Skip to main content

Paying For Financial Denial...

We're paying high price for blind eyes and denial...

No event in the past 40 years, apart from the Arms Crisis of 1970, has been shrouded in as much state secrecy as the bank guarantee scheme introduced on the night of September 28, 2008.

While everyone knows the outcome of the various meetings -- €485bn of liabilities were ultimately guaranteed -- only a small circle knows precisely what happened during the shuttle diplomacy between the banks and Brian Cowen's Government that night.

Two books have been written, several newspaper accounts have been published and one or two of the participants have even spoken briefly about that fateful evening. But detailed, minuted information about the key decisions and key moments leading up to the guarantee has never been released.

In fact a slew of Freedom of Information requests seeking these details has been flatly rejected, with the Department of Finance using highly charged language to explain why the public and the media cannot see such information.

Now the information surrounding the granting of the guarantee is to be released, via a website today controlled by the Dail Public Accounts Committee. If all the relevant material is released, this is to be welcomed.

When a government decides to guarantee liabilities amounting to more than 2.5 times' the country's entire economic output, the reasons and assumptions underpinning the decision need to be publicly scrutinised.

While much attention will focus on what politicians said or did during this period, there is also a need to carefully consider the role of the Financial Regulator, even though the person in that office at the time, Patrick Neary, has already been widely castigated.

Early indications are that Neary's reputation will be further undermined by some of the records being released today. For example, it appears that even in the days just before the guarantee was drafted, Neary believed Irish banks were simply suffering from a liquidity crisis -- that is, they couldn't access funding from other banks.

Neary apparently couldn't see the wider and more deep-seated problem -- most of the banks were hopelessly insolvent because their property-heavy loan books were massively over-valued in a declining property market.

What is most baffling about Neary's comments in the days just before September 28 is that so many market players were already telling him --indirectly -- that the Irish banks were in serious trouble, and not just because of funding issues.

Anglo shares had been collapsing from March 2008 onwards and a series of highly negative stockbroker's notes had been published outlining Anglo's financial fault lines. Investors were not selling solely because of Anglo's funding issues, they were selling because the Irish/UK and US property markets had been stalling since early 2007 and Anglo had over 80pc of its assets in property.

For some reason Neary, and, yes, some of the politicians, seemed to believe that Irish banks were perfectly adequately capitalised going into late 2008 and had no wider credit quality issues. This was a dangerous mistake.

Hiding among the balance sheets of each bank were ticking time-bombs that exploded with violent force throughout 2009, leaving Ireland with a bank rescue bill expected to top about €50bn, according to Standard & Poor's.

Neary, the Government and some bank executives seemed to be paralysed with indecision in 2008 and this reaction seems to have been based on living in financial denial. In fact, Neary seemed to blame the problems of 2008 on everyone but on the Irish banks themselves.

For example a high-profile investigation was launched in March 2008 by Neary into the sale of Anglo shares by certain investors. Aggressive short-sellers were blamed for dragging Anglo's share price down, using malicious rumours to change market sentiment.

But months later, when the results of the investigation emerged, it was discovered that these investors were acting perfectly rationally and were in essence justified in dumping Anglo's shares. The bank was hopelessly under-capitalised and it is absolutely certain that if the bank had not received the benefit of the guarantee in September 2008 it would have collapsed -- Lehman Brothers-style.

For some reason the staff of the Financial Regulator could not draw the obvious conclusions from the published financial statements of Anglo Irish Bank and also Irish Nationwide.

With commercial property prices plunging from 2007 onwards and the US subprime crisis erupting throughout that year, it was very plain that Anglo was going to have serious financial challenges, but instead of facing up to these it now appears the authorities wanted to avert their gaze from the problems.

In fact the pattern of denial started much earlier than even 2008. When depositors were queuing outside Northern Rock branches in the late summer of 2007, the Irish authorities acted -- at least in public -- in a most blase manner.

This included complacent comments saying a Northern Rock could never happen here -- even though that lender was felled by the same issue that later caused the Irish banks so much trouble -- an over dependence on inter-bank lending.

Once again this was a poor piece of forecasting and another dollop of financial denial that we're now paying for.


Report by Emmet Oliver - Irish Independent

Popular posts from this blog

Ireland's Celtic Tiger Excesses...

'Bang twins' may never get to run a business again... POST-boom Ireland is awash with cautionary tales of Celtic Tiger excesses, as a rattle around the carcasses of fallen property developers and entrepreneurs will show. Few can compete with the so-called Bang twins for youth, glamour and tasteful extravagance. Simon and Christian Stokes, the 35-year-old identical twins behind Bang Cafe and exclusive private members club, Residence, saw their entire business go bust with debts of €9m, €3m of which is owed to the tax man. The debt may be in the ha'penny place compared with the eye-watering billions owed by some of their former customers. But their fall has been arguably steeper and more damning than some of the country's richest tycoons. Last week, further humiliation was heaped on them with revelations that even as their businesses were going under, the twins spent €146,000 of company money in 18 months on designer shopping sprees, five star holidays and sumptu

I fear a very different kind of property crash

While 80% of people over 40 own their own home just a third of adults under 40 do. This is disastrous for social solidarity and cohesion Changing this system of policymaking requires a government to act in a way that may be uncomfortable for some. Governments have a horizon of no more than five years, and the housing issue requires long-term planning. The Department of Public Expenditure and Reform was intended to tackle some of these problems. According to its website its remit is to “drive the delivery of better public services, living standards and infrastructure for the people of Ireland by enhancing governance, building capacity and delivering effectively”. So how is the challenge of delivering homes for people in 2024 and beyond going to be met? The extent of the problem is visible in the move by companies, including Ryanair, to buy properties to house staff. Ryanair has, justifiably, defended its right to do so. IPAV has long articulated its views on how to improve supply an

Property Tycoon's Dolce Vita Ends...

Tycoon's dolce vita ends as art seized... THE Dublin city sheriff has seized an art collection and other valuables from the Ailesbury Road home of fallen property developer Bernard McNamara. The collection will be sold to help pay his debts. The sheriff, Brendan Walsh, is believed to have moved against the property developer within the past fortnight, calling to his salubrious Dublin 4 home acting on a court order to seize anything of value from his home to reimburse his creditors. The sheriff is believed to have taken paintings from the family home along with a small number of other items. The development marks a new low for Mr McNamara, once one of Ireland's richest men but who now owes €1.5bn . The property developer and former county councillor from Clare turned the building firm founded by his father Michael into one of the biggest in Ireland. He is the highest-profile former tycoon to date to be targeted by bailiffs, signalling just how far some of Ireland's billionai