Tomás Ó Flatharta

Looking at Things from the Left

Nobody is denying US torpedoed plan to save the Irish State €20bn — Only Gene Kerrigan is asking

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We are paying Gene Kerrigan the compliment of reproducing his entire article in today’s Sunday Independent (June 19 2011).

We covered this ground during the recent general election campaign.

No apologies for the action replay.

We also recommend the following articles from Vanity Fair and the British Guardian – very relevant to Gene’s article.

Let us hope the United Left Alliance TD’s run with this ball

We’re shamed by conspiracy of silence

Nobody is denying US torpedoed plan to save the State €20bn — but no one’s asking either, writes Gene Kerrigan

Okay, cue the smokey saxophone. Rack up the Raymond Chandler quote. “Down these mean streets a man must go who is not himself mean.” This week, our fedora worn at a rakish tilt, we attempt to solve The Geithner Mystery.

While the moody music plays, we start off down the mean streets of Dublin, then we pop over to sunny Tanzania, and end up with Michael Noonan prowling Washington’s fabled pavements.

The Geithner Mystery began on May 7, when Morgan Kelly wrote a piece in the Irish Times. Professor Kelly is the chap who pops out of his classroom every few months, looks at what the politicians are up to and says, “Hey, that was a really, really stupid thing to do.” Or words to that effect.


Morgan Kelly, Exposing the Irish State's Dirty Little Secret

Other economists, newspaper wiseguys and political groupies immediately denounce him (“I know he got it right last time, but this time Kelly’s lost the plot”). And a while later, Kelly is proved right.

(And the wiseguys are mortified? Not a bit of it. They eventually explain that Kelly might have been right, but he was right for all the wrong reasons. And the People Who Always Get Things Wrong continue to lecture us from atop their unimpeachable reputations.)

In his latest outing, Kelly revealed that last November the Cowen government tried to shave e20bn off the bill we’re being forced to pay to cover the gambling debts of Irish and German banks.

Kelly: “The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US Treasury Secretary Timothy Geithner.”

Really? Obama’s top economics guy forced Irish citizens to pay a e20bn debt that they never contracted? Did Kelly get this wrong? Why would Geithner intervene in a European problem? Surely the Geithner Mystery would be solved pretty damn quick? What happened next was surprising. There was silence.

One might imagine that if Kelly got this wrong he’d have been promptly smacked down. The establishment and their cheerleaders dislike him — he has a credibility they lack. All the insiders needed to do was leak the truth, if truth it was, to a pet journalist — tell them to splash the story, that Geithner did no such thing, Kelly got it wrong. Ya boo.

Instead, no denial. Nothing. The stunning allegation was not shot down with facts, it was left to wither unanswered. The media, always keen to wear the green jersey, didn’t push it.

Barack Obama came to town. He met Enda Kenny and the Taoiseach seemed almost proud of the fact that in a private meeting he didn’t ask the president to solve The Geithner Mystery. Just, silence.

Eamon Gilmore, political descendent of James Connolly, went to Tanzania and met US Secretary of State Hillary Clinton. And kept tight-lipped about The Geithner Mystery. “It’s not something that’s been under discussion,” he said. Yeah, Eamon, we know that. The reason it’s not under discussion is that people like you are terrified to discuss it.

Last week, Michael Noonan had a private meeting with Geithner. Here is the RTE transcript of a question their Washington correspondent, Richard Downes, asked Noonan, about the Geithner Mystery.

“His influence was discussed quite widely after an article saying that he intervened,” said Downes, skirting around the e20bn question. His next words, incredibly, were: “We’ll put that aside, because we don’t know that he intervened. We haven’t got the evidence.” Noonan has the evidence. And he didn’t even have to evade the question.

By now, three things are clear. One, the Irish establishment is scared witless about this. Suppose they ask Obama, Clinton or Geithner? And the Yanks say, with typical frankness: “Yeah, that’s true. We’re sticking you with someone else’s bill. You got a problem with that, punk?” What do Kenny, Gilmore and Noonan do, when they’ve finished peeing in their pants?

The second thing: the media isn’t pushing it. Third thing — Kelly got it right. The establishment’s silence itself confirms the accuracy of his reporting.

The mystery remained. Why did Geithner do it? After all, the debts Irish citizens are being forced to pay are to German, French and British banks — for reckless loans they made to Irish banks, when they were all gambling on the property bubble. Why should the Americans worry about that?

I’ve been ploughing through reams of statistical stuff from the Bank of International Settlements — and, frankly, I may as well be looking into a bush. We civilians lack the training to understand the technicalities of this crisis. Yet, it’s too important to leave it to the experts, whose record before and during this crisis is not at all impressive.

Detailed analysis in a US blog called The Street Light has led to reports in yesterday’s Market Watch, part of the Wall Street Journal network, and in the conservative Daily Caller. These claim that American banks (supposedly Bank of America, Morgan Stanley, and Goldman Sachs) are massively exposed to Greek, Irish and Portuguese bank debt.

This exposure is not direct. It works like this. The European banks gambled on banks in what they call the PIGs — Portugal, Ireland, Greece (and, yes, the insult is deliberate). If a PIG defaults, the German, French and UK banks lose the tens of billions they’re owed. So, the European banks have been buying default insurance.

If a PIG defaults, only about five per cent of the money on which they’ll default will be owed to US banks. However, the US banks hold no less than 56 per cent of the default insurance contracts. If Greece alone defaults, said Market Watch yesterday, the US banks are down $41bn (e29bn). So, you can see why Geithner would be worried.

Why should we pick up the bill? That’s exactly what Noonan was sighing about, last week. Here he is, on the Anglo bondholders: “Private lenders [German banks] lent to a private bank [Anglo] — and, you know, they lent foolishly and people borrowed foolishly — the Irish taxpayer was not involved.” Precisely.

Why should we pay the bill? Noonan sought last week to save some pride. The original Anglo bondholders have already sold the bonds to hedge fund gamblers, at a discount (they accepted a “haircut” from the gamblers, though we’ve been told all along the State must pay all bondholders in full, or we’ll upset the market.)

Since these gamblers paid a fraction of face value for the bonds — betting that the gutless Irish will still pay face value — Noonan is pleading to be allowed pay perhaps half the face value. That would save us about e1.8bn. This is not to be sneezed at, but it stacks up against the e25bn for Anglo, and the e70bn of our money poured into the private banking hole.

The dirty little secret of Irish politics is that the State deficit is manageable. It’s the private bank debt that’s strangling us. And that debt winds back through a web of financial entities, protected by powerful figures in Europe and the US — and Geithner’s e20bn extortion was part of that.

And, to protect us on these mean streets, we’ve got cheerful Enda and pleading Michael. And Gilmore — Lord God, don’t start me on Gilmore.

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