Government will get to grips with financial crisis? Don’t bank on it

WE need to be taken by the scruff of the neck. We need somebody telling us, in calm and measured terms, and in simple English, what needs to be done. And first of all, we need to be told what the hell is going on. Truthfully, clearly, simply.

Because, by God, I’m confused. And I’m not alone. One of the reasons confidence in the Government is melting like snow is because people can’t get any sense that the people we’ve elected to manage our affairs have the faintest clue themselves not only about what to do, but even about what’s happening.

So they’re reacting on a day-to-day basis without any sense of plan or vision about how to really resolve the situation.

As a consequence, measures which seemed appropriate one day seem almost gratuitous the next. And there is an overwhelming sense that no one at all has any sense of what the big picture means. I don’t ever remember a time when so many people have said to me that the most frustrating thing about the situation we’re in is that no one seems to know what we should be doing next.

The whole banking crisis might illustrate the point. We’ve all learned a new language in the last couple of months. Credit crunch, subprime, toxic assets, Fannie May and Freddie Mac, recapitalisation. But what the hell does it all mean?

It all started in the United States. We were all told American banks were in the muck because as a matter of policy they had been lending to all sorts of people who could never afford to repay and had been indulging in all sorts of practices that were highly risky essentially because of massive greed at the top and a complete absence of regulation.

That’s all right then, we all thought (and were reassured by our leaders). That won’t happen here. There’ll be some knock-on effect, of course, because the American economy is so big and we all depend on it to some extent.

But our banks have never been in the subprime business, they have all the assets they need, greed has never been a factor in the way business is done and we have the best regulation in the world. Whew! We can relax.

Hello. That wasn’t right, was it? Our banks, free of subprime loans (and free of greed, of course) and with all the best regulation in the world, turned out to be as deep in the muck as the American banks— at least in the eyes of the people who buy and sell bank shares.

We don’t know why, except that they all seem to have huge and risky loans outstanding to developers. But the banks themselves keep insisting they’re as safe as houses (perhaps not the best analogy, given what’s happening to house prices).

So what was the bank deposits guarantee about, for example? It was designed and sold as a brilliant wheeze to restore confidence, to enable the banks to stop worrying and get on with the business of banking.

If that was its purpose, it can manifestly be seen to have completely failed — and to expose the entire country to ruin if the guarantee is ever called in.

Now the Government is grappling with the issue of capitalisation instead. That, it seems, is what’s really needed to ensure that the banks can go back to playing their traditional role as an engine of the economy. Now, mind you, the banks are saying they have enough capital, and the experts are saying “they would say that, wouldn’t they”?

So what are the poor lay people among us to believe? Do the banks need more capital or don’t they? And if they do, and somebody gives them more capital, what does that mean?

If, say, a group of American or German, or Saudi Arabian investors are persuaded to plunge more money into Irish banks, will they be doing that as an act of philanthropy? Somehow that doesn’t seem likely. As an ignorant layman in matters of high finance, it has always seemed to me there is one basic rule — rich people invest their money in order to get a return.

Lately on Morning Ireland, I heard RTÉ’s business correspondent describing the consortium that’s being put together to invest in the Irish banks as a “small hedge fund”.

Another one of those terms that the laymen among us don’t understand but are going to have to get used to. What’s a small hedge fund? Does it make long-term investments, designed to help businesses build? I don’t think so. My admittedly limited understanding is that hedge funds are always on the lookout for quick returns.

And how do you get a quick return by investing in banks whose value is dropping like a stone?

Again, because I’m only an ignorant layman, I can only speculate that one thing you’re not likely to do is to put the interests of ordinary customers at the top of your priority list.

And the term “ordinary customers” will include people and companies who need a degree of credit to run their businesses, pay wages and salaries and other bills and meet the various cashflow demands that running a business involves. So it seems likely — at least in the absence of explanations we can understand — that in order to get the banks moving again (in the interests of ordinary customers) we’re going to mortgage their immediate futures to people who have other priorities. How does that make sense?

Side by side with the prospect of foreign investment, we’re also being told of constant rumours that the merger of a number of Irish banks is on the cards, possibly reducing the number of banks to two.

Apart from assuming this will mean immediate rationalisation, with wholesale branch closures and job losses, what else does it mean? Is it in the interests of bank customers and Irish business generally that there would only be two main players in the market, with all that would mean for competition?

ON THE face of it, it doesn’t seem likely, does it? So why can’t we, the people, invest in the banks? The Government does have some money available to it in the National Pension Reserve Fund. Why can’t we use that? Why can’t our Government raise a bond — effectively allowing us to invest in our banks if we want to — as part of the solution?

Roosevelt did it in the depths of a depression. Why can’t we? Maybe none of this is possible. Maybe we have no choice but to welcome in whoever wants to strip our assets and challenge the regulation of the system.

Maybe we have to throw ourselves at the mercy of the same people — or at least the same type of people — who have been roundly condemned in the United States for their greed and rapaciousness.

But we have a right to be told, to have it all explained to us. We need to know where we’re going, and why?

The most unsettling thing about the present situation is the overwhelming sense that our Government is more confused than anyone else. That’s not what we elected them for.