Saturday, April 30, 2011
Sunday, April 24, 2011
Who are the bond holders we are bailing out?
This post is courtesy of the following blog,
http://golemxiv-credo.blogspot.com/
Sunday, 17 October 2010
The citizens of Ireland have been forced over the last two years to give the bond holders of Anglo Irish bank 20 billion euros. WHY? The Irish government recently told its people the 20 billion was not enough and they MUST give the same bond holders another 10 to 20 billion euros. WHO are these special people called Bond Holders that must be so carefully protected even at the cost of despoiling a nation?
I tried to find out. I failed. 15th October the British Blogger Guido Fawkes published a list of the bond holders. I would like to thank Mr Fawkes, and thank Unclear for posting the link and bringing it to my attention.
UPDATE -
On the question of the veracity of the bond holders list. I have now had word from two people who both claim to have knowledge, one is an insider, and both say it looks correct to them.
Obviously the only way to be sure is to have each company on the list confirm. But short of that I think the confirmations I now have, suggest the list is true. Though one of them also said it looked like the list was partial with some names missing.
http://golemxiv-credo.blogspot.com/
Sunday, 17 October 2010
The citizens of Ireland have been forced over the last two years to give the bond holders of Anglo Irish bank 20 billion euros. WHY? The Irish government recently told its people the 20 billion was not enough and they MUST give the same bond holders another 10 to 20 billion euros. WHO are these special people called Bond Holders that must be so carefully protected even at the cost of despoiling a nation?
I tried to find out. I failed. 15th October the British Blogger Guido Fawkes published a list of the bond holders. I would like to thank Mr Fawkes, and thank Unclear for posting the link and bringing it to my attention.
So those are the names but WHO are they? I thought this was something I could help with, to add my contribution to Mr Fawkes' break-through.
It is worth knowing who the bond holders really are because the Irish government has said more than once that one of the reasons the bond holders had to be protected and could not, must not, be made to suffer any losses, even though it would be PERFECTLY legal to do so, is because the bond holders are pension funds for poor Irish widows and cooperative savings funds for orphans and 'ordinary folk'. A little poetic exaggeration there, but only a little.
This 'widows and orphans' reason why the Bond holders must not take any loss, was trotted out to bolster an earlier reason that started to wear thin, which was that if Ireland pissed off the bond holders then they would refuse to ever deal with Ireland ever again and Ireland would never be able to borrow ever again, ever, and everyone would die in penury, friendless and cold. That first reason started to look like it might not hold, when the Germans started to talk rather too openly about how it might be best for all, them especially, if Greece did 're-structure' its debts (default on its bond holders - a teeny bit). When no one said it would be the end for Greece if it defaulted on the mighty bond holders, Ireland's 'the sky will fall in' reason for not asking its bond holders to share the pain started to look like what it was, a politically motivated lie. Thus the grannies and orphans had to be hurriedly wheeled out.
So, are the bond holders widow's pension funds and orphans' savings accounts? Well actually, NO. That too was just another lie from the morally degenerate and cringingly servile Irish government.
But don't take my word for it. Lets look at exactly who the bond holders are.
But first be clear about my method. Over all I have decided to compare Ireland's wealth with that of its bond holders.
I have looked at what the named companies do - according to their own literature. I have looked to see if they are owned by someone else and if so who and where the companies are registered and based. And I have looked at the sort of wealth we are talking about. On this last point, I have looked not at their market value - because that, as we all know, is a matter of creative accountancy and is also often not something the companies like to list, but at their 'assets under management'.
Assets under management gives us a view of the total amount of wealth these companies deal with so we can compare it to the total wealth of Ireland. Its GDP. Where a company is, in fact, owned by a larger one, I have used the parent company's assets on the grounds that on the other side, Anglo Irish has been treated as a subsidiary of Ireland and the entire wealth of the nation is being deployed and called upon.
So, on one side we have Anglo Irish and its 'parent company'/owner, Ireland and its 'bond' holders the people of Ireland. On the other, we have the companies listed as bond holders and the larger companies who own them and who are thus the ultimate beneficiaries and interested parties in those bonds.
On with the show!
Of the 80 listed companies only 7 listed their business as dealing with pensions and being a cooperative savings institution. Of those, only 4 listed churches and unions as their clients, the others could well have been big pension funds. The churches and unions in question were in Germany not Ireland. Those seven companies are amongst the smallest of Anglo Irish's bond holders. I only have figures for four of the seven. The largest, Union Investments of Germany, has a mere €165 billion in assets under management.
The total assets under management which I was able to compile from publicly available figures is €20,871,150,000,000. That is an underestimate because the bond holders who turn out to be Private and Swiss banks don't publish any figures. So Anglo Irish's 'bond holders' hold and invest MORE than 20.8 trillion euros. Guido lists those bond holders as holding between them 4 Billion euros in Anglo Irish bonds.
Now, in my opinion both figures are likely to be wrong. Certainly my figure is a large underestimate. But taking them at face value Anglo Irish would account for an one 5000th of the total assets being managed by all the bond holders. So would even a total default by Anglo Irish cause that much, let alone systemic, pain and risk? Why are the 'Bond holders' and the Irish government so concerned that the Irish people be forced to take the loss and pay the debts for them?
Now lets look at the other side of the equation, at Ireland itself. Well Ireland's GDP before the crash, in 2008, was ... drum roll please... €207 billion. Or 0.207 trillion.
SO.... on one side we have Ireland whose bond holders, its people, have between them a total GDP wealth of 0.207 trillion euros. Who are being FORCED, against their will, to pay Anglo Irish bank's debts to its bond holders, who between them hold 20.8 Trillion euros. The people of Ireland are paying to, and protecting the wealth and power of, people who have 100 times more wealth!
So where do these wealthy bond holders live and work?
Germany has the most with 15 of the bond holders. Who between them hold 5.3 trillion euros.
France is next with 10 bond holders. Who have about 4 trillion to keep them warm.
Britain is third with 9 who have around 3 trillion.
The Swiss have 6 but who have about 8.5 trillion.
America has only three and hold only a trillion.
Other nations include, Spain, Belgium, Portugal, Holland Finland, Norway, Sweden, Poland, South Africa and Italy.
All these figures are very rough. The figure for Switzerland is certainly under because Private Swiss Banks just don't publish figures. What we can say for sure, figures or no figures, is these are not banks investing widow's pensions or orphan's pennies.
So who are they? Well many of the bond holders are privately held banks, which list their activities as asset management for off-shore, non-resident and high value individuals. To give you an example, one of the private banks is EFG Bank of Luxembourg. EFG stands for European Financial Group which is the third largest private bank group in Switzerland. It manages over €7.5 trillion in assets. It is 'mostly', 40%, owned by Mr Spiro Latsis, son of a Greek shipping magnate. He also owns 30% of Hellenic Petroleum. His personal fortune is estimated to be about $9 Billion.
Now there is absolutely no suggestion that Mr Latsis has ever done anything wrong or illegal. And his holdings are, I am quite sure, perfectly legal and above board. But when we talk of Anglo Irish's bond holders it is Mr Latsis and those with his sort of wealth who we are talking about NOT widows and orphans or you and me. It is therefore worth remembering, the next time an Irish politician, or any of our politicians for that matter, say that some welfare payment can no longer be afforded, it is because the money that could have paid for it has been given instaed to the bond holders, people not unlike Mr Latsis. The Irish people are paying and protecting the interests of people like Mr Latsis over the interests of their own children. And it is their own politicians who have arranged this.
Other bond holders call themselves 'asset management' firms. The fifth largest asset management firm in the world is one of the bond holders. Others are insurance companies. The 6th and 9th largest in the world, to be specific. Others are the largest banks, Deutsche, Soc Gen, Barclay's, PNB Paribas, UniCredit (who don't appear on the list but own Pioneer Investments) and Wells Fargo (also not on the list but who own European Credit Management). Then there is Goldman. No show without the squid.
Kleinwort Benson Investors is a bond holder. But Kleinwort is owned by a Belgian holding company, RHJ which is part owned by Mr Timothy Collins. Mr Collins also sits on the board of Citigroup. So he too is one of the bond holders the Irish people are 'helping'.
Finally, a very large number of the banks who are Anglo Irish's bond holders, are members of something called the Euro Banking Association. All the large European banks, most of the large US ones, Swiss, Japanese, Nordic and some Chinese, are members. The chairperson is Mr Hansjorg Nymphius of Deutsche Bank. Other board members are from JP Morgan Chase, RBS, Bank of Ireland, West LB(bankrupt), BNP Paribas, ABN Ambro, Dexia and Banco Santander.
Its a list which could double as the list of Anglo Irish's bond holders. The EBA was set up in Paris in 1985, since when it has been and is, central to promoting European Union financial integration and the area's banking interests. The EBA has close ties to the ECB.
I will leave you to digest this disgusting bolus of self serving wealth protection.
The only thing left to say is this. The bond holders of Anglo Irish are a very good guide to the identity of the bond holders of ALL OUR BANKS. The bond holders being protected, in every nation, on the advice of the banks and financial class, are THE BANKS AND THE WEALTHIEST OF THE FINANCIAL CLASS.
THEY are screwing YOU!
For anyone interested in a very different take on the financial crisis, the failure of the policy of bailing out the banks and what it means for us, the book, The DEBT GENERATION is now finished and shipping.
UPDATE -
On the question of the veracity of the bond holders list. I have now had word from two people who both claim to have knowledge, one is an insider, and both say it looks correct to them.
Obviously the only way to be sure is to have each company on the list confirm. But short of that I think the confirmations I now have, suggest the list is true. Though one of them also said it looked like the list was partial with some names missing.
The Great Libyan Distraction
The entire Libyan conflict of the last month -- the civil war in Libya, the U.S.-led military action against Gaddafi -- is neither about humanitarian intervention nor about the immediate supply of world oil. It is in fact one big distraction -- a deliberate distraction -- from the principal political struggle in the Arab world. There is one thing on which Gaddafi and Western leaders of all political views are in total accord. They all want to slow down, channel, co-opt, limit the second Arab revolt and prevent it from changing the basic political realities of the Arab world and its role in the geopolitics of the world-system.
To appreciate this, one has to follow what has been happening in chronological sequence. Although political rumblings in the various Arab states and the attempts by various outside forces to support one or another element within various states have been a constant for a long time, the suicide of Mohamed Bouazizi on Dec. 17, 2010 launched a very different process.
It was in my view the continuation of the spirit of the world revolution of 1968. In 1968, as in the last few months in the Arab world, the group that had the courage and the will to launch the protest against instituted authority were young people. They were motivated by many things: the arbitrariness and cruelty and corruption of those in authority, their own worsening economic situation, and above all the insistence on their moral and political right to be a major part of determining their own political and cultural destiny. They have also been protesting against the whole structure of the world-system and the ways in which their leaders have been subordinated to the pressures of outside forces.
These young people were not organized, at least at first. And they were not always totally cognizant of the political scene. But they have been courageous. And, as in 1968, their actions were contagious. Very soon, in virtually every Arab state, without distinction as to foreign policy, they have threatened the established order. When they showed their strength in Egypt, still the key Arab state, everyone began to take them seriously. There are two ways of taking such a revolt seriously. One is to join it and try thereby to control it. And one is to take strong measures to quash it. Both have been tried.
There were three groups who joined it, underlined by Samir Amin in his analysis of Egypt: the traditional and revivified left, the middle-class professionals, and the Islamists. The strength and character of these groups has varied in each of the Arab countries. Amin saw the left and the middle-class professionals (to the extent that they were nationalist and not transnational neoliberals) as positive elements and the Islamists, the last to get on the bandwagon, as negative elements. And then there is the army, always the bastion of order, which joined the Egyptian revolt late, precisely in order to limit its effect.
So, when the uprising began in Libya, it was the direct result of the success of the revolts in the two neighboring countries, Tunisia and Egypt. Gaddafi is a particularly ruthless leader and has been making horrific statements about what he would do to traitors. If, very soon, there were strong voices in France, Great Britain, and the United States to intervene militarily, it was scarcely because Gaddafi was an anti-imperialist thorn in their side. He sold his oil willingly to the West and he boasted of the fact that he helped Italy stem the tide of illegal immigration. He offered lucrative arrangements for Western business.
The intervention camp had two components: those for whom any and all military interventions by the West are irresistible, and those who argued the case for humanitarian intervention. They were opposed very strongly in the United States by the military, who saw a Libyan war as unwinnable and an enormous military strain on the United States. The latter group seemed to be winning out, when suddenly the resolution of the Arab League changed the balance of forces.
How did this happen? The Saudi government worked very hard and effectively to get a resolution passed endorsing the institution of a no-fly zone. In order to get unanimity among the Arab states, the Saudis made two concessions. The demand was only for a no-fly zone and a second resolution was adopted opposing the intrusion of any Western land forces.
What led the Saudis to push this through? Did someone from the United States telephone someone in Saudi Arabia and request this? I think it was quite the opposite. This was an instance of the Saudis trying to affect U.S. policy rather than the other way around. And it worked. It tipped the balance.
What the Saudis wanted, and what they got, was a big distraction from what they thought most urgent, and what they were doing -- a crackdown on the Arab revolt, as it affected first of all Saudi Arabia itself, then the Gulf states, then elsewhere in the Arab world.
As in 1968, this kind of anti-authority revolt creates strange splits in the countries affected, and creates unexpected alliances. The call for humanitarian intervention is particularly divisive. The problem I have with humanitarian intervention is that I'm never sure it is humanitarian. Advocates always point to the cases where such intervention didn't occur, such as Rwanda. But they never look at the cases where it did occur. Yes, in the relatively short run, it can prevent what would otherwise be a slaughter of people. But in the longer run, does it really do this? To prevent Saddam Hussein's short-run slaughters, the United States invaded Iraq. Have fewer people been slaughtered as a result over a ten-year period? It doesn't seem so.
Advocates seem to have a quantitative criterion. If a government kills ten protestors, this is "normal" if perhaps worthy of verbal criticism. If it kills 10,000, this is criminal, and requires humanitarian intervention. How many people have to be killed before what is normal becomes criminal? 100, 1000?
Today, the Western powers are launched on a Libyan war, with an uncertain outcome. It will probably be a morass. Has it succeeded in distracting the world from the ongoing Arab revolt? Perhaps. We don't know yet. Will it succeed in ousting Gaddafi? Perhaps. We don't know yet. If Gaddafi goes, what will succeed him? Even U.S. spokesmen are worrying about the possibility that he will be replaced either with his old cronies or with al-Qaeda, or with both.
The U.S. military action in Libya is a mistake, even from the narrow point of view of the United States, and even from the point of view of being humanitarian. It won’t end soon. President Obama has explained his actions in a very complicated, subtle way. What he has said essentially is that if the president of the United States, in his careful judgment, deems an intervention in the interests of the United States and the world, he can and should do it. I do not doubt that he agonized over his decision. But that is not good enough. It's a terrible, ominous, and ultimately self-defeating proposition.
In the meantime, the best hope of everyone is that the second Arab revolt renews steam -- perhaps a long shot now -- and shakes first of all the Saudis.
Immanuel Wallerstein, Senior Research Scholar at Yale University, is the author of The Decline of American Power: The U.S. in a Chaotic World (New Press).
To appreciate this, one has to follow what has been happening in chronological sequence. Although political rumblings in the various Arab states and the attempts by various outside forces to support one or another element within various states have been a constant for a long time, the suicide of Mohamed Bouazizi on Dec. 17, 2010 launched a very different process.
It was in my view the continuation of the spirit of the world revolution of 1968. In 1968, as in the last few months in the Arab world, the group that had the courage and the will to launch the protest against instituted authority were young people. They were motivated by many things: the arbitrariness and cruelty and corruption of those in authority, their own worsening economic situation, and above all the insistence on their moral and political right to be a major part of determining their own political and cultural destiny. They have also been protesting against the whole structure of the world-system and the ways in which their leaders have been subordinated to the pressures of outside forces.
These young people were not organized, at least at first. And they were not always totally cognizant of the political scene. But they have been courageous. And, as in 1968, their actions were contagious. Very soon, in virtually every Arab state, without distinction as to foreign policy, they have threatened the established order. When they showed their strength in Egypt, still the key Arab state, everyone began to take them seriously. There are two ways of taking such a revolt seriously. One is to join it and try thereby to control it. And one is to take strong measures to quash it. Both have been tried.
There were three groups who joined it, underlined by Samir Amin in his analysis of Egypt: the traditional and revivified left, the middle-class professionals, and the Islamists. The strength and character of these groups has varied in each of the Arab countries. Amin saw the left and the middle-class professionals (to the extent that they were nationalist and not transnational neoliberals) as positive elements and the Islamists, the last to get on the bandwagon, as negative elements. And then there is the army, always the bastion of order, which joined the Egyptian revolt late, precisely in order to limit its effect.
So, when the uprising began in Libya, it was the direct result of the success of the revolts in the two neighboring countries, Tunisia and Egypt. Gaddafi is a particularly ruthless leader and has been making horrific statements about what he would do to traitors. If, very soon, there were strong voices in France, Great Britain, and the United States to intervene militarily, it was scarcely because Gaddafi was an anti-imperialist thorn in their side. He sold his oil willingly to the West and he boasted of the fact that he helped Italy stem the tide of illegal immigration. He offered lucrative arrangements for Western business.
The intervention camp had two components: those for whom any and all military interventions by the West are irresistible, and those who argued the case for humanitarian intervention. They were opposed very strongly in the United States by the military, who saw a Libyan war as unwinnable and an enormous military strain on the United States. The latter group seemed to be winning out, when suddenly the resolution of the Arab League changed the balance of forces.
How did this happen? The Saudi government worked very hard and effectively to get a resolution passed endorsing the institution of a no-fly zone. In order to get unanimity among the Arab states, the Saudis made two concessions. The demand was only for a no-fly zone and a second resolution was adopted opposing the intrusion of any Western land forces.
What led the Saudis to push this through? Did someone from the United States telephone someone in Saudi Arabia and request this? I think it was quite the opposite. This was an instance of the Saudis trying to affect U.S. policy rather than the other way around. And it worked. It tipped the balance.
What the Saudis wanted, and what they got, was a big distraction from what they thought most urgent, and what they were doing -- a crackdown on the Arab revolt, as it affected first of all Saudi Arabia itself, then the Gulf states, then elsewhere in the Arab world.
As in 1968, this kind of anti-authority revolt creates strange splits in the countries affected, and creates unexpected alliances. The call for humanitarian intervention is particularly divisive. The problem I have with humanitarian intervention is that I'm never sure it is humanitarian. Advocates always point to the cases where such intervention didn't occur, such as Rwanda. But they never look at the cases where it did occur. Yes, in the relatively short run, it can prevent what would otherwise be a slaughter of people. But in the longer run, does it really do this? To prevent Saddam Hussein's short-run slaughters, the United States invaded Iraq. Have fewer people been slaughtered as a result over a ten-year period? It doesn't seem so.
Advocates seem to have a quantitative criterion. If a government kills ten protestors, this is "normal" if perhaps worthy of verbal criticism. If it kills 10,000, this is criminal, and requires humanitarian intervention. How many people have to be killed before what is normal becomes criminal? 100, 1000?
Today, the Western powers are launched on a Libyan war, with an uncertain outcome. It will probably be a morass. Has it succeeded in distracting the world from the ongoing Arab revolt? Perhaps. We don't know yet. Will it succeed in ousting Gaddafi? Perhaps. We don't know yet. If Gaddafi goes, what will succeed him? Even U.S. spokesmen are worrying about the possibility that he will be replaced either with his old cronies or with al-Qaeda, or with both.
The U.S. military action in Libya is a mistake, even from the narrow point of view of the United States, and even from the point of view of being humanitarian. It won’t end soon. President Obama has explained his actions in a very complicated, subtle way. What he has said essentially is that if the president of the United States, in his careful judgment, deems an intervention in the interests of the United States and the world, he can and should do it. I do not doubt that he agonized over his decision. But that is not good enough. It's a terrible, ominous, and ultimately self-defeating proposition.
In the meantime, the best hope of everyone is that the second Arab revolt renews steam -- perhaps a long shot now -- and shakes first of all the Saudis.
Immanuel Wallerstein, Senior Research Scholar at Yale University, is the author of The Decline of American Power: The U.S. in a Chaotic World (New Press).
The real Capitalist end game?
The French & Germans are constantly being sounded out as the orchestrators of the EU debt crisis, the fact is though their populations are already being screwed with unjust engineered national debt also,
Irelands national debt clock - €28,888 per head (& climbing)
Germany - €22,470 per head (& climbing)
France - €25,233 per head (& climbing)
Remarkable how close the figure per head is across the many factors like population, import/export figures, unemployment figures, property booms etc etc etc.
The reality is Sarkosy & Merkel are only French & German by geographic loaction of their birth, they respect nothing about nationality whether it is French, German or even the myth that they pedal of us all being european, their core principle is the accumulation of wealth from every nation on the planet.
The illusion of the capitalist system that is portrayed to all is that the 'free', 'developed', 'first world' etc is the shining example of how you can do anything you want & achieve great wealth through hard work, this in itself is only the by product of the system that the real aim of is to indebt so called 'prosperous' countries with national debt like we have just seen above.
This had gone on for decades in the 'third world' countries, but the fact that there is far far more money to be squeezed out of 'first world' countries that have had the systematic plundering of 'third world' countries resources already set up, in order to facilitate the production of goods in the 'first world' countries, left the real end game of the greedy money men on this planet only to be acheived, sucking as much money out of the rich countries on a sovereign platform for private interest for decades to come.
Sound outlandish? Think this should be in a conspiracies forum?
Well just answer this question, who are the beneficiaries of all of these countries national debts?
United States - Canada - United Kingdom - France - Germany - Netherlands - Ireland - Greece - Italy - Spain - Portugal - Japan - Australia - New Zealand - Sweden
Private interest lenders, the truth is National debt & nations across the world are seen as nothing more than 'markets' full of 'consumers' to earn profit from no matter what the Social consequence.
Irelands national debt clock - €28,888 per head (& climbing)
Germany - €22,470 per head (& climbing)
France - €25,233 per head (& climbing)
Remarkable how close the figure per head is across the many factors like population, import/export figures, unemployment figures, property booms etc etc etc.
The reality is Sarkosy & Merkel are only French & German by geographic loaction of their birth, they respect nothing about nationality whether it is French, German or even the myth that they pedal of us all being european, their core principle is the accumulation of wealth from every nation on the planet.
The illusion of the capitalist system that is portrayed to all is that the 'free', 'developed', 'first world' etc is the shining example of how you can do anything you want & achieve great wealth through hard work, this in itself is only the by product of the system that the real aim of is to indebt so called 'prosperous' countries with national debt like we have just seen above.
This had gone on for decades in the 'third world' countries, but the fact that there is far far more money to be squeezed out of 'first world' countries that have had the systematic plundering of 'third world' countries resources already set up, in order to facilitate the production of goods in the 'first world' countries, left the real end game of the greedy money men on this planet only to be acheived, sucking as much money out of the rich countries on a sovereign platform for private interest for decades to come.
Sound outlandish? Think this should be in a conspiracies forum?
Well just answer this question, who are the beneficiaries of all of these countries national debts?
United States - Canada - United Kingdom - France - Germany - Netherlands - Ireland - Greece - Italy - Spain - Portugal - Japan - Australia - New Zealand - Sweden
Private interest lenders, the truth is National debt & nations across the world are seen as nothing more than 'markets' full of 'consumers' to earn profit from no matter what the Social consequence.
The inequitable distribution of the worlds wealth
This diagram speaks volumes, the entire cost of the bailout internationally was aprox $12T,
The estimated combined wealth of just Anglo Irish Banks bond holders is €20.5T,
1 billion people could be lifted out of poverty for $0.3T.
The estimated combined wealth of just Anglo Irish Banks bond holders is €20.5T,
1 billion people could be lifted out of poverty for $0.3T.
Source of image
Monday, April 11, 2011
ECB-IMF deal is a noose that will strangle economic recovery (Irish times - 09/04/2011)
OPINION : What the ECB and IMF have forced on Ireland is fundamentally corrupt and doomed to failure, write MICHAEL CRAGG and JOSEPH STIGLITZ
WHAT HAPPENED to the Celtic Tiger? For many years, Ireland’s growth was based on fundamentals: investing in education and infrastructure to make the country an attractive place for investment and a gateway to Europe for companies from the US and Asia.
But then, like so much of the rest of the world, Ireland was distracted by the lure of fast bucks and the wizardry of finance. As in much of the rest of the world, false economic doctrines advocating unfettered markets prevailed, claiming the seeming success of the economy as evidence of their verity. Not surprisingly, economic doctrines that helped create the crisis have not served the country well in dealing with its aftermath.
With those still in office entering into international lending agreements that benefit the Irish banks and their debt holders but not necessarily the Irish citizens, fundamental questions arise about how to move forward.
Today, those fundamentals that created the Celtic Tiger are still there, but the real resources, the most important of which are its people, are increasingly sitting idle. Unless the right policies are put into place, matters are likely to get worse.
Unfortunately, the question of which policies are right is being distorted by an effort to “save” the banks. The new Irish Government, after the old was tossed out for its dismal failure at managing the crisis, had (and still has) the opportunity to put Ireland on a more sustainable path, but has failed thus far to address the underlying problems.
There are two fundamental interrelated problems. What to do with the banks? And how to get the economy started again? We know policies of austerity will lead to lower output and lower tax revenues, and if there is any improvement in the deficit, it will be smaller than expected. What matters for debt sustainability is the ratio of debt to gross domestic product (GDP); the higher the ratio the more unsustainable the economic trajectory.
Even in more optimistic scenarios, Ireland’s debt to GDP ratio is expected to soar to 125 per cent in 2013, up from 25 per cent in 2007. Low growth could make things worse, as stagnant GDP offsets the reduction in Ireland’s debt. If Europe continues to falter – 2011 growth is projected to be lower even than last year – this will make Ireland’s recovery all the more difficult.
Even the EU is now anticipating that projections made just a short while ago were too rosy. But the EU recipe for recovery is more of the same: to meet the deficit reduction targets, more austerity – which in turn means still lower growth and still higher unemployment.
In effect, the International Monetary Fund (IMF) and European Central Bank (ECB) are asking ordinary Irish workers and citizens to bear the burden of mistakes that were made by international financial markets. But it is important to recognise that these mistakes are at least partly attributable to following deregulation and liberalisation policies that were advocated by the IMF and ECB and that these policies provided significant benefits to the financial sector.
Irish citizens bear the costs of these mistakes not only through higher unemployment, but also through lower wages, higher taxes and cutbacks in public services. That there will have to be some cutbacks is inevitable, but it is not inevitable that they be of the current form or magnitude. The Government’s steadfast and continuing policy of bailing out the Irish banks and their bondholders is at great personal cost to Irish citizens. The fundamental economic policy question is who should bear the costs of the mistakes. And this is where the first question, what should be done with the banks, links with the second, how to reignite the economy.
Under capitalism, those who provide capital, whether through bonds or equity, are supposed to oversee what is done with their funds; this accountability is what makes capitalism work. It is the system of incentives that underlies the success of a market economy. We tolerate a high degree of inequality in defence of these incentives – it is argued that high rewards are necessary to compensate for risk and to motivate responsible entrepreneurship.
In Ireland, as in much of the rest of the world, though, those who seemed to believe in markets, started to rewrite the rules in the midst of the crisis. They argued for the socialising of losses, while the gains had been privatised. Such a system of ersatz capitalism is doomed to failure, and is fundamentally corrupt and inequitable. Some argued that globally it was necessary to support the too-big-to-fail financial firms but this logic certainly doesn’t apply to relatively small institutions in a relatively small country at the cost of its citizens. There are alternatives.
Many Irish citizens now realise the cost of bailing out bondholders (whether in Germany, the US, the UK or even Ireland) is being borne by them. It is a massive, unjustified and unjustifiable redistribution of resources.
The IMF and ECB are lending money to ensure Irish taxpayers bail out Irish bank bondholders, but with little concern for economic growth and welfare.
The international lending terms imposed on the Government and its citizens are onerous in large part due to the Government’s continuing policy of bailing out the Irish banks. Raising interest rates to Ireland to tame European inflation is senseless. The budgetary “correction”, arising from higher taxes and lower services to pay for interest on the debt, will balloon to over 6 per cent of GDP and cumulatively amount to 9.6 per cent of GDP.
But Ireland should realise this may be only the first step in the bloodletting. As we noted, already there is recognition the Government underestimated the adverse effects on the economy – and thus overestimated tax revenues and the budget. But even worse, there are grounds to believe the €85 billion may be inadequate because of the ongoing posture towards the banks.
No one can be sure what will happen with the economy or the banking sector and therefore judgments about the adequacy of the international lending package are contentious. This is in part because the answers depend on the policies pursued. If the austerity programme continues, the economy will slow, defaults will increase and property values will decline even further.
Sometimes countries are faced with unpleasant choices. And there is a tendency when facing those unpleasant choices to avoid making the hard decisions. But there are high costs to postponing facing reality.
Under the current strategy, under “rosy” scenarios, Ireland’s debt to GDP ratio will quickly reach 125 per cent. Think what that implies. Assume that Ireland doesn’t try to repay the money, but just pays the interest, and assume that market interest rates return to something more “normal” – compared to the current very low rates resulting from the flood of liquidity from the ECB and the Fed. A country with a debt to GDP ratio of 125 per cent could easily have to pay 8 per cent interest rates. This would mean that 10 per cent of Ireland’s GDP would have to go forever to just service the debt.
This is a noose around the country’s neck that will strangle it. It makes clear the IMF, ECB and Government must come to terms with imposing losses on the international lenders whose loose lending policies played a central role in the current crisis.
Debt restructuring is neither easy nor costless; but the costs are far less than the alternative. Argentina, after its debt restructuring, grew at an average annual rate of more than 8 per cent for six consecutive years until the global economic crisis hit. Ireland, with its talented people, its location, and the advantages provided by being in the EU, would be in an even better position.
After restructuring, Ireland would attract new banks and new firms that would see these fundamental strengths. In contrast, continued delay in dealing with the inevitable day of reckoning will cast uncertainty over the economy: so long as there is not debt restructuring, the country faces low growth, high taxes and/or low public services, a disgruntled labour force and citizenry that has been made, unfairly, pay for others’ mistakes.
And so long as there is not debt restructuring, economic risks of a highly levered economy and associated uncertainties of a future debt restructuring and its consequences will discourage investment, both domestic and foreign.
Those representing the interests of the lenders (bondholders) have, of course, a different view. They want to extract as much out of the Irish people as they can.
The new Government faces hard choices. Any path presents risks. If there were reasonable prospects of avoiding the turmoil that might result from a debt restructuring, we could understand why one might gamble on the strategy of postponement. But as we look at the numbers, the hard facts suggest otherwise. It is time to get the Irish economy back to work. The current strategy will simply increase the gap between the economy’s potential and actual output, and lengthen the time before a return to full employment.
And even were it to succeed, it will mean Ireland will be in partial indentured servitude for as far as the eye can see – devoting 10 per cent or more of what it earns to pay off what are largely the consequences of the financial sector’s misdeeds. There has to be a better answer – and there is: international loan loss recognition combined with pro-Irish growth policies will be better for all in the long run.
Joseph Stiglitz is university professor at Columbia University. He was awarded the Nobel Prize in economics in 2001. He formerly served as chairman of President Clinton’s Council of Economic Advisers and chief economist at the World Bank. Michael Cragg, an economist who formerly taught at Columbia University, is now a principal with the Brattle Group.
Source
WHAT HAPPENED to the Celtic Tiger? For many years, Ireland’s growth was based on fundamentals: investing in education and infrastructure to make the country an attractive place for investment and a gateway to Europe for companies from the US and Asia.
But then, like so much of the rest of the world, Ireland was distracted by the lure of fast bucks and the wizardry of finance. As in much of the rest of the world, false economic doctrines advocating unfettered markets prevailed, claiming the seeming success of the economy as evidence of their verity. Not surprisingly, economic doctrines that helped create the crisis have not served the country well in dealing with its aftermath.
With those still in office entering into international lending agreements that benefit the Irish banks and their debt holders but not necessarily the Irish citizens, fundamental questions arise about how to move forward.
Today, those fundamentals that created the Celtic Tiger are still there, but the real resources, the most important of which are its people, are increasingly sitting idle. Unless the right policies are put into place, matters are likely to get worse.
Unfortunately, the question of which policies are right is being distorted by an effort to “save” the banks. The new Irish Government, after the old was tossed out for its dismal failure at managing the crisis, had (and still has) the opportunity to put Ireland on a more sustainable path, but has failed thus far to address the underlying problems.
There are two fundamental interrelated problems. What to do with the banks? And how to get the economy started again? We know policies of austerity will lead to lower output and lower tax revenues, and if there is any improvement in the deficit, it will be smaller than expected. What matters for debt sustainability is the ratio of debt to gross domestic product (GDP); the higher the ratio the more unsustainable the economic trajectory.
Even in more optimistic scenarios, Ireland’s debt to GDP ratio is expected to soar to 125 per cent in 2013, up from 25 per cent in 2007. Low growth could make things worse, as stagnant GDP offsets the reduction in Ireland’s debt. If Europe continues to falter – 2011 growth is projected to be lower even than last year – this will make Ireland’s recovery all the more difficult.
Even the EU is now anticipating that projections made just a short while ago were too rosy. But the EU recipe for recovery is more of the same: to meet the deficit reduction targets, more austerity – which in turn means still lower growth and still higher unemployment.
In effect, the International Monetary Fund (IMF) and European Central Bank (ECB) are asking ordinary Irish workers and citizens to bear the burden of mistakes that were made by international financial markets. But it is important to recognise that these mistakes are at least partly attributable to following deregulation and liberalisation policies that were advocated by the IMF and ECB and that these policies provided significant benefits to the financial sector.
Irish citizens bear the costs of these mistakes not only through higher unemployment, but also through lower wages, higher taxes and cutbacks in public services. That there will have to be some cutbacks is inevitable, but it is not inevitable that they be of the current form or magnitude. The Government’s steadfast and continuing policy of bailing out the Irish banks and their bondholders is at great personal cost to Irish citizens. The fundamental economic policy question is who should bear the costs of the mistakes. And this is where the first question, what should be done with the banks, links with the second, how to reignite the economy.
Under capitalism, those who provide capital, whether through bonds or equity, are supposed to oversee what is done with their funds; this accountability is what makes capitalism work. It is the system of incentives that underlies the success of a market economy. We tolerate a high degree of inequality in defence of these incentives – it is argued that high rewards are necessary to compensate for risk and to motivate responsible entrepreneurship.
In Ireland, as in much of the rest of the world, though, those who seemed to believe in markets, started to rewrite the rules in the midst of the crisis. They argued for the socialising of losses, while the gains had been privatised. Such a system of ersatz capitalism is doomed to failure, and is fundamentally corrupt and inequitable. Some argued that globally it was necessary to support the too-big-to-fail financial firms but this logic certainly doesn’t apply to relatively small institutions in a relatively small country at the cost of its citizens. There are alternatives.
Many Irish citizens now realise the cost of bailing out bondholders (whether in Germany, the US, the UK or even Ireland) is being borne by them. It is a massive, unjustified and unjustifiable redistribution of resources.
The IMF and ECB are lending money to ensure Irish taxpayers bail out Irish bank bondholders, but with little concern for economic growth and welfare.
The international lending terms imposed on the Government and its citizens are onerous in large part due to the Government’s continuing policy of bailing out the Irish banks. Raising interest rates to Ireland to tame European inflation is senseless. The budgetary “correction”, arising from higher taxes and lower services to pay for interest on the debt, will balloon to over 6 per cent of GDP and cumulatively amount to 9.6 per cent of GDP.
But Ireland should realise this may be only the first step in the bloodletting. As we noted, already there is recognition the Government underestimated the adverse effects on the economy – and thus overestimated tax revenues and the budget. But even worse, there are grounds to believe the €85 billion may be inadequate because of the ongoing posture towards the banks.
No one can be sure what will happen with the economy or the banking sector and therefore judgments about the adequacy of the international lending package are contentious. This is in part because the answers depend on the policies pursued. If the austerity programme continues, the economy will slow, defaults will increase and property values will decline even further.
Sometimes countries are faced with unpleasant choices. And there is a tendency when facing those unpleasant choices to avoid making the hard decisions. But there are high costs to postponing facing reality.
Under the current strategy, under “rosy” scenarios, Ireland’s debt to GDP ratio will quickly reach 125 per cent. Think what that implies. Assume that Ireland doesn’t try to repay the money, but just pays the interest, and assume that market interest rates return to something more “normal” – compared to the current very low rates resulting from the flood of liquidity from the ECB and the Fed. A country with a debt to GDP ratio of 125 per cent could easily have to pay 8 per cent interest rates. This would mean that 10 per cent of Ireland’s GDP would have to go forever to just service the debt.
This is a noose around the country’s neck that will strangle it. It makes clear the IMF, ECB and Government must come to terms with imposing losses on the international lenders whose loose lending policies played a central role in the current crisis.
Debt restructuring is neither easy nor costless; but the costs are far less than the alternative. Argentina, after its debt restructuring, grew at an average annual rate of more than 8 per cent for six consecutive years until the global economic crisis hit. Ireland, with its talented people, its location, and the advantages provided by being in the EU, would be in an even better position.
After restructuring, Ireland would attract new banks and new firms that would see these fundamental strengths. In contrast, continued delay in dealing with the inevitable day of reckoning will cast uncertainty over the economy: so long as there is not debt restructuring, the country faces low growth, high taxes and/or low public services, a disgruntled labour force and citizenry that has been made, unfairly, pay for others’ mistakes.
And so long as there is not debt restructuring, economic risks of a highly levered economy and associated uncertainties of a future debt restructuring and its consequences will discourage investment, both domestic and foreign.
Those representing the interests of the lenders (bondholders) have, of course, a different view. They want to extract as much out of the Irish people as they can.
The new Government faces hard choices. Any path presents risks. If there were reasonable prospects of avoiding the turmoil that might result from a debt restructuring, we could understand why one might gamble on the strategy of postponement. But as we look at the numbers, the hard facts suggest otherwise. It is time to get the Irish economy back to work. The current strategy will simply increase the gap between the economy’s potential and actual output, and lengthen the time before a return to full employment.
And even were it to succeed, it will mean Ireland will be in partial indentured servitude for as far as the eye can see – devoting 10 per cent or more of what it earns to pay off what are largely the consequences of the financial sector’s misdeeds. There has to be a better answer – and there is: international loan loss recognition combined with pro-Irish growth policies will be better for all in the long run.
Joseph Stiglitz is university professor at Columbia University. He was awarded the Nobel Prize in economics in 2001. He formerly served as chairman of President Clinton’s Council of Economic Advisers and chief economist at the World Bank. Michael Cragg, an economist who formerly taught at Columbia University, is now a principal with the Brattle Group.
Source
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