Economy

Intellectual mouth-pieces and the blurring of Reality


Today 1st Septempber 2010, the Green Party, junior Coalition partners with Fianna Fail will call for the closing down of Anglo Irish Bank, a Bank that has the potential to finally bring down the curtain on Ireland's economic success story during the years now known as the Celtic Tiger. When The Irish Observer said that the Banking crisis would eventually cost 100 Billion, many experts dismissed such figures, however, such figures are no longer dismissed.


Writing in the Irish Times (22nd, May 2010) (Irish Times.com), Prof Kelly, who originally predicted the economic crisis, said the open-ended guarantee of banks’ liabilities and the Nama bailout will leave the Republic with a “a worse ratio of debt to national income than the one that is sinking Greece” by 2012.



For too long the Irish people have been inundated with the wall to wall lies being pushed out by Government spin doctors and other intellectual mouth-pieces about the ‘financial crises in Ireland. These intellectual mouth-pieces are nothing more than begging dogs at their Fianna Fail masters table. Intellectual mouth-pieces who are untouched by the very financial crisis who’s reality they blur with their self serving statistics and tabloid pleasing sound bites.



In America those to the right have tried to suggest that Liberal Democrats held the banks at gun point until they handed over all their cash to the underclass and other undeserving sections of American society who could not wait to get into some real debt. The problem with this right wing theory is the fact that Congress was under the watchful eye of right wing Republican prudence at that time. The lie that the little people were the core cause and beneficiaries of multi-billion dollar fraud and corruption is easily exposed.



To understand Ireland’s financial crisis it is essential to look at the American model. The financial crisis that has dominated political and banking institutions around most of the industrialised world in recent years was and remains of Herculean proportions. When I say most of the industrialised world I mean that countries such as Canada were able to avoid the flaming pits of financial ruin. Canada was able to do a number of things right that both America and Ireland done real bad. Canada limited leverage, Canada protected consumers, and more importantly Canada ensured that unfettered capitalism and greed were not allowed to ride rough shot over the people. Canada unlike Ireland and America regulated the financial institutions rather than simply pay lip service to regulation.



Irish economists Gregory Connor, Thomas Flavin and Brian O ‘Kelly have taken some considered time to look at the realities that brought both the USA and Ireland to their financial knees. From the research of Connor, Flavin and O’Kelly it quickly becomes clear that many of the core causes of America’s financial crisis are not present in the Irish situation. Similarly many of the core causes of Ireland’s financial melt down are not found in the American situation.



After two years of listening to the Government’s spin doctors and intellectual mouth-pieces telling us that our financial crises was simply a mirror image of the American crisis we now establish that this is at best untrue. Ireland was driven into a real estate cul de sac by the Government, the banks and the property speculators. In many cases this triangulation is firmly joined, with even the Irish Prime Minister opening a property portfolio in Ireland and further a field. The mantra of the Fianna Fail government and their cheer leaders was to, “spend, spend, spend, buy, buy, buy”, just as British Prime Minister, Thatcher had done in the 1980s.



Young educated and hard working Irish people were lead into a financial cul de sac from which they would not be able to return. Property prices in Dublin out stripped property prices in many of the Major cities in America, this inflated property market was then meet with a banking crisis not before seen in Ireland. This banking crisis brought on by an inept Government and failed regulatory system of checks and balances. The Government blinded by its own self serving had become nothing more than a performing monkey to the cheap financial lending houses of main land Europe.



The Government now try to blame the ordinary people for the financial crisis, the very people who will for generations pay for this Government’s miserable failures and unending greed. The Irish Government constantly tell the people that they were elected to lead the country, yet they deny that leadership when their boom and bust policies are exposed to reasonable critique. Ireland’s financial crisis was not about ordinary people being greedy; it was not about big financial debt obligations, it was simply the tale of an inept Government being lead by its own self serving and excesses. The Government failed to regulate the finance institutions in a professional and transparent manner, it allowed unprecedented loans to be made to corrupt property speculators, it allowed banks to boost their own books by corrupt and criminal practices and now the same Government is to rob the Irish people once more in order to bail out their banking and property speculator pals.



Ireland had some things in common with the financial crash in America. The authors of the new report point to four main causal similarities.



1. In both countries property experts believed that while property prices were historically high, they would continue to rise. A case of wishful thinking rather than empirical evidence.



2. In both countries there was a wash of cheap money. America was a wash with cheap money from China and in Ireland, Germany and other Euro zone countries provided the cheap capital.



3. It was easy and made easy for big players to take big financial risks. Those who were in charge of the big financial houses knew well that they could do as they pleased. Directors could borrow tens of millions from their own banks without being held in check. Banks could transfer billions between each other to boost their accounts. Bankers knew that even if the shit hit the fan their multi-million Euro bonuses and pension packages would be safe. In America billions of dollars was paid to bankers for their ‘performance’ before their financial institutions went into liquidation.



4. The other main cause was inept Government and their failure to provide financial regulation. This failure was due mainly to what is today described as the relationship within the Golden Circle. This circle or triangulation of corrupt Politicians, Bankers and Property Speculators meant that the very people charged with regulating the financial system were the very worst offenders. A bit like putting the fox in charge of the hen house.



In America ideology played a major role in the direction of the economy, in Ireland this would not be the case. In Ireland it was more like a drunk winning the lottery. Ten years of unprecedented wealth in Ireland meant that the greedy got greedier, the haves had more and the have nots continued to have nothing. There was no trickle down economics in Ireland. While in America many politicians believed that ordinary people should own their own homes, politicians aspirations had little or no impact on the incentives offered by lenders. In Ireland the opposite was the case, the lending institutions became reckless as their loan books had government guarantees and first time home buyers and second property investors were woed with incentives and feel good Government encouragement.



While America ignored the lessons of Reaganism and Thatcherism, Ireland simply spent like a drunken sailor on home leave. Ireland was and remains absent of any Financial or political ideology, setting aside domestic sectarianism and historical nationalism. Ireland’s present economic philosophy of cut and burn fiscal rectifism is simply a longer journey up a similar cul de sac as the philosophy of boom and bust. Biffonian Economics can best describe the Irish Government’s present financial naval gazing. As the Irish Prime Minister, Brian Cowen (Biffo) buys time in order to take up a lucrative political posting in Brussels.



It is clear that the Irish Government were the architect of the present financial crisis in Ireland. It is clear that America had similar yet different financial road signs as it drove off into the economic abyss. It is clear from the lessons of both America and Ireland that the Regulators are every bit as important as the regulations. Limiting both leverage and securitisation helped Canada to keep its head above water, yet, if these measures are entrusted to people who are beholding to the wrong doers as was certainly the case in Ireland, then it is not enough. The regulators must have the civic will and statutory power to stand up to the politicians, the bankers and the corrupt speculators.



Consumers must be protected for they are the oil that drives the wheels of free enterprise, financial checks and balances must be over seen by an Independent, professional and able bodied watch dog. We can not return to a time in the not too distant past when those charged with regulation were nothing more than begging dogs at the table of the Golden Circle. We have failed to learn from the failures of Thatcherism and Reganism and if we do not deploy independent and prudent regulators armed with statutory instruments (similar to the Criminal Assets Bureau) we will continue to repeat the mistakes of the past and the present.



Also see Herald-Tribune.com 1st September 2010.

Anglo Irish Bank, the midsize Irish lender whose profligacy has come to symbolize the excesses of the real estate bubble here, is doing its best to find out.




No other country aside from Iceland suffered a banking bust as severe as Ireland’s during the financial crisis. Ireland was also the country that took the most direct route in tackling the problem, by recognizing upfront the bad loans of its devastated banks and transferring them to government ledgers.



Both the United States and Britain avoided such a move by taking stakes in their troubled banks and, in the case of Britain, insuring their worst-performing loans.



Now the Irish government’s strategy is being called into question as its credit rating suffers and its borrowing costs resume their upward trajectory. Ireland’s struggle to cope with its mounting bank losses could well be a harbinger for other parts of Europe and for the United States as stuttering economic growth and stagnant housing markets put further strain on bank balance sheets.



Anglo Irish, which on Tuesday reported a first-half loss of 8.2 billion euros ($10.4 billion) also said the government had injected an additional 8 billion euros ($10.16 billion) into the bank, bringing total aid so far to 22 billion euros.



Mike Aynsley, the bank’s chief executive, said Tuesday that he expected the government’s total investment in the bank to be about 25 billion euros ($31.75 billion). He added that commercial property, the bank’s core lending market, which is already down 60 percent, had not yet reached bottom.



“Anytime you see a correction like that, you will see carnage,” he said. “But we think that the 25 billion euros will be largely sufficient.”



Analysts here expect the bank’s defunct loans to hit 35 billion euros, or about 22 percent of Ireland’s gross domestic product — a hard-to-believe figure, given that Anglo Irish at its peak was just the third-largest bank in Ireland. In 2008, total Irish bank lending to households and nonfinancial companies was more than 200 percent of G.D.P. — by far the highest such ratio in the euro zone.



The growing losses at Anglo Irish and other Irish banks are expected to cost the government 80 billion to 90 billion euros, according to Standard & Poor’s, which says 35 billion euros will be needed for Anglo Irish — a figure the government and Mr. Aynsley say is significantly overstated.



The ratings agency said that the country’s banking liabilities would push its debt-to-G.D.P. ratio to 113 percent in 2012, higher than Spain’s and Belgium’s and approaching the levels of countries like Italy and Greece.



Last week, S.& P. downgraded Ireland’s credit rating to AA-minus from AA, a change that has driven the already steep spread, or risk premium, on 10-year Irish government bonds to new highs of 5.5 percentage points — second in the euro zone only to Greece’s 11 percentage points.



“This is out of control and the markets see it now,” said Peter Mathews, an independent banking and real estate consultant here, who for the last year has been waging a furious one-man crusade, warning of Anglo Irish’s escalating losses and calling for the bank to be liquidated — with bond holders, not the Irish taxpayer, taking the hit.



“How bad can it get?” Mr. Mathews said. “Irish debt paper could stop being tradable, and the outside agencies like the European Union and the International Monetary Fund might have to come in.”



Mr. Mathews’s view in this regard represents an extreme. Economists at the Economic and Social Research Institute, an independent organization here, cite the government’s cash cushion of about 40 billion euros — much of it set aside at the outset of the crisis — as a crucial safety net that separates Ireland from Greece.



The government, for its part, argues that Ireland’s approach to bad loans — taking them off the balance sheets of the banks and then assuming responsibility for them — was correct.



“Our banks would have probably assumed zombie-like status if we had delayed in recognizing these impairments,” said John Corrigan, the chief executive of the country’s debt management agency. Part of his organization is the National Asset Management Agency, the government group that has spent the year buying bad loans from banks.



“The downgrade was deeply disappointing to us, but we still have a better credit rating than Italy and Portugal,” he said. And international bond investors, who own about 85 percent of the government’s debt, continued to buy its paper, he said.



Will the Anglo Irish loans lead to a buyers’ strike by investors?



“No,” said Mr. Corrigan with a vigorous shake of his head. “We have enough liquidity to take us well into the second quarter next year.”



While Mr. Mathews and the government may be opposed on how to handle the problem, they agree on how absurd the lending practices at Anglo Irish were.