Three (and a bit) Years on from the Banking Guarantee

Today is the third birthday of Ireland’s blanket guarantee of 6 banks’ assets and liabilities, and 64 billion euros later, let’s take the opportunity to reflect on all that has gone on in Irish public and economic life, to assess how much real change there has been within the institutions that helped bring about the crisis, and perhaps to look a little towards the future. So fire away in the comments.

One small(ish) point though, from something I’m working on with my UL colleague Vincent O’Sullivan. It is true that the late Mr Lenihan did guarantee the banks three years ago. It is not true that that is when State support for these banks began, and we shouldn’t mix the two up. Banks like Anglo were in trouble before that, and to a significant extent. These are not (well not yet anyway) historical curiosa, because we still need to understand and deal with the issues our Emergency Liquidity Assistance (ELA) raises.

To take Anglo, for example: The first mention of ELA which was the supported provided in March 2008 was in the interim accounts for 2009 of Anglo Irish Bank.  From note 20, page 46:

“These deposits include €13.5 billion (30 September 2008: €7.6 billion; 31 March 2008: €3.6 billion) borrowed under open market operations from central banks and €10.0 billion (30 September 2008: €0; 31 March 2008: €0) borrowed under a Master Loan Repurchase Agreement (‘MLRA’) with the Central Bank and Financial Services Authority of Ireland. The interest rate on this facility is set by the Central Bank and advised at each rollover, and is currently linked to the European Central Bank marginal lending facility rate.”

In the 2009 annual report the amount lent by the CBI has increased to €11.5 billion. Collateral pledged has fallen to €12.49 billion, implying a much lower haircut of €990 million on €12,490 million, or 7.9%. See (d) on page 91 and Note 37 on page 104.

The 2010 interim report shows the collateral posted by Anglo Irish bank becomes mostly promissory notes issued to that bank by the Irish government and that the ‘MLRA’ agreement has, for the most part been superseded by a ‘special masterloan repurchase agreement (SMRA)’.

For more background information on what happened, Simon Carswell’s book Anglo Republic is excellent and highly recommended, though it doesn’t go into the ELA detail.

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

82 thoughts on “Three (and a bit) Years on from the Banking Guarantee”

  1. The big big winners have been the bank bond holders, the higher level State mandarins and the protected sectors of the economy.
    The big losers have been those who lost jobs and those lower paid in jobs that must destroy their lives to pay for the homes they live in.

    The policy response of the State has been to throw every cent the State and a lot of billions that the State did not have towards ‘fixing’ the banks. The policy has not worked for the people of the country.

    Meanwhile the State has spent virtually nothing on works programs for the hundreds of thousands of people that lost their jobs, particularly from the building industry.
    That was the policy choice of the State.
    It was an appaling policy choice. It has succeeded in protecting those at the top and a swathe of insiders and of course the banks.
    Whatever level of success the State has achieved, it has been achieved by sloughing off one sector of society to keep another sector of society (both in Ireland and abroad) in the manner to which it has been accustomed.

  2. @ Stephen

    “The first mention of ELA which was the supported provided in March 2008 was in the interim accounts for 2009 of Anglo Irish Bank.”

    Huh? Anglo was accessing normal ECB liquidity in 2008 (“open market operations from central banks”), but only tapped the ELA in 2009 (“€10.0 billion (30 September 2008: €0; 31 March 2008: €0) borrowed under a…(‘MLRA’) with the Central Bank and Financial Services Authority of Ireland”), no?

  3. Frankly, I dont see enough shame from government since then.
    Frankly, some of them might find the saddle on their backs quite comforting…

  4. The original bank guarantee was not (neccessarily) the wrong policy choice (as well articulated by McWilliams etc at the time.

    The problem was and continues to be the continued support of the banks and repayment of anglo (and other) bondholders. It suits many people (especially current government) to place all blame on night of sep 28th 2008 when in reality we had many chances to roll back the position and have not done so (and these chances continue to be available to those who supposedly think the guarantee was the wrong decision.

    Any analysis which pretends that one emergency decision on that night was to blame is incorrect and provides very comfortable cover for Lab/FG (particularly Lab who are so fond of telling SF that they supported the guarantee so they have no right to say anything when this is totally incorrect and deliberately misleading).

  5. It was a typical Irish response: only pay serious attention to a problem when it becomes a crisis…sorry that should be…a dire crisis.

    Then post-panic, relax lads and two-years of slow motion reached its conclusion last November with the bailout.

    Plus ça change, plus c’est la même chose and here we are back to the ‘what crisis’ mode and the next tsunami will also be a shock.

    Bitter the facts maybe to some, but the game was up in Aug 2007 when the ECB became he main funder of the inter-bank market. A month later, the penny hadn’t still dropped as Northern Rock depositors rushed to Harcourt St to withdraw their funds.

    There was a focus on banks in a way; it was the AIB branch at 37 Upper O’Connel St and the story of digouts.

    The lemons eventually pressed the panic button two weeks after the Lehman collapse.

    The intriguing thing was that despite the fact that most big developers had stop even paying interest on their loans, the poltroons and cargo cultists still expected manna to arrive from somewhere.

    @ Actuary

    How realistic is the arguemnt that in the 2-year period, the guarantee could have just been cancelled when the ECB were the funders of the banks?

  6. Eamon Ryan on VB last night was partying like it was 2009. Playing all the hits — ATM Machines in the Morning, Following Advice, Nobody Warned Us and of course, the Italian classic, Pari Passu.

    You’d laugh if wasn’t quite so tragic.

  7. It has been a fascinating three years. A walk down Pearse street in Ballina tells you all you want to know.

    A Götterdämmerung. All the indigenous financial firms wiped out. Only the auditors are still standing. And they are all foreign.

    Poor Ireland got a lobotomy. And now the surgeons don’t believe in lobotomies.

  8. The last 3 years haven’t just been about Ireland of course.
    Equity yields are now higher than bond yields in the US. Long bond yields are at their lowest levels in 60 years. QE2 marched the grand old duke of york’s leverage up the commodity hill and it is marching down again . Nothing has worked.

    Soros – how to stop a second great depression

    http://www.ft.com/intl/cms/s/0/2dc2be14-ea89-11e0-b0f5-00144feab49a.html#axzz1ZKjKinQx

    Wolf- it’s time to crank up the printing presses

    http://www.ft.com/intl/cms/s/0/045aab84-e61c-11e0-960c-00144feabdc0.html#axzz1ZKjKinQx

  9. @Joseph Ryan

    Generally agree with your comment but another big loser has been Irish bank shareholders. The media/political establishment, who are all insiders, are doing their outmost to keep all of this out of the presidential election debate.

  10. @Michael Hennigan

    maybe completly unrealistic (though personally I would have done it).

    Though it seems to me that the same factors applied on the night on the 28th 2008. I massively disagree with those who say we wouldnt be in this position if not for the guarantee in the middle of the night (but yet support current repayments – looking at you Mr Gilmore).

    It has been a three year policy (eventually supported by all political parties except SF who have been clear in that they dont continue to support it and other hard left parties who never supported it) not a one night mistake.

    One night did not make the difference.

  11. @Ste Kin
    Are you saying Anglo availed of substantial ELA in March 2008 ?

    If so that is huge news vis-a-vis the negligence of the CBFSAI…as Neary and Hurley wear still swearing blind that Anglo was solvent in Sept 2008…swearing blind that is of ‘the figures’…as Neary had almost no staff looking at ‘the figures’ (see Honohan rpt)

  12. @ Desmond

    see my query on that above. I do not think they were tapping ELA pre-guarantee (i think it started in March 2009, per CBI balance sheet).

  13. Three years on and we are accumulating debt as never before while the rest of Europe gets ever more farcical.
    The joke of the day….Germany passes the EFSF and Greece celebrates by going on strike.
    They blocked the troika from entering the Finance ministry again today.

    The latest idea from Greece is to swap thir short term debt for Century bonds. So they are trying to hock their great great grandchildren.

    So we should not get complacent….
    A sobering report this morning

    Stefan Homburg, head of Germany’s Institute for Public Finance, said the EMU crisis had already gone beyond the point of no return. “The euro is nearing its ugly end. A collapse of monetary union now appears unavoidable. The Chancellor should have no illusions about this,” he said.
    “The eurozone’s leaders and the ECB have breached all the stability rules, the debt ceiling, and the ban on bond purchases. This isn’t the rule of law, it’s the rule of the jungle,” he said.

  14. @KW & Georg Baumann

    Perhaps its my nature but is ‘Pari Passu’ not a Latin phrase?

    I appreciate the Latin Italian link as in Latin European but I know when I learned Latin it wasn’t Italian Light or otherwise.

    Anyway, and a lot more importantly, SK I believe is wrong in his ELA assertion above, as far as I was aware the ELA phrase did not even become part of the lexicon until after the 29th Sept 2008 so I’m as confused as other posts above. SK should remember E&Y did the audit. Oh dear.

    @Dreaded Estate

    Is the market going to be proven right – once again? If so what’s the problem?

  15. Off thread (intentional: following Mairt_een Feldsteen’s application for the Medical Card; and in memory of the McDowell, Harney, McGreevey troika who remain on the welfare gravy train which crashed in 2008)

    Friday, September 30, 2011

    Friedrich Hayek Joins Ayn Rand as a Hypocritical User of Medicare

    http://www.nakedcapitalism.com/2011/09/friedrich-hayek-joins-ayn-rand-as-a-hypocritical-user-of-medicare.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

  16. Lets just remind ourselfs the Goverment had / has no money power although maybe the Taoiseach / cabinet did not understand the concept at that time – at least if you listen to Ryan you get that impression.
    Our only hope was the possibility of a ballsy self aware Taoiseach in the office.
    A former gunman like Lemass may have decided to use the stability & growth pact as a weapon of Financial mass destruction and throw the book at Jean Claude.
    He could sit up in the Dail without consulting the bankers in any way before hand – and explain to the Irish people the mechanics and reality of the situation – ie, the Goverment could only guarantee whats in the post office & the first 20,000 in the Banks if they are to honour their obligations
    But I have my doubts that Lemass would have done such a thing – he was a conservative inside man after all.
    Maybe we needed a puritan in the office – and they are a very rare breed in Ireland , possibly extinct I imagine.
    The deluded masses would have torn chunks out of the man anyway – blaming him for the catastrophe with the help of bankers black propoganda.
    He would have only survived politically if he had strong backing and went into open warfare with the domestic CB.
    Almost a impossibility in any western country – never mind this deluded little bog.
    A Irish Jackson would have to had Pictish blood in him and truely understand the meaning of the word NO.

  17. @Michael Hennigan

    I did as you suggested and here is what I came up with….

    Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

  18. Noam Chomsky on Wall Streeet Occupation:

    “Anyone with eyes open knows that the gangsterism of Wall Street — financial institutions generally — has caused severe damage to the people of the United States (and the world). And should also know that it has been doing so increasingly for over 30 years, as their power in the economy has radically increased, and with it their political power. That has set in motion a vicious cycle that has concentrated immense wealth, and with it political power, in a tiny sector of the population, a fraction of 1%, while the rest increasingly become what is sometimes called “a precariat” — seeking to survive in a precarious existence. They also carry out these ugly activities with almost complete impunity — not only too big to fail, but also “too big to jail.

    The courageous and honorable protests underway in Wall Street should serve to bring this calamity to public attention, and to lead to dedicated efforts to overcome it and set the society on a more healthy course.”

  19. Ireland gets positive and negative coverage in the FT today.

    On page 2 of the Asia print edition, Jamie Smyth ex-Irish Times has a story on the Grange Castle ex-Wyeth facility, now owned by Pfizer, churing out exports — I could pick a few holes in it but the green jersey beckons (poor New Zealand downgraded twice on the same day).

    In the FT Wealth magazine, John Murray Brown reviews his 17 years in the emerald isle:

    Eavesdropping can sometimes be part of a journalist’s armoury – but this was one conversation I rather wished I had not overheard.

    I was sitting at the bar of Dublin’s Shelbourne hotel while, nearby, two locals were engrossed in the Irish Times property supplement. “Look at the crazy price some poor punter paid for this,” one said, pointing to the photograph of a modest, three-bedroom terraced house in south Dublin. “They’ll never get their money back.”

    I was that poor punter. It was 1994 and I had just arrived in Ireland. Whether it was the adrenalin rush of the auction room or my Irish friend egging me on, I had outbid two other buyers and paid what was, at the time, a record price for a property on that street.

  20. @ CP

    deposits from Irish residents actually up m/m in August. If you strip out the NTMA depo’s in April this year, i think this marks the first increase in April 2010.

  21. @Seafoid
    But is QE really the printing of money – it certainly is not introducing raw currency into the medium – it is more a method of controlling the velocity of money and deleveraging – thankfully at least it will kill the wasteful housing market.
    Direct financing of the goverment is certainly better then the Hybrid Hayek like policies of the ECB however.
    But I would prefer to see a outright default of all risk credit deposits – this would induce massive deflation – to counter this the introduction of new raw currency to increase real capital growth would be preferable.
    The slow Japanese style QE could only be done because of excess demand abroad during the 90s – this is a different animal now.

  22. 3 years in the making – normalising the madness:

    http://www.japlandic.com/p/greatest-hits.html

    The banks are a treasonous cabal that ended our economic sovereignty. Lenihan and Cowan made the worst economic mistake in Irish history. The regulator, the central banker and the senior civil servants all got in their lifeboats and waved a middle finger at the masses. The press extolled everyone to close their eyes and pull on the green jersey.

    And no one saw it coming….

    Oh! But they did!

    http://www.thepropertypin.com/viewtopic.php?p=493488#p493488

  23. @ CP

    actually, scratch that, hard to make any call on the deposit figures. They’re basically stable, but wouldn’t want to call it a ‘rebound’ (though the headline figure is up).

  24. @ Georg Baumann

    I agree with Chomsky.

    However, the camel seldom sees its own hump.

    So teachers’ unions railing against timid and delayed pension reform as ‘larcenous’ begs the question, have they or would they complain if their members were beneficiaries of a public heist/fraud?

    Benchmarking?

  25. Out of curiosity, and I apologize if this is a question that has been debated before but I only have a superficial knowledge of economics/the financial crisis, but would there have been a ‘soft landing’ to the housing bubble if the banks hadnt been so overleveraged/under capitalised due to bad debts.
    I.e would we have had the Irish equivalent of Brad De Longs claim about the US

    “No banks losing track of the risks they were running and holding on to assets that were supposed to be originate-and-distribute, no financial crisis, no credit crunch, and no Lesser Depression. The housing bubble would have deflated, unemployment would now be near 5%, exports would have boomed, and our biggest worry right now would probably be a weak dollar”

    http://delong.typepad.com/sdj/2011/09/over-at-crooked-timber-daniel-davies-turns-into-an-internet-troll.html

  26. What sums up this sorry week is Sarko going to Morocco to sell fast trains to a poor nation because not enough money supply is available for investment in a still rich Europe !
    The ECBs fiscal fetish is truely extraordinary – you would think they would give us enough money to buy another LUAS line at least !!
    This would employ some French workers that we could export goods to – just what the hell is going on in Frankfurt ?
    You can control consumer inflation while raising the money supply by increasing taxes on non essential items.
    You can’t tax a declining money supply !!!! – this is elementary stuff lads.

  27. @ Michael Hennigan

    You might disagree with the outcome of benchmarking as many people do. However, the pay increases agreed under the social partnership agreements were just that: agreements. They were agreed with the elected government, employers and employees. Therefore, there was no heist/fraud – it may have been unwise, foolish, unsustainable, or whatever else you want to call it – but those pay increases were agreed in open negotiations. Quite unlike the bank gaurantee which was agreed in the dead of night behind closed doors.

    Now the government wants to take money off future teacher’s pensions, without the agreement of the teachers, to pay for the hole in the banks.

    Can you see the difference?

  28. @ Michael Hennigan

    You might disagree with the outcome of benchmarking as many people do. However, the pay increases agreed under the social partnership agreements were just that: agreements. They were agreed with the elected government, employers and employees. Therefore, there was no heist/fraud – it may have been unwise, foolish, unsustainable, or whatever else you want to call it – but those pay increases were agreed in open negotiations. Quite unlike the bank gaurantee which was agreed in the dead of night behind closed doors.

    Now the government wants to take money off future teacher’s pensions, without the agreement of the teachers, to pay for the hole in the banks.

    Can you see the difference?

  29. @Bond Eoin Bond
    Yes, the IT report is confusing…
    “Deposits were also down over the year, falling by 10.4 per cent by the end of August. Household deposits were 5.4 per cent lower on an annual basis, and company deposits were down by 10.1 per cent.

    The figures showed an underlying decline of €895 million in private-sector deposits during August, with household deposits falling by €510 million during the month. However, deposits from non-financial corporates were €459 million higher during the month.”

  30. Karl / Georg

    Eamonn Ryan is still repeating what he was told when he was in office

    Meanwhile his successors have taken no action to prove him wrong

  31. @ CP

    i’d broadly say they’re decent numbers. Nothing amazing, but a sign of stabilisation if nothing else. Noonan suggesting that the guarantee may not be extended beyond 31st Dec though, so difficult to see a quick rebound in that context.

  32. @ Michael Hennigan – Finfacts:

    I agree with Chomsky. However, the camel seldom sees its own hump.

    It does not help looking at the hump if the camel has hoof rot.

    Alexander Dibelius consults the german government, Peter Sutherland consults the Irish government.

    Perhaps the irish will wake up one day and occupy the IFSC, and perhaps Europeans will wake up and start occupying the finance centers of Frankfurt, Brussels, Paris, London etc. …Perhaps…

  33. None of this is problematic for the very wealthy, who benefit from a government insurance policy called “too big to fail.” The banks and investment firms can make risky transactions, with rich rewards, and when the system inevitably crashes, they can run to the nanny state for a taxpayer bailout, clutching their copies of Friedrich Hayek and Milton Friedman.

    That has been the regular process since the Reagan years, each crisis more extreme than the last – for the public population, that is. Right now, real unemployment is at Depression levels for much of the population, while Goldman Sachs, one of the main architects of the current crisis, is richer than ever. It has just quietly announced $17.5bn in compensation for last year, with CEO Lloyd Blankfein receiving a $12.6m bonus while his base salary more than triples.

    http://english.aljazeera.net/indepth/opinion/2011/09/201192514364490977.html

  34. @Georg
    There was some benefit in the past to guaranteeing THE STATE BANKS as under the old sovergin / CB hybrid model the banks were the state and the state was the banks.
    But that is not the case under the euro system – I think we were a cultural banking backwater that for the most part did not understand the euro system – even our bankers did not understand the changed dynamic I think.
    Here’s the most prescient quote from Hayeks denationalisation of money thesis in my opinion.
    “Opposition to new system from established bankers

    This necessity of all banks to develop wholly new practices
    will undoubtedly be the cause of strong opposition to the
    abolition of the government monopoly. It is unlikely that most
    of the older bankers, brought up in the prevailing routine of
    banking, will be capable of coping with those problems. I am
    certain that many of the present leaders of the profession will
    not be able to conceive how it could possibly work and therefore
    will describe the whole system as impracticable and impossible.

    Especially in countries where competition among banks
    has for generations been restricted by cartel arrangements,
    usually tolerated and even encouraged by governments, the
    older generation of bankers would probably be completely
    unable even to imagine how the new system would operate and
    therefore be practically unanimous in rejecting it. But this
    foreseeable opposition of the established practitioners ought not
    to deter us. I am also convinced that if a new generation of
    young bankers were given the opportunity they would rapidly
    develop techniques to make the new forms of banking not only
    safe and profitable but also much more beneficial to the whole
    community than the existing one.”

    This accuretly describes Irish bankers in my opinion.
    Hayak was a champion of private credit competition – for example Bank of Scotland was “competing” with Irish sovergin affiliated banks – this was and is a core doctrine of the past and future ICB & ECB system as expressed by Honaghan.
    But competion in such a market is a absurdity as banks can produce unlimited amounts of credit if they wish.
    Unlike Friedman who was a nationalist when at least his credit buddies were exposed ( think the of the US treasuary) Heyak was not.
    The clash between the Dollar & Euro is a clash between 2 now dead academics with very strange theories of money – some of the more established Austrian & state money theorists (2 very different ideologies) recognized the power of private credit creation on the real economy.
    The above 2 classical economists generally ignored broad monies effect on inflation and the economy in general and concentrated on narrow state money as the only vector for inflation.
    When this was tried in the 80s US & UK system – wages collapsed but private credit exploded to fill the vacuum – but the core problem was that there was a net extraction of the commons over 3 decades to keep this absurd system going.
    The amazing thing now is that they want to continue extracting net capital to sustain a even more grossly absurd system.
    Please remember I am not a fan of the older sov money system or the newer non national euro system as they both favour cliques , the old system favours internal cliques and the new system favours international cliques – but once they go international any even rudimentary law or social mores cannot follow them.
    Please refer to Adam Curtis latest blog / video post about the very strange ideas floated back in the 60s by think tanks that were nothing of the sort – its a quite amazing anylasis of a very strange & destructive time in western history.

  35. @ avatar

    Those teacher pensions would have been paid from the space on the national accounts that is now the budget deficit. And it’s massive.

  36. PS – in the 19th century private paper money creation was abolished because of the damage & Chaos it caused – unfortunetly one private monopoly supplier prevailed and not a real state money system but it was better then the chaos that reigned before – unfortunetly the Peels bank act did not cover Checking accounts ability to write cheques and create money – and since checking accounts are in most respects similar to cash – this created the envoirment for great future problems.
    Now we had in Ireland banks increasing the credit money supply by a quite astonishing 20 % + a year – this was a form of financial warfare against the proles of this country.
    Unfortunately many of the Irish economists dare not speak of this treason as they are part of the old boys network and one does not speak of such things.
    The real scandal under all this is that banks complied with the Bank Basel rules – Basel considers credit deposits as money when they are not – as we have seen quite clearly the only real money available is the states ability and willingness to tax – deposits are only created when you make loans.
    There can be no doubt that we are witnessing a epic Coup d’etat designed to transform former hybrid sovergin nation states into compliant market state children ready to do the elites bidding – every action of the CBs has been so transparently the case since at least the days of Volcker and perhaps before.
    The writings of Willem Buiter for example is just dripping with distaste and condensation for what he rightly considers child like auto mans.

  37. @ Dork of Cork

    I am also convinced that if a new generation of
    young bankers were given the opportunity they would rapidly
    develop techniques to make the new forms of banking not only
    safe and profitable but also much more beneficial to the whole
    community than the existing one.”

    Social banking and finance is not new, Roland Benedikter for example wrote about it, and there are already some banks that started to apply better standards of ethical investment and banking, like the GLS Bank in Germany, or Triodos Bank in UK .

    http://europe.stanford.edu/people/rolandbenedikter

  38. The council of Europe have suggested reducing the voting age to 16 across europe as they feel that young people are being marginalised in national debates.
    The bank bailouts pit young VS Old and Rich Vs Poor, property owners Vs renters. If you are young, poor and renting the bailout was terrible. If you are older richer and own a property the personal savings of the bailout offset the negative impacts on the state balance sheet and services. As Joe Ryan points out the bailouts are a nett loss to society however a nett gain for some.
    Austria have been the first to change their voting age, hopefully Ireland can follow, won’t change much, a step in the right direction.

  39. @Georg
    No – we have tried being social before , think of the Keynesian New Dealers – in reality they were trying to save the then banking system from itself and not money or the real economy – it was just that the needs of the physical economy and the bankers converged for a little while , then when enough capital was created the monetarists moved in to extract the surplus.
    They are two sides of the same banking coin – nothing less then the destruction of banks ability to give credit will teach them and that of course is not discussed in polite circles.
    Of course full deposit bank lending to small communities is great and must be encouraged.
    Having said that I think it will be a cold day in hell before the oligarchy both domestic & foregin give up their private credit rights.
    That is why I am betting on Gold – in many ways it is useful in only a fractional system – the various clans are prepared to destroy the value of the currency so that they can continue to peserve private debt contracts.
    We now do not operate in a fractional system ( see the bankers willingness to leverage the goverment base which no longer makes it a base)
    For the present debt system to work all dodgy debt not defaulted on must flow to Gold – even if it is not part of the official banking system anymore.

    Give one local banker the ability to create credit and no matter how saintly he will be tempted to buy the village and then the world.

  40. @Georg Baumann
    “Live cam from Wall Street, will we ever see a live cam from the IFSC?”
    During the peak crisis months in 2008, webcam watching of the top floors of the Central Bank became quite a sport: http://www.thepropertypin.com/viewtopic.php?f=19&t=14231

    At some point in the thread, the camera, which was on top of SIPTU’s office, gets zoomed in so tight the CB can’t be seen (December 2008)…

  41. @Bond Eoin Bond
    I wasn’t aware that MH had been suggesting ending the deposit guarantee. Just read the report in IT and apparently term deposits will not be guaranteed after December but existing will remain covered out to 5 years.
    Seems a sure fire way of losing corporate deposits as these won’t be locked in for more than 3 months and even private are not keen to go out for long.
    A serious mistake….just as Lenihan did last year when he left the extension of guarantee to the last minute resulting in massive corporate outflows.
    With Trichet now prepared to lend for 12 months to banks, surely this will result in the banks getting cheap money and becoming more dependent on the ECB rather than bringing their deposit to lending ratio down to a safe level.

  42. Karl Whelan wrote,

    Eamon Ryan on VB last night was partying like it was 2009. Playing all the hits — ATM Machines in the Morning, Following Advice, Nobody Warned Us and of course, the Italian classic, Pari Passu.

    You’d laugh if wasn’t quite so tragic.

    Does anyone care to speculate what might have happened, had the Greens not betrayed themselves, and possibly the whole country, by pitching tent with FF?

    It was their own moment of error, in what was an otherwise exciting rise into relevancy in Irish politics. Sort of like the Liberal Democrat party in the United Kingdom. Unfortunately, that one error can throw back a political cause, decades in a country.

    The Green movement in Ireland, reminds me a lot of the Cuban situation in the United States. Complicated, tragic and lengthy. BOH.

  43. “They were agreed with the elected government, employers and employees.”

    Fine. Everything was by the book in the banks too, legal and agreed by all parties. That must make it right, doesn’t it?

  44. @RF

    “but would there have been a ’soft landing’ to the housing bubble if the banks hadnt been so overleveraged/under capitalised due to bad debts.”

    When people, especially bank and government people, were peddling the ‘soft-landing’ outcome, the obvious question was not asked.
    ‘What in hell’s name are we doing up in the air in the first place’.

    @Georg Baumann (4.00pm)
    +1

    @Ceteris

    re However, deposits from non-financial corporates were €459 million higher during the month.”

    You bet they were. These were the ‘smart’ corporates that moved money to safe haven ‘EZ banks’. They are now starting to realise just how ‘safe haven’ the French banks are. That probably goes for the German banks as well. I have read that some of these banks are leveraged up to 30 times. But they all passed stress tests.

    Expect this trend of corporate deposits returning to continue.

  45. @ avatar

    The Public Service Benchmarking Body (PSBB) was established in July 2000 to undertake a fundamental examination of the pay of public service employees vis-à-vis the private sector. It recommended what it termed “a range of pay increases, linked to agreement on relevant modernisation and change.”

    The PSBB report was published in July 2002 and while the services of nine “major” Irish and international consultancies were used to advise and carry out research, the Minister for Finance, Charlie Mc McCreevy, did not allow publication of data used.

    In November 2003, McCreevy said in a speech: “while the Government is committed to honouring benchmarking, I would like to stress that the payments are dependent on compliance with the terms of the agreement. If the conditions are not met in any sector, grade or organisation then the payments will not be made in that area.”

    It was not to be and the trade union leaders have been as disingenuous as the politicians who took the pay rises.

    In 2004, the Economic and Social Research Institute published a paper by economists, at NUI Maynooth, led by Jim O’Leary who had resigned from the PSBB before publication of the first report. It stated: “A curious feature of the PSBB’s report is that it furnished no specific justification for any of the pay increases it proposed. Instead, it provided a generalised rationale for its corpus of recommendations that echoed its terms of reference and cited a number of broad considerations. At no stage therefore did the PSBB indicate that its pay recommendations, either in general or in particular, arose because of a pay gap between the public and private sectors and the perceived need to bridge such a gap.”

    Political leaders could plead good intentions, incompetence or over-optimism on many issues but the issue of benchmarking had a direct cash cost and the PSBB that recommended an average special increase of 8.9% for ministers, TDs, other public staff and all public service pensioners, “strongly” recommended that 75 per cent of the payment be withheld until agreement was reached on how “real outputs” would be delivered. It also recommended that an “appropriate validation process” be established to ensure that agreements on issues such as adaptability, change, flexibility and modernisation were implemented in accordance with their terms.

    So the full payments were made despite the recommendations of the PSBB and 9 years later, the slow-motion process of modernisation trundles along…ever so slowly.

    Heist or fraud are terms that fit the bill.

    These increases were not agreed in open negotiations as you claim.

  46. The guarantee three years ago was delusional, but that in itself did not make it treasonous. In the months that followed, however the real damage was done. The IMF deal in which we gave away the €17bn sovereign wealth fund, the Croke Park agreement and the failure to tackle other creditors when the first guarantee was set to expire, are all inexcusable.

    Because Dork is right when he says that private sector money creation is extremely dangerous and when that is divorced from risk (I create the credit, you take the credit risk), it is explosive. Nobody in power in Ireland, or anywhere else for that matter, has yet tackled this poison. Indeed, the conversations in the US (Jamie Dimon) and in Europe, all assume that the system of divorcing risk from credit creation is an essential component of any new system (the elite are protecting their gains even if it means our kids, grandkids and even great great grandkids starve as a result).

  47. @all

    So we have to make some choices. Let me be clear about mine [Dani Rodrik]: democracy and national determination should trump hyperglobalization. Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy, it is the latter that should give way.

    http://www.worldfinancialreview.com/?p=704

  48. @ David O’Donnell

    You make what appears to be a reasonable point.. . but it isn’t as far as Ireland is concerned.

    Dani Rodrik makes points of relevance to the US and the impact on middle and lower income earners.

    Ireland has been both a beneficiary of globalisation and profit shifting coupled with protectionism via the CAP welfare program.

    There is a bigger picture than fixation on bondholders.

  49. “let’s take the opportunity to reflect on all that has gone on in Irish public and economic life, to assess how much real change there has been within the institutions that helped bring about the crisis, and perhaps to look a little towards the future. So fire away in the comments”

    Resolute consistency.

    The purpose of opposition politicians weave a web of words to catch as much of the publics’ imagination and voting power as possible. Success = office.

    Hats off to all those who were able to explain the Irish economy to the journalists and public. Opposition politicians were predictably all over it – like rats on a loaf of bread. It was very useful to them.

    Once an opposition politician becomes a member of a governing party, or even a minister, he or she then has a different function. If you spend decades honing your skills at saying things that you think people want to hear misrepresenting anything you can and being economical with the actualité, you need arse cover, big-time if you eventually have to run things. Your efforts have not been concentrated on actually becoming competent at much else. You are, with few exceptions, essentially a bluffer.

    Fortunately there is a bluffers’ arse-covering unit specially designed to step in and prevent politicians from embarrassing themselves. It is called the “civil service”. Once in office, you need nerdy friends – and fast.

    The deal is – the civil service and establishment generally give you a bullet-proof, conservative, defensible line, and you tow it.

    Job done. Gold-plated pension earned.

  50. Some people have forgotten that Paul Krugman used to say things about Ireland consistent with this:

    “I should also make clear that given the commitment to the euro, Ireland had to engage in some kind of austerity program, although it wouldn’t have been as draconian if not for the decision to socialize all the of the banks’ debt.”

    http://krugman.blogs.nytimes.com/2011/09/30/ireland-triumphs/

    It is nice that he has broken off from the “austerity now!” debate in the USA to say something about a country that has a clearly different context. Its been a while.

    Would it be possible for those with a supposed duty to “speak truth to power” to leave to “anti-austerity” stuff to Joe Peepol and the Sinn Fein representatives, and concentrate on how the “austerity” should be divided up within society bearing in mind the long term economic prospects for the state?

    Just maybe, have a go at combating the influence of powerful groupings whose interests are not necessarily fully aligned with those of the state as a whole.

  51. @Michael Hennigan

    Agree that there are pros and cons, and we are very open & globalized in certain sectors etc – key point that I take from this relates to ‘social arrangements’ for the citizen-serfs – where massive debt tagged on the state to benefit so called EZ stability under ECB diktat …. and that a choice will have to be made between financial rape of the citizenry and satisfying global markets (e.g. UK & vichy-banks) … of course this choice would gain tremendous ‘legitimacy’, and support, if the upper_echelon gougers applied some pragmatic hair-cuts to themselves as a contribution to deficit reduction ….

    @grumpy

    …. but there is no evidence of this happening. Upper-echelon wagons ‘influence of powerful groups’ have been circled, and they are quite prepared to protect themselves alone at all costs – beautifully terrible reversal of the original Sinn Fein ideas on which the state was founded.

    Governance pre-crash = Governance post-crash
    Stat sig ************************** (incontestable)

  52. @let’s see how the Irish MEPs voted on the ‘six-pack’ last Wednesday [h/t tomboktu in ILR …. who might add Unionist MEPs pls

    Below is a record of how the Irish MEPs voted on the six legislative resolutions. (I’ve not included the votes on amendments and on adopting final texts. If you want to see those, they are listed in this PDF.) In the the titles the texts of the six texts adopted by the European Parliament, I have included a link to so you can follow through to see what each one says.

    A7-0178/2011: Surveillance of budgetary positions and surveillance and coordination of economic policies
    For: Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG).
    [It was only one of the most important votes is the European parliament, but…] Aylward (FF) and McGuinness (FG) mucked up their votes and added a note to the voting record to say they meant to vote yes.
    Against: Childers (Lab); De Rossa (Lab); Murphy (SP); Prendergast (Lab); [and de Brún (SF)].
    No vote recored: Crowley (FF) & Mitchell (FG).

    A7-0180/2011: Budgetary surveillance in euro area
    For: Aylward (FF); Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG); McGuinness (FG).
    Against: Childers (Lab); De Rossa (Lab); Murphy (SP); Prendergast (Lab); [and de Brún (SF)].
    No vote recored: Crowley (FF) & Mitchell (FG).

    A7-0182/2011: Enforcement measures to correct excessive macroeconomic imbalances in euro area
    For: Aylward (FF); Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG); McGuinness (FG).
    Against: Murphy (SP).
    Abstained: Childers (Lab); De Rossa (Lab); Prendergast (Lab);
    No vote recored: Crowley (FF) & Mitchell (FG) [and de Brún (SF)].

    A7-0183/2011: Prevention and correction of macroeconomic imbalances
    For: Aylward (FF); Childers (Lab); De Rossa (Lab); Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG); McGuinness (FG); Prendergast (Lab).
    Against: Murphy (SP) [and de Brún (SF)].
    No vote recored: Crowley (FF) & Mitchell (FG).

    A7-0179/2011: Implementation of excessive deficit procedure
    For: Aylward (FF); Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG); McGuinness (FG).
    Against: Childers (Lab); De Rossa (Lab); Murphy (SP); Prendergast (Lab); [and de Brún (SF)].
    No vote recored: Crowley (FF) & Mitchell (FG).

    A7-0184/2011: Requirements for budgetary frameworks of Member States
    For: Aylward (FF); Gallagher (FF); Harkin (Ind); Higgins (FG); Kelly (FG); McGuinness (FG).
    Against: Childers (Lab); De Rossa (Lab); Murphy (SP); Prendergast (Lab); [and de Brún (SF)].
    No vote recored: Crowley (FF) & Mitchell (FG).

    http://www.irishleftreview.org/2011/09/30/austerity-lockedin-eu-economic-governance-package/

  53. @tomboktu

    Ta for that … and you continue …

    A7-0178/2011
    Against: Dodds & Nicholson

    A7-0180/2011
    Against: Dodds
    Abstain: Nicholson

    A7-0182/2011
    Against: Dodds
    Abstain: Nicholson

    A7-0183/2011
    Against: Dodds & Nicholson

    A7-0179/2011
    Against: Dodds & Nicholson

    A7-0184/2011
    For: Nicholson
    Against: Dodds

    @all

    You know – in terms of contributing to the Irish Public Sphere during the disaster of the last three years – Irish MEPs have been …. have been … have been …. help me out here: can anyone identify any significant contributions?

  54. The original post is still claiming that Anglo had ELA in March 2008. Yet the only thing mentioned in the quoted text is normal open market operations. This is not ELA. The MLRP only came after the guarantee.

    Now March 2008 is an interesting month. The St Patrick’s Day massacre on Anglo’s share price, Cowen (still at finance) on an extended junket in the Far East while the coal mine canaries were keeling over. So maybe Anglo was tapping OMO more than usual. But that’s not ELA.

  55. @Frank, Eoin, and All, apologies, I posted this and promptly fell apart with (what my wife described as) Man Flu, hence lack of engagement and/or curation of the post. I think there’s a case to be made that Anglo was indeed tapping OMO as ELA or some combination of the two, as described in the footnotes to their reports. The ‘and a bit’ in the title essentially reflects the fact that it’s tricky to nail down exactly when this started. But that’s a work in progress that I’m in the process of completing, as I’ve said.

  56. @Mairead McGuiness MEP FG

    the little blue button for Tá – and the little red button for Nĩl

    @Liam Aylward MEP FF

    Follow Mairead’s lead – and try to keep your eyes on the buttons as distinct from on Mairead.

    You both looked and sounded great on the Telly tonight – day dat’s innit we won’t mention the knock-ons .. er .. fumbles. You might also explain to the Irish citizenry what it is that you might, or might not, have voted on during the Six_Pack debate last Wednesday, and what the implications of such a vote, or non-vote, might be for said citizenry.

  57. Actuary

    How can a state remove a blanket bank guarantee without causing complete Chaos. Remember the blanket bank guarantee was an untested original thing to try. We now know why no body ever tried it before.
    Looks like the ECB/EU are determined to try it again on a European scale. They are guaranteeing every bank in Europe. At least they have a printing press if all the holes in the European banks get exposed.

  58. Amount of guarantee EUR 460,000,000,000.00
    Days since guarantee 1101
    #of frauds 3+ (known within 100 days of guarantee)
    #of banks shut down 0
    #of sackings 0
    #of people charged 0
    #of people fined 0
    #of people jailed 0
    #of resignations 0

  59. @Stephen Kinsella
    The first reference to it all that I can see is in the Anglo 2009 interim report – it is the first mention of the MLRA and with it the ‘news’ that Anglo was tapping OMOs for 3.6 bn (from memory) in April 2008 – a search for MLRA in that report should bring up the figures. The MLRA was put in place after nationalisation, but before March 2009 (when it is first reported). The actual date of each of the operations is not given, just the six monthly outstanding balance (presumably net of curtains (dressing the windows)).

  60. @Eamonn Moran
    Other people tried blanket guarantees before. The results were as bad as ours – Mr. Honohan has written extensively on this with regard to some of the policy decisions made in the Asian crisis and before. Which once again begs the question why he was not consulted regarding the Irish guarantee. This one suspects that his advice was known…

    Guarantees are not usually revoked, they come to their natural end. AFAIK, the current guarantee runs to the end of this year for new issues – liabilities guaranteed under the current (and previous) guarantees continued to be guaranteed for their duration, just no new issuance is added.

  61. Hogan
    Examples please?

    I am afraid that you need to brush up on your memory of the events that took place. According to David Mc Williams at the time the blanket bank guarantee “guarantee 100% of all depositors and creditors” was his brainchild. Just take a look at his article in the business post on the Sunday before the guarantee.

    I am going to quote a lot of it because every sentence is important. This was the basis on which Mcwilliams convinced Lenihan and the green party to take the course of action they did. Mc Williams was acting in good faith but he is a maverick and his analysis was way off. The civil servants lost the argument but theirs was the better path.

    “Events of the past few days imply that there is no model we can import from anywhere else to help us. The rest of the world is suffering the same plight. Large banks are going under by the day. Thus, if we wait, we will simply suffer more.

    We need to come up with an Irish solution to our specific problem – because no one has the antidote to the contagion that is spreading through the global financial markets….The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders who will have to live with the losses they have suffered. However, it applies to everyone else….Ireland in the past has done things that no other country has done, to great effect. Think of the zero tax rate on exporters in the 1970s and the 12.5 per cent tax rate on multinationals now.

    These were solo initiatives – we didn’t wait for them to work in other countries, and they worked perfectly well here. This proves that we can think for ourselves. Once more, and possibly even more crucially, we need to think for ourselves now. Furthermore, the state could charge the banks a 0.25 per cent fee for the guarantee, thus making about €1.5 billion per year in revenue (0.25 per cent of €500 billion)…The beauty of guaranteeing deposits is that you use no money – not a penny. Instead, the government is using its sovereign credit as the country with Europe’s lowest debt/GDP level to restore confidence in the system. The civil service view appears to be that such a guarantee would subject Ireland to the risk that people withdraw money, disbelieving the state…But this would not happen. Some €350 billion of the total €500 billion is held by Irish people, so we won’t move our cash. In addition, the €150 billion owned by foreigners would simply become like an Irish government paper.

    The Irish bond market has never been in such demand, and so would this guarantee scheme.
    In fact, it is highly likely that money would flow into the Irish banking system from abroad to avail of the guarantee. If you doubt that, look at Northern Rock, which is now receiving deposits from Irish people who are taking their money out of Irish banks.
    Why? Because the British government is guaranteeing all Northern Rock’s deposits. Precisely the same would happen here…Unfortunately, he is being advised by merchant bankers on the one hand, who are just interested in fees and don’t give a fiddlers about Ireland, and civil servants on the other, who can’t see that nationalising a bank is the biggest policy reversal since TK Whitaker….Let’s hope, for all our sakes, that wisdom prevails. The alternative – influenced by vested interests and incomplete advice – is too awful to contemplate. The choice is between a recession, which is already here, and a depression, which might be around the corner. It couldn’t be more simple or more stark.”

    When we look back now on what McWilliams advised, it causes us to wince and yet he believed what he was saying so strongly that he was prepared to call it “wisdom” McWilliams showed Lenihan and the government a door in a very dark room. I am not surprised Lenihan walked right through it even though Lenihan and the government take responsibility for following the empty rhetoric of a well meaning maverick and ignoring their own civil service.

  62. Eh, you missed out the article in the week following the guarantee calling it a “masterstroke”. Well, the “stroke” bit was right.

    Some links:
    http://books.google.ie/books?id=n5jaNPD0PzwC&pg=PA95&lpg=PA95&dq=honohan+blanket+guarantee&source=bl&ots=9EjrhFoymM&sig=V94elsqDZHGvnjhgKrF_q9Ut-qc&hl=en&ei=qj-MTpbKM4-o0AXEjvXlBQ&sa=X&oi=book_result&ct=result&resnum=9&ved=0CFkQ6AEwCA#v=onepage&q&f=false

    The govnor’s response to the crisis:
    http://www.scribd.com/doc/10077154/HonohanCrisis

    See Table 4 for costs associated with blanket guarantees:
    http%3A%2F%2Fwww.imf.org%2Fexternal%2Fpubs%2Fft%2Fwp%2F2008%2Fwp08224.pdf

  63. There’re also extensive documents at the Bank of England site comparing the costs of financial crises with the resolution methods attempted.

  64. @Eamonn Moran
    “I am afraid that you need to brush up on your memory of the events that took place. ”
    Well, from the bits you quote, there’s nothing I need to brush my memory up on.

    I presume you’ve had a chance to read through some of the examples and reach the conclusion that blanket guarantees almost always come to a bad end? Or perhaps you’re just being disagreeable for the sake of it.

  65. @ All

    To return to the original topic of this thread, I wonder if one element may not be being overlooked. The circumstances in which the new economic governance arrangements will apply are quite different. The “markets”, having been asleep with regard to their proper role, have returned with a vengeance. In other words, there is now an external enforcer which may make for success on this occasion.

    cf. the table on 10-year bond yields from one of the Sinn papers on Target balances. The chart is at page 27. The New Normal is, in fact, the Old Normal. Nothing new under the sun!

    http://www.cesifo-group.de/portal/pls/portal/docs/1/1207969.PDF

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