February 11, 2009

Serengeti Economics point to Good Bank Solution

Posted in Banks · 94 comments ·

IF you want to visualise what is now happening in the economy, think about the great plains of Africa. Have you ever seen the wonderful image of the rains flooding into the savannah of the Serengeti? Once a year, between March and May, the arid, sun-parched plain undergoes an extraordinary transformation as the rains bring life and abundance. Flowers and vegetation bloom, animals and insects return to the lush pasture to graze, mate and generally do their thing.

Then, as the seasons change, the waters recede. Water recedes first from the extremities and then progressively the waters retreat until the last verdant area is a small knot around an almost dried up river. Where once there was abundance and plenty, there is now only dust and barrenness. The burnt earth can’t sustain any life.

The credit cycle displays similar characteristics. Credit in an economy works like fresh water in the natural world. It brings life and hope, as well as a little bit of exuberance, which can go over the top at times.

But for all its faults, credit, like water in the wild, is absolutely essential for society to thrive and function. When credit recedes, so too does economic life.

Like water in the Serengeti, credit follows a pattern. Initially it is only plentiful around the river, but then, with the rains, it cascades into remote regions of the plain. These outer reaches only experience life for a few weeks a year when they are joyfully submerged before they are choked off again.

The global monetary system operates in the same way. When credit is plentiful and investors aren’t too worried about risk, money flows into every nook and cranny of the system.

Credit rating agencies are prepared to give the thumbs-up to practically any country and company and what follows is nothing less than a deluge of free — or at least cheap — money. Other people’s cash is available everywhere. So in the case of the Irish boom, ghost estates with no economic or demographic logic get financed. People are offered car loans, holiday loans and interest-free mortgages. Banks’ coffers are overflowing.

But unlike the animals in the Serengeti, who are conditioned to understand the limitations of the natural water cycle, we humans have no appreciation of the economic cycle.

So we go mad when we have the credit and spend and spend until the tap is turned off abruptly, as we are now seeing to our despair.

Take the Irish banks as an example of this lunacy. These so-called “professionals”, who should have known better, borrowed abroad to fuel the housing boom at the top of the cycle. This is the financial equivalent of buying a lawn sprinkler system in the Serengeti in early June! They borrowed up to 60pc more than they had on deposit in order to lend. This drove up profits and, don’t forget, enriched themselves enormously. Irish Life and Permanent went one better than the two big ones and raised its loans to deposit ratios to 265pc. This class of economic joyriding could only lead to a horrible crash.

Then, when the credit waters started to recede, their sprinkler systems didn’t work. The people who lent to them refused to lend any more. In Serengeti terms, they were caught out on the periphery, miles away from the river in rapidly drying-out land. They had no credit. So everything around them started to wither, beginning with their own putrid balance sheets.

All over the world, credit is heading home to safety. The world map mirrors the Serengeti as money rushes back to the sanctuary of home.

When you have borrowed as much as we have, that means that more money leaves the country than flows into it. And our banks have to be drip-fed by some outside institution to prevent insolvency.

The institution in question is the European Central Bank (ECB), which is keeping the Irish banking system alive. The ECB is now Ireland’s IMF.

Like the IMF with a delinquent country, the ECB is giving Ireland money via its banks and hoping for good behaviour in return. Very soon, that hope will turn to something more firm.

The reason the ECB is concerned about Ireland is because of the perception that Ireland’s euro commitment, although politically strong, is economically untenable. The ECB will not countenance problems on the euro’s western borders any more than the Romans tolerated insurrection in Gaul. So the bankers in Frankfurt will extend liquidity to Ireland in return for good behaviour and good behaviour for central bankers means the silly anti-economical creed of cutting spending in a depression. Lord preserve us!

So we have got ourselves into the position where we are not going to be governed by our elected representatives, but by a glorified Bundesbank which is doggedly fighting inflation when the world is facing the most serious deflation in one hundred years.

This is why there is no consistency in the Government’s recapitalisation programme. If we are now a department of the European Central Bank, then the right course of action, if you want to preserve the banks, is to borrow much and make your problem their problem.

Of course, this leads us to wonder why we should be trying to preserve the old banks at all. Why not create a new “good” bank with a clean balance sheet. You’d want to put your deposits in there, wouldn’t you?

Foreign investors and domestic investors would pour their cash into its stock and whatever cash the Government put up to create the bank would be paid back in double quick time. We could switch our pension funds into it too. What does the State care if there’s a run on AIB if our deposits are heading into the new bank?

By creating a new bank, Mr Lenihan could suck all the good assets out of the bad old banks — AIB and Bank of Ireland — and in one fell swoop solve his banking crisis.

WHILE he is at it, he could create two good banks and leave the eejits in the bad banks to their own toxic mess. In fact, we could help them by using the good banks as clearing houses for trading their distressed debt.

The deposits of the system would be safe in the new banks. The equity holders and the bond holders of the old banks would be torched, and that’s not always fair, but that’s life.

In a sense, the new good bank would, of itself, begin the process of quarantining the bad debts. And of course we could get the ECB to keep drip-feeding liquidity into Bank of Ireland and AIB, thereby rendering a major Irish problem which could sink us into a small European issue which would be a minor irritant to the monetary union. Pretty simple isn’t it?

Why would we not create such a liquid oasis in our Serengeti? Because, like the herds of wildebeest that migrate annually to the savannah, we follow the pack, head down, never using our own noggins.

  1. While reading this I was thinking of the River Nile and then closer to home the River Shannon .There are so many offshoot rivers and lakes from the Shannon before it reaches the Ocean .Without the Shannon life would change as we know it .If we could only connect the Shannon to a Tap and feed the Nation with Cash Flow .

    • gadfly55

      There would be no Shannon without rain, without the catchment of land sloping toward the lowest point and providing the rivulets, the streams, nameless beyond count flowing into the lakes sourcing the Shannon, never mind the springs welling up into bodies of water outflowing. The Shannon is the momentary collection of the water molecules precipating from the ocean, to which it returns. Neither the water, the air, nor the land is the property of any individual, except in the most superficial and transitory sense.

  2. Harve


    Good article. What you say about two good banks and a bad bank for the toxic debt makes sense. The only problem is that there are eejits in the Government (including Dept. of Finance) as well as in the banks and your advice is likely to go unheeded, or at best, partly implemented in a diluted fashion that does little to solve the predicament we are in.

    Hopefully, there is somebody in the Dept. of Finance reading this and will prove me wrong and show that they are not all eejits by taking heed of what David McWilliams is saying and actually implement the solutions that he is suggesting.

  3. More Court Orders for Home Repossessions have become commonplace and the

    Gov continue their chirade to recapitalise the Insolvent / Bankrupt AIB and B of I .

    In Dubai new Islamic Laws forbid Banks reposessing Homes that are principled

    residence of the borrower . We should learn from them .

  4. David this sounds fine in theory but the consequences of repudiating the debt of existing banks to external bond holders would do little to support any future bond sales for a “Good” bank.

    It is hard to comprehend how other investors would have any trust in a new bank if they felt that when things go bad (never say never) that they in turn would be the ones who suffer and get defaulted on next time around.

    I am with you on the a “Good Bank, Bad Bank” scenario and while the distressed debts could be sold off some recourse to the tax payer is inevitable to be seen to pay off as much as possible. You can go all the way up the chain to say that IL&P should not have exceeded their loan to deposit by as much as they did and that further up those who loaned them the funds to do so should not have done so either. Ultimately those who purchased apartments and houses at prices far in excess of 30 times rental income likewise should have known better.

    Ignoring the situation is not going to make it go away so the more talking and discussions and ideas thrown into the pot the more likely we are going to find a route out, long as that route may well take.

  5. JJ Tatten

    This may well be a daft question but why does the State have to set up the new banks?

    What if David McWilliams and one or two other eminent economists were to convince their contacts and wealthy friends both within and beyond these shores to invest in a new bank which they would run on an initially temporary basis while setting up the new banks’ articles of association/charter – one of the principal tenets of which would be to prohibit the trading practices of the past few years ever re-occuring?

    This would create the market forces and conditions for good money from our delinquent banks to flood into the new bank and thereby render any further recapitalisation of the existing banking system pointless. The pillocks in Govt would be neutralised and prevented – by the market – from any further cack-handed tinkering with the system. Indeed it would send a clear signal to Europe and the world that we were determined to innovate our way out of this situation while casting out the cancerous cabals which have shackled Ireland for far too long – all courtesy of good business practice.

    Then the new bank(s) would be able to hang all the ‘eejits’ out to dry and force surviving institutions – including the Financial Regulator – to adopt its trading practices as they would be the new benchmark. This would ensure that rather than picking up a €630,000 pay-off for being complicit in Ireland’s demise, Pat Neary would be frantically trying to dream up ways of avoiding picking up the soap in the Mountjoy Prison showers.

    • J J I agree with you fully. We dont need a Government to start a new bank. I have found a fully licensed new Bank running one year (no baggage) which is available right now. It requires €10 million to acquire 50% of the shares. Ready to take on the weakened opposition immediately. Profit potential is excellent. Investors step forward now for full details.

  6. Nostradamnusalltohell

    Critical mass is growing to support this view, glad to see that it’s common sense, I’m not deluded / naive, and there are loads of people who see the same thing, and have been doing so for some time.

    See today’s Irish Times article from Richard Bruton, he makes the points to support this concept well. Help people help themselves.

    Here’s an extract of the text of a mail I sent to him last December, around the time of the KKR / Mallabraca nonsense. Clear differences I’m sure in implementation, but the point is create the Noah’s ark banks and move forward. (apologies to RB if he reads this, but I doubt massively that he minds me taking his name in vain :) i should also say that he has not replied, nor is a friend or colleague of mine in any way, I just emailed his publicly available email address to offer my 2 cents as an observer)

    “Ditch BoI. Create a National Savings Scheme under emergency legislation that allows people to transparently move personal savings to this entity. And fast. 1 month to comply. 0% interest, but your money’s guaranteed, small fee even. If you want to stay with BoI that’s your right. Company accounts moveable to a separate National Commercial Bank. This Bank decides on the basis of due diligence and basic criteria of the business is sustainable or not, and will allow it to move its company cash and modest overdrafts to the new entity. Large interest rates applied for on overdrafts. Prove you’re a serious business, willing to work your way out of this, not looking to launder cash through a naive system. Some cracks in the system, some peopel get hurt, some clip through the cracks, but savings and industry remain generally under irish national purview (as opposed to a more complex system where foreigners own it and a gov watchdog with no powers is created).”

    Think of a roomful of sick people, some sniffing, some at death’s door, some in between : can they all be treated equally? No, separate them, help the mildly sick people to get cured, and leave hospital to flourish outside. Giving everyone in the room the same treatment means the sickest edge ever closer to death’s door, while the better off worsen.

    Oh PLEASE won’t Cowen grow a pair and do the right thing? These solutions have been clear to people for a long time now, in fact it was my gut reaction as soon as I started to see the facts. And I’m only a bog standard armchair commentator.

    Feed success, starve failure.keep it simple.

    Another plus if this happens : it’s exciting! It will galvanize people to enter into a new business, the New Banks. Uncertainty and unfairness are killing the economy now. Give people direction that makes sense and will utilise their talents. While uncertainly rules, people stiffen spending. While unfairness rules, and the “pain is shared”, then businesses continue to go under save the larger ones; the medium and small ones are weakened or devastated and become targets for “distressed assets” investors who will pick them up for a song.

    To the commentator who talked about “soft venture capitalism” the other day, I unfortunately cannot agree with your view. You cannot cross a chasm in small steps. Any private equity investor worth his salt knows that lesson number one for a turnaround is “stop the bleeding”. Stop feeding things that are losing money, support the things that are. Fix the things you CAN fix. Also, Soft venture capitalism is suitable for something going in the right direction. i.e. not the Irish banks.

    When our ancestors saw their potato crops devastated by famine 160 years ago, they still set aside seed for the following year, they didn’t ravenously consume everything they had, even though they were starving. They knew they had to think about the future. And within a few years, the blight was reduced, and the crops began to grow again. They changed the way they relied on monoculture.

    Sadly then, most people had no alternative but to emigrate, now we can stay and still thrive. In fact, we MUST. Such is the state of the world economy, that we must stay. Back then, the external shock that devastated the unsustainable way people lived had no national government to oversee it. Today we do. Surely we must learn from the past. Can we? (Ask Obama for the answer)

    Turn the ship around folks. Pick a direction and start paddling in one direction only. We can make it. We just need a chance.

    Ar Aghaidh!

    • Tim

      Nostradamnusalltohell, Sounds correct to me. But I ask again, as I have so often, “Why, then, is the government removing spending-money from the pockets of 357,000 workers?”. Their discretionary spending on a meal out or a few drinks will end and more jobs will be lost; they may be so close to the edge that the new “pension-levy” (read PAY-CUT) may tip them over the edge, they default on their mortgage, car-loans, credit-cards and ADD to the bad debt problem of the banks, thus CONSUMING the re-capitalisation move.

      This is CRAZY.

      David’s “eegits” are not all in the banks; a good few are in the Oireachtas, as well.

  7. G

    The politician should not be allowed dodge for cover!

    They presided and enabled this boom and benefitted with higher salaries and 14 years in government, they should be in the dock as the article below argues about British MPs – this is without doubt the greatest cover up and financial skull duggery in Irish history – we need answers and accountablility. To see Neary toddle off with 600,000 payoff is a scandal.


  8. [...] Random Feed wrote an interesting post today onHere’s a quick excerptIF you want to visualise what is now happening in the economy, think about the great plains of Africa. Have you ever seen the wonderful image of the rains flooding into the savannah of the Serengeti? Once a year, between March and May, the arid, sun-parched plain undergoes an extraordinary transformation as the rains bring life and abundance. Flowers and vegetation bloom, animals and insects return to the lush pasture to graze, mate and generally do their thing. Then, as the seasons change, th [...]

  9. Interesting article. As a non-economist, (and taxpayer!) I’ve been wondering why the hell we need to bail out the “bad” banks when we could simply use our 8 billion to create a new “good” bank with a clean sheet and in the context of proper financial regulation. Maybe it really is as simple as DMW states in this article, but perhaps the government need to keep BOI and AIB alive since they have guaranteed deposits? If these banks go under, will it bankrupt the state?

    Maybe I’m missing something regarding credit, but I think there is a wider issue. Credit (and money generally) is a collective hallucination…I think there has been a lack of “real” economic activity in ireland over the past 10 years – it is clear that a large part of our economy has been selling each other houses. “Real” economic activity should surely involve producing goods and services that the rest of the world wants to buy, (maybe i’m naive, but goods that improve the lot of human existence?). With so much economic activity in construction, we’re like a serpent that has been swallowing it’s own tail. Hence enormous levels of indebtedness. The “real” economic activity has usually been foreign multinationals – flirts who hang around when times are good.

    One reason our economy has stalled is that the serpent has finally guzzled itself, so construction has more or less ceased. The worry is that if we fix the credit situation, what the hell are people going to spend the money on? Almost all the people I know here in the Mid West (apart from the odd farmer) are in construction related industries or working for Dell/other multinationals. These guys are running out of work. Credit may provide short term relief, but will not help in the long term…there’s only so much home improvement to be done. I haven’t seen much talk of generating a shift in our economic strategy – we need to start investing in new industries ASAP. Credit is necessary, but this money should be channelled into areas with real potential for economic growth…environmental technologies etc…

    First time posting so sorry if this is off-opic or irrelevant.

    • paddythepig

      UnderTheBridge, your post is extremely relevant, and your point well made. Underlying productive capacity is the key ; though what confidence should we have that the supposedly chastened Irish banking community has learned a single thing from recent events about productive issuance of credit? My personal confidence is zero, especially since every lifeline possible has being offered in an attempt to preserve them.

      Gadfly, you are spot on about Mr Alan Ahearne. He cut his teeth in the Federal Reserve, where he participated in the intellectual sparring with his buddies, Messrs Greenspan and Bernanke, the overlords of bubblemania all over the globe. A few weeks ago, he was on Prime Time lecturing everyone to take a 10% pay cut to create an internal devaluation – easy to know he is not struggling to get by on 30K a year. I’d have more respect if he and his government financed chin-scratchers (economists) volunteered for a 50% haircut.

      All this bad bank-good bank stuff doesn’t add up for me. Another bunny rabbit has been pulled from the hat by financial magician David McWilliams. Eplixo1, in his initial paragraphs, hits the nail on the head for me ; what sane investor in his right mind who has been burnt by an unethical abandonment of financial responsibility would again touch any Irish bank – good or bad? To abandon ship, without full consideration of negative repercussions, is a bad idea.


    • Tim

      UnderTheBridge, welcome and thank you for adding your ideas. You will find many of us agree with you (for instance, read back through some of the posts on earlier articles (linked at the top-left of this page) and see comments from Deco, MK1, Lorcan, JohnAllen, Furrylugs, G, and others. You are correct. We need to produce. Enjoy your “track-backing”.

  10. G

    We have seen this all before, to say otherwise is a bit disingenuous, we saw it when the world bank et al gave billions to African countries in the 1960′s, shooting up in the mid 1970s (to tinpot dictators who weren’t interested in reading the small print) then times changed, interest rates shot up, credit tightened and the poor of Africa have been paying it all off every since despite the efforts of the odd rock star, I think this is probably a better analogy, we (the majority of honest, hard working people), will carry these debts for generations.

  11. Peter Matthews

    Excellent article and ‘on the money’ as usual. Serengeti analogy is brilliant. I think we need some clever thinking and a fresh approach at the top. This Government is tired however I don’t see any fresh faces anywhere else.

    I was listening to a podcast of David giving a presentation to Bank of Ireland customers in January of 2007 where he offered them a deal on his house (a sale and lease back). He was effectively betting against the market in Ireland. It is really amazing to hear what he said now. He was right then and he is right now. I wonder would Bank of Santander be interesting in taking over old ESB branches closed last year or closing First Active branches?

  12. Thank you David. I think you’ve written a valuable piece, especially the metaphor you use seems to facilitate thoughtful streams to flow.

    “like the herds of wildebeest that migrate annually to the savannah, we follow the pack, head down, never using our own noggins.”
    - what a challenge to us. Are we truly like that?

    Who isn’t? Who would be acclaimed a member of a roll of honour representing the voices of dissent? You certainly. Shane Ross too.

    I would like to invite your readers to nominate people who have proved themselves capable of seeing the perils and haven’t yet been given sufficient recognition.

    So I start the ball rolling with 2 names… Who else is in that company?

  13. MK1

    Hi David,

    > Of course, this leads us to wonder why we should be trying to preserve the old banks at all. Why not create a new “good” bank with a clean balance sheet. You’d want to put your deposits in there, wouldn’t you?

    I Fully Agree!

    One (or two) new “good” bank(s) is the best use of our money at this point in time as untangling the mess of the ‘six’ ‘irish’ banks is very messy indeed. To use a Revenue term, lets ring-fence the old.

    It is true that we also need to ‘look after’ the 6 bad banks and not let them go bang crash wallop, but ‘mange them down’ in a controlled manner. There will be pain for bondholders, shareholders, staff and those that have loans taken out (ie: will lose the assets if they cant pay back the loans) etc, but not the depositers, and not owner-occupied (ie: home) residential mortgages. The key step will be to nationalise them and manage them down properly in a contolled, perhaps draconian yet cost efficient manner. Obama is right, ‘tough love’ is now needed.

    @JJ Tatten: the private sector is not allowed to set up a bank in this country or any EU state without first getting a banking licence. This can take a long time. The financial services sector has historically been given special derogation within the EU and was not working on a fully market competitive basis. The system did not allow a Ryanair or an Aldi/Lidl to set-up. In each country, there are de facto market power “opolies”, such as our own duopoly here with BOI/AIB, Spain having BBVA/BSCH, the UK the big 4, etc, etc. Banking was not a fully competitive space.

    And I remind people of the following. Money is the oil of the economy, the water according to David’s apt analogy. So should the oil processors (ie: the banks) be the most wealthy participants in any economy. If any country has banks with huge profits and huge buildings, huge salaries, etc, it is a clear indication that their economic system is not efficient. The poorer the bankers are in any country, the more efficient that country actually is. No country in the EU was efficient.

    I would like this credit bubble ‘shock’ of the noughties to change the face and operation of banking in a major way. It may do so although there are many vested interests who will be fighting tooth and nail against such radical stuctural and cultural changes.

    We really need to debate as a nation, what do we want a bank function to be? Its a cultural as well as an economic decision.


  14. Diletta

    My list would include Messrs McWilliams and Ross, in addition to Brian Lucey, Brendan Keenan, Eddie Hobbs, Alan Ahearne and possibly Alan Dukes or Ruari Quinn. The latter two may provoke a reaction but their responses in the media to date have been fairly clear and rational.

    Oh and of course Morgan Kelly in UCD.

    Brian Lucey is the one who has impressed me most, he appears to be such a clear and focused thinker.. no bullshit whatsoever… What about Naseem Talib black swan boy.. for an external eye?

    • gadfly55

      Alan Ahearne demonstrated his training and experience derived from the North American philosophy of capitalism on Questions and Answers. He believes we can restore competitiveness, that we can take actions capable of positioning us in the event of an upturn. He appears to be cheering the FF tumbril as it jostles downward to the Place de la Concorde, believing this to be progress, when in fact the mob is awaiting the moment to pass judgement on this sorry cabal. Alan Ahearne in my opinion demonstrates a lack of political awareness regarding the sensibility of Ireland during the period of his career in North America. This was most noticeable in his eagerness to see tuition fees imposed on students. With this one statement his credibility has plummeted to the floor. He should know better than anyone the disincentive of higher education costs to third level in the United States and the extent of visas for foreign graduates, some 20000 alone in the financial sector who are unburdened with unforgiveable debt as American students are. Alan Ahearne should study Paul Krugman to learn about a sense of humanity, but it appears he diverges from Krugman in his regard for the common man.

    • Interesting conventional mindset!

      Apart from David and Shane Ross, who has actually business world experiece?

      Relevant I would hope.

      The best people are likely unknown to most people e,g some of the most sucessful business people.

      Having a “media personality” likely has no relevance to running a complex business.

      The overnight baptiism of fire endured by Tim Geithner, is instructive, given his background.

    • Deco

      Diletta – sorry but not Ho Chi – no Cannot trust Ruairi Quinn – his brother was Chairman of AIB during several scandals, and is currently Chairman of the ESB (charging the most expensive electricity in Europe). If you want a Labour Party representative – stick in Pat Rabbitte – he will tell the public everything, and might root out some of the golden circles and networks !!

      • Tim

        Deco, Rabbitte pretends. He caused a factory closure in my town with his intransigence and, while Labour Leader during the nurses’ strike, he stopped outside a Dublin hospital picket in his state car and told them to “get back to work”, in the 90s, when I saw ads on the notice-board in the Mater Hospital seeking a sixth nurse to share a three-bed bedsit for £35 a week. (yes, ONE room, THREE beds, SIX nurses – “easy” to do when you work shifts).

        Is that the kind of man to help us, now? Another “champaign-socialist”.

    • Tim

      Not Ruari Quinn, Diletta. His constituency spans Ringsend and Sandymount (respectively a deprived and a wealthy area). At election time, he would change out of his suit and Merc on the border of the two and switch to “blue-collar” clothing and an old banger to canvass the poorer area: champain-socialist.

      Why not Joe Higgins or Bernadine O’Sullivan (both SO loathed by the “establishment”)?

  15. gadfly55

    The honourable thing comes to mind, as in a bottle of whiskey and a revolver on the table. Greed unrestrained and belief in privilege, in private ownership, in the tenets of capitalism are impossible to dislodge from the primal instincts of the FF gene pool, who are in control, not anyone with an ounce of common sense, integrity or honour, or a commitment to the common good. How is this government going to escape from its guarantees when it revenue has collapsed, and even if it completely shut down its operation, would never be able to pay off the liabilities. Eventually, inevitably, the bad debts will be written off, the assets bundled and private equity will swoop in to buy land and buildings at 10cents in the euro. Why don’t you simply advocate a new bank, a government bank as the Irish people are guaranteeing and providing capital for the failed banks? The game is over for the banks, and they are bringing the entire country down with them, but then the entire country has 790billion in debt, a stack of 50 euro notes 160 miles high, more than the stimulus package agreed yesterday by the Senate in the USA, for a country with 1.5% of the population of the United States. We will never be able to pay this off, never and consequently the nation is bankrupt and will have to start again from the beginning under the direct control of the ECB if it is to remain in the Eurozone.

    • Garry

      There’s a saying in the states …..There aint no problem that cant be fixed with a hammer, a can of WD40 and some duct tape.

      if its broke stick it with the tape, it its stuck use the WD40, if they dont work hammer the **** out of it.. …………

      I don’t know how they’d fix the banking problem here but Ive some ideas :)


    Incredibly, Eugene Sheehy and his banker pals get to keep their jobs.What have the staff in the Central bank and the Dept of Finance been doing for the past 3 years?.Everyone of them deserves to be fired.We will have 20% unemployed within a year and a budget deficit of 30 billion in 2010.Californian deficit is 55 billion $ this year- with a population of 40 million people and the 7th largest economy on the planet!.Shows the painful mess we are in.

  17. Deco

    The Serngetti example says it all. So much for the ‘green shoots of recovery’. It is a case of adapt to your environment. Banks with expensive, clueless executives, are not viable. Banks with layers upon layers of nepotism appointees are not viable. Networks of speculators rigging the market for development ground are not viable. IBEC supported cartels/oligopolies are not viable.

    And something which is highly questionnable – is the idea that the taxpayer funds can make it all viable. As Al Gore would be one to say ‘the environment has changed’. And we need to change our strategy. Which requires brains.

  18. MK1

    The 4b or 7b ‘movement’ or whatever it turns out to be from IL&P to AnIB around their year-end is most ‘disconcerting’ for the current government.

    (a) If the government knew about it, they are complicit/party to in falsifying the ‘true and proper accounts’, the true financial status of AnIB

    (b) if they didnt know about it on the day of announcing the state guarantee, its reckless behaviour as it shows they did insufficient due diligence

    These factors plus other incompetencies in recent times and indeed over the last decade would surely lead them to conclude one and all that the polticially metaphorical solution of the whiskey and the gun as advocated above is the most honourable one. IF they had any decency and backbone, they would fall on their own sword. But that is a big IF.

    At least the Japanese in corporations that went bad after their bubble in the 1980′s quit and publicly wept.

    Whither that thought in eire.


  19. Mikey

    From Midnight at the Olympia to the plains of the Serengeti. My isn’t DmcW waxing lyrical these days.

  20. Harve

    In addition to the names mentioned above including the likes of David McWilliams, Shane Ross and others. I would also include Dr. Michael Smurfit, he was around during the 1980s and played a key role in reforming the Telecom Eireann (Eircom) to such an extent that Ireland’s telecommunications system was looked-upon as a world leader in the early-mid 1990s.

    In addition, I would also include Dermot Desmond. Okay, he may have more in common with the wealthy club who have taken more than their fair share during the boom years. However, he is someone who knows how to make top-class investments and he was the one who bought the site for London City Airport in the 1990s when the UK property market collapsed, established the airport and sold it for the fortune a decade later. We need people like him now.

    Also, perhaps Niall Fitzgerald the former Head of Unliver and now chairman with Reuters I think.

    • Tim

      Harve, No Way! Remember Smurfit’s shenanigans over the Johnston-Mooney-O’Brien site in Ballsbridge?

      And Desmond’s vehement defense of his bail-outs to CJH?

      No establishment, nepotistic, oligopolic members anymore, please!

  21. pera

    Hi guys,

    This might be beside the point of this article, but I have followed this page and your comments with interest over the past months. So I thought maybe you could help me answer some questions I have been wondering about

    First a comment about Alan Ahearne and the introduction of school fees. I am not from Ireland but have been living here for the past 6 years. What I always noticed as somewhat peculiar was relatively low tax base, combined with the extremely high wages in public sector and I could never get this to add up compared to european countries, were the general tax base is larger but at the same time the wages are much lower. Now this is just a general perception as either the amount of public information is less in Ireland or that I dont know were to look

    But I found 3rd level education to be an interesting comparison. To me it seems that the universities are funded from taxes, as in most european countries, but the the wage costs are more similar to American universities, but the American universities charge fees and are also very good at getting funding from the private sector. So from that perspective Ireland seems to be operating some sort of hybrid model, in which case introducing fees would make sense. Personally I believe it is a step back, but they should definetely implement a governmental student loan/student grant system.

    1: How is the unemployment rate calculated in Ireland. 336k on the live register vs 1.8 mill in work, does not seem to be close, not matter how you calculate, to 9.2%. Is the unemployment rate calculated as percentage of the whole population, including children, pensioners and people who are outside the workforce? Or is it the case that the live register number includes people who you would not normally consider part of the workforce, such as long term disability etc…?

    2: Public information does not seem to be readily available. Is this because this information is kept from the public on principle or is it that the government does not know. I have to admit that I was mildly surprised when the labour minister Billy Kelleher, could not say how many people that were receiving mortgage assistance, especially since that was what the debate was about. So he should have expected that question

    But anyway, thanks to all of you for the interesting articles and commments

    • Pera,

      I am Irish though lived abroad for many years. The mentality here is “Don’t question how we do things; You’re back with your big ideas and it don’t work like that here.”
      Alabama Democracy.

      Hope that helps.

    • Tim


      1) It is calculated by whatever means you mention that suits the ruling-class necessity of the moment. When they wish to frighten people into submission, the higher calculation is used, and spun through RTE; ever noticed the “seasonally adjusted figure” in the month of June? (Teachers, 5-6,000 part-time teachers laid-off every year for the summer months, while schools are closed. I am told, by one such teacher, that a “special form” exists for them to fill in. Aparently, this applies at Chritmas and Easter school breaks, as well. (maybe, even, “mid-term break”?)

      2) “Public information” is NOT available; except that which is controlled and allowed. “Transparency”, for all the lip-service, is not available.

      That’s it, in Ireland.

      I was told, privately, back in October 2008 (at an official meeting), that the Irish economy is in “melt-down”, by a cabinet Minister.

      He told the truth.

  22. MK1

    pera> maybe you could help me answer some questions I have been wondering about

    Low taxes, high public sector costs: the tax base was skewed so that corp tax was low (altho overall income was healthy), personal income tax was reasonable, capital tax was reasonable (income was high due to property boom, some of it was borrowed!), and direct sales tax (VAT) was high (income was good but again some of it based on credit).

    > it seems that the universities are funded from taxes, as in most european countries, but the the wage costs are more similar to American universities

    Yes, wage costs in universities are too high, as has been the investments (ie: buildings) in 3rd level. Its got way out of line with reality.

    In terms of fees, I dont think they should be introduced/increased because it squeezes the middle class and will potentially punish some potentially talented your people which we need. Fees and all costs of education should be kept to a minimum. We should be looking at online colleges, out reach centres, etc. Couldnt all those primary schools and 2nd level schools that are not used in the evening be used as a virtual university campus, so that people dont have to move to get an education and on-campus vists could be limited to a few weekends a year. It works for MBA’s, seemingly. We should reduce the salaries in 3rd levels and all of their costs. Reduce the cost base – not increase fees!

    > 1: How is the unemployment rate calculated in Ireland.

    The live register number is usually then divided by the population. It of course produces a different percentage figure if the denominator is those that can work (working age and ability). Eurostat have a standard. The Househld survey is deemed to be more accurate because some of those signing on are also working in the black-market (or signing on in two or 3 juristictions).

    > 2: Public information does not seem to be readily available. Is this because this information is kept from the public on principle or is it that the government does not know.

    You’re right, information is not available. We are living in a data vacuum in many cases. I’m not sure if its by design per se in all cases, by ineptitude or just not done. But the mantra “sure, we cant be letting the plain people of Ireland know about that” would not be totally untrue. The CSO even charge for data, land registry only allow solictors practices to access their database and charge, freedomn of information is charged for, etc, etc.


    • Completely agree with MK1′s comments on university fees. I spent 5 years working in an Irish uni and the level of waste was incredible. Lecturers “working from home”, extended tea breaks and recycling the same lecture notes year in year out…wages were well above UK levels when I left back in 2005. Perhaps unfair of me to extrapolate from my limited experience, but there it is. There is huge scope to cut costs at 3rd level, if the political will were there. Using second level infrastructure is a good idea. We also need more flexible part-time courses that allow mature students to study, and better outreach/access courses. In my experience the Irish system had a striking lack of mature students compared to the UK. This reduces our adaptability as an economy. Bricklayers in Ireland should be able to re-train as computer programmers (or possibly financial regulators).

      Fees would certainly squeeze talented youth, and I hope to God we don’t go down this road.

  23. Philip

    Silly question no.1) why start a new bank? Why not have Deutsch Bank do retail banking here? Why not put all your savings into Rabo or whoever and forget about the locals here? Is the latter not already happening? What will an Irish bank do for us that a SEBANKEN or a Kredit Bank could not do?

    Silly question no. 2) is credit really going to fix anything? Builders just build more houses. etc. I think we need a Bank that is R&D/ Export Business focused. We need to differentiate where the credit goes. There are profound issues with our institutions and skillset bias. Like “underthebridge” I wonder are we really capable of manufacturing in the volume/ value needed to get the country off its knees. Credit/cash is the oil needed for the economy. But if there is no economy with no capability – it’s the equivalent of providing schools with no teachers. One thing DMcW forgot to mention were the seeds (capability) that get left over to fire up the next growing season. Water is not the only ingredient. (this is a very common mistake made by people in the financial/ accounting sectors)

    In a way, I think the economy is working as well right now. The non-economy of the banking sector and building and assembly industry has been exposed for what it is. Zero Added Value. If 80% of the economy is working, then maybe that is all we can do here. I see very little in what extra a new clean bank can do except cause the opening of a few new coffee shops

    • pera

      They dont seem to be silly questions to me.

      Question 1: I asked the same question, because banking is fairly international and there are foreign banks here already. One answer I got why it was considered important to have national banks, was that it would give the state possible to regulate the banks, so that the backbone of the economic system is not under the jurisdiction of a foreign country. But I would think that the government should be able to regulate foreign banks operating here in any case? And the regulation of banks in ireland by the government does not seem to be a shining example. NIB which is Danish owned seemed to have taken more realistic write-downs, and could the reason for this be that the danish regulator makes them do this?

      But the Irish banks seem to have a very good branch network, which traditionally have been in good touch with their local community. So I suppose it would bad to loose that

      Question 2: I was also wondering about this. Is there a lack of credit if a bank will not lend to businesses that are loosing money. I suppose these businesses must have been making profit at one stage in the good years and money taken out. Is it now the responsibilty of the owners to put money back into the business?. Because surely they can not expect the banks to put more money into their business if themselves do not have the confidence to put money into the business. But the banks seems to be deleveraging as much as possible, so there is probably a better chance of getting a loan from a bank with a healthier loan/deposit ratio. So maybe there is a case for a brand new bank, not sure how that will affect the other banks though as they are guranteed by the government, so a mass withdrawal from those banks might be disastreous.

      But withdrawing existing overdraft facilities from businesses does seem a bit draconian by the banks to me

      Silly question no.1) why start a new bank? Why not have Deutsch Bank do retail banking here? Why not put all your savings into Rabo or whoever and forget about the locals here? Is the latter not already happening? What will an Irish bank do for us that a SEBANKEN or a Kredit Bank could not do?

      Silly question no. 2) is credit really going to fix anything? Builders just build more houses. etc. I think we need a Bank that is R&D/ Export Business focused. We need to differentiate where the credit goes. There are profound issues with our institutions and skillset bias. Like “underthebridge” I wonder are we really capable of manufacturing in the volume/ value needed to get the country off its knees. Credit/cash is the oil needed for the economy. But if there is no economy with no capability – it’s the equivalent of providing schools with no teachers. One thing DMcW forgot to mention were the seeds (capability) that get left over to fire up the next growing season. Water is not the only ingredient. (this is a very common mistake made by people in the financial/ accounting sectors)

  24. brighteyes

    Are we off the mark altogether on our analysis of this ??? Do we need to take a step back and see it for what it truly is, take the power back into our own hands… we are the politic afterall.. no point moaning about the boys in the comfy jobs in dail eireann, we put them there..
    I found this article published almost 10years ago at this stage.. it may be off the point but it may also show how far all of us have fallen : its on Ethical Banking:
    Why is it that when I mention ethical banking, the immediate response is one of laughter and derision? ‘Bankers think ethics is a county north-east of London’ I am often informed! Why is this so? Some banks, like the Triodes Bank and the Go-operative Bank, promote ethical banking. They invest in projects that assist ecology, global care, organic farming etc., and avoid lending to, or investing in, organisations that promote the misuse of drugs, weaponry and more sinister activities. So what’s the problem?

    Let’s explore ethics in banking and see if we can sort out the confusion. What is a bank? Silly question? Read on. As a result of the recent and current mega merger-mania in all aspects of commerce, banks are now global banking supermarkets offering all types of financial services for the global corporate, global consumer and global asset management businesses. However, within commercial banking, problems arise in the Private Banking segment due to money laundering which is a major problem for most banks. In addition, Investment Banking is now virtually gambling, using the options market as a casino. Banks are also involved in Insurance, which is a fear-based commodity.

    Banks are amongst the most powerful institutions in the world, increasingly so today. When used positively, they can finance ethical projects but when used negatively they can control and dominate governments and nations. Do they really? Are the Commercial banks the culprits, or are they victims, or both? What about the Central banks such as the US Federal Reserve Bank, the Bank of England and the Central European Bank? What part do they play in the ethical scheme of things? We shall see in a moment. Let’s look at ‘ethics’. Are you an ethical person? Am I an ethical person, I ask myself? What does it really mean to be ethical? In the UK, we have an ‘ethical foreign policy’, or so I’m informed! My dictionary says Ethics are ‘Principles associated with the social conscience of the time’. Excellent, but who sets the principles? And who and what determines social conscience? Where does ethical individualism fit into the equation? Here’s a clue. In esoteric astrology, ethics is a Uranus issue, relating to technology, freedom, brotherhood, humanity, ethical individualism, higher consciousness and Christ Consciousness. Aha! Now we are getting closer to the issue. So what’s the real problem?

    James Madison (1751-1836), the fourth President of the USA (1809-1817) had the following to say: History tells us that the Money Changers have used every form of abuse, intrigue, deceit and violent means possible to maintain their control over governments and countries by controlling money and its issuance. Then consider the statement by Amschel Rothschild, a name synonymous with money and banking ‘Let me control the issuance of money and care not I who make the laws’. The Central bankers again! Further investigation reveals that we really have a debt based banking system,1 whereby we and governments have to constantly borrow in order to pay the mounting accumulating interest and that there is no way we can pay off the National debt without reforming our banking system. Even the very basis for lending, fractional reserve lending, is questionable – even a financial scam! How dare they lend out my £1,000 investment and re-lend it ten times over, without security, and keep the interest on the £10,000 for themselves! Never mind the issue of usury which is a separate subject. Who are these mysterious Central bankers, who can have such control over governments and people? The plot thickens!

    If world debt continues on the current scale, will we have a globalisation of poverty,2 mass unemployment, even a collapse of global capitalism?3 Are we dealing with ignorance, greed and self-interest or a sinister organisation with a historically well-designed plan a dynamic structure for a New World Order?4 Or a conspiracy theory? Certainly no laughing matter now.

    The Eagle, Lion and the Bull represented by the US, European (German) and Japanese Central Banks paint a different picture for the future!5 The German Government and all Europeans will rue the day they gave over monetary control to the European Central Bank. (UK beware!) However, deeper investigation shows that within the structure of the banking system lies another mystery. In the global corporate banking game, which I believe it is, there are many players; the Overlords, who are the ‘Pigs’,6 who cause Panic, display Ignorance and manifest Greed with their snouts in the trough and seats on Concorde across the Atlantic; the Masters of the Universe7 (the traders whose days are definitely numbered) and the numerous decent individuals trying to do an honest and professional job in difficult circumstances. And the mystery? That the battle is not only for the control of power and money , We are still struggling with the Cain and Abel archetype within our consciousness; the issue of the male Cain wisdom versus the female Abel wisdom; King versus Priest, Pharaoh versus Hierophant, Anthropos versus Sophia, all represented today in the western hemisphere by Freemasonry9 on the one hand and the Catholic Church on the other hand.

    Both organisations, struggling and apparently consumed by their own shadow in the form of power, corruption and ignorance at the hands of a small minority within. Sound like life?

    What does this mean for humanity? Loss of individual freedom and being dominated and humiliated? Do these organisations, which also control the media, stifle our striving for the Truth, even though they purport to adhere to moral and spiritual ethics? How can we develop an ethical morality born out of freedom in this climate? Are we witnessing a battle for the Soul of the World? Are bankers and certain multinationals going to take on the Grail motto ‘Know Thyself and Serve Humanity’ or just continue to serve themselves and the Brotherhood? Can they come to terms with this misplaced loyalty and perhaps the worst form of pollution, the pollution of ignorance and greed? Beware of fattening the camel!

    In a short article, we can only touch on an overview of how to understand ethics and banking. There are many problems, raising many questions. The following points, offered for the reader’s consideration, are signposts for the direction out of which solutions may come.

    * Reforming the Banking System and the various Central Bank Acts and educating the public as to how money is being manipulated.

    * Establishing Governance and Ethical Committees for Governments, Banks and Corporate businesses?

    * Educating our MP’s and Government Ministers on the fact that we cannot control Debt whilst our money is created out of debt.

    * Promoting the understanding of moral ethics in schools and colleges.

    * Raising our conscious awareness of world events and issues as to what lies behind them.

    * Developing and balancing, through inner work, the faculties of the human personality.

    * Co-working with the world, sharing the issues and asking for guidance and support.

    * Introducing feminine qualities of nurturing and caring into masculine dominated organisations thereby ensuring a better balanced structure.

    * Practising Ethical Individualism12 through developing soul faculties leading to Knowledge of human worth, Feeling for human dignity and an active love for Humanity.

    * Contemplating the meaning of ‘Ethics’ individually; does it encompass all the virtues?

    If the Banking and Multinational13 fraternity get their act together and shareholders and the public insist on true ethical principles and practice, will governments follow’, Will humanity be brave enough to demand individual freedom?

    By now you may well have realised the allegorical nature of this article. If a bank be my ‘Body’ and the ‘ethics’ be my spirit within, then the next occasion when I see or hear the word ‘ethical’ will I ask myself, ‘Am I Centred’? The answer may be Yes! But for how long!

  25. Johnny Dunne

    This is a great plan/idea David — we need ‘good’ banks lending to productive businesses not ‘bad’ banks writing down property loans generating a multi billion euro bill for IRISH taxpayers !

    The ECB should be underwriting the guarantees for the bank’s liabilities to the wholesale lenders and bondholders. The Irish government should only cover deposits as suggested back in September. The risk is too big for Irish taxpayers with no reward. We are part of the euro zone, which is of course a benefit from an ECB banking point of view but the strong exchange rates are doing the economy no favours. So for Ireland to take the bad (strong euro) in return the ECB should guarantee these liabilities, is it possible ? Could we have this leverage ?

    Let’s create the good bank(s), use the €7 billion to capitalise them and have guarantees on their deposits only. Then what’s left of the ‘covered’ banks can sort out their own balance sheets over the next couple of years without any need for new capital as they won’t be lending. The huge advantage before we invest billions in the banking sector is we would remove the guarantee to ALL liabilities. As we cannot now possibly know the magnitude of this potential liability to tax payers as no one knows how much will have to be written off. Currently, the taxpayer is out for any of these write-offs over and above the depleted capital base of the main banks.

    I think the ILP deposits in Anglo demonstrate no one knows the true value of the bank’s assets! Anglo reported deposits of €51.5 billion on 31st Sep 2008, up €2 billion from 2007. Without ILP’s deposit they would be down 10% – all these short term liabilities are now guaranteed by all of us on the double !!

    It seems from Richard Bruton’s article in the Irish Times they have been proposing something similar about setting up new banks and have had meetings with the Minister for Finance and Taoiseach.

    If the cabinet approve today investments into potentially ‘bad’ banks then they will have no excuse if we have to pay more, then just as directors should be liable to negligible trading. All Ministers now making decisions are like directors of the nationalised or recapitalised banks, therefore should be equally liable for any ‘reckless trading’ to taxpayers based on their decision with information available! What would Barrister Lenihan think of this ?

    Interestingly, Fianna Fail’s Donie Cassidy in the Seanad yesterday said Anglo now nationalised could be the new ICC — Industrial Credit Corporation ? Haven’t heard any official announcements on how they will start lending to ‘industry’ (ie not property backed) for the first time ever…decisions seem to be made..maybe things are changing ?

    • Malcolm McClure

      Johnny Dunne: I was interested in the ‘Good Bank’ idea when it was raised at Davos. Taking Ireland’s State Guarantee into account I am beginning to think that the problem we have here is a good deal more complex.

      Let’s suppose we create a good bank and let BoI and AIB go to the wall. There would be chaos in every town in the country as the bad banks would crash before the good bank could be up and running.– A new bank would need to obtain a licence from the ECB, find premises in every town, ATM machines, computers, back-up systems –and where would it find the experienced staff to run things? Even an experienced foreign bank would find it difficult to do this in less than a couple of years–and by then the world will have moved on. Meantime depositors would be clamoring to be repaid their deposits under the State Guarantee. Who would check their paperwork and arrange payment meantime? The mind boggles.

      I think there is the germ of a solution in your suggestion of establishing AnIB as a new ICC necessarily combined with small business loans responsibilities. It would not do retail banking and would be funded directly by the government.

      Simultaneously we could nationalize BoI and AIB and turn them into strictly local Retail Banks using their existing branch and staffing arrangements. This would be a very simple bank structure that handled local deposits and withdrawals and invested any surplus deposits in government bonds, which in turn would be used to fund your new ICC.

      A fourth ‘Bad Bank’ would then be established to take over and run all existing non-retail committments of the other three banks with a view to realizing all foreign assets within a realistic time-frame and securitizing the rest of their good and bad loans for disposal to the highest bidder.

      We are all agreed that we cannot let this crisis descend into the complete chaos of a barter economy, but that is a real and serious danger unless the government comes up with a clear and persuasive plan of action soon.

      Just throwing several Billion Euro at the problem is not a credible solution.

  26. brighteyes – I agree with what you have said in absolute terms – the national crime forum held meetings in 1998 around the country and invited people and organisations to make a formal verbal and written submission in the presence of the full bord .I was invited to make mine relating to Banks and Crime .Nobody else in the country dared to then. At the time nobody would believe me and I was up against a stone wall .As it so happened everything I wrote has now come to past and I predicted it to the exact year .Nevertheless I engaged my professional film crew to record it and now I am considering to release it on the web and maybe tv stations just for the record.I am a qualified accountant and a specialist in fraud and acted ( with consent of cab ) as agent to the first recorded criminals to make a full agreement with cab.

  27. Hi,

    I am new to economics. Can someone please explain to me how bank lending should take place.. If you have €1,000 deposits, how much should you leverege up by borrowing from other banks and then lend into the economy. What percentage borrowing from other banks is acceptable…?

    Can some please talk me though how a bank lends money by using a combo of deposits, and borrowings… and from there show me how it went wrong from the irsh banks.,

    Please also convey simply what tier 1 capital is and how that comes into the picture with an example…

    Also what levels of the above do banks need to get to so we are back to ‘whats normal’

    This would be most helpful to me

    Any help appreciated….

  28. the mediator

    @ Justsome1

    Tier1 Capital is the equity in the bank in other words what the shareholders have put in or own. As regards lending I would recommend the post by
    brighteyes above which actually goes to the core of the issue in banking


    The beginnings of the modern banking system go back to when a group of merchants (some people say freemasons)
    started the bank of england and were allowed to begin inventing money out of thin air (ie lending money they didn’t have and earning interest on it)
    Since then this alchemy has moved the world in the direction that bankers (central) have wanted. Central banks operate independently from
    the sovereign power hence they are sovereign unto themselves. Two American presidents tried to wrest control of the money creation process
    from the Federal Reserve and failed. Their names? Abraham Lincoln and JFK… Congressman Ron Paul advocates the same but he is a lonely voice
    in the crowd.

    I think that many of the posters in this blog are looking at the micro and ignoring the macro which has been hiding in the open. This financial crisis has been engineered
    in my opinion. When things get really bad people will look to a new system (NWO) and will happily give up their sovereignty if they are ina crisis situation.

    Ireland is just a very small part of this equation but whats happening to us will be in line with what happens elsewhere. The British are a key holdout from the system but no country will be allowed to continue on its own. Watch this unfold…

    • brighteyes

      so what can we do about it?? we all , or at least some of us, know its true and it’s an age old conspiracy.. I for one am not willing to be controlled…once again their main weapon is fear.. this time its the fear of the”financial terrorist”. can we not plant our own seeds and bring the water to our own new economic model??? Why not…?? I’m not an economist either but I do understand the simplicity of supply and demand.. shut this old boy down and move on…its going to be tough either way , so lets just face up to it and take our power back…

  29. Philip

    Mediator, There is not even the collective intelligence in the financial/ political community to engineer a pee up in a brewery let alone a NWO. This is just plain old entropy at work. The system went out of control as more and more of the control limitors were taken offline. HBOS’s alledged firing of Paul Moore – their risk manager is just an example of it.

    Never ever underestimate the genius of stupidity and greed.

    We are witnessing a collapse of the first version of a global system which had no global laws or regulation to speak of. Revision 2 will be better and so it goes…

  30. barry1969

    Not having an economist-Im a bit confused by this article. Is David suggesting that the Government set up its own Bank? What about a branch network? ATMS? How would setting up its own Bank allow the Government to borrow more? Would that honestly make any difference to the amount the Government could borrow?? Please Help!!

  31. If you are a Muslim and a follower of Islamic Banking and borrowed accordingly from an Irish Bank – You principal house

    cannot/ will not be repossessed through an Irish Court

  32. nono

    Bright eyes, I see you’ve been watching the “Money as debt” video…
    You’re right, there is a bigger picture to all this. The treaty of Maastricht basically meant that all the european countries renegated on their right to control their money and will now have to pay interest on the money they borrow from a private bank (i.e. the ECB). Why would any country agree to such a bad deal (apparently they didn’t pay any interest before)?
    For France, this “bad deal” has been sealed back in the seventies. At the time, the president was Georges Pompidou. He had been a director of Rotschild bank in 1956, prior to being the president of France. Was that a coincidence or something more sinister has been at play?
    I can’t answer that question, but it surely is mind boggling…

  33. Sharia Law Practice and Bank of Ireland in UK & Irl


    I am searching for more

  34. shtove

    Not just one good bank – half a dozen.

    Let them compete amongst each other, while the market straps the criminal banks in to the electric chair. Fzzzzzz!

  35. Sharia Law Practice and Irish Bank Loans


    You will see Ireland near the bottom of the list of countries

  36. nostramartus

    DWMC’s idea outlined above is the natural extension of his untouchables idea , the creative accounting used by Anglo Irish Bank is another nail in the coffin of Ireland’s credit rating ,financial credability is long gone, our existing banks are out of options, a new bank is needed for day to day business and the autopsy of the zombie banks is for another time, it’s a national embarrassment at this point.

    Much like a premiership side head hunting the best players to form a world beating team, our government should at this point be well underway to forming their own team from a selection of foreign bankers, preferably bankers untainted by the credit crunch. If a recognisable competent german banker is available to become the CEO of the new bank, then offer him a salary that will secure his services for a long term, a cosmetic political manoeuver at this point may seem irrelavant but we are trying to gain yards not miles on other countries desperate for cheap credit. Attracting german savers and investors in the short term might be rediculously optimistic, but the real goal is the prevention of a “mugabe effect” carrying on into the new bank, if it becomes a new ATM for the good old boys we are back to square one making the same old mistakes with another Anglo .

    Extending the hiring policy throughout the new bank is an an act of contrition and a real cull, this may be an unpopular political decision giving all good well paid management jobs to foreigners while 70,000 irish graduates sit on the dole, but we are undeniably a global economy, we can’t fall back on a protectionist mindset, watching Lorcan’s link to cnbc in the last article makes it clear there isn’t going to be any solution coming from America any time soon, the irish government’s tinkering so far has only succeeded in exposing previously unthinkable incompetence, we could run out of cash before an American solution, anything less than radical change is pointless.

    Separating our banking system from our political system, much like previous seperations of church and state, could change the perception of the irish banking system among international investors from incompetant corrupt buffons to loveable rogues, a simple change of perception could be the difference between descent into a barter economy or a banking blueprint to reignite the world economy.

  37. Philip

    I still see no reason for a new bank. Use a foreign one. We owe them money anyway. They are our real bankers whether we like it or not. Last time I was in a bank was 3 years ago. Last time I used an ATM was 3 months ago. Internet, laser card and credit card…there is no need for a branch network. Anyway, the latter are generally useless and offer no personal services or advice. Force the economy to upgrade. Receive no snail mail, no faxes or cash. Internet or nothing. Stop wallowing in a dickensian past of quills and ink.

    Use this crisis to upgrade – destroy current luddite practices. That’s the route to innovation and competitiveness.

    And stop blaming mythical religious struggles between the free masons and the catholics or whoever. This is fictional David Browne codified nonsense. Blather! The only big picture is one of failure by a system that tied itself up in knots. The people who “controlled” it are idiots – mindsets reinforced by groupthink and sycophancy. Ireland is a microcosm of it.

    If you want to look to the bigger picture, I believe that Obama’s plan will unravel as he really just doing what Cowen and the lads are doing here on a larger scale. It’ll blow up becasue of the CDF/CDO derivative nonsense they refuse to close down.

    You know, I admire the builders who buggered off and told the banks that they can shove their loan and they pay them when they are ready. That’s what really need to start happening.

    The system is broken. Electronic barter is coming. The US will be the leaders.

    • Tim

      Philip, what worries me the most about what you said there, in that post, is that it reminds me of Bertie’s “peann luigh” speech in the Dail while he was trying to promote the e-voting machines.

  38. [...] And last, but not least, our very own David McWilliams Serengeti Economics point to Good Bank Solution [...]

  39. Tim

    Folks, ………. eh, ………. did I REALLY hear Enda Kenny say, in the Dail today, that “the Fraud Squad are [sic] investigating”?

    Is it? Any confirmation on this, from anyone? I hope it’s true.

    Anyone have a “contact”? (six-degrees-of-separation, and all o’ that)

  40. Tim

    Michael Creed TD made an interesting point: (paraphrasing) “Paying the recapitalisation money to farmers, in lieu of outstanding grants, would help the farmers out of banking debt because they would be handing that money directly to the banks, anyway”, thus, my point about the PS pension levy: spin the money through the economy, so it can flow and do some good and retain jobs/incomes/repayments/mortgages/LIVES!

    ….. instead of, just, “skipping” the economy and handing it straight to the banks.

    Again, I say: “CRAZY”!

  41. Sabres of Paradise

    remember where you were folks,
    the night the recession and banking crisis was ended…
    the BOI and AIB are wholly sound, nothing funny going on , and the petty cash boxes have been topped up by 7bn, or 3.5 x 2.

    If Mr lenihan only read half a report on Anglo, one must hope he hasnt done the same with the big two.

    I have spent the last two days , watching the the Uk treasury do the Uk bankers over, and tonight the US treasury do the top 8 US bankers.
    What did impress me tonight was they universally were n agreement that writing off / down the capital amount owed on home owner motgages was being done and foreclosures were a last resort.

    As a Senator in the US said tonight, to all 8 CEO’s of the banks, go back to your banks, find the guy who got you into CDS/ CDF and CDO’s …..and sack them.

    Anyway i look forward to RTE showing the Irish eqivalent and i can honestly predict that when Mr. Drumm and Mr Fitzpatrick are on RTE will get the biggest audience watching since the Pope JP II was in the Phoenix Park.

    Though the chances of it happening or being aired are slim. The Government will probably seek independent legal advice that wont allow anyone see what happens at it.

    Hopefully DMcW and Senator Ross wll force the issue and get some attention on this happening.
    These two clowns need to be publicy flogged and as taxpayers its the only value or return we will get.

    Lastly, will the name of the player in Anglo who was signing off on the money in / out to Irish Life & Permanent be made public ?

    Booking interbank payments as customer deposits,

    The investors in Anglo now have the ammunition to launch the lawsuits…………………

    Poor auld Nick Leeson did time in jail, Rusnack did time ..

    Who from anglo is going to have to do some ……or will they ride off into the sunset
    Laughing at the taxpayers of Eire.

    • jim

      Dont jump the gun mien liebling,these buckaroos know how to sidestep issues.The method to transfer money from IL&P to Anglo was via a non Banking Co./vehicle which in turn lodged the money into Anglo and would therefore appear as a private lodgement from an unconnected source from a Banking prespective ,if you catch my drift.In simple terms they created an independant middle man to facilitate the transactions. Interbank loans are seen by the market and shareholders as one Bank helping another with cashflow and other short term issues and are not factored in as genuine independant deposits and are not counted in loan/deposit ratios for year end reports.The ethics or lack of in creating these type of vehicles to hoodwink the less than astute i.e joe shareholder’s is one thing,but how in Gods name transfers of this magnitude got past the boffins at the Central Bank who get daily reports from Banks re their accounts just beggars belief.Im sure if I worked there I would ask for a report on the bona fides of someone making such large deposits to cover my ass re. money laundering,terrorism,drug cartels etc. Jasus sure its common knowledge among us little people that if we turn up with more than 10k to deposit we have to provide an explanation.Im sure its going to come as something of a shock to IL&P shareholders to find out how and where their deposit accounts were being used.I suppose every cloud has a silver lining and wont it be ironic when “the builder buddies” are asked to tender for a new wing to Portlaoise Prison to house their former paymasters.Well it will boost employment and help Cowen hold the 3 FF seats in Laois/Offaly.Its all part of Cowen’s masterplan,the mans a big huggable genius.Now where’s my measuring tape and sat-nav for Portlaoise and can somebody tell me if all them Polish brickies are still knocking around.P.S if anyone calls from the dole office looking for me ,Im eh eh eh gone to a funeral in Kerry. wink wink.

  42. I,ve just been able to read this latest thread. And it’s unbelievable in my humble opinion. Lets get one thing clearly out of the way. Latterly, mea culpa, on this site, I irritated some economic commentators and I have apologised for that. Correctly, this is not Facebook.
    What, in simple plain English, has been set out in this particular piece by David, summates the conversations I have seen over some considerable time. Now our host has brought this to a different level. And before ye all mutter it, yes, I am talking A45.There exists on this forum, the root and branch of a movement that might, possibly, do something positive. I enjoy this forum but there are heavyweights here, and I won’t mention names, that would or maybe could kick something off.
    I’m into Cork Airport at 14.10 Friday. I have no problem having a coffee with anyone that wants to take this forward.


    • Johnny Dunne


      I’m no ‘heavyweight’ but after reading the summary of the bank recapitilisation and considering the decisions to guarantee all liabilites when ILP and Anglo were ‘window dressing’ with €7 billion – there must be an alternative ?

      I’m based in Dublin, never been involved in a political party but with the upcoming elections there must be credible candidates in the say Dublin South bye election who will be brave enough to ‘tell it as it is’ and demand change….

      Shocking news in this announcment, that €30 million will be allocated to the future of Ireland when the pension funds invest €7 billion into unkown and unquantifiable potential losses by a Minister who does seem to understand.


      “Building on the banks commitment to the indigenous capital venture sector, AIB and Bank of Ireland will both commit a further €15m each to new or existing seed capital funds, in collaboration with Enterprise Irelands Seed and Venture Capital Programme, to further create and develop indigenous enterprise. The banks funding will be matched as appropriate by funding under Enterprise Ireland’s Seed and Venture Capital Programme and/or by funding from other national or international investors.”

      As I have highlighted in previous posts both of these banks have already invested €15-20 million in new funds. Enterprise Ireland did not allocate all the €175 million set aside despite two calls with over 20 applicants. Now they are going to match the bank’s ‘top-up’ to existing funds, many of them have stated they want European investments. As for the €100 million ‘energy fund’, wait and see the number of ‘windmills’ that will asset back !

      Based on ‘traditional’ bank lending criteria for viable businesses NO export oriented compnaies will get funded considering market conditions without explicit support from the banks……no mention of this as we it seems the thrust of the recapitilisation is to refinance the property business !! If anyone has a doubt, how could they be asked to provide 30% more mortgages for 1st time buyers when the state backed ‘sub prime’ Home Choice Loans scheme got little or no applications ! Who are the small number of senior civil servants pulling the strings ???

    • Tim

      Furrylugs, I am busy Friday and stuck on the East coast ’til then. Can make myself free nearly all of next week, if interested and available.

      • jim

        Boy’s and girls forget this political party nonsense,read my previous post, get proactive,Im tendering for a bit of a nixer up in Portlaoise,Tim pull a few strings with FF,Furrylugs how are you with a dumpy level,Johnny hows your Polish (barsha dobsha means very good I think) look on the bright side. if Connolly ,Pearse et al were around we would be handed a gun and asked to join a firing squad.This is a cash job. good for GDP,or thats what we tell Mahon later onn .wink wink

        • Tim

          jim, …… depends, ……..

        • Johnny Dunne

          Jim, Nie mówiÄ™ po polsku (I don’t speak Polish). But sure I’ll pop down to FAS today to sign up for one of those ‘upskilling’ courses to learn a new language…..sure that must be the ‘knowledge’ economy thing moving up the value chain – hope there is enough teachers, heard some of them are getting P45′s !

    • McGoo

      I’m also certainly no heavyweight, but I will be in Cork Airport at about that time. I’m flying to London at 16:00, so probably checking in at about 14:30.
      My wife will be with me, so I won’t be allowed to talk economics, but it might be nice to say hello.

      • All been equal McGoo I get in about 14.10 from Edinburgh.You’re outbound so see you upstairs before going through.
        Good man.
        I’m going to enjoy Valentines with the best woman any man could hope to meet but that number is open for business from Monday on.

        Thought. Brehon non profit bank based on Grameen?
        Lorcan, MK1, Deco? Et al.

  43. Sabres of Paradise


    how do we get the bankers on the tv , like the way they have been in the Uk and USA,
    Let the the people of Ireland who have been hurt and damaged by the action of our bankers, see and hear the about money they were paid, went to type earned, then realised that wouldnt be taking the phish.

    Live on RTE for 3 hours , of questioning ………………………………….

    Do our bankers not want to be on a par with their peers in UK and USA, they were happy to seek like for like pay….

    IF you know who to write too, mail ……….

    • Sabres,
      All I can say is that we have a very simple Article 45 in our Constitution that is open to interpretation but was laid down in good faith many years ago to prevent one section of the country shagging the rest. Thats the way I read it but we need a Constitutional Lawyer to kick off. The last time a principled man in O’Dalaigh culled bad law, the FF machine ridiculed him.
      We can’t have it both ways. Do we want to accept the rule of Law or do we continue with paddywhackery?

  44. The Lex column is probably the most respected part of the FT. This is what it wrote back 18 December 2008….

    “The Irish government’s haste to guarantee the deposits and debts of the country’s banks was balanced by its slowness in recapitalising them. It caused persistent uncertainty about the true extent of the Irish banks’ woes. Dublin’s early guarantee reassured depositors, but also reminded investors of the fragility of the highly leveraged HBOS-like funding model banks used to finance domestic and UK property booms. The more guidance Ireland’s bankers gave on their likely loan losses, the less analysts trusted what they heard. Take Anglo Irish Bank: after it issued guidance for its loan losses next year of between 80 and 120 basis points of risk-weighted assets, Collins Stewart, a broker, promptly pencilled in 200bp.

    Dublin’s plan to inject €10bn of capital into domestic banks is welcome, but late — and remarkably vague. Apart from the worrying suggestion that it would consider helping itself to Ireland’s €18bn state pension scheme — recognition that funding alternatives are not cheap as sovereign bond spreads widen — the government says it might buy preference or ordinary shares or underwrite a share issue. So a UK-style solution is on the cards. Private equity bidders are welcome, too. Acknowledging the magnitude of the problem is a worthy start. But the UK bank bail-out has raised the capital bar. JPMorgan reckons €10bn might not be enough. Assuming a minimum core tier one capital requirement for Allied Irish Banks and Bank of Ireland of 7 per cent by 2010, and 8 per cent for Anglo Irish Bank, it reckons the three biggest banks alone could suck in €8.3bn. Some say a total capital raising closer to €15bn might be better.”

    When I read it first I thought it had been written yesterday.

    I have an awful suspicion that the reason why it has taken the “government” so long to act is that it was important to develop a clear agreed line on what to say when asked what the minister knew and when?

    I even wonder whether there are political leaders who had loans from Anglo Irish Bank?

    In the UK there was no negotiation between government and banks. Banks were told what to do. Perhaps the time was spent making sure there would be an agreed spin by all vested interests.

    The decision to keep the jet plane… if this was a farce, I’d say that was to ensure there was a means of making a quick get away.

  45. CREST

    Treason “serious acts of disloyalty to one’s Sovereign or Nation”

    How many in both the Financial and Political arena are guilty.?

    Give then a fair trial, and afterwards some Chinese Justice, then there will be no need for any extention to Portlaoise.

    • Not being a Nerd CREST but Treason isn’t included in our Constitution. Unless you foment armed rebellion. I know I’m sounding like an Anorak now.
      I probably could do with a weekend in Dun Aengus.

  46. AndrewGMooney

    Excellent visualisation analogy. But there’s one crucial element missing from this African plain’s story: Human beings.

    Yet again, I repeat: This is an ethical crisis manifesting as an ‘economic discontinuity event‘.

    We are NOT the victims of forces of nature which we cannot plan for, respond to, and exert ever increasing degrees of control over. We have always, and will always need to respond rather than react, to mutations of climatic, bacterial, viral, ethical or ‘economic’ origin. From the first steps of our ancestors across the plains of Africa to our current challenges, it is human ingenuity and innovation that has uplifted us in all areas. Including economics. Those who do not learn from the past are doomed to try to repeat it.

    The tsunami event of 2004 was an ethically directed ‘economic’ event. It need not have resulted in such loss of life, the technology was available to set up an early warning system. It was lack of human ethical foresight which deepened the catastrophe. In fact, it was Humanity that shaped and moulded the destructive energies by dozing in inertia, factionalism and fanaticism. Rather than applying it’s genius to render a tsunami a tantrum of capricious Nature which humankind can sidestep avoiding massive loss of life with all it’s economic consequences.

    The same applies to Hurricane Katrina. As Obama now mends those levees, he will be doing what any responsible and ethical President could always have been doing: The Vision Thing.
    If Bush and Clinton had paid attention to the despair within inner city America, those trapped New Orlean’s old folk in wheelchairs would not have been the ultimate indictment of America’s chimera of ‘wealth’.
    Bridges, roads and tunnels don’t just appear and they don’t just collapse unannounced. Infrastructure, whether physical or ethical needs continual maintenance and renewal. There was no need to ‘lose’ New Orleans. Losing New Orleans was not ‘pre-ordained’: It was a decision made by humans, not nature.

    There is no need to lose Ireland, or any other ‘minor’ country in the Eurozone, to a reverse-hurricane black swan whirlpool debt deflationary spiral. If this catastrophe is allowed to happen, it will not be because of some immutable Laws of Economics. It will be an ethical and political decision made, consciously or unconsciously, by the Bundesbank, trading as the E.C.B.

    I have stated several times on this blog that the ECB, under German auspices, is in danger of repeating the past, not by exactly re-enacting it; but by reverse re-engineering a hyper-deflation catastrophe. Presumably to purge the German psyche of the Weimar hyper-inflation. It’s a shame Goethe is no longer here. Perhaps I can contact and channel his unbreakable spirit. Ouija board. Ouija board, can you hear me?

    It is not necessary to let the credit cycle follow some supposed pre-ordained astrological inevitability. We are not characters in a trashy minor Mediaeval play. Nothing is ‘written in the stars’. We can mould Shakespearian responses to our current predicaments. All it requires is The Vision Thing.

    There does not have to be a season of scorched earth to propitiate the Economic Rain Gods. We are the Economic Rain Gods.
    We can seed the clouds over the Serengeti and keep the rain falling whilst we build credit dams, aqueducts and wells for the future. We can create rain. The technology is called ’Quantitative Easing’.

    When the Rhine and the Ruhr start running low, you will see the skies above Germany fill with planes laden with ’magic ECB policy crystals’ to make it rain again. There will be ‘good banks’ and/or ‘bad banks’, there will be whatever it takes. Germany will be exposed as a parasitic uber-Euro free-loader that gambled on haughty disdain for ‘crass Keynsian stimulus’ in the Atlanticist Credit-Zone: Until it’s own economy imploded.

    Sadly, for Ireland, the decisions that matter will be taken on it’s behalf, at a timescale that is +1hr east of Dublin, even though it‘s 7 seconds to midnight in Dublin.

    Given that Ireland does not have effective leaders or functioning government or opposition, it may turn out for the best that matters are temporarily taken out of inept hands. Ireland cannot renegotiate it’s relationship with Europe until it renegotiates it’s own redundant identity. Kevin Myers is particularly incisive in these areas:

    ‘We’re now back in that familiar place fiasco, where Fianna Fail, one way or another, always leads us’
    Kevin Myers. Irish Independent. February 03. 2009.

    It saddens me that Ireland threw the ethical baby out with the bathwater when it threw off the shackles of The Magisterium.

    It saddens me that the richness and grandeur of Germanic thought should have retreated into such shallow and timid reiterations of past nostrums; rather than respond to an entirely new and dynamic environment. I must be thinking of a different ’Germany’, a Germany that most definitely gets the whole Vision Thing:

    ‘The twenty-first century.
    Das einundzwanstigste Jahrhundert
    EXPO zwei-tausend. EXPO two-thousand
    Man Nature Technology. Mensch Natur Technik
    Planet of visions. Planet der visioning’


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