Madam , – I was unsure whether to laugh or cry when I finished reading Donal O’Mahony’s bizarre defence of current banking policy as executed by the Government, Nama and the banks (Opinion, April 13th). I will allow Brian Lucey to deal with what Mr O’Mahony, working for a stockbroking firm, has to say about an academic commentator who expresses his opinions on bond markets. I will pass over his unusual claim that the level of toxic loans is something for which commentators must take responsibility . . . unless, of course, he is referring to public utterances by bank and other financial sector employees on our economic prospects between 2006 and 2008.
He says that Irish policy is based on the idea that the five supported institutions are “systemically important”. He is correct about this assumption.
Unfortunately I do not believe that Irish Nationwide, Anglo Irish or even the EBS would be looked on by disinterested observers as “systemically important”. The first two are certainly not “too big to fail”.
He attributes the falling spread on Irish financial sector subordinated debt to the operations of Nama and the programme of recapitalisation by the taxpayer. Indeed. The Irish taxpayer is obliged by the Government to take on the risk that would normally be borne by subordinated and senior bond-holders . . . and the bond yield falls. Surprise, surprise.
He persists in suggesting that the falling yield on Irish sovereign debt assets (the spread on the bund, the cost of borrowing for the Exchequer) is connected to the policy of guaranteeing existing bank bond-holders while permitting the banks to issue new bonds covered by guarantees. This canard (for that is what it is) has been continuously advanced by both Government ministers and spokesmen for financial institutions being supported by Nama. It is hard to sustain, and Mr O’Mahony does not even attempt to do so.
Describing those who disagree with current policy as “malcontents venting their spleen”, he derides media and academic critics for “the paucity of credible alternatives”. It might have been more honest to say “paucity of alternatives with which the Government and I agree”.
His crowning piece of economic nonsense is contained in his suggestion that the shortage of credit for business is to a considerable degree the result of an unwillingness of firms to borrow. His evidence for this reluctance is the fact that Irish households, facing falling incomes and rising job insecurity, have reduced borrowing on credit cards costing 14 per cent to 18 per cent per annum. Are we supposed to take this seriously? – Yours, etc,