In his last two columns, David McWilliams called for the introduction of a 100 per cent deposit guarantee. Now he explains what must happen next.
Ten years ago, while working in Moscow, I witnessed the collapse of the Russian banking system. I saw desperate people queuing outside main street banks. I witnessed investors losing all their wealth and I experienced what it was like to live in a society that was on the verge of psychological, as well as financial, collapse. We were a whisker away from that last week.
Make no mistake about it: last week, Ireland almost repeated the Russian experience of 1998.Had Brian Lenihan not intervened courageously to guarantee all deposits last Monday night, then at least one, if not two, Irish banks would have collapsed last Tuesday. By Thursday, we would have seen another bank fall and by Friday, the stock of the two big banks – Bank of Ireland and Allied Irish Bank – would have fallen to zero, rendering them effectively bankrupt.
There simply was no other choice. Over the past few days, commentators have queried the wisdom of Lenihan’s move, as if we had the luxury of a suite of options to pick from at our leisure. This was not the case. Ireland had run out of time, and only the most brazen and unexpected move could have prevailed.
We didn’t have time to consult our European neighbours, nor with whingeing Britain – which, incidentally, is not even in the same currency as us, let alone the same jurisdiction. The last time I checked, Gordon Brown was not the Taoiseach.
The choice was simple: either we wanted a banking system or we did not. Now that he has saved the system, the minister has to fix it. There are indeed risks, but they can be minimised. Last week, we saw phase one of this operation. Next week we will, hopefully, see the beginning of phase two.
Before we go on to phase two, it is important to deal with the moral hazard question, which many people have ‘rightly’ raised. It is legitimate to question the morality of bailing out bankers who have nearly bankrupted the country.
However, as this column has argued over the past few weeks, the time for recrimination is not now. The guilty must be punished, but this cleansing process should be planned in an orderly and logical manner. When dealing with the boards and senior management of the banks, a distinction must be made between those good people who made mistakes and the downright reckless cads, who put the country and an entire generation at risk. There are many people in the former category who deserve a second chance; there are some in the latter who don’t.
But this is not our concern today; we’ll come back to it when we have time. Our objective now is to keep up the momentum. Remember, the aim of state intervention in the financial system is not only to save the banks and prevent a catastrophe, but to make sure that the banks, as quickly as possible, re-emerge as stable providers of credit. This won’t happen on its own.
Amazingly, despite the abyss faced last week, there still seems to be a certain amount of delusion in the system. On the airwaves, the head of the Central Bank and the Regulator are suggesting that, because the Irish banks are not using their capital, there is sufficient capital in the system to legitimise asset values. This is nonsense because what they are describing is a frozen system, not a functioning system. While a frozen system might look from a distance to be healthy, it is in fact lifeless.
The only way to breathe life back into the banking system, and the economy in general, is to accept that asset values on the banks’ balance sheets are worth considerably less than what most bankers hope. You don’t have to be Einstein to figure this out. The dogs on the street know that Irish property prices are plummeting.
They were kept high by excessive bank lending and they are being driven down by excessive bank fear. We are nowhere near the floor yet. The quicker we get there, the quicker we can recover.
The minister has to accelerate this adjustment if he wants the crisis to be short and if he wants to get the full value from the stability which has been achieved by the guarantee.
If, on the other hand, he allows the political capital built up over the past four days to evaporate in indecision, then we could be facing a decade-long, Japanese-style depression.
So what do we have to do to get this over with quickly? The most important thing we must accept is that the Irish banking system is full of bad debts. The more quickly this is accepted, the better. Writing down bad debts means the banks will have to set aside enormous provisions. These have to be paid for by shareholders’ funds and this implies, at very least, that no dividends will be paid by Irish banks to shareholders for the next two years.
To make large provisions, banks need capital, and given that no one is willing to lend to the banks, the state might have to take the lead role in recapitalising the banking system.
There are many ways of doing this. However, the recent exchequer figures show that the state’s room to borrow is not enormous.
If the state decides to recapitalise the banking system using its own money, it needs to exact a very heavy price from the banks. Despite having saved the banks, history suggests that banks ‘‘don’t do grateful’’ – so the minister will have to force their hands on the terms of any recapitalisation. Expect sparks to fly in the weeks ahead, but the minister should realise that he is in the driving seat.
Lenihan has demonstrated courage. There were many options on the table last Monday night, but he took the best one. To get the full benefit of this move, he will need to wrest control of the banking system from those who nearly wrecked it. In this endeavour, he should be supported by every patriot in the country and all of us who are concerned about our future.
When I read David’s recommendation to guarantee all bank deposits, I sat here with a big cup of tea and was slightly troubled. I kept thinking ‘There’s this, but there’s also that’.
The problem I have with it comes down to a couple of things:
1. Eventually, everyone will have to do it, so it’s effect will be, to some extent, nullified. It may even go into reverse, by giving the banks a false sense of security.
2. I believe that banks will collapse. I really can’t see how they can’t not. When that happens, one of two things will happen. Either savers will not be paid, causing true armageddon in the financial system, or they will be paid which could only be done with a vast amount of newly minted money.
In terms of people’s lives, over the next few years, the former is probably better, but is, of course, politically unthinkable, so we’ll get a nasty dose of inflation, and a lingering, depression.
It was a brave move, and that implies risk. I suppose my position is that I don’t think it’s a risk, since I view the situation as ‘heads I lose, tails I lose’.
One last thing. The classic crash model has, on about step 7, ‘Increased nationalism and protectionism , that causes a collapse in world trade’. Gordon Brown might be an idiot, in fact I think he is an idiot, but he’s only acting out the stereotype of the profoundly guilty, violently blaming everyone else.
Let’s not go that route, let’s not lash out at those who lash out, or before we know it, we’ll all be showing our papers to get on a bus, wearing armbands, and having to listen to long, boring, speeches by nasty little men with huge badges on hats.
Nice one, David!
Q. What did the boss of Anglo Irish Banks (one of the smallest, and most problematic banks in the last few weeks) earn last year?
A. Reportedly, €34.7 million.
Q. How many new teachers would that pay for one year? (To boost the “knowledge Economy, going forward”)?
A. 1000 new teachers.
QED.
“Let’s not go that route, let’s not lash out at those who lash out, or before we know it, we’ll all be showing our papers to get on a bus, wearing armbands, and having to listen to long, boring, speeches by nasty little men with huge badges on hats.”
Stephen, were you not here for the last election?
Furrylugs
Even longer speeches, even more boring speeches, and will you dare to be the first to stop clapping?
Stephen Kenny, ….. you are an incresingly interestin person.
What drives you?
Stephen, I stopped clapping when I saw Essex boys in London snorting coke through £50 notes back in ’89, burning the notes then going back to work on the market and selling off stock through depression.
I stopped clapping in ’04 when I came back from London and saw the same bravado here. I was told to shut up because ‘ we don’t do things like the Brits’.
I heard DMcW and George Soros cry stop yet saw the powers that be letting slip the dogs of commercial suicide.
I’m too busy at the moment keeping my head above water to clap. I’m paddling like a penguin.
And the waters cold.
Oh yes…..and I was in Moscow at the same time as DMcW. It wasn’t pretty.
Could someone explain something to me?
David is suggesting that the Irish banks will have to face up to the reality that they have massive bad debts and that the banks will have to write these loans off for the Irish economy to begin to recover. Only after all the bad debts have been admitted to and flushed through the system can the Irish economy begin to improve. These bad debts are from property developers who paid wildly inflated prices for land and cannot pay back their bank loans. I believe this is Davids hypothesis?
To take a hypothetical scenario, if the banks were to keep rolling over the developer loans until the broader international economic situation improved, presumably the banks would get more of their cash back? As Irish demand for housing and house prices would begin to pick up the developers could start paying their loans back. In the mean time the Irish Governments guarantee has given the Irish banks access to money to keep cash in the Irish economy? Why could this not work?
I would like to stress that I am not suggesting this as a course of action, I am just trying to understand the logic of Davids argument that the bad debts must be faced up to as soon as possible before our economy can heal itself.
If the Irish Banks were to admit to all to all of there bad debt, a number of Irish banks would surely go bankrupt?
Given the Irish governments recent guarantees for the Irish banks, would not the tax payer end up paying the resultant bills?
May you live in interesting times!
Mister Lenihan,
As, you know perfectly well, we are all in for a long and protracted period of gloom. In such a scenario, the best long term approach is to adopt, or force, a ‘go ugly early’ strategy, admit the inevitable and agree the consequences. Then, and only then, will we stop the ‘but with hindsight’ excuses we will inevitably hear in a few months time by making confident informed decisions now, pre-budget.
Anyone for the last few Choc Ices?
Young Linehan,
You have just summarised the Global meltdown in a couple of paragraphs. The trick is that the developers want their loans written down to get out of jail and then the Govt guarantee kicks in to save the banks. I think.
There are far greater economic minds here than mine but if I owed a million or three that situation would suit me fine. Then I wind up the special purpose vehicle(s) I used to get the loans in the first place and head for the golf club to flesh out the next wheeze.
Now go back to the Dail bar good lad.
Junior, surely, that IS the point?
Someone, at the top, has decided to protect a/some developers who overstretched themselves to the tune of BILLIONS?
That developer is, just “well-connected”, ……. that’s all.
A “back-slap here, …… a “few bob” dropped there…………… VOILA!
Just watched Questions and Answers.
There was a hint of Harry Enfield’s scouser about you tonight David! “Calm down, calm down”..
More seriously though, there was a lot of sense talked around the table, especially by yourself and Alan Dukes, reguarding re-regulation of the banks. Did you have anyone in mind when you talked about getting the heavies (gurriers was your word) in to sort out the banks balance sheets? I don’t think we have the option of waiting for them to ‘come clean’.
We need, as you have gone to great pains to point out, a functioning banking system. But we do not need it for the banks sake, we need it for our sake.
Furrylug’s Schumpeter quote is timely. The global industrial system is rapidly slowing. Look at today’s stock market prices. Companies involved in producing the raw materials for industry have taken a hammering. Metal prices are in the pan. (excuse the pun). If phase one of the industrial process is in this much trouble, we are guaranteed a prolonged recession.
A healthy banking system is important for weathering the storm, but it will not stop it coming.
We are still in the initial stage of an downturn (pick your own cycle theory), because we are only in the realisation stage of it. i.e. we’re only learning now how much trouble we’re actually in. The real test is still coming.
Bank of America today agreed a renegotiation of subprime debt with mortgage holders that will cost it $8.4billion. They did this because fore-closing on the mortgages would be a pointless exercise. Are we that far away from such deals here?
Evening Lorcan.
I thought DMcW was the only reasoned voice there tonight with Joan Burton a close second. Reminded me of One flew over the cuckoos nest when they all got out into the garden.
“Bank of America today agreed a renegotiation of subprime debt with mortgage holders that will cost it $8.4billion. They did this because fore-closing on the mortgages would be a pointless exercise. Are we that far away from such deals here?”
If we took 1993 as a benchmark then added say 5% growth pa as sensible, where would that leave us?
I’d say that that realisation has happened, houses are overvalued but what of prime commercial property?
The whole facilities management model is finished.
Fore-closing on a shell, even if that shell is downtown still leaves a shell. There’s no tenant left to rent the thing so what value can be applied?
It’s a great time for long term property acquisitions?
Night now.
Again thought DMW made sense, but I hope the politicians make more sense when they are behind closed doors.
Since long before the moneylenders were thrown out of the temple, banking has been a profitable business…. Today, the banks are literally dying for cash, the only problem is nobody else except the taxpayer can raise the dough…. No matter what happens bankers, will survive and prosper in the future, they will make massive profits in the future, if history is any guide.
So theres an obvious opportunity for the taxpayer assuming our betters play our cards right. Of course theres a risk of being completely screwed over if we don’t…. Once again, its all in the followup and decisions and action/inaction now will decide which happens.
But given the complete lack of leadership from the regulator and the central bank; its clear they aren’t up to the job, they need to be either strengthened or sacked… ideally strengthened and given new leadership.
“Bank of America today agreed a renegotiation of subprime debt with mortgage holders that will cost it $8.4billion. They did this because fore-closing on the mortgages would be a pointless exercise. Are we that far away from such deals here?”
I hope not. Like all such ‘fixes’, it just creates more problems.
Consider a situation where you and your neighbour buy identical houses, next to each other, at the same time, for the same price. You pay your mortgage, but your neighbour defaults. Then, as if by magic, your neighbour not only keeps his house, but is now paying back on a smaller mortgage! Bet that’ll make you feel good.
Once you’ve cooled off, you sit yourself down, and think about it. Within 30 seconds, less, if it’s nice and early in the morning, you’ve realised that were Adam Smith sitting in your kitchen, he’d immediately advise you to default on your mortgage, to get this nice lower payment.
Wind forward, and you find that the government is paying people the value of their negative equity (which you can bet is the value they’ll mysteriously come up with).
So what does that mean? Well, it seems to me that that will require the economy to have paid twice for that marginal piece of your house (the bit you’re no longer paying for): Firstly when you bought it, and then when a bank effectively pays for it by writing it off.
The money paid, exists, it was paid *to* someone. Even if only 10% of people do it (and Adam Smith would be dead cross if it was less than 90%), you’re cutting the value of good mortgages. These good mortgages are assets on some bank’s books! Writing down the bad mortgages was/is grim enough, and now we’re suggesting we should encourage the writing down of the good ones?
Shared ownership is a perfectly suitable model here. The government should own the bit your neighbour can’t afford. Later, you can deal with the absurd situation of some wretched ex-estate agent is living in what is effectively a council house with 5 bedrooms, 6 bathrooms, a jacuzzi, and a granite counter top in the toilet.
Largely, what David Mc was on about last night was that the banks were made sooner, to begin to recognise that some of their paper it really worthless.
Loans outstanding, that cannot be converted to liquid are bad. This does not mean that they will not be repayed, only that the value they have is in that repayment, to the bank that issued it. This paper is not really tainted, it will be converted over its life. What cannot be done, is be sold. Where the bank will get her money back and a fee to handle admin’. The situation, which paper is written on the back of curly-worlly packet, the paper which can be recovered only if the entire island joins the bit between OrangeCo. and Santa Catalina.
This is an engrossing thread with several stellar contributions, but I think the comment by ‘johninmunich‘, [October 6th, 2008 at 5:52 pm] really gets to the core of the Irish conundrum. And it perfectly describes the ‘Reputational Threat Scenario’ I’ve been outlining, a threat which is will now unfold for the Irish State, its’ businesses and citizens. Worth repeating the comment in full here:
“Hi, greetings from Germany
Germany is pissed off with Ireland for two reasons. 1) the guarantee issue. 2) Two of the companies which got into trouble had problems which originated in Dublin branches. These are Sachsen LB and Hypo Real estate. Per Steinbruck, the finance minister said he could understand the voters would find it hard to swallow having their millions thrown in to save a company which was cheating the state of millions of taxes by basing itself in Ireland. So when the Hypo Real Estate came back for more on Sunday, he stood firm and told the German banks they would have to sort it out themselves. And hey presto after pulling out their support the day before, the other larger banks such as Deutsche bank suddenly were able to come up with the extra billions. Steinbruck also called for the immediate resignation of the managers of Hypo Real Estate and said the bankers will pay. The german guarantee is for savers only. Not for those with certificates, shares etc. Not for businesses, not for banks.
Angela Merkel has been saying for weeks that she will not stand for the fact that joe soap plumber in Germany has to play by the rules etc, but the bankers get away with it. The Germans have been warning the UK and US about this runaway train for years. Most of their banks had enough controls, apart from a few loose cannons.
Ireland needs leadership like this, not ´patriots´ who gamble the nation.”
The perfect storm to precipitate the break-up of the Euro-Zone is here. Now. Last night on BBC Newsnight the German Ambassador, Georg Boomgaarden, was very circumspect and diplomatically didn’t put the dunce’s hat directly on Irish banks, but ex-British Chancellor Norman Lamont [1992 Black Wednesday-ERM-Tory Hubris/Nemesis] made it clear ‘certain countries’ were gaming the system in his view. I agree.
Whether it’s ‘racing to the bottom’ with Corporation Tax or ‘Sovereign Guarantees Of Other National Currencies‘: Ireland needs to tread carefully. Very carefully. In my not-so-humble-opinion.
I was recently moved to write to the UK Daily Telegraph on exactly this point, in response to an entirely ridiculous article from ‘free-market capitalism’ groupie/cheerleader, Ms Janet Daley, entitled:
“Financial crisis: Markets must be free – they give us the power to make choices”
My comment was as follows:
“The cognitive dissonance from which Ms Daley now suffers is only to be expected. Having her cherished belief system so brazenly ridiculed by recent events was bound to cause fear and anxiety. I feel for her. However, her ‘analysis’ does nothing to advance the debate as to how uncontrolled Capital can be policed by the Collective Will of The Nation States. We now have unstable C19th Nation States attempting to control footloose and capricious C21st Capital using entirely ineffectual C20th policing arrangements. If there is no concerted effort by our elected governments to reign in these ‘oblique’ Financial Instruments/Weapons Of Mass Destruction, then the situation will continue to destabilise the world economy. The problem will only be exacerbated should a ‘rogue state’ play host to a New Financial Order. Suggesting that such a Rogue State would be a worthy exemplar in ‘reducing the burden of government’ by gaining temporary advantage is simplistic in the extreme.
Please. If you are going to write for a wide audience: Address the wider issues and desist from fatuous regurgitation of antiquated ideas which do not address the contemporary crises facing civilisation.
A co-ordinated policy response from all responsible elected governments is desirable, indeed essential. The fact that it emanates from Prime Minister Gordon Brown may cause Ms Daley to reach back in desperation to class-war motifs, but the proposal is entirely sound.”
Posted by Andrew Mooney on September 22, 2008 7:36 AM
Anyway, must go, official car here. Mandy and Alistair want a quick cuppa before we catch the 09:35 SN 2038 BHX-BRU, then dash to Luxembourg so I can elaborate on the above and also kick a few heads in. Can’t see why I couldn’t just send a video address to the Euro-Trash rabble leaders, but apparently they’re desperate. Amazing fee for a day’s work. Nice earner! Off-balance sheet, of course. Bullion + Swiss Francs/Singapore Dollar.
I’m exhausted. I’m happy to respond in Europe’s hour of need, but had hoped to retire to ‘The Quiet Life’ here in the Malverns, walking my Westie, listening to my wicked mash-ups of John McCormack and Edward Elgar. Oh well. Last night’s ‘emergency meeting’ in Downing Street was productive, even if there’s still some residual resistance to my Authority. It’s hard to knee dissenters in the groin when you’re just a voice on a conference call line.
“Some are born to greatness, some have it thrust upon them” says Alastair.
“Events, dear boy. Events“, says Mandy. “WTF: Let‘s roll!” I say.
Mandy has chosen John P McCarthy’s tome on Kevin O’Higgins from my library bookshelf as airport reading. Alastair chooses ‘The Noonday Demon’ by Andrew Solomon. I grab ‘Confederacy of Dunces’.
Mandy and Alistair think my ‘conspiracy meme’ to punish the Irish Govt for it’s moral-hazard-turpitude has got legs, so I txt it, ‘jokingly’, to every ‘Paddy Six-Pack’ I know. Mandy says I’m the real Prince of Darkness. I correct him. “Eminence Grise”. Loud chortles. “Shush“, I say, “the kids are still asleep“.
Smirking, Mandy gives me Bilious Bertie’s latest ‘private’ number and I hit send to give him some more cribbing‘n‘moaning. Beg him will he contact The Samaritans on my behalf…..Game on.
Q: Why did Ireland guarantee all Irish Bank’s Sterling accounts in the UK?
A: Because so many Irish politicians, builders and bankers have ‘hedged’ their Euro positions with ‘sterling lodgements’ at British Post Offices. It’s a long-standing ‘tradition‘. And they want the Irish Taxpayer to cough up if it all goes belly-up. But they won’t be lining up for the Night-Boat to Liverpool like my Mom and Dad did if and when it does. They travel in comfort. In convoy. In style.
‘Traitor’ or ‘Patriot‘? Answers to the usual address.
Kind regards.
PS: Here’s some quickie shorts I dashed off with some of the boys and girls in my gang. Enjoy:
http://www.crisisinthecreditsystem.org.uk/
PPS: I will be appearing ‘Live, In Person’ in Dublin at 20:12, 20/12, 2012 to manifest a new Irish Reality after the collapse. Whelan’s or Croke Park. Time will tell.
Hi David, a good display by yourself on Questions & Answers last night.
The no. of responses on here is quite long so perhaps you wont have time to read them, how-and-ever ….. please read this:
I was dismayed yet again on the FF rep NOT having the understanding on what the guarantee is bringing. Ireland still has a unique solution. Not only is the Taxpayer (=state) GUARANTEEING BANK DEPOSITS, but the Taxpayer is also GUARANTEEING the LOANS that the banks took out via inter-bank loans. This is a guarantee of a large proportion of their liabilities. These are collosal sums and dwarf our current national debt. I thought you would have quickly and vociferously agreed with the audience questioner who reminded the FF rep about it, yet you stayed silent. This is a collosal point that should not be lost. Silence in this case was not bliss.
In terms of your 3-phased plan, the problem with assessing the bad debts is that your ‘gurriers’ wont be able to spot them, because loans that look good will in time become bad. Many can come from “left-field”. You cant assess them by the market value of the property or the loan payment history. They arrive out of the blue. Perhaps detailed assessments of the financial viability of the loaners would do it but the litany of developers already going to the wall doesnt take an Einstein to realise that many are financially stressed and stretched. They are holding their breath for as long as the depth of their pockets allow. The same with residential mortgage holders. So, if the gurriers do a root-and-branch low level assessment, as soon as they are finished, tey will have to do it again and again and again as the situation will change each month, week or even day.
Another interesting point, is that although this bubble had a large property bubble element to it, the actual underlying problem was extensive credit. The property price increases were perhaps a symptom of a problem and not the root cause. For example, Hypo in Germany which has a huge portfolio of mortgages in steady Germany, where for the most part it did not have a property bubble. Hypo however, like many of the other banks, binged on excessive credit, a supply that, lets face it, was at addictive and frenzy levels. So theirs was purely a credit bubble. The credit taps have been turned off (every party must end) and many banks that participated have been caught out. Our banks participated. Northern Rock participated.
The other falicy that you didnt correct was the NO COST point. The guarantee does come at a cost. Ireland’s national debt rates have increased overnight. Taxpayers (=state) will pay more for state borrowing, and since in our econmic cycle we cant avoid that now as we run a current account deficit, we will pay. Its a zero sum game in terms of who pays for the borrowing – if the banks pay less and can get the credit on the inter-bank markets to keep them afloat, or whether we Taxpayers pay more fopr state borrowing.
In terms of the phase of capitalising the banks to shore them up, yes, we (Taxpayers) may have to do that. However, it is not classic re-capitalisation but it is sticky plaster finger in dike time. Also, I dont expect our government to get a good deal on equity from the banks. They are more than likely to sell Ireland short, just as they did with the two guarantees, which although time-limited to 2 years, I have a suspicsion that that will be extended and will only be removed should the banks work themselves out of this mess.
I think the earlier that some of the banks start going the better. And another very important point, failing banks are NOT a sign of a failed economy or a basket case country. Propping them up is, ala Japan. If anything, failing banks under such circumstances rather than shoring them up is a sign of capitalism at work, where reward goes to those that have made hood decisions, and not those that have made bad ones. The alternative extreme is just to nationalise the whole lot, and go one further that the US have done.
Lance the boil or own the boil, but stop dabbing it with ointment !
MK
Folks I think that we are heading into another 1980s style recession. And to make matters worse public policy is almost identical.
The public service has already established a beach head by getting as big a chunk of the tax revenue pie as possible. The social welfare recipients are pushed to back of the queue, and told that the real problem is sections of the private sector. Fact is that there are parts of the private sector AND parts of the public sector that are seriously undermining the competitiveness of the Irish economy. And it is clear that the government are letting the public sector run out of control.
What use is a state gaurantee when the state is running out of money ??? This is happening now. Taxing the private sector will make it happen even faster. The real problem still remains the bloated public sector with 400 quangos and an enormous consensus to suck the private sector dry. This 400 Billion Euro overhang will only be solved by a private sector regeneration. News of high tech companies scaling back is “the canary in the coldmine”. Public sector machinations will only enable Asian competition to wipe out more sections of our private sector. Our public sector, and the sheltered part of the private sector are completely oblivious to this. For every one “R&D” job we gain, we seem to be losing three in light manufacturing, and twenty in construction. This does not add up. The social welfare bill and the bill for IDA grants will end being enormous.
Somebody pointed out that Angela Merkel has wants a good deal for the taxpayer concerning the bailout of Hypo-Depfa. Well that is a big improvement in attitude on the way we bailed out our banks/developers last week. However it seems that our banks have not changed their culture. The twin pillars of Irish banking, excessive salaries, and prestige extravaganzas are still in full swing – as if nothing has changed one bit.
Just a thought..many of these developers who are about to leave the banks high and dry have made obscene profits during the past decade and many of them have huge property empires from Madrid to Moscow.
If the banks cannot re-coup their loans from all of this-if they have allowed these developers to compartmentalize liability, and borrow on the artificial security of a crazy “Black Tulip” style land boom-they would be marched off to jail in the U.S.A.
Many of you are too young to remember the Gallagher empire /bank crash, in Ireland in 1982.
Thousands of pensioners -north and south of the border lost everything-their retirement savings.
Did Mr Gallagher go to jail? Yes but only in the North of Ireland-and that only after the RUC fraud squad arrested him in London 6 years later.
Gallagher later told the Moriarty Tribunal that in 1979 he paid Haughey £300,000 (€380,000) – about €1.5 million in today’s money – so the politician could clear a £1 million loan to AIB. The transaction was dressed up by Gallagher as a property deal involving Gallagher Group money.
“Despite the fact that a successful criminal prosecution was brought against Gallagher in the North – and that similar damning evidence existed within Merchant Banking in the Republic and was presented in painstaking detail by Shortall – no charges were ever taken in the Dublin courts.
the following article is well worth reading-if only to understand that few of the headswho helped the Fianna Fail linked developers to create the bubble will ever be brought to account for their criminality.
http://archives.tcm.ie/businesspost/2006/03/19/story12705.asp
Truly-history repeats itself,and more so on an island where politics and property are intertwined in the mire of corrupt practices as highlighted by the Mahon Tribunal.
AndrewGMooney said: “Here’s some quickie shorts I dashed off with some of the boys and girls in my gang. Enjoy:
http://www.crisisinthecreditsystem.org.uk/
I’d love to know the back-story of this outstanding vignette upon reality in the financial market place. There deserves to be a book telling this story and commenting on day-to-day developments in reality as the film was being made. Dave Panos and Ben Seymour obviously lived that life. The entire cast and production crew did an outstanding job in realtime. Thanks again.
Hi Malcolm McClure:
Glad you liked the movies. Fess up: I’m not in Luxembourg dissing Lenihan – and, sadly, I wasn’t involved in creating these astonishing moves: I just wish I was. But I have been inspired by them to ever greater heights of seditious intent for my own ‘surrealist-art-terrorist’ 20:12 20/12 2012 AD project.
All credit should go to Melanie Gilligan, Rehana Zaman, and the superlative cast, crew and researchers. Nuff respect. I too think the ‘jargon factory’ script would look great on paper. However, I’m not sure if Artangel would care to monetize this into a ‘super-deluxe coffee table limited edition’. But I’ll pass on the suggestion. As Banksy books have gone high-street/mainstream, there’s got to be a niche for the artefact you propose.
I’m sure it would be brought by the hedgie community to console themselves whilst undergoing ‘personal disintermediation, deleveraging and outsourcing scenarios’.
It’s in very small print but the ‘links’ page for the movies provides some extremely interesting material. I’m currently working my way through Michael Hudson’s site.
http://www.crisisinthecreditsystem.org.uk/links.html
I wonder if an Irish version of this could get made? I’d suggest the following ‘lift-pitch’:
’1989.’Black Swan’ Sets Sail From Tokyo Bay: Butterfly Wings + Chaos Theory x Time Delay = 2008 Developer Bingo Hand-job Dublin Bay Firesales’
If anyone knows of a likely Irish troupe who can get this up and running for a http://www.crisisinthecreditsystem.org.ie type thing: give me a steer and I’ll send them some bullet-point-brainstorm-apocalyptic black-sky thinking outside the box, etc.
Kind regards.
.cc Artangel
David’s “gurriers” should be from the Garda fraud squad. Banks are in it up to their ears in criminal activity and their politician friends are covering up. Like all criminal activity concerning fraud, many innocents are caught up in it. It starts off insidiously – little corporate gift here or there, the odd little nixer and favour/ digout and before you know it, Mr white collar Banker is sucked in.
And this has happened the world over.
Developers/ Builders etc have a high criminal content in their ranks – mafia led in the US and elsewhere. The corruptive brown envelope is the catch phrase in this community. Building is a dirty male oriented business. With few exceptions, the building trade is an unregulated mess. I’d say if you looked at the average building site, you’d see a hierarchy not dissimilar from a prison chain gang. Survival in this business requires animal instinct – adherence to the law of the land is a definate wimp out.
I find it interesting the “gurrier/ heavy” terminology has to be used. Let’s call it for what it is – crime scene.
That said, over the last 60 or so years we’ve had governments slowly taken over by CYA procedure following college educated wimps who could not lead a p1$$up in a brewery never mind a country. They are “nice” people who like the bankers have been similarly sucked in. So, I can see our “nice” people falling foul of our “nice” laws that would intervene in David’s suggested “gurrier” driven cleanout.
Like terrorism has diminished many of our freedoms and forced the imposition of martial law like actions, this financial crisis could precipitate a similar ruling on having a mandatory martial law like view on all transations in the interests of future stability.
It’s happening. A global big brother is coming. And all us “nice” people are going to comply. Maybe in the end we need builder mentality to protect us.
Euro 400 bn is mentioned all the time as the total amount that is covered; where does this come from? As far as i can figure out, from available www sources, the total amount of lending by the irish banks equals Euro 236 bn (61 bn of which = property related). So take an average loan-to-deposit ratio of 160%, that puts the total amount of deposits with these banks at Euro 241 bn or thereabouts. Compared to the total amount of German deposits, now also 100% covered, which is given at Euro 568 bn, this is an awful lot in view of the fact that Germany has roughly 15x more inhabitants than Ireland… So a lot of Irish depositors must have quite a lot of dosh… It seems the spoils from buying/selling redbrick have been significant!
correction; total amount of lending by the irish banks equals Euro 386 bn (61% or 236 bn of which = property related
I’ve just read all of the comments above.
I agree with what Ger Kennedy, Michael Byrne, Tony Lally wrote plus others.
> and get the property market moving again
Why do people think that the only way out of the problems we have is to repeat the mistakes of the past. We’ve been through a binge, we just need to let it work itself out. Too much properties built, using too much credit. Credit which the banks themselves funded by taking on loans themselves, and from a loan supply of credit which has now been choked.
Deco> The second thing, the minister should do is sack the Financial Regulator, Patrick Neary
Yes, that’s clear. The Financial Regulator and the Central Bank need a complete overhaul. Maybe it wasnt the people involved per se but their execution powers and teeth, etc. That may be the case and then the fault lies with our legislators, our government, and the Ministers for Finance. McCreevy, Cowen, etc ….
> The behaviour of banking executives in Ireland has been reckless, irresponsible, and in some cases possibly even corrupt.
I dont think they have been corrupt per se. They responded to a system, with human responses, one being greed. The credit system was at fault. Dont blame junkies for using heroin if it is supplied readily on the streets and at very low low prices. Blame the police for not cutting out the supply.
> the year 1 CT
So this is now 1 ACT (ie: 1 year After Celtic Tiger).
Ruari > Ailing Irish Bank and the Bankrupt of Ireland and the Aggro Irish Bank
:-) Eejit Building Society – INBS is left as an exercise for the reader.
Ruari > how do we strategically re-capitalise our banking system?
The way that any bank “re”-capitalisation should be done, is ONLY to give them some money when they come begging for it and cant get it from ANY other source. Then, and only then, screw them for equity. Thats the only way. Look at AIG across the big pond. They had to give up 80% equity for an 80b loan line. Not even money invested by the US, just a loan, so a good deal for the US gov long-term perhaps. Thats what we should be doing with the banks here. Let them go close to the wall, and save them at the last moment when it costs us (the state) practically zippo.
Malcolm McClure > they were content to draw huge salaries
Agreed, there are few completely innocents here. But people do get caught up in systems. I think chasing after people now for the mistakes made is not a good usage of time or resources or even discussion time. We needed to change the system when the problem was being created, on the way up. The horse has effectively bolted. We cant unscramble scrambled eggs. Entropy can only increase. QED.
> Their impoverishment is the only appropriate punishment, but as someone said above, it will never happen in Ireland.
Nor will it happen in any country. Only a few figure-heads may get the blame, and only then if corruption is proven, not for mismanagement, and then only will they serve any time or punishment and only if a ‘tribunal’ is conducted in time before they die. People however can punish the politicians directly for letting it happen on their watch with their next vote. Lets see if they do next time.
Konrad Dechant > introduction of a universal land value tax
No, this is not a smart thing to do, its an unfair tax unless its implemented only at extreme scales (say the top 10% percentile and for those that have an income that can pay for the tax). Such a tax also can exacerbate a property crash when it happens as whats happening in the US. People cant afford to pay the tax and therefore it makes them foreclose even quicker!
Deco > The real problem with the Irish system is the method employed concerning rezoning. The whole rezoning process is corrupt.
Correct. Land use in Ireland is open to inequality and hence substantial undeserving windfalls.
AndrewGMooney> Whether you like it or not, Ireland and Britain’s economies and futures are inextricably linked.
Thats true. David perhaps too much of a 1916 rebel in this instance.
AndrewGMooney> Are you suggesting that any Irish citizen who disapproves of this ‘masterstroke’ is, ipso facto: Unpatriotic?
Touche.
Lorcan Roche Kelly > I suggest the following model. Increase the rate of income tax for earners over €100,000 by 3%, but allow them a ’start-up investment’ get out clause.
There already is an investment scheme for start-ups for those with enough tax and that’s BES. All thats needed is to twig this system so that it does invest in potentially good businesses. Not hotels and property as it was! I dont think the extra 3% is needed although I do think we could easily have 3 tax bands.
VAT = 21% = dirt = CGT = 1st band income tax (including PRSI)
PRSI to be the same rate for everybody unlimited amount, eg: 7%. Public servants too! Employer PRSI to be included in employee, so that it is no longer hidden. (Currently an employer cost, but not seen by employees as to their benefit!).
2nd Tax band: 40% (form ave sal income 40k to double ave sal income ie: 80k).
3rd Tax band: 45% on sal above 80k.
(Note tax bands to include PRSI, which is just another tax).
Adjust the gov size to fit within the tax accrued. VAT, Corp, StampD, PAYE, etc. That means cuts and efficiencies.
JohnMcDermott > If the deposit guarantee scheme is-as suggested in some comments here- actually a scheme-not only to guarantee deposits-but also, to make the taxpayers pay for developers who default on massive loans taken out to buy land for projects such as new skyscrapers in Ballsbridge-there should be rioting on the streets of Dublin.
No, the loans taken out by the developers or Joe Public are not guaranteed. Its the loans the banks have made form the inter-bank markets (think Libor) to fund the loans they have given out to the developers. The guarantee allows them more favourably to continue getting that credit, to back the loans they have given out.
FurryLugs > The poor sods walking 10 miles for a bucket of water must be creasing themselves with all this carry on.
They dont even know Furry. They are glad just to survive each day. They were in poverty before this, and will be after. A crime on humanity for which probably everyone here is culpable either by ignorance, inaction or both. The global system is incredibly inequal. We are discussing about what happens at the tip of the wealth iceberg. The silent majority are below the water line and do not have a voice.
MK
“The silent majority are below the water line and do not have a voice.”
MK, Thanks for the nod.
On a “Beware the quiet man” type of scenario, the amount of nothing less that hatred that will well up here on the approach to Christmas will take some stopping.
We saw the first “Real-time” vox pop from Miriam O’C on RTE tonight which wouldn’t have been allowed 2 months ago.
On average the delay in what the system is admitting to what the SME’s know as reality is about 2-3 months.
Part A of a normal economics question in the Leaving Cert could have been posed last January regarding balance of payments, tax take and subsequent deficit.
I’ll repeat what I suggested earlier in that 90% of employers are indigenous SME’s with entrepreneurial skills that, with cash flow and reasonable short term investment,will ride this out.
If that means empowering and indemnifying a trusted organisation, ie Credit Unions, to deploy emergency funding then so be it. Peanuts to the alleged billions being lost.
Then the “tip of the wealth iceberg” can go about it’s rather more complex business.
To allow a viable local business to fail due to cash flow because of flawed macro economics is obscene.
I would like to add my complete agreement that the diverse opinions here have been enlightening and healthy. One would hope that the collective intellects involved may be of some value to DMcW in his efforts to be heard.
MK > INBS is left as an exercise for the reader.
Insolvent Needlessly Builders Society?
Seems to be a common ailment..
IL&P
I Laughed & Partied??
Sorry.
Guys, you’re wasting your time analysing the unanalysable.
We are dealing with wimps as leaders. They live in a cuddly world of cronies and gladhanding with no respect for their electorate. The good times are over and real leadership is needed becasue it could get ugly out there.
I’d be securing stable food & water supplies and making sure people can stay warm for winter. 3 pays checks from anarchy – 8% Unemployment and 1.3% contraction says the ESRI with a cautionary note that it may need revision. We need to think in terms of 20%-30% unemployment with a 30-50% contraction in a conventional economy and it’s happening everywhere. No where to run.
Hey David, what’s on the lunch-time menu in Luxembourg? Cheesy Chips? The world is really shifting on it’s axis today. I may need to put a ‘spin’ on my deliberately provocative stance. Robert Peston at the BBC, one of my favourite brains has just said THIS!
http://www.bbc.co.uk/blogs/thereporters/robertpeston/
“In the case of the UK, the Bank of England and the Treasury have collectively provided well over £200bn of incremental lending to our banks over the past year. It’s what I’ve described as nationalisation by stealth.
But all governments will probably need to do more.
What the Irish government did, in guaranteeing both retail and wholesale deposits in their banks, may turn out to be something of a model for Europe-wide action.
What we may need is a cast-iron pledge from all European governments that they will fill whatever funding gaps emerge at their respective banks from the seizing up of money markets.
It’s probably the best outcome that can emerge from today’s meeting of European finance ministers.
Bankers all across Europe are watching this meeting, and keeping their fingers and toes crossed, that the finance ministers understand how fragile they are – and that the finance ministers will pledge to keep them afloat, whatever the apparent strain on public-sector balance sheets.”
If this happens I will have to completely re-conceptualise my whole epistemological and theological position whilst David gloats over my contortions. I will have to retire to a monastery to re-think my opposition to this whole debacle. But I guess by then I’ll be in Kilmainham anyway. Never mind pop concerts, it’s going to revert to it’s previous dismal function if I don’t ‘moderate my tone’ as my Dad used to say. The Pontiff has offered a very interesting take on events:
http://www.timesonline.co.uk/tol/comment/faith/article4893190.ece
Actually, I ain’t budging. Peston is cracking under the strain. This is a godawful mess. UK/USA/ECB, the whole system may need to crash and burn in hell. I’m praying the ‘experts’ can stop this descent but I have a very bad feeling. Medication failure, peut-etre?
“Valium is Diazepam, Temazepam. E.C.T. H.R.T. How long must I stay on this stuff….”
Is this really happening? Am I imagining this? No, I’m not. Just where will all this ‘money’ come from? I’m all for providing for ‘hard-working bankers who play by the rules’ but there’s a limit, surely? The printing presses are whirring. Gold is ascending. Oil collapsing. Hail Mary. Glory Be. Father Forgive Me. Etc.
NB: My personal email address is freely available on the web so I’m not surprised to receive ‘a warning from the henchmen of the rich and powerful’. You could at least attempt to disguise your IP address. You wanna go there? Bring it on. Fame, fame fatal fame. Rendition. My very own tribunal at Dublin Castle. Free speech trial! Publicity! Martyrdom! I’m making that last bit up, but just for the record:
Legal Disclaimer: Any and all resemblance to persons living or dead in any and all of my postings on this site is entirely coincidental. I am also an entirely fictional creation with no traceable assets. You need to look elsewhere to replenish your fee income. So there’s your grovelling apology, now just feck off!
David, please ban me from this site. This isn’t doing me any good at all. ‘They’ are going to get me if I keep raising my head above the parapet. I see visions of chaos and disorder. The Long Emergency. And it’s all my fault for losing my Faith in Authority. Dad was right. Punishment.
Kind regards
Mad Paddy From Brum
http://www.irishtimes.com/newspaper/breaking/2008/1007/breaking58.htm
A €50,000 fine for Irish Nationwide’s marketing undertaken by Michael Fingleton Jr. in London.
Is this the best the regulator can do?
Irish Nationwide’s action would be considered little more than a misdemeanour under any other circumstances, but in these days where ‘confidence’ is the watchword, the regulator could have made an example of the society. Instead he has missed an(other) opportunity to show the banks he will not tollerate this sort of behaviour.
John McDermott – Gallagher went to jail in the North. But most of the controversial events involving Gallagher occurred in the South. Gallagher (a developer) and CJH were long time mates. CJH managed to ensure that the Justice system here did nothing. Even the newspapers were afraid to comment for fear if damaging Patrick Gallaghers “good name and character”. It is completely absurd. In Ireland it is like in Soviet Russia – “when you hear the official denial/story, then you know that the rumours are true” was the phrase used to describe this type of thing.
Tim – forget teachers – our hospitals are short nurses and beds, and our rural hospitals are in a state. But who cares as long as we get to build a second sports stadium four miles from a first sports stadium – and they are both on the same train line almost. You are right we have a massive resource allocation problem. We are still wasting money on prestige and cutting down on rudimentary essentials. We have even had an RTE reporter visiting a school in County Sligo that was loaded with vermin, and the kids would not use the toilet. But another sports stadium for jingoism and show is an absolute necessity. And there will be corporate boxes and the bankers will sit there have drunk on champagne. While the kids tell their parents about their day at school. You are right – a limit of bank CEO pay. And a complete end to all this prestige nonsense from the banks including Croker, Landsdowne Road, the K Club, Druids Glen etc… No more Junkets for Bank Directors or management at the expense of the taxpayer or the borrower or the saver !!! that nonsense has to end. The money could be better spent on staff to fix all the problems in the banks.
Contrary to various sneer remarks about AIB, and BOI, neither of these banks in trouble. In fact they have both sucked so much bllod out of the Irish consumer, that they can absorb massive losses and still come out surviving. And they are, by Irish standards, transparent, except for the gentlemans club type junkets that are described regularly by Senator Shane Ross. But the other four are going to have to open their books to the Dail. If they have nothing to hide, then they should do so soon. It is also possible that the Miniser might want to hide the truth from the Irish taxpayer. A bit like the Lisbon Treaty vote being one week before the ESRI announced officially that the recession had started two months previously. People already knew. And the sections of the population that knew it the clearest gave the biggest thumping to the government :)))
We need to replace the Financial Regulator CEO, and possibly the entire body. They have failed. They completely missed this. Review all their commentary for the last five years. It reads ‘everything is fine, don’t worry’. That is not useless information. That is pure deception, or incompetence. Neither of which are acceptable. And with €400 billion at stake, they cannot fail again. The taxpayer deserves a financial regulator which as Angela Merkel might say – ‘put’s the interests of taxpayers to the fore’. It would be a new direction for Irish government policy, and we should all demand from our elected representatives. If Minister Lenihan wants to make a clean break with the Ahern years, the Financial Regulator body will have to be completely replaced.
david ,
i agree with the approach the govenrment used to guarantee the banks but guaranteeing overseas deposits (which should be removed today ), sent the wrong message to europe and set in motion another string of events where savings rushed to the safe haven of ireland. the argument that this was done in reverse in the case of northern rock is valid but this was done a year ago when the crisis was at much earlier stage and contagion was much more contained.
On the fundamental issue of property speculation which is at the root of all the banks problems ireland needs to move to a position where second home purchases etc are frowned upon and taxed severly. A whole genaretion of young irish families who purchased property around the peak of the market will struggle in negative equity for years, due primarily to the artificial property inflation that was created by hordes of punters building multiple property portfolios. instead of penalising this speculation the government created tax incentives to fule the boom.
As a result the only hope for property in ireland is a full fledged crash similar to what is going on in the US that allows 1st time buyers to purchase at levels of 3to 4 times salary which means a fall of about 50 % from current levels.
All the property developers and banks should be hit by windfall taxes that are redistributed through the tax code to 1st time buyers who are struggling with purchases they made from these guys at the height of the boom.
Every form of property tax incentive should be removed (with taxes added on second homes) and all incentives should be directed towards other areas of activity which will provide the backbone of irelands growth in the years ahead.
thanks cool runnings
If Economies and the ‘US’ led markets are now coming to the end of the Reganomics of greed been good ?. Where are we going to go next, many times over the past two years I have read articles here where Mr Mc Williams writes about how we can adapt been a relatively small economy.
So where do we start to create movement again, of course it is going to take some time for this financial mess to sort its self out right now we see governments all panicking and going down similar roads we went on last Monday week for a variety of reasons. But the solution taken by the US government is not a wise one as printing dollars will down the line result in the dollar been devalued or risk hyper deflation or a very serious depression for their country which will result in their MNC’s pulling out of here which will create even further pressure on our social welfare system, and with a weak dollar what effect will this have on the price of oil and our reliance on it ?
It is though a real opportunity for us to change our system here , while I don’t want to see the Workers Socialist party in power here I do believe our Government it’s departments and semi state bodies need to be radically over hauled. the quango’s closed tribunals closed and salaries of CEO’s capped especially within the banking and semi state bodies , along with the culture of nepotism which is rife here.
We need less regulation here not more of it all you have to do is look at how successful the Banking Regulator has been.Along with supporting our own industries while we can’t buy an Irish made car , we can look at where we buy our house hold products, perhaps any enterprising individuals setting up a business here should be allowed to run tax free for the first two years and their employees been given tax free salaries leading to bigger spending power.
And why not really invest in the country since we are going to be borrowing money to keep the country going , why not invest in alternative energy such as nuclear , wind and wave allow these businesses big tax breaks too. With our excess supply of houses and appartments why not let ex pats purchase without paying vat or legal fees , at least this would encourage them to come back every so often for a holiday in the home land.
Hopefully now over the next few months our national media economists will start putting forward some positive ideas to get us out of this mess, if they don’t I can see the resolve of the ordinary Irish person breaking and civil unrest will be a lot harder to fix than than the stock exchange index’s.
Brendan,
Grave words and I completely agree.
But we have suffered from nepotism for far too long.
As Caesar Biffo (allegedly and without prejudice) said in Act 1 Scene 11 A Public Place
“Let me have men about me that are fat;
Sleek-headed men and such as sleep o’ nights:
Yon Mc Williams has a lean and hungry look;
He thinks too much: such men are dangerous.”
The system here will use any brain they need to get out of this then revert to type eventually.
So has it always been since Dev (allegedly and without prejudice) had Collins topped.
With apologies to the Bard and on a lighter note………………………..
SCENE II. A public place near the Tent. August 08
Flourish. Enter CAESAR BIFFO; ANTONY Linehan, for the long run; CALPURNIA Harney, , BRUTUS Roche, CASSIUS Dempsey , and CASCA O’Dea; a great crowd following, among them the SOOTHSAYER McWilliams
CAESAR
Calpurnia!
CASCA
Peace, ho! Caesar speaks.
CAESAR
Calpurnia!
CALPURNIA
Here, my lord.
CAESAR
Stand you directly in Antonius’ way,
When he doth run his course. Antonius!
ANTONY
Caesar, my lord?
CAESAR
Forget not, in your speed, Antonius,
To touch Calpurnia; for our former Taoiseach says,
The barren, touched in this holy chase,
Shake off their sterile curse.
ANTONY
I shall remember:
When Caesar says ‘do this,’ it is perform’d.
CAESAR
Drive on; and leave no ceremony out.
Flourish
SOOTHSAYER
Caesar!
CAESAR
Ha! who calls?
CASCA
Bid every noise be still: peace yet again!
CAESAR
Who is it in the press that calls on me?
I hear a tongue, shriller than all the music,
Cry ‘Caesar!’ Speak; Caesar is turn’d to hear.
SOOTHSAYER
Beware the Ides of March.
CAESAR
What man is that?
BRUTUS
A soothsayer bids you beware the Ides of March.
CAESAR
Set him before me; let me see his face.
CASSIUS
Fellow, come from the throng; look upon Caesar.
CAESAR
What say’st thou to me now? speak once again.
SOOTHSAYER
Beware the Ides of March.
CAESAR
Depressing git. He is a dreamer; let us leave him: pass.
And we will have a General Election call plus the obligatory vote of no-confidence next spring.
Great minds, or fools seldom differing?
Furrylugs > To allow a viable local business to fail due to cash flow because of flawed macro economics is obscene.
Obscene it may be, but it is already happening.
Every business, from the largest multinational to the corner shop lives on cash-flow. But it is how it generates this cash-flow that marks out the successful from the failures.
Remember the Dotcom bubble? Lots of cash from investors, but as that flow dried up it couldn’t be replaced from trading sources, so many companies failed.
If you are a small business operating in Ireland at the moment you face two cash flow problems. Firstly you are finding it harder to maintain credit lines at banks. Until recently an overdraft over-run wasn’t a big issue, now it is unthinkable. Instead the bank offers ‘business advice’ (more than a little ironic) and refuses the facility.
The other edge of the sword is the fall in consumer spending. Anyone here want to running a car dealership at the moment?
Businesses that can do without the banks for the medium term will survive, but the game is up for any that are thinly capitalised.
For precisely this reason the Fed started buying commercial paper today to help businesses through the credit freeze.
Furrylugs > You cast DMcW as Cassius. I have a different character for him to play, (again from Julius Caesar)
Act I Scene II
Biffo Caesar:
Who is it in the press that calls on me?
I hear a tongue, shriller than all the music,
Cry ‘Caesar!’ Speak; Caesar is turn’d to hear.
Soothsayer McWilliams:
Beware the ides of March!
By my calculations, mid-march is about the time the Brians will have to introduce a mini-budget as global events will have overtaken the effectivness of next weeks one.
I agree entirely but would you look at the cast?
Great minds.etc etc
Furrylugs, you made a point yesterday about the shifting balance of power in the world.
I should say that I am only pointing out interesting comparisons with history here, not offering a theory.
Have you been keeping an eye on Russia lately?
There was much consternation in NATO today when Iceland (a founding member) turned to Russia for help in bailing out it’s banks. Russia has the resources to help, but does it have the will? I worry that it does.
Russia (and this is the controversial bit) currently does stand some comparison with 1930s Germany. Both have charismatic leaders; Putin is building a personality cult around himself, I invite any doubters to watch Russia Today (sky 512) for a while. Hitler was a master of self promotion. (Nuremburg Rallies)
Both Hitler and Putin refer to their respective global financial crisis as ‘The American Crisis’.
Both Russia and Germany feel they have lost their ‘rightful place in the sun’, Germany through the Versaille Treaty, Russia following the break-up of the USSR. Both Germany in the 30s and Russia in the 00s have sought to increase their sphere of influence. Germany’s used the excuse of lebenstraum, Russia acts to protect its citizens outside its borders (south Ossetia) and uses its gas as a weapon against countries that drift too far towards the west (Ukraine).
I know this is all a bit far-fetched, but I find it interesting. Putin is a student of international affairs. He called his college thesis ‘Most favoured nation’, was attached to the International Affairs section of Leningrad State University in the 1990s. I doubt there is a world leader more qualified to navigate the coming storm. But he will act in Russia’s interest, so he is one to watch.
And add to that the overdependence on gas from Medeyevs(Spelled something like that) Gazprom.
It’s all fairly obvious in a way. I met the head of Indian SME’s in Poland a little while ago and she was chortling about our knowledge based economy. Bangalore University turns out 2000 PHD’s or Masters every year. And they’re good courses.
When the bust hit Britain, hordes of Asian kids went to college to learn economics. They’re now the wealthiest class in Britain.
A lot of our leading people haven’t been exposed to expanded overseas thinking,only Western constricted models built around expansionism.
D’ ye know. I might write a book.
With apologies to David , I’d call it the Mullahs Children.
Breaking News – Reuters – Resignation Speech- 10:30 pm 07/10/08
UK Chancellor addresses the Irish and Icelandic Nations.
[Scene: Chancellor in Bowler Hat. Pinstripe Suit. Bulldog at heel. Think 'Clockwork Orange]
“Good evening citizens. Fellow Europeans. Erm…I have decided to resign tonight, rather than wait till 7:00am tomorrow morning when the UK ‘Stabilisation and Reconstruction Plan’ will be announced.
First of all I would like to apologize for inadvertently spreading chaos and disorder in your countries, thereby bankrupting your financial systems. Really sorry about that one….If I may just explain how the ‘Panic in the Post Office’ kicked off.
It has been a difficult few days for me as the Chancellor of the Ex-Chequer-Book. In fact, it’s been hell, made me all nervy and shaky, snapping at the dog and hitting the bottle. “Whiskey you’re the devil” type of thing. I love a bit of a jig to giddy Irish music when I’m feeling ‘cheerful’, but tonight it’s strictly My Bloody Valentine.
Anyways: At lunchtime today I popped into the Post Office to deposit some of my wages in an ‘offshore account’ (as you do), and thought my wig and shades disguise had worked a treat. Unfortunately some tabloid scum had followed me and started clicking and flashing and telling all the pensioners who I was and what I was up to. Busted. Big time.
It didn’t help that I had a Man Utd shirt on with AIG plastered across it. I tried to explain it didn’t mean ‘Allied Irish Group’ but no-one would listen. I tried to pretend I was Wayne Rooney, George Clooney, but everyone knew: It’s Andy Mooney.
Within minutes there were T.V crews, mobile phone jpegs whizzing all across the Dis-United Kingdom and over to Ireland and Iceland.
So, that’s how ‘The Post Office Panic of 2008′ started. Within the hour, people all over the U.K were looting ‘Iceland’ because someone started a rumour that someone from Ireland called Baugur ‘owned them’, so they took direct action, filling their trolleys with chicken drumsticks and cheeze feast pizzas to fill their freezers with. And, of course, they were demanding cash from terrified Post Office counter-staff. I tried to reason with a journalist from The Sun but he just sneered ‘Iceland, Ireland: Whatever!’
It seems, in retrospect, that many UK citizens have a very limited knowledge of geography, despite us spending all that money on Education! Education! Eductation! [sic] Our citizens were unable to distinguish between the Sovereign Nations of Ireland and Iceland, never mind the separate guarantees on respective countries bank accounts.
When ‘Ice-Save’ closed their banking website pronto to stop looters, all hell broke loose. The Matalan Mobs ‘went postal’ and demanded their ration of turkey twizzlers from their Anglo-Ireland Post Office Accounts and their cash from Iceland frozen food stores. They needed instant liquidity on their lottery ticket and drug dealing funds. They ‘shorted’ The System.
Someone on telly called Iceland a ‘sinking frozen Northern Rock’ & that just fuelled the frenzy cuz Ireland is an island like Iceland, and the frozen food angle just got too confusing for Little Britain types, the ‘common people’ who, I repeat, ‘went postal’. Then that nutter Putin said ‘buy Iceland’ and everyone thought that meant free vodka so they just ransacked the off-licences………[abridged version]
Kind regards.
Andrew G, Lorcan,
And there was me thinking ye were just two anodyne economists. This blog will end up making State policy shortly methinks.
But what about the popular notion not too many months ago that Ireland strode the world like a colossus? I’m off now to Davids new commentary regarding the Elliott Ness theory to see how it fits in with midnight pitchfork rallies, baby-kissing and imported anglo nudge nudge initiatives(I detest that word with a vengeance).
Hopefully the pennies will drop before the pounds fall. (Groan….shocking metaphor)
Furrylugs,I like that quote- very apt.:
“Let me have men about me that are fat;
Sleek-headed men and such as sleep o’ nights:
Yon Mc Williams has a lean and hungry look;
He thinks too much: such men are dangerous.”
I can think of an awful lot of Fianna Fail politicos who fit that description-they wont lose much weight either during this recession.! Ye voted for them- they brought ye circuses and 4×4´s galore while the fun lasted,but-good citizens- the Colosseum is now closed indefinitely.A slight problem of insolvency..
“The evil that men do lives after them-the good is oft interred with their bones,
and so let it be, with Haughey, Ahern,& Cowan the mighty chieftains of the Soldiers of Destiny.”
(Some chieftains-some destiny.!)
I thank you Soldier for those kind words.
Furrylugs > You cast DMcW as Cassius. I have a different character for him to play:
The beaver, who said to the rabbit as they looked down at the Hoover Dam: ” Actually I didn’t build it myself, but it was based on an idea of mine”.
Andrew G Mooney, in a piece that ran rings around his tidy script, said : “Someone on telly called Iceland a ’sinking frozen Northern Rock”
Ireland’s own geographic location is unfortunate from a European perspective, but now mainly because it finds itself between a (Northern) Rock and a (Iceland Premier) Haarde place.
Slight point of order
.
This is the original cast.
SCENE II. A public place near the Tent. August 08
Flourish. Enter CAESAR BIFFO; ANTONY Linehan, for the long run; CALPURNIA Harney, , BRUTUS Roche, CASSIUS Dempsey , and CASCA O’Dea; a great crowd following, among them the SOOTHSAYER McWilliams
If you think about it and the characters, it all makes sense.
For obvious reasons DMcW hasn’t got the dubious skillsets to play Cassius.
Deco
Re Will Hutton’s comments about football and the Premier League I was puzzled by them as reported.
I remembered him writing about football and tracked down the following comments from an Observer article (Jan 12 2003):
“American football… is organised as the most successful sports league in the world…It’s not just the game’s beauty and athletiscism that attracts cords… it’s that the results of very few games, and the Superbowl itself, are predictable…It’s not like the Premiership, dominated by Arsenal and Manchester United…For a start the NFL shares out the recipets from the sale of TV rights with punctilious equality… The clubs which fared worse in any single season have first pick of the star freshment in the next season to give them a break…Everything is done to ensure equality of opportunity so that any fan in any part of the country has a genuine chance of seeing his or her team win. The result is the most spectacularly competitive and entertaining sporting league in the world…. This is also an example for our own F.A; unless it does more to give every Premier League club a chance by distributing TV proceeds more equally, British football could follow American baeball into crisis.”
I’m probably missing the point you were making, but what the hell! I meant to refer to the NFL as an example of how the PL could be made less boring when posting to an article of David’s back in the summer about Robbie Keane and globalization.
I’m impressed all the same by your recent posts, especially economic rents here and a couple of others which are worth printing off and keeping for reference.
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