August 30, 2010
‘You want it to be one way.”
“[But] it’s the other way.”
The above dialogue occurs in season four of The Wire – the HBO crime series based in Baltimore, Maryland. Marlo Stanfield, a notoriously vicious drug dealer, walks into what Americans call a convenience store.
Straight in front of the security guard, he pays for his cigarettes but steals a lollipop.
The security guard confronts him as if to say, what the hell are you doing right in front of my nose?
The security guard explains to him that he knows who Stanfield is and how dangerous he is but even so, Marlo can’t just steal stuff – it’s against all the rules, that’s not the way the world works.
Stanfield just looks him in the eye and repeats three times,’ ‘You want it to be one way’’.
By this he means that life is based on facts, not on wishful thinking.
The reality is that life is not like that.
Wishful thinking is not how the world works, irrespective of what the guard might want.
This exchange – and, in particular, the difference between the reality of the world for a mean-assed drug dealer and the reality of the world for a security guard working on a Sunday morning to support a family – reminds me of the difference between the harsh financial reality of the markets – which are losing faith in Ireland – and the wishful thinking of Ireland’s politicians and senior civil servants who are telling the world that everything is under control.
Everything is not under control; in fact everything is spinning out of control.
The Financial Times carried an editorial last Friday which echoes what this column has been saying for the past year: the time has come for a forced debt-equity swap in the Irish banks.
The more the government keeps writing cheques for the banks, the worse our credit rating will get and the higher the price for the economy in terms of austerity.
It is good to see that the Financial Times has finally woken up to what is going on here.
The main reason is that the government and its advisers are so chronically insecure that a word, even an utterance of support, from the Financial Times and they are screaming all over the airwaves that the rest of the world thinks they are doing a great job.
This overblown reverence for what the FT thinks touches an insecurity which runs deep in the Irish psyche. It’s a case of ‘‘what will the neighbours think?”.
The corollary is also true, which is that, if the FT doesn’t like what the Irish government is doing, the Irish government sits up and listens.
This attitude – possibly a post-colonial hang-up – governs much of what goes for thinking in the upper echelons of the Irish civil service.
It reminds me of my granny’s ‘‘good room’’.
My granny had a good room, which was so good I wasn’t good enough to go into it.
In fact, the only people who were good enough to go into the good room were people my granny was trying to impress.
But the funny thing was we pretended that we used the china in the good room everyday when such guests knew full well that the good room was opened only for special occasions.
But the insecurity that bred the good room was precisely the type of insecurity which is much more concerned with what the neighbours think than being concerned about the real facts.
This is why it is so important that the FT has come out and said ‘‘enough’’, because one editorial from the Financial Times will have more impact on our top civil servants (who run the place) than 10, 000 or possibly even 100,000 people on the streets.
The other reason the FT piece is so important is that it addresses Marlo Stanfield’s point, which is the difference between what is and what is hoped to be.
The Irish state has been living in a make believe world for the past two years, writing cheques with money it doesn’t have to save banks and bank credit it doesn’t need.
The behaviour has been most bizarre.
For example, Brian Cowen talks about coming up with billions of euro as if the money is just stashed under the mattress or in a tin above the telly, which he’ll just go and get after his tea.
The cavalier attitude has been almost farcical.
More farcical still has been the willingness of foreigners to go along with this charade and swallow this spin.
At last, the penny has dropped.
Finally, the world is beginning to realise that we don’t have any money and if we did, the smartest thing to do would not be to give that cash to banks’ creditors.
This realisation is the reason we are being downgraded by the ratings agencies and this is why the bond market will close on us.
This is why the ECB is buying our debt, because no one else will, and yet all the while, the Irish top brass claim nothing is wrong.
They haven’t twigged Marlo Stanfield’s point either.
The world is not how they’d like it to be – it is as it is.
And this means that there is no more cheap money for Ireland as long as it is using that money to bail out creditors.
Even the Financial Times now gets it and is calling for a forced debt for equity swap, where creditors take a hit.
The best course of action now is to let the guarantee lapse, force the creditors into the room and tell them this is the way it is going to be.
The bondholders become equity holders.
They now own the banks which they once lent to.
The banks are recapitalised using bondholders’ funds and the banks’ balance sheets are rebuilt via debt dilution, not via raising new capital to pay old debt.
The taxpayers have paid enough.
The world has changed and the strategy of hoping for something to turn up is not working and will not work.
We have no money and the world isn’t prepared to lend to us in order that we bail out reckless lenders.
Let’s move on. Let’s hope that the FT’s editorial and the downgrade will nudge us a bit closer to sanity.