Is the bank tail wagging the Irish economy dog? It is certainly beginning to feel like that. Not content to wreck the economy in the first place, the banks’ managements have now embarked on a “silent takeover” of economic policy.
The most egregious aspect in all this is that they are being allowed to run the show by the Government. This spectacle of bank bosses apparently writing the script is why hundreds of thousands of ordinary people see the proximity between the big developers, the Fianna Fail party and the banks as one and the same cabal.
It is not up to us to change our view, it is up to the Government to change it for us by showing that they are prepared to treat the banks like any other industry. Otherwise, what conclusion does the minister expect us to draw?
It is not that we don’t understand the magnitude of the challenges facing the economy. We know we are in deep and that, like it or not, we all have to shoulder some of the pain. We realise that our banks have enormous problems and that the power of the State, if it can be exercised, should be used to prevent a financial collapse.
In principle, we understand that the State must be involved, but, at best, we want the banks to be working for us. At the moment it is impossible not to draw the conclusion that we are working for them.
The most conspicuous example of this banking dominance is the creation of the National Asset Management Agency side by side with the blanket guarantee of all bank liabilities. This means that the banks have both a safety net and a parachute, while the rest of the economy is left without any means of protection. This disparity is the root of many people’s incomprehension and, ultimately, anger.
Think about the contrast between the treatment of the delinquent banks and bankers and the rest of us. If you are in the business of making things for sale on the international markets — the lifeblood of a trading economy — you are faced with every possible obstacle. You need to trade in an overvalued exchange rate, which is getting stronger. You most probably have had your working capital and overdraft cut back severely by the same banks that are now availing of the NAMA and the guarantee. Your tax rates have increased and the cost of labour has also gone up as income tax has risen.
You are facing deflation everywhere, yet the interest rates on your debts remain significantly higher than the interest rate being charged to the banks for the credit in the first place. You, who employ people, are being squeezed. The banks are being subsidised at every turn and you are being penalised at every juncture.
This is not an economic policy, but a silent takeover. The banks are now the biggest liability we have and keeping them alive at all costs — which was, on balance, the right thing to do a few months ago — is beginning to look like the least beneficial route. The guarantee, of which I was a big supporter, was supposed to be introduced to give the banks time to find a solution to their problems. You give them time, there will be no run on deposits and then they come up with solutions, you force their hand, you are the boss. Instead, our Government allowed themselves to be run around by the banks that benefited from the guarantee — without extracting any concessions.
The banks are still giving the State the two fingers. Having both the NAMA and the guarantee gives absolutely no incentive for the banks to get their house in order.
To rectify this dilemma at the heart of monetary policy and to make sure we don’t end up with a zombie banking system, now that the NAMA has been set up, the State has got to rescind the guarantee.
It should limit the guarantee to depositors. The debt holders will be okay so long as the banks don’t go bust, which they shouldn’t with the NAMA in place. The State has no business using our money to bail out or protect in any way the equity or subordinated debt holders.
Subordinated debt is a risky asset, which was bought by rich mates of the banks. These are rich men’s IOUs. Bank of Ireland alone issued â‚¬15bn of these IOUs. They should not be underwritten by taxpayers. This is a classic example of poor people subsidising millionaires. It is wrong.
If the guarantee is not rescinded as soon as the NAMA is set up the whole thing will be an oligarch’s bonanza because the taxpayer is on the hook for the â‚¬450bn in bank liabilities and the â‚¬90bn bad debts. This is paying for the banking system twice. Once you take out their bad debts, the banks should be able to go to the market and finance themselves. If they cannot, they should not be in business.
Yesterday, AIB — the bank that has constantly said it has no problems — admitted that it was in big trouble. Well, thanks lads for the confession, but we figured that out years ago. Have you examined your share price recently? It goes without saying that there has been absolutely no change at the top in AIB — the chairman and the chief executive are still there. This would not happen in any other country and because they are still in their jobs, foreign investors won’t touch us with a bargepole.
Can the minister not see that they are taking the mickey out of him and us? Maybe he can, but because the Government is too close to the developers and bankers, he is doing nothing.
The time to choose has come. The minister has to choose between the ordinary people and the powerful elite. If the guarantee is not rescinded when the NAMA is set up, we will know that he’s on the side of the elite.
In which case, he and his government deserve everything they get at the polls.