Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Who Predicted This? Who Do We Blame?
Options
Comments
-
The banking crisis is seperate. There have probably been about 30 property crashes in the OECD in the last forty years. Property crashes do not automatically mean banking collapse, even in Ireland. Most economists spoke about a macroeconomic dislocation occuring in Ireland, not a banking collapse, as I said earlier one well known commentator (Morgan Kelly) suggested that the banks would deal with the problem just fine in 2007 and that they were adequately capitalised.
So again - who was warning about a banking crisis?
while your right in saying that property crashes are nothing out of the ordinary and the present global banking crisis is almost unprecedented , you cannot get away from the fact that the goverment allowed a situation to develop where this entire economy from 2002 onwards was a one trick pony , property property and more property was what drove spending and the level to which spending was allowed reach resulted in an over dependance on bubble revenue , even the banks didnt collapse , the property crash would have resulted in a massive fiscal imbalance due to a collapse in revenue , part of the reason our deficit shot up so quickly this past few years is due to the fact that while revenue plummeted , spending continued at the same level and has in reality only been modestly paired back
so you see while its a plausible enough argument that no one litterally told bertie of the iminent banking disaster , bertie ( and others ) are aiming to suggest that this in turn means bertie had no hand in the present situation the country now finds itself , one this front , bertie does not recieve a pardon
put simply , the countrys problems are two fold , we have a banking crisis and a public spending crisis , the later problem is entirely of our own creation0 -
I am not defending Bertie Ahern or public spending policy, nor the state's dependence on property. That is inexcusable. I am talking about the banking crisis and how it was predicted, or not predicted.irishh_bob wrote: »so you see while its a plausible enough argument that no one litterally told bertie of the iminent banking disaster , bertie ( and others ) are aiming to suggest that this in turn means bertie had no hand in the present situation the country now finds itself , one this front , bertie does not recieve a pardon
put simply , the countrys problems are two fold , we have a banking crisis and a public spending crisis , the later problem is entirely of our own creation0 -
-
There were warnings on the extent of bank reliance on lending into the property sector, just as there were about the extent of tax reliance on the property sector. Unfortunately, those warnings have been characterised as 'timid' in the various subsequent reports.
cordially,
Scofflaw0 -
@Later10I would like to begin by saying that I am not an apologist for Fianna Fáil economic policy (or lack thereof) from about 2001 onwards, nor for property developers. Nor am I an apologist for Bertie Ahern. However, one thing he said during his recent interview struck me, when he said that nobody warned himk of the banking crisis.
I presume most people guffawed at this. But actually, I have a feeling he's correct. While one might have foreseen a slowdown in property and construction, indeed one ought to have foreseen such a thing, who predicted that it would be so extreme, so rapid and as such would lead to bank meltdown in the way that it did?
Bertie Ahern didnt hear about economic problems because he didnt want to hear about them. As already noted, his comment that he didnt know why whingers didnt go off and kill themselves indicates how seriously he would have taken any warnings, and the sort of atmosphere anyone raising concerns to Bertie could expect. If you shoot messengers bringing bad news, dont be surprised youre the last to know when things go wrong. Bertie seems to believe its someone elses fault that they didnt manage to circumvent Berties efforts to dampen dissent against the group think.
Id be genuinely fascinated to understand what Bertie felt his role was in the years between 1997 and 2008. Truly fascinated. What did he think his job was? If he wasnt responsible for the sound governance of Ireland and its finances, who did he think was? And if they were doing the job, why exactly did we need him to hang around and look pretty?
Also Bertie ( and yourself) seem to place the property bubble as somehow being seperate to the banking crisis. This doesnt make sense.
The property bubble was built on the back of a credit bubble funded by Irish banks borrowing abroad and lending to Irish property developers and Irish mortgage holders. A hit to the property bubble was going to swiftly turn into a crisis for the banks lending into it.But everybody was saying otherwise, economists, auditors and the Regulator as well as the banks themselves.
economists employed and paid by the banks and property related companies?
auditors employed and paid by the banks and property related companies?
A regulator who had a dual role of not only regulating the banks, but also promoting them? The FR didnt *want* to find problems.
A series of red flags around the Irish banking system would have been apparent had anyone been interested in looking at them. The incredible explosion in the loan books of the Irish banks is a red flag in and of itself. The Financial Regulator/Central Bank/DoF werent interested in looking for red flags, and everyone else though they were paying their taxes so that the Financial Regulator/Central Bank/DoF would monitor the banks.Why should the Government have been so paranoid as to go in and look for what nobody was suggesting was there?
Why have a DoF, Central Bank or Financial Regulator at all then? Sure, if the banks say everything is fine, it probably is. Right?
Government need to decide where there responsibilities and interest lie when a bank fails. If a bank failure is a private matter, then theres no need for regulation. Bad banks will fail, good banks will survive.
If however the impact of a bank failure is so terrible and so unthinkable that they must be prevented at any cost then the government has a responsibility to taxpayers to ensure the banks are well managed and well run and not taking undue risks. Because if theyre not, the taxpayers suddenly get hit with a huge bill for gambles they didnt take. That requires invasive regulation of the banks to protect the taxpayers interests.0 -
Advertisement
-
Are you suggesting people knew and didn't tell him because they were afraid of him? If that's what you're suggesting, I have to say I find it very hard to believe. To with-hold such information on the basis that someobody might get angry with you is probably one of the most irresponsible things you could do, not that Bertie Ahern doesn't know about irresponsibility.Bertie Ahern didnt hear about economic problems because he didnt want to hear about them. As already noted, his comment that he didnt know why whingers didnt go off and kill themselves indicates how seriously he would have taken any warnings, and the sort of atmosphere anyone raising concerns to Bertie could expect. If you shoot messengers bringing bad news, dont be surprised youre the last to know when things go wrong. Bertie seems to believe its someone elses fault that they didnt manage to circumvent Berties efforts to dampen dissent against the group think.
It isn't seperate. However I would repeat what I said earlier, there have probably been thirty big property crashes in the OECD since 1970. How many do you think caused this sort of damage? They don't generally lead to bank collapse. The problem is confoudned by the fact that nobody was expecting the bust to occur so rapidly and cut so deeply at that rate (as one example, Morgan Kelly suggested 8% annual contraction over a number of years as late as 2007; it sounds like Heaven to me) and it was widely believed that because the banks were not caught up in sub primes (and they weren't) that the banks were adequately capitalised to deal with their losses.Also Bertie ( and yourself) seem to place the property bubble as somehow being seperate to the banking crisis. This doesnt make sense.
Well apparently nobody was in that case.A series of red flags around the Irish banking system would have been apparent had anyone been interested in looking at them.0 -
-
Are you suggesting people knew and didn't tell him because they were afraid of him? If that's what you're suggesting, I have to say I find it very hard to believe. To with-hold such information on the basis that someobody might get angry with you is probably one of the most irresponsible things you could do, not that Bertie Ahern doesn't know about irresponsibility.
People would be afraid for their career prospects, absolutely. Advancement in any organisation relies on not rocking the boat, agreeing with your boss and being seen as a reliable and safe pair of hands. If Bertie is telling "whingers" to go off and kill themselves, that feeds down and out as a culture within the organisation. Bringing up bad news is "whinging". "Whingers" should go off and kill themselves. And remember, this is something Bertie just blurted out in public, off the cuff when the mask slipped a little.
Personally irresponsible? I dont know - whistleblowers in Ireland tend to be left for dead. If I understand correctly, the recent Credit Institutions bill imposes fines of up to 100,000 Euro or jail up to three years as a reward for any civic minded whistleblowers who think the Minister is going to do something really, comically stupid and tries to warn people. In that sort of atmosphere, when youve got a choice of looking out for yourself, your family and your own prospects vs. being ostracised and demonised and ultimately ignored, if not jailed...well, the last man that selfless inspired a global religion.
Now, that could be prevented by insisting on a culture of transparent policy making and accountability for recklessness or corruption. But we dont have that in Ireland. So, I cant really blame individuals for simply looking out for themselves when the system will crush them, and the wider public will barely notice whats going on when theyre so much more interested in X Factor, Dancing with Goats, or whatever other nonsense is on TV.It isn't seperate. However I would repeat what I said earlier, there have probably been thirty big property crashes in the OECD since 1970. How many do you think caused this sort of damage? They don't generally lead to bank collapse. The problem is confoudned by the fact that nobody was expecting the bust to occur so rapidly and cut so deeply at that rate (as one example, Morgan Kelly suggested 8% annual contraction over 9 years; it sounds like Heaven to me) and it was widely believed that because the banks were not caught up in sub primes (and they weren't) that the banks were adequately capitalised to deal with their l
How many of those bubbles were so recklessly pursued and in what sort of regulatory enviroments did they occur? How many domestic banking systems were so heavily and incredibly exposed to those property crashes as were the Irish banks?
The Irish scenario is practically worst case scenario in terms of both the bubble, and by extension the crash that follows it. The government didnt just not work to limit the damage of reckless banking systems - the actively encouraged and supported it by incentivising property investment and effectively ending banking regulation.
As for the problems being completely unexpected there is this piece from the Economist back in 2004 as they sought to get the grips with the Irish miracle. One part is pretty poignant:The banking system is heavily exposed: the big Irish banks, such as Bank of Ireland and Allied Irish, are in effect mortgage banks, observes Colm McCarthy of DKM Economic Consultants. A property crash would badly hit their balance sheets.
The Economist of course is just a magazine. It has no real interest in Ireland and has no responsibility to report on or monitor the risks in the Irish banking system. But it knew about the risks in the Irish banking system, and so did their readers by extension.
If a disinterested foreign magazine can point out a serious risk in the Irish banks exposure to a similarly huge property bubble back in 2004, then why couldnt the DoF, CB and FR spot it given they did have responsibilities to monitor the banks and risks to the Irish economy?
They didnt want to, because ruining Berties party would be bad for their careers - that was the culture Bertie put in place. They made the right choice too, because like Bertie all of them will not lose a single penny due to the bank failures.0 -
Before you go don't forget to finally let us know who was predicting the banking crisis...The Financial Regulator was warned by the German regulator, BaFin, as early as 2004 that Sachsen LB's troubled Irish subsidiaries were involved in highly risky and under-scrutinised transactions worth as much as €30bn or 20 times the parent bank's capitalisation. Despite the warning, in 2007 the Regulator approved another Sachsen investment vehicle and two months later the stable of off-balance sheet companies needed a €17.3bn bail-out from the German association of savings banks to keep Sachsen afloat......The New York Times referred to Ireland as the “Wild West of European finance” in April 2005 which was seen to underline the fragility of the Country's Financial Regulation system......in 2006, a government-appointed panel that consists of banking and insurance representatives revealed widespread dissatisfaction with the regulator’s skills base
Its worth repeating this, since you ignored it. He says himself...In a question-and-answer session with the paper, asked if he was the father of the Celtic Tiger, he said he was “one of the parents, for sure” – but he admitted to not reading a number of reports analysing the state of the banking sector in full.
“I looked through the reports, but I have to admit I didn’t read them in their entirety,”
He had his fingers in his ears. He also said......In 2009 he said his decision in 2001 to create the Financial Regulator was one of the main reasons for the collapse of the Irish banking sector and“if I had a chance again I wouldn’t do it”...
He set the regulator up, then he and his finance minister very strangely pretty much ignored the regulator and stayed well away from him. The only people who would benefit from this would be developers and bankers.0 -
so when you received an excessive salary during the boom you handed it back ?, when your tax rates were some of the lowest in the world you paid extra taxes ?, or maybe you were a benificary of some the highest social welfare rates in the world,?everybody benefited in some way or other from the fake boom . nobody cried stop except maybe a few economists .
Again thats not true. Lots of people were saying it. They were rubbished and dismissed as pessimists. A lot of people didn't want to hear it. Now they claim no one said. Well they did.0 -
Advertisement
-
....
Personally irresponsible? I dont know - whistleblowers in Ireland tend to be left for dead. If I understand correctly, the recent Credit Institutions bill imposes fines of up to 100,000 Euro or jail up to three years as a reward for any civic minded whistleblowers who think the Minister is going to do something really, comically stupid and tries to warn people. In that sort of atmosphere, when youve got a choice of looking out for yourself, your family and your own prospects vs. being ostracised and demonised and ultimately ignored, if not jailed...well, the last man that selfless inspired a global religion...
To add to that.......The Financial Regulator knew that Allied Irish Banks were overcharging consumers in FX fees but failed to act for a number of years. [41][42] They gave a parliamentary inquiry the "false impression" that they were unaware of it.[43][44] The whistleblower who gave the FR the information was requested to come to a meeting with them but was only invited to withdraw the allegations of wrongdoing and at the same time found himself removed from his position at Allied Irish Banks without any reason given. After his case was highlighted in the media, the FR officially apologised on how the authorities treated him, eight years after alerting them of overcharging.[45]
The same whistleblower also sent a report entitled ‘Special Investigation Goodbody Stockbrokers - Trading in AIB Shares’ to the FR, in which questions were raised about the legality of a device used to trade in AIB shares through offshore locations in blacklisted tax havens Nevis and Vanuatu. No action was taken.[46]...0 -
It's really not possible to claim that nobody warned about the exposure of the Irish banks to the Irish property bubble. It is, on the other hand, perfectly possible to claim that the warnings were ignored by politicians, regulators and media in Ireland, and that no politician or media outlet in the country put their necks on the line by pursuing the issues widely flagged by foreign media. When the warnings were given any air-time, they were put forward as - and largely taken by the Irish public as - the result of other countries being envious of our success.
cordially,
Scofflaw0 -
so when you received an excessive salary during the boom you handed it back ?, when your tax rates were some of the lowest in the world you paid extra taxes ?, or maybe you were a benificary of some the highest social welfare rates in the world,?everybody benefited in some way or other from the fake boom . nobody cried stop except maybe a few economists .
These:The boom was not fake, it was just that - a boom, an economic bubble. It was very real. While we were in it the cost of living was also significant and very real. I would say everybody felt the effects of the good times, yes. But everybody is not equally culpable, if indeed culpable at all.Liam Byrne wrote: »Never got an "excessive" salary in my life
Stealth taxes are high in this country, most hitting ordinary people more since they comprise a higher percentage
Neither was I in receipt of ANY social welfare
So Noreen is spot-on; claims that "everyone" is to blame are fictional deflection.
Your point about taxes is interesting, because it begs the question:
How much more healthy might our fiscal situation be had our Government used some restraint, rather than the "When I have it, I spend it" mantra!
You seem to think that ordinary citizens are responsible for Government taxation policy - the same taxation policy that offered incentives to developers, and offered countless tax avoidance schemes to the mega wealthy, etc.
Hmm, the last time I checked, taxation measures were a budgetary matter - and the relevant Budgets were the responsibility of the Minister for Finance! (Clue: FF)0 -
To add to that...
There was also Jim Power who was one of the tame economists employed by the banks and property related companies to give a veneer of credibility to the bubble. Hes already publically apologised for getting it wrong, which is admirable.
But even prior to that, he lost his job as Chief Economist with Bank of Ireland in 2000 after angering his bank bosses by publically noting that social partnership was simply a mere vehicle for the public service unions, and telling a House of Lords committee that he didnt think the Irish government could manage an economy within the limits of the Euro single currency, both of which were valid fears as time has proven. And Jim Power was also targetted by the DoF in 2009 when they went to his employers (Friends First) to try and get him sacked as they felt he was being too negative in his public views.
Once you get sacked the first time for trying to warn people of dangers and are just ignored, the second time around you probably learn to say whatever youre paid to say. Just keep your head down, and go with the flow. No one wants to hear it anyway. This is the culture Bertie instilled. For Bertie to then complain that no one warned him...its just further evidence that hes a sociopath.0 -
later10,
interesting that you reference only one -- and the most obscure -- of Morgan Kelly's writings. Is that the only one you know of, or are you deliberately trying to divert attention from the many articles he published in the IRISH TIMES beginning in Dec 2006?
They are archived in the IT website now and you cannot read them without a subscription, but thepropertypin helpfully reprinted them all chronologicallly, in full, here:
http://www.thepropertypin.com/viewtopic.php?f=19&t=33265
Fascinating to read them in order and see how he became more and more alarmed over time. You knock him for saying in the early ESRI piece that the banks were capitalised. A bit unfair -- he wasn't a banking insider and didn't know the extent of the bad loans (indeed, the banks were lying about it even after the Sept 2008 guarantee). Similarly, in the midst of a dire prediction ("Loans to Builders Big Threat to Banks," 7 April 2008) he wrote, "It is not inevitable that banks will suffer such heavy losses. Bankers are paid to manage risk, and we must hope that they have done so competently." If only!
It's worth reading them all, in context, but here are a few quotes from articles he published in the TIMES before the Sept 2008 crash that discuss directly the danger to the banking system:
From “How the housing cornerstones of our economy could go into a rapid freefall,” December 28 2006
Two housing booms are especially sobering for being so similar to ours: Finland in the 1980s and The Netherlands in the 1970s.
Finland boomed after oil was discovered off the coast in the mid-1980s. With low interest rates and loans available for the asking, house prices soared. Then, as the Soviet Union collapsed, unemployment rose and house prices started to fall, creating problems first for builders, then for homeowners, and finally for banks.
The Finnish banking system effectively disintegrated under the weight of bad housing loans and had to be rescued, at huge expense, by the state. Unemployment rose from 5 to nearly 20 per cent. The real price of houses fell by more than 40 per cent. . . . .
From “Banking on very shaky foundations,”Fri 09 Sep 2007
Irish banks are now owed almost as much by builders and developers as they are by mortgage holders, and are now more exposed to commercial real estate than Japanese banks were when they crashed in 1989.
While mortgage lending has slowed since the middle of last year, lending to builders and developers continues to grow rapidly and now stands at almost €100 billion, an increase of €20 billion on last October.
To put this in perspective, €20 billion is twice the market value of Bank of Ireland shares; while €100 billion is the approximate value of all public deposits with retail banks. Effectively, the Irish banking system has taken all its shareholders' equity, with a substantial chunk of its depositors' cash on top, and handed it over to builders and property speculators. . . .
In 2000, lending to construction and real estate made up only 8 per cent of Irish bank lending, much like other European countries. Now it has risen to 28 per cent. By comparison, just before the Japanese bubble burst in late 1989, construction and property development had grown to a little over 25 per cent of bank lending.
Increased lending for construction and development is driven by banks' urgent need to meet earnings expectations and is unavoidably risky.
While most home owners will continue to pay mortgages, even with negative equity, international experience shows that developers will walk when markets turn down, leaving banks, and often governments, to pick up the pieces. Diversification for lenders is difficult, moreover: when one developer goes bust, they typically all go bust.
While lending to builders, at €25 billion, is a good deal smaller than the €75 billion lent to real estate speculators, many of the loans appear to be in difficulty already. . . .
Given that nobody wants new houses, it is natural to ask who is going to buy the 80,000 or so units that will be completed this year and the 60,000 on stream for next. The answer, though they may not know it yet, is the shareholders of Bank of Ireland, Anglo Irish and other builder-friendly banks.
While we can see banks starting to make a show of turning up the heat on smaller developers, they have lent too much to large builders to allow them to fail. It is one thing to chop a developer off at the ankles if he owes you €16 million; it is quite another to admit that a developer in south Dublin owes you €160 million, let alone to force him into bankruptcy.
Were any one of the several Dublin developers, who are reputedly unable to service any of their large borrowing, to be driven into bankruptcy, the ripple effect on Dublin house prices and the value of other loans would be unpleasant.
Along with the many loans to builders that are already in the non-performing category, the exposure to commercial real estate poses a grave threat to bank solvency, because of the large sums involved and the highly leveraged nature of the borrowing. . . .
The large exposure of Irish banks to property speculators does not mean large losses are inevitable. If a crash occurs, or even if already nervous overseas bond markets cut off liquidity to Irish banks (foreign banks have over €400 billion on deposit with Irish banks and hold another €200 billion of bonds), it will be very costly to fix, dwarfing the bailout of AIB in the 1980s.
A partial bail-out of Japanese banks cost their government 10 per cent of national income, while refloating Finnish banks cost its government nearly 15 per cent of national income. In Irish terms this would translate into a €15 to €20 billion bill for taxpayers.
You probably think that the fact that Irish banks have given speculators €100 billion to gamble with, safe in the knowledge that taxpayers will cover most losses, is a cause of concern to the Irish Central Bank, but you would be quite wrong.
At a recent Irish Economic Association discussion of house prices, the Central Bank official in charge of financial regulation (whose publications with the ultra-libertarian Cato Institute strongly oppose any form of bank regulation - a real case of an atheist being appointed an archbishop) stopped the proceedings to announce that the view of the Bank was that, as long as international markets were happy to buy debt issued by Irish banks, there could be no problem with their lending policies.
From "Head to Head," Monday, October 8, 2007
While housing starts have halved since last year, the surprising thing is that any new houses are being started at all given that few, if any, are going to sell. The reason is that banks are owed so much by large developers that they cannot allow them to fail, and are allowing them to go on borrowing as if nothing is wrong.
Irish banks are now more exposed to property speculators than Japanese banks were when they imploded in 1989. Banks have lent almost €100 billion to developers, compared with only €80 billion to people to buy their own houses.
With no new houses being sold, it is unclear how developers are coming up with annual interest payments of around €6 billion (or 4 per cent of national income). Were one large developer to be allowed to go bankrupt, the value of the land used as collateral by other developers would collapse in value, setting off a spiral of bankruptcies.
The Irish economy is now looking eerily like the Nordic economies in 1992. Norway, Finland and Sweden all had house price and building booms in the late 1980s that encouraged banks to lend heavily to developers. But as house prices fell, developers walked away from their loans and banks collapsed.
The Finnish collapse was particularly spectacular, with unemployment going from 3 per cent to 20 per cent, national income falling by 15 per cent, house prices and share values down 50 per cent, and land prices falling by over 75 per cent. Recapitalising its banks cost the Finnish government over 20 per cent of national income.
From "Property market approaching critical point,”18 Jan 2008
Writing in this newspaper a year ago, I suggested that, in the light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At the time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at their peak values for a year or two, and then fall slowly by a few per cent a year for up to a decade.
My forecast has turned out to be wildly optimistic. In the past year Irish house prices appear to have fallen by around 10 to 15 per cent. While still short of the 20 per cent fall in Finland in 1991, this is on a par with the largest falls experienced during the Dutch and Swedish collapses.
However, the Irish property market is giving signs of approaching a critical point where vague individual anxieties coalesce into a general panic and prices collapse. Should a collapse occur in 2008, it is most likely to start among heavily-indebted builders, many of whom have not sold a house in over a year, coming under pressure from banks to liquidate their large amounts of unsold inventory. . . .
It is appearing increasingly unlikely that builders will be able to move their inventory at any price that can remotely cover their borrowings, making a wave of bankruptcies inevitable.
The houses built by a bankrupt developer become the property of the lending bank, which would typically auction them off, in one or more lots, to other developers.
However, for these developers to be able to bid, they need loans from banks. With Irish banks already having sunk €100 billion into property development, and needing to conserve liquidity as the international financial system moves towards a major solvency crisis, such loans may not be forthcoming. It is not hard to imagine a scenario where tens of thousands of new units built by bankrupt developers are sold for a fraction of their construction cost or simply boarded up, leaving most existing apartments and commuter-belt houses effectively valueless.
Any collapse at the bottom end of the market will roll upwards to reduce second-hand prices sharply, while the presence of large number of families who cannot move house because they have negative equity will ensure that the second-hand housing market remains frozen for a very long time.
With rising unemployment, falling tax revenues, and sharp falls in stock prices, it is becoming evident that the problems of the Irish economy run a good deal deeper than a few overpriced houses.
The building boom of the last eight years has deeply distorted the economy, leaving us with worrying numbers of mis-skilled workers, heavily indebted households, unaffordable Government programmes, and over-extended banks.
From ”Loans to builders big threat to banks,” April 7, 2008
Lending to developers is risky. As property markets slow, banks quickly go from having hardly any impairments on these loans to suffering very large losses indeed. In the last, and far from apocalyptic, downturn in the US in 1991, banks lost 12 per cent of what they had lent to developers.
To operate profitably, banks hold little capital compared with the loans they make, usually about 7 per cent. This means that relatively small losses on loans are enough to seriously impair their functioning, and so banks usually lend cautiously to developers.
Irish banks, however, have given nearly 30 per cent of their loans, some €105 billion, to builders and developers. A loss of 12 per cent on these loans would halve their effective capital, leaving them in need of heavy recapitalisation.
Exposure to developers, moreover, varies widely across banks, from zero to more than 90 per cent. There is a risk that difficulties in one heavily exposed institution might set off a domino effect of depositor panic (current levels of deposit insurance are wholly inadequate) and forced asset sales across the entire system. . .
At a time of increased anxiety, it is vital regulators introduce measures to handle impaired loans to builders; overhaul our inadequate system of deposit insurance; and monitor the real solvency of those banks that lent aggressively for speculative land purchases and building, and may now be finding themselves dangerously out of their depth.
From "Buyers beware: sharp falls in house prices are likely to continue,” August 15, 2008
...the immediate threat to the economy comes from the scarcely believable €25 billion that banks lent to builders back in the days when nobody thought the boom would ever end. As new houses stopped selling, builders have been unable to repay these loans, and banks are now pressuring them to pay up by the autumn or face bankruptcy.
Builders usually borrow with recourse, which means that if they cannot repay a loan they lose literally everything, bar the fillings in their teeth. Facing personal ruin, builders desperate to sell will slash new house prices in the coming months and this collapse in prices will ripple through the entire market.
Taking its cue from the Health Service Executive policy that the best way to deal with a problem is to deny that it exists, the Central Bank has quietly been approaching banks and asking them to go easy on builders.
Whether banks pay any heed is immaterial. Either way, they have a €25 billion hole in their balance sheets, and an autumn banking crisis is a real possibility. Banking crises are like pile-ups in the Tour de France: one careless rider suddenly goes over and brings the rest down after him.0 -
Excellent posing Sand. Cleared things right up.0
-
Agreed, it is entirely possible that people in the public service knew what was coming viz. the banking collapse, and did not approach the Taoiseach in fear of losing their jobs. However, that is complete hypothesis, and I'm talking about actual warnings.People would be afraid for their career prospects, absolutely. Advancement in any organisation relies on not rocking the boat, agreeing with your boss and being seen as a reliable and safe pair of hands. If Bertie is telling "whingers" to go off and kill themselves, that feeds down and out as a culture within the organisation. Bringing up bad news is "whinging". "Whingers" should go off and kill themselves. And remember, this is something Bertie just blurted out in public, off the cuff when the mask slipped a little.
The most valuable part of your post is your reference to Time Magazine, 'A survery of Ireland - Why Worry?'. Unfortunately the reference to a banking crisis is rather tiny. It is a 1500 word article with one sentance dedicated to a potential banking problem, even then I don't think the warning is particularly stark. However it is the first and only reference to any sort of related problem that I have seen from that period of time. While it is not a bad example, perhaps there are better examples.
What issues 'widely flagged by foreign media? The only example I've seen so far is the Time magazine? Are you saying that the domestic banking crisis was widely flagged by foreign media? Genuine question.Scofflaw wrote:It's really not possible to claim that nobody warned about the exposure of the Irish banks to the Irish property bubble. It is, on the other hand, perfectly possible to claim that the warnings were ignored by politicians... issues widely flagged by foreign media.
In relation to the upcoming banking crisis? Who? When? I have been asking for names all along.BostonB wrote:Again thats not true. Lots of people were saying it. They were rubbished and dismissed as pessimists.
Not at all. I was actually pointing out that he is the first person as far as I am aware to even reference bank exposure among the Irish economic profession, but he did reflect the opinion that they were well capitalised because that is what they appeared to say. He is to be praised for the April 2007 study, not condemned, and you're quite right to say that he couldn't really be expected to know the extent of the banks exposure as an outsider. I agree completely. How could he have known when banks were so backhanded with the debt situation right up until 2009, perhaps. I'm not blaming him at all. By the way the study I reference was a very well received and well known study, it is not obscure at all and actually is the foundation for one of the IT articles you quote. It will be seen in years to come as a very important academic paper for the time.Lostinkildare wrote:interesting that you reference only one -- and the most obscure -- of Morgan Kelly's writings. Is that the only one you know of, or are you deliberately trying to divert attention from the many articles he published in the IRISH TIMES beginning in Dec 2006?
However, in the articles you link to the first real reference to a banking crisis is September 2007, but by then the dogs in the street knew what was about to happen: if you read my earlier posts I am asking about warnings that were sent out before all of this: 2006 or earlier.0 -
The point is that they couldn't realistically have seen it coming if nobody advising them, not to mention independent economists, did not see any of this happening.
No, the point is that they managed the economy by excluding the possibility of finding that out. They got on the bus, told all the people they knew how to drive the bus, sat into the driver's seat, put on a blindfold, and ran the bus into a tree. ignorance is no defence. They screwed up by not asking the right questions. Your assertion that no one else was asking the right questions doesn't matter at the end of the day. (And in any case I think that's mistaken - see other posters above.) It is the government's job to understand what is really going on.0 -
I agree, I think it's inexcusable that the Government didn't respond to this in effect by responding to the property crisis at an earlier stage.It is the government's job to understand what is really going on.
I'm just asking a very simple question. If you read the first post, I didn't actually come on here to defend anyone. I genuinely want to know who had been warning about the banking collapse, similiar to warnings that existed in the states and so on, over the years before the crisis emerged.0 -
By the way, on that point, I would like to explore the second part of my question: why property developer is a veritable swear word?0
-
Advertisement
-
@Later10Agreed, it is entirely possible that people in the public service knew what was coming viz. the banking collapse, and did not approach the Taoiseach in fear of losing their jobs. However, that is complete hypothesis, and I'm talking about actual warnings.
The most valuable part of your post is your reference to Time Magazine, 'A survery of Ireland - Why Worry?'. Unfortunately the reference to a banking crisis is rather tiny. It is a 1500 word article with one sentance dedicated to a potential banking problem, even then I don't think the warning is particularly stark. However it is the first and only reference to any sort of related problem that I have seen from that period of time. While it is not a bad example, perhaps there are better examples.
I know enough to know you wont be convinced of anything youve already decided is untrue.
However, the point remains: if a foreign magazine like the Economist can note that the Irish banks are heavily exposed to a huge property bubble it doesnt seem credible that the DoF, CB, FR and Bertie could pretend that there was no way to see this coming. I mean, the Economist, like independant economists, had no role or responsibility to monitor or regulate the risks in the Irish economy. The DoF, CB, FR and Bertie did. A 1500 word magazine article spotted it - the DoF, CB, FR and Bertie couldnt despite all their expertise and local knowledge?
Remember, the Irish government knew practically nothing about the true state of the Irish banking system back in September 2008 - nothing. They had no expertise or understanding of what they were guaranteeing. The DoF couldnt tell them. The CB couldnt tell them. The FR couldnt tell them. The had to simply rely upon the self interested propaganda of the banks themselves. They were wilfully ignorant, woefully incompetent and suddenly a terrible decision was forced upon them and they didnt have any insight to inform that decision. Brian Lenihan was *still* protesting that the Irish banks were well capitalised and open for business all through 2008, 2009 and 2010. NAMA were still shocked and surprised by how bad the banks loan books were in 2010. These guys with responsibility for monitoring and regulating the Irish finances, economy and banks had no idea what was going on inside Irish banks. None at all.
Could they have found out? Yes, easily. Theoretically at least the FR could show up on any morning out of the blue and demand to see the books or sit in the live enviroment to see how things really work - past the PR bull****. In practise the FR would flag their visits weeks in advance, and were effectively toothless when they did show up. They really didnt want to find problems.
Theres nothing spectacularly odd about the Irish banking crisis. The banks borrowed a lot of money. They lent it recklessly and they lost it stupidly and they couldnt pay back their debts when their bondholders and depositors and shareholders came looking for their money back. Nothing odd or unprecedented about it - only its scale, which should have made it all the easier to detect. Nothing that couldnt have been prevented if properly controlled.
But again, like I said, I know enough to know youll never acknowledge that.
Wisdom after the fact is often derided. But surely its better to be wiser from a bad experience, rather than to remain immune to experience? We cant claim the warning signs werent there. That nothing could have been done. That theres no need to change anything because theres nothing different that could have led to better results. The warning signs were there. The system either ignored them or even worse, was incapable of understanding or grasping them. We could have done things differently, we need to do things differently in future and the first step in that process is recognising that this banking crisis wasnt some act of God. It was a result of bad policies produced by bad policymaking overseen by bad policymakers.
EDIT - I think the tragedy is that even in 2004, the Irish government still had room to maneuvere. It could still have taken steps to cool the economy and limit the damage to the Irish banking system and the wider economy. Even that late, they could have subtly altered course. But instead, McCreevy was sent off to Siberia because he restricted spending too much, and Bertie continued pouring petrol onto the fire.0 -
Absolutely. I'm not knocking the article you linked to, to be honest I had never actually read that article nor had I seen it before. I have already said it's the first reference to a serious exposure that I have seen. But you would have to admit the overall tone of the article was that there was nothing to seriously worry about in Ireland. The reference to the banking industry was tiny. I don't think it would have been enough to set off any warning bells if I was reading it as my 2004 self.if a foreign magazine like the Economist can note that the Irish banks are heavily exposed to a huge property bubble it doesnt seem credible that the DoF, CB, FR and Bertie could pretend that there was no way to see this coming. I mean, the Economist, like independant economists, had no role or responsibility to monitor or regulate the risks in the Irish economy.
I think no expertise or understanding is slightly unfair, I would say they were very naive, but in hindsight they were correct.Remember, the Irish government knew practically nothing about the true state of the Irish banking system back in September 2008 - nothing. They had no expertise or understanding of what they were guaranteeing.
Of course. But there is a difference between saying 'well now we know', and saying 'we knew all along'.Wisdom after the fact is often derided. But surely its better to be wiser from a bad experience, rather than to remain immune to experience?
I was in college before the banking crisis, would have been only delighted from an academic point of view to know that the banks were about to enter meltdown, and I admit that I didn't know anything. Yet every time I'm in Ireland I constantly here of this widespread and popular knowledge of what everybody apparently knew all along, or what 'everybody was saying', as was suggested in this thread. Everbody was talking about a property bubble, indeed, but everybody was not talking about a banking crisis. And no the two do not always occur together, they very rarely do.0 -
@Later10Absolutely. I'm not knocking the article you linked to, to be honest I had never actually read that article nor had I seen it before. I have already said it's the first reference to a serious exposure that I have seen. But you would have to admit the overall tone of the article was that there was nothing to seriously worry about in Ireland. The reference to the banking industry was tiny. I don't think it would have been enough to set off any warning bells if I was reading it as my 2004 self.
I agree. I was around in 2004 but I didnt read that article and if I had Id probably have gone "Hmm, but Im sure the DoF/CB/FR are all over that...I mean, I pay my taxes for a reason".
The thing is, if the risks were apparent enough to merit mention in a 1500 word summary of the Irish economy then they were apparent enough for agencies with specific responsibility to monitor risks to the banking system to be at least aware of. And unlike Colm McCarthy/The Economist the DoF, CB and FR had legal powers to follow up worries with serious review and oversight.
It simply isnt credible to entertain the idea that these risks were undetectable. I agree - the average Joe Bloggs on the street probably didnt see it coming, but then the average Joe Bloggs isnt paid hundreds of thousands of euro precisely because they claim they can see it coming.I think no expertise or understanding is slightly unfair, I would say they were very naive, but in hindsight they were correct.
Theyre not innocents abroad, babes in the wood. Naive? Theyre the financial regulators - justification of their very existence demands a cynical view of the world.Of course. But there is a difference between saying 'well now we know', and saying 'we knew all along'.
I was in college before the banking crisis, would have been only delighted from an academic point of view to know that the banks were about to enter meltdown, and I admit that I didn't know anything. Yet every time I'm in Ireland I constantly here of this widespread and popular knowledge of what everybody apparently knew all along, or what 'everybody was saying', as was suggested in this thread. Everbody was talking about a property bubble, indeed, but everybody was not talking about a banking crisis. And no the two do not always occur together, they very rarely do.
Agreed to a certain extent - I share the :rolleyes: for people who announce they knew what was going on the entire time, yet deposited all their money in Bank of Ireland or AIB. I certainly understood the FR was a bit of a pushover from my own experience with them, but I didnt grasp the systematic scale of the problem.
On the other hand, neither those prophets nor myself were paid to monitor or regulate risks to the Irish economy. Nor did we have any legal powers to review or regulate the banks. Bertie, the DoF, the CB and the FR were and did. They wered paid to do so, they were empowered to do so, and they chose not to do so.
Thats the bottom line.0 -
I'm not saying that the risks were undetectable. But if I were to put myself into a Government Minister's shoes in 2006, I'm not sure that I would have had serious cause for concern.It simply isnt credible to entertain the idea that these risks were undetectable. I agree - the average Joe Bloggs on the street probably didnt see it coming, but then the average Joe Bloggs isnt paid hundreds of thousands of euro precisely because they claim they can see it coming.
I would have been expecting a property crash, but nothing, I don't think, like what did emerge. There were estimates doing the rounds of a contraction in the order of 8% per annum. The banks could have dealt with that. The economy would have suffered a dislocation, sure, but it in itself would not have been disastrous.
I know it is extremely popular to say that this should have all been predicted, but macroeconomics is not always an exact science... and as far as I can see nobody really predicted anything on the financial scale of what emerged in 2007 and 2008.
I agree, the nature of the regulator was problematical, that is a structural problem and responsibility for it rests with the Government.Theyre not innocents abroad, babes in the wood. Naive? Theyre the financial regulators - justification of their very existence demands a cynical view of the world.
But apart from the regulator problem, significant as it is, that's about the extent of it. The banks were, effectively, private institutions whose balance sheet was their own affair and if they were making no strange groaning noises, if their auditors were making no strange groaning noises and they genuinely looked capitalised enough for the magnitude of the property crash as it was then expected, why worry?0 -
...In relation to the upcoming banking crisis? Who? When? I have been asking for names all along....
No you've quoted me out of context. Its clearly about the boom and clearly about the ordinary Joe.
You've been given all the information anyone should need. At this point, either you don't understand the significance of any of it, or you are choosing to disregard it. But you are not alone in that.
I can remember many years ago, the topic of the credit bubble, and people living beyond their means, was a regular in the pub. One of my friends who was on approx 100K+ just couldn't understand how people around him on far lower salaries could afford their standard of living. or how the banks would lend so much to them, or the 100% mortgage, considering only a few years previously getting 2.5x one salary + 1x another was difficult enough. Likewise how the cost of properly had gone up 8x maybe more, but salaries hadn't gone up anything like 2x or 3x at best. The UK crash was familiar to all. The only real question, was where was all the credit coming from, and how could the banks have strict rules before, now throw them out. There was something missing from the puzzle.
Ironically the same friend, caved into to peer pressure at the end and bought a good few properties late in the boom. All the talk in the pub over the years was then dismissed, or ignored.0 -
Can I be any more clear?
You've been given all the information anyone should need. At this point, either you don't understand the significance of any of it, or you are choosing to disregard it.
Who was warning about the banking crisis prior to its emergence? Just simple names. So far Sand is the only person who has provided anything remotely relevant. Other people are simply insisting 'oh the evidence was there alright/ people were saying it alright'. Who? Very simple, don't bother telling me I've been given the informastion, just give me that piece of information. Names.
How can I make this question any easier?0 -
http://www.youtube.com/watch?v=THWbrFy5NWM
This RTE report talks about the ESRI recommending the government abolish mortgage interest relief in order to "take money out of the housing market". It also mentions postponing tax cuts in order to slow down the economy. I don't follow ESRI reports regularly, but if this was in one of their quarterly economic reports in 2000, did they change their tune in later years?0 -
Can I be any more clear?
Who was warning about the banking crisis prior to its emergence? Just simple names....
It was actually in the general media.
http://www.youtube.com/watch?v=cxtkjZFfuZI&feature=related
"...behind this nonsense is excessive and irresponsible lending from our financial institutions..."
http://www.youtube.com/watch?v=a37sRjkLtWw&feature=related
You're looking for a smoking gun so that you can say Berties had no warning. Well he had no bank account, maybe he had no TV, and never read a paper. There were lots of issue with the banks, widely reported. If the FR wasn't coming to Bertie, he should have been going to the FR.0 -
However, in the articles you link to the first real reference to a banking crisis is September 2007, but by then the dogs in the street knew what was about to happen: if you read my earlier posts I am asking about warnings that were sent out before all of this: 2006 or earlier.
I’ve read all of the thread. From the OP you ask us to discuss whether Bertie Ahern was right when he asserted that nobody ever warned him of the danger of a bank crisis. I believe what he said was,
“At any time, had they come in and put the doomsday message, I think we could have done a lot of things. But there was no sense, I can tell you, of that. I mean, there wasn’t one meeting with the Central Bank guys, not one meeting where they were putting the red lights on. Not one meeting. And never did Brian Cowen or the financial officials come over to me to say that the whole thing, the bottom, was going to fall out.”
According to him, no one anytime during his tenure as Taoiseach (which ended in May 2008) sent up a red flag re the banks. In the quote, he is talking about people within the govt – and of course we do not and probably will never know what was discussed within govt institutions – but we do know that while he was Taoiseach there were outside economists publically warning of bank collapse. You asked for examples and I gave you some from Morgan Kelly because you mentioned him yourself, and IMO you mischaracterized his record. From the Dec 2006 article I quoted, he compared Ireland’s situation to Finland’s (“Two housing booms are especially sobering for being so similar to ours: Finland in the 1980s and The Netherlands in the 1970s. . . .The Finnish banking system effectively disintegrated under the weight of bad housing loans and had to be rescued, at huge expense, by the state.”)
That said, why are you moving the goalposts now, insisting on specific warnings of banking collapse from 2006 or earlier? Was collapse even likely that early? The picture changed dramatically from 2006 to 2007 -- house prices fell an astounding 15%, and the panicked banks started shoveling good money after bad to the developers. As Kelly wrote in Sept 2007, “While mortgage lending has slowed since the middle of last year, lending to builders and developers continues to grow rapidly and now stands at almost €100 billion, an increase of €20 billion on last October.” This must have been a key reason for their fragility, and it didn’t happen until 2007.
And anyway, Bertie didn't say, "No one warned me in 2006 or earlier!", so what has 2006 got to do with the subject of the thread, which wasI would like to begin by saying that I am not an apologist for Fianna Fáil economic policy (or lack thereof) from about 2001 onwards, nor for property developers. Nor am I an apologist for Bertie Ahern. However, one thing he said during his recent interview struck me, when he said that nobody warned him of the banking crisis.
I presume most people guffawed at this. But actually, I have a feeling he's correct. While one might have foreseen a slowdown in property and construction, indeed one ought to have foreseen such a thing, who predicted that it would be so extreme, so rapid and as such would lead to bank meltdown in the way that it did?Second page now, is anyone going to suggest who was warning about the banking crisis (again as distinct from the property crisis)? Who saw this coming?
Because it seems to me that The government is right here. It did look like a slowdown was coming but the consequences were not seen by anyone as far as I can see. There was no economist, commentator, blogger or journalist who predicted bank meltdown. One well known commentator who has been praised for his 'prophetic' predictions only expected a 6-7% per year reduction in house prices over a sustained 9 year period. Hardly accurate. But with those kind of predictions floating around, you wouldn't seriously be expecting bank meltdown. As much as i disagree with Bertie, I think he's right on this one, although I remain open to correction once provided with credible evidence to the contrary.Re the banking crisis, what economists are you saying he should have been listening to?Typical. Anybody suggests that *shock, horror*, Bertie could be right on something and suddenly, despite saying that they're not defending him, they're defending him.
I am not defending him. I am saying that on the issue of warnings re the banking crisis, he is probably right. Not the property crash. The banking crisis. Banking.
Is he wrong? Who was warning?I have no sympathy for Bertie Ahern or any of the previous regulators who failed in their duties, I'm not defending them. I'm merely pointing out that of all of the people saying 'I told you so' now, none actually saw the banking crisis coming.
When Bertie was Taoiseach, Morgan Kelly was warning about the banks. If he had listened to Kelly in Sept 2007 he would have had a whole year to deal with the banks and mitigate or even head off the collapse. There were others warning too, but I leave it to you to search for the dark mutterings re the banks from, for example, David McWilliams, and Alan Ahearne (aww, can’t resist – start here: http://www.nuigalway.ie/staff-sites/alan_ahearne/media.html).
When Bertie was Taoiseach, Morgan Kelly wrote on 7 April 2008, “it is vital regulators introduce measures to handle impaired loans to builders; overhaul our inadequate system of deposit insurance; and monitor the real solvency of those banks that lent aggressively for speculative land purchases and building, and may now be finding themselves dangerously out of their depth.” Specific measures suggested 5 months in advance of disaster.
So, in answer to your question, no Bertie is not right. He is a liar. I'm amazed that you ask.0 -
Advertisement
-
http://www.youtube.com/watch?v=a37sRjkLtWw
I'm just posting this an example of early warnings in the media of a potential future economic crash.
On your second question. For me personally I've never bought a house, so in the last few years I've moved a few times in order to get better accommodation and better rent. So from personal experience I've found the houses built during the celtic tiger to be rather poorly built. The current house my family and I live in was built in the 80's and is better built and insulated. It has often been discussed on Boards, a two tier housing market forming. With pre celtic tiger houses holding their value better than houses built from 2000 onwards. I can easily imagine people stuck in poorly built houses, where the water now freezes every winter because the water pipes were buried too shallow, that is drafty and probably built on a flood plain, feeling quite pi$$ed off with property developers in general.
But of course it's wrong to generalise, the individual is important.0
Advertisement