February 8, 2009

Bank recapitalisation destined to be a failure from the start

Posted in Banks · 126 comments ·
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We will only get one chance to recapitalise our banks. Our banks have insufficient capital to cover their losses on their loan books and they have a drastic funding shortage. Without the government guarantee, most of them would surely be bust, because no one would lend to them. Without a properly functioning banking system, the economy will continue to contract.

This week, three separate businesspeople told me they were going out of business. They do not have sufficient cash flow and are beginning to renege on debts. Last night, a friend indicated that he would simply have to default on his rent payments because the landlord of his premises was insisting on rent covenants signed last year which he couldn’t pay because business has dried up. Apparently, last year’s business plan now reads like Alice in Wonderland.

In a similar vein, a liquidator friend – a man who likened his position to ‘‘an undertaker waiting for the plague’’ – summed up the banks’ position in a simple story.

A desperate man arrived in his office this week with property debts of €48 million for which he had put up a total of €400,000 cash. Each property, all in mid Munster, was cross-collateralised against others. There were six separate banks involved. All the loans had been taken out in the past three years and covered commercial property, residential property and development land, as well as the ubiquitous second apartment.

Obviously, the man was broke and couldn’t meet any of his repayments. The ‘assets’ were now worth a fraction of the borrowings and there was no way the banks would ever get their money back. Nor should they have ever lent this money to this character, but they did and now we are being asked to cough up to cover the obvious bad debts associated with thousands of ‘entrepreneurs’ like this.

Out in the rest of the country, the unemployment figures announced this week are not only a personal tragedy for thousands of families but, for the banks, rising unemployment means rising mortgage default. These defaults will also have to be covered by the recapitalisation.

So you can see a huge amount rests on the recapitalisation of the banks. If it is not successful, the banks will sink under the weight of bad debts. When the government makes its decision this week, it has to fix the problem. If it fails, the money will be wasted, and the banks will burn through the new capital as they try to maintain their capital adequacy ratios in the face of a meltdown of their loan books.

Let’s cut to the chase: the proposed recapitalisation will fail. There’s little point pussy-footing about: €7 billion of your cash is about to be blown this week on our dysfunctional banks. The reason for using the term ‘‘blown’’ is that the money will be wasted and we will be back at square one by summer, with a larger hole in the balance sheets.

Remember that this deal to be announced, probably on Tuesday, is likely to be a worse deal than the nonsense that was proposed a few days before Christmas. 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 160 per cent. For the likes of Irish Life & Permanent, it is no less than 260 per cent. For the big two, this ratio is about 160 per cent. 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 would have to pay so much for funding that most of them would be likely to go under.

Even with the guarantee, the banks will have to get the loan-to-deposit ratios down to somewhere around 80-100 per cent. 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 has got nothing right in the past two years, it is difficult to believe 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 8 per cent of their loan books. This was traumatic and the banks lost fortunes, but they recovered.

Given that the Irish loan book is more than €400 billion, a similar write down would reveal a black hole in the Irish banks of about €33 billion. As Bank of Ireland and Allied Irish Bank account for the lion’s share of the market, we can guarantee that their bad loans will be considerably greater than the €8 billion recapitalisation expected to be announced for the two big banks this week.

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

If I can figure this out, what of investors who are being asked to buy into the government’s plans? Brian Lenihan should understand that investors will only come back to Ireland if we make it attractive for them. This means the Irish state has to take a bigger risk in the deal than they do. Given the basic mathematics of why €8 billion will not be enough, don’t be surprised if the shares of Irish banks fall and fall again on the news that this botched recapitalisation has been announced and Ireland has used up all its ammunition.

If you want to recapitalise, you need a much bigger state package that cleans up the banks and gives potential new investors the comfort that they are buying a clean bank If they suspect that this will not be enough to pay for the sins of fellows like our friend with 40 properties in Munster, they’ll wait on the sidelines until all Lenihan’s cash is gone and then snap up the good parts of the Irish banks for free.


  1. ste

    The maths example that David gives for what the banks will lose is reminiscent of the maths which got us into this trouble. People taking mortgages that were 10 times their income to buy a 2 bed apartment. Look where that got us.

    • Deco

      A lot of common sense in that perspective on things.

      Are we still collectively in a state of denial concerning ‘voodoo’ financing arrangements.

  2. paulmcs

    Help me out here but are we saying that the government really is so stupid that they will blow €8m in the full knowledge that it won’t be enough? Are they missing something or are we?

    Why would they spend (I am reluctant to use the word ‘invest’) that money if they know that it just won’t work? Is it an expensive con-job that they hope the international markets will fall for?

    Having listened to Brian Lenihan on the news I am struck that his information is more granular and more ‘perfect’ than the extrapolations above. Maybe David you will be proved right but right now I am not so sure given that the government has better information that either you or anyone else.

    Ever the optimist..

    • paulmcs

      I mean €8B…

    • woodsey

      paulmcs,

      On the assumption that your appeal to ‘Help me out here’ is a genuine one then, yes, the ‘Government’ isn’t missing anything, so long as it can keep drawing on this taxpayers’ cash. Politicians insist on doing something, anything when, in reality, there is nothing that can be done now to stem the consequences of our unintelligent lending and borrowing profligacy.

      €8 B is likely to keep the 2 banks alive until Easter or the summer of this year. The problem is a self-reinforcing one. Self-reinforcing used to be ‘a vicious circle’ before we got into all this. As the world economy tilts into depression, the banks’ reliance on borrowing from the market to stay afloat disappears. Now they’re relying on government hand-outs but the banks’ bad debts will only increase and they’ll require more and more (apparently €20 B for Irish banks is conservative) just to stay afloat, never mind return to business.

      It is EXTREMELY doubtful that anyone, ‘government’ or otherwise, can support the extreme result of our excessive borrowing and rapidly approaching inability to repay. The proposed €8 B is an expensive ‘con-job’ and will not impress the international markets. But it’s not the international markets that Brian Lenihan is trying to influence, despite his protestations. International markets have their own problems and couldn’t give a ‘rat’s arse’ for Ireland. No, Lenihan is struggling to hold on to his seat and try to impress the voters. He does this with voters’ money but, politics was ever thus.

      D Mc W can sometimes go completely ‘off the wall’ but his article above is mathematically correct. It’s not beyond criticism as it forecasts the future. But, as a forecast, it’s beyond criticism.

  3. Malcolm McClure

    David’s figures sem to be very optimistic: “ the average loan-to-deposit ratio of Irish banks is between 150 and 160 per cent. 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.”
    “Given that the Irish loan book is more than €400 billion, a similar write down would reveal a black hole in the Irish banks of about €33 billion.”

    I wrote earlier that Dresdner Bank puts current Irish bank liabilities at about €920 billions, more than twice David’s figure. Accepting his suggestion that there could be an 8% default rate that suggests a black hole of over €70 Billions.
    However there is a hint that the ECB is quietly pumping a tranch of ‘quantitative easing’ into distressed banks whilst simultaneously denying that it has authority to float bonds on the market. Darling is likely to anounce similar measures for sterling tomorrow.
    What does this mean?
    Hold onto your hat– a gale of inflation is blowing this way.

  4. MK1

    Hi David,

    > Our banks have insufficient capital to cover their losses on their loan books and they have a drastic funding shortage. Without the government guarantee, most of them would surely be bust, because no one would lend to them. Without a properly functioning banking system, the economy will continue to contract.

    Its true that our banks are in deep trouble and are “living on borrowed time”. However, its important that if we do give the banks our money that we extract a sufficiently low enough price for it – ie: free. The Munster-chap example you give is one of many, although most of the bad debts which will emanate over time wont be to the same scale. But the direction will be similar.

    Thus you should be calling for Nationalisation of the big two banks at zero cost to us (although all the risk which we carry anyway!) rather than recapitalisation, which will just be a propping up exercise and could be money down the toilet.

    Nationalisation should be followed up with root and branch reform of the banks, how they work, what they do and their costs. If that means the state tearing up ‘legal contracts’ with staff, so be it. If staff want to enforce getting their salary the ‘reckless trading’ laws could be applied which could put ALL bank staff in jail immediately. Of course we dont have the prison space to host them. Spike Island maybe?

    > Let’s cut to the chase: the proposed recapitalisation will fail. There’s little point pussy-footing about: €7 billion of your cash is about to be blown this week on our dysfunctional banks.

    That is a clear possibility, which then puts the question back to us, why recapitalise at all? Could these banks be allowed to fail, and instead set-up a government led bank which competes with them and starts with a clean slate and 7 billion of assets. That would surely be of interest for FDI, at least there will be one healthy and stable bank in Ireland and not six sick ones ….

    It also ties in with the idea of the good bank bad banks split, instead where all the current incumbents are the bad banks and the new one is the good bank. It makes a lot of sense I think. Of course it will have its pain as banks, business, etc, go to the wall. But when we live off a mirage, this is what happens. It all goes up in smoke.

    MK1

  5. siochain

    Hi David,

    Ireland should fall. When it falls we will build this country once again.

    Let’s start from infrastructure…

    Cheers

  6. too much pride being an islander ( Irish ) can be too expensive and the icelanders have paid that dear price – lets just let go all the banks and allow company law show that in liquidation and limited liability can save the taxpayers and start new banks again with no significant costs then there will be no more irish slavery – our reputation is already lost we don’t want our families lose their souls as well , we need to say STOP

  7. goinghome

    Einstein’s view:
    “The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil…. Private capital tends to be concentrated in few hands… [resulting in] an oligarchy of private capital, the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists….

    The consequence is that the representatives of the people do not in fact sufficiently protect the interest of the underprivileged sections of the population. Moreover… private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult and indeed in most cases quite impossible for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.

    The crippling of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as preparation for his future career…”

    Given how society is arranged for better or worse, the results of measures taken when interacting with global actions are uncertain if nothing else. In topical Darwinian mode, embracing change and trusting in prompt flexible adjustment by those steering, is the hope till it’s not.

  8. John Rooney

    Hi David,
    Perhaps this recapitalisation is the first phase, but it a necessary phase and the alternatives are few. It will give an essential stability to the BIG TWO while they and the property market begin to quantify their loan losses. It may transpire that an additional recapitalisation is necessary.Only time will tell. We must deal with today now. The c.€8 billion euro, along with the operational profits from the lower-risk sectors of the two banks, should allow a phased write-down of the loans which have gone wrong. It may have to be revisited in two or three years time, but by then, some light should be visible from this dark tunnel we find ourselves in.
    At that time, there should be a clearer perception of the bottom of the banking problem and this will be evident to the stock market as well. At that time, if there is a need for further capital, it should be easier to raise the necessary funding by a rights issue or new equity issue than now, where , in truth, we do not know where the world is going.
    It does not make sense to write the history books in advance. Everyone knows that there is a problem. The re-capitalisation being proposed is adequate for now. Some additional facility to allow the banks to raise funding with a longer lifespan is necessary. At present, all Irish banks will be going cash-starved in under two years time, all needing to raise funding at the same time, unless the facility is put in place to avoid this. Let’s take it one step at a time with the recapitalisation and plan for the continued funding of the banks now too.

  9. “A desperate man arrived in his office this week with property debts of €48 million for which he had put up a total of €400,000 cash. Each property, all in mid Munster, was cross-collateralised against others. There were six separate banks involved. All the loans had been taken out in the past three years and covered commercial property, residential property and development land, as well as the ubiquitous second apartment.”

    David, This paragraph you have written is the essence of the total madness that has characterised the irish property bubble.
    These words should be cast in stone on a marble tombstone sculptured to the outline of the map of Ireland, and placed at the entrance to Dail Eireann.
    And every high level banker and TD, who participated willingly in this enormous catastrophe should be lined up in front of a firing squad..
    International debacles apart-the ordinary irish people will pay a huge price for this ,for many, many, years to come.

  10. Johnny Dunne

    “We will only get one chance to recapitalise our banks. ”

    It is very scary with days to go before an announcement on recapitalisation of the two largest retail banks and over 4 months after the bailout guarantee the Minister for Finance has still so many unknowns to agree – ‘tough talking to take place, deal is not finalised’, ‘we will have influence on the board’, ‘have a detailed (initial) assessment from auctioneering valuation’ and ‘will do a due diligence if agreement to recapitalisation’. This is unbelievable stuff considering we are about to commit at least €10 billion to 3 banks. From 1993 to 2007, we have had national debt in the range of €35 to €39 billion in national debt. We haven’t done ‘due diligence’ yet on investing in the banks!

    I have outlined before why we should not have guaranteed all the liabilities due to taking on all the risk on the balance sheet without having ‘control’ and more importantly visibility on the exposure. Why can’t the government leverage their own terms to a banking sector which is not valued at more than the €7 billion and both AIB and BOI have a ‘combined’ market value of just €1.5 billion.

    We’ll have spending cuts and unfortunately tax increases but the public finances have no chance of being stabilised until there is more activity in the economy, this year the deficit announced so far is over €10k for every worker and equivalent to €20 billion+, it could be as high as €30 billion (potential to nearly double national debt in one year).
    There is only two ways a country (or a company) can get cash – sales or borrowing. So our only option is to sell goods and services from or through Ireland, unfortunately the exchange rate is prohibitive in a competitive and declining international marketplace. As for the only ‘economic recovery plan’ Brian Cowen mentioned at the Dublin Chamber dinner, Enterpise Ireland need to support more start-ups commercialising state backed R&D. There is no funding of any significance today for commercialising these type of companies.

    The ‘commitments’ to ‘dedicated pools ’ of lending for small and medium size businesses should be significant (ie billions) and include setting up an ‘Innovation finance unit’ in all the nationalised or recapitilised banks to invest say €1 billion in export (or with the potential) oriented growth companies. The debt finance could often be in the form of convertible loan notes with the potential to convert to equity, with intellectual property as assets. One of the main advantages to set up this ‘fund’ now would be it is consistent with the government’s strategy to support the ‘Smart Economy’ in the short term. The key selling point for a bank (over a state agency or VC fund) would be there proven ability to execute transactions in a timely manner. Imagine instead of loosing billions on prperty this money was invested in ‘productive’ trading companies over the past decade (as current expenditure in the public sector rose from €20 billion to €49 billion)

    ‘Preferential’ tax rates announced in the recent finance bill (and more targeted at productive businesses generating employment here) should encourage many more indigenous and foreign owned companies to develop in Ireland. Due to the fall off in demand for locally traded services, the increase in export oriented companies is key to creating confidence, employment opportunities and in turn increase occupancy of the over supplied residential / commercial properties considering the demand in the marketplace today.

    The main criteria used for lending in banks are people, cash flows and asset quality. The likes of ANIB, AIB and BOI could lend to ‘good’ people with a ‘credible’ / innovative business plans without recourse to personal guarantees and property / assets backed security. In the current uncertain market, this is a major obstacle for many companies raising finance for investments. Banks have the resources and a track record of building client relationships and making decisions in a timely manner. If left to the state agencies such as Enterprise Ireland money may not ‘start’ investing for years, even then if the proposed €500 million is in the hands of US VCs it may provide little employment in Ireland. If the local VCs like Delta, Atlantic Bridge and NCB can’t find opportunities with their strict ‘VC’ criteria, then the international VCs will find it harder unless we open the ‘flood gates’ to fund earlier stage / developing companies with higher risk profiles but a lower expectation on returns but stimulating activity.

    There is circa €400 billion of loans outstanding yet, in the past few years AIB have only contributed €15 million with Enterprise Ireland (EI) to a €30 million seed fund and BOI have invested €20 million in a €70 million fund which EI would have invested a similar amount. (Ulster invested a smaller amount with EI in the NCB fund). The banks ‘Innovation funds’ should be set up with relatively small targeted return up to 10% (VCs look for 30% and ensure they can convert to control the business if management don’t execute on the business plan). There are many businesses seeking finance certified by Enterprise Ireland or the IDA with a ‘qualifying’ export oriented operation with the potential to generate more jobs and exports in the short term generating tax revenues. There need to be a ‘mind change’ in how to fund this ‘Smart Economy’, if it is to happen at all ????

  11. SamB

    “Smart economy” – its another myth perpetrated by politicians! This particular lie was nailed by the announcement of the exodus of Ericsson last week.

    In relation to the recapitalisation of the banks. David is right and oddly for him, he has probably understated the problem. Of the €100 billion Anglo have out, most of it is property based. Therefore in view of the fall in asset value, it is not unlikely that at least 30% will need to be written off. Bank of Ireland arrived late to the lending party and aggressively lent on property in the years from 2005 to 2007 of at 100% of value and at very low margins (which is an additional running cost now – as it is costing them more to borrow than they can charge their clients!). Between them and AIB there is likely to be anther €30 billion. One blessing is that Dunne borrowed from Ulster Bank – the Irish taxpayer should thank him for that! Educated guess on the Irish bank shortfall – about €60 – €70 billion.

    You see, “Munster” man was only small fry…. the tip of the iceberg. Most developers owe the banks well in excess of 48 million. That was chicken feed in the Celtic Tiger era. The banks’ real problems will occur if and when the developers decide to walk away from their liabilities to make new lives elsewhere, leaving the bank executives with the problem of sorting the whole mess out. Unused to dealing with planners, not knowing what to do about half finished estates, it will only compound their losses. Their other vulnerability is if the management and staff of say Anglo Irish perceive that the bank is just going to wind down and that there is no future for them – they will spend most of their day also looking for new jobs and a new life elsewhere. Who with any knowledge will be left that will be capable of winding up a €100 billion loan book?

    The only option that the government and the newly “nationalised” banks (including BofI &AIB) have is to write down the bad loans and leave a profitable clean rump of a loan book so that they can be sold either through a share offering or to another banking group.

    The best option, as I’ve said previously, was to let them go and capitalise a couple of clean new banks with a few billion – the Darwin principal, if you like, but it’s too late now; it should have happened last September. If it had, we would never have been exposed to this €70 billion black hole.

  12. clarkeg@iol.ie

    Attention: David McWilliams.

    As a recently returned expatriate I am dismayed by the extreme and damaging negativilty I have seen in most of your articles about the Irish Governments’ response, and action taken by them, to the global financial problems today, and the consequences in Ireland.

    In my opinion you display a Beginners Knowledge about the manner in which a Venture Capitalist approaches any investment opportunity. The Irish Government is, by necessity, acting as a “soft” venture capitalist as regards the Banks. In this sense, I believe they are doing the Right Thing,and the Right Thing must be done to save the whole Irish financial system. It does not matter that the amount they are injecting to the Banks is sufficient or not at this time – they MUST invest, and they are doing so as carefully as possible but also with the speed necessary today.They are “soft”venture capitalists in the sense that the usual excessive profit motive is not behind their investment in the Banks – they simply want the banking system to regain confidence. If the 8bn is not enough then we have a problem – but it will not be the end of the investment. More money will be found, possibly from private investors, once confidence is restored.

    Please just stop being a media economist seeking headlines and restart using your obvious talent as regards economics which I think you left behind some long time ago.

    Gerald (Gerry) Clarke. Dublin, Ballina, Beijing and Zhuhai.

    • paddythepig

      Gerald (Gerry),

      Putting your venture capitalist cap on, could you explain why a sensible investor would invest billions in companies and people, who are proven failures? Any thoughts on the ongoing and vastly inflated renumeration of these failures would be interesting too.

      Paddy.

      • clarkeg@iol.ie

        Here is a reply to Liam & Paddy re 9th Feb

        1. Thanks for very measured, non-emotional and , in my opinion, very constructive comments

        2. By “SOFT” I mean “Well Disposed”, not a VULTURE CAPITALIST as most Venture Capitalists are, in my direcv experience.

        3. I am a SOFT VC person by that criterion.

        Now for my view of the reasons for the current ,and temporary, crisis:

        A. The real reason for the crisis is the emergence of globalisation

        B. This allowed financial entities to lend from one part of the globe to any other within the global financial network.

        C. Unfortunately there was no prior model or experience for safely regulating such instruments

        D. Greedly and corrupt people added to the problem and hence subprime and immoral director’s loans appeared.

        Now for the solution:

        E. If a problem is big enought there has to be a BIG response

        F. The globalisation that caused the problem will now act a a solution

        G. As far as I can see every country involved in the global financial crisis has made a committment to implement as strong a respinse as possible

        H. Consumer spending (spend, spend, spend – if you have the money) is key to the recovery

        I. China and the oil-rich, cash rich, states will lead this response

        J. There will be pain – but this is to be expected as most people , and Ireland is definitely no exception, took part in the game of Get-Rich-Quick and Look-AFter-Me-Fein.

        K, But I would put money on that the GDP Growth rate will increase, and an exit from recession will occur within 6 to 12 months from today – 10th Feb

        A KEY INGREDIENT TO RECOVERY IS A POSITIVE ATTITUDE, WORK HARD IF YOU CAN, AND STOP WHINGING. AT LEAST THAT’S WHAT I TRY TO DO.

        GERRY CLARKE

    • liam

      Hi Gerry,

      The counter argument is that the Government, in response to the situation, has not dealt with the people who made/are making the decisions within the banking system and their public sector regulators, thus all money thrown at the problem is wasted, unless you are also prepared to sweep through the decision-making level of the Irish financial system with a broadsword.

      I must admit I know not too much of the finer details of how VC’s operate, but I can’t imagine how what the Government is doing could be described as acting like a VC, soft or otherwise (unless of course by ‘soft’ you mean idiotic).

      Regarding negativity, that is a matter of opinion. I suppose we could just pretend that the Government is not clearly talking a load of old cobblers, but I’m not sure that as a strategy that one would be terribly effective or long-lasting. If McWilliams and other commenters here and elsewhere are even vaguely correct, then Ireland and its population is facing the possibility of becoming wage slaves to debt for a generation.

      But your right about one thing in general, the way forward is with ideas not criticism, so I’d welcome seeing yours.

  13. Sadly like so many politicians they should nto be at the helm during crises.
    And this one with banks , is a point in case re Lenihan . It is true the amounts required are far in excess of 8 Billion and to suggest it is closer to 40 is near the truth.
    The Government Cowen included has had plenty of time to get seriosu but they have been distracted tryign to find packadges , so to save slective investors that have been propping up thier poltical capital support for years ! this conflict ahs and will have a price and sadly the electorate are ignorant of the magnitude of this problem. Just checking out Anglo Irish , which David have been consistent with- they still have a simple conflict with the present Government appointed board- and haev wasted a month plus time is preciosu and so is talent to repair and discover new investors and be doing the right thing! no more self interest ! hard to stoop but shoudl be top of the list of priorities

  14. Referendum on who should work at the new banking boards ! as so much taxpayers money is involved and so no ties with the past incompetent lot! especialluy connections to government ! yes a Referendum! more important than so many past issues as the amounts are closer to 80 Billion ! of taxpayers committments

  15. AndrewGMooney

    Reading this article and the comments to date triggers the following unpleasant ‘hallucination’ which appears to be hurtling from macabre fantasy to present reality with ever greater velocity:

    There’s an A&E Department called Ireland. There’s similar emergency rooms called America, Britain, China etc. The triage staff in all of these locations are simply overwhelmed by the disaster, the epidemic, the contagion that has befallen them. They can’t even reliably name the catastrophe using the medical terminology they were trained in.

    In the waiting room, the walking wounded and the soon to expire mingle with the drunks, the fisticuff merchants and the small children clinging to their mothers with their dislocated elbows and such like.

    Behind the official looking doors to the relative sanctuary of the ward stand the security officers, the police and the Doctors and Surgeons. They don’t want to deal with this nightmare, they want to blame The Officials who haven’t resourced them for such a situation. But there has never been such a situation. Or if there was, the records were altered by those who survived so as to bury the evidence of the previous equivalent outbreaks.

    Someone will have to take control soon. And begin the grisly decision making on who will live and die, who will be given palliative relief. Who faces amputation whilst there’s still stocks of morphine.

    Everyone is in turmoil. All emotional frequencies, from the hysteria of denial to recrimination and despair, jostle and blare for attention. Somebody or something must surely be to blame?

    Some say there’s been a declaration of war, but no one can agree on who or what’s the enemy, or how the worldwide medical consensus can be restored. Quacks are claiming leeches and ‘positive thinking’ affirmations will suffice. Others are becoming so paralysed with fear they can barely continue thinking. End of hallucination.

    Substitute the Science of Allopathic Medicine for the ‘dismal science’ of economic and political wishful thinking. The only possible way forward is by reclaiming, renewing or reaching out for an appropriate ethical code to guide the triage process. Stuck record: From my first post to my last, from alpha to omega, there’s truly nothing new under the sun. Human nature. Biblical debt jubilee. Morse code. Repeat:

    This is an ethical and cultural crisis manifesting as an economic discontinuity crisis. The Magisterium are pondering their next moves. It was ever thus. Ireland threw the baby out with the bathwater. Gnomic riddles. Enough. Time to bless the statue of The Black Jesus With The Bottomless Wallet, put these nightmarish thoughts aside (online) and get the kids to school. “Back to life, back to reality, back to the here and now. Fantasy is reality in the world today, I keep hangin in there it’s the only way, recollections of what Grandaddy used to say, keeps me hanging in there, it is the only way”. thanx 2 P.Funk & Jazzie B
    St Anthony bless!

    [lyrical satirical surrealist art terrorist words donated by ‘maD pAdDy frOm bRUm’]

    20:12. 20/12 . 2012

  16. VincentH

    If this money is not ringed or the bad debts, the one will swallow the other. And surely each of the banks are what amounts to a nest of limited companies, so it cannot be all that difficult to hive all the crap off into a bin somewhere. As all the parent responsibility is limited to the shares. It cannot be surely that each and every little branch and division was playing the game.

  17. Logic is DEAD ….Bank Corruption is the ENEMY ……do the decent thing ….Liquidate all The Irish BANKS ( Anglo – AIB – B of I ) …Save Your Children …NOW

  18. Garry

    If 8B is not enough, Stop trying to fix the problem and start lining up those responsible…

  19. [...] persist in trying to sell redundant profits. Why haven’t we learnt from that experience? (See Can politicians really make banking leopards change their spots, 12th October [...]

  20. ”Without a properly functioning banking system, the economy will continue to contract.”

    I think that’s why we have a CRISIS!
    It’s really beginning to catch my breath- I think it’s called ”panic attack.”

    Jes, it’s true there seems like there will be no intelligent move to create a new system, a commonsense system that works or at least admit the financial model has failed, not because of a few rouge bankers or the American sub-prime, – and the like – but because the investment model itself does not work in the interest of all concerned.

    ”Last year’s business plan now reads like Alice in Wonderland,”

    Business built up on debt can be none other than Alice in Wonderland. Creating small businesses as another form of outsourcing is ludicrous, especially when most of them turn over a profit; pay employees a decent income, and are continually in (the red) debt.
    As long as you keep that model afloat giving the idea it will (like the Titanic) right itself, you will continue to (get only deeper into the mire) have landlords, businesses and banks (trying to continue business as usual) looking for the impossible. Let it go/collapse for gods sake.

    I read where Cowen mentioned banks should be talking to mortgage holders about what they could pay instead of reposing, something I suggested months ago. (who the …k am I?) It’s not me, it is just commonsense, why does it take so long to do the right thing.

    “Recapitalization will not work,”
    You’re damn right, it can’t work. Perhaps America can print money but Ireland – if they could – couldn’t print enough.
    Obama the grate wonder of the world is looking more ordinary as everyday passes by. Anyway!

    I guess this is it really, we’ll go on talking till the cows come home, and watch as the world leaders dig us deeper into social unrest; with their help- I’m thing of Brown’s statement: British jobs for …. Perhaps J Clarkson was right about the “one eyed idiot,” who is lying o smoothly to the electorate.

    It seems the bottom of the bucket must every time fall out before government see the need to replace it, and then usually with a plastic bag for the Proles that is, because there’s not enough tin to go around.

    Funny how the tin appears in emergencies when there’s not supposed to be any tin to spare.

  21. It is difficult for anyone who is not part of the inner circle to understand what’s happened. It’s even more difficult to feel confident in any particular solution. I’m placing my confidence in a few ‘knowns’. I call them my truths.
    (1) There is a lot more bad debt out there than anyone admits. The banks probably have an idea how high it really is, but they probably underestimate it because no one employed by the banks wants to say how awful the situation is: they would probably get no reward for being the one who was prepared to say. I imagine some sort of collective conscience, an espoused debt…
    (2) The government is in uncharted waters with a novice skipper in charge. I thought Mr Cowen sounded dead in the water when he spoke in the Dail last Tuesday. Some say he was a different man on Thursday evening – a forum at which he could speak freely without contradiction. Like many, he is confident when he feels he has the stage and is surrounded by friends. He’s no different from most ordinary folk. Maureen Potter used to vomit before every public performance. Perhaps Mr Cowen does the same. Certainly he bored the pants off me while I was listening in the hope that he’d become a national leader.
    (3) There are two people in whom I’m prepared to place confidence: Shane Ross and David McWilliams. Every time they write or speak I feel relief. I feel all is not lost while there are such independent voices out there. I know it’s a lot easier to speak out when you are not accountable for the consequences. I know the politicians, public servants, bankers, auditors, and lawyers are enmeshed in the system. There is no rewarding whistle-blowers in Ireland. This is all one parish. One community of overlapping self-interests.
    (4) The outside world is watching how we handle this. But they are much more worried about how they too are handling it. I bet there’s a lot of schadenfreude about – “largely unanticipated delight in the suffering of another which is cognized as trivial and/or appropriate.” (Adorno) I’ve heard the Brazilian newspapers are referring to Ireland as a basket case. We probably think the Icelanders are the poor ones. If we could find a way through this, even if the way means going back to basics and a less material existence, we would be a help to many others.
    (5) I read Willie O’Dea saying that we need a more cohesive approach. In the next paragraph he attacks the opposition for having no ideas. I think this is pure politics at its most transparently puerile. We probably need a vigorous exchange of views, and lots more argument (storming, you might say). Whatever the government does this week deserves to be critiqued rather than supported blindly. In difficult times, there is a risk that people will turn to a leader simply because they feel they need to gather together against the outside world. Populist support for strong proposals sounds attractive. But if the proposals are founded on ignorance of the full extent of the challenge…?

    I meant to write a few short thoughts, but haven’t had time to do that. Thank you very much David McWilliams. I admire your approach.

  22. MK1

    I agree with most of what you’ve written Johnny Dunne and SamB.

    SamB> it is costing the banks more to borrow than they can charge their clients

    Yes, this is whats happening and its the collective equivalent of holding their breath. People are talking about bad debts, yet, many of those debts will only go bad over time and when the bank can no longer ‘hold its breath’. Commercial should clearly be let go before residential and owner-occupied homes should be last, apart from those that were used as a basis to build up commercial properties.

    Giving the two big banks 7 or 8 billion will only perhaps delay the inevitable. The amounts they will need may be far more than the 20 billion we have left in the ‘national pension reserve fund’. Ireland’s fuel tank is getting depleted by the day, and the supply of fuel has been severely curtailed. The banks cant get any on their own, and Ireland Teo can but at a high cost. And there may come a time when it cant.

    But allowing bad banks to get more sick wont avoid all pain, far from it. The single Good Bank proposal, ie: a new bank untainted, will produce a parallel banking system and a functioning one. Indeed, the new bank may be able to pick off any cream (or avoid the crud) with some of the others have to be wound-up. And they could employ new banking staff that would be available on new terms. But allowing stuff to fester in bad banks isnt a magic bullet solution that will prevent all pain. It cant and it wont.

    clarkeg, I think you are naive if you think that our Government are ‘soft venture capitalists’. This is a rabbit running blind into headlights. It doesnt know what its actions will do, and is darting this way and that. It may indeed get run over by us the electorate if we activate.

    National strikes across the country demanding a change of government and calling for an election could bring the country to a standstill and make the GP step out force FF call an election “in the national interest”. Politically, FF are looking at 2012. Their ‘game plan’ is to blame the current sutuation on ‘everybody’, its everyones fault is their tagline and mantra, ‘we were all at it’, and they will attempt to fix as best they can until 2012 and they hope things will have turned around a bit by then. The fact that FF have not dropped to zero % in the opinion polls is an indication of how stuck many of our elecorate can be, and FF know this. As do FG, etc.

    AndrewGMooney, a good analogy except I would add that there are no experts in the A&E dept. When the ‘bodies of war come in’ badly wounded, they are wondering, okay, whats a bandage, what is pain, are there such things as painkillers, whats that sharp thing, its says scalpel on the packet …… duh? IF I was a general running a war campaign I would be extremely concerned.

    Johnny Dunne, you are right that innovation and job oriented government spending is whats needed. However, that can take a long time to kick in, especially given the current climate on the global scene. It’s much harder now to produce the same than it would have been 3 or 4 years ago. Not impossible in all cases but much harder. We arre now swimming against the interntaional economic currents. Also we need to be careful of what we spend the money on. New school buildings are NOT what this country needs right now. That wont bring in one exta euro cent of export revenue.

    David, you talk about creating a financial skip, we have plenty of them already, dont you think? What do you think of the New Good Bank idea, it will be a government one, it kind of does break EU ruiles, but the EU these days is re-writing its own rules when it comes to government supported enterprises for the sake of ‘in the national interest’.

    MK1

  23. I saw Jack Welch, former General Electric chief, on CNBC last week and he said that Walter Wriston of Citibank told him that if Citi had immediately recognised all its losses from the Latin American debt crisis in 1974, it would have gone bust.

    Three years after Wriston’s retirement, his successor John Reed set aside $3 billion to cover loan losses in Latin America — the total of the bank’s earnings for the last four years of Wriston’s watch.

    With columnist Wolfgang Manchau in the FT today, saying that Ireland is entering a depression, I guess that it’s best for the Government to play for time for a period, rather than shouting ‘fire” at this point.

    http://www.finfacts.ie/irishfinancenews/article_1015893.shtml

  24. Garry

    I think we should have a new bank rescue plan…. Introduce a bit of reality TV and a phone vote, it might even make a few quid…I’m thinking more “The Running Man” than “Big Brother”. Spice it up, have the bank executives on TV begging and fighting for the money, Put a few swindled shareholders in the mix and give them immunity from prosecution. It could be set in some of those ghost estates that nobody will ever live in….

    Sure we might as well get some entertainment out of this. and given the high regard bankers are held in internationally we could make a few bob. Im sure theres people who would pay a lot of money to chase Madoff around Mullingar with a baseball bat.

  25. MarkC

    Some of the figures mentioned above are really scary. How on earth are we going to find €33bn when saving under €2bn in public services wages was so difficult.

    Even the Pension Reserve Fund is only worth around €18bn (I think).

    The country is basically bankrupt and it is only a matter of time before the IMF have to come in.

    • woodsey

      MarkC,

      That’s the most succinct and accurate summation of the situation that I’ve read anywhere so far.

      But the IMF riding to the rescue? Are you sure? I think the IMF is going to be too damned busy rescuing the US dollar and the euro to worry too much about the problems of a small offshore island thats spending €40 B p.a. to administer to the needs of 4 million people. €10 k per person per annum? One €50 k administrator looking after 5 people? No way, Jose! The IMF will bypass that one!

  26. Malcolm McClure

    There is an interesting article in today’s NYT suggesting that an attractive way to encourage innovation is to establish a federally sponsored prize fund:
    http://bits.blogs.nytimes.com/2009/02/09/super-bowl-ads-and-the-rise-of-the-prize-economy/
    As an alternative to VC investments, a few millions in this kind of initiative could form a seedbed for new growth in the Irish economy.
    Tied to a television program it would show the audience that some people were actively trying to get us out of this mess, and encourage others to do the same. It would be much more productive in the long run than the mindless lotto dreamweaver most people live for at the moment.

  27. barry

    From todays (09/02) Irish Times -

    “Protecting the interests of the banks’ beaten-up shareholders and limiting the exposure of taxpayers is all very well, but it’s rather pointless if the €7 billion being spent by the State at this point in time does not contribute directly to reviving economic activity and, in the words of the Taoiseach, “jobs, jobs, jobs”.

    Quite. I had a look at politics.ie on David’s latest… in between the usual slagging match there wasn’t much real content. I’m afraid the same is true here.

    David says that this (re-capping) won’t work, ok, so what might work? He says “If you want to recapitalise, you need a much bigger state package that cleans up the banks and gives potential new investors the comfort that they are buying a clean bank….. ”

    Just where do we think this ‘bigger’ amount will come from? The pension fund? OK, so what about the other capital needs? Prof Lucey says the debts are bigger, our newest recruit, above, recently returned from China, says venture capitalists would be happy with the proposals (if I understand the post) – so would we get any money from them? Unlikely, since bank venture capital investors (the ‘wholesale market’) won’t lend now and are unlikely to lend post the €7bn, according to most commentators, who also say that the banks won’t provide credit from the bail-out either.

    David, even if you could get a bigger amount, should it be given to the present banks? Would it not be better to get ‘clean’ banks from a gov handout (or a guarantee) to new banking entities?? Of course letting the present ones go to the wall would be a bad optic but if a new banking environment were being created from new funds, in parallel, doesn’t that improve the optic? So, withdraw the guarantee to present banks, transfer it to new entities, provide a window for the transfer of the deposits to the new entities (that could be interesting, might provide the Revenue with some insights…., as well as actually discovering what the [nett] deposits actually are) and off we go with new, clean, financial activities. This only to apply to the parts of the present banks which are in the ‘normal’ banking arena, not those bits down the docks, in the Caymans, etc., which are the casinos. It would also be interesting to see who would invest in the casino bits in the future…..

    Mad? Maybe less mad the prospects we presently have (cf furrylugs).

    Bye, Barry

    • I’ve made my assessment as clear as I can. A situation has been allowed to develop where the State is in clear and present danger because one element of business has supplanted the democratic equilibrium in direct contravention of Article 45 of the Constitution.

      The Tsunami has not hit yet. It will not be survivable. We have no worthwhile friends. We are not on Obamas radar. We caused immense damage to British liquidity with the bank guarantee. We allowed German satellite banks to engage in practices which Merkel will not forget. We have accepted ex-pat deposits which were not vetted by standard international processes designed to eliminate laundering.

      We’re on our own. And I bloody wish I could find something more positive to say.

  28. Deco

    David is correct – without institutional reform of the banks, this is dead money. There is an Irish phrase for this “obair in aisce” (work that is wasted). All the effort that is took to accumulate that pension fund is now to be lost. What annoys me is the way the state (government plus department of Finance officials) “negotiates” in these deals. Brian Lenihan telling us that the taxpayer is getting great return for their money is like something from a tragic play or something. We are all sitting here in the audience, overcome with an impending sense of disaster – as if we know something to which Brian Lenihan is completely oblivious.

    Regarding Iceland – Iceland got their financial crash on the cheap. They left billions of debts in other countries unpaid. We on the other hand seem to be so pre-occuppied with our standing in Brussels (because our politicos love distributing EU grants to the great unwashed) – that we have been dragged into an unsightly mess by a bunch of bankers who never knew anything about banking in the first place. At the core of every disaster we see in life, we find somebody who cannot fulfill their responsibilities. In the case of the current financial mess – we have a cabal derived mainly from the upper class boarding schools in South East Dublin who seem to view running parts of corporate Ireland as part of their destiny to fulfill a social status prerogrative. The arrogance and nonsense from these people is unbelievable. I can see why Eamonn Gilmore wants them cleaned out – he evidently knows a lot more about these people than the rest of us – afterall he lives close to them and gets votes from lower class estates in thier midst. I just wish somebody in the political establishment would step up to the plate and address the incompetence that exists in authority in Ireland. This is the fault-line that exists in Ireland – it is the reason for everything from the ridiculous price of electricity to striking hurlers. It seems as if large sections of the public and private sector in Ireland is dominated by a bunch of pretenders. They are not real bankers – they are just careerists who happen to climb banking on the back of the old school tie, rugger and golf. As Shane Ross indicate they live off, and propogate incestuous networks, that control the commercial life of this country. They seem to advance the case for all sorts of reckless behaviour, waste, nepotism, and market rigging. They also practice a lot of “non-disclosure” – on the basis that the plebs are better off not knowing what is really going on. And again Shane Ross having watched the entire racket from within would be in a perfect position to know what is happening.

    They know very little about capitalism – but everything about consumerism. They also know an awful lot about influencing consumer behaviour, the commercial media and oligopolistic market arrangements. They are not alone in this regard – rural Ireland can produce cowboys and market riggers also – I seen Larry Goodman smiling beside a new helicopter on a newspaper yesterday, and I would categorise him in similar vein – just lacking in the culture of what Shane Dempsey called “the veneer”.

    Shane Ross is our best hope at reform. Lenihan is too gullible-even if he is genuinely trying his best, Cowen seems to tackle the problem in spurts-which indicates to me that is stuck in alternating states of caution and reaction, and Coughlan really does not know what she is doing or why she is doing it-she is just lost.

    Let’s face it the real problem is the people running the banks. They are proof that we need to change our leadership culture in this country. We need to get beyond the post-colonial nonsense of the gentleman’s club etc.. If Pakistan wants to elect Imran Khan as leader because he is great at cricket, all fine and well. But we are aspiring towards a more modern and less aristocratic future. This means that Ireland must be have a more meritocratic culture – if we are to follow in the lead of Denmark, Israel or California. If we have a more meritocratic culture, our state and private sector institutions will perform better – and the fruits of this will be available for all in society.

    As things stand – we are just limping from one crisis to another – and replacing one delusional state of consciousness with another. We need to think outside the box – and completely disbelieve the ‘official’ version of what we get told. The more people that are liberated from ‘mainstream’ nonsense in this country – the more people will be able to apply pressure to weaken the networks of incompetence, the delusional nonsense, the rampant corruption, all the market rigging, and the chronic underperformance.

    And let’s face it – we owe a great debt of ingratitude to Shane Ross, Eddie Hobbs, George Lee, David McW, Gene Kerrigan, Phoenix Magazine, and the rest of the “outside of the box” thinkers.

    Time for a cleanout in AIB and BOI. And then EBS, INBS and PTSB.

    Just a word of warning. I found out yesterday that the current chairman of the ESB is a former chairman of the AIB, and a brother of a former leader of the Labour Party. And a cousin of a former owner of one of the top supermarket groups in the country. etc.. When he was involved with AIB – a long list of scandals became public. He is over the ESB – and chances are all he knows about electricity is that it comes out of the wall when you stick the plug in.
    This is the type of nepotistic nonsense that needs to be finished once and for all – if we are to get out of this mess. We need to liberate Ireland from the authority that is sucking this country dry. In America the Irish flourished when they got away from all the nonsense back home. We need institutional reform and openess – our own ‘glasnost’ and ‘perstroika’ to achieve the same effect here.

    • paddythepig

      Good man Deco, you’re spot on. These people have no shame. They messed up, and came begging the taxpayer to prop them up. They believe it’s their divine right to be looked after ; and they spin it by saying it’s good for the ‘wider economy’. At best, a banker, as an issuer of credit, is a privileged and protected middleman who benefits from the innovation and effort of others. More recently, they’ve become the engine behind a massive Ponzi scam. If they were true capitalists, they would have walked the plank by now, and accepted the verdict of the market, instead of going crying to the ‘Mr – very very determined -Lenihan’ and ‘Mr – I am the gaffer – Cowen’.

      Paddy

    • Father-fool-em-all

      Brilliant post! Very well thought out and expressed. You have just put in a couple of paragraphs years of what I a have being feeling about this country but as of yet unable to formulate in what I will one day describe as my Magnus Opus. Keep it up Deco…dont be blinded by the sheen of their mere veneer.

  29. Deco

    Came across interesting commentary from Marc Faber over the weekend.
    Faber has a rather unique propostion for dealing with this sort of crisis.
    He suggests making dividing each troubled bank in two intoa good bank and a bad bank. The government takes over the good bank. The bad bank continues to be held by the ordinary shareholders, preference shareholders, bond holders and creditors. The good bank acts as the credit facility for the non-property sector of the economy. And the bad bank nurses the mortgages.

    What an intelligent idea ? Effectively the government (taxpayer) keeps the critical part of the banking system solvent – and let’s the casino part attached to property speculation to it’s own devices. The government is in effect attached to the less risky part of the loan book – and those who were gullible enough to believe the pretenders are stuck with the pretenders and their dodgy decisions.

    But thanks to Gordon Brown’s example – it seems that Western leaders are all doing it 180 degrees in the wrong direction. Jeremy Clarkson was entirely correct. Kerrigan is about the nearest to a Clarkson that we have here.

  30. Deco

    Before we will get out of this crisis – we will need a structural change in the Irish economy that makes it more efficient or more effective or both.
    Deflation of the cost base is our best option.(more below).
    Inflation of the currency was an option in previous times – but is not an option now.
    Allowing capitalists to get capitalist consequences for failure – in other words, to go bankrupt – is another option.

    But it seems as if there is a persistent effort to maintain the current structural inefficiencies of the Irish economy. The market rigging has to end.

    We need deflation of the cost base brought about by a thorough implementation of Article 45 on the private sector – and the people, by means of the state, bringing the greatest quango of them all – IBEC to heel, for applying an inflationary bias, to Irish economic policy.

  31. Philip

    Maurice Hayes on today indo says it nicely in his column on the passing away of Rev Roy Magee. “Society faces a new set of terrorists – the international bankers and financial speculators – without as yet, the wise men who can guide them to safety”. There is no morality and we are going to pay for it.

    An 8bn bung to plug 20bn oriface will just dissappear and do nothing – except loose an 8bn bung. And we are not sure if a 20bn bung will work either.

    The only responsible thing to do now is let the banks collapse and create a new bank for the 8Bn.

  32. Garry

    Absolutely but be clever about it….. don’t put any money in but form a cross party committee to talk about it… in fact establish a tribunal to look at directors loans or some other bullshit. Invite the social partners in and sure that’ll keep the talks flowing. Keep talking until the guarantee expires, when the pressure comes to extend or some other manufactured crisis, talk some more…. The share price will drop but who cares, better the shareholders squirm than the taxpayer.

    What’s the pressure? Sure the debts are guaranteed, do we really care if the banks share price goes to 1 cent…..The fuckers wont loan anyways they’ll just hoard the cash. And sure it’ll stop the EU/IMF from coming near us, they wont want to lance the boil…..because if they touch it, its their problem too

    Its like doing up an old house, If you don’t have the money, to fix the walls stop … polish it up and call it a feature, learn to live with it

  33. I’d like to say how much I support the long post by Deco, especially

    “We need to think outside the box – and completely disbelieve the ‘official’ version of what we get told. The more people that are liberated from ‘mainstream’ nonsense in this country – the more people will be able to apply pressure to weaken the networks of incompetence, the delusional nonsense, the rampant corruption, all the market rigging, and the chronic underperformance.”

    Thank you very much for the information about who the head of ESB is and the relevant connections.

    Perhaps some good will come out of this. I think Mr Lenihan & Cowen are exposed. Their actions are now being scrutinised and we are educated to see exactly what they do and say. If the political and financial establishment cobble together a mechanism to preserve the bonuses, salaries and positions of those who fashioned the culture which gave rise to this mess… many people will see through it. I wouldn’t like to be in Mr Cowen’s position. He has little wriggle room. It will be hard for him to disguise a fudge. I doubt he’ll get away with appointing a body to review what’s happened and kick action into touch.

    Increasingly I think that all those who participated in the leadership and management of Irish banking should go. Nothing less than a complete clear out would convince me that we are entering a new era under leadership I can have confidence in. Perhaps such a drastic move would be unfair to some but I’m afraid I feel that that’s the tough result of no one coming forward as whistle-blower in time. A conspiracy to maintain a gigantic bubble of wealth based on a belief that if we can only keep the belief going all will be well. How many times have we heard it said that the stock market prices depend on investor confidence? And heard it as a truism, a cliche? Little did we realise that it was true. One tiny puncture and all could deflate.

    For me, it is striking that all the mechanisms designed to ensure prudence and quality assurance – the central bank, financial regulator, auditors (ernst & young), Oireachtas committees, department of finance, ESRI et al – failed us.

    If we don’t replace the bulk of those people we are taking undue risk. I would let them go to law in search of recompense for unfair dismissal. I doubt they could defend themselves against the charge of gross misconduct.

  34. barry

    Look, this forum, which used to be a good pointer to the kind of thinking we need, is becoming more like Anthony Coughlan’s Public Enquiry blog, true, but tilting at windmills.
    We all know this country is managed by a same-sort-of-schooling commune, what else do you expect? we are only a few years out of the dark ages in terms of an economy, there is no flexibility in the appointment/election system (viz the ex Foreign Affairs Sec Gen and the Garda Ombudsman chairmanship).

    Over here is maybe an indication of why Lenihan is looking over his shoulder at Brussels; a piece by a Belgian economist (no giggling at the back there) at

    http://www.voxeu.com/index.php?q=node/3009

    It is clear to me that the ECB will be brought in to the room after the G20 meeting in April (Merkel is in the process of unloading the German Minister of Finance). Anyway the Belge is saying that the ECB should guarantee and reduce the costs of our sovereign borrowings by buying them in the secondary market. I have problems in principle with derivative markets (who doesn’t? even George Soros does), but if we aren’t going to dump our banks, a bailout by Frankfurt will be the next best thing.

    Bye, Barry

    • Malcolm McClure

      barry: Agree about the way the forum is leaning. Windbags tilting at windmills. The problems are well dug over now. We need to plant some seeds that could grow into solutions.

      • That’s a bit severe. “Windbags”. Perhaps you’d be specific and make clear whom you are calling a “windbag”?
        Given the seriousness of what’s up, it is surely unreasonable to expect people to separate their comments into clean boxes like “criticisms” and “seeds that could grow into solutions”.
        Malcolm, I don’t know you and how well placed you are to know the difference between “windbags” and others. Perhaps you wouldn’t mind offering a reason why I should treat your caustic comment seriously, please.

        • Malcolm McClure

          PaulO’M: I feel that contributions start to get a bit ‘windy’ when the facts to words ratio exceeds about a hundred. Sharp and well-targeted opinion supported by facts helps us all to get the jist of everyone’s opinion without skipping anything essential and doesn’t overly tax the attention of any casual browser who may be tempted to participate. This is a personal , general, observation and is not directed at any of our fellow participants, long-standing or recent joiners.

        • Boring old Furry here rabbiting on about A45?
          Again.

        • AndrewGMooney

          Malcolm, drop the ‘head prefect’, ‘blog editor’ nonsense. If you’ve got concerns over the direction of the forum direct them to the Webmaster. As I have done.

          I must check back and see how you reacted to the racist comments on previous threads. There are some issues worth taking a stand over. Others are personal taste and certainly not the concern of any individual comment writer. If DMcW & Ronan decide to limit comment length that’s up to them, but your oft repeated ‘advice’ is irrelevant.

          I enjoy astrological musings and I accept some people need to add 17 lengthy repetitive comments to each thread. This is a blog. It’s off the cuff stuff. Get over it.And yourself. Or you’re in danger of coming across as a moaning windbag.

        • Malcolm McClure

          AndrewGMooney: I make no apology for preferring to deal with facts rather than conjuring with astrological forecasts, ad hominem comments, or spurious, lightweight, analyses like those you submitted from Lombard Street today.
          A brief trawl would have shown you that Dumas’ figures and argument are totally spurious.
          Based on projection from the widely accepted CIA $285 B GDP for 2008, which at current exchange rates is about €220Billion.
          Ireland’s Debt was €45.453 last November, according to FInFacts, giving a debt to GDP ratio of 20.6%, althought the CIA gives a public debt to GDP ratio of 31.%. These figures ignore the vast commitment recently taken on in Anglo Irish Debt, which inevitably pushes it much higher.Dumas published a much lower ratio of about 5% of GDP. (Too low by a factor of 4 to 6 ).
          Cool it Andrew, you have told us often enough how wonderful you are.

        • AndrewGMooney

          Cool it? I’d throw a bucket of water on yourself Malcolm. I didn’t endorse the article, you eejit, in fact I said the following about it:

          ‘Unfortunately events are rapidly eroding the basis of the article, the low debt ratio is vanishing daily.As for the comment: ”

          ‘In a small flexible service economy, with a small public sector, incomes can much more readily be lowered than in large, bureaucratic economies like most European countries.’

          Not sure what they base this assertion on.’

          I merely pointed to the article to show that some people still believe Ireland has excellent medium to long-term prospects. I suggest, as Head Boy, you direct your wrath about Dumas’s figurework directly to Lombard Direct. I repeat, I didn’t give the article or the figures therein my endorsement, I merely noted it. You, in your hissy fit, didn’t even realise this and have promptly made a fool of yourself. Again. *rollseyes*

          You are quite right: I am wonderful. And I see no reason why I shouldn’t state that fact as often as it amuses me to do so. I also accept with equanimity the fulsome praise I receive from so many different people regarding my genius. This blog is truly blessed by my presence! And so, I shall continue posting until it no longer interests me to do so. But I shall ignore your wittering henceforth. I’m just making sure no newbies succumb to your dubious claims to ‘authority’ on these pages. I don’t do ‘groupthink’. And astrology is just as respectable as economics. Just as JK Galbraith!

          “The only function of economic forecasting is to make astrology look respectable.”

        • Malcolm McClure

          AndrewGMooney: Astrologers can’t even agree amongst themselves on house division, so how can they expect sensible people to render them the slightest grain of credibility? For the purposes of this blog, in my humble opinion, its is much better to identify and discuss key economic facts and the motives of those who deal with them.
          I have just been watching the UK treasury committee tearing apart the directors of HBOS and RBS. Stevenson, Hornby, Goodwin and McKillop wriggled and prevaricated when questioned about their handling of their responsibiities, but no interest was expressed in whether they had consulted astrologers.

        • Tis no wonder. Would the two of ye just listen to yerselfs. We’re up the creek and the two best contributors get out the handbags.
          Focus men. Focus.

  35. Garry

    on another topic did anyone hear Joe Duffy today? Apparently the Energy Regulator turned down a request from the ESB to drop their prices…People up in arms about their bills and then someone comes in with this.

    In a recent article Philip quoted that “technocracy grew to consume all profit margin to least benefit of the shareholder and the customer during times of plenty. ” Here is a perfect example… Before regulation the ESB provided electricity to Ireland reasonably competitively. it was the 3′rd cheapest in the EU… So in an effort to introduce best practise we hired and paid for a expensive regulator backed up by the Competition Authority. Result: ESB is now the 2′nd most expensive provider of electricity in the EU and is stopped from reducing their prices over the years.

    Energy policy here is set by people who don’t know the difference between a mW and a MW. And regulated by misguided fools.

    Quis custodiet ipsos custodes?

  36. Wise words:

    “International markets have their own problems and couldn’t give a ‘rat’s arse’ for Ireland. No, Lenihan is struggling to hold on to his seat and try to impress the voters. He does this with voters’ money but, politics was ever thus.”

    In a democracy it is, of course, right and proper that the minister tries to “impress the voters”. And it won’t help us to think that a white knight will come over the hill from Frankfurt or beyond.

    Perhaps it is a matter of judgement whether it is best to invest a little at a time or hold back until it is possible to invest “enough”. Perhaps it would be fair-minded to give the government the benefit of the doubt. But I think that would be stupid. Better to demand much better justification for our support. Remember this “government” is a novice like
    12 men and two women (or whatever is the right figure) in a boat
    unchartered waters
    unskilled crew
    a leaking vessel
    in a sea growing more stormy by the minute
    surrounded by monsters within,
    guilty secrets
    unholy alliances
    and confusion beyond the pale…

  37. Robert

    Monday 9th [4.40 pm]

    David McW will be on Today FM (Matt Cooper) shortly

  38. Harve

    The time for whinging and moaning about the past is over – it cannot be changed, we can only learn from it and look to move forward and focus on getting ourselves out of this mess that we are in. Now is the time for all of us to take Responsibility. Remember, responsibility does not mean taking the blame. Instead it means “response-ability” – the ability to respond to the situation we are in and to find a way to get ourselves out of it.

    I detect a sense of glee amongst some of the bloggers on this site with the situation we are in. A sense of “we told you so” that the boom would not last. Okay, you were right and most of the public (and Government) were wrong – now what? There is not much point in continuously saying “I told you so” in a sort of self-congratulatory mode. Actions speak louder than words. Now, its time to take the actions needed in each of our own lives that begin to turn the situation around. Blaming the government without taking any effective action is pointless. By all means, take action and vote the government out the next time you have the opportunity if that is what you think is right and if there is a better alternative available. In the mean-time I think we all need to start taking the actions in each of our own lives that will accumulate and together will make the difference in getting our country out of this problem.

    We need a “Yes, we can” attitude instead of an “Is it? No its not” attitude. The time for action has arrived and we have all got to step-up to the plate.

  39. Philip

    Reading that Vox article from Garry on Gov Bond spreads – In a way, the ECB has a duty to narrow those spreads. The EU gave us a lot. But an argument could be made that it inflated us beyond our ability to consume funding correctly. Also, I think the oversight on EU funding was never very good and did not yield the intended benefits. We received a lot for infrastructure e.g. roads and also agriculture – which in turn funded fat cat farmers and developers & land owners. That funding should have come with taxation strings attached. One could say that it funded the basis for overblowing our property market.

    I think I can see what Garry is getting at by Lenihan having to look over his shoulder. The ECB has an opportunity here. Maybe it cab correct the above by narrowing the spreads with carefully directed bailouts to different governments. In essence, it would make the risk the same for all. That’ll come at a price though. I wonder if the fear Lenihan has is that he will not be able to choose who will be carrying the can…fallout?

  40. Lorcan Roche Kelly

    Firstly, I fully agree the €8bn is a band-aid for a shotgun wound, only papering over the cracks etc., etc.

    MK1 argues above, as I have done here in the past, that nationalisation is probably the only way forward for the banks here, but the question now seems to be where we are going forward to.

    Anyone seeking liquidity at the moment should look no further that the financial crisis itself, it is the most liquid thing around at the moment! The crisis is growing each day and with each passing day the unthinkable becomes the possible before turning into accepted wisdom.

    With this in mind is it now time to look beyond saving the banks? The traditional argument for saving the banks is outlined in David’s line “Without a properly functioning banking system, the economy will continue to contract.” This is a powerful argument, but is there a chance that it is a little counter-factual?

    Let’s look at where we are. As Michael points out above, Manchau in today’s FT says Ireland may already be in a depression. We are seriously ‘over-banked’ for a depression, i.e. we have too much bank, and spending money now maintaining a bloated system that we probably will have no need for seems idiotic at best.

    There are better ways to spend the €7billion. There is something called the ‘trickle down’ effect, the argument for which goes something like:- if you tax the rich less, the rich will spend the money in the economy, making all actors in the economy better off. Personally I think this is another weak argument, leading more to wealth condensation than public affluence.

    So, why don’t we try ‘trickle up’ for a change? One possible way to implement this could be to put the €7 bn in a mortgage debt relief fund. Let’s say the average mortgage is of 300 months duration. The recently unemployed and the properly broke could apply to the fund to have their mortgage payments made in a debt-for-equity swap. ie for every payment made by the fund, the fund would get 1/300th of the equity in the house, with the householder given the option to buy back the equity whenever they want, or can afford to.

    This approach would probably be opposed by the PTB, but it would possibly be more equitable than the current band-aid.

    Oh, and can someone please explain to Lenihan that if he’s going to re-cap the banks, he’s supposed to get them to write down their bad loans first.

    • Another vote for the mortgage relief fund. At the very least it might lift some of the despair that’s gripped the country.

    • And the reply Lorcan would be “Que, I from Barcelona”
      In the Uk for the last few days and the Hubris here is palpable.
      Bonuses paid because of alleged unbreakable contacts. We are not on the same planet as these people.And our lot are worse. They ape their betters. Or better their Apes. Who cares anyway.
      If McWilliams is right, and go check it, he has been for a long time, we’re in grave trouble. You told me last Autumn to consider a survival plan so I did. Just in case. I hope those reading the site took heed.

      • Lorcan

        Furry > You told me last Autumn to consider a survival plan so I did. Just in case.

        I’m sure I called it a contingency plan. Just don’t forget your towel.

        Personally I think the furore over banking bonus payments is a bit of a moral panic, we would be foolish to be sated by such small recompense for our billions. Headlines like ‘Bankers earn 20 times a heart surgeon’s salary’ may rise the blood, but this is a mere sideshow compared to the amount of money taken from you to bail out the banks malpractice. They’d rather slyly take it from your pocket in the future, so you don’t notice right now and so don’t get angry when it counts: before they spend your money.

        Anyway. Rant over.

        I see the Dutch government have implemented David’s ‘Brady Bond’ idea on ING bank, moving that banks alt-A american mortgage debt off ING’s balance sheet for 80c in the dollar. They seem to have done it as an accounting excercise, ie no money changed hands, just a huge potential liability has moved off INGs balance sheet (thereby improving their capitalisation) and onto the Netherlands balance sheet. Might have been an idea here, but I think we have enough potential liabilities on our national balance sheet through the deposit guarantee without adding to it.

        For all the Quantative Easing fans, there is a chance that the Fed might have to write some big cheques next week when the US offers $67bn into a market that seems to be loosing interest in $ debt.

        http://www.ft.com/cms/s/0/7e9a4c2e-f6d2-11dd-8a1f-0000779fd2ac.html

        Maybe the ECB will have to follow suit, with €18bn coming on stream next week. And from this it looks like they are warming to the idea.

        http://www.ecb.int/press/key/date/2009/html/sp090206.en.html

  41. After listening to Mr Lenihan at 6 oclock news, it seems clear that he is going to go for the strategy of saying that a “remuneration committee” will look into the whole question of remuneration. He says that he expect such a committee to take full account of the “government’s” advice.
    Meanwhile, it also looks as if he’ll recapitalise the banks first and deal with remuneration later,and argue that this is urgently needed.
    I’m convinced this is a method to avoiding change. I think it’s a stratagem to perpetuate the status quo. On a day when one financial institution has stepped in the right direction by cutting the salary of the chief executive, I’m seeing AIB and Bank of Ireland executives clinging on to their first love… money for the boys.

    I agreed with David McWilliams when he said to Matt Cooper today that we need to move beyond recriminations; we need to find win-wins. In exchange for some of the executives keeping their jobs (a win for them because they surely would not find employment in banking), I suggest all outstanding bonuses for 2007-2008 inclusive be taken as cancelled, or better perhaps issued as share options convertible when the share price for their particular Irish bank regains what it was in 2007. This would be a win for us taxpayers whose future is being mortgaged on the risk. Ergo a win-win

  42. John Rooney

    The problem with writing down loans on property that nobody is buying is that it inaccurately reflects the potential of the property to reach a higher value within what might be a short space of time. To predict development property’s value in 12 months time is relatively straightforward, does not raise spirits, and , relative to the purchase price, and in the absence of buyers, it may prove prudent to hold back on selling the property for a further 12 months.
    Many factors are currently adversely affecting values: Northern Ireland’s retail competitiveness is dis-incentivising further development even in towns that have never had development in the last 40 years.VAT rates, sterling differentials, job-losses without an end, spiralling costs relative to other economies.There are so many issues which have come to a head all at the same time that we must behave prudently now.

    There are two scenarios: the first is where the government is not ballsy enough to get to grips with re-engineering our cost structure . This is the ‘worst case scenario’. In this situation, the money put into the banks is a complete waste because business will not survive in an economy dependent on SW payments and Civil Service salaries.All jobs worth having are headed to Poland, India or China or some such place. The days of going for ‘High-End’ jobs are over as multi-nationals realise that high end jobs can be done with an even greater financial saving in Poland, China or wherever else they may pick.
    This process will compound the banks’ problems with higher credit card and mortgage defaults, further and more severe falls in property prices and higher consequential losses on repossessed homes.The prospect for recovery in land prices will be as hopeless as a prayer in hell.
    The second scenario is different: it gives us – and Ireland Inc. – a chance to redeem ourselves.
    At the minute, all businesses , national and multi-national, are thinking about survival: theirs, not ours…. If Ireland is to recover, then we, the workers of Ireland, must present the opportunity to businesses to assist them in surviving this economic hurricane. It is only if we are of help to them, that they can be of help to us…
    I believe that for Ireland to survive, we must shake off the shackles of heightened expectation which life in Ireland has burdened us with recently. If we all do this together, at the same time, it will be relatively painless, because at least half of the loss will be made up in the benefits of a lower cost society. Another portion of it will be made up in the knowledge that we are doing something which might lead to our eventual recovery, which will be good for our spirits.
    If I remember right, in 1996 when I was buying houses to rent out, I had no money, just spirit and hope and a few punts in enhanced equity each year. What I miss the most now is the spirit…
    The equity is long gone.
    So what had the government to do to make this work?
    It must cut the public pay that is going to be cut (that means more than just pension contributions), reduce the social welfare payments that are going to be reduced, it must also reign in the costs associated with daily domestic purchases and essential services.
    We must receive the ECB interest rate cuts that are coming, when they decide that they have waited long enough to not give the public impression of panic..
    Perhaps then,and only then, this economy of ours might see a way forward.Then, and only then, will anyone think about building something other than a public building. Then, and only then, will the land-bank, currently in cold-storage, be able to be accurately valued.
    A more pressing problem than the land bank is the loss of competitiveness.As long as it remains, land values will deteriorate further. Any solution to the banking problem must also focus on regaining competitiveness for existing and new businesses, and this has to happen fast. As someone who recently had to close the doors on what had been a good business, I know that the competitiveness we once had, which allowed businesses to flourish, has disappeared and the businesses which flourished are now on their way out too.
    About the banks, I think the government only made one mistake so far :- Anglo Irish Bank. Unless they know something we don’t… If saving Quinn Insurance was the priority, they should have nationalised him and left Anglo to paddle the canoe which Fitzpatrick and Co. had riddled with holes. Any useful or important property loans could have been securitised and sold on to AIB or Bank of Ireland or any of the other banks operating in Ireland.
    Meanwhile, let’s get the job done.Cut the bank salaries, prepare the economy for likewise, take brave steps. There isn’t all that much time.It would be nice to make the changes before all the jobs have gone.Getting them back will be impossible.

  43. fergus mclellan

    This is about TIMING.

    A concurrent property crash AND worldwide credit crunch.

    The solution is also about timing.

    We should NORMALISE domestic activity by COMPLETELY REMOVING STAMP DUTY, immediately.

    The banks can then return to normal and safe lending as folk will have deposits for houses instead of using deposits to pay stamp duty.

    A decent property tax regime would discourage “hope value” investors.

    Once a more normal economic activity resumes the problems of the current account and bank regulation can be tackled.

    Lastly…a note to the morons who suggest letting the banks go bust. What would happen to savings ?

    The government guarantee of approx 200bn would be triggered and the taxpayer would end up footing the bill.

  44. In response to John Rooney: what a substantial contribution to the discussion…
    The part of your analysis that most stood out for me is the section…

    “So what had the government to do to make this work?
    It must cut the public pay that is going to be cut (that means more than just pension contributions), reduce the social welfare payments that are going to be reduced, it must also reign in the costs associated with daily domestic purchases and essential services.
    We must receive the ECB interest rate cuts that are coming, when they decide that they have waited long enough to not give the public impression of panic..”

    (1) Cut public pay: I suggest it might be good to establish some sort of agreed ratio between the cost of public administration (ie the costs of government) and the level of productive activity in the rest of the economy. International comparisons would be useful, as would some benchmarking. Perhaps there is a research centre producing work on whether it is possible to generalise about this? Taken by itself, I think the phrase ‘cut public pay’ is terrible socially devisive. We do,after all, require excellent public services.

    (2) Reduce social welfare payments: the impression I have is that I would not like to live on the level of social welfare payments available in RoI. But it would be valuable to know whether our payments are way out of line with our competitors (having factored in all other respective costs of doing business)

    (3) Reign in the costs of essential services: didn’t I hear today that the electricity regulator prevented ESB from reducing prices to consumers? If that’s true, I guess it was because low electricity prices reduces the prospect of developing a competitive market for electricity supply. Surely Ireland is too small to have competing electricity supply companies?

    Otherwise I still believe it’s important to quantify all the probable bad debt – even if that means guesstimating within certain assumptions. It’s time the minister Lenihan went on the record with a credible statement of the government’s view of how bad the situation is. Unless the minister has good reason to believe he can trick the markets.

    • Dr.Nightdub

      If I’m not mistaken, we already have competition in terms of commercial electricity supply, though I’m not sure if they all have sufficient capacity to simply take the place of the ESB. Competiton in terms of domestic electricity is another matter.

      What’s going on in the ESB recently is symptomatic of the complete insanity to which we’re being subjected:
      - a few weeks back, 3.5% pay increase agreed for staff
      - today, top boy urges a pay freeze
      - minister for making things green calls for drop in electricity prices
      - regulator nixes the price cut

      Sweet jesus, do these people even TALK to each other? Why are we in the grip of a bunch of compulsive u-turners?

      “This place would be a paradise tomorrow if every department had a supervisor with a sub-machine gun” – Alabama 3

  45. MK1

    John Rooney> The problem with writing down loans on property that nobody is buying is that it inaccurately reflects the potential of the property to reach a higher value within what might be a short space of time.

    Immature or trigger happy write-downs would be a problem and a mistake IF that was what was actually the root cause and the problem. It isnt. Write-downs are happening well past the actual sellable values, the market realisable values. Some by 2 or 3 years! And many ‘assets’ are still being held at their peak/book values.

    But write-downs arent the only problem nor the worst problem that exists. There are large loans outstanding for ‘projects’ that are not producing ANY return/revenue and the likelihood of them producing a return in the short-term (< 3 yrs) is negligible. If we look at the US, there have been actual realisations (rather than accouting write-downs) of 97%-99% and indeed 100%!!

    We have not reached those levels yet but for some of the ‘non-performing loans’ the scenario exists where we the actual realisations will be a lot worse. On the county’s loan portfolio, the bad debts may be 8% or 18% or 28% or ‘pick a figure’. We have no actual idea. I know I cant predict the future with that level of accuracy nor can any economist. No offence David Mc for your fellow peers in your profession but did they ever ‘guesstimate’ with absolute accuracy? No, because its just a hunch.

    I have yet to see the loan books of all the main banks. I probably will never be privy to it nor will the vast majority of people in this country. But if we had access to it in a spreadsheet and a day or two to pour over it, we may realise whether we are on a doomed Titanic or a Cutty Sark caught in a storm.

    Hold on …..

    MK1

    • Excellent point MK1. I think a fundamental issue regarding our “banking collapse” is that confidence has been destroyed by misrepresentation of the facts by the management of the major Irish banks. In the case of Anglo it wasn’t contained to the health of the bank’s finances. The bank shares started to go into free fall when it became clear that, despite management’s previous protestations regarding their financial health, they would all need to avail of the government guarantee scheme. When that happened the markets made their mind up. “Irish” became synonymous with “risky”, “reckless” and “fundamentally unsound”. We now find ourselves in the situation where the banks can’t raise a brass farthing on the markets and our governmental bonds are being viewed as risky due to the guarantee scheme.

      Banks need credit to smooth out the wrinkles or fluctuations in their asset portfolios. What we’re seeing in Ireland is what happens when the credit is simply cut off. The banks have turned to the tax payer for a 7Bn overdraft facility without ever having to produce a solid business plan that shows how using this will save their business. The tax payer has provided this overdraft as nobody else will. Throughout the country SME’s are being denied credit with more legitimate and reasonable plans for its use.

      Lenihan & Co. are simply praying that the global recession doesn’t continue for much longer and that we don’t have a further collapse in the employment situation. Our government’s strategy displays no more economic insight than a decade of the rosary.

      So what should they do? None of us are sure. It does seem unlikely that our current banks can survive intact. If the NPL’s are literally a “cancer” then how would a doctor handle it? Well, they’d try and take it all. A partial removal of a tumor is no good. I’m no economist but here’s an idea. Merge the big two banks. This also provides a great excuse to clear out almost all their senior mgt. Transfer the worst of the property related debt to the “bad bank” or ANIB as it was known for a while. Call in loans and seize properties. These landbanks, estates and offices may perform reasonably over a longer time frame (say 10-15 years). Reconstitute the management of the “good bank” with our better economists & bankers from abroad, maintain the deposit guarantee and recapitalise it. There are several reasons why I think such an approach might be an improvement.

      1) We’re currently obsessed with cutting the pay and benefits of those who have mismanaged the big two banks. Capping pay isn’t the issue. We need to have a sensible bonus structure which incentivises sound banking, rather than high-risk profiteering. The punishment for those who mismanaged shouldn’t be cut salaries, it should be early retirement. A mere pay cut is like giving someone who can’t do basic arithmetic a pass degree in mathematics. It just devalues the exercise entirely.
      2) Our big 2 will notionally try to compete with each other for business. In any other circumstance I’d say a monopoly is bad for the consumer but we actually can’t afford competition as we’ve guaranteed the downside. What we need is a tightly regulated bank that is forced to lend reasonably and passes any ECB cut to its customers.
      3) We need to rebrand Irish banking if they’re to raise money from someone other than the Irish taxpayer within the foreseeable future.
      4) If we’re forced to nationalise them both then they’ll end up merged anyway.
      5) The state should take ordinary share equity in the merged bank. Not “preference shares”. If it performs well, we can recoup some of the cost of the exercise by selling more shares on the market.

      Personally I don’t care how much we have to pay someone to fix our banking crisis. We’re becoming obsessed with “million Euro bonuses” when we’re facing a downside that some estimate is close to a trillion Euro. Hubris will get us nowhere.

  46. SamB

    It is too late to let the banks go bust – that would need to have been done before the guarantees were given last September.

    During the Celtic tiger years, our economy was fueled by consumer spending and by credit. To reinvigorate it, requires the re-establishment of credit and the encouragement of the the consumer to spend.

    Obama is trying it in the USA with his new stimulus plan. The problem that he or anyone else will have pumping money into the economy is that it will be used for debt repayment – not spending.

    The only way that you can ensure that the stimulus money is spent is through the use of government issued vouchers that have to be spent on targeted areas by a certain date. Until that happens and confidence returns the consumer will stay firmly in saving mode.

  47. fergus mclellan

    Reduce stamp duty to zero immediately – what’s the point in having an asset transaction tax when assets are not moving.

    Then move the country SLOWLY away from it’s property mania, and encourage private investment in infrastructure, medical services and rewarding good old fashioned working capital financing for business and r&d.

  48. jim

    I think its a bad idea to air your dirty washing in public while you are in the eye of a storm.Why? Because its a sure way to loose perfectly serviceable washing.We can all laugh at the neighbours shirt on top of a tree,until we realise we all have to import another one for him.Result GDP- ONE SHIRT… Advice to Bank shareholders for 2009,no dividend,sorry pal them’s the breaks,elect more competent people at your next AGM.Meanwhile if you want to move somewhere else in the casino,cash in,otherwise less whinging,your undermining the Banks main function.P.S remember ye little upstart Banks are Public/Private partnerships,joe public let you have your little divvies/bonuses and he’s not too happy with your governance and greed.Now if you dont want to be wholly Public (ask yor buddies in anib if Im bluffing) just have a seat while we sort out this mess.Note to free market shareholders “fu.k off and play with each other on coca-koala shares or whatever and dont be interfering with International commerce its starting to cause problems for genuine workers.If ye dont heed my warning ye will be regulated out the fu.king door.Advice to Mr.Trichet get up off your arse and sort out them bond spreads tommorrow or start looking for a new job.P.S. there’s a delegation here from pigis and their waiting to have a quiet word in the carpark.OH yea while I have your attention cut them interest rates you dumb little shit and look up the word deflation and write it out 100 times for your homework.Maybe its time for the new Jack Nicholson school of Economics.Am i clear.

  49. We have an economy smaller than that of most US States, it is in some respects an advantage, it means we can restructure it and get the results ther of a lot faster than larger economies. If our current situation were to be tackled as an economic experiment , there is an array of options , an array of opportunities. its a tiny economy. We are a smaller economy than most Global cities. Undoubtably with the genuine talents of some Irish citizens we could turn this crisis around and do so rapidly, and this is the point .We have two overall problems in this country an economic one and more importantly a political one. This is after all a country where virtually no independent intelligent observer could soberly attach a shred of credibility to the economic competence of the incumbent administration, yet we are all powerless to do anything else but sit and watch the charade continue. , One forecast revised worse after another , one cliche “smart economy” , One contradiction (Cowen last week claimed capital investment was our stimulus programme now he says it needs to be revised to current gdp levels).The goverment we have in this country are incredibly incompetent and as we know also one of the most highly paid globally. It is a sick joke. The exact same person who oversaw the nations finances for the 4 years of the construction bubble/public expenditure expansion facade is the one we have to watch apparently attempting to lead us out. Is there any other developed country where the goverment is as complicit in the economic crisis as here in Ireland? All you have to do is look at some of the opinions on this site, there is no shortage of economic ingenuity out there. Where there is, is in the vacuum of political competence and accountability. That is our mess, the behaviour of this goverment is inexcusable , and our political system with its inter party and then inter regional power bargaining of representatives elected often on local issues will not provide any great alternative. Those representatives should be left to do what they are elected to represent their patch of the Island in its national parliament. We should have a seperate vote for our national goverment. Wouldn’t it be great to be able to cast your vote for a real intelligent enlightened administration, to cast such a vote directly and not through a local representative and then see what the current political system produces as a goverment . This country will never achieve its potential with the standard of goverment it has thus far experienced. The show is over , the facade has been exposed and the people in goverment responsible are still the same people in Goverment.
    Its really akin to a Shakesperean Tragedy. Enjoy the Final Act

  50. AndrewGMooney

    Haven’t seen this mentioned here. An optimistic research note from the supposedly uniformly Europhobic financial centre of London:

    ‘Ireland can easily see off the Euro bullies’

    http://www.irishtimes.com/blogs/business/files/2009/02/dumas-on-ireland.pdf

    Unfortunately events are rapidly eroding the basis of the article, the low debt ratio is vanishing daily.As for the comment: ”

    ‘In a small flexible service economy, with a small public sector, incomes can much more readily be lowered than in large, bureaucratic economies like most European countries.’

    Not sure what they base this assertion on. I guess they don’t read this blog. Or the Irish press. Hardly seems likely. But worth reading just to show there’s no ‘conspiracy’ as some have suggested.

    Regards

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