Has anyone broken the news to finance minister Brian Lenihan that he owns the banks? So far, this fact appears to be unclear to the minister and his civil servants.
What did they think they were doing when they signed the guarantee? Lenihan not the washed-up boards of the banks is the boss. The buck stops with him, not the squirming chief executives who are in the unedifying and entirely self-absorbed business of holding onto their jobs. There are signs of discussions now under way, though it remains to be seen what emerges.
Given that the management of the banks is in self-preservation mode, any meaningful bid that comes in now will be hostile, not to the institutions, but to the individuals who ran these companies into the ground. Therefore, in the interests of the state, the minister has to act against the interests of the individuals who run the companies. Things couldn’t be clearer. If the minister wants any progress on the banks and, by extension, the economy, he will have simply to go over to the banks, put a friendly arm around the shoulders of the current bosses and usher them out the door. If not quite out the door, at least in the direction of the foyer, explaining firmly but sensitively that they are part of the problem.
If they play ball they might have a chance; if not, they are out. In short, Brian Lenihan is the don and he has to accept this. Any minister for finance who guarantees his banks is the last man. He makes the decisions. If this inconvenient truth hasn’t sunk in at the department, itmost certainly is clear to the financial markets. As far the rest of the world is concerned, ever since the guarantee was issued on October 1, the state more or less owns the banks to the extent that, if the banks collapse, the state picks up the tab.
If you doubt this, look at the simple chart below. This is a chart of what is called the credit default swaps for our country and our banks. A credit default swap measures the risk of default. It is the price you have to pay to insure against the bank or the country defaulting. Obviously, the higher that price is, the more likely the market believes that the institution or the state will default. Check out the chart. Before the guarantee, the market was progressively coming to the view that the Irish banks were moving into default territory. In contrast, during the summer months, despite the banks’ deterioration, no one was attaching any significance to the state defaulting. However, the minute the guarantee was signed, everything changed. The market moved immediately to the view that Lenihan was the boss and that he was responsible.
As you can see, in the past two months, the market’s perception of a sovereign default by Ireland has increased twenty-fold, while the banks individually have seen their default risk collapse. So, rather than the sovereign state bolstering the credibility of the banks, the banks have contaminated the creditworthiness of the sovereign! Had Lenihan moved quickly to recapitalise and had he swiftly fired the culpable, this might not have happened. Because we dithered, the market now sees that the guarantee was nothing more than an underwriting of bad bank behaviour and has reacted by transferring the liability of the banks onto the state.
Make no mistake about it; this trend is going to get worse, not better. If the minister prevaricates, he will simply undermine the ability of the state to borrow for hospitals, because he is trying to protect the banks’ boards and senior management most of whom are millionaires. The reason, I believe, that he is protecting the fat cats and not the small shareholders and pensioners who sadly trusted the banks with their pensions, is that the boards and the management have already destroyed the wealth of the shareholders. By presiding over a 90-95 per cent fall in their share prices, the bosses of the banks not Lenihan have torched the shareholders already.
When I hear the same individuals now pontificating as I did last week about their need to represent shareholders, it makes me feel sick. Worse still, when we see them trying to plunder their own pension funds our money to save their hides, Geldof’s angry ‘‘Banana Republic’’ rings in my ears. Someone needs to clean out this system of ours, because if the banks with new management and boards are not put up for sale at any price, the entire Irish financial system will not might implode.
With every passing day, this Armageddon gets closer. Someone had better tell Lenihan that, if he does not do something quickly, we will some day soon see Ireland’s Bear Stearns and once one goes, more will be threatened. By this, I mean that, one weekend, there will be a knock on the minister’s door and a group of well-dressed but desperate bankers will tell him it is all over.
They’ll do what hundreds of ordinary people will also do, they will hand back the keys and say to Lenihan: ‘‘Sorry Brian, it’s your problem now. We can’t cover our bad loans. We are out of capital. The world won’t lend to us at any price. Because we destroyed our investors’ funds last year and tried to bluff our way out, we have no credibility.” What is the minister going to do then? He’s going to have to write an enormous cheque to keep these places open but he doesn’t have the money. That’s when the financial markets start selling Irish sovereign bonds en masse.
The speculation will be that Ireland will not be able to pay its way and we will see the price we have to pay for credit explode. No one will want to touch us and we’ll move from Celtic to Septic tiger in the space of a year. This is now the most likely course of events. Just as 24 months ago, those who claimed house prices would collapse were smeared as being mavericks, the same applies today. You probably don’t believe the above scenario could happen. What if I were to tell you that it will happen unless the minister moves?
What can he do? He can tell the management of the banks at any price that they have a set time to sell their banks, otherwise they are out. If the buyer is right and by this I mean a large, solvent, Continental solvent bank they might have to think the unthinkable and practically give them away at this stage. If he doesn’t do this, he has potentially, not one, but six Bear Stearns on his hands.
Well said and yet obvious to all here at the same time : – “Has anyone broken the news to finance minister Brian Lenihan that he owns the banks? So far, this fact appears to be unclear to the minister and his civil servants.” Has anyone broken the news to the government of the last 20+ years (since Lemass) that they are answerable to the Irish people? Mary Harney spouted on tonight on The Week in Politics about her brain fart moment ‘Boston or Berlin?’. I suggest that our government would do well to look at the Scandinavian governments for… Read more »
“Worse still, when we see them trying to plunder their own pension funds our money to save their hides, Geldof’s angry ‘‘Banana Republic’’ rings in my ears. Someone needs to clean out this system of ours, because if the banks with new management and boards are not put up for sale at any price, the entire Irish financial system will not might implode” This is what spooked the markets about Argentina only a short time ago? And now its become so much a part of concensus thinking (suggested stateside too) that its almost de rigeur to look around to see… Read more »
I have a big check for the banks ….who is first in line?
No matter what happens here, recapitalisation or no recapitalisation, and it has just been announced this evening that the government has made available 10 billion Euro to recapitalise the banks, but it is now up to the banks to come looking for it on the governments terms, it is clear to any small business that it is a complete waste of money recapitalising these banks at the moment, because they are not lending to businesses. It is very obvious that banks are not able to distuinguish between solvent and non solvent businesses anymore and not able to identify businesses that… Read more »
>>> First thing we need is a change of government, we are going absolutely nowhere with this crowd >>> Welll duuuhhhh ;) same goes for the leadership of the banks as well. But that’s one thing about power and politics in Ireland, there’s nobody out there to enforce. I note that in the US they seem to have a great deal of special investigators whose job it is to take down corrupt politicians and business people (it’s a double edged sword of course, remember Kenneth Starr?). Here, guards who stop Minister’s cars from speeding are transferred from County Cork to… Read more »
> We have enough oil, gas and fish stocks to buy and sell our way out of any property bubble.
You need to look at the size of our oil and gas reserves. It’s very unlikely we could develop the knowledge to exploit the fields ourselves and break even. The Corrib field has an optimistic size of 1Trillion cubic field. Norway’s gas reserves are 84Tcf.
Lenin Ham – Do the honourable thing and …Resign NOW ….while you can . There are many far better people than you who have guts to make a Real Change and be successful .You are pear shaped and clueless . The House of Lords will in the coming weeks remove the letter ‘r’ in our country’s name because our nation lacks reason and replace it with ‘c’ not only to call us Iceland but rather to demonstrate that we are now ‘communist ‘.They will register their true patriotism with pride and dignity and show you up for aiding the Scam… Read more »
Hey Tom, Your spot on about the fish stock. Just look at all the Spanish / French boats in Irish waters. Billions and billions of Irish fish has been taken from the Irish market and economy from these 2 nations. Whatever the EU gave Ireland in terms of handouts, they got this back multiple times from exploiting these waters. The EU need us as much as we need them. Lets not forget that. They have decimated an industry that gave Ireland a competitive advantage over the rest of the EU (Fresh fish from clean waters that only inhabit the northern… Read more »
Has anyone broken the news to finance minister Brian Lenihan that he owns the banks? Good article David, I suspect that if you asked Brian Lenihan that last week, you would get some legal bullshit which illustrates the problem, he’s a lawyer, his approach is that of a lawyer. Now that the government have announced something, lets see what they actually do…. The guarantee scheme was announced and appeared genuinely innovative, but the lack of follow through and attention to detail screwed it up…. Its now a different beast to what was announced things I’m looking for on this latest… Read more »
Hi David, Back to the ‘usual ‘ topic ….. our banks. > finance minister Brian Lenihan … owns the banks Well, not quite true …. not yet anyway. He (or should I say we) are currently the underwriters of their risk, but we dont own them. We are their guarantors. In other words, we are the eejits! > the minister has to act against the interests of the individuals who run the companies. The bank recapitalisation programme if/when it happens, will be used to shore up the capital ratio’s of the balance sheets and to cover bad debts. It will… Read more »
John,
>allow the Irish Euro in the basket of currencies to become a shrapnel in the new free market …………….and DEVALUE ……by at least 50%.
The “Irish Euro”??? There’s no “Irish Euro”, or “French Euro”, or “German Euro”, they’re all the same currency!!
If they were seperate currencies, Ireland would be another Iceland by now.
Actually, I’d be very interested in David’s views on where the Euro is headed agaist the dollar and sterling. Although I know currency markets are difficult to predict.
David,
I’ve been reading your articles for quite a few years now, and always been impressed (TV shows were awful – sorry), but Wow!: this is easily the hardest-hitting article I’ve seen yet.
You’ve been a thorn in the side of the political/economic establishment for ages but this time you’re taking a chainsaw to them. I wonder how they’ll react? It’ll make interesting watching.
To summarise the article: Give all the banks away to anyone who’ll have them, right now, or the country will go bust trying to meet the guarantee payments? Is that right?
>>> MK1 : Lance the boil …… >>> Yup. They’re only banks fer goodness’ sake. Plenty more where they came from. I laugh when people claim that the recent financial crisis spells the end of investment banking for example. Plenty small ones out there waiting for the dinosaurs to eat themselves out of house and home. And the whole cycle starts afresh. >>> MK1 : The only thing that people can do to trade out of this quagmire is to work harder, and be more productive, and thats everyone. >>> Yup. Sick of hearing the “spend our way out of… Read more »
Last night’s announcement doesn‘t change or clarify very much. It’s just more ‘proposals‘ without any undue urgency to the timetable. In giving the State Guarantee, the Irish banking system may as well have been formally nationalised because, at that moment, all it’s liabilities were fully and unconditionally underwritten by the State. Including, in extremis, not only the assets of the State Pension Fund and the entire credit facility of the Irish State in the Bond Markets, but also the State’s necessity to seek an EMU/IMF bailout. Any and all Market Participants have since been operating on the basis of that… Read more »
David said: “With every passing day, this Armageddon gets closer. Someone had better tell Lenihan that, if he does not do something quickly, …” Are you still gallivanting out in the middle of the Indian Ocean, David? That ‘Someone’ should have been you!! Lenihan did, in fact ‘do something’ last night, shortly after your advice was published. He announced that money from the National Pension Reserve Fund, private investors and existing shareholders amounting to €10 billion is to be made available for recapitalising banks and building societies. He will underwrite an issue of new shares by lenders or take shares… Read more »
Would Eugene Sheehy prefer a firing squad or lethal injection?.He said he would prefer to die than take Govt money!.Was he telling porkies?.Enjoy your short retirement!!.
Mc Goo – well U see ….there is a basket of currencies where every country issues ‘their own ‘….should you check you can identify the Irish Euro with the letter ‘T’ ……those Euroes will Devalue if Ireland goes the way to amageddon……..and it will ………soon
David, Scariest article to date and after hearing yourself and Mr Kinsella on Morning Ireland today saying we need prayers to get thro’ 2009.. this is unprecedented stuff of living memory. Mind you I suppose the people who lived through the south seas bubble and the tulip mania felt exactly the same way. Maybe it is too early yet by a year or so…but is there anyone (country wise) out there making any headway through this financial storm? I think we need to get people angry or to develop some sense of outrage We are like sheep putting up with… Read more »
Bank gains of 25% percent etc need to be put into perspective…They should only be referenced relative to their previous peak in furture bulletins.
A 50% drop means a 100% recovery to get back. A 95% drop means a 20 fold increase to get back to square one. People need to see the reality. The obsfuscation used is dreadful and misleading.
Last night I heard the government were going to announce a recapitalization program before the stock markets opened today. I thought they were actually going to do something, it was reported as a major thing. I was half expecting to hear Bank X’ were nationalised…. Something important. Anyways with Lenihans announcement, this article should have been redundant. Whether the announcement was in line with David’s thinking or not, the decision should have been made. The government would have spoken and that would be it. A Pax Lenihan would have been imposed. God knows they have had enough time to figure… Read more »
New EXPRESS – the only capital expenditure you are witnessing at present in the remaining nation of ours is …………The Devaluation Express …..from The Pale to The Atlantis ……….and …stopping off deep down under in the middle where no man has gone B4……u can find its ticket with the directions on the back of your EURO ….when you read the ‘letter T’ ( Ireland )…..you qualify to ….disapear quickly ……anyone with other letters …try …………the PIIGS Station ….and you might end up in the mediterranean seas to occupy Pompeii or Egyptian Mythology ……..otherwise hold on to your U’s and X’s… Read more »
Bloody hell……would ye stop……..with all……the full stops……..
John, OK, in my wallet I have two 10 euro notes. One has a serial number that begins with a “T”. One has a serial number that begins with an “X”. Are you seriously suggesting that they are , or will be, worth different amounts? Are you suggesting that, when I go to a shop and buy something, I will get different amounts of change depending which 10 euro note I pay with? That shops will list different prices on their goods for different euro note serial number prefixes? That does not happen, and never will. The euro is a… Read more »
Mc Goo – finally the dawn of reality is arriving like a kick in the transom ….should Ireland ( The State ) be kicked out or opts out or ..leaves by another name those notes issued by our own government will become disenfranchised and are on their own…..in this case…those are marked ‘T ‘ the free market will prevail at the time of use by you and your ‘T’ notes will end up something like the Icelandic Kronas …at the moment all notes are Euros as you know it …………so read my first morning notes I wrote at 8.35 am… Read more »
Instead of taking money out of the pension funds, why oh why have nt some of the smaller banks being forced into a merger with some of the others to recapitalise the banks. I live in the US and as scary as all of this was when the perverbial hit the fan a couple of months ago with the lame duck President that we still have, when any of the banks were going to the wall (hello Anglo Irish) the Federal govt i.e Treasury Secretary Paulson (Lenihan) organised a deal with one of the bigger banks to take them over.… Read more »
David McW is correct. First the personnel that created need to be replaced with people who will be more accountable to the taxpayer. Basically the taxpayer is to determine what happens from now on. I am sceptical about Lenihan’s latest move. The only member of the Oireachtas who knows what has been going on in the Banks is Shane Ross. And he thinks they are five turkeys – with AIB still not completely safe either. So, I ask myself this question – what would Shane Ross do ? Well, based on his recent articles – I think he would let… Read more »
I suppose the question does need to be asked “Minister Lenihan, would you put 60% of your pension in Irish bank shares”. Our collective pensions are being sacrificed to save Dublin 4 bankers. But it seems that Mr. Ahern, and freinds will still get their state pensions. And so will all those FF councillors that will get booted out in the 2009 local elections.
Of course there is a danger that the government will now operate one of these banks like it operates the HSE, Department of Education, CIE, the ESB, etc… I really feel the only answer to the clowns in the “Kildare Street Circus” is to undermine their political bases in the local elections in June. And that goes for the full range of political parties that seem to think they can ‘instruct’ us into what is necesary for us. They spent the last fifteen years instructing us to ‘celebrate, our acheivements’ (that would be overspending, overdrinking, overborrowing, overconsuming, and behaving arrogantly,… Read more »
A few years ago, the EU gave Ireland just enough money to “Prime the Pump” that could be used by the government to flood the Irish economy with cash for the benefit of the people. For a while it seemed to be working.
Now that infernal pump is being used by the government to suck the economy dry and flood the Banks with Irish people’s hard-earned cash.
The whole machinery of government is like an antiquated steam engine that has lost its governor. Stand well clear of the resulting catastrophe.
I just think is simply criminal what’s going on. Raiding the piggy bank so the big boys can still buy sweeties. And not a loaf of bread left in the house. A quick back of the fag packet (my last one) calculation based on the percentage error in forecasting since September gives us a 20bn deficit by Q3 2009 and no-one willing to lend us anymore. Trichet will be forced to do something akin to economically invading Ireland to save the precious Lisbon Treaty et al. Obama will convince politically high profile MNC’s to repatriate, which they will do willingly… Read more »
I’m annoyed by the continuing bandying around of this euphemism, ‘re-capitalisation’. Let’s call a spade a spade… The money is going to help pay off the debt that other people and organisations won’t be able to re-pay. That is what happen in an economic crisis… debt is liquidated… full stop. And we have a long way to go. Apart from debt problems in real estate, we still have to see debt unwind fully in Emerging market loans, Commodity derivatives, Corporate bonds, Credit cards, FX derivatives, Credit defaults swaps, and God knows what else… “Banking was conceived in iniquity and born… Read more »
Garry, agree with you fully. When I heard last night about the €10billion I too thought David’s article would loose it relevance. But then I read the statement – http://www.finance.gov.ie/viewdoc.asp?DocID=5604 – and quickly realised that the above article is more pertinent rather than less so today. Karl Marx ( a very astute, if misguided man ) once said that whenever the train of history went around a bend, all the intellectuals fall off. The financial world is certainly in the middle of a sharp turn at the moment and the problems caused are being exacerbated by the intellectual conservatism of… Read more »
You’re in top form today Furry
The lack of leadership from the current government beggars belief but the alternative is Dumbo Kenny – do people really think that him and his cronies provide a better option??!!! The only person that I’ve seen that has shown something that resembles leadership is Eamon Gilmore but Labour running the country is never going to happen!! Are people at home really getting to grips with how serious this potentially could be for the country and will Lisbon go through this time or have people still got there heads stuck in the sand and think that they can live without money… Read more »
@ Lorcan “Karl Marx ( a very astute, if misguided man ) once said that whenever the train of history went around a bend, all the intellectuals fall off.”
Now we perhaps know where Pat Rabbitte’s legacy of drole witticisms began!
If you can’t beat ’em, laugh at ’em!
As the statutory non-economist, non (ex) public servant with a vested interest in the pension fund, non financial guru, non professional commentator, non knee-jerk reactor, on this blog I read David’s latest blast after I had heard him on the steam radio and had heard the mooings of the cash cow in Merrion St. So, I was mulling in my simple brain – what does it all mean – and have come to the conclusion that even David has run out of ideas. The Merrion St stuff is further filling until after Christmas, on the basis that the markets will… Read more »
Most of the bankers that I worked for were neophytes in the industry who climbed very quickly through the ranks. Some deservedly attained their positions through hard work, while others had ‘connections’. Some of the connections were as a result of nepotism while others were connected through neighbourhoods, through friendship and through the sportsman ship of golf (my dad plays golf with so and so). Some were appointed as managers when it was obvious that there was a lack in management, leadership and people management skills. Can I blame the person appointed to this role for taking the opportunity –… Read more »
As far as I can recall Barry, our banks owe the German banks something like 400m or more. And young Merkel, that fine thing, doesn’t really like us anymore since we broke ranks and saved our banks at the expense of a couple of theirs.
Bur since Reunion brought in a proper expert, we could ally ourselves to them. Nice spot for school exchange tours, hen nights and skinny dipping.#
Ryan Lingus (no smutty jokes please) would accomodate the long haul.
Beautiful Mind – http://www.fordham.edu/Campus_Resources/eNewsroom/Archives/2008/archive_1377.asp
I remembered last week asking you all about HOW bankers from Anglo-Irish (except the top executives) still manage to get a raise and a bonus. (Last Sunday lunch was quiet on both sides of the fence, banker’s side and my humble side and that is because we genuinely lost it now) Sorry for being so pessimistic but how could you for a second even imagine that this government is going to deal with this situation. How can we even discuss the idea at all?! Look at their management skills, are they going to hire banking consultants from abroad? This government… Read more »
shocking news – down my way …..today i was shocked to watch so many ordinary people withdraw cash in large significant amounts …i am happy i did too
Moderator – I want to complain about wrongful impersonation by comment made at 18.11.56 as you know that was not written by me …..please amend the record
I liked the Nash article. My suggestion to improve matters here is to make DMcW the CEO of one of the banks. Seriously! Give him a tonne of share options at the current prices to take on the role. If he says no then offer him more :) That would shake up the banking sector in this country overnight. Someone would get demoted or fired, the minister would exercise some terrifying power over the banks and DMcW would get a real challenge with the possibility of wild wealth and public acclaim if he pulled it off. Failing that, we’ll hand… Read more »
webmaster – thanks for your prompt attention …impersonation would do too much harm
I am beginning to think that DMcW’s original idea to save the banks was a real bad one. It would not have worked anyway no matter how Lenihan acted. Throwing good money after bad merely because we want the institutions to survive to keep the economy rolling is really another recipe for preserving bad behavior. These systems of institutions need to be closed down – full stop. Just bankrupt them now!! And start new institutions from scratch. You could nationalize them (in the mistaken belief you skipped the bankruptcy part), but it will only preserve the culture referred to above… Read more »
If the government do not put a gun to the bankers heads and get them to lend as aggressively as last year we will be in serious trouble. The only way out is to inflate the monetary system somewhat with Keynes principles. Gordon Brown and Sarkozy are right to demand the banks lend at higher than last years amounts. If central governments are the main shareholders than they dictate policy. This is the policy that Ireland should be taking. I think people forget that all the mortgages etc within the system for new house developments can be estimated at 33%… Read more »
Lets get back to basics.The rot started with a rotten party.They still have lots of support.Many are still grateful for their largess (The pig farmers lately) landowners, developers, public servants,Etc.
David had his finger on the essence of the problem here, when he spoke to “The Waffler”:
http://ie.youtube.com/watch?v=jUrk5qPqt94
Not sure they will get a nose bleed next June. Maybe if the young people (their main victims) come out and vote.
Its a bit late anyway for bringing Kenny Lite into the picture. There is no credible opposition to these guys.God help Ireland.
I think we need some sort of tribunal for the banks. But this time no lawyers, just Department of Finance officials and a select committee of seasoned no-nonsense problem solvers from the private sector(Alan Sugar types). The reallocation of wealth that David talked about in his books/TV documentaries has taken place. This reallocation created a gap which was filled by the banks. And the banks did this exactly as David showed, by borrowing from German banks. Bertie Ahern, Mary McAleese, the Dail, Corporate Ireland, the trade unions and the media all declared that we had massive wealth, and that we… Read more »
Re: http://www.fordham.edu/Campus_Resources/eNewsroom/Archives/2008/archive_1377.asp and a quote from the article: “A fixed-rate 30-year mortgage would be reasonable under the gold standard,” Nash said. “Now, there are variable rates, and adjustables, and convertibles, and it is very complicated” for homeowners to figure out what they are getting into. In fact, Nash said, nobody really knows the depth of the financial crisis. It was the USA that started the rot some 60 years ago. “The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed… Read more »
soldiersofdestiny – When you talk about ‘waffler’, are you talking about the Drumcondra Ditherer ?