August 23, 2010

If it looks like a duck . . .

Posted in Banks · 236 comments ·
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Last Friday, European bond markets wobbled again as investors – albeit in a thin market – got the fear.

The reason apparently was, again, Greece, where reports of soaring unemployment and complete economic stagnation are fuelling worries that the Greeks will have to renegotiate their debts. Bondholders will lose no matter what.

But they should lose.

They took a gamble and it didn’t work.

End of story.

What part of capitalism do they not understand?

The same should happen here with the banks and the bank creditors, otherwise – as we have argued in this column time and again – the people of Ireland will pay a terrible price to remain ‘‘credible’’.

I put credible in inverted commas because increasingly the word, as deployed by the government and financial market players, is actually the opposite of credible: it is incredible.

Think about what is happening in Ireland. We apparently have money to bail out bust banks – even when other banks are closing down here and getting out of their own volition – but not to build hospitals or invest in education.

This perversion is being hailed as credible by the government.

But it is not credible, it is stupid. It is monumentally stupid. In fact it is not only stupid, it is economic vandalism.

This very vandalism has resulted in us getting into a bizarre and ultimately incredible cycle.

Think about it.

The more the government says that the course of action it is on is credible, the less the markets appear to believe them.

The less the markets believe, the higher the spread between Irish bonds and German bonds.

The higher the interest premium (the risk of default), the more the government feels it has to do to impress the markets.

But the more the government talks about cutting back essential services, while at the same time being cavalier with the amounts it is prepared to put into the banks, the greater the risk here.

The reason the risk rises is that the more we cut back or tax, the more the growth rate slows.

So we are in an intellectual, as well as financial, cul-de-sac.

Instead of admitting this, the government is in denial.

Worse, it is employing quack economics to justify everything.

The quack economics being deployed is a type of fetish in certain Irish economic circles.

It is called Ricardian equivalence.

Before you nod off, let me explain the theory, which is being used to rationalise what is going on in Ireland now.

In the early 1990s,when I worked in the Central Bank, many economists there became fixated by the idea that, when a government reduced spending, the economy would actually grow, because the average person was so clever that they realised their taxes would fall in future and thus reacted to a cut in government spending by increasing their own spending.

Equally, the corollary held: that if the government started spending, the average person, anticipating that his taxes would increase in the future, would stop spending.

Thus, went the theory, increased government spending would have no overall impact on the growth rate.

The positive reaction to the 1987 budget cuts was cited as evidence for the truth of this theory, and there had been something similar observed in Denmark in the mid-1980s.

It perplexed me that clever people would believe such claptrap, when it was obvious that the devaluation in 1986 that preceded the budget reductions and the massive monetary stimulus coming from interest rates almost halving between 1987 and 1991 was what drove the economy.

The monetary expansion more than offset the fiscal contraction, and the outcome had nothing to do with people calculating that taxes would fall in the future and ‘‘bringing forward’’ spending because they felt richer.

The idea seemed tome so silly as to merit little more than a passing glance.

I mean, if people reacted like this, why did we splurge when Bertie Ahern and Brian Cowen ramped up government spending in the last decade?

If Ricardian equivalence held, we should have stopped spending from 2001 to 2007 because the government was spending like a drunken sailor.

But we didn’t: in fact we did the opposite, we spent even more than the government.

The same thing happened in the US.

When George Bush blew the American budget apart, the American public didn’t react by increasing saving.

They did precisely the opposite. Similarly now, when the Irish government is cutting back, we the people are not increasing spending, as Ricardian equivalence suggests we should; we are saving like never before.

Put simply, the idea that you can cut your way to growth using some elegant academic construct is nonsense. Historically, wherever government spending was cut and the economy took off, it was always offset by a massive loosening of monetary policy.

Think about Reagan and Thatcher: their reductions in government spending were accompanied by the biggest monetary expansion the US and Britain had experienced in peacetime.

That’s what drove the spending patterns in both countries. In Ireland, the case was the same.

The fact that the successful fiscal adjustment of the late 1980s and early 1990s was bookended by two large devaluations – one in 1987 and one in 1993 – is also carefully ignored.

Maybe this is because admitting that devaluations worked then to get us out of a hole might prompt people to ask questions about the appropriateness of the current monetary policy – and to do this is heresy.

In spite of all evidence to the contrary, there seems to be a residual belief in certain economic circles in Ireland in the idea of Ricardian equivalence.

As a result, there are people in powerful positions who contend that we will respond to more and more cuts by spending, and thus the economy will grow.

Clearly, the bond market doesn’t believe this – and what is dreadfully delusional is that the people who believe this silliness are trying to appeal to the bond market to believe it too.

We need to realise that the only thing that counts is growth.

To achieve growth, we have to do something radical. Clearly, this would be risky, but it has worked before all over the world. Is it better to do something risky or to pursue a policy that is based on Moonie economics, which has never worked anywhere?


  1. adamabyss

    subscribe.

  2. Lius

    Great perspective David, it’s a real pity that nobody in power or with influence can see things the way you do.

    I keep reading your articles, it’s like watching a train wreck.

    There doesn’t seem to be any hope for this country.

  3. michaelcoughlan

    Hi,
    I happen to think that the people in charge know David is right economically but are constrained by the fear that if they get more aggressive they will spook the markets. If we lose our capacity to borrow in the short term we are all in the do do. I still feel that if we were to narrow the gap within the body corporate between the highest earners and the lowest ones by redistributing the profits on an agreed ratio above 6% return on investment we would solve a lot of problems. More money in the pockets of the lower earners means more spending in local economies. More spending would translate into increased tax revenues and a reduction on the need to save for a rainy day in keeping with the thrust of this article. No increase to the bottom line of the body corporate either. No extra cost to the government through extra initiatives as the body corporate would be redistributing money automatically and also very importantly no state control or involvement in the wealth creation process. Reduced pressure on the fact we have a hard currency and also reduced pressure on the government to continue cutting more aggressively than Edward Scissors Hands. Just my two cents worth.

  4. Supper Moons : As I was reading this article I thought DMCW was in the celestial world looking down on the planet Earth .What he saw was more than three planets in a straight line creating a magnificant Pull of extraordinary proportions never seen before and all in a straight line with Dun Aengus on Inis Mor .
    The following were the planets :

    Earth – Anglo Bank
    Moon – AIB
    Saturn – INBS
    Pluto – PTSB

    And there were other flying objects too numerous to count and unpredictable causing darkness.
    All lof these were in line with the SUN ( NAMA & ECB combined ) burning redder and showing many surface explosions around it and increasingly more Angry .
    Then there was St. Christopher ( Taxpayers )carrying the World on his shoulders and he was in real pain and going to topple over any day soon.
    Now David knew something has to give and he is right .Rather than waiting too long to prolong more pain on the electorate he had taken a currach to Dun Aengus .His idea was to cut his flaming red hair and place it in the center of the ring fort on the edge of the cliff and wait for the full moon tuesday .Then the systemic unfolding events for causing and holding the shaking Sovereign nation of ours will start to remove the Planetary Allignments in the celestial world above us and bring back the sunshine into our lives again.This is the beginning because on September 30th a MOON Wobble arrives and DMCW will by then have achieved his objective.

    • adamabyss

      Tremendous stuff John.

      • ‘we are in an intellectual,as well as a financial, cul de sac ‘ – Again DMCW is echoing the Age of Aquarius ( Element Air – for intelligence and financial).So who are the relevant Mandarin Air signs : Bacon – Aquarius
        Lenihan – Gemini
        Speed is the essence of their ‘truth concept’ .Unless we can go faster we all remain at the bottom of a barrell.

    • Reality Check

      The root problem is that Government involvement and spending is too large in this country whether that spending is on bust banks or an over paid public sector the bottom line is that the economy can’t recover once spending grows greater than 60% of GDP.
      The Rahn curve has proven this fact.
      Keynes be damned.

      http://www.youtube.com/watch?v=uj6lRFXC5rA

      • Deco

        According to Constantin Gurdgiev, in consideration of the level of public sector borrowing, and the bank bailouts, and NAMA we are already past 60% of GNP. (And GNP is more accurate than GDP, because of transfer pricing).

        Northern Ireland is at 70%. And is incapable of getting out of it. The other 30% in NI is contracting as a result of the end of the building boom down here….

    • michaelcoughlan

      Hi,

      I wish I could get my hands on the same stuff you are taking. That post was hilarious!

      regards,

      Michael.

  5. Malcolm McClure

    David wrote: “we are in an intellectual, as well as financial, cul-de-sac”. Too true.

    What David and other economists fail to explain is that all economic theories tend to favour ‘Big’ and (if possible) ‘Global’ over ‘Small’ and ‘Local’ in every conceivable circumstance. Naturally, those theories are hallowed and supported by those who think ‘Big’ and benefit most from the inevitable outcome, which is to impoverish those who think ‘Small’ and ‘Local’.

    Our Celtic neighbours in Scotland gradually became aware that they weren’t getting their fair share of the North Sea revenue from the United Kingdom and began to support a nationalist solution with their own parliament.

    The notion of ‘Greater Ireland’ including Northern Ireland has distorted our politics for the past century, with catastrophic consequences. A radical regression to ‘Smallness’ would return democratic responsibility to local people. Think Luxembourg, Malta, San Marino, Andorra, Monaco and Vatican City.

    What is needed is the breakup of Ireland into the four original provinces, with capitals in Dublin Belfast, Galway and Cork. County Councils would be abolished. All taxes would be collected locally. New provincial banks would be established (like the original Ulster and Leinster banks) that would cater for local needs, retaining the Euro and abrogating international “Irish” debts.

    What have we got to lose but several sinecure Irish embassy slots and a costly national army that services government jets and provides armed cover for bank cash consignments (2000 per year).

    We’d gain local jobs, local hospitals, local industries, local electricity grid, an efficient local broadband and new roads that don’t all lead to the plutocrats in Dublin. Who needs them?

  6. Malcolm – I agree . Root Power .

  7. One massive problem with Irish politics is that if a politician can believe and inact whatever ridiculous economic theory they feel like with little or no consequences. The Irish electorate is not demanding politicians who are competent at managing economies, thus we’re getting the same old policies.

  8. BrianC

    Despite the depressing times its great to get updated on economic thinking and theory.

    At the end of the day those in power are working hard to retain the status quo and maintain a system that benefits the few. We are just proceeding with the transfer of the wealth from the many to the few. They will package it in any theory to try and make it fit on the plate they present to the public. There is little the public can do about it. We live in the delusion of a democracy.

    We are prisoners of our training and hostages to those maintaing our system and tend to dismiss things we haven’t learned and/ or don’t understand rather than embracing them as opportunities to expand our knowledge AND MAKE REAL CHANGES. Fear is only one element reinforcing the road block to real change. There are those who do not want change and have the power to prohibit change.

    It is a bit like the Big Bang Theory in the scientific world it is pushed so hard that to oppose it is heresy. In medicine they have spent 100 years trying to conquer cancer focusing on the mutation of cells and almost no focus on possible bacteria or viruses that might be the cause of cancer.

    Economics based on fractional reserve banking just does not work it generates a bust boom cycle. This is a Humpty Dumpty and they are still trying to put it together again and if they do it will simply fall again as it always will because fractional reserve banking does not work. Simple as that.

    So in our Big Bang world we are destined to treat the symptom rather than identify the real cause of our woes and this Ricardian element of economics portrays our Governments zeal for rationalisation and they are good at it. So how do you want your scrambled meal served today a square Nama plate the size of a postage stamp or a round circular plate with 90% of the center missing really a nice ring because if you need feeding don’t be foolish and expect the Govt to be honest and actually feed you.

  9. Alf

    David,

    Its a duck sure but don’t fool yourself that is is incompetence alone; there is method to their madness.

    You have to ask “cui bono” – Who benefits?

    Firstly, by Ireland paying for bank losses “cui bono”?.

    Secondly, by Ireland having a sovereign default “cui bono”?.

    You have to understand that those who are encouraging the policy will benefit from both. There is simply too much at stake for this to be blind incompetence.

    • @Alf,

      The evidence for ‘blind incompetence’ is rather strong.

      1. Nama was to reinflate property prices to reduce bank losses.
      Instead, property prices plunging and bank losses rising.

      2. Anglo Bank guarantee was meant to cost €8 bn, currently €24 bn
      and rising.

      3. Bank credit for business development was to return, not so.

      4. International investor confidence in Ireland was to return, the
      opposite is happening.

      5. Markets were to be persuaded Ireland Inc was fixed and ready
      for business. Not so again.

      6. Unemployment levels at 13.4% and rising fast.

      6. There’s a start, add your own from here:)

      Instead, delusional and myopic self serving, gombeenism has taken root throughout the land.

      But the markets are having none of it. Nobody will lend Ireland Inc a farthing except under penury of extremely destructive interest coupons.

      This lack of confidence in Ireland Inc is the real counterfoil that proves the propaganda of international confidence in Ireland’s response to meltdown is the fetid lie it is.

      We’ll have to wait a couple of weeks to discover if we are down now to the ‘lender of last resort’ the ECB and the austerian Trichet who wants as much austerity as he can get from his pound of flesh. If we are, Ireland Inc is now a socialist state held together no longer by laws of rudimentary economics, but rather a proxy investment fund supported by the ECB alone, we have become Anglo:)

      Internationally and market wise Ireland Inc ‘has no clothes on’.

      The NTMA bond auctions tell the not ridiculous story that markets do not have any confidence in Ireland INC in spite of all the protestations to the contrary by Clown & Co including fiscal taskmaster rubbish.

      The question is how much bleeding can the patient take before extreme consequences serving no one occur?

      Next time Lemingham and Clown rant of ‘corners being turned’, ‘investor confidence returning’, ‘international confidence’, its time to take a rain check as none of the above are on the horizon for the moment:)

      It might also be more useful to force them to concentrate on the austerity measures and let us know what they have in mind?

    • tony_murphy

      I’d trying to picture the duck and I’m having trouble piecing it all together!

      You say Alf…
      “You have to understand that those who are encouraging the policy will benefit from both. There is simply too much at stake for this to be blind incompetence.”

      I think you have hit the nail on the head,

      The hedge funds who manage the savings of the super rich matter, are more than likely the bond holders government take instruction from. I read recently in Robert Pestons book, “Who runs Britian”, that hedge funds in 2007 were upset the US governments didn’t allow people to be kicked out of houses when they went into arrears with their mortgages because it meant their credit default swaps didn’t kick in, and they didn’t make as much money.

  10. paddyjones

    Well I don’t believe it DMcW is actually saying that people saving is bad , that saving is a problem….absolute stupidity. I am a saver and its the one thing taht makes me sleep well at night.
    The other point is that government cuts are absolutely necessary we have no choice because the EU tells us to cut , we have to get our budget deficit down to 4 billion ( GDP 130 billion ) by 2014 from its current 19.5 billion. And in fact our budget deficit for 2010 will be in the region of 26 billion because of Anglo.
    Davids argument seems to ignore our fiscal reality. The bond markets represent savers, they are people too , you cant just write off their investment as they represent pension funds mainly.
    Saving is good , I know that whatever happens I have my savings to fall back on. The Germans are savers they don’t spend excessively they don’t borrow even to buy cars, they by and large save and then pay cash and thats how it should be.
    I think Davids opinions are populist and flawed , he thinks he is so intellegent that he holds the key to fixing our problems. I don’t think so.
    Austerity is the new religion.

    • Falls

      we have a winner…bingo…

      you are exactly right!!!

    • tony_murphy

      Paddy, austerity is what the bond holders/markets want and so do you. You’re not keeping good company there I’d suggest. Greed and selfishness of the financial elite will destroy society, and very soon.

      I guess you want to see those who borrowed recklessly from the reckless banks facilitated by reckless regulators and reckless governments to carry all the burden.

      I guess you feel that those who didn’t get involved in the recklessness should not be made pay and I totally agree with him on this point.

      I say let the bankers/hedge funds/super rich/ mandarins in civil service / politicians and reckless businessmen carry most of the burden. They can afford to.

      Your savings don’t matter in the scheme of things. The hedge funds who manage the savings of the super rich matter. The move in the corridors of power and what they say goes. Democracy can be and has been bought. The intent to loss no money and take whatever they can from everyone else. They wake up every morning with that goal.

      Trying to save your own backside is also trying to save the backside of the hedge fund/ super rich. They seriously need to take a bath, they lent recklessly. If you are collateral damage, well that’s a shame.

      It’s like people who worry about a property tax, they think about their own little patch and the cost associated with that. They don’t think about the landlords with 10′s-hundreds of properties who are not paying anywhere near enough tax

      • Deco

        When a state is heading towards bankruptcy, it is not in a position to negotiate the terms on which it will get more money. It simply has to take the terms it is given.

        In this context, the state should have decided to not follow Gordon Brown in the ridiculous practice of bailing out failed banks. Brown got away with it by printing money. We do not have that option. We have to earn the money the hard way.

        The problem is that we are going past the point of no return. We should have used the Permo to Anglo loan saga to kick Anglo out of the bank guarantee. Anglo lied to the government about the state of it’s deposit base – and it’s solvency. Therefore it should have been thrown to the wolves.

        We were in a position of being able to tell bondholders of private capitalist enterprises that they were going to get the same treatment in Ireland as they get in the US. But instead Cowen is following the Gordon Brown dictum of nationalizing every failed bank.

    • Flash13

      I have to really wonder about those who promote austerity and have this warm fuzzy feeling about their savings like the user ‘paddyjones’. Anyone whose savings allows them to sleep soundly at night doesn’t really understand money. Savings is merely the other side of the lending equation. Your savings doesn’t represent hard money, it is backed by loans that banks have lent. Everyone knows this point yet fail to fully appreciate its wider implications.
      In many ways the Irish government is protecting the ordinary Irish saver (either directly or through pension funds etc), which is why those people defend them and promote austerity. That is actually economically illogical in extremis because, overall, savers are the least economically productive members of society compared to borrowers (people with net overall savings are typically retirees or those who don’t need to work; young hard-working people with jobs tend to be net borrowers overall, i.e. have mortgages). Think this through to its full logical conclusion: in the event of a financial catastrophe, the government should let the savers suffer and reduce the debt burden thus returning the balance in favour of the more economically productive element of society and prevent them just giving up because they are consumed by debt. You may think this is far-fetched but this approach has happened many times in the financial history of the world, it’s typically called a devaluation (which is in effect a form of default). Iceland did this, and the UK to a lesser extent (the fall in the pound was to the detriment to foreign lenders to the UK but boosted the UK domestically). But it was most famously the tool used by the US to finally get out of the Great Depression (they defaulted on their obligation to back money with gold and effectively printed their way out of their depression).
      Ireland is in a depression, so logically should invoke the nuclear option of default/debt renegotiation (which is what David McWilliams has suggested for months now). Of course Ireland can’t devalue and default is not being considered for one very simple reason.
      You see it’s not actually you they are really protecting: it stretches way beyond Ireland…
      The real reason why the Irish government is acting the way it is, is because the ECB, and Germany in particular, are forcing them to. This is not just to save the ECB the embarrassment of a peripheral bank or government defaulting but it is because the other side of the balance sheet is not just Irish savers like you: its predominantly German banking assets. The creation of the euro distorted the way banking works. Rather than Irish savers funding the Irish economy, there was a massive cross-border transfer of savings. German savings funded the Irish banks. Those banks are now bust and there are no funds to pay back the German savers. But just like Ireland, the German banks are burying their heads in the sand and not recognising this. In fact they still hold their loans to Irish banks at full value (do some research on German Landesbanken and market-to-market versus held-to-maturity accounting). They can legitimately say their loans to Anglo and the other Irish banks are good as long as the Irish government (AA rated) says they will guarantee it. If the Irish government withdraws that and lets the banks default or renegotiates, the German banks are forced to write down their loans. The euro is a massive house of cards. The ECB is extremely anxious to avoid an Irish default (or renegotiation of debt) not because of the losses to Germany from the Irish banking system (they would be relatively small) but because they are worried that such a move would be repeated elsewhere and it might finally lift the veil on the fact that Germany has been bankrolling the PIIGS for the past decade and the money is all gone. This would have massive repercussions for confidence in the euro in Germany and could be catastrophic (personally I think the conclusion of the financial crisis will be Germany leaving the euro – its a basic extension of Gresham’s law that ‘bad money drives out the good’).
      In many ways the problem in the eurozone is Germany you see. Everyone recognises the problems of the PIIGS economies but it was German money that they frittered away. This money isn’t there anymore yet German banks still report it as if it is. The German banks should have taken a hit to their P&L ages ago and indeed German savers should have lost a small portion of their money representing their Irish and Greek losses. That would have been true capitalism. But this didn’t happen. They are in denial. If you think Irish banks are a fantasy ask a German Landesbanken how they value their loans to Anglo and hence to Bernard McNamara and Sean Quinn – they will say at 100%. Technically that is correct because the Irish taxpayer has stepped in between this and is underwriting the whole thing. Take the government support away and everything collapses like a house of cards. The ECB is trying desperately to obfuscate this point. If you want to see this in action, do some real research on the EU bank stress tests and you will see it was a fix: the stress tests only considered what is known as the trading book not the bank book, in effect they said assume Ireland doesn’t default and hence your loans to Ireland and Irish banks can be recognised at 100% of what you lent. On that basis the German banks all passed. Interestingly they also introduced an assumption that AIB would raise €7bn in capital as it would have failed without that (probably before you even did very much stressing). So in effect the EU stress tests were passed on the fundamental assumption that the Irish taxpayer (and the rest of the PIIGS) would pick up the tab under any eventuality. In other words, the German saver doesn’t lose a penny but Irish taxpayers get crucified. This is a Victorian approach to borrowers.
      David McWilliams makes much of the ‘insiders’ but I’m afraid the vested interests that everyone thinks is keeping all of this propped up are not actually in Ireland. They are on the continent.
      So while you sleep soundly at night knowing you have savings, consider this:
      As long as Ireland considers EU and German interests over Irish interests, your savings are safe. If the Irish government finally recognises the real extent of the Depression that they have created and take proper action to fix it, then you will end up somehow taking a hit to your savings just like retired Helga in Dusseldorf who gave her life savings to one of the German Landesbanken, who gave a portion of it to an Irish bank (like you did), who gave it to Bernard MacNamara, who lost it all betting on red. Stand back and think about it. Its actually fair and Darwinian. It restores balance to the labour versus capital equation, it returns power to the productive, young middle-class, negative-equity generation. It gets the country back from a debt-deflation cycle. And if you put your short-term memory aside, it happens somewhere in the world every decade.

      The easiest way out of this is very simple and mentioned by David McWilliams many times over. The ECB needs to print money. Its the most effective way to devalue.

      PS I am actually a significant net saver! However I’m also a realist, I appreciate I am in the minority and may have to suffer some of the pain. So I fully expect my cash savings may well get drowned out by printed money. The thing is that inflation is almost impossible to avoid fully, every part of the capital structure suffers one way or another. Even gold has its problems.

      • Father-fool-em-all

        Really enjoyed this post and the subsequent debate…enjoying the free education guys….excellent plainspeak….. Thanks a bundle.

  11. Falls

    if it looks like a duck and quacks like a duck it is a duck, unless you have so much government involvement that tells you otherwise…

    thats the heading that makes sense now in ireland.

    we so need an irish wing of the TEA PARTY

    • Deco

      Well, before you get an Irish wing of the Tea party, you can expect that to be dealt with pre-emptively, so that the name is poison before anybody takes up with it. Too many political parties and the electorate has too much choice – things could get out of hand. People might actually vote for people they think can do a job rather the usual exercise, of selecting the least offensive option on the list. The last thing IBEC want is politicians who are afraid of votes. “That would be a retrograde step…”. Like so many other markets, it is a functioning oligopoly. You have two main power brokers IBEC and ICTU. The parties are there to do the bidding of both.

      What is most effective about the tea party is that they exist to undermine the dominant cliques in charge of the mainstream political parties, specifically the US Republican Party. In effect they try to hijack an existing party.

      An interesting concept, because it basically assumes that the two main political parties can not be competed against (due to their scale, the obedience of their activists, and resources).

  12. Half way through the piece you asked if we were still awake. After learning that the gubberment is caving in to corporate demands for lower electricity prices and that unemployed people like myself will be paying for it you can bet your arse that I am somewhat awake.

    We are European champions at taking pain and I have it on good authority that we have an excellent chance in the world club pain championship. We are catholics after all we have no pain limits. Spank me baby. Newsweek magazine said Mr Clown is the best T-shock ever because Big Biff stormed in at mumber 5 in the charts. Why all the doom and gloom lads. The evidence is pointing against you. Cant you even count to five?

    After using the phrase economic vandalism I was expecting some straight talking but then you mentioned Ricardian equivalence and my first instinct was to go back to bed and fall asleep. Yet I kept the faith because I know that you David are one of the few who are worth listening to. These ideas might be fine for brainwashing ecomoronics undergraduates in prep for talking with dry arsed money heads over lunch but they will never motivate the ordinary people of Ireland to force this government to change its ways. It is politics that rules the day even if the decisions made don’t tie in nicely with ecomoronic theories. Ireland is a politically docile country and most people don’t give a monkeys fart about economics.

    Clown and Lemmingham are public servants and their like needs re-educating. They are servants yet they run one of the most secretive countries in the developed world. In my book secrecy is the bastard child of corruption and that in Ireland we have a lot of both. They are all up the their neck in it and that is the real reason why people don’t trust them. Looking in from the outside would you trust the Irish with your cash? Think about it. In Ireland it is hard to believe a word anyone says and we need to demand change so that we can tell the world that we have open government and that our ways of doing business are fair and transparent. The people of Iceland rooted out their fly boys and they have now sent out the message that Iceland will offer protection to whistle blowers. I bet many power brokers in Ireland would be shitting themselves if this openness takes hold on more European countries.

    It is only a matter of time

    • BrianC

      Now how come Iceland can deliver openness. I suppose with a population of a few hundred thousand the politicos must heed the masses. Not the case for Ireland plus the fact we are welded to a hard currency aligned to the reality that Ireland is .08% of the EU population so we do not stack up to any significance and will just do as we are told. As for responsibilty and accountability you will not find that in Ireland they are hiding somewhere in Brussels and you have a better chance of finding them in the Iceland stores full of fish from Iceland.

      So don’t hold your breath for change and I wish it was only a matter of time for change so stick in there and try to stomach the Ricardian medicine

      • Thanks for your feedback Brian. Because Ireland has a larger population than Iceland it naturally follows that we can never have open and accountable government. I see. Thanks for clearing that up.
        I am a Lidl man myself and would not stoop to visiting Iceland.

    • “”secrecy is the bastard child of corruption”"
      Well now, if Oscar Wilde came out with that little gem, they’d be hailing him as the new Messiah. Mighty comment altogether and if you don’t mind, I’ll be using that in my dealings with the proles.
      Well said.

  13. conroynaas

    David,
    I totally agree that it is economic vandalism to give “money to bail out bust banks – even when other banks are closing down here and getting out of their own volition – but not to build hospitals or invest in education. But,as an non-economist, I read what seems to be general consensus that not bailing out Lehman Bros. was a mistake, notwithstanding moral hazard, the principle of capitalism that investors take the consequences of their risk-taking and so on. I’d like to know if you agree with this consensus and if so / not why. I suspect the factors involved are very relevant to Ireland’s situation.

  14. Tim Johnston

    Well, if the government isn’t spending your money, then you get to spend it yourself, goes the theory. Which assumes, unfortunately, that the government returns your unspent taxes. If only…
    And if they cut and raised them according to economic performance every year, maybe that would work too.
    Otherwise, the government just keeps spending on white elephant projects, whereas citizens, it is assumed, would be smarter with our own money.

  15. Deco

    Iceland, which did a lot of what David recommended, is getting itself out of the mess. Yes it is difficult. In fact it is extremely tough. Inflation is bad. Wages are stagnant. But employment and the trade situation are getting better.

    Greece, is going into a spiral of stupidity and debt. Greece is led by Cowen’s long time buddy in EU ‘hooleys’, (how do these turkeys find each other ?).

    There is something systemically wrong with our economy, in that it requires a borrowing rate of 200 Million Euro per week to sustain itself. The current trajectory does not lead to ‘recovery’. It leads to a sovereign debt crisis.

    By the way, I do not regard what has happened to date as ‘austerity’. It is ‘austerity’ concentrated in a segment of the population. For Bono and Denis O’Brien it is business as usual. In fact, as austerity programs go, current government policy is a cop-out. The quangoes are still in place. The Semi-states are still loaded with NEDs and politically appointed cronies. The main emphasis of the governments policy has not been auterity. The main emphasis has been tax increases, levies, more levies, stealth taxes, etc…

    The entire spectrum of Irish politicians, consists of practising Keynesians. Even the PDs are Keynesian – they stimulate the economy for their backers. Just look at the way Honest Tom moved to the CIF. And Senator Shane Ross calling the PDs the baby brother of IBEC.

    This is not because Irish politicians believe in Keynesian economics, as their basic economic foundation. It is because they need some theory to justify the way the way they use state power to control so much of the economy. Really it is about control. And it comes from high level of cronyism and clique power, with the politicians are following instructions from corporate influencers. In addition the same corporate concerns have clout in the media via the advertising spend.

    Keynesian economics provides an economic theory of convenience that can be used to justify the concept that some master institution (government) should be in charge. With such a concentration of power, you get corruption, lobbying, cliqueism and wholescale market manipulation. Austrian economics requires that they minimization of this power. Therefore, the Irish establishment is fully in favour of Keynes, even though they never read anything he ever wrote. (By the way Keynes and Hayek were both on excellent terms academically, regularly exchanging critiques and proof-reading each others papers – chances are they would have agreed on shouting abuse at these cliques).

    Anyway, to support Keynesianism Irish style, (ham-fisted, assymmetric intervention like occurred under Bertie the Socialist) you end up with regulation Irish style. Some areas get regulated hard – just try and set up a small business and you will find out. In other areas it is a ‘soft touch regulation’. And the Competition authority is absent from vast areas, completely ignoring what is going on. For example the Competition Authority has nothing to say about banks owning 5-10% shareholdings in competing banks. The policy objectives of the Irish politicians practising Keynes, do not come from Keynes’s General Theory. And they certainly don’t come from Mises or Hayek either. They come from IBEC, and the K-Club. They come from the Outside mindset. Socialism for the insiders. Capitalism for the outsiders. That is what you are seeing today in Ireland.

    Of course if the bond market knew this, concerning the elit running Ireland, there would be mayhem. So our government pretend to be a following a path that is slightly Austrian. I mean it brings down bond interest rates for the Germans, so we better pretend to be the same, so that we can keep borrowing. This is a ‘do as I say, not as I do’ type message from our government ministers. This hypocrisy is best exemplified by Dermot Ahern talking out the window of a ministerial merc, telling the people that they, the people, are saving too much money, and that they should spend more. Clearly the fact that people are saving 6% of their incomes is excessive. And then he speeds off in the merc. (real austerity is packing the government into a coach-bus and Cowen getting into the back of a van).

    When the bond market stops buying Irish bonds, that is when the real austerity starts to happen.

    • Deco, disagree Irish politicos either have a grasp of Keynes, or any other economic theory. Seems to me, as David says, they’re following some form of Ricardian ‘quack economics’ totally anti Keynes.

      If the Keynes fundamentals were followed, see below, of spending on infrastructure in times of recession, taxing the rich, redistributing wealth from the rich to the poor, we might have less inequality, and with other changes get out of our present difficulties.

      Aaron Swartz has a good summary of Keynes economic theory here:

      http://www.aaronsw.com/

      “Well, you can pray that billionaires will start hiring us all to build them giant mansions, but that’s no way to run a country. The government has to step in. Instead of waiting for billionaires to build pleasure-domes, the government can hire people to build things we all need – roads, schools, houses, high-speed Internet
      connections. Although, honesty, it doesn’t have to be things we all need. They could hire people to do anything. This is why inspecting the stimulus money for waste is so ridiculous – waste is perfectly fine, the important thing is to get the money into circulation so that the economy can get back on track.

      Another good solution is redistributing income. Poor people are a lot more likely to spend money than billionaires. If we take some money from the billionaires and give it to the poor, the poor will use it to buy things they need and people will get jobs making those things.

      Remember that money is just a kind of illusion. In reality, there are just people who want things and people who make things. But we’re stuck in a completely ridiculous situation: there are lots of people who desperately want jobs making things – they’re literally not doing anything else – while at the same time there are lots of people who desperately want things made. It seems ridiculous not to do something about this just because some people have all the little green sheets of paper!”……….”So those are Keynes’ prescriptions for a successful economy: low interest rates, government investment, and redistribution to the poor. And, for a time – from around the 1940s to the 1970s – that’s kind of what we did. The results were magical: the economy grew strongly, inequality fell away, everyone had jobs.”

      “But, starting in the 1970s, the rich staged a counterattack. They didn’t like watching inequality – and their wealth – melt away. There was a resurgence in classical economics, Keynes was declared to have been debunked, and interest rates were raised drastically, throwing millions out of work. The economy tanked, inequality soared, and things have never been the same since. For a while people talked about levels of inequality that hadn’t been seen since the 1920s. Then they talked about a recession the size of which hadn’t been seen since the 1930s.”

      • Deco

        I think that the primary drive of growth between 1950 and 1970 was cheap oil. Everything was rosy in the world of Keynesian economic policy practice, until the Arabs wanted more money for their oil.

        The rich were always concerned about their wealth. But as a result of the stagflation in the US in the 1970s, and the cronic performance in Britain in the same decade, there was a massive loss of wealth across the economy in all classes. This resulted in questions concerning the real effectiveness of Keynesian economic theory. In 1979, the US government would borrow in DM and Yen, and then convert to dollars, the US dollar was that badly regarded. In Britain the electricity was switched off for three days per week. In Ireland staff at a major bank went on strike for 15 months. There was a cronic problem with inflation. Interest rates were below the rate of inflation, so the currencies were losing ground against the primary commodities, especially oil. And the oil producers knew this and kept looking for more inflated dollars for their product.

        The ECB have given low interest rates, and it has resulted in Asset bubbles which have made residential housing unaffordable for ordinary working people. In fact low interest rates have resulted in multiple asset bubbles. Just look around you. Too many hotels. Too many apartments. Too many retail units. Therefore the evidence is that low interest rates cause a lot of problems. If the interest rates were higher, many of these projects would not have been considered feasible. But now, we get the situation that the calculations and the planning has been beaten by the unfolding reality. That unfolding reality is too much activity. And I do not think that regulation was going to prevent this. The interest rates were low, that borrowing went ballistic anyway.

        Now, I did not know that Keynes was in favour of having low interest rates. Now, I know. Well thanks for that. But, it is of concern becayse low interest rates have had disastrous consequences.

        • michaelcoughlan

          Hi Deco,

          The asset bubbles were created by irresponsible lending not cheap money. Money was cheap in Germany too and they don’t seem to be as badly off as we are. As for the dollar in the seventies it fell in value because the US printed so much of the stuff fighting the Vietnam War. As far as I know this forced the Brits and French to look for payment in Gold which prompted Nixon to abandon payments in Gold.

          • Deco

            We definitely had cheap money. So had Spain. And Portugal. And Italy. And Greece. In addition, the low interest rates were influential in the shadow Euro area – Hungary in particular.

            You are correct, it does not seem to have bothered the Germans in that they did not spend it on residential property. But they did invest heavily in sub-prime debt from the US. And they loaned a lot of money to us. Their banks were also reckless (Hypo, Sachsen LB, etc), though the population as a whole were rather conservative with their financing methods.

            But I wondering, does not the availability of low interest rates cause all sorts of irresponsible lending practices ? I mean everybody was making projections of becomming rich in real estate….

          • michaelcoughlan

            Hi Deco,
            Your question is very important and not one I am sure I can answer or am qualified to do so. What I can say is that cheap money was certainly a factor. I still think that this “competition at all cost mentality” was disastrous and also had a huge bearing on what happen where banks were forced to lend recklessly to protect market share in conjunction with piss weak regulation. As far as I know the Canadian’s have a much more stable banking system which has survived relatively unscathed and I am sure they were under as much pressure to protect market share as everyone else. It would be interesting if someone could enlighten me as to why they protected themselves better than us.

      • Deco

        cbweb – I am not saying Irish politicos have a grasp of the economic theories of Keynes. But what they do have a grasp of, is facilitated by their promise that they are implementing Keynes. It all sounds so good, so aspirational, so perfect, so promising – that you could not really argue with it. They grasp how people buy the promise. They also buy how it can be used to justify all sorts of nonsense.

        • I think Keynes is in favour of economic stimulus the major parameters of which are redistribute wealth from the rich to the poor, not to do so is a source of stagnation stimulate demand by spending on economic infrastructure primarily as a means to generate employment and get the economy moving again keep interest rates low.

          A bit like a car, brake, clutch, accelerator, 1/2/3 but without driving the car into the wall.

          We have not done 2 nor are we doing so now when its most needed. Jobs need to be created asap. Every euro spent on generating a job should give a tenfold return at the very least.

          We are certainly not doing 1.

          We are sucking taxpayers money out of circulation to pay the debts of the rich while merrily driving the car towards the wall.

          Quack economics will end in failure, the clock is ticking! This coming budget, next one after that, or before. IT will be a harsh lesson the ramifications eg emigration already being felt, hopefully we’ll learn something from it.

          Judging by the way the fiscal policies of Clown and Lemingham are still celebrated in certain quarters, we still have a lot to learn. Keynes makes sense to me still.

          • I think Keynes is in favour of economic stimulus the major parameters of which are redistribute wealth from the rich to the poor, not to do so is a source of stagnation; stimulate demand by spending on economic infrastructure primarily as a means to generate employment and get the economy moving again; keep interest rates low.

            oops sorry, forgot me semi colons, hope that reads better:)

  16. Deco

    “To achieve growth, we have to do something radical.”

    Something concerning the labour market, perhaps ?
    Or maybe fix our cost base, so that the labour market is allowed to function faster ?

    One thing is certain, borrowing, jawboning, wasting public funds, misallocating resources, and stiffling inefficiency time are not strategies.

    I am coming around to the view that the misallocation of resources as a result of the crack up boom/low interest rates/borrowing that there will not possibly be a fast solution.

  17. StephenKenny

    So, we are back to where we were 4 years ago, and every few months since: “OK, then what?”.
    Let us say that one bright morning, the gods swooped down and made all our debts go away, corporate, government, and personal. We all looked at our screens, paper statements, and whatever else, and there was simply no sign of what had been there before. Gone. All of it. Even those who were on the other side of the debts, Gunther et al, had magically had all their loans repaid in full.

    This is the economic policy called “Olympus”, and it worked. All the followers of Olympus economic theory – the Olympians – were rejoicing.

    Then what?

    Can anyone predict what businesses would grow and spring up? Can anyone predict where the jobs would come from? Does anyone, for one single minute, believe that they would come from anywhere other than Property, Financial Services, State, and subsequent Retail?

    Is anyone going to stand up and say “Well, I think that a vibrant high-tech optics industry will grow up in….” or ” I see the jobs coming in the power generation and storage technologies”? Anyone?

    In some situations this sort of borrow and spend policy might work, but not in this one. There is no easy fix to this problem. There is no central government fairy dust that can fix it.

    To repeat what many here have said: Our standard of living is higher than our ability to generate wealth, so either we increase our wealth generation, cut our standard of living, or a combination of the two. All three are hard. Very hard. Anyone who promises an easy fix is just wrong.

  18. paddythepig

    The Government needs to stop spending like there’s no tomorrow, and cut out the excessive borrowing. Why not cut the bond markets out of the equation altogether by trimming all the fat, and bringing spending into line with tax take?

    Devaluation, or leaving the Euro, is not the answer either. Devaluation is like the slimfast plan ; you get a temporary boost, but because it brings about no behavioural change, it ends up being of no use. Eventually you end up back at square one.

    The discipline of a hard currency, and the necessity to internally reform in order to conform with it, is a good thing for Ireland in the long run. At the end of this process, providing FF and the Greens don’t borrow us into oblivion, if we take the pain now, we can emerge as a leaner, meaner, smarter country.

    • tony_murphy

      A move away from the Euro is the only sensible option.

      Unfortunately the Irish public service pays itself far too well and it can’t afford it. Ireland is not in any way competitive and the sooner it realises that the better

    • Deco

      The answer might stare the government right in the face. But don’t expect them to do something about it, without first of all trying half a dozen other options first (that won’t work).

      This curreny collection of politicians hate making decisions. They prefer to dither and hope that the problem disappears into the fog. Their problem solving mentality is completely absent. Their approach to every disaster is to fit it into the existing system and tell everybody that everything is OK. Problems just grow.

      800 quangoes, plus thousands of consultants working in a contracted out quango basis. And still nobody has made any decisions. It is not austerity. It is phony austerity. We had a binge that was a phony boom. And now they are trying to have a phony austerity. And the ‘recovery’ is phony too.

  19. Karlos

    Hi David,
    Just registered so i can start leaving comments but i have been following you and other sensible, informed and qualified economists; McDowell, Gurdgiev, etc, who contrast the buffoons in Gov or DoF.

    However is there a fundamental problem with using growth to be the solution of our (local and global) economic and consequent social problems. Is this not analogous to the alcoholic deciding that whiskey is the source of his misery and so he changes to vodka. Given human nature, ingenuity and greed he will merely get around the new controls which will “prevent financial institutions behaving so recklessly in the future” (wasn’t this the cry after the Great Recession!). Is it not a case that the West spent money it didn’t have (debt) by expecting continued wealth growth to come its way in the future. Eventually we have all come to realize that our rate of wealth creation was slower than debt creation. The growth model will not solve our current problem now or in the medium term and the average Joe in the West will have to get use to less; less “lifestyle”, less healthcare, education, infrastructure, etc. In tandem there is an ever growing demand for finite and diminishing global natural resources upon which all economic growth depends (eg wait till you see how valuable clean water will become in the next decade or two; try to run any factory or society without it). In essence we need to re-look at what we call growth because following the traditional definition will only cause a repeat collapse in the future, or to use an alcoholic analogy again “old wine in new bottles”. Over to the economists to design the new model!

  20. @ Karlos. You are wrong there!

    Lets look at some of the terms of the austerian/non austerian debate right now. On the one hand, austerians say we need government cutbacks on public spending. Non austerians say ‘no’ to this, we need to spend our way out of this! Perhaps there’s misunderstanding between both camps. Just heard Stiglitz talk of the need for careful stimulus, careful public spending, unwise and blind cutbacks of 3% leading to a double dip if carried out in Europe. What both groups agree is wasteful public spending must be curtailed. This includes spending to stimulate property bubbles where over inflated casino property prices stall and break economies. Stiglitz, Keynes and Krugman are in favour of stimulating jobs by selective public sector stimulus. To my mind this should include cutback of wasteful high salaries in the public sector, uneven and inappropriate tax breaks for
    the well off, no tax for the rich. Getting more people back to work on high value, high yield, public infrastructural development is surely the way to go? Perhaps austerians can see the merit of this approach of careful public spending and careful stimulus.

    As David states above: “Put simply, the idea that you can cut your way to growth using some elegant academic construct is nonsense. Historically, wherever government spending was cut and the economy took off, it was always offset by a massive loosening of monetary policy.”

    We should consider taking ourselves out of the euro, but failing that we should at least avoid the deja vu nonsense that mindless austerity is going to solve any of our problems. It will only add to them!

    • Karlos

      Hi cbweb,
      In reply to my comment of 24th August I hear what you’re saying but you took me up on the wrong angle. For economic growth I agree with your points that the gov should not engage in austerity but engage in essential and efficient expenditure/investment (eg education, broadband, etc, etc). But to be clearer about my question is do we need to change the international definition of “growth” but still invest. Globalisation will inevitably create these oscillating bubbles where a wealthy region (one with expanding debt) goes bust due to production (jobs)shifting to a relatively cheaper region. A de-globalisation growth model based upon a region being self sufficient might reduce the width and breadth of any busts. Its not possible for every European country to become a Germany and if it was then there would be no relative advantage to gain.

      Regarding Ireland copying the German model; I wish but I don’t think it possible since generally its not in our genes, our capacity.

  21. ‘If it looks like a Duck’ – this does not mean ‘it’s a Duck to water ‘.We sometimes are all Ducks on this forum and we seem to believe we can live a ‘cyber lifestyle’ and forget the reality that ‘water’ is our natural abode where we can only rest and play.We deliberate with many insights and inspirations in this room and none of us cry ‘PAIN’.Until we feel the ‘Need’ we remain a ‘Dry Duck’.
    ‘Inertia’ is liken to eel like fish who decides one day he wants to leave the river and grow legs to walk on land.Unfortunately this change usually takes a long time and we cannot wait that period .Inertia is denoted by ‘earth’ a neutral substance and for the period it takes to continue in this state we are harboring ‘the insiders’and our small grains become lost in a new mix that eliminates what we once were .We lose our identity and dreams . ‘Change’ is the only way to foster what we once were ,before it is no more.
    Until we have the need to change the position remains status quo ie inert. So what stimulates change ? Do we want change? Can a Duck adapt to land without water?And then of course will we stop quacking and commence barking? Then there is the matter of ‘teeth’ and not ‘beek’.
    How do you want ‘to bite’?

  22. NO HOPE

    The essential underlying cause and continuation of the economic disaster in Ireland is gross incompetence, which is ongoing. The buffoons who ran our economy into the ground, and still waddle onwards with the same ineptitude and dim witted perception of reality, need to be expelled to never ending darkness. Only when we have complete and utter reversal and change of systems, policies, and government across all sectors, will there be a glimmer of hope. Until then watch us sink deeper and deeper into the abyss. The markets have heard the lies, they have analysed them, they have found us wanting. It reflects in our ratings. If a new political party came in and made real changes based in reality, watch the markets sit up and listen. Until then we may as well pack our bags now while there are still cheap Ryanair flights to anywhere……….

    • Philip

      Actually it is worse than that. The Irish as a race are incompetent. We are not wealth creators. We are spongers. It is in our genetic make up. Just look at the CAO points….every soaring towards jobs for public service and healthcare and finance. Not one ounce of wealth creation there for our 500 pointer intellects (not that I regard the leaving as an indicator of anything other than a further statement our our national incompetence). Nearly all engineering courses are down. Science and Info tech seems to be up, but really, is this because science is seen as a more intellectual pursuit than perceived greasy handed engineering?

      David, it’s becoming a dead duck. The markets are about to speak. Next bond auction will falter and our rescue ECB will find it’ll have to massively devalue to print more funny money for Spain, Greece, Italy etc. We could get booted out of the Euro yet if the Germans have any say. Either that or they’ll want their Mark back.

      • Falls

        i an not sure i agree with all that. Why then when we go abroad are we so successful? it is a disease that is in Ireland, and IMHO that disease is government. I dont agree with David’s idea that we need investment from governemnt, thats the root cause of our problem, that only government can fix it, only the people who create the problem can fix it, and so the perpetual cycle of government growth continues. The govt are over paid, under worked and guaranteed jobs and retirement. Its fake, but its viewed as real work, not recycled and regurgitated money from the private sector. we are taxing our brightest to death or the humdrum mentally dead civil service jobs. personally i would restrict govt jobs to 10 years, for politicians and civil service. you get say 2 terms, then get a job in the private sector creating wealth not destroying and consuming it. There are loads of people here who want to tax the rich to death to pay for the poor? why? in all my years in the private sector, i never ever have had a job working for a poor person. That type of incentive killing agenda is what has us in this mess. Dont misunderstand, i know there are many who are rich because of their relationship with government and i know there are genuine poor people, but 20 billion per annum amount of poor…no i dont think so. Thats what happens when government is involved in every single aspect of your life, prostituting itself for permanent jobs. In the private sector, why prosper, they will just take it, why work hard when i give it to someone else (sorry thats really should be called charity and should be my choice not a govt minister who makes me pay by using my money to get elected and then forces me to pay his wage for the privilege). thats the drumbeat of ireland, dont succeed because you have done it by screwing someone else. is it any surprise that the top grade pointers want to goto government? we have created this, we need to stop it. the only way is to starve government of its influence. to starve it means you not only cut government you butcher it. you starve it of taxes. you send a loud message to the private sector – you earn it you keep it. it is currently you earn it you pay it to someone else who could not be arsed. its going to be painful. i would start with the schools. begin a process of privatising the whole thing. you want a school in the back end of nowhere, fine, you pay for it. you want more teachers for your local school you pay for it but cut the dept of education and stop funding it and give me my taxes back. only then will people really care about what they are getting for their money. we are not going to turn this around in a year or even 10. we have fundamental issues on how people view wealth. its something bad or evil or stolen. we need to unleash the power of those graduates and send a loud clear message– this is the place to stay and grow. we need to do the same with health, privatise it and offer the poor a basic private insurance package, limit unemployment benefit to 10 weeks (yes i know how it sounds). our country is built on an agreement- you tax me and i get. it hasnt worked, it will never work. we need a new agreement – you earn it you keep it, you live it. will we have poor — yes we will, we always will but we now have a systemic failure that is going to sink us all…the big question is do we have the nerve to give up a failed system and rebirth our nation. personally i cant think of anywhere else i would rather live than in a irish society focussed on personal success…shrink government, decimate its power, return control to its citizens, accept that some people will fail, we cannot live in a red-hue that we all can succeed, that is an illusion we are paying for now. it is fake and its going to sink this great little nation. The reeducation will be horrible. you signed a mortgage for a 500k house in the arse end of nowhere, im sorry but YOU signed it. stop whining about government and do something — cut it so it never happens to anyone again, let the bank who gave it to you fail. if we dont change, the only solution is another house boom to undo the last one. i bet you my over taxed wage, there are people in the govt trying to do this as we speak. it will get votes. its fake, yet another pot-o-gold at the end of a rainbow. the first step to recovery is admitting we have a problem. we have a big one – you see people here blaming one minister or some other minister, if that wasnt so sad it would be funny. its only too big a problem if we allow govt dictate its solution. their answer will be more tax, more govt or worst of all a slightly smaller govt but with more agreed security that costs more. its the only solution they know. admitting our system is seriously flawed is the first step, 20 billion for social issues, 15-20 for health it is simply not possible to pay for it. our healthcare is nothing to do with peoples health, its jobs and votes and unions and unsustainable wages. i have no issue paying for a great nurse or doctor, but are we honestly saying there are no crap ones in the system currently paid exactly the same? we have to all sit down and agree…we simply cannot afford this, it doesnt work, it will never work, there isnt enough rich people to pay for it and even if there was what do you think they will do if we cut into them, they will leave, taking jobs with them…its harsh and a cold message but i truly believe the brain power of this nation is more then up to the task, the bad news is we need to take a first step and the first cut is going to be really really bad…of course this is just my opinion, not a popular one i admit, but if we are all here BSing about tweaking by changing one party for another, we are all saying we are happy to moan but lets continue the drug fuelled fantasy that its working.

        • Harper66

          Nice rant. Would have been a perfect 10 but you forgot to throw in if Michael O Leary was running the country…..
          I’m particularly intrigued by your idea to limit wealth of experience in the entire civil service to 10 years. Granted it probably would achieve results no worse than the bunch we have there now but I doubt it would be an improvement. Which is what we should be aiming to do – improve things.
          Privatising the education sector would be a disaster, remember he who pays the piper calls the tune. This” great” country of ours was built by men and women whose thinking would have been decimated by a privatised education system. No, our education system would be much better if it was actually run as it was intended by educated and motivated individuals who kept up to date in their areas of speciality. How to achieve this is a debate that would be worth having.

          • Falls

            hi Harper,

            let me explain. The one issue i see with irish politics is the longer you are in it — the greater the likelihood that you will get corrupted. dont misunderstand, i am not accusing them all of corruption but the reality is, regardless of who you are, you become vulnerable. i truly believe that is what is behind the expenses issue in govt. i am sure most of them feel entitled to it. that is a sign they have been there too long. we have children taking over parents seat in govt, are we that sad as a nation that we feel this is a good idea? i dont think the civil service is any different. the longer you are there the more stale you become. if we limit the time, we limit the exposure. the issue with the civil service is their poor attitude to change. the longer someone stays the more they feel they are owed– its human nature. that is what is happening in the civil service right now..they feel they are owed. the civil service needs to be renewed. they have told us what they do is critical (indeed there are a few areas but only a few). we have reached the point that it is critical because govt is everywhere. i can give you a real example. on rte 1 prime time (i think) there was talk about organisations selling drink to minors. one of the panel said we need a law, the presenter said there is a law already, the panel member wanted another law to butress the old one. Why? we are not enforcing one law so we should create another one!..whats this — to be sure to be sure? this is govt gone mad, next is the enforcement of the second law, we need to measure that and on we go, creating dept after dept and sub dept and quangos to protect the dept from blame…more and more and more and more. we have to stop. we cannot afford it anymore. As for the education issue, we have all too often in this country given control to a few who we deem the best. i think parents and teachers are the best to make the decisions. if you are paying for something you will make sure you are getting your value. we dont have that, i am afraid delivering control to an elite will have us back where we are now. they are elite, they should get paid, they are owed it. its that mentality that only a few should control the dumb electorate because they know best that has us where we are. However all this is just my opinion and as i said…not a popular one. the bad news , this opinion might be forced now as i see today we got downgraded for loans as a country. the govt have the elites plan, supported by elites for elites and are not for changing. so the plan appears to be, do more of the same but lets expect different results. this is Ireland today. we have to adapt or we are in big big trouble.

      • Philip, you got it wrong. There’s tremendous talent in Ireland. The problem is the insiders have perpetuated a system based on croneyism and nepotism. In such a system, smart people are considered a considerable threat e.g evidence the anti intellectual bias of our current ‘quasi smart economy’ incompetents. What we got to do is give power to smart people and take it away from incompetent gombeens. This will take a big shift in our psyche. We have to change society from one based not on who you know, to one based on what you know. Mostly, smart people have had to go abroad to shine. We continue to bleed their talent and gifts. Time to bring about a change based on meritocracy. The current ensemble of loons have had it.

  23. Philip

    Science is seen as a more intellectual pursuit than perceived greasy handed engineering? Yet another aspect of the Irish unwillingness to get down and dirty and make wealth.

  24. uchrisn

    Its nice to have Dave at least still pointing out how our elected officals and various government departments can improve their performance. I encourage him to continue in this task. Perhaps the subscribers could also contact our elected representitives by email or otherwise with good suggestions on how to proceed from here. A good example was the recent property tax suggested which was shot down by some TD’s. They claimed that their constituents were not happy with that and lobbied them about it.
    This shows the power of the property owner in Ireland, one of only a few countries with no property tax. The influence of the property owners on their local TD’s may answer Daves question as to why so much money is spent on basically buying them up assets/properties with NAMA and making sure banks don’t go to the wall and have to fire-sell assets. It is being done to protect asset values. The value of their asset/property is more important to the property owner on the street than long term issues such as education expenditiure. They are not as educated as Dave or ‘the markets’ unfortunatly to realise that this is just a short term solution. However Daves vote counts the same as theirs.
    The property tax example proves something else. The power of the people communicating with their elected officals in terms of policy direction. So I encourage all of the subscribers here to go to drop-in clinics or just write emails to their elected officals, outlining their suggestions on where to go from here.

  25. uchrisn

    I should say that protecting assets values for consitituents is not the only reason so much money is being unwisely spent on the banks, the influence of the banks themselves in Ireland, the people employed in the banks, keeping up appearences internationally, etc, etc. However the point is that it is a substantial reason. As long as there are more constituents/buisnesses harrasing their TD’s to maintain asset values at all costs than those that want to stop wasting money on the banks there will be no change.
    Incidentilly the government recently issued a report on the advice that they used/use to decide on thier policy with the banks. The main consultancy firm mentioned was an arm of a US financial firm. Are they really asking a financial firm for advice on wheter to help out the financial sector?

  26. Deco

    Irish stockbroking outfits have been talking up CRH for the past week. There is a reason for this. CRH is 26% of the ISEQ. It is number 1 by a long stretch. From reading pronouncements from Goodbody, Davy, etc, you would think that CRH is undervalued. Davy have been stating that CRH has a floor in value based on the replacement costs of it’s assets. Many people would then assume that the skills of the institution would be added to this as a further asset.

    There is a contrary opinion on this from Phoenix Magazine. Phoenix Magazine looks at CRH as an institution riddled with incompetence, internal politics, and union bosses having considerable say in day to day operations. For Phoenix, the value of CRH’s assets is secondary to the fact that it is a prime example of a lot of what is wrong with the the dominant culture in Irish management.

    Today, CRH is in the news. In fact CRH is international. In the Irish media it is ranked a less important matter than the fact that Aer Lingus has reduced it’s loss.

    http://www.marketwatch.com/story/crh-shares-tumble-after-firm-cuts-earnings-outlook-2010-08-24

    Now decide for yourselves. This is big news. I have listened to politicians across the spectrum (except the pro-Quinn Group border county SF) say good things about CRH in the last twelve months.

    It also indicates the sort of market stresses that Quinn Cement is under. And in case you forgot, you all have a stake in Quinn Cement, as a result of Anglo’s ongoing saga with the Quinn Group.

    • Deco

      I think I can even remember Minister Hanafin saying something to the effect about CRH as ‘one excellently managed Irish company, that we can all be proud of’. And I think I remember Joe Costello then backing up Hanfin’s comments praising CRH. (the rumour was that Quinn Group were a big backer of FF ).

      I presume CRH is an another ‘anchor tenant’ in IBEC. The share directors with several prominent IBEC backers. Honest Tom will go ballistic and will be asking for more stimulus programs. Honest Tom also advocstes Keynesian stimulus, when it serves his own purposes. The ISEQ is down 5% – from a very low base.

      When the Irish concept of managementmight soon become a topic for discussion in public discussions – then we will be much nearer the bottom of the crisis. Until then the same mistakes will keep getting repeated again and again.

      By the way Gormless is going to have a real fight in his hands going around trying to get van drivers to not use their vans to collect groceries. There will be uproar.

      Well, as long as they don’t fine any bankers for negligence, everything will be fine. Don’t touch the upper echelon. Send the gardai around West Dublin, chasing van drivers to see if they are carrying anything they should not be carrying, like a sack of spuds, furniture, or a loaf of bread. Or worse still they might be coming from the gym or a walk in the park. NAMA Republic. All taxes go to NAMA.

      The government are going mad. Completely mad. Apparently the problem is that working people are not taxed enough, and that working people are saving too much. This government are not into austerity, because that would damage Long Term Economic Value. The powers that be in this country, reckon that they can extract the proceeds of your sweat by means of stealth taxes, levies and charges. They cannot reform the state, because they have filled the state with their cronies, and relatives and party activists. To reform the state requires a complete replacement of the Dail with people unrelated and unconnected to it’s current contents.

      And then saturation level talk about the ‘recovery’ to get you to live beyond your means and keep being in perpetual debt. Whatever will the clowns think of next ? The most patriotic thing you can do is live beyond your means. Whatever happened to developing your intellect or looking after your neighbours ? that is all secondary to getting into the shopping mall and buying stuff you can do without. This is not new. Bush 2.0 encouraged the same thing in the US…..and look how that worked out….

      Of course to survive, you need to do the exact opposite of everything they tell you to do, and look out for yourself and those that are dear to you. And don’t be gullible to all the BS.

  27. paul

    Are there any legal grounds,through the constitution or otherwise,to force these shysters to call the by-elections that are long overdue and force them out that way?
    And if and when a general election is called,are the forces for real change sufficiently focussed to have a chance of winning?
    Time to saddle up!

    • Deco

      +1

      What if a petition in each constituency called for representation on the basis that they are currently being underrepresented compared to other constituencies ? There is a court case over this in motion concerning Donegal. The Donegal seat is now vacant 14 months or more.

      Why hasn’t Donie ‘protecting the Constitution’ Cassidy got something to say about this ?
      What about McUseless- oh yeah, ignored Art.45 – no hope there either.

      What about Waterford City and County Councils ? What if Waterford’s local authorities demand a by-election ? It would, at the very least, embarrass the government…..

    • Article 16
      2. 1° Dáil Éireann shall be composed of members who represent constituencies determined by law.

      2° The number of members shall from time to time be fixed by law, but the total number of members of Dáil Éireann shall not be fixed at less than one member for each thirty thousand of the population, or at more than one member for each twenty thousand of the population.

      Thus it is unconstitutional at this point not to hold the relevant bye-election.

      But then again, since when did this shower take any heed of the Constitution?

    • Malcolm McClure

      StephenKenny: Great Heads Up there, warning us 8 hours before RTE got their boots on.

      This whole affair looks more and more like a slow motion car crash. The air bags have exploded but the car hasn’t come to a stop yet. It has left the road, hit the ditch, turned upside down and there is a tree carved with the initials ‘BL loves BC’ two yards in front of it.

  28. wills

    David.

    Its not that difficult to understand.

    The vested interests / insiders are not interested in the dynamics you think they are concerned with.

    There is a legal term here for this, cant think of hand what it is, but, its where a person is made think that a counterparty interest lies somwhere else other than where they are spoofing others to be fooled into thinking something else.

    • wills

      Will simplify that one down tomorrow, too convoluted, chr1st almighty.

    • Josey

      Orwellian doubethink? Cognitive disidence?

      So we take the advice of the IMF ( the banks ) and bail out the banks in the belief that it will remain cheap to borrow from the banks, yet they increase the interest of borrowing. hmmmm…damned if you do, damned if you don’t.

    • wills

      David.

      These guys, *backroom policymakers* do know what the article breaksdown. They are playing another game and it involves *misdirects* at every turn.

  29. Incidentally,
    Article 22

    1. 1° A Money Bill means a Bill which contains only provisions dealing with all or any of the following matters, namely, the imposition, repeal, remission, alteration or regulation of taxation; the imposition for the payment of debt or other financial purposes of charges on public moneys or the variation or repeal of any such charges; supply; the appropriation, receipt, custody, issue or audit of accounts of public money; the raising or guarantee of any loan or the repayment thereof; matters subordinate and incidental to these matters or any of them.

    2° In this definition the expressions “taxation”, “public money” and “loan” respectively do not include any taxation, money or loan raised by local authorities or bodies for local purposes.

    2. 1° The Chairman of Dáil Éireann shall certify any Bill which, in his opinion, is a Money Bill to be a Money Bill, and his certificate shall, subject to the subsequent provisions of this section, be final and conclusive.

    2° Seanad Éireann, by a resolution, passed at a sitting at which not less than thirty members are present, may request the President to refer the question whether the Bill is or is not a Money Bill to a Committee of Privileges.

    3° If the President after consultation with the Council of State decides to accede to the request he shall appoint a Committee of Privileges consisting of an equal number of members of Dáil Éireann and of Seanad Éireann and a Chairman who shall be a Judge of the Supreme Court: these appointments shall be made after consultation with the Council of State. In the case of an equality of votes but not otherwise the Chairman shall be entitled to vote.

    4° The President shall refer the question to the Committee of Privileges so appointed and the Committee shall report its decision thereon to the President within twenty-one days after the day on which the Bill was sent to Seanad Éireann.

    5° The decision of the Committee shall be final and conclusive.

    6° If the President after consultation with the Council of State decides not to accede to the request of Seanad Éireann, or if the Committee of Privileges fails to report within the time hereinbefore specified the certificate of the Chairman of Dáil Éireann shall stand confirmed.

    Strange that NAMA was deemed not to be a Money Bill.
    How odd.

    • I may appear cynical, given the late hour and all that, but t’would appear to the less educated that our Constitution is somewhat of an aspirational document beneath the cognisance of our betters.
      One wonders what Mitchell, Connolly, Clarke and Collins would make of that.
      Would Hijack be too strong a term? Or would Richelieu sing the praises?
      800 years trying and dying to win the sweetshop and now the tramps have their snouts stuck in the jellybeans.
      To the exclusion of all others.
      Funny old world.

  30. Gal –

    Today a new dawn arrives as the earlier full moon last night begins to slowley cover its face to look into the darkness once more for another oracle. Last night we saw its beauty and strength and how it does change in a moment from something else it was before . It is the bearer of ‘change’ and in good fashion it showed that on our ‘soverign face ‘ a new re-allignment in our ‘soverign ratings’has been revealed to all of us that sets the ‘truth’ of the direction we are really taking.

    DMCW red hair piece has implanted on Dun Aengus the revival of quasar new rock energy forces that begun the dismantle of the super planetary allignments of the Anglo , AIB, PTSB and INBS and has loosened the multiple meteorites ( fraud, corruption, quangos etc )to take central stage before our eyes and see that what we were looking at all the time was a ‘Naked Ambition of Greed ‘.

    Early this morning DMCW arrived in Doolin on his Currach to the traditional sound of music of a real time having experienced the new revelation what he believed all the time and to show it to the Nation.His Currach now has a new meaning .During his return from Dun Aengus the nose of his boat glided over the choppy ocean waves as it travelled conversing in ‘splashes of guttaral waves of white gloves’to a new ocean dance. David now realises now how important his boat is and the new partnership between the two is a new working relationship for a way forward in the future.

    The Soverign Nation is cracking to tribal pieces before our eyes .In another time the mother boat of the currach namely ‘Gal’ held many that was a different world .This was a very big boat and now we must chose a new size for ourselves and our families to face the new oceans of opportunities of tomorrow and protection against what lies ahead.

    The Moon will never go away and will return again later in September showing a new face once more to continue the story we now have begun to see yesterday and in that week following to 30th September the moon will ‘wobble’ and under its tutilage the ocean waves will quiver and gyrate to the ocean dance of falling stars .

    • As we contemplate the hidden costs of Anglo vis a vis widening spreads Ireland Inc is suffering on its borrowing requirements, lack of investor confidence, Standard & Poors ratings for Ireland Inc now dancing to the curve of a default cycle, its now time to give some homework to John Allen:

      http://bit.ly/nJt0B Second Coming

      http://bit.ly/dgSxzG Yeat’s phases of the moon

      http://www.yeatsvision.com/ Explore Yeats’ ‘moonology philosophy’ on his later poetry. Enjoy:)

    • side-show : The Currach boat is the baby boat of the Gal .The Gal is the oldest known boat to have visited the Irish waters and like the currach both are originating from West Africa ( meaning splash boat ).Evidence of the Gal come from words we have as follows:

      Galway / Gailleamh
      Donegal/ Dun na nGall
      Dingle was originally Dun na nGall and subsequently became vikingised

      Names like : Gallahers / Galveys / all these are west coastal names.

      Countries : Portugal and Senegal all Atlantic names :

      Shannon Estuary boat : Gandelow a river side version of the original.

  31. Philip

    I like the idea of having stronger local Government suggested by Malcolm above – local taxes, services etc. Mr Allen’s analogy of us falling to tribal pieces aligns with this very well.

    Main problem is that the Dail Eireann is not for Eire. It’s for D4 and other nascent west brits. Our lack of by-elections and deliberate under representation suggests equally we have too too many TDs and that locally, people are disengaged.

    It’s a duck all right….a sitting duck for the next line of hare brained leadership. We are a marketer’s dream – customers without opinion, accepting of all dross because we have no real core beliefs.

    Still, there is light at the end of the tunnel. Maybe the machinery of capitalism as it works on the bond markets is forcing hands. S&P downgrade and AIB falling off the Euro 600 index may spell an inevitable calling of the bluff. And remember, we are one of the PIGS and nothing is looking better. ECB’s bluff will be called. Better start blowing the dust off those Punt Printing presses.

  32. Deco

    Furrylugs – thank you once again concerning Bunreacht na hEireann. You went to the trouble of finding out where the current situation stands, and you found out. And the results are interesting.

    I have cross-referenced this to Wikipedia.
    http://en.wikipedia.org/wiki/County_Waterford
    County Waterford has a population (2006) of 107961.
    County Waterford also has 3 current TDs. This equates to 107961 / 3 => 35987 citizens per representatives in the Dail. This is too high compared to the requirements of the consitution !! This is very clear cut.

    Therefore the current Dail is unconstitutional, because Waterford is not sufficiently represented !!!!

    I do not have the census information for Donegal South West. But I did get the wikipedia entry for Donegal South West. And it makes interesting reading.

    http://en.wikipedia.org/wiki/Donegal_South_West_(D%C3%A1il_%C3%89ireann_constituency)

    In the 2007 General Election, there was an electorate of 60829. Now we can presume that there would be an additional 20000 citizens who are too young to vote, or not on the registrar, or because this is a rural consitituency, living for long periods in Galway or Dublin and who never bother to register, etc…

    Current Donegal South West has 2 TDs. This equates to 60829 / 2 => 30415 citizens per TD. Therefore the current representation from Donegal South West is unconstitutional also !!! And this is very clear cut as being unconsitutional. (In fact Donegal might be under-represented with 3 TDs, and might actually require a fourth for parity with other constituencies like the one that elected Gormless with less first preferece votes than received by any other sitting TD, and good few who failed to get elected to the Dail).

    Dublin south has an electorate of 90802. there are currently 4 sitting TDs. Currently this is 22700 citizens per representative. It is possible that Dublin South is consitutional with 4 TDs, but it is probably not. It would have to calculated so as to clarify if it is currently represented sufficiently.

    Clearly Cowen and Gormless are dithering over the by-elections. The comparison between their eagerness to re-run Lisbon when the people did not do as instructed by authority, is fascinating. Strangely there is no commentary in the media over this. Absolutely no mention of the constitutional position of these constituencies.

    I don’t know if the local newspapers in Waterford are making an issue of this. I think they should.

    Now, why isn’t the pretenscious overpaid waste of space in the Aras called McUseless, demanding that the by-elections proceed ????

    Strange thing is that the Dail voted for NAMA, and the INBS bailout, and Donegal SW was not properly represented at that time.

    Now, we are in very interesting territory indeed. The by-elections should be resolved before any more legislation is passed before the Dail. It would be interesting if the two Waterford local authorities now moved on the issue….and even more interesting if they decided to back a motion calling for the scrapping of NAMA, wconsidering that when NAMA, Waterford was insufficiently represented in the Dail.

    Fellow contributors – pass this information around.

    • Deco

      Based on the sums for Donegal SW – and we are talking about the number of voters per sitting TD, it appears that there is no way the government will prevent a defeat in the court case concerning Pearse Doherty trying to force the by-election.

      This means the government will probably get a hiding twice over the issue, in the courts and in the by-election. (Because at that stage the waste going into preventing people getting their democratic entitlement will have infuriarated the electorate).

      Therefore I conclude in fighting the case, the government is merely fighting a losing battle, wasting taxpayers money in the process, just to prevent democracy.

  33. Deco

    Amused concerning Cowen getting caught smoking in breach of the law. Of course, Cowen is no stranger to breaking rules, the law or ignoring the consitution. (just look a the by-elections and the current representation from the involved Dail constituencies). But amused that it was something small, and it was picked up by an ordinary citizen – who probably seen an opportunity for putting Cowen in his place for once. We can presume that this was a law-abiding citizen, who has had enough of NAMA, Anglo, Nepoto, and the BS coming from Kildare Street/Merrion Square.

    Conor Caseby did much much less and broke no laws as far as I can recollect. However, there were gardai running around trying to find his whereabouts and there were threats to radio stations to make them identify him. This time Cowen will not be pushing his weight around.

    Cowen should pay the obligatory fine, it might help pay for the failed banks he is making us preserve.

    • Deco

      Tony – thanks for that. Some serious comment. I quote Peter Matthews.

      {
      It would be far more honest and truthful of the Minister to acknowledge that embedded irrecoverable loan losses in Anglo are at least €32bn (not the admitted €24.35bn) and will rise to not less than €36bn. Embedded irrecoverable loan losses in Irish Nationwide Building Society (INBS) are at least €4bn (not the admitted €3.2bn) and will rise to not less than €6bn.
      }

      The bill is going ballistic. Matthews has very harsh things to say about NAMA also – basically calling for it to be scrapped.

  34. @Tony_Murphy

    According to Peter Mathews, Anglo and INBS should be closed down, total agreement from me there:)

    “What should, of course, now happen (it should have happened soon after the Blanket guarantee was put in place) is that Bondholders in the 3 institutions should be directed by the State to contribute to this re-cap at a level of say €6.5bn in appropriate proportions. [As part of this restructuring, the State might offer bondholders a small (token) debt for equity swap]. The State would invest the balance of €11bn by way of a State Banks Re-Cap Bond issue (zero coupon).

    The State’s earlier investments (€3.5bn each to AIB and BoI) plus the “fresh” €11bn, making a total of €18bn, would be more than recovered with a profit / gain in 5 years time by sale of the investments in the 3 institutions. An undemanding €3.5bn — €4bn level of normal maintainable annual profits for the combined 3
    institutions multiplied by a 6.5 times Price / Earnings (P/E) multiple gives a valuation range of €22.75bn —
    €26bn. All three viable banks would thus be transparently and successfully nationalised temporarily (5 years)
    for the purposes of their full rehabilitation / re-booting.”

    I agree in principle with his approach here. Recap is required and a deal done with bondholders, but it has some problems mostly to do with forcing them to write the losses. Secondly, our attachment to the euro with our inability to devalue our way out of recession.

    At the moment, and part of our problems, there are fair weather losses eg in such a polyanna scenario NAMA and Ireland Inc is lifted by a great global recovery; or bad weather losses, the present deteriorating conditions locally and globally, slow suffocation then massive default.

    Answer is ‘Firesale’ right now. Buyers of debt can be assured Ireland INC is cleaning up and making itself ready for business. We have good prospects if we take losses now and can barter on what has led global companies and native agri business to do well. Investment should flow even in a recession. Time to clean out the rubbish piling up everywhere. Force the sale of commercial/residential property assets.

    More quotes from Mathews:

    “NAMA loans transfers should be reversed (fundamentally this is merely accounting book entries). Recoveries Divisions in the Banks would be tasked with loans recoveries / restructurings / work-outs etc, at the re-cap fully written-down amounts. This Banking Sector Re-Capitalisation Action Plan would, of course, entail full clean-outs of the bank boards and major senior management changes plus some infusions of new management with excellent leadership temperaments. Perhaps senior NAMA personnel can be re-deployed
    into the Banks Recoveries Divisions to provide fresh operational leadership.”

    Agree with Mathews there. The NAMA white elephant is as big a white elephant as Anglo. Absolutely outrageous its taking this time to transfer the loans and the Frankenstein hasn’t even begun to launder the rubbish? Unbelievable this going on since 2008. The rest of the world has moved on! NAMA is becoming more toxic than Anglo.

    Unfortunately, Mathews does not say that asap a firesale of residential/property portfolios should take place by the state to
    rid itself of its potentially disastrous Ponzi efforts at manipulating property prices. He should.

    Basically, we are back to the Swedish model to replace the leprechaun pot of gold model. Lets face it, saving Anglo and NAMA is not acceptable to the markets anymore who see it, as we do, as a poisoned chalice.

    Lets get rid of the gombeen policy makers. How long does it take our King Canuters to get the message? Time to get rid of this gombeen policy ruining Ireland’s future.

    Anglo going, going….

    • Just heard Standard & Poors rep explain to NTMA in response to NTMA http://bit.ly/durM6g view that S&P’s methodolgy to rate Ireland is flawed, that NAMA ‘assets’ were not considered liquid. Basically, they view assets like these until they are sold and become ‘liquid’ as having no value. Whether you agree or disagree with the S&P rating methodology its the one they use to rate any country.

      The point is you would expect the NTMA to be familiar with the rating methodologies used by S&P.

      Lets give a Canute incompetence index(between 1 and 10) to the NTMA for not understanding the S&P ratings methodology of ten for grossly embarrassing incompetence…..MAybe a short course on the cards for the NTMA on how the rating agencies work, don’t tell them about possible Goldman Sach’s interest or Credit Default Swap stoking:)

  35. StephenKenny

    Many of us are condemning David’s implications. Myself as much as any.
    I was listening to an interesting podcast today, regarding the social and economic state of the US. It’s a pretty left wing show, so I have the requisite political filter on about level 7. During the discussion one of the participants dropped a comment about “obviously not wanting to end up like Britain, having lost almost it’s entire productive capacity”. This was clearly a non-contentious comment, but he went on to say that “even if Britain is able to survive on Financial Services, Tourism, and Real Estate, the US clearly couldn’t “.

    This applies as much to Ireland as to Britain. I was a bit surprised by the very matter-of-fact delivery of the comment, I’m starting to wonder whether this, as I see it very misguided, view, is starting to take hold.

  36. Flash13

    I have to really wonder about those who promote austerity and have this warm fuzzy feeling about their savings like the user ‘paddyjones’. Anyone whose savings allows them to sleep soundly at night doesn’t really understand money. Savings is merely the other side of the lending equation. Your savings doesn’t represent hard money, it is backed by loans that banks have lent. Everyone knows this point yet fail to fully appreciate its wider implications.
    In many ways the Irish government is protecting the ordinary Irish saver (either directly or through pension funds etc), which is why those people defend them and promote austerity. That is actually economically illogical in extremis because, overall, savers are the least economically productive members of society compared to borrowers (people with net overall savings are typically retirees or those who don’t need to work; young hard-working people with jobs tend to be net borrowers overall, i.e. have mortgages). Think this through to its full logical conclusion: in the event of a financial catastrophe, the government should let the savers suffer and reduce the debt burden thus returning the balance in favour of the more economically productive element of society and prevent them just giving up because they are consumed by debt. You may think this is far-fetched but this approach has happened many times in the financial history of the world, it’s typically called a devaluation (which is in effect a form of default). Iceland did this, and the UK to a lesser extent (the fall in the pound was to the detriment to foreign lenders to the UK but boosted the UK domestically). But it was most famously the tool used by the US to finally get out of the Great Depression (they defaulted on their obligation to back money with gold and effectively printed their way out of their depression).
    Ireland is in a depression, so logically should invoke the nuclear option of default/debt renegotiation (which is what David McWilliams has suggested for months now). Of course Ireland can’t devalue and default is not being considered for one very simple reason.
    You see it’s not actually you they are really protecting: it stretches way beyond Ireland…
    The real reason why the Irish government is acting the way it is, is because the ECB, and Germany in particular, are forcing them to. This is not just to save the ECB the embarrassment of a peripheral bank or government defaulting but it is because the other side of the balance sheet is not just Irish savers like you: its predominantly German banking assets. The creation of the euro distorted the way banking works. Rather than Irish savers funding the Irish economy, there was a massive cross-border transfer of savings. German savings funded the Irish banks. Those banks are now bust and there are no funds to pay back the German savers. But just like Ireland, the German banks are burying their heads in the sand and not recognising this. In fact they still hold their loans to Irish banks at full value (do some research on German Landesbanken and market-to-market versus held-to-maturity accounting). They can legitimately say their loans to Anglo and the other Irish banks are good as long as the Irish government (AA rated) says they will guarantee it. If the Irish government withdraws that and lets the banks default or renegotiates, the German banks are forced to write down their loans. The euro is a massive house of cards. The ECB is extremely anxious to avoid an Irish default (or renegotiation of debt) not because of the losses to Germany from the Irish banking system (they would be relatively small) but because they are worried that such a move would be repeated elsewhere and it might finally lift the veil on the fact that Germany has been bankrolling the PIIGS for the past decade and the money is all gone. This would have massive repercussions for confidence in the euro in Germany and could be catastrophic (personally I think the conclusion of the financial crisis will be Germany leaving the euro — its a basic extension of Gresham’s law that ‘bad money drives out the good’).
    In many ways the problem in the eurozone is Germany you see. Everyone recognises the problems of the PIIGS economies but it was German money that they frittered away. This money isn’t there anymore yet German banks still report it as if it is. The German banks should have taken a hit to their P&L ages ago and indeed German savers should have lost a small portion of their money representing their Irish and Greek losses. That would have been true capitalism. But this didn’t happen. They are in denial. If you think Irish banks are a fantasy ask a German Landesbanken how they value their loans to Anglo and hence to Bernard McNamara and Sean Quinn — they will say at 100%. Technically that is correct because the Irish taxpayer has stepped in between this and is underwriting the whole thing. Take the government support away and everything collapses like a house of cards. The ECB is trying desperately to obfuscate this point. If you want to see this in action, do some real research on the EU bank stress tests and you will see it was a fix: the stress tests only considered what is known as the trading book not the bank book, in effect they said assume Ireland doesn’t default and hence your loans to Ireland and Irish banks can be recognised at 100% of what you lent. On that basis the German banks all passed. Interestingly they also introduced an assumption that AIB would raise €7bn in capital as it would have failed without that (probably before you even did very much stressing). So in effect the EU stress tests were passed on the fundamental assumption that the Irish taxpayer (and the rest of the PIIGS) would pick up the tab under any eventuality. In other words, the German saver doesn’t lose a penny but Irish taxpayers get crucified. This is a Victorian approach to borrowers.
    David McWilliams makes much of the ‘insiders’ but I’m afraid the vested interests that everyone thinks is keeping all of this propped up are not actually in Ireland. They are on the continent.
    So while you sleep soundly at night knowing you have savings, consider this:
    As long as Ireland considers EU and German interests over Irish interests, your savings are safe. If the Irish government finally recognises the real extent of the Depression that they have created and take proper action to fix it, then you will end up somehow taking a hit to your savings just like retired Helga in Dusseldorf who gave her life savings to one of the German Landesbanken, who gave a portion of it to an Irish bank (like you did), who gave it to Bernard MacNamara, who lost it all betting on red. Stand back and think about it. Its actually fair and Darwinian. It restores balance to the labour versus capital equation, it returns power to the productive, young middle-class, negative-equity generation. It gets the country back from a debt-deflation cycle. And if you put your short-term memory aside, it happens somewhere in the world every decade.

    The easiest way out of this is very simple and mentioned by David McWilliams many times over. The ECB needs to print money. Its the most effective way to devalue.

    PS I am actually a significant net saver! However I’m also a realist, I appreciate I am in the minority and may have to suffer some of the pain. So I fully expect my cash savings may well get drowned out by printed money. The thing is that inflation is almost impossible to avoid fully, every part of the capital structure suffers one way or another. Even gold has its problems.

    • Deco

      Interesting points. This reminds me of something mentioned recently by Constantin Gurdgiev. Basically, he commented that we could get out of this in five years. But that there was absolutely no political will to get out of the mess, and to create the conditions that would resume economic progress.

      And maybe this is correct. The politicians are reponding to a wide range of groupings who have an interest in pretending everything is OK. And this is not just an Irish problem. In such a set of circumstances, you get stimulus packages, but no other serious changes. It is just that the Germans, the Chinese, the Koreans, and the Dutch have figured out a way to shift money to their own countries and control the groupings better.

      Concerning austerity – it is something that you either manage properly from the beginning or get dragged into painfully in the end. And Ireland is not administering austerity. Ireland is raising taxes, and calling that austerity. But there has been no transformation of efficiency or effectiveness in the public sector. In fact the political establishment is too well enmeshed via nepotism and cronyism into the public sector, to result in any reform.

      The solution to the political problem is a clean out and replacement of the entire contents of the Dail. It is not a matter of ideology as much as connectedness to the networks in the public sector, and to the cronyism coming from IBEC. Very tough. But the mood of a noisy proportion of the population is heading that way. And if this is the way the public mood is flowing it will direct the political establishment to follow. If we had those by-elections soon, then that pull on the political establishment would happen faster.

      Maybe we need at least four new political parties to replaced the current main parties.

    • StephenKenny

      A really nice, and very clear, narrative.
      Just to make us all feel even better, the part that Flash13 didn’t get to is the bit about the various European banking exposure to the, as yet, unresolved US loan-backed financial derivatives ‘market’. Including everything from massively leveraged bets on sub-prime up to prime, and the questions over the high-yield (junk bond) market.

      The risk of trying to create ‘a little bit of controlled inflation’ is that it doesn’t seem to work. We’ve had 20 years of malinvestment, with the vast amount of extra money creating only very narrow asset price inflation (dot com millionaires and house prices), and now we’re expecting another batch of extra money to cause general price inflation?

      Whatever way you look, it’s not easy.

      • Flash13

        Yes, I didn’t bother mentioning that as this site is more Irish focussed and I didn’t want to write a book on it! You are right though. Thats another problem for German banks although there has been some losses taken there, mainly only by the public banks though. I’m sure there is still some toxic loans overvalued in the state-owned Landesbanken.

        Of course there is another time-bomb on the Irish banks that they haven’t even begun to address yet which is residential property mortgages. Ireland is very peculiar because of our aversion to foreclosures, for historical reasons. The US banks clear off their balance sheets rapidly and foreclose without blinking an eyelid, Britain had huge foreclosure auctions in early 2009 (many at firesale 50% discounts to peak). The Irish just drag it out and hide our heads in the sand. Because there are hardly any foreclosures or firesales, there is no impairment for the banks so they still hold 50% negative equity mortgages at full value. Its more denial.
        I’m not saying throwing people out on the streets is nice, but you have to address the problem somehow. Otherwise you run the risk of total disruption to the economy due to debt-deflation. Something has to give. Interesting that Seanie Fitz was only the 14th bankrupt in Ireland this year and a house foreclosure hits the front pages of newspapers. These happened on a large scale in US/UK over past 2 years and life went on.
        The right approach is to let capitalism run its course. You have to be harsh with those who over-borrowed but likewise you need closure like in the US – there a borrower is not liable for negative equity if a bank forecloses. That means you get turfed out and lose some money but the bank and its shareholders and savers also have to take a hit too. However in most cases everyone will be clever enough to appreciate that the better solution for all is to renegotiate debt, i.e. the banks shareholders, bondholders and the savers all take a hit but in return the loan is performing again, they might get 90c in the euro rather than 70c. Its harsh but the public has to appreciate their savings and bonds (which is effectively pension money) are funding lending. If they won’t spend the money, then they have to take the risk of investment losses. Thats life. There is some basic deposit protection in most jurisdictions but everything over that should take losses (in many cases deposit protection is funded by taxpayer so that needs to be curbed too). Banks write their balance sheets down to what they are really worth, everyone suffers a bit and we move on. Thats how capitalism should work. That way savers, pensioners and money managers will allocate capital much better than they have done. They have to take some of the blame.
        In relation to inflation, its notoriously difficult to manage effectively. However inflation is more about expectations than reality and that why confidence and trust is so important.
        Again the only way to do it is print money while taking losses on existing assets. You can’t print money and leave people with the fallacy that their €200K cash savings is still there also or people see through it and the massive increase in money supply runs the risk of hyperinflation. Savers must help deleverage by taking writedowns to keep the supply in check with demand.
        The problem with capitalism post 1972 is that governments thought they were onto a sure-winner when they discovered fiat money and broke the gold standard. They now assume everything can be balanced on confidence alone and they can magically control demand with supply. They’ve tried to create the fallacy that you can’t lose money on your cash savings which defies the balance inherent in a monetary system. Its rubbish. The confidence tricks don’t last forever. People will fall for the fallacy of sovereign guarantees for only so long before they realise something has to give. The Irish state can’t back 100% of the liabilities of Irish banks because that IS the monetary system. You can’t guarantee the entire system! The guarantee suggests that the Irish taxpayer is guaranteeing all the money in the system, not only all of our own money but some foreign money too (the guarantee backs all the cash in the irish monetary system as well as foreign bond and deposit holders). It is completely, totally and utterly nonsensical yet I’m shocked by the number of intelligent people who don’t see this. Its not just stupid or irresponsible – it just doesn’t even make logical sense. Its effectively a massive circular reference. I admit that arguably it would have made sense as a temporary timing difference (borrowing from the future to pay now, but its now gone beyond that). How have we gotten to this stage and no one has pointed out that the emperor has no clothes?
        Something has to give. You write down the assets, everyone takes a loss and we move on. To clarify, everyone taking a loss means deposit holders do too. There is no way around that. But you have to do that very quickly and in one motion, a bit like a quick, effective devaluation (an option we don’t have). I won’t go into the consequence of doing that slowly!
        Either that our you get into the very dangerous game of trying to increase the money supply hoping nobody will notice, which will always result in inflation if you don’t deleverage elsewhere such as through asset losses. Either that or you are lucky enough to have an offsetting increase in demand. People think because Japan got away with it, it will work again. Japan was very different. The yen didn’t hyperinflate because demand for Japanese products was strong elsewhere in the world so the the slack was taken up. They increased the money supply but demand expanded with it. Thats not happening anywhere right now, except perhaps Australia up until a couple of months ago.
        Anybody who thinks the entire world is facing a Japanese style scenario simply doesn’t understand money. The only way that can happen is if creditors like Germany and China start spending. That isn’t happening.
        Governments have to address this imbalance in the world’s monetary systems immediately in a coordinated sensible fashion, because otherwise our human nature will take its course, which is to find an equilibrium in a violent fashion. Don’t mind double-dip recessions, the risk is a full blown global currency crisis where hyper-inflation and deflation coexist across different borders. That is how human nature resolves conflict. That would be highly destructive as everyone tried to play a horrible game of prisoners dilemma. It results in a net loss to the global economy.
        Lets all be honest with each other and do this in a grown-up way. If the ECB won’t devalue/inflate, then the only alternative is a quick bout of massive write-downs, defaults, loss-taking, debt foregiveness and of course temporary capital controls while you work through it. This is necessary because we passed the point of no-return a long time ago. The monetary system has broken down.
        But I sometimes wonder am I alone in seeing this? Then again, maybe I’m paranoid and the monetary system is not actually broken…?? I’ll have to wait and see.

        • paddythepig

          In the US, banks have the ability to write off a percentage of their bad debts against taxes ; this protects them, and lumps part of the bill onto guess who – the taxpayer.

          Given that the US runs massive deficits, the losses are lumped onto the greatest financial skip of all – the United States fiscal deficit.

          An American friend recently described this deficit as an ‘abstract concept’, which I thought was an interesting exercise in reality avoidance.

          So in the case of the US, don’t forget to include American kids, and their kids, in the list of those ‘taking the hit’.

    • Malcolm McClure

      Flash13: You provide a very interesting discourse on the subject of saving. I suppose that to protect oneself from inflation, a judicious amount of saving needs to be balanced by a greater amount of debt. Thus if currency is devalued and one’s income rises at a reasonable canter to keep pace with inflation, servicing one’s earlier fixed rate debts will require a smaller proportion of income. The real value of that reduction in outlay should more than compensate for the decrease in the real value of the interest on one’s savings.

      Of course this strategy only works if one has a steady inflation-proofed income. Perhaps people who can benefit from this strategy, such as public servants, should be taxed at a higher rate than ordinary mortals whose income fluctuates in step with commercial realities.

      • PMC

        Sure, savings are backed by loans, but promoting a culture of spend, spend, spend every penny you earn is wrong. The more people get, the more they want – Whatever standards one becomes accustomed to, there’s always another a more desirable rung on the ladder. Therefore the Germans were correct, it’s all about balance – Seek and spend where there’s value, then save bit by bit for purchases down the line. We were offering loans for holidays for Christs sake. Is it that hard to put a few bob away for a two week holiday? There’s no telling what’s around the corner for any of any of us in our lives, therefore taking loans out to spend on every whim and desire is plain daft.
        By nature, the Germans are a measured, logical thinking bunch, whereas we’re not.
        We spent like no tomorrow and saved nothing; hell, saving for a mortgage deposit went out the window. In fact, why don’t I get a 100% mortgage and a 5% topup because that kitchen looks shit!
        I want it now and I deserve it now, was the mantra.
        This attitude fostered the birth of an obnoxious society and if this is what its all about, well then to hell with the whole lot.

        Savers may well be the least productive members of society if we think in extreme terms, but if it weren’t for the savers in this town, prices for goods and services would have been even higher than they were.
        Goods and services in Germany are far cheaper than in Ireland. By spending blindly, prices increase across the board, and that’s when utter greed takes over.
        Lets take Folens or the Educational Company – They way these greed-merchants milk it, is nothing short of criminal. Every year, a few minor changes are made to their school books, just enough so that every poor bollox has to go out and spend an arm and a leg to kit his / her kids out for school. Why aren’t the books kept in the classroom, as property of the school, then used by the kids as needed? We all know the answer to that question.

        “Think this through to its full logical conclusion: in the event of a financial catastrophe, the government should let the savers suffer and reduce the debt burden thus returning the balance in favour of the more economically productive element of society and prevent them just giving up because they are consumed by debt. You may think this is far-fetched but this approach has happened many times in the financial history of the world.”

        Are you serious? So just to get this straight, the people that ran out and spent money on uneccessary items should be given an Ahern style “dig-out” by those who resisted the urge by being sensible? This is pure BS.
        The argument might appear plauisible given the situation at present and the number of people affected, but there’s serious questions to be asked about the wisdom and morals of such a move.
        You don’t give a child everything it wants, as the likelihood will be the spawning of a spoiled brat. Similiarly, you shouldn’t give a society everything it wants either as the same logic applies.
        Most are well aware that the Irish Government aren’t running the show at all, and this should be plainly obvious from the positive soundbites every now and then from Europe about how great our measures of austerity are. We’re just one part of a fucked up jigsaw that Europe is trying to peice back together even though the pictures on each piece are unclear.
        If it wasn’t for the Germans and the money we got via the EU, we’d still be driving around on dirt-tracks in this country, so I really don’t see why Helga from Dusseldorf has to take the hit when we were the greedy gobshites who lost the run of ourselves, accepting money hand over fist, with not a care in the world.

        David warned years ago, that it was German money fuelling what was happening here. The question then is, why weren’t “the leaders” taking steps to cool this madness? Instead it continued, and was encouraged, until the whole fucking lot blew up in our faces. It’s a sorry tale, but it’s our own doing plain and simple, and we’ve no one to blame but ourselves.

        A brand new political landscape is the answer. A web based platform should be established and every single person who is running for, or in, Government should have their own page on it. Every detail of their achievements, views, and policies would be posted up and independently verified. Following election, whoever gets in would then be held accountable for every single policy they failed to implement and a financial penalty would be incurred. All expenses would also be listed on their webpage, again independently verified, and accessible to the general public. In essence, it’s a “performance fee” based approach, and it would weed out the any peices of shit hiding in the background – The more efficient and effective you are, the higher your remuneration.
        Online voting could be another feature, so in the case of a gentleman like Ivor Callely or Noel Dempsey for that matter, if there’s an 80% + vote on their expulsion from Government, then so be it. No bullshitting about – Gone, and the next fella is installed. This would foster a far greater level of access and scrutiny on politicos from the general public. Every minister could be forced to produce a podcast or similiar each week to explain exactly what they’ve been up to for that week, and to provide hard evidence of it also. There’s a plethora of initiatives that could be implemented via this idea or similiar…

        • Flash13

          I’m afraid you don’t understand money.
          You can’t save unless someone else borrows that money from you. Its not like you are putting potatoes aside to eat them next year. In fact the very reason we don’t do that is because potatoes rot, so they don’t make a very good way to save. Instead we take a piece of paper saying you will pay me back X in a certain time period. That is therefore a loan to somebody else. Forgot about the numbers, its like you saying that you are giving me a potato now and I promise to pay you back one of my potatoes in a years time. That means you can plant one less potato next year but I have to plant one more. It all founded on a promise.
          Thats the nature of money than 99% of the population don’t get. They think money is an asset like food or clothes. Its not, its a promise. It takes two to make a promise.
          The Germans save too much. They can only get away with that because there were sprendthrifts like us to take the other side. As much as we need to spend less money, the Germans actually need to learn to spend more. That will restore balance.
          We can’t all save at once. It logically doesn’t work.

          I understand your shock at my solution. It appears to be moral hazard. The point you are missing is that the savers were just as responsible. They let the borrowers run amok and didn’t care. The pensioners whose money was in Anglo sat back as the interest rolled in. Both parties need to take a hit.
          You say: “You don’t give a child everything it wants, as the likelihood will be the spawning of a spoiled brat. Similiarly, you shouldn’t give a society everything it wants either as the same logic applies.” Exactly. The point you are missing is that the damage is already done, you the saver were the one who spoilt the child!!

          You seem to have this strange moral attachment to the virtues of saving (like 99% of people) but there is nothing virtuous about savings. You are merely giving something to someone else in return for them giving it back to you in the future. You are spoiling the child with loads of sweets on the basis that he will go out and work for you next year in return while you put your feet up. Stand back and think about it. Neither party has the moral superiority.

          You then say: “If it wasn’t for the Germans and the money we got via the EU, we’d still be driving around on dirt-tracks in this country, so I really don’t see why Helga from Dusseldorf has to take the hit when we were the greedy gobshites who lost the run of ourselves, accepting money hand over fist, with not a care in the world.”. Spending and demand drive innovation. The Germans built fancier goods, luxury cars that they were too frugal to want themselves. They built them for us and we took them from them on the basis that we would pay them back something tomorrow. Thats the mother of invention. Thats a great thing. Thats what has led to the invention of the internet, mobile phone and and everything else over the past few decades: demand from consumers. Unfortunately we all made eegits of each other as we had it so good from the Germans we coudlnt’ be arsed paying them back by inventing something for them in return. But not only that, the point is they didn’t want anything from us anyway, they were far too interested in doing the inventing and selling them to us in return for our promises. They are expecting us to invent some great new thing that they have no interest in anyway as they don’t like consuming. In order for the system to work the irish have to become the inventors and the germans have to become the spendthrift consumers. That is highly unlikely because the Germans won’t play ball and spend.
          Go back to my potato example. If you are growing potatos every year and I am eating them and keep promising that I’ll grow them next year but you just keep growing more and giving them to me and telling me its all right, how long can that go on? At some point we have to flip positions. The Germans dont want to flip positions. They want to keep on sowing potatos and not eat them.
          They love the idea of having all of these potato vouchers for a rainy day. There is only one solution there. You start taking away their potato vouchers until they eventually realise they better start letting you to do some work and they sit back and eat their way through the vouchers promising future potatos that you spend the years issuing to them.
          Its not just Germany and Ireland. The same thing happens with China and the US. China has been making stuff for the americans for years and accepting american IOUs in return. China now needs to sit back and let the US make stuff for them and use up the IOUs. Otherwise you get a glut of IOUs that serve no purpose whatsoever. You just make a Micky out the system of promises unless everyone both creates and spends them. One-sided flows don’t last.
          Thats the nature of money. Few people seem to get it though.

          • paddythepig

            There is more than enough spending around the world to ‘drive innovation’ as you put it. Yet Paddy cannot innovate, and grab his piece of the pie – a big enough piece to satisfy his expectations for standard of living. Why is this?

            This is the core problem. We do not innovate or sell enough.

            The Germans are not to blame for our lack of innovation, or our insatiable appetite for consumption.

            Actually, it’s innovation that drives spending, at last this is the way it should be in a functioning society. The reverse, spending driving innovation, as you put it, only leads to money being mis-allocated, often in alarming ways. The Celtic Tiger is a perfect example.

          • PMC

            I understand the point you’re making, although savers don’t exclusively save and spend nothing. I reckon we’re thinking on different levels; you on a macro level, me on a micro level.

            If I spend what’s necessary, indulge in a little luxury from time to time, but still save a bit should something untoward happen, then surely this is a sensible approach to take?
            I think the savers did care about borrowers running amok; hence the anger in Germany when their coin was being used to bail out the over-indulgent PIGGS, but of course what recourse can one take to object? There’s none, such is manner within which the financial system operates. The only hope was that the spenders would calm down and show some restraint. The child was stealing the sweets if you like and the savers couldn’t do anything about it, because they’d given their sweets to the banks to look after them. So the child was essentially bypassing those who owned the sweets, heading to the bank manager, who was handing the sweeties out recklessly making the child fat, spoiled, and obnoxious. And now in return, his punishment is a blade one “haircut” for the next 20 years :)

            Germans certainly do make use of luxury goods, but do so based on sound judgment; on whether or not that can realistically afford it.
            Unlike ourselves, the Germans have also built up a sound manufacturing industry, which sits hand in hand with agriculture and hi-tech, providing balance, thus eliminating reliance on one purely speculative industry like property, the basket into which we threw all our eggs.

            I agree that for things to work as they are, we do need to flip positions; however the problem for Germany is that they’re top of the class and have no one to challenge them.
            It’s a bit like telling the smart kid in the class that he’s going to have to stop being clever, as rest of us can’t keep up.
            Should it not be up to the rest of us to pull out the finger and start implementing structured policies to catch up with them, pro-rata of course?

            You mention China, what do you think is going to happen here what with the explosive rise in wealth, which have given the people a real taste of the “good things” in life.
            The Chinese middle-classes are hugely materialistic, so I wonder, in time, what impact this spreading wealth will have on the desire of the Chinese people to continue making goods for next to nothing? It’s obviously a long way off, but perhaps a time will come where there really will be worldwide cut-throat competition and every economy will need to cut its cloth and diversify its industry portfolio German style if it wants to stay afloat.

            The main lesson I suppose, is for each nation to establish a balanced range of sustainable, productive industries which will protect the welfare of its citizens.
            It’s time now, that we really set the ball rolling with harnessing our wave energy. This would certainly be a good start in delving into a new area.

          • Alf

            Hi Flash13,

            I think you are correct about there being nothing special about savers. Just like the bondholders they ‘loan’ money to an institution and expect a return. But without a borrower there would be no risk to take and so no return for the bank; therefore no profit to generate savings interest. The banks are in the game to make money by being the middle man.

            The truth is that a deposit is a loan contract in which the saver gets a return; be that in interest, some level of corporate guarantee and bank services etc. But the contract only has attractiveness because of its return; and the return is only promised because of the risk! If we had a true risk-less loan then why should any borrower pay any risk premium? If the deposit will be returned (no matter what!) then the interest charged on the loan is really a fraud.

            I would argue that if the lenders (bondholders, savers, etc) expect to be guaranteed then they should pay back all the over interest, bond coupons etc from the boom years. By expecting retroactive guarantees they are really saying that the contract was invalid. But then any coupon received during the boom should be returned also.

            Maybe what Lenihan and Cowen are saying (by guaranteeing the banks debts) is that the bond contract were miss-sold and that the lender was misinformed about the risks. So that would be contract fraud and shouldn’t there be a fraud investigation?

          • coldblow

            Hi Flash13

            You summed it up really well. At first I thought you were David in disguise having felt driven to spell it out in a blunter manner than he could get away with in print!

            Your posts reminded me of an earlier, and prescient, article from DMcW:

            http://www.davidmcwilliams.ie/2001/04/08/what-can-the-babysitting-co-op-tell-us-about-recession

            The solution (to print more baby sitting vouchers) matches yours (print money).

            I’m a natural saver myself and so I understand the psychology. After all, I’m the only student who ever gave money to his working brother during the holidays. I’m sure it’s down to extraverts and introverts, but I won’t go into that just now (unless anyone asks for it).

            The sanctity of debt, the dream of security… Brings to mind this quote from Hudson:

            “… Price’s 1772 Appeal to the Public on the Subject of the National Debt described the seeming magic of how money could grow at compound interest:

            “Money bearing compound interest increases at first slowly. But, the rate of increase being continually accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our Saviour’s birth at 5% compound interest, would, before this time, have increased to a greater sum than would be obtained in a 150 millions of Earths, all solid gold. But if put out to simple interest, it would, in the same time, have amounted to no more than 7 shillings 4½d.

            “Price elaborated this idea in his Observations on Reversionary Payments, first published in 1769 and running through six editions by 1803. “A shilling put out at 6% compound interest at our Saviour’s birth would . . . have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn’s orbit.” He concluded that “A state need never, therefore, be under any difficulties, for, with the smallest savings, it may, in as little time as its interest can require, pay off the largest debts.””

            We could perhaps call this “Gunther’s Dream”. He’s in for a rude awakening.

          • paddythepig

            “Go back to my potato example. If you are growing potatos every year and I am eating them and keep promising that I’ll grow them next year but you just keep growing more and giving them to me and telling me its all right, how long can that go on? At some point we have to flip positions. The Germans dont want to flip positions. They want to keep on sowing potatos and not eat them.”

            Nothing is stopping Ireland growing it’s own potatoes, and selling them. We control our own behaviour. If you are ‘promising’ to grow potatoes, who is responsible if you don’t grow them?

            Answer. You are.

          • Invalid username

            “You can’t save unless someone else borrows that money from you.”

            What nonsense!

            It’s the other way around, you can’t borrow money unless someone has already saved it.

            Don’t you know that banks lend money on the back of their deposits?

            Your comments are idiotic.

        • @PMC there’s a considerable risk to savings about at the moment, consider that when looking at your savings.

          Re spending to make the Scrooge Ebenezer point as well as good saving and bad saving, there’s also good spending and bad spending e.g property bubble spending bad, IT broadband for every home in Ireland, good. Right now we need to spend well.

          Spending that puts people to work giving us much needed services and infrastructure, better schools, hospitals, sports facilities, community services good – especially when building costs are low in a depression, eg time to get the Shannon water to Dublin.

          • Flash13

            @PMC
            You say: “I think the savers did care about borrowers running amok; hence the anger in Germany when their coin was being used to bail out the over-indulgent PIGGS”.
            Not quite. That was a) after the event and b) we need to stop calling it a bail-out of the Greeks, it was a bail-out of German banks. The banks already gave the money to Greece, the money was sunk. The EU then promised money to Greece to allow them to pay back the banks. They didn’t write off Greek debt, they underwrote it. That is very clearly a bail-out of German banks. Yet the German were up in arms about it because the politicans obfuscated the truth, for fear of exposing the reality that the German banks lent out German savings very badly.
            Lets be honest: the savers never shouted when the interest was rolling in. They only shouted afterwards.

          • @Flash 13,

            Agree with you there, also the curious situation whereby stress testing of German bondholder banks if it were carried out with due diligence and exposure to e.g Anglo were written down, this would have a detrimental effect on the borrowing terms of German banks. Because these banks can hide this information they can enjoy a low spread from the markets. However, Anglo cannot hide and Anglo debt effects sovereign debt because of the guarantee. The net effect of this is that while also enjoying low spreads German banks as well as delivering low spreads to German economy, the same banks also enjoy reaping wide spreads on Irish government bonds.

            Sometimes, the game is so stacked in your favour, you cannot lose!

    • @Flash13 You make compelling points all of which we’ve made here in the past but certainly worth reiterating. Very aware bondholders are German banks and also Irish institutional pension funds at risk. There are two significant points left out that also need to be considered here. The first is ‘caveat emptor’ bondholders did not exercise fiduciary responsibility and lent irresponsibly to Irish banks; second, debt renegotiation, 30 cents on the euro, is feasible response to Anglo’s woes at European level. Quantitive easing has already been adopted at European level with €750 bn bailout money provided though its argued this money is backed by selling of securities. Significant help is available for individual banks;in fact, this is the preferred model dealing with financial crisis from the Euro perspective. Ireland Inc needs to get proactive and use leverege to hold bondholders to account. Irish taxpayers should not be the lender of last resort to european bondholders, its time to get up off our collective ‘buts’ and take some significant decisions. If Trichet, Merkel & Co are prepared to sacrifice Irish taxpayers to their bondholder wolves, I say, lets get out of the euro, and fast!

  37. Flash 13 – I enjoyed reading your ideas .My comments include :

    1 Bank Loan agreements have no priveledges to the borrower as in marriage : and

    2 Egg Timers should be attached to promises/vouchers to repay and unless the lender re – evaluates the borrowers capacity periodically any failure by the borrower to be able to repay should become a loss to the lender ; and

    3 Virtue to the borrower should be enscrined in any contract and both lender and borrower are on level playing fields ; and

    4 The Lender must be responsible for the potatoes too and should they rot the borrower shares those losses too .

  38. correction :

    4 The Lender should be responsible for the potatoes too and should they rot the lender shares thoses losses too.

    ‘Pain’ should be brought back into the short term memory bank and taken from the deep memory vaults to increase our awareness of reality.

  39. Deco

    Well, it appears that the bank gaurantee is no in trouble – as a result of the fact that the fiscal strength of the Irish state itself is being subsumed by Anglo, Nepoto, and NAMA. This is basically what the ordinary joe soaps have been figuring all along – that the scale of the hit from taking on these three turkey projects is too much. Hence popular discontent over the bailouts. Common sense was saying to walk away from Anglo. The problem with common sense is that it has been progressively and consciously driven out of fashion in Ireland over the past two decades.

    This means that the government’s attempt to regulate (sic) the property market is falling apart. The government has been trying to use tax revenues as a means of keeping property prices high for taxpayers. I mean it must be the most absurd peice of assymetric bungling that ever attempted. Hilariously enough depsite all the stuff that the the opposition are against, this is not really on the radar. In fact, I don’t think the opposition even know what is going on. Or maybe they know what is going on but cannot say, or else offend IBEC.

    In fact the real problem with property valuations is the labour market. The number one factor in property ponzi schemes is the interest rate. It causes all sorts of daft schemes to make sense. The number two factor is employment in the age category 25-40. And this is cratering. The government’s stealth taxes, and income levies are putting pressure on people trying to save up deposits for housing. And those without jobs are not even contemplating the matter.

    By the way, this is the situation on the bond market.

    http://www.bloomberg.com/news/2010-08-25/ireland-s-vicious-circle-leaves-banks-facing-higher-debt-financing-costs.html

    The real problem, like in the 1980s is youth unemployment. And graduate employment in particular, becuase it is people with degrees and higher paid employment who end up bidding up prices the most. I think that the minimum wage will be reduced before the year is out. That will only work if the cost of living is also reduced. Unfortunately, this is not happening fast enough. Government stealth taxes are making this worse. So the cost of living will have to move downward. The establishment does not want this to happen, because it cuts into the margins being made.

    Then we have the inefficient state. 800 quangoes and counting. Loads of taxes and charges. Bureacratic procedures abound. Local authorities who act as gatekeeper, and who are now becoming extortionist in their tendencies. Local authorities are sucking small business dry with rates, charges, inspections, and a fair bit of innuendo as to who small businesses should employ for services relating to interaction with local authorities (architects, planners, safety at work, etc…). And people are getting fed up with it.

    Then we have the elephant in the room – the Irish concept of management. Just look at the NEDs and the various cliques that are documented on the TASC website, who are in control of the largest companies of the ISEQ and the semi-state sector. Still, there is no commentary on this. Just a few swipes at Seanie Fitz. And the rest of the clones are left in charge.

    Constantin Gurdgiev is correct. There are too many vested interests interested in preventing any progress that might get us out of this mess. To quote George Dubya Bush, “this sucker is going down”. The ordinary people are saving as much as they can in spite of all the taxation, and the oligopolistic price rigging – and increasingly they are sticking it into banks that can be relied upon to get out of this mess in the medium term. This means banks that are not in the governments scheme – and only one bank of these is listed on the ISEQ. And this is the prudent thing to do. This process is annoying the hell out of the government, because it is based on the assumption that the government cannot be relied upon. People increasing their saving rate are in effect a challenge to the government’s policy of leveraging everybody up and directing all funds to the bailout programs.

    I reckon that the situation is being mismanaged on a wholescale basis by the establishment. The next thing I expect is IBEC to want a change of government, simply because the people are fending for themselves too much, and this is a big problem for IBEC. IBEC need a government that directs the people, not a people that direct the government.

    This mismanagement is such that if it is not fixed, the problems faced in September 2008 will return with a vengence, and having morphed into something much bigger. This is what you get as a result of dithering. Problems grow.

    It looks to me like that we might see a very serious scare in the next five weeks, with the ECB having to bail out the government, and the Irish banks. This is getting very very serious.

  40. PMC

    I understand the point you’re making, but savers don’t exclusively save and spend nothing. We’re perhaps thinking on different levels; you on a macro level, me on a micro level.

    If I spend what’s necessary, indulge in a little luxury from time to time, but still save a bit should something untoward happen, then surely this is a sensible approach to take?
    I think the savers did care about borrowers running amok; hence the anger in Germany when their coin was being used to bail out the over-indulgent PIGGS, but of course what recourse can one take to object? There’s none, such is manner within which the financial system operates.
    The only hope was that the spenders would calm down and show some restraint.
    The child was stealing the sweets if you like, and the savers couldn’t do anything about it, because they’d given their sweets to the banks to look after them. So the child was essentially bypassing those who owned the sweets, heading to the bank manager, who was handing the sweeties out recklessly making the child fat, spoiled, and obnoxious. And now in return, his punishment is a blade one “haircut” all over for the next 20 years.

    The Germans do use their luxury goods, but do so based on sound judgment; on whether or not that can realistically afford it.
    Unlike ourselves, the Germans have also built up a sound manufacturing industry, which sits hand in hand with agriculture and hi-tech, so in effect the have a nice mix, thus eliminating reliance on one purely speculative industry like property, the basket into which we threw all our eggs.

    I agree that for things to work, as they are, we do need to flip positions; however the problem for Germany is that they’re top of the class and have no one to challenge them.
    It’s a bit like telling the smart kid in the class that he’s going to have to stop being clever, because the rest of us are too dumb to keep up.
    Should it not be up to the rest of us to pull out the finger and start implementing structured policies to catch up with them, pro-rata of course?

    • Flash13

      @PMC
      You say: “I think the savers did care about borrowers running amok; hence the anger in Germany when their coin was being used to bail out the over-indulgent PIGGS”.
      Not quite. That was a) after the event and b) we need to stop calling it a bail-out of the Greeks, it was a bail-out of German banks. The banks already gave the money to Greece, the money was sunk. The EU then promised money to Greece to allow them to pay back the banks. They didn’t write off Greek debt, they underwrote it. That is very clearly a bail-out of German banks. Yet the German were up in arms about it because the politicans obfuscated the truth, for fear of exposing the reality that the German banks lent out German savings very badly.
      Lets be honest: the savers never shouted when the interest was rolling in. They only shouted afterwards.

      • PMC

        @PMC
        You say: “I think the savers did care about borrowers running amok; hence the anger in Germany when their coin was being used to bail out the over-indulgent PIGGS”.
        Not quite. That was a) after the event and b) we need to stop calling it a bail-out of the Greeks, it was a bail-out of German banks. The banks already gave the money to Greece, the money was sunk. The EU then promised money to Greece to allow them to pay back the banks. They didn’t write off Greek debt, they underwrote it. That is very clearly a bail-out of German banks. Yet the German were up in arms about it because the politicans obfuscated the truth, for fear of exposing the reality that the German banks lent out German savings very badly.
        Lets be honest: the savers never shouted when the interest was rolling in. They only shouted afterwards.

        Yes, it was after the event, but the average German saver wouldn’t have sat back had he / she known how recklessly their money was being lent out. People place their faith in banks to look after their money, and wouldn’t have the first clue about where to go looking for info on how recklessly that bank is handling their cash.
        Depositors would have no reason to shout at the time, as all would appear normal to the average Joe. It’s only when the number 2 hits the fan that people realise what’s going on.
        It’s criminal what the reckless lenders have done, it really is.
        It’s daylight robbery comitted with a suit & tie on.

      • econarchist

        Hi Flash13, I agree with a lot of what you say but I think you’ve got it wrong about irresponsible Germans savers caring about the interest rate return. I’ve had a German savings account for a few years and the interest rates were never very high. As far as I could tell they were a little bit below the ECB base rate, which has been kept low for years to stimulate the weak Eurozone economy (dominated by Germany) and they’ve been even lower if you take inflation into account.

        A couple of years ago I would have assumed that my savings were used by my bank for loans for German mortgages and for sound German businesses but I know now that they weren’t. This year I wrote to the bank to inquire if my savings were ever used to purchase Greek government bonds or Irish bank bonds, and they replied that this could not be easily explained in an e-mail.

        Most Germans still assume the same thing that I did back then and are not aware that their hard earned wealth was used to pay for extravagant lifestyles and overpriced property abroad. The media, especially the Bild newspaper, prefers to attack the Greeks for getting into debt but does not mention the role of German banks using German savings to fuel the debt.

        Anyway it’s not the job of a German factory worker to make sure that the banking system behaves responsibly, when there were plenty of economists, regulators and politicians in Germany and in the ECB who should have been doing that. And where else could he put his earnings where they could not be misused anyway – under a mattress or in a safe? I’ve actually looked around in a few shops at some fireproof and timelocked safes but they were too heavy and expensive for the amount of money that I have.

        Are ordinary Germans completely blameless for the reckless lending of their money? Well, Germany is a democracy, so I suppose that the population must take some responsibility for the way their elected representatives turned a blind eye to what their banker cronies were up to. That’s only fair when the Greeks have to pay the price for the way that their own previous government fiddled the figures to help them increase public borrowing. Politicians in Germany are just as guilty as those in most countries are of looking after their corporate supporters. One good example of this was the birthday party for the Deutsche Bank CEO that was thrown by Angela Merkel in her government offices at the German tax-payers’ expense:
        http://www.reuters.com/article/idUSLQ21807420090826

        • Flash13

          Actually, I agree with you. I was probably wrong blaming German savers as such as they were probably naiive. Its the German banks that are the problem. But ultimately the German taxpayer and bank shareholders bear responsibility if their banks are reckless.

  41. Deco

    There seems to be this refrain that we need spending to get us out of the mess. But the problem is the spending that has already occurred. It is now blatently obvious that a lof of the spending in the Irish economy was wasted. By wasted, I mean allocated to products and services that have done nothing to increase the productive capital of the economy in the long run. The most glaring example is with respect to real estate.

    Ireland is now facing a long winter of repayment, settlement, clearance, and deflation as a direct result of an asset price implosion. Even worse the asset price boom and the accompanying spending binge have reduced the price competitiveness of the productive and necessary parts of the economy.

    The good news is that common sense will be back with a vengence, and the BS of the past decade will disappear until we get the entire mess cleaned up.

    • Deco

      My key point is that from henceforth any spending will have to be intelligently decided upon. The bold exhuberant rashness, and the peacock effect consideration factor, will have to be binned. That will require a massive change in mindset.

  42. PMC

    @cbweb
    Hmmm, yes i’ve been thinking / worrying about this of late, as the savings I have, have been built up for a business I plan to start when the time is right, if ever!
    Its in AIB at present, but i’m seriously thinking of putting it in Rabobank, what with it being rated AAA and number six on the worlds top 50 banks. What do you think, would it be a wise move?
    Thanks

    • If you’ve a good business plan, go for it! Triple AAA doesn’t mean anything as it was eg given up to and prior 2008 to mortgage backed securities in the US that vaporised in the meltdown.

      Rating agencies do matter when it comes to investor confidence and spreads on Irish government bonds though, something NTMA belatedly are being taught harsh lessons about.

      How about, but I vaguely reflect this has already been done, a Peking Duck business selling PD to the Chineses? Best of luck. With the business.

  43. Deco – time is not on your side our dogs will not change their spots they see no diiference and they believe the taxpayer will not notice any difference afterall try to change spots and you get the same re allocated to a different space .So our dogs become illusionists convincing spot change is good for you even with the same spots.
    We need to import more Christoph Muellers ( Aer Lingus ) to take charge to enforce new rules and rid the old class crony system and D4 connections.

    • Deco

      John – I think you have it one there.
      There are superficial changes, and a lot of noise talk about the changes. But really it nothing has been fixed.

      The establishment had Willie Walsh in Aer Lingus, and the problem is that he was doing such a good job, that people were saying he should be put in charge of CIE. And this annoyed the ditherer. Because CIE is full of the ditherers cronies. And ICTU was annoyed also. Walsh was the real deal. A person who knew management and knew work. And he was being compared to people who knew neither. So Walsh got shafted. And British Airways took him on board.

      Mueller was brought into aer Lingus because the government realized that they needed somebody with ability to be able to compete with Michael O’Leary. They were terrified of losing. If they lost then it would be plain that the Irish concept of management was the problem. Because they detest Michael O’Leary. He is their nemesis. Anybody who takes the p155 out of authority is their nemesis.

      They only appoint Christoph Muellers when they are forced to do so.

      • I’d really like to tell ye all what I’m coming up against in setting up my little show but it might be unwise online. Suffice it to say that the country is full of non-productive little englanders.
        It’s weird to spell it out here over the last couple of years but to meet it head on is a blasted experience.
        Christ we need a bloody good clear out.

  44. StephenKenny

    @Flash13
    Only person who believes the system is broken? On the contrary:

    http://www.zerohedge.com/article/alan-greenspan-financial-system-broke

    • Choice – who do you wish to be :

      Lendor or Borrower ?

      ( Lendor is German Banks who is Helga deposit account )

      Lendor parted with Cash but Helga does not know

      ————————————————

      Borrower is owner of brick and motor

      ( Borrower is Irish Bank who may eventually write off the loan on ultimate borrower namely …’Murphy’ )

      —————————————-

      Murphy sons get homes free

      Helga daughters must save again and/or borrow to buy or rent an apartment .

      —————————————

  45. NAMA = Nationale Allemaigne Mess Accumulation

    ( underwritten by DB ( Deutsch Bank) )

    ECB Notice : Other EU countries may apply to be considered to be included for Marshall Plan II

    conditions : proof that you purchased mercedes and volkswagons

  46. tony_murphy

    News today on TodayFM or Newstalk

    Ireland has “successfully” borrowed 650million Euros at 2.3%? due to be paid back by April 2011, YIPPEE!, 6 times the rate Germany would pay for it.

    The Stock brokers interviewed are delighted, it’s great news!!. They bonds were great demand, 10 times oversubscribed apparently. I wonder how much the ECB bought/wanted to buy?

    Also, a Cat took the dart yesterday from Malahide and is now at the dart headquaters. Could the owner please contact the dart office to pick up their Cat. Barry Kelly from Iaraoid Eireann has spent the day taking calls from the media enquiring about the well being of said Cat

    • Yep, media in full gall op in a media celebratory fugue to herald the great news ‘they’re queuing to lend us’, at those penal rates, can we all have some!

      Meanwhile, S&P will take another static snapshot around next budget time and see we are in worse shape, then another….

      Gall being of Germanic Goth origin from whence into medieval Eng, not African per Allen:)

      Meanwhile Ghostland stagnates and disintegrates!

    • wills

      Tony.

      I was thinking, this is hilarious.

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