OK, screw this! Let’s solve the problem and stop blaming others (there’s plenty of time for that); we must not let the country sink.
We -that is, my generation – don’t want to be the first Irish people who have had to emigrate twice in their working lifetime. Those who were born in the mid1960s to mid-1970s face the very real prospect of having emigrated in the 1980s and early 1990s, coming back in the late 1990s and early ‘noughties’, and now having to go away again. Some might argue there is nowhere to go in a global depression, yet we all know someone who will take his or her chances in a bigger pond than be stuck here, ruled by people who don’t seem to know what they are doing. It is clear that the government is completely out of control. It is also clear that this country is far too important to be left to those with their fake patriotism, which simply masks endemic cronyism. It is not about them, their careers or their political parties any more. It is about us, our lives, our parents’ retirement and our children’s prospects. If these people’s grasp of basic economics is so pathetically challenged that they cannot govern, then they should just go. Leave us alone, please. In the name of Ireland, go.
We need to rebuild, and most of us do not care who the builders are, as long as they do the right thing. Whether it’s Fianna FÃ¡il, Fine Gael, Labour, whether it’s Brian Cowen, Enda Kenny or Eamon Gilmore -w e don’t care. Just do something, draw up a plan, tell us what we have to do and we’ll all go to work. The only way out of this is hard work – from all of us. We need to get back to basic commerce and play the game as it should be played.
Whether we like it or not, the economic recovery plan must start in the banks. As this column has argued from the start, shoving capital into contaminated banks is not the answer. In November, this column suggested that a solution was to isolate a ‘bad’ bank which, in turn, would create clean, ‘good’ banks. This is still the way to go. If the government is thinking in this direction, it is about bloody time. Why did they waste so much time, pay so many second-rate advisers and, by prevaricating, directly cause the loss of jobs?
Let’s focus on the issues. In the madness of the past few days, AIB’s profit warning, which was announced last Thursday, went unnoticed. It was the most significant news of the week.
Granted, the ‘golden circle’ got more airtime, but the AIB warning told us something about today, not yesterday. AIB -a bank with a chairman and chief executive who are scandalously still drawing salaries -admitted that its loss charge (ie its bad debts) for 2008 was â‚¬1.8 billion -o r 1.37 per cent of its loan book. This is up from a figure of â‚¬950 million estimated three months ago. The ‘mistake’ -the difference between the original bluff figure and last Thursday’s new estimate – was â‚¬850 million. Just to remind you, this represents 24 per cent of the bank’s recapitalisation of â‚¬3.5 billion announced two weeks ago. That means 24 per cent of the money -our money – poured in by the government has gone already! (How many A&E wards could we staff, or how many special needs teachers could we fund for our national school pupils, with this money?)
At this rate, AIB will have burned through all our cash in a matter of months just by sticking to the current rate of adjustments to its estimated bad debts. A few months ago, this column said that the bad debts for the whole banking system were likely to be â‚¬40 billion. This is 25 per cent of our GDP -just as it was in Japan during its 1990s bust. So what are we going to do about it? Here is a five-point plan to get us out of this.
1. Create a ‘financial skip’ and throw all the bad debts of all the banks into it. This bank will be given the mandate to work out the bad debts over ten years. It should be staffed by the best liquidators and recovery experts in the country. These are people who know how to get value out of an asset. They know, not how to lend, but how to sell. Today, everyone is talking about debts, but there are real assets in this financial skip and, over time, these assets -if managed properly – will become valuable. In effect, the new bank will be the Irish property market. It will control the price and control development.
2.The skip has to buy the assets from the banks. It must do this at a deep, deep discount. In reality, this figure could be as low as 20 per cent of the original price. Let us assume the bad bank needs a huge whack of cash; where are we going to get the stuff? Where could we get â‚¬40 billion?
3. Here’s where we play the EMU card. We go to the European Central Bank (ECB) and say: ‘‘You lend us the cash. We, after all, gave up our interest rate and exchange rate policy to join the euro, now you have to help us out. You have to prove that the EU is a community of nations, in reality. Show us some practical solidarity.
Otherwise we default and undermine the euro.”
In addition, the ECB is already committed to the Irish financial system. It is drip-feeding money into our contaminated banks every day, keeping them alive. We should suggest they lend us the money at 4 per cent for ten years. This is money that the ECB is spending on the financing of our banks anyway as the lender of last resort, so it should not matter to it. In fact, lending to the solution should be much smarter than lending to the problem.
The ECB would be crazy not to go for this. We then have money for ten years at 4 per cent with which to work out bad loans.
4.The old banks are now clean. They are free of contamination and they can go about raising money from the market, such as our own pension funds, through the normal channels, like rights issues. This means that they can start lending again to good businesses.
The old banks pay the new bad bank a fee for managing their old debts and dealing with their old clients. If the new bank charges 7 per cent for the service, the old banks need to provision for this charge over the next ten years. This means that their profits will be affected, and they must adjust their costs at the beginning of every year to account for the charge. But 7 per cent of â‚¬40 billion is manageable. It could operate like a bank tax.
The state then makes money on this plan -a s it would be getting the difference between what the bad bank charges and what the old, forgiven banks pay. So it gets tax revenue of 3 per cent of â‚¬40 billion every year -or â‚¬1.2 billion. You can build a lot of schools with that sort of bread. 5. Obviously all senior management of the banks must be fired right now to facilitate this financial renaissance.
So let’s get on with it. Stop protecting your mates. Stop borrowing from tomorrow to pay for yesterday. The government has not only the power but, more important, the responsibility to do the right thing. And don’t give the new jobs to your political friends who turn up at your ard fheis masquerading as objective experts, when everyone knows it’s their proximity to the party that gets them the gigs. This plan could save the country. Over to you, Mr Lenihan.
Zombie Banker Blues: Wallets Full Of Blood: Houses On The Moon
A little film meditation on our present circumstances, set in a ghost estate, and starring Dennis Hopper as the voice of Brian ‘Brains’ Ahern.
I would like my money back
‘Cronyism’ is the word of the day here. It should move hand in hand with ‘Celtic Tiger’ when the Irish example is discussed in the future.
If the government do not begin the process of cleaning out the boards of all banking institutions over the next week or 2 then regardless of what they say it is a sign that they are protecting these individuals rather than the millions that they are elected to protect.
Now that Irish bankers did their job ‘separating fools from their money’ the politicians feign moral outrage and the bankers feign contrition and the spectators feign to know what was going on and have a good time and Ulick Mc Ilvaddy just feigns because he courts publicity.History has shown that results is what is awaiting as happened to the heads of Louise VI and Mussolini, theirs were severed and subjected to atrocious and indecent gestures .We need lots more of heads to roll . Question we should ask ourselves : Why should profits be privatised and losses socialised ? Question… Read more »
Very good ideas David, you have been saying this for quite a while and it never turned into reality. I really start to believe that we really need a change of government. This current government has built too many bridges over the past few years with bankers, property developers and the so called elite. We need new people,like when people think of bringing a new financial regulator from abroad… We would nearly need a new government from abroad! I think the size of Ireland is definitely linked to what is going on at the moment, too small, and it translates… Read more »
I nearly missed point five, threaded on unhighlighted, without which none of the other proposals would have been acceptable. Is it a possibility at all and who else would they bring down with them? That might be the fear in tackling them.
Yesterday I watched an exquisite documentary film about everyday lay and monastic life in faraway Laos – http://www.todayisbetterthantwotomorrows.com – the name alone of which is so resonant with our current Western concerns.
David: A plan needs to be based on intelligence, in the sense meaning the best concrete information available. Gathering economic information that changes daily requires an organization staffed by the brightest minds in the country. If the Department of Finance were up to this exacting job we should never have got in this mess in the first place. Perhaps they are worn out by having their warnings ignored by the government. Convention ensures that they might advise but it is the Minister who decides. Lenihan was thrown in at the deep end so he was entitled to make some mistakes… Read more »
Buying bad assets at 20% means the banks go bust. They won’t sell at that price. Nationalisation is the only way.
I’m reminded of your article after Lenihan gave the guarantee about sending in the untouchables to sort out the banks….. Well, now we all know why that didn’t happen…. the regulator was as deep in the fraud as the rest of them and would be standing trial if this was the UK, US or Germany. Remember the idealism, the volunteering to help, the reservoirs of good will that were there for someone to stop the open corruption and try to do the right thing??? That seems a long time ago.. The solution is much simpler…. Beg Rabobank to set up… Read more »
We all know that Lenihan is Mr Prevaritique the Big CLown that is only good at ‘doing nothing’. After all , he is a Gemini , that’s what they are good at.
Wow. Strong stuff. Remember folks that what David has said is commonplace on here but somewhat alien to the country at large. Encouraging to see he does dip in here. The article could have been written by any of the “heavyweights” here. If we had knighthoods, David could kiss his botty goodbye with this article. But is anyone listening at all? Lorcan and meself have quoted something akin to crisis apathy overtaking the country. One lad last night down the pub, swore blind that the banks were stuffed with money until I showed him the report this evening saying that… Read more »
Furrylugs – have hope – the week end after next is astrologically well suited to show a Big Difference and Big Changes and will Open your eyes.
Certainly the plan above would be welcomed. However, my preference would be to start a new state bank altogether with a 10 billion capitalisation that would by-pass the credit crunch by lending to business with immediate effect. Private business is saved and the domestic economy is kick-started. The offset of this of course would be to watch all our commerical banks drown in their own toxic pool of debt. These banks after all are part of the free market, they espouse risk taking, they should be allowed to fall on their swords as much as they were allowed fatten their… Read more »
We elected this government – with all their cronyism, incompetance and corruption.
God forgive us.
Dear David, Your article is predicated on a virtuous wish for human cooperation. Can you not see the bankers are the bankrobbers. The Bankers engineered the property bubble. Someone please explain to me what it is about understanding this fact that David keeps overlooking. David the banking system is the Death Star. Credit production in the hands of private interests leads to what we are now faced with. If you cannot see this you must. David, please, just even ponder it for a few minutes. The Bankers, the individuals running the banks are stealing all the dough. And they will… Read more »
David, good; Let’s get tough. I have said this before, I will say it again here:
Recapitalisation will not work; Nationalise instead.
The system needs to be changed.
Stop trading in derivitives and CDOs.
Root-out and punish the guilty risk-takers; remove them from the system forever; take back the money, bonuses, loans they took.
Reduce our dependence on debt.
Put cash in people’s pockets and get them spending.
Hi David. While i am on the subject, check out this. Anglo Irish Bank is a bridge head for the City of London”s investment bankers, this is where Anglo secured the Capital base to engineer the property bubble 14 years ago. This is what you would be best pondering,.. We are now under the monetisation next phase. And you David are still clinging to the old propaganda. Please David come on, remember the eighties and sense we had cos of u2 that we could really go somewhere, well here it is here is your chance. Just see that the bankers… Read more »
Oh, yeah, ….. how to “put cash in people’s pockets”?
David’s skip/good banks (all nationalised) will allow the good banks to keep liquidity in business – let’s concentrate on indigenous enterprise, not just services.
That will maintain jobs.
Stop cutting salaries/imposing levies/stealth taxes/increasing VAT/ESB bills, etc..
But, cap salaries at 100k.
Ireland is in the iron fist grip of financial
oligarchies operating through the City of London.
Ireland was deliberately flooded with easy credit
to destroy its unique independent ancient
Ireland is been absorbed into
a deeper narrative which is malevolence to
a degree we need to wake up to.
We must resist it by getting informed and getting
the word out David, Trying to revitalize the
banks is a distraction and time is of the
It looks like we are going around in circles and nearly all the aspects of the problem has been dealt with, even David’s article as Furrylugs wrote it, does not contain anything anybody knew already. It feels like we, including David, are standing ready to get hit by something bigger than we had imagined and that will be what will make the country move forward and not any discussion or plans. Plans will start to be put in place when the situation will be at its worse and it will be the same who will suffer the consequences. So simple,… Read more »
This tumultuous period we are going through is called the Decadence. It is also the name of a Heavy melodic thrash metal band from Sweden? http://www.decadence.se/index2.htm
My Lost Generation, you may be correct. Just a toxic debt cannot be fully quantified until the property market finally hits rock bottom, maybe we cannot start to build our society/communities until we hit bottom, too. Whatever else we do, though, we MUST start investing in legitimate trade/enterprise in Ireland and start doing TWO things with our brains: 1) Stop “cutting” them; we are doing this in two ways right now, by a) letting our educated people emigrate (like the “brain-drain” of the ’80s) and by b) cutting education; We MUST stop this and invest in the brains of our… Read more »
David, we need your proposed solutions and ‘many, many more’ debated openly now, there is little solutions in the media or from the political leaders for example, definitive actions on job creation. I was born in 1970 and now with a young family I don’t want to emigrate out of necessarily again like many of my friends did in the early 90’s. Need changes ! Since we have guaranteed all the ‘liabilities’ of the banks dumping the ‘toxic loans’ which are our assets (eg apartments, commercial property, land banks around Dublin etc) into a bad bank will just expedite the… Read more »
There is only one productive change available.
All Credit production by private interests must be returned to its utility function.
Put back in the public domain under government authority available
to all on an equal basis.
Is this not obvious to you all…..!!!!!!!!!!!
If this does not happen nothing will be fixed and we
will continue to descend deeper into global enslavement.
‘If these people’s grasp of basic economics is so pathetically challenged that they cannot govern’ But who can then?? We need an approach from someone with the acumen and the stomach for this. The unions are the only ones proactive with anything and it’s clear their path is self interested and will destroy the country even quicker. We need a group of experts from within and outside the country to at least offer advise to the government be it the confused Lenihan, the non itelligent Kenny or the please anyone who will vote for us labour party. Non of these… Read more »
wills, I agree; Nationalise all the banks asap. Let’s waste no more of ordinary decent workers’ money on recapitalisation.
The “profits-up-wages-down” brigade is winning at the moment, I fear.
Nice thought, David – and I wish that it could be made to happen. Unfortunately, as pointed out by shtove there is one fatal flaw – the banks cannot survive a hit of 80% on their toxic loans. If you assume that the overall bank lending is â‚¬500 billion (someone can enlighten me on this) and having some knowledge of what it has been lent against and the subsequent fall in property related values, on a conservative basis, 25% of it is “toxic” – it means that bad loans are a minimum of â‚¬125 billion. 20% of this is â‚¬25… Read more »
David 28th Septermber: “If we take second-hand, discredited ideas from abroad, such as a toxic fund or, worse still, nationalising a bank, we will fail. If we fail, our banking system will be imperilled and a generation of Irish people will suffer. A failed banking system is equivalent to a failed state, and Ireland will become an international pariah. No politician can or should survive such a mistake.” Time moves on. Any ideas are welcome: This one is well worth a shot. And small can be beautiful, as our numbers should still be manageable in the ECB scheme of things.… Read more »
The ‘the profits-up-wages-down brigade’ is a supremely
zen like description,. It seems like alot of fear is
gluing up thinking on all of this which is not surprising
really considering the scope of it all.
I wrote the above before reading Johnny Dunne’s contribution and I agree with his sentiments with a few caveats. There will be no recovery until the banks start to re-lend to businesses and consumers as normal. This has to include the housing market, as that is where the problem started – this point is widely recognised in the USA. (I carry no torch for the homeownwrs or builders – by the way). Any recovery needs to put people back to work. In order to do that we need creative thinking and also tax incentives for investors – not the removal… Read more »
By the way David, there would be no need to go to Brussels to get â‚¬40 billion to capitalise a “bad” bank at such a discount. The thing would be wildly profitable running off assets over 10 years. Any amount of vulture capitalists would put up the money.
As I said, the problem lies with the shortfall that would be left with the existing banks – which they would be unable to cover.
MEP’s able to “easily achieve” millionaire status over 5 year term on expense allowance scams… BoE given new powers to bail out banks in secret… Brown announces plans for a CIA type global financial watchdog.. who’s gonna control that puppy? Institutionalised fraud and corruption on our own doorstep. The perpetrator of the biggest financial fraud in human history under house arrest… in his own luxurious Manhatten penthouse. Stanford scarpers while depositors queue for their cash… eventually tracked down but not arrested. Bush, Blair and Bertie all out while the going was good… and then expecting us to believe they did’nt… Read more »
Folks, please don’t forget about “the lists of 5” back on “crisis to opportunity”?
I have just added DMcW’s 5 and SamB’s 4.5, just so we keep them all in the one place for easier scrutiny.
Please, if ye can find the time, drop by and scrutinise.
We need to get something moving here, and the ideas generated on this site are worth consideration.
“It is clear that the government is completely out of control. It is also clear that this country is far too important to be left to those with their fake patriotism, which simply masks endemic cronyism.” On the above I agree. The problem is of course that the stupid, the visionless and the parochial Irish electorate kept electing the same – the stupid, the visionless and the parochial, along with the amoral, power hungry and greedy. The Irish electorate are responsible for this. Every person who voted Fianna Fail from the Haughey era on is DIRECTLY reponsible. This government has… Read more »
Tim, first chance i get i will check that title
out, much obliged.
For anyone wondering about money running
out for our gov to borrow to send us all deeper
into debt do not fret. Above is a link to the
unofficial announcement that the imf/ ruling
elite front of house are bulking reserves up
by an xtra 300 billion to help ailing economies
in europe out.
Question.. isnt it strange that imf are suddenly
on the scene with all the help we all need which
is more and more and more and more credit.
Folks, here is our “Lisbon Deal” (blackmail), from wills’ link, above:
“If someone needs solidarity, they can count on their partners,” Mr. Sarkozy said at the conclusion of the economic summit meeting here. “Their partners also need to count on them to follow certain basic rules.”
Please, everybody, read articles 113-118 of the Lisbon Treaty, before you sign away our rights and allow the failed global marketeers to take us over.
if im slow of the mark on my return postings
it will be cos im watching oscars live on justin tv.com
Okay, lets see, the imf is in it to drive a hidden
agenda forward i would proposition,..
Any takers… The Shadow banking system is in
fact the real banking system it is all a misdirection trick.
Firstly, seen as we’re on bad banks (personally I prefer ‘asset management agancy’) here’s a good look at the Swedish Model. http://mediaserver.fxstreet.com/Reports/2b2fca8a-cd03-42db-9b81-73755e12ead9/32184521-937c-4906-9726-c653787881f6.pdf You are very right, David to point out the AIB announcement during the week. A complete PR disaster.The investment newswires were having a good laugh at the incompetence of it all on Thursday. They look to what NIB (as part of Danskebank) wrote down and take that as the benchmark. They are just waiting for the rest of the banks to catch up. This also, of course, means that any observer knows that the recapitalisation will prove woefully… Read more »
This should prompt a few sleepless nights in the corridors of political and financial power over the next week:
Could be a fun site to keep an eye on…
Dr.Nightdub, from that site, this: “The corruption that was and still is endemic in Irish Banks is a real threat to the Irish Republic, given that the Irish taxpayer is now liable for the losses resulting from the reckless and likely criminal lending practices of these Irish banks. In a fantastic development, The Sunday Times (Irish edition) has named four of the ten members of the Golden Circle who have gifted the Irish taxpayers with over â‚¬300 million in liabilities. The four are: Gerry Gannon, Joe O’Reilly, Seamus Ross and Jerry Conlon.” One problem, though: on the whois lookup, it… Read more »
41 comments to this point and 11 are from Tim.Your bargaining Tim which leaves just 2 stages of grieving left i.e depression and acceptance.I know you grieving for Ireland and Fianna Fail and the news from now on re. FF will depress you but if you accept the fact that FF is dead and you can just go to the wake(ard fheis next week)and say goodbye to your friends and console yourself with the fact that you tried to change FF from within but to no avail.You have shown over the last few weeks on this forum that you have… Read more »
Property (after another half bottle)…….. 1: Clear the Social and Affordable waiting list by offering the builders a deeply discounted purchase price on existing newly built first time buyer homes in selected areas. Get the newly funded banks to provide 100% mortgages on them to gardai, nurses, public sector employees as well as those on the S&A lists. This would clear the backlog of both the housing stock and the S&A waiting lists. It would also help the banks to clear their books of developer loans. The losses would in the main be carried by the builders (as they would… Read more »
P.S. If the builders don’t want to take the discounted price offered for the packaged Social and Affordable housing, they can be referred to the response in the case of Arkell v. Pressdram.
http://www.tribune.ie/article/2009/feb/22/among-the-new-revelations-and-claims-emerging-from/ There will be a wave of litigation against the Irish state by investors who have been conned not just by corruption in Anglo but aided and abetted by the Irish state. If these claims are even 50% true, the investors have a cast iron case. The people mentioned in this article have destroyed the Irish banking system and Ireland’s reputation. Not happy with that, they then transferred liability for the entire stinking mess on the taxpayer, both by the guarantee and by the governments collusion in what can only be described as a fraud on bank shareholders. They should… Read more »
How do you put a stop to 80 years of cronyism in a few short months ?, I cannot see this Irish leopard changing its spots. What I can see is, a large chunk of our money being siphoned off by the cronies, just as they did in the 80’s. These people do not care, and they have never cared about the nation as a whole. They will be hoping that their detractors emigrate, just as they did in the 50’s, 60’s, 70’s and 80’s. Just look at all the FAS money that has gone missing, and this is nothing… Read more »
I’ve yet to hear exactly why your idea is a non runner from the Gov’. Have they not copped on that an answer is required.
I know why nothing has happened over the last few months. It is the usual method, wait, it might sort itself out. Or wait, we will copy all the others.
Bunch of gobshites, richarding around with ideologies, when survival is the issue.
Musical Chairs – I agree that we are repeating ourselves what we have already been saying for the last few months and so are the newspaper articles by dmcw .The spin may be different but the music is the same .Maybe this might be a FF spin. Our contributions are becoming a ‘before time ie ‘wu’ ‘ moment .The problem with before time or discussing in hindsight is that the deeper we travel into this abyss the farther the eye from the storm will be .We need to affront the presence and be seen to be ahead of the pack… Read more »
David Banks must cull the present managment as for example Anglo Irish have just promoted their London Manager to be COO – loco as he was instrumental through arogance and more in extendinging the loan book! so what is going on ? Anglo Irish must reveal the Golden 10 as these players haev such committments through corporate facilities etc that they have been the noose behind the neck of the bank! if we can try and stop the rot , thebad behaviour at Anglo we can then do AIB and Bank of Ireland but as Anglo was human creaed quicksand… Read more »
[…] first published in the Sunday Business Post “Whether we like it or not, the economic recovery plan must start in the banks. As this column has argued from the start, shoving capital into contaminated banks is not the answer. In November, this column suggested that a solution was to isolate a ‘bad’ bank which, in turn, would create clean, ‘good’ banks. This is still the way to go. If the government is thinking in this direction, it is about bloody time. Why did they waste so much time, pay so many second-rate advisers and, by prevaricating, directly cause the… Read more »
Hi David, > OK, screw this! Let’s solve the problem and stop blaming others. It is clear that the government is completely out of control. Leave us alone, please. In the name of Ireland, go. “God save Ireland say the heroes…..” I sense your frustration (again), and you are right to be pissed off. If, on this emotional rollercoaster, we could get everyone on the same stage of ’emotional outrage’ then actions could be taken. It may require a million-person march or stoppage(s), or even as some have predicted, violence (on property?) which will get attention. Or maybe put pressure… Read more »