Cowen and Advice Relating to the Guarantee

As Fianna Fail deputies and the media debate the performance of Brian Cowen as Taoiseach over the next few days, the question of the September 2008 guarantee will come up time and again. The Taoiseach has defended himself strongly against accusations that any relationships he had with bankers led to his government’s decision to offer a near-blanket guarantee to the liabilities of the Irish banks. He has repeatedly argued that this decision was taken in the national interest.

This still leaves open the question of why it was considered in the national interest to offer such an extensive guarantee. On this subject, Mister Cowen has tended to answer that they took this decision based on the best advice available. The next few days would be a good time to provide evidence for this statement. As it stands, there is a lot of evidence that plenty of contrary advice was given. For example, as has been noted here on a number of occasions, the government’s expensively-hired outside advisers, Merrill Lynch, were not enthusiastic about such a guarantee.

In relation to the Department of Finance’s policy advice on this issue, a useful example of the Department’s stance is document 36 from the PAC collection. The document is a slide presentation from February 2008 titled “Overview of Financial Stability Resolution Issues”.  Page 11 states in bold:

As a matter of public policy to protect the interests of taxpayers any requirement to provide open-ended/legally binding State guarantees which would expose the Exchequer to the risk of very significant costs are not regarded as part of the toolkit for successful crisis management and resolution.

In bold and with “not” underlined. It certainly seems as though the Department officials were on the record as being against the form of guarantee provided. Evidence on who exactly proposed the form of guarantee that was provided would be welcome.

I also think it’s worth keeping in mind when government politicians condemn those who opposed the guarantee (i.e. the Labour Party) as having been irresponsible, as Peter Power did on the The Week in Politics last night, that this opposition was shared by the government’s own advisers.

156 replies on “Cowen and Advice Relating to the Guarantee”

A number of observations.

It is becoming fairly clear that Lenny was acting on the advice of David McWilliams. I am not saying that is a good thing but I doubt that David had saving Seanie’s bacon uppermost in his thoughts.

Please, please, we have had the report by Prof Hon that the guarantee was largely justified, subjec to a slight rap on the knuckles about including subbies and pre-existing. I have argued before and hope to avoid repeating those arguments that this was a theoretical point which in practice didn’t matter much. In any case subbies and pre-existings are no longer covered.

The Labour Party rejected the guarantee but so far as I recall that was because they favoured full and immediate nationalisation. Are they arguing that we would be in a significantly different place now if we had full nationalisation? Would a nationalised Anglo have burned the bondholders?

This has been touched on on this site in Dec. My thoughts…..

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 small Dublin is.

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

There are other lovely documents on that website (and , curious given his all pervasive influence, few, in fact none, mention the Sage of Dalkey). I like this one
This looks at how to deal with INBS, and outlines a number of scenarios, including the proposal to merge it with Anglo. Its from Dr Michael Walsh dated 22/9(2008 we assume).
Brian Woods II will be thrilled to see how they propose to deal with an attempt to breakup INBS (top of page 4)….

What was the date of the post-Lehmans meeting of EU Finance Ministers where they agreed and announced that no systemic bank would be let go under? It post-dated the said DoF position as Lehmans folded in Sept 2009. It is not clear that the said memo countenances the world-wide risk fo contagion that later manifested itself. The Merrill Lynch advice came later of course.

“This still leaves open the question of why it was considered in the national interest to offer such an extensive guarantee. On this subject, Mister Cowen has tended to answer that they took this decision based on the best advice available.”

That’s not an answer, it’s a cop-out. Why did the advisers think it was in the national interest? Retail deposits were already guaranteed. I’ve never seen a persuasive argument for going beyond that and I can’t imagine any argument which would justify a guarantee without an explicit ceiling on the State’s liability.

“It post-dated the said DoF position as Lehmans folded in Sept 2009.”
should of course read
“It post-dated the said DoF position as Lehmans folded in Sept 2008.”

@ Prof Lucey

Yes there it is in black and white and official “Sell the Deposit Book”. It even further on speculates that in normal times this would release a sizeable premium.

But I am very sorry, Prof, you do not get outa jail with this card. If all you had said on radio was “sell the deposit book” you would have got away with it, after all you got away with it on the program. But next moring in the Independent in graphic diagrams you spelt out that you meant “sell the deposits” not sell the book. You stated that someone would take over the liability for 28bn deposits and pay 21bn for the priviledge, a 49bn windfall. Look, I didn’t raise this off topic, you did. Let’s have a truce, you never mention it again, and I will let you off.

@ Karl Whelan and Brian Lucey.

In his three articles before the guarantee David Mcwilliams was advocating a guarantee. The closer we got to the actual event the larger and wider in scope his proposal was. In the last article he advocated guaranteeing in the blanket style we eventually saw.

We Know from McWilliams own book that he had the ear of the Minister of finance and that they had phone calls and meetings.

We also have evidence that McWilliams helped convince John Gormley that the guarantee was the way to go from an article in the Sunday Business Post.

We also know that in his article in the Independent on the following Wednesday in which he described the guarantee as “Lenihans masterstroke” that there were people in the dept of finance that did not want to guarantee Anglo and NIB.
” The minister obviously thought that by guaranteeing some banks and not others — as some of his advisors argued– he would open up the prospect of the weaker banks undermining the stronger ones. He has put the system first and that can only be a good thing.”

Is it because he is a mere journo that you guys have trouble seeing what is fairly obvious?

Another good question to ask might be how did Mc Williams know what it was “some of his advisors argued” unless he was briefed?

In saying that I think McWilliams was set up. His prescription was for a stark liquidity crises. He didn’t know the scale of the losses in the banks at that stage. Perhaps he should have but he wasn’t alone in thinking it was a liquidity crises at the time. The Government and the banks knew different.

@ This Blog’s Two Brians

Look, everybody screws up from time to time – especially if one is trying to squeeze some extra bit of work in and could have done with a bit more time.

One of the problems with politics is that politicians have to go through their enire career pretending the never made a mistake, which is why political debate is generally worthless and most of the publc understand that. They will still never vote for anyone who adits being wrong about anything though 😉

If this blog can’t “get above the retail” then nothing much useful will result from the discussions.

Either move on please, or sort out a pistols at dawn thing somewhere – live on Twitter maybe.

@ Prof Lucey

Back on topic. That is a very interesting snippet but not for the reasons you suggest. It shows how very difficult it would have been to have walked from INBS never mind walk from Anglo.

It is really quite sickening how the likes of Labour and Sinn Fein, who were simply mouthing socialist soundbytes, can cite the deterioration of our position with hindsight as a vindication of their approach. Firstly, if the attached document is typical, it would have been very difficult for any responsible administration to have adopted anything totally radical in the way of torching bondholders. Secondly the recommended route of total nationalisation was not accompanied at the time by any proposal to torch bondholders and, if anything, would have made such a bonfire even more problematic.

All this talk about should they have?, why didn’t they?, what if? etc. boils down to one question. Is there any alternative course which would have allowed for a significant conflagration of bondholders whilst keeping the economic and banking system afloat? There is nothinhg else at stake here. IMHO no matter what we did at whichever point in time we were never going to get away unscathed from a significant torching of bondholders.


According to one account by Brian Lenihan (though 2008 is still being subjected to revisionism on an as-needed basis as details of meetings emerge), it was done on the “advice” / recommendation of the ECB made by phone message on 27th Sep 2008. Aptly the Finance Minister was on a race course at an FF event at the time the message was left.

See about 4m30s in.

The message “Save your banks at all costs!”

@ Eamonn Moran

With you all the way until that last “conspiracy theory” bit. I honestly think even the bankers beleived their own hype. They genuinely believed that the loan book was sound, that all they were facing was a credibility/liquidity crisis. Morgan Kelly called it, but I believe he was unique.


“Morgan Kelly called it, but I believe he was unique.”

MK was not putting on all those shorts throughout 2008 unless he is the worlds most hyperactive margin day-trader.

Nobody, including MK, KNEW the banks were insolvent, but for many (still very much a minority, but many nevertheless), the probability they were insolvent (Anglo very much principally) seemed quite high – very high for something that had a two way market, actually.

This view was simply dismissed but the decision makers when it would have bee useful to have listened to it. At the point the blanket guarantee was given they may still have had their fingers in their ears.

Oh God, we’re not still claiming we can sell deposit books in the manner that was claimed in the Indo are we? For the uninitiated, here is the exact wording used by the Prof on that other fateful day…(and note that he brought it up, not me…)

“Anglo can be wound up cheaply — here’s how. Sell the €28bn deposit book. This is a regular event in banking, and even if it has to take a discount of 25pc that would yield €21bn. Sell the bonds and withdraw deposits in other banks. This gives a further €14bn, a total of €35bn, that is sufficient to cover the senior bondholders (€13bn) and the interbank deposits with NAMA (€16bn), with €6bn left over.”

By using the word ‘discount’, you clearly thought that the sale of the deposit book would produce 21bn in cash, like an asset sale worth 21bn would. You thought it was an asset. Don’t believe me?

“There is a loss to be paid on the deposit book, and potentially on the fact that the remaining loans are not worth their book value but this is much, much less than keeping it alive.”

Again, you thought it was an asset. You completely misunderstood how it formed part of the bank balance sheet. And yet you keep claiming you’re technically right because other people used the phrase “sell the deposit book” too. They mean transferring the deposit book, and maybe receiving a small consideration in return. Like 1%, or less, of what you are suggesting. Why do you keep bringing up what should be a horribly embarassing moment for a TCD Professor of Economics???

The role of the ECB must be investigated. The advice it gave must come out into the public arena.
Was Jean Claude Trichet consulted about the bank guarantee? Yes or no?
If not, why not?

“It is really quite sickening how the likes of Labour and Sinn Fein, who were simply mouthing socialist soundbytes, can cite the deterioration of our position with hindsight as a vindication of their approach.” – BWII

You might be interested to know what Sinn Fein’s position was at the time. Here is a link to a press release on 17/10/08.

The document shows that the party voted for the original guarantee, but then a couple of weeks later began to have some reservations. But its reservations had nothing to do with the core principle of the State guaranteeing the liabilities of the banks. It remained supportive of this.

David McWilliams is not the only one who has had a radical change in his position.

The facts are straightforward…

Cowen gets a phone-call from Fitzpatrick in March as Anglo-world folds in on itself. Naturally enough, Fitzpatrick has Cowen’s mobile number to hand. Next Cowen doesn’t hear from Fitzpatrick for four months and then they meet up at a golf outing including another Anglo director Fintan Drury. The 19th hole is dinner with yet another Anglo director Gary McCann, and another friend of Cowen’s and appointee to the Board of the Central Bank, Alan Gray. And at no stage in the course of the nine hours did Cowen raise as much as a peep about Anglo’s future. None of the banter along the lines of ‘The last time I heard from you Seanie, Anglo was drowning, everything alright now?”

Straightforward, uncontroversial and completely plausible.

@ zhou_enlai

What was the date of the post-Lehmans meeting of EU Finance Ministers where they agreed and announced that no systemic bank would be let go under?

Oct 07: “We have agreed to support systemic financial institutions. We all commit to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers.”

Apart from Ireland, only Denmark guaranteed existing debt. Both countries had made these moves before the Ecofin meeting.

Chart here on bank exposure of 12 advanced countries during crisis:

The Merill Lynch advice was wishy-washy; Hurley and Neary were out of their depth believing the banks’ versions of events, even taking the latter’s subsequent statement’s alone into account. Cowen must have been in regular phone contact with FitzPatrick on Sept 29/30 — after all the crisis had been brought to a head by Anglo’s troubles.

The umbilical link between Anglo and FF was a factor of course in the decision making; the DoF people who would really have created an earthquake if they had threatened to resign on principle, which would be an Irish precedent, presumably had little impact.

Crucially, the political leaders were relying on bullshit assessments from the banks themselves.

The most urgent issue was to stem the outflow of deposits; why not go ahead with the unlimited deposit guarantee and hold the guarantee of debt in reserve?

We’re inevitably going over old ground. But

(1) Sean Quinn. Known what was known about his Anglo share dealings up to Sep 2010, did Anglo not already have the whiff of a severely troubled institution?

(2) Full nationalisation would have provided the control to match the stakes. As it is, the Man on the Clondalkin omnibus does not understand why money was walking out the door of the covered institutions in the form of compensation while these banks were so stuck for day-to-day cash. The new row over B of I bonuses, which is now a he-said, he said between D of F and B of I is only the latest illustration of this. And the loss in political legitimacy has undercut the whole operation.

It all comes across as very shoddy. Did McWilliams’ dad belong in a cumann or something? The biggest decision in the history of the state and the muppets in charge go off on a solo run against the advice of all the experts.

It was all run according to the maxim “sure it’ll be grand”. Sure what harm could a guarantee do? Sure weren’t the banks all grand? Sure wasn’t the Celtic Tiger grand ? Sure weren’t those people complaining only whingers? Sure wasn’t Seanie an great businessman? Sure wasn’t AIB world class?

Given that we are still of the belief that we cannot enforce losses on senior debt, its debatable how much the guarantee actually cost us, other than the flexibility to enforce deeper discounts on subdebt buybacks. Without any meaningful ability to haircut seniors, the guarantees are in reality somewhat meaningless from a cost point of view.

Nationalisation, as we have seen, would only have rendered some moderate additional level of earlier control, and while a resolution regime could have been enacted earlier to enforce losses on subdebt, again i don’t see the ECB as having allowed an agressive approach much earlier than this summer given how we were still in ‘recovery’ mode until then.

The sad fact is that the ECB has told us what is or isn’t allowed in this whole sorry mess, so most of the decision making on guarantees, resolution, and burden sharing has never been ours to make.

@ The Alchemist,

Mr Gray did clarify that he had never met Mr Fitzpatrick prior to that meeting. Though after this initial meeting, Mr Fitzpatrick initiated two additional meetings with Mr Gray.


“To Mr Gray’s surprise, late in September, possibly on the 29th, Mr FitzPatrick and Mr Drumm arrived unexpectedly at his office. When they were met, they expressed their view that due to the crisis in the international financial markets, Anglo were experiencing extremely severe liquidity difficulties – a fact which was of no surprise to Mr Gray as this was by now well known in the financial markets. Mr Gray again indicated that they should discuss this with the Central Bank officials and they indicated that this had been done. Mr Drumm had a presentation with him but did not give this to Mr Gray and he used it as brief speaking notes. They did not ask Mr Gray to take any action or make any representations to any other parties. Mr Gray then concluded the meeting which in total had lasted approximately five to 10 minutes.”

Makes you wonder what Mr Fitzpatrick and Mr Drumm were hoping to achieve and why they thought it worthwhile. It seems that one chance encounter at Druids Glen gave Mr Fitzpatrick the impression he had the right to bend Mr Gray’s ear. It does seem unlikely that Sean F. wasn’t bombarding his better placed contacts with meeting requests.


I have some sympathy with that point of view.

The best move in my opinion would have been to only guarantee BOI and AIB but that would have been disobeying JC Trichets request if we can believe the “save your banks” (nothing mentioned about systemic) comment above from Lenny.


The absolutely most stupid thing the Irish government could have done at any point was to close out its options for nil consideration. They probably had no idea about the concept of option valuation.

Including bonds that had already been issued in the guarantee was just plain stupid. Maybe it was showing-off to try to look confident. Most market based observers copped this straight away and the fact it was such an irrational thing to have done made many international investors that hadn’t already, start to wonder about their basic assumptions about Ireland.

They could have set about getting parallel banks in place to at least threaten to leave the creditors (including the employees, bonus pots, contracts and pensions) in the old banks while giving golden hellos (compensation) to depositors transferred across in or prior to a liquidation.

They just picked the worst option available to them – it amounted to “Look at us! we have no idea what we are doing!!!”

B Eoin B,

“The sad fact is that the ECB has told us what is or isn’t allowed in this whole sorry mess, so most of the decision making on guarantees, resolution, and burden sharing has never been ours to make.”

And FF are willing to take the blame? pull the other one!

Though it would be good to know what the ECB were advising prior to the guarantee. It seems we went on a bit of a solo run. It was quite clear at the time that we pissed off a number of our EU partners.

The sad fact is that the ECB has told us what is or isn’t allowed….

Any reliable source for this claim?

The country has been led to the brink of ruin and beyond by the Government and its economic advisors; and what is their excuse?

“Blame McWilliams!”

David McWilliams, probably the most excluded and marginalized economic commentator in the country for the last three years, is now responsible for the entirety of our financial and economic woes. Concordantly, the voices that the government has actually listened to since 2008 are naturally entirely blameless.

And thus we come full circle. The Irish economic establishment which scoffed at the warnings of McWilliams, Morgan Kelly and others during the boom, now seeks to blame these still sidelined voices for Ireland’s current financial debacle. A calculated, cynical, and self serving strategy if ever there was one.

Irish economists have shown themselves quite plainly to be cut from the same cloth as every other group that has wrecked the country: Fianna Fail perpetually blame the opposition. Developers perpetually blame the banks, banks the regulator. Industry blames the public service, and the public service blames the government. The government blames the newspapers, and the newspapers blame the electorate. Catholics blame protestants. The Irish blame England. And Irish economists perpetually blame outsiders.

And no-one ever thinks to blame themselves.

The Irish Government has acted incoherently, indecisively, and incorrectly at Every Single _Step_ over the last three years. They have done so because the economists who advised them and their departments—many of whom can be found on this blog—advised them inadequately, ambiguously, and indeed wrongly.

McWilliams and Kelly haven’t seen the inside of a Government building for three years. Economists on this blog have, and have frequently. And this is no recent development. It’s no great mystery to discover just where the Government’s economic policies have been, are, and aren’t coming from.

To Irish economists—esp. on this blog—who have been in receipt of handsome commissions for giving advice and experience to the Government and state bodies, I say this: Show the record of your own advice before you scrutinize that of others.

@ Ahura

the ECB were against the guarantee, but they were also against any even modest burden sharing beyond equity and subdebt. As such, the two stances cannot work in tandem to any meaningful effect. They appeared to want an implicit guarantee which would be honoured in near fullness.

@ Kevin

the negotiations with the IMF made clear that the Irish government asked could a senior debt restructuring be considered as part of the deal, and the EU/ECB said no. Its on the record. Bini-Smaghi said as much again on Saturday in the Irish Times.

@ Grumpy

its a fair point that the initial decision may have set in train the negative sentiment which ultimately sunk us.

Eoin, the IMF negotiations have nothing to do with the case. This thread is about the September 2008 guarantee. I took your claim that “the ECB has told us what is or isn’t allowed in this whole sorry mess” to refer to that. More recent developments are off-topic.

@ Kevin

we don’t have a paper trail going back as far as Sept 2008 in terms of what the ECB said, other than the “save your banks” comments from JCT. We do however have de facto information on the more recent comments from the ECB on senior debt, which when combined with fairly sensible joining of the dots in recent years would suggest that the ECB has been the key decision maker on most decisions made across the Eurozone in recent years. If you’re looking for verifiable sources, i’d suggest you’ll miss half the trick being pulled here. Also, to say that the IMF negotiations have nothing to do with the guarantee is more than a bit blinkered, no? Its the ultimate conclusion (or end of Act II) for a story that began on that fateful night in Sept 2008. There was lots of cause and effect in between, but they are the two events that are completely intertwined.

@ObsessiveMathsFreak +1

I too had an increasing feeling of nausea as the latest and greatest failure of market capitalism and our astonishingly botched job of responding of it are blamed on David McWilliams – a man whose principal sin was to disagree with the establishment consensus that led us inevitably and directly here. (McWilliams is, in US terms, “unserious”)

So, just to recapitulate:

* We could not have done anything differently as regards the banking crisis.
* We need to keep to the path that brought us here.
* David McWilliams is at least partially responsible for the mess we are in.
* The Croke Park agreement led to the international financial crisis.

These beatings will continue until morale improves.

Once Ireland guaranteed senior debt it ceased to be just senior debt. The ECB says that, having guaranteed it, you can’t walk away from it. That’s not evidence that they ever suggested issuing the guarantee in the first place, much less that they were telling us “what is or isn’t allowed” back in 2008.

I have many times referred here to a Sunday Times article that has never been denied, to my knowledge, that stated that Dermot Desmond and Denis O’Brien were both in contact with the Dept. of Finance on the Monday of the guarantee, Desmond at least was said to be trying to prevent the nationalisation of Anglo, while it was not stated what O’Brien was contributing).

Nobody ever picked up the thread. If the participants in this discussion do not have the moral courage to upset the great and the good , then they should stop pretending to have any real interest in finding out where the Brian’s got their advice. The subject seems to be only brought up in order to kick McWilliams, not for enlightenment but for fun.

Does anyone seriously believe that FF made a decision as big as this on the say-so of McWilliams? (The Greens, God help us, are another matter) . If Desmond and O’Brien advised one way and McWilliams advised another way, are you people seriously suggesting that FF would go with McWilliams.? Is that your level of understanding of how this society works?

Could we have a serious discussion? Celebrity bashing is not serious, even celebrity-economist bashing.

@ Kevin

we could walk away from it right now, but they don’t want to let us. Do you think that this line of thinking is only a fresh one for them?

“Do you think that this line of thinking is only a fresh one for them?”

Let’s suppose it isn’t. Let’s suppose they have felt that way since the ECB was created. That still doesn’t mean they were telling us “what is or isn’t allowed” back in 2008. Do you have any evidence whatever for that claim?

@Kevin O’Donoghue

The ECB is saying we cannot default on unguaranteed senior dent. The IMF does not agree with this approach. The ECB have claimed that we have agreed to not default on unguaranteed senior debt even though it is not in the memorandum (presumably because it would be such an outrageous provision to have in the document).

@ Kevin

an inability to read between the lines will only leave you illinformed of the realities of how we came to be where we are today. Realpolitik often doesn’t come with attributable sources, so apologies if we cannot assure you of the veracity of the claim beyond that. Pretty much everyone on here feels its more or less how things went down anyway. Whether we should have let them dictate policy, is of course, another argument altogether.

@Kevin Donoghue

The ECB says that, having guaranteed it, you can’t walk away from it.

That’s incorrect. It seems there’s still a large amount of unguaranteed Irish bank senior debt out there: the IT recently said €25bn. As far as I’m aware ECB figures like Trichet, Noyer and Bini Smaghi (and Commissioner Rehn) have never distinguished between guaranteed and unguaranteed debt when calling for Irish bank senior debt to be paid in full.

@Shay Begorrah

“* We could not have done anything differently as regards the banking crisis.
* We need to keep to the path that brought us here.
* David McWilliams is at least partially responsible for the mess we are in.
* The Croke Park agreement led to the international financial crisis.”

Hadn’t noticed anyone bring up Croke Park on this thread and hadn’t noticed anyone, anywhere implying or suggesting it led to the international financial crisis.

Rather like the blanket guarantee – covering already issued bonds – it did close off the government’s options in spite of a continually worsening outlook for the structural deficit. That was noted by bond market and contributed to its collective decision to close to Ireland.


it is not in the memorandum

Is it in the secret side-letter though? Inquiring minds wish to know.

@ ObsessiveMathsFreak

That is a seriously off topic rant. Karl has observed that the reasons for the guarantee decision will now be a key element in Cowen’s FF leadership survival. I presume this is referring to the suspicion that the reasons had rather too much to do with Seanie croneyism than could be in any way be helpful electorally.

I and others have pointed out the rather more simple explanation for the particular form of guarantee as being the influence that McWilliams then had over Lenny. This is not to blame McWilliams nor is it even to concede lazily that the guarantee decision was the monumental disaster that seems to becoming the accepted wisdom.

I’m no fan of Bini Smaghi but to be fair to him he was really quite clear on the distinction:

“If you want to put that into question, you put into question everything and the markets will also question the trust in the Irish state. If the Irish state says, ‘support us, trust us, we will repay you’, and after a while you say ‘sorry, we won’t repay you’, then there’s no way to regain the confidence not only of the markets but also of the rest of the people of Europe who have supported Ireland.

It’s quite clear that here he’s talking about guaranteed debt. By definition, unguaranteed debt is not a liability of the Irish state.

@ Ahura Mazda
“And FF are willing to take the blame? pull the other one!”

FF – what FF? Believe it or not these guys may still have aspirations for the political gravy train of Europe or lucrative company directorships.

Jean Claude Trichet was implicated in the fraudulent practices of Credit Lyonnais and then became head of the ECB. On that trajectory Brian Cowen might be hoping to get European presidency (joking (kind of…))

@Kevin Donoghue

Did anybody ask Ben Smagi to account for his running of the ECB.?
Ask him whether it was usual for a central bank to allow fully fledged casino banking operations in its bailiwick?
Ask him if he ran the ECB so well why are so scared of letting banks go to the wall as they do in the US?
Oh sorry, they forgot to plan for this eventaulity!
Ask him whether it was usual for a central bank to provide lender of last resort facilities?

We need to ignore people in positions of power that have ***up and listen to people with solutions.

@ Kevin

actually, here’s what he said:

“In a similar way, he expresses scant regard for the argument that there is an inherent injustice in the failure to force bailout cost on senior bank bondholders.

“Again, the banks have been the basis of the growth and prosperity of Ireland. Unless you want to change model, and make all the banks broke, you have to ensure a smooth transition which requires a recapitalisation and support of the banking system through public funds.

“If banks collapse, the impact on the economy and on the people will be even stronger. People who have deposits cannot get their money back, your own savings are affected.

“This is an Argentine-type scenario. I would not advise any country to go through that. In order to avoid that, you have to keep in place what you have and ensure a smooth transition.” He therefore excludes any possibility of a “haircut” for senior bank bondholders and says that would fatally compromise the effort to regain investor confidence.”

Also, from the IMF press conference on Ireland, with the last two lines especially important in light of our discussion:

“QUESTIONER: Is there anything that might affect senior bondholders?

MR. CHOPRA: On this, Minister Lenihan has clearly stated, and I quote, “There is simply no way that this country [Ireland] whose banks are so dependent on international investors can unilaterally renege on senior bondholders against the wishes of the ECB.” So far the view of European partners has been that the systemic impact of reneging on senior bondholders would be too great. In light of this, any decision on senior bondholders will need to be taken in consultation with the European partners.”

As i said, someone else off this island is calling the shots.

@ Eoin B,

“the ECB were against the guarantee, but they were also against any even modest burden sharing beyond equity and subdebt. As such, the two stances cannot work in tandem to any meaningful effect. They appeared to want an implicit guarantee which would be honoured in near fullness.”

It appears that Sean Fitzpatrick could contact the MoF in Vietnam, but Trichet had to leave a voicemail because the MoF was at the races. It is very surprising that Lenihan didn’t seek to involve the ECB/EU. You’d expect a politician would recognise the cover this would provide. Was it the case that they feared the ECB would advise the nationalisation of Anglo & INBS?

The Irish bank guarantee put us in the position that we were on the hook. As a result the prospect of burden sharing was severely limited. The attempt to look at burden sharing came too late. At that point the ECB held the aces.

You can’t “renege” (Chopra’s word) on obligations you don’t have. In any case you are still trying to infer the ECB’s position in 2008 from its current stance. The fact is that Irish policymakers made the fatal decision. You’ve provided no evidence that the ECB devil made them do it. Indeed you’ve tactitly admitted that you don’t have any: “Realpolitik often doesn’t come with attributable sources” — true enough and equally true of pure fiction.

As for my “inability to read between the lines”, I’m reminded of Alan Coddington’s famous wisecrack about progressing from reading between the lines to reading off the edge of the page. That’s what you’re doing I think.


There is a saying about having people pissing out rather than pissing in.

Watch out for pissing out type appointments for the odd contributor to this blog after or via the election.

Real integrity requires the determination to piss in more than one direction.

@Joseph Ryan
Perhaps I’ve given you a false impression of my opinion of the ECB. I think it’s a lousy central bank. But that’s no reason to excuse Irish politicians for decisions supposedly made at the ECB’s behest — quite the contrary. The worse the central bank, the more important it is to find ways to mitigate the harm it does.

@ Kevin

it mentions nothing about guaranteed debt in there, hence the reference to it just as “senior debt”. Have you been missing from the last 4 months of the financial world?

“Senior debt holders rank virtually equal with depositors. Offering them a deal at less than face value would raise serious questions of whether the bank was in fact defaulting, not restructuring as it claims.

Brian Lenihan, Ireland’s finance minister, has repeatedly maintained that senior bonds will be honoured but investors have begun to worry about what might be demanded as part of a bail-out package from the European Union and the International Monetary Fund.

Bankers have warned that imposing losses on senior debt could affect the ability of banks elsewhere in the eurozone to fund themselves. European banks have raised more than €560bn in senior market this year, according to Dealogic.”

Almost no one is suggesting reneging on guaranteed debt, the entire debate has been about unguaranteed debt. Its supposed to be obvious enough that you don’t have to use the word ‘unguaranteed’ every time the discussion starts. Its part of the problem that we’re in right now that you think senior debt is automatically guaranteed unless labelled to the contrary.

@ grumpy

It is debatable (though you may be right) that the collapsing bank prices of 2008 were due to market prescience on the scale of toxic assets. I suggest two counter arguments.

1) 2008 was the full blown credit crunch. Credibility and therefore liquidity were seriously impacted. This had very negative implications for Ireland’s banking model and would have warranted very significant corrections to share prices even if there were no concerns about the assets. For example, no-one has ever questioned ILP’s solvency and yet its share price has suffered nearly as badly as the others.

2) If the markets are so smart why were they valuing Irish banks at ridiculous highs in 2007, when at that stage all the bad lending had been done?

@Brian Woods II

“They genuinely believed that the loan book was sound, that all they were facing was a credibility/liquidity crisis. Morgan Kelly called it, but I believe he was unique.”

I would like to see evidence to prove that assertion – my hunch is that from late summer 2007 – many people were moving 20,000 into multiple banks –
Were they just hyperactive rate tarts or did they also believe that the banks were sunk in their present manifestation ?


By you logic, the ECB which opposed the guarantee in 2008 should have rung up the Irish govt and avised them of the stupidity or even the illegality of a blanket guarantee on all liabilities. But they did not. Why not…because as EB says it was entirely consistent with their policy of no seniors left behind.

True, the guarantee, particularly of Anglo was an utterly stupid policy. However, it was 100% in line with the ECBs line that senior debt should not be risk bearing.

How much pre 2008 stuff is still on the books… about 20bn we are told. I do not think this is covered by any guarantee..apologies if incorrect. The ECB doe not let us impose losses on that …do they.?

@Kevin Donohue

If you read the entire passage on senior bank debt (quoted above by Mr. Bond), it is not at all apparent that Dr. Bini Smaghi is referring only to the guaranteed bank debts. Instead he appears to be appealing to the celebrated idea of an ‘implicit guarantee’. This is even more likely if the reporter, Arthur Beesley, is correct in drawing an analogy to Bini Smaghi’s earlier comments about tax rates in Ireland. It’s a pity that Beasley apparently didn’t think to specifically ask Bini Smaghi about unguaranteed bank senior debt.

Another piece of testimony from the EU: Olli Rehn on 14 November last:

The EU-IMF-ECB troika worked in excellent co-operation and there was no significant deviation of positions on these issues.

Our position is very clear. The senior debt, not to speak of sovereign debt, should not be and will not be restructured. It is another thing as regards subordinated bondholders.

These decisions of the EU finance ministers are based on the need to avoid any further contagion effect.

It is almost impossible to construe Rehn as referring only to guaranteed senior bank debt here. Among other things, his comments about subdebt and about contagion would be barely meaningful in that case. Then there’s what the government and Honohan have saying about senior bank debt since the “bailout”. And money talks: if the Troika’s not opposed to haircuts on unguaranteed senior bank debt, and the government’s not opposed, then why haven’t there been any? It seems clear that you are straightforwardly wrong on this point.

@ Kevin
I take Lenny at his word. He was told to “save the banks” by JCT.

Did JCT know about the Irish property problem? If not why not?
Is it a case that for at least the second time in his career he has been “at the helm” when a bank has invested in bad property deals, where the solution has been a “good bank” bad bank approach, where the tax payer got screwed for massive bailout and where nobody went to jail.
The evidence is circumstantial, I know but the parallels are too disconcerting.
JCT should be made answer questions just as Bernanke does.
It is utterly appalling that he should not be held accountable for anything. Not just the guarantee but the low interest policy to support German growth regardless of the risk to the periphery for example.
But we will not get that opportunity because European institutions do not do accountability or democracy.

@ Eureka

Isn’t “save the banks” quite a different thing from “save the banks’ creditors”?

But I agree with your point that JCT should be made to answer questions. The lack of accountability is appalling.


Your point 1):

I was originally responding to your view that MK was “unique” in thinking that at least one Irish bank was actually insolvent rather than just having a liquidity problem. I know that was not the case – not least because that was also my own view, which, while a minority one, was far from unique. I simply tried to illustrate this by reference to the determined shorts in Anglo 2008 (many of whom were active long before the general equity market turmoil of Sept and Oct 2008). There were also plenty of long-only guys emptying their portfolios. Among both groups, there was a significant sub-set that thought Anglo was actually insolvent.

Your point 2)

I didn’t imply the market was “so smart”. My point was that there were many people active in the market, that were indeed so smart (or more accurately, exercised good judgement). They were generally a minority in the market, but the point is that they existed and they were not all nominee accounts under the control of Morgan Kelly. They were many, many asset managers. Alongside them were many analysts.

Had these guys not been so much in a minority, it would not have been possible for Sean Quinn to ramp up the price of Anglo shares quite so high, for quite so long – in which case the property bubble might have been less highly inflated and the government might not have been so panicked into the action it took. Had there been more shorts in the market for Irish bank shares, with more liquidity available to them, it would have done Ireland a big, big favour.

They did exist though, and it is not credible to argue that none of them estimated Anglo was bust.

Your point about Irish banks being “valued” highly by the market in 2007 has to accommodate two things. First, that it was partly a false market thanks to Quinn and momentum players following the false moves. Second, the market is not homogeneous, and there are always bulls and bears. There were many very determined bears back in 2007, just because they were not in control of the market then does is not an argument that they did not exist.

As for ILP, I don’t know of anyone who took any real interest in it. From an international perspective it was a tiddler. To the extent its share price went up and down, it was probably mainly being marked up and down by the Irish market makers to keep their books flat as the sector moved.

tull mcadoo: “By your logic, the ECB which opposed the guarantee in 2008 should have rung up the Irish govt and advised them of the stupidity or even the illegality of a blanket guarantee on all liabilities.”

I didn’t say that the ECB opposed the guarantee in 2008. I’ve no information on the matter, nor have the government apologists who say the ECB must have wanted a blanket guarantee in 2008 because they now say that, having actually given such a guarantee, we should honour it. The ECB’s position now is not evidence for what the ECB’s position was back then. But even so I’m actually quite willing to believe that a blanket guarantee struck them as helpful. So what? Is there any reason to suppose that the ECB’s concerns weighed all that heavily in the decision, compared with (say) those of Sean Fitzpatrick? As I read Karl Whelan’s commentary, his concern is that we should be told how the crucial decision came to be made in 2008. I agree with him. I’ll take Eoin Bond’s theory seriously when I see some evidence for it.

anonym: “It’s a pity that Beasley apparently didn’t think to specifically ask Bini Smaghi about unguaranteed bank senior debt.”

Agreed. But Bini Smaghi’s argument (which I quoted earlier) makes no sense if it is supposed to refer to unguaranteed debt. “If the Irish state says, ‘support us, trust us, we will repay you’” is either a reference to an obligation explicitly assumed by the State or it is just pure waffle.

Eoin: “Almost no one is suggesting reneging on guaranteed debt, the entire debate has been about unguaranteed debt.”

A look at prices suggests that market participants are acutely aware that what no-one is suggesting may just be what comes to pass. So I’m inclined to think it’s being talked about, at least privately. Aren’t you the guy who was just telling me that in matters of realpolitik you have to accept that there are gaps in the record? In any case, as I’ve pointed out several times, this thread is concerned with 2008. Debates about current policy aren’t relevant.

Eureka: “I take Lenny at his word. He was told to “save the banks” by JCT.”

I’m not so trusting. And even if those exact words were used, there are cheaper ways of saving banks than the one Lenny actually chose.

I see where the IMF are going to Spain to initiate a soft credit line. It looks like it’s low interest credit with few strings attached.
It seems a sensible approach.
Is it possible to ditch the stupid deal we have struck in favour of something like this instead??

@ grumpy

I don’t want a big row with you. I rate you one of the good guys. I was just making the point that a liquidity crunch was enuff to decimate Irish share prices, it does not necessarily mean that the markets also knew there was a serious solvency issue.

@Keith Cunneen

“my hunch is that from late summer 2007 – many people were moving 20,000 into multiple banks –
Were they just hyperactive rate tarts or did they also believe that the banks were sunk in their present manifestation ?”

In a sense this is more important than the equity market behavior. Deposits were fleeing precisely because the view that Anglo was insolvent was becoming more popular. It doesn’t mean each depositor or treasury manager who moved deposits was convinced Anglo might actually be insolvent – just that some were, others thought it was likely, others that it was possible, others that it was unlikely but no point in taking the risk.

The upshot is that it is unsustainable to claim that a bloke with a thing about the economics of goats in the middle ages was the only guy who took this view – and therefore, why should the government have factored the risk into its decision making.

“I’ve never seen a persuasive argument for going beyond that and I can’t imagine any argument which would justify a guarantee without an explicit ceiling on the State’s liability.”

I used to ask what benefit could there be from guaranteeing subordinated debt?

I finally got an albeit unsatisfactory answer a while back. It signaled that the state was not going to let a bank fail. Subordinated debt was the cut off point because all lower commitments could be reneged on without a default. In the aftermath of Lehman’s the gov took the view that they were not going to let a bank fail – so they made that policy explicit so as to get the most bang for their buck in terms of retaining deposits.

They decided they would not let a bank fail, because, inter alia, they thought the losses at the bank were substantially less than they turned out to be.

Also the gov took the view that winding up a bank, in a post Lehman world, would cause mayhem, especially given our inadequate resolution procedures. Therefore they were never going to do it – and therefore nothing was lost by explicitly guaranteeing the debt.

Anything less than a guarantee of all liabilities left room open for a default to happen – if a default had happened then depositors, despite their guarantee, may have had trouble in the days that followed the default, getting their hands on their money – this fact alone could have led or contributed to deposit withdrawals.

@Brian Woods II/ Brian Lucey/Eoin Bond
Confused dot com!
Surely selling the deposits/selling the deposit book (which as I understand is the set of deposits in the bank….its not the old blue thing that we used to get from the bank I gues…) is the same thing? One can (from what I can see from the paper referenced) sel the deposit base (maybe a neutral word – that seems to be what others call it) at a premium, which to me is say 10% or whatever over the face value of the base?
The more is revealed the more that I agree with Grumpy (great name!) at the top : someone somewhere must have benefited and that this is the way we should direct our energies.

“I was just making the point that a liquidity crunch was enuff to decimate Irish share prices, it does not necessarily mean that the markets also knew there was a serious solvency issue.”
Well, a liquidity crunch is effectively a solvency issue for a bank, particularly if it goes on for an extended period. The Department of Finance were aware of this at least in February 2008 and produced a briefing paper (paper 37 ). I suspect they were aware of it before, because it is a truism of banks…

+1 on the the cui bono. Tired of saying this from the week after the guarantee…

@ TOH:
“I have many times referred here to a Sunday Times article that has never been denied, to my knowledge, that stated that Dermot Desmond and Denis O’Brien were both in contact with the Dept. of Finance on the Monday of the guarantee, Desmond at least was said to be trying to prevent the nationalisation of Anglo, while it was not stated what O’Brien was contributing).

Nobody ever picked up the thread.”

The lack of response to TOH’s comment is deafening. Everyone wants to discuss everyone else (ECB, JCT, DMcW, OR, etc.) yet no one is interested in finding out what 2 of the most influential individuals / deal-makers involved in Irish business (and hence finance) might have said to the DoF?

I, for one, would like to know.

Are there any journalists or politicians around who might be interested in following this up?

Why the seeming lack of interest in this topics? If I had to guess who had the most clout re: Irish economic policy in a crisis, I think the likes of DD & DO’B would win hands down over any of the other likely suspects.

Could this kind of info be sought from the DOF under FOI? Or is it likely that no notes were taken?

Off threads, but I am looking for suggestions as to what legal issues arising out of the banking crisis would be of interest. I have to give a conference paper and need some suggestions for topics. One possible thought is the legal implications of imposing debt sharing on bondholders?


Ye – there is law on the US constitution’s “contracts clause” that might be useful there –


Seems to me an obvoius one is to compare and contrast the illigal share support scheme and resulting PROSECUTIONS in the Guiness bid for Distillers, with the share support scheme for Anglo Irish Bank by first Sean Quinn and then a group of individuals asked to carry it on using non-recourse loans.

Ancillary to this is the Irish regulator’s (Irish regulation always was a bit of a joke wrt investments) involvement and the rater interesting tidbit that his only reaction to this was to investigate the short-selling of Anglo stock. Short-selling which, as it turns out, was in the national interest.

Start here if you don’t recall the details

To come back on topic, is it possible to find out what phone calls were put in to the DoF and/or to the MoF on the last day or two before the decision was made?

Also–how does this square with John Gormley’s claim that the decision in principle was made a couple days earlier? (Would one need to inquire about phone records going back a day or two before the decision was announced?)

What is the legal authority and legal limit of the Central Bank to fund the Irish banks or indeed any bank. Whose euros is it disbursing?

To CB/currency/Legal Specialist.
Where is the CB getting the €50 billion it has “loaned” to the Irish banks?
Where does it appear on both sides of its Balance sheet?
What collateral is it getting for this €50billion?
Is this ECB money and is there a liability to the ECB for this money or how does it work?
What is the CB limit on these funds?
When this started the funds came from the ECB. Why are they now coming from the CB?
What were the reasons for the change in source and what are the implications of the change in source?

McWilliams is getting quite a kicking of late re the guarantee. Surely one of its original progenitors deserves a mention. From the Irish Times of 17/9/2008, here’s Noel Smyth, solicitor, property developer (and golfer):

“In the present climate (where property is nearly a dirty word and where there is an I-told-you-so attitude from some of the more smug, negative commentators who, with respect, have never taken a risk in their life, never given anybody a job and certainly have never promoted Ireland Inc as a place to invest) there are steps that Ireland Inc and those of us in the property world can take to improve our profile and our ability to get investment into our country. Our main attribute is, and always has been, our people. We have the best brains and the most enthusiastic professionals, be they agents, surveyors, solicitors, accountants or bankers, all of whom are needed to identify, secure, acquire, finance and deliver projects….

If the Government was to persuade the Central Bank to guarantee all deposits in Irish banks operating under a banking licence from the Central Bank in the State, the effect would ensure that depositors considering investing in Ireland would know they had a State guarantee and that the banks would always ensure their money was repaid.”


Irregularities in banks’ loan paperwork has to be pretty interesting, and now there’s a confirmed recent case involving an Irish bank. (Talk about under-remarked news!) Let’s hope that there aren’t any discrepancies in the Land Registry as a result:

The title shown on the folio is guaranteed by the State which is bound to indemnify any person who suffers loss through a mistake made by the Land Registry. A purchaser therefore can accept the folio as evidence of title without having to read the relevant deeds.

Emphasis in original.

@ Dr Bob

but a deposit is a liability, therefore you’re not selling the physical deposit, but essentially the deposit franchise, or deposit customer base, if you know what i mean? And the likely payment for this franchise would be, depending on rates paid for deposits, stickiness of deposits etc, around 25-50bps, not the 7500bps referenced in the Lucey article. So maybe 75-150mn, rather than 21bn. And as i noted, the terminology used (take a loss, sell it at a discount) would be indicative of an asset sale, not a liability transfer.

@ Kevin

given that the Irish govt has repeatedly and loudly said that they will not inflict losses on and will fully honour all unguaranteed senior bondholders, does Bini-Smaghi’s comments on “trust us, we will repay you” not make perfect sense? Ditto with the Chopra comments?

Does it not also seem a bit strange that, per your logic, we decided to guarantee senior debt in 2008, and the ECB was not of this view, but then when the IMF come rocking into town and we suggest to them the restructuring of senior debt, all of a sudden the ECB changes tack to our original position?

Throughout this entire crisis no Eurozone bank has defaulted on senior debt, despite the billions, and near trillions of announced losses, and the likely trillions in hidden losses. Does that not sound to you like some sort of harmonised policy being led by the ECB to ensure that there was no European version of Lehmans?

And actually just found the de facto evidence of the ECB/EU’s current position:

“Mr Lenihan said the government had raised the possibility of some burden sharing by some senior bondholders not covered by the government guarantee in the negotiations on the bail-out but this had been rejected by his European Union colleagues.

“I raised the question of whether we should have aggressive discounts of their bonds in the course of the discussions and the European Central Bank and European Commission were not prepared to support that approach.”


@ Dr Bob

to further the “deposit selling” explanation, when you transfer the deposit book out of Bank A, its liabilities reduce by say 28bn, as deposits are a liability. The liabilities of Bank B increase by 28bn as a result of the new deposits. To balance this equation, Bank A also transfer 28 billion in cash to Bank B (or some other form of assets if they don’t have the cash, ie a loan book, securities etc), minus any relatively small consideration for the deposit franchise of say 100mn. This rather key part about the cash/asset transference was missing from the Prof’s calculations. In fact, he managed to get rid of a 28bn liability, and receive a 21bn cash payment (ie an asset) in return. Hey presto, as BWII likes to note, thats a 49bn turnaround!!

Can we focus on solutions. Problem caused by Irish mismanagement but really huge ECB dysfunction. Solution to be carried by Irish only. (fair?)

This can and will be sorted out by a European wide mechanism. There is a real appetite in europe for reform of the EU. And here’s how the democratic reform would work

At local level everybody in Europe selects their local county councillors (equivalents all over Europe)
At national level there are national elections for national parliaments (these are not constituency based but nationally based)
At European level there are pan-European elections for the European parliament.
Essentially it all works along the lines of the Canadian Provincial system

At ECB level little spanners like JCT and that Italian putz must be held to account.
And then we can have a Europe for citizens and not for banks

The document that Karl Whelan put up makes a significant contribution to understanding the thinking of the officials ahead of the guarantee, and the degree of appreciation of the troubles in which the Irish banking already found itself.
I would be very surprised indeed if the existence of this document, and its implications, are not raised in the national media in the coming day or two.
Unfortunately the discussion above has turned from fact finding over the actions of the Irish government, to “blame the foreigners”. That a few rabid Little Irelanders would want Ireland’s woes to be portrayed as the fault of the foreigners is understandable. However I’d hope to see a little fact finding first. That should be easy for those of us that have a professional training, work in the business, with access to information sources like Bloomberg.
Indeed we’ve been here before, and I thought the issue had been answered, decisively. Again, in my memory, Europe’s authorities were surprised and disappointed by the actions of the Irish government at the time. That was very clearly reflected in the comment by officials and politicians in the days after, as on record in the press (The NSN below refers to Bloomberg references).
e.g. from Oct 2008
(Bloomberg) — The European Central Bank said the Irish government should have “properly” informed European Union officials before announcing new laws to guarantee the deposits and borrowings of six financial institutions. “It would have been advisable to properly consult other EU authorities on the envisaged legislative plans,” the ECB said in an opinion on the Irish government program published on its web site today. { NSN K8BMT21A1I4H }
You can even listen – and see – President Trichet speak about the Irish guarantee here { NSN K847JD1A1I4J }. The passage starts towards the 53rd minute. So no need I think to eavesdrop on his conversation with Mr Lenihan
ECB’s Draghi/FSF: Strong Case for Intl Coordination on Crisis When governments issue guarantees to prevent institutions from failing, Draghi said, it is crucial to make clear the scope of the guarantee. { NSN K8L9GP3H0JK1 }
FRANKFURT (MNI) – The European Central Bank said it is important for national governments to coordinate their reactions to the exacerbating financial market crisis with their EU partners. “The ECB would also favour the adoption of common policy solutions at the European level on these issues rather than uncoordinated national legislative initiatives,” the bank said… “The ECB is of the opinion that national law should expressly include this need for coordination at the European level,” it added. { NSN K8GWVK3H65TT }
In addition, the comments from national central bank governors, etc. reflected what their governments were saying. And you can imagine (if you don’t have access to the newswires at the time) what they were saying about guarantees at the time.
Now I can quite well see Mr Trichet wanting to speak to Mr Lenihan to suggest that he must take action on the banks. It is quite a leap to go from there to a blanket guarantee. Also, as we said before, the ECB is a large organisation – with hundreds of economists – and has contact a many different levels with governments etc. They are pretty competent and have very much the public interest in mind.
Now you can imagine who would like to give the impression that the guarantee was imposed by the foreigners. Incredible but true – I have even had journalists tell me as “fact” that the ECB imposed the guarantee on Ireland!
As for the situation today, it is a whole different kettle of fish, for a number of (well known) reasons. Ireland however remains sovereign, with its government (and the voters that put it there) responsible for current and past actions.
Anyway, as Kevin Donoghue says
“So what? Is there any reason to suppose that the ECB’s concerns weighed all that heavily in the decision”
So back to the topic…
The Department of Finance’s policy advice from this source is crystal clear. It even says that the policy needed ministerial approval and coordination with the central bank.
So what other information can usefully be contributed? Remember *evidence*, not opinion (especially ones not grounded in fact).

Not Irish against foreigners – citizens against bankers.
Your assertions about the ECB are false:
1: They are not competent
2: They represent the interests of bankers – not citizens

I am disgusted at all the B#&LS%$T on this forum from the blog heads who presumably represent a chunk of Ireland’s economic intelligentsia.

When will Irish leaders (including this forums blog heads) find the B#$LS to renege on the ill advised guarantee, take the pain and ensure the sovereign and economic future of Ireland.

Iceland and Argentina, more particularly Argentina with a dollar pegged currency DID IT and…. they are doing just fine thank you!

Guaranteed if Ireland does not do it, Ireland will far poorer in 20 years time than it is today.

The crucial issue is not whether a billionaire businessman did or did not speak to Cowen or bragging rights’ claims for being one of the architects of the guarantee.

Brian Cowen was either Finance Minister or Taoiseach from the news of the US subprime crisis in Feb 2007, the onset of the credit crunch in Aug 2007, the collapse of Bear Stearns in March 2008 and up to the collapse of Lehman Brothers in mid-Sept 2008.

Despite the potential fallout of a property downturn in an economy so dependent on this sector, he did not ask for an independent assessment of the bank credit risks and scenarios similar to what happened in the UK in 1990 when the property market crashed.

On Sept 29th, he had a memo from Merrill Lynch which had Anglo’s own estimate of 3% impairment on its €73bn loan book. ML provided options of wiping out shareholders and junior bondholders and given the bleak news from the US with Bernanke and Paulson pushing Congress for emergency action on a $700bn support for the banking system, it should have been clear that the situation for Irish property developers was going to get a lot worse.

The fact that Brian Lenihan would term the guarantee, the ‘cheapest’ in the world on Sept 30th, suggests how much in denial both Cowen and himself were.

@ Eureka/NJ Celt

Euereka, demagogues love folks like you.

As for comparisons with other countries, it’s usually a matter of picking the ones that suit.

Of course Iceland didn’t need any help from others: Nordic neighbours? IMF?

Comrade Chávez lent money to Argentina but at a punitive interest rate.

Iceland and Argentina are both commodity producers, which helps when there is a boom.

As for the latter, doing fine, compared with its potential early in the last century or in recent times compared with the once much poorer Brazil?

Besides, the country is trying to cut a deal with bondholders.

@ NJ Celt

“Argentina with a dollar pegged currency DID IT”

Eh, that was the point, they broke the peg and devalued by 75%. And seized private pension funds. And then couldn’t issue bonds internationally for the guts of a decade. And international investors won’t touch it with a barge-pole for the most part.

@ Ciaran O’H

i don’t think there’s too many disagreements that the blanket guarantee was a few steps to far in the eyes of the ECB, but as we mentioned above, would effective policy have been any different without it? ie would we have let, or would the ECB have let us, default on any senior debt? I know we’re a sovereign nation with our own free will, but given our large budget deficit and our reliance on ECB funding for our banking sector, without tatic ECB approval, i don’t see how we could have defaulted or restructured on any senior bank bondholders short of just allowing Anglo and INBS to go to the wall at the time. But given the proximaty to Lehmans, is that a realistic suggestion?

@ Michael H/Ciaran

You folk have a lot of facts at your fingertips. You are are not shy to point the finger at the (many) flaws in our public sector.

Are you seriously stating that central bankers are defending the public interest ? The evidence is overwhelming, at home and abroad, that CBs are primarily vehicles for the protection of vested interests in the financial sector.

Our own CB facilitated the most brazen looting by rogue bankers and thier associates. The ECB sat idly by while the big EZ banks stuffed themselves with subprime and other toxic derivatives. The Fed unleashed a flood of QE to keep Wall St bonuses flowing. The BOE’s record in regulating the City of London is feeble to say the least.

One of the big reasons that extremism takes root is that reasonable people continue to defend the indefensible. Something is rotten etc.

Brian Cowen was on newstalk this morning describing the “negetotian@ last year with the eu/imf as an excellent achievement, and neither interviwer called him up on it…….only Ireland, honestly. Paul you hit the nail on the head above… everything is rotten at this stage.

@Eoin Kevin, Ahura and everyone else.

What is missing here is a full account from two of the main protagonists.
Brian Lenihan and JCT.

When Lenny eventually got a message saying “save your banks” isnt it likely he would have tried to call JCT to clarify?

What Kevin and the rest of us would like is to do is to know from Brian L and JCT what was said in any conversations they had that weekend.

If JCT told Lenny to “save your banks” then they owe us big time and that card should have been played at the bailout talks.
Why wasn’t it?

At the moment way more questions than answers.

@ Jarlath

The reason that FF get away with waffling on these economic matters is largely down to the interviewer not having a good enough understanding of the situation.
This is particularly evident on RTE.

When Martin Manserah was on with Brian Lucey and Vincent Brown they made mince meat of him because they were able to rubbish any economic bluster he spouted.

I would like to see interviewers with higher levels of economic literacy doing any of the important interviews with Brian lenihan or Brian Cowan so they don’t get away with it.

I wonder who knows where the bodies are buried. Given the behaviour of senior FF ministers like Hanafin, Carey, Dermot Ahern and Killeen during the high point of the November shenanigans, it is clear that information in the cabinet was not shared around equally.

The third estate in the form of the journalists have a very poor record in speaking truth to power.

Would some of the Greens know something? There must be a few heads in the DoF who do. The banks must have some headers too who know.

The system is broken which should increase the possibility of an Elmer style whistleblower emerging.

@ Eamonn

Well the interviewer was Ivan Yates so i was hoping for better. He’s normally sharper than that, it really was a shocking own goal to let the Taoiseach away with it..if our media interviewers actually allow FF and the green party to spin the bailout and loss of sovereignty as an “excellent achievement”, then we are truly sunk.
I saw that programme with Martin Mansergh…with all due respect, the man already is mince meat!

@ Eamonn Moran

The answer to your question on JCT would likely be akin to the revelation of the fourth secret of Fatima – – a big letdown.

As Ciarán O’Hagan detailed earlier, there was no consultation; if the argument is that they thought they were acting in accordance with JCT’s wishes, what was done was akin to that of a head of an MNC sub making a very big decision without consulting Hq because he had a phone conversation with the CEO a week before.

I would like to see interviewers with higher levels of economic literacy doing any of the important interviews with Brian lenihan or Brian Cowan so they don’t get away with it.

Absolutely — the standard of media interviewing is woeful.

In Ireland, the Taoiseach of the day calls the shots with the State broadcaster and the quid pro quo is that the convenient status quo is left alone; as for the rest, why would they engage in forensic questioning when they would then be denied any further access.

In an ideal world, RTÉ would publish details on ministerial refusals to answer questions.

@ seafóid

Whistleblowers are hated, even by people of integrity.

As for resigning on principle, that with surely be strange in Ireland.

Usually people get their back teeth when they are superannuated on fat pensions.

@ paul quigley

Many democracies are imperfect — some more than others.

At least the Irish PM isn’t under investigation for underage sex and other issues.

As for the ECB, it has had a narrow remit under Maastricht and regulation was an issue for individual CBs.

In 2004 when it wanted the Stability and Growth Pact rules strengthened, it got a big PFO from Chirac and Schröder.

We operate like Italians would running British systems.

Much of the corruption in Ireland happens to be legal.

The Labour Party is getting off far too light here. They proudly boast of being the only party to oppose the original guarantee.

The argument goes that the IMF came in here because the blanket guarantee made bank debt sovereign debt and that is broadly correct.

But a blanket nationalisation would have even more firmly socialised the bank problems. Labour were not talking fancy resolution schemes, they were talking old fashioned public ownership.

Nothing like a debate on the guarantee to put this blog into over drive! If I looked at the number of posts I could guess the topic without any hesitation.

This is my summary of the events
-The guarantee in Sept 08 was far too broad
-This greatly limited our range of future options
-The limitation of our options has IMO cost us money
-The ECB/EU were not consulted at the time and thought that the guarantee was too wide
-The ECB does not want us to burn senior bondholders NOW
-We shouldn’t have agreed to this as it is not in the interests of the sovereign.
-We will eventually default on either/both senior debt or sovereign debt

@ DE

“-The ECB does not want us to burn senior bondholders NOW”

Do you think they would have been in favour of, or given their approval of or even indifference to, the burning of senior bondholders back in 2008 or 2009?

“I would like to see interviewers with higher levels of economic literacy doing any of the important interviews with Brian lenihan or Brian Cowan so they don’t get away with it”

Elites don’t do that. Cowen and Lenihan have zero economic competence.
RTE aren’t going to show that to the people. RTE’s main job now is ensure there isn’t a bank run.

Someone posted this in November. I think it is worth a rehash

IMF guidance on bank insolvency, April 2009, pp63-64

“Credibility of a blanket guarantee is essential because creditor expectations must stabilize immediately, often before other policies have time to take effect. Common determinants of a blanket guarantee’s credibility include: (i) the political commitment (and sometimes, statutory backing) for the guarantee; (ii) the strength of the banking system and
the bank resolution framework; (iii) the perceived ability of the government to cover resulting costs; and (iv) the strength and comprehensiveness of the authorities’ communication strategy in describing the guarantee and how it will be financed. …

Reliance upon a blanket guarantee raises at least three risks to financial stability over the medium term.

First, blanket guarantees are prone to abuse, particularly in an environment where the banking authorities are subject to political interference and the system is
dominated by vested interests.

Second, blanket guarantees remove pressure for the rapid resolution of banking problems and can increase the overall costs of the crisis by delaying restructuring efforts.

Third, as described above, blanket guarantees can pose a contingent
liability for the government that is difficult to quantify ex ante. These risks point to the importance of taking advantage of the relative stability resulting from the guarantee to move aggressively to identify and resolve insolvent and nonviable institutions.”

Where is all the spin coming from now ? This should be spun back.

@ Eoin
Take your point.
Forgive me if I’m paraphrasing but is the bottom line that even though JCT was not responsible for the mechanism of making the sovereign liable for the bank debts he was responsible for driving that general plan?

In Credit Lyonnais he didn’t have the problem because it was already state-owned. But in Anglo they had to devise some mechanism whereby the bank debt would become state debt and that’s where Lenny came up with his blanket guarantee? Guarantee of nationalisation didn’t make much odds. Once we were burdened with Anglo, that was it.

@Michael Hennigan

Whistleblowers may be hated but they are more likely to come forward when things are falling apart, as is now the case with Ireland. The Swiss cave in over bank secrecy is now reverberating with Elmer, for example.

Seánie and Drumm are bitching over who was not at all responsible for the collapse of Anglo and Cowen gets sucked into the conflict. There will be lots more backstabbing and betrayal to come as players jockey for position. It is all very Irish.

@ Bond. Eoin Bond

There is the self serving argument that Anglo and INBS were systemic banks.

The Ecofin agreement of Oct 7 was in support of ‘systemic’ banks.

The ECB had no specific rules at the time on protecting senior bondholders of all banks.

Besides, Q4 2008 was at a time when bank restructuring was common.

@ Seafoid

You’re overthinking it i reckon, Ivan Yates is his own man and newstalk is an independent station. There is just a serious lack of knowledge and sharpness amongst those who carry out the majority of these interviews, plus they are all so worn down by the constant empty rhetoric we get from our politicians that they probably feel like men shouting into a gale force wind at times.
George Hook was the same yesterday with Cowen, you could tell he want ed to pin him down and make him somewhat answerable, but he just doesnt have the acumen and knowledge to cut through the bluster…..his own bluster doesnt help matters either..

How long will it be before something like wikileaks comes to the fore here? Are shredding companies in Dublin not working 24/7?

@ Michael H/Eureka

bank restructuring was common, but yet senior debt didn’t seem to take as much as a finger being singed. Equity got wiped out back then (or asked to kick in additional capital), but we never progressed much further than that. And while i don’t claim that Anglo and INBS were systematic, i think a collapse of the scale of Anglo would have been difficult to justify a fortnight after Lehmans. That was essentially the ECB mantra – stabilise your banks and don’t let any of them go to the wall. While we went way too far with a blanket guarantee, what they suggested implicitly required either backstopping or making whole senior creditors. Whether explicit or implicit, i don’t see how we could have changed the end result?

@ Michael Hennigan
Regardless of the details of recent developments the ECB’s policy of low interest rates to help Germany lead to credit bubbles in the periphery. For that policy alone the ECB must share culpability.
The mechanism whereby national central banks would be in charge of regulation was also fundamentally flawed and would not work. For that fundamental design flaw Europe must share culpability.
So a currency launched with an inadequate regulatory framework and low interest rates was always going to run into difficulties. have a scoop from the zero hedge website claiming that Ireland are printing 25% of our GDP in German euro.

Is there any truth in it?


Under ECB guidelines if a central bank wants euro cash printed it normally talks to other central banks and they ‘club together’ their needs into one print run at one printing works.

For example, in this post looking at the €500 note we can see that only two central banks have ever printed €500 notes, and yet they are in (reasonably) widespread circulation.

The location of the printing, and the letter the note starts with is meaningless and only of use to conspiracy theorists.

Which Irish academic economists have been involved in advising the Irish government since August 2007 ? I know Alan Ahearne is/was an adviser but who are the rest ?

The bank guarantee entails that some debts will be written off. I am curious about how the ‘write off’ component is treated. Somewhere down the line individuals and corporations must benefit from write off of debt, but the underwriter seems to be the Irish taxpayer. Any comment?

And by the way, the IFA are playing a blinder protecting farmers (members) interests when repossession is threatened. if only the broader public had access to the same leadership and can-do attitude.

@ Seafoid

Colm McCarthy has done the Bord Snip type stuff. By the way, he had an excellent article in the Sindo giving Sarkozy a thick lip, surprised there wasn’t a seperate thread!

@grumpy yeah sadly zerohedge ‘jumped the shark’ a while ago.

Archives of suddendebt is my favourite at the moment, check out from 2006 / 2007.

@The Alchemist

“The bank guarantee entails that some debts will be written off. I am curious about how the ‘write off’ component is treated. Somewhere down the line individuals and corporations must benefit from write off of debt, but the underwriter seems to be the Irish taxpayer. Any comment?”

The write-off of a debt is a Capital Acquisition by the beneficiary. As such it meets the definition of a gift and comes within the scope of Capital Acquisitions Tax.

There are no exemptions that I am aware of, and I would be shocked, shocked if there were to be any introduced.

Last year’s Finance Act retrospectively removed a disponer’s secondary liability ( there for decades in case a beneficiary could not / would not pay ) to CAT on all dispositions, no matter how long ago they happened, which had not already resulted in revenue action.

@ Jarlath .. yeah heard Ciaran Cuffe on the Frontline last night spouting the same line. I nearly choked! No one picked him up on it: Pat Kenny, any of the other 7 candidates for the same constituency (DL Rathdown) including some who aren’t dunces like Sean Barrett and Ivana Bacik or any of the audience. I couldn’t believe it.


Which Irish academic economists have been involved in advising the Irish government since August 2007 ? I know Alan Ahearne is/was an adviser but who are the rest ?

JTO again:

You will be pleased to know that Alan Ahearne’s latest pronouncements bear an uncanny resemblance to what I have posted frequently on this site. As reported in today’s Irish Times, speaking before an audience in Galway last night:

‘Exports will boost recovery – Ahearne’

There was tight Garda security at a public meeting hosted by Galway West Fianna Fáil TD Frank Fahey and Government advisior Alan Ahearne in the Clayton Hotel, with both uniformed and plain-clothed Garda present both in and outside the conference room.

THE MINISTER for Finance’s special economic adviser Dr Alan Ahearne told the meeting that ‘the current growth level of exports is much stronger than he had expected’.

Dr Ahearne, who was heckled at the meeting attended by several hundred people in Galway, said that this ’13 per cent growth in exports would have a significant impact on economic recovery’.

He also said he did not believe ‘there would be further significant wage cuts as competitiveness had already improved significantly’.

Just for the record:

In March 2010 on this site, JTO forecast ‘10% to 12% growth in exports in 2010’, at a time when the official government forecast was for 0.4%.

Just after Christmas 2010, JTO posted on this site ‘there is no need for further deflation, as the 13% annual growth in exports in Q3 shows that the economy is now highly competitive.’

Spot the similarities.

It is unfortunate that, in the present climate in Ireland, uttering these simple truths makes it necessary to have police protection from the mob.


I find those FF economics pronouncements very hard to take seriously ever since this :

“THE IRISH public is determined to remain in control of its own affairs despite the scale of the financial crisis, Minister of State Martin Mansergh told leading economists in London last night.

“There is a determination to try and maintain control as far as we can in our affairs, and to avoid – and to do whatever we have to do to avoid – outside dictation either on expenditure or taxation”

@ Grumpy

Alan Ahearne reminds me about that old GAA joke.

Manager – Joe, we’re taking you off.

Confidence in Action: Speech by Minister for Finance Brian Lenihan, Friday, September 24th 2010

“It is important for journalists to be aware of the self-fulfilling nature of doomsday scenarios. I do not wish to exaggerate the point but it is undoubtedly the case that the media can undermine or promote confidence in our economy. Media reports here at home are beamed around the world and can influence the decisions of foreign investors and multinationals. ”

“And on the subject of expertise: I accept we are gifted with quite a number of Renaissance men and women in the Irish media. We are very lucky in that respect. But surely there have to be limits to the areas of expertise of some of our leading columnists. Not everyone can write authoritatively on our current crisis and far be it from me to limit their horizons but perhaps some of our columnists might question the value they can add to the debate. There are after all, very many accomplished specialist columnists in the area of business and economics. “

@JTO (and Alan Ahearne if he’s about)
What proportion of the money that the growth in exports brings into the country is in the gap between GDP and GNP…or what proportion of it impacts the domestic economy?

The growth in exports is good news, but I still wonder how good. You’ll have to excuse my doubts.

As previously asked – albeit in a different context – if a US owned Viagra plant suddenly increases productivity and bumps GDP up by a billion or two, but with no extra staffing, does that really impact our economy?

@ Michael Hennigan – Finfacts SaysBond.

demagogues we are most certainly not, however unlike you, we offer solutions not reams of nonsense.

Eoin Bond Says:

Yes I know Argentina was pegged to the dollar….which is exactly what I offered Argentina as an analogy. Ireland is in the EURO …pegged to the EURO. Does it take you a long time to figure out jokes?

@ Seafoid

They only talk about certain exports too. i.e not the human kind that we’re packing off weekly and getting nothing in return for. Their ability to be in government but never discuss the mosting pressing issues is truly remarkable, whens the last time you heard any govt TD discussing at length the current mass emigration thats happening amongst young people in Ireland. They just dont….. instead you get “good news, unemployment figures have stabilized…” jaysus, i wonder why..

There are two claims that are being made about the Irish economy & both those two claims cannot possibly be 100% true.

The claims:
1. The business climate in Ireland is so bad that any increase in the CT will destroy the economy.
2. The business climate in Ireland is so good that nothing needs to be done and the economy will recover on its own.

Not quite sure which one is more true, however, I do believe the situation should be investigated.

The weeks and months after the guarantee also warrant close examination. The Government was making false representations to everyone, including the EU.

In Dec 2008 the Irish Government represented Anglo as being a sound bank to the EU, but the EU did not believe them. Even the dogs in the street knew Anglo was highly dodgy. How could the Government claim that Anglo was sound if no risk evaluation had been done? How could a comprehensive risk evaluation not be one of the first action items in any plan devised by any sane person? I just do not think that gross incompetence alone can explain the behaviour that occurred.

From a Dec 2008 submission to the EU Commission

According to the Irish Government, Anglo is a fundamentally sound institution.

However, the Commission also notes the letter from the Central Bank and Financial Regulator to the Minister dated 18th November, 2008 indicating that [redacted]. The Commission also notes that this study is (at this stage) not complemented by an assessment of the prospective capital adequacy of the bank by the Financial Regulator or other evaluation of the bank’s exposure to various risks (such as credit risk, liquidity risk, market risk, interest rate and exchange rate risks), the quality of the asset portfolio, the sustainability of its business model in the long term and other pertinent elements, in line with the Recapitalisation Communication.

On the basis of the above the Commission does not share the view of the Irish
authorities that the bank remains fundamentally sound

@ NJ Celt

genuinely confused about what you’re suggesting – that we leave the Euro? You certainly didn’t make a joke, you didn’t even really make a point. You just kinda threw a few words down around Iceland and Argentina, the point of which is still unclear. Its certainly also unclear how “good” things are in those countries when you consider the cost of importing anything has jumped by a few hundred per cent since they defaulted. We’ll be grand with our meat and potatoes, but cars and petrol may start to seem a bit pricier post-default. The likelihood of trade barriers being erected by the remaining EU also seems more than just a possibility.

This discussion is very strange from a foreigner point of view: sure it was a huge mistake to give the state guarantee to the banks, maybe even a crime; but today it is a problem better left to historians.
Today you are burdened with debts that you will not pay back because you can’t .You cannot leave the euro because the devaluation will be so huge that your standard of living would collapse .You cannot welsh on your promise not to default on your bank debts .If you did you would be kicked out of the financial markets for a generation or more .
My suggestion is to go through the motions of doing what is asked of you and demonstrate that it is impossible to respect the letter of your engagements with the IMF and the Euro zone and ask for better terms (lower rates and longer repayment period).The Greeks already are doing just that, but first you need a new government and have to wait until Portugal and Spain cases are taken care of.I just hope for your sake that Axel Weber will not succeed Trichet at the ECB (in which case you would learn to love Trichet).

@Bryan G

That says it all. And the worst thing is that today, more than 2 years on, RTE are reporting that an endorsement by Lenihan is a great boost for Cowen. He is still in the job and still has credibility.

@ Dominique Jean-Raymond
Interesting comment. What you suggest makes a lot of sense. But we will not get the better terms!!
You are right too about the next Central European head of the ECB. The Franco-German block has too much real power in Europe.

@ Dominique
Interesting how you describe yourself as a foreigner. We are meant to be all European citizens now.
Many Europeans (me included) have this crisis of identity.
If we are to look at this from the perspective of the European citizen how do they feel about bailing out banks? Is there an appetite for reform of the EU in France/Belgium too?
I hope other Europeans understand that they are not bailing out Ireland because it is a rubbish economy – I hope they understand that they are bailing out Ireland because Ireland was forced to bail out the banks.

Ireland is not being bailed out. The bank bondwallahs are getting their money back and Ireland then owes the money to the ECB and the IMF, as I understand it. It is just a debt solution to a debt problem. More debt is like more violence. Incredibly attractive but rarely effective.

@Ciaran O’Hagan
Excellent comment.

You dashed my hopes….Other comments on about the survival of “Worst Ever Cowen” – our worst ever MoF and joint worst Taoiseach, leader of the worst ever government and head of the worst ever major party:

“kept a highly unpopular leader
left Lenihan badly damaged
left Hanafin badly damaged
left Martin badly damaged.
So the leader and the three potential successors are all damaged.”
Don’t agree about Martin. Also:

“Captain of titanic see’s off jumpy first officer……..this ship’s still going down.”

Maybe not this time but speculation about the FF leadership does seem to occur whenever damaging revelations are emerging. There was a recurring pattern of, “FF PP meeting, opponents to speak out…..nothing happened, damp squib”. Not surprised if they engineered it themselves.

Actually less tame exchange than I thought:

“The Taoiseach has challenged the Sinn Féin Dáil leader to repeat comments that he was lying about his relationship with the former Anglo Irish Bank chairman without privilege outside the Dáil chamber.

Caoimhghín O’Caoláin suggested the Taoiseach was not telling the truth about the now infamous golf game and dinner in Wicklow with Seán FitzPatrick in July 2008.

He asked Brian Cowen why the former chief executive of Anglo David Drumm had told a different version of events surrounding Mr. Cowen and Anglo.”
That would be an interesting court case.

Without questioniing the value of Merril Lynch’s advice, but I just wonder when and why exactly they engaged those partivular experts. I know it’s considered ad hominem in here and “shooting the messenger” is frowned on but I would like my advisers to demonstrate a capability to run their own affairs before I would ask them for advice about mine.

“Bloomberg reported in September 2008 that Merrill Lynch had lost $51.8 billion in mortgage-backed securities as part of the subprime mortgage crisis.”

apologies if this is a bit late but 140+ entries tkaes a bit of time to scan – a question which I have raised ofetn without getting a satisfactory answer to is – why exactly was ther no clause added to the SI which brought in the orignal blanket guarantees and ideed subsequent ELG which would have requred the beneficiaries (to be clear I mean the banks ) to be completey upfront about their liabilities – otherwise they guarantee would be void. In a similar way to standard insurance contracts.
It seems they issued a guarantee without any idea of the extent of exposure they opening us to.

You make it sound like Ireland has a monopoly on this kind of thing.
Off the top of my head didn’t Angela Merkel row back on a plan to cut back on nuclear power after lobbying from the nuclear lobby. Hasn’t Sylvio Berlusconi struck deals with Gadhaffi and Putin for all kinds of things. And the English too have had their links with BP etc.
Don’t know why people think we’ve got corruption all wrapped up. Actually sometimes it’s a bit sickening.

Didn’t intend to do so. We haven’t got a monopoly – we’re just one of the market leaders.

Thread on politicalworld very good (irisheconomy-irishbanks crisis not incl. Anglo Irish). See also (economy) and propertypin (the central bank).

Politicalworld thread in same forum:

Lenihan ordered the NTMA to deposit 250m in IL&P in June 2008


From the print edition of the Sunday Times 16/1/2011 by John Moloney. No online link as its behind a paywall:

Brian Lenihan, the finance minister, ordered the NTMA to deposit 250 million euro in IL&P(Irish Life and Permanent) in June 2008.
The instruction came just weeks after the Financial Institution was told to ‘play the game’ by Pat Neary, the former Financial Regulator, if it wanted to obtain a large cash deposit from the state agency.
Allegations concerning Neary’s role in the deposit are contained in a statement made by Denis Casey,the former IL&P chief executive, to the Garda Bureau of Fraud Investigation which is investigating the banking sector.
Casey says Neary advised him to use a third party to present a proposal to the NTMA, after the state agency had refused to increase its deposits with IL&P. Neary allegedly told Casey at a meeting in May 2008 that the NTMA, the Dept of Finance, and Lenihan all needed to be able to show they had ‘clean hands’ if deposits were increased. The NTMA had twice previously refused to increase deposits with IL&P. After the financial institution followed Neary’s advice and appointed BNP Paribas, to make a formal presentation on its behalf, the NTMA lodged 250m.
A spokeswomanfor Lenihan confirmed last night that the minister had issued a direction to Michael Somers, the former chief executive of the NTMA to increase its IL&P deposit, but only on the provision the NTMA could obtain appropriated collateral and a good return, the spokeswoman said.

Somers also confirmed that Brian Cowen had also issued ministerial orders instructing him to make large cash deposits in Irish banks in late 2007. He said Cowen had ordered him to leave funds in ABI, BOI, EBS and IL&P after the NTMA began withdrawing large cash deposits from Irish institutions which Somers believed were in financial difficulties as early as August 2007


Yes I mean Ireland should ‘go the whole hog’. Renege on the guarantee, let that private debt be what it is private debt. Let the banks go if they have to go, write off the investment already made in them. And start anew.

Any other way is just making this problem worse and bigger. Ireland default is inevitable if Ireland does not choose this course of action. Doing this, Ireland is not defaulting on its sovereign debt its clearly delineating its sovereign obligations and they do not include supporting private banks bad decisions.

It will be tricky for a year or so until everything sorts it self out, but not the cataclysmic mess that all the VESTED INTERESTS try to scare us into thinking it will be. Otherwise Ireland will have a unbearable debt burden for years with default and a much worse situation at the end.

Also I wonder if what the government did back in 2008 in giving this guarantee might be unconstitutional. Has anyone considered challenging it? I would surmise that this rose to the level of a treaty obligation …and might it have required a referendum.

Where are our lawyers?

Ireland is now in sore need of committed patriots.

I was struck by Eoin Bond’s comment above the: “Almost no one is suggesting reneging on guaranteed debt, the entire debate has been about unguaranteed debt.”

That strikes me as being inaccurate. The idea that the optimal way forward is to restructure Ireland’s sovereign liabilities, which would presumably include guaranteed bank debt, has entered mainstream debate.

It is advocated in the lead editorial in The Economist dated January 15th, which suggests that a haircut of a third may be necessary.

William Buiter in a document linked here recently says of Ireland: ” But since the value of the unsecured sub-senior debt is not very large, it remains likely that either the senior, unsecured debt of the banks and/ or the sovereign will ultimately need to be restructured.”

If you parse carefully the article by Colm McCarthy linked in the post above this one, he gets awfully close to suggesting that a “composition with creditors” is necessary.

Interesting gossip out of Germany today that Greece is going to be given funds from the EFSF to buy back their debt i.e. a backdoor restructuring. I haven’t heard much colour on the idea but initial thoughts are positive I have to say.

This article is very interesting. Failed economics models and Ireland

“I can fully understand Obama’s decision to use the same advisors that Clinton before him (and to some extent Bush) had also used. Fundamentally, Obama is a politician, not an expert in economics, and as a politician determined to take an intelligent approach to the problems confronting America, he sensibly decided to get his information on these challenges from the very best. How was he to know that the world’s leading economists, the “very best” in this crucial field, actually knew nothing about how the real economy actually functions?Only after 2 years in office, when the economy is not recovering from the recession as his advisors told him it would, and the remedies that he throws at it (on their advice) turn out to be more damp squibs that the weapons of mass economic reconstruction he was told they would be, must it slowly be dawning on him that may don’t understand the economy.

He’s learning the hard way the lesson I and many other critical economists acquired as we studied for our economics degrees–mostly by reacting incredulously to weird propositions that our Professors would use to derive their models–that there is something rotten in the state of economic thinking.”

Coherent thinking on any problem in Ireland economic or otherwise, is continually hobbled by cronyism. Politicians having to be mindful of what the friends, colleagues and backers think has trumped policy over empirical facts every time.

From the very start the structure of NAMA was such that it could not rule out conflicts of interests between advisers and debtors, and advisers who became debtors (and vice-versa). However, such ambiguities are perfectly acceptable to a political elite which insists that taking another run at an iceberg will push it under the water.

As the levies and tax changes kick in this month, employees will have less to spend and that does not bode well for the service sector, and an increase in unemployment is inevitable (noise of emigration valve bursting).

The public, shamefully, still do not know the full facts of the lead up to the bank guarantee and short of an new government making an inquiry, may never know why the citizens have to pay so much to save so few.

I am of the opinion that the author is quite mistaken when he says that “tax competition between member states is a core value of the EU”. Germans and French would have told quite the opposite already long before Lehman. As a matter of fact the UK would have never agreed to any form of tax harmonization (even for VAT) so this topic has been a no-go despite tax competition within the EU making little to no sense economically.
Ireland could afford exceptionally low tax rates because it was an economy with high potential growth and a light debt burden. Today Ireland is an economy with a crippling debt burden, unsustainable public finances, low growth and a lot of question marks on potential growth.
I am afraid this already comes close to what German economist H.-W. Sinn called a tragedy with regards to Greece: a situation where all outcomes are terrible one way or another.

@Dr. D
Tax competition is something that is hugely important for European citizens and for European governments. The fact that it’s a core value for the EU is enshrined in EU treaties. It may be a fact that some individual states wish it were otherwise, but it isn’t.

If tax competition is prohibited then governments will have a framework within which to dominate their citizens’ lives – even more than they do now. Almost all governments understand this very clearly.

Tax competition is important because it gives some protection to the citizen that the governments stays honest. Tax competition is important because it limits the ability of governments to run everything in the citizen’s life.

As someone on a barricade might say “Vive la competition!”.

Of course, if we had honest self limiting government then this wouldn’t be such a problem. I won’t hold my breath waiting for that.

One world government with a constitution, “based” upon the UN Dec of H Rights, is coming closer.

The Irish have been endebted sic, enslaved for the serfs and wage earners, to ensure that this comes about, and you are not alone. So, stop the kicking and screaming and suffer the loss of earnings. Oh, and keep buyin’ the ol’ drooogs, as they help fund it too! Lots of coke being sold now? Not so much, I guess?

Gore Vidal? Well well! So he was correct all along? Not that many doubted him. The whole point of the conspiracy theories is to allow those who might oppose, to acquiesce, either from concern for safety or through understanding. Countries are merely accounting centres, the real business is among individuals and those who can think for themselves are winning out.

There are so many twists and turns, part of the stupifying process, I fear, that many will doubt what they think before they understand they are correct. Ireland’s losses will mount and mount. Eventually, the rock will crumble against the hard place and then a few things will be more obvious to those not yet tuned in. One thing is for sure, most of the work you are all engaged in, is worthless. Except to you, for the salary. The pension funding is dubious, so be advised that AVCs are not a good idea.

Try harder to protect what capital you have, as paper merely helps to light a fire?
One person who might help is Michael Hennigan, as he has a berth in a very pleasant, cheap, part of the world where he and his skills may be in demand. Those who wish to go down with the ship may still survive, but it won’t be pleasant? Still, I’d love to be there, just fpor the buzz of it all? Must be loads of fun?

re I just hope for your sake that Axel Weber will not succeed Trichet at the ECB (in which case you would learn to love Trichet).

You are wrong in this. Weber is an original “Iron man with the wooden head”.
It is far easier to contend with somebody who directly opposes you than somebody like Trichet who potrtrays himself to be reasonable but is a weakling playing the cards of the iron man all the time.

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