Hi °C | Lo °C IRELAND is a nation living a lie. Lots of little lies, all together, build one big lie. Last week we saw all the supporting players of the big lie in action. The Government, the Central Bank, the Department of Finance, united in support of the biggest liars of them all. Bankers were carried shoulder high, back to the top of the edifice of liars.
This Sunday let us celebrate the return of the permanent government.
So you thought that the mandarins were the real power? Or maybe you naively saw the Cabinet as making the ultimate decisions? You even believed that the auditors would act as a check on the nation's bankers? You swallowed the canard that the Central Bank was reformed, ready to defend the punters' interests?
Forget it. Last Wednesday's plan for mortgage arrears has embedded bankers' powers.
They are not just rehabilitated; they are restored to old pinnacles. Bankers, the permanent government of the Irish commercial world, are back. Onlookers, like the Minister for Finance, the deputy governor of the Central Bank and the secretary general of the Department of Finance, have capitulated. The big lie is set for a new lease of life.
Forget for a moment the little lies, the camouflage flaunted by the supporting players last week. The little lies, like the "last resort" of repossessions or the "strict" targets set for the bankers' solutions to the mortgage arrears both distract prying eyes from the big lie.
The big lie lurks in the banks' balance sheets. Bankers, mandarins, politicians and the Central Bank are pretending that bankers' home loans are correctly valued. They are pretending that most borrowers are set fair to repay their mortgages. They are hallucinating.
They ignore, too, the reality that the security on many mortgages is now worth less than the loan. They all refuse to admit that bankers' provisions for bad mortgage debts are, consequently, ludicrously low, making a nonsense of the balance sheets.
They know that if they admit to this gaping hole, they will be exposed , forced to find more capital. The Government cannot face this reality as it would mean further fleecing of taxpayers for the funds; the mandarins have sunk their credibility in the current fictional figures. So the big lie lives on.
And it will live beyond July, a key month in the 2013 banking calendar.
July is the month when the banks must face their next stress tests. Back in 2011, somehow, they jumped the first stress-test hurdle, but doubts persist about their credibility as the methodology was challenged by a whistleblower.
This time, the authorities, fearful of a mishap, produced last Wednesday's plan, timed to convince external stress test operators, the European Banking Authority (EBA), that Ireland is on top of its mortgage arrears avalanche.
If they pull the wool over the EBA's eyes with the elaborate menu of measures laid out last week, the banks hope to be safe until the next crisis. If the EBA rumbles the big lie in the balance sheet, it will instruct us to recapitalise again. The policy of delay, deceit and diversion will be in tatters.
Instead, we have gambled that the mortgage arrears crisis can be treated piecemeal. Hence the extraordinary programme of mortgage measures – ranging from split mortgages to interest-only – unveiled last week.
The real choice was one between confrontation or capitulation. The authorities chose capitulation.
Instead of challenging the big lie on the bankers' balance sheets, they armed bankers with the weapons of war and sent them into battle against an unarmed opponent.
The measures confirm that the Central Bank has abandoned the consumer. Once again the Central Bank resumed its historical role as the servant, not the master, of the banks. The tame regulator merely set bankers "targets" for a solution to mortgage arrears. The Central Bank talked tough, insisting that bankers make "offers" to each mortgage in distress in accordance with a prescribed timetable.
Babes in arms were heard to laugh out loud. Banks have lied for years about their "targets" for new loans in the small business sector. They simply manipulated the numbers to reclassify old loans as new. Similarly undemanding quotas of "offers" of solutions to mortgages in arrears will be a doddle for the champions of deceit.
Round one to the banks.
Yet the rhetoric in the arrears plan still requires that the proposed solutions must be "sustainable". Naturally the judges of "sustainability" will be the banks themselves. No doubt they will be "monitored" by the new pussy cats in the Central Bank.
Indeed the Central Bank has approved the return to the banks of a big, big stick to enforce their will on borrowers. The banks are about to regain the power of repossession. A nasty little bill will be brought to the Dail before the summer allowing the banks to repossess borrowers' homes.
There was disbelief in the Dail on Thursday when the Minister for Finance insisted that this power would only be "a residual option in extremis".
Round Two to the banks.
They have recaptured the right to kick people out of their homes.
Round Three was less capable of camouflage. The right to harass borrowers has been restored. The limit on bankers approaching customers more than three times a month has been lifted. Borrowers in arrears are now open season. Ring them and upset the children.
Round Four puts the borrowers' last refuge into play. Borrowers will be moved off tracker rates if a deal on arrears is done that is judged to be "advantageous" in the long term. Borrowers are being softened up for losing the one immovable advantage they possess.
For several years wise borrowers have refused to yield to heavy banker pressure to give up their trackers. On Wednesday they were told to prepare to throw away their arms.
And what about the most sensitive solution of all? Would the banks be able to write off mortgages fully or partially? The answer is "Yes" – but on a case-by-case basis. Which means that the banks will do it, but only on their own terms.
'Borrowers in arrears are now open season. Ring them and upset the children'
Sceptical critics of the spin on the arrears proposals asked the minister how he will force the banks to bow to the Central Bank's and the Cabinet's will in this crisis.
In response he obliquely referred to the banks' licences and the Central Bank's powers to withhold them.
Of course, of course. We should have known. Just imagine the media headline one Monday morning: 'Noonan withdraws licence from AIB and Bank of Ireland for defying mortgage policy.'
Pigs will fly over Leinster House first.
After all that recapitalisation, all that skulduggery, the bank guarantee, the vaunted policy of supporting two pillar banks would Michael Noonan or Matthew Elderfield put their existence in jeopardy?
An empty threat. The bankers are back, the permanent government of the commercial world.
But the big lie remains, ticking away in their balance sheets.
Irish Independent
