IN Brian de Palma’s classic film ‘The Untouchables’, Elliot Ness, played by Kevin Costner, gathers around him a team of incorruptible police officers, hardened by years of crime fighting, to take on the power of the mob. The real-life hero behind the move was an old, street-wise Irish-American cop, Jimmy Malone, played by Sean Connery. The term “Untouchables” describes this particular group of men who were straight, above the temptation of both bribery and flattery and, as a result, were the only type of men capable of infiltrating the mob.
The success of the Untouchables was due to the tightness of the group, whose interest was in restoring law and order to the US. Whereas cops in the past had been bribed by the mob, these guys were driven by a sense of honesty and national duty. Their success in cracking the Mafia was due to their incorruptible nature.
Brian Lenihan might now consider putting in place his own bunch of financial untouchables to delve deep into the banking system, with the national interest to the fore.
As the financial markets’ meltdown continues, Mr Lenihan’s move last week is being seen as part of a global solution to the banking crisis. Three countries have already copied the idea and others could follow suit. All the other ideas that have been tried — such as bringing toxic assets under state control, forcing mergers or allowing banks to go bust — have failed to stop the havoc.
So what will?
Well, perspective is important. We need to know where we want to end up when all this is over. Although it is difficult to appreciate now when banks in Europe are falling like skittles, it is important to appreciate that all financial crises are temporary in nature. Eventually, they either blow themselves out, leaving huge devastation in their wake or, more often, they are blown off course and are snuffed out by the heavy artillery of government intervention. The reason the crisis in Europe has become more critical in the past 24 hours is that the prospect of coordinated government intervention does not appear likely. Not surprisingly, the markets are panicking.
Taking a step back from the hourly bad news, it is therefore crucial to stay calm and look beyond the mayhem. We know where we want to end up. Ireland needs to have a functioning, if chastened, banking system which is well capitalised and capable of shouldering the recovery. More than that, the banking system needs to be part of the State’s arsenal in fighting the downturn and ushering in a potential upswing.
In short, as a price of the State’s guarantee, Mr Lenihan has to engineer a situation where the banks are working for him. After all he just saved them, using our financial credibility as a sovereign nation rather than injecting cash.
“So what’s the problem?” you might ask. Surely a grateful banking system would aid the minister who has thrown it a lifeline? Well, unfortunately it doesn’t work like that and at the moment the banks are equally as likely to work against the State as work with it.
Let’s take a look at the State’s interest and the banks’ interests. The State needs to get the banks to write down loans as quickly as possible. It needs the balance sheets of the Irish banks to be cleaned up as soon as possible. The reason for this is that the State’s interest is in a banking system that takes a large loss now due to bad debts in property, draws a line in the sand and moves on. Such a move would allow the banks to start lending again to good Irish businesses whose dynamism is needed to ensure we pull out of the recession as soon as possible.
In this scenario, banks need to eat into shareholders’ capital and, most significantly, raise new capital.
There is likely to be significant consolidation in the banking system but this will not be enough and new capital will be needed.
As it is probably the only institution that will lend to the banks at this time, the State should take significant equity in exchange for any new injection of capital.
In addition, the State should take a substantial interest rate and equity option from the banks for this recapitalising loan.
In four years’ time, there should be a more robust banking system with shareholders who have paid for the excesses of the past and us, the State, owning a significant portion of the equity.
The key here is that the State pushes the timetable and accelerates the cleaning-up operation.
The banks lose out here because they have to give away equity for free, they will have outsiders on their boards and, more to the point, the guilty board members and senior management will pay with their jobs. Further, knowing that there are no bids in property today, crystallising losses now or at anytime soon, prevents the banks any upside in a recovery, whenever that comes. Therefore, the banks have an interest in slowing all this down. The banks’ interest is to hide behind the guarantee, not write down loans as quickly as the State would like and allow international financial markets to recover so that they can refinance without giving too much equity away to the taxpayer. This would protect individuals but most crucially, from the State’s perspective (because retribution is not particularly productive), it would retard any putative recovery. This is the Japanese solution and involves putting the vested interests of the banks and their big clients (developers) first, in an effort to avoid realising losses.
In the national interest therefore, Mr Lenihan needs to see detail of the banks’ balance sheets to assess how quickly the crunch in the credit markets can be cleared. The best solution is obviously for both sides — the banks and the government — to work together, probably meeting half way on many issues.
This can be achieved the “hard way” or the “easy way”. The easy way is for a contrite banking system to “fess up” to bad loans, and possible corporate malfeasance. This way trust can be rebuilt and the system recover. However, if the banks refuse to play ball and forget we’ve propped them up with our guarantee, then Mr Lenihan has to play hard.
This means calling in The Untouchables. These would be the toughest, straightest men in Irish finance who pledge to work in the national interest. Due to the excessive coziness of Irish banking, they will need to come from outside the banking cartel. Bring them in from abroad if needs be. Let them go into the banks and force the pace. The banks need to know the State is now in the driving seat. They can cooperate in the national interest or not. If they do, the guarantee will work smoothly and the crisis will pass. If they don’t, the Untouchables will force them. The stakes are far too high and the world too uncertain, to be left in the hands of those who brought us all to the brink last week.
Where would we find these untouchables? It seems to me that the vast majority of those who have done their time in financial related industries, will be irrevocably institutionalised in one form or another. Or corrupted in some form, through proximity to the profits that were there to be had for the taking. Hang on… a memory is coming back to me… Yes… I think that once I heard from an old old woman in India, that there are a handful of these type of men hidden away, quietly studying in the monasteries of the Himalayas… If so, we need… Read more »
Hi David, So, the gurriers have become the Untouchables. I agree that in a fair world, the banks would fess up and state the damage as they see it. However, turkeys do not vote for Xmas and go for the neck chop willingly. You are dealing with the same humans who created this mess on the way up. They aint gonna turn into Mother Teresa’s now for the benefit of the country or its economy. They will have to be dragged out of there kicking and screaming. Their problems are endemic culturally in their organisations from the top down. Also,… Read more »
The talent required is in such demand that you would have to pay fat-cat rates to acquire them. You’d probably have to incentivise deals with hefty performance bonuses not to mention the golden parachutes. Rince and repeat.
Totally agree. However the bank chiefs have been very quiet these last few weeks and I am not aware that any reporter has had an opportunity to put this proposition to them publicly. See if any of them are brave enough to go in front of the cameras to discuss this. I would be very interested to hear what their contrary views would be.
Time to get to the bottom so we can get on top again.
Guys – we gave the guarantee too cheaply we should have extracted the equity stake / made a capital injection we shouldnt have waited till anglo was on the brink and have to do an emergency tactical solution no lenihan has no leverage over the banks. there was time to do this properly, and make a capital injection / take equity stake ala AIG. instead we took the cheap option, cheap for government in that there was no money down, cheap for banks in that there was no effect on their shareholders. no we go cap in hand to the… Read more »
judging by the market-Anglo is still on the brink.
Will Fianna Fail shortly have a large insolvent property portfolio on their hands.?
If so,thankfully they have plenty of cronies with expertise in this area.
First the way needs to be cleared. Give the regulator a good hiding, then get rid of him… Shame that legally all we can do is bring him before the Dail, let the mob (junior politicians) all have a kick at him, then fire him.
And when you’ve got everyones attention, send your boys in, accompanied by the CAB.
Now there is one organisation that comes to mind where one can draw direct parallels with Elliott Ness et al. They resisted bungs from druggies and threats from gangsters just like Ness and have demonstrated a handsome success rate in attacking ne’er do wells tax accountability, just like the strategy Ness employed. I wouldn’t like to be answering to CAB after the cornflakes. If it’s tweaked, it can regulate the banks as well as it regulated the mob. Sorry state of affairs but it would unequivocally demonstrate the Minister is very serious indeed. The sound of the culpable jumping ship… Read more »
I nominate Senator Shane Ross. As evidence of his suitability I submit his record in the Seanad (he is probably the only member worth his pay there) and in his news colums. David McWilliams, Ray McSharry (if he young enough), Morgan Kelly, Dr. Sean Barrett, Alan Ahearne should also be considered. As much as possible it should be Academic economists who consistently criticised the culture of waste, greed and irresponsibility. Also bring in Sarah Palin one day every three months, purely for the purpose of sacking all the useless lazy old men, and breaking up the nepotism networks/golden circles :)))… Read more »
The property valuations securing the bank loans are all false now and new property ( large developments) are still being listed on the internet at height of the boom prices, logic would suggest that any developer would drop the prices in order to sell, in many cases this is not happening. Other forces are still keeping this smokesceen alive…The banks.
Greetings! As I already mentioned in an earlier comment (to the previous post about Q&A), the idea of forming a special investigative unit in the ‘Untouchable’ style is very good, logical and – it can be done. However, it will need the absolute will of the government to act, and act in the national interest, and not in the interest of Fianna FÃ¡il and their close friends in the financial sector and the construction industry. I fully agree that the people for this unit would have to be hand-picked, and anyone with links to the banks, the insurance industry and… Read more »
Epic as in the search for this untouchable… I don’t know about private practice, but certainly every accountant I know of in positions of responsibility and authority in our public and regulatory sectors, would have very great difficulty rising above the ‘cleverness’ and ‘don’t rock the boat’ norms of their profession. Apologies if I was overly facetious, sarcastic, and childish in such serious times.
Shane Ross would be a good choice if he was an accountant… He is not, regretfully (he studied history and political science).
“And though I am not looking for a job, I would be willing to make myself available for such a task as well.
As a former military officer and now for many years a political analyst, commentator and independent consultant, I could well contribute my skills to such a team. And having been a harsh critic of the banks for years, I would certainly have the right attitude.”
Throw up the old CV till we have a look at it. I’m a bit dubious (though interested) in the Military taking over.
with each article I realise you are becoming more and more a complete fantacist…
God. For a start, need to be:
1. A qualified and very experienced accountant (you wouldn’t ask a baker to try and fix a car, would you?)
2. No Irish property investment interests
3. No investment interests in the banking industry
4. As few and superficial connections as posiible with people who have Irish property and banking interests.
Ye need to be more strategic and think big….. Whoever does this needs to have legislative powers. The regulator has the powers, so they need to go in, backed up by the CAB… Between them they can look anywhere. I wasn’t just being nasty in firing the current one, that was just a bonus :) I agree with Deco about adding an international dimension and on Eddie Hobbs… But why not invite the Germans to put someone on the job, in a senior position in the Regulator?….. I’m sure they have someone up to the job and it would reassure… Read more »
Roc, I’m not Irish, I’m from Eastern Europe and you can believe me I am aware how one can make living out of cheating and outrageous lies. I’d seen it so many times… that there was no other way, I’d learned ‘the internals’. On the other hand I’ve been living in Ireland for several years already, I mean long enough to understand what’s going on. I agree with what you said, Roc, that it’s hard to find such a person. There’s a saying In Polish, that ‘the darkest spot is often the one just under a lamp’ which applies very… Read more »
O’Leary is the only man for the job ……….
Roc while their at it , all the “Panama Towers” of vacant apartment blocks could be bought for next to nothing as social housing and it would cost the Taxpayer a lot less money in the long run.
“Roc while their at it , all the “Panama Towers” of vacant apartment blocks could be bought for next to nothing as social housing and it would cost the Taxpayer a lot less money in the long run.” My gut feeling tells me that there is some help coming down the line for the hard pressed irish developers in the coming budget. “The Eye” may be on to something. Will we see 10,000 derelict units taken off the builders hands, to house some of the 50,000 social housing waiting lists alongside those who have bought and overpaid(negative equity) for such… Read more »
Just heard DMcW on the radio plugging the Untouchables theory. It struck me as pitiful that his intellect in these very complex times has to create simplistic imagery to get the message across.
I wonder whats cooking in his head because he isn’t a knee jerk populist kind of guy. If his “small steps but lots of them” approach works he’ll be a national hero. If not, he’ll be vilified for ever more. But he knows that so more power to him for sticking his head above a very nasty parapet.
It’s kind of Pee or Pot time.
10,000 unoccupied units in Dublin alone (RTE news report), I’m sure many more around the country and yet we have people on the streets (http://www.irishtimes.com/newspaper/ireland/2008/1002/1222815460344.html) People living in absolute squalor in Dublin (Dublin communities failed by Public-Private Partnership – http://www.rte.ie/news/2008/0925/primetime.html), and others crying out for affordable housing. The Knowledge economy! Estimated 40,000 children being taught in prefabtricated class rooms (http://www.labour.ie/blog/archive/2008/06/18/40000-children-being-taught-in-prefabs/) The Celtic Tiger bringing prosperity to all! 300,000 on low incomes suffering malnutrition (IFront Page, Irish Examiner Sept 8th, 2008) Politicians take responsibility! “The Irish Public to Blame for housing Collapse” don’t you know – Minister of Finance, Brian Lenihan… Read more »
Has Fingleton Snr sacked Fingleton Jr yet?
When that happens its time to sack Fingleton Snr.
Who paid the fine? Probably the shareholders, poor mugs.
Now. stall the digger here a minute and go back a bit. This mess started because the banks could offset risk to the insurance market without having to fully disclose due diligence. The insurance companies took the risk in good faith and myopia to sell the risk on to a point where there is now a blancmange of risk becoming actual hazard.So it’s a question of risk realisation. Ok. Now that the governments are acting as insurance brokers and with an Untouchable Dept for due diligence, the Govt can introduce a risk premium, refundable after the risk has demonstrably evaporated,… Read more »
Let the banks and property developers get whats coming to them. All was rosy when they were making huge profits, and allowed to do so from the powers that be – who got ~30% tax receipt of each new property sold, while the ordinary man/woman on the street payed over the odds just to buy their own home. The State must protect the huge risk now to the taxpayer with this guarantee, and must not be used as a handout for the banks/developers. For toxic loans to commercial proprty developments that now are of value in excess of current “market”… Read more »
Untouchables team to consist of: (1) Headed by a go-getting businessman/woman, used to running a company, cracking heads when required, straight talking, takes no cr*p, no property interests………….someone like Michael O’Leary, Bill Cullen…etc (2) Assisted by State legal system representatives e.g. solicitor from the DPP, and member of an Garda (say CAB or the Fraud Squad). Bankers being questioned must be made to be thorough, and observed by experienced interrogaters. Any attempts by bankers to conceal the truth to be questioned. (3) Assisted by someone who understands the banking system, the preparation of banking accounts, finance..etc. Can ask leading questions… Read more »
David > As it is probably the only institution that will lend to the banks at this time, the State should take significant equity in exchange for any new injection of capital. Seen as we are following the Swedish model from the early nineties, lets look at what they did after they guaranteed all bank deposits and creditors of the nations banks in 1992. (This guarantee extended to 114 banks in Sweden rather than the six here, but the model is still sound) Their banks, like ours, were in need of recapitalisation, so the Swedes set up an agency to… Read more »
Crimnal assets bureau. Revenue. Did anyone think of these guys. They work for the state interest.
The Footsie and the ISEQ have tracked each other today step by step. Someone out there is making an absolute killing since lunchtime
How long before te .5% is passed on to the good people of Ireland?
What is the best outcome for Ireland & the worst? Seems to be some talk of ‘next Spring’ – are we going back to the 80’s for sure!
Roc said “Where would we find these untouchables? It seems to me that the vast majority of those who have done their time in financial related industries, will be irrevocably institutionalised in one form or another. Or corrupted in some form, through proximity to the profits that were there to be had for the taking.” The United States and its financial system were founded, in large part, by stern and incorruptible Scots-Irish Presbyterians. Many left Ireland in the 18th century because of the free-loading Gombeen Men, who supported each other in their malfeasances under the double umbrellas of the Church… Read more »
David how about this:
Ireland is the pram in the Movie “The Untouchables” ..going down the stairs… step by step in the famous railway station during a gun fight between the The goodies(The Gov) and the baddies(The banks) except the stairs are a lot longer and the goodies are really gormless and they forget to catch the pram because they will forsake all else just to get re elected……….mmmm i gotta get out of this estate agency business……too much time…..no money ….mind starting to play tricks….kill…kill…flat…do you except de welfare. wha?
It looks like Armageddon on the market right now-despite government guarantees (not worth the paper the contract will be printed on) and massive “real cash” injections by central banks everywhere.
Where will it all end.?
Garry I propose including non-nationals – because in my experience when ever a committee is appointed in this country from Irish people, they are all from the same county (Dublin), all from the same side of the river(south of the Liffey), the same side of the stream (east of the Dodder), the same socio economic group, the same uni (UCD) and even possibly from the same golf club. They nearly always already know each other. As Shane Ross keeps saying it is ‘incestuous’. And the behave like the FAI. There decision making is about the same, and they love playing… Read more »
Shane Ross would be ideal, but we’d miss him from the Sunday Indo. I was also thinking of a German, they are thorough, perhaps recommended by the Chancellor. A tough Yank wouldn’t go amiss. For some reason I like the idea of a bloodyminded Yorkshireman/ woman (makes no difference), preferably one with a chip on his shoulder about the banks (shouldn’t be difficult to find) or failing that John Stalker if he’s still around.
Irish Nepotismwide building society.
Eerie. If you turn todays ISEQ and Footsie chart vertically, they look like the outline of Ireland. Must take the tablets.
The “untouchables” is an admirable idea that would restore public faith at least. But the untouchables were a product of the 1940s when “honour, scruples, honesty,” were not just highly regarded in general in society but you did not get to do any business unless you could prove a personal merit of integrity. We now live in a every different world, where effectively nothing matters except to make profit for it’s own sake regardless of the means, and the lamentable tradition in Ireland since the 60s at least, has been that the “cute hooer” who pulled a fast one is… Read more »
“we never saw it coming, entirely new situation, unpredcedented, unchatered waters” or maybe some keen civil servant with remember to include GUBU (Grotesque, Unbelievable, Bizarre, Unprecedented).
Its like the Carlsberg complaints office in here must not come out of my post tiger syndrome alcohol induced trance.
10,000 unoccupied units in Dublin alone – People living in absolute squalor The Knowledge economy – Estimated 40,000 children being taught in prefabricated class rooms The Celtic Tiger bringing prosperity to all – 300,000 on low incomes suffering malnutrition (Front Page, Irish Examiner Sept 8th, 2008) Politicians take responsibility – “The Irish Public to Blame for housing Collapse” don’t you know – Minister of Finance, Brian Lenihan TD on RTE Radio The Green Party promised it would ‘keep an eye on FF partners – Minister John Gormley TD belatedly & cynically proposed increasing local authority housing loans from 180,000 to… Read more »
As part of the presidential debate here in the US last night, both Obama and McCain were asked who they would bring in to replace Paulson as Treasury Secratary and Warren Buffet was a unanimous choice. Where the Irish financial situation is concerned, I thought Peter Sutherland would be a very good choice as the man to get the banks back on course while we all whether this financial turmoil. His experience speaks for itself. One thing that really irritates me is the fact that these banking chiefs – who blame the global economic downturn for the current situation all… Read more »
I hope after all this Irish people will start to think how they vote from now on…i mean Cowen for gods sake cant even put a shirt on himself properly. I wouldn’t let him run a sweet shop and I don’t think his gene pool could be too hot either ( I also think he is pissed alot if not most of the time), Bertie was a finance minister without bank account (How Ironic) who bet on a horse with no name! The government will not feel the recession and there isn”t a days work in any of them. Its… Read more »
if the bankers and politicians were on the Apprentice they’d be fired, if they were present in France in 1798 then a worse fate would await them. The Minister for Finance is ‘serious’ alright, serious about getting away with a scandal as are the rest of the cabintet, most frustrating thing is that there is no alternative unless you are into the boys from Brazil (or mayo)…….Edna Kenny as Taoiseach, Simon Conveney as Minister for Finance, I seriously doubt it……sure Simon held two posts simultaneously, TD and MEP and claimed to represent people effectively! In any case it’s the senior… Read more »
Many comments follow my own line- the Celtic tiger was a finely crafted extortion aided and abetted by the government, the loot has been skied away and now the public are required to bail out the culprits, while they alone will suffer the results… There is currently great talk an interest and excitement about the state of the economy, and schemes and percentages are touted about, and there is gaping and awe at the losses and much talk about solutions… and people, as on this forum, are brimming with theories and reflections… But the great tsunami of the crisis has… Read more »
“The Eye” – not only is Cowen on the beer, but the Minister overseeing the biggest government body, namely the HSE, is widely rumoured to be drunk on a regular basis. Una – I would not put Peter Sutherland in charge. He used his wife’s name as a means of getting out of paying DIRT tax in the early 1990s. He was in AIB around the time AIB got a â‚¬140 million write off from the Irish government – involving his distant relative Garrett the Good (for nothing). He also trousered a large bonus from Goldman Sachs – currently one… Read more »
The Eye – your abbreviation – Irish Nepotismwide Building Society wins the award for best abbreviation – your prize is a framed photo of the Fingleton Family in full uniform outside INBS HQ – surrounded by family and freinds, and their friends families, and golf club members….that should include the top three layers of the entire operation…..plus various other pals on the INBS payroll….or beneficiaries in some way…..all smiling safely and smugly. Because that is the way these things operate in Ireland !!!
This is all starting to sound like Deliverance (Part Deux)
I’m going into banjo making.
i think we need our greatest ever taoiseach back, bertie ahern. he’s a great fella for meetings and striking deals and compromising, pressing the flesh, kissing babies and all that craic. he knows exactly what caused the problems we’re currently faced with, so maybe he could have a good chance of solving them for us also.
and he might ask the senior management in our banks to go away and commit suicide if they can’t fix this mess.