Support provided to Anglo Irish Bank in September 2008

With a number of investigations continuing into Anglo Irish Bank all sorts of information is tumbling out into the public domain. The latest is an RTÉ report of confirmation from Irish Life & Permanent that it provided “exceptional support” to the bank during September 2008. From the RTÉ report

The statement follows an earlier revelation [added link] that Government appointed directors in Anglo Irish Bank are investigating a deposit of billions of euro by Irish Life & Permanent in the bank before the end of its financial year. It is understood the issue of how the deposit affected accounts at Anglo Irish is also being investigated by the financial regulator.

Adds More from P O’Neill at Irish Election. Update And more in today’s Irish Times.
Last night the Irish Times noted

ILP confirmed in a statement last night that it had placed deposits with Anglo Irish during September 2008 and in particular on September 30th following announcement of the Government bank guarantee scheme. The company said that the transactions were “fully and appropriately accounted for” in its books and records, and in its reports and returns to the regulator. “During a period of unprecedented turmoil in global financial markets, there was an acceptance that financial institutions would seek to provide each other with appropriate support where possible,” the company said. The company declined to confirm the amounts involved.

, , , , ,

  • Exceptional support?

    What?

    Exceptional support my arse. Somebody needs to be in jail. Christ almighty.

    Sorry lads. I’m incoherent with rage. Promise to stop now.

  • Anyone want to bet this isn’t the first time institutions have passed a parcel of money around as their respective fiscal years came due? Bernie Madoff would have been proud of ILP/Anglo’s boys.

  • Parrot Clocker

    Sort of gives you the impression that all the Financial institution directors are a cosy gentlemen’s club that meet regularly at the races.

  • scaramoosh

    This is tip of the iceberg stuff.

    Await further revelations regarding Ireland’s cosy coterie of financiers when Anglo’s loan book is eventually exposed to the light…which it will have to be, when the government is forced to call in many of the outstanding loans on the bank’s books.

    There are many individuals and corporations out there who owe this bank millions, and have no hope whatsoever of paying it back….not least those who were lent millions to make deals at the very top of the market.

    This was not a bank; this was a sweet shop a group of people who thought that they were untouchable. Alas, it would seem that the foundations upon which the Celtic Tiger Economy rested, had been built on bog land.

  • Dave

    “Alas, it would seem that the foundations upon which the Celtic Tiger Economy rested, had been built on bog land. ”

    The foundations of the Celtic Tiger Mk2 (circa 2000 – 2008) are not as stable as “bog land” alas: they were built on the monetary policy of the EU’s ECB. There was little the government could do to stop the Irish economy from overheating since it did not have control of bank interest rates. Ergo, it could not put a halt to excessive borrowing by increasing the interest rate. It could do little except watch as the ECB lowered interest rates rather than increased them, causing the Irish economy to heat up even more.

    And how much did it overheat by? By 1162m (€1,162 trillion) in 5 years. That is the amount that the external debt increased by from 2003 to 2008. That was the actual source of the wealth that the so-called Celtic Tiger generated after it joined the Eurozone – all of it was borrowed wealth which must now be repaid without the means to do so.

    Ireland’s external debt was €508,621m in October 2003:

    http://www.cso.ie/releasespublications/documents/economy/2003/externaldebt_q22003.pdf

    By 2008, Ireland’s external debt was €1.67 trillion as of September 2008 (an increase of 1.162 trillion):

    http://www.cso.ie/releasespublications/documents/economy/current/externaldebt.pdf

    That wealth was borrowed from Irish banks who borrowed it via the Eurozone and converted it into (mostly) property. As with Anglo Irish Bank, the value of the assets that the bank holds are now almost worthless. When those assets are written down, you will then see the full scale of the debt that the Irish government has now exposed Irish taxpayers to in order to protect the property developers who bankroll FF and to protect the foreign corporations who form the vast majority of Anglo’s depositors.

    For example, Pete’s RTE link has this from the Dublin Docklands Development Authority:

    [i]Separately, the Dublin Docklands Development Authority has been accused of having an unhealthy relationship with Anglo Irish Bank in the purchase of the Irish Glass Bottle site.

    A Dáil Committee heard today that two directors of the Authority were also Anglo Irish directors when the bank agreed to part finance the purchase of the 20-acre Ringsend site for over €400m.

    Docklands Authority Chief Executive Paul Maloney told the Dáil’s Environment Committee today that the Authority does not regret purchasing the site in the consortium also involving two developers.

    Mr Maloney said even though the value of the land has dropped by about a third it will still be needed for future regeneration of the docklands.[/i]

    In fact, the value of the land has dropped by far more than “about a third” and is more likely around 500k an arce rather than the €17.6m an arce that was paid for it. Davy Stockbrokers has told its clients that it has “written down 60 per cent of its investment following a revaluation.” If Davy’s optimistic valuation for the site holds (assuming the market falls no further), then that is a real-time write-down of €250m that Irish taxpayers are now exposed to on this one site (purchase price: €413). If that is typical of the quality of assets on Anglo’s books, then the taxpayer may yet enjoy an invoice for in excess of €60 billion. Given that the Ringsend site was worth under than 6 million less than 20 years ago (before the oversupply of office and residential properties in the city), it has a long way to fall before it hits its actual value.

    Give it 2 years, and you’ll see how badly this government has screwed the taxpayer by nationalising this private business.

  • Mack

    Dave

    There was little the government could do to stop the Irish economy from overheating since it did not have control of bank interest rates. Ergo, it could not put a halt to excessive borrowing by increasing the interest rate.

    This isn’t really true Dave. Irish banks borrowed heavily on the wholesale market. That is they lent out much more money than they had on deposit. In addition once that money was lent and spent, it wound up on deposit and got lent again (multiplied). The Financial Regulator could have prevented this by increasing capital requirements for Irish banks (foreign banks could have circumvented this and taken market share, but then it would be foreign not Irish banks nursing heavy losses now).

    On top of this lending multiples for mortgages were relaxed – again the regulator could have prevented this. The government gave pro-cycilical tax breaks to investors (mortgage interest rate relief, various section 23/49 etc), developers and owner occupiers of residential property.

  • Dave

    Nonsense. You are talking about the supply of money whereas the important part of the equation is the demand. Had the government attempted to impede the supply, it would have been in breach of ECB monetary policy and the rules it signed up to. There is over one sure-fire way to stop an economy from overheating: reduce the demand for money. You do that by increasing the rate at which money is borrowed. Since the Irish government had delegated control of its monetary policy to the ECB, it had no means to stop the economy from overheating. Instead, the monetary policy of the ECB was determined under the one-size-fits-all rule which in turn was determined by the needs of the German economy (which contributes 60% of the EU’s budget). Since that economy required low interest rates, that is what we got. The fact that we needed low interest rates was neither here nor there since the Irish economy is expendable to the EU and its political – never economical – agenda. You also fail to consider that a government must support its monetary policy, not try to counteract it. There must be no conflict between monetary policy and the other economic policies of the government. That is why, for example, the Bank of England is nominally independent of government but it is still obliged to support the economic policies. You cannot have a situation where the government is trying to influence its economy in one direction and the agency that controls its monetary policy is trying to influence it in the opposite direction, so the government has no option other than to follow the monetary policy (aimed at stimulating growth by encouraging borrowing), adjust its economic policies accordingly, and hope for the best. It is asinine to argue otherwise.

  • Dave

    Typo: “There is [i]only[/i] one sure-fire way to stop an economy from overheating: reduce the demand for money. You do that by increasing the [i]cost of the[/i] rate at which money is borrowed.”

  • Dave

    Just to make that last point more explicit: the British government sets the economic agenda and the Bank of England tailors its monetary policies accordingly. Therefore, a destructive conflict of economic agendas is avoided. The situation does not apply when an economy delegates its monetary policy to an agency that operates independently of it, and that cannot and does not tailor the monetary policy according to the needs of that particular economy. So, in order to avoid a destructive conflict of economic agendas, the government that has delegated such control must follow the monetary policy of the ECB and tailors its other economic policies accordingly. In reality, the ECB controls the economy. The national government then becomes the manager for the policies of the agency that controls the sovereignty.

  • It was Sammy Mc Nally what done it

    The Irish and British governments – (the later who had control of interest rates ) did not see the large white elephant sitting in the living room because it was not in their poliitcal interests to do so. Both governments could have and should have introduced regulation to control the multiples of earnings people could borrow and should have checked properly on the financial health of the banks. The attempted obfustication by Cowen and Brown should be ignored as should the same nonsense from the Tories and FG etc – this was sheer blind faith in an economic system which is based on economic theory which has far mor in common with withcraft i.e. confidence, than it has with science or logic.

    About 2 years ago – I heard a “debate” in the Dail where a left wing independent TD stood up as told Berty that the housing market was unsustanable and a disaster. Berty simply replied that he was a communist-no-nothing (or such like ) – everybody clapped and laughed at the outrageous suggestion of the mad-man and Berty sat down to loud cheers. The next day in the Irish Times I expected that perhaps someone had considered the merit of what was said but it was just simply more praise for Berty – and just more blind faith.

  • Mack

    Dave – Nonsense.

    On the demand side

    Demand for loans exceed demand for deposits because we had negative real interest rates, in part due to pro-cyclical fiscal policies that drove inflation higher (benchmarking, price rises in state bodies, pro-cyclical tax breaks). This naturally reduced the demand for saving while increasing the demand for loans (as the burden of repayment was being reduced by inflation).

    A non-expansionary interest rate is one in which the supply and demand for credit is in balance. People and institutions are as willing to leave cash on deposit as take out a loan.

    On the supply side

    The financial regulator would have been in his rights to tighten bank capital requirements and definetely should not have allowed banks to loosen their mortgage lending criteria. While banks outside their control could still have extended credit (as demand for such credit could still have existed if the government continued to pursue inflationary fiscal policies) – it would been foreign banks lumbered today with the non-performing debts.

  • NCM

    Please, somebody tell me again how lucky we all are to live in a capitalist world.

  • Comrade Stalin

    Please, somebody tell me again how lucky we all are to live in a capitalist world.

    Not very lucky at all. You’d be much happier under communism. There were no boom and bust cycles, because the economy was in a permanent state of recession. The government made up the economic performance statistics and kept the real ones under lock and key as state secrets. This way, nobody got down about the state of the country.

    I miss the worker’s utopia too.

  • NCM

    Ok, let’s try this again. Please tell me the only choices aren’t Soviet-style communism and this.

  • Mack

    NCM

    You could try Chinese style communism –

    http://en.wikipedia.org/wiki/Great_Leap_Forward#Climate_conditions_and_famine

    Or perhaps a purer form of Capitalism espoused by the Austrian School :-

    http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory

    Their analysis of Business Cycles fits the current crisis perfectly – however without an expanding money supply I don’t think we’d have advanced as far, as quickly.

    Truth is probably that there is no way to prevent economic recessions. Production and credit expand to far – once demand has sated, it results in massive over supply.

    Milton Friedman does a pretty good job of explaining a fundamental flaw with central planning (socialism) in the video below – even if it was possible to do it effectively (and I don’t think it is), who would you trust to implement it? Even if you found such a group, such centralisation represents a potentially corruptable single point of failure.

  • NCM

    Mack, understood re: the fundamental flaw of central planning, though remarkably under capitalism the corruption is systemic and not just at a single failure point.

    Regarding Chinese communism, one thing capitalism has in its favor that the Great Leap Forward didn’t is we haven’t yet became cannibals. And, of course, we have never had the joys of the Cultural Revolution.

    But there has to be a better way, guys.

  • Harry Flashman

    Nope, sorry NCM, free market capitalism, like that other system so despised by anti-capitalists, democracy, is the best system going, even with all the faults.

    Try living in alternative societies and you’ll soon discover why.

  • Mack

    Republican Presidential hopeful from last time out, Ron Paul – proposes legislation abolishing the Federal Reserve.

    http://www.lewrockwell.com/paul/paul504.html?utm_source=mortgagenewsclips+test+list&utm_campaign=fefaaea79d-RSS_EMAIL_CAMPAIGN&utm_medium=email

    (Austrian Analysis again – http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory)