# David McWilliams to give evidence at the Banking Inquiry - time changes



## Brendan Burgess (16 Feb 2015)

I see that David McWilliams is due to give evidence on Thursday 26th Feb. 

http://inquiries.oireachtas.ie/banking/ (The committee meets on the blue days. Click on any day to see which witnesses are scheduled) 

I am astonished by his topic: 

09:30    David McWilliams on early warnings, divergent and contrarian views

I would have thought he should be included in the section on the media and asked why he recommended and welcomed the guarantee so enthusiastically. 

Brendan


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## gillarosa (16 Feb 2015)

Up to that point he spoke about the boom as being a transfer of wealth between generations, maybe they plan on blaming the pensioners for the crisis instead of the real culprids similar to your previous lamentations on the Greeks eh?


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## Brendan Burgess (17 Feb 2015)

Hi gillarosa

Sorry that post seems very garbled to me. What point are you making?



gillarosa said:


> the real culprids similar to your previous lamentations on the Greeks eh?



Sorry, but I don't see what my lamentations on the Greeks have to do with the McWilliams' guarantee. 

Brendan


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## Duke of Marmalade (17 Feb 2015)

Whether you think the Guarantee was good, bad or inevitable it is undeniable that DMcW had a significant input into the decision.  The Guarantee practically reproduced what he advocated the Sunday before in the SBP and he hailed it as a "master stroke", and we know Lenihan was eating garlic out of his hands.

This is a bit at variance with the narrative in the excellent drama _The Guarantee_ which suggested that it was Biffo who was pushing for the Guarantee against Lenihan's wish for nationalisation of Anglo.  Biffo's evidence  will be very interesting when it comes.  Meanwhile I agree wholeheartedly that DMcW should be quizzed not merely as a so called "expert" witness but someone who was quite central to the thought processes of the leading player in the drama who himself is unfortunately no longer with us.


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## Brendan Burgess (25 Feb 2015)

McWilliams has been given more time , and so will start at 9 am tomorrow instead of 9.30

I am surprised at what they plan to discuss

"Chairman Ciaran Lynch TD: *“David McWilliams is a well-known economist, writer, journalist, lecturer, broadcaster and documentary maker. Tomorrow, the Committee will focus on early warnings, divergent and contrarian views in relation to Ireland’s boom when it hears from Mr McWilliams."*

They should be focussing on his encouraging Brian Lenihan to provide the guarantee contrary to the advice being provided by the civil servants and his assertion that the guarantee wouldn't cost us a cent. 

Brendan


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## Brendan Burgess (26 Feb 2015)

He will be starting shortly. You can watch it live at: 

http://www.oireachtas.ie/parliament/watchlisten/live-flashplayer/committeeroom3/

Brendan


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## Brendan Burgess (26 Feb 2015)

*Early warnings, devergent and contrarian views*

The Irish economy was set up to fail.
I saw this before anyone else.
I tried to warn people this as often as possible.
The house price bubble would burst and damage the banks.  (not sure of exact wording)
I did this in thousands of words. 
In the Indo and in the SBP. I made documantaries about this. I had my own show on TV3 which was.
The Pope's Children was the best selling non fiction of the decade.,
The banking crash was absolutely predictable. 

This was not isolated thinking. 
many thousands of ordinary people saw this coming. 
so it was predictable and preventable. 

So why did I not just play the game , keep my mouth shut and get on with business.
There is a moral imperative, a patriotic thing to do, to point out that the country was going into catastrophe. 
I was accused of being unpatriotic for talking down the economy. 

Ireland is split between the insiders - banks, developers, professional classes and government officials, and political parties 
and the outsiders in the situation of the housing boom - the people who are forced to play a game where the dice are loaded against them from the start. 

two reasons
1) I believed that hundreds of thousands of ordinary people would have their lives destgroyed by debt and negative equity
2) The second reason is that I I worked in theCB and outside in investment banking.  Every single day we avoided taking responsiblity for a crisis, the more we ran out of options. 

The crash was inevitable - why?

Because of the ways the banks financed themselves
I wrote this back in 2000,2001 
This was obvious to anyone who was trained. 

The panic of 2008 did not have to happen. It was not preordained. It could have been 

If you don't have a housing boom. YOu dont' have a banking crisis. YOu don't have a bailout.


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## Brendan Burgess (26 Feb 2015)

A bank run is called a run, because it happens very fast. It's not a stroll

When I saw this  in 2004 (that Ireland was funded by hot money )

It began in 2000 not 2008

The crash was not the problem - it was the build up. 

There is a direct link between villifying those who are warning and the 

Think of it as a forest fire. The pyromaniacs (the banks) start the fire. The forest is the general ecomomy. The regulators are the firemen who say - dont' worry, it will blow itself out.  a village is burnt out. The village leaders (the politicians) don't know what to do.

Who started the fire? 

Property markets only increase with credit. Not with supply and demand. 
When the banks ran out of deposits, they borrowed other people's money to lend to us to buy houses. Germans French and British. Hot money.  One of the largest banks took 100 years to have a €60b balance sheet, but doubled it in the following three years. 

lIght tough regulation guarantees you ahve a problem.  Hot money leaves. and the rest follows. 

"The free market will discipline the banks" they don't. They do the opposite. 
Overlending facilitates overborrowing
Back in 2003. I am going to play a clip on Prime time in Oct 2003
"The housing market is a scam - it's a vacuous confidence trick. The price is 10 times the average wage. This is an economic failure due to irresonsible lending"  Financed by overlending and not demand.


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## monagt (26 Feb 2015)

"They should be focussing on his encouraging Brian Lenihan to provide the guarantee contrary to the advice being provided by the civil servants and his assertion that the guarantee wouldn't cost us a cent."

He has said than he never thought that an open ended guarantee would be given, who would?

No one in his right senses gives an open ended guarantee, even if Lenihan had capped it at €25b we would have been a lot better off.


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## Brendan Burgess (26 Feb 2015)

When house prices rise, demand should fall. But the opposite happens in Ireland. 

In 2006 I coined Ghost Estates . I had been talking about the famine the night before.  These are exactly the same.  Breakfast roll man was building these estates. 
There are two types of people who attend Aviva. Those who buy their own tickets. And those who have them bought for them. (Now a long winded story about Australian tries....)


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## Brendan Burgess (26 Feb 2015)

Banks lend more because bankers get bonuses on the more than they lend

Banks go bust. 

We have an issue of group think. 

If you have ideas outside the mainstream , there are three stages

1) 
2) violent opposition 
3)And now, every one pretends they were on your side 

[Chairman asks him for the second time to wrap up]

I wrote in 2007, I that banks usually go belly up.

[Third time the chairman wraps up]


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## Brendan Burgess (26 Feb 2015)

Chairman: Did you ever think you might have been mistaken in your views on the house price bubble

No.

Did anyone every ask you your opinion

Most Irish economists are classical economists. I am not.

Explains how a bubble works. the different stages.  ( Kindleberger silence
The banks are driving all this
5th stage is bubble
6th stage is stage distress
7th stage is panic
afterwards
1) minsky moment - banks realise that they don't have any money
2)
3) massive state intervention -

*Not one person or minister asked me my opinion - no banker, no civil servant, no politicain,no minister*

*Please be succinct in your answers *
Chairman:   You talk about the Minsky moment
The design of the guarantee. Was that related to the bailout.


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## rob oyle (26 Feb 2015)

He can talk!!!


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## Brendan Burgess (26 Feb 2015)

John Paul Phelan (Fine Gael) 

You were on the radio in Sept 2008(?) with Brian Lenihan and Brendan Keenan 

You got calls from bankers who accused you of causing panic. Who were they and what did they say. How many

I got two calls but not from senior people. 

Off on a long story again.

JPP : What did they say? 

McW: They told me my talk was dangerous. 

JPP: You met Brian Lenihan that day ...

McW : We went on Saturday view - we talked about public service pay, but I told him that the problem was the banks.  Irish banks risk going bust in the next couple of months 
The minister said: That is dangerous talk
When telling the truth is dangerous, we are in the last resort saloon. 
Brian Lenihan: You seem to know what is going on. Why don't you come in and advise me because everyone else is inadvising me. 

JPP: on WEd 17th Sept you phoned the Minister...

McW: Everyone was saying: The banks were well capitalised, we have passed the stress tests 
. It was on Joe Duffy, so it was real.

I went on Prime Time. lehmans had gone bust.  

Chair: The deputy is asking you a question. Please answer it. 

What was said in the phone call. 

He said he would phone me back.  He did and said he would call to visit me within the hour. 

He called well after midnight. maybe 1.30 or 2

JPP: Were you preparing for him

McW. No.  
Chair: Move to the substantitive part

McW:  I have an article which I was sketching out that nigh

"The state must act as a safeguard" 

I have had 1.2 m words published 

JPP: Did you take a note of the meeting? 
McW: It's here in the article which was publised on the Sunday

JPP: You say he was quite isolated from his officials. 
McW: The most important thing is to know the facts. I asked him if he knew the facts. He said "no, I am getting differnt numbers from everyone
You have to do something temporary to give you time until you get the facts. "

I went through the options
We could let a bank go - that owuld not work
We could nationalise a bank - that would not work as the bank run was systemic 
Merrill Lynch went bust and they were the advisors
option 3 - one of the big banks would buy a small bank.  but I said that all the banks were bust.  Two bad balance sheets doesnt' make a good one. 
He asked what about giving depositors a €100k guarantee.  I told him it could work, but you can't be a bit pregnat.  
The limited guarantee was introduced the following friday and money continued to leave

I told him that there was one other option: The blanket guarantee

Blanket guarantees have been used in 14 out of 42 bank problems. I told him I don't know, but I think we are at the last resort. 

You have to introduce a _holding _guarantee. I said you can't do something permanent if you are not in possession of the facts. You need to do something temporary with a time limit on it.  I said in the article - let's say 2 years. 

JPP: Did you include subordinate debt
McW: No. Subordinated debt is very interesting. - another long story... There is a distinction between debt and equity. Equity like instruments are never included.  At no stage did I ever _imagine  _that subordinated debt would be included. It's like equity.  you are being paid more to hold subordinated debt


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## Brendan Burgess (26 Feb 2015)

Pearse Doherty

I want to follow on from John Paul Phelan

The committee is gathering evidence. You are the only one who can give us the evidence on your interactions.

How many phone calls and meeting did you have.
It seems like 12 and 2 face to face.

McW: that is about right. It could have been 13 . Final meeting was on 4 October 2008. I never met him again. Intense discussion .

Pearse: Can you explain what a partial guarantee would be

McW: The minister was very professional. When he said a partial guarantee . The state would stand behind €50k or €100k. But I told him that the bank run was the billions of international money.  They would see the partial guaranee as an indicator that there was a problem.

Doherty:  His officals were deadset against a full guarantee:
McW: If you know the facts, you can be dead set against a guarantee.  I said a ful lguarantee should be introduced only temporary. The officals said that the banking system
Doherty: Did the minster say to you that the officials were set against the guarantee
McWilliams: A partial guarantee was introduced but did not work
Doherty: Did you speak to any othe members of cabinet
McWilliams: one phone call from John Gormley. he asked me what was going on. I told him that he should tell me, because I was in China. It was a sounding board.
Doherty: Did you suggest to John Gormley a full guarantee.
McWilliams. No he said he would read what I wrote and ring me back. He didsn't.
Doherty: Did you and Gormley discuss nationalistion.
McWillimas: Yes. He asked if we could nationalise a small bank. I said we could but it would not stop the run.  It would panic the others.
The IMF took this approach in Malaysia but it did not work.
We would achieve nothing and end up with a large bill

Doherty:   You had a large amount of contact with the 2nd most powerful person in the state. Did he oppose nationalisation
McW: He was always discreet. always profession.  He never told me what he was thinking.  I felt sorry. It was a bit like promoting me to AG during a crisis.

Doherty: The governor told us that Irish Nationwide and Anglo should be nationalised there and then.
McWilliams: He never said that to me.  He was always in listening mode.
Doherty: Why did he keep coming back to you?
McWilliams: I was at Davos in China, and he wanted to know what the foreigners were saying. That was the main purpose of his calls to me.  I told him that they were not talking much about us.

You have a bank regulator who had not seen the biggest bank catastrophe.

Doherty: You say in your submissions to us that
In March 2009 you said that the guarantee should be rescinded.  When did you arrive at that conclusion

McW: My idea was of a holding guarantee. Should that be 2 years or one year?  If you give a 3 month guarantee, that would not be enough. 

Doherty - but my question is - when did you form the opinion

McW: During October and Novermber  - I wrote that I was worried about the inclusion of subordinate and small banks.

Doherty: How could it have been rescinded?

McWilliams: After 24 October - I was back on the outside.  I assume that the Minsister was moving away from my thinking.  I was worried that this was being used for full payment in the case of bankruptcy.  After NAMA with the guarantee, it insisted that we would sell our assets at a dicount but pay a premium for our liabilties. 

We could have rescinded the guarantee and left NAMA,  and nothing would have happened.

Doherty: In Jan 2005(?)  you wrote:  a banker said that the top bankers must stay in place.  The bankers suggested a type of war cabinet.

Mc Williams - tjat is what happened. The banks run the show and citizens get left behind.

Doherty: Why did the insiders ignore it if it was so obvious?

McWilliams; A small country with vested interests making lot of money, so they would vilify the maverick.  My own profession was swanning around saying nothing. 

Mantras replace hard thinking.   It's hard to change your mind if you are a serious person (Galbraith) it's easier to look for the proof to show that you are  right.


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## Brendan Burgess (26 Feb 2015)

Chairman: Were the banks illiquid or insolvent.  Please give a short answer 

McWilliams- a rigmarole

Chairman: Please answer the question 

McWilliams: They will become insolvent if they are illiquid

Chairman: You argued that they were not insolvent.    I am still trying to establish your view.  
McWilliams: If you did not give liquiditiy, they would go insolvent.


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## Brendan Burgess (26 Feb 2015)

Joe Higgins 

In 2001 you argued that cheap credit creates illusions of wealth. You refer to the Spanish conquest of South America.  All this gold went to Spain. But Spain did not benefit economically. 

Were the indigenous Irish people robbed by the equivalent of the Spanish aristocracy and the conquistadores?

McWilliams: Spain went from being the richest country in the 16th century to being the poorest in the 17th century.  Because they stopped manufacturing. The Dutch and The Brits gained the most from the Spanish conquests. 

Chairman - we need to move into the 20th century as we have only 3 minutes left. 

McWilliams: The great building boom wealth favoured land and not small indigenous industry ( I am paraphrasing ) 

If you start with Pizarro you would run out of time...

Higgins: (Didn't catch the question)

Mc Williams: Never once was anything I ever wrote muzzled or interfered by an editor - never by the SBP, the Independent,  TV3, RTE or Newstalk. There was not a corporate line.


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## Brendan Burgess (26 Feb 2015)

Mark Mac Sharry: 

Mc Williams: Have you ever played school boy soccer? A banger shows up on a team with a beard and scores 5 goals against you.

If a bank appears out of nowhere and starts to record extraordinary profits, it's a banger. 

I would be hypersceptical of hypersuccess

Mac Sharry: It's a big issue that the regulator missed it  

McWilliams: I had the balls to say it at the time.  The Regulator should scare the daylights out of the banks. 

Mac Sharry: What act should have alerted the politicians that the regulator was not doing his job? 

McW: lots of ones

Mac Sharry: Were economists complicit in pushing the "let's party" agenda 

McW: I wouldn't say that. But most economists missed it. 

Mac Sharry: What is your behaviour of the media?  Was there a herd mentality 

McW:   yes

MacSharry: EMU - Should Ireland have joined the euro? 

McWilliams: Not at all.  We trade with the UK and America. Our kids go on holidays to the English speaking word.  EMU is a continental system and we are an atlantic race


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## Brendan Burgess (26 Feb 2015)

Sean Barrett: 
 When were you in the CB?  What section were you in? 

McWilliams : The international division - I didn't catch the dates. - 1992 I think.   I was always amazed the way that the people on the inside denied reality. They didn't see the queues of Toyota Corollas in Newry buying Harp.  The Irish currency was overvalued. OUr bosses said that there was no crisis. 

SEan Barrett: Did you ever meet the prudential regulators? 

McWilliams: No

In 2000, I came up with a system which would regulate house prices. If prices rise, the amount which could be lent would be reduced. 

Sweden had a problem in 1992. They guaranteed all deposits but not subordinated debts.  They set up a bad bank quickly. They devalued their currency by 40%. But our currency revalued and our interest rates rose.


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## Brendan Burgess (26 Feb 2015)

*Michael McGrath *

Autumn 2008. Was the decision to guarantee the banks the right decision? 

McWilliams: Yes.  It was the only decision.

It's in all my writings that it needs to be "let's say two years". Sufficiently long to sort out depositors but sufficiently long to [get at the bondholders?].  

McGrath
You said all liabilities should be guaranteed 
The day afterwards, you described it as a masterstroke
18 days later you were critical of the thinking. 

McWilliams: 
PwC were in the banks trying to find out. Unfortunately , the report said that they were ok. 
When I saw subordinated debts , I was worried

McGrath: But you did say 100% of all creditors 

McWilliams: But I excluded equities, and subordinate bonds are like equities. Clearly I did not mean them. 
I expected that the guarantee should be more conditional. 
Put in conditions to protect yourself. 
Everything was calm - amazingly 
Once you have the facts you can do something different

McGrath: Did you believe that the banks were insolvent?

McWilliams: the banks were definitely illiquid - 

McGrath: With the benefit of hindsight - were the banks insolvent

McWilliams:  Some were. Interestingly enough, they were all insolvent.    Certainly the two smaller banks were insolvent.  Anglo - obviously.


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## Brendan Burgess (26 Feb 2015)

Kieran O'Donnell 

How many times did you meet him?: twice  - 17th of Sept and 4th October  - not before or since
How many phone calls? 10
What did you discuss? I was in China, I did not know what was going on? 

21st Sept article:  A blanket guarantee

28th @Sept: You repeated it. When did you write it. 

It's almost identical.

McWilliams: I was never a civil servant or advisor. I was one individual writing about what was going on. There were dozens of paid advisors deep in the system.  They missed the whole thing.


I said I wasn't sure if it would work, but it was the only option. 

O'D: How do you reconicle that with "Burn the bondholders" 

McWilliams:  The history of guarantees. ..

O'D: You  Bondholders should be burned - but you recommended a blanket guarantee - all depositors and creditors - The banks would come crashing down. This is at variance with your previous view. 

Mc Williams: You are really mixing things up.   another rigmarole 

*(At last someone is really probing him )*
O'D - what happened at your meeting of 4 October where your relationship obviously went sour

McWilliams: Nothing . I kept saying "make it conditional. Don't be openended. We don't want to pay off risk capital.


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## Brendan Burgess (26 Feb 2015)

Senator Susan O'Keeffe (Labour)

(I missed the question)

Only 4 people can pay for a bank 
1) the taxpayers of Ireland
2)the taxpayers of Europe 
3) The ECB
4) The creditors 
.
O'Keeffe - Did no one ever say to you over the years:  You are right. 

McWilliams: No, but now it's very gratifying when people come up to me in a pub and say "thanks.  I was going to buy a house but decided not to after watching your programme" 

In 2005, Enda Kenny asked me to address the TDs

2006 - I met Joe Higgins and his party.   So the extreme left and the extreme right. 

O'Keeffe : How did he leave your house after the coffee and garlic
McWilliams: I felt sorry for him.   How did I feel: If he was not apprised of the facts, we would have a crisis.


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## Brendan Burgess (26 Feb 2015)

Senator  Michael  D'Arcy

McWilliams:  Reality was denied at every stage

I thought why did Gormley not have his own advisors.   He called me and I told him I was in china. It struck me as odd why did he have to ask a guy in china what was happening in Ireland

I told him that everything he had been told was wrong.  Soft landing. Good economy. 

D'Arcy : Did you get the impression that there was the expertise available in the Central Bank and Dept of Finance 
mcWilliams; Obviously there wasn't. 

D'ARcy : You didn't see the PwC reports.   
McWilliams: I had no private access to documents. 

D'Arcy : Feb 2009 - there was a 50% write down in NAMA. How do you reconcile that? 

McWilliams: I can't. 

D'Arcy: What about the put downs in the public domain - how did you respond? 

McWilliams: It was very hurtful. My mother - Irish mammies read this stuff -  People write very nasty personal stuff. But I get emboldened by that sort of carry on.  We are big boys. 

D'Arcy - the 14 blanket guarantees.  How does the Irish rank?   
McW:  Average cost was 27% of GDP.   Ireland will also be around there.


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## Brendan Burgess (26 Feb 2015)

Eoghan Murphy Is there a relationship between donations and political decision making 

McWilliams: You wouldn't give sweets to children without expecting something back. [ BB: what a weird point!] 

Murphy: You say that 71% of donations [to FF?]  came from property developers.

McWilliams: This is not exclusive to FF.  The former leader of FG had debts written off by AIB. 

[ It's all very repetitive now]


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## Brendan Burgess (26 Feb 2015)

John Paul Phelan again 


McWilliams: The best banks will go insolvent if you they become illiquid 

Phelan: You said in your book "The MInister indicated that the problem was in AIB"  did that not indicate an insolvency issue. 

McWilliams: Not it was an illiquidy issue

Phelan: In 2009, The minister said: "   He said he contacted me through my brother Conor. "


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## Brendan Burgess (26 Feb 2015)

Doherty: You said it was obvious for anyone with training. 

In Jan 2008, UBS indicated a sell recommendation on AIB and BoI.  34% of the worth of the Irish banks were stripped off within an hour. 

McWilliams: UBS would have had a bank analyst. 

Doherty: Is there any excuse for those who did not see it? 

McWilliams: If you are an immunologist and you miss a plague , what do you think that people will think of you?

Doherty: In 2008, you said it was a coup d'etat. Can you back that up.

McWilliams Played an extract from Prime Time in 2003 again)

Doherty: Where is your evidence that the government supported this coup d'etat.


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## Brendan Burgess (26 Feb 2015)

Chairman 

There is another reason for not nationalising. You have to be careful with taxpayers' money. The beauty of a guarantee is that you use no money not a penny. 

McWilliams: That article was explicit. It said it does not carry any cost right now. 

Chairman: Do you think that they underestimated the cost of the guarantee. 

McWillams: No, because I was talking about the immediate cost

chairman: Did you ever get anything wrong

McWilliams: That is a trick question. 

Chairman: Give me an example 

McWilliams:  I get things wrong every day. 

Chairman: What is your outlook for the future.  

McWilliams: We were unprepared in 2008. We are better prepared now.


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## Duke of Marmalade (26 Feb 2015)

_Jayz_ Boss how do you type that quickly

Initial reactions.

Despite his best efforts this was no lap of honour for McWilliams.  What an ego!  The chairman kept telling him to rein him in.  Only his mother could love him

The Chairman was good, Phelan was good, Matt McGrath was good, Fierce Doherty disappointing, Higgins and the rest only put McW back in his comfort zone of talking about historical metaphors and how he was a lone voice.

He couldn't escape his basic contradiction on the blanket guarantee.  If he was so convinced that this was a massive bubble, then he would have to be convinced that this was more than a liquidity problem, it was a deep hole in the banks' balance sheet. He squirmed and squirmed when asked was it a solvency or a liquidity problem.

I don't think anybody bought his flimsy argument that the guarantee was not the one that he advocated.   He pedals this ridiculous line that he wanted a conditional guarantee.  Let's see how this would play:  "we guarantee all the liabilities so long as the banks are not insolvent", yeah that would have worked, I don't think

He wouldn't even with hindsight admit that he had underestimated the cost of the guarantee - his reply "it didn't cost anything immediately".  Pathetic.


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## Brendan Burgess (26 Feb 2015)

Duke of Marmalade said:


> _Jayz_ Boss how do you type that quickly



I had plenty of time. He actually said very little.  It was mainly long stories, which I did not need to reproduce.

That was the very first I heard of the "It will not cost anything... immediately". 

I don't like the format of the enquiry. A barrister would have skewered him. 

Brendan


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## monagt (26 Feb 2015)

He was more right than wrong which is the best most commentators hope for. For 3 hours on the platform, he did pretty well and he was a voice in the wilderness for a long time.

"He squirmed and squirmed when asked was it a solvency or a liquidity problem."............. but he did answer it in a way that most could understand.

He was not on trial.


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## Brendan Burgess (26 Feb 2015)

Hi monagt 

I defended him in the past on house prices, but it was pointed out to me that he had been saying we were in a bubble since 2008. House prices rose by 250% before falling back by 50%, so he was clearly wrong initially. 

He has no idea about tracker mortgages.  Look up his tracker time bomb comments. 

And he was hugely wrong on the guarantee. He is trying to rewrite history but he won't get away with it under any sort of analysis. It's easy enough for him to outtalk the Banking Inquiry. But compare what he wrote at the time to what he now says he wrote and you will see that he clearly intended to include all bondholders and that it would cost us nothing. He is qualifying that now by saying that it he meant to exclude subordinated bonds as he considered them shareholders and he meant that "there would be no immediate cost". 

What's worse is that he is not consistent. He claimed that the house price bubble would bring down the banks, but then he said that the banks were solvent and should be guaranteed. 

Brendan


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## Duke of Marmalade (26 Feb 2015)

y





monagt said:


> He was more right than wrong which is the best most commentators hope for. For 3 hours on the platform, he did pretty well and he was a voice in the wilderness for a long time.
> 
> "He squirmed and squirmed when asked was it a solvency or a liquidity problem."............. but he did answer it in a way that most could understand.
> 
> He was not on trial.


He didn't answer it, he was worse than any politician, he kept answering a different question and he didn't fool a committee full of politicians.  He kept answering that without the guarantee the banks would definitely be insolvent.  That was not the question.  Did he think the were insolvent at that time with or without the guarantee?

McWilliams' big ego problem is that his perceived biggest mistake is that the blanket guarantee was in fact his "masterstroke" although he himself applauded Lenihan for it.  He has spent the last 5 years trying to wriggle off that hook.  He has concocted a completely unconvincing revision which says that it was not the guarantee as he envisaged it.  His masterstroke would have made the guarantee conditional on the banks remaining solvent.  So:

1)  What sort of guarantee is it which says we will guarantee you so long as it doesn't cost anything?  McWilliams says he meant the guarantee to be a holding plan until the facts were known, and then when the facts did become known, the guarantee could be pulled.  How can McWilliams think anyone will swallow this line?

2)  By his own analysis over the previous years the banks were going to end up hopelessly bust.  Yet it is clear that he actually thought they only had a liquidity problem.  He did not after all think they were bust.

3)  So the very legitimate question is did he, in recommending the masterstroke, think the banks were insolvent as he predicted they would be?

The chairman harried him at the end to name any mistake he had made.  Normally I would regard that as a bit unfair but the fact is McWilliams made one terrible howler over the guarantee and no-one on the committee were at all convinced by his attempt to wriggle out of that.  What a stark contrast to John Fitzgerald who had the grace to admit he got it wrong.


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## Brendan Burgess (26 Feb 2015)

RTE reports very fairly on the performance

http://www.rte.ie/news/2015/0226/682945-banking-crisis/

_He later told the inquiry that he suggested to Mr Lenihan a holding blanket guarantee to buy time to find out the facts, but he said the guarantee should have been rescinded some months later.


He also said at no stage did he suggest it should include subordinated debt.


Mr McWilliams said that in March 2009, he wrote that the guarantee should be rescinded as he was worried that an emergency measure to protect depositors would be used as a cloak to protect bank creditors._


It doesn't look as if the other media are going to challenge him 

http://www.independent.ie/business/...apse-was-absolutely-preventable-31023747.html

http://www.irishtimes.com/business/...s-crisis-was-absolutely-preventable-1.2118324


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## Brendan Burgess (26 Feb 2015)

Duke of Marmalade said:


> What a stark contrast to John Fitzgerald who had the grace to admit he got it wrong.



That is a really good point.

I didn't watch John Fitzgerald, but I gather he got hammered for doing the decent thing, and admitting that he made mistakes. 

Whereas McWilliams rewrites history and, although the politicians probably didn't believe him, he has probably gotten away with it. 

It will be interesting to see how the TV and radio news deal with it. 

Brendan


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## Duke of Marmalade (26 Feb 2015)

Brendan Burgess said:


> That is a really good point.
> 
> I didn't watch John Fitzgerald, but I gather he got hammered for doing the decent thing, and admitting that he made mistakes.
> 
> ...


The RTE News at One unfortunately focussed on McWilliams lap of glory - how he predicted it all.  The committee were far more focussed on his role in the guarantee.  I got the impression that they had allowed him his lap of glory as a sort of concession so as to be able to quiz him on his relationship with Lenihan. It is clear the witnesses get advance notice of the tone of the inquiry.  Thus McWilliams used most of his long winded pre-amble to set up a case that the damage was all done from 2003 on and that what happened in September 2008 was by that time almost inevitable.  In that I actually agree with him.  I think he did call the bust, albeit it was the tenth bust out of one that he did call and I actually think that the blanket guarantee was, if not quite a master stroke, inevitable.  Sure it could have been fine tuned to exclude subbies and maybe even Fingers' outfit but by and large this guarantee was needed.  And if I was on that stand I would state clearly that (a) I believed the auditors etc. that it was just a liquidity problem and (b) even if I knew then what we all now know about Drummer's outfit I still would have thought that something like a blanket guarantee was needed. Letting Anglo go bust would have caused absolute mayhem.

It is the fact that, seeing the widespread populist belief that the blanket guarantee is the cause of all our woes, McWilliams is desperately trying to distance himself from his baby I find so nauseating.  David, you were by and large right, have the guts to stand up to the populist narrative and defend your advices to Lenihan, even if it lessens your aura of infallibility.


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## Brendan Burgess (26 Feb 2015)

The crazy lending by Anglo and Irish Nationwide were the main causes of the losses.
The cost should have been borne by the depositors and bondholders in Irish Nationwide. 
The other banks should have been guaranteed and the loss would have been much smaller, and might even have cost us nothing.
The McWilliams full guarantee of everything put the cost onto the taxpayers. 

My problems with McWilliams is
1) He said at the time that the guarantee would cost nothing - he was wrong. 
2) He now claims that he never said it would cost us nothing, just that it would cost us nothing immediately.  This is the first I have heard this argument. 
3) He says that he did not intend for the guarantee to include the subordinated bondholders. However, that is not what he said at the time.  He clearly said "Everyone except the shareholders".  Bondholders are not shareholders. And anyway, I don't think we lost that much to the subordinated bondholders. The big losses were due to paying the senior bondholders and the depositors.


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## 44brendan (26 Feb 2015)

I'm assuming that the Committee supplied 2 chairs at the hearing. 1 for David and 1 for his ego!
To a large extent I accept that for years his was a lone voice in the wilderness and when I read his book "Popes Children" in 2006 I was impressed by the truisms underlying his illustrations of high living and over-spending.
His problem is that he is a "One trick pony". Very similar to Shane Ross he iterates and re-iterates the same mantras and is totally unwilling to accept that he did at time get things wrong. To go back to our friend "Chicken Licken" if you constantly sound the warning klaxon sooner or later you will be proved right. However, it's the more astute person who rather than repeat the "I told you so's" starts to work on finding solutions after the sky does fall! DMcW has now lost his relevance and much of his credibility and would be better served to look towards the future and how to improve matters rather than complain that our problems would not have happened had we heeded his advice in the past.


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## Firefly (26 Feb 2015)

Didn't get to see this. But the main thing that interests me is (1) did he mention he worked in the Central Bank and (2) did he make any reference to soccer / football? It seems EVERY article he writes contains one or both of these...


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## Duke of Marmalade (26 Feb 2015)

Firefly said:


> Didn't get to see this. But the main thing that interests me is (1) did he mention he worked in the Central Bank and (2) did he make any reference to soccer / football? It seems EVERY article he writes contains one or both of these...


Yes to both

The really incredible part of his revisionist view of what he was advocating is that he claims it was only to buy time until the facts were known.  Now that means either one of two things:

a)  By time he meant only a few weeks or months.  But he admits that two years was acceptable to him, so if he really meant a few weeks or months that means he intended the State to rescind the guarantee at its discretion, once the facts are known.

b)  By time he meant the full two years.  But that's exactly  what happened.  By the time the two years were up the bondholders had flown.

I think he means the former. He keeps harping on the fact that he wanted a conditional guarantee.  Let's not confuse that with the subbies, which is the real red herring in this whole debate.  From his evidence this morning he seems to have meant "conditional on the banks being solvent".  In other words he wanted a guarantee for a while until we look at the books.  He even claims he was right in that the liquidity crisis was addressed but that the guarantee should have been structured to be rescindable once the "facts are known".  But that is preposterous.  What sort of a guarantee is that?

A bad day at the office for David, I fear.


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## elacsaplau (26 Feb 2015)

Get out of here Firefly.........you must have seen it??!! Otherwise, you should go into the prediction business yourself! 

There was one part of the enquiry structure that I particularly didn't like - which was the way that each member of the committee had an allocated time. It often took a large amount of this allocated time in order to contextualise some key point - in part due due to the time required by McWilliams to remind us how lucky we all are that he liveth among us. This meant that before the specific pertinent question could be asked, the Chairman was already out with the stopwatch. All this meant that McWilliams could waffle on and not be repeatedly and robustly challenged on key issues. Accordingly, I think it would have been way better if the committee had agreed between them, in advance, the key elements that they wished to address and then pursued these more thoroughly - rather than everyone having their 5 minutes of fame approach.


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## Brendan Burgess (26 Feb 2015)

Hi elacs

I couldn't agree with you more.   The bankers do the same when they come before the Finance Committee. They spin out long irrelevant answers and then the questioner runs out of time.  I had suggested to them, that they allow three of their members to do in depth questioning and following up on each other. But apparently, that's not politically possible.

I thought that Kieran O'Donnell was getting somewhere today. Unfortunately he spent a good bit of his time establishing what was already known, and then he ran out of time. McWilliams told O'Donnell that he was mixing things up. 

I presume it's a non-party inquiry so another FG member can't agree to give his time to Kieran or a FF guy can't give his time to Michael McGrath.

When they get to meet Brian Cowen, he will be able to string them out. 

Brendan


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## Sophrosyne (26 Feb 2015)

Elacsaplau, you are bang on the money!

Party politics is impeding the enquiry.


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## monagt (26 Feb 2015)

Constantin Gurdgiev comments on his performance was "Well done today, David. Credit to you" and I agree.


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## Brendan Burgess (26 Feb 2015)

monagt said:


> Constantin Gurdgiev comments on his performance was "Well done today, David. Credit to you" and I agree.



Agree too. It was a masterful performance today. 

He spun stories and he revised history so he was not made in any way accountable for the appalling comprehensive guarantee or for his claims that it would not cost the taxpayer a cent. 

He should give lessons to John Fitzgerald. John admitted his mistakes and was skewered. 

Brendan


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## Duke of Marmalade (26 Feb 2015)

The chairman asked David had he ever made any mistakes.  David, with uncharacteristic modesty, said he had, plenty.  However, when pressed he could not think of any so his modesty was perhaps a little disingenuous.  Anyway for the record here are but a few.

1.  First of all the Blanket Guarantee was *not* a mistake.  His revised version of the guarantee i.e. a guarantee conditional on the banks being solvent would have been a nonsense.
2.  In 2009 David recommended exiting the euro and devaluing sharply. He claimed that he would at first be jeered, then attacked until finally people recognised how right he was all along.  This is a cross that geniuses have always had to bear.  We are still firmly in the first phase of this prognosis.  Even the Greek shinners don't think euro exit a good idea.
3.  He observed that MNCs had €700bn assets here in Ireland.  He suggested a one off 10% levy which he claimed they would hardly notice would solve all our problems.  A bit like the après match sketch where Lenihan reckons our creditors won't notice a 0 being dropped from their loans.
4.  He proposed the forgiveness of *all* mortgage debt not just negative equity stuff.  He argued that it would boost the economy.  Rather shows that even as an economist David could do with some CPD.
5.  When it became clear that AIB needed €5bn of capital, David pointed out on radio that at the current share price the government good buy AIB for €0.3bn saving €4.7bn.  He failed to recognise that even in State ownership AIB would still need €5bn capital.  Seems that he didn't learn too much about banking in his stint in the CB.
6.  David released an amusing video damning LTRO as the ECB printing money; lots of cartoon zeros.  Yet a few months ago he wrote an article demanding that the ECB start printing!  One or other of these diametrically opposite views is a mistake.
7. In 1998 he declared that property prices in Ireland were way overvalued.  He may yet be right but 16 years on, we are waiting.

I could go on, but heck you get the picture.


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## Sunny (26 Feb 2015)

monagt said:


> Constantin Gurdgiev comments on his performance was "Well done today, David. Credit to you" and I agree.



All you need to do now is tell us what Brian Lucy thinks and then we will know for sure.


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## Brendan Burgess (26 Feb 2015)

Sunny said:


> All you need to do now is tell us what Brian Lucy thinks and then we will know for sure.


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## monagt (26 Feb 2015)

"The chairman asked David had he ever made any mistakes. David, with uncharacteristic modesty, said he had, plenty. However, when pressed he could not think of any so his modesty was perhaps a little disingenuous. Anyway for the record here are but a few."

This was not a fair question!

A blanket open ended guarantee was a mistake. 
Euro exit may be a bad idea but maybe we should have not joined.
He proposed and suggested........so what? 
He was 3 years in CB as a junior.
If he wrote articles and books that caused many to understand and think about topics outside their norm and question then he should be praised and not lambasted.

This thread is a bit OTT


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## Brendan Burgess (27 Feb 2015)

Hi monagt

The problem is that David McWilliams has been portrayed by many people as having some Godlike powers of vision and to be infallible. 

Someone on this thread said that he has been right more often than he has been wrong. Actually, he has usually been wrong. 
He was completely wrong on the biggest issue - the bank guarantee where he encouraged the Minister to make such a huge mistake. 
And what is particularly galling, is that he is rewriting history to pretend that he was right all along. 

Economists don't have the power to forecast correctly. And it would be terrible if some new Minister for Finance believed McWilliams' PR and listened to him again. 

Brendan


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## Duke of Marmalade (27 Feb 2015)

I missed a real cracker.  McWilliams famously suggested that we could insure the guarantee  In his own words insurers would "bite your hand off" for that size of business. 

Unfortunately David has got away with it again.  The IT give full coverage to his lap of glory and no reference to his role in the guarantee.

But he didn't fool the Committee.  The Chairman's final question echoed the body language of the entire committee. It said "You have lectured us and patronised us for the last three hours.  We weren't interested in any of that stuff - we know how housing bubbles happen, we have listened to real experts. What we wanted to hear was about your central role in the Guarantee and whether you made any mistakes in that regard.  We are not at all convinced by your revised version which holds you totally above blame".

I agree with _monagt_ that McWilliams should stop citing his junior role in the CB on his CV.


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## Brendan Burgess (27 Feb 2015)

Hi Duke

That is a great summary.  I hope that the final report reflects this. 

I wonder will any of the other witnesses contradict his account? 

Brendan


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## Firefly (27 Feb 2015)

elacsaplau said:


> Get out of here Firefly.........you must have seen it??!! Otherwise, you should go into the prediction business yourself!
> 
> There was one part of the enquiry structure that I particularly didn't like - which was the way that each member of the committee had an allocated time. It often took a large amount of this allocated time in order to contextualise some key point - in part due due to the time required by McWilliams to remind us how lucky we all are that he liveth among us. This meant that before the specific pertinent question could be asked, the Chairman was already out with the stopwatch. All this meant that McWilliams could waffle on and not be repeatedly and robustly challenged on key issues. Accordingly, I think it would have been way better if the committee had agreed between them, in advance, the key elements that they wished to address and then pursued these more thoroughly - rather than everyone having their 5 minutes of fame approach.



I didn't!

I knew he'd mention the Central Bank as it's related to this. Interesting to hear how he's now drawing attention to it being a junior role though. From the articles he's written down through the years I thought he was running the place!!

The soccer reference was a gamble on my behalf. Still not surprised he mentioned it. He's some self-promoter. Must have been the highlight of 2015 so far being back on the tele. I don't know if anyone here follows Tim Hartford in the Financial Times at all but he'd wipe the floor with DMcW....proper economic analysis and opinion!

Firefly.


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## Duke of Marmalade (28 Feb 2015)

An interesting thought experiment on a counter factual.  What if Lenihan chewed garlic to the wee hours with Morgan Kelly instead of McWilliams?

Kelly was of course (I would say uniquely) spot on.  The whole banking system was insolvent.  Listening to Kelly you would have little choice but to let Fingers and Drummer go and nationalise the rest.  We would now be 40bn less in debt, I hear you say.  I don't think it is that simple.  For a start presumably we would have had to make good Fingers' and Drummer's depositors of which there were quite a lot.  But the immediate mayhem could have got badly out of control. We certainly wouldn't have made friends in Europe, these friends being most helpful in getting us to cope with our other, even worse, problem, our disastrous fiscal position.

As it is the Guarantee, based on erroneous analysis by McWilliams, might be considered in the better end of a range of very ugly possibilities.


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## jim (1 Mar 2015)

seems to me that yous are all givin the fella a hard time. chill the beans lads.


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## monagt (1 Mar 2015)

jim said:


> seems to me that yous are all givin the fella a hard time. chill the beans lads.



+1, way OTT


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## Brendan Burgess (1 Mar 2015)

monagt said:


> way OTT



How on earth can setting the record straight be OTT? 

The guy gave terrible advice to Brian Lenihan.
It has cost us a fortune. 
That's bad enough, but it's galling now that he claims that he gave different advice. 

Brendan


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## Delboy (1 Mar 2015)

Duke of Marmalade said:


> We weren't interested in any of that stuff - we know how housing bubbles happen,
> .


That an Irish Politician could say something like that and get away with it on forum like this, while McWilliams get the full monty...


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## monagt (2 Mar 2015)

"How on earth can setting the record straight be OTT?"

Lenihan had plenty of "advisors", up to him to decide and who makes an open ended guarantee anyway?

DMcW is not responsible for the guarantee, EU said "save your banks", Bankers told "lies", Regulators (FR and CB) incompetent, Fools in charge of Gov and still are in charge.

DWcW was a small player in the overall scenario so this is OTT.


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## Brendan Burgess (2 Mar 2015)

Hi monagt

McWilliams had two face to face meetings and 10 phone calls with Brian Lenihan during the period. He had also a phone conversation with John Gormley. 

He wrote a series of articles before,during and after calling for all creditors to be guaranteed, except the shareholders. 

He called for a guarantee much wider than the Minister's advisors were suggesting, and the Minister went further than his advisors.

So he had a lot of influence. 

But most galling of all, he is trying to rewrite history. Why does he not own up and say. "Sorry folks. I got it wrong. I said that it would not cost a cent, but it's going to cost €40 billion after all. " 



monagt said:


> EU said "save your banks"



The bank guarantee was a solo run by the Irish without even consulting with the EU or ECB.


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## monagt (2 Mar 2015)

> The bank guarantee was a solo run by the Irish without even consulting with the EU or ECB.


-> ECB President Jean-Claude Trichet told Finance Minister Brian Lenihan: 'Save your banks'.



> George Lee, RTÉ Economics Editor: “On 16 March 2008, Bear Stearns, which was the sixth largest financial institution in the United States, went wallop. From that moment on, the die was cast.”


-> In September Lehmans collapsed which was a mistake by the US authorities.



> My opinion (opinion, not advice — advice is given by paid advisors, civil servants, paid consultants, paid central bankers etc) he should copy the Swedish banking policy of 1992. This would stop the bank run that was happening in Ireland at the time.- DMcW



-> The rest was up to Lenihan's civil servants, central bankers and personal economic advisors to determine scope, timing, limits, etc.
-> They did not follow the Swedish 1992 model.

So, I still think the focus on DMcW is OTT


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## Brendan Burgess (2 Mar 2015)

monagt said:


> -> ECB President Jean-Claude Trichet told Finance Minister Brian Lenihan: 'Save your banks'.



When was that? It was after the McWilliams guarantee was introduced, I think.


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## Brendan Burgess (2 Mar 2015)

_My opinion ... he should copy the Swedish banking policy of 1992. This would stop the bank run that was happening in Ireland at the time.- DMcW

 -> The rest was up to Lenihan's civil servants, central bankers and personal economic advisors to determine scope, timing, limits, etc.
-> They did not follow the Swedish 1992 model.
_
This is such a great example of how he rewrites history. 

This is what he said in the Sunday Business Post on September 28th 2008 

*State guarantees can avert depression*
_

Therefore, it is crucial that the government take the right decision now. Events of the past few days imply that *there is no model we can import from anywhere else to help us. *The rest of the world is suffering the same plight. Large banks are going under by the day. Thus, if we wait, we will simply suffer more.


We need to come up with an Irish solution to our specific problem – because no one has the antidote to the contagion that is spreading through the global financial markets._


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## monagt (2 Mar 2015)

The defence rests M'lud


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## Duke of Marmalade (2 Mar 2015)

> My opinion (opinion, not advice — advice is given by paid advisors, civil servants, paid consultants, paid central bankers etc) he should copy the Swedish banking policy of 1992. This would stop the bank run that was happening in Ireland at the time.- DMcW


A good opening which should have continued "don't blame lil' ol' me if my opinion was wrong, blame his paid advisors", and that would be fair comment.  Instead he incredibly finds himself now arguing that his opinion was absolutely correct, it was just that Lenihan didn't follow it.  No wonder the Chairman asked him "did you ever make a mistake".  That is a very meaningful finale and I guess McWilliams has carried that with him since as his lasting impression of how he fared before the committee.

Back to topic, Ireland *did* follow the Swedish model and *did* stop the banking run.  About the only difference was in the treatment of subbies and the amount of subbies which matured in those two years and were therefore guaranteed was negligible.  McWilliams would have a more credible task if he defended *his* decision.

The Swedish guarantee ended up costing the Swedish state nothing, mostly because its NAMA made big gains on the upswing.  Watch this space.

There was one crucial difference with the Swedish guarantee though.  The state was more or less guaranteeing liabilities in its own currency, which if the worst were to transpire it could at least ostensibly honour by printing krone.

Lenihan, in guaranteeing 450bn of euro, sterling, dollar etc. liabilities was in one sense making an enormous bluff.


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