When I was a kid, people like us didn’t make investments. That was for the wealthy.
Occasionally, not often, you might hear of somebody coming into a bit of money, and that was when people started to mention investments.
There were two kinds of investments in the old days: wise and bad. Everyone — even people such as ourselves who had little experience of money — understood that it was possible to lose everything if the bet went wrong, but that made sense, because it was also possible to make a fortune.
That’s the deal when you play in the free market, or at least, it was until recently. Not too long ago, our government refused to intervene in a matter that threatened the well-being of the entire Mid-West region, when Aer Lingus decided to remove its Heathrow flights from Shannon Airport and relocate in Belfast. Nothing could be done about this because it was a decision made by a private company, even though the government was a major shareholder. The free market had to be allowed to operate as God intended. Market forces could not be resisted.
Strangely, when the pendulum swung in the other direction and market forces started to threaten the profits of investors in the banks, everything became possible.
Not only could the government intervene in the free market, but it could mortgage the entire country to make sure that a bad investment didn’t cost the gamblers any money. Suddenly, the free market was a thing of the past.
As Morgan Kelly pointed out last week, the option was available to cancel the bank guarantee because it was based on lies told by the bankers. Kelly hasn’t been wrong about many things in predicting the course of our fiscal crisis, and when he estimates that the total bank bailout will cost €70 billion, I’m not going to disagree with him.
Of course, even the term “bank bailout” is a misnomer since it’s nothing of the sort. It’s a bailout of investors. One minister after another assured us that the bailout would get the banks lending again, even when the chief executive of AIB baldly informed a Dáil committee that it would not.
Now I see that the German Chancellor is saying it’s possible to make the investors carry some of the losses, but even more interestingly, the German finance minister is saying that banks should be allowed to collapse, and he sets out a method of forcing the bondholders to carry responsibility through a debt-for-equity swap. I wrote about this a little while ago, after the Financial Times recommended the very same thing.
Of course, the FT’s suggestion was dismissed by one inflated Fianna Fáil buffoon after another, as they assured us it was impossible. I wonder if the same FF stuffed-shirts will be phoning the German government to point out how mistaken they are? Hello. Is that Angela? Yeah, look, this is Willie.
Go back to that €70 billion for a second, the amount Kelly estimates the government will end up borrowing to save the investors from their responsibilities. At present, interest rates for Irish borrowing are prohibitive, but let’s say they settle at 6%. Interest repayments will therefore be about €4 billion every year, just to keep the bankers in comfort, before we spend a penny on anything else.
That means the bulk of budget cuts are not going to pay the public service wage bill, or healthcare or social welfare. The bulk of budget cuts are being made so that the government can protect investors from the consequences of a failure in their gamble.
How about that? Do you feel better now?
As I have said before, in my opinion that amounts to treason. If you can think of a better word for it, I’d be interested to hear what it is.