On 29 September, the US House of Representatives rejected the TARP. After its rejection, the US Stock Market fell almost 9 per cent the next day, destroying about $1.25 trillion of wealth – representing twice the monies for which TARP had provided.
On 11 October 2008, an emergency meeting of the Euro Group launched a comprehensive plan in an attempt to save their banking systems. The plan consisted of thirteen points and provided for the ECB to intervene in the financial turmoil to boost liquidity. Eurozone governments undertook to underwrite bank debt until the end of the following year and committed to preventing the collapse of ‘systemically relevant institutions through appropriate means, including recapitalisation.’
The Euro Group had been encouraged to adopt this rescue plan by the British Prime Minister, Gordon Brown, who emphasised that government guarantees for inter-bank lending were ‘absolutely critical’ to freeing up the banking paralysis. The French Government announced that it would legislate on similar guarantees, while Chancellor Merkel and her government prepared draft emergency plans which were reported to factor in up to €300 billion for underwriting German bank debts issuance.
The UK Government the previous week announced a three part £550 billion programme, which involved the injection of £50 billion into bank capital reserves, £250 billion to guarantee loans between banks and involved lending another £250 billion directly to commercial banks.
On 23 November 2008, the US Treasury, the Federal Reserve Bank and the Federal Deposit Insurance Corporation (FDIC) issued a joint press release bailing out CitiGroup, the giant conglomerate which was the nation’s largest bank at the time, and they agreed to guarantee a designated pool of US$306 billion in assets.
The great Central Banks of the world, the most experienced of politicians and finance ministers and the most celebrated economists struggled to cope with and control ‘the Great Recession.’ There were no tried and tested solutions to the problem. The ECB had no answer and its powers were limited. The scale of what was emerging, the enormous uncertainty created by the events which were occurring, the difficulty in predicting what would happen and the inability to control exogenous factors and, in particular, developments in other states and international market forces, posed an enormous and unprecedented threat to Ireland’s financial and economic survival.
It is easy at this remove to lose sight of Ireland’s isolation and its complete inability to control international events and, in particular, events on the financial markets having the most profound consequences for Ireland and its financial system. This lack of control coupled with the inherent difficulty in devising workable solutions made the problems faced all the more intractable and daunting. Added to these problems were the difficulties in predicting financial markets and their ongoing impact on the economy.
The instantaneous assessments and reactions of international markets, the suddenness of financial economic developments and the frequent imminence of potentially catastrophic consequences required decisiveness and a clear vision and, above all, the courage and ability to make decisions and, when the occasion demanded, to make them quickly. Brian had these qualities in abundance and when making decisions he had the ability to consider varied and multifaceted problems and to assimilate great volumes of information. The scale of what faced him and what needed to be done would have overwhelmed most people, but not Brian. He was never daunted by the circumstances in which the decisions had to be made, by the necessity to make immediate decisions, by the impossibility of being certain as to the effect or outcome of the decisions or by the requirement to make decisions when there were so many matters relevant to that decision over which he had no control. I found it remarkable that during this period he never once sought to avoid issues or problems. In fact, the contrary was the case. He was always looking ahead to identify the problems that were likely to develop and he would consider how they might be addressed if they did develop. This ability to think ahead and to anticipate problems was of immense importance because it provided an additional opportunity for consideration of issues and problems which ultimately had to be confronted. Most people would have wished existing problems away and would not have had the time or the energy or the willpower to begin thinking about problems that had not yet emerged. Brian was very different from most people.
Added to these external pressures on Ireland was the domestic collapse, the scale of which was enormous. Real GDP fell by 3 per cent in 2008, 7 per cent in 2009 and unemployment rose to almost 14 per cent by the end of 2010. These domestic developments and the rapidity with which they occurred, greatly exacerbated the problems for the domestic banks. They also created great difficulties in developing a budgetary strategy that could cope with, on the one hand, the huge collapse in public finances and, on the other, the continuing demands on those public finances – not least because of the large increase in unemployment. This and the financial support for the banks led to a huge increase in Ireland’s budget deficit. Ireland moved from a surplus of 0.1 per cent GDP in 2007 to deficits of 7.3 per cent and 14 per cent of GDP in 2008 and 2009 and plunged to a 31.2 per cent deficit in 2010.8 The resulting budgetary challenges were immense, both at the level of principle and at a political level. At the level of principle, a means had to be found to bring public finances under control. At a political level, great care had to be taken to ensure that not only would the necessary measures be approved by the Oireachtas, but that the cuts would not lead to social disruption and a breakdown of societal cohesion. Brian understood what needed to be done and never flinched from these challenges. Again his understanding of what was politically possible and what would be accepted by the people was of vital importance. Brian was very conscious of the effect of cutbacks on those who needed State support and it required great determination and focus to take the necessary steps to address the budgetary problems. I remember Brian speaking to me about this with great sadness and compassion on a number of occasions.
By the middle of 2009, it was clear that the Irish banks had a large number of problem loans which were not being addressed and, unless some solution was found, it was feared that this would result in ‘zombie’ banks, which would be unable to engage in the lending which a real economy required. In a situation where the value of troubled assets was continuing to decline, some action was required to address the problem. There was no tried and tested formula anywhere for solving the problem and the financial and legal issues that needed to be addressed as part of any solution were of immense complexity. There was also the political reality that any attempt to remove bad loans from the banks would be seen and represented as helping the banks and, worse still, helping the developers whose loans were now so severely impaired.
The proposal for the National Asset Management Agency Bill was published for the purpose of public consultation at the end of July 2009. The proposal was quite unique. It contained the change and refinement following public consultation and further internal review. The proposal described in detail how NAMA was to operate and how it would affect the participating banks and their debtors. Between the publication of the proposal and the eventual passage of the Act on 22 November 2009, Brian participated in the very animated and, at times, bitter public debate on the proposal and provided careful explanation of what the NAMA Act would involve and how it would affect the banks and others. The change in public attitude to the proposed NAMA Act, which ultimately facilitated its passage through the Oireachtas in November 2009, was in large part due to his indefatigable defence of the proposal and his willingness to engage in public on the detail of the proposals and on the concerns raised about them. His mastery of the detail of the complex legislation and his deep understanding of the rationale for the legislation and its necessity, in terms of dealing with the problems created by the volume and extent of impaired bank loans, enabled him to respond to the trenchant criticisms of the proposal and to convert many who were sceptical about it. When Brian spoke, people listened and trusted him. Brian was convinced, as was clear from his public statements, of the necessity of this Bill in order to deal with the problems of the financial system, but it took great courage to be so publicly associated with a proposal that initially looked as if it would certainly be defeated. It also took great courage to champion a proposal that involved such