The Guardian reported this week on the opening of a fraud investigation in the UK into some of the activities of the UK component of the Icelandic bank Kaupthing: you can read the article here.
The new FSR from the Bank of England makes for fascinating reading: you can obtain it from this location.
For faithful members of the 46-ers*, the new government budget proposal creates cognitive dissonance. How could a government so wasteful in its bank-bailout policies produce a general government budget proposal that seems so carefully and sensibly crafted to address current fiscal and competitiveness problems? In contrast to bank-bailout policies, the new general budget seems reasonable, balanced and fair, but as stringent in difficult circumstances as could possibly be asked. Does the Department of Finance (DoF) suffer from bipolar syndrome? How can we understand its behaviour?
Here‘s an opinion piece I wrote for the today’s Irish Times. I’d add three points. First, I’d note that back in February, prior to Peter Bacon delivering his report recommending a National Asset Management Agency, I wrote the following about the idea of a bad bank or NAMA as it became known:
In addition to being unfair, it is questionable whether the bad bank proposal could achieve its goal of properly re-capitalising private sector banks. There may be limits on the price the Government can pay for impaired property loans under EU state aid rules. Banks may still have to write down their assets. It is easy to imagine a scenario where banks struggled with weak capital bases even after a bad bank scheme has been put in place.
I am in no way happy to report that it looks like this scenario is exactly what appears to be coming to pass. Indeed, I wrote the article—my first ever for a newspaper—because I hoped that some solid arguments expressed in public may prevent it from happening.
Second. I’ll freely admit that the article comes across as somewhat angry in relation to the government’s misrepesentation of the role, if any, of the ECB in NAMA. What I find amazing looking back on the period during the Summer and early Autumn when NAMA was being heavily debated in the media is the fact that Irish business journalists happily accepted the “free money from ECB” line and peddled it regularly in their columns and in the broadcast media. The Irish public would have been better served if it had even a few journalists willing to research this issue a little bit further, perhaps via a few Google searches.
Third, it seems that there is little appetite out there among journalists for admitting the true state of the Irish banks or for preparing the Irish public for what may be necessary to stablise the situation in the coming months. This may be related to the second point above.
I know the parallels are not exact but this story is a reminder that our current banking situation—involving banks that don’t want to lend, governments exhorting them to do so and banks focused heavily on attempting to escape government control—is not exactly unique. Some highlights:
Bank executives say they itch to make profitable loans, as many as possible, but are struggling to find qualified borrowers. They also say that the administration is asking for increased lending even as it pursues financial reforms that will limit the ability of banks to make loans.
And, of course,
“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” the president said after the meeting. “And now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.
And this:
This is the second time the president has convened bank executives to urge increased lending. The first meeting, in March, did little to slow the slide. The president said Monday that he continues to get “too many letters from small businesses who explain that they are creditworthy and banks that they’ve had a long-term relationship with are still having problems giving them loans.” But the White House on Monday defended the value of the rhetoric.
“I think that the bully pulpit can be a powerful thing,” said press secretary Robert Gibbs.
We’ll see whether asking nicely a second time works well for them.