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Bankers Who Peddled the Poison

Posted on: December 5th, 2010

WILL our European masters or the IMF czars ever inflict the same penury on Spain as they did on Ireland? Or will they ever put Italy on the same rack?

What do you think?

Europe has ganged up with the IMF to squeeze Ireland and protect its own bankers. First, our external saviours force-fed Ireland with a juicy loan. Then, they squeezed us dry.

Europe was hell-bent on lending us the money, even keener than we were on borrowing it. They desperately desired a deal. Europe’s big players feared the consequences of an Irish default. The default disease could spread from the island on to the mainland. Unchecked , it could travel not just to Portugal and Spain, but even as far as the mighty Italy. Hence the force-feeding.

Ireland was a pushover. The Irish negotiating team , led by the gentle trio of Brian Lenihan, Patrick Honohan and Matthew Elderfield, was stuffed with conventional apparatchiks deeply deferential to the European ethos. The nuts and bolts of the deal were agreed by lesser civil servants, intent on staying on the right side of the big nations.

Ireland was humbled for its pains. The mandarins allowed little Ireland to act as a firewall to defend big Portugal, bigger Spain and even bigger Italy.

Would the IMF and European leaders have treated Spanish prime minister Zapatero or even Europe’s most unlovable lover, Italian premier Silvio Berlusconi, with the same disdain as they dished out to Ireland?

Not a hope, although we will soon find out as the non-believers move in for the euro- kill. Berlusconi is a wild card, amorous, vain and volatile, a scoundrel in charge of a major nation with a troubled economy — a pretty handy perch from which to negotiate.

Berlusconi is living proof that it is better to be a taxpayer in a large state run by a blackguard than in a small state guided by fallible, but honest, individuals like Lenihan, Honohan and Elderfield.

Last week the normally dry Lex column in the Financial Times summed up Berlusconi. Referring to the sensational Wikileaks documents, Lex highlighted their salacious claims that Silvio’s “frequent late nights and penchant for partying hard mean he does not get sufficient rest”. Salivating at the prospect of a Berlusconi defeat in the approaching Italian elections, the po-faced Lex suggested that “on the upside, a reverse for Silvio could see the end of Mr Berlusconi, who could then spend more time in the bedroom where, arguably, he can do less damage”.

Wow. Colourful language for the Financial Times. But on reflection, perhaps Brian, Patrick, Matthew and the mandarins should have spent more time popping Viagra pills in the bedroom.

We badly needed testosterone-filled negotiators, people prepared to threaten the only card feared by the toxic lenders bearing gifts: the poison pill. They should have shaped up to torpedo the talks. Their opening position should have been that the European banks (or taxpayers) must share the pain.

It is crystal clear from the leaks at the negotiations that this key issue of burning the senior bondholders was never countenanced. It was a no-go area. Ireland accepted that the top table in Merrion Street was a default-free zone. Our heroes never even put up a fight to discuss the default option.

The very least we could have expected from our cornered team was a dramatic walkout, a few tantrums, and the prospect of a nasty day on the markets for every European bondholder the day after the deal was dumped. That would have concentrated the minds of our overseas masters and their shielded banks.

What would such inspired insanity have achieved?

Plenty, maybe.

There is a strong, logical — not moral — argument for forcing the German, French, British, Swiss and other banks to pay a proportionate price for the Irish disaster.


Well, Ireland’s bankers are rightly vilified as the villains of the economic collapse; they were reckless lenders, they were greedy, they feathered their own nests and they were unaccountable. They went out into the global markets and borrowed buckets of money which they will never repay.

Worse still, they destroyed the Irish economy by lending on the loot to Irish property developers who will never repay them either. Their banking model was demented.

No argument there.

But where did Ireland’s bankers source all that money that they lent on?

Who were the morons allowing Irish banks this largesse?

Do they too not have a shared responsibility for the Irish bankruptcy?

What stress checks did they carry out on the credit worthiness of Ireland’s banks? Or did these overseas lenders, with almost equal recklessness, throw the money at Ireland’s lunatic fringe?

Anyone lending money to Anglo Irish Bank during Ireland’s property frenzy was half bonkers. Admittedly, the Irish establishment was insisting that neither Anglo, Bank of Ireland nor Allied Irish Banks was undercapitalised, but shrewder heads in the markets were barking their disbelief of the official line and their distrust of Irish banks.

On March 17, 2007, hedge funds launched attacks on weaker quoted banks, like HBOS and Anglo Irish Bank. They had spotted fatal flaws in the balance sheets. The share prices of Ireland’s financial shares plunged as opportunists in the market exploited the folly of a few bankers living a lie. They could read fantasy balance sheets. And yet European banks kept shovelling money at the guys who had gone walkabout.

A stockbroker’s report at the same time described Anglo as “a building society on crack”; even the normally sanguine NTMA boss Michael Somers admitted that he had limited his agency’s exposure to Anglo. The warnings were everywhere, if the overseas bankers were looking for them.

Yet all the while, the untouchable senior bondholders were confidently clinging to their Anglo bonds. Overseas banks were lending billions to Anglo, AIB and Bank of Ireland in the money markets. European bankers were among the cheerleaders.

Today the Irish taxpayer is being asked to pick up the tab for the sins of Europe. Just as Anglo was culpable, so too were the originators of the funds that Anglo passed on to Ireland’s property developers: German , French , Dutch and other European financial institutions .

These guys peddled the poison to Irish bankers, who in turn injected it into the Irish economy. Today Ireland’s taxpayers are landed with the entire bill.

Many of the terms of the crippling deal with the IMF and Europe will be contained in the Budget on Tuesday. There is a clear duty on Fine Gael and Labour to reject the deal and renegotiate if they come to power in February. The least they could do is hold an instant referendum.

There is no shame in defaulting. As no one — bar our tormentors in the IMF and Europe — will any longer lend to us, we are de facto defaulters already. But part of the blame lies with those bankers who funded us when we were already flashing amber lights.

We are paying a price that neither Berlusconi nor Zapatero will ever have to face.