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Updated: 18.04
PATRICK HONOHAN, THE governor of the Central Bank, has told the Oireachtas banking inquiry that Anglo Irish Bank was a bank that Ireland “could have done without” and should have been allowed to fail.
Honohan told the committee that the country does well without Anglo now, but stated emphatically that when the bank guarantee was issued in September 2008 the now defunct bank was systemically important to the country’s financial system.
He also said that then-finance minister Brian Lenihan was of the view that Anglo and Irish Nationwide should have been nationalised and junior bondholders burned when the guarantee was issued in September 2008, but said he was overruled.
Honohan did not specifically say who overruled the minister but noted he was “not the senior politician in the room”.
The governor told the committee that Anglo had run out of cash and should have been allowed to fail by the government in the September and October period of 2008.
“It should have intervened, management should have been removed, that would have been more clear if they had known what the size of the problem was,” he said.
Honohan told TDs and Senators that Anglo’s business model was not seen as “credible in the market” and it had “run out of cash”.
He explained that the idea of the Central Bank giving Anglo emergency liquidity should have been considered to “buy a few days”. The governor said the bank could then have been liquidated on the weekend after the bank guarantee was issued.
Later Honohan said it was not his view in September 2008 that Anglo should have been allowed to fail and said it was with the benefit of hindsight.
Honohan said that the cost of the 2008 bank guarantee was in the region of €40 billion and argued that this could have been “whittled down” had there been discussion around burning bondholders.
He said that guaranteeing junior bondholders was “clearly a mistake”.
Of the political decisions taken on the night of the guarantee, the governor said they were understandable given the advice that was being given by officials.
“In the context of the advice they were being given the decisions they were taking were quite understandable.”
Honohan repeated his view to the committee that Lenihan wanted to nationalise Anglo and Irish Nationwide and also burn junior bondholders in September 2008 but said he was overruled.
The governor repeatedly declined to name who overruled the now deceased former minister, but said that Lenihan was not the senior politician in the room and noted:
“The Taoiseach and the Attorney General were present. They were the only other political people present.”
Honohan was making the first of what is expected to be two appearances before the inquiry that is expected to report in November
Today’s hearing focussed on Honohan’s May 2010 report into the causes of the crash entitled The Irish Banking Crisis Regulatory and Financial Stability Policy 2003-2008.
In his opening statement, he told the committee of 11 TDs and Senators that he saw no reason to alter the assessment of his report nearly five years ago and said that extensive changes have taken place in the Central Bank since the crash.
He said that his report identified that within government there was an “excessive reliance on regulatory philosophy that well-governed banks could be relied upon to remain safe and sound”.
He described the language of successive financial stability reports as “a triumph of hope over reality”.
Honohan also told the committee that greater consideration should have beeen given to liquidating the now defunct Anglo Irish Bank and Irish Nationwide in September 2008 instead of issuing a blanket guarantee.
Asked about the Central Bank’s response to the economist Morgan Kelly, who predicted the crash in 2007, the governor said:
“The problem was that they did pay attention to him and they started to find ways of undermining the critique that he was accurately making.”
Fine Gael TD John-Paul Phelan attempted to raise Honohan’s infamous interview with Morning Ireland in November 2010 in which he confirmed for the first time that Ireland was applying for a bailout.
However, committee chairman Ciarán Lynch intervened saying committee members would have an opportunity to question Honohan on this when he appears before the inquiry again in the coming months.
“There’ll be no showboating here,” Lynch said.
On the European Central Bank’s (ECB) refusal so far to attend the inquiry, Honohan said it did not want to put itself in a position where it is responsible to national parliaments as opposed to the European Parliament.
But he indicated there may be some form of cooperation from the Frankfurt-based bank with the inquiry. Lynch said that communication was ongoing with the ECB.
“There may be some possibilities that the information and the understanding of their position would be communicated in some way,” Honohan said.
He added : “I think the ECB does not want to disrespect in anyway this inquiry.”
In a statement released this evening, the committee confirmed it will be writing to the following institutions to seek documents and other material to assist its work:
• AIB (also covering EBS)
• Bank of Ireland
• Permanent TSB (also covering IL&P)
• Ulster Bank
• Special Liquidator IBRC (covering Anglo and INBS)
• Department of Finance
• Department of the Taoiseach
Lynch said that the committee previously wrote to these bodies in December seeking documents.
“Written submissions were received from the various institutions in early January and we are pleased with the co-operation we have received so far. The Committee is now formally directing the institutions to provide the information requested along with the sequence and timing as to when the material will arrive,” Lynch stated.
First published 10am
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Anglo was a bank that Ireland did do without, well for the majority of people anyway. It was the minority that were connected benefited from its pre-collapse and it’s eventual collapse.
I have only one question for Patrick Honahan ..
“Do you expect the Irish people to play along with an economy that’s based on a figure “Picked outta someone’s …….for much longer “? “
It’s easy to blame the dead…They can’t answer back. I’m not a Fianna Fáiler, but I have a great deal of sympathy for the Lenihan family. Brian always struck me as a gentleman, one of the few politicians in the business for public interest rather than personal wealth. The revelation that he wanted to do what would have been the correct thing in the circumstances – nationalise Anglo and burn bond holders, should serve to rehabilitate his reputation, and further discredit Cowen’s.
One final thing…Why is the former financial regulator Patrick Neary whose “light-touch” tactics were a major contributor to the crash, sitting pretty on a huge pension instead uncomfortably on a prison bench??
John, that’s a fair question about Neary.
Recklessness and incompetence by a Regulator are not criminal offences. Neary and others bought into the orthodoxy of further inflating a massive credit bubble in the knowledge that the tax payer would have to underwrite the consequences.
I extend the responsibility from Neary and the Central Bank of Ireland to the European Central Bank which knew of the massive credit bubbles and did nothing to restrain the supply of credit.
Those who changed his mind or weakened Ireland’s position aare going to be in awful trouble – they fear instability ..
That’s the scaremongers phrase this time – “Stability” – there will be whispers sent among the pensioners that only Fine Gael and Fianna Fail can save the pension – they won’t mention that they have actually given it away to adhere to budget balancing rules that are now being thrown out by the E.U. -
Can Enda explain Austerity now? The big Nonce !
How can Michael Noonan even dream of selling A.I.B. when it is part of a Dail Inquiry –
Buyer beware – This may not be a legal sale and may therefore not countenance any compensation …
Investment can go up as well as down – Ignorance of the Law is no excuse – Perhaps a litigation against any who advise the purchase may yield dividends if , and I stress if, it goes pear-shaped !
Would any potential investor trust this Government to get it right after the John McNulty affair !
The good die young
I was speaking metaphorically about a prison bench Anthony, knowing that white collar crime is rarely punished by incarceration in Ireland, (sadly), but you nevertheless describe his “crime” very accurately…recklessness and incompetence. A crime of the shameful, though possibly not of the criminal variety. Still, he can retire with an enormous lump sum and huge annual pension paid for by us for failing to adequately perform the duties attached to the job. Surely failure to, in his case, regulate, when it was his job to do so raises serious questions. “Light touch” regulation…you mean “no touch” regulation.
Can it not be successfully argued that it was non-performance of a contract by him, his employment contract, thereby rendering the contract null and void, or at least giving our “government”, the right to retrospectively rescind the contract. Then he would be due nothing. If he did choose to challenge such a decision legally, at least he would then be called to publicly account for his inaction and incompetence.
His photos are like a series of stills from a Kung Fu movie …
“Hi ya !…That’ll be billions please !”
@John O’Neill , yes, I accept that you are speaking metaphorically.
What Neary, a massively well paid pubic servant did, should have been criminal.
He was very well entertained at corporate events by the IBF.
had it not all gone so badly wrong so quickly he was in the running for a non-executive directorship on the Board of a major Irish bank post retirement. I suspect that the directorships have dried up but what a massive pension to live on!!!
Very well put John re: Patrick Neary.
When the Anglo boys got off with community service for directing the blame at his incompetence it was all to easy for them. He in turn sat in court seat mumbling with amnesia. Surely this is somebody who has not faithfully seen out their contract, by admission in court via his own testimony. I would really love to see him, as you say, stand and legally defend his actions in defence of his pension payments and severance. I doubt if the same level of amnesia would present itself.
John, I believe it could be successfully argued as you say. BOTH parties to a contract must fulfil their obligations under the contract. Otherwise it is void for non performance. Our government, however, always seem to ignore that fact. Perhaps with a view to their own positions?
The people would still like to burn the bond holders ALIVE
The problem now and was, that politicians like to be with extremly wealthy people, for example look now as an example, O’brien and FG. Dennis did and does very well when FG are in power and I’m sure a few in labour are going to be very happy.
Easy for him to say when the debt is cast in stone now. I could never understand how come we were forced to pay for a bank that wouldn’t entertain us if we wanted a loan.
It speaks volumes for Biffo Cowen that by his silence he has let Brian Lenihan take the rap for the Guarantee over the past few years. Lenihan was a decent man.
Ah no Affinity, Dob’s political party preference knows no bounds. He got his license for Century Radio while FF’s Ray Burke was Minister for Comms. ‘Allegedly’, Burke got £30,000 for awarding the license. The Irish Mirror (I think) printed this allegation and DOB sued them for a record €750,000 at the time. And sure look at Brian Cowen sitting on the board of Topez for all his hard work.
But you’re right about the politicians and wealth, it would seem Dob pulls the political strings around these parts, no matter whose in power.
Genuine question –
What happened to Elderfield, he replaced Neary as far as I can remember.
He did leave in a storm of it, his contractual obligations was not fulfilled at the time to the best of my knowledge and waived his bonus I think. I reckon he saw things that he could not say, it was hush hush as it happened… Why don’t they bring him in to give his views as well?
Anthony; Do you accept that I too am speaking metaphorically§ Once a Langer always a Langer.
will anyone ever really Pay for this Fiasco
apart from the Irish Taxpayers i doubt it
very much
What makes you think they are still going to pay ?
I predict a massive Tax boycott by the S.M.E. s at the end of this tax year as more revelations about the banks and who is doing what in them – Wasn’t Peter Sutherland a Fine Gael man and John Bruton as well ?
It beggers belief that the Minister for Finance was overuled and the report from accountants Price Waterhouse Cooper shelved, just shows what a bunch of cowboys fianna fail under Brian Cowen were.
Remember the decision at the end of last government to cut the number of state cars, do you wonder who got the surplus….guess!!
And Enda and co. just stepped it up a gear -
This is reflected in our history Chris as the Penal Laws – The modern version of the window tax is actually two-fold now under Enda – What is property tax but rent to Bondholders and what is water tax but Day-life robbery -Enda is in so much trouble – it’s no wonder they don’t teach history as a full subject any more – No more Parnell, no more O’Connell …..
Enough of us know what Enda is at though and that spells awful trouble for him ….
He won’t buy his way out of this one because now everyone knows who the cronies are -Who is going to vote for anyone that tells us in their election literature that they are on a State Board – Before Enda this was a positive for prospective politicians but after John McNulty the whole paradigm has changed – Party Politics has been exposed as being for the very few – only 1,200 appointed to State Boards and other perks – That’s an awful lot of Fine Gael and Labour people asking “why didn’t he look after me ?”
Penal Kenny .
Stop taking incoherent nonsense dermot, you make no sense
@Dermot: How would a ‘ Tax boycott by the S.M.E. s’ work, exactly? For a start, no tax paid, no Tax Clearance Cert, which means most contract tendering would be impossible. In many cases, Revenue can just estimated monthly VAT amounts directl out of business accounts. And how long are SME employees going to put up with their PRSI not being paid, which would could disqualify them for Social Welfare?
Business people are in the business of charging for services and goods – The Civil Service are being assessed in these terms especially it’s top guys – Enda and co. …
If a private business taxes its vehicles , purchases its fuel , pays its tolls , has private health insurance and A.A. , pay property tax, water charges, electricity bills, bin charges and supply your own security for your premises then why do they need the Government again – Pension Fund ? – they gave that to the Troika …. They are beginning to cost more that they are worth ….. and it’s beginning to look like companies like Tesco who may have being mis-accounting their books while gaining market share in Ireland may have taken unfair advantage under Fianna Fails and Fine Gael’s eyes….. did either party refuse political donations from small shops or pubs that have since closed -rent reviews – didn’t Enda promise that as well ?
Peeper there exists in the world of men more opinions than your understanding of the world …that which is beyond you will never make sense to you – That is the way of the world – we should all embrace our diversity ….and organise the right people to go up to Dublin and sort it out while we are at it – that process is underway .
One of the brightest legal brains in the country, facing a decision of our lives. But … He was ‘overruled’ ( not incompetent? ). Also Mr Honahan’s deliberately understated €40bn apparently doesn’t recognise the time-value-of-money -> since 2008, but it ‘does’ recognise ‘receivables’ back to the public purse from AIB . What patronising claptrap!
@Chris Kirk
We disagreed on other matters recently but have to give you a thumbs up for your comment on this matter
Dermot, there is a big difference between accounting mistakes and cooking the books, be careful about naming companies unless you have facts in front of you.
@Chris Kirk what about the clean bill of health Pwc gave to anglo back in 07? maybe if they reported the correct figures instead of hiding behind accounting rules to massage the figures
Here Chris ….
Senior Fraud Office investigation …
Accountants can only work with the figures that are presented to them in the first place. As for Anglo it is well known and reported that they shifted funds around between themselves and Irish Nationwide to massage the end of year accounts.
Dermot, you refer to a newspaper report of Tesco accounting investigations going on in the UK. What does that have to do with the Irish banking enquiry…??
Anglo was a Bad Bank that no one in Ireland had ever heard of until the Banksters told us it had collapsed and that the Irish people owed them Billions.
Before the crash came Seanie Fitzpatrick was on the radio saying that the banks needed extra funds from the country’s pension fund. Now we can see why…!!
So almost 7 years after the crisis the people who we trust to govern that industry are finally admitting that the dogs in the street were right.
We should have burned bondholders
We should have let Anglo go
Telling us now when the damage had been done is sickening. Where’s the accountability?
That can only come when Fine Gael and Fianna fail Governments get the heave -ho .
The politics of Britain is going through the exact same thing as Ireland .
Enda is the Lib Dems – all promise – and now Britain is turning to UKIP .
Ireland is turning to Sinn Fein and like in Scotland turning towards Independence/Independents….
We know Fianna Fail were no good and they hit people in Dublin hardest because that’s where the dearest houses were ..-They were ran out of Dublin. Enda has fleeced rural Ireland and he’s going to be ran out of it !
Crime has escalated in the countryside in direct proportion to the closure of the Garda Stations – and Enda did that = Bye , Bye Enda !
There’s no rush – let more scandal come out first – just to copperfasten the resolve !
Now he says it!! Back in 2008, he like the other puppets said it was the only thing that could be done, weasel of a man.
All the untouchables had loans with Anglo. FF wasn’t going to let anything happen to them.
He only became Governor of the Irish Central Bank in 2009. Before that he was a lecturer at Trinity. So he was not in charge in 2008.
Would make your blood boil to watch and listen. smugness of these guys is sickening . Where’s the Judge and jury ?
Wexford Pikeman, Honohan wasn’t working for the Irish banking industry prior to the collapse. He was I think as Professor in Trinity College with an impressive pedigree in both the academic and banking sphere – the latter mainly abroad in the likes of the World Bank. He was appointed after the collapse and is an straight talker in so far as central bankers can be!.
@the hooded buscuit
He said no such thing as it was M. Hurley who was Head of teh Central Bank in 2008 when the decision was made. Methinks it’s you who should be called the weasel!
Key phrase for me here was lenihen was going to burn bondholders but was overruled by the senior politician in the room. That had to be Brian Cowan. Was Cowan not proven to have had a round of golf with Fitz, Drury and Halligan a few weeks previous ( THOUGH THEY NEVER SPOKE ABOUT A BANK GUARANTEE).. is the media asleep at the wheel again??
To be fair he does say it’s only with benefit of hindsight that he thinks it should have been allowed to fail – back in September 2008 he didn’t think letting it fail was a good idea.
I like Honohan, he doesn’t seem like a puppet and tends to answer questions very directly.
Sadly the late Brian Lenihan’s plan was overruled. I shudder to think of how badly things could have gone without his input. The thing that saddens me most about Fianna Fáil is that nothing has been done by the party to defend his memory. He could have been the greatest leader Fianna Fáil and the country ever had. Motivated solely to serve the people Brian Lenihan was a true patriot. May he rest in peace.
Rory I think history will reflect kindly on Brian Lenihan as well, he continued to work even though he was suffering from cancer . I always liked him , he came across as a nice guy , a good person and a honest and decent politician. You couldn’t say that about many of them .
“a triumph of hope over reality”. a perfect description of how we are governed.
This farce should not be an enquiry which is just like asking a conman; Did you con money out of people? Yes I did the con man says then leaves. Enquiries aren’t worth a damn as any of the last few we have had in this country where farcical. Anybody that is involved that was corrupt or did something illegal only gets a bad report (card) and doesn’t end up serving any prison time. Sure look at Denis, Bertie, Larry too name but a few from the other enquiries. This one will be the same and will be dragged out just like the others where. What a load of bollix.
Where he should be is in four courts testifying for homeowners. Enforcing rules, attorney general in NI investigating BOS not a hope here. Corrupt disgusting don’t know how he sleeps at night!
Anyone in business, actually anyone would know that you intervene and investigate immediately when you are asked by a separate entity to give them billions. Not to take their word.
The whole “banking crisis” was an agenda by our EU overlords to drown us in debt. And its working. This debt will take generations to pay back. One could wonder why our national debt continues to rise even though we have taken such severe austerity measures.
Our overlords want Irish people to be poor. Why? Because if we become a poor country they will automatically get richer.
Nothing to do with Ireland having a massive banking collapse?
No…. Its the likes of Finland, Austria & Slovakia forcing Ireland to ‘drown in debt’….. cos…. you know … reasons..
Yeah I blame the EU. We were having a great time and they got jealous and decided to bring us down…
The national debt continues to rise because the government is spending more than it collects in taxes.
Business cat, its common knowledge the French, English and Germans are our overlords. The banking collapse happened because Ireland had to follow the EU’s strict interest rate guidelines.
and the banks were not obliged to loan money to loopers with their heads in the sky
It wasn’t the EU’s fault that we partied and spent too much. The government were punch drunk with their own spending infatuation. The reverse is now that the government are not spending enough to sustain the party clean up.
Robin, what are they over spending on? Dept repayments?
Sean, it was Ireland’s own fault – if we didn’t follow the borrowing and interest guidelines, we would be in an even worse situation. We didn’t regulate when rates were low, letting charlatans like Anglo, Quinn and large developers grow into huge debt machines. When they were called out, the politicians capitulated heavily with both greed, elitism and being subservient to better politicians.
There may be some power grabbers in Europe, but we had the wherewithal to tell them to f3ck off, and decided not to. And then vote in the next bunch who turned out even more on their back than FF.
Now, Europe (or rather the EC and ECB) is in a position to screw us all thanks to Noonan, and rightly so, they are becoming an enemy of Ireland (the european council, not the people of Europe) but we can keep pushing to get the parliament more sway than the council and control those power hungry monsters.
“something that is lawful is above something that is legal. If something is legal, it doesn’t necessary mean that it is lawful. ”
http://www.wakingtimes.com/2015/01/13/debt-fraud-secrets-banking-system/
Business cat, you may mock REASONS, but REASONS are very important and your glib attitude to REASONS is indicative of your slavish attitude to THEM.
Without REASONS we’d be forced into the false situation of accepting responsibility for our own action in regard to borrowing. REASONS are a very important tool in deflecting “responsibility” away from us, where one might consider it belongs and onto THEM where we’re much more comfortable with “responsibility” resting.
Also:
Goldman Sachs
Dennis O’Brien
Nice bit of Weseling there today Honahan.
Another key player spectates from the sideline, as if he had nothing to do with this heinous tragic swindle.
Go back now suppin a few pints with the inbred elites and plan your next attack Paddy.
8 years on, surely it’s time for another bubble to burst.
Feckless irresponsible weasel.
Business cat your an idiot, this whole thing was planned… The top one percent of the worlds wealthy are getting richer at a faster rate now than pre crash…
Take a page out of the big businesses book, Ireland should declare itself bankrupt cancel all debts and start again.. Works for property developers
Thierry Ratt, perhaps it does work for developers but unfortunately not so well for sovereign states.
Even if such a facility existed for States, I suspect you don’t have the faintest idea how bankruptcy works, Thierry. The reason it can seem to be an easy out for the big boys is because they have salted away their resources with wives, relatives and friends, and can call on ‘favours’, gifts and free holidays to support them while the time ticks away. For everyone else, it’s losing almost everything you own and trying to live on almost nothing, no matter how hard you work, for up to 8 years. If it was such a blast, everyone would be doing it.
If you bankrupt a country then you are throwing it open for others from the outside to come in and take cobtrol.
And the truth will lye within the lies
Empty words Honahan talking about Junior Bondholders should not have been paid after they have all been paid. This guy & his likes are infuriating as it was these bankers who were responsible for the dire situation We are currently experiencing plus poor Governance from kenny & Co as these buffoons never intended getting debt write down for Us they were always going to follow what their eu fuhrers had planned for Us.
He only took up his job in September 2009 i.e. after the banking collapse.
Shhh Ryan, there’s no room for logic here !
Did He only get involved in Irish Banking sector then too Ryan ???
Ireland”s Nero
@ Richie Rice
You should put down the shovel and stop having a go at Ryan because yes he only got involved in the Irish Banking sector from 2009. Prior to that he was was a lecturer in economics at UCD, LSE amongst others.
em, in the whole time of the lead up to the collapse he was senior adviser on government policy in the World Bank. The kind of job where you would have a fairly hefty interest (and influence) in Irish banking? If it is not clear enough – HE WAS IN THE ROOM!
btw: he spent a year in Trinity in the transition between the World Bank role and the Central Bank appointment.
Honahan worked for world bank, IMF along with being an economist advising Gareth fitzgerald led fine gael govt so he was well linked to the banking & govt sector albeit he was lecturing before collapse he was still well connect.ed to this sector.
@richie Rice
How can you equate the World Bank and the IMF and Garret FitzGerald with Anglo/Irish Nationwide and the night of the bailout?
‘Anglo was a bank that Ireland could have done without’
No sh*t Sherlock.
There are many things that Ireland “could have done without” Mr. Honohan. The property bubble resulted in the banking system collapse and blanket guarantee which ultimately drove the nation into the Troika austerity program. The bubble, bailout and austerity have all resulted in an enormous transfer of wealth from ordinary people up the pyramid to those that reside at the top.
The ordinary citizens were primarily victims rather than beneficiaries of the speculative property bubble that raged from 1998 to 2007. FF policy facilitated a stampede which saw ordinary people trying to buy a home, competing against professional speculators driving steeply rising prices and forcing a generation into massive mortgages to house themselves. During this decade, there was a deafening cacophony from the vested financial, professional and political interests warning people to get on the first rung before the ladder was pulled up.
Following years of establishment assurances on the economic fundamentals and the mythical soft landing, the bubble finally burst in 2008 which caused every single one of the Irish banks to collapse into a steaming insolvent heap. The ordinary people had nothing to do with the bank collapse as they were still paying their inflated mortgages at this time.
FF then took the suicidal decision to offer a blanket bank guarantee and load the banks’ private illegitimate and odious debts onto the national finances .The citizens had nothing to do with this as we were not consulted then or at any point since about the pillage of the nation.
The National Pension Reserve Fund and general exchequer fund were raided for €17.5 billion and transferred to the European Financial Stability Facility & Mechanism (EFSF&M) funds. The EU then generously allowed us to borrow €67.5 billion from the EFSF&M which we are paying back with interest. €64 billion of this has been used directly cover private and illegitimate banking debt. In this way the EU gets to have the Eurozone banking system stabilized at the expense of the Irish people and we get to pay for the privilege via the interest we pay on the debt. This does not include the €32 billion also borrowed that we have pumped into NAMA to indirectly prop up the banks by taking the bad commercial property loans off their books. Adding the 3 figures together (17.5 + 64 +32) gives a total direct cost of around €113 billion and counting for the bank bailout so far. Most of this money has been borrowed and the interest payments make up a major component of our current annual budget deficits.
The wholesale collapse of speculative financial capitalism in 07/08 precipitated the worst global recession in 80 years, compounded in Ireland by the bank guarantee and the inherent flaws in the Euro currency union. In 2010, the ECB and the U.S Treasury secretary following neo liberal economic dogma scuppered attempts to have the bondholders shoulder some of the burden of Ireland’s bank collapse and so the entire debt still rests on the citizens.
In 2011, the people elected a new government with a mandate to burn the bondholders but instead FG & Labour continue colluding with the Troika to implement the neo liberal agenda of Austerity whereby the failure of speculative capitalism will be paid for by 4 million ordinary Irish people through health service cutbacks, USC , water charges, home taxes, education and social support cutbacks, an extra 3 years added to our working lives and a thousand other attacks on our living standards. The consequent and loudly predicted decimation of Ireland’s economy has seen hundreds of thousands of ordinary people thrown onto the dole or forced into emigration. The ordinary people have taken just about all the responsibility they can stomach for a crisis caused by those less ordinary.
It should be also be understood that most countries run a budget deficit most of the time and it makes perfect macro economic sense to do so. It’s really only the Eurozone countries that are required to borrow their own currency in the market at an interest rate determined by the market. Fiat currency issuing nations like the U.S and U.K do not need to obtain dollars and sterling from the bond markets to finance a budget deficit or indeed to cover private banking debt in the domestic currency. The U.K. bank bailout cost around £850 billion in total and yet this enormous figure did not cause a sovereign default or force the U.K. to seek IMF loans. A sovereign state with a floating currency can afford any debt denominated in its own currency. When those sovereign states do choose to issue government bonds, the primary objective is to implement monetary policy (e.g. drive their chosen base interest rate to target) not as a necessity to raise revenue. In addition, when those countries do ‘borrow’ in the market, they effectively decide what the yield/interest will be unlike the Eurozone nations subject to the tender mercy of the speculators.
In contrast, the Euro single currency was deliberately designed to allow speculative financial capitalism to profit massively from member state sovereign debt as monetary policy is now in the hands of the ECB who impose destructive neoliberal economics on the citizens with the assistance of member state puppet governments including our own FG/Labour quislings and FF before them.
The Austerity program imposed by the Troika and two successive governments achieved exactly what it was designed to do. That is to slash the social support structures like Health and Education and drive down the wages, working conditions and living standards of ordinary people to pay for the economic crisis caused by the capitalist elite. Privatization of our national infrastructure like the water network will follow soon as per the old IMF playbook if we allow it to happen.
To justify austerity, they peddle the economic fairy tale that nations need to ‘balance the books’. This is nonsense in a macro economic context. Most countries run a budget deficit most of the time and always have done. Vicious austerity is applied to the people of Ireland, Spain, Portugal and Greece while in contrast under the QE programs, the ECB has created €1.4 trillion in reserves by pressing keys on its shiny computer in Frankfurt and made it available at extremely low interest rates to the parasite banks whose greed and stupidity triggered the economic crisis in the first place. Austerity is for the little people.
Sorry, what? I fell asleep after the first paragraph.
I wouldn’t worry if you didn’t get all that, Donncha. I’d imagine it’s the same tripe coddler copy and pastes to any article banking related. It’s mainly gibberish.
Brevity is the soul of wit… but then coddler is witless.
I found this comment to be a considered, insightful and a fair assessment of the position. It is not a short comment but then an issue like this, when you are rebutting orthodoxy, and giving an analysis cannot be outlined in a few short paragraphs. The thought process is logically developed and easy to follow through the paragraphs.
I tis easy to reject an analysis out of hand but the three replies to the Comment by Coddler are content free and give no reasoned rebuttal.
I think that the initial Comment is valid and insightful although I can see why it would be bitterly unpalatable to most of us. The truth and the reality can be bitter.
The lack of reasoned rebuttal in the replies is interesting.
The balance the books notion is an economic silliness and especially not to be recommended during recession.
Protracted and severe austerity measures eventually result in deflation. Deflation is now in danger of becoming embedded in the economy as predicted by many opponents of austerity, such as Krugman.
The converse of making private banking debt public is to make public services and their funding private. Thus will further benefit the super wealthy who can extract super and predatory level revenues from what were previously public services paid for out of Central Funds.
Austerity is a politically driven agenda.
Yes, Coddler exposing his ignorance again. He is so entrenched with his own view of what happened and what should have been done, with the benefit of hindsight of course, that he simply adds untruths to his posts in response to it becoming clear that his view is distorted. His latest untruth is that we had a property bubble from 1998 – 2007……..
Honahans reasoned, educated and informed summary of what happened won’t suit Coddler.
Anthony, many here including myself have tried to reason with Coddler, to no avail. He is right, he copies and pastes a variation of that exact post in response to every article which clearly contradicts EVERYTHING he says.
His starting point is wrong. He believes this country was running an efficient and healthy economy with sound fundamentals, if he fails to grasp the reality, then you simply can’t engage with him.
Pat,
I can’t lift you from your swamp of ignorance if you’re determined to wallow in it.
The property bubble ran from the mid/late nineties until 2007 as I outlined.
Here’s a nice graph which demonstrates this:
http://www.irisheconomy.ie/Crisis/KellyCrisis.pdf
Can you explain what you mean by “an efficient and healthy economy with sound fundamentals” ?
Is that a LC business studies project? It wasn’t a bubble in the late nineties, that was just supply and demand.
It was written by the economist Morgan Kelly. You should get on to him and let him know his analysis is at leaving cert level.
Here’s a deeper dive look at the causes and consequences of the bubble from Kelly if you want to critique his analysis and let us know where he’s got it wrong.
https://www.ucd.ie/t4cms/wp09.32.pdf
Coddler, not going there. Honohans reasoned summary doesn’t suit your narrative. By the way please, at the very least read what you are linking.
‘The Irish property bubble CAUSES and consequences’…..
Nowhere in that article does he say we had a property bubble from 1998 – 2007 ‘that raged’…. that is an untruth.
He says ‘ After 2000 our entire economy became driven by a property bubble’
That is not the same as your claim.
But as usual you interpret this to suit your distorted view.
By the way, could you provide evidence to support your claim that we borrowed 32 billion for nama?
Patlyndo, I note your resentment of Coddler. I’m only a recent arrival here and it appears that you have “history” with Coddler. Fair enough.
I bought a home in August 1995. By 1998, my modest home in Dublin was fast appreciating. I was utterly staggered by the increase.
I bought my modest home in August 1995 for the equivalent today of €73,000 (euro equivalent of then punts) and inner tax allowances based on a construction cost of €54,000 spread over 10 years at 5% per annum. I took 4 years of owner occupier benefit.
I sold my home in June 2000, less than 5 years later, for a staggering €368,000! I’m not a economist or a financial person, definitely not a property expert and I was at a tax disadvantage compared to investors who has 100% relief on construction costs. Even so, I had a remarkable 5 times acquisition price on sale. Although inner city apartments then showed excellent capital appreciation, my increase in value was better than average, but in no sensible market should an pretty ordinary apartment increase in value by 400% or 500% in such a relatively short interval of time.
Friends and neighbours were staggered by the massive increases in values.
By 2001, I thought that the residential property market was unsustainable, by 2003, I was convinced that there was a property crash immediately ahead. I think that we had a property bubble from 1998 but by 2000 it was really out of control.
I don’t have the links available but there is excellent statistical information available in Maynooth University providing the data and analysis to show the general increases in residential property over time.
It depends on what you define as a property bubble. In my view any annual increase in value at more than 8% over CPI (inflation rate) is a bubble. I friend of mine laughed at this . He defines bubble at over 20% per annum compounded!
Anthony, a “bubble” is not something that is open to interpretation. It’s a common mistake that people make when discussing Ireland and the past few years.
A “boom” and a “bubble” are two entirely different things.
Between 1995 and 2001 – we had a property boom. This is where property price increases are as a resulted of a number of factors, such as income, supply, make up of family units etc..
Somewhere along that line people in this country seperated their focus on the fundementals for a number of reasons, the main one was cheap, easy and available credit – that is what drove prices upwards into bubble territory.
We then had “expectation” which is really a huge basis for a bubble, I mean who in their right minds would pay half a mill for a terraced house in …………(fill in the area) , if they didn’t expect it to be wirth more in X many years?
So we have two components, expectation and credit.
A bubble is not defined by increases of any %, it is defined by the fundementals supporting the increases.
Most residential property markets in Europe during the relevant time period enjoyed stable property prices and either stasis or tiny increased annual values despite some countries enjoying healthy economic growth.
In Ireland we had higher population growth than other European countries but not such an extreme rise in population as would justify such extreme price increases. Incomes did not climb corresponding to increases in residential property value although it is indisputable that easy availability of credit started even before the cheap money facilitated by the adoption of the euro.
Overall and to take your argument at its best, I can’t identify anything beyond credit expansion as driving such sharp price increases. Credit expansion is not an economic fundamental. It is a matter of finance. Where an asset class is increased in value largely by expansion of credit, that is a definite sign of bubble. Bubble is a more extreme version of boom.
Reliably and accurately measuring total credit supply in Ireland year by year is impossible but what can be tracked is the way in which from 1997 onwards the Irish credit institutions started progressively dismantling restrictions or limits on borrowing on a LTV and LTI basis.
Parental gifts and parental gifts established themselves in 1997, 1998 was the start of notional income contrivances and increases multipliers of income. 1999 marked acceptance of questionable collateral security and higher LTVs.
Effectively the primary driver of residential property price increases was credit expansion as you appear to acknowledge. That is not an economic fundamental such as supply demand, income and related demographic profile.
There were other drivers, which arose out of credit expansion, such as investors out competing owner occupiers for buy to let’s, initially in Ireland and later abroad. This competition between investors and owner occupiers inflated prices. The irish media and property professional stoked up the increases. This was well established by 1998.
Yes, there was an expectation of indefinite capital appreciation but that is not an economic fundamental. It is mere hope value and is a motivation.
Assessing the master in the round, I conclude even on the basis of your narrower definition of a property bubble, we had the start of a property bubble by 1998. The onky remarkable feature was the longevity and extreme inflation iof the bubble, matched by a later countervailing implosion of residential property values. This is a large subject and I could add much to my views but I will be criticised for length of comment.
Dear oh dear Coddler junior…….
Partlyndo , that is a terribly lame ad hominem response and demonstrative of your inability to sustain any sensible rebuttal of Coddler’s position.
I don’t aspire to Coddler’s quality of analysis and any comparison is unfair on him.
I engaged in a courteous discussion with you but I see that you did not wish to reciprocate.
Good for you Anthony, I look forward to both you and Coddler rewriting history……
Patlyndo, history cannot be rewritten but what we can do is learn from history, avoid being caught up in orthodoxy and conservatism, examine options in a critical way and be brave enough to challenge the ideologically driven idea that severe austerity measures are a panacea for what happened in the past.
Immense damage has been done to the public finances in two ways:-
1. The tax base was greatly narrowed from 1995 onwards. Taxes became focused on transactions, such as VAT, Stamp Duty and CGT and upper income earners were allowed too many tax shelters and easily exploitable reliefs.
2. We loaded over €100 billion on to the public debt due to banking insolvencies and related problems most of which will be irrecoverable.
what we now need to do is stop austerity before we get 2 decades of deflation and stagnation which a mountain of public debt on the back of the nation.
It is perfectly acceptable and fully understandable that you buy into economic orthodoxy but it was orthodoxy and pro cyclical policies which got us into the crisis in the first place.
I’m highly impressed by you only technique. You have a content free approach to discussion. I now see what Coddler is so dismissive of you. You insult but you don’t think.
“We’re not f*ckin nationalising Anglo!” were Cowen’s exact words, I believe.
I’m off now to check out the Board of Topaz – there may be a vacancy…jobs are fierce scarce nowadays what with pensioners having to work as well – Hard Times all around !
@Eimear Ryan
Yes, those were his exact words Eimear, but he added, “…because me an’ de lads have all our shaggin’ money there.”
Given that Cowen was the senior politician in the room, we can assume that he overruled Lenihan.
Why is Patrick Honohan not pressed by the inquiry as to whom the senior politician who overruled Lenihan was?
Pretty obvious isn’t it? “Lenihan was overruled.” “He was not the most senior politician in the room”. “The Taoiseach and Attorney General were also there”.
Do the math.
Conor, you are 100% correct. Serious questions must be asked of Paul Gallagher.
Cowen the fat toad
Jimmy, the Attorney General is the legal adviser. He advises the Government on the law. he is not a member of the Government. he has no decision making authority or responsibility on political decisions, which are outside of his domain.
My concern is the role of the ECB in failing to control the supply of credit in Ireland, the regulatory capture of the CBI by the IBF and the failure of competence of the Department of Finance.
All of the available options were not presented to the decision makers.
I am sure that they were, before the crash came Lenehan was backwards and forwards to Europe to talk about Ireland’s banking situation. He was no fool he knew that the damage was already done, the only people in denial were Cowan and his buddies. No wonder he showed up at meetings drunk…
He was pressed, Derek. I heard the clip on the radio. He was asked about three times to name the person who had overruled Brian Lenihan and refused till he was backed into a corner and named the two higher authorities as Cowen and the Attorney General.
Cowen is the name.
Regulators in Ireland are toothless yes men
So the responsibility for this disaster lies with Cowen, when are we going to stop paying this wasters pension?
€40 billion……..who wrote your lines Honohan?
http://thechatteringmagpie14.blogspot.ie/2014/12/ireland-has-just-destroyed-500m-who.html
So burning junior bondholders was overruled? Makes you wonder how many people in the room were actual bondholders. Typical Fianna effin’ Failure. Profit before people every effin’ time.
I doubt they were bond holders, just very easily influenced gombeens.
Capitalism, destroyed forever by four words – too big to fail.
Capitalism is all well and good when the banks are doing good, they’ll take the profits and run. As soon at they’re in trouble, Socialism kicks in and we’ve to give a helping hand. The whole banking system is a scam.
Don’t even get me started on the bail-ins they’ve written into law all over the world, they’re ready to raid depositors accounts when the next crash happens.
In order for QE to work as intended the ECB should just start up the money machines, produce the cash, and send €2,000 to each citizen in the eurozone, generating €1 trillion of pocket money for immediate consumption on goods and services.
To hell with trickle down economics, on this one! Let’s try trickle up economics for once. To implement above suggestion by any other means would just create further asset bubbles, and we’ve had quite enough of them thanks.
The €1tn could be recovered over say 20 years via each country’s tax system and squared up with ECB annually.
The economic experts are scratching around for ways to halt deflation, thereby eliminating possible negative connotations it carries for economies, and push in other direction, towards the ideal inflation target of 2%.
€8 bn injection into Irish economy via this proposal would be very welcome indeed and the multiplier effect substantial.
Whoever prevented Brian Lenihan from nationalising Anglo should be tried fir Financial Treason!
The contagion to other Irish Banks could have been prevented if our elected FF Government took the correct course of action!
Shame on FF!
Peter Sutherland ( Mr Goldman Sachs ) was there on the infamous night. Don’t forget him nor his power of influence NOR who he represents! Will we see Neary soon…? Too sick on a fat pension earned from being impotent on the job. Zero acoountable Ireland inc….the farce rolls on.
@Mick Curtin
Could you reference for me where you found out Peter Sutherland was in the room on the night of the bailout?
How can you equate Peter Sutherland with Neary?
What are you smoking over there?
The whole barrel is rotten I tells ya..they coudn give a toss about ya.five years later we still paying for it…shoud take the lot of them out and give them the lash..theyd start squeeling on each other then. Yellow bellies the lot of them not a bit of irish in any of them.make me sick
Maybe that’s why they are so afraid of Sharia Law – The lash !
Dermot Great comment ,but with Biffo and company if you said you were going on the “lash” they would be heading for the nearest bar ,
Cant,t wait for his in depth analysis of the Central Banks role in the fiasco . Oh thats right he won’t be going there .
This inquiry is just the biggest waste of time,nothing will come of it and as we can already see even Honohan is covering others arses.
Mr. Honohan should name senior politician that made this decision and stop running around the subject,we’ll be buried with this burden for generations to come,that’s why people are losing their homes by ‘pushy’ banks putting the squeeze on ordinary families to make them look like their doing things right now,sad country..will we ever really stand up and stop this!!
Our elected Government tax the innocent to pay for the gross neglect of our politicians and Bankers
Yet to date not one politician or bankers has gone to Prison for financial neglect and Treason!
“Brian made me do it Sir….no, not him, the other one…..big fat Brian Sir”
Irish politicians. Brains to burn but too thick to light.
@coddeler. Remarkable piece and difficult to offer a counter argument.
@Patrick Reynolds. The 230 am alleged phone call with Cowen; he is VERY relevant to all this. GS had Anglo shares…go figure Patrick. He was not too far away from the action, and never is.
A Professor of what??
Isn’t Bertie a Doctor of Letters or Law or something …
A great achievement for a guy who didn’t have the mental capacity to open a bank account …then again he did write his memoirs and claim tax relief on the earnings – I thought that was only for books of fiction ?
Honahan might have got the same kind of qualifications sure – be from the same stable as it were !
Berties memoirs might well be fiction, it is after all a recollection of how he remembers his life and not necessarily a factual based telling of his life
True DH true !
They might well be
The Embellished Bemusings of a Glorified Bagman…..ghost written by Paddy the Plastered!
cOKE.
It is interesting and possibly significant that the Guarantee of the 29th/30th September 2008 was an unlawful State Aid and was not prior notified to the State Aid division of the Director General for Competition.
On the relevant night, only three options and a limited perspective were offered.
The appropriate step to have taken that night was to shut the doors of Anglo 9as well as the other Irish banks) and to present the responsibility where it properly lay, with the ECB, the Council of Ministers and the European Commission.
The CBI was incompetent as was the Department of Finance but it was ultimately the legal responsibility of the ECB that it did not rein in the supply of credit in Ireland.
It was a combination of regulatory reckless and incompetence as well as a very partial attitude to Anglo Irish bank which delivered a shockingly bad decision for Ireland. Political considerations delivered the death blow.
If deflation (caused by persistent and protracted austerity) becomes embedded in the Irish economy the burden of public debt will be unsustainable.
We now forget how politically influential Anglo Irish Bank was. It funded property developers and received large deposits from HNWs and was an investment for bondholders.
“I don’t want to be on television naming people” Governor Honohan please stop this charade .. Your conduct is one-step-removed from that of Mr Pat Neary.
http://www.wakingtimes.com/2015/01/13/debt-fraud-secrets-banking-system/
“Did you know banks don’t lend real money?
Today, banks don’t actually lend out real money, but instead lend out notes or checks that are backed by a promise to pay. Before lending out these notes or checks, the borrower has to sign documents that have terms and conditions written on them along with a price tag (the amount of money the borrower agrees to pay back). A more specific name for these documents is “negotiable contracts.” These negotiable contracts or negotiable instruments are basically IOUs with a natural person’s signature on them.
Due to the corruption in the financial system, banks can legally create money out of thin air. However, they can’t lawfully create money. Unfortunately, the people have become too scared and ignorant to challenge the criminal banking system, and therefore the Banksters who control the banking system think they can do whatever they want.”
No point crying over spilled milk ja?
The banking inquiry should have the following people present:
1. Brian Cowan
2. The Attorney General
3. Patrick Neary
4. PwC
5. Brian Lenihan (via seance)
And JP Morgan, cun£sultants at large!
‘Charlie’ concludes next sunday, will be followed by ‘Cowen’ and in a few years ‘Martin’
Hmmm, doubtful.
Hard to believe that for every euro, just 1 cent helped the people and the 99 cent went to the ritch, biffo by name and kenny just keeps paying.
He seemed off his face. This” banking inquiry” is a joke but sure we all know that.
The truth remains. Ireland did nothing to deserve this. We will come come out of this stronger knowing not to trust the likes of the eu or our own sell outs. We have to build this wonderful country by ourselves.
Faster, stronger, kinder, better. We have overcome much worse than these as#ols.
.
Oh, all is forgiven. Idiots will buy it, without remembering, why.
Everyone in that room that night should have been hung for treason. Pointless blaming FG. Its FF that hung us all out to dry.
FG are gleefully turning the screw now though. The three establishment parties are all corrupt traitors who hate their own people.
They never have to put their hand in their own pocket for anything with their unvouched expenses yet they are among the best paid politicians in the world having sold our small island into debt slavery. They are impoverishing their own people while they live like kings off our backs. Most of our tax not goes on paying interest on odious debt and keeping them and their cronies in the manner they have become accustomed to. I think even marie antoinette would blush at the antics of our political class. Let them eat relentless bills.
So 40 billion ? Who are paying ? the Irish taxpayer for the next how many years ? Those that caused the economic disaster how will they pay? Politicians that decided on bailing out A.I.B,. regulators , p.w.c ,Will they lose their big pensions and payoffs, serve time in jail ,no ? Waste of time and more taxpayers money it really is a joke ,Then this is Ireland only the small people face jail for crime . The people who matter wont be charged and dont do jail time . Yep its a great little country to be a banker ,senior civil servant or government minister
Does the freedom of information act have any use in this? Can we force the name out?
And the beatification of Saint Brian continues biffo couldn’t make a difficult decision to save his pint. Another ff stooge saying it was everyone else’s fault.
The damage is done…
I think at this stage we will have to wait for Brian Cowan to attend the banking enquiry…..the equivalent of fianna fail death by a thousand cuts !!
@John…couldn’t agree more
Brian Lenihan was right. He saw the bigger problem!
It’s a pity that Brian Cowen had a different viewPoint!
He and Bertie destroyed “Ireland Inc”
Yet he draws a big fat pension from the Irish Taxpayers who are forced to lay substantial additional tax to rescue this small Country.
Some of our Politicians are guilty of Financial Treason
Those who have power always look after their own…
Ahh shoulda woulda coulda !! Finger pointing again . FG promised not one more red cent , and look were that got us
have your say