December 17, 2008

€10bn bailout not enough without reforming banks

Posted in Banks · 155 comments ·

Bail Out PackageThe bank bailout just announced is simply not enough to right the wrongs in our financial system. And yet it is all we have.

The saddest thing about the silly boom is that it has enfeebled us to such an extent that, even if we could be honest about the extent of the banking problem, we now do not have the financial firepower to help ourselves. This should make each and every one of us angry because monumental economic mismanagement and national hubris brought Ireland to the brink.

However, the crisis presents an opportunity: now that we are looking into the abyss, it is a brilliant opportunity to change. As Rahm Emmanuel, Barack Obama’s Rottweiler, commented: “A crisis is too good an opportunity to miss”.

Our country has to take the hardest decisions we have taken in two generations, not because we want to but because we have to. We have the chance to re-invent the country, but only if we do the little things right.

One of the first things we need to get right is to acknowledge the extent of our difficulties. The epicentre of our crisis is the banking system and the legacy of the huge property bubble, which has burst. Apart from this, we have a robust economy with good people and a reasonable chance of getting our act together. However, the banks are contaminating us and need to be quarantined.

There are two quite different problems facing the banks and, make no mistake about it, these problems — which threaten to overwhelm the rest of us — are entirely the responsibility of appalling management.

We need to understand that our banking system is bankrupt. Yes, bankrupt. Without the Government guarantee, Irish banks would run out of money in 90 days. The second thing we need to understand is that no-one wants them, because professional investors and others expect much greater bad loans to emerge in Ireland than anything we have come close to admitting. The rest of the world expects the Irish Bear Sterns to be announced any day where a bank is sold for practically nothing to stave off collapse. But who would buy such a thing?

The crux is that the Irish banking system faces two disasters and one problem is driving the other.

The first disaster is a funding disaster where the average loan to deposit ratio of Irish banks is between 150 and 160pc. For the likes of Irish Life & Permanent it is a ludicrously reckless 260pc! This ratio means that for every €160 the Irish banks lent out, they only had €100 in deposits. So they borrowed €60 from the wholesale money markets — which are now shut.

As long as the money markets are shut, the banks are being kept on a life-support machine by the State’s guarantee. The strategy to borrow for growth was implemented by the managements of our banks who — amazingly — are still drawing hefty salaries. Without the State guarantee, the banks, which have been consistently downgraded to close to “junk status”, would have to pay so much for funding that they would go under gradually.

Even with the guarantee, the banks will have to get the loans to deposits ratios down to somewhere around 80-100pc. This is a process called “deleveraging” and can only be achieved by increasing deposits and reducing lending. This contraction of credit will have a monumental knock-on effect on the second big problem for the banks: bad loans.

At the moment, Irish banks are telling half-truths about their bad loans, and given that the management of Ireland’s banks have got nothing right in the past two years, there is no point believing them now.

To get a better idea of what is likely here, we can examine the experience of other countries. Switzerland and Sweden both suffered a banking crisis following a property bust in the early 1990s. In both cases the banks had to write off close to 8pc of their loan book. This was traumatic and the banks lost fortunes, but they recovered.

Given that the Irish loan book is over €400bn, a similar writedown would reveal a black hole in the Irish banks of about €33bn. This figure dwarfs the €10bn recapitalisation fund and deleveraging guarantees enormous falls in asset prices and concomitant rises in bad debts.

So, no-one wants our banks because they are full of bad loans. Banks and investors are afraid to buy because of what they might find.

How do we solve this conundrum? One idea is to divide our banks into good and bad banks. We could set up one or two bad banks, which would be “financial skips” into which we throw all our bad loans. These could then be restructured and traded by the State, using specialist, restructuring experts. The huge land banks, sites and commercial developments that are now worthless could be traded at, let’s say, 20 cent in the euro.

As the economy recovers, these discounted prices would rise. (Many years ago I traded defaulted Brady Bonds of emerging countries on the same basis and the market worked.)

This would have two positive effects. First, it would get all the crud off the balance sheets of the good banks, allowing them to borrow and restart lending to small and medium-sized enterprises. The second positive is that it would allow some liquidity to return to the market for land, not for speculation but to end the uncertainty, which will otherwise cripple the Irish economy for years.

The idea of “bad” banks has the added positive of allowing those who have the skills to restructure debts to do their job, while those with the skills to lend and get the system going can do their job.

Next year is not going to be pretty but we have to think around corners to see things straight.

  1. Aidan O'Neill

    The Good bank vs Bad Bank worked well in Sweden, but we tried to use this idea of modeling ourselves on Sweden back in the early 1980s – we ended up with a perfect example of a social welfare system not as ruthless as the US nor as generous as France and all the problems in between.

    We need to face it – we’re more like Japan and the property bust will be big, long and it’ll fester for a generation or two. Our political elite don’t “do” telling us like it is we like the lies and seduction.

    As you say, property is one sector and we need to treat it like that; one sector. The imported big chain UK retailers and the “hobby Shops” like interior decorating etc may tank but there is still money.

    The Department of Finance says they are back to 2005 levels; surely that was still a much better year than 1975, 1985 or 1995. Tourism can be ok, transnationals can be ok, indigenous exporters can be ok etc lets look at where the strengths lie not the weaknesses.

  2. Lorcan

    David, hard to disagree with your article this morning.

    The idea of a financial skip for the ‘junk’ loans could be a real winner, if done right. The banks need to reduce their loanbook by about €170 billion in order to achieve the 100% loan to deposit ratio that is needed to reassure any potential investors. As I’ve said here before I don’t see that there is much movement possible on the level of deposits, with a 100% guarantee in place for the past few months.

    Firstly, the junk skip will need a good name. Let’s call it the The Irish Guaranteed Excellence Reserve Fund, or TIGER fund for short.

    To take on €170billion of debt it will have to take on debt that has some hope of performing in the future, so try this. It will only take on asset backed loans, i.e. mortgages and developer loans backed by land banks. Credit-card debt, overdrafts and personal loans would stay with the banks.

    The TIGER fund would have to be very cleverly managed. And there would have to be a concurrent liability on the institution that first issued the loan on any written off assets in the fund. We could call it a ‘management fee’.

    The object of the excercise is to get the debt off the banks balance sheets. It may sound like a centaur, only instead of being half man half horse it would be half OTC derivative, half SIV. But it might work. Doing nothing certainly won’t work.

  3. Philip

    I am no expert on the technicalities of DMcW approach. No doubt I will learn a lot in the coming days.

    I can see where he headed with getting clean banks into position which can raise money

    Really, the bottom line to the punter is

    1) How does it affect mortgages already in bad banks
    2) How does it affect savings aready in bad banks

    • Aidan O'Neill

      The Swedish bad bank idea sent all the underperforming assets of the Swedish Banks into two competing new entities. These were then aggressively managed to minimise the default rate.

      So, your points while valid if it was a proposal to ringfence and dump the underperforming loans in to one of the big four :

      1) Doesn’t occur – the mortgagee in arrears of an existing bank finds he is repaying to someone else.
      2) Doesn’t occur – the saver continues his relationship with his old, but now frugal and chastened bank

      • Furrylugs

        From the Examiner
        “The Minister for Social Affairs has today announced a relaxation of some of the rules governing defined-benefit pension schemes.”

        10bn from Public Sector safety net to dig out the banks and now the ability of pet corporations to raid private pension funds under the guise of long term recovery investment.

        These boys and girls are digging some hole for themselves.

  4. Nono

    David, I would have 2 comments to make to your article.
    First, the current problem (to put it mildly) that Ireland is facing today is 50% due to the banks and you say that clearly but also 50% due to the government and this is not so clear in your article.
    Second, the real issue here is not the monumental mismanagement that has prevailed in Ireland in the past 10 years since most countries in the world are facing the same problems (although with various degree of gravity). The real issue is the system on which capitalistism is based. By this, I mean to have economic growth every year and to sustain that growth, encouraging people to take credit for consumption. Indeed, in the past 20 years, the midlle class income has stayed the same while the richest have become exponentially richer. To have all the goods society wanted you to have (and also to feel richer), borrowing has become a necessity. This system is what we have to completely review. We can fix the banks but if it is to get back to that system, we might as well piss against the wind (sorry for the crude image but can’t come up with a better one).
    The opportunity we’re facing now is to change the system. The new system should focus on the people instead of money.
    If your bicycle keeps on breaking down, what would you do? Would you fix it yet another time knowing it would most certainly break again or would you get a new one?

    It’s time to think outside the box…

    • Colin


      Middle class and even working class people have been buying homes in the sun all over the med for the past 10 years. Prior to that only the upper echelons of society could afford it. That’s just one example. Others include expensive cars, 3 holidays a year etc…

      You must define who the “rich” are. You’re idea of these people might be very different to mine or others. Someone who you describe as rich might not consider themsleves a rich person.

      The system is right, the problem is with certain % of the population who make bad financial decisions. That’s why the correction going on right now is a good thing.

      You are advocating communism – fine, move to cuba and see how you get on.

      • Nono

        Your vision of tis world is somewhat biased Colin. If puttting the people first in a new system automatically means communism then you are a fool. There are surely other ways and saying that there isn’t is just throwing the towel. If you think the system works than how do you explain the huge mess we’re in now? Putting the blame on a percentage of the people who spent too much money is just ludicrous. As to who the rich are, let’s say you probably personally don’t know any and neither do I since these are a tiny fraction of the population (say 1%). They are the Bill Gates and other top 500 fortunes of the world.

        Explain to me how we can sustain a need for 3% economic growth year on year while keeping the people paid the same (and some paid less) and that’s without talking about the natural resources that need to be used to achieve this growth. This is just unsutainable!! The earlier you realise that, the better.

    • Ruairí

      @ Nono, we do need radical thinking (crossroads between socialism and capitalism would be fine, thanks) but couldn’t help noticing your politically incorrect metaphor in these wasteful days!!
      “If your bicycle keeps on breaking down, what would you do? Would you fix it yet another time knowing it would most certainly break again or would you get a new one?”

      Green Party governmental view would be, yes, buy a new one, SIMI backed. Real sustainable economics and living would say, no, fix the old one. That’s our current consuming problem. Knocking perfect buildings to make way for new ones (the Burlington Hotel anyone?), buying new CO2 friendly cars instead of taxing use through the fuel system and focussing on the benefits of ‘driving on’ your perfect older car, full of finite metals and plastic.

      If my bicycle kept breaking down, I would take a look in the mirror and ask whether I’m part of the problem. FF (and Green Party by association) hasn’t done that yet!

  5. John Cusack

    8%, €33billion of the loan book.

    Total annual profits on the ‘good loans’ going forward is 3-4 billion? 10 years profits, or about 6 years profits if you net of the 10billion new capital.

    Not great, but “bankrupt”? The re-capitialisation a long term investment – think a generation. Skips and good banks are a good idea. Lets get new blood in to the banks and the Financial Regulator, so we can move to the solution and away from defensive posturing.

  6. Michael


    Your Good Bank – Bad Bank concept sounds like a good idea, if it is managed correctly. Given the indecision by the current Minister for Finance, I have doubts as to the ability of the government to do this successfully.

    I also agree with Nono’s view above that our current capitalist system needs to be overhauled. 30 years ago when people would consider purchasing a new car they would ask themselves “do I have enough money to afford this car?”, more recently people would ask “can I afford the repayments for a car loan?”. Given the reckless lending of the banks, the modern day system is not sustainable. We, therefore, need a more prudent and sustainable system that gives priority to credit that is geared towards investment and economic growth and not consumption credit.

    I also think that it is time to question the role of the Financial Regulator. They appeared to have sat in the shade with their sunglasses on oblivious to the storm-clouds that were gathering. I think it is time for a radical shake-up of the whole financial system, that includes not just an overhaul of the banks and their personnel but also the regulator and the Ministry of Finance. The most appropriate place to start may be with replacing the current Minister for Finance with a former Minister who has the ability to shake things up. It is time to consider recalling Charlie McCreevy in my view as he has the capacity to take the decisions necessary.

  7. The government don’t have the balls and the boys in the banks aren’t going to budge. Each solution is going to get knocked as long as they involve the government making tough calls or the bank bosses leaving their posts.

  8. Dr.Nightdub

    As a layman – or as Winnie the Pooh would say, a bear of very little brain – can someone please explain to me how the top boy in AIB can almost simulataneously i.e. within the space of a couple of months:
    (a) Say to Lenihan in the dead of night “We need a bailout and we need it fast”
    (b) Say to the media on Monday “We don’t need to be recapitalised”

    Either AIB need a load of (our) money or they don’t? It can’t be both…can it?

  9. Malcolm McClure

    David said: “One idea is to divide our banks into good and bad banks. We could set up one or two bad banks, which would be “financial skips” into which we throw all our bad loans. These could then be restructured and traded by the State, using specialist, restructuring experts.”

    This could be a viable solution to the present problems, but to attract the necessary outside investment it needs a sweetener. The government would retain say 49% in the ‘skip bank’ whilst offering the rest on the market. To balance the risk on the loans, Lenihan could offer an overriding interest of 30% of royalties and taxes deriving from future oil and gas discoveries on the Irish Continental Shelf. Thus the negative risk of the bad loans would be offset by the positive risk of future hydrocarbon discoveries.

    If investors in Tullow think it can make money by finding oil in the middle of darkest Africa then the exploration potential off Ireland must still be a valuable, tradable, resource.

  10. Ruairí

    Anyone watching Oireachtas report last night could not but be AMAZED that we are, in our leadership, repeating the same mistakes of the 80′s again.

    It seemed that only Fine Gael on the committees, showed any teeth last night; and yet, in the face of the obvious disparity between the Central Bank’s version of truth of the current loaning environment and AIB /BOI’s acid-tripped view, there seemed to be no concerned attack nor concerted attack by government-appointed committee members.

    @David “We need to understand that our banking system is bankrupt. Yes, bankrupt. Without the Government guarantee, Irish banks would run out of money in 90 days.”

    >>>David, in order to let the market do its natural thing, we should have had a natural erosion of probably 2-3 banks, with massive damage to the remainder. That would of course merely reflect the true value of them, that’s all. Don’t we want reality? Once again, we’ve had market distortion by government interference. But not to protect the Irish people. I can personally say that I had a small loan from BOI and heard NOTHING from Aug to last fortnight. Now they’re off again! :-) But I feel for bigger outfits. They are lambs to the slaughter. Instead, banks are businesses. Let’s have an Irish Bear Stearns. Let’s see bank pain. Shareholders won’t mind, their blood has already been let.

    One of the Hermetic principles is that things aren’t opposites, they are in fact extremes of the same thing. What I mean is that some people are probably listening to the media this morning and ‘feeling better’ because a midlands ex FF politician and developer is trawled through the courts and had all sorts of personal upsets. Don’t get me wrong, there is and should be a cost to the past greed. Its just I feel that scapegoats are being offered at the edges of this mess. Instead of the key drivers!! Surely the biggest national developers would be the ones to collapse, the ones to gun for or sort out at least? I said here before that FF offering the banks this guarantee yet not then 100% controlling how that guarantee-leveraged money is injected (they retrospectively see that perhaps they should have???, how farsighted), is akin to offering a man on bail, facing a life sentence, a loaded shotgun and GPS to find his key witnesses’ houses.

    We all should be able to easily point out 2-3 suicides per county already this week. On any count of justice, this is wrong. Instead of being a result of the greed, its more indicative of the continuing greed! Can people see that? All you are looking at now is a shift of power. I don’t see any structural changes, do you? I want fairness on the way up and on the way down. If a man owes a bank €2m, let them take the assets back that they backed? And let them lose their shirts. That’s business surely? They loaned it! We are bailing out wrongdoers and placing ALL of the blame on enterprising (plus greedy) young people who will be destroyed for their best generation, not to recover. But what about the banks, from top to bottom? Eoghan Harris spouts on a bit too much for my liking. But in the Seanad yesterday, he called for wartime society-wide solutions. And he hasn’t seen it. he is dead right. There are many degrees of victim. I woudl argue that the small developer did no more than many of us would. This has always been a hard country to make proper money in. We all know that? Its the corrupt ‘rent’ structures that Deco refers to.

    The Hermetic point being that the banks now out hounding SMEs, householders (and SMALL developers!) is the very same thing as the banks throwing the money at them initially. Its the self-same greedy motivations of the SAME PEOPLE, its only differing in degree, i.e. in how its deployed, i.e. in action.

    There is an obvious question ringing through this forum for many months now. How can the same people still be in charge of the banks? And more to the point, and this is probably a further reason for why the banks and boards remain, how can the same senior politicians and senior civil servants in Dept of Finance be capable of setting the banks on a new course? Same old mantras. Ireland needs a secure banking system? Surely does. But who in their right mind would offer €10bn back through the exact same channel that’s just end-of-year rewarded its execs for the crazy highs of the last charade?

    Maybe Jim Parsons CEO of AIB, (, should have an empathy and a reality check much like his on-screen persona. Good to know there’s another line of work for him if the Government does its overdue duty by the people. . . . . . . .

  11. Garry

    The idea has merit…. Remove the guarantee from the good banks, and move the crud to the bad banks, in return for a 90% shareholding of both.

    The bad banks would need to be independently run and managed and be ruthless in extracting money from debtors….Time to bring in external management no cozy cartels. ‘Honest’ Tom Parlon’s developer buddies in the CIF then cant go running to the government to get the bad banks off their backs. I’m sure they will be trying to move the houses on to local authorities anyways. If they can find buyers good luck to them.

    Some very simple rules, Anyone individual, company or directors who owes the bad banks money cannot have deposits or loans from banks anywhere else in the world. State guarantee for the bad banks will become more expensive over time…and they will cross indemnify each other as long as they are bad banks….. Isolate the bastards and make them sweat to pay it back, take away all plan B’s from them.

    The good banks would similarly have to be independently run with very simple criteria for when they would join the ranks of the bad banks. A stick to keep the good ones good.
    And vice versa so a bad bank can become good though this wont happen for at least a decade. A carrot for management and investors in the bad banks.
    And fire the Financial Regulator and central bank governer. A reward for their performance

  12. Colin


    I’m waiting for your manifesto on this new system you are proposing. What will it be called? Will I be allowed to make a critique on it or will curtailment of freedom of speech be included in your new system?

    You still have not clearly defined who a rich person is. Can you fill in the blank please in the following sentence?

    “A rich person is someone who has net assets worth _______ and whose average annual earnings are _______ .”

    • Nono


      I welcome any idea on a new system. It doesn’t have to be dramatically different from the current one mind you – I never said we should get rid of capitalism altogether. What I don’t like is to see the very idea of a new system be discounted as being communism. There are alternatives. Socialism is one. A place where the economy is there to serve mankind and not the way round. I know it sounds very utopian but one can dream.
      To answer your question on how to measure a rich person is not relevant. I would ask you this: do you find it normal that the CEOs of big companies get paid 200+ times the lowest salary in their company when 20 times would suffice? Yet, the trend in which these guys salary gets higher and higher while everybody else’s stagnates (or gets less paid) is amplifying.
      Also, encouraging failure by giving golden parachutes to the very people who wreck their firm should be banned, they are the very principles that have bankrupted today’s capitalist system. Bring back accountability, counter powers with teeth and things will probably get better.
      The new system could mix old ideas (regulating the financial markets has been done before and it worked fine until it got progessively dismantled in the past 30 years) with new ones. On the healthcare system for instance, why pay doctors when we are sick? Wouldn’t it make more sense to pay them when we are healthy and if we become sick, they should provide care for free. That would make sure it’s in their best interest to keep us in good health.
      That’s my 2 pence worth but I’m sure someone will come and say I’m just a trotskist anyway!

      • Furrylugs

        Nono / Colin,
        Take a gander at this crew in the absence of fiscal rectitude from our lot.

      • Colin

        I take the Shane Ross view when it comes to executive pay. Nothing would make me smile longer than to see Mannion getting the boot and led out by O’Leary to get shot without any golden parachutes.

        I think people like O’Leary deserve their earnings. He pays his taxes and gives people jobs.

        If you think you are worth an executive’s salary, then go away and start up your business with your big ideas and reap the rewards later.

        As for the health service, best advice is to stay healthy, its your responsibility – not mine.

        • Nono

          O’Leary got there by himself and I’m not sure how much he gets paid but he at least does the job that is required of him and I hope he gets well paid for it. Others get landed there, do a pitiful job, or worse, get fraudulent and yet they get paid a lot and when they have to go, they rip huge rewards for their incompetency. What’s the fairness in that?
          I do not wish to get paid huge salaries but I just want a fair system. That’s all.
          As for the health thing, why should it be your responsibility? Are you a doctor?

        • Nono

          I’ve just checked M. O’Leary’s salary from last year and he got pad 595000 euros base salary and got the same in bonus. If you take his base salary, he gets paid around 29000 euros net a month. If you take the minimum wage (8.65 euros an hour), you get around 1000 euros net a month. So he gets paid 29 times the minimum wage, which is totally acceptable. That he gets doucble his salary in bonus doesn’t shock me since it’s linked to his performance. I see nothing obscene in this.
          The CEO in my company gets paid 1.6 M (before bonus) gross per annum. Now that’s obscene!

  13. Davids article has tremendous logic to me but what do I know about banks, high finance and economics.?
    Flaw is Davids remark:
    “The huge land banks, sites and commercial sites that are now worthless could be traded at say 20 cents to the Euro.”
    This would cost the developers dearly..and given that they are the backbone of the Fianna Fail Party,-their very reason for existence- such a course of action will not happen while the present government is in office.

  14. My Lost Generation

    As we all notice there are what we can call the ‘good’ banks and the bad ones.
    Would reforming the banks include major redundancies?
    As I understand it, the personel in these banks were hired and expanded in the same way the builders were hired and subsequently fired, when and and only when the property bubble was growing. Would I be right in saying that a lot of personel employed in the current banks who would have dealt with property investment, commercial property (as Anglo only does) and mortgages (as they all do) would be working very little at the moment?
    In the same way the foreign builders had to go home (and they had the decency to go without creating a fuss), many people working in the banks from bottom to top should be made redundant.
    Is the recapitalisation of some banks going to insure we, the tax payers, are once again paying people to do nothing, like in some state bodies?
    As I wrote before, how much banking personel has, nowadays, a reason to exist when there is no building activity or buying/selling activity? How many financial jobs do we now need to support a contracting economy? Why is everyone focusing on the top brass in the banks? A lot of them have to go from bottom to top before any recapitalisation is going forward. If not we may as well throw the pension fund away. One or two banks have to suffer major redundancies, no more work, no more job.
    Major reforming and redundancies of all staff in the banks should save a bit of money from the State guarantee as they would be getting less on the dole as they were getting in the banks.

  15. My Lost Generation

    I think we must organise a major protest in Dublin against the Banks as they are the root of the evil. People need to protest, to be heard as this government is about to throw us all in the deep end, this is no joke. Or as mediator wrote once the ‘peeple’ dont really understand and care.

  16. John ALLEN

    Adapt – the altruism of water is amazing showing unselfish love & devotion to all that want to see it .Are there any more fountains to be seen in front of Irish Bank Headquarters ? Or have they dried up too ?

  17. Deco

    Let’s face it two banks, shallwe call them Bank C and Bank D are empty holes that will suck upmoney. Because that is there business model. C and D have a business model built on shifting around money. The management of both C and D should be sacked. The business model is rubbish. It is exactly the same as Northern Rock. The taxpayer should not have been exposed to those two lemons. They should have been let disappear into the sewer, liquidate their assets, and sell them off. By the sounds of things, compensating the depositors is about the cheapest option for the taxpayer.

    That means that we should be planning on keeping A and B. And I am watching the fall of UK Sterling. And I am thinking, what is the scale of exposure of Bank B.

    David knows far more than I do. But I am looking at the preparedness of US authorities to let bankrupt banks disappear. And I think we should learn from this. Copying the British is stupid. Because, it is clearly not working for the British. And the markets are tanking in Britain. Instead of letting the banks disintegrate that fool Brown has let the entire economy into the sewer. But Baby Brute and that clown Joan Burton are advising policies that are modelled on the failed policies of the UK gov. I am not happy with Lenihan(a lawyer trying to deal with economic issues). But if he follows the advice of those two then the taxpayer really gets hammered bad. For a generation.

    David – thank you for speaking the truth last night of television. At least when we see the real problem, we might get some sort of problem remedy. At the moment the entire Dail, have their head in the sand, with the notable exception of Wicklow TD, Joe Behan.

  18. Deco


    This is correct. The base of the economy is sound. But saving the banks, will contaminate the entire economy with taxation, or lost resources that could be better employed for economic, infrastructural and social purposes. Like retraining unemployed construction and retail workers for example, so that they can work in factories/workshops or any other sector.

  19. Deco

    I meant to say the following statement by DMcW is the basis of the real economy.
    {One of the first things we need to get right is to acknowledge the extent of our difficulties. The epicentre of our crisis is the banking system and the legacy of the huge property bubble, which has burst. Apart from this, we have a robust economy with good people and a reasonable chance of getting our act together. However, the banks are contaminating us and need to be quarantined.}
    Maybe the IDA will instruct the two Brians that this is in fact the case.

  20. Philip

    Good/bad is probably too lumpy a differentiator. A graded system would be better from A for best banks to F for not the very best banks. Creating black and white dividers will be resisted and be costly. If we are going down the divide and conquer route, then make sure the communities of interest are smaller and more easily managed/ bullied.

    I also think this allows one to offer a range of risk to investors with differing timing needs and the sweetener ideas mentioned above can be balanced more finely.

    I would also incorporate a variable level of regulation depending on the bank’s grade down to the movement of assets/ deposits.

    You will of course find that a lot of the wealthy potential defaulters will be spread across the banks. Getting a good grade will mean moving those deposits to the lower end of the scale.

    The aim is to get the lower end moving gradually up the scale – and that too would be of interest to investors.

    • Garry

      On the governments framework plan, maybe they will address the subject of competitiveness

      Mary Coughlan gets paid €245,296 plus expenses and misc minister only tax breaks and pensions that somehow are paid when she is still working. Gordon Brown is on £187611, or €200,000. Not sure what she is doing these days, she has gone very quiet, which is a good thing as she is useless. But she is being 22% paid more than the leader of a country 10 times the size of this….

  21. As you pointed out some time ago the Minister for Finance effectively is in charge (or should be) and being responsible for the investors (tax payers) money supporting the bank guarantees he is well within his rights to remove the executive management of the banks and install alternative (not cronies) who are skilled in turn-around operations.

    There is no reasoning with management who are seeking to maintain their positions at all costs as this is likely to be their last CEO positions in banking. It must be recognised that at least they should go, at worst they should be paid their contractual severance pay and put someone with teeth in to make the changes.

    Yes we can comment and blog about what we think needs to be done, but the fact remains that we need to do Something!!!

    Listening to Eamonn Gilmore shouting at the Brian Cowen is similar to what we are all shouting at the CEO’s of the Banks. Unless you remove them it is all just hit air and vented verbal abuse.

    The days of waiting until after the sitting of the house returns after christmas when sterling has devalued by 11% in a month is crazy beyond belief. We can’t devalue, we can’t raise more funds. The banks can’t, the retailers can’t and the housing industry couldn’t raise a toilet seat. You can’t just go away for a month and hope it will all sort itself out.

    A leader would have cross party unity in the face of such a catastrophy. Sadly we have cross party bickering with not alternative suggestions, or ones that have no substance. The Celtic Tiger has turned into the Septic Tiger virtually overnight. Shame!

  22. John ALLEN

    Gerry Brandon – Bulls Eye We are dancing around the Effective Voice of The Truth and doing nothing when we know what should be done / do we issue a written Proclamation and hang it on the Door of the Minister and or the Banks Headquarters …I am listening to proposals from the room what should be done

  23. sean sheehan

    Given his qualifications, Brian Goggin might actually struggle to get a job at all in the current market. Every week survived enriches him by 40K. What else can he do but spoof, hope something turns up,hang on grimly and ……keep cashing the cheques.

  24. John ALLEN

    Paris – I have had businesses in Paris / Nice since the 80.s and I can verify that their system is communist and / socialist it depends how you look at it …and believe it or not they love it

  25. David, having extended the deposit and inter-bank lending guarantee it shouldn’t be up to the banks to be honest about their debts anymore. Brian Lenihan has apportioned financial responsibility for this right at the taxpayers door. So Lenihan should be giving us an accurate picture of the real state of the banks finances. He’s put our money on the line so, as belated due diligence, he should be able to look at the financial forensics of the bank’s balance sheets and give the taxpayers a realistic view.

    Currently, everyone thinks Anglo is a train wreck. The market is as sure they’re pariahs as they were sure they were midas’s a short while ago. If they’re not then Lenihan owes it to the shareholders and the Irish people to correct this view. If they are tragically screwed he needs to make a statement about this and act quickly. However, in some respects ANIB looks almost conservative when their deposit-to-loan ration is compared with PTSB. They couldn’t sell mortgages fast enough.

    I would disagree that many landbank and property assets are worthless. Houses will sell but at significantly less than estimated when the most expensive landbanks were acquired. Morgan Kelly suggested 70% down from peak based on comparison with the Finnish bust. That seems a worst case. It also doesn’t mean that all landbanks were purchased at peak either but undeveloped landbanks were probably close to it. Equally an 8% write off of all debts is significant. It’s disastrous even. Such a high default rate is more likely to apply to a “developer bank” like ANIB than more retail focussed AIB/BoI or even PTSB as it implies that a large percentage of the population will default on mostly unsecured loans or that secured loans on houses/cars will yield near worthless assets. I agree that this is becoming the case for cars but not for houses. Have a look at the car auction market though. The market is flooded with builder-mobile 4×4′s being sold for 60% and less of OMSP. Good time to buy.

    I think a good way to look at the relative exposure of the banks to bad debts is to look at the percentage of the loan book added since 2005. If the market was bouyant before then, the last roar of the celtic tiger marked a high water mark for stupidity in property prices. You could reasonably wipe say 50% off the value of all property purchased from 2005 to-date. 100% mortgages and higher loan-to-income ratios were extended to help people to compete in the future bankruptcy stakes. The faster a bank’s loan book to deposit ratio diverged from 2005 the more screwed they’ll find themselves in any deleveraging. The more crud on the balance sheet. Another thing to look for is the increase in debt security liabilities since 2005.

    Again, it’s difficult to single out ANIB as the worst offender here. Indeed, we could look at ANIB’s relatively strong deposit base and contrast that with the practice of personal guarantees on developer loans. There’s recoverable securities there that could make the jump from liabilities to assets at a squeeze.

    Brian Lenihan half followed your advice and took the Irish taxpayers money to the financial casino for the highest stakes poker game we’ve every played. The risk is long term and crippling national debt. Except Brian’s disappeared with the money and hasn’t told the people who raised the cash for his stake what game he’s playing or what his strategy is. The market needs some confidence right now and it’s incumbent on him to speak and act candidly asap. His silence is contributing to the melee.

  26. As Mr B has said roll on January when the fun will really start !, at this present moment in a twisted way I’m beginning to feel sorry for Biffo and Briano as they are looking like two schools boys who have been caught pulling each other off behind the bike shed by the school bullies they simply don’t know what to do now !!.
    The system has been rotten and so corrupted over the last decade we are going to have to now wait till the market simply closes one of our Banks and then watch the domino effect. We are over leveraged there is no denying that and our bunch of baby kissing back slappers don’t know what to do now that the wheels are coming off the carnival ride they were enjoying.
    In the new year when the retailers count their till takings and the garages see their cars remaining on the forecourts and the hospital wards are shut down along with the rest of the unfinished construction sites around the country and the few exporters we have here see they have lost the UK market . Then hopefully the average Irish person on the street might just sober up and demand change.
    With this new age Ireland has to take a gamble in order to get out of this hole we are finding ourselves in and I am waiting to see this new package been announced tomorrow . What will Biffo have to offer , he simply just can’t make cut backs some brave decisions will have to be made , by simply demanding the resignations of our Bank managers would restore some confidence in the markets to begin with if we the tax payer is expected to help bail them out or at least lessen their loan books.
    But saying that last weekend in Wexford I saw F.F. politicians standing behind the Vincent de Paul boxes and smiling , these people simply have no morals as they are isolated to what is happening due to the criminal packages they are on.
    If our elected don’t bring forward a concise package we will be financially and morally bankrupt before the start of next summer

  27. Furrylugs

    I’ve read and reread that article. With the height of respect to David, it struck me of a man who had to get a document out to meet the print deadline but who couldn’t think of anything more to say that hasn’t been said before, and said with extreme malice. They’re not for listening David.
    Take the points;

    “a robust economy” – no we haven’t. I’ve been struggling for over a year now and so has every other self employed professional I know. So have small farmers, shopkeepers, local joinery workshops. We’re sinking much faster than the banks.

    “dwarfs the €10bn recapitalisation fund” – It’s not a recapitalisation fund; it’s a rape of our pensions that won’t be paid back.

    “it would get all the crud off the balance sheets of the good banks” – AIB tried to portray themselves as a “Good Bank” yesterday before the Dail Committee. They don’t need money, they’re liquid, they’re recapitalising by reducing foreign exposure and thereby realising the assets. Why do they need the hamstring of the Guarantee then?

    “allowing those who have the skills to restructure debts” – But who? Name some guru untainted by all this. I have the same confidence in our commercial sector as the Germans.

    “Next year is not going to be pretty” – Does anyone realise how many people are already caught? Can’t emigrate because of family. Mortgages way behind. No job. And less and less hope by every passing day. Pretty is not a word I’d use for what’s coming.

    What can we do to back you up David? It’s all talk but no capability for action. I doubt you run this blog for egotistical purposes and there are some fine intellects on here.
    I’d gladly do my bit if the means were set out.

  28. DarraghD

    @ John Allen

    What I think we should do John is first of all we should organise a mass protest at Leinster House, not a once off protest march but an ongoing and open ended massive protest at Kildare street and bring the country to a entire stop, along the lines of how they got their house in order in Thailand recently, until we get the following:

    (A) A general election, because we are going nowhere with this government. As thing stand, we are stuck in a moment here that we can’t get out of with each month being more hapless than the last. We need to draw a line under this now and start the hill climb to recovery. As long as we have this government running the show, we are in earthquake territory and it is nothing less than frightening in my opinion.

    Yes we need to change the top table at the banks but I think we need to start at the top of the food chain here.

  29. David,

    Politicians such as Brian Cowen and former colleagues of yours at the central bank, were involved in creating this mess and have shown themselves to be inept in responding to the crisis.

    Cowen is going to engage in a PR exercise today with the launch of a “framework” plan and the Dail will be shuttered for 40 days.

    Don’t expect much change from these people!

  30. Philip

    I thought the recent protests outside Batte O’Keefe’s house on lack of proper schools are an example of things to come. These guys think they have private lives and can turn off the public at the whim of a legalistic switch.

    As a nation our record on large scale protests is low and ineffective. That’ll change and it may get nasty before the winter is out. Summer 09 could get very hot indeed.

    • Bring it on! Politicians in this state have had to deal with a relatively docile electorate for too long. We need to show that we’ve had enough of a self-serving group that will happilly give themselves a special 2nd mortgage tax break or take a pay cut following a larger pay rise quietly pushed through, still leaving them financially ahead but attempting to fool the voters. IT’s a kind of endemic sneakiness. Generally people are disatisfied and the MEP elections in 09 will be a battleground. About time!

    • John H

      Keep a bucket of water by the door, if any FF canvassers get too hot….
      You know what to do.

  31. John ALLEN

    ‘Thinking ‘ – imagine the people in North Korea , now think of the people in Zimbabwe ,now move along to the people in Dafur and allow your mind to drift to other areas .Did you think of the people in the Republic of Ireland ?
    In all those places they have no voice ,no vote and no choice .We do.If we do not exercise what we believe to be our own then we lose it and we only have ourselves to blame.Our Time is NOW .

  32. John ALLEN

    ‘Thinking’ – is a tax free exercise we all love to do to feel good .And when we do some people resent you .We know who they are .

  33. Ed

    It’s difficult to see where we go from here when the present politicians in government are the same ones that perpetrated this appalling fraud in the first place. Since nobody has the right to do wrong in a civilised society, we’re not going to get an admission of guilt from any of them and they’re now operating in incremental mode – little moves here and there, in the belief that the public can’t see how disastrous the situation really is – a classic mushroom treatment approach.
    This is going to be defining time for Ireland and we will either emerge with a new political landscape for a brighter and better future or go into a state permanent decline relying on the old jaded rhetoric of the civil war and Boland’s mill.

  34. DarraghD

    I couldn’t agree more with John Allen, looking at Cowen managing this country at the moment is like watching the final part of the film, “Flight 93″, when the passengers on the aircraft finally realise they are doomed to die if they do nothing and decide to storm the cockpit in a gallant effort to overpower the hijackers.

    While I’m not suggesting lethal force or anything like that, there is clearly a time after which all the action in the world can serve no purpose. Are we going to wait until “time of death” is being called on our economy before we go reaching for the scalding water and the fire extuinguishers???

  35. Malcolm McClure

    Biffo lauches his boat ” Building Ireland’s Smart Economy: A Framework for Sustainable Economic Renewal” at 2.30pm this afternoon. If its as successful as the Smart car we are in for an exciting ride. See:

  36. Deco

    Michael Hennigan – I had a look at your link. The Central Bank chief and the Financial Regulator have to go. The question needs to be asked about the competence of the Oireachtas. It has become a talkshop, with lot’s of acting and dithering between diffent blocks of power magnates and careerists. People who have even the slightest amount of integrity or intelligence get pushed out of the political parties, and become independents, like Shane Ross, and Joe Behan. We have journalists who assist the party system by ridiculing any independent candidate.
    The plan for Dublin Airport’s second runway was drafted in a moment that could be called “Peak-Airtravel for Ireland”. Basically the stupidity of those two ventures of supreme Irish confidence(and arrogance), that were the 1000 km drinking binge, or the 5000 km shopping binge, is being hit [credit to Kunstler for inventing the parallel concept in the US]. There is a restraining factor now-income. Instead both have been merged into an onslaught on Newry instead of New York. But the underlying misallocation of resources still exists. And there will be less JIFFy breaks for construction workers.

    But the one thing your article fails to grasp is the role played by irresponsible, confident, and often cluelessly optimistic bankers. They clearly were living the Ahernian Feel-good factor, to the point where they lost grasp of rational thought.

    Phillip – Batt O’Keefe has been the only govennment minister who seems the most determined to be responsible in reducing the state budgetary crisis. addressing the government fiscal problems. I am totally unimpressed by the propaganda campaigns of the teacher unions-who are silent of the fact that this country has the most espensive teachers in the EU. The teaching profession are behaving like a bunch of spoiled brats. why don’t the teachers take a pay cut so that they earn the same level of pay as exists in the UK, or even work the same hours as teachers in the UK. Our teachers want to rob the state/taxpayer down here, and then do the shopping up North, where teachers have a much tougher pay/effort balance.
    It seems that squirming types like Cullen, Martin, Dempsey, Roche, etc.. never have to deal with protestors at their doors because they are eternally fudging and dodging their responsibilities, pushing problems to the future. Only those that try to reform the system get it.

    John H – why have water only for FF canvassers. I think they all share the blame. Not one single FG, Labour, Green or PD candidate tried to do anything to challenge the delusions that fed this bubble. In fact, every single member of the opposition, behaved like as if the money was there and it should be spent. They are all reckless. Do we have the option of electing cardboard cutouts, disneyworld characters or members of the Simpsons ? Hopefully if there is a paper ballot, we will be able to vote for such candidates. One thing is clear the media endorsed candidates should be treated with absolute suspicion.

    • John H

      My comment just in jest and would apply to the other politicos as well however, who do you not throw water at? A Independent or socialist worker etc won’t be able to dig us out of this miss.
      Re Batt O Keefe: as a person working in Education, I would take a pay cut if it lead to an improvement in Education- smaller classes, computers that work etc but not if it goes into reducing the education sector ability to prepare our young people for the future.
      The previous two ministers of Education have not provided leadership and have not faced to the reality of what is coming at us. They have being more focused on spin and impression.

      I live in hope for a general election soon so we can debate these social problems.

  37. Garry

    Would love to be there, I’d throw my shoes at him.

  38. anto climax

    Ed – how are we going to emerge from ‘Bolands Mill’ ?? Search for the word British in the following link
    Some politicians still think there is a market for jingoistic fantasies and bravado. Is this claim substantiated, or was it a wild claim ?
    Here is background information
    The datelines and the statement implies that somebody might have been breaking the IRA ceasefires in the 1990s, and never got apprehended. It would also seem to lead to the issues discussed in the 1970s illegal arms trial. In any case, these remarks should be withdrawn, now that the North is at peace. Unless of course it might have been a little fib. But our politicians don’t tell fibs, do they. Maybe Biffo will tell him to withdraw those remarks ??

    You are correct. We need to define patriotism in terms of personal virtues instead of outlandish boasting. We need to think in terms of ability, and solving the problems of our country, when we select our elected representatives. That means going beyond legacy politics, and even legacy politics as recent as from four or five years ago.

  39. Deco

    the ‘framework’ better be good…or else we will all be throwing our shoes at it…

  40. Lorcan

    Poor Brian and Brian. Just as they are announcing their pipe-dream of an economic utopia the CSO goes and does this.

  41. brian


    I Hope that as bonus time approaches in some of these “We have nothing to hide” Bank’s the like of Mr. Ross and yourself are all over them.

    The big cats and their ever present lap-dogs will all be trying to get a few euro for themselves after Xmas.

    Though it was intersting to hear that AIB Corporate Banking “cancelled” their big Xmas doo this year.

    The level of debt that’s gone bad in places like this will be interesting to read about, if they tell us ?

  42. John ALLEN

    Great News – the emperor has arrived and declared ‘ we have a plan .’ cut Sorry ‘we have a plan of a plan’ ‘cut’ Excuse me ahem ‘ we have a plan of a plan that we will have a plan tomorrow ‘ ( did that sound ok brian ? )

  43. Furrylugs

    Lots of numbers Lorcan but what does this mean, in Gods name?

    Final paragraph;
    The series are adjusted using the X-11 Arima procedure……………Lenihan………………….. seasonally adjusting unadjusted figures…. because of the statistical discrepancy…….the sum of the seasonally adjusted components…do not add to the respective seasonally adjusted series.

    Is that another ways of saying ” Shure we had a stab at it anyway?”

    • Lorcan

      To sum it up in one line, GNP (ie GDP less net foreign investment) fell 4.9% to end Sept. 2008.

      Can’t think of any way of putting a positive spin on the figures really, especially as they are pre-Lehmann bust.

      We knew things were bleak back in Sept, we now know just how bleak they were.

      The final paragraph is basically saying. “These statistics may not be 100% accurate and some factors contained within them may deviate from the figures as published, but this is how we’ve always compiled them so they serve well for comparitive purposes.” Which is all they are used for really.

      Or as Disraeli once said “there are lies, damned lies and statistics”

      • Furrylugs

        So since the dept was forecasting a 1% decline but now admits a 4% decline, to extrapolate the figures in this report by a factor of 4, give or take the odd inconsequential billion, in your opinion how does the Q4v guff look?

        • Furrylugs

          Go mo leath sceal,

          Q4 guff

        • Lorcan

          The Q4 Guff is just that. Guff.

          But I completely understand why the two Brian’s are consistantly unwilling to admit how bad things are. Firstly there is the confidence excuse. If they were to say how bad things are, they would (they believe) make things worse. It’s all very well for the likes of David and Shane Ross to say things are bad, but they are only economists, and we all know there is no such thing as an optimistic economist.

          Secondly, both of the brians have legal backgrounds so have spent their professional lives avoiding liability. It’s a solicitor’s, or barrister’s job to blame someone else. Probably not an ideal trait to have in the people in charge, but for those leopards it may a little too hard to change their spots.

          To put my neck on the block, I see, at best, a 15% decline in GNP from Q3 2008 to Q3 2009. When the recovery comes is out of our hands. Will probably come down to how quickly the EU comes to the realisation that it cannot sustain itself as an autarky.

        • Furrylugs

          Wel since no-one else is doing it, we might as well put our C on the B.

          I can see the core factors in the next 6 months being;

          The Currency Factor destroying our indigenous export and tourism industries vis a vis the UK.
          The same Factor with the dollar making it uneconomical to operate a satellite manufacturing facility here.
          The Obama Factor where MNC’s will be encouraged to repatriate.
          The Ramora Factor where we fed off the European down stream supply chain (Car components etc) which has dried up.
          The Dole & Welfare Factor which will suck the public finances dry
          The Poverty Trap which will make it uneconomical to work thus exacerbating the above.

          Hard to see where the money is going to come out of.
          We have more initiatives today with Mary Jabba Harney exhorting everyone to shoulder the wheel.

          All in all, I’d say 15% could be optimistic come the release of consumer data in January.

  44. John ALLEN

    ‘New Votes’ – there is a way says the dog on the street ‘keep your cash’ and ‘keep your standing orders’- otherwise – put your feet up on the couch and your head in the fire .

  45. Lorcan

    In a reply to Furry above I said that there is no such thing as an optimistic economist. Looks like the guys over at Saxo Bank have excelled themselves.

  46. Furrylugs

    Plan B launch
    (With apologies to )

    During what was described to them as “a look-forward targeted brainstorm to discuss and evaluate the countries event-chain methodology,” journalists stood with mouths agape Thursday as they witnessed the very moment at which the Tee-Shuck attained complete mastery over the fine art of meaningless corporate doublespeak.

    The Tee-Shucks usage of vacuous administrative jargon reached an almost mythical apex with the pre-lunchtime announcement, during which a string of expertly crafted drivel rolled off the tongue with the confidence of a seasoned turkey.

    “Due to the increased scope of the downturn vis-à-vis statistical descrepancies,compounded with our aforementioned desire to maintain quality without increasing cost, an as-yet indeterminate amount of time will be allocated to promulgating cost effective proactive solutions to focus on diversifying the brand,” he said without once spluttering. “You should all be proud to put in the amount of effort and energy you have patriotically put forth thus far, and can be certain the downturns conclusion will become more apparent as the tasks become increasingly more finite in a global sense, notwithstanding the key performance indicators.”

    The Tee-Shuck then told the stunned assembly, “‘I am a facilitator tasked with developing predictable increments that are intricately tied to benchmarks, milestones, and completion dates.’I look forward to partying with you all when the work is done,” and concluded the presentation by saying he had to “step out.”


  47. Deco

    Lorcan – that is shocking News. I mean if the CSO can now officially state that we are now in recession, then it has to be true. We never would have known without them. Another useless quango. What were they doing the last 12 months ?
    No doubt the Irish Times Business supplement will lead with this strartling news, tomorrow morning. Or maybe they will give the ‘framework’ priority instead ? After all the ‘framework’ is less likely to cause people to wake up.

    Lorcan -you need to be corrected with your statement “no such thing as an optimistic economist.” Did you never hear about the three wise men of optimistic forecast. Dan McLaughlin. Austin Hughes. Marc Coleman. As Dan himself says, ‘bullishly optimistic’. Well, maybe that is now ‘silently optimistic’ ?

    Having two lawyers running the economy is a real ‘hit and miss’ way of doing things. It seems we have a skills shortage in Kildare Street. Lawyers who won’t go to the court, accountants who won’t do accountancy, publicans who cannot do anything else, teachers who can’t teach, student politicians who never got a degree that would get a job in the private sector, and farmers who will never dirty their hands farming. I detect a common thread in all of them. They represent escaping from responsibility. It is no wonder they can never take on responsibility for anything.

    The highly centralized way that we organize government results in highly limited options for running the country. It seems that all we get is ‘arguement experts’. Albert Reynolds ran a pet food company, and he was about the Taoiseach with the most experience in any administration function, that we ever had. When he took over he threw out a bunch of wasters. And Dublin 4 utterly detested him. When he left, all the wasters came back into circulation. And D4 were much more pleased.
    I mean the yanks can have a governor, a mayor, a state senator, etc.. But we get somebody who only ever did one thing consistently – toe the party line. Cowen never had responsibility for running Ofally, for example. Just an inherited TD seat, pushed through a few dodgy budgets, said ‘everything is fine’, and gave total support to the previous Taoiseach. And then he gets placed to be the new Taoiseach. It is daft.

  48. Furrylugs

    If I weren’t gone so cynical, I’d say todays Framework was the result of B&B getting wind of Obamas repatriation plans and launching a pre-emptive strike.

  49. Garry

    Lorcan has a new word for me today autarky It’s becoming clear to me that behind the veneer of democracy, Ireland is a kleptocracy albeit a mild one by African standards.

    In an earlier post. “Mary Coughlan gets paid €245,296 plus expenses and misc minister only tax breaks and pensions that somehow are paid when she is still working. Gordon Brown is on £187611, or €200,000. Not sure what she is doing these days, she has gone very quiet, which is a good thing as she is useless. But she is being paid 22% more than the leader of a country 10 times the size of this….” There’s more…………………

    At a time when the country is on its knees, tax revenue is collapsing, handing out 60k pay increases to middle managers can only be described as kleptocratic. I no longer give a shite what happens to the banks, it is time to revive the ancient traditions of the beal bocht, dealing in cash, barter,…

  50. shtove

    Just lend the ten billion to the people through newly established state banks with clean balance sheets and proper lending standards.

    Most debtors would switch from their ridiculous mortgages, some savers would go bargain hunting, and it would cut out the rent-seeking middlemen!

    Seriously, dipping in to a protected pension fund to pay off these crooks is howling lunacy.

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