Without immediate Government funding, bank lending will fall by three-quarters, driving most companies in Ireland out of existence, according to UCD Professor of Economics Morgan Kelly. Writing in the Irish Times today, he takes no prisoners in his analysis of the Government response to the banking crisis.
Adapting the old line about what's good for General Motors being good for America, he says the FF view that what was good for Anglo Irish Bank was good for Ireland has brought the country's banking system to its knees. The cure the Government has chosen will make things worse.
He says that without immediate Government funding, bank lending will fall by three-quarters, driving most companies in Ireland out of existence.
Instead of funding the four worthwhile banks that provide households and ordinary businesses with credit, he says 'the Government chose to persevere with a scheme that serves only to keep zombie banks going while starving their customers of credit; and helps nobody apart from some developers and bankers.'
He castigates the choice, saying that:
'... it guaranteed the liabilities of even the worst two "banks" without checking what, if anything, their assets are worth. By doing this, the Government has put the taxpayer at risk of substantial losses, and compromised its ability to provide adequate capital to the banks that need to be saved.
These points are so obvious that it is almost embarrassing to repeat them. Even with the strikingly poor quality of economic advice available to it, the Government knew what should be done, but decided to do otherwise.'
To see why they made this decision, click on the link.