Last Wednesday morning, the dole queue on High Road in Letterkenny extended for about half a mile, out past the social welfare office, up past the Mace supermarket and on up towards the roundabout and De Valera Road. Up to the right is the ghost estate of empty houses which will never sell and will be used to house welfare recipients – locals and immigrants.

This is Letterkenny, or ‘‘Letterkenya’’ as one person described it tome, formerly the commercial hub of north Donegal; now, judging from the traffic, the gateway to Strabane.

Walking through ‘Little Britain’ – the retail park in the town which is home to M&S, Top Shop, Tesco, River Island, B&Q, Currys and Oasis – I wondered what the Long Fella, Eamon de Valera himself, would make of this ‘big box’ imitation of Middle England, populated by lads in Celtic jerseys, located at the bottom of Padraic Pearse Road.

The background noise is the roaring rev of pimped-up, third-hand Honda Civics bought in the North. The boy racers – fondly referred to locally as ‘shams’ – cruise with their ‘shamettes’ up and down Main Street. They proudly display their latest spoilers.

Initially, you think there’s no one driving the car, until you see the reflection of the white Diadora hoodie and the gelled hair brushed furiously forward, peering out just over the steering wheel.

This is the way they like to drive, sunk low into the customised driver’s seat, accelerator revving, Jay-Z blasting out of the boot’s massive sub-woofer, which makes the vehicle look like a cross between a Provo car bomb and the 2FM roadcaster. The Tango’d shamette in her ‘going out’ pyjamas is oblivious to the racket as she focuses on her quick-dry French manicure.

At the overwhelmed dole office, the staff stare out of the cubicles like petrified sentries. People in the queue look lost. They examine the countless forms, puzzled. These folk have never been here before; they are shell-shocked. These are Ireland’s ‘welfare virgins’. Like all first timers, they are a bit flummoxed by the experience. Young men and women who, up until Christmas, had good jobs, good prospects and good lives, are now faced with losing their homes – and, possibly, losing their hope.

Across from the dole office, the local credit union- the only financial institution to come out of this mess with any credibility – is self-consciously open for business.

This is our country. This is Ireland: a fragile nation of unemployed young people, clinging on to existence in ghost estates, driving cars bought in the North for half the price and competing with immigrants in British retail colonies, which are positioned like garrisons on the outskirts of our provincial towns.

Unlike the banks, these people are not being bailed out. They are fending for themselves. There is no Nama that is going to ask the taxpayer to pay for their mistakes. Their businesses were not considered systemically important. They are the ‘outsiders’ and, unlike the ‘insiders’, they will not be rescued.

This brings me to the question of the banks. I listened to Michael Somers’s frank and honest account of the situation last Thursday. If he doesn’t know how the bank bailout will work, who does?

Let’s pose the big question: why are we bailing out insolvent banks? What economic model tells us that we should tax people who are struggling to pay for the mistakes of bankers who are now prevaricating? Could we not just let the banks go – guarantee the depositors and let the rest of the banks’ creditors experience the market? After all, these investors were very happy to take profits in the good times. This is what they did in South Korea, Thailand and Taiwan in the late 1990s.

This market-based approach was also the logic of the guarantee. Last September, the idea was that these banks would raise capital from the market. But they can’t do that because they are insolvent. If they are insolvent, they will recover only if we taxpayers pay for their mistakes. But why should we?

Banking, after all, is a simple business. If these are not good banks, then we will put our deposits in the new banks which will emerge. When you think about it, the issue with our banks is an institutional problem, not a systemic one. No institution, no problem.

Allowing the banks to go would mean limiting the scope of the state guarantee.

This is not only possible but advisable because, despite the guarantee and the state’s injection of capital, the banks are still broken. There is no convincing reason why we should keep insolvent banks afloat. But that’s not to say there would be no problems in re-ordering our financial system.

The bondholders of the banks would have to take a haircut. They might have to settle for 15 cent in the euro, or wherever the defaulted bonds fall to. But if they hold on, the price of this debt is likely to rise as the economy turns around in the next five years. Equity holders would be wiped out, but here again, a debt/equity swap might give them some hope.

I realise that this sounds radical, but think about the alternative. The alternative is to turn the nation into a large ‘debt servicing machine’ in order to bail out banks that we don’t need and which made basic commercial mistakes. The market will solve the problem, and the banks could work through their debts themselves. They lent the money, after all.

Unless you think that a new bank with a clean balance sheet would not emerge, then there is no reason to believe that a new Bank of Dublin, Bank of Cork or Bank of Galway will not replace the old banks in double-quick time. Credit would begin to flow through these banks with their clean balance sheets and new depositors.

The upshot of the Nama approach will be huge bank fees for years as the banks try to raise the money to pay for their bad loans. This alone will hamper the recovery. And government injection of capital means higher taxes. Madness.

At the moment, all political opinion believes that we should breastfeed the banks in some shape or form Fianna Fáil and Fine Gael believe that the weak child should be fed from one breast, half private, half public. The Labour Party believes that both breasts should nourish the child through full nationalisation.

So the right wing believe that the market’s not up to the job and should be supplanted by the state, and the left wing believe that it is right that the poor should subsidise the rich. Either way, we have the same outcome.

Confused? I’m not surprised. But when you see Sinn Féin voters in Celtic shirts with ‘Saor Eire’ tattoos, feeding the British exchequer by popping over the border to evade Irish taxes by shopping in Asda, Strabane, you know we live in a confusing world.

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