Bad Bank Bad Economy Part 1

March 16, 2015

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You think banks tampered with asset prices in Ireland’s property bubble economy that became a dead a dead cat of financial meltdown?

The whole nefarious edifice of 100% mortgages, subprime lending, madcap lending led by the banks, responsibility?

Professor Honahan last week appeared again before the Banking Inquiry. Increasingly looking like Mr Byrnes of the Simpsons he sought to disingenuously disengage from any responsibility in the whole debacle.

At the outset Honahan refers to a letter he wishes to point out would have led to alternative course of action the government might have taken in September 2008. He points out he himself had no involvement in the guarantee decisions, his views are based on the May 2010 report he prepared on his review of financial stability leading into the meltdown.

Honahan criticises the guaranteeing of subordinated debt, draws attention to how the government neutralised its capacity to deal with the subsequent meltdown by being unable to close bad banks because guaranteed loans could not be repaid. He criticises the failure to consult as making it difficult for the government to ask for burden sharing.

But we need him to explore and explain the role of the ECB and the Irish Central Bank in the debacle. Show us documents, evidence of meetings and discussions in what led up to the meltdown. He should though not Governor at the time, have access to archive records and be able to grill his peers?

But he is questioned on none of this!


Honahan reflects on a letter he wrote in Feb to the inquiry in which he speculates on the actual costs  if the government in a hindsight scenario if they ‘had been convincingly advised’ of the likely actual magnitude of the costs of the guarantee.

The government had no information at hand indicating the actual likely magnitude of the cost of the guarantee.

Honahan refers to a letter he wrote in Dec 2008 to Brian Lenihan “hard to avoid the conclusion if this reasoning is correct that Anglo is insufficiently capitalised, should be intervened and wound up”.

Note he distances himself from the Irish Central Bank  as he was not Governor of the Irish Central Bank at the time but a university professor and an academic.

Honahan also gives the view that without the guarantee ELA (Emergency Liquidity Assistance) could have been extended to the Irish banks by the ECB.

Clearly ELA would have led to a much lower cost to the Irish economy compared to sudden meltdown and collapse. ELA could have stabilised the banks and avoided the odious ‘promissory note’ and odious token interest rates imposed by troika bailout.

For his role in negotiating such odious and penal token interest coupons on Irish debt, his obedient compliance and lack of backbone in negotiating a better deal; for jumping ahead of Brian Lenihan in announcing bailout, he should have been fired. In particular, he should have been fired for his role in laundering the €30bn of Anglo promissory note into long-term bonds sealed by contract the current Irish government laughably claim as having a major part in the saving of €50bn against the total cost of Irish debt.

We are still awaiting the arrival of Enda Kenny’s spreadsheet describing the nature of these savings! It won’t be arriving soon or ever.

Its questionable whether the Banking Inquiry …

“Deputy Pearse Doherty, Senator Sean D. Barrett,
Deputy Joe Higgins, Senator Michael D’Arcy,
Deputy Michael McGrath, Senator Marc MacSharry,
Deputy Eoghan Murphy, Senator Susan O’Keeffe.
Deputy Kieran O’Donnell,
Deputy John Paul Phelan,


…have the competence to deal with a wily performer of the calibre of Honahan who can jump willy nilly between three roles, Governor of Central Bank, university professor and author of the Honahan report.

We simply need to know 3 things:

1. who proposed the banking guarantee

2. who supported it

3. why is this being covered up?


A more likely source of information helpful to unearthing the answer to such questions should come from the ninth governor of the Central Bank of Ireland


Perhaps Tony Grimes, David Begg, Gerry Danaher, David Doyle, John Dunne,
Jim Farrell, Alan Gray, Brian hillery, Patrick Neary, Deirdre Purcell,
Dermot O’Brien, Brian Halpin, Directors of the Central Bank of Ireland under its Governor, John Hurley, could be individually brought before the Banking Inquiry in closed sessions, to make statements on the role of the Irish Central Bank in its management of the Irish economy and in its relationship with ECB.

Begin with the following piece of rubbish stamping approval on ‘healthy’ Irish banks.

“After a long period of extremely buoyant conditions, global financial markets experienced a substantial adjustment in the second half of 2007 and into 2008. The proximate cause for this correction was the downward valuation of securities linked to sub-prime mortgages in the US. Central Banks responded decisively to counteract this with the ECB in particular taking effective action in the light of the pre-existing arrangements that ensured banks had an extensive range of collateral that could be used to access central bank liquidity through the normal tender process. The Irish financial sector was, of course, impacted like all others by these global developments. Medium- to long-term funding was not as readily available on wholesale markets as had been the case. However, Irish banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. ”

We need Hurley and each member of the Board of the Central Bank at that time before the committee to explain how Hurley got this so wrong. What was the effective action taken by the ECB to protect Ireland? What advice re the ‘guarantee’ was given by the Irish Central Bank? Why did it not stop the guarantee and handover to the ECB for ELA? What oversight did it exert in monitoring  the Irish banking sector.

How did Hurley and colleagues contribute to the tanking of the Irish economy? How did they allow the ‘Irish guarantee’ become the pawn protecting the knights of European banking in Germany and France and the US; how did they allow Ireland to score the greatest own goal in global financial history?


The banking expertise of members of the Banking Inquiry committee must be questionable. Professional expertise beyond political competence is required to dig deeply into veins of truth and sieve out the answers we need.

 The Banking inquiry requires more professional expertise.
Why are people of the calibre of Bill Black sitting not sitting on the Irish Banking Inquiry?
Is it to protect government from revelations of political corruption in the awarding of developer loans that stoked the Irish property bubble? Were certain stakeholders out to protect their own savings in Anglo irrespective of any cost to the Irish taxpayer. Lots of Irish institutional and private stakeholders stood to lose their deposits in Anglo.
We need people on that committee of this calibre:

“He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.Black developed the concept of “control fraud”–-frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined and kill and maim thousands. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.”
 Or we have political show boating, entertainingly nuanced disingenuous cover-ups of the activities of incompetent and corrupt bankers feeding incompetent and equally corrupt political handlers with developer loans from hell. Again.

Its one thing failing, its quite another not knowing how  failure took place or putting in place failed austerity measures guaranteeing failure into the future.

Beware those untouched by recession and austerity who preach austerity for others claiming austerity pills for others are working while the economy is slowly getting better thus making life more agreeable for themselves alone…
till again

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