Cronyism brought Ireland to its knees…

Interesting leader in today’s FT, which touches on some of the same themes (the rising tide of cheap populism as a threat to any newly ‘mandated’ government) as Elaine Byrne noted in the Irish Times (blogged here this am). But it urges that the Irish people make a distinction between setting a budget and dealing more directly with the bank deficit:

Ireland does need a budget that addresses its unsustainable structural deficit, and almost everyone recognises that. Whether taxpayers can or should keep paying the debts of Irish banks – in what is now widely seen as a bail-out of European banks that recklessly lent to them – is another matter.

It also quietly recommends “legal accountability for the bankers, builders and politicians whose cronyism brought Ireland to its knees’.

  • aquifer

    So we need a well resourced public prosecution department dealing with company law and fraud to nail company directors who got loans fraudulently.

    Did you think that the Assets Recovery Agency was only for drug dealers?

  • John East Belfast

    I wish the FT would make its mind up – was it the European Banks or Irish Cronyism which brought “Ireland to its knees”

    If the latter then Irish taxpayers have more of a responsibility than European taxpayers who will pick up the bill once their banks have to be bailed out by their Govts if the ROI seriously defaults

  • Mick Fealty

    I’m afraid this is a ‘pooled debt’. That’s the very dilemma the Germans are having difficulty understanding. Moral responsibility lies with Irish cronism and that rash attempt to prevent the Irish banks from falling apart.

    But if the Germans want to keep the Euro I’m afraid the Euro taxpayers are going to get caned. It’s the fault of an ill thought out structure.

  • pippakin

    It was both the banks and cronyism. The banks facilitated the other. I have been wondering recently how off the wall it would be if it were not small countries like Ireland who pulled out of the Euro, what if it were the Germans? Is that an impossibility?

  • Comrade Stalin

    European taxpayers who will pick up the bill once their banks have to be bailed out by their Govts

    John, why are you still repeating this lie ? The European taxpayers and the IMF will profit from the bailout. They’re not picking up the tab.

  • DC

    and guess what – the existing political cohort FF&Greens – having overseen a policy that has bankrupted the country and left a nonfunctioning banking sector – will walk away with fairly luxurious government pensions.

    While the collective populace will pay the price for inadequate crony governance.

    So seriously, what is Ireland going to do about that?

    Not. A. Damn. Thing.

    Revolution?

    If you the people will not lobby opposition TDs to negotiate reduced pensions for the existing government as part of an austerity budget, I suggest the good people of Ireland will have swallow what is given to them by the cronies.

    Revolution Fintan O’Toole?

    Try getting a very basic victory in the form of reduced government pensions before writing up pieces about an Irish revolution!

  • Mack

    JEB –

    You are looking for a simple one-cause answer to a complex problem. I remember reading once that most aircraft failures rarely have a single cause, but a multitude of problems each whom should have been caught cascade ending in disaster.

    It is surely not difficult to understand that reckless borrowers and lenders are responsible for their own actions?

    Overextended home owners brought it on themselves. It shouldn’t be taxpayers responsibility to bail them out.

    Ditto for the overextended banks – be they Irish, British, German or American.

    The Irish banks were reckless in their lending to property developers. They were supported in this by the government (elected multiple times) who championed lax financial regulation, property breaks for property developers.

    At the start of this crisis the German finance minister chided the Americans for the failure of Anglo-Saxon capitalism, well as Warren Buffet says it’s only when the tide goes out you see who is swimming naked. And it turns out German banks were up to their necks in funding dodgy goings on overseas.

    You seem to think that Irish taxpayers should repay those foreign banks that bet on the Irish property market in full, regardless of what this does to the solvency of the state. The impact of this will be that the Irish sovereign will be forced to default on loans made to the state to invest in schools, hospital and infrastructure. I.e. that the reckless or imprudent lenders betting on the Irish property bubble incur no losses on their Irish investments but lenders who made no such bets will ultimately take the hit instead???

  • Mack

    Mick –

    Moral responsibility lies with Irish cronism and that rash attempt to prevent the Irish banks from falling apart

    The banking guarantee did not create the debt. Imprudent lending by British, German, Belgian etc banks to Irish banks during a well vaunted property bubble did (remember the Economist article, remember German banks baulking at purchasing Irish banks because of their exposure to property – this was all well known).

    The banking guarantee was a naive attempt to keep the Irish banking system afloat – and in doing so protect those British, German and other European banks from collapse – in the wake of the disastrous collapse of Bear Sterns and Lehman Brothers.

    None of which actually makes those debts the sole moral responsibility of Irish taxpayers.

    Logically why are the debts of property developers owed to Irish banks the responsibility of the Irish taxpayer, but the debts of British and German banks also the responsibility of Irish taxpayers?

    This is not capitalism, it’s a mix neo-mercantile / statist / nationalism (German, British etc)..

  • Mack

    JEB –

    One final point – it is telling you are upset about the cost to taxpayers in Germany / Britain etc rather than the cost to the banks there.

    That would suggest you feel that the banking systems there won’t able to manage or sustain those loses themselves. Which should tell you that the banks have been imprudent.

    It’s just you want Irish taxpayers to pay for it. There is no moral basis for forcing those loses onto any taxpayer. These are private debts.

    It’s just unfortunate that economies and countries need a banking system – so ultimately taxpayers have to pay something to create or protect that. And believe me – we are already paying through the nose for this..

  • Mack

    DC –

    The Greens didn’t really cause this mess. With some sterner financial regulation and an understanding of what joining the Euro actually meant this whole sad episode could have been avoided.

    The actions since then – NAMA, guarantee, harsh budgets are all a desperate rear guard action but the scale of the credit bubble created liabilities within the banks that were unmanageable (see comment to Mick – banking guarantee didn’t create this problem, it just made Irish taxpayers take time dependent responsibility for debts owed to foreign banks) and large imbalances within the Irish economy (debt fueled wage hikes and tax cuts).

    AFAIK – politicians pay and pensions will be cut today.

  • Mick Fealty

    “The banking guarantee did not create the debt.”

    Correct. But it was misguided attempt by an inexpert Finance Minister (and cabinet) taken against some very expensive paid professional advice at the time.

  • DC

    Mack – it will likely be the pay and pensions of the whole political set that takes a collective reduction – including the opposition?

    I’d rather see this government go out on a basic state pension for the mess they created and for which others will now pay a very heavy price.

    The austerity budget should when going through be spiked with some serious repercussions for this government. Because how can it be right to bankrupt the country and still get a great pension all the same? Nice job if you can get it.

  • DC

    Basically, it’s time the government monkeys were paid peanuts.

  • DC

    Ireland budget:

    Cowen to cut salary by €14,000.
    And his point is?

    The Irish are facing the worst cuts in the history of the state and Cowen will leave office by taking a cut in salary

    See piece here:

    http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2010/dec/07/ireland

  • Mack

    DC –

    It’s interesting to see that article in the left-leaning Guardian. I’ve been saying similar things here for the last 2 years, much to the chagrin of Irish lefties if some of the comments were anything to go by (and complete and utter denial by left economists on progressive-economy.ie – the truth dawned far to slowly to save our skin)..

  • Mack
  • sammymehaffey

    It also quietly recommends “legal accountability for the bankers, builders and politicians whose cronyism brought Ireland to its knees’.
    Yes the bankers builders and politicians are largely to blame. But one bunch of criminals who are never mentioned or sanctioned are the expensive accountancy practises who signed off the accounts of the banks as OK.
    It is times the partners of these firms were fined heavily for their incompetence. Many of these partners earn over E1M in bonuses.

  • Greenflag

    Mack,

    Your post above at 9.24 am hits nails where they need to be hit and I think will become the conventional wisdom of how the Irish electorate will view this debacle in the coming year or two . The Irish taxpayer should not have to pay for the ‘gambling debts’ of the German, British and other bankers. Could we not sell our ‘failed politicians and property developers and economic policy mandarins ‘ into slavery as reparations ? From what we read of Mr Lenihan’s ranking among the list of EU Finance Ministers we might not even find any buyers 🙁

    There is alas the fact that ‘slavery’ is illegal in western democracies -although it may be making a strong comeback as anarchic capitalism continues to increase the income and wealth gap between the have a lots and the rest in western societies .

    And it was a naive

  • Greenflag

    continued

    And it a naive move i.e the bank guarantee at the time -ironically enough praised as a decisive move by none other than ‘expert’ British economics commentator Simon Johnson 🙁

    sammymehaffey ,

    Excellent timing that comment 11.11 a.m 🙂

    It will take more than heavy fines to rein in the greed and avarice of the financial services sector .It will take mandatory death sentences , life imprisonment no parole , and asset confiscation unto the third generation and even then some of the bastards won’t be restrained .

    The problem right now for the greedy guts of Wall St is how in the midst of an economy with 28 million unemployed with the bailed out big three Bank of America , Goldman Sachs , and Citigroup now bigger than ever , how to dish out over 20 billion dollars in ‘bonuses’ to the wretches who helped drive the USA economy into the ditch ?

    Not to worry -they’ll find a way.:(

  • Cynic

    “Did you think that the Assets Recovery Agency was only for drug dealers?”

    I assume that was why it was abolished then.

  • John East Belfast

    Comrade

    “European taxpayers who will pick up the bill once their banks have to be bailed out by their Govts”

    “John, why are you still repeating this lie ? The European taxpayers and the IMF will profit from the bailout. They’re not picking up the tab”.

    This must be the third time I ahve had to tell you that the picking up of the tab is in the context of post an ROI Debt default

    Mack

    “One final point – it is telling you are upset about the cost to taxpayers in Germany / Britain etc rather than the cost to the banks there.

    That would suggest you feel that the banking systems there won’t able to manage or sustain those loses themselves. Which should tell you that the banks have been imprudent. ”

    Maybe it is just they thought they were lending to a sensible, transparent and corrupt free fellow Western mature democracy ?

    Who’s fault is it that it wasnt ?

    Who were the Regulators, who appointed them and who appointed them ?

    Secondly – where is all the money – a large part of it has been spent on ROI infrastructure, public sector wage bills and ridiculous Welfare Benefits – most of the latter two are still ongoing.

    I am not against some of the Lenders having to share some of the pain – I only comment on here about this issue because some commentators think the ROI should walk away and leave somebody else with the bill. That omebody else will include among other UK Tax payers as the UK Govt pumps more money into RBOS as a result

  • Greenflag

    JEB ,

    ‘they thought they were lending to a sensible, transparent and corrupt free fellow Western mature democracy ?’

    And where would you find one of them i.e a transparent /corrupt free western democracy ? Here are the numbers .

    http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

    On the above linked list you should note that Ireland ranks 14th with a rating of 8.0 above Germany in 15th with 7.9, the UK in 20th place with 7.6 and ahead of the USA at 7.1 in 22nd place and France in 25th place at 6.8 .

    The Scandinavian countries rank in the top ten places along with Singapore and New Zealand , Canada and Australia.

    The other peripheral EU countries rank much lower with Spain at 30 with 6.1 , Italy at 67 with 3.9 and Greece at 78 with 3.5 .

    At the very bottom of the table as one would expect are US Allies benefiting from that export of democracy by ranking in Iraq’s case at 175 with 1.5 and Afghanistan in 176th with 1.4 .

    Bottom of the table in the absence of figures from North Korea is Somalia the pin up idol of those who seem to favour small government or preferably none i.e let the markets decide whether one lives or dies -ranks at 178th with 1.1 -just ahead of the Myanmar military dictatorship which ties with Afghanistan at 1.4 in 176th place .

    Interestingly Italy is more corrupt than some 30 developing nations from across Africa , Asia and South America and 10 countries from the former Soviet bloc in Eastern Europe .

    Greece is perceived as more corrupt than 40 developing nations across the world and about 15 countries from the former Eastrn Europe communist Bloc .

    Also interestingly Italy , Greece , and the USA have dropped in rankings since last year .

    If you are looking for corrupt free the part of the world to look at for an example is Scandinavia although I see that oil rich Norway ranks lower down the list than Denmark, Finland or Sweden .

  • joeCanuck

    Greed as much as cronyism brought the country to its knees. Everyone thought they could get rich without working for it. It was a pyramid scheme built large.

  • joeCanuck

    And not just in Ireland, of course.

  • John East Belfast

    Greenflag

    I think being in the Top 20 is pretty admirable and you are only making my point for me.

    With the ROI at 14 and Germany at 15 then the latter thought they were dealing with one of their own

  • Mack

    JEB –

    Maybe it is just they thought they were lending to a sensible, transparent and corrupt free fellow Western mature democracy ?

    In which case they were incompetent. In all seriousness I am sure that all the senior bond holders were aware they were lending to individual private corporations rather than a ‘fellow Western mature democracy’.

    It’s just you that doesn’t see it – for whatever political reason you are digging yourself deeper into this idealogical hole. If you see yourself as a British mercantilist / nationalist then all is well, but I suspect you do aspire to modern liberal capitalist values…

  • Mack

    JEB –

    With the ROI at 14 and Germany at 15 then the latter thought they were dealing with one of their own

    Case in point Germany were not dealing with ‘ROI’ any more than this is a conversation between Britain and Ireland..

  • Mack

    JEB –

    Secondly – where is all the money – a large part of it has been spent on ROI infrastructure, public sector wage bills and ridiculous Welfare Benefits – most of the latter two are still ongoing.

    Let’s think this through. If a bank lends someone money to an individual who blows it on fast cars and loose women, has a great time but loses his job and can’t repay – the bank has absolutely no recourse to the assets of BMW and Stringfellows. They made a bad lending decision and must live the losses. The individual who rang up the debt must pay the price too.

    I know you understand all this, maybe you’ve been arguing the counter-point too much? I don’t think it is congruent with your own internal core values, it would be sad to see this change your core beleifs – as it may well do (see http://en.wikipedia.org/wiki/Cognitive_dissonance & North Korean brain washing of US POWs etc)..

  • Mack

    Additionally the fact that the Irish state regulates the activities of Irish banks doesn’t make Irish taxpayers resonpible for Irish bank losses (in fact if it did then the banks should not exist as private entities – this is the logical end point of the line of reasoning you are following).

    Banks deal in money which perhaps adds to the fog. Telecommunications firms operating in Ireland by comreg. The fact that they are regulated does not make any losses in that sector the responsibility of the Irish taxpayer. If a telecoms firm goes bust then that is the end. It would not be taxpayers responsibilities to make sure that any German or British creditors to the firm were repaid in full.

  • John East Belfast

    Mack

    I think it is you who has caught on to this Public v Private argument to the point of dilusion due to the severity of the situation.

    Firstly to listen to you you would think the ROI was some kind of Milton Friedman Laissez Faire Utopia. It was/is a Social Democracy with the State crawling all over it – regulating, taxing and spending – indeed it was proud of the fact.

    When the credit taps were turned on they stuck their State noses into the fruits of the trough and went on a spending spree on Public Sector Salaries, Welfare benefits (the envy of many others) and Infrastructure capital projects which we all enjoy to this day. They paid too little taxes and turned a blind eye to corruption and cronyism. When people warned against it they were told to go and kill themselves by the Government. Meanwhile the voters kept re-electing these same people.

    The “they made me do it” is a poor and dishonorable defence.

    The reason you see me commenting here is to bring some kind of balance if not sanity to this collectve mindset that although the Irish spent all the money they borrowed it is not their fault but the stupidity of the people who loaned them it. That is never a defence in a court of law – wise up.

    The main reason of course is the extent of exposure of the British Banks – that is my problem – plus Bond Holders like Aberdeen with who I have personal investments. if your beef was confined to the Euro and with the Germans I would say good luck to you – but it isnt – if the ROI defaults I am going to pay more tax – and considering the size of the ROI public Sector, its lower than what my company pays Corporation Tax and the better benefits you pay to your unemployed then I am simply saying that is not on.

  • Mack

    JEB –

    Bring sanity – yeah right!

    That is never a defence in a court of law – wise up.

    The kind of guilty by shared nationality that you are promoting is not an offence in a court of law.

    Anyway I’m tuning out of this, you are destroying your own credibility, which was quite substantial, in my opinion by preferring this line.

  • joeCanuck

    an individual who blows it on fast cars and loose women

    Isn’t that what George Best said he did with most of his money and that he wasted the rest?

  • John East Belfast

    Mack

    “Let’s think this through. If a bank lends someone money to an individual who blows it on fast cars and loose women, has a great time but loses his job and can’t repay – the bank has absolutely no recourse to the assets of BMW and Stringfellows. They made a bad lending decision and must live the losses. The individual who rang up the debt must pay the price too.”

    Hold on a second – if you want to bring personal bankruptcy and corporate insolvency into the picture you really dont want to go there.

    You dont walk away scot free – you leave with nothing more than the shirt on your back. It is not a pretty place to be

    However you want your cake and eat it – all the benefits of insolvency to start again but to keep all your assets as well

  • Mack

    JEB –

    I see the source of the confusion. The banks are insolvent, with all that that implies. Those senior bond holders are entitled to sell of whatever assets they can in whatever manner to attempt to retrieve what they can – or they can take equity up to them..

  • John East Belfast

    Mack

    The problem is everything has been seriously confused with NAMA – the ROI Govt has been hiving assets off the last two years.

    It is too late to let it collapse now

  • Greenflag

    Jeb,

    ‘With the ROI at 14 and Germany at 15 then the latter thought they were dealing with one of their own’

    So exactly what were the Germans thinking when they were dealing with Greece 78th , Italy 69th , Spain 30th and Portugal 33rd ?

    Perhaps they were’nt thinking at all at all ? Nor were they paying attention when the Germans banks were indulging in risky investment transactions in Dublin which are considered illegal in Germany . And given that both the British and French rank lower than the Germans on the corruption table who knows what their financial institutions were up to with the Irish banks ?

  • Greenflag

    JEB,

    If you end up paying more taxes go and blame your British banks who recklessly invested private funds in the Irish bubble bust . Have you never read of the South Sea Bubble or the Dutch Tulip scam or the Scot’s ill fated Darien adventure . The investors in all of those ‘bubbles’ paid for it -the Scots with their parliamentary independence , the Dutch by ceding world trade supremacy to Britain and those who got stung in the South Sea bubble burst had to go to debtors prison -an unpleasant experience in those days .

    On balance I think SF are closer to the ‘national mood’ on this issue right now which is why Pearse Doherty’s words have been so well received . People don’t actually care whether he’s SF or not . They want to hear a politician cutting through the mumbo jumbo and voodoo talk of the economic experts and clarifying what the establishment politicians have been actually doing these past few years .

  • John East Belfast

    Greenflag

    If massive default – when there remains ample wealth within he ROI – is the “national mood” then “pride being the last thing to go” must be true then

  • Greenflag

    Jeb,

    SF have become the in a manner of speaking the ‘nouveau ultra capitalists ‘ on the bloc as this piece from Doherty illustrates . You can call it ‘political opportunism ‘ but these are the same words that were hurled at the US Congress & Senate for bailing out Wall St . Eventually Congress could not /was not allowed to bail out Lehman Bros which is what brought down the whole house of cards .

    At the time of the bail out my economic side said -don’t save the greedy bastards -but my political side said you can’t have the world’s leading economic power collapsing all of it’s major banks overnight and bringing down not just themselves but the entire world monetary system . It takes decades to build such a system but in todays financial world given the technology and the globalised nature of currency markets the entire system can (even yet ) be brought down in a couple of hours 🙁

    Here’s the SF alternative as per Mr Doherty

    Our alternative says ‘no’ to IMF interference, ‘no’ to EU interference and ‘tough luck’ to the bondholders.
    You gambled, you lost.
    Your debt is bank debt, not sovereign debt and you now have to accept a market solution to a market problem.
    The Irish taxpayer is not your insurance policy.

    As of now the Irish taxpayer is expected to ‘bail out ‘ the Eurozone or more particularly those banking institutions who gambled with their investor’s funds in the Irish property bubble . I believe that the Irish Government back in 2008 when this crisis broke paid 7.5 million euros to Merrill Lynch for ‘advice’ as to what to do re the banks . Apparently Merrill Lynch advised them NOT to make those bank guarantees absolute . The Irish Govt did’nt listen apparently and so we are here a few years later still in the mire 🙁

    One of the articles of faith of the Maastricht Treaty when it was drawn up re the workings of the Eurozone was that the Germans would not be asked to bail out any of the other countries and vice versa . All were supposed to adhere to the 3% budget deficit limit . Every dog in the European Parliament knew that the Greeks fudged the numbers to join -something which Ireland can’t be accused of.

    I expect that things will come to a head next year and that by the time the Irish General Election is over and FF have been cast into opposition that there will be a re appraisal of the Irish situation. There will have to be otherwise the EU runs the risk of default anyway .

    There was an excellent discussion on RTE Prime Time the other day between Dan O’Brien and a German economist , and a Belgian -Washington/Brussels based ‘expert’ and the conclusion seemed to be that at some point if and when the current pressures eased on the Eurozone (i,e upcoming Portuguese , and maybe Spanish and Italian budgetary problems ) that a restructuring of the Eurozone and it’s debt’s could be politically manageable . Right now it isn’t and thus the ‘war’ between the ECB and the national governments with the latter not wishing to yield on their remaining ‘budgetary ‘ powers but at the same time not having or being able to exercise the political nous to get their economies competitive vis a vis the German model .

    I agree that cutting back on some of the more outlandish public sector pay scales is critical for ROI’s future economic growth and there are maybe some areas of social welfare which are over the top but in an economy that has already backpeddled for two years the Government should have been more selective . They have botched up but I don’t yet hear FG or Labour stating they’ll reverse some of the cuts if elected .

    Overall the budget was not as bad as I thought it would be but it will harm FF come election time .

  • Greenflag

    Jeb,

    SF have become the in a manner of speaking the ‘nouveau ultra capitalists ‘ on the bloc as this piece from Doherty illustrates . You can call it ‘political opportunism ‘ but these are the same words that were hurled at the US Congress & Senate for bailing out Wall St . Eventually Congress could not /was not allowed to bail out Lehman Bros which is what brought down the whole house of cards .

    At the time of the bail out my economic side said -don’t save the greedy bastards -but my political side said you can’t have the world’s leading economic power collapsing all of it’s major banks overnight and bringing down not just themselves but the entire world monetary system . It takes decades to build such a system but in todays financial world given the technology and the globalised nature of currency markets the entire system can (even yet ) be brought down in a couple of hours 🙁

    Here’s the SF alternative as per Mr Doherty

    Our alternative says ‘no’ to IMF interference, ‘no’ to EU interference and ‘tough luck’ to the bondholders.
    You gambled, you lost.
    Your debt is bank debt, not sovereign debt and you now have to accept a market solution to a market problem.
    The Irish taxpayer is not your insurance policy.

    As of now the Irish taxpayer is expected to ‘bail out ‘ the Eurozone or more particularly those banking institutions who gambled with their investor’s funds in the Irish property bubble . I believe that the Irish Government back in 2008 when this crisis broke paid 7.5 million euros to Merrill Lynch for ‘advice’ as to what to do re the banks . Apparently Merrill Lynch advised them NOT to make those bank guarantees absolute . The Irish Govt did’nt listen apparently and so we are here a few years later still in the mire 🙁

    One of the articles of faith of the Maastricht Treaty when it was drawn up re the workings of the Eurozone was that the Germans would not be asked to bail out any of the other countries and vice versa . All were supposed to adhere to the 3% budget deficit limit . Every dog in the European Parliament knew that the Greeks fudged the numbers to join -something which Ireland can’t be accused of.

    I expect that things will come to a head next year and that by the time the Irish General Election is over and FF have been cast into opposition that there will be a re appraisal of the Irish situation. There will have to be otherwise the EU runs the risk of default anyway .

    There was an excellent discussion on RTE Prime Time the other day between Dan O’Brien and a German economist , and a Belgian -Washington/Brussels based ‘expert’ and the conclusion seemed to be that at some point if and when the current pressures eased on the Eurozone (i,e upcoming Portuguese , and maybe Spanish and Italian budgetary problems ) that a restructuring of the Eurozone and it’s debt’s could be politically manageable . Right now it isn’t and thus the ‘war’ between the ECB and the national governments with the latter not wishing to yield on their remaining ‘budgetary ‘ powers but at the same time not having or being able to exercise the political nous to get their economies competitive vis a vis the German model .

    I agree that cutting back on some of the more outlandish public sector pay scales is critical for ROI’s future economic growth and there are maybe some areas of social welfare which are over the top but in an economy that has already backpeddled for two years the Government should have been more selective . They have botched up but I don’t yet hear FG or Labour stating they’ll reverse some of the cuts if elected .

    Overall the budget was not as bad as I thought it would be but it will harm FF come election time .

    As for pride ? It doesn’t pay the mortgage and the last time I was in Tesco’s they were’nt accepting it in lieu of cash or debit/credit cards 🙁