WHEN IRISH EYES ARE CRYING

When Irish Eyes Are Crying
 By Michael Lewis – Vanity Fair March 2011

First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country—from one another. After which their banks and government really screwed them. So where’s the rage?

In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—which three years ago was a surplus—is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.

Yet when I arrived, in early November 2010, Irish politics had a frozen-in-time quality to it. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women booted the alpha males out of the banks and government. (Iceland’s new prime minister is a lesbian.) In Greece the business-friendly conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding, but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced “Feena Foil”), would remain in office into 2011. There’s been no Tea Party movement, no Glenn Beck, no serious protests of any kind. 

True Love’s First Kiss

Morgan Kelly is a professor of economics at University College Dublin, but he did not, until recently, view it as his business to think much about the economy under his nose. He had written a handful of highly regarded academic papers on topics (such as “The Economic Impact of the Little Ice Age”) considered abstruse even by academic economists. “I only stumbled on this catastrophe by accident,” he says. “I had never been interested in the Irish economy. The Irish economy is tiny and boring.” Kelly saw house prices rising madly and heard young men in Irish finance to whom he had recently taught economics try to explain why the boom didn’t trouble them. And they troubled him. “Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!” he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ ”

The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. “There is an iron law of house prices,” he wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.”  The problem for Kelly, once he had these thoughts, was what to do with them. “This isn’t my day job,” he says. “I was working on medieval-population theory… I was in this position—sort of being a passenger on this ship and you see a big iceberg, so you go and ask the captain: Is that an iceberg?”

Kelly wrote his second newspaper article, more or less predicting the collapse of the Irish banks. By 2007, Irish banks were lending 40 percent more to property developers than they had to the entire Irish population seven years earlier. “You probably think that the fact that Irish banks have given speculators €100 billion to gamble with, safe in the knowledge that taxpayers will cover most losses, is a cause of concern to the Irish Central Bank,” Kelly wrote, “but you would be quite wrong.”

It wasn’t until almost exactly one year later, on September 29, 2008, that Morgan Kelly became the startled object of popular interest.  On September 17 the financial markets were in turmoil. Lehman Brothers had failed two days earlier, shares of Irish banks were plummeting, and big corporations were withdrawing their deposits from them. A week later the department hired investment bankers from Merrill Lynch to advise it.  It would have been difficult for Merrill Lynch’s investment bankers not to know, at some level, that in a reckless market the Irish banks had acted with a recklessness all their own. But in the seven-page memo to Brian Lenihan—for which the Irish taxpayer forked over to Merrill Lynch seven million euros—they kept whatever reservations they may have had to themselves. “All of the Irish banks are profitable and well capitalised,” wrote the Merrill Lynch advisers, who then went on to suggest that the banks’ problem wasn’t at all the bad loans they had made but the panic in the market. The Merrill Lynch memo listed a number of possible responses the Irish government might have to any run on Irish banks. It refrained from explicitly recommending one course of action over another, but its analysis of the problem implied that the most sensible thing to do was guarantee the banks. After all, the banks were fundamentally sound. Promise to eat all losses, and markets would quickly settle down—and the Irish banks would go back to being in perfectly good shape. As there would be no losses, the promise would be free.

The most plausible explanation for all of this, however, was Morgan Kelly’s narrative: the Irish economy had become a giant Ponzi scheme and the country was effectively bankrupt. But it was so starkly at odds with the story peddled by Irish government officials and senior Irish bankers—that the banks merely had a “liquidity” problem and that Anglo Irish was “fundamentally sound”—that the two could not be reconciled. 

What exactly was said in meetings on the night of September 29, 2008, remains, amazingly, something of a secret. The government has refused Freedom of Information Act-type requests for records. But gathered around the conference tables inside the prime minister’s offices was an array of top government and finance officials, including Lenihan, Cowen, the attorney general, and bank officials and regulators. Eventually they brought in the heads of the two yet-to-be-disgraced big Irish banks: A.I.B. and Bank of Ireland. Evidently they either lied to Brian Lenihan about the extent of their losses or didn’t know themselves what those were. Or both. “At the time they were all saying the same thing,” an Irish bank analyst tells me. “ ‘We don’t have any subprime.’ ” What they meant was that they had avoided lending to American subprime borrowers; what they neglected to mention was that, in the general frenzy, all of Ireland had become subprime. Otherwise sound Irish borrowers had been rendered unsound by the size of the loans they had taken out to buy inflated Irish property. That had been the strangest consequence of the Irish bubble: to throw a nation which had finally clawed its way out of centuries of indentured servitude back into it.

The report from Merrill Lynch, which touted the banks as fundamentally sound, buttressed whatever story they told the finance minister. Ireland’s financial regulator, Patrick Neary, had echoed Merrill’s judgment. Morgan Kelly was still viewed as a zany egghead; at any rate, no one who took him seriously was present in the room. Anglo Irish’s stock had fallen 46 percent that day; A.I.B.’s had fallen 17 percent; there was a fair chance that when the stock exchange reopened one or both of them would go out of business. In the general panic, absent government intervention, the other banks would have gone down, too. Lenihan faced a choice: Should he believe the people immediately around him or the financial markets? Should he trust the family or the experts? He stuck with the family. Ireland gave its promise. And the promise sank Ireland.

Even at the time, the decision seemed a bit odd. The Irish banks, like the big American banks, managed to persuade a lot of people that they were so intertwined with their economy that their failure would bring down a lot of other things, too. But they weren’t, at least not all of them. Anglo Irish Bank had only six branches in Ireland, no A.T.M.’s, and no organic relationship with Irish business except the property developers. It lent money to people to buy land and build: that’s practically all it did. It did this mainly with money it had borrowed from foreigners. It was not, by nature, systemic. It became so only when its losses were made everyone’s.

In any case, if the Irish wanted to save their banks, why not guarantee just the deposits? There’s a big difference between depositors and bondholders: depositors can flee. The immediate danger to the banks was that savers who had put money into them would take their money out, and the banks would be without funds. The investors who owned the roughly 80 billion euros of Irish bank bonds, on the other hand, were stuck. They couldn’t take their money out of the bank. And their 80 billion euros very nearly exactly covered the eventual losses inside the Irish banks. 

These private bondholders didn’t have any right to be made whole by the Irish government. The bondholders didn’t even expect to be made whole by the Irish government. Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer.

In retrospect, now that the Irish bank losses are known to be world-historically huge, the decision to cover them appears not merely odd but suicidal. A handful of Irish bankers incurred debts they could never repay, of something like 100 billion euros. They may have had no idea what they were doing, but they did it all the same. Their debts were private—owed by them to investors around the world—and still the Irish people have undertaken to repay them as if they were obligations of the state. For two years they have labored under this impossible burden with scarcely a peep of protest. What’s more, all of the policy decisions since September 29, 2008, have set the hook more firmly inside the mouths of the Irish public. In January 2009 the Irish government nationalized Anglo Irish and its 34-billion-euro (and mounting) losses. In late 2009 they created the Irish version of the tarp program (NAMA), but, unlike the U.S. government (which ended up buying stakes in the banks), they actually followed through on the plan and are in the process of buying 70 billion euros of crappy assets from the Irish banks.

BRIAN LENIHAN’S FIRST EXPLANATION

A single decision sank Ireland, but when I ask Lenihan about it he becomes impatient, as if it isn’t a fit topic for conversation. It wasn’t much of a decision, he says, as he had no choice. The Irish financial markets are governed by rules rooted in English law, and under English law bondholders enjoy the same status as ordinary depositors. That is, it was against the law to protect the little people with deposits in the bank without also saving the big investors who owned Irish bank bonds.

This rings a bell. When U.S. Treasury secretary Hank Paulson realized that allowing Lehman Brothers to fail was viewed not as brave and principled but catastrophic, he, too, claimed he’d done what he’d done because the law gave him no other option. But in the heat of the crisis, Paulson had neglected to mention the law just as Lenihan didn’t bring up the law requiring him to pay off the banks’ private lenders until long after he’d done it. In both cases the explanation was legalistic: narrowly true, but generally false. The Irish government always had the power to impose losses on even the senior bondholders, if it wanted to. “Senior people have forgotten that the government has certain powers,” as Morgan Kelly puts it. “You can conscript people. You can send them off to certain death. You can change the law.”

BRIAN LENIHAN’S SECOND EXPLANATION

On September 30, 2008, in the heat of the moment, Lenihan gave the same reason for guaranteeing the banks’ debts that Merrill Lynch had given him: to prevent “contagion.” Tell financial markets that a loan to an Irish bank was a loan to the Irish government and investors would calm down. For who would doubt the credit of the government? 

BRIAN LENIHAN’S THIRD EXPLANATION

A year and a half later, when suspicions arose that the banks’ losses were so vast they might bankrupt the government, Lenihan offered a new reason for the government’s gift to private investors: the bonds were owned by Irishmen. Up until then the government’s line had been that they had no idea who owned the bank’s bonds. Now they said that, if the Irish government didn’t eat the losses, Irish credit unions and insurance companies would pay the price. The Irish, in other words, were simply saving the Irish. This wasn’t true, and it provoked a cry of outrage from the credit unions, which said that they owned hardly any of the bonds. A political investigative blog called Guido Fawkes somehow obtained a list of the Anglo Irish foreign bondholders: German banks, French banks, German investment funds, Goldman Sachs. (Yes! Even the Irish did their bit for Goldman.)

BRIAN LENIHAN’S FOURTH EXPLANATION

Across Europe just now men who thought their title was “minister of finance” have woken up to the idea that their job is actually government bond salesman. The Irish bank losses have obviously bankrupted Ireland, but the Irish finance minister does not want to talk about that. Instead he mentions to me, several times, that Ireland is “fully funded” until next summer, which is to say that the Irish government has enough cash in the bank to pay its bills until next July. It isn’t until I’m on my way out the door that I realize how trivial this point is. The blunt truth is that, since September 2008, Ireland has been, every day, more at the mercy of her creditors. To remain afloat, Ireland’s biggest banks, which are now owned by the Irish government, have taken short-term loans from the European Central Bank amounting to 86 billion euros. Two weeks later Lenihan will be compelled by the European Union to invite the I.M.F. into Ireland, relinquish control of Irish finances, and accept a bailout package. The Irish public doesn’t yet know it, but, even as we sit together at his conference table, the European Central Bank has lost interest in lending to Irish banks. And soon Brian Lenihan will stand up in the Irish Parliament and offer a fourth explanation for why private investors in Ireland’s banks cannot be allowed to take losses. “There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the E.C.B.,” he will say.

BRING ME A LITTLE IRE

Which way entire nations jumped when the money was made freely available to them obviously told you a lot about them: their desires, their constraints, their secret sense of themselves. How they reacted when the money was taken away was equally revealing. In Greece the money was borrowed by the state: the debts are the debts of the Greek people, but the people want no part of them. The Greeks already have taken to the streets, violently, and have been quick to find people other than themselves to blame for their problems: monks, Turks, foreign bankers. Greek anarchists now mail bombs to Angela Merkel and hurl Molotov cocktails at their own police.  


In Ireland the money was borrowed by a few banks, and yet the people seem not only willing to repay it but to do so without a peep of protest. Back in October 2008, after the government threatened to means-test for medical care, the old people marched in the streets of Dublin. A few days after I’d arrived the students followed suit, but their protest was less public anger than theater, and perhaps an excuse to skip school. (DOWN WITH THIS SORT OF THING, read one of the students’ signs.) I’d tapped two students as they stumbled away from the event to ask why they had all painted yellow streaks on their faces. They looked at each other for a beat. “Dunno!” one finally said and burst out laughing. Other than that … silence.

It’s more than two years since the Irish government foisted the losses of the Irish banks on the Irish people, and in that time there have been only two conspicuous acts of social unrest. In May 2009, at A.I.B.’s first shareholder meeting after the collapse, a senior citizen hurled rotten eggs at the bank’s executives. And early one morning in September 2010, a 41-year-old property developer from Galway named Joe McNamara, who had painted his cement mixer with anti-banker slogans, climbed inside the cab, drove through Dublin, and, after cutting the brake lines, stalled the machine up against the gates of the Parliament. 

The elderly egg thrower was a distant memory, but McNamara was still, more or less, in the news: declining requests for interviews. “Joe is a private person,” his lawyer told me. “He feels like he’s made his point. He doesn’t want any media attention.”

Two things strike every Irish person when he comes to America, Irish friends tell me: the vastness of the country, and the seemingly endless desire of its people to talk about their personal problems. Two things strike an American when he comes to Ireland: how small it is and how tight-lipped. An Irish person with a personal problem takes it into a hole with him, like a squirrel with a nut before winter. He tortures himself and sometimes his loved ones too. What he doesn’t do, if he has suffered some reversal, is vent about it to the outside world. The famous Irish gift of gab is a cover for all the things they aren’t telling you.

So far as I could see, by November 10, 2010, the population of Irish people willing to make a stink about what has happened to them has been reduced to one: the elderly egg thrower.

TIME TO TAKE A WALK

Ballyhea

Charleville

Co. Cork

February 27th 2011

Across all of north Africa for the past few weeks, oppressed peoples have been rising from their knees, putting their lives on the line to fight for their basic rights; in Ireland, we have yet to get off our arses to protest at all the obscenities that have been visited on us over the past several years, we have yet to rise from our comfortable seats in our pubs, clubs, canteens and kitchens, yet to take a single step of protest.  Well, it’s about time we did.

There are so many outrages over which we should be exercised, but let’s take them one at a time, and let’s start with the biggest of all.  One of the final abominable acts of what was surely the most inept government Ireland has ever had was to sign an agreement late last year with the IMF and the ECB, an agreement on which we were never consulted but an agreement which places an immoral, unpardonable, unconscionable, and most pertinent of all, an unbearable burden on us, the Irish people, and on generations of us for decades to come, i.e. that we, the Irish people, should pay the private debts incurred by the Irish banks to those reckless international financial speculators who took a gamble on the Irish economy and with their massive loans to the Irish banks, fuelled the crazy construction boom of the last decade.  It was a gamble that failed, it should be their loss, but no – thanks to our twin Brians we are expected to pick up that particular tab.  This is where we start our protest – we say NO to that deal.

I'm just one small voice, one lone pair of legs, but wherever I am this coming Sunday, March 6^th, at 12 noon (I'm usually working on Sunday, won’t necessarily be at home in Ballyhea), I will be going to the centre of that parish/village/town/city and for the next 15 minutes or so, I’ll be walking.  I won’t have  a placard, a slogan, a chant, but I will be walking, a silent walk, an angry walk.  Maybe it’s pointless, maybe I’ll be on my own, but it will be a start.

We must let this incoming government know, we must let Europe know – the Irish people are a risen people, and have been for nearly 100 years.  The days of being treated like compliant serfs with no say in our own affairs are long gone.  We’ll pay the national sovereign debt, yes, but we will not pay the debts of these private speculators.

If you're happy to assume the burden of this yoke that’s been placed across the shoulders of the Irish nation, stay at home; if, however, you feel as I do, then wherever you live, wherever you happen to be this Sunday at 12 noon, go down to the heart of your local community, wherever that may be – church, main street, GAA grounds – and walk this walk.

Regards,

Diarmuid O'Flynn.

WHAT THE EXPERTS ARE SAYING

Please read these three synopsised articles, even if it's only that which is highlighted – in less than a couple of thousand words it tells us why we MUST protest, and protest now. 

If the public/private debt isn't decoupled (that’s sovereign debt/bank to bond-holder debt), WE WILL DEFAULT, nothing surer; on this all credible economists agree.  If that happens, then the IMF/ECB will show their teeth, their true colours; forget our precious Corporation Tax rate, that will be instantly burned; our pension rates, our social welfare rates, our public service salares, all those items that so annoy Berlin and Brussels, will be slashed.  Whatever pain we, the Irish people, have to endure in order to ensure that those bond-holders get their full pound of flesh plus a little interest, WILL be imposed.  Think it can’t be done, think it won’t happen?  Look up Latvia.

The scenes from the tsunami that hit Japan yesterday are shocking, frightening, moving.  If we don’t take to the streets now, if we don’t protest, if we don’t have the deal that was negotiated on our behalf by an utterly discredited government torn up and renogiatioted, with the public/private debt elements separated entirely, there is a financial tsunami heading our way.  This financial crisis has already wreaked destruction here, it has taken lives; just because it isn’t as dramatic as what is happening in the Pacific, just because it’s not being captured on video, doesn’t mean it’s not already begun.  It has, good people taking their own lives.  Please, stand up.

I was watching a documentary on the misnamed Irish ‘famine’ a few nights ago (there was no ‘famine’, just a potato blight – plenty of food otherwise in the country, but that’s another story).  In it, mention was made of ‘moral hazard’ (the theory that people with insurance might behave more recklessly than those without), which Lord Trevelyan used to justify his policy of non-intervention, thus leading to the death/emigration of millions.  It has raised its ugly head again in this debate, this time our masters in Europe doing the preaching.  I've had enough of it.

Anyway, those articles:

ECONOMIST: BANK BONDHOLDER HAIRCUT COULD SAVE IRELAND €25 BILLION

February 13, 2011 by Paul Quigley

Economist Constantin Gurdgiev estimates that burning bank bondholder could save Ireland €25 billion – far more than the government has admitted to date.

Recent public debate about whether Ireland should force burden sharing onto creditors of Irish banks – the mysterious, largely continental European bondholders – is based on a big assumption: that only about €21 billion in privately held bonds is outstanding. Hitting the holders of this debt with a forced haircut (70%  hit to subordinated, 40% to senior) would net Ireland ‘only’ about €10 billion.

Politicians and other talking heads have repeated his assumption on TV and radio so often over the past few days that it is now a ‘fact’ of Ireland’s political debate, and presenters and politicians have cited it when ridiculing Sinn Fein’s more radical “burn the bondholders” stance.

Trinity College Dublin Economist Constantin Gurdgiev yesterday wrote that “the figure of €21 billion is simply not a true or correct estimate of the total bonds still remaining outstanding.” He has calculated the figure as €50 billion, based on statements by finance minister Brian Lenihan to the Dail last month, and a letter clarifying those statements.

          So total scope for savings under relatively normal (by market pricing) haircuts is a cool €25.49bn (with a full hit on un-guaranteed debt we can save €33.14bn) – more than the cost of rescuing Anglo to-date (€23.9bn).

HAVE WE LEARNT NOTHING? – David McWilliams

November 15, 2010 (that’s nearly two weeks before the IMF/ECB agreement!)

Many years ago, while working in the Central Bank during the 1993 currency crisis, I witnessed a particular drama playing out. Back then, the Irish authorities tried to fight the inevitable – and lost. They tried to prevent the punt from devaluing within the old EU Exchange Rate Mechanism, and they used the same language as they are using today in the sovereign bond market crisis.

Words like ‘credibility’ and ‘reputation’ were bandied about. The story line was that, if Ireland devalued the punt and did what everyone expected, the credibility of the nation would be tarnished forever.  The official line was that, if we devalued, we would be cast out into the wilderness of second rate nations.

In the end, we devalued and guess what? The sky didn’t cave in, the world did not end; on the contrary, the opposite happened. Money flowed into Ireland, interest rates fell and the economy took off.  In fact, everything that official Ireland said would happen after a devaluation turned out to be wrong. The economy thrived once the crisis was over.

In the final days of the crisis, having said that they would support us come what may, the German and French leaders supported the franc, which was much bigger and also coming under speculative pressure, but they let the punt go.   The same will happen again now. A solution will be imposed on us which ‘suits’ the wider European interest.
 

German chancellor Angela Merkel said last week that bondholders to troubled countries would need to share the pain. In so doing, she is opening up an exit strategy for our leaders.  Surely now, in terms of our bank debts, it is clear that this principle of the private investor ‘sharing the pain’ must apply and we must do a deal. Merkel is saying, in effect, that, when things go wrong, private investors should share the pain and that it is ok to burn – or at least singe – the bondholders.  As she put it, there may be a clash of politics and the markets here, but sometimes the wider political interest has to win out. Yet our government has run so far up its own cul-de-sac that, rather than reach out for Merkel’s olive branch, it responded – and I am quoting Taoiseach Brian Cowen here -Merkel’s comments were not ‘‘helpful’’. Merkel’s comments were a ‘get out of jail’ card. This is one we can’t refuse. But what happened?

We will instead impose austerity on the Irish people to pay the creditors of our banks, when even the creditors’ boss is hinting that private investors must share the pain when things go wrong. We will take the route that favours the ‘markets’ and ignore the wider political interest of looking after the people.

This solution must involve some renegotiation of what we owe.  This is not to suggest that there is an easy way out. Any deal to restructure our debts – or those of our banks – will involve haggling and risks. Our EU partners will not give us an easy ride in any deal. They see a country which is still wealthy and ask why they should have to pay our bills. We still have a big hole in our exchequer finances which has to be closed. There is no painless route out of this mess.

Yet we can start on the road back if, as happened in early 1993 before the pound devalued, we finally accept reality. Just as was the case during the currency crisis, the financial markets are sending us a clear message: it won’t work.

They were right then. And they are right again now.

“SCREAM EARLY AND SCREAM LOUD”: AN ARGENTINE PERSPECTIVE ON THE BAILOUT

December 9, 2010 by NewsWhip Contributor (post IMF/ECB agreement, but before the budget)

Tony Phillips is an Irish researcher in the University of Buenos Aires, Faculty of Economics. He specialises in alternative development, sovereign debt issues and ecological economics.

Ireland in December 2010 shows many parallels with Argentina in December 2001. Former Minister for Economics and Argentine statesman Aldo Ferrer wrote of this period citing Dante Alighieri, “Abandon hope, all ye who enter here.”

In Dublin this week large sums of money are in play. Irish negotiators will be under extreme pressure. Their performance now, and the actions of the Dáil in revising, renegotiating and passing an acceptable budget, will mark a defining hour in the history of the Irish state. This is not about a three euro airport tax, it is about Irish sovereign national debt.

Current indications are far from positive. Nama, a band-aid measure with limited transparency designed to cushion just one industrial sector, was both ineffective and expensive. The toxic combination of Nama with infinite deposit guarantees brings the Irish state dangerously close to risking sovereign default. Instead of shelving Nama, negotiators argue for its extension.

Interviews with Taoiseach Cowen reveal a dangerous confusion between the running costs of government and the woes of the private banking sector. Surely he understands the difference. Budget gaps can and will be fixed by Ireland alone. Unfortunately Ireland’s banking woes may be beyond a national solution. The financial markets are crystal clear; they are worried about Ireland’s banking problems and their knock on effects abroad, not mundane budgetary issues like the minimum wage.

GOOD BANK, BAD BANK, A GLOBAL RESPONSE

Banks worldwide are endangered by contagious collapses in derivatives. These derivatives are known as asset-backed debt – or “Collateralized Debt Obligations” to their friends. The risk of collapse prompts national financial rescues, typically splitting loans into good-banks and bad-banks. Schemes vary but you would be hard pressed to find a bad bank scheme as generous as Ireland’s Nama. Resembling a giant cushion shoved under defaulting speculative loans from Irish banks, Nama was a critical mistake. It was a panicky reaction which gave a soft landing to many undeserving and wealthy institutions, more akin to what one might expect in the 1970’s Latin American banana republics than a modern OECD state.

As the IMF and the ECB negotiators try to convince Ireland that borrowing bailout funds to transfer private banking to the Irish taxpayer transfer is a national priority, Ireland’s negotiators have only one task: avoid financial suicide! 

The IMF and the ECB will fight tooth and nail to load as much debt onto the Irish people as they are willing to bear.

Bank rescue is a political issue. Unlike Argentina where pushing private debt on the public was a national sport by 1980’s dictators, Ireland is a democracy. The Irish people can refuse to elect any representative unwilling to fight hard on this issue. National financial stability is paramount. If this means forcing the losses of the banking defaults onto the shoulders of the speculators who borrowed from these banks, then so be it. Failing that, they fall to the shoulders of the foreign bondholders who speculated on speculator debt; these same foreign bondholders that politely asked their governments to send the IMF and the ECB to Dublin. Instead of shelving Nama, IMF and ECB negotiators argue for its extension.

NOT THE END OF THE WORLD

The critical issue in December 2010 is less public money to rescue the banks, not more! The crisis will be over by Spring, the banks nationalised and the Euro will survive preferably in a new form. Most important from an Irish perspective, this return to stability can happen without loading decades of misery onto the Irish people.

So first things first! Have your voices heard in those snowy streets and prevent a bad budget! If the current government or future governments show any signs of corruption, change them. Their mismanagement to date should make such political changes not just necessary but popular. Refuse to elect any representative not trusted to represent national interests against global financial power.

Remember the remit of the IMF and the ECB includes the protection of private financial interests abroad. They will make the Irish taxpayer pay till they scream. Learn a lesson from Argentina, scream early and scream loud. It will mean less pain in the long run. Ireland needs to play hardball with foreign financial interests now. Argentina is watching you. Sovereign debt is a sovereignty issue; time to prove your mettle.

THE CALL TO ARMS

Ballyhea

Charleville

Co. Cork

February 23^rd 2011

At the height of the insanity that sank the Irish economy, when Irish banks were giving out money like there was no tomorrow (and there’s always tomorrow), the sharks of the international financial world smelled a little blood and moved in for yet another killing, easy money.  ‘Ye want more billions?’ they asked our naive Irish banks, ‘Here ye are, at the usual rates of course.’  Thus was the fire fuelled, the fire that eventually incinerated the Irish banking system and with it the Irish economy.  But, what happened to the international loan sharks?  Burned also, right?  Wrong.  Should have been right, but no – wrong.

A few months ago, the Irish government, through the twin Brians (Cowen and Lenihan) ‘negotiated’ (very loose term, in this instance) a deal with the IMF and the ECB whereby we, the Irish people, this generation and the next several generations, would assume the debt of the sharks, in its entirety.  Not alone that but we would also pay interest on it, and not alone would we pay interest on it but because we were now so debt-ridden and thus such a bad bet, we would now also pay a premium on that interest, an extra 3% premium, penal all by itself.

The German and the French governments, their representatives on the ECB especially, have been playing the Mammy and the Daddy in this debacle; ‘Bad child!’, they’ve been saying to us, the foolish Irish, ‘Bold child!  Irresponsible child!  To be so reckless with your money, to have so wasted the fantastic gains you were making in the last decade!  Now, you must pay the price.’  But, hang on a second – who gave our banks the money to give to us?  Who supplied the explosives that eventually blew our property market to Kingdom Come? 

‘Get on the property ladder NOW or you'll be too late,’ our young people were told, ‘Buy that apartment/house NOW, for tomorrow it will be twice the price!’  Thus panicked, our young people bought and were even persuaded to take a few extra bob to furnish the house and buy the new 4x4 they would surely need to bring the young family the mile or so to school.

‘Invest in that second home!’ our middle-aged middle-income earners were told, ‘Get into the market – you've earned it, you deserve it, this will be your pension, your fail-safe additional retirement plan.’  And in we went, in our innocent and ignorant droves, trusting the advice of our bankers and financiers.  But, follow this flooding euro-river back to the source – who was supplying the Irish banks with all this excess cash?  And excess it was, excessive it was.  Why did those who were loaning this money to the Irish banks not see then what everyone can see now, that this was a bubble getting bigger and bigger, and that when it burst it was going to take the Irish economy with it?  Why didn’t the sharks see that?  Because they too were blind, blinded by their own greed.

So now, Mammy and Daddy in Berlin and Paris, I ask ye – in this debacle, who was most reckless of all?  And I ask further, by what moral, legal or political reasoning should we, the Irish people, now pay the private debts accrued to those sharks?  We will pay our own debt, our sovereign debt, and that’s debilitating enough, but why should we have to pay this? 

At the moment, across all of North Africa, people are taking to the streets in protest at their governments, and in the process taking their lives in their hands.  I am calling now for the Irish people to rise up against this obscenity, this abomination, this so-called ‘agreement’ which is in fact an imposition, a blackmail note – ‘Pay us, or we’ll sink your economy, your country.’

Next Sunday week, March 6^th, at 12 noon, let the people congregate at the heart of every parish, village, town and city across the land, and let them take a short march down the main street/road; a silent march, no slogans, no banners, no speeches, no violence, no destruction of property public or private, no disruption of work.  Just a short and silent protest, but en-masse.   Enough moaning in canteens, coffee-shops, pubs and clubs; on this one issue, on this massive issue, on this totally amoral decision, a decision that will beggar this country for generations, let us protest.  Half an hour, that’s all it should take; at noon, when the Angelus rings out across the nation, let those tolling bells be the signal for a new uprising, because know this – while it’s not as blatant as the Danes or the Normans heading up the estuaries in centuries past, this insidious deal is yet another ‘invasion’, another attempt to enslave the Irish.

Regards,

Diarmuid O'Flynn.