The real heroes and villians of Irish crash finally revealed in 'Vanity Fair' masterpiece


In the most inspired piece of writing I have seen in a very long time Michael Lewis has dissected the Irish economic crisis like no one else has in this issue of 'Vanity Fair.'

Lewis, of course is America's best financial writer, the man who will always be remembered for 'Liar's Poker' his inside look at the downfall of Salomon Brothers and several best sellers since.

He brings a forensic quality to his journalism, well able to present difficult financial data in an easily understandable manner. And he zeroes in on the heroes and villains.

Now he turns his attention to the Irish mess after previously dissecting the Greek and Icelandic messes.

What he discovers is truly shocking.

The bondholders who the Irish people are now in hock to for $100 billion or so, didn't expect they would get repaid when the banking system collapsed.

The best they were hoping for was about 20 cents in the dollar.

How they got a complete guarantee from the Irish government is Lewis's best work in this article.

Suffice to say Finance Minister Brian Lenihan does not come out well.

There were only two experts who shouted stop before the collapse

The first was a little known economist called Morgan Kelly from University College Dublin. He was shouted down when he made his objections known to the massive housing bubble.

As Lewis writes when Kelly tried to get his warning published he was laughed at.

"This time Kelly sent his piece to a newspaper with a far bigger circulation, the Irish Independent. The Independent’s editor wrote back to say he found the article offensive and wouldn’t publish it.

Kelly next turned to The Sunday Business Post, but the editor there just sat on the piece. The journalists were following the bankers’ lead and conflating a positive outlook on real-estate prices with a love of country and a commitment to Team Ireland. (“They’d all use this same phrase, ‘You’re either for us or against us,’ ” says a prominent bank analyst in Dublin.) Kelly finally went back to The Irish Times, which ran his article in September 2007.

Kelly was laughed off the stage.

Indeed then Prime Minister Bertie Ahern mocked Kelly and other naysayers saying that people like him should go off and commit suicide.

As Michael Lewis writes "In Morgan Kelly’s narrative: the Irish economy had become a giant Ponzi scheme and the country was effectively bankrupt. But it was so starkly at odds with the story peddled by Irish government officials and senior Irish bankers—that the banks merely had a “liquidity” problem and that Anglo Irish was “fundamentally sound”—that the two could not be reconciled.

"The government had a report thrown together by Merrill Lynch, which declared that “all of the Irish banks are profitable and well capitalized.”

The second man who shouted stop was Philip Ingram an analyst with Merrill Lynch.

As Lewis writes;

On March 13, 2008, six months before the Irish real-estate Ponzi scheme collapsed, Ingram published a report, in which he simply quoted verbatim what British market insiders had told him about various banks’ lending to commercial real estate. The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third.

Merrill, who made millions advising the Irish government, fired him.

So why did Finance Minister Brian Lenihan and his government agree to underwrite all the bank losses?

Lewis thinks Merrill Lynch played a leading role again.

"In the seven-page memo to Brian Lenihan—for which the Irish taxpayer forked over to Merrill Lynch seven million euros—they kept whatever reservations they may have had to themselves. “All of the Irish banks are profitable and well capitalized,” wrote the Merrill Lynch advisers, who then went on to suggest that the banks’ problem wasn’t at all the bad loans they had made but the panic in the market

The heads of Ireland's two largest banks also incredibly, assured Lenihan that they had no bad debt on their books.

As Lewis notes; "Lenihan faced a choice: Should he believe the people immediately around him or the financial markets? Should he trust the family or the experts? He stuck with the family. Ireland gave its promise. And the promise sank Ireland."

It was a tragic mistake.

As Lewis writes. "The investors who owned the roughly 80 billion euros of Irish bank bonds,....were stuck. They couldn’t take their money out of the bank. And their 80 billion euros very nearly exactly covered the eventual losses inside the Irish banks.

These private bondholders didn’t have any right to be made whole by the Irish government. The bondholders didn’t even expect to be made whole by the Irish government."

But incredibly, they were.

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