The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[seafoid]

There's nothing to stop anybody speaking to an adviser about their pension pot within a group plan. If you have a significant period of time to retirement there is generally no need to panic if your fund falls, just wait for the markets to recover.  If you are about to retire it is a very different matter, that's why you should not be in equity based investments, which was my original point.

Do these financial advisers give free advice or are they another leech sucking more blood from your pension pot? Are you an adviser and if so did you see the crash coming

This is the attitude that I was getting at in my original post. The guys on the bar stools won't pay an adviser a couple of hundred quid and moan as their pension pot loses thousands. Sensible stuff.

How much would it have been worth to have an advisor worth his salt the night of the Lenihan/Cowan Bank Guarantee?

No adviser would have known and you know it. As I've said earlier if you have 10 + years to retirement then you would have recouped their losses from that time already if they had the foresight to sit tight. Those who were on the cusp of retirement at the time should not have been exposed to the risk.  Good advisers wouldn't have known what was round the corner ( to think otherwise is stupid), where the adviser earned his/her corn would have been to have taken the client away from exposure to such risk.

I think you misunderstood me.

It is easy to call advisors a waste of money and to dismiss using them. But that is too simplistic. If, obviously with hindsight, we could go back and put an advisor worth his salt in that room with Lenin & Cowan, how much would it have been worth to us?

There were paid advisors giving advice to Lenihan and Cowen, Merrill Lynch, but they were ignored.

Merrill Lynch (who have got a lot wrong in advising the govt, including the eircom share price!) advised that the guarantee was needed but that it should only be in respect of deposits.

BOI and AIB clubbed together and advised  the guarantee should cover all deposits and bonds, but that Anglo and Nationwide should be excluded and let fail.

Anglo told them everything was grand and it would all blow over.

So Lenihan and Cowen decided to guarantee the whole shooting match. There was a huge amount of mistakes and incompetence in the years leading up to that night, but it was those two who made the biggest error in the history of the state that night.

Actually, I was aware of that. They ignored the guy from Merrill Lynch didn't they? He then released a statement disassociating himself from the guarantee or something afterwards.

Here is some of the story: http://www.rte.ie/news/2010/0716/133404-banks/

Our problem is that at the end of that night, Lenihan (my predictive text corrects this to Lenin!) & Cowan were the last two in the room when the decision was made. I'd still argue we would have been far better off if we could have forced a heavyweight who knew his stuff on the two clowns. Instead the two took it upon themselves.

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

They had to make a call in a highly stressed late night meeting with no insight so they went with gut feel.
And initially the market reaction was positive because the markets had no idea either.

It was only later that the lunacy of the decision emerged. They gave a blanket guarantee of everything with a total liability of 400bn I think.
They didn't have a strong enough balance sheet to stand behind that. 

They also assumed that the EZ would back them up because they had a good relationship with them when times were good.
And they assumed the boys in Frankfurt knew what they are doing.
Guaranteeing the banks was like giving a teenager unlimited credit.   

The whole story is so f**king depressing. As Prof Julia Black says in this video NOBODY did anything well in 2008/2009

http://www.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=2219

This is from autumn 2008 but I don't have the link

"If, on the other hand, it turns out that some Irish institutions do need recapitalisation, then it will be difficult to exonerate the Financial Regulator and Central Bank. Those institutions stated quite clearly as recently as mid-July last that Irish banks had not experienced a material increase in loan arrears, that they were well capitalised with good asset quality and that their shock-absorption capacity remained strong
But it is vital to diagnose the problem accurately. Is it one of liquidity or one of capital? Which view is correct? Only time will tell.
It is not being suggested here that the Irish system suffers from "regulatory capture", but the long-standing practice of former governors and senior regulators joining the boards of banks on their retirement should be stopped

http://www.theguardian.com/business/2008/oct/06/creditcrunch.eu

Another observation - again fairly obvious - is that the eurozone remains a hybrid. It is a monetary union but not a political union, and so countries such as Ireland have had to go it alone in bailing out struggling banks. There is a clear distinction between the US, where the government has financial clout across all 50 states, and the EU.

081117 Irish Times
"THE IRISH economy will contract by 4 per cent in 2009, and the recession will last for two years, according to Ulster Bank's latest quarterly economic forecast, writes Ciarán Hancock , Business Affairs Correspondent.  Mr McArdle also warned that the Government's latest estimates for tax revenues in 2008 are "too optimistic" and taxpayers face more pain over the next two years.  He predicted that 85,000 jobs would be lost in Ireland in 2009 as unemployment averaged 8.5 per cent, which would be the highest rate in 12 years"

090121
http://blogs.ft.com/maverecon/2009/01/can-the-uk-government-stop-the-uk-banking-system-going-down-the-snyrting-without-risking-a-sovereign-debt-crisis/#axzz3Hin1LlIy

"According to the rating agencies, the CDS rates and the 10-year sovereign spread over Bunds, the leading candidates for a sovereign solvency crisis are Greece, Spain, Portugal, Italy and Ireland. Among the countries where the sovereign is highly exposed to the banking sector, Ireland may well be the next country where the 'too large to rescue' theory may be tested, although countries like the Netherlands, Belgium, Luxembourg, the UK and, outside the EU, Switzerland, are also potential candidates for the 'too big to rescue'(without external support) club.   Ireland's outstanding  sovereign debt is low as a share of GDP (around 25 per cent) , but the exposure of the sovereign to its overgrown banking system is massive: the Irish state guaranteed the entire liability side of the banks'balance sheets, except for the equity..Irish 10-year sovereign debt spreads over Bunds stood at 198 basis points on January 16. "

090514 Irish Times

Mr Gleeson said nationalisation would be "a bad thing for shareholders and for Ireland"and the bank would avoid it "at all costs".
Asked why AIB did not heed warnings from analysts about the risks facing the lender as far back as late 2006, Mr Gleeson said: "If you look at the tipsters for yesterday's racing, one in 10 of the tipsters is right and nine are wrong."


090515 The latest European Commission forecasts suggest that Ireland will be something of an outlier in terms of the sensitivity of unemployment to declining output: they see our unemployment rate rising by 11.5 percentage points over the 2008-2010 period while GDP contracts by 13.4 per cent

100531 http://www.emaxo.com/news/show-htm-page-1-itemid-405-page-2.html
For all the talk of European solidarity, there is absolutely no evidence that German taxpayers will agree to a common fiscal policy to provide the budgetary support for the weaker parts of the euro area that Washington provides for the poorer US states. As such, the only options for countries like Greece, Ireland and Spain are devaluation (ruled out by monetary union), default (ditto) or years of deflation. They have opted for the third course, even though this will lead to slower growth and make it even harder to reduce budget deficits. Europe, touted as a progressive alternative to Anglo-Saxon economics, has become neo-liberalism on steroids.

[mackers]

How do your charge your clients?

i) a fixed rate 
ii) charge as a percentage of the investment or
iii) charge based on profits earned because of the advice you provided?

An adviser will normally charge for the time spent organising a pension/investment portfolio (like an accountant/solicitor) and there would be a charge for an annual review of the portfolio.  We have an online system where clients can check the valuation 24/7 and if they have any concerns they can contact us between reviews.
The charge for the ongoing annual reviews are normally based on a (very small) percentage of the fund value (typically 0.5%) so there is a vested interest in growing the client's fund on an ongoing basis.
The other charges taken out of pensions have been exaggerated by some earlier in the thread.  The only other charge taken from the pension portfolios I would have any involvement in would be an annual management charge levied by the fund manager (1 to 2%).
There has been some confusion on different types of pension with Muppet talking about pension funds being in deficit, these are typically very large occupational schemes where fund charges may be higher.  These are the pensions where trustees, solicitors etc. are involved.  These pensions typically give the employee a certain benefit at retirement and it is the employer who takes the risks and pays the charges.  I am talking from my experience in the North, things may be different in the South.

[mikehunt]

How do your charge your clients?

i) a fixed rate 
ii) charge as a percentage of the investment or
iii) charge based on profits earned because of the advice you provided?

An adviser will normally charge for the time spent organising a pension/investment portfolio (like an accountant/solicitor) and there would be a charge for an annual review of the portfolio.  We have an online system where clients can check the valuation 24/7 and if they have any concerns they can contact us between reviews.
The charge for the ongoing annual reviews are normally based on a (very small) percentage of the fund value (typically 0.5%) so there is a vested interest in growing the client's fund on an ongoing basis.
The other charges taken out of pensions have been exaggerated by some earlier in the thread.  The only other charge taken from the pension portfolios I would have any involvement in would be an annual management charge levied by the fund manager (1 to 2%).
There has been some confusion on different types of pension with Muppet talking about pension funds being in deficit, these are typically very large occupational schemes where fund charges may be higher.  These are the pensions where trustees, solicitors etc. are involved.  These pensions typically give the employee a certain benefit at retirement and it is the employer who takes the risks and pays the charges.  I am talking from my experience in the North, things may be different in the South.

As I have been described as a risk averse person my worry would be that an advisor would not treat the money as if it were their own. While there are incentives for you to grow the investment, is there a disincentive or penalty if value falls? This could be done by way of paying back performance related bonus from the previous year? I met an "independent" advisor once and God help anyone with money who trusted him. To get out of the meeting I told him I'd invest and rang him an hour later and told him I'd changed my mind.

As an advisor you say it would be impossible for you to have foreseen the crash but that you would advise anyone close to retirement to not hold money in equity. Did you advise anyone who was due to retire in 2010 to sell their shares in Irish Banks in 2005?

[armaghniac]

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

This.  Lenihan was given a suicide pass with a split second to release the ball. Apart from the failures over the years there was a period of a year or so before the guarantee when clouds were gathering and at that stage an accurate picture should have been built up so that a proper decision could be made.

On an aside, there wasn't a proper picture of the banks yet their auditors etc escaped any sanction whatsoever. Did the accounts that they signed represent a true and fair view of the value of banks where the shareholders lost all or most of their money?

[seafoid]

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

This.  Lenihan was given a suicide pass with a split second to release the ball. Apart from the failures over the years there was a period of a year or so before the guarantee when clouds were gathering and at that stage an accurate picture should have been built up so that a proper decision could be made.

On an aside, there wasn't a proper picture of the banks yet their auditors etc escaped any sanction whatsoever. Did the accounts that they signed represent a true and fair view of the value of banks where the shareholders lost all or most of their money?

Auditing for all its benefits is a joke in one very important respect. They just can't deal with tail risk. This is really serious when economic conditions are volatile. And 2008 was all about tail risk- that 9 out of 10 cats were actually wrong and that the disaster was imminent.

The same goes for the rating agencies BTW.
No point in relying on gatekeepers who know nothing.

[mikehunt]

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

This.  Lenihan was given a suicide pass with a split second to release the ball. Apart from the failures over the years there was a period of a year or so before the guarantee when clouds were gathering and at that stage an accurate picture should have been built up so that a proper decision could be made.

On an aside, there wasn't a proper picture of the banks yet their auditors etc escaped any sanction whatsoever. Did the accounts that they signed represent a true and fair view of the value of banks where the shareholders lost all or most of their money?

Auditing for all its benefits is a joke in one very important respect. They just can't deal with tail risk. This is really serious when economic conditions are volatile. And 2008 was all about tail risk- that 9 out of 10 cats were actually wrong and that the disaster was imminent.

The same goes for the rating agencies BTW.
No point in relying on gatekeepers who know nothing.

Auditors will charge you to tell you your accounts are correct. When it is revealed that your accounts are in fact incorrect and that massive fraud has taken place an auditor will come in and charge for telling you where you went wrong and what to do about it. Auditor of misleading accounts is replaced by another auditor and the revolving door process continues as the big auditors move from auditor to advisor and back to auditor.

I find the auditing process a waste of time anyway as it looks to the past and not to the future. It's rare for an auditor to uncover a massive scandal. It is in their interest to keep their big clients happy so there is a confilct of interest in the whole process from the very start. They are supposed to be independent but yet charge a fee for this "independence".

[TabClear]

How do your charge your clients?

i) a fixed rate 
ii) charge as a percentage of the investment or
iii) charge based on profits earned because of the advice you provided?

An adviser will normally charge for the time spent organising a pension/investment portfolio (like an accountant/solicitor) and there would be a charge for an annual review of the portfolio.  We have an online system where clients can check the valuation 24/7 and if they have any concerns they can contact us between reviews.
The charge for the ongoing annual reviews are normally based on a (very small) percentage of the fund value (typically 0.5%) so there is a vested interest in growing the client's fund on an ongoing basis.
The other charges taken out of pensions have been exaggerated by some earlier in the thread.  The only other charge taken from the pension portfolios I would have any involvement in would be an annual management charge levied by the fund manager (1 to 2%).
There has been some confusion on different types of pension with Muppet talking about pension funds being in deficit, these are typically very large occupational schemes where fund charges may be higher.  These are the pensions where trustees, solicitors etc. are involved.  These pensions typically give the employee a certain benefit at retirement and it is the employer who takes the risks and pays the charges.  I am talking from my experience in the North, things may be different in the South.

As I have been described as a risk averse person my worry would be that an advisor would not treat the money as if it were their own. While there are incentives for you to grow the investment, is there a disincentive or penalty if value falls? This could be done by way of paying back performance related bonus from the previous year? I met an "independent" advisor once and God help anyone with money who trusted him. To get out of the meeting I told him I'd invest and rang him an hour later and told him I'd changed my mind.

As an advisor you say it would be impossible for you to have foreseen the crash but that you would advise anyone close to retirement to not hold money in equity. Did you advise anyone who was due to retire in 2010 to sell their shares in Irish Banks in 2005?

I think in your case there is little incentive to use an adviser as you have said you woudl go into low risk gilts etc. In general there is little you can do to "grow" these above the headline return rate, they pretty much do what they say on the tin.

On the second question, without answering for Mackers, I would say it depends what your adviser has been asked to do. If he is specifically advising on strategy, i.e. stock market  good longterm, then move into gilts, I would imagine that five years pre retirement  you woudl have been advised to get out of most equities. However, if you are asking him specifically on whether to invest in a particular share or class of shares (Irish Bankls) , then you are into stockbroker/investor analyst territory and there is very different regulations and structures in place.

As Seafoid said earlier, the way the Rating Agencies came out of the whole fiasco  2008-12 is an absolute disgrace.

[seafoid]

How do your charge your clients?

i) a fixed rate 
ii) charge as a percentage of the investment or
iii) charge based on profits earned because of the advice you provided?

An adviser will normally charge for the time spent organising a pension/investment portfolio (like an accountant/solicitor) and there would be a charge for an annual review of the portfolio.  We have an online system where clients can check the valuation 24/7 and if they have any concerns they can contact us between reviews.
The charge for the ongoing annual reviews are normally based on a (very small) percentage of the fund value (typically 0.5%) so there is a vested interest in growing the client's fund on an ongoing basis.
The other charges taken out of pensions have been exaggerated by some earlier in the thread.  The only other charge taken from the pension portfolios I would have any involvement in would be an annual management charge levied by the fund manager (1 to 2%).
There has been some confusion on different types of pension with Muppet talking about pension funds being in deficit, these are typically very large occupational schemes where fund charges may be higher.  These are the pensions where trustees, solicitors etc. are involved.  These pensions typically give the employee a certain benefit at retirement and it is the employer who takes the risks and pays the charges.  I am talking from my experience in the North, things may be different in the South.

As I have been described as a risk averse person my worry would be that an advisor would not treat the money as if it were their own. While there are incentives for you to grow the investment, is there a disincentive or penalty if value falls? This could be done by way of paying back performance related bonus from the previous year? I met an "independent" advisor once and God help anyone with money who trusted him. To get out of the meeting I told him I'd invest and rang him an hour later and told him I'd changed my mind.

As an advisor you say it would be impossible for you to have foreseen the crash but that you would advise anyone close to retirement to not hold money in equity. Did you advise anyone who was due to retire in 2010 to sell their shares in Irish Banks in 2005?

I think in your case there is little incentive to use an adviser as you have said you woudl go into low risk gilts etc. In general there is little you can do to "grow" these above the headline return rate, they pretty much do what they say on the tin.

On the second question, without answering for Mackers, I would say it depends what your adviser has been asked to do. If he is specifically advising on strategy, i.e. stock market  good longterm, then move into gilts, I would imagine that five years pre retirement  you woudl have been advised to get out of most equities. However, if you are asking him specifically on whether to invest in a particular share or class of shares (Irish Bankls) , then you are into stockbroker/investor analyst territory and there is very different regulations and structures in place.

As Seafoid said earlier, the way the Rating Agencies came out of the whole fiasco  2008-12 is an absolute disgrace.

It was even worse because the run up to the crash saw a lot of prudent margins stripped out of banks and bet on asset prices with the reassurance that transparency and the vigilant eyes of the ratings agencies would keep risk under control.
And the margins would have saved a lot of banks. Because the ratings agencies did f**k all.
Most if not all of those building societies that were demutualised in the 90s collapsed.

AIB sold their headquarters and bet the proceeds on house prices. You couldn't make it up.

[mackers]

How do your charge your clients?

i) a fixed rate 
ii) charge as a percentage of the investment or
iii) charge based on profits earned because of the advice you provided?

An adviser will normally charge for the time spent organising a pension/investment portfolio (like an accountant/solicitor) and there would be a charge for an annual review of the portfolio.  We have an online system where clients can check the valuation 24/7 and if they have any concerns they can contact us between reviews.
The charge for the ongoing annual reviews are normally based on a (very small) percentage of the fund value (typically 0.5%) so there is a vested interest in growing the client's fund on an ongoing basis.
The other charges taken out of pensions have been exaggerated by some earlier in the thread.  The only other charge taken from the pension portfolios I would have any involvement in would be an annual management charge levied by the fund manager (1 to 2%).
There has been some confusion on different types of pension with Muppet talking about pension funds being in deficit, these are typically very large occupational schemes where fund charges may be higher.  These are the pensions where trustees, solicitors etc. are involved.  These pensions typically give the employee a certain benefit at retirement and it is the employer who takes the risks and pays the charges.  I am talking from my experience in the North, things may be different in the South.

As I have been described as a risk averse person my worry would be that an advisor would not treat the money as if it were their own. While there are incentives for you to grow the investment, is there a disincentive or penalty if value falls? This could be done by way of paying back performance related bonus from the previous year? I met an "independent" advisor once and God help anyone with money who trusted him. To get out of the meeting I told him I'd invest and rang him an hour later and told him I'd changed my mind.

As an advisor you say it would be impossible for you to have foreseen the crash but that you would advise anyone close to retirement to not hold money in equity. Did you advise anyone who was due to retire in 2010 to sell their shares in Irish Banks in 2005?

I think in your case there is little incentive to use an adviser as you have said you woudl go into low risk gilts etc. In general there is little you can do to "grow" these above the headline return rate, they pretty much do what they say on the tin.

On the second question, without answering for Mackers, I would say it depends what your adviser has been asked to do. If he is specifically advising on strategy, i.e. stock market  good longterm, then move into gilts, I would imagine that five years pre retirement  you woudl have been advised to get out of most equities. However, if you are asking him specifically on whether to invest in a particular share or class of shares (Irish Bankls) , then you are into stockbroker/investor analyst territory and there is very different regulations and structures in place.

As Seafoid said earlier, the way the Rating Agencies came out of the whole fiasco  2008-12 is an absolute disgrace.

Tab, you can answer for me any time as you're right.  A financial adviser is not a fund manager and is not authorised to advise on individual stocks.  Mike, just because you met a bad financial adviser once doesn't mean the whole industry is rotten, there are good and bad advisers in the same way as there is good and bad solicitors/accountants/mechanics.

[seafoid]

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

This.  Lenihan was given a suicide pass with a split second to release the ball. Apart from the failures over the years there was a period of a year or so before the guarantee when clouds were gathering and at that stage an accurate picture should have been built up so that a proper decision could be made.

On an aside, there wasn't a proper picture of the banks yet their auditors etc escaped any sanction whatsoever. Did the accounts that they signed represent a true and fair view of the value of banks where the shareholders lost all or most of their money?

Auditing for all its benefits is a joke in one very important respect. They just can't deal with tail risk. This is really serious when economic conditions are volatile. And 2008 was all about tail risk- that 9 out of 10 cats were actually wrong and that the disaster was imminent.

The same goes for the rating agencies BTW.
No point in relying on gatekeepers who know nothing.

Auditors will charge you to tell you your accounts are correct. When it is revealed that your accounts are in fact incorrect and that massive fraud has taken place an auditor will come in and charge for telling you where you went wrong and what to do about it. Auditor of misleading accounts is replaced by another auditor and the revolving door process continues as the big auditors move from auditor to advisor and back to auditor.

I find the auditing process a waste of time anyway as it looks to the past and not to the future. It's rare for an auditor to uncover a massive scandal. It is in their interest to keep their big clients happy so there is a confilct of interest in the whole process from the very start. They are supposed to be independent but yet charge a fee for this "independence".

Lots of accounts are guesses at the best of times. A true and fair view is very hard at times like these when the economic outlook is so uncertain.
It is very hard for finance professionals to admit they have no idea what is going to happen.

[Mike Sheehy]

The regulator had no idea of the state of the banks. Lenihan had nothing to base his judgement on.
That was the biggest problem.

This.  Lenihan was given a suicide pass with a split second to release the ball. Apart from the failures over the years there was a period of a year or so before the guarantee when clouds were gathering and at that stage an accurate picture should have been built up so that a proper decision could be made.

On an aside, there wasn't a proper picture of the banks yet their auditors etc escaped any sanction whatsoever. Did the accounts that they signed represent a true and fair view of the value of banks where the shareholders lost all or most of their money?

Auditing for all its benefits is a joke in one very important respect. They just can't deal with tail risk. This is really serious when economic conditions are volatile. And 2008 was all about tail risk- that 9 out of 10 cats were actually wrong and that the disaster was imminent.

The same goes for the rating agencies BTW.
No point in relying on gatekeepers who know nothing.

Auditors will charge you to tell you your accounts are correct. When it is revealed that your accounts are in fact incorrect and that massive fraud has taken place an auditor will come in and charge for telling you where you went wrong and what to do about it. Auditor of misleading accounts is replaced by another auditor and the revolving door process continues as the big auditors move from auditor to advisor and back to auditor.

I find the auditing process a waste of time anyway as it looks to the past and not to the future. It's rare for an auditor to uncover a massive scandal. It is in their interest to keep their big clients happy so there is a confilct of interest in the whole process from the very start. They are supposed to be independent but yet charge a fee for this "independence".

Lots of accounts are guesses at the best of times. A true and fair view is very hard at times like these when the economic outlook is so uncertain.
It is very hard for finance professionals to admit they have no idea what is going to happen.

So who does know what is going to happen...Martin Wolf ?

[muppet]

http://www.irishtimes.com/business/economy/reading-between-the-lines-of-ecb-letter-to-brian-lenihan-1.1983847?page=1

There were indications during the week that a letter between European Central Bank (ECB) president Jean-Claude Trichet and former finance minister Brian Lenihan in the run-up to Ireland's bailout in November 2010 might be published.

It is no secret Trichet and the ECB exerted serious pressure on the Government to accept a bailout, but the precise language and contentions in the letter will arouse much interest, given the enormity of what was at stake.

It is a letter which will surely loom large in historic accounts of this period, shedding light on the pressure placed on the Government by the ECB's power to withdraw emergency funding from Irish banks.

The challenge in such historical analysis will be to assess how much weight should be attached to such correspondence. It will be interesting to see if the language employed approximates to a loaded gun: did the ECB step outside its mandate? Did Trichet threaten, directly or indirectly, to allow Irish banks to go to the wall?

These are important questions, but so too are the broader reasons for the scale of the Irish boom and bust. Trichet is the same ECB president who in Dublin in May 2004 heralded Ireland as a "model for the millions of new citizens of the European Union". This was the same ECB that did not seem unduly concerned about lack of corporate and financial regulation in Ireland. How much was it at fault?
In 1997, Irish banks were funded entirely by Irish deposits, but by 2005 most of their funding came from abroad and could be easily removed. Economist Morgan Kelly has highlighted that between 2000 and 2008 banks found they could borrow almost any amount on international markets without security, at rates only slightly above central bank rates:

"This led to an international lending boom where bank lending in most European economies rose to around 100 per cent of national income. In Ireland, lending rose from 60 to nearly 200 per cent and most of this was funded by borrowing from overseas banks. Everything that happened in Ireland between 2000 and 2008 stems from this simple fact."

'A Ponzi scheme'

American financial journalist Michael Lewis characterised what was going on as in effect "a Ponzi scheme". How much of that was facilitated by the ECB? Will a focus on the ECB skew the apportioning of responsibility? What about other, Irish, culprits? Personal debt as a percentage of disposable income increased in Ireland from 89 per cent to 140 per cent between 1996 and 2006; was this the fault of borrowers or lenders?

Crucially, there has been no comprehensive official inquiry into the failings of the banks and no accountability with regard to their practices, which means the public narrative about what actually happened has remained vague and incomplete. So it is not only the European dimension to this that needs excavation.

The three reports commissioned by the Government into the collapse of the economy suggested that the burden of responsibility was broad, with insufficient surveillance, warnings not heeded and, in the words of the report of the Commission of Investigation into the Banking Sector, a property-centred "national speculative mania ... As in most manias, those caught up in it could believe and have trust in extraordinary things."

That contention raises even more questions; it seems a trite exaggeration that exacerbates the tendency towards pseudo-historical analysis.

Was this notion of collective responsibility used to conveniently distract from the failures of leadership and oversight? Brian Lenihan asserted in 2008, "we decided as a people collectively to have this property boom. That was a collective decision we took as a people."

Likewise, in January 2012 in Switzerland, Taoiseach Enda Kenny maintained, "What happened in our country was that people went mad borrowing." Surely these were simplifications to the point of distortion of reality.

People did not collectively decide to "have" a property boom. A relatively small number were able to skew the market through speculation, reckless lending, lack of regulation and a refusal to reduce the inflation of the property market.

Many were encouraged to borrow beyond their means or panicked into buying through warnings that if they did not move with speed they would fail to get a foot on a much vaunted property ladder. So the idea that "we" moved from being the Most Oppressed People Ever to the Most Speculative People Ever seems hollow and lazy.

Leading Irish sociologist Tom Inglis has edited a new book, Are the Irish Different? He makes the point that "it is very easy to recreate myths about the Irish and make them into a collectively responsible group". The danger of this approach, he argues, is that it "contaminates rigorous, scientific analysis".

Knowing precisely how the ECB treated Ireland before and at the outset of the bailout would contribute significantly to such analysis.

[seafoid]

http://www.irishtimes.com/business/economy/reading-between-the-lines-of-ecb-letter-to-brian-lenihan-1.1983847?page=1

There were indications during the week that a letter between European Central Bank (ECB) president Jean-Claude Trichet and former finance minister Brian Lenihan in the run-up to Ireland's bailout in November 2010 might be published.

It is no secret Trichet and the ECB exerted serious pressure on the Government to accept a bailout, but the precise language and contentions in the letter will arouse much interest, given the enormity of what was at stake.

It is a letter which will surely loom large in historic accounts of this period, shedding light on the pressure placed on the Government by the ECB's power to withdraw emergency funding from Irish banks.

The challenge in such historical analysis will be to assess how much weight should be attached to such correspondence. It will be interesting to see if the language employed approximates to a loaded gun: did the ECB step outside its mandate? Did Trichet threaten, directly or indirectly, to allow Irish banks to go to the wall?

These are important questions, but so too are the broader reasons for the scale of the Irish boom and bust. Trichet is the same ECB president who in Dublin in May 2004 heralded Ireland as a "model for the millions of new citizens of the European Union". This was the same ECB that did not seem unduly concerned about lack of corporate and financial regulation in Ireland. How much was it at fault?
In 1997, Irish banks were funded entirely by Irish deposits, but by 2005 most of their funding came from abroad and could be easily removed. Economist Morgan Kelly has highlighted that between 2000 and 2008 banks found they could borrow almost any amount on international markets without security, at rates only slightly above central bank rates:

"This led to an international lending boom where bank lending in most European economies rose to around 100 per cent of national income. In Ireland, lending rose from 60 to nearly 200 per cent and most of this was funded by borrowing from overseas banks. Everything that happened in Ireland between 2000 and 2008 stems from this simple fact."

'A Ponzi scheme'

American financial journalist Michael Lewis characterised what was going on as in effect "a Ponzi scheme". How much of that was facilitated by the ECB? Will a focus on the ECB skew the apportioning of responsibility? What about other, Irish, culprits? Personal debt as a percentage of disposable income increased in Ireland from 89 per cent to 140 per cent between 1996 and 2006; was this the fault of borrowers or lenders?

Crucially, there has been no comprehensive official inquiry into the failings of the banks and no accountability with regard to their practices, which means the public narrative about what actually happened has remained vague and incomplete. So it is not only the European dimension to this that needs excavation.

The three reports commissioned by the Government into the collapse of the economy suggested that the burden of responsibility was broad, with insufficient surveillance, warnings not heeded and, in the words of the report of the Commission of Investigation into the Banking Sector, a property-centred "national speculative mania ... As in most manias, those caught up in it could believe and have trust in extraordinary things."

That contention raises even more questions; it seems a trite exaggeration that exacerbates the tendency towards pseudo-historical analysis.

Was this notion of collective responsibility used to conveniently distract from the failures of leadership and oversight? Brian Lenihan asserted in 2008, "we decided as a people collectively to have this property boom. That was a collective decision we took as a people."

Likewise, in January 2012 in Switzerland, Taoiseach Enda Kenny maintained, "What happened in our country was that people went mad borrowing." Surely these were simplifications to the point of distortion of reality.

People did not collectively decide to "have" a property boom. A relatively small number were able to skew the market through speculation, reckless lending, lack of regulation and a refusal to reduce the inflation of the property market.

Many were encouraged to borrow beyond their means or panicked into buying through warnings that if they did not move with speed they would fail to get a foot on a much vaunted property ladder. So the idea that "we" moved from being the Most Oppressed People Ever to the Most Speculative People Ever seems hollow and lazy.

Leading Irish sociologist Tom Inglis has edited a new book, Are the Irish Different? He makes the point that "it is very easy to recreate myths about the Irish and make them into a collectively responsible group". The danger of this approach, he argues, is that it "contaminates rigorous, scientific analysis".

Knowing precisely how the ECB treated Ireland before and at the outset of the bailout would contribute significantly to such analysis.

I think what Trichet said to Lenihan in September 2008 before the guarantee is probably more important.
The ECB were not going to burn bondholders in 2010. they would have been better off doing it in hindsight but it was not on the agenda.

[muppet]

http://www.irishtimes.com/business/economy/reading-between-the-lines-of-ecb-letter-to-brian-lenihan-1.1983847?page=1

There were indications during the week that a letter between European Central Bank (ECB) president Jean-Claude Trichet and former finance minister Brian Lenihan in the run-up to Ireland's bailout in November 2010 might be published.

It is no secret Trichet and the ECB exerted serious pressure on the Government to accept a bailout, but the precise language and contentions in the letter will arouse much interest, given the enormity of what was at stake.

It is a letter which will surely loom large in historic accounts of this period, shedding light on the pressure placed on the Government by the ECB's power to withdraw emergency funding from Irish banks.

The challenge in such historical analysis will be to assess how much weight should be attached to such correspondence. It will be interesting to see if the language employed approximates to a loaded gun: did the ECB step outside its mandate? Did Trichet threaten, directly or indirectly, to allow Irish banks to go to the wall?

These are important questions, but so too are the broader reasons for the scale of the Irish boom and bust. Trichet is the same ECB president who in Dublin in May 2004 heralded Ireland as a "model for the millions of new citizens of the European Union". This was the same ECB that did not seem unduly concerned about lack of corporate and financial regulation in Ireland. How much was it at fault?
In 1997, Irish banks were funded entirely by Irish deposits, but by 2005 most of their funding came from abroad and could be easily removed. Economist Morgan Kelly has highlighted that between 2000 and 2008 banks found they could borrow almost any amount on international markets without security, at rates only slightly above central bank rates:

"This led to an international lending boom where bank lending in most European economies rose to around 100 per cent of national income. In Ireland, lending rose from 60 to nearly 200 per cent and most of this was funded by borrowing from overseas banks. Everything that happened in Ireland between 2000 and 2008 stems from this simple fact."

'A Ponzi scheme'

American financial journalist Michael Lewis characterised what was going on as in effect "a Ponzi scheme". How much of that was facilitated by the ECB? Will a focus on the ECB skew the apportioning of responsibility? What about other, Irish, culprits? Personal debt as a percentage of disposable income increased in Ireland from 89 per cent to 140 per cent between 1996 and 2006; was this the fault of borrowers or lenders?

Crucially, there has been no comprehensive official inquiry into the failings of the banks and no accountability with regard to their practices, which means the public narrative about what actually happened has remained vague and incomplete. So it is not only the European dimension to this that needs excavation.

The three reports commissioned by the Government into the collapse of the economy suggested that the burden of responsibility was broad, with insufficient surveillance, warnings not heeded and, in the words of the report of the Commission of Investigation into the Banking Sector, a property-centred "national speculative mania ... As in most manias, those caught up in it could believe and have trust in extraordinary things."

That contention raises even more questions; it seems a trite exaggeration that exacerbates the tendency towards pseudo-historical analysis.

Was this notion of collective responsibility used to conveniently distract from the failures of leadership and oversight? Brian Lenihan asserted in 2008, "we decided as a people collectively to have this property boom. That was a collective decision we took as a people."

Likewise, in January 2012 in Switzerland, Taoiseach Enda Kenny maintained, "What happened in our country was that people went mad borrowing." Surely these were simplifications to the point of distortion of reality.

People did not collectively decide to "have" a property boom. A relatively small number were able to skew the market through speculation, reckless lending, lack of regulation and a refusal to reduce the inflation of the property market.

Many were encouraged to borrow beyond their means or panicked into buying through warnings that if they did not move with speed they would fail to get a foot on a much vaunted property ladder. So the idea that "we" moved from being the Most Oppressed People Ever to the Most Speculative People Ever seems hollow and lazy.

Leading Irish sociologist Tom Inglis has edited a new book, Are the Irish Different? He makes the point that "it is very easy to recreate myths about the Irish and make them into a collectively responsible group". The danger of this approach, he argues, is that it "contaminates rigorous, scientific analysis".

Knowing precisely how the ECB treated Ireland before and at the outset of the bailout would contribute significantly to such analysis.

I think what Trichet said to Lenihan in September 2008 before the guarantee is probably more important.
The ECB were not going to burn bondholders in 2010. they would have been better off doing it in hindsight but it was not on the agenda.

Couldn't agree more.

The 2010 letter, along with Honohan's appearance on RTE the day before, was about removing any leverage in the negotiations.

The stat about the banks in 1997 is interesting. Even now, despite the crash, we want banks to lend, while we also want them to re-capitalise and operate to higher standards, but no question of going back to only lending what they have.

[seafoid]

http://www.irishtimes.com/business/economy/reading-between-the-lines-of-ecb-letter-to-brian-lenihan-1.1983847?page=1

There were indications during the week that a letter between European Central Bank (ECB) president Jean-Claude Trichet and former finance minister Brian Lenihan in the run-up to Ireland's bailout in November 2010 might be published.

It is no secret Trichet and the ECB exerted serious pressure on the Government to accept a bailout, but the precise language and contentions in the letter will arouse much interest, given the enormity of what was at stake.

It is a letter which will surely loom large in historic accounts of this period, shedding light on the pressure placed on the Government by the ECB's power to withdraw emergency funding from Irish banks.

The challenge in such historical analysis will be to assess how much weight should be attached to such correspondence. It will be interesting to see if the language employed approximates to a loaded gun: did the ECB step outside its mandate? Did Trichet threaten, directly or indirectly, to allow Irish banks to go to the wall?

These are important questions, but so too are the broader reasons for the scale of the Irish boom and bust. Trichet is the same ECB president who in Dublin in May 2004 heralded Ireland as a "model for the millions of new citizens of the European Union". This was the same ECB that did not seem unduly concerned about lack of corporate and financial regulation in Ireland. How much was it at fault?
In 1997, Irish banks were funded entirely by Irish deposits, but by 2005 most of their funding came from abroad and could be easily removed. Economist Morgan Kelly has highlighted that between 2000 and 2008 banks found they could borrow almost any amount on international markets without security, at rates only slightly above central bank rates:

"This led to an international lending boom where bank lending in most European economies rose to around 100 per cent of national income. In Ireland, lending rose from 60 to nearly 200 per cent and most of this was funded by borrowing from overseas banks. Everything that happened in Ireland between 2000 and 2008 stems from this simple fact."

'A Ponzi scheme'

American financial journalist Michael Lewis characterised what was going on as in effect "a Ponzi scheme". How much of that was facilitated by the ECB? Will a focus on the ECB skew the apportioning of responsibility? What about other, Irish, culprits? Personal debt as a percentage of disposable income increased in Ireland from 89 per cent to 140 per cent between 1996 and 2006; was this the fault of borrowers or lenders?

Crucially, there has been no comprehensive official inquiry into the failings of the banks and no accountability with regard to their practices, which means the public narrative about what actually happened has remained vague and incomplete. So it is not only the European dimension to this that needs excavation.

The three reports commissioned by the Government into the collapse of the economy suggested that the burden of responsibility was broad, with insufficient surveillance, warnings not heeded and, in the words of the report of the Commission of Investigation into the Banking Sector, a property-centred "national speculative mania ... As in most manias, those caught up in it could believe and have trust in extraordinary things."

That contention raises even more questions; it seems a trite exaggeration that exacerbates the tendency towards pseudo-historical analysis.

Was this notion of collective responsibility used to conveniently distract from the failures of leadership and oversight? Brian Lenihan asserted in 2008, "we decided as a people collectively to have this property boom. That was a collective decision we took as a people."

Likewise, in January 2012 in Switzerland, Taoiseach Enda Kenny maintained, "What happened in our country was that people went mad borrowing." Surely these were simplifications to the point of distortion of reality.

People did not collectively decide to "have" a property boom. A relatively small number were able to skew the market through speculation, reckless lending, lack of regulation and a refusal to reduce the inflation of the property market.

Many were encouraged to borrow beyond their means or panicked into buying through warnings that if they did not move with speed they would fail to get a foot on a much vaunted property ladder. So the idea that "we" moved from being the Most Oppressed People Ever to the Most Speculative People Ever seems hollow and lazy.

Leading Irish sociologist Tom Inglis has edited a new book, Are the Irish Different? He makes the point that "it is very easy to recreate myths about the Irish and make them into a collectively responsible group". The danger of this approach, he argues, is that it "contaminates rigorous, scientific analysis".

Knowing precisely how the ECB treated Ireland before and at the outset of the bailout would contribute significantly to such analysis.

I think what Trichet said to Lenihan in September 2008 before the guarantee is probably more important.
The ECB were not going to burn bondholders in 2010. they would have been better off doing it in hindsight but it was not on the agenda.

Couldn't agree more.

The 2010 letter, along with Honohan's appearance on RTE the day before, was about removing any leverage in the negotiations.

The stat about the banks in 1997 is interesting. Even now, despite the crash, we want banks to lend, while we also want them to re-capitalise and operate to higher standards, but no question of going back to only lending what they have.

House prices are still too high. Especially given the outlook for pay rises.
And the risk of interest rates going up if the ECB can't control the macro situation.

The problem with funding high house prices with stuff other than deposits is that
international capital will leave at the first sign of danger. Like they did the last time.

There is no going back to the good days when there was a healthy financial ecology of 6 building societies and 4 or 5 banks.
Now there are 3 banks and they are all on a shaky scraw. It's going to take a long time to come down from the tiger years.

I was looking at Credit Suisse the other day. It's like a template for the problems of modern banks that grew too fast, too soon.

https://www.credit-suisse.com/ch/en/about-us/investor-relations/events/financial-calendar.html#tab_2
Look at Second quarter 2014 results down at the bottom (July 22 2014)

Net margin is on page 13. It is 27 basis points. Or 0.27%.
Strategy is on page 25. they are focusing on "high margin" business to generate profits that they can no longer make on their assets because the margins are 20% of what they were in 2005.
They are taking big risks just to stand still.
What happens if the credit market melts down ?

If you want to see how bad it is have a look at what they were telling punters in 2005
The May 09 2005 presentation is very interesting.

There is an awful lot of Hail Mary content in an awful lot of bank projections now