Wednesday, 2 February 2011

When Irish Eyes Are Crying

Paul Sweeney: Financial journalist Michael Lewis will have an article in Vanity Fair magazine next month, “When Irish Eyes are Crying”. You can read it here.

He wrote the now famous pieces on Greece and on Iceland in the same magazine. I am reading his book “The Big Short” and it is excellent – so well written.

He says that the Irish enjoy suffering! “They will take it and take it and then one day they will go Snappo!”

That will be on the 25th!

He argues strongly against Fianna Fail’s line that we must slavishly pay up every penny that Fitzpatrick, Sheehy and all ran up (for the FF builders and speculators). He says the Irish will have no choice but to default on the private debt (i.e. it is not sovereign debt).

Vanity Fair says “Lewis interviewed Lenihan in an attempt to uncover the man’s reasoning for his actions. Lenihan asserted that he had no choice in the matter. “Under English law,” he explained to Lewis, “bondholders enjoy the same status as ordinary depositors. ” As Lewis points out, this is legalistic—“narrowly true, but generally false. The Irish government always had the power to impose losses on even the senior bondholders, if it wanted to.” When he made the decision in 2008, Lenihan said it was done to prevent contagion. But, as Lewis points out, this wasn’t true either. A year and a half later, Lenihan offered a different reasoning, claiming that the bonds were owned by Irishmen. “The Irish, in other words,” Lewis writes, “were simply saving the Irish. This wasn’t true.” The bondholders were mostly foreigners.

Here is a link to Michael Lewis on CNBC talking about his meeting with Brian Lenihan, Irish Bankers and others and the role of Merrill Lynch in Ireland’s downfall.

Merrill Lynch fired an employee who wrote a report that the Irish banks were over-lending dangerously. Yet Lenihan’s Dept Finance hired ML at big bucks to help shovel the cr*p generated by low / no regulation, low interest rates and shifting taxes from income to consumption and overall low direct taxes which created the financial crisis.

1 comment:

Paul Hunt said...

@Paul Sweeney,

Thanks for highlighting this. It's likely to attract huge international readership and coverage.

However, regarding the Merrill Lynch banking analyst, Philip Ingram, the UK Guardian:

reports ML as saying "that Ingram's departure came as a result of the redundancies caused by ... wider restructuring [resulting from its takeover by BoA], and that he was not fired."

It does, however, serve as a salutary warning to any little boys (or girls) who have the effrontery to call out that the emperor has no clothes. And don't let anyone fool themselves that this isn't happening now - or the threat of it to compel silence - or that it won't happen again. DISSENT IST VERBOTEN.

But it is equally worrying if any dissent that surfaces coalesces around the notion that those holding the private bank debt should, and must, be 'burned' and, with one bound, we will be free. That bird has flown. Most of the debt has been socialised - in the Irish Central Bank, in the ECB and in continuing sovereign recapitalisation of the domestic banking system. Our only hope is that the EU Grand Panjandrums (both institutional and political) will see their way, following the next round of EU bank stress tests, to provide some relief.

This is entirely indefensible in a democratic polity (at both the national and EU level), but the fundamantal problem is the democratic deficit at the core of the EU which allowed the Grand Panjandrums to establish the Eurozone - the EU Constitution (aka, Lisbon Treaty, aka TFEU) over the heads of their citizens.

Citizens throughout the EU should target their anger and desire for change on this.