Beware of journalists bearing history lessons

This post was written by Kevin O’Rourke

Today’s Irish Times contains this gem from Stephen Collins:

Another issue that did not get serious traction in the talks was the simplistic call to “burn the bondholders” for which German chancellor Angela Merkel has to take a lot of responsibility.

The European Central Bank was adamantly opposed to the notion as any such move would threaten the financial stability of Europe. It is ironic that the zealots of the US Tea Party movement and many of those on the left in Ireland share a common belief in “burning bondholders” and damn the consequences.

The lesson of the Great Depression of the 1930s was that taking that kind of approach leads to widespread bank failures and national economic collapse which, in turn, threatens the democratic foundations on which our society is built.

Give me a break.

The bank failures of the 1930s were due to bank runs caused by excessively conservative monetary policies, and in particular by the determination of elites to stick with the gold standard well past its sell-by date. Burning bondholders had nothing to do with it.

Insofar as the 1930s involved debt restructuring (in Latin America, for example), this was part of the solution, not part of the problem — cf. the work by Eichengreen and Portes.

The lesson of the 1930s is that slavish adherence to economic orthodoxy can lead to disaster, and that sometimes you need a radical break with past policy mistakes in order to turn around expectations and prepare the way for recovery. FDR’s abandoning the gold standard was one such radical break; there were other radical breaks with the past that were much less benign, and that were directly caused by previous hyper-orthodoxy.

Finally abandoning the socialization of private losses would not just have made the Irish state more solvent, but would have clearly signalled a new beginning in Irish political and economic life. As things stand, it is hard to disagree with Mohamed El-Erian that the present deal is not the game-changer that Ireland needs.

99 Responses to “Beware of journalists bearing history lessons”

  1. southofdub Says:

    Would anyone like to comment on this?
    http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html

  2. seafóid Says:

    The paper of record is really struggling. No sooner do they draw a definitive line in the sand than the crisis goes through another iteration. Yesterday’s saviour becomes today’s clown.

    The equity market coverage is breathless. AIB shares soar back to 55 cent. I remember when they were 20 Euros.

  3. Kevin O’Rourke Says:

    Yup. It’s hard to be pro-establishment — the default position of the Irish Times — when the establishment (in this case the European one as well as our own one) is so comprehensively making a bags of it.

  4. grumpy Says:

    What that article is about is an attempt to spin the decision over the bailout.

    The perceived reality that needs to be created is that, unpleasant though it may be, it was the only responsible option. If you can sell that line to an electorate that has no particular reason to know differently, then you are politically off the hook for not restructuring the senior bank debt - and you get bonus points because anyone who says differently can be labled as irresponsible.

    I don’t know whether Mr Collins has a great depth of understanding of macroeconomic history or is savvy enough to participate in the bond markets himself, but I doubt it given the extract above. My guess would be that he has been fed a political angle that is going to be part of the government’s spin strategy on this and has, like a lot of journalists before, just run with it.

  5. Paul Hunt Says:

    Governor Honohan’s lunch-time interview pn RTE might be enlightening. He wouldn’t put it like this, but the story is “We screwed up big-time. We have to take our lumps. Doing the decent thing by us would cost the big boys too much at the moment. They’re working on sorting out the big picture - and there might be some limited relief for us when they get that in place. In the meantime, get with the programme and get used to the pain, suckers.”

  6. zhou_enlai Says:

    It will be interesting to see what is contained in the Memorandum on this point. It is hard to believe that the Memorandum will contain a clause which specifies that Irish tax-payers must underwrite senior unguaranteed bonds. That would make explicit that we are carrying this debt at the EU’s behest. Are the EU and IMF really going to make us sign something which says that? They may as well incite bloody revolution if that is the case.

  7. hoganmahew Says:

    I agree with you that the hindsight view of the bank failures in the Great Depression was wrong.

    However, I don’t believe that monetary policy was to blame. Rather, I will stick to the old view that the absence of a lender of last resort and deregulation in the banking industry in the ‘twenties bears the most blame. It was a political and administrative failure.

    Between 1929 and 1933 there were 9,000 bank failures. 1.3 bn in depositors funds were lost. From 1934 to 1941 there were 370 bank failures. If you know your money is safe, even if the bank collapses, there is no incentive to pre-emptively remove your deposits - runs are reduced.
    http://www.fdic.gov/bank/analytical/firstfifty/chapter1.pdf

    A bank is only as solvent as its liquidity.

    Unfortunately, the European banks are stuffed to the gills with both cross-holdings in each other and funding debt to rollover. The ECB is still unwilling to take up the administrative burden of regulating the eurosystem as a whole and in providing the schemes that would all bad debts to be worked out cheaply (so wholescale bank problems could be resolved over time). The EU politicos also seem at loggerheads as to how or whether this should be achieved.

    Ms. Merkel is at odds with herself, or perhaps just with her finance minister and the Bundesbank. Either the losses should be socialized, but at really cheap long-term rates (to include deficit funding for the disruption to the monetary transmission mechanism and the consequences of it), or default of some sort should be permitted. You cannot impose penal (or even market) interest rates and enforce socialization and expect it to work.

    Finally, the consequences of bank liquidation need to be addressed in more detail. The assets of the banks would be sold with bondholders and depositors getting the benefits in equal measure. The state would have to make up those bondholders and depositors that are guaranteed. I don’t like the guarantee, I haven’t liked it since about two days after it was revealed. But it exists. It is a promise of the government. Exactly the same as the promise to repay sovereign borrowers.

    I don’t see that the state had the resources to honour the guarantee, so sovereign default would have been an accompanying necessity to bank default. With that, the sovereign debt markets would have closed to Ireland for a period. As a result, there would have been six months to clear the deficit.

    I don’t believe that is an impossible timescale, but it probably wouldn’t have gone down well with most of the population. They just aren’t ready to face up to the impact of a 70% marginal rate kicking in at about 30k, with lower tax rates below that. Never mind the cuts that would be made.

  8. Paul Hunt Says:

    @Hogan,

    “You cannot impose penal (or even market) interest rates and enforce socialization and expect it to work.”

    You’re right, of course, but that’s what we’ve got, because the Government finally ran out of road and the big boys can’t countenance either of the alternatives you outline.

  9. John McHale Says:

    A number of commentators have suggested that the powers that be are purusing an interim solution until debt restructuring arrangements are put in place in 2013.

    Thus we get this from Mohamed El-Erian (link in Kevin’s post above):

    “That this package delays rather than solves the European Union’s problems is not lost on Ireland’s European neighbours. They know that time is being bought to formulate a sovereign debt reduction mechanism, to be made operational in 2013.”

    But from what we know, the mechanism that is being comtemplated is for new debt. All else equal, this should make sovereign borrowing harder after 2013. I can see how this will help reduce moral hazard going forward, but I can’t see how it helps ease our creditworthiness problem — addtional market discipline is not in our interests for the next while.

  10. Joseph Ryan Says:

    re: An economic orthodoxy at the heart of the current crisis.

    The interbank system is at the heart of the current crisis yet we hear little calls for change in the general media.

    The massive failure of the interbank system post Lehmans is still evident. No system has been put in place to remedy the situation of those banks that relied on the interbank system but cannot now access funds.
    In the case of Ireland the problem has been landed at the door of the State as it has been and will be in other juristictions.
    In addition there is no coordinated system of control of the interbank balance sheet. The purpose of such control being to assess weaknesses or to indentify predatory manipulation.

    The ECB appears to be an utterly useless organization at the centre of this casino, relying on the mantra of preserving the value of the currency while the economic house is brought down about its ears by casino bankers.

    To me it seems that the focus of regulators has been to put things back as they were with the interbank system playing a pivotal role again until it collapses at the faintest hint of the next problem occuring.

    The interbank system is one accepted market orthodoxy that I would like to see challenged.

  11. moira Says:

    Kevin, I just hope that you use your credibility, knowlege and press access to do whatever you can to counteract this spin by publishing your response on such a crucial issue in the mainstream media instead of just here where it only gets read by a small minority. It is deeply depressing to see the deliberate misinformation and ill informed spin continue unabated. No sign of the proverbial paradigm shifts in anything here, and without a decent quality media…

  12. hoganmahew Says:

    @JohnMcHale
    “But from what we know”
    I cling to the hope that a super-secret project is underway that will allow some form of parking of debt at super low rates and that the delay is just to get this in place.

    No doubt it will come with onerous conditions and will probably require a treaty change, but at this stage the kindness of strangers is all there appears to be.

    Failing that, the powers that be have again underestimated the fallout from an asset bubble.

    Which do you think is more likely? :(

  13. hoganmahew Says:

    PS I meant to say that the consequence of asset sales by liquidated banks is that there would be a firesale. The assets would be sold off to satisfy creditors. The likely buyers would be so-called vulture funds. They would be interested in quick turnaround on their assets. Repossessions and sales or refinancings of the borrowers in the portfolio they buy.

  14. grumpy Says:

    @John McHale

    It makes it easier in the sense that it is quite likely Ireland will have to avail of that mechanism after which it would be viable and bond traders could buy new bonds or pre-restructured bonds with little doubt about repayment.

    You wouldn’t find too many dealers by the way, that wouyld not be dubious about exactly where the seniority would effectively lie after the start of trading in both sorts of sov bonds. The new “defaultable” bonds might have rights through CACs for example that the old ones don’t. The old ones are usually open to unilateral action and the proper law would be local so it is not really clear which wouls be senior depending on the circumstances.

  15. wow Says:

    You are talking a lot of economic sense thats not in line with “establishment-speak”. Are you a closet Sinn Feiner Kevin.

    Have we not been poorly served by the effortless transition of political pundits into economic pundits. Men who knew how the chips will fall in the 4th count dont necessarily know what the best economic strategies are and hence there need to rely on the Govts line because its safer to agree than to disagree

  16. Rory O'Farrell Says:

    But the IMF guy said it was a good deal for Ireland. Surely it must be true.

  17. simpleton Says:

    This is how it goes from here. The fault lines in the Euro have always been there but have now been laid bare. Speculators have leraned to attack bond markets in the same way they used to attack exchange rates in the old ERM. The periphery is insolvent. It will default unless fiscal transfers plus ECB QE begin. If periphery defaults, it blows a hole in German, French & UK bank balance sheets. Each of these will then have further capital needs which will probably involve the taxpayer in part. So, a cheque will have to be written, either to the banks or to the periphery. Either way, its effectively a core-to-periphery transfer.
    Everyone, well, almost everyone, knows this.
    The choices then become political: does the cheque get written this side of another full blown financial crisis? I doubt it. Germany will only pay up after the euro has fallen through parity against the dollar and its banks are teetering. Then the cheque is delivered.
    But it doesn’t stop there. It only ends when then is one bond market, one fiscal policy and a proper (as opposed to disfunctional) ECB. Then another political choice has to be made: who is in, who is out? Again, it will be up to the GErmans.
    Lots of choices ahead, lots of ways to make it worse - or better. At least one, probably two, financial crises ahead: these will force the choices. It’s the way Europe does things (read your history).

  18. Kevin O’Rourke Says:

    What about this solution, simpleton?

    http://www.ft.com/cms/s/0/aabc1b06-f627-11df-a313-00144feab49a.html#axzz16hXiLLUb

    (Probably deserved a thread of its own.)

  19. simpleton Says:

    @Kevin,
    I know Gerry Holtham well - he is a sound thinker and first rate macroeconomist. I don’t think his suggestion is out of line with my prognostications. It has to end with a ‘fix’ for the European banking system as a whole. He suggests how it could be done now; I suggest that the fix will only come after a crisis or two. It isn’t complicated: the banking system owes too much money to itself. The debt will either be forgiven or restructured or chaotically defaulted upon. It’s down to those pesky political choices again.

    A plea: can we stop pretending that the periphery is solvent? An outbreak of economic honesty could engender some political courage.

  20. simpleton Says:

    more ‘journalism’. I just like the title

    http://finance.fortune.cnn.com/2010/11/29/ireland-from-rags-to-riches-to-rags/

  21. Aidan R Says:

    http://notesonthefront.typepad.com/politicaleconomy/2010/11/always-helps-to-get-help-from-our-friends.html

  22. Mick Costigan Says:

    Speaking of history, Brad de Long has a nice piece on Foreign Policy, on how the initial response to the crisis was dictated, “from beyond the grave” by “Hyman Minsky, Walter Bagehot, and Milton Friedman” but how this has now switched to “Austrian economists Friedrich von Hayek and Joseph Schumpeter…Great Depression-era Treasury Secretary Andrew Mellon - and, above all…Friedrich Nietzsche.”

    “Nothing has changed in the past few years to make Hayek’s, Schumpeter’s, and Mellon’s arguments stronger intellectually against the critiques of Keynes and Friedman than they were 60 years ago. On substance, their current victory is inexplicable. But their triumph, epitomized by the Tea Party movement and its hostility to government action, can be explained by our fourth horseman: Friedrich Nietzsche in his role as psychologist of human ressentiment.

    Nietzsche talked about the losers — or rather, about those who thought they were the losers. He looked at those who saw themselves as weak and poor — rather than strong and rich — and saw trouble. “[N]othing on earth consumes a man more quickly than the passion of resentment,” he wrote. It drives us to madness.

    Think of that when you consider this: The U.S. unemployment rate is stubbornly high, yet aid from a federal government that can borrow at unbelievably good terms could allow states to maintain their levels of public employment, and those public workers would then spend their incomes and so boost the number of private-sector jobs as well. But the voters are against that. No, they say. We have lost our jobs. It is only fair that those who work for the government lose their jobs as well — never mind that each public-sector job lost triggers the destruction of yet another private-sector job. It’s the underlying logic that has led to a wave of austerity across Europe that is now headed for America’s shores. And it’s the same logic that says, “It is only fair that homeowners lose their money” — never mind that everyone’s home prices will suffer. What does not kill me makes me stronger.

  23. Joseph Ryan Says:

    @simpleton re: Either way, its effectively a core-to-periphery transfer.

    I like your analysis. However at present in Irelands’s case the transfer is the other way round. A periphery to core transfer. At least in the sense of Irish taxpayers bailing out core based bondholders.

  24. hoganmahew Says:

    @simpleton
    Yup. Pretty much what we were talking about a few weeks ago. It will take someone big going wrong for the finger to be pulled out.

    Zhou’s bond scheme might see the light of day then (though I prefer my modification of it).

  25. anonym Says:

    @Joseph Ryan, @simpleton

    In the case of Greece it was also a periphery-to-core transfer: Greece should have restructured its sovereign debt, but was prevented from doing so. The looming Portugese and Spanish deals will also be periphery-to-core transfers. Even a bailout based on grants rather than loans would largely be a transfer from core sovereigns to core banks, under the radar of core voters.

  26. Alan Rouge Says:

    “slavish adherence to economic orthodoxy can lead to disaster,”

    This seems like such basic common sense.

    Are EU govt’s finance departments full of yes men that tell them what they wanna hear?

  27. tull mcadoo Says:

    Simpleton,

    I am not sure the catalyst is the euro falling through parity against the dollar. That would be good for some of the core and some of the periphery. It could be that falling bond prices cause some to question the value of the assets on the B/S of large European finacials. Of course, they will argue that the assets are held to maturity, are money good and they have no solvency issues. But what will get them is liquidity. Counterparties will only extend funding for shorter and shorter term. We will reprise Q3 2008 again and the cost of said funding will sky-rocket. This is nearer than you think.

    It is noticeable that today bail out failed to steady the nerves in both sovereign and bank credit markets. Spreads in Portugal, Spain and Italy gapped wider. Belgium is getting drawn into the maelstrom because of its big banks, high debt and political divorce proceedings. One large Belgian bank will no longer take calls from analysts about a specific part of its ops.
    My screen also says CDS spreads on the sacrosanct seniors widened-that is not good news.

    For what its worth, I thought things would go quiet until 2011 as markets closed down for 2010. However, to repeat a phrase from history-this war will be over by Christmas. For sport read the Wiki leaks on the assessment of European leadership by the Americans.

  28. seafoid Says:

    I imagine Dan O Brien wishes he never left the Economist. It is a real pity to see the Irish Times trotting out the Government line especially when the bond markets appear to have shot the bailout down.

    I also get the feeling that Miriam O’Callaghan is missing some key economics insight that would enable her to stand up to Bacon Lettuce Tomato Dublin when he goes into bully mode during interviews. Could Irisheconomy.ie not help her out ? She comes across as being genuinely interested in the issues but seems to be missing the extra bit of info that would skewer her FF interviewees at the right time.

  29. Carolus Galviensis Says:

    @Mick Costigan

    re: Brad deLong

    So it’s just resentment that drives private-sector workers to challenge big government?

    Poor, deluded fools who cannot even realise their own self-interest!

    For do we not know that in the neo-Keynesian gospel of Brad deLong:

    those public workers would then spend their incomes and so boost the number of private-sector jobs as well.

    I get it. If 100% of the workforce belonged to the public sector and assuming a ‘multiplier’ of 2 they would create another 100% jobs in the private sector.

    Ergo a 200% employment rate.

    Sounds good to me, if you believe in the power of magical thinking.

  30. seafóid Says:

    “For sport read the Wiki leaks on the assessment of European leadership by the Americans.’

    For dessert have a laugh at the Yanks in Afghanistan.

  31. simpleton Says:

    @Tull
    Don’t get hung up on the catalyst. I say collapsing Euro, you say funding crunch. Whatever. Just keep saying: the periphery is insolvent, the periphery is insolvent….

  32. Tullmcadoo Says:

    If the periphery can’t meet it’s obligations, the German taxpayer may have to bail out it’s financial sector.

  33. simpleton Says:

    @Tull
    You haven’t been paying attention. Read my post above. I argue that the German taxpayer writes a cheque to us, either directly or via its banking system after we default on those banks. Either way, its going to write that cheque.

  34. Siobhain Says:

    I don’t know, maybe I just don’t get it. Everything coming from government, and Patrick Honohan in his RTE interview today, suggests that it was the EU that put its foot down to prevent any haircut for bondholders. This makes no sense in the light of what Merkel said a few weeks ago or what was agreed yesterday for 2013, even if any future burning of bondholders will be judged on a case by case basis. How is Europe willing to do it in the not too distant future but not now? I never expected the EU and IMF to take such a short-sighted approach but maybe I was being naive. There was so much talk about the restructuring of the banks, by Rehn and others, that I expected some real hard-hitting changes but perhaps that may yet come once the Memorandum of Understanding is published. It seems like the EU is waiting for a bigger crisis than ours before it takes the necessary action.

  35. hoganmahew Says:

    @Siobhain
    I understood from Mr. Honohan that it was the ECB that said “rien”.

  36. Joseph Ryan Says:

    Personally, I don’t understand this 2013 business.
    How many 2013 or later bonds will sell for the next few years except perhaps German govt bonds.

    One simply cannot announce ascheme like this in advance. If even partially true, the weaker banks and weaker economies will not be able to access funds, except pehaps at the most penal rates.

  37. Siobhain Says:

    @hoganmahew - I think he said there was ‘no enthusiasm in Europe’ to deal with the bondholders. ECB, Commission or both, I’m not sure.

    I don’t know, I guess my point was that we always seem to be playing catch-up.

  38. seafóid Says:

    Some fine spin on RTE 6 o’clock news

    “But even if Ireland can handle the deal, markets don’t see it as a cure for the eurozone’s ills’.

    http://www.rte.ie/player/#v=1085938
    at 8:47

  39. Rory O'Farrell Says:

    @ Siobháin

    Merkel had been referring to govt bonds that might be issued in the future, but most people are talking of burning bank bondholders.

    German banks and pension funds had invested heavily (and foolishly) in Irish bank bonds. This is the reason behind the difference.

  40. Sarah Carey Says:

    Lessons from History:

    De Valera reneges on the Land Annuities saying that the agreement was made by a previous parliament and there was no need for the new Dail to be bound by it.

    We could do some constitutional reform and try that!

    Oh hang on - that kicked off the Economic War - which didn’t go too well.

    Back to the books…

    To be honest, I think the economists’ work is done. (no offence)

    We need lawyers now.

  41. anonym Says:

    @Siobhain

    You have to think of it from Fr. Dr. Merkel’s perspective. Her dilemma is this: “My voters are furious at the suggestion of any more dig-outs for the spongers on the periiphery, let alone the banks. Yet they will also go mad with rage if any of their banks collapse or their pension funds take another hit. How can I square this circle so that I can maybe scrape through the next election?”

  42. hoganmahew Says:

    @Siobhan
    You’re right, I listened to it again - “no enthusiasm in European capitals”. I don’t believe the phrase is carelessly chosen:
    1. Note the plural.
    2. The ECB operates out of Frankfurt…

  43. ceteris paribus Says:

    Any thoughts on the new situation post bailout.
    The new money takes precedence over existing government debt. I presume the memo will contain something on this.
    In mid 2013 new gov debt will be subject to haircuts (if deemed insolvent)
    So given our projected GDP/Debt ratio how can we borrow new money to roll over existing debt.
    I simply cannot see how this is going to work.

  44. ceteris paribus Says:

    @ Hogan
    The Bankers Who Broke the World by Liaquat Ahamed gives a good account of the Depression and coming off the gold standard.

  45. anonym Says:

    @hoganmahew

    In case there’s any remaining doubt, look what the cat dragged in to ECOFIN on 17 December, and the message conveyed.

    As a side-note, this is something to remember the next time someone tells us how angry the German government is about Depfa and the cowboy banking at the IFSC. I mean, I’m angry (and ashamed) at the cowboy banking in the IFSC, but I haven’t brought Ackermann with me to ECOFIN.

  46. hoganmahew Says:

    @ceteris paribus
    “I simply cannot see how this is going to work.”
    Perhaps the insurance scheme Mr. Honohan was talking about will be in place by then? Or eurobonds will be issued by an entity and the proceeds reloaned at differential interest rates to governments?

    On Liaquat Ahamad - I will take a read of it, but I remain to be convinced that a liquidity push can fix a solvency issue. If that was the case, we wouldn’t have the problems we do. Mr. Bernanke, after all, has tried that for some years with mixed success. It didn’t work at all in Japan… indeed, its effects in Germany in the early ‘twenties were decidedly sub-optimal.

    Underpinning all the other confidences that ‘money’ rests on is a basic confidence in the unit of currency itself. If that goes, the currency is worthless. See what happened to shares during the crash - they had been treated as money, despite the poor fundamentals underpinning their floating prices. See what is happening to loans now - again they had been considered money good.

    Changing a currency peg (as Roosevelt did) may give you a competitive export boost, but it doesn’t really fix solvency. Indeed, one could argue that US debasing of their currency was a competitive devaluation that worsened the effects of the depression elsewhere.

    The solution for deflation is not to cheapen money. The solution for deflation is not to have asset inflations in the first place…

  47. Ahura Mazda Says:

    Tull,
    whether by accident or design, the ecb emergency liquidity support has enabled german banks get their money back and force pigs taxpayers take the bill.

    At this stage burning bondholders isn’t adequate and might not be worth the hassle. The idiotic guarantees have reduced the benefits. Time to push for a big QE programme.

  48. Dreaded_Estate Says:

    @John McHale
    “But from what we know, the mechanism that is being comtemplated is for new debt. All else equal, this should make sovereign borrowing harder after 2013. I can see how this will help reduce moral hazard going forward, but I can’t see how it helps ease our creditworthiness problem — addtional market discipline is not in our interests for the next while.”

    What you are saying makes perfect sense John. However, it also makes absolutely no sense.

    One of the primary causes of the current difficulties is a massive mispricing of risk. This happened at the sovereign, bank and individual loan level in Ireland and elsewhere.
    What you are suggesting is a continuation of this policy.

    So while it will allow the system to continue to semi “function” for another few months, possible a year or so the route cause of the problem remains.

    Until we deal with the route cause of the problem we are going nowhere and achieving nothing. Kicking the can down the road will not and never could work.

  49. AMcGrath Says:

    @Hogan
    “I don’t like the guarantee, I haven’t liked it since about two days after it was revealed. But it exists. It is a promise of the government. Exactly the same as the promise to repay sovereign borrowers.”
    It exists but nothing says it can’t be unwound by legal challenge. I know this is beginning to sound monotonous but by what right does anybody transfer the debt of one party to me - or more generally to the taxpayers. By the way I don’t buy the “implicit guarantee” on senior bondholders. If anybody seriously thought such a nonsense existed why did they introduce legislation.
    Prior to the legislation bondholders were aware that they were at risk - and nothing has changed their perceptions since.
    To echo what Sarah says:
    “We need lawyers now”

  50. AMcGrath Says:

    @hogan
    “Perhaps the insurance scheme Mr. Honohan was talking about will be in place by then?”
    I heard this comment.
    What exactly are CDS for - if not this?

  51. tull mcadoo Says:

    ahura,

    I think you are right. The only thing that will stop contagion from breaking the back of the periphs is starting the good old Heidelberg presses rolling.

    Simpleton might also have a point if I understand him correctly, which I probably don’t. That is for the periphs to restructure, bust the core banks, insurance cos and policy holders who then get bailed out by their own govt. The quid pro quo for that though is a massive dose of fiscal austerity. We cannot keep current living standards if we are going to hurt the German taxpayer. Dave “the Banker” Begg and the Beards won’t like that though.

  52. Tom Costello Says:

    @Sarah
    “De Valera reneges on the Land Annuities saying that the agreement was made by a previous parliament and there was no need for the new Dail to be bound by it.

    We could do some constitutional reform and try that! ”

    I don’t think that any constitutional reform is necessary. The actions of the Dail do not bind any later parliament, so when BL said it was irrevocable he meant that it could not be voided by any later legislation of that government. If adding ‘irrevocable’ to legislation made it so, then any government could extend its policies indefinitely.

    It seems reasonable that a party (I am torn between SF and Labour) could run on a platform of passing bank resolution legislation, revoking the guarantee, winding up the banks, and charging a levy of $15B or so to claw back the money the government put in earlier (just to make things nice and fair). That $15B, and the NPRF, would be enough to cover Ireland’s borrowing needs until we got our house in order.

    The best part of running on such a platform would be that if there was a reasonable chance of that party getting elected, then bank bonds would drop in value until they were worth what they would get in a windup.

    It seems doubtful that Dev would have put anything in his constitution that prevented him doing what he earlier had done - but I cannot check as my Irish is no longer sufficiently fluent to read my copy of Bunracht.

  53. igsy01 Says:

    Hi Dreaded_Estate

    Not sure I get your meaning by mispricing of risk. Current 9%+ yields imply a 40% haircut on our debt. That takes a big chunk out of the debt dynamics.

    At 40% off, we’d have a better debt/GDP ratio than AAA France, with better demographics to boot (non-trivial issue over the next 10-15 years).

    Who’s mispricing what risk?

  54. zhou_enlai Says:

    Politicians have a habit of announcing future plans and thereby defeating the purpose of such plans.

  55. Mickey Hickey Says:

    The country is functioning at the 85% level give or take. The agreement puts a floor under our slide and at the same time will slow our economic progress. The biggest risk was social breakdown and under this agreement that is now much less likely to occur. Wage increases will be rare in the private sector and non existent in the gov’t sector. Unemployment will stabilise within a year as the long slow recovery gets under way. The unthinkable option is that the next gov’t tears up the agreement and reverts to the “ourselves alone” thinking that impoverished the country for over sixty years.

  56. paul quigley Says:

    @ Mickey Hickey
    Hard to see unemployment stabilising without a wave of emigration. We usually get recovery by shedding people.
    On the’ourselves alone’ theme, its intersting that Germany and the US, among many others, developed their industry behind tariff barriers. I don’t think they would have been happy with some MNC jobs and a bit of corporation tax.

    @ tull

    ‘We cannot keep current living standards if we are going to hurt the German taxpayer. Dave “the Banker” Begg and the Beards won’t like that though’
    Agreed, but the trade unions are only trying to keep up with the private sector Joneses. Management and professional classes will always have more Beamers. The natural order.

  57. Bond. Eoin Bond Says:

    @ AMc

    “By the way I don’t buy the “implicit guarantee” on senior bondholders.”

    We are unable to fund ourselves in the market, we have a questionable medium term solvency outlook, we have a whole set of either failed, trouble or distressed banks, and indeed the entire EU is in the midst of a near unprecedented sovereign debt crisis at least somewhat caused by the financial sector losses, and yet the EU STILL won’t let us put any losses on senior debt. How on earth can you claim that there does not exist, rightly or wrongly, some sort of implicit guarantee on senior debt???

  58. hoganmahew Says:

    @AMcGrath
    “What exactly are CDS for - if not this?”
    Well, look at the price of them, they are not buyable at the moment (hence the yields demanded on Irish bonds). So ’someone’ needs to come in and underprice the insurance to drop the yield.

  59. hoganmahew Says:

    @anonym
    “but I haven’t brought Ackermann with me to ECOFIN.”
    Yeah, shocking isn’t it. Could they not have just had a secret dinner with him? Much more discrete… much more Irish…

  60. Michael Hennigan - Finfacts Says:

    Mohamed El-Erian, the cohead of a trillion-dollar bond fund manager, owned by a German insurer, is careful not to propose a specific prescription.

    If not default, tax funds?

    @ moira

    It is deeply depressing to see the deliberate misinformation and ill informed spin continue unabated. No sign of the proverbial paradigm shifts in anything here, and without a decent quality media…

    The media is hardly the sole preserve of orthodoxy and self-interest and there’s no shortage of misinformation or fallibility on both sides of the arguments.

    As regards the Depression, Stephen Collins may have been thinking of beggar-my neighbour policies; that of course was inevitable at the time.

    Roosevelt was a great president; he could have had his 40% dollar devaluation and who knows but a less isolationist stance at the World Economic Conference in 1933 could have been helpful?

    As to a ‘decent quality media,’ what that means is a matter of judgment and prejudice.

  61. Eamonn Moran Says:

    Spot on Kevin.

    The uber conservativeness of the times editorials on the crises over the last 2 weeks would lead one to believe they were being written by well healed individuals who believe their personal interests and those of their paper are best served with maintaining the status quo. The Devil you know?
    Thefear of the unknown when in the past you have been one of the relative winners? sellouts?
    “Yup. It’s hard to be pro-establishment — the default position of the Irish Times — when the establishment (in this case the European one as well as our own one) is so comprehensively making a bags of it.”

  62. anonym Says:

    @hoganmahew

    I wasn’t comparing Merkel unfavourably to our own elected representatives. Though come to think of it, one thing you can say for our bunch is that at least they haven’t spent the last couple of years posing as the scowling judge of the wicked ways of finance.

  63. Eamonn Moran Says:

    @ John Mchale
    “A number of commentators have suggested that the powers that be are purusing an interim solution until debt restructuring arrangements are put in place in 2013.

    Thus we get this from Mohamed El-Erian (link in Kevin’s post above):

    “That this package delays rather than solves the European Union’s problems is not lost on Ireland’s European neighbours. They know that time is being bought to formulate a sovereign debt reduction mechanism, to be made operational in 2013.”

    But from what we know, the mechanism that is being comtemplated is for new debt. All else equal, this should make sovereign borrowing harder after 2013. I can see how this will help reduce moral hazard going forward, but I can’t see how it helps ease our creditworthiness problem — addtional market discipline is not in our interests for the next while.”

    Couldnt we paraphrase what you have just outlined to say the current bailout is backing us even tighter into a corner?

    So here is a question.
    Do you disagree with Paul Sommerville when he says the only way out of this European crisis is default/debt forgiveness/restructuring?
    That being so would it not be better to do it now on at least some of our terms rather than later in a bigger messier way that allows some private investors away (the seniors) away scot free?
    I think a lot more economists know what the right thing to do would be but they are afraid of the (mainly their personal) consequences.

  64. jarlath Says:

    Since we are the only country stupid enough to have ever given a blanket guarantee to the debts of our entire banking system, is the onus not on us now to at least come out, hold our hands up and admit that we made a colossal error?
    At least then no other country would ever wander down the same dark path again. Not that i think they would given the example we’ve set.
    Let me see, how to go from having virtually no sovereign debt, to having north of a 100% sovereign debt and climbing, in the space of 3 years…
    Step 1. give a blanket guarantee to a banking system without performing due diligence of any kind.
    Step 2. largely irrelavant as step 1 should easily suffice.

    I also think admitting we got it horribly wrong, finding some way to decouple ourselves from the banks and then forcing the bondholders to take on some of the pain would be a great thing not just for us, but also for the world. The simple message going out would be, Banks if you misbehave, you may very well suffer, sovereigns might help but then again they might not, so keep your house in order. There is no permanent safety net.
    Just think, finding a way to default on that steaming mound of bank debt might actually mean we are saving the world….

  65. Eamonn Moran Says:

    But Jarleth no Seniors in Europe have been touched. And they didn’t have guarantees. The reason the banks were saved is because in Europe they always are. We just used a new method. How do you like that for moral hazard!

  66. Bond. Eoin Bond Says:

    @ Eamonn

    the other alternative to debt restructuring is flat out QE, which is basically default via stealth (ie inflation creates the loss on bondholders).

  67. simpleton Says:

    Tull puts it well: the obvious fault line has long been the absence of a fiscal union. The new fault line is a disfunctional ECB. This is bad, very bad.

    Better journalism today:

    http://www.ft.com/cms/s/0/bb515190-fbf2-11df-b7e9-00144feab49a.html#axzz16lEM2q1j

    It’s in diplomatic code but not hard to decipher: Germany used to be Spain’s friend. Now it seems otherwise.

    Think about it. It’s war by other means.

  68. seafóid Says:

    I think this is very relevant to Ireland today.

    http://www.nybooks.com/articles/archives/2004/sep/23/the-making-of-a-mess/?pagination=false

    “The press and television in effect set the agenda for public opinion. They were reluctant to add to the low esteem in which they are held by questioning the presidential war. This reluctance aborted the national debate that should have taken place over changing the basis of our foreign policy from containment and deterrence to preventive war, and then over the waging of such a war against Iraq. The press seems to have spontaneously decided that they would not give equal time to skeptics about the war. “Administration assertions were on the front page,” said Thomas Ricks, The Washington Post‘s Pentagon correspondent. “

    Things that challenged the administration were on A18 on Sunday or A24 on Monday.”3 Alarmist utterances by Cheney and Rumsfeld, now proven to be wrong, commanded the headlines and front pages; well-reasoned speeches by Senators Byrd and Kennedy opposing the rush to preventive war—which, on factual grounds have proven correct—were lucky to make page 18. Philanthropists had to pay the press to carry the texts of antiwar speeches.

    The 9/11 Commission under Governor Thomas Kean blames Congress for failing to exercise its constitutional role of oversight. But surely the blame must be shared with the supine press. In the March–April Columbia Journalism Review, Chris Mooney reports on the views of the six leading editorial pages—The New York Times, The Washington Post, Chicago Tribune, USA Today, Wall Street Journal, Los Angeles Times—from February 5, 2003, when Colin Powell gave his United Nations speech, to March 19, when President Bush ordered the invasion of Iraq. The New York Times questioned the factual case for the war. But no paper, except the Los Angeles Times, seemed to notice or care about President Bush’s fundamental shift to preventive war as the basis of US foreign policy.
    For all the mordant questions The New York Times‘s editorial page raises about the war, its news columns still play down criticism of the Bush foreign policy. On June 16 of this year a group calling itself Diplomats and Military Commanders for Change held a press conference. Twenty-seven retired professional diplomats and officers condemned the Bush policy and called for regime change in Washington. The signers included Admiral William Crowe, former chairman of the Joint Chiefs of Staff and ambassador to London; Arthur Hartman and Jack Matlock, former ambassadors to the Soviet Union; Donald McHenry, former ambassador to the United Nations; Stansfield Turner, former CIA director under Jimmy Carter; and other experienced and distinguished figures. The statement by professionals criticizing the government in wartime seems unprecedented in American history and ought to be taken with the utmost seriousness. But the Times, the fabled newspaper of record, ignored the press conference, did not run the statement or quote from it, and did not print the list of signatories. ”

    And we all know how well the Iraq war went.

  69. Eamonn Moran Says:

    @ Rory

    “Merkel had been referring to govt bonds that might be issued in the future, but most people are talking of burning bank bondholders.

    German banks and pension funds had invested heavily (and foolishly) in Irish bank bonds. This is the reason behind the difference.”

    Rory neither you or I know that for sure.

    The Irish people at the very least deserve to know the names of people and institutions they are bankrupting themselves for.
    I demand that the Irish people be allowed see a comprehensive list with the numbers. Its a bloody minimum but I don’t think we ever will because if we did I think people like you would be a little surprised just how little is owned by working class European pensioners and how much is owned by massive wealth funds of a small number of very wealthy people and corporations.

  70. simpleton Says:

    @Eamonn

    It’s publicy available info. I have the list in front of me.

  71. jarlath Says:

    @Eamonn
    I’m just saying this for any banking sectors that might be allowed get as bad as ours did. I think only Icelands could compare to ours and they went a different route entirely. My point is, if any other country did let their banks get as f**ked up as we let ours, then hopefully they wont resort to the blanket guarantee method to save them. And we as a country should have the backbone to state clearly that we got it wrong and it messed us up.
    Like the former drug addict who goes around to schools speaking about the awful consequences of heroin…(even though we’re secretly still taking it by the gallon)…..we could be that guy!

  72. Joseph Says:

    Am I right in thinking Philippe Legrain of the LSE (on the Late Late show last night) is a journalist/writer rather than an economist? Or is he a bit of both?

    I thought he was very impressive - but then again, it wasn’t hard to look impressive given what he was lined up against last night! It’s just too awful to think that those other two currently are/might be in future running the country. Why do people vote for such clearly talentless people just because they wear a particular party badge?

  73. seafóid Says:

    @ Eoin

    “the other alternative to debt restructuring is flat out QE, which is basically default via stealth (ie inflation creates the loss on bondholders).”

    The explosion in debt post 2003 was driven by issuance of private financial debt of inferior quality to government debt but rated as of similar quality. The banking Ponzi scheme of 25% profit growth per annum is broken and the assets backing the debts have fallen in value unless one believes in fairies. The exercises necessary to ensure all debts are repaid mean austerity which itself destroys GDP . Debt can be defaulted on or reduced via inflation or repaid in full. Can you envisage any scenario where poor quality financial debt is honoured in full?

  74. Joseph Says:

    @simpleton - “Germany used to be Spain’s friend. ”

    Yes, they used Spain as a testing ground prior to WWII (for Stukas, tactical experiments, etc.). Perhaps they will use them for some kind of financial experiment when it all falls over.

    I was in Spain recently. Lots of simmering anger/frustration over there. In several trips to Oviedo over the years, I have never seen a beggar in the town centre. On this latest trip, I was approached by three.

  75. Brian J Goggin Says:

    @Jarlath:
    “I also think admitting we got it horribly wrong [...].”

    Anyone interested in the wrongitude, and indeed anyone who wants an overview of where we are now, could read Ronan Lyons’s excellent article here:

    http://www.ronanlyons.com/2010/11/30/irelands-economic-crisis-what-sort-of-hole-are-we-in-and-how-do-we-get-out/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+RonanLyons+%28Ronan+Lyons%29

    bjg

  76. jarlath Says:

    Thanks Brian, very good article, sums everything up. That should be proscribed reading for everyone in the country.

  77. dreaded_estate Says:

    @Eoin
    “the other alternative to debt restructuring is flat out QE, which is basically default via stealth (ie inflation creates the loss on bondholders).”

    Essentially amounts to the same thing and I’ve never understood why investors would prefer one to the other. The problem with QE is it is very crude and always ends with unintended consequences

  78. Bond. Eoin Bond Says:

    @ DE

    agreed. But probably easier for bondholders to blame inflation for their underperformance rather than a restructure - inflation is the fault of the central bank, restructure is your bad investment choice.

  79. AMcGrath Says:

    @Eoin
    Let’s be clear - there is no such animal as an implicit government guarantee on bank debt. This is one of those annoying red herrings which some people use to create confusion. Maybe this kind of talk actually encouraged the speculators.
    If Europe or ECB or whoever feel they want to gratuitously guarantee bank bondholders well good luck to them, but any rational person would have to demur. I keep saying this but the irrationality of it seems too obvious.

    1. The banks are private institutions - we have regulations - they broke them. You break regulations you pay the consequences. The bondholders as Philip Legrain and others have pointed out should just have been given the bank equity and the deposit insurance used to cover the depositors to whatever extent was in force.
    2. We could never afford that kind of guarantee. I know virtually nothing about economics (which I haven’t learned in here) but when that guarantee was issued - in one of the first posts I ever put on here I questioned the use of a guarantee which we could not afford to underwrite - and why it should prevent a run on banks.

    3. You raised the irrevocability of the guarantee in the past - but as Tom Costello says above:
    “If adding ‘irrevocable’ to legislation made it so, then any government could extend its policies indefinitely.”
    LIke the guarantee itself it’s a megalomaniacal delusion - authored by Brian Cowen as Jesus Christ and Brian Lenihan as Napoleon

    Lets have an Icelandic type referendum and overturn this guarantee ASAP. The guarantee should be overturned anyway - but a 90% in favour vote should add weight to the decision.

  80. Brian O' Hanlon Says:

    @ Kevin O’ Rourke,

    I was listening to the ‘Future of Finance’ podcasts from the LSE website recently. One point did strike me as interesting, and of some relevance to the Irish situation. I think it was John Kay, whose verbal contributions (and written in book publication for the conference) were very perceptive and understandable - spoke about our being captive to various orthodoxies, invented by ‘people like us’. I.e. He meant economists, who had invented the orthodoxies upon which modern finance was constructed around. I think it was Kay also, or one of the other contributors at the LSE conference who mentioned the fact that around 2006/07, a lot of comment in the United States spoke of the fact that banks were never, as well capitalised. That view had become the orthodoxy of that time. I think, that this essential point has failed to emerge in any of the debates I have listened to about Ireland.

    Yesterday, is a previous blog entry, you linked to the famous RTE PrimeTime panel discussion between Morgan Kelly, Brendan Keenan, a guy from Bloxams and our own favourite, Miriam O’Callaghan presenter. Thanks for linking that video clip. When I watched it again, I realised, it just keeps getting better the more times I watch it. It is like watching a great prize fight like the rumble in the jungle or something. Each time, you know that Ali is going to knock out big ole George. But you can’t prevent yourself from shouting in support every time, just in case the ending is any different. Each time of course, Kelly comes out of the scrap looking more and more impressive.

    But here is the point. If ever there was a snapshot of the global debate, in microcosm, it was that piece of RTE PrimeTime footage. It is quite obvious from watching the clip, that both Mr. Keenan and the guy from Bloxams were help ‘captive’ to the orthodoxy that prevailed at that time. And it is unfair to judge them in isolation, from the context that was in the world as late as 2006/07/08. Namely, the stubborn insistence, that Western banks were never in a better capitalisation position. The final thing I will comment on, in relation to the LSE conference, was another statement by one of the contributors. That, all of this will happen again. But what many sovereign states cannot afford, is a re-occurance of the same in the next 20 years. All the economists can attempt to do, is to extend the period to maybe the next 50 years. BOH.

  81. zhou_enlai Says:

    Inflation me up! My only worry about QE is that it will deliver very little inflation. One way or another, the aggregate money supply will be substantially less than it was prior to the crash, and banks risk aversion will mean a lot of the replacement supply will be concentrated in their hands.

  82. hoganmahew Says:

    @zhou
    I too think it will deliver no inflation. Look at Japan. It’s not all down to demographics. If it was, salaries would be rocketing.

    I think the ECB or some other created entity should be looking to buy the most toxic junk imaginable and bury it somewhere for a very long time. Really, it can only be the ECB or some adjunct, because it is going to have to be printed away (i.e. the junk will be destroyed, not sterilised).

    Why the most toxic stuff? Because however much good stuff you buy, you are doing it to suppress interest rates and make it cheap for governments to buy/guarantee the toxic stuff. This means that taxpayers will pay for it. This is bad for investment and demand. Which is bad for the economy. By buying good stuff (like sovereigns) and expecting those sovereigns to deal with the bad stuff, you are making the situation worse.

    If they buy at market prices, even that might not be inflationary, but it will at least clear the junk away.

  83. Sarah Carey Says:

    excellent article here on captive minds.

    http://www.nybooks.com/articles/archives/2010/sep/30/captive-minds/

  84. Bond. Eoin Bond Says:

    @ AMc

    you could have saved yourself a lot of time there - i said “rightly or wrongly”, and then you appear to argue on the basis that it was wrong. Thats not my argument, im simply arguing that it DOES exist, and all of the actions of the EU and ECB (and the Fed/Treasury for a large, though not total obviously - WaMu & Lehman - part in the US) are proof positive of this. Even in Scandinavia in the 1990’s senior debt was for the most (total?) part made whole.

    Re the guarantee - i am not aware of any legal argument in favour of revoking the guarantee that has been made by Tom Costello? He simply seems to express a personal opinion, which on the face of it could make sense, but constitutional law is very rarely as simple as that. Lots of people seem to think you can revoke any law by a simple act of parliament or even a referendum. You can’t if its protected by other rights in the constitution. You have to change THOSE rights first. In this case it would be the private property rights and fair expectations of them. I believe Gadge and others have made very detailed legal arguments, citing leglislation and boring stuff like that, as to why we can’t just revoke it. Changing fundamental property rights, which the Irish constitution is particularly protective of, could lead to an awful lot of other unintended consequences further on down the line. It would also, of course, still be a de facto sovereign default in terms of how the markets view us, and so changing the constitution doesn’t appear to actually change anything in real life - if we want to default on it, just default, not quite sure why or how changing the laws would change the actual situation?

  85. Sarah Carey Says:

    I know Michael Hennigan has issues on this point, but I think its impossible to argue that there is no implicit guarantee when no senior bondholder was burned throughout the EZ.

    But that doesn’t change the following either:

    1. Legislation is not irrevocable.
    2. Why do CDS exist?
    3. Why are our lawyers such a bunch of pussies? They haven’t even TRIED to test this stuff. (McKillen case not yet at Supreme Court).

  86. jarlath Says:

    @ Sarah
    No bondholders have needed to be burned throughout the EZ to date, bar now in Ireland. Our banking crisis is so far ahead of any other EZ country, it stands to reason we should be the first one’s to go over the top..

  87. AMcGrath Says:

    @Eoin
    “Changing fundamental property rights, which the Irish constitution is particularly protective of, could lead to an awful lot of other unintended consequences further on down the line.”

    I don’t follow the reasoning here - why do we need to change property rights? This is the Article - if any which would be used to overturn the guarantee. Why should anybody be able to take my money (property) and just hand it to someone else (the banks and via them the bondholders). It seems quite straightforward

    gadge btw didn’t say a challenge would certainly fail -just his opinion that it might, but maybe like you he feels that bondholders property right have some sort of precedence over the average citizens, and over the common good.

  88. AMcGrath Says:

    @Sarah
    What is an implicit guarantee - some kind of “mental reservation”? At least those were documented by the Jesuits and had some rationale at a time of persecution.
    Like all unwritten agreements not worth the paper they’re written on

  89. seafóid Says:

    @ Sarah Carey

    That article is superb. Tony Judt RIP.
    Where are the Irish thinkers at the moment ?
    There is some momentous stuff going on.

  90. Bond. Eoin Bond Says:

    @ AMac

    no one is giving “your property (money)” to someone else, no more than the government is “giving” your income to public sector workers. The State makes agreements and runs up cost/expenses/liabilities, and then they levy the taxpayer (or borrow money) to pay for this. It can decide at any stage to not pay these costs/liabilities and deal with the consequences of this decision, but it cant simply legislate itself out of oweing the money in the first place.

  91. Sarah Carey Says:

    Implicit guarantee is what we’re witnessing - in theory you can default, in practice it is (at the moment) seen as impossible.

    But we’ll get there…..

  92. Sarah Carey Says:

    Judt article soooo clever.

  93. AMcGrath Says:

    @Eoin
    I’m afraid your comparison doesn’t stand up to any scrutiny. We pay our taxes and get services in return. This is a contract everybody understands and mostly agrees with, irrespective of of well in all cases the service is delivered.
    They can’t just willy nilly write legislation to hand taxpayers money over to private speculators (well they can and did obviously - but that’s the problem) to write in stone some imaginary guarantee.
    My point stands - it violates my property rights - and as gadge suggested it is irrational - but let’s at least test that in the courts.

  94. Joseph Says:

    @Sarah Carey

    I do a nice discount line in the Pill of Murti-Bing and could rustle up a few million for the population of Ireland. A snip at €85bn.

    More on this worth reading here:

    http://www.democraticunderground.com/articles/03/05/28_dying.html

  95. Brian O' Hanlon Says:

    @ Sarah,

    Thanks for the Tony Judt article link. I need to sit and have a good read of it. I listened to an interesting podcast recently, I forget who was the speaker. But it referred to that excellent movie, The Lifes of Others. The speaker stated, that in our attempt in the west to try to understand the eastern bloc society, we could not help betraying our values in our interpretation. Where we created the figure of the corrupt official, who was abusing his position in order to gain certain favours and priveleges. What the speaker said, who was obviously familiar with the society and the times, that in the old Eastern bloc society, it did not even require the imposition of these ‘listeners’ and spies etc, to create the environment. The feelings oppression etc, evolved quite naturally without any assistance from these hypothetical ‘baddies’ in the equation. Just a passing thought, I said I would mention. BOH.

  96. AMcGrath Says:

    @Sarah Carey
    Why do CDS exist?
    Good question -
    George Soros:
    ” Some derivatives ought not to be allowed to be traded at all. I have in mind credit default swaps. The more I’ve heard about them, the more I’ve realized they’re truly toxic…

    CDS are instruments of destruction which ought to be outlawed …

    People buy a CDS not because they expect an eventual default but because they expect them to appreciate in response to adverse developments…

    It’s like buying life insurance on someone else’s life and owning a license to kill.”

    Walter Munchau in the FT Feb 28th (behind a paywall) called for a ban. Nearly every rational commentator wnats them banned - if you have no interest in the underlying asset - i.e naked CDS. They are a disaster waiting to happen - probably the reason why ECB/EC ministers are so jittery.
    Where’s Greg these days?

  97. Michael Hennigan - Finfacts Says:

    @ Sarah Carey

    I do believe that absent the State guarantee of bank debts, we could have forced Anglo into examinership and had a debt-for equity swap in a restructured bank in Q4 2008.

    It was a time of ferment in global banking and the ECB wouldn’t have been in a position to stop us - - we had an independent fiscal policy and any deviation from that would surely have come at a cost for the ECB.

    Last week, 2 years later, we were like Kenny Rodgers’ gambler - - simply out of aces.

  98. Wenn Journalisten die Geschichte bemühen… « Kantoos Economics Says:

    [...] sie immer weniger richtig. Diesmal berichtet ein irischer Journalist über die 1930er Jahre, und Kevin O’Rourke antwortet: „Another issue that did not get serious traction in the talks was the simplistic [...]

  99. Eamonn Moran Says:

    @ simpleton any chance of sharing?

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