About a year ago on here there was an entry about the meeting on the night of 29th of September 2008/early morning of 30th September 2008, the meeting which give rise to Ireland – population 4.5m, GDP €160bn – guaranteeing the liabilities, all €440bn of them, in the Irish banking system. Subsequently that system imploded but was maintained in a quasi-stable state at huge cost to the nation. Although it may take years to assess the final bill and it may never be possible to assess the opportunity cost – what the nation could have done with the money instead of supporting a banking system – it seems that the final bill will conservatively be €50bn and may be in the €60-70bn range. Immediately prior to the banking guarantee, the country had a commendable 25% debt as a % of GDP, a primary budget surplus, nearly a decade of healthy economic growth, almost no real unemployment and we were held up as a model of economic competence.
Today the country has unemployment of 14.5%, the scourge of emigration has returned, we have a national debt heading towards 110% of GDP (130%+ of the more representative Irish GNP) of which 30-40% of GDP relates to the cost of dealing with the banking disaster, we have an annual deficit of €18bn and are only hoping to get it below 10% next year. There has been a reluctant collapse in asset values, particularly property and bank shares, most of the domestic banking system has been effectively nationalised. It would go too far to blame one meeting in September 2008 for the change in circumstances, but it seems that the meeting was a least pivotal – from it flowed the banking guarantee, the placing of unrealised banking losses on the shoulders of the nation, and the repayment of banking debt.
As for the meeting which started on 29th September, 2008 at around 8pm, the entry on here last year, compared it to the meeting portrayed in that HBO film, Conspiracy; the film which told the story of the infamous meeting in Nazi Germany in 1941 which was pivotal to the subsequent murder of Jews and others in concentration camps. When the Financial Times linked to the entry, there was localised outrage that the extermination of the Jews could be likened to the economic disaster in Ireland. For the first time in my life, I came across the term “Godwin’s Law” which refers to the phenomenon of ultimately comparing all misfortune to the World War 2 holocaust. Though to be honest I thought it should be renamed the “Lord Voldemort Law” from Harry Potter as the aim of the Law seemed to be to suppress any reference to that “which shall not be mentioned”. But this is a blog for adults, not children.
As for the infamous meeting which started on 29th September, 2008 – and whose 3-year anniversary occurs today – as a nation there is still a sense of shock and incredulity that what seems like a snap decision was taken which exposed the nation to debts of nearly three times GDP. This entry pieces together most of what is now in the public domain on the context, course and content of the meeting. Alas, from this armchair perspective there is no smoking gun, just an everyday tale of professional politicians with a mediocre grasp of events, making mistakes, not asking the right questions and coming to the wrong conclusion (and by guaranteeing historical bond debt, it was the wrong conclusion). Outside the political circles, some may have suppressed or misrepresented information, but even there, there is evidence of denial and poor assessment of risk; but all of that and the wider context of the 29th/30th September 2008 meeting will be for another day…
| 27th | Saturday, Minister Lenihan is at a Fianna Fail fundraising event inGowranPark in Kilkenny when he takes a call from President of the ECB, Jean-Claude Trichet who reportedly tells Minister Lenihan to expect an urgent call from CBI Governor, John Hurley later that day. Minister Lenihan takes initiative and rings John Hurley |
| 28th | Sunday morning, Minister for Finance Brian Lenihan meets with Central Bank ofIreland Governor, John Hurley at the Central Bank onDame Street,Dublin who advises Minister Lenihan that several banks inEurope are facing crisis including Fortis and DEPFA.Sunday Business Post publishes article by economist David McWilliams in which he advocates a guarantee, claiming banks face a liquidity problem, guarantee depositors/creditors but not shareholders.
Sunday, Green Party Minister for the Environment Heritage and Local Government, John Gormley claims to have met with Brian Lenihan to discuss the guarantee/nationalization. Minister Gormley claimed that the guarantee was discussed “on-and-off” for about a week. Minister Gormley claims that the option that he, Min Gormley, had gone for was the nationalization of Anglo and a Bill was drafted to effect that nationalization. Minister Gormley claimed on the Marian Finucane programme on RTE radio on 4th December, 2010 that there was a Cabinet meeting on the Sunday and the “arrangements” were made after going “through it in detail” British Chancellor to the Exchequer, Alastair Darling says he spoke with Minister Lenihan who “assured him the Government would not give a blanket guarantee to the banks” |
| 29th | Monday“Early Monday” – meeting between Department of Finance, Financial Regulator, Central Bank and CEOs of AIB, Eugene Sheehy, BoI, Brian Goggin, EBS, Fergus Murphy and others. There were claims that banks were near “tipping points” (understood to be a reference to liquidity) and that there was speculation that one unnamed bank was at severe risk of going under. Nationalisation was discussed but dimissed.
Morning: Announcement of nationalization of Bradford and Bingley Building Society’s mortgages and loans and plans to sell off its deposit book toSantander Announcement of nationalization of Fortis bank by Belgian and Luxembourgian governments and the German state/banking sector funding ofGermany’s Hypo Real Estate. 1pm, Anglo CEO and Chairman meet with Bank of Ireland CEO, Brian Goggin in 6th floor office of BoI HQ and ask BoI to take over Anglo. The response was “no” After 1pm, Anglo CEO and Chairman contact AIB CEO Eugene Sheehy and ask same question and get same response Mid-afternoon, Minister Lenihan leavesUpper Merrion Street to attend daughter’s birthday party in Castleknock,Dublin 5pm ISEQ closes down 13%, Bank of Ireland shares down 15%, AIB down 16%, ILP down 34% and Anglo down 45%. AIB and BoI CEOs call Brian Cowen’s office to state that the banks couldn’t sustain themselves for another day and needed a plan overnight. 6.43pm, Second Secretary at the DoF, Kevin Cardiff receives report from Merrill Lynch 8pm – An Taoiseach meets with Minister Lenihan and shortly after they are joined by Attorney General, Paul Gallagher, Governor of the Central Bank, John Hurley, Director General of the Central Bank,Tony Grimes, the Financial Regulator Patrick Neary, and core finance people from Brian Lenihan’s team, An Taoiseach’s top advisor, Joe Lennon, economics advisor, Peter Clinch, and Government press spokesman Eoin O Neachtain. There are suggestions of contact with or input from economist David McWilliams, businessmen JP McManus and Dermot Desmond and former Minister for Finance and EU Commissioner, Charlie McCreevy. 9pm Dow Jones closes down 7% (738 points – the biggest one day drop) following the rejection of the €700bn Troubled Asset Relief Program in the US House of Representatives “after 9pm” (9.30pm) AIB/BoI chairmen and CEOs (four individuals) meet with Brian Cowen and Brian Lenihan in Government Buildings onUpper Merrion Street. The delegation did not make “comment, reference or disclosure of the Anglo Irish approach earlier that day”. The delegation “urged Lenihan to nationalise Anglo and Michael Fingelton’s Irish Nationwide immediately” Brian Cowen is reported to have said “We’re not fucking nationalising Anglo” A plan was agreed that AIB and BoI would put up €10bn to keep it going until the following weekend, when it would more than likely be taken into state control and they would get their money back. A blanket guarantee of all deposits and debt totalling €440bn would be introduced.
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| 30th | TuesdayAt 12 midnight, Minister for Defence, Willie O’Dea said (This Week in Politics, 15th May, 2011)
“Well my role was simply to get a phone call at around midnight on the Monday night [from a senior civil servant], there was a cabinet meeting the following morning, and I was told something in a very short space of time roughly what the magnitude of this crisis was and this was the decision. I was informed as opposed to being consulted” “after 1am” (2.45am) the Cabinet was presented with a fait accompli, being told the matter could not wait until the morning and that its consent was required immediately. The virtual Cabinet meeting (other than the Taoiseach and Minister Lenihan, the others Martin, Hanafin, Gormley, Ryan, Smith and others were involved via telephone) 2am, according to British Chancellor of the Exchequer, Alastair Darling, it was 2am that the decision to guarantee the banks was taken. 2.30am Financial Regulator, Patrick Neary rings EBS Chairman, Mark Moran who immediately rings EBS CEO, Fergus Murphy to inform him of new arrangements 3am Financial Regulator, Patrick Neary phones chairman of Irish Nationwide Building Society, Professor Michael Walsh to inform him of the new arrangements 6am, Alastair Darling first heard about the guarantee on BBC radio’s Today programme with John Humphrys. 6am Minister for Finance, Brian Lenihan telephones Jean Claude Juncker, chairman of the Eurogroup, FG leader Enda Kenny and Labour leader, Eamon Gilmore to inform them of events Before Markets open – Department of Finance issues statement that it had decided to “safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II)” at the six banks and “the guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.” 7.30am INBS Chairman, Professor Michael Walsh telephones CEO, Michael Fingleton to inform him of new arrangements Night/Early Morning – Minister Lenihan has said “I did not make any external telephone calls on the night of 29 September and early morning of 30 September 2008 to seek advice in relation to the bank guarantee or other options for resolving the banking crisis. However, I did make telephone calls to the following people to advise them of the bank guarantee: (a) Irish Ambassador to France, (b) Ms. Christine Lagarde, Minister for Finance, France – Brian Lenihan called her on her mobile phone and claimed that he had no choice and the Ms Lagarde’s reaction was “Oh my God” because of perceived competition issues with other European countries [RTE This Week 12th June, 2011] (c) Irish Ambassador to UK (d) Mr. Alistair Darling, Chancellor of the Exchequer, UK[“a frank exchange”] (e) Monsieur Jean-Claude Trichet, President, European Central Bank” Pointedly he did not contact the German Chancellor, Angela Merkel or Finance Minister, Peer Steinbruck |
NAMA Wine Lake 
Not so much a conspiracy then as a confluence of mediocrity. Many of these officials were already deeply tainted with financial mismanagement as evidenced by the fact that them were ushered into retirement and off the scene as quickly as possible. On the other side of the negotiating table were, those who only two years earlier considered themselves to be masters of the universe.
It is hard to believe BoI and AIB failed to divulge the meeting and telephone call with Anglo a few hours earlier in the day. All they had to say was minister “we were approached by Anglo at lunch time today begging us to take them over, minister, that is how serious the situation has become.” Contracts of insurance are contracts of uberrima fides but here we had executives arrogantly picking and choosing what to divulge, in negotiations that they knew would decide the future of banking and dictate the economic landscape of the country for years to come. They did not do, “utmost good faith” instead true to form, they displayed a cunningness and guile which ran totally counter to the national interest. This was facilitated by a Taoiseach and Minister for Finance who displayed all the skills of marksmen taking aim at a moving target with a blunderbuss.
More links:
The week before the guarantee:
http://www.independent.ie/opinion/analysis/night-that-brought-us-to-our-knees-2133558.html
The night of the guarantee:
http://www.independent.ie/opinion/analysis/night-that-brought-us-to-our-knees-2133558.html
Denis O’Brien was on the phone that night as well apparently:
http://www.timesonline.co.uk/tol/news/world/ireland/article5733823.ece?token=null&offset=48&page=5
Very important post – thanks to NWL.
It’s probably more like the Munich Agreement than the Wannsee conference.
I don’t get a sense that there was any debate over the competing merits of nationalisation and blanket guarantee. Any references to the Swedish model from the early ’90s? Did FF leaders have any notion of the historical alternatives?
Also – McWilliams’ support of the guarantee should be well noted. I took him to task on this, and his excuse was he didn’t realise the scope of the guarantee.
Also, why the hell were people listening to Dennis O’Brien!!!!
I think there was a conspiracy, as WGU’s links point to, but not necessarily of the government. If AIB and BoI didn’t tell the T-shop and Lemmy about the Anglo approach, then the conspiracy lies there. If they did, it goes higher up.
What is pretty clear, though, is that not everyone knew the state of the banks. Enough leaks came out to suggest that a good few people (both within the DoF and the banks themselves) knew and there is anecdotal evidence that the T-shop knew the gravity of the situation (drunken ramblings). The rest of the rabbits in the cabinet seem to have been left in the dark relying instead on the smartest men in the room to take the decisions for them and regurgitating the party line (there doesn’t seem to be a distinction between Green and Fianna Fail in that).
Outside influences have long been muttered about. Sadly, the outside influences who could have helped most, Philip Lane perhaps, Morgan Kelly maybe, Karl Whelan almost certainly, but for sure Patrick Honohan, an international expert on banking crises and policy response, were not consulted. Instead, tax avoiding businessmen, likely to have money to lose in the event of bank failure were the chosen star council.
Whether or not it was a conspiracy is moot; it looks and smells like one.
Conspiracy? Or maybe just plain old incompetence?
I vote for incompetence.
I know it’s speculation, but I wonder what would have happened if the guarantee hadn’t been given or if it was restricted or qualified? Is there a chance that we could have avoided the clutches of the EU and IMF?
There is an argument that the banks might have staggered on in the same way as the French, Spanish, Italian, UK, German [?] ……etc…. banks have done. At least, our clowns would have been in good company.
Of course, we would also have had to avoid NAMA with it’s unique, complex, expensive, and truly historic method of making the banks realise their losses much earlier than necessary! Even I knew that a “bad bank” works by covering the toxic waste with concrete topped off with a sign saying “Don’t touch for 50 years” – there’s an article on Wikipedia I think.
Denis O’ Brien and Anglo link. Where was he the night of the guarantee?
Sunday Times article, not in the Irish Edition.
http://www.broadsheet.ie/2012/01/16/denis-obrien-dividends-debt-and-paying-back-anglo/
[…] directly to the bailout (for which Lenihan was also blaming the ECB). I would take NAMAWineLake's reconstruction of events rather more seriously, and I note that while it contains a reference to a Trichet phone call, there […]
If I remember correctly, Lagarde was contacted because she was then Ecofin President. There was no “pointed” snub of the Germans.
Here is an extract from a MediaBite interview with David McWilliams in which we talked about the bank guarantee:
“MC: With regard to the 2008 bank guarantee, people have accused you of inconsistency about this in that at first you appeared to claim that the Minister for Finance, Brian Lenihan, was acting on your advice. Since then you seem to have distanced yourself from the guarantee to some extent.
DMcW: That’s not true!
MC: Did you change your mind or was there some material difference between what you recommended and what Brian Lenihan has done?
DMcW: Well, first of all, I don’t think changing your mind is the end of the world. The bank guarantee that I discussed with Brian Lenihan involved a guarantee that would be rescinded after two years specifically. In a way it was a bluff, not a policy. Once this guarantee started to be regarded as a blanket underpinning for all sorts of loans – then it changed materially from what I was discussing with the Minister for Finance. The first thing is, if Brian Lenihan lets the guarantee lapse after two years, which it is legally supposed to, then it has worked completely. Then we’re back to square one whereby we are in a position where we can simply get the creditors into the room and say ‘listen lads, we’ve no money’.
The whole idea was supposed to stop a run on the banks which I think is an important thing to do. It’s like being a fireman in a forest fire where you have to ask yourself whether you stop it or let it blaze on.
And the second thing is, the guarantee has given two years to figure out how bad things are at the banks – and it’s not just Anglo, it’s across the board. Once you’ve figured it out, you simply withdraw the credit and say to creditors ‘sorry guys you simply backed the wrong horse and let’s do a deal’. And that’s capitalism. But what’s happened in the last while is that the banks and the Minister for Finance seem to have become one and the same thing and it’s being said that what is good for the banks is automatically good for us. And that’s not actually the case. Arguably what is good for the Irish banks now is bad for us. So that’s where you let it lapse and you go back to a purer system where the state has no involvement.
MC: But didn’t you depart from your capitalist principles by recommending a guarantee in the first place?
DMcW: I’m not a pure capitalist. I think that what you’ve got to do if you believe you can stop something traumatic from happening is that you should do it. I don’t believe in this Austrian School idea which says that all recessions are the seeds of the next recovery – or that humans are infinitely able to react to unemployment. They’re not. My father was laid off many years ago and I know exactly what it’s all about. Humans are not machines. One of the reasons a run on the bank is disastrous is that the big guys get out first. The little guys are shafted. So there is nothing inconsistent in what I’ve been saying.
MC: You made a distinction between Lenihan’s version of the guarantee and your own on ‘Tonight with Vincent Browne’ [TV3] – I think you said that you hadn’t envisaged that the guarantee would extend to certain types of debt.
DMcW: I hadn’t expected that the guarantee would extend to sub-prime debt. I thought we’d do what Sweden and Switzerland did – which was a selective guarantee. The idea for the guarantee came from a bank I had worked at – the Swiss bank UBS, back in the early 90s. The Swedes did something similar a few months later in 1993. I remembered that that they’d done it and that it seemed to work.
At the time [September 2008] very few people in Ireland had any idea what we could do, so that was the genesis of the recommendation. I went on Prime Time and was faced with the Head of the Bankers Federation who was still saying that the banks were well capitalised. They were spoofing and they were telling me that I was talking ‘dangerous talk’. But I was saying the situation was by then desperate and it demanded desperate measures.
If we let the guarantee lapse this coming September as it is supposed to, it will have achieved its aims. It will not have been a flawless policy but the best we could have done in the circumstances.
MC: The least worst thing?
DMcW: The least worst thing as long as it doesn’t end up taking money out of our pockets and putting it into their pockets.
MC: But the guarantee was very different in the event so it’s resulted in a very different outcome?
DMcW: I don’t want to be wise after the event. I was very vocal both privately and publicly in saying we had to do something quite radical and different – something that takes the markets by surprise. Having worked in the markets I know what they are like. In many ways this is just a bluffing mechanism. You’ve got to hit them where it hurts – do something that is so outlandish that they back off – show them you are in control.
MC: It surprised more than just the markets, though.
DMcW: But what was the alternative? To let the banks go bust?
MC: And yet the other European countries were furious.
DMcW: But what the Europeans have just done with Greece and the Euro crisis is exactly the same thing – it’s effectively a blanket guarantee. ”
http://www.mediabite.org/article_The–Rock-Star–Economist_384381524.html