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Thread: September 29/30, 2008 - why did the mistake happen? Can it happen again?

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    Default September 29/30, 2008 - why did the mistake happen? Can it happen again?

    The government says the Banking Inquiry will be limited to examining why the banks failed, and will not examine the government's response to the failure. Any promise to release documents to the Banking Inquiry has to be seen against that limitation - it will not be given any paperwork relating to the government response. Given how the decision was taken, though it became a government response, it was in reality the response decided on by just two men: the Taoiseach and the Minister for Finance. And there is to be no inquiry into that.

    So it is up to us citizens to figure out why they responded as they did.

    Why did the Taoiseach and MinFin reject nationalisation of Anglo Irish Bank and instead guarantee all of its liabilities?

    The Taoiseach and Minister for Finance says that they were under awful pressure. Decisions had to be taken at speed in the middle of the night. They acted on the best advice from the Financial Regulator, NTMA, Central Bank, and Department of Finance. They took the least worst option as it appeared to them at the time.

    But is that true?

    Today some more light is cast on the events of that evening by Simon Carsley here .

    Quote Originally Posted by Simon Carsley

    ALLIED IRISH Banks (AIB) and Bank of Ireland (BoI) were asked during crisis talks on the night the Government bank guarantee was introduced in late September 2008 how much they could provide in liquidity to Anglo Irish Bank, according to well-placed sources.

    During emergency discussions with the Government and senior regulatory officials, both banks consulted their treasury departments shortly after talks began late on Monday, September 29th.

    Both heard from their treasury units within hours and determined that they each could provide €5 billion in loans to keep Anglo float.

    The two banks believed that the loans to Anglo, which had haemorrhaged deposits during September 2008 at the height of the financial crisis, would be only temporary and that Anglo would be nationalised the following weekend.

    Nationalisation was regarded as impossible midweek while markets were open, as it would affect the other listed institutions.

    AIB and BoI both sought assurances from the Government that night that the €10 billion would be repaid that Friday ahead of the Government’s expected nationalisation of Anglo.

    The following day, neither bank was contacted by the Central Bank, the Financial Regulator or Anglo in relation to the loans of €10 billion, or received any explanation as to why the loans weren’t needed.
    The government has issued a classic 'non-denial denial' of claims that legislation to nationalise Anglo Irish Bank was available on the night.

    It is widely accepted across all shades of political opinion that the guarantee given in respect of Anglo Irish Bank was a mistake.

    We need to learn from mistakes to minimise our chances of repetition. Given our history of banking scandals and insurance industry scandals, each more expensive than the last, that may be a pipe-dream but let's try.

    Why did this mistake happen?
    Last edited by He3; 25th September 2010 at 03:56 PM.
    "It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair.

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    Politics.ie Member richie268's Avatar
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    Nationalisation was regarded as impossible midweek while markets were open, as it would affect the other listed institutions.

    Both heard from their treasury units within hours and determined that they each could provide €5 billion in loans to keep Anglo float.

    Absolute Bolix!

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    Politics.ie Member powderfinger's Avatar
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    Thanks for posting Simon Carswell's article He3.It is also interesting to note that according to Carswell's sources (who would be well placed )it is claimed that the 4 bankers came with different hymn sheets that night.
    Banking sources differ on what the two financial institutions wanted at the meeting. Sources with knowledge of AIB’s position on the night said the bank sought no support for itself but pressed that the Government needed to act to prevent Anglo’s collapse.
    The sources claimed that the senior bankers in attendance – Dermot Gleeson, then chairman of AIB, and then chief executive Eugene Sheehy – were told the State had prepared a guarantee scheme that could protect the entire system but that they would have to ask the Government for it.
    BoI, which was represented by then chief executive Brian Goggin and governor Richard Burrows, argued for Anglo to be nationalised and the other institutions guaranteed, according to sources familiar with its position that night.
    Vincent Browne interviewed Brian Lenihan on TV3 last July.In passing comment on the September meeting Lenihan stated that his decision to implement a blanket guarantee was made in response to a request from the bankers in attendance that night.
    Which bankers was Lenihan referring to?

    http://www.politics.ie/current-affai...ght-thurs.html

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    The inquiry is to look in to the 'causes' of the banking crisis and is not allowed to look in to the response of the Government. I wonder does that mean that the inquiry is not allowed to look in to the response of the Government to the 'causes', i.e. what they did or didn't do when they were being told of what was coming over previous years, rather than what they did in responding to the September 2008 crisis? I wonder, also, does that then rule out investigation of those cosy dinners?...

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    Politics.ie Member Aristodemus's Avatar
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    I don't think it was anything sinister such as protecting influential friends etc, I think it has to do with the fact that these guys are out of their depth. Lenihan, who seems to get good press for some reason is totally in thrall to his advisers. At the end of the day he's a lawyer and knows nothing of finace or economics. McWilliams lifted the lid on him and if the Government hadn't so many friends in the press, particularly Independent Newspapers, a lot more would have been made of Lenihan's peculiar behaviour on his visit to McWilliams.

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    Quote Originally Posted by Aristodemus View Post
    I don't think it was anything sinister such as protecting influential friends etc, I think it has to do with the fact that these guys are out of their depth. Lenihan, who seems to get good press for some reason is totally in thrall to his advisers. At the end of the day he's a lawyer and knows nothing of finace or economics. McWilliams lifted the lid on him and if the Government hadn't so many friends in the press, particularly Independent Newspapers, a lot more would have been made of Lenihan's peculiar behaviour on his visit to McWilliams.
    Garrett Fitz on Newstalk last week said that there were 16 economists in the DoF when he left office and there are now 3.

    Did Bertie dumb the DoF down so that he could pull his Strokes without interference?
    We have turned the corner.I commend this Budget to the House. Brian Lenihan, 9 December 2009

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    On the face of it they are a right wing party and acted in accordance with right wing ideology.If it is true that they were under awful pressure and making decisions 'at speed' in the middle of the night then basic political ideologies must have come into play and at least coloured their judgement.If it were a left wing party in power they would not have had the same basic ideological opposition to nationalising the bank (eg. Northern Rock).It's only a thought but we elected a right wing party and should not be surprised when, under pressure, they reacted the way they did.

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    Politics.ie Member richie268's Avatar
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    Quote Originally Posted by Aristodemus View Post
    I don't think it was anything sinister such as protecting influential friends etc, I think it has to do with the fact that these guys are out of their depth. Lenihan, who seems to get good press for some reason is totally in thrall to his advisers. At the end of the day he's a lawyer and knows nothing of finace or economics. McWilliams lifted the lid on him and if the Government hadn't so many friends in the press, particularly Independent Newspapers, a lot more would have been made of Lenihan's peculiar behaviour on his visit to McWilliams.
    The reality of it is that they could of let Anglo go to the wall but instead ordered BOI and AIB
    to lodge billions into Anglo.
    http://www.politics.ie/economy/12603...-you-know.html

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    They'd get some kudos if they just admitted that they were bounced into a position where they had to make a decision under pressure and flunked it.

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    Default Credit where it is due?

    Thanks for the contributions so far. Here is another item of information -

    On 30 September 2008 only the Central Bank and the Financial Regulator were cited by Brian Lenihan as advising the guarantee.

    That list has expanded in more recent statements to include the NTMA and DoF.

    Significant?

    Quote Originally Posted by MinFin
    The Bill provides a legislative framework to underpin the guarantee arrangement for depositors and lenders to Irish financial institutions which was announced by the Government earlier today following advice from the Central Bank and the Financial Regulator.
    Parliamentary Debates (Official Report - Unrevised) Dáil Éireann Tuesday, 30 September 2008 - Page 1

    Not much in that speech has stood the test of time:

    Quote Originally Posted by MinFin
    I want to make two crucial points. The guarantee is not free and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money.
    Last edited by He3; 5th April 2010 at 07:26 PM.
    "It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair.

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