Brian Lenihan on top of his brief myth slain by Morgan Kelly

[myk]

Excellent article by Morgan Kelly on NAMA in today's IT

Turning bank debt into equity will save us from Nama ruin - The Irish Times - Tue, Oct 13, 2009

In addition to other things it slays the myth propagated by FF and Independent Newspapers that Brian Lenihan is on top of his brief.

WHILE MOST economists by now simply dismiss Brian Lenihan’s utterances on the economy as “not even wrong”, this is to miss the Minister’s almost eerie ability to predict exactly the opposite of what is going to happen. Merely to contradict Brian Lenihan is virtually to guarantee that you will later be credited with supernatural prescience.

Who else, as Irish bank shares plunged 13 months ago, could conclude: “Our banks uniquely have weathered this storm . . . We are in a zone of financial stability in a very troubled financial world.”? Two weeks later, having been panicked into his catastrophic bank liability guarantee, the Minister assured us that we had “the cheapest bailout in the world so far”, and six weeks later averred that: “It is not the function of the Government to fund or bail out the banks.”

The effortless miscalculations, the assured non sequiturs, the lofty indifference to facts: all reveal Brian Lenihan as a master of what Princeton philosopher Harry Frankfurt defined succinctly in his 1986 paper, On **************************************** .

[Amach na Casca]

We've people running the country that couldn't run a corner shop. We are truly fecked.

[He3]

While Kelly's evisceration of Lenihan has a grim fascination, what is more astonishing is that it is still necessary to spell it out for some people. Is there an electrocution effect at work in Ireland - where people have to have their fingers prized free of the wire that is killing them?

Here is Kelly's conclusion:

Nama then, will turn out to be expensive, corrupting, and inadequate. While the abject, almost endearing, eagerness of the Greens to please their Fianna Fáil masters means Nama is almost certain to go ahead, it is perhaps worth asking what would happen if it did not.

All that needs to be done is for ownership of Irish banks to be transferred to their bondholders. This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.

Under existing Irish corporate law, this transfer would be a recipe for centuries of litigation. That is why most other industrialised economies have, or are introducing, special legislation to resolve failing banks with limited judicial review. Particularly impressive is the UK’s Special Resolution Regime introduced last February, which could easily serve as a template for similar legistlation here.

Instead we will get Nama. Brian Lenihan assures us that Fianna Fáil’s monument to a decade of waste, corruption, and ultimate ruin will not be wasteful, corrupt, and ultimately ruinous.

[FakeViking]

Lenny is a make-it-up-as-you-go-along snake oil salesman. He utterly loves the sight of a camera or a microphone. He's got the media skills to act competent.

We need someone with financial acumen and economic experience, not a play actor.

[cyberianpan]

The substance of Kelly's argument is primarily around the guarantee

FG and many independent commentators supported it, e.g. David McWilliams claimed to have invented the idea

cYp

[myk]

The substance of Kelly's argument is primarily around the guarantee

FG and many independent commentators supported it, e.g. David McWilliams claimed to have invented the idea

cYp

The guarantee was a big mistake, and it was based on a false picture of the state of the banks which was promoted by both the banks and the Minister for Finance at the time.

[BodyofEvidence]

theres nothing about transgendered bike owning badgers so the GP wont care. Sure facts, who needs them.

[Clanrickard]

Hal are you there?

[cyberianpan]

The guarantee was a big mistake, and it was based on a false picture of the state of the banks which was promoted by both the banks and the Minister for Finance at the time.

Lenihan talked up the banks, he still had hope that the market would solve it

I think guaranteeing depositors + liquidity providers was a good idea

I'm still not sure why we guaranteed subordinated debt/risk capital and have to confess that I didn't query that at the time, nor did many (any?) commentators. However some of that has since been liquidated with reasonable clawback, I posted on thread on this here with almost no response. People don't seem interested in risk capital here/ in general public.

cYp

[BodyofEvidence]

CyP - i admire your willingness to try to see sense in the actions of the FF-Badger Liberation Army, and the guaranteeing of the subbie debt did float past many. But you gotta admit, MK has him nailed