Insider account of the Fianna Fáil-Greens reaction to crisis

Lehman was followed in quick succession by Merrill Lynch, and then by the world’s largest insurance group, AIG.

Panic was enveloping the world’s markets. In Ireland, this panic was becoming pervasive. In official circles nothing was being said or done by those who were meant to provide confidence under these circumstances. The Central Bank and the Office of the Financial Regulator not only seemed ill-equipped to deal with the crisis, but did not seem to be able to explain what was happening, why it was happening, and what the appropriate response was.

Into this vacuum, other voices emerged. David McWilliams, a by now well-established commentator and pundit, was someone whose opinion was particularly valued. He made contact with John Gormley, and proposed what policy options should be considered.

Simultaneously, McWilliams was meeting with the minister for finance, Brian Lenihan. These meetings he described in a book Follow the Money and in newspapers in Oct 2009. In these accounts, McWilliams is quite clear that he advocated what he described as a “nuclear option” — that the Government should guarantee the banks.

He was subsequently to argue that the bank guarantee was not what he proposed. However, in a newspaper article published on Sept 28, 2008, with the headline “State guarantee can avert depression”, he wrote: “The only option is to guarantee 100% of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders, who will have to live with the losses they have suffered. However, it applies to everyone else. The beauty of guaranteeing deposits is that you use no money — not a penny. Instead, the government is using its sovereign credit as the country with Europe’s lowest debt/GDP level to restore confidence in the system. The civil service view appears to be that such a guarantee would subject Ireland to the risk that people withdraw money, disbelieving the state. But this would not happen. Some €350bn of the total €500bn is held by Irish people, so we won’t move our cash. In addition, the €150bn owned by foreigners would simply become like an Irish government paper.”

What he wrote in this article coincided precisely with what he [was] saying to Brian Lenihan and John Gormley. Together with the taoiseach, Brian Cowen, a great deal of discussion was taking place in and around the Cabinet with regards to the feasibility of this option ...

The degree of prior discussion and debate around the bank guarantee undermines a lot of the mythology of the meeting that occurred in Government Buildings on Sept 29. As far as John Gormley was concerned, the use and implementation of a bank guarantee had been de facto government policy since the previous Saturday, Sept 26.

Of course, the circumstances around that meeting are not without causes for concern. The chief executive and chairpersons of the country’s two largest banks — Bank of Ireland and AIB — sought a meeting with the minister for finance and the taoiseach. Within banking circles, it was by then known, or at least being admitted, that Anglo had severe liquidity problems, if not dangerously close to insolvency. The bankers had sought and were attending this meeting out of their obvious self-interest. AIB was thought to be particularly exposed to an Anglo collapse.

It has been speculated that the insolvency of Anglo Irish Bank was known to those of us in government. It wasn’t. It was feared by us for certain, but every piece of official advice we were receiving was telling us that Anglo could achieve viability.

The cabinet was briefed that the meeting was taking place, and told to be prepared for a possible cabinet meeting later that night. Any decision would need to have been made before the markets opened on the following morning. As the night progressed, the rest of the cabinet individually decided that a meeting wasn’t likely to take place.

By this stage, the idea of a bank guarantee would only have been discussed briefly, and not at any great depth within the cabinet. More detail would have been discussed between Brian Cowen, Brian Lenihan, and John Gormley. I have no recollection of the idea being discussed beforehand by the Green parliamentary party. When announced, it was something to which, as the party’s spokesperson on finance, I would have to react.

In the early hours of Sept 29, Brian Cowen and Brian Lenihan agreed with the bankers that the Government should seek to put into place an all-encompassing bank guarantee. The taoiseach agreed that cabinet assent would be required through the holding of an incorporeal meeting of the cabinet, seeking out government ministers individually. This proved to be difficult, as many ministers seemed to be inaccessible.

John Gormley proved extremely difficult to contact. His phone wasn’t responding. It was decided to send his Garda driver to him. It was 2am, and having had no previous update he had gone to bed. This was subsequently represented as John being asleep at the wheel, a further negligent act from not having attended the meeting. This was more myth-ology. John had already been intimately involved in the de facto policy decision that an all-encompassing bank guarantee, if required, should be put in place. Those who attended the meeting in Government Buildings — the taoiseach and the minister for finance — were the only members of the cabinet who needed to be there. Ultimately, though, as a cabinet decision was required to implement the policy on a bank guarantee, whether physical or incorporeal, John had influence on whether or not the policy was to be proceeded with.

When John Gormley contacted Brian Cowen on that fateful night, he asked directly whether the cabinet was being asked to consider the McWilliams option, to which he was given a clear and direct answer of “yes”.

* Without Power Or Glory — The Greens In Government is published by New Island and will be launched this week