In Ireland people used to rob banks but now banks rob people. If you think that’s an exaggeration, read on.
On the 29th of September 2008 four of Ireland’s fattest-cat bankers arrived at the Department of Finance in Dublin. “It was a stick-up. On that night the raiders demanded that they be pulled back from the precipice. A shell-shocked government unlocked the doors of the treasury and wrote them a blank cheque,” wrote Shane Ross and Nick Webb in their book ‘The Untouchables’.
The authors point out that just months before the crisis hit, the same bankers were assuring shareholders that all was well with their excellently managed banks. Any first-year economics student could have told them that fuelling the boom would end in tears. Prices can’t keep on rising out of proportion to incomes. All financial bubbles eventually burst with dire consequences.
The bankers preferred to ignore reality. They kept on blowing up the bubble by shovelling money out to borrowers for all they were worth. They were like Nelson turning a blind eye to his telescope. Suddenly, the ship of fools hit the rocks. Yet unlike Nelson’s statue atop the famous pillar in O’Connell Street, the top bankers didn’t find themselves lying in the street on a pile of rubble. The four who went cap-in-hand to the taxpayers are still doing well for themselves, according to Ross and Webb. They’re either still, “lording it over the business world” with their new companies or they’re living quietly, “poverty-proofed” by their enormous pensions.
Meanwhile, the Irish people are paying for their mistakes. They will be for generations to come.
For instance, the 99.8 per cent state-owned AIB recently paid €1bn to senior bondholders while it raised its interest rate to ordinary mortgage holders. It was their second rate increase in the last 12 months, during which time the European Central Bank has halved its rate.
A Trinity College economist has blasted the government’s, “talk-tough but do-nothing” approach to the banks. Professor Constantin Gurdgiev thinks the banks are extracting, “every bit of blood out of the economy and out of people’s budgets.” This makes economic recovery impossible. To make matters worse the interest rate was hiked up ahead of what is expected to be the toughest Budget yet. It will take even more spending power from the same citizens.
Labour leader and Tánaiste Eamon Gilmore says the government can’t interfere in the commercial activities of the “pillar banks.” He also insists that they’re, “firmly on the side of people who are having difficulty meeting their mortgage payments”. Large sums of public money have been made available to banks to deal with distressed mortgages but virtually none of it has been passed on to help the borrowers. Meanwhile, the number of people in serious financial trouble continues to grow.
Far more radical action is needed. A once-off write down in the value of all mortgages to say 110 per cent of the current market value of the properties has been suggested. Both Iceland and Norway have successfully done this.
Squeezing the plain people ever harder to rescue the banks from the consequences of their own mistakes is obscene. It’s especially so when most of the fat-cats are as fat, if not fatter, than ever.