Deleveraging in Ireland

The FT provides an update here.   (Also more on Franklin Templeton here.) (Also a different dimension to Paddy McKillen here.)

64 replies on “Deleveraging in Ireland”

@Philip Lane

I have deep misgivings about the benefit to the State from deleveraging by State owned banks.

If AIB sells a 100M loan book for €40 million, it must of necessity leave at least an estimated €20 million profit on the table for the buyer. Otherwise the buyer will not buy. Where is the benefit to the State in that deal?

Why do it? Because we are too lazy or do have have enough people to manage the loans to finality? Or because we do not have the political courage to write off uncollectible debts, and manage the process ourselves.

Deleveraging by State banks at large discounts is the exact equivalent of the Revenue giving large debt settlements under full secrecy, and that would be deemed unacceptable.
The FT of course did not mention any of these little details. It is not part of the mood music of deleveraging.

“Apollo is paying £149m to buy a portfolio of distressed commercial property loans in Ireland from Lloyds Banking Group with a face value of £1.46bn”

“Because we are too lazy or do have have enough people to manage the loans to finality?”

Because we’re told by our (twice-over) creditors. Whose Great Casino gamblers then get to rack up yet more profit.

Isn’t it gutwrenching? Different rules for masters of the universe . Debt write offs . Bottom feeding hedge funds buy for cents in the euro and squeeze real business for euros. Same with the anglo debt . Parasites 1 real economy 0.

@Joseph Ryan

Irish domestic banks are distressed with much too risky a profile of risk assets and a high cost of capital. Some foreign capital sources have a more balanced risk profile and lower effective cost of capital. So both sides can potentially win from an asset sale. I am not saying that the Irish banks necessarily get a good price but there is a potential gain from trade for both sides from this transaction. It depends upon the price received, but that is quite difficult to judge from outside the transacting institutions.

@seafóid – what do you think the loan book of an Irish – or any other – bank is worth? What, for example, would you pay for Lloyd’s Irish mortgage book?

The problem is that loan books in many banks, and in Ireland in particular, are not and will not be worth face value. They are worth only cents in the €, due to various factors, including rates fixed at uneconomic margins, declining collateral value and, due to the downturn, a flat inability to service let alone repay. Their original par value is useful only for calculating losses incurred, as is no guide to their current or future worth.

I’ve no grá for hedge funds, or distressed debt buyers, much as I’ve none for dung beetles. I can, however, recognise their usefulness in certain circumstances.

Lots of deleveraging on those home-help hours – one of the most effective social actions and of immense benefit – spose next we hear is that bundles of 100 thousand pensioners will be packaged up and sold off to hedge funds – such is life for serfs – I repeat SERFS – of the financial system. “Was it for this the Wild Geese fled?

from Blind Biddy in Castlebar (very p1ssed off that Mad Ould Jozie’s home help hours have been cut again: “Already this year 500,000 hours have been taken out of the home help service and care workers and their clients are suffering. The plan to implement a further cut of 600,000 hours is bad for workers and bad for clients.

@Gregory Connor
Do you still believe in Expansionary Fiscal Contraction?


when you overpay public servants by up to 20%, hand out generous packages not to turn up for work, give universal payments to the wealthy, impose extortionate tax rates on people who can relocate then you end up cutting the services of the truly needy.

Some alternative lite reading:

The Miasma School of Economics
Posted by Steve Roth | 11/24/2012 07:06:00 PM

I’ve been reading Steven Johnson’s The Ghost Map, about the London cholera epidemic of 1854, and one passage reminded me exactly of today’s economics discipline.

The sense of similarity was heightened because I also (instigated by Nick Rowe) happened to be reading Mankiw’s micro textbook section on the rising marginal cost of production — a notion that 1. is ridiculous on its face, 2. is completely contrary to how profit-maximizing producers think, and 3. is based on just-plain incorrect math.* It’s just one of many central pillars of “textbook” economics that are still being taught with a straight face, even though they been resoundingly disproved by the discipline’s own leading practitioners, on the discipline’s own terms, and using its own language, constructs, and methods. These zombie ideas just won’t die. (Or to quote my friend Ole, “People never learn, and they never forget.”)

(h/t daily fix of


Spot on. Ireland has some of the world’s best paid “socialists” – and they are, understandably, jolly determined to keep it that way.

What are the likely knock on economic and psychological effects on ex-recipients of home help hours and their families compared with those that might arise from fewer restaurant visits on Tuscan holidays for people on 150k taking a dip?

Clipping the 150k minority may be populist but ultimately self defeating. One of my successful neighbours is emigrating with his even more successful spouse. He told me he paid enough tax in 2011 to employ Pearse Doherty or a county manager or the child benefit or 2 university lecturers or 3 teachers. They will now be paying for even more of HMG servants now. We fewer shall have to pick up their share.


“socialists”, of any of the genuine varieties, would not negotiate a deal that priviliged one set of workers over others and the unemployed. Croke Park, negotiated by Irish Trade Unions and Fianna Fail [contd by FG/LAb], split the Irish labour movement, gave a kick in the teeth to unemployed, and gave free rein to Minister Bruton’s flawed neoliberal tendencies on reducing pay in a number of apprenticeship trades to a buck above minimum wage.

Home-help is one of the classic examples of ‘intangible value’ while simultaneously being highly cost effective. Cutting such schemes highlights the moral bankruptcy at the heart of Irish governance.

This government’s decision to renege on their program for government
policy to allow commercial tenants market rents,was the worst economic
decision since the bank guarantee. It has ensured the destruction of
tens of thousands of sustainable Irish businesses and jobs and the
creation of a damaging two-tier commercial rental market. The government
have aligned themselves with the commercial property cartel to ensure
the Irish commercial property market will not recover and this will
further damage the Irish economy. Any cost/benefit analysis would
clearly show the error of this decision.

This government still believes the propaganda of the property industry,
the exact crew who wrecked the country. The economic logic is -if you
massively over-rent commercial tenants until you destroy their
businesses and jobs -this will help the Irish property market and
increase the value of Irish property. This is one of a hat trick of
disastrous Irish government decisions, the first was to allow the
creation of the greatest property bubble of all times -second to
guarantee all Irish banks liabilities and -third to allow all commercial
tenants to be be bled dry by massive over-renting using ruinous Irish
commercial lease law.

But they did. I don’t see our nationalist Socialists or uncle Joe calling for cuts in overpaid PS staff.


How is that relevant to the group of people on IRO 150k who, with a small number of notable exceptions, hold positions that are only available on that kind of wedge within Ireland.

The National Socialists within the Blue Rinse Birigade in FG are keeping their powder dry … I have some time for Joe but at times even I despair at some of his policies …

Good to see you are still plugging Pearse Doherty …. maybe the next time you apply for membership of Sinn Fein they might accept you on a provisional basis -full membership is probably impossible due to your well documented reactionary randite tendencies …

Hike the top rate & people leave or stop working. Not everybody on 100k plus is a banker or a public servant, When they do go then we all pay more or cut home help hours even further.

The surveyors/auctioneers i.e the property professionals are an SRO i.e. a self regulated organisation which in Ireland means no regulation. These property professionals were responsible for three practices which created the bubble.

First the valuation error i.e valuing all 5 euro notes as 20 euro
Second the ruinous commercial property lease law organised by a criminal cartel.
And third ,ninty five per cent of all property sold in the state is sold by surveyors/auctioneers.
They controlled where the property advertising money was spent. Almost all of it was spent with the broadsheet media and the Irish Times, the mouthpiece for the property industry and owner of, got the lion’s share. These property professionals. controlled the Irish Times property propaganda and all the other broadsheet media property propaganda. They had enormous influence in these papers editorial policies.

This third item was the fatal one–the media faciltating this propaganda. There were other useful idiots like the soft landing economists etc etc.

These property professionals established three records that are unlikely to be repeated in Ireland again.. First the greatest bank and property crash in the history of mankind,second the highest property prices in the world and third the fifth highest rented street in the world.

@ Tull

Are these people not replaceable by unemployed graduates with Ph.D’s and first class honors degrees. If half the people down the NTMA or dozens of bankers left tomorrow does anyone think for a moment they could not be replaced. What was the previous correlation between the pay and bonuses of bankers and performance?

@Gregory Connor

re: “Some foreign capital sources have a more balanced risk profile and lower effective cost of capital. So both sides can potentially win from an asset sale.”

In normal circumstances I would agree with your assessment.
But the problem now is that the benefits of the receipt of funds through deleveraging of Irish banks, are going directly to replace (1%) ECB funding, which is widely available in other countries and banks (3 Trn LTRO) in the EZ.
When we see the phrase ‘ Irish banks must shrink their balance sheets’, this is also code for ‘The Irish banks must reduce the calls (not dependency*) on ECB funds’.

One wonders how much of deleveraging is good, unpressured business at realistic prices and how much is mandatory deleveraging to suit the agenda of the ECB, a CB that in reality has few of the attributes desirable in a central bank.

[*Borrowing from the ECB is always pejoratively referred to as ‘ECB dependency’, a quite comical description to persist with, when the entire EZ banking system is dysfunctional.]

@ Joseph Ryan

I’d say your instincts are correct. Sadly, we had a class of ‘responsibles’ who grossly misused their positions, with the active instigation of their CoL, EZ, anbd Wall St connections. IMHO, they undermined their institutions, private and public, in the process, and left the domestic economy, and its associated credit system, in a state of chassis. Official Ireland is still in deep denial about what went down.

The ECB funding is designed to prevent Hibernia from going over a cliff, and to let various private entity creditors out of the doom loop. Each successive deal is lilkely to be on less favourable terms, as power is gradually drained away from the local sovereign.

Ireland has always produced professionals for export. We don’t lack employable professionals, but the playing field is seriously skewed towards the established hierarchy. Hence permanence for some, often irrespective of output, and dead end revolving door temporary opportunities for others. As the saying goes, the candidate has to be suitable ‘in all respects’. What a lovely phrase.

Tull, you are obsessed with tax. Who mentioned tax?


The7th post complained of cuts to home help hours. The eigth post is from tull, who responded to the previous post by blaming 4 items for the home help cuts – only 1 of those 4 seem to be obviously as relevant to the PS, though more likely 2.


Could you perhaps explain how Ireland’s overpaid public servants relate to this thread?

To me it seem the topic was whether or not its appropriate for Irish banks (who you and I have funded to the tune of 35 billion, and counting) to sell off parts of their loan book at a potentially large loss thereby reducing, possibly, the chance of us getting some of our f*****g money back?

Is that so hard? Is it?

Your frankly deranged animus against public servants blinds you to the real game, which remains now what it was in 2008: How will the losses from the European component of the global financial crisis be apportioned?

@tull, shay, ernie

The high earners will all stay that way – its all just hot air and not worth falling out about.

By dint of the spin that:

a) basically nobody really earns over 100k in the PS unless they are front-line heath service staff, and

b) All the competent ones would otherwise be off to Canada and the US (how on earth does the UK keep anything but 2nd or 3rd rate NHS staff?)

There is no point in even contemplating cuts to the higher echelon of PS employees – its the rest of them that are the expensive ones, er, apparently:

“Mr Howlin was asked by Sinn Féin TD Mary Lou McDonald “for a yes or no answer” on whether higher public service salaries would be on the agenda as Government sought an additional €1 billion in savings from the public pay bill.

Mr Howlin said “the greatest cohort” of salaries of more than €100,000 was in the health service, and these were often necessary as Ireland was competing against places such as the US and Canada to attract consultants.”

I’d have thought this particular part of the FT article would get more attention

Apollo, like many of the big private equity groups eyeing Dublin, has hired local advisers such as Brian Goggin, the former chief executive of Bank of Ireland, and is building up local servicing companies to help it work through the distressed loan assets it is buying at steep discounts.
Kennedy Wilson, which so far is the biggest private equity investor in Irish assets, is one of several groups that invested €1.1bn last year to rescue Bank of Ireland from state control in mid-2011. It also bought the bank’s real estate investment management business, as part of a rapid expansion of its European operations.
“These deals enabled Kennedy Wilson to get under the bonnet at the bank and helped it to cherry pick some of the best assets,” says one Dublin banker, who did not want to be named.

Trebles all round!

Yet in other countries which stumble along tax rates on higher earners are well up. It’s useful to recall the scare stories of 2008: THE BANKS WILL FAIL…, of 2009 OMFG DON’T TALK ABOUT BURNING BONDOLDERS ETC. THis is the latest….DON’T RAISE TAX OR WE WILL BE A WASTELAND

At its semiannual meeting in Tokyo in October, the IMF announced that the austerity packages applied throughout southern Europe since 2009 have been counterproductive, undermining economic growth and increasing rather than bringing down public debt ratios. Greece provides ghastly proof of the failed logic of the euro orthodoxy. After three years of shock therapy, the Greek economy is in depression and will have shrunk by more than 22 percent at the end 2013, the IMF warns. Employment in Greece has fallen to 1980 levels, and Greek debt dynamics have only deteriorated. Public sector debt has soared from 144 percent of GDP in 2010 to 170 percent, and unless the official lenders agree to take a haircut in a controlled restructuring of debt—as private lenders did earlier in the year—Greece may be forced to leave the euro. “The IMF has admitted the blunder, but tell that to the Greeks,” said Zoe Lanara, international relations secretary of the Greek General Confederation of Labor at a conference organized in October by left think tank TASC in Dublin.

The incompetence and negligence in the management of the crisis is staggering. In 2010, the troika of the European Commission, the European Central Bank and the IMF had calculated a manageable impact on growth of the adjustment packages in Greece, Ireland and Portugal, with fiscal multipliers in the region of 0.5. That means for every 2 billion euros’ worth of cuts, maybe 1 billion would have been lost in GDP. But the fund now believes this is far too low: “IMF staff research suggests that fiscal cutbacks had larger-than-expected negative short-term multiplier effects on output,” says the fund’s latest Economic Outlook report. Far from 0.5, “our results indicate that multipliers have actually been in the 0.9 to 1.7 range.” This, the IMF notes, “may explain part of the growth shortfalls.”


“Could you perhaps explain how Ireland’s overpaid public servants relate to this thread?“

I would now classify the senior management of the deleveraging Irish banks as ‘overpaid public servants’!

I wonder if they’ll be protected under the next Croke Park agreement…

@ Frank Galton

+ 1. That’s the bit I was boggling out.

Wasn’t there a tradition of the fallen mighty quietly shuffling off to do good works in deprived areas?

While I’m here – I mainly agree with Joseph Ryan. I also thought that NAMA was supposed to have taken away the toxic loans with a view to getting the best possible return for the taxpayer. But now further loans are going at up to 90% write-off. What’s happening there?

@ Gavin

Lloyds weren’t involved in transferring loans to NAMA…

@ Joseph Ryan

Having a very large, highly leveraged banking system has threatened the solvency of the Irish state. Ergo, having a smaller, less leveraged banking system will make it less likely that such a situation occurs again. The deleveraging process has also been softened somewhat in each of the last few Troika reviews, so that there is less pressure on the banks to unnecessarily sell assets at below fair value prices.

@Eoin Bond

‘… has threatened the solvency of the Irish state.’

More than threatened. It has led to insolvency and external intervention. That said, the error was in the state taking responsibility for the banking system. And this error is now rampant throughout Europe.

@Joseph Ryan

I agree that if the banks can rely on unlimited cheap funding rolling over reliably from the ECB then they might be better off to hold these assets. Keep in mind though that the ECB does not buy the assets it just provides funding so the banks still carry the asset risk in this case. I wrote “effective” cost of capital since I was thinking along the lines that ECB funding is not the marginal source of capital funding for the banks. It is a difficult balancing act since the ECB is pushing the banks to wean themselves off this source of funding but perhaps the banks sometimes should push back. Depends upon the true price discount (relative to fair market value) on the loan sales — this true discount is difficult to estimate without lots more information about the borrowers and collateral.


We’re going to need a new thread just to discuss the Schwarzenegger approach to bank supervision, complete with numerous Terminator references.

@ All

Donal O’Donovan explains why London has little confidence in the ECB seeing the issues from the perspective of the City of London.

The key consideration would appear to be the fact that Berlin appears have an interest only marginally above that of London in a “banking union” with real teeth. (The Commissioner responsible, Barnier, has urged that leaders stick to their undertaking to agree the basic legislation next month).

4 years on from the bank guarantee and we still don’t have a functioning banking system or property market. Fiscal multipliers are somewhat redundant without proper credit facilities.

New lending is dead, prices are stagnant at best, and construction is non-existent. Restructuring of unsustainable personal or corporate loans has not taken place.

The domestic bank resolution mechanism which was required by the IMF in their initial bailout has not happened. Neither has the personal insolvency legislation they said was needed. Meanwhile bankers take huge pensions from previously insolvent banks rescued by the tax payer.

It is hard to see any light at the end of the banking tunnel. What exactly is Fine Gael’s prescription for getting the banking sector working again? Where is Richard Bruton and his radical policies? Where is the EU deal on bank debt Gilmore and Noonan promised us?

The economy is grinding to a halt and the Government is preoccupied with the Department of Health and abortion. Patience is wearing thin.

@ Frank Galton

Indeed! Maybe there could be a general open thread for contributions of topical interest.

In fact, Elderfield makes a lot of sense (and the contribution from within the EA kraal – as has been pointed out – will not go unnoticed).

didn’t the Arnie character in Terminator 2 have to defend the world against a sophisticated foe who was up to no good, and when attacked, always responded with unlimited amounts of liquidity (actually becoming liquid at times).

Without the benefit of total recall, I think what happened was that the liquidity would flow out of whatever destructive mess had just been created into a new scene where it would regroup and cause more mayhem.

Good job nothing like that could happen in economics!

My preferred Schwarzenegger solution to the Euro banking crisis would be:

Banks to Sovereign: you wouldn’t hurt me, would you, sweetheart? Sweetheart, be reasonable. After all, we’re married!

[Arnie’s character does his thing]

Sovereign: Consider that a divorce!


I have it from a usually unreliable source that this admin’s neu algorithm based on James’ latest ground-breaking “logistical, logarithmic progression” will have it all sorted out before budget day. Patience dear boy, patience!

Mark Carney next Governor of the Bank of England.

Aren’t the English the lucky ones? They have their own bank.

Luck of the English.

From Golem XIV.
A good description of how Argentina entered and exited the IMF and US aided and abetted financial fiasco.

Argentina and America – of Vulture funds and Justice
By Golem XIV on November 25, 2012 in Argentina, bonds, debts, latest, sovereign debt, Vulture funds

Argentina told to pay hedge funds $1.3bn

Was the headline in the FT on Thursday 22nd November 2012.

The judge who made the ruling, Thomas Griesa, said “After 10 years of litigation this is a just result.”

I’m not so sure. In my opinion the headline and the ruling it reports are just the tip of a shit-berg. Like all bergs the fatal mistake is to think the bit you can see above the water is all there is. In my opinion if you look beneath the surface, almost everything which this article and the case it reports on claim to show, is turned on its head.

The visible tip

Argentina borrowed money, got in to trouble and defaulted on its creditors. What could be simpler? That was back in 2001. Since then the bond holders, or some of them at least, have pursued Argentina through their home courts in America and a judge sitting in Manhattan’s Southern District Court has finally ruled in their favour. Justice at last for the bond holders. The rule of law, majestic, like a shining island of ice.

Now lets take a peek beneath the waterline.

Sub-level One – Vulture Funds

The Bond holders described rather coyly in the article as an ‘Hedge Fund’are not just any old hedge fund and are not in fact one of the original bond holders who lent the money to Argentina in the first place. The hedge fund in question is what is commonly known as a vulture fund. Vulture funds like most parasites have a very specific niche. Vulture funds go around buying up what is often called distressed debt. Which in their case means bonds which have been or are thought very likely to be defaulted on. Why would they do such a thing? Well the original bond holders, faced with default, will either settle with the defaulter to get back some portion of what they lent – in this case they settled with Argentina for 30 cents on the dollar – or if a circling vulture fund settles next to them they may sell to them instead. The Vulture funds will say – ‘You never know how much Argentina will offer you but we will offer this much to you right now’. The original bond holders generally want as clean an out as they can. They will have lost money but that is the the nature of lending it is it not? You win some you lose others. Exactly like lending on a mortgage or buying stocks and shares – the value of your investment can go down as well as up. You pays your money in the hopes of a reward and accept that there is an accompanying risk.

I do not mean to make light of bond holders losing their money, nor imply that a country defaulting is a mere bagatelle. I want only to remind that lending is always a risk – an accepted and normal risk – which is part of what the interest on a loan is for. Potential default is part of the risk that is priced in to the bonds as we hear every day when we are told of a county’s borrowing costs going up.

So back to the vulture fund. In this case called Elliot Associates. To be more precise, for the happiness of the corporate PR men reading, the case concerns NML Capital ( A Cayman Island registered fund) which is part of Elliot Capital Management which is part of Elliot Associates. Elliot Associates and its subsidiaries together make up one of, if not the, biggest vulture fund. It is certainly the most aggressive. It is based in New York and its founder and CEO is Mr Paul Singer. I do not know Mr Singer. He may be a wonderful person. But it is my opinion, that if there is something more repulsive than a scaly necked corpse-eater spattered with the gore of some unfortunate beast – if there is something more repulsive – it is what Mr Singer’s business does. Vulture funds Buy to Sue. They feed upon misery for their profit.

Vulture funds do not buy bonds as a form of lending. They do not lend. They are not there to help. They wait until a country is on its knees, buy its bonds while they are cheap and then use the law to insist, that in its moment of pain and misery, the government, instead of using whatever it has left to get its house in order and help its citizens, must instead pay the Vulture fund, its owners and its investors.

Now supporters will say – but it is the law. The country owes and must pay. What then is the difference between this icy attitude and the cold heartlessness which put families out in to the cold and children to the Workhouse? Debtors prisons and work-house morality. The morality of fat men and their lawyers lecturing the poor and the huddled who owe them money.

Histrionic nonsense! What about the rule of law? We are not cruel men nor heartless, but we insist the law be observed. Yes indeed. The law. Before which all men, all nations must be equal. Is that it? Yes! Yes! And what of probity and taking responsibility for ones mistakes and paying for them?

Sub Level Two – How Argentina came to default

Every level is larger than the one above it. It is 1976. Isabel Perón is gone, the military dictatorship led by General Jorge Rafael Videla, Admiral Emilio Eduardo Massera and Brigadier-General Orlando Ramón Agosti now rule. (All the following quotes are from a very good piece from the Argentina Independent which was founded and is staffed by British journalists. You can read about it here)

On 2nd April 1976, just over a week after the military coup, newly appointed economy minister José Martínez de Hoz, launched a deep restructuring of the economy, based on the principles of neo-liberalism. In his landmark speech that day, he announced a fundamental move “from stifling state intervention to make way for the liberalisation of productive forces.”

In a short space of time, wages were frozen and new labour laws (in favour of companies) were introduced, the banking sector was deregulated, and obstacles to international trade and investment flows were eliminated.

The Neo-liberal experiment had begun. For those close to the military junta, for the corporations and the already wealthy it was the time of what became called plata dulce (Sweet money). The deregulated banks opened up to cheap money and international funding. Sound familiar? But not all boats were lifted.

Just one year into the dictatorship, acclaimed writer and journalist Rodolfo Walsh wrote in his famous open letter to the military junta: “the economic policy of this government, rather than a justification for its crimes, is a greater atrocity that punishes millions of human lives with its planned misery.”

While the few prospered, real wages for the many were crushed by 40%. Child mortality and poverty rose. Did it stop the ideologues of the free market? Of course not. Mammon is Great! Mammon the all merciful. When did fundamentalists ever pay attention to the real world sufferings of those they disdain? Turban or T-bill, fundamentalists are always certain. Certain that they deserve all they have and so do you.

Like virtually all those free-marketeers who came after them in Washington and in every nation where they were installed they talked about shrinking the state but didn’t. The Generals spent. Their bankers approved. In 1976 before the military and their neo-liberal experts took over, Argentina’s external debt was $8 billion. After 7 years of their financial prudence and free-market can-do the debt was $43 billion. And not a socialist to in sight to blame it upon.

Not that it dented the zeal of those latter-day crusaders for Mammon and money – the IMF. With Argentina now in serious debt and poverty and inequality rising it was time for the IMF to insist on its special medicine – of more ‘market liberalization’ and more austerity to pay for it. Naomi Klein has written brilliantly about the wider, shameful and wicked experiment in her book The Shock Doctrine.

By 1991 the free-marketeers had been forced to dispense with their dictator. But all was not lost. Argentina’s debt had swollen like a boil to $61 billion which was earning $ 3 billion a year in interest for those who had advised them and lent to them. And better yet. this time the Argentine people voted the right way, and when Domingo Cavallo was appointed minister of Finance he embraced the free-market, neo-liberal ‘Washington concensus’ with all his stony heart. He was after all a former World Bank President. He was one of us. Not one of those left leaning radicals. No need for regime change in Argentina. Not this time. That would come later, in another country that had something Washington and the West wanted.

Cavallo embarked on more liberlization, more deregulation and more privatizations. The result was economic contraction. The IMF and the bankers offered more loans and ‘helped’ with more selling of state assets. Argentina sold off one of its crown jewels, its oil company, YPF (remember the name) at prices critics cried were corruptly low and seemed bidderless, gifts to the powerful and connected. But it was a ‘concensus’ right? It was the 90′s when ‘the smartest men in the room’ were just rolling up their power-dressing sleeves and inventing all the insanely wonderfulf financial things that we have learned about since 2008.

By 1996 Argentina’s debt had now nearly doubled to $110 billion. Cavallo resigned amidst widespread claims of corruption throughout President Menem’s government. But Menem held on for three more years in which another $35 Billion debt was added. No one was to worry though. The IMF had a plan and as long as Argentina continued to follow it, the IMF would smile upon her leaders as would the banks who were getting so very rich from all the interest.

1999 Menem fell. Fernando De la Rúa took over. But the real power, behind the presidential throne did not blink or close its eyes. Not for a second. Greed and evil don’t sleep. After nearly three decades of neo-liberal policies, away from the golden lives of the urban elite, of Polo matches and private banking, there was no better future coming for the mass of Argentinians, there was recession. But Argentina had become used to turning whatever trick her pimps told her to. So when the IMF said the answer was another loan the new President, much like the old one, got to his knees to give special thanks.

In December 2000 he wiped his mouth clean and addressed the nation.

“[the IMF credit line] is a guaranteed fund so large [$40 billion] that it clears any doubts or threats over Argentina’s future…Argentina has no more risk,

And now it is Greece which will have ‘no more risk’ just like Ireland or Portugal, as long as she can have a big enough hit of that crystalmeth bail out goodness. Now it is Greece that must do what it is told for another tranch of funding Just one more bail out and one more round of austerity to pay for it and Greece, like Aregentina who blazed down this the path before it, will be fine.

‘Greece will not need another bail out’. Of course not. ‘Spain isn’t Greece’. And Spain’s banks are secure and funded and their debts are under control. And Italy isn’t Spain and France isn’t Spain and no one wants to be reminded of Argentina. After all that was then and this is now and now is different. Isn’t it?

Argentina is safe and transparent, and can now grow in peace…2001 will be a big year for Argentina”.

And it was. Argentina continued to follown the IMF dictats of government spending cut backs and austerity. But the country’s economic decline and contraction accelerated. De la Rúa lost control.

Cavallo was brought back, this time with extraordinary powers to force through whatever the IMF said.

A patchwork collection of new taxes, spending caps, debt swaps, and cutbacks (including a 13% in pensions and some social payments) only deepened the country’s social problems and turned more people against the De la Rúa government.

September 2001 another $8 billion loan brought Argentina’s debt to somewhere around $193 billion. And then on December 5th 2001 the music stopped. The IMF felt it had done enough to help the ungrateful and said ‘no’. Argentina defaulted. And the bond holders were, as they are now, outraged.

The echoes of history are, to me, chilling. And I wonder can we really be the only ones who hear them? I cannot believe that those echoes do not whisper through the marbled walls of the Central banks and along the carpeted corridors of the IMF. And yet the lunacy and greed roles on from country to country, from people to people. Always the same true believers burning our hopes, blighting our lives, before they walk away, with a shake of their perfectly tanned heads, to their private jets to return to the place where there is no want and despair does not go.

This is the story of Argentina’s default, so crisply summarized by Judge Griesa in his judgement, when he wrote that, “at long last…Argentina must pay the debts which it owes.”

Sorry to break here, given that most of this has been background, but I have been working more slowly than I had hoped I would. Part two, in which I hope to get to my conclusions, begins –

Sub -level Three. Vulture world

Without carrion eaters the world would be strewn with corpses. Vultures eat the dead. Vulture funds, however, eat the still living.

@zhou +1


Argentina is an example of the worst excesses of Government. A deeply paternalistic colonial country with a bitter history of class warfare (during the 70’s 75000 people were murdered by the State). Catholic patrons and their sons in the military versus Communist revolutionaries. A neo feudal society wracked by violence. Unable to come to terms with its own realities.

The key problem for Argentina then as for our own country now is a complete absence of any proper grasp of economics on the part of the rulers as well as in the minds the people themselves. As usual Socialism raised its ugly head.

Socialist planning of the economy is not possible. In a command economy the absence of price signals in the production sector puts payed to any efforts at efficiency. Entrepreneurship is impossible. Innovation goes unrewarded. Hard work gets one nowhere unless it is work that is designated important such as chess playing or rocket building. It is important to note that socialism has never provided any population with a decent life. Never. No society ever existed in which collectivist command economic control has achieved anything like the prosperity, personal liberty, health, intellectual freedom, leisure, choice of goods and services or general satisfaction that has been achieved through free market capitalism.

All command economies are totalitarian. The more isolated they are the more traumatic for the population. Like Burma or North Korea, decades of abject poverty, deprivation and violence may pass before the military backed elite are toppled.

Argentina should have attempted to build a society based on the rule of law and free market capitalism. They didn’t. Instead a socialist cleptocracy evolved. They suffered and they were exploited by those from within and without their society who were determined to steal the resources and reduce their population to rent paying serfs. That’s the way it is. Without the rule of law and the universal recognition and respect for property rights, thieves and exploiters will destroy your nation.

The weapon of choice for the outside forces is cash. Inject enough fiat money into a week socialist economy and wait for it to implode. Then go in and ransack the place. A tried and tested methodology perfected by the Western bankers and implemented by the IMF, World Bank etc.

So the lesson surely must be that where socialism prevails and the rule of law is weak a nation is on a hiding to nothing. The reason why Ireland is in the state its in now is due to the fact that we have followed the wrong path from the beginning. We allowed a paternalistic, socialistic cleptocracy in the service of a small elite to emerge. Why is it our population has never increased in any significant sense since the Famine?. Lately our elite allied themselves to outside forces wielding wodges of cheap cash and we have suffered the inevitable smash just as occurred in Argentina.

The solutions to our problems are easy to state but painful to implement. We must end the hegemony of the banks. We must reduce the size of the state. We must allow the free market unimpeded rein. Property rights must be clearly delineated and upheld under the law. This will bring us to a place where freedom reigns and people have both prosperity and leisure.
In a society were prosperity and choice abound, poverty is rare. Where freedom is ubiquitous, democracy actually prevails. Not the totalitarian majoritarianism we call democracy. Where secession of the individual from society is possible, violence is minimized.

@Robert Glynn

Both Nestor and Cristina Kirchner had/have a very good grasp of economics, international law and domestic law.

It is not quite the class ridden feudal society you make it out to be. I would say GB and Ireland are ahead of them on that front.

As for reducing the size of the state and giving the free market unimpeded rein the people who complain the most loudly are the ones lobbying for and buying more state intervention.

As for hegemony of banks, people were easily persuaded that Irish banks could not be allowed to fail. They even elected FG to doubly ensure that they would be propped up.

It is not the size of gov’t that is important it is the quality or lack of quality. The overarching need is for competent politicians. Are there new political parties emerging in Ireland or doomed to fifty years of poverty all over again.

very positive Indo spin about the Burlo but where does that leave the taxpayer? And McNamara has declared bankruptcy.

DUBLIN’S largest hotel has been sold to the world’s largest hotel company for €67m, or just one-fifth of the price paid five years ago.
The Burlington Hotel, which has played host to countless GAA and rugby events as well as weddings and parties since the 1970s, was sold to US venture capital fund Blackstone after Bank of Scotland (Ireland) took control of the hotel from failed developer Bernard McNamara, who paid €288m for the building in 2007.
The hotel sale is the biggest since the economy collapsed in 2008 and shows that foreign hotel operators are slowly beginning to look at Ireland now that property prices have returned to normal levels and room occupancy rates have improved.
That’s good news for taxpayers, who own many of the country’s hotels through NAMA. Seven investors vied to buy the hotel and bidding went to two rounds.

@ seafóid, et al

I’ve been thinking fairly slowly about this. We talk about the banks having lost the money (here and in Europe) and they have.

But really, in general, they loaned it out to people/companies that spent it on assets like landbanks and the hotels (not sure what proportions ent on this). The assets dropped, so the people to whom the money was loaned can’t afford to pay it back. But the money wasn’t destroyed, presumably there were lots of deals where the loanees bought assets at very high prices and the people who did the selling got the money?

Where is all or part of that money now?

@ Gavin

I would say that a lot of money went into assets that are no longer worth what was paid for them, fatally wounding the efficient markets hypothesis in the process. The Burlo is only worth 20% of its 2007 price. Presumably many of those who sold in the last iteration of the property insanity reinvested their gains in assets that have not kept their value. I imagine much of whatever survived the cataclysm has been squirreled abroad.

Only debt has a stable value now. Only debt is real. Only creditors get their money back.

There was a programme on RTE a few years ago called “I want a garden” and I thought the tone was very boomy. Nobody says “I want a garden” nowadays. Modesty has returned via a slap of the fish called reality to the face. Asset prices are much more grounded now as well.

More deleveraging in the absence of any attempt to look after demand or even think about creating jobs .

Thousands of jobless people could see their unemployment benefits cut from next year as part of a controversial plan to be considered by the Government tomorrow.
The Irish Times understands that the Government is under pressure from the EU-IMF-ECB troika to reduce the duration for which the non-means-tested jobseeker’s benefit is paid.

@ Seafoid

‘Presumably many of those who sold in the last iteration of the property insanity reinvested their gains in assets that have not kept their value’

Of course, but it follows that the sellers of those dodgy assets, in turn, made a packet. As nothing was changing hands except real estate property titles, the banks’ (state’s/taxpayers’ in many cases) catastrophic losses are someone else’s fantastic gain. Gavin rightly enquires as to who has made these gains. As we used to say down the country, that will be for them to know and for him to find out.

We have witnessed a Ponzi scheme of mind-boggling scale, relative to the size of the domestic economy. There was a massive transfer of wealth towards those who already held substantial property stakes, with a cascading shower of lesser benefits to the various professional facilitators and gatekeepers involved. Many of the latter were so impressed by the gains of their masters that they took equity stakes themselves. In the end, most social groups were drawn into the speculative frenzy, and many were losers. You just had to get on the ladder. Our version of 1929, when so many small folk were sucked into ‘sure thing stocks and shares’.

The dominant players bspanned the whole gamut from venerable religious institutions sitting on juicy prime lands to nouveau riche developers and their various advisers. People hold stakes through business, family, sporting, and many other sorts of organisations, so it’s far from easy to determine who has what stake and which entity is getting the ultimate payoff. Cases currently before the courts illustrate the labyrinthine structures which our financial and legal engineers can create. That’s business and that’s family business in many cases, and what we can see on the news is just the tip of a huge iceberg of white collar crime and sharp practice. Standards.

Indeed the ‘money’ paid for the inflated property has, as you say, been exported or reinvested. Some has been ‘laundered’, or dissipated in a whole variety of ways, and there will be fanatical resistance to any attempt to uncover the specifics. From the perspective of the winners, and those who benefit from their largesse, these are legitimate windfall gains, and the associated debts are an entirely separate matter. Any acknowledgement that the gains were the result of Ponzi would threaten our respected and respectable social order. Move on, nothing to see here.

The property inflation was achieved by means of private bank credit, while the banking regulator failed to take any steps to prevent banks from blowing themselves up. It’s obvious now that the weakness of the state operated to the clear advantage of the well placed. It was what suited.

A nexus of intertwined vested interests drew senior private and public sector figures into a collusive and personally lucrative involvement. I guess it was felt that the state would once again clean up any mess, but the scale of the economic destruction, and its consequences for the viability of that same state, were probably not really envisaged. No one in authority wants to go there, but that state of affairs will not easily endure. Too many and too various state liabilities, of which the PS payroll is only one.

The broader domestic reasons for the debacle are complex but I imagine that they include our generally low standards of corporate governance, our historical tendency towards evasion of regulations, and our underdeveloped domestic economy, with its pervasive clan networks. The po-faced institutional cute hoor is of course the cutest of them all. As Sammy Davis Jnr put it ‘Sincerity is everything. If you can fake that. You got it made’.

@ Seafoid

“I would say that a lot of money went into assets that are no longer worth what was paid for them, fatally wounding the efficient markets hypothesis in the process. The Burlo is only worth 20% of its 2007 price. Presumably many of those who sold in the last iteration of the property insanity reinvested their gains in assets that have not kept their value. I imagine much of whatever survived the cataclysm has been squirreled abroad.”

but who got the money for those overvalued assets etc? Did the money not, in reality, go into unfunded liabilities (of all sorts) that we will have to pay for down the line, ie inflated wages in both public and private sector, pension “assets” (ie DB schemes) of existing workers (both public and private sector), increased social welfare, increased free health and education services etc.


Unfunded liabilities by definition are not cash. They are expectations.

It looks as though a lot of “value” simply disappeared and of the reduced pot of household wealth there was a flow to the top and the various vested interests whose cashflows remain unimpaired.

I am aware from a close reading of the works of Tull McAdoo that the swankier parts of Dublin have been ravaged by investment ineptitude but that taking a class war view things are still comme il faut for the tribe as a whole

This same study also highlights the extent of inequality in wealth distribution in Ireland. It highlighted that the top 1% of the Irish population held 20% of the wealth, the top 2% controlled 30% and the top 5% disposed of 40% of private assets. Excluding the value of housing, the concentration of wealth mounts up to 1% controlling 34% of all wealth.

@Gavin Kostick

I remember sitting with a group of financial advisor types in July 2005 when new of the sale of the Berkeley Court and associated lands in Ballsbridge came through – it was said at the time and it is still very true today, that a very stupid deal normally marks the top of any bull market. Indeed the sale of the hotel and lands at €400m in D4 was truly crazy. Happy to report that those of us around the table that day thought as much.

The important point here is the date of the transaction. It occured in July 2005 and despite the fact that deals were completed in their billions after that time I’m pretty sure no deal was done for a yield as low as that, at least in Dublin.

The point being is that the banks share prices didn’t in fact peak until the spring of 2007 – nearly 2 years after the date of the transaction. This is important becuase when you ask where did the the money go the answer is in a significant proportion of land sellers at the time it was advised to reinvest the savings back into the bank shares which were still rising despite the gains in land sales running to stand still from about 2005 until late 2006.

Many smaller land sellers did just that as advised by their local bank managers. So peak land prices were well and truly over by the time the share prices started to fall off a cliff – the big winners here eventaully were the US and London based hedge fund clients of such fund controlled by John Pulson & Co, Marshall Wace etc – the hedge funds which shorted the bank shares and won walked away with the loot – the owners of these funds were certainly not Irish by and large they are American predominately but the gains were spread pretty widely so extremely difficult to pin point the exact winners here.

Many land owners down the country who sold fields to developers reinvested those gains back into property plays – normally commercial and in many cases actually supported the developers working capital to get the project completed- all now lost to the bond holders in the banks.

Thanks very much for the informative discussion above, Yields, seafóid, Mr Bond & mr quigley.

Mr quigley might be please to know that his M Bourdieu is currently playing a blinder down at the Lir Academy for Dramatic Art.

“Poster child for austerity” would be a good slogan for sado monetarism.

Most of the poster children are malnourished if the UK is anything to go by.

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