A bell rings for a vote, and Irish politicians stream in. A few minutes before the vote, the doors to their chamber will be closed and guarded. A politician who is late is a politician who cannot vote. A glass barrier separates the visitors’ gallery and the floor: I ask my tour guide about it. “It’s not to stop people from throwing things at their government,” she says, then goes on to explain. Some years ago an Irish politician came late, after the doors had been locked. He ran up to the visitors’ gallery, jumped down from it into the press gallery, ten feet below, and from there rappelled down the wall to the floor. They allowed the vote, but put up the glass barrier. They disapproved of the loophole, but rewarded the guy with the wit to exploit it. This, she claims, is very Irish.
The first to take his seat is Bertie Ahern, the prime minister from June 1997 until May 2008 and Political Perp No. 1. Ahern is known both for a native shrewdness and for saying lots of spectacularly dumb-sounding things that are fun to quote. Tony Blair has credited him with a kind of genius in how he brokered the Northern Ireland peace negotiations; on the other hand, seeking to explain the financial crisis, he actually said, “Lehman’s was a world investment bank. They had testicles everywhere.” Ahern spent his last days in office denying he’d accepted bribes from property developers, at least in part because so much of what he did in office seemed justified only if he were being paid by property developers to do it. But Bertie Ahern, too, obviously believed in the miracle of Irish real estate. After Morgan Kelly published his article predicting the collapse of the Irish banks, for instance, Ahern famously responded to a question about it by saying, “Sitting on the sidelines cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide.”
Now Ahern is just another Irish backbencher, with a hangdog slouch and a face mottled by broken capillaries. To fill the empty hours he’s taken a second job writing a sports column for the Rupert Murdoch Sunday tabloid News of the World, which just might be the least respectable job in global journalism.
* Ahern’s star, such as it was, has fallen. When the Irish land boom flipped from miracle to catastrophe, a lot of important people’s status, along with perhaps their sense of themselves, flipped with it. An Irish stockbroker has told me that many of the former bankers, some of whom he counts as clients, “actually physically look different.” He’d just seen the former CEO of Allied Irish Banks, Eugene Sheehy, in a restaurant, being heckled by other diners. Sheehy once had been a smooth, self-possessed character whose authority was beyond question. “If you saw the guy now,” says my stockbroker friend, “you’d buy him a cup o’ tea.”
The Irish real estate bubble was different from the American version in many ways. It wasn’t disguised, for a start. It didn’t require a lot of complicated financial engineering beyond the understanding of mere mortals. It also wasn’t as cynical. There aren’t a lot Irish financiers, or real estate people, who have emerged with a future. In America the banks went down but the big shots in them still got rich; in Ireland the big shots went down with the banks. Sean Fitzpatrick, a working-class kid turned banker who built Anglo Irish Bank more or less from scratch, is widely viewed as the chief architect of Ireland’s misfortune: today he is not merely bankrupt but unable to show his face in public. Mention his name and people with no interest in banking will tell you with disgust how he disguised millions of euros of loans made to himself by his own bank. What they don’t mention is what he did with the money: invested it in Anglo Irish bonds! When the bank failed Fitzpatrick was listed among its creditors, having (in April 2008!) purchased five million euros of Anglo Irish subordinated floating rate notes.
The top executives of all three big banks operated in a similar spirit: they bought shares in their own companies right up to the moment of collapse, and continued to pay dividends, as if they had capital to burn. Virtually all of the big Irish property developers who behaved recklessly signed personal guarantees for their loans. It’s widely assumed that they must be hiding big piles of money somewhere, but the evidence thus far suggests that they are not. The Irish Property Council has counted twenty-nine suicides by property developers since the crash—in a country where suicide often goes unreported and undercounted. “I said to all the guys, ‘Always take money off the table.’ Not many of them took money off the table,” says Dermont Desmond, an Irish billionaire who made his fortune from software in the early 1990s, and so counts as old money.
The Irish nouveau riche may have created a Ponzi scheme, but it was a Ponzi scheme in which they themselves believed. So, too, for that matter, did some large number of ordinary Irish citizens who bought houses for fantastic sums. Ireland’s 87 percent rate of homeownership is the highest in the world. There’s no such thing as a nonrecourse mortgage in Ireland: the guy who pays too much for his house is not allowed simply to hand the keys to the bank and walk away. He’s on the hook, personally, for whatever he borrowed. Across Ireland people are unable to extract themselves from their houses or their bank loans. Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons. And their leaders helped them to do it.
JUST BEFORE THE closing bell, the two men who sold the Irish people on the notion that they were responsible not merely for their own disastrous financial decisions but also for the ones made by their banks arrive in the chamber: Prime Minister Brian Cowen and Finance Minister Brian Lenihan. Along with the leader of the opposition, and the third in command of their own party, both are children of politicians who died in office: Irish politics is a family affair. Cowen happens also to have been the minister of finance from 2004 until mid-2008, when most of the bad stuff happened. He is not an obvious Leader of Men. His movements are sullen and lumbering, his face numbed by corpulence, his natural resting expression a look of confusion. One morning a few weeks before, he went on national radio sounding, to well-trained Irish ears, drunk. To my less trained ones he sounded merely groggy, but the public is in no mood to cut him a break. (Four different Irish people told me, on great authority, that Cowen had faxed Ireland’s 440-billion-euro bank guarantee into the European Central Bank from a pub.) And the truth is, if you were to design a human being to maximize the likelihood that people would assume he drank too much you’d have a hard time doing better than the Irish prime minister. Brian Lenihan, who follows on Cowen’s bovine heels, comes across, by comparison, as a decathlete in peak condition.
On this day, incredibly yet predictably, the Parliament decides not to hold a vote to fill three of its four empty seats. Then they adjourn, and I spend an hour with Joan Burton. Of the major parties in Ireland, Labor offers the closest thing to a dissenting opinion and a critique of Irish capitalism. As one of only eighteen members of the Irish House of Commons who voted against guaranteeing the banks’ debts, Burton retains rare credibility. And in an hour of chatting about this and that she strikes me as straight, bright, and basically good news. But her role in the Irish drama is as clear as Morgan Kelly’s: she’s the shrill mother no one listened to. She speaks in exclamation points with a whiny voice that gets on the nerves of every Irishman—to the point where her voice is parodied on national radio. Now, when I ask her what she would do differently from what the Irish government is doing, even she is stumped. Like every other Irish politician, she is at the mercy of forces beyond her control. The Irish bank debt is now Irish government debt, and any suggestion of default will only raise the cost of borrowing the foreign money they now can’t live without. “Do you know that Irish people are now experts on bonds?” says Burton. “Yes, they now say one hundred basis points rather than one percent! They have developed a new vocabulary!”
As the scope of the Irish losses has grown clearer, private investors have been less and less willing to leave even overnight deposits in Irish banks, and completely uninterested in buying longer-term bank bonds. The European Central B
ank has quietly filled the void: one of the most closely watched numbers in Europe has been the amount the ECB has loaned to the big Irish banks. In late 2007, with the markets still suspending their disbelief, the banks had borrowed 6.5 billion euros. By December of 2008 the number had jumped to 45 billion. As Burton spoke to me the number was rising, from around 86 billion to a fresh high of 97 billion. That is, from November 2007 to October 2010 the Irish banks have borrowed 97 billion euros from the European Central Bank to repay private creditors. In September 2010 the last big chunk of money the Irish banks owed to their bondholders, 26 billion euros, came due. Once the bondholders were paid off in full, a window of opportunity for the Irish government closed. A default of the banks would now not be a default to private investors but a bill presented directly to European governments. This, by the way, is why there are so many important-looking foreigners in Dublin dining alone at night. They’re here to make sure someone gets his money back.
One measure of how completely the Irish can’t imagine offending their foreign financial rulers is how quickly Burton declines to contemplate such a default. She bears no responsibility at all for the banks’ private debts, and yet when we creep up on the possibility of simply walking away from them, she veers away. Actually, she ups and leaves. “Oh, I have to go,” she says. “I have to meet the finance minister with the bad news.” Lenihan has called a private meeting with the opposition so that its leaders will be the first to hear of the draconian new Irish budget. This meeting is held not inside the Parliament, where the media can be kept at arm’s length, but in a nearby building where the media are allowed to congregate. “We tried to have it in here but he moved it outside,” says Burton. “He’s taken to bringing us in to tell us the bad news first, so that when we walk out we’re the ones announcing it to the media.” She smiles. “He’s tricky that way.”
BRIAN LENIHAN IS the last remaining Irish politician anywhere near power whose mere appearance does not cause people on the streets of Dublin to explode with either scorn or laughter. He came to the job just weeks before the crisis, and so escapes blame for its origins. He’s a barrister, not a financial or real estate person, with a proven ability to earn a good living without being bribed by property developers. He comes from a family of political people who are thought to have served honorably, or at any rate not used politics to enrich themselves. And, in December 2009, he was diagnosed with pancreatic cancer. Anyone who has been anywhere near an Irish Catholic family knows that the member who has had the most recent run of bad luck enjoys exalted status—the right to do pretty much whatever he wants to do while everyone else squirms in silence. Since news of Lenihan’s illness broke—just days after he’d learned of it himself, apparently, and before he’d told his children—he’s minimized his suffering. Running under the public opinion polls that show the Irish feel a lot better about the minister of finance than they do about other politicians in his party is a common, unspoken understanding of his bravery.
†
Brian Lenihan is also, as Joan Burton pointed out, tricky. It’s racing up on eight in the evening when I meet him in a Department of Finance conference room. He’s spent most of his day defending the harshest spending cuts and tax hikes in Irish history to Irish politicians, without offering any details about who, exactly, will pay for the bank’s losses. (He’s waiting until after the single by-election that the Dáil authorized is held.) He smiles. “Why is everyone so interested in Ireland?” he asks, almost innocently. “There’s really far too much interest in us right now.”
“Because you’re interesting?” I say.
“Oh no,” he’s says, seriously. “We’re not, really.”
He proceeds to make the collapse of the Irish economy as uninteresting as possible. This awkward social responsibility—normalizing a freak show—is now a meaningful part of the job of being Ireland’s finance minister. At just the moment the crazy uncle leapt from the cellar, the drunken aunt lurched through the front door—and, in front of the entire family and many important guests, they carved each other to bits with hunting knives. Daddy must now reassure eyewitnesses that they didn’t see what they think they saw.
But the evidence that something deeply weird just happened in Ireland is still too conspicuous. A mile from the conference table where we take our seats you can still find a moonscape of vast two-year-old craters from which office parks were once meant to rise. Fully finished skyscrapers sit empty, water pooling on their lobby floors. There’s a skeleton of a tower, cranes at rest on either side, like parentheses. It was meant to house Anglo Irish Bank. There’s an empty new conference center that cost 75 million euros to build that has never been hooked up to the Dublin sewer and water systems. There’s a city dump for which a developer paid 412 million euros in 2006—and which is now, when you include the cleanup costs, valued at negative 30 million euros. “Ireland is very unusual,” says William Newsom, who has forty years of experience valuing commercial real estate for Savills in London. “There are whole swaths of either undeveloped land with planning permission or even partially developed sites which for practical purposes have zero value.” The peak of the Irish madness is frozen in time for all to see. There’s even an empty Starbucks, in the heart of what was meant to be a global financial center to rival London, where a carton of low-fat milk curdles beside a silver barista pitcher. The finance minister might as well be standing in front of Pompeii and saying that the volcano wasn’t really worth mentioning. Just a little lava!
“THIS ISN’T ICELAND,” is what he actually says. “We’re not a hedge fund that’s populated by 300,000 farmers and fishermen. Ireland is not going back to the eighties or the nineties. This is all in a much narrower band.” And then he goes off on a soliloquy, the main point of which is: Ireland’s problems are solvable and I am in control of the situation.
Back in September 2008, however, there was evidence that he wasn’t. On September 17 the financial markets were in turmoil. Lehman Brothers had failed two days earlier, and the shares of Irish banks were plummeting and big corporations were withdrawing their deposits from them. Late that night Lenihan phoned David McWilliams, a former research analyst with UBS in Zurich and London, who had moved back home to Dublin and turned himself into a writer and media personality. McWilliams had been loudly skeptical about the Irish real estate boom. Two weeks earlier he’d appeared on a television show with Lenihan: Lenihan had seemed to him entirely untroubled by the turmoil in the financial markets. Now he wanted to drive out and ask McWilliams’s advice on what to do about the Irish banks.
The peculiar scene appears in McWilliams’s charmingly indiscreet book Follow the Money. Lenihan arrives at the McWilliams residence, a forty-five minute drive outside of Dublin, marches through to the family kitchen, and pulls a hunk of raw garlic out of his jacket pocket. “He kicked off by saying if his officials knew he was here in my house, there’d be war,” writes McWilliams. The finance minister stayed until two in the morning, peeling cloves of raw garlic and eating them, and anxiously picking McWilliams’s brain. McWilliams came away with the feeling that the minister didn’t entirely trust the advice he was getting from the people around him—and that he was not merely worried but confused. McWilliams told me that he sensed the mental state of the Finance Ministry was “complete chaos.”
A week later the Irish Finance Ministry hired investment bankers from Merrill Lynch to advise them. Some might say that if you were asking Merrill Lynch for financial advice in 2008 you were already in trouble, but that is not entirely fair. The bank analyst who had been most prescient and interesting about the Irish banks worked for Merrill Lynch. His name was Philip Ingram. In his late twenties, and a bit quirky—at Cambridge University he’d prepared for a career in zoology—Ingram had done something original and useful. He’d shined a new light on the way Irish banks lent against commercial real estate.
The commercial real estate loan market is generally less transparent than the market for home loans. The deals between bankers
and property developers are one-off, on terms unknown to all but a few insiders. The parties to any loan always claim it is prudent: a bank analyst has little choice but to take them at their word. But Ingram was skeptical of the Irish banks. He had read Morgan Kelly’s newspaper articles and even paid Kelly a visit in his University College office. To Ingram’s eyes there appeared to be a vast difference between what the Irish banks were saying and what they were doing. To get at it he ignored what they were saying and went looking for knowledgeable insiders in the commercial property market. He interviewed them, as a journalist might. On March 13, 2008, six months before the Irish real estate Ponzi scheme collapsed, Ingram published a report in which he simply quoted verbatim what market insiders had told him about various banks’ lending to commercial real estate developers. The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and AIB came, in that order, first, second, and third.
FOR A FEW hours the Merrill Lynch report was the hottest read in the London financial markets, until Merrill Lynch retracted it. Merrill was the lead underwriter of Anglo Irish’s bonds and the corporate broker to AIB: they’d earned huge sums of money off the growth of Irish banking. Moments after Phil Ingram hit the Send button on his report, the banks called their Merrill Lynch bankers and threatened to take their business elsewhere. The same executive from Anglo Irish Bank who had called to scream at Morgan Kelly called a Merrill research analyst to scream some more. (“I thought your work was fucking shit!”) Ingram’s superiors at Merrill Lynch hauled him into meetings with in-house lawyers who rewrote his report, purging it of its pointed language and its damning quotes from market insiders, including their many references to Irish banks. Ingram’s immediate boss in the research department, a fellow named Ed Allchin, was made to apologize to Merrill’s investment bankers individually for the trouble he’d caused them. And from that moment everything Ingram wrote about Irish banks was rewritten and bowdlerized by Merrill Lynch’s lawyers. At the end of 2008 Merrill fired him.
Boomerang: Travels in the New Third World Page 10