Notes on the Front

With the Dail debate playing in the background, some notes on what Brian Lenihan insists is not a bail-out.

Professor Morgan Kelly relates an incident at a conference he attended:

'Bankers are well known for getting carried away during bubbles which is why governments appoint central banks to keep an eye on them. You probably think that the fact that Irish banks have given speculators €100 billion to gamble with, safe in the knowledge that taxpayers will cover most losses, is a cause of concern to the Irish Central Bank, but you would be quite wrong. At a recent Irish Economic Association discussion of house prices, the Central Bank official in charge of financial regulation (whose publications with the ultra-libertarian Cato Institute strongly oppose any form of bank regulation: a real case of an atheist being appointed an archbishop) stopped the proceedings to announce that the view of the Bank was that, as long as international markets were happy to buy debt issued by Irish banks, there could be no problem with their lending policies.'

Gives you a lot of confidence, eh?  Michael Hennigan of Finfacts doesn't help:

'Last year, the Central Bank told Finfacts that it did not collect any data on interest-only mortgages, which became standard for investment property purchases in return for a statement of net worth signed by an accountant.'

Michael Casey, who should know something about these things (a former chief economist with the Central Bank), is sceptical about regulation Irish style:

'Opposition politicians have observed that the banks will have to be strictly supervised to ensure they do not use this guarantee to run additional risks. Unfortunately, it will not be possible to monitor this in a satisfactory way. The failure to "prevent" the banks offering 100 per cent mortgages at a late stage in the boom seemed a questionable judgment call. It was recognised fairly early on that property prices had risen significantly above their equilibrium values. It was known that some banks were offering mortgages of up to seven times' salary. It was also known that about one-third of mortgages were for second homes. Thus, there was a general awareness of the existence of a speculative bubble in the property market. Against such a background, it is surprising that the laissez-faire approach was allowed to continue.'

Well, not so surprising given Professor Morgan's story; some people are quite successful at preventing facts from impacting on their ideological worldviews.

Professor Ray Kinsella, who describes the Government's bail-out as a 'radical approach' that will allow the Minister to bring stability to the market and who believes this approach is 'demonstrably superior' to the nationalisation models used in the US, UK and the rest of Europe, made a startling comment on Morning Ireland:

'Regulation won't solve this problem.  It will take ethics and a changed mind-set.'

Oh.  We are now reliant on the same people who recklessly dished up nearly €100 billion to property speculators to have a 'change-of-heart', overseen by the same people who didn't care to even monitor the past few years, never mind intervene, all stood over by the same Government who went out of its way to ensure all this happened.  Oh. 'A changed mind-set'?  How about a change of owners.

But don't fret about getting the information, finding out how bad the situation is within the banks, how dodgy this proposal is or whether this has any chance at all of addressing the fundamental problems in the banking system.  Stephen Collins is emphatic:

'The critical thing, though, was not to do as the Americans have done and hold a long-running debate about the issue, creating more confusion and worry. It was vital to make a clear decision and to stick to it.'

Yeah, democracy's a bitch.

So have no fears:  after the Government announced their bail-out, Anglo Irish shares rocketed upwards by 67 percent; a groovy deal for shareholders.  It is now accepted that Government borrowing will become more costly; a bummer deal for the rest of us.

Oh, well, at least its not raining.  Yet.