The other day, a woman stopped me on Wicklow Street and asked: “If there is so much money around for the big things, why is there so little money about for the little things?”
As far as she was concerned, if the ECB and the Government could somehow find tens of billions to finance bank bailouts, if they could find a way to roll up huge debts and put these debts on interest only for decades before principal was paid, why couldn’t they do the same for her loans, of mere thousands?
Nor could she figure out, if so much money had been funnelled into the banks by now, why couldn’t her small company borrow a few thousand euro from these same banks?
These are fair questions and they sum up the gap between the apparent lack of credit on the ground and what is happening in the world of international finance, where we see huge deals like the recent Anglo one and, on the same day, Michael Dell borrowing €26bn to take his company Dell Computers private.
This disparity is one of the central dilemmas facing not just Ireland but many other economies, too.
While very big deals are getting done in the world of international finance, very small ones are curtailed in the world of local business.
The conundrum is that, ultimately, the credibility of the big deals can only be based on the effectiveness of thousands of tiny deals that grease the wheels of the economy. If the small businesses are not getting enough finance, the economy won’t grow. Therefore, the growth projections, upon which the big deals are based, could falter, undermining the central assumptions of these mega-deals.
At last year’s Global Irish Forum in Dublin Castle, one of the American delegates made a valid point when talking about the credit crunch for small companies. He noted, it wasn’t so much that small companies hadn’t enough credit, they hadn’t enough customers as well.
Both customers and credit are related, and the lack of both can be explained by what Keynes called a “liquidity trap” in the 1930s.
This is when interest rates don’t work. In fact, Keynes famously described cutting interest rates in a liquidity trap as being as effective as “pushing on a string”.
In normal times, when interest rates fall, those with savings decide that there is no real return on savings, so they spend instead. In addition, while there are many savers who just don’t want to spend, their savings don’t stay in the banks’ vaults, this money is recycled by the banks and lent out to those who want to invest and spend.
This is a central role of the banks in the economy. When they are working properly, they match savers and investors, keeping money flowing around the economy. For this circular flow of cash to run smoothly, you need people who want to invest, people who want to save and banks that bring both together. But what if one or all of these pieces of this jigsaw is not working?
What if the people are carrying too much debt and, even at low rates of interest, they don’t want to borrow?
Or what if the people in debt choose to pay back the debt they already owe, irrespective of the rate of interest? Or what if the banks are carrying too much bad debt and they don’t want to lend?
In this case, it doesn’t matter how low the rate of interest goes, it won’t kick-start lending and investing and the economy gets stuck.
This is what the lady on Wicklow Street was referring to. She couldn’t figure out how there were billions available for the banks and nothing for their customers.
The core of the problem is that the money is getting stuck in the banks. It is not because the banks don’t want to lend. After all, that’s how banks make money; without lending they have no business.
It is because there are so many loans still going bad and the banks have to cover these non-performing loans with cash and then don’t have enough cash to lend out.
While these types of problems are being faced by small companies all over Europe, a quick look at a recent ECB and Central Bank survey shows that Irish SMEs are facing credit conditions significantly tougher than the euro-area average.
According to the ECB, the share of Irish firms reporting increased interest rates was 15pc higher than the euro-area average, despite the fact that interest rates have never been lower.
Also, non-interest costs of finance, such as fees and charges, have increased 7pc more for firms in Ireland than elsewhere.
Meanwhile, the size of loan available decreased by 28pc more for firms in Ireland than the average.
As the banks are terrified of loans going belly-up again, collateral requirements increased 12pc more for Irish firms than the average.
The result is that rejection rates for loan applications are 48.6pc in the Irish data, as opposed to 21.3pc on average in the euro area.
Not surprisingly, demand for bank credit in Ireland is marginally lower than the euro-area average, with demand for overdrafts and trade credit above average.
But here is the problem: loan performance data shows that 30pc of Irish SME loans were either in default or were in arrears.
There is significant variation in loan performance across sectors of activity. But as you would expect, hotels, restaurants, construction, wholesale and retail are the large sectors with the highest share of non-performing loans.
And evidencing the splurge in the boom, the larger the initial loan, the more likely it is to be non-performing in all sectors.
As the great British economist John Stuart Mill noted, “the crash doesn’t destroy wealth, it merely exposes how much wealth has been destroyed by stupid lending and borrowing in the boom period”.
For all this to end, bad loans will have to be written off completely or written down to levels where the debtors can pay.
This will have to be done quickly because the longer we prevaricate, the more the woman on Wicklow Street will wait for new credit.
Without new credit, there are no new customers and we bounce along the bottom.
In order to cleanse the balance sheet quickly, the banks need sufficient capital to absorb these losses on bad debts.
The banks were recapitalised last year to make sure they had enough capital to get on with the job.
Let’s hope they got their sums right and, as they say themselves, past performance is not indicative of future results.
http://www.youtube.com/watch?v=J2HBdRCroks
They are not going to do a blanket deal across the economy as a whole – moral hazard and all that. So it’s up to individual entities (people and businesses) to go in the bank, scream the house down and demand some sort of deal with the bank, and to threaten to completely default if no deal is forthcoming. That’s Capitalism. I’d do exactly that, I’d bully the hell out of the bank manager if I had to, I’d make his life a LIVING HELL – but luckily enough I’m one of those people who never borrows money, and owes… Read more »
Basically, you are seeing the politicisation of the financial lending system. The state is now in increasing control of the financial lending system. Politicians (who have a proven record as liars, on aggregate) are now holding increased power over the financial system. To well connected to fail, is now becomming to well connected to refuse a loan. Unfortunately, this is inherently meritocratic. In fact if we allowed banks to either fail, or get management cleanouts – there would have been an improvement in the intellectual capacity running the banks. Instead there has been a Marxist intervention program for incompetent bankers.… Read more »
Winston Churchill called it the “black dog”……. Been pretty good the last couple of months but the dog came to visit again last week,getting harder to shake off…………. trying to keep those close to you strong while inside your screaming………… P.T.S.D & depression is some fucking combination…staring at laptop,rubbing forehead,another article about Banks,good,well written & appreciated David……….. unfortunately doesn’t mean shit out here or down here or wherever it is we are in the system….. Banks aren’t lending money ? no surprise their,why bother ? getting well paid no risk,borrow cheap cheap money,leave on deposit..why bother ? buy Irish Government… Read more »
Found My Cigarettes…..!
On the bright side 11 years clean & sober today !!! yipee !
My Take on This is :
The Policies of Honohan to get tough with Mortgage Holders are on a collision course with DMCW .
David, Hope I’m not breaking any rules by posting here. For anyone who is currently dealing with the Banks or has dealt with them successfully, I have created a private social network for people to share their experiences. Personally I have done deals and the funny thing is that when you eventually get talking to the person who can agree a write-off they are delighted to do the business with you. Anyway we are just starting off check out http://www.underwater.ie . This isn’t a business , isn’t an advice site, I will never put ads on there, or share anyones… Read more »
We do not have a Banking system. We recapitalised Banks to allow them write down debt over many years on a drip basis while their marketing departments carry on a charade of ‘We are open for Business’. This was clear from day one. The only way and this detailed proposal was put to this and the last government was to open a new Business and Mortgage Bank where the capital injection could not be snaffled by a legacy loan book. The Strategy of Nama and the Pillar Banks was wrong three years ago, is wrong now and will be wrong… Read more »
David, you say…”There is significant variation in loan performance across sectors of activity. But as you would expect, hotels, restaurants, construction, wholesale and retail are the large sectors with the highest share of non-performing loans.” This is THE key point that explains all our issues. All these sectors are money churner secondary/tertiary industries. None are makers. Ireland needs to work from a bedrock of real wealth generation and we are still ill-equipped to grasp the opportunities. A couple of weeks ago, you treated us to an article on the UK being our most important trading partner. Actually, when you peer… Read more »
Maybe its my twisted sense of humour but this video of Roger on European debt was what I was thinking of http://www.youtube.com/watch?v=I5QwKEwo4Bc
while I watched this excellent plain english presentation By Prof Terrence Mc Donouaghon the signifiance on last weeks Its been noted and in my opinon one of the last nails in what most thought was democracy.
I would love to see a Pat Shortt production entitled Noonans 3 card trick
here. http://dublinopinion.com/2013/02/12/prof-terrence-mcdonough-on-the-irish-promissory-note-deal-galway-12-feb-2013/ …
An ocean of money, money everywhere and not a drop to drink! What DMcW is actually describing, is best shown as the metaphor of the Typical Collapse Function. The stratospheric monetarist efforts and the destruction of the physical economy is the paradigm that the people in the street are astounded by. The very efforts, hysterical by now, to “pump”, “leverage”, “prime” push the process even further to destruction. What, one wonders, drives this seeming bear trap that no-one appears able to sidestep? What lurking assumption shared by wallowers and the “brightest” alike? Monetarism, be it Keynsian, Austrian School or Milton… Read more »
I want to take this opportunity to wish all the beautiful Ladies on this site a Happy Valentine Day .
The Biggest Building in the World, Ugland House ! Obama’s Treasury Sec. to-be, Jacob Lew, to replace Geithner, cross-questioned by Senators Hatch and Grassley : Sen. Grassley went after Lew’s personal investments in the Cayman Islands during his stint at Citigrooup. GRASSLEY: Now to something that President Obama has made a big deal. On May 4, 2009, President Obama said about Ugland House, which is where you invested your money overseas, “On the campaign, I used to talk about the outrage of a building in Cayman Islands that had over 12,000 business. And I’ve said before, either this is the… Read more »
“its making sure we can get “back to the market” so they can borrow on behalf of the citizens to pay for their pensions”
You’re spot on there – this mad rush to borrow expensive money from the markets is all about getting back to control so that they can help themselves without having to reform – happy days for them equals a back breaking burden for the ordinary citizen.
To release credit into the physical economy, DMcW’s conundrum, Glass-Steagall must be signed back into law. No other well-meaning move can possibly work. The fear of monetarists that liquidity will dry up is daft.
Jacques Cheminade campaigned in France for the Presidency on this crucial theme.
Cheminade on French National TV Demands Glass-Steagall-Style Banking Separation. Has a War on Finance Begun?
Obama’s Finance Secretary-Designate, Jacob Lew, Rejects “Anachronistic” Glass-Steagall in Confirmation Hearing
The conundrum for monetarists of all stripes is easily laid bare by any thinking person on the street. They have no answer to a simple question of why with so much money no business gets credit? The limp hand-waving from “experts” is, make no mistake about it, is glaringly plain to see.
Now see Mr. Lew’s limp stuttering hand-waving on Glass-Steagall and see what company ye are keeping.
A Telephone Mindset Response Strategy to Intimidating Banks needs to be thought out to safeguard suicides of the vulnerable in society .
David’s articles are becoming more and more absurd.
I am going to take a long break from this site, for a couple of months for a sure.
It is all useless as he cannot see the root cause of issue, the concepts, the logic.
I just cannot read this nonsense anymore.
Big deals little deals. You can start up all the business you like ,every loan/ over draft has to be payed back,why this will not work because you have to get the country in order first. Ask yourself why are there soup kitchens,why are business spending the vat and tax instead of handing it over,why are people going hungery ,the list is long and is growing. Stack up what’s going out against what’s comming in and even a Cavan man could not survive . The results of this hardship is everywhere,we need spenders to make the wheel go round and… Read more »
David the Banks got the biggest social welfare cheque ever written by the State. And the policy they know best, is to crucified whole families that cannot meet the repayments for their homeloans, and make no mistake they are pilling up, interest over interest. So what we have at the moment is not a democracy, but total fascism on their part, and most of the political establishment, represented by the main Political Parties, whom the people don’t trust anymore. . And if anyone , want to check the raw anger that is out there, you only have to listen back… Read more »
rat sandwiches,derivatives,donkey burgers and CDO’s(collateralised debt obligations) Stacey lookin fine in a biker jacket , Inflationary Vortex and more
http://www.youtube.com/watch?v=SxZtfi2pYNo
rat sandwiches,derivatives,donkey burgers and CDO’s(collateralised debt obligations) Stacey lookin fine in a biker jacket , Inflationary Vortex ,debt forgiveness and more
http://www.youtube.com/watch?v=SxZtfi2pYNo
Both customers and credit are related, and the lack of both can be explained by what Keynes called a “liquidity trap” in the 1930s. OTHERWISE KNOWN AS DEBT SUFFOCATION This is when interest rates don’t work. In fact, Keynes famously described cutting interest rates in a liquidity trap as being as effective as “pushing on a string”. THOSE WHO HAVE BORROWED CAN NOT AFFORD TO BORROW ANY MORE REGARDLESS OF THE INTEREST RATE OR TERMS In normal times, (THESE ARE NOT NORMAL TIMES) when interest rates fall, those with savings decide that there is no real return on savings, so… Read more »
Again I have a number of issues with this article. First ”While there are many savers who just don’t want to spend, their savings don’t stay in the banks’ vaults, this money is recycled by the banks and lent out to those who want to invest and spend.” This is a completely false statement. It would only apply if banks processed every loan in cash form. When banks process cashless loans they create the money they lend. Second, ”This is a central role of the banks in the economy. When they are working properly, they match savers and investors, keeping… Read more »
US application but fundemental principles apply to Ireland or indeed any country MONETARY FREEDOM The problem is not that gold and silver coin are not “legal tender”–they are already. Problem is that the people, courts and government treat them as if they weren’t legal tender, as if only fiat Federal Reserve notes (green paper bills and bank credit) were money. From the beginning the Federal Reserve’s strategy has been to marginalize, remove, tax, and criminalize gold and silver money. The courts have an instinctive systemic bias to follow that strategy. I’ve seen it in person over a 15 year struggle… Read more »
http://the-moneychanger.com/articles/restoring_freedom
http://www.zerohedge.com/news/2013-02-09/feds-bailout-europe-continues-record-237-billion-injected-foreign-banks-past-month
$237 billion of money from FedReserve to European bank reserves last month, and still the lady on Wicklow street cant get credit.
Such influx causing Euro to rise strongly and Crush German and French exports
http://www.google.com/imgres?q=rothschild&um=1&hl=en&sa=N&tbo=d&biw=1366&bih=643&tbm=isch&tbnid=9KfaSSD9f8dw1M:&imgrefurl=http://www.sott.net/article/246118-Times-must-be-bad-Rothschilds-and-Rockefeller-families-join-forces&docid=To83vGkm2STIMM&imgurl=http://www.sott.net/image/image/s5/103815/full/NathanRothschild.jpg&w=1537&h=1001&ei=LeIdUdGrEKnOiwLEtIGQBA&zoom=1&ved=1t:3588,r:31,s:0,i:252&iact=rc&dur=1171&sig=117635016119584190649&page=3&tbnh=168&tbnw=258&start=25&ndsp=15&tx=190&ty=58
http://climatereview.net/ChewTheFat/wp-content/uploads/2011/10/How-money-is-created-by-James-Follett2.png
Schematic of how money is created
http://www.bloomberg.com/news/2013-02-14/gold-council-sees-central-bank-bullion-buying-at-48-year-high.html
Result of QE = price of gold up 12 years in a row.
Here is a much better proposal for credit creation. Very interesting that this idea of Abraham Lincoln appears in the UK. UK Column: Glass Steagall or Collapse – Go to a “Greenback Pound” The June 2012 issue of the UK Column, published periodically in the UK, leads with a report from co-editor Mike Robinson titled: Financial System Continues Collapse – Opportunity for Optimism. After describing the hopelessness of the bailout process in Europe, and ridiculing the propsal of Bank of England head Mervyn King, and Chancellor of the Exchequer George Osborne’s insane call for “bolder action” in bailouts, Robinson says… Read more »
The level of discontent is rising. What will be straw that will break the camel’s back? Will it be…
1) Property Tax demands (one of the most regressive and unfair of its kind in Europe)
2) Water Charges
3) Another food scandal which disables 20% of the processing industry
4) Another fuel hike
5) A food price increase brought on by very poor weather conditions across Europe
6) Health Cuts
7) Des Bishop’s “Under the Influence” actually having an effect on alcohol usage
Has our democracy been split in two between what people find meaningful or meaningless in news about investment and progress. It certainly is the case in Ireland and I suspect most democracies. When we have a situation when most people cannot identify anything positive with what is going on, it is not good at all. It means the unwritten social contract by which we get along with one another is eroding. The leadership “safe pair of hands” or conservative approach being adopted today everywhere is a result of the mounting cronyism (and nepotism) naturally brought on by multi-generational stability made… Read more »
Prediction Comes True
10 Feb, 2013 6.20pm….it was predicted on this site
http://news.sky.com/story/1052514/meteorite-shower-hits-russia-injuring-524
What was said is :
‘2012DA14
Astroid will ‘skim’ past the Earth on the 14th Feb,2013…….this is the date of maximum moon wobble impact .
Will it hit us like Noonans Deliverance in past few days ?
Will it hit a satellite and will we have the internet as we do have now on this site ?
Interesting Times Ahead!!’
ECB threatens to renege on promissory note deal February 15, 2013 by namawinelake When examining the promissory note deal on here, the conclusion is that it does amount to monetary financing — allowing a State to create one fifth of its annual economic output in new money and charging a mere 0.75% per annum for such money possibly for 15 years, in the view on here, is “monetary financing”. In Ireland’s case we have been allowed issue €25bn of bonds, equivalent to 1/5th of our annual Gross National Product of €127bn, and the plan published last week anticipates the ECB… Read more »
David, I hope your wife doesn’t know your out on the town chatting up women, excusing it with honey I was only doing economic research wont wash.
Gentlemen, I have had men watching you for a long time and I am convinced you used bank funds to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den… Read more »
Posted Lemetropolecafe Ireland: Promissory note deal not spilling over to the economy: Reuters discussed the gap between the more favorable headlines surrounding Ireland’s emergence from the debt crisis and underlying economic conditions. It noted that while the long-awaited promissory note deal sliced billions off of Dublin’s financing needs and drove its borrowing costs to pre-crisis levels, it does not do anything for the one in six people unable to fully meet their mortgage payments and whose pain has been exacerbated by high unemployment and the austerity push. It also pointed out that over 7K people a month are leaving Ireland… Read more »
Breaking News… their is now confirmed reports that their is Horse-meat in…………..
Shampoo,toothpaste,petrol,diesel, children’s clothing,sweets , ice cream,ballot papers,news readers, televisions , DVDs ,laptops,political parties,beef,pork, lamb,chicken,fish,bread,pastries,cake, tires,cars,trucks,buses,tarmac,houses,lamps,ovens,schools, cigarettes,ashtrays,porn, alcohol, Holland, France, Germany England Ireland,Iceland, The Bundesbank, Central-bank, Eamon Gilmore’s ears, Dublin Airport, Your couch,cushions,carpet,bed,toilet, Tony Hewitt’s Beard,Dogs,cats,mice,rats,Books,Donald Trumps wig,Garda uniforms, Miriam o Callaghans microphone., Auctioners,Banks & Bankers nuns,priests & monks,The Vatican,Trains,Planes & Automobiles,Hollywood,Bollywood & Ardmore Studios… Brussels,The E.C.B,Angela Merkel.etc etc etc
NOW…….Can we please get on with what is really fucking important,you…….yes,YOU !!!!!!
About 400 people have been injured after a meteorite shot across the sky in central Russia.
locals reported the meteorite contained several thousand tons of gold however Russian officials were quick to dismiss this.
There is a large military contingent surrounding the area raising suspicions a Russian official has said that this is standard procedure.
The first man that came to my mind when I read this article was Psychoanalyst Walter Langer (1899-1981). Langer in one of his more enlightened moments put forward the notion that: “People will believe a big lie sooner than a little one. And if you repeat it frequently enough, people will sooner than later believe it.” The policy being pursued here in Ireland is to convince people that a “big “ deal has been made with Europe with respect to these promissory notes and all that is left to do is, wheel out the usual bunch of school teachers and… Read more »
“The European Central Bank chief Mario Draghi has said the ECB will examine the Irish swap further. This comes after the German governing council member and Bundesbank chief Jens Weidmann said Ireland’s promissory note transaction comes dangerously close to contravening a ban on the monetary financing of governments. He said the ECB will re-examine the issue and “has to make sure that its actions are in conformity with its rules and statutes”.” RTE 15.02.13 It may not change ‘the unilateral deal’ what can the ECB do they could bankrupt Ireland, they wont do that? would they? risky? but if Ireland… Read more »
“Once you cross a certain line, setting a precedent, it’s very difficult to come back and argue against the next similar transaction,” Mr Weidmann said
“The independence of central banks being is questioned more and more, academically and politically. I think that’s a serious mistake, not because I’m sticking to principles but because it’s a key lesson learnt from history,” Mr Weidmann said.
Never look a gift horse in the mouth – it may not be all it seems it could be a Celtic Tiger that snaps your head off it could mutton dressed up a lamb it may even be a disguise it self. but never look at it in the mouth enjoy it it tastes like chicken
A horse of a different kettle of fish
Beware of the Indian givers
The EU give-it the EU take it away… after you’ve spent it…
A Meteoric Decline
Q. why couldn’t they do the same for her loans, of mere thousands?
A. Because the government does not give a fuck about you.
Let me be perfectly clear.. people come first,not Banks or their agents….Around the world Banks have acted fraudulently . Their are many ,many cases of this, from rigging rates to laundering drug money..,in this & many other websites & Newspapers. Companies fail in business every day,perfectly acceptable as that is the risk you take setting up a business,however when it comes to Banking,they write their own rules & continue to profit from their abject failure. As far as I am concerned peoples homes & business are entitled to protection from Banks as a precedent was set by Government .Banks can… Read more »
Morning Tony
Thank you so much for the phone-call last night…helluva thing you did to call somebody from 3000 miles away,really grateful for that,hope you have a great day & many thanks again.
Hey Adam..
.590 metric tonnes ! no …wait….sorry that’s what Russia bought last week..!!!!
Have a look at this image http://www.irishtimes.com/ and then compare it the ones below Obama war on terror!!! http://www.themediaspeaks.com/2013/01/31/7-year-old-child-handcuffed-and-detained-10-hours-over-5/ 7 Year Old Child Handcuffed and Detained for 10 Hours Over Missing $5… A five-year-old boy was threatened with suspension by school officials in Massachusetts after he built a small toy gun out of Lego bricks and … The USA is on the prowl for a new war it needs one like the roman empire army’s of the past the USA has itchy feet, role a dice and pick your enemy… Iran, North Korea launches a missile they are terrorists south… Read more »
The issue is most of the commentators here are enveloped in their divided local issues Biffo versus Kenny, private versus public sector workers etc. they have been conquered education is key. Biffo and others are part of a system that is flawed across the globe the money system is flawed. The cast of the play changes but the plot remains the same the punch bag that is biffo, Kenny and others may release your anger temporally but there will be a new cast to replace the old but plot will remain the same. Don’t expect your leaders do be any… Read more »