Categories Banking Crisis Ireland and Kazakhstan Post author By Kevin O’Rourke Post date February 8, 2011 58 Comments on Ireland and Kazakhstan The Wall Street Journal offers some Kazakh lessons for Ireland here. Related ← Economics Editor Job → New IMF Statements on Ireland 58 replies on “Ireland and Kazakhstan” @ Kevin Thanks for the post. As I have been trying to articulate on this great site – the bondholders are business men. They want to get the best solution towards their own ends in any given circumstances. Why the ECB and the majority of the political parties in this election are treating them as ‘untouchables’ is absolutely incredibile to me. Tell them what the situation is, a deliverable deal is in everyones interest, bottom line – deal with it our way for a stake and return, or give us another way for the country cannot deliver on the deal as it is. The curent deal as structured is off the table. They are businessmen/women – they have to make a deal. Obviously something that should be looked into in more detail by the next government and the DoF. To be fair to her, Gillian Tett of the FT wrote pretty much the same article back in June of last year: http://www.ft.com/cms/s/0/050d003a-6f4a-11df-9f43-00144feabdc0,s01=1.html Remarkably ill informed for the WSJ. The writer does not appear to know that the blanket guarantee expired last September. A better informed article would also have at least referred to the fact that the continued protection of unguaranteed senior bond holders is — rightly or wrongly — almost certainly a quid pro quo with the ECB for continued extraordinary support. I very much agree with John McHale, but I think a much broader caveat is required. A ‘grasp of reality’ test should be applied to all comments, prescriptions, etc. on Ireland produced by commenters, academics, journalists and market participants based outside the EZ (with possible exceptions for Danish, Swedish and some British parties). They need to be able to demonstrate their understanding of (a) the epic and historic scale of Ireland’s bank blow-out in relation to the size of the economy, (b) the extent to which Ireland’s sovereignty to address this problem has already been pooled by consent in the EZ and further diminished by the terms of the EU/IMF deal and (c) the extent to which Ireland’s banking system is entangled with the rest of the EZ’s banking and financial system. The amount of salt required is in inverse proportion to their demonstrated grasp of these factors. @ John McHale Quid pro quo? I doubt that very much. They (ECB) will deal with whatever the situation is and strive for stability. Ireland just needs someone ‘serious’ to negotiate with them – the backstop that this is not a ‘deal’ at all. Politicians flapping around about tough negotiations and an interest rate cut is to be blunt, total nonsense. An interest rate cut will have no real impact on the strategic situation. The bondholder situation needs a strategic shift i.e a major reduction in the capital burden for the state by whatever means that will allow the country to grow. The ‘moral’ failure nevermind the practical failure in this situation is ignored by too many. What we should do is focus on why the ECB is so opposed to haircuts for senior bondholders and if our 1 vote in the 23-person governing council can alter the situation. We could have easily enough taken bold action in Q4 2008 when the EU bodies had not fixed policies on bailouts. Now, rather than the comforting support of outsiders, the focus should on what are perceived as the downsides. Is the ECB worried that it will become the only a long-term funder of Irish banks if bondholders are subject to a haircut? Can Honohan convince them that a restructuring for Ireland is inevitable if it has to carry so much debt? We do however, put too much of a gloss on the positives, which detracts from the case that a restructuring is inevitable. The best in the short-term is an adjustment in the bailout interest rate and as with Greece, it should be clear by 2013, what the prospects for the Irish economy are. @Paul Hunt We seem to destined to agree on a number of key, strategic issues. Felix Rohatyn, in a guarded response to my question (about whether Ireland should use default as a threat in negotiations with “Europe”) here in Paris last night seems also to be of the same view. Incidentally, he categorically denied being in any form of advisory rôle in relation to Irish government or banking negotiations in Europe. And his formidable manager/wife, Elizabeth, confirmed this to me personally and separately. As she put it ( she arranges Felix’ itinerary), “I would know.” “Reality”….”Ireland’s sovereignty to address this problem has already been pooled by consent in the EZ” in the context of… “Ireland’s banking system is entangled with the rest of the EZ’s banking and financial sustem” just about sums up the situation, regardless of what electioneering politicians, of all stripes, are peddling to the Irish electorate. ( I believe the term I used was “Europeanisation”). Felix graciously dedicated a copy of his 2010 memoir “Dealings” with just four words: ” To Richard, No Default”! Now, surely, down to the business of dealing with the “Competitiveness Pact” or the future ( this March) economic government for Europe, minted in Berlin, and supported by Lagarde/Sarkozy. That’s both reality and the future. Any Irish politicians calling this spade a spade? There are essentially six points…and one of them is “creation of a common base for assessing corporate taxes”. And that would bring us back to where I joined you before Christmas. As well as pointing up the need for: 1.) Good, realistic negotiation/repackaging of the already done ( painful, but it’s meant to be!) deal. 2.) A review of Irish “industrial” policy in light of the above. ‘Cos it won’t “cure” unemployment….. or emigration! But shure you’ve heard that before somewhere! @Richard Fedigan …. all very well …. but presently experiencing ‘systemic failure’ in Irish political system – to complement the systemic failure in the ‘money’ system – and the more than apparent ‘systemic’ in the ‘democratic lifeworld of the Irish’ … with only a small (if not insignificant) segment of the latter facing brutal reality as it really is ……… 1789 @Richard Fedigan, I sometimes wonder would ‘doomed’ be more appropriate than ‘destined’. Two many necks are locked into navel-gazing mode here. I can only admire your tenacity as you try to encourage us to lift our gaze. But it will be hard-won. The EU has always been seen as a one-way track with goodies coming down the line from Brussels. The fathers and grandfathers of many of the EU politicians and officials their Irish counterparts meet donned uniforms and went out to kill each other. Their mothers and grandmothers had to deal with the outcome of the carnage. Some visionary politicians took the initial steps to pool sovereignty over key economic resources to prevent this ever happening again in Europe. And so, gradually and falteringly, we have arrived at the current EU. What purchase do Irish politcians and officials have on this shared pain, resolve and solidarity? We are still trapped by the eternal integrity of our struggle with Britain and of our internal struggle over the terms of partial disengagement from Britain. For a time in the ’90s I thought that the up and coming generation of Irish people would be able to break the bonds and forge an identity as a modern confident European nation. Now I’m not so sure and the more I see politicians and other opinion-formers wrapping themselves in the Green Flag the less sure I am. This quote is interesting: ‘Both banks bet heavily on a small group of aggressive property developers, both manipulated their balance sheets to make them look stronger than they were, and Anglo also attempted to manipulate its share price.’ But nobody in Ireland is guilty of anything. Manipulating balance sheets or otherwise. I suppose by paying off everybody then there is less pressure for an investigation. One investor losing a couple of hundred millions might spend a couple of millions on civil lawsuits…… If nobody in Ireland is guilty then everybody in Ireland is guilty and the bank-debt should indeed be paid by the collective of Irish citizens. There has been some loss of sovereignty already with new EU supranational supervisory authorities. Thank you Ireland for ensuring that ALL EU countries has had to give up sovereignty, you failed but all have to endure loss of sovereignty. There is always one who can’t deal with freedom under responsibility. The further an authority is away from its citizens the more difficult it is to hold it to account. So thank you again for the creation of supra-national authorities based in Brussels where they are further away from citizens. You don’t hold your representatives to account so the result is that the rest of Europe will have more difficulty in holding representatives to account. Having read that Vanity Fair Article and Irish economy note 13 it seems to be clear that Ireland is going to be let hang whatever the cost. The ECB will probably not even allow a sovereign default. There is no way that core EZ banks will be touched, for as long as the powers that be are in control of events, at least. Brian Lenihan and his “we are fully funded” mantra came across very poignantly in VF. The ECB’s increasing exposure to Ireland’s rotting banks is also noted. Say Ireland enters a Japan style period of stagnation over 20 years and that it is all Ireland’s fault. Fine. What will this all mean for the EU ? The whole EU project since the early 80s has been about increasing the breadth and influence of the neoliberal economic model. It’s like a self replicating machine that iterates endlessly. And was very successful until it hit the buffers. But now there is friction and it is costly and it is very damaging to the machine which is actually very delicate. So what happens now that Ireland has been shown up to be a mirage? What will this mean for Poland and Portugal ? Given that the core EZ countries are more or less saturated and the periphery is not core like, where will the core banks invest their capital? Where can Deutsche Bank earn 25% RoE now ? Where will the growth come from ? And what will it mean for Third World/Emerging Markets ? The retreat to the core is like the end of the East Indies Company economy in India. It may make short term sense but it is a gamechanger. @Jesper – Do you honestly think that Ireland is solely responsible for the closer economic integration (read German style) that will now emerge out of this mess? German / French banks, the ECB, EU Commission…these institutions are entirely blameless, really short-sighted analysis. Let me be clear Ireland’s cabal of politicians (whom we voted for), bankers and developers are an extension of the Irish population and we are not shirking some of the responsibility but we weren’t alone. We need answers from all quarters – the outgoing government and the EU/ ECB… @seafóid/All – Can someone tell me RE the Lewis article why, if ML knows about the Merrill Lynch report that was rewritten and suppressed, we haven’t heard or seen any blame in their direction, it seems incredible to me that this has been overlooked, can we sue them, Merrill Lynch vs. Population of Ireland ! Jesper “If nobody in Ireland is guilty then everybody in Ireland is guilty and the bank-debt should indeed be paid by the collective of Irish citizens.” This is absolutely key. Don’t forget that there is an external audience. For London, the benchmark id the Guinness bid for Distillers. There Ton Parnes was asked to do a bit of marginal buying of Guinness shares to very slightly inflate the apparent value of the share component in the bid – using funds supplied by the bidder. Tony and three others went to jail. The Anglo share price manipulation delayed or undermined the effect of fundamental based selling by both long only funds and some short sellers. The result was that the decline in the shares was less persistent and less gradual – with exaggerated downwards movement artificially late in the day. The warning from the equity market was therefore blunted and the resulting compressed time frame likely influenced the panicked decision to guarantee all liabilities of the banks. The consequences of the false market in Anglo shares were far, far more significant than those of the Guinness example. From the outside, frankly, it looks like the whole place is totally dysfunctional. It is a country that embodies the antithesis of “Zero Tolerance”. Whether it is crooked businessmen or over-paid officials, nothing gets done about anything. @Jesper, Your observations are perceptive – and, for an Irish person, painful. But, in so far as they might provoke a response, it is likely to be defensive. While the possibility of an external scapegoat exists, there is no recognition of the need for significiant reform of governance or the will to pursue it. All the political factions are waxing long and lyrical about the political refroms they will pursue if elected to government, but it is all balderdash and an optical illusion as they strenuously avoid some very simple procedural reforms that would better hold government – and the entire machinery of government – to account. Ireland seems to be drifting further away from its well-governed peers in the EU. However, in the broader EU context – and contrary to what you suggest, I think we are seeing an attempt by the senior politicians, in particular those in Germany and France, to seize the agenda from the unelected Eurocrats. There seems to be a recognition that they, and their predecessors, were railroaded by the Eurocrats to force through ill-designed, grandoise projects such as EMU and the much re-wrapped EU Constitution over the heads of their voters – and with generally predictable results. Yes, we are seeing the expected reactions of their fellow-members to this re-emergence of the Paris-Berlin axis, but the general thrust is to put accountable politicians more firmly in control of the project – and there seems to be a broad, but unenthusiastic, acceptance of the need for this. It’s difficult to predict how this will work in practice, but Chancellor Merkel seems determined, and it is the minimum she needs to secure before establishing a popular mandate to tackle the EZ’s dodgy banks and feckless sovereigns. @seafoid, The discussion (mainly driven by Richard Fedigan) of the need to re-think Ireland’s low-tax, MNC export platform model seems to have passed you by. As has Germany’s strategic vision for it and economically-aligned members states to position the EU as an exporter of high value, high knowledge-content goods and services to the BRICs and the other emerging economies. We may quibble with the strategy, but crying into our pints won’t get us anywhere. @ Paul Hunt I don’t buy the BRIC story. What all 4 BRIC countries have in common is endemic corruption. I don’t buy Irish pension consultants advising their clients to invest in Third World bonds. The neoliberal model has run into the same problem as the model it replaced. Stagnation. And there is no debt miracle to wish it away. The EU isn’t going to grow. Neither is the US. Japan isn’t growing. The Government and the Government Offices of Sweden “The Government governs the Realm. It is accountable to the Riksdag.” Chapter 1, Article 6 of the Instrument of Government The above has been taken from the below website: http://www.sweden.gov.se/ To the best of my knowledge riksdagen (the Swedish parliament) has not yet approved the proposed bilateral loan from Sweden to Ireland. Sweden has a minority government & need support from the opposition to approve it. I believe it to be my civic duty to inform citizens and elected officials about the ‘governance’ in Ireland. It has already little to no chance of passing. No accountability -> no responsibility -> no credit. @Seamus, yes, I do think that the supra-national bodies were introduced due to inability of national bodies to do their job. Irelands banking crash is the worst in Europe. Deals that couldn’t be done anywhere else were done in Ireland due to its ‘regulators’. Ireland is the weakest link in the regulatory regime in Europe. The institutions you’re trying to shift blame to, as far as I can tell their mistake was to believe the Irish were responsible. So yes, I do hold the Irish responsible for placing power further away from citizens. The option for the EU would be to hope for Ireland to improve. Hope is not a strategy. Personally I’d rather have Ireland out of the EU than centralise more power to eurocrats in Brussels. How could Sarkozy & Merkel argue that it is better to allow power to be within nations than in Brussels when faced with the Irish example? First step has been taken towards gathering more power for Brussels with the introduction of the supranational bodies, next step will come. Probably some european-wide taxes to finance the european-wide supranational bodies that had to be introduced due to the Irish failure. @Seafoid, You’re beginning to sound like Fraser in Dad’s Army: “Doomed. We’re all doomed”:-) You seem to forget that capitalism comes in many varieties and, despite its inherent instability and ability to wreak havoc periodically, continuously mutates – and, when subject to enlightened state guidance and operating within efficient and well-regulated markets, generates socially and economically useful outcomes. Brazil has its own variety, Russia has become a kleptocracy, India is a curate’s egg with the trappings of democracy and China is an authoritarian capitalist society and economy. The emerging economies following in their foosteps, Indonesia, Vietnam, South Africa, etc. all have their own varieties, but demography, rising prosperity and an increasing middle class will drive their own changes in the forms of governance of capitalism. This is the new reality with which the West will have to come to terms. We can rise to the challenge or experience some what less than gentile decline. I believe the West can and will, but the immediate challenges are in the areas of governance and democratic accountability. On this, among OECD members, Ireland is close to the bottom of the class and slipping. And I know that ‘neo-liberal’ has become a term of abuse on the progressive-left, but it might be more useful and helpful to call it what it is – ‘neo-conservative’. When are folks going to realise that if ever the truly guilty were allowed to be held accountable, a lot of hapless european functionaries & politicos would be swapping their Paul Smith suits for orange jumpsuits. The ‘truth’ is now in the sole ownership of the European Ministry of Doublethink. All this deckchair rearranging is depressing. Kazakhstan appears to have received better advice than Ireland. The most striking few paragraphs in the Vanity Fair article were, to me, about Merrill Lynch, who advised Brian Lenihan on the guarantee. From Vanity Fair: “Even in Britain, (an earlier Merrill Lynch report revealed, the Irish banks) were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third. For a few hours the Merrill Lynch report was the hottest read in the London financial markets, until Merrill Lynch retracted it. Merrill had been a lead underwriter of Anglo Irish’s bonds and the corporate broker to A.I.B.: they’d earned huge sums of money off the growth of Irish banking. Moments after Phil Ingram hit the Send button on his report, the Irish banks called their Merrill Lynch bankers and threatened to take their business elsewhere.. Ingram’s superiors at Merrill Lynch hauled him into meetings with in-house lawyers, who toned down the report’s pointed language and purged it of its damning quotes from market insiders, including its many references to Irish banks. And from that moment everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch’s lawyers.. It would have been difficult for Merrill Lynch’s investment bankers not to know, at some level, that in a reckless market the Irish banks had acted with a recklessness all their own. But in the seven-page memo to Brian Lenihan—for which the Irish taxpayer forked over to Merrill Lynch seven million euros—they kept whatever reservations they may have had to themselves. “All of the Irish banks are profitable and well capitalised,” wrote the Merrill Lynch advisers, who then went on to suggest that the banks’ problem wasn’t at all the bad loans they had made but the panic in the market.” @ Paul Hunt I was in Bombay 4 years ago in an office meeting a group of McKinsey consultants who were advising on a project run by my European MNC employer. In a presentation pack that leant heavily on “the India story” they had a slide about the growth of the mobile phone market and how if repeated in our sector we would see double digit growth for 10 years. I later met a Dutch manufacturer based on India who had the same McKinsey slide for his board.. They came up with business projections for a new product line for 2010 and the “most realistic” was $75 million. Last year the actual revenue was $8million … @seafoid @jesper @Paul Hunt “The EU isn’t going to grow. Neither is the US. Japan isn’t growing.” Well, at the risk of a strategic changing (upwards) of gear. The US IS growing. And the EU IS growing, but marginally. And due only to German growth. And neither are creating jobs. And yes, German exports are growing, to the BRICS, more than to the EZ. And yes, Germany wants “nations” to take back power from the supranationals in Brussels. Because of the inability of national bodies to do their jobs. But Germany can, has been doing, and will do, its job. That is…..paying for “Europe”. So, the new “European” economic governance/government ( call it Brussels if you like) will do the job Germany has been doing. With France’s support because France is part of the European “moteur”/needs to keep its AAA rating/needs German cover for introducing tough, unpopular, even constitutional change/has no choice ( take your pick, not just one!). AND the reality is that, at the moment, playing by “national” and “neoliberal” rules, ONE player IS growing, exporting, creating jobs, building up foreign reserves in a reserve currency and already has a functioning governance system. That player is symbiotically “joined at the hip” to the other member of the de facto G2. Which is playing catch-up. And to which it owes a lot of money in Treasury bonds. And “Europe” will, one day, if it does what Germany is paying for it to do, be invited to join a G3. ( within an already existing G20). But there’ll only be ONE “European” seat at the G3 table. And we couldn’t call it Germany. Could we? I don’t this I’ve heard mention of this in the election campaign so far! John McHale re A better informed article would also have at least referred to the fact that the continued protection of unguaranteed senior bond holders is — rightly or wrongly — almost certainly a quid pro quo with the ECB for continued extraordinary support. Is it explictly written into the EU/IMF agreement that the Irish banks cannot negotiate or impose ‘haircuts’ on any bondholders? Informal quid pro quos don’t count anymore. @Jesper, I understand your anger and the lack of accountability in Ireland is criminal but if you think that if Ireland didn’t exist you wouldn’t have this problem then I think you are mistaken. This problem of economic disharmony would’ve raised its head at some point – I think one of the really big issues is why was it not foreseen, practically no country lives up to the German financial model, why were we led to believe we could. The EURO is the issue and the sustainable growth of many EURO zone countries and where that growth will come from. Ireland acted catastrophically but the problem was always there. IMF Report on Ireland: Lingering domestic perception of inequitable burden sharing persists http://www.finfacts.ie/irishfinancenews/article_1021596.shtml @Frank Barry, I’ve worked in Kazakhstan. It’s ‘frontier territory’. Only investors with serious intestinal fortitude and a strong stomach for risk get stuck in. Indeed, investors without these characteristics are officially discouraged. The cost of capital reflects the risk of default in all investments. The players there might not have covered themselves fully in the event of default, but it would not have been a big surprise and they would have been reasonably content to cut a deal. In contrast Ireland, under the much touted Government mantra of “effective competition and better regulation’, sold itself as having ‘world-class’ bank supervision and financial regulation. This was presented as providing protection not only to sophisticated investors, but also to retail investors – the eponymous ‘widows and orphans’. It serves no purpose attacking ML, a market player – however well de-conflicted and Chinese walled it might have been, for not blowing the whistle. It is quite clear that the banks did not reveal the full story to anyone who tried to make an assessment. We do not know what powers or authority ML had – and it most certainly could not have issued an assessment that would damage the banks’ reputations without comprehensive supporting evidence. That responsibility lay, all along, with the bank supervisors and financial regulators who were both empowered statutorily and had a duty to investigate and sign-off on the practices of these banks. In this they failed – and failed abysmally. And this failure, unfortunately, has become the responsibility of all citizens because they freely choose, and delegated their ultimate authority to, politicians who elected a government which appointed these supervisors and regulators. Fraud (noun) -deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. “The Kazakh authorities believe many of the loans made by BTA management were fraudulent. Part of the deal with BTA’s creditors is that if and when this money is recovered through legal action, Samruk-Kazyna and the creditors will split the proceeds. That gives the creditors an interest in helping Samruk Kazyna recover the funds, which could be as much as $11 billion across the whole banking system. Behavior very similar to that alleged by the Kazakh government appears to have been a feature of Ireland’s banking culture as the day of reckoning neared, though for now the Irish authorities don’t appear willing to do much about it.” Why have the Irish authorities been so slow to deal with the fraudulent activity going on in the 4-5 years leading up to the crash of 2007/8 ? Why should the majority of Irish citizens pay for the unlawful behaviour of the few insiders? Caveat emptor. (Let the buyer beware) Those who bought the bonds of banks in Ireland (or anywhere for that matter) must now take the consequences of their actions. They must take whatever legal means to recover their poor investment. This may result in the fall of some banks in Ireland and possibly elsewhere. The systemic consequences of insolvent Irish banks within the supervisory remit of the ECB is a European problem, not a problem to be foisted solely on the backs of the Irish citizens who will be under enough economic and social pressure from the fiscal legacy of the boom time governments. This stuff about Merrill being pivotal is a bit off target. Merrill was for arse-covering purposes. Its client though was so arrogant it decided it didn’t need its arse covered anyway. Banking analysts were outsiders – sucking up the guff about appropriate regulation and Tiger economics. The guys who heard anecdotally about the way deals were being done were the ones in a position to call it what it was. Being told that if you dropped the right name in a bank meeting the next and only follow up question was “how much do you want?” was far more revealing than a foreign analyst’s opinion in a stockbroker’s note. It was up to the locals to call time on what was going on. @Seafoid, Having done bits of works in all of the BRICs I take your point about the disjunction between what is being sold as real and the reality – but, in the absence of proper governance (and its demonstrable absence), investors need to box clever. Ireland probably had a bigger disjunction – and investors would have been advised to box equally cleverly, but the official concealment of this disjunction was all-empracing and anyone who might have blown the whistle would have been professionally destroyed/hit with the full force of the libel laws/ostracised in a very public fashion. @Richard Fedigan, “I don’t think I’ve heard mention of this in the election campaign so far!” And you’re surprised! 🙂 Why would politicians, pathologically incapable of thinking beyond tactics, offer their voters strategic choices? @Seamus, EMU was ill-designed and politicians and officials in well-governed EZ countries foolishly took it on trust that their counterparts in the less well-governed countries would behave. I agree it was an accident waiting to happen, but that does not lessen the responsibility of the politicians (or the officials they appointed) – and the voters who elected them in the peripherals. @Jesper, Do you not think it possible that the Swedish Government might have an interest in providing bilateral funding to Ireland because some Swedish banks might have a bank exposure in Ireland? @Seamus, Some things might be inevitable, that doesn’t mean that I want to rush the event. For instance, I know that one day I’ll die, that doesn’t stop me from taking actions that will (hopefully) postpone the event. Due to the failure in Ireland the introduction of supranational bodies could and did happen. Maybe another country would have failed in a couple of years time. I don’t know & I don’t care. Ireland was the country that failed & caused more power to be gathered in Brussels. Therefore I blame Ireland. @Paul Hunt, one professor in economy has published an opinion piece in the largest daily newspaper where he argues against bailing out Ireland. He recommended recap for equity. He is on the Nobel committee awarding the Nobel price for economy. Another professor in economy has publicly stated in the largest daily newspaper in Sweden that not all bilateral loans are paid back & there might be some doubts about loans to Ireland. He is on the economy board advising the government. The major Swedish banks are all posting large profits. The largest, Nordea, well this might be of interest: http://www.bloomberg.com/news/2011-02-03/sweden-to-sell-3-billion-stake-in-nordea-to-reduce-state-debt.html So, nope I doubt that Sweden will lend to Ireland to save any Swedish bank & as far as I am aware they are not very exposed to Ireland. @Aidan C “Why should the majority of Irish citizens pay for the unlawful behaviour of the few insiders? Caveat Emptor”. I agree – I have yet to to hear anyone give a convincing answer to the question why should Irish taxpayers pay for speculative failures, irrespective of the delinquency of the regulatory regime. I have read long posts – some on this thread, and searched them in vain for an intelligble answer . The conclusion I am forced to is that most of it is just elaborate sophistry, applied with a slightly patronising tone, designed to convince the peasantry that they should just trust their betters. @John McHale why is anything “..almost certainly..”. Sounds like the nod and wink regulatory regime again? @ Richard Fedigan I don’t see the US creating the jobs it needs for a sustainable recovery. Last month the number was 36,000 and they need to create 300,000 a month. What jobs are created tend to be on inferior levels of remuneration to the ones that were lost during the most intense period of the crisis. Economic growth in the US is primarily driven by how much money people spend and if they don’t get paid enough they can’t buy enough. The levels of income inequality in the US are unsustainable. 58% of all income growth in the US between the 1976 and 2007 went to the top 1% of the population. The top 0.01% or 15000 households had 1.7% of all income in 1976 and 6.04% by 2007. By 2004 the top 1% of wealth holders in the US held 42% of all financial and real assets, the most unequal distribution since the 1920s. @Jesper. one professor in economy has published an opinion piece in the largest daily newspaper where he argues against bailing out Ireland. Agreed. Keep the money. We will tell the banks to get stuffed. Then if there is no money to pay sovereign debt, those bondholders can get stuffed as well. That is the capitalist way, is it not. @Jesper, Thank you. Just checking. And I agree. I can’t see this getting through your parliament. The numerical alignment is, let’s say, quite interesting. @AMcGrath, The investments in senior bonds were not speculative investments. Most, if not all, investments that might fall remotely in to that category have been wiped out. It is a measure of the scale of the blow-out that these write-offs have not proved sufficient. Some relief will be orchestrated by the EU, but only when politicians in the core EZ countries feel sufficiently confident to convince their voters that it is in their interests to finance some relief – just as it was in their interests previously to contribute to help lift the peripherals out of economic backwardness and the legacy of different forms of dictatorship. It is a much more difficult task this time and for a variety of reasons. One is that voters in well-governed countries find it almost impossible to comprehend the behaviour of voters in badly governed countries. And a possible second is the cockiness and hubris Ireland exhibited when it thought it was doing well. And moaning about the failures in EZ governance – of which these politicians are well aware – and suggesting that this in some way imposes a moral obligation on other EU members to dig Ireland out is the very worst way of encouraging these politicians to convince their voters. @Paul Hunt, there is still the risk/possibility of a loan being approved. A few members of parliament has had difficulty pressing the correct button when voting and therefore voted opposite of what they intended…… Politicians are human beings and make mistakes, in Sweden people are aware of that & eyes are kept on them. I’ve seen the website thestory.ie , the site and the people behind does give hope for the future of Ireland. @AidanC, you say it is a few insiders. I believe you but I don’t know for sure. Certainty could be had if the few insiders were convicted of a crime, if not, then who knows what happened? Ireland want to be seen as a victim of the misdeeds of a few insiders but there is no proof of that. There might be some sympathy if proof is provided. @Paul Hunt “The investments in senior bonds were not speculative investments. Most, if not all, investments that might fall remotely in to that category have been wiped out. It is a measure of the scale of the blow-out that these write-offs have not proved sufficient.” All unguaranteed investments in private banking are (or should be) speculative. If the investor is to be protected then that is the function of the insurance industry – not me or my fellow taxpayers. As Aidan C said above “Caveat Emptor”. These are the rules that drive capitilism. To guarantee investmente is to encourage moral hazard. I don’t blame governance here or the EZ for the problems. We are dealing with sophisticated investors who are well paid to perform due diligence. Blurring the lines between the sovereign and private debt only suits those with vested interests. @AMcGrath, so lets apply the rules of capitalism on the Irish. Declare some insolvent developers bankrupt & put them into social housing or does the rules of capitalism not apply to Irish citizens but only to foreigners? & I have some suggestion for savings: Since the Irish regulators are not responsible for anything what purpose do they fill? Lifting paychecks and rubber-stamping? That would appear to be an obvious cost without a benefit and should therefore go. @AMcGrath, Governance, I fear, is the problem here and in all developed or emerging economies. Seafoid (in his 4:04pm comment) highlights the increasing inequality in the US. The corresponding decline in labour’s share of income overe the last 30 years – in particular in the the Anglophone developed economies – may be seen in most developed economies. This has been accompanied by increasing capture of income and wealth by the global elite in the capitalist system. And this elite has been adept at exercising economic power to suborn systems of governance everywhere to protect and advance their interests. This is the real underlying problem. The extent to which private sector debt is being imposed on the sovereign in Ireland is, unfortunately, a particularly vicious, but localised, symptom of this deeper malaise. The solution lies in effective governance at the national level, but, increasingly, co-ordinated governance at the supra-national level. And the smaller the national entity, the more vigilant and effective the governance has to be. That means, in Ireland, major changes in the process of governance and a thorough – and I mean thorough (not just politicians) – cleaning of the stables. We will then be able to engage effectively with our EU partners to develop governance that might bring the forces of financial capitalism to heel. @Paul Hunt “The investments in senior bonds were not speculative investments. Most, if not all, investments that might fall remotely in to that category have been wiped out.” Can’t agree with that. It is a basic function of bond desks to analyse credit, along with inflation. Anyone running a bond portfolio who was not aware that they were taking credit risk in return for an interest rate spread should have been doing something else. Lenihan postpones bank injections until after the election. http://www.irishtimes.com/newspaper/breaking/2011/0209/breaking48.html It must be bad to be all of a rush to do it in December then – when he sees the figures – he decides to let the incoming lot have that problem to announce. @Jesper I can understand your skepticism. The so-called “ economic miracle” was driven by reckless and exponential debt creation by the financial sector. I’ve no doubt that “deceit, trickery, sharp practice ….perpetrated for profit..” i.e. fraud was part of the explosive expansion of debt in the few years prior to 2008. The real drivers of this lethal debt explosion were senior management working within the financial sector , the inner circle of developers, senior professionals (including cheerleading “free market” economists) closely linked to banking and finally compliant Fianna Fail/PD government ministers , ineffective Department of Finance administrators and “light touch” regulators all of whom had been captured by the finance sector. Those bond investors who bought into the recent Irish Banking Ponzi scheme have to take responsibility for their decisions and must take whatever legal means to recover their poor investment. The new government should re-privatise the banking problem back to where it belongs i.e. to the banks who were responsible for causing the problems. New bank resolution legislation would probably be required to wind down some of the banks. There should be an open Pecora type investigation into the conduct of banking during the boom. Greater resources should be allocated to the Office of the Director of Corporate Enforcement and the Garda Fraud Office to speed up the investigation of wrongdoing. The bottom line is that the majority of Irish citizens should not pay for the reckless and possibly unlawful behaviour of a small and well connected inner circle, many of whom benefitted excessively during the boom. http://en.wikipedia.org/wiki/Pecora_Commission @Paul Hunt There are three separate and separable issues. 1. Careless investment “Caveat Emptor” is the most appropriate response. Due diligence will be performed the next time. We’ve all been caught in bad investments. It’s a learning process. 2. Poor regulation When I say – “I don’t blame governance delinquency” it doesn’t mean they isn’t need for reform or appropriae penalties in that area. But because regulations are broken or ignored that doesn’t transfer the penalties onto the shoulders of taxpayers. To take an analogy, criminailty of all kinds is against the law, and we have a police force who make some effort or none to enforce the laws. Because somebody breaks the law we don’t expect the rest of the citizenry to take the rap. I’m all in favour of punishing delinquent regulators – not rewarding them with huge severance pay and golden parachutes. 3. Flouting of regulations. Most of us now believe that the the regulations were ignored with or without the connivance of the regulator. To conclude from the fact that 2 and 3 were commonly considered to be endemic, that therefore taxpayers should be burdened with the consequences of speculative mistakes is an assumption too far. The use of scapegoats may have been acceptable in ancient “civilizations” but it has no place in todays world. @Jesper Hear hear – on the developers. I still believe there is a need fo proper regulation – if the regulators and bankers are negligent or criminal let’s penalise them. However laxity on the part of regulators doesn’t give carte blanche to break the regulations, nor does it excuse the lack of prudence on the part of investors. @grumpy, Agree. Hard to capture all the nuances in a short comment. Just trying to make the point that senior bonds tend to attract ‘rate’ investors; those further down the pecking order ‘credit’ investors. @AMcGrath, I can see where you’re coming from, but there are too many ‘ifs’ in this story. If fiscal policy had been counter-cyclical – and focused on paying down sovereign debt and building a bigger reserve – once we joined the Euro, if it hadn’t boosted the property bubble and, in turn, hadn’t relied on revenue from this bubble – similarly to local authorities, if a proper bank resolution regime had been in place, if bank supervision and financial regulation had operated effectively and if an effective, co-ordinated EU regime had been in place, if the impact of Germany’s export surplus were managed better, so many ifs. This is just a systemic failure to hold anyone to account anywhere in the system – and to have effective procedures to hold people to account. This is a major and widespread failure of governance over a sustained period. In a democracy, the people have the ultimate authority, and, when they have repeatedly sanctioned such total failure in governance, the ultimate responsibility. I know you don’t or won’t agree, but that’s how I see it – and, believe me, it gives me no pleasure. There is a complete suspension of reality in Fianna Fail’s election videos which are all on Youtube. In this one Micheal Martin says Sinn Fein are insane because Ireland needs 50bn to pay teachers and nurses. http://www.youtube.com/user/FiannaFailParty#p/u/4/K85zcrOYb9o And which party when in Government had a taxation policy based on a Ponzi scheme ? And why does Ireland need 50bn from the EU/IMF ? Didn’t it just pump 50bn into the banks? @ Paul Hunt “This is just a systemic failure to hold anyone to account anywhere in the system – and to have effective procedures to hold people to account. This is a major and widespread failure of governance over a sustained period. In a democracy, the people have the ultimate authority, and, when they have repeatedly sanctioned such total failure in governance, the ultimate responsibility.” How does this change? People outside Ireland are just looking at the circus in disbelief. FF are in tabula rasa mode. This is crazy. How do they get away with it ? @ Paul Hunt ‘Governance, I fear, is the problem here and in all developed or emerging economies. Seafoid (in his 4:04pm comment) highlights the increasing inequality in the US. The corresponding decline in labour’s share of income overe the last 30 years – in particular in the the Anglophone developed economies – may be seen in most developed economies. This has been accompanied by increasing capture of income and wealth by the global elite in the capitalist system. And this elite has been adept at exercising economic power to suborn systems of governance everywhere to protect and advance their interests. This is the real underlying problem. The extent to which private sector debt is being imposed on the sovereign in Ireland is, unfortunately, a particularly vicious, but localised, symptom of this deeper malaise’ + 1 Paul. We are nearer to Cairo than we think. It appears we all want: -the law to be followed and the ones who broke it to be punished -the ones who failed in the duties to pay for it As far as I can tell: -I actually can’t tell if the law has been followed or not. I believe that the outcome of Anglo’s trading is a bit suspicious and if the law was followed then I think there might be a case of possibly improving the law. No criminal charges filed & no change in the law so this area seems like it might need more clarity -not sure who failed in their duties. Investors relied on information provided to them by Anglo, auditors certified the accuracy of the information and the financial regulator monitored Anglo on a regular basis to ensure (among other things) that it was solvent. A prerequisite for having a banking license is solvency so an investor might have reason to believe that a licensed bank is at the very least close to being solvent. The reported results seem to indicate that the bank was insolvent for some time before even the first guarantee was put into place. It might possibly be assumed that if the regulator had revoked the license sooner then maybe the losses would have been smaller. The only way I can see the regulator (and by extension the Irish state) not being liable for the losses incurred after the point it became insolvent would be if the bank supplied the regulator with inaccurate information. If that would be the case, then I’d argue that this might be seen as fraud and might need to be tested in a court of law. The Irish state has to the best of my knowledge not claimed that there has been any fraud & that would lead me to believe that the state is not disputing the accuracy of the information supplied by the bank to the regulator. That would imply that the explanation for the unexpectedly large losses is regulatory failure and that would indicate in a failure by the state in its duties. If the state failed in its duties then I believe it is liable. The fact that the Irish state hasn’t filed any charges for wrongdoing would lead me to believe that the state is liable for the lions part of the losses after equity has been wiped out. @Paul Hunt “This is just a systemic failure to hold anyone to account anywhere in the system – and to have effective procedures to hold people to account. This is a major and widespread failure of governance over a sustained period. In a democracy, the people have the ultimate authority, and, when they have repeatedly sanctioned such total failure in governance, the ultimate responsibility.” My point is separate the issues – and penalise accordingly. It’s just an irrational guilt complex to want to compensate foreign bankers for their imprudent losses. Were those investors going to hand bonus if everything went OK scrooked bankers from wasting my money? I don’t think so. @Jesper “The fact that the Irish state hasn’t filed any charges for wrongdoing would lead me to believe that the state is liable for the lions part of the losses after equity has been wiped out. The jump from government culpability for a lax regularity regime to a collective guilt for bad investment decisions is just illogical. It is by now well established that the the US and other countries financial industries (including our own) lobbied continuously for deregulation, resulting in the repeal of Glass-Steagall in 1999. The repeal of this law is generally blamed for the subprime crisis in the US. Without that we would not have the floods of credit pouring into our banks faster than they could push it out the other end. By a similar logic as you used above the blame for the Irish banking problems could be attributed to the US government and therefore the US taxpayers should bear the brunt of our problems. It is equally ridiculous to blame the Iris taxpayer. @Paul That last sentence is garbled sorry – I blame the submit button as usual It should have read: Were those investors going to hand us a bonus if everything went OK with a big thank you for preventing crooked bankers from wasting their money? I don’t think so. I think we will just have to agree to differ on this one. @AMcGrath, Yes. I think we’ll have to agree to differ. It’s not that I have any desire to see these losses imposed on taxpayers; nor do I think it right or just. It is the unfortunate outcome of a complete abrogation by the state apparatus of its responsibilities. And it will require the co-ordinated application of democratic governance by all affected nation states to bring the forces of financial capitalism (that generated these losses and compels their socialisation) to heel. @ Jesper ‘The fact that the Irish state hasn’t filed any charges for wrongdoing would lead me to believe that the state is liable for the lions part of the losses after equity has been wiped out’ The only thing one can reasonably conclude is that it doesn’t suit the domestic and international Powers that Be to handle the Irish bank collapse in that way. That’s probably because any such exercise would open certain private ‘understandings’ and ‘arrangements’ up to public scrutiny. Transparency of that kind simply cannot be contemplated. The state has responsibility for the general interest. All states, however, are run by individuals and groups who have particular interests. They enter into alliances with non state actors, such as companies and trade unions, to further their own interests, and the interests of their associates, among other things. That is called business as usual, or even human nature. So-called independent professionals provide the necessary cloak of respectability to cover insider dealing and regulatory avoidance. One of the functions of professional techinque is to preserve the necessary level of complexity, obscurity and vagueness in which potentially embarrassing conflicts of interest can be concealed or fudged. Such a coalition resists any definition of its activites as fraudulent or unethical, has extensive media influence, and is embedded in our system of governance. Those individuals and institutions (mis)perceive, and (misre)present themselves, as the epitome of common sense, trustworthiness and social responsibility. We will ocasionally go through the motions of investigation, but the notion of meaningful legal action is culturally taboo. @Paul Quigley, I agree. Irish leaders are acting in that way & since Ireland is a democracy that is what Irish citizens want. Is it an explanation? Yes. Is it an excuse? No. So we’ll wait & see. So far this is said from the Office of the Director of Corporate Enforcement: http://www.odce.ie/en/media_press_releases_article.aspx?article=9cb5e259-f244-4483-884b-abbab355b1e4 @Paul Hunt So, because there was a failure of governance at all official levels allied to what amounted to a small number of individuals being lent to in an irrsponsible manner by banks funded in an equally irresponsible manner by other banks and financial institutions the average citizen who had no hand/act or part in these irresponsible behaviours carries the can/his children carry the can and his grandchildren carry the can??!! No way Jose – get thee to Iceland and rope the lenders to the banks into equity swaps plus haircuts! An adjunct to Godwin’s Law, is the Europhiliac Endgame of online discussions: “As an online discussion with an EU apologist grows longer, no matter what the specific subject matter, the probability of mentioning either World War as a fall-back justification approaches 1.” The Godwin Number (E.E. adjunct) for this thread is 9. That is, it took only 9 comments to go from arguing about the present suitability of nationalising/socialising private losses of international banks, to the statement “The fathers and grandfathers of many of the EU politicians and officials their Irish counterparts meet donned uniforms and went out to kill each other.” A+ for getting it in the single digits. Perhaps you might wish to mark this offering from the Sindo: http://www.independent.ie/opinion/editorial/diplomacy-is-a-stock-set-to-soar-2537997.html in relation to Godwin’s Law. On a positive note Perhaps we could broker a deal to save the economy by selling Church bonds, stocks, options, artifacts, and re-charging Church legal debt (3 billion) for abuses cases… and selling Church properties (billions) and Church estates (more billions) and refusing all Church Tax Free Charitable status (billions)… Think about it? See the revenue list of all Church Tax Free sects, organisations, bodies, Tax Free businesses, shell companies, etc. The Church would be delighted to return all the money, land, property, stocks, etc that the State gave them in the first place! Do you need a loan,or are you in financial crisis this period,never worry yourself again,the financial uplift loan firm is here this year 2011 to help everyone with his or her financial crisis. We are giving out loans at 2% interest rate,we give out all types of loans,you can seek for any loan amount and you will get it,provided you will be able to repay the loan at the expected time. 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