Drumm release reminds us of our cyclical economic crises

World of Politics with Harry McGee

That was a blast from the past earlier this week when the former Anglo Irish Bank chief executive David Drumm was released from a low-security prison having served just over three years.

It is a reminder of our last ‘biggest crisis ever’ before we encountered the current ‘biggest crisis ever’.

Drumm and his failed bank became the poster boys (if that’s the correct phrase) for the banking and financial crash.

His long-running battle in the US against bankruptcy and extradition became a regular feature on RTE News, not least when Charlie Bird doorstepped him at his home in Massachusetts.

Anglo Irish became the byword for how to do it wrong. Its loan book was heavily tilted towards commercial property and the collateral was commercial property.

It was inevitable that when the property sector halted and then declined that those loan portfolios fell like dominos.

And then we had the farce of the billionaire Sean Quinn gambling all his wealth on shares in Anglo Irish Bank, acquiring his stake on contract for difference.

I remember reading about contracts for difference at the time (around 2007) in the business pages of The Sunday Times. The trick was that you did not fully buy the shares.

You paid a small amount – say, five per cent of the value – and then at a later stage you paid the full amount.

If the shares increased in value, you made profit on your small outlay. However, if the shares fell, you were exposed to paying the full amount they were worth when you entered into the contract for difference.

For more, read this week’s Connacht Tribune.

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