On Monday morning, on High Street in Kilkenny, I popped into a cafe to grab a coffee before leaving the Marble City following a wonderful weekend of economics, comedy and common sense at the Kilkenomics festival (www.kilkenomics.com).
Just as I was paying, the man who ran this lovely little cafe asked me nervously whether his life savings were safe in Irish banks. He told me he couldn’t sleep at night worried about the risk that his money wouldn’t be there in the morning.
He said he simply didn’t trust them — the banks or the Government — any more. Given what had happened over the past two years, he said, he couldn’t rule anything out. He said that so many unthinkable things had happened — Anglo, negative equity, ghost estates, bailouts, NAMA, FAS scandals, AIB bankers lying about the state of their books — he was prepared for anything now.
For me, this was one significant moment of this three-year-old financial crisis. Here was an ordinary person terrified, not about the value of the house or the robustness of their business, but about the security of their savings. For this reason alone, it would be criminal for this Government and the senior civil servants who pull the strings to prevaricate any further on the bailout offered by the European Central Bank.
Only massive financial aid from the ECB will rule out once and for all the prospect of a bank run in Ireland. Only a huge transfer of cash from the central bank — the economic equivalent of a blood transfusion — can stabilise the patient.
It is deeply frustrating to see a government playing politics with something so fundamental as people’s savings.
Bad enough to have been sold a pup in the boom about house prices and guff about how wealthy we all were, bad enough having tax rises to pay for Anglo, but to see trust eroded so significantly because of incompetence is dangerous.
So let’s look at the big picture. The ECB wants to offer us financial assistance to keep our banks open. Our banks need a huge injection of money. There are only two places this can come from because no one in their right mind will lend to them. The cash can only come from the Irish Government and the ECB. The Irish Government buy the new IOUs from the crippled banks and the national debt rises even more. This is more “cash for trash”. We might as well light a match under the money.
The other option is to admit that the game is up and restructure all the bank debts of the Irish banks. This would involve the creditors taking a significant loss. The creditors are the remaining senior bond holders and the ECB. The subordinated debt holders should be told where to go and stop annoying us. Subordinated capital always gets wiped out in a crisis.
In all cases where there is a resolution of a banking problem or any bankruptcy, new capital takes precedence over old capital. So the lad who puts his cash in now gets all the goodies and the lad who put his cash in before now gets burned. That’s standard practice in capitalism.
So the ECB as well as the Irish central bank have to realise that if we are to have an end to the crisis, they must take a loss. However, it is quite different in the case of the banks at this stage because the ECB will be both the winner and the loser here.
So why would the ECB bail us out at all? Surely, if it was rational it would just walk away from the financial mess that is Ireland? But it can’t. The ECB is actually part of the problem. It presided over the huge lending from German and French banks to Irish, Portuguese, Spanish and Greek banks. This happened on its watch and the whole Euro project is an experiment, so when you realise that the ECB officials have about as much idea as the cafe owner in Kilkenny as to where this experiment will end, you realise that they are in a bind too. And this is the only card we can play. The ECB doesn’t know how to get out of this mess. It is playing a game of bluff with the people of Europe as well.
But we know what it does have. It has money. And we know that we don’t have any money. But we have the best thing in negotiation, we have the element of uncertainty.
If the ECB doesn’t sort this out, it risks the possibility that contagion will sweep away its euro experiment. The interesting thing is that it doesn’t know how to assess this risk. The risk for the ECB may be low if the financial markets believe that Ireland is uniquely delinquent. In which case Ireland is not systemically important and an Irish crisis need not be a euro crisis.
If, however, the ECB believes that financial markets see the euro as systemically risky, then the problem for the ECB becomes much bigger and an immediate resolution of the Irish dilemma is in its interests. This opacity is our only get-out card. We need to play it.
Here are the numbers. As of yesterday, the ECB was sitting on assets of e1,878bn. These are government bonds and bank IOUs which the ECB takes as collateral for the cash it lends to the banks. Interestingly, the Irish central bank’s assets total €185bn.
So, the Irish central bank’s assets are about 10pc of the ECB’s. An unusual situation for a country that is only forecast to add 1.72pc of eurozone GDP in 2010.
If we look deeper, we see that the ECB has lent a total of €516bn to commercial banks within the entire eurozone. The Irish central bank has lent €165bn to banks based here. (Our GDP for 2010 is forecast to be €155bn.) So of all money lent to banks in the eurozone, 31pc is lent to banks based in Ireland.
What does all of this tell us?
That the Irish banking system is bust. But more importantly, the amount of money that is passing through the books of our central bank is completely unsustainable to a country of our size.
But from a negotiating position it tells us that the ECB is umbillically linked to us and can’t let us go. That is our only option now and massive financial aid from the ECB is the only way deposits will be safe. It will not be pretty or pleasant, but it’s what has to be done now.
subscribe.
Will this ECB bailout be at a fixed rate of interest? Anybody see the Frontline on RTE? Constantin Gurdiev is against it saying that you can not dig yourself out of debt with further debt.
As for the British saying they are going to help us, well it is like two drunks stumbling out of a pub pissed drunk, the PaddyIrishman and PaddyBritishman propping each other up! It is in their interest to keep us on our feet.
I know this is probably a stupid question, but where is all the money that’s been flowing into the black hole of Irish banking over the last 2 years? What reverse Midas touch do they have that turns billions into yet more debt?
Also, why does the ECB keep funding them? Aren’t they supposed to help banks who have temporary liquidity problems, not siphon money from the real economy into insolvent zombie banks?
We only have one card, and Biffo is bluffo.
This ECB has to choose between “Print-Baby-Print” (which only sustains more Ponzi-economic activity), and capitalist consequences for capitalist misadventure.
Taxing Ireland until the bondholders get their money back, as recommended by Suds et al, is completely unworkable.
This country is literally grabbed by the Balls Bridge bankcentre….
I thought we were getting the bailout from the EU not the ECB, that means that all the countries in the eurozone chip in to the bailout and we will be run by the EU. The IMF are also involved they will stump up part of the bailout. I thought that the very reason this was brought to a head was that the ECB was reluctant to lend further and urged Ireland to seek a bailout from the EU/IMF. The trick FF are trying to pull is that they want a bailout for the banks not for the sovereign debt,… Read more »
Roll It There Collette :
I think the word ‘ bailout ‘ will have many new meanings before the year runs out ……or should that read ‘ before we run out ‘ …….of our minds .
Where is the Panic Button Mr President ?
Aras on Fire :
What candle in which window will the President light to remind us where all our Money has GONE ?
What is the point of Working anymore ?
When will enough be enough? I mean when will enough lying by Cowen, lenehan and Co be enough for the Irish people to act? Even with the IMF arriving tomorrow they are all publicly denying anything is amiss. It really is astonishing to hear them. I particularly despise the Greens – they have no excuse; the rest of them do — they’re Fianna Fail; lying is official party policy.
Georg : Anyone who knows how to sail board knows they have to ‘ bend the knee ‘ and in a wobble it is similar when you are left only with standing room on an over crowded train from Dublin to the to the Culchie Land of Nowhere. So the advice is that the Austerity of Austerities will bring in the new art of standing on a bended knee and unless you enjoy it and I know you wont the pain will be excrutiating as a greyhound pulling at a rabbit.
Davids suggestion reminds me of a story..my cousin neglected to pay a loan , the bank called him in and he told the bank manager that he owed the bank so much money it was really the banks problem not his.
He eventaully repaid the loan…..
David.
Take the ECB / IMF bailout money and blood transfuse it into the Irish banking system and then shut the banks down and start a new bank.
Lets do that.
It’s hard to believe ‘ that the role of just one person, that of the former Financial Regulator’ is the cause of all this. The pivotal role of directing and thus influencing “long term” fiscal stability…virtually non-existent!!!
This is the result!
The sh*t will hit the fan for FF after the budget Install some speed cameras in the Dail n’ see how fast they come running out!
When they re brand ESB and Bord Gais….FF will want the same…..any suggestions? How about Fianna F**kers
As often is the case the real game is often hidden, a little more complex and often very subtle…. …. Ireland is a pawn to be moved by the more powerful european economic powers (germany) in order to protect their own self-interests… … the debt crisis which has now reached Ireland and, perhaps portugal to follow, are not necessarily bad for these powers….. this is a currency war…… a trade war …. (and a domestic politcal war for each country)….. USA QE2 and 3 , 4 and perhaps 5 to follow is eroding the dollars value. (QE – printing money!)… Read more »
Representatives of the major opposition parties should be invited/or request that they attend these FF/EU/IMF meetings as silent observers. Given that they’ll be living with any ensuing terms it makes sense that they’re in the loop from the off. If there’s nothing to hide there’s nothing to hide, and their presence might offer some transparency and do something to reassure the nation. Unusual suggestion? – unusual times.
Our Government need to go. And now!
I have many expletives I want to call them, for the destruction they’ve caused, for their dishonsty to the ordinary Irish citizens and for their dishonour in raping our country.
How dare they bring fear to our door steps!
Shame on you all FF!
Deco. Yes, the housing bubble was and is a Ponzi property pyramid scam. Yes, the derivatives and CDS and CDO’s etc was the means thru which the POnzi property bubble pyramid scam came into reality. Yes the Irish insiders across the white collar class implemented the bubble and creamed its riches. Yes the bill and cost from the con is been passed onto the average citizen. Yes its reeked havoc into the regular economy. Yes the private banks were at the center of the scam. Yes the ECB / IMF / etc are part of the Central banking debt money… Read more »
David. I think this is a pragmatic article from D. The mess the insider have made it has to be cleaned up. Before Ireland does anything new we have to clean the mess up. We have to clean up the mess the insiders have made. The insides are not going to clean it up. I reckon we have to seize the initiative. This I think is what D is getting at in article. And central is keeping the savers of Ireland keeping their deposits safe for now during the insiders quiet desperation. The insiders are on the racks and are… Read more »
Worth watching
David Harvey, Crises of Capitalism
http://www.youtube.com/watch?v=qOP2V_np2c0
The game is up! We lost all credibility! We are bluffing, and Olli Rehn knew it when he came to Dublin last week… we cannot full all of the people all of the time. The guys from the IMF and the EU are coming to town to find out the real extent of the bankruptcy, and to find out if there is a way we could pay back, in case they’ll decide its worth to bailout us. Otherwise probably in time they’ll cut us loose and we have to go cap on hand to ask for assistance to United Kingdom… Read more »
Well worth reading.. Mary Ellen Synon on the crisis
http://synonblog.dailymail.co.uk/
On BBC
Robert Peston worried investors could be pulling money out of Irish Banks. He reckons a planned rescue better than an emergency one if there is a run on banks
http://www.irishtimes.com/newspaper/breaking/2010/1117/breaking39.html Figures being released about the extent of mortgage arrears. I expect more accurate figures to be released as the “Germans” in DOF roll up their sleeves and try to untangle the web of lies and gombeenism that has been the hallmark of this governement. Dick Roche on BBC news at ten last night was an embarressment like florrie knox from the Irish RM. The governments refusal to publish the “4 year budget plan” until after the Donegal by election combined with the nonsense final figure for the bank bail out in september which did not include mortgage arrears was… Read more »
Back to bluffing our way out of it again are we?
Is the problem not essentially that large parts of system is bust? Irish banks are just the ones that are on the bleeding edge, but they are going to bring a whole bunch of banks throughout Europe with them, which will in turn bring down further banks, etc. As such, no amount of real money is going to be sufficient?
People in this country can say what they like about insiders etc… but everyone in this hellhole fails to realise that they themselves hand a hand to play in all this. The younger generation couldn’t afford to put a roof over their heads unless they were willing to fork out 350K for a shoebox. Why? Because the bloody older generation won the jackpot by seeing the value of their homes, land etc… increase ten fold over the years, hence releasing equity for second homes with which to rape us again through extortionate rents. Ireland has the greatest herd mentality I’ve… Read more »
KEEP THE IMF MAFIA OUT OF THIS COUNTRY!
If you get into a deal you dont understand, youl be scamed,
The situation in Europe is so bad they are looking for an excuse to deliver funding into the broken economies. They have no choice if they do not they great good work (they should hire Donie) will be undone and will send Europe back to the stone age when currencies were not even thought of lucky sods. They are trying to leverage Ireland into accepting the bail-loan-out. Once in situ then the others will follow and will have to tell the real truth about their true state of affairs the very same as Greece. They are trying to kick start… Read more »
So, back to the cafe owner’s question…. Are our savings safe in the bank?
Just saw Dick Roche’s interview. He is an embarrassment and if he and the other fools in that shack of a government don’t shut their mouths, we won’t be helped at all!
It wasn’t so long ago that the governemt were urging the Irish public to pass the Lisbon Treaty, to act as true Europeans!
Now that the cleaners have arrived we should start to see some spectacular changes in this country. Finally! The thought of all those protected by nepotism and cronyism wakening up to the stark reality that they contributed to their own downfall by aiding and abetting gombeenism is a welcome one. Let the squealing begin. The simple fact is that everyone has a choice in life and personal accountability is a fact of life that some people think does not apply to themselves. You make your bed and you lie in it and as a result of their silence we are… Read more »
Baaaaaaaaaah…….Baaaaaaaaah ..excuse me im just practicing my Irish before i come home for the x mas(from forced emmirgration).. sheep thats what ye all are SHEEP..following the herd towards the cliff, French get told your comfortable life is about to come 2 years later and they shut the country down, We are going to the wall , we are a laughing stock worldwide and yet we hide away here on chat forums, talking about what should be done, and others are too blinded by greed to take a day off work to protest incase they loose their job and therefore loose… Read more »
All citizens ALERT, please note the ‘word’ bailout is now banned throughout the land, all references to negotiations with any of the following, IMF, ECB, EFSF, EC on said word ‘bailout’ also banned.
Please report any ‘fictional’ witness reports of members of IMF, ECB, EFSF, EC ‘bailout team’ to the Irsh Ghostbuster team of Dermot Ahern, Dick Roche, Mary Hanafin and Batt O Keefe, to get your instant brain swipe:)
Have a read
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/11/ireland_how_much_punishment_fo.html#more
Very good graph by Constantin Gurdgiev. Basically it shows the dynamics of the state finances. http://trueeconomics.blogspot.com/2010/11/economics-171110-road-we-traveled.html Many comments include words like ‘shame’ ’embarrassment’ ‘pride’ etc… This is an ineffective dimension to analyze the predicament. This is not rational analysis. These are virtual concepts and they really do not matter. I hold the view that chasing virtual concepts got us into trouble, chasing ‘pride’ was a driving factor behind the lifestyle binge. We lost the plot and went virtual. And the media is doing it’s best to keep us virtual, where we are easier to control (for advertising) than on the… Read more »
We know what the government’s position is on the restructuring of the banks, give the banks a blank cheque and taxpayers will pony up for the bill. Only problem with that strategy was, the banks have a hole in their bucket. Whatever is given to them, gets poured away and they are back for more. Fortunately, there is a simple solution. Firstly, ignore the advice being given by the Government and NTMA, their banking strategy lies in ruins and failure. Take Anglo down as it provides only pure drag on the Irish banking sector and is a bucket hole. Transfer… Read more »
Why have we to take the money from ECB and give to the Banks. Why can’t the ECB give directly to the banks and they can owe the debt. This way we the citizens will have to pay back the money owed. Will we go down as a PRIORITY CREDITOR on their balance sheet and have to be paid back before another outside bank comes in an tries to take them over at a later stage.
Maybe if the entire country sleep walks naked we can get a massive payout
http://www.independent.ie/national-news/euro10m-libel-award-in-naked-sleepwalker-case-off-richter-scale-2425498.html
IMF The IMF has no right to be in this country, tell them to bugger of and impose their ideology on those who call them. Their only interest is DEBT REPYAMENT. Debts that no one who reads that here signed off, but a bunch of Banksters and FF politicians. Hungary has kicked them out and are doing better now. The refused to accept IMF payments and managed to increase growth. When you did not pay the Gombeen man, they sent someone to give you a beating, or break your legs. The IMF is this someone, they are the neo liberal… Read more »
The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum–even encourage the more critical and dissident views. That gives people the sense that there’s free thinking going on, while all the time the presuppositions of the system are being reinforced by the limits put on the range of the debate. – Noam Chomsky, The Common Good, 1998
IRELAND SHOULD REFUSE TO PAY BACK THE FRAUDULENTLY IMPOSED DEBTS OF GERMAN AND UK GAMBLERS. IRELAND SHOULD NOT ACCEPT FURTHER DEBTS IMPOSED ON THEM!
GP Minister Eamon Ryan has declared that “this is a loan not a bailout”…
Maybe, he should quote the Ditherer 1.0 “it’s a gift not a loan”.
Open Appeal to the Green Party: Dear Green Party Members, The credibility of the government with the appalling denials about negotiations with the EU/IMF have seriously damaged the integrity of the body politic. The current political instability has not helped Ireland on the international bond markets and have most certainly driven up our yields. Meanwhile, over 80% of the Irish people want a general election while the Irish Times have published this hard hitting editorial: http://www.irishtimes.com/newspaper/opinion/2010/1118/1224283626246.html?via=rel Dan O’Brien also writes today: “If ever there was a time to do what is right and honourable, this is it.” http://www.irishtimes.com/newspaper/ireland/2010/1118/1224283627146.html We run… Read more »
sec general of the oced on bloomberg says that there is 2 problems banking and sovergin debt main problem is that one bank has killed the banking sector but the government has stood behind the bank that it is now a government problem and he said because of this it is very unfair on the citizens of the country but that is the position the government has put us in.
there are talking of up to 90 billion euro in funding at the moment at a rate of around 5%
god we are totally screwed
Folks, a wee poem to celebrate the day that is in it….
Welcome UFO’s (from IMF/ECB/EFSF/EU)
Lenny’s new oxymoron
Is ‘shared sovereignty’
let’s rejoin sterling’s NI?
Almighty Blighty?
Blow the whistle on our great thistle,
Lenny The Liar, Moron of our Great Misled,
The Great Fibber, can’t believe
Anything he said?
Eject from euro?
Obama, can we be the 51st state?
Say ‘hello casinos’ Lowry Tipps
Louth lies our secret mischiefs?
We’re Europe’s economic orphan
Test tube economy, baby!
Its time to do our duty
Sell us out, Lenny
to our highest bidd er Or?
a sad day for this great country …
it people young and old …
Destroyed by an elitist bunch of community wrecking losers ,who i feel pity and sorry for .
If one good thing comes of this mess it might be the permanant destruction of the fianna failure party and the rise of new people party.
What I cant understand & assuming the Financial Regulator was was central to all this is – Why have we seemed to accept that “he made a mistake” or “he fell asleep at the wheel”…these are utterly implausible excuses…their just too damned elaborate!! We have to wake up to the reality that FF were complicit with the FR…..and simple notions expressed by Brian Lenihan, that if the FR had a problem he would have came to me ….just doesn’t wash! One or the other – or both, should hang for this. Now’ I’m not saying that we should have a… Read more »
David should be in the meetings with the government EU and IMF. Or Morgan Kelly and other economists with no real bias. Instead there will probably be some consultant who works with or worked with a bank like Merril Lynch, Morgan Stanely or Goldman Sachs. Mr. Sutherland might even do what is is paid so much for and make an appearance lobbying for his clients. These people are trained to think that these banks are at the centre of the Universe. They are also smart and good at making an argument. The government is getting advice from all the wrong… Read more »
You have to hand it to the irish….
Less that 2% of economic activity. More that 30% of the trouble for Europe.
We know how to draw attention. Surely incompetence could not have achieved so much?
David, do you sleep these days, American journalists showing up at the door these days :-)
CNN & McWilliams in brief
http://edition.cnn.com/2010/BUSINESS/11/17/ireland.bailout/index.html?hpt=C2
If the IMF and the EU don’t reduce the salaries, pensions, of the top brass of the Public Sector for at least 1/3 of actual values, and increase the tax of the wealthiest, it will mean that they have decided that the bill only is going to be footed by the ordinary person living from the average industrial wage, and even people earning less than it. I hope they will realize that if they don’t force a reverse benchmarking with other EU countries in our own league so to speak, they are going to set a very bad precedent for… Read more »