Brian Lenihan is the Marie Antoinette of Irish politics. He has just done a deal with the management of the Irish banks which even the bewigged last queen of France (bred into the regime, like Lenihan) would not have tried to get away with.
Not only should he lose his political head for it, the entire regime is likely to fall as a consequence. This recapitalisation is Fianna Fail’s “let them eat cake” moment and the electorate will not allow them to survive it.
This botched recapitalisation is based on the economics of Noddyland. It is cronyism of the highest order and will plunge Ireland into a much longer recession than is necessary. Furthermore, the fact that the financial delinquents who run the banks have been rewarded for the economic vandalism that they instigated sends a signal to every foreign investor that Ireland is a banana republic.
The management of the Irish banks has played our Marie Antoinette like a fiddle. In poker terms, at the beginning of this process when the guarantee was announced, Marie Antoinette Lenihan held a full house against the banks, who were dealt a pair of threes. He was in an unassailable position and could have directed policy as he wished. Instead he prevaricated, with the upshot that the management beat him hands down. Not only have they kept their jobs but they’ve just snaffled an enormous subsidy from the taxpayer as well.
The banks’ top brass have engineered a deal whereby their multi-million euro salaries will be paid for by people on the minimum wage!
To make matters worse, Marie Antoinette is out there telling us that we, not they, have got a good deal. This is an appalling stitch-up and amounts to “stroke politics” of Congolese proportions.
The extent of the stroke is obvious if we compare the terms of the deal that we have been forced to do with the banks with the terms of any deal the international financial markets are prepared to do with them.
Just think about the value of the banks: The taxpayer has lent €4bn to the two main Irish banks at an interest rate of 8pc, in return for 25pc voting rights. According to the market, both main banks were only worth €3bn on Sunday, 25pc less than the government’s loan to them. And the banks’ management and boards are still in place.
So why is Marie Antoinette, acting in our name, trying to right the wrongs of a small, incompetent cabal? Rather than make these incompetents accountable, he has rewarded the very financial delinquents who got us into this mess in the first place. We can only assume that he is being advised very badly. Merrill Lynch is his adviser. This is a bankrupt bank, remember. So our State is being advised by people from a bank that could not even look after its own money, let alone anyone else’s! Could it possibly be that Merrill Lynch is more interested in future fees from the management of big banks when it comes to further borrowing than it is in the immediate fortunes of the country?
Something else stinks in this deal. For example, why give the banks money at 8pc when you know that 8pc comes nowhere near the rate which the market is charging these banks? Last weekend, you could have bought Bank of Ireland preference shares with a 14pc yield.
Marie Antoinette Lenihan, on the other hand, thinks that we should lend to them at 8pc! Why? Does he know something we don’t? Does he think that the bad loans in Bank of Ireland will be considerably less than the market does? No, he knows nothing more than the average Joe Soap. In fact, despite all his advice, this dreadful deal reveals a man out of his depth. He has just been conned by the banks’ management, who have told him the situation is so dire that they can’t survive if they have to repay at a rate higher than 8pc.
Remember, these are lads who said up to last week that their capital position was so robust that they did not need any money from the State. So, turning economics on its head, Marie Antoinette has risked taxpayers’ money at an interest rate that even the most idiotic investor wouldn’t entertain. This is a sick joke, but the joke is on us.
Now, having established that you have been robbed blind, let’s look at the pathetic economics of the deal. For a recapitalisation to be successful, bad debts have to be written down to zero immediately. This is costly and this is why the State needs to raise a lot of money rapidly to cover the mess. Equally, a “bad bank” needs to be set up like a financial skip, into which all those bad loans and rubbish on the “good” banks’ balance sheets can be thrown. The cost of the skip should be paid for by the “good” banks, because they have been the ones given a reprieve.
Such an approach, adopted by Sweden in 1992/3, clears the air and allows the good banks to start lending again. In this way, the recession is cut short by taking the pain up front and allowing the system to right itself. We have chosen the worst of all worlds. Marie Antoinette has condemned us to a long recession and he seems pitifully oblivious to this fact.
We are following the Japanese approach, which saw Japan plunge itself into a decade-long downturn.
First, no one is held accountable and the managers are given a subsidy rather than a penalty for bad behaviour. Second, the bad loans will not be written down — banks will use the State’s money to roll over debt service on bad loans, hoping that the recovery will miraculously arrive on its own. Third, the money advanced today will simply be swallowed up by the huge bad loans on the banks’ books — all of which were lent by the present management — who, lest we forget, have held onto their jobs.
The numbers are frightening. The Irish banks have a loan book of €450bn, of which probably at least 6-8pc will go bad in the recession. This means a total problem of over €30bn, and quite obviously the €7bn recapitalisation for AIB, Bank of Ireland and Anglo is only a drop in the ocean.
Make no mistake about it: our money will disappear in the next 12 months. Irish bank shares will continue to fall steadily as the extent of the dire loan book is revealed and we, the taxpayers, will be asked to stump up again and again.
The long recession will make a mockery of Fianna Fail; and when they are hammered in the polls, they will trace the tipping point back to this Christmas week and Lenihan’s “let them eat cake” idiocy.
David,
You have in this column reccommended the bank guarantee, and a recapitlisation. Is it that the terms of the recapitalisation are so ridiculously bad? You sound genuinely angry in this article. Is that it now? No more solutions for this corrupted country?
Brian
David: Some of us who have been following the bank collapse closely had been hoping that things couldn’t get much worse, and that it was time to write off the negative and reinforce what few strands of positive news that came over the horizon. You consistently bring us back to Earth again, reassuring us that things are even worse than we thought and the Straits will become even more Dire in the new year. However, we haven’t a clue how all this is going to play out globally. I think its still a lot of whistling in the wind, by… Read more »
This is no better than a junkie getting a free fix from the dealer. A short term fix. A mere treatment of the symptom not the cure.
The banking system in Ireland was no better than a Ponzi scheme. Sadly the investors who will lose the most are those least likely to be able to afford it, the low paid, unemployed and elderly who had no say and indeed no benefit from the building boom.
The key is responsibility. If the government make individuals, i.e. head of banks or regulator, accountable for their actions then it makes sense that they in turn will be held responsible for any of their bad decisions. There is no chance that the government will be looking to take any sort of accountability (this is a global economic problem, remember). It’s not going to happen, just plod along, throw a few billion at the problem and roll off home. Hope and pray that something changes and then take credit for it.
It is now time for the people to take action and say “enough is enough”. I propose we organise a shoe throwing protest outside leinster house to regiter our disgust. Anyone interested in joining me?
David
Why dont you tell us how you really feel?
Anglo Irish Shares today sez it all really. They will have to announce “further measures” before their EGM in Jan. More Irish taxpayers money pissed down the toilet no doubt.
How did so many well educated and nominally smart people get it so badly wrong? It really is a very strange phenomenon.
Anyway, have a good Christmas and New Year.
Ger
PS How about them “fundamentals” then?
For once I have nothing to add. Putting money into Anglo Irish Bank is rewarding failure, hlping your mates out of a mess of their own making and making a complete mockery of Ireland and its people. It is a banana republic and the minister has to go. Along with his mates.
David This isn’t incompetence, this is corruption of the highest order. Don’t listen to what they say, watch what they do. It is now obvious that Lenihan etc are acting not on our behalf but on behalf of their real paymasters. Lenihan purposely wishes to transfer whatever wealth remains to his buddies/cronies in the banks and big business. Over the next few weeks and months things are going to start happening. They will not be mistakes, they will be purposely done to ensure an outcome whereby we the people give over our futures to wolves and thieves. We need to… Read more »
Merry Crisis and a hopeless new Fear.
David
you left out one word
Treason
david, you are all over the place, one minute praising the government for their economic recovery plan, then saying they will fall – there is no consistency, frankly i am at a loss at what you stand for.
David There are mixed signals coming from the government. Ryan this morning says basically heads will roll in the new year. Cowen in the Indo says it must be left to the Banks to do this. Does anyone know what is going on? I am the Labour candidate for Euro East, which has been affected by recession to a greater degree then any other part of the country. I would prefer if there was some ray of hope out there even if this government must stay. However the lack of mandate they have is a serious issue in itself. Hope… Read more »
David, I share your anger in particular with regards the management not been sacked in both the banks and regulatory bodies that have stood over a circa 90% fall in the share price of the banks and a complete mess of bad debt they have created. This is a classic case of ‘Rewarding Bad Behaviour’ and is something that can only happen in Ireland. I have little doubt that the chiefs in AIB & BOI have some serious skeletons in their closets just like the Fitzpatick did in Anglo. This is probably one of the reasons they are so reluctant… Read more »
David,
Your best article of the year. Keep up the good work. BTW … it’s not just the bank bosses who should take a hit ; so should all their underlings and the layers of henchmen under them. I see the average Goldman Sachs salary has fallen 45% to (gulp) 350K ; something equivalent should happen here, perhaps to an even greater degree.
Paddy
D’ye know David. You can’t do any more. You’ve correctly warned “Them” about the bubble, the banks and just about everything else from an economic viewpoint over the last few years. Your kids have had to listen to the Taoiseach telling you to commit suicide. You’ve appeared time and again on national TV only to be subsequently ridiculed. Go away and enjoy Christmas. Then head off to Harvard or somewhere you’ll be appreciated. When you’re awarded the Nobel for the treatise on why Ireland was the epitomy of the collapse of capitalism as we know it, you could mention the… Read more »
The problem with this country is that nearly everyone is at some kind of stroke themselves. This means no one has the integrity to stand up and shout “STOP”. The solution is emigrate. This country is going down the tubes. Get out a pen and paper, draw a line down the centre and on one side write a list of things that you like about living in ireland, and on the other side write a list of things that you don’t like about living in ireland. When you’re finished writing, you should be able to draw your own conclusions. I… Read more »
Resign Brians…just resign………disgraceful….there will be riots on the streets of Dublin before the end of 2009. Total disgust and ignorance….the Banana Republic is alive and well.
Government’s National Crime Forum Apr 1998 – Included in my written submissions to this public forum, by written invitation ,at Civic Buildings Limerick was my professional distrust and condemnation of Irish Bank Management ( and filmed and directed and produced by me ) entitled ‘ The Green Deception ‘ .I acted in the prevention of a serious crime against Bank of Ireland Dublin in 1992 and the bank criminalised me in that process.They also professionally advised me in writing to sue the fraud squad ( police ) for false imprisonment .Subsequently in my trial the justice directed an aquital and… Read more »
I agree with Paddythepig, probably the best DmcW article this year, certainly the most hard hitting… Indeed, it is an extraordinary challenge to the establishment, and at great personal risk because these current idiots hold great power and influence and they can use it if you go against them. That is the reason it has all ended up in such a calamity, the ruling class in Ireland, specifically since CJH have progressed on fear alone. There are, no doubt, many honest individuals who knew it was all nonsense long ago but did not have the moral courage to stand up… Read more »
David you are right – the state are buying a pig in a pole. Nobody knows the real state of ANIB. It has already been proven that their accounts are suspect with the loans scandal. Therefore saving ANIB from bankruptcy is a waste of time. The goverment has still not audited ANIB. They have not sent in the revenue to find every single asset. This is necessary. Every department has to justfy it’s expenditure. But with banks the government jumps in, without knowing what is really there. I have one suggestion – attach the ANIB buildings to the preference share… Read more »
Colin <>
Not everyone. But practically everyone in authority is fiddling somewhere. We have wholescale institutional cronyism and corruption. The real problem is that the legal framework is rotten. Basically we need to agitate for reform, and up the ante when we get ignored.
Colin [ The problem with this country is that nearly everyone is at some kind of stroke themselves. This means no one has the integrity to stand up and shout “STOP”. ]
My last comment was in response to your comment in brackets
Wonderful – even politicians are now reading this bulletin board. Nessa Childers – if you say you are who you are – will you please stand up and ask for resignations in these banks, and the elimination of the top three layers of the six reckless banks ? We need to fix Ireland’s corrupt incestuous commercial culture.
Can shareholders sue the management and BoDs for failing to fulfill their fiduciary responsibilities?
b- I qualified as a CPA in 1977 and member of Institute of Taxation in 1978 and as an Auditor in 1978 / first chairman and founder of cpa mid west society – I resigned as being a cpa member in 2004 for personal reasons -my submissions to national crime forum are acknowledged appears in that official report – you can ask the garda commissionser fachtna murphy what i wrote earlier if i am telling the truth ok?
David — You’ve hit the nail on the head with this article and I commend you for it. Basically the Irish taxpayer is being robbed of billions of euro by the very people who have screwing the Irish people (mainly the young) in this banana republic throughout the last 10-15 years. Let’s make another thing clear — If the level of bad debt is 6-8 %, or around €30 billion as you state, then the taxpayer will be paying back every cent — and hence, as I stated the other day, the corrupt banks and builders (the sort you’d find… Read more »
Well David , now I think your pen may in time prove mightier than the sword. You have a few bloggers who actually know what is going on , the rest of the adult population ( for the moment ) are justing sitting back saying , well what can we do ? What We can do is start picking on back benchers let them know they won’t get more than close family votes the next time they run and pressure them into accepting the truth of this corruption. As I have said here before we need a new political party… Read more »
Each individual of each banks management should be personally sued for gross negligence and every penny that they and their family have should be taken from them. They have stood over a 90 to 100% decrease in their companies share price. I have invested a large proportion of my life savings in the banks. And now all my hard work through my life has been virtually wiped out. How could these guys stand over giving €80 per square mile for a strip of land in Dublin? If that is not gross negligence, then I don’t know what is. I will… Read more »
Lets organize legal action against all the management and Directors for gross negligence.
Jayz, DMcW is getting more annoyed with each passing day. Perhaps he’s offered to help and been given the usual FF brush-off. Well, B Lenihan is in control of ANIB now, he’s made the decision to guarantee their deposits and inter-bank loans so if it goes south we’ll only have Lenihan and FF to blame. I still think he can cauterise some of the wound and reaffirm some confidence by going after developer assets & deposits. Here’s a few predictions for 2009. Richard Bruton to take over from Enda in FG and provide some real opposition. A motion of no-confidence… Read more »
hi everyone just a quick word: I think guys like Brian Lenihan and alot of the other politicians are making decisions too cover their own asses. I don’t listen to what people say, I just study their ACTIONS. The finance ministers actions tell me that he is involved with the banks, maybe he has a huge amount of his own money invested in the banks in some back handed approach eg: Maybe that 87million loan taken by the Anglo Chairman is half of Brian’s loan, but since they are “friends” and both need to cover each other, this has lead… Read more »
This time next year we could be looking at a re-recapitalisation of the banks but there will be no money left in the pension reserve fund. matthew mac gabhann the public need to rally against the current leadership in government and financial institutions, let’s demonstrate!
We should appeal to the World bank and the IMF now to at least analyse our current predicament so that we don’t have to go begging to them in a years’ time.
Brendan W – I agree with you.The Greens are too concerned with their merks and perks to make a stand on anything. A few PR gestures concerning reform. And that is about it. There is no point in hoping that the Greens will bring in banking reform. Santy will bring the Green Party their toy windmills, and that is happiness for them. You are correct about Anglo going to a single digit. The liquidation sale epidemnic in the retail sector will see commercial property loans defaulting all over the place. And ANIB – who boasted of their high market penetration… Read more »
This problem just illustrates that without reform of the 1920’s era governance system that produces second-rate politicians who are prisoners of vested interests, the positive potential of the Irish economy, will never be fully realised – – just wonder about the land rezoning system that creates an artificial scarcity of land in a country that is 4% urbanised and more expensive houses than in France that is 28% urbanised. The “masterstroke” of Sept 30th, should have been deferred for 2-3 days to sort out the mess. Everyone was of course conflicted; Cowen and the Central Bank had been sideline cheerleaders… Read more »
brendan w – it’s the truth
So, ……. why are so many people, and nearly everyone in the media (apart from Gene Kerrigan), blaming the teachers, nurses, gardai for the mess? Scapegoat the public sector wage bill, again! Teachers on €35K blamed for what bankers on €35 MILLION did.
Bananna Republic, alright!
The “profits up, wages down” brigade are doing their job very well.
See the connections: migrant workers – low paid workers – nurses – teachers – pensioners – schoolchildren.
Targets, all.
….. and the rich continue to get richer, at ordinary people’s expense.
David, well done on yet another great article.
Nothing much to add to the comments, agree with much of what has been said.
Peaceful Christmas to all, and a prosperous New Year.
Any out there who, like me, have a vested interest in Santa’s location might enjoy this. http://www.noradsanta.org/en/home.html
Now, laptop off, with all intention of a few days of excess. Might be a while before we see their likes again!
If Fortis go belly up, An Post could be the first to call in the guarantee?
http://www.thisislondon.co.uk/standard-business/article-23607826-details/279m+blow+for+Fortis+as+BNP+deal+is+suspended/article.do
Nero fiddles as Rome burns comes to mind.When all else fails bugger off to Kosova and make a big statement.A bit like the pigs ear he made of the dioxin scare.His presence in Kosova,with his track record, was more likely to spark off another ethnic conflict in the region.When will he get the message.It’s all over for you Brian.Bertie saw this mess coming and obviously saw you coming too.Change your name to Patsie Cowen.If we had an army we would have had a coup d’etat by now.
I guess people need their faces rubbed into it before they wake up.
Everything is alright till it’s not. When you are from a certain class you imagine that is your place and neither the (have and the have not) twain shall you meet.
However, strange things happen when the upper echelons cut the rungs below and you find yourself where you think you do not belong.
Time to realize the upper echelons have been letting (who they consider) the lower class eat cake.
It’s time now. Time to stop the bull-shit. There’s only one solution- equality.
Hi All
Wishing you all a happy holy and peaceful Christmas.
May god bless us – I think we’ll be needing it in 2009.
Folks – Can I throw something out there for you to chew over and btw David, another excellent article as always! The question is; does democracy really work in Ireland? Would we not be better off in a dictatorship? I think that Ireland is simply too small for democracy to work? Everybody knows, somebody who knows somebody! You get it? Check out a great article by Kevin Myers in the Dec 24th edition of the Indo – Then you will know what i mean! The government through lack of policy is just as responsible as the banks for the mess… Read more »
Gentlemen and fine ladies , I hope you have all survived over this Christmas day , I am next year putting my decades of travel and hindsight to use and with the few euro I do legal own, I am getting an A 4 sheet done up with my reasons for been Elected . And i will run independent I will be Against , cronyism , or who your father or grandfather were, I will not take expenses for doing my elected privileged position, I will ask who signed off on the 11,000 curtains and that 50K toilet for miss… Read more »
oh P.S. Lorcan you keep it real , Norad for a minute I thought it was Adams fund raisers !
Hi Folks, Hope u all had/are having a good one! What strikes me as peculiar is the distinct lack of urgency in all of this. Cowen and Co. appear to be either stalling things or politely waiting for a response from the banks. In the real world decisive leadership and action is what is called for. These traits seem to be lacking in this administration and it is no surprise to me as our political masters are no more than overpaid chancers for the most part. Allowing the banks to fob us off while they wait for outside factors to… Read more »
Lenihan did the same kind of sly cosy deal that Michael Woods did with the Church on Child abuse. The Church promised the sun, the moon and the stars and to this day has failed to pay what they said they would pay. The banks have forced up the cost of living and then when they can’t get any more money to gamble with and gouge us with they hold out their grubby paws and demand money. Their threats to small business regardless whether the business needs to borrow or not are totaly unacceptable. They forced the government to guarantee… Read more »
I thought David would sign off 08 with his optmimistic ‘Ireland Inc Gets Innovative’ and save a post like this to go with the New Year’s hangover!
As winter turns to spring, there’ll be revelations of more surprises and ‘disappointing’ behaviour of the 87 million variety. With suitably aristocratic disdain from Lenihan for those who continue to question the ancien regime of FF.
Looking forward to David’s take on the descent into chaos that will be 2009, once the Obama honeymoon is over and things really kick off….
Regards
It would be interesting to see the notes from the Dail debate about the bailout… Oh. Sorry. No vote, no consultation and therefore no debate nor voice of reason.
Some democracy we have! The Dail is yet again bypassed because it is too inconvenient for the minister, done over Christmas and without debate nor legistlation.
We now know the Government works for Merril Lynch. We are just an inconvenience to be silenced or jailed if we step out of line.
Interesting to see someone bringing up the Greens suffering from Stockholm Syndrome. Let’s be real, it’s not just them, we as a nation have been in thrall to Fianna Fail led governments for decades and have been suffering from a collective form of Stockholm Syndrome.