We believe we have no option but to defer again and again to the financial elite, even when the elite then punish us for the scale of our deference. By Vincent Browne.
Alan Dukes said on TV3 last Thursday night that Anglo Irish Bank could cost this society €39 billion.
This, I understood him to imply, was a pessimistic estimate, but one which he thought would be prudent to acknowledge to give certainty to the financial markets. That, he thought, would reassure the markets.
Dukes is chairman of Anglo Irish Bank, and in a position to know the score. €39 billion? More than the total tax take for a whole year?
On September 30, 2008, the fateful day of the bank guarantee, Minister for Finance Brian Lenihan opened the Dáil debate on the Credit Institutions (Financial Support) Bill 2008 (the bank bailout).
‘‘I stress that the provisions we are asking the House to approve are in no way a bailout for the financial system,” Lenihan said. ‘‘The guarantee is not free and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money.”
Later in the speech, he said: ‘‘There is understandable concern that the exchequer is potentially significantly exposed by this measure. This is not the case. The risk of any potential financial exposure from this decision is significantly mitigated by a very substantial buffer made up of the equity and other risk capital in the relevant institutions.
‘‘It is estimated that the total assets of the six financial institutions concerned exceed their guaranteed liabilities by approximately €80 billion, which is half of Ireland’s total GNP.
‘‘By any measure there is, therefore, a very significant buffer before there is any question of the guarantee being called upon.”
He concluded his remarks by saying: ‘‘The state is underwriting very substantial liabilities in monetary terms but is, as I have outlined, at a far remove from loss arising from these liabilities.”
Is there any reason to suppose the government knew what it was doing when it gave that bank guarantee - or knows what it is doing now when it is extending the bank guarantee and bailing out all the banks at such gigantic cost?
That cost will be measured, not just by the total cost, which could be far in excess of that €39 billion, but by the billions extra we will have to pay because of the additional interest payments we have to confront, arising from the bank bailout.
That €39 billion is just for Anglo. There are further billions - maybe over €10 billion - that must be handed over to AIB and Bank of Ireland, and a bit to EBS too.
That massive debt and the uncertainty about it - all the estimates are based on guesses about property prices - dampens investment and spending which, in turn, dampens tax returns, which in turn increases the deficit and increases the costs of borrowing. And on and on it goes.
We are in trouble here, folks. Not really because we can’t afford this massive debt - we still are one of the richest countries in the world - but because we distribute our riches so unevenly, by ravishing the tax base during the Celtic tiger era. Because of the political mindset shared by all the parties - Fianna Fáil, the Greens, Fine Gael and Labour - an equitable distribution of our riches is impossible.
And because of that, we are in deep trouble. That bank guarantee of September 2008 did it for us big-time. We are told there was no option. But Iceland had an option.
It refused to give any guarantee to the banks, and it let them go to the wall. It set up new, clean banks and got on with it, letting the bondholders, depositors, investors and lenders go to hell.
And still the bond market lent to them, as did the IMF, and Iceland dug itself out of a hole that was much deeper than ours.
Its unemployment rate now is half of ours. Our major problem is our mindset. We believe we have no option but to defer again and again to the financial elite, even when the elite then punish us for the scale of our deference. That is what has now happened.
The financial elite (aka the financial markets) now impose higher borrowing costs on us because we deferred too much to them in September 2008 with the bank guarantee.
There was a fellow on the RTE news programmes last Thursday evening, advising us that we need to cut wages drastically. He was presented on RTE as an authoritative voice.
But the deference to ‘top’ business people is such that they are allowed to advocate cutting the wages of those earning a fraction of what they get, and nobody challenges why they should be listened to at all.
Noel Dempsey, one of the geniuses of the government that has done us such spectacular harm, was also on TV last Thursday, telling us that spending €1 billion on a road to Waterford was entirely justified. If we had a titter of wit, we would have no truck with such nonsense.