The Bailout that Dare not speak its name
Brian Cowen was at it again in the Dail this morning, taking issue with the opposition for using the word ‘bailout’, saying it was a pejorative term.
It reminds yout of the exchange between Alice and Humpty Dumpty in Alice and Wonderland.
‘When I use a word,’ Humpty Dumpty said, in a rather scornful tone, ‘it means just what I choose it to mean, neither more nor less.’
‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
And that is the question. The import of an unusually abject Brian Lenihan interview on Morning Ireland was that the game was up. The ECB and the IMF coming to town to hold discussions and look at the books is akin to the announcement of the appointment of an examiner to an ailing company. It is only delaying the inevitable. Everybody knows what”s coming down the line.
There’s a debate as to whether a bailout of the Irish banks can avoid dragging in the State. Everybody to whom I’ve spoken to has said it’s not possible, including Government officials. Already one or two officials in Government have been doing a bit of accentuating the positive: ” Well the rate of interest will not be low and at the end of the day, is it such a bad thing when it gives us access to money?” they ask.
And the response: Wellllll, yes! it will be a bad thing if we have to cede our sovereignty.
I think that some of the debate has been misplaced. A lot of it has focused onthe bank guarantee scheme in September 2008, saying it was flawed and that the Government should have refused to do it.
Yes it was flawed. But for me that failure was venial. Was there an alternative? And if there was – such as letting Anglo wither on the vine – could anyone honestly say that the outcome would have been immeasurably better? Can anyone stand up and say that burning the Anglo bondholders and depositors would not have led to a run on the other banks? And you must remember the context, the over-riding ice-chill fear of the western capitalist system on its knees. The guarantee happened only a matter of weeks after Lehman Brothers collapsed when there were fears that the entire global banking system was about to collapse.
The Government decision to guarantee assets was groping in the dark. Just like any other solution that would have been tried. Sure, including subordinated debt in the guarantee was a mistake – but that was 3 per cent of the total. To me (but this is a conclusion I have come to only recently) it is logical that all bond holders , including senior bond holders, should take a haircut when a bank goes south. There’s a difference between an ordinary worker depositing in the bank and a professional investor who will enjoy higher interest. These are the selfsame guys who are now pushing up the interest rates. If they were so clever in the first instance, why did they not spot the dud that was Anglo? I shouldn’t be even asking that question. Because logic doesn’t even enter into it. It is governned by a combination of greed, fear and rapaciousness. But the question still remains: would burning senior bondholders in September 2008 have averted catastrophe?
The bank guarantee scheme now looks like a failure, and a corrosive one because it has made the State and the banks synonymous. But then, Fine Gael also signed up to it at the time. Of course, they were under duress, as were the Government. Labour went against. But despite Fintan O’Toole lauding Eamon Gilmore’s bravery for going against the grain, I have no confidence that Labour had any workable alternative.
To me, that was a forgivable failure.
The unforgivable failures happened earlier. And that was the failure by the Government and the institutions of the State (including its mammoth banks) to have the courage to call a halt to the welter of pro-cyclical stimuli that invaded the Irish economy after we adopted the euro. Low interest rates, the availability of cheap money, and a property bubble spelled disaster. And none of this will be corrected until property prices accurately reflect their true value. For example, in the Dublin suburbs, semi-d’s which sold for well over €500,000 in 2007 look like they will continue to fall… to €200,000, to €150,000… to €100,000?
The villains? Major villains in chief: Bertie Ahern, Charlie McCreevy. Mary Harney. Second-in-commande villain: Brian Cowen. Lesser villains for not standing up to the dismantling of Irish society and our social cohesion: All the other ministers who served from 1997 and 2002 onwards.
‘Light touch’ or ‘principles-based’ regulation was a disaster. Politicians and the Financial Regulator sucked up to the bankers to an embarrassing extent. Property developers were lauded by the media as if they were wizards, whose cleverality was limitless.
In the banking sector, what was most preposterous of all was that Bertie Ahern and Brian Cowen were prepared to allow a new regulatory system to be introduced that would have led to the banks having even more control of regulation (or as we have seen, the complete absence of it).
Both men set up a committee of the great and the good in banking and financial services which worked throughout 2007 and 2008 drafting new ‘principles based’ (i.e. light touch) regulation – essentialy allowing the banks to reguate themselves with no overt scrutiny by the regulator’s office.
When the merde hit the fan, the work of the committee chaired by the senior partner in the Government’s favourite law firm, Arthur Cox, was quietly dropped.
They didn’t have a clue. Neither did the opposition. But then the opposition weren’t in Government. In politics, it is with those in power that all responsibility rests.
Back to the present. The contributions of the Taoiseach and the Minister for Finance with their verbal anti-aircraft artillery against the foreign invaders is beginning to sound like the pronouncements of Comical Ali in the hours before Baghdad fell. Make no mistake. The IMF has landed and the Revolutionary Guard is on the run.