O’Callaghan Article on Leadup to Bailout

What a mess.

The 3% goverment deficit rule is at the heart of the problems in the Euro area – this has facilitated a vacuum of power withen goverment executives which has been filled by a vast increase in the shadow banking sector.

Governments have been unable to spend on vital utilities over the years and these banks have only engaged in seeking yield on a progressively declining wealth and capital base until implosion was imminent
A ballsy goverment in 2008 could have used the ECB rules against them when we had gov debt below their 60% target – stating that to conform with the rules we would have had to default on our private obligations – of course the ECB was not too fussy about the 60% debt rule at the time.

We can still default on the ECB and remaining private bond holders citing the spirit of the agreement once we also use a industrial bank to take the fiscal load withen the shadows of a bank and create our basic credit money supply.
They can deal with banking problems on their own balance sheet, not ours
I will never forgive Todd Andrews for his vandalism in West Cork but the country needs to break the glass on the fire alarm and release such madmen on these bastards – we are in a financial war.
It may further destroy our remaing wealth to take on such giants but not doing so will invite further derision and scorn from these cardinals – If we have any such dogs in the Kennel we need to release them now and give these bozos some satisfaction.

BTW KC what did Todd Andrews do to West Cork?

I think it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. That’ll help shed light on the medicine needed to throw off the shackles of aid.
The title itself of the paper lays out the main thesis – “Did the ECB Cause a Run on Irish Banks?”, with the answer foundto be a “yes”, I think. That’s in sharp contrast of course to what the ECB’s Mr Bini-Smaghi and others have argued of late.
The final sentence I think captures the gist of Gary O’Callaghan’s paper “it is important to point out that the crisis was due to a failure of monetary policy in the first instance, the level of the euro zone, and was not solely due to a fiscal problem in Ireland.” [I don’t know what “the level of the euro zone” here means].

Lots of data and events, almost all of the monetary, are cited over H2 2010. The “Timeline of Events” is comprehensive, but there are some key events for me that that are not there. The events retained by Gary O’Callaghan are almost wholly non-fiscal. The word “budget” occurs four times in the paper (plus once in a quote)
Indeed there is only one substantive reference to the budget that should have been. “the ECB had argued in August 2010 for an early budget. But the Government had already undertaken substantial measures and had announced that it would launch a further series of fiscal measures”. Yet even today, with all these “substantive” measures, the EC and the IMF are left forecasting a budget deficit of over 10% of GDP for 2011.
Some of the arguments I don’t understand at all. e.g. “If the markets only lost confidence in Ireland’s fiscal sustainability in September, this could have led to a loss of credibility in the guarantee scheme … [so] one might have expected a run on the domestic banks only”.
Other good questions are posed but not answered e.g. “The Government … had a €20 billion reserve to see it through into mid 2011. It was well known that the Government had this substantial reserve in place so there is an open question as to why the markets acted when they did”. There are several ways of looking at this, but one aspect that comes immediately to mind are the moral hazard aspects.
.
Another way about thinking about the issues raised by the paper is to ask, “suppose Irish banks were all as healthy as a fiddle, with no need for recourse to the ECB, what would have been the consequences of a third year of a deficit / GDP level superior to 10%?” Maybe there’d have been no need for intervention. But there would have been serious consequences, sooner or later, for having the largest deficit in the eurozone etc, and no immediate prospect of seeing it narrow. Idem, if the banks and their associated liabilities could be waived away today, what would remaining risks look like then? A lot better of course, but relative say to Portugal and Spain?
So yes, it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. But we need fuller accounts still, without the express intention of painting Frankfurt as perfidious.
.
By the way, this is the same Gary O’Callaghan that has written of late on “Fiscal Developments in the European Countries” for the International Monetary Fund, etc.?

The paper tries to hang this ECB to blame hypothesis on the fact that although the domestic and non-domestic banks in Ireland had not had correlated deposit flight in the year preceding the Nov. 2010 deposit flight, that correlation did eventually emerge.

Therefore you can’t blame the eventual run on fiscal problems – but you can find a common ECB action “attempting to get addict banks off emergency liquidity”.

Thing is though that the addict banks were too often in Ireland (domestic or non). That is why they were over dependent on a temporary tactic from the ECB that it could not turn into a permanent one.

And why was that? You see if you wanted to run a shoddy, risky, chancer bank (or hedge fund) a natural place to pick for it was Ireland. Right kind of facilitative, fixer politicians, officials and regulators. People who know not to get in the way of business. Our kind of people.

People who will by the way, always find a way to blame someone else if it all goes wrong – people who are not our kind of people.

I got the impression the ECB gave plenty of subtle warning in summer 2010 but some know-it-alls thought they could chance it that they would be forced by pressure from the fixer system, to back down.

@Oliver Vandt – “If the new government made public what has been happening since early 2007 we might be able to have an informed debate”

I think this is key to moving People need to know what’s really happened over the past couple of years – the truth. They can’t go on batting in the dark. But what is the likelihood of it happening? 🙁

We will never know the truth of this just as the truth was never discovered in the Credit Lyonnais scandal in which JCT was a major player and which had troubling similarities with Anglo.
Lennihan has probably been promised elevation to some highly lucrative post in Europe and Cowen has too many mistakes of his own to cover up to let us know.
Can we, as a country, psychologically take Been-Smuggy patronizing and sermonizing us for the forseeable future?
Psychologically alone we need to stop negotiating an EU-IMF deal and go with the IMF alone. It’s consistent with the no bail-out clause of the Lisbon Treaty, is run by more competent people and will save European taxpayers a fortune. It’s in everybody’s interest except the banks

@all

Language is what makes us human.

The vichy_bank guarantee really p1ssed off a lot of peope as deposits flowed into Irish banks post sept 08 at a time of near global panic. Event 1.
Event 2 – a little more drawn out as ‘Mawarkets’ sussed the magnitude of the insolvency of Irish banks – and the projected p1ss-poor conflationist_vichy_bank/sovereign debt/supine growth/ ratio and the inevitablity of a debunking of the Irish Conflationist Fallacy & triple A Austerity goin nowhere to eventual DEFAULT ……… footloose deposits flowed elsewhere …… as Fr. Ted put it, they were merely ‘resting’ in his account …..
Event 3 – levels of liquidity support from ECB to Irish banks increased massively [discussed here by KW in sept ’10 14% of total EZ in a month!]

Event 3 1/2 Ould Bundesbank ideology in the ECB fails to recognise fact that EZ-monetary ain’t a homogeneous entity and opens its big mouth …. FIRE FIRE FIRE panic… and Liquidity Black Hole emerges to complement the Solvency Black Hole and the PANIC of the IMF/EU/ECB debt_sentence on the Irish Serfs lest the paddy_plague invest the rest of Europe and the wider fragile world economy …………

Whatever the R-squareds (convincing), and the excellent graphics from O’Callaghan – it is near time to call a halt to this lunacy and to unceremoniously break the experimental glass jar that Irish citizen-serfs now find themselves in ………

I’m back to 1789 … and running out of time ………

@Paul Hunt
Is the fundamental difference not that the US is a union and the EU is a club?
As a club it is corrupt and elitist. The more we become a client state of that club the more elitist and corrupt we will become too. EU approval, for example, was used to shout down the opponents of NAMA and the Anglo bank strategy. It has leant credibility to an incompetent MOF.
The root and branch reform that is needed in this country is less likely to take place while we are beholden to the self serving elite of the EU.
It is a much healthier and more neighbourly thing to say: we don’t feel that it is right to burden our fellow Europeans with the bank mess, we would rather deal with the IMF -and let the banks fall whatever way they will.

@Michael Hennigan

A conspiracy only requires a group of conspirators – it the most natural thing for Grown ups , you do not expect children to play peek a boo forever.
The money power is perhaps the most sophisticated of all conspirators – hence their success in the game of extraction – a central bank without the check of a powerful independent executive is like taking candy from a baby for these guys.
They are again laughing all the way to the bank.

@Eureka,

Thank you. I am simply outlining some of the issues and questions that surround the dilemma we confront. In simple terms: since the outcome of greed, stupidity and ineptitude in Ireland is combining with fundamental institutional and procedural deficiencies in the EU and the EZ to impose a ‘support package’ with no viable exit, do we stick with it (with the hope of some limited amelioration) or seek to craft a more viable alternative?

The establishment view and, apparently, a popular plurality is to stick with the former; but popular and political dissent is growing. However, neither side is willing to tease out the profound implications of both courses.

@KC: “Sinners and the socialists are not spelling out the cost of rejection or at least dissidence.”

Do they even have any notion about the economic alternatives to Permagrowth? I genuinely doubt it. Plenty of philosophical and ideological guff, but precious little substance.

I have mentioned this several times on this site; Ireland is in an economic Regression not a recession nor depression. The latter two are ‘temporary little arrangements’, the former is a permanent structural change. Our aggregate economic activity will plateau out, probably similar to mid 90s and ocillate around this until we encounter the first permanent oil shock (aka. energy). Then its downhill again.

We could slow the rate of decline, but we would have to have some significant debt resoultion systems put in place, with separate systems for general debt and mortgages (on your principal residence property only). This is the only, I stress only, way out. If anyone wishes to disagree with me on this it would be great to hear your ideas. I want to be shown that I am wrong about this!

The debates that we need to be engaged on are: (no particular order)

1: Our social and political values and what sort of political structures we want – or possibly will need.

2: Nature of our economic system: Permagrowth or Cuban or whatever.

3: Energy security.

There are several others. These just come to mind.

BpW

@ Pul Hunt
The second path you are contemplating means:
a)leaving the Euro ,with the huge devaluation it will entails.
b)no new emission of sovereign debt (and an existing debt in Euros which will be extremely difficult to pay back).No new emission will mean balancing the budget right away ,which will plunge you in a deep recession.
I do not know if the Irish voters will have a stomach for that if it the price to regain your economic sovereignty.

Thanks to Colm for posting this.

A few points of clarification/elaboration might be in order:

1. I have tried to stick to the facts. I noticed that off-shore banks suffered a run and wondered why. The evidence strongly suggests that the run was caused by fears that the ECB would withdraw support from all Irish banks. (The ECB’s frustration with Irish banks may have been understandable, but that is another matter). And this is why the Fund was called in so quickly.
2. I do not suggest that the ECB acted deliberately. In fact, the main point is that the ECB was in a bind and searching for an exit. Council members should have conducted their deliberations in private, perhaps, but the upshot was that the ECB had to increase support to Irish banks—the reverse of what was being considered—because the markets were highly sensitive to any suggestions of a withdrawal of support.
3. This suggests, in turn, that the ECB is caught in the middle of a serious systemic problem for euro-zone banks and is still searching for a way out. And a systemic problem is usually caused by the system that it afflicts. So, while we continue to criticise lax supervision and loose fiscal policy in Ireland, we should also recognise that there is a serious flaw in EMU. The euro zone is not an optimal currency area—as was always understood and brushed aside—and will be prone to localised booms and busts when there are differences in growth. And perhaps the costs of those busts should be shared by the luckier members of a flawed and shared system because we all decided to accept the risks.
4. Consider the following counter factual. If the boom in Ireland had been financed by Irish banks that printed extra euros on the side, there would be no liabilities to European banks right now and no systemic problem. Irish banks could fail and have little effect. But the liabilities to outside banks were created by the same system, and in the same process, that caused the boom. Therefore, the systemic problem is a shared one and is due to the system that we have.
5. And the system needs to be re-examined. This exercise is not about assigning blame, but we do need to clearly identify what is wrong and make decisions for reform on that basis. We should not hide some problems because they are inconvenient for the ECB. (But I have little confidence in reform).
6. And for Mr. Bini Smaghi to suggest that our banking problems are due to our low tax rates and competitive economy is just nonsense. (“…you should not complain if now you have to increase taxes as a result of the choice of economic model the Irish people made”). Is he suggesting that a high-tax economy would have had 50 percent of GDP lying about that it could have used to save the banks? No, there is a move in the EU to use this crisis to get Ireland to conform (and they will use flawed analysis without shame). Therefore, we do need to point out inconvenient truths, and I agree with much of what Paul Hunt says. We could be faced with a choice between a high-tax and uncompetitive economy on the one hand, or leaving the euro on the other, but that is not a choice that needs to or should be made right now.

@Eureka
I could be wrong in my take on your beliefs but the IMF is not some saint come here to protect us , the ECB and the IMF are related but slightly different tribes – the ECB goal is to transfer dollar reserves in the Euro system , some elements of the Atlantist IMF may not want this.
This is at the core of the skirmish in Ireland.

@Keith
I know the IMF are no saints. I know they’re pretty ruthless.
But whatever package they would bring would be minus the humiliation of the European bailout.
That is all we have received from Europe. 3% of an interest rate hike, no possiblity of restructuring and humilitaion. That is all that we have got!!!!!!!
We are a proud people. We have one of the most stable democratic republics in Europe. We have bailed out the Europeans twice in the last 100 years with the blood or our soldiers fighting for their freedom. And now they treat us like some profligate nuisance.
I want no more to do with this EFSF. Let’s keep the Euro and let’s deal with the IMF instead. It will be harsh, it will be painful, it will be awful but we will leave it with our pride intact.
The current way is rubbish
(Sorry for dodging the whole dollar transfer thing – really don’t know what it means. Is it that the IMF money depletes the dollar reserves in the Euro system thus causing a decrease in the value of the dollar and an appreciation of the Euro (I don’t have a clue about that one really!!)

@Eureka
If we are entirely dependent on the bond market we will get murdered – Goldman and the others give this goverment advice and their other arm in London create counterfeit betting slips to drive up the price of our interest rates – these London boys only know how to extract yield – they have / are destroying the west through decapitalisation schemes – they just have become more extreme over time.
There is no real need for a sovergin to run to the bond market if it is sovergin – although if we created our own money it would be open warfare with the money powers and would not be a good idea ,we can fight a limited war by having a industrial bank to create credit – the state can then tax this credit and not go running to the bond market which is run by the CBs
The ECB are well aware of this decapitalisation scheme run by the NY Fed and London and have installed a free floating gold on their asset side of the balance sheet unlike the FED whose yellow stuff is valued at $42.

The rise of Gold and the creation of the Euro are linked very closely

The ECB are obsessed by the 2% CPI inflation rate in the EURO and for good reason – they are planning for a collapse of the IMF$ system with the cooperation of the Washington FED – some time in the future the worlds dollar reserves will get converted into the yellow stuff – this will dramatically increase the size of the Euro balance sheet – to insure stability they want to contain the velocity of paper cash and therefore keep CPI inflation in check even after a dramatic rise in Gold.
Please remember this is not a standard system – this is very different.

Ciaran,

it is reasonable to argue that mid-year fiscal measures in 2010 would have helped, and after the Greek bail-out I thought this should have been considered. The authorities clearly felt that the monthly budget figures were on track and in line with the commitments to the EU Commission, so they stuck to the December date and the normal budget timetable.

The alternative would have been to work up the four-year plan rapidly after Greece and release it with the Q2 Exchequer returns early in July. I am sorry that this was not done, but I am not sure it would have made any difference. Counterfactuals can never be tested, of course.

I agree with you that the planned deficits agreed with the official lenders are far too big to facilitate an early return to the markets, even with the banks stress-tested and re-capitalised.

@ DJR
Many thanks for that.
I am sorry to labour this point but I don’t really understand.
Is the IMF – only option unavaiable to us because
a: The IMF don’t want it or
b: The Europeans don’t want it?

@Dominque
We really don’t know the inner power dynamics on a micro level between the monetory authorties and European executives.
The advantage of the above analysis is that it attempts to follow the money and nothing more.
I applaud Gary O Callaghan’s efforts to just follow the money rather then engage in idle speculation that myself and others follow.

An excellent article by O’Callaghan.

The conclusions I take from the article are.

1. The ECB was publicly reneging on its responsibilities as a lender of last resort in Mid 2010.
2. These public threats to withdraw support, together with the pejorative phraseolgy used in the threats caused an outflow of funds.
3. “Ireland was precluded from writing down bank debt by the terms of the financing package, lest this have a negative impact on the entire banking system, and domestic banks have already repaid €29 billion in
securities since August.”.

Who has taken on the liability for the funds that paid back the €29 billion?

The sooner Ireland leaves this shambles of euro banking system run the ECB the better.

How does it work?

Bank in Germany and/or France buys Irish bank bonds. French and/or German regulators then either:

-Trust that the regulator in Ireland is doing its job & the bonds can be valued at face-value?
or
-Go through the Irish banks books as the regulator in Ireland can’t be trusted?

From p.ie economy forum:
“Jan 28 (Reuters) – European Union officials are considering extending euro zone bailout loans to Greece and Ireland to 30 years in a bid to draw a line under the bloc’s debt crisis, two euro zone sources said on Friday.
…..”There are all sorts of ideas. I don’t know how much weight this one carries…”

…The idea surfaced in intensive talks among euro zone ministers, central bankers and officials on the sidelines of the World Economic Forum in Davos this week, the sources said….

EU officials say they are also considering reducing the interest rates on the euro zone portion of the loans, which carried a 300 basis point surcharge intended to deter moral hazard and punish what Germans call “debt sinners”.

http://www.reuters.com/article/2011/01/28/davos-eurozone-loans-idUSLDE70R2CX20110128

If FG/Lab were interested in transforming Ireland – and I don’t think they are – they would propose breaking the crony system forever and transforming Irish governance, while insisting unyieldingly that bank debt is never sovereign debt. If we do sign up for a deal like this we should make it clear that we will never accept this principle and are agreeing the deal because the EU/ECB have a gun to our heads.

My (optimistic?) view is that if Versailles was eventually heavily amended so too will this be. The question is how high a national debt and how much and how long the austerity (on top of the inevitable austerity on the national finances) before this happens.

@BeeCeeTee
re: There may not be any willing takers right now.

I’ll take that solution. It is a good analysis of the situation and would bring forward what will have to be done anyway.
But how do “convince” people to take 20%-25% pay cuts when the top 600 were able to persuade the government that their own king’s ransoms were untouchable?

Some of the latest comments look like they are less imprecise, but are still a tad inaccurate. But its real progress none-the-less.

1. We have to cram down our (personal + residential) debts ASAP. The principle is in-escapable, its the manner that is sticking in peoples craws.

2. Our state debt – however it arose has to be paid from taxpayers incomes, an these are declining – like!

3. Separate out genuine state deficits from the voluntary assumed financial debt. Deal with the former and junk the latter. The former is undealable (sic) absent we cut loose the latter.

4. Debt grows exponentially and aggregate economic output (may) do so as well, but if former is greater than latter – its Boom, Boom time!! Which is now – like!

5. Time to give those addicted to interest a little Cold Turkey time! Sky will not fall in – I promise!

6. Debt is money. So a debt default (or bankrupcy) is deflationary – the massive QE we are observing in EU, US and UK is the creation of money, but it may or may not be replacing any money lost by debt writedowns. Someone can check-out these figures.

7. Could I gently ask each of you, please, not to use the term ‘pain’ in respect of our dreadful debt predicament. The persons who are experiencing a significant losss of income are people, our fellow citizens, just plain human beings.

8. Our creaking antique of an economic model mandates some pretty far-fetched assumptions and some real ones (increasing population, increasing incomes, increasing credit, etc., etc.). Try to model what will happen when pop, income, and credit all decrease simultaneously and at the same time!

BpW

@Colm McCarthy,

Your comment seems to confirm what, previously, you have stated explicitly: that there is no viable exit strategy from the EU/IMF package as currently designed. Does this mean that all we have is the hope that the up-coming EZ bank stress-tests will motivate the political will in the core EZ countries to confront the problems in their dodgy banks and, in some limited way, to reduce some of the burden Irish bank debts are placing on the sovereign?

While this burden remains it will prove impossible to secure popular support to undertake the structural reforms required to reduce the fiscal deficit and to enhance economic performance. Irish voters will have a legitimate case to make if they refuse to accept cutbacks part of which will be used to bail-out foolish investments by foreign banks.

@grumpy, of course there is the little problem that we don’t have public support for that right now. It may very well be because there does not seem to be a single prominent person who is prepared to make the case for a seriously accelerated adjustment in public spending.

I can understand that from people who buy the ESRI line that the trend of miniscule improvements in cost competiveness that we are seeing will quickly dig us out of the mess. I can also understand it from people who are so horrified at the idea of making things worse for people in the short term that they are unable to consider the medium to long term. But there have to be plenty of economists, and even politicians, who understand ESRI’s overoptimism, and who are capable of thinking 3 to 5 years ahead.

I’m sure that many of them, like myself, have good personal reasons for not wanting to take a public lead on this. But, surely, there must be someone out there prepared to talk sense to the Irish public.

Its sickening to see the same bottom feeders who want to see more effeciency in the fiscal sphere so that the increased surplus goes to a bloated fat shadow bank sector.
Just one more mint.
http://www.youtube.com/watch?v=BlK62rjQWLk

@Brian Woods
The world is a credit drug addict – this credit is a monetory manifestation of oil and other fossil fuels capital stocks.
The concept of creating capital while inadequate was present before the current petro – dollar system – now it is knowledge that seems to be lost.

Now all currency seeks yield on declining stocks of capital , effeciencey alone will only prolong this agony.
The Ryanair model of reducing capital to get a tempory yield is almost over – this is a good thing – but what will replace this , feudalism , chaos or a renaissance – who knows

@Dominique
You cannot compare models withen a flawed global monetory regime – it like sticking a giraffe in Antarctica and claiming that he is not adapted to the ecosystem – who really knows what is the best model is when we are comparing economies working under the IMF$ umbrella.
The German economy is geared to a higher level to deal with export demand then the French which is a bit more self – sufficient.
This partial self sufficiency was obtained via going into debt to build capital intensive projects – in the 80s and 90s London was laughing at Paris – they claimed such projects were a waste – yet who is laughing now , the UK is in a terminal energy decline phase due to spending its oil wealth on 1980s cultural icons.
If real capital is revalued upwards and debt downwards France will come out better then some others despite the influence of a Anglo buccaneer culture for 30 years or more.

@BW,
While I greatly enjoyed the good Mr. Higgins’ recent performance, the realpolitik is that we can’t both take the rational approach to debt that he advocates and continue to get the sort of liquidity support from the pajandrums of the EU that he implicitly wants. I’ll take him more seriously when he faces up to that.

The choice is between *that* and a steep fall in living standards

@Paul Hunt
Fundamentally this was an asset bubble. A 900sq ft, mid terrace house in Dublin cost 600,000Euro, not because it was plated in gold but because the banks were falling over each other to lend that kind of money and often with 110% mortgages.
If a market is flooded with credit it will be spent.
BTW the “we all partied” thing is very annoying. Most people were just paying for overpriced property and childcare.

I’m contributing too many posts. However, I just want to add that I largely share Paul Hunt’s analysis, but draw the different conclusion that our strategy should should be robust in the face of an absence of concessions from the EU.

If we free ourselves of the need for liquidity support, that will give us much greater freedom of manoeuver. It will at very least free us to burn the unguaranteed bank bondholders, and to talk sense with holders of Irish government debt now, rather than in atwo to five years’ time.

It will also free Merkel et al of much of the domestic political pressure they face to be nasty. If they don’t have to fund us, they don’t have to explain to their voters why they are doing so.

@Brendan Walsh,

Perhaps the reason why there has been little discussion of the stress tests here is that no one considered them to be credible at the time. My memory is that people felt that the exercise was of some value, but that the value was limited to the additional hard data disclosed.

The findings themselves were assumed to be a whitewash, and the number of banks that failed was assumed to be the minimum consistent with maintaining a pretence that the exercise was real.

I think there is plenty of recent evidence that the ECB is no more in favour of straight talking now than it was then.

@Brendan Walsh,

From your ECB quote:
“It confirms the resilience of EU and euro area banking systems to major economic and financial shocks.”

The EU’s Grand Panjandruns are keeping their fingers crossed that they can maintain the pressure on the peripherals to pay up to avoid default on bank or sovereign debt; this is the major economic/financial shock they fear.

This is not sustainable.

Government guarantee makes AIB & BOI solvent? Revoking the guarantee for them now could then in theory make them insolvent & cause them to lose their banking license?

AIB & BOI do have a significant portion of the banking market in Ireland so in theory it could be argued they are systemically important.

Is the discussion about Anglo & INBS? The ones the Irish regulator monitored & by allowing them to retain their banking license in effect said: they’re (at the very least close to being) solvent?

@ PH:

What you are describing is a mite complicated, but I would not dispute the generality. Institutions are tightly coupled systems and a shock to one reverberates through the others in an entirely unpredicatable manner.

Given our daily experience of causes and effects we observe, mostly, short, small-scale, linear effects. Hence we too readily assign cause to some outcome, but we may be way off target if the real cause is not the initiator, but a faulty component (which appears to be OK) or an internal, (invisible) process which develops a ‘mind-of-its-own’.

I am very leery of layer-cakes – particularly political ones.

Reading thru the comments you can discern a ‘framing effect’. People react to, and comment upon, what they perceive they see (Rose coloured specs!). I perceive debt as a very bad idea – especially if your income is running down and your debt is running up. You may have discretion over how you allocate your income, but compound interest controls your debt. If your income is faltering (for sure) – its a no-brainer: You default.

I have observed that many folk will tolerate long periods of political ‘oppression’, but once their food stocks run down or become too expensive in proportion to their disposable income – they get a tad nasty. Society is a very complicated institution. Its behaviour may be predicted, but … …

Our coming GE may let some steam escape, but its turning down the fire that’s the problem. Interesting times.

BpW

With regard to bank stress tests, I think that, as with cryptography, there is a fundamental contradiction between quality and secrecy. The only way to ensure a cryptographic system is of high quality, in the sense of it being secure, is to publish how it works so that the public can test it out. If, despite having full information about how it works, the public cannot crack it, then it’s probably secure.

In the same way, if Christine Legarde wants the the “irreproachable quality” of the stress tests to be more than just talk by people with credibility problems, the only way she can achieve this is by opening up the senstive parts of banks’ books for public dissection. I will be gobsmacked if this happens.

@Paul Hunt
{So your final question is highly relevant: “how will Ireland be able to earn its living in the coming years?” }

Well we could always use our considerable poetic skills

http://www.youtube.com/watch?v=qQqv4BEcUvs

I think this was posted before:
http://www.spiegel.de/international/europe/0,1518,741268,00.html

@Colm,

“…the politics require visibility..”.

Thank you. You have expressed in just 4 words the point I have being trying to make – but in an excessively verbose manner. Voters get their chance to have their say every 4 or 5 years. Governments – as elected dictatorships in parliament – can do more or less as they wish in the interim (provided they maintain the parliamentary arithmetic). Within constitutional bounds, the principal constraint is the fear of not being re-elected. If that is gone, the game changes. While Ireland has an extreme variant of this elected dictatorship in parliament, all other members-states – with the possible exception of France – have a variant that is only slightly less virulent.

The politics is very messy now. Much and all as those in positions of power and influence loath it, voters in a number of key countries will have an opportunity to exercise their ultimate authority. It isn’t just the impending general election here. There is a Presidential election in France within 16 months and elections in 7 German lander this year – with more next year.

Executing a bail-out strategy is fraught at any time, but attempting to execute one that is as obviously flawed as this is when voters are being asked to cast judgement is near nigh impossible. This one need to go back to the drawing-board with a little bit more honesty all round.

@Paul Hunt
Voters do not have the ultimate authority – banks have , they control the money supply period.
If fiscal debt had superioty over monetory debt then we would have at least some power over our destiny as a large section of voters were aware of the goverment debt – however to a large extent they were not aware of the monetory madness behind the boom , nor did they expect this malice to be collectivised into a gigantic debt farm
Politics in its present manifestation is a distraction at best.
Anyhow linking the money supply with debt such as how many mortgages are given out etc is beyond whatever beyond lies beyond.

@Paul Hunt
It is now – the polticans of today believe their role is not to govern but consult and analyse opinion poles – they believe it is up to the banks to provide the inner governance – their role is to just hold our hands as we walk through the fire (conviently unclasping as the heat begins to become oppressive).
The monetarist dogma of automatic markets without the gravitational pull of power centres has been good for their workload and bank balances.

Is Dan Crawford an honest man?

http://www.angrybearblog.com/2011/01/update-on-conditions-in-irelandanother.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29

@Richard,

We may be going off-piste – but only slightly. The transition may well be messy because the tyrants the West has supported have sought to obliterate any elements in civil society that might hold them to account. When they, inevitably, are removed only the generals or ineradicable extremists or the irredeemably corrupt (or a mix of all three) are left to fill the vacuum. We’ve been through this already in Iran in 1979 – and in many other places since. Those who have been elected to govern in the West make the Bourbons seem like avid learners and rapid disrememberers.

What we, in our (relatively) comfortable developed democracies, ignore at our peril is the extent to which the interests of ordinary citizens (who, as final consumers, pay for everything) are being trampled on by political factions competing to secure the elected dictatorship that government in parliament confers – while all the time being in hock to vested interests.

This, too, is unsustainable.

Keith Cunneen

Banks control nothing. Anyone can create credit but it requires state backing to make it so. “Bank” is entirely a concept regulated by the state. Those who advise the state form the “bank”, hence the importance of the Rothschilds. They can route funds and bolster the credit so that markets take the credit seriously.

The money machine is bust so all this is of historical interest. The Roths are not stupid and will use the capital at their behest to buy up good assets at the bottom in a decade or two ….