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.
Here’s a great article with insights into what David is talking about above – An IMF perspective on trying to get the governments who come to them for help to properly squeeze their oligarch mates and favoured rich associates instead of the ordinary populace.
… The fact is that this advice goes absolutely contrary to everything Fianna Fail and Fianna Gael have ever stood for… But what is becoming clear is the horrific consequences of this primary aspect of our political culture…
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B U L L S E Y E !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
ok so the luanatics really are running the asylum.
Problem is how do we get them out ???
How do we contact the IMF and ask them to come in and sort us out? It is clear that our overpaid, inept politians are completely incapable of running the country. Your article as always is excellent and explains what is happening clearly.
The difficulty is people like the Labour party and Sinn fein, whom have no ability to run the country will end up filling the vacuum caouse by any backlash. This will definitely bring us back to the 80’s. We need talented people with acumen to survive this and to move forward. Pity Enda Kenny comes across as a bit of a pratt, a more telented intelligent opposition leader would haved stopped this by now.
Who is for a meritocracy?
I really like the demand to remove the guarantee on debts as part of the price for setting up NAMA.
David, I agree, but I do not think that you go far enough. Yes, the guarantee should be rescinded with the inception of NAMA; however: Before the guarantee is lifted, while we still hold sway with the guarantee, the boyos must be fired – you intimate this, but do not go as far as actually saying it. wills wrote last night about the bankers being caught with their pants down; I laughed so loudly, I thought I would wake my children from their sleep! Then I felt guilty for laughing because the matter is so serious and people have been… Read more »
“Is the bank tail wagging the Irish economy dog? It is certainly beginning to feel like that.”
Sweet divine …! That’s been clear for years.
Wise heads were shaken when AIB was let off the hook in the mid ’90s over the offshore accounts felonies.
In the end, we will all wonder why the Swedish model wasn’t followed, and followed aggressively.
Time to fire bankers. Time to prosecute bankers.
There is only 1 solution to solve all the underlying problems in Ireland,and it is this (my heartfelt opinion)….Nationalise all the Institutions i.e.. AIB,BOI,IL&P,INBS,EBS.(Anglo already done).Set up NAMA to deal with all property related loans,excluding Residential Mortgages.Re-float the following when cleaned up 6 Banks of equal size in terms of Capital and branch network etc.(re-named and re-branded) under clear and workable Regulation,with new Management.The sales proceeds from same can be used to offset any losses by NAMA,which can be supplemented by a Bank levy and proceeds from Taxing future profits of the Banks.Newly constituted Central Bank to oversee all Financial… Read more »
There ain’t nothing silent about this takeover my friend.
We are heading not for the great clash of civilisations, but the great internal clash of our society, things are slowly reaching boiling point, there has to be a reaction to all this, I give it 12-18 months and then you will see things.
Only the beginning, the slide into something more serious, you can almost feel it in the air.
TIME to go in with the handcuffs and make arrests.
There is a criminal banking – corporate – gov – syndicate running the affairs of this Republic.
A Financial fascist order enmeshed into a gangster feudal pyramid superstructure and self interest reigns supreme over the minions
hard labours preserving the masters in their ivory Leer Jets.
6 or 7 months was plenty of time for these Bankers to get their act together and put forward solutions.The fact that things have got worse means they either cannot or will not do anything that affects their own narrow self-interest.Time for Cowen to get in there and sort it out and earn the money He’s getting paid.Cowen works for the Country first and foremost.Were way past time for fucking about with these clowns and conmen.Cowen cannot oversee the failure of this Country by pandering any longer to these money grabbers.Cowen is answerable to the People and their Constitution and… Read more »
On a side issue I hope John Allen took my referring to Him as a Celtic Git in good humour as no offence was intended.If He was offended I apologise without reservation,as I have grown quite fond on John’s take on Life as we think we know it.Looking forward to reading more of His observations as He steer’s His poor old Neidin around this present Morass.
How the hell do you request email notifications without actually making a comment (as I don’t have one at this juncture)? Thanks, Adam.
Just read Lenihans response http://www.independent.ie/opinion/analysis/states-priority-is-helping-economy-not-the-developers-1716678.html A lot of bluster about credibility…and meaningless commitments to not let developers off the hook… No attempt made at serious analysis of the situation, or to core point of the article, the banks are now running us… indeed the comment that the government are working very hard to restore the banks credibility shows who is working for who at this stage… Sure give me 75k from every man, woman, and child in Ireland and a guarantee from each of them to make good up to 400k of my debts and I’ll loan money to business.… Read more »
Dun Aengus – even the sea gulls on the cliffs know what is arriving from USA and to listen to them it is very noisy indeed .They all have so much to say and every story is worse than the next so much so they almost cannot remember which nest is actually theirs thus resulting in some of them acting like cuckoos and others doing surregate care maintenance.Even the lobster pot men notice a fall in their catch and some have taken to selling their potware on donedeal.ie .The reason apparently is that the lobsters remain coveted under their favourite… Read more »
What amazes me is that there have been no major writedown’s by the Irish financial institutions. The dogs on the street know that property prices have been set back at least ten years but the banks and the government seem to believe that the next boom is just around the corner. Every move that the government has made recently is to protect the interests of the elite and the banks and no one else. I feel like they are trying to bring a horse (Irish Public) to water , but at the end of the day they cannot make us… Read more »
Let’s see how many dummies in the Irish electorate vote FF in June.You get the politicans-that you vote for.The late Ray Crotty was blackballed by the establishment and you David are suffering the same fate.If emigration does not resume on a similar level to the eighties ,then we will suffer financial oblivion within a year.The uselessness of the opposition and their obsession with Brussels is depressing.Quit the Euro while we still can.
Watched Obama’s speech last Tuesday. Thought it was reasonably good and gave a good overview of what he is doing & why he is doing it. The main thing which gives him credibility at this point is that fact that he can disassociate himself form the sins of the past administration. I think FF are starting to do some of the right things although I fear they are not doing enough to stimulate confidence and get money flowing, which could lead to further increase in levels of unemployment and a general deterioration in the economy for the foreseeable future. One… Read more »
Easily, this is the most frightening article to date from DMcW. From the title through to the body content of the article, it is hard hitting and to the point. Indeed, I would appreciate some attempted rebuttal before we all drown in group think here – maybe something a little less slap dash and less mantra like than the rubbish published by our Minister for Finance today. Hopefully, Lorcan, MK1, Malcolm, Deco etc. could attempt to throw a little acid on it for a stress test. My simplistic summary is: The Martians have landed a few decades ago and have… Read more »
David – You hit the nail on the head. Wills – I read your commend concerning the section of Irish business which has functions as a parasite, and uses the rest of society as a host. This mentality is still best exemplified in the banking sector, and in parts of the civil service. The are the institutional insiders, the price-setters, the free-rent seekers, the above normal profit seekers. This is the mainstay of IBEC. And IBEC are the largest and most powerful lobby group. They want capitalism, as long as they get socialism when they fail to operate capitalism. And… Read more »
Regarding the FF, the Greens, the ESB and their big bureacratic energy plan (and cosy consensus to scratch each other’s back) – I recommend a quick review of the following. This is the alternative. Makes a lot of sense. http://www.independent.ie/business/technology/smart-energy-and-thinking-needed-to-electrify-our-nation8217s-economic-future-1716919.html There is an alternative energy plan. And it is about smaller scale electricity generation. And greater internal market competition. It asks for small local scale producer. And it is fully endorsed by one of the world’s leading electrical engineering companies. This is also clear evidence of why we should have the alarm bells going off whenever a Green TD Minister… Read more »
Ah, eventually, you will arrive at nationalisation. Our money, our taxes for the real economy, and let the subordinated debt take the hit, because political action is the only way to do this in a general election with a clear policy and a mandate from the people. Of course the establishment, including the mainstream media and RTE is not going to facilitate this process, at all, at all. Professor Kinsella offers us today in the IT a compelling judgement of the failures of the budget, the government and the political and administrative culture in the republic of oligarchs and plutocrats,… Read more »
roc’s link is superb, the best summary I have ever read, not so much because there’s that much that’s new there but because of the fact that it covers pretty much all the relevant points and because of who wrote it. (I wonder does Brian Lenihan consider the former Chief Economist with the IMF also to be a “swimming against the tide” maverick?) And as roc says, it’s directly relevant to our own case too – uncanny in places. It’s quite a long piece but bears careful reading. In trying to reach a judgment on all this, what with cock-up… Read more »
There is nothing new under the sun. The following Essay on Nepotism was written 200 years ago: A friendly affectionate man is a title given only to those who limit their benefits to their families, or circle of acquaintances. They are often bad judges of mankind and consider the merit of gaining their esteem superior to every other consideration of talent or genius. They are absorbed in the promotion of those nearest to them. In the scale of egotism, they seldom have any pleasure in the contemplation of general utility, practicing those acts of limited good which the selfishness of… Read more »
We are now in a limbo state of a time that is neither before the event or after the event of Decimation of Ireland and unless we act NOW we are history .Once we arrive into the ‘after time’ of The Great Change we all are a nobody and we all lose everything we grew up with and aquired and our minds become empty and devoid of an identity.Our children become plastic capsules of a lost time .We return to slavery again and indentured services. We have the best brains in the room but somehow we seem to evade the… Read more »
David’s article is incredibly courageous and perhaps he spent the week
seriously contemplating its possible ramifications but put duty ahead
“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.”
With the same management in place – who would trust them with unguaranteed funds? – it’s calling for a big leap of faith.
Let’s face it, with a proper management, the NAMA deal would probably work and work well.
Got this link from a collegue in the states…
hopped in for a lurk.
I knew somebody would eventually come up with the idea that it was all our fault – put those bloody women back in the home. The passionisation and effeminisation of men must stop now.
From the deranged oily surface of feminine politeness
Arrivals Hall : ……….the impact was sudden some already lost overbord…the lifeboats are being arranged in the first class section only, while everyone else is held down stairs in the lowest deck .And the cello ……plays beautifully and a violinist joins in the duet …the ship continues to tilt sideways slowley and in the bow a spirituality appears among the few lucky ones hoping against hope that they might find a life boat …..crying can be heard and sparten possessions are gathered ….the boat lilts further and the cello falls from the hands of the musician …..the violinist bravely continues… Read more »
INTMA – a problem foretold – look at this in http://trueeconomics.blogspot.com/
Says it all really.
“the State has got to rescind the guarantee”
David – I understand the frustration (and share it) but with this statement I find myself in very rare agreement with Lenihan writing in reply in today’s Indo. You can threaten nationalisation, tax audits and whatever other evils you can dream up on the culprits, but default on this sovereign commitment will mean instant closure of the Irish access to international financial markets – without which we will be soon back to the days of cavorting druids and stone huts for the Gaels!
the link is in error,. goto furry’s post on page4, last article, near bottom
of page, check it out, excellent officialdom speak on sovereign
debt,.. great detail and context. Removes all mystery and lay’s
out the mechanics….
Our so called establishment to which David’s article relates on,
have reduced Rep of Ireland to the worlds number one debtor nation status.
Our sovereign debt is the largest in the world by 500%…!!!!!!!!!!!!!!!!!!!!!
I’ll pause to ponder…………………………….
Sorry couldnt find it, would like to if you can re paste. But I suspect what it means is that sovereign defaults a ‘part and parcel’ in terms of having mechanisms to deal with defaulting national states, municpals/local authorities etc but the incidence of default is generally low amongst developed countries. And the relative consequences for regular offenders such as LATAM countries, Russia amongst others versus Ireland will be dramatically different. I also dont think the rest of Europe could afford an Ireland Inc actually/or even about to default e.g. apparently an amount equivalent to c.9% of Germany’s GDP represents… Read more »
Shadow Forum – Ok , I get it .This forum is a stalemate to any consideration to be seen to make a change to government policies .The room is just a talking shop or a cinema experience only that we here on blog are getting the preview before the nation catches up in ten years time by then this blog will have been edited by the new ruling party assuming the same clowns are still in power.
ok JohnD15, hope this works here…
John15: I agree with your reaction to DMc’s proposal on default, but it is not the first and wont be the last time that he considers the unthinkable. Again I give him the benefit of the doubt on this and put it down to more of David’s polemic and not serious economic evaluation.
I think the time on this thing is an hour out – I had better get home! Slan
Thank you roc for that excellent lead to the IMF view in Atlantic monthly. If I were in the Central Bank I would ask someone to devise an exit strategy for Ireland in case the whole Euro experiment craters as a result of stress in central and eastern Europe. If that happens it is very unlikely that the IMF will be rushing to help us, as they will have big enough problems elsewhere. There could even be an opportunity for Ireland in that scenario if we make sufficient preparation beforehand. I think the key to a solution could be to… Read more »
Ok so here we are giving the banks a guarantee for 400+ Billion. The IMF says that the banks will require 24+ Billion in capital to sort out there mess, minus the 7 Billion we have already given them. Now why are we guaranteeing 400+ Billion when even the IMF say 24 Billion will be needed. So does Logic not say the sensible course of action would be to Nationalize the banks accept they will require 24 Billion in new capital and stop having a 400+ Billion millstone around our necks. Forget about NAMA, instead set up the National Bank… Read more »
The Government cannot bail out the Banks as it cannot afford it.So by using the vehicle called NAMA it can issue Bonds to the Banks in exchange for assets which are marked down sufficiently to allow these assets to hold a collateral value sufficient enough to allow the Banks to exchange them for Euro’s via the ECB.This mechanism bypasses the rule banning the ECB from directly bailing a Member State but at the same time has the effect of allowing the Irish Government to in effect print its own Euro’s via Bonds.Quantitive easing through the backdoor.It also has the effect… Read more »
Responses to Brian Lenihan’s article today, sounds like someone ‘rattled’ about Paul Krugman’s – Erin go broke: Ireland’s unlucky economy article quoted which has similar conclusions to David. http://www.independent.ie/opinion/analysis/states-priority-is-helping-economy-not-the-developers-1716678.html The problem is this guy is probably trying his ‘best’ but unfortunately his advisers don’t have a clue…if any of them could answer publicly the following questions defending the government’s decisions now in the lihgt of what’s happened and was obvious to many in the real world, I’ll be happy to never post again in the knowledge it’ll be OK ! “State guarantees have been introduced in many countries in response… Read more »
NAMA 90 Billion – Discount = Who Knows + Future Value = ?????????????
IMF est of 24 Billion + Future Bank Profits = Good Deal for Taxpayers + Future sale of banks = ????????????
Since the Minister for Finance is so interested in refuting DMcW’s views in the Indo, wouldn’t it be interesting if someone taught him how to use a computer and he decided to arrive here and refute the excellent contributions made by so many of you?
Linehan reckons that David is “swimming against the tide” and on this occasion He’s correct. I will expand what I mean by saying that the tide for FF and the Bankers et al is on the way out and David is swimming back towards the shore. David will be on dry land sitting on the ancient rocks of Dun Aengus watching while these other bufoons will join the rest of the flotsam and jetsom lost at sea in the murkey International waters of the North Atlantic waiting for Obama’s American fleet for Rescue.Linehan should forget about pandering to the Rating’s… Read more »
Two little snippets which might prove interesting…1. rep from TSB informs a customer of good standing that personal loans will only be issued to clients earning over 30k.( remind me again how many low paid were attempting to bail out at present???)….2.Close friend of mine working for a Bank down in Aussie tells me that a decision to writedown all of a Financial Product rated AAA as totally worthless has been taken.Is this a first for Banking and two more fingers at the rating agencies.450 million give or take a few bob was the writedown.