David McWilliams: Money-sucking Anglo is our financial Stalingrad
ON November 24, 1942, General Von Paulus of the German 6th Army, bunkered down in Stalingrad, received the order he was dreading. Instead of the retreat that he was planning, the orders from Berlin stated simply that "Fortress Stalingrad" was to be held "whatever the circumstances".
The general knew the game was up. The army was nearly encircled. There was one last chance of a breakout which could save hundreds of thousands of men and machinery that could be used to fight another day.
He knew there would be another day and Germany could ill afford to waste another penny or lose another life or commit another tank to Stalingrad. But the party bosses in Berlin were worried about the systemic impact of a defeat in Stalingrad. Having promised that victory was "just around the corner" and having assured people that they knew what they were doing and that there was "no alternative", how could they admit defeat now?
The party believed that it was better to risk everything via a mad gamble in Stalingrad than acknowledge reality. The generals on the ground knew that Stalingrad was of no importance. The soldiers were exhausted, hungry and scared. Apart from bearing the name of Stalin, there was nothing strategic or systemic about the city. If it fell, it would have no lasting negative impact on the German army's capabilities.
But the boss was obsessed by Stalingrad. In his "bubble" world, a defeat in Stalingrad would send out the signal to the rest of the world that Germany was losing the war and could be beaten. "What would the rest of the world think?" he fumed. The Fuhrer's line of thinking was that the credibility of the German war effort was on the line in Stalingrad. He was convinced that if they cut their losses there, their credibility as a fighting force would be irreparably damaged.
In fact, the opposite was the case. Defeat in Stalingrad with a retreat would have made Germany stronger, not weaker. However, those who had devoted so much political capital in Stalingrad couldn't do a U-turn now, for political rather than practical reasons. They couldn't be seen to admit that they were wrong, nor could they accept that the problem of holding Stalingrad at all costs was too big and that the resources of the army were finite.
Not surprisingly, Goering promised the German people that his Luftwaffe would keep the 6th Army fed by air. This was totally delusional as the German air force didn't have the planes to fly in to Stalingrad and they didn't have the logistics on the ground to cater for such air traffic under constant Soviet bombardment.
But reality never came into the politicians' equations, no matter how often the generals in the field told Berlin the game was up. The politicians continued to move around -- on their maps in the bunker -- armies that had long since been destroyed, aircraft which had long since been shot down and Panzer divisions which had long since been immobilised in the great Steppe battles of 1942.
In short, Germany's political top brass were totally delusional. Having fed propaganda about imminent victory to the people, they began to believe it themselves. This led to the ridiculous line that if Stalingrad could be held the war could be won. Of course the behaviour at Stalingrad simply confirmed to her enemies that Germany was run by fanatics and this fanatical behaviour would ruin the country.
Now keep this imagery in your head, and think about the Irish financial system. In banking terms, Anglo is our Stalingrad. Let's consider "Fortress Anglo".
Our politicians are throwing billions we don't have at a shell which has no systemic value and will simply suck in more of our money. This money could be spent on classrooms or hospital beds, or it could be used as start-up capital for new companies; but no, it will go to Anglo. Four billion euro of our money has already gone into this financial carcass. That money is gone; we will never see it again. Brian Lenihan and Brian Cowen seem to believe that stuffing good money after bad -- and in the process enfeebling the country -- is the way forward. This is the behaviour of fanatics, neither of whom has ever worked in financial markets and so they don't understand the people who they are trying to impress.
The guarantee was a bluff, not a policy. It has worked, now get rid of it.
The market knows we don't have the money and is therefore penalising us in the bond market with higher interest rates than anyone else in the euro bar Greece. They know that the more money we plough into Anglo, the higher taxes and debts go in the future -- both of which will drag the growth rate and undermine the ability to pay the interest on these debts in the future. They can see through the spin and the blather which might go down well at a Fianna Fail/GAA get-together but doesn't wash anywhere serious.
We don't need or want "Fortress Anglo". Apparently Anglo is about to announce a €12bn loss -- the biggest in Irish corporate history. Should we keep on drip-feeding cash into this? How can the average, decent Fianna Fail voter stand for this when unemployment is rocketing? Fianna Fail members should ask what Lemass would make of this?
It is time to shut Anglo down. The deposits should be transferred to either AIB or BoI. A "vulture" fund should be asked to come in to take the property debts and see what they can get for them. There are plenty of ways they could finance this. This avenue is always explored in distressed debt situations -- we are no different. One of the biggest creditors of Anglo is the Central Bank, which has very quietly lent Anglo over €10bn under something called the "master loan repurchase agreement". (It doesn't want you to know about this by the way.)
The agreement is a hangover from when we had our own currency and is the ultimate "cash-for-trash" vehicle. Our Central Bank, out of its own coffers, loaned Anglo money and in return taken toxic collateral which the ECB wouldn't touch. This is what has kept Anglo open. Therefore, we'd negotiate with our own Central Bank; it would take the loss and have to report less profit over the coming years. No big deal.
Anglo is our financial Stalingrad. We should close it down tomorrow, deal with the creditors and get the hell out. Ireland can't afford to spend another cent on it.
The financial markets would shrug and move on if we did so. What most people fail to understand is that financial markets are forward-looking. Tomorrow's prospects, not yesterday's mistakes, are what drive investors. Markets are not in the business of punishing countries. There is no money in punishment. They want Ireland to grow, so that they can make money. Could someone please explain this to the fanatics who run this place and their lackies in the media who pedal their propaganda?