You think the EK is that devious, that he would table a no confidence motion to ensure that provided it didn’t pass, the government would continue for another 6 months and so ensure that Richard Bruton would not present the next budget.

Well you should examine the rules about votes of no confidence.
The Ceann Comhairle can decide to allow a vote of no confidence within the six month period.

When I wrote that FG people want to be in office because there are hard decisions to be made I wasn’t trying to do an impersonation of JFK with a Castlebar accent. The point was made to me by an FG front bench spokesperson - a serious person who is not perhaps a media star because (s)he actiually pauses to think before replying.

This is an economics forum.
But sometimes you have to say.
It’s politics, stupid.

And we have seen what happens when dumb and dumber get to run the country.

So for once leave cynicism aside.
The most momentous decisions since at least WWII when we decided to watch are being made.
Do you honestly believe that we want to see this zombie government sign away the future of at least one generation?

The Government is hardly going to collapse pre-NAMA when Enda Kenny tabled a no-confidence motion after the local elections specifically to ensure that FF would have to deliver the next budget. FG’s courage knows great bounds.

http://debates.oireachtas.ie/DDebate.aspx?F=FIJ20090707.xml&Node=H2#H2

That is all they are interested in - in fact the level of cognitive ability among this zombie administration means they cannot comprehend the problem and their role in creating it. The numbers are beyond comprehension and the implications for our collective future would be enough to dishearten an Obama figure if we had one If they did, they would have taken the Bertie option and commited ritual suicide.

Only a change of government can alleviate some of the catastrophe.
The government is full of people who feel sorry for themselves and think this is a terrible time to be in politics - no sweeties to be handed out.

Without being too political, I know from personal contact that FG is full of front bench spokespeople who are realistic about the catastrophe but alse see this as a great time to be in politics - decisions now will have enormous implications for the next twenty or more years.

Is there any hope this zombie government will collapse before NAMA is passed?

I agree wholeheartedly!

What is a liquidation process for? Oh yes, the little people! It works for the benefit of the economy as a whole. For you and for me. Just because big banks like to employ people who have degrees in wconomics gives them no more right to survive and stink out the economy than any other deadbeat! If all this land is locked up for years, where are the construction jobs to come from? The banks are going to absorb all the money given to them and will still not lend into a deflating economy!

To reverse the deflation we need to liquidate. Every economist knows this. Recovery starts thereafter. Every commentor on this site, bar our two Brians perhaps, is ignoring this option. Why?

Set up good banks. And keep them that way.

@Brian Lucey
“NAMA is not about that. Its about…other things”.
Brian could you please spell out for me what you think those ‘other things’ are. Serious request - I’m not great at understanding governments’ Machiavellian dealings.

The government must give serious consideration to alternative plans. They should bear in mind that these are already in the public domain. The probable NAMA losses being passed to the citizens, will be seen as the ultimate act of cronyism.

So, we either have to place the existing financials in receivership - and face the unpleasantness this causes, or bankrupt our state - as the citizen taxpayer will not have the necessary future income to pay all their bills - and bail-out taxes. OK, they will if there is a significant inflation in the money supply, but not otherwise.

One interesting stat from KW’s post was the probable future value of residential property. When this ensures - what will the level of neg equity be? I understand that Irish mortgages are recourse loans - correct? If this is so, then its curtains!

Growth. Now several of you have mentioned this. I would like KW and any other senior economists/finance experts who contribute to this blog to carefully explain the difference between a Production/Construction economy, which generates a real surplus after paying its bills, and the current FIRE* economy which uses credit as an input, and produces debt. Debt grows by the way - like exponentially! Ireland is principally a FIRE (consumer) economy, not a P/C economy. So, growth in this context means MORE DEBT! Is this rational?

A P/C economy mandates a significant input of various forms of energy in order to ‘grow’. There is an emerging real problem with world liquid fossil fuel production (declining) and the internal, domestic consumption of liquid fossil fuels by the producing states (increasing). The nett, available for export is declining, on the double!. Less energy, less growth!

Someone has some difficult explaining to do.

*FIRE: Finance, Insurance, Real Estate.

Brian P

ps: Throw our banks to the market wolves. Establish new ones with clean balance sheets. At least the taxpayer will not be toasted for years. The longer the debt is held, the worse it will be.

bpw

Basically within a couple of months of the state unconditionally guaranteeing banks debt up to 460Billion, it emerged that

1/ One bank was engaged in ‘balance sheet manipulation’ to the tune of billions of euros which was facilitated by other banks.
2/ One bank’s chairman had massive loans which had been hidden from auditors.
3/ The Financial Regulator was at best woefully incompetent,

This was just some of the dealings which emerged when it was ‘too late’ to reverse the guarantee… Clearly, with the benefit of hindsight, a few conditions on the guarantee would have been good.

So we can be sure similar revelations will emerge post NAMA…. Now before NAMA is set up, and when the banksters and other fraudsters are in a position of weakness, it is imperative the state put measures in place to ensure hiding of assets, fraudulent behaviour, insider tranding and plain corruption are dealt with.

And that NAMA cannot be obstructed by failed developers or bankers.

This may mean all debts going in to NAMA should be accompanied by consent forms, waivers of privacy or other rights, indeminification forms etc….. Now is the time to impose conditions that will assist NAMA in its efforts in establishing ownership of assets, debts etc.

If they wont agree to such conditions, well its a free country, they can pay their debts by raising finance elsewhere.

Nationalisation would not neccessarily stabilise the system. As the flight of deposits from Anglo shows, national entities might find it difficult to retain deposits precisely because the depositors would be rightly concerned that the banks would be run on a “political basis”. Look at the demands to “do something” when the Permo/TSB raied the mortgage rate.

Also, I should point out that senior bonds in our system rank “parri passu” with deposits and are not part of the capital structure. They are not “risk capital”.

Surely all providers of RISK capital should share some of the losses.
Shareholders have taken significant losses, subordinated bond holders have taken some losses while the rest is going to fall back on the state on the taxpayer.

While I agree that there would be some negative consequences of forcing them to accept a debt for equity swap.
I think these consequences need to be throughly explained and quantified. This will allow the public to decide if saving them 100% is a good use of taxpayers money.

NAMA is trying to pull a stroke, same as the guarantee…. Strokes work in politics, in the financial world shorts will beat strokes.

as we learned from the bond pricing within the eurozone

Director then ignores sensible guy and listens to guys who say ‘yes’; director then initiates project and promotes ‘yes’ men; six months later director and ‘yes’ men are looking for scapegoat because it has all gone down the pan; sensible guy gets scapegoated. Watch out for the FF spin machine in a years time Karl. They’ll be looking for someone to blame and they know where you live (probably)!

One nasty little side effect of nationalising banks is the politic pressure that brings as people seem to expect them to be (think they can be) run as some sort of national ATM. Witness all and varied calls recently to:

Prevent interest rate changes
Force waiver of penalties for withdrawal from fixed rate contracts
Waivers for parental guarrantees on mortgages.

Could you imagine the mess?

Well, i dont think the haircut is a sideshow. In fact, its the center of the three rings of the NAMA circus, complet with monkeys and clowns and probably lions and tigers and bears, oh my.
The situation is really very simple ; if we as taxpayers pay anything like the market value, or even any logical longterm value, the losses will bankrupt the banks. BUT the ringmasters have dictated that the banks will not be nationalised, so the above wont happen. That can only arise if the haircut is small.
So we overpay by 30b or so - hardly a sideshow

I fear with our accidental Taoiseach that he is still stuck in the first stage. People react differently in crises as evidence in recent studies that studied why some people survive and some people die in crisis situations. (See http://www.time.com/time/magazine/article/0,9171,1810315,00.html )

In summary the people who have best chance of survival are those who react and respond appropriately while those who carry on as normal choosing to blank out the peril that is upon them are naturally more likely to be doomed.

Evidence the delay in implementing necessary cuts in public spending – this is being done in the hope that things may not be so bad in 6 months time – but ironically the delay will prove worse in the long term for both private and public sector tax payers.

Instead of facing the music and getting on with it, the airwaves are instead filled with woolly words from trade union leaders and well-meaning but naïve comments from Fintan O’Toole and Vincent Brown.

Regarding NAMA, this has been championed by Brian Lenihan (at least give him credit for doing something significant)– but for this route to be altered would require our Taoiseach to force an alternate course…is there anything in his background to indicate that Brian Cowen would take such action?

Do we go back to being dependent on Europe for handouts (there are many more mouths to feed this time) – was it all a dream or have we learnt anything?

Citi got 99% acceptance of debt for equity swap last week. (Bloomberg) The US gov. agreed to swap some of their prefs as part of the deal. The reluctance of our Government to frighten the bondholders seems misplaced. As Karl pointed out the current owners probably represent toxic debt funds or suchlike.

I would by wary of the private equity suggestion as I seem to remember one of these entities has yet to repay the full loan advanced by the |Japanese Government to a Japanese bank they acquired in a similar deal a decade ago.

Valuing assets at other than their true value is a recipe for prolonging the pain- better a sharp shock than a lost decade.