NYT: A Call for a Write-Down on Irish Debt

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

Bad wording by me. I meant ‘can afford to totally ignore him’.

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.

@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.

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. “

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.

@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

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.

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.

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.

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.

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)!

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!)

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…?

@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

@ OMF

‘and emigration for the majority’
yet to be proven, above average emigration yes, emigration for the ‘majority’ is a bit OTT.

@ 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.

@ 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

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!

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.

@ 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

apoligies last line should have read

you can`t screw the people all the time

@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.

Reverse the success rate it was 1% with a goal of 4%.

@ceteris

I don’t think that is anything like universally accepted.

Sorry. Posted above on wrong thread.

@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 …

@ 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 ?

@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

@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.

@ 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.

@ 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?

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.

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.

@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.

@ 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.

@ 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

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
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?

@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.

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

@ 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’

@ 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.

@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

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?

@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. ‘

@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.

The Greek time machine..
http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_13/10/2011_410790

@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?

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

@ 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.

@ 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

@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.

@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

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)

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.

@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.