In Banksters, RTE business correspondent, David Murphy, and Martina Devlin, columnist with the Irish Independent, seek to chart the rise, collapse and rescuing of the Irish banking system. The story they tell is split into four parts – the origins of the crisis, an overview of each of the banks and the key banking officials, the crisis, and the fallout. Their tale can essentially be boiled down to the following:
1) In the early 2000s, Irish banks stopped using their deposits to underpin loans and started to borrow money from other (international) banks and to offer easier forms of credit to home buyers (such as 100% mortgages over longer time spans) and investors (such as deferred interest payments).
2) Property prices, especially development land spiralled exponentially and unsustainably upwards (and did not meet stress test criteria) and yet the bankers kept lending money to developers driven by personal bonus schemes and inter-bank rivalry to generate record annual profits.
3) Regulation was very light and the financial regulator failed to intervene in poor and suspect banking practices or overheated property speculation; the Irish Central Bank could not directly influence consumer spending as it did not have control of interest rates (which resided with the European Central Bank); and the political establishment were in cahoots with the developers and were not only blind to the potential problem but poured scorn on anybody who tried to warn of the impending disaster. Crony capitalism was in full swing.
4) As property markets slowed and financial crash hit, international banks stopped lending Irish banks money.
5) Banks thus didn’t have funds to lend to investors and businesses, nor did they have the means to pay back loans to international banks.
6) This prompted a share price collapse. (Between May 2007 and November 2008 Irish shares fell in value from €55b to €4b).
7) Which in turn spooked depositors who, worried that the bank might fail, withdrew their deposits to move them to a more secure institution.
8 ) This took all the liquidity out of the Irish banking system and reduced the share price further.
9) A run on the banks thus became inevitable without intervention which, given that the Irish government had decided that the banks could not be allowed to fail, came in the form of the Irish government underwriting the entire banking network (to the tune of €440b), thus halting the outflow of deposits.
10) By guaranteeing the banks, the Irish government in turn put the country’s future on the line, making tax payers liable for all bad debts.
11) Once the brake was in place the Irish government needed to decide how to proceed to put liquidity into the banking system. Initially it wanted to avoid recapitalisation and nationalisation and instead it tried to force mergers between financial institutions to gain economies of scale and to recapitalise the banks through private equity investment.
12) Ultimately though it had to nationalise Anglo-Irish Bank and partly recapitalise the others, taking the role of a preferred shareholder, and also created NAMA (National Assets Management Agency) – the world’s largest, state-owned, property portfolio – to take the bad debts off the banks’ books.
Like Frank McDonald and Kathy Sheridan’s, The Builders, Banksters largely focuses on individual actors (bankers, regulators, and politicians), their careers and their decisions. It is certainly the case that Ireland had some maverick bankers – Sean FitzPatrick at Anglo Irish Bank and Michael Fingleton at Irish Nationwide Building Society – who used their institutions as their own private finance houses and were loose and fast with banking practice. It is also the case that there were many other bankers who lost sight of the long-term as the euro signs clouded their vision and who became much too cosy with developers. It may well have also been the case that the chiefs of the Central Bank and the Financial Regulator were not strong enough to take on the bankers. But all that said, whilst individuals did play a role, it was a systemic failure of financial governance that lies at the heart of the banking crisis, and the responsibility for that rests with government. Individuals act within an institutional and legal system which is framed by policy. If the system and policy framing is inadequate or flawed then problems will inevitably arise.
Reading between the lines, and moving beyond the actors, what Banksters ultimately demonstrates – and Dubai is now also illustrating – is that it is extremely dangerous to use a property bubble as an engine of growth, especially within a neoliberalised economy where regulation is essentially left to the free market. If history has taught us anything, it is that bankers and developers – the arch-capitalists and short term, greed merchants – cannot be trusted to work for the greater good of society. If left to their own devices they line their own pockets. And yet, we chose to ignore history; to be suckered into thinking that this time round it would be different – that banking could be left to the bankers. It may well have been the case that 980 people worked in the Central Bank and Financial Regulator but they didn’t have the mandate or the tools to rein in what the banks were doing, and government policy was one of free-market, pro-growth. The lesson, once again, is that banking is too important to be left to bankers. And while politicians, developers and bankers insist that they were victims of a global financial meltdown, this is highly disingenuous given that were many countries, such as Canada, Spain, and Australia, that weathered the storm reasonably well because they had properly overseen their banks.
Banksters is what I’d call an okay read. It provides an overview of the banking crisis to date in Ireland, but by focusing on individual actors and a day by day account of the crisis it fails to move beyond description to explain in detail why the crisis arose. The narrative is a little uneven in places, with a couple of chapters being noticeably weak, and the ordering of the material seems a little odd at times. The first two and last two chapters are the strongest, providing a coherent summary of the crisis and raising important questions that need to be reflected on and answered. Overall, the book sets out the crisis in an engaging fashion and easy to understand terms, helping to expose in limited terms how Ireland’s Celtic Tiger was a cleverly disguised paper tiger.
Sunday December 06 2009
Multi-MILLIONAIRE Dr Michael Smurfit has refused to comment on suggestions he made that his business partner -- leading property developer Gerry Gannon -- is not currently contributing to the upkeep of the prestigious K Club in Co Kildare.
The business titan shocked members of the private club when he revealed he is now shouldering the entire costs of the business venture he took on with Mr Gannon in 2005.
The claim was made in a letter read out on behalf of Dr Smurfitat an extraordinary general meeting (egm) shortly after 7pm last Monday night.
Outlining the serious financial difficulties facing the club in grips of the economic downturn, he told members: "I am the sole financial supporter at this time."
The packaging tycoon made the admission as he outlined the reasons to members of the private golf club as to why he would not be able to reduce their annual fees for golf membership in the coming year -- which stand at €6,950 plus VAT.
"Dr Smurfit wanted to make members fully aware of financial situation as it stands. He said that he has a responsibility as owner to ensure that the business continues in a viable manner," said one K Club member.
"His letter explained to members, who had called the egm to discuss a reduction in fees, that if they did not accept what he was saying then he couldn't reduce the fees and if they didn't accept that they would have to leave, but he would regret any member doing that."
Dr Smurfit told the Sunday Independent from his office in Monaco that he had "no comment" to make on the matter. Mr Gannon did not respond to calls or written requests for an interview.
Mr Gannon and Michael Smurfit bought the Kildare golf club in June 2005 from the thenJefferson Smurfit Group for €115m. As part of the deal, the businessmen also acquired 100 acres of farmland adjoining the course.
The estate became a Mecca for Ireland's mega-rich -- including Irish racing tycoons John Magnier and Vincent O'Brien, businessman Ben Dunne, property developer Seamus Ross and Ballymore boss Sean Mulryan, each of whom purchased properties on the land.
In 2006 the pair went on to bring the world's most prestigious golf competition, the Ryder Cup, to Ireland amidst much trumpet and fanfare, turning the focus of the golfing world towards the small Straffan village and bringing with it a showcase of top-class golfers fromTiger Woods to Darren Clarke.
Roscommon-born Gerry Gannon, who is rarely seen without his trademark hat, is one of the country's best-known property developers, having amassed some €182m from his building and development activities.
Currently living an expansive property in Howth, Co Dublin, with his wife and four children, the symbols of his achievement at the height of the boom included his chauffeur-driven Range Rover and a Bell 407 helicopter, which costs close to €1.5m new and a yacht.
Mr Gannon (57) went down in Celtic Tiger folklore as the developer who would travel in his chopper to survey the area below, spot a stretch of green land, touch down on it and decide to snap it up so he could expand his empire.
He received unwelcome publicity last year when he was named as a member of the so-called 'Anglo Golden Circle' -- a group of 10 businessmen who bought 10 per cent of Anglo Irish Bankin the summer of 2008 from billionaire Sean Quinn using funds supplied by the bank.
- NIAMH HORAN EXCLUSIVE
Sunday December 06 2009
A CURATE who launched an obscenity-laden tirade against the Revenue Commissioners over a €433,000 personal tax settlement is now to take some time away from his ministry.
In a special statement to be read out at all Masses in Blarney,Co Cork, today the Diocese of Cloyne confirmed that Whitechurch curate Fr Tadhg O'Donovan will take some time away from his church ministry to focus on prayer and personal reflection.
The message follows a meeting between the Archbishop of Cashel and Emly, Dr Dermot Clifford, and Fr O'Donovan last Friday.
The message reads: "Archbishop Dermot Clifford met Fr Tadhg O'Donovan on Friday afternoon. At that meeting it was agreed that Fr O'Donovan will take some time away from his parish ministry for a period of prayer and personal reflection. Archbishop Clifford also instructed Fr O'Donovan to cease any involvement with commercial activity of any kind."
Fr Tadhg O'Donovan has been unavailable for comment since he hit the headlines last Tuesday -- firstly, for the sheer scale of his personal tax settlement; and, more seriously, for his foul-mouthed rant against tax officials.
Fr O'Donovan -- smarting from his inclusion on the 2009 list of tax defaulters -- claimed the Revenue Commissioners were "the biggest shower of b******s on the planet".
After the inexplicable expletive-laden rant, he also blamed tax officials for several suicides inIreland over recent months.
The Mallow-born cleric -- who is now based in Whitechurch in the Diocese of Cloyne -- had been prosecuted by Revenue in March 2008 over the under-declaration of rent income on his property.
While Diocesan officials refused to comment on details of the archbishop's meeting with Fr O'Donovan on Friday, the Sunday Independent understands that the curate was left in no doubt as to the serious view taken by the hierarchy of the controversy.
Furthermore, Dr Clifford is understood to have sought assurances that nothing similar will ever happen again -- and that Fr O'Donovan's tax affairs will now be kept in good order.
Meanwhile, the Bishop of Cork and Ross, Dr John Buckley, also issued an apology after parishioners walked out of Mass in a city church when a priest said the clergy were not solely responsible for child abuse. Fr Richard Hurley also hit out at comments made by Justice Minister Dermot Ahern that "a collar will protect no criminal".
After Fr Hurley's comments, several members of the congregation walked out in protest at what were termed "hurtful" remarks. Several of them later contacted the bishop to express their concern over the comments.
Fr Hurley then went on local radio last week to explain his comments -- and insisted he did not mean to offend anyone. He also said the priority now should be child protection measures.
But he complained that recent commentaries had effectively tried to make criminals out of all of the members of the clergy.
Bishop Buckley met Fr Hurley last Wednesday and a special statement was issued on the matter.
The statement said: "Fr Hurley is upset that his comments were a source of hurt.
"Bishop Buckley understands that Fr Hurley will continue to express his apologies for his remarks."
- Ralph Riegel
Sunday December 06 2009
Like Tiger Woods, Fianna Fail has finally been forced to break off its long affair with its spoiled public sector mistress. Fine Gael will be forced fully to follow suit. That leaves the Labour Party as the last sugar daddy of a privileged caste of permanent and pensionable employees whose sense of entitlement has estranged them from the body politic in the past two years. Fat good this opportunism will do Labour.
First, supporting a minority at the expense of the majority will finish Labour's chances of becoming a mass party of social democracy. Second, it will make Labour a toxic partner as the prospect of that party in power will alienate a politically alert private sector class.
Far from copping this on, most of the media are still caught in the cabin fever of consensus.
So this weekend you will be reading reams of rubbish about (a) how the backbenchers revolt broke the pay deal; and (b) how breaking off talks will break Brian Cowen. Not so, not so.
First, the Fianna Fail backbenchers were not in revolt. They were trying to save themselves from revolt. They were responding to the rough beast of the private sector, woken by recession, and now slouching towards political power.
But weeks before the backbenchers reared up, Brian Cowen and Brian Lenihan had reached the same cold conclusion. They would wait to the last second to see if the public sector unions could deliver €1.3bn.
If not they would cut public sector pay. Any other course of action would anger the 1.8 million private sector workers who have received a recession crash course in public sector pay, pensions and perks.
That is not to say that the two Brians were happy to be hangmen.
Like all professional politicians they are prone to see the world through the prism of the public sector. But as I said in the Senate last week, gazing into the sun of the public sector is going to cause permanent political blindness.
Like Tiger Woods, Fianna Fail (and Fine Gael) will have to give up their pampered mistress and wipe the texts. That is because the private sector wife has finally found them out. In numerical terms no party can now win a General Election without her.
That is why Brian Cowen bit the bullet. Far from breaking him, as the media muppets make out, it will be the making of him. Because last April, in the aftermath of the 7 per cent levy, a Red C poll revealed that against all the odds Fianna Fail were five points up and Labour five points down.
Why? Here is my answer from last April. "Fianna Fail's five-point bounce was the private sector's reward for the levy on the public service. Conversely, Labour's five-point loss comes from the private sector perception that Labour looks after the public sector."
As soon as the anger and pain of the Budget has been absorbed, Brian Cowen will get the bounce that follows from an act of good authority. Furthermore, if Fianna Fail and the Greens do not wobble (and if Fine Gael and Labour continue to floddle on public sector pay) the Government will go into the next General Election with a good fighting chance.
Last Friday was a political watershed. From now on, in political terms, the private sector wife, not the pampered public sector mistress, will call the shots. She will fire them too.
Get in her way and you will get a fatal political wound.
- Eoghan Harris
Wanted 14,000 new recruits for a new police force?
Sack the bas*ards.! What good did they ever do for the country with widespread criminality worse than ever.!
Saturday December 19 2009
One of his biggest deals was the €288m purchase of the Burlington Hotel in 2005. Other high-profile investments are stakes in the Shelbourne and Conrad Hotels as well the Allianzoffices on Burlington Road.
But like many developers, the value of his investments slumped during the downturn.
In the most recent Ireland's Rich List, his status fell from 54th wealthiest to 209th and the value of his wealth dropped from €220m to less than €42m.
And Mr McNamara has been quick to bite the bullet and offload some investments.
In 2007, he sold his 14.5pc shareholding in the Superquinn chain of supermarkets which he bought with other investors for €450m in 2005.
He has also walked away from agreements to develop six public-private partnership housing developments in Dublin City locations, including one near Connolly Station. With house prices falling, it no longer made financial sense to build social housing and finance their construction by selling off apartments at below-peak prices.
Mr McNamara is now trying to sell off a number of city centre properties, including two shops in Grafton St. He is also trying to sell the Ormonde Hotel on Dublin's quays.
Mr McNamara's investments also stretched abroad.
At the end of 2007, he teamed up with a division of Anglo Irish Bank to buy two central London office properties for £220m.
The investment was made by Mr McNamara's Grattan Properties and Anglo Irish Private Banking to buy the Finsbury Dials office scheme on Chiswell Street in the City of London.
More recently, he turned to graveyards for investment opportunities. He told Fingal County Council last month that he had a "particular interest in establishing a burial ground" at Priorswood House in Castleknock, west Dublin.
Apart from the controversial Irish Glass Bottle site, his current biggest property development is the almost-completed Elm Park Project which won awards for its apartment and offices.
At one stage, he demanded that apartment buyers in this development share any profits with him and his business partner Jerry O'Reilly. But when the market turned, not only did he slash prices but he also offered buyers special loan deals to entice them to buy.
Earlier this year, he got planning permission for a major office development on the Burlington Hotel and adjoining Allianz office block site.
However, he announced he would postpone the plans until the market improved. Bank of Scotland Ireland is a shareholder in the company that owns the Burlington, which continues to operate as the largest conference and banqueting hotel in Dublin city centre.
He owns a chain of hotels in Dublin and around the country. He has submitted major plans for the redevelopment of Tara Towers in Booterstown, Co Dublin, as well as the Parknasilla Great Southern Hotel in Co Kerry. He also owns the Cork International Airport Hotel.
His contracting business, Michael McNamara and Co Ltd, has some of the most prestigious public and private sector building contracts and clients include Trinity College and Harry Crosbie's Point Village.
Although the Government is cutting back on its spending on construction projects, McNamara's contracting division should retain its share of a smaller market.
- Donal Buckley and Ailish O'Hora