In Friday’s reading, I mentioned Michael Lewis’s piece in Vanity Fair: When Irish Eyes Are Crying. It is your must read of the weekend.
The problems in Ireland makes the woes in Greece look merely like a bounced check. And Ireland’s eejit politicians, FOLLOWING THE ADVICE OF MERRILL LYNCH, turned the entire population of the Emerald Isle into indentured servants to bankers, guaranteeing all of their bad loans with taxpayer money.
Private gains, socialized losses indeed.
Here’s what makes this story so amazing. Merrill’s analyst warned about the Irish Bank problems in advance, he was fired for his troubles. The discussion about this is one of the more fascinating aspects of Lewis’ column. It reveals the firm as intellectually dishonest, spineless, toadies, wrapping their lips around the knob of every Irish banker regardless of consequence.
I read the next four paragraphs about Merrill Irish bank analyst Philip Ingram in sheer astonishment:
“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 20s, and a bit quirky"”at the University of Cambridge he had studied 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. Deals between bankers and property developers are one-offs, 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 office. To Ingram's eyes, there undoubtedly appeared to be a vast difference between what the Irish banks were saying and what was really happening. 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 British market insiders had told him about various banks' lending to commercial real estate. 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 A.I.B. 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 had been a lead underwriter of Anglo Irish's bonds and the corporate broker to A.I.B.: 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 Irish banks called their Merrill Lynch bankers and threatened to take their business elsewhere. The same executive from Anglo Irish who had called to scream at Morgan Kelly called a Merrill research analyst to scream some more. Ingram's superiors at Merrill Lynch hauled him into meetings with in-house lawyers, who toned down the report's pointed language and purged it of its damning quotes from market insiders, including its many references to Irish banks. And from that moment everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch's lawyers. At the end of 2008, Merrill fired him. One of Ingram's colleagues, a fellow named Ed Allchin, was also made to apologize to Merrill's investment bankers individually for the trouble he'd caused them by suggesting there was still money to be made on shorting Irish banks.
It would have been difficult for Merrill Lynch's investment bankers not to know, at some level, that in a reckless market the Irish banks had acted with a recklessness all their own. But in the seven-page memo to Brian Lenihan"”for which the Irish taxpayer forked over to Merrill Lynch seven million euros"”they kept whatever reservations they may have had to themselves. "All of the Irish banks are profitable and well capitalised," wrote the Merrill Lynch advisers, who then went on to suggest that the banks' 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 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.”
So Merrill Lynch’s coverage of Irish banking, before the crisis, was dead on. And they threw their analyst under the bus to whore for more banking fees.
Cowards. Criminal toadies. Chickenshit pimps who would sell their mothers into forced prostitution for a buck. That is Merrill Lynch, and the fact that a single goddamned dollar of my tax money went to these spineless, money-grubbing parasites makes my stomach turn. If Goldman Sachs is a vampire squid, then Merrill Lynch is Escherichia coli of banking. Whatever they touch gets sick, and occasionally dies.
Think back to Merrill Lynch’s greatest hits: Bankrupting Orange County. The investment banking scandals in the 1990s. The Analyst scandals of the 2000s. The derivative disaster of CDOs. And now Ireland.
I’ve said this before, and I will repeat it here: If you are a Merrill Lynch client, and they lose you money, you have forfeited the right to complain to anyone — its your own damned fault. Anyone who gives money to these incompetent fools and weasels gets exactly what they deserve . . .
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Source: When Irish Eyes Are Crying Michael Lewis Vanity Fair, March 2011
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Great post Barry….!
“…. Think back to Merrill Lynch's greatest hits: Bankrupting Orange County. The investment banking scandals o the 1990s. The Analyst scandals of the 2000s. The derivative disaster of CDOs. And now Ireland….”
You forgot to mention Stan O’Neill backdating his stock options during the 9/11 downdraft….
They are a sleazy bunch indeed….
Best regards,
Econolicious
This is all of the “too big to fail”banks, Barry ( for that matter I used to work in a top business law firm and they were all routinely run in this fashion as well, from my observations of my own firm and talking to similarly positioned colleagues) and these are the firms benefitting from the “recovery”. There is still money to be made in the market but there is no recovery. Its predominately one vast swindle and the Merrill Lynch story is duplicated everywhere. What’s going on in this country now is analogous to a “turnaround expert” taking over a troubled company and milking the assets. I litigated enough of those cases to know what’s coming. Can’t say when but sooner than some here think.
How do they elect Politicians over there in Ireland? Do they somehow devise a worse system then us?
Or, with our Supreme Court “Citizen’s United” decision to kiss Wall Street’s bottom regions, is this Our Future?
So really is anyone surprised, you don’t antagonize big customers its not good for business. Clearly the whole problem of analysts working for an organization that has the entities that they analyze as customers is a conflict of interest no more and no less than the rating agencies. No one wants to put out the message to trust no analyst which should be printed in bold type on the front of every report. Something like anything this report says may or may not be afflicted by a conflict of interest in that the organizations analyzed may or may not utilize other services of this organization. To get good analysis then becomes difficult, because without the links the analysts can’t get the big bucks they demand. Of course if you follow Boogle’s philosophy and buy index funds, analysts are not needed. So we have reinforced the meme that analysts and rating agencies are the financial equivalent of whores selling themselves to the highest bidder.
It’s amazing that Ed Allchin was forced to apologize for giving an honest opinion. An opinion that turned out to be right. Will anyone at Merrill Lynch be man enough to apologize to Ed Allchin? I doubt it.
If the current Irish administration hasn’t been feathering their nests through all of this then they are the dumbest guys in a mighty big room.
ML didn’t just give them bad advice, they perverted their own study to give Ireland horrific advice and the facts are just dangling out there waiting to be pulled together for the mother of all lawsuits. How often does a “name” firm have the opportunity to abuse their expertise to bankrupt an entire nation? Firing Phil Ingram was the icing on their cake of stupidity – they have freed him to speak the truth (and write a book!)
And sure as shit the Emerald Isle is headed to BK, no way they can handle their commitments now and they are 100% exposed to further RE declines. The government doubled down on their earlier bad bets on the bank guarantees when they accepted the Eurozone/WorldBank bailout and now it’s just a question of when they default – which will lead to another big air pocket in Irish RE prices.
Merrill may turn out to be as bad for BAC as Countrywide has been, Ireland has access to bottomless pockets thanks to BAC’s TBTF status.
The first round of the legal battle will be for home court advantage, the size of the damages is almost unfathomable and getting bigger all the time.
Orange County settlement Merrill Lynch settled with Orange County, California, for a massive $400 million to settle accusations that it sold inappropriate and risky investments to former county treasurer Robert Citron. Citron lost $1.69 billion, which forced the county to file for bankruptcy in December 1994. The county sued a dozen or more securities companies, advisors and accountants, but Merrill settled without admitting liability in June 1998. The county was able to recover about $600 million in total, including the $400 million from Merrill.
When the retail or institutional account gets a research report from their bank, there should be no doubt who is the customer and who is the product. The person reading that buy Merrill report is not the customer but the product. If there is any doubt, just consider the current banking model which is “originate and distribute”. It is the Irish bank looking to sell and package their loans that is the customer. Consider that negative research report put out by Merrill has a mistake and once they discovered it they retracted it, like any good marketer should (sarcasm).
The banking model is “originate and distribute”
Not sure where I saw this, perhaps on your blog, but most of these reports make much more sense, if followed by the phrase, “so give us your money“.
Lastly, I agree with your closing comment that a client who loses money as the result of listening to Merrill has nobody to blame but themselves. Might I suggest that as a follow up to this piece, everyone read, Where are the customer’s yachts?
>> to know what's coming. Can't say when but sooner than some here think.
So, chromex, are you buying hard assets, a bunker, or a plane ticket?
Meanwhile there is a quiet run on Irish banks.In this situation there are bound to be more surprises and these will not be happy surprises.Why would anyone maintain balances in Irish banks, or any bank located in Ireland if they don’t have too? What happens when their Euro denominated balances are converted to Irish Lucky Charms – nothing good, thats for sure.
http://www.independent.ie/business/irish/banks-lose-euro40bn-over-a-month-in-deposits-flight-2520899.html
The Irish central bank recently printed 51B euros to paper over the holes the deposit flight has created in the banks balance sheets. Hows that for prudent finances? (I’m picturing Ben Bernanke in a leprachuan outfit)
http://seeker401.wordpress.com/2011/01/23/ecb-allows-irish-central-bank-to-print-51billion-euros-out-of-thin-air/
But but but but Paul Ryan says it was Ireland’s unwillingness to allow children to starve to death that ruined their economy:
"Just take a look at what's happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn't act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody."
http://www.nytimes.com/2011/01/28/opinion/28krugman.html
Sounds like here, at least they have better pubs.
Sorry BR forgot one thing- GO STEELERS
I would go with crimial chickenshit pimps. They deliberately misled the Irish government in order to avoid the loses their company would suffer if those banks defaulted on their bonds. The thing that amaze me is that any government would listen to anything coming from a Wall Street bankster or anybody connected to them.
the QOTD seems, somehow, apt..
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