I am writing this on the New York subway hurtling downtown from the Upper East Side towards Wall Street.
The old Jewish lady, all coiffed and nailed, is putting on her lipstick intently, oblivious to the rest of the crowded train.
Two students chat away about the film, The Jersey Shore, while the rest of the carriage go about their mid-morning business.
Two Latin American tourists, all gold and diamonds, in telltale Brazilian bourgeois mink coats, stand for what seems like an eternity, scanning the subway map – easy pickings for a run-of the mill mugger.
Yet they are totally safe. I remember when I first came to this city in the late 1980s, the subway was regarded by many as no-go zone.
As Irish students slumming it, the subway was the only way of getting around and there was, initially at least, a sense of adventure as you descended down into the bowels of Manhattan and breathed in that distinct subway stench, jumped the turnstiles and allowed the warm air which was pushed through the tunnels like some gigantic subterranean piston to wash over you.
For many of us then in our late teens, the subway was New York and, most importantly, it was far away from home. We were free.
However, our American employers and relations didn’t see it that way. They lectured us on the dangers of the trains and told us never to go near the subway.
This was the New York of former mayor Ed Koch, a city of violence, muggings and casual crime where the fear of the unknown appeared to terrify most people.
The place was full of rumours, and the subway became the ghoulish scene of CSI style crimes perpetrated on the innocent.
Respectable people didn’t get the subway.
Fast-forward to 2011 and all that has changed. The train is now full of those who, in the late 1980s,would have been classic victims; these same passengers have the confident swagger of the blithely unconcerned.
New York changed because the people who run the place decided to change it.
They decided they had enough. By committing huge resources, lots of thought and common sense, the New York subway became safe.
If the New York subway can change, Ireland can change.
Had you suggested two decades ago that old ladies would confidently ride the subway you would have been laughed at – but it happened.
It happened because people thought differently and decided to change. It didn’t happen by following the crowd.
The subway is an anomaly in this city, with its tooth-and-claw capitalist signature. In a country that heralds free enterprise, it is interesting that the mode of transport of choice, whisking bond traders down to Wall Street, is a heavily-subsidised public company.
The subway was cleaned up, not by some swashbuckling free-marketer, but by diligent public officials. It proves that ideology is not the only catalyst to change.
Change comes because people want it.
As I watched these bond-traders on Wall Street, in identikit Brooks Bros suits and penny loafers, queuing for lunchtime sushi, high-fiving the wonders of the private sector, I am sure they didn’t consider that the subway that got them to work is a state company.
Their minds are focused on Portugal, the euro and the next move by Ireland.
On Wall Street, the talk of Ireland is all about when we default.
No one here believes a word that comes out of the European Commission, the ECB or the organs of the Irish state.
The traders I chatted to see the numbers, they see the huge debts that are there to be paid by the people, and all agree that the way to go is to default on the bank debt and start again, protecting the sovereign in the process.
Now only the very silly would take their view on most things in life seriously; they are, in the main, one-dimensional, not particularly talented or educated lads, but they do constitute the market and the market has spoken.
They mention Ireland in the same breath as Argentina before Argentina defaulted in chaos in 2001.
The traders who were on the street at the time say that the signals are precisely the same.
Argentina went through 25 months of recession, unemployment rose and then eventually ordinary people took their savings out of their banks. Once that happened, the game was up. These Wall Street guys see Ireland as repeating precisely the same mistakes.
The interesting thing is all of them believe that, if Ireland stops paying the ‘‘odious’’ bank debts, the economy will recover extremely quickly. They also indicated that they would consider buying Irish government paper if we got rid of our bank debt. But with the bank debt, there is no way.
At the moment, Taoiseach Enda Kenny is trying to change the interest rate we face but while, a reduction of interest will help, it will only stop Ireland defaulting if we do not add any more to that debt.
Unfortunately, it now seems that the Irish banks are going to need an awful lot more cash.
Let’s imagine for a minute that the government is crazy enough to commit another €50 billion (which is not an unlikely figure) to the banks, which would increase our government debt to €195 billion.
Then add the deficits that we will need to fund for the next five years. That’s about another €45 billion.
This gives leaves our national debt at €240 billion.
Even if we manage to finance all of that at 4 per cent (which is the lowest possible figure under current arrangements), it would cost nearly €10 billion a year in interest payments alone.
That is equal to 80 per cent of the government’s income tax take in 2010. It is unsustainable. There is no way around it.
Paying interest on debt is a draw on an economy – it means money that could be invested in an economy is leaving the country. If we are paying €10 billion in interest every year and our GDP is in the region of €150 billion, we need to expand the economy by more than €10 billion each year, just to stand still.
It works like this: GDP on January 1 is €150 billion. During the year, extra economic activity in the economy adds €10 billion value to the economy, giving a GDP at end of year of €160 billion. But the economy has to pay €10 billion in interest. So we have to take that €10 billion from the €160 billion to get end-of year GDP.
That leaves the GDP at the same level as it was at the start of the year: €150 billion.
The economy will have to run to stand still. Something has to give.
The New York subway story tells us that, when the powers-that-be eventually decide to ‘get real’ with something, it can be fixed. But this needs complete political support and the change in policy needs to be dramatic.
A structured default now is the game-changer we need. The view from Wall Street this afternoon is that this is the answer.
Don’t bet against it.
You are preaching to the converted here David but I have been reading your blog for over two years now and in all that time the (ex)government haven’t done a damn thing right, nor listened to one iota of your excellent advice and I don’t expect the incoming lot to do any better. They don’t listen, because they don’t care. That’s the nature of politics in this country. Fair play to you for not giving up.
Indeed, you’ve done sterling work to-date David. Somebody today pointed out that the cost of rebuilding Japan is estimated at €130B or there abouts. And were in the hole for, what, 180, 195, 250?
Screw that, I’m moving to Japan!
My question is: How do we bring pressure to bear to make this happen?
Ml Noonan – Trichet et all already hate his accent and think he is uneducated .
David.
Default will be used by the insiders to make a mint on it.
It is clear Ireland cannot carry the burden of the private sectors debts on its national balance sheet. We are in an end-game scenario. But the problem is European and Global, and our solution must and will come within that broader context. My guess is we will muddle on as we have been with bailouts and ECB injections (and heavy spending cuts and increased taxation) until the European and global crisis forces a pan-European and maybe even a Global solution. The banking and financial sector has bankrupted the planet by its reckless greed. Individual bankers and speculators continue to make… Read more »
[…] McWilliams thinks we have no choice but to default on the bank portion of our national debt. Â Tell me where he’s wrong. Share Share and Enjoy: Tags: bank stress test […]
David I read today that the Irish banks need another €25 Billion and if the Irish Government entertain that madness for even a second, they’ll need their heads examined!
Giving the Irish banks more money is just like building Nuclear power plants on fault lines, surreal insanity!
The devastation and fall out will be catastrophic.
I have never known a country to decrease its national debt , maybe a few exceptions but in general it never gets repaid. It just keeps mounting up . But in Irelands case yes the debt will probably rise to 250 billion in 5 years time but the problem is there is no political appitite to deal with it, Bertie passed it on to Cowen, he ten passed it on to Enda and Enda will pass it on to someone else. Thats the way it works. Enda and Gilmore wont have a balanced budget before 2016 by that time the… Read more »
You were headed to the Headquarters of Fraud, Inc., Wall Street. Our newspapers and blogs are full of well documented stories about Goldman Sachs pushed Greece and Russia into endless overloads of well hidden debt. Morgan Stanley and JP Morgan are being prosecuted for defrauding our military servicemen. Merrill Lynch provided the advice that justified the foolish debt taken on by Fianna Fail and the Irish banks. And all the money these criminal enterprises got from the US government/taxpayer is not being used for business growth but for more speculative trading and risk buildup. Goldman Sachs still controls the US… Read more »
I have an extremely naive question? Or maybe not? Could we select a hand picked delegation to approach the markets and return with some kind of post default gaurantees? David seems confident that the markets will play ball? – So why not check it out? Could the Irish Government not offer investors a “Faith Bond” at a mutually attractive yet affordable rate. If the ECB don’t like it then we’ll just have to leave? (Factor that into the market deal!) To be honest I think for the sake of the success of the whole EU project – they’ll get to… Read more »
Our corporate tax is now openly under threat. The EU is no longer something that makes sense to stay within – except if you’re an MEP. The Merkel and Sarkozy seem to think that Ireland is in competition with them – when in fact it is Singapore or Switzerland. Completely bonkers. The looney EU bureaucrats are now running the asylum.
Default is the default condition.
The shift in power from the EU to Germany is disturbing. The regime change has been enthusiastically endorsed by Sarkozy as he expects French advantage from the position of first lieutenant. That the German government should now use the institution of the EU to force a punitive financial burden on the backs of the Irish taxpayer in part to bail out the rotten German Landesbanken is a great tragedy for the EU’s raison d’etre was to avoid a repeat of the World War that followed the punitive financial burden that was placed on the backs of the German taxpayers after… Read more »
Maybe a sovereign default is inevitable but its too early to deliberately do so now. The reason for such a severe interest rate is to bring us to our knees and then the EU to the rescue on their terms. We need to instigate measures now that brings them back to the table immediately. They know exactly what they’re doing to us and will be able to read the signs when we post them.Dropping the corporation tax rate is the first part of our solving our own problem.
So, in the long run, Germany won the war. It has conquered Europe, with the collaboration of France.
I am totally convinced default and let the risk takers take a hit, sometimes happens when you gamble. Why should the man in the street have to pay that debt. Pull out of Europe and the euro if necessary. The bloody Germans and French have some nerve in my opinion it’s time to tell them exactly where to go
http://www.resolvethedebt.com/
http://www.economy-news.co.uk/pound-to-euro-14201103.html
http://newswhip.ie/national-2/keep-you-job-or-go-on-the-dole-let-a-website-decide-26320
Good night folks, sleep well.
An excellent article David, especially the first half You know what the natural outcome should be but some people still can’t get it into their minds even though the numbers are right there on the page in black and white It is like someone earning 30k being 300k in debt. The numbers are so frightening that they start to deny it instead of taking action Ireland is in deep denial and the media has become a dangerous problem. Yesterday the Sindo was full of nonsense about the Forbes billionaires list while attempting to convince the proles that Edna had returned… Read more »
Europe wants Ireland to crawl along, paying the onerous debts. Then Europe will go for an asset grab, offering to “forgive” part of the debt if Ireland turns over certain assets, tangible and financial, to the European banks. Since energy is Europe’s primary worry, any Irish energy assets are up for foreign confiscation. Europe’s demand that Ireland up its corporate tax rate is not wise. In any multi-state unit, or within a US state, you want some zones to have lower tax rates in order not to have corporations flee to Asia. Obviously Merkel and Sarkozy have decided to consolidate… Read more »
This is good infomation. At the end of the day its clearly Ireland who has to make the decision to stop getting loans to put money into the banks and see what happens. Unfortunatly the majority of Irish people voted for candidates who said they would put more money in, i would say completly out of short term self interest. The irony as David and almost all bloggers have been pointing out here is that actually it is not in their self interest at all. In that case they can no longer be deserving of much sympathy except in the… Read more »
Lenihan trying to rewrite history..
http://www.independent.ie/national-news/lenihan-i-had-to-lead-when-disappointing-cowen-didnt-2579355.html
Shameful.
So David goes to New York, swans around and talks to a few lads from Wall Street, who all miraculously agree with him, and everyone falls over themselves dazzled by his wisdom. Except. There’s one well known and respected financier who is in the process of bidding for EBS, who believes Ireland will see a V-shaped recovery, and is willing to stake his money on it. His name is Wilbur Ross. He is also part of the market, in fact he is a very big player. That’s the nature of markets. Differing opinions. David, you, and a few chaps you… Read more »
Paddy, I couldn’t agree with you more. Without contasting opinions, you don’t have a market. In fact with a default and a clearing up of the banks, we could get the V shape Ross speaks of. Its just a matter of who pays now. Without such a move, I am no so sure. With rates close to 10% and the IMF here, I’m sure most bond investors feel the same way as I do. Anyway, who wouldn’t buy a small bank for nothing, if all the bad debts were shouldered by someone else. That someone is the Irish citizen? Best… Read more »
IMHO, the subway works because traffic was terrible in New York and people needed to get into the city. There were more jobs in the city and more people needed to get to them, so more people with less inclination to mug people had to get the subway, (no choice).
People power.
Maybe when the government has no choice they will do what David suggests and default.
Even attempting to pay back this type of debt will lead to a dysfunctional society!
When the concepts of right and wrong get so muddled doing wrong becomes justified.
If we struggle as a people to pay back an unjustified debt the social cost of that will likely be more muggings, burglaries and general unsocial behaviour.
Why? Because society is actually demonstrating that “honesty” is punitive.
Let’s be absolutely honest and leave the debt where it belongs – And that’s not with the people!
Whle Rome burns…………
http://www.independent.ie/national-news/fine-gael-bids-to-oust-fianna-fail-squatters-2579348.html
Reminds me of all those summers at college I spent in the US… Descended from Donegal/Antrim Irish, Bill Bratton was the police chief who cleaned up NY. He had a plan. Our latest notion to deal with our crisis is pretty pathetic: Some vague notion of reducing the interest rate on the LOAN ? FG manifesto speaks of insurance, a levy on the banks, perhaps to negotiate a deal with the EU that if the bailout costs go above a certain ceiling, they’ll step in. All predicated on bank stress tests results expected end March. The markets will treat this… Read more »
There is a way out of all this as has been pointed out on this page fro quite some time, some form of negotiation which points out that it is a financial impossibility that a country the size of Ireland can pay back hundreds of billions of euro, a structured default or debt write down, where the sovereign debt is paid back and the commercial banking debt either dropped entirely or some percentage is paid, while the EU/IMF loan of €90 is also paid, that would mean still a staggering bill of €150 billion over 40-50 years or longer. Countries… Read more »
– ‘The view from Wall Street this afternoon is that this [default] is the answer. Don’t bet against it.’ – That’d be a sure bet, but the odds are probably short. Default is no longer being contemplated in Europe, but an orderly default is an accepted reality. A plan for orderly default is under development; reporting of same has appeared in the media [for the last number of weeks]. Take for instance the article in Focus magazine, Nr 10/11 date 05 March 2011 entitled: ‘Plan B Haircut’. I cannot access this on the internet and am not sure if it… Read more »
Regarding New York, the issues run much deeper than indicated in the article and are worth exploring in (David, take yourself along to a community centre or speak to a single New York sociologist, Colombia University is worth dropping into or NYU). There have been criticisms of police tactics, the BBC once reported that “Nearly 70,000 people are suing the police over being strip-searched for minor offences like fare-dodging” while normally involves the urban poor, of which there are considerable numbers (1 in 6 American children go without 3 square meals a day). http://news.bbc.co.uk/2/hi/388758.stm So called ‘minorities’ have long complained… Read more »
No edit function so apologies for typos.
Hi Gege,
I just watched your video Washington DC. Interesting that it was commissioned by Al Jazeera – one of the best TV news stations in the world. Thanks for it. It was inspiring and very apt when it comes to rebuilding Ireland because planning, urbane design and community will be central to the type of country we try to recreate out of this mess.
Best,
David
There is a solution to every problem. First we should implement debt forgiveness for the portion of negative equity, for home owners and small and medium size business. Second a cut of salaries and pensions lump sums and other things to the Public and Private Sector, to bring it in line with the average European salaries and conditions. And if we can afford for anyone in the Public Sector to have three months holidays, Christmas holidays, midterm breaks, and Easter holidays, as some have now, so everybody else should be entitled to it, or on the contrary they should have… Read more »
If anyone is in the mood of watching good videos should watch THE ILLUSION OF MONEY
http://www.youtube.com/watch?v=_-xTHLHsfM8
Now I’m going to watch Gege’s video.
We have to be very careful in how we handle this situation from here. We have signed an agreement and this is the over riding condition at the moment.Remember Jean Claude Trichet has stated that no bond holder is going to lose their money. We have to highlight the fact that bond holders did not insure their loans and ask why they didn’t. When they answer people will see how wrong Trichet, Barroso, Sarkozy and Merkel are and why they are adopting such a position. This is a more important question than one might first think???
We have a new dumb economics policy in Europe. Marxist intervention to assist the rich according to their “need”. Invented by Calamity Brown/Flash Gordon.
No bondholder left behind.
“not only have we saved the world….” he once told Parlaiment….
And now the legacy. The spoiled brats revolution spoiled the left. And then the reaction spoiled the right. Repeatedly trying new, more sophisticated coverup techniques.
The social fallout from the financial crash is really beginning to express itself and should not be overlooked in the rush for ‘growth’ which cannot be infinite given finite resources. 60 minutes, the flagship US current affairs programme, did these two very insightful but tough to view piece which I recommend, the consequences of reckless, deregulated financial transactions for working people. No doubt a similar tale is unfolding in Ireland where according to the Labour party one third of working class kids are illiterate. Indeed, illiteracy in Ireland is a major issue, but again is brushed under the carpet. http://www.irishtimes.com/newspaper/breaking/2011/0209/breaking36.html… Read more »
Father telegraph get increasingly irate reading this kind of tosh. Reality and fact seem to have been booted out of the debate. The reality is that Ireland has suffered from the ECB maintaining effective zero interest rates, but Ireland’s politicians and property developers suffered it most willingly. Zero effective interest meant Irish land prices could be hiked up out of all relation to their value by property developers and banks with the complicity of Fine Fail who presided over the systemic raping of the Irish people for the benefit of this tri-partite cabal. That said, another fact – despite knowing… Read more »
Interesting discussion on irisheconomy.ie on debt for equity swap involvement of EFSF Karl Whelan’s
http://www.irishtimes.com/newspaper/opinion/2011/0315/1224292162766.html
http://bit.ly/eScsVX
Good question Donal.
Now folks, you may or may not be interested, but I came across this site where this guy wrote a blog and unfairly, (imho), criticized David.
Yes David is a well able to defend himself and does not need me to do so. But this guy is being unfair. I dislike unfair and unjust!
Take a look, if you are interested ONLY, (ok cb ;) )
http://icampaigned.com/blog/2011/03/david-mcwilliams-mr-hindsight/#comment-599
Kenny is going to “fight” for a lower interest rate from the EU. Of course his EU partners have other ideas. The Dutch are simply fed up with being stuck with the highest per capita bill for the corruption, waste and imperial scale failures of Brussels. The Austrians, having been annoyed by Dick Roche last October, are using it as a means to humble the Irish political class. And the Germans are delaying any movement until it reaches the point that Trichet is about to interest rate – at which point Irish demands will look obscene. The Finns seem to… Read more »
Any country that does not control its own currency is not fully sovereign. A small country that does not control its own currency ends up a colony.
I do hate it when this corporation tax rate is seen as a be all and end all. The DE/FR and indeed other EU countries (UK in particular) may have higher corporation taxes but through their old colonies are able to give corporations access to tax havens and supply a ream of tax avoidance schemes to large MNCs. Similarly Ireland provides this, but as we all know its the dutch sandwich, that puts the real gloss into the double Irish. Where are the gravy train MEPs. At least Joe Higgins is giving the burghers something to think about.. but what… Read more »
[…] debt he stared at me in horror for a moment and then curtly denounced such an action. But a trip to Wall Street seems to have changed his mind rather […]
Sky News headline – The ‘fallout’ from Japan’s nuclear crisis – now there’s a loaded sentence. Scaremongering if you ask me.
Regime change ? courtesy of Wikileaks (again). This time in an unlikely place – Japan.
http://www.telegraph.co.uk/news/worldnews/wikileaks/8384059/Japan-earthquake-Japan-warned-over-nuclear-plants-WikiLeaks-cables-show.html
I think we have found Bertie Ahern’s long lost Japanese cousin – the Japanese Prime Minister has been accussed of “Dithering”.
http://wp.me/pBbF3-dP
[…] long-form statement of this view comes from “economist, broadcaster, author” David McWilliams (hat tip Richard Smith): No one here believes a word that comes out of the European Commission, the […]
@colin This is what I wrote, please read it again! Gee Colin, reading Kevin Myers article took me aback. I’m not normally shocked by language, but he did shock me. However, he has high lighted inequalities among men. And men in Mountjoy do need to be housed in accommodation as good as their female inmates. Dare I say, without or without “Buzzing Rabbits”!! Also, within Government there needs to be more women. The truth is, everyone is equal. Except some people do not take this reality as a truth, mainly for their own gain. It is up to each one… Read more »
@Paul,
I love your sense of humour, thanks for bringing big smiles to my face.
Slainte,
Trich