The structure is familiar to any Irish person. The stout walls, the battlements designed for heavy artillery, perched on an elevated site with good views around it, normally on a military road or overlooking a large river or a bay. The Martello Tower is something we in Ireland hardly even notice now, but spotting a Martello Tower here in Quebec City prompts a double-take.
The Martello Towers in Quebec City remind you that this was a British garrison town deep in French territory for nearly 200 years. The towers were designed to keep watch over the colony and to ensure that the authorities had an early warning system to signal trouble.
The last time I was in Canada, I was working in a restaurant in Toronto in the 1980s, and there was a perception that the Quebecers were far too radical in their approach to language. The other debate that was raging in Canada at the time was whether the banks were being too reckless in lending to the construction sector. Ontario was in the middle of a housing bubble.
Like all bubbles, it burst, plunging Ontario into a recession in 1990.
However, the fascinating aspect about Canada now is just how strong the Canadian banks have been throughout the latest global financial crisis. The Canadian banks – unlike banks in the US, the UK, Spain, Greece, Italy and, of course, Ireland – didn’t need any bailouts.
The reason is regulation. The Canadian regulators did their jobs in the 1990s and the 2000s. They kept a tight rein on the banks and what they were doing, knowing full well that, left to their own devices, banks will over-lend if they get the chance because banks make money from lending out money, not taking in deposits.
The Canadians also understood that, unless the regulators are vigilant, banks will undermine the economy because banks are not like normal businesses.
Think of the banks as pyromaniacs, the economy as a dry forest and the regulator as the firemen constantly looking for dangers. Forest fires are much easier to prevent than put out.
This is why bank regulation is so important because, when it goes wrong, it goes wrong big style.
Regulation is all about policing the banks when they start to lend too much at the very beginning of a credit upswing. By the time the public starts taking money out of the banks and by the time the other banks that were financing Irish banks start calling in their loans as they were doing from 2008, it is already too late.
At this point, the authorities have a choice: do something or do nothing.
Doing nothing means you let the banks go bust and adopt an “it will be grand approach”. That’s hardly an option. We know from the Great Depression and the Asian crisis of 1997 that immediate liquidation of the banks in a panic makes the subsequent recession much worse.
Betrayed by an arm of itself – the regulator and the central bank – the State is left choosing between bad and worse.
The famous English economist, John Stuart Mill, said the following of crashes: “The crash doesn’t destroy wealth, it merely reflects the extent to which wealth has already been destroyed by bad investments made in the boom.”
Wealth in Ireland wasn’t destroyed by the crash but by stupid decisions made in the boom, driven by the effervescence of the herd and fuelled by reckless lending. Every time some mad-cap dream of a developer was financed, the deposits of the ordinary depositor were put at risk. When those loans went bad, the bank had to find the money to make up the shortfall.
This is what the regulator is paid to spot – years before it gets out of hand. The financial authorities weren’t up to the job. The Anglo Tapes reveal the extent to which banks were not fazed by the regulator. To put it mildly.
Banks should be afraid of the regulator. The regulator should be the policeman that is respected and feared – yes, feared – by those it is regulating. If they are not, banks have an almost in-build tendency to lend too much during a boom, pushing up share prices. Share prices rise with profitability but the more profitable a bank is in a boom, the more risk it is taking.
Rather than celebrate bank profits, a regulator should feel queasy and call the bank in and impose limits on lending. But it seemed that in Ireland, the regulator was happy to just watch from the sidelines and cheer on bank profits, continuing until the very end to say that the banks were “well capitalised” when the opposite was the case.
By then, the government had to act to protect deposits. It couldn’t do this by merging bad banks with good ones because there were no good banks in Ireland. They all needed help. The State could have nationalised the banks there and then – but that wouldn’t have protected taxpayers. The government could have let them go bust, which would be like a fireman allowing a forest fire to burn itself out and just hope for the best. The State could have let go toxic banks but AIB, the biggest bank in the country, was on the verge of bankruptcy. Would letting AIB go have been a good idea? We could have grabbed deposits as they did in Cyprus.
There is a narrative in Ireland that blames the bank guarantee for everything, as if there was some other easy, painless option. We didn’t even have a bank resolution mechanism in place! It ought to have been temporary, used to stop the panic, then assess the situation and introduce a bank resolution law negotiating with the bondholders. But, for some reason, the guarantee was extended and extended.
It is important to understand that the guarantee and the bailouts were the consequences of reckless lending and woeful regulation, not the cause. If there had been no reckless lending, there wouldn’t have been a crash and no need for any remedial action.
This is why poor regulation in the boom from 2000-2007 lies at the root of the great Irish credit/property crash. The Anglo Tapes reveal the banks knew the regulator wasn’t at the races.
Unlike the Martello Towers – a form of military regulation – the financial regulator in Ireland, and all over much of the West, was more paper Tiger, than stout fortress. The strength of Canadian banks today shows that regulation can work.
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Indeed
Hi David,
“But, for some reason, the guarantee was extended and extended”
To save the euro David. The more they extended the more the knew how deep the cancer went.
Having looked at “regulation” over the years in its many forms (not just in finance), I find myself 100% disagreeing with most of the thrust of this article. In the case of forest fires, it is now becoming evident that the large degree of intervention to keep fires under control merely makes the next conflagration even bigger. Lets be clear why it is happening…the natural culling process of forest fires which took place as a matter of nature is now interrupted to cater for the new property development and recent human incursions of recent years. Am I against human growth?… Read more »
The mentality of the ruling classes with there sights firmly set on there pensions are a massive Influence on there decisions . this cancer to an outsider would seem to go right through the Irish
civil service there special privilege’s above the private sector with there inbuilt mentality that they won’t be sacked no matter how they perform . the Irish civil service don’t do accountability until this is rectified Ireland Is prone to more crashes. A good analysis as usual David,
Hi Folks, I’ve been a weekly follower of this column and our host David for the last 10 years if not more, and I don’t think I’ve ever in my life been more despondent about this country than I have been this week. I run a small business in the private sector and things have never been as bad. All the time, while firefighting, I observe what can only been called profound incompetence and indifference on a fucking galactic scale, recorded in our media on a daily basis, a Central Bank governor who appears to be even more asleep at… Read more »
A link to this article in The Independent on Irish Economy : http://www.irisheconomy.ie/
“Doing nothing means you let the banks go bust and adopt an “it will be grand approach”. That’s hardly an option. We know from the Great Depression and the Asian crisis of 1997 that immediate liquidation of the banks in a panic makes the subsequent recession much worse.” Could somebody elaborate on this a bit further? I don’t understand how it would have been worse than it is right now? Bank goes bankrupt. The bond holders burn (as they should – their investment was a gamble). Another bank swoops in and buys the fixed assets, like mortgages and customer accounts,… Read more »
The real problem with Ireland is our gobshite politicians – they behave like consultants – you know the trick – ask a client a few questions to establish his/her wishes and then feed it back to them in a form that they want to hear – nothing to do with reality – it’s the same trick as the fortune tellers use. Let’s face it, Bertie listened and Bertie delivered – it had nothing to do with reality. A clown could see where it was going but who had the balls to say stop! No politician for sure – even the… Read more »
This article is a disjointed misfire of unrelated bullet points and is a confusing read as it’s based on an anti-capitalist assumption/ideology. “By then, the government had to act to protect deposits.” Really? Is this not the mantra of the ‘herd’ mentality that’s routinely spouted as if it’s a God-Given Law. I’ve read enough ‘economic’ critiques at this stage to know that Government-Guaranteed-Bank-Deposits is a fundamental FLAW that systemically encourages the banks and produces their reckless lending, as long it is in place the banks are immune to the consequences of their actions. We can separate Church and State but… Read more »
The problem here Dorn is that you have a cabel of arseholes running this country who know nothing other than working in public sector type jobs where the money lands into the bank account every month and the salary just keeps going up automatically every year in line with automatic increments. These salaries and automatic increments and the highly protectionist regimes that these jobs fit straight into, all have to be paid for, generally by people in the private sector who don’t enjoy any of the same salaries, any of the same terms or any of the automatic increments that… Read more »
That’s exactly it Michael and if you think it’s bad in construction, you should try having a look under the bonnet of the motor industry, it’s gone so far beyond a joke it isn’t funny anymore, if you are legit now you are at absolutely and utterly fuck all, that’s the word in the trade.
So David, based on all the loyal blog following on Regulation and the kind hand of our Governing classes who are decimating industry and real business everywhere, what do you think now?
Still…what are we whining about. Property up 10.5%. We are out of our recession. CNN is saying nothing about Fiz Cliff II…all as safe as houses. Very very odd you want yet another big brother to tell us another pile of lies.
All in time for another elitist, insider protectionist budget while the middle/whats left working class, get hammered and thrown out of their family homes; The line thats coming is ‘suffer one more time and you shall be fine’;
The majority of the Irish electorate are turkeys on a playground roundabout afraid to step off!!
For a country that claims to be broke and hasn’t a pot to piss into, you’d have to wonder how on earth 57% of properties that are currently being sold, are being bought by a CASH BUYER?!?!?!?!?
Source: http://www.independent.ie/business/personal-finance/property-mortgages/cso-dublin-prices-soar-by-106pc-in-a-year-29612587.html
Of course you won’t see any investigation into this, as the money is probably of course coming from the public pursue to pay off retiring public sector workers, who retire on huge lump sums, so you won’t see Labour or FG upsetting their voters by targetting any of these parasites for a greater tax burden.
So David,any suggestions on what mechanism(s) could provide this “stout fortress ?” tp protect our future ?
21st century Glass Steagall perhaps?
I care not what name we attach to the regulation,but without strict regulation,what chance do we have of history repeating itself?
So David,any suggestions on what mechanism(s) could provide this “stout fortress ?” in order to protect our future ?
21st century Glass Steagall perhaps?
I care not what name we attach to the regulation,but without strict regulation,what chance do we have of history repeating itself?
Very interesting article David that got me wondering about the Scottish and French influence in Canada. Then I remembered Fred The Shred at Royal Bank of Scotland letting the side down. Back at the ranch everyone is distracted with this silly Seanad business and ringing Joe Duffy (whose show I’ve never heard even after 13 years living here) The guy entrusted with regulating the banks has said he has not listened to the Anglo Tapes! Is he having a fucking laugh??? But the best one has to be the one about the property developer who sells apartments which fall apart… Read more »
Oh and the best piece of advice you’ll receive this week.
If you’ve never heard Joe Duffy or his show,,, KEEP IT THAT WAY!!! Count your lucky stars. He’s a denegration to the earhole of humanity.
1. Abolish the Seanad 20million saved?
2. Reform the Court System how much saved?
3. Referendum to remove/ scale down to the average industrial wage all civil service pensions. We can’t afford to pay for this nonsense any longer.
Morning all Everything needs to be brought back to basic’s Banks will continue to grow stronger and fatter on the backs of the people with the help of compliant Governments everywhere. Government does not care one iota about you,me or anyone else. Bankers are a protected species,they have,can & will do whatever they want..whenever they want and to whom ever they want…. It will not change ..it shall get far far worse…. Their will be no more health care..even though you paid for it through your contributions Their will be no more social welfare..even though you pay for it through… Read more »
Anybody find it even a little strange that this is the only skyline image of Dublin, Deutsche Bank could find to use on there home page or is it a subliminal message of intent.ha ha
https://www.db.com/ireland/
Apologies, to anybody who is not familiar with this image, the building or rather group of buildings on the left of the image is the headquarters of Ulster Bank Group (RBS)…….
AND THE DANCE CONTINUES….
New York (September 26, 2013, 4:13 PM ET) — U.S. Attorney General Eric Holder said Thursday that he had met with representatives of JPMorgan Chase & Co. amid reports that the bank is considering a multibillion-dollar settlement to resolve investigations into its sale of ill-fated mortgage-backed securities.
The prime minister of Iceland was interviewed on RT last night. It was interesting and refreshing to hear him explain the approach they took there.
I know nothing of the man, and of course, he is a politician. But, compared to the sneering, two faced gutter slugs that always seem to float to the top of the Irish political cesspit, he seemed quite sincere.
SLIGO MAN DANCES WITH GOD sligo, Ireland, 27,09,2013, 18:23 GMT A Mr Divers of Castlebaldwin, Co Sligo had a rare wtf moment Friday PM when he raised his eyes heavenwards only to be struck humble by the voice of God. Yes. The very man himself. ‘Please help me for I tried to be a good man living under the rules of society God but I have questions for you regarding this notion of “God’s Will”‘ pleaded Mr Divers but God was out on very important business in the village. And what sort of business would that be wondered Divers as… Read more »
David – the latest nonsense about real estate in South East County Dublin, deserves an article at some stage in the Month of October. Especially considering that so many state policies are designed to engineer a housing bounce, and so many others are engineered to prevent people having any disposable income. In fact the institutional state seems to be taking out a massive bet (since the time of Lenihan’s promise “cheapest bank bailout in history) on house prices. The bet will pay off if the people are separated from their cash. The banks learned very little. The institutional state seems… Read more »
I enjoyed this article . The context however is restricted to an ‘ economicsay’ talk show that is elusive to the reality of what really matters in the real world. ‘ regulation ….policing the banks …..when they start to lend….’ In my opinion that statement is selective and funnell minded.It reminds me when I use to meet ‘dancing girls’ from the regulation office in Central Bank ( because everyone else was claiming to be too busy or on carreer drugs )only to hear that their mandated function was providence only full stop. Regulation embraces crime prevention a term totally ignored… Read more »
I posted too much so an under moderation. Here is the posting in pieces The reverence applied to Canadian Banks and Canadian finances got me to thinking. I was uneasy as this did not reflect the truth. I seemed to remember all kinds of bailouts but have not thought about it a lot. Here is Huffington Post with the explanation that the Canadian bailout compares on a per capita basis with the US. http://www.huffingtonpost.ca/2012/04/30/canada-bank-bailout_n_1466219.html “But what has become clear — and what neither side can really dispute — is that the fantastical notion of Canada’s banks being immune to global… Read more »
There is a lot more, e.g.
http://opinion.financialpost.com/2013/05/31/canadas-auto-bailout-still-waiting-for-payback/
And
http://business.financialpost.com/2012/04/30/did-canadian-banks-receive-a-secret-bailout/
It would seem that David has read the press but done no research here.
Shoddy or no research leads to misinformation and a reputation quickly lost.
I recall that Air Canada has been bailed out three time for a total of 1.5 billion. It was used to put private enterprize companies such as Canadian Pacific Air out of business to establish a monopoly.
“Canada government debt tops $1.2-trillion”
http://opinion.financialpost.com/2013/05/16/beyond-our-means-government-debt-tops-1-2-trillion-and-spending-is-still-rising/
All this BS about Canada being the shining poster boy of restraint is BS.
Do your own research and you will find that all governments in Canada except Saskatchewan are running deficits. Any country with a central bank under the finger of the BIS is a train hurtling to destruction. It is deliberate banker policy. Nobody can be that stupid so it has to be planned with predictable outcomes. I begin to think David is the shill on this blog. He pushes the disaster of central banking policies. I need to see a retraction of this thinking and an open debate on our monetary system. It is a debt based, interest bearing Ponzi scheme… Read more »
Austrian Candidate Frank Stronach: `Reintroduce Glass Steagall’
Austrian-Canadian auto parts magnate Frank Stronach, with Team Stronach, call for a Split-Banking (Trennbankensystem) along Glass-Steagall lines – Format Magazine.
EU Forces Monte dei Paschi di Siena (MPS) to a Mini-bail-in. Savers money simply seized.
The oldest bank of all (since the Bardi-Perruzzi collapse ) MPS blew out earlier this year, and JPMC was involved.
JPMC and CEO Dimon are afraid of N.Y. A.G. Eric Schneidermann.
Here one can see a breakdown of the Crimes of Wall Street.
This is the environment leading to Glass-Steagall, and the wave has already reached Austria and Switzerland, at the EU borders.
Bonbon you’re right, now take the night off and have a few beers and chase a few girls. Jesus Christ you have a one track mind.
gold and silver central Bank death dance
http://www.safehaven.com/article/31275/gold-and-silver-central-bank-death-dance-part-i
http://news.goldseek.com/radio/1380514800.php
“The Dog and the frisbee”
http://www.youtube.com/watch?v=X5JHayCensE
i’m still getting through this myself and it’s tough going !but worthwhile,i’m hoping :)
http://www.bis.org/review/r120905a.pdf
Gene Kerrigan on Enda’s ‘Pain’ and Other Myths
“From the comfortable surroundings of their annual “think-in”, in Portlaoise, fresh-faced young Fine Gael TDs earnestly told the TV cameras they want to inflict “a little more pain” (this is a genuine quote) on the citizens, in order to create long term gain for the country.”
“Some of the thicker elements amongst us regard social welfare as a form of charity. They see themselves as martyrs, paying exorbitant taxes, money that’s then sprinkled into the laps of layabouts who thrive on “handouts”.”
etc.
http://www.independent.ie/opinion/columnists/gene-kerrigan/dirty-little-secret-is-that-those-at-the-top-feel-no-pain-29618475.html
Morning All
in relation to climate change or global warming…
As you are quite aware the last Ice Age was caused by Polar Bears driving Range Rovers..shame on them….
The Planet is fine ..it is we who are fucked..A rash which this Planet will find a way to scratch if we don’t find it ourselves…
Happy Monday
Barry