Talk to Joe

By | September 29, 2008

Minister for Finance Brian Lenihan rang RTE boss Cathal Goan to complain about Liveline’s programme last Thursday week. The government was outraged because Duffy suggested that customers shouldn’t trust the banks. The plebs were panicking. It was irresponsible, the government felt, to create alarm amongst the general public by discussing the stability of our banking system on the airwaves. What sanctimonious drivel. What Lenihan was really saying was, “Cathal, please – not in front of the children”.

It’s called a credit crunch because banks have stopped giving each other credit. They’re afraid to lend each other money and right now, not even Henry Paulson’s $700 billion can fix that fundamental lack of trust between banks, regulators and politicians. So let me get this straight: they don’t trust each other, but we’re supposed to?

Regular readers of this column will know that I have little patience for the hysterical over-reactions of the ill-informed, but on this occasion callers to Liveline were not inventing anxiety – they were accurately reflecting the worries of the establishment.

Until the past fortnight, I’d been observing the global financial meltdown with the same insouciance one has when watching news reports of drug gang assassinations in far-off suburbs. It’s dreadful of course, but its only bad guys killing each other. What’s a few thousand Wall St brokers to me? I have a zero tolerance approach to financial risk and refuse to even take out a pension as I won’t expose my savings to the risks of the stock market. I confess, I’ve been feeling a bit smug about that decision lately.

Then an innocent bystander is killed by a stray bullet. I began to get the uncomfortable feeling that my cash on deposit was entering the line of fire. Why did people keep mentioning the bank where my SSIA money sits quietly gathering dust and a miserable interest rate? Of course, I know that the government wouldn’t let a bank go under. Of course I know that even if a bank did collapse deposits would be safe. The papers assure me that rumours of an Irish bank’s demise are the work of dirty rotten short sellers who thrive on the misery of others.

But up until last weekend, the only cast iron guarantee I had was that 90% of customers’ deposits up to a limit of €20,000 were actually secured by the government. I didn’t want to lose 10% of my money. I didn’t want to lose 1% of my money. Then Lehman Brothers employees emptied the chocolate vending machines on their way out the door. The butterfly was flapping its wings in China. Was the earthquake coming? I began to ring my establishment friends looking for a little assurance. I didn’t get any.

The insiders I spoke to were doing plenty of panicking. Business people, stock-broking types and financial journalists either didn’t want to talk about it which was bad enough or warned me to get my money and stuff it in the nearest mattress.

I fretted and rang around some more. “Look”, the men-in-suits said, “Even if your bank goes down the tubes, you will probably get your money. But it could get tied up in paperwork for months though so you should get it out now while you can. Try the Post Office.” I hadn’t even heard Liveline. My own phone lines were live with the financial anxiety of those-in-the-know. So where did Lenihan get off complaining to RTE?

He’s the one who turned green when he got a look at the books after his big promotion. Does he expect us to believe that his civil servants and central bankers are dining out on long lunches and wondering what all the fuss is about? No: panic is for the insiders who can take steps to protect themselves when the pyramid scheme comes crashing down. The function of the public is to pick up the tab. To keep the system working, we have to be the last ones to know that the money is gone.

The Minister says, “Trust me”. The Regulator says, “Trust me”. The bank’s CEO says smoothly at the AGM “Trust me”. Why? What have any of these people done to deserve our trust? We are where we are because none of them did their jobs properly. The entire history of banking and investments is one where the insiders run off with the cash and the hoi polloi lose everything. Not this time Minister.

The same day as the Liveline show, Financial Regulator Paddy Neary had issued a soothing statement saying that Irish banks were sound, but that meant nothing to me. It’s his job to say things like that, especially when they’re not true. When they start making statements you know things must be really bad. It’s also the Regulators’ job to make sure that banks don’t over leverage their debt. It’s also the Regulators’ job to make sure that banks don’t lend too much money to people who might not be able to pay it back. If the global financial meltdown has shown anything it’s that Regulators have been taking a 10 year nap instead of doing their job. So excuse me if I don’t hold their statements in high esteem. I don’t trust Regulators any more and that’s their fault, not Joe Duffy’s.

On the Friday afternoon Lenihan went on telly and informed us that bank deposits were not in danger and despite persistent questioning from the only man in the country with sense – George Lee, he insisted that speculation about raising the state guarantee on savings was unhelpful and not even that important. I liked the body language, but it wasn’t enough. I rang my bank and told them to transfer my money out first thing Monday morning.
On Saturday, Lenihan raised the deposit guarantee to €100,000. So tell me this, Minister: were you economical with the truth on Friday or did you get up on Saturday morning and suddenly change your mind as you munched your cornflakes? Are you fickle or a fibber? I think the decision had been made on Friday. Don’t get me wrong, it was the right move and I decided to leave my money in the bank after all. But he should’ve done it four days earlier, and he shouldn’t get upset when we talk about trust. He looked us in the eye and told a porkie on Friday. And he thinks we should trust him?
“There, there” he’ll say. “Daddy couldn’t say anything on Friday. He had to wait til the markets closed. Here’s a lollipop. Go and watch cartoons”. I don’t want to watch cartoons. I want the truth.

The FBI is beginning investigations into the whole mess and we can look forward to some high profile perp-walking. Jailing bankers is a strategy I like. Trusting them? Don’t talk to me. Talk to Joe. He’ll tell you what’s going on.

21 thoughts on “Talk to Joe

  1. ejp

    I have some sympathy for the batphone usage I have to say. This situation is not a lot a different to a boom; it’s a confidence trick that lives and dies on its own momentum.

    Anglo Irish lost 46% of its value today, not because it’s in such bad financial shape, its just the softest target for the prevailing market sentiment. All we need now is a queue of nervous mothers to be parked outside the branch doors in the morning with empty bin liners looking for their deposits to stuff under the mattress. That’s the point at which this [insert doom laden term] enters the next and more dangerous phase of its evolution.

    Irish banks have a lot of borderline debts on their books, but nothing near the scale of the US institutions. The reason for the stock plummets is almost entirely due to the scent of blood on the market floor. There are individuals and other institutions making blame-free fortunes out of these falling markets. Blame-free because the liveline listenership believes that money is only made in climbing markets and that the people to blame for the current mess are those that cashed in then.

    Sit tight. It will have economic effects, no doubt about that, but panic will make those effects much worse.

    And why is none of the commentary on the US vote looking at motives other than petty squabbling and fears about re-election. Pelosi intentionally scuppered the deal with a highly partisan pre-vote speech. While some of her party voted against, the party machine ensured that more democrats voted in favour than republicans (proportionately), thereby pushing the blame for the failure onto overly sensitive republicans. They were never going to line up and eat humble pie en masse after a speech like that. The democrat party is playing a high stakes game here, presumably to ensure their golden boy’s lead is maintained.

  2. ejp

    Lenihan comes out fighting this morning with a very effective and also cost-effective intervention. I’m pleasantly surprised by the decisiveness shown by the Government. Without this, it was conceivable that we, as a nation, would be toasting our mutual ownership of Anglo Irish by lunchtime today. I think time will show this to be a crucial, effective and well-timed intervention. It might even make money for the tax-payer.

    It’s a shock given the seeming inability of Cowen, etc. to even say anything useful over the past few days, other than blase attempts to talk things up.

  3. Electron

    Sarah, you are now the proud owner of some serious Irish debt – that nice man, Mr. Lenihan, has bestowed this great honour on all of us and we didn’t have to do diddlie squat to earn it. He has decided that the Irish taxpayer will now provide a guarantee for €400bn of liabilities, that in Dollars is almost equal to the Bush Administration’s bail-out of $700bn that was thrown out by Congress yesterday and our population is approx. one hundredth of theirs – we are now the most indebted people on this earth and you can thank ff for this great achievement.

  4. Peaches

    Who the f*k gave Brian Lenihan the permission to bail out those grossly overpaid chancers with OUR money?

    When the banks are carrying out repossessions, it’s tut tut tough titty. The same attitude should apply when the shoe is on the other foot.

  5. john

    Laughable to listen to Irish people criticizing deregulation in the US. We have had our own version here also as banks loaned money recklessly to property developers. The Exchequer benefited with a huge inflow of Stamp Duty,VAT et al. Naturally enough nothing was done by the Government to upset the applecart. After all a general election had to be won. Now the chickens have come home to roost. Many of our so called experts have been talking through their hats. George Lee, David McWilliams, Alan Ahearne were among the few who warned of impending doom. They were ridiculed as talking down the market.
    The Government acted today because the regulator and Governor of the Central Bank gave it no option. It was warned that a failure to act would have precipitated a catastrophe today following yesterday’s bloodbath in share prices.
    God help Ireland if the decisions are a miscalculation.

  6. Sarah Post author

    I thought it was a good move. I want to see the small print and I’d love to see something on executive pay but I think it was a good move. Someone said today – it was a master stroke – still a stroke – but a master stroke.

  7. Andrew Lawlor

    They say that everyone is a socialist until they get some money. There were a lot more socialists around this great little country in the seventies and eighties when none of us had a pot to piss in. These last ten years they’ve been very thin on the ground as we all raced headlong to embrace free market capitalism and the cappucinno society. The bankers were the greatest, most decent salts of the earth when they were loaning us four times our annual income so we could buy our dream home and put a newly registered car in the drive. And why wait for until we can actually pay for curtains and semi-solid wood floors and Italian marble tiles and granite worktops? Just put another thirty grand on the mortgage. Never mind that we were lying through our teeth about our income and we were actually borrowing five times our wage!
    The last rubmlings of the boom can still be heard fading gently away, like a distant thunder clap, and suddenly it’s all for one and one for all again.
    Now before you all go calling Jooooooe Duuuuufffyyyyyy, consider a few facts.
    There was a very good chance that we were going to wake up this morning to the news that an Irish bank had collapsed. Good enough for them, you might say. Until the next one goes bang, then the next etc. The government had to act and act fast.
    There is a good chance that not one cent of this four hundred billon will ever be drawn down. If the Senate in Washington can agree a deal later this week, and now that the Democrats have had their little swipe at George Bush there is a good chance that they will, we can hope to see some light at the end of the tunnel. Maybe just a pin-prick of light in a very long tunnel but we have to start somewhere.

    Painting the banks as greedy, money grabbing bastards is all very well, but they are capitalists after all. They are supposed to be greedy, money grabbing bastards. Safe-gaurding the public is not their job. That is the job of the financial regulators, the same financial regulators who have been asleep at the wheel for the last ten years. The regulators are supposed to be the buffer zone between the public and the greedy, money grabbing capitalist bastards. It is they who have let the side down.

    I’m getting very tired of listening to tirades against the reckless lending practices of the banks from people who have been engaged in reckless borrowing for years. Joe Soap does have a responsibility in this. If you go to the bank and lie about your income and swear blind that some imaginary lodger is going to help with the repayments, and then go ahead and borrow 300k, even though your projections say that this will leave you with only a fiver to spare every week, then you can’t very well bitch about it when it all goes horribly wrong.

    This deal is better than taking over the banks and is certainly better than letting them go nuclear. It is more imaginative than anything that was tried in the US or elsewhere in the EU. I may leave a bitter taste in many people’s mouths but decent medicine often does. Let’s just hope it works.

  8. Electron

    Sarah , this move was the brainchild of David McWilliams – he’s been advocating this approach for some time. His independent thought marks him out as possibly our greatest asset on the economic front – all the others are front-men for vested interests or living in hope of earning huge sums as government advisers. McWilliams the maverick is regarded as a “cur” by the establishment – especially when he refused to go with the great ff illusion led by “comrade” Bertie the closet capitalist .
    Today, we’re all comrades in this great Irish collective of capitalism -to each according to his( ff party loyalty ) and from each according to his ability to pay for the former.

  9. Sarah Post author

    totally agree with Andrew. No one put a gun to anyone’s head and made them borrow money.

  10. Leon

    I would be more confident in your opinion Andrew if you hadn’t said:

    “If the Senate in Washington can agree a deal later this week, and now that the Democrats have had their little swipe at George Bush”

    The republicans scuppered the US bailout.
    If you don’t know that what do you know?

  11. Betty

    Sarah, glad you are back on air. The herd have stampeded on the line “it is a master stroke” but listen to Colm McCarthy on Pat Kenny–a bad ,bad deal, a panic reaction , the banks put the gun to Cowan’s head and how do we get out of it in 2 years. Then Lenehan says the combined assets of the 6 is 80 billion in excess of the 400 billion —who put this value on their assets ???? there is serious negative equity out there –over priced land bought on borrowed money for hope value —well the hope value is with O’Leary in the grave. Who will police the borrowing, will the bank that was ready to go under borrow on our guarantee and play double or quits with it like the compulsive gambler except they can’t lose. The budget borrowing is going to cost more (.35 of 1%) . There probably was no alternative but spare me the eulogies.Betty

  12. Electron

    Sarah, this is the only move that has any hope of avoiding an Irish bank collapse. It’s not something to be celebrating as everyone seems to be doing – there’s a huge amount of bad debt out there and you mustn’t forget that ff led the public up the proverbial garden path and now has little option other than take this unusual step to save our asses from ruination. The public were encouraged to spend by the banks and the government proceeded to build a house of cards on the strength of this profligacy knowing full well that is was a sham. They now want us to carry the can, while their friends are let off the hook.
    I wasn’t party to the orgy, but my export business was put under continuous pressure to remain competitive in a sea of excess – I for one, wont be cheering Mr. Lenihan.

  13. Sue

    Me neither. And I wasn’t party to the orgy either. I couldn’t even buy a house because I refused to lie. (I’m self-employed, so meeting the banks’ requirements without playing fast and loose with the facts was next to impossible.) This bailout is outrageous in my opinion. GUBU even.

  14. Eileen

    “The bankers were the greatest, most decent salts of the earth when they were loaning us four times our annual income so we could buy our dream home and put a newly registered car in the drive.”

    Hello? Speak for yourself there. If you’re a Sindo-reading, SUV-driving moron maybe. What I’d like to know is WHO are the regulators and WHAT have they been doing for the past ten years? This €400bn guarantee is insanity.

  15. Wildean

    Ho ho ho ho ho ho, haha ha ha ha……….. No it’s not Santa Claus. It’s the sound of Bertie, his builder pals and Paddy the Plasterer laughing into their pints. Good work lads.

  16. Tomaltach

    When Lenihan first announced that bank deposits are safe I turned to my wife and said ‘oh oh’. That’s a bit like a leader saying, I’m definitely not going to resign.

    Having said that. I think the honest truth is Lenihan had a tough call to make. Speculation was that there was going to be a run on Anglo-Irish (at least if not on others), and I can only assume their position looked pretty bad. They have 80% of their assets sunk into UK and Irish property. I assume that when the speculators scented blood that Anglo-Irish suddenly found its credit line frozen and so I can imagine the sequence of events. Anglo-Irish boss calls Central Bank gov John Hurley with the unpleasant news that Anglo-Irish will default within a few days if it doesn’t get its credit line open. And Hurley looks at the figures and they aren’t pretty. He calls Lenihan. So Lenihan is in a hard spot – what does he do. Let Anglo-Irish fail? Bail only it out? Or if there is evidence that this will immediately hit the ratings of BOI and AIB he has to engineer a system wide backup? There are no easy choices. For all our loathing of the banking practices and lack of regulation – who really wants to see our banking system grind to a halt. That would be an economic train crash surely.

    But the extent of he back up plan is worrying. It is a huge risk and I hope that the numb skulls in the Dáil manage to draw up sensible conditions and a reasonable way for the tax payer to claw back any bailouts in the event of them being drawn down.

    Thing is – this isn’t over. It may only be starting. Scary stuff.

  17. Andrew Lawlor

    I don’t think I actually said that the Democrats were responsible for scuppering the bail out bill. However, I don’t think that Nancy Pelosi’s speech was entirely unconnected to the defeat. Both sides in the US are playing a high stakes game in the run in to the presidential vote, one which the Democrats won hands down on Monday.

    ‘Hello? Speak for yourself there. If you’re a Sindo-reading, SUV-driving moron maybe.’
    Rarely read the Sindo, can’t afford an SUV, only a part time moron.
    I believe I may have made the point about the regulators being asleep at the wheel for ten years.
    Oh, did I not put a big sarcasm flag on the comment about the bankers being salts of the earth? Tut tut.

  18. Pete

    Moral Hazard anyone?

    The senior bankers have got personally very rich out of playing fast and loose and thinking very short-term. Once this bail-out has faded a couple of years into the past, they (or their successors) will be very keen to start they same process again, and get even richer.
    Instead of just increasing regulation to try and stop this, the way bankers renumeration works must change, so that those in charge are motivated to play safe, instead of being motivated to build highly unstable financial structures just to boost short-term profits and bonuses.

  19. graham

    The greedy, money grabbing capitalists are not so happy to play by the rules of capitalism, when it pertains to their own industry. I don’t believe for one second that one Irish bank going under would lead to a meltdown in the Irish financial system.
    Despite the geographic realities, Ireland is not an Island in financial terms. The ‘master stroke’ has pissed off a lot of people, both here and across the EU, for it’s implications. Now with Ulster Bank, NIB and Bank of Scotland Ireland looking to be included in the protection, I wonder where will it (and our exposure) all end.
    Joe Public is not innocent, certainly. How many column inches were filled with advice on buying property here and across Europe in an effort to make a profit by speculating on price rises etc and plenty of people tried their hands at doing just that. If they cannot pay their mortgage, who is going to guarantee their risky debts?

  20. Pete

    I’ve just realised that this Moral Hazard thing works both ways:

    Obviously, the bailout has taught the bankers that they can take whatever risks they feel like, and never go bust. I fact, the bigger the hole they dig for themselves, the more likely they are to be bailed out. Crazy.

    But those of us who didn’t participate in the credit-driven madness have also learned a lesson. We stayed sober, but we still had to tidy up the mess after the party. Ok, message received loud and clear – next time we’re going to party down! Financial sanity doesn’t pay!

  21. Sally

    Despite the doom and gloom of recent months it was good to see Ireland leading the way in getting to grips the banking mess:good to see that the other so called stronger economies are now taking a lead from the governments brave decision and guaranteeing deposits:take a bow brian and co. well done.As for joe duffy, people have been hanged in many countries for much less: what a tool:brought on the scene by gay byrne because he would always make gay look good, he has turned out to be a complete waste of space:he is an embarrasment to not only his media peers but also those lowest common denominator folk who never see any good in anyone and their main ambition in life is to get some money through some insurance scam or other such maneouvre. I have long since stopped listening to this crap:public service broadcasting my arse

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