks investing in themselves……incestuous banking……..leads to even stronger cartels……with other peoples money which they manage”

      So the countries two leading economists, unparalled in previous forecasts, have within the space of 12 hours, accused our countries bankers of being degenerate and incestuous.

      Maybe the country is getting immune to all this but that is strong commentary inviting legal action if it were not true.

      Unbelievable in fact. I’m becoming more and more convinced that we have entered a historic, defining moment in our history where probity is at battle with “patriotism” for Irelands future.

    • b

      Only 2000 years. The Chinese, Iraqis, Romans and Greeks would contend it was longer.

      If PE gets the banks its the end.

  16. MK1

    Hi Dav id,

    > it would be preferable for us to nationalise our banking system than to allow a private equity consortium to own and control our major banks. Private equity firms are probably the worst possible owners of a strategic asset like the banking system.

    Yes, its true that many Private Equity (PE) ventures are only out to make a buck. Ironically, many of these firms have in recent years been making their money and gains in the way you describe by leveraging heavily and by chopping up the assets, reducing long-term investment in the business, etc. A close-to-home example is eircom. These PE firms were in essence ‘flipping’ businesses, just as property developers were flipping property, and ironically banks were making their money on the back of all these flippers.

    But not all private equity businesses are the same. Like a property developer or indeed a bank, some will have over extended in this credit frenzy and are caught out. Siome have folded. Others will have been lucky or traded wisely or both and will have access to make an offer perhaps for one of our ailing banks. The fact that one or more PE’s may be interested in some of “our” “Irish” banks should be taken as a positive, even if they have Shylock-like tendencies.

    The suggestion about nationalizing our banks though as an alternative to other buyers is something we should assess very carefully and only proceed with extreme caution. Governments have owned banks before, and despite EU regulations not allowing unfair government support of certain businesses, my understanding is that financial services have ‘special circumstances’. There is however no need to nationalise them all. In fact, the government could get into the banking business itself directly, avoid the problems that the current banks have with unknown debts, provide the credit that the rest of the economy needs (when it deserves it of course, dont forget that commerce in general is over-leveraged as well !!!). So the government could provide a banking service without getting its hands dirty with the unknown ‘toxic’ bad debts. It could compete with our sick banks, and provide jobs and services. We already have the public service personnel to do it. There are 1-2000 HSE ‘execs’ just waiting for some activity who are tired of playing solitaire and surfing the net, seemingly. Some NTMA money could be used to kick it off. They could be based in edge-of-town housings estates and occupy an unsold house. (okay, you get the point). :-)

    The fact that PE’s and not well-funded banks are interested, is perhaps a sign of the calibre of the banks that are on offer. The banks are sick. Only a good ‘whipping’ from a ‘cruel’ new owner such as a PE could extract some profit out of them and get them into some shape. Tough love perhaps. We need to ask ourselves again, are we (government) a charity provider? If so, shouldnt every citizen get the same level of charity and not just banks and their employees be beneficiaries? To be equitable to keep our economy going, shouldnt we just give every citizen 10k each perhaps spread out over a couple of years rather than give the banks X billion to save their sorry you-know-whats? Re-ask the fundamental question, what will happen if a bank should fail, and be allowed to fail? Will the sky cave in? No, no and no. Lance the boil! Its time to be brave.

    Malcom McClure> You treat the six big banks as though they were all one entity. You posit the false dilemma that the choice is between nationalizing the entire banking system or selling its entirety to a single private equity consortium

    I agree Malcolm. They should not be seen as one entity no matter how cosy, cartel-like or duopolistic they seem. What David and others are perhaps forgetting, is that the economy runs in our country and in others IN SPITE of the banks and the banking system. They literrally have a licence to money. You and I cannot start a bank tomorrow if we wanted to – fact.

    If a Marsian would come down and drive down a high street and see that the people working and doing commerce were in normal buildings, yet banks which are supposed to be the oil of the economy and just move money from A to B were like marble palaces with employees driving Merc’s and they dont even open on Saturdays, they would fall out of their ufo’s with martian-like laughter.

    The sign of an efficient banking system would be the low number of employees they have and the lower costs and buildings they would have. Thus our aim as a country should be to reduce the no. of banking employees (see it as a county overhead) and make the system more efficient.

    David, what solutions do you suggest for the economy to get it moving on the upside quickly? What can we do? Make entrepreneurship a mandatory subject (whether examined or not) for the leaving cert?

    I still like the all-year-round Octoberfest idea, turn our country into a ‘den of inequity’, booze parties, bring down the tax on booze. Offshore booze country. It IS something we are good at! Its also one way of avoiding a depression, well, until the following morning that is …..

    MK1

  17. John ALLEN

    we all seem to agree on most matters but what does that mean for all of us …..and how can we enforce what we agree …afterall many good comments have been made and explained …and we cannot continue doing that and or agreeing if it has no real purpose……in other words …how do we get action from our concensus of agreement and what support can we get to make a change happen for the best of our country …are we relevant to make a good change happen or are we illusionist ?

  18. Garry

    I agree with Stephen, it would be very informative to have their opinion, not the opinion they are expressing officially which will just be bullshit but the presentation that will be made to their partners for a go/no go decision.

    I cant believe people cant see how vulnerable we will be if the state continues to guarantee 500billion of bank debts remains while control of the banks is ceded to private equity firms. These guys will see the guarantee as another asset or tool in their locker to use as they see fit, and will be completely indifferent to the impact of its invocation on anything other than their short term profit. I don’t think it is possible to draft an agreement to protect the taxpayer while leaving the necessary flexibility there to reorganize the banks. Every small detail in such an agreement will be parsed and analyzed by these guys, and the government will be held accountable by their lawyers even if that means bankruptcy.

    There’ll be no… “Sorry you got caught out, heres half a million to retire early” from these lads. It’ll be, “OK, so you cant actually pay the 500 billion… Thats tough, but we can sell you a mortgage at say ECB plus 1% a year for the next 50 years. We do a good fixed rate. Now lets talk about security and insurance”.

  19. coldblow

    Lenihan yesterday referred to those who would “traduce” important sectors of our economy and then had people shifting in their seats by spelling these out as including “construction” and the “banks”. You really wonder, I mean, what are they thinking? Maybe the public service inefficiency isn’t all bad — that way you spare everyone the full force of Govt. policy.

    Excellent article again, David. I was going to comment extensively but a) I don’t know enough and b) it would have sounded like Lisa Simpson at her most earnest.

  20. Garry

    Just listening to the news….. We’ve opted out of the EU’s 200 billion rescue project. We’ve a 500 billion guarantee described as a ‘theoretical’ risk and the worlds cheapest banks bailout by the minister. Now we want to rescue the banks but don’t want to spend any money.

    One common thread to the Irish governments actions so far …… a lot of bullshit, a lot of talk and then an embarrassed silence and a lot of coughing when it comes to putting our hand in our pocket or playing our part in fixing the problem. Everyone knows someone like this, the guy who always borrows your tractor/lawnmower and returns it empty, who is in the jacks when its their round and so on. The thing is we all find ways to avoid them…Nobody likes a sponger and a bullshitter and ultimately the sponger runs out of friends.

    Now theres nothing wrong with being smart and looking after your interests…. there are pros and cons to all approaches and no solution is perfect, it might be better to build a new bank, it might be better to rescue all, or some, or let them all die.. There are dangers to having state owned banks…. there are dangers everywhere in this environment..

    It’s really simple Brian Lenihan. Whoever puts the cash in has control and dictates how its going to be. Shit or get off the pot.

  21. John ALLEN

    Garry – fantastic……..well spoken

    • Micheal

      I would add one small caveat to this namely that I’d prefer that B Lenihan was not the one whose bowels were straining.

      While it smacks of conspiracy theory, the notion that B Lenihan is lining up for Tee-Shuck makes a lot of sense, given the pedigree of his ilk. Also, if and when the barbarians are allowed in the gate I’m sure they’ll have a few puppet paddies before the camera. That’s what those guys have always done well, but something tells me they’ve played the PR card once too often now that the delirious beat of the Celtic Tiger orchestra has stopped and we’ve all noticed there are no chairs to sit down on.

      Whatever happens I’m sure a lot of screwing will happen all over the corridors of power and in the economy, and very little getting laid.

      So, someone asked “how do we turn our fine words into practice?”, i.e. are fora like this just a release valve for people who don’t have the time to get involved in politics? As democracy means there is no actual power beneath the Oireachtas to decide on this. I guess

      a) we may decide to become involved in public service (not necessarily politics, though that may be an eventual route to the same goal). When we do so, we remember that public service is a professional responsibility that requires constant training, challenging our weaknesses and sacred cows, assumptions and comfort zones, and that within a few years someone better for the job will come along and we should move aside, as they will in years to come. Basically, take a long term view that we’ll get through this, scathed, and next time we’ll be in a position to do something.

      b) we may campaign for change a la US of A and tell the main opposition parties that they have our mandate this time, now go out and make it happen, and while you do so, keep people involved that are willing to challenge our assumptions. Lead from behind in fact.

      or c) we riot in the streets, though I can’t see that taking off. Not very constructive.

      Why not form a Citizens’ Economic Forum. David puts up a forum on his site as a subsite where he tosses out ideas to the people, and then after much discussion, David or a volunteer among us summarises the conclusions and adds them to the end as a takeaway from the discussion. Perhaps even have a wiki for people to contribute to an overall topic so people decide where their 2 cents’ worth value add is and we’re not all saying “as stated above I too agree B Lenihan is an arse”. Once the repetition stops, peopel get pretty quickly to the point.

      I am sure that there are thousands of people, both qualified AND able in Ireland to add their 2 cents’ worth without having to go through the arduous and inefficient process of getting involved in local politics and losing their edge so after 15 years they can a clone of those they sought to unmake. We can’t all be leaders, like we can’t all be CEOs, we just realise we have value to add, and when many minds contribute a little each, it’s far superior to a bottleneck of someone trying to make all the decisions.

      That would then enable public servants to be boring and efficient managers who defer to subject matter experts without worrying about losing their grip on power for not being seen to be the usual Kim Jong Il types who are great at everything. Singapore bias here, but they are sharks. And, I might add, their sovereign wealth funds, while making a few bad decisions (buying UBS etc) is a heck of an example of a well tuned government financial institution that can make money and be in service to the nation, while allowing talented individuals to make stacks of cash. Not perfect, but definitely better than the doom and glom scenarios state controlled banks in Ireland.

      we’re smarter and more qualified than we were 20 years ago. we’ve lived in 50 countries and know that we can make it if we really want. And we know that parochial politics simply does not substitute for talent any more. A system that means you can only be Minister for Finance if you start fixing potholes and doing favours in your twenties is inferior to one that can parachute in talent from the top echelons of business and academia.

      I say, boot out the gov, haul in a new lot under threat of firing if they don’t deliver socially responsible and sustainable strategies within a year, and hire only qualified motivated people to do the job.

      These web fora are like the cafes in Paris pre Revolution, but somehow those guys got a spark to action. no need for the excess of those time now though :)

      So, try something new with new people who come from a new system.

      (Worf Voice) It Is Time.

  22. John ALLEN

    Limerick Leader Reporter Patricia ~Feehily proposes that Mr Willie O’ Dea ( qualified accountant and barrister etc ) should be made new Minister for Finance ……..and ….I Agree

    • Micheal

      Noted, however being minister for finance goes a little beyond being a qualified accountant. I know plenty of them and it doesn’t mean they are statesman material.

      try Chairman of Goldman Sachs. For starters.

  23. John ALLEN

    Michael – I agree with all you said above and above…I think a national forum of consensus …is needed and ……….NOW

  24. coldblow

    MK: “… the fundamental question. What will happen if a bank should fail, and is allowed to fail?”

    I know it’s a bit late in the day but you’ve often repeated this and I’ve been meaning to ask this question for a while now. What would in fact happen? (If the guarantee was removed.) Could deposits be protected and the rest let go? Because for most people as long as their money is safe they might not mind this. Or is it all or nothing?

    Excellent posts, Micheal. There’s a lot of repetition here – necessarily so because many of the posts are densely laden with ideas that you could miss on a first reading or just forget after a few days.

  25. b

    Even if the bank fails the mortgage is still due. You’re not going to get out of it.

  26. John ALLEN

    according to the book : da wu yu code : those that did not escape changed into Dolphins …../ …u need to be lucky though

  27. Fergus

    No offence David, but I find it ironic that the print version of this article appeared in a newspaper belonging to a mogul who sucked this country’s telecommunications infrastructure dry using something like those private equity firms you’re despairing about.

    PS if Willie O Dea is made Minister for Finance then I will not be responsible for my actions. The biggest hypocrite from the most socially divided city in the country should not be allowed next or near the most important ministry. Defence is bad enough.

    PPS Fianna Fail? Treason? Never!

  28. shlock

    What rot.

    The average hold period for companies under private equity fund ownership is 6.5 years. The average listed stock is held by each successive owner for a little under 6 months.

    How can people say private equity managers have a “trader’s mind” with “a ‘very’ short investment horizon” and are “in essence ‘flipping’ businesses” when they own their asset for ten times longer than listed equity investors?

    • Micheal

      >>>>
      The average hold period for companies under private equity fund ownership is 6.5 years. The average listed stock is held by each successive owner for a little under 6 months.

      How can people say private equity managers have a “trader’s mind” with “a ‘very’ short investment horizon” and are “in essence ‘flipping’ businesses” when they own their asset for ten times longer than listed equity investors?
      >>>>

      we’re not comparing like with like here. Most stock holding is unabashed gambling and speculation anyway. PE companies DO hold onto their stock longer than the AVERAGE punter, but Warren Buffet (i.e. serious equity investors) types don’t have a short term view like 6 years and them I’m out.

      Also, if we compare PE companies with banks doing M&A (which is what we should be looking at) they don’t think of divesting at all unless they can’t turn around the business.

      i agree, PE companies have a longer timeframe than so-called “unsophisticated” speculators, the types that prop up CMC markets and IG index, and most of the investment banks going. But… compared to a bank that wants to grow its business and markets, they’re traders also.

  29. David,

    You are right about one thing ; ‘Ireland’s degenerate bankers do not deserve to be saved’.

    The Irish banking system failed the test of the market. Their lazy and careless failure to properly assess risk deserves to be punished. A cleanout of this sector is necessary.

    If private equity can afford to swoop up ownership of the Irish banks at low prices that will ultimately land them a profit (something which is not guaranteed as you rightly stated in your previous article), the Irish financial community can have no complaints. However, I would say that PEF should not be allowed to do this piggybacking a guarantee funded by the Irish taxpayer ; if they put a wager on the banks, really PEF should be made shoulder their own risk.

    Interesting now to see IAIM, our indigenous PEF’s, express an interest in investing in their cousins, the Irish banks. That strikes me as a little too cozy ; though if they’re willing to shoulder the risk by themselves, let them at it. Just as long as they don’t go crying to the Minister if they get it wrong.

    Paddy

  30. Furrylugs

    There was shocking piece of one sided reporting about Declan Ganley tonight on RTE. My doubts about this man are well known on here but this was the most amateurish blackballing effort I have ever witnessed. Completely unsubstantiated innuendo and no face to face witness reporting. We don’t like challenge , do we , Mr FF?
    It makes sense out of FG though. Exist to give apparent opposition and take the Masters crumbs.

    There’ll be no outside PE involvement. Ranks are closing. Outrage is abating. Look at the responses on this blog alone. We can only take so much talk without action and FF know this. Ride the storm, kiss a few more immigrant babies and business as usual.

    I enjoy this forum. I’ve learnt much and I thank the intelligensia here and our Mentor for the opportunity to contribute.
    Ireland Inc has and will weather the storm, return to type and be the Little Irelander community I had to leave many years ago.
    I say this with all sincerity having lost 5 years of my life in gambling to come home and 15 years of savings, a house and a fine partner.
    I’m done with Ireland.
    Good luck to it.

    Slan

    • Lorcan

      Furrylugs > There was shocking piece of one sided reporting about Declan Ganley tonight on RTE.

      Mr. Ganley seems to be on RTE a lot these days. He did get an easy enough run on the late late show last time out, http://www.rte.ie/tv/latelate/av_20081003.html?2431974,null,228

      Personally I couldn’t care less about his backround, I disagree with his politics, in as much as he has expressed them.

      • Declan Ganley had every right to challenge the Yes side of the Lisbon Treaty referendum. SO do all of us.

        Where has his backing money come from, you/ they ask incredulously? Look into ANY of the previous general election campaigns and you will note that there are major ways around how financial supports can be hidden. Its not as transparent as de Brians of FF and Enda Kenny of blue FF would have you believe.

        The vote was cast, the yes campaign didn’t mobilise quickly enough. Many years ago, and up til recently, the battle cry of those pardigms of democracy, the PDs, was that Sinn Fein didn’t have a mandate and shouldn’t be allowed speak. Thank God those days are over. Was a bit like Bush refusing to sit down to ‘discuss’ with the enemy. No much peace likely then buddies??

        Point being, Dick Roche has NO mandate to be pontificating on national radio, seeking to understand and analyse the retarded NO voters. Micheál Martin has NO mandate. How could they? The irish people spoke. You can wholeheartedly dislike Declan Ganley / Marylou McDonald / Che Guavara / Jesus / JR Ewing or anyone elese you love to hate folks, but you can’t wholeheartedly prepare to ram something down the throats of the Irish electorate folks and not understand and agree that you are simply a jackbooted fascist who masquerades as a true repulican and democrat.

        If we get a re-run at the Lisbon treaty, could we not have a re-run of the referendum on abortion, year after year? How about Articles 2 & 3? Vote them back in should us nationalists feel the ‘deal’ hasn’t worked?

        Fair people would look at the amalgam of opposing interests who also happened to combine to oppose Lisbon and ask what could have rallied so many people to say NO? Fear? ignorance? Surely that can be applied to the Yes voters and to the Yes campaign also. It’s a poor reflection on anyone who would say it as the Irish electorate have never been uninformed.

        No, Declan Ganley is a pain because he caused a NO vote where ‘issues’ had arrogantly been swept under the table and negotiated away by the very crowd of anti-Irish (the good of the Irish citizenry) yobs that have been trying to stuff it down our necks before and after!

        That’s the only issue. Declan Ganley has said it, SF have said it. There are glaring democratic anomalies in the Lisbon Treaty that, due to being too long in power, our leaders arrogantly decided they didn’t matter. Well, they DO.

        RTE’s piece tonight was one-sided and desperate. Shame on them. People worrying about whether the CIA are trying to destabilise Europe through Libertas (men in white coat stuff Dickie) and meanwhile his colleague is openly trying to SELL OFF OUR COLLECTIVE FUTURES to US private equity interests!

        Karl Marx was half right, its the little lads against the big lads, nothing to do with borders at all boys! Is there not one decent politician in FF or across the floor who can say ‘this is not the Ireland I want, and its not the mantle we inherited’. We expect better, but why? FF reek of arrogance: – PPARS, voting machines, tunnels at wrong heights, Luas lines not connecting, cervical vaccinations, building houses where they shouldn’t like on floodplains and the far side of Tara. The list is endless. Every day, decisions are being made and it seems they let the drunken monkey with the darts have a go. He might indeed, in the long run, be the better man.

        Instead of having a go at Declan Ganley, the ‘ruling elite’ should remove the plank from their own eye. FF have shown, for years now, how politics ‘works’ in this country, from county manager to VEC Boards to FAS to first-time subprime banking schemes. It was often said that the IRA was so lethal because they went up against the best army in the world so they had to learn hard. While having locked horns successfully with FF using some of their BS tactics back at them (my opinion), I do sincerely hope he doesn’t catch any of their immoral diseases. Sean Lemass, I’m sure, would instigate his own Twelve Apostles squad if he could find a way from the grave. De Valera might even suggest just giving old Ireland back to the Brits, rather than have this new breed of clientelist landlords hanging out of us.

        • Micheal

          I haven’t seen the show, I have no doubt that Ganley has had a hatchet job done on him. My view is :

          a) Leave out references to heroic IRA people, I’m not interested in hearing how they “learned hard” against the British army (the ones who were shot in the back from miles away by a sniper, perhaps? Det Jerry McCabe even?). this is tangential to our reality here. SF are in a comfortable position to be against whatever is going and say they’re talking up for the little guy. Look how fast the greens changed their tune once they got into gov. Also, please stop referring to devalera, Lemass and the blueshirts, we’ve all moved on. Can we please discuss our issues without some obligatory reference to the Civil War and dead politicians? Epithets like “blueshirts” and so forth are pointless and mindless.

          b) Ganley’s team also spread disinformation. And lost the plot a bit by meeting disaffected people across Europe without doing proper due diligence on them (British Nationalists etc). Be prepared to keep it local, Declan, if you want to be in politics, otherwise your vision seems more personal than national.

          c) I agree that people have to stand up to the complete unfairness of the control of information in Ireland, and by doing so, Ganley has raised awareness that people can change the government juggernaut. In doing so, he has done the nation some good. He is not a messiah though, and in fact the whole point of fora like this is that many people have a point of view, change comes slowly and needs discussion.

          d) I believe the EU project is good overall. I believe the EU is crap at communicating it and need to train local reps (i.e. governments) into communicating it. If there is bad in the plans of the EU, well we have to communciate it eloquently without the use of angry, emotional language, first rule of negotiation. And be in this for the long haul.

          Anyway, we;ve strayed off the point here. This si not a thread on Ganley, it’s PE or not PE, that si the question

        • Hi Michael,

          agreed, a discussion on whether tis nobler to PE or not to PE, is the order of the thread, you are correct.

          Got a bit heated re Declan Ganley as it seems a citizen hasn’t a democratic right to stand up to the juggernaut (the indignant attacks on him by the government are entirely congruent with their post-boy campaign for the defeated Lisbon farce (‘Trust me bud, gimme your vote, I’ll square you up’). Agreed, we all have a meaningful and contribution-worthy voice and that’s why such Irish forums and comment-boards as this are essential (our electoral system seems like a web forum that has its comments modified once every 5 years, and badly at that). Apologies to all readers for the over-political tangential rant in the wrong forum. But political vision is relevant here to averting our pending meltdown.

          In relation to: -

          a) agreed. Wrong forum. And bad metaphor indeed as SF are no saints at all these days (I do disagree with you though on the black & whiteness of that simplistic view; they were locally mandated when they stood ‘alone’ to defend innocent people (so were the young British troops for a few months too, and I commend those men); but as the clock forwards, foreign army uniforms (of any origin) when seen from 3 miles away are just as vile in appearance as from 50 yards, ONLY when they’re in the wrong place, I might add. When doing their rightful duty to their own native people, they deserve utmost respect, as do all soldiers and policemen of all nations. But if it was your county or town they were circumnavigating, I am sure you could feel different. Many have done so. So, although entirely politically incorrect to voice today, it’s a perfectly valid stance to have supported when basic civil rights and fairness were clearly indicated as not forthcoming and were cruelly bashed down (What does one think July 4th celebrates, pray tell?). Gerry McCabe was yet another long line of innocents that proves their dark side to all and was proof enough for them to disband in shame . Men like them deserve the same fate as all injust aggressors do, by the sword. But they don’t punish their own, only informers, because, as I’ve said, they’re no saints these days. But this is the wrong forum for that malarkey). However, FF regularly beat the tribal drum when required, to frighten their own against voting Enda in, so yes we should move on from that crap (this is OUR time after all); but no, the political class haven’t quite let go of it yet. Even though we are now witnessing a Blue Fianna Fail, or a Fianna Fail lite in the shape of FG these days, they still snipe at one another along old lines. There is no radical thinking afoot in Dáil Eireann (one or two Independent exceptions). We have few nationwide strategic policies that are not heavily infected by clientelism. I apologise for heavy language above in relation to foreign troops of any origin, but folks, that is what armies do to one another!! of course its wrong, but its a 2-way street surely. Let’s talk straight and not sanitise everything we do. Let’s spell out where the axe must fall, where the market must destroy; not pander in make-believe worlds where things go up and not down. Someone must pay for this mess. FTBs should not, in principle, be in danger of wholesale losing their homes (its too big to fathom) but some negative equity in a place you call home is not too big of a sacrifice if we get to stumble on as a nation. There has been an alarming lack of morality in how we’ve got to where we are. Decent hard-working people’s savings have been obliterated. Now we propose to ‘tax’ the prudent and shelter the imprudent. I would believe there is a middle way. Extreme measures cause unintended consequences and hardship, as we saw in the political chaos resulting from clamping down on the Civil Rights movement in NI.

          We need vision of where we want to go as a nation. Who is giving it? All I see are tactical moves in the face of cataclysmic potential. A bit like the Greens changing lightbulbs when we should be rewarding those who drive less and change their car less. But that’s anti-consumerist and lowers tax take. The latest round of daft stealth taxes could not have been bettered by an English monarch enroute to the Crusades. Truly bizarre stuff. Here’s an idea: – reward the most productive people in society and coax (through taxation) the use of all assets where they are being hoarded. National vision. We are competing with the other nations of the world, aren’t we? Or has that tenet gone all woolly also?

          b) Ganley needs to tread carefully as, while we don’t all agree with his views,nor should we feel the need to, we do mostly agree he has a right to speak out. Therefore he must ensure he doesn’t associate with head-the-balls. But it must be also noted that the company of FF & FG in the Euro parliamentary groups is not so hot either. That’s the predicament of any political leaders. The aforementioned head-the-balls. Like us lot on here :-P Those groups are also leaning heavily on Irish parties to get Lisbon through.

          c) We all believe the overall EU project is good. But economic unity and consumer parity hasn’t even been remotely attained yet (tried getting a foreign mortgage or car loan to buy assets here?) and still we push on for more socio-political goals. It seems to me and many more people besides, that its mostly about opening up markets for sellers, not for buyers, and definitely not by and for the people. Surely the wider availability of financial instruments might have lessened the sting of property bubbles. At any rate, sovereignty is far from dead for many of us

          . ……..ENDS……

          So, back to PE.

  31. Micheal

    Many thanks for kind comments above, if people are keen to set up a structured discussion forum, and would like D McWilliams as initial forum leader (if he doesn’t mind) I can take care of the technical end.

    Suggestion : the forum becomes ultimately invite only, people can apply externally based on track record of comments made on similar sites, and the forum is well organised, with a lot of thought put into the ground rules. quality emphasised over quantity. people’s IDs remain theirs to reveal if they wish, or not. Non partisan politically, ultimate goal is discussion ground without prejudice, findings to be summarised regularly. Slow growth initially,

    Interested? post here, and we’ll see if we can get something up and running. Cat-belling time.

    • b

      Class prefect – who do you think you are?

    • What I find interesting about some Irish forums is the banning of certain topics from share prices of individual banks, fall of house prices, MCD?? etc. The whole idea of a forum is that it is not restricted in either topic or debate and that there are no rules, just guidelines. A forum is only as good as the moderator and I find the best moderators need to only issue a warning or two. Some places seem to have the garda reserve running the show.

  32. John ALLEN

    Lisbon Treaty – I believe the contributions from this site on this subject only….. is only addressing the symptoms that cause the No vote such as …..working class votes ….women votes …and hard liners …these are only surface manifistations of the reality ………..there are deeper fundamental reasons way back in our history on this Island of Ireland that give reasons why the No vote actually happened .These reasons are real and unless we learn about them there will be no solution to solve this impass .I have referred in previous contributions to an ‘ Atlantean Mindset ‘….and that our official language(s) .( presently English and Gaelic ) ..as spoken by us on the Island is different to …proper English in UK …we need to understand our own mindsets because the rest of Europe has alienated us and for all the wrong reasons and we are failing to see why .That is an expensive tragedy and no matter how we try to solve it we are going the wrong way about it and people like Libertas will only play on this void and create their own agendas that will only make more problems .

  33. MK1

    Back to finance, RBS in the UK couldnt muster any private money interest and only a mere 0.28% of a share issue was taken up. The UK government had to pony up ukp 20 billion approx. The bank, which is now owned 58% by the UK government, is effectively nationalised as a result of lack of private interest. Northern Rock, as we already know is UK-nationalised. This situation then raises the point, once the banks do become nationalised and if we did save them from the ‘vultures of private equity’, will they be ran any better? The answer is probably not.

    David, lets discuss something else apart from banks …… please! :-)

    Lets leave the Lisbon Treaty debate for another day. One short point, the EU system places emphasis on protection of countries and set up a system with Lisbon that any one country, no matter how small, could VETO the Lisbon Treaty. We, as a nation, have already exercised that Veto. It should, according to the process, die as a proposed treaty. Lose sight of this fact and you lose sight of democracy, which ironically the Lisbon Treaty is supposedly attempting to enhance. One thing the majority will agree on, is that we should stay in Europe and the Euro (David?).

    In relation to a political forum or movement, I think our country is crying out for one and has been for a long time. A new ‘radical’ (=> action) party is needed. The PD’s were established on an anti-FF ‘ticket’ and went back on their word soonafter once a whiff of power was offered to them from their brethern. The Green Party are narrowly focussed and reneged on their principles for power. Labour have had to ‘cosy’ with the ‘devil’ a couple of times and when there was a ‘spring tide’ they went back on their principles again for power. FG and FF, well we know about them. Sinn Fein have perhaps more principles but so far have not been able to adjust them to make them palatable to the majority and their history, baggage and connections will likely keep them back.

    If only there was a party with principles and a backbone that lived by and stood for ideals …… a new party, without baggage could perhaps do that. But establishing such a party with a track record and a stable growing history takes time, usually. Maybe the kernel for one is already growing somewhere. Is the acorn planted yet? Perhaps not.

    MK1

    • Malcolm McClure

      MK1: i agree that we should leave the bank topic to fester for a while.
      In the present situation, Ireland needs a good, “special relationship” friend. The realistic choice is between America, Britain, France and Germany. If there were a referendum for Irish people to vote for a country to be our national “best friend”, who does David recommend we should favour, and why?
      (Of course, he might add Russia or even Poland to the list).

      • Very interesting and timely question Malcolm.

        Sunday Business Post’s Richard Curran reported a few weeks ago that our economic cycle had, thankfully, got into sync with the rest of the Eurozone. But surely we will still feel the economic push and pull of Britain and America as things worsen / improve?

        Our syncing with Europe is surely a temporary thing?

        Thoughts?

  34. John ALLEN

    what does the site/room think david’s next article will be about in the Sunday Post this week end ?

    • Lorcan

      Whatever it is about, I do hope it is a little more controversial that this one. Very hard to get a good debate going when we all agree with the article.

  35. cor

    I’d be very surprised if it wasn’t about Atlanteans

  36. Philip

    I must say, that the current topic of PE funding is actually quite difficult to comment on due to the technicalities of the subject matter. It seems clear to me that the only reason the banks may to attractive to a PEF is our sovereign guarantee of about 0.5 Trillion. There’s a lot of commission to be made getting loans arranged and putting the taxpayer into more debt. With that guarantee, that’s easy money and really, you do not have to make the bank system work better to get rich out of it. This is just another plain old asset strip job.

    This and other related topics discussed over the last few weeks point to one glaring fact – incompetence in the Irish rulling class. A cultural inability to think strategically perhaps? And inability to believe the Irish people can achieve anything of significance? Me feinerism? As a nation we lack any positive icon of central pride – e.g. A can-do free country, A Queen, The lead in precision engineering and so on. We have drink and songs – iconoclastic and ultimately self destructive.

    As I said many times before, the main problem we have is poor management – The comptroller and general auditor in the public accounts committee is seeing it in FÁS. It’s endemic. Fix this issue and the rest will follow. Personally, I believe a lot of the guys in the Dáil etc are unhealthy and overweight, smoke too much and are depressed. They do not have their full faculties They should be put on enforced medical leave until judged to be fighting fit by a team of independent medics.

    • cor

      Still. The function of PE firms in our economy, and the reason they exist, is to strip off the fat from companies, and make them fighting fit again. There is no better, faster, more efficient way to do this than let the ruthless PE guys in there. They’re savage. But at the end, you’ll have a lean, mean, fighting machine. Sure, they’ll take a huge profit.

      • Garry

        Not quite cor, PE firms exist solely to make their investors richer. Anything else is a side effect.. Nothing wrong with that ….. but never confuse making an investor money with buying a business and making it run “better”. Better in this case is like art, hard to describe but you’ll know it when you see it, and not everyone agrees on it.

        Sometimes they operate as you describe by focusing on cost and efficiency. Other times they may combine companies to make the the sale of a combined entity greater than the individual sales if they were still separate companies, “leveraging the synergies in bullshit bingo”. Or break companies up to maximize the overall price they can sell on their investments. Or many variations of this.

        But the driver is always, how can they maximize the amount of money they can make within a reasonably short period of time. Sometimes it ties in with the vision you describe, other times operational inefficiencies can be tolerated as tackling them distracts from the big picture, take Eircom as an example. maximizing line rental while minimizing infrastructure investment while being perfectly happy to work with the unionised employee shareholders.

        One common strategy is to get the money they put in to get control out as soon as possible, because then whatever’s left is profit and it allows them to either pay back or go again. Lets take Aer Lingus as an example, should a PE firm take control, the option of selling all slots in Heathrow would be seriously considered whether or not it was in the long term interests of the airline.

        As you say, their ruthlessness is their greatest asset, and who knows it may be possible to align their interests with the national interest, (again its hard to know what this is given the recent budget) As Philip says it is very difficult to comment on, but sure knowing nothing about stuff never stopped me before ….0.5 Trillion is far and away the biggest number on the table, if I was a PE I’d be looking at that, but trying my best to look interested when the Brians are talking about reviving the banking sector and getting the economy moving.

    • cor

      Additionally, I think Lenihan is playing it right (apart from not cutting government fat – but thats Clowen’s perogative). If I was looking after a load of money in an environment like what we have, I’d be hoarding the cash, trying to get other people to front theirs. Because, let’s be realistic here – this crisis is only 30-40% played through at most. Basically, debt needs to liquidate, so money is just going to keep disappearing for a long time to come. ‘Re-capitalisation’ is a euphemism btw. The reality is all this money is going to help pay off debt. And it won’t stop until all the debts are paid. And we have a very very long way to go.

  37. John ALLEN

    cor – i am inclined to agree with you….actually we should initiate a lawful claim to it’s name and give ourselves as a nation a new sense of immortality …that should put us all ahead of the rest …the recession would then just pass over us and it’s mystery would bring back all manufacturing companies to ireland again with a renewed sense of security ….. a lot of the recession is in the mind …adaptability is the key to success

  38. John ALLEN

    i remember a storey about a slim hungry dog in the garden and he saw through a gap in a wooden board that the garden next door was full of food and other big dogs…..so he slipped into this garden and ate all around him and became very very fat …………..and unhappy…..he decided to return to where he came from and found he could not fit through the boards because he was too fat…….he decided to stop eating too much and when he was back to himself again he returned again to where he came from …and is now a very very happy dog

  39. John ALLEN

    in two words………..Pat Cox

  40. barry

    My attempt to summarise -

    PE in the banks would be a disaster; but we aren’t sure of the alternative options.
    Nobody actually knows what the real figures for the banks/credit institutions are and whether/if the govt could afford to be the bailer outer.
    An alternative type of bank would be a good idea; however, it isn’t clear how that could be created.
    The people who comment on this forum could create a virtual government via comments ;)
    Ireland is run by amateurs; and the banks are too.
    The PrimeTime ‘special’ on Ganley was a disaster; it looked (to me) like it was edited with a hatchet.

    OK, so where now? DMcW come back, all is forgiven……

  41. Garry

    Heres an option… The government should take a % stake in the private equity fund, with the option to buy remaining shares should the guarantee be invoked, and unleash the dogs of war on the banks..

    hell, it makes as much sense as anything else

  42. Stephen Kenny

    barry & Garry

    At the moment we’re living in somewhat contradictory times. The financial services system is broken, in fact it’s more than broken, because ‘broken’ implies that all we need is some glue, and it can all be well again. The truth about the banks, in the Republic, USA, UK, & probably elsewhere (Japan & China, perhaps) is that they are completely insolvent. The contradiction is that we need them to keep on working.
    They are a key part of our commercial infrastructure, just as the transport system (carrying food), clean water, and sewage are for towns.
    In each case, they might be run by a bunch of idiots, but for urban, and commercial, life to continue, they have to provide a defined, minimum. service.
    The problem with sorting out the banks is, essentially, that everyone who’s looked into their problems in any detail, has decided that they best thing to do is just not talk about it. At the same time, they have to keep on doing all that lending and borrowing stuff with clients, and with other banks.
    They have to produce enough information to all their trading partners so they feel confident that they’re solvent, while at the same time not actually producing enough to show they’re actually insolvent.
    You see the problem.

    What they’re hoping to do is to just string things along for a few years, raising money here and there, so they can write off enough bad debts so that one fine day, they can throw open the doors (books) and say “See, all is well!”.
    That’s all well and good, but the problem is that a lot of the assets that they hold are debts that are going bad, so their books are getting worse rather than better, at the moment.. In fact it’s worse than that; their business model is predicated on a bunch of methods of borrowing money very cheaply, which no longer exist. In fact, it’s even worse than that because even if they had all that cheap money, the last thing they’d want to do is lend it (they need to keep it on their books – see above), and without lending, the economy sinks further, more debts fail, more unemployment, and so less banking, so their position gets even worse.
    We could let the market have it’s way, and just let everything go bust, but many of us feel that having all those malnourished bodies cluttering up the streets is unnecessarily untidy, not to say malodorous.

    David’s point, and many think he’s right on the money, is that we have to take banking out of the worry loop, to some extent, and nationalise it. At the same time, we need to decide on a direction for investment in the future, and change the tax system, amongst other things, to favour it.
    So, we need to decide on a direction – this is where politics kicks in: Leadership. The first thing to do is to get some leaders.

  43. Philip

    PE works great in companies where the business model is now obsolete, but there is a lot of inherent value to be flexed out. It’s brilliant for manufacturing and value shops like consultancies. A waste of effort in value nets such as banks, telcos, Transport operations because it’s impossible to isolate components without damaging the environment you operate in. In other words I wholehearted believe in the notion of nationalising Banks, Telcos and Transport companies – it’s the only model that works.

    PEs only want to make money. Fair enough…focus them where they cause little societal damage.

    The government here are incompetent,cannot manage and are unable to lead. Fix this incompetence and we are sorted. Simple as that. Right now, they are going down from the Death by a Thousand Cuts and it’s not fast enough. The Greens are gone – those guys have wrecked the Green agenda 100%. PDs are gone and their liberal can-do agenda has followed it.

    You know, as a country, we must be starting to look relatively stable relative to hassle going on in India, China etc. Lots of empty factory space ready to ramp. A firesale of all the IDA units to a PE group would be a better long term bet. Ij other words, have FAS and the IDA etc slide under a PEF. Wacky idea?

  44. Tom

    David:
    As an Entrepreneur, I have been on the receiving end of Venture capitalists fro some time…singularly the most depressing period of my life (bar none). Armani clad crooks one and all. Never mind the American brigade, it’s Ireland’s own special nest of vipers you need to watch at this dangerous juncture. You know who I mean..the only time you see them is in an artist’s impression from a dock in a tribunal. I’m sure you could name them yourself…. Beware little Ireland,

  45. Tim

    I am Irish-American, if you want me to front the buy-out!

  46. Funny how this discussion veered onto Lisbon. Most people I know claimed to vote no. They’re not “working class” and they all have degrees, masters degrees or doctorates. None of them had anything positive to say about Sinn Fein. Some have worked directly with the commission so they’ve a better idea than most. Their reasons were simple. 1) the treaty was largely unintelligible. 2) While the EU is generally well-intentioned, the last thing it needs is more power and less accountability. 3) There are simply too many special interests which supersede any influence the Irish may believe we have. The idea that we’ve been frozen-out following our Lisbon vote is simply not true. We were never part of the big club and our corporation tax regime (especially the R&D incentives) are strongly resented by many other European countries. We need to get real here. We elected our politicians to provide us with leadership, not engage in a race to abdicate responsibility.

    Which brings us back to the bank recapitalisation issue. We have an opportunity here to ensure the chance to benefit from any upturn is offered to the people. Some will look with disgust as they’ve lost much of their life savings. Some will think it’s opportunity come knocking. However, no matter how bitter we feel about what’s transpired, the Irish people should be allowed to participate in any recapitalisation through share or bond issue. A sweet-heart deal for PE firms would give everybody the right to be bitter for many years to come. There would be no viler abuse of our trust than to exploit the tax-payer’s guarantee to give PE’s a quick buck. B Lenihan has already nationalised the risk.

  47. shtove

    If private equity takes charge then maybe the banks will be run with a bit of commercial sense. And if the shares are sold off in a few years time, then that’s just the way of the market.

    The complicating factor is the government guarantee – I’ve heard the headline details, but am not familiar with the details. And the state proposing to pony up along side the private equity investors is troubling.

    A better way may have been to let the banks fold, with the state buying up their assets at mark to market prices with a view to managing the assets for a sale in due course. I dunno.

    What you don’t want is the UK plc method – take majority stakes in a few big players to force them back to their old ways in defiance of what the market is demanding, and all for the sake of creating an illusion of credit abundance prior to the next election. That show ends with a funeral march.

  48. Lonely Expat

    David – until very recently, you advocated for all bankers to be sent to hell. PE ownership is hell. Why the sudden change of mind?

  49. Philip

    I see a thread running thro’ the above that says that money as we know it is gone. So spend it now and spend it wisely. Use it all up to get something that will tide you over the next 24 months. Buy tools or something that you can trade with your immediate community. Gold, skills etc. The game’s up and the banks have blown it.

    The banks need to be nationalised and the whole monetry system needs to be binned. Gov can issue punts again. But I figure all of Europe will be in the same boat and I suspect the Euro will be withdrawn and reissued as a NeuEuro on a very tight basis/ allocation per country. We are heading for a reboot of the system. Blow the cash you have while you have it – cos it will be worthless soon.

    • Malcolm McClure

      Philip: I don’t think I’ve previously read such a pessimistic post from you. What has happened in the past weeks to make you think things have fallen beyond the possibility of gradual and distant recovery?
      I remain hopeful that global determination to push things back onto course will begin to be successful in the new year. I wonder how many of David’s regular respondents would agree with you?

  50. Stephen Kenny

    Garry
    I’ve been a crackpot ever since the previous new economy, 1998.

    Remember, the final stage of an economic crash is capitulation. When everyone finally gives in, and the general mood is doom and gloom: The media stop cranking the smoke machine, all the mirrors are broken, and the politicians start blaming each other, rather than denying there’s anything really wrong.
    In my view we’re not there yet in the financial markets, let alone the broader economy, but it’s probably approaching. When capitulation arrives, and it will, it is the signal for better times. It is, by definition, the most difficult time to get your arse in gear and start to do something, but it is also the best time to.
    At the start of a recession lots of people start ventures because there’s still an air of optimism around. When all the optimism is generally gone, then is the time to start.
    Now is a good time to get our thinking caps on, pick up some new skills, and figure out what we want to do next.

    • Stephen Kenny said “When capitulation arrives, and it will, it is the signal for better times. It is, by definition, the most difficult time to get your arse in gear and start to do something, but it is also the best time to.”

      Agreed. We’re not there yet. I can’t recall who, but one of the financial scions in USA said, in September, that the credit crunch was the beginning of the long-term solution, not the actual problem itself. It couldn’t go on!! Its only a problem to those who have been profligate (of course bad money destroys good money, so its a problem for all, but you get what I mean, some of us will be in a better position to take advantage of a recovery than others.

      We’re definitely in the calm before the storm. Already, provincial papers have auctioneers bleating once again that its now a good time to buy. i.e. they have a mortgage to pay too so get buying folks!

      Just wait for those January blues. God help us if the very best men and women are not in charge worldwide, come then.

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