Our government, with its New best friends the EU and IMF, has considered finally crossing the Rubicon and announcing burden-sharing for senior bondholders of the banks.
The fact that this should come as news to anyone amazes me.
We don’t have the money to pay them so they won’t be paid, plain and simple. This has been clear for some time. The question now is, will they take the final step and realise this, when the deal with the EU and the IMF is announced, quite possibly today?
Burden sharing doesn’t go half far enough. This column has called not for burden-sharing, but burden-carrying.
The bank debt has nothing to do with us. We are already paying in negative equity, unemployment, higher taxes, fewer services and emigration for our mistakes; we are carrying our burden. The banks’ burden is not our business.
If the IMF deal means we pay one red cent of the debt of those banks that lent to Irish banks, this deal will collapse because it will be immoral and financially mendacious. That the Irish government’s possible reluctant decision to represent the Irish people and not bank creditors is hailed as progress shows how pathetic our politics has become.
The government’s insistence that the sovereign state would stand behind the banks at all costs (Cowen promised to write ‘‘whatever cheques you have to write in the interests of maintaining the financial stability of the state’’) has tied the state to the banks. It is time to end this nonsense.
This policy has led us to the position we are in now, where there is a danger that whatever cheque the government writes will bounce.
Obviously, the intertwining of the banks and the state needs to be unwound. The (comically optimistic) four-year plan released last week didn’t seem to contain any mention of the banks at all.
All government commentary on the plan insisted that it was viable, and that the banking problem was ‘‘under negotiation’’. It seems the only way this plan can have even a passing association with reality would be if the bank funding mess can be sorted out in away that avoids further costs to the state.
Worries about senior bondholders taking a haircut are more than a little overstated. Yes, they will complain, and yes, the mechanism will probably be challenged in court. Screw them. This is capitalism. I am not afraid of the likes of SocGen or UBS or the many other instititutional investors, are you?
In addition, the rest of the financial market wants us to do a deal which roasts these investors, because this is how we start again. The world is full of new money. That new money will come here if we are seen to be solvent and that means less debt, not more debt.
From the very start, this column argued that the guarantee should have been used to negotiate with the creditors in an orderly fashion calmly to execute a well-planned deal whereby creditors were forced to take equity in the banks or nothing. This is what the US did in the savings and loans bank crisis in the 1990s.
This course was open to the state for two years. All we needed to do was pass a bank resolution bill, which would have superseded all other laws and initiatives that went before. But, no, they did nothing, bluffing their way to Armageddon. Well now we are here.
When the initial guarantee expired in September, inexplicably €55 billion in bank bonds were paid back in full to investors. But no new investors were willing to buy, so the ECB and Irish Central Bank stepped in and provided liquidity to the banks.
The ECB is the focus now. Forget the bondholders. They take what we decide to give them, but we should be working on the mechanism whereby the ECB funding (all €90 billion of it for the covered banks) and the Irish Central Bank liquidity (about €35 billion at the end of October) can be converted into shares in the banks.
As the central banks self-define themselves as ‘‘the lender of last resort’’, they can find a new mechanism to take shares on their balance sheet. After all, the lender of last resort is obviously more likely to lose out than any other lender. In fact, when you think about it, central banks were set up to be defaulted on because, by the time they step in, everyone else has stepped out.
Because they print the money, central banks do not have the same pressure on their balance sheets as companies do. So if the ECB has to take a loss on the liquidity it provided, it doesn’t really matter. It can simply make an entry on its financial statement to account for the loss.
All this debt in the system that is causing the problems is wasted money that was spent during the boom. It is the ‘investment’ in the housing market from 2004 onwards.
Those investments have gone south, and there will be no return on them. In any market, when an investment does not work out, the investors lose their money. Irish mortgage holders have lost money, developers have lost money, builders are going bust. And yet the debt is still hanging around. It needs to go the same way as the Celtic tiger and be consigned to history.
The ECB has the power to solve this problem: failure to exercise that power will put the future of, not only the Irish economy, but also of the euro, at risk.
This is our trump card and we must have the courage to play it. The deal is simple. If they don’t do the deal willingly, we need to default and see what happens.
And do you know what will happen? They will find a mechanism to take the shares of Irish banks onto their balance sheet. And the crisis will be over, because they will not risk the euro and all that political capital to teach the Irish a lesson.
Those at the ECB know that the stakes are much higher. We must now squeeze them. That is what real patriots do: they stand up for their own people. And the financial markets would support us. Without the euro, there is no need for the ECB. Even if they do not want to act in our interest, they may be forced to do so out of self-preservation.
If nothing is done, or if the agreement reached today is little more than a fudge, the banking system to which we have hitched the fortunes of the state will come under more pressure because people will take their deposits out as quickly as the professional lads sold bank shares two year ago. In addition, the euro as we know it will not see out 2011.
Let’s be clear. The solution to this crisis would simply be ‘‘focused quantitative easing’’ which zeros in with laser-like precision on the Irish banks. It is obviously in the ECB’s collective talents to come up with such an obvious solution. If it isn’t, we should – for the sake of our country – force it to.
David McWilliams performs ‘Outsiders’ in the Everyman Theatre Cork, tonight and venues nationwide for the next two weeks.
David our crowd of buFFoons don’t have the courage, intelligence or sense of moral duty to do this.
Bah hum bug!
Allowing whats happened with this deal and the market reaction, it looks like we’ll be heading for ‘good euro’ and ‘bad euro’ dual currency in the future.
Why are the ECB so against quantitive easing?
Subscribe!!!
Those idiots in FF simply haven’t got a clue!!!
Just remember that they were the people who paid out millions of Euro for all kinds of financial advice back in September and what for? They didn’t take heed of any of that very expensive advice. The Taoiseach and Minister of Finance should both be charged with wilful neglect of the Irish Economy. As I mentioned in an earlier reply anyone who votes for Fianna Fail in the next General Election would want to be completely off their heads!!!!
Listen to Iceland president today on CNBC (29/11/2010).
http://www.cnbc.com/id/15840232?video=1672916038&play=1
“1 letter and 6 months”? – Ireland should be so lucky.
In summary – real life (and real-time) example – EVERYTHING David McWilliams has been saying!
subscribe.
Bail out violates EU and Irish Law?
http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html
Time for action- keep the pressure on I marched.I will shut down in protest before I am shut down. Ring bombard FG. Lab . JHRay .Lowery. This is not signed sealed delivered.
http://fintanotoole.ie/petition/
Well, the current lot don’t seem likely to stand up for us, and I’m not convinced the next will be that convincing either unless they are persuaded of the importance of doing what needs to be done. Effectively the Irish now have no representation.
We need a vision and a nucleation point around which a revolution can be organised, thats really all thats left now, everything else is irrelevant.
Why is there no political movement in Ireland along the lines of France’s Rayy for France under Charles deGaulle? Rally for Ireland would be aimed at uniting all Irish groups and classes for the salvation of the nation. It would not leave organizing against the government-bank scheme to labor or to any one political party. The Rally would promise to no longer pay the debts of the banks. These debts, by the way, are to European banks, so naturally Europe’s “help” would be based on continuing to force the citizenry of Ireland to pay off the debts of a few… Read more »
Keep banging out the message David but it they’re not taking any heed. The ‘Announceent of Joint EU-IMF Programme For Ireland’ states that, ‘The Programme for the Recovery of The Banking System will be an intensification of the measures already adopted by the Govt.’ So it’s full steam ahead with the policies which have already proved a failure. The 85bn is made up of… 67.5bn from EU, IMF, UK, Denmark & Sweden 17.5bn from Ireland Pension Fund and cash resources 85.0bn 35bn of the 85bn will go to the banks (10 immediately and 25 over time.) That 35bn is just… Read more »
DAVID> YOU HAVE HEARD OF A BANKJOB?
WELL THIS IS A COUNTRY JOB!
THEY HAVE NOTHING BUT CONTEMPT FOR THE LITTLE PEOPLE.
PREPARE TO BE SHOCKED…….
AS YOU WATCH HOW GREEDY THESE TREASONOUS PARASITES CAN GET!
The problem here is we have 300,000 useless public servants who nodody has the balls or will to sort out. the private sector can’t afford to keep these paper pushers anymore. sack half of them, they won’t be missed same with TD’s and the senators, the euro is finished,just a matter of time,it’s time for us to get the fuck out of it and tell our’partners’ to fuck off. Where is david mc williams these days? time for another tv series or another book with some more smartarse tags,eg popes children,decklanders etc. get off your soapbox and speak up instead… Read more »
Does is really matter what the local yokels do? Basically the politicians running our country are no longer of this Island. The future lies with them. And if they cannot save the Euro, then it’s all over by end of 2011 if not earlier. I cannot see what marching or shouting will do now. It is pretty ineffective and realises zero change. We are a very stupid and inept people judging by our voting patterns and our need for bling and our inability to see beyond the next month’s paycheck. Things will gather pace over the coming weeks. Just sit… Read more »
The Irish debt problem will not be dealt with separately from an overall Eurozone approach to the accumulated debt in the PIIGS and it is clear that such approach does not currently involve reneging on senior debt contracted or guaranteed by member states. Ireland’s public debt is a manageable problem: its public debt level, even with the “bailout”, will not exceed levels already reached in recent Irish history. The real problem is the situation of the banks (exclusively subject to Irish regulation at the time they acted irresponsibly) and the enormous private debt accumulated during the decadent period of the… Read more »
Hi everyone, It was with incredulity and repressed rage I initially listened to the words “the senior bondholders won’t be touched” when watching the TV last night. Once the emotion dissipated I began to assimilate the information and achieved a much more balanced assessment of what in fact is going on at least in my mind. I like most people felt that what was going on was “Bondaid”. However I watched Constantin Gurdgiev later on and he made a number of comments which were incidental to the main points he was articulating but which I felt really illustrates what IS… Read more »
CAN YOU SMELL THESE FILTHY RATS?
THEY STINK LIKE A ROTTEN CORPSE.
WATCH THESE VILE PARASITES TRY TO SPIN THIS ONE….
We are serfs. You, me and almost everyone you know are serfs to our lords and masters. Advice will not be taken. Deaf ears will continue to be turned. In the USA, the poor are kept at bay on a diet of budweiser, bibles and guns. In Ireland, it’s mostly just trinkets. The problem is systemic, and at its heart is an electorate who are blind to strategy and long-term thinking. Bertie being cheered in the Dail bar is but an example of the root of the Irish problem. It is only serfs’ money that is being spent, if the… Read more »
David is turning out to be a one trick pony….burn the debts. We are secure for the next 3 years and then if we followed Davids advice we would run into a brick wall, having no where else to go to borrow money. We need the bondholders on our side not against us. Bondholders are mainly pension funds who buy government bonds as a secure investment, they represent thousands of people accross europe, why are they the bad guys….cop on. As far as the ECB is concerned without them our banks would be bust, they have been very generous to… Read more »
MichaelCoughlan Agree with your thesis. But the thing is that the thesis only holds if the FF Gov use the *liquidity IMF safety zone* take advantage of it to burn the bondholders into oblivion. Now I think D’s article above is pre determining that this aint going to happen. The insiders who run Ireland have zero intention of using the IMF as a safety zone to then torch the bondholders. I do agree that once under IMF safety zone torch the bondholders. Will the FF government do this. Will FG / labour do it. Who actually is in charge here.… Read more »
Well, they’ve inked a deal but we still haven’t been told, definitively, exactly how bad the banks’ positions are. Lots of estimates, underestimates and an allocation from IMF/ECB but is it enough? If the economy continues to contact and deflate then the banks will worsen. Less income for bigger bank bailout equals death-spiral.
Well, I disagree. The German Finance Minister warned that those who need money from the EU should know better than to threaten to blow the place up. Playing the ECB card is a non-runner. The best thing that we can do, is play by the rules, and make sure that no rules are changed against us. If we want to win then we have to win within the rules. And we have to decide if we are playing by the rules of Capitalism – which is something that the establishment in this country has no intention of doing. The time… Read more »
By the way, for those opposed to the bailout terms, there is a way out.
It is the same option that existed for the Anglo Bailout.
It could have been invoked over the bailout of Nepoto(INBS).
It is the same option that existed for NAMA.
In fact, it probably could have been invoked to keep us out of the Euro.
Article 45 of Bunreacht na hEireann.
As before, McUseless will sign the deal into law, and ignore Article 45 (again).
@ michaelcoughlan et al There is a war going on. It’s the third world war. We all expected it to be a global military conflict – a nuclear holocaust – but it is an economic holocaust. From the perspective of most humans it is and will be an invisible war. It will be managed in a compartmentalised or regional manner. There will be multiple sideshows (including some low-level military activity) to keep everybody’s attention off the big picture. What is the big picture? My guess is the super elite have realised (for decades now) that our current economic model of… Read more »
Word of the week is ‘Banjaxed’ – thanks, Joan Burton.
For those who weren’t around at the time, this description of our homeland, as it sank beneath a previous wave of debt, was favoured by Gay Byrne in the 1980s, when he said “the country is banjaxed!” and “Will the last person to leave please turn out the lights?”
Some accounts translate banjaxed as hobbled and Reuters has it as hovelled.
Better equivalent is probably “knackered” but do I detect a kind of evil spell implication in the word?
Peter Schiff say we should default
http://jsmineset.com/
I read a lot of (well justified) criticism from David and other commentators on this blog about the present government and FF in particular. But does anyone really believe that the so-called ‘opposition’ are in any way working towards a different outcome? I listened to Pat Rabbitte on Pat Kenny’s radio show this morning (wow, they even share the same name). They were having a great little natter between themselves. But when the question was posed directly to the said Mr Rabbitte he completely avoided it. And Pat Kenny for his part was going softly, softly too. He’s capable of… Read more »
Iceland are my heros! When the banksters told them they owed xxx the government who took these ridiculous loans was replaced. Then the new government said they are not our debts. You made the stupid loans to those stupid people we are …not responsible for their actions. Go get payment from them. Iceland did not take on the debt of a few greedy idiots. This should be seen as a bad loan by a bank. The banksters tried to leverage a country and the people spoke back saying “not our debts”. The banksters should lose as they made the rididulous… Read more »
http://www.youtube.com/watch?v=kgOovAcsLA8&feature=player_embedded
http://finance.yahoo.com/tech-ticker/article/134633/'Crisis-Only-Just-Beginning'-Right-About-the-Crash-Peter-Schiff-Sees-More-Pain-Ahead?tickers=%5Edji,%5Egspc,%5Eixic,SPY,DIA,QQQQ,GLD
Paul Krugman in the NY times:
http://www.nytimes.com/2010/11/26/opinion/26krugman.html?_r=2
Can I ask a question of the more financially literate contributors? (I am not an ecconomist, although like most citizens of this sorry state, I’ve become an amateur one in recent weeks.) Morgan Kelly, in his now famous “we’re all doomed” IT article of a few weeks ago referred to what I understood as a simple and sensible rule of thumb; namely that when country borrows, the interest rate must be less than the sum of the growth rate over the term plus the inflation rate over the term. Fair enough I thought at the time. Today I see the… Read more »
@Michael, Wills The IFSC had many a sweet deal going not only on ‘double irish’ ‘dutch sandwich’ CT but Bermuda/Irish wild west banking tricks for German banks such as jurisdictional arbitrage in Wills’ link which perhaps led to Hypo losses on CDO’s or whatever in subprime collapse, but lets not blame German banks. Ireland wild west banking was at fault aided and abetted by Government and regulator, that’s why Germans pissed off. They’ve a right to be. Who are being bailed out? Irish banks and their bondholders who were fed by loose regulation as they fed upon a property bubble… Read more »
THE ENEMY WITHIN or…. There is a way out! The Way Out, Donegal – XI 29th 2010, HD Version, best viewed Fullscreen: http://dl.dropbox.com/u/4914840/thewayout.jpg Morning, I think this Monday is a historical moment in Irish history. We were raided, raided by foreign interests and a financial elite represented by EU and IMF, using a criminal government that had no mandate anymore since a long time, essentially acting like a totalitarian government that forces debts on this Nation and sentenced the entire country to become vassals of EU and IMF technocrats. I read this above sentence a few times, and it is… Read more »
It is like as if Cowen and Comical Lenny were pursuing some sort of “scorched earth policy” with regard to Irelands Fiscal position. Fianna Fail are on the way out for God knows how long , so they are leaving nothing, in terms of Finance behind them for any future Administration to use,to enable Ireland to trade its way out of this present morass. I mean they have squandered every cent they could get their hands on. Now they are back for the last piggy bank on the island, namely the National Pension Reserve Fund. I am sure that their… Read more »
Oh….
Julain Assange just announced that the next large uploads to Wikileaks will deal with the financial Institutions…. he announced documents of a major bank to be published….
Very nice!
This chap is just what the doctor ordered!
The stark reality of the consequences of the bailout/mugging. “The Irish “bailout” plan, with its EUR 54,800 cost per household, is by all accounts a modern-era “Long Day’s Journey Into Night”. Ireland’s future, by the way, looks a lot more bleak than Iceland’s. Iceland took a different path (debt default and a devaluation of 60%). Two years on, Iceland is rebounding: exports and manufacturing are growing by 20%, tourism is back near all-time highs, real wages are rising, unemployment is declining sharply, interest rates fell from 18% to 5.5% and the stock market rebounded 50% from its lows. In Ireland,… Read more »
I said I would get back re improving the forum software. Here’s my suggestion. In the wake of the financial war currently being waged across the eurozone and particularly here in Ireland, posters willing to contribute and seek/share good links/information could do with good forum software. For very limited occasional use the WordPress software supporting DmcW is perfectly adequate. However, for those attempting par2 information exchange in an engaged way, it does have some limitations. So, here’s my suggestion. Keep the software above. But for those who want an improved forum experience could http://www.phpbb.com/ be installed on server alongside the… Read more »
Consider this: http://bit.ly/hCfKvS also http://bit.ly/hqJAHm (link from Wills above) “German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland. But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals. So the German banks would do the figures and work it all out in Frankfurt, then send a banker over to Ireland, get them… Read more »
You can talk facts, figures, percentages all day but the way I see this has played out is the idiot European banks and to a lesser extent the world banks lent well educated tossers and gamblers in Ireland vulgar sums of money on the premise that they could bleed out vast fortunes for their clients with reckless abandon.Well they managed to “break the house” and rather than take the losses like all gamblers do they rounded up their cronies in the ECB and the IMF, did a Bertiesque “whip around” and negotiated a deal whereby they break the house a… Read more »
Deleveraging is a slow painful process. When deleveraging occurs, there is usually deflationary pressure. We can seen that if the mortgage bubble goes down by 7 Billion in ten months, then assumming constant conditions in the economy, we can extrapolate how long it will take to reduce the total mortgage debt by half, for example.
http://www.rte.ie/news/2010/1130/credit-business.html
Deleveraging requires continual innovation and regeneration in the private sector economy to ensure that there is employment sufficient to reduce borrowing.
My bet is that the Irish banks and the European banking system and the entire global banking system…is sitting on piles of toxic off-balance-sheet derivatives that have imploded. The derivatives black hole is probably in the order of more than a quadrillion. Given a current global GDP of perhaps 65trillion or so, it will require generations of debt slavery to fill-in the derivatives black hole in the global banking system. So the only sensible thing to do is to put the entire global banking system into bankruptcy receivership; freezing all activities save for those of the high street banks which… Read more »
Hi David, I have thought of an idea that might bring forward the inevitable default and bring down the government. The government and the banks are now one, so the real power is no longer the ballot box, but the current/deposit account. If a movement was initiated, and people switched their personal bank dealings from the distressed Irish banks to other European banks operating under our jurisdiction we would effectively be taking them out of the game. The only power they really have is the core deposit capital, which they are now topping up with 10billion of this bailout to… Read more »
Yesterday Patrick Honahan said that Ireland must pay a punitive rate of interest to discourage other nations from going down the same route – a form of moral hazard for nations within the eurozone. The promoter of this policy is Germany who wants to, at all cost, maintain the value of the Euro. This is akin to the French insisting on punitive reparations for the damage caused by Germany for WW1, except in the case of Ireland it was the action of the European Central Bank controlled by Germany and France which helped fuel the pro cyclical housing bubble in… Read more »
¬¬ Still awaiting spreadsheet for individual interest rates against each of the contributors to ‘the rescue’ to show average 5.8% ¬¬
Suspect its like
EFSF 6.7%
IMF 4.9%
Average 5.8%
……Eurogroup nails down the coffin……
Every Irishman, indeed every European, should spend 3 minutes of their valuable time listening to words of wisdom from the right-wing British MEP Nigel Farage -leader of UKIP.
http://www.youtube.com/watch?hl=en&v=2gm9q8uabTs
Here is an article written by an Economist from the Austrian School of Economic thinking titled the “subjugation of Ireland”. Below the link is the key quote. http://mises.org/daily/4876 { There were two instruments to pressure the Irish government. The first is the financing that Irish banks receive from the European Central Bank (ECB). Since the financial crisis, Irish banks have depended on loans from the ECB. Without these loans, the Irish banks would go bankrupt, implying tremendous losses for the Irish government, which guaranteed its banks’ loans. Indeed, Jean-Claude Trichet, president of the ECB, mentioned during the days in which… Read more »
Goodbye sovereignty, hello Olli Rehn.
http://www.zerohedge.com/article/olli-rehns-upcoming-executive-diktat-ireland-2-double-your-tax-rate
Ireland new has a new landlord class reducing its citizens to serfs and tenant farmers. This does not have to be. What happened to the principle of Sein Fein (on our own)? Here’s what Ireland should have done, or a new government should do. 1. NO GOVT MONEY FOR BANK BAILOUTS. Repudiate the pledge to pay private, corporate bank debts with taxpayer money. Let the executives, lenders and bondholders of those lavishly mismanaged banks pay the consequences, as real capitalism would dictate. Let those banks go into bankruptcy and work out their problems from there. As the current bailout plans… Read more »
This explains the Western financial business strategy of breaking every law and then paying a fine much less than you earned. The Donkey Young Paddy bought a donkey from a farmer for £100. The farmer agreed to deliver the donkey the next day… The next day he drove up and said, ‘Sorry son, but I have some bad news. The Donkey has died.’ Paddy replied, ‘Well then just give me my money back.’ The farmer said, ‘Can’t do that. I’ve already spent it.’ Paddy said, ‘OK, then, just bring me the dead donkey.’ The farmer asked, ‘What are you going… Read more »
Just read through all the posts I must admit I am concerned about peoples agendas being subtley worked into the debate. The only counter to this is the truth…. 1 – Irelands debt is unmanagable.Fact. 2 – Irelands debt is unmanagable therefore Ireland will default.Fact. 3 – We did not all party.We are not all to blame.Fact.What about the people who are recently made redundant? These people are forgotten men and women with children and mortages working 10,20,30 years and now we are talking about cutting their dole.These people are the real victims and they so demoralised and gripped by… Read more »
http://irishminx.blogspot.com/2010/12/love-is-our-greatest-gift.html