January 28, 2016

ECB forcing Ireland to pay the bondholders was like a hostage situation

Posted in Irish Independent · 143 comments ·
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The EU’s Court of Auditors has come out very strongly against the EU Commission’s handling of Ireland’s bailout, particularly the way the EU Commission backed – without reservation – the ECB’s insistence that Ireland pay all the senior bondholders of the banks.

 

It also, rightly, concludes that the great Irish economic crash was predictable and preventable and yet the EU Commission – rammed to the rafters as it is with well-paid experts and economists – didn’t see the crisis coming.

The report states the obvious, yet the obvious should be stated again: the bailouts and all the other emergency measures taken were the consequence and not the cause of the crisis.

Had there been proper regulation, proper oversight and proper controls of the banks, the crisis wouldn’t have happened in the first place – and obviously there would not have been any bailouts.

Clearly one set of problems stemmed directly from the pathetic policy in place since the introduction of the euro. In fact, the currency is the culprit in this sorry saga. The euro was sold to the people of Ireland and Europe as being essential for economic stability. In reality, the euro has presaged a period of profound economic and financial instability in Europe where booms have been followed by busts; countries have gone bankrupt; and “temporary” capital has flowed unchecked into the nooks and crannies of the eurozone, only to disappear in a heartbeat, leaving company coffers and treasuries empty. Maybe for the EU institutions the most worrisome aspect of the euro’s short history is that its deficiencies have driven a deep wedge between the countries of the north and the south, and between the debtors and the creditors.

The result is mass disillusionment with the EU project and the emergence of nationalist politicians from Poland to Spain, Greece and France pushing for much less Europe rather than much more Europe.

The Court of Auditors report identifies (correctly) that the root of the problem was not the frantic period between 2008 and 2010; rather, the root lies in the previous five years of bad policy when all these imbalances were allowed to build.

This credible narrative echoes the great English economist and thinker John Stewart Mill, who observed that “the crisis itself doesn’t destroy wealth, it merely evidences how much wealth has already been destroyed by incautious decisions taken in the so-called boom”.

The Court of Auditors is highly critical of the ECB and the pressure it put on the Irish government to pay the bondholders. The ECB’s argument – which never stood up – that “a bomb would go off in Dublin” if the bondholders were held accountable to the iron law of capitalism was an entirely bogus argument. It reveals a profound misunderstanding of capitalism, which is quite worrying.

This column argued all during this time that if banks make silly and greedy mistakes, then they should pay for them. Such is the iron law of capitalism. When you make bad investments, you lose. If someone else subsidises losses indefinitely and gives the bill for banks’ bad investments to people who had nothing to do with those investments, then you are destroying the basic fabric of commerce.

In Ireland, there is sometimes a mistaken notion that arguing for “burning the bondholders” is in some way a leftwing or socialist article of faith, but it is actually the opposite: it is a free-market cornerstone! Without the risk of bankruptcy, you can’t have capitalism. That’s the rule.

The financial markets understood this rule all along which is why the bondholders of the Irish banks were, in truth, shocked to see even a portion of their money going back to them, let alone all of it.

The government’s line in 2010 was that if we didn’t pay the bondholders, the country would lose credibility. But what actually happened is this country lost credibility because we did pay the bondholders and not because we didn’t!

In fairness, at the time, many of us citizens thought the State was being craven in the face of the EU but it is now clear that Trichet’s ECB was prepared to let the Irish banks go to the wall, prompting a new bank run in 2010. This is like a hostage situation. The ECB was saying to the Irish government: you managed in September 2008 to prevent a bank run with the guarantee (which should always have been temporary and conditional) but now we are going to threaten you with another bank run – because we are still funding your banks and you must pay all the bondholders and add the cost to the national debt of the country.

So the implicit threat was: “We will close the banks, cause a bank run and you will be left to pick up the pieces politically, socially and economically.”

This, it is now clear, was also the backdrop to the present Government’s first few months in office.

This is where the Court of Auditors report gets very interesting, because it is pointing the finger at the EU Commission – the civil service of the EU – for going with the bullyboy tactics of the ECB. The ECB was overstepping its mandate in terms of driving the austerity agenda and threatening a country through the convalescent banking system. So it wasn’t so much that a bomb “would go off” in Dublin but that a bomb would be set off in Dublin and the bomber would be the governor of the ECB.

As the EU institutions begin to worry about the long-term impact of the crisis on the overall project, each agency is involved in a battle for self-preservation. This is the opening salvo of an internal battle deep within the EU where, as always, the institutions seek to preserve their own prestige and power, while the citizens are left to pick up the tab.


  1. michaelcoughlan

    How’s all?

    • Grzegorz Kolodziej

      I am fine, enjoying milder weather and thus cheaper ESB bills, recovering from 31 hours no-sleep laptop project from the night Monday to Tuesday (just not missed the deadline at Tuesday 5pm). Went into such typing-cycle that I came up with a longer essay I am hereby attaching. I hope you are well too.

      • michaelcoughlan

        I have never been better especially after reading this particular article which I will respond to more in depth later. McWilliams has come kicking and screaming along the road to libertarianism with this article referencing Stuart mill. Mill wrote the book “on liberty” and advocates co-ops as the best method of organising wealth creating enterprises.

        Hope all is well grezgorg.

        • Grzegorz Kolodziej

          Wait till you read my little Alex-Jones like rant, provided you shall persevere in reading my drawn out essay. Lack of sleep made a bit vulnerable in terms of self-restrained, so I went a bit emotional at the end – but I used some research on Irish banking I had done in the past for something else.

          I was very glad to see David’s article, which has inspired me to write my piece – I think that he has been looking at the situation in Europe a bit differently compared to his last Late Late show appearance; primarily approaching the power struggle in Europe in terms what it really is: power struggle, fight for dominance, for access to energy, trade routes, fight for nation’s position in Europe (which to be honest is like rearranging chairs on the Titanic anyway) – things like xenophobia play the least role in all of that.

          Even though I go on Germany and their Mittel-Europa strategy so often, I do not see it in moral terms. They fight for dominance, Ireland fights for survival, retaining beneficial geographical location and retaining the national substance; Poland is somewhere in between on that chessboard – too weak and too corrupted to be a leader, but awaken enough to begin the catharthic process of shaking off the post-colonial complex and starting to define its national interest.

          I think that as for Ireland – so the country I am destined to spend the rest of my life – it’s rimland location makes sense for it to be allied with some other maritime power; where I disagree with David is for what price and what is the alternative – the latter question is never being asked, which is strange, considered it has been addressed in the UK and there is a heated debate on it in Australian department of defence.

          I have to write some day about military deals Poland has with the US to kick once and for all the unfounded opinion that Poland is any way beneficial situation due to its American alliance.

          Comparing with what Israel gets, it is really shocking – but compared to Israel Ireland too could have done much better, but first it would have to define its national interest and long-term strategy – but because we have a media monopoly and people being put in prisons for not paying a TV licence while the real problem is not the TV licence crime, but elderly people being left in rural Ireland to fend for themselves.

          That it is a crime in Ireland to have a gun – even a long-barrel one that you can use to defend your household, but cannot bring on the street without being unnoticed and it is a custodial sentence for non-payment of TV licence, but when it comes to phone tapping – here suddenly we have the police forces very much in your face – is beyond me.

          It really is as if someone wanted to make people in Europe weak, defenceless, addicted to drugs, commuting long hours, tired, not able to focus – in one word: willing to believe even such a bullshit like the swine flu and line up like cows.

          At the end of the day, it all comes to lack of any competition in media in Ireland and that we here seem to be the only one who think that this is even a problem.

          And it is not only conspiracy theorists thinking that:

          http://www.popsci.com/science/article/2012-11/are-people-getting-dumber-one-geneticist-thinks-so

          http://www.dailymail.co.uk/sciencetech/article-2730791/Are-STUPID-Britons-people-IQ-decline.html

          http://www.independent.co.uk/news/science/human-intelligence-peaked-thousands-of-years-ago-and-weve-been-on-an-intellectual-and-emotional-8307101.html

          David often writes about the IT technology making the world better, but did he ever think of the new generation having an attention spam of an ameba? I am not saying this from a “smart ass” position – I am saying this from “Jeez, Europe is f..d” position.

          “Zuck: Yeah so if you ever need info about anyone at Harvard
          Zuck: Just ask
          Zuck: I have over 4,000 emails, pictures, addresses, SNS
          [Redacted Friend's Name]: What? How’d you manage that one?
          Zuck: People just submitted it.
          Zuck: I don’t know why.
          Zuck: They “trust me”
          Zuck: Dumb fucks”
          Instant messages sent by Zuckerberg during Facebook’s early days, reported by Business Insider (May 13, 2010)

      • Grzegorz Kolodziej


        “An uninhibited debate in the media and freedom of speech is the foundation of democracy in Europe. We are concerned about the phenomenon of conspiracy of silence or even deliberately misleading the public by the big European media. Recent events of mass sexual assaults by Islamic immigrants initially were intentionally ignored by the major media.”

        “The scale of the cenzorship phenomenon in Europe as shown by recent events in Germany called by a former German interior minister Hans-Peter Friedrich “cartel of silence” lead to the conclusion that suppression of genuine pluralism and unfettered debate in the European media is alarming, thus the corrosion of democracy becomes a serious problem for Europe, which impacts the increasing number of the European countries. ”

        http://www.petitions24.com/support_polish_democracy

    • Jetlagged but warm thanks Michael nice cool breezes and rain here in Antigua.

    • Good day Michael
      I forgot to tick the send me the update box.

  2. StephenKenny

    It looks like that the interests of the European bureaucracy are stronger than the interests of everything else: the people; the nation states and their institutions; and the productive economy. This is probably reflected in the national politicians found around Europe today – increasingly they look like a homogeneous group of identikit apologists.
    And the lying, good god, I can’t remember a time when everyone lied so much, about so many, for the sake of so few.

    • Deco

      In other words, we are now in an Imperial Construct.

      What better time to discuss this than the 100th anniversary of 1916. Or the 100th anniversary of the Battle of the Somme when poor plebs died for the imperial racket that gave them their imperial war gear. The war of the imperial rackets.

      Actually let’s be honest, Westminster/Whitehall seems to have done a better job running their imperial racket, than Brussels. It certainly never produced a Sarkozy, a Merkel, a Juncker, a Pee Flynn, or other such clown. Or hypocrites like Olli Rehn.

      Compare and contrast Lord Kitchener and Olli Rehn, students.

    • bluegalway

      “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”

      Economist J.K. Galbraith.

      • michaelcoughlan

        Wrong.

        That is the view of the left. If you have a skill which allows you to advance your material cirumstances ahead of your peers and you fight and die what you are dying for is to protect your freedom to enjoyed the fruits of your own labour rather than han allow the state take it from you.

        • bluegalway

          no, right.
          It is not people who’ve achieved through hard work, but the privileged elite, such as those whose agents stalk the corridors of Brussels engineering supine and corruptible politicians at the behest of big business instead of the benefit of the people.
          Peter Sutherland being the epitome of that elite.

          • michaelcoughlan

            Hi,

            Peter wont die for Goldman. You need to rethink your hypothesis.

            Michael.

          • Deco

            He is the a continuation of the Patrician element that turned Ancient Roman society into a hellhole for the Plebians, and then sent them out to defend it against the enemy.

            He does not need to die for the empire.

            He can order the plebs to die for the empire.

  3. goldcore

    Great article David. Trichet did his job and looked after large banks. As will Goldman’s Draghi. Yet narrative is that Draghi is our saviour. Stockholm syndrome !

    In the fast approaching financial crisis savers, SME and corporate depositors will be “bailed in” to bail out banks due to the recently enacted EU legislation.

    This will be massively deflationary as we have been warning since 2013. Dr Brian Lucey and ourselves did research on bail-ins and we warned in an op-ed in Irish Times here: http://www.irishtimes.com/business/personal-finance/fallout-from-bail-ins-more-negative-than-many-realise-1.1614520

    Google “bail-ins” or see our research papers:
    From Bail-Outs to Bail-Ins: Risks and Ramification
    Protecting Your Savings In The Coming Bail-In Era

    NB to note that the €100k “guarantee” will likely be arbitrarily reduced overnight to €50k in order to bail out our insolvent banks !

    Slow learners alas !

    • Deco

      The latest commentary from the Bank of International Settlements is highly instructive. The BIS is a bank for central bankers/currencies.

      I cannot find it currently. But basically, a senior figure in the BIS, calls it all a ponzi scheme in everything but the official naming.

      If somebody could find the quote it would be worth repeating. The clowns in Davos are sitting at the peak of the ponzi-scheme.

  4. Grzegorz Kolodziej

    THE BONDHOLDERS AND VULTURE HEDGE-FUNDS OPERATING IN NAMA ENVIRONMENT AND THE QUESTION OF IRISH SOVEREIGNTY

    The thorny issue of a racket paid by the Irish (and everyone else paying taxes in Ireland) taxpayers to the bondholders pops up again in David’s writing. The timing of the article is perfect – the election time – when politicians are born again, albeit not as Christians, but as Santa Clauses (bear in mind that Santa was Coca-Cola’s marketing trick, in colours of Coca-Cola) promising all and sundry the seventh heaven – or maybe hell, considering that in Dostoevsky’s tale of the Great Inquisitor the devil does not come to wage wars, but on the contrary, to promise everything to everyone.

    Master, master – here are dreams that I’ve been after…

    And so the Labour promises no more cuts on social welfare and in order to prevent their downfall, they have even gone, in a panicky sort of way – and in great celerity too – on spending spree with the social welfare Christmas Bonus– though not available to those only recently unemployed because, as Baroness Thatcher has once noticed, “The Labour does not work”.

    Fine Gael promises the continuation of the economic miracle, mostly experienced in Dublin 4, judging by the accents of those Friday commuters on “Dorsh” who frequent the now-oh-so busy restaurants of South Dublin – and among those who benefit from having bought the property in Dublin 25 years ago – the generation game David wrote about in his book.

    The Irish economic miracle has been greatly helped by low interest rates, assets bubble, early retirements basically changing the allocation of taxpayers money from subsidising public servants to work to paying them for not working, and by applying the Polish solution to the Irish problem – that is forcing the most industrious and the brightest to emigrate to now-declining places like Australia (which has basically become two things: digging holes for Chinese money and buying houses from themselves – no wonder it is collapsing), because otherwise Ireland would have been in real danger of employing skilled and bright Irish graduates as public servants on a merit basis – which would have been terrible news for people like my ex-landlord, who happened to be a branch manager of BOI in Dublin in the oldies-goldies and, I kid you not, a man who made 5 spelling mistakes in one sentence (in an e-mail threatening me for discovering that he did not have any cross-reference system in operation in his Dublin property empire) – because those people cannot emigrate because, as we in Mr. Drumm’s case (another accomplished orator and Nobel-prize winner in economics for his seminal work “The Influence of Employing Moronic Con-Men In Charge of Banking On Countries Debt/GDP ratios”), nobody really wants them gombeens.

    Then there is Sinn Féin – an anti-system organisation who voted for the bank guarantee in conjunction with Fianna Fail (keeping banks on a life support is necessary for Sinn Fein because what would you rob if there was no banks alive?), which was a mistake they said (as it was Sean Russell’s cooperation with Dr. Joseph Goebbels in 1940) and who promises fairness and justice to everyone apart from Mauira Cahill. Unlike many others, I do not think that electing Sinn Féin to power would be a disaster for Ireland; but I am also free from illusions regarding that party, especially after Mary Lou voted as an MEP to make her expenses secret. Guys, out of all 4 parties, I sort of dislike you the least, so much so that I even once voted for you as my second preference – but you have to do a lot better than 50pc corporation tax as Mr. Adam’s economic plan – Gerry said that once on TV and everyone forgot – or botched austerity in the North. I really need to hear more from you in terms of an economic plan other than the diesel laundering scheme; and one more thing – you cannot ally with the Communists in the EU Parliament and with Hamas outside, for fuck’s sake, and claim to be credible – gone are the times of your beloved Arafat trained by KGB – people do not want Hamas any more, it’s not en vogue any more in case you missed that; what is wrong with your love of psychopaths – first their Sean Russell leader (that they worship so much that Mary Lou got an orgasm speaking at his monument) – an IRA/Sinn Féin leader with all cruelty of Hitler (attacking civilian fire fighter volunteers in WWII London), but none of Hitler’s intelligence (Russell begged Wehrmacht to invade Ireland ‘cause he thought that Wehrmacht would come, unite the island of Ireland and leave, but Wehrmacht refused because they thought that IRA was too shit as an army to facilitate their landing) -–; then the Communists, now the Muslims – is this your idea of a sovereign state? If so, I’d rather take the Brits, thank you very much.

    And this brings me to Phoenix risen from the ashes, “the most successful political organisation in the world” in their own words – and it is not the French lodge of Grand Orient (which was so successful that they even had their own Foreign Minister in Poland, one Mr. Gieremek); no, it is the evergreen Fianna Fail (fail is very apt).

    As we forgive our trespassers…

    Fianna Fail is the party that played a role of Santa Clause for German banks in Ireland and was never ever accounted for it, and now it’s like all forgotten and forgiven – nothing should be forgiven because nothing was repented and nothing was accounted for (by accounted for I do not mean Ard Fheis, but jail – considering people go to jail in Ireland for not paying a TV licence and the Tanoista with a Soviet past calls them cavemen), you created a housing bubble in 2002 to finance Bertie’s horse gambling addiction; and you left the government on the final note of making Ireland a colonial state again – how dare you be part of political life in Ireland while remaining unaccounted for? – out, out, out!; while Hard Labour/Fine Gay are the parties that promised us to stop the “too big to fail” malarkey and… more on strict Mistress Merkel and Frankfurt’s way Comrade Eamon “Your Whore For Sure” Gilmore in my letter on closing the Irish embassy in Vatican:

    http://www.independent.ie/opinion/letters/vatican-exit-26790244.html

    So, FF, in order to implement their plan – which was basically to move discussions on the Irish budget to Bundestag and leave the Irish political scene with a golden handshake – had to create the Not Accountable Motherfuckers Agency; the deal for taxpayers in Ireland (I purposely did write “the Irish” – go back to Holland, fraudster Bono – you can keep hitting old pedestrians there because they want to have euthanasia anyway) was that we will buy your fungi houses for peak prices and sell them to foreign vulture funds for a song, so that you taxpayers get fleeced again and we get bribes again (1/4 of property investors in Dublin are now foreign cash buyers – who are we, simple peasants, to compete with them on the property market).

    This mortal coil – or how we went to sleep in one of the least indebted countries and woke up in one of the most…

    Whether Bertie knew all about NAMA and foreign hedge-funds, it’s hard to know; it’s equally hard to understand his pigeon English; the Drumcondrian gambling and alcohol addict has expressed his regret in an interview that if there is anything he regrets not have done as a Taoiseach, it would be not having the national stadium built and not having sex with a goat on Late Late; all a person as short-sighted as me can see is a mushroom smoke coming out of FF screens; but they did come up with a horror story of ATM’s being empty on Monday morning – and David, maybe you will tell us more one day about what happened on you know what night – if it’s safe for you – as we are all curious (unless you keep it as an ace card for a potential political career, which would be very clever indeed – a bit like Jaroslaw Kaczynski does not share with us his knowledge about who was whose stitch in Polish politics, hoping that perhaps this knowledge will spare him from dying in a plane crash, like it happened to the late Slawomir Skrzypek – a governor of the Polish Central Bank who refused to switch Poland to euro).

    Why it is not enough to change people in power in Ireland?

    Do you know what, in my opinion, is the worst thing about FF? That I know two people from that party and they are very decent people (one is an ex-TD and my good neighbour: of course he does not have a clue about economics; the other one has a shop and is always seen working) – it’s just that there is f…k all parties in Ireland to do politics and somehow people are fine with that, that’s what’s sad – and the circulation of elites within them can only be compared to North Korea. To me having to choose between FG, Labour, SF and FF is like going to a night-club hoping to score and having to choose between a nelly, a trans, a serial killer and the satanic witch Hillary Clinton.
    And why is that? Why, because there is no debate except on this website – and even here there is less than 10 people contributing.

    Was there a real bomb threat in Dublin from the ECB?

    Yes, the threat of ECB suspending the credit line was real, but that’s not the question we should be asking – the question is: what was the alternative?

    In my opinion the alternative was sovereignty and the only thing the FF/FG had to fear was the fear itself, to quote a well known war criminal and Holocaust supporter.
    Mind you, at the end of the day Iceland came out just fine from the experience of becoming a sovereign country (at the time when there was an inept joke circulating in Ireland of what’s the difference between Ireland and Iceland – 6 letters and 6 months – I was considered a madman when I advocated, in speech and in writing, that Ireland should take the Icelandic approach to banks).

    David rightly points out to the fact that “it wasn’t so much the fact that a bomb would go off in Dublin but the bomb would be set off in Dublin and the bomber would be the governor of the ECB”.

    So what would have happened had the bomb been set off in Ireland? A quick look at a country where the bomb did go off

    We know what would have happened – and this is the worst case scenario, which I do not think would have been implemented here in Ireland, based on the experience with Germany/Benelux failing to have a second debate on the political situation in Poland in the EU Parliament Poland, which should imbue all of us Euro-realists with a cautious optimism (to give a short account for those readers who only know about Prime Minister Beata Szydlo from Brussel’s propaganda, the political situation is that while Germany does not allow any foreign media companies to enter their market, they own 80pc of the media in Poland and now all their 25 years long investment in bribing Polish journalists and politicians to act as the executors of the German Mittel-Europa geopolitical plan (the essence of which is to create a buffer zone between Germany and Russia which would be deprived of a strong army and will not be allowed to have a technologically advanced industry lest it competes with the German industry) looks like money down the drain, since the new government of Law and Justice decided to re-Polonise the media and sack obsequious journalists like Mr. Tomasz Lis, who went as far as having an anti-Semitic rant in his “Newsweek” against the father-in-law of the future Polish President Andrzej Duda, hoping that maybe this would save the previous government, and thus his 30,000 euro a week job on TV – he miscalculated though, as German financed chief editor’s anti-Semitic attack on a well know Jewish intellectual was considered by Mr. Kaczynski’s supporters as the most disgusting thing like, ever; Mr. Lis, after his Pat Kenny beating contract had not been renewed, went straight to German media to cry that he is persecuted by the new government; “are you allowed to speak?” – the German TV presenter feigned worry (though Germany is not worried that Polish parents are not allowed to speak Polish to their kids with their German partners, as provided by the 1940 Nazi law) – “I am yet allowed, but who knows what will happen next week”, said the Polish cute hoore, who for 8 years had not invited a nationalist or a conservative politician to his TV show, except after Law and Justice had taken power, when he invited two at once – hoping they will not cancel his 30,000 a week contract, which is almost three Pat Kenny’s or two DAA managers); the outcome of the debate in the EU Parliament – debate organised by Mr. Donald Tusk, who had rat on his own country, was completely different to what I expected – instead of sanctions, we heard German and Dutch MEPs attacking their own governments for meddling in Poland’s affairs:

    https://www.youtube.com/watch?v=Y1WO8_K66Yo

    And a larger report on the debate in the EU Parliament (with Polish subtitles – very good ones):

    https://www.youtube.com/watch?v=r3TzxjdLM64

    Do we really need banks?

    We know what would have happened had the banks been shot down because there is a Western country where this had already happened, over 40 years ago. That country was… Ireland. David once noticed that the Right has more sense of humour than the Left, but this, for a change, is no joke of mine. The Irish public servants developed a taste for striking, because those who did not have that penchant had long been gone to conquer countries like the US or UK (some native Irish ensure me that I am not hallucinating when I say that I can detect some traces of Dublin and even Derry accents in Liverpool’s accent).

    The strikes were successful inasmuch they managed to close down almost the entire Irish banking system in May 1970, though it has to be said that even before they closed down the banks, they had managed to f..k up the Irish banking system anyway, with their working hours so short that it had led to a backlog in cheque clearing building up throughout April. Banking in Ireland did not resume until early 1971 (admittedly they re-opened in November, but this was only to have tea and exchange gossip whether there is any nice looking women left or did they all go to America), by which time Black Sabbath started to deliver their murky message on what is probably the best album in rock music’s history, King Crimson’s saxophone player started spitting blood on their concert after his 10 minutes solo, Captain Beefheart tried to beat his mentor Frank Zappa in provocation challenge (singing in a bubbly voice on his “Trout Mask Replica” the line “six million Jews, Dachau blues” – now here is the real courage for you, not Bowie’s line about gay looking at a priest and vomiting); Roxy Music employed a keyboard guy using U.F.O. technology called Brian Eno, who was probably born in Roswell as he looked like an alien and his sounds were always alerting my cat – and suddenly rock music became a lot more fun.

    Coming back to the closure of the Irish banking system – what happened in the aftermath? Not much. The Bank of England’s archives, the Irish government-commissioned inquiry into the dispute (Fogarty, 1971) and an academic study carried out by Murphy in 1978 show that cash already circulating continued to be used for payments (by the way, the major reason why the Kingdom of Belgium has not collapsed yet, with their post stamps featuring Lenin and their Prime Minister thinking that the Internationale is his country’s anthem (and you think Bertie was dumb with his horse bet explanation?), was that they did not have a government for, if I my memory serves me correctly, nearly three glorious years, and so – being already heavily indebted – they did not increase their debt by as much as they would have normally done.

    Nature abhors vacuum – so the Irish have adapted to the new environment and they continued writing each other cheques; the Irish are had done so (adaptation) many times in the past and they will continue to do so in their own country unless Herr Schulz succeeds to make Ireland part of “Mittel-Europa” (which Ireland, having no industry on her own and relying completely on imports of advanced technologies from Germany and China and exports from the US multinationals, may soon become a part of for the detriment of jobs in Ireland, contrary to Lisbon Treaty billboards ‘Lisbon = jobs’ – all of this while the cost of doing business in Ireland has been increasing even after the real wages had fallen (no small feat of the present government) – think of that the next time when you think that my obsession with the WWI Mittel-Europa plan has no relevance to people in Ireland).

    Why I like the Irish (with no previous convictions)

    If I was pushed to say what I like the most in Irish people – perhaps you do not see it that much if you live in Dublin – I would say that it is trust, a priceless human capital (let ISIS into Ireland and whatever trust is left will be gone in no time), almost as important in capitalism as its most important feature, now absent in the banking sector – risk (which implies freedom). Poles have many strengths, but their – sometimes – weakness is that they are the most distrustful bunch of people this side of Israel (which is both a blessing – resistance to propaganda – and a curse – they may come across as rather stiff until they decide trust you as a person, which takes them five years on average, after which time they become loyal to you to an extent that is irrational – this was the reason Poland got involved in WWII, believing English and French military guarantees). And so the trustful Irish started to accept self-written cheques in lieu of payments as IOUs.

    But how come, sure there was no regulations, some readers would scream in bewilderment!
    The beauty of capitalism is that it does not need the state to regulate itself; mind you, by saying this I am not declaring myself as the so called anarcho-capitalist – on the contrary: my idea of an ideal state is a powerful army (focused on defending its own territory rather than forays into foreign lands – this paradoxically allows the state to be neutral in conflicts), strong police force (with transparent rules), ideally supported by local communities, and an efficient legal system (with simple laws – no loopholes, and very severe punishments – ideally death by hanging – for serial murderers; one of the reasons that until recently there had been very little crime in Sweden was that for centuries they had been cutting off hands of those who had stolen – which is too a severe punishment of course; on the other hand, when I think of some banksters…) with maximum freedom in all other areas).

    No, I have to divert again regarding stealing – the election slogan on billboards of Prime Minister Hanna Suchocka was “1 – the economy”; one night we took a bucket of red paint and painted on all her billboards in one of Kraków districts: “7 – thou shall not steal”.

    So how did the Irish self-regulate themselves? By using publicans and retailers to judge the creditworthiness of payers – they had the informed view of the liquidity of would be payers. Murphy finds that the was no detrimental effect of the banking system being closed down on Ireland’s retail sales in 1970, though there was an impact on imports and exports (which would be brilliant – rather than letting the German companies built our roads while Germany imports from Ireland less than Belgium, we would have to start building roads and producing goods ourselves, like Iceland). And who was hit the most? You guessed it, the bondholders, so they started to put pressure on the Irish government (“Ireland once again showed itself to have all the marks of a banana republic, except the bananas” – an Irish Export Board Spokesman in October 1970; in Fogarty, 1971). That’s their strategy – to bring out the inferiority complex of post-colonial societies. They did it in 1970 and in September 2007 in Ireland, they did it in January 2016 in Poland calling on the debate in the EU Parliament.

    We should emulate the Krauts

    Bondholders rights before the rights of the Irish. The rights of four German companies, which control 80pc of the media in Poland (2 of them in charge of Mrs. Merkel’s friends), before the rights of Polish citizens to have access to true information. 3 days long meeting of the leader of French Grand Orient with the hitherto unknown Miss Hanna Suchocka being catapulted to the position of the Prime Minister of Poland (first thing she did was to introduce a new tax – VAT – 22pc high – to eliminate sole traders by sending a police to chase grannies selling carrots on streets; second she started invigilation of the newly-born conservative parties and managed to split them using intelligence services – I did a small public PowerPoint presentation on that in 2010).

    When the Lisbon Treaty was being ratified, Germany was the only country in Europe to question its constitutionality – but you knew nothing about it because, like in “Yes, Minister”, you did not need to know. The German Constitutional Tribunal in Karlsruhe held that the Lisbon Treaty does not contravene the German constitution, but on one condition – that the Bundestag would pass (and the President would sign) the so called organic act.
    The act provided that no EU law can be introduced in Germany unless it is ratified by Bundestag and Bundesrat, thus killing two birds in one stone: Germany can now implement new laws in the EU via people like Herrn Schulz, Verhofstadt and Juncker (best known for creating tax fraud schemes in his native Luxembourg), while being allowed to reject it on its own territory. In other words, using this simple trick Germany became the only sovereign state in Europe.
    This was the background of the debate on Poland in the EU Parliament you were not told in the mainstream media – new Polish government is no longer willing to tolerate this state of affairs. They want Poland to be a sovereign state too.

    Should Ireland be a sovereign state? Would it dare?
    A sovereign state is a state which can burn the unguaranteed bondholders.
    A state which is not sovereign cannot, because its budget is being read in Bundestag before it is read in the Dail.
    It is time to implement the German solution in Ireland – for the Irish problem that is not entirely of the Irish making.
    It is time to create the non-mainstream media in Ireland which would discuss it. I am sorry to say that, but even though I wrote a few pieces for Indo myself and one for the Irish Times, 3 newspapers in Ireland and one English Irish Daily Mail is not enough for a country which has spawned Sir Edmund Burke and has invented a submarine.
    It is not enough to have 5 or 6 people exchanging opinions on this blog – we have to go main-stream; otherwise we will remain in the vicious circle of voters being economically and politically illiterate because of the mainstream media; and mainstream media showing them hours of Judge Judy and cows being electrocuted in Co. Clare because this is what they always have seen.
    Going mainstream cannot be done only by David McWilliams, Constantine Gurdgiev and prof. Stephen Kinsella with his pace of writing articles measured in glacial periods.
    Poland showed that you can do it – break the terror of “more Europe in Europe” – even if almost all of your media is foreign owned – so why can’t you when it is not?
    I am not as radical as MEP Janusz Korwin-Mikke – I do not think that the EU should be destroyed. But why it cannot be limited to its founding four-freedoms?

    The EU, the way it is going – with German a leader creating chaos rather than order by inviting 800,000 people belonging not only to a different culture, but to a different civilisation (as defined by Feliks Koneczny), and then threatening other states with sanctions to deal with that problem because Germany, with its disintegrating police and media censorship is unable to – I know of cases of girls in Cologne who were warned by the police to keep schtum on it, not to mention the local female politician who claimed that it was their fault because they had provoked them with short skirts – is not the EU Ireland voted to join (of course, apart from the fact that there was no EU as a legal entity at the time).
    That’s trivial. David knows that, you know that, I know that, and all me mates know that.

    But what is not trivial is that it is not even the EU (or rather EC) Poland voted to join in 2004 – such was the scale of changes in the EU law since 2004 (and if the judges in district courts are not informed on it, how can the voters be?)! This is how far we have “progressed” since 2004. 12 years only and some patzer with no education whose father was a staunch Nazi tells me which journalists should be employed in Polish national television, via his propaganda machine funded not only by German taxpayers (that’s bad enough), but also by taxpayers of countries who really do not give a damn about who owns media in Poland – and why should they (but their taxes go to support this Byzantine organisation regulating the curvature of bananas to eliminate the free trade and classifying snails as fish to suit the vested interest of the French farmers regardless if they do or they do not)?

    It is time to bring to life a political movement in Ireland which has the sovereignty of the Irish state at its heart, not to expect that four parties will do it for you.
    They haven’t in the past. I looked at their past and what did I find? A Hitler supporter, a STASI agent, a probable English spy and, I suppose, maybe Blue Shirts being the least evil of them all – but not to an extent that I would feel obliged to move my ass and vote (besides, I told you I am against CAP).
    It is time to stop whinging and self-pitying.
    By plunging into self-pity, not only we risk creating the next Holocaust industry with its endless list of grudges being hold for all our sufferings, those real and those we made up.
    We risk much more – we risk buying their – the Eurocrats – narration that we, proud sovereign nations of the post-Roman Empire civilisation, are the problem. That we have to be fluoridated, estrogenated and vaccinated; that having 8 children is backward and that building bridges across the ocean for 800,000 Arabs, and sending them on a journey from safety of their camps in Turkey into the collision course with young German lassies, is forward.
    That our parents have to be euthanized in order to save their pension systems, built by them to keep us dependent on them.
    We are not the problem.
    They – with their media censorship as seen after events in Cologne – are the problem.
    It is time to emulate the German Constitutional Tribunal and become Europe of sovereign nations.
    Now it is time.

    P.S. I used the following sources for my essay:

    Bank of England Archive – files C79/88, 7A356/3, AC13/953, C12/162
    Fogarty, MP (1971), Report on Dispute of 1970 between the Associated Banks and the Irish Bank Officials’s Association.

    My attention to the phenomenon of Ireland as an example of a country which had successfully functioned without a banking system in operation was drawn, a few years ago, by Dr. Constantine Gurdgiev.

    • Deco

      Greg – please pass this to your fellow Poles, concerning the media.

      It is called “The Century of the Self”. It is by Adam Curtis.

      It is the greatest documentary ever produced to explain the current existence of individuals in Western Society.

      https://www.youtube.com/watch?v=eJ3RzGoQC4s

      Also, did you ever hear the phrase “Television is chewing gum for the mind”.

      In other words, there is no nutritional value in it. It merely creates a numbness, an illusion of eating.

    • Deco

      Greg, your post is a legend.

      I would read that, but I have no time for television.

      “Television – the more you watch, the less you know” is a quote that comes to mind.

      • Grzegorz Kolodziej

        “An uninhibited debate in the media and freedom of speech is the foundation of democracy in Europe. We are concerned about the phenomenon of conspiracy of silence or even deliberately misleading the public by the big European media. Recent events of mass sexual assaults by Islamic immigrants initially were intentionally ignored by the major media.”
        “The scale of the cenzorship phenomenon in Europe as shown by recent events in Germany called by a former German interior minister Hans-Peter Friedrich “cartel of silence” lead to the conclusion that suppression of genuine pluralism and unfettered debate in the European media is alarming, thus the corrosion of democracy becomes a serious problem for Europe, which impacts the increasing number of the European countries. ”

        http://www.petitions24.com/support_polish_democracy

    • McCawber

      David I asked you not to do an article on the “Report”.
      However I have to acknowledge that your article is spot on.
      Our economic collapse was not an accident.
      It was predictable (You yourself predicted it many years before it happened and you were not alone. You were even asked to consider committing suicide for having the honesty to make such a prediction).
      More importantly it was preventable.

    • coldblow

      Grzegorz

      Interesting post.

      Did you say you got some articles published in the Indo, and one in the IT? What were they about?

      Also, do you know if the Germans actually discuss EU legislation in their parliament(s) or do they just have it signed into law by statutory instrument, which I think is the way it is done here and in Britain?

      • coldblow

        Christopher Booker on Geoffrey Howe’s 1972 solution for how to deal with 13,000 pages of existing EU legislation and a lot more to follow:

        http://www.telegraph.co.uk/comment/11938457/Geoffrey-Howe-destroyed-700-years-of-parliamentary-sovereignty-at-a-stroke.html

        ‘Tony Benn graphically described it as “a coup d’état by a political class who did not believe in popular sovereignty.”‘

        There’s that word again, ‘sovereignty’.

        But this most be how it’s done everywhere (statutory instrument) or are there countries where their parliaments go through all the legislation line by line?

      • cooldude

        Very good article from David and a great post by Grzegorz.

        I would say that a sovereign nation should have control of it’s own money. For me that would mean issuing debt free money from the Treasury rather than paying interest to the Rothschild controlled central banks. It is ironic that pravda (RTE) are making such a big deal around the 1916 anniversary when we have lost complete control of our country’s finances and are now the ECB’s bitch when it comes to all matters to do with finance.

        Have you looked at Direct Democracy Greg. Many interesting ideas but the brainwashed masses have no interest.

        • I agree with you that a sovereign nation must have sovereign money.

          Not mentioned in all the discourse is the roll of the central bank roll in the sponsorship of bebt based money.

          There is no escape from economic problems if we insist on using the current money system.

          The central bankers must be closed down. The sovereign money issued from treasury to replace the fiat debt based money. A limit be placed on the amount of money issued by the simple fact of backing it with a solid asset. Preferably gold as it is universally accepted as money.

          It is the current system of issuing unlimited amounts of credit that over extend the debt levels that can not be repaid. Bankruptcy is a guarantee of this system.

          The profits accrue to the privileged few on the inside track.

          The excess and ease of access to this credit corrupt all who contact it. All institutions and governments plus the individuals too.

          There is a truth to the axiom that money is the root of all evil.

          The only money that does not corrupt is the so called honest money that is not issued as a debt.

          Morally and practically we must rid ourselves of the central banking ponzi scheme currently enveloping us all.

          Fire the ECB and issue sovereign debt free money from treasury. That is the best start to economic recovery. Retracting from the Euro and retaining the central banking fiat national currency is not a solution.

          The only real solution is the removal of the central banking ponzi scheme money and the fractional reserve debt based banking system.

          A free sovereign people, will only remain sovereign with the use of honest money.

        • “but the brainwashed masses have no interest”

          Correct cooldude – because they are as thick as pig shite.

          With that in mind, I’m beginning to think that population reduction is the right plan – all things considered.

          Less people, less misery, more happiness.

          Discuss.

        • Grzegorz Kolodziej

          I’ll have a look at Direct Democracy.

          I’m a bit skeptical on democracy…

          http://www.lexrex.com/enlightened/AmericanIdeal/aspects/demrep.html

          the you-know-what lobby has now involved the rating agencies against the new Polish government:

          http://www.breitbart.com/london/2016/01/18/polands-sp-ratings-downgrade/

          http://www.petitions24.com/support_polish_democracy

      • Grzegorz Kolodziej

        “Also, do you know if the Germans actually discuss EU legislation in their parliament(s) or do they just have it signed into law by statutory instrument, which I think is the way it is done here and in Britain?”

        from me above:

        “The German Constitutional Tribunal in Karlsruhe held that the Lisbon Treaty does not contravene the German constitution, but on one condition – that the Bundestag would pass (and the President would sign) the so called organic act.
        The act provided that no EU law can be introduced in Germany unless it is ratified by Bundestag and Bundesrat, thus killing two birds in one stone: Germany can now implement new laws in the EU via people like Herrn Schulz, Verhofstadt and Juncker (best known for creating tax fraud schemes in his native Luxembourg), while being allowed to reject it on its own territory. In other words, using this simple trick Germany became the only sovereign state in Europe.”

        Opinions rather:

        http://www.irishtimes.com/opinion/letters/increasing-the-money-supply-1.581757

        Also, I invesigated P.Cox’s murky lobbying company and Gay Mitchell’s voting for hiding his expenses and actually knocked them off the race. Mr. Pat Kenny had unintentionally facilitated it, then they blanked my question.

        Mr. Michael D. could not answer it and passed my question to the constitutional expert.

        They never had me on RTÉ again.

        P.S.: E-mail this to P. Hitchens, please, le do thoil, prosze:

        http://www.currenteventspoland.com/commentary/Who-Defends-Polish-Democracy-with-German-Money.html

        And for the crack:

        http://www.theguardian.com/world/2016/jan/12/polish-press-nazi-imagery-war-of-words-eu-angela-merkel

  5. David

    This is a very special article you wrote .My wife has read it too and said we should ‘frame it’.

    It should be in every household in the country . Your command of English is amazing and leave no stone un turned and you deliver the evidence exactly as it should .

  6. Pat Flannery

    The Irish blaming the ECB is like an alcoholic blaming his local bar owner for his alcoholism. The bondholders in question had lent to the Irish banks based on the ECB’s continued support to the tune of over €100 billion at the time. If the ECB had continued to serve the Irish alcoholic more drink, long after it was time to kick him out, or had allowed him to default on his bar tab, his Irish family would now be on the road.

    The ECB had indulged the Irish alcoholic for far too long. Nobody other than the ECB speaks of the billions already lent to the Irish banks. The ECB owed some responsibility to those bondholders whom it had encouraged to continue to lend to this Irish alcoholic long after both of them should have thrown the bum out of the bar.

    Now that bum is back all dressed up in a three piece suit and pleading his innocence. He is loudly crying about the fact that he was forced to pay his bar tab! How long will it be before he is falling off his barstool all over again? Like most alcoholics he has learned nothing.

    Meanwhile our host here, like a broken record, blames it all on the currency with which the alcoholic purchased his drink. The Euro is to blame. By this logic all the drunks in England can blame their alcoholism on the Queen. It is her currency. Every drink they buy has her head on the coin. David calls this economics. “It reveals a profound misunderstanding of capitalism, which is quite worrying”.

    • Deco

      Interesting analogy.

      This country had drunks in charge. Yes. A cabinet full of Boris Yeltsins.

      To paraphrase the crew of the Appolo spacecraft – Ireland, we have a problem.

      We are in an abusive relationship, with a bottle.

      • Pat Flannery

        It was not just those in charge Deco, everybody got drunk at the party: farmers sold sites to developers at ridiculous prices, developers paid ridiculous construction prices to anybody who could swing a hammer and call himself a tradesman. The easy money flowed everywhere. It was an orgy. Orgies always end badly.

        It is time to sober up and stop looking for scapegoats. Blaming the ECB will only prolong the recovery. We can actually grow as a nation from this, if we see ourselves as we really are. This time there is no use running to the priest in confession, so that we can do it all again next week. Besides, the priest is not there anymore. Nobody is listening.

        Responsibility is a much more powerful medicine. We must quit bellyaching about the EU, the Euro and the ECB. We must “man up” to what we can be, a responsible sovereign member of the world community.

        • paddythepig

          Couldn’t agree more. All this talk of being taken hostage is just childish. Blame deflection is big around these parts.

          • McCawber

            You are missing the point completely.
            We should never, ever, ever, ever have allowed ourselves to get into such a mess in the first place.
            Our politicians willfully ignored all the evidence of the problems they were creating.
            The EU/ECB put the boot into them because the same politicians were smugly going around telling everyone else in Europe how to run their economies.
            Our politicians, FF mainly made us hostages.

          • paddythepig

            You are reiterating what I just said, so I guess we are both completely missing the point.

    • Grzegorz Kolodziej

      Pat,
      I hope you are well.
      I would expand a bit on that analogy of yours.
      Ireland is a bit like an alcoholic, but ECB is not like a good Samaritan, but more like a brothel-keeper. The brothel-keeper lends money to an alcoholic, who demands more and more – but the brothel keeper encourages his alcoholism, blowing on the alcohol-infused balloon to finance his addiction – gambling.

      There brothel-keeper is not only liasing though between the power-broker Hans and his younger sister Camille, whom Hans indulges and gives money to, because Camille has a gun powder Hans’s older brother, Joe, forbade him to have. Hans hopes that one day Joe will move out of the brothel and he will confiscate Camille’s gun powder she has been experimenting on.

      But even powerful Hans needs minions to keep the brothel in a reasonably good shape, and have the whole upper floor for himself with a view of the sea. One of those minions is a distant cousin Misha, whom Hans loves and hates and the same time.
      Misha is a bit unpredictable and Hans prefers to keep him at distance, unlike Camille, who dreams of going to bed with Misha.
      On the way between Misha and Hans there is this contrary sister
      Beata. Beata wants to marry either Hans or Joe, but they think that she will be at their beck and call as she always has been. But they did not notice that Beata is a big girl now, who leaves home more and more often, so Hans decides to punish Beata. But Beata’s sister have enough of the arrogant Hans and they tell him – leave her be or we are selling the house.

      Paddy-the alcoholic sees that and realizes that he will be next in the line to be taken advantage of by Hans.
      But he likes the brothel – it is warm here and clothing is nice.
      On the other hand, he does not enjoy drinking as much as he used too. He is not getting any younger, he went through lots of pains in his liver and all his younger brothers and sisters have left.
      Meanwhile, there is a rumour that the brothel’s balance sheet does not look that well and that the brothel may go bust when the cold winter comes. He looks at his brother Joe on his left – Joe’s wife now got unemployed, so Joe wants to take the toys he left in Paddy’s house (Paddy makes most of his living from renting these toys to other kids).
      On the right there is his half-brother Tim. Tim used to visit Joe every year, but Paddy sees that this year the blinds in Tim’s house are down and there is this big, strange looking kid Xi, and that Tim is now renting all his toys to Xi, who has lots of candies to give. So Paddy realises that far Tim is now dependent on Xi, and he is dependent on Tim and Joe, who no longer communicate with each other. His cousin Roper James, to with all Paddies sisters live, is not playing with Xi more often than with Joe.
      On the brink of their village there is this strange kid Bjoerg, who does not play with other kids and he makes his own toys. Tim and his cousin Ruben had once beaten up Bjorg badly, but Bjorg called on his sibling and drove away Tim and Rupen, destroying all their toys. Since then Rupen is lonely, but he is not worried that the brothel will close – he lives by fish and his wife knit beautiful jumpers for him.

      Paddy looks at all of that and thinks…
      Should he remain at Hans’s beck and call? What if the other kids tell Hans to move out? Maybe he should go to Joe – but the invitation from Joe does not come and he wants to take his toys…

      Now Hans starts acting a bit weirdly – maybe his success got to his had. He invites Ahmend and his 24 brothers to his house. He hopes they will make his toys that he then will be able to sell. Ahmed and his brothers come and take Hans’s sister Helga with them. Suddendly Hans realises any kid can come to the upper floor he has for himself. He asks Beata to take Ahmed’s 3 brothers and lock them in the attic; she refuses.
      First snow is to be seen and Hans knows they to do not have the money to keep the brothel open for winter. Suddenly the siblings do not enjoy being in the brothel so much, which is now cold and dangerous to be in at night.

      Paddy is about to decide next month which brother or sister will go with. They are all big now and they want to have their own brothels.
      He cannot go with all of them – he has to go with the strongest and those who like him or find him useful. He can always be a recluse like Bjorg, though then no one would tell him to go somewhere else.

      What will Paddy do?

      I do not know.

      Do you?

      Does anyone?

      • Pat Flannery

        I am well thank you Greg. I am not sure that was the analogy I had in mind. Indeed I am not sure I understand it. But as a new Irishman I hope you will think more kindly of Ireland and help make it a leading light among nations rather than the world’s financial brothel. That part I understand. Na zdrowie.

    • StephenKenny

      Absolutely agree, at the personal level people should have seen through it and not taken part.

      But socially that was very difficult. Anyone who dared to point out that house prices can’t rise forever, at least at anything like those rates, got an abusive response, sometimes very abusive. You were treated like a heretic, a revolutionary determined to ruin it for everyone, and so on.

      There are loads of quotes and books about this phenomena – there’s one called something like ‘The Madness of Crowds’ that’s interesting.

      Most people really have no idea, or interest, in the financial sector, and are just part of a hierarchy of trust. Just as you don’t check the design of your car’s brakes, but trust in the international rules covering brakes, people don’t look at their financial investments too carefully.

      I’ve said this many times here, but at Christmas ’06, I emptied the Dundrum bookshop of it’s copies of the Pope’s Children, by a famous Irish economist and blogger, and everyone got it for Christmas. My reputation as a crazy doom monger didn’t exactly go away, but was ameliorated somewhat.

      The idea that the financial system – a large part of our lives – is totally untrustworthy is an incredibly uncomfortable idea.

  7. Deco

    [
    This is where the Court of Auditors report gets very interesting, because it is pointing the finger at the EU Commission – the civil service of the EU – for going with the bullyboy tactics of the ECB.
    ]

    Actually, at an even deeper level, the Court of Auditors is very interesting :)))

    They have not signed off on the EU’s accounts for almost two decades.

    If that happened on the ISEQ, there would would be a delisting. And we are talking about the same Stock Exchange where Permo continued to be listed, for two years, after Permo were found to be helping Anglo fudge the accounts. The ISEQ is also a joke in certain respects.

    The Court of Auditors also happens to be the retirement home of the former DoF “genius” who informed the US Ambassador (credit to Wikileaks) that the DoF were satisfied concerning the solvency of all six Irish banks, when Northern Rock was collapsing. [ later all six institutions collapsed in an insolvent heap]. Another joker.

    It seems that there is a continual moving scheme of jokers between the various rings in the circus. All getting paid handsomely.

    David Begg (on the board of the Central Bank while the ponzi scheme went out of control) blamed the crisis on a lack of regulation and control. [ he was part of the body that was responsible for regulation and control ]. That is like a prison guard complaining that the prisoners were not being monitored before they escaped.

    The entire thing is a farce.

    Winston Churchill once stated “we shape our houses, and they shape us”. This is what we are seeing. Cluless idiots shaping regulations, and frameworks for controlling the populace, with massive exemption areas like the red light district that employs John Bruton as lobbyist in chief. And they they police flawed mechanisms. Most of the time the mechanisms are simply too large. And this comes from the entire “more EU rope” mantra.

    More Europe is where the rot begins.

    Excellent article by the way.

  8. coldblow

    This is a good article. I hadn’t heard of the Court of Auditors’ findings as I don’t follow the news closely (I assume RTE reported them). As anyone who was reading this blog back in the day will remember all too clearly, they don’t come as any surprise.

    I have some reservations about David’s article though.

    I had always assumed that the ‘bomb in Dublin’ threat meant the ECB would stand by and watch banks in Ireland collapse and people lose their deposits. What was it supposed to mean then? I must have missed something. Of course, if they had spoken plainly then it would have been clear, wouldn’t it?

    ‘The result is mass disillusionment with the EU project and the emergence of nationalist politicians from Poland to Spain, Greece and France pushing for much less Europe rather than much more Europe.’

    This is presented (or so it seems) as something to be regretted. What the crisis has made clear, in particular the reaction to Greece and mass immigration, is that the EU is run by Germany. The Commission were, I assume, merely doing Germany’s bidding. (If that isn’t so someone please correct me.) All the we-are-all-Europeans rhetoric and the talk of solidarity was always just hot air and this was obvious with the crisis.

    The EU is for the creditor nations against the indebted ones, for the banks against the people, for globalisation (in particular US interests – again what exactly was their role in 2008 and 2009?) against the local, for dogmatic metropolitan liberalism against the local, conservative and traditional, for the state against the individual, for arbitrary, unelected and concealed authority against law, democracy and individual liberty and, above all, for foolish, dogmatic ideology against common sense.

    Crotty had resisted Irish membership of the EU, not least because all of its members were former imperial powers (Ireland alone had been colonized).

    I think the division David refers to between creditor members and debtor members and between north and south was bound to happen in any case.

    The EU was built through deceit and people have never been told its true nature, or have not bothererd finding out. It is a political project yet it was always marketed as an economic one. Monnet always worked behind the scenes – the reason Britain was excluded was because he knew that they would be unwilling to surrender self-determination. Our authoritarian political and media caste (Ireland is no better here than the rest and probably worse) united to push it through against an indifferent or hostile public. The EU Parliament is an expensive irrelevance. Now national parliaments have also become redundant when the great bulk of law originates in Europe and is passed into national law by statutory instrument with neither Dáil nor press taking any interest in it.

    In a similar way mass immigration is presented as an economic imperative (once again, there is no alternative). Once it reaches a certain level it is irreversible. (This was the whole point of the New Labour strategy to ‘rub the right’s nose in diversity’ as Andrew Neather put it when he let the cat out of the bag.)

    Democracy is merely a rubber stamp for those who have already deluded themselves. It only becomes demagoguery when people refuse to go along with it. In Ireland the attitude of the press and the politicians to the water protesters makes this clear. This isn’t a conspiracy though; they sincerely believe this but are blind to history and to the psychological dynamic.

    David talks about the European bureaucracy, the institutions, being a conspiracy against the people. This is true but it is deeper and wider than that. I remember a short training course about eight years ago about state agencies. (These are set up to put distance between govt ministers and criticism, but it is dressed up as decentralizing power, and are then reabsorbed into govt departments later when it becomes clear that central powers have been weakened.) The trainer had spent some years in the Commission and when I spoke to him during the break it became obvious that he was a True Believer in the Project. Yet I doubt he knew much more about the nature and history of the Project than anyone else. A good comparison would be to the IPCC who are behind the climate change delusion and which was set up by the UN to find evidence for a problem (climate change) which had already been identified. While they are clearly a big part of the problem they still only have a relatively small role in what has become a global mass movement, or rather mass delusion.

    • Deco

      The EU is run by money. Most Germans are participants in a democratic process that is of decreasing relevance, and which sidelines them. The same applies to Spaniards, Dutch, Irish, or anybody else who disagrees with the corporatism that controls decision making.

      Money controls the process of nominations.

      You elect politicians, and they either serve money or else they are instructed to serve money. If they don’t serve the corporatist monetarist system they end up dead.

      The Cold War was between Communism and Corporatism – the two conflicting ideologies of the victors of WW2.

      One is about politics in complete control of business. The other is business in coomplete control of politics.

      Corporatism defeated communism because it was more efficient, and discouraging of effort. But it was just as sinister. And it is even more of a fraud.

      The Soviet Union was replaced with the European Union. The EU Commission took over from the Politburo.

      The Marxists dropped aspirations about steel production, and embraced state quangos for the regulation of irrelevance. Buy-in was attained. There was a truce.

      We need to defeat corporatism in politics.

      So now, here is the question – Is Sanders the Gorbachev of America ? Or is it Trump ? Or even Cruz ? [ forget about Clinton - just look at her donor list !!! ].

      • coldblow

        ‘The Marxists dropped aspirations about steel production and embraced stte quangoso for the regulation of irrelevance.’

        Hitchens argues (and I agree) that they did indeed give up on nationalizing major industries as this was seen as irrelevant these days. Instead they sought, and succeeded, in bringing about a profound and irreversible cultural revolution.

        Here’s a good article by him about their Marxist background:

        http://hitchensblog.mailonsunday.co.uk/2015/12/new-labour-insider-confirms-it-blairism-far-more-revolutionary-than-corbyn/comments/page/5/#comments

      • coldblow

        This one is good too:

        http://hitchensblog.mailonsunday.co.uk/2016/01/revolutionaries-and-why-they-matter-even-when-they-seem-absurd.html

        I think I can remember that episode of University Challenge. They answered every question with ‘Marx’ or ‘Engels’ and took themselves very seriously and were annoyingly solemn and self-regarding. Even as a youngster I knew they were fools.

        • Deco

          Trotsky is positioned by some of these people as the better option in socialism.

          This is a legacy of Stalin versus Trotsky.

          “Trots” seem to show up all over the place. In actual fact, when Lenin was in power, Trotsky killed far more than Stalin. Had Trotsky beaten Stalin as comrade General Secretary, there would have been wholescale war on the scale of Stalin plus Mao by 5.

          Trotsky was a butcher. Even Stalin thought Trotsky was too extreme.

          Trot-nonsense has not been ever sufficiently dismantled in the public argument. It is complete mania.

          • coldblow

            I know little myself about the theological differences between the different revolutionary sects. Hitchens was himself a Trotskyite and admits to having wasted nearly all of his time at York Uni. cramming his head with Marxist nonsense. After graduating he spent a few fruitless years active in a revolutionary cell trying to infiltrate working class society and, I suppose, ‘raise their consciousness’. He then, I think, got a proper job in journalism dealing with labour tribunals which he said was an education. He abandoned the Revolution and joined the Labour Parky, became disilusioned, joined the Tories, and then left them, regarding them as no different from Labour and the Liberals.

            As he says himself, his revolutionary background is a great help in spotting what is going on. Those two articles I linked to go into some of this. In one of them, I think (or it could have been elsewhere), he referred, as an example of how badly the political experts actualll understand modern politics, to Kinnock’s suppression of Derek Hatton and Militant and said that this fooled the press into believing that it reflected Kinnock’s adherence to moderate politics by sorting out an extreme grouplet. I asked him to clarify and he said that Militant were insignificant in terms of numbers and influence and served only to make Kinnock look responsible, when he was far from so.

            He also said that on another level this was a victory for the Eurocommunists over the Trotskyists. The Eurocommunits were influenced by Gramsci and saw the future in a steady, gradual infiltration of all of society’s insitutions, the press, etc. They have been successful in this, apparently: we certainly see them having rich cause for satisfaction if we look around. Their newspaper (or magazine?) of choice was Marxism For Today and many respectable looking politicians were Marxists in their youth (and have neither drawn attention to the fact or renounced their faith). I expressed surprise that it was so clear and defined as I had always imagined these youthful radicals as disorganized romantics. Certainly any of the many people I myself met at university who described themselves as Leninists or Anarchists I mentally dismissed (I was too polite to say so openly) as deluded twerps.

            This is extraordinary when you think about it. Of course, we have people like Gilmore here with a radical past. And much of what passes for mainstream, respectable opinion would have been seen as extreme a bare ten or twenty years ago.

            One of the things that really grates with me about this, and about the EU ‘Project’ is the staggering level of dishonesty.

    • Deco

      Coldblow you are 100% correct concerning the EU, and it’s new conformity agenda.

      Like China under Mao, it seems to want a cultural revolution and is in the process of wrecking anything that comes in the way of the nonsense that it is driving.

  9. Sideshow Bob

    Very nice summation, David.

  10. McCawber

    David I asked you not to do an article on the “Report”.
    However I have to acknowledge that your article is spot on.
    Our economic collapse was not an accident.
    It was predictable (You yourself predicted it many years before it happened and you were not alone. You were even asked to consider committing suicide for having the honesty to make such a prediction).
    More importantly it was preventable.

  11. Wills

    Now that the facts are on the official record it leaves open the following question………..

    Why did the ECB decide that Ireland could not get away with burning bondholders….was it a show down between one set of gangsters the Irish banking class robbing another and the Euro banking class threatened to knee cap the Irish if they didn’t payback the money they stole.

    I know what I think.

  12. Original-Ed

    The upside to this is that we now hold the high moral ground and can afford to be awkward nasty shits if they try to rein us in over our tax policies.
    When Brexit happens, it’s going to be great craic.

  13. Mike Lucey

    So the folks down in Ballyhea were on the button all along when they continued to say NO week in week out! Maybe more ordinary folks around the country will likewise take to the streets until some fair play is forthcoming.

    I’ve just read the ‘The Coming Revaluation of Gold’ article by Hugo Salinas Price and what he proposes is difficult to fault also I feel he has spelt out what could well be happening currently.

  14. Mike Lucey

    Oppps! Here is the link to the Price article in case anyone wants to read same, http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=281

    • Mike Lucey

      @Tony

      I always enjoy listening to GC as he is the only guy I know that has the ability to give the illusion of inserting colourful language without actually doing so e.g. “….. it begins with an ‘A’ and ends in ‘holes’ ;-)

  15. michaelcoughlan

    Hi David,

    I know I have been waxing lyrical about population decline recently and I promise that this is going to be the last post on the subject. Let me start by saying I don’t believe in conspiracy theories so I don’t believe that the worlds bankers are trying to kill everyone even though some banking nutters and bonbon type madmen think its a good idea. When Brogan showed how the money supply has to increase exponentially I couldn’t figure out until recently why the collapse hasn’t happened before now but the Keynesian’s got away with it by ensuring the population was growing at a faster rate. This is why Sutherland is advocating flooding Europe with refugees its to ensure the money supply can keep expanding and not contract. He of course wants the native population to simultaneously contract which will allow for the weakening of the national agenda and the simultaneous transferring of capital tied up in non productive uses from his perspective like maternity hospitals etc.

    Lets start by making a gruesome statement the relevance of which and connection to population decline will become obvious at the end. I hope you continue reading to see the relevance;

    Burned human flesh apparently smells like roast pork.

    To understand my hypothesis we will take a lecture from none other than Captain James T Kirk of the star ship enterprise but before we do we will become more informed about the script that Bill Shatner was reading from when filming this episode of Star trek in the original series. The episode was called “A taste of Armageddon” See wikipedia link below;

    Basically Kirk an co landed on a planet where the inhabitants were at war with a neighbour. The “war” however was waged between their respective computers and at the end a tally was made of people killed. Then in reality the losing side got a portion of their population equal in number to the computer derived figure put them into machines which beamed their bodies out into space executing them in the process, a bloodless and very clean operation. Kirk was so aghast at what was happening he tried to explain that the very clean nature of the killing was contributing to a never ending war where countless millions were continuing to die. He reasoned and tried to explain to the leadership that by making and experiencing real war for the appallingly gruesome process it is that an INCENTIVE TO STOP would become paramount. Kirk proceeded to destroy the relevant computer to achieve that goal. Here is the scene and Kirk’s speech see link below;

    Now back in the real world; have a look at the following article about the decline of the Japanese population. There are currently about 127m Japanese and the article says that if things keep going the way the are by 2040 the Japanese population will be 97m people See link below;

    That’s a whack rate of more than 1.25 million Japanese people per year for the next 26 years! All of this in my view as a result of nearly 30 years of QE by the Japanese CB and also in my view QE which will continue ad infinitum.

    Now for gruesome war realities. The atomic weapon delivered by the American Airfarce over Hiroshima (depending on which figure you believe) killed say 100 thousand Japanese. So now McWilliams lets do our gruesome calculation.

    If the American airfarce were tasked with the responsibility of reducing the Japanese Population in a healthy economy with NO QE using nuclear weapons of the type used on Hiroshima they would have to detonate such a device every month, month after month after month, year after year after year, decade after decade after decade for the best part of 30 years to achieve the same result as the Japanese central bank! In the following footage you can see the bombs detonating but cant hear the screaming or smell the roasted pork see link below;

    So now the connection to roasted pork and simultaneously the connection as explained by Kirk connecting surreptitious activities to gruesome results;

    If the Japanese population were subjected to the nauseating smell of roasted pork (as permeated the air in Hiroshima after the bomb was detonated) of 1.25m Japs being barbecued every year as a result of the activities of the central bank how long do you think it would be before the Japanese population would storm the bank with their samurai swords in hand and chop the heads off of every mother fucker in the place?

    You end your article with the words “while the citizens are left to pick up the tab.”.

    Never were truer words spoken.

    Best regards,

    Michael.

  16. survivalist

    Let me see if I get the picture being painted here…
    EU technocrats ‘tut tut’ at the actions of other EU technocrats…
    the ‘court’ admits that the housing ‘boom’ was understood for what it was, and allowed to continue…
    despite this they suggest that more technocratic regulation is necessary…
    to escape the situation that ‘Irish banks’ (whatever those are) would not have access to credit…
    which they need to punt into the ‘economy’…
    the Government were forced to load debt onto the people/state…
    who had to repay that debt with credit that wasn’t there to begin with…
    but now would be made available as a reward…
    for agreeing to repay the debt that they never had in the first place.

    And all the while the pretence still remains that our economic system aka ‘capitalism’ functions by means other than the following process;
    1) capitalists dump capital into housing, stocks, commodities, bonds or whatever device has been designed to
    2) reap short term yields from interest, dividends or whatever device has been designed before
    3) pulling out of that ‘investment’ out when debt saturation is reached and then
    4 )move on to the next market which in Ireland involved
    5) loading the state up on debt as the personal marked was tapped and in the process
    6) pick up some national resources via ‘privatization as a bonus for some good economic work?

    It might be true that the profound misunderstanding of capitalism displayed by the EU technocrats is that they skipped the University text book chapter on whoever owes it pays it back’. Or it might be true that the profound misunderstanding of ‘capitalism’ such as actually operates is that it is intended to be otherwise.

  17. Wills

    The ruling class of Ireland across politics, media and banking are really milking the ‘Trichet is to blame’ for the crisis bullshit to deflect from their treason and 100 billion euro theft of the country.

    But, there is an article in Irish newspaper which widens out the banking inquiry report into the facts a little more ;

    http://www.independent.ie/business/irish/banking-inquiry/trichet-pantomime-villain-scapegoat-or-the-real-master-of-our-economic-doom-34406165.html

    • Deco

      It is all sounding a bit like “slamming the stable door, in a noisy manner, after the horse has bolted”.

      The fact is that the ruling class in Ireland, opened the door for the horse to get out.

      Superficiality reigns. They did nothing to stand up to Trichet. In fact they ignored the hard facts about what happened.

      Next up, in an effort to look patriotic, they will put on green jerseys and cheer grownups chasing a plastic peanut around a field for two hours.

      This country is swamped with superficial gestures from an unaccountable institutional state that is now effectively the right hand of both the EU imperial scheme and business interests.

      • Wills

        …yup, but come on the crisis was the by product of an engineered property ponzi scam home grown.

        Check out DMcW is action calling a spade a spade in respect to the banking system wrung dry of its credit by insiders to stuff their pockets.

        https://inquiries.oireachtas.ie/banking/hearings/david-mcwilliams-early-warnings-divergent-contrarian-views/?v=video

        • Pat Flannery

          Wills: thanks for posting that link. I listened to the whole thing and read the entire transcript. I think McWilliams played a key role in the banking crisis in that it was he who persuaded Brian Lenihan on the blanket banking guarantee.

          David is now making enormous efforts to back off from that fact. Contrary to what has been widely reported, that Lenihan’s advisors were urging a blanket guarantee, David’s evidence before the banking inquiry shows the exact opposite to be true. He makes it very clear in his sworn evidence.

          He boasts about the fact that Lenihan came to him, to his kitchen in Killiney, and listened to him, over his official Government advisors. He suggested that John Gormley, who called him repeatedly while in China asking him to explain his advice to Lenihan, should have paid him for that advice.

          He even told Lenihan that he “found it ironic that his lead advisers were Merrill Lynch, people who could not even keep their own bank solvent, let alone advise others”.

          David can be very persuasive. He was very sure he was right about a blanket guarantee rather than a limited guarantee in order to prevent a bank run. Unfortunately his persuasive talent was disastrously misapplied in the case of Brian Lenihan and the bank guarantee.

          I doubt David will ever admit it. He will instead keep repeating his mantra that he was right about the housing boom being a bubble, which he was. But credibility can be a double-edged sword. He should acknowledge his role in the disastrous bank guarantee as well as his famous prediction of a property bust.

          • Grzegorz Kolodziej

            Pat,

            Please read my long post and you will find a hint on that – I was trying to be more diplomatic.

            I did not read the transcript, so I am not in a position to comment.
            Even though I sound opinionated on some issues, I try to restrain myself from commenting on things I do not have enough evidence, so you would do me a big favour if you could paste some excerpts that would corroborate your thesis.

            Meanwhile, in accordance with the principle audi alteram partem, this is what he says:

            http://www.davidmcwilliams.ie/2011/11/15/recent-inaccuracies-re-the-bank-guarantee

            So I am giving David a benefit of a doubt, but since you’ve made an effort to go through the entire transcrpt, if you could post some excerpts from that transcript you find germane to this controversial issue, please do it.

            Like I said, as a young student I took a few mates and a bucket of paint and we painted “seventh – thou shall not steal” over Prime Minister’s Hanna Suchocka’s election posters “economy first”.

            In my post I am trying to show that a similar event from the Irish banking history (let alone from the US 19th century history, when it was a regular occurance) shows that nothing major would have happended had the banks gone bust.

            In an excellent Polish comedy Vabank (I am attaching version with Polish subtitles) in the first part the cunning criminals rob the bank:

            https://www.youtube.com/watch?v=Y2xgzwfuxjs

            And in its second part they reached conclusion that even more cunning a scheme than rob the bank is to open their own bank:

            https://www.youtube.com/watch?v=kVfowMwlbrA

            I certainly would not recommended any guarantee – I would have called what I believe was a German and French speculative capital’s bluff.

            Recent events show that a weaker country (Poland) is able to withstand the pressure of a bigger (Germany) country (threat to impose sanction on Poland for eliminating German capital from the Polish media – 80pc of Polish media is owned by German capital and 99pc of the regional press) if the weaker country is resolute enough – though this latest move with trying to use the rating agencies to make the cost of borrowing for Poland higher is worrying.

            I reiterate my question from the post above: why no one from Fianna Fáil is in jail?

            The fish stinks from the head down…

          • Grzegorz Kolodziej

            “version with Polish subtitles”

            veersion with English subtitles. I really did not sleep much this week.

            It is one of a few (maybe 6-7) really good Polish films (modern Polish cinema is too gloomy)

          • michaelcoughlan

            Sorry Pat but your post is a load of nonsense. I have never met David McWilliams so I have no bias one way or the other. Let me tell you that the guarantee on the night in question was the ONLY option or the banks would have closed the following day. McWilliams advocated subsequently winding them down once time was bought.

            Had he been more politically savvy at the time he might have coped on that the arapatchitks in Europe would subsequently load the Irish population with the cost by forcing the Irish govt to redeem the bondholders at par but the reason this happened was to save the Euro and German banks. Ireland alone was sucking up 25% of the funds available. The people of Ireland were forced to take one for the team.

            The banking enquiry itself was utterly dreadful. They blamed all participants yet no one lost a job or went to jail. An Irish solution to an Irish problem.

            One final thing Pat the story about how the crash actually happened STILL HASN’T BEEN TOLD.

            Michael.

          • You are totally wrong about what you say here Pat and I have no vested interest in defending David.

            It’s a matter of record what David’s version of a banking guarantee entailed and quite another matter of record that Comical Lenny made an arse of it.

          • Wills

            Pat: Yes DMcW suggested to Lenihan a bank guarantee could be a feasible next step with respect to the crisis the ponzi banking system had unleashed in Ireland in 2008. Correct. One more thing though, DMcW also recommended the guarantee had to applied specifically with one objective to protect savers NOT risk taking insured private bondholders. This is a vital caveat D attached to the guarantee proposal by Lenihan to which it ended up being discarded. Thus going on the facts the situation is the opposite to your thesis that in fact D was set up, and played by specific insider interests to hide behind in order to get away with the loot when their ponzi property scam folded.

          • paddythepig

            http://www.davidmcwilliams.ie/2008/09/28/state-guarantees-can-avert-depression

            You sure about that Adam?

            Quote “The only option is to guarantee 100 per cent all the depositors/creditors in the Irish banking system” unquote.

          • coldblow

            If I understand it right I think Survivalist’s summary (his first post above) is on the right lines. It’s so complicated by this stage that I wonder if anyone understands it. I suspect it will be whatever the Germans decide they want it to be.

            From reading the transcript (I only read some of it) it seems that David was calling for a full guarantee as the only way to halt a bank run. This included creditors. I don’t know what the difference is between the different classes of creditors. At the time there was heated debate on the newly-set up Irish Economy blog about exactly this point. There were bondholders and subordinate bondholders. There were depositors and shareholders. The latter lost everything. I seem to recall Eamon Dunphy sitting next to Gaybo at the big Anglo wind-up meeting.

            On the Irish Economy I recall that the finance professionals advised that you had to pay the bondholders as this was the way it was always done and was understood by everyone. If you messed with the rules ‘the markets’ would never lend to us again.

            Just a few days before the guarantee some posters on this blog asked where was the safest place for their deposits. It was mentioned on Joe Duffy’s radio programme and suddently you could feel it. I went straight down to the Post Office to transfer my SSIA (or whatever they were called) savings (they had just matured and were worth about 15k) and were with Nationwide. The Post Office messed up the paperwork and I got a letter a week or two later saying I’d have to do it all again. By that time I think the guarantee was in place. I don’t think the PO’s guarantee would have been worth much anyway.

            I understand David’s testimony as being that we needed to guarantee everything but that we didn’t have to stand by this. We could have found a form of words to later justify cutting the bondholders off (ie all creditors except the depositors I suppose).

            The bank run had to be halted. I don’t know how much freedom of action we had after that but I think the govt just took the easy route. Perhaps people expected some kind of solidarity from Europe but we got something else. What exactly that something else means remains, I think, to be seen and Germany will decide.

          • “I understand David’s testimony as being that we needed to guarantee everything but that we didn’t have to stand by this. We could have found a form of words to later justify cutting the bondholders off (ie all creditors except the depositors I suppose).”

            This is correct.

          • paddythepig

            Lads, stop talking drivel. Since when is a guarantee something you can back out of?

          • You’re a crazy man paddy. They have you well conditioned.

            We the working classes can’t back out of any promise we make, whereas when Comical Lenny is being manipulated to do what he’s told (because he is underqualifed and too damn stupid to realise whats’s going on) by the elites – well that’s just business as normal and there is no contradiction. They have you well schooled paddy. You too Pat, when you comment that it would be devious to follow through on David’s specific plan – which didn’t actually happen – meanwhile the elites are telling all sorts of outrageous lies that working class people would never even dream of, much less stoop to.

          • Pat Flannery

            Adam: are you confirming that David’s plan was just another Irish “cute hoor” play? Weasel words? Not to be taken seriously? That the elites lie therefore the working class must lie too? Then you’re right. I have been conditioned – to tell the truth. I guess I’m f#&%ed. Ah well.

  18. [...] ECB Forced Ireland Pay Bondholders – Was Hostage Situation – David McWilliams [...]

  19. McCawber

    Question.
    Can somebody explain the “Derivative” problem.
    What if any options are there for fixing the problem.
    An appropriate link would be great.

    • Grzegorz Kolodziej

      https://mises.org/library/wall-street-math

      https://www.youtube.com/watch?v=nf9ByTdX0aY

      And if you are a visual person (I am more an audio person), from a mathematical point of view the most simple explanation I have found is:

      http://www.mathscoop.com/calculus/derivatives/what-is-a-derivative.php

    • michaelcoughlan

      Hi McCawber,

      Grzeg gives good links to explaining what derivatives are but not what the problem is.

      Take gold,

      The price of the asset, gold, is set in the futures (derivatives) markets not in the physical market itself. When a person buys a futures contract in gold and holds it until it expires he will get the physical amount on the contract delivered to him at least in theory. Very few people hold the contracts that long they cash out before the delivery date.

      Enter politicians. If they want the price of gold to drop they will print contracts which are not backed by an amount of metal in reality and sell those to force the price down in whats called naked short selling. They illegally manipulate the price to suit their political agenda.

      Thats the problem. Its not just the politicians. There is n real market price discovery left. Govt bonds for example are much higher in value because the worlds central banks are buying them left right and centre to keep the price up and the interest rates down.

      It is really and truly sickening to behold.

  20. The Holter Report
    bill holter
    Bill Holter
    Weapons of Mass Financial Destruction!

    Every once in a while it is a good thing to review something we already know and have known for quite a while. What we’re talking about are derivatives and the very basics of how they work… or not. We have seen massive volatility since the Fed raised rates last month. The humor (tragedy), admitted to yesterday by the Fed, the 4th quarter saw slowing economies all over the world and “Nobody Really Knows Anything Right Now” ! I say “humor” because the Fed tightened rates just as the economy was weakening again. Many have said the Fed raised rates at “exactly the wrong time”. History may agree with this, I do not. In fact, there has not been one single day since the end of 2008 the Fed “should have” raised rates simply because of the massive debt embedded in the system and those pesky weapons of mass financial destruction called DERIVATIVES! Higher rates will only serve as a “margin call” in a system with no margin left!
    First, derivatives are generally a zero sum game contract between two parties “betting” on something. They can be looked at as a speculation, a hedge, or even “insurance”. For this missive, let’s look at the “insurance aspect” of derivatives as literally $10′s of trillions in gains and losses have occurred just this month alone worldwide.
    For example and as you know, the price of oil has collapsed. Ignoring the gains and losses directly on oil, let’s look at companies who’s business is oil. Whether it be production, exploration, transport or even “trading”, huge sums of money have been gained or lost depending on which way your bet was. Many oil related companies have CDS (credit default swaps) written against their debt. These contracts have been rising and rising in value as oil has dropped and the possibility of bankruptcies have risen. Huge gains by owners and losses by the “writers” of CDS have accrued.
    This is just ONE AREA as derivatives are everywhere and written just as bookies would regarding almost anything. In fact, CDS is even written on the debt of sovereign governments …including the U.S. Treasury. Please think this through for a moment, who, or what “company” could possibly perform and payout the “insurance” to someone who bet (and won) the U.S. Treasury would default? Would anything even be open? If the U.S. Treasury defaulted, would stock or bond markets be open? How about your bank? How about ANYTHING (including your local Walmart)! Do you see where we are going here?
    Now lets talk for a moment about “collateral” as presumably this is what needs to be used or “put up” by the issuers of CDS if their exposure begins to broaden if the contract goes against them. I have spoken many times in the last few years about collateral and specifically the LACK of collateral. Whether it be QE in the U.S. or Europe soaking up too many sovereign bonds or systemically nothing left to borrow against, the lack of collateral is a direct problem for derivatives. You see, as a contract moves one way or the other, theoretically the party who is losing needs to post more collateral. It was this inability to post collateral in 2008 by Lehman Bros. that kicked off the problem.
    From a broad perspective, everyone is running down the street naked while assuring everyone else they are “insured”. Greece was even aided into the ECU because they claimed their derivative positions “erased” much of their debt, fat chance! In the end, “losers” must pay winners. If losers lose so big as to bankrupt them, the winners will not get paid. Both sides are losers. When this happens on a grand scale, it will be the entire financial system and thus “us” who are the ultimate loser.
    I have a topic to finish with but want to make a statement, then ask a couple of questions first. Someone recently said to me regarding the trek from 2008 to present, “the only thing that has changed since 2008 is that nothing has changed”. I would pretty much agree with this, the policies in place that put us on our knees are still in place, only being implemented with more force. I would also say the biggest change is we now have more debt, more derivatives and much more money supply. Please remember, the Fed took all sorts of substandard paper (mortgage backed securities) on to their balance sheet. What has happened to all of this paper? Much of it is non performing but sitting in a dark corner and being ignored …because it HAS TO BE! What would happen if the Fed ever sold any of this paper for a true market value? Banks would have to mark their portfolios down, that’s what! One last question, if this “bad paper” amounts to more than $100 billion in losses (it does, probably by many multiples), what would it mean if the loss was greater than the Fed’s “equity” reportedly now less than $50 billion? Just because the Fed does not ‘fess up to the losses on their books …does not mean the losses do not exist. Going one step further in this thought process, if the Fed admitted to these losses, they would be admitting to a negative net worth! Would you accept an IOU from someone you knew for fact had a negative net worth? I hate to state the obvious but, you do this every single day when you accept dollars for payment!
    One last topic and I’m not 100% positive what it means. Silver flash crashed last night and the morning fix came in .84 cents below where spot was quietly trading on the LBMA

    http://www.bulliondesk.com/silver-news/update-silver-market-disarray-after-benchmark-priced-far-below-spot-rate-108129/

    My initial reaction was someone needed to “settle” a trade and the price had to be below $14 in order to not trigger something. In fact, it is being said that this anomalous “fix” will not be reversed but will instead stand. Why would this be? Why, if it was a “mistake” would it not be fixed?
    After a five mile afternoon ride to ponder this, I can only come up with two viable scenarios. Scenario A. as I just mentioned above, it is possible some bank, broker or other entity needed to “settle” some sort of contract UNDER $14. It is possible this fishy fix enabled someone to close a short without any pain. It may have been an “accommodative” trade so to speak. Scenario B. this may have been “margin liquidation” meaning someone was long silver but received a margin call from another market that needed to be met and very sloppily liquidated all at once. This is not normally how trades are done but if it was a forced sale, the action is possible. We have had huge volatility in so many other markets, it is certainly possible this was a forced sale. The one thing I am quite sure of since backwardation now rules the day in London, this was not a “cash” fix. I am quite sure it was a paper contract “fix”. Why else is China so hell bent on creating a “cash only” exchange? Because China knows!
    It is important to understand we will see things going forward we never expected or ever dreamed of. What started to happen in 2008 where counterparties lost trust in each other is exactly where we are headed again. Central banks stepped in to restore trust, I am not so sure they have enough credibility or goodwill left to turn a far larger credit tsunami than 2008. The credit bubble is again unwinding like 2008 with no White Knights large enough or credible enough to restore confidence once broken. All I can say is “gee, what rocket scientist could have figured out the greatest credit boom in the history of history would begin to unwind after an interest rate increase”?

    Standing watch,

    Bill Holter
    Holter-Sinclair collaboration
    Comments welcome! bholter@hotmail

  21. Mike Savage

    As I sit down to write this on early Tuesday afternoon the American stock markets are making up ground that was lost yesterday. Yesterday was an interesting day as the markets had a decent rally on Friday and Asia traded well overnight. Most of the pats on the back went to Mario Draghi who promised more market manipulation soon (on top of the trillion dollars a year or so) and China with their monetary intervention right now- around $61 billion in a day according to Bloomberg- along with a promise from China’s Vice President that Beijing will “look after” stock investors.

    It appears to me that we have a global financial bubble that has been pierced and is deflating. It also appears that the central banks have anticipated this and are taking action to stop the air coming out all at once. This appears to me to be a managed implosion of asset prices.

    A good case in point is that I woke up on Monday with everything pointing higher (around 4AM or so).

    After a report on German manufacturing that showed significant slowing the green screens turned red very quickly. We are stuck in a place where central banks intervene and talk about intervening more to prop falling markets up and the reality of the economies of the world slowing down in a drastic manner regardless of the monetary magic that these central banks try to conjure up.

    If anyone needs any evidence that additional QE or lower interest rates are a waste of time- look at Japan.

    The Japanese Central Bank has admitted that it is buying virtually all of the Japanese government bond issues, ETFs, domestic and foreign stocks, etc. After going over a quadrillion Yen in debt (with many “experts” saying they just didn’t do enough!) their Nikkei index is now collapsing regardless of the drastic measures they are taking. Don’t forget- their bubble burst with that same Nikkei near 40,000 in 1989. After all the financial engineering the index has dipped below 17,000 yet again.

    Hey- with another quadrillion yen maybe they can get the index back to “only” minus 50% 26 years later! What a plan!

    I am sure that many people are getting more and more confused as they see the massive swings up and down in most global stock markets. It appears to me that the central banks have many convinced that, at some point, they will get this thing fixed. The reality appears to be that they are trying every money printing and jawboning trick in the book but we have reached peak debt and no matter what they do the general attitude of these markets is down.

    It is no surprise that many major banks have advised clients to “sell the rally” rather than “buy the dip” as the mantra has been for the past 7 years.

    It is my opinion that many of the “experts” that are trotted out on the financial game shows are either ignorant of economics or are intentionally misleading the public. A few lines that can help you discern whether someone is being genuine or not would be:

    The economy is getting better because

    a) The unemployment rate is 5% and falling! (Ignore the 94 million not counted)

    b) X amount of jobs were just created! (Mostly fictitious BLS adjustments)

    c) Oil being cheap is good for the consumer (historically true but not necessarily today)

    d) High yield debt problems are contained in the Oil patch- They are not!

    e) Buy company X because they have announced a share buyback program

    f) I (we) expect escape velocity in the next quarter (6 years and counting!)

    g) The weather caused people not to shop. That was supposedly true last year when it was 10 below zero and now we should buy the same story when it was 60 degrees on Christmas Eve!

    There are many more but, manipulate the data any way you want, economies are slowing down drastically, debts are becoming harder and harder to service globally and we are a rate adjustment away from a large dose of reality. I am not talking about Fed or other central bank rate hikes. I am talking about the bondholders raising the rates for them to compensate them for the actual risk being taken.

    In a Bloomberg article by Srinivasan Sivabalan (A shout out to anyone that gets that name right the first time!) 40 global stock markets are in bear territory (down 20% or more) and over $5 trillion of market cap has been lost so far.

    This, of course, does not count Japan- down 10%, America’s big 3 indexes (Dow, S&P and Nasdaq) all down around 10% and many others. With equities it seems there is truly nowhere to hide. The same could be said for many high-yield bonds and funds. Even traditionally “safe” bonds like solid corporates, munis and government bonds all have a set of risk factors that are rising day by day.

    Think the stock market can’t hurt the bond market? What is the largest problems for states and municipalities? Unfunded pension liabilities- many drastically underfunded with stocks and bonds at recent all-time highs and looking wobbly and no interest being paid on traditionally “safe” assets to hide in. This is a pot that is beginning to boil- particularly in Chicago where the state is trying to take over the Chicago schools and put them into bankruptcy- it appears to be the only way out. This is a great example of what I mean when I say “Nothing is safe”.

    The reason that I bring this up is that many of the world’s largest banks have leverage of 70 times. That means that a 2% loss on their derivative book could wipe out more than the capital that they have. This is likely a large reason why many are keeping an eye on the largest German bank and many others.

    Any problems at the world’s largest banks could cause a redux of 2008 on a much larger scale and with central banks “out of ammo” as Richard Fisher (Former Dallas Fed President) recently said of the Fed in a CNBC interview.

    Bail-ins have started in Europe (Italy and Portugal) and so far only bondholders have been affected. I expect as the year moves forward the first outright confiscations of cash will begin and the exodus out of banks, if still allowed, will reach a crescendo. Please, anyone here in the USA, DON’T think it can’t happen here. It is my opinion that it will- it is only a question of when. Hopefully not too soon. It will be a bad day!

    Since we cannot know what the next experiment will be by the central planners it continues to make sense to me to diversify your assets as best you can. That means having something everywhere underweighting those assets that look most vulnerable and overweighting those assets that show the most promise.

    I continue to be most bullish on assets that I believe are artificially suppressed like precious metals and believe that fossil fuels will set up for a bullish run at some point in the near future as the reality of low prices kick in and supply gets cut- that may take a while however, because many companies keep drilling to pay off the loans that they took out to drill the wells in the first place which is likely to lead to still lower prices first.

    We certainly need to keep our eyes wide open and we need to … Be Prepared!

    Mike Savage, ChFC Financial Advisor
    2642 Route 940 Pocono Summit, Pa 18346
    (570) 730-4880
    Raymond James Financial Services, Inc.

  22. Sorry if you object to the full posts above but I thought they go a long way to further some understanding of the derivatives problems, as requested above.

  23. Pat Flannery

    For those questioning the accuracy of what I wrote earlier, here is the relevant part of the transcript of David’s evidence to the banking inquiry regarding the bank guarantee. Note that his recommended period of two years turned out to be about the right amount of time to “find out the facts” and to take remedial action, which turned out to be the Troika bailout.

    But most importantly, having eliminated all other options, he said that in order to stop a bank run you must include ALL money, including junior bond holders, which he described as “hot money”. He said “When the hot money is owned by people in trading floors, that does not cut it.” He was arguing that any kind of nationalization, consolidation or limited guarantee would “not cut it”, i.e. prevent a systemic bank run. He said “you cannot really be half pregnant”. If you exclude anybody, anybody, including junior bondholders’ so-called “hot money”, there would still be a bank run, which would result in national economic collapse. He could not have been clearer. Read it:

    “Mr. David McWilliams

    The most important thing in all these crises is to establish the facts. I said to him, “Do you know the facts?” and “Do you absolutely know what is going on?”. He said “No, I am getting different numbers all the time”. I said to him, “Okay, so you don’t know the facts, so what you have to do is do something temporary to buy yourself time until you find out the facts”.

    Deputy John Paul Phelan

    That leads me to my next question. Again, on page 16 (of your book), it says the Minister asked Mr. McWilliams what he would do. I want the witness to briefly outline what his response was.

    Mr. David McWilliams

    We went through – I can go through it here in this article – why a variety of other ideas would not work. Does the Deputy want me to go through that?

    Deputy John Paul Phelan

    Yes, please.

    Mr. David McWilliams

    The first idea after Lehman’s was that a country could let a bank go and that would insulate the system. If the United States could not let Lehman’s go, with the deepest financial market, with the best central bank in terms of ability, with its own currency and with its own monetary policy, we could not do that because it did not work in the States. The second day after Lehman’s failed, the Americans did what would be called the nationalisation route. They nationalised AIG, the massive insurance company. Nationalising would not have stopped the bank run in Ireland because the bank run was systemic in the sense that people were taking money out of all the banks, so you nationalise one but it just means that people will say, “Who is next?”. That is exactly what happened in America.

    The next day Merrill Lynch went bust. I did mention to the Minister that I found it ironic that his lead advisers were Merrill Lynch, people who could not even keep their own bank solvent, let alone advise others. At the time, he was aware.

    The third option was that one of the big Irish banks would buy one of the small Irish banks, the idea being if you have a big balance sheet, you can actually take over a smaller balance sheet but I said to him at the time that all the Irish balance sheets were bust because we all knew they were doing the same thing. So even without the figures, you knew that they were all bust. I remember saying to him that I thought “two bad balance sheets does not make a good one”.

    Then he said, “What about the idea of giving a €100,000 guarantee to depositors?”. I said, “That could work but you cannot really be half pregnant, Minister” and I remember he kind of smiled at this. I said that if until yesterday you said the banks are well capitalised and then tomorrow morning you say, “Do you know what, not only are they not well capitalised, they are going to bust but we will protect some people”. When the hot money is owned by people in trading floors, that does not cut it. In fact, that proved to be the case. A limited €100,000 guarantee was introduced on the Friday after that and it did not work as money continued to flow out. Just as I had been thinking, once you admit that you have a problem, having denied it all the way up, it opens the floodgates, which it did.

    Finally, I said, “There is one other option,” and he said, “Well, we are working on that other option.” The Merrill Lynch options show that the Department was working on what was called the blanket guarantee. Blanket guarantees have been used in 14 out of 42 bank crises. They are not unusual, but the Irish one was followed in Denmark and Germany a week later. It is only as a last resort and I remember saying to the Minister, “I don’t know; I don’t have the facts, but I think we are at the last resort. What you have got to do [this is very important for the record and it is written down in black and white in all of my documents] is you have got to introduce a holding guarantee which buys you the time to allow your auditors and your civil servants to go in and find out the facts.

    You cannot do something permanent when you are not in possession of the facts and if you are not in possession of the facts and that is the case right now, you need to do something temporary with a time limit. That time limit you have got to figure out.”

    Deputy John Paul Phelan

    What time limit did Mr. McWilliams have in mind?

    Mr. David McWilliams

    In the article I said up to two years and it is written in black and white: “The Government could do this for a limited period. This is absolutely crucial. This is a holding guarantee. Let us say two years.”

    That leaves no doubt in my mind that Mr. McWilliams convinced Mr. Lenihan that to exclude the highly speculative “hot” junior bondholders on the trading floors would have caused a run on all Irish banks. He was probably right and should now man-up to having given good advice.

    As for the rest of us, holding our noses and swallowing the junior bondholders was probably the foul-tasting medicine that saved us. It is now time to end the blame game. We had a narrow escape from something much worse. We must stop the belly-aching and move on.

  24. survivalist

    I would like to see the evidence to support “A limited €100,000 guarantee was introduced on the Friday after that and it did not work as money continued to flow out”…specifically what money went where and by whom?

    Considering the national average in saving is/was never above 10% of annual income. The threat of a loss of ‘wealth’ through ‘lost’ savings sounds an unlikely concern of the average citizen.
    In my opinion the guarantee on ‘savings’ was a speck in comparison to the wealth guarantee, as that wealth was manifest in various banking devices…but I could be wrong?

  25. Pat Flannery

    Survivalist: I wondered about that too. Was there really a $100,000 limited guarantee introduced the following Friday?

    One other thing that bothers me. Did David really believe that a “temporary” guarantee was even possible? Once the money was gone, “temporary” or not, it was gone. It did not matter whether the guarantee was for 6 months or two years, the hordes of bondholder claimants, senior and junior, would be at the Government door the following day. The Government was simply replacing a run on the banks with a run on the Treasury. It would all be over in a matter of days.

    Every bond trader I have ever known (and I have known quite a few, from my years as an accountant in the City of London to my years in real estate finance in America) would have immediately come clamoring like hungry locusts to the Government’s cash window. Indeed it was their professional duty to their investor clients. And that is exactly what happened.

    Yet David somehow believed that nobody would ask the Irish Treasury for real money! Yes, a bomb was primed and about to go off in Dublin. It was just a matter of where, the banks or the Treasury. Jean-Claude Trichet was merely sounding the warning.

    Paying off hungry bond traders with taxpayer money was the inevitable price we had to pay for letting them swamp the Irish banks with their phony derivate money over the previous “boom” years. The damage was already done. The Irish had already drunk the “hot money” coolaid.

    Yet David is now saying: “In fact, the currency is the culprit in this sorry saga.” That is not helpful at a time when we need clear political thinking. A proper diagnosis must precede proper treatment. David is saying that “what actually happened is this country lost credibility because we did pay the bondholders and not because we didn’t”. That is a wrong diagnosis and could lead to wrong treatment.

    It is wrong of David to say: “So it wasn’t so much that a bomb “would go off” in Dublin but that a bomb would be set off in Dublin and the bomber would be the governor of the ECB.” Such an opinion should be treated by our EU partners as the misguided view of a populist writer. Thank goodness we have cooler heads at the helm of Government.

    • Wills

      Pat: Where does DMcW recommend In his recommendations to never not bail out private bondholders?

      The guarantee, blanket, does not equate with not bailing out private bondholders at some point in the future for example when the two year time period was up when the facts were established with respect to the crisis etc.

      The guarantee was meant as a solution to stabilise a bank run and then bank run stabilised move on to the burning of the bondholders now that the savers were secured. It slowed the panic to introduce the time to permit bankruptcy laws to take effect in a fair and equitable way.

      • Also correct, especially the last paragraph.

        • Pat Flannery

          Well at least you guys are honest about the intention to lie. I have been away from Ireland for too long, left it when I was too young, or both. That kind of doublethink and double-dealing is totally foreign to me. It is probably also totally foreign to most Europeans, like Mr. Trichet or Mrs. Merkel, but perfectly normal for Irishthink.

          • Wills

            No liar.
            The more accurate description for it is an intelligent option to ensure protection against fraudulence, in this case, bankers, lawyers, developers do conspiring to engineer a ponzi property bubble on the back of he euro and then run behind the taxpayer when the pyramid collapsed which is exactly what happened.

          • Pat Flannery

            The kind of Irish double thinking that reminds me of the wallawalla bird that flew around in ever decreasing circles ’till it flew up its own arse.

  26. Wills

    Pat: or, crony capitalism unchecked.

  27. Mike Lucey

    Helicopter money arrives. Switzerland hand out $2500 per month to all citizens (and over $600 p/m per child)

    http://www.zerohedge.com/news/2016-01-29/helicopter-money-arrives-switzerland-hand-out-2500-monthly-all-citizens

    Just read the above proposal which looks to be heading for a Swiss referendum shorty.

    I wonder how such a move would pan out if ever implemented.

  28. survivalist

    I am not at all convinced that the guarantee was about preventing a ‘bank run’; that was the same assertion which was made at the time, and pretty obviously a fear engendering device.

    Who was going to withdraw what and where was it going to go? How much did private citizens really have in savings in the banks? In 2008 almost 64 per cent of PAYE workers earned less than €35,000. So a very rough estimate of 10% in savings of 3,500 for even 500,000 people results in less than 2 billion(?)

    I might be way off here but regardless I doubt there would have been a ‘run’ (so long as people knew they were guaranteed *access* to their savings-but that is a different event)

    I don’t know the details well enough but I suppose that those who were likely to attempt a bank run were investors seeking to transfer asset wealth into other banks/institutions knowing that irish banks were ‘middle managers’ . However that supposes that there ever was any doubt as to the outcome, investors knew they were going to be protected in my opinion.

    Also if investors did suffer a loss it would be the insurance industries problem-tied to the situation of derivative lunacy. I just don’t believe it was a state or citizenry problem necessarily.

    In my opinion the ultimate goal was/has always been to preserve asset value not to protect mom and pop savings.

    • Pat Flannery

      You are absolutely right survivalist. It was never a case of a “bank run” as normal banking was no longer involved. Bank deposits had long since been replaced by “securitization”. Fractional reserve banking had become no more than an academic theory. I don’t think that either Lenihan or McWilliams understood that. They were both academics and simply exchanging theories.

      I don’t think David understands mortgage securitization to this day. He never even mentions it. If he understood it as the new source of money creation he would not be constantly blaming the Euro currency or any other currency. (Nor would Tony. Sorry Tony).

      The term that should have been used was “bank failure” rather than “bank run”. Either way the banks would have failed if the Government had not stepped in. The crisis that had emerged was not a lack of bank deposits but a systemic failure of the banks’ securitized revenue streams. The system was “upside down”. Amounts owed on properties were greater than property values. People were starting to default on their loan payments. The promised revenue was showing signs of systemic failure.

      Securitization means securitizing REVENUE. The backing assets are almost irrelevant. They only get involved at a cleaning up stage. Banks had morphed into collection agencies, collecting mortgage payments from homeowners and passing them on to the bondholders who were the source of the original purchase monies. That’s the system that the Government bailed out. All this talk about bank “deposits” is lies, pure and simple. And you were right to spot it.

      Indeed it could be said of the current global financial system that it is “bond driven” rather than driven by traditional “money”. That is why the central banks no longer have control of the so-called “money supply” and they are puzzled about it.

      We have too many academics reading from old text books. Sorry David, the modern world is no longer visible through the well-bound books on your no-doubt excellent private library on Killiney Hill.

  29. ” In fact, the currency is the culprit in this sorry saga”

    Perhaps the authors of the currency are to blame. The currency has no mind or conscience.
    The authors of the currency knew exactly what would happen. It is a
    Central bank creation. It is designed as a debt. The debt charges interest. The interest is skimmed off the top of the economy and so it disables the productive process and cripples it. The repayment of the principal also strangles the economy.

    A capitalist society saves first and then invests the savings. Our society borrows today to buy tommors production today. This eventually leaves a void as the extra consumption depletes the capital but increases the debt.

    Combined with the debt based currency it is the recipe for destruction.

    The central bankers demanded the bailout for the simple reason that they were able to. We were intimidated.The objective was to bail out the banks. Nobody else.

    Lenehan was sucked in, McWilliams too.

    The solution before, and still is, is to fire the central bankers,ban fractional reserve banking and the ponzi scheme we currently use. Be rid if fiat debt based money, and use honest money based on gold and silver.

    It is coming in other parts of the world but we will be left behind as the poor second cousin nobody else cares about. Broke and abandoned.

    central bank

    • Mike Lucey

      If Ireland had not joined the Euro Zone it would be hard to see the bust we experienced happening to the degree that it did.

      If this is true, what does that tell us about the currency trap we are still in?

      I voted to join the EEC back in the day and voted against all further interaction with this upper level of undemocratic government when required to cast further votes.

      We live in a world now that does not require this type governance or the ‘euro’. As long as I have my mobile and the Net I will know when someone is trying to rip me off at the currency level.

      I think we could be seeing the falling apart of the EU with various member states going there own way as far as the mostly economic migrants is going. Finland is now kicking out 20,000 following her neighbour’s move to kick out 80,000.

      The U.K. will leave the EU if Mr C can’t get a deal on selectivley shutting off the U.K. border.

  30. coldblow

    David said in his evidence to the Committee that the two-year guarantee was one of the shortest periods in the history of bank guarantees. He provided a list of countries who had given one. Some of the names were to be expected (Mexico, Thailand I think) and others more of a surprise, eg Germany. What I don’t understand is why corporate lenders (other banks and hedge funds) wouldn’t have withdrawn their loans, making use of the guarantee, long before the two years were up, the shortfall being taken up by what? Irish govt? ECB?

    On the other hand those who are alarmed by the idea of breaking one’s word should consider the case of devaluation. Wasn’t David headhunted by a big bank or hedge fund when he was working for the Irish Central Bank at a time when devaluation of the punt was the obvious course but they had to deny this. As I recall, the head of the bank/ hedge fund was impressed by young David’s performance in convincing the rest of the world that Ireland wasn’t going to devalue.

    I assume all devaluations in history were preceded by sincere, or at least sincere-sounding, denials.

    I also assume, in fact I am pretty sure, that the big powers, including and probably most notably our German masters, behave this way and are not punished for it.

  31. Pat Flannery

    Coldblow: I am not surprised you would ask that question “why corporate lenders (other banks and hedge funds) wouldn’t have withdrawn their loans, making use of the guarantee, long before the two years were up”. That is because you have been lied to for years about what actually happened. So has the entire Irish people. And it continues today, even after an exhaustive banking “inquiry”.

    The fact is there were no “corporate lenders, other banks or hedge funds”. The banks did not “borrow” the money they lent out as mortgages. They bundled and “securitized” the revenue stream from those mortgages and sold the resultant financial “product” to bondholders on the international bond market.

    That is where all the property boom money came from, not from deposits, not from international “lenders”. There never was any way to “burn the bondholders”. The only option the Irish banks or indeed the Irish Government had was to not pay the revenue stream they had promised i.e. to default on their bond payments, which would have meant declaring national bankruptcy.

    The Irish banks had effectively become securitized mortgage factories. The extent of this (non-banking) activity was not restricted by fractional reserve banking rules (Tony please take note) or by any oversight by a Central Bank. Bank mortgage lending had essentially become an overnight activity. What they lent out today they got back tomorrow.

    The fact that this was never explained to the Irish people is the real horror story of the Irish banking crisis. It suggests a deep propensity for lying and believing convenient lies in the Irish culture (the “cute-hoor” syndrome). It is convenient to believe David McWilliams and others who conveniently tell them that it is all because of the Euro and the Germans. It is truly amazing to me that something as simple as mortgage securitization has been so widely misrepresented (or ignored) and consequently so (deliberately?) misunderstood.

    • Sideshow Bob

      Pat,

      Money had already gone, before the guarantee was made permanent and while the political pantomime of the Minister ( Comical Lenny as Adam calls him )and Government huffing and puffing over making a decision was acted out for the public. Here follows a reference to a “Repo´´ agreement here between the Central Bank and Anglo in an article from 2010 here. The guys doing the lending in the CB were in open admiration of the Anglo guys (still) at this point and they handed over 10 Billion worth of taxpaper cash-for-trash, knowingly too, on the basis of their uber-suave Anglo buddies were good for it, and not because they git 10 Billion worth of assets but just because they thought they were swell. It isn´t the boys in Anglo that needed to be prosecuted, nor the idiot politicians that fêted them, it was the CB staff who let the heist occur. The politicians merely gave their blessing to the act, after the fact.

      ( by D McWilliams, March 2010 )

      “It is time to shut Anglo down. The deposits should be transferred to either AIB or BoI. A “vulture” fund should be asked to come in to take the property debts and see what they can get for them. There are plenty of ways they could finance this. This avenue is always explored in distressed debt situations — we are no different. One of the biggest creditors of Anglo is the Central Bank, which has very quietly lent Anglo over €10bn under something called the “master loan repurchase agreement”. (It doesn’t want you to know about this by the way.)

      The agreement is a hangover from when we had our own currency and is the ultimate “cash-for-trash” vehicle. Our Central Bank, out of its own coffers, loaned Anglo money and in return taken toxic collateral which the ECB wouldn’t touch. This is what has kept Anglo open. Therefore, we’d negotiate with our own Central Bank; it would take the loss and have to report less profit over the coming years. No big deal.´´

      http://www.davidmcwilliams.ie/2010/03/03/money-sucking-anglo-is-our-financial-stalingrad

      • Pat Flannery

        Sideshow Bob: Thanks for the link to DMcW’s 2010 “Stalingrad” article. I read it. I even skimmed through the 393 comments. David has been quite the opinion leader, hasn’t he?

        Unfortunately he got much of it wrong and his “The guarantee was a bluff, not a policy. It has worked, now get rid of it” reveals his lack of basic honesty. His attitude to the truth is a perfect example of Irish “cute hoorism”. Fortunately not everybody in Ireland thinks like David. We may still have some national credibility left.

        He was factually wrong in asserting that Anglo had “no systemic value”. It had. It was the poster child for how the Irish had abused “securitization” and needed to be dealt with. David was shamelessly urging that Anglo should be allowed to get away with it. Aw sure we were only coddin the daft strangers. Haven’t we been doing that for centuries? Screw them if they don’t get the joke, etc., etc., etc. That was what David was saying.

        Fortunately wiser heads prevailed and our civil servants found a way – the infamous promissory notes. It stunk but it was the only way. David’s way would have truly been a “Stalingrad”.

        Sometimes I wonder if David is not an agent for those who want to see Ireland crash out of the Eurosystem and fall back into the arms of Mother England. The British hate our standing and prestige in Europe.

        David is obsessively anti-Euro. His constant mantra is that Britain is our biggest trading partner. There is so much more to the part we play in the world today. There are many other quietly patient Irish voices playing a positive part. Thank goodness we no longer need to be “cute hoors”. We have emerged from the lowly status of a dominion. We ARE somebody. We are Irish.

        • That’s a very generous intepretation from afar Pat – I’m not sure what ‘standing and prestige’ you are talking about. More like on his knees as well as bending over, the whipping boy that can’t stand on his own two feet. Being bitch slapped by French midgets. All’s well in the good room.

        • Sideshow Bob

          Hi Pat,

          I don´t remember the anybody else commenting about the existence of the Anglo 10 Billion “Repo´´ at the time. Which was why the article stood out for me.

          When DMcW gets into war analogies, or actually most historical analogies, I find he is usually about as close to reality as a big budget Hollywood film, and frequently slightly less corny.

          My point here is that a huge amount of money had already been poured down into the Anglo hole by the CB before Government said alright we are going to stump up (officially)! They took the decision, effectively.

          DMcW was the only one to mention this, be it as it, were an aside almost.

    • Hi Pat

      Let us assume that your scenario of banks securitizing mortgages and selling then to investor funds is correct.

      This is similar to Bear Stern’s in the States.

      You have not explained in any detail how it occurs so subject to correction this is how I understand it.

      First of all a bank has to have funds to lend. As you point out there is no investor and very little deposits. BUT. There is fractional reserve lending. That is banks can lend out multiples of the money on deposit or held in reserves. Deposits come from peoples savings etc but if the fractional reserve set by the central bank is 10%, then for every hundred on deposit ( loaned as an unsecured creditor to the bank by the likes of you) the bank can lend out another 900.
      Another form of deposit is reserves loaned by the central bankers. (Central banks create the reserves as a loan to the bank and again by a leger entry. Thus practically speaking there is no limit to the amount of money that can be produced. As it is always created as a loan the limit on the amount of money is how much debt people can absorb. We have reach debt saturation and so the decline accelerates as debts crush peoples ability to pay and buy goods etc. )

      We assume this is lent as mortgage funding. But it is created by the bank out of thin air simply as an accounting entry. Asset to the bank, liability to the borrower.

      This is fractional reserve banking pure and simple.
      Now the bank owns the mortgages and the income flows from them. But no more dues, fees, or commissions can be earned.

      So the bank sells the mortgages as a bundle and as an investment stream. This is bought by a fund looking for income and it appears that the bank guarantees the rate of return.
      Now the bank has money back and can again sell more mortgages and bundle them up and securicize them again.
      Suppose the bank does this 10 times. It’s effectively now made the fractional reserve 100:1.

      Suppose the mortgages bundled together were of different quality. Higher risk leads to a higher interest rate. But what seems to have happened is that the companies issuing the ratings gave these securities a AAA rating. The regulators turned a blind eye.

      Surely enough people started to default on the mortgage payments. The funds complained to the banks, we are not getting what we contracted for.

      In the case of Bear Stearns they said not to worry we will sell the securities on the market and refund the money.

      The securities went on the market and received bids of 20% to 60% of book value. Bearn Stearns was bankrupted overnight and the government shut down the sales, closed Bear Stearns and seized what assets were left.
      The rest is history.

      It only required 1% of the securities to be written off to bank rupt the bank.

      In the case of Ireland it sounds like much the same.

      Fractional reserve banking
      Allows the start of the process. Fraud and deceipt do the rest. Without fractional reserve accounting and money production it cuts the process at the root. Eliminating central bank ponzi scheme money is tearing the trunk of the tree and the root system otut of the ground.

      The new crop to be planted there is honest money and no fractional reserve system.

      Because of the banking system we are all corrupted. The corruption must be eliminated

      • Pat Flannery

        Hi Tony: the point I was making is that you don’t need to be a bank to originate and securitize mortgage loans. It is not banking activity. I did it myself in California. All you need is a line of credit, which you crank over and over. The faster the better.

        The Irish Central Bank provided the line of credit to the Irish banks. That including Anglo. The ICB is blameworthy not because it failed to enforce banking rules but because it financed non-banking business activity. That question has never been asked by anybody to my knowledge, least of all by the Banking Inquiry.

        What you describe above is indeed how fractional reserve banking works, but it is not what caused the Irish banking crisis. The Irish banks got into trouble because 90% of their business was not banking. That needs to be understood.

        • Hi Pat

          I was out sailing yesterday and enjoyed a cool, light air sail to single hand a forth place out of 12. I was told I sailed a good race. Today is Monday and sleeping in and relaxing my day entered the evening after consuming a deliciously sumptuous meal prepared by my good lady Colette.
          Later we played cribbage and I was in a contemplative mood.
          Where did the money come from to buy the securitized mortgages.

          You or the bank may be churning over a line of credit but only while there were buyers. There are only buyers for quality products. Thus the lies and deceit about the quality of the product. First the initiators lied as they bundled sub prime garbage with better and sold it as prime. The credit agencies lied as they gave top ratings to the banks. The regulators covered theirs and could see no wrong. The banks lied again as they were declared solvent and in good health.

          Anyone like you knew what was going on and anyone else with a grain of knowledge, insure or intuition knew.

          In the meantime central bankers and fractional reserve bankers were turning out billions of ponzi phoney fiat that provided directly or indirectly all the cash to buy the securities. (All the cash out into the economy as a debt at interest. )

          When the overly indebted over leveraged sub prime mortgagors defaulted it was enough to collapse the whole stinking cess pile into a morass of bankrupts.

          Ultimately it is the central bank fiat money and fractional reserve practice’s at the base of the problem. It has corrupted us all that there is no distinction between right and wrong. The ends justified the means. Expediency ruled and still does in the proposed solutions. Corruption rules.

          • Pat Flannery

            Tony: you correctly ask: “Where did the money come from to buy the securitized mortgages?” My observation is that it came mainly from Wall Street raids on public sector “defined benefit” pension funds.

            Pension fund managers everywhere were having trouble maintaining ratios. They needed better investment yields but were restrained by statutory requirements to buy only AAA-rated bonds. The credit agencies obliged and pension money started flowing into mortgage-backed securities. Wall Street had found a new mother lode. Prudential Real Estate Inc. led the attacking horde.

            Yes, I knew what was going on and wrote about it extensively in California long before it hit Ireland. I knew that the money inflating California real estate was coming from raids on city, county and state pension funds. Prudential, a Wall Street goliath, armed with unlimited access to pension fund money, had entered the California real estate brokerage business and was destroying little guys like me. We could either go to work for them or get out of the business. I chose to get out.

            In late 2005 and early 2006 I spent 6 months in Ireland trying to set up a not-for-profit wireless community broadband system in my native West of Ireland. To my dismay I found that Ireland was even more corrupt than California. Bertie was pouring millions into corrupt rural broadband schemes in order to protect Eircom’s monopoly and look like he was doing something for rural Ireland.

            So I went back to California but stayed away from mortgage origination. By then it had become a worldwide criminal enterprise. Maybe that’s why the Irish loved it so much. Dublin had become a global center for Collateralized Debt Obligations (CDOs). But Bertie knew nothing about anything? Yea, right.

            During that six months I remember watching a young man called David McWilliams on Irish TV who seemed to “get it”. He had travelled widely outside Ireland and saw what was going on. The weird thing was that nobody wanted to believe him. They were all having such a good time drinking the Bertie coolaid. I was close to believing at the time that the Irish were hopelessly mad. All they had to do was look at the foreclosure forest fires already raging in California and elsewhere. Yet with the exception of McWilliams they chose not to.

            My main difference with David is over the Euro. He seems to think that Ireland’s problems started with it. He believes that Ireland could have put out the fires by simply devaluing its own currency. In other words “borrow and default, borrow and default”. That is terrible thinking.

            He keeps repeating that the Euro “was set up to fail”, that Sterling and the Dollar are sound, that Europeans are corrupt but Anglos are honest. For a man who got it so right in 2005 how could he get it so wrong now?

            I agree with you Tony that central banks have too much power and need to be reined in. However we have a much bigger systemic problem, fractional reserve banking is only part of it.
            Until the current capitalist system of free markets can devise a system whereby our pension savings are secure from predators the shadow of dictatorial global socialism will loom ever larger. Bertieism, the belief in a free capitalist lunch, “has not gone away you know”.

            I hope you enjoy many more “deliciously sumptuous meals prepared by your good lady Colette”. She reminds me of my own good lady Margaret (I call her Lady Margaret) who once bought me a coffee mug with “Ask me about String Theory” on it. I have interests other than economics e.g. I love physics, about which I love to regale a captive audience. Colette should buy you a mug with “Ask me about Banking Theory” on it. Love ya.

          • Very interesting, Pat

            We agree corruption rules. I agree there are many facets to our economic problems.
            I still think that nothing will be resolved until the central bankers are closed down and commercial banks have to adhere to the same accounting rules as the rest of us.
            They screw up, they are out of business.
            Individuals would be wary of which bank they dealt with if they were relying on a custodian for safe keeping of cash and savings. Government guarantees remove individual responsibility.

            Have a good day Pat.
            Thanks for your commentary.

  32. “Dear Hero Imprisoned….”

    “I picked it out of me arse!”

    “Oh, I am the last of the Bankster International playboys
    The last of the Bankster…..”

    https://www.youtube.com/watch?v=5Ms55x0jnxw

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