Deference to financial moguls and indifference to the people have caused our financial problems
IF ALL we had to worry about was this deficit thing, we would be okay, if we were prepared to take the obvious and fair strategy that is beckoning. But the crowd who ravished our fiscal arrangements went one better with the bank guarantee and from that there may be no salvation.
It is almost impossible to understand why they gave that guarantee on the night of September 29th, 2008, and why they have not extricated us from that since then. Impossible to understand other than an excess of deference to the big boys in the financial world.
How was it that nobody assembled that night in Government Buildings didn’t think there might be a time bomb in the banks because of the spectacular lending they had to the property sector and the price fragility of the property assets backing this lending?
Did nobody mention there might be a major problem here were the property market to collapse and that the property market might well collapse because it had expanded at such a rate over the previous decade?
Much to the annoyance of the then head of the National Management Treasury Agency, Michael Somers, the agency was instructed five days previously to engage Merrill Lynch to advise on the enfolding banking crisis at a cost of €4 million plus.
Merrill Lynch delivered their report by e-mail to the Department of Finance on that Monday at 6.43pm, that is Monday, September 29th, 2008. Merrill Lynch were almost as impervious to the signals of distress in the banks as were those in Government Buildings. They said in their 24-page report: “All of the Irish banks are profitable and well capitalised.” But “liquidity could run out in days, rather than weeks”.
However, they then went on to issue a warning: “The important issue is for the Government to preserve the stability of the Irish financial system and to safeguard the interests of individual bank customers to avoid widespread panic. That said, there is a limit on the financial resources available to the Government and there may be a need to preserve firepower as events unfold.”
They then went on to warn in relation to the blanket guarantee to the banks the Government was considering:
“The scale of such a guarantee could be over €500 billion. This would almost certainly negatively impact the State’s sovereign credit rating and raise issues as to its credibility. The wider market will be aware that Ireland could not afford to cover the full amount if required.”
And in the face of this warning, having agreed to pay millions for a 24-page report done by a few Merrill Lynch people over five days, they went on to ignore the warning Merrill Lynch had given them.
And it is precisely because they ignored this advice that the member state that was the most obsequious of all in the European Union is now the state that most threatens the viability of the euro and of the whole European project. As well, of course, as the state that has ruined the lives and livelihoods of millions of its own citizens for years and maybe for a generation.
The bank bailout is likely to be in the region of €70 billion and we simply cannot afford that. Maybe by the time this column is published a deal will have been done among the EU finance ministers for the European Stability Fund to finance our banks for a few years but that won’t diminish the cost of the bailout to the Irish State and its people.
Quite simply, this Government mindlessly, on that September night in 2008, gave priority to satisfying the international financial community over the welfare of its own people. It was done on the pretext that unless this was done there would be no functional banking system, liquidity would dry up and businesses would fail. So they gave the guarantee and we have no functional banking system, there is no liquidity and businesses are failing. The decision was born in deference and in indifference. Deference to the financial moguls and indifference to the people, especially the less rich here who will bear the brunt of the calamity.
Oh, the deficit. Yes there is an obvious and fair strategy there. Double the old age pension, double unemployment assistance, at a cost of about €2 billion. Remove allthe tax breaks for private pensions, saving some €3.5 billion (we would be then cherishing all the old people of the nation equally), seek redundancies in the public service of about 30,000, which would take three years to organise, ultimately at an annual saving of about €3 billion – the redundant public servants would have their redundancy payments and the doubled unemployment assistance, plus the doubled old age pension when they got to 66. And – sorry about this – get rid of all public service pensions. Altogether. More treating the old people of the nation equally. That would deal with the deficit.
But, of course, they wouldn’t do that and won’t do that and there will be €70 billion hanging over the heads of future generations.