Anglo Going Going….!

August 23, 2010

Brian Lenihan is a guy we should all admire none the least for his tremendous courage in dealing with his illness. He has other great qualities no doubt about that. But he has one great Achilles heel. Unfortunately, for Ireland, its a quality that has had very bad consequences for Ireland’s future prosperity and success. Brian Lenihan hasn’t a clue about economics. And here’s the evidence from yesterday’s Beal Na Blath speech:

“The successful resolution of the three key challenges – competitiveness, the public finances, and the supply of credit – requires that all those in positions of leadership be straight with the people. Solutions that would make Ireland an international pariah, walking away from our financial commitments or from our EU obligations, are just not credible. We must be realistic in our approach to this crisis.”

From the outset, Brian has equated standing up for the banks as standing up for the integrity of Ireland Inc. Forget about Lehmans, Northern Rock (see advice here on need for greater transparency/quarterly reports, Cajasur in Spain and banking failures in the US in their hundreds, Ireland Inc cannot let Anglo fail as it equates not to saving Ireland Inc, but rather turning Ireland Inc into a pariah state. Such remarks show Lenihan has been truly duped by the financial interests he is meant to regulate and is completely under their sway.

Not since Domingo Cavallo’s reckless policies in Argentina in the early 1990’s, has such a poorly judged response to any economic crisis been felt.

“In early 1991, under the rule of Minister of Economy Domingo Cavallo, executive measures fixed the value of Argentine currency at 10,000 australes per United States dollar. Furthermore, any citizen could go to a bank and convert any amount of domestic currency to dollars. To secure this “convertibility”, the Central Bank of Argentina had to keep its U.S. dollar foreign exchange reserves at the same level as the cash in circulation. The initial aim of such measures was to ensure the acceptance of domestic currency, since during 1989 and 1990 hyperinflation peaks, people had started to reject it as payment, demanding U.S. dollars instead. This regime was later fixated by a law (Ley de Convertibilidad) which restored the peso as the Argentine currency, with a monetary value fixed by law to the value of the U.S. dollar.

As a result of the convertibility law, inflation dropped sharply, price stability was assured, and the value of the currency was preserved. This raised the quality of life for many citizens, who could now afford to travel abroad, buy imported goods or ask for credits in dollars at very low interest rates.

But Argentina had external debts  to pay, and it needed to keep borrowing money. The fixed exchange rate made imports cheap, producing a constant flight of dollars away from the country and a progressive loss of Argentina’s industrial infrastructure, which led to an increase in unemployment.”

But talks are underway with European Authorities to bring about closure for Anglo are currently underway. Honahan Governor of the Central Bank sees investors running away from Ireland Inc because of increasing and unresolved losses at Anglo further crippling Ireland Inc. Its a simple either or situation, either bring Anglo to a conclusion or bring Ireland Inc to default, perhaps both are inevitable at this point, but the former option needs adoption right now to static kill Anglo damage. Contrary to what Lenihan believes, we cannot afford to save both Ireland Inc and Anglo, its one or the other!


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