A few months ago, Ruairi Quinn – a former Minister for Finance and a man who clearly understands the economy – declared that the country was in ‘‘economic receivership’’.
It is an interesting phrase, and worthy of some consideration.
If a country is in economic receivership, what does that mean for existing state contracts signed at a time when the state was solvent? Can they be honoured? Is there a receivership mechanism for a country in receivership? And if there is, who are the preferred creditors? Clearly, the state can’t deliver on old contracts because it simply doesn’t have the money. So who suffers?
This is an extremely important question, because, over the coming months the state will have to change the terms of many contracts entered into when times were better. Take the issue of golden handshakes for top dog mandarins, as just one example. Last week, we saw what seems to any reasonable person like an exceedingly generous golden handshake to a senior civil servant.
How does a state, and one which is bankrupt, deal with these types of contracts signed when we had loads of money but delivered when we are bust?
The same goes for large-scale capital projects and thousands of employment contracts governed by the Croke Park Agreement. This is particularly crucial if we accept that the most important contract in Ireland – as a functioning republic – is the contract between the state and the general citizenry, rather than the state as a specific group of citizens or a specific interest group.
You are probably sick to death of these obscene state payouts that our politicians condemn as unfair and yet claim that, legally, there is nothing they can do. Or worse still, what do you make of the outstanding payments to Anglo Irish bondholders? It’s your money after all.
And if it is not your money, it is your children’s money, their inheritance, because these monies get paid only because the state has the ability to tax citizens. Therefore, rather than face up to the changed reality now, the state borrows from tomorrow to pay for yesterday and, in so doing, forgets about today.
So we are like a country in receivership but with access to someone else’s cash (our children’s) to pay creditors. So it’s not a receivership in the real sense of the word.
But let’s imagine for a moment – to use Quinn’s analogy – that the state was put into receivership. We would then have to choose a bankruptcy regime based on a hierarchy of creditors. Let’s think about it for a moment. In a normal commercial receivership, there are three types of creditors. At the top of the pile, there is the ‘secured creditor’. Usually, this is a bank that has lent to the company and has taken a ‘‘charge’’ over all the assets of the company so that, in the event of a bankruptcy, the bank gets paid first.
Below this is the ‘preferential creditor’. In the case of a company, this would be the Revenue. At the back of the queue comes the ‘unsecured creditor’. This, in the case of an everyday company, might be the lad who sold photocopiers to the company and is now waiting for payment.
Let’s say, for the sake of example, that the company folds and a receiver sells off the assets of the stricken company. At the outset, there are €500,000 of secured creditors, €400,000 of preferential creditors and €5,000,000 of unsecured creditors. The receiver comes in, sells everything for only €1 million. This €1 million is then divvied up.
From the €1,000,000, the secured creditor gets all his €500,000 back. Then there is only €500,000 left. The preferential creditor gets all his €400,000 back and this leaves only €100,000 to be divided among the €5,000,000 of unsecured creditors.
That’s the harsh world of receivership. Nowlet’s consider the entities the Irish state owes money to. Where would they come in the pecking order if we were to deploy the weapon of receivership and start again? What if a government were to come in and decide to raise no more new taxes to pay for old follies, but deal with the situation and set up a hierarchy of deserving creditors, from the most deserving – whom we have to pay – to the least deserving – who can be treated like unsecured creditors? As money is tight, we have to make a choice. I know it is only an exercise, but it helps focus the mind.
Where would Anglo bondholders come in your pecking order? Would they be paid and treated the same way as Our Lady of Lourdes Hospital? Where would the golden handshakes of the best-paid top civil servants in Europe come? Would their pension top-ups, on already generous pensions, be classed as secured creditors which had to be paid? A re they more deserving of the last of the state’s meagre money than nurses or bin men?
Of all the people the state pays, who would be the most deserving and who would be the least? At the moment, looking at the cuts and where they are likely to fall, it seems that our state has decided that the top-dog civil servants and the so-called professional financial institutions – the bondholders – are secured creditors who have to be paid back in full. In contrast, the average citizen is the ‘unsecured creditor’ who gets the bare minimum when all the rest have been paid. This does not seem to be fair or wise.
The ‘‘fairness’’ argument is self-evident, but the ‘‘wisdom’’ one needs more teasing out.
Is it wise to pay good money to the bondholders of a bust bank? It is only wise if the sanction for non-payment is greater than the payment itself.
The argument made by the establishment has been that if we didn’t pay the bondholders, we would be frozen out of the bond markets. Well, the truth is that we were frozen out of the bond markets precisely because we paid Anglo bondholders.
By paying the debts of Anglo and the other banks, we made the Irish balance sheet weaker, not stronger, and consequently undermined the financial stability of the country. Eventually, the markets said ‘enough of this carry-on’ and shut us out.
Using the same logic, it appears obvious that the reverse is true and that the markets would actually reward us for non-payment because not paying that dead money means there is more money for real, dynamic investment. This is what has happened in Iceland and all the Asian Tigers. The latter are thriving and the former now recovering.
As for the position of top civil servants, it is clearly unfair to pay individuals huge golden handshakes as well as a huge pension when budgets are being cut everywhere. It is also unwise simply because there is no sanction against non-payment.
The top civil servants are not going to jump ship, because they have nowhere to go. They are unsecured creditors if I ever saw one.
With the country in ‘‘economic receivership’’, it is interesting to think about the pecking order of who is deserving of the limited spoils of the country. At the moment, the state regards the banks and the highest paid civil servants in Europe as secured creditors and much of the rest of the society as unsecured creditors. With the budget focusing minds in the next few weeks, this receivership pecking order must change.
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Countries dont go into receivership but we may be about to see what happens to a country that defaults ….Greece . At the moment they are playing a game of chicken with the IMF/EU/ECB and they are going to lose. Ireland is next not Portugal …..us. We will have to balance our budget quicker than 2015. The 3.6 billion being talked about for the 2012 budget is fantasy. The forthcoming budget will involve austerity on a scale never being seen before, all the low hanging fruit has been picked , now the day of reckoning has arrived . Austerity will… Read more »
The payments to the top dogs in the civil service is obscene, just as the payouts to failed politicians was back earlier this year. Yet again failure is rewarded with massive payouts and pensions. How many SNA’s and hospital beds would the €300m dished out to the top dogs pay for? We are a disgraced little banana republic and guess what… it continues today after all the promises that it would cease. Its extraordinary how a government can change the contracts of teachers, nurses (i.e. those at the bottom of the public service ladder) overnight but the top dogs can’t… Read more »
AS I’ve asked before when dose the revolution start?
Libya can do it against a murderous madman, why cant we kick out a bunch of Gombean-men?
Guys, you’re flogging a dead horse. We have seen the corruption at every level from Co. Council to the upper house. Payments to politicians, senior civil servants, backhanders, dig-outs, wins on horses, private yacht and island, inexplicable wealth. It has been going on for decades. The Irish electorate are passive, vote on tradition and emotion, not logic and reason. There are only 2 options, either start a grassroots party – (hopefully with more science and logic than the US Tea Party) or EMIGRATE. The existing parties will not solve the problems. The nation’s “most valuable asset” -its children have already… Read more »
Pat explains it best, we need a revolution:http://www.youtube.com/user/patcondell#p/a/u/1/s3u9LB32YYM
the crux of the issue seems to be the state has X ability to pay versus Y debts. X is sadly alot smaller than Y. So it comes down to a decision about what you use the money you do have (i.e. tax revenue to pay). The state is unlike a business in that as david said its over-riding contract is to its people. So unlike a business all its decisions are fundamentally political choices. Thats the key, choice! Ministers choose how to spend the money. So I woner why they choose the things they do? To the man on… Read more »
David has raised the proposition of a receivership for the Irish State in the past. In reflecting on this prospect, I have examined the UN Charter and provisions beginning at Chapter 12 for an international trustee system (see http://www.un.org/en/documents/charter/chapter12.shtml). Originally intended to establish a framework for governance of countries and places that found themselves without a functioning government at the end of World War II, the trusteeship system is the only legal mechanism that I am aware of that would allow a country to be placed into voluntary receivership and to reorganize its government and its debts. Article 77 of… Read more »
We need a revolution because the people at the top are openly showing their greed, selfishness and contempt for the docile majority who gave a mandate to the coalition from hell Some within the troika believe that our votes gives the coalition a mandate to rob us and out children’s future by imposing unlimited austerity on the Irish people The Government will not dare challenge the absurd Croke Park agreement nor the Bondholders nor the Developers in Nama who are pocketing 200k salaries nor the 250k Bertie (I forgot me memory) took from the state in expenses after he was… Read more »
Don’t live in Ireland anymore so can someone answer me this – We are told that these payouts to “public servants” are legal/contractual obligations of the state. So, if the public are so outraged, why don’t they get after their TD’s and have them introduce special legislation to tax these payments at 100% ? Alternatively, have an attorney draft the legislation and circulate as a petition. Maybe 300-400,000 signatures might focus the pols. BTW I would include all nationalized banker payolas/pensions in this legislation. Maybe throw Bertie, McCreevy, Cowen et al in for good measure.
“With the country in ‘‘economic receivership’’, it is interesting to think about the pecking order of who is deserving of the limited spoils of the country. At the moment, the state regards the banks and the highest paid civil servants in Europe as secured creditors and much of the rest of the society as unsecured creditors. With the budget focusing minds in the next few weeks, this receivership pecking order must change.” Who is going to change it David? not the present coalition.Will the IMF enforce change? More importantly will the people pay the new charges in the next budget?… Read more »
Unfortunately, much as i subscribe to what David says, the Irish people are too damn lazy to have a revolution. It galls me no end, and the reason is that too many people are being paid too much money at the top of the public sector. I am a public sector worker too, a nurse, but i remain sick of my stupid managers and hospital managers (with no management training, nevermind qualifications!) running hospitals into the ground. To put the 300 million euro into perspective, it takes 350 million to run st james hospital for a year, which has 1000… Read more »
Moderator: Thanks for that.
September 12th (and 11th) has come and (almost) gone John Allen. Time to put the crystal ball back in moth balls, or better still chuck it off the cliffs at Dun Aengus. I’m afraid to say you have about as much credibility as Harold Camping at this juncture. Nothing personal John, sorry.
hello again all,
the shirt off my back protest will be having a protest picnic in fermoy town park this saturday, free comedy with abie philbin bowman – free music and more.
it’ll kick off at 3ish – bring a flask of tea, the kids if you have a few and some time to sit and enjoy
.
hope to see you there
http://www.facebook.com/event.php?eid=286628298019957¬if_t=event_invite
David You are on the money here . We have a shambles of a public service run by a right bunch of molly coddled overpaid yes men . No more I say. WE need a new political party that runs on the single agenda of firing senior civil servants. Yes fire them or allow them to take a serious reduction in salary. The university professors and overpaid lectures are next on the agenda. Leave the lower paid civil servants alone . Anyone on less than 50 grand should be left alone. I would tax all those Fine Fail ministers that… Read more »
Copied from the last article but relevant here; This “Pecking Order” is the clearest indication of the self-preservation amongst our political establishment. To tinker with salary, lump sums and pension arrangements would be sacrosanct to people who truly believe that “Public Service” more accurately means “Public Serve Us!” See http://www.dailymail.co.uk/news/article-2036014/Fake-expenses-shame-Dail-Eireann-So-culprit-investigated.html?ito=feeds-newsxml There’s absolutely no need for an expenses regime – it’s clearly mismanaged often fraudulent and very wasteful. Abolish constituency offices because they achieve nothing in the national interest – they are merely arms of political parties and actually replicate official state services! Afterall 20 years ago these so called “clinics”… Read more »
The big fear at the moment of course and one of the key concerns among the establishment is “will Fianna Fail’s rehabilitation come in time for them to form the next coalition government”. Pat the plank, Maid Marion, Hypocrite Harris, Fionnan Mac Fail, and all of the rest are using every opportunity to plant ideas in people’s minds along the lines of……Comical Lenny was bounced into the bailout by Trichet!!……..Fianna Fail polices must have been correct because the new Government are still implementing them!!………German and French banks!!…..Wall Street!!….The Regulator!!…..The Central Bank!!….. Will Tweedle Dee be airbrushed and white washed and… Read more »
Mammy Mary from Athlone along with a whole load of former FF TD’s got what they deserved at the last election. Bertie,Noel Dempsey and Mary Harney new what was going to happen and they got out while the going was good with fat pensions that will keep them in the style to which they’d gotten used to for the last 14 years or so. Fianna Fail are a spent force and anybody who’d go away and vote for any of those that now remain in any future general Election would want to be completely ‘off their heads’ altogether!!! Did anyone… Read more »
David – you stated
{
Ruairi Quinn — a former Minister for Finance and a man who clearly understands the economy
}
I would not be so sure about this.
Quinn signed us up into the Euro. Look where it all ended up.
CITIZENS EDUCATE YOURSELVES! [IT’S TIME TO PROTECT THE CITIZENS – David McWilliams] David, thank you for the title of the post! It’s time to protect our citizens! It begs me for the first time to clear understand the role and the responsibilities of the ‘democratic’ government of Ireland. Let’s look at the constitution and see how well it reflects the behaviour of the current governments! BUNREACHT NA hÉIREANN. Download it from http://bit.ly/1937constitution Let’s have a quick look at the Preamable and the 50 Articles that form the contract between the State of Ireland and its citizens! The purpose of this… Read more »
It is impossible have an effective Civil Service, in the long run, when you have the Social Partnership process, with IBEC and ICTU pushing their senior title holders, and heavyweights onto the boards of state quangoes.
In other words, the K-Club Clique, and ICTU HQ have ensured that the politicians are not sufficiently empowered to do anything about it.
Throw in the EU and the ECB, and the weight of their institutional power, and you get a mechanism for frustration, harshness, and bank bailouts.
Iceland did the sensible thing. And Gordon Brown went ballistic, putting Iceland on the same list as Iran and North Korea. (The same clown was actually getting on great with Gadaffi – square that circle if you can).
Basically, it is a matter of standing up for yourself.
And also continually shaving down the debt. I think that Noonan is trying to do this, but that the EU does not want it (or specifically corporate lobbyists in Brussels, Paris and Berlin, do not want it).
CITIZENS EDUCATE YOURSELVES! For the first time, the argument begs me to clearl understand the role and the responsibilities of the ‘democratic’ government of Ireland. Let’s look at the constitution and see how well it reflects the behaviour of the current governments! BUNREACHT NA hÉIREANN. Download it from http://bit.ly/1937constitution Let’s have a quick look at the Preamable and the 50 Articles that form the contract between the State of Ireland and its citizens! The purpose of this is really to check what is missing not the details of what already exists because we have many people who know those in… Read more »
I have been reading David’s articles for a number of years and as usual,he brilliantly points out the injustice that is being inflicted on Irish society by a small group of people. But one thing the likes of David et al don’t mention is how we ourselves are compilcit in the how we are being robbed,ignored and pulverised by the elite circle that controls this country. During the election campaign Michael Martin stated the truth (probably for the first time) when he told Enda Kenny to his face that Kenny would continue the policies of Fianna Fail/Greens should Fine Gael… Read more »
Hello all, David’s idea is fair and conceptually straightfoward and readily comunicable. However, there is one element missing, ie., what money/currency does the State employ during the receivership? Let us survey the terrain: 1) We will all know that the State has at best estimates three months cash on hand at this juncture; 2) The ECB would cut our nation off in an instant if we dared “do an Iceland”; 3) There would be compensatory tariffs on all our Euro-bound exports that same day; 4) Whilst the state organised the printing presses (there are only two currency producers in Europe),… Read more »
EireUSA, Your right , but as a Nation I believe the Irish like to complain.We were always told to “know are place and speak when your spoken to,never question authority and keep your head down. I went into business for myself when I was 25 and found a solicitor to act for me,when I explained what I needed, he told me how much it would cost, I questioned the bill and asked for a breakdown.He began to rant and rave and saying how he had “never been questioned before” He then referred to me as an “impudent pup”…..!!!!! Haven’nt seen… Read more »
It’s time for the citizens to protect themselves.
They got to wise up. A Politician is the last person I’d expect to help me, and I would be right.
Get a referendum on EU membership and get out of it ASAP.
Buy yourself some silver + gold.
http://wealthcycles.com/
goldsilverdvd.com
It may be neither wise nor fair to pay Anglo bondholders; but as David points out, it is standard business practice — banks get paid first. And since according to the holy cow of the market (our new state religion) business is the primary purpose and highest expression of human life…well then, government should be business too. All this stuff about citizens contractual rights is all very well, but business is business. I guess I’m suggesting our minds have been colonised by an ideology that now binds us to its austere Darwinian logic. It is just an ideology; not reality;… Read more »
Thinking further on what David has written:
Anglo is not a secured creditor in the usual business sense David seems to imply. Anglo is not a creditor at all. Our state is not paying back a loan it contracted from Anglo in the course of normal business. As we all know the losses of Anglo (and the other banks) were foisted, with threats of national ruin if refused, upon our state by the banksters here and in Europe.
According to the procedures of standard receivership practice I do not see how Anglo qualifies as a secured creditor.
I believe the only democratically way out is through political due process. Tax evasion is not the solution. People are generally persuaded by policy which protects their families and property. A clear, fair and feasible platform for the people is well within the grasp of most-aspiring opinion makers/leaders. As well, people despite all that has befallen the country seek leadership. In the absence of politics, societies can only be governed by dictators through violence.
Hey dwalsh you are one of the brighter contributors on this forum , but we are not in Kansas any more nor have we been for a long time. What was once know as “standard receivership practice” is long gone.The Banks threatened us in the middle of the night so they could get bailed out. Its a two tier system , how is that democratic ? Its a whole new world and I do not think anyone has any experience in how to deal with this crisis. E.U. Stumbles from solution to solution “hoping” something works , but the markets… Read more »
Something I heard over the weekend is that Iran , Iraq , North Korea and Libya and finally Afghanistan do not owe any money to the World Bank.
Is this an obvious statement or realisation of “new markets/Colonies” for those with the power to consolidate their own position..?
Curious.
Who do we want to be? What kind of country do we want to live in? Lets come out of the shock phase and get to work. We don’t have to wait for others, we can lead. For the sake of our grand children why don’t we: 1. Default 2. Leave the Euro 3. Critically analyse our comparative advantages (i.e. what can we do better than anyone else in the world for the next 50 years? – premium food,arts,renewables not making computers/drugs) 4. Enforce a maximum wage 5. Ensure that banks are publically owned non profit making utilities 6. Maintain… Read more »
Concur. The Irish citizenry are a great people. And for the Irish perhaps a look at the future: The Self-Organizing Self Assembly Bounded Global Macroeconomic System: The September 2011 Historical Global Equity Crash Apple, Ford, the Nikkei, the Wilshire and US Bonds (the DAX, FYSE, CAC et. al): The September 2011 Historical Equity Crash and Countervailing 150 year US Bond Blow-off The absolute magnitude of the macroeconomic system’s mathematical nonlinear September historical correction is secondary to the extreme unbalanced conditions of four of its primary elements: not-to-be-repaid bad debt having reached an extended saturation point via central bankers lending ex… Read more »
Hey Lammert
Any chance you might put that in laymans terms for those of us in the “cheap seats”
Is it good or bad…?
Every week this website chronicles the absurdities, the crimes and the economic disaster of Ireland today. But where are the filmmakers? We have great filmmakers recognised the world over. They’ve done a fine job with certain historical events, especially the War of Independence and the Troubles; also with “everyday” characters like the Butcher Boy or Dublin singers. But isn’t it about time one of them had the guts to make a film about characters like Seanie Fitz, Ronan or Bertie? Even if they have to make it semi-fictional to avoid being sued, surely there’s a film there like the recent… Read more »
What are the current views on bank deposits? If the government/EU balance sheets are so bad, surely they couldn’t cope with the calamity of footing this bill also …but the consequences of not doing so will be far worse. What’ll happen Joe soap then?
Excellent article David !!! I am sick and tired of talking about it!!! As I told you before, my local doctor gets from the HSE almost half a million to look after patients with medical cards. Probably in Germany they can run a small hospital with it, that would look after many more patients, in a more comprehensive way and cheaper as well. Because the most you get from a local doctor here, is a prescription for drugs or a referral to a specialist in hospital, that is going to cost the State more thousands of euro per every citizen… Read more »
Number of Americans in poverty hits record high:
http://www.bbc.co.uk/news/business-14903732
David, We need to be clear on the current situation. Greece, Ireland, Portugal are clearly broke but everyone needs to be clear on exactly what is happening. Merkel and Sarkozy know full well that these countries are bankrupt and cannot pay. However, the name of the game is “bleed the stone dry”. We have the EU powers using the ECB/IMF as loan shark to lend as much fiat currency to the bankrupts as possible. This will postpone the default until Greece, Ireland etc have privatised and sold off everything they possibly can. Then default will be the “only option”. It’s… Read more »
Lammert wrote: “The derivative equity and commodity futures asset valuation system is poised to implode in September with the sudden default and disappearance of Euro debt.” If Lammert is right we are in for a world changing event. If Europe defaults it would surely bring down the whole global system. America is bankrupt. US treasury bonds are only doing well because everything else looks so bad; no one knows where else to go. It does not mean the dollar is getting stronger in real terms. The dollar is finished. The global system, such as it is, is finished. This report… Read more »
Good article here about what needs to be done immdediately in Europe to avert a European collapse:
http://www.project-syndicate.org/commentary/eichengreen34/English
@ coldblow Much of what Lammert says is incomprehensible to me too. No I am not influenced by Kunstler. Don’t know his work in any depth. He seems to be mostly concerned with the crisis of the physical economy — which is the biospheric crisis; depletion of resources (peak oil etc) and environmental degradation. The crisis Lammert is talking about is the financial crisis. They are interconnected naturally but they are distinct. The biospheric crisis is a much bigger problem than the financial crisis in my opinion. Re America: beneath the surface I sense America is highly unstable. The population… Read more »