Icelandic and Irish Responses to Crisis Post author By Frank Barry Post date February 1, 2011 “Iceland proves Ireland did ‘wrong things’ sacrificing taxpayers”, just carried on Bloomberg. Categories In Uncategorized 106 Comments on Icelandic and Irish Responses to Crisis ← The Transformation of Finance → Irish Economy Note No. 13: “Did the ECB Cause a Run on Irish Banks? Evidence from Disaggregated Data” 106 replies on “Icelandic and Irish Responses to Crisis” Still not too late … Ireland being in a political and monetary union may not have the same freedom of action as Iceland but I’ll go back to lurking for that debate. Here is a recent piece from Bill Black, the American banking critic/curmudgeon that I found very interesting. Maybe some of you will too. http://www.nakedcapitalism.com/2011/01/bill-black-why-our-fundamental-approach-to-banking-regulation-is-inherently-unsound.html If we’d had our homework done back then and had people in charge with the stomach to stand up for their country we could have followed a similar path to Iceland only we’d have had the cushion of EU membership to fall back on. It would have been mayhem for a while of course, watching Anglo sink under the waves, but in the ensuing melee i think we could have gotten lost in the crowd and come out much better than we are now. Anglo and INBS could have been just more names to add to the list of other banks that imploded in the great crisis of 08′ etc etc….sadly we had puppets playing golf and tugging the forelock for all they were worth. A 4th year of contraction to add to the 22% already amassed is the current legacy of those times. Nice quote. In the beginning, banks and other financial institutions in Europe were telling us, ‘Never again will we lend to you,’” Einarsdottir says. “Then it was 10 years, then 5. Now they say they might soon be ready to lend again.” @all Just listened to the ‘leaders’ debate in the Dail on the dissolution of this truly dismal government. On the Elephant in the room – only one, Deputy Ó Caoláin, of five leaders addressed this elephant – namely the rape of the Irish citizenry to satisfy the vichy-banks. Well done Iceland. My focus on this blog has been largely on the Banking Crisis; I now urge support for Sinn Féin, Joe Higgins et al., and all who stringently oppose such injustice. @ David O’Donnell They only oppose it because they know it is the best stance to take in order to gain more seats and votes. Sinn Fein are economically illiterate, they prove that every time they open their mouths. They are unique in this election in knowing they will not be in power when the dust settles, so they can promise heaven and earth, double or even treble their vote, and still know they wont have to back up a single word of it. Parasites. They should be ignored. @Jarlath So you support paying off the debts of insolvent banks on the backs of present, and future Irish citizens? @Jarlath Sinn Féin’s Pre-Budget 2010 Submission below: http://www.sinnfein.ie/contents/17762 … broadly supported by Roubeni, Rogoff, Soros, Gross, Krugman, Stiglitz and many more leading international economists …. and empirically by the Icelandic experience. This is the Labour Party : Lorraine is a qualified barrister and Membership Officer with Junior Chamber Ireland, Galway. Her vision of Galway East is of an area where people have more opportunities, more facilities, more choice, more power over their lives and an area that is safer. Who is going to pay nurses and teachers their salaries when Ireland defaults ? Jarlath Name one party that is economically literate. @ David No I don’t. And i never have. But I think we are in a strait jacket of the previous governments making now. Those people wandering from door to door promising that they can wriggle us out of it in no time are just peddling false hope to a downtrodden people safe in the knowledge that they wont have to back it up. This whole mess is a steaming pile of dung at this stage, and Sinn Fein are typical of the flies you’d expect it to attract. What i’d like is to encounter a politician or party who admits we are by and large f**ked, admits if they do get into power then they will have very few options available, promises me nothing bar hard work, honesty and proper reform, and then shows me the qualifications that prove they have the wherewithall to govern a country. @David O Donnell Sinn Feins belief in going back to the bond market when they make whatever governance changes they propose is naive at best – we need a domestic source for our money supply – without that we are but a rudderless boat on a sea of debt. None of the parties are pure – the IRA needed a central bank to clean their funds like everybody else when the conflict ended. Although they do have a history of fighting wars with limited objectives that the central banks understand. A deal should be done between the BOE and ourselfs – they can have the Bank of Ireland as a bank to cater for the consumption end of our economy as long as a state bank can deal with Industrial recapitalisation. Thats the best we can hope for. The ECB is drop kicking us through the goalposts of the BOE – we should be at least aware of this and prepare accordingly. @ Seafoid I know FF are economically illiterate because they have proven it. I know Sinn Fein are because they are flat out making promises they know they wont have to keep. But I honestly don’t know with regards FG or Labour, I cant say i’ve ever seen them reduce an economy to rubble. So time will tell. Stiglitz Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks This is the answer to the “no money in the ATMs if we hadn’t guaranteed” talking point from DoF. Payment system not equal to banking system balance sheet. @ David Just because we are having a very messy breakup with FF doesnt mean we have to lower our standards and end up doing something we’ll regret in the morning…is our self esteem so low that we would actually put our faith in the hands of Gerry Adams. I mean seriously, think about it. @FG: “… …“no money in the ATMs if we hadn’t guaranteed” ” That statement was utterly without merit. I seem to recall a 10 week bank closure sometime back. Sky is still hanging in there! BpW @ Jarlath Do you think Ireland can avoid a sovereign default? Not really. But i think the opportunity to default on anything ourselves is gone. Europe being forced into an orderly solution for those peripheral countries with too much debt to service is our best bet now. @ David O’Donnell David, You have referred to hedge fund billionaire Soros twice in recent posts. He is hardly a disinterested commentator on eurozone issues. DO’D – SF supported the guarantee. Whether they knew or or not what they were doing, they supported it. If they did know, the hell with them; if they didn’t know – why, exactly the same. Let there be no mistake about it. During Q4 2008, a lot could have been done at a time when the world of banking was in turmoil. Iceland is a very small country with the majority of its merchandise exports coming nfrom the fishing industry; it also has the thermal natural resources. Recall it was considering taking a loan from Putin and its neighbours came to its aid. Ireland has a significant financial centre and most exports are made by foreign firms. There is surely a case for some caution. @ seafóid On economic literacy, if Labour’s enterprise policy – – a crucial area — is a guide, there cannot be much reason for optimism. Irish General Election 2011: Labour’s enterprise policy – – a depressingly vacuous menu of actionless actions Until I hear a “We’re fecked….” speech, all of them are a bunch of fluffers! Irish people: Default. Do what Iceland did. Do not saddle yourselves or future generations in order to benefit bankers who made loans they shouldn’t have made. Here is a great American video (dated February 1, 2011) on Ireland that lays out exactly what you should do. The video goes over the scare tactics that will be used to get you to go along with the banks. Please give it a listen. From a Canadian friend. http://economicedge.blogspot.com/2011/02/bill-still-ireland.html @Michael Hennigan On Soros – agreed – always open to validity claims. His comment on Ireland, and banks, at Davos may have/may not have other agenda. No shortage of other serious economists or economic commentators one could add …. I’ll substitute the pragmatists in the IMF next time. Fatalism in the political class is simply abysmal – and I could not believe that it was not explicitly addressed in the Dail on this admin’s final session. As I’ve noted before, if despair were an option I’d be in it. Let’s see what Irish democracy turns up ……….. by then I think Portugal will be next in line ………. we need credible representatives actively working in Europe now and what do we get ………. a vacuum ………. ““If we’d guaranteed all the banks’ liabilities, we’d be in the same situation as Ireland,” says Arnason, ” Correct me if I’m wrong here but my understanding is that the British and Dutch depositors were guaranteed as well as local Icelanders. What Iceland did was choose to ovrturn those guarantees for the Brits and Dutch. What we did was introduce a blanket guarantee for existing and new debt, and later the ELG for new only. The Icelandic experience means that there is a precedent for the scrapping of guarantees – and that includes a guarantee like the ELG – without the sky falling in. At least not falling any harder than it is already. Hands up if you can understand the resonance…… “You start with far fetched resolutions. They are then pickled into a rigid dogma, a code, and you go through the years sticking to that, out-dated, misplaced, irrelevant to the real needs, and you end in the grotesque spectacle of a Labour council – a Labour council – hiring taxis to scuttle around a city handing out redundancy notices to its own workers. I’m telling you, no matter how entertaining, how fulfilling to short term egos, you can’t play politics with people’s jobs and people’s services or people’s lives”. http://us.mobile.reuters.com/article/idUSTRE7105PT20110201?ca=rdt some very interesting things there (tweeted by Brian Lucey) “simple spreadsheet model of Ireland’s debt trajectory shows how marginal the impact of a cut in that rate would be and suggests bolder steps — such as a mooted extension of the loan repayment period to 30 years — may be necessary to convince markets Dublin can avoid a damaging debt restructuring.” and John McHale of this blog channeling the tesco ad! ” The 40 billion euros in EU funds make up roughly one fourth of Ireland’s total debt load, which is forecast to rise to 159 billion euros this year and to 183 billion euros by 2014. That means a cut of 100-200 bps in the 5.8 percent EU rate would reduce the overall interest rate on Ireland’s outstanding debt by only about 25-50 bps over time. The spreadsheet shows that trimming 50 bps from the average interest rate on all Irish debt from 2011 to 2014 would cut Ireland’s peak debt-to-GDP ratio by little more than one percentage point in 2013 — from 102.5 percent to roughly 101.1 percent. “At this stage every little bit helps,” said John McHale, an economics professor at National University of Ireland in Galway. “But would a cut in the EU interest rate be enough to make a substantial difference? No, it’s not going to be transformative. By itself it doesn’t radically change the picture.” Seems that we are goosed anyhow, no? “But would a cut in the EU interest rate be enough to make a substantial difference? No, it’s not going to be transformative. By itself it doesn’t radically change the picture.” @John McHale Do you not understand the reality of politics. Of course it makes a real difference. If you get elected, turn up in Brussels, get some bips off, you can lap up the limmos and the salary and the pension entitlements, and the fawning RTE reporters for the next few years based on continual trotting out of the mantra that you were elected to re-negotiate the deal and that nobody can claim you didn’t! Very few at the time would have suggested the Icelandic course of action. […] the Irish Economy blog – Iceland Shows Ireland Did ‘Wrong Things’ Saving […] The bank guarantee effectively chained the economy and its citizens to the oars of the good ship National Bankruptcy. Looking at bond yields in past years Ireland was never the darling of the market. All the talk about this that and the other rate by the political parties and their neophytes doesn’t dissolve the fundamental problem of securing growth that produces jobs. There was never a halcyon period in the Irish past when everything was fine and dandy with indigenous SMEs. Yes there were very notable and praiseworthy success stories but these were as rare and novel as trees on the Burren. The country is still almost entirely dependent on FDI for significant industry and nearly all of its exports. The same cannot be said of Iceland. Just came across Michael Pettis’ response to the Economist’s Economics by Invitation question of “Is it time for European debt restructuring?”: “Europe should reduce its debt burden as quickly as possible Michael Pettis our guest wrote on Jan 14th 2011, 13:22 GMT THERE are largely two ways forward for much of peripheral Europe. One involves high unemployment, economic contraction, and wage and price deflation stretching out for many years. The other involves debt restructuring, and perhaps temporarily abandoning the euro, with significant principal reduction. Which way each country chooses is ultimately a political decision about which group of economic agents will bear the brunt of the adjustment cost—the working classes through unemployment, the middle class and small businesses through taxes, or creditors. Since eventually electoral politics will limit the cost to the working and middle classes, and flight capital and tax evasion will do so for small businesses, this leaves creditors. Sooner or later creditors are going to have to accept a significant reduction of the obligations owed to them. The sooner this happens the better. The idea that the afflicted countries can implement reforms that will eventually allow them to grow out of their debt burden is a mirage. Every debt crisis, including most notoriously Argentina in 2001, has evoked the same claims and it almost never happens. When there is excessive debt a number of conditions—which in corporate finance theory are referred to as financial distress costs—ensure that the country will not grow until the debt overhang is resolved. Most importantly the interests of investors and creditors are misaligned so that the country suffers from systematic disinvestment and flight capital. For this reason it is best for peripheral Europe to restructure and reduce the debt burden as quickly as possible. So will peripheral Europe do this in 2011? Probably not. The historical precedents are pretty bleak here too. The real restructuring will probably wait until after European banks, especially French and German banks, have been sufficiently recapitalised to absorb the losses. Until then, expect lots of band-aids and first aid that will allow the afflicted countries to crawl painfully forward until, probably towards the middle of the decade, everyone agrees to recognize the obvious.” Ok, about four hours on the Irish economics anorak forum and no apparent recognition of the econo-political significance of: http://www.irisheconomy.ie/index.php/2011/02/01/icelandic-and-irish-responses-to-crisis/#comment-121339 Can’t tell you how revealing that is. If you think you are competent to give an ultimatum to the bond market and aren’t interested by this you are delusional. Its what american’s might call bond trading 101. Yuk! Americans! interesting article from michael lewis, His point about the Irish taking so much crap and then snapping is interesting, I’m taking bets with my buddies about when we will see riot police with alsations quelling the latest uprising, the next budget perhaps??? http://www.vanityfair.com/online/daily/2011/02/michael-lewis.html Grumpy, when you quote from Neil Kinnock’s magesterial put down of Derek Hatton, who are you having a go at? @jarlath 4.04 pm today What exactly do you mean by ‘lower our standards’ – are we about to replace civil war politics with some sort of North/South snobbery? Or do you have a time line on de-contamination reagarding politicians from the North? It is business – Euros, taxpayers and bankers debt. Either the argument makes sense or it does not according to you objective opinion – not the person making the argument Collective demonisation of any part of society or political party really has no part in economic debate. My apologies to all for going off the point. Whether you like it or not – they were right in ’07 (SF, Stiglitz, Roubini et al.) and according to the Labour policy change on Sunday they are right now in softening the blow on reducing Government spending. On the point. Iceland were in a fix and it could not get any worse so they took the decisions that gave them some measure of control. Everyone that counted took them seriously because of the decisons they made. We should do the same. I am tempted to use some insensitive ‘board speak’ along the lines of ‘If your are not f****** them, they’re f****** you’ Did you actually read the article? Where have you been this last 4 years? Regarding previous – apologies for the spelling and tone Ruby Cabernet ! @ Grumpy 10.33pm What about China looking to expand their portfolio of debt to the Euro – Vincent Chu G/Sachs. Everyone is looking to make a buck – there will be no shortage! Sad to see the Tribune going into receivership. http://www.independent.ie/business/irish/receiver-appointed-to-sunday-tribune-2520596.html Internet forums would be pointless without the information uncovered by journalists and the opinions of commentators. One also fears that the Tribune will not be the last such national paper to go. Given how print media are struggling and the effect on public life, some form of government assistance to help them make the transition to the electronic age would be a sensible investment by society in my opinion. Speaking of troubled institutions (via thepropertypin.com): http://www.independent.ie/opinion/analysis/fears-over-future-of-central-bank-as-emergency-lending-takes-a-toll-2518841.html @ |Keith Cunneen 3.55pm First may I say excellent insight – well worth exploring and I would welcome a thread on that. May I also say this. Michael Collins met with the BoI in ’22 looking for a loan of £300K+ to fund the new State – the bank said ‘No’. Collins had to get Churchill to speak to the bank to approve the loan. Tom Cullen took no part in the negotiation. All you need to know about banks. I’m lost. Why would bondholders be pushing to get burnt? Can they make money on credit default swaps? Or is the big play still the demise of the Euro? Or is it to get the Germans to take on more debt as part of an expanded Efsf? We need to remember that whatever happens to us is “collateral damage” in the big scheme. Off you go then Ordinary man, I’m sure there will be no problem for the Chinese portfolio managers “investing” 15 or 20bn to keep the public payroll going for a year. Absolutely no chance at all of them thinking they might end up being handed their heads on a plate. Via politicalworld.org http://www.vanityfair.com/online/daily/2011/02/michael-lewis-on-how-merrill-lynch-and-brian-lenihan-stuck-the-people-of-ireland-with-a-debt-of-106-billion.html#entry-more http://www.propertyweek.com/news/merrill-lynch-warns-of-meltdown-in-ireland/3114769.article The fiscal debt is a illusion – it is a product of the failed banks trying to survive. We are running a huge trade surplus yet our money is dying as we have no internal spring of rational capital investment The deposits in the banks will never recoup the losses – never unless the ECB decides to inflate big time. The bonds can have the loan book The deposits have to be separated from the loan book – the deposits must function as money for a moment in time before being transfered to a state industrial bank. The credit that it can produce will function as the fiscal carrier of all I repeat all capital inputs. This new money will create capital and also increase the money supply – the state can tax this money. There has to be deal done – The Bank of Ireland can remain a commercial bank – AIB deposits need to enter a state Industrial bank so that the credit provided in creditable although in a pure world of pure virgins it does not need deposits. We need ruthless men of the calibre of Todd Andrews and such to execute this new industrial policey Where are they – I am sick of bullshit Eamonn Dunphy and Fin tan o toole were shown up for what they are last night by a slip of a woman named Elaine Byrne. We need F%$king action – no more naval gazing @ Ordinary man I meant lowering our standards as in the way you might take the wrong option immediately after a relationship break up… whilst under the influence of alcohol and regretting it the next morning etc etc, that would be my opinion of us jumping into bed with sinn fein now…just an analogy, sorry you didnt follow it. Nothing to do with snobbery. My opinion is that i believe Sinn Fein are peddling false hope to people who are desperate for a glimmer of it. Reprehensible behaviour in my book. You know, i know and they know they wont be in power after the election, so they have carte blanche to promise anything safe in the knowledge they wont need to deliver on it. Their leader clearly hasnt a notion about the details of the situation here and he proved that fairly conclusively a few days ago. From listening to their various drone like representatives, their basically promising to tell the eu and imf to do one..tell all bond holders to shove it…use our pension fund and current cash to magick up some jobs, pay all the bills and secure the rugby grand slam..then when thats all taken care of go back to the eu/imf/bond dealers and request some more money and a reasonable rate.. They’ll need to rob a pretty big bank to cover all that. @ Jarlath The pot and the kettle come to mind. ‘My opinion is that I believe Sinn Fein are peddling false hope to people who are desperate for a glimmer of it. Reprehensible behaviour in my book’ We live in an acquisitve society. All parties, bar none, make promises. That’s politics. Isn’t it the case that the boom was all about ‘peddling false hope’. Public sector jobs, rising household wealth and low taxes to go on forever. Some people made a killing, but the show is over now and the lights have come on in the theatre. We need a cure for our ills ,but many economists fear that the EU/IMF prescription may kill the sovereign patient. That’s a critically important fact, which deserves a lot of droning. We sleepwalked into a bust, but we sure can’t sleepwalk our way out of it. Insofar as I have come to know some of the ‘details of the situation here’, and elsewhere, I have become less certain about what economic or political ‘responsibility’ actually means. We may not be as far from Cairo as we like to think, and a broad range of perspectives ought to be welcomed. @Oliver Vandt Sad news about the Tribune. The banks will be delighted. @ MC: “The idea that the afflicted countries can implement reforms that will eventually allow them to grow out of their debt burden is a mirage.” Clear as a bell! No further comment is needed. The chicanery with the Euro is probably related to the insolvency of US and UK. If the Euro can be rubbished, it gives the other two some breathing space, but not much. Money does not grow. Its created electronically at very little cost. Now food, energy and clean water. Well, they’re an entirely different matter. I suggest ye sweat a little over the latter trio and give the money bit a rest. If the energy cost of energy extraction, production and supply increases faster than real yield: That’s it – game over! @KC: Silver coinage? Any thoughts? BpW ps: Checkout that video on http://market-ticker.denninger.net !!! BpW I do hate to intrude on the Stiglitz lovefest with anything so base as facts. I know how much they are hated on this site. But, Stiglitz worshippers might consider for just a moment that, merely because some quack American professor says something is occurring, it doesn’t mean that it actually is. The Stiglitz argument is that, by following one course of action, Iceland’s economy is recovering, while, by following another course of action, Ireland’s economy is not. Very well, let us put his argument to the test. These are the GDP (constant prices, seasonally-adjusted) figures for Iceland and Ireland for each quarter from 2008 Q1 to 2010 Q3 (latest available): ICELAND ====== 2008: Q1: 236,697 , Q2: 234,857 , Q3: 240,469 , Q4: 231,916 2009: Q1: 226,248 , Q2: 224,462 , Q3: 214,932 , Q4: 214,195 2010: Q1: 208,655 , Q2: 208,014 , Q3: 210,484 actual growth in 2009: -6.8 per cent actual growth in 2010: —-change in 2010 Q1 over 2009 Q1: -7.8 per cent —-change in 2010 Q2 over 2009 Q2: -7.3 per cent —-change in 2010 Q3 over 2009 Q3: -2.1 per cent —-average for first 3 quarters of 2010: -5.8 per cent —- change between 2009 Q4 and 2010 Q3: -1.7 per cent IRELAND ====== 2008: Q1: 46,288 , Q2: 46,405 , Q3: 45,158 , Q4: 43,138 2009: Q1: 42,040 , Q2: 41,919 , Q3: 41,667 , Q4: 40,705 2010: Q1: 41,574 , Q2: 41,156 , Q3: 41,378 actual growth in 2009: -7.6 per cent actual growth in 2010: —-change in 2010 Q1 over 2009 Q1: -1.1 per cent —-change in 2010 Q2 over 2009 Q2: -1.8 per cent —-change in 2010 Q3 over 2009 Q3: -0.7 per cent —-average for first 3 quarters of 2010: -1.2 per cent —- change between 2009 Q4 and 2010 Q3: +1.7 per cent So, both countries had similar falls in GGP in 2009, but Ireland’s fall so far in 2010 is much less than Iceland’s (1.2% v 5.8%). During the course of 2010, Ireland’s economy has clearly been recovering faster than Iceland’s. In Q3 2010, Ireland’s GDP had risen by +1.7% since the final quarter of 2009, while Iceland’s had fallen a further 1.7%. ESRI forecast Ireland’s full-year figure for 2010 will be growth of +0.25%. Where is the evidence in these figures to support Stiglitz’s argument? @John The Optimist Insufficient data John (and I rarely query your sectoral trade figs) – denomoninators get a mite lonely without a numerator, or is it the other way round? Can you add the Debt/GDP ratios pls? May I humbly suggest that you withdraw that reference to ‘quack American professor’ – it is uncalled for – we have more more more than sufficient ‘quack Irish professors who have contributed SFA to present crisis discussions [tiny few around here excepted – and this tiny few more than capable of speaking for themselves] …. @ Paul Quigley I never said Sinn Fein had cornered the market on peddling false hope. Far from it, I’m fully aware of how prevalent such things are in irish politics. But my point is that Sinn Fein are uniquely positioned in this election as the one party who can promise everything knowing they wont have to deliver anything. Labour and Fine Gael have to keep themselves some way grounded in reality as they know they will most likely be in government next, Fianna Fail have to stand over the choices they have made thus far and as for the Greens , well, they probably know they are irrelavant now anyway. There is an easy way to tell that Sinn Fein are full of it…they’ve clearly chosen the populist path that will win over the most dissaffected voters…so don’t you think if their plans were anyway possible all the other parties would have chosen the same path… @JtO, Good on you – but a bit less stridency, please. I think it was JK Galbraith who observed that economists generate forecasts to make astrology look respectable. However, in this case I think the proof of these respective puddings will be which country will be able to get away a long-dated, reasonably priced bond issue first. The buyers of these bonds have to put the money of those to whom they owe a binding fiduciary responsibility where the mouths of many others are. @John the Optimist Again with the GDP fetish – this “growth” function is to repay interest on debt not to increase wealth The “growth” in the era of credit expansion was the creation of capital with little wealth potential – now that credit is stagnant or falling this smaller and smaller money supply must service larger and larger debt loads. You are witnessing the same beast but he is now present in a degraded economic ecosystem – it must be prepared to eat less fussily if it wants to live off the remaining fauna Please ask yourself why do economies need growth when it extracts wealth – we are the purest form of colony in the western sphere , our function is to provide income for other areas. Any thoughts about building wealth generating utilities is shot down as being unrealistic as it would involve recaptilisation and a reduction of yield for the “capital” holders although the capital they hold is a fiction. @ JTO If you are so convinced by your numbers and as you are such a salesman why don’t you go to London and raise enough leverage to set up a hedge fund and watch the money roll in. Otherwise give it up. @Brian Woods Hugo Salinas Price has the most workmanlike solution to its reintroduction in my opinion although the powers do not like this metal as it flows rather then stays in strong hands and therefore it is much more difficult to create a monopoly. http://jlne.ws/eeG6t9 @ KC: Many thanks for ref. Will print-out and study. Reminds me of Frederick Soddy. I understand that Canada may be minting 20 dollar silver coins for general circulation and use as legal tender? Is this correct? BpW I agree with JTO. The conclusions drawn are way too strong for the evidence presented. Why this change in mood music re default etc.? This is where I know I sound like I’ve spent too much time with Jim Corr but is it possible that some people could make money from a default in Ireland – (thinking about insurance and the Euro) @Brian I have no idea – but if they are 20 Lonnies in face value they will still be hoarded unless they get a massive deflation. Salinas Price core issue is with coins having no face value but be revalued by a monetory authority every so often – otherwise the stuff disappears. Does anybody here find it incredible that we reley on Finnish expertise to extract our peat now. If we can’t even cut turf without outside help we are truly a creature of whoever wants our sorry ass. All together now A colony once again … a colony once again………………….. @ KC: I had in mind a 20 Leprechaun. I understand the CND 20 will be used to pay your taxes – but am a loss to fully grasp this as I thought that the Bunco circulates and the other … “…otherwise the stuff disappears” Ah! I have cut my own turf: personality building + backbreaking. Enjoyable none-the-less as you watch it burn. Needs lots of L. BpW @Brian Woods My point is that we have no internal capital both human and physical so therefore as we are now completly dependent on foregin credit we have no negotiating postion. Iceland still has expertise in areas that developed their own capital – outside of farming we have nothing. Although they (Iceland) has been badly wounded from the power of financial capital – they have been Independent until recently so therefore can still fall back to their default postion – we cannot as our population has been infantilised by the cartel and it now has a monopoly on extraction without a effective resistance. We are a bit like the US in that respect , they reley on the global reserve petrodollar to recycle the global wealth through their borders without developing their capital base – we reley on European transfers to our farmers , multinational paying wages and corporate taxes – this has hollowed out all domestic activities in our capital base – completly distorting the economy to the point of absurdity. @ Jarlath ‘There is an easy way to tell that Sinn Fein are full of it…they’ve clearly chosen the populist path that will win over the most dissaffected voters…so don’t you think if their plans were anyway possible all the other parties would have chosen the same path…’ The mainstream parties fail to examine the bogus global framework within which the fiscal austerity package is designed. It”s called capture. There is a bigger game here, as Simon Johnson points out http://baselinescenario.com/2011/01/29/davos-two-worlds-ready-or-not/#more-8584 @ Paul Quigley I fully appreciate the wrongness of the current situation, but the bigger game belongs to the bigger fish at this point. Sinn Fein’s approach of telling bond holders to sing for it would have had a lot of merit 2 and a half years ago, but at this point we are a ward of the EU and IMF and we are completely reliant on them to pay our bills and prop up what remains of our banking system. We’ve waded into the river too far now in my opinion, escaping some of the debt will be up to the EU. A unilateral 2 fingers to the lot of them might be briefly satisfying but the aftermath would be a nightmare @Jarlath “A unilateral 2 fingers to the lot of them might be briefly satisfying but the aftermath would be a nightmare” This smacks of simplistic scaremongering – The individual or party who overturn the bank guarantee will get my vote, I cannot see any benefit in it whatsoever. The original purpose – to ensure we can borrow has done exactly the opposite and landed us in the clutches of the IMF/ECB. Do you not feel that the pain from beating your head off a brick wall is best helped by stopping the head banging. @ Jarlath 12.13am Accepted on the ‘lowering’ point. ON your last line………. 90% of the country believed what they read about banks and property 03 – 08 and look where that got us ! On Grumpy all you can do is try. If you don’t try you will achieve nothing. Yes we should default – any party that accepts this policey will also get my vote – but I don’t want to hear any fake nonsense about easy ways out of this. Default means war – in war you expect or at least prepare for mass casualties – a poltical party needs to be honest , otherwise it will not carry the people when things get though. @KC: “Default means war …” I would gently dispute this with you. I agree that a debt cramdown is the only realistic exit from our current ghastly predicament. How about we give Game Theory a run. Probability of getting the long-lasting gratitude of many states (if we decided to cast our insolvent banks adrift), in so far as it would deal a fatal blow to many Bondies and Hedgies? They are the real enemy. BpW @Brian Britian and the continent are decapitalised – they are on borderline bankruptcy – if London Paris and other financial capitals lost this revenue stream they have very little left – Everything is geared to a extreme level – the brilliance of banks to actually get us so far to the edge of the precipice is amazing to me. If Ireland goes down, Iberia goes, if Iberia falls well……………………….. @Seafoid If you are so convinced by your numbers and as you are such a salesman why don’t you go to London and raise enough leverage to set up a hedge fund and watch the money roll in. Otherwise give it up. JTO again: It is not a question of money. It is a question of democracy and deceiving the electorate. The electorate are entitled to accurate information. There is an election on. Some parties are saying that Ireland should follow the path of Iceland. Some prominent academic economists, including some who post here, are also pushing this line. In support of it, they are claiming that Iceland is recovering faster than Ireland. My figures show that this claim is false, at least up to Q3 2010, the latest quarter for which figures have been published. If they have any figures to show that their claim is true, let them produce those figures. So far, they haven’t, which speaks volumes. I am emailing my figures to Stiglitz and challenging him to produce evidence for his claim that Iceland is recovering faster than Ireland. In the extremely unlikely event of my getting a reply, I shall post it here. @John Who are you John ? – if you have Stiglitz e-mail you must be a economist , come out from under the covers man. @JTO I might be missing something, but the only quote from Prof. Stiglitz in the article I can see is: “Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.” He doesn’t exactly claim that Iceland is recovering faster. Who knows exactly what he was asked. In the interests of the GE and the possibility of the Icelandic route, I’d like you to address a more rounded sense of what is ‘better’: higher/lower debt ratio? Ability of country to control their own finances. Intangible sense of self esteem. Ability of fishing industry to keep catching mackrel. Sustainable economic future. Perhaps his idea of ‘the right thing’ here is simply co-responsibility, maintaining some sense of fairness, which allows all to continue without tearing the country apart. Prof Stiglitz’s email is Joseph Stiglitz It took me 20 seconds to find it. email@example.com He will soon be swamped by irate Irishmen Posted this video yesterday – Bill Still (who travelled to Iceland during their crisis and advised them) interviewing Karl Denninger (blogger in Florida) on Ireland/Iceland situation. http://market-ticker.org/akcs-www?post=178923 The banks have gotten away with murder (and continue to) in the States. They have been bailed out to the tune of trillions of dollars. Most of the American people are not wise to what is going on (just as I suppose in Ireland). Major “control fraud” was committed. These bankers need to be in jail. @ a mcgrath I am merely going on what i have heard from various Sinn Fein representatives. “a unilateral 2 fingers to the lot of them” was just my attempt at condensing the Sinn Fein election strategy into less than 10 words. Another version would be “vote for us, we’ll tell them all to f**k off”. They are preying on an angry and frightened people, thats how i see it. And of course i agree some way should be found to extricate ourselves from the bank guarantee, but im saying the time for us to have done it is past, we’re not deciding these things anymore, we’re merely hoping that other similar countries will fall on equally hard times and the EU will have to find a common solution for us all. It’s kind of funny really, never have our politicians been so irrelevant and powerless..and it is all thanks to fianna fail.., but the other parties dont want to highlight this because they cant abide the thought of being powerless AND everyone knowing it. @ backwardsevolution The banks in america did get away with murder, same as every where else, and they were bailed out…but they paid a huge amount of it back to. The US govt even made a tidy profit off some of them. The banking costs to the taxpayer in america are but a candle to the shining sun that is irelands bank rescue. @ Jarlaith to backwardsevolution et al. Those ‘Shinners’ are everywhere! I am not one of ‘them’ but the confusing thing is – it all makes sense ! Don’t give up Jarlaith, the whistle hasn’t blown yet. Grow a set – scrum five! @jarlath It’s never too late to do the right thing. Rescinding the guarantee is the right thing to do. Our EU friends didn’t approve of it initially so they can hardly object now to us scrapping it now. It’s only function is to rubberstamp the transfer of private debt to the Irish taxpayers shoulders and undermine our moral argument. Why should we be the only country in the world with such a burden? @ AMcGrath Here, here. Jarlaith there are thousands of people on the streets of Egypt not prepared to accept things as others have dictated from a position of apparent strength – Mubarak has all the tanks, guns and batons. All they are doing is defending themselves and saying saying ‘NO!’ We can do this. Irelands only strength is in our ability to say ‘NO!’ @ A McGrath We’re the only country in the world with such a burden of bank debt because we got it so vastly wrong. Our folly was grotesquely in excess of any other country bar maybe Iceland. I largely agree with the path they chose in 2008 and wish we had done something similar, my point is what will happen if we renege on our debt now a la the Sinn Fein approach…I’d see us running out of cash pretty quickly, having to cut across the board by 30% in all areas as the sovereign would not be able to borrow and having banks working solely as debt collection agencies with no ability to lend. At the moment that is what i think would happen and i dont see it as a viable option, maybe the 2 of you see a different outcome. Of course not repaying all that bank debt is the right thing to do, but what happens then..we do that not, give them all the 2 fingers, then we are forced to live off what we have, which aint a whole lot!…then you will see people out on the streets in mobs saying NO! @ Ordinary man There’s no I in Jarlath mate! To be honest, I think holding europe to account for our mistakes is a bit much, we have yet to hold anyone to account in our own country as it is. Heads of banks, regulators, developers and politicians are all retired now and living off borrowed money we are struggling to repay. Dropping the bank guarantee should be step one in showing Europe that we are not going to do this anymore and they may come up with a viable solution, but unilateral default is not for me. Right now, we need them more than they need us…but that might change if a few other countries join us down in this hole. Good morning Jarlath It wasn’t an I it was an i. Maybe subliminally, was giving you an extra i in the hope you see more clearly what is happening here – as opposed to a ‘poke’ in the eye for a spelling mistake ! To the point. You constantly refer to ‘our’ mistakes – they were most definitely not ‘our’ mistakes. Go ask anyone at a bus stop who made the mistakes? Because you seem very determined to make them pay for it. If you have got this far and still not see nor understand how these things work I am afraid I can offer you no help, ‘mates’ and all as we are, except to say this. When cornered and faced with a bully who presents a view of how things are and are going to be if you don’t do as your told, it has been my lifes experience that it is best to get your dig in first – the world changes after that Jarlath. A victim has no credibility in the ‘eyes’ of a bully. @ ordinary man Our property bubble was our fault. We are a nation, just about, and we have to take at least a small bit of responsibility for the governments we repeatedly elected. Obviously a colossal portion of the blame goes to those ignorant incompetents in our banks and government, but I don’t think a people can absolve itself completely when we do have the democratic option of choosing our leaders. We chose poorly, repeatedly and are paying a grossly unfair price for it. Your victim/bully comparison and life experiences are all well and good but you are not really addressing the point I am making. We owe a huge amount of debt we shouldnt be responsible for, but we also have our own bills to cover, reneging on the first means we cant cover the latter, in fact we would fall billions short in a matter of months…and that would mean real anarchy. If you see a different outcome to this, by all means share it. @ Jarlath Re; p2 ‘We owe a huge amount of debt we shouldn’t be responsible for, but we also have our own bills to cover…………..’ If you don’t take responsibility – you don’t owe it that’s what I am trying to tell you! Take responsibility for our own bills – no problem. The only reason bondholders are not taking a hit is because it was agreed (ECB) not to put it on the agenda – I refer you to my previous to keep the Euro a prospective global currency to rival the US dollar. I am not saying to ‘burn’ all bond holders automatically but if we are taking over a bank and dealing with the balance sheet of that bank, we should deal with it in a financially prudent manner as a bank or a court would – it happens everyday ask anyone still in business or a lawyer. They can’t have it both ways – if there are no laws/rules there is anarchy It’s the banks who owe the banks – not the people. Don’t be afraid Jarlath – it is that fear that they rely on. I am not party political on this Jarlath – I couldn’t care less who get elected as long as they do the right thing according to the accepted rules. Again, the rules say it is between the lender/investor for profit and the borrower – not the borrower and the taxpayer. You’re a gas man! Fear’s got nothing to do with it, I’m merely looking at a course of action and trying to see what the outcomes will be. You’re talking about the way things should be and i’m talking about the way things are. You’re talking about the satisfaction of standing up to a bully, i’m talking about the aftermath. “take responsibilty for our own bills…no problem” eh, big problem actually! we are a long way short of being able to pay our own bills. notwithstanding the bank debt fianna fail wrongly made us responsible for. We need to borrow billions over the next few years to pay for the services we currently have and to repay the real sovereign debt we’ve amassd in the last 3 years. Have you a solution for this dilemma?? Will somebody please give a proper argument as to why Ireland was better following the policies it did and not Iceland’s policies. Thats if one exists. Thank You Jarlath I am only talking about the way things can be if the country repositions itself with regards to the banks failure and re-orientates the peoples expectations. We agree the country current is overspending and borrowing too much (400m per week)? We agree FF were wrong to guanantee the banks? 14.28 euro per hour union rate to pack shelves in Boots, too high? Union leaders, like political office holders overpaid and no demostrative added econmomic value. Agree? Civil Service/semi-State overpaid and over pensioned. Agree? Infrastructural business costs in the country too high ? Everything government purchases should be reduced 5% in price/cost terms with immediate effect – take the cash and some of the very smart contributors to this site might give us some options. Jarlath, we agree on a lot. I just don’t agree with dispair and accepting the status quo. Agree with all of the above, bar the bit where you think i am despairing or excepting the status quo. The reductions you’ve listed still wont bridge the gap, the actual reductions required to get us to a point where we spend what we take in would be armageddon. The various unions and state dependents would go bananas. I think we agree on everything bar a method for reducing the amount of debt we have to pay back. I believe at this point we have to find a way to convince europe to supply a solution, that it would be in their interests as well as ours, similar to the point jto made on another thread. You seem to think we should just tell them all to go to hell and we’ll be alright on our own. @ Des Turner one doesnt exist @ Jarlath We can’t negotiate with any credibility because we are going to them with the bowl feeling trapped by the system. If we put it into their heads that famine is a real risk for their banks – maybe we can negotiate with some credibility. If a bond holder can get out at 50% thinking default is a potential reality, he’ll take it and thank you on the way out the door. Restructuring etc. all these options and negotiations need to be gone into but only from a position of a new reality – we are not going to let these unsecured creditors off the hook on speculative trades and investments. Deals are done every day like this Jarlath in banking and finance. The scale might be different but the results are the same. @ ordinary man Ah, we are in agreement now so. Deals like that are done all the time and that is exactly what we need…a deal. We’re not cut adrift then. @ jarlath Are you sure you got the first two paragraphs at all? Try to think of it as similar to the protesters in Egypt et al. They are cut adrift at the moment but where are they likely to be in 6 months? Maybe I’m just wasting my time and you are just missing the point. Or maybe it’s my communication and your lack of experience. Good luck @ ordinary man try communicating an adequate answer to the question i posed you, then you can lecture me on experience. Jarlath I am here to learn not lecture, give of my experience not dictate to others on grammatical errors whilst ignoring my own. I will leave you with this quote; ‘Believe nothing,no matter who has said it, not even if I have said it. Unless it agrees with your own reason and your own common sense.’ Experience @ Jarlath You wan to pay ‘your share’ of the bankers’ debts. Good of you. Please dont ask the rest of us to join you on that. We should pay our real sovereign debt and negotiate out of the insane bank guarantee. It wont be easy but we can initiate it or wait for it to be the only option open. I dont like SF any more than you. I wont vote for them but that doesn’t mean every thing they say is wrong just because we dont like them. The fought the Brits for 30 years for ‘equal respect’ for those Northerners previously considered second class citizens in our own country. I didn’t like the fighting and the killing of anyone by SF or others but I do like the equality of respect more than second class citizenship. Lets get some respect in Europe or get out. @Tanveyboyo Sovereign debt is a contradiction – how can a independent state pay interest on its own money ? Goverment debt yes but the term sovereign debt is a sick joke. @Keith C “Debt of the sovereign entity” owed to lenders who lent to governments and to ‘not for profit institutions’ with govenrment guarantees. You perhaps infer that any government-recognised debt is legitimately owed de facto by the citizens and/or taxpayers in that jurisdiction. Perhaps we just need a government that can tell the difference between real government debt and the debts of crony capitalists that a politician in office decided to ‘guarantee’. Are you ready for that? Or is it just some sort of post-Marixst ‘contradicitio’? @Keith C http://www.investorwords.com/4630/sovereign_debt.html http://www.forbes.com/2010/01/13/sovereign-debt-crisis-opinions-colummnists-nouriel-roubini-arpitha-bykere.html ‘Sovereign debt’ is out there, with apparently now a bit of ‘sovereign risk’ attached, it needs to be defined and dealt with. @ Tanveyboyo If you think i want to “pay my share of the bankers debt” you’re clearly not picking me up right, or else i’ve failed to convey what i think properly. I no more want to pay off those debts than you do. I’m merely asking about the consequences of walking away from them now and what would it mean for the country. I’m asking would doing the right thing make our situation even worse, would we be forced into self sufficiency and cut off from all sources of borrowing…I think we would be…and it would be mayhem. Thats my point. @ Jarlath Fair point. But let’s not rule out playing hardball, preferably playing ‘smart’, no bravado/defiance, but no cringing. We have nothing to be ashamed of. I dont want to be a pariah or my country to appear so, but I dont want to be a lifelong borrower as a citizen/taxpayer when I’ve got through my own life modestly maybe but without debt. There are some of us out there who are not in negative equity or other form of financial dependance. I have nothing against German, UK or Irish banks, I owe them not a penny and I dont really want to pay for their mistakes or the gullibility and complicity of so many mainstream politicians. There will be hell to pay if we start playing hardball but there will be hell to pay if we dont. We found politicians to negotiate a very honourable deal in Ulster, find some to do as well in Brussels or, better still, let them come negotiate in Dublin where their money is supposed to be…. Do the best deal we can get but we haven’t even started. The sooner the better. @ Tanveyboyo That is the sort of discussion the country should be having. what are our options, how do we play hardball, what cards or threats can we make, who can we get on our side… There is pretty much universal agreement within the country that we should not have to pay these debts, it is a question now of finding ways to extricate ourselves from them without becoming, as u say, a pariah. @Tanveyboyo Perhaps I should clarify – my ideal monetory system is the state creating debt free credit at a sustainable level withen the physical limitations of the economic ecosystem Trade imbalances would then be cleared through some sort of transparent gold window and clearing house. Banks can keep their deposits and can risk them to get a yield – this is pretty much a pure capitalism in my view. However the storm coming is so big – we need emergency fiscal measures aimed at the physical economy and directed in a forcefull manner , otherwise this will be a breakdown crisis of biblical proportions @Keith C Thank you for clarifying your ideal monetary system. Technically, I understand it. States have often borrowed outside their shores but there is no reason why the government cannot raise funds within its fiscal area which is apparently what the Japanese State has done to an immoderate extent. Japanese savers have reason to be worried about their retirements when their own government doesn’t appear much more solvent than Washington. How does a single state like Ireland, Iceland get to be in a position to envisage your ideal monetary system? Is there a road map, even a fairly broad brush version? I ask only. How do we get from where we are to where we would like to be? I really dont know. We could try to work out our road map as just Ireland with our own currency set somewhere between the Icelandic Krona and the Swiss Franc on the broad scale of reputation. I dont rule it out. Or we could start thinking of ourselves as part of the European Union and/or Euroland and see what we have to share with our fellow Europeans. The Euro has protected all Europeans from a rash of competitive, tit-for-tat devaluations which would beggar thy neighbour and thyself. Ireland is trade-dependent as MNCs shuffle product and transfer-price them around us while, in fairness, providing the best jobs we have ever had. We need to think outside the ‘four (3 and a bit) green fields’. I feel we will sink or swim with the European project. We didn’t get into this mess alone, we wont get out alone. And if they want us to sink into generations of poverty to maintain afloat their witless, lazy banks, then lets ensure we would take a few of them down with us as we sink. I’ve got a life jacket to hand but I’m not sure we will need it even if we rock the boat. Your ideal monetary system is respectable but there needs to a political road-map and Ourselves Alone may not be the only or the best vehicle. Yes , Ireland cannot wage a direct war against such behemoths but there are mechanisms I have already expressed a opinion in these pages that deposits in some or all commercial banks should be separated from their loan books. These deposits will be money for one moment of time before they enter a state commercial bank – the assets on the balnce of the bank will be all remaining state assets , the liabilties all of the peoples deposits. In essence this would be statement from the state that it considers these previous loans of little or no economic value and their monetory value only a artifact of monetory madness. The bank would slowly increase credit to develop capital forming activities rather then engage in depletion games. This would both increase the money supply and increase capital over time. The state would tax this increased credit so that it would no longer have to depend on the bank controlled sov bond market for its day to day activities. Of course the Goldman boys and their bosses will no longer play a active part in the advice and running of the sate. This would engage the mechanisms of trade war via their hold over the country in the multinational sphere and they may also threaten trade sanctions if we are perceived as a major threat. But if we have much less debt we will have less need to export to pay for this debt. I do not envisage this dissonance without serious repercussions such as above but if we are to preserve our dignity we must engage the enemy both inside and outside this state. @Tanveyboyo I agree long term, ourselves alone is not an option – no reference to any politcal party. But alone we are in this fix and like any deal we need to set our strategy out and relate it to others (our EU Partners, bankers et. al.) i.e. our taxpayers are not going to carry the private risk of international banks and bondholders on the downside – why should we? On the peace process – from memory the only constant strategic engagement was SFs. They were the ones who took the initial political and personal risk based on a stragegic objective and lets face it – came out on the upside in the end. Don’t shoot the messanger – no pun intended. For my money I’d back the result getter everytime. As KC rightly points out – no path is going to be easy. But let’s take the path that gives us some hope for the future rather than one that will certainly condemn the country to penury and emmigration for goodness knows how long. I don’t want to drift into bull***t metaphors but look at it this way- Someone came up with the idea of getting a GAA football team and an Aussie rules team and putting them on a pitch – what did they have to do to play a sensible game? Agree a new set of that suited both teams strategic objective (to win) -everybody needs a buck. We need a new set of rules or we just can’t play this game anymore – I actually never new that bailing out private debt was in the old rules and don’t know anyone who did. I sure as hell want feck all to do with it. @Ordinary Man “I actually never new that bailing out private debt was in the old rules and don’t know anyone who did. ” + 1 finally got around to reading the discussion between you and Jarlath. I am on your side although I don’t think arlath is that far off. Fear of the unknown – helped by lots of scaremongering – is what has driven the origination and maintenance of the bank guarantees. It is however only pushing the burden onto (hopefully) future generations. Your (and my) solution, is the equivalent of surgical removal of a cancerous tumour. The alternatives seem to be lets leave it alone and encourage it to grow – we will not feel the cut of the knife now but ultimately the cancer will destroy us. @ AMcGrath I agree re; Jarlath. It is just this anti-SF no matter what they say that I see no value in. That may be unfair but that is how it comes across – the drone etc. I watched Gilmore last night – all those years waiting and he couldn’t do it when it mattered. Martin done him. His media and PR people did him no favours there. As for poor Enda, well for the sake of the nation if he couldn’t handle VB in a studio what chance, seriously, does he have in a room full of bankers and the ECB? Comments are closed.