Donogh O’Malley’s 1966 Announcement of Free Education: The Hidden History

Donogh O’Malley caused consternation in government when he announced his free education scheme in September 1966 without having brought the matter to Cabinet.  The enthusiasm of the public response forced the government’s hand.  Whether or not Lemass had prior knowledge has been the subject of heated debate among historians.  Lemass denied it, but five members of the cabinet told Brian Farrell, while writing Chairman or Chief?, of their belief that not only had he seen the text in advance but he had actually amended it.

The journalist John Healy was a great friend of O’Malley’s.  Later in life he told Michael O’Regan, who is now the Irish Times parliamentary correspondent, that the paper trail had been designed as a smokescreen  and could not be relied upon.  Healy published his recollections in Magill magazine in March 1988, on the 20th anniversary of O’Malley’s death. At  the behest of Michael O’Regan, I’ve dug it out.  The hidden history is here.

Some Unpleasant NAMA Arithmetic

Regardless of the rights or wrongs of NAMA, it is shocking how many commentators have accepted the notion that a 10 percent rise in property prices over the next decade will be sufficient for NAMA to break even.  The “logic” is this:  we are paying a little over €51 billion upfront for assets thought to be currently worth €47 billion, so a 10 percent rise in the value of the assets will give us our money back.  Let’s be as spectacularly optimistic as John Mulcahy, NAMA’s senior property valuer, who (alone?) believes that the property market is at the bottom of its cycle.  Would anyone consider it a good deal to lend someone €100 today and have them return €100 in 10 years time?  Obviously not.  Firstly, with any increase in the general price level, €100 will be worth a lot less to you in a decade.  And secondly, you would expect the money to be repaid with interest (especially if you had borrowed it commercially yourself!).  Property prices will have to rise by a multiple of 10 percent for NAMA to break even.  (Apologies for having to state something that must be so obvious to everyone on this website!)

Bank Nationalisation

Karl Whelan’s case for nationalisation is very powerful but we shouldn’t lose sight of the dangers that were traditionally uppermost in our minds.  (This does NOT equate to support for the Bacon plan).  Even commercial banks are subject to strong political pressures.  Remember the write-offs of Haughey’s personal debts, and even of some of Garret’s? (Though the similarity ends there, as the Moriarty Tribunal found.  While Haughey’s assets remained intact, FitzGerald’s write-off occurred only after his assets had been exhausted).  It would be much more difficult for a nationalised bank to resist political pressures (or do we really believe that “crony capitalism” will end with the current crisis?).  Quite apart from the other problems with the post-dated levy idea, as identified both by Karl and the FT, it is easy to imagine that it would be applied only very leniently, if at all, for political and pressure-group reasons; the same dangers that arise in the case of nationalisation.  Sweden seems to have a different political culture.  And would a nationalised banking system be able to resist demands that there be no foreclosures on defaulting mortgage holders?   I doubt it.  What would that do to Karl’s figures? These problematic governance issues need to be carefully considered.

Mortgage Arrears and the Draft Partnership Pact

The Draft Partnership Pact referred to in today’s Irish Times states, in the section on “Stabilising the Financial and Banking Sector”, that government action will seek to  “assist those who get into difficulties with their mortgages.  In early 2009 a new statutory Code of Practice in relation to mortgage arrears and home repossessions will be brought forward and the mortgage interest scheme will be reviewed”.  I’d be interested to hear people’s opinions on this.

More on the Nationalisation of Anglo Irish

In response to my earlier post on the nationalisation of Anglo Irish, Enrique DeLucas writes that “as Anglo was also an active syndicator with the other Irish commercial banks, any impact of large scale writedowns of their loan books would have a collosal impact on the remaining listed Irish banks”.  In response to a further comment from Alan Ahearne he writes that “under IAS39, if a fire sale of Anglo’s assets gives specific evidence of a diminution in value of these assets, they must be marked down accordingly.  As a result, this creates a requirement under Balse II to increase the capital adequacy reserve by this amount, thus impinging on the banks liquidity position and tier one capital ratios further”.  

Do we know the extent of Anglo’s syndication with the other Irish banks, so that the importance of this effect could be assessed?

By the way, some info on who is advising the government: