Dublin Opinion

This is another short clip from Palin’s interview with CNN, where she explains her foreign policy experience. CNN are doing this themselves, i.e. releasing the interview in segments.

Couric: Well explain to me why that [an international border] enhances your foreign policy credentials.
Palin: Well it certainly does because our, our next door neighbours are foreign countries. They’re in the state that I am the executive of.
Couric: Have you ever been involved with any negotiations, for example with the Russians?
Palin: We have trade missions back and forth, we, we do. It’s very important when you consider even national security issues with Russia as Putin rears his head and, ah, comes into the air space of the United States of America where, where do they go? It’s, it’s Alaska. It’s right over the border. It is from Alaska that we send those out to make sure that an eye is being kept on this very powerful nation, Russia, because they are right there. They are right next to, erm, to our state.

Staggering.

Today in the Irish Times we have two perspectives on the legislation being brought through the Dail last night to resolve the crisis in Irish banking, one by politicial correspondent Stephen Collins and the other by Morgan Kelly, Professor of Economics at UCD who has already written about the potential problems in Irish banking system due to excessive lending to property developers. Stephen Collin account is more of a descriptive piece rather than analysis, as it reports on the mood and the comments made by TDs during the debates in the Dail. However, the piece still contains implicit conclusions about the situation.

If the legislation works then people will never know the scale of the potential calamity that has been avoided by Brian Lenihan’s decisive intervention.

On Monday night he faced the stark choice of letting one Irish bank go down, with incalculable consequences for the entire banking industry, or implementing his guarantee scheme.

“People will never know”? Contrast this with Morgan Kelly’s opinion.

Not only does the Government guarantee of bank borrowing fail to solve the underlying problem of bad loans; it faces the Irish taxpayer with a real risk of enormous losses.

By insuring the borrowing of banks with toxic assets, the Government has taken up where the collapsed American insurer AIG left off. It was by guaranteeing to cover any losses to institutions that lent to client banks, what was called monoline insurance, that the world’s largest insurance company went bankrupt. The particular risk that the Government now faces is that Irish banks will package toxic loans as asset-backed securities and sell them off with a Government guarantee, passing on their losses to the Irish taxpayer.

So was this the only option open to Lenihan? We are told that banks would have started to collapse but we actually know nothing. Again, Morgan Kelly has a different opinion:

The Irish Government should have done what the Swedes did in 1991. The Swedish government stepped in and, in return for banks’ admitting the scale of their losses and firing the senior managers that had caused their problems, provided capital in return for a share of ownership.

As the Swedish economy recovered, the government was able to sell off its share in the banks, with the result that the Swedish taxpayer lost nothing on the bailout. In Finland, by contrast, the government denied that there was any problem until their banking system had collapsed and was then forced into a ruinously expensive bailout. The Government should have offered new capital to four of the institutions, and left the others, where the real problems lie, to fend for themselves.

Emphasis mine.

What Collins’ piece fails to mention, and what doesn’t seem to be appreciated in the Dail is that this legislation is hiding a considerable level of bad debt in the banking system and is avoiding the reason why that bad debt was allowed to accumulate in the first place.

Morgan Kelly again, highlighting what precipitated the crisis in the first place:

What precipitated the crisis on Monday was that foreign banks stopped lending to them. What we need to understand is what caused foreign banks to stop lending to Irish banks while they kept lending to most other banks in Europe. Once we understand the answer to this question we will understand how inept and potentially dangerous the Government’s attempted bailout really is.

The reason that foreign banks started to shun Irish banks is that international investors have gradually become aware of the scale and recklessness of Irish bank lending to builders and property speculators. Irish banks are currently owed €110 billion by builders and developers. Of every €100 that Irish residents have deposited in banks, €60 has been lent for property speculation.

There was another point made in Collin’s piece that I think is worth highlighting:

The furious reaction of the British authorities to the competitive implications of the measure cut little ice, although the mood in the Dáil certainly favoured the extension of the scheme to the two foreign-owned banks with a long history of involvement in the Irish market.

The UK Treasury, in denouncing the move said that at least they worked with the EU commission in the bail out of Branford and Bingley, while EU competition commissioner, pleaded with governments “not to act unilaterally“. At some point an EU fund might be put in place, but the Irish action avoids not only the liability falling to the banks or their shareholders, but it also allows them to continue to hide the bad debt and base their business on the false value of their assets. And that false value is what brought us to this situation in the first place. When it becomes known, however, people will surely know about the consequences of Brian Lenihan’s decision on Monday. After all, we’ll have to pay for it.

Cheers to Becky for this one.

Unbelievable stuff.

Here’ an excerpt interview Sarah Palin had with Hugh Hewitt which was broadcast on the Townhall radio show in the States yesterday:

HH: Do you think the mainstream media and the left understands your religious faith, Governor Palin?

SP: I think that there’s a lot of mocking of my personal faith, and my personal faith is very, very simple. I don’t belong to any church. I do have a strong belief in God, and I believe that I’m a heck of a lot better off putting my life in God’s hands, and saying hey, you know, guide me. What else do we have but guidance that we would seek from a Creator? That’s about as simple as it gets with my faith, and I think that there is a lot of mocking of that. And you know, so bet it, though I do have respect for those who have differing views than I do on faith, on religion. I’m not going to mock them, and I would hope that they would kind of I guess give me the same courtesy through this of not mocking a person’s faith, but maybe perhaps even trying to understand a little bit of it.

HH: Governor, let’s close with some foreign affairs. It is reported that you had an Israeli flag in your governor’s office. You wore an Israeli flag pin occasionally. One, is that true? And two, why your support for Israel?

SP: Well, it is true, and I ran into Shimon Peres recently at a meeting, and he even pointed that out. He said I saw a picture of you on the internet, and you had an Israeli flag in your state government office, and I said I sure do. You know, my heart is with you. And all of those trials and tribulations throughout history that Israel has gone through, not only does that allow me to want to support that country, but Israel is our strongest and most important ally in the Middle East. And they are a democratic country who I believe deserves our support, and I know that John McCain believes as I do that Israel is our friend, and we need to be there to support them. They are there for us, and I do love that country.

Here’s a news report, more of an audio visual essay actually, of what some of those mockers are saying about the significance of Sarah Palin’s religion and her feelings about Israel.

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Short-sighted economic policy?

Property bubble burst?

Severe credit-crunch?

Erectile dysfunction?

If you are ticking all of the above boxes, (except maybe, ahem, the last one), then you’re probably in Ireland in 2008, or Sweden in 1992.

Sixteen years ago, Sweden was looking down the barrel of an insolvent gun. Its housing bubble had burst, resulting in a credit crunch and the serious threat of bank closures. Then, as now, Government stepped in to rescue the system, and the manner of Sweden’s intervention saved not only the banking system, but was done at a final cost to the taxpayer of between two and three per cent of GDP. Following extensive research, (i.e., I went to wikipedia), this is what Sweden did:-

* The government announced the state would guarantee all bank deposits and creditors of the nation’s 114 banks.

* It assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock) to the government. Shareholders were typically wiped out, but bondholders were protected.

* It formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

* When distressed assets were later sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies in public offerings.

The key to Sweden’s success was that it got the banks to come clean with regard to its losses before recapitalization took place. Also, it pressed hard on shareholders. This from the New York Times:-

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows. The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

Irish media commentators are trying to make out that Irish banks are not insolvent, that the problem is not liquidity, but that nobody in Europe and beyond will borrow to Irish banks.

This is absolute nonsense. The reason why nobody will touch Irish banks is because the Irish banking banking system has crippled itself with construction boom debts. It lent money to builders to build homes, and then lent money to people to buy homes. Part of the problem in the international banking system is that nobody knows where the toxic debts are, or how much, or how little, each is holding. But, take one look at the Irish system, and it’s quite clear where the bad debts are sitting: most notably, AIB and Bank of Ireland. The government’s response, that the Irish banking system is fundamentally sound, is fundamentally wrong. It’s laughable to hear Irish commentators talk about this rescue plan as a possible model for the European and international banking system. It’s even funnier to hear them say, “well why hasn’t anyone else thought of this? Aren’t we the clever dicks!”

In order to save the Swedish banking system, shareholders took a hit. The managers and CEOs of the banks made bad decisions, and the shareholders lost out. As Paul Krugman puts it:-

the problem is insufficient capital: you want to inject capital, but you don’t want it to be a windfall to existing stockholders — hence, take over and recapitalize the failing firms.

(Source: AIB Group website.)

In order to protect these shareholders, the public is to take a hit. The idea that the Irish banking system is fundamentally sound, and that shareholders’ interests (and their dividends) are to be protected with taxpayers’ money - which is all that this plan, (such as it is), achieves - flies full-square in the face of the reality of the situation.

Its entire purpose, in its present manifestation, is to protect shareholders’ interests. It is short-term in the extreme, and ultimately, it will fail.

(Note: just watching the oireachtas live stream [11.21pm] and Simon Coveney has just said that he does not believe in the nationalization of banks. It’s always the wrong decision, he says - a bit like voting Fine Gael, I suppose.)

“But most of them are honourable, good, solid people. And the point is that if you put your balls on the table, you get the reward or you get the kick. It can go one way or the other. Guys are now feeling the squeeze and if it goes on, a lot of them are in trouble. I was lucky. If you’d asked me a year-and-a-half ago, I’d have said the market would still be flying now.”

This is from the second most popular item viewed by readers of the Irish Times website at the moment, and is the opinion the ‘likeable, UCD-educated civil engineer and former captain of the under-21 Wexford Gaelic football team’, Donal Caulfield.

He’s a property developer and the subject of the first extract from a new book by Frank McDonald and Kathy Sheridan simply called ‘Builders’. Actually, that should be “BUILDERS!!! Fuck yea!” in the style of Team America.

To put the quote in some context, it was said in response to this question:

“But surely all that spending and extravagance (Caulfield admits to being a recovering shopaholic) simply confirms suspicions that developers were making obscene profits on the backs of struggling homebuyers?”

I’m highlighting this particular quote because of the emphasis on risk, that the developers are the ones taking the risk, ‘putting their balls on the table’ – the machismo is important – and that they deserve ‘every euro they get’.

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Last year I went looking for something to put up by the Great Western Squares but couldn’t find anything. Sean’s post about The Sewing Room got me looking again, and sure enough, something’s popped up. It’s their cover of “Ace Of Spades” and damn fine it is too. Their second album, Ammost Sober, is going for $0.61c on Amazon these days, so there’s no excuse for picking it up. Hell, even a Wall Street broker could afford that.

Their myspace page contains more songs, while frontman Gary Fitzpatrick’s myspace is here.

The name of the band comes from Great Western Square in Phibsboro - a side-link to my own area of research as the square was built in the 1850s to accommodate workers and managers in the Broadstone depot of the Great Western Railway, until the 1930s the main terminus for the Galway trains.

The video itself seems to have been filmed around the canal in Phibsboro, and as far as I remember, the Great Western Squares played a residency of sorts upstairs in the Hut at Doyle’s corner.

Enjoy.

Night is gone, a dawn
comes up in birds and sounds of the city.
There will be light
to live by, things
to see: my eyes will lift
to where the sun in vermilion sits,
and I will love thee and have pity. (Michael Hartnett)

I’m sitting on the small fenced stone wall that surrounds the central bank on Dame Street, drinking coffee from an oversized flask, waiting for my friend Colm to arrive. He works across the street and we’re meeting up for lunch on the occasion of my birthday. I’ve come from the library, where I’m going through the regional newspapers from 1920, looking for coverage of the local urban elections that were held in January of that year. The Labour Party executive started planning for the election in October 1919 with a two-day conference in Dublin, out of which came an election manifesto and a set of rules and criteria for all candidates. It went on to win 324 seats (22% of the total), with a presence on most of the urban councils on the island, and a commitment to improvements in housing, health, sanitation, water, and employment. The elections and the results have been all but forgotten by Irish historians. Indeed, the most recent history of the Irish Labour Party fails to mention it altogether. The election, it seems, is an irrelevance, a blip, of interest only to those who sit in the midday sun on Dame Street, drinking cups of instant coffee from oversized flasks, waiting for their friends to arrive. And, well who am I to argue?

Colm shows up. I put away my flask, and we go and get something to eat on Fownes Street. I talk about the 1920 elections and how they have been forgotten. I tell Colm that I feel like the guy Woody Allen jokes about in Annie Hall - the one who has recently turned forty, “with saliva dribbling out of his mouth who wanders into a cafeteria with a shopping bag screaming about socialism.” I’ve just turned thirty-nine and although I don’t have a shopping bag, and I’m not drooling just yet, I’ve got the socialism screaming down pat.

We finish up lunch and as we’re leaving Colm hands me over my birthday present. It’s two Billy Bragg LPs that he had picked up in Oxfam - Brewing Up with Billy Bragg, and Talking to the Taxman about Poetry. “Do you like Billy Bragg?” he asks. I nod and say “yeah!”, and give him a bear hug before I let him go back to work. For myself, I walk back to the library and clock in a couple more hours in the 1920s before packing up my stuff around five. I get to Dawson Street and start waiting on the 140 to Finglas, but it’s not long before I give up and decide to walk. It’s my birthday, and I feel like a ramble. Thanks to Colm I now have my shopping bag to go with my head-full of screaming socialism. The saliva, I reckon, can wait till next year.

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