Argued the Case for Default?

Someone called Maeve Sheehan has a piece in today’s Sunday Independent describing how I appear in Department of Finance Secretary General Kevin Cardiff’s diary as giving a seminar at the Department. I did give such a seminar, on September 17.

Ms. Sheehan describes me as follows “Professor Karl Whelan, another UCD economist, who has argued the case for default.”

I am genuinely unsure what Ms. Sheehan is referring to here. But I thought I’d use this forum to clarify that I have never advocated default on Irish sovereign debt. In addition, I have only ever discussed the idea of bank bonds being defaulted on in the context of legal provisions that allow for such defaults when a bank is insolvent or in the context of internationally-accepted special resolution regimes, which allow for an orderly approach to dealing with bank creditors when a bank is insolvent and which generally contain many protections for such creditors.

Also, because the above sentence could be radically misunderstood if one made the easy mistake of missing the word “has”, I would also like to clarify that at no point during my seminar at the Department of Finance on September 17 did I advocate default on either sovereign or bank bonds.

36 replies on “Argued the Case for Default?”

I think this post plus the previous one show that there is significant background chatter going on between DoF and the media. It’s not everyone who gets to see Kevin Cardiff’s diary and it’s not every journo who rushes to type up an account of how the ECB is “funding NAMA.” One has to conclude that even with the EU/IMF package in place, there is still extreme nervousness in official circles about our prospects, otherwise all this massaging of the hacks wouldn’t seem so urgent.

@Karl – maybe you should be making a diary entry with m’learned friends?

I hear that damages can be quite rewarding these days.


I wonder how they got to see this diary? Unusual.


My understanding is that the diary of s Minister/SG of a Dept is subject to FOI. So a newpaper or another political party can obtain it for the usual fee. How it travels from depends on the submitter of the request.

Even then you would love to know who meets who behind the doors of party business. I bet there is no entry for 3 ball Druids Glen.

It is interesting that the Govt/Officials have opened channels to the opponents of current policy. It is also interesting that some of said opponents are willing to go along. Things are much more open than I thought.


I have seen this diary stuff disclosed before. It is just a tease though, it reveals nothing of substance. The political stuff is beyond the curtain. That is the equvalent of the photocopier meeting.

It sounds to me like a completely innocent mistake. Talk of lawyers is the kind of ridiculousness that has ruined this country.

As a general point, we must have the most tame media of any long established democracy. Up until recently large sections were literally acting like a government information service. Yes, many were not, but given that the country had been ruined the meekness was astounding. Reporting bad news was deemed to be unpatriotic by the establishment. So they toned it down. Going along with NAMA was patriotic. So they did. Many of them eschewed criticism of the government entirely and went after the public service or social welfare recipients. The level of criticism of the government was astoundingly low.

The meekness and green jersey wearing of the opposition means expectations for the next government must be terribly low.

Civil society failed mostly too. The unions got annoyed AFTER they made sure to protect their members, possibly to no avail.

Now Brian Cowen claims straightfacedly that when Anglo’s share price collapsed and he learned about Sean Quinn’s behaviour he…did absolutely nothing till the night of the bank guarantee. Six months later. During a massive global credit crunch. As the MOF and Taoiseach. While repeatedly meeting the bank’s chairman. With his best friend on the bank’s board. And he does this after his IMF bailout denials. So will our tame media actually report this man’s utterances as if they deserve any credibility? Of course they will.

@ Karl

i think the most you suggested (if i recall correctly, and note i only say ‘suggest’) was that we revoke the guarantee on some of the bank debt, namely that debt which was issued before the blanket guarantee were brought in in the first place (ie the debt that was bought without any guarantee ever being in place or even being considered).

@ Eoin

I’m not sure I did suggest that, though maybe I should have.

If I recall correctly (and I might not be) I think I merely made the point that the moral case for revoking the guarantee on pre-September2008 was stronger than that for post-guarantee debt.

@ Karl

thats kinda why i phrased it as “the most you suggested”, in that someone could at least somewhat claim that. As you said said, and as you have now reminded me, it was more a hypothetical moral judgement than an outright suggestion.

As for Maeve Sheehan I see one of her articles is “Feral Girls and the Things That Men Do” no need for me to look further. I suggest she is out of her depth in economics and one should not dignify her contribution by bringing attention to it. Conserve energy, pick worthwhile opponents.

@ Oliver Vandt

You are spot on, the Unions did their Croke Park deal in return they would not oppose NAMAit was as simple as that. They had to…”convince” their members to accept it. Just as Brian Lenihan had to “convince” the Bar Council of Ireland to accept the NAMA gravy train. At the end of the day, their deal will be torn while NAMA will remain on the statute books until the people decide enough is enough.

I hope Maeve is not put off by this little error!

@Mickey Hickey

Buiter went to Citi – now publishes on their paper, with less expletives though.

[…] The Irish Economy » Blog Archive » Argued the Case for Default? – view page – cached Someone called Maeve Sheehan has a piece in today’s Sunday Independent describing how I appear in Department of Finance Secretary General Kevin Cardiff’s diary as giving a seminar at the Department. I did give such a seminar, on September 17. […]

People are interested in these subtleties and most are well able to understand them if communicated to them properly by journalists. It is disappointing that some journalists (though not all) cannot understand it. All Ms. Sheehan had to do was use the words “argued for limited default on bank debt”. Even if she was not prepared to explain where the limit lay at least people would know it is there.

It useful to remind ourselves that the Sunday Independent is a low grade paper with low grade journos.

You are right to challenge their lies but dont expect anything to change. You might even end up with Eoghan Harris, Willie o’Dea and Celia Larkin all condemning in articles tastily juxtaposed with pictures of beautiful women.


speaking of learned friends did you see the fulsome apology to the Finucan family (about 10 people) in the Sindo about 2 weeks ago.

I am sure there was an interesting story behind that money wise.

The Sunday Independant is the newspaper equivalent of a Junk Bond. wikipedia journalism at its best.

@ Karl

I think your problem is that you have been typecast as anti the government line. You are in fact the sole member of the rational wing of that faction. It is otherwise stuffed with looney tunes. Maeve has understandably assumed you support all the rantings of the looney tune wing and has been unable to identify your own very unique rational wing.

What I will say is that I have never, ever seen you support the official line. I also think you have a tendency to overstate your valid criticisms.

@ BW2

Thanks for the sort-of-praise. Still, I find your criticism of unnamed other government opponents a bit odd.

The fact is that the government’s banking policies have failed dramatically. By every yardstick that the government set out for what its policies were supposed to achieve — from the cheapest bailout evah era, to the credit flowing in the streets era, to the “everything’s manageable” era — they have failed.

Given that context, the idea that almost everyone who has been critical of the government’s banking policies is a looney tune strikes me as strange.

For what it’s worth, I have supported the broad thrust of the government’s fiscal policies all along and pretty clearly never advocated that they should decide to unilaterally default on sovereign debt.

I’d note that there’s been a guy putting comments in here, the jist of which is to point out that I wrote this paper a few months ago

in which I argued that sovereign defaults in some Eurozone countries probably could not be avoided and we needed to set up institutions to handle these in an orderly manner.

These are fairly mainstream views and they are not in any way inconsistent with an objection to a unilateral pre-emptive sovereign default by the Irish government.

I’d be happy to further discuss these issues. However, I have deleted the comments that raised this point because they wildly violate guidelines about comment acceptability, accusing me of evasion, obfuscation, dishonesty and other silly stuff.

If you want to debate in a reasonable fashion, I’m happy to have people disagree with me. Ya-boo name calling and accusations of dishonesty, however, are not welcome and won’t be tolerated.

@ Karl

Yes the official initiatives have persistently failed. Doesn’t mean they were wrong just that failure has turned out to be inevitable. They did their best. The looney tunes meanwhile persist that all would be happy, happy if only we had exited the euro, sold Anglo’ deposits, converted ECB liquidity support to equity etc. etc. We have as a nation made a complete b*lls of it but the finger in the dyke response was possibly the best we could do. There were no silver bullets.

@Robert Browne
The IBOA backed NAMA.
Afterwards they heard about likely job cuts in the banks.
So they demanded that the government be driven from office.

Very good article here which the government remained completely silent on (via

Stop being suspicious.

Comical Cowen was being cornered on whether he learned about the Quinn situation before or after meeting Fitzpatrick. Today he agreed Fitzpatrick had informed him but had earlier told the Dail the head of the CB had. So what’s the current comical claim?

He met the Central Bank head who told him.
Then he met Fitzpatrick who told him too.
Then he acted decisively by referring the matter – that the Central Bank had raised with him – back to the Central Bank. “Prior to talking to Mr. Fitzpatrick, I spoke with the Governor. Having listened to Mr. Fitzpatrick I told him I would refer the issue to the Governor of the Central Bank. The Central Bank and the Regulator subsequently followed up on the issue at a meeting with Anglo Irish Bank which I understand was held in the Central Bank Headquarters on Good Friday the 21st March 2008”.
Then he did nothing, learned nothing and asked nothing for 6 months, with his best friend on the board. During a global banking crisis. Suddenly on 30 Sept 2008 he felt an overwhelming desire to take a gigantic and unprecedented gamble as a crisis had, suddenly arisen.

Comical Ali was basically honest. When he told outrageous whoppers he would end up grinning.

@Brian Woods II

Karl “cheapest bailout evah” should have been the end of this thread. And yet, and yet…

If one had to decide, from two sets of people, which one to call cranks you might reasonably decide to do so on the basis of the accuracy of their predictions.

Can you see which way this is leading?

Also when you say “we have as a nation made a complete b*lls of it” please feel free to count out everyone not directly involved in banking, economic policy making or financial regulation over the last ten years. That would be just swell.

@ All

FF take a huge blame for making Ireland more exposed to the global financial crisis than most other countries.

But come 2008 the damage was done, most except possibly Morgan Kelly could not envisage just how awful our position was.

From that point nothing was going to work, there were no silver bullets, it was damage limitation. It does not follow that because none of the initiatives delivered the promised salvation that an alternative policy would have spared us our current plight.

FG, for all their huffing and puffing, would have done more or less as FF did because FF were doing more or less what their mandarins were advising and what the EU would permit.

Labour probably would have followed a somewhat different policy. They probably would have nationalised the wholle banking system back in 2008. And would that have got the country off the hook of the banking crisis?

“FG, for all their huffing and puffing, would have done more or less as FF did because FF were doing more or less what their mandarins were advising and what the EU would permit.”

That’s because FF did the most damage between 2003 and 2007. The country was just their own personal playground. By the time Northern Rock collapsed it was too late.

FF’s behaviour since then has been appalling. Lenihan is an exceptionally ignorant character . He wouldn’t be out of place in “the field” despite all of his legalisms.

His comment that “nobody has suggested they were the wrong steps” came from the gutter. Every dissenting voice was shunted sideways or silenced.

Stop talking the country down. They stopped making land a long time ago. This is not a time to apportion blame. Rent is dead money. We are where we are. Everyone lost the run of themselves. There will be a soft landing. Leave it to the experts. No one could have foreseen the collapse. The bank guarantee will be the cheapest bank rescue in the world. No one could have foreseen the costs that Anglo would incur. Ireland is different. We will all share the pain. NAMA is the only show in town. The banks are well capitalised. We need to recapitalise the banks to get credit flowing again. We need to adequately reward the wonderful entrepreneurship of our best and brightest. The fundamentals of the economy are sound. There is no evidence of any wrongdoing. The banks are fine, it’s only a short-term liquidity problem. Regulation is strangling innovation. We need to protect the bondholders or our borrowing costs will go up. Everything we do is in an attempt to protect taxpayers. We can’t expect to keep the best talent if we don’t pay them these wages. The losses are very annoying but they are manageable. I don’t know why people who talk the economy down don’t go and commit suicide. The economy has turned the corner. People are just playing politics here. We have a job to do (going forward). Our European colleagues support us fully. We need to don the green jersey and drive it on. The Taoiseach was only a little hoarse and he has my full support. There are no funding difficulties at Irish banks. We are not in talks regarding a bailout. Nobody has suggested they were the wrong steps


I agree with you up to a point
*the decision to hand iver the prudential regulation of the banking system to the Anglo Silver Dollar bankers to be carried out over the back nine in the Glen did some enormous damage to the country.
*the decision to run a fiscal policy based on bubble tax receipts which collapsed and left us in a dependency situation meant we had to dance to Brussels “ne pas toucher les bondholders” policy.
So the Anglo losses came back to burn the taxpayer.

As to following the officials. Well if only the the Brians had and nationalised Anglo as proposed by the same officials then things might have been ameliorated somewhat. Remember someone put a proposal to nationalise Anglo that night as it was probably insolvent. We know that they knew it was insolvent from briefing material to the PAC. We know Brain I ruled that out of order due to is “ye are not F***ing nationalising Anglo” a remark…now confirmed by 3 sources. We know Brian II went along with that decision…something that may come back to haunt him when he assumes leadership of the soldiers.

We know the blanket guarantee did not come from Merrill Lynch, it almost certainly was not proposed by the big 2 banks. We are none the wiser as to where it came from.

I will agree with you on nationalisation. The state has been effectively running the bank since G-day. They are a monumnet to the efficiency of said state.

@ tull

“As to following the officials. Well if only the the Brians had nationalised Anglo as proposed by the same officials then things might have been ameliorated somewhat.”

I’m not sure I follow you. Are you saying the 4 month delay in nationalising Anglo was a crucial blunder?


Yes. I am speculating that stuff went on in the interregnum-see a thread on derivatives. Also a few bob could have been saved in negotiations with the subbies. By no means a silver bullet though.

In any event, it is bad form to leave a bank that you knew to be clearly insolvent out there.

Maeve Sheehan was a crime reporter, had excellent access to Facthna in the late nineties and is exceptionally toothsome.

A more organized successor to the late, great Ms Guerin. I never met her.

The title on the article is hers, but the sub-editor and others may have had input to ensure that those who insist on the truth get what they deserve. She would probably be concerned at the use being made of her in this way?

By the way, the bubble was obvious to anyone with a brain, from 2003 on! I had noted the likelihood on 9/11/2001. That event enabled the Fed to sabotage the US economy in the name of patriotism. Once that wave of “cheap” credit reached Europe we were doomed with a govt locked in step to the banks, land owners and developers since 1985.

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