Dáil debates

Wednesday, 1 October 2008

Credit Institutions (Financial Support) Bill 2008: Committee Stage.

 

12:00 pm

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)

Whatever the net value of the banks' assets at the end of the third quarter, there is no denying that we are providing an immensely valuable insurance policy for the liabilities of the named banks. There is no gainsaying that and whether it is €100 billion or €200 billion the provision being made in this Bill is immensely valuable. All Deputy Burton's amendment requires is that the Minister will tell us what the broad terms are for the provision of this immensely valuable policy. It is entirely wrong for Deputy Gogarty to say that Deputy Burton's amendment would delay the legislation. It would not do so because the legislation will proceed to conclusion. However, it does not permit the legislation to be invoked until such time as the Minister provides the terms of provision as provided by the amendment. Therefore, it does not stop the legislation but, given the record, it does invite the Minister to be more transparent with this House on a critical issue.

Yesterday, I said it was equivalent to turning Ireland into one massive AIG in terms of underwriting these kind of liabilities. For example, I understand the going rate for credit default swaps is about 2%. If one applies 2% to the figures we have been given here it is a payment of about €8 billion, so it is immensely valuable. The banks will now be able to borrow money at a cheaper rate than they would otherwise have been able to do. The Irish State, Ireland Incorporated, which will have an excessively increased borrowing requirement as a result of the imminent budget, will have to pay more for our borrowings. I do not think it is unreasonable at all for us to ask the Minister to set out the terms that will apply to the critical provision of section 6(4), which is the provision of financial support for credit institutions in the circumstances envisaged. I say that because of our experience. Did the banks change their habits as a result of being bailed out in ICI or as a result of the DIRT inquiry? What did the banking chiefs say when they presented themselves at this campus only six weeks ago? What did they tell questioners about the issues now in front of us? What did banks say on the international scene? A bank was in deep trouble yesterday, even though it was mooted that it would take over another bank a few weeks ago. As a number of Deputies said, trust is at the heart of this. We are being asked to buy a pig in a poke as things stand. This is an enabling Bill that is just the scaffolding and we do not know what we are getting in return.

Deputy Noonan asked whether we are seeking to address a liquidity crisis or a solvency crisis. I expressed it differently last night when I asked whether it was a liquidity crisis or a capitalisation crisis. I am sure the Minister for Finance knows that there is a credible school of economic thought which believes that the banks concerned have a capitalisation problem, that this does not do a thing for that problem and that the problem will remain. It is all very well to watch economists for stockbrokers and banks being rolled out to say that this is a marvellous innovation. These are not stupid people so what would one expect them to say? They are after getting an insurance policy for their liabilities so of course that is what they would say. Some of the more feeble-minded commentators will take that up and say that this is marvellous. They do not know whether this is marvellous. I hope it is marvellous, but we do not know. As Brendan Keenan said, we will know it works when it works. I hope it will work, but for those who believe there is a capitalisation problem, it will not solve that problem. I would like to hear the Minister dwell a little on Deputy Noonan's question as to whether we are addressing a liquidity problem or a solvency problem.

The more thoughtful commentators have an open mind on what confronts us. Alan Ahearne has a track record on the property bubble going back a long way. He had an analysis that was the subject of much ridicule by exactly the same stockbroker and mortgage lending economists who are now telling us that this is fantastic. These guys came out and said that Alan Ahearne was a doomsday merchant and that his prognosis would never be realised.

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