Oh God. It’s just depressing, and I apologise most sincerely for banging away at this, but someone has to do it.
Professor Patrick Honohan, Governor of the Central Bank, is an excellent fellow. A straight talker and a man fully in control of his brief, Honohan has pointed out that the socialisation of losses, as he put it, has been rightly criticised.
What does he mean?
Simple. The Irish people were forced to pick up the tab for the failure of two badly-run businesses, Irish Nationwide and Anglo, at a cost of something like €34 billion.
That word, failure, is very important. Public money was poured into AIB, Bank of Ireland and Permanent-TSB as well, but at least — in the long term — those companies had the potential to earn profits and pay us back.
Nationwide and Anglo were different, in the sense that they were dead. They were never going to make a single penny in profit ever again, and had no chance of reviving. Therefore, the money handed over on our behalf was not a bailout of those banks. It was, by definition, a bailout of investors who had made a very bad business call. Those investors were ready to accept their losses and walk away, but somehow, through the intervention of the ECB and the pusillanimous, craven attitude of the two Brians, instead they won the banking Lotto and treated the bailout as manna from Heaven. It had already been written off as a loss, and here was the Irish government giving them the biggest profit of their lives. Result!
In recent times, we’re starting to get to the bottom of the whole stinking mess that characterised the 2008 bank guarantee. We saw some correspondence between Trichet and Lenihan, showing how much pressure the ECB put on the two buffoons in charge of our government, and in time, more will emerge. Already, we can see that the ECB, since Trichet has gone, is willing to contemplate the unthinkable, buying up government bonds of those countries that apply for a bailout programme. And you know, a bailout is not the worst thing that ever happened. After all, a programme is simply a scheduled series of loans at rates we’d never get on the open market.
It’s true that the interest rates initially were punitive, but they’ve come down, and there is a strong case for rebates on that money. Furthermore, it’s looking more and more like Ireland will be in a strong position to demand relief on the Anglo promissory notes, and I think that eventually some sort of fudge will be devised. Perhaps some sort of long-term loan whose value will be rendered minuscule over a century due to inflation, or some other device. After all, it seems to be accepted now throughout the Eurozone that we had inordinate burdens placed on us, including the requirement that this tiny country should single-handedly save the common currency.
It all gets so confusing, doesn’t it? Promissory notes, bailouts, troikas, central banks. You want to run around with your hands over your ears screaming Lalalalalala!!! The good Prof Lucey did his best to explain it here, but I suspect people are still utterly baffled, as I am myself.
As far as I can work it out, the whole thing comes down to this.
First, the government is spending too much. It hands out more than it takes in, and the difference every year is about €15 billion. That can’t go on and we have to try and balance the books.
Second, some of the banks are nearly dead, but still have a pulse. If the government puts money into them, we hope they’ll eventually get better and pay back what they were lent. This is the bank bailout.
Third, two banks, Anglo and Nationwide, never had a hope of surviving. They were stone dead but the government gave them money anyway. None of this money will ever come back to us, none of it benefited the Irish people, but you and I, and our great-grandchildren, will spend the rest of our lives paying it off.
Well, that’s the €34 billion question, and that’s the question we’ll be expecting the ECB to answer in coming months. Some people suggest that the collapse of Anglo and Nationwide would have led to an unravelling of the entire European banking system with catastrophic results, so why was Ireland expected to save the Euro on its own? Was it not a common threat? I hope the government has some dirt to dish on the ECB, and on Trichet in particular.
Honohan says the ECB would never have approved burden -sharing on senior bondholders, regardless of whether a guarantee existed or not, and that in itself raises very difficult questions. Does it mean that a bank is never a private company in Europe? Are governments always responsible for the actions of their management? And if so, why are private individuals accorded such power?
If banks are not private companies, if their losses can be imposed on European taxpayers, then why are they not at all times subjected to the most minute scrutiny imaginable? That certainly didn’t happen here, or in Britain, or anywhere else for that matter.
Does it happen now? Could the whole disaster erupt all over again?
I think so. Lessons learned: zero