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Time for Backbone in dealing with Banks
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The EU Commission has said that it will look into whether the Irish bank plan breaches competition rules and if it does, the commission will force Ireland to recoup the money from banks. This may sound like more of Brussels poking its nose into our affairs. You know what it really is: a God send for the tax payer.
While I know the government had to do something to help the banks I am inclined to believe the went too far. Why had no other governments used this approach? Why was Ireland so roundly criticised? Doesn’t a blanket prop really invite moral hazard since there isn’t even a fear of failing now. At least on a case by case basis bank execs would wonder if they were going to get the help the need.
But I don’t know. Perhaps as more facts emerge we will be provided with justification for the nuclear option. Fair enough. But one thing really worries me. It is that the government will not be robust enough with the banks in the even of their drawing down tax money. In our little clientelist, boys network elite, can we have confidence that the government will go in hard and rough if they have to bail out a bank?
In France, before Dexia was bailed out the government set strict conditions. They insisted not only that the CEO would go, but he would go without his golden parachute. Can you imagine that happening here? I can’t.
The minister has talked about possibly taking equity and maybe putting members on the board or management team in the event of a major bailout. I haven’t heard what is provided for in the legislation but I gather it is up to the minister in each case. Will he make use of the full rigour of these provisions or will he pussy foot and give funding with no guarantee other than the financial regulator will monitor the bank’s activity.
Well you know what. The Financial Regulator is worse than useless. Yes, worse. If there were no regulator at least there would be no pretence of oversight. But the current regulator has been gutless, even reckless, in his dereliction of duty.
On prime time, CEO of the Regulator, a very uninspiring John Neary, insisted that the only problem in the Irish banks was the international credit freeze. He denied they had lent recklessly or taken too much risk with a construction bubble. You know what John - you are either stupid or lying. Perhaps a bit of both. And it is shocking John if the likes of you are left guarding 400 billion of tax payers money. What kind of crony are you? Where did you crawl from you spineless, disgraceful twit?
So please please, Mr Lenihan, I hope you show that under your sweaty shirt there is that which our regulator so singularly lacks: a backbone. Please, it’s our money, so you have our full permission to be tough with the banks. Use it.
Are the problems sufacing already—nationwide soliciting funds using the “guarantee” as bait???what’s with the anglo boys buying share at the bottom of the market????Lenehan said the banks could not use the guarantee to make money—how will he enforce that committment–there has been no regulation for years so I wouldn’t hold my breath now.
There is a lot of loose talk about the lending practices of the banks. That there have been unwise decisions is not in controversy. The significance of these on the solvency of the Irish banks (gross assets c.0.5 trillion) has, however, yet to be established in the public arena.
Perhaps, just perhaps, Mr Neary knows the actual position better than the commentators.
P.S. Readers may be interested to know that I have just now created a new section on my website to concentrate material on the Bank Rescue.
There has rarely been an instance when Government gifts, whether they be Grants; deferments; soft loans etc… have not been abused.
It is likely that, having been given a safety net, the CEOs of all benefited banks will seize the opportunity to be clever, rather than prudent.
Minister Lenihan can ring-fence his gift by changing Corporation Tax (CT) to a Distributed Profits Tax (DPT).
Under a system of DPT, all Dividends; Share Options; Bonuses; Swaps; Share Purchase Schemes; Benefits-in-Kind; Repayment of Share Capital; Acquisitions; Incentive Schemes - would be regarded as distributions and taxed at, say, 60+%.
This would have the effect that retentions, viz. profits NOT distibuted, being utilised to grow & develop the company; increased employment; new products etc.
Clever enrichment schemes for executives - bonuses; paid-for holidays; junkets; motor cars; expense allowances etc. would be taxed as a distribution - a payment of sums not exclusively necessary for the running of the business.
He could also show, by example, his determination to reduce Government spending & waste.
A reduction in the number of TD’s would seem obvious?
Perhaps 1 TD per 100,000 of population? And a corresponding reduction in the number of advisors & PR gurus. (Think Ahern’s €400 a week haircuts).
An in-depth audit of TDs excessive expenses; overseas junkets; publications in 2 languages etc… could all lead to substantial savings of non-essential costs & waste.
He has made a start.
Let him show his mettle; Sack Neary & replace him with a Rottweiler.
I agree about the number of TDs. He could slash the numbers by 55 without constitutional change. And don’t forget the ministerial surplus, and the army of civil servants doing their political work.
However, curiously, I have been floating this idea informally for a few months now, and there is a strange lack of appetite for it even among the non-politically interested people.
Maybe a €7 billion deficit will bring a change.
What about the Seanad? It’s a bit of a political joke at the best of times and is hardly a model of democratic process in the way members of selected i.e. by the votes of 1,000 or so local authority members and as such in effect by a corrupt party list system; or by 11 seats in the gift of the Taoiseach of the day. The only true elections for Senate seats are through the university system and even that has been flawed by its restrictions to a limited number of colleges. Moreover, all attempts at reform have been consistently resisted by the political status quo.
And what do they do, these Senators, apart from sitting on committees, going on junkets abroad and making some minor amendments to national legislation? Constitutionally they have no entitlement to do anything other than review finance measures. Yet, Senators are paid salaries in excess of 60k; have all kinds of allowances and expenses; entitlement to employ research assistants etc. We could live without the Seanad.
Fergus,
You may be right about Neary knowing the true position of the banks. Why was he not prepared to tell us that the banks’ risk weighted assets were fairly assessed by the banks and that few of the projects they have funded are likely to default or non-perform. But he wouldn’t go near that side of the equation at all. In the middle of an intense crisis with the financial system on the brink, the man responsible for overseeing it was unable to sound authorative or convincing and did nothing to reassure tax payers or the public generally that he is a trustworthy watchdog.
I would agree with Veronica that our Senate is largely a useless talking shop. And certainly I think that Brian Cowen should have cut back the number of junior ministers (after Bertie swelled their tanks towards the end of his tenure to keep everyone happy). Having said all of that, I honestly don’t think this is the time to get bogged down in what amounts to a constitutional debate about the shape of our legislature. Given the pace of political reform, it would take endless wrangling now and expend valuable political energy debating exactly what kind of senate we need, if any (New Zealand did away with theirs some years ago I think). And what number of TDs there should be and so on. Don’t get me wrong, our system is badly in need of reform. It’s key flaw is the oireachtas provides almost no oversight of the executive who essential go unchallenged and do what they like. Their is no balance of power. But still, right now I would argue is not the time to divert attenion away from the primary task of saving the economy from catastrophe. Even if we scrapped the Senate and half of our TDs the savings would be but a drop in the ocean of 9 or 10 billion which we need to bridge at the moment.
Tomaltach,
You’re right! We have to go one step at a time. But even in the midst of such a systems crisis it’s fun to have a bit of a rant about some of our other revered institutions, like the Seanad, even if it’s a bit puerile to indulge oneself in such “pull down all the houses” talk at this time. I guess it’s a way of letting off steam and, depending on those institutions of state that you like least; an opportunity to vent some of the anger that people naturally feel about the disaster that is unfolding before our eyes and that we are powerless to prevent.
The banks’ business has already moved on since you made your initial post, with Denmark and Germany off and doing much the same as we’ve done ourselves and more of the rest of them likely to follow.
I think the reason why some of the leaders of the larger countries reacted so badly to Ireland’s action is because they are themselves paralysed with fear. If Sarkozy’s little get-together over the weekend showed anything it was this: no-one has a clue what to do!
I noted also that the British papers were talking up the idea of the EU Commission ‘forcing’ Ireland to claw back on its guarantee and other rhetroic to that effect, but that’s a reflection of their well founded fear too that their whole system is in danger and the solution that was available to us is not necessarily available to them because their financial system is on a different scale altogether.
As for the petulance, bar room broadcasts against bankers, certain political parties completely failing to see the bigger picture and firmly placing their vain ambitions and party interests ahead of any consideration of the national interest - all of which we saw aplenty in the carry-on in the Oireachtas last week - it was a bit disappointing and cringemaking to watch, but hardly surprising.
You don’t have to be a government supporter to realise that no Irish government would have taken the action they did if any other viable option had been available to them. It took an act of unusual political courage, I believe, for Cowen and Lenihan, to put their necks on the line in this way. They earned their crust last week. They also demonstrated that politics are important; old-fashioned politics that is, not the politicians as celebrities mush we have so grown accustomed to in recent years. I couldn’t have seen the former Taoiseach taking the action they did, or anyone else currently in Leinster House either.
Last week’s Bill was about setting out the principle of the action; it’s this week where it will, in my view, get far more interesting as they get around to debating how this will work. As reagrds the calibre of the opposition, I think we’re about to see more sorting out of the sheep from the goats.
Veronica, I think your second last point about the government is right. The two Brians found themselves in an extremely difficult situation and had to make a very tough call. It took balls and they were decisive. As you point out the previous Taoiseach was the opposite. It is purely hypothetical but I can imagine Ahern insisting on more time and seeing would catastrophe begin to set in. Only then would he act in a rear guard panic to claw back lost time. At least the incumbents took action fast. I applaud them for it. My worry of course was and is that they and the oireachtas in general will not follow through with robust measures against banks who need to be bailed. But that remains to be seen and I hope I am proved wrong and you are right, it will be interesting now to see the details.
Next week we will have another chance to see what the two Brians are made of when the budget is revealed. It surely as to be the toughest budget in decades. If they combine the kind of courage and decisiveness they have recently shown with a little imagination, then we may find that while the budget is unpalatable, at least we have the right men for the job. Times like these are the real test of leadership. I think we will probably know very quickly if the two Brians are up to the job.
I talk about the two Brians because I feel the other ministers are in the back seat here. Not least because there is no inspiring figure among their ranks. And certainly, so far, I have been singularly unimpressed with Tánaiste, Mary Coughlin. I would be intrigued to know how much input if any she has provided, and how much was invited from her.
Tomaltach,
I hope the government give them (i.e. the banking squires) hell! Heads will have to roll sooner or later and the Chairman and CEOs of individual banks will have to be brought to account for their arrogance, stupidity, greed and most of all their bizarre sense of self-entitlement. I’m short of breath waiting to hear an apology or expression of gratitude to the Irish taxpayer from any one of them for the action that has been taken to save their shirts. I expect that retribution will come to pass in some form; perhaps when some of the outrageous loans which they granted to various high flying developers cannot be rolled over any longer and some developers start going to the wall.
As for the two Bs; ah well, I guess we have to hope they don’t fall out with each other any time in the medium term future, because, as you point out, there ain’t nobody else around who can do this stuff.
The EU can forget about Lisbon being passed here if they shoot the bail out of the banks down on competition grounds. A decision like that wouldnt go down too well with voters here.EU competition authorities would do well to keep their mouth shit for the moment on this if they want Lisbon passed.And it doesnt seem like they’re doing a great job of it up to now.