Saturday, 26 February 2011

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.

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