September 30, 2013

Grim reality of the guarantee

Posted in Banks · 157 comments ·

This day five years ago, the bosses of Ireland’s big banks came to the government with an ultimatum that went more or less like this: “We have run out of money, what are you going to do about it?”.

Of course this day could have been avoided if at some stage during the beginning of the credit boom in 2000-2002, the banks had been policed by the regulator. But they were allowed to do whatever they liked – endangering the entire economy. The state didn’t listen to any warnings in the period when something could have been done. By September 2008 it was all over.

The very real threat was that the banks, having mismanaged their affairs on a monumental basis, wouldn’t open the next day because they had no money. Of course, the minute they didn’t open, depositors – as in Cyprus – would be queuing to get their money out.

It is a hostage situation.

The banks (the hostage takers) threaten to kill the hostage (the economy) if the government won’t pay the ransom (a bailout of some sort).

The government’s watchdog – the regulator and the Central Bank – were on the telly a few days before, saying all was grand and that Irish banks had loads of money.

But why did the banks run out of money?

They had borrowed and borrowed wherever they could in order to lend out. The difference between the interest rate the banks paid to borrow and the rate of interest they charged on the loans they made to their customers was their profit.

As long as there were enough people who wanted to borrow from them and lend to them, the banks looked super-profitable. This was the case throughout the bubble years of 2000-2007. And as their bonuses were related to the share price, they were hardly going to stop the circus.

To put the banks’ borrowings in context, AIB and Bank of Ireland doubled their total loan books in three years. Bank of Ireland took more than a century to build a loan book of €63 billion and then, in three years from 2003 to 2006, it doubled it.

Ultimately, the scam becomes a pyramid scheme, where the value of the assets at the top of the pyramid is dependent on the amount of money coming in at the bottom.

If that money stops coming in, the banks are in trouble, because the assets that have been financed in the real economy are long-term assets like loans to developers or mortgages.

However, the money the banks have borrowed in order to lend out can be called in at any moment. Therefore the banks are involved in a calamitous balancing act, trying to pretend to their creditors that everything is OK and there is enough money coming in from interest payments on these long-term loans to finance the interest rates on the banks’ short-term borrowings.

Obviously the more reliant the banks are on short-term loans, the more precarious the position and the more at risk are the short-term loans – of which ordinary people’s deposits and companies’ deposits are a major component.

Over-lending and too much borrowing wasn’t making people and the banks richer, it was making them poorer. After all, the man who owes nothing is by definition richer than the man who owes something.

The banking crisis started in 2000, not 2008 as is often stated. It is still crippling us, as evidenced by the mortgage arrears debacle.

In the period 2000-2008, the banks behaved like pyromaniacs in a forest, playing with fire and laughing at anyone who warned of the dangers of a contagious inferno. Once the market peaked and reversed, the banking system’s implosion would be a financial forest fire that would engulf all around it.

The government – which should have been on top of this via the regulator and the Central Bank – had a choice: either to put it out using everything it could or to let the fire burn (let the banks go) and see what happened.

The recent evisceration of Cypriot deposits, or the total collapse of economies in the 1930s, or the fallout from the Asian crisis, all followed the decision to let banks go bust in an uncontrolled fashion. Anyone looking at such examples knows that the authorities have to act to prevent a contagious bank run.

Today, there are many who argue that we should have let them all go under, or that we could have isolated the bad banks and let others go. But they were all bad; every single Irish bank needed money to keep the doors open in 2008.

Those who started the fire continued to obscure the extent of the damage, and the firefighters – the regulators and central bankers – who were supposed to be in control sided with the pyromaniacs until it was far too late. People will say it was reckless borrowing as much as reckless lending that caused the bubble. That may be true but if I am the lender rather than the borrower, I should be concerned about the quality of debtor I am lending to, rather than the other way around.

In the middle of a bank run, the authorities have a choice: do something or do nothing. It had to stop the panic first, and assess the damage second.

The government had to act to protect deposits. It couldn’t do this by merging bad banks with good ones in a panic, because there were no good banks in Ireland. The state could have nationalised the banks there and then – but that wouldn’t have protected taxpayers.

The government could have let them go bust, which would be like a fireman allowing a forest fire to burn itself out and just hope for the best. The state could have let toxic banks go, but AIB, the biggest bank in the country, was on the verge of bankruptcy. Would letting AIB go have been a good idea? The government could have grabbed deposits, as they did in Cyprus.

Another option that is now bandied about was that the state could have just guaranteed all future bank borrowings not past ones. It is suggested as an elegant and clean way of dealing with an imploding banking system.

But let’s just think about that for a minute. Imagine AIB owes a lender – another bank – €100 million and this is about to mature but, as it is an old loan, it is not guaranteed under the new scheme. Then all the treasurer of AIB has to do is borrow a new €100 million which is now guaranteed and use the money to pay the old loan and in effect the ‘old’ loan is now guaranteed but it is just called a ‘new’ one.

There is a narrative in Ireland that blames the bank guarantee for everything, as if there was some other easy, painless option. We didn’t even have a bank resolution mechanism in place, and amazingly still don’t.

It ought to have been temporary, used to stop the panic, and then, following careful assessment of the situation, led to the introduction of a bank resolution law. This would have allowed for a negotiation with the bondholders in a calm way, which is the way the Americans dealt with their banks’ creditors in the savings and loans crisis of the 1980s-1990s.

But, for some reason, the guarantee was extended and extended.

It is important to understand that the guarantee and the bailouts were the consequences of reckless lending, too much borrowing and total lack of banking regulation. They were the consequence of the Irish banking/housing/credit collapse, not the cause.

If there had been no reckless lending, there wouldn’t have been a crash and no need for any remedial action to protect depositors.

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  1. michaelcoughlan

    First am I?

    • michaelcoughlan

      Just curious David;

      “But, for some reason, the guarantee was extended and extended”

      Why do you not offer an opinion in this regard? To me its obvious. The size of the problem forced them to do it with the overriding political imperative of saving the Euro. No?

      • michaelcoughlan

        Plus saving British banks and European banks, and to stop the derivatives bubble from collapsing, and……and…..and….and….

        • petrapig

          And they noticed that the people did nothing when they guaranteed all the Irish banks !Imagine if they swallowed this much what will they take? …………..

    • Adam Byrne

      Morning Michael.

  2. BlahBlah

    But didn’t you spin the story that it was all the German banks and bondholders fault? Why did you deliberately obfuscate the fact that most of the money for the Irish credit bubble came from UK banks? Was that too close to the truth? I hope the £ kickbacks kept you warm and cosy at night David.

    • whatamess

      “it’s a joke you not pretending to know about it”..

      “that’s a joke!!”

      2mins short

    • Blahblah

      If you find any of those sterling “kickbacks” give us a shout, haven’t recieved them yet. The Brits were the biggest “owners’ of Irish banks not ‘lenders’ to. You’ve been reading drivel in the IT again. Why not read my articles I am commissioned to publish in Germany’s most prestigious finance magazine, Capital? Surely if I was spinning inaccurately against Germany, the Germans wouldn’t employ me to write for their own audience. Incidentally, I don’t see the so-called exerts on Germany in the Irish Times who slur people without having the balls to name them, being asked by the Germans to do ay work!

      Here’s the latest column published this week. I’m sure you can use Google translator if you need to.

      Veil spass


      • bonbon

        Just curious, DMcW, have you tried mentioning the repeal of Glass-Steagall which set off the 2000 avalanche, in Capital? Even the Financial Times openly editorialed on this very theme twice recently. Oskar Lafontaine (Die Linke) had a go at it yesterday, but put his foot in his mouth mixing up Teddy Roosevelt and FDR! (Die Linke just never gets it right).

        Germany has a nightmare problem, called Deutsche Bank. The 2012 financial report is enough to paralyze most Bundestag reps. They had the spirit though to order a raid by 1000 police in Dec 2012 carting off heaps of files. The findings will make them faint, I’m sure. They await whatever “coalition” makes it to Berlin.

        (Mind you Draghi’s high-heels is funny if the EZB was’nt so crazy).

        • michaelcoughlan

          “just curious”

          Normally bonbon mimicry is the highest firm of flattery but coming from you the recriprocal is the case.

          Not mentioning legislative change is what a normal person would considder when viewing the realities
          Of the worlds financial system.

          Once again bonbon fly to Greece and Iceland where the crash has happened then to Spain with 60% youth unemployment and Italy with 40% unemployment and try your windbagging. No one will take you serious. If tony brogan goes helping people to grow wholesome food to feed their families EVERYONE will listen.

          You see bonbon you and your friends are living breathing proof why legislative change would never work. The people in charge will use the same psychopath policies you use to suit their agenda. No moral compunction, no empathy, no
          remorse, no regard for other people’s property. They however are different to you and your friends in
          One remarkable respect. Their use of psychopath policies of removing legislation to protect all of us have succeeded spectacularly from their perspective where’s your attempt to
          divert this board to suit your own agenda is a spectular failure.

          You can do nothing to deal with the psychopaths in charge bonnon or to remove or implement leglisative change as evidenced by your failure to divert the board or get McWilliams to come to heel. There is one failed psycho you can remove from the face of the earth though and create an environment conducive to legislative change and that’s you. So go back into your tiny little room bring in a shotgun with you and blow your brains out.

          I guarantee you bonbon the leslisative changes you crave will only begin to happen AFTER every last psycho around the place is removed from the face of the earth because that’s what history tells us from hitler to pol pot to Nero to whoever.

          Love cuddles and kisses bonbon.


      • DMcW
        “Why not read my articles I am commissioned to publish in Germany’s most prestigious finance magazine, Capital?”

        Gruner und Jahr …. Hahahahaha!

        As usual David is comfortably behind the curve.

        What was a reputable Publishing house with high standards, today is nothing but a shadow of former times. G&J no longer graces the publishing world with journalism but instead has degraded to a content provider instead and as such they take everything they can publish, literally.

  3. Pat Flannery

    “However, the money the banks have borrowed in order to lend out can be called in at any moment.” Why do you keep repeating that lie David? It is useless trying to explain securitization to you. You are the main source of this egregious banking misinformation that is crippling Ireland. What a shame.

    • bonbon

      Why not take the brave step and tell the story of FDR’s method to deal with “securitization” and all the other swaps and scams? I am sure DMcW will not touch the financial instruments because he knows he is then instantly up to his lugs in major league political economics.

      Are ye both afraid of the future?

  4. stefanooldrati

    Sometimes, now, seem that everyone that, for starting a business or muscle her/his business, wants to borrow money from a bank has to produce a very precise, compelling and highly able to engage and reassure business plan … and stick to it for the future medium term at least.

    On the contrary the impression about banks seem not really aligned regarding their way to run their own business! If it is just a bit near to reality it is a scary situation.
    But it just an impression. I remember to have followed the UK banks enquiring committee on BBC, and some top managers were admitting that they were not able to have a complete and clear view of their P&L, that was a bit scary.

    Anyway no bank will change the people within their executive committee profoundly, it is a process too complex and long, and neither the environment, and tacit rules, they work with beyond building perspective of profitable growth will help them to go a new way.

  5. colmoliathain

    Securitization and the derivatives market are indeed a core issues that require addressing and a proper analysis. It moved banking and the accepted practice of lending and borrowing into entirely new sets of relationships where it became more important for a bank to increase the risk that its borrowers were handling rather than reduce it while at the same time fooling the same borrowers into believing the opposite that they were somehow lowering the risk of borrowing because of falling or preferential rates while in fact they were accepting the banks’s risks onto their own books. The true value of derivative contracts is actually unknowable and only guesstimates exist. So the true overhang of the period is still unknown.
    However the role of the law and lawyers in framing contracts that obtained vast value is also not under proper scrutiny nor that of the courts and judges who are almost entirely ignorant of the mechanisms of the contracts on which judgments are handed down preferring to stick to increasingly simplified and bank oriented world views of blaming the “men of business” who borrowed too much and their lack of scrutiny of what they were really doing. In truth the ordinary business person was led to believe that s/he was fishing in the same lake as before when in fact all had changed under the surface.
    What is is critical in Ireland is that the attempt by the Government itself woefully advised, to rectify matters by liquidation of the IBRC sets at nought widely accepted norms of legality and respect for rights without in fact offering a way out of the the mess. The Banks cannot in fact offer anything different as their system is now dominated by liabilities to issuers and bondholders whose interests the government and the courts are determined to place above those of the citizen. The raft of cases going through the kangaroo courts in Ireland are clear testimony to this.

    • Pat Flannery

      colmoliathain: I hope you can succeed where I have failed viz. to move David off his simplistic explanation of what caused the Irish banking crisis. He is relentless in teaching that the source of Irish mortgage loans was bank “deposits” lent out under lax central bank regulation.

      He has thus helped to misinform a whole generation of Irish people with a false analysis of what actually happened. This now seems impossible to undo which happens to suit the bankers and a compliant Irish government perfectly. Go figure.

      • michaelcoughlan

        Makes a mockery of his economics diploma if your observations are correct Pat Flannery.

        I wonder if he will return the fees if proved wrong?

    • michaelcoughlan

      “The Banks cannot in fact offer anything different as their system is now dominated by liabilities to issuers and bondholders whose interests the government and the courts are determined to place above those of the citizen”

      You could also say that some bondholders are more esteemed than others ie the irish credit union bondholders in IBRC were wiped out when the govt liquidated IBRC but not the previous bondholders who were paid off?

      Now we have consolidation going on in the Irish credit union sector I presume because it is so insolvent and reputedly a massive 70m debt in one Kildare based credit union allegedly

    • colmoliathain

      A contract for the securitization of any class of assets will commonly run to two hundred pages with addenda etc. to boot. The essential point is that in securitization as opposed to asset covered bonds the ownership of the underlying assets pass to the issuer and do not remain on the originator’s books. So does the risk of course. That is a straightforward concept that even a judge could grasp but litigants who have queried in the Irish Courts have been dismissed out of hand apparently. I understand that the issue of the securitization of the debts of the Irish Nationwide was raised by Clare Daly in recent debates but as to any follow up I am unaware. It seems that the issue is seen as beyond the comprehension of the average reader assumed to be more interested in pinning the tail on the recalcitrant developer donkeys rather than understanding what actually is happening.

      • cooldude

        This issue of securitization of loans by the banks is one that definitely needs to be explored. Does anyone know what percentage of loans were securitized by the various banks. The awakenlongford website has a lot of detail on the use of securitization by Ulster Bank but I haven’t seen any figures on what percentage of the overall books of the various banks. Anyone know because this is a key issue with these gangsters?

        • colmoliathain

          To the above. The short and long answers to that are “No” an “No”. Securitization in theory should be calculable on a case by case basis as each issue should be recorded in Europe at any rate by the relevant Central Bank. As to the scale of securitization in recent years that was on part driven by the legal mechanisms of the the ECB which required institutions to undergo internal securitization in order for the bank to be able to access the ECB cash.
          That is work waiting ot be done but it is not in the interests fo the Banks to do it as the question of who now owns the assets comes embarrassingly quickly to the fore if like the IBRC and similar slop bucket banks one is trying to repossess assets that actually no longer are vested in the entity seeking to recover them if they ever were. The BOSI situation is interesting as the entire portfolio in Ireland was dumped and some form of agency called “Certus” I believe set up to act as collection agent in some form. All of it murky and all of it awaiting proper legal intelligence tot be applied to the situation.

          • whatamess


            v.welcome to this blog firstly!

            There has been discussion here for quite some time of bank regulation and lack thereof !

            Have you read Andrew G Haldane’s “The dog and the frisbee” ?

            for a non finance/banking guy, i find it difficult to ingest,digest and assimilate.I’m hoping you maybe have some thoughts on regulation of the financial sector needed to provide REAL protection.

            We are all well versed here on DMW’s blog re regulations e.g. Basel 123 /Dodd Frank /Volcker Rule,but would you share your thoughts on a 21st century Glass Steagall ( with bespoke addenda to meet the complexities of the current financial sector )in order to provide citizens with a firewall in the event of the current derivatives bubble being burst??

          • whatamess

            Try give this link even a half an hour ‘scan’,

            Composed by one Andy Haldane ,Executive Director of Financial Stability at the Bank of England, ( yes,possibly biast ;)

            and the scale & complexities of regulating the financial sector becomes very clear !… ( reminds me of “ it is a riddle ,wrapped in a mystery, inside an enigma”" (W.C)

            Andy says:“Modern finance is complex, perhaps too complex. Regulation of modern finance is complex, almost certainly too complex. That configuration spells trouble. As you do not fight fire with fire, you do not fight complexity with complexity. Because complexity generates uncertainty, not risk, it requires a regulatory response grounded in simplicity, not complexity”


            “Fully defining future states of the world, and probability-weighting them, is beyond anyone’s cognitive limits. Even in relatively simple games, such as chess, cognitive limits are quickly breached. Chess grandmasters are unable to evaluate fully more than 5 chess moves ahead. The largest super-computers cannot fully compute much beyond 10 moves ahead.
            Most real-world decision-making is far more complex than chess – more moving pieces with larger numbers of opponents evaluated many more moves ahead. Simon coined the terms “bounded rationality” and “satisficing” to explain cost-induced deviations from rational decision-making (Simon (1956)). A generation on, these are the self-same justifications being used by behavioural economists today( like our DMW?) For both, less may be more because more information comes at too high a price.”

          • whatamess

            The following 4 min funny clip ,in a way ,epitomises “keep it simple, stupid !”
            ( the KISS Principle )


            If , (and they CLEARLY don’t!!) the “self-regulating, then self-calibrating” financial sector don’t have a rulebook to follow, so let the PEOPLE give them one ?!

            and let’s keep it simple ! Let’s make “bullits cost $5,000 each !!!” as Chris Rock says…that ought to soften their cough!!

            OR Maybe:?????????

            No proprietary lending allowed
            ( including commodities )

            Unambigous rules/distinctions/business models between investment and commercial banking

            Prececute fraudulent activities

            Ban Fractional Reserve Banking

            No further bail in / bail outs

            Introduce a 21st century Glass Steagall ( with all the bells and whistles )

            ALL to be enforced AS OF Jan 1st 2014 !!

            dare we dream ??

            ple\se add to my wish list above

            no Harley’s allowed on the wish list

    • 5Fingers

      Fantastic comment. I would like to know the mechanism that allow this “so called” crisis to bubble into existance. Colm McCarthy was on Finucane’s morning show the other day and he want’s an enquiry to start back from at least ’97 to find out how come such undertakings could have been possible without engaging in criminality.

      John Allen has many times said that the root cause needs to go back to form of contract (my words) and shennigans that was needed to hoodwink the citizens. Basically there are 2 aspects to finance – profit/loss and utility. It seems to me that the way this was mixed was to only show profit and bury losses (temporarily or for long enough) thereby signalling to our idiot economists and policy makers (who really know nothing about the real world – let’s be honest) that all was well and blinding the average citizen to adjust their business and demands to more rewarding efforts. In concrete terms, this was about share pumping and commission earning to the detriment of those looking for utility.

  6. Bamboo

    It is good to have a reminder of what happened that day 5 years ago. It is good to blame the banks and their regulators for the situation the Irish citizens are in now. I guess in five years time we have another reminder. But this article column talks about the banks, institutes, culture and systems. No names of people are mentioned – just the position of the regulator. Very easy to repeat in general terms what has happened and recycle and rehash old information. At this stage we all know what has happened unless you’re an alien from out of space.

    “The government’s watchdog – the regulator and the Central Bank – were on the telly a few days before, saying all was grand and that Irish banks had loads of money.” I believe it was Patrick Neary who was able to tell the Irish people on live TV that all is OK.

    Jean Claude Trichet came to Dublin to tell George Lee that Ireland has nothing to fear and we can all sigh in relieve.

    Little did the Little Irish people know.

    Very crucial question from michaelcoughlan: But, for some reason, the guarantee was extended and extended – Why? There is no satisfactory answer to date. In another five years the question will be asked again and again. Media and columnists will have a field bonanza again with these reminders and questions and rehash the same story again.

    hibernian56 generated a great summary of the people involved here

    It is now time to name the names and references to make any article worth reading.

    • hibernian56

      Yes 5 years gone by, all the while pensions are still paid, promises of enquiries, and no doubt the statute of limitations is steadily ticking by.

      It is imperative that this NOT be forgotten and certainly NOT be forgiven.

      I was listening to Munteoir Martin on the radio today, he is self brainwashed into believing he and his ilk are actually of worth to the citizens of this country.

      They are parasites not politicians.

  7. Adelaide

    I referred to this before. It is a great critique “The 86 Biggest Lies on Wall Street” by John R. Talbot (e10 paperback). The author demonstrates the systemic FLAWS in Banking that render it a recurring basket case.

    David refers in his article to the mismatch between the bank’s short term/long term loans/borrowings. Here is an excerpt that nails it on the head regarding Ireland.

    “The capitalist credo of survival of the fittest does not apply to long-lived assets (mortgages) vs short-term liabilities (inter-bank loans) due to time dilation. Imagine a scenario involving a cut-throat mortgage bank. The Kamikaze tactics of this mortgage bank drastically undercuts its competitors with unsustainable low interest rates and yet it will not suffer the negative consequences for 10/20/30 years, while in the meantime grabbing 100% market share and killing off the competition, or forcing the other banks to replicate its Kamikaze tactics to stay in business, till inevitably the day of reckoning arrives. This happened in Ireland as all the banks had to replicate Kamikaze Anglo till their day of reckoning in 2007. Without regulators to say ‘Stop!’ the Kamikaze quick-buck mortgage-securitization tactics of the copy-cat Banks accelerate. Due to the time dilation of long-lived mortgages versus the Bank management’s life expectancy, they usually retire before that day of reckoning: they can not be held responsible. It’s a win-win for management. When failure or success reward equally well then the credo of the fittest has no meaning. Yes, the upstart Kamikaze bank no longer survives, but so do their copy-cats, this is called extinction.”

    • michaelcoughlan

      Hi Adelaide,

      Thanks for this I always look forward to your posts thanks. The analysis here is incomplete though. You have presented me With an opportunity to use nazi logic to explain in detail the reality as opposed to the truth. Using nazi logic comes with a health warning as a person with a normal healthy conscience can become disturbed moving between a state of being disconsolate to incandescent rage.

      First let’s define nazi logic; nazi logic is more evil than the absence of morality it takes the evil to a much higher level in that it assumes that the most evil acts are morally correct ie the right thing to do. You therefore will have to suspend moral conscience to understand and apply nazi logic to the banks. I get s headache when I do this. Let’s try though.

      In the analysis presented above it says towards the end that since the management will have retired from the banks that they have no long term interest in ensuring that the mortgages get paid back to cover the borrowings the bank makes to issue mortgages so thd management don’t care. That’s obvious enough. Now look at it this way; if the bank manager is getting bonuses to issue loans irrespective of whether they are good or bad then the faster he issues
      Loans the faster he enriches himself. When the bank collapses it matters not to him/ her because they have asset stripped the money out of the bank and since the bank being a ltd company is a separate legal entity the debts will die with thd bank.

      More twisted than that though when large central banks issue money to govts knowing those govts will default but the central banks have taken liens on the assets of the respective nation involved then


      Since wealth is defined as an abundance of material thongs or possessions they are supplying worthless fiat to a nation in exchange for the nations assets.



      The final solution Hitler and the nazis implemented was the wholesale slaughter of the jews because they knew the were loosing the war. They way they looked at it was that their time for whacking people was becoming limited. What’s not well known is that before the war turned sour hitlers plan had been to ship all they Jews to Madagasgar. So in killing all around them the nazis figured that even if Germany was occupied at least there would be no Jews around and since they believed that whacking Jews was the morally right thing to do the too came up with the following conusion;


      Jews, Catholics, Protestants, Muslims, Bahia, banks, customers, employees, governments, pensioners sure they all have to be gotten rid of you know so that ever last bit of capital employed can be transfered to the people who control the
      worlds currencies!

      I’m really fucked off now so I can’t write any more.

      • hibernian56

        I watched an interesting interview on Max Keiser the other day with George Galloway. They were talking about the phenomena of the superstar “former” politicians. Bill Clinton worth $$$m, Al Gore $$$m, Tony Blair etc.

        In essence they were talking about the fact that politicians are now so highly rewarded “post” job that it is impossible to view any of them with sincerity. They are only treating their role as a minister as a line on their CV, most going into cushy consulting roles in financial institutions, or outright resource grab organisations like Bertie.

        It exactly the same in our potato republic.

        Just look at Anglo, DPP offering immunity, Munteoir Martin, Noonan and Kenny all towing the line, saying that the DPP is an independent office.

        Then the fact that one of their own is in the offices now. I smell a rat. It makes you wonder if there was a hidden dossier on TD’s used for leverage. Just look at all of the recent news about bankrupt TD’s, hushed up where possible.

        Every time I see Alan Dukes I’m reminded of the Emperor in Star Wars. I wonder did the Emperor get a pension of €130k pa?

  8. colmoliathain

    Calling the Shoah in aid in a debate of this nature does not assist in my view. On the anniversary of the massacre at Babbi Yar when 33,771 people were murdered by the Germans and their Allies in two days “whacking Jews” is not a phrase that I would consider appropriate or helpful to the points being made. It is offensive in fact. Neither does conjuring up the ghost of Nazism assist in understanding the collapse of the financial system in recent years. If you mean to summarize the neo-con post Schumpeterian argument that destruction of existing systems is the genesis of new systems then there is adequate vocabulary for that in the economic text books without reference to “whacking Jews” or similar.

  9. colmoliathain

    For those interested in a readable and thoroughly accessible account of derivatives and their impact on the financial and investment world there is none better than Gillian Tett’s “Fools’ Gold”. She is an assistant editor at the Financial Times and far better informed than any other journalist I have encountered in the many years spent working in the law of derivatives, securitization and the other complex financial instruments whether in business or sovereign debt.

  10. BirdCourter

    “After all, the man who owes nothing is by definition richer than the man who owes something”… Sums it all up really David. Debt per se is not bad – provided it’s good/smart debt, but bad/unsmart debt = fatal.

  11. colmoliathain

    Debt is a sine qua non of the captialist economy and the extension of credit an inescapable necessity of expansion. To suggest that in some way debt is a moral issue is to adopt what those pursuing borrowers want to be believed as if it were a one way stream of people wanting desperately to borrow and a cabal of prudent bankers desperately trying to resist their blandishments. David is quite correct in originating the debacle in the late 90s or even earlier with the vast growth of riskier investments arising out of derivative trading. There was a huge rush to find the assets to securitize as that is where the returns were escalating and it mattered not too much if the rates on the underlying were attractive as those would be vastly increased by the securitization process.

    • Adelaide

      “… the extension of credit is an inescapable necessity of expansion.” That only holds true if expansion is desired.
      Overall the self-evident truth is the reverse of your logic.

      E.C Riegel’s ‘Valun Monetary Model’ quote
      “fictional economic expansion is the inevitable price of Seigniorage credit.”

      Similar to Marx’s ‘Fictitious Capital’, Riegel expanded on its context predicting (in the 40′s) the necessary creation of future fictional markets, The Trade of ‘Abstracts’, to accommodate the excess trajectory of interest-bearing Private Money Issuances.

      • colmoliathain

        I do not disagree with your point at all. How desirable “expansion” is or what it really is provides the core of the discourse. However we look at it now the overwhelming majority in Ireland saw the expansion of the Tiger Years as somehow desirable in personal terms.

        • Adelaide

          Agree. In all fairness they were repeatedly informed that the ‘fundamentals are sound’, ‘We worked hard for this’, etc and other propaganda. Only David and a handful of others put their head above the parapet.

          And now the ‘Green Shoots’ propaganda is in overdrive.

          Talking of which, did anyone have the misfortune of seeing George Lee’s risible threadbare TV piece ‘Ireland’s Green Shoots’? “You cudda been a champ, George!”
          … Nice winter coat though, cost a fair penny, he looked all cosy and smug. Sad.

  12. IntegrityInFinance

    Interesting debate. I certainly wouldn’t consider myself to be in a position to comment on Nazi rules/politics etc. However, I do have the experience to discuss how the liability side of a bank balance is managed and as this thread relates to the debt portion, I will make a few comments in respect of this. There is a focus on securitisation in the previous posts and it is true to say that securitisation was playing an increasing role in banks funding and capital management. But it was just a portion. The liability side of a bank balance sheet includes, retail deposits, corporate deposits both of theses generally in maturities from overnight out to 1 year. Inter bank deposits are another significant component and are under 1 year in maturity for the most part and normally under 3 months. Bond issues of varying types, floating rate notes, fixed coupons, structured coupon and of different capital issue namely senior and various subordinates. Then we have covered bond issues, commercial paper, securitisation a, and free float money from bank current account. There are more also. So in a long winded way, I am saying that there are many funding and capital products that make up the liability side of a banks balance sheet. In normal markets Treasurers have the ability to manage the interest rate risk component of this liability but it is extremely difficult to manage the pure liquidity risk and all the more so for Irish Banks that were growing the asset side of their balance sheet so rapidly. For example, as banks were writing billions of new mortgages, they were funding a small part of this by issuing a securitised mortgage backed bond. However, the mortgages being written were 20 to 25 years in tenor but the average life on the rmbs was circa 4.5years. The reason for this is that they buyers of those RMBS wanted a large proportion of ‘seasoned’ and performing mortgages in the collateral pool so only a very small component of new mortgages were going into the pool. The liability side of a banks balance sheet has to be looked at in total and when David McWilliams says that there was a mismatch there most certainly was. A huge mismatch in both VAR (value at risk ) from duration mismatching and mega liquidity mismatching risk. The Regulator most certainly would have had reporting data on each banks VAR and liquidity data so this should have been no surprise to them. What they may not have been quite as aware of was the deteriorating quality on the asset side of the balance sheet. That is not to excuse them for this, they should have made it their responsibility to know

    • colmoliathain

      That is spot on. But several issuers were recirculating and taking in new assts on a fairly large scale as well. But the point is very well made as to how the banks were managing or believing that they were managing risk across a whole range of activities.
      The regulators however were a long way behind the curve and not only in Ireland but across the world in understanding the increasing spiral of risk and in quantifying VaR at any given moment. And the calculation of VaR changed from an initial end of day check on the VaR across the bank on 95% confidence level to a tool for identifying under performing sections of the Bank’s portfolio so that they could be remodelled to perform better. Before securitization and teh advent of derivatives on a large scale J.P Morgan was making one basis point per dollar and holding huge amounts on its books against liabilities. The process put a lot of money into the system so turbocharged the entire and freed up huge amounts that were then available to make far more than 0.01%.

      • michaelcoughlan


        Both you and the poster above called integrityinfinance are clearly very skilled and very smart banking/ financial professionals. The posts are very detailed technically and give clear indications from a technical perspective where the issues are. No question.

        Not a jot on motive though. I’m just curious if you have read the book called confessions of an economic hitman by perkins?



        • colmoliathain

          Hi Michael.
          No I haven’t read that. The ultimate motive can be characterized as “greed” on the one hand (as Gillian Tett does) or “innovation” on the other (as several of the neo-cons do) or if that is range from one to the other then anywhere in between. There is a genuine case for saying that motive on a personal level is irrelevant as the motive even of a few lunatics would not of itself be sufficient to upend the entire global financial system and that the real reason is/are ( a la Marx) systemic contradictions and that the system no matter how it was constructed and expanded was always going to fail in the way that it did. Even the extent and meaning of “failure” is in dispute. Some of the more loony neocons do indeed seem to advocate destruction for its own sake which presumably is a world view that could only emerged in the crazed world that people in the USA seem to inhabit. And remember that we have assumed that some of the ideas that these SELs have come up with are actually worthy of consideration because they were rich while forgetting that they did not become rich by practising what they preached!
          My perspective is that of a lawyer looking in amazement at what is happening to the legal system in Ireland which seem to have no lawyers actually capable of handling the cases that are ongoing or capable of putting coherent arguments in front of the judges and then judges who appear equally to have abandoned any idea of actual applying the law and the Constitution but are riding shotgun for the banks and a deluded government. I do not live there but I am of course concerned to see what is happening in the country of my birth!

          • 5Fingers

            The level of risk buildup accepted by the management of these operations was never going to hurt them. They are still earning their salaries.

            I start going cold when people talk about “system failures” as though to deflect any blame. People are responsible for this and I blame our media and prognosticators (many economists, statisticians, policy makers and they too are still pulling in big earnings talking the same garbage) for an ever better future for fanning the flames.

          • michaelcoughlan

            When I read this a shiver went down my spine. Someone as skilled ad you identifying;

            1) destruction for destruction’s sake is policy in some of the more lunatic fringe in the neo cons,
            2) the whole legal and political system roiling over for thd international bankers.

            What your post is is a treatise on Ireland now an out of control totalitarian entity wanting to rid itself of the upper house in parliament with an angry and embittered electorate being hoodwinked by yhe politicians. I hope I haven’t misrepresented you.

            Sincerely Michael.

          • michaelcoughlan


            If you only read one book and one sequel read confessions of an economic hitman and then hoodwinked by Perkins.

            EVERYTHING will become clear to you!

            Yours sincerely,


    • Pat Flannery

      IntegrityInFinance: You write “For example, as banks were writing billions of new mortgages, they were funding a small part of this by issuing a securitised mortgage backed bond.”

      You list a whole range of liability items such as retail deposits, corporate deposits etc. but you give no indication how much any of those liability categories contributed to the funding of the billions lent, only that securitization was but a small part.

      Please explain where those lendable billions came from if only a “small part” was from securitization.

  13. J999

    Well hang on here just a second David! You appear to be far too forgiving for how the banking crisis was dealt with and as if to say there was no other alternative as to how we the people would pay for it. You indicate that the fault mostly lies with the lenders. Well indeed, as most ordinary citizens just borrowed to put a roof over their heads. Is there something wrong with that? So let’s accept that the crisis is indeed rooted in wreckless lending and bad regulation. Well then, let’s bring that to it’s logical conclusion. The crisis is as a result of German banks lending wrecklessly and the failure of European institutions to regulate this!

    As Constantin Gurdgiev once put it “…German banks were not just lending with abandon to domestic enterprises, but were also funding massive property booms in Spain and Ireland… “. And what was the ECB doing to clamp down on this?

    We the people are bailing out German institutions yet they have done everything to suggest this is our own fault. And why did/ do our spineless leaders allow themselves to go along with this heist? No doubt pressure has come from the ECB, the IMF and the US Treasury. They are all protecting their own interests. Who were the bondholder to be protected after all? Only friends of Sarcozy, Trichet, Bernanke, Lagarde, Geitner etc. etc., that’s who. And no doubt Kenny and his crew will be rewarded with cushy jobs in Europe.

    This whole thing stinks. If it was to be tax payers to bailout this big money racket then there should have been burden sharing right across the Euro zone!

    • J999

      I am completely on side with you on this.

      The whole thing stinks and the dirty little secret of the Eurozone under the ECB is that everything has been done to help the banks – no amount of money was too much – and yet when the citizen asks for better education etc he is told there is no money!



    • 5Fingers

      The dirty secret is easily articulated: Who aside from Mr Citizen is loosing their short over this? If this was a real business, mass firings of high to mid management would be typical. The dirty secret is that no one from banking to policy maker is being creased for this at all.

  14. Deco

    Well, whatever phase I am going through in life right now, but I am coming around to the view that a lot of what we seen in the years since the signing of the Treaty of Maastricht, is a journey of intellectual delusion, compromise and make believe.

    In other words, as a society we collectively lost our marbles. Of course there where dissenting voices. And there were individuals, and perhaps even communities who opted out. But the overall mainstream thrust of intellectual activity (if there even was any) has been towards the one big solution, that is very popular and therefore the decision to follow. (Never mind the fact that it is popular because it is actively promoted to be popular, by those who seek to profit from the whole thing).

    The fact is that the whol concept of Europe, as it is exists now, is not designed to be a success to the maximum quantity of people. If this was a primary concern, then the clowns in charge would not be minimizing to the bare miniumum the level of consent they request from the people. The very fact that they continually ignore, and overrule the people, is an indication that the very policy framework is designed to impinge on the people’s interests.

    This is going to be disaster. It will be a bigger disaster than the Soviet collapse. And to the credit of the Soviets, they never decided to use the people’s money to encourage the most reckless lement of their economic system.

    In other words, as I look at ECB monetary policy, and the pretence that the entire Ponzi scheme is something other than a Ponzi scheme, I am begining to realise that maybe the Soviets at least had enough common sense to realise where the whole thing was leading, and to admit that they got it wrong.

    The EU leadership only ever concludes that everybody except themselves have it wrong.

  15. michaelcoughlan

    From the article;

    “But, for some reason, the guarantee was extended and extended”

    And above;

    “the dirty little secret of the Eurozone under the ECB is that everything has been done to help the banks”

    Why did you ask the question when you know the answer?

  16. joe hack

    1892, from Yiddish khutspe “impudence, gall” from Heb. hutspah. The classic definition is that given by LeoRosten: “that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan.” (this has been copied from an online dictionary)

    Some don’t look for mercy – psychopaths they just keep taken from the plebs…

    Rules are there for plebs or so say the psychopaths they have been proved right – some call them heroes – fly-boys in the air business (Fly by Ryan) – consequences do not concern the psychopaths…

    No lessons learned!

    We have had five year the brain hurts allot
    Time to turn and face the strange
    If we could be heroes – just for one day

  17. Adelaide

    An elderly neighbour described the boom/bust succinctly. “All those houses were built on borrowed money, so all those building jobs were paid with borrowed money. But the government borrows money to pay its staff. So, in a roundabout way, the whole boom was like a huge Government Works Scheme.”

  18. colmoliathain

    As to Michael above.
    I would not hold myself out has having the knowledge of the Irish situation that say David or you have or anyone posting on this site in fact. I read Irish papers and hear stories from Irish clients but all tales in the end are travellers’ tales if one doesn’t go there oneself.
    What has astonished me is the behaviour of lawyers and the political elite. From the outside they as significant players in the unwinding of the mess seem not to have a clue about what has happened and whatever explanation may be available they appear to have sought only their own salvation.
    I would have expected at least lawyers to be in the courts unraveling the ludicrous deals done often with out any proper formality (not even signatures) and with some idea of reshaping the law concerning the involvement of banks selling extraordinary deals to smaller businesses which were designed only to generate profit for themselves. It ought to be possible to change the operation of the law in Ireland far more quickly than in the UK or USA e.g. but there is no sign that I can detect from looking at the reports and commentary nor from the case reports of this happening and insofar as reports allow me to look at the arguments being advanced I see little of any interest at all.
    The IBRC Act 2013 is utterly extraordinary as it appears to grant immunity to the Banks against civil suit in retrospect and to classify effectively as legal the most egregious acts committed in Ireland since the Cromwellian Invasion! Yet I am told that the attitude of lawyers is a shrug and an extra 0 on the fee note!

    • joe hack

      Solicitors (Lawyers) get fed whether you win or lose – For the most part altruistic solicitors are only to found in B Movies, human nature is not prepossessed with “humanity”.

      It appears and I say this without any research that a solicitor that might have the skills to take on such task is maybe from the sycophantic/ psychopathic verity of “human kind” and might be working on the inside?

      Again without any research it is possible that those with a disposition for philanthropic altruism are not on the inside or at least it would make logical sense that those you care are not in a position to give as they have not yet taken.

      Which might mean that human nature is at fault if one views it from the position of a kind human?

  19. David,

    I’m actually amazed after everything we’ve spoken about and all the material I’ve forwarded to the contrary to read the line;

    “They [the banks] had borrowed and borrowed wherever they could in order to lend out.”

    This is not how banking actually works because banks create the money they lend. The need central-bank-money to settle debts which build up as we transfer bank-account-money between banks but this type of money cannot leave the central bank’s balance sheet. Hence they cannot borrow from another bank and lend this money to the public.

    I passed on Standard and Poor’s paper on this topic last week in which the author shows equal frustration when the fallacy that banks lend existing money which the first obtain from elsewhere arises.

    Ultimately I’m looking for more discussion on alternative ways in which we could create money but all I’m really suggesting is that you write factual things about banking so that people have a better understanding of it. At the very least stop writing demonstrably false things about banks lending pre-existing money.

    • joe hack

      Paul, even in fractional reserve banking the banks sometimes may have to borrow the fraction if the fraction is not big enough to continue to lend?

      • It is not the fraction that is loaned. That is retained as an asset or reserve. Then money is created to a level allowed under the stated reserve ratio. May be 8% reserve.
        When there is a collapse of the value of the security then the ratio drops to a lower figure or indeed negative value. Then call on the central bank to create enough cash (also created from the ether) to loan additional money to the banks to raise the reserve to where they want it.

        Hello TARP, QE 1 ..2..3..$4 Nth to infinity. either stop the money expansion now and bust the economies or keep puffing the balloon until it pops.

        I remember a party game like that. Blow into a balloon and pass to the next person who blows some more and around it goes. Takes a while but always blows up in the face of the victim. Secret is to get in the game early and hope it does not come to you again.
        I think Central Bankers study and play this game so they are skilled at huffing and puffing but do not bust the balloon on their turn.

        • joe hack

          I understand the basics of fractional reserve banking, I was just wryly questioning it while thinking of how the AIB might have interpreted it. Some banks in the USA are said to have lent 300 times it reserves, 10 I believe is the norm.

      • Hi Joe,

        No, that’s not the case. If there’s a single factor which decides whether a bank creates money for a loan or not it’s the banks’ confidence in the economy. The amount of reserve-account-money they have is not a factor because a bank will create money for a loan and then look for the electronic reserve-account-money after.

        The central bank will always provide enough reserve-account-money to keep a solvent bank liquid and often another bank will be willing to lend their excess reserve-account-money at a cheaper rate than the central bank will and this is what drives interbank lending.

        As well as this the amount of reserve-account-money can be abundant, which it is today, but it cannot leave the central bank’s balance sheet and so it’s not in circulation in the real economy. The amount of reserve-account-money doesn’t affect the economy very much at all.

        • michaelcoughlan

          “if there’s a single factor which decides whether a bank creates money for a loan or not it’s the banks’ confidence in the economy”

          After I read this it’s clear to me in the first instance you must be a banker and second how far removed from reality you really and truly are. Let me explain.

          Do you really think there is any validity in the statement above or that anyone on the board would agree with you considering the way decision making in the banks actually works in reality especially considering that Ireland is experiencing the biggedt bank crash anywhere in history for our size?

          Furthermore what also clear is that you don’t understand value and wealth either because if extra fiat Is produced to cover reserves it devalues the amount already lent out by the corresponding ratio.

          Tony correct me if I have made an error please.

        • michaelcoughlan

          “The amount of reserve-account-money doesn’t affect the economy very much at all”

          Sure it does Paul the more created the more it devalues the money in the real economy. Further more the money is borrowed into existence is it not? and has to be paid back with interest reducing the spend in the economy by fleecing the taxpayers with extra taxes to pay the interest?

          In America Paul income tax is illegal unless it is apportioned which it isn’t. It was a tax levied to pay for interest on notes created by the fed.

          Once again Tony correct me if I’m wrong.

          • now you are putting me on the spot Michael!!
            The reserves created into existence by the central bank are not directly moved into circulation so in that regard do no affect the economy or money in circulation. The commercial bank will pay interest on these “loans”
            Able to lend out multiples of this reserve the commercial bank can lend to a borrower and thus put money into circulation. This money of course is also created from nothing.
            If the bank needs to buttress its reserve account or people will not or cannot borrow any more then there is no effect on the economy from the reserves except the bank is liquid and will not fail unless previous loans in large numbers default which destroy the banks reserves.

            I believe income tax was started in 1913 so that the tax levied was available to pay off the interest and loans from the Federal Reserve. It was sold as a temporary measure but never repealed.
            Here is an account of the on again off again history of income tax in the US

          • michaelcoughlan

            Good man tiny. Corroborates the points made.

            “The commercial bank will pay interest on these “loans””

            Sure they do and that interest cost is recouped from the customer meaning less spend in the economy.

    • bonbon

      An incredibly silly attitude to money, if I may say. The LTRO’s, Big Bazooka, that Draghi just announced again is called a “bail-out”. Have you not noticed the swindle, that I am sure DMcW has, how this is loaded as debt on entire nations? In other word not “borrowing” but LOOTING them to the bone? The death rates of this genocidal policy now visible to even the most clockwork monetary oranges, is damning evidence of quite another process actually at work.

      I think most here are way ahead of you on this one. DMcW could and should use LOOTING instead of that trite “borrowing”.

      • joe hack

        bonbon, long time no read, hope your well.
        Did read above in DMcW piece he mentions regulation it must have made you smile / grin maybe.

        Well I think AIB logic and that of others on fractional reserve banking is similar to what I wryly mentioned.

        rock roll

    • michaelcoughlan

      Hi Paul,

      I’m not as sophisticated as you on these matters but if a central bank uses cash on it’s balance sheet to buy govt bonds surely the money is moving from their bakance sheet to the governments. If the gov bails out a bank with this money is that not the same thing only the taxpayer must pay back the money gained from the sale of govt bonds through taxation?

      • Hi Michael,

        The system is complicated and we have a guide to the system at the link at the very end but I’ll attempt an explanation of how a Government bails out a bank below.

        There are two types of electronic money.

        The first is reserve-account-money which is recorded on the balance sheets of the central bank and it can only be used by the government and the banks as only they can have an account at the central bank.

        The second type is bank-account-money and it’s recorded on the balance sheets of the commercial banks. It’s the type of money those of us in the real world deal with.

        If you pay taxes it’s not as simple as your bank account decreasing and the governments increasing. Instead, you bank account will go down and the bank you have an account with will instruct the central bank to reduce it’s reserve account balance and increase the Governments.

        Conversely, if the Government paid you into your account they would instruct the central bank to lower their reserve account balance and increase that of your banks. Your bank would then be in a position to increase your account.

        Under a bank bail-out the Government first takes taxes as normal. This involves the bank lowering your bank account, getting the central bank to lower their reserve account and increasing the Government’s reserve account. After that the Government instructs the central bank to lower their reserve account and increase the commercial banks account.

        As a result the bank-account-money which was in your account no longer exists. The commercial banks balance sheet looks healthy again though because you bank account is their liability and it’s lower while their reserve account is their asset and it’s higher.

        By the way The EZ central banks cannot directly buy their Government’s bonds.

        Hope that helps,

        • michaelcoughlan

          Clear as mud Paul.

          If the es bank lends money to a third party to buy bonds from the govt it achieves the same result as if they buy them directly.

          When I said that taxes would have to be paid to pay coupons on the extra bonds created it was this tax I referred to not taxes on deposits.

          “Conversely, if the Government paid you into your account”

          What exactly does that statement mean? Unless I was an employee or a supplier why would the gov want to pay me anything?

          • Hi Michael,

            Yep, it’s not easy to explain the system. With “Conversely, if the Government paid you into your account” I was referring to how they pay their civil servants etc.

            I wasn’t referring to taxes on deposits. I meant the payment of any taxes which you pay using any non-cash method.

            To pay any taxes your bank account goes down, the bank’s reserve account goes down and the Government’s reserve account goes up. That’s the accountancy of it anyway.

    • Agreed. Where is the understanding of the fractional reserve banking system. Mistruths are passed as fact. Credibility lost.
      Wake up David you look more and more foolish. Who will pay 600 to go to am economics class to learn the untruth. Seems like most economists do. They are misinformed.

      Discuss this issue or my conclusion is you know nothing at all about money: What it is: What is good money or bad: What is the best money and why.

      A real economist would know the answers or have well thought out reasons to disagree. We all await.

      • whatamess


        YES,we all await!


        DMW ( ‘padawan’ )would be very well served in engaging you professionally to challenge his thinking .But ego will hold him back…real pity tho!

      • McGoo

        Another +1.
        David has repeated that bit about banks borrowing to lend out in several articles, but surely he realises that most of the money they lend is literally imagined into existence at the moment that someone borrows it?

        Is he afraid that publishing that information in a national newspaper will cause massive civil unrest, as the Irish take to the streets and refuse to repay imaginary loans with hard-earned money?

        I’ve often wondered about the legality of fractional reserve banking – surely lending something that you do not have must qualify as fraud?

        • something can be legal in the sense that it is legalized by government but fraudulent in that it is deceptive and not what is advertised.

          Out fiat money system fits that description and is in fact a Ponzi scheme. It requires an ever increasing money supply to stay afloat. The law of diminishing returns means that more and more money at increasing rates must be added. We have reached the deluge stage which is the beginning of the end.

          • McGoo

            >”It requires an ever increasing money supply to stay afloat”.

            Indeed. And since all money is borrowed into existence, it requires ever increasing DEBT to stay afloat!!

            That’s why the governments of the world are implementing the apparently crazy policy of trying to fix a problem caused by too much debt with even more debt – they understand that without more debt, the entire system will collapse. Maybe it will collapse anyway, but I think that very high inflation is the more likely outcome, essentially devaluing all the debt and creating space for even more debt to grow.

          • michaelcoughlan

            “Indeed. And since all money is borrowed into existence, it requires ever increasing DEBT to stay afloat!!”

            And ever more taxes on the tax payer to pay the interest.


    • Adelaide

      Thanks, Paul, for that link last week, it was a most excellent contribution, it was an illuminating read.

      As for why David does not inform his readers of the ‘factuals of how banking factually functions, well, my opinion is, it is not David’s job. He writes for the general public and does a marvellous job of conveying the truths of our present situation. I think any writer of economic articles aimed at a general audience can only hope to ‘convey’ and not ‘inform’. David conveys it in an entertaining readable manner which is no mean feat considering the topic is dreary economics. David’s a talented writer, ‘educating’ the public is and should not be his remit. And his remit is to include ‘non-factual’ descriptions as long as they serve his greater purpose of ‘conveying’ the truth in as short as many typed words as possible. And secondly, David is a self-employed private individual who’s a earning a crust in the REAL world, he has an audience to cater for, not a classroom. The onus of ‘informing’ or ‘educating’ “so that people have a better understanding of it” is the State’s/RTE’s/Government’s/Schools/public servants who we subsidise to supposedly look after the citizenry’s interests.

      • whatamess

        DMW “does a marvellous job of conveying the truths of our present situation” … Agreed ! (well the word “truths” i’m not so sure….there’s only one version of the truth,right?)

        and Yes,while “educating the public is not his remit”,this is exactly how he is actively MARKETING himself and so has gotta expect scrutiny Adelaide? He’s one of Ireland’s “got to guys” to frame complex economic issues in lay man terms,and in fairness he does a solid job,for the most part!!

        • bonbon

          “Go-to guy”? Because of Lenihan’s midnight visit?

          Pecora did a great job of framing “complex” finance in layman’s terms :
          The Hellhound of Wall Street.

          That is what we need now!

          • whatamess

            sure !because of Lenihan’s midnight visit ! the misiter of finance didnt come knocking on my door

            because a quick amble in Easons is a testament to his popularity

            because of tv appearances on prime time slots

            because of


            because because….A SUBSTANTIAL % of Irish citizen TRUST him !

            A Pecora is needed sure,but the ‘blame game’ can BLIND us too and keep us busy fools,while there’s other important work to be done ….

            Monumental damage has been done,time to BUILD for the future…that’s surely the FOCUS!

  20. As far as I can see the main article is full of half truths.
    There is a lot of informed comment above which is valid.

    One aspect of the banking alluded to a lot is the collateralization of performing loans. I am not and have never been involved in the banking industry so all my knowledge comes from reading and observation.

    As I understand collateralization. It is the gathering together of a banks assets, in this case mortgages, and selling to a third party investor.
    I believe there is nothing wrong with this as long as proper disclosure is made and there is no fraud.
    The law allows one to sell an asset. On the other hand a group of mortgage payers (mortgagors) can not band together and pool their debt and sell it to another party who would be responsible to make the payments for them. One can not sell a liability.

    The banks can sell the stream of mortgage payments and the capital sum repayment. The present value (current market value) of that mortgage (all the mortgages) can be accurately calculated using mathematics of finance. The investor can do the same thing and by establishing the return (yield) required will offer a price for the securitized bundle of mortgages and agree on a contract price with the banks.

    The mortgages are now owned by the investor and not the bank subject to other distractions.
    The mortgagors are making their payments to the banks who now act as a service agency for the investor. I have never heard of the mortgagor being directed to make payments to a different locale. (I stand to be corrected on anything here.)
    The other thing is the security of the stream of payments. If the investor suspects that there could be some slow or non payers in the mortgages bought then the rate of return , yield expected, would be increased to account for that risk. In that case the bank would not receive par value for the mortgage portfolio.
    I suspect that the bank (as in the case of Bear Sterns) guarantees the income flow to maximize the amount paid by and received from the investor.

    That being the case the bank although no longer owning the mortgages is liable for collection of the money stream and the rate of return. That is, the bank is liable for any default.
    However the bank is now cash full again and has the money to relend to a new bunch of mortgagors and then repeat the securitization process again….and again…

    Then there is the question of bank reserves and who sets the level. This is the aspect of fractional reserve lending. It appears that central banks set the ratio if indeed a ratio is in fact set. In some countries there is no limit. No one beside myself seems to comment on fractional reserve lending. Why is it ignored? It puts the lie to the statement that the banks earn the difference between what is paid to a depositor and received from a lender. If that were true there would be no boom and bust and little credit available, just that from others savings. The current statement of the bank lending is a BIG LIE never refuted.

    Subject to correction here by our educated commentators involved in the finance business. Deposits and money from other sources such as reserves provided by central banks, are used as reserves on which the banks predicates their lending. If the actual operating ration is the oft reported 20-30:1 then the banks have a huge pool to lend to anyone wanting a loan for any purpose.

    Initially the banks loaned out 30 times more money than they had as deposits. That is their reserves were only 3.33%. Then they hit on the securitization game and found a way to loan the money over and over as described above. However even as their profits grew exponentially so did the underlying liabilities. I suspect that because of the derivatives from the mortgage portfolio the actual operating reserve ratio of the banks were less than one percent.

    Now came the mortgage defaults. The banks appear to have guaranteed the returns to the investment funds. The funds are not receiving the expected cash flow they contracted for. They look for redress. The banks can take back the mortgage portfolio or top up the returns to the investors. In any case they do not have the funds. Instant bankruptcy for the banks. How bankrupt, nobody knows or can calculate. Central banks shovel in reserves to save the banks, credit dries up overnight, the boom goes bust. All the CB credit is charged to the taxpayer, countries are bankrupted overnight.

    All mortgages are set on the “books” of the banks at par book value as to value to market would put the bank further in the whole. Thousands of non/under performing mortgages have no action taken to redeem.
    Banks that foreclose do not own the mortgages so bailiffs are turned away at the door by active knowledgeable home occupiers Courtesy of the like of Greyfox and RR6.

    The mess continues.

    I would like correction if required, on the above and some comment on our monetary system that
    Allows fractional reserve banking
    and allows all central bank notes(money) to be issued as debt at interest.

    It seems to me this is studiously ignored by our host David and most mainstream economists. Either it is correct and happens, and if so the monetary system is correctly described as a Ponzi scheme designed to collapse, and to seize all the accumulated assets or the people and so is the basic flaw in our economy and so far unaddressed or it is incorrect and I will shut up and go home. Either way It needs a confirmation or legitimate dismissal.

    Silence is a condemnation of complicit agreement in the Ponzi scheme. Either the statement that the banking system is a Ponzi scheme or is correct or it is not. Which is it David?

    The first winter storm here, passed by last night, a month early. “This is the winter or our discontent”

    • colmoliathain

      Tony Your reading is extremely informed and accurate!
      For some time Bank Reserves have been set by the Bank of International Settlements through its Basel Committee. Basel I set the reserve at 8% of the equivalent of money, so AAA rated paper and cash etc. However it set a level also for derivative based assets at about 15% from memory. So Tier 1 would be 8 and Tier 2 15 etc. That was supposed to be the cushion, In addition the junior and mezzanine bond holders would mop up the defaults; that is why they got such high return/risk bonds though the Banks (originators) held the first loss piece usually. No one expected the flood to reach the roof but it did so the Seniors got wiped out as well.
      What each originating bank agreed with the receiver of the securitized bundle of mortgages, car loans, credit card debts, student loans (those too!) varied with the asset and the time etc. In some cases (mortgage backed bonds) the bank retained ownership of the mortgage but in proper securitization it did not. So a mixed picture but one which lawyers for the victims of this should be astute to question.

    • joe hack

      Mr. Tony,

      “Silence is a condemnation of complicit agreement in the Ponzi scheme.”

      I assume you mean —Silence is a NOT condemnation of complicit agreement in the Ponzi scheme.

      • Ah Joe it is a while since a chat. Yes it is obscure you are correct.

        Silence is to condemn one to being in complicit agreement with the Ponzi scheme. That is, to be perfectly clear… You are in agreement with operations of a money system that indebts all who use it and in the longer term bankrupts the entire population.
        This money system morally bankrupts the people before fiscal bankruptcy occurs.
        First the bankers, then the politicians and then the people. Then ruination.
        A rotten apple from the core to the outside.

        That is why we hang those bankers out to dry. We need a money system free of the central banks. No more regulation. Kill them dead with a stake through the vampires heart.

        Your welcome Joe.
        Meanwhile back on the farm….

    • Pat Flannery

      Tony Brogan: the reason I don’t normally comment on your posts is not that I agree or disagree with you it is because I do not consider mortgage securitization as part of fractional reserve banking which is your usual area of comment.

      In this post however you go into the mechanics of creating mortgage-backed securities and relate that activity to fractional reserve banking and have asked for comment or correction.

      I have no argument with anything you wrote other than to repeat my position that mortgage securitization is not licensed banking activity any more than selling postcards in a bank foyer may be. As Colm points out above the failure of Ireland’s legal profession to unravel the contractual complexities deliberately put into the issuing securitization contracts is a major obstacle to Irish economic recovery.

      Keep up the good work pointing out the weaknesses of the world banking system but be aware that mortgage securitization is an entirely separate business. To illustrate this I would point out the fact that the vast majority of U.S. mortgage-backed securities was created by Countrywide before it was taken over by Bank of America. The reason the U.S. government demanded that Countrywide become a bank was because it could more easily justify bailing out a bank than bailing out a non-banking corporation.

      It is time opinion leaders like David McWilliams started to point out that basic fact. That will need to happen before, as Colm points out above, the legal profession even begin to examine securitization and the ownership of the security interests created. That is why I am so hard on David.

      • Hi Pat, thanks for your comments.
        we have similar backgrounds when it comes to occupation and the regulation of that occupation.
        In BC all real estate activity is self regulated but under the umbrella of the Attorney General. The real Estate Council of BC is an elected body of Realtors from each county(region) in the Province. It is acutely sensitive to public perception and is very strict on adherence to the regulations drawn up to protect the public interest.

        I am sure it is similar in your jurisdiction and I do not tell you what you already know but point out this for the general readership.

        The banking fraternity appear to have no such “self regulation”.

        In as much as you say that securitization is an
        unregulated activity, which is true, so also is the fractional reserve system of banking.

        “He who sells what isn’t his’n
        must pay it back or go to pris’n”
        does not apply then it comes to the production of money by banks. In fact it seems to be allowed by government without any impunity so the theft is legalized.

        Securitization allows the replenishment of funds to the bank to issue more loans and so earn more commissions and fees. The contango on the interest rates is not the deal as far as I can see but the constant roll over of the money keeps the fees and commissions rolling in which is the profit base.

        The point of the fractional reserve system is to get the ball rolling by providing a large amount of money for the loan portfolio to start. Also the amount of securitization affects the reserve ratio so I see the two as interlinked.
        Without the fractional reserve system in use the initial pool of money to lend would be a “fraction” of what it is and so the amount of possible securitization is reduced proportionally too.

        Two different business “profit centers” but in my mind connected.

        Ultimately I believe the banks will wiggle around any regulation and so it is wise to treat a bank like any other business. Prosecute fraudulent behavior. Allow them to operate as they wish but most of all allow them to fail.

        Worrying about the bank depositors is like worrying about stock/bond investors who regularly loose money without any government guarantees. Put depositors in the same position.

        We have an adequate banking system to return to. It is called the Post Office. The infrastructure is in place. It is regulated. It does the job. We do not need the central banking system or the attendant fraudulent activities. Neither do we need to worry about securitization.

        If the law were applied to effect that only the holder of the mortgage could foreclose on a defaulted mortgage then more care would be taken of those documents and securitization would be naturally curtailed.

        Separate business models , yes, but one is connected to the other in my mind.

        Do you have any information as to how Countrywide Financial raised the money that was loaned out before they got into securitization? I could not find any reference to that. Did they go to an IPO or borrow directly from the Banking system?

        Enjoy your day Pat.

        • Pat Flannery

          Tony Brogan: Yes, Countrywide borrowed directly from the banking system using a line of credit which they rolled over on a daily basis.

          I actually did it myself in a much smaller way.

          When a Realtor/Mortgage Broker uses his/her own money they become a “direct lender”. A line of credit allowed us to “fund” our own loans on closing day. This had many advantages, the biggest of which was that the “funder” retained the lucrative servicing rights.

          I actually only serviced a small number of “owner-carryback” and “hard money” private loans myself, for a small number of private clients who liked to buy “second” mortgages for their self-managed investment portfolios.

          The big “first” mortgages I immediately sold on to a consolidator who in turn sold to another consolidator and on up the line until somebody on Wall Street wrote a securitization contract for the final “bundle”.

          This “bundling” was a sophisticated art in itself as it involved slicing the bundle of loans into various levels of risks called tranches and selling each tranche to different investors at different yields reflecting different levels of risk. This was way above my head as the lowly originator/funder.

          But as the funder I owned the servicing rights and was able to pick up an additional point by selling them up the line. This was in addition to my usual loan origination points and my “yield differential” points (a point being 1% of the loan amount) which varied on how well I timed my funding vs. my contract (lock) with my borrower. I employed a very skilled “funding manager” for this key salary-and-bonus job who could, and often did, make more money than me.

          The whole thing was a very lucrative business provided I originated enough loans to keep the line of credit cranking on a daily basis, even on a multiple-times daily basis.

          I was a hard task master on my loan agents and on my in-house processing team and on my hard-working escrow girls. Those were wild times.

          Countrywide started up the road from me in Southern California and just grew to be the biggest originators in the business. They did exactly the same thing I did and operated under exactly the same (real estate broker’s) license.

          Before I started funding my own loans (through a bank line of credit) I put all my VA and FHA (government insured) loans through one of their small local offices back in 1976/7, which must have been around when they started. They only did VA and FHA loans at the time as the U.S. Government was the only one allowed to issue mortgage-backed securities.

          My conventional loans (non-government insured) I put through any local Savings & Loan. That was before the S & L’s self-destructed and opened the doors to securitization of ordinary “conventional” loans.

          When securitization style lending spread to Ireland it had been well developed over many years first in California then across the rest of the U.S. and finally in Europe. The difference in Ireland was that the Irish banks hogged the entire lucrative business for themselves by not giving lines of credit to anybody. Banks became the only funders.

          So you asked exactly the right question. And as bonbon is constantly pointing out here, if Glass-Steagall was still in force in the U.S. the Irish banks would never have been allowed to hog the whole lucrative mortgage loan business for themselves with such disastrous results.

          • Thanks Pat.
            Very informative. quite different from our mortgage practice in my business where we searched out the best lenders for the product being sold. In later years mortgage brokers sprang up all over whose primary function was to place loans with the major banking sources at the best rates and conditions suitable for the borrower. Mortgage Broker fees were paid to the MB by the lender.
            I, as a sales person, often reviewed what was presented by the MB and advised the buyer as to what we thought. Most high ratio mortgages (over 75% loan to value ratio) were placed with the same lenders but subject to acceptance and to be insured by Canada Mortgage and Housing corporation. CMHC. loans could go to 95% L/V ratio and at one point there were cash back incentives to borrow.

            Today those have been retracted and the highest ration is now 90% L/V ratio as set by the federal government.

            The fact that the L/C were available from the banks to allow Countrywide and others to securitize the mortgages and keep the credit revolving as the cash returned allows some basis to the availability of fractional reserve banking.
            Two separate businesses but one supported possibly by the other.

            If as you say GS had been in effect in the US, how would this have affected the Irish banks?

          • I forgot to mention that the fractional reserve banking provided the easy credit to allow all those mortgages to be issued in the first place or there would have been nothing to securitize.!!

          • Pat Flannery

            Hi Tony,

            It seems that Canada did not embrace securitization as eagerly as did the U.S. Once we small local brokers had perfected the art of originating loans in large numbers and selling them to the big boys on Wall Street that Wall Street decided to come to high street in the form of Prudential Real Estate Co. That changed everything. Prudential were now doing on a national scale what we were doing on a local scale.

            Then Re/Max, Coldwell Banker, everybody started originating and funding their own mortgages and selling them on Wall Street. The buyer had little choice but to get their mortgage where they got their house. In other words every real estate agent became a loan officer.

            As for GS preventing Irish banks from getting into the securitization bonanza, I may have just thrown that in to make bonbon happy. He always chides me for never mentioning GS. But he may be right because the Irish banks take their cues from Wall Street and may be similarly restricted if the U.S. banks were confined to banking.

      • bonbon

        The “universal banking” model referred to by Draghi, Schäuble, Bernanke et. al is exactly the model that allows the MBS, or ass-backed, securities, basically toilet paper, gain access to your account. Glass-Steagall seperation prevented that until 2000. You must know this, and that is why I am so hard on induced amnesia.

        • michaelcoughlan

          Just for you bonbon;

          Why reintroducing glass stegal would never work;

          Love cuddles and kisses,


          • bonbon

            I am sure Dimon et al are telling their servant Barry O’Bama exactly that today as they cuddle.

            JP Morgan had exactly he same argument in 1933, and the Hellhound of WallStreet, Pecora, dealt with that minor obstruction.

        • Deco


          I agree with the re-introduction of Glass Steagall.

          It makes perfect sense. It is in the public interest.

          It is because it will make banks more transparent, and more virtuous, that the banks themselves are against it.

          The solution, for a world where the banks will not allow Glass Steagal, is to allow the banks to fail when their recklessness drives them to it.

          Scrap “TBTF” (too big to fail). Scrap bailouts. And if you do that, then the banks will be very eager to drop their opposition to the reintroduction of Glass Steagal.

          The current regulatory environment is assymetric. At some point, the entire system will be driven to bankruptcy and failure.

          Until that point, there will be a series of “kick the can down” based policy initiatives. The outcome will be the same. The real left, and the libertarians are both correct in their assessment of the situation.

          The mainstream element are completely in denial. They are mainstream because they agree with the media, and the media have been getting economic prognosis wrong for three decades, and possibly even more.

          • michaelcoughlan

            Spot on analysis deco. I hope bonbon doesn’t warp your post and accuse you of wishing for genocide as he has done to me previously.

  21. bonbon

    For the financial lawyers, apparently here :

    JPMC and CEO Dimon are afraid of N.Y. A.G. Eric Schneidermann

    NY Attorney General Schneidermann is effectively leading a Pecora Commission, setting the scene for re-in-statement of Glass-Steagall : 33 pages of legislation which worked till 1999 (even though savagely chipped away), compared to 700 pages of the Gramm-Leach-Bliley Act, Dodd-Frank, and somewhere no one is sure,the Volcker Rule.

  22. bonbon

    Hellhound of Wall Street – For the New Banking Inquiry

    The Hellhound of Wall Street : How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance

    by Michael Perino London: Penguin, 2010

    The review here shows how to deal with the banking problem today.

    • joe hack

      “This book, therefore, from the pages of history, indicts President Barack Obama as a willing tool and agent for Wall Street, who has protected his masters from the scourging indictment and purges which a humble Italian immigrant, Ferdinand Pecora, inflicted on the financier “masters of the universe” in ten short days of early 1933, even before Franklin Roosevelt became President”

      I don’t have time to read it now but it looks like interesting read one wonders why always the focus on the USA.

      It seems we may be better off focusing on Ireland and living within our own economic environment.
      This may mean been poor but as has been said a man who owes nothing is by definition richer than the man who owes something but of course the reverse augment goes something like this when you’re in debt you’re in the game (the Hook) and the lender must keep you in his game if they want their money back they must. Ask a poor homeless person with no debts “rich” how hard it is to get back in the game.

      However for me this does not relate to the debt money (relatively rich or poor) but it relates to debt enslavement control. In reality it is (Ireland’s) our system that need changing so let start trying changing Ireland first and get out of this system.

      debt is the hook

      • bonbon

        It would be nice and Tigerish to think “our problem” is unique. The disaster began in 2000 as DMcW observes, but as I firmly explain, just after Glass-Steagall was repealed in D.C. It is is clear the U.S. will take the leading role re-instating this, and Ireland must outspokenly and loudly support and push this through every channel available. Never mind the paid servants including some diaspora there who defend their masters Wall Street. This is major league political economy, not some greasy till. Who says we should fumble, count the pennies? Ireland knows where that leads.

    • Ryu Hayabusa

      “Those who don’t know history are destined to repeat it”

      Good Article. Interesting bit where he was overlooked for the District Attorney’s position for being too honest!

      Similar disdain shown to whistleblower’s in the current environment.

      The name’s change but the game stays the same…

  23. [...] always going to have to be dealt with by the State, as in Cyprus, Spain etc. Cue McWilliams 2.0: Grim reality of the guarantee | David McWilliams Apparently, Golden Balls is now also of the view that the Guarantee is not the problem, and that [...]

  24. redriversix

    Good Morning

    Their are some great posts on this thread…….

    It is always difficult to write something you know you want to and transferring it down “on paper” can be difficult for me.

    Have you noticed something different in this financial War from conventional Wars..?

    No friendly fire..! No “blue on blue” incidents……No Bankers hurt by accident..The accuracy of E.U Finance Ministers is astonishing.

    The fines that have been imposed on Banks over the last several years for breaches or financial irregularities are not fines at all as they are factored in to P/L as the cost of doing business.

    I believe articles written today about what happened the night of the Bank Guarantee are a easy way out for economists who do not want to face the truth of today as to what is happening in Society here and around the World ,primarily Europe & the U.S.A.

    Banks are stronger now ,probably stronger than any other time in Irish society , are they the real culprits or were they just “the dealers”sent out to dark,damp street corners to sell their drugs while Central Banks & regulators import cheap product..?

    Who really is in Charge ? Department of Finance ? Central Bank ? E.C.B.. I.M.F..? World Bank ? B.I.S ?

    Why cant Banks go bankrupt and close ? why is a Bank worth more than a small family business on the other side of the street..? Banks are Companies,same as every other business….

    Is it because Banks promote and enjoy the benefits of the “chicken Licken” conspiracy theory..?

    “if a Bank goes bust the sky will fall in”?

    Well , the sky won’t fall in , life will & would go on..but nobody in power will allow it to happen as there is no benefit in ending this Financial War..too many people in power have benefited and continue to grow rich from the chaos.

    The only thing that matters now is you & me..our families and how we can survive and get through these changing times intact & strong.

    unfortunately , Our “World” is were all the Casualties of this War are…the underpaid,underemployed,unemployed,the young , the Old,the sick , the disabled , the destruction of the middle or coping classes..the criminalization of the working class. the small business owner trying to cope week to week , afraid to open their business..afraid to close their business …stuck in a spiral of creeping debt , a family life breaking down..pinning their hopes on next week,next month or next year when they are unable to get through today……….

    I survive week to week , trying to get a job trying to keep a roof over my families head..trying to feed,clothe,educate and keep them safe,strong & positive….

    I do the best I can to protect my family whilst adhering to the laws of this Land……

    Do Banks operate within the laws of this Land or their license ? does Government ?

    How can you adapt & overcome ? Do we really know what is important now or should we bury or heads further in the sand hoping things will get better..?

    Remember to hug your kids this morning and ask THEM how they are ?


    • Good comments Barry
      Saw my kids yesterday as we gathered together to greet my sisters arrival for a visit to Victoria. She and her husband, both retired at 76 and 70 were over from six months in Europe and UK and they are returning to New Zealand.
      I hear Kim Dot Com is released and getting compensation.

      Hugs were all around and thanks for relative good fortune. :-)

    • michaelcoughlan

      Superb post as always Barry.

      God bless.


    • paddythepig

      “Our families”. ?

      You don’t speak for my family.

      • redriversix

        quite right Paddythepig

        anything positive I try and write would obviously exclude your family………..!!

        Ridiculous Paddy…

  25. goldbug




    NO WAY.



    • bonbon

      You somehow missed the most important point :
      7. A catastrophic collapse accross the entire Transatlantic region. It is totally daft to imply “they” are in control of that.

      Keep this in mind when presenting, firmly, bank separation. Let them “manage that”!

  26. cooldude

    “Honesty and integrity are the two most important attributes to be successful. If you can fake them you have it made. ” Groucho Marx.

    Lots of bankers seem to have grasped what Groucho was saying.

  27. The Legal-Illegal Game

    Greetings Colm,

    there are some better informed people posting here from a legal point of view concerning international law I assume, also probably well aware about international contract law that could have found application in Ireland and other austerity imposed on countries, but was silentely washed aside.

    As for your astonishment concerning Ireland’s wigged class, well, allow me a small example of the two forked tounge speaking in Ireland.

    The Gaming and Lotteries Act of 1956 states that casinos are illegal in Ireland. Due to the existing loopholes in the law, the establishment of private clubs offering casinos is allowed. Hence private casino thrive in Ireland.

    This is just one of many more examples, and in my opinion Ireland’s legislation is a “well established” loophole legislation where members of the club are beneficiaries. I go as far as to say that there would be a need to ditch the entire constitution and start from scratch, but such platform here is not suitable for such in depth discussion.

    Guess why Maples & Calder where so very welcomed in Ireland by the members of the club.

    I am afraid such is the sad truth of reality in ireland but certainly not only here. It is a phenomenon that can be observed and described in details in other countries and institutions as well, in particular in the “trinity” of the European Institutions, Commission, Council, and Parliament. One keyword here is EPP to be very aware about.

    All my best

    • bonbon

      A very typical myopic EU point of view. Time to broaden your horizon, and understand Glass-Steagal, FDR,, Hmiltonian political economy. It, as usual will be driven by the USA, “europeans” being shown yet again for what de Cusa well knew in 1450. Look West! Dump the British Royal Dumbness imperative!

      A great example is Oskar Lafontaine shoving his foot in the mouth by correctly referring to the 1933 bank-separation, and then quoting Teddy Roosevelt from 1911! Die Linke never get it right.

      • michaelcoughlan

        Just for you bonbon;

        Why reintroducing glass stegal would never work;

        Love cuddles and kisses,


        • whatamess

          Matt Dillahunty /Tracie Harris (of Godless bitches fame)

          Argument from ignorance:
          “For clarity it’s not that you’re stupid,it’s a particular logical fallacy that assumes that an explanation is correct as long as it hasn’t been disproved or an alternate explanation hasn’t been proved”

          “the CONCLUSION is the point where you stopped thinking, stopped investigating and gave up ….ending your frustraction, with a pacifier”

          (not my intention to sound condescending)

          please no comebacks comparing GS with dragons

          • whatamess

            to further clarify

            i think your ‘pacifier” Michael, is you feeling you have NO power and so resort to rubbishing Regulation which could be the blue print to saving us from impending doooom !

            just give it some thought,that’s all

          • michaelcoughlan

            Thanks for this whatamess.

            A very insightful and well thought out response. (I hope I dont sound condescending),I Learned a lot from it too and there may well be some uncomfortable truths for me in it also.

            HOWEVER once again, IM NOT OPPOSED TO GS.

            I’m trying to drive into the heads of people like YOU that YOU are empowered and in control of your own destiny IRRESPECTVE of whether GS gets reimplementef or
            not. YOU are NOT doomed. It is YOU who have given up thinking
            that there are other ways you can thrive GS or not and you yourself it could be argued are the person that the post above was in actual fact meant for.

          • michaelcoughlan

            “For clarity it’s not that you’re stupid,it’s a particular logical fallacy that assumes that an explanation is correct as long as it hasn’t been disproved or an alternate explanation hasn’t been proved”

            This part of your post is ESPECIALLY applicable to bonbon!

            When you read confessions of an economic hitman by perkins you will understand WHY regulation is of little or no use in attempting go rein in bankers.

          • whatamess

            “i’ll see you when you get there…”


    • colmoliathain

      I’m not at all well enough informed to comment on Irish legislation outside of the very narrow area in which some clients have been involved. In that area there seem to be glaring issues of the constitutionality of the IBRC Act of 2013 and issues concerning Human Rights and the ECHR in particular as well as European Law which I do not see discussed in newspaper articles or even here to take another example except in rhetorical terms. It may well be that Irish lawyers are indeed arguing these points in the Irish Courts with the intention of ultimately raising the cases in Europe but that journalists generally being ill informed about the law and not adequately trained to research it simply do not report anything other than the eye catching details. However reaction here and elsewhere suggests not and that cases arising out of the banking crisis are simply cycled through the courts with little regard to the rights of litigants often appearing in person as the major legal firms are all retained by the banks.

  28. Deco

    the grim reality of the guarantee…..the Irish establishment are rotten with gombeenism.

    And the entire EU relationship is now working towards the returning to the same way that the relationship existed with the Crown, in the British Empire years.

    The Castle Catholics have engineered a means to put leverage themselves and attain the nirvana that James Howard Kunstler warns as being the root of a decadent society. They have attained the position of “something for nothing”.

    The guarantee, the republic, representative democracy, socialism, capitalism, catholicism, all the other ideas were great in theory, and sometimes even highly beneficial in practice.

    But gombeenism always shows its toxic tendency to emerge in the system, and rot it from within.

    Ireland is the Richeliue state. Corrupt. Untrustworthy. Unaccountable. Imperial in pretence. Bankrupt in reality. And completely rotten with deceit.

    “With deceit, we implement gombeenism.”

  29. Ryu Hayabusa


    Very amusing. Karl Whelan was shipping some abuse on twitter following an appearance with Vinny Browne [[[and in stepped… THE IRISH MAMMY!!!

    How dare you badmouth my boy!

    If the awesome power that is ‘The Irish Mammy’ could only be harnessed for the forces of good. . . Why the possibilities are practically endless!

    We merely need to concentrate this unwieldy power source and direct it toward the dark lords who are passing themselves off as the present administration.

    T.K.O. :D

    • Deco

      Karl Whelan, at the time of the crisis, was revealed to have an inadequate knowledge of what was happening. There are people driving taxis, who might well know more about economics.

      • Ryu Hayabusa

        Yes, he was indeed but he was in good company from some of the ‘established’ stalwarts.

        Every week the likes of Brendan Keenan, Jim Power, Austin Hughes &Co. are on the papers and/or the airwaves doling out their esteemed opinions. :O
        -which they can stick up their collective arses by the way!

        Morgan Kelly wiped the floor with Keenan & Jim Power in 2007 when he foretold the property crash &the related impact on the banks.

        The smarmy way in which Keenan scoffed and looked down his snoot at him when Kelly dared to dispute his contention that the Irish Banks would have an adequate provision for property losses of 1% (as predicted by Deutsche Bank, Morgan Stanley et al) will go down in the annals of history!

        He then proceeded to make a hare out of Power.

        Yet he is still derided in certain circles?! Called a crank, prophet of doom, nutter etc.

        Probably until the nuke button is hit on the mortgage timebomb he will not be properly vindicated in his position on a broader scale.

        Not everyone lambasted the man& adopted the absurd stance of ‘The Bert’

        The crony/gombeen culture here certainly stoked his vilification but not all Irish people are of that mindset thankfully!

      • Ryu Hayabusa

        Incidentally for anyone that hasn’t had a look… \O-O/

  30. Paul Divers

    You don’t understand. I coulda had class. I coulda been a contender. I coulda been somebody, instead of a bum, which is what I am, let’s face it. It was you, Charley.

    The quote above captures gombeen (conservative) ideology in a nutshell – always look to blame and massage your sense of inadequacy by terrorising people who can’t defend themselves.

    Welcome to the future. Fascist nut cases gaining ground in Greece and Britain is just the start. 400 British servicemen signing The Sash on the field at Ibrox last Saturday is about as openly fascist as you can get especially when the MSM blanks the story as not newsworthy. If you are not alarmed then you should be!

    Sccotland’s Shame was tweeted by George Galloway and later he was threatened with murder and the raping of his wife but here in Ireland they are much more subtle in their threats

    Ireland has been a closet fascist state since 1922 and today the government is revealing it’s fascist tendencies by the day and they are proud to let you know it by giving you the middle finger when you are naive enough to dare ask for public debate.

    You are being deceived and screwed in the arse in such a clever way that you will have grey hair before you know what hit you. You silly boys and girls

    Apparently the brain dead can be found at Fine Gael rallies too and I had an interesting weekend reading Irish forums in order to get a ‘grass roots’ feel for the Irish psyche and I what I read left me feeling disturbed. The viciousness and parochialism is alarming and it is not a far cry from Wicker Man territory.

    Deco’s post was the reason I wrote this because he seems to be the only one who has a realistic grasp of the Irish psyche. It was the only post that touched a chord because it is closer to the truth than the crap articles and incessant self interested rantings of gold bugs, lawyers and assorted smooth talking chancers.

    We are not buying any more deception. You could give Tony Blair a few lessons in bs!

    • Colin

      Does George Galloway turn on his Twitter machine when Celtic fans sing IRA songs to voice his outrage?

    • DB4545

      Paul I think we will all be astonished at how quickly change comes when the tipping point is reached. The Grenztruppen de DDR were the old East German border guards who at their peak had a force of 47,000. They had training schools and divisions and battle groups and along with the Stasi were a key element of the East German power structure. With growing civil unrest the military and volkspolizie (people’s police) had a choice, they could turn their guns on the people or they could blink, wisely they blinked. Within a year the Grenztruppen were disbanding and fading into history. The DDR leadership had completely head-f**ked the population of East Germany. But as soon as the wall came down the Ossies streamed into the West and knew they had been f**cked over. A week after that wall started coming down I was looking at a section of it from the East Berlin side. The Grenztruppen had more pressing matters than me to worry about like who was going to pay their wages. It was remarkably graffiti free with one exception. Someone had thoughtfully sprayed “F**k Maggie Thatcher” on the otherwise pristine grey concrete. I think we’re about to see a similar level of change in the West. I think it will be that quick, I know it won’t be pretty and I fear for my family and my country. I hope the people who may hold the guns are wise and blink too.

  31. Dorothy Jones
    David McWilliams on the Bank Guarantee and Pre-Crisis Regulation poste on Irish Economy by Philip Lane. It’s the last article, this one hasn’t been posted under the title, although it’s more relevant.

  32. 5Fingers

    I have to say that the quality of blog commentary was one of the best I have seen is a long while. Very educational and it is very obvious that the rules of engagement are very vague and shrouded in archaic language of legalize. I can see why the article is very loose and grey. There seems to be no systematic way of pointing the finger to the problem at all.

    All of this is a pity because it means nothing will change as a result of rational action. This means that social and market upheaval will be let do its inscrutable job. Economists have no idea what will happen as they will merely report on the past and apply a model on it that 90% of the time will not apply to the future. Government and its coterie of well paid advisors and policy makers will game the system to suit their ends and this along with bankers as well. But it will all blow up.

    I have to say that since the days I started voting some 35 years ago, the western developed world has never looked so poorly led or uncertain about its future. Nothing is healing at all. We are drowning in a sea of concocted waffle and are heading to the next Mega Bust As Fizz Cliff II comes looming in about 2 weeks time.

    • michaelcoughlan

      Hi 5fingers,

      Much food for thought in this post thanks. You CAN create something special for you and your family but thd first steps arenot to lose hope and clear your mind of negative thoughts.

      I never thought in my lifetime I would find myself quoting Michael bleary but he was asked in his primerime interview the other night who he thought things would go for the future and he said Ryanair will continue to thrive and prosper as will other well run companies.

      He never once mentioned anything about banks. GS, excuses of anysort etc.

      I agree the westernworld is in for some enormous changes but those of us that can adapt will prosper and thrive.

      • michaelcoughlan

        Michael oleary that should be.

      • 5Fingers

        Tom Clancy just died. I was a sucker for all his page turners.

        I do not mean to convey negativity. I just see a lot of crap coming and it is annoying to see those we elect not give a toss. On a positive note, I think the system is well and truly broken and may (and this is important) allow the basic rules of good business practice to prevail.

        • Ryu Hayabusa

          Sad News for sure… :( Hunt for Red October book& film were top notch.

          Wouldn’t have got the Splinter Cell fix also were it not for Tom.

          Cardinal of the Kremlin is my fave of his novels, excellent book.

    • DB4545

      I couldn’t agree with you more 5Fingers. As a young man was utterly convinced that the USA was always a force for good in the world. As someone else said they sometimes behaved like a large friendly dog in a room full of crockery and something invariably got broken. I’m not doing the liberal intelligentsia attack here because this country would be a lot further in the toilet if it wasn’t for the USA. We benefit from a free security umbrella, direct inward investment and goodwill from the diaspora. Bill Clinton may have had his extra curricular interests but we’re a world away from concerns about a dress in a freezer. It seems almost a time of innocence. But post Clinton the West and the USA has lost the high moral ground. There’s no attempt at decency it just looks like drone diplomacy and resource grabbing. It says it all when Mr. Putin can lecture the West about getting into bed with people who eat the hearts of their enemies. Putin said that anyone who didn’t miss the Soviet Union hadn’t got a heart but anyone who wanted it back hasn’t got a brain. We’re racing towards an abyss led by a financial system that has a brain but no heart.

      • bonbon

        If that Putin quote is actual, it’s good!.

        Putin has saved the world from Barry O’Bama’s owners going straight for thermonuclear war. That takes leadership. And The USA lost ground directly and because of the assassination of JFK. A long destructive downturn leading to Detroit for all, here in Europe too. To watch this from Moscow is very alarming.

        To get things back on track, first the banks must be split, Pecora style, and then 40 years of lost ground made up with NAWAPA XXI, the greatest intervention ever. Russia has its plans, and Europe too, which will naturally take off.

  33. Paul Divers

    According to the Headline Analyser Tool on the Advanced Marketing Institute web site the headlines on this blog fluctuate somewhere between good and poor. For any of you who blog and/or use social media this free tool could be useful when you are crafting killer headlines that attract eyeballs.

    Headlines from the recent past:

    A quick nap doesn’t mean you’re lazy it’s key to being productive – 50%

    Growing old disgracefully Where elderly can never afford to retire – 40%

    Dark arts of the bankers –

    An uncomfortable truth about eurozone growth – 16.67%
    The shocking truth about eurozone growth – 33%
    (see how even one word can make a difference?)

    Remember it is only a tool but hopefully one of you will have a play around with it for 15 mins until you get the idea :-)

    Have a great day!

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