The Southern Bank Robbery
Kevin Quinn (ISN)
For the last few months, there’s been a deafening clamour from the media and our political elite, telling us that we need to restore the public finances by slashing public-sector pay, unemployment benefit and other forms of state spending. In the meantime, we’re supposed to forget all about the main reasons why we find ourselves in this mess: the collapse of the property bubble, the meltdown of Ireland’s banking system, and the corrupt, back-scratching response of the Fianna Fáil-led government to the crisis. If we remember how we got into this crisis, it soon becomes clear that government cutbacks are not a “grim necessity” if the economy is going to recover – they are the price we must pay for Fianna Fail’s determination to bail out its cronies.
In autumn 2008, Ireland experienced an economic and financial “Black September” which marked the end of the Celtic Tiger economy. In September of that year the entire Irish financial services sector teetered on the brink of collapse .A decade of reckless lending to land speculators and developers meant Irish banks were effectively ruined when the property bubble burst; but for the intervention of the Irish state our banks would have faced whole-scale insolvency. Since then Ireland’s privately-owned banks have been on financial life-support courtesy of the Irish taxpayer.
Indeed, Brian Cowen’s benevolence towards the banks knows no bounds. He is on record as saying that whatever “cheques need signing” to save the banks, they will be forthcoming. The government’s generosity towards the banks has been rationalised in terms of “maintaining an effective banking system” and “sustaining the credit flow in the economy”. In reality, the over-riding priority of this right-wing administration is to preserve at any cost the private status of the banks. For ideological reasons, Fianna Fáil and its Green Party lackeys have adopted the most expensive bail-out strategy to ensure that Ireland’s largest and most powerful corporations – the banks – remained in private ownership. The Irish financial sector stands at the apex of country’s private enterprise economy and for this reason the FF/ GP Government would not consider any dilution of its “independence”. Hence it rejected out of hand Fine Gael’s “Good Bank” solution and the Labour Party’s temporary nationalisation plan.
Disregarding public opinion, which opposed a bail-out of the banks and favoured nationalisation, the government has defiantly pursued its own agenda regardless of cost and public sentiment. To date its re-capitalisation programme has seen the state pouring €7 billion into the vaults of the privately owned AIB and Bank of Ireland. A further €4 billion was pumped into the insolvent Anglo Irish Bank. This latter sum is equivalent to the amount “saved” in the savage December budget, when cuts were made to social welfare payments, child benefit and public service pay.
Fianna Fáil’s good will towards the banks didn’t stop there. Finance minister Brian Lenihan announced that the State would acquire their toxic assets in order to clean up their balance sheets. To facilitate this, a new statutory body – christened the National Asset Management Agency (NAMA) – has been established to borrow €54 billion in order to buy those toxic assets at inflated prices. NAMA’s role is to sit on the assets and pray that property prices rise at some stage in the next couple of years. Meanwhile it is to look after the huge interest bill on the €54 billion loan. Its other function is to manage the very generous €2.64 billion costs set aside to run NAMA over the next decade. Out of this fund, investment bankers, lawyers, auctioneers and estate agents will be paid for their professional services. That’s a whopping €240million a year slush fund.
The recapitalisation of the private banking sector and NAMA represent the largest transfer of public wealth into private hands in the history of the state. So will the Government’s strategy work? The well-respected organ of international business opinion, the Financial Times, was not impressed: it voted Brian Lenihan the 2nd worst performing EU Finance Minister in 2008 and relegated him to the bottom of its charts for 2009. The FT described NAMA as “bold” and “untried”. Morgan Kelly, professor of economics at UCD, had this to say: “As well as being expensive, history shows NAMA-style bad banks to be profoundly corrupt and corrupting institutions. Bad banks are the means for governments to choose which oligarchs will survive to emerge stronger than before. They do not just happen to behave in a corrupt and anti-democratic manner, it is what they are designed to do.”
The Government’s insistence that NAMA and the recapitalisation programmes will lead to the freeing up of credit was flatly contradicted by Eugene Sheehy, CEO of AIB, when he appeared before the Oireachtas Finance Committee in November 2009. Mr Sheehy told the Committee: “If people think the day after NAMA that the country is going to be awash with money – it is not going to happen.” In the aftermath of the September 2008 crisis, the two largest banks could have been acquired by the State for as little as €5billion, giving direct control over the availability of credit. After opting for the massively expensive recapitalisation and NAMA projects, Brian Lenihan admitted that “it might be fair to say that what we are doing is struggling to maintain a private presence in our bank sector”. God knows what price we will end up paying so Lenihan can win that “struggle”.
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