Another Day, Another Billion

by Henry on June 26, 2013

I’m surprised that there hasn’t been more discussion outside Europe about the Anglo-Irish tapes. A summary from a review I did a few years ago of Fintan O’Toole’s book on the Irish collapse.

Anglo Irish Bank —Ireland’s third-largest bank and the most spectacular exemplar of the Celtic Tiger’s flameout— bet its future on loans to well-connected property developers. O’Toole suggests that “[i]t may be an exaggeration to call Anglo Irish a private bank for Fianna Fáil’s more flamboyant friends—but only a small one.” Not only did Anglo Irish itself invest heavily in the property market, but it lent more than 100 million euros to its chairman (as well as smaller sums to other directors) to speculate in property on his own account, and then hid the loan on its balance sheet through sleight of hand. The Central Bank–based regulator charged with regulating financial services knew about both the loans and the cover-up but declined to act. To borrow University College Dublin economist Morgan Kelly’s term, Anglo Irish was “too connected to fail”—no serious regulatory response was possible.
When Anglo Irish began to get into trouble, a “golden circle” of ten investors borrowed money from the bank itself to invest in its own shares and hence keep the share price from tanking. Seventy-five percent of the loans were backed by the shares themselves. Six members of the golden circle are known; most of them have strong Fianna Fáil connections. Anglo Irish executives and board members were also allegedly given loans to buy shares to help “counter negative publicity.”

After the failure of Lehmann, Anglo Irish found itself in very serious trouble. The Irish state stepped in first to guarantee the debts of Anglo Irish Bank and other banks, and then to nationalize Anglo Irish. Over the last couple of days, the Irish Independent has been releasing extracts from recorded phone conversations between senior Anglo Irish executives in the lead-up, and they … say interesting things … about the attitude of bailed out bankers. Some of the extracts:

[the problem, as stated to the Irish Central Bank]

To cut a long story short we sort of said. ‘Look, what we need is seven billion euros… what we’re going to give you is our loan collateral so we’re not giving you ECB, we’re giving you the loan clause.

[how the regulator was quoted as responding when he he heard the proposed figure]

Jesus that’s a lot of dosh … Jesus fucking hell and God … well do you know the Central Bank only has €14 billion of total investments so that would be going up 20 … Jesus you’re kind of asking us to play ducks and drakes with the regulations.

[where the 7 billion figure came from]

Just, as Drummer [CEO David Drumm] would say, ‘I picked it out of my arse’.

[why the figure was quoted, even though senior management knew it was inadequate]

That number is seven but the reality is we need more than that. But you know, the strategy here is you pull them [the Central Bank] in, you get them to write a big cheque and they have to keep, they have to support their money, you know.

[response]

They’ve got skin in the game and that’s the key.

[response to the response]

If they saw the enormity of it up front, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high…if it doesn’t look too big at the outset…if it doesn’t look big, big enough to be important, but not too big that it kind of spoils everything, then, then I think you can have a chance. So I think it can creep up.
So, so … [the €7 billion] is bridged until we can pay you back … which is never. [Loud laughter]”

[when the executives heard that the proposed bailout was causing diplomatic problems with other European states]

So fuckin’ what. Just take it anyway . . . stick the fingers up.”

Also, loud laughter when one executive starts singing “Deutschland Uber Alles” in response to the worry that the saga was causing a rift between Ireland and Germany. As you might imagine, that’s going down a storm with German media.

{ 21 comments }

1

Jesús Couto Fandiño 06.26.13 at 4:44 pm

But… but… but… where are the masses of moochers in this? Where are the stories of German paid retirements at 40? Of lazy unemployed people that just want that German mark to pay for vacations and new cars? Come on, you want me to believe it was all bankers and politicians cynically milking Ireland, Germany, or whoever got in the way?

2

Jesús Couto Fandiño 06.26.13 at 4:47 pm

And on a more serious tone, any chance for any of those human shaped buckets of slime to be taken to court somewhere with this?

3

P O'Neill 06.26.13 at 5:32 pm

#1 it’s funny you mention the German angle because the Deutschland Uber Alles singing was actually a reference to Anglo’s success — despite being a zombie bank — in sucking up large deposits from German yield-chasing institutional investors, using the backing of the government guarantee. Since Anglo was already bust (though the lads on the phone didn’t know it yet) that means it was actually Irish taxpayers paying for German pensions etc.

And as for the question in #2, given Ireland’s track record on white collar malfeasance, No.

4

Rob in CT 06.26.13 at 5:50 pm

Well, that’s certainly blatant. Consequences?

Hahahahaha, I know, I know.

5

Steve LaBonne 06.26.13 at 6:18 pm

Where’s Dr. Guillotin when you really need him?

6

Ronan(rf) 06.26.13 at 8:05 pm

And on the same day they gave the survivors of the Magdalene laundries a measly settlement

7

In the sky 06.26.13 at 8:27 pm

I appreciate that this is a bit of a stretch, but intentionally misleading the government in a manner that ultimately saw it having to surrender some sovereignty to the IMF is very close to treason.

8

Chris Bertram 06.26.13 at 10:01 pm

“No Dougal, the money was just resting in the account.”

9

Rob in CT 06.26.13 at 10:25 pm

Regarding consequences…. one thing I guess we can hope for is that the fact that this is rather embarrassing for the Powers That Be in Ireland and Germany might result in some action?

Am I being naive? Probably…

10

Tim Worstall 06.27.13 at 11:05 am

The blanket guarantee to all Irish bank debt was the single most stupid thing anyone’s done in the current troubles. Just entirely barking mad.

11

Steve LaBonne 06.27.13 at 12:48 pm

Not stupid. Corrupt. They knew what they were doing and why.

12

sherparick1 06.27.13 at 1:20 pm

Reply Tim Worstall:

Who benefited? Anglo-Irish Execs, the German institutional investors and political elite who did not have to bail them out (& thereby could still sternly lecture others about the virtues of Austerity), and Fianna Fail politicians and backers who had made a fortune on the Irish property bubble circa 2002-2007. From their point of view not stupid at all.

What was stupid was making a tape.

13

Carl 06.28.13 at 1:31 am

I thought the tapes were hilarious. Also, what is this nonsense about “the Irish taxpayer”? That money does not belong to them, it belongs to the Irish state, who represent the people. Democracy, hello? Ok, they could have spent the money better but let’s not pretend that the Irish people somehow “own” the money they voluntarily pay to the government in taxes.

14

Justin Cidertrades 06.28.13 at 3:21 am


politicians and backers who had made a fortune on the Irish property bubble circa 2002-2007. From their point of view

bullish, it
!

15

Ronan(rf) 06.28.13 at 11:00 am

“I thought the tapes were hilarious”

I agree. How cant you but admire such levels of brazen stupidity

I particularly enjoyed their description of their ‘strategy’ when dealing with the Central Bank

“Get into the f**king simple speak: ‘We need the moolah, you have it, so you’re going to give it to us and when would that be? We’ll start there.”

And this worked!

16

hix 06.28.13 at 12:55 pm

Really, all you can do is use this for another blame the victim exercise about the evils of Germany? Ireland still advertises today the kind of bs legislation that was used by most banks to hide their ABS exposure off balance sheet in Irish leterboxes.

17

Jesús Couto Fandiño 06.28.13 at 1:22 pm

Is not “the evils of Germany” any more than the “evils of Ireland” or “the evils of Greece” or “the evils of Spain”

Is the evils of the greedy assholes in charge of banks everywhere and willing to fleece all the taxpayers, everywhere, and the sooner the German public realize that and the Irish one and the rest, the sooner we get to really solve the problem.

18

Ronan(rf) 06.28.13 at 2:24 pm

Hix – Not sure where the Germany blaming is tbh

19

Ronan(rf) 06.28.13 at 5:40 pm

This Karl Whelan article

http://www.forbes.com/sites/karlwhelan/2013/06/28/the-anglo-tapes-the-guarantee-and-irelands-economic-crisis/

Is a nice corrective to two points above (1) that everyone is still ‘blaming the Germans’ (which was very 2011) and (2) that Irelands problem are solely banking related (he estimates debt at 100% of GDP even if no money was spent on Anglo)
Once again hix, it cant be stressed enough, but overwhelmingly blame is primarily directed at domestic sources

20

Mathmos 06.30.13 at 3:38 pm

This is where centuries upon centuries of political theory and practice has led to.

21

Tom Phillips 07.01.13 at 11:56 am

When the banking crisis hit in the UK and Northern Rock had gone I remember seeing one of the Irish banks at a construction exhibition in Birmingham offering to open accounts for UK consumers on the basis that 100% of deposits would be protected in Ireland.

I was amazed at the time that an Irish bank would be so pushy or so desperate to attend a totally non related exhibition to attract business.

Having read your blog and the book review I am not so surprised!

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