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Ireland, Debt & Insolvency

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Ireland, Debt & Insolvency

Old 9th Nov 2010, 08:53
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Ireland, Debt & Insolvency

If you thought the bank bailout was bad, wait until the mortgage defaults hit home

............By next year Ireland will have run out of cash, and the terms of a formal bailout will have to be agreed. Our bill will be totted up and presented to us, along with terms for repayment. On these terms hangs our future as a nation. We can only hope that, in return for being such good sports about the whole bondholder business and repaying European banks whose idea of a sound investment was lending billions to Gleeson, Fitzpatrick and Fingleton, the Government can negotiate a low rate of interest.

With a sufficiently low interest rate on what we owe to Europe, a combination of economic growth and inflation will eventually erode away the debt, just as it did in the 1980s: we get to survive.

How low is sufficiently low? Economists have a simple rule to calculate this. If the interest rate on a country’s debt is lower than the sum of its growth rate and inflation rate, the ratio of debt to national income will shrink through time. After a massive credit bubble and with a shaky international economy, our growth prospects for the next decade are poor, and prices are likely to be static or falling. An interest rate beyond 2 per cent is likely to sink us.

This means that if we are forced to repay the ECB at the 5 per cent interest rate imposed on Greece, our debt will rise faster than our means of servicing it, and we will inevitably face a State bankruptcy that will destroy what few shreds of our international reputation still remain.

Why would the ECB impose such a punitive interest rate on us? The answer is that we are too small to matter: the ECB’s real concerns lie with Spain and Italy. Making an example of Ireland is an easy way to show that bailouts are not a soft option, and so frighten them into keeping their deficits under control.

Given the risk of national bankruptcy it entailed, what led the Government into this abject and unconditional surrender to the bank bondholders? I have been told that the Government’s reasoning runs as follows: “Europe will bail us out, just like they bailed out the Greeks. And does anyone expect the Greeks to repay?”

The fallacy of this reasoning is obvious. Despite a decade of Anglo-Fáil rule, with its mantra that there are no such things as duties, only entitlements, few Irish institutions have collapsed to the third-world levels of their Greek counterparts, least of all our tax system.

And unlike the Greeks, we lacked the tact and common sense to keep our grubby dealing to ourselves. Europeans had to endure a decade of Irish politicians strutting around and telling them how they needed to emulate our crony capitalism if they wanted to be as rich as we are. As far as other Europeans are concerned, the Irish Government is aiming to add injury to insult by getting their taxpayers to help the “Richest Nation in Europe” continue to enjoy its lavish lifestyle.

My stating the simple fact that the Government has driven Ireland over the brink of insolvency should not be taken as a tacit endorsement of the Opposition. The stark lesson of the last 30 years is that, while Fianna Fáil’s record of economic management has been decidedly mixed, that of the various Fine Gael coalitions has been uniformly dismal.

As ordinary people start to realise that this thing is not only happening, it is happening to them, we can see anxiety giving way to the first upwellings of an inchoate rage and despair that will transform Irish politics along the lines of the Tea Party in America. Within five years, both Civil War parties are likely to have been brushed aside by a hard right, anti-Europe, anti-Traveller party that, inconceivable as it now seems, will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums.

You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.

Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.

From here on, for better or worse, we can only rely on the kindness of strangers.
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Old 9th Nov 2010, 09:23
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I'm sure MOL and many of the caravan dwellers in the UK would be happy to chip in with a few billion; after all most of the the latter are on UK benefits and not paying taxes despite their lavish life styles
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Old 9th Nov 2010, 09:28
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And Zanu FF will get voted in again.

Anyone in the UK thinking PR may be a good thing, should look at the last 30 years in Ireland and FF continually being in power
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Old 9th Nov 2010, 09:31
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ORAC: If the ECB or the EU or the IMF were to make finance available to Ireland at 5% that would not be punitive: the market rate after all is 8% (or maybe more by the time you read this), so 5% is less than prudent lenders (pension funds, banks (!!), sovereign wealth funds) assess as the level of risk attaching to lending to Ireland.

The Bank guarantee of September 2008 was a disaster in terms of its sheer scope: most of my colleagues said that the morning after and they have been proved right.

As well as venal politicans we should blame useless regulators, reckless bankers, the developer-politician nexus, and finally all the mugs who voted for this and who borrowed in defiance of all common sense. If you were being offered a mortgage of 8 times you income in 2007, would you have signed on the dotted line? Lots of muppets did just that. Part of the problem in Ireland is the belief that every muppet should be spared the consequences of his actions.
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Old 9th Nov 2010, 09:32
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The EU will probably want to use Ireland as a dumping ground for asylum seekers in return for a bailout.
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Old 9th Nov 2010, 11:02
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The amount of press this article is getting is amazing: not just several UK papers, but the Wall Street Journal mentioned it too. It does fill in a missing piece of the puzzle for me: the apparent lack of the kind of mortgage-related problems, affecting individual mortgage-holders rather than banks, that they have in the USA. According to Kelly, it just hasn't happened yet, at least not in sufficient volume to make the news.

The assets in question - houses and flats - are simply mispriced and must be marked down. This will have implication for both the mortgage-holders and the banks.
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Old 9th Nov 2010, 11:24
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One prudent genius who believes in globalisation, planted in the Palace of Westminster would solve all the global problems.
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Old 9th Nov 2010, 13:15
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I read a thread about Ireland a few weeks back, and I was
totally dismayed that the situation there was so bad.
The number of speculative building schemes that I saw
amazed me. And I must confess that the number of wrecked
lives that these schemes must have represented frightened me.
Things don't SEEM to have altered at all in the intervening period.
I don't suppose they will alter much in the near future either.
The speculators need to be taken to task for having Conned so
many people. All their assets should have been seized and used to
try to restore some sort of balance in the property market.
The whole situation is criminal I think.
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Old 9th Nov 2010, 13:28
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Couldn't agree more Mr Norm,ever signpost/lighting pole on the Great North road
from London to Newcastle should have the decomposing corpse of a Banker hanging from it,that would learn the buggas.
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Old 9th Nov 2010, 14:10
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Yup Cap'n. Bring back the Gibbet I say.
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Old 9th Nov 2010, 14:49
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As Ireland already experienced back in the 18th Century at the hands of the British..., the Irish survived by massively-emigrating to North America. Today, the whole of Europe is open to them as an alternative "to mass starvation and/or bankrupcy".

When it was good, you had it very good. Attracting all the low-cost manufacturers like DELL with extremely-low corporate tax rates compared to other countries within the EU. When it was good, you had it very good. GDP per Irishman easily surpassed GDP per Briton.

Only over the past 4-6 years, real Irish GDP growth was more directly related to (and a direct consequence of) merely rising house prices. And little or nothing to do with increased productivity etc. The Irish have since discovered their government's subterfuge of camouflaging "growth" under the guise of continually rising property prices which make their citizens feel richer than they really are. House prices (and commercial property values) have since plummeted 30-40%, and are reflected in today's market, which should give Irishmen hope for the future. However, the UK government continues their own subterfuges, house prices in UK have not seen anywhere similar declines. Britons today still feel rich, if relatively less so...?!

Give it a few more years. And Britons from the UK mainland will be clamouring across the border seeking employment in a more sane Irish EU economy (having in the interim mis-behaving badly and being ultimately unwelcome in the rest of the EU).

I stand by the Irish and the EU.

PS. If we no longer had Irishmen and Aussies running the bars over here, we'd be in very dire straits...?!
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Old 9th Nov 2010, 14:56
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Mine's a pint of Porter please.

(Well, it used to be.)
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Old 9th Nov 2010, 15:29
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or indeed become a Banker.
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Old 9th Nov 2010, 15:43
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Makes me glad I'm not troubled by Financial demands for the
House any more.
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Old 9th Nov 2010, 16:35
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Bankers, like us, who all of a sudden find themselves on the street, with a house payment to make.
Bankers are NOT like us and will never find themselves on the street.
The top echelon that is, not your poor sod at the local branch.

The world is in a mess, not only Ireland. Just WHAT is Obama up to in India (with his $600 Billion of funny money) & Cameron in China, just days before the G20 summit with the rest of the (AR)Seoul(S).

Bad news (for us lot) in heaps, I thinks.

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Old 9th Nov 2010, 20:42
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It's a wise choice to learn a trade, a physical skill. If you can build a table, install an electrical fixture, plant and harvest a crop - you will always have a source of livelihood when things go badly.
That's precisely th problem here right now. For most of those there is no source of livelihood. My brother in law, a sparks was the last to go from his company. He's now in Jersey with his family back in Ireland.

This country will go bankrupt probably next year. Everyone, EU included is pretending it won't happen like Baghdad Bob pretending not to see US tanks from his office window.

The reality is that for all the talk of cuts, very little has happened. An agreement six months ago with the public service unions for efficiencies and savings within their departments instead of pay cuts and job losses has simply not happened nor will it. Today one of the facilitators of the agreement commented diplomatically that he saw 'traction' in it's implementation. In the real world that means nothing has happened.

We have a 'draconian' budget coming up. That will have to be real and if it is there will be riots in the streets just like in Greece. We had a warm up riot (scuffle really) last week.

To give you some idea of sheer lack of original and insightful thinking from this government. One of the cost savings mentioned was the expected emigration of 40,000 people next year and that to continue. Given the current situation worldwide those will be the best and brightest. The days of the poor navvies going to London or New York to find work are long gone.

If I have my way I'll joining them.
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Old 9th Nov 2010, 21:31
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You might find yourself conscripted straight into a blue uniform to fight those in gray uniforms soon as you step off the boat the way things are shaping up across there Mr Corsair.
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Old 9th Nov 2010, 21:40
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Ireland is not alone in its plight - there are plenty of other countries around the globe with a huge real-estate overhang (Spain, the UK, Dubai, China??) just waiting to crash, not to mention a number of countries with unsustainable sovereign debt positions. Perhaps the central banks ought to just let the real-estate market tank in order to clear out the system once and for all? This alternative of keeping the propping up the market with artificially low interest rates until some indeterminate point in the future 'when things pick-up' is building untold stresses elsewhere in the system.
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Old 9th Nov 2010, 22:34
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They wanted europe,they got it,now like Greece,they are paying for it
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Old 10th Nov 2010, 16:08
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Would it be wise to secure a dozen arable acres and an automatic rifle,
Hmm - getting automatic rifles a bit tricky in Ireland, BandAide! Although maybe you could help - you're not related to NorAide by any chance are you?
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