Ireland’s economic troubles threaten the financial health of Europe and even the U.S. At the heart of the multibillion-dollar crisis are two highflying bankers who some say took the country for a ride. By Niall Stanage

Ireland was hailed as an economic miracle not so long ago. Now, it’s an economic basket-case that threatens the financial health not just of Europe but of the U.S. as well.

But the outsize role of two men in this financial meltdown is a little-known story offering a salutary lesson about the dangers of greed, groupthink, and lax regulation as anything that has taken place on this side of the Atlantic.

Sean FitzPatrick was the CEO of Anglo Irish Bank from 1986 to 2005. At that point, he assumed the chairmanship, and David Drumm, his protégé, became the bank’s leader.

The two men built the bank from a tiny operation—it had eight employees when FitzPatrick took over—to something that looked like an international powerhouse. Looks were deceptive. The bank would be its nation’s downfall.

During the boom years, Anglo expanded its market share by reckless lending, especially to property developers. More established, conservative Irish banks began to ape some of the same tactics to ward off the new contender. Then, the property bubble popped and the whole house of cards tumbled.

The Irish government took control of Anglo in January 2009. It has been hurling taxpayers’ money into an apparently bottomless pit ever since. Irish Finance Minister Brian Lenihan originally estimated the cost of propping up the bank at $6.1 billion. He admitted two months ago that it would actually be between $39.8 billion and $46.7 billion.

The price tag has propelled Ireland’s deficit to hitherto unimaginable levels—and this, in turn, now necessitates international intervention.

“The banks are gobbling up the state,” is the verdict of Martina Devlin, an Irish newspaper columnist and the co-author of Banksters, a 2009 book tracing the roots of the collapse.

“He is just considered a scumbag… I would think his life would be in serious danger if he came back here.”

Brian Lucey, a Trinity College, Dublin finance professor, says that the feeling on the streets of the Irish capital is that “the republic has been raped, torn apart” by the bankers and their political friends.

At the heart of the rapaciousness, at least in the public mind, are FitzPatrick and Drumm.

Peter Morrison / AP Photo

FitzPatrick was once one of the heroes of Celtic Tiger Ireland. An ebullient former accountant with a fondness for bowties, he was known as “Seanie Fitz” to his many social acquaintances. For those on the way up, FitzPatrick was someone to whom it was useful to pay obeisance.

Devlin recalls seeing the banker’s aura in full effect at a 2007 charity function.

“It really was like the parting of the Red Sea,” she tells The Daily Beast. “People actually did step aside for him.”

FitzPatrick knew some things that the general public did not—notably, that he held personal loans amounting to well over $110 million from the bank. He used the money to finance a host of exotic ventures: a share in a Nigerian oil well; an interest in a casino in Macau; a property investment in Budapest. There were even plans to get into the movie-financing business.

The eventual discovery of these loans precipitated FitzPatrick’s departure from the company in December 2008. David Drumm followed him out the door the next day.

Conduct a Financial Fire Drill to Assess Financial Health

We conduct fire drills to ensure fire warning systems are functional and that building occupants know what to do in the event of a fire-related emergency. Apply that same type of stress test to your money with a financial fire drill.

Photo by Steve Snodgrass.

Finance and frugality blog Frugal Dad urges us to take stock of our financial health by conducting a financial fire drill. Just like a real fire drill helps you run through a dangerous scenario without risk—"Who put the file cabinets in front of the fire exit?"—a financial fire drill shows you how effective your escape routes are and how big your safety net is.

You'll need to gather up all your bills, take stock of your savings and emergency fund, and head over the Frugal Dad to run through their financial fire drill checklist—which includes great tips like making a slash-and-burn list of non-essential services you can cancel the minute you get laid off or in other financial trouble.

eric seiger do

Wednesday, December 1, 2010

personal finance

Conduct a Financial Fire Drill to Assess Financial Health

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