Watching the Quinn administration saga unfold, I couldn’t help wondering when Ireland would be put into administration.
The reason Quinn is in trouble is because we are in trouble. In fact, the business model of Quinn and the business model of Ireland Inc were remarkably similar. Both came a cropper due to massive borrowing on one asset: Anglo in the Quinn case and property in the case of the country.
When you look at the country, the prognosis – given what happened in Greece in the past few days – is not good. If we are borrowing â‚¬500 million to stay afloat, if growth is negative, prices are falling, people are defaulting and our total debt/GDP ratio is exploding, Ireland is not too different to a company trading recklessly. Where, with all these debts, are we going to get the cash to pay back the present borrowing?
If the country continues to borrow and borrow, it will wither on the vine. Is it time to do a deal with our creditors, rather than promise everyone that we can pay back everything when we clearly can’t?
The whole point of examinership – or administration in the case of an insurance company – is to prevent liquidation. This is what the management of Quinn has acceded to for its insurance arm, for the sake of the workers and policyholders. What about the workers and stakeholders in Ireland Inc? Where do we stand? What is our management doing to ensure that we have a future?
To see how close national liquidation could be, we only have to look at what has happened to Greece last week. Recently, this column wrote the following about the eurozone/IMF bailout of Greece, which was announced over the weekend and welcomed by mainstream economists as the solution to Greece’s problems:
‘‘I sense that smart bond investors will use any putative EU bailout as the last opportunity to sell. The clumsy ones will buy, believing the government and brokers’ spin. But as they realise that Greece’s problems haven’t gone away, the positive euphoria accompanying the EU bailout of Greece will dissipate.”
And so it came to pass.
The initial commentary suggested that the bailout would embolden investors to believe the Greek stabilisation plan. This would lead to investors buying Greek debt, because they would believe that the Greeks would respond to the eurozone/IMF pressure. But, as I suspected, after a few days of euphoria, the markets slumped and the Greeks said they were finalising preparations to apply for the bailout money.
This is the endgame for Greece and the process of defaulting is now in train. The issue now is about the pace, rather than the direction, of events. The problem is that the market isn’t prepared to lend to Greece – bailout backstop or no backstop. It is shut to Greece.
By the way, we just lost the â‚¬480 million that we pledged last Sunday to give Greece, because this money will be used to buy Greek bonds, which hedge funds are now selling. So our cash will go to bolster the balance sheet of financial players speculating against Greece, because – as they say – for every seller, there has to be a buyer.
Unfortunately, that buyer of Greek bonds is our government using borrowed money to buy Greek bonds when even the Greek public is selling.
How mad is that?
With events in Greece moving rapidly towards a conclusion, the markets are now likely to turn their attention to Spain, a country where 40 per cent of men under the age of 30 are on the dole. How much pain can Spain take? The rules of the euro demand that Spain cut its expenditure now. This is practically impossible.
We are now firmly gripped by the logic which caused the gold standard to blow apart in the 1930s.The members of the gold standard tried to maintain their reserves of gold in the middle of the depression by cutting expenditure.
This made things worse and ultimately led to the gold standard being dropped. Once it was dropped, the economies started to recover, after doing deals with creditors and injecting new cash via the printing presses.
This is what should happen in Europe, but won’t because of political attachment to the euro project. So we will go through a pointless exercise – like the one we are going through with Greece – but next time it will be bigger and it will prolong the recession.
Next, the eurozone will have to put together a bailout for Spain. Given that Spanish GDP is over four times that of Greece, let’s assume the bailout will have to be over four times bigger. So that means that Ireland will have to pledge nearly â‚¬2 billion to defend the Spanish bond market in the next few weeks.
Where are we going to get this cash? Will we borrow the cash from the European Central Bank (ECB) in order to pretend that we have the firepower to back up our euro credentials?
Ultimately, the markets’ guns will focus on us, as they did in 1993 during the currency crisis. Back then, it didn’t matter that we argued Ireland was different. The markets saw a currency to be attacked and they went for it. The same is likely to happen to our bond market.
Do we have a Plan B figured out if and when this comes to pass? My fear is that we will adopt the position of the Quinn Group up to recently, which is to try to carryon as if nothing is wrong. This makes the situation worse because, when the blowout comes, it is much more severe because the room to manoeuvre is so tight.
The Quinn Group, like Ireland, has a decent future. However, the levels of debt which both are carrying make it almost impossible for either entity to achieve its full potential. The creditors of both have a choice: do they try to get all their money now and risk the company just imploding trying to pay all the debts? Do the creditors let the bad bits of the company destroy the good bits?
The management also has a choice. They can carry on trading, ignoring the new realities, or they can cut a deal.
The management of the Quinn Group has been forced to conclude that putting the insurance company into administration would be the best deal for policyholders, workers and the group in general.
It might not be the best solution for the shareholders, management or creditors, but it is the only way the company can survive. In the long term, the creditors will be better off with a company that grows, rather than one which folds now. After all, the smaller part of a growing pie is better than a big bit of nothing.
Are we going to wait until we implode like Greece? It doesn’t matter that we don’t consider ourselves to be in the same boat; the markets are looking at our debt dynamics and seeing that, although our government debt is not nearly as bad as that of Greece, our private sector debt is far, far greater and all that private debt has to be serviced.
Equally, Nama and Anglo Irish are in the process of doubling the national debt with no perceptible increase in assets on the other side of the balance sheet. We know Anglo is a black hole and, the way things are going, the next time Brendan McDonagh is back in front of the Oireachtas, the Nama ‘assets’ will look worse than they are now.
So do we have a default plan? Is the government drawing up a set of scenarios to address the day that the contagion spreads from Greece to Spain and Portugal and then to us? Like the bank crisis, up until the last minute, they will accuse those who pointed out that the banks were flirting with bankruptcy of ‘dangerous talk’, ‘loose talk’ and, ultimately, of being ‘unpatriotic’.
What was that about patriotism being the last refuge of the scoundrel?
Time for court trials.
It is clear to any sane person at this stage that sytemic institutional wrong-doing has been perpetrated on the people of this country .
We need to clearly pathologise it in our social and cultural norms.
Until we do that, the malaise will continue to fester.
Currently, it seems that I can not access the live broadcast of the oireachtas.
Anyone here successfully getting the flash to play?
Spot on, D.
True patriots tell it like it is. Keep on telling it like it is.
Treasonous and delusional self serving pillagers who’ve destroyed the economy in the process ain’t patriots.
The blindfolds are coming off as reality hits. Thanks D and thx to others on this list I’ve learned a lot from.
Keep the good info and links coming on this oasis of sanity on bananas namaland.
[…] default, Greece by John P. Muldoon David McWilliams, in this week’s Sunday Business Post column, says a Greek sovereign default is imminent. As I noted here last week, both he and MIT economist, […]
“Equally, Nama and Anglo Irish are in the process of doubling the national debt with no perceptible increase in assets on the other side of the balance sheet” – no dispute with Anglo though the Government claim the cost of letting Anglo go bust is “too great to countenance”. But is it a little unfair to claim that NAMA’s purchases (which have pushed up our debt) don’t have assets underpinning them. NAMA told the Oireachtas last week that some assets had dropped by 90% (and remember the loans may not be at the peak so the drop from peak could… Read more »
Once again, David is way ahead! – where to from here? Damien Kiberd – Sunday Times “Clearly, the markets believe a default by Greece is still likely. The Greek debt-GDP ratio will go through 120% this year, which is the same level we will hit at the end of next year. Which country in the eurozone will next be targeted by speculators? Will it be Portugal or Spain? Or Ireland? As the crisis spreads, the Germans will be more, not less, truculent. Our capacity to deal with the debt issue is poor. We are now in a perma-slump, a classic… Read more »
Gilmore was on to something when he said Cowen was ‘guilty of economic treason’ – he was not alone!
“Like the bank crisis, up until the last minute, they will accuse those who pointed out that the banks were flirting with bankruptcy of ‘dangerous talk’, ‘loose talk’ and, ultimately, of being ‘unpatriotic’.”
Reminds me of M. K. Gandhi’s line:
“First they ignore you, then they condemn you, then they say they agreed with you all along”.
It just goes to show how delusional people can be. The Eurozone is doing everything they can to plaster over its problems, but its not fixing the cause that is trade deficits with nations like China and low interest rates causing real estate bubbles. The Eurozone is going to try print its way out of trouble, but that will lead to a debt spiral and then to distract the population they will create a phony war to distract its citizens and use it as an excuse to abuse civil liberties. If you think that sounds far fetched, think again. This… Read more »
Could Germany quit euro over Greece crisis?
When I was a young man I visited Greece every year for annual holiday. Then their currency devalued by about 20% every year.They lived happily with this “controlled” inflation.
They then joined the Euro.
Methinks,nothing really changed their old habits.
Hi David, > Both came a cropper due to massive borrowing on one asset: Anglo in the Quinn case and property in the case of the country. Not exactly, Quinn are in difficulty because they have over-extended on credit lines which were semi-backed by property and which have gone down. They doubled their debt-quagmire by ‘betting’ on the bank that had loaned them the money, so lost more than they should have. The fact that Ireland’s richest man, doesnt have about 150m euro to shore up his insurance business is a sign that perhaps he was never worth 4.2billion. Assets… Read more »
Maybe someone could put the Irish version together?
How to create an angry American?
So waht will an Irish sovereign default look like in practice? No money to pay public servants, state pensioners and social welfare recipients? A new currency (punt2, I’m tempted to call it fiat punto) circulating in tandem with the euro and used to pay the above groups? I know that in Argentina back in their default in the 1990’s certain regions printed their own currency and last year Kilkenny came out with a local legal tender called the Cat which gave you an additional 5% buying power if purchased for euros and used locally. If we default and return to… Read more »
Their man says – He (Gordon Brown) threatened to block multimillion-pound bonus payouts if the firm (Goldman Sachs) is found guilty of wrongdoing. http://www.guardian.co.uk/business/2010/apr/18/gordon-brown-angela-merkel-goldman-sachs Our man says – ‘Social Protection’ Minister Eamon O’Cuiv has asked the chief of executive of Bank of Ireland to hand back a â‚¬1.5 million pension top-up. Mr O Cuiv said the Government did not have the legal power to force the chief Executvie, Richie Boucher, to give back the ‘award’. F***********************ERS!! Tell me WHY when we pumped taxpayers money in it wasn’t done with strings attached, if I open a Bord Gas account I have… Read more »
Quinn = Quarries —– Understood
Quinn = Quarries + Cement —— Understood
Quinn = Quarries + Cement + Insurance —– ?
Quinn = Quarries + Cement + Insurance + International —– ??
Quinn = Quarries + Cement + Insurance + International + Anglo-Irish —– ???
Quinn = Quarries + Cement + Insurance + International + Anglo Irish + Irish taxpayers ——-????
Quinn = Quarries + Cement + Insurance + International + Anglo Irish + Irish taxpayers + contribution to Greek debts —— ??????
Where ill this house of cards all end????????????????
Being charged for water when 50% is leaking because of appalling infrastructure (i.e. broken/leaking pipes!) – meter installation is like road tax, you’re not paying for either roads or water, it’s just straight bloody tax as one of the worst times in our country’s history – where the f**k will hard pressed people to find the money!
Bloody Greens are in la-la land – monied idiots! They should go to the Dublin mountains (like they were encouraging people) and stay there!
Is the administration of this water nonsense going to be in the hands of a private company? Who is installing the water meters? How will it be rolled out? Who foots the bill? Who benefits?
I hope this is the issue that brings down this appalling government.
The Cochabamba Water Wars: Marcela Olivera Reflects on the Tenth Anniversary of the Popular Uprising Against Bechtel and the Privatization of the City’s Water Supply
Lots of salient points in the article. I will take this up in the next few days. We are facing a very harsh awakening. And there are legions of people who want to shut that out and stay on the sofa watching virtual reality. Concerning responsibility, there is now an industry in making other people responsible for the individual issues that every individual is now facing. And this industry was best exemplified by the weekend’s ILP meeting in Galway, with one speaker after another promising rescue at the expense of ‘the people who profitted from the Celtic Tiger’. Forgive my… Read more »
What was it that Hemmingway said “Patriotism is the last refuge of scoundrels” ??
FF, SF, ILP, the George Lee bashers in FG, the GP, media commentators, celebrities like Bullshit Bill, Mr. Point Depot, etc….
Hemmingway was correct. Scoundrels the lot of them.
“Where with all these debts are we going to get the cash to pay back the borrowing”, you ask, David. Right under your nose thats where, or at least a decent percentage of it. One huge source of untapped income currently available to the Irish economy is unpaid tax, or to put it bluntly the “black economy”. Something Ireland has in common with Greece and Spain. How huge is it, as a London born and based visitor to Ireland for many years, I could take a straw poll from 7 of my cousins who I am still in touch with.… Read more »
This is staggering stuff.
The proof of every students conspiracy theory. Didn’t Goldman Sachs do something or other for the Irish Government?
Methinks young Elderfield is going to be a busy man.
Several of you have compared our economy to a sinking ship – a useful comparison.
Yes, the good ship Ã‰ire has hit an iceberg. Captain Cowen and officers are first into the lifeboats, while the crew dash around like headless chickens helping mainly MALE FIRST-CLASS PASSENGERS make it safely into the lifeboats, leaving the “socially disadvantaged”, the handicapped, and that unruly rabble of women and children to fare for their good selves.
BRIAN, YOU ARE SO WONDERFULLY BRAVE!!
We need to understand that industry in Ireland never got off the ground. We had a brief boom from the Mid 90s to 2000 and then it fizzled. It fizzled before people really understood the game was up – that took another 7 years or so. In the intervening 2000 to 2007 the only real source of income was property financed from cheap money. To date, if you invested then and generated a tidy rental without getting too greedy, you are quids in. It is terrible to say it, but that is the consequence of taking the eye off the… Read more »
For those who may not have seen this before, I thought I’d post it again. It’s Article 45 of the Irish Constitution and I’m buggered if I can figure out how it fits with whats going on with the banks. DIRECTIVE PRINCIPLES OF SOCIAL POLICY Article 45 The principles of social policy set forth in this Article are intended for the general guidance of the Oireachtas. The application of those principles in the making of laws shall be the care of the Oireachtas exclusively, and shall not be cognisable by any Court under any of the provisions of this Constitution.… Read more »
It’s about to get more interesting…………..traders already working on it for maximum financial advantage.
It would also seem the US, British and German governments are intent on breaking up Goldman Sachs
Oil, Smoke & Mirrors….
David proved right again.
off topic, but icelandic volcano looks like it’s going to throw an big spanner in the works.
The eruption of the Eyjafjallajoekull volcano in Iceland, and the travel chaos it has called, is only a “small rehearsal”, according to Iceland’s President Olafur Grimsson.
The larger Katla volcano, right next to it, usually erupts every century, and the last eruption was in 1918, he said.
He also said that European governments should prepare
it’s a right mess and could get a lot worse
A Paul Forrest has posted probably the most succinct analysis of the current situation to date in response to Fintan O’Toole. http://www.irishtimes.com/newspaper/opinion/2010/0420/1224268693609.html Is it manageable? Hasn’t anyone read this? Money Advice & Budgeting Service Dublin South East MABS 26 — 28, Lombard Street Dublin 2 Dear MABS, My name is CathlÃn NÃ HoulihÃ¡in and I earn â‚¬35,000 a year. My annual spend is â‚¬60,000 and I have borrowings of â‚¬80,000 on which I can barely pay the interest. I’m spending a further â‚¬40,000 to purchase some property-based assets, once worth â‚¬80,000, which I hope to be able to sell on… Read more »
A financial advisor tried to talk me into buying property this week. I was told “this is the year to buy”. I felt like Marty McFly. What year is this ???. He was all excited, flapping his arms around. I backed away slowly and made no sudden movements.
There is a movement to call a General Election on April 24th, people gathering in all major Irish cities, see also Facebook………
Call for a General Election in Ireland – Saturday 24/04/2010 @ 12 Noon
How do you go about putting a country into administration, seeing as we have a democratically elected government? My reading of the piece is that we are steering a direct course towards default which nobody wants to mention or even think about. That if we do nothing to avert this (Nama is just pulling out the throttle) then we will be left to cut the worst possible deal. That govt. should be seeking to avert the worst possible outcome but that nobody in DoF wants to give any thought to the possible scenarios because even to admit to theoretical possibility… Read more »
‘And the medal goes to Paddy Last!’
I could hear the village roar.
‘Now I’m first at last’ I cried
‘I was always behind before!’
How will we repay our 140 billion ( end 2010 ) ? Well there is always the option of put this debt directly on the shoulders of the population. How about each citizen over the age of 18 being issued with a loan of 50,000 to be repaid in installments over 20 years. That is the only way of repaying the national debt because the government has no will to start repaying it. Indeed the national debt will soar to 190 billion in 2014 does anybody know the difficulty in just balancing the budget in one sigle year, this will… Read more »
David. In the Article above you decry ‘its all MAD MAD MAD’. I think you are referring to the bonds and paper money debt system going beserk that you are decrying MAD. The paper money FIAT system is been utterly pillaged and plundered and robbed in our faces. Look at the stories on the news tonight. GOLDMAN SUCKS an egg first three months bonuses manna from heaven. BofII Boucher (who is NOT from Ireland from South Africa) and he is awarded a 2 million pay rise for what..? NAMA bonds shifted another billion again money from ECB printing presses going… Read more »
Second wave of the financial crisis?
Link on Derivatives reform.
Good link here on Roubini taking the baton from D’s article and running it over the finishing line.
It is really fascinating to observe how the exact same rhetoric, down to the very choice of words, is used by Cowen / Lenihan concerning Anglo/ Irish Nationwide compared with their corresponding colleagues in Germany and Hypo Real Estate. The mantra is always the same, ‘We did not make any errors’, ‘We did not see this coming’, ‘There is no other way’, and so on. A commission was put in place to investigate, and ran into the same rubber wall of silence, lies and secrets built by Josef Ackermann (Deutsche Bank) who happens to be chairman of the IIF since… Read more »
Thank you, one and all. What a great read! How informative!
Just take a look at this for arrogance, the day after 1.5 mill went to Boucher the BOI Boy and Cowen denied he knew anything was wrong at INBS(When half the world was screaming Foul);
Wills, Here you go now. This is how you stop it.
Buy a hacksaw.
Constantins on the warpath again.
How can we get this message across to the pulverised punter who doesn’t blog??
Eamon Leahy SC – this man was one of the first people I suspected to have acted unprofessionally in his capacity as chairman in a state quasi body and I had grave reservations about his motives shortly before he died.His correspondence and meetings with me were deceptive and I sensed poison in the air about him.His actions frightened me then.
Hahahaha, and they try to make the public believe that investigations are on the way since 14 month because of “the complexity of these matters’ concerning Anglo.
Even the bigger picture It is pretty straight forward!
The only thing that is complex here is the cover up at work.
I do have a red line through my contributions here that I would like to emphasize again. Someone was asking me a minute ago what I think the political ideologies behind the curtains are made of and how that comes into play. Well here are my 0,2 cent., I am warning since a long time that red flags are up in the US and all over Europe concerning a new emerging breed of a very slick fascism on the horizon. The events of this Heist are linked. The grounds are prepared, and they are nourishing grounds to channel the anger… Read more »
@Furrylugs 41 “Negotiations with the IMF, the EU Commission and the European Central Bank on a loan from the proposed rescue fund are due to start today. Greek finance minister George Papaconstantinou said that if his country did activate the rescue package of up to â‚¬30bn from its eurozone partners, the loans would start arriving within one to three weeks.” Seems to me there’s a tipping point being approached this week. On the one hand, SEC (Securities Exchange Committee) investigation into Goldman Sachs http://bit.ly/ay3Wrx is showing up DIRT. There’s mounting opposition in American Senate to the proposals for new regulatory… Read more »