Taxpayers bear brunt of bailout
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YESTERDAY Brian Lenihan set the scene -- or tried to set the scene -- for today's announcements on the collapse of the Irish banking system and the construction industry. The decisions of which we learn today will be of historic importance, and the sums involved breathtaking.
The political and financial worlds expect the minister to announce a further injection of capital into the banks, in return for which the State will take a majority stake in AIB and something less than a majority stake in the Bank of Ireland. The cost of the bank rescue has been estimated at €16bn, but some believe that it could exceed €20bn.
To put the latter figure in context, the Labour Finance spokesperson, Joan Burton, points out that it equates to a series of four national budgets with severe cuts and other painful measures, as well as gloomy implications for the real economy.
Secondly, we expect to hear the discounts applied to the property developers' loans moved from the banks to the National Asset Management Agency (NAMA). In terms of what it means for the taxpayers, this is really an academic question.
Deep discounts will mean lower payments from the Government to the banks, but the shortfall has to be met. By whom? The banks have some chance of raising money from their existing (and thoroughly disgruntled) shareholders, from private sources or from sales of assets. But the main burden will fall, as usual, on the taxpayers.
Nevertheless, Mr Lenihan was upbeat yesterday. We had, he said, achieved international recognition for addressing the crisis in the public finances. Now we must sort out the banking system once and for all.
As a scene-setter, the Finance Minister's line had some merit, but it was overshadowed by a rival scene-setter from the banks, which plan three rises this year in mortgage interest rates, amounting in total to 1.5pc.
Mortgage-payers, and experts in the field, reacted with outrage. The general view was well summed up by Rachel Doyle of the Professional Insurance Brokers' Association, who put her finger on the sorest point of all: the multiple hits taken by decent folk who will make sacrifices to hold on to their houses but may not succeed.
She pointed out that they were already paying for the banking bailout. Many will have taken a salary reduction. "There is," she said, "only so much they can take."
And she identified a greater risk: that the banks will feel too confident and become even more aggressive. That may seem a strange fear when they are at the mercy of the Government and the European Commission.
But they will certainly try to snatch back their 'Masters of the Universe' status if the minister does not curb them. As Ms Doyle says, they cannot be allowed to operate as independent republics with no consideration for the impact of their behaviour on society and the economy.
Inevitably in a society which has almost no faith in any institution, a conspiracy theory instantly took hold, that the move, in advance of today's announcements, was inspired by a government that wanted the banks, not itself, to take the blame for our woes.
That is more plausible than most conspiracy theories, but also irrelevant.
Nothing the Government does will prevent people from blaming it for its major share in the Celtic Tiger frenzy, the spending sprees, the recklessness of the banks, the property bubble. . .
Yet another example has emerged from the depths of a dark forest to remind us of the excesses and their consequences. The Social Insurance Fund is on its way into deficit. Soon the Government will have to borrow €250m a month to pay social welfare benefits, and the taxpayers will have to stump up yet again.
Everything would be more bearable if the public had any confidence in the Government as a whole, if they had any assurance of a time limit on our painful journey out of the forest, and if they believed that NAMA, as the popular phrase has it, is "the only game in town".
At this time, it is indeed the only game in town. But the game is being played with dice loaded against the taxpayers. The world's top investor, Warren Buffett, has said of the international financial crisis that those who behaved well will pay for those who behaved badly. Yes, and nowhere more than Ireland.
Irish Independent
