Thinking about the crisis… June 22, 2012Posted by WorldbyStorm in Economy, Irish Politics.
Backroom in the SBP has a post on the inability of Irish officials to quite handle or face reality. There’s something in that, though it is probably somewhat overstated. There’s a too neat elision of officials, civil servants and bankers as if all held the same power over circumstances. There’s also two elements missing, firstly the broader private sector (construction being but one element, but there were many more) who cultivated the general mood music that allowed a deregulated environment and non-interventionist approaches to take hold in the late 1990s and 2000s and those politicians directly implicated in all of this, most notably FF (but also in relation to mood music PD).
None of these were inconsequential. Nor, and this is significant, were they unique. This attitude of an absurd trust in the market was not something that appeared as from nowhere but was in a sense an intrinsic value of the political and economic elites in this polity since the foundation of the state. 2008 and the bank guarantee may have been the most accentuated example of that dynamic, but only in terms of scale. That’s how business is done in this state. Always has been, always will.
And the piece is good if only for providing a precis of just how appalling were the outcomes of the bank guarantee. Read on.
Consider the 2008 decision to provide Irish banks with largely open-ended state guarantees.
Key policy-makers genuinely believed that Irish banks were then merely suffering an inability to borrow in financial markets (a liquidity problem) rather than that they were also facing bankruptcy (a solvency problem).
The bank guarantee decision was made in haste: we can all now repent at leisure. So far, the state has pumped in Ђ67.8 billion bailing out the banks, comprising Ђ62.8 billion in cash and promissory notes directly injected into the banks and a further Ђ5 billion by the National Asset Management Agency (Nama) in state aid. That is equivalent to over €45,000 for every person in full-time employment. Two weeks ago, Matthew Elderfield stated that the banks may need another Ђ4 billion in equity capital. Last week we learned that the government is now unable to locate an official file on the matter!
Think though a moment about who made the decision to gift the guarantee. And who gave the advice. And how rapidly the decision was made. And suddenly it becomes apparent that while there wasn’t any sort of serious effort by officials to divert that train once it had left the station the truth is that executive authority was exercised on behalf – in a very real sense – of the banks themselves.
That too is how business is done in this state. And that the politicians themselves had little or no understanding of these issues, or didn’t think to call upon expertise that might have been able to resolve that problem? Par for the course. Though one should note, the banks themselves were concealing the depth of the problem. But it is the haste that is most telling. That the politicians allowed themselves to be rushed into that decision. That’s systemic failure on a grand scale, but crucially a failure rooted on individual bad decision making of small groups of people unthinkingly accepting (or as bad, unwilling to question) the word of the orthodoxy.