September 6, 2008

Crisis-hit banks are acting out a shameful piece of theatre

Posted in Banks · 54 comments ·

Things are going downhill so rapidly that we need to look at changes day to day, not year to year.

In economic analysis, it is normal to compare year-on-year figures in order to draw some inference about what is happening to the economy. Every day we hear experts saying that new car sales are down 42 per cent since last year, or unemployment is up 47 per cent since last September, or whatever.

The central underpinning for this type of measurement is that we can deduce something from comparing this year and last year, and any such deduction can help us understand what is going on now. The key assumption is that nothing has changed since last year and, therefore, a comparison with 12 months ago is meaningful.

But this premise that nothing has changed since last year is nonsense. The most important thing to appreciate today – in the week the government reacted to the crisis and the markets went into freefall again – is that everything has changed.

As a prominent businessman said to me last week, ‘‘forget year-on-year comparisons – what matters now is week-on-week changes’’. His gist was that things are deteriorating so rapidly that the day-by-day and week-by-week changes are more revealing than the year-on-year malarkey favoured by many ‘experts’. His reasoning is simple: last year was not only 365 days ago, it was an entirely different epoch.

Let’s examine the contention that we are now in a new epoch. Given what we know about lending, debts, house prices, unemployment, migration and tax revenue, it is reasonable to argue that Ireland has now moved into a quite different phase. This is not merely a normal economic cycle amplified by the credit crunch; we are faced with an entirely new paradigm which has enormous ramifications for banks, governments, house prices and all of us.

What is happening in Ireland is a microcosm of what is happening all over the English-speaking world. To appreciate the magnitude of developments, we must understand that this is a global monetary crisis, the likes of which we have not seen in our lifetimes. The epicentre of the tempest is the banking system and the monumental debts that have been incurred.

Make no mistake about it, these debts will not be paid back because we cannot generate the income to do so. As a result, it is highly likely that one big Irish financial institution will fail in the next two years.

This might sound dramatic, but it is fact. Remember, telling people that house prices would fall two years ago was labelled heresy – but it has happened.

In fact, the lesson of the past 12months is that the ‘experts’ haven’t a clue what they are on about. If you look at how the consensus view has changed in the past year, we see that what was originally labelled ‘extreme’ and ‘maverick’, has become normal and mainstream.

For example, we were reassured that the crisis would be limited, ring-fenced and manageable. But the opposite has occurred. If we look at what has happened in the US, we see that the local has become global.

Twelve months ago, the experts told us that the financial crisis in America was limited to the sub-prime market. Then we were told that it was only in Florida. Then the spin was that investment banks were safe and only mortgage banks would be affected.

Then we were reassured that a run on a bank was not likely. Now we know that possibly trillions of dollars of debt will have to be wiped out as mortgage problems feed into credit card default and on to insurance premium defaults and car loans. In short, the entire ‘buy now, pay later’ culture has been exposed as little more than a pyramid scheme.

Exactly the same will happen in Ireland. Up until this year, the Department of Finance was forecasting a budget surplus! This coincided with the ‘soft landing’ scam — which was, of course, bogus, because it has never happened in any market. However, this unfortunate truth didn’t stop the experts from peddling it, or the people from believing it.

Then we were told that only outlying areas would see house-price falls. Yet the biggest damage in percentage terms is being felt in the premium side of the market. Then estate agents indicated that new apartments in good areas would be fine. Yet last week we saw prices of swanky apartments in Dublin 4 slashed by 20 per cent. In addition, some developers are now offering zero-interest-rate loans to potential buyers.

This is indicative of the dire straits we find ourselves in, where the banks are trying to hoodwink ordinary people into debt by doing a backdoor deal with the developer, rather than forcing the developer to reduce prices. Where do you think the developer is getting the money to give you the zero interest-rate loan? From the bank that underwrote the project in the first place, of course.

This amounts to the bank agreeing that it is better that we lumber a small individual with the crud of a falling market, rather than standing up to a developer and telling him the game is over. But the game is over. The Irish business model does not work any more.

The business model was simple. It was the same as the business model of the modern bank and it was based entirely on leverage. But leverage and credit have dried up. Borrowing for houses is half of what it was last year and it is likely to be half again next year. In these circumstances, the probability of a bank failing must be high. Remember, there has never been a credit crunch without at least one bank failure, and this credit crunch is like no other we have seen.

Unfortunately, our banking authorities are doing nothing. Why don’t they just call the banks in and say: ‘‘Listen lads, stop conning us, we know your balance sheets are in trouble, now let’s work together to sort this out.” Instead, the Central Bank is criticising the government for not cutting public spending enough, when the Central Bank is the institution most responsible for the credit crisis in the first place. This is a bizarre and truly shameful piece of theatre.

The Central Bank can see the train wreck of a bank failure coming down the track, but it is hoping something miraculous will happen before it hits the buffers. So, as always in Ireland, we wait for the crisis before doing anything, by which time the remedial action is considerably more dramatic than it needed to be had we acted with courage earlier. What is likely to play out is drearily familiar.

There is likely to be a run on a bank, particularly banks most exposed to property and the ones with the least developed deposit base. As is always the case, the equity in that bank will be wiped out and shareholders will lose everything. The Central Bank will then force a shotgun wedding with one of the larger banks and the delinquent bank will be swallowed up.

All this will occur against a backdrop of rapidly rising unemployment, rapidly falling house prices and persistent budget deficits.

The Irish business model does not work anymore. Sorry for the bad news, but someone has to tell it like it is.

  1. sue

    Which bank will it be? 3 letters with one of them being an “i”

  2. David, you are truly a “John the Baptist” figure, telling everybody what they yearn for in their hearts (the truth) but what many influential profiteers do not really want to know-or want anybody else to know.
    What the speculators do not want to tell them is- The game is over.
    Unfortunately the small shareholders in the banks and other financial institutions will take the hit.
    Gilt edge stocks -my ars*.
    The whole world is being taken to the cleaners.
    When will we ever learn.?
    Luckily for you, we live in an era in which prophets do not lose their heads!

  3. Lorcan Roche Kelly

    ‘May you live in interesting times’, according to Terry Pratchett, quite a curse to bestow on someone.

    We certainly find ourselves in interesting times, both socially and economically Ireland at the moment.

    There is nothing in your article that I fundamentally disagree with, David, but it does leave a rather large question hanging at the end, Where do we go from here?

    I agree that the Irish business model does not work anymore, but our current problems are exacerbated by the fact the model, in it’s current incarnation, is the mongrel child of the US free-trade and European social models.

    Add to this our lack of domestic (non foreign investment) industry to export our way out of trouble, leaving us without the less painful cure of earning our way out of debt, and we start to see how bleek the situation is.

    Bank(s) will go bust, as will many developers. All will leave a trail of debt behind. Those that survive will change their business models, wise after the event. For the rest of us, the only option left in the short term is to spend less, alot less.

    For the government, this is an impossible position. An austerity budget is needed, but will be unpalitable for two reasons. Belt tightening is never popular and politically dangerous but also this government will have to admit that their economic policies were wrong. ‘Vote for us, we’re going to give you nothing and we’re incompetent’ won’t look good on an election poster.

    So to come back to ‘Where do we go from here?’. The long term solutions are education and innovation. In the short term there is no easy way out of the pain of the correction, and no soft landing.

    Whatever is coming, it is certainly going to be interesting.


  4. VincentH

    A simple payroll program for the health service, one that could be applied nationally became a mire, too such a point that on-one knows even in a philosophical sense what the hell is going on.
    Last week, on the radio a chicken farmer from Co. Limerick was commenting on the loss of a college education for his five kids. How exactly, I’m not sure, but I for one am not paying a vast price for chicken, so that someone can send his sprogs to Rockwell, Glenstall or Kylemore. Nor am I all that keen on their rumps parked at Loyola-Marymount when LU, the Virginmaggastore or UCG/NUI, Galway will do just as well, and are free.
    Why exactly does every one and his aunty need a raft of beaks when attending at the castle.
    Are you really expecting clarity from the banks, when it is more than likely they have no clue themselves.

  5. Deco

    David. Thank you for calling it exactly as it is. The banks are in serious trouble.
    However there is one thing everybody is banking on. From the politicians in Kildare Street to the local auctioneer in the shiny office on High Street. The multinational sector. What people do not know is that the pressure on the multinational sector is slowly ratchetting up, consistently. The fall in the value of sterling vis a vis the Euro is tightening margins for any multinational exporting into the UK. Beyond that costs in other areas of the Euro zone are dropping. Same currency. Lower cost. Higher taxes yes. But the margins are tightening. This assumption, that the multinational traded sector will carry the country, is the basis of any remaining reassurance provided by ‘official Ireland’. That the people who compete on the world stage will carry those that would rather not compete on the world stage. It is loaded with assumptions, delusions and deceptions. The multinational sector is getting under an unprecedented level of pressure. And a key part of this is cost pressure. The costs of business on continental Europe are declining, assuming a common currency.
    The question now is can Ireland decrease it’s cost base in a way that avoids social chaos ? Based on the number of ‘free riders’ like the legal profession, the consultants in the HSE, and local authority charges, I doubt it. It would seem more likely that the insiders will continue to share in the pie, while the outsiders continue to get shoved outside. The wishes of many were pandered to by the political class. This resulted in many quangos that deliver little or no value to the either the economy or the society. I cannot see the government cleaning up this mess. Things are not serious enough for people to understand this. But the key is the dynamics. Things are changing very quickly. The need will quickly arise. It is quite similar to the situation that prevailed in the early 80s, when the Haughey government tried to inflate it’s way out of a crisis and caused serious inflation problems. In the 1980s the will to resolve the problem was complicated by the power of the public sector unions, and the collapse of the private sector economy under the inflation/debt/difficult banking credit that happened in the early 1980s. Again there are similarities to today’s cycle.

    We are also about to see the results of differing behaviour with respect to money. Before the economic event there is a choice that directs that behaviour. And this choice or decision comes as a result of many factors. The dominant factors in previous years have been confidence, social group conditioning, self concept actualization, and of course credit availability. The only one of these factors that actual increases the ability of the pay for goods and services, is credit availability. And even then it is a very loaded concept. Because it is a virtualization based on the future ability to repay. It loaded with an assumption to repay. A credibility. And I sincerely doubt that it can stand in the next five years. David you are right, the Irish business model is based on many assumptions. And the assumptions are not as sure as they were in recent years. If anything the trend is that things are changing at a pace that it is very hard to keep up. And banks with credit problems will find that they have to keep up, and that the options are running out. The latest ‘bank & developer’ double act to resusitate the property market show a new milestone in the Irish property market. Clearly both are in serious trouble. It is a big idea to an increasingly apethetic consumer. But the entire thing is based on confidence of the consumer in their own employment prospects. And what we see is that the consumer has no confidence in their own employment prospects.

    But beneath all the consumer behaviour, an economy must be creating wealth. In the 1980s the real substance of the economy was beef and butter. Today it is high technology and financial services. The high tech sector is under pressure like never before. The financial services is in a credit crunch. The behaviour we see in the market is the result of a differing picture in the competitive traded sector. The result of a differing level of confidence in the private sector. This is the big assumption of the Irish economy. With Eastern Europe emerging with better infrastructure, a more sober workforce, lower costs, things are suddenly changed. There is a sudden and desperate need to end delusions. I don’t think people are sufficiently prepared for this.

  6. Deco

    VincentH…concerning the HSE IT project….the unfortunate fact is that the same project has been implemented all over Europe without a hitch over a hundred times over….it is absolute indightment against a country that likes to see itself as a technologically advanced society…most of the administration in the HSE is still paper based…a combination of factors is creating the cost overruns…public sector unions, an embattled minister for health who is rumoured to have an alcohol problem, bad managers, nepotism, consultants who regard the entire project as a means to negotiate more pay, and inexperienced personnel charged with making the thing a success. It was a complete disaster.

    Concerning the chicken farmer. I would not be so hard on the chicken farmer. He is merely doing what a large segment of Irish society is doing…he is looking for something for nothing…he is not alone…this belief system has been endemnic since the 1970s…it is the ultimate expression of the Irish Welfare state economy…looking for something for nothing….everybody looking for a subsidy from his neighbour…and prepared to retaliate against anybody in the political establishment who will threaten to do away with this nonsense….you are right to be outraged….he is a ‘SOMETHING FOR NOTHING’ AGENT FOR POLITICAL CHANGE…the ultimate Marxist joke !!!
    The fact is that we have become a something for nothing economy…however at least he is producing something of use chickens…think about all the ‘self regulating industries’ which set their own rates for work that in many other EU countries is deemed unecessary but is totally endorsed by Irish state policy….for example the ‘work’ of the legal profession, etc… The something for nothing society is ultimately expressed by the people in our society that are absolved in various forms of substance abuse and addiction…

  7. Deco

    David, listening to Liam Griffen the Wexford hotelier on the radio talking about the costs of business compared to Britain and France. I reckon a forum should take place to discuss the Irish economy. David McWilliams, George Lee, Liam Griffen, Micheal O’Leary, and two industrialists. On live television for the Irish people to realise how ‘out of kilter’ things have become !!!

  8. Garry

    Fair play David, I agree with you Deco also, but I think the central message of this article is too important to be diluted, there are billions at stake.

    The title captures whats going on with out banks perfectly, its a shameful piece of theater.

    The front of house staff (PR & paid economists) are busy tap dancing and singing that everythings rosy.
    Meanwhile their corporate colleagues have merged with the developers and are desperately trying to offload property rather than writing off bad debts…. Other colleagues in mortgages are refusing loans to the few first time buyers who are being desperately wooed by their buddies. So we have a little farce going on, everyone working against each other with the tempo increasing all the time as compound interest works its magic. Something has to give and behind it all we have the CIF and banks looking for their happy ending…. by jumping free and offloading the whole stinking heap to the village idiot aka the taxpayer.

    The end of this play hasn’t been written yet; but it’ll be Shakespearian; there’ll be plenty of bodies on stage in the final act in 2009. Cowan, Lenihan & the central bank gets to pick them. Grow a pair lads, try doing whats right for a change!

    Again David, this article is genuinely patriotic and has done the state some service.

  9. JonnieG

    George Soros in his recent book, The New Paradigm for Financial Markets, makes reference to this new epoch. He contends that the post WW2 credit super-boom has reached saturation point and a contraction is inevitable. Ireland has benefited from this quite belatedly. It enjoyed a decade of decadence based on negative real interest rates, a kind of economic masturbation where noting real was produced.

    The past twenty years saw the first truly global economic boom facilitated by financial deregulation and globalisation. The bankers chanted in unison about the benefits for self regulation “trust us were the experts”. Wall St went global and these Babylonian prophets were appointed as advisors to governments the world over. It seems clear in retrospect what must have been discussed at high profile G8 meetings, the World Bank, IMF, BIS, Bilderbiger, and the Trilateral Commission. Global financial symmetry was implemented and historic safety measures swept aside like some quaint souvenir of a bygone era. Basel II is testament to this fanaticism and incompetence, advocating for a reduction in the reserve requirements of the banking system, leaving porous safeguards in place. This allowed the financial system to maximise profits while shifting risk to the public. These accords have been implemented by the wise men at the EU Commission to their chagrin. I’m sure Mr McCreevy was an enthusiastic supporter. The lessons of history were disregarded and it seems that we have familiar old lessons to revisit.

    Ireland was only a passenger on this crazy ride and certainly did little to engineer its recent prosperity. A friend of mine recently said that even a turkey can fly in an up draft and this is exactly what the Irish economy is revealing itself to be. The conventional economic “wisdom” is being exposed for what it really is, hot air. Much of the “wealth” created in the past decade appears to have been illusionary and real wealth destruction appears to be inevitable as the piper insists on payment. The Celtic hoard has lost its sheen and the bailiff will not accept inflated assets in lieu of fiat borrowings.
    The question is where have the profits of this Celtic era gone, somewhere, realised before the music stopped. Perhaps they were “lost” at Ballybrit, never to be contributed to the exchequer, an oldie but a goodie for the cute hoor.

    The arguments regarding the benefits of political integration at a European level ring slightly hollow at present. The EMU collectively appears to have thrown caution to prudent economic management. Trichet et al sat back and steered us on an uncharted and perilous course and we are now expected to entrust our salvation to the same set of clowns, with the same comedy routine. Popular delusions and the madness of crowds should become mandatory reading for all MBA’s and perspective politicians. On second thoughts maybe they are very familiar with it and it forms the very essence of the boom and bust economic miracle.

    The “buy now pay later” confidence trick is not the only situation of concern. There is a truly awesome two hundred pound elephant in the global living room. It is comprised of credit default swaps, derivatives, and bonds which have been supported by expanding money supply for the past twenty plus years. The entire western money system is build on an understanding, an unwritten contract of trust that the vacuousness of fiat money will be overlooked and we will all go along with the little fantasy. The Chinese and Russians have put the US on notice regarding their holdings of US commercial and government paper. They are not willing to take the hit if Freddy and Fannie collapse. This will be avoided if at all possible and at the cost of mom and pop America. The big risk however is that loss of confidence, that discovery by Dorothy in the Wizard of Oz that the whole thing might just be a sham; and it is. That’s not the point though, we can be a better world through co-operation and voluntarily working together. Money lets us do this, it enables us to build on our achievements and efforts and store some energy away for a time when we are less agile. Unfortunately this good faith is being stretched to credulity. The system that people have agreed to co-operate within has been hijacked by a small section of the human family. They want to take advantage of peoples good faith and live parasitically off its generous host. Its this tendency within history that needs to be guarded against with robust laws and regulations that safeguard our fragile peace and prosperity. The financial elites have again proven themselves untrustworthy creating an inflation riddled laissez faire environment. As Robert Reich, US Secretary of Labour under the Clinton administration, points out in his latest book Supercapitalism; “capitalism should be made to serve democracy, and not the other way around”. Our political leaders need to remember who elected them and why. Namely to represent the best interest of the community not the vested interests of a privileged minority. Should the ultimate trust of legitimate democratic representation collapse we face the most uncertain of futures.

    As with all things in life the flip side of the global boom seems to be becoming increasingly inevitable. The first truly global bust, unprecedented at least since the dark days of the 1930′s. Then as now the pundits are reassuring an increasingly cynical public that everything is fine as the economic pillars collapse. This is reminiscent of the reassurances and predications of the “experts” calling for a bottom in the market post 1929. It is troubling to even have to contemplate these issues.
    The protestations of the financial and economic establishment are becoming tiresome as they continue the mantra about low inflation and present the public with increasingly spurious economic data. Lets hope the Irish public don’t get too smart and make a rush for they ATM’s because the machines are holding about one tenth of their money, assuming they have any!.

    If we survive this shot across the bow we would be well advised establish a more resilient and concrete economic foundation. We might well have to sacrifice a little of our consumerism to achieve this but it might lead to a more equitable, inclusive and sustainable future based on real wealth. A little less TV and a bit more history will make for a more robust society that cannot be so easily preyed upon by by snake oil sales men.

  10. Ger Kennedy


    Good article. I think you are correct in your assumptions about the Irish business model but, given the Irish way of doing things, I think you are wrong when you say that a large bank will fail in the next two years. Ultimately I think that one or more of the banks will be sold to an oil rich sovergn fund/bank to avoid said failure and save face. You alluded to this in a previous article and I still think that will happen. It will be hard on the “poor” builders because the banks will be under “new management” and they wont be as sympatetic as the previous owners to the lack of repayments on the bad loans. Meanwhile the previous banker boys will be lying on beaches in Portugal none the worse off with large ammassed personal fortunes.

    Reading the sunday papers today it looks to me like the government are going to cut the builders loose. They may throw them some scraps like home insulation grants but it looks to me like everyone now knows that the game is completely up and there is no point propping up the builders by artificially firing up the house building game again. I think everyone gets that now. Except for Tom Parlon and his buddies. However that is just human nature I guess on their behalf. They just want to get the most they can. Cant really blame them I guess. We would all do the same given their situation.

    So property prices must drop substantially. Ireland’s cost base must come back into line with reality. Irish people must innovate and create in order to get ahead. This will cause a lot of pain to a lot of regular people over the next few years and I hope that Ireland as a nation can brush itself off and get on with it. However to do that we need to innovate, create and export. It is a tall order. If we do it then we may become the next Finland. If not we may become the next Uruguay. Time will tell.

    Anyway, keep telling it like it is.


  11. Longlivetherepublics

    Remove your savings and place them in a credit union or buy some gold or silver coinage and stuff them
    in a mattress or a safe deposit box, or form a syndicate and buy a few acres of good land, least that way
    you will be able to eat if push comes to shove. As for the banks let them burn and the bankers with them, no one needs them. Whatever banking functionality communities need can be served by credit unions. The current banking system only exists to serve parasite shareholders who leach of the productive capacity of the underlying physical economy. If you bought a house at the peak of the boom, walk away from it and rent, you’ill be better of in the long run. Don’t worry about hurting you credit rating as the country’s credit rating as a whole has gone to hell anyway. And when the entire global financial system is put through bankruptcy organization and replaced with something more indicative of real physical values, a person’s credit worthyness will be judged on what they can do and not on how much shit they can talk, not unlike the current bunch of fakers who have run us into the ground. Let the banking builder hoors burn.

  12. Lorcan Roche Kelly

    The US administration today bailed out Freddie Mae and Fannie Mac, taking on the management of $6 trillion (with a T) of mortgage debt.

    Will this set a precedent for the Irish government to use taxpayers money to save National Allied Bank of Ireland?

    Unfortunatly for all of us, the answer probably is yes. Listen to the excuses given by the US administration today, so you won’t have to waste your time listening to our government regurgitating them in a few months time.


  13. Malcolm McClure

    David: You have done an excellent job as harbinger of doom over the past couple of years, usually pointing the finger at appropriate culprits. However you are rather reticent about offering solutions. Perhaps you see this as the function of those of us who contribute to this blog. Anyway, here’s my two bits worth.
    The ultimate custodian of wealth in Ireland is not the banks, which are pretty well derelict behind their Corinthian pillars these days, a bit like an Irish Acropolis. The place with a finger on the true wealth of Ireland is the Land Registry Office. It knows who owns every field, every filling station, office and home in the country. There is also the Valuation Office which has the responsibility to keep track of the ratable valuation of business properties. It is very interesting to search for the ratable valuation of business premises on their website
    If you search on Grafton Street, Dublin, for example, you find that Bewleys restaurant has a valuation of only €1714.15, less than many private homes in London, while the AIB premises up the street are rated at a ludicrous €76.18.
    The valuation process was established by Griffith in the 1850s to be a fair way to tax with rates every property in the country, not just business premises, and they did a fair and equitable job by all accounts. At some stage rates were abolished for all but business premises in towns and cities. Even those valuations are now totally out of line with the rental value of the premises.
    In my opinion there needs to be a complete and realistic revaluation of every property in the country and rates for a typical country bungalow in half an acre struck at say €500 and all other property and land valued in proportion. Thus Brown Thomas, instead of rates of merely €11,554 would pay say €500,000. These rates would be raised locally and spent locally to improve local infrastructure, thus spending us out of the recession we are now entering.

  14. Garry

    Malcom, I understand your wish to move on and find solutions but I think its pointless to debate them at this stage, the main contributors to the problem (banks, CIF, developers, central bank and indeed others) are still playacting… They may be delusional, having believed their own spin for years and think that another round of section 23′s will magically get the party going again….

    I’m afraid offering solutions at the moment is like talking to an alcoholic who’s still half pissed… Trying to help at this stage is a waste of time; they need to sober up and admit theres a problem first. And if they don’t, we have to be prepared to let them suffer the consequences. Unfortunately, theres pain in it for us also but these bastards don’t understand anything else.

  15. Philip

    I too believe the banks will be bought before they fall. Depends on timing really. I figure they’ll be let fall to near zero and picked up for a song to give an Arabian or Russian outfit some western cover. Of course, I am assuming that there’ll be a need for that in the first place. If the US Treasury Notes are starting to vapourise in the Chinese banks because Fanny and Freddie is sitting on thin air, we literaly have a new financial paradigm where Wall St becomes irrelevant and new methods of exchange of value will come to the fore. Basically, anyone who was trained in finance is obsolete.

    The comments (including this one) all have an air of naieve drama about them. Life goes on you’ll be told and the same old effers will be at it again and little changes – and keep taking the tablets. It is very hard to get people to take this seriously because they have no experience of it.

    Every economy is suffering the same credit problem right now. You cannot help feeling that what helped Ireland (I love the “even turkeys fly in an updraft” quip) will even more quickly bring it to its knees.

    I remember back in the 60s in the schools there were pamphlets issued about what to do if there was a nuclear war/fallout. The guidance was to move to the centre of the house to stay as far from the neat little flame illustrations around the outside of the house. I remember thinking as a child – great, this looks fun, when’s it happening? If ever there was a time to issue a similar pamphlet on the current situation, it is now. The effect of this crisis is arguably as bad as a global war if mismanaged. Community, Business and multiparty (non-partisan) action is now urgent for a 2-5 year plan that everyone has to support.

    Literally, the entire fabric by which people contract with one another is under threat. Also, I believe we risk teetering on the brink of the Public Services falling apart if this problem is not tackled soon. If this goes, you can wave goodbye to Eireann. – Now where are them tablets,

  16. Skin

    I have a question?

    Bank stocks are taking an mighty walloping at the moment, and the main reason is that there is a genuine fear one or more could go to the wall at some stage.
    As someone who holds a small amount of stocks in one particular bank I have two options – I can either hold out and ride the storm and hope that the stock recovers, or I can sell at a significant loss.
    The question is, if I sell I will receive a cheque from my stockbroker, what do I do with the cheque? I have to lodge it in a bank that may go bust anyway??

  17. Mick in the US

    So, if one does have some cash on deposit in Ireland, where’s the safest place to put it? [my mattress offers a poor rate]

    If one of the big 3-lettered-banks banks was to experience a run, or crash etc., would the gov step in & guarantee deposits [isn't that what happened Northern Rock in the UK?]

    Anyone care to recommend a liquid institution?

    btw – Read Vincenzo Browne in the The Post today. He seems to think this will all turn around in less than 2 years.

  18. Johnny Dunne

    “The Irish business model does not work anymore.”

    Banks lending solely to property backed schemes can’t work alone in a ‘developed’ economy. Is there another business model which could work given our current strengths and make a significant impact ?

    In case anyone doesn’t believe MNCs are here for anything else besides tax, the exchange rate in 2000 was $0.80/€1 and recently it hit $1.60/€1. Assuming salaries in MNCs were comparable with the US – it costs twice as much today but ‘services exports’ have risen 4 fold to €45 billion. That’s not sustainable in a global economy no matter what are fuel costs etc. It’s only a matter of time before the current tax regime is not enough to keep them here.

    Could recent speculation about Dell and announcements from Intel is this happening ?

    Bottom line, let’s call it as it is – we are the closest you can be to a ‘tax haven’ without being called one. So why not do that, advertise all over the world, change regulations within our control and get more companies to trade from here. I heard the IDA announced they will have another 16 projects before the end of the year, that’s about 1 a week probably mostly from existing compnaies . Should Mr Cowan not be setting a ‘target’ of 1 new company a day !

    Maybe, we would have to reduce our corporation tax to single digit %’s and give other tax breaks ?

    Why can’t we open our borders for companies to set up their operations in Ireland, provide corporation tax incentives and then there will be more employment, more income tax and eventually the empty buildings will fill up. Then more VAT will be paid on property and consumer spend when ‘confidence’ is back.

    Is there a politician courageous enough out there to propose ‘changes’ like this in our fiscal policy now to sustain and grow the only thing holding up the economy ‘services exports’ ?

  19. Hi David,

    We should reduce our corporation tax to single digit %’s, 8 sounds good to me and give other tax breaks. Especially companies who are spending or investing into R&D, research and development. Dell are selling factories, as design and technology are the future, not the manufacturing of products.

  20. Philip

    Nice idea about tax haven…but…what’s to stop China/ Poland/India from doing the same? Setting up a financial haven with just banks, reconciliation centres etc. does not employ many. Costs of manufacturing are just too high.

    I think the idea is good just for service businesses with a high knowledge content. Forget about moving material (except agri) and focus on software dev/ biotech etc. which are high in value add, need little in the way of transport logistics or raw materials. But fundamentally you have to play with the rest of the world – EU will block you and if you want to play outside their rules, then you are head to head with the Chinese etc.

    Ultimately, it’s a balancing act. Ireland really needs to focus on its unique selling propositions – and right now, these are none too obvious or easily duplicated in too short a timeframe.

  21. S.N

    Playing a economy game with corporation tax is like playing a game with steroid.
    You may look macho, but you are not. It is temporal, and will damage your health.
    We should face to the reality rather than disguising ourselves.

  22. ‘The Irish Business Model does not work any more ‘ ,….Really what was our business model anyway ?. We borrowed money at the start cheaply from banks bought over valued homes off crooked estate agents who were working with these institutions, we fitted out our new homes with appliances off ignorant sales assistance’s who were been over paid for their ‘services’ we then headed down to the forecourts to take out yet another loan from another institution to purchase our nice big cars, when our new washing machines , telephones and home cinema systems broke we waited for hours to get through to the call centers and when it came time to take the holidays we thought we deserved with our new homes rising in ‘value’ we picked up the phones to call our credit card companies to raise our credit limits. After all this we went out to restaurants and paid more for a steak than you would in New York, Paris or Honk Kong, and we thought we were great fellas because we believed the hype that we were the envy of Europe !
    And because we were doing so well Bertie set up 800 agencies to help the government with the running of our thriving economy.
    We have been on a merry go round ride for the last decade and we did not question why we have a higher density of governmental civil servants per head of population than any of our European partners we did not question it.
    Now that the wheels and cogs of this play ground ride were not oiled or maintained and we have fallen off ,we are now finding our selves in this situation
    The worrying thing about the ‘Good Times’ been over is we do not have any strong leadership in charge of the country.Our Banks here are in trouble not just because of external factors and the price of oil but because they were financing a false economy based solely on the construction industry and it’s spin offs.Now we have all these apartments and commercial units built on over valued land and lying empty , our elected officials don’t know what to do next.
    We have a green party also ‘in power’ who are more interested in carbon taxes light bulbs and toilets rather than looking at infrastructural investment in natural energy resources such as wave and wind power and even perhaps nuclear which would provide what MNC’s we have here with a lower cost base.
    We don’t need new ‘ideas’ to help the first time house buyers, we need as one of your Blogger s here has suggested and that is a national forum with Ireland’s leading Business leaders and Economists to just Tell our elected officials how we can get out of the mess they have put us in.
    With regard to the ‘knowledge economy’ until we start investing in our school system we will continue to have our heads stuck in the bogs in this state of blissful ignorance.
    And if one of our leading banks is to be bailed out , there whole upper management team should be sacked and not allowed walk away with millions in pay offs either.

  23. MK

    Hi David,

    Another interesting and good article from you that hopefully will ignite some people into doing some thinking.

    > the entire ‘buy now, pay later’ culture has been exposed

    The only catch is that the buy now pay later culture is something which capitalism as we know in most countries is completely based on. Its embedded. And we have been using it for decades. Its a trust model for one thing and its based on future activities/work output. I dont think we can get rid of it or drop it outright, just like a heroin user cant stop overnight, without major repurcussions. And credit-driven bubbles arent new per se.

    I agree with a lot of what JonnieG wrote. George Soros does call it correctly that we have been through a post-war “superboom”. I also fully agree that there is a two tonne “elephant” comprised of credit swaps, derivatives, etc, which is a major potential global banana skin. But like any drunk or junkie, it will be and is possible to turn things around, to wean us off this situation, to come back from the precipice, as it were. Whether that happens or not remains to be seen, if things go belly up, when that would be (2020 or 2050?), who knows, and even with a new world financial order, its unclear where and to whom most of the pain would have to be placed on. One thing is likely, there will be pain, and we are likely to get some of it.

    > The question is where have the profits of this Celtic era gone

    The borrowings have been spent and used. Borrowings. Now those you have taken them out have to pay them back.

    > Ireland’s cost base must come back into line with reality.

    Agreed, but who is going to do it. Just like salary increases on the way up, its not done uniformly nor fairly nor will it be the case on the way down (whether nominally or in real real terms). Similar with service/product price increases. What are the chances of Pat Kenny’s salary being reduced to half? Or him being sacked and replaced by someone at a quarter of his cost? (the new guy/gal could even be better too). Think of this as waste (sorry Pat, its not you, its your cost/productivity) we know of and expand it across the public service. Enda may think that we have talented people, but I fear its worse than that, that people that may have been talented once have been cultured and “dumbed” down to the lowest common denominator in their organistaion and their fellow ‘servants’. Its a disease. One solution is to lance it.

    I had some involvement with PPARS long before it came to the light of the public and could have told anyone back then that it was a disaster waiting to be exposed. There are many though, an awful lot. Basel-II likewise (and even Basel) is the world order that Soros is talking about. Printing money and loaning it out to be paid by future work, is that a sustainable model long-term? In a pyramid/ponzi scheme, yes, it is of course, but in our global economic experiment of the last 100 years, well, lets see.

    The Fannie&Freddie bailout is an indication of just how bad things are. I’m susrprised to see bank share valuations rising today based on that news, as I would have thought it bad news. Fannie&Freddie (and are there municipal loans and student ones as well) were/are a main pillar of the US financial system, providing stability. The fact that their model is in trouble signifies a widespread malaise in all loans throughout the US. Is this pillar ‘cracking’ like the deck of cards analogy I mentioned in a previous response? The US government is effectively asking all of its people to help and prop it up. It remains to be seen whether that will work or not.

    @Malcolm McClure: property rates at any level are not a solution. Flat taxes are unequitable and dont reward hard work, and I think that taxes should only be applied on income and spending whether you are a business or an individual.

    > I’m afraid offering solutions at the moment is like talking to an alcoholic who’s still half pissed.

    I agree. But speaking of pissed, perhaps there is one area which we ARE good at. It came to me in a ‘vision’ while I was staring into a pint. Its a bit of an off the wall suggestion, but lets push Booze-tourism. Think of the Oktoberfest, but multiply it by a weekly, monthly session for europeans/brits and ourselves alike. We have can a Novemberfest, a Decemberfest, a Januaryfest (who needs new years resolutions!). We can reduce the tax on booze significantly and on flights, and hotel service tax. We have the hotel capacity. There’s a lot of space in the Pheonix park for marquee’s, etc. Mayo has a lot of space. The bog of allen is underutilised I believe. Booze cruises on the Shannon would go down a treat I’m sure. We surely know how to hold a festival, and sessions. We also make the products here. A good place to employ some of our musicians too as entertainment will be needed. Yes, of course there are many downsides to such an outrageous suggestion. We could become a nation of drunkards (although some may see us already as such). There would be social problems, trouble in city and town centres, more hassle for the Gardai, ourselves, crime, broken bottles, etc, A temple bar x 100, with stags and hens and all things animal. We would gain in total tax intake due to the consumption. The revelry would become legendary. Paddy-Ibiza land. A spring-break destination. A must do. A bull-run equivalent. “Have you ever been on a session in Ireland?” would be our marketing tag-liner or “Oktoberfest, pah, Ireland has an AnnualFest”. It actually plays into what we are globally known for. Why fight that global marketing and stereoisation any more? All to take place indoors of course, because of the rain. Long-term benefits would likely be a reduction in our pension bill as alcohol punishment takes its toll on our own longevity.

    > I too believe the banks will be bought before they fall.

    Yes, its likely that they would have liquidity problems before complete failure and hence could be bought by a soverign fund or another bank. One banks set of problems is another’s opportunity. Whether it will come to that or not remains to be seen. I have no visibility of the quality of the loan books at the big banks at the moment, but like a blind roller coaster, sometimes the start of a dip is gentle, and it could be the beginning of a greater dip to come. At the moment, no-ones knows how it will exactly pan out, not even the banks themselves, perhaps least of all the banks themselves!

    A small point in the general scheme of things, but whether annual figures are no longer of any use though is something that we shouldnt ignore quite yet. I agree that to measure the rate of change on an ‘economic roller coaster’ ride, its necessary to do shorter sampling, and to assess the rate of change, a dx/dy as it were. Our stats are all rearview mirror though no matter which way we look at it (even though you have espoused potentially novel metrics, such as the donkey, GAA players leaving, and others). There are no complete measures, although Real Employment (and employment opportunities and conditions – purchasing power, quality of life, etc) are for most people a key one.


  24. Longlivetherepublics

    Brendan W, You make a lot sense. However common sense isn’t in vogue right at the
    moment among Ireland’s ivory tower dwellers and the pro environment bullcrap promoters.
    It’ill take a tidal wave of reality to wash these b**stards away.

  25. Lorcan Roche Kelly

    “I believe that banking institutions are more dangerous to our liberties than standing armies.”

    So said Thomas Jefferson in 1802.

    It still rings true over 200 years later, despite all the changes in the interm. The historical sharp practices of banking institutions have been stiffled by legislation to be replaced by a new form of usury, not excessive interest rates, but excessive credit.

    This practice has had the support of the authorities because the liquidity it provides helps economic ‘growth’. But this growth is false. It is borrowed growth, borrowed from the future. We have sacrificed future growth and, more importantly, future investment on the alter of current spending.

    So the annual growth figures we’ve seen should have been weighted based on credit growth in the economy. Then we might have an idea what we are currently achieving, against what we are stopping ourselves from achieving in the future.

    Great post MK.

  26. Longlivetherepublics

    >The Fannie&Freddie bailout is an indication of just how bad things are. I’m susrprised to see bank share valuations rising today based on that news, as I would have thought it bad news

    fannie and freddie guarantee the majority of the U.S originated mbs’s which are now on the books of many
    of the European and U.S banks. So the bailout has artificially improved that quality and value of these mbs’s and hence the share value of any institution holding them.

  27. Stephen Kenny

    You’re implying that there was a certain degree of fear on the part of the bondholders that Freddie & Fannie would be allowed to disappear, and also, and quite separately, that the US government would allow all, or some, of their bonds to become somehow technically valueless, irrespective of their underlying value?
    Their bonds might be over the counter, but surely they – which are, after all, just a bunch of mortgages – have value in their own right?

  28. Philip

    FDR’s famous phrase comes to mind “Only Thing We Have to Fear Is Fear Itself”. Really, Freddy and Fanny bailout was necessary or panic would take over for sure. This is what it’s all about. Managing fear and I expect there will be an intense managing media to ensure the wheels do not come off the cart. It might just work provided the internal corrective action takes place…firings, dismissals, changing legislative frameworks etc. I figure the US have about 2-3 months breathing space to show fundamentally it can prove that the businesses there can generate enough activity to pay back loans in a finite and guaranteed timeframe.

  29. Malcolm McClure

    Philip quoted FDR “Only Thing We Have to Fear Is Fear Itself”, but George Sewell said “Fear is the tax that conscience pays to guilt”. And we are all guilty, at least by default, for what has happened in Ireland over the past 15 years. We all enjoyed the benefits of the boom and the rising standard of living it enabled, without raising obvious questions about how it could be sustained. Other members of the EU scorned our dependence on low corporation tax–an economy on steroids, as someone said.
    During the boom years, active people at every level of society had the last cobwebs of Celtic mysticism wiped from their eyes and have been exposed to new and dynamic ways to make things happen, rather than by pinning bits of cloth to a Fairy Bush, (No, not that Bush.) and making their wish.
    There will be a period of readjustment to the new reality. (Even a gas cylinder refill now costs €29 instead of €14 a short while ago.) But the workman has his tools, (quads and even excavators have entered almost every field). The momentum built up will not dissipate overnight, banks or no banks, money or no money. As long as society remains stable, people once again will barter skills for food, fuel etc, as they did in the not-so-distant past. Its not the end of the world.

  30. Longlivetherepublics

    reply to Stephen Kenny

    An MBS backed by what was initially overvalued and now depreciating assets, i,e shoddy American houses, and the increasing likely hood of default by mortgage payers who generate the dividend on the MBS, mean that they have much less value now than they did a year ago. This is the sort of toxic waste
    many banks were exposed to which was the initial cause of the credit crisis as no bank was willing
    to lend to any other bank who was suspected of having these mbs’s on their books. In fact they have so little value now that no one wants to buy them. Any institution playing the role of the guarantor to a large portfolio of mbs’s like fannie and freddie for example, is now going to be massively exposed as they have the responsibility of making the dividend payments to the mbs holders should the payment streams from the home owners,backing the mbs, dry up in the event of homeowner defaults. It was this exposure which threatened to bring fannie mae down and is what caused its 90% drop in share price within the last year,
    and therefore the total lack of faith in mbs’s. Todays move to make the US treasury the new guarantor
    has restored some faith in the mbs and any institution who may be suspected of holding them, and which
    consequently could therefore lead to increased trust between lending institutions and an ease in the credit crisis.

  31. Garry

    Lets not get ahead of ourselves. Its not even the end of the dollar/euro/sterling let alone the end of the anything else. Even if it is, I suspect debts will carry over.

    But this article is really important, it’s telling the government and the central bank theres a real problem out there… you can’t claim ignorance…. sort it out now. Its timely, as decisions are being made, deals are being done now that will seriously influence the amount of money the taxpayer is forced to spend over the next few years on property, banks etc.

    You must understand that each taxpayer (yes you and me) could potentially be paying thousands in extra tax that we don’t need to. How much? It can vary from a few thousand each to over a hundred thousand each depending on just how rotten the system is, how stupid/corrupt our politicans, bankers and developers are etc. Yes, it is that serious.

    Thankfully public opinion seems to be moving towards let the market find its own level though there are plenty of suits issuing pre budget submissions while eyeing up the public purse. Remember every quid they rob will mean more borrowing, more taxes and less public services.

    To continue the housing theme, there are burglars wandering around our house, we should deal with them and then we can start looking at the hole in the roof.

  32. @ Johnnie G , quoting George Soros ,this is the same man who with his investment vehicle single handily caused the devaluing of sterling and the punt back in the early ninties ,What a man he is!
    @ Lorcan Kelly with reference to Fannie and Freddie , this bail out has been done by Mr Bush who like our Bertie stepping aside ( knowing the sh*t was about to hit the fan here ) is out of office in four months, they are as good as bankrupt they actually have mortgages to the value of $5.3 Trillion which is as of March the same as The US Treasury has outstanding in securities.and due to again clever book keeping loans which had previously been considered defaulters after 90 days , were a few months back pushed out to 2 years , so the US fed has as you’d say got a pig in a poke.
    With regard to our stock market jumping back on this takeover , it’s again fantasy and remember stock brokers work on a commission too.
    @ Longlivetherepublic …Your spot on get your money out now and buy gold or silver and maybe you should get together and buy some land with your buddies , but haggle and offer the naive farmer or cash strapped developer your bank shares ( print a few your self you’ll get a good color printer in Lidl ) but also get a few glass houses.

    @MalcomMcClure , Checking out the valuation office , this it’s self is pure theater here is one body of idiotic civil servants that we could get rid of in the morning, but I will not hit you hard on this slip as you recovered on your second posting maybe as individuals who got used to good times we will start again to use basic skills and methods of trading but this will take time the banking institutions as they currently stand have to be completely overhauled along with the culture of greed and deception.At the same time I wouldn’t knock the Celtic Mysticism either as after all the visitors that come here or invest here do enjoy the Irish ‘Craic’

  33. B

    @ Garry. “Lets not get ahead of ourselves.” I think its a bit late for that now. The horse has bolted.

    And as for “potentially’ paying too much tax all we have to do is look at the toll bridge on the M50. We have paid for that multiple times and are still being ridden for a toll just for the pleasure of using the bridge. The HSE has pissed money up against the wall with practically no accountability and no results.

    I think you are being a bit soft. We have had a 10+ year highway robbery and its a bit late and a bit naive to suddenly now plan for bad weather. We should have prepared for the downturn in the upturn. We did nothing of the sort and went on the piss and derided anyone like DMcW who pointed out that maybe we needed to cool our jets a bit to keep it going.

    We have locked ourselves into the dream that tomorrow we will still be rich when we cannot see what tomorrow holds. We will let the banks screw us to the wall and the politicians WE ELECT will make sure that they do this.

  34. JonnieG

    Brendan there’s a lot to be learnt from people like George Soros and his ilk. No doubt he is a pragmatic some would say ruthless business man. Regardless of your feelings about his business ethics and those of his contemporaries, there is a lot to be garnered from the writings of people like him. The most pertinent information is discussed in business publications with a transparency seldom seen in the general press. I have no particular admiration for the man but it do like to know what the real political power brokers are thinking, it makes it easier to protect oneself. What’s the saying “keep your friends close but your enemies closer”.

  35. Garry

    @B All I’m saying is “stop trying to analyze what went on in the last 10 years and how the worlds problems can be fixed in the next 10″…. and just focus on ensuring the builders and banks don’t get bailed out over the next few months. It’ll make a huge difference and its actually something that can go either way right now!

    It is really encouraging that most analysts are now advocating non interference in the market, our host here was one of the first to say this publicly, so it shows opinion can be influenced. Politicians are guided by public opinion, they need a simple message to leave the losses with the banks & developers, hands off our taxes!

  36. MK

    > “I believe that banking institutions are more dangerous to our liberties than standing armies.”

    That is very true. The way banking has developed over the centuries and recent decades is that we have given them a licence to literally fleece money from others. Yes, its true that capital serves a purpose in mobilising and enabling labour, BUT, the excessive profits, bonuses/salaries, marble “cathedrals” are ‘obvious to a 4 yr old’ that the system is skewed and flawed. I should know, I used to work for a bank and also in other positions we provided services and solutions to them. The inefficiency in the banks in this country on a scale of 1 to 10 is 20! Anglo was able to eat into the duopoly yet remain inefficient too. The mind boggles. Each government should have a bank or several of them which should be ran efficiently to keep competition fierce in the market as a whole. But that is the catch, getting a publicly ran entity to be efficient. Perhaps an oxymoron.

    In terms of the Fannie Mae and Freddia Mac bailouts, remember that these were quasi-public institutions before hand, in that they were GSE’s where the risk was always carried implicitly by the US GOP, although the profits were given to the owners/executives. In practice that implicit ‘government backed’ aspect has turned out to be true. The history is that Fannie Mae (real name: Federal National Mortgage Association) was established to provide a base/mechanism for cheap loans, ironically instituted back in 1938 to help the US out of its depression. It was only later on privatised and it was cloned in the shape of Freddie Mac to provide competition. This gave the US economy an advantage in that mortages could be provided, at least in theory, efficiently.

    But the US had a property frenzy worse than ours, where banks were lending, backed by Freddie and Fannie, to payers that were never going to be able to pay for them mid-term, never mind long-term, with products such as ARM’s, etc. The US Fed should have regulated to prevent foolish loaning. The Europeans only got stung with some of these ‘toxic’ loans because of securitisation and the repackaing of debt with incorrect risk ratings by the S&P’s, Fitch’s, etc. Triple A’s were used to disguise what were in actuality junk bonds. Like a damn-wall breaking, it started as a trickle but it has become a torrent.

    I think the US move was necessary, but it doesnt warrant a jump in the valuations of banks globally from Aran Quay to Zanzibar, as the risk and toxicity of loans etc, is still exactly the same as it was yesterday. The only thing that has changed is that any losses from the businesses are taken by the US governmen and any future profits too, so its the shareholders are likely to lose out (like Northern Rock). The toxicity and the length and depth of this problem is still a guessable quantity and the bailouts didnt fundamentally effect that.


  37. MK

    Garry> It is really encouraging that most analysts are now advocating non interference in the market, our host here was one of the first to say this publicly, so it shows opinion can be influenced. Politicians are guided by public opinion, they need a simple message to leave the losses with the banks & developers, hands off our taxes!

    Well, I dont think we are at that point yet, ie: politicans being guided by public opinion. If you caught the ingratiating interview of Brian Cowen with Pat Kenny on the Late Late, they talked about nothing else apart form the property market and the MNC’s. That is what ‘official Ireland’ sees as the two most important things. Weaning us off the property drug will take a long long time, perhaps it will take new people, most likely it will. Pat kept bringing up property and potential solutions for that area. Cowen was giving the usual line about our attractiveness to the MNC’s and to keep spending on the NDP. No mention of indigenous sector which David McW here has been espousing. Our government is likely to help one of the big banks (AIB, BOI) if one does go belly up (which I doubt will happen), or at least assist in keeping it a going concern. What the government could do is guarantee deposits, although most consumers think they are “as safe as houses” anyway. No need to fix a problem that is not perceived.

    I think there is now no option other than to increase some taxes. Spending will be tackled as well, with many areas shaved, projects delayed, even infrastucture ones (invisible ones such as wastewater), leisure/sports, etc. I dont think there will be any major changes with stamp duty. They may tinker a bit with rates and levels to show that they are doing something in terms of helping to move the market. They probably will increase taxes on some of the old reliables, alcohol, etc, off-sales as well as on. They may suspend putting money into the National Pension Reserve Fund which will free a couple of billion or so, as there is no point borrowing funds to put into a pension fund, is there? Its not as if they are running a hedge fund operation at the NTMA organisation, nor should they.

    I could give many of the current politicians a simple message as you advocate which they should understand and which could aid the country – RETIRE !


  38. @ JohnnieG. I would have to agree really Soros book Open Society is a very good read too,

  39. Philip

    John Kenneth Galbraith noted in “A Short History of Financial Euphoria” that money and intelligence are not necessarily linked. I see this as the fundamental crux of the problem. Many assert that people in finance are intelligent by default – ergo…the idiotic trust in Banks and people with money…as though they must be intelligent to start with.

    Most bankers/ accountants I have come across are not exactly the sharpest tacks in the box. They know all the standard and clicheed cute hoor responses. But there’s little depth. That’s who you have running the country and our financial systems. Never questioned as they look the part. And then you hear of financial instruments…innovative financial products…as a simple engineer, it’s rare indeed to see such marvels roll into the public domain without proper feasibility and safety tests.

    I am not at all comfortable and I expect a complete meltdown. But I sincerely hope it never happens. Maybe we’ll get lucky. US is now out of options.

  40. dave parry

    For the past 6 years, we have been running crazy monetary, fiscal , exchange rate and immigration policies.Now, the shit is hitting the fan.The eighties’will look like a picnic, compared with the next decade in Ireland plc.

  41. B

    @Garry If we bail out the banks we are the biggest shower of eejits to walk on two legs. If we bail ou developers too we must realise that democracy is well and truly dead in Ireland.

    My point was that we could have had a more sustained prosperity if we had tempered our enthusiasm for property by a property tax.

    This is probably wishfull thinking but maybe one or two of the developers could have maybe finished a house properly. Basic things like good paint and doors that close properly and maybe a wall or two thicker than cigarette paper.

    The banks have financed thousands of houses that were slapped up and raked in the cash. They won’t bail you or I out or give us special tersm in hard times so they can go sing. Let them fail.

  42. “… a pyramid scheme …” (view my past comments) my sentiments exactly. The credit card debt will run into the trillions world/Europe wide- nearly two trillion in the states. The big shit hasn’t quite hit the fan yet.
    The banks and the government are in league with the property (criminal) developers. No property tax, and very little in commercial property development leaves the door wide open to every dog and devil to make a fast buck.
    Look a Fannie and Freddie The two companies (I’m sure you know but for the benefit of those who don’t) are privately owned and operated by shareholders, but protected financially by the support of the Federal Government.
    These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes.
    So the government are in part bailing themselves out of the mess they were in charge of in the first place.
    The government (USA) knew at least a couple of years ago things were going south)
    Everybody in the know holding out for as long as they can to make as much as they can before it blows all the back down to the Joe Soap in the street who are as always left to pay for it.
    It never ceases to amaze me how white lies are told/spun, and we all know white lies are diplomatic and are a well-intentioned untruth for the ”protection of all citizens.”

    The bail out is for the big investors, the markets not for the ordinary guy. When are we going to bloody well wake up- if not now I think never.
    Always the same old same old: cut public spending to help business develop, and cut it again to prop up business when it goes into a frenzy of greed feeding on Joe Soap.

    I have to say it is refreshing to hear someone say what is is.
    Time for people with any sense of propriety to stand up and be counted.

  43. Garry


    “Delegations of bankers have been making their way to the Department of Finance in recent times lobbying for ….”

    Of course they could be looking to increase penalties for tax evasion or reckless trading, looking to tightening up lending standards, or even strengthening depositors protection legislation or volunteering to pay us back for their last bailout now that money is a bit tighter. Somehow I’d doubt it.

    Be very afraid….

  44. B

    We didn’t vote for the banks. The politicians that entertain the bankers should at the next election be shown what the public wants. If the public is happy to elect them to have vested interests and explict cozy relationships with bankers who are we to object?

    If we elect the same chancers again we deserve what we get.

  45. Philip

    Guys, I know how to save the local economy…offer the place as a freebie launch facility and control centre for experimental space craft. They are doing it in Scotland. We are less mountainous and probably more empty. Turf powered rockets safely landing on the sun at night come to mind. Also we have lots of vacant buildings for target practice for the new prototype weaponary. Turn the whole place into an Area 51/ Isle of Wight. Joking aside, this is how fundamental and leading edge knowledge will develop.

  46. Well the economic doomsayers will love the next bank to enter into the theater the fourth biggest lender in the USA Wachovia are now also on deaths door . This new dynamic will have Mr Bush running back to texas. I know I’m thinking strongly about stopping to pay my bank loans , well if big business can do it why can’t we ?

  47. Malcolm McClure

    Brendan W said: ” I wouldn’t knock the Celtic Mysticism either as after all the visitors that come here or invest here do enjoy the Irish ‘Craic’”
    Brendan, you want a modern Irish economy that can compete on the world stage, yet you still hanker after that bygone world that Dev held so dear.
    I hold the cultural accomplishments of Celtic society at the time of the Senchus Mor in highest regard, however that society had already begun to disintegrate after the Black Death in the 15th century, with increasing internecine strife, resulting from the competing blandishments of the Roman church and the Renaissance. Together, those factors established the new concept of ‘Civilisation’, previously unknown to the Celts.
    Looking at the matter realistically, a fairly uniform concept of ‘civilisation’ based on those ideas has been adopted in Christian countries that, rightly or wrongly, scorns folk traditions as recidivistic.
    Ireland’s problem is that it still hasn’t entirely integrated with that so-called ‘civilized’ society. Advertising the ‘craic’ as the main attraction Ireland has to offer risks ‘civilised’ visitors coming just to gawk at a kind of cultural zoo, in which the natives dance and drink the night away, accompanied by off-tune pipes, scratchy fiddle music, bones and bodrans.
    I’m afraid, Brendan, you can’t have your cake and eat it.

  48. Stephen Kenny

    That’s interesting. I was unaware that F & F MBSs had guaranteed dividends (coupons, I guess).
    I’m just trying to get a view on the change that has occurred, and so it’s possible effect. F & F were already GSEs, so there was certainly some sort of presumed Government backing. Paulson had already publicly stated that the Treasury ‘stood behind’ F & F, on two occasions, I believe.
    Even with that, people started to get nervous, what, over the last couple of weeks, but their CDS prices were never very high, and certainly not over the last couple of weeks, which I don’t understand.
    The whole episode seems to have happened very quickly (weeks), implying to me that the affect on confidence in the capital markets will be slight.

  49. @ Malcom McClure, regarding having our cake and eating it !, I only mention the ‘craic’ in the broader context of the association I certainly have no admiration for Dev , as far as I’m concerned there he sold out Collins so I’m not going down that road even if the fair maidens will meet me at the cross roads.
    I am though intrigued by your comment on ‘civilized’ visitors coming to visit us , you seem to hold the ordinary Irish in low esteem with this remark for you can’t stereo type or put us all in the grouping of mad musicians and drunk dancers, I personally don’t drink , have a Spanish girlfriend and speak Italian, Dutch and Spanish and I consider my self to be an Irish European. Forgetting your history or cultural make up is a very vain and shallow thing every European I have met or worked with are proud of their origins and historical culture , you should not knock you own.
    After all it is not the ordinary Paddy who has a reputation for been a good worker and pleasant easy going nature who has landed us in the Economic turmoil we find ourselves in today.
    Sure our naivety in electing our representatives is showing now, but I still believe we have the character to adapt and while it is a complex ed dilemma we are in with a top heavy civil service and our 900 plus state agencies I still think with the economy going further downhill , we will eventually demand change

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