Michael Lewis on Ireland

The long-awaited Vanity Fair article is now published (but is not freely available online, as far as I know). Relative to the Greek and Icelandic articles, this piece is more of a straightforward account of the Irish crisis (but maybe that impression is just because Irish readers would be quite familiar with many of the anecdotes in the article).  But lots of interesting material, with a very good profile of Morgan Kelly and a striking quote from Colm McCarthy among the highlights.

A Q&A with Michael Lewis is here.

Update:  Article available in PDF here.

45 replies on “Michael Lewis on Ireland”

“To throw a nation which had finally clawed its way out of centuries of indentured servitude back into it.”

Michael Lewis shows how Merrill Lynch and two troubled Irish banks convinced Ireland’s finance minister, Brian Lenihan, to sign off on having his country’s taxpayers foot the bill for an estimated €106 billion in property-related losses. Lenihan and the Irish government approved the measures to make foreign owners of Irish bank bonds—including Goldman Sachs and German and French banks—whole again. As Lewis writes, “These private bondholders didn’t even expect to be made whole by the Irish government… People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer.”

What was Merrill Lynch’s role in this?
Months before Anglo Irish, Bank of Ireland, and Allied Irish Bank, Ireland’s three biggest banks, went bust, Phil Ingram, a research analyst for Merrill Lynch in London, published a report that shed light on their dire situation owing to aggressive commercial-real-estate lending practices.
His report was almost immediately retracted by his superiors, then edited and softened.
Six months later, at the request of the Irish government, Merrill Lynch threw together a seven-page memo that stated, “All of the Irish banks are profitable and well capitalised”—which soon proved to be an utter falsehood.
For this Merrill charged the Irish government €7 million.

Lewis interviewed Lenihan in an attempt to uncover the man’s reasoning for his actions. Lenihan asserted that he had no choice in the matter.
“Under English law,” he explained to Lewis, “bondholders enjoy the same status as ordinary depositors. ”

As Lewis points out, this is legalistic—“narrowly true, but generally false. The Irish government always had the power to impose losses on even the senior bondholders, if it wanted to.”

When he made the decision in 2008, Lenihan said it was done to prevent contagion. But, as Lewis points out, this wasn’t true either. A year and a half later, Lenihan offered a different reasoning, claiming that the bonds were owned by Irishmen.
“The Irish, in other words,” Lewis writes, “were simply saving the Irish. This wasn’t true.” The bondholders were mostly foreigners.

In summation, Lewis writes, “Soon Brian Lenihan will stand up in the Irish Parliament and offer a fourth explanation for why private investors in Ireland’s banks cannot be allowed to take losses.

‘There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the E.C.B. [European Central Bank],’ he will say.”
This, as Lewis points out, is circular logic.
If Lenihan had never guaranteed the banks’ losses with money borrowed from the E.C.B., then the Irish wouldn’t be at the mercy of the E.C.B.’s wishes.
Lewis reflects on the consequences of Lenihan’s actions in no uncertain terms: “That had been the strangest consequence of the Irish bubble: to throw a nation which had finally clawed its way out of centuries of indentured servitude back into it.”

Neary on RTE may have sent everyone into a panic, but my favourite analogy for the disaster is the Wile E Coyote economy: we ran off a cliff in 2003 but didn’t fall until we noticed there was nothing holding us up.

Lewis’s account of the treatment of Philip Ingram, the banking analyst at Merrill Lynch, is worthy of note. Shows what happens to the little boys who call out that the emperor has no clothes. And don’t let anyone fool themselves into believing that the same thing isn’t happening now – or the threat of it compelling silence – or that it won’t happen in the future.

The rule, like the Bourbons, is: learn nothing, forget nothing.

Hmmm, no mention of McWilliams’ original backing (suggestion?) of the guarantee. And surely Lucey’s not gonna be happy at the lack of a forsightly citation??? Good read though, especially liked this comment:

““The problem with the Irish people,” Ian says, as we drive away from the black hole that ruined Joe McNamara, “is that you can push them and push them and push them. But when they break they go wacko.”


@Bond. Eoin Bond

Added to The Leaving Cert Curriculum – should certainly up both literacy and economic literacy standards. His piece on Greece is an absolute classic – Monks in Glenstall take note (-;

Lewis interview with Marian Finucane last Sat (i think) should be available on RTE site.

“The Irish care too much about what others think of them, ..”

Should read “The Irish care too much about what some others think of them,..”

..since his opinions will get short shrift here. I saw no trace of Michael Lewis on any of our national media (however – in fairnaess I may have missed it) but surely he should have made it onto the Front line or VB?

Merril Lynch on this site just two weeks ago was quoted as issuing a report NOT recommending a guarantee. Which is true?

@Cearbhaill O Dalaigh
Why on erth do we still cling to that idiotic guarantee? What is it doing for us now apart from allowing every Tom Dick and Bini Smaghi to freely conflate bank and sovereign debt?

@ Seafoid

AIB and BOI also ‘junked’ by S&P this afternoon as well, first time they (as opposed to Anglo) have been hit with that.

@Eoin Bond
“Hmmm, no mention of McWilliams’ original backing (suggestion?) of the guarantee”

What is this fetish about DMcW? No more than any of the rest of us he was not aware of the extent of the exposure. I thought it was a good idea. Certainly by the time the ELG was introduced he was not backing extensions of it.

@ A-Mac

he was on Marian Finucane apparently (forgot to listen to the replay – ta to DO’D for reminding!)

Merrills apparently suggested a narrower guarantee, or did NOT recommend an all-encompassing guarantee. Lewis is a great writer, sometimes cuts some factual corners to fit the narrative though. Gets the big picture right though.

@ A-Mac

its not a fetish, simply pointing out a rather key missing fact. The guarantee, and those who decided to enact it, get hammered in this article, but Lewis neglects to mention that McW was all for it originally, and paints him as a skeptic in the whole matter.

It is worth listening to Michael Lewis last Saturday on Marian Finucane http://www.rte.ie/radio1/marianfinucane/ I don’t think everything he says quite corresponds to the facts (he is very broad brush, sweeping at times) but the comments here I thought were far more revealing and thought provoking.

@ a mcgrath

Morgan Kelly seemed to be fairly up to speed on the exposure involved at the time, although i think he only suggested 20 billion in losses….pah! small change now…and you can be full sure the heads of the banks were too. They kept all that to themselves though..Don’t be worrying about any of that now Brian, just sign here and here..and initial here…and we’re done…. country destroyed.

@ AMcGrath
From memory – Merrill’s set out five options for the government and of these the full guarantee was their least favoured.

Warning went along the lines of – we would not recommend due to the knock on effects on soverign rating.

(There was discussion on here at the time it was published)

On a side issue:
From what’s been said the opposition did not get to view the advice given to govt before voting the guarantee – Is this true? if so this needs reform.

From the full article:

“The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third.”

Even at this late stage, I am at a loss as to why Bank of Ireland’s NAMA loans will only attract a 40/42% haircut/discount compared to 60% estimated at AIB, 67% at Anglo, 60% at EBS and 70% at INBS. The above extract relates to BoI’s operations in the UK which has suffered less than Ireland it is true, but it seems incredible that BoI’s NAMA loans will be so much better overall than the four other NAMA Participating Institutions.

Lewis was just on Bloomberg – he mentioned how Dublin airport was full of unclaimed cars from vanishing migrant workers.
Also the strange unique character of Irish ghost estates…………….

I reckon they should get Eddie Lenihan on next week – I bet Margaret Brennan will be gobsmacked with his fairy stories.
We should never have built that road through Navan.

@Jagdip – “Even at this late stage, I am at a loss as to why Bank of Ireland’s NAMA loans will only attract a 40/42% haircut/discount compared to 60% estimated at AIB, 67% at Anglo, 60% at EBS and 70% at INBS.”

In the vain hope it might help keep one bank afloat in Ireland? Last man standing and all that. I say this only partially tongue-in-cheek.

The article’s three most important aspects to me were these

(i) Characterizing Joan Burton as credible on finance. I wouldn’t have thought that was a widespread opinion. Am I wrong?

(ii) The story about the suppressed/withdrawn Merrill Lynch report. If there is evidence that the banks put on pressure to suppress it then there’s evidence that they were consciously misleading the govt when they were asking for the guarantee.

(iii) The clear statement that the original major creditors of the banks have essentially all been rotated out by Sept 2010. We can’t “burn the bondholders” any more because they’ve gone. Do we know how much is left that could be burnt?

Meantime, someone please tell me that Morgan Kelly and DMcW weren’t the only people in Ireland warning of a bubble in 2006! I know

(inadvertent mouse click..)

I know that they’re the most prominent, but were they really the only ones?

Can the Irish government sue Merill? (or whichever bank snapped them up?)
Presumably, even it they could, wouldn’t Merill’s defence simply be that of the ratings agencies? ie it was just an *opinion*.

Going forward two straegies would be in Ireland’s favour:

1) Large Haircuts
2) Euro QE (and writing off the debt purchases)

The unilateral default is far risker.

Therefore, we need to negociate with our European Partners. The rethoric in this artical is a useful starting point – the banks lied to the gov and the gov lied to the people.

Would our European Partners see even vote cast for FF in the election as a vote in favour of the blanket Guarantee?

IF so FF have a chance to finally do the country a service and fall on their sword.

“(i) Characterizing Joan Burton as credible on finance. I wouldn’t have thought that was a widespread opinion. Am I wrong?”

Yes you are wrong. Just because you disagree with someone’s politics does not make them wrong or not credible. Remember she was the only finance spokesperson who voted against a guarantee and said that they had not been given enough information by the government. She has done a far better job than any other finance spokesperson. I don’t know why people let their latent sexism or ideological stubbornness get in the way of facts with regards to La Burton.

The people of the United States rolled over, but the people of Iceland did not.

“‘Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.’


Remember, we were told that if we did this, the economy would tank and there would be tanks – literal martial law.

Iceland did it, with their banks standing at eleven times GDP, far more than our banks had (and have.)

Did it trash their economy? Yes. GDP contracted by 7% and they had a near-20% inflation rate – for one year.

But now? Nope – 3% growth is predicted, the economy is stable, the currency is stable, and life goes on.

What doesn’t go on is looting the taxpayers to bail out insolvent institutions and hide the truth.”


Every single blog site I go to in the States and Canada is saying the same thing: Ireland, go the way of Iceland. Do not be duped like the States was.

If future historians want to know what exactly happened in Ireland in the first 10 years of this millenium – I would recommend that VF piece. I could not fault it anywhere. Even to the exent that Lbour (Joan Burton hurrying off rather than explain Labours present position on the guarantee)

This comment says all that needs to be said about that:

“Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. ”

I guess those ML advisors were at the other side of those impenetrable Chinese walls!

Lenihan constantly inventing new reasons why we should repay bondholders is echoed by commenters on this site.

The fact that the Greeks protest – not that they are asked to repay bank debt – but actual soveriegn debt – albeit obtained by the combination of crooked politicians and fradulent lenders (yes Goldman) makes it seem like we have a particularly virulent form of Stockholm syndrome.

Even the use of the two “vignettes” of Joe Mac of Achill and Gary Keogh to illustrate the side effects on ordinary middle classes and small developers, the article is an effective device.

Yes – hadn’t read the full piece regarding the Merill Lynch report. The Ingram piece was new to me, but I do find it odd that the DOF would ask advice of a company who had recently reported >$8bn in losses, whose executives were charged with criminality in regard to Enron – whose (MLs) notorious employee Henry Blodget was charged with securities fraud and had to pay $4mn in fines. ML were also bailed out by US taxpayers to the tune of $6bn as a result of the AIG bailout.
Given that they also retain GS, one could be forgiven for assuming a history of fraudulent behaviour and incompetence is a prerequisite in obtaining government contracts in Ireland – it certainly doesn’t appear to be an obstacle.
Couldn’t resist that last rant.

Christ – anybody know how all those mistakes and half formed sentences appear after you hit the submit button- it’s gotta be a virus right?

When will someone look at the role of Paul Gallagher SC, Attorney general, in this debacle?

Will we have to wait for 30 years to see what advice he gave the government and what other legal authorities were consulted?

I am amazed how little attention this key point gets.

A country solicitor and a senior counsel were always going to be heavily influenced by one of the most brilliant barristers of his generation. But we all know that brilliant people can make disaterous mistakes.

There is already a thread on that since yesterday – Frank Barrys post

Eoin dha ainim
“And surely Lucey’s not gonna be happy at the lack of a forsightly citation”
What’s that? Is it even a word? Anyhow, i was busy exporting services and getting papers published today. Busy day for you Eoin?

@ He who was not cited

Chill out dude, I just know you like to keep your media profile bubbling. And actually yes, incredibly busy, it’s not just chicks that can multi-task, but it is nice of you to ask…

@Eoin Squared
Errr. no. If I wanted to “keep my media profile bubbling” I would do something media-frenzy-inducing…like, i dunno, run for election. and, while being discussed in Vanity Fair would be cool, it wouldnt be a cite.


EuroIntelligence this morning is, again, worth a read ….

‘Large parts of the German banking system are not merely undercapitalised. They are effectively un-capitalised. ‘ [imho Angela still in De-Nial …. And Joe an Joan Irish citizen-serf paying for it …….. and FF, FG and Labour in cahoots with Angela on this one ……

“Coercive Default in Ireland and Sinn Fein influence on FG/Labour”

Tom O’Connell on Crony Corporate Governance in Irish Financial System – and luddite boards – appointed by PD/FF

Portugal ‘surely insolvent’

Citizen Stiglitz on Austerity [responding to JTO (-;]


[B. Cowan discovers a conscience and to launch the nuclear option on Default on Vichy_bankDebt tmoro …!! I wish …]

Yes, it was a wakeup for many, I believe, and it went viral after that for those who don’t watch news programs, but think of themselves as having money. It was all a bit Joe Jacobs and iodine tablets.

I and many others were warning about a bubble in 2006, but Mr. Burgess was deleting out posts as off topic… out of this thepropertypin was formed…

A very good article by Lewis. It was good to see Morgan Kelly feature. He fully merits this recognition. Though I would have like it if Lewis had included Kelly’s most prescient observation from October 2009:

“WHILE MOST economists by now simply dismiss Brian Lenihan’s utterances on the economy as “not even wrong”, this is to miss the Minister’s almost eerie ability to predict exactly the opposite of what is going to happen.”

@ Ciaran O’Hagan

Thanks for the pointer to the interview with Lewis on the Marian Finucane show. Can you imagine what would happen if big industries in the real economy, such as nuclear power generation were subject to the kind of conflicts of interests, perverse incentives, lax governance and general chicanery which characterises the upper reaches of the financial services ‘industry’ ?
Lewis may use a broad brush, but the dogs on the street know that something has to change.

As an Irishman, I can state that Lewis’ article is so inaccurate that it brings the rest of his journalism into question;

1.The Irish parliament does NOT require that speakers use both Gaelic and English. Had Lewis bothered to look at even 10 minutes of a typical debate – available on the web – as distinct from a vote, he would have seen that
2.The Irish boom was initially technology-driven. A country that hosts the European and world HQ’s of so many tech companies demands a little more examination. No wonder no-one wanted to speak to him, beyond a few notorious media whores; the gentleman who pursued him with a baseball bat acted for many of us
3.What Lewis also neglected is that a large amount of the debt is NOT for Irish property; in fact during that period, Irish “businessman” invested more than US such in Britain
4.Lewis even missed the real story; the criminality for which even the property scam was a front, with – to take one example – mafia money being laundered through an Anglo affiliate in Austria;


Many of us had been warning about the Irish kleptocracy at a time when his sources like McWilliams were cheer-leading it, and doing so at conferences in the better American universities. (In fact, he can pop along to his hometown university at UC Berkeley on Mar 10 to hear the arguments )

Lewis never asked; given that the Irish are the most successful ethnic group in so many countries to which they emigrate, why is “their” country such a disaster?

The truth may be found in the buttressing of this kleptocracy by the international financial community. The sullen lack of grace with which Cowen left power betokens a feeling of betrayal – after all he had done in serving up generations of Irish to the like of Goldman Sachs.

Finally, “When Irish eyes are smiling” is famously about as Irish as Pad Thai.

“given that the Irish are the most successful ethnic group in so many countries to which they emigrate”

Which countries?

Only those who were there when the blanket guarantee was signed will know what happened. I would surmise that the officials and politicians were bullied by ceos of banks under pressure for one and did not have the expertise or personal knowledge to counter . Secondly they then did what people in power ( even the ggod ones) tend to do and took the advice that was nearest to their own opinion.

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