European Tribune - Community, Politics & Progress.

Epic incompetence or epic corruption?

by Frank Schnittger
Fri Jul 16th, 2010 at 06:47:59 AM EST

Former Irish Financial Regulator, Patrick Neary

Guarantee based on belief banks had €500bn in assets

The Government believed the risk to the taxpayer from its €400 billion bank guarantee scheme was offset by €500 billion in assets held by the banks, according to financial documents released by the Oireachtas Public Accounts Committee this morning.
A briefing document compiled by Department of Finance officials for the Taoiseach, dated September 30th - one day after the guarantee was announced - suggested the financial exposure to the taxpayer was mitigated by a "very substantial buffer" of assets.
The asset quality in the financial institutions, the document said, was good with a strong concentration in residential mortgages with a relatively low loan-to-value ratio.
"There is therefore, a significant buffer before there is any question of credit impairments on the Exchequer on foot of the guarantee," the briefing note said.

Guarantee based on belief banks had €500bn in assets

Another document revealed former financial regulator Patrick Neary told Taoiseach Brian Cowen that Anglo Irish was in good health only days before the Government introduced the bank guarantee on September 29th, 2008.
Mr Neary told the Taoiseach "there is no evidence to suggest Anglo is insolvent on a going concern basis - it is simply unable to continue on the current basis from a liquidity point of view".
The document, dated September 25th, 2008, states that various intervention possibilities were discussed at the meeting including ordinary liquidity support, SLS-type schemes, guarantees, nationalisation and bad bank approach.
The urgency of the situation was emphasised by Kevin Cardiff at the Department of Finance. The Attorney General and the Minister for Finance Brian Lenihan were also present at the meeting.
Representatives from Merrill Lynch, the Central Bank, PwC, Arthur Cox, NTMA and Goldman Sachs were also present.

Interesting to see who was at the meeting. What interest did Goldman Sachs, Merrill Lynch or PwC have in ensuring the Irish Taxpayer guaranteed the private liabilities of Irish Banks?

How did the Government come to believe that Irish banks had assets of €500 Billion to offset their €400, Billion guarantee, and that those assets were of good quality?

How could the Financial regulator advise the Government that Anglo Irish Bank was in good health and "there is no evidence to suggest Anglo is insolvent on a going concern basis - it is simply unable to continue on the current basis from a liquidity point of view" when it has subsequently emerged that Anglo Irish bank was the most bankrupt bank in the world, requiring over €30 Billion of taxpayers funds to bail it out - with no prospect of a return.

NB €30 Billion is equivalent to over 20% of Irish GDP (PPP) - and is the current bail-out figure for ONE RELATIVELY SMALL Irish business bank used mainly by builders, developers and land speculators with close connections to Fianna Fail - the main Irish ruling party.

The total cost of the Bank bail-out for all Irish banks is currently estimated at c. €70 Billion, or c. 50% of GDP. Has there ever been an expropriation of a people on such an epic scale before?

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Epic incompetence or epic corruption? | 19 comments (19 topical, 0 editorial, 0 hidden)

Re: Epic incompetence or epic corruption? (none / 0)

Ireland's current budget deficit will increase to 20% of GDP - the highest in the world - as a direct result of the Anglo-Irish bank bailout - and this is after a massive deflationary plan designed to reduce borrowing - for pensioners, health care, and public service pay.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Fri Jul 16th, 2010 at 08:05:08 AM EST

Re: Epic incompetence or epic corruption? (none / 0)

According to Pat Rabitte, Labour spokesman on the radio at the moment, Merill Lynch opposed the Bank guarantee on 4 grounds:

It wouldn't be Credible - no one would believe Ireland could actually afford to pay up on it
It would increase National debt uncontrollably
It would annoy our EU Partners
It would reward irresponsible banking (Moral Hazard)

Seems a pretty good summary of why not to go down that road, but the next day the Irish Government approved the guarantee.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Fri Jul 16th, 2010 at 08:18:39 AM EST

Re: Epic incompetence or epic corruption? (none / 1)

Lenihan told bank guarantee would be 'mistake' - The Irish Times - Fri, Jul 16, 2010

Financial consultants Merrill Lynch told the Minister for Finance that such an extensive guarantee over liabilities at the State's main banks would "hit the national rating" and allow poorer banks to continue in operation.
Details of the meeting, which took place three days before the guarantee was announced on September 29th, were revealed in a Merrill Lynch memorandum.
Merrill Lynch advised strongly against a policy of liquidation or letting a bank become insolvent, saying "this was the worst thing that could be done" as it would accelerate trouble for all other institution.
In another document from Merrill Lynch, dated September 29th, the Government was again warned against underwriting the liabilities as the scale of such the guarantee could exceed €500 billion.
"This would almost certainly negatively impact the State's sovereign credit rating and raise issues as to its credibility," Merrill Lynch said in an emailed document detailing the pros and cons of various interventions.
"The wider market will be aware that Ireland could not afford to cover the full amount if required. It might also be poorly perceived by other European states if they come under pressure to do the same as liquidity flows migrate," it added.
Merrill Lynch proposed an alternative to the guarantee scheme in the form of "secured lending scheme" for banks whereby commercial property could be exchanged for Government bonds or cash.
The Government has been widely criticised for the extent of its guarantee, announced at the end of September 2008, because of the potential cost to the State.
Taoiseach Brian Cowen and Minister for Finance Brian Lenihan have long maintained the Government followed the best advice given to it at the time.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Fri Jul 16th, 2010 at 11:06:26 AM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (4.00 / 2)

Well, I have to say that if Merrill Lynch were advising against a policy, I'd give it a second look, even if I disliked it the first time I looked...

- Jake

Our way of life is a lot more negotiable than the laws of nature.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jul 19th, 2010 at 02:14:11 PM EST
[ Parent ]

A mixture of both, probably (4.00 / 4)

I'm fairly sure that the banks would be privy to a goodly assortment of dirt on many senior Fianna Fáil (the majority Irish government party) politicians who drove through the decision to take the private debts of the banks into public 'ownership', while at the same time failing to gain control of said banks. Herewith the element of corruption.

These same Fianna Fáil politicians in September 2008 allowed themselves to be ambushed by the cabal of financial interests Frank lists above, and bounced into taking an overnight decision to guarantee all the liabilities of every major Irish bank, including the blatantly insolvent ones. Presumably none of them had the nous to question the recommendations of interested parties. Herewith the element of incompetence.

Fianna Fáil behavior is at least explainable.

What is astonishing is that the Irish Greens (the minority Irish government party) had none of the corrupt and croneyist baggage of Fianna Fáil. And yet, incredibly, the Irish Greens supported the disastrous blanket bank guarantee of 2008 and subsequent bailout. This goes beyond incompetence towards the realm of other-worldly naiveté.

The result will be a lost generation and large-scale emigration. Ireland has experienced the largest increase in unemployment during the crisis in all of the EU (possibly equaled by Spain), partly because all funding that could have been spent on stimulus was spent on insolvent private banks. There is no prospect of employment recovering, even if 'growth' is resumed.

Our rulers are focused solely on deficit reduction (larger and larger portions of which comprise bond repayments for newly socialised private debt). Cue the dismantlement of the meagre existing public welfare, education, health and infrastructure provision.

There is no sign of popular unrest forcing a change of government and thus the only remaining question is whether Ireland regresses to the 1980s or the 1950s.

by Pope Epopt on Fri Jul 16th, 2010 at 04:27:55 PM EST

Re: Epic incompetence or epic corruption? (4.00 / 2)

The only real out for the Irish people would seem to be to oust the government and re-negotiate the debt assumption with the concept of odious debt at the forefront.

Fiat justitia ruat caelum

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sun Jul 18th, 2010 at 12:30:56 PM EST

Re: Epic incompetence or epic corruption? (none / 0)

Unfortunately elections aren't due for a couple of years and the Greens are desperately clinging on to "power" as the junior coalition partner.

In any case, it's not clear that Fine Gael (the traditional main op party) would do much different, and Labour - possibly the largest party after the next election - has a history of selling out once in power...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Sun Jul 18th, 2010 at 02:34:33 PM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (4.00 / 2)

Like the USA, Ireland needs a new party.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sun Jul 18th, 2010 at 04:12:07 PM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (4.00 / 2)

There is huge electoral anger, but it is inchoate, and at the moment the opposition parties are just lapping up the disaffected by default - without offering a clearly articulated different policy. The standard of people entering politics seems to have gone down in recent years, to the point that there are not many leaders capable of running a medium size business, getting a Phd, or understanding stuff from within the context of an alternative paradigm. Those few that do are still marginalised.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Sun Jul 18th, 2010 at 04:45:46 PM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (none / 1)

True 'dat.

by Pope Epopt on Sun Jul 18th, 2010 at 05:20:36 PM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (none / 1)

In other words: If you are in a hole, keep digging.

If you never fail, you're not trying hard enough.

by ATinNM on Mon Jul 19th, 2010 at 02:58:15 PM EST

Re: Epic incompetence or epic corruption? (4.00 / 3)

And now this:
Irish may halt budget reform early--govt party Reuters (H/T Naked Capitalism)

July 18 (Reuters) - Ireland may not have the political will to bring its budget deficit in line with EU rules as planned by 2014, the chairman of the smaller governing coalition member Green Party was quoted as saying on Sunday.
....
Green Party Chairman Dan Boyle told the Sunday Tribune it was "probably a heresy" for a government party to question whether the deficit could be cut to 3 percent of gross domestic product by 2014 from more than 14 percent in 2009.
"It is certainly doable if you want to be draconian every year," Boyle was quoted by the newspaper as saying. "But is it politically feasible and is it socially possible?" Boyle said he still expected the cabinet to deliver the 3 billion euros of savings planned for the 2011 budget in December and then the government could "take stock".
"I do not see the public appetite continuing," Boyle said. "It could be that we have neutral budgets for a period."
The Green Party last year debated quitting the alliance with Prime Minister Brian Cowen's Fianna Fail party due to the strains of the fiscal tightening and bank rescue programme, but its members ultimately decided to stay on board.

Which perhaps led to this:
Moody's has a Monday morning downgrade for Ireland FT Alphaville

Can we blame Moody's Monday downgrade of Ireland -- from Aa1 to Aa2 -- on this man?
(FT Alphaville cites the above cited Reuters article quoting Doyle, notes that the Greens previously considered resigning from the coalition government and then cites Moody's statement:)

Frankfurt, July 19, 2010 -- Moody's Investors Service has today downgraded Ireland's government bond ratings to Aa2 from Aa1.
....
Moody's has changed the outlook on the ratings of the government of Ireland to stable from negative as the rating agency now views the upside and downside risks as being evenly balanced at the current rating level. Moody's has also affirmed Ireland's short-term issuer rating of Prime-1 with a stable outlook.
....
Moody's has also downgraded to Aa2/stable outlook from Aa1/negative outlook the rating of Ireland's National Asset Management Agency (NAMA)
....
. . . Moody's expects that Anglo Irish Bank may need further support.

Well, if Doyle can do nothing but swear to inflict eternal pain on the Irish people without being set upon by US ratings agencies, perhaps he might consider cutting his party's losses, claiming credit for bringing down a corrupt government which was sacrificing the Irish people to protect Fianna Fail cronies and preparing for the next election. His party is likely to only be further damaged the longer he stays in government. This doesn't mean the Greens will decide to leave the government, however.

Fianna Fail is a traditional party in Ireland and I would only note that corruption is a traditional value.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Mon Jul 19th, 2010 at 06:13:30 PM EST

Re: Epic incompetence or epic corruption? (4.00 / 2)

I don't think corruption is a traditional value per se - although it has been endemic in Fianna Fail in particular. The traditional value is one of "looking after your own" - i.e. kinship over formal administrative responsibilities and also one of defrauding the authorities - e.g. tax evasion, black economy - because for centuries the authorities were an imperial invader.

However that, too, is changing, and intolerance of theft by those in positions of power is growing. For someone who grew up in a rural Ireland where respect for any sort of authority was marked by its absence, the change in recent years to a more compliant culture has been quite amazing.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue Jul 20th, 2010 at 08:44:07 AM EST
[ Parent ]

Corruption is a traditional value (4.00 / 4)

What corruption is, in many cases, is a term used to describe "traditional practices" within the framework of "liberal values".

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue Jul 20th, 2010 at 08:46:15 AM EST
[ Parent ]

Re: Corruption is a traditional value (4.00 / 3)

I.e. the Protestant Ethic and the Spirit of Capitalism" - Weber

a move from a tribal to a bureaucratic order.

But it is also more than that:
Call for end to 'cute-hoor' politics - The Irish Times - Tue, Jul 20, 2010

Fine Gael backbencher Lucinda Creighton has revived tensions within her party with a sharply-critical speech at the MacGill Summer School arising out of the presence of a Cork property developer at a fund-raising event.
Mr Michael O'Flynn is company chairman and managing director of Cork-based O'Flynn Construction, which transferred debts approaching €1billion to the National Asset Management Agency (Nama). He was recently reported as attending as sponsor of €1500 fourball at a golf fundraiser at the K Club, organised by Fine Gael.
Ms Creighton said: "There can be no room in Fine Gael for cute-hoor politics. These are the politics which have defined and tainted Irish public life like an incurable cancer.
"We cannot be satisfied with low standards in high places. Fine Gael in government must be much, much more than simply `Fianna Fáil Light'.
"We cannot, on the one hand, condemn Fianna Fáil for entertaining developers in the Galway tent, while on the other hand extend the biscuit tin for contributions from high-profile developers, who are beholden to Nama. The Irish people expect more from Fine Gael; they demand more, and they are right.
"Fine Gael cannot equivocate about the standards we wish to bring to the running of our great Republic. We need a real `New Politics'- of substance rather than sound-bites.
"We need a politics that is about serving the people of Ireland, not simply about replacing Fianna Fáil.
"It is time for a politics built on courage, integrity and truth. That is the politics which I signed up for and the sort of public service which the Irish people so desperately need and so badly deserve," she said.

Michael O'Flynn has committed no crime and for all I know was a bona fide developer who got in over his head when times were good. His business went bust. It happens. What Lucinda Creighton - one of a new generation of quite articulate if conservative politicians appears to be saying is that Fine Gael shouldn't associate with people like that because developers have traditionally congregated around Fianna Fail and influenced Fianna Fail policies favouring speculative building and banking practices.

What galls most people is that Michael O'Flynn is probably still quite wealthy personally even as the taxpayer has been forced to take on a Billion of his dodgy debts. Its the privatisation of social gains - increase land values due to rezoning or state infrastructure development - and the socialisation of the losses of people like Michael O'Flynn that people object to.

The whole basis of limited liability, contract law, and the right of private banks to play key roles in the public infrastructure of the state which is being called into question. In this context it IS the liberal values of capitalism which are seen to be the corruption of the more traditional moral order where your word was your bond and your liabilities were personal.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue Jul 20th, 2010 at 08:57:52 AM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (4.00 / 2)

"Corruption is a traditional value" is a far superior rhetorical or polemical formulation of the concept. It will force those who hold tradition paramount to reconsider their toleration of that particular "old way". Were I Doyle I would use that phrase or "It appears that corruption is also a traditional value" as the summary line of an indictment of Fianna Fail in a political campaign. Could be the salvation of the Greens and the death of Fianna Fail. Else, the coalition will likely be the death of the Greens.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Tue Jul 20th, 2010 at 10:08:52 AM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (none / 1)

The Greens were supposedly there to bring some ethical oversight to the Government. They have been bought off and are already effectively politically dead for the foreseeable future. Boyle doesn't have to engage in that rhetoric. Everyone knows the reality - although many have tolerated it for far too long because they gained from it or because they couldn't see what harm was caused to the common good by it. Everyone can see the harm now.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue Jul 20th, 2010 at 11:03:04 AM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (none / 0)

How many Greens would have to defect to bring down the government?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Tue Jul 20th, 2010 at 11:44:24 AM EST
[ Parent ]

Re: Epic incompetence or epic corruption? (none / 1)

The Irish Green Party only has 6 seats but the Government also has a number of ex-Fianna Fail and other independents it can usually rely on. In practice, it would take the Greens not supporting a critical vote like the December budget vote whioch no one else will want to support to bring the Government down.

That is what Boyle is alluding to - the fact that there is no political will for the further 3 Billion in Govt. spending cutbacks which are expected to be required to meet budgetary requirements and foreign "investor sentiment".

But as of now the Greens are fully tied in and will lose whatever they do - support unpopular cutbacks or be seen to have no bottle and cut and run. The principle of the cutbacks has already been agreed. The question to be decide is where they will fall. If the greens get their carbon taxes, water charges, recycling charges, and token taxes on bankers etc. they will probably continue to cave...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot dotty communists) on Tue Jul 20th, 2010 at 12:06:27 PM EST
[ Parent ]

Epic incompetence or epic corruption? | 19 comments (19 topical, 0 editorial, 0 hidden)

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