Crisis, what crisis?
One of my favourite documentaries of all time is Errol Morris’s masterful portrait of Robert McNamara, JFK and Lyndon Johnson’s defence secretary during the Vietnam War. The film is essentially McNamara speaking – with extraordinary clarity intelligence and insight – about the 11 lessons he has learned in life.
The title of the film is The Fog of War. And here is McNamara’s explanation for it:
“There’s a wonderful phrase: ‘the fog of war.’ What ‘the fog of war’ means is: war is so complex it’s beyond the ability of the human mind to comprehend all the variables. Our judgment, our understanding, are not adequate. And we kill people unnecessarily.”
In an extraordinary development, we woke up today to find that in the early hours of the morning, the Taoiseach Brian Cowen, the Finance Minster Brian Lenihan had hammered out a scheme with the six indigenous Irish banks that would guarantee their deposits and debt to the tune of €400 billion.
It was a bold move and certainly took everybody by surprise. In retrospect, it should not have. Bank shares – especially for Anglo Irish and Irish Life and Permanent – had plummeted yesterday.
On Drivetime this evening Defence Minister Willie O’Dea described the situation as “an imminent clear and present danger” to the Irish financial system.
Unless action had been taken, at least one Irish financial solution would have crashed.
The fix that the Government came up with is unusual to the point of being unique. Yesterday, when a series of banks across Europe ran out of liquidity because of the credit cruch, governments in Britain, Holland, Germany, Belgium, Luxembourg and Iceland nationalised them.
Instead, what Cowen and Lenihan decided on was a radically different course of action. They used the ‘good standing’ of the Irish state to guarantee all deposits and almost all debt. If the worst were to happen, the cost to the taxpayer would be calamitous. Yet, Cowen went to great lengths in the Dáil to point out that the scheme backs up the bank’s asset and does not involve any expenditure.
But after a long day of uncertainty, of shifting timetables, and of fluidity, the legislation had not been published by 7pm
It is now almost 7.30pm and the Dáil is due to resume. It’s not known what degree of clarity the financial resolutions bill will bring to the scheme. The opposition expressed concern about the lack of detail and potential gaps – in effect, saying that the banks may have been given a free pass by Cowen and Lenihan.
Kenny’s best quote: “We do not want the gains to be privatised and the losses to be socialised”.
Gilmore’s best passage:
“I can see what’s in it for the banks and what’s in it for the banks’ shareholders.
“I can see what’s in it for the six chief executives who earned €13 million between them last year.
“I can’t see what’s in it for the taxpayer. We are proposing to hand over the deeds of the country to bail out the bank and what are we getting in return.”
Cowen has insisted that the problem was one of liquidity and the scheme will allow banks to get access to funds. He said that the State guarantee was not for free and that a commerical price would be levied on the bank.
Update: 7.3opm. The Bill has just been published. The debate has been adjourned unitl 9pm. Fine Gael and Labour are both complaining bitterly about the ‘chaos and slapstick with the Government having produced nothing over 12 hours after announcing the scheme.
Labour whip Emmet Stagg is complaining that “after four missed deadlines we are going to get a cobbled-together piece of legislation”.
Back to the Fog of War. One of the things that concerned me this week was the admission by the Fed’s Ben Bernanke that there was an arbitrary element to the picking of $700 billion as the size of the package to buy toxic debt from American banks.
Will the Government’s scheme work. Sure, shares rose today. But the reality is that this crisis is so deep and so complex and so unpredicatable that nobody really knows.