Wednesday 18 September 2019

Sabotaged by greed of a few rich men

People are being asked to pay a hefty price for a crisis they did not create, writes Gene Kerrigan

They're hiding a lot, but they couldn't keep some of the dirt from spilling out. By the small hours of yesterday morning, as we picked clean the bones of the two reports on Anglo Irish Bank, the simple, devastating unfairness of what's happening was unmistakable.

Let's start with Sean Quinn, the richest man in Ireland. Some time ago, Mr Quinn decided he'd like to own a share of a bank. Perhaps it made good business sense, perhaps he was seduced by grandiose thoughts. Whatever -- he began assembling a stake in Anglo Irish Bank.

Mr Quinn used a device called "contracts for difference" (CFDs), which had advantages over buying shares directly. One advantage was that CFDs multiplied your gains, which was great fun. And, thanks to Brian Cowen, you didn't have to pay tax on CFDs (Revenue wanted to impose a tax a few years back, but Brian overruled them).

By and by, this one man, Mr Quinn, had CFDs for 25 per cent of Anglo. One man owned a quarter of a bank.

Unhappily, some other gamblers began messing with Mr Quinn. They saw a chance to make money and they gambled against him and upset his plans. And while CFDs multiply your gains, they also multiply your losses -- and Mr Quinn was losing big. And, since Mr Quinn had such a huge slice of the bank, Anglo was in trouble. Mr Quinn needed to quickly "unwind" the CFDs and buy Anglo shares instead.

Anglo is a tight outfit, bankers to a small group of immensely wealthy people. And they did what has become traditional in certain circles -- they arranged a "dig out".

Anglo loaned €451m to 10 insiders, who together bought 10 per cent of Anglo shares. Mr Quinn bought 15 per cent. And he thus shed the albatross of CFDs hanging around his neck. His little adventure had cost him €1bn.

By mid-summer, the panic was over.

Unfortunately, another crisis loomed.

The global credit bubble was about to pop. And the Irish property bubble had already burst. Anglo had loaned enormous amounts of money to a small number of very rich customers, heavily into land and property that suddenly no one wanted to buy.

Fifteen rich people were into Anglo for more than half a billion each.

Word got out that Anglo was in trouble. Depositors rushed to get their money out. Around €10bn was withdrawn. In the space of one week in late September, the bank lost €5.4bn in deposits.

€5.4bn. In one week. There's a lot of big money out there.

Mind you, amid the gloom, some people did alright. The chief executive of Anglo got over €2m in salary last year. The directors got €9.5m between them. A retiring director was sent on his way with a nifty €3.9m cheerio. Directors' loans were notoriously generous -- a total of €255m last year. And just €115m was repaid. The collateral for some loans is made up of Anglo shares, which are now worthless.

Guess who picks up the tab?

The bank's head honcho, Sean FitzPatrick -- good old Seanie -- was doing his annual trick of shifting tens of millions from Nationwide into Anglo and back to conceal his loans.

Arrangements with other clever dicks in Irish Life and Permanent saw billions shuffled around to help conceal Anglo's problems.

You or I knew nothing of these problems -- it was the people with big money, the insiders, who got the word about Anglo's troubles and who moved their cash out.

The other banks were worried. If Anglo went under, people might worry that Nationwide or even Bank of Ireland was next. They told Mr Cowen and Mr Lenihan what they needed and a panicked government gave the banks a blanket guarantee -- effectively, the taxpayer would assume responsibility for all losses.

Overnight, the bankers' problems became ours.

Anglo's big shots -- Sean FitzPatrick and David Drumm -- had already been telling us we needed our belts tightened.

Mr FitzPatrick demanded that the medical card be taken away from pensioners -- and the government brought forward the budget and did just that.

Remember the €451m that Anglo loaned the golden circle of 10 insiders? Just €83m was paid back. The "dig out" was so structured that the golden circle don't have to pay back most of the money they borrowed -- we now pick up the tab for that, too.

As billions of euros vanished into carefully constructed hidey-holes, the call went up for a return to patriotic values. Suddenly, the problem was defined as "a hole in the public finances". (The very real hole in the public finances was, of course, a consequence of the property bubble bursting, and the fall in tax revenue -- it wasn't a cause of the economic slump).

Private sector workers were encouraged to see the public sector as the problem. We were all encouraged to "put on the green jersey". Pull in every shekel you could get your grubby hands on and you were a national institution and the taxpayer picked up your debts. But buy your Christmas drink in Newry and you were unpatriotic.

At a time when jobs are disappearing and investment is needed, the country's financial structure has been paralysed, sabotaged by the greed of a small number of extremely wealthy people.

The government's response to this has been turgid, timid and deferential. They believe what the bankers tell them. They get advice from the bankers.

There's no reason to accept Fine Gael innuendo about Brian Cowen -- there's no corruption on his part. He has for years, however, socialised with the builders and the bankers -- he is steeped in that culture.

There was never a possibility, for instance, that his government would even consider an alternative to propping up the banks with taxpayers' money. Setting up a clean state bank that could facilitate commercial activity -- that could attract investment and compete the hell out of the corrupt, compromised banks -- was a reasonable option.

Such a move would be alien to Mr Cowen's very nature.

Instead, the government and their banker and builder friends huddle close and shift the burden to the old, the schoolkids, the sick, the unemployed. Lives are being destroyed.

At the other end of the scale, the cuts are minimal. The high-flyers wouldn't even notice a 10 per cent cut.

For instance, Mr Drumm, of Anglo, demanded last year that we have our belts tightened. We pointed out that Mr Drumm could take a cut of 95 per cent on his 2007 pay (€3.2m) and still be on a very snug €160,000 salary.

To squeeze the wealthy would, we're told, risk a "flight of capital". Instead, the government risks a flight of stability.

The government seems unaware of fierce, fierce anger that exists, as people are expected to calmly watch their family's future disappear -- people who played no role in creating the crisis.

In the absence of even a pretence at fairness, the marches and the strikes are inevitable.

The state has chosen the route of class conflict and social upheaval. And this isn't a short-term thing. We face years of this, and the possibility of something awful happening is very real. We're one swing of a garda baton, one cracked head, away from chaos.

We're told the army is ready to step in. Good move -- the government has set private against public, now we might see guards on strike and the army doing their work, with all the social cohesion that will bring.

You might imagine that this Government has no sense of history. You might think they have no notion of historical process. And you'd be right.

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