February 15, 2012

Loan guarantees can help firms escape 'liquidity trap'

Posted in Irish Independent · 124 comments ·
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The Government’s move to extend loan guarantees to small firms is a good move and has the potential to unlock a credit bottle-neck, which could help many small firms that are stranded in no-man’s land, living off cash flow and missing opportunities.

Anyone who runs a small business knows that you need capital to grow. It is possible to grow out of cash flow and many thousands of companies have, but when there is a credit crunch going on here and not in some of our competitor countries, Irish firms are at a huge disadvantage.

Business people also know that when there is no investment in a firm, the firm can die on its feet. If a lack of credit means a firm fails to invest, it might look ok on the outside but it is gradually hollowing out its productive marrow and very soon it will be bypassed by better-capitalised competitors.

At the moment, many companies can’t get access to capital because they don’t have collateral. They don’t have enough capital. In comparison with companies in other countries, Irish companies have never really amassed capital or savings.

This is because, rightly or wrongly, we have a debt-financed model of capitalism. In contrast, overseas you will find family companies that have squirreled away cash for years and now have significant capital. We are still some distance from that and most entrepreneurs have no capital to speak of and no access to real capital.

On top of this, the venture industry in Ireland is not very well developed. There simply isn’t enough free capital around to be deployed in the companies that need it. So a typical case would be a fast-growing company that is looking for Enterprise Ireland (EI) help. Enterprise Ireland might have a scheme, which matches capital for equity. So EI will say to the company, ‘We will help you move to the next phase in your development with an equity injection of €1m if you can match this funding with €1m of your own’. The company then has to go to find that extra €1m and it is very difficult. Therefore, loan financing, rather than equity financing, is very helpful in a country with a small private-equity capital base.

Now, of course, turn back the clocks and we had all the capital we wanted and we blew it on all sorts of housing-related El Dorados. But it happened and one of the many disastrous consequences of it is the fact that the banks are bust.

On one side of their balance sheets they have assets — such as land and property — which are falling in value, and on the other side they have loans, which are increasingly going bad. They are terrified to issue new loans.

On top of that, they have to pay back all the money they borrowed to lend to developers to build shopping centres that no one wanted and now are nothing more than holes in the ground. This is called deleveraging.

Rather than actively re-cycle and inject credit into the economy, they are actively and purposely taking credit out of the economy every single day.

When you reduce this story down to the ground level, what you see is that good companies can’t get credit because the banks are overly cautious and the company itself has insufficient capital. With insufficient capital it has insufficient collateral. Collateral is what reduces the lender’s risk. The more collateral, the more comfortable the banks become because they have a buffer.

If administered properly, this loan guarantee might kick off a virtuous cycle whereby companies that couldn’t get any capital can get capital. This will allow them to develop a relationship with a bank and, if things go well, the company can stand on its own and the State can withdraw its support.

The State is likely to appoint an outfit to operate the scheme. This should act as a filter mechanism where experienced lenders — who should not have form in terms of lending to bad companies in the boom — work with the banks to assess each company.

The final decision on which company gets the money should remain with the State’s operator and their job should be to protect the taxpayers’ interests and assess the recipient companies.

There will be loans of €150m made available, with the State backstopping 75pc of these and the banks taking the rest of the risk.

You might think that this is a big chunk of risk for the State to be providing but it depends on the leverage the banks are willing to give. So, for example, the State might have done a deal with the banks to offer three times’ leverage.

So the State puts €35m into the kitty. The banks then put up €115m, which gets the fund up to €150m.

If you assume a loss of 10pc on total loans lent over five years, it means potential loan losses of €15m or €3m a year; 75pc of that is a State write-off of €2.25m per annum. This is the basic model.

Obviously, if leverage is lower or bad loans are bigger, then the exposure for the State is greater. The devil will be in the detail and the skill of the operator.

However, if we start from the premise that there is a credit crunch in Ireland because the overall macro and banking position is horrendous, the implication is that good companies can’t get loans, which means that the likelihood of loans going sour must be less than if there was no credit crunch at all.

The converse applied in the boom, when bad companies got too many loans, pushing up the default rate way above what would be described as normal.

In a situation of a “liquidity trap”, where banks are not lending because of deleveraging and companies can’t borrow because of a lack of collateral, this move is a necessary step.

It’s not a panacea, but it’s a start.


  1. Adam Byrne

    subscribe.

  2. This article is one of the least I have enjoyed .Sorry . It reminded me of a chapter on Business for those sitting the Leaving Cert.Maybe I am spoiled for choice on this blog.Bland thoughts come to mind.

  3. coffey

    Its great to see the government actually thinking about small companies for a change. The problem my business has that it is way too costly to do busness here, from Accountants fees to CRO fees to rates to everything really. its very hard to do business here in general and the way it is for a lot of companies they are behind in payments to Accountants and their rates etc as they’ve used the capital normally put by for these things just to have cash flow on hand. If I we looking for a loan it would be to inject basic capital into my business to allow me to catch up with the above costs, I dont think anyone will be helping me do you!

    • coffey

      I would also have liked to see a MABS for business, no one even mentions this and it would be a true life line for the self employed especially who get ZERO help, we have nowhere to go when we run into trouble, most other Countrys have a MABS type of help for small business. Some self employed people are seriously depressed over business money worries and most are ordinary people who simply wanted to own their own business and employ people, not everyone got rich!

  4. molly66

    If you can avail of this so called money to advertise expand your company,well that’s all fine except people need to spend money to use your service,
    I was flat out 4 years ago ,what hit me was Joe public stopped using my service companies stopped using my service why because of the down turn,can I reinvent my self when people start to be payed a decent wage and when people stop being hammered at every turn.can you David see this happen any time soon,because I can’t.

  5. Lyndon Jones

    How much effort was put into this article ….very little its all general and no specifics . Anyone could write this stuff .

    • Lyndon,

      Where might I read your output. I would be interested in seeing your efforts. Btw it was short on detail because the press release was short on detail. But this type of thinking on guarantees is something that has worked very well in the USA for disadvantaged communities who are shut out of the credit markets for a variety of reasons. In fact a similar scheme in Israel is very successful in financing Arab-Israeli ventures. Maybe this could be similarly successful with small default rates and lots of loans advanced.

      Best

      David

      • stiofanc02

        Hey David, I’m sure if you stand behind Lyndon you would be able to see, and smell , his “output” semi regularly. But I don’t recommend it.
        It is people like him who sometimes need an enema to “loosen up” so to speak.
        If he is lucky, his “efforts” produce something for him once or twice a week.
        Unfortunately for the rest of us, its just a load of crap.

  6. rebean

    As far as I am concerned its all too little too late. The crisis has been escalating for months and months now.Regardless of cash flow Why have we electricity increases when everyone is struggling.It makes no sense to have one part of our society increasing their tariffs while everyone else takes a pay cut. Its not like we have a choice we need electricity to run our businesses.

    • molly66

      We are hammered every way we turn rates, power, diesel,petrol ,
      There’s a laugh pay cut ,I wish I had a pay cut because I have been living of savings for over 18 months, I made money when things where good but as they say in home store and more when there gone there gone,I have enough money to last till the end of this year and the way things are going my graph is on a nose dive ,turn over has dropped every month for the last 2 years,last week I worked 1 day for the whole week, 4 years ago I had five employed and two trucks on the road.

      • Grey Fox

        Molly, you have my sincerest sympathy, and I only was we could hve the benefit of foresight, you could then have at least closed up 4 years ago and held onto your few “washers”, maybe just think of doing it before you go into the hole after your savings dry up.
        I closed two businesses 5 years ago because of greed and professional negligence by the people who are supposed to help small business and I am seeking legal remedy ever since, I will be successful but the cost is far higher than anyone can imagine and goes way beyond euro’s and cent’s.

  7. Lord Jimbo

    Writing articles on a weekly basis over a long period is no easy feat especially when you have other things on the boil, think David McWilliams is merely highlighting a potential positive development for small businesses, and I welcome such an article as it sheds a bit of light on what has been a relentlessly negative economic period.

    However in saying that, while such an initiative is to be welcomed one can’t help wondering if

    a) it is too late
    and
    b) with the government picking the citizens pocket through direct and indirect taxation, consumption is continuing to decline, so who can small businesses sell to domestically?

    Exports are up as there is still demand abroad but the domestic economy seems to be permanent decline, on my road alone, several businesses have folded in the past year or so, TO LET signs are the main feature, and from speaking to people in the city, businesses are withering on the vine, using up savings and other mechanisms to keep businesses afloat but 2012 may well be the final year for many who have limped through the crisis.

    To my mind there is also a disconnect between things like the Irish economic forum, Farmleigh and actually creating jobs, while those events are necessary to try and get things moving, would the government not be better off to plough some money into start-ups instead of hosting wine receptions. The diaspora idea is good but has its limitations, I would be interested in any outcomes or data from those events or any initiatives that were started as a result, still have a sense that it is very much an ‘everyone for himself-economy’, which is a major part of the problem, there is no sense of a collective effort, again one’s mind turns to Churchill’s efforts to galvanise the population in the UK, with those famous posters depicting rolled up sleeves and a national effort, in Ireland there is this perception that someone is going to come to our rescue when nothing could be further from the truth, we have to save ourselves.

  8. StephenKenny

    Businesses have another problem, the increasing period that creditors are demanding – up to 120 days – due to everyone’s efforts to manage cash flow.

    Since this cashflow problem was the one thing that all the financial “innovation” was meant to make a thing of the past (global liquidity, risk analysis), the whole question of having the financial services industry of the sort we now have, comes to the fore. There is simply no reason to have all these ‘markets’ and exchanges if they don’t relate to Main Street at all.

    • Hi Stephen,

      That’s an interesting point regarding the different days credit given and the implication for cashflows.

      Best

      David

      • StephenKenny

        Most companies are creditors and debtors, so the effectiveness of guarantees is a bit unclear.
        Probably better would be the sort of rules that many continental European countries have regarding credit etc. The Germans, for example, have rules that include mandatory & minimum interest rate payments, after a fairly short period.

        It’s one of those things like a motorway queue, it just takes one to insist on 120 days, and it quickly reverberates around the whole system.

    • This is absolutely common practise in larger corporates where small local suppliers are often heavily dependent on a single large corporate account. I heard of many cases at that start of the credit crunch (and when I worked for a large corporate in the dot.com bust) where corporates would arbitrarily extend the payment terms from 60 to 90 to 120 days, effectively allowing them to claw back a couple of month’s operating expenses. As Stephen says, this trickles down to everybody in the supply chain.

  9. VincentH

    The one useful thing that might come out of our present situation would be the utter destruction of factions and cohorts that have fought our State to a standstill.
    You write about cash rich companies, this was the situation here. The Quakers had a very good model but the smart arses decided feeding gold speculation in NZ, building tram-lines all over the US and feeding the insatiable capital needs of the likes of Anglo-American gave better returns. But all it did was give idiotic notions to the doctors lawyers priests and a civil service still even today paid as if they sit atop an imperial structure.
    It would do people good to remember that teachers are paid £25,000 starting for inner London.

  10. wills

    David,

    Article dots joined providing clarity much needed in face of mainstream media artificial intelligence.

    My contribution is the following.

    Giving that the mainframe system is a debt finance one in todays world, a central banking warfare model of capitalism I reckon what the govt must do with their micro loan credit-utility system is use it to renew a credit-utility model of capitalism and jailbreak the UK/USA financial jailer imperial stranglehold on the earths wealth and resources.

  11. Deco

    The problem to start off with is that we have never had capital, because we have developed a culture since the mid 1970s that essentially squanders it. And inherent in that culture is the whole consumption ethos of the economy. And it is not just us. The US is even worse. And Britain is also extremely reckless.

    Now, we are finding both capital and consumption scarce. The result perhaps of lower interest rates from the ECB (or Fed or BoE) which made speculation into a business model.

    And the problem is not just financial capital.

    The deficit in intellectual capital is even worse. One economist at the cabinet table, and his record is abysmal. The rest are completely and resolutely clueless. The situation with respect to the Irish Management Institute is just as abysmal.

    I have a copy here of “The DEMING Management Method” printed 1986. It is standard fare on management in at least one university. I remember being instructed in much of the contents NUIG, or at least it was when I was there). Accountants, IT Professionals, All forms of Engineering grsaduates, Scientists would have been exposed to it as part of a course on Production/Quality Management. (Mostly dispersed along the Western Seaboard admittedly – but clearly no sign of it reaching into Straffan, Druid’s Glen, Portmarknock, etc…).

    And if I decide to read any part of it, suddenly I am reading stuff that I know is the complete opposite of what the idiots running the HSE, DoE, CIE, FAS, BoI or AIB have never heard of it. Astounding stuff really.

    Ireland has a lousy mainstream management culture. There are exceptions. But this is the problem. Excellence is the exception. Mediocrity is mainstream.

    End result, we are spent out of capital, and have a massive debt to clear before we can even consider new capital resources.

    Should we continue to expose taxpayers money to such a lousy management culture, when the taxpayers themselves give money to the system, based on the assumption that they have social needs that are to be provided for, like old age, health etc ???

    • Pedro Nunez

      +1, its the regression to mediocrity, rather than the mean of meritocracy, as many have noted here.

      Its the smug, gombeen sleeveen ‘management class culture’ noted almost 100yrs ago below.

      “WHAT need you, being come to sense,
      But fumble in a greasy till
      And add the halfpence to the pence
      And prayer to shivering prayer, until
      You have dried the marrow from the bone;
      For men were born to pray and save:
      Romantic Ireland’s dead and gone,
      It’s with O’Leary in the grave”.
      WB Yeats September 1913

      Its why Paddy will never truly prophet, innovate or lead technological cutting edge wealth creation in his own land. The culture is still one of ‘we’re all gombeenites together’ as an avoidance strategy to our collective post colonial angst and deep well of inadequacy, we swing wildly from petulant forelock tuggers to vulgar swaggering braggadocios.

      Bipolar society, or as Steven Covey would say addicted to the drama of quadrant one, the urgent and important, perennial crisis management,always putting out the fires caused by the last reactionary management decision. Never in quadrant 2, meeting opportunity with a core well-defined strategy and preparedness.

  12. StephenKenny

    by which of course I meant “creditors are being forced to accept”.

    The worst, in my experience, is the state, where 6 months isn’t unknown. Strangely, they simply say that it’s caused by incompetence.

  13. Mark Walsh

    yada, yada, yada……a day late and a dollar short.

    Even the issuance of this new credit line will be a disaster……the governmental body tasked with delivering this package will no doubt fcuk it up and blame everyone but themselves.

    *******

    Our government were the fastest guarantors of toxic bank debt, ever.

    Our government waited 3-4 years for business closure rates to reach epidemic levels.

    Governmental bureaucratic bandages are now being applied to the foreheads of private sector heart attack victims, most of whom are dead and gone.

    A dog with a mallet stuck up his arse would do better.

    Zero-to-negative common sense from our politicians…but then again, common sense is not very common.

  14. Malcolm McClure

    Jean-Claude Juncker has kicked the Greek can down the road yet again–this time to February 20th.
    “We cannot give anyone a pretext or motive to apply such a scenario that would prove to be a horror movie not just for Greece but for the world economy,” said Finance Minister Venizelos.
    This guy has some cojones. Playing a blinder in the ultimate game of ‘chicken’.

    German Finance Minister Wolfgang Schaeuble said.
    “Greek promises on austerity measures are no longer good enough because so many vows have been broken and the country that has been a “bottomless pit” has to dramatically change its ways,”

    But the Greeks still pride in their democracy. Greek president (fought in WW2): “Who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?”

    It’s not just a matter of ‘Remember the Alamo.’ The Greeks can argue “Remember Pythagoras, Aristotle, Homer, Plato, Alexander and a few dozen others.”– That is a debt that world civilisation can never repay.

    • Pedro Nunez

      +1, Where there is no vision, the people perish. (Proverbs 29:18)

    • bonbon

      It is a pity this blog has a short attention span. Here is a start reminder of what is in store for Eire.

      Greece, Theodorakis: “The Truth About Greece, An Open Letter to International Public Opinion,”

      Glezos and Theodorakis, leading resistance against the Troika and collaborators, were the targets of attempted assassinations, during the Feb. 12 mass demonstration in Athens.

      “There is a global conspiracy to achieve the destruction of my country. They started in 1975, aiming at the modern Greek culture, continued with the distortion of our modern history and our national identity and now, they’re also trying to achieve our physical elimination with unemployment, hunger and misery. If the Greek people don’t show the will to stand up united and stop them, there is a serious, real risk, for Greece’s extinction”.

      “I believe, this will take place within the next ten years. From all of us, the Greeks, all that will remain is the memory of our civilization and our struggles in history for freedom.”

      The statement calls for forming a “Resistance and Solidarity Front” of all political forces “to drive off the Troika,” the occupation force comprised of the IMF, the EU Commission, and European Central Bank. The three-page letter slams the European banks and their Troika for having destroyed people’s lives and now sinking Greece into a “new dark age,” comparable to the Nazi occupation, and stresses that 300,000 Greeks died of starvation in that war: “The phantom of hunger returns to our slandered and wretched country.” He writes that just as “Greece chose the path of Sacrifice and Freedom, and simultaneously the path of Survival. Again they hit us without a cause and we responded with Solidarity and Resistance… and we survived. The same we do now….

      “They are threatening us with eviction from Europe. If Europe doesn’t want us one time, we don’t want this ‘Merkel-Sarkozy Europe’ ten times!… Why? Because the demands of the IMF and Eurogroup, blackmailing us that unless we obey…

      These economic circles hate us … and have the sole responsibility for our dramatic situation….
      “There is another solution! And this is to change radically our nation’s course and turn to Russia for economic cooperation and create economic partnerships that will help us grow the natural wealth of our country, with terms that ensure our national interest.” In an earlier appeal he has also mentions opening immediate discussion with both Russia and China.

      Theodorakis concludes: “To this purpose … I am totally and completely committing myself and I believe ultimately, I’ll be vindicated. I fought, bearing arms against Hitler’s Occupation. I’ve spent time in the dungeons of the Gestapo. I was condemned by the Germans to death and miraculously I lived. In 1967, I founded the NAF (National Anti Dictatorship Front), the first resistance organization against the Greek military Junta. I fought underground. I was caught and imprisoned in the ‘slaughterhouse’ of the Junta’s Security Committee. Finally I survived again.

      “Today, I am 87 years old and it’s very likely I’m not going to live to see the salvation of my beloved country. But I will die with my conscience clear, because I’m still doing my Duty to the ideals of Liberty and the Law, to the end!”

      • Malcolm McClure

        +1 Perhaps the lack of tax-payers reflects the Greek Democratic response to the American Republican ideal of small government. They don’t want a huge public service and massive military force that together was responsible for accumulating the debt in the first place. Is Turkey, a fellow NATO member that big a threat, or is it just a pretext inflated by arm-selling nations to sell Greece more tanks and aircraft?
        If Ireland needs a second bailout will it be under increased pressure to join NATO and draft a lot of unemployed into the “Defence Forces”?

        • Grey Fox

          Cannon Fodder was always the answer to massive unemployment of males under 30.
          The one thing worth remembering is that the Greeks did not like paying tax back when they joined the European project, they didn’t like it then and they don’t like it now, there is at least consistency in their attitute and this is not a reason to demonise them, it is, the fault of the Goldman Sachs of this world who, under direction from the EU, cooked the books in order to facilitate entry to the Euro Project. YOU GET WHAT YOU PAY FOR

        • bonbon

          Exactly. Recently revealed (M.Keiser I think) the massive arms sales to Greece now are organised to spend the bailout by German “advisors”. So not only banks but arms firms too. (ex?)D.Bank Ackermann is involved.
          Second, participation in various NATO exercises (with Israel) went ahead. Third very ominous Turkish army officer replacement and a bit later Greek also. Then Italy’s defense minister replaced by Monti with a flag officer.
          This looks like a softening up to go to war with Syria and Iran.
          If this goes ahead the target is Russia, and that is MAD. Troops not needed then…

        • Juanjo R

          Greek spend on military 3.2% of GDP apparently vs Turkish 2.7%. Turkeys economy is bigger ( obviously ) though.

          http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

          Its visible from the equipment lists of the two countries that they have been going head to head over the years matching each other – they nearly have the exact same numbers and types of main weapons – 200 F-16s each, F-4s, and 600 Leopard main battle tanks each.

          There s a note in the wikipedia pages that the Netherlands donated 170 older Leopard 1s to Greece.
          Funny I thought – countries normally donate medicines or usful machines to each other? But big nasty newish 2nd hand tanks?

          To give a contrast with Ireland which has half of Greeces population we have no jet fighters and no main battle tanks and about .6% of GDP spend on the military.

          Perhaps we are sensible about something afterall!

          Turkeys signed up o the JSF the new F-35…Greece can’t keep up with that I’d guess…

      • Malcolm McClure

        Plucky little Greece:
        http://bit.ly/wuIm1d

        • coldblow

          He makes some good points although his warning about the possible ‘Balkanization’ of Greece sounds weird.

          Michael Lewis’ Vanity Fair article a couple of years ago seems to have been very influential. It portrayed a corrupt state blighted by flagrant tax evasion by the wealthy. I had concerns that this might be used to justify measures to punish the country.

          The writer makes a good point about money lent being made conditional on reform. Of course, the wider poliical picture is more important, although he overdoes it a bit, I think. I don’t remember the Greeks being very supportive of US action over Kosovo, siding with their Serb co-religionists.

          Primo Levi in his WW2 camp memoir describes the Greek Jews as among the toughest cliques, monopolizing what few resources there were and initimidating the other inmates, if I remember rightly and for what it is worth.

  15. Thanks for the Article David. Stop feeding the troll. A man of your fine calibre should be able to see through such nonsense and if writing was easy then he’d more it himself

    Joe Higgins also did a piece on the government initiative and in contrast to your own thoughts on it’s potential it seems our Joe does not hold out much hope

    He calls it this initiative policies of the madhouse. It’s interesting and worth reading

    Best

    http://tinyurl.com/7y6nl2w

    • Hi Paul,

      personally, I do not believe a single word that any politician is publishing, regardless from what fraction, so if it is interesting enough what they say, I do my own research and form my own opinion on the matter.

      Here is the article Joe Higgins referred to.

      http://online.wsj.com/article/SB10001424052970203388804576614460087620094.html

      Fwiw, I would say to Joe, that in my opinion one reason for the lack of serious resistance in the countries affected by the hostile occupation forces, applying austerity through unelected representatives, is clearly the fragmentation of the left in Europe, combined with the overwhelming EU political dominance of the right wing EPP in all three major EU institutions, and the brutal social engineering they perform for the benefit of financiers and the capitalist elite that they serve, is part of my explanation for the situation we are in.

      • Georg

        I don’t believe them either. They don’t do straight talking and that is the reason they survive and climb up the greasy pole of conformance and perpetual mediocrity

        Why anyone could become a prisoner of a political party is beyond me. Look at their personal motives and there we will probably find the answers

        I posted Red Joe’s link to offer an alternative slant on this initiative lest anyone gets all rosy eyed about it and starts to swallow it look, line and sinker

        Until there is hard evidence that it will serve ordinary people then I can only assume it a scam cooked up by white collar criminals to line the pockets of their cronies

        If Red Joe succeeds in mobilising the people to reject this governments austerity policies and makes them reconsider the new Poll Tax then he will have reminded us that we do have some form of real democracy left in this country

        We all know the system is buggered and not fit for purpose. All you hear is growth, growth, growth! as if it is something that is the answer to all our ills. It is not. It will only take their minds off their responsibilities as human beings and make them selfish and greedy again

        Growth for what I ask? We had growth in the past and look where it got us and what it has done to the planet. Anyone who blindly advocates more growth is not thinking straight and cares nothing for the future of the species. They are mad I tell you

        Our society is broken and we have lost our way. Instead of growth we should be looking at the existing mess and cleaning it up

        Instead of leaving all those unemployed builders at home all day they could be employed in a public works scheme to rid the landscape of ghost estates and other eyesores. They would be contributing to the economy as well as cleaning up the landscape

        Here is an interesting read from a former city slicker who now lives self sufficiently in the wilds of Montana. Makes you think and wish you had the necessary means to do it

        Going Off Grid – Montana Style.
        http://www.alt-market.com/articles/569-going-off-grid-montana-style

        • bonbon

          Confusing growth with bubbles I thought was already diagnosed and treated as a Tiger disorder.

          We already had here a “Limits to Growth” slugfest. There are no limits to growth – it is a hoax.

          • I don’t think I am. All people seem to be doing is waiting and hoping for the next bubble. It’s unsustainable because our present system relies on destruction for it’s survival

            The Celtic Tiger years were ultimately destructive because through the greed and stupidity of one generation future generations will pay the price. The psyche of the nation has been destroyed and people have no confidence in the future

            You might explain what this new utopia might look like. ‘No Limits’ sounds like fantasy and I have heard that phrase too many times before. It is a phrase people pull out of the air when they don’t really know what they are talking about. Where is the growth and what useful purpose will it serve?

            Everything has limits and it takes wisdom to know our limitations. Ten years ago some Tigers thought they were in heaven but now some of these same people are in a living hell. They thought there was no limits and now they are like frightened pussy cats. They cannot imagine a life without credit and debt and it is probably just as well that the banks are not lending to fund some of their hair brained follies

            The only things to which there are no limits these days are fear, doubt and misery

            How can we persuade people that having a dream and starting a business is a sane idea when there are so many obstacles in their way. Many posters on here know what running a business entails and yet they have become disheartened and given up. Yet some people try to convince us that if only we wan get credit then everything will be back to ‘normal’

          • bonbon

            Right on destruction – “Creative Destruction” a la Schumpeter (Economist Column) posing as “innovation”. So to proceed look up this fellow and his mentor Sombart. You hit very quickly Nietzscean fascism. This is the way to break through the pessimism. Fascism from top-down need cultural pessimism to function. Tremonti cites this as “white fascism”. There are no known limits to destructive pessimism.
            The other aspect is Hayek/Friedman/Mises economics – they explicitly forbid growth, replaced with “spontaneous order” – pure magic.
            There are no limits to physical economical growth, not bubbles. How to distinguish? If a bubble leaves a crater it’s not growth.
            So we are faced with con-jobs, fascism, and magic instead of a science driven economy. We had the Tiger con, Greece has fascism, and the magicians are parading.

          • Realist

            Bonbon, there is no magic.
            Austrian economy (Mises/Hayek) is based on pure logic, deductive logic.
            You just got it wrong from some article of yours.
            It is all up to exchanges between two parties where both benefit otherwise exchange will not happen.
            The banking should be full reserve and based on prior savings.
            Growth does not mean good as in biology.
            Having more money does not mean you can buy more, especially if things are more expensive due to inflation.
            We can see the failure all over the place.
            Economy is not physics with atoms and regularity, it is a social science where millions of participators thinking for themselves and deciding what to do.
            No government nor central body can know what people want and need, nor what entrepreneurs are going to do next.

          • bonbon

            Yes deductive logic from a magic axiom – “spontaneous unknowable order”. Impeccable logic. Absurd axiom.

          • Realist

            What book did you get that axiom from ?

            Looks like one absurd man absudrly decided to put the absurd argument not found in any book, even absurd one, but his absurd head.

        • Paul,

          thanks for the link, will read later.

          I must say, I really like your language, you have a way with words, but apart from that, yes, the priests of Inflation and growth are the same that ignore the fact that this system at large is dysfunctional, based on wrong assumptions, one of them is the growth paradigm, in a world of finite resources.

          I too hope that Red-Joe as you call him succeeds in mobilizing a sufficient enough mass to bring down these charges, and I wrote to him about that a few weeks ago already and made some practical suggestions that might be beneficial towards success.

          This success is so very much needed for the people to learn a lesson, the most important lesson of all, that they are NOT powerless, and of they show and exercise true solidarity, they will be victorious, the ruling class has no chance against the will of the true sovereign, but this knowledge has to become a practical experience again to come back from distant memories to be able to wash away despair and fear.

          • Georg the people of Scotland were supposed to be Thatcher’s guinea pigs for the Poll Tax but we sent her home to think again. Red Joe is trying to do the same here thing with the CAHWT. He is no Tommy Sheridan on the persuasion front but he did expose and defeat the scam perpetrated on the Gama workers during the boom

            I too hope that he mobilises everyone to reject this highway robbery and the Irish people get behind him. Any talk of growth and an economic recovery is meaningless

    • and btw…. this is what i meant earlier this week, when I cynically remarked that too many economists are on this planet.

      Do we really need such bloodsucking leaches?

      http://www.franklintempleton.co.uk/documents/en/UK/pdf/managerBios/michaelhasenstab.pdf

      No we do not, and this the result of the direct influence and manipulation of education that our good friends in Goldman Sachs and other institutions have undertaken since many years.

      Many economists are the apologists for this entire disaster, some are the designers, others are supporters, others again are there for the money and nothing else, and a fraction is there to do what the study economy really is about, social sciences.

      My point is this, the capitalist system as is, no longer is fit to serve its purpose and the people of our nations….. simples.com

      • redriversix

        Shiiiiiiiiiiit Georg !!!!

        if i stayed in college, man i coulda been somebody , i coulda been a contender……..but would have been better to be a economist !

        you know some say an economist is someone who didn’t have the personality to be an accountant…..hehehe !!

  16. redriversix

    Sorry David

    I am afraid this latest press release from Government is just something to carry ink with.

    If we remember, N.A.M.A was set up to inject cash in to the Banks by taking over / Buying their bad loans thereby releasing “liquidity”to SME etc.

    When Bank of Scotland declared it was withdrawing from the Irish Market , the Government said it would release 12 Billion to our Banks to release credit to business effected by the withdrawal of B.O.S.Never Happened

    When I was in Business , I could not get paid for,an average of 100 days from Large,respectable Multi-Nationals , but the small operator I extended credit to , paid me on 60 days and always stayed in touch with me regarding payments and we tried to work together as we were all in the same boat.It was very infuriating try ing to get Large Companies to do the same.

    I bet the small print involved with this latest”support”for business will have a lot of S.M.E owners up late at night…………….again

    S.M.E’s will have to try and stump up a lot more guarantees then the Banks did for their bail-out.

    A lot of these business’s would be far better of going out of business and starting over , and I am talking from experience , not theory.

    In conclusion , if we believe this “story” from the Government, then we should believe Richard Bruton’s Job creation strategy makes perfect sense and the Dept of Finance’s predicated growth figure’s are also correct !!

    Afraid this one is a waste of your time David , much more going on in Europe you could have written about.

    Kind Regards

    RR6

  17. RapidEddie

    It’s a start, but I can’t shake that uneasy feeling that just because loan guarantees could make credit to SMEs more widely available, that they actually will. The banks have had their balance sheets soothed, repaired and fluffed and all they’ve really done in return is said “Thanks very much” and “What we have, we hold.”

    The Irish banks are not thinking domestic economics, they’re thinking that the Irish economy (especially as an exporting nation) will find a sounder footing when, and only when, the global economy is on an upturn. Particular, obviously, mainland Europe.

    Which is kind of odd, considering how wholeheartedly Irish banks bought into the domestic property mania. I suppose the point I’m making is that I don’t doubt that David’s analysis of the proposed measures is spot on, but I do doubt the will of the banks to rally round in the national interest. Loans to businesses are not where the profits are – bad debts and failures abound. Both property and ‘financial instruments’ such as derivatives offer a quicker return.

    In the meantime, the banks’ attitude is take money from those already in secure jobs – baking fees, deposits and occasional loans – and sit out the storm. And that’s probably what they’ll do. They feel no obligation to dig in and help out and there’s no compunction upon them to do so. Irish banks now talk about being happy to lend to ‘viable businesses’. In other words, the only people or businesses that they’ll give money to are those that don’t particularly need them. That means those on the cusp of viability and unviability won’t be helped.

    I’m also wondering how the retail sector is going to fare this year. Anecdotally, so many shops and restaurants are down to the bare bones, just keeping going until some kind of pick-up in demand. None of them anticipated the downturn lasting this long and I can see a retail sector bloodbath in the works this year as many retail outlets gasp their last. And you know that the banks aren’t going to extend themselves to help out.

  18. redriversix

    Their is ample “real” evidence that Banks are nit and have not supported small business for over three years and they will NOT change now.

    Whatever funds they have / will receive they would rather leave on deposit than lend to business.

    Before Christmas the ECB “lent ” over 550 Million in cheap money to banks at 1%…The same Banks re-lodged 440 million at half a percent back with ECB rather than lend it out.

    Sorry if you feel I am being dramatic but this is organised Crime on a world-wide financial scale.The evidence is all there to support this conclusion as is the evidence to support the fact their is no longer Government in charge as voted by the people but long term career senior civil servants to run this country and follow their EU/IMF/ECB masters orders,

    Is Are Government now not “Vichy France or German Collaborators ” ?

    • bonbon

      Theodorakis says collaborators, and as Tremonti says, with “white fascism”. FG, Monti, Papademos look like Petain/Laval Vichysoise and the Banque de Worms (now Lazard) the ECB of Draghi. Now what is Merkozy I wonder…

      Why is Europe going mad again? Never mind the madness of Obama/Bernanke/Geithner and the candidates. But then Wall Street did try a coup against FDR, whistleblown by Smedley Butler, as it funded Hitler (along with Norman Montague of the B.of.E).

      So Transatlantic madness gain? Driven by what, again?

  19. redriversix

    It could be 550 billion and 440 billion not 550 million and 440 million.Memory is going from all the positive spin from Government !!!

  20. Stiofan

    Dear David; I must say this was a very verbose piece. I am certain that you are a sound economist, but between assets credit, cash-flow, capital, collateral, investment, capitalization, savings, cash, debt-financed, squirrels, venture industry, leverage, equity, funding, and private-equity capital bases, the lexicon is a bit too complex.

    We have lived too long with the twaddle of ‘financial management’ hoodwinking us not to deserve a decent glossary of terms. One simple set of terms will suffice. Might we start with debt, equity, revenues and expenditures? They are easy to grasp.

    Then when you write that enterprises are ‘raising capital’ we know that you are proposing more debt. When you say the State might have done a deal with the banks to offer three times’ leverage, we know you are proposing more debt. When you assume a loss of 10pc on total loans (*debts*) lent over five years we know that 50 percent of startups fail within 18 months, not 10 percent in 60 months. When you suggest that the State backstop 75pc of these loans (*debts*) we know it’s the citizens, taxpayers, yourself, myself, again.

    You are right of course, your idea is not a panacea, but I feel it’s not truly a start either. You generally advocate less debt not more, less risk and less obligation on the citizen taxpayers. I agree with that. Always a fan, so don’t be offended.

    ps. Is the purpose of business activity to create capital, not to consume it?

  21. Malcolm McClure

    The Brussels ideal is that each state must have a massive, militant, bureaucracy supported by the toil of peons, with the EC as Queen Ant, lording it over the soldier and worker ants.

    This brings an entirely new dimension to the concept of Ireland as a colony.

    When the EC gains control of eugenics, and legislates for compulsory analysis of everyone’s entire genome (already available in some labs at a cost of less than $1000) the worker ants will eventually be excluded from sexual reproduction.

    See: http://bloom.bg/w6QXnW

    • coldblow

      Malcolm

      I often think about this bureaucracy thing and my ideas have changed over time – possibly for the worse, certainly more confused. It seems to be a constant in modern states, and probably in the not so modern ones too. German bureaucracy I understand is weird and opaque, French notorious (apparently). According to Kuntler the everyone in Greece not growing olives works for the state. The US postal service is, according to Bill Bryson, maddeningly pedantic. It’s like an ever-present, like 30% adult illiteracy. Or malfunctioning health service:
      http://www.independent.ie/opinion/letters/a-bitter-pill-2902882.html (Marcus de Brún again)

      I’m sure Brussels contributes to the mix, not least just because it’s another level of responsibility before the buck finally stops.

      Then of course there’s the legal apparatus and (as you know) the claims culture provoking yet more bureaucracy in self-defence. Yet I wonder if the EU goes that much further there but is just a reflection of what’s happening in the member states. When I think of Europe I think of obviously pointless procedures at airports, hotels etc. You often can’t even go up to the bar and pay and go but have to sit and wait. In Germany it can take 20 minutes to walk 200 yards if you have to wait at a few crossings.

      Then I think of the quangos we have. These were set up to provide expertise via a dedicated (in the other sense) staff, or to prevent ministerial interference, or as a handy way to avoid ministerial responsibility or to save money – probably few know or remember why. Many of these serve the cause du jour, be it road safety, women’s rights – my name is legion. So we have a people clamouring for these things (or at least acquiescing in the media clamouring, which is even worse) while at the same time trying to cut down on regulation. Absurd.

      So which ones do you cull? I vote Gay Byrne’s crowd and the Women’s Council for starters.

      The statute books grow ever larger, life more complicated, the senselessness winds and tangles into every nook and cranny. I am haunted by one particular episode of Futurama. Of Tim Pat Coogan talking on the Late Late about having to scrap a perfectly good car because it somehow fell foul of the new NCT. Eireannach says (see his recent reply to Pauldiv’s missive) that he is the only man he knows who is taking a stand. So that’s 2 people I am aware of including myself. Three with yourself. It’s us against the tide. But will they listen to us? Will they ****! Ha ha.

    • Juanjo R

      This all a bit too dystopian for a reaction to a minor economic policy/initative announcement!

      Maybe theres a film script in all of this starring the likes of Matt Damon where he, as a regular joe- soap good guy, has his beliefs challenged and his innocence removed as he fights against the now un veiled superior evil forces at work against him?

      One thing I’d say about all of this – wasn’t there some small thing involving banks and a blanket guarantee in Ireland a few years back that was meant to make the likes of this initiative unnecessary?…or was I just imagining that?

    • bonbon

      Would not surprise me. Famous economist John Maynard Keynes was Cambridge Eugenics Society treasurer for 30+ years, and in 1946 claimed it as the most important “science” – after the holocaust.
      Culling the herd has for ages been Imperial policy, via war, famine. “Opponent” Hayek says “we will not rebuild society in the large”. Schellnhuber says 1 billion is “optimal”.
      Do you still think the EU is not a department of Empire, a Satrapy? After all if certain public figures openly claim “man is a higher ape”, what to expect?

  22. Philip

    The idea of load guarantees is sound provided other steps are taken to reduce input costs and the environment looks like it is ready to catch a wave. The timing is just way way off. Cannot help feeling that all you’d be doing is putting off the day when the councils coffers truly run dry. The state serves its officials – not the people unfortunately.

    That said, I really appreciate the attempt at the positive article and I would ask bloggers here for the hell of it to try and derive a positive angle which might inspire others. For example, getting back to catching the wave…what are the things we should be looking at for a post consumer age.

    • redriversix

      Hi Philip.

      I personally believe embracing the negative IS a Positive………..!

      It is a lot easier for people,be they unemployed or company directors , to deal with adversity once they are given the facts and make their choices on good honest truth, not spin , bullshit and waffle.

      Nothing lasts forever , either good or bad.That is the cycle and I have no problem with that ,but how can anyone make any kind of decision today based on the business / economic advice we get peddled every day ?

      So because of untruths ,deceit and a unworkable recovery plan , people who can are saving or sitting tight.

      Win or lose ,politicians benefit…….

      Lose , we,the people pay the ultimate price……………

      Who cares……Nobody

      But who can blame Government for the way they conduct business ? they answer to no one and by the reaction of the citizens of this state,I would think politicians are laughing all the way to the Bank.!!!!!!!!

      Goering once said…………. “National Leaders are grateful for stupid people”

      Now I know what he meant…..

      • Parallel Plain

        The theory of making a negative a positive is an interesting concept and has been around a long time only this time it is different and that is what makes it challenging .I believe it deserves more serious thought because it is reality after all .

        It is like putting a flame to water . The questions are : who wins ?
        what is the possible outcome and why ?
        how do we make use of the natural order of things that are adverse to themselves and each other ?
        Does perception blind us from success ?
        Do we lie on the floor and look at the gallery on our back ? Will that give us an inspiration ?

        Negatives generally have memories and positives have dreams .Which one goes forward? Or is there a forward gear ?

        If you are above the ground why is it you have not dug out the Gold beneath you ? Someone else has and will .

        • redriversix

          Morning John ,

          I believe that being positive is real and is very beneficial to the person adapting this approach to life.
          Positives can be dreams , which turn in to memories ,you do not use the power of positive thinking to escape life it is used to embrace life , keep daily simple goals, be grateful.
          Before Christmas I had a good watch , a left over from a previous life , things were very tough , I had no money and we were not having a Tree and tried explaining to the kids we had no room for one in this house…….I found a pawn shop in town who offered me a good price for the watch and I took it and Christmas was better for all my family and we got a tree,…….was at a meeting some days later and I explained what I had to do with my watch…………after the meeting a lady came over to me to sympathize with me for having to pawn / sell my watch ,I thanked her very much for taking the time to come over to me , but I pointed out to her how lucky I was to have the watch to sell so we could get a Christmas tree and food, presents for the kids and for my wife and I………..she thought for a moment , gave me a hug and said I had changed her outlook on life…………. I was embarrassed ,but if my experience helped her to free herself from the prison of shame , pride and fear than I am very happy…………..I never saw her again

          Negativity is no use , has no benefit………… Positiveness has endless benefits as long as you keep it real and do not use it for escapism.

          Look after yourselves and fcuk fear
          [sorry , still a roughneck ! ]

          Today is the start of the rest of your life , what are you going to do…? ?

          Best

          RR6

  23. gizzy

    First heard about this idea from John Perry a year abd a half ago along with micro finance facilities. It was part of their manifesto when they dropped plans for a new business bank during their campaign and Messrs Kenny and Noonan decided to take the ecb line and throw billins more at the two Banks. The new Bank would cost a fraction of the input into the pillar banks.I think it would embarass too many people at how cheaply it could be done.

    Loan guarantess have only worked ever as an add on to a functioning Banking system not instead of one.

    • cooldude

      Warren Buffet is a paid up member of the Wall Street mafia who are holding the people of the USA to ransom. Of course he is going to try and scare people from holding Gold. Gold is performing it’s function as a store of value as always during these times of paper money debasement. We now have the BOE taking on more QE along with the LTRO program of the ECB and continuing programs by the Fed and BOJ. These programs are all basically money printing on a massive scale and by increasing the amount of currency units in existence they automatically lower the value of the existing units. Gold is not going up, paper currencies are being systematically debased by excess printing to try and kick start the current failed system. We are now heading from a credit crisis to a currency crisis that will involve all the major western currency systems. This has already begun and both Russia and China are reducing their exposure to US treasuries at an accelerating rate. We are heading into a hyper deflation in paper currencies and the only way an individual can protect against this is by changing their paper for hard assets. Gold is the ultimate hard asset and will continue to appreciate at an ever increasing rate against all the paper currencies. We are heading into the end game for this latest attempt at unbacked paper money. It has never worked before and the horrible symptoms that we are all now experiencing are the result of this latest experiment with unbacked paper money. Don’t mind Buffett or any of these paid for banker spokesmen. Gold and silver are doing what they have always done that is to protect people from the currency collapse that is just beginning.

  24. In the USA the only businesses that would get funding would be ones that donated to Obummers campaign. Our politicians think that capitalism is when the govt wants a certain outcome (electric cars, solar panels, wind farms) all they have to do is throw money at it and let one of their large donors/investors pursue this idea and get a govt grant to fund it. Liberals don’t understand that a great business idea will attract qualified risk funds and won’t need govt assistance. Keep the govt out of business. Who will be the politician that approves these ideas?

  25. StephenKenny

    One of the difficulties that we have to get over is that the financial services sector has moved on from such mundane activities such as lending to businesses, and factoring. They are just not particularly profitable activities – I mean, not profitable in the sense of tens and hundreds of billions of $ a year in bonuses.
    The business model that they had was known as ’363′ – Borrow at 3%, lend at 6%, be on the golf course by 3pm.
    That’s 100% markup minus defaults, so a nice business, but not one that will make you rich by Tuesday fortnight. So they invented all the non-wealth creating nonsense under the broad heading of “financial innovation”, and have created a wealth disparity greater than any time in the past few centuries – greater even than the times that Jane Austin wrote about.

    Until the people in the financial services sector remember what it was that their companies are there to do, not much is going to happen. Given that we’re expecting people to make themselves poorer, just as we are with the public sector, it seems to me self evident that they are going to warn of the end of the world before moving.

    It’s not an economic problem now, it’s political.

  26. Adam Byrne

    The Celtic Tiger.

    Talking Down The Economy.

    The Soft Landing.

    This Time It’s Different.

    We All Partied.

    We All Went Mad.

    They Had Testicles EveryWhere.

    Of Systemic Importance.

    Comical Lenny.

    We Are Where We Are.

    The Green Shoots of Recovery.

    We’ve Turned A Corner.

    It Can Never Happen Again.

    http://www.bbc.co.uk/news/business-17069462

    • Adam Byrne

      One question I have:

      If the ECB is pumping in billions now but there seems to be no sign of inflation, or not THAT much (and the Germans have got over their ‘cultural’ fears) so the debts can ‘be inflated away’, then where is the downside?

      Of course, this is a short-term, specific question.

      As you may have gathered from the previous (attached) post, it’s my opinion that it’s obvious that the whole charade of ‘capitalism’ (as we know it) is doomed.

      I have been learning about Psychic Prisons in my Organisation Theory and Design Class.

      At this point, I may posit that Capitalism itself is a form of Psychic Prison. Any takers?

      But please don’t disregard the specific query about the impending (or lack there of) prospect of inflation.

      Thanks,

      Adam.

      • redriversix

        Morning Adam

        I wonder is the lack of inflation more proof of the level of debt out there as the “new” money released is simple going in to a black hole of debt , thereby not effecting daily living ?

        • StephenKenny

          I’m not sure I quite agree with that. I see it like this:

          1. During the Tiger period people world wide borrowed tens of trillions and spent it on things that not only did not encourage wealth generating enterprises, but encouraged skills and businesses that were dead-ends – e.g. excessive constructions, marble bathrooms, granite kitchens, high cost public sector, etc
          2. This gave everyone in the western world a particular standard of living.
          3. They stopped borrowing, and so stopped spending
          4. In the name of Keynesian economics, governments took over the borrowing and spending.
          5. This, to some degree, maintained the business and economic structures that had been created during the Tiger period, and, to some degree, maintained the standards of living of those in work.
          6. This has stopped the business and economic reorganisation that is necessary, from occurring.
          7. This is where we are now.

          So I agree in part, but I think, and have always thought, that the business and economic structural side is the key to this period.

      • Mark Walsh

        Adam, your question regarding why the increase in the money supply (M1,M2 & M3) not having an inflationary impact in prices is valid one.

        Here’s my personal view. I reserve the right to be wrong. :-)

        The purpose of ECB 3 yr LTRO (Long Term Refinancing Operation) is to inject money (at 1%)into the commercial banks across Europe whom in turn buy their nations sovereign bonds at say 6% yield. Thus, the commercial banks earn a 5% spread from the purchase of their own governments’ bonds.

        This is Quantitative Easing by another name. Quantitative Easing is ‘money printing’ but best described in this instance as money specifically created for Gov Debt/Bond Holder repayment.

        This new money does not see its way to Main St. The 6% interest and full principal repayment will.

        All LTRO/QE policies debase currencies, absolutely.

        We are in the middle of a deflationary spiral throughout the Eurozone. So far we’re witnessing price decreases in Main St shop windows.

        However a ‘tipping point’ will be reached where the policy of the EU printing it’s way out of debt will ignite high/hyperinflation.

        It really is a lose-lose situation in its current structure.

        The order of current and upcoming events:

        (a)deflation – compliments of austerity

        (b)inflation/hyperinflation – compliments of LTRO/QE policies

        Of course, Economists nationwide will differ greatly on effects and outcomes on LTRO/QE/1% Interest Rate policies.

        “Doctors Differ And Patients Die” -My money is on Dr David.

      • Hi Adam. Very intersting

        “We cannot just remodel the prison. No, we’ve got to get out of it.” W. Edwards Deming.

        http://psychicprison.blogspot.com/

        Also relevant is the first chapter of The Power of Now by Eckhart Tolle. Our society is full of potential mind prisons for the unwary. The church, politics, the media, the friends we choose etc

        If we were to rely on these institutions for our happiness then we would be on a hiding to nowt. Only our minds can free us and by mentioning Psychic Prisons you are doing people a service… those that are not too lazy too look it up that is

  27. bonbon

    Just in case some here do not fully understand Germany’s position on the EFSF have a look at this :

    Desperate Bankers Eyeing German Savings

    Faced with the failure of all political attempts to get the EFSF leveraging machine going, and with the uncertainty whether, and if so, with what super leveraging capacity the planned new bailout machine ESM will go into effect by mid-2012, the desperate bankers of Europe are grabbing for another straw: in an obnoxious move, the Federal Association of German Banks published a survey in Frankfurt yesterday, claiming that Germany could easily bail out all of the Eurozone, with its enormous private savings of 10 trillion euros. The 1.5 trillion in private debt deducted, this leaves 8.5 trillion for the super bailout that would end all headaches, the survey says. Their big problem is: nearly all of the trillions is not available in cash, but deposited in bonds, real estate, gold, and other things.
    ——-
    LTRO? Only an interim.

  28. bonbon

    The Pope Exposes the Financial-Media Complex that “Dominates the World”

    Speaking to seminarians in Rome, Pope Benedict XVI blasted “the power of Evil in finance and in the media, two major powers which in themselves are good, but can be so abused as to become often the contrary of the real intentions.”

    “Surely we need information,” Ratzinger said, “but the power of appearance, an appearance that replaces reality itself, becomes more and more powerful, and man does not see reality any more.” At the end, “the virtual world becomes truer and stronger.” Instead, “we want no appearance, but truth, and this gives us real freedom.

    “Today we see how the world of finance can dominate man. Possessing and appearing dominate the world and enslave it.” This, because “the world of finance is no longer an instrument to promote the welfare and the life of man, but becomes a power that oppresses him, like worshipping in Mammon the false divinity that dominates the world.” The Pope said that Christians must be “non-conformist.”

    Observers describe the Pope’s statements as a reaction to recent media stories involving some Cardinals accusing other Cardinals of plotting to kill the Pope.

    If that is true, Ratzinger has raised the stakes in connecting evil media campaigns to the financial powers that are destroying the world, and implicitly calling for finance to become again “an instrument to promote the welfare and life of man.”

  29. bonbon

    Who Is the Bottomless Pit? Greek President Attacks Germany, Netherlands, and Finland

    Following comments by German Finance Minister Wolfgang Schäuble that Greece was a “bottomless pit” and other derogatory remarks, Greek President Carolos Papoulias in a speech at the Greek Defense Ministry slammed the Germans, Dutch, and Finns.

    “We all have a duty to work hard to get through this crisis. I will not accept Mr. Schäuble insulting my country. I don’t accept this as a Greek. Who is Mr. Schäuble to insult Greece? Who are the Dutch? Who are the Finns? We always have been proud to defend not only our own freedom, not only our own country, but the freedom of Europe.”

    Schäuble was taking a leaf out of Carl Schmitt’s Notstand Klause (Emergency Rule by Hitlers Judge), which of course does not exist in the Greek Constitution, when he called on the Greeks to form a technocratic dictatorship, saying that after the technocrats have completed their work “the democratic process can resume with the effects that we have all seen over the last few decades.”

    Even supine Greek Finance Minister Evengelos Venizelos, hitting at those wanting to throw Greece out of the euro, said: “In the euro area, there are plenty who don’t want us any more. There are some playing with fire, domestically and abroad.”

    Of course, it is not the Greeks who are not able to “deliver” their pound of flesh, but the rest of the euro countries who have not come through with their end of the bargain. According to {Athens News}, there is yet to be a final agreement on guaranteeing the funding of the European Financial Stability Facility, of which part is the Public Sector Involvement, where bondholders are supposed to accept a haircut.

    The new bailout would amount to EU130 billion, of which EU93.7 billion will go directly to the bondholder banks that are supposed to be part of the so-called Public Sector Involvement. This money is to come from the EFSF, for which the other Euroland countries have yet to ratify the necessary changes. The EFSF itself lost its triple A rating last year because of questions on when the individual countries would have the capability to bail out their own bankrupt banking systems.

    In fact, the Moody’s rating agency put 114 European banks — including the Royal Bank of Scotland, Barclay’s, Lloyds Banking Group, and HSBC — on review for a downgrade, citing the “prolonged” impact of the euro crisis.

    • Malcolm McClure

      The idea of “Plucky little Greece” may have originated with Lord Byron but it became common during the Greek war with Turkey about Crete in 1897. A contemporary American report wrote the following:

      “At last Greece, weakest among the nations, a mere speck on the map of the world, rose with a spirit worthy those who humbled the Persian’s pride, and declared that people of Hellenic blood should no longer be butchered to make a hoodlum holiday. Yet while an electric wave of joy swept round the world and millions prayed heaven’s blessing on fair Hellas, the “ConcertofPowers” –may its name be anathema forevermore! –demanded that she withdraw her troops and let the slaughter proceed.
      Why? Because the money- lenders of London and Berlin, of Paris and St. Petersburg, who have long been bleeding the ” Sick Man of the East,” feared that the brands of war would depreciate the value of Turkish bonds! What was the massacre of 100,000 Christians in Armenia and Crete to the loss of a little coin?”

      We do need to learn from history sometimes.

      • redriversix

        Agreed Malcolm.

        I believe history repeats itself and we should always study history to educate ourselves , unfortunately Man seems to prefer to continue to make mistakes then try and learn from others.

        Best
        RR6

      • bonbon

        You mean the Ottoman Empire, I presume. Not Ataturk’s modern republic.
        Britain drew lines in the sand, Syskes-Picot after carving up the Ottoman in WWI, then attacked Turkey with France, to be whipped by Ataturk. Kamal had to first handle the breakup of an empire, then an imperial attack.

        This is modern Turkey. The Grey Wolves (in NATO) might have tried to undo this, and it looks like they were cleaned out a couple of years ago.
        I wonder what Athens thought about that. Who now will decide defense policy?

  30. Grey Fox

    Back to the article and I don’t claim to be anything other than an ordinary Joe Soap, but my understanding of a viable business is one which purchases a widget for 5 euro, mathamatically arrives at the conclusion that it must sell the widget at 10 euro in order to pay wages, taxes, advertising, transport etc. costs and eventually see a residual profit of maybe 5 – 10% which can be retained in the business to fund growth.
    Hearing businesses state that they must be able to borrow in order to maintain themselves in business doesn’t add up to me, other than an initial borrowing based on a sound business plan in other to get started I don’t see the requirement for continued borrowing, this indicates a business which is not carrying itself, “pay as you go and if you can’t pay, don’t go”. Remember also the bank is the entity who decides who will receive credit (borrowings) and they are not, nor will not be advancing credit to SME’s for the forseeable future, they have found a way to make obscene profits without the traditional methods, as illustrated in previous posts and no amount of Government drivel is going to change that, so if you are a small business dying on your feet through lack of credit facilities, pull the plug now and maybe try to re-invent yourself with a self sustaining model, maybe by a downsized model but don’t sit eating up retained profits in the hope credit will flow again because this is Einstein’s ” doing the same thing over and over again and expecting a different result”.
    Stop dealing with the banks altogether and let them off to conduct business the “363″ way, like any other irritating annoyance they will shrink, die eventually.

    • bonbon

      Economics based on Adam Smith’s Wealth of Nations – buy cheap, sell dear – is exactly what broke the economy.

      Even worse is German finance minister Schaeuble’s housewife budget finance applied to Greece.

      One cannot use “intuition” or “personal experience” n these matters considering the catastrophic results.

      The buy-sell mantra forgot production. Production means research & development, something neither Adam Smith nor Schaeuble’s “housewife” ever had the slightest inkling.

      Most important production needs transport, power – infratructure.

      The banks must be split – we need a working commercial banking sector, and that means Glass-Steagall, not moralizing, imploring “trust us” notions.

      So to imply an economy is the “sum of businesses” needing micro-credit flows is not true.

  31. redriversix

    Greyfox

    Credit is a product sold now by what only can be called organised crime.

    I agree , dump the Banks and watch them wither and die………..Just like Greece will or is having a revolution and they will leave the Euro then maybe other Countries will see that they too can leave , like Portugal , Ireland and Spain, revert to their own currencies and live again.

    This Criminal Organisation, Trioka EU,IMF,ECB is a broker for Banks to keep pumping money in to these Countries which they have to pay back by destroying themselves from the inside out.They do not want Countries to leave now because if they do it will cause a domino effect and their corrupt house of cards will collapse.

    The entire thing is now a permanent governance of crisis to keep people and governments in a constant state of fear.

    Joan Burton again attacking the weakest, yet growing group in our society , those on social welfare and needing help and yet her own Government is on life support and welfare from these organised criminals.

    If The countries continue to impose these austerity measures knowing we cannot repay this money they will go after our Natural resources,that is the end game unless someone acts and I think Greece is the one who will lead the way for democratic European Nations to stand up and walk away from this Ponzi / Pyramid scheme….

    Best
    RR6

    • bonbon

      I keep hearing “end-game”, ponzi, and “natural resources. Where is this coming from, as they do not show the reality.

      What’s driving the madness is an intangible, not natural resources. For instance Iraq was pilloried as an oil-grab. Not the truth.

      An Empire is an intangible, now threatened by resurgent nation-states even though badly damaged. Theodorakis and Glezos are a deadly threat, laughed at by “natural resource” obsessives. Part of this intangible is an insane banking system which obsesses “money”, gold believers.

      How is it that the movers in this mania do actually believe in an idea and the supposed opponents counting pennies (even trillions) and weighing dirt.

      That is why it is not stopped. Glass-Steagall is an idea feared most by those evil-doers who do actually believe in an (evil) idea. This is why OWS is entertainment for Wall Street.

      • redriversix

        Empires need resources,natural or otherwise.Iraq was a resource war as is Afghanistan and Libya.

        It is all about control and reduction of freedom.

        If a a financial war is too crude for you ,BonBon because of your academia that does not detract from the simple fact of what is going on………….

        • bonbon

          Fact it is going on. The DRIVER is an idea, a truly evil idea over generations. It is more truthful to go after this, and the real importance of why opponents do not believe in an idea which explains their helplessness.

          We are brainwashed to disparage ideas as being “academic” – listen to Michael D.’s attack on “utilitarian academia” in the service of this brainwashing.

          Sadam thought by burning 500 oil wells he might discourage the attacker. Then most production/refining was destroyed. The Afghan war started with the Taliban against the Red Army, and now Obama has an alliance with Al-Quaeda. Impossible to understand without the idea of empire. Syria was supposed to follow Libya with public softening up by the murder of captive Ghadafi. This has been delayed. Iran, next, leads to Russia, the real opponent to empire, never defeated.

  32. coldblow

    Good article. Unless you believe in imminent Doomsday (admittedly not an impossibility) then the recovery has to start somewhere.

    • bonbon

      “start somewhere” spontaneously (if fed credit)?

      Cannot work. There must be a directed intention to a science driver economy, a conscious community of opinion. Von Hayek codified the somewhere-somehow as LSE doctrine today. The even worse “one must break the existing order for innovation to occur”, is Schumpeters “Creative Destruction” – standard fase of the Economist Magazine. Sure they broke the economy, now expect innovation to rise from the ashes?

      • coldblow

        Well, don’t disagree with you although I can only guess what a science driver economy is and scientists are as fallible as the rest us, albeit probably more deluded in their world view. And we already have a conscious community of opinion, just that it seems to be wrong about most things most of the time. Creative destruction is presumably just another BS phrase, although dangerous in its seductive simplicity and an opportunity for the ruthless to con the naive or the idealistic. But in the end, you’ve got to eat…

        • StephenKenny

          I don’t think that there’s really much wrong with the idea of creative destruction, but like every idea it can be misused and abused. It merely describes the commercial side of the process whereby a technology is born, lives, and dies.

          Kodak is quite apposite at the moment – a ground breaking hi-tech company 100+ years ago, and now being destroyed by new technologies. No one, I would think, would argue that it would be a correct use of government resources, or of a regulator’s time, or even wort while, to save Kodak by, I don’t know, banning SSDs in cameras, or image sensors.

          Schumpeter was really just describing this process.

          It has the same problems as the idea of ‘survival of the fittest’, or ‘natural selection’, in that it is impossible to say, in advance, what the criteria are i.e. what ‘fit’ means, in any particular circumstance. There is a lovely example I heard years ago describing this:
          Hundreds of millions of years ago, in the sea, there were two little creatures. They were biologically closely related. One of them could only go up and down, whereas the other could also go back and forwards and sideways. It would seem clear that the second was the ‘fittest’ and would therefore be ‘selected’. It wasn’t. The first came through the evolutionary ‘selection’ process.

          Of course many people have an axe to grind, and misuse these ideas in support of what they want.

        • bonbon

          I have personally seen Schumpeter in action, and believe me it is not “descriptive”! It is an active management policy, explicitly done in the wild-eyed belief that something wondrous will rise from the deliberately smashed rubble. Utter insanity that no reason penetrates. The “innovative gale” ostensibly a “natural process” becomes the exact opposite in Schumpeter-hands. The LSE Economist mag pontificates this. Watch out for management that reads Economist! They are a kind of suicide bomber!

          • StephenKenny

            What you have seen is management policy using the name Schumpeter in an attempt to give credibility to a policy. This would only fool those who wish to be fooled, or the extremely foolish.
            It wouldn’t surprise me one bit that the Economist magazine would support this sort of thing. It is, in my view, extremely foolish.

            Schumpeter’s ideas were not a a model for prescribing policy, as social systems (and economics a social science, whatever the quantitative folk may wish to believe) are far too complex for the sort of predictions that any such policy would imply.

            Would Kodak management have thought about closing down film manufacturing in the 1960s , on the basis of a policy that “something better would occur”. A few decades later they refused the see the writing on the wall when it was in 2,256 point, or at least their management systems – their corporate DNA – was such that they were unable to do anything about it.

        • bonbon

          Not true. I raised this issue in an informal chat and as I suspected everyone knew exactly what was going on. The ostensible opponent (workers council) turned out to have named the successor “phoenix form the ashes” firm exactly after Schumpeter! In other words this theory guaranteed management and workers reps. were arm-in-arm, a very clever trick. I brought up Sombart who originated the cliche, a true nazi – They are still hiding under tables! Now the Economist Schumpeter Column propounds this and politicians, management have an “establishment” cue for destruction, privatization. Look at the Greek privatization wave – 10 times faster than the DDR Treuhand!

          • StephenKenny

            It’s unlikely that anyone, except for the people that you talk to, would dump a perfectly reasonably running company for the “reason” of waiting for a phoenix to rise from the ashes.
            There are a number of reasons to “close a MyCo Inc” on Friday, and open “MiCo Inc” on Monday. Debts are the most common, unwanted shareholders is another (although that is illegal), unwanted employment contracts is yet another (although that is rarely admitted to beforehand).

            When a troubled company is in a position such that it can be materially improved by breaking contracts, of some sort (debts, leases, etc) it can go to court, which is there to arbitrate on these things, and essentially ask to renegotiate the contracts. The court has ultimate power in contract law, so can, in some cases, turn a failing company into a successful company.

            The Schumpeter argument really relates to dying business models, antiquated methods, poor management, and systemic things that cause a business to go from successful to unsuccessful. This generally happens without them changing, while the world changes around them.

            Schumpeter was not talking about corporate tactics, and I don’t care one bit what the wretched Economist magazine says.

          • bonbon

            I simply related what happened and is happening. Unlikely is simply personal experience probability.

            Have a look at Sombard’s thesis, and Schumpeter. This being used.

          • bonbon

            Interesting on DT today, AEP refers to the “young Schumpeterians in charge of Portugal”.

            Descriptive? Portugal is about to be Schumpeter’d!

  33. Juanjo R

    David,

    ( and everybody else )

    This is off topic but Namawinelake’s got a good little analysis piece on that 9% of all mortgage in more than 90 days of arrears statistic in the papers at the moment.

    http://namawinelake.wordpress.com/

    Theres avery interesting comparision with UK figures there too.

    I did my own tables on mortgage info here a few years ago and what figures I came up with suggested that it was speculative mortgages, not so much homeowners, could be the ones in greatest difficulty now.

    • stiofanc02

      Juanjo, you dont know what you are talking about, so perhaps you should not post here any more.
      Buy some tickets to Primetime or Nightline and talk to those who are more or less on the same page as you……,,,OK Jaun? Puulleeease.

  34. gizzy

    Nama is spending 1 million a day on expenses with no clear strategy.The si called Pillar Banks are a long way from fixed from a risk asset, funding or long term viability perspective giving their huge cost bases.We the taxpayer have just fixed the capital issue for them. There will be no arrival of foreign players to sort it and those foreign banks that are here will continue to downsize and call it refocussing. This guarantee scheme is a token gesture and really is throwing a peanut at an elephant.

    David please look deeper and give a holistic view of the Banking sector includind Nama.

  35. Grey Fox

    If you have a puncture, trying to pump in more air than is escaping may work for a while but the hole continually gets bigger until you can no longer match the air going in with the air escaping. What you have to do is go back and fix the puncture before you re-inflate the tyre.
    Simple analogy…simply applied
    PRESS THE RESET BUTTON NOW

  36. Harper66

    http://www.bbc.co.uk/news/business-17075011

    “Iceland debt ‘safe to invest’ after ratings upgrade”

  37. Malcolm McClure

    It looks a bit more likely that Greece is going to pull through this crisis and remain inside the Eurozone. Reuters say: ” Greece’s cabinet approved Saturday a final set of austerity measures sought by the EU and IMF as a condition for a 130 billion euro ($171 billion) rescue package, raising the chances of a deal next week to avert a chaotic default on its debt.”

    I heard a programme on Newstalk this morning that revealed a new dimension of Greece’s celebration of Ireland’s earlier efforts to gain independence.

    It seems that a song called ‘The laughing boy’ was written about Michael Collins by Brendan Behan for his play ‘The Hostage’ in the early 1960s. Behan’s poem was set to other music by a Greek composer and became a unifying anthem for Greek efforts to restore democracy. The military junta was replaced by a democratic government in 1974 and the song is still a great favourite amongst the Greek people.

    Ireland and Greece have a great deal more in common than excessive debts. They deserve our support, whatever happens on Monday.

    • It is the only thing the ruling plutonomists would have to be afraid about seriosuly.

      Solidarity amongst the people across Nations standing up against the debt/war drivers.

      Debt as a disciplinary instrument now is used to beat entire nations into submission.

      More to come of that, no doubts!

      • Grey Fox

        When has any Nation of People ever actually submitted.
        Submission simple does not happen, what does happen is appeasment, co operation in exchange for money or safety.
        Submission is only required where one person or entity is trying force their view or rules on another person or group of people.
        Of all the Nations of Europe we Irish know more about this than anyone, is that why we are so quiet?? is it because we expect “someone” to try to dorce us into submission?? after all it has been this way for centuries.
        Is the reason why Greek’s are so vocal because they are not used to the submission concept???
        When you think about it, this “crisis” is affecting the normally oppressive nations, UK,Spain Portugal etc.. does it have to be one of the traditionally “strong” nations who says enough is enough before someting miraculous happens???

  38. Land n Gold

    To think this guy is almost laughing stock when spoken about on the last word “Ron Paul”

    How is this for forward looking vision?

    http://www.youtube.com/watch?feature=player_detailpage&v=zGDisyWkIBM

  39. Land n Gold

    Still think we the(PIIGS)are the worlds economic problem, we aint seen nothing yet…

    http://www.jsmineset.com/2012/02/18/tell-a-lie-big-enough-loud-enough-and-long-enough-and-the-sheeple-will-believe/

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