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.
It would have been difficult for Merrill Lynch’s investment bankers not to know, on some level, that, in a reckless market, the Irish banks acted with a recklessness all their own. But in the six-page memo to Brian Lenihan—for which the Irish taxpayer forked over to Merrill Lynch 7 million euros—they kept whatever reservations they might have had to themselves. “All of the Irish banks are profitable and well-capitalized,” wrote the Merrill Lynch advisers, and then went on to suggest that their problem wasn’t at all the bad loans they had made but the panic in the market. The Merrill Lynch memo listed a number of possible responses the Irish government might have to any run on Irish banks. It refrained from explicitly recommending one course of action over another, but its analysis of the problem implied that the most sensible thing to do was to guarantee the banks. After all, the banks were “fundamentally sound.” Promise to eat all losses, and markets would quickly settle down—and the Irish banks would go back to being in perfectly good shape. As there would be no losses, the promise would be free.