NYT: A Call for a Write-Down on Irish Debt Post author By Philip Lane Post date October 14, 2011 Landon Thomas features the views of Peter Mathews in this NYT piece. Categories In Uncategorized 118 Comments on NYT: A Call for a Write-Down on Irish Debt ← Liquidity Risk → Ajay Chopra’s Kenmare Address 118 replies on “NYT: A Call for a Write-Down on Irish Debt” “Let’s face up to them and get them financed by countries that can afford it, like Germany.”..Extremely bad choice of words I think Peter Matthews is wasting his time when our leader yesterday announced to the world that the new economic policy for Ireland is.. NO BONDHOLDER LEFT BEHIND There is virtually no chance of the FG-led government agreeing to his mad proposals. You can see the hostile reaction to what he said in the comments section of the NYT. Unfortunately, some of the commenters think Mathews is a person of some importance and is speaking for the Irish government. He is not. Mathews is one of the big losers from what the NYT calls ‘Ireland’s improved economic performance over the past year’. The facts are that the FG-led government adopted in full the policies of the previous FF-led government and these policies are now clearly bearing fruit: growth up, exports up, manufacturing up, tourism up, live register falling, competitiveness improving rapidly, budget deficit down, balance-of-payments in surplus, bond interest rates collapsing, no strikes, public disorder or civil unrest etc etc. As a result of all these factors, Ireland is now getting rave reviews in the international financial press. This would be the worst possible time to abandon these policies. Ireland would be a laughing-stock if, after all the hard work to achieve these results, it simply abandoned them and opted to become another Greece. Only a matter of time before Mathews does a ‘George Lee’. FG were mad to have anything to do with him. Fortunately for them, they got so many seats at the last election that they can totally afford to ignore him. Bad wording by me. I meant ‘can afford to totally ignore him’. Exactly – I am sick of this endless Bond bailout talk , its a morality play now – an endless distraction – they want to sweat out all our fiat and thats it really. They have no interest in peserving any Irish Capital stock both human & concrete – this is just warfare by other means. Europe has given up on the progressive thingy if it ever really existed – its back to normal stuff but Ireland unlike before has no inbuilt redundencies now. Operation friggin Green without the Junkers 52s but with the usual Quisling like suspects. Deluded nonsense. We are running a deficit of 8.6% of GDP next year which is equal to the Greeks and we will owe 215 thousand million in sovereign debt according to the IMF. We also will owe the ECB 150 thousand million. Let’s get real. The bad news this evening is the US,UK,Japan Canada etc have told us to take a hike on the issue if beefing up the IMF funding. So it’s back to Germany again… Nicky’s bonds are looking a wee bit ropey tonight at 3.11% versus bunds at 2.19%. €155.9 bn x 4.9 = €764 bn @Seamus I assume Peter may have struggled a bit to get anything written, which may explain the mysterious numbers. Perhaps he could contribute outside the msm to clarify? @Ceterisparibus You have picked one financial metric from a seriously dysfunctional euro banking system. Sovereign bonds in the euro system are just a financial asset rather then also the base of a banking / sovergin tree. What this means is that they want to destroy the productive capacity of a nation for a short term return of a fictional token – which means it does exactly the opposite of what it says on the tin. They are not Sovereign baby. They are capital extraction devices. @Seamus Coffey Not sure where the 155.9 comes from. Mathews states “Mr. Mathews estimates that if you include household and nonfinancial corporate debt, Ireland’s total debt burden is a shocking 490 percent of its G.D.P. — which, he claims, makes Ireland the most indebted country in the world.” Anyone know the debt under these headings? See the comments, Nos 1 and 2. I had to reply to them (after going to the trouble of registering). 1. Peter NY ‘ “Get the losses financed by countries that can afford them, like Germany”??? Mr Mathews, maybe you should take off your shoe like Krushchev did, and bang it against your head. If your statements are indicative of the Irish sentiment, it is time the EU is kicking out parasites like you, and the UK and Greece right with you! ‘ 2. Outraged Oakland “I am so glad we let Lehman Brothers fail. I hated, hated TARP, but we needed to show Wall Street that we would let them fail. Unfortunately, that message is being lost all over the world, especially Greece. Now Ireland wants to be bailed out by an entirely different country. I understand if Germans revolt and start taking pitchforks after Merkel. After all, we are really talking about the income of all Germans. German money should belong to Germans.” and then my reply… “Outraged Oakland, Re:’Now Ireland wants to be bailed out by an entirely different country’ You should understand that Ireland (the government & the people) DID NOT receive this money. This is unlike the situation in Greece where the sovereign did actually get the money. In the discussion about money owed to bond-holders people use the phrase \”if Ireland can’t or won’t pay it back\”. It is incorrect to use the word ‘back’. What is being considered is whether to ‘pay it’, or not, but as we, the Irish citizens, never received this money in the first place it is wrong to talk about paying it ‘back’. In fact not only did Irish taxpayers not receive the money, the fact that foreign banks lent the money irresponsibly meant that the vast majority of Irish people were disadvantaged by massively inflated house prices. Sensible people never wanted this money to flood into Ireland in this way in the first place. Can you please draw attention to the distinction between ‘pay it’ and ‘pay it back’ in your discussions, as more and more people are being mis-led (also unintentionally) and perhaps in an unconscious way even the Irish people are having the way they think about this manipulated – the Irish public themselves sometimes now also use the word ‘back’ inappropriately. Foreign PRIVATE risk-taking banks lent money to PRIVATE banks in Ireland, which later when going bust, in an attempt to stop a contagious disaster throughout Ireland and Europe, the Irish government said they’d try to guarantee this private debt (but the Irish citizens weren’t asked and certainly did not agree to it). Professor Honohan and others said that Ireland prevented an event worse than the Lehman’s collapse in Europe. When it was obvious that the little Irish citizen couldn’t possibly pay this huge debt belonging to private risk-takers, Europe stepped in and insisted that there should be no ‘frightening the horses’, & haven’t yet let the debt be given back to those who it belongs to. Thank you. “ 155.9 is 2010 GDP. Multiply it 4.9 to get €764 bn. I assume this is meant to be the sum of government, household and non-financial corporate debt in Ireland. I cannot see how that total is reached with the numbers familiar to me. I am becoming convinced that most Irish non financial economists do not understand the Euro system. Maybe thats why the ESRI has got its predictions so catastrophically wrong – they think they are operating in the 70s & 80s when sovergin bonds in Europe operated so much differently. We have MMT operating in full sight in the Anglo sovergin money world while we sit around pretending that we can square the unsquarable. Only the production of non Governmental euros by the ECB can restore balance to economies – however I fear dark insiders are using the ECB as a extraction device. This is a really terrible situation. Seamus, It is up to the deputy for South Dublin to explain his numbers but if you add the sov debt plus Nama plus the covered banks balance sheet you get close to his numbers. This ignores the asset side which he implicitly values at zero. I fishers with Jto assessment of the deputy. I doubt if he leaves FG as he would not last jig time as an Indo. Cerise also misunderstands the govt policy on burning bondholders. An T and Noonan are walking away from the nonsensical demand to defy the ECB and quietly renegotiating the terms of the pro note. @Tull I understand all too well what Enda said yesterday. No haircuts for anyone bar Greece. As for the bank bondholders…do you really think that Trichet or his successor will allow dear Enda to quietly burn the IBRC bondholders while our banks have 153 thousand million on short term loan. And the markets don’t buy any of this nonsense…. “Credit-default swaps on Greece signal a more than 90 percent chance the government will renege on its obligations within five years, assuming investors would recover 32 percent of their holdings in the event, according to CMA, which is owned by CME Group Inc. and compiles prices from dealers in the privately negotiated market. The swaps market is factoring in a 62 percent probability Portugal will default in that time, a 47 percent chance for Ireland and about 8 percent for Germany, all assuming a 40 percent recovery. “A managed default in Greece may increase speculation of restructurings elsewhere, which would certainly put Portugal under pressure, also Ireland and we would see Italy and Spain under greater speculative pressure,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “It’s a very difficult balancing act.” from ?Bloomberg There’s no point writing down the debt now. The country is out of the woods and will be able to pay, with only those at the bottom of the pile needing to be really squeezed to foot the bill. There will be a hardship at least on par with the 1980’s, but the money can now be paid without unduly affecting the lifestyles of the ascendancy classes, so they have no interest in risking the ire of anyone of importance. Ireland will eat its farrow to pay its debts. It hasn’t the stomach for anything else. Cet, So what is your point. Is it that the T is stating reality when saying there will be no haircuts cos we are in receivership? Is it that there may be other ways to lower the debt burden- lower coupons/ longer maturities? Is it that you don’t believe no haircuts is not credible and we will be forced to haircut against our wishes? You seem to have a predilection for running around shouting “we are doomed”. Thus far none of this has come to pass. @ All Who built the ghost estates all around the country? The Germans? By the way, is Peter Mathews a member of a political party? You seem to have a predilection for running around shouting “we are doomed”. Thus far none of this has come to pass. Depends on what you mean by “we”. If you mean the State, senior/retired civil servants, bank mangers and property developers, then of course “we” are as far from doomed as you can reasonably get. If however “we” mean the 210,000 households in arrears on their electricity and gas bills, then we are not so far from doomed as you seem to think. I suspect you like some other posters here–and almost everyone in government–is concerned only with the former categories. @ Tull No. My point is simple. We cannot sustain 215 thousand million of a debt pile based on current growth projections and with the likelihood of our major trading partners suffering sharp slowdowns next year. So would you give away your negotiating position in advance of a fellow Eurozone member being allowed debt forgiveness of 50% + when you too have a debt load which is likely to be unsustainable. Far from saying we are doomed, I am saying we need a Government that can negotiate in the national interest when circumstances are likely to arise which will be to our long term advantage. However, enda’s announcement reminds me of the last lot who accepted the worst possible bailout conditions only a year ago. So I am not hopeful the the current incumbents (both in gov. And in the DOF) are capable of reducing the massive burden we were forced to assume. Finally, why did Enda announce to the world that Ireland opposed sovereign bond haircuts other than for Greece. Can you think of any rational explanation? DOCM, Re: “Who built the ghost estates all around the country? The Germans?” well not “The Germans”, but not “The Irish” either. but “Irish banks” and “German banks”. For they were on one side of the big bet that went wrong (whilst also adversely affecting the ordinary Irish people by inflating prices). The Irish citizen was forced into trying to stop contagion – its Government TRIED to guarantee the Irish banks that were going bust (and with them would go bust some German banks, or at least have big losses), but that attempt failed. @OMF Add to the people with utility arrears all those carers who are being subjected to inhuman and degrading treatment…as posted previously. So Enda can say to the world when he visits Obama with the shamrock….no bondholder left behind. Peter Mathews numbers may be suspect but I have to commend him for his stance on the bondholder debt. This was the greatest theft perpetrated in Europe since World War 11, yet it being accepted without a whimper, because the ECB might threaten the ATMs. This is same ECB that has stood over the theft, with threats of blackmail, of €64 billion from the Irish State in favour of bondholders. We are now a strange country where the slaves are happy to pay to have their chains loosened slowly. Ireland owes the ECB or Europe nothing at this point. Nothing. Most of the emigrants flew over Europe to countries where they could remake their shattered lives. The comfortable Irish upper middle class now sense that Ireland may get out of the crisis while well remunerated positions are kept intact. They should be reminded and I hope history will remind them at whose expense they retained their positions. The Irish citizen was forced into trying to stop contagion – its Government TRIED to guarantee the Irish banks that were going bust (and with them would go bust some German banks, or at least have big losses), but that attempt failed. Nobody forced Ireland or the Irish people into anything. We are an independent, sovereign nation and have remained so throughout this entire crisis. We had choices and still have choices, but we are unwilling to take them. Arguing Ireland is being forced or has no choices is a false dilemma. It’s a poor excuse by those making the choices to justify their very, very poor ones. The Government has chosen the path of least resistance politically, and of most benefit to the ascendancy classes financially. That’s all there is to it. We don’t have an army of Germans poised to invade if we fold our banks tomorrow. Our ATMs are perfectly functional machines on any day of the week. We can leave leave the euro just as we have left currencies before. We have choices. We’ve chosen hardship, unemployment, and emigration for the majority so that a minority can continue receiving €50 notes out of their ATMs. No-one forced Irish Citizen’s into this. This is the choice we voted for. DOCM, Also, on that NYT site please see a comment of a “CMEIER”, of Columbus OHIO, on October 14th, 2011 at 6:49 pm http://dealbook.nytimes.com/2011/10/14/a-call-for-a-write-down-on-irish-debt/?hpw ‘If I understand this correctly, the Irish banks borrowed money from across the EU to finance the Irish Celtic Tiger boom. The Irish bank loans have failed and the Irish government is being forced by the EU to bail out the bondholders from across the EU who loaned the Irish banks the money. Why should the Irish people be forced to bail out the Germans who loaned the Irish banks the money in the first place? Shouldn’t the German bondholders who took the risks be required to take a major haircut? Isn’t that how capitalism works? Forcing the Irish people to repay the bondholders in the failed Irish banks is another example of “privatize the profits and socialize the losses.” ‘ CMEIER is correct but made just 2 small mistakes 1. when (s)he wrote ‘Irish banks borrowed money from across the EU to finance the Irish Celtic Tiger boom’ it should’ve been ‘Irish banks borrowed money from across the EU to DESTROY (not ‘finance’) the Irish Celtic Tiger boom’ Because there was (& is being made again) a real solid economy, based on real things, before this cheap money flooded in, looking for private sector “investment opportunities” 2. (s)he was wrong to use the word ‘repay’ when writing, “Forcing the Irish people to repay the bondholders in the failed Irish banks is another example…” (s)he should’ve used the word “pay”, because we never got the money in the first place. So, “Forcing the Irish people to PAY the bondholders in the failed Irish banks is another example of “privatize the profits and socialize the losses.” Except it’s even worse than that, because during the days of the private ‘profits’, the private money was acting against us, inflating property prices and putting them out of reach of any sane calculation (but then lending 12 times salary to panicked novice first-time-buyers who are now also destroyed)! Cet, I can. If he has already got a concession on the pro note either in terms of the coupon or the maturity then that is a reduction in the debt burden. Safe to say he is not going to tell you or me first. OMF, slight mis-understanding, and I am in some agreement with you. I did write on the NYT site about the guarantee that “the Irish citizens weren’t asked and certainly did not agree to it” repeated in my 1st post above, and here: “Foreign PRIVATE risk-taking banks lent money to PRIVATE banks in Ireland, which later when going bust, in an attempt to stop a contagious disaster throughout Ireland and Europe, the Irish government said they’d try to guarantee this private debt (but the Irish citizens weren’t asked and certainly did not agree to it). Professor Honohan and others said that Ireland prevented an event worse than the Lehman’s collapse, in Europe. When it was obvious that the little Irish citizen couldn’t possibly pay this huge debt belonging to private risk-takers, Europe stepped in and insisted that there should be no ‘frightening the horses’, & haven’t yet let the debt be given back to those who it belongs to.” Now there’s a fear of the ECB. But I believe at the time there was also government fear of possible social breakdown – though in the long-run that may have been more just, if distressing for some at the height of it!) I did write on the NYT site about the guarantee that “the Irish citizens weren’t asked and certainly did not agree to it” We were asked and we did agree to it. We were asked in the general election and the overwhelming majority of the electorate voted for political parties who supported the guarantee and austerity. I’m not saying this lightly. The will of the people was that the guarantee should stand. There are at least 113 of 166 TDs who represent that view. They were told it was too late then. If they were asked at the time they would’ve said ‘no’. Fear of the ECB bullies had taken over by the time of the election. They thought by keeping close to the ECB shark, like a pilot fish, that we may not be eaten, but it didn’t work out…yet…? If Greece is permitted a ‘managed’ default, does anyone really believe that there won’t be a rush to join it by other eurozone countries? Matthews may be criticised for not dotting a few i’s and t’s but he has been consistent in the sheer awfulness of the bank guarantee implications. The future is uncertain. A Only people in the public sector cling to the views that the economy is coming good, that austerity is no bad thing for recovery, and flaggelation is desirable. If public expenditure hadn’t been driven over the cliff often assisted by the demands from public sector elites, the economy would be in better shape. Once the full scale of bank debt became evident, especially with Anglo. The government should have developed more robust reverse gears. @Ceteris Your problem is that you are assuming some degree of competence on the part of the Europeans. This is the plan – stop the dominoes from falling by pretending that they’re all so different from each other. The message is Greece can default, Ireland won’t because it’s such a good little boy. In return for playing along we get cash up to 2013. There’s no negotiating here. It’s a way of pretending that there is a way out of this @ Peadar Coleman I did not know that bankers, whether in Ireland or Germany, were such proficient builders. Nobody forced us to borrow the money. And nobody is forcing us to borrow €20 billion to fill a budgetary deficit to keep the state running. At the moment, those lending us the money – raised in the markets on the back of their financial credibility – are willing to lend it, finally, on concessionary terms because they recognise, finally, that the financial irresponsibility was not entirely on the side of the borrowers. But they expect to get it back. The idea that we can tell the “bank manager” that we want half our current debt written off and will be back next week to renew our loan is simply not tenable. In my opinion, the bulk of the Irish population have the wit to grasp this fundamental reality even if Peter Mathews does not. Caution is also required with regard to the motivation of those now involved internationally in this debate. They may have bets through credit defauly swaps that we will be suckers enough to add further woes to those that we have already succeeded in creating. @ OMF ‘and emigration for the majority’ yet to be proven, above average emigration yes, emigration for the ‘majority’ is a bit OTT. @john foody “‘and emigration for the majority’ yet to be proven, above average emigration yes, emigration for the ‘majority’ is a bit OTT.” my daughter left for australia a few weeks ago on talking with her a in the last few day`s she`s in sydney and said “that irish are like the polish back home they are everywhere “so maybe you might under estimating whats going on with this generation who i believe have been sold down the river @ Clintideal This is going to sound harsh but dong come at this thinking people are capable of seeing beyond their own narrow self-interest. Truth is alot of people on this board hide behind arguments about the country in general whilst they’re only really justifying their own particular circumstance. Ireland’s loss is Australia’s gain. We didn’t defend our interests. We deserve what’s coming. @Clitindeal In case you get me wrong – I agree 100% with you. Others won’t because it’s not in their interests to do so @ clintideal, The state jobs agency FAS, in Ireland was criticised a lot in the media over the past number of years. But like a lot of things in Ireland I think we have it all backwards. The state jobs agency FAS, was criticised because it tried to take manual contract cleaning staffers and depict them in expensively created promotional videos, becoming semi-conductor technicians and rocket scientists. This is what I think we have gotten backwards, here in Ireland. Our problem in Ireland, is not taking manual labour and trying to reinvent them as skilled knowledge workers. Our problem rather, is that our skilled knowledge workers end up becoming manual labourers, or at the very best, in our periodic ‘boom’ times, they graduate to the level of trades persons. You speak to anyone in the regional urban centres in Ireland. They will tell you about a succession of employers down through the generations, who have come and left again. It saps the will out of the people who inhabit these urban centres and surrounding hinterlands. It saps the life out of them. I remember, at one stage I was a manual labourer and I had all sorts of ambitions to become an expert technician in semi-conductor technologies. I am sure I could have achieved that goal also. Ireland isn’t a bad location to get on a ladder, and make something of oneself. However, I do recall an instance in 1998, where I was mixed cement plaster and putting it in a bucket for a plastering tradesman. We were high up on a scaffolding, which collapsed. It was prior to the time when health and safety was taken as seriously as it should do in Ireland. We got talking about life in general, as we tried to get our wits back following the accident (we all escaped un-injured thankfully). The man told me of the two successive computer companies he had worked for in the city of Limerick. We talked about aspects of computer technology, engineering and management of projects in the high technology area. Then we both mounted back up, on a re-built scaffolding, and started throwing sand and cement at a wall again. A couple of years later, I had obtained a job working at Dell computer corporation in Limerick city, and quite liked it. The scale of it, and management of such a massive labour force in one place. The point of my telling the story really, is to say that the man I had crossed paths with for that brief scary moment in 1998, was heading in the opposite direction to myself. He had been in the high-tech knowledge economy in the 1980s, and was headed back towards manual labour. I was trying to move up the ladder at the time. We both met for a brief and sorry moment, on the same ladder as it were. The modern knowledge economy landscape, is one such that, resources be they human, industrial, logistical or otherwise, do fall out of use very quickly. There is a worldwide crisis because of that. I wrote a short blog over the summer time about an interesting character in the field of management consulting, I have been reading for quite a while now. Mr. VanPatter of Humantific is one ex practitioner from the architectural profession, who has a fairly good handle on the times we live in, and the kinds of challenges posed by the kind of economy in the 21st century. My simplistic way of looking at it is, each economy today has to learn how to recycle its own human resources many times over. We simply don’t have the luxury any more in 2011, of hoping that another job on the not-so-well-built scaffolding we emerge for ex. transistor engineering staff, to occupy them throwing sand and cement at a wall, and hoping they don’t fall to their deaths in the process. BOH. http://designcomment.blogspot.com/2011/09/recycle.html DOCM “At the moment, those lending us the money – raised in the markets on the back of their financial credibility – are willing to lend it, finally, on concessionary terms because they recognise, finally, that the financial irresponsibility was not entirely on the side of the borrowers. But they expect to get it back.” Nobody is lending us money in the market at the moment. 10 year Irish bond rates stand at 8.2% so that’s what the markets think of our prospects of getting out of this hole. I’ve had enough of this FF/PD/GP/FG/LP governance by the ascendency, for the ascendency, of the ascendency, and the absolute imperative of protecting the upper_echelon fiddler fraternity at all costs. This is nothing less than odious financial rape of a supine citizenry. Ireland needs pragmatic write-downs and restructuring on its vichy_banking system debt; Greece and Portugal need write downs on their sovereign debts due to running riot on cheap credit; bleed1n EZ banking system needs to accept write downs on their dodgy loans to dodgy sovereigns and other dodgy banks. Used to be known as ‘capital_izm’ – but now win-win for the EZ ascendency as they trouser the profits and socialize their debts on the citizen_serfs. European Citizenry: WAKE UP! JTO ‘growth up, exports up, manufacturing up, tourism up, live register falling, competitiveness improving rapidly, budget deficit down, balance-of-payments in surplus, bond interest rates collapsing, no strikes, public disorder or civil unrest etc etc’ What about the stats you leave out: Purchasing managers’ indices (PMIs) show that Ireland’s manufacturing sector had slowed sharply in Q2 and Q3 Bond interest rates spiked during the week and, in any case, remain at levels that are unsustainable. Most of the main forecast agencies have recently revised down their projected growth rates for Ireland. Central Bank forecast for a 0.2 per cent decline in nominal GDP in 2011. This compares with a forecast of 1.4 per cent growth in nominal GDP in the Stability Programme Update issued in April 11. Annual inflation rate (per CPI) is up to 2.6% in September from 2.2% in August. The ESRI expects employment to fall by 2.4 per cent in 2011 which represents a faster rate of employment decline relative to that forecast in the SPU (-1.6 per cent). The CSO Retail Sales Index, which was published in September 2011, showed that the volume of retail sales decreased by 3.6 per cent year-on-year in August 2011 and were also down 1.5 per cent in the three month period to August 2011 compared to the same period last year Debt to GDP ratio is forecast to be 80% in 2030 based on the current programme. Doesn’t leave much scope to cope with shocks. The word “forced” is used many times with some pro and some anti sentiment. We were forced in the sense that we were a field of ripe wheat drenched from rain that toppled over and became lodged in a light breeze. Our government and its advisers, consultants, lobbyists and hangers on did not see what was coming or did see and were in denial. In either case there was no evidence of a plan to deal with bursting bubbles. I am not taking into account remarks by Bertie and others that people like George Lee and others who were voicing doubts about the stability of the property market and the banks who were over exposed on two fronts 1) By borrowing short and lending long. 2) By lending more than the collateral was worth. If I remember correctly the phrase circulating at the time was that the begrudgers should hang themselves. This was indicative of the level of immaturity and irresponsibility at the time and little has changed since. I am reminded of the saying “For men may come and men may go but Irish politicians go on their errant way forever.” (Apologies to Alfred Lord Tennyson). I would say there is still a lot of wishful thinking going on in Gov’t circles. Fortunately or unfortunately depending on one’s viewpoint the circus finale will come when ECB shuts off the tap and demands that the flow of funds be reversed. We do not deserve what is likely to occur at that time. @OMF You are logical enough to be German. @DOCM, as ever riding the straw man express I did not know that bankers, whether in Ireland or Germany, were such proficient builders. Nobody forced us to borrow the money. And nobody is forcing us to borrow €20 billion to fill a budgetary deficit to keep the state running. Shorter DOCM. Of course global finance’s increasingly risky search for yield had nothing to do with the global financial crisis, instead the problem was a world wide wave of simultaneous personal irresponsibility. Or: We all partied, except for the bankers, who were guilelessly trying to protect the savings of widows and orphans. Caution is also required with regard to the motivation of those now involved internationally in this debate. They may have bets through credit defauly swaps that we will be suckers enough to add further woes to those that we have already succeeded in creating Krugman, Stiglitz and the vast majority of international left wing economic opinion are engaged in a complex bet against the Euro for personal gain. Caution is definitely required. @ Eureka & BoH not every one can see the wood from the trees but for those that can`t when the screw turns it will open their eyes @ DoD i fully agree how about Irish Citizenry ; WAKE UP ! @ Peter Mathews were screwed ! you have been consistant in your view that the Irish Gov should not take on Private Bank Debt its a bit like the old Dunnes Stores advert you can not please all the the people all the time a bit like Europe ie the EU commission the ECB The French and German Goverments you can / can`t screw the Irish people all of the the time !the sooner our goverment enlightens our so called EU partners that we collectively are up to our eyeballs in Debt the sooner we have some proper resilution to our problems instead all is fine move along nothing to see here you can`t screw @Peadar You put up a good defense on the NYT Blog. apoligies last line should have read you can`t screw the people all the time @David This is a war of sorts – so you need to look at the front from the enemies perspective. When France or indeed Germany sinks capital into their domestic systems – they expect a return of sorts. But when we get involved in Austrian final payment anylasis things get a bit messy. When France increased its real capital with its nuclear programme during the 80s dollar bubble period it did not benefit – it suffered a loss of consumption…… but the french have a frugal nature………… At that time its investment benefits were externalised and the Anglo world benefited i.e. the Anglos benefited by having cheaper coal & cheaper oil on the back of French investment & reduced consumption. When the Euro introduced free gold onto their balance sheet things began to change – our profligacy became net negative to our needs as the price of Gold began to rise. Whats really bad about the bastards is that they will not give us the Euros to develop real wealth now – they prefer us to sink – investing in North Africa instead This tension goes real deep me thinks. But it is a betrayal of sorts – Cork being the most Continental of Irish city slums. From a tactical perspective we are probally better off in the Sterling zone. The net financial positions of the three sectors used are given below. I am not even going to attempt to format it. All numbers are in €billions and are the Q4 2010 figures taken from the Central Bank’s Quarterly Financial Accounts. Sector Assets Liabilities Net Wealth (Change in 2010) Household 294 194 +100 (+11) Governmentt 71 150 -79 (-34) Corporate 614 826 -222 (-18) Aggregate net financial wealth of the Household, Government and Non-Financial Corporate Sectors in Ireland is around minus €200 billion (130% of GDP). Seamus, I think to be fair to Peter we should assume that he is aware there are assets that offset the gross figures, but that he was attempting to throw out a gross figure that would get attention in the NYT. He probably realises he has lost the argument for the ear of Enda and thinks he is obliged to use his ‘lawmaker’ status (don’t laugh) to get some focus in the US on debt levels in Ireland, possibly with a view to post Greek default landscape. Having said that, I don’t know of any rule that limits his postings to cabinet members and VB so I have to assume he has decided it simply unnecessary to post here any longer. If he did his rationale and mathematics might be a bit clearer. @Brian O’Hanlon I found your comment interesting. One of my children was involved in a project to research, design, test and fabricate a Germanium (element Ge atomic number 32) chip. The motivation was that Ge chips consumed 20% of the power of Silicon chips to do the same work. They burned through $80 million and achieved a fabrication success rate of 4% with a goal of 1% where serious money could be made. Then the high tech bust occurred, funding dried up and the company wound down. The child was lucky enough to get two years severance which was in the employment contract. The severance was used to add an Electrical Engineering degree to a Computer Engineering degree. He is gainfully employed in his field today. Conditions today in the highly educated, high tech market are quite frankly brutal. The days when a 3 to 12 month course would ensure re-employment are gone. I thank my lucky stars that most of my working life was in a high demand era. @The Dork ‘From a tactical perspective we are probally better off in the Sterling zone.’ Certainly an option; a reverse takeover has often crossed me mind, but this would be more the long strategic view, than a medium term tactic. Agree we are being buried …. I hear the DUP are also considering a reverse takeover … they can’t see anyone voting for FF/PD/GP/FG/LP in the next election …. the boys and gals on Dame Street might as well take over that fine BoI_lding on Dame street just in case as by the time of the next election we will shurely have regressed to 1800 levels ….. @Seamus Ta for that. Pity one cannot realistically objectify ‘unsustainable’ … @clintideal ‘you can`t screw the people all the time’ Empirics locally suggest otherwise in the fields of financial rape – The Upper-Echelon Fiddlers have been gobbling and shooting up vee_aggra for well over a decade (look at the GDP figs and the impressive pharmachem data) and they continue to screw the supine serfs senseless …. Reverse the success rate it was 1% with a goal of 4%. @DOD “Ta for that. Pity one cannot realistically objectify ‘unsustainable’ …” I believe that it is universally accepted that anything over 85% is unsustainable, particularly if GDP growth is sub-optimal. @ceteris I don’t think that is anything like universally accepted. I stumbled across something very interesting doing some research on Greek risk/PSI last night. http://hellasfrappe.blogspot.com/2011/10/it-is-confirmed-militarised-eurogedfor.html#axzz1anghhHwv I intend to ring a contact in Greece, after the rugby of course, to see if I can get any confirmation. There are expected to be more austerity announcements next month – maybe the two are related? Sorry. Posted above on wrong thread. @An Taoiseach No bondholder left behind! Look what you left behind you … Freeze on medical cards could hit 42,000 THE HSE is considering suspending the issuing of new medical cards as part of a raft of drastic measures aimed at breaking even in 2011. The draft proposals — published in an internal HSE document — also show that it is considering reducing home help hours by 600,000 — or 24% — and removing 400,000 personal assistant hours — a drop of 61% — between now and the end of the year in cuts that will save about €57.5 million. The HSE is considering not issuing medical cards to a projected 42,044 people under 65 — except in an emergency case — between now and the end of the year in a bid to save €18m. Read more: http://www.irishexaminer.com/ireland/freeze-on-medical-cards-could-hit-42000-170694.html#ixzz1aogVm1th Ah shur – kill off a good few more serfs and dowl debt/gdp ratio will hit the contestable 85%. @The Labour Party Get a grip – or get out! @all Does anybody have a breakdown of the job specifications/numbers/remuneration levels etc in the HSE … ? @Minister Reilly I’d like the heads of the draftees of that draft HSE proposal on a plate … @ Tull ‘Cerise also misunderstands the govt policy on burning bondholders. An T and Noonan are walking away from the nonsensical demand to defy the ECB and quietly renegotiating the terms of the pro note’ The Great Moderation is over. Those old warhorses are never going to grasp the global or European realpolitik. It is simply beyond them. Where was their concern for ‘prudent finances’ during the bubble era, when it mattered ? As the people dealing with them today well know, they had failed to demonstrate leadership or vision, long before 2011, and can easily be herded along now. @ DOCM ‘The idea that we can tell the “bank manager” that we want half our current debt written off and will be back next week to renew our loan is simply not tenable. In my opinion, the bulk of the Irish population have the wit to grasp this fundamental reality even if Peter Mathews does not’ You know better than to float the old canard that sovereign funding is comparable to household funding. This is not about the ordinary morality of individual debt and repayment. It’s about the integrity of our state. Our banks and our sovereign were subverted for private gain, and the state has bust itself in baling out private investors. NAMA is, in large part, a mechanism for preserving a dysfunctional social order, and concealing the malfeasance of the elite. Your specialist knowledge of EZ, and particularly German matters is impressive. Unfortunately it seeems to have had the effect of rendering you blind to the power plays at work in the core EZ. As Dork points out, albeit in his own inscrutable style, the mega-bankers have captured political power, and are intent on destroying the sovereignty of the nation states. It follows that our current adjustments may be a conditioning for much more radical adjustment, which may entail, as Dork says, the brutal reversal of centuries of democratic progress. Information technology, like all technology, is capable of being used in various ways, and the lessons of recent history are very stark. Who would have foreseen the so-called Final Solution ? You only have to read today’s UK papers to see that things have moved on since the likes of Mathews got elected. I have read today’s Daily Telegraph which, under a photo of disappointed Irish rugby fans last Saturday, has a heading ‘Irish have something to cheer about after all’ (referring to OECD report) and The Independent, which refers to the return of the Celtic Tiger and Ireland’s ‘miracle’ economic performance this year. Whether one agrees with these assessments or not, that is how Ireland is now being portrayed in the international financial press. Mathews belongs to another era, from the time last February when people thought that the Irish economy was imploding, thought (incredibly) that the absurd ESRI migration estimates were under-estimating the level of net emigration, and thought that the population was falling sharply. I can truthfully say that I never believed a word of it. I’m afraid we have to face the fact that, in The Great Panic of last winter, a much-higher-than-usual number of nuts got elected to the Dail. Most of these will serve only one-term. Kenny and Noonan should disown Mathews asap. His sort of absurd comments threatens to undo the work they are doing to restore confidence. A beggar on O’Connell Street would have more subtlety and self-respect than Mathews when asking someone to take over their debts, especially when the person being asked was actually poorer than the person whose debts he was being asked to take over. @DOCM The Smugness of Unintended Consequences @JtO But as a cocktail party debating point, nothing beats “If you make people pay more to see the doctor, they’ll see the doctor less”—which is even better when backed up by a pair of supply and demand curves on a napkin. …………..Albert O. Hirschman’s Rhetoric of Reaction. As the title suggests, the book is about the rhetorical style of conservative thought dating back to Burke. Hirschman identifies three common tropes: perversity (that great-sounding progressive idea you have will have the opposite of its intended effect), futility (that great-sounding progressive idea won’t change anything, because you don’t understand the fundamental laws of the world), and jeopardy (that great-sounding progressive idea will destroy some other thing that we all agree is valuable, making everyone worse off in the end). Hirschman doesn’t dwell on this specific point, but it’s obvious that, similar to the argument Robin makes, these rhetorical devices can only exist in opposition to some progressive reform movement. http://baselinescenario.com/2011/10/14/the-smugness-of-unintended-consequences/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29 Enjoy! 14man Wales 3 France 6 Mr. Mathews said. “I have to say I am getting ready to take off my shoe just like Nikita Krushchev did.” He might want to consider throwing his shoe at Enda Kenny instead. @John the Optimist I appreciate there is great anger and financial/emotional suffering since the collapse of our economy. Peter Mathews is not the person who you should vent this anger at. Peter for the previous two years ,at some personal risk to his livlihood etc disputed the previous government’s estimate of the banks deficiency and was proved to be correct. He subsequently put his name on the ballot paper and was elected by the voters of South Dublin. He has continued to argue that it was a combination of reckless european banks lending to our reckless banks that caused our economic disaster. Both were culpable and therefore the ECB/EU/ should write this debt down or at the very least some of this debt. @Paul Quigley Our banks and our sovereign were subverted for private gain, and the state has bust itself in baling out private investors. NAMA is, in large part, a mechanism for preserving a dysfunctional social order, and concealing the malfeasance of the elite. +1 @ Dermot 10-year spreads over bunds. Yesterday Morning France 0.852 Italy 3.722 Spain 3.183 Portugal 10.884 Greece 22.50 Ireland 6.101 Belgium 2.223 Bund Yield 2.13 Ireland, at one stage, was shadowing or worse than Portugal. Of course, having shot ourselves in one foot, we are free to shoot ourselves in the other by following Peter Mathews advice. cf. informative Q & A from the EFSF. http://www.efsf.europa.eu/attachments/faq_en.pdf Despite the reading put on some of my comments, I am not against burden-sharing. It is the extent of it that is in question. It can be done in a managed way, as in the case of Ireland and Portugal, or against the background of a near national collapse, which is the fate confronting Greece. I doubt if this is what the Irish people would favour. Deputy M would want to remember that banging a shoe got Nikita absolutely nowhere. I would not go as far as Jto but many in FG have bets on that the deputy will do a Liam Skelly before the first term is out. @ David O’Donnell This is nothing less than odious financial rape of a supine citizenry. Many of them danced to the tune ‘Arise and follow Charlie’ in the 1980s and if the international credit boom had lasted another parliament, FF would have likely been elected with the support of ‘dependents’ in 2012. As for the TDs Matthews and Ross, they only became incendiaries after I assume making handy livings in financial services. Matthews as a banker may have been a Mother Theresa type when others wanted receivers appointed but I doubt it. @ Peadar Coleman In fact not only did Irish taxpayers not receive the money, the fact that foreign banks lent the money irresponsibly meant that the vast majority of Irish people were disadvantaged by massively inflated house prices. Sensible people never wanted this money to flood into Ireland in this way in the first place. Sensible people? Unfortunately, many more wanted the cute hoors in charge. So it was really nobody’s fault at home? The euro and foreign bankers were to blame. Would it be reasonable that we should take 80% of the blame. We had a comatose central bank but we did have one. The victim narrative is convenient and I suppose we should blame the Brits for our failure since the crash to introduce structural reforms without pressure from the troika? @JTO Whether one agrees with these assessments or not, that is how Ireland is now being portrayed in the international financial press. Patrick Kavanagh gave a hilarious account of praising his horse named ‘Glug’, an unreliable and unmanagable ‘kicker’. The idea was to heap nothing but praise on the ‘Glug’ until he had been sold as far away from the area as possible. The ‘International Financial Press’ have their own ‘Glug’ bank bonds on their hands. I expect the ‘Irish’ to be heaped with praise while all private bank bonds continue to be paid. I cannot but note that some those advocating payment of bank bonds by Irish taxpayers are living outside the juristiction and are therefore unlikely to have to contribute to the largesse that they expound for others. This smells like a rotten egg! Especially at the stage when consensus opinion anticipates Irish coming out of this malaise sooner than later. Why spoil the soup – when you can keep your cool and also claim victory – after all the political damage registered by the political leaders. @paul quigley on DOCM Your specialist knowledge of EZ, and particularly German matters is impressive. Unfortunately it seeems to have had the effect of rendering you blind to the power plays at work in the core EZ. As Dork points out, albeit in his own inscrutable style, the mega-bankers have captured political power, and are intent on destroying the sovereignty of the nation states. +1 It is tiresome to have to keep pointing it out but we have had a crisis of capitalism, but due to the structures of power, and in particular how finance has integrated itself into the machinery of government, it has been labelled a crisis of social democracy. We need more market reforms of government to save us from the largest ever failure of the market! The Irish government of the last decade did of course guarantee that we would be on the leading edge of those affected by the this current, totally expected, crisis of capitalism by idiotically (or PD style, if you will) committing us to the low taxation, low regulation environment most desired by the greedy ideologues who we are now simultaneously bailing out and being hectored by for our lack of discipline. As Krugman said on the bankers and their austerity except for the finance sector policies “It would all be hilariously funny if these people weren’t destroying the world.”. Mickey Hickey wrote, Conditions today in the highly educated, high tech market are quite frankly brutal. The days when a 3 to 12 month course would ensure re-employment are gone. I thank my lucky stars that most of my working life was in a high demand era. Mickey, I think this was the basic point I was trying to air. You are obviously a person who has even closer ties to the real life scene in high tech in Ireland, than I have, via your childrens’ experience. I think it should be a priority though, in the coming years, that we change focus a little bit from the old fashioned FAS emphasis of taking people from the lowest, and raising them up. What needs to be addressed is those who are already up on the ladder, and how to keep them there. None of this sounds very good in speeches though. It is like what the American legal professor, Elizabeth Warren says about the problems facing the middle classes. No one wants to do proper research in that area, because there is a natural assumption that the middle classes are boring and stable. Hence, the fact that very intelligent and aware people, get caught out in assuming that all of the cliches are correct. As a nation, we spent a lot of money on agencies such as FAS, which had very mixed success. And I wonder if we could have made a lot more progress, had we taken a deep and detailed look at the high tech sector jobs, and how people in that area manage their careers over decades. I am trying to keep this brief. But I would like to write a few words in relation to the smart economy. It is unfortunate in a way, that someone such as former Taoiseach Brian Cowen became the sales personality for this particular initiative. Because I think the smart economy banner could be extended to become quite a good umbrellas policy for many disparate state agencies to coordinate themselves by. After all, this is the challenge of running a state at any time, in any context. How to find an intelligent way to coordinate the disparate efforts of so many. I would simply relate the idea of a smart economy, to the idea as applied to the electrical smart grid for instance. I recall attending a lecture by the deputy chief executive in charge of Ireland’s electricity network a couple of years back. His main point was to emphasise, that Ireland’s grid had become increasingly smart down through the years. In that, it becomes more self aware, better able to diagnose its own faults and so on. It helps those who manage the system, to get to the problems faster and figure out a strategy without too much confusion. I believe, that if we look at the resource of skilled labour in Ireland, we need to add an extended time dimension to the equation. That is, children who move away from education in their 20’s – we simply cannot allow those people to drift through their 30’s, 40’s and 50’s – without some audit of the demands the enterprise environment places upon our human resources at different times. I always get back to the generation who built the new semi-state companies for Sean Lemass coming out of the 1950s, and in the 1960s. Those people have retired at this stage, but are still around and available for interview. We aught to interview those people. We aught to do the same with the generations of 1980s, in various sectors. In short, we should look at all sectors in the economy. We aught to interview folk from different generations in all sectors. We aught to build up a picture. The smart economy in my opinion, is one such that it is made more self-aware, and perhaps better equipped to respond to unfolding events. My greatest fear though, is the conveyor belt of the Irish economy is one that disposes of large portions of labour at one point or another, and is so wasteful it tries to dispose of the same for good – and replace again with fresh young graduates from the bottom. One could imagine in that case, why people who make their way to the top, in Ireland, realize the significant possibility they are due for disposal. This one inform a lot of decisions that are made by those who work at the top. It creates an unnecessary level of risk for those who have made it. They could easily find themselves out in the cold, too quickly and this is the major source of the power of the trade unions in Ireland. And in turn, it takes away a lot of the legislative and policy making discretion from the government executive. The pressure upon them also, is not to change. Not to try to make too many adjustments, for risk of unseating too many, who have worked too hard, to get to a certain level. BOH. @ All As everything is connected to everything else in this crisis, the WSJ report on the outcome of the G20 meeting of finance ministers is of interest (assuming it is not hidden behind a paywall). http://online.wsj.com/article/SB10001424052970204002304576632583116812252.html @Grumpy/DOD Bad choice of words …so what is a sustainable level of sovereign debt? We know that Japan can survive with 200% but they are unique in that their savers put their cash into government bonds and are prepared to accept 1% returns. I think Italy,with very high debt levels, is the one to watch. The ECB are keeping them alive even though their basic numbers seem good… “• Italy has a budget deficit of only 4.1% of GDP and actually runs a primary budget surplus of 0.6% of GDP, on IMF data (the only European country to do so apart from Switzerland and Norway!).” With a forecast deficit of 8.6% for next year and a debt pile forecast to rise to 115% can we really say we are on a sustainable trajectory. It seems to me that the markets, in the case of Italy, look to the debt load first. Perhaps some of our well informed brethren here could put a number on what is sustainable for a sovereign. DOCM Seems they haven’t agreed anything new… “Saturday’s meeting here includes non-European countries, among them the U.S., which pushed Europe to speed up the process. Their counterparts from major emerging markets have delivered the same message. But a new bailout will come with losses for the banks and other private-sector investors who lent to Greece. There is broad concern that if creditors of Italy and Spain fear the same fate awaits them, there will be a flight out of those countries’ bonds that Europe’s bailout fund would be powerless to stop.” And “”One of the options considered is the EFSF guaranteeing about a quarter of new bonds by countries in trouble, but there is nothing firm yet,” one euro-zone official with knowledge of the talks said Saturday. Such a program is more limited than other options, like ECB financing, and less able to guard against a rapid cessation in lending to a big country like Italy or Spain. None of the solutions would address investors’ concerns definitively. Leaders hope to have the plan ironed by a series of meetings next weekend in Brussels. If they fail, another meeting of G-20 leaders awaits in early November.” Hope!!!! @ Shay Begorrah It is tiresome to have to keep pointing it out but we have had a crisis of capitalism.. Maybe a crisis of governance rather than capitalism? Sweden, Finland, Austria, and Denmark are small economies that haven’t had a crisis of capitalism. Should they have kept monopoly control of telecommunications and aviation? Asian countries have done well from capitalism, having learned lessons from 1997/98. In 2006, Spanish families on average paid six times their annual salary to buy a home, compared with 3½ times salary in the late 1990s, according to the Bank of Spain and in that year, Spain built more new houses than France, Germany and the United Kingdom combined. Japan and Italy have been misgoverned for decades; ditto for Greece and Ireland. Stagnant wages in the US were offset by credit and rising house prices and in Washington DC, most forms of bribery have been legalised even by the Supreme Court in recent times. The money control of Congress bought lax regulation. Even during the peak years leading up to the Great Depression, the US financial services industry never rose above 6% of GDP, a figure that took until 1990 for it to regain. Since then, the industry has continued to carve out an ever-larger position for itself in the economy, to the point that it now employs 6.5m people and accounts for 8.3% of GDP. This share of the economy quadrupled since the end of World War II, and gross output of finance and insurance rose by 97%. Where is is a tolerance of poor governance, why would state control operate more effeciently than capitalism. In Ireland during the boom, staff at RTÉ, Ireland’s state broadcaster, were as personally greedy as bankers. Here is an interesting view from Greece …Sallas against a bigger haircut By Yiannis Papadoyiannis European governments are pushing for a greater haircut on Greek bonds, but the chairman of Piraeus Bank on Friday rebuked those who support such an option. Michalis Sallas suggested that “those who are calling for a bigger haircut have either got nothing to lose or do not realize the consequences of that move. Unfortunately, the latter include people who were supposed to understand.” He explained that based on the interest expressed by bondholders for a voluntary haircut of 21 percent, according to the July eurozone agreement, the increase of a haircut from 21 percent to 50 percent would not reduce the Greek debt by 180 billion euros, as many believe, but by just 20-25 billion. Even that amount would mean Greece would need to return to its creditors for more in order to support the social security funds that would lose out and to recapitalize banks. Eurogroup chief Jean-Claude Juncker said on Friday that banks must be aware that unless the voluntary agreement of bondholders is sufficient, then the target will be for a non-voluntary participation of the private sector.” don’t know how he works that out. Must be a bankers method!!! “ @ All The following comment by Osborne in the WSJ article struck me as going to the heart of the matter. “Additional IMF resources must not be a substitute for the euro zone committing its resources to supporting its own currency,” the U.K.’s Chancellor of the Exchequer George Osborne said Saturday. As the ESBies paper points out; “Europe, in spite of the size of its economy and its developed financial markets, and in spite of being home to one of the world’s reserve currencies, does not supply a safe asset that rival U.S. Treasuries. This has been noted before. What is less appreciated is that this deficiency is at the heart of the current European crisis”. Reading through the EFSF Q & A reminded me of the follwoing quotation from the paper by Winkler on the joint production of confidence. “.. strong euro area countries would like to limit contagion effects, but are hesitant to commit resources to bail-out countries which might fail to honour their debt. A concrete example is the decision by euro area governments to give the ESM preferred creditor status. While it protects the tax-payers of strong euro area countries in case of a weak euro area government’s default it also signals to private investors that default might occur. Thus, the decision reinforces the private investors’ concerns about solvency the ESM was designed to alleviate in the first place”. There is the rub! It seems that Merkel told Obama that the euro crisis would not be resolved overnight. Unless there is some movement on this core problem (e.g. the guaranteeing by the EFSF of a proportion of new bond issues), it will not be resolved at all. @Ceterisparibus ‘Perhaps some of our well informed brethren here could put a number on what is sustainable for a sovereign.’ You are still looking for an ontologically reduced universal number which is quite simply unattainable at the mo – due to diverse contexts and differing power relations; probably the best number in this reduced illusionary universe is ZERO, which most for some reason most simply must mess with it, but would’nt it be a lovely number for around here at the mo? And you are not alone – this affliction drives the dominant deeply flawed neo-liberal discourse which the plutocratic kleptocracy peddles into its well-owned meejda media, ideologically welcoming higher education, research, political, religious, and of course, political tea parties – all of which allows the global plutocratic kleptocracy to expropriate those zeros from the well duped serfs, and to add them to their own exponentially increasing share of the resources of the planet. That said, it is a great question. @ Ceterisparibus If anything is agreed, it will have to be in place before the European Council on Sunday 23 October as the consequences of leaders coming together and disagreeing hardly bears thinking about. I would read the G20 draft as the staking out of negotiating positions. Charlemagne in this week’s Economist had a particularly good article. High stakes poker does not come near describing the present situation. But the core problem – financial, economic and political – is that identified by Philip Lane and his colleagues. The one promising sign is there seems to be an emerging expert consensus around the issue which will, it is to be hoped, have reached the brains of the policy advisers and their principals by the time the crucial decisions have to be taken. http://www.economist.com/node/21532283 @DOCM, PHillip L With regard to ESBies, yes they would be comparable to Treasuries from an investor’s point of view. You structure EZ debt into 2 trances – one is your ESBies, the other is anything but comparable to US treasuries. It is structured finance. What would the total par value be for the ESBies? What would the total par value be for the speculative tranche (the SPECies if you like – or Speculative European Crap as I could imagine traders dubbing them)? It is easy to say there would be plenty of buyers for the “safe” tranche. I am very surprised the more interesting part – the market for the SPECies seems to attract so little analysis. Are there enough buyers for the SPECies? @DOCM Good article. The cartoon is a hoot. “The “Merkozy” duumvirate annoys some: the Italians say “a global situation cannot be solved by a bilateral axis.” Yet the Franco-German motor remains crucial. These days it would be more accurate to call it the Germano-French engine. Or better still, imagine a BMW motorcycle with a Peugeot sidecar; Mrs Merkel in leather trousers and Mr Sarkozy tagging along. As one senior Eurocrat puts it, the partnership serves “to hide the strength of Germany and the weakness of France.” The markets seemed to be moving on France on Friday with yield out to 3.11%. still not dangerous, but worrying. The conclusion is ominous… “Yet all this assumes, crucially, that Italy or Spain do not implode. So the big doubt remains: if Germany decides to commit a lot more money to save the euro, can France afford to as well?” as I said earlier, I think Italy is in a dangerous place notwithstanding their low deficit. But who knows? @ Grumpy I have not the vaguest idea! My appreciation of the situation is an almost entirely political and institutional one and it boils down to the fairly commonsense view that, whatever about Greece, the rest of Europe is not going to disappear beneath the waves, any more than Ireland, and it would be a failure of political will of truly historical proportions were the current crisis allowed to turn into a disaster. In fact, I do not think that any initiative with the word “bond” in it will see the light of day in the present charged political context. It is the central issue that the ESBies paper addresses that matters. There may be other means of dealing with it. It seems to me that the fact that the EFSF, now agreed in its amended version, will be taking over the Greek file is being lost sight of as is also the fact that the operations of the EFSF have already achieved market credibility in the matter of the issuance of bonds. The idea of guarantees for a certain percentage of new national bonds is one of the “esoteric ideas” referred to by Charlemagne and was outlined in some detail by the chief economist, I think, of Allianz in the FT of 13 October. Incidentally, I do not believe that investors will accept changes to the July 21 deal on PSI. You cannot run a railroad this way, not to mind a single currency. @Ceteris Its not just indivdual Japanese Savers who put money into Japanese Bonds – its more so their domestic banks. The 1% return they were getting is not far off long term SUSTAINABLE growth. “Our banks” have not got a very illustrious history in that regard – preferring to earn a higher reward via credit for devastating risks that were then socialised. Anyway If the Japanese CB did not produce the paper in the first place savers down in the Jap post office could not save official tokens because there would be a lack of tokens to save. I continue to think our overall internal money supply including credit deposits is declining because our sovergin bonds are mainly externally held (when little to no credit production takes place those credit deposits are subtracted – feeding interest income on sov bonds) At the very least they should have stuck AIB deposits into the post office back in 2008 – it would have prevented the more damaging aspects of the money deflation while still destroying unsustainable house prices because there would be no leverage available on those deposits. Something like 25% of all internal deposits should be the P.O. at the very least – especially when you have maverick banks still in operation. The simple sad truth is that domestic money in Ireland remains chiefly private residing in commercial credit deposits while all our debts are now public. Its the greatest betrayal of a European society since the second world war in my opinion – if they were Japanese our domestic bankers would have had least known what to do under the circumstances. Sweden and Finland may have done well in the present mess, one in and one outside the Euro. But this is partly because experiences in the 90s made them wary of booms and property bubbles. People seem to need to learn their own lesson. AJ Chopra….. As the Roman philosopher Seneca said, “If one does not know to which port one is sailing, no wind is favorable.” His speech http://www.imf.org/external/np/speeches/2011/101511.htm @Ceterisparibus Per Reinhart and Rogoff, I believe the 85% figure is the point at which the debt load starts to impact on growth. As it impacts on growth it increases the likelihood that the debt load is unsustainable (reducing room to cope with demand shocks, preventing the country from enjoying an upturn in the cycle as interest costs increase, reduced resilience to shocks etc.). @ DOCM ‘Incidentally, I do not believe that investors will accept changes to the July 21 deal on PSI. You cannot run a railroad this way, not to mind a single currency’ and ‘But the core problem – financial, economic and political – is that identified by Philip Lane and his colleagues. Of course, provided one accepts tacitly that * financial cartels will continue to have a seat at the top table of sovereign power, under the guise of a ‘free market’ regime.’ * the objective of the exercise is to allocate losses in a way which maximally protects and fosters the interests of said actors, under the guise of a ‘restoration of economic growth’ @ Shay ‘Maybe a crisis of governance rather than capitalism?’ Michael H has a point. We are snowed under by vested interests. @ Ceterisparibus Thanks for the link. The speech by AJ Chopra is quite brilliant. Two extracts, however, immediately caught my eye. “More generally, the international regulatory community will need to examine the appropriate treatment of risk classes that have traditionally been regarded as low or zero risk”. One might quote the ESBies paper in reply. “Bank regulators following the Basel criteria gave sovereign bonds held by national banks a risk less assessment in calculating capital requirements, even as insuring against the default of some sovereign bonds using credit default swaps cost more than 5% today”. This game of pretence has to stop. The second key element is the following extract: “These proposals [on eurobonds and safe bonds] should be assessed along two dimensions. First, they must provide financing to euro area sovereigns at reasonable interest rates without creating distortions such as moral hazard and expectations of bailouts. Second, the reform must be feasible under potentially severe political constraints. Transitional issues from the current system with national sovereign bonds to a common bond should not be overlooked, including how to adjust sovereign risk weights of bank capital buffers. These proposals for pooling of risks make the need for fiscal governance even stronger. Strong fiscal frameworks must be in place at national levels to guarantee fiscal sustainability. This may require some delegation of sovereignty to a federal entity. The new framework could also require alternative mechanisms of ex-ante risk sharing such as those that are prominent in other federal states such as the U.S. or Germany”. I do not think that the last point is either true or politically feasible. In a federal states such as the US and Germany, maybe! But the EU is not about to become such a state and any attempts to create it are likely to end very, very badly. Again, one must turn to the ESBies paper. “..how can value be created by just re-packaging bonds? The answer to these questions is that eliminating the distortions brought about by bad regulation creates value”. As an example of bad regulation, the one I mention above could hardly be bettered. As I have also pointed out in respect of the Winkler paper, the US was for many years a federal state without a central bank (the Federal Reserve came into existence in 2013). The EU is the opposite and is likely to remain so. The means to make this work can be found and they are largely set out in the paper including the reference to “transitional issues” in the extract above. Yes but when you stretch out losses over lets say a decade or more by reducing the money supply the capital of the country both human & physical degrades through depreciation. en.wikipedia.org/wiki/Stock_and_flow I am not saying you can save everything – but wiping out all potential future wealth to peserve the existing stock of paper wealth is not even rational – its psychopathic. @Hogan Many thanks for that. I should have remembered my sources. This Time is Different. Rogoff seems to be ahead of the pack. @Paul Quigley I think Ackermann leads the pack and according to Der Spiegal he has the ear of Angela. @DOCM I thought his speech was long on aspiration with very little of practical substance. @DOCM “As I have also pointed out in respect of the Winkler paper, the US was for many years a federal state without a central bank (the Federal Reserve came into existence in 2013). ” Are you sure? @DOCM OK, you are out. Maybe Phillip can assist us with the approximate anticipated size of the markets for both ESBies and SPECies. The ESBie bit is like the easy first part of a question you put there to give all the candidates the chance of getting some marks. SPECies is the follow on bit that is rather more difficult. What has been worked out for this market? @ Grumpy Oops! Wrong century! 1913. @Ceterisparibus AJ Chopra….. As the Roman philosopher Seneca said, “If one does not know to which port one is sailing, no wind is favorable.” To which Lucretius [On the Nature of Things] might reply (after his retainer had been paid by the IMF) “great wealth consists in living on a little with a contented mind; for of a little there is never a lack. ‘ @Michael Hennigan wounds me… Maybe a crisis of governance rather than capitalism? I will meet you 33% of the way on this. Modern capitalism is intensely dangerous. This is substantially, though not only, because of the much larger proportion of economic activity that finance, and particularly highly leveraged speculation, now makes up as compared to the productive parts of the economy (as you noted). One of the implications for me would be that countries less tightly entwined with global financial markets and the “financial industry” (three of your four unaffected EU countries are outside the Eurozone) would be less affected by the global financial crisis as would countries who have had already had their generations banking crisis, having had their politics and regulatory policy inoculated against financial innovation and deregulation. Austria I can not explain, except that bordering Germany seems to be a definite plus in todays EU. Should they have kept monopoly control of telecommunications and aviation? To perhaps dig myself a dee hole my initial “research” (Google) seems to indicate that most of Sweden’s airports are not privately owned and that 50% of SAS, the largest Scandinavian airline, is collectively owned by the governments of Norway, Sweden and Denmark. As for telecommunications Stockholm’s fibre optic network, far ahead of its time, was a government project (well, a corporation was set up) as there was a realization that a private approach would take too long and that it was a strategic national interest. I had personal experience of this as in 2005 I was working in an Irish company that paid 1500 euro a month for a 2MB symmetric Internet connection, our Swedish sales person had four times times that bandwidth at his apartment, the cost so low it was expensed rather than put in the IT budget. We relied on the market in Ireland and it cost us as a nation as Eircom and BT half heartedly battled it out to be the least useless network provider. Now I am a little bit out of my depth here but a first pass seems to indicate that part of the “good governance” of at least the Scandinavian countries seems very much like a reluctance to rely on the private sector to provide strategic services. Societies less in thrall to the mantra of market solutions have suffered less from the global financial crisis. I do not see how any of this makes the current crisis less one of capitalism, instead it suggests that good governance is inherently cautious about the utility of the market. Asian countries have done well from capitalism, having learned lessons from 1997/98. Totally out of my depth here, I again presume that their political and banking regulatory systems had been inoculated by the crises of the nineties but also that the GFC has started in the west and is only slowly spreading to the economies of the far east. None of this means that Ireland was not poorly governed, or that special interests have not horribly distorted public policy or that our own genteel style of corruption should not be a source of shame. It does mean that we need to decide on how much we will expose ourselves to the ever more irrational animal spirits of the current, out of control version, of global capitalism. @Shay Begorrah “Modern capitalism is intensely dangerous. This is substantially, though not only, because of the much larger proportion of economic activity that finance, and particularly highly leveraged speculation, now makes up as compared to the productive parts of the economy (as you noted).” largely true – although the lack of regulation around the creation of derivative products as well as the tolerance of institutions whose collapse could be argued to be catastrophic (i.e TBTF) combined with the refusal of governments as in Ireland to allow the “risk” inherent in the capitalist ideal is the real problem. We need banks that are lending utilities – not casinos for the creation of wealth for their executives. The “occupy” movement mught just be addressing the core of the global problem, by focussing on the GSs of the world who are at the rotten core. A thread on “occupy” is overdue. @ Shay Begorrah Maybe ‘banking’ should be substituted for ‘capitalism’? Airbus is an excellent example of successful multinational public collobaration. However, while the Soviets could put a dog into space, western consumers regarded their consumer products as dogs. The trial and error process of producing consumer products is a great example of positive capitalism. Nokia outspent Apple in R&D by almost four times but was left struggling in the far distance. The Greek time machine.. http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_13/10/2011_410790 @ Michael & Shay “Maybe ‘banking’ should be substituted for ‘capitalism’?” Yes, I think that’s a particular feature of this crisis. For example, imagine how annoyed you’d be if you were Siemens and felt driven to hide your cash under the ECB matress? http://www.ft.com/intl/cms/s/0/dca4cc08-e096-11e0-bd01-00144feabdc0.html#axzz1awlqeBHD @Michael Hennigan Maybe ‘banking’ should be substituted for ‘capitalism’? If you could manage modern capitalism without modern financial capitalism that could only be an improvement but the new beast would be difficult to categorise as what we think as pure “capitalism” now, would it not? At the Occupy Dame Street festival yesterday one veteran leftie remarked in a speech that industrial capital was now a victim of financial capital, something hard to imagine in the seventies when the world was a slightly saner place. We take for granted now that the heads of large banks (Josef Ackermann, I am talking about you) will directly and publicly intervene in public policy debates so as to change government behaviour. How exactly did we allow banks to gather this influence, and why do we tolerate it? However, while the Soviets could put a dog into space, western consumers regarded their consumer products as dogs. The Soviets were indeed much better at rocketry than consumer durables but right now, with a world running short on resources and in need of big solutions, a little bit of command economy and state science might not go astray. To veer way, way off topic, Soviet style command economies failed to keep up with the west starting in the fifties but the tools they had available for running the economy were much less sophisticated than the ones available now. Plenty of technologies and sciences start off as useless or worse (surgery in the nineteenth century anyone?) but are now taken for granted – perhaps “command economics” will be one such discipline? This is unintentionally amusing, a Reuters report on Trichet’s latest emissions at the G20 event on what he understood the Occupy Wall Street movements to mean: “It is our task to make the world financial system much more solid … that is how I interpret part of the message that comes from this movement,” he said. He also spent a lot of time reprimanding states for not behaving responsibly and emphasising how important it was to protect the financial system (by which he meant sector). What a disgusting man. When the definitive history is written of how much damage monetarism and the Eurozone did to the EU the ECB and its role as a proxy for European financial capitalism will have to be the primary topic. Two issues from Friday from opposite ends of the spectrum: BBC Newsnight reports on Scottish cashmere garments made by North Korean slave workers (their earnings go to the nice folk in Pyongyang) in Mongolia: http://news.bbc.co.uk/2/hi/programmes/newsnight/9612939.stm This from a contact in the US: Apparently, there is life, after worthless mortgages. Worthless education. “The free market”, busily at work. And, courtesy of House Speaker John Boehner, mercifully freed of that annoying thing called “Regulation”. A rather lengthy read — but a rather impressive rip-off. Featuring, as a prime actor . . . Guess who? Yes, you guessed it: With Goldman’s Foray Into Higher Education, A Predatory Pursuit Of Students And Revenues Chris Kirkham Huffington Post October 14, 2011 http://huff.to/rcJ8b0 @Shay The first thing you do is nationalise money – as long as most of the money and its supply is in bank deposits when asset prices collapse the money supply collapses leaving apparently no resourses available to tackle this malinvestment mess. But they are available. @ Michael, etc Great article. Pressure is heading for students to take out hefty student loans to pay for their education – even though simultaneously arguments are being made that societies can only succeed if the populations have sufficient education, including life-long learning. Society needs more people with degrees to function, but it doesn’t want to pay for it. I see this as an attempt to tie young people into bondage such that, whatever ideas they may have in their heads, they are tied into being efficient workers to repay their debts over decades. It’s hard to effect a change in society if at the back your head you’re thinking, but I owe this much for my education and this much for my accommodation. It’s tough to head to a protest if you know the banks can call you in any time. @Michael, Gavin There is a collection of types of education and types of skills that increase economic potential – of the state also. There is another, broader thing termed “Education” that is of far less economic value. Young people are presented with the latter, as a thing they must get a certificate for, that says they have it, otherwise they cannot pass “go”. The Uk experience is instructive. There used to be broadly free university education for a minority of people based on school-leaving exam results. Not everybody who qualified, chose to go. Generally both state and student gained. The clumsy dogma that “Education” was required for economic success of the state led to Polytechnics being designated as Universities and non-academic students paying to go through dumbed down academic courses, and in some cases courses that would at one time have been the sort of thing that might be invented for a comedy show. Lots of people have, effectively been conned into borrowing to pay for something of dubious worth, by the establishment. In Ireland the funding is unsustainable and it is difficult to see how fees can avoid being raised. Added to that is the bizarre “points” system. Credit, or perhaps debt, has been sold as something every smart young person should have as a result of student loans etc. It might have been a mistake to make people so ready to borrow large amounts of money. Brilliant for the banking industry though – for a while. @ Gavin Kostick Yup. Financial pyramid schemes need debt slaves. Just don’t expect to read about it in the papyrus: http://www.huffingtonpost.com/2010/12/23/kaplan-tarnishes-washington-post-legacy_n_800512.html Here’s a graphic that might shed some light on the 490% figure: http://www.ritholtz.com/blog/2011/10/debt-levels-alone-don’t-tell-the-whole-story/ 2010 – PSC+state debt = 383% I presume the 490 percent figure to either be a type and be 409% or to include guaranteed liabilities of the financial sector (including NAMA) over and above those accounted for by PSC. @Hogan Wow – there was I thinking in theory at least increases in Public debt reduces private debt. So we have dramatically decreasing GNP & dramatically rising overall debt……… increasing overall money seems to reduce wealth – something is fundamentally wrong with the monetory system me thinks – this is obvious. So therefore this money production must be devastating net negative towards the real function of money which believe it or not happens to be a utility of commerce. We have bankers running the country that do not see the function of economies is to produce goods & services – just to service private debt contracts – this may seem normal in this dysfunctional world but I am afraid it is completly crazy. How anybody can not argue for the renationalisation of money (outlawing credit deposits) is beyond me – their efforts to save their banking fiefdoms is collapsing our ability to feed ourselfs – they are capable of anything me thinks – they are psychopaths. @Dork As I keep saying to you, it is not a closed system. Unless you are going to look at all the money and credit in the world, then you are going to miss big chunks of what is happening. @Peter Matthews ECB must write down this €75bn odious bank debt The shocking truth is that combined debt levels in the Irish economy are almost twice those in Greece writes Peter Matthews [in Today’s Sunday Independent – just under McCarthy’s nudge in the direction of becoming Enterprise Tzar when the junta takes over …. ] ‘At 494 per cent of national income, Irish combined debt levels are the most crushing in the world. We must resist being forced to bear impossible levels of debt overhang which expert economists have shown to be the main cause of contraction and stagnation in an economy. We must insist on writedowns totalling €75bn on amounts due to the European Central Bank and outstanding bondholders.’ http://www.independent.ie/opinion/analysis/ecb-must-write-down-this-euro75bn-odious-bank-debt-2907423.html @Seamus Coffee, Ceterus and every one else who does not know where Matthews got his numbers. He got his numbers in response to a parliamentary question to Michael Noonan. Constintine G also wrote an article in his blog (true economics)about it and mentioned it on a recent Vincent Browne show. Its Public debt + household debt + corporate debt (less the financial) http://debates.oireachtas.ie/dail/2011/09/14/00105.asp CG agreed with his numbers and he seemed to only use the figures provided by the minister Article from CG on this matter. http://liswires.com/archives/1359 In another article he compared Ireland to other advanced economies. The only country with comparable overall debt was Japan. We were worse off than every one else. (Cant find that post now) Hi Eamonn, Thanks for those. Again there is a complete absence of any reference to offsetting assets. The largest component of the total is non-financial corporate debt. These figures are taken from the Central Bank and include the debt of MNCs operating in Ireland. Have we any way of knowing how much of €264 billion is “Irish” debt? Good question Seamus. I guess it would take another parliamentary question to the Minister? Although I doubt that is something the MNCs would want released. No more than they would want the total figure of profits released. A TCD lecturer in finance recently presented a short paper (for the stormont executive who are trying to justify being allowed use our corporation tax levels to West-Minister) claiming that MNCs were contributing 80% of corporate taxes and were paying an effective rate of 4%. That would put their total profits at about 100 billion? The report was on this site but I cant find it. @Eamon I was using the IMF projected sovereign debt of 215b when I said this was unsustainable. I was told(on here) that I was a doomster. As I said previously if Matthews (and CG) are correct then it’s worster than I thought. @Hogan Yes – you are right , to a large extent our domestic & foregin affiliated banks were farming the income from multinational pay & leveraging those deposits on domestic capital consumption. The CB wrote a good but dense paper on this (you will have to go back the older page on this blog) Particularly on the elasticity of the Irish economy to American credit shocks and the like. I was surprised it got no response from the professional economists on this site. Comments are closed.