Ireland is facing economic ruin

[Parihaka]

your missing key elements, independent of what happent in Ireland, private investments of 100s billions were made to Irish banks from foreign investors, they were private risks. They were poor invetsments and should be wiped out, not payed by taxpayers that were independent of those risks and any potential gains in the first place. That is where the majority and the most severe problems arise from. The local banks didnt generate the money they loaned, they loaned it from other bigger banks.

Regarding the deposits,
The savings were protected, righty, but not in the nature they were. The deposits on individual people should have been protcted while the loan books should have been wiped. Protect the people, not private investors. Even following the gurantee, we could have shifted the deposits to the healthier banks and left the others failed. Anglo Irish bank had loaned out, by loaning money from bigger banks 10s of billions with very little actually existing in deposits as a base. The few who actually had money deposited could have been moved, the rest, the huge loan book left to the vultures.

Well no Iḿ not missing that, what Iḿ missing is why the European lenders are of less value to you than the irish depositors. Either morally or as an economic measure. You bailed out the banks and thus kept a functioning economy of sorts in which you get to be employed and paid, old age pensioners get to keep their savings, but now some of the creditors are worth less than others? Based on the fact they are European?

[Parihaka]

Sorry, bit befuddled with that bit - specifically we should have allowed Anglo-Irish bank (the ultimate root cause) to collapse. AIB and Bank of Ireland were similarly endangered but considerably more savable, through a restructuring scheme or even real nationalisation. Anglo-Irish (a modern day mob bank) was not savable and as tantalus says would not have collapsed the economy, but ticked off foreign investors. Ireland would have been spared the debt burden. Also of note is despite the socialism the banks still don't lend to businesses (who are still collapsing), and are still raising every cent possible from the consumer, because they sense that even with the swag bag the worst has yet to come. And they're right. Not only is it the most expensive way of dealing with a crisis, it's also the least effective, and while the real economy stagnates due to the over-emphasis on banks (that shouldn't even be on our books) in public policy the problem gets worse.

Okay, this is making more sense. Allow some to fail and rescue others. For the ones you rescued however you need to guarantee their debts otherwise they will not be able to borrow and thus will still fail. You then have the problems with those pensioners etc who had their savings wiped out in the Anglo-Irish collapse: what do you tell them as to why you haven´t compensated them when you have saved those that put their money in the other banks?

[Doktor]

Sorry, bit befuddled with that bit - specifically we should have allowed Anglo-Irish bank (the ultimate root cause) to collapse. AIB and Bank of Ireland were similarly endangered but considerably more savable, through a restructuring scheme or even real nationalisation. Anglo-Irish (a modern day mob bank) was not savable and as tantalus says would not have collapsed the economy, but ticked off foreign investors. Ireland would have been spared the debt burden. Also of note is despite the socialism the banks still don't lend to businesses (who are still collapsing), and are still raising every cent possible from the consumer, because they sense that even with the swag bag the worst has yet to come. And they're right. Not only is it the most expensive way of dealing with a crisis, it's also the least effective, and while the real economy stagnates due to the over-emphasis on banks (that shouldn't even be on our books) in public policy the problem gets worse.

For a country built with foreign investments do you think that would've be the smartest thing to do?

The capital has fears, once you don't pay back EVERYONE they will pull out the remains and will move the biz out of Ireland. How is Ireland supposed to survive that scenario?

Then add what Pari said in his reply.

[crooks]

Okay, this is making more sense. Allow some to fail and rescue others. For the ones you rescued however you need to guarantee their debts otherwise they will not be able to borrow and thus will still fail. You then have the problems with those pensioners etc who had their savings wiped out in the Anglo-Irish collapse: what do you tell them as to why you haven´t compensated them when you have saved those that put their money in the other banks?

You are quite correct some form of guarantee would be required, but again, the Irish one was so expansive as to be disasterous post-truth revelation the real losses. The concept of a guarantee was not the problem, it was the one we got that was the problem - basically a bluff that went horribly wrong.

And you don't save the money of those in the other banks, make no mistake regardless of scenario all banks would have seen shareholders value wiped out, and rescue would be first step to restructuring and rebranding. Plus , Anglo Irish had comparitively few savings accounts from pensioners (or anyone else), it was primarily a developmental bank, that used credit to buy more credit (seemed like a good idea at the time). That is the prime distinction between it and the other 2, who did much the same when egged on but had substantial traditional banking activities.

Aid should have been highly conditional - tell the banks to write down their debt and turn over control to government (with any net profits of following exchanges going to the exchequer), as a minimum condition, like they did in Sweden (where the bank bailout of 1992 costed between 0 and 2% of GDP, depending on calculation). Put the squeeze on them by making them do this pre-bailout.

Depoliticize the process and put the burden first on investors and shareholders, before going anywhere near the taxpayer (will have to get there eventually in any realistic scenario, but look elsewhere first). The result would be pain, but focused on those who can bear it, and largely quarantines the problem from the wider economy. Recognise the guarantee as a means to ensure liquidity, not as a way to protect wealth that is just not going to last the crisis. Wipe out debts that are unrepayable. We fused the bank crisis like a sack of elephants to the plane of our economy, and made the two so tangled that the effects of the banking crisis hang heavy over any efforts to reinflate the economy.

[Parihaka]

You are quite correct some form of guarantee would be required, but again, the Irish one was so expansive as to be disasterous post-truth revelation the real losses. The concept of a guarantee was not the problem, it was the one we got that was the problem - basically a bluff that went horribly wrong.

And you don't save the money of those in the other banks, make no mistake regardless of scenario all banks would have seen shareholders value wiped out, and rescue would be first step to restructuring and rebranding. Plus , Anglo Irish had comparitively few savings accounts from pensioners (or anyone else), it was primarily a developmental bank, that used credit to buy more credit (seemed like a good idea at the time). That is the prime distinction between it and the other 2, who did much the same when egged on but had substantial traditional banking activities.

Aid should have been highly conditional - tell the banks to write down their debt and turn over control to government (with any net profits of following exchanges going to the exchequer), as a minimum condition, like they did in Sweden (where the bank bailout of 1992 costed between 0 and 2% of GDP, depending on calculation). Put the squeeze on them by making them do this pre-bailout.

Depoliticize the process and put the burden first on investors and shareholders, before going anywhere near the taxpayer (will have to get there eventually in any realistic scenario, but look elsewhere first). The result would be pain, but focused on those who can bear it, and largely quarantines the problem from the wider economy. Recognise the guarantee as a means to ensure liquidity, not as a way to protect wealth that is just not going to last the crisis. Wipe out debts that are unrepayable. We fused the bank crisis like a sack of elephants to the plane of our economy, and made the two so tangled that the effects of the banking crisis hang heavy over any efforts to reinflate the economy.

Itś a bit difficult to raise further capital when you are selective about which bills you cover and which you don´t. I understand your frustrations but being subjective about good banks/investors and bad banks/investors doesn´t reassure lenders.

I think one of the few areas we agree is that the banks should remain in government hands until such time as they have repayed taxpayer investment and then sold. In the mean time, the real culprit, namely your government regulation needs an immediate overhaul. Thatś where I be putting my efforts, and thatś the area that seems to have been universally ignored by most governments.

[crooks]

For a country built with foreign investments do you think that would've be the smartest thing to do?

The capital has fears, once you don't pay back EVERYONE they will pull out the remains and will move the biz out of Ireland. How is Ireland supposed to survive that scenario?

Then add what Pari said in his reply.

The point I'd make is as we've seen in the collapse, 'paying everyone back' didn't prevent capital flight. An estimated 5bn has left for Switzerland this year alone, and multinationals where they've stayed are focused more on the tax rate and maintaining profitable enterprise, which they can do here, than on bank losses. In fact the lack of liquidity that stems from the 'socialism for the rich' bailout is probably ticking them off too (though for many Ireland is just a tax haven to avoid paying tax at home, so any effects on the economy bar the natives getting uppity is negligible, they operate in their own bubble).

And besides the rational argument against paying back the losses of reckless venture capitalists and foreign banks, the debt is not mine, or my countrymen and countrywomen's, to pay. We can't, and shouldn't.

[Parihaka]

Itś all moot anyway. The debt loading as negotiated by the IMF and European central bank or whatever the **** it is, is frankly laughable. In business loss is supposed to be spread around but Ireland is being asked to pay back all with interest on interest. The idea is you minimise losses to all rather than maximise to one and maximise profit to the other. Such idiocy went out of serious international financial thought 60 years ago. Whatever morons came up with that package obviously want Ireland to fail. Again, this is a fault of your government that they would ever agree to this.

[crooks]

Itś a bit difficult to raise further capital when you are selective about which bills you cover and which you don´t. I understand your frustrations but being subjective about good banks/investors and bad banks/investors doesn´t reassure lenders.

I think one of the few areas we agree is that the banks should remain in government hands until such time as they have repayed taxpayer investment and then sold. In the mean time, the real culprit, namely your government regulation needs an immediate overhaul. Thatś where I be putting my efforts, and thatś the area that seems to have been universally ignored by most governments.

Well, debt haircuts come first, ie before they raise any cash (especially gov guaranteed), write down significant portions of the debt. It's not selective if you removed all ambiguity and simply cut the value, making your intentions honest and negotiating with loss-takers as to why a certain loss is required for sustainible debt. If you give the capital first, there's no incentive to reduce the debt burden because the public purse will be in a trap where it will inevitably have to pay more and more of the debt regardless of value, as is the Irish case.

The regulator and regulations were obviously a huge part of the problem, but where this is politicized is like it or not we followed a specific ideology (that many on this board follow), cheered for by the financial press, assorted business/construction goons/lobbies and big business types who called critics 'Chicken Little', and who's answer to their own crisis has been enforced austerity for bailouts of rich people. That is not hyperbole, that is the reality, and should make any right-winger think about how their side approaches problems.

And of course banks should be in public hands, any profits post-bailout is property of the public. But even here we messed up, and whereas NAMA was designed to give us a 4bn profit after 4 years now gearing for a loss of between 10-20bn. Because of how we approached it we won't get a profit in the end.

[crooks]

Itś all moot anyway. The debt loading as negotiated by the IMF and European central bank or whatever the **** it is, is frankly laughable. In business loss is supposed to be spread around but Ireland is being asked to pay back all with interest on interest. The idea is you minimise losses to all rather than maximise to one and maximise profit to the other. Such idiocy went out of serious international financial thought 60 years ago. Whatever morons came up with that package obviously want Ireland to fail. Again, this is a fault of your government that they would ever agree to this.

Yes, agreed, and because of the bailout as stands we have a new gov preoccupied on cutting the interest rate (and would see such as a diplomatic coup). Talk about missing the forest, they are literally honed in on how much extra we should have to pay back on top of the loans themseves, which we don't have the money for. It's such a meaningless point that it would make you wonder just how powerless and bound the elected gov now is.

And yes, of course they want us to fail, or more fairly, don't care if we fail. What has been made clear is that Ireland is throughly expendable relative to other factos (like the Euro), and we matter far less than our creditors, who happen to be German and French, in many cases. The reason the bailout deal was so bad was a) to scare other European countries into avoiding it at all costs and b) nobody elsewhere in Europe will feel the effects on the Irish economy, so it could afford to be bad with no implications for everyone else.

Our previous government behaved insanely in negotiations, did you read Morgan Kelly's piece in tantalus' OP? Gives a nice flavour to proceedings.

[Doktor]

The point I'd make is as we've seen in the collapse, 'paying everyone back' didn't prevent capital flight. An estimated 5bn has left for Switzerland this year alone, and multinationals where they've stayed are focused more on the tax rate and maintaining profitable enterprise, which they can do here, than on bank losses. In fact the lack of liquidity that stems from the 'socialism for the rich' bailout is probably ticking them off too (though for many Ireland is just a tax haven to avoid paying tax at home, so any effects on the economy bar the natives getting uppity is negligible, they operate in their own bubble)

There are other countries in Europe with lower taxes then Ireland. It's not only taxes, but the security, too which helped Ireland rise.

As I said in my previous post capital has fears and jumps on first sights on insecurity. Good thing for you is the money are in Switzerland, in the banks doing nothing but collecting interest, meaning they will maybe come back. After you regain stability. And there is no way to do that by being selective to whom to pay back the money.

And besides the rational argument against paying back the losses of reckless venture capitalists and foreign banks, the debt is not mine, or my countrymen and countrywomen's, to pay. We can't, and shouldn't.

There is another flip of the coin saying it is purely yours and your fellow countrymen and women's to pay it. You elected the governments that didn't control the banks and put the country in this situation. Irish people enjoyed the fruits of that policy over years. My guess is the capital these banks loaned fueled Irish economy. Most probably it was Irish credit takers that didn't pay back to the banks what they agreed to pay and the Government didn't helped them on time.

I understand why the people don't see the "need" to pay back the investors. I wouldn't either. If the bank screws up, the government will come to bail it out, if you do the same noone will give you a hand.

[crooks]

There are other countries in Europe with lower taxes then Ireland. It's not only taxes, but the security, too which helped Ireland rise.

As I said in my previous post capital has fears and jumps on first sights on insecurity. Good thing for you is the money are in Switzerland, in the banks doing nothing but collecting interest, meaning they will maybe come back. After you regain stability. And there is no way to do that by being selective to whom to pay back the money.

No Western European country bar Ireland has lower nominal tax rates, with the honourable exception of the lovely Luxemburg (on corporations, iirc). Security is relative, Ireland is traditionally a very poor country that takes crap for ages then overthrows it's government every 100 odd years.

On being selective about using my country's money to bail out others, this is an economic crisis, they'll take what they get. Did investors refuse to come back to Sweden post-debt cuts? No the Swedish economy recovered as it showed that minus the unsustainible debt it was worth investing in. Plus Ireland's over-reliance on foreign capital (besides showing how vulnerable we are to it's fluctutations, another pressie from deregulated finance) is another aspect of the crash, we need to support long-term local business, not just continuing to serve as a tax haven.

There is another flip of the coin saying it is purely yours and your fellow countrymen and women's to pay it. You elected the governments that didn't control the banks and put the country in this situation. Irish people enjoyed the fruits of that policy over years. My guess is the capital these banks loaned fueled Irish economy. Most probably it was Irish credit takers that didn't pay back to the banks what they agreed to pay and the Government didn't helped them on time.

I understand why the people don't see the "need" to pay back the investors. I wouldn't either. If the bank screws up, the government will come to bail it out, if you do the same noone will give you a hand.

I disagree. I didn't take on any debt, I rent, and voted on every occasion against the right-wing government of the day. Where's my 'personal resposibility' bonus the neolibs bang on about? Do I and others like me deserve collective punishment? Even those who did spend the loans did so due to a media and collective academic and political belief that we'd never crash and they should buy now cuz prices will only go up. Looking back, banks gave loans to anyone - the madness wasn't started by greedy consumers, but a dearth of cheap credit and an ideology that encouraged it's use.

It's generally not true that said loan takers have refused to pay either - most people have honoured their mortgage repayments even in very difficult circumstances, the Irish in general are not cheats, even when they've been cheated.

And these loans were not just recklessly spent, but also recklessly given, which you're not factoring. Responsibility for loans also rests with the lender, who should recognise when an investment is extremely risky and likely to end in tears. They were not factored, and one cannot expect that when a loan loses 80% of it's value it will be honoured to the original sum. That is just not living in reality.

[Doktor]

No Western European country bar Ireland has lower nominal tax rates, with the honourable exception of the lovely Luxemburg (on corporations, iirc). Security is relative, Ireland is traditionally a very poor country that takes crap for ages then overthrows it's government every 100 odd years.

If it is some sort of comfort for you, we are worse, with similar history, the only difference is our govs have shorter live span then Italians ;)

On being selective about using my country's money to bail out others, this is an economic crisis, they'll take what they get. Did investors refuse to come back to Sweden post-debt cuts? No the Swedish economy recovered as it showed that minus the unsustainible debt it was worth investing in. Plus Ireland's over-reliance on foreign capital (besides showing how vulnerable we are to it's fluctutations, another pressie from deregulated finance) is another aspect of the crash, we need to support long-term local business, not just continuing to serve as a tax haven.[/QUOTE]
How does someone uses your money to bail out others? You reffer to my lovely neighbors the Greeks?

I don't get your analogy with Sweden. Did Sweden paid back the investors?

Well you are vulnerable to the foreign capital as any other country, but tell me this, whose capital it was that raised Ireland? And is it worse now then before foreigners came to invest?

I disagree. I didn't take on any debt, I rent, and voted on every occasion against the right-wing government of the day. Where's my 'personal resposibility' bonus the neolibs bang on about? Do I and others like me deserve collective punishment? Even those who did spend the loans did so due to a media and collective academic and political belief that we'd never crash and they should buy now cuz prices will only go up. Looking back, banks gave loans to anyone - the madness wasn't started by greedy consumers, but a dearth of cheap credit and an ideology that encouraged it's use.

Welcome to the democracy, majority voted the government, majority will pay their fair share, you will pay less.

It's generally not true that said loan takers have refused to pay either - most people have honoured their mortgage repayments even in very difficult circumstances, the Irish in general are not cheats, even when they've been cheated.

For some reason the banks ran out of cash-flow.

And these loans were not just recklessly spent, but also recklessly given, which you're not factoring. Responsibility for loans also rests with the lender, who should recognise when an investment is extremely risky and likely to end in tears. They were not factored, and one cannot expect that when a loan loses 80% of it's value it will be honoured to the original sum. That is just not living in reality.

See my reply:

I understand why the people don't see the "need" to pay back the investors. I wouldn't either. If the bank screws up, the government will come to bail it out, if you do the same noone will give you a hand.

How does a loan loses the value? If I loan you 1 EUR with 5% annual interest, this time next year you owe me 1,05 eur. How can that became 0,201 eur/

[tantalus]

First, on the matter of paying back our debt and maintaing a good rep. and lending off the markets. We are ruined, its mostly our own fault and restructuring of the debt (aka partial default) will happen no matter what road we take. So these issues can take the back seat while we save the sinking ship and matter little, unlike during normal economics situations. Investors will be back in time.

Well no Iḿ not missing that, what Iḿ missing is why the European lenders are of less value to you than the irish depositors. Either morally or as an economic measure.

Alright sorry, fair enough. Yes I am making a distinction. But 1st I want to reiterate, mostly for Doktor, that no one is suggesting the irish people shouldnt take responsibility for our own mismanagement, we are ruined and will remain so no matter our path ad will take rsponsibility and have. But you cant state that we must take our hit and the senior bondholders not take theirs. Apply the same philosophy to all aspects. We have our own mess fiscally, we take what burden that makes sense from the banks, but not all of it, its pure madness, its doesnt make moral or economic sense.

Pari,
yes a distinction. Keep in mind the opening point to this post. People who responsibly deposited in accounts are not the same as large banks that loanded 100s billions to anglo irish, a bank with only a handful billion of deposits. Clearly one action is not the same as the other. 2nd it makes perfect sense to distinguish between good and bad banks if some banks were clearly more irresponsible than others, esp. in light of the fact that its impossible to pay everyone back. 3rd before the nationalisation of these banks, it was state taxpayer money and the issue was private, we are entitled to decide who and who we wont help, and options did exist to be selective. This is not left pandering, Irish, european and interntional economists including conservative ones have stated that current affairs are irrational and unfair, as Crooks pointed out its not propaganda of the left, despite the fact that iam a lefty;).

from the op article

The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner

Itś all moot anyway. The debt loading as negotiated by the IMF and European central bank or whatever the **** it is, is frankly laughable. In business loss is supposed to be spread around but Ireland is being asked to pay back all with interest on interest. The idea is you minimise losses to all rather than maximise to one and maximise profit to the other. Such idiocy went out of serious international financial thought 60 years ago. Whatever morons came up with that package obviously want Ireland to fail. Again, this is a fault of your government that they would ever agree to this.

I agree with all of this except the moot point, thats why I posted the opening article. On the banks remaining nationalised and paying us back I dont know if they can realistically pay it, a number are set to go out of business or be merged, so what of their debt that we payed ie. mostly anglo irish. Furthermore the remaining banks have shrunk to a size where raising that kind of cash is like asking some one on social welfare to pay up for that submarine?? I dont know

Crooks already pointed out why we were subjectd to this, mainly a warning to the spanarids, but also enough time for the european banks to prepare and absorb for restructuring ("default"). Wait and see until the european mechanism comes into law in 2013, it has already been passed, that is if the Greeks survive that long and that the spanish keep the true extent of their troubles quiet.

I have to go study now, hopefully this post is adequate in communicating my views. Again, not trying to weasel out of our own ****-ups but our stupidity was funded by someone else, which clearly have responsibility as well, both need to be factored in and I want to point out the any recommended route needs to keep in mind reality and how much debt we can afford.

[crooks]

If it is some sort of comfort for you, we are worse, with similar history, the only difference is our govs have shorter live span then Italians ;)

Sure, that doesn't comfort me though, peace 'nd goodwill to all men and all that jazz, hope you guys pull through - I know Macedonia is a proud place (and rightly so).

How does someone uses your money to bail out others? You reffer to my lovely neighbors the Greeks?

Not at all, this is not a nationalist, or my country vs other country thing (and as the PIGS are all suffering from the same kind of ideological hogwash I feel solidarity with my fellow muck-lovers), just a fairness thing. Our money is being used to bail out wealthy investors who took a risk with their own money, at the same time as we are being told we don't have the money to pay for such unecissary frivilities as hospitals and education. Belt-tightening for the Irish, party time for the stupid rich. Free market doctrine tells us what should happen, free market lovers in practice are fine with the public swallowing the losses.

I don't get your analogy with Sweden. Did Sweden paid back the investors?

Well you are vulnerable to the foreign capital as any other country, but tell me this, whose capital it was that raised Ireland? And is it worse now then before foreigners came to invest?

Sweden did exactly what I'm arguing we should do, heavily cut the debt and value of the loans as a starting point, unilaterally if neccisary, and offer compensation on some of the rest. That's still not fair on Irish taxpayers, but it's probably the fairest we're going to get. And when Sweden did this it was not an international pariah, but recovered pretty swiftly as the bank burden being lifted allowed it to grow again. If something's worth investing in, investors will come naturally either way, they don't have to be appeased.

And we are more vulnerable to capital fluctutions than most, because of how deregulated and open our economy is, especially relative to our neighbours, who have large domestic industries, where Ireland has corporate HQs and big pharma factories. Ireland is basically a low-tax hub for investors who can up and leave at any time. It's not the way to built sustainible prosperity, the crisis has shown that.

Welcome to the democracy, majority voted the government, majority will pay their fair share, you will pay less.

Ah ok, so if we have to pay the losses of private investors that have nothing to do with us when times are bad, does that mean we can democratise industry and take the rewards when times are good?

For some reason the banks ran out of cash-flow.

It's not that they ran out of cash, the crisis is based around the fact that their loanbook is simply not worth anywhere near what it nominally was during the inflated crisis. An investment in a Central Dublin flat complex that they may have poured 10mn into is now worth 2.5-3mn (and that's being generous), as the market has moved back into line post-bubble. They have an automatic 7mn loss, and this is being replicated across their books, loans worth nowhere near their value.

It has nothing to do with ordinary working people, who the right blame for everything from the deficit to days where you just feel fat - there has been incredible dilligence and responsibility on the part of the ordinary person to pay back what they took out, even as they see their pay gutted or get thrown on the dole queue.

See my reply:

How does a loan loses the value? If I loan you 1 EUR with 5% annual interest, this time next year you owe me 1,05 eur. How can that became 0,201 eur/

See above - essentially the loan was lent, and then spent, but what it's been invested in has collapsed, so the money is no longer there to pay anyone back. Tragic stupidity of the greedy monied classes yes, but also a fact of life - you can't extract blood from a stone, and Europe will have to accept that much of the money of the credit crisis was wiped out, and isn't coming back. It doesn't exist anymore, flaying the public won't get it back either.

That is the fault of Ireland's private banks and stupid investors who couldn't see the collapse coming, it has nothing to do with the Irish people. On the streets of Greece they chant 'we won't pay for your crisis'. I think they are correct, it's daylight robbery, and it's about time those who can afford and are by any moral standard obliged to take a hit, take it.

[crooks]

I have to go study now, hopefully this post is adequate in communicating my views. Again, not trying to weasel out of our own ****-ups but our stupidity was funded by someone else, which clearly have responsibility as well, both need to be factored in and I want to point out the any recommended route needs to keep in mind reality and how much debt we can afford.

Heck d'you remember the property ads in the boom? You were a weirdo if you didn't take out a 120% mortgage, the money was practically free, what could go wrong lol?

Any financial institution stupid enough to think that was a business model that could work deserves the lion's share of the blame.