In the back of The Tavern on Castle Street in Carlow last Saturday night the lads, under the watchful eye of proprietor Sean Furey, were downing large bottles of MacArdles.
Apart from a recent local incident involving the slaps given out to a young fella from Eire Og, top of the lads’ worry list was the IMF and what they might do to you.
The conclusion, well into the night, was succinct — “d’IMF will be the new ‘Tans”.
When lads in The Tavern in Carlow are discussing global economics, you know that the world has changed. In fact, their conclusion, painting the IMF as an occupying force, may well prove more in tune with the populace than the over-the-top welcome given to Olli Rehn by the Irish political elite — many of whom were directly party to the destruction of the country.
In fact, the elite’s al fresco sycophancy towards Rehn was a lesson in unrivalled post-colonial forelock tugging and it reveals what path the elite is likely to take in the next couple of months. That path can best be summed up by “what do we have to do for you to love us”.
The fact is that Rehn will not save Ireland. On the contrary, he will use the Irish people to save the German banks.
Let’s cut to the chase to see what is really going on here. Ireland’s banks owe German banks alone €127bn. Looked at from another perspective, the German banks are in the hole to Irish banks and developers to the tune of close to 90pc of Irish GNP. By rubberstamping the Irish elite’s bank bailout, the European Commission has saved the reckless German banks — who don’t deserve to be saved — and punished the ordinary Irish citizen, who doesn’t — in the main — deserve to be punished.
Rehn knows that the credibility of the euro rests in the Commission preventing a bank default or sovereign default in Ireland; but the choice facing the country now if we do nothing, is either we default eventually or, worse, we experience a slow run on the banks as the middle classes take their money out of the banking system because they simply do not trust the authorities any more.
Only by negotiating a restructuring of private debt can we avoid this eventuality. But it can be done.
The ‘bank crisis’ that lead to the guarantee being introduced is still rumbling on. Financial crises tend to come in waves. This first wave was a bank-funding crisis sparked when the German financiers panicked and refused to lend any more to the Irish banks. This turned into a debt crisis caused by developer loans going south. Now we have the third wave, the coming domestic mortgage crisis.
Let’s be clear, this is all one big crisis. As each domino falls, the desperation of our situation becomes more obvious. But once the first domino (the bank funding crisis) had fallen, there was no stopping the process. The guarantee was supposed to make this process easier. The endgame is always an unpleasant deal with creditors where they lose. We could have used the guarantee to do this, but we chose not to. Our elite chose to pay every cent to delinquent lenders.
The first wave of the crisis, the bank funding crisis, used up all of the Government’s reputation and credibility. The second wave, the large borrowers going bust, used up all of the Government’s money. The third part, the residential mortgage crisis, is going to use up what’s left. But the Government has no reputation left — they can’t offer another guarantee because it will not be credible. We all know they are broke, so they can’t offer a bailout.
So, what does that leave? There are, believe it or not, several options still open, even at this late stage. We can decide that the mortgage holders who are in trouble are being rightly “punished” for their sins. Last week, this column tried to make it clear why this ‘do nothing for the little people’ policy will lead us all into the mire.
By doing nothing, we will condemn our whole society to years of zero growth, depression (the psychological kind, as well as the economic kind) and mass emigration. The generation that the Irish State would be giving up on, reacts by giving up on Ireland.
All the while as the Government’s bankruptcy is laid bare, the middle classes with savings will panic and get their cash out of the country.
If we want to avoid a bank run we have to give some form of debt amnesty. It might be that the banks would have to write down the value of outstanding mortgages before they are defaulted on, rather than after. It could come through changes in the mortgage contracts so the mortgage becomes tied to the property rather than to the borrower. It could even come through changes in our bankruptcy laws so people who are in dire straits can draw a line under their past and have some chance of starting afresh.
Currently, none of the alternatives are being discussed. Yet it is clear that people are struggling with their debts and as time goes on, more will fall into the trap. The Government’s excuse for inaction is that writing down the value of mortgages will leave the banks in more trouble, and by extension, the Government.
This excuse might hold water, except for one thing. The write-downs are going to happen anyway. Whether the Government is willing to admit it or not, there will be mortgage defaults in Ireland. Ignoring the problem will not make it go away. Dealing with it is the only solution.
But won’t moving more debt on to the national balance sheet just make Ireland’s situation worse? Yes and no. True, government debt will grow bigger when it has to bail out the banks again to cover the mortgage losses, but it is important to remember that this debt already exists in the economy. We will just be moving it around a bit through some creative accountancy (and anyone who read the government press release last week on the promissory notes will know this Government is not afraid of a little creative accountancy).
Of course, this will put more pressure on our bonds, as government debt would rise again, but not if we did a deal with our creditors to restructure all our debt at the same time. The deal with mortgage holders would be paid for by a similar but more severe deal with the creditors. The fact that the main creditor is now the ECB, actually makes renegotiation easier. What bit of “lender of last resort” does Mr Trichet not understand? In fact, what bit of “bank run” does he not understand?
There is a deal to be done which puts the Irish people first. It is not the deal that Rehn came here to do, but it is the only deal that will give the average Irish person hope. And if politics isn’t about hope in the future, what is it about?
David McWilliams hosts Ireland’s first economic festival in Kilkenny this weekend. www.kilkenomics.com
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Will comment later on the article. Sorry for going slightly off point, but this is in reply to the first news on the garda inquiry into Anglo, in a long time. Just seen this link. http://www.independent.ie/national-news/anglo-told-to-sue-exstaff-over-password-obstruction-2415302.html What does this mean ? Well, presumably it means that employees in Anglo were breaking the law, behaving recklessly. In all probability with the consent of their superiors. And they know that they cannot be forced to provide their passwords. There is a garda team investigating what was going on. And this is the real news, as such…. “It is understood to be examining… Read more »
[…] David McWilliams writes, we need to tell the lying scumbag cartel that they lose, otherwise they will skin us and then […]
I have read the article and it makes many valid points. I do not think that people need to worry yet about taking their money out of Irish banks, unless maybe INBS or Anglo. (these are failed banks already and depend on the Irish state being able to borrow money to keep them in operation). The time horizon of problems with AIB is short – but is much longer for BoI and Permo. I think that the ECB have got themselves into a right mess with the Irish banking system, and will need to make sure that it survives, so… Read more »
Debts and more debts, there is the 90 billion sovereign debt, there is the NAMA/ECB debt 40 billion, there is the promissory notes 30 billion, there is the German banks 127 billion, mortgage debts 120 billion, and also the ECB 82 billion. thats how much???? 500 billion more? Morgan Kelly wrote that there is now a team from the ECB in the department of Finance, I wonder if they have added up all of our debts and come to the inevitable conclusion that the IMF/EU will now have to bail us out. We have enough money until next June and… Read more »
French Radio News today reported Ireland is on the road to bankruptcy and was serious in tone too .
I thoroughly agree with everything David stated in the article. This present Fianna Fail led government and all of the previous Fianna Fail led governments going back to 1997 are the the main guilty party along with their buddies the bankers, and the developers and those in big business. The way all three political parties tried to ‘cosy up’ to Olli Rehn was just totally cringeworthy. He’s not the messiah, but all of the three main political parties thought that he was and on our side.
If we are to get out of this mess, the very first thing that has to be returned to it’s former vigour, is the private sector labour market.
I would welcome the IMF at this stage in the game.I reckon we deserve to be thrown out of the European Union for our greed and incompetency, it would be a salutory lesson for all.
d’IMF will be the new ‘Tans”.
Witty
David.
Sparked :
‘This first wave was a bank-funding crisis sparked when the German financiers panicked and refused to lend any more to the Irish banks.’
Wasnt it a good thing that this sparked ignited.
How much longer would Ireland and the hollowing out of its real economy by the Ponzi property bubble scam gone on for.
I say thank christ the interbank market pulled the plug and burst the lunatic property pyramid scam underway here destroying everything of real long term value in its wake.
‘the reckless German banks – who don’t deserve to be saved ‘ hmm. Is this not a childish statement? Only the few high up executives in these German banks actually make the decision to lend to other institutions so you can’t blame German bank employees or shareholders. A lot of German pension funds are tied up in the banks so let’s be fair.
David. I think the question regarding the German banks providing the funds into the Irish banks to fund the Irish banks Property pyramid scam must be looked at more closely. How do we know that the Irish banks dealing with the German banks to get their greeedy grubby paws on the german peoples savings how do we know the Irish bankers did not spoof and spin and withhold from full disclosure of the facts too the German banks. Look at today and ANGLO and their bankers refusing point blank to the authorities to divulge the passwords needed to access accounts… Read more »
its time for the truth about the level of skullduggery the Irish banking fraternity pulled over on the Irish public, the German banks and God only knows who else.
The debate over the Irelands meltdown must be firmly placed on the shoulders of where the blame lies. It lies with the Irish banking system engineers a Ponzi property bubble using the funds from German banks. Lets find out did the German banks work in full knowledge of the facts that the Irish banking fraternity were running a POniz property bubble pyramid scam or NOT. Surely David establishing this piece of data is of primary importance before it can be discerned on the other stuff. What is the level of complicity the German banks played in the Irish banks running… Read more »
Did the Irish banks scam the German banks to fund the POnzi property bubble pyramid scam the Irish banks forced violently down all of our throats!
I imagine the solution will go something like this: our creditors will see how much we can afford to pay without making everyone emigrate, and restructure our debt to maximise the money they earn from us by way of perpetuity or long term bond (maybe 1000 years lol). As Weimar’s collapse proved you don’t want to tighten the thumb screws too much or the whole thing will fall down and you’ll diddle yourself out of money. At the same time I doubt very much they’ll just forget about the money “we” owe them. They need a strong Irish state to… Read more »
Or everyone emigrates, Ireland is made into a huge golf course for wealthy germans to holliday on in the summer. Low paid migrant slaves are brought in to up keep the golf courses & hotels & lookafter the holliday homes during the winter!!!
Its like the clam before the storm in the Dail at the moment. I don’t know if we as a state can put up with another big sink hole on a road to some bit of a recovery. As i look at it we owe 500 bn+ there is about 4 million people in this country. We are in debt up to the hilt. If I could i pack my bag and go some where else. We are all guilty of greed. My heart goes to the people how tonight will lose sleep worrying about the roof over their heads… Read more »
subscribe, bloody comments didn’t come through to email. Maybe I didn’t tick that box, I’m sure I did though…
I was away in UK last week working on setting up a new business that will be based in Ireland. Boy do the British have some comments about the Irish situation. I will not bore you with all the comments. However, they feel sorry for the Irish people and are so thankful to have own currency. There is also a bit of the anti Irish sentiment where we were getting too big for out boots. One person remarked that although he thought all politicians were only worth contempt at least they had a change of government in the UK an… Read more »
http://www.youtube.com/watch?v=L-2UTXffglw
For those who are continually concerned about Ireland’s significance, and the near Freudian preoccupation with our importance in the minds of others….mundane economics shows up again….
http://www.bloomberg.com/news/2010-11-10/german-bonds-decline-for-second-day-as-investors-prepare-to-absorb-issues.html
David. Last few para’s of article are cogent but are the points relevant to the real situation on the ECB / Irish banking ground. Lets look at the Mrgan Kelly article other day. In it he disclosed a deal the ECB brokered on behalf of the Irish State to pay out 55 billion Euros to outstanding Bond maturation obligations. This is a serious piece of information here. It reveals a hidden away world of banking finance nobody outside of the inner sanctum of global finance know anything about. Lets look at it again. The ECB cashed out 55 billion on… Read more »
David, I am in despair, I read and read about what our Government are doing and more importantly are NOT doing. I believe the Irish Government are in denial or that there is some game plan where they gain and the ordinary Irish folk lose, yet again. I am at overload stage………… And I wonder if I can even take in what I will hear at Kilkeconomics?!? My reality is……….Our Irish Government are NOT listening…………I feel you and all of us here are writing and wasting our energy! For what? When our Government are not listening to us! I wonder… Read more »
Posters.
Seems to me to be a bit strange all this focus by the mainstream news outlets on irish Bonds yield spreads etc etc.
Can it be the case that all of this smokes and mirrors stuff is to distract the average citizen from the 55 billion the ECB paid out on behalf of the Irish State the other day???
Posters.
Also, the Irish gubbermint are not looking for Bond sales till early next year so its all this media coverage on Bonds is null and void.
Emmigrate and don’t look back.
From the Irish Central Bank. http://www.breakingnews.ie/ireland/honohan-savage-cuts-resemble-imf-package-481287.html I will give a prediction. It will not be enough. Basically it will be insufficient. Now, after a lot of dithering we are going to see real austerity. Beyond the savage cuts, there is going to have to be a massive amount of reform in the coming weeks. I mean closing down quangoes, getting rid of NEDs, rationalizing local government to stop the waste, and rationalizing a lot of government departments as well. The problem is that this costs a fortune in terms of upfront payments. There will have to be massive salary cuts… Read more »
Posters:
For anyone who doubts that ireland banking fraternity were not running a property pyramid POnzi scam on an industrial international scale then go to this WSJ link, NOW.
http://online.wsj.com/article/SB10001424052748704506404575592360334457040.html
Going a little off point but hearing that the Government will extend the bank guarantee beyond Christmas made me think that the real plan in their mind is to keep the poor “gobshite” savers on board until they are ready to announce the following “As and from (choose a date) the ordinary citizens of Ireland are being asked to do their patriotic duty and offer up their hard earned savings in the name of the sovereignity and future of the state” You may well laugh at this notion but when this bunch of feckless incompetents have finally run out of… Read more »
Hi Wills, Dorothy, Irishminx, Gege, Furrylugs, Michael, Adam et al.
Have a great weekend at Kilkenomics. I can’t go sadly. But looking forward to news about what happens.
Just remember, we’re all in the gutter, but some of us are looking at the stars!
Posters
Our host is on Vincent Browne this evening. Can we support this propisition or get a lin on the thread.
Please sign the petition: I would vote for any political party that abandoned Anglo’s Debt. The Fianna Fail government took the decision to guarantee Anglo’s Debt without knowing the extent of Anglo’s rogue trading, true size of the debt & total inability to repay it. At the time the total bill was estimated to be €4.25 billion (we are willing to discuss this amount). We’re now facing an estimated €34 billion, 8 times the guarantee promise. The entities that loaned to Anglo were not naive school children. They knowingly lent to Anglo being fully aware of the risk involved with… Read more »
Do we need it in any plainer language
https://www.goldcore.com/goldcore_blog/gold-consolidates-cautious-trade-ahead-g20-summit
If we had used the bailout money to buy gold in June and sold this week look at the profit that could have been taken and put back into the “real” economy.As it stands the Euro is the only currency that gold rose against as a direct result of the mess in Ireland.
I rest my case.
MAKE NO MISTAKE.
T R E A S O N.
Just got in from work and I haven’t even read the article, though not doing so, I still blindly agree with it. Nothing David McWilliams is saying any more is against the national interest. Contrary to this is the enemy within; to wit, http://www.businessworld.ie/bworld/livenews.htm?a=2679197 Goldman Sachs have a disproportionate influence on events, it would seem. On another note, Vincent Browne really disappointed tonight. One wonders what possible relevance some Titty story had to the State of the Nation? Just another device to stifle valid economic comment from our host et al yet posing semblance of inclusive balance. As with the… Read more »
There’s almost no point in talking about mortgage forgiveness because the government cannot afford it after paying for nam a and the europeans are never going to allow that to happen after they help us. Mortgage forgiveness would undermine the Irish financial system and create a lot of inequity. Why should all the people who practice financial responsibility and avoid high risk gambles have to bail out people who speculated. It’s just not fair. Anyone who takes on a mortgage knows the risks. It’s a frightening experience for that reason. The property could could be worthless the next day. That… Read more »
Deco.
I couldn’t agree more with your comment about the Dermot Ahern. He’s not known as ‘The Obergruppenfuhrer’ for nothing you know!
David and panel gave good account of themselves on VB last night, congrats to all. So, David at the head of his article above states: ‘Government Must Cut Deal That Gives People Hope’ Soo, what’s the deal? Firstly, the guarantee that’s freaking the markets should be done away with. Bottomline, we cannot deal both with the fiscal deficit and payoff the bank debt while at the same time cutting the legs off the economy that’s supposed to pay for this with austerity. That story belongs to the gombeen political and financial class who got us into this mess, who chase… Read more »
David you were superb last night with Vincent Brown. And the two guys you brought with you were amazing as well. I am with you regarding the restructuring of the national debt, and mortgage debt for the general public, but I have some doubts regarding the possibility of achieving it, if the issue of the Public Sector isn’t addressed simultaneously. My point of view is the following. Lets take what happened in Argentina during “the default”. The then president Néstor Kirchner told the bondholders “get in line and you’ll be paid whenever and whatever we can”. He devalued the currency… Read more »
just looking at the bond prices this morning and they are now at 9.2% this would now classify irish bonds as junk status. i have been thinking more about the governments croke park agreement and it has come to me that it is remarkable that no one has mentioned this before. ok we are going to have a very severe budget in dec with 6 billion in cuts and taxes. this will keep the government in play untill the new year when the remaining bye elections are to carrried out. when the government looses its majority and an election is… Read more »
1.8M workers and 150Bn debts means around 90K per working head on an average wage of 35K. 300Bn implies 180K debt per head. As we are not paying off a farthing off the debt, which is rising by the current deficit per year. 25Bn. i.e. 18K of extra debt on every working person per year with an average wage of 35K. Interest payments??? – let’s round it off to 20K extra per head per year. Now, simple maths says that even with the best/worst austerity measures, you will run down in about 18months…even if you taxed 100% So we are… Read more »
There might some panic at the moment over people getting money out of the Irish banking system. This is not necessary – at least not at this point in time. I am serious. The ECB are caught already with a lot of money propping up the Irish banking system. The ECB needs to keep Irish interest rates down, so as to prevent secondary effects in the other PIGIS. Ireland is smaller than Greece, much smaller than Spain. Therefore the ECB will keep the system afloat. http://www.rte.ie/news/2010/1111/ntma-business.html We have seen in previous years, a tendency for lemming like behaviour driven by… Read more »
Cheapest ticket for Ireland V New Zealand is E100.
” ” Scotland ” £60.
David and Posters.
The ‘debts’ can be done away with in a nano second.
The wealth is in the system.
The debts are extinguishable with the touch of a button.
The wealth and debts are seperate elements.
The debts are numbers on a ledger.
Lets keep the debts in the right frame.
The insiders set the agenda by forming the debate on debts as if debts is something immoveable for all time.
Thanks for the warning on the banks, i took all my savings out over the last few days. I think at 9% this morning and rising it is going to happen before xmas.
David , any man who can marry economics and comedy together and make a weekend festival out of it is to be admired , well done . Now run for office . How long can you sit on the sidelines and watch your country sinking into the corruption and incompetence of FF / The Greens /FG / Labour . At this late stage , Tell the ECB to go and screw themselves . If they don’t bail Ireland out with favourable rates you will scream ‘ useless Euro , not worth the paper it is printed on ‘ from the… Read more »
In Ireland, it is the done thing for one profession after another to stick the snout in the trough, and have a good munch at everybody else’s expense.
http://www.independent.ie/health/latest-news/hse-fails-to-recoup-fees-from-doctors-2415822.html
Bottom line cutting jobs will reduce the efficiency of the public service in a far quicker way than cutting rates of pay.
Cuts in jobs will make our society more socially divisive also.
Reallocation of jobs in the public service into frontline services should also be a priority.