March 5, 2015

A new reality after bankruptcy

Posted in Irish Independent · 89 comments ·
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Every morning just before 8am I walk our dog over Killiney Hill. On a crisp morning, which is most days actually, there are magnificent views from the Obelisk at the top of the hill out to the Irish Sea and back around in a sweeping arc from Bray Head to the Wicklow and the Dublin mountains. It is a wonderful way to wake up, even more refreshing these recent few days due to the icy east wind on the sleepy face.

Last week, for I think the first time this winter, it was clear enough to see the imposing Mount Snowden in Wales rising majestically on the horizon some 60 odd miles away.

In the winter, the hill is special because the sunrise is late and first light sparks up the countryside beautifully.

Doubtless, views like this must inspire the O’Donnell family each morning. Their mansion, Gorse Hill, is directly under the Obelisk as you look down from on high towards the Dart line. In fairness, the public views from higher up must be better, but to wake up and look out at Killiney Bay from your own gaff every morning is obviously something worth fighting for.

I am not going to go into the “ins and outs” of this particular case, but suffice to say that it is less easy to feel sorry for the O’Donnell family’s plight than it is for much poorer people, with much less salubrious gaffs, in much less upmarket areas who are also facing repossession.

That said, no matter what your circumstances, there is little doubt that bankruptcy is a horrible process and up to now it is one where the banks almost always win, even though the banks are as up to their necks in the reckless lending as the bankrupt is in reckless borrowing. This asymmetry is unfair because there were two parties involved in the initial loan and they are both responsible.

Co-responsibility should always be the end solution, whereby the bank takes some pain, as does the debtor.

Possibly the debtor should take more, but to frame the financial redress so the bank gets absolutely everything back merely encourages reckless lending. If there is no sanction for reckless lending, why would a bank ever not lend as much as possible?

Giving the banks primacy in a slump means that more assets are likely to be sold under the market value, ensuring the gap between the distressed sale price and the original debts will tend to be higher.

Why is this?

It is because of something called the “paradox of aggregation” in economics. This means that what looks good for the individual is not always good for the collective.

To see how this works, consider the example of bankruptcy. If your own balance sheet is broken with too much debt and too many leveraged assets, as is the case with the O’Donnell property empire, the bank will advise you to sell your assets to pay off your debts.

This is great as long as the bank doesn’t suggest that everyone else does this at the same time.

If everyone sells their leveraged property at the same time, what do you think happens to prices? They fall.

But the debt doesn’t fall. So in this way, the person who tries to sell most ends up with the most debt. Because the banks want all their money back, we tend to get this evolution of the property cycle. Bank lending forces up prices at the same time until they crash and then bank deleveraging forces all house prices downwards at the same time.

This implies that the gap between bad debts and realised asset values is large and permanent.

We would be better off if the banks took their time forcing sales, but the banks would only have an incentive to do this if they knew they were going to take a hit regardless. But they don’t and we get the paradox of aggregation playing out on the upside and on the downside.

In truth, in the real world, no matter what the banks might maintain, when we have massive bankruptcies, everyone does take a hit. Everyone has to.

The borrower has to sell his assets and if these are not sufficiently valuable to cover the debts, then the bank should settle. There is no point going after a person if they have nothing left.

In Ireland we have always believed that somehow failure should follow people around for decades like a bad smell. This is in marked contrast to the United States where people fail all the time, before they dust themselves down and try again, often succeeding in the future.

If you adopt the Victorian debtors’ prison approach to bankruptcy and punish the debtor to such an extent that the debts follow him around into perpetuity, what incentive has he to rebuild his life and income, if all his income forever more is going to pay for past mistakes?

Obviously, what the debtor thinks is reasonable and what the banks think is reasonable are normally miles away from each other, which is the primary reason they go to court.

It is hard to understand how Brian O’Donnell and his wife feel that with debts of over €70m, they can hang on to their house, particularly as it is such an obvious trophy home.

They argue that the house is owned beneficially by their children and they are giving the parents “permission” to live there.

Everyone is entitled to do whatever they like within the law, but the motives of buying a trophy house and then wrapping it up in a convoluted legal structure are difficult to understand.

Once the empire of debt crumbles, both parties have to face the new reality.

One of the best quotes about debts and crashes was coined by John Stewart Mill, the great English thinker and economist, who said of crashes: “the crash doesn’t destroy wealth, but merely evidences the extent to which wealth has already been destroyed by stupid decisions taken in the boom”. This is always the case.

The moment Mr O’Donnell started borrowing lots of money, he was destroying his own wealth.

Once the borrowing stopped, the asset started falling in value and he was left with the debt. Because in a crisis all the borrowing is withdrawn at the same time, there was nothing to support the assets, so it collapsed in value.

This is the age-old commercial cycle of ups and downs, booms and busts.

In economics and finance, as in nature, there is an almost relentless, repetitive cycle. The only way we can look forward is by acknowledging that yesterday is over, night falls and a new day dawns.


  1. SMOKEY

    The absolute waste of resources by the state propaganda machine covering this non story is revolting. RTE doing what is does best.

    • Deco

      +1.

      Nobody consents to the TV tax. It is enforced through a threat of a jail sentence.

      By it’s very nature if is disrespectful of people, and it is patronizing.

      Get rid of it. Let the RTE rich list find out ways to the property investment blunders.

      • Deco,

        One for you, even if it is Eamon Ryan:

        ‘The M50 grinds to a halt twice a day… we can’t build further out’

        http://www.independent.ie/irish-news/future-proof/the-m50-grinds-to-a-halt-twice-a-day-we-cant-build-further-out-31035344.html

        • Deco

          Eamon Ryan sees sense – after he gets dumped by the electorate. Proof that we should dump government ministers out of their Dail seats more often.

          We have an uneconomic settlement pattern. In general we have a problem across rural Ireland.

          But we also have “sub-rural” – an extension of “sub-urban”. And it involves people driving from Westmeath to Sandyford, etc.. every day.

          Apart from that, there is a serious case to be made for moving one of the Dublin universities to Waterford. Or maybe Sligo. It would make the cost of third level much lower for a substantial proportion of the population. And that would free up space for people who wish to work in Dublin.

          Dublin also lacks height for a European capital. I am talking about the area to the south of the Grand Canal, and which is in walking distance of the main CBD. It would be better it was at least four storeys higher. Many people would be able to afford a car free existence, and not forced to live in Kildare.

      • Bamboo

        Nice to have MSM overvalue this property so much. After all that is what these people are looking for. Get media attention, dramatize the whole thing then everything will run its course. The ozzies and Singaporeans will be green with jealousy to have a property hiked up so much.

      • Bamboo

        I was just back in Ireland for two weeks visiting my family. Was confronted with the whole Paul Murphy and Garda keeping Joan burton in a car for two hours. Very clever by the gov, guards and rte to set this up I must say. Maybe I am understanding it wrong.

        • coldblow

          I joined the water protest in Killarney last Saturday. There was something appealingly old fashioned about it, perhaps it was just that many of the protestors were quite old. In a way it reminded me of Conradh na Gaeilge. I have to say I enjoyed it a lot.

      • Bamboo

        I tried to follow a link to an rte news clip. After clicking on the link and looking at smiling Ryan T… it tells me I should get the app, Which I already have. That took me a while to figure out there is small x in the corner to continue. Then a full green screen doing nothing for at least 30 secs. Then some movement appears so I was forced to watch an add for 26 secs. Then another pause to be followed by a another 16 sec add. Finally I got to the news clip, the quality was so appealing that I gave up. The technical quality of the add was excellent but the news clip, hmmm. Not a lot of bandwidth is given to the service but plenty for advertising. That is why you pay TV license.

        • coldblow

          I find the RTE Player more trouble than it is worth, for the reasons you stated.

          • SMOKEY

            https://www.youtube.com/watch?v=vBEFUfupx_k
            This your licence at work this week! You will not be impressed.

          • SMOKEY

            Click on the link I have in the post below.
            This your licence at work this week! You will not be impressed.

          • dances with wolves

            i’m waiting – for a worthwhile post

          • SMOKEY

            @ dances with smurfs
            What exactly do you mean?, worth while post? Like all of your creative contributions?

          • Robert Mc Call

            ichhee post,as my young god daughter might say,yo…if you’d half a brain,you’d still be dangerous Smokey bear.So forget Sean the sheep and as one shepherd said to the other shepherd – lets get the flock outta here!!

            And for the bleachers section,don’t loose yourself and drown in alliteration.It’s tiresome !

          • SMOKEY

            @ Robert McCall
            but my fans love me…….had to look up the definition of alliteration and no matter where I looked, I kept coming up with the same thing,………….

      • Bamboo

        I tried to follow a link to an rte news clip. After clicking on the link and looking at smiling Ryan T… it tells me I should get the app, Which I already have. That took me a while to figure out there is small x in the corner to continue. Then a full green screen doing nothing for at least 30 secs. Then some movement appears so I was forced to watch an add for 26 secs. Then another pause to be followed by a another 16 sec add. Finally I got to the news clip, the quality was so appealing that I gave up. The technical quality of the add was excellent but the news clip, hmmm. Not a lot of bandwidth is given to the service but plenty for advertising. That is why you pay TV license.

  2. douglaskastle

    This country has such an unhealthy relationship with debt an liability.

    First up are the banks with there no recourse mortgages. The fact that they have no checkpoint to stop giving out these loans brings to mind Paulie from Goodfellas:

    But now the guy’s gotta come up with Paulie’s money every week, no matter what. Business bad? F*ck you, pay me. Oh, you had a fire? F*ck you, pay me. Place got hit by lightning, huh? F*ck you, pay me.

    I am not suggesting to flip over completely to the American model where you post the keys in the house and walk away either. The bank is going in on a business deal with you, there is risk, they should be better exposed to the risk so that they might be a bit more prudent who they give loans to.

    Second is the lack of repossessions, now it is terrible for people to have to lose homes, but it is supposed to be a painful cudgel of society to warn off other people who know they are near the edge and give them pause. If it was used properly at the start of “The Boom” maybe it might have had a moderating effect. In the final analysis maybe less people would have lost there homes, or have there lives destroyed locked in to negative equity.

    Third though, and the most damning, would the guy or girl on the street even notice, they never think it is going to happen to them, even if they know they are over extended and a butterfly farting in hong kong away from hardship, if the bank is stupid enough to give them the mortgage, well sure we’ll take it, and hope for the best. Again this suggests placed more liability against the bank and make it good business sense to evaluate who they are giving the mortgages to.

  3. Grzegorz Kolodziej

    I would like to refer to one of David’s previous articles for it looks like every time Dave writes about Poland he manages to make statements which are factually inaccurate at best (maybe he should consider some cooperation with me as a proper researcher for his articles).

    In his article ‘Frankfurt’s way over the top’ David writes that ‘as for plucky Poland, it was the only post-Soviet country to get its very large debts written off completely, at the urging of the US, as a “present” to make sure that the newly democratic Poland of 1989 thrived’.

    I honestly do not know where does David get his data from (he was equally inaccurate about Poland receiving the latest military equipment from the US), but at times it starts to resemble ‘The Moon Landing Conspiracy’.

    Poland got approximately 50%, not 100% of its debts written off – indeed at the urging of the US – as a part of the deal of Poland rescuing CIA officers from Iraq, which neither US not British secrete services were capable of doing:

    http://www.nytimes.com/1995/01/18/world/during-gulf-war-polish-agents-saved-6-american-spies.html

    I would not say its debts were very large at that time, as David writes (at least compared to Greek or Irish debts, let alone the US debts – and for your information, David, the US has not returned Polish Central Bank’s gold which was deposited in US banks when WWII broke out – which was worth much more than debts written-off in 1989) – we are talking about $40.8bn of Polish debt in 1989, half of which were the interest rates.

    As a result of all interest-rates reductions (once again I would like to stress that Polish debt write-off was mainly related to interest rates) and new interest rates being applied Poland’s total debt, after all reductions, was €42.2bn in 1994 compared to $40.8 in 1989.

    If anything Polish debts are much larger now ($275bn!) and their payments account for a large proportion of Polish budget (and they would have been much larger still if it was not for the constitutional debt ceiling of 60% of GDP). $20bn is nothing compared to $126bn trade deficit Poland was running in the 90s as a result of a deal imposed on Poland by the European Communities (limits on production, preferential tax treatment of European companies – they did not have to pay any tax for 10 years while Polish companies were heavily taxed). Some economists have calculated that this amounted to 1,500000 of jobs in Europe depending on Polish imports of European goods (few people know that Germany exports to Poland, Czech, Slovakia and Hungary goods of the same value as it exports to France and that German contributions to the EU have not increased after the EU enlargement – now read that again – German netto contributions to the EU remain on the same level as before 2004 despite the EU consisting of 12 more countries – there have even been times after the enlargement when Poland was a netto payer to the EU budget).

    Basically the essence of the plan imposed on Poland by the IMF in the early 90s was to convert Polish debts to ownership of Polish companies (which were sold for a song without tender) and exemption of mostly German and French, but also US, British and Dutch companies from paying an income tax. Additionally Poland was forced to maintain a fixed exchange rate of its currency in relation to the US dollar while at the same time having insanely high interest rates. This mechanism was compared to a vacuum cleaner sucking out funds from Poland (approximately $100bn in one year). It went like this – a Western ‘investor’ – let’s say Soros – would deposit $2bn in Poland and convert it to Polish zloties. Then in a year he would sell zloties and convert it back to US dollars, which would be now $5bn, all risk-free (the only risk would be that Poles would kick the IMF out of Poland, which must have been seen as unlikely).

    But I do agree that Germany should be the last country on earth to mentor on debt repayments – Germany did not pay Poland any compensation for WWII because Poland in an unfathomable act of generosity decided not to make any claims. How much would that compensation be if Poland took a different stance (and there are strong legal grounds for re-opening the case)?

    In Polish politics there are three main political approaches: pro-German, pro-US and pro-Russian. The pro-US approach was represented by Kaczynski brothers. The pro-Russian approach was represented by the social-democrats (ex-communists), but then part of them changed their position to pro-US (among them the Prime Minister Leszek Miller, who was involved in a mysterious near-fatal helicopter crash shortly after he had visited the Pentagon – he was lucky to come alive). The pro-Russian approach is still represented by the Polish Peasants Party (their leader made sure that Poland pays significantly more for Russian gas than any other Western country). The recent government of Donald Tusk and his successor consists of people whose political activity (since the early 90s) has been sponsored by successive German government in every way possible (scholarships, awards, direct payments – famous case of Chancellor Kohl missing money from CDU – and even things from the past of the current President of the European Council Donald Tusk who in the 1990s wrote articles for a magazine issued by the German embassy and as a minister advertised on his T-shirt a German steel company in a famous government v journalists soccer match).
    No wonder that the current Polish government lines up behind Germany (not that you would read it in most Polish newspapers because 90% of them are German-owned).

    As to Greece – for many years David has been a fierce critic of the euro currency. He has also been saying that Ireland does well when continental Europe – particularly Germany – is in recession and the US/UK are booming (well, they are not booming since David’s favourite lad, the economically illiterate Mr. Barrack Hussein ‘Hope’ Obama has taken the office of the US President but that’s for another discussion). Now there is a chance that Greece will exit the euro (which will be better for both Greece and Europe) and if the same thing happens to countries like Spain, Portugal and Italy, the euro will appreciate and German exports will be hit. That should work well for Ireland, particularly if Ireland exits the euro, partly because then countries like Greece or Ireland will regain the control over their currencies and partly German trade surpluses (they tripled between 2000-2008; there is no coincidence that Germany was the only big Western country which has increased its share in global trade from 8.6% in 2000 to 10% in 2007) were run at the cost of trade deficits of peripheral countries (including Poland), and if we were to believe Wynne Godley’s hypothesis of ‘Stock-Flow Consistent’, at the cost of their budget deficits.

    • cooldude

      Interesting analysis Grzegorz. You should post here more often.

    • coldblow

      Grzegorz

      Do you mind me asking what is your opinion on what is happening in the Ukraine, say two or three sentences?

      Thanks

      • cooldude

        Hi Grzegorz, my analysis is that a twice democratically elected government was overthrown by a bunch of CIA/Nato backed fascist thugs in order to create instability in the region and rape all the natural resources. Victoria Nuland organized and funded this coup and funded the sniper attack which was the final catalyst for the overthrowal. What we have there now is warfare and extreme hardship for both sides in a conflict which could easily have been avoided by sticking with democracy.

        • cooldude

          Sorry to get in before you Grzegorz but we look forward to your opinion.

        • coldblow

          I agree with you, cooldude, that it was a western-backed (well, US-backed) coup and a very foolish thing to do.

        • Democracy is not to be allowed to flourish as the reason for the debts must be obscured by war at all costs.

          It will be the way austerity is demanded for the common good. Do not send your sons and daughter to war. It is not your quarrel.

      • Grzegorz Kolodziej

        As my reply is awaiting moderation (for the last few days – perhaps it was too long) I have decided to boil down to a few points.

        1. Ukraine is too complex a matter to summarize it in 2-3 sentences and there is no villains in this conflict as every side is a villain (or a hero if you wish): it is all about geopolitics.
        2. My approach to such conflicts follows Thucydides who drew a distinction between the mode of politics within a certain state and the pattern of political interaction among several states.
        3. If the Ukrainian conflict was a domestic matter I would base my opinion on whether a social contract between the rulers and the ruled has been broken.
        I would hesitate from simplifying it to issue of democratization – individuals in undemocratic Hong-Kong – ruled by the Governor – or in Liechtenstein – which is a monarchy – enjoy much more individual freedom than in terror-ridden democratic France after the French Revolution or in democratically elected government of Nazi Germany (or even under democratically elected Hugo Chavez).
        Social contract provides the protection of laws at the expense of some individual freedom (obviously there are lots of regimes in which we have none, but then there is no social contract).
        4. In the international realm, however, there is no social contract among citizens of different states, and, consequently, it is the strong who decide how the weak should be treated, as moral or ethical judgments are virtually nonexistent. Sounds unfair, but that;s the way geopolitics has always worked and it always will.
        Here is s good summary of where I am coming from in my approach to international conflicts:

        http://forums.philosophyforums.com/threads/war-and-the-melian-dialogue-1790.html

        Even sheltering under the umbrella of international law will not prevent us from getting drenched as the international law itself is inconsistent – i.e. the principle of teritorial integrity is inconsistent with the principle of self-determination.
        5. So, who is the weak and who is strong in Ukrainian conflict? What kind of stake are here at play?
        6. The strong in this conflict are: Russia, Germany USA and China. The middle players are the UK, France and Ukraine itself. The likes of Poland are the weak, at least so far (this is may change in the future – until recently Poland was fourth biggest tanks manufacturer in the world – but probably not in our lifetime). They are, as David rightly points out, lining up behind the strong (though Dsvid is totally wrong as to benefits which Poland is getting from being disposable = for a country which really benefits from cooperating with the US look at Israel; even Greece is a much bigger beneficient from the US than Poland – i.e. it gets better US military equipment for less money).
        7. The key to understand the US intervention in Ukraine and Russian intervention in Crimea is a contract China had with Ukraine to rent 5% of its territory. This would have solved not only China’s agricultural problems but it might have eventually led to China accessing Ukraine’s military basis in Crimea. President Putin had to act quickly. As for the US, US is practically a bankrupt and its ability to sell its bonds so that the rest of the world can finance its deficits has always been dependent on its now weakening military power (same with the Soviet ‘successes’ of nationalization of occupied countries industries).
        8. We also have to bear in mind that the US would be even under more pressure if the world switched to a gold standard – they have enough problems returning other countries gold (those countries whose gold they admit they have to return for neither the US nor UK or France would ever admit that technically speaking, they have stolen all Polish gold deposited there for the duration of WWII – same as Germany would never admit that while mentoring Greece they still owe Poland war reparations or that they still apply Nazi law to Polish etnic minority in Germany (the resolution passed in 1940 by the Nazi Council of Ministers for 3rd Reich Defense and signed by Hermann Goering).
        9. Bearing that in mind it is a curious fact that it just happens coindentally – at least since the last two US presidents, though FDR could also say a few words about it – that everywhere the US interviens military in a given country its entire gold vanishes from its central bank:

        http://www.zerohedge.com/news/2014-11-18/ukraine-admits-its-gold-gone

        10. As to Deco’s comment: I suggest that you form a Polish political movement that puts Poland’s interest first, so as to make the behaviour of the three “sell-out” quisling options [ pro-US, pro-German, and pro-Russian] obvious to the people.

        Unfortunately, historically it has always been the case that in order to change the status quo in a country for a small or medium country it is necessary to gain a support of foreign powers who have interest in the change of the government. Take Ireland as an example and a German link in both 1916 Uprising and in Sinn Fein politics during WWII (the infamous Plan Kathleen). Take the Bolshevik revolition which was basically a German plan to eliminate Russia from WWI.
        The only recent example I can recall of a politician who fomented a revolution without foreign intervention was Victor Orban who showed a middle finger to IMF and big corporations and even he is now forced to cosy up to Russia, as is the Front National in France and will be Syriza, if they are serious in standing up to Germany which I think they are not because they do not seem to plan leaving the eurozone or the EU but they plan to emply 1,000,000 bureaucrats, so maybe their plan was from the start to secure cushty jobs for their pals? – time will tell.
        But I do agree that Poland needs a government which seeks to promote its national interest albeit in alliance with some superpower and the same goes for Ireland – I have written in Indo before the elections Ireland is facing another four years of pantomime politics and I was disgusted that Ireland’s leaders do not cop on that by being obsequious to Germany and France they weaken Ireland’s negotiating position:

        http://www.independent.ie/opinion/letters/we-need-more-than-a-pat-on-the-head-from-eu-26817818.html

        • Thanks Grzegorz

          To prevent “moderation” hold up put no more than one link in a commentary.
          If you wish to have several links added split the commentary into several postings in sequence each with its link.

          That has been my experience here.

          Cheers and good postings :)

    • Deco

      The current Greek government is very leftist.

      They will not get any easy treatment.

      Washington, Brussels, and Westminster will want to punish people for choosing such an option.

    • Deco

      Wow. A very interesting insight.

      I suggest that you form a Polish political movement that puts Poland’s interest first, so as to make the behaviour of the three “sell-out” quisling options [ pro-US, pro-German, and pro-Russian] obvious to the people.

      For pro-German, read pro-EU. Brussels is a bureaucratic parasite that serves whatever feeds money to Brussels.

      The current crisis in Ukraine is not black and white. Fifty shades of deception at play there. I pity the people who live there.

      I have a suggestion for a role model, for the people of Ukraine.

      Try and emulate Switzerland. Switzerland stayed neutral in the wars between tyrants in Paris like Louis XIV/Richelieu/Bonaparte and the Habsburgs (much less tyrannical, but always trying to expand).

      In other words Ukraine should lick all the interlopers out of power.

  4. Wills

    Hi folks,

    This article and the one before are interlinked.

    Howso?

    Well I submit the same theme runs through both, which is but that the of the method of exchange.

    The banks and the property maniacs above (who as Mr. and Mrs. borrowed between them 1,000,000,000 euros from irish banks no less, go figure) all are in on inside info joe bloggs has no clue on.

    They are well informed on the mechanics of exchange when it comes to credit and debt.

    Their lawyers keep them informed that money/currency/credit does not exist it is simply a fiduciary instrument to discharge a debt thus the banks and Mr. and Mrs property maniacs understand the game which the provision of credit really is, the illusion it really is and play the game that it is according to the manual which they are clued in on.

    Take Gorse Hill for example, its not about the debt of 70,000,000 going on there. It is about who can, or, what party of interest can outwit, out clever the other in terms of the complexities of the rules of the game they are all playing. They know the money/currency/debt is an entry into a ledger which has no power – the power rests in the understanding of the game being played and who is allowed play it.

    P.S Nailed it last week IMO the look of horror on the face of the insiders when you played the clip from 10 years back said it all.

  5. Change the name O’Donnell to Greece

    http://campaign.r20.constantcontact.com/render?ca=d2875a60-0e9b-4d76-a352-c7efa31cd07e&c=877a32b0-427b-11e3-ad08-d4ae52a45a09&ch=8905dbc0-427b-11e3-ad3c-d4ae52a45a09#holter

    No one looked to the end game because it was so much fun while playing the game. I have no idea what the “event” will be but please remember this, huge forest fires all begin with one thing in common, a very small spark or something to ignite it. They all start small and all grow out of control. This, is the collective global monetary system we live with and why so many nations are preparing to exit the game.

    Regards, Bill Holter

  6. michaelcoughlan

    Hi,

    “The moment Mr O’Donnell started borrowing lots of money, he was destroying his own wealth”

    This statement is fundamentally incorrect. It’s what he does with the borrowing ie how he employs the capital is what determines whether wealth has been destroyed or not. If he had put the borrowings into an investment which gave a line of revenue in excess of cost of capital and expenses he would be gaining wealth and facilitating the wealth creation process of others.

    Michael.

    • Semantics Michael – he is obviously referring to where O’Donnell put his borrowed capital.

      Who borrows millions and sits on it? If you did it would start losing value immediately to inflation and opportunity cost.

      • michaelcoughlan

        Hi Adam.

        I should have put more of the article into my post above and included the next line which is:

        “Once the borrowing stopped, the asset started falling in value and he was left with the debt”

        which would lead one to believe that the intention was only to flip properties in a simple increase of capital value scenario. In O’Donnell’s case he had up to 1bn in commercial properties and these properties were generating rents to cover the mortgages.

        I am not here to defend any particular developer but there is a fundamental issue which isn’t being dealt with even now and its the point that when an honourable person borrows money he is doing so in the expectation that the banks are operating professionally.

        That wasn’t the case which means many people with years of track records of success in property and construction were brought down by corrupted banking and there is no accountability for bankers.

        We don’t know but that house could have been paid for in cash. Its not the only trophy house down there.

        I raised the issue before that section 138 of the 1990 companies act provides for penalties for any person who as responsibility for a company and causes it to be wound up because of their behaviour

        “that such person shall be personally responsible, without any limitation of liability”.

        Has this happened in banking? No. Why not? The public would find out that the regulator was prevented from doing his job by govt Apparatchiks. So instead we had the sham show trial of trying to nail the Anglo 3 on a misdemeanour charge of lending money to buy shares in the bank which was a simple ploy to divert the public’s attention away from the true issues and assuage public anger. It seems to have worked.

        The other thing Adam is that a man’s home is different to a man’s house. The law doesn’t differentiate in this regard simply on the price tag.

        http://www.irishstatutebook.ie/1990/en/act/pub/0033/sec0138.html

  7. joebrolly

    A lesson in economics. McWilliams is a journalist, his job is to generate readership for his employer who pays him for the article. This is best done by enraging as many of the populace as possible and stimulating their prejudices and their misconceptions. Such phrases as “popes children” and so on are merely the same thing as the old chestnut “the people who have their dinner in the middle of the day” . It’s the same thing as Pat Spillane describing Northern football as “puke” on the Sunday Game – the purpose is to stimulate controversy and interest.

    Imagine last week when the great lord McWilliams was in front of the hearing if he told the truth and just said “shit man I didn t see that coming”

    • Wills

      …to be clear, he indeed called it, over and over again from 2002 to 2008 when indeed what DMcW warned about actually materialised. So much so that the exponents of the ponzi scam seeked him out for opinion when their house of cards collapsed.

    • michaelcoughlan

      “Imagine last week when the great lord McWilliams was in front of the hearing if he told the truth and just said “shit man I didn t see that coming””

      He did tell the truth.

      You are guilty of that which you accuse McWilliams.

      • joebrolly

        Guilty of what I accuse McWilliams, maybe so, but there’s an important difference, I receive no payment for this post so it’s not in my economic interest to generate controversy. Also whether McWilliams “predicted” the GFC or not is more a feat that a fortune teller at a circus.

        he has predicted so much over the past 15 years that something was bound to fit the GFC.

        Nostradamus predicted the GFC in the 16th century (that’s me trying to be funny rather than a more serious comment in case anyone is checking their Nostradamus).

        Noone can or ever has accurately predicted the future to my knowledge

    • deja vu

      @Joe

      you make alot of senz

      • deja vu

        *typo – sense

        • deja vu

          a sixth sense and that’s just fine

          • joebrolly

            Thanks for your opinon, my only point is McWilliams gets paid for his articles by his newspaper. What we say here is only useful to him as he can point to the amount of discussion he generates, thereby demonstrating readership and sales. Stimulating controversy stimulates sales.
            How many regular contributors here buy his paper I woNder.

            I have a job and i am expected to fall in line with the vision and direction of my pay master.

            Is McWilliams not expected to do the same?

  8. Only a central banker could see a huge drop in oil prices as a negative for the people of Japan who import all of their oil. Keynesians actually believe a consumer spending less for energy is an undesirable outcome. This is why common folk hate central bankers.

    http://www.theburningplatform.com/2015/01/04/sayonara-global-economy/

    “The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration.” – Ludwig von Mises

  9. “As Goes Japan, So Goes the World
    Japan just happens to be ahead of the curve on the path to collapse. Europe isn’t far behind. In a shocking turn of events, it seems a bad debt problem cannot be solved by issuing more bad debt. The country which kicked off the EU financial crisis and their round of credit expansion – Greece – is imploding again. ”

    With Japan in a depression, Europe in a recession, China experiencing a slow motion real estate collapse, Russia headed into recession, Brazil in recession, and all Middle East oil producing countries ($500 billion decrease in oil revenues in 2015) headed south, the U.S. is the prettiest horse in the glue factory.”"

    You can ignore the dramatic flattening of the yield curve and the plunge in 10 year treasury yields from 3% to 2.1% over the course of 2014. We’ve got Obamacare spending and military spending to pump up our GDP and the Federal Reserve to pump up our stock market. Mortgage applications at 15 year lows, new home sales at previous recession lows, real median household income 9% lower than 2008, 19% of all households on food stamps, real unemployment exceeding 15%, and the real nasty aspects of Obamacare about to hammer businesses and individuals, all add up to a fantastic year ahead for our welfare/warfare empire of debt.

    “The people are beginning to realize government is not their friend. Trusting the government to solve the problems they created which led to the 2008 worldwide financial collapse, is insane.” (About time , wouldn’t you say?)

    ” Now that their “solutions” are failing again, they will use real weapons wielded by soldiers, police and prison guards to enforce their decrees and self-serving laws. The year of consequences may have finally arrived. The people versus their governments is crystallizing as the impending chaotic clash which will turn violent, bloody and vicious. Your freedom will depend upon the outcome.” ( These are the real results of bankruptcy,)

    http://www.theburningplatform.com/2015/01/04/sayonara-global-economy/

  10. “It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.” – Ludwig von Mises

    http://www.theburningplatform.com/2015/01/04/sayonara-global-economy/

    • Deco

      If we watch the state sending a taxi to collect a mother, and take her from her kids, because she was not paying a tax for the maintenance of the lifestyle to which the RTE rich-list are accustomed, we can see that the state has already lost the plot.

      In fact the state is disconnected from reality.

      Enforcement is in overdrive.

      And FG and the LP are in power.

      FG were aligned to Franco for years. And still are aligned to IBEC and corporatism, and the corporate state. In the LP, there is the former OSF element which was big into militarism and which included people that flirted with hard right and hard left.

      The love enforcement.

      Let’s sunder them.

      • Tull McAdoo

        Hi Deco, I am of the opinion that the Irish Labour party started out life as some sort of democratic centralist outfit, until Happy Gilmore and his bunch introduced it to their world view, with an Irish solution to an Irish problem i.e. “Paddy Stalinism”…..Tull wept….

  11. “In economics and finance, as in nature, there is an almost relentless, repetitive cycle. The only way we can look forward is by acknowledging that yesterday is over, night falls and a new day dawns.

    The endless repetition of the same thing expecting a different result is insanity, said Einstein.

    Using an endless chain of bank notes spewed forth by the central banking system, and expecting an improved economy is insanity. These bank notes (digitized or otherwise) add to the debt load at interest to expand the debt to Quadrillions world wide. How is that a solution.

    As the night falls on this problem we wake up to the nightmare that things are worse. This is not a business cycle but a debt based ponzi scheme of the largest magnitude fostered on to the world in history. This bust will be the biggest ever witnessed.

    Government will correspondingly be more oppressive than for a long time. Legislation is in place to deprive you of all your hard won freedoms as we will regress a 1000 years. We are in a feudal debt based serfdom to our banking masters.

    David does not foresee this either. As in Gone with the Wind, “Tomorrow is another day”, said Scarlet O’Hara

    • Yes, when the “history books are written,” it will be Central banks blamed for essentially all of what destroyed the global, “modernized” economy of the early 21st Century. True historians will realize the root of such evil was sown in August 1971, when the global gold standard was abandoned; but all will realize that whatever it was that was “working” beforehand, decidedly broke in 2008, when the terminal phase of history’s largest Ponzi scheme commenced; and went “off the rails” when Central banks went hog wild printing money circa 2012. —-Andy Hoffman

  12. The new reality unrecognized by the west is that after bankruptcy china and friends will be in the drivers seat of the world economy.

    http://www.goldmoney.com/research/analysis/the-new-london-gold-fix-and-china?gmrefcode=gata

  13. The GLD Gold trust fund scam goes into overdrive. HSBC the custodian likely never had the gold there in the first place. Read the prospectus and find that physical gold is not a requirement in the first place. All people were buying was a share in a trust that undertook to buy gold in any fashion it wished. Although some physical gold was bought , most was purchased with paper promises to buy.

    in addition the custodian HSBC was the largest paper bare naked gold short in the world.
    Your custodian worked against their clients by not buying physical gold, thereby not adding to demand and then buying paper promises to sell that actually reduced the value of the fund.

    Do not do business with a bank in any way or you will be skined and the hide hung out to dry.

    http://kingworldnews.com/celente-closing-london-gold-vaults-will-shake-world/

  14. DB4545

    The guy took out a loan. The banks loaned the money and clearly didn’t conduct due diligence. If memory serves me right one major bank sold a large number of their main street branches about a year before the crash and made a tidy sum. Why did they sell at that specific time? They may have seen the crash coming and decided to cash out. If that was the case why did they continue to lend money in such a reckless manner? It could be argued that they knew the level of in(competence) at a government and regulatory level and kept rolling the dice knowing that they would have to be bailed out by the taxpayer. I’ve mentioned before the need for non recourse mortgages. I would suggest that is suitable for the poor gobshite who got in over his head and his punishment is that he loses the asset and whatever deposit he paid. But I don’t think it’s suitable in circumstances where very financially astute people may have created complex offshore structures to hide assets. The bank may have sent in a workout team to sweat out assets, assets that may in fact belong to the Irish taxpayer who owns the bank.

    • Colin

      DB4545,

      Yes, I agree. And to follow through, the poor gobshite who overstretched himself / herself leaves his private (opulent / modest) residence (via jingle mail / eviction), and moves to the nearest council estate. That should be sufficient to soften the cough of the FF drumcondra maFFia Jerry Beades and his so called new land league rent-a-mob crowd. If that means building new council estates, lets do it.

      • DB4545

        We built housing estates in the late fifties/early sixties when the country hardly had a pot to piss in. I think we have a duty to help people in need and help them get back on their feet so why not? The danger is repeating mistakes and turning areas into sink estates. Maybe fixed term tenancies conditional on behaving responsibly and not engaging in anti-social or criminal behaviour might help. Maybe allocating the prime social housing based on a contributions system. If you are/were working and contributing you get the prime social housing. If you’re a welfare waster you go to the end of the queue and get what’s left. The same principle also applies to people who lose their trophy homes so long as they’ve contributed. Once the State has ensured they’re not hiding assets in the usual tax havens. Let’s do it.

  15. This is the reality of the corporate governance. They care not as long as they make a buck. Then urge the state to make vaccines mandatory under penalty of prison and fines.

    A court in Milan, Italy, awarded compensation to the parents of a boy who developed autism from a 6-in-1 vaccine for polio, diphtheria, tetanus, hepatitis B, pertussis, and haemophilus influenza. [The vaccine contained numerous additives, such as thimerosal (mercury), aluminum, formaldehyde, GMO viral components, and chemical preservatives. A confidential report from the vaccine manufacturer, which was presented as evidence at the trial, revealed that the drug company knew that this vaccine caused autism but brought it to market anyway. The US mainstream media has ignored this story.] NaturalNews 2015 Mar 6 (Cached)

  16. Bamboo

    Just listening at the moment to RTE Claire B and SF. Can someone please explain or give me a link why RTE and the IT are so dead set-against SF ad do anything at all cost to stop SF possibly winning the general electon.

    • Colin

      It wouldn’t have anything to do with them being lying, thieving, racketeering, conniving, intimidating, murdering scumbags?

      • Deco

        I doubt it. Just look at RTE’s past.

        RTE never had any issue with OSF/The (so-called) Workers party, Democratic Left, etc…

        In fact for years RTE helped them out.

        I think this has more to do with RTE’s own interests.

    • coldblow

      Of course they say it is because their commitment to law and constitutionality is suspect as is their break from armed insurrection and criminality. They surely tell themselves this and believe it too, and they would have a point. But the real reason is almost certainly that they fear their populism.

      Eoghan Harris insists (most weeks in the Sunday Independent) that RTE are foolishy partisan in favour of SF, not against them. It is interesting that you don’t see it his way.

      • DB4545

        I’ve zero time for Sinn Fein. They run with the hare in the South and hunt with the hounds in the North. However I’d have to question anything that originates from Mr. Harris’s mouth. I know that people can and probably should be prepared to change their minds over time but moving from supporting the Official IRA to FG to FF to the Ulster Unionist party takes some mental acrobatic skills. The man is an accomplished political schizophreniac. Bertie nominated him for the Senate.The man’s defence of Bertie Ahern on the late late show was cringeworthy and beyond contempt. He was practically laughed off the show. Therefore I find it hard see to see anything his way.

  17. China pancaking!!!!

    This is a classic scenario. China, as we pointed out recently, is beginning to push on the proverbial string. When consumer demand is tapped out, it is difficult in the short term to revive it because most consumers are simply top-heavy with debt. – See more at: http://www.thedailybell.com/news-analysis/36137/Chinese-Trap/?uuid=6F800609-5056-9627-3C5071902B060BF2#sthash.Qi1OCSDr.dpuf

    • Deco

      China has a massive debt mountain, and insufficient income in the private sector for there to be an escape.

      It will simply have to foreclose, and crash the property market. The Communist party will have to choose between business and the people. And it is more afraid of the people, than it is of business.

      Also there was a film on youtube about pollution in China. It got over 30 million views. And then it was banned.

      The “party” are supposedly trying to address pollution.

      They have tried wind energy programs and solar programs. And building nuclear plants. And they also hope to use Natural Gas from Russia to help clean up home cooking and industrial process based energy consumption.

      But it is not all about energy. And it is not all about air quality. There are problems with toxic substances, dumping etc. And serious issues concerning water quality.

  18. “” “the crash doesn’t destroy wealth, but merely evidences the extent to which wealth has already been destroyed by stupid decisions taken in the boom”. This is always the case.”"

    Sounds like a quote from Mises. “This is always the case” is straight from the Austrian school.

    Can it be that David agrees with the “A debt based boom is always destined to crash” situation.

    This is a radical change from the urge to spend borrowed money stated the last years and even months ago as “Your spending is my income” statement. This while urging the consumer to take more borrowed money and go out and spend what was not eared or owned.

    Can it be that no matter what happens one or other of these quotes can be retrieved in the future to demonstrate yet another I was right moment.

    I would like to see a more definitive statement as to where David sees the economy going and why. Also a definitive statement on the pros and cons of the fiat central bank Ponzi scheme of printed money and what that does to the economy and why.

  19. Just as a matter of record I glanced at the relative performance of the Canadian dollar v. the Euro. We were warned by a contributor a while back that the $CAD was cruising for a bruising as it was a Petro dollar.

    Over the last 12 months compared to the US dollar
    The Canabuck has depreciated 12%
    The Euro by nearly 22%

    how much oil does the EURO area produce?

  20. Will Europe turn to Russia and cold shoulder the US? Will Europe tell Ukraine to grow up, get a life and get back to democracy or you are not welcome in Europe.

    http://www.globalresearch.ca/eu-increasingly-abandons-obama-on-ukraine/5435357

  21. joe sod

    David made the point that the banks deleveraging and forced selling of assets is causing property prices to overshoot down. But is this really the case. It is 7 years since the property market started to collapse. When there was no market for houses the banks operated an “extend and pretend” policy for years. In other words they let things lie until the market began recovering, it is only now that they are moving to repossess properties. Therefore it is not the case that they are dumping properties on a distressed market. It can be argued that the banks are managing their loan book a lot better than NAMA. NAMA sold off the best of their properties in 2012 to the foreign vulture funds. Therefore they crystalized the losses and left the unpaid debt with the taxpayer. It can be argued despite the shambolic lending by the banks during the boom that maybe the distressed loans should have been left with the banks to work through rather than NAMA.

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