Gormley on the September 2008 Guarantee Decision

One of the questions that has been raised time and again over the past few years is how exactly the government ended up taking the decision to provide an almost blanket guarantee to the banks. In an interview yesterday with Marian Finucane, Green Party leader, John Gormley, shed some new light on this decision. Here’s an excerpt (about twenty minutes in).

John Gormley: The arrangements had been made the previous Sunday, right, and we had gone into that in quite a bit of detail and said yes this was the expert advice, to go down the guarantee route.

Marian Finucane: When was that decision made?

John Gormley: That was on the day before. It was a Sunday. We had a Cabinet meeting. We’d gone through it in quite a bit of detail as I said.

Later there was this exchange:

Marian Finucane: Can I just ask you a question? I think the rest of us thought that the two Brians … that the decision was made that night.

John Gormley: Well, you couldn’t just make a decision on the spur of the moment. You’d have to discuss it for days in advance. Of course, not. No, you just can’t do it like that. Everybody had to be involved in what was the best thing to do in these circumstances.

Then when asked whether he understood at the time how momentous the guarantee decision was “nailing the sovereign to the banking difficulty” Gormley rolled out the following

You have to look at what Patrick Honohan has said. Again, as somehow who has been brought in, who has been quite an independent voice, the first outsider to be brought into that position. He did write a report. Again, it was a very thorough report. And he said very clearly in that report that while the bank guarantee may have been too broad, in that it included subordinated debt, that it was absolutely essential because of the systemic importance of some of these banks.

I’d make three points on this.

First, Minister Gormley tells us that the decision to give a blanket guarantee was made by the full Cabinet on the Sunday because this was the recommendation of expert advice. I think Minister Gormley should release this expert advice to the public and explain who it is that gave it. As of now, we know that the government’s very expensively recruited advisers Merrill Lynch (€7.33 million in fees) stated at a meeting on the previous Friday that they were against such a guarantee. Handwritten notes taken at a meeting involving the Minister for Finance and representatives from the Central Bank, Financial Regulator, Department of Finance contained the following:

On a blanket guarantee for all banks — ML felt could be a mistake and hit national rating and allow poorer banks to continue.

So what happened between the Friday and the Sunday?

Second, the continual rolling out of the talking point that “Honohan’s only objection was the inclusion of subdebt” does a disservice to all those who parrott it.

Here’s the most relevant section (8.39 in the report):

The scope of the Irish guarantee was exceptionally broad. Not only did it cover all deposits, including corporate and even interbank deposits, as well as certain asset backed bonds (covered bonds) and senior debt it also included, as noted already, certain subordinated debt. The inclusion of existing long-term bonds and some subordinated debt (which, as part of the capital structure of a bank is intended to act as a buffer against losses) was not necessary in order to protect the immediate liquidity position. These investments were in effect locked-in. Their inclusion complicated eventual loss allocation and resolution options. Arguments voiced in favour of this decision, namely, that many holders of these instruments were also holders of Irish bonds and that a guarantee in respect of them would help banks raise new bonds are open to question: after all, extending a Government guarantee to non-Government bonds has the effect of stressing the sovereign to the disadvantage of existing holders of Government bonds; besides, new bonds could have been guaranteed separately. The argument for simplicity also is weakened significantly by the fact that an actual dividing line between covered and non-covered liabilities was drawn at as least an equally arbitrary point; moreover, such instruments were held only by sophisticated investors.

The key point made here by Honohan is not, as Gormley and many other government politicians insist, that subordinated bonds were included (this decision is singled out in the short paragraph 8.40 that followed and later in 8.50 as “not easy to defend”). Rather the point was that the guarantee applied to existing bonds rather than new debt issues. 

Most likely, Gormley (and the others who make this point) haven’t read the report or have read it and don’t understand it. They are, most probably, simply repeating a talking point supplied to them by their spinners. And I suspect the Governor isn’t willing to request government politicians to cease-and-desist from misrepresenting his report, particularly given that his critical opinions on blanket guarantees were well flagged elsewhere. However, it would be nice to see interviewers refusing to accept this nonsense anymore.

Finally, I’d note that it appears that Gormley is more worried about the image of him not being consulted about the guarantee than he is with being considered responsible for it. This seems like poor politics. He’d be better off to have placards in Dublin South-East saying “Guarantee: Not My Idea” than “Guarantee: I Wasn’t In Bed”. But he’s entitled to make his own decisions on which message to get across. And, as he noted in his interview, politicians are ultimately made accountable at the ballot box. The public can soon show what they thought of Mister Gormley’s period in government.

125 replies on “Gormley on the September 2008 Guarantee Decision”

Excellent analysis Karl,i’m still amazed that you’ve written about this now twice on this blog yet broadcasters still allow politicians to get away with misrepresenting the report.

Assuming this to be true then the notion that they could nt inform ‘our European partners’ and the ECB as they were bounced into a decision in the early hours of the morning following pleas from the banks is false.

The next question is did they inform the ECB prior to the decision of their thought processes?
If Trichet knew in advance the blanket guarantee was a possibility and he did nothing to stop it then the ECB is in some measure responsible for the ensuing debacle.It is their job to monitor capital flows etc in the banks and trans EU.
A silent bank run was in progress which the ECB would have been fully aware of.
If Trichtet gave his blessing to the blanket guarantee then as the capo di tutti capi of EU central bankers the buck stops with him.In those circumstances then any Irish government should say we aint paying any bank debt .That would be an ECB problem.

My pathalogical comment on another thread was over the top in some ways but not in others. I don’t think it is pathalogical. We now know that fundamental elements of what the government have been telling us for years can change over night. For now I’m going with the “Night of the Guarantee” was concocted so Europe didn’t know that it was premeditated rather than spontaneous. Hence it explained why they weren’t consulted. The government have been fibbing consistently ever since, but for reasons of politics not pathology. Any suggestion that ministers are by character compulsive fibbers is withdrawn. As far as I know in their personal lives, and in their political lives before this crisis, they were as honest as the average person and politician.

“broadcasters still allow politicians to get away with misrepresenting the report”

RTE and the Irish Times are not giving their consumers the full info at the moment.

“…you’ve written about this now twice on this blog…” I make it 20 times at least. This is a long playing record of Karl’s and I will play my equally long playing retort. Would we have actually defaulted on pre 2008 bonds? This one has been worn to death but the answer is that defaulting on pre 2008 bonds would have precipitated the same meltdown which last week’s bail out is trying to avoid whether or not they were guaranteed.

Prof Honohan is making a very theoretical point here, the blanket nature of the guarantee limited our wriggle room. He really should answer the supplementary “well, just say we had excluded pre 08ers what exactly do you think would have happened differently?”.

I disagree with Karl fundamentally that the dominant mantra is that the blanket guarantee was justified (because Prof Honohan said so). Au contraire, the opp have successfully portrayed the blanket nature of the guarantee as the root cause of the whole meltdown. We have e.g. Labour accusing FG of having supported the blanket guarantee as if that makes them as culpable as FF. And FG through their own silly ambiguity feel unable to retort that the blanket nature of the guarantee is an irrelevance.

@Brian Woods 2
“Would we have actually defaulted on pre 2008 bonds?” We are now defaulting on the remaining Anglo/Nationwide subordinates and the government may do so for AIB/BOI too. Otherwise please don’t try to derail the thread. If you feel this topic is not worth discussing then please don’t discuss it.

@sean o’
“If Trichet knew in advance the blanket guarantee was a possibility and he did nothing to stop it then the ECB is in some measure responsible for the ensuing debacle.”
Yes, well done on getting to the nub of the implications of Mr. Gormley’s statement. If the guarantee was decided on the Sunday (28 September) then Monday and Tuesday (29-30 September) were available for consultation with ‘partners’.

Either FF/the permanent gov did not tell anyone in advance or they did?

If they did not, it was an astonishing omission.

If they did, what did the other naughty children say?

The intrigue is getting intriguier…

Just about every mention that I’ve heard about the guarantee from FFs uses the Hononhan report to say that it was the best option.

Karl – Can you please continue to do your best to put this reasoning to bed.

FF will place their GE campaign on this defence.

There are arguments for and against the guarantee; but to use the Honohan report as a defence is worst than spin.

@David O’Donnell
With all their other fibs we’ve forgotten about the extra lending we were promised ad infinitum. Did they really believe it when they said it? I can hear David Murphy now (huge kudos to him for speaking plainly on the government deceiving us on the arrival of the IMF), telling us the government’s plans with not a hint of scepticism. “NAMA will take the toxic assets off the bank balance sheets to get credit flowing again”. Yes, it seems like only yesterday that Sean Whelan (credit for saying the government was fibbing about the IMF arrival too)was telling us the government line that we were the “poster boys for austerity” and that “the glass was half full”. Then the ECB cut us off. They obviously don’t watch enough RTE and hence were misinformed.

On the coming election and on a festive note I was just in my local supermarket when I noticed a row of turkeys queuing up outside.

I tried to make sense of their gabble but it seemed to be all about a civil war a long long time ago, auntie mary’s council house and how lenny “got it”. one turkey was crowing about how the hard decisions the party had to make, aparently they will be expected to take the bus between terminals in heathrow, poor things.

At the back the supermarket man was in a bit a panic because apparently his NAMA gulliontine had run out of credit but lord senior bond was crowing “Not only I am invited to a free turkey shoot but I get a 6% bonus on each one”


“If you feel this topic is not worth discussing then please don’t discuss it.”

Get over it.

Topic is very worth discussing. The question is: “how instrumental was the fact that pre 08ers were included to the current calamitous situation that we find ourselves in?” Please advise how we would be in a significantly different position.

I just wish I could tap the phone call in about three years.

Lennys wife: I dont know why you hold onto this phone, I thought Mr. Noonan wrote to you saying they were not paying the bill anymore. Nobody calls you anyway.
Lenny: LOOK LOOK it is ringing answer it! I’ll turn down TV
Lennys wife: Says it a Mr. Trichet.
Lenny: YES,YES I told you he would call. I am going to get my belly tickled again.
Mr. Trochet: Hi is that Mr Lenihan
Lenny: YES, YES what way do you want it.
Mr. Triochet: Do you an active internet connection.
Lenny: YES, YES, YES what dose that have to do with it. Do you want me to transfer 100bn or our you looking for the deeds of Ireland City Council.
Mr. Triochet: No sorry sir, maybe you are taking up this up wrong. I’m polish I work for superfast intenet I was just wondering if wanted to consider changing provider

OMG the hard decisions these people will have to make

@ Ollie V

“please don’t try to derail the thread”

Seriously? You’re trying to tell people to not derail a thread (which i dont actually think he’s doing)!? My God man, please look back at some of your recent comments…

Would we have actually defaulted on pre 2008 bonds?

Who is this ‘we’, who might have defaulted? As a taxpayer I’m not aware that I was liable for any bonds, other than those issued by the State, until the guarantee was issued.

“The question is: “how instrumental was the fact that pre 08ers were included to the current calamitous situation that we find ourselves in?” Please advise how we would be in a significantly different position.”
Honohan disagrees. “The inclusion of existing long-term bonds and some subordinated debt (which, as part of the capital structure of a bank is intended to act as a buffer against losses) was not necessary in order to protect the immediate liquidity position. These investments were in effect locked-in. Their inclusion complicated eventual loss allocation and resolution options.”
You are the only person I have encountered who believes the guarantee was not a momentous decision and is therefore not worth discussing. Please don’t derail the the thread.

@Oliver Vandt
given the many strange things said by commenters on this site I don’t think you have the right to try to censor others.

I listened to a podcast from The Economist recently on Ireland’s crisis – one of the commentators said that there is a ‘myth’ in Ireland that things would have been different if not for the guarantee – not sure if I would put it as strongly as that myself but it was interesting to hear that outside perspective. I’m not qualified enough to run the numbers on all the pros and cons and set them all in the context of the time, but out of interest (and at this stage, a largely academic and political interest) if the guarantee was made along the lines that Honohan would have liked to see as set out in his report – how much of a difference to people think it would have made to where we are now?

@Eoin Bond
I provided points of information/opinions on off thread issues but, in fairness to me, I did not try to derail any thread discussion by saying it is not worth discussing/doesn’t matter and then saying it again and again. BW 2 is the only commenter I have ever encountered who believes the guarantee didn’t matter.
We have heard his views. Those of us who think it was of fundamental importance – everyone else – would like to discuss a huge development in our knowledge of how it happened.

I don’t believe it is a myth to say that things would have been different. Even assuming that there was no plan to burn ssenior bondholders, unguaranteed debt prices would have collapsed with the downgrading of the banks (the banks have two ratings at the moment, one for guaranteed stuff – effectively the sovereign rating, one for unguaranteed). Buybacks of unguaranteed debt would have been a cheap method of haircuts.

At the very least, Mr. Lenihan would be able to stick his “so far” on his “no intention of making a big bonfire of senior bondholders”.

Of course, the guarantee of existing senior bonds protected their price (by tying their rating to the sovereign). Who benefitted from that then? Hmmm.

@Holbrook Fields
” one of the commentators said that there is a ‘myth’ in Ireland that things would have been different if not for the guarantee – not sure if I would put it as strongly as that myself”
I think that the recent deluge of articles in the FT, by Eichengreen, Krugman etc etc etc etc on resolution for Irish bank debt indicate that it is not an Irish myth. BW2 has given his view many times, on this and on his opinion that the bank guarantee cost nothing. He has expressed it again. If he is not a troll he will leave it at that. As I have given my view I am doing likewise. Apologies to anyone who wants to pick up on any points I made.

@ HF

Thanks, you have articulated my question much better than I. Maybe people might answer you where they won’t answer me.

@ OV

The guarantee was of very, very, very, very, very fundamental importance. Is that enough for you? My question is how significant in practice has it been that pre ’08ers were included?

If you can portray a plausible situation where the banks (please note KO’D)would have welched on pre ’08ers whilst still raising new guaranteed bonds, please describe how that would have worked and how much pre ’08ers actually matured in the last couple of years?

Sigh. This is FF that you are dealing with. They waste millions of tax payers money taking advice from third parties and then just ignore it because of their vested interests. (staying on good terms with developers and bankers). Are you surprised that FF gombeens would ignore expert advice? As for John Gormley, can you attach any credibility to a word that man says?


So ‘we’ means the banks? Funny choice of pronoun that; you may be a banker, most commenters are not I imagine. Of course the banks couldn’t have issued new bonds after defaulting on their existing bonds. IANAL but I presume they couldn’t even have continued to do business. If you are trying to argue that allowing banks to fail, rather than propping them up with guarantees, would have left us (the taxpayers) pretty much where we are, I find that implausible.

Most likely they would have had to be nationalised. That would have been a messy, costly process but it probably wouldn’t have landed us in the care of the IMF.


I’d be interested to hear your reasons for thinking John Gormley is not credible. He has introduced Green Party policies such as a carbon tax, as well as supporting the introduction of metered water charges, a property tax, reformed planning legislation, supported the civil partnership bill and generally, I believe been a positive addition to Irish politics. Are your comments based on tabloid charges that are frequently thrown at him (e.g. a full front page of the Daily Mail a while back which stated that he spent €200k counting frogs which was a complete misrepresentation of facts – the truth being that every govt since the 90s has counted wildlife as part of the EU Wildlife Directive – and if this work is not carried out Ireland would be subject to fines – I just throw that out as an example of how the media can misrepresent GP policies).

@ OV

“If he is not a troll he will leave it at that.”

Unfortunately qualifying as a troll in this blog has a rather low hurdle. Either of the following criteria would see me easily qualify:

1) I do not crave newspaper coverage (the famous Prof Lucey Criterion)

2) I generally do not row in with the “NAMA is bad, Default is good, Guarantee is bad, it’s all a FF/banker/elitist conspiracy” Zeitgeist.

Getting back to the original question, on what expert advice were the government relying when they gave the blanket guarantee? It is accepted it was not Merill Lynch, Garrett Fitzgerald told us almost immediately after the guarantee (so it was not a case of the bureucrats dissasociating themselves after the chickens came home to roost) that it was not the civil servants in the Finance who advised it.

In the Sunday Times on the weekend after the guarantee it was stated and I have never seen it contradicted, that Denis O’Brien and Dermot Desmond had been part in touch with Finance on the fateful day, arguing against nationalisation of Anglo. What they were arguing for was not specified.

It seems to me a huge sin of ommission by the media, that nobody has followed this up. If these two worthies opposed the dreadful decision to provide a blanket guarantee surely they should be given an opportunity to say so?

Dermot Desmond is regularly afforded space in the Irish Times to ponificate on the crisis. Michael O’Leary has suggested that he, O’Biren and Desmond be parachuted into cabinet. It is not beyond the bounds of possibility that one of these giants fantasises about becoming Ireland’s Berlusconi.

@ KO’D

I can see that the nuance of this topic has rather escaped you.

Karl is explaining quite rightly that FF spokespersons incorrectly attribute PH’s qualification as solely applying to subbies whereas it also applied to pre ’08ers. I am questioning (in good faith) whether that is such a serious ommission on the FFers’ part. You and others seem to prefer to revert to the less subtle question as to whether guarantees of the banks in any shape or form was a mistake, that is a different question.

In summary, PH gave the chosen bank guarantee 8 out of 10 which in the Leaving would be an A but not an A*. The fact that you give it an F is off topic.

@ BW2

“In summary, PH gave the chosen bank guarantee 8 out of 10”

I guess this is progress from the 97 out of 100 that various media sources attributed to the Governor (on the grounds that only 3 percent of the debt was subordinated).

However, can I ask you to provide a source on the 8 out of 10 or is this just your personal internalising of PH’s comments?

If PH was such a big fan of blanket guarantees why did he go around writing things like this?

“Blanket guarantees are among the “accommodating” approaches to crisis policy shown by Honohan and Klingebiel (2003) to have added considerably to the fiscal costs of banking crises around the world.”


BW2: … PH gave the chosen bank guarantee 8 out of 10 ….

I wasn’t aware that PH ever said that, or anything that could reasonably be interpreted in that way. In fact, unless you can provide evidence, I’m not going to believe it. As to what’s on- or off-topic, I think that’s a matter for our host.

@ Karl

Clearly my assessment of “8 outa 10” is an interpretion of Ph’s “body language”; no I can’t provide empirical backup. That PH is on record as being against blanket guarantees explains why poor Lenny was marked down 20%, he could have fared better if he expressed it in Irish, I suppose.

Standing back from this, do you really think that including pre ’08ers was such a serious error? Maybe you do and maybe you can describe how the course of history would have been different if only we had excluded existing liabilities.

In that case, I reckon Mr. Honohan gave the guarantee 0 out of 10.

I win. I have more posts…

“Standing back from this, do you really think that including pre ‘08ers was such a serious error? Maybe you do and maybe you can describe how the course of history would have been different if only we had excluded existing liabilities.”

One plausible set of circumstances that could easily have happened if the guarantee had been correctly structured.

-Existing debt wasn’t guaranteed.
-Price of existing debt falls
-Buy back of existing senior debt at 60c in the €

@ DE

Thank you for a reasoned response. But are FFers really that off the wall when they say PH more or less endorsed their approach?

“Thank you for a reasoned response. But are FFers really that off the wall when they say PH more or less endorsed their approach?”

In short yes.

As current head of the central bank I think PH leveled out as much criticism as was possible in an official report.
If he had gone much further I think his position would have been untenable IMO. He would certainly have damaged the stability of the financial system if he said the strategy was completely incorrect.

Check out PH’s comments on this very blog before his appointment as head of the CB. Not conclusive but calling the guarantee a “knee jerk reaction” would hardly be a ringing endorsement.

The key issue here is what could have happened to Anglo and INBS in Q4 2008 when it was realised that they were both insolvent?

The response to AIB and BOI would still have been the slow-motion one –begining with NAMA and there would have been a reluctance to create a funding problem as they were the two key banks for the economy.

As to Anglo and INBS, Q4 2008 was a period when many internatonal banks were under pressure. If there hadn’t been a guarantee of debt, how could the ECB and Ecofin have forced the Irish Government to take responsibility for their huge debts?

They could have been put into examinership and most of the debt exchanged for equity or wiped out.

There would have been some efforts at a cross-border rescue such as the Fortis deal but nobody would have been interested because the property loans exposure was so high.

No other Eurozone country guaranteed existing debt.

During the crisis, the Irish exposure on bank debt was 55% of GDP; the averge of public support for banks such as Citi and Cmmerzbank by 12 advanced countries including Ireland was 6% of GDP.

Blame Johnny Foreigner is the easy option.

We might finally get close to the truth of what happened in the days leading up to guarantee come election time when we hear the FF and Green party versions. My only hope is that I won’t be around for the campaign. I don’t think i can listen to any more of the lies, denial and partisan politics.

Guaranteeing debt that couldn’t leave was insane. If they were addressing a liquidity problem, why guarantee stuff that can’t be withdrawn?

As Patrick H flags, this limited our options. You have to respect that as head of cb, he is not free to give his personal opinion. I was a little surprised that he had the integrity to rubbish the guarantee, albeit in the footnotes.

In a sense everything post guarantee has to be viewed in the context of the guarantee. When Lenny finally figured out the potential losses, he had put the taxpayer on the hook. He had closed off the option of turning on the banks. The soundtrack would have been different if a limited guarantee had been in place. I have an open mind if the guarantee is the result of incompetence or corruption. I have a slight leaning towards the former as I have an image of 2brians convinced banking is only about confidence and coming out with a suicidal bluff.

All very true the decision to guarantee the existing bonds basically drowned our little country in a sea of franco/saxon debt. Spin is a part of politics and unfortunatly most ministers simply truly never belived that the bank guarantee was a bad idea despite merill lynch objections , Lenihan (Cambridge educated ) a intelligent man truly belived that it was”the cheapest bailout in history”sept 2008 and belived the economy had “turned a corner” december 2009 and indeed in competitveness terms he was correct but for too long he and many many people in politics many of whom are intelligent enough to understand that they truly ignored the title wave coming despite the warnings despite Lenihans intelligence he didnt see it coming and now its spin spin spin to save them in the elections I would encourage Karl a distinguished proffesor who could easily get the media to listen to him to explain why the bailout and the imf deal is bad because it truly is a defining point in our history and the question remains will we learn to swim?

Why did they have to guarantee ANY bonds on the night in question?

If the threat was a liquidity crisis, would a blanket guarantee on deposits and commercial paper not have been a better strategy?

after all, as far as I know, none of the Irish banks had bond issuance planned for that ill-starred Monday.


Good ears. The official fable has been that despite previous noises ultimately everything came down to the midnight visit by the reps from AIB and BOI. The government was suddenly caught, trapped by the enormity of the impending liquidity catastrophe that would open up in the morning. Whether inadvertently or not, Gormley has nailed that story for the wretched untruth it is. Doubtful if the D’olier Street branch of the FF press office will investigate and amplify Gormley’s claim. The public were misled and it seems that the leaders of FG and Labour were also suckered into swallowing the official line (should that be ‘lie’).

BTW: economist, can anyone explain the rise in fuel prices at the pumps over the past few days? Oil barrel price is pretty stuck so is this a case of pre-budget gouging on the forecourts?

@Ahura Mazda

I have an open mind if the guarantee is the result of incompetence or corruption.

I think it was policy. Incompetent decision-making in the pursuit of a not-incorrupt policy, mind you. AIB and BoI were national champions.

There is little discussion around the effect on bank shareholders of the banking crisis – but yet it was the stock market falls which precipitated or at least was the most visible symptom of the underlying problems.
PHs comments in the Introduction:
“The guarantee and subsequent events did little for the shareholders of
Irish banks:”
implies that support of the share price was if not uppermost – then high on the list of objectives of the guarantee. This could have been due to personal exposure – or because of the exposure of influential big players (e.g Sean Quinn) and also the huge exposure of Irish Pension Funds.
If the Guarantee on existing bonds was going to make no practical difference – why include it. In fact the thrust of many of your and Eoins comments is that there has always been an “implicit” guarantee – which implies that the guarantee was just a waste of time and of no practical significance.
The fact that it neither protected the share price nor the cost of funding means that it was a waste of time – but it it had enormous practical significance in that it socialised the banks debt, without solving any of the problems it was meant to address. It had the further unwanted consequence in the cost of govenment borrowing, which forced us into the IMF etc bailout last week.

You will probably find the key to this lies in something as simple as WHO, either in the decision making process or connected to someone in a position to influence the decision, was going to loose deposit / bond investment if a more prudent and logical decision had been taken.

Something like this was suggested to me weeks in advance of the Anglo etc guarantee anouncement at the time I was suggesting Anglo would probably go under and take creditors with it. I was told I didn’t understand how mall Dublin is.

I am now of the opinion that this is the direction that any investigation should concentrate on frst.

As per my comment above – I think it more likely to be influential shareholders – rather than depositors or bondholders – who might have influenced the decision.

AMcGrath, don’t think so.

The shares had been sinking for months and most of the value had already been lost by late Sept 2008. I think it will be a badly (or non-)advised individual or group that woke up very late to the fact that deposits or bonds in Anglo were going to disappear in the next few days, that motivated a panicky phone call to the appropriate chap who would do the necessary

I think that for example Sean Quinn was chasing the price down – buying more and more as the share price got lower. He admitted that since. And that being the case – if the guarantee had been a success the share price would have rallied. It didn’t – or did slightly – and the rest is history and denial.
But in principle I agree – there was some influential cronies in the background – I just don’t think it likely to be bondholders.

@ grumpy

It was strange that Fitzpatrick wasn’t in Government Building on the Monday night when 4 chiefs from the 2 other big banks were there.

Given his connections at the highlest level with the Government and the mounting crisis at Anglo in the previous week, there must have been informal contacts with key people over the weekend and at least on the Monday morning with Cowen’s office before he headed with Drumm to BoI begging for a merger; if it was any one of us, we would have made sure of that.

So why was he asked to stay out of sight on the Monday evening?

Why did they have to guarantee ANY bonds on the night in question?

I have the same question. Could the banks not have relied on emergency Central Bank/ECB funding for a few days/weeks to ensure adequate reserves? At the time it was claimed that it was just a liquidity crisis.

I think it’s sort of sad that PH has become the measure of all things in this debate.

There is – quite simply – no moral, economic or political justification for what the government did in 08. This was patently true at the time, and if ever there was any doubt, the fact that the Irish sovereign is now on its knees should silence even the most die-hard partisans and bond-stooges.

So why does it matter what PH did or didn’t say?

@ D_E

Interesting link to P_H pre coronation. He didn’t seem to be a fan, I concede. But my question remains: what difference did it make in practice? INBS? Clearly it should have been let go, but having guaranteed new bonds was it not already too late? Anyway the two years are up – existing bonds no longer guaranteed, so what bifg trick have we missed that we can’t play now?

RTE will not challenge a Govt. representative on such a point despite it being an obvious misrepresentation

This is the broadcaster that wheels out Noel Whelan as an independent political commentator in debates every week and forgets to mention that Noel was a General Election candidate for FF, worked as an assistant National organiser for FF, and as a Youth officer for FF.

To then expect them to show any teeth in tackling a Govt. rep is hardly expected

I think David Mc William’s role in that awful decision is extremely under played.
Maybe because we don’t like the idea that one man (a journo) with a plan could have such a huge impact on such a catastrophic decision.

The government were in a position where there was no way out. On the Wednesday before the guarantee McWilliams was suggesting a guarantee for all depositors in the Indo.

By the Sunday in his article in the SBP he was suggesting a move
of guaranteeing all depositors and creditors.

“The challenge for Ireland is to come up with our own rescue model and then export it, rather than wait for some manna to arrive from heaven to solve our banking dilemma.

The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders who will have to live with the losses they have suffered. However, it applies to everyone else.

If the minister does this, he will not only staunch any funds outflow, he will show leadership and be seen as someone who is coming up with a solution that can be copied all over the world.”

McWilliams belief that he needed to come with a new ingenious way to solve a liquidity crisis was his big mistake. It wasn’t a liquidity crises but a solvency crisis.
But he did not seem to know that. Did the government?
Or was it only the Banks who knew?

But there is little evidence to believe any one inside government or the DOF could have come up with this unique and untested plan.
We now know why it was never tried before and was not “copied all over the world”.

In his next article McWilliams described the ministers Blanket Guarantee as a “Masterstroke”.
McWilliams offered a false light at the end of a dark tunnel but his initial diagnosis of a liquidity problem was incorrect and therefore the wrong medicine was prescribed.

There was no way out and the crises McWilliams observed in Russia and so badly wanted to avoid here was actually the only real alternative the government had. He just did’nt know it. The Banks did. Did the government? If they did not and they claim they did not then we should feel no obligation to the Guarantee issued on completely false pretenses.

The first task of the new government should be to test the guarantee in the courts.
Surely you cannot enter a contract like that under false pretenses and for it to still legally hold.

BW2: But my question remains: what difference did it make in practice?

Actually your question seems to be: would a marginally more restrictive guarantee have been less damaging? The answer, rather obviously, is that it would have been marginally less damaging. But AFAICT you are the only one who is at all interested in that rather easily answered question. For most of us the question is, how on earth did Irish taxpayers come to acquire such enormous liabilities? The Gormley interview sheds a little light on that question, but we could do with a lot more.

@ Michael Hennigan

Now that it seems the decision to go with a Blanket guarantee was made at the weekend do you still think they went ahead without getting the nod from Trichet?

I gut instinct is that they would not have done it. Our lads cant tie their laces usually without getting an OK from Europe.

The truth needs to come out here. It’s a real life epic ‘who done it’
If they want to saddle Irish people with so much debt, we deserve to know what happened.

@ KD You may be right, my question is of only marginal significance. But it is spot on topic. Karl is questioning the significance of people’s misinterpretation of P_H’s assessment.

@ EM I do enjoy McWilliams bashing, thanks for that. You raise an intersting point – teh government should welch on the guarantee because it was extracted under false pretences. I suggest two rebuttals:

1) The government did not guarantee the banks. It guaranteed its depositors and bondholders. These latter were not guilty of false pretences.

2) Au contraire, they were the victims of false pretences. One of those false pretences was that these were well regulated and solvent. That was a false pretence facilitated by our government.


Not trying to Mc Williams bash.
I think he was motivated by all right reasons but he just didnt know all the info when coming up with the plan.

1) Since a bank is basically depositors and creditors it had the same effect.

2)Wasn’t Ireland Known as the wild west with regard to its financial regulation policies?

Are you just playing Devils Advocate or do you actually want the Taxpayers to have to try and fail to pay the bank debts?

@ Michael Hennigan

Surely the reason Fitzpatrick was corporeally absent on the night of the guarantee is obvious? If he was there it would be difficult to maintain the pretence that everyone believed there was simply a liquidity crisis. If he was there and claimed Anglo was hunky dory except for a liquidity crisis this might invalidate the whole proceeding.

I imagine the participants envisaged closer questioning of the events leading up to the guarantee and were avoiding some obvious questions about insolvency v. liquidity.

The idea, suggested above, that the Brians went for the guarantee on David McWilliam’s say-so is risible.

The role of the Great and the Good in this decision is not clear, because no-one will address it, though everyone is asking who told the Brians to give a blanket guarantee. I see no-one has addressed the question I posed in my earlier post about a Sunday Times article in October 2008 that claimed Dermot Desmond and Denis O’Brien were in contact with Finance on the fateful day. I posed this same question in public to a senior politician and he pretended he did not hear me, and went on with a different question altogether. Much like the participants in this discussion.

“So why was he asked to stay out of sight on the Monday evening?”

As far as I can recall, SF said in an interview with Marian Finucane that he had dinner and an early night that day.

With the benefit of hindsight my position is:

1) a guarantee was necessary and was the correct policy decision
2) the guarantee was too extensive as Professor Honahan believes.

It should not have included pre 2008 senior bondholders or subordinated debt. The Govt’s argument was that they had to make a bold move. If they were fiddling around with various classes of creditors it would have raised fears and the crisis would not have been averted. Honahan doesn’t buy this argument. Neither do I, but one cannot be certain. Secondly, the Govt didn’t believe that the crisis was one of solvency. It thought the problem was liquidity only.

I am persuaded by Dreaded Estate that there was a genuine extra cost (not just theoretical or academic) attached to the extensive nature of the guarantee.

But I repeat a guarantee of some description was absolutely necessary. The Merril Lynch proposal of immediate recapitalisation of the banks would have been a more expensive option and would have failed. The option that was chosen did not fail. The banking system remained intact even if it was severely weakened and the cost was, in my opinion, more than was necessary.

I am grateful to Eamonn for referring to David McWilliams’s views at the time.

David McWilliams was in favour of an even more extensive guarantee than the government one (the govt excluded undated subordinated debt). In the article below he advocated covering ALL creditors except shareholders. He also says the crisis was one of liquidity not solvency. The article reflects the feeling at the time, which was the need to make a bold gesture. In the light of this I think people should be a little modest when accusing the govt of “incompetence”, being “the worst govt in the history of the State” etc.etc.


@ Tim O’Halloran

I see no-one has addressed the question I posed in my earlier post about a Sunday Times article in October 2008 that claimed Dermot Desmond and Denis O’Brien were in contact with Finance on the fateful day.

This is in the same vein as the reversal of the stamp duty decision on CFDs, Brian Cowen’s “secret” dinner in April 2008 (which surfaces every time a FF grandee wishes to apply some pressure), Quinn and the Golden Circle, Pat Neary’s “Fair play to you Willie” remark , Seánnie ill-fated effort to sell Anglo to AIB or BoI, etc.

A media (or opposition), that wasn’t compromised, would delight in shining a light into the places where those who seek the cover of darkness wish to hide.

Gormley saying the guarantee was discussed prior to the fateful night is neither surprising nor insightful. It was he comments stating that the detail hadn’t been discussed (i.e. nobody would have agreed to including Anglo and INBS under it) is the get-out clause he planted.

As you ask who, so I ask why?

Why does no one pursue the “unprofessional” conduct carried out by these public servants?

No point bashing McWilliams; his ‘with one bound Jack was free’ magic bullet points are the stock in trade of the newspaper columnist.

Unfortunately, it’s government’s belief in magic bullets that has brought us to this pass.

@ John Martin

I’ll buy that. On the political posturing, which is the topic of this thread, my views are as follows.

Labour are grossly OTT in implying that it is almost received wisdom now that the guarantee was the main cause of our plight and that they told us so all along.

FG are equally culpable in more or less accepting this line but claiming that they were duped at the time into going along with it.

The government parties have somewhat (but understandably) over compensated in the opposite direction by over playing P_H’s endorsement of the guarantee.


I dont see how you can say the bank guarantee is’nt one of the main cause’s of our current plight. Unless the plight you’re referring to is the cold weather.
Our banks were insolvent, their loan books were disintegrating, they knew it and the people lending them money knew it. So they went to the MoF, who of course didnt know it, told him it was a liquidity problem, he didnt have his homework done and was pretty much operating blind and thus was born the blanket guarantee. 50 or 60 billion euros later and every other factor in our economy is rendered almost redundant by this decision to guarantee that Ireland would repay what ever debts these banks ran up.
Now, not giving the guarantee may have meant Ireland ended up in a similar, slightly parrallel economic wasteland. But thats an unknowable.
Fact is, we gave it, its cost billions and we are now a basket case because no one believes we can repay the debts we’ve taken on.

Honohan may have made a mistake by commenting on the guarantee at all.
While these matters are euro-political now, is it possible to argue that the banks made false representations that induced the government into giving the guarantee and those false representations could be the legal basis basis for a defence when the bond holders are finally burned-as surely they wil be.

A great thread.

It’s slowing dawning on me (specially after the week of the fictional bailout) that the domestic media has been part of the problem all along.

It shouldn’t fall on your shoulders to challenge the spin, Karl.

But I’m glad you do.


‘1) The government did not guarantee the banks. It guaranteed its depositors and bondholders. These latter were not guilty of false pretences.

2) Au contraire, they were the victims of false pretences. One of those false pretences was that these were well regulated and solvent. That was a false pretence facilitated by our government’

The bondholders included some of the most well financed, technically supported, and sophisticated investors on the planet. They could not fail to be aware of the risible state of regulation in Ireland, or of the ECB’s failure to take any steps to redress that state of affairs.
They relied on the ‘normal’ workings of the political process to protect them from any risk entailed in lending into the irish asset bubble. So far they have been proven correct.

Could there be a better example (as if one was needed given events in the US) of the capture of governments by financial interests ?

It was interesting listening to John Gormley. He speaks very confidently and with a respectable accent. He knows how to “do” media. He knows nothing about finance. And there you have it. The Irish political class .

John Gormless.

Gormley (and the greens) biggest problem is that they subjugated the greater good for their own idealistic lesser goods. So rather than give the country the opportunity to wipe the slate clean and start again with a new govt and a new mandate back when the incompetence of the present bunch was revealed, the greens decided instead to give us happier stags, bicycles and another bureucratic layer for Dublin.
Although the second option did coincide with 5 out of 6 green TD’s getting a go at ministerial office, even though they make up just 7% of the government…so maybe that influenced them a little bit too.

@ Noel

At the end of all this, maybe our media will realise the wisdom of the old maxim “Publish and be damned”. They have all gone along with the “green jersey” stuff, especially the ‘opposition” Irish Times and what has it gained any of us? I can’t see how even the dullest of journalists can’t now see that it has only made matters worse, postponing the change of governement, serious negotiation of our debts, and the prospect of recovery.

Paddy Honohans carefully mild-mannered meandering criticisms may become less central now that the Indo has highlighted that Europe’s economists have voted Brian Lenihan the worse finance minister for not being able to think through the consequences of the blanket guarantee.

I can’t understand why Mr. Honohan has such god-like status in all this. He, one of the foremost banking experts in the world we are told , was happily, silently taking his Professor’s salary in TCD while this crisis was brewing.

Anyone who gets a job from FF is by definition a “green jersey” type, and I don’t mean that as a complement.

@BW2: Personally I don’t regard your comments in this thread as OT, but it’s up to the blog proprietor to make that call.

As to whether the banks’ creditors or the government have a better claim to victimhood, does it matter? I suppose it might do if (a) the next government retracts the guarantee on the grounds that it was obtained on false pretences; and (b) the bondholders argue that government officials themselves participated in that deception. But I can’t see them getting very far if all they can show is that the government fostered a general impression of a well-regulated and solvent banking system. Insofar as it is doubtful where the losses should fall, taxpayers and those who are dependent on government services have a better claim to the protection of the law than even the most innocent bondholders.

@ Jarlath

I was agreeing with John Martin that some form of guarantee was necessary. You opine (admitting that it is a guess) that we would have been better off without it. That is a whole different topic. I was getting back on topic. P_H qualified his support for the guarantee (with hindsight). Karl observes that some supporters of the guarantee decision are overstating the P_H position. I am arguing that this is a natural reaction to and a lesser fault than the opportunistic and quite unproven assertions by the opposition that the whole guarantee thing (not just the blanket) was a ghastly mistake.

@ Paul Quigley

“The bondholders included some of the most well financed, technically supported, and sophisticated investors on the planet…”

Well, David McWilliams IS the cleverest economist on the planet and he was duped.


If you were the chief actuary of Equitable Life back in 1990 would you have given customers a guaranteed conversion rate on their with profit pension funds at 8% on the assumption that interest rates would never fall below 8% ? You could give the guarantee and everything would be grand. You wouldn’t have done that, would you? I mean you wouldn’t have done that without setting up a reserve, would you?

The government did a similar deal with the banking guarantee. A super deal based on the assumption that the banks were grand. Wouldn’t you have reserved for the cost of the guarantee? Where are the reserves now?

Equitable life is no more and it doesn’t look much better for FF.

@ Brian Woods II

I agree that a guarantee was necessary of some kind, my problem is the lack of preparation and homework in the months leading up to sept 30th. It appears absolutely none was done, so the banks went into that meeting with their lies and the govt went in with absolutely nothing. What came out as a result was not acceptable and has proven to be, in my opinion, the main cause of our current plight. I was disagreeing with your contention that it was not a main cause.
As far as i can make out from observing the various opposition parties, its a case of guarantee YES, blanket NO.
I think the opposition parties should get over the whole sept 30th thing and concentrate more on the governments failings in the run up to it. Specifically from when the anglo share price collapsed in march 2008. The Brians failed their country during that period up to sept 30th and it was their naivete, incompetence, ignorance, arrogance, call it what you want, in those 6 months that I blame them most for.

@AmcGrath & Grumpy

As Anglo share price was falling both the CB and Financial Regulator were regaling all in sundry with confident accounts of the solidity of Anglo. The effort to support Anglo even went so far as to suggest that the real problem were the hedge funds in London (no mention of IFSC of course) who were doing their cunning utmost to talk down the share price to support their shorts. This story grew arms and legs and many sensible people believed it and repeated it. A broker I deal with told me categorically that his firm were ‘bullish’ on Anglo. At one stage a senior investment honcho from across the water was wheeled through various Dublin establishments to endorse Anglo. While all of this rearguard action was occurring, the emerging truth about Anglo’s procedure an positions, known to more than a handful of actors, got stuffed under the dead tiger rug. And despite the seizure by Lenihan of the shareholder stake in the bank, no assessor has been appointed. That is most puzzling and extremely aggravating.

For the period 30/9/08 Anglo Irish Bank made a profit of 784 million. This was signed off by the auditors Ernst and Young.

David McWilliams says in his book that the Bank was voted best bank in the world at the exclusive Davos Conference.

It was reasonable of the Govt to assume (wrongly as we now know) that Anglo’s problems related to liquidity and not solvency.

There is a fair amount of hindsight being applied to the judgments that had to be made quickly at the end of September 2008.

@ seafóid

Now that analogy does not stack up. Governments guarantee lots of things like paying pensions and even paying back their bonds and they hold precious little reserves for these liabilities.

@ Jarlath

The opp parties are getting away with murder on this guarantee thing. They presumably all agree that the depositors are sacrosanct (can anybody explain why?). They play very footloose as to whether they would or would not pay back some or all bondholders or whether they would pay back the ECB. As it is they simply mouth about the horrendous mistakes made by the government in providing the guarantee. They are spared answering exactly what they would have done and why would we bo so better off as a result.

The luxury of opposition I suppose but being used with distateful cynicism. Interestingly the debate is focussing on which of Lab or FG were most against the guarantee as they both write FF off as an irrelevance in the upcoming GE.

Sorry, late to the party here. My basic belief is that the guarantee, with hindsight, was far too broad and all-encompassing in nature. While it has not costs us “80bn” as some seem to be suggesting, it definitely cost us flexibility and manouevring power in terms of being able to put pressure on bondholders, both sub and senior. However, we have still decided that we are completely unwilling to enforce default losses on bondholders, so the guarantee did not “cost” us there, and the level of discounted buybacks of either sub or senior would never have been of sufficient size to save a meaningful amount of money, though as we now know, every little helps. Not having the blanket guarantee would also have led to less contingent liabilities forming on the sovereign balance sheet, and therefore would have been less of a worry for investors. However, the original contingent element dropped off at the end of September 2010, so we can’t claim that thats still a problem for the state. I think the biggest potential (note*) benefit of not having the guarantee would have been that it would have allowed for a more open argument/debate about the merits of inflicting losses onto bondholders, though given the hard line the ECB has had on this, i suspect we would still have ended up where we are now in terms of being unwilling to go down that particular route.

Overall the guarantee was not the core creator of the problems we now have, that rests mainly on our decision, right or wrong and decided by whomever, to not default on any bondholders. The blanket guarantee probably facilitated that argument further, but it was the not the core underlying reason behind it.

@ John Martin
Between march 2008 and july 2008, anglo’s share price went from 10 euros to 4 euros. Our own Michael Somers had said he would not invest in Anglo. Do you not think its reasonable that a little more should have been done rather than just Patrick Neary shouting over “are u alright there Seanie?”…then the cataclysm arrives the end of september, AIB and BOFI know that anglo is rotten to the core, so they exclude it and go to Lenihan on their own saying they have a minor liquiduty problem… etc etc. We know the rest.
How is it Morgan Kelly was able to state on primetime the night of the guarantee that the banks were insolvent and were about to lose billions. Is it too much to ask that my government, with all their resources, be at least as well informed as some free lance college professor.

My memory of the Labour Party’s position in September 2008 was that existing legislation was adequate. In other words the guarantee of 100k for depositors would suffice.

These days, the impression is given that its position was identical to Honahan’s, which is very far from the case.


Movements in share prices alone do not affect the capital ratios of banks and its ability to do business.

We all know that economists differ. How is the govt supposed to know which economist at any given time is giving the right advice. Morgan Kelly is not right all of the time, no more than David McWilliams.

But even with the benefit of hindsight, even if the govt knew the true position of the banks I believe a comprehensive guarantee was required. However, as I’ve said it should not have been as extensive as the one that was given.


Is there any point accusing opposition parties of being cynical. What do you expect them to do or say, as far as i can see regarding the guarantee, there is a broad spectrum across the opposition parties, from some in FG who are close to what FF implemented, right over to SF and the like who are just off the chart in their views. But railing at the opposition for being cynical about something like this is a bit precious…FF have been in power since Noah crashed his ark, perfecting cynical politics to a fine art, they then go and guarantee the debts of the banking sector and it is now costing the irish taxpayer billions. Thats the reality. So if you expect the opposition parties not to be cynical about something like that, if you expect them not to land as many blows as they can, either above or below the belt, then you’re dreaming.
If only FF had had a bit of cynicism when they were being led up the garden path by the banks….rather than just lamely eating whatever they were given. But there was no fear of that ever happening, because banks provide wealth, thus placing them above reproach or suspicion in Fianna Fail’s eye’s.

@ John Martin

do you not think that the govt went into that night in september like lambs to the slaughter? completely unprepared and out of its depth. Do you not think there was enough warning signs before then to make them get their act together and find out just exactly what was going on in our banks….how is it the international banks knew enough to stop lending to ours?? why should they know more than our own government and regulators. Movements in share prices may not effect capital ratios, but surely to god they would at least raise suspicions. why is a banks share price falling 60% in 4 months…why is the head of our asset management agency telling people to avoid this bank…why are we being described as the financial wild west of europe….I’m sorry, but i think you are being very forgiving.

Not only would the NTMA not invest in Anglo, they wouldn’t leave money on deposit there…

@John Martin
Share prices are important where it looks like a bank may have to raise capital (will have losses that eat into its regulatory capital). A collapse in a bank share price indicates that confidence has been lost in the banks ability to generate profits and a likelihood of capital raise (and therefore dilution).

@ Jarlath

Don’t get me wrong, I’m no FFer. They bought at least the last two elections with ridiculous promises. (OAP to reach 300 = 3 x UK OAP!!!).

But I do find it unedifying to see Labour in particular spouting “I told you so, predicted this all along, warned against the guarantee etc,. etc.”. Stick to the undeniable fact that FF completely blew it from 2000 to 2008. But that’s taken as read and doesn’t differentiate them from FG. Hence the new game is that Labour would have handled this from 2008 with a deft skill far in advance of even FG, especially FG.


I have no time for labour and will most likely have to emigrate if Joan Burton becomes the new MoF, the only certainty with her would be that we’d have that financial times award for worst finance minister wrapped up for a 3rd year running. That thing could become our new eurovision the way we’re going.
Having said that i’d imagine Labour are concentrating all their firepower on the guarantee cos its a simple soundbite to transmit to the masses.

And Jackie Healy-Rae on Bloomberg (seriously) as ‘the man who could bring down the Euro’ …. seriously .. ’bout time we copped ourselves on ..

Lowry supporting the budget.What a surprise…

North Tipp roulette it should be called.

I don’t get the feeling any of the foreign media have much of a handle on the political angles to this mess. Apart maybe from the FT.

@ Hoganmahew,

We agree that share prices have no effect on existing capital ratios?

You think the problem only arises if the bank wishes to raise new capital. Fair enough.

Only if the bank is loss making and it needs to raise capital to fill the hole in its balance sheet is a drop in the share price a problem. This is the problem that AIB and Bank of Ireland now have.

But in 2008, as I’ve said, Anglo’s accounts showed that it was making large profits. These financial statements were audited and unqualified after September 2008.

I’m trying to place myself in the Financial Regulator’s shoes. Would I have considered there to be a solvency problem with all the tangible evidence that was available (And by the way I don’t think movements in share prices are evidence. They are just the opinion or guesses of the market which may be right or wrong).

If I had decided that there was something wrong with Anglo, what should I have done? Should I have closed the bank down? How could I have justified such an extreme action?

One of conclusions that Honahan reaches is that the bulk of the damage was done by 2007. But all of that is only clear in hindsight.

My conclusion is that I am very glad that I was not the Financial Regulator in 2008!

@ John Martin

Only in Ireland could anyone at this stage say, ‘oh I’m glad I wasn’t the Regualtor in 2008’.

The Regulator had only to establish the truth about Anglo and enforce the law. Its that simple.

That a grown-up could think it more complicated is the reason is we are where we are, and no one else is with us , i.e. completely f—ed.

Are we the cute boyos ! I wouldn’t doubt you , Seanie !


That’s a bit trite.

I repeat the profits for Anglo Irish were 784 million for the financial period to September 2008. It was not unreasonable to assume that the problem was liquidity and not solvency. The assumption was wrong. But it is very easy to be wise after the event.

As for enforcing the law. There has been a fraud investigation for the last 2 years and no charges have yet been brought. Maybe there will be. But it doesn’t seem as easy as “establish the truth about Anglo and enforce the law” even after all that we now know.

With respect, you’re the one that needs to grow up; with your childishly simple solutions; all with the benefit of hindsight.

@John Martin

There were loads of people that thought there was a solvency problem at the time. The reason there was a liquidity problem at all in 2008 was people like me, lots of, warning that there was an underlying solvency problem. There were also lots of guys that went with the official line, but you don’t need to invoke hindsight.

Fair enough, Grumpy. If you thought that then, you have been proved right.

But can I ask you what made you think there was a solvency problem in 2008? What piece of hard evidence in 2008 convinced you that there was a solvency problem as distinct from a liquidity problem?

The audited accounts were not the only source of information regarding Anglo’s situation that was available to the government .

It was clear by September 2008 that there had been a property bubble. It was clear that the vast majority of Anglo’s lending was concentrated in this area. It was also clear that property prices were in retreat and had been for some time.

No doubt there was also other specific back channel information available about the state of Anglo’s loan book and the financial health of it’s clients available to the DoF and regulator at the time, whether they chose to avail of it or not.

Does it make sense that all of the above was ignored and decisions about Anglo were made solely on the basis of the figures in it’s annual accounts? You seem to think that it does. I don’t think that position is tenable.

Reading my post above, I’m not sure my point is clear. You seem to be saying that relying on Anglo’s published figures was a reasonable approach by the regulator and the government.

I am saying that the circumstantial evidence for Anglo being either insolvent or shortly-to-become-insolvent was so overwhelming that it was not.

In addition the job of financial regulation is largely to stave off insolvency in financial institutions and the resulting systemic damage . How could this EVER be achieved if the approach adopted was to rely solely on published figures?

Toxic Avenger,
I would assume that the external auditors had the same information and had reviewed internal audit reports and other reports that the DofF had at its disposal as part of the audit programme.

Of course, you could say that BOTH the auditors and the Financial regulator fell down on their job. On the other hand, you might conclude that things were not quite as clear cut in September 2008 as later emerged.

At present, some economists like David McWilliams have obtained almost guru status. But if you look at what the latter wrote in September 2008 (see link above) it doesn’t stand up very well now either. At the very least, he would have been no help to the two Brians when they made their decision on that fateful day just over 2 years ago.

I WOULD say that both the auditors and the financial regulator fell down on the job.:)

I found those 2008 figures unbelievable. For instance *I* knew that Anglo and the other banks had been rolling up interest for quite a while on development loans by Sept 2008 making nonsense of the reported figures for impairments, and I didn’t have access to any source of privileged information. The dogs in the street knew that
this stuff was going on.

My guess is that the regulator and DoF also had an inkling but were either in denial or believed that given time things would again come right. Thus the guarantee was a sort of “Hail Mary” pass. The first kick of the can so to speak.

@John Martin
In a quarter of a century the nearest thing to “hard evidence” I have been able to cite in similar situations is the Polly Peck report and accounts that, if you analysed them properly, revealed the company only made any profits through “foreign exchange gains”.

It probably was useful to have observed what went on around BCCI, British & Commonealth etc, have viewed the property boom as a bubble, known that guys I knew didn’t have much understanmding of what was going on, were being asked simply “how much would you like?” by the banks if they were connected to the right people, and to have studied financial crashes previously.

Among all that, not a scrap of “hard evidence”.

@John Martin
“But in 2008, as I’ve said, Anglo’s accounts showed that it was making large profits. These financial statements were audited and unqualified after September 2008.”
Anglo’s accounts give a picture of its accounts. They don’t purport to be a view of the market or of the likely loan losses. The reason grumpy and others (myself included) were able to suppose that Irish banks were insolvent (having been pointed to it, in my case, by Morgan Kelly in 2007) is because the likely losses from a property bust goin on historical averages would indicate so. Serious buyers and sellers of shares look for a company’s performance over the next period. They base their decision only partly on what has happened in the past. The US and UK property markets, where Anglo had significant exposure, were already in serious decline by 2008.

“I’m trying to place myself in the Financial Regulator’s shoes. Would I have considered there to be a solvency problem with all the tangible evidence that was available (And by the way I don’t think movements in share prices are evidence. They are just the opinion or guesses of the market which may be right or wrong).”
While the auditors don’t have to consider market conditions, the regulator does. That is part of his job. He would or should have known the funding position of the banks. We already know that Anglo was in funding difficulties when they asked Mr. Cowen for a bung from the NTMA in April 2008. The losses from property busts were and are well known. By early 2008 it was clear we were going to have a serious bust.

“If I had decided that there was something wrong with Anglo, what should I have done? Should I have closed the bank down? How could I have justified such an extreme action?”
Look at the justification for what was done with Quinn. I don’t see any court cases from the Quinn family claiming that the appointment of administrators by the FR was unjustified.

“One of conclusions that Honahan reaches is that the bulk of the damage was done by 2007. But all of that is only clear in hindsight.”
No it isn’t. Many people could see the end coming, perhaps not the timescale, but some of the consequences. The damage was done by 2007 because that was the peak of the bubble. That is only the damage to the banks. The government then proceeded to destroy the public finances further with the largest giveaway budget the state has ever seen.

Humbug, sir, humbug.

Back in late 2007 and all throughout 2008 it was the nasty hedge funds in London and the short sellers that were being nasty to the banks – except it wasn’t!

They were actually doing a favour to the sovereign nations, trying to take out the trash.

Northern Rock spooked the market in late 2007 and Anglo were directly in the cross-hairs in early 2008.

Anglo were going down the toilet and only those with CFDs or green jerseys couldn’t see it.

Remember Anglo were sorting the balance sheet via B&B arrangements with ILP and being told “Fair play to you Willie” by Pat Neary.

By the time September and the guarantee rolled around it was only those with a need to throw someone else in front of the bus thought any of the banks were solvent.

So the regulator was in the loop – but not in the way people thought.

@John Martin

To echo grumpy, it’s a matter of the burden of proof. When banks with a history of corruption and ineptitude and little money on deposit but a leading role in a huge land and construction bubble, in a country with a history of failed bank regulation, come to you and say “Look, we have this liquidity problem …”, then you would need very specific and convincing evidence to overturn the only reasonable starting assumption, which is that they have a solvency problem. Add to that the fact that the consequences of mistaking a solvency for a liquidity problem are much less severe than the consequences of doing the reverse. So what if bank shareholders and bondholders lose money they would have recovered eventually given liquidity support, as long as basic financial stability is maintained through a restructuring? No-one from the government comes running when the owner and suppliers of a chipper are going to be left out of pocket if it fails due to a temporary cash crunch.

@John Martin
“Fair enough, Grumpy. If you thought that then, you have been proved right.

But can I ask you what made you think there was a solvency problem in 2008? What piece of hard evidence in 2008 convinced you that there was a solvency problem as distinct from a liquidity problem?”

I thought the banks would have a solvency problem in 2006/2007 John. It was crystal clear if you just looked at the property bubble on which their balance sheets were built.

Just watched Sarah Carey on the Frontline. She stated more starkly than I have ever heard that everything would have been oh so different if only the Sept 08 guarantee applied exclusively to “new bonds”. This is so so so wrong. Honohan owes it to the nation to come out and put his qualification in perspective. It was a purely theoretically point, probably wouldn’t have made much difference in practice.


You’re right about the government’s unwillingness to tackle a crash adjustment. (Again, I don’t think it’s likely we would have been completely without access to funding, but that’s not something to rely on.) In fact I think this unwillingness in itself may have been even a bigger problem than the fact that it had been signalled to the EU. The situation was similar to the bank guarantee, actually. No-one thinking straight would have signed it, but if the government had been thinking straight it would never have got us to that point in the first place. And having got us to that point, the government wasn’t likely to see the light at that instant and change policy, so long as they could see an easy escape.

Matthew Elderfield had a much easier job. Anglo had been exposed and Quinn was tainted by association. Also, the Quinn Group had made a technical breach in the reserves it was required to hold. The need to intervene in the Quinn Group was much more clear cut than the need to intervene in Anglo in 2008 or earlier.

For what its worth, I knew that there was a property bubble in 2006 and 2007 (Actually, I thought prices had peaked in 2003 when I sold my house). That’s why I held off on buying a house and still don’t own one. However, it was not obvious that the bursting of the bubble would have led to the financial crisis that did occur. I know one person who sold his house around 2006 (great move) and then used most of the proceeds to buy bank shares (aaaagh) while he lived in rented accommodation. If only he had asked Dreaded Estate for advice!

One of the most well known economists, David McWilliams, who predicted a property crash, did not predict the extent of the crisis in the banking system. It is clear from his article that he believed in September 2008 there was a liquidity problem rather than a solvency problem.


My overall view, with the BENEFIT OF HINDSIGHT, is that the Govt (and McWilliams) made an error. Some form of guarantee was required but the guarantee was too extensive. I tend to agree with Eoin Bond that the error cost the State money, but to imply that this is the source of the crisis or that the crisis could have been averted (or to any significant extent lessened) if it had not made that error is pure fantasy.

@ Karl

“Sez you.” I said probably, I don’t know. WADR neither do you and neither does Sarah. The thesis is being allowed to stick that the lion’s share of the mess we are in is down to a faulty decision in September ’08. P_H must clarify. With a more accurate decision would we now be spared the Anglo and INBS millstones, for example? If that is the case then indeed, an unforgivable and monumental error of judgement was made. If P_H says that probably things would have turned out much the same any way, well that at least takes the P_H factor out of the debate.

@ John Martin

Hindsight ? Anglo’s share price had collapsed months before. If the market felt they would be repaid their loans that would not have happened, surely. It was discussed openly on the radio, I remember it clearly. The ‘green jersey” line was that the markets didn’t understand the Irish property market, it was all about ‘demographics’ and the famine and holding on to your holding …. It was so current that I had people who couldn’t spell ‘demographic’ lecturing me on Irish demographics whenever I suggested anyone holding off buying property.

Why was the ‘liquidity’ problem especially acute for Irish banks. Because the markets knew they couldn’t repay. One of the tricks of the spin-meister is to give the public a diffucult sounding concept that is actually easily understood and make people use the newly introduced word as a mark of intelligence. Thus you have ordinary people parroting “‘it was a ‘liquidity’ problem not a ‘solvency’ problem”, when the truth is that a liquidity problem is just a symptom of the suspicion of a solvency problem.

All these posts about hindsight keep kicking McWilliams without ever mentioning Morgan Kelly. He clearly liad out that bubbles like ours always led top to 50% house price crashes and 80% property price crashes. Any simple stress test on Anglo using these figures would have arrived at the truth. This being Ireland anyone could have figured out that any securities on the loans would not be adequate or enforceable if they were. You are acting as if something unforeseable happened happened. It didn’t. You are pretending to believe the calcualtaion would be incredibly difficult. They are not . Its back of an envelope stuff.

Are you seriosly suggesting that there was no way to establsih the insolvency of a bank that is now in the red for tens of billions (having made no new business in the meantime)? If that is true , bank oversight is completely impossible. Or is it only impossible in this parallell universe that is Ireland?

I sometimes thing that Irealnd’s ruling elite and their go-fors live in a kind Ground-hog universe where nothing ever changes and nothing is learned from the evidence. They wake up every morning and say “Let’s try some moral cowardice, a little cute whoorism and dollup of criminality” . Every day it doesn’t work but every day they wake up renewed in their faith that another a nudge , another nod and a wink and everything will be okay.

Someday I hope they will cop-on and see why those other boring Germanic and Protestant countries do so much better by simply respecting the law. That is the grown-up way. Our way is the way of the perpetual adolescent, looking for the grown-ups to keep fixing up our messes.


“P_H must clarify. With a more accurate decision would we now be spared the Anglo and INBS millstones, for example? If that is the case then indeed, an unforgivable and monumental error of judgement was made.”

Your own lips have said it, so to speak.

@ Tim

I note your comment below:

“Someday I hope they will cop-on and see why those other boring Germanic and Protestant countries do so much better by simply respecting the law. That is the grown-up way. Our way is the way of the perpetual adolescent, looking for the grown-ups to keep fixing up our messes.”

Good to know that the Germans don’t have a banking crisis!

@ tim o’halloran

Some of the German banks were making risky investment decisions in Dublin which were actually illegal in Germany . Maybe Denmark might have been a better example or Luxembourg where they not only know how to count the numbers but have a GDP per capita almost double that of Germany . But alas they probably don’t count as they are 95% Catholic . Transparency international ranks Ireland in number 14th position for least corrupt . Germany ranks at 15th , with the UK in 20th and the USA at 22nd . Italy comes in at 69th and Greece at 78th both far behind many developing countries in Africa and Asia and even behind a dozen or more former Eastern European -Soviet bloc states .
What we all have learned from this debacle is that banks can lie or not necessarily make full disclosure and can gamble with their depositors funds. We have also learned (some of us anyway) that just because you are an Irish politician doesn’t prevent you from being corrupt , or ignorant or unwise or like most of the politicians in the USA or UK -clueless with what has been happening in the financial services world over the past 20 years 🙁

@ Meegan

Sorry, but your piece is at best naive. There was a good piece recently in the Economist and another one in the FT which pointed out that not only was it next to impossible to do this without causing chaos, that even if you could achieve it at the click of a mouse it would not actually help, for the reasons you partly articulate. I didn’t follow your case that it made more sense for us than Greece.

Whilst some here in Ireland think the euro project was partly to blame for our current predicament (or rather our immaturity in managing the traansition to low interest rates and a vast pool of liquidity) and some like me believe we should never have left sterling in 1979, I and everybody I know thank our lucky stars that we are in the euro at this point in time, the alterantive would be Argentina.

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