The Fourteenth Banker Blog

November 27, 2010

Eyes On Ireland

Filed under: Running Commentary — thefourteenthbanker @ 1:14 AM

The Ireland EU bailout is getting panned from many sides. This article by Mish shows that he agrees with one of his favorite adversaries on this particular issue. The question is how the ordinary people of Ireland benefit from bailouts of the banking system. Things are a little more clear over there than they are over here. Ireland is a small country, most of its creditors are foreign banks, and severe austerity is being imposed by outsiders. Why?

While these considerations are not openly discussed in most media stories, the reason all parties want to bail out the banks is the same this time around as it was last time. The perceived risk is contagion and systemic meltdown of the financial system. The flame of that perception is stoked by the commercial banking industry itself, captured government officials, and central bankers.

Writer Mike Whitney has stern words concerning this bailout.

This is a black day for Ireland. The Irish people will now face a decade or more of grinding poverty and depression thanks to their venal leaders. As soon as the ink dries on the IMF loans, the second occupation of Ireland will begin, only this time there won’t be armored cars and Paramilitaries in fatigues, but nerdy-looking bureaucrats trained in the art of spreading misery. In fact, the loans haven’t even been signed yet, and already IMF officials are urging the government to cut jobless benefits and the minimum wage. They’re literally champing at the bit. They just can’t wait to get their hands on the budget and start slashing away.

And don’t believe the hype about European unity or saving Ireland. My ass. This is about bailing out the banks. The bondholders get a free ride while workers get kicked to the curb. Here’s a clip from the Financial Times that spells it out in black and white:

“According to data compiled by the Bank of International Settlements, the three largest creditors to the Irish economy at the end of June…were Germany to the tune of €109bn, the UK at €100bn and France at €40bn. These sums amount to 2 per cent of France’s gross domestic product, 4.5 per cent of Germany’s GDP, and 7 per cent of British GDP.”

Ireland is being asked to cut to social services, slash wages, renegotiate contracts, and dismantle the welfare state so that undercapitalized banks in France and Germany can get their pound of flesh. But, why? They’re the ones who bought the bonds. No one put a gun to their head. They knew they could lose money if Irish banks went south. That’s the risk they took. “You pays your money, and you takes your chances.” Right? That’s how capitalism works.

Not any more, it doesn’t. Not while Cowen’s in charge, at least. The Irish PM has decided to bail them out; make all the bondholders “whole again.” But who made Cowen God? Who gave Cowen the right to hand over his country to the IMF?

No one. Cowen is a rogue agent kowtowing to international capital. After he finishes his work in Ireland, he’ll probably join globalist Tony Blair on the French Riviera for a little hobnobbing with the tuxedo crowd.

The Irish people didn’t struggle through centuries of famine and foreign occupation so they could be debt-peons in the EU’s corporate Uberstate. Like Sinn Fein president Gerry Adams said, “We don’t need anyone coming in to run the place for us. We can run it ourselves.” Right. Tell the EU plutocrats to take their Utopian Bankstate and shove it.

I also fail to see how holding bank bondholders harmless while severe austerity is imposed on a general population is not disproportionate central decision-making to benefit the few at the expense of the many. Risks were taken for profit. The losses should not be socialized. Granted, if the banks were suddenly insolvent, the ramifications for the economies would be severe. However, if as Bill Black has suggested in his recent writings, resolution authorities stood ready to continue business operations and a true free enterprise system had fresh private capital ready to step into the breach, the dislocations could be manageable. But we do not have a true free enterprise system here in America or in the West in general. We have oligarchy, plutocracy, corporatism, etc. It is vested interests that stand in the way of creative destruction. To prepare any economy for financial transition where old institutions die a natural death and new ones arise from the ashes requires a democratization of both politics and business. I see few leaders prepared to lead that democratization. In fact, here in the U.S. the protectors of the banks are still ascendant. This protection actually prevents the development of a cure. For surely the cure is not more of the same.

So today it is austerity for Ireland, Greece, Latvia, soon Spain and Portugal. When will it be America’s turn?

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9 Comments »

  1. Hear! Hear! Thank you for this most excellent post.

    Comment by Sandi — November 27, 2010 @ 3:41 PM | Reply

  2. The entire Irish external creditor problem is private in nature. What is happening here would be that the Citizen’s of the Cayman Islands be held liable for making good the failure of a Cayman Islands bank. The Irish state is borrowing money to relend to the private sector Irish banks. What ever cash flows required of the Irish state should be covered by even greater funds due from the Irish banks who owe the Irish State. I can only imagine the security the Irish State will require from the banks.

    All this austerity stuff should be resisted. It is pure Friedmanite bull shit. If the austerity is imposed the revenues from the remittances of the Irish banks sjould be rebated to the populace.

    It is now a virtual certainty that elections will be called shortly and the present government will fall. At least that is what I have been told .

    Comment by Jerry J — November 27, 2010 @ 8:36 PM | Reply

  3. I’m visiting my in-laws in NYC over Thanksgiving. The subject of the Irish bailout came up in conversation with my father-in-law, who’s a lawyer. Not a big shot Cravath or Wachtel lawyer, just a small-time guy who probably never made more than a few hundred grand a year. Anyway, I was amazed by his cheerleading for the banks and acceptance that there is nothing that should be done except bail them out over and over. It’s a reminder that a big part of the problem of curbing the mega-elites of our society is the support they receive from the mini-elites who identify with them and aspire to be them.

    Comment by Don't Curse the Dark — November 27, 2010 @ 10:34 PM | Reply

  4. 14th, what is going on in the panic arena with respect to Euro bank bond dumping? Are funds moving heavily out of the Euro banks? We can see some activity relating to Treasuries from the dollar rebound. I keep thinking about September 2008 and the Shadow Banking crisis. 2008 had to have set up a tendency to beat the crowd here. What do you think?

    Comment by Jerry J — November 28, 2010 @ 10:38 PM | Reply

    • Jerry, I believe there is, and should be, a lot of skepticism about the “fat tail” risks in the Eurozone. There is political risk. These austerity programs may not be acceptable to large swaths of the voting public in individual countries. All it takes is one of them to say no and bondholder haircuts are on the table. Even without political insurrection, there is a question about whether they can even work economically. The austerity programs can bring a spiral of fiscal weakness to the sponsoring government as their GDP is affected and tax receipts are at risk, not to mention increasing unemployment and the cost of social support programs going up. So can such bailouts be durable? While European officials approve this bailout, they make cynical comments, which calls into question the depth of their commitment. The Greek fiscal plan is in doubt. See

      Comment by thefourteenthbanker — November 29, 2010 @ 11:39 AM | Reply

      • I emailed a friend in Ireland a list of the banks in Jersey. Why should the citizens of Jersey make good for any of banks on the list? He thought the question was dynamite. Then, if the loan cash flow to IMF Syndicate is $10, then the offending banks should pay say $12. The austerity issues are pure Friedmanite crap and they need to be put down once and for all. Under the conditions of the Irish loan, the state should seize all the banks and reorganize them with total loss to shareholders. The bank’s cash flow then should be stripped out to repay the syndication loan directly. If they IMF and bondholders balk, turn this loan down right now and reorganize with all bonded debt now becoming common stock positions.

        Comment by Jerry J — November 29, 2010 @ 12:51 PM

  5. Last night, Market Place did a piece on this that infuriated me; talking about how bondholders next time may have to take the hit, some suit bathered on about what a catastrophe that would be because it would send such a chill through the investment community that the cost of borrowing would be stratospheric and that the US, for instance, could find itself facing huge interest costs and not able to finance our debt, etc., etc. http://marketplace.publicradio.org/display/web/2010/11/29/pm-punishing-private-investors-may-delay-economy-recovery/
    I know there is a lot of nuance that I, with no degree in economics or business, fail to see. But what I DO see – or it sure seems so to me – is a relentless campaign to scare average Americans into protecting the business interests at all costs, up to and including slitting our own (Main St.’s) throat, if necessary. Is it just my paranoia? Just this a.m., NPR did a story on the Debt Commission report and how we (read: middle and working classes) must endure these draconian measures now (cutting social safety nets, “entitlements”, etc.) so that the IMF won’t one day come striding into the Treasury Dept. and make outrageous demands. The comparisons to Greece and Ireland were prominent in the piece. No mention of Paul Krugman’s counterpoint piece in the NYTimes Monday. No mention that there even could BE an alternate POV. This really feels like we’re being ramrodded and terrorized into something that is going to viciously bite us down the road. I would love to hear your thought on this.

    Comment by Sandi — November 30, 2010 @ 9:03 AM | Reply

    • Main Stream Media is barely media at all. There are only a few good business writers. I agree that scare tactics are to preserve status quo for the benefit of the powerful. Disorderly change is more problematic than orderly change. If government were not sold out they would be preparing for orderly change.

      It is obscene.

      Comment by thefourteenthbanker — November 30, 2010 @ 10:21 PM | Reply

      • Thanks, 14.

        I just started reading the Debt Commission’s report and this part of the intro really got to me:

        “Ever since the economic downturn, families across the country have huddled around kitchen tables, making tough choices about what they hold most dear and what they can learn to live without. They expect and deserve their leaders to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.”

        What strikes me about this are two things – one is the constant drumbeat of government spending being the same as a family budget. (While not advocating wild, profligate abandon, I don’t equate government deficit spending with a family maxing out its Discover Card). We are told that businesses can’t run deficits, and neither should Uncle Sam. What do they call it, I wonder, when a farm equipment dealer borrows money to stock tractors? He doesn’t wait till he has some idle cash lying around first.
        I have heard newly minted state pols here in NC brag that they have “run a business and know what it takes to do so and you can’t spend what you don’t have.” What ever happened to the concept of “investing in one’s business”, “it takes money to make money” (and often that money is borrowed). Now they seem to believe that we should all eat our seed corn.

        Comment by Sandi — December 1, 2010 @ 12:03 PM


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