We are now reaching the endgame. Few are in denial any more. The situation is dire and we need real leadership to get us out of this mess. Businesses across the country are going to the wall, unemployment is going through the roof and people who have been trading for years say this is much worse than the 1980s.
Cash, credit and demand have evaporated and the prospects look grim. This is a national emergency and we need a national plan.
The following is a six-point plan that would minimise the economic pain over the coming years, while at the same time ensure — and this is crucial — that Ireland can emerge from this chaos a considerably more profitable place to do business than it is at the moment.
There are aspects of this plan that need to be put in place immediately and others that could be carried out over time. Most of all we need to be decisive. While we hope for the best, we must prepare for the worst.
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The minister has to make sure that the banking system does not implode in the coming weeks.
While the falling share price tells us that shareholders have given up on the present management, it also implies that bank funding is drying up, meaning that the liquidity benefit of the “guarantee” is at risk.
At this stage, without massive writedowns, it is unlikely that a private White Knight will emerge to buy the banks even at these prices, so some public recapitalisation is necessary. But this does not just mean State money from the pension fund.
There is a way that we, the public, can fund some of this, to the benefit of hundreds of thousands of ordinary savers. However, before a cent of State or public money goes in, the minister must demand that the board and management of the banks resign immediately. Hopefully, some of the management will resign as a matter of principle. After all, if you preside over a 95pc fall in your share price, it is time to go.
Whether this happens, or whether there is a coup at the top of the banks is immaterial, the point is the people who got us into this mess in the first place are not the people to get us out of it.
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The recapitalisation should be democratic. By this I mean that the Irish people should be invited to participate.
There is plenty of money on deposit in Ireland — more than enough to finance the hole in the banks’ balance sheets. Therefore, the State could issue a convertible bond, which converts into equity in, let’s say, five years.
This could be offered to us, the citizens of this country so that we — not just some hedge fund from outside — can profit from the Irish banks’ recovery that will be based, after all, on the sweat of Irish workers in the future.
Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.
There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.
Many might argue that this penalises those who didn’t get involved in the property madness. This is true, but there are things that we must do in emergencies, however unpalatable.
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The new banks must be regulated more closely and instructed to limit property lending.
We have to make sure that we never again become beguiled by the idiocy that we can get rich by buying and selling overpriced houses to each other using other peoples’ money. The recapitalised banks will finance proper businesses.
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The Government must also avoid the trap being set by the bean counters in the Department of Finance. If the Government cuts everything now, slashing public spending across the board, the economy will shrink even more.
We must distinguish between good and bad public spending. At this stage, bad public spending is money spent now that doesn’t make the economy more productive in the future. So wages and salaries need to be frozen, public sector employment reduced significantly, but infrastructure projects and investment in education have to be accelerated. We should borrow to do this. The State needs to stimulate the economy, not contract it and offer incentives for the private sector to invest, not save.
By reining in “bad” spending and accelerating “good” spending, the State can make the best out of a disastrous situation. Infrastructure spending and education investment increase the long-term productivity of a country.
- We need to be smart in Europe. The beauty of EMU is that it allows us to borrow for the future, without the penalty of having your currency hammered. So we should try to co-opt some of our smaller neighbours who are having problems raising government bonds into a European EMU bond. This is where we lead the campaign for a EU sovereign bond market, whereby the combined Euro region issues debt together rather than as individual member states.
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Ireland should borrow quickly and if we are to do it, we should make sure we raise enough money now so we don’t have to go back to the market next year. The reason for acting swiftly is that if the global financial markets don’t recover, there is a real danger that the world’s bond markets won’t finance us in the future.
All plans are inherently risky, but we are facing meltdown. Ireland needs strong decisive leadership now. To borrow the minister’s phrase, it is his patriotic duty to act, not prevaricate. If he does so, we’ll stand behind him. If not, he and his party will not recover.
I bought a house in 1989 under pressure from my father at the time, he thought it would make me settle with the responsibility of re payments I converted it into three flats ! , left Ireland and sold it when I came back in 2002 my bank manager was disgusted with me for not reinvesting here and was shocked when I withdrew my money and slagged him over losing his commission on me . These Greedy hypocritical two faced so called fellow country men on this small island with ideas about our selves above our small status should now be ran out of their comfort zones.
And yes we need change radical change , but who is out there to lead ?
We’re all fighting yesterday’s war. The financial crisis – the global one, not our little panto – is moving on by the hour and it’s time to stop arguing about whether FTBs and buy to let investors should be allowed to sink, or swim… It’s time to work out how well positioned you and your family are to get into the lifeboats.
Economic ‘corrections’ – and this one is the mother of all corrections – happen because big mistakes have been made. That means that some people and companies who borrowed too much from banks that foolishly lent out too much, deserve to go bust. This is a good thing. It clears out the deadwood; it is a cruel process, but it isn’t always fatal. Some business people even learn their lessons, re-establish their credibility and their credit record and get a second chance. Ordinary folk scale back their lifestyles; they rent instead of own; save instead of borrow.
Meanwhile, the people and institutions who were prudent during the boom years – in spite of all the temptations to make an easy and corrupt buck – pick up the slack. They get access to real, genuine capital again and because it isn’t cheap, phoney boom money, they treat it with respect and invest it wisely and productively (ie. not in ugly, overpriced little houses.) Real, exportable products and services are created – again.
So much the ideal. In reality, this difficult but necessary period of correction isn’t being allowed to happen – more’s the pity – because every government and central bank (our own included) is fighting it with everything their treasuries can come up with. The balloon, no matter how ragged has to be re-inflated. In their world of perpetual economic growth, mistakes don’t get corrected…they don’t even get acknowledged. As far as the politicians and central bankers are concerned, artificially low interest rates and misdirected credit did not create the debt and derivatives monster that has wiped out the banking sector. (Ben Bernanke has decided Chinese savers are to blame). In fact they are counting on more cheap credit and artificially low interest rates to somehow solve the problem!
How many trillions of dollars, euro, pounds, yen have been thrown at this ‘liquidity’ problem in the last few months, all of it borrowed or simply printed out of thin air? About four trillion worth and growing. And yet, the banks are still paralysed. Millions of people are losing their jobs; businesses and failing. Record numbers of homes are being foreclosed and the prices of every asset is still falling. Deflation has taken hold.
Like nature, the market always finds a way to express its true self. No matter what the politicians and bankers try to do, the tipping point has been passed and the price of housing, stocks, shares, wages, commodities will find their correct level again. The end-game is in play; it’s just that the end itself will take longer to reach. But when it does and the deflationary phase is over, that when the real fun begins. What’s left of all the trillions of dollars and euro and other paper money that hasn’t be sucked into the black debt-hole that began with property sub-prime and liar’s loans will be forced into our pockets by the politicians and central bankers who will, literally, give it away in a last ditch effort to “save” what’s left of jobs and businesses.
The first wave of this hyper-inflated money supply will blow up new bubbles in oil, precious metals, food stocks, farmland, water and other natural resources shares, household durable blue chip stocks – anything in great demand and of tangible value. Then the cost of a tank of petrol and anything made from oil will start to soar; ditto for a loaf of bread or a sack of rice. You can’t flood the marketplace with billions of devalued banknotes – all that money chasing limited goods and services – and not expect the price of stuff all the way down the chain not to rise.
Even Somali pirates with hot oil tankers sitting in their swampy ports will feel compelled to raise their ransom demands as the dollars under their mattresses (hammocks?) devalue.
As the good, middle class people of Argentina discovered seven years ago discovered, governments that interfere with the money and credit markets, especially after they’ve imploded, always reap what they sow; the degree of pain the people undergo, just depends on the degree and duration of the interference.
That’s a clearly written, intelligent, and insightful post, Anne. Thank you.
Anne Osbourne > The financial crisis – the global one, not our little panto – is moving on by the hour and it’s time to stop arguing.
Anyone interested in a bigger long term picture could do worse than read this:
http://www.dni.gov/nic/PDF_2025/2025_Global_Trends_Final_Report.pdf
(it’s a big ‘un > 35mb so don’t go near it of you’re on dial-up)
Good to see suggestions as to what to do but I think the article could do with 2 additions…
First, Who are you trying to help with this plan? bank shareholders? domestic banks? business? home owners in negative equity? home owners facing reposession? newly unemployed? property investors? property developers, the presnt generation of taxpayers?, future generations of taxpayers?
You can’t help everyone, theres isnt enough money, and a concious decision must be made to save some people and screw some others. Otherwise you end up with policies that waste billions and work against each other.
Second, a note that not one person responsible has been fired or resigned on this. This is unique to Ireland. There have been some firings, as mentioned in the comments of the previous articles, of people doing ordinary jobs who, whether by state cutbacks or businesses not getting credit, have been made redundant. There will be many more such victims.
The leadership of the Financial Regulator and Central Bank must be fired otherwise we are rewarding the people who allowed this mess to develop on their watch. These people were happy to take benchmarking increases by claiming their jobs involved so much responsibility, now its time to make them accountable. Anything less confirms Ireland as a kleptocracy.
Point 3
Re:
What really baffles me is EU has rules and regulations for every thing.
Example: how much length caret, circumference of cucumber, radius of pepper and (list goes on) to display on shelf’s of supermarket (marketable commodity) if these criteria didn’t meet they will thrown away despite perfectly ok for human consumption. (Regulation (EC) 2257/94) until last week so all these years perfectly consumable vegetables are thrown away.
http://news.bbc.co.uk/2/hi/europe/7723808.stm
but they have forget to put simple rule on all banks “You cant lend money beyond threshold (insert some two digit or single digit here) of your capital”
Has any body knows what happened Singapore, Chinese and Middle eastern sovereign funds?
pavan, this is percisely the problem with regulation.
Anything that can be regulated with rigid rules can be regulated by a computer program and doesnt need expensive people to do it.
To take your example on vegetables, rules can be drawn up which will prevent “lower quality” stuff being sold as higher quality. The definition of quality is on visual appearance as opposed to ‘tastiness’ or nutrional value as its easier to unambiguously define the rules and easy to test without destroying the vegetable. This approach works to a point as consumers like “pretty” vegetables and equate this with quality. While the measure is debatable, it works for an environment with plentiful food,
for banks you have hit on the problem…. what digit do you put in there? the answer is “it depends”
So we have expensive, powerful, smart regulators who are paid to oversee the system and ensure its long term health and the long term interests of those who depend on it…. We should not constrain the regulators by forcing them to interpret narrow rules (who draws up the rules?). Rather you should give them responsibility agree general principles, pay them well and make them accountable… We’ve done the first two so they have no excuses…. Now the Financial Regulator must go for allowing this situation to develop on his watch.
Otherwise the Financial Regulator is just another pig at the trough, claiming an overinflated salary whilst displaying none of the ethics or integrity he is demanding of others.
FIAT currency backed by nothing, fractional reserve lending coupled & derivative market. Why arent people discussing this and the fact that nearly all central banks are privately owned by a small group of families.
They are using this crisis to centralise power, setting up a world government run by the banks.
The following is a translation of recent G-20 communique.
1. Now that the growth of debt and derivatives bubbles has stalled, we are committed to using governmental-central bank mechanisms to cover the positions of any of the large private financial institutions whose profits are at risk due to their management of these bubbles and who can use this opportunity to squeeze and acquire smaller rivals at low cost.
2. Our commitment to use derivatives and market interventions to shift investment from the real economy and commodities into a paper economy is firm. We will continue to use centralized governmental mechanisms to subsidize and manage this process.
3. All of the organizations and players who reaped a fortune engineering the debt and derivatives bubbles will be allowed to keep their winnings.
4. We will use this period of consolidation to further centralize the global financial system by enforcing greater centralization of the standards, practices and control of enforcement and regulatory bureaucracies. This increased governmental centralization will be presented as the “fix” for our “problems.”
5. We will continue the move toward one world government and one world currency.
6. We are prepared to use coordinated inflation of global money supplies and fiscal stimulus to protect our control and positions.
7. We are committed to the Slow Burn (see my blog post on this subject).
8. This process will continue to be managed to protect large insurance and risk positions.
9. The net result will be to continue to exercise growing control over the real economy by a handful of private families and institutions designed to protect and grow intergenerational wealth.
G-20 are silent on the military and covert action that will be required to make this stick. They are also silent on how they are going to manage this much inflation. For example, the most recent figures from the St. Louis Fed indicate that the aggregate monetary base is growing at an annualized rate of almost 800%.
Watch for a new focus on “green investing” as the trick in all of this will be how to create new productivity when the absence of real prices mean there is no market to provide the necessary signals and financial incentives.
there should not be relieve and a wipe out of the debit of the first time buyer; however there has to be something done as faced with a former asset dropping in value faster than a sinking ship people may just throw the keys over counter to the bank. Forgetting moral hazard and all the talk of they should have known better; like a mama telling a child not to come back a crying- there is a whole group who are long term in a bad situation and are economic biohazard material.
There must be a mechanism to stop the loss of homes associated with loss of jobs and potentially stabilize the most crisis ridden who not out of greed nor want of a fast buck are in do-do. (and not moneygrabbin’ landlords and mates the developers who stoked this fire!)
Although not a home owner myself; I see that this radioactive core group will be weakening the economy at large, defaulting, unable to move nor gain a foothold as the value declines swiftly. Even today the cost of car insurance has increased due to the burning out of the cars people can ill afford, as the broker exclaimed while i had a coronary over the new quote.
Many were like lemmings buying over priced homes but if we do not have some form of compassion to those in dire circumstances there will be more than furry creatures plummeting over a cliff. Moreover, if we don’t act it will cost us more to deal with the aftermath of the social crisis rehoming, increased incidence of mental problems; depression and sucide, crime and brain drain due to immigration. Hell, the saving of the happy pills on the GMS and medical card alone would pay for it
Yes it was a choice to buy or not do so. However faced with the media and the so called advisers in banking sector saying buy buy buy buy – one can see why they were sucked in – despite being so over valued that stevie wonder could see it. I know that if the government did give the FTB a break it would leave me sick to the stomach but it’s a lie back and think of england moment. As if we collectively don’t act and lend our neighbours a hose to quench a fire…. that fire could spread causing the economy to resemble potentially the aftermath of a scorched earth policy.
Good God.
Herein lies the countrys anger. I came on here 2/3 months ago and we were only debating. With a sweep of the pen, DMcW has allowed magma to bubble up. It’s great to see the new comments and the considered sages.
I’m different tonight. I buried an old and dear friend yesterday. A great businesswoman with honour, no small wealth but with lifelong values.
Do we love Ireland. The Ireland of DeValera. The man that raised 5m in New York, sent 1 home, spent 2 on expenses and banked the rest. The man that set the model for those conservative enough to rise through the vision he set out for his pet state. The dross of this country.
If we are insisting on pursuing this failed banking model, then they must perish on their own sword. They have done no more nor less in losing money than the companies they put to the sword in the good times. They showed no sympathy to anyone. Their rules.
Let them die like the bloodless dogs they are.
We have come through worse. And we’ll come through this.
David, your name came up more than once last night. My wife said you looked like a man that hadn’t slept for a week tonight.
The people are very aware of the Children. In years to come, it will be a seminal tome.
I don’t think you can follow tonights article without being arrested. Be careful young man.
May God help us all.
Slan Libh anois.
Debt forgiveness….
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The shit has really hit the fan and who have we got in the the driving seat 2 know nothings (ie lawyers who dont know their ass from there elbow)
Davids no 1 point should have been a radical call for change .. the dogs in the street know the 2 muppets we have haven’t a clue what to do ….they are making up as they go along….we need.someone who knows what they are doing .. a large ad in the IT saying “Wanted someone with major enterprise experience and a capacity for turning around defunct companies” because let’s face it thats where we are …
Who raises taxes when everyone knows the economy needs stimulation….get your ass(ets ) covered boys ..we are in for a very rough ride with this pair of morons…last one to leave please turn off the light time again..unless..someone has the balls to take a few tough decisions where are the spartans when you really need them ?.
Someone should have told the FTBs that you can’t bring your house with you to the afterlife. You die, leave the house, and then someone else lives there or it is demolished.
I wrote on this DMCW web site ‘Irish Banks must tell the truth if they are to gain our Trust ‘ on Nov 2nd 12.38pm and Nov 3rd 1.17pm – in it I confirmed that I was writing to The Minister and the Secretary of Bank of Ireland reporting about an alleged serious fraud by senior management in Bank of Ireland who actually advised me in writing to sue the Garda Fraud Squad ..I also said I would write to European Central Bank …..I promised this site I would inform them of my results . ( by the way I have never been a client of Bank of Ireland )
Well I have now received replies .
The Minister did nor reply ……instead I received a letter from a clerical officer sending me a consumer complaint form ( I have again written to Minister explaining to him I am talking about Serious Fraud )
The European Central Bank response was : ‘The European Central Bank is notcompetent to intervene in disputes between citizens and private financial institutions ‘.
The Secretary of Bank of Ireland has not replied .
I am convinced the culture of Fraud in Irish Banks will never change in this banana republic and that the cozy cartel of cronyism in the Civil Service and Politics will continue to endure indefinately . i also believe now the Minister can only now sell the Irish Banks to foreign investors for a song and again the Taxpayers ….Lose.
There is much talk on here about David’s suggestion to help the FTB’s with some debt forgiveness. FTB’s have got some small help with the budget. Perhaps my comment of ‘insane’ was a bit curt without expanding on it properly:
We know we live in moral hazard times where the ‘hazard’ is already sown. Banks have taken risks without assessing what those risks were and without a care in the world for long-term consequences. Short-term personal gains were made by all and the original belief that ‘if things do hit the fan we will be saved’ is already in motion. The mantra is there for all to see. David is among them and cant ‘face’ seeing even one bank go down. Like relegation in football, bank failures can be a good thing and may see a better banking system as a result – it will send a cultural message, just as the letting go of Lehman in the US did. Bankers there are now working harder than they have ever done in this generation.
Charity for FTB’s is not what the government should be doing. What is needed is stimulus to create/maintain economy, business and jobs. It is FTB in jobs that will pay the FTB’s mortgages. And it shouldnt be taxpayers money. Jobs is the key. Not bailouts. To quote someone, ‘its the economy stupid’.
I agree that we may need to give FTB’s some breathing space. I also think that many of them were generationally caught in this. Many were perhaps foolish, I agree, but people cant put their lives on hold because of a 10 year property boom in Ireland. So some help, some breathing space for FTB’s or indeed anyone who is feeling some stress on their mortgage, and then they are given time to pay things back. Time is important.
Time is the great healer in this global problem, as you pointed out last night David on Prime Time. Things will turnaround at some stage and we need to be in a good shape to catch the weak yet positive turnaround when it does eventually come. But free bailouts is dead money. As is propping up banks without getting that pound of flesh from them and cultural and operational turnaround.
MK1
Busy day for the banks.
http://www.bloomberg.com/apps/news?pid=20601102&sid=a5lS22LfzlQQ&refer=uk
Reading the papers lately, I see the cartels are also upset that we are saving money by buying British cars. With the help of the tabloids, they are trying to scare us back into paying more money for cars from Irish price fixed cartels. Sorry lads but I got an absolute bargain in the UK, I think I will stick with British cars for the near future, I know that seems unpatriotic, but then again, isnt price fixing and over charging unpatriotic too ?.
The Finance bill brought forward some legislation to make it more difficult to import cars from the UK. But from reading the Bill, it won’t be implemented until 2010. So plenty of time left, and with the current exchange rate, I might head over there myself for my next motor.
Is it true the 2 Brians are looking at an unregulated hedge fund to bail out the banks here?
The two private equity firms mentioned this morning, JC Flowers and The Carlyle group, are not Hedge Funds. JC Flowers particularly specialise in buying distressed banks, they have recently being associated with bids for Northern Rock and Hypo Real Estate. JC Flowers the man is a former partner at Goldman Sachs.
Private equity companies generally seek quick turn-arounds and tend to cause major shake ups in the companies they invest in. Not necessarily a bad thing in the case of some of the Irish Banks, but wheather it is what’s best for Ireland Teo is anybody’s guess. It will move any profit from a bank recovery offshore though, as David points out in his article.
I don’t think regulation is a problem with the Equity Firms.
The idea of a bail out for those first time buyers idiotic enough to have taken part in the frenzied madness that was the irish propoerty market must surely be a joke. People have to live with the consequences of their actions. What about those poor people trying to sell their luxury cars in a car market that is now in freefall. Should the government also bail them out and free them from their ‘lifetime of debt’?
- when an incumbent government decides to sell a significant monetary licence to make money for …’ a song ‘ ……then you know the young generation are being blackmailed to a lifetime of slavery …while the mandarins of merrion square snigger …../ North Korea …is a country that reminds me of where our leadership is going and our young citizens suffer ……we need a Sarkozy who has balls and stamina and like him protects the national economy with a zeal and fighting spirit and who can muster confidence to raise large funds to protect our ailing industries and finance – the irish youth are dissapearing from the national mindset it once enjoyed to a place unknown
The last thing Ireland needs is a “Sarkozy”. He is a big supporter of the type of capitalism that resulted in today’s meltdown. Did you know that in his election program he wanted to create “subprime” mortgages in France? He was saying to justify this stupid measure that “people who don’t borrow are people who don’t believe in the future”. What a moron! Let me remind you that France’s borrowing regulations are very stringent and made to stop people from borrowing money they can’t repay. And this is a good thing since it stopped France having the kind of property bubble we could see in here, the UK and Spain. Also Sarkozy thinks it’s a great idea privatising the Post, he’s going to suffocate the public television (by removing ads in it á la BBC but doesn’t say how it’s going to finance its programs without the money), thus propping up his friends the media moguls. He is now the most hated man in France. People who voted for him because he presented himself as the president of the “buying power”, now feel betrayed. Once in power he said he couldn’t implement his program because the coffers were empty (which shouldn’t have come as a surprise to him, since he was the finance minister a few years before) while making sure he first gave himslef a hefty 70% rise!!
So, please don’t wish for someone like him at the head of Ireland, the ones we have are bad enough!
Norht Korea is where we came from. Its the idyllic paradise promised by Dev.
And we still continue to sit on our hands and whinge. Vote them out. Its the only way.
The bankers are responsible for this mess.First act is to replace the incompetent fools that caused this problem. That includes the entire financial establishment. Basically this collection of Dublin 4 ‘chums’ has wrecked the financial health of our society with their liberal lending policies. And they should be removed from any influence. Having them sitting behind desks as they frantically try to worthless financial institutions to the Irish taxpayer is not acceptable. We will only end up with two Irish financial institutions in twelve months – AIB, and the League of Credit Unions. The rest are run by one lot of D4 muppets, or another – as a result of nepotism.
I am not happy with the performance of Brian Lenihan. Exactly what does he know about economics, finance or banking anyway ? Why can’t Shane Ross be put in charge of the banks ?? Is it because he knows too much, and he will not allow them to get a copper or paper from the taxpayer ??? I think Cowen is trying his best. Ahern is a scoundrel. He was being lined up by Blair et al to become “El Presidente d’Europa”. This shows you exactly what a joke the EU has become.
No – we should not bailout those who believed in Authority – because that is bailing out Authority. And Authority in our financial establishment has now been proven to be bankrupt, unaccountable, nepotist, corrupt, etc…
The lesson of this episode to Irish society is clear – don’t rely on authority. Rely on hard fact. What you are being told in the media is the product of PR/spin. If it smells fishy, then that’s because it is fishy. Let those who did not learn now learn. Those that were suspicious of authority in Ireland, can now reap the rewards of their patience and vision.
It has been reported by Irish media that “major shareholders in Irish banks are preparing to revolt”. The Carlyle group, who’s prominent political figures include former US president George HW Bush and former British prime minister John Major, are set to takeover Irish banks that will eventually be fully underwritten by the Government’s €440 billion guarantee approved bill, but the fiance minster has not bailed out or nationalised any banks yet. The Carlyle group is admired by financial modules world wide for the ways it has exploited its political contacts. Goodbody Stockbrokers informs us ‘At a minimum, there is extensive work going on behind the scenes.’ Read how Brian Cowen and the Irish finance minster’s actions are about work in favour for foreign investors to reap massive guaranteed profits with no risk, Irish taxpayers taking the full blow.
where is ‘ the ireland inc group ‘ to counterbid ?
Those FTBs will need some sort of assistance or Ireland could go back to the 1950′s. Lets face it lots of people were duped into buying houses in crappy areas on 100% mortgages back around 2005/2006 (I worked with two of them boasting about their 100% mortgages for houses in dubious areas. Their idea was “I will be out of there in 3 years tops”. This may happen but not in the way they had intended I think.) The government, builders,banks and estate agents formed a mighty property cabal and told everyone to jump on the ladder or it would be too late and they would never get to own their own house. It was a form of state sponsored blackmail. I know about moral hazard. But normal people dont study economics and just listen to their “financial advisers” and the media. (I have a graduate degree as do many of my peers & I am the only one who is interested or cares as to why this is happening. Others realise that it is happening but have no idea why and dont really care. They just think it is bad and how could the government let it happen.) The big property cabal in Ireland over the years 1999 – 2007 led by the government and that crook Aherne told everyone that property was a one way bet. Most people believed them ( the statistics were there to be honest with constant price rises) and jumped on. I did not. I voted with my feet.
These FTB’s will need some form of assistance if the Irish economy is not to totally collapse. They form a huge chunk of society stretching back to 2003 FTB’s. There are also the people who traded up out “out of their comfort zone” who may have based their ability to pay on high paying construction management jobs that will be in diffculty also. If there isn’t some sort of help in the form of mortgage moratoriums, term extenstions and grace periods then a lot of these mortgages will go sour and then what? Ireland becomes a waste land. No-one wants that. I am not there anymore but I would not like to see that kind of scenario happen to friends and family who are still there. It is all very fine to say “moral hazard” but if it creates a massive depression in the Irish Economy then that would be plain stupid.
The “authorities” need to go after the big boys who caused much of this. Bring down enough of the big heroes of the property “boom” with enough publicity and retribution (including jail time and CAB style wealth re-distribution) then moral hazard will have done its job without seriously affecting the poor working stiffs who believed the big lie perpetrated by the government, building industry, banks, estate agents and the media in the great Irish property boom of the “roaring noughties”.
Ger
its friday evening – on a lighter note
reflect on some oldie notes and songs
beatles ….Help
Imagine ( there is no heaven )
Yellow Submarine ( we all live……maybe N. Korea )
Johnny CASH – u know that one ….it burns burns burns …and goes up on fire
U2 – Dont know what ur looking for
and there are lots more
‘ Thats all for now folks,,,,,,,,,,,
Does nobody think that its a bit late for all this hand wringing. We knew there was a boom and yet nothing was done to rein it in in spite of warning after warning after warning.
We are too soft on those who hurt us.
The Taoiseach said in the Dail during the week banks covered by the capital guarantee scheme all met the “regulatory capital requirements as of September 30th” . He said “international expectations in relation to capital levels in the banking sector have altered”.
The core tier one capital ratios of our 3 main banks is supposed to be about 6% (according to ‘analysts’), which is in excess of the minimum regulatory requirements of 4.25%. Is there an understanding by these ‘decision makers’ of the problem’s ‘magnitude’ ?
€520 bn Assets announced for 6 major banks on September 30th
€23 bn (4.5%) Minimum regulatory requirement for capital
€31 bn (6%) ‘Level’ of Capital suggested for major Irish banks ?
€41 bn (8%) UK banks core tier one capital ratio
€5 bn (1%) Market Valuation
The Minister for Finance announced the capital in the 6 main Irish banks was €80 billion in late September – the assets of €520 bn were greater than the liabilities of €440 bn on the advice of the financial regulator and central bank
What if the market is ‘right’ and all the banks are now ‘worth’ less than €5 billion then to recapitalise to 8% capital ratio of the ‘guaranteed’ liabilities of the banks of €440 bn would need an extra €30 billion !
Should the 2 Brian’s show leadership by explaining the options identified now they have the ‘PWC’ report ? Maybe have a roundtable with ‘indpeendent’ business leaders ? It’s not like ‘information’ could drive the prices of the main banks much lower! Today BOI’s stock price is up as they say they have been approached by a number of parties – of course they have since their liabilities are guaranteed !
Everyone knows the government is the only option to finance the ‘whole’ of the Irish banking sector. Why weren’t tax incentives for the Irish public to invest in banks in today’s Finance Bill – is a ‘deal done’ already done with a foreign bank(s) at taxpayer’s expense?
Great work, Johnny. You have made the problem facing the government simple enough for the man in the street to understand. I too had hoped the Finance Bill would introduce tax incentives for loss-proof investment in the banks by the Irish taxpayer. Now, in contrast to most other countries, they are sucking more money out of people’s pockets, which might otherwise be used to boost what’s left of what we fondly remember used to be called the “Tiger” economy.
Excellent points but a lot of your concerns boils down to a feeling that the markets may be correct, creating a major recapitalisation issue. To be correct they have to have either special knowledge or understanding. The fluctuations in the prices of BoI, for instance, in the past few days have been wild. On one hand I’m delighted as I stuck some money in them at around 85c but there’s no comfort to any investor that the markets won’t over-react adversely again. You wouldn’t feel any confidence that this share trading is rational. It was relatively clear that the implications of the government guarantee are beneficial to recapitalisation so the sink to 83c was market hubris, in my opinion anyway.
So I don’t believe the market is clinging onto anything other than suspicion and the belief that the situation regarding asset write-downs is apocalyptic rather than merely bad. Still, it’s clear that any recapitalisation will be expensive for us, the taxpayers, and it’s a travesty that there’s been no incentive for taxpayers to participate in this. It does have the stink of a done-deal whereby foreign banks benefit from a guarantee ultimately provided by the Irish taxpayers.
From the FT
“Investors had chased profits while the US Federal Reserve had kept money artificially cheap, Mr Kohler said in comments that seemed aimed at German and other European banks. “But too many of you … ignored the multiple warnings and preferred to play along, rather than going against mistaken developments.” – German President
http://www.ft.com/cms/s/0/76719dbe-b7c5-11dd-ac6d-0000779fd18c.html
What has happened to the Irish economy is like an explosion in a snow globe – has no effect on the world outside it.
Pretty damning article from the economist intelligence unit on the Irish economy, and especially the Irish government response to the crisis.
http://www.economist.com/daily/news/displaystory.cfm?story_id=12664671&fsrc=nwl
Included in it are lines like this : “The country’s public finances are now in a state of crisis unparalleled in any other developed economy”
Like I’ve said here before, things are looking bleak..
Ah George Lee I’d say has a hard on by now …we’re doomed http://ie.youtube.com/watch?v=OZpw5MwpFUk&feature=related
@Lorcan good article
My theory is the bureaucracy fully understands what’s happening and is in self preservation mode….. coming up with whatever strategy they can to ensure their members (the defined benefit section of society) remains unchanged for as long as possible.
Adopt a budget with a few optimistic forecasts, to justify using borrowings to pay 10% of current wages. This will change to killing infrastructure projects as finances worsen and with the banks, find anybody/anything at any cost to avoid borrowing. I think the rationale for this is to prolong the capacity to borrow to pay for the bureaucracy’s current spending rather than any decision re short or long term value or economic decision on the banks… Any money borrowed for stuff other than paying the bureaucracy brings their day of reckoning closer, so the approach is put this off for as long as possible and screw the consequences.
Hence, expect to see some private fund driving a very very hard bargain where no public money is spent but further risk is transferred to the taxpayer and upside is with the guys putting the cash in.
Marie Matthew a French singer has a song ‘Made in France ‘……..its a positive uplifting song about the leaders in French national industries ,army , politicians ……….and …Banks……..and its a fantastic salute to their causes ……..I wish we could have been able to do an Irish version …sadly …in vain…..
Why go through all this palaver?
Just liquidate everything! Let the banks go bust, let the people who took out ridiculous mortgages rent their accomodation, and let the euro take care of the currency pressures.
There’s a lot of talk on this site about how to reinvigorate the economy. But maybe the simplest way is for an entire state to admit that it’s bankrupt, take the hit up front rather than drag the process out, and plan to be the first to emerge from this mess.
What a doozy!