The stages of Ireland's grief
They say governments in financial crises go through a process much like the stages of grief. This week Ireland's ministers have been going through them at record speed.
On Tuesday morning on the Today programme, the European Affairs minister was still denying that the country had a problem. Then came anger. Now, we have widespread acceptance that a deal will have to be struck.
There are some question marks over the timing of a programme for Ireland's banks - and many more about the details. But the fact that there will be one is no longer in doubt.
For what it's worth, I'd expect us to have the broad outlines by Monday morning - if not before. (Talking to anyone in Dublin, they tell you these things "always happen on Sundays".)
But as any amateur psychologist can tell you, acceptance is not the same as forgiveness. There are two aspects of this crisis, in particular, that will be sticking in Brian Lenihan's throat.
The first is that they wouldn't be in this mess - or at least they wouldn't be in this mess right now - if the German chancellor hadn't insisted on leading the rest of Europe into a formal discussion of how sovereign debt in the eurozone might be restructured, in the event of crises after 2013 (see my post From 'competitive depreciation' to 'competitive miscommunication'). 2013 is not far away. Investors understandably wondered whether the debt they were holding right now could be in for a haircut as well.
In the market maelstrom that has followed, ministers have scrabbled to "clarify their position", insisting that only debt issued after 2013 would be affected.
But it doesn't much matter - at least to Ireland. The damage has been done. And of course, the concerns have the ring of truth. Germany and others really would like to punish bondholders before 2013 - if only the global financial system looked more able to take a sovereign debt restructuring in its stride.
Partly thanks to the German chancellor's efforts, the system may be even further from that point now than it was a few weeks ago.
The other thing that must seem so unfair to Ireland's ministers is that, of all the countries in the eurozone in trouble, Ireland has probably done the most to get past the economic disadvantages of being in the euro and move forward.
Unlike Portugal, Spain or Greece, it did not come into this with a massive current account deficit. And unlike them, it has made enormous progress in the past few years in restoring the countries' competitiveness.
Unit labour costs are a good rough guide to the competitiveness of a country's workforce in global markets. Like the other PIGS, Ireland's unit labour costs rose sharply relative to Germany's in the boom years. But unlike the others, Ireland has brought labour costs down sharply since the crisis began. Wages have fallen sharply, and so have prices.
In that sense, Ireland has played by the rules of the single currency system. As a result, you can see a growth path out of this for the Irish economy within the euro, that you can't see for Spain, Greece or Portugal. If only they could just get past that mountain of private bank debt.
But of course, that's no small detail. Indeed, it's that mountain of debt that has ultimately made Ireland's banks vulnerable to this kind of loss of confidence, and all that follows from it.
Ireland can't blame that on the German chancellor, or any other government. True, the rest of the system was complicit in allowing the liabilities of the Ireland's banking system get so far out of line with the size of its economy. But ultimately, the responsibility for this crisis lies with the Irish themselves. That's a hard pill for ministers to swallow as well.
~RS~q~RS~~RS~z~RS~54~RS~)
I'm 
© MMXI
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I did an Economic Geography course at Queen's University in 1997 when the Celtic Tiger was at it's height. I called my course essay "Ireland Miracle or Mirage?" and it stated it was a mirage because it was dependent on multinationals who would inevitably move on, I certainly didn't expect it to end this way! Wish I'd kept a copy of the essay!
However this situation was by no means ineviatable. It all started to go wrong when Fianna Fail got back into power in 1997 they started implementing policies for the benefit of their developer paymasters such as tax breaks for the "NAMA Hotels" that developers built as vanity projects but were never viable. Had Ireland just stuck to the low tax model that gave birth to the Tiger and kept a grip on public finances then it wouldn't be in the mess it is today. The recession would still have happened but it wouldn't have been the total catastrophe we have seen.
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Intriguing - Ireland's banks have borrowed too much and the solution is to force Ireland (the country) to borrow some more. Presumably so that they (the country) can meet their (the banks') debts by using borrowed (European) money.
It only makes sense to us because Ireland's banks owe us something around £140bn.
If someone wrote a book with this plot ten years ago it would have been hilarious.
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You say that "But ultimately, the responsibility for this crisis lies with the Irish themselves" and yet you also say "The first is that they wouldn't be in this mess - or at least they wouldn't be in this mess right now - if the German chancellor hadn't insisted on leading the rest of Europe into a formal discussion of how sovereign debt in the eurozone might be restructured."
Which one do you believe?
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"The stages of Ireland's grief" is the title of Stephanie Flanders piece.
Indeed, Stephanie, you are not wrong - but this is a truly bizarre, sudden and extraordinary move by George Osborne, to say the least, and vaguely suspect?
Is there something that The Chancellor of the Exchequer, The Bank of England et al, are not telling us?
Pray, tell Chancellor Osborne, why you are leaving the British public 'out of the loop' regarding your actions on the Euro currency Republic of Ireland? Will there be Questions in the House quite soon? Let's hope so.
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It is their failure to supervise their banking system in the same way as the Icelandics did which created a paper monster that threatened their way of life so there is no of escaping culpability. The Irish government has been made to look foolish or incompetent or both. Their draconian response in terms of the public sector cuts is likely to have contributed to the worries of debt default. It not only increases the probability of private domestic debt default but by the same token ensures assets values decline.
Forcing down wages to be a more competitive economy has little to be said for it in the longer term - it is a race to the bottom.
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"True, the rest of the system was complicit in allowing the liabilities of the Ireland's banking system get so far out of line with the size of its economy. But ultimately, the responsibility for this crisis lies with the Irish themselves."
Stephanie may I humbly suggest you revisit this comment. Granted, the Irish elected their government, who as putative regulators of the Irish banking system have been found to be asleep on the job as in the UK. Culpability for this mess truly lies within the banking system itself. The debts requiring bailout I venture will be found not to be purely property related bonds, but also complex instruments, bonds, CDO's, synthetic CDO's and the like originated in Wall Street which were bought either through greed or laziness or both by the bankers in Dublin (or London and the rest of Europe). Before attributing blame, perhaps we could have an empirical analysis of where these debts in the banks we are being asked to bailout originated from. Then we could start identifying the culprits, naming names and recovering assets. Every bailout has its price.
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What I don't understand is why the German, UK, French and German Banks that lent all this money to Irish Banks should not suffer some pain.
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Ireland decided to bail out the banks. Now that they are struggling their "friends" are wanting to give them more debt. Is this a "not in my backyard" bail out with vested interests saying your doing the right thing but not the way we would do it. Bitter pills all round, perhaps!
I'm sure my suggestion for a "And PIIGS might fly" blog is getting closer to reality. Inter alia, things are really going out of kilter. Well that's my observation.
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Thank you for your usual well written article. It's all very disappointing for Europe but how guilty are those who created such a poorly managed system. Politicians and bureaucrats, with a little help from external US pressure, convinced sufficient voters to accept the Euro regime. Motives for joining were mixed and performance very mixed. The latter tolerated for political rather than monetary motives. The real fiscal management lacuna married to an overtly political monetary regime has allowed a range of 'smart-alecs' and worse to misuse the Euro Zone for their short term political or financial gain. Specifically, Ireland has played every game available - until the end. Grants, subsidies, loans, development plans, "the poor underdog", the "willing and enthusiastic European" and not to mention the 'competitor within the EU' through dubiously justified corporate tax incentives. The last ditch full immersion State Guarantee of bank debt was, for me, yet another clever move simply to make the inevitable failure seem less naughty; more a well intentioned 'damn, we tried' approach. Ireland will now do well to return to the older, and genuine, 'Celtic Scholarship' instead of the 'Tiger' approach. Above all, each small Euro Zone Member must learn their true place within the economic food chain. Natural resources, genuine competitive advantage and capacity for education and hard work must take pride of place over opportunism and 'keeping up with the Joneses'. If Europe cannot achieve this via a Constitution, democratic EU Executive born out of the European Parliament and a shared vision of European legality - the next generation might be in for a very bumpy ride. I suppose the Irish remember the EU Constitution!
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Not only in Ireland but also in Euroland and the EU. We should just see where each member is at re the five stages;
1.Denial
2.Anger
3.Bargaining
4.Depression
5.Acceptance
Unfortunately I think the majority are still only at stage 1.
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Very interesting listening to George Osborne on the news last night that the Uk is ready to help the republic of Ireland with a loan.
What has happened to the UK only just after the general Election the ConDems cancelled a loan to Sheffield Forgemasters as the country could no way afford it. Yet now we can help a foriegn coutry out while the rest of us as to take the cut backs what a government or is it because Sheffield does not elect a conservative MP. Shows you what this government think of people north of Watford.Shame on you CLEGG
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I don't think anyone can say with any certainty who will take the hit on an Irish default, although RBS would probably be there as they seem to have been involved in every stupid transaction going.
What would be likely to occur however is a mass unwinding of derivative transactions in order to see who actually holds the can. Loss of confidence in financial institutions - does this sound familiar?
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and where's the link to the relevant Simpsons episode?
here
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The moral to this tale is perfectly clear. Banks should not be allowed to get too big to fail as they then take down the country.
If ever there was an illustration as to the foolishness of debt, the arrogance of bankers and the hubris of politicians then this is what is happening in Ireland today. The political fall out for such a small country will be huge and I expect there some people will go to prison as a consequence.
What has the future in store for Britain? I expect we will try to inflate our way out of trouble as usual always assuming our creditors are that daft, I don't think. There is more trouble ahead for us all.
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This should be the future for all that surplus residential and commercial property in Ireland and elsewhere, its aready happening in the USA - 'Cities also are encouraging urban agriculture through the planting of community gardens on vacant lots. In some cases, homes acquired by a municipality are rehabilitated and occupied again. When buildings are demolished, the lots left behind may be cleaned for agriculture or the planting of gardens, or used for new construction. In the Cleveland area, multiple plots may be put together to allow for larger developments, which won’t go forward until demand for redevelopment emerges.' sustainable and much needed food could be produced ahead of the coming commodity wars.
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Things are playing out exactly as I thought they would: a public debate will raise a fuss about Irish debt, then the bond markets will tentatively tip against Ireland, and anyone foolish enough to have shorted the debt will have lost as the EU then comes along with its EU stability fund.
There needed to be a touch of public debate and worry about EU sovereign debt to offset the US's little gag of issuing half a trillion in QE and then showing up at the G20 insisting on a unified approach against competitive currency devaluation.
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To the author: It's PIIGS not PIGS. (Portugal, Italy, Ireland, Greece and Spain)
This new programme will involve outside forces monitoring our budgets on a four-yearly basis. That's no harm. Indeed, the EU should have proposed this back in 2005, when France and Germany were the first to exceed the 3% budget deficit defined in the SGP. But of course, as always, the big guys get away with it.
If Fianna Fail had never been in power, our country wouldn't be where it is now. Thanks Fianna Fail: you may have saved the banks (saving Anglo Irish has been one big joke), the lenders, the property developers but you have given away our hard-fought for sovereignty.
Funnily enough, the only person to speak out about the IMF loans (which are not a bailout) since they were announced has been the Central Bank Governer, Patrick Honohan (http://www.rte.ie/news/av/2010/1118/media-2856661.html#) - we are still waiting for an official statement from the Taoiseach Brian Cowen or Minister for Finance Brian Lenihan. Too busy drowning their sorrows in a pint, I imagine.
Time for Enda Kenny or Eamon Gilmore to start preparing for the next election. Or even Gerry Adams who is now contesting a seat in the Louth consistency. One thing is for sure, Fianna Fail will not be back in power for a long time after this! We need to make sure that next time we have a real economist as Minister for Finance; someone who understands the real issues at stake.
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#7 Cassandra
Essentially I agree with you, then banks who were foolhardy enough to abandon prudence, and keep throwing money into places where they had any right to throw it, should in fact feel some pain.
They should have felt that pain 2-3 years ago, depending on how early in the crisis the pain was felt. The pain was loss, on the assets and the P/L account and, ultimately, on the capital. No question. The problem is that because nobody was watching properly, the numbers, when they came to light, were greater than the various banks' capital in many cases. This is when the mistake was made.
The authorities at all levels, instead of letting insolvency find the level, underwrote the assest and effectively bailed out the banks. Now at that time the pain would have been widespread, espcacially for the shareholders, who owned the capital. let's be clear, RBS shareholders can tell you all about that.
However, individual depositors, who are the lifeblood of any bank, needed comfort, which the government provided (arguably) by issuing a guarantee up to £100k for UK depositiors in UK banks. A nice soundbite (I think its only actually £50k, but who's arguing?).
Anyway, the real net losers would have been other banks themselves and the shareholders. However, some banks would have been string enough to survive, and some wouldn't. Its a tough life, always has been, always will be.
As a consequence of actions taken everywhere, lots of international banks are now owned effectively by the state, and they all still have the same problem, because nobody identified, addressed and took action to solve that problem, until now, when its almost too late.
The solution is less state spending and an increase in taxation to resolve each state's individual budgetary imbalance. The degree to which that inflicts pain on the citizens and taxpayers in that state varies. One of the factors that causes it to vary is the amount of existing government debt the banks are already financing, which itself has been increased because fo the state's assumtion of the risk on the debt that should have made them insolvent 2 years ago. See where this is going?
So, if Ireland is forced to default and that causes pain to French, German, UK banks, and some others, that pain will in fact be felt by the states and the people, simply because the pain is 2 years too late getting there, and ownership has changed hands. Think about it.
So Ireland bleeds, so will UK and FRance and Germany, et al. Then one of those will be the first to go through the same process (default), and then the aformentioned banks will bleed all over again. And so it goes on.
There is no clean and tidy way to solve this issue, and I'm totally ignoring the fact that the member states of the Euro have limited room to manouvre. US, UK, Japan, China, India etc can deploy different financial and fiscal tactics to impriove their respective situations, the EU can't, because one size has been designed to fit all, and I wouldn't want to be German right now.
Ireland has been doing the right thing economically, but is bound up by the problems for the entire eurozone. It is one of the highly poublicised second tier of zone member countries. The sad thing is, this is a tier that is going to grow, whilst the politicians refuse to accept the flaws in the system. Until they accept that some of the existing members MUST quit the Euro, and take wha5tever steps they need to take, then they're just going to get pushed round and round ad infinitum.
Greece's problems haven't been fixed. Spain is beyond hope in many ways. We know where Ireland is right now. Portugal's next in line, and Italy's just keeping its head down. As the total costs of keeping these afloat mount, and they will, Germany will find it ever more difficult to kep paying. I've already discounted the ability and desire of the French to pay, they're just not used to it.
There's plenty of pain available, just be clear, you're (we're) going to get our unfair share of it. And we all know who to blame!
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I am sorry to see Ireland in this condition. But with the debt so high (around several 100% of GDP per last nights news)how much money was lent to Ireland by BANKERS in the past two years following lehman brothers?? They keep getting Billions in bonus can one therefore presume that they are being responsible and doing a proper job or are they continuing like before? Can there be assurance that the tax payer has not been given an additional burden created in the last two years?
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I was in Dublin in April 2009 and reading in the Independant about the proposed formation of what came to be known as NAMA.
Some 18 months on and the support is coming to the fore. Why was no fuller analysis undertaken by Ireland or the European Union? We are only talking numbers here, all be it big numbers.
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14. At 1:16pm on 18 Nov 2010, stanilic wrote:
' always assuming our creditors are that daft'
I am not sure it relies on them being too daft - they might see it as the better option too - Faced with what might be the alternative.
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SF writes as the BBC's economics correspondent that 'The other thing that must seem so unfair to Ireland's ministers is that....'
Excuse me, but if Ireland's and too many other countries' ministers had had the ability to understand the meaning of their current account and acted correctly on the information that it provided, this painful mess should have been avoided.
Sex without consequences is another similar dream that can be tough to wake up from and be similarly challenging as to who foots the bill.
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I agree that the Irish must shoulder some of the blame for the wreckless lending in the banking system, but membership of the Euro I think has just as big a role to play.
Throughout the Celtic Tiger era Ireland's booming economy was subjected to low interest rates designed to suit the German and French economies. As a result cheap borrowing in a booming economy lead to a nation to eager to borrow and invest (mainly in property). This also fueled inflation (an in particular, wage inflation) which has led to the Irish exports finding it hard to compete.
And getting out of the crisis has been made even tougher by membership of the Euro by having no ability to quantitatively ease.
The fact is Ireland has been an EU team player. It allowed central European economies to dominate the ECB, it was one of the first countries to allow eastern bloc nationalities to work in their country and it ratified Nice and Lisbon not for it's own good, but the good of the EU.
When the terms of this deal comes out, we should see just how much of a "team" the EU really is, I fear the worst!
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Hmm the Irish problem, and who is responsible. An interesting query. I applaud the contributers who have highlighted the central involvement of developers in the progression of this situation to such a critical mass. That said the politicians must bear their share of the blame. It was not just the developers who engaged in white elephant, non-viable, vanity projects. One only needs to remember the furore surrounding the Abbotstown fiasco (or the Bertie bowl as it was called), so called after the then Taoiseach Bertire Ahern. Unfortunately, the Irish government and their circle of high-rolling friends saw a properous country as their ecomonic playground (a grown ups monopoly) where they bled each and every system of funding dry to their own ends, lining their own pockets with a juvenile disregard for the future or the wider population.
While the financial crisis is world wide and not confined to Ireland, the resultant state of the Irish economy is, I submit, an inevitable consequence of the "cute-huere" (in Irish a "fear glic") mentality that pervades the way business is done in the country. The general consensus being that "sure it's ok if yer man bends the rules he's one of ours". Corruption, self-interest and mismanagement are the watch words of the power structures in Ireland. I speak with authority having worked in the Irish economy for 10 years and having left sickened with the pervasive levels of nepotism and cronyism.
As such the only way that Ireland can properly extracate itself from this predicament, once the books have been balanced, is to develop a national mindset which abhors the avarice displayed by both politicians and developers alike. Sadly I think this is highly unlikely.
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I feel sick to my stomach with what's happening in my Country today.
What has been facinating is where the support and offers of help are coming from. I hope we don't need it but thank you UK for the offer and hand of friendship. I am a public servent and have already taken severe 'austerity measures' already. We want to do this on our own but the external forces are too strong.
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Krugman blog June 29 2010 "That’s why the Irish debacle is so important. All that savage austerity was supposed to bring rewards; the conventional wisdom that this would happen is so strong that one often reads news reports claiming that it has, in fact, happened, that Ireland’s resolve has impressed and reassured the financial markets. But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.
Of course, I know what will happen next: we’ll hear that the Irish just aren’t doing enough, and must do more. If we’ve been bleeding the patient, and he has nonetheless gotten sicker, well, we clearly need to bleed him some more."
And Krugman today "So what the FT is reporting is that there’s a sort of slow-motion run on Irish banks in progress, with corporate depositors gradually reducing their accounts. Not crisis-level yet. But the ghost of a possible ejection from the euro is starting to become visible."
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It seems the mistake the Irish made was to guarantee all bank transactions. Once they did that, allowing banks to fail was no longer an option. This meant the state had to absorb increasing losses.
A very relevant question is: how much of the Irish debt held by RBS is included in the Asset Protection Scheme underwritten by HMG? If there is still a large Irish default, will this end up in the lap of the UK taxpayer? Or could we safely wave goodbye to RBS?
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The most recent blog from Paul Krugman in the New York Times today is "tingling":
"THIS IS THE WAY THE EURO ENDS
Not with a whimper but with a bank run.
OK, I’m overstating the case — we’re some ways from a euro exit for Greece, let alone Ireland. But we are drifting closer to the kind of scenario I wrote about back in April."
When Krugman's blog is considered with the editorial in today's FT today with recurring references to bank runs, you know there's much to come!
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I know I am a bit dim but if you bear with me as I see it.The ECB loans to the Irish,make no sense economically.Simply put if Ireland,was an individual and walked into a high street Bank,to ask for a loan.First question how much,second question.How much?If they were by some miracle not laughed out of the building.third question.What collateral do you have? Laughter as they are shown the door.I know it is not that simple but this mess began because Banks were lending money they did not have to those who could not pay it back.So now the ECB has doled out trillions to,The Greeks,the Irish and old uncle Tom Cobley and all.Still with me?So my premisthe tipping point,has to be close.Germany alone can not BANKROLL the rest of Europe indefinitely and if Germany were hurtling toward an unmanageable debt because its lending money it dose not have.The possibility of ECB failure cannot be an impossibility,unlikely but not impossible.If it is as,a dim feller like me believes that a fundamental truth is.If I have one penny I cannot lend two penny's without first borrowing one myself and therefore.bankrupting myself in the process.I know I am an idiot economically but this has to be bordering on melt down for the Euro.That happens are the lights going to go out all over Europe.
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One man's debt is another man's credit. The man with the debt has his debt guaranteed by the man to whom he owes money. Not only that, the man with the credit lends even more money to make things better for the man with the debt.
Why not just give the poor guy the cash and forget it?
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What a shame, the Irish government, and let's not forget the people of Ireland have done all the heavy lifting to get this far only to be torpedoed by Angela Merkel's U-boat. Alright, the Irish banks were going to need a substantial 'backstop', but the 'haircut' announcement couldn't have come at a worst time. Thanks Angela.
Regards, etc.
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There is no bailout unless the ECB prints money and gives it Ireland.
All that's happening at the moment is agreeing more loans.
But they'll be loans with conditions attached.
Most likley 'Austerity Conditions'
And the most interesting 'Austerity Explanation' I've found is:
http://www.youtube.com/watch?v=jUmQbf1AyA8&feature=related
And it suggests austerity is not much fun, not much fun at all.
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7. At 12:32pm on 18 Nov 2010, Cassandra wrote:
What I don't understand is why the German, UK, French and German Banks that lent all this money to Irish Banks should not suffer some pain.
------
Exactly; who will rid us of these meddlesome priests. The Irish should just default and move on; these corrupt intuitions should have failed in October 2008 and no amount of propping up will stop this now, it’s just a matter of time and how big the inevitable crash is going to be. But as Cassandra foresaw the destruction of Troy, her tragedy was that no one would believe her.
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This comment was removed because the moderators found it broke the House Rules.
Stephanie points out that ultimately, the Irish Government had overall responsibility and let the whole system rock-and-roll for years, especially in property, which is why property prices there are now 50% off their peak.
The same sort of property boom was allowed to occur by Governments in the UK, Spain and the USA, all of which now well under water.
Incidentally, it did not 'start in America'. The USA had had a remarkably stable property market where youngsters could put down a reasonable deposit (10/15%) and take out a fixed term 25 year mortgage, not locked-in, and able to remortgage to a better deal without penalty. Great for the American property purchaser but not very profitable for the mortgage suppliers.
Unfortunately, Americans financial institutions looked overseas and saw how the mortage market operated in the UK and Austrialia, wth lots of 'churn' and consequently lots of profit and decided that they would have some of that.
As they say, the rest is {bad} history.
Greed is only good for a tiny minority.
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Much of the lending by Irish banks has been carried out in the UK's assets - selling out the UK's assets to, 'all comers' including all manner of 'foreign interests'
'Treat thy neighbour as thyself'?
The UK is 'wide open' for business 'investment'? (i.e. Chamber of Commerce nonsense?.
The real story here has yet to emerge?
The UK has lost strategic control of its UK economy, not just to the banks ... but to foreign banks!
If this is 'British investment' ... I never wish to see a UK 'recovery'
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The "broad outlines" have been made clear and need to be carefully considered, if proceeded with at all.
I'm always impressed by artificial deadlines. Someone wants a rush job.
Why, though?
The IMF loan, if contracted, will be repaid at a rate "in the region of 5%", according to the Governor of the Irish Central Bank.
Seems straight-forward. Greece with rain.
The bank subordinated debt due to be repaid with this loan is currently paid at up to a 13% interest level.
Whirr, whizz. Computer demands re-compute.
Why? Normally, bank subordinated debt is at some degree of risk, as per any Lower Tier 2 debt.
However, Ireland's banks' debts are guaranteed 100% without limit, with no first loss provision even imagined.
To repeat for clarity, the repayment of subordinated debt attached to 13% interest is being funded by this loan which will carry an interest rate of less than 5%.
This debt can now be purchased at less than half its going rate at issue 9 months ago. (Thank you, Angela. Are you sure you dislike investors?)
Bargain. Effectively, 26%. Guaranteed. With cash on hand from the IMF to secure repayment beyond doubt. (Angela insists on IMF cash. Wouldn't want investors relying on unsupported paper guarantees. Angela, tell me you love me. I can see it in the way you move.)
Paying the 21% in between in return for nothing. And paying 100% of the face value of a corporate bond issued by a private bank (which never had any branches or retail customers) that ceased trading three years ago (whose management are under investigation for fraud and have fled the country). Which bank has issued and repaid tens of billions in bonds since suspending trading.
That's like purchasing and redeeming an Enron bond. In 2004. From the taxpayers of Michigan.
Enabling a giant carry trade off IMF gold reserves, perhaps, but to no public purpose, I'm afraid.
Why would the Irish delay? Seems a maw worth diving into.
Naturally, the Irish Minister for Finance holds a first-class degree from Cambridge. One up for "world-class education" and "German prudence", Steph?
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And don't forget LLoyds/HBOS/Halifax group were involved in the same old dirty practices as the other banks in Ireland before they pulled out conveniently earlier this year, affecting the loss of many, many, jobs.
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From here, within the bowels of Deutschland and the EU, I cannot understand why no-one is questionning Merkel's assurances of Germany's economic "fitness". Only within the core of Merkel's administration does anyone seem to appreciate the scale of bank indebtedness. Here in the Lande (Rhineland-Pfalz) no-one has any grasp of the scale. The Lande provide the centre with finance and are currently racing to spend their current allocations, to withold whatever monies and tax payments they can justify from the Finance Ministry (and not paying taxes, at whatever level, is something of an art form). Merkel expects income and tells the World she has it (it is promised and planned) but, locally, nobody knows where the money will actually come from. Parties, not affiliated to the Coalition seem to be doing their utmost at Lande level to control their own finances and sooner or later Frau Dr. Merkel will have to face up the realities of the German fianancial system. She is still deeply in denial ... at least in the UK Cameron says there is a problem and is trying to get a grip on its scale .... "There is no problem in Germany" seems to be the Bundesrepublic Mantra!
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'Corruption, self-interest and mismanagement are the watch words of the power structures in Ireland. I speak with authority having worked in the Irish economy for 10 years and having left sickened with the pervasive levels of nepotism and cronyism.'
I beg your pardon, I cannot believe this! these are suuuuurely attributes of the Greek character alone as everybody knows.
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PS. One last thing, I would liketo thank the British people through Gorge Osbourne for sticking by my country...it was a very genorous offer, even with the fact we both rely so much on eachother as trading partners.
But I must say, I was shocked to read in the Irish Times leader column, i.e. The following quote; "IT MAY seem strange to some that The Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side".
I for one don't count £7billion a a few shillings, & I think the "Irish Times" should apologise. They don't represent me in that stupid remark.
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@Dempster:
"There is no bailout unless the ECB prints money and gives it Ireland."
First of all, what is being proposed is not a 'bailout', but rather 'loans' which would help to inject capital into our banks (although not directly - the government would route the funds) and make it easier for the country to attract investment on the financial markets, thereby reducing our dependence on borrowing from the ECB at high interest rates. This could help to restore our triple AAA rating in the long-term. The markets have already responded positively today following the announcement of the loans package.
And second, the ECB can't print money or engage in the financial tactics of quantative easing, which the UK and the US have been doing (and thereby putting more pressure on the Eurozone, as Merkel stated last week). But it wouldn't be the first time that the ECB has changed its rules of play if they did start 'printing money'.
The UK press are having a field day with this story. One previous poster got it right, those bank guarantees should never have been given two years ago.
Another point I'd like to make is that the banks would never have engaged in so much reckless lending in the first place, if the people of Ireland hadn't accepted massive loans without any qualms. I hope these irresponsible people who took out loans when they couldn't afford it also recognise their role to play in the current state of affairs. We need to do more to educate people not to live beyond their means.
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I'm no economist (no really, it's true) - but isn't lending Ireland yet more money, when it's already over-exposed beyond all reasonable limits, like continuing to inflate the balloon, instead of letting the air out? I agree with most of the other posts here - this whole mess is simply being delayed and drawn out, rather than resolved. The balloon will eventually go pop, and the longer we leave it, the bigger it gets, and the louder the bang...
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It is never about one factor, too simplistic an analysis. There was too much easy money available vis a vis German, French, Austrian and other banks, there was a complete and total failure to regulate by the Irish authorities, there was a scandalous lack of intervention by the government who grew fat off the revenue from property and construction (both literally and metaphorically), there were absurdly low interest rates from the ECB, plus when you factor in the global market, competition for jobs, markets, all of these things combined to produce the most perfect economic storm and we are not alone, but that is cold comfort now with the IMF in government buildings. Failed Republic.
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PS. One last thing, I would like to thank the British people through George Osbourne for sticking by my country...it was a very generous offer, even with the fact we both rely so much on eachother as trading partners.
But I must say, I was shocked to read in the Irish Times leader column, i.e. The following quote; "IT MAY seem strange to some that The Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side".
I for one don't count £7billion a a few shillings, & I think the "Irish Times" should apologise. They don't represent me in that stupid remark.
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Stephanie wrote "... Ireland has probably done the most to get past the economic disadvantages of being in the euro and move forward".
I take it from this comment that Stephanie fully accepts the economic disadvantages that membership of the Euro brings to member states!
Stephanie went on to say that Ireland had done more than the other PIGS to reduce wages and costs to make Ireland more competitive. However, prior to the crunch, I believe I'm right in saying that inflation in Ireland outstripped other Euro countries, a direct factor of Euro membership and a one size fits all interest rate that was far too low for Ireland's needs. Membership of the Euro and low interest rates were the factors most responsible for the size of the asset price bubble and the subsequent crash.
The problem with cutting prices and wages in actual as well as real terms in a time of economic recession and high levels of debt is that it will make the problem of servicing that debt all the greater, and all the more so because the total level of debt is growing all the time. Ireland is experiencing the pain without experiencing any gain.
The question I would like Stephanie to answer is how can lending more money to Ireland, who cannot afford to pay back their current loans, can be saved by lending them more money that they cannot afford to repay? Isn't that economics of the madhouse? Any thoughts from other posters equally welcome?
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I just love it when "the markets", who were angels when they were minded to lend, become devils when they start to doubt the creditworthiness of the borrower. What exactly is the lender supposed to do when creditworthiness is judged to have disappeared? Not having lent in the first place--about all that would have prevented Ireland's problems--would hardly have fitted the bill. I speak as a retired lending banker of many years' experience. Similar considerations apply to the wholly fanciful pressure put on domestic banks to lend to SME's when they, the banks, do not want to. It would be ridiculous and indeed the completely wrong way to run a sound lending operation for top mamagement to override lending decisions made in good faith lower down the organisation. If you give a lending officer a target he will meet it easily enough--by simply saying Yes to the necessary next few loan requests irrespective of loan quality. That way your own bank goes bust. This is pretty basic stuff.
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If you were experiencing serious financial difficulties, would you seek advice or loans from a company which was unable to get it's own affairs in order.
How is it that the EU is able to tell the Irish what their next move should be and to organise funds to assist in the success of that move, when their own accounts are in such a total mess that they have been unacceptable to auditors for 16 years?
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In reference to the very first comment left by 'JPSlotus 79' he describes 1997 as the year "the celtic tiger was at its height" ? One would ask very serious questions about the education they recieved if they believe the 'boom' was at its height in 1997.
"things started going wrong when fianna fail got back into power", again another totally unfounded statement, this was the same party that raised living standerds for the irish people to the highest level in the EU. Econmic growth was greater than any other country in the EU for several years .
The problem lies with the irish banking system,their reckless lending coupled with the fact that they were compeating againest the so called "big boys" in the banking game who were offering 100% mortages to anyone who had a wage, these banks have now returned to the british market.
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Thank you Stephanie for a concise and fair assessment. Ireland's problem was caused by unfettered greed at all levels of Irish society compounded and abetted by an incompetent government, a bloated public service and Trades Union leaders anxious to become part of the "establishment". At present we are (on all sides)devoid of the leadership needed to lift the country which through exhortation, passion, insight and positivity and their actions would propel us past acceptance of such enormous and traitrorous behaviour and then give us the hope that's so badly needed.
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Let us not forget that in 2006 Osbo was extolling Ireland's virtues:
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article733821.ece
http://www.newstatesman.com/blogs/the-staggers/2010/11/ireland-osborne-tax-irish
I hope he is asked about this in the Commons too!
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I dont understand what the various conplaints about GO putting 6Bil on the table are about. Its better to loan 6Bil to Ireland than have to cover 40+Bil to RBS.
Anyway it just laffing all the way to the bank, providing you stop off at the pharmacists on the way.
This littl' PIIGie went to market.
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45 Jaker
Thank you for the kind sentiment. There are many of us on this side of the water who know who we are and where we came from and would take a dim view of a UK government that did not puts its hand in our collective pocket for our friends and kinsfolk.
The men of 1916 fought for a dream that never became real for the simple reason that sadly life is a compromise. This does not invalidate their dream and their sacrifice even though the politics of those times makes me unable to share it with you.
There has always been someone in our family who has traded with Ireland and in my generation it is me. I fully understand that the UK government is acting as much in self-interest as otherwise but I know the pain the Irish people currently suffer and I fear it may well get worse for all of us before we get to put a bottom under this disaster.
The important thing for all is to understand that we are in the grip of history and whilst the past may have resonance for some as it should do, it is down to us all to write a new page or two in these days that will allow us to look forward rather than behind.
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Ms Flanders - I have said what I need to say elsewhere but can I offer something from Mark Twain. He - allegedly asked me to offer it only a century after his unfortunate demise. I just wished I could have posted it here about - a hundred years sooner.
Thought of the Moment
Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it. -Mark Twain, author and humorist (1835-1910)
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With reference to Ireland, we must aslo remeber that they did have a massive inflation problem before joining the Euro. The low Euro interest rate then fueled but hid a problem that already existed.
We really have to consider why our leaders are now running scared. It's surely not the hardship that the Irish people will face from even tighter austerity measures. Perhaps the real truth is that they are finally recognising that the exposure of all of their banks is now so high and precaruios that it threatens each and every country irrespective of their soverign debts.
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The idea of one European currency was that we were all in this together. This allowed banks to grow bigger than their own governments. Now that the going gets tough they want to run and hide. Well if our Euro friends don't want to help then I say screw them all. The government should cover individual deposites up to 500k and stop there. If that means some or all of the banks to bust, then so be it. Let them shut down and we will invite some Chinese banks to come in and take over the viable business.
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As the current (Irish) economic mess is entirely due to the inaction/and or, incompetence of the Irish government and their regulatory authorities, we Irish should bear in mind that nations get the Governments that they deserve.
What is even more striking, is the total absence of public protest - not quite Greek style, more as the French or Italians do it. It is mind-boggling that after more than two years of cack-handed government, we Irish are allowing this disastrous crew to continue to man the rigging and the helm.
(Why does 'walking the plank' spring to mind?).
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56. At 5:48pm on 18 Nov 2010, Dubone wrote:
Sounds like a plan.
Unfortunately the 2008 bailouts (on both sides of the pond) destroyed symmetry, interfered with the economic food chain. Now the banks have lost their only predator, the market.
Heads they win - tails everyone else loses.
I stress, I don't have a problem with banks. They are just acting as banks. It is what they do.
I have problem with weak short-sighted governments. It is not an 'urban myth' that Brown / Darling were surrounded (2008) by bankers on all sides all giving 'helpful advice'.
This is not just Ireland's problem it is everyones.
It should be possible to put together a carefully orchestrated, coordinated suite of 'haircuts' / defaults without a systemic meltdown of the entire banking system.
This will rumble on until someone bites the bullet.
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57. At 6:28pm on 18 Nov 2010, silversurfer wrote:
It is mind-boggling that after more than two years of cack-handed government, we Irish are allowing this disastrous crew to continue to man the rigging and the helm.
Interesting that Gerry Adams is standing in a safe Sein Fein seat in the republic at the next election.
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49 liscarollconstruction:
'The problem lies with the irish banking system,their reckless lending coupled with the fact that they were compeating againest the so called "big boys" in the banking game who were offering 100% mortages to anyone who had a wage, these banks have now returned to the british market.'
Yes but nobody had to borrow did they. There is no mandate that you must buy an overpriced house. They did it because they wished to close their eyes and speculate. Any government watching this behaviour has enough people in a very big building telling them the outcome but they close their ears. Anybody suggesting going against the flow is told not to speak.
Now the bill is here and almost everybody has to pay, some more than others. But I dont see many in court do you.
Causation and actus reus are not words in systematic failure. Fetch a very big carpet and broom and speech writer to say how brave and noble actions are. Use the word friends a lot.
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58 Richard Dingle:
''I stress, I don't have a problem with banks. They are just acting as banks. It is what they do.''
Yes and no. You do not let something parasitic get bigger than the host. Banks skim the economy, they manipulate, they fight consumer rights. Banks buy houses because consumers do not have the money. The consumer is manipulated and takes the liability. The government benefits from tax revenue from the game.
'I have problem with weak short-sighted governments.'
Yes and no. This is a failure of government to govern and regulate and failure of democracy due to powerful voter blocs coupled with a short term 4-5 year electoral cycle. Uplift in employment for example lags by 3 years from pick-up.
'This is not just Ireland's problem it is everyones.'
No it is not everyones. The media concentrates on trumpeting the vocal mainstream of self-righteous indignation. If it does otherwise that mainstream complains. For example - The latest scapegoat is the unemployed. So err lets not worry about the number of unemployed when things are going well, err we'll worry it when there are reduced job opportunites. Just one of a whole list of dull reactions, ever met a proactive politican. Wherever a politican is distracting by pointing out a 'problem' the real problem is almost diametrically opposite, aka Janus complex.
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@35 said "Incidentally, it did not 'start in America'. "
That depends on where you think the start point was. Somewhere between the Nixon Shock and Angela Merkel calling time, perhaps.
Ireland may have put to sea in an overloaded boat - tied to other, larger, European boats; but the waves crashing over the decks now originated somewhere across the Atlantic.
There's no doubt it's an enormous mess - and someone, somewhere (and maybe more than one) is to blame; yet only Madoff is behind bars. That's truly amazing.
On the other hand, incompetence is not a crime. Some key figures have clearly shown they are not even competent to play Monopoly. So why on earth are they still here playing more serious games?
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PS to 60 and 61
60 'almost everybody has to pay' refers to Ireland
61 'No it is not everyones' refers to the UK and the wider world.
: ) before somebody bothers to comment.
..........................
62. The-itinerant-ex-pat
'.... yet only Madoff is behind bars. That's truly amazing... '
Extraordinary isnt it, till you start looking at the numbers and realise the prison shortage that would result lol. Can't resort to transportation these days due to the Empire striking back some time ago. How many expenses at Westminster do you think were bona, only 3 dodgey it would appear and 1/2 million of taxpayer money spent trying to block access, hmmm. How does handing the money back anull the deed, that doesnt work normally. If somebody mugs you and you manage to catch them you dont say thats alright dude I've got some of my money back. And these are the lawmakers and law upholders. Duck Islanders.
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52. At 5:02pm on 18 Nov 2010, Not Buzz Windrip wrote:
I dont understand what the various conplaints about GO putting 6Bil on the table are about. Its better to loan 6Bil to Ireland than have to cover 40+Bil to RBS.
----------------------------------------------------------
You seem confident that it will not be both.
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BBC!
What was wrong with following comment? Is there a swear word? Is there a curse? Is there bad language? Is there libel? Is there defamatory language?
Or lastly, is there a truth, that you there can't fathom. One Irish paper published it without any problem...so...well? What's your problem?
Oh great instituition of truth? If you knew all I have written to the BBC "Have your Say" over the past years about the financial world & locally, you'd know I knew Ireland...& the World were going to fail. I have been proved right on both counts, & there's more pain to come.
"I knew this day would come"
I knew this day would come; because I saw it happen where I stood
I saw people take the bait, & accept the nothingness carrot
& now it's peeled back, there's no more sustenance,
There's just emptiness & fragility & lives broken in little pieces
Now each new day will remind them, they now own nothing, not even their souls nor pride
I knew this day would come; because I saw it happen as I stood
And the sad thing is, that those culpable are all laughing still
Are playing the banter, & laughing at the people & the law
And cheekily with pockets full of money still, are mockingly saying
"THANKS" for being "GULLIBLE"!
What happened to Ireland? I'll tell you, "Greed begot greed".
And it will happen further afield, for it's too contagious,
For it now to yield, it will travel down another path
And choke it's victims of their wealth, for it's a disease my friend,
And it has a name, my friend, it's called "Greed"!
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Stephanie said: QUOTE: "The first is that they wouldn't be in this mess - or at least they wouldn't be in this mess right now - if the German chancellor hadn't insisted on leading the rest of Europe into a formal discussion of how sovereign debt in the eurozone might be restructured" UNQUOTE
-----------------------------
Pointless blaming Angela Merkel. It was only a matter of time before Ireland needed rescuing. A bit like the Iceland situation where the UK was blamed for the final fall; the Icelandic banks were inevitably going to crash, alas.
I thought the German chancellor's point was a good one; though it may have had unintended consequences. Somehow the markets have to be tamed or at least made to share some of the pain.
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Stephanie wrote "But unlike the others, Ireland has brought labour costs down sharply since the crisis began. Wages have fallen sharply, and so have prices.
In that sense, Ireland has played by the rules of the single currency system. As a result, you can see a growth path out of this for the Irish economy within the euro, that you can't see for Spain, Greece or Portugal. If only they could just get past that mountain of private bank debt."
This is the first good thing I have heard about the Irish Economy in a long time, I don't know how true it is, but I need something to look forward for, sick of worrying.
Thanks Stephanie.
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42. At 4:02pm on 18 Nov 2010, irisheuropean wrote:
'The ECB can't print money or engage in the financial tactics of quantative easing, which the UK and the US have been doing (and thereby putting more pressure on the Eurozone, as Merkel stated last week)'The
Oh yes it can.
The ECB can print more money and give it Ireland, and then it can print some more and give it Greece, Spain, Portugal et al.
Now the prudent won’t like it of course, and rightly so.
However it ceases to be a European Union if member states fail, it’s just a European nonsense.
No Bailout = No Union
No Union = No need for Euro Politicians
To keep the whole debt based monetary system spinning default is not an option. Default destroys debt, and in the current system, default cannot be allowed to occur.
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#60 NBW,
"But I dont see many in court do you."
Oh Buzz, you do disappoint me. What's the point? They would only turn up and say "I did nothing illegal and I have a tribe of lawyers prepared to prove it". Now what they did do may have been unconscionable and lacking in morals but hell when did that ever have anything to do with The Law?
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Imagine for a minute you had the power to solve it all, nationally I mean.
What would you do?
Well perhaps you’d print some money and pay off the unsustainable debt.
After all, why would you want to see some country (people) enslaved under the burden of debt.
And having printed some money and sorted out those that were likely to become enslaved, what would you do next?
Perhaps you’d look at what caused it.
And you’d that it, so it didn’t happen again.
So what’s missing thus far?
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Father to son.
What is debt?
It’s a future promise to pay.
What is national debt?
It’s a future generation's promise to pay.
Why do the older generation make promises to pay on behalf of the younger generation?
Because they believe that it’s in their best interest.
What happens if it’s not?
You’ve got a problem.
So how do I know whether the older generation have made the right choice and acted in the younger generation’s best interest, as opposed to their own?
On that you have to decide for yourself.
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I am really glad to see someone like Stephanie standing up for the irish government here.
They are not a bunch of corrupt incompetents. They are doing a reasonably good job, in a very hard situation. And the current wave of self-flagellation in ireland about loss of sovereignty is way overdone.
OK: the unlimited bank guarantee in 2008 has proven to be unaffordable. But nobody had a script for the credit crunch. Every government made it up as they went along.
And yes: they didn't inform their electorate of just how much support their banks needed. For good and prudent reasons: to save their taxpayers' money.
But basically, they've got the right policy. And they've been pretty massively dumped on by some unwisely public statements by various european heads of government and finance ministers, that spooked the bond markets.
Some of the reasons for spooking the market are justifiable. The creditors have to end up bearing some of the risk, not just the taxpayers. Otherwise it's "moral hazard". But it could have been conveyed much more clearly and less alarmingly
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#71 Dempster,
"So how do I know whether the older generation have made the right choice and acted in the younger generation’s best interest, as opposed to their own?"
Answer: You have to accept that they were trying to do the best that they could in the situtation that they found themselves in; just like you will in the near future.
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To the Irish.
You’re in the same situation we are.
The uncontrolled creation of money as debt has been directed at too many promises to pay that were no good.
The Bank’s that created the money, are now passing over the burden of debt from those that can’t pay, to you. In the hope that somehow you can.
And in the event that you can’t, your government is taking on the debt on behalf of your children.
What’s the age of debt consent in England?
Same as in Ireland.
There isn’t one.
To pass the promises to pay from the reckless adults to the innocent infants is one of the singularly most disgraceful and disgusting acts that any nation can perpetrate on its younger generation.
It’s happening here, and I despise it.
And for the avoidance of doubt, I’m English
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73. At 9:32pm on 18 Nov 2010, foredeckdave wrote:
#71 Dempster,
"So how do I know whether the older generation have made the right choice and acted in the younger generation’s best interest, as opposed to their own?"
Answer: You have to accept that they were trying to do the best that they could in the situtation that they found themselves in; just like you will in the near future.
And do you believe that's what's currently happening at national level?
Are the next generation really going to set off in life on an even modestly level playing field?
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This comment was removed because the moderators found it broke the House Rules.
As an Englishman living in Ireland, I have actually been shocked by the reporting of all this in the British media. You've painted a picture of an utterly broken country, constantly showing pictures of homeless people and empty houses, as if everyone was on the brink. People in England are asking me if it really is as bad as the media make out. My reply is overwhelmingly no. Your sensationalist reporting is actually very disappointing.
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I can summarise the ludicrous situation in Ireland no better than Mish Shedlock's opening paragraph in his latest post:-
"Market participants are giddy today on the great news that Ireland will go deeper in debt in a foolish attempt to bail out the German and UK bondholders who were in turn foolish enough to lend ridiculous amounts of money to Irish banks in various real estate schemes.
The Irish government was of course foolish enough to guarantee all of this foolishness which means that Irish citizens many of whom were sucked into buying property at foolish prices are now on the hook to bail out the bondholders, rubbing salt into the wounds of Irish taxpayers, not all of whom were foolish enough to freely participate in the general foolishness.
Got that?"
For complete article go to
http://globaleconomicanalysis.blogspot.com/
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#75 Dempster,
Unless you hadn't noticed I have consistantly argued for strategies that run contrary to the ones that are currently being followed. However, whilst I believe them to be wrong, I have to accept that those implementing them are at least trying to make sense of a very unstable situation. I do not accept that the government and even the bankers wish to abuse the future generation.
I think you are trying to achieve the impossible. Why did I spend all of my working life helping to repay the USA for debts incurred during WW2 when no other country did? Why did I have to live through the effects of perhaps the worst management cohort this country has ever seen? Why did my parents and grand-parents have to struggle in a country that was bankrupted by another country who now seeks to lecture us on economic and financial issues? The list could go on and on.
There never was a "modestly level playing field". As for debt, national or personal, at the end of the day its only money. One day we will grow up and learn that money is merely the oil of commerce and that we should be focussing our attention upon true wealth and value.
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#5. watriler wrote:
"It is their failure to supervise their banking system in the same way as the Icelandics"
I do not accept this as a reason. To my mind the regulators were so badly and erroneously educated and selected that they did not perceive the risks they were running and like the Bank of England despite being told many times in writing so arrogant they they refused to accept the regulatory errors.
Our error was to hire these people and we compound it by not firing them!
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But surely Stephanie by now you must have realised that playing by the rules is the safest way for an economy to go down the drain? Committed neoliberal policies and slash and burn tactics directed against Irish citizens were just as damning as the 20 odd "profligate" years of the European South.
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80 comtinued..
We managed to delude ourselves that only some kinds of inflation mattered when in fact inflation is inflation be it in retail prices, consumer prices or house prices. That is the catastrophic economic error that is, luckily for the Irish, being worked through their economy, but disastrously for the UK's competitive position it has not yet started being worked through here.
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See BBC! In Ireland we have a free Press.
Sunday Tribune published me ...without making up excuses...& you're supposed to be the paradigm of Free Press.
From the Sunday Tribune, Ireland.
#27 Jaker commented, on November 18, 2010 at 4:02 p.m.:
"I knew this day would come"
I knew this day would come; because I saw it happen where I stood
I saw people take the bait, & accept the nothingness carrot
& now it's peeled back, there's no more sustenance,
There's just emptiness & fragility & lives broken in little pieces
Now each new day will remind them, they now own nothing, not even their souls nor pride
I knew this day would come; because I saw it happen as I stood
And the sad thing is, that those culpable are all laughing still
Are playing the banter, & laughing at the people & the law
And cheekily with pockets full of money still, are mockingly saying
"THANKS" for being "GULLIBLE"!
What happened to Ireland? I'll tell you, "Greed begot greed".
And it will happen further afield, for it's too contagious,
For it now to yield, it will travel down another path
And choke it's victims of their wealth, for it's a disease my friend,
And it has a name, my friend, it's called "Greed"!
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For all you fiscal conservatives who have commented here, look at this amusing little vignette sent to me yesterday by an ex-banker.
"It is a slow day in the small town of Pump handle, and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.
A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.
The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.
The hotel proprietor then places the $100 back on the counter so the traveller will not suspect anything.
At that moment the traveller comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.
No one produced anything. No one earned anything... However, the whole town is now out of debt and now looks to the future with a lot more optimism.
And that, ladies and gentlemen, is how a Stimulus package works.
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75. At 9:51pm on 18 Nov 2010, Dempster wrote:
73. At 9:32pm on 18 Nov 2010, foredeckdave wrote:
#71 Dempster,
"So how do I know whether the older generation have made the right choice and acted in the younger generation’s best interest, as opposed to their own?"
Answer: You have to accept that they were trying to do the best that they could in the situtation that they found themselves in; just like you will in the near future.
And do you believe that's what's currently happening at national level?
Are the next generation really going to set off in life on an even modestly level playing field?
_________________________________________________________________________
Which generation benefitted most from our house price boom? Maybe some of this'll get passed on through inheritance, remind me: which generation decided we'd pay inheritance tax?
Which generation got a free education and decided the one after can pay extorionately for theirs? (consider also that we have an ageing population - surely this creates falling demand and should lead to cheaper fees in order for universities remain competitive?). You might not care. Wait until your kids / grandchildren want to go to uni and you're remortgaging your home to help pay for it.
Who benefits most from a protected healthcare budget? Not suggesting we dont take care of the sick (although bizzarely Plato claims we shouldn't) but this agreement does favour the older generations as logically the most likely users.
Who benefits from removal of retirement ages? The young have reduced career opportunities for longer.
Which generation decided that DB pensions are no longer affordable and thought that a DC scheme would provide a good retirement for workers.
Steph, what are the yout unemployment stats again?
Etc etc etc
I don't think you can class this as working in the interests of youth. More like keeping your snout in the trough while someone else pays.
Expect emigration to rise. France sounds good with a retirement age of 62, DB pensions and a med coast too. Think about it - learn a language for a few years and emigrate or live here in comparative poverty to pay for a generation who - frankly - took the p with no regard whatsover for the consequences.
Don't give me 'we tried our best' - look at what's actually been acheived. A young generation paying to keep their parents in comparative luxury.
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So you want low wages and low taxes? It almost makes it look like some third world country. And the problem with low wages as someone pointed out is: a race to the bottom. How does Germany do it? Do their workers also get low wages in order to be competitive? Also, if low wages is the key then Ireland will loose since the Asian markets can provide that with much lower wages and much more workers.
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I live in California but am a Portuguese citizen and would like to retire in Portugal. I go there almost every year and what i have seen in the past few years is amazing. Here is a small poor country living like it's nobody's business. One month vacations, buying homes that most people cannot afford, very inexpensive health care, kids with the latest gadgets,etc.... Where do people in Portugal get the money for these things? And the one thing i could never understand was: how is it that a country that is poor has its citizens living better than me: a software engineer working for the state of california whose salary just was reduced by 15 percent?
This year just when Greece was going under we went there. We have been trying to buy a place in Portugal and just cannot believe that prices have not gone down. You would think that an economic crisis would bring prices down, but not in Portugal. And people still behave as if there is no crisis. My cousin just had her state salary reduced by 5% and she is complaining.
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Our most important export market per head of population, we sell more to this market than China, India and Japan put together. Every man, women and child in Ireland spends on average over 3.5K GBP per year.
Should we help this important market or let it go to the dogs as many contributors want to do? I am sure their are many on the nationalist side of politics in Ireland who would prefer that we turn our backs on Ireland now so they can regain their power through the countries mutual hatred and distrust.
Its clear we should help them and we should not be shy in promoting the fact in Ireland that when Germany dithered, Britain acted. Followed by, want do you want buy Jaguar or a Range Rover?
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Having paid a 15% mortgage a 5% bond is cheap.
If the Euro is going to be a big mess for the next few years IMHO the Irish Government should get the Republic to a safe place. A simple way is, this week, borrow sufficient money to cover the next 5 years and then not borrow any more for several years.
When the big countries like Spain, Italy and France have major problems duck. Germany and Britain will not be able to cover the rest of the Continent's bills for long.
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85. At 00:44am on 19 Nov 2010, Jack_Dwakins wrote:
'Which generation benefitted most from our house price boom?'
Answer: None, its just inflation.
Water food clothing shelter: Essentials.
Which generation benefits from the increase in the cost of water or food.
Same answer: None its just inflation.
The house price boom was a debt boom, that's all.
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79. At 10:27pm on 18 Nov 2010, foredeckdave wrote:
'There never was a "modestly level playing field"'
All very good points FD. And all true.
Still as a father of three, I wish it were different.
Because I believe that to pass on the financial consequence of the reckless behaviour of our ‘banks’ to the younger generation is, wholly wrong.
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"The Bondholders" who must be protected at all costs should be told to take a hike, I mistakenly thought capitalism was about risk & reward, you win some you lose some, in this case bondholders ( gamblers in shiny suits sitting in offices in London etc) invested in risky propositions ( Irish Banks ) , they expected to make big profits when things went well and they should be allowed to take the loss on the downside.Not sure who said "catitalise the profits & socialise the losses" but he knew what he was talking about, alternatively words of wisdom from Bob Dylan " steal a little and they throw you in jail, steal a lot and they make you king"
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At least this shows the analogy between the EU's stability fund within a Euro-based EUzone, and the IMF.
The only mistake the Irish made was swallowing the US-sponsored boom-and-bust neoliberal kool-aid. They just thank God it isn't the IMF ramming dollar debt down their throats now, but a humble bank in the bloc to which they actually belong.
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I find it - if not amusing, then a little puzzling - that these officials from the ECB have turned up in Dublin to audit the books of the Irish government and the Irish banks.
These wouldn't by any chance be officials from the same organisation (the EU) whose accounts have not been signed off for SIXTEEN YEARS..??
I expect they know what to look for, then...
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Ireland seems to be in a good bargaining position. 5% is way too high.
My suggestion is that they offer to take the loan at 3.5%. They'll soon realise that it is an offer they can't refuse! The alternative is default.
Much better to default *after* getting a stack more cash though.
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#91 Dempster,
Thanks for your reply. If anything good can come out of the mess, I really hope that we can learn the lessons and create a society and economy that is attracted to true wealth and not merely the accumulation of money.
We now demand that political decision making is transparent (we are still failing) but we have allowed a whole industry wherein sophistry rules. The trouble is that it has reached a hight where even the industry no longer understands its own products. If a product takes 10 pages of incomprehensible jargon to attempt to explain (and another 'expert' to assist) then you can be sure that there is something to hide.
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This comment was removed because the moderators found it broke the House Rules.
90. At 08:11am on 19 Nov 2010, Dempster wrote:
85. At 00:44am on 19 Nov 2010, Jack_Dwakins wrote:
'Which generation benefitted most from our house price boom?'
Answer: None, its just inflation.
Water food clothing shelter: Essentials.
Which generation benefits from the increase in the cost of water or food.
Same answer: None its just inflation.
The house price boom was a debt boom, that's all.
_________________________________________________________________________
Who created the debt and who's expected to repay far more than they ever gained? Anyone who sold a home in mass profit during the boom realised a huge investment gain. This wasn't the young. (As a side note, banks may have lent excessively, there still has to be demand - in this argument you could say the older generations are behaving in exactly the same way as bankers: should realise a huge loss but are palming it off onto others).
Food and housing are measured using different inflation measures. New Labour moved from RPI to CPI thereby ignoring housing costs in official inflation. Whilst I broadly accept that there are inflationary matters that impact on both, there are nowhere near the number of people starving than can't afford to buy a home. Not a good comparison.
(Anyone else think we're likely to see a measure of inflation accounting for long term and short term inflation soon?)
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#94. david wrote:
"These wouldn't by any chance be officials from the same organisation (the EU) whose accounts have not been signed off for SIXTEEN YEARS..??"
Please recall why the books failed to get a clean bill of health - the devolved expenditure to the individual state of the EU did not have a sufficient paper trail so as to show that the monies had been properly accounted for.
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#84 David
except the $100 is monetarily now in the $trillions around the world, fiscally we have chucked the kitchen sink at the economy worldwide and still we haven't jolted the patient back into life. This is because the hole is sooooo deep.
I still maintain we are missing the point - although much of the bank debt was created through the property asset bubble, sub-prime mortgages etc. there was not enough of that crappy property debt being created for Wall Street's appetite so hundreds of $billions of further debt was created via CDS (insurance) instruments dressed up as property CDO's - and European banks (Ireland, Germany and the UK all included), pension funds, hedgies etc were the mugs at the poker table who failed to identify that paper rated AAA was actually 95% sub-prime or composed of CDS insurance liabilities if the market fell. Creating this stuff was legal, but few understood it within the banks. This was a failure of bank management - this was not even on the regulators radar let alone did they have the tools to regulate. Until you read the recent book 'The Big Short' you will not really understand the source of the problem. This is/was not just property debt, although that asset bubble was the start.
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99. At 09:57am on 19 Nov 2010, John_from_Hendon wrote:
#94. david wrote:
"These wouldn't by any chance be officials from the same organisation (the EU) whose accounts have not been signed off for SIXTEEN YEARS..??"
Please recall why the books failed to get a clean bill of health - the devolved expenditure to the individual state of the EU did not have a sufficient paper trail so as to show that the monies had been properly accounted for.
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This is but one reason, I myself have lodged a question asking this very point from both the Finance directorate and the Auditors. Neither of whom were prepared to offer any comment and went on further to refuse to confirm that the reason above was the only reason for the books not being signed off. I am more than sure that if this was the only reason they would have confirmed it.
The EU is a good idea which has evolved rather than being planed and as such is not fit for purpose. It is currentley not one thing or the other and as such is doomed to stumble from one crisis to the next. They themselves even admit that there is little desire for change even when they are faced with a crisis such as the present one.
Viva la difference as they say in .......
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98 Jack_Dwakins
Your points are spot on.
Until the guy in the street understands that this is not a null deal and certain groups (which may actually include them) have clearly benefited the imbalances cannot be dealt with. At the root of the problem is the belief amongst the middle class, for want of any other tag, that they get 'hammered'. I listened to a discussion between Will Hutton and a Mrs Middleoftheroad, 3 bed detatched, landwagon, etc, who was bitterly, bitterly complaining that the middle class where 'hammered' to use her words when 'those at the bottom of the heap got everything free' and the 'people at the top did not see any impact'. Talk about living in virtual reality. When Will tried to say the facts do not support this he got shouted down.
Which groups have cashed in along the way. Which groups have enjoyed full employment. Which groups have pension packages never likely to be seen again. Which groups have been largely protected due to voter bloc iinfluence. Which groups have used NIMBY action to restrict housing supply, the main vehicle for speculation. Vampire banks, zombi government, residential evil, an appetite for destruction. This whole farce would not have occurred unless whole groups of people short term benefited from it and the devil take the rest.
A number of people post on here who obviously did quite well on the back of Mr Browns policies. Now it has gone and like Halleys Comet it wont be back for some time. Get over it and stop saying you were not part of it if you participated.
Lord Young was quite correct despite being bullied to withdraw his comments. A whole load of people continue to be in a reasonable position financially. They might not feel it, but that is a different matter as David neatly pointed out in post 84. I acknowledge a considerable number of people are distressed and in particular the young are affected and there appears reluctance to acknowledge the impact on these folk. That does not affect the fact a number continue to do well. The media continue to bleat on about cuts, as do those who may be affected by them very loudly but the reality is all the cuts are dealing with is REDUCING the monthly deficit which was a record level over 16 Billion last mnoth. Nobody is talking about paying back the rolling debt yet. That apparently can roll on for future generations to deal with, just like the consumption of the planet is now not sustainable.
God bless the young for they shall inherit the debt (Hoover). Providing they have a means to pay it presumably otherwise they say what the heck.
Is the behaviour of the last decade plus sane or insane. If not sane is it any surprise some the problems amongst some participants in it are psycholgical. This is not unusual for people who have been living in a fantasy when reality calls.
Recovery will not occur until credit is widely available and people want to take it. The whole basis of the economic situation was the shutting off of debt - or credit if you like the 'positive' word for debt. Would you like a little more debt is not a sales pitch is it.
If you consider some of the behaviour of the recent past to be insane and you want 'recovery' then you have to face the fact that you are relient to some extent on people with psychological problems relapsing or a new batch of the same. Unfortunately even an idiot by now would find it hard to overlook the facts of debt. If you have this view are you comfortable that yopur future is dependent on pyschological conditions.
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In a week that has seen the Irish Government go from a position of denial that they even needed a bail out to negotiating one. We now see them trying to defend their artificially low corporation tax. Is this once again just political positioning or do they actually expect everyone to bail them out while they blatantly bride business to relocate, even if it is only their headquarters, as is often the case. How can the German Chancellor sell that one to her countrymen, who are already are baulking at the Greek bail out.
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Why are not some of these "criminal" bankers heading for devil's island
protesting on someones roof gets you 10 weeks
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"Irish government rules out raising corporation tax.
Mary Coughlan said there would be no change to the tax ratey
The Irish government has insisted it will not raise the country's low corporation tax rate in return for a European Union-led bail-out.
Deputy Prime Minister Mary Coughlan said the 12.5% rate - much lower than the EU average - was "non-negotiable"."
As I said earlier why should they be bailed out if they are not prepared to play on a level playing field. The EU and IMF should say no bail out unless.....
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Population of Greece 11,500,000 Bail out 110 billion
Population of Ireland 4,500,000 Bail out 70 billion
Population of Portugal 11,300,000 Bail out ?
Population of Spain 46,000,000 Bail out ?
Population of Italy 60,000,000 Bail out ?
Boy hasn't the price of pork shot up!!!!!!!!!!!!
Or are the PIIGS flying?
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What is clear that there is no consensus of the root cause of the financial crisis and as a result no clear policy options to resolve it.
A number of posters have called over the past year or so on this blog for property prices to fall by 40 to 50% but surely the Irish predicament illustrates the naivety if this suggestion.
There is no doubt that an asset price bubble was created by the by US and UK government policy response to counteract the dotcom bubble after it burst, however, the question remains what is the correct policy response to the collapse of the asset price bubble.
The current situation in Ireland would seem to vindicate those that argued that following monetary union central fiscal and monetary integration are essential for the common currency area.
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98. At 09:48am on 19 Nov 2010, Jack_Dwakins wrote:
'Who created the debt and who's expected to repay far more than they ever gained? Anyone who sold a home in mass profit during the boom realised a huge investment gain'
Who sold a house during the boom?
Well I did for instance in early 2007.
Sadly however my wife and three kids weren’t keen on living in a bus shelter, so they prompted me to buy another one.
What I gained from the proceeds of the sale, swiftly disappeared in the purchase of the next one. Which needed a new kitchen and completely redecorating (according to my dear wife).
People need houses.
Most simply sold one and bought another.
Or sold one to fund elderly care.
Or sold one to move abroad.
Etc. Etc.
House price inflation is simply that: Inflation.
The only winners are those who create the debt to purchase them, providing of course it gets paid back. Or if not paid back, the debt can be passed on to the hapless taxpayer to honour it.
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107 tao-das:
'...the question remains what is the correct policy response to the collapse of the asset price bubble.'
Slow absorption of debt. Pressurising those in debt to pay down in timeframe. Avoiding overnight liquidation which does not favour anybody. Seeking overnight liqiudation where there is no long term upside. Spreading the load. In short what is happening. The side effect is timescale impacts on 'recovery'. The governments involved have to talk the talk to reassure. A concrete holistic policy response is not possible at the moment. Process is variable as suits. It cannot be anything else. Cultural change. The problem is I would suggest the instant gratification mentality which demands a non existent reset of some sort button is pressed. Economic cycles are not that fast. The biggest problem remains the banks who are not functioning effectively. Skeleton crew on the Marie Celeste.
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Dempster,
Keep on telling yourself that this desire for debt consumption from a generation of people buying houses when the current young generation were in nappies and that this hasn't had any effect on the young if you want.
You upsized your house based on profit from a debt driven boom in house prices. In 2007, FTB were essentially excluded from the market. This = I'm alright Jack (no pun intended).
Of course, you in no way benefited from moving to a more desirable home or area at all. Nor did house price bubble allow you to afford a home you couldn't have done without the exagerrated growth in the boom years. I say it again, I'm alright Jack.
I'd also add that this is a small part of my overall argument.
I'm not saying it was deliberate, but the older generation have lumped the young with a collosal bill they're not willing to pay.
Steph did a blog on this recently - worth a read.
Also, who's worse hit in the recent cuts - education, family benefits and housing allowances.
Keep telling yourself its only inflation. The actual word you want is 'bubble' and accept that a major correction is needed.
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To 110. At 11:52am on 19 Nov 2010, Jack_Dwakins:
I know it’s a bubble.
I know it’s a debacle for the younger generation.
And I know these things because I have three kids (two of whom are now young adults) and the prospect of them being able to afford a place of their own is virtually non-existent.
My gripe is with the uncontrolled creation of money as debt which led to the bubble.
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You also need to accept that there was a demand for consumption of this debt too.
Just a point for any economic students reading this, this is type of diagreement is where statistics come in - an attempt to remove politics and opinion through quant analysis of significant difference.
I personally own a flat (only owing to the untimely death of my mother in law meaning a life assurance policy could pay a deposit) and stand to loose from this. However, the correction needs to happen and be allowed to happen.
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I can't wait to hear how the government and the press will blame a bail out of the Irish banks as being the fault of the british public sector!
Is this chance for Chancellor lord snooty to order his gardener to take another chop at the public setor tree?
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112. At 12:21pm on 19 Nov 2010, Jack_Dwakins wrote:
'You also need to accept that there was a demand for consumption of this debt too'
But why was/is there a demand for debt?
Monetarily everything that is happening now and everything that will happen in the future revolves around the creation of money as debt.
And with 97% of all money being created as debt bearing interest, and more debt being needed to satisfy repayment of existing debt + interest, either there has to be more debt or deflation and debt default must occur.
The system is inflationary and requires an increasing level of debt to survive in its present form. However the nation’s indebtedness is (according to ‘experts’) already too high.
Up to press the government’s presumption is:
Households will increase debt
Government will reduce debt
And all will be well.
The Office of Budgetary Responsibility predicts a 25% increase in household debt over the next 5 years. However households are increasing debt by only 1% per annum, which is nowhere near the levels necessary to make the figures ‘fit’, which is not unusual, given the circumstances, namely:
The hopelessly indebted will borrow till the cows come home, but can’t pay it back.
The modestly indebted could borrow, but are nervous of their economic future.
The prudent won’t borrow per-se because they see it as the road to ruin.
So unless the government prints more money it is very likely that house prices will fall, and fall a lot.
The question is therefore:
Will they print more money, and if so, how much?
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#106. Chris London wrote:
"Population of Greece 11,500,000 Bail out 110 billion
Population of Ireland 4,500,000 Bail out 70 billion
Population of Portugal 11,300,000 Bail out ?
Population of Spain 46,000,000 Bail out ?
Population of Italy 60,000,000 Bail out ? "
Population of the UK 60,000,000 Bail out ? 1 to 2 Trillion if we were being honest!
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ntp3 quoted "So what the FT is reporting is that there’s a sort of slow-motion run on Irish banks in progress, with corporate depositors gradually reducing their accounts. Not crisis-level yet. But the ghost of a possible ejection from the euro is starting to become visible."
My understanding is that's what's been happening to the banking system in general for the last 2 years. People are losing confidence in money. The problem is that people get paid in money but can't get rid of it because everything worthwhile that there is to buy is overpriced.
There are relationships between value and money which are similar to supply and demand. For example china created too much value by overproducing and therefore the value of their products reduced compared to money. The opposite happened with western property values because the banks were expanding the money supply but mainly for property acquisition. Value is created by work therefore putting people out of work reduces the amount of value that's being created. This means that existing assets should appreciate and money should depreciate. However, lots of assets naturally depreciate with age so new value has to be created to maintain the economic system. Therefore there is a limited supply of assets that will appreciate and the people that own them know they're appreciating and don't want to sell. The economy desperately needs people to work in order to maintain the ratios but governments don't see work as a key factor because they are obsessed with money and not value.
As a side note. I still think old master art is reasonably priced but it's too off topic to explain why.
I have been worried about the loss of confidence in money for some time now.
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Sooner or later, taxpayers are going to revolt and it will be politically impossible for private banks to be bailed out by loans backed by taxpayers. Why should taxpayers bail out banks and other financial institutions, who knew exactly what they were doing when they bought sovereign bonds which had a higher yield, precisely because there was a greater risk of default? There is no moral case for the bail outs.
When banks finally have to be allowed to fail, governments will discover that they have been fooled into believing that fractional reserve banking had to be preserved as part of the world financial system. Qualitative easing or direct lending to governments by central banks will serve just as well to maintain the necessary liquidity, and because central banks can always create extra money, another credit crunch will be impossible.
In the days when precious metals were used as currency, growth was sometimes dependent on the discovery of fresh supplies of these metals or required substantial deflation to increase the value of the existing stocks. The development of fractional reserve banking provided an alternative, but difficult to control, mechanism for creating liquidity. Now that the "gold standard" is a thing of the past, QE can do this job, without taxpayers having to suffer because of the alternation of private bankers between moods of excessive greed and panic.
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#113 I for one blame sections of the public sector liek CAFCA-SS that have recieved over £1.5 billion in the last 15 years or so, but were decalred unfit for purpose. Along with all the leagal aid that has gone with this too, I had to pay £25K that would have been better spent else where. that is just one area of public sector waste that has contributed to the debt mountain, If there has been different policies like equal-parenting rather than the sexually bias ones favoured by Harmman and Co
There have also been a lot of knock on effects from this policy that are hard to put a cost on like ferral children etc. The death of bady-P
this is just one area of Zanu_Liebours public sector policy failure.
Another would be JSF rather than Naval-EFA and GR10-harrier etc
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I'm still puzzled.
If I pay my council tax (a debt) with a credit card (I never have, but indulge me for a moment) - I haven't paid that debt - I've just added interest to it..!
Isn't that what's happening in the Irish Republic - they have debts, and the ECB is just offering them ANOTHER debt to pay them off..?
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Dempster,
I see where you're coming from. There are alternative scenarios however.
The government's current proposals are cuts on proposed expense and some increases on lifestyle taxes (e.g. VAT). This is likely to lead to increased inflation and perhaps this is actually the aim - inflate away debt. Painful for citizens but doesn't require a default.
Similarly, the government also committed to enhancing manufacturing. If this were to work, it'd be possible to grow away the majority debt.
As for the OBR projections, need to consider that interest rates are 0.5%. You'd expect these to rise reasonably soon - this'll increase household debt (but also increase tax revenues from increased profits on the organisations concerned).
Another issue is the term of the repayments of debt. Consider a mortgage of £1000 a month if you're earning £1,200. Clearly a huge problem and you'd struggle to survive. If a few years later, your wages are £3,000 a month with an increased mortgage of £1,500 you're clearly much more able to repay the debt. Possible to do this through revenues for the country - the right conditions need to be set by government.
"The hopelessly indebted will borrow till the cows come home, but can’t pay it back.
The modestly indebted could borrow, but are nervous of their economic future.
The prudent won’t borrow per-se because they see it as the road to ruin" - this I agree with. Conditions for awarding credit need to be set in legislation.
House prices need to fall to make credit financing under the current, prudent financing restrictions flow again.
You might see more quantitative easing - I think to drive inflation rather than to protect house prices.
The use of a house price to determine your wealth has gone. No - one believes the market can only rise any more.
It's not cut and dry that we're totally stuffed yet. The government need to set the right foundations (unfortunately, Labour didn't and still don't look remotely like having a plan for this - they criticise the coalition yet offer no alternatives).
The way we look at financing and wealth will change from this crisis.
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119. At 1:13pm on 19 Nov 2010, david wrote:
I'm still puzzled.
If I pay my council tax (a debt) with a credit card (I never have, but indulge me for a moment) - I haven't paid that debt - I've just added interest to it..!
=================
you have indeed transferred the debt, and will pay interest unless you pay by the due date. Better in this case to pay in 10 instalments interest free (I assume all councils do this).
I always pay everything by credit card to get Air Miles, which is totally irrelevant!
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107. At 11:29am on 19 Nov 2010, tao-das wrote: "What is clear that there is no consensus of the root cause of the financial crisis and as a result no clear policy options to resolve it."
My flabber was gasted when I read your comment. Where have you been since the summer of 2007 - it was the Sub Prime debacle in the USA that started it through loose house lending policies fueled by Wall Street greed. You're right the resolution is difficult but we might start with a Glass Steagall Act Mark two but I doubt that the politicians have the stomachto take on the banks just yet.
"There is no doubt that an asset price bubble was created by the by US and UK government policy response to counteract the dotcom bubble after it burst"
I don't think you can bracket the US and UK together. For different reasons our late lamented Government during the early 2000's thought they could let go Government spending and let the markets look after themselves - 2007 showed the folly of that with the Northern Rock bank run and the following bank crashes and bail outs.
"The current situation in Ireland would seem to vindicate those that argued that following monetary union central fiscal and monetary integration are essential for the common currency area."
If by that you mean Euro area budgets should be managed centrally, you are probably right but it's too late now as the Euro was rushed in without thought to failure (there is no plan B) and Ireland shot themselves in the foot by tax breaks for construction just at the moment they should have cooled things down.
I think part of the problem lies in our democratic processes. I am a fervent believer in democracy but we do have a major flaw in that Governments, in general, bribe electorates with spending promises (not may I hasten to add the current Coalition yet) to keep in power.
Nobody votes for monetary pain except when in trouble so why can't we have a law that states the Government has only a percentage of GDP to spend and they have to keep to it! Set up an independent body (could use the BofE) to dole out the cash to Government under controlled conditions - that would stop the politicians overspending.
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# Jack Dawkins
"I'm not saying it was deliberate, but the older generation have lumped the young with a collosal bill they're not willing to pay."
Who says so? Perhaps that is what you think but you have no substantial evidence that you talk for "the young". Perhaps some of them realise that included within that debt was money raised to house, clothe, educate you. To give you the things that we didn't have when we were kids. To ensure that you had holidays etc. etc.
But if you don't want to pay for it then you have the naswer in your own hands or you can wait until you and your generation hold the reigns of political and financial power and then you can make the policies - simples!
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FDD
As mentioned earlier, this has undergone quant analysis - Steph herself used these results as a blog subject - can't remeber what it was called but take a look. The results were clear that the young today are at a substantial disadvantage to those before them.
Couple of other points: falling birth rates since the baby boom generation - education costs should be lower, yet the youth are expected to pay more.
Similarly, how much did you pay towards your clothing, food and education (University grants - remeber them?) when you were a child?
This is a nonsense argument "I looked after you when you were young" "I didn't ask to be born" pointless.
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62 per-cent of people on the most popular "Live-line" chat show on RTE 1 three quarter's of an hour ago, said they're more hopeful than they were this time last week, because the IMF/Euro experts were in town. & at least they would know what they're about. The Irish ppeople have no confidence left if they had any in the first place, in Fianna Fail/Greens/Mary Harney and want them out of office (as soon as possible) as that lot were "Political Dunces".
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@84 "No one produced anything. No one earned anything... However, the whole town is now out of debt and now looks to the future with a lot more optimism.
And that, ladies and gentlemen, is how a Stimulus package works."
Or doesn't work. The debt in the town is a closed loop.
If the prostitute (or banker) decides to keep the $100 or pay off a debt outside of town then the problem just got worse.
The town analogy seems to be an "ideal situation" that doesn't exist in reality...
...or am I missing something?
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120. At 1:23pm on 19 Nov 2010, Jack_Dwakins wrote:
‘You might see more quantitative easing - I think to drive inflation rather than to protect house prices’
The Bank of England (wholly owned by the UK government) purchases existing gilts via the Gilt Edge Market Makers, thereby making way for the purchase of newly issued gilts.
And I reckon it did this to avoid breaching article 104 of the Maastricht Treaty.
Maastricht Treaty Article 104
1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.
The GEMM’s probably made a good ‘butty’ from it, but on the plus side the Government lengthened the odds of falling into a compound debt trap, based on the assumption that the gilts never get released onto the open market. In essence they get deflated away to the point of disinterest.
In my view the main point of QE was to prevent the government falling into a compound debt trap.
As long as you can print your own money you can’t go bust, but you could cause a currency crisis of course.
Remember all money (notes and coins excepted) is created as debt bearing interest. Once you create more debt than is reasonably practical for a nation to service, you’ve got a problem, which is pretty much where the Irish, and us, are currently at.
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#124 jack_dawkins
"This is a nonsense argument "I looked after you when you were young" "I didn't ask to be born" pointless."
Not it isn't. You appear to be asking for the same level playing field that Dempster was also seeking. As I pointed out to him, there never was such a thing. The situation changes, all that does it to make the factors appear different. Whatever you and your generation manage to achieve, your children will blame you for whatever they face.
BTW, what happened to the question posed in #123 regarding your mandate?
As for Stephanie's previous blog. Take another look and think about what Stephanie was trying to do. There are a number of points made that supports an argument that she was trying to produce - she was not presenting a balanced analysis.
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Dempster,
Agreed - hadn't looked at that side of the Maastricht treaty. Interesting - and in some ways we actually agree with each other. Rather than stimulating the economy (as claimed) this is debt management and a way of inflating away debt.
Ireland will be fine. They actually took the correction on the chin and will probably get growing again at some time next year after this cash injection - so long as they take enough now to clear as much debt as possible.
Money doesn't have to be created as debt bearing interest. If you sell a product you haven't borrowed to create, the income is clear capital for you - regardless of how the buyer funded the purchase. It's possible to build up reserves this way - as China and Germany have done. Find out what we can flog to them and look to resolve the balance of payments on both sides of the table.
Financial Services and leveraged deals are the ones financed on debt or untangible product. This hasn't always been the way and I'd expect there to be less debt financing after this crisis has passed - across all areas.
A loan isn't a problem so long as risk has been adequately quantified. Excessive loaning without any care for risk cuased this mess. I don't think it'll happen again anytime soon.
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128. At 3:56pm on 19 Nov 2010, foredeckdave wrote:
'You appear to be asking for the same level playing field that Dempster was also seeking. As I pointed out to him, there never was such a thing'
I agree that for the younger generation in the past (of which I was once one) the playing field was never level. But we're creating a mountain of debt for them to climb, it's not sensible really. It's not what adults should do. Which is probably a little selfish of me, being a father of three, but there you go.
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FDD
The generation before the baby boomers were decemated by 2 world wars. It's impossible to compare - other than to say the country was bankrupt. That said, a war against facism is a little more solid reason for bankruptcy than a desire to fund an ever more lavish lifestyle without adequately assessing the consequences.
If you really want to claim that protecting healthcare, removing decent pensions and charging for an education your generation had free isn't punitive on the younger generations then that's up to you.
I'm not claiming there's a level playing field. The dynamics change. All I'm saying is that blaming the lenders without shouldering some responsibility for the demand that fuelled the crisis is wrong - and that ignoring the impact on the generations after is selfish.
As for taking the mandate, we have already got one form of revenge - seen care home prices recently?
As for Stephanie's blog - you asked for support. There it is. Where is the quant support for your view that children should pay for their own upbringing. If you have a child and don't make allowance to feed, clothe and look after them, I beleive the term is child abuse these days isn't it?
You also haven't answered what contibution you made to all the things the young are meant to pay for as a child? Perhaps you can also let me know how you paid for those who died to provide our freedom just before you? As I said, it's a nonsense argument.
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129. At 4:06pm on 19 Nov 2010, Jack_Dwakins wrote:
'Money doesn't have to be created as debt bearing interest'
Oh yes it does.
All money (notes and coins excepted) is created as debt bearing interest.
Whatch a short animated film by Paul Grignon, ‘Money as Debt’ (link below).
http://www.youtube.com/watch?annotation_id=annotation_942534&feature=iv&v=z5vC_8azMFk
It is a good point to start.
Then go to:
http://www.positivemoney.org.uk/
(A group wishing to make changes to the system).
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I have to confess that I am somewhat flummoxed by all this.
I'm not sure whether Eire is punched, bored or counter-sunk.
I'm not even sure anymore if the UK is punched, bored or counter-sunk.
If you cannot meet your liabilities are you not bankrupt?
If you are a bankrupt corporation (bank for example) don't your shareholders simply loose their money as well as your creditors.
(I'm not sure how that translates into a country)?
It's all getting impossibly complex for the average chap to comprehend.
Should I cash-in my (modest holding) of premium bonds?
I need sound advice as I approach retirement The future looks very grim.
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Dempster,
Agreed - there is always an element of debt to the monetary system.
The point I made rather badly is that income doesnt have to be received as debt.
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EBAHGUM
The future indeed looks grim, but why worry about it? It will come soon enough.
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jack @ 120
I like your optimism but it's not going to happen. The government can only stimulate manufacturing by direct strategic investment. Western governments have been ideologically opposed to doing this since the 1980s because they believe that it's the job of the private sector to do this and the job of government to provide a safety net. The private sector will not invest because it's obvious that in the current climate, many businesses are going to fail.
There is a remote possibility that some kind of entrepreneurial meme would allow us to grow our way out of recession but this would have to work in a similar way to capitalism before the 20th century. People would have to create companies and own them directly. The current financial system is still very precarious and governments don't have enough understanding to intervene appropriately.
As for the rest, i don't see interest rates rising because the bank of england has stated that its main concern is growth and growth is not on the horizon. We won't see wage inflation until unemployment starts to fall and with mass lay offs from the public sector over the next four years, I don't see how that would happen.
Yes house prices are likely to fall and they have been for some time in most of the country.
QE will not inflate away debt because it will stay with the banks. The banks would not want to lend on falling house prices and they would not want to lend to businesses that are at risk from the economic conditions.
I believe that this will play out as a major recession or a depression.
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133 EBAHGUM:
If you borrow money on a short term basis and lend it on a long term basis and then cannot recover the money loaned long term and cannot find a source of money short term to plug the hole by the short term arrangement coming to an end then you are insolvent, aka credit crunch. If you have a long term loan arrangement it is on the basis that you have an income stream sufficient to service the arrangement. If you are caught short because somebody fails to pay you then you are in trouble. Due to 3rd party liability limitations you cannot sue the person for the costs caused by them failing to pay you. Most failures are nothing to do with long term sustainable positions, they are down to liquidity problems, cash flow.
Failure or near failure or a percieved risk of failure affects the ability to gain further credit aka debt. Take the debt out of the system and the activity in the economy has to reduce. If you borrow from the future and spend today you have more to spend today. When you get to the future you have less, and unless you can borrow again you will continue to have less. Governments sometimes have no option other than to borrow from the future. State pensions are a case in point. The first pensioners did not pay into the system so had to be paid by the first contributors to the system. That system is still in place, a rolling pay in pay out system. There is nothing wrong as such with this approach until things move the wrong way, ie overpriced property, or too many pensioners living too long vis the original model.
QE appears primarily to be a way of supplying money to the government to allow it to cope with the overrun of Mr Brown spending programme which was sized against revenues in a bubble.
The economy canot recover until credit/debt availability and the appetite for credit/debt both rise. This is also linked to property price realignment as that is one of the main vehicles for borrowing.
This implies that QE will occur again whenever the markets get sticky. Realingment appears to be being slowed to avoid a run on the bank. Slowed realignment means growth is delayed.
This is fundimentally a bank created mess aided and abetted by sloppy regulation egged on by an appetite for tax revenues from a bubble.
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If you cannot meet your liabilities, are you not bankrupt?
For most of us, as individuals and/or businesses, the answer is a qualified yes.
But if you are a Government that controls the source of electronic money then the answer is a qualified no, in that, in theory; you can always meet your liabilities by the simple expedient of electronically generating more of the stuff.
Which is exactly what 'they' are now doing.
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stanilic
I don't think I'm quite as stoic as your goodself!
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It's all about propping up UK house prices to win elections.
The fault is our electorate. They're fools. So we get governments' of clowns.
A 4x income mortgage at 10% interest costs 75% of take home per month. 10% might seem high today. But for most of the last 60 years it's a reasonable rate on a mortgage.
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@137 NBW
Thanks for the response.
But as I said @ 133
"It's all getting impossibly complex for the average chap to comprehend".
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HTH
Your view is certainly possible. Just think that some optimism among the doom and gloom is well placed. It's not guaranteed to be awful.
The point on QE is that if you ramp inflation to 10% and debt has an interest ratio of 5%, you reduce the value of debt. Very, very, very painful for citizens however. The bank debt grows at a lower rate than bank deposits and becomes easier to service.
There are other ways of utilising manufacturing - for example, NI breaks and reduced corporation tax for key manufacturing start ups. It's not a given that the private sector won't invest - my firm have been massively expanding and picking up public sector layoffs along with investing heavily in new technology. It's not bad all over.
Agree that realignment is being slowed - perhaps owing to uncertaintly of cuts on agrregate demand - but see some signs of life in the real economy.
Credit lending is problematic; although perhaps some are influenced by recent history into thinking this is the rate they'll get.
The point on wages wasn't to illustrate how wage growth can impact more to show how increased revenue can assist. If the cuts deliver additional revenue, debt servicing is easier - very difficult call; will the potential savings in salary, pension conts, ER NIC's be dwarfed by an increased benefits bill - noting that it's cheaper to pay someone JSA than a salary.
Hopefully we'll get somewhere between the two.
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#135 Yes, that's how I feel. At one stage it was possible to get some idea what the future held; up until this year.
Now it is like watching a train crash in slow-mo, almost unaware that you are one of the passengers.
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142 Jack_Dwakins
'noting that it's cheaper to pay someone JSA than a salary'
It is indeed. Both public sector workers and welfare are paid from the same revenue so considerable savings can be made. Its not without complications however. As is the idea of John Lewis style public services where there is no obvious customer eg who is the customer with the probation service. Who is the customer in the courts. Who should get the loyalty card. Who should get the email special offers as a privilenged customer.
Manufacturing is forecast not to grow but continue to shrink, with high tech unable to replace the loss of less skilled manufacture. Strangely this gets little coverage seeing how government repeatedly keeps saying 'rebalancing' (aka public sector downsizing), involves manufacturing helping to pay the bill.
Banking is expected to grow but shed manpower, it remains dominant in the economy hence treated with caution.
So we remain subject to banks return to functionality and the psychology of people wishing to get credit (aka getting into debt) subject to it being available. Interest rates have broken down as a tool to deal with growth or inflation and base rates wildly deviate from retail rates. The ship has lost its rudder. Didnt Shakespeare write about this sort of thing.
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143 inacasino:
'At one stage it was possible to get some idea what the future held; up until this year.'
This is the future.
It is most interesting. The chinese have a curse, may you live in interesting times : )
As Lrd Young tried to point out not everybody is having a dire time, that is the nature of recessions, arbitary hits from unguided missiles. Then somebody shot the messenger, funny I remember Mrs T doing that. Somethings never change.
--------------------------------
141 Nope its pretty simple, just it helps somebody if the waters get muddy so you can't see something - so they get muddy. I was always taught that if somebody sought to conceal it was worth a look, if somebody didnt want to let you see, then something was up. Expenses being a good example. Slice and dice CDS being deliberately design to conceal toxic dumps being another.
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This has got to be one of Stephanie Flanders' best posts, or series of posts about a subject. So much better than wishy-washy commenting on the over-valued economic calculations that come our regularly such as GDP, inflation, etc.
Together with Peston's blog, and the occasional insider financier's comments, it is at last possible to make sense of this issue. Once again the flaw is blatantly in the foolish design of the money creation system, which in the case of a new currency such as the Euro, really points a finger at all the economists and advisers at the European Central Bank for their self-serving silence and long-term incompetence.
Nonetheless, the incompetence was mostly from the irrational early Noughties, so I think this crisis is a superb opportunity for a fresh wave of economists, Bankers, and most of all plainly common-sensical people to finally resolve the minimal rules for monetary systems.
It is astounding that so much fear has focussed attention on military and terrorist activities in the last ten years, while the basic controls of risks of our money creation systems have gone completely ignored in this age of instant electronic money creation. If a man with a printing press was caught printing fake ten pound notes, the law would be upon him in a flash, yet the banks beyond the central bank have had such freedom to create money in all sorts of forms, and only when a foundation block was pulled from this Jenga pile did anybody sit up to notice that the entire money creation system had become unmanageable as well as inscrutable.
Economists of all Central Banks should face judgement and rationalisation.
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131. At 4:31pm on 19 Nov 2010, Jack_Dwakins wrote: "The generation before the baby boomers were decimated by 2 world wars. It's impossible to compare - other than to say the country was bankrupt. That said, a war against facism is a little more solid reason for bankruptcy than a desire to fund an ever more lavish lifestyle without adequately assessing the consequences."
You know this whingeing rhubarb about lifestyles and the "boomer generation" is so much hogwash. Lets be very clear, in 1997 the economy of the UNITED KINGDOM was very strong. House prices were not rising greatly and we had a very competitive economy.
The electorate in it's infinite wisdom voted in radical Nu Liebor Government. From 2001 this spendthrift bunch of politicians proceeded to waste all the hard fought economic base of this great country.
Our predicament is nothing to do with us "boomers" taking advantage of the economic environment but much more to do with Nu Liebor redressing the balance of the economy towards WELFARE. Accidentally our thrift, that is an abhorrence to borrowing is seen as taking advantage of the upcoming generations.
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I wish someone would develop some statistic that gave readers an idea of the different countries' ability to pay down their debts: for example, what is Ireland's debt per head of population compared to Portugal or Spain or Greece or indeed the UK. The gross debt numbers are mostly so enormous that they become almost meaningless, but they seem to imply that someone somewhere has got to be willing to take a LOSS, which all the recycling currently going on pretends to avoid.
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Capitalism?
Marxism?
Whose going to payism?
Someone presumably has to.
They created too much money against too many promises to pay that could never be kept.
Those promises to pay were no good.
They never were, they never will be.
And what they’re hoping, is that you and I, and more specifically our children will somehow honour them.
People look for scapegoats.
There isn’t one really.
It’s just a fundamentally flawed system of money creation that went badly wrong.
So wrong, that it’s bringing down nations.
And in the hope that it may be perpetuated, it pushes the next generation into what some describe as ‘debt slavery’.
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#148. Dempster wrote:
"People look for scapegoats.
There isn’t one really."
Oh come on let me have Mervyn King - I've made a jolly good case! He knew, or should have known, what he was doing, he was, or gave the appearance of being responsible, - what more is necessary? Bang to rights I think! He has even admitted it by using the phrase 'we let it slip'.
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149. At 10:10pm on 19 Nov 2010, John_from_Hendon wrote:
#148. Dempster wrote:
"People look for scapegoats.
There isn’t one really."
Oh come on let me have Mervyn King - I've made a jolly good case! He knew, or should have known, what he was doing, he was, or gave the appearance of being responsible, - what more is necessary? Bang to rights I think! He has even admitted it by using the phrase 'we let it slip'.
No. Not even him.
No more scapegoats, at least not for me.
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The past is spent.
The future is all that there is.
And based on the assumption, that ever increasing debt is not much of a future.
Is it reasonable to encumber the next generation with a millstone of debt?
Most, upon a modicum of reflection, would hopefully say no.
A small red pen is needed.
And a reasonable hand to guide it.
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@144 NBW
You wrote: Nope its pretty simple, just it helps somebody if the waters get muddy so you can't see something - so they get muddy. I was always taught that if somebody sought to conceal it was worth a look, if somebody didnt want to let you see, then something was up. Expenses being a good example. Slice and dice CDS being deliberately design to conceal toxic dumps being another.
With all due respect, that is just the sort of response that first caused me to post @ 133
"I have to confess that I am somewhat flummoxed by all this".
Nonetheless, many thanks.
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#122. dontmakeawave wrote:
My flabber was gasted when I read your comment. Where have you been since the summer of 2007 - it was the Sub Prime debacle in the USA that started it through loose house lending policies fueled by Wall Street greed.
i'm sorry to have gasted your flabber but to answer your question indirectly since 2007 I have not accepted the argument that this financial crisis was started by sub prime mortgages in the US or bankers greed. All bubbles are driven by people ( including bankers)believing that there is a a one way bet that will generate profit for no effort and minimal risk... the asset price bubble was a direct consequence of US and UK fiscal and monetary policies and the asset price bubble was a direct consequence of these policies. To date I have seen no action by either governments to inhibit or prevent further bubbles and would suggest that the primary measures they have taken have been directed primarily towards trying to prevent the asset price bubble from collapsing. They have done this by providing cheap money to the banking sector and by QE which has the effect of reducing the value of all money in circulation and hence increasing asset values when measured in a devalued currency. These policies have been relatively successful as stock values have recovered in the main and house prices have not collapsed and it is for this reason Lord young was correct to say the majority have not been as severely affected as they might have been. Yes people have lost there jobs but the recent increase in eastern Europeans returning to the Uk indicates one of two things or a combination of both.
1) there is work for those that are willing to find it
2) the disparity in benefits between EE and the UK makes the UK the obvious place to sit out the recession
Glass Steagall was US legislation and was repealed 1999 as a result of US banks arguing that they were losing out to London which had restructured following the changes that regulated the city (big bang) in 1986 ... at no time to my knowledge was there a legal requirement for investment / merchant banks to operate as separate legal entities from high street banks in the Uk so the repeal of Glass Steagall is irrelevant at least in terms of being a primary cause of the financial crisis.
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Dempster,
we're from the same cloth bar a decade or two. This comment doesn't apply to you.
I tried subtlety earlier now I'll be more direct:
Baby booomers - the 2 generations prior to you died in huge wars to protect your way of life - you've repayed them by leaving a huge debt that their great grandchildren will repay.
well done. I hope you're happy with the views of HDD that this is as it should be. Your children live(d) in a world where your sacrifice was forgotten - so easily, so, so easily, because their house prices were on the up.
Baby boomers - you should be ashamed at the 'respect' you've shown for what so many gave their entire life - everything they were and everything they could've been - for. At least your property went up in value though.
You'll be remembered as the generation of greed.
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#150. Dempster wrote:
"149. John_from_Hendon wrote:
#148. Dempster wrote:
"People look for scapegoats.
There isn’t one really."
Oh come on let me have Mervyn King... No. Not even him"
Sorry you are wrong.
For this reason.
He is still pursuing the hugely economically damaging policies - that is why he must go! He is destroying the future (as he destroyed the past), by the same means as he destroyed the past. (I will also add the Permanent Secretary at the Treasury and his predecessor, the MPC and what is left of the FSA.) Their economic insanity gave us the destruction and they are still employing the same policies to destroy the future - they are the sickness in economics and until they are sacked/resign we can not hope to recover.
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#154. Jack_Dwakins wrote:
Before you indict baby boomers over debt consider the financial causes of the Great War and the effect of reparations policy on the cause of the second world war and then of the huge debt the UK ran up to the USA for the war - remember rationing and privations of the childhood of the baby boomers (baby boomers will also have had identity cards and ration cards) - if you want to blame anyone try the generations born in the 60s, 70s and 80s - not the baby boomers. They are the truly selfish and greedy generations.
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Country after country after country is falling in trouble in eurozone. Now they are talking about Spain and Portugal. At witch point economists have to concede these are not individual cases of bad economic management and proliferate governments?
Truth is, it is the euro itself that is causing these troubles. After decade of tranquility, markets suddenly realized there is nothing backing up these government debts, like there is in a normal monetary arrangement, power to issue money. That EZ is not so safe after all. Angela Merkels comments feed in to this picture. Markets had always assumed, that sovereign default would be so devastating, so disruptive to the financial system, economy, that it would never be allowed to happen. But conservative desire to impose "market discipline" on public finances is so strong that they are apparently ready to pay any price to achieve it.
Meanwhile, federal reserve is printing money like crazy. Bank of Japan has bought japan government bonds worth over annual output, 107% of GDP, effectively monetizing debt. This year government of Japan borrows more than it collects in taxes. But it keeps spending, no austerity. Japan has kept unemployment down, at what we call full employment, ever since its own bubble economy collapsed in the 80's. Well, no wonder. It just sells debt to its own central bank!
Present eurozone troubles are hardly an accident. They were carefully baked in, in the eurosystem itself when it was created. As I said, desire was to have market discipline on public finances, to shrink the power of democratically elected governments was the driving force. Gee, thanks euro fathers, you have made life living hell for 300 million people.
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No comment has been made fron Sean Fitzpatrick from the mansion in which he currently resides. No sign of a thank you as he sups on his expensive irish whiskey. No sign of contrition. Well I suppose he's not really bothered. Don't forget though all of those hard working brits out there that a couple of pound each out of everyones tax bill this month will be going to cover his losses. Also don't forget that other little cracker David Drumm who is living in a million dollar mansion in America is counter sueing his former employer an Irish bank for $3.6 million for emotional distress because they have asked for their money back. So hurry along Brits and work like trojans so you can pay for the bailout of little charmers like these. Hurry along now.
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153. At 00:24am on 20 Nov 2010, tao-das wrote:
".... to answer your question indirectly since 2007 I have not accepted the argument that this financial crisis was started by sub prime mortgages in the US or bankers greed..."
tao-das I can't argue with you if you don't believe the origin of our current recession. However, if you can sit through a fairly long video, I suggest you Google up CNBC's report on the sub prime crisis called "House of Cards". I'd be interested to know your views after watching that video. I would like my flabber to be de-gasted!
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To 155. At 08:57am on 20 Nov 2010, John_from_Hendon
I can't defend him, but still I don't see him as the route cause.
If you go to the positive money website you get a link to one of his recent speeches. It's worth a read.
To 154. At 02:04am on 20 Nov 2010, Jack_Dwakins wrote:
What's a baby boomer?
I know its something to do with generations, and that 'baby boomers' are supposed to be responsible for something, but I've never seen a reasoned explanation of exactly who they are, and what they've done.
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154 Jack Dawkins
I think you'll find baby boomers were born 1945 and after so they would recieve their pension 2010 and after. Ooops all of a sudden after working all their lives and contributing all their lives we hear their pensions are unaffordable, must be cut, quantitative easeing, devalue the currency, encourage inflation etc....
I read an interesting blogg recently about how inflation is effecting pensioners on the notayesmaneconomics blogg called silver inflation or something like that suggest you have a read of that.
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I think the castigation of baby boomers was started by that offensive blog by Stephanie Flanders. It ranks alongside Robert Peston's "why should journalists care if people are sacked" blog as one of the worst blogs on the BBC. It wasn't quite as bad as some of the tech blogs but it was pure spite. Judging from the people that I've worked with. I would say that Stephanie Flanders belongs to the age group that borrowed the most. Such spiteful views are damaging to the BBC and also the country. There are a number of causes for our current predicament but I don't see how the baby boomers can be linked to a change in attitude to risk by the banks. It can only be seen as part of a collective delusion in the property market. Baby boomers would have already bought property by then or would never buy property. It was the 20 to 30 group between 1995 and 2005 who borrowed the most. In fact the people coming of age during the boom were probably the only people (apart from professional economists) who didn't see the bubble coming.
In fact, to Robert Peston.. Why should IT people care if journalists are sacked? Their bubble burst 10 years ago. And why should miners care if journalists are sacked? Their bubble burst 30 years ago.
And wasn't it journalists who were encouraging everyone to speculate on property up till 3 years ago.
See how ugly it is.
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The stages of Ireland's grief, or the stages of EU, US and IMF grief?
The European Affairs minister denies that Ireland has a problem because Ireland does NOT have a problem. Ireland is well-financed till June, 2011. Shortly thereafter Ireland will release bonds which the Chinese have committed/promised to buy. The Chinese have 2 TRILLION + in reserves. The Chinese want no further part of American bonds; in fact they are trying to unload the ones they have. So, why would the Chinese not take the oippoirtunity to purchase such a strong toe-hold in Europe as Irish bonds? If anyone is in deinal, it is the combination of EU, US and IMF, and I don't think they're in denial: They just don't like what seems sure to happen..
Then came anger; of course Ireland is angry - being forced to do something with her sovereignty that she does not want to do. There will be more anger if the EU, US and IMF get their way.
Personally, I would be shocked if Ireland allows any EU, YS or IMF bailout to be pushed down the Irish throat. Why would Ireland do that when she doesn't have to, and why are the powers that be using such pressure?
As any amateur psychologist can tell you, acceptance when acceptance is unecessary is the most painful kind of acceptance; it will not be forgiven. Brian Lenihan's does not want to swallow a bail-out; there is nothing wrong with his throat. He wants Irish independence to remain Irsh indpendence.
I suspect thatn the German chancellor has led the rest of Europe into a formal discussion of how sovereign debt in the eurozone might be restructured because Germany, as well as the rest of the EU, is well informed about the Chinese Premier's commitment to buy any and all bonds as issued by the STUPID PIIGS in order to help these countries rocover from the wheeling and dealing of American derivative and negative bets against sovereign debt. How clearly China has perceived this situation!
But it doesn't much matter - at least to Ireland. The damage has been done. What damage? More damage than Greece, Portugal, Spain and any other country that allowed the influx of nefarious financial products from the United States of America?
The other thing that must seem so unfair to Ireland's ministers is that, of all the countries in the eurozone in trouble, Ireland has probably done the most to get past the economic disadvantages of being in the euro and move forward. Of being on the Euro? No, no, no - not from being on the Euro but being torn apart and distressed by nefarious American financial instruments, which have already torn the United States apart and led to yet another mortgage'foreclosire crisis, to say nothing of Q.E.2.
Unlike Portugal, Spain or Greece, it did not come into this with a massive current account deficit. No matter how much the debt, the STUPID PIIGS have, China is committed/promised to trade with these countries, buy their bonds, and otherwise do all that it possibly can to get them back on their feet. China's beneficence must be driving the Americans batty.
Irish banks are not vulnerable. If the EU can't or won't be there for Ireland. China will, and this is the cause of the great hoopla that is going on among EU, China and IMF. How on earth do we keep China from enlargining its toe-hold in Europe, especially when it has that 2 TRILLION reserves?
Why do we blame Ireland any more than we blame all the other STUPID PIIGS THAT TRUSTINGLY EXCHANGED FINANCIAL INSTRUMENTS with the United States? Were they not all walloped by those bundled American derivatives that turned out to be worth exactly zilch and had to be written off? Did they not get entered into the United States' great gambling trough where H... was played with their sovereign debt?
If I were Ireland I would stand pat, follow my own plan, and do what is best for ireland...and that has nothing to with the IMF or the US.
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It's funny how we can't seem to accept any personal blame: it's always somebody else's fault, never ours/our generation/ our class/ our occupations etc.
Looking logically at this, either this collapse is as a result of a conspircy of bond like master villians, or we have all contributed to it via our own actions.
You can blame the media or politicians for not telling you the flipside of the boom, you can blame the bankers for providing the credit, the corporates for advertising, but ultimately we did not question what was happening: we believed the hype, we wanted to believe.
Again and again, history shows us these things happen, but we all forget the past, child like, as soon as we are offered a sweetie by a predator.
We all silently participated in the housing boom, we all silently purchased foreign goods, we all silently wanted credit cards etc etc. We did not insist on responsible government, but voted for those that offered us the best short term gain.
The only way out of this is for all to learn, accept your own part in the play, and move forwards with your eyes open to ensure you do not make the same mistakes again. The last war opened my Mums eyes to a reality, which she never forgot. Perhaps the suffering we will feel now will do the same for us. If enough people can learn the message, then at least for a couple of generations, we may be saved. Otherwise if we all get tempted by the next predator ( bank, politician, corporate), we will all suffer again.
Remember a bank cannot survive without customers, a politician cannot be elected without our vote, a corporation cannot survive if you do not buy their goods.
Sort of Caveat Emptor on a life scale. Crap, but true.
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How does the Irish situation differ from the position that we face in the UK ?, I cant help suspecting that our position is equally as dire, but we have so far managed to maintain an illusion of normality.
Surely if UK PLC doesn't dream up some way to massively increase national income, we will have to accept hugely lower living standards or face the same fate (ie, go bust)
I seem to recall that Cameron said to Parliament a day or two ago that our exports to the Irish republic are greater than our exports to Russia, China and Brazil combined....sounds pretty pathaetic to me.... and just how is the UK in a position to make a loan to Ireland as suggested ?
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165 Its gimme 7 for a while or I'll give you -40+ at RBS
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@165 mangizmo wrote:
"and just how is the UK in a position to make a loan to Ireland as suggested ?"
I think the answer to that is that we have no option, or we have to live with the failure of RBS, of which we are, collectively, a significant shareholder.
But don't worry, it's only putting off the ineviatable.
Some day fairly soon the whole deck of cards is going to collapse around our collective necks.
It's a rum do.
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152 EBAHGUM:
Sigh.
The banks in the US sold mortgages to anybody. Salesmen are even documented as pretending to be social workers and saying to illiterate people who were without a home would you like a house put your cross here buddy. For commission driven sales.
The natural turnover in a property market is a couple of percent. Push it up towards about double that and you have a boom. Its not rocket science. Cut it back and you have a freeze.
So the banks kept pushing money out in liar loans. At peak nearly half of all mortgages where self certified income loans. Not checked. Luvly Jubly whilst it keeps going up.
Property prices doubled.
Then people defaulted.
Meanwhile all the toxic mortgages were put in a mincing machine by a number of guys including one called Fabulous Fab and sold as money sausages called CDS to anybody who would buy them and many did including a town in Norway attracted by the offer of a good interest rate on CDSs.
Because all the toxic stuff was mixed up nobody knew what was good or bad so it was all bad. This lucky dip stuff was trading at 7 to 8 cents in the dollar in 2007.
The banks did not trust one another because one cowboy knows another cowboy and would not lend. Short term money loaned out as long term money came due and could not be replaced on the market so the banks faced insolvency.
Credit seized and taxpayer money had to be plugged into the hole or the whole system would have collapsed overnight and the ATMs would have shut down and debit and credit cards stop, or that was the story.
Credit or lack of it pushed US property down. Stuff got repo'd.
In the US in the 30s depression a law was passed that the householder could throw the keys over the counter and walk away without bankruptcy. People who could pay decided it was better to just throw the keys in and be clear of debt, better than a decade of high payments on massive negative equity. You can't do that in the UK or many other countries, you get made bankrupt. Thus US mortgages that previously had a good risk rating plumented and became toxic alongside toxic liar loans.
Menawhile government had been spending on the back of revenue in from booming housing and funding expanding public programmes. When revenues dropped they got caught with their pants down. In the UK the tax on bulging bank bonuses was sufficient to fund the schools rebuilding programme. Luvly jubly. UK stamp duty on house sales was stonking. Tony Blair was well pleased.
The interbank lending or lack of it got worse and spread in a global market. QE or Quantitive easing or printing money appears to have been used to put money into the system to replace the money lost to to the system.
In a economy based on credit purchases turning off the credit reduces the activity in the economy. Stopping house activity stops construction, and all associated stuff like carpets and bubble bath and whatnot.
People got scared or had too much debt and cut back.
The pound dropped or was allowed to drop which makes imports more expensive ie cuts spending. Different countries in the eurozone can't drop they are locked in. The mix in the UK is cuts taxes and currency drop.
The banks are not functioning effectively, lending is low, people generally dont want credit so economic activity remains low.
Nobody knows whether all the bad news has been shown yet. Most do not believe it has all surfaced. Its pass the parcel.
One of the worse banks Royal bank of Scotland, RBS has a book bigger than the UKs GDP. If Ireland defaults it is 40+Billion bad debt. Hence it is better to lend the Irish 7billion for a bit. A huge chunk of the RBS book is bad but it depends.
The banks are full of QE money and not paying out high interst rates. Bank of England interest rates are low to try primarily to stop the UK housing market going real bad real quick.
There's a whole lot more like underfunded pensions etc and other stuff but thats a different nightmare.
About a decade to go yet.
If your not asleep yet you should be.
What happens in the US happens here if you wait. When uplift occurs in the US then it will follow here, according to history. Things might be different as this is new ground. There is no sign of uplift in the US tonight.
Japan had a property boom that when bad (75 percent drop in parts of Tokyo) a decade ago and has yet to recover. Its called the Japanese experience or the Lost Decade. That is the concern.
There is still plenty of money about, just not where others want it to be.
If you cant do anything about it just relax and enjoy the show.
Its not really complicated. Its just out in the open, normally its hidden more.
The UK banks expect house prices to fall so they are demanding high criteria for borrowing so house prices will fall. They have to fall to get activity going again.
This is all very general and certainly somebody will correct or object but its good enough to outline.
Regards
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@168 NBW
Many thanks for taking so much trouble to offer such a considered analysis.
I've read it through twice, before responding, but reckon I'll have to give it another couple of reads before fully comprehending.
I have to say it's nice to meet someone on the BBC blogs who shows so much patience with the less well informed, rather than resorting to personal insult.
Again, my thanks for your erudition.
Regards
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168. At 10:08pm on 20 Nov 2010, Not Buzz Windrip wrote (among other important things with which I agree):
"If you cant do anything about it just relax and enjoy the show."
It's a fairly precious thought; there is another to help anybody too concerned:
At any time apart from after a great war nations' wealth (up to that last drop of whiskey in the bottle on the evening of January 1st) - let it be our agreed point in time. Is not more than 6, usually 3,5 times GNP!
I guess one can ponder on it for a second or two.
After even a greater cataclysm we restore our wealth in a decade, and it doesn't look a lost one then. Every pair of hands is needed, every sound brain finds employment! (That's what Mellon (probably)had in mind while calling "Liquidate... liquidate... liquidate...).
Divisions in economics are never clear cut, so the one for "durables" - a house standing a thousand years (or pyramids???) and consumables - a cup of latte in you local coffee shop, half drunk away, gets blurred somewhere around your pair of shoes, jacket and handset. A good way around it is to get a discounted snapshot value of each item.
What is "austerity" about in this context? It is trying to get the "right", or "better" proportion of that snapshot value distribution. It is not necessarily about reducing consumption but about moving it from the goods that perish in anything from minutes to months' towards these that last at least a decade (and there aren't many of the latter sort). If austerity leads to the opposite it misses the very purpose of restoring proportions in wealth and sustainability of consumption. A young man's sin would be to jump out and judge, while a mature politician'd rather waited for imminent though not instantaneous change. It's young men's fate to get punished for quick judgement, it's wise men's to get punished for lack of patience...
What are we waiting for then? I guess we are not for a 60' makeover - mould will creep up the new wallpaper swiftly, but neither for a year long refurbishment with 30k return on 250k (to relate to two TV glimpses I encountered recently).
It may sound strange on an economics blog but: We wait for greater appreciation of "JOY" over "FUN"
regards
unreformed, though trying
Suav
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#170. At 11:30pm on 20 Nov 2010, Suav wrote:
"168. At 10:08pm on 20 Nov 2010, Not Buzz Windrip wrote (among other important things with which I agree):
"If you cant do anything about it just relax and enjoy the show."
"
How selfish!
And isn't this precisely the attitude that allows the good and the great to maintain their corrupt hegemony over us? This is exactly the attitude that allows the rotten rulers to continue to steal the natural wealth of the people - in that you are showing that they have succeeded in crushing or or at least perverting your spirit! (Here I would normally continue by mentioning the 'opium of the masses'!)
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171. At 10:12am on 21 Nov 2010, John_from_Hendon wrote:
How selfish!
Patience JFH.
The next 'banking collapse' is near and unavoidable. All the mis-policy (throwing good money after bad) over the past 3 years has just been playing for time. We all no where 'playing for time' eventually leads.
Where to find some safety. Well the Eurozone seems a better bet whichever way you look at it. The future is world currency blocks and the Euro despite obvious flaws which I shan't repeat here is in the round a 'success story'.
Independence ? Well there is no such thing in reality. An illusion. The German economy, in the Euro or out, will always be the dominant force and a main driver of policy in other countries (this was why the British currency joined the ERM, though they made a hash of it).
The future for the UK lies in joining the single currency sooner rather than later.
None of the problems affecting the PIGS (I exclude Italy whose economy is a lot sounder than most observers think) is down to the Euro, rather the main factors are corrupt government and croneyism.
Existing outside the Eurozone offers the PIGS no real solution just illusions of 'controlling their own destiny'. Devaluation is no panacea, nor is controlling ones own interest rates. Just illusion.
Why would any country want to withdraw from an internal market of over 300 million people. The trade-offs are not worth it.
Why would any country not want to join an internal market of 300 million.
Latest rate to sterling 1.1683 (12 month low 1.2356, 12 month high 1.0956)
NB: Sterling, admittedly not the best benchmark, slowling sinking below the North Sea.
Have we any politicians with enough vision to see the big picture ?
Probably not.
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Have I got this right ??....I still find this hard to believe, if what Cameron says is correct, he is saying that we sell more "stuff" to the 4.5 million inhabitants of bankrupt Ireland than we do to the combined total of those other countries which I calculate to be ...275,000,000,000 people (at least)
there is a differential there of 611 million:1 (ie, the market for our goods in those countries is 611million times bigger), now given that Ireland is such an important market to us, and even they are totally broke, where does that leave us then ?, we are even talking about borrowing money (£7 billion) to lend to Ireland to stop them defaulting on a loans made to Ireland PLC by Royal Bank of Scotland, which is owned by us (taxpayers)....the whole house of cards will sooner or later conmpletely collapse....robbing Peter to Pay Paul comes to mind
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re my last post (173)
Quote from Cameron.... "We export more to Ireland than we do to Brazil, Russia, India, China combined. Now perhaps that is not a great reflection of how well we're doing in the rest of the world but that nonetheless is the facts
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This comment was removed because the moderators found it broke the House Rules.
173. At 1:25pm on 21 Nov 2010, mangizmo wrote:
Have I got this right ??....I still find this hard to believe, if what Cameron says is correct, he is saying that we sell more "stuff" to the 4.5 million inhabitants of bankrupt Ireland than we do to the combined total of those other countries which I calculate to be ...275,000,000,000 people (at least)
True and a sad reflection on UK plc.
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174. At 1:41pm on 21 Nov 2010, mangizmo wrote:
re my last post (173)
Quote from Cameron.... "We export more to Ireland than we do to Brazil, Russia, India, China combined. Now perhaps that is not a great reflection of how well we're doing in the rest of the world but that nonetheless is the facts
========================
might not quite a lot of this be Irish people slipping over the boder into UK to do their shopping?
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171. At 10:12am on 21 Nov 2010, John_from_Hendon wrote:
...How selfish...
For sole benefit of JFH:
_________________________________________________________________________
A shower problem:
In an ideal world a trained and intelligent person would estimate the shower temperature adjust ability * properly leaving little fractal trace. On the next level of complexity we can have people of good will regulating each other showers' temperature. At this point an issue of proper communication arises. Going further still we would have to deal with communication fidelity; issues like “meaning” and “background noise”. Then we would encounter problems with good will itself (agency problems). A distress experienced by the scolded would itself put their ability to operate a shower in jeopardy while, at the same time, exposing their good will to a severe test. We can go even further into the thick of complexity jungle: Let some people adjust their own shower temperature with an influence of 75% while, at the same time having a hierarchy tree underneath, where they adjust others' showers with 45 -25% influence etcetera.
* Hot and cold water of constant temperature and with infinite supply stable over time. (Like in Soviet tower block). Or cold water of constant temperature and hot water with constraints on temperature stability, maximum output and stability of flow (as in British terraced).
_________________________________________________________________________
I'm not sure to be informed well enough to subscribe to and take resulting responsibility for actions solicited by you.
In fact, my comment might be (and was intended to be) seen as ambiguous, so let me make it plain.
We face a great resurgence in spirits and vitality (and resulting economic activity) in many parts of the Globe and some parts of Europe.
It is not a time for self - flagellation (and we stopped to practice it in the 90'), but it's worth keeping in mind what is a predominant perception of our culture (Anglo Saxon model, Western Civilization etc. etc.) and how much of it bears good resemblance to the truth.
To please some interests, which Quesnay would deem sterile, we embarked on "post-industrial era" which, in a couple of decades left vast swathes of society here (working class) and abroad (lower middle class, part of middle, large part of political class) overboard! Some of the people caught by this centrifugal force were thrown here, most unaware of the forces and mechanisms behind it.
Dismantling job done by business in last "g e n e r a t i o n" (and generation is a sort of proxy of a unit of social coherence, understanding of surrounding world etcetera.) in an abrupt manner would cause social explosion.
In consequence such disruptions lead, in most cases to a period of great suffering. I never was through a full blown revolution, but a couple of "velvet" ones (stood against tanks twice in my life - honestly rather cowardly and still ashamed of myself) is quite enough. The resulting upheaval, unemployment at over 20% with provisions in form of free soup distribution (at that time I was doing trade and earning some weeks what I got yearly here and was driving along empty motorways, one of few and watching with my heart torn apart... and so it was easy to divest me of the profits which I never really considered mine)
The task is then to try and find yourself a place in a NEW SYSTEM. If it's not a revolutionary change most of the promises will be honoured at least to some extent while new ones are probably to be made much more carefully.
The system is in a process of reconstruction and is being built like a medieval cathedral - without detailed blueprint, just a rough model. Things must be done on the go. Let's give the ones in power some credit. They seem to be coping. As I stated before (and that's the rather unintended explanation of ambiguity). People, and especially young people, can watch the process with calm, because in worst case scenario we still stand a very good chance of recovery in 10 years time but we don't want to go this way in the first place!
Revolutions are not a product of a bunch of conspirators (you refer to some Marxist phraseology, don't you? You should know better.) The couple of velvet ones were a product of stubborn resistance by the upper middles that were disenchanted to see the disparity between them and their western counterparts growing unceasingly - classical bourgeois revolution. I can't see a "revolutionary situation" here. And revolution is not a horse to ride, is a wave to surf upon - you are on the top at some point but not for long and not in charge of the overall direction (unless you are Stalin with all the attributes or you have good resources to govern it from outside).
In Japan the upper middles went head on into currency warfare and investment battles and stayed sane, sanguine and productive. Thus social tensions were defused.
These are the reasons to advise detached observation over emotional participation. At least when you decide to be used (and you always will be caught in service of some interest) you will suffer less chagrin then (unless you, unlike me, are of the sort easily cured by this £ sign).
To conclude, this change needs foot soldier like any other, and some (Cartier?) might wonder why should I walk along without firing shots. Well, just read again.
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122. At 1:43pm on 19 Nov 2010, dontmakeawave wrote:
"Nobody votes for monetary pain except when in trouble so why can't we have a law that states the Government has only a percentage of GDP to spend and they have to keep to it! Set up an independent body (could use the BofE) to dole out the cash to Government under controlled conditions - that would stop the politicians overspending."
Isn't this what the EU voted just a few months ago? For exactly that reason, i.e. to avoid other member states having to pick up the pieces when other countries run large deficits to stoke housing booms,for example!
needless to say the UK was the only country which objected and have an opt-out on it! (correct me if I am wrong).
Several countries however objected to the penalties element of it so for the moment the deficit rules are there but with no financial penalties for breaking them, but at least it's step in the right direction.
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171 jfh
'Selfish'. lol.
If you think expending energy when the time is not right then go ahead.
All that will happen is you will not have focus or energy when that time arrives.
BTW IMO the only way forward will be substantial cuts in tax which will have obvious public sector implications as revenue will drop in transition. If you can't read the signs of the messages coming out thats up to you. The restriction on moving in that direction is politics. Why do you think Lrd Young got booted, because he was removing Brown as a bogeyman by saying for many things are not that bad. Why does Brown need to be kept, why to justify what is in process and may be to come. If you wish to break things up you have to blur boundaries. All at present suggest the boundaries between charity orgs, private and public categories are being set up to be blurred. Why do you think that is.
Your never ending high interest rate call means nothing to consumers when retail interst rates are already in double figures and the banks do not need savers because they are fat on QE. This is a consumer society so what consumers do is the answer.
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#159. dontmakeawave
Here's hoping to de-gast your flabber
======================================================
I checked out your CNBC video I do hope that this is not the level of economic analysis that you rely upon.
I will try again to explain my position the economic crisis was not caused by bankers greed or the sub prime mortages and in many ways the painting of bankers as greedy is a pantomime act that has helped deflect blame away from Gordon Brown, Mervyn King, Alan Greenspan et al ie those that followed economic policies that gave rise to the initial credit bubble which led to the subsequent asset price bubble ....so whilst a manifestation of that bubble was indeed the creation of sub prime mortgages CDO's etc they were not the cause of the crisis but rather a component of it .
It suits the politicians to use the Bankers as scapegoats to cover up their own fundamental mistakes, the media all too often have colluded with the politicians in selling the narrative arc of this myth.
Some of the factors that gave rise to the credit bubble that preceded the asset price bubble were
1)the decline in long term interest rates driven by the decline in inflationary expectations driven by the fall in real wages as the result of the displacement of manufacturing production from west to east.
2)After the collapse of the dot com bubble the US held interest rates extremely low for about 4 years in an attempt to stave off a recession induced by the dot com collapse. Despite the low interest rates this did not produce inflation due to 1 above.
3)The recycling by China of their surplus US dollars through the international money markets creating a surfeit of easy short term credit in the west which enabled GDP to grow fuelled by cheap credit driving consumer spending .
4)The creation of SPVs which enabled finacial institutions to bypass the Basel accords and increase leverage whist the Regulators and BOE looked to the horizon and said what a good job they had done as they had produced growth with out high inflation albeit they overlooked the boom in asset prices and that the FTB's were being pushed out of the market by speculators.
So the point of this argument my friend is not to flabber your gall but hopefully to open your eyes to what has happened and who is/was responsible. With out a root cause analysis of the problem what we are doing in reality is papering over the cracks when what we have in effect is a systemic problem that needs to be addressed
BTW If Gordon Brown gets anywhere near the IMF my gall will be well and truely flabbered
Regards
The
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#178. Suav wrote:
"#171. John_from_Hendon wrote:
...How selfish...
For sole benefit of JFH:
"
Why you are referring to 'Borat', I do not pretend to understand?
(If you find that obscure read what you wrote!)
180. Not Buzz Windrip wrote:
"171 jfh
'Selfish'. lol."
?
The 'selfishness' to which I was referring is that of being just an observer rather that a participant - if you don't play the game you are abrogating your responsibility and letting the b*******s win by default - is that your position?
I cannot abide bystanders and rubber-neckers.
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182 JFH
'...if you don't play the game you are abrogating your responsibility and letting the b*******s win by default - is that your position?
I cannot abide bystanders and rubber-neckers.'
--------------------------------
Oh dear. Oh dear. This almost puts the fun back into fundamentalism. Almost makes me want to fight for the right to party but I'm just too relaxed.
What you can abide is neither here nor there. That is your karma.
BTW you only understand what you are dealing with by observing. If you are taking something big on you need to know the weakness, which is usually in mentality and strategy. The fact one is observing is does not mean one does not intend action. In virtually all battles the most important thing is using the landscape, picking your time and knowing your opponents arrogance. This is referred to as intelligence.
This is a once in a century event. Some are prematurely ageing dealing with it. Millions are extras and the budget is billions. I recomend it is watched.
I am currently recruiting and retraining graduates and other socioeconomically judged redundant types so they actually earn money and do something useful that will provide them an income until they die if they want to use the skills.
If anybody has abdicated anything it was during the process that got us here. Pretty much mass abdication then. It is easier to fight something at the start not the end. The longer things are kept from reality the worse the rebalance has to be.
Once process has started it has to run its course. Processes have their own energy. Some of the outcomes are predictable. Some of the likley outcomes could be seen years ago before stuff popped. That is why I do what I do as a business.
BTW What or who do you think you are saving as it seems you think you have a mission.
Fantasy can only survive confrontation with reality if subsidy exists. Subsidy has gone hence fantasy is failing. There is nothing wrong with reality.
I see the hallowed BBC has turn off the naff american spell checker but failed to commision an English spellchecker. BBC you fool nobody and just dont cut the mustard.
Any way back to JFH ----- 'How selfish'. Hmm.
Dont you mean how shellfish.
"The time has come," the Walrus said,
"To talk of many things:
Of shoes--and ships--and sealing-wax--
Of cabbages--and kings--
And why the sea is boiling hot--
And whether pigs have wings."
"But wait a bit," the Oysters cried,
"Before we have our chat;
For some of us are out of breath,
And all of us are fat!"
"No hurry!" said the Carpenter.
They thanked him much for that.
"A loaf of bread," the Walrus said,
"Is what we chiefly need:
Pepper and vinegar besides
Are very good indeed--
Now if you're ready, Oysters dear,
We can begin to feed."
"But not on us!" the Oysters cried,
Turning a little blue.
"After such kindness, that would be
A dismal thing to do!"
"The night is fine," the Walrus said.
"Do you admire the view?
No, I'm not shellfish. But politics have turn a tinge of blue dont you think.
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181 tao-das
The US was a notable success due to its exploitation of a continients natural resources.
The UK was a notable success due to having an empire.
Some would debate these points but they seem pertinent.
One is exhausting its resource and the other has lost it empire. Both make things more difficult.
The political dimension in the Great Recessession, ie a failure to govern has been obscured. That hardly excuses the banks.
If politicans benefit from debt induced economic growth does this affect their role as regulators of debt provision.
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181. At 3:54pm on 21 Nov 2010, tao-das wrote: “I checked out your CNBC video I do hope that this is not the level of economic analysis that you rely upon.”
No, without writing a long thesis, my point was to indicate, I believe, the “straw that broke the camel’s back”. Some 30% of mortgages in the USA were subprime in the period 2006-7. These mortgages were packaged up and sold onto Banks who used them for as Capital to increase the loans to Commerce, Industry and Individuals. It was the loss in confidence of these financial instruments that ultimately undermined the financial viability of key banks in the USA and Europe.
“I will try again to explain my position the economic crisis was not caused by bankers greed or the sub prime mortages and in many ways the painting of bankers as greedy is a pantomime act that has helped deflect blame away from Gordon Brown, Mervyn King, Alan Greenspan et al”
I don’t disagree with your general thesis. The problem with Bankers is the system rewarded risk with large bonuses and no penalties if the risky behaviour resulted in defaults.
For different reasons politicians, the BofE and the Federal reserve thought the markets could take care of themselves. Greenspan in particular, was guilty of engineering soft landings instead of administering some harsher medicine to the US economy and financial markets. In the UK, Brown was equally guilty but he compounded our distress with a ballooning of Government spending (i.e. borrowing) when he should have been more prudent. But as I originally stated and I think you concurred, Glass Steagall was repealed and this resulted in American Banks combining with Investment banks and the rest is history.
“...so whilst a manifestation of that bubble was indeed the creation of sub prime mortgages CDO's etc they were not the cause of the crisis but rather a component of it“
That’s where I disagree. These securitized products, which are still lurking out there in the financial ether were the root cause. It was the loss of confidence in these products that caused the demise of Lehman Brothers, HBOS, RBS and in particular for us, Northern Rock.
.
“It suits the politicians to use the Bankers as scapegoats to cover up their own fundamental mistakes, the media all too often have colluded with the politicians in selling the narrative arc of this myth.”
Don’t disagree. But politicians and bankers come and go and no one is held responsible. In the UK Cameron can rightly state it wasn’t me and administer the medicine. In Ireland, it was foolish tax break policies particularly in Construction that has caused Irelands problems.
“So the point of this argument my friend is not to flabber your gall but hopefully to open your eyes to what has happened and who is/was responsible. With out a root cause analysis of the problem what we are doing in reality is papering over the cracks when what we have in effect is a systemic problem that needs to be addressed”
Firstly we need to recover our economies. Then we need a concerted world wide effort to control the banking system and address the global imbalances in trade.
“BTW If Gordon Brown gets anywhere near the IMF my gall will be well and truely flabbered.”
Not my favourite person either – truly incompetent and one eyed!
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Let's get back to the question in hand - Ireland.
What I really don't understand is the rationale being given for the bail-out? Whatever the level of the bail-out or the body(s) transfering the monies, it will not save either the Irish economy or, as is constantly spouted, stop the cantageon -it has already happened!
If there is a short term gain to be made in pressuring Portugal and Spain in to the same position as Ireland then it will happen. Perhaps only then can the EU and ECB be moved out of their firefighting mode. Even if they do then it would merely be a sideshow in comparison to what is going to happen globally.
Let's take the UK part in this bail-out as a classic example. We will put £X billion into our participation. The rationale being the Irish spend on UK products and the level of Irish debt held by RBS, Lloyds Group and Barclays. There is some logic in that. However, we then have to realise that the UK will have to borrow that money in order to lend it to the Irish. Now that does not make sense. This is a small example of the problems facing the whole global economy.
In its present form Capitalism is failing. Having gorged upon itself it has no ability left with which to repair itself. What happens from here on in is totally unknown.
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#84, David as given a real example of why introducing money into a system doesn’t work, fine in the class room but!
#126, K756ET was spot on by concluding that there is a difference between open and closed systems.
Here is my conclusion as to why introducing money into a system ultimately fails:
Little Johnny’s father works for a chewing gum manufacturer.
And as little Johnny grows up, encouraged by his father (it keeps him in a job), Little Johnny wants a packet of chewing gum a day.
This is extra to his household budget so he goes in for a rise. He gets the 1p extra a week quite easily because of the increase sales.
Little Johnny and his father are happy.
To maintain their profit margin the chewing gum manufacturer puts up the price of the chewing gum by 1p. Little Johnny’s father is now back in the same position as when he started, so, quite rightly he goes in for another 1p rise and the cycle repeats itself.
There is stale mate but on the books it looks like little Johnny’s father as never been so well off and the chewing gum manufacturers books look good, more money coming in from increased sales.
But the cycle continues and as a result you get high inflation.
To stop the cycle some one decides to put some money in the system, “if we give the chewing gum manufacturer some money he will not have to put his prices up” and therefore break the cycle.
Money was given but the chewing gum manufacturer still put his prices up, so, the cycle continued.
When asked why the cycle was not broken, the chewing gum Manufacturer replied saying: We over this period have seen our percentage differentials eroded, we felt that by looking after the company it in turn looked after little Johnny’s father by keeping him employed.
The only one to benefit is the chewing gum manufacturer – they make more money
The fat have got fatter – now replace the chewing gum manufacturer with what ever institute you want!
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Should add that I'd had a couple of pints prior to my comment about baby boomers at around 1 am on Friday.
A little OTT. The influences that caused war were international and based in a time that changed massively since. I apologise for this - was OTT. I wouldn't dispute for a second that the austerity measures after the war were severe on the generation that followed.
However, I would state that war does show the young paying for the mistakes of older men.
Some of you have questioned what the Baby Boomers are meant to have done. After WWII, large parts of the golbal economy were essentially bankrupt. Arguably, this was resolved through mass production and mass consumption regardless of whether there was a genuine need - wealth was being created through manipulation of demand (see Herbert Marcuse, One Dimensional Man, also Galbraith et al's papers on whether consumerism creates artificial needs). Perhaps setting an economy based on consumerism and artifical need fuelled the excessive credit appetite? It's OK, my house price has gone up, I'll just buy a £250 pair of jeans on my credit card etc.
What is irritating me is that the older generations ignore the impact that their desire for increased purchasing power and available credit is partially at fault for the credit crunch - both in desire for material goods and also for founding an economics model based on consumption.
Blaming the bankers without taking any responsibility is selfish - and leaving a mountain of debt for today's children to pay is indefensible.
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188. At 09:48am on 22 Nov 2010, Jack_Dwakins
I'm still unsure what age group 'baby boomers' are?
E.g. do you have to be over 40 but under 80.
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Ref to #187
Now lets take it a stage further
The ‘someone’ who put the money in wants their money back.
They cannot ask the chewing gum manufacturer because this will increase inflation because the chewing gum manufacturer will put their prices up again.
So! They have a choice either levy little Johnny’s father or take the hit (loose the money) and/or stop a service(s). Either way Little Johnny’s father is now worse off.
Little Johnny’s mother uses subsidised transport to get to work. The ‘someone’ now stops the subsidy so either or both of little Johnny’s parents have to go in for a rise, and are both told that in the present climate a rise is impossible. So Little Johnny is made to give up his chewing gum. One disenchanted Johnny!
On the books, little Johnny’s family have never had it so good (ref: lord ******)
So who’s fault is it
1)little Johnny’s father for making sure little Johnny gets what he wants while looking after his job
2)The chewing gum manufacturer for maintaining the percentage profits
3)The ‘someone’ for wanting to balance the books
4)The ‘someone’ for not putting stipulations on the use of the money that they put into the chewing gum manufacturer.
Your answer is dependant upon your point of view and situation.
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Dempster,
Generally speaking it's seen as being born post WWII but the actual end date is very difficult to pin down.
The term itself isn't particularly good.
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186 fdd
Things are functioning. Process is in place. Have you never sub'd anybody a round at the bar. This is just a potential liquidity problem based on market perception. Change the market perception and the problem reduces. Thats why markets yo-yo.
Your wished for collapse is further away not nearer. Oh guess what, the euro has risen.
Meanwhile the media trumpets on because they are paid to talk and expand the molehills into mountains.
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188. At 09:48am on 22 Nov 2010, Jack_Dwakins wrote:
'Blaming the bankers without taking any responsibility is selfish...'
You are making the same mistake a lot of people make.
The problem with this is the bankers are responsible for making the final decision on how much credit the borrower receives.
A borrower cannot insist a bank loan them money.
The banks have bankrupted themselves by giving money to people who couldn’t give it back.
Plus your example of excessive borrowing is so stereotypical. Instead think football club owners and oligarchs - have a read at this example, where the borrower walks away leaving the bank (actually UK taxmugs) to pick up the bill.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4286459/Russian-tycoon-had-RBS-loan-of-2.5bn-written-off.html
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#193 "The problem with this is the bankers are responsible for making the final decision on how much credit the borrower receives.
A borrower cannot insist a bank loan them money."
This is but one side of the coin only.
A bank cannot insist that someone borrow money, it is the choice of the borrower to do that and also how much credit to apply for.
Of course if I apply for a loan of £1m and the bank says it will give me £500,000 only but ultimately I am unable to even pay the reduced loan then it is both bank and borrower who have the responsibility for why the loan went bad, the borrower for asking for more than he could afford and the bank for not doing some proper due diligence on my ability to repay the loan
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#192 NBW,
As usual, short-term non-thinking.
So the Euro rises today. Why do you think that is? It has more to do with short term interests than any fundemental change in either the financial or 'real economy'.
There is no recovery. You can try and convince yourself of whatever you want. However, it appears that you merely wish to spout non-thought so that you hope you will be able to say at some point - "see, I told you I was right" - whatever happens!
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#192 NBW,
"Oh guess what, the euro has risen."
Yes! massive movement there
Sterling - Euro
1.1674 -0.0015 Mon 11:00
(Source - Markettracker)
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188. At 09:48am on 22 Nov 2010, Jack_Dwakins wrote:
‘Blaming the bankers without taking any responsibility is selfish - and leaving a mountain of debt for today's children to pay is indefensible’
Now I agree with passing on a mountain of debt to the younger generation is wrong.
However, all money (notes and coins excepted) is created as debt bearing interest. Remember no debt = no money.
And with 97% of all money being created as debt bearing interest, and more debt being needed to satisfy repayment of existing debt + interest, there has to be more debt or default must occur.
The system is inflationary and requires an increasing level of debt to survive in its present form.
Therefore if you accept the current uncontrolled debt based monetary system, you must accept passing on a mountain of debt to the younger generation.
It’s not ‘Baby Boomers’, it’s not ‘individuals’, it’s the uncontrolled creation of money as debt that has led Ireland and us to this point.
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194. At 10:51am on 22 Nov 2010, Justin150 wrote:
'then it is both bank and borrower who have the responsibility for why the loan went bad'
But one is a hired professional, the other an amateur who could be clueless in the world of finance.
Does the responsibility for a prescription go 50-50 with patient and doctor?
Remember some people were allowed to borrow 125% LTV ratio, some were allowed to borrow 5, 6 even 7x their salary (mainly in the US).
There will always be those who wish to borrow excessively – whether through ignorance or greed, I believe the answer should always be ‘NO!’ (Which it is today, now the party is over!)
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Many of the people posting comments do not seem to understand that the it is the responsibility of the directors of banks to ensure that they are solvent. They must produce accounts which are "true and fair".
If they place a loan on the balance sheet at a certain value and this value proves to be incorrect it is solely the responsibilty of the directors and not the responsibility of (a) the borrower or(b) the regulators. The directors are assisted in this task by internal audit departments and by external auditors whose job it is to scrutinise the carrying values of the assets and liabilities upon the balance sheet.
Those people suggesting that it is the customer (borrower) who is responsible for the veracity of a bank's balance sheet must be barmy, they would nver make a similar claim for, say BP or Marks and Spencer!
A small group of people have made themselves millionaires by consistently mis-stating the carrying values of their assets and liabilities.
Nothing has been done to prevent this from happening again.
Do not blame the regulators in the first instance. The first line of defence against corporate failure is the effectiveness of the financial reporting systems and the responsibilities of the directors and auditors.
This has claerly failed.
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Dempster,
I agree to an extent - however, Marcuse commented in the 60's that discussing the pro's and cons of a system avoids the actual discussion about whther its necessary at all. Why's this debate being held now rather than decades ago?
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197. At 11:34am on 22 Nov 2010, Dempster
I agree but I still cannot understand
No debt = no money
surely it must read, No debt = no more extra money
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200. At 11:50am on 22 Nov 2010, Jack_Dwakins wrote:
'Dempster,
I agree to an extent - however, Marcuse commented in the 60's that discussing the pro's and cons of a system avoids the actual discussion about whther its necessary at all. Why's this debate being held now rather than decades ago?'
It's been discussed since the great depression.
But the current debt based monetary system favours 'Banks', so whilst it gets discussed the banking lobby is too powerful for any progress to be made.
Although the 'positive money' group are trying to fight that.
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or perhaps (as the left would argue) capitalism takes it's former opponents in as allies.
as soon as benefit was to be had, no need to question.
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201. At 11:51am on 22 Nov 2010, common_man_123 wrote:
197. At 11:34am on 22 Nov 2010, Dempster
'I agree but I still cannot understand
No debt = no money
surely it must read, No debt = no more extra money'
Unfortunately no.
The existing money stock will gradually be used up by existing debtors endeavouring to service existing loans. Unless of coure they default, which would take all the banks down.
No more debt = No more money
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Stephanie, rescuing the Eire economy by the IMF & EU; should be headed "the financial suicide pact".
Population of Eire is around 5-7 Million (roughly)and alot rural; how on earth is the GNP of those numbers, perhaps half in paid employment going to even translate to any touch on the repayments + interest ??? It's going to be infinite numbers of years, the Debt is permanent.
For years, Eire has been a logistics country for warehouse transit as export taxes are low. That is about to go.
Good luck Eire, youv'e just sold your self-autonomy ticket to the EU.
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Hi Stephanie,
An interesting approach to covering stages of grief by starting in the present and working back to the root cause concluding Ireland are ultimately responsible. Unfortunately this approach completely muddies the point as most readers will read it as [Ireland] "was still denying that the country had a problem" and conclude that the Irish are ultimately responsible. I would have gone in the following chronogical order:
1> Western governments policies cover election terms time periods and not boom/bust time periods which are usually longer. At the last general election the Irish Taoiseach Bertie Ahern was taking bribes from developers and in return for scraping back into power he offered bribes to the Irish people in return for votes.
2> Banks were making so much profits (similar to traders on the stock market) that the Ireland as an "equity" was overbought and UK banks overexposed themselves - same as for any other high returning equity. So bankers played a significant part to blame, similar to corrupt developers and the main group responsible for over-valuing property and excessive greed that are estate agents.
3> Thanks to the stability of the Euro interest rates are unlikely to go over 5% on average whereas in UK we can expect to hit 15% like in the past. i.e. a variable rate mortgage was practically the same as a fixed one. Irish people went into credit unions and with 5k could borrow 20 times i.e. 100K and provide this as a deposit to a bank without declaring it as a loan i.e. massaged accounts same as bankers and now ministers. Also significant members of the public sector excepted excessive wage hikes as a bribe and voted in the goverment so alot of Irish people are to blame
4> Irish small businesses overcharged and continue to overcharge (look at the same basic car service on the UK site (89GBP) and the same one today is 149 Euros on the same car companies site in Ireland. The pound has not devalued that much!
5> The UK devalued the currency. This is a significant point you miss out on. The previous bullet points cover the first stage of the crisis and now we are onto the period covering the last couple of weeks. In starting a currency war with the Euro Irish businesses and jobs suffered big time and a significant loss of revenue to the exchequer.
6> Instead of assisting Ireland the European countries assisted the UK in this battle in order to push down the euro and also to try and to have control over Irelands taxes (especially the low rate of corporation tax).
7> The city of london and UK media jumped on the band wagon and fuelled the battle ending with Ireland severely battered. Pictures of Irish beggers on the streets and fuelling the much more serious idea that every English person now has to fork out 300 GBP to bail out Ireland!
8> Now the media make it appear like the Irish are like the Greeks and we are protesting because of the austerity package. We are protesting at the Policiticians who blatantly lied to use especially over the last week and ultimately the Irish people will accept the austerity measures and work ourselves out of this debt.
I would then follow up on the above with the following points:
1> Ireland is the 5th largest importer of English goods (approx 5K per person) totalling 24 billion pa in 2009 and I expect much more in 2010/2011 due to the devalued GBP. So in effect the Irish have been playing a significant part in bailing out the UK economy!
2> Highlight that the UK 7bn will prob be borrowed at 1-2% lower than what will be charged to Ireland i.e. UK is doing this to make a profit
3> Large percentage of the 50 billion owed by the Irish taxpayer is on developments within the M25 corridor and eastern europe. Original value of 90 billion. How many people would love to own property valued in London of lets say 900K now in a winter sale going for 500K? Count me in :). Now maybe journalists will understand why developers are paying millions in the High Court to hold onto their loans.
So Ireland is not buried yet and an Irish funeral usually ends in moving onwards and upwards, depending on how much Guinness has been drank that is...
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