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.
15 Comments
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Switch to the desktop site to post a comment.BARNEYKX | Feb 10, 2011, 07:47 AM EST
Ivor Callelly He's a great man, claiming travel expenses from Cork and getting building work done on his house for nothing, costing Joe tax-payer High Court legal expenses...Seriously the neck on these guy's astounds me. In most other countries he'd be at the very least sacked and possibly in jail. Why is there no accountability in Irish politics? MONEY LAUNDERING AGAIN
BARNEYKX | Feb 05, 2011, 07:48 PM EST
the irish government is corrupt,all they are interested in is lining thier pockets with whatever expenses they can think up and claim for. money launderers the lot of them
Bailey2000 | Feb 04, 2011, 05:45 PM EST
Brian Lenihan forced The CEO of Irish Life out of his job because he loaned Anglo money which they used to lie to shareholders. It now appears that the Department of Finance and possibly his predecessor was part of the conspiracy to prop up the Anglo share price and to conceal Sean Quinns fire sale of Anglo shares. The real scandal of this whole debacle is the willingness of the Irish government to participate in a fraud on shareholders worthy of Madoff.
seanomelbourne | Feb 04, 2011, 04:43 PM EST
The bankers always seem to win. To take Mr. Lewis's article one step further he must beleive that Ireland should renege on the bond holders. It beggars belief that Fine Gael and labour have both ratified the paying of the bond holders. If they gain power they are guiltier than FF because they are aware of the above information after the fact. Regardless of his politics Adams is the only party leader willing to renege on the bond holders and all three major parties are demonising him for saying so.What a bunch of hypocrites they are.
GeorgeDillon | Feb 04, 2011, 02:11 AM EST
The VF article supports a point I have been making about the Mad Mass Immigration policy which was an integral part of the Celtic Tiger pseudo-boom. I quote: "Its foreign ministry guesstimates that, since the country’s admission to the European Union, more than a million Poles have left Poland to work elsewhere. At the peak, in 2006, as many as a quarter-million of them were in Ireland. For the United States to achieve a proportionally distortive demographic effect, it would need to hand green cards to 17 million Mexicans." How do Fianna Fail, Sinn Fein and the other mad Mass Immigrationists defend this? And remember--that's just Poles! Add in Russians, Latvians, Estonians, Slovaks, Lithuanians, Bulgarians, --do I need to go on?
KathyCallahan | Feb 03, 2011, 10:59 PM EST
a veritible train wreck that has led to a massive catastrophe and long term suffering for everyone but the reckless insider orchestrators of a steady series of unchecked bad $ deals. Keep on distilling Michael Lewis's insights and analysis Niall!
jacersagain | Feb 03, 2011, 07:44 PM EST
@kateomprint at 03.23PM – you say “... Ok, so he (Martin) looks a bit better looking than Cowen”. Have you seen Mr Martin’s sister? Fu-whoaargh! She should be my country’s next Taoiseach, far better able to melt any heart and win everybody over, including destructors of all the world’s economies.
olovely | Feb 03, 2011, 05:33 PM EST
Ireland was a society that, as long as you were comfortable enough yourself, didn't really care who was driving or where the road was taking us. For decades we let nepotism and graft rule our politics and our society. People got promoted based on who they were, not what they could do. The rest were driven out from lack of opportunity. We're paying for it now.
kateomprint | Feb 03, 2011, 03:24 PM EST
Micheal Lewis wrote complete crap
kateomprint | Feb 03, 2011, 03:23 PM EST
Brian Lenihan is an idiot who went to Europe and made the worst possible deal. Now when the other side says they might be able to do something about it all FF can do is say NO it can't be done. What are they afraid of? Is it that it might be made a better deal. Somebody has to fix it because we won't be able to afford to pay this. Micheal Martin is doing nothing only badmouthing the other side (ok so he looks a bit better than Cowen). He is the guy who sat at the table for 13 years and agreed with these decisions and suddenly now he is the Saviour of the Country and his party. The Banks here are putting people out of their houses and still expecting them to pay to keep them afloat it beggars belief
Irish9958 | Feb 03, 2011, 03:04 PM EST
Economic Treason is what I think!!!!
franner | Feb 03, 2011, 10:56 AM EST
I feel ill after reading this ....
eiriamach | Feb 03, 2011, 09:31 AM EST
This article is certainly an argument in favor of close government regulation of financial institutions. But even then, Lewis paints a scary picture of the arrogance of financiers who, in their self-delusion, believed they had the power to make great profit from paper--American style credit-default swaps and fully "collateralized" finance shares. There's no regulating human psychology, so let's hope the bankers can face facts and learn from the recent history of their own profession.
McNamara31 | Feb 03, 2011, 08:54 AM EST
Just like the American crash in 2008 the true facts are only transparent in the after math when all the financial power brokers have sealed our fate. The Goldman Sachs and Merrill Lynch's of the world have speculated away the security of generations to come. What also is very troubling is their speculating in the worldwide food and oil markets. You have to regulate the financial sector or be willing to pick up their tab every time. Many of those who work in finance have huge appetites for greed and no stomach losses and that's the mentality operating worldwide today.
LoyalCitizen | Feb 03, 2011, 07:47 AM EST
Ireland never had a Celtic Tiger. We did have some of the dumbest unskilled people in history let loose with too much easy money to waste on pathetic ideas. Worst case being journalists who have no evidence to prove that the Celtic Tiger ever existed and they misled the Irish People on behalf of corrupt bankers and politicians.