DO you find it strange that as a result of reckless lending at AIB, 2,000 people will lose their jobs, yet as a result of the same lending, the bondholders of the same AIB will lose nothing?

Some of the workers who supplied their labour are allowed to lose everything, yet the creditors who supplied capital lose nothing. This is not what capitalism is about. This is a type of cronyism.

In a country where unemployment is running at 14pc while at the same time running a balance of payments surplus, this is clearly the wrong choice to make. Yet we have just made it. We would save much more forcing a debt-for-equity swap on the bondholders than laying off the workers, but we do the opposite. Why?

And if you think that this is the end of it, think again. In the course of the next year we will see thousands of jobs go in Ireland’s banking system, and at the same time the ordinary citizen is expected to put billions of euro into the very banks that are making staff redundant.

Let’s examine the latest figures to see what is happening.

Yesterday, AIB announced it had made a loss of €10.4bn in the past 12 months. When added to the €17.7bn loss Anglo made in 2010, this means that losses from these two banks amount to more than 20pc of Ireland’s 2010 GNP. Or looked at a different way, the losses came to twice the total income tax that Ireland generated in 2010.

There is no future for the banking system here. Irish banks are expected to reduce assets/lending by €500m a week, every week, until the beginning of 2015. The total figure which they will take out of the system is €74bn.

If anyone thinks there will be any lending happening in the economy while that is happening, they are delusional. While there is a strong case to be made for a ‘new bank’ in the economy, the only institution in the country that is even talking about lending at the moment is NAMA, whose chairman said yesterday that NAMA would be willing to lend to ordinary people to allow them to buy houses. So here we have the complete nonsense of a situation where we have banks that we are ploughing money into to keep alive, that will not lend and the only lender in the country prepared to lend is NAMA, which is of course the Government in disguise.

But NAMA’s lending will be under its remit of “supporting” the property market here. And, of course, new house lending is exactly the kind of lending that Ireland does not need at the moment; rather we need money for business, business which can grow to employ the people who will lose their jobs in the banks!

Just how ludicrous has our economic situation become?

And we are doing all this so as not to force our European neighbours to give the bill for their stupidity back to the bondholders. There is only one way this can all end.

Think about what is happening. The banks will take €500m a week out of the economy for the next two and a half years. This is a monetary contraction of enormous magnitude. With such an amount of money leaving the economy, house prices will continue to fall because there is not enough money around to keep them even stable. This leads to more negative equity.

At the same time, the budget deficit will have to be cut and this will cause further contraction in the domestic side of the economy. Hopefully exports can keep growing but as everyone knows these are not labour-intensive industries and buoyant exports, while welcome, won’t do much to dent the dole queues. Remember, unemployment has risen from 4pc in 2006/7 to 14pc now.

Think about what happens in the type of recession that we are experiencing. The people see taxes rising, unemployment rising and house prices falling. They respond to this by getting more nervous about the future. So they save more and more.

But as they save more and more, this means that they stop spending. Because they stop spending, someone else has to spend in Ireland or on Irish products to make sure the economy doesn’t contract more.

We know that the Irish private sector is now saving more than 16pc of total income. As recently as 2006, the private sector here was spending more than it saved; now it is saving a whopping 16pc, because we are worried about the future.

Now here is the nub of the problem: if we are not spending, who is? Or to put it another way, if we are not spending and the Government also stops spending, what happens to the economy? It goes into freefall. This downward spiral is made worse by the credit crunch caused by the banks deleveraging to the tune of €500m a week.

So what is likely to happen? Well the first thing that will happen is that the Government will fail to meet the fiscal targets it has set itself under the IMF/EU deal. This might not happen for want of trying but because we would have to sell so much abroad to compensate for the lack of spending by the Government and the private sector. This will not happen for two reasons. The first is that the euro is still strong against our trading partners so there is no real competitive advantage coming our way and the other is that the ECB is now raising interest rates, which will cause us to save even more!

In short, we are in a cul de sac and only truly radical thinking will save us. It can be done: the Government has a mandate and could still act on it.

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