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Ramifications of Government bank bailout to be felt for generations – Morgan

30 March, 2010

Speaking in the Dáil this evening on the Government’s banking motion Sinn Féin Finance Spokesperson Arthur Morgan TD said the financial ramifications of the bank bailout will be felt for generations. He said the Government has no authority to implement its plan and that taxpayers have no faith in what they are doing and are being denied a say.

Deputy Morgan said:
(Full text of Deputy Morgan’s speech follows)

“You do not have the authority to implement a bank bailout of this scale. Your government is at record lows of support from the public. The largest stakeholders in this decision, the taxpayers, have no faith in what you are doing and they are being denied a say. Over the next 10-15 years you will recapitalise the banks by potentially €22-€32 billion and put in up to €54 billion more in NAMA operations.

“Think of it – we are trying to reduce a €20 billion deficit and you are introducing the harshest cuts in decades to do so. And you’re simultaneously adding huge government borrowing to the deficit for this bail-out. The financial ramifications of what is happening here today will be felt for generations.

“Why is this government spending all of its energy on the banking crisis and so little effort is being put into getting the rest of the economy back on track ? Why is so little being done to tackle unemployment? We are spending hours again today discussing the government’s mishandling of the banking crisis instead of discussing ideas and solutions to unemployment. For the economy to get back on track we do need a functioning banking system – 18 months on from the bank guarantee we are now no nearer to achieving this objective. The government opposed nationalisation and as many predicted is now being forced to nationalise by stealth

“During those 18 months the government has completely taken its eye off the ball when it comes to job creation and stemming the rise of unemployment. During that period Sinn Féin has put forward a whole range of proposals to retain and create jobs. In recent weeks we put forward a specific set of proposals to deal with unemployment amongst the under 25’s on the live register. This fully costed constructive plan would actually work and would offer hope to a section of our population who are essential to future economic growth and stability.

“Instead the government are set on a disastrous course for both employed and unemployed citizens.

“Think of what productive use the money the government is throwing into the black hole that it is our banks could be put to.

What would €22 billion get you? Well let’s have a look:
- A youth jobs fund to create 20,000 + jobs
- The delivery of key infrastructure such as universal broadband, the Western rail corridor, cancer centres north of the Dublin-Galway line, class sizes of 20 or less.
- Reversal in the pay cut for public sector workers on low and average incomes
- Reversal to cuts to social welfare including the Christmas bonus
- 10,000 new CE places
- Investment in key sectors of the economy such as IT, tourism, agri-food and green technologies
- A free preschool education system
- Social housing waiting lists cleared
- Conversion courses for graduates
- A future in their own country for the young unemployed
- A functioning health system with adequate numbers of doctors and nurses and other frontline staff to meet patients needs

“What you are spending on the banks would get all this and more.

“The scale of the mess that Fianna Fail must take responsibility for is astounding. It should not be forgotten how vociferously Government ministers rejected criticisms from those of us who warned that the economy was not built on solid foundations, that a property bubble was developing, that the exchequer was over dependent on taxes from construction and consumption. There was time to act, time to turn things around but there was no will to do so.

“The question has to be asked if we could see this how can those who were in cabinet during that period claim not to have known. Why did they turn a blind eye to the actions of bankers and developers? Can a party that has such close ties to many of those at top of and involved with Anglo Irish bank really expect us to believe they knew nothing of what was going on inside that bank?

“It is time to over throw a culture that has existed in this state for far too long. A wealthy elite who have been pandered to by successive governments. For decades they have enjoyed a position of privilege and undue influence over government policies. People rightly want answers as to how and why government policies which fuelled the property bubble were allowed to continue in existence when the damage they were doing was obvious.

“This isn’t about a rogue group of bankers and developers – this is about a parasitical section of our society wedded to the two largest political parties in this state. We won’t get rid of this culture of exploiting ordinary people, like those injured and killed on unsafe building sites owned by Liam Carroll as he lined his own pockets, until we get beyond FF and FG led governments.

“Make no mistake about it – this elite, those who made up the golden circles, those who stuffed their pockets at the expense of ordinary workers, are now in self preservation mode. And they have this government doing their dirty work. That is what NAMA is about. That is what the bank bail outs are about. Absolutely nothing has changed – the same people who this government pandered to when it implemented policies that created the current crisis are still being pandered to. That’s the true reason this government would rather cut dole payments than introduce a wealth tax.

“Will Liam Carroll experience life on the dole or live in one of the substandard shoe box flats he sold to desperate first time buyers?

“And there are those at the top of the civil service who are part of this elite group as well – people like Roddy Molloy who despite wasting vast amounts of public money will never pay any price for his actions. In fact, he has been further rewarded.

“The Dublin Docklands is an example of the rot that existed in this state during the Celtic tiger years. Fianna Fail cannot distance itself from this debacle – it must be held to account – amongst those involved in the debacle relating to the Irish Glass Bottle site was Joe Burke, one of the closest associates of the then Taoiseach Bertie Ahern. It is a microcosm of all that went wrong in this economy – a toxic mix of Fianna Fail and Ahern cronies such as Burke and Bernard McNamara and Anglo Irish bankers such as Sean Fitzpatrick and Lar Bradshow . We have yet to get the full information regarding the murky goings on in these affairs but in all of this one thing should not be forgotten - a productive business the Irish Glass Bottle Factory could have been saved with government intervention –jobs could have been saved. Now having paid a much higher price than it would ever have had to pay to save those jobs the state has a plot of derelict land which is worth a fraction of what was paid for it. The former Taoiseach Bertie Ahern should be forced to make a statement to this House outlining exactly what he knew about all of this. I challenge the current Taoiseach to instruct Ahern to make such a statement without further delay.

“The type of thing that went on at the Dublin Docklands is why we are where we are today – with almost half a million people out of work and billions in taxpayers money being put into the banks while public services and welfare are being cut.

“It is taking the Minister too long to resolve the banking crisis. This crisis first came to the fore in the summer of 2008. Since then the real economy has plummeted and the banks have played no small part in this as a result of their refusal/inability to extend credit. Businesses have closed their doors and householders face repossession. The only action the banks have managed to take is to hike up charges and interest rates, along with fighting off calls for cost-cutting amongst their higher paid members. The 0.5 mortgage interest increase from AIB, at a time when the ECB’s rates remain stable, is testament to this. The bank may be borrowing at a higher rate on the wholesale market, but what has it done to ensure security for its customers? When the state talks about taking a higher stake after recapitalisation, suddenly the bank is suggesting it can sell its foreign assets – should it not have done this before push came to shove? The failure of the government to put a stop to this rate increase is shameful. The banks may be borrowing higher on the wholesale market, but, if they squeeze already under pressure mortgage holders, are we looking at another tranche of bad loans in the residential property market further down the line? This domino effect will grip the Irish financial sector and Irish taxpayers will be hit doubly for the failures of the Irish banking system: not only through the cost of recapitalisation but through the increase in mortgage interest rates, personal loan and overdraft rates.

“And what fruits will be borne on the other side of this? Will there be a nationalised state bank, which will be capable of offering individuals and businesses credit at fair rates? Only partially. The people will be offered more or less the same. And slowly the system, if left to commercial devices, will slip back to its own unregulated ways.

“The banks will still not accept responsibility for what they have done. The only stakeholder that needs to be given due consideration here is the taxpayer. What the banks do or don’t want is completely irrelevant at this point. In any other sphere of business, at this stage those banks would be in receivership or liquidized. This attitude of self-importance is the same that prevailed in the lead up to the crisis – there is absolutely no basis for it to be allowed to continue.

“Look at what the banks did to bring us to this point. The details emerging now reveal a banking system where lenders had casual and personal relationships with borrowers, where documentation was frequently incomplete or ignored, and where basic financial calculations were overridden by bank strategies based on winning market share (Sunday Business Post). During a court action last year, for example, Bernard McNamara claimed he was actively pursued by banks to borrow money from them on generous terms. Financier Niall McFadden, who is facing judgments running to tens of millions of euro, has claimed in court that National Irish Bank accepted a personal guarantee for a €6.3 million loan without ever meeting him. Personal guarantees were the currency of Irish borrowing during the boom.

“These incidents highlight the lackadaisical approach the banks took to security for their loans. Most of the big property deals were funded by groups of banks and there’s now confusion emerging over which bank controls the asset. During the boom AIB had loaned €550 million to Liam Carroll with only a solicitor’s letter and the deposit of title deeds as security. Court actions have also exposed flaws in the valuation of property assets - by basing transactions on a loan-to-value ratio that was too high, the banks did not allow themselves any wiggle room when property values fell.

“The government has bent over backwards to ensure it prevents nationalisation of the two larger banks. From the guarantee, to the initial recapitalization, to NAMA and now further recapitalization, we have spent the last almost two years witnessing a finance department create policy that has the sole intent of preventing banks being nationalised. The only bank the state leapt to nationalise is the only bank that nobody wanted nationalised. There can be no doubt that the speed with which Anglo-Irish was dealt with was a reflection of the government’s desire to hide the machinations at the bank, which would have come to light much quicker and in fuller detail had that bank been allowed to fold. Instead we are getting a drip feed of information from a bank that is no longer functioning as a bank but is costing the state billions. This bank could require a further €9 billion in recap over the coming months. That alone is twice what the government attempted to cut from the deficit last December.

“Brian Lenihan has stated that the country is in a better financial place now to deal with the funding needs of the banks. This is astonishing. The state is carrying a €20 billion plus deficit that the EU has ordered us to dramatically reduce. According to this government we don’t have a red cent for investment purposes, but we can use the NPRF for recapitalizing the banks after NAMA takes the bad loans of their books at an even sharper deal. The NPRF at the last count had a value of €13 billion and another €7 billion in AIB and BoI shares. If the government has its way, the entire NPRF will be made up of bank shares. This will be ironic if the state, after all its procrastinating is forced to fully nationalise the banks and the largest shareholders to get burned at that point are the Irish taxpayers.

“These banks are not being hard-balled by the state. Their businesses would be defunct had the state not stepped in. They have a government that was content to do everything to help them while allowing them to remain in private ownership – a government willing to socialize their debts, while allowing them to continue to privatize their profits. This is the same government that lifted the bank levy, that allowed regulation to become lax. It is the same political system that bailed out AIB in the 80s and turned a blind eye again in the 90s. 70% of AIB is a majority stake in that bank, but it is not full nationalisation. How much influence the state will use while holding that stake is unclear. To date, the government has shown nothing but reluctance to ‘interfere’ in banking conduct.

“Over the last three weeks we have seen revelations that the government’s convoluted and complicated approach to the banks is also mired in secrets and unfairness. The revelation that 78 employees of Anglo Irish bank have been awarded pay increases is the second of its kind in the last few weeks. This news comes against the backdrop of a 70% pay increase for the Chairperson of the Board of NAMA and significant increases for the other Board members. Simultaneously the government is pushing through pay cuts and attacks on public services. It is clear that the government values the work of the banking sector over the work of other public sector workers such as the gardaí, nurses and teachers.

“We have to look now at what reform we’re going to get. Look at the example of EBS. The Financial Regulator has waived capital rules for EBS allowing the building society to fall below the threshold dictating the minimum amount of capital that a financial institution must hold in reserve. The “new, improved and harder handed” regulator has granted the building society a temporary derogation until May 31st allowing it to hold less than the minimum core tier 1 capital ratio of 1 per cent.
Any literature on the financial crisis points to the absence of these thresholds as central to the magnitude of the collapse of the banking system. This seems to be the first step in a claw back to the old system. Some might say that it is only a temporary measure, propagated by the need to discount the loans. But, when this Government and the Minister for Finance signed Ireland and each and every person of this state to NAMA and bank recapitalisation, reform was promised. Now it seems reform has been short-lived.

“The worst thing is that we don’t have the full facts of what this will all end up costing us. The loans been taken by NAMA have received an even further discount since the legislation was announced, in recognition of the falling property values. They are still falling, which means there is no guarantee that this is the best deal for the state. You are pushing this country down a path of debt and we don’t know where it will end. You are opening Pandora’s Box. Today will go down in history minister, and you and your government will not come out of it well.” ENDS

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