We Told You So

It is said that the mark of a gentleman is that when proved wrong he will acknowledge his error, but when proved right will never point it out.

I am no gentleman.

This week,  Anglo-Irish Bank- the financing wing of the Fianna Fail/ Property Developer axis which has actually run the country for its own benefit for the last 15 years- finally keeled over dead. It had been wheezing increasingly loudly for the last six months, suffering worse and worse bouts of coughing while breathlessly assuring us that it was fine, just fine.

Last Friday morning everyone who had thought they were going to be left lovely Anglo goodies in its will turned up at a meeting in the Mansion House. They went away without answers or goodies. What they were told was that a man was going to be appointed by the government to work out what it owed them all. That value will reflect the real market value of the bank.

That report will take time to produce and write and the expert will not come cheap. So I’m just going to tell you how it ends, for nothing. The bank was worthless and the shareholders get zip. How do we know that? Because if any other circumstance was true the government wouldn’t have nationalised it.

Anyway, that’s that. The government were forced to nationalise what was once- briefly- the second biggest bank in Ireland by market capitalisation. Ireland has assumed the burden of any and all bad debts of the bank and now has to persuade punters to leave their money with them so that its deposits don’t shrink ever more compared to its loans.

Either they jack up the interest rate or they better get Brendan Grace back to offer us a free nipper with every account topped up, because anyone I know who has money in that bank- and its been amazing to find out just how many people do have an account with them- is moving to take it out. Not because they feel it isn’t safe for any particular reason. They just don’t want to have a stake in finding out any more surprising things that can happen to a bank. Blandly delivered statements that matters are ‘business as usual’ at the bank won’t cut it.

I want to go back to something I glibly let slide two paragraphs ago. I said the government were ‘forced’ to nationalise the bank. But, obviously, it was a commercial entity. If it was about to go bust its board of directors could have made the same sombre decision that the directors of lots of other companies have had to recently. They could have called in the liquidator.

What effect would this have had? For one, Ireland’s citizens would have had to put their hands in their pocket immediately to cover the difference between  money on hand and money due back to depositors. We don’t know how bad this gap was. The government won’t even tell us if they know. Noel Dempsey and the Taoiseach on Friday’s Morning Ireland seemed to suggest that they were still trying to find out themselves.

In that Morning Ireland interview,  conducted in the soothing surrounds of a Japanese hotel, I presume,  the Taoiseach also sounded the government’s major talking point- The US government had let Leheman Bros fall and look how terrible a decision that was.  As I can’t produce an alternative universe where the government let Anglo-Irish Bank collapse, I can never prove that the effect wouldn’t have been worse in Ireland over the long term.

Well, all right, that’s a lie. I can see it, and so could the government. Anglo-Irish Bank isn’t Lehmann Bros. It had already lost nearly all of its value. The markets were already pricing it as a failure. As long as Ireland was able to meet its promise to the depositors, I can’t see what systemic shock an orderly liquidation would have had on the economy as a whole.

But it certainly would have been a systemic shock to one bit of the economy very close to Fianna Fail’s heart. Anglo was the main provider of credit to all those guys who used to helicopter in to Galway and drink champagne in the Fianna Fail tent during race week.  You know the guys. They’d appear with their lovely blonde wives and girlfriends in gushing photo collages in the Sunday Independent. The captions would assure us of the impeccable taste which came naturally with great wealth. It turns out they were doing it all on the back of Anglo’s money.

Furthermore, it turns out that they were all, bankers and developers alike, like Disco Stu from the Simpsons, betting that ours was a boom that could never end. Here’s Brian Goggin, CEO of Bank of Ireland in May 2007

“…in plain language there is fundamental support for housing demand going forward. We expect our mortgage book to grow at a rate of mid teens to slightly higher percentage points this year and trend at this level going forward. And this is a very strong performance measured by any standard and far more sustainable into the longer term.

… one last point on the Irish economy. The Irish economy is sometimes seen as dependant, or indeed over dependant, on property and this is simply not the case.”

From the Irish Permanent’s Director of Marketing ( a totally legit source, by the way. No possibility of bias here, Irish Examiner)

“But the report’s authors said Ireland’s market appeared to be experiencing a soft landing, and cited the country’s Europe-leading rate of population growth as one reason why prices could resume rising moderately soon.

“The overall picture is one of a housing market marking time after a decade of phenomenal growth,” said Niall O’Grady”

And how did the great minds of our regulator feel in their lovely skytop boardroom in Dame Street? Here’s the Governor of the Central Bank in July 2007 in the Irish Independent:

“He says the slowdown in house prices is consistent with more stability in the market and the much talked-about ‘soft landing’ is the most likely outcome.
Elsewhere, he says economic growth should slow from 5% to 4% next year, which is favourable compared to similar economies.”

What about stockbrokers? In theory we ought to get some clear thinking from them, as they don’t directly sell us houses.

Even by May 2008,  Dermot Desmond’s NCB stockbrokers were feeling A-OK about Ireland and its housing difficulties. Boldly, on the first page of their state of the nation report they just decided to rewrite the world that we could see around us:

“In 2009 we would expect GDP growth to move up to about 4.5%, closer to potential. The housing market was not central to the boom in Ireland.”

Not central?  You must be referring to a completely different boom to the one I just saw whistling past my nose. Maybe the great flag embroidering-based boom which accompanied Daniel O’Connell’s tours of Ireland?

Well, even if it was a bit central, there was nothing to suggest that we need worry.
“…the demographic forces, which underpinned demand growth since the mid 1990s,
are set to remain very strong in the years ahead, though the period of demand acceleration is over.  Thus the market should find an equilibrium rather than see a protracted fall in prices”

Ah, the holy demographics. Cited by all as the reason why huge property price rises in Ireland weren’t the same as all previous sudden property price bubbles. This boom was different. It was driven by Demographics. But if you even scratched the surface of the demographics argument (that we had a unique bulge of people of an age to be looking to buy a house) you found that it presumed that the dramatic immigration of workers (mostly in construction) would continue indefinitely. Of course, what actually happened, and what was as plain as a Ryanair flight back to Krakow, was that when the jobs dried up, those immigrants would stop looking to buy- reinforcing a crash.

I tell you what, I can tell you don’t believe me. I’m wise after the fact you’re thinking to yourself. Hindsight is always perfect. All variations on the Government and its cheerleaders’ secondary message- Nobody could have seen this coming. Well, I’ve an answer for you. Here’s the ESRI in the Irish Independent all the way back in 2004 giving us a perfectly clear description of what has just happened.

“[The ESRI say] “unexpectedly sharp corrections have the potential to reduce Irish growth rates substantially”. Current housing stock output is well above the amount required to meet long-term housing needs, estimated at 30,000-50,000 units a year. At some point, output will have to fall to those levels, whether suddenly or gradually… It is difficult to engineer a soft landing, the ESRI warns.”

Funny how the holy demographics argument didn’t seem too compelling to those guys, isn’t it?

Now, that was just an extended detour into the past to show that (a) most people cited as authorities on the Irish economy are stupid at best or dishonest at worst and (b) we could all have seen this coming. Ireland’s problems did not stem from some kind of global financial funk. We have carefully constructed our houses of cards all by ourself for the last decade or more. The credit crunch was just the inevitable puff of cold air that made it come crashing down.

I hope I’ve now made those points with a crushingly heavy hand. But don’t expect any lightness of touch in this next bit. This is where we consider that last election. Come on, you remember the one. Not the Obama one, where you sided with Hope over Experience. No, the Irish one where you collectively decided not to take any chances with the future of the country by sticking with the devil you knew. Or, in other words, rejected Hope in favour of Despair.

So, tell me, how are you feeling about that one now?


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