Last night we had a meeting of the Financial Services Club in Dublin.
It was a good meeting, with a focus on cybercrime, but unusually for the Club one of the speakers collapsed half-way through the evening and an ambulance had to be called.
He finished his speech, surprisingly, but had to do so seated.
It may well be a timely moment that this occurred as, in this month's Vanity Fair, Michael Lewis – he of Liar’s Poker and the Big Short fame – analyses the situation in Ireland after the crisis.
The title of the lengthy article is: “When Irish eyes are crying”.
For this reason, I wasn't going to bother posting anything about it as my friends in Dublin have asked before that the negativity about Ireland be reduced.
There are plenty of articles talking about how Ireland is Iceland with a character change; how hordes of youths are leaving Ireland like rats from a sinking ship; how the country is being ravaged by poverty as house prices sink through the floor and unemployment jumps through the roof; and so on.
Sure, it's easy to be negative about Ireland.
But the article is more a story.
A story of how a nation became suckered into borrowing from each other to fuel an unsustainable property boom … it's an interesting story and one that many countries including the UK and America are suffering. We're just not suffering it as badly as Ireland.
So I am posting a little bit of the story here as it’s well worth a read, and is getting plaudits from many in the FSClub network for its articulate analysis.
Here’s a short extract:
“When I flew to Dublin in early November, the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers decided to guarantee all the debts of the country’s biggest banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a ‘liquidity problem,’ faced losses of up to 34 billion euros. To get some sense of how ‘34 billion euros’ sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank …
“Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.
“In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—which three years ago was a surplus—is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.
“Yet when I arrived, in early November 2010, Irish politics had a frozen-in-time quality to it. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women booted the alpha males out of the banks and government. (Iceland’s new prime minister is a lesbian.) In Greece the business-friendly conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding, but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced ‘Feena Foil’), would remain in office into 2011. There’s been no Tea Party movement, no Glenn Beck, no serious protests of any kind.’”
It then picks up on Morgan Kelly, a University College Dublin Professor and Economist who wrote several articles pre the crisis saying that Ireland’s economic boom was unsustainable and the banks were vulnerable. He was viewed as a bit of an eccentric academic crackpot at the time.
“Kelly’s colleagues in the University College economics department watched his transformation from serious academic to amusing crackpot to disturbingly prescient guru with interest. One was Colm McCarthy, who, in the Irish recession of the late 1980s, had played a high-profile role in slashing government spending, and so had experienced the intersection of finance and public opinion. In McCarthy’s view, the dominant narrative inside the head of the average Irish citizen—and his receptiveness to the story Kelly was telling—changed at roughly 10 o’clock in the evening on October 2, 2008. On that night, Ireland’s financial regulator, a lifelong Central Bank bureaucrat in his 60s named Patrick Neary, came live on national television to be interviewed. The interviewer sounded as if he had just finished reading the collected works of Morgan Kelly. Neary, for his part, looked as if he had been dragged from a hole into which he badly wanted to return. He wore an insecure little mustache, stammered rote answers to questions he had not been asked, and ignored the ones he had been asked.
“A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith. Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were ‘resilient’ and ‘more than adequately capitalized’ … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. ‘What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,’ says McCarthy. ‘And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.’”
“When the Irish land boom flipped from miracle to catastrophe, a lot of important people’s status, along with perhaps their sense of themselves, flipped with it. An Irish stockbroker told me that many former bankers, some of whom he counts as clients, ‘actually physically look different.’ He’d just seen the former C.E.O. of A.I.B., Eugene Sheehy, in a restaurant, being heckled by other diners. Sheehy once had been a smooth and self-possessed character, whose authority was beyond question. ‘If you saw the guy now,’ says my stockbroker friend, ‘you’d buy him a cup o’ tea.’”
The article then moves into what’s happened since and the role of the politicians.
“Brian Lenihan is the last remaining Irish politician anywhere near power whose mere appearance does not cause people on the streets of Dublin to explode with either scorn or laughter. He came to the job just months before the crisis and so escapes blame for its origins. He’s a barrister, not a financial or real-estate person, with a proven ability to earn a good living without being bribed by property developers. He comes from a family of political people who are thought to have served honorably, or at any rate not used politics to enrich themselves. And in December 2009 he was diagnosed with pancreatic cancer. Anyone who has been anywhere near an Irish Catholic family knows the member who has had the most recent run of bad luck enjoys exalted status—the right to do pretty much whatever he wants, while everyone else squirms in silence. Since news of Lenihan’s illness broke—just days after he’d learned of it himself, rushing him into telling his children—he has minimized his suffering. Underlying the public-opinion polls that show the Irish feel a lot better about the minister of finance than they do about other politicians in his party is a common, unspoken understanding of his bravery.
“Brian Lenihan is also, as Joan Burton points out, tricky. It’s racing up on eight in the evening when I meet him in a Department of Finance conference room. He has spent most of his day defending the harshest spending cuts and tax hikes in Irish history to Irish politicians, without offering any details about who, exactly, will pay for the banks’ losses. (He’s waiting to do that until after the single by-election the Dáil authorized is held.) He smiles. ‘Why is everyone so interested in Ireland?’ he asks almost innocently. ‘There’s really far too much interest in us right now.’
“‘Because you’re interesting?’ I say.
“‘Oh no,’ he says seriously. ‘We’re not, really.’
“He proceeds to make the collapse of the Irish economy as uninteresting as possible. This awkward social responsibility—normalizing a freak show—is now a meaningful part of the job of being Ireland’s finance minister. At just the moment the crazy uncle leapt from the cellar, the drunken aunt lurched through the front door and, in front of the entire family and many important guests, they carved each other to bits with hunting knives. Daddy must now reassure eyewitnesses that they didn’t see what they think they saw.”
As you can see, the article – which runs to 32 pages – is fascinating, and this is just less than a tenth of the words.
So I’ve just printed it out and am reading this for the day.
I recommend you do the same.