September 16, 2013

Who will pay for bank losses?

Posted in Banks · 105 comments ·

This week, let’s consider the probability of another banking crisis. Mortgage defaults – both owner-occupier and buy-to-lets – could overwhelm the banks’ fragile capital buffers, meaning the banks will need more capital in the next few years. Because the Irish state is bust and has no capital to give, this new capital can only come from two places. The first source is the European institutions (or the taxpayers of the richer countries). The second source is the depositor in the Irish banks.

What happens if the taxpayers of other countries don’t feel like giving the Irish banks cash?

In such an event (which is quite likely) the capital will have to come from a smash and grab exercise on Irish deposits. This is exactly what happened in Cyprus earlier this year. The precedent is there in black and white. More significantly, it is a precedent hatched and copper-bottomed during the Irish presidency of the EU. We can hardly orchestrate a depositor raid from Dublin on Cypriots and then cry foul if the rest of the EU suggest that this is exactly what we have to do to ourselves in the event of a new banking crisis.

There is another solution to a new banking crisis. It is to leave the euro, beef up our own Central Bank and ask it to inject new Irish punts into the banks to avoid a deposit raid.

For many, this would be a step too far. But it is only a step too far if we can avoid having to make the choice.

If faced with the prospect of robbing deposits to keep the banks afloat or reverting to our own currency, what’s the likely choice of politicians who want to be re-elected?

It might not come to this. Germany may bail us out. But there has to be a reasonable doubt about this outcome.

Given that “bail-ins” (robbing deposits from today’s voters) are the new bailouts (lumbering future voters potentially with more debt), a deposit seizure looks possible.

However, the future is brighter if we get strong economic growth over the next few years which raises people’s incomes, reduces their debt-to-income ratios and, in turn, reduces the levels of mortgage defaults. But who knows whether this will happen?

One thing is sure: the present policies followed by this administration, overseen by the ECB and the Troika, are highly unlikely to create the environment where people like me – who employ others – are encouraged to employ more workers.

Let’s now examine the macro-economic policies of Ireland with a view to assessing whether they will facilitate growth. Second, let’s see whether growth will be sufficient to prevent another mortgage driven banking crisis. Third, let’s consider the options in the event of another banking crisis and finally, let’s examine what choice is likely to be made by democratic politicians who want to be re-elected.

How many times over the past few years have you heard the battle for the survival of the Irish economy referred to as a “war”? It is probably a fair description of the ongoing fight for competitiveness in an increasingly globalised world where everyone is in competition with each other, all the time, everywhere.

But while it may be a fair description of what is going on in the global economy, surely a country wouldn’t enter into such a battle with no artillery. Yet this is what Ireland is trying to do. The main two macroeconomic weapons open to a sovereign country that intends to grow are: (A) monetary policy – the power to raise and reduce the interest and exchange rate; and (B) fiscal policy – the latitude to raise taxes or expenditures and vice versa when you deem it necessary.

It is clearly understood that a country in recession should reduce its currency and interest rates, and should borrow when the economy is weak and pay back when the economy is strong.

These weapons are what are commonly understood to be the heavy artillery of economic policy, essential if an economy is to have a hope in this global struggle. In addition, if there are huge debts and a broken banking system, the country should have its own central bank where it can “park” the debts at no cost until it is strong enough to consider paying them back.

But Ireland has given away both monetary and fiscal policy and we don’t have an independent central bank. We have no weapons. We are turning up to a gunfight with a penknife and expecting to win.

Now we all hope that the economy will grow, but hope is not a strategy and it tends to leave us with just that, hope.

With no economic tools, how do we expect the economy to grow? Well we could hang on the coat-tails of others, but with our major trading partners growing fitfully at best, there is no prospect of an export surge sufficient to drive general incomes up or general unemployment down.

And if we don’t grow, arrears will rise and so too will defaults on mortgage books. Let’s just look briefly at the numbers.

According to the Central Bank, by the end of June this year, there were 770,610 owner-occupier mortgage accounts to the value of €109.1 billion in the country. The total value of those who were more than 90 days in arrears was €18.6 billion. This is 16.6 per cent. There were also 148,529 buy-to-let mortgages in the country with a total value of €30.6 billion. Of this, 30,326, or 20.4 per cent of the total, were in arrears of more than 90 days. This is more than €6 billion.

Thus the banks have more than €24 billion of mortgages “in trouble”, and no doubt more to come as we work through the mortgage solution process in the months ahead. Not all of this money will be lost, but a significant amount will. Yet only €9.5 billion has been provisioned to cover this. So where will the rest of the capital come from?

Maybe the Germans will feel generous and pay for this, but on recent evidence, that particular parachute might not open. In this case, the money will have to come from you, the depositor in the Irish banks. Or it could come from the totally logical next step of reinstating the Irish punt, allowing the Irish Central Bank to inject the capital in punts and that part of the crisis at least, would be over. The likely fall in the punt would also make Irish industry, agriculture and above all the multinational sector with Irish labour inputs phenomenally competitive.

The next banking crisis, itself a product of too much debt, not enough growth and insufficient capital, is likely to cause another banking crisis. The government knows this, which is why it secured another €10 billion loan the other week from the Troika. But that new loan is simply borrowing from tomorrow to pay for yesterday and it does nothing to improve the growth and competitiveness position of the economy.

Big choices lie ahead for the political system. And if it is the choice between robbing ordinary people’s deposits to pay for the banks or reinstating a sovereign currency, the choice will not be that easy to make.

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    • jackkelly

      What are doing with the 40-80 billion in us treasury debt that the Irish government owns?

      On the officials treasury web page, we apparently increased our holding in the last 2 years and are now the 7th largest holder of us debt.

      If it wasn’t so serious, it would be laughable!

      • rebean

        Which debt is that ?? is it the debt to run the country? ie the 15 billion a year we overspend ?? . there is so much debt I forget which is which sometimes. Where will it all end ? 5 years on and I read the same stuff I was reading when the whole shebang collapsed. I got fed up posting on the forums because it never changes. There seems to be no DDay , just loads of waffle in govt and grab as much as you can.

  1. atchman

    The choice is simple, rob the money from savers as these idiots didn’t buy property like the clever the ballsy guys, …phfff losers!

    • uchrisn

      all of the offical reports would tend to agree with you. herding was a cause of the crisis and has been also an impediment to recovery. democracy should not be 2wolves and 1 sheep deciding whats for dinner

  2. We represent 1% of the population of the EU. We have no real power other then becoming a nuisance. Cyprus happened a few weeks after Lagarde was in town and a week or so after the Irish government pulled the bank guarantee. All of this is theatre and we are pawns and our leaders the puppets. Irish banks are not capitalised sufficiently.

    Here is how it might play out; we will have a bank bail within 36 months. The burden will be split between EU, Irish State and depositors. Depositors over 100k will take hair cuts of 10 – 35%, they will be given shares in the bust banks as recompense. Most voters will not feel the pain as they have already be impoverished. The wealthier will be attacked, so it might fly politically.

    The problem is that this will flag an attack on property rights (biiiig mistake in a capitalist society) and will affect every single capital allocation decision thereafter. Why invest in a company, why invest in anything? The second you deploy your capital the government will be given an option to either tax, inflate or confiscate your assets to zip. The first two have not worked, so hey lets go for the third.

    It will lead to a series of mini bank runs across Europe. Whenever a fiscal target is missed or a bank looks frail, a run will start. Europe is eating itself alive. We are on our own and we need to start thinking like as such. Bring on the Punt Nua, unfortunately it remains our last option.

    These thoughts are my own and not my employer.

    Disclosure: I work for Amongst other services we buy, sell, store and ship precious metals such as gold. They are considered to be a safe haven asset by many and not so by others. We have warned and warned of this for years. Gold is not for everyone so seek independent advice, and there are no guarantees regarding its price in the future. It is not regulated by the central banks.

    • Irish PI

      Gold will be the first a greedy broke Govt will be on like flies on freshly laid turds.
      Personally,I’d suggest shotguns and as much ammo as possible as a good investment.At least if you have gold and a gun,you might at the end of the day still have both and a Govt wary of taking either.Whereas if you have gold and want to buy my gun.I might end up with both your gold and my gun! :}}

      It amazes me that not one effort has been made by the PIIGS to get together and relaise we are all in the same PIIG pen so to speak and that it might be prudent that we start cooperating with each other to work out the best deals going in Brussells and Frankfurt.
      Or is this beyond the capabilities of our dear leaders too?
      YTo actually engage in any meaningful diplomatic actions on an international level??

      • michaelcoughlan

        “Personally,I’d suggest shotguns and as much ammo as possible as a good investment.At least if you have gold and a gun,you might at the end of the day still have both and a Govt wary of taking either.Whereas if you have gold and want to buy my gun.I might end up with both your gold and my gun!”

        Preaching to the choir. Amen.

    • rebean

      Well people can move their money to the UK Can they not or will the UK be treating depositors the same ??? I doubt it. Why would anyone invest in Oirland anyway its been turned into a kip.

    • Tony Murray

      If you were considering opening a business two things you begin to think about is (1)Market: to whom do you sell your product(s)? (2)Competition: can you product a product that can compete with the next best alternative?

      On the first of the two: Ireland is a extremely small pond. Irish business needs access to the wider market space to flourish. Europe, Asia, Africa… Export is a key pillar, one that is keeping the economy afloat (presently it is one of a few things registering positively in GDP terms.

      What would the overall impact be if there were a swift withdrawal from the Euro Zone. Would access to this market place be facilitated, perhaps, but at a punitive price making any competitiveness gained from currency devaluation null. This captured my second point. Competitiveness. Maybe Europe would not like ‘best boy’ leaving class early and may teach him a harsh lesson – whatever they may amount too…

      There are other likely losses attached to Euro withdrawal, free travel, passport, driving licences. Would all the citizens of Europe be compelled to return to the motherland. Any Ideas anybody as to the broader picture.

      To summarize, it seems best to rob the depositors. Take a euro a day and they may not notice quickly enough to transfer their money elsewhere.

      Tis a grand picture, the future Ireland. We’ll all be driving Green Fiat 127 lookalikes, these will be manufactured somewhere down in Kerry and have a shamrock on the bonnet. The Players Factory will re-open its gates,start producing own brand cigs. And agriculture will re-shape, produce all-sorts.

      An the best bit.There will be dancing in the evenings across the villages of Ireland. Grand…

  3. Nouveau Pauvre

    Hi David and readers,

    I sometimes watch Max Keiser on and he has a guest called Reggie Middleton who has a lot to say about the European Banking mess and Ireland in particular at

  4. BlahBlah

    What do you think Deposit Guarantee Schemes are good for David?

    You better chose your bank more carefully now before you lodge more than 100,000 with a reckless bank just to reap a few more euros on higher interest rates.

    • ps200306

      Why are you confident that only reckless banks will be hit? The government can stick its paw into any account and will presumably go where the money leads. Pilfering from an already bust bank would be pointless.

      • BlahBlah

        I can’t but who knows. However I know for a fact that everything above Deposit Guarantee Scheme limit will be toast in the case of bank fail. BTW that’s how banking used to work.

        why do you think they paid the Anglo Irish disciples 4% and more interest on deposit accounts? The depositors took a risk and the “bank” pays a premium.

        Unfortunately FF gave them a free ride at the expense of the taxpayer.

  5. The Government have socialised Bank Debts now they will socialise peoples engagements with Banks and that means they will know everything about you before you do .

    Attach Attach Attach Attach …………..Attachment ORDER ….and now you have nothing.

    • rebean

      Well I think we might have a new violent party of the people that will take down some institutions at some stage. Dont count on the Irish electorate to be fooled again. I can see a huge change in the political landscape. A party that will be taking money back from the people that ruined the country might come to the fore or at least promising some goddamn justice.

  6. 5Fingers

    Back to my narrative – dangerous aggregation where fewer and fewer have taken “responsibility” for more and more of the daily running of your life by a process of offering one stop shopping.

    What David describes is the outcome of increasing non-representation of the average man in the street brought on by excessive aggregation (excessive because it is only properly controlled by the aggregrators with no regulation – when regulation was seen as unneeded).

    The other problems of aggregation is lowered employment (optimisation)and a concentration of power. So highly aggregated units like banks and centralised governments (as Ireland’s is to a grossly excessive extent) and also the EU only interact at the highest level. The small man will not be let get a word in and their ability to do anything about it is drowned out.

    David, all you are campaigning for is dis-aggregation to allow more autonomy. Metallists are doing exactly the same thing from a different angle. Indeed anyone who is trying to have autonomy is seen as an Enemy of the Federation and will be washed away by the overwhelming voice of the secular “know it alls” who have zero humility and worst of all, zero skin in the game.

    For the record, I do not favour metallism, regionalism and all that it entails in terms of local parochialism and xenophobia. But it is becoming very clear to me that unless answerability and representation is addressed, the only tactic is to run from these systems before it take you out in their inevitable collapse – and collapse they will because I see nothing that is allowing creative flair or ownership for ones assets & losses to be preserved ; more the exact opposite.

    David, it’s not our own currency that is needed, we need a properly representative Government that feels the heat of the electorate every single day.

  7. hibernian56

    Suddenly removing the Seanad makes sense doesn’t it?

    If the muinteoirs can get rid of the only possible nay sayer in town, they can do whatever their masters in Europe demand. No doubt they are all eying a lucrative retirement position in the bowels of the EU.

    To our government being seen to be “making difficult decisions” in order to please the big boys in the EU seems far more important than forcing emigration or impoverishment on it’s citizens.

    By asking us the citizens to vote on the abolition of the Seanad they are getting us to do our dirty work. Kenny et al aren’t stupid, they are however disgustingly sneaky, conniving and treacherous.

    • Irish PI

      A win/win for the Govt on the Senad abolition.Only win for the Irish people is to reform the Senad and issue it with legislative teeth.But who would had somone a loaded gun and say “shoot me if I do anything wrong!”?

    • Deco

      The Seanad is not an expense.

      RTE(Pravda) has a 200 Million Euro subsidy every year. And the government is keeping it. In fact it is giving it even more of the people’s money.

      Here we have assymetric intervention by the regime, to detriment of the intellectual state of the country.

      The Seanad needs to be reformed. It needs to be completely overhauled to bring in technical expertise.

      Why don’t the Engineers body, or the Project Managers’ body or the Ag Science body provide Senators ?

      Or what about chemists, pharmacists, medical specialists, IT specialists, the IDA.

      Instead of political parties, why not have a Senate that is composed of designate experts by the members of various technical bodies of expertise ?

      • Colin

        There you go again Deco, asking awkward questions that go to the core of the insider’s agenda. You are supposed to put your energies into something which the parasite class can end up getting their cut of. Engineers in Ireland are a class below the lawyers and doctors. Some even get their hands dirty with grease, oil and metal. Publicans are more important than engineers in ireland anyway. It doesn’t matter that engineers are wealth creators or employ people.

        Know your place. Get down on your knees and pay hommage. Solicitors need to live in a bigger houses than anyone else, you see. Get back to work if there is any for you left to do, that is worthwhile to the parasites of course. Asking intelligent questions is for people in other countries to do, not Irish people.

        • Paul Divers

          Last time you were on giving out about Muslims and got chased. Been very quiet since and your prejudices are not tolerated

          After a long silence you barge in and immediately attack a poster. Why that particular poster? Because you know Deco never replies to insults?

          It’s shocking that Deco was asking questions on a public forum. Isn’t it?

          • Colin


            Lets set the record straight Dr. Goebbels.

            I was not chased.

            I have been reading a lot on my commute to work and back about Bosnia lately, and there’s a book called Media Cleansing; Dirty Reporting by Peter brock. Have been reading it how the Western hacks were hugely biased in favour of Croats & Muslims. It attacks pack journalism, something David knows about very well.

            I have been very busy having a job, something you may not be very familiar with.

            Speak for yourself if your views on prejudices do not neatly overlap with mine.

            I have not barged in.

            It is not an attack. Read it again, I am agreeing with Deco, how you couldn’t see that is beyond me. I am sure he has seen it that way, and not as an attack as you view it.

            I hold his views in high esteem.

            It is not an insulting comment, something you are indulging in everyday here.

            It is shocking how Insider Ireland operates. Deco knows this well.

          • Joe R

            Peter Brock is a journalist and author of “Media Cleansing: Dirty Reporting”. Identifies himself as the impartial editor of a newspaper in El Paso. He is a Bosnian genocide denier and his misrepresentations were picked up on as far back as 1994.

            By Charles Lane from an article in the the New Republic;

            “Neither critics nor supporters knew that the man identified as an editor of an El Paso, Texas, newspaper had been a P.R. adviser to a group that boasts of its close contacts with Bosnian Serb leaders and of its “research and financial support to authors, journalists and academics.” Not surprisingly, the source for much of the Foreign Policy article turns out to be the Serbian regime itself. Hence the article’s many false or distorted charges. It is, essentially, a hoax.´´


          • Joe R

            And exerpt form the above on how Brock constructed the false narrative;

            “In March 1993 Peter Brock drafted a plan to save the Serbs–from the media. The P.R. strategy was published seven months later in Unity Herald, the quarterly journal of the Serbian Unity Congress (SUC). Referring to America’s leading Serbian-American lobby group as “we” and “us,” Brock urged the organization to create “an informed, operational, fully funded, fully professional” “media institute” in Belgrade. This would counter a “fanatical” anti-Serb media and “reconstruct” Serbia’s image.´´

          • Joe R

            Can we consider the story to be re-straightened?

            Listen there, Colin, there was this book written the 1920s by a bigoted little man in Germany and called “Mein Kampf´´. Maybe you should make it your next bus-time read. I´m guessing you will consider it to be a real corker!

        • Paul Divers

          Couple of links for you.

          The Bumper Book of Government Waste

          Dispatching Dispatches: Channel 4 Join the Benefit Bashers

          What’s it like having a job?

    • 5Fingers

      But are we not deceiving ourselves? The Seanad is just a waffle shop that is just as answerable to the whip as the rest of the Dail. We need a new Seanad – one with teeth.

      • Deco

        And preferably, it should have no whip.

        It should be a panel of approved experts.

        An experts selection of experts, to pronounce on issues requiring expertise. Clowns like Donie Cassidy, are not what is required.

  8. Viscount Hugh Gough

    David in his parable creates a vacuum where a choice of two must happen .In other words something must ‘Suck’. Its called Sex.

    I am reminded of the Opium Wars in China when the British who then were unable to pay in gold / silver for the imports from China because they were on the Gold Standard then decided to sell Opium from India .China then was a prosperous place and the Quing Dynasty was in power .Britain received gold for their Opium and were thus able to buy the tea and other products from China . When one of the sons of the Emperor died from an overdose the Chinese retaliated by banishing the exports to Britain .

    During this period the Chinese called it the Hunan a time of displacement .

    A great Limerick man Viscount Hugh Gough became the first global warrior at the time and was successful in all his wars all over the world .He was the worlds greatest drug pusher under the aegis of Queen Victoria and the greatest defender of the Empire only the Duke of Wellington was better.He eventually retired to Dublin at his then mansion residence in St Helens ( Radisson Hotel)Booterstown .

    My point is that at that time Britain had no gold/silver to do trade unlike other colonial powers who salvaged theirs elsewhere .They solved their problem with a new currency namely OPIUM.

    • Hong Kong was only possible due to the success in battles led by Gough .

    • 5Fingers

      Maybe Ireland’s new currency will be its assets. Not just your deposits, but your deeds, assets of all sorts and indeed your children will be pulled from under you. A new PAX Europa and the Gardai now become the EuroPol? No need for local Government?

      While it may all sound possibly better than what we have now, there will be no limit to what they decide to take from you. They in this case are the “experts” who will tell you they know better, like the economists and other wizards did during the early 2000s here.

  9. BoCualain

    “The likely fall in the punt would also make Irish industry, agriculture and above all the multinational sector with Irish labour inputs phenomenally competitive.”

    Doesn’t going back to the punt amount to the same thing for depositors. Their Euros will be converted at the value when launched but the resultant fall in the punt is the same as if the bank went in and took their money. The only differece is that the central bank is the one stealing from their savings by pumping and devaluation.

  10. Adelaide

    Open Question:

    Are Irish Prize Bonds safer than Irish Bank Deposits from confiscation?

    An acquaintance recently told me he has his life savings in Prize Bonds on the logical basis that an Irish bank, as a private institution, bust or not bust, can do whatever it deems necessary with its customer deposits as legally/lawfully it is the bank’s money (a fact not generally known). Essentially a bank bail-in is a private arrangement between two private commercial parties (the bank and the depositor)

    WHEREAS Prize Bonds are government IOU’s to its passport-bearing citizens so the same commercial capitalization logic of a bank bail-in does not apply to the arrangement between the government and its citizen Prize Bond holders.

    Firstly, the government must go bust, but with future tax revenue etc this is less likely than a private bank. Secondly, a government reneging on international bonds has an entirely different dynamic than a government reneging on its own citizens. My acquaintance feels that this arrangement is sacrosanct because breaking this citizen-to-government arrangement is nothing less than complete breakdown in civilisation. He himself would disown all governments, stop paying taxes etc.

    The more I ponder this the more attractive/secure seem Prize Bonds compared to Bank Deposits. What do you think?

    • McGoo

      In principle, your acquaintance is correct, but the rules can be changed, nothing is certain any more.

      I’m a bit suspicious of Prize Bonds in Ireland. I owned 10,000 pounds worth of UK prize bonds for several years, and won a prize almost every month (nothing big, unfortunately). Now I have about 5000 euro of Irish prize bonds, held for almost a decade, I have won precisely nothing. Does anyone have a more positive Irish prize bond story to ease my suspicions?

      >disown all governments, stop paying taxes etc.
      Which would achieve precisely nothing, apart from confiscation of his remaining assets and possible imprisonment. Better to compete in an election, it would be a great time to be an independent candidate.

  11. 5Fingers

    Exactly. And even if as David says, this would be made palatable by the fact that we now have sovereign control on fiscal and monetary policy, we are still hampered by a Government that serves EU and no one else.

  12. Deco

    Third option – like occurring in Britain – “print, guv’nr, print”.

    Actually, there is also the Irish taxpayer, who is supposedly stumping up the money for the bank “recapitalization”. And who is paying a polciy of no bondholder left behind.

    Apart from anything else, the unemployment rate suggests that Ireland is not being effecive at working itself into a state of overall productivity such that the debts will be reduced.

    The property sector is extremely optimistic that there will be a bottleneck in the economy concerning real estate.

    To be honest, the damage is done.

    We should never have joined the Euro to begin with. It was all nonsense. It was not thought out properly. In fact it was not thought at all. Some dimwits decided that we would join, without doing any analysis of the implications.

  13. Kevin Lyda

    The solution is to start finding all the gold held by the Leprechauns and then paying off our debts with that. That’s what I read whenever someone mentions bringing back the Punt.

    The. Punt. Will. Not. Come. Back.

    Give. Up. This. Pointless. Line. Of. Argument.

    The likely rise sea levels over the next century will be very expensive and risky for the Netherlands. Even to the point of overwhelming flooding defences for the country. From an engineering view, the sensible thing would be to seek out an alternative location. Work out a deal to buy land at a more sustainable location and move the country there.

    But that completely ignores reality. It won’t happen. Obviously if the country’s defences catastrophically fail and the sea consumes the 2/3rds of the country that is essentially under sea level, there will be a massive refugee crisis and essentially people will end up migrating away from there. But bar that, the solution to the Netherlands flooding problem will never be “move the country” even though if that eventuality comes the solution will be far more chaotic and terrible.

    The same is true for the euro. People will not give it up without a terrible catastrophe – and losing +50% of the value of their houses was not enough of a catastrophe.

    Real solutions; solutions that have a chance of being implemented and listened to do not make any mention of leaving the euro. Not even in passing. It’s like giving a valid cure for cancer but then mentioning you came up with it while getting an anal probe when you were captured by aliens. People will tune it all out.

    Stop it. It’s not going to happen. For good or for bad, that’s not an option.

    • 5Fingers

      Unfortunately the solution has been decided. It will be a bail-in and no skin in the game for the implementers. Game, Set and Match.

      • Kevin Lyda

        Well if it affects savers then there is an amazingly simple way to avoid being affected: move your savings. Buy a house and rent it out if you have a lot of savings. Pay down debts. Make your house more efficient to reduce your monthly expenses. Invest in small businesses. Buy bonds – they never seem to take a loss anymore.

        Having money sitting in a bank these days seems like a bad idea for lots of reasons. Bail-ins are hardly the only concern.

  14. Deco

    One of the great paradoxes of the current Irish state financial situation (banks, NAMA, various semi states inlcuded) is that it was supposed to function as a “debt servicing machine” – along lines required by the ECB, EU Commission and IMF.

    This is necessary to keep the entire Ponzi scheme afloat. It is essential to what David called the VietNAMA policy of containment. The same thing is going on currently in Spain, except the ECB is even less transparent in how they are organizing that.

    But, really, the so called debt servicing machine itself is running mad on borrowing. And this is even accounting for large numbers of young skilled Irish graduates/workers who are in Australia and Canada. And even non skilled people who are stuck on farms in Australia (where it is easier save money because there are no other Irish people around, to compete against in competitions of buying rounds).

    So, state policy is supposed to be “austerity”, financial control, and containment. Officially, the regime is about Ireland getting it’s finances under control.

    In fact, Ireland getting it’s finances under control, has become one of the cliches of the age.

    Yet, when you look at the debt figures, it is plain to see that Ireland cannot get it’s finances under control, because the debts are out of control.

    The whole thing is a load of dishonest nonsense from the officials in the DoF and a Minister for Finance who really is clueless as to what is really happening.

    The state is actually compromised in the exercise that it is undertaking by the needs of the state. It used to be that the state was compromised by the needs of the private sector vested interests, like the CIF. Now it is compromised by the need to pretend that Ahern era extravaganzas can continue. They cannot.

    To make matters worse, the elements in the institutional state who are the problem, also happen to be, (by definition often enough, by self appointment always) the declared solution to every problem that exists. And while they are at it, they appoint new problems, and provide the prognostication for those also.

    David stated last week in the SBP that the banks were still effectively bankrupt.

    Actually, let’s be honest – Ireland’s state system is still as intellectually bankrupt as it was when Bertie Ahern was in charge.

    And most people here know it. Deep down you all know it.

    • McGoo

      >intellectually bankrupt

      That phrase perfectly sums up the state of Irish politics for as long as I can remember. Brilliant. I intend to use it and pretend that I thought of it. Does that make me intellectually bankrupt too? :-(

    • Define Intellectually Bankrupt ?

      • Does it mean how someone convinces you that you are more intellectual than you are ?

        After all who made fools of themselves .

        Who ever did must be a genius …did you say Berti ?

      • Deco

        Too lazy to think about the problem, and instead opting for a PR stunt/jawboning.

        There is a serious dearth of proper analysis of the mess. Instead we have endless media drivel about meaningless minutae like Richie Boucher’s bonus. He is a muppet, he should not be in the job in the first place.

    • 5Fingers

      It is very very simple. Who making the decisions has any material loss? Answer is Zero. It’s like the dentist hovering over you and saying…relax now, this won’t hurt :)

    • Kevin Lyda

      Reducing the deficit during an economic downturn is utterly stupid. The expenses of gov’t go up during a downturn.

      Spending money on stupid things is a bad idea at any time. So by all means hunt down such expenses and remove them. But right now there’s loads of idle construction labour (or there was before it exported itself to build Australia and Asia’s infrastructure) and there are loads of things we need built in this country. We should spend money on things like this now when it’s cheaper.

      The obsession with deficits is just a passive-aggressive way of stopping money being spent on the poors. And it’s getting really tedious at this point.

      • Deco

        I don’t see any serious obsession with deficits in Kildare Street. Actually, they never care about them, until they become a problem. Until then, they allow the problem to fester.

        Unemployment benefit, is a not the problem.

        The entire state system in Ireland is filled with freeloaders ranging from Ivor Callely, to the pal of Bertie appointed to run CIE.

        In the last three decades the Irish state has driven itself away from a performance ethic, towards a busybody ethic, trying to suck out of any part of the economy that pumps blood.

        Is it any wonder that there is such widespread despair in this country ? The entire state system is not lined up against people, and some of them know it, and some of them don’t.

        And to make matters worse the people who avoid contributing, show up at events, wearing “the green jersey” of superficial patriotism, and engaging in superficial PR stunts.

  15. Pat Flannery

    I can only keep repeating the same basics (which one would never guess from reading David):

    1. Issuing banks are mere management agents for mortgage bonds.
    2. Issuing banks are not guarantors of mortgage bonds.
    3. Mortgage bondholders are not depositors and are therefore not secured by bank capital.

    All that has to happen is for the Government to enforce the bond contracts.

    There is no bank crisis, there is only a bondholders’ crisis.

    The U.S. quickly solved the same crisis using a combination of “short sales” and loan “modifications”.

    Ireland has its head up its ass. Sorry David but it is true.

    • michaelcoughlan

      Hi Pat.

      I’m not as sophisticated as you re the above but if “All that has to happen is for the Government to enforce the bond contracts” will that threaten the euro?

      If so it makes no difference as the contracts will never be enforced.

      • Pat Flannery

        michaelcoughlan: a bond contract is like any other contract, it has no effect on the currency in which it is denominated. It is no different from a contract for the sale of cattle or any other commodity.

        The fact is that if the Irish Government enforced the bond contracts it would harm Sterling more than the Euro. Who therefore is the Irish Government protecting?

        In an Irish Times article yesterday Derek Scally its Berlin correspondent wrote the following: “The
        entire euro area, including Germany, held just 13 per cent of total Irish bank bonds.”

        He also wrote: “Last March the Central Bank supplied The Irish Times with previously unpublished data showing that when the music stopped in 2008 it was Britain, not Germany, that was by far the biggest source of funding for Irish banks.”

        Somehow that never makes it into McWilliams’ columns, who is clearly shilling for Britain. The truth is that the Irish taxpayer is bailing out British investors. That is the raw reality and McWilliams cannot but know it.

        • Colin

          Don’t hold back Pat and leave us hanging in mid air. Tell us what percentage of total Irish bank bonds are held by perfidious Albion?

          • Paul Divers

            I think you know the answer wink wink.
            You do!
            I knew it!!
            I feel in my urine!!!
            You are one craft Devil Colin or whatever your name is.

          • Colin

            You better put your nappy on then Paul, who’s gonna clean up your mess? wink wink!

          • Paul Divers

            Actually I have a lovely Irish woman with beautiful creamy breasts and a rose complexion who looks after me in that dept Colin. Yum.

    • E. Kavanagh

      Modifications played a tiny part of any US “solution.” About 96% of modifications were rejected by the banks. Usual BS political ploy.
      Short sales were more useful–but of course they work by screwing people out of their hard earned deposits.

      What has worked in the US is printing money.

      • Pat Flannery

        E. Kavanagh: then I must have done the 4% that got through because I did hundreds of modifications and much more short sales. The difference between Ireland and the U.S. as far as foreclosures are concerned is that the U.S. took care of business, cleaned house and moved on while the Irish are still screwing around blaming everybody but themselves.

  16. Original-Ed

    “The state is actually compromised in the exercise that it is undertaking by the needs of the state” – Excellent!
    It’s suspended by the “defy-reality field” as it spins around inside the Bertie bullshit Todoide.

  17. westbrit

    David is correct. With the UK being Ireland’s largest trading partner a weekend conversion to the Punt would be welcome, especially as that could in all likelihood be done in a fixed exchange rate system with the UK Pound, similar to that which Scotland and Isle of Man, Gibraltar and the Channel Islands already have.

    I suspect this is indeed plan B and the groundwork for such a thing will be already in place should Dublin be rebuffed by Brussels (read Berlin).

  18. bonbon

    The argument goes as follows: We must protect the taxpayer from further bailouts so we bailin with your deposits. Brilliant!

    Switzerland has a better idea, Swiss Parliament Glass-Steagall Vote Sends The World a Powerful Signal.

    Now woul’nt it be time to ‘fess up and admit either break those banks hiving off the synthetic losses or fave total robbery, lawlessness? The Swiss alone in Europe have got it right!

    Who’s going to pay those gambling debts! NO-ONE!

    • michaelcoughlan

      “If the parliament’s will is implemented, the two large
      banks UBS and Credit Suisse will be split and trillions of
      speculative liabilities will be hung out to dry, representing a
      Lehman Brothers effect on steroids for the international
      financial system”

      The above is from your own website. Do you really really think the people in charge of the world’s financial system will willingly allow the above to happen?

      Keep banging your head of the wall in the tiny room you live in bonbon.

      • bonbon

        There is and will be no choice. The stark reality will hit the most blinkered unsound minds around. And as usual the USA will decide this, the EU is designed to prevent it from within.

        So prepare now. the “people in charge” are mostly in you mind. A noisy place that must be now that howls of rage over Obama’s utter failure paves the way for a total catastrophy for “their system”.

  19. DB4545

    I’ve asked the question before. The real Irish financial success story? The Credit Union System. Locally accountable, prudent (with a few local exceptions who went belly up with reckless lending). It’s now being centralised with local faces but a “professional” back room “management” who will control operations. Are Credit Union shareholders about to get a bail in on their deposits just like Cyprus? After all the vampires who run this little cesspit of a State have sucked the blood out of everything else.

    • Joe R

      You should try answering your own question correctly? Or maybe you should ask it genuinely.

      There is an estimated one billion of bad debt in the system.

      Plus They aren’t ‘deposits’, they are shares.

      • DB4545

        I did ask it genuinely and I wasn’t aware of the article so thank you for directing me to it. Having read the article it states that Credit Union total assets are 13.9 billion,Savings are 11.9 billion, Loans are 6.2 billion, and the Government may have to inject 1 billion (of taxpayers money)to 76 Credit Unions which are in difficulties and who are under-capitalised. The article states that there are 404 Credit Unions in total. This would suggest that the other 328 Credit Unions are in reasonable shape. Why should taxpayers bail them out? If they are imprudent let them go. The rest are doing OK. That’s what Switzerland did with some Cantonal Banks .Leave them alone, at least they didn’t bankrupt the State unlike the Banks. I’d regard that as a success story. If we had taken that attitude with the Banks what shape would we be in now? When I lodge cash in mine they call it shares, when I withdraw shares I get cash back, therefore I “deposit” cash. Why mince words unless a bail in occurs and those deposits/shares are diluted by some arbitrary ratio?

        • bonbon

          Switzerland just passed a vote in Parliament for Glass-Steagall, in case you have missed it.

          The Swiss are not fooled – UBS and Credit Swiss could destroy the entire economy and the “success stories” along with it. So why are Tigers still fooled, I ask?

        • Joe R

          Hi DB4545,

          A few points for you;

          1.The article is a year old. Perhaps the situation has worsened or gotten better.

          2.Credit Unions aren´t banks. They have bank accounts for example in real banks. They can´t be let go like a bank could be, as far as I know. I would imagine the shareholders should take the hit. Share value (read deposits) are larger than loans, unlike a bank.

          3. The shares idea is very relevant; it is central to how you can run something which behaves a bit like a bank which isn´t a bank and avoid banking laws and regulation.

          4. One comment in the article catches my eye.

          “Moves to overhaul the law on personal debt enforcement could deepen the sector’s problems. This is accepted by Paul Joyce, legal adviser to Flac, the free legal aid service.

          “A lot of money was lent out on flimsy evidence of capacity to repay. Many credit unions are not members of the Irish Credit Bureau which records details of current credit agreements,” he said.´´

          5. What I understand from the loans situation is that there is 620 million euro provision for bad loans. But they still need 800 euro million. That is 1.4 euro billion of a 6.2 billion euro loan book gone wrong? Nearly a quarter? That is on average. The worse ones are 76 odd that were already under water in 2012. That is right up their with the main banks but in a completely different `lending´ environment. Shocking stuff.

          6. I agree with you that the taxpayer in general shouldn´t pay. But I imagine they will. The total 800 million euro is 450 euro odd per wage earning worker.

  20. redriversix

    Really I don’t know what you guys are talking about……

    The recession is over ,Ireland & Europe are recovering

    Unemployment is falling

    Emigration is now a choice , not a necessity..

    O.E.C.D says will be fine

    Mini-property boom in South County Dublin

    Banks fully capitalized & lending

    Less business start ups failing

    I mean,I really cannot see what your all talking about..?

    Just so negative

    • michaelcoughlan

      Is your post meant to be sarcastic? Just curious?

    • Paul Divers

      I don’t undertstand all the negativity either Barry probably because I am still breaking my nuts laughing a tale about a local council’s commitment to local business. It’s even better than the tale about the Che Guevara mural

      Ten jobs go as cafe downsizes after council row

    • Paul Divers

      Yep Ireland’s economy is now on track and I have just the link to prove it. All that is needed now is for us all to get our shoulders behind the wheels and do some ‘heavy lifting’. Come on now lads, get the green jersey on and push for old Ireland

      • Colin

        And you’re still fighting the good fight for the solicitors et al in South Co. Dublin to hold onto their trophy houses they cannot afford to stay in because leaving them would upset the children?

        I mean, we MUST think of the children for God’s sake. What will their friends at school think if they have to move to a less prestigious postcode? Stop and think of the hardship. And one day, in YOUR hour of need, these fine upstanding members of South Dublin Society will come to your rescue, and remember you stood shoulder to shoulder with them. ……..wait, is that Hell freezing over I see?

        • Paul Divers

          Who are you speaking to?

        • Paul Divers

          It would upset their children actually. Did you never meet a new kid in school who came from higher circumstances and had to suffer because they were ‘different’. It’s not their fault. Did you feel for them and make them welcome?

          Kids are innocent.

          Now we have that out of the way maybe we can home in what your problem is with South Dublin?

          South Dublin seems to be at the heart of the psyche of every angry Irish person.

          If it’s not South Dublin it is usually travelers, the English, single mothers, unemployed etc and let’s not forget those pesky Muslims

          • Colin

            I would remind you that the innocent children generally grow up to inherit their parent’s assets and senses of entitlements.

          • Paul Divers


            Robert Tressel hated his father so much he was determined to turn out the exact opposite from the age of 14.

          • DB4545

            Nice try at deflection Paul Divers but give me a break! Poor downtrodden South Dublin! Dartry overwhelmed with Methadone Clinics? Rathmichael overrun with halting sites? Sandycove says no to another asylum centre? Ballsbridge shortlisted for new incineration plant? Travelers have a fairly tough gig,I graduated from an English University(there wasn’t too many working class Dubs going through Trinners in the 80′s let me tell you), single mothers need all the help they can get ,last time I was unemployed I emigrated(in the 80′s),Pesky Muslims? what suras have you been reading? My problem with a particular South Dublin type is a nauseating sense of self entitlement based on very little ability. But South Dublin ain’t south central baby so skip the downtrodden nonsense.

        • DB4545

          Colin you can hardly expect our gilded elite to live in Ballymun or Clondalkin for Gods sake? There isn’t a Cavistons for miles, you wouldn’t want the little darlings dining al fresco outside macaris would you?

          • Colin

            Poor Sorcha may catch a cold, and pick up some working class habits like walking home eating a bag of chips.

          • Paul Divers

            It would be different if you guys were running the show and I can see that. Thanks for keeping us informed. You are doing Ireland fine service and we owe you a debt :-)

  21. redriversix

    very good Paul

    keep flyin the flag…

    Remember the black knight guarding the forest in Monthy python’s “The Holy Grail”..?

    Have a great evening Paul


  22. Paul Divers

    Trolls are playthings. Good Entertainment.

  23. E. Kavanagh

    I’m a little confused, why wouldn’t €9.5B cover losses on €24B in mortgages that are in arrears? That is 40%.

  24. Hi E Kavanagh

    You are right at the moment, there would have to be massive defaults arising from the present arrears, but the trend is getting worse and given that house prices are down 50%-60% the equity in these loans is already halved or more. So if the banks were to begin to writedown to fix the problem, the buffers wouldn’t be too robust.

    It is an ongoing issue.

    All the best


    • bonbon

      As Noonan says, good at sums is all ye need. Ongoing issue – so is a train wreck. But arithmetic, the mere calculator, always gets it wrong does’nt it?

      Now for “buffers” – sounds like airbag economics, as sold by various previously sane banks, in the form of Airbag Certificates – no kidding!

      Now it is no small wonder that comes from Auto AG, otherwise known as Germany.

  25. Paul Divers

    This article begins by asking who will pick up the tab for the gambling losses of the banks and ends on a political question.

    The answer to your question is simple. Everyone but the banks will pick up the tab and are doing so as we speak.

    If you look at the increasing suffering and misery in the UK and listen to the response of tory government ministers it will give you a clue as to how these guys think. But they are outnumbered because according to the British Social Attitudes survey most people are in favour of the welfare state

    The next headline shows how out of touch the rich are and could have straight from the pages of The Ragged Trousered Philanthropists:

    Poor forced to use food banks? They’ve only got themselves to blame for making bad decisions, says Michael Gove

    “the Tories haven’t really got much to offer. And so they will retreat into their all too familiar world of bigotry, selfishness and naked greed” …

    Backlash To Benefit Bashing Is Only Just Beginning

    • StephenKenny

      The irony in all this is that the problems that the UK currently have are completely unfixable by any current methods; a few billion here and there doesn’t even register.

      To put the problem they face into some sort of perspective, there is a famous UK company called ARM Holdings, who design the microprocessors in over 90% of the world’s smartphones. Their net profit is quite good, being about £120m, 25% of turnover.

      This net annual profit figure is equivalent to about 12 hours net lending to consumers, averaged over the period 2000-2007. Put another way, it would take about 1,000 companies as successful as ARM Holdings, to make up the consumer component of the UK financial shortfall, since 2007.

      ARM Holdings are a FTSE 100 company, and are therefore one of the top 100 companies listed on the UK stock market.

  26. bonbon

    “I was just good at arithmetic when I was in primary school,” says Noonan and obviously the way to fix the problem is with a surplus, dangled before the markets. A grown up schoolboy good at sums!

    So what are you worried about DMcW?

  27. bonbon

    “I was just good at arithmetic when I was in primary school” says Noonan and obviously the way to fix the problem is with a surplus, dangled before the markets.

    A grown up schoolboy good at sums!

    So what are you worried about DMcW?

  28. bonbon

    For grovelling this takes the biscuit, or Royal Canine brekies :

    “Compliance is an increasingly costly activity for banks,” the former Taoiseach told the annual conference of the Federation of International Banks in Ireland..

    I am sure Glass-Steagall would send such grovelers barking up the wrong tree!

  29. bonbon

    Now here is a truly brilliant plan :

    Zombie Banks to finance EU Green Agenda.

    Mindlessness? No wonder Adam Smith is so revered….

  30. Ryu Hayabusa

    Michael Noonan bears an uncanny resemblance to the Hession Horseman of Sleepy Hollow Lore… with a bit more meat on board!

  31. Ryu Hayabusa

    I mean it says a lot about the place.. Here is a man who was an absolute disgrace of a Health Minister. Just over a decade ago following an election drubbing people were stomping all over his posters, he was a laughing stock! i.e. washed up has-been.
    Fast forward to the present and the position he currently has which as a separate point he in not even qualified to hold… well it’s a scenario worthy of any great political satire.
    &The longer he remains in situ the greater the swathe of destruction he& his fellow collaborators will cleave.

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