Comments on: MAKE NO MISTAKE, THIS GOVERNMENT HAS MADE A SERIOUSLY BAD DECISION http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/ It's a group blog. What more do you need to know? Thu, 08 Jan 2009 22:18:38 +0000 http://wordpress.org/?v=2.2.1 By: Thriftcriminal http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68631 Thriftcriminal Wed, 08 Oct 2008 11:44:12 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68631 Yep. Friedmanism. Bollox Yep. Friedmanism. Bollox

]]> By: Conor McCabe http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68630 Conor McCabe Wed, 08 Oct 2008 10:49:42 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68630 One week later and the government still hasn't got a plan. It looks like the "details" will be known only after the budget. Cowen and Lenihan marched us up to the top of the hill.... and they've marched us down again. The markets, if or when they stabilize, are going to slaughter the Irish banks. The Irish government is weak. It is scared. It is indecisive. The exact opposite of what one needs to be in a crisis. And it's going to fuck up with next week's budget. They're going to cut spending on infastructure and social services (taking money out of the economy), while leaving the top 5% who control the majority of the wealth in this country completely alone (those who in the main invest abroad, i.e. they take the "trickle down" benefits and use it to "trickle out"). In other words, they're going to keep with the "trickle-down" approach because that's the line that most benefits Fianna Fáil's financial backers. One week later and the government still hasn’t got a plan. It looks like the “details” will be known only after the budget. Cowen and Lenihan marched us up to the top of the hill…. and they’ve marched us down again. The markets, if or when they stabilize, are going to slaughter the Irish banks. The Irish government is weak. It is scared. It is indecisive. The exact opposite of what one needs to be in a crisis.

And it’s going to fuck up with next week’s budget. They’re going to cut spending on infastructure and social services (taking money out of the economy), while leaving the top 5% who control the majority of the wealth in this country completely alone (those who in the main invest abroad, i.e. they take the “trickle down” benefits and use it to “trickle out”). In other words, they’re going to keep with the “trickle-down” approach because that’s the line that most benefits Fianna Fáil’s financial backers.

]]> By: Thriftcriminal http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68629 Thriftcriminal Wed, 08 Oct 2008 10:18:54 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68629 While I would be more than happy to see those that have profitted horrendously at the expense of Joe-Soap hoause buyer over the last several years I would be loath to see the whole thing brought down around our ears. Ideally the sabilisation (and I agree the Swedish model is preferable) would take place followed by a serious ass kicking in the banks and developers. However as they are all cuddly with the establishment it might require a coup. While I would be more than happy to see those that have profitted horrendously at the expense of Joe-Soap hoause buyer over the last several years I would be loath to see the whole thing brought down around our ears. Ideally the sabilisation (and I agree the Swedish model is preferable) would take place followed by a serious ass kicking in the banks and developers. However as they are all cuddly with the establishment it might require a coup.

]]> By: Conor McCabe http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68606 Conor McCabe Sun, 05 Oct 2008 10:43:37 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68606 you can flush out and recapitalize, as with Sweden in the 1990s, or you can use gov. money to underwrite everything in order to keep the system as it is, as with Japan in the 1990s. Ireland's gone for the Japanese model, and for much the same reason - to protect the powerful vested interests within the society. I explained what I mean by this in an earlier post. http://tinyurl.com/4aslrv. That peculiar magic as you call it, has precedent - as with Sweden. So too, has the "underwrite everything to keep things as they are" approach, as with Japan. I say "some of those assets" in my post. You have decided to read it as meaning the entire collateral is useless. If you want to get all Literary and Debating society or Sarah Palin on it, well, that's your prerogative. I'll meet you in St. Stephen's Green for tuxedos at dawn. The point is that the international banking system does not believe Irish banks when they say that they are not unduly exposed to bad debts due to the property crash in Ireland. The government plan does nothing to alleviate that at all. It simply means that the Irish taxpayer is now the collateral, not the banks holdings, and not the shareholders. The attraction of that setup we've seen only last week with the Irish Nationwide email. Until the Irish banking system addresses those bad debts. the fundamental problem lies untouched. I cannot show you the detailed provisions in the Act which refer specifically to "bad debts" because there are no such details in the act! It's an extremely bad piece of legislation - no surprise given the rushed nature of its authorship. However, it does have these three pieces in it: http://tinyurl.com/4ehmxw "4.—To the extent that the Minister incurs any expenditure not met in accordance with section 6, the expenditure shall be paid out of the Central Fund or the growing produce thereof. 5.—(1) The Minister may, in respect of any difficulty that arises in the operation of this Act during the period of 2 years beginning on the relevant date, make regulations to do anything that appears necessary or expedient for bringing this Act into operation. 6.—(1) As and from the relevant date, the Minister may provide financial support in respect of the borrowings, liabilities and obligations of any credit institution or subsidiary which the Minister may specify by order having regard to the matters set out in section 2, the extent and nature of the obligations (including the degree of control over possible abuse of the financial support) undertaken and which might be undertaken in the future and the resources available to him or her in that behalf." Apart from allowing the minister to do anything he wants, the act does say that it underwrites everything, credits, liabilities, and obligations. Were it to happen that the liabilities could not be covered by the banks and their shareholders, the minister has the power to provide "financial support". As regards the fine print, finance minister Lenihan said in the Dáil last week that as the contract between the government and the banks will be a commercial contract, it will be a confidential contract. We'll know the general provisions, but the fine print, no. So. We have a Fianna Fáil minister with enormous powers to provide "financial support" to Irish banks who have overexposed themselves with their property developer portfolio - the full details of which will take place behind closed doors, involving the same people who overexposed that system in the first place. Nothing to worry about there. you can flush out and recapitalize, as with Sweden in the 1990s, or you can use gov. money to underwrite everything in order to keep the system as it is, as with Japan in the 1990s. Ireland’s gone for the Japanese model, and for much the same reason - to protect the powerful vested interests within the society. I explained what I mean by this in an earlier post. http://tinyurl.com/4aslrv.
That peculiar magic as you call it, has precedent - as with Sweden. So too, has the “underwrite everything to keep things as they are” approach, as with Japan.
I say “some of those assets” in my post. You have decided to read it as meaning the entire collateral is useless. If you want to get all Literary and Debating society or Sarah Palin on it, well, that’s your prerogative. I’ll meet you in St. Stephen’s Green for tuxedos at dawn.
The point is that the international banking system does not believe Irish banks when they say that they are not unduly exposed to bad debts due to the property crash in Ireland. The government plan does nothing to alleviate that at all. It simply means that the Irish taxpayer is now the collateral, not the banks holdings, and not the shareholders. The attraction of that setup we’ve seen only last week with the Irish Nationwide email. Until the Irish banking system addresses those bad debts. the fundamental problem lies untouched.
I cannot show you the detailed provisions in the Act which refer specifically to “bad debts” because there are no such details in the act! It’s an extremely bad piece of legislation - no surprise given the rushed nature of its authorship.

However, it does have these three pieces in it: http://tinyurl.com/4ehmxw
“4.—To the extent that the Minister incurs any expenditure not met
in accordance with section 6, the expenditure shall be paid out of the Central Fund or the growing produce thereof.
5.—(1) The Minister may, in respect of any difficulty that arises
in the operation of this Act during the period of 2 years beginning on the relevant date, make regulations to do anything that appears
necessary or expedient for bringing this Act into operation.
6.—(1) As and from the relevant date, the Minister may provide
financial support in respect of the borrowings, liabilities and obligations of any credit institution or subsidiary which the Minister may specify by order having regard to the matters set out in section 2, the extent and nature of the obligations (including the degree of control over possible abuse of the financial support) undertaken and which might be undertaken in the future and the resources available to him or her in that behalf.”

Apart from allowing the minister to do anything he wants, the act does say that it underwrites everything, credits, liabilities, and obligations. Were it to happen that the liabilities could not be covered by the banks and their shareholders, the minister has the power to provide “financial support”.
As regards the fine print, finance minister Lenihan said in the Dáil last week that as the contract between the government and the banks will be a commercial contract, it will be a confidential contract. We’ll know the general provisions, but the fine print, no.

So. We have a Fianna Fáil minister with enormous powers to provide “financial support” to Irish banks who have overexposed themselves with their property developer portfolio - the full details of which will take place behind closed doors, involving the same people who overexposed that system in the first place.

Nothing to worry about there.

]]> By: Fergus O'Rourke http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68604 Fergus O'Rourke Sun, 05 Oct 2008 07:19:28 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68604 1. Yes, I meant €110 billion 2. You said in your post "The houses and apartments that nobody is buying. That is where the banks’ collateral lies". That can be read as meaning that their entire collateral is valueless 3. The Irish banks' exposure to property is undeniably excessive, and does affect international sentiment. However, the consensus that this why the banks' credit lines dried up this week is simplistic and even if true, which I doubt, does not appear to be based on rational analysis. The State of California's credit lines dried up, too. 4. I will have to ask you to show me the provision in this week's legislation which underwrites "bad debts". 5. I will also have to ask you to explain how "flushing out" works what seems a rather peculiar magic. It sounds like the Paulson Plan, which would indeed tend to have the effects you fear if applied in Ireland at this point. 1. Yes, I meant €110 billion
2. You said in your post “The houses and apartments that nobody is buying. That is where the banks’ collateral lies”. That can be read as meaning that their entire collateral is valueless
3. The Irish banks’ exposure to property is undeniably excessive, and does affect international sentiment. However, the consensus that this why the banks’ credit lines dried up this week is simplistic and even if true, which I doubt, does not appear to be based on rational analysis. The State of California’s credit lines dried up, too.
4. I will have to ask you to show me the provision in this week’s legislation which underwrites “bad debts”.
5. I will also have to ask you to explain how “flushing out” works what seems a rather peculiar magic. It sounds like the Paulson Plan, which would indeed tend to have the effects you fear if applied in Ireland at this point.

]]> By: Conor McCabe http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68601 Conor McCabe Sat, 04 Oct 2008 21:28:49 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68601 Who said that it was entirely valueless? (And I take it you mean €110 billion, not €110 million.) Where have I said that? I'm talking about flushing out the crippling debts that are there, not propping them up until a later date. and you cannot return to any form of equilibrium until that measure has been undertaken. That's been the international experience. The Irish "unique" move has been to underwrite everything - deposits, good loans, bad debts, everything - which means that the billions in bad loans undertaken by property developers, for developments that are empty and will continue to remain empty, remain in the system. The developers and banks get to evade the fiscal consequences of their recklessness. That's certainly akin to a bailout. The banks who lend to Irish banks looked at the Irish situation and, quite frankly, didn't believe the Irish banks when they said they were good for it. The reason being the extreme exposure (in European banking circles) of the Irish banks to property development loans, at a time when property development has, for all intents and purposes, crashed. The international banking world looked at Ireland and saw that there's something else going on apart from the credit crunch: Irish banks have overreached themselves to a serious, indeed, fundamental, degree. Until those bad debts are flushed out, it doesn't matter what instruments the government undertakes to prop up the system, eventually it will have to deal with them. And the longer it takes, the worse it will get. So, let's say things settle down by next year (a completely hypothetical situation divorced from the complexities of reality - kind of like the ones economists make a living out of), what's certain is that the (de fato) unregulated credit world we've had is gone. So, things settle down, and the Irish banks still cannot get the type of loans they need to mask the bad debts as the credit market has changed utterly, that still leaves the Irish economy exposed as the fundamentals have not been dealt with. Meanwhile those bad debts just keep on soaking up capital because, one year later, they still haven't been flushed out of the system as there's no incentive to do so. Dead investments, soaking up capital from the real economy, at a time of recession. There's your "unique" Irish plan. Who said that it was entirely valueless? (And I take it you mean €110 billion, not €110 million.) Where have I said that?

I’m talking about flushing out the crippling debts that are there, not propping them up until a later date. and you cannot return to any form of equilibrium until that measure has been undertaken. That’s been the international experience. The Irish “unique” move has been to underwrite everything - deposits, good loans, bad debts, everything - which means that the billions in bad loans undertaken by property developers, for developments that are empty and will continue to remain empty, remain in the system. The developers and banks get to evade the fiscal consequences of their recklessness. That’s certainly akin to a bailout.

The banks who lend to Irish banks looked at the Irish situation and, quite frankly, didn’t believe the Irish banks when they said they were good for it. The reason being the extreme exposure (in European banking circles) of the Irish banks to property development loans, at a time when property development has, for all intents and purposes, crashed. The international banking world looked at Ireland and saw that there’s something else going on apart from the credit crunch: Irish banks have overreached themselves to a serious, indeed, fundamental, degree.

Until those bad debts are flushed out, it doesn’t matter what instruments the government undertakes to prop up the system, eventually it will have to deal with them. And the longer it takes, the worse it will get.

So, let’s say things settle down by next year (a completely hypothetical situation divorced from the complexities of reality - kind of like the ones economists make a living out of), what’s certain is that the (de fato) unregulated credit world we’ve had is gone. So, things settle down, and the Irish banks still cannot get the type of loans they need to mask the bad debts as the credit market has changed utterly, that still leaves the Irish economy exposed as the fundamentals have not been dealt with.

Meanwhile those bad debts just keep on soaking up capital because, one year later, they still haven’t been flushed out of the system as there’s no incentive to do so.

Dead investments, soaking up capital from the real economy, at a time of recession.

There’s your “unique” Irish plan.

]]> By: Fergus O'Rourke http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68600 Fergus O'Rourke Sat, 04 Oct 2008 20:48:20 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68600 1. The fact that some - OK, a lot - of the banks' exposure to the property sector was unwise does not mean that the entire €110 million is now valueless. 2. I have seen no explanation, and can conceive of none, for the notion that guaranteeing those who *lend to* the Irish banks amounts, as you and so many others allege, to bailing out those who have *borrowed from* those banks. Readers may be interested to know that I have just opened a new section on my website dedicated to the Bank Rescue. 1. The fact that some - OK, a lot - of the banks’ exposure to the property sector was unwise does not mean that the entire €110 million is now valueless.

2. I have seen no explanation, and can conceive of none, for the notion that guaranteeing those who *lend to* the Irish banks amounts, as you and so many others allege, to bailing out those who have *borrowed from* those banks.

Readers may be interested to know that I have just opened a new section on my website dedicated to the Bank Rescue.

]]> By: eastmeath.org » Blog Archive » Financial Meltdown http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68594 eastmeath.org » Blog Archive » Financial Meltdown Fri, 03 Oct 2008 22:26:42 +0000 http://dublinopinion.com/2008/10/03/make-no-mistake-this-government-has-made-a-seriously-bad-decision/#comment-68594 [...] I agree with this. Things won’t be the [...] […] I agree with this. Things won’t be the […]

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