Honohan Gives His Views

His latest speech is here.

35 replies on “Honohan Gives His Views”

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Does any one have this speech via a public accessable site?

@ Paul
It seemed to work for me ok
Not much in it to be honest. Once again we see the calibre of politicians of old (Whitaker) contrasted with the utter those we have today (Lenihan). One built a country and the other destroyed it.
In fact the greatest chart we will never see is the rise in political arrogance and decline in political competence since the foundation of our state.
Honohan seems like a nice man but he is not a politician. Politics is the art of exercising power – on behalf of your people. If you give that power away you are have failed (simple as that!)
If only we had a Whitaker now!

Au contraire:
“That distinctive pattern of globalization meant that the most common measure of economic performance – GDP – is quite misleading for Ireland, exceeding as it does by over 25 per cent the aggregate statistic which better measures the national component of production, GNP. Though GNP growth was certainly very strong in the period from 1994-2007, and reached a very high level in per person terms, growth rates and levels of GNP have been much lower than GDP. Indeed in the recent downturn, quarterly GNP has fallen 20 per cent peak to trough – much more than GDP. A mistaken national accounting focus on GDP thus risks exaggerating the strength of the Irish economy. ”

This is a stunning admission that the international projection of the Irish economy has been spoofed to an extraordinary degree. It is 25% exaggeration.

We are lucky to have the Prof where he is.
We have the talent, but what we need is the will to promote it, which means having an incompetence clause for all senior posts.
Including politicians?

Anything about the bank debt being ‘manageable’ – which obviously in CB for ‘unmanageable’?

Could anyone please explain the following….. Why is Bank of Ireland’s subordinated debt is trading at such a sharp discount? 60c to the euro. (Obviously very easy to understand why AIB lower tier 2 debt is!)

If we were to restructure BOI’s LT2 we would have to wipe c. €4.5bn of equity and all we would gain, if you apply similar discounts that were applied to Anglo’s LT2, would be c. €3bn. No gain there.

Presuming subordinated debt cannot get restructured until all equity is wiped?

Is BOI subordinated debt the buy of a life time!!!!!!!

Prof Honohan suggests that if the banks are more transparent in their debt provisioning and cooperate with credit analysts then the clarity involved will benefit us. Perhaps, now that the IMF are actually here, the banks will feel it easier to tell the whole truth. If this can be achieved credibly then the raison d’etre of NAMA (apart form the cheap funding through NAMA bonds) will be largely eviscerated, and full recapitalisation will be more credible and therefore more politically palatable. The only question remaining is how much equity (if any) will be left in BoI.

Does anyone know what this ‘secret meeting’ was about this morning between Rehn and Irish MEP’s? Joe Higgins stormed out of it as he wouldn’t sign up to it being ‘secret’.

It used to be “the difference between Iceland and Ireland is one letter and 6 months”. The Government managed to push this out to 26 months while, via sins of omission and commission, doing serious damage to the real economy. The EU has finally decided to be pre-emptive, but, unlike the US, it lacks the institutions, instruments and procedures required to resolve the problems that are most pressing in the periphery, but reach deep into the core EZ economies.

@ Joseph

Presumably Olli Rehn wants to get the message out that the parties have to work together on the budget.

The fear of the EU in relation to bank bondholders has to change.
If Ireland is going to be rescued, bondholders are going to have to contribute. Otherwise the whole shooting gallery is going to fall and the net result will be imposed bond haircuts for everyone anyway.

Tull’s “there was no choice” regarding Anglo bonds remains a cop out. Plámásing bank bondholders hasn’t worked. It’s the key factor in the continuing intensification of the crisis which ultimately is a bank crisis that has contaminated the sovereign.

The EU needs a Ciarán Fitzgerald type to stand up to the bondholders.


One silly question, if the EU/ECB will never/would never allow a soverign or an EU bank to default on a bond then why are their interest rates higher than a German government bond?

If it is the case why would anyone ever buy a German bond at a lower rate than the higher one offered by Ireland et al.

If the risk is to be spread over all EU citizens, then surely German bonds yields should be higher.

I am no expert but someone in the ECB needs to read a chapter on Risk vs Reward for Investors.

@ Vincent Brown
Forgive me – blinded by rage to be honest.
Central point still stands. Compare the ability and competence of Whitaker, Lemass, with what we have today.

You’re right. But still goes to show that we have been ruled by spoofers and idiots for the past 15 years. But there is a deeper more troubling problem here. How come we have had ministers for finance that, in conjunction with their civil servants seem to be really incompetent?
I think that we have allowed economics to drift off into this highly theoretical discipline whereas it should be at the core of political life. In the real world you cannot last without economic acumen. Surely this should be even more true in the political world.

What could Brian Lenihan really know about economics apart from which pundit to bet the country’s future on. I say this not because he hasn’t got a degree but because nothing on his CV suggests any strengths in this area. It is the height of contempt for the country to take up such an important job when one has no qualifications for it.

“now that the IMF are actually here, the banks will feel it easier to tell the whole truth.”

The banks believe the truth is what they can get people to believe. Why change the habit of a lifetime.

@ Greg

im not, i repeat NOT, saying power up the death star, but at least make sure the neighbours haven’t blocked it in with their Ford Mondeo or whatever…


(this relates to exchange on sub debt completed today)

As Eureka says, there’s not really a lot in it.

The note on GDP Vs GNP has a larger difference than I’ve seen in most sources, but on Q2 2010 Seasonally adjusted numbers, GDP is 23.4% bigger than GNP so he’s not far off the mark.

The rest of the speech seems to focus on the fact that – along with everything else – there has been and is a continuing failure of accounting with regard to the banks. He’s basically saying that the accounting standards are inadequate for their purpose for banks in general, so the published accounts are largely meaningless, and that the data provided by banks is inadequate to the task of properly assessing the solvency of the Irish banks, even for specialist analysts and even today.

If we cast back to the recent post by John McHale (IIRC) he focused on Debt/GDP ratios. Only a few commentators highlighted the difference and the likelihood that our Debt/GDP ratio might be fine but our Debt/GNP ratio might mean that the debt levels would be unsustainable.


(this relates to exchange on sub debt completed today)

One issue being whether a credit event on the subs crosses over to the CDS on the seniors.

@ Eureka

Brian Lenihan was probably the best available in FF at the time. What expertise did Cowen bring to the job previously ?

You don’t rise to the top rank of FF on competence. The job spec says funerals , can work party machine, gets vote out.

The bareness of the cupboard is painfully obvious now watching any of the clowns on Primetime.

EG Hanafin saying we will cut 15 bn and we have already cut 14bn. like that is a policy achievement.

Or Dick Roche saying if we hadn’t done the guarantee things would be awful now.

FF is a Junior C football team called up all of a sudden to play Tyrone in the all-Ireland final.

Honohan Speech.

Very tame. For a supposedly plain talking man he is very timid in his criticism of the accounting profession. Down on line ? 243 of his speech we get–
“I have already railed elsewhere against the backward-looking loan-loss provisioning practices encouraged by International Financial Reporting Standards (IFRS) and still all too pervasive in the reporting by most of the Irish banks. I find it unsatisfactory that expected losses in many parts of the portfolio are clearly higher than the provisions already taken, because I fear that this evident and in some cases explicit discrepancy may awaken doubts in the minds of investors as to the relevance of other aspects of the reported accounts. ”

The financials statements you signed off on were false, misleading rubbish and you should all be prosecuted for same.

Why was this not on the opening lines of his speech. Maybe the Central Bank does not do plain speaking. That was the original problem with the Central Bank, was it not?

A point to be heeded by the spinmeisters:

With the structural shift towards high-productivity sectors during the 1990s and again since 2007, unit labour costs tend to fall even if wage costs for any individual firm or industry are increasing. Because of this shifting composition effect, as has been well-known for decades, but is routinely forgotten by superficial analysts, unit labour costs are a false friend in judging competitiveness developments for Ireland.


“the crisis which ultimately is a bank crisis that has contaminated the sovereign”


I think a significant factor is that Irish economists are still focussed on problems in the Irish economy we had before the crash that are subsidiary to, and insignificant in scale to, the failure of the international financial system to manage risk and our incredible foolishness in attempting to save this broken system.

There is an inability, even a fear, of confronting the big problems so instead we have small talk about competition in the energy sector and the minimum wage, we cannot even discuss commercial rents as that flows back into the unmentionable banking balance sheet catastrophe.

I expect better. Step up gentlemen.

@ Joseph Ryan

Well dug out!

Is it my imagination or did we not hear time and time again from Mr. Honohan that the banks were “well capitalised” Elderfeld too, why then are we putting another 40bn into them? Why the need for Alan Dukes to say we should put every cent we borrow into them?

What does this tell us about the EU stress testing of European banks. It tells us it was bogus.

Roubini says that Ireland has a liquidity problem that may be “solved'” temporarily be IMF money but that ultimately we have an insolvency issue. Of course we have an insolvency issue any country borrowing 6 times what it takes in, by way of taxes is insolvent. Especially when all measures being taken are shrinking the economy and its ability to service debt. We need debt restructuring. As for Mr. Dukes idea of putting every cent we can borrow into our banks so that we can sell them off for 1 Euro? Sounds like he has gone native! Count me out on that one Mr. Dukes and count my children out also.

The Ice lady, Meredith Whitney says she would not touch “them” (European banks) with a barge pole? Why? Because she knows European banks have not even begun to face up to their write downs and wind up’s. She will be proven right and the well capitalised brigade will be reduced to mumbling about contagion effects, removal of moral hazard and the Euro being prematurely introduced.

The contagion effect feared is that other European banks will again be looked at in terms of their exposures to sovereign debt and in Spain’s case its exposure to it’s property boom. There is a 900b exposure from the Pigs leaving aside Italy. There is bigger things happening than the IMF in Ireland.



Help me, I cannot figure out whether our governor is a straight talking breath of fresh air or a loose lipped naive academic.

When the Governor raised the matter of accounting practices, I thought he was going to tell us some good news. He said:

” I have already railed elsewhere against the backward-looking loan-loss provisioning practices encouraged by International Financial Reporting Standards (IFRS) and still all too pervasive in the reporting by most of the Irish banks. …”

But he should know that IFRS is to be changed !!.

Firstly, though, it seems to me that the losses being incurred by our main banks are related NOT to already crystallised losses, but to estimates–including overestimated NAMA figures- related to “marking to market” of tens of billions of euros worth of loans still with many years to run. (Many of the properties, we can be sure, will over time be inflated out of their current loss status). It is for this – estimates of future losses which must be debited to P&L account now – that we must shove out the shareholders and let the State take over the banks. (Uniquely in the world, of course !)

But, IFRS is to be changed. The Governor should have reminded us that the G20 two years ago asked the International Accounting Standards Board to develop a more realistic and less catastrophic accounting treatment for banks’ impaired banking assets (i.e.loan book losses as opposed to equity trading losses). They did, and proposed their solution to governments a year ago. Their solution basically would permit many banks to re-estimate their loan losses every year and write them off gradually over the remaining maturity periods of the loans (in certain circumstances). This will be enormously helpful to Irish banks and to the capital requirements/ Basle ratios situation. But the EU has refused to agree the new proposals as yet–they probably will agree a version in early 2011- because it doesn’t suit the French/German banks, who derive much of their profit from trading activities, as opposed to banking.

Why didn’t the Governor talk about this, since he raised the topic of accounting treatment of impaired assets?? What’s he trying to hide??

@ tull mcadoo

He is a nice man, of the variety “Dublin can be heaven, coffee at eleven and a stroll in Stephen’s Green” but with his innocence he could create a run on a bank in seconds, but would then come on RTE and tell bond holders, “not to panic, not to overreact” that the bank was essentially well capitalised.

There would be calm for another 5 days and then the deposits would start to vanish, the speculators would be back and the share price would be on the floor.

He’s an academic, he is far too honest and “truthful” , he is out of his depth. There is a huge difference between lecturing and dealing with real life bond speculators/ hedge funds not to mention the various machinations of insolvent banks. NAMA has the whole of the Irish banking system on the wrack, broke, insolvent it, and the guarantee has paved the way for IMF. Meanwhile Honohan is looking for more honesty? Lenihan is at one end of the scale, nobody believes him anymore while Honohan is at the other end of the scale. Someone should tell him that “honesty is not a policy”, too many people believe him and yet he too has been proved wrong, dreadfully wrong in his soothing prognosis.

The result whether it is Lenihan or Honohan has been essentially the same for the banks he was brought in too late but I doubt if he would have made a material difference.


You plamas the bondholders while they are being reasonable toward you. However when the bond holders and their sponsoring institutions starting behaving badly towards you by jacking up the price of credit, restricitng the volume and trying to interfere with your ability to generate enough income to service the borrowings then you have to think of an alternative strategy.

Re IFRS- the problems with IFRS and the banks’ financial statements have been highlighted by a UK individual who has written to the UK and I think the Irish authorities about it. I am not sure how valid the comments are but the Spanish were right to ignore these rules and to have large provisions.

“While reviewing the proposed expansion of the International Financial Reporting Standards for accounting, Tim Bush, a member of the “Urgent Issues Task Force” that scrutinises the work of the Accounting Standards Board (ASB), claims to have uncovered “fatal” and “dangerous” flaws in the system.”


Thanks for the podcast linik. His explanations are very credible.

The NAMA exercise is one of the most extraordinary sagas in the history of banking. It will be discussed in textbooks for generations, as the premier example of how incompetent officials can wreck a society when let loose (and supported by naive and hysterical academics). Set up to prop up the banks in a time of crisis, it ended up wrecking them.

At this point I delete my further comments, about the various public figures who contribute to the undermining of the banks credibility in various ways.
We need new leadership, urgently. I can only think of a national government led by Peter Sutherland, to give confidence to the money markets…and then call in Goldman to securitise the NAMA property (having taken it back from NAMA first). They’ve said its currently undervalued by NAMA, so I expect they can sell it off to Wall Street, half of whose fund controllers seem to be Irish American.

Well, its better than the Morgan Kelly- Brian Lucey vision of the future, No?


I am not sure what rate we are paying on NAMA bonds. If we are still paying 6 month-EURIBOR then it is probably the cheapest funding the state has. On the other hand I am not 100% sure what the second half of the below paragraph form the EU’s decision on NAMA means:

The financing of such purchases through the issuance of debt securities for a total amount of maximum EUR 54 billion11: these will consist of securities guaranteed by the Irish government (for 95% of the total consideration) and non-State guaranteed subordinated debt securities (for 5%). The latter may only be redeemed if the SPV makes a profit over its life12. Bonds issued by the Master SPV will be 1 year floating rate note securities (FRN) extendible at maturity at NAMA’s option. They will carry a semi-annual interest rate equal to the 6-month EURIBOR rate flat. The re-issuance at maturity will most likely be an extension of the maturity FRN. The terms and conditions will remain the same throughout their life. […]13. Furthermore for government guaranteed NAMA debt issuance greater than 1 year duration the margin over the equivalent maturity debt of Ireland will not exceed 20 basis points, intended to reflect the current spread between the yield on government bonds and that required on government guaranteed paper. If unfavourable market developments lead to a significantly wider gap than is currently the case between the yield on government bonds and that required on government guaranteed paper, the Irish authorities commit to seek approval of the Commission before modifying the margin of 20 basis points to reflect the wider gap.

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