Tuesday, September 30, 2008

The global financial cyclone has come to Irish shores... [with regular updates]

The Irish government just announced today that it is going to enact emergency legislation to provide a state guarantee for 6 major Irish banks and building societies.

As of the 6 o'clock news this evening on the Irish national broadcaster RTE, all we know is that the Government has worked overnight to cobble this guarantee together in response to the targeting of Irish financial institutions by international investors where significant amounts have been taken out of the Irish banks, and share prices of Irish banks have taken a nose-dive.

As soon as the press release about the Irish government's guarantee of all debts and equities of the six Irish institutions, Irish banking shares have had a dramatic rebound - Bank of Ireland's shares was up by about 20%, as did AIB, and the Anglo Irish Bank was up by almost 70%, almost recovering its previous one-day loss.

However, the details of this state guarantee remain extremely sketchy. The actual draft of the emergency legislation was promised to be released to opposition party members by lunch time today. Then it was postponed to 4pm. Then it was delayed to a quarter to six this evening. And when I was watching the live interview on the RTE Six One news just now, we were told that the documents would be ready by half past six instead. By the end of the newscast, no-one have actually seen the draft legislation.

What we do know is this: that this is a state guarantee for two years, whereby the Irish taxpayers would stand behind both debts and assets of the six major Irish financial institutions (Bank of Ireland, AIB (Allied Irish Bank), Anglo Irish Bank, Irish Life & Permanent - which owns the large building society Permanent TSB, Irish Nationwide and EBS (Educational Building Society). All deposits will be guaranteed, along with the debts (there is a difference in terms of whether it is going to be all debts or just some - the RTE reported that all debts would be included, the Irish Times reported that only "certain" debts will be covered).

This guarantee of these six institutions amounts, according to the Government, to about €400 BILLIONS (yes, in euros). According to Davy Stockbrokers (leading brokerage firm in Dublin), the correct figure is more like €500 BILLIONS (yes, still in euros!). That's almost like 1 TRILLION U.S. dollars. Put another way, the guaranteed assets and debts amount to about 3 or 4 times the annual National Income of Ireland.

The guarantee currently excludes foreign (including EU) banking institutions, however the EU Commissioner is saying that they would have to look into the details to see if such an exclusion would result in unfair competition.

The saving grace (IF there is a saving grace), is that this is a state guarantee for specifically two years and SUBJECT TO TERMS AND CONDITIONS. But of the latter we as yet know precious little because no information on these have yet been released to either opposition parties or the press. All we know at this stage are that the guarantee is "subject to a charge or a levy", and that the level of that charge will be set by the Irish Central Bank.

The Minister for Finance, Brian Lenihan, was at pains to explain that this is very different from the U.S. bailout as no actual taxpayers' monies are being handed over, that the state simply acts as a guarantor for its key banking institutions. That this was proposed in order to target the liquidity problem of the Irish financial system by guaranteeing banks' access to funds so that they could continue their business.

The six Irish banking institutions in question (there are three banks and three building societies, the latter are analogous to the savings and loans institutions in the U.S. like Fannie Mae and Freddie Mac) are considered to be much better capitalised than their U.S. counterparts, and although they do have significant exposure to the local property market, which has taken a battering over the past months with a sharp downturn in property prices; they have relatively little exposure to the "toxic" derivative instruments that have made the value of the debts so difficult to assess. The RTE economics editor said that the banks involved must open up their books so that the full extent of their exposure to risks can be gauged.

The Dáil (pronounced "doil", analogous to the U.S. Congress) would debate this piece of emergency legislation this evening at 9pm. Although we don't have CSPAN to view the debates live on telly like the U.S., there is a live podcast from the RTE website, but we will have Prime Time later this evening (Irish answer to the British "Newsnight") where undoubtedly there would be live television reports about the state of the Dáil debate. And just after midnight there is the weekly report from the Oireachtas (pronounced "or-roc-tus", meaning the Irish Parliament), but I'm not sure if they would be able to do a live report on this piece of emergency legislation by that stage.

My personal feelings about all this at this point (8:15pm):
It does seem that this Irish state guarantee is indeed very different from the U.S. bailout plan, even if the sums involved are similarly mind-bogglingly staggering. Whilst I would not be so foolish as to take it on trust that the terms and conditions would be set in the taxpayers' interest, I do have trust in our parliamentary system: we have two effective opposition parties - Fine Gael and Labour - the leaders of both of which have hectored the Taoiseach (the Irish Prime Minister) Brian Cowen at an earlier government session (Question Time at Leinster House) when this legislation was formally proposed; and the only right-wing party in Ireland - the Progressive Democrats - have effectively been dissolved earlier this summer due to their total defeat at the polls. And to be honest, all six institutions are hardly Wall Street - in fact, they are what we'd call here our "high street banks". Following the failure and subsequent nationalisation or state-orchestrated takeover of UK high-street banks like Northern Rock and HBOS, and European banks like Fortis, I actually think the fact that the Irish government acting decisively now to guarantee all six institutions rather than wait until they fail and have to be taken over or nationalised is a bold but very reasonable move. In fact, the RTE news report was even able to get positive responses to this emergency legislation from the Irish small business association as well as the voluntary organisation Age Action Ireland.

Well, we'd have to see whether it's just the optimist in me believing in the above.

Further reading:
Government guarantees send bank shares higher (Irish Times)
Dail to debate emergency law on bank guarantees (Irish Times)
Banking guarantees bolsters Irish market (RTE News)
Table of the guarantees extended to all Irish depositors (Irish Financial Regulator)

Update (9:30pm):
The RTE 9 o'clock news that the Government, citing "drafting difficulties", have pushed back the Dail debate until 10pm this evening. Hmmm. So Prime Time may not get anything out of them either when it's on in a little while. Am not liking this perpetual postponing one bit.

Update (9:33pm):
The latest round of blogposts about the intervention has been largely positive, with bloggers saying how this move has prevented a run on Irish banks following the dramatic free-fall in world markets yesterday.

Liveblogging Prime-Time (9:35pm):
Am watching Prime Time now and it's precisely on this "biggest financial decision the State has ever made". Apparently the measure will provide the Government with "wide-ranging" powers to influence the banks' operations.

Q: "How did the Irish taxpayers become the first country to underwrite its entire banking sector?"

A: Something along the lines of: Because the problem we have is one of market confidence, the best way of boosting that confidence is to underwrite banks. (!!!!!)

"The heads of the Irish banks have a serious case to answer for this policy."

Brian Lenihan (from clip): "We're in the eye of the storm here, and it's not the time to have extensive arguments about the nature of regulation, it's time for action". (!!!!!!!! Hank Paulsen you have an Irish brother!!!!!!)

UCD Economics Professor: "My reaction to this is very negative.... The reason is that the Irish banks have a lot of big loans to the developers...."

Counter-point from an opposition politician: "But the Irish banks are not asking for money. They said that We don't need capital from the Government, and we don't want capital from the Government. All they want is to be able to access normal funds which is what this guarantee helps them to do."

UCD Economics Prof: "The example for us should be what happened in Sweden... The Finns have done the same thing."

UCD: "We're going to end up like the Japanese did..."

"What will the banks give for the great blank cheque?"

On the actual drafted legislation itself:

UCD: "[The details in the Bill] are very vague... At the moment the Irish banks have... lost so much money lending to dodgy builders.... We are probably looking at losses of around 10-20 billions."

Finana Fail (FF, party in power in Government) spokesman: "We are bound to listen to the advice of the Central Bank and the Financial Regulator".

Labour spokeswoman Joan Burton: "What we have had today in the Dail is probably the most confusing day... we've been called in four or five times. We don't actually have the bill, what we have is a draft bill."

FF spokesman Willie O'Dea: "We apologise for the number of false starts.... A number of technical issues have arisen due to the legislation being extraordinarily complex... What we're guaranteeing basically are the loans and the assets of the six financial institutions... There is no money being handed over."

FF spokesman: "The Central Bank has looked at the situation and are satisfied that the assets exceeds liabilities.... The banks are underpinned by assets that's valued in excess of 500 billions."

Reporter: "Are you going to appoint representatives to their risk control committees?"

FF: "But we're not taking equity in the banks."

Labour spokeswoman: "Essentially the Bill being given new range of unprecedented and extensive powers to the Minister for Finance who could consult with other Ministers if he chooses but not even the Government.... There is no specifics on the regulation."

And now we move to the U.S. financial crisis.

(Am not feeling good about this at all, from my positions as a taxpayer, a mortgage-holder, as well as a very-very-tiny-small-potatoe investor.)

And we are back.

Commentator from Geneva: "We have two problems here [in reference to Ireland]. One is the liquidity problem. The other is a potential future insolvency problem. The banks are not currently insolvent, and they may not be insolvent in the future. The guarantee is to deal with the illiquidity problem we have right now."

(Can't live-blog now. Must get something to eat.)

Update: Live-blogging of the Oireachtas Report (12:08am):

One thing is clear: The bill isn't likely to be enacted until tomorrow morning.

Okay we're not going to have live broadcasts from the actual debate itself, but clips from the Question Time session at the Leinster House earlier today.

Enda Kenny (FG leader) demanded more oversight for banks: "appoint personnel to the risk management committees of the banks"

Brian Cowen (FF Leader and Taoiseach): "That state guarantee is not for free... that state guarantee... is going to have to be paid for by the banks at a fees that reflect the commerical realities..."

Enda Kenny:"We must not have a situation whereby the gains are privatised and the losses are socialised."

Brian Cowen: "The interests of taxpayers would be protected.... specific terms and conditions.... " (But basically he has not outlined what those terms anad conditions are apart from the fees to the charged at commercial rates on the banks should they call in the guarantee).

Brian Cowen: "I have not handed any money to any bank."

Brian Cowen (very forcefully): "If a deficit emerged. The sector would pay. Not the taxpayers. That is my committment to the House."

Then the report moved onto other matters like MRSA infection in hospitals. Am pausing liveblogging.

Now it moved onto another earlier session where independent TDs as well as party TDs (analogous to U.S. House Representatives) made statements about their views on the proposed guarantee.

An Independent TD suggested that the head of the Financial Regulator should be sacked as he has been asleep at the job, that "banks were running rings around this Government."

Another Independent TD mocked the language used by the Finance Minister on radio this morning about the need to provide "succour" to the Irish banks as they have nowhere else to go. The TD said that the Government better beware of not turning taxpayers into another type of "sucker".

Still another Independent TD asked "What's in it for the taxpayers?"

An FF TD reminds the group that "What we are dealing with here are not just banks... If you break it down we are basically dealing with, for example, retired people who may have deposit accounts in these banks and we're not talking about just reckless investors. These people depend on the safety of these accounts for the rest of their lives, like paying for a nursing home, etc. We are dealing with taxpayers here who have savings."

A FG TD called for a proper Question and Answer session as there are still many questions raised about the proposed legislation that needs proper answers from the Government (Yea, this is the best proposal I've heard from the whole debate!)

However if I heard correctly according to the reporter voiceover this motion was "rejected" by the FF Chair (???!!!! WTF???)

Thus concludes the Oireachtas Report. There will be another tomorrow night so I'd be paying close attention to that as well.

Update - Personal feelings about all these at this point (12:50am):

I have a mental run-through of my personal exposure, as it were, to all these. All my bank accounts are located among the 6 banking institutions proposed to be guaranteed by the Government. And in fact, due to the fact that the Irish Government has already guaranteed deposits of up to €100,000 two weeks ago (way above the UK Government guarantee of £35,000 at that time), so I was not worried about my banking and deposit accounts at all, especially as I don't actually have in excess of €100,000 in savings! (In fact, far from it!) From a depositor point of view, I am even more secure now with the proposed legislation as the Government is offering to back all deposits 100%, with no limit placed on the amount thus insured.

However, not all of my savings take the form of simple deposits. I also have a small investment in a composite fund with a tiny exposure to properties (10%, but balanced by a higher percentage of investment in government bonds) as well as stocks (American and European companies). This investment must not have been doing that well at all in the last while, although I've no idea of how bad it must have become because we only get bi-annual reports on it from the asset management firm (which by the way, is a subsidiary of one of the banks included in the proposed guarantee), and I don't want to ring up and find out, fearing the numbers I'd see (ostrich approach?). Although the fund has matured and I could technically take it out if I want, I have as of this point in time no intention of doing so. It's meant to be a long-term investment anyway so I don't mind leaving it as it is rather than re-investing the sum into the now gold-plated deposit accounts. If this whole issue is about investor confidence, then I don't mind staying in the market to help bolster that market confidence, albeit in an extremely miniscule way. I am doing this in the knowledge that I do not yet need to depend on that tiny investment to save my skin. Well not yet anyway.

In fact, because of the fact that Ireland has offered to guarantee all deposits in Irish banks 100%, including even those deposits of UK-based account holders, according to a Guardian report this will make Irish banks be seen as "safe havens" especially for UK investors whose government has yet to offer the same level of protection. Surely this would help stave off any potential solvency problems for the Irish banks as the market itself may help re-capitalise the institutions. From that perspective I have even more confidence in the measure proposed.

Finally, as a taxpayer, I have mixed feelings about this. I am very angry at the complete lack of details, despite repeated questioning from both opposition and independent TDs, on those terms and conditions that the Government has touted would help make this guarantee a safe bet for the Irish taxpayer. In fact, the odious attitude of the Finance Minister Brian Lenihan towards questions about the regulatory framework on this is absolutely despicable.

That said, the saving grace is that this intervention is nothing like the U.S. bail out plan, there is no indication at all yet that there is a real danger of Irish banks calling in this guarantee due to insolvency issues. And here I must say that I do think the UCD economics professor is very much overstating his case when he said that the dodgy debts could run to 10-20 billion euros, with that figure based solely on his anecdotal observations that many construction sites around the country are lying idle rather than based on any real data (and this from an academic!). Those who would fail are likely to be small developers, and if they do, the losses from these run in millions as opposed to billions. And though the country is technically in recession, the rise in unemployment figures are currently restricted to the construction sector, with new jobs actually being announced in the technology and healthcare sectors. Moreover, there are numerous government infrastructural investment projects going on here that could easily absorb excess labour from the failed developers.

The real saving grace - and for this we do have to thank the Fianna Fail party and Bertie Ahern - is that there was a five-year Government-run savings scheme SSIA which most if not all of the Irish populace had subscribed to. Although the SSIAs matured a couple of years ago and which in part fed into the boom and overheating of the property market, the fact is that the level of savings in Irish households is much higher than in the U.S., and that many people across the whole class spectrum have continued their saving habits after having gotten used to it for five years. Thus whilst there were indeed 100% mortgages offered by mortgage companies for a short while in the halcyon days of the Irish property boom, the risk of the sub-prime market in Ireland is comparatively small, especially when those mortgages were only offered to those either on huge annual salaries (in the case of first-time buyers seeking to be owner-occupiers) or those who have collateral to guarantee the debt (in the case of those who use such loans to fund essentially buy-to-let properties), as opposed to those who do not have any realistic prospect of paying them back as in the case of the U.S. sub-prime market. The danger in the Irish housing market comes primarily from those buy-to-let investors over-extending themselves, but there is no signs yet that the rental market here is becoming unstable in such a way that rents no longer offer adequate coverage of mortgage repayments. Moroever, much of the housing boom over the last decade was in response to a proportionate increase in the size of the Irish population from some 3.5 millions to some 4.5 millions. I therefore do not believe that the fundamentals of our property market - despite the price bubble bursting - are anywhere as bad as the U.S. or even the U.K. cases. At least not yet.

Given the above, I do not believe that the Irish economy is yet in danger of an insolvency problem the way the UCD guy had pictured it. And Joseph Stiglitz, the Nobel Prize winner in 2001 in economics, had a pretty similar view when he commented on the Irish situation in the Newsnight programme earlier tonight. Although there is of course a risk that there may be one, especially if the recession deepens and real unemployment begins to surface in sectors unrelated to the housing market which may in turn jeopardise the Irish public's ability to repay their mortgages. On the off chance that that scenario plays out, the key question that we have got to ask of the Irish Government now is how much the current state guarantee of 100% deposits as well as bank debts will impact on our ability to resolve a potential insolvency problem if it does arise.

And as mentioned already, I do have much more faith in our political system to sort this out, especially when compared to the sham democracy Americans are unfortunately saddled with under Bush. We have a viable multi-party system with proper opposition parties as well as strong independent representatives. There is a strong political consensus that state intervention is needed, but also strong political will on the part of the opposition parties that the details of this deal must protect the taxpayers. Moreover, there is strong political incentives for the Government to make good on its promise - they have seen how the Irish citizenry have no qualms about giving a well-established party (the PDs, the only right-wing party in Ireland, which in the U.S. would have been considered centrist!) such a thoroughly sound thrashing at the polls that the party effectively collapsed earlier this year. I'm grateful to be living in a functioning democracy and that the average Irish voter is like an elephant - we never forget.

Therefore, overall, on further reflection of the above, I am feeling cautiously optimistic about all this. The only issue outstanding, as far as I'm concerned, is to get the terms and conditions and the regulatory mechanisms on this state guarantee right, so that we introduce protection for the taxpayers and safeguard the economy in such a way that it does not compromise our ability to deal with a potential solvency problem if that does occur in the future. I thus await the Dail debate tomorrow (technically today, as it's 1:30am now!) with bated breath.

Update (5:15am):
Key quotes from the Irish Times "Bill allows State to take stake in any financial institution given aid" (last updated by Irish Times at 1:59am) and from another Irish Times article "Second stage of emergency banking legislation passed" (last updated by Irish Times at 1:22am), the Irish Times Editorial (Wednesday, 1 October, 2008), an article by the former senior economist at the U.S. Federal Reserve who currently lectures at NUI Galway, a FT article, a new EU Commission economic staff report on the state of the Irish housing market, and the Q&A section on this plan in the Irish Times.

On what the Bill contains:

1. The Guarantee
"The state is guaranteeing for two years bank deposits, both corporate and retail and interbank deposits and various types of bank capital such as covered bonds and subordinated bank debt.
The only liabilities not covered are hybrid Tier II capital, understood to amount to about €100bn."

"The deal covers Bank of Ireland, Allied Irish Banks, Anglo Irish bank, Irish Life & Permanent, Irish Nationwide building society and the Educational Building Society."

"The deal, which also covers wholly owned foreign subsidiaries of the named Irish banks, removes funding risk for two years."

"the Government pledged early yesterday to guarantee deposits and debts totalling €400 billion at six Irish-owned lenders in a move to protect the country's financial system after Irish bank shares suffered their greatest fall in more than a quarter of a century on Monday. The liabilities amount to almost 10 times the value of the national debt of about €45 billion. The aim of the move, which guarantees the banking system for two years, is to improve the banks' access to international funds frozen by the global credit crunch."

"Introducing the Credit Institutions (Financial Support) Bill 2008, the Minister for Finance, Brian Lenihan, told the Dáil last night that it was not about protecting the interests of the banks but about safeguarding the economy and everyone who lived and worked in this country."

"The lion's share of the liabilities covered consists of deposits. The blanket guarantee by the Government means that deposits at the banks should now be regarded as completely safe. Such a move is not unprecedented. Governments in other countries have in the past guaranteed all deposits when their banks ran into trouble, such as in the Nordic countries in the early 1990s.
Most depositors here were already covered by the recently revised deposit insurance scheme for up to €100,000. However, many individuals and businesses hold deposits in excess of €100,000."

"The Government's scheme also guarantees banks' debts such as covered bonds, senior debt and dated subordinated debt. This part of the scheme may prove more controversial, especially the extension to cover subordinated debt."

"Are the loans to property developers and builders covered [under the state guarantee]?

No. Only the six banks' own debts to investors, holders of bonds and other financial institutions are guaranteed."

"AIB, Bank of Ireland, Anglo Irish Bank, Irish Life Permanent, Irish Nationwide Building Society and EBS building society, as well as their subsidiaries, are all covered. Mr Lenihan said that while six institutions, which are Irish-owned, were covered in the Bill “the option is given to the Minister to extend that guarantee to other institutions”.

"The decision to leave foreign-owned Irish banks out of the safety net means that large retail banks such as Ulster Bank and National Irish Bank are at a disadvantage. This aspect of the package is almost certain to be queried by Brussels, and that is presumably a bridge the Government will have to cross when it comes to it. But it presents a very serious problem for these banks and their customers. The Government should address the issue to minimise disruption."

2. Risks
"The risk to the taxpayer of guaranteeing covered bonds and senior debt is probably small, since these loans are often secured by collateral. The risks of an Irish financial institution not repaying its subordinated borrowings are greater - and therefore so is the exposure of the taxpayer."

"Of course, the immediate threat that faced one or more Irish financial institutions presumably stemmed from their inability to access short-term funding. In other words, Irish financial institutions faced a bank run by fearful capital markets and other banks. A run on a bank's liabilities is likely to bring down a bank, irrespective of whether those liabilities are deposits or loans from other banks."

Finance Minister: "There is understandable concern that the Exchequer is potentially significantly exposed by this measure. I want to reassure the House and the Irish people that this is not the case. The risk of any potential financial exposure from this decision is significantly mitigated by a very substantial buffer made up of the equity and other risk capital," said Mr Lenihan.

He added that total assets of the six Irish financial institutions concerned exceed their guaranteed liabilities by approximately €80 billion - half of Ireland's total GNP. "By any measure there is, therefore, a very significant buffer before there is any question of the guarantee being called upon," he said."

"The Bill enables the Minister to set a higher charge for the State guarantee on financial institutions which have been engaged in higher risk lending. This is designed to counter the "moral hazard" argument of the Government being seen to support banks that take higher risks."

"The option of allowing one particular bank to fail and then moving to nationalise it was seriously considered, but it was decided that legislation to protect the entire banking system would had a better prospect of achieving long-term stability."

"Mr Rabbitte [Opposition TD] said that “the US was talking about $700 billion purchase of “dodgy toxic accounts” which represented 5 per cent of its GNP. “We have put 200 per cent of GNP theoretically at risk here and we don’t know what the Minister means when he says there will be a cost levied, how it will be levied. “That is not the way to make law or to ask us to confer these powers on the Minister without any knowledge of what kind of oversight”.

"Fine Gael Communications spokesman Simon Coveney said the reality was that if a significant decision had not been taken “we were looking at a situation of a number of Irish banks not surviving the day, never mind the week”. However the “radical measure will not solve the domestic problem of exposure to bad debts,” the Cork South-Central TD said. The Minister said the taxpayer would be entirely protected in the deal but this “is simply not true”, he added. “It is a calculated gamble.” "

"Another glaring flaw in the package is the failure to tie down the price the banks will pay for the State's support. The Government's options seemed to be emerging more clearly in the Dail debate late last night. It would be foolish of the banks to act in bad faith on this matter given the scale of the risks that the Government has exposed tax payers to in order to safeguard them. And in time they must be held to account for their own role in creating this crisis."

"Backed by the Government guarantee, banks and building societies might now be in a position to unload riskier assets. This may be good for the financial institutions, but would increase the risks to the taxpayer. The Financial Regulator's role in supervising and regulating the Irish financial system has just become a lot more complicated."

"Another question raised by the scheme is how it will affect the behaviour of Irish financial institutions over the next two years. Put another way, how will banks and building societies manage their assets now that their liabilities are State-guaranteed?

One concern is that since an important source of market discipline has been removed, financial institutions may show excessive forbearance in dealing with troubled borrowers. The Japanese experience in the 1990s after the property bubble burst there shows that such behaviour can be disastrous for both lenders and the economy. Moreover, will financial institutions be allowed to continue to pay dividends? Will there be limits on executive pay, as in the US plan? There is also a question as to what extent financial institutions will now be able to raise new funds using risky assets such as mortgages or loans to developers as collateral."

"Who is going to pay for the guarantee?

Initially, the banks, which will be charged commercial rates. Ultimately, though, at least some of the costs are likely to be passed on to the consumer. Irish banks and building societies have been passing on their higher funding costs to customers."

3. Reward
"[The Finance Minister] added that the guarantee to the banks was not "free" and taxpayers would be remunerated for the value of the support provided."

"THE GOVERNMENT'S emergency legislation to guarantee the Irish banking system will allow the State to take a stake in any financial institution that receives financial support from the exchequer."

"In a scenario where an Irish bank becomes insolvent, the Government would have to make good on its guarantees and assume the bank's liabilities. A key question is whether under this scenario the Government would also take control of the assets. In other countries, governments have chosen to nationalise troubled banks rather than guarantee liabilities. By nationalising a bank, a government gets both the assets and liabilities. A government guarantee scheme should include provisions that the State is given contingent assets to match the contingent liabilities that it takes on board."

"A crucial question is what the Government will get from the six financial institutions in return for offering unlimited guarantees. On this score, the Government has so far been vague. All the Government has said is that "the guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers' interest can be protected".

The charge to the financial institutions should be set at high levels to compensate for the risks that taxpayers are being asked to take. If a bank or building society refused to pay those charges, then that institution should not have been included in the scheme. What is important to realise is that, contrary to what some commentators have said, the provision of a blanket guarantee is not without cost to the State. The Government is putting at risk public funds to provide financial institutions with an extremely valuable insurance policy."

4. Oversight
"The Bill gives the Minister for Finance wide-ranging powers to protect financial institutions and allows for competition law to be set aside to allow bank mergers, if deemed necessary to protect the stability of the financial system."

"The Bill specifies that all financial support provided shall, so far as possible, ultimately be recouped from any bank that receives support. It also allows the Minister for Finance to regulate the competitive behaviour and commercial conduct of banks that receive such support. Where financial support is provided to banks it will be reviewed by the Minister to establish when it is no longer necessary. He will also report to the Dáil on the level of any support provided and the payments made in return."

"This was essentially war-time legislation in extreme circumstances, which gave the Minister extraordinary powers, Mr Coveney [FG Opposition TD] said."

On who was involved in the drafting of this Bill:

"The decision to proceed by way of a Bill to support banks in difficulty was taken by the Taoiseach and the Minister for Finance in the early hours of yesterday morning after meetings at Government Buildings involving the Attorney General Paul Gallagher SC, senior officials, Central Bank governor John Hurley, and the chairman and chief executives of AIB and Bank of Ireland, the country's two biggest banks."

"The deal was finalised only at 3am on Tuesday at a meeting attended by Brian Cowen, the prime minister; Mr Lenihan, the central bank governor and the Irish regulator; plus the chairmen and chief executives of Bank of Ireland and AIB. The government move followed what one ministry official described as “large scale cash movements” out of the Irish banks on Monday."

On how will this Bill be debated going forward:

"The emergency Dáil debate only began at 10 pm last night having being deferred on four occasions during the evening. Instead of passing all stages in the Dáil and Seanad last night as planned, the committee and report stages of the Bill will be taken today, as will the Seanad debate."

"The Dáil last night agreed the second stage of emergency legislation to guarantee and underwrite the banking system, after 100 minutes of debate. The committee and report stages, where the details of the legislation will be debated, will be taken today [Wednesday]".

On how this may link in with initiatives at other EU countries:

Finance Minister: "“We are satisfied that we are in accordance with our obligations to the European Union. Of course, complaints may be made to the Commission [but] we have been advised by the Attorney General that we are acting in accordance with those obligations”.

"Today's talks in Paris between the Taoiseach and French president Nicolas Sarkozy will be dominated by the global financial crisis, and, in particular, the Irish Government's bank guarantee. Last night, the president's spokesman said Mr Sarkozy "has followed and discussed" with Mr Cowen the Government's move. A similar guarantee will be offered by the French government, with measures announced at the end of the week, the spokesman said."

"The European Commission has said it will investigate whether the Government bank guarantee breaches EU law, but it has also signalled that it would continue to adopt a flexible approach to implementing EU state aid rules."

"Tuesday’s guarantee offered by the Irish government to its six national banks to safeguard €400bn ($563bn) of deposits and bank debt is causing ructions in Brussels, where there is concern the Irish move shatters any hope of pan-European regulatory response to the turmoil."

On the Bill's potential impact on markets and the economy:

"The initial signs are encouraging: bank shares are recovering, but more significantly the Irish banks are gaining access to credit lines which had dried up as their international peers began to seriously doubt their ability to meet commitments. Equally encouraging is that Ireland has retained its AAA credit rating - the highest possible - despite effectively underwriting its banks.

This in part reflects the sophistication of the guarantee package which - if the Government is lucky - may never be called upon and thus cost tax payers next to nothing. In the event that guarantees are called upon, the State will take stakes in the banks.

Any optimism, however, must be tempered by the reality that global credit markets are in crisis, the Irish economy is in recession and the banks are all overexposed to the property market. The Irish banking sector faces into a very tough couple of years as these problems are worked through the system."

"Bank shares were all up on Tuesday, signalling the market’s approval of the scheme. Spreads on Irish banks’ credit default swaps – seen as an imperfect proxy for the level of stress – also narrowed sharply."

"Sebastian Orsi, banks analyst with Merrion stockbrokers, said the scheme “could mean that Irish banks see inflows of funds if they are viewed as a safe haven”.

"Interest rates on Irish Government debt may increase to reflect the greater risk that now faces the State finances. These rates will probably move higher over coming months if conditions at one or more of the covered financial institutions deteriorate. These higher interest payments will mean fewer funds available to the Government to spend on health, education, and other items."

"In addition, Irish financial institutions will now face lower borrowing costs than would otherwise have been the case, owing to the fact that their debts are State-backed. These financial benefits should be passed on to the State in the form of a charge."

"Christopher Wheeler at NCB brokers said: “The government’s action is very helpful in the short term in providing relief for the Irish financial system. However, longer-term questions still remain over the quality of the banks’ loan books.”

"Ireland's Housing Market: Bubble Trouble [a new European Commission staff report]says house prices rose by a cumulative 300 per cent in real terms between 1992 and 2006. The unprecedented boom in prices was fuelled by particularly strong housing demand caused by a relatively young and growing population, rapid growth in disposable income and low - at times negligible - interest rates.

It says the tax structure in the Republic played a role in fuelling the housing bubble by creating favourable tax treatment of residential property and house purchases for investment purposes:

"Households are allowed a tax deduction on mortgage interest payments, while there is no tax on property values or imputed rent and only limited taxation of capital gains on residential property . . . Generous tax provisions may have encouraged the spiral in houses prices," says the report, which concludes that the Irish tax structure is one of the most favourable to encourage home ownership across the EU.

The report says the collapse of the housing market is acting as a drag on the wider economy and the public finances at a time when exports are also being hit by deteriorating competitiveness and a slowdown in the US and Britain.

It warns that it is too early to tell whether the Irish economy can recover to its previous high levels of growth.

"It remains to be seen whether past structural reforms can help bring about a rapid return to the medium-term growth, or whether the recovery will be more drawn-out, similar to the experience of many industrialised countries that have undergone housing busts in the past 30 years," concludes the report.

It was prepared by Janis Malzubris, an EU official working at the commission's economic and financial affairs directorate.

The report is one of a series of economic staff reports undertaken by commission officials at their own initiative, which means the views expressed by the author do not necessarily correspond to those of the commission."

Update (Wednesdsay, 1 October, 08. 2:35pm):

Amendments Proposed to the Bill:
Debate on emergency bill continues in the Dail
Labour seeks to cap executives' pay

"In a statement this morning, Labour said it would table 12 amendments when the Bill is debated in the Dáil today. The party said a key amendment would preclude any of the banks that will be beneficiaries of the guarantee scheme from paying any of their officials more than the gross annual earnings of the Minister for Finance."

"Another amendment would defer the implementation of the Bill until the Minister for Finance has published and sought the approval of the Dáil for the full terms of the proposed scheme of financial assistance for the financial institution.

A further amendment would require State equity in the event of State funds being used to bail out an institution.

Labour said its amendments "are designed to protect the taxpayers money, provide for increased supervision by the Oireachtas of the rescue package, and allow for . . . an independent oversight board to advise and report on the very wide powers being given to the Minister for Finance under the Bill".

"Labour Party leader Eamon Gilmore said he wanted answers as to how much taxpayers are being asked to guarantee, the exact charges which will be levied on banks in the event and the full conditions of the scheme.

"We’re effectively being asked to put up the deeds of the country by going guarantors," claimed Mr Gilmore, who said he wanted to know about possible limits on executive’s awards at banks.
"Are you going to allow executives to keep their fist in the till?" he added."

"Sinn Féin finance spokesman Arthur Morgan has also tabled an amendment to the Credit Institutions Bill demanding a levy be charged to banks for the term of the bank bail out deal. He has also demanded that the Government immediately outline the "conditions" agreed with the banking sector.

“Sinn Féin wants to support the Credit Institutions Bill. Stabilising the State's financial sector and ensuring it can continue to trade on the international stage is crucial. However the Government’s refusal to outline in detail the conditions and schemes of the guarantee within the Bill is simply not acceptable.

“This is an issue of trust. Do I trust the Government to ensure the conditions of the guarantee agreed with the banks are sufficient to protect and benefit the State? Going by their record to date, absolutely not," he added."

Update (6 October 2008)
This is third "Meltdown Mondays" we have had since this "financial shitstorm" started. Apparently the Nordic model is the right approach to resolve the confidence problem caused by exposure to toxic debts, but the action of governments have so far adopted only elements of the comprehensive reforms the Scandinavians took back in the early 90's. Whilst I'm glad that finally the failures of the neoliberal model that underpins Anglo-Saxon capitalism are clear for all to see now, I'm not certain if collectively we have the political will and the financial wherewithal to establish a truly social democratic model where communitarian values are emphasized.

Can our collective hopes translate into market and political confidence? Would we be able to withstand the pain of necessary adjustments as we seek to correct our course? Do we have faith in ourselves an in others to do the right thing when it really, really matters?

I sincerely hope the answer to the above is not the common riposte, Can pigs fly?

Labels: , , ,

Thursday, September 25, 2008

Okay, I've finally succumbed...

... And bought a brand new Dell laptop!!!!

This is despite the fact that I've sworn off Dell in my not-so-long-ago-previous life when I suffered immense anguish and frustration over their stupid desktops.

But I had promised my little sister a laptop as her birthday present. And on reflection of my previous experience, I'd rather risk doing business with Dell again than give the benefit of the doubt to those b*stards* at PCWorld. After all, I did get my Dell desktop working in some way and got the problem sorted, whereas I'm STILL waiting to hear back from those f*ckers* at PCWorld to replace their faulty laptop as per their rip-off warranty.

I'm, in fact, blogging on the new laptop right now (my excuse of having it delivered to my place first is that I needed to check out and make sure everything is okay when it came out of the box before handing it to my little sis).

Oh my, I actually am LOVING this new laptop (it's the Alpine White colour - yes, am needlessly vain). The delivery came a whole 5 days early (in fact, the guy just caught me this morning just right before I headed out the door for work). And although it's Vista Home, everything is working extremely smoothly as it should be!

The wireless switched on with a little blue light like it says in the manual!
The signals were picked up immediately, and my WEP key worked on first go!
McAfee registration didn't work on first try, but got it on second try!
The new accounts for my little sis and little bro with "parental control" was set up in a jiffy!
Downloading Open Office software was an absolute breeze! It doesn't conflict with anything!

Wow, I realised I've almost forgotten what it's like to have a painless electronics shopping experience! Until now that is.

Am getting jealous all of a sudden of my little sister and now am actually itching to buy one for myself! (Even though technically-speaking I'm still being owed a brand new HP laptop from PCWorld!!)

*As I'm in the presence of my little sister's computer, I'd have to mind my language. After all, I'm no Gordon Ramsay.

Labels: , , ,

Friday, September 19, 2008


To D and A, you have been two of my best students.
It's been a joy to supervise your projects.
Am so proud of all the work you've put in.
Combining three methods in one study,
And submitting your work ahead of schedule,
While juggling your full time jobs,
And a family with young kids (for A),
Or a newly-wedded husband (for D),
Is no mean feat! Fair play to both of you!
Give yourselves a well-deserved pat on the back
And - most important, this - a real holiday at last!

(And D, your message really made my day.
You have no idea what it means
For me to be told I'm the best supervisor you and A have ever had.
And that you're inspired to do further research
Because our journey together, though tough, has been exhilarating.
Though I unfortunately cannot join you and A for drinks afterwards
I'm so happy to have worked with you.
And truth be told, both you and A have been an absolute inspiration
Your unfailing enthusiasm and perseverance
Spurs me on to finish my own thesis.)

So here's to you! D&A! Congrats on a job well done :)

Labels: , , , ,

Thursday, September 18, 2008

You've got to have thicker skin than this...

You have got to have thicker skin than this.
Jibes and sideswipes come with the territory you're in.
It's true they do reflect far worse on those who made them,
Than on whom those poison darts are meant.

You have got to have thicker skin than this.
Cry if you must but never let them see.
Instead of reacting, try to deftly rise above it.
The best put-down is to turn a duck's back on sleaze.

You have got to have thicker skin than this.
The world moves on and you have got to move with it.
Take time to lick your wounds, of course,
But don't pick at the scabs to add your own injury.

You have got to have thicker skin than this.
Though be grateful you could actually feel the sting.
It shows you still have the sensitivity,
To win in the much bigger scheme of things.

You have got to have thicker skin than this.
But you also need to be able to let someone in.
Pride doesn't only come before a fall;
Pride before the one you love, is the deadliest sin of all.

(c) Snowdrops 2008. All rights reserved.

Addendum: This poem is probably a companion piece of sorts to my earlier poem "Fuck'em". I don't know how come somewhere along the line between 2006 and 2008 I've kinda changed my perspective on things... Actually re-reading Fuck'em I still could feel the rage coursing through my veins about the injustice of bullying and the added insult of turning a blind eye, but perhaps now I have also learnt to be a lot more philosophical about the need to keep one's game face up and the wisdom of "Illegitimi non carborundum".

Update: Just saw this lovely quote from a commenter on the Brocantehome blog about keeping up with Mrs Jones: "when they're talking about you they're letting some other poor soul rest".

Labels: , ,


Where are you from?

Que sera sera...

Feed my pet!

Currently getting stuck in...

Have just finished...

Me, Anime...

A bunch of snowdrops by any other name...

S is for Sweet
N is for Natural
O is for Open-hearted
W is for Worldly
D is for Dedicated
R is for Romantic
O is for Original
P is for Perfectionist
S is for Special
What Does Your Name Mean?