As the world’s financial system swooned, the Irish taoiseach crooned
As panic rippled across the Atlantic in September 2008, Irish politicians and officials scrambled to contain the domestic crisis
Minister for finance Brian Lenihan: took charge of the State coffers just as “the building boom was coming to a shuddering end”.
It is like a scene from another world. In New York, the Lehman bankruptcy brings the capitalist system close to collapse. Giant banks and insurers teeter. World markets swoon . . . and swoon again and again. In Dublin, secret efforts are in train to prevent an Irish banking collapse. After dinner in a Galway hotel, the taoiseach sings The Mountains of Mourne to Fianna Fáil’s annual think-in.
Brian Cowen was steeling his troops for a tough budget to come. The merriment that night in the west would be described the next day as “the battle of Ballybrit bar”. Yet there was no reason for cheer. A crippling run on Anglo Irish Bank was under way in Dublin, threatening the entire sector. Within days, Cowen’s unlucky government would issue a blanket guarantee to all Irish banks for fear that they would simply collapse. It was a promise the State could not uphold.
Lehman’s demise came abruptly and was without remorse. By the tumultuous autumn of 2008, the market had lost all confidence in the storied bank. This was one year into the credit crunch. Banks were not lending to each other because of losses in the subprime mortgage market in the US. George W Bush’s government had already helped rescue Bear Stearns bank and seized control of mortgage finance companies Fannie Mae and Freddie Mac. As Lehman careered towards the abyss, Washington said it would not step forward with another bailout.
More than 100 Wall Street chieftains and government officials spent the weekend of September 13th and 14th in the Federal Reserve Bank of New York seeking a solution. There was no rescue. Words attributed to New York mayor Mike Bloomberg set the scene: “The world is about to end tomorrow”.
Lehman duly filed the next day – Monday, September 15th – for bankruptcy, the largest in history.
At this time, Ireland’s banks had already lost more than half their value. Having trebled in value in the boom times, they were laid low by the credit crunch and steadily increasing doubt that they could weather the onset of recession and a self-perpetuating property market decline.
After the run on British bank Northern Rock in September 2007, the government had taken some steps to guard against chaos. Filings to the Public Accounts Committee point to work in the Department of Finance on “financial stability issues” in January 2008, to the preparation of contigency legislation to take over a stricken bank or guarantee banking liabilities, to repeated ministerial briefings.
Cowen became taoiseach in May 2008 after Bertie Ahern’s exit. His successor in the Department of Finance was Brian Lenihan, who would lament his misfortune to have taken charge of the State coffers just as “the building boom was coming to a shuddering end”.
In private, later on, he would draw a war-time analogy with the desperate struggle to keep Ireland’s main banks afloat: the task was akin to steering six heavily-laden cargo ships through the North Atlantic under constant threat of U-boat attack.
Lenihan spent the first part of the weekend of Lehman’s collapse at an EU meeting in Nice, France. With turmoil already ripping through markets, these talks were dominated by the drama on Wall Street. Pressure was mounting too on Ireland’s banks, with Anglo increasingly singled out as depositors withdrew their cash.