Let’s say you own a company. It’s a retail company which you set up in 1999. It traded well in the boom, but to grow quickly, you took on debts commensurate with your turnover. Every time that you wanted to increase turnover, you had to rent a new outlet and invest.

This took money – and, while you tried to reinvest cashflow, you needed to go to the banks because the costs of your premises and rents were so huge.

Your turnover hit €2 million in early 2006.You expanded by opening two new outlets to capitalise on the demand and you incurred more debt – but it was manageable because turnover was rising. You employed more and more people.

Trade was good, but your costs were high and margins were still tight.

You convinced yourself that, over time, you would get the systems right and the cost to income ratio would move in your favour.

After all, you were still learning, putting in the hours, but you were building something and you believed in the future. By early 2008, you had six outlets, a turnover of €3 million and debts proportionate to that figure.

You could service your debts out of your cashflow. Then, crash! People stopped buying your wares.

Today, your turnover has halved. You own a company, which has a turnover of €1.5 million, but debts appropriate to a company with turnover of €3 million. What do you do?

Do you borrow more to try to tide you over, so that you incur more debt to pay for already too much debt? Do you close down and sell everything to pay off the debt? Do you slim down and keep two of your six shops, which may trade through the recession? But even if two shops are trading at full tilt, they won’t generate the cash to pay the debts which were incurred for an operation of six shops and a turnover of €3 million.

You go to the bank and explain that there is no cash, and ask the bank to consider some negotiation on the debt.

The bank refuses and claims that it will now go after your other assets.

But you don’t have any. What about your family house? Didn’t you put that up as collateral? Well, yes, but it too has fallen by 50 per cent in value since the peak.

You leave the bank, despondent. Remember you still have three outlets that are trading well, employing people, generating Vat and income tax and corporation tax revenue for the state. You are also taking a modest wage out of it.

The suppliers with whom you have done business are also depending on you, as are their suppliers, and on and on down the chain.

If you close now, the ramifications will be felt far more widely than just your firm. What are your options?

Either you can enter debt renegotiations with the banks and your other creditors where they will get something – not everything, but you all stay afloat – or receivership, where you fold and your creditors get far less in the subsequent fire sale.

The banks refuse to budge, and you don’t want to admit to some of your suppliers that you can’t pay your bill because of the shame of not being able to meet your obligations.

So you try to trade for a bit more, but the figures don’t add up.

Reluctantly, you go into receivership. The receiver tells the creditors to line up in an orderly queue to see what can be salvaged from the business. The banks and the other creditors get much less than they would if you had all done a deal on ‘debt forgiveness’.

The business is closed, the jobs and tax receipts are lost, and all because the ‘legacy debts’ of the boom strangled a good but much slimmed-down business in the bust.

This is a typical example of what is happening all over Ireland now. More significantly, it is also the reason why the state cannot convince any investor that the country is solvent.

The people who use silly expressions such as ‘Ireland Inc’ do not seem to realise that Ireland Inc is only the aggregation of us, the Irish people. If our businesses are going under because of the legacy debts of the boom, our country will also default because of the aggregation of the legacy debts.

Debt forgiveness is essential if the country is to recover. This can be called default, renegotiation or repudiation. Call it what you like but, without wholesale reduction of the legacy debts of the last ten years, the Irish economy will become mired by the politics of retribution and recrimination.

True capitalism is based on the idea of the second chance. All of us who have ever tried something, ever taken a risk, have all failed at some stage.

In my own case, I have written books that sold over a hundred thousand copies; I have also written books that sold poorly. I have presented TV and radio programmes that were successes, and I have been fired from TV and radio stations.

I have invested in companies which have returned multiples of the original investment, but I have also had to write off entire investments because companies went belly-up.

This week in Kilkenny, with another investor/partner, I have put my own money into Ireland’s first economics festival www.kilkenomics.com. If it works, we will succeed; if it fails, we lose.

That’s the nature of capitalism and enterprise.

Failure is part of the equation and there is no shame in failing – the shame is in not trying.

The ability to recover after a defeat, to dust yourself down and to get back up, is based on being ‘allowed’ to do so. If we allow a person to get back up, the only issue then is personal character and whether they want to have a go again.

I talked recently to a receiver who told me that, in his 30 years in business, he has never been appointed to a receivership twice with the same individual.

He told me that, when people make a mistake, such as borrowing too much in the first venture, they learn and don’t make the same mistake again.

He said that most entrepreneurs get back up.

But they are cleverer for the experience of failure.

We all know that failure and success are first cousins.

Therefore, the idea that we can run a healthy, capitalist country without debt forgiveness is ludicrous.

Debt forgiveness is the beginning of the recovery. It will have to start at the firm level and the individual level.

Ultimately, the state will have to renegotiate all its debts.

We will not have a successful fiscal adjustment unless it is accompanied by a national debt amnesty.

This is the way the world works.

The question is not if, but when.

The nature of default is what is important. If we are seen to have tried to pay, but failed valiantly and honestly, then we will get a second chance.

New money and new creditors will emerge; they always do.

The world is full of money. The reason it’s not coming here is that the markets expect a default or some sort of nasty financial event.

Why not bring it on, face the reality, and move on?

That’s what a capitalist economy, an entrepreneurial society is all about. Isn’t that what we are supposed to be?

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