Monday 26 February 2018

Stress and spin: Brian fought to keep us afloat

New finance minister was under pressure as 'private losses became public obligations', writes Jody Corcoran

Jody Corcoran

Jody Corcoran

The financial world was about to collapse, the banks of Ireland with it, and here at home, a novice minister for finance was in charge, newly appointed to the government of a decadent age.

Perhaps the most enduring impression of Brian Lenihan back then was provided by the journalist and economist David McWilliams, in his book Follow the Money.

According to McWilliams, the finance minister had told him of his officials: "They just don't get it, we don't have much time."

The Anglo tapes show there was more than a grain of truth to the assertion that officialdom – the regulatory authorities – were constantly playing catch-up to the wideboys of high finance.

But it was a colourful description of the minister that was to prove most illuminating, an indication of the stress Lenihan was under just a few months into the job.

"On Wednesday, September 17, at 10.20 in the evening, there was a knock on our front door . . . The phone had rung about an hour before, so I was expecting him . . . The minister walked straight through the hall and headed directly into the kitchen as if he knew where he was going. Jaded, he sat down and turned off his phone . . . Taking note of his 12 o'clock shadow and red eyes, I suggested that he should catch a kip, too. He said he'd doze off in the car on the way home.

"Then he pulled a bulb of garlic out of his pocket and started to peel it . . . he explained that the garlic gave him strength and kept him healthy and alert . . . he went on to say that he had been chomping raw garlic all summer, since he'd got the finance job."

McWilliams later writes: "I felt sorry for Brian Lenihan that night. He looked exhausted. He had been working day and night and he was trying to understand everything."

Even after a few minutes, however, it was clear to the author that here was a man who could quickly pick up the most complex matters. He would need to.

It is not difficult to see why Lenihan was under such stress. Less than two weeks later, he took the first of two decisions that were to mark his tenure in the Department for Finance.

On September 30, 2008, the Government introduced a State guarantee, not just for ordinary depositors, but for almost all of the debts of Ireland's five banks, which turned out to be €440bn.

The effect, as the Nobel laureate economist Paul Krugman would later put it, was to turn "private losses into public obligations".

Most observers now trace our ruin to the guarantee, but Lenihan argued that it had warded off a "financial nuclear winter".

He also told an RTE documentary of the reasoning behind the decision. With the collapse of Lehman Brothers in mind, ECB president Jean-Claude Trichet had called Lenihan and told him: "Save the banks at all costs."

As the former Attorney-General Paul Gallagher said in a eulogy three years later, Lenihan had faced the most "daunting and awful challenges", which often needed decisions to be made "without guidance or hesitation".

It later emerged that there was guidance aplenty. It is easy to guide, of course, but not so easy to decide.

As the Sunday Independent reveals today, the then chief executive of Anglo Irish Bank, David Drumm, was among those to offer advice – but always from a self-serving perspective.

"I am meeting the minister for nine in the morning . . . I will probably punch him," Drumm said in conversation with John Bowe, Anglo's head of capital markets, on December 15, 2008.

Later in the telephone exchange, Drumm would accuse Lenihan of effectively trying to "spin" the banking crisis with unclear or even contradictory statements: "Do you not realise your every word is dissected?" the Anglo chief would threaten to tell the minister.

It would not be the only time Lenihan was accused of "spin".

A year later, in December 2009, 19 months in office, he introduced a Budget described as "the most austere in the history of the State", in large part due to the utterly reckless actions of such Anglo wideboys.

The Budget was to prove notorious, for several reasons. Not least a declaration by Lenihan that the "worst is over", that, indeed, Ireland had "turned a corner". As the economy lurched from crisis to crisis, and the banks imploded, the declaration was to be derided at every turn.

Shortly after the introduction of that Budget, in 2009, Lenihan began to feel unwell. He was not sleeping. The burdens of office were suspected. But he also had a pain in his abdomen. A hiatus hernia was mentioned. He went to his GP, who referred him to the Mater Hospital, where tests were carried out. In no time, rumours circulated.

Then came a news bulletin on Sunday, December 27, 2009, which began: "TV3 news has learned that the finance minister, Brian Lenihan, has been diagnosed with cancer."

The announcement was to shock the country, certainly, but also the extended family, and friends who had not yet been informed of what the Lenihans were only beginning to come to terms with.

On Monday, January 4, 2010, Lenihan issued a statement to confirm that he would need chemotherapy and possibly radiotherapy after cancerous tissue had been removed from the entrance to his pancreas.

He said he would not be accepting speaking engagements during his treatment, but that he would continue to carry out his duties in the Department of Finance, in the Dail and at cabinet.

"He was imbued with hope, he was imbued with confidence and he was imbued with courage," Paul Gallagher said in eulogy. "If I had not seen it with my own eyes, I would not have believed such courage was possible."

Within a fortnight, Lenihan began six months of treatment. "He had to take rests a lot," an adviser at the time has said. "There was a bed brought in for him to lie down during the day, but he still did long hours, early mornings, late evenings, he was still very focused."

A year earlier, three months after the introduction of the bank guarantee, Lenihan needed to be his sharpest when Drumm called to the Department of Finance to land a metaphorical "punch".

Lenihan's trade was not banking, but politics; he was about due process, diligence and an awareness that finance hawks such as Drumm, and others in the banks, were working to their own agenda.

But his high standards did not meet the needs of the Anglo wideboys.

Drumm disclosed to Bowe his expected conversation with the finance minister: "Really what I want to know is what is this about, process and due diligence and all this.

"You are putting the government guarantee at risk with all your delays and lack of action. What is this about, having to go through due diligence.

"You made that decision on the 29th of September. You have told the f**king world we are solvent. You have actually, you are pregnant on that. Now can you protect your €100bn guarantee of us by writing a €2 or 3bn cheque – and get on with it."

Bowe replied: "Which will be the cheapest cheque ever held right on us . . .", eerily reminiscent of Lenihan's declaration of the bank guarantee: "The cheapest bailout in history," he would say, another "spin" that would come back to haunt him and Fianna Fail.

The rest is history . . .

On the afternoon of Friday, November 12, 2010, a report flashed across the news wires. An ECB source was cited. It said that at a meeting the previous day, Ireland had been put under pressure to tap a rescue fund set up for weaker eurozone countries.

Over the following 16 days, an extraordinary series of events unfolded, which culminated in a bailout of Ireland. As the speculation intensified over the weekend of November 13-14, 2010, a series of denials by members of the cabinet was made. Dermot Ahern, with Noel Dempsey, appeared on RTE to describe media reports of an imminent bailout as "fiction".

The denials continued on Wednesday, up to and including from Taoiseach Brian Cowen himself. On the Thursday, however, Patrick Honohan appeared on Morning Ireland to state frankly that there would be an aid package amounting to tens of billions of euro.

Honohan has subsequently said that, by the first days of November 2010, it had become absolutely clear to him that the bailout route "was the way to go". But Lenihan said the ECB had forced Ireland to take the bailout. He rejected claims that Ireland was warned of the dangers it faced. ECB members had "damaged" Ireland, he said, he accused them of "betrayal".

As the soothsayer economist Morgan Kelly has said, Lenihan wanted to exploit a strong negotiating position, but Honohan, who "plays for the opposing team" as a member of the ECB council, had other ideas.

Kelly has written: "Rarely has a finance minister been so deftly sliced off at the ankles by his central bank governor."

It was decreed, inevitably, that bank losses be repaid by the taxpayer, and so, said Kelly, it ran its predictable course, with the financial collapse and international bailout of the Irish State.

As for Lenihan, well, he was crestfallen: "I've a very vivid memory of going to Brussels on the final Monday to sign the agreement, and being on my own at the airport and looking at the snow gradually thawing and thinking to myself, this is terrible. No Irish minister has ever had to do this before."

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business