Irish Financial Crisis Worsens, Peter Sutherland and Ireland’s Sovereign Wealth FundInterest-Rates / Credit Crisis 2010 Oct 02, 2010 - 09:38 AM GMT
Last week, on “black Thursday” the Irish government in essence finally nationalized Allied Irish Bank. In response to the horrific national financial picture painted by Mr. Brian Lenihan, Ireland’s finance minister, Peter Sutherland, former Irish attorney general, hit the media road. Mr. Sutherland’s mantra was similar to that previously presented by his acolyte Mr. Honohan (head of the Irish Central Bank). This mantra stated that though the figures were lamentable they were “manageable.”
Now I have had a great deal of regard for Mr. Sutherland but as current events unfold I must respectively question his judgment. He points out that Ireland is not in “desperate” shape. He points out that: “Ireland has funding up to 2011 and has 24 billion Euros in its Sovereign Wealth Fund.” Thus, in his estimation, Ireland will not go broke until 2013, at least. According to his policy it is “OK” for the government to continue to fully guarantee, and pay as they fall due, “retail” banking bonds. It is my argument that these bonds should have been negotiated down in September of 2008 when the Irish bank guarantee was first issued ( See article: “ A Bank Guarantee Too Far”). Should we adopt the course advised by Mr. Sutherland it is quite conceivable that Ireland will go completely bankrupt around 2013-2014, with no practical strategy for recovery on offer. This gruesome fact has even been acknowledged, publically, by non other than Mr. Bill Clinton former President of the United States of America.
The former attorney general’s approach flies in the face of alternative prudent council and public opinion. This council takes the view similar to that of aged grandparents who have saved all their lives and wish to present a legacy to their grandchildren. These grandparents want these savings fostered, cherished and grown. However, Mr. Sutherland wants to treat this treasure as if he were a spoilt teenager. He seeks to squander it immediately and gamble this resource away on reckless bailing out of bondholders who lent money on risky land deals. Public opinion and international experts have pointed out that these sovereign wealth funds are the base through which Ireland could build its future. These funds could be used to set up a new, free and unencumbered National Irish Commercial Bank. This bank would get Irish credit and Irish commerce moving again. And the maths of this strategy makes sense. Under the new Basle banking agreement banks may lend up to 33 times their unencumbered cash base. This means that the sovereign wealth fund could be used to create credit in the amount of 24 Billion multiplied by 33, which equals 792 billion. Almost a trillion Euros. This is the productive legacy the grandparents want for their savings. Not the squandering of hard saved assets wasted on transient speculators. These assets are Ireland’s Phoenix resource. The sovereign wealth fund is a pension fund not a teenage holiday stipend.
If Peter Sutherland’s views continue to be adopted as policy by the Department of Finance, Ireland without its sovereign wealth fund intact, will be broke and vulnerable. In its inevitable bankruptcy Ireland’s “family silver” will eventually be put on the auction block by the IMF and the ECB. Irish banks, airports, power plants, power grids, sea ports, roads, air space, semi-states, media assets, railways, forests, lakes, water, remaining mineral rights, all will be up for grabs. The only folk with money or credit to fund such acquisitions will be the friends, associates and financial alumnae of Mr. Sutherland who, as you may know, is the non-executive chairman of Goldman Sachs International, one of the biggest “vulture” banks in the world.
By Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.
Mr. Quigley was born in 1958 in Dublin and holds a Batchelor Degree in Accounting and Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in 1989. in Belmont, California where he lived for 6 years. He developed the Wealthbuilder investment and trading course over the last decade as a result of research, study, experience and successful application. This course marries Fundamental Analysis with Technical Analysis and focuses on 3 specific approaches. Namely: Momentum, Value and Pension Strategies.
Mr. Quigley is now based in Dublin, Ireland and Tampa Bay, Florida.
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