The only question that matters in this election is whether we should continue paying out money to people who invested in our banks and got their bet wrong.
The more money we pay these bank ‘investors’ – who have no right to be paid, because the banks they invested in are insolvent – the less we will have for repayments on our sovereign debt.
At a certain stage, the ability to pay our sovereign debt is eroded and we begin the slow process of defaulting on it in order to pay the gambling debts of those who speculated on the word of Anglo Irish Bank.
Solet’s think about it: we are putting the entire credibility of the nation at stake to payback debts incurred by a bank which is currently in the middle of a criminal investigation.
Surely at this stage, with an election in five days, this is the only issue at stake. But voters are not being given the option to decide on this.
The main parties – unless they change tack in the final days – are still more or less suggesting that we can’t allow capitalism to take its course.
They gambled.
They lost.
Move on.
Whether the bondholders are from Ireland or from Timbuktu doesn’t matter.
The idea that a single mother from Tallaght should pay for the bad decisions of private pension fund managers who others entrusted with their money is as bizarrely unfair a contention as I have heard in awhile.
Everyone has lost wealth in the depression – houses prices have collapsed, shares have been eviscerated, jobs have been lost – so why should pension fund holders be above this carnage? This is what happens when you don’t heed the warnings given in the boom: you pay.
Everyone pays.
That’s life.
And we will lose much more if we don’t separate the banks’ debts from the sovereign debt. Let’s have a look at the deterioration in the national debt as expressed in total tax take and then add the bank debt to see why we are risking everything for a banking system that is insolvent.
In 2007, Ireland’s tax take was €47.2 billion. Back then, total net debt stood at €37.6 billion. It would have taken only 42 weeks’ tax take to completely pay off the national debt. Last year Ireland’s tax take had fallen to €31.7 billion, but net sovereign debt had soared to €93.4 billion. It would now take 154 weeks’ tax take to pay off the national debt. This is about the European average
So, although the deterioration has been alarming, the starting position was so good that this only gets us to the EU average of national debt as a percentage of national income.
But once we add the bank debt the thing spins out of control. The bank bond debts break down as follows: €21 billion is unguaranteed bank debt; €22 billion is assets-backed (there are assets to back these bonds); €34 billion is government guaranteed debt issued in the past two years; €36 billion is the promissory note issued to prop up Anglo.
This is what we are talking about. The total bank obligations are over €110 billion. Given that €22 billion are asset-backed, these pay for themselves, but the rest is real. So the total unsecured, or not asset backed, debt is close to €86 billion.
We simply don’t have the money to pay for it.
Last week the total tax take in Ireland was €609 million. Therefore, if we paid only this and nothing else with our tax, it would take us 141 weeks to pay it off! We are insolvent.
There are two forms of insolvency: ‘‘hard-form insolvency’’ and ‘‘soft-form insolvency’’.
It breaks down like this.
A company (or country) can be insolvent (ie, have liabilities greater than assets) but still be able to survive.
This is ‘‘soft-form insolvency’’. In a company’s case, the company could make enough profit over the medium term to trade its way out of its difficulties. In the case of Ireland, soft form insolvency would mean we could raise enough in taxes to meet liabilities. We can deal with this type of insolvency.
In contrast, ‘‘hard-form insolvency’’ is where liabilities so outweigh assets and ability to pay that there is no hope of ever covering them. For a company, this means it will not be able to make enough future profits to cover the current losses. For a country, it means not being able to raise enough in taxes to meet its debts and run itself as a functioning state when the debts become due.
Ireland, without the weight of the bank debts, is ‘‘soft-form’’ insolvent. We would be able to raise enough revenue to meet our liabilities in the medium term. It would be hard, there is no getting away from that, but it would be possible. With the bank debt loaded on the sovereign debt, Ireland is ‘‘hard-form’’ insolvent. We will not be able to meet the repayments without destroying the economy.
A company that is soft-form insolvent is worth saving. A company that is hard form insolvent is not worth saving, and any attempt to do so will only end up wasting money – as we have discovered with Anglo Irish Bank.
It is the same with systems. The Irish banking system is made up of a number of banks. While it may not have been clear in 2008 that some of the banks were hard form insolvent, it has certainly become clear since. Yet we continue to pour money into them.
It is obvious that Ireland is heading towards default (as close as a country can get to being insolvent) so racking up further debt, rather than trying to reduce it, is close to criminally negligent.
If a private company takes on debt when it is insolvent – ie, knowing that the company will not be able to meet repayments – it is known as ‘reckless trading’. If it can be proven in court that the company is trading recklessly, the directors of that company become personally liable for the debts.
If someone accuses the Irish government of ‘reckless trading’ by taking on debt we know we cannot pay, who will be brought to court?
We are now trading recklessly and we are hard-form insolvent. So we, the people, need to decide what we are going to do. Is it too late? Clearly not. There is more than €85 billion at stake. And there is a mechanism in the Constitution for this.
Article 27 provides for a referendum on ‘‘issues of national importance’’. We should be allowed to vote on this. None of the big parties are giving us this option now, but privately they too want to see the end of this. So there is a chance. Maybe the best thing a government could do after the election would be to call a referendum on the bank debt straight away.
This would give them the mandate to say to the ECB that we can’t do anything other than give the debt back to the people who own it.
The ECB, as faceless bureaucrats, would be stumped and the process of recovery would start. As someone who has worked in distressed debt markets for a large bank, I know the bond market would reward us for such a move by opening up and financing us readily.
The balance sheet would be strengthened based on bank debt renegotiation; therefore the sovereign would be saved from debt default and the game changed.
Only a referendum can deliver it. Now is the time.
[…] You may view the full article and add your own comments at http://www.davidmcwilliams.ie/2011/02/21/still-time-to-save-many-billions […]
[…] This post was mentioned on Twitter by David McWilliams, damienomurchu, Helenjmahon, Aylviana Power, Sinabhuil and others. Sinabhuil said: RT @davidmcw: New on the site: Still time to save many billions http://dlvr.it/H8nwQ […]
The election to me is mainly a pointless exercise because none of the protagonists (apart from a few independents who aren’t in my constituency) have the balls to do what is really needed. “The twist is to take all government assets and put them initially into one large corporation to facilitate distributing 70% of the shares, pro rata, to every citizen now living, 15% in trust for the next generation to be born over the next 21 years, 10% for the folks who allow it to happen, and 5% to be sold in the world’s capital markets.” http://irishlibertyforum.org/researched-articles/104-applying-doug-caseys-reasoning-to-ireland.html “The money… Read more »
Maybe a stupid question, but are we not already too late? I thought that the majority of the Bondholders had been repaid and now the debts we have are principally to the ECB?
Is this incorrect?
Excellent explanation/argument/education. Why is no one running for office listening to this?
David,
please list the canidates in each constituency that are most likely to go for your idea of a referendum under article 27.
We need adverts in the National papers before Friday telling people who these canidates are. I’ll stump up a couple of hundred Euros towards this – any body else out there willing to back publishing a list of candidates named by David as article 27 heros?
“The only question that matters in this election is whether we should continue paying out money to people who invested in our banks and got their bet wrong.”. There is also a moral imperative that the lenders take pain. They fed this ponzi scheme. They beleived our deceiving elite. They provided the credit that facilitated the deceit that our own elite played out on us. Welcome to the real world – you reap what you sow. By punishing the people who made this mistake, we are ensuring that it is less likely to occur again. Except it would seem that… Read more »
Check out this guy, I reckon he has the right idea, we should be voting for Fianna Fail again in our droves, we should be taking on more debt and paying our civil servant paper pushers more and more for less and less.
I’ve argued before that what we need in this fair country is a complete reboot, not just reform. We need to draw in the day where the public sector workers of this country need to start making plans for the fact that the government cannot pay their wages next month.
http://www.youtube.com/watch?v=yieS7jWWdB8&feature=player_embedded
This high-level discussion is all very well, but this is personal for me. My situation is like this: I bought a house 10 years ago, I got involved in the madness and remortgaged to the extent that I now have a mortgage at 2007 prices and am in negative equity. That was my mistake and is solely my responsibility. However, my ability to take responsibility for my own mistake is almost totally wiped out by the government’s decision – taken without my consent and with utter disrespect – that I should pay for nameless, faceless people’s mistakes before I can… Read more »
This is exactly the way the 1933 Glass-Steagall Act worked in the US, It was in place until 1999 and every body has seen the bail out mess that has spun out of control since then. A growing movement intends to bring it back. It puts a firewall between normal commercial banking and soeculative “gambling debt” banking. For the speculators to take “risks” and to lose means they just lose and US taxpayers don’t bail them out. If Congress passes Glass-Steagall soon it will create an example for all those countries who are told they have to destroy themselves to… Read more »
David would be better listened to if he were running for office, but that’s another story! Referendum idea is a moot point. Its a rehash of an old position taken by critics of NAMA and government banking policy going back 2 years. We needed it then, its too late now. Government ignored calls for same and went ahead and did their worst. We do also have an election which should provide greater choice than would be possible in a referendum. But more to the point, what wording should be put into the referendum? Do you support the burning of bondholders?… Read more »
I saw Gerry Adams last night on RTE stating that Sinn Fein is supporting the idea of this referendum. It was the first time I heard this. I am behind this idea 100%, but I am afraid the forces at play will try everything in their power prohibit or delay such a referendum for as long as possible. Time is against us very much so, and under the cover and media fog of this pseudo democratic exercise, the election, they continue to pay back and pack more burden onto citizens shoulders as you explained in your last article. Every week… Read more »
Tonight’s “Panorama” is about Ireland’s economic collapse.
Hi David you shrieked a way from being elected, pity
No its time for you, Fintan O’Toole and Joe Higgins to show leadership.
organise a petition campaign to the president
in order to force a referendum!
The right-wing incl. Labour will not move on it.
So, isn’t the President the best option?
Or can she only refuse ? and not call for legislation?
This is all very persuasive, but my guess is that it is too good to be true and might explain why none of the main parties are really pushing this approach. Has anyone really analysed the consequences of unilaterally ‘burning the bondholders’? I did a lot of research on the Argentinian restructuring and I can say that the aftermath was not pretty – with social unrest and many of the multinationals packing-up. And unlike Ireland they had full control of monetary policy. Does it not make more sense to force the European institutions to look to alternatives – put the… Read more »
Enda Kenny is dishonest! Eamon Gilmore is dishonest! MÃcheal Martin is definitely dishonest! John Gormley et al – the same! Maybe I’m wrong – Maybe they are ignorant? Or quite possibly mad? Or maybe spineless? By my calculations there are no other options left and the Irish people are about to vote in their droves for the Dishonest, Ignorant, Mad or Spineless (DIMS) When the DIMS rule reality gets kicked to touch. And what’s reality? Well that’s what they feel on their own doorstep! Crucially – not what we feel on ours! So there’s not really a crime/drugs problem in… Read more »
Post Your Suggestions To Enable this Referendum! What can be done in practical terms to advance this referendum now? Suggestions please! I have some rather radical proposals to suggest, but I am aware that they will not work. 1. Election Boycott The election is pointless until this issue has not been sorted upfront. I do not trust that FG will commit to this referendum, then again, I stand to be corrected. 2. Peaceful but massive Protest I do not think this needs a lot of explanation, but from where I am standing, looking at the history of the past few… Read more »
I smiled at that anarchist, David. The heavy irony came through simply and from the heart. I believe there’s more than little of the anarchist in you in terms of what the mainstream’s touting.
So, Fianna Fail will achieve the revolution? :) What say ‘ee, Davie, lad?
Where do I sign up? How many signatures does a petition for a Referendum need? I’ll bring the pen and paper; where do we meet?
The Brewery in The Mill House Taste is defined in Time but Time is not defined by Taste . ‘Still’ is a meaningless word in the above caption .It only has a purpose if you want to capture your enemy and then to be still you must also change your colours to camoflage within your surroundings so to not be seen by the naked eye.Speed determines its success and failure. The word ‘Still’ is a more an oportunistic word than the previous caption ‘Before’. ‘Still’ will always be behind ‘before’ , were it to be after its already a failure… Read more »
Laws of Southill
http://www.youtube.com/watch?v=HAG0PZuzjFg
David.
From the beginning the commercial class and members of the political class intended to pass the property pyramid scam aftermath over to the taxpayers.
They used the *blanket guarantee* to carry this out.
They used *you* to pull of the stroke of all strokes.
Its you the point too now to blame, as Gormley did on Vinb during the week gone by.
Gormley spoke out loud what the strokers are all thinking.
Blame DMcW, he came up with the idea in the first place.
Hey. What the heck? I posted a comment above. It got an under moderation message, before getting removed, the post ‘from euobserver….’ above was a follow up to it. Not good.
If you want to read original post you can see it at this url:
http://www.bankpoll.net/phpBB3/viewtopic.php?f=2&t=14&p=17#p17
Perhaps an explanation for its disappearance is warranted!
We are unwittingly part of a giant social experiment to see how much the Robber class can steal from the pockets of the people. We can take it for granted that the politicians had no clue what they were dealing with, very little penetrative financial acumen (maybe they should be sitting your Diploma in Economics David, which I would prefer to see titled a Diploma in Financial Knowledge as ‘economics’ is very much a dirty word these days). I think the lack of central government knowledge was conveyed by J. Gormley during his interview with Vincent Browne, the cabinet appears… Read more »
Even a blind one could see that this small population is never able to pay for the capitalist sins…
So why is this squeeze on the country? Is their something the IMF=World bank cronies are after? Are their some Natural resources they want to get for nothing? Just wondering as it is a trak-record of IMF to demand EXPORT of the country’s the “support” to pay for the miss management….
Just wonder does any one have any idea?
Let us not forget the role of the Icelandic President during their crisis.
He put a stop to the lunacy their and let the people of Iceland decide, which was the democratic thing to do, no such opportunity was afforded the Irish people.
David While you are waiting for the new Government to decide on a Referendum you can still go ahead with Lisbon Treay Citizens Initative http://europa.eu/lisbon_treaty/glance/democracy/index Whereby one million citizens, from any number of member countries, will be able to ask the Commission to present a proposal in any of the EU’s areas of responsibility. You could start this petition now and have the numbers required and present it on St Patrick’s Day on the anniversary of the Anglo Massacre, when all eyes are on Ireland and in time for the EU Summit in March. You could say a lot more… Read more »
BEWARE OF CHINESE BEARING GIFTS!!
http://futurefastforward.com/images/stories/financial/ChinaPlaysEuropeCard.pdf
More of it – looming bankruptcies
http://www.guardian.co.uk/business/2011/feb/18/ireland-property-crash-bankruptcy-tourism
Most of you are just talking/blogging. Put your money where your mouths are.
I’m prepared to pay €250 towards the cost of a National ad before polling day naming the candidates in each constituency looking for a referendum under article 27.
Stop blogging, start acting – there are only 4 days to go.
subscribe.
We are just in the throws of kicking and screaming. It is futile to believe that there will be an easy way out of this mess i.e. burning the bondholders. We cannot avoid the debt , the EU and IMF and ECB will force this debt on us. In a few short weeks the banks will get a further 30 billion and this will become sovereign debt that is for sure. DMcW is kidding himself and is in total denial, that is the first stage, the next stage is acceptance that will happen when FG and Labour pay the bankers… Read more »
‘secured’ senior bonds should be abolished if we are honest about this, they should be outlawed. If they cannot be repaid it automatically creates a scenario where the state/citizens pay. It is the same as the state going gaurantor for the banks’ loans. Did our gang in the Dail agree to these terms each time Seanie and Co. borrowed more and more? They probably didn’t even know.
European laws have to change to prevent this from happening again in the bond market. But who will lend ‘unsecured’ bonds to us of all countries?
Why all this cynicism? There’s a world wide movement growing against the budget cutters and their speculator friends. In Wisconsin they have signs saying “Walk Like an Egyptian” The idea that progress in the physical economy has more power than paper begetting paper is spreading throughout the world.Stop worrying about what the ECU and IMF will do to you. They are more broke than Ireland and have no authority to give orders unless you give in to them. The idea of a referendum will catch on because it’s the only thing the new opposition can push for. What the “coalition… Read more »
In my ignorance, a couple of things puzzle me: The amounts involved in this crisis make me think that developers were buying every square inch of this country & planning to build gold-plated 120 storey skyscrapers on it OR have large amounts of money been hidden away, remember many of our biggest developers were private not public companies, operating under a far more lenient accounting system. Also, the idea that such a tsunami occurred without insiders in the banks having the tiniest inkling seems impossible OR were they simply criminally negligent?
This is the website of the Financial Crisis Inquiry Commission :http://www.fcic.gov/
The Commission led by Phil Angdelides took testimony for two years on the 40 yeqars of rot leading to the crash of 2008. Although it was a US Commission it examined the entire global break down crisis. It was modelled on the famous Pecora Commission which examined the reasons for the 1929 crash and led the way for Franklin D Roosevelt’s ability to challenge the “economic royalists”
There is time to save many billions if we have the atittude of this man:
http://www.youtube.com/watch?feature=player_embedded&v=5i7oghsB31c
And here you have the Irish banking crisis in a nutshell:
http://www.youtube.com/watch?v=WHUyCUPb8QU&feature=player_embedded
The faith can move mountains.
Here is the message I’ve got from Eoinn O’Broin from Sinn Fein following my email suggesting them the idea of David McWilliams regarding a referendum.
So I’ve made my mind and definitely after the following answer I’m going to vote for them. So if you also want a referendum they are the only option. It’s up to you!!!
“Hi there George, obviously great minds think alike… Gerry Adams made the call for a referendum the main issue in his election press conference yesterday as covered on RTE news.”
More on Sinn Fein Calling For Referendum on Banking Bailout With just days to go before Election Day, Sinn Fein launched a big billboard campaign saying: “It’s not too late to stop this. Votail Sinn Fein.” The so-called major parties are trying to ignore, what everybody calls the elephant in the room, by trying to dance around the question of the bailout. The newspapers and TV news, knowing full well that this is the central object of voter concern, have attempted to minimize the role of Sinn Fein, the United Left Alliance, the Christian Solidarity Party, and an unprecedented number… Read more »
David, you don’t seem to be up with the play.
My bet is the bond holders have been paid out, we are now in hock to the ECB. It’s too late to do anything about the banking debt except to burn our fellow EC citizens. So who are we going to vote for..? Suckers all of us. This being Election Week, a few word from the master. Oh, and have a nice day.
http://www.youtube.com/watch?v=xIraCchPDhk
[…] His full article is well worth reading – here’s a clip. It is obvious that Ireland is heading towards default (as close as a country can get to being insolvent) so racking up further debt, rather than trying to reduce it, is close to criminally negligent. […]
Still does it make a Difference ? I can sense the frustration in the room from the absence of some popular contributors responding recently.I am taking it to be caused by the results of the popular newspaper polls and the inevitable winners projected .So does it make a difference anymore? I can only speak for myself and only do what I know I want to do because that is all that matters to me anyway. I am in the West Limerick bailiwick a place that has a stiffling stench of political stagnation that has never changed in as long as… Read more »
Check out http://smallbusiness.dnb.com/ where one will find : The Government of Ireland,Court Services,Dublin Circuit Court, The Law Society of Ireland,Garda Telecoms etc. etc. all appearing to trade for profit. Why is there a company called The Government of Ireland?
Gambling Tax I had this idea for a gambling tax, that might be palatable to people. If the government levied 5% on top of the principle wagered. But instead of just collecting the tax there would be a gamble taken with it. The 5% levy would be gambled with the bet, so instead of just collecting your money the government would be partaking in your gamble. In the event the bet wins the government gets a greater return for its tax, and for odds of better than 2/1 the levy would be returned to the punter. The government just keeping… Read more »
NOT NEGOTIABLE We the people of Ireland demand: 1. The cancellation of all banking debts with no reciprocal obligations attached and the payment of compensation for damage caused to the Irish economy. 2. A full investigation into all banking matters to be conducted by a a special investigation team that is made up from members of the public as well as international experts such as Prof. Joseph Stiglitz. No behind closed doors, 100% transparency. All documentation from DoF and all Banks to be released to the public, refusal to comply, unreasonable delays or destruction of evidence should be treated as… Read more »
Tonight there will be the final debate.
Three millionaires debating how to approach hard times.
People are going to have to figure it out for themselves, because the system is an extortion machine for the benefit of the well connected.
EEG Report is out:
http://www.cesifo-group.de/portal/page/portal/ifoHome/B-politik/70eeagreport
Have we lost interest in the politicians or is it ourselves the Electorate?
Have we taken credit from the electorate and given it to the Politicians?
Do we aspire to be citizens of North Korea of Europe?
Do our genes tell us to become Slaves again shakled in chain for an eternity ?
How does the word ‘Idiot’ resonate like ?
http://bit.ly/f603EB
Challenge political parties on their growth forecasts of 3%/annum between now and 2014.
Also note in deflation, black hole economics means cuts have a multiplier effect, where 3% becomes 6% or even 3² or 3²*2*3², numbers become more difficult to predict because of a default black hole effect tipping point.
It would appear that, judging by their figures, default is about to come to our new government as just as much a surprise as the crash of 2008 came to the previous government.