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Economy Favourites

Morgan Kelly Predicts Irish Bankruptcy

I’d like to say that Morgan Kelly is an idiot.  I’d like to tell you that he has been consistently wrong in all his predictions about the Irish economy.  I’d like to inform you that this man has no idea what  he’s talking about.

But I’m afraid I can’t.

Morgan Kelly is far from a fool.  He has been consistently correct in his predictions and he knows precisely what he’s talking about.

The man who foresaw the banking crisis long before almost everyone else, who was ridiculed and dismissed by Bertie Ahern’s legion of halfwits, has written an article in today’s Irish Times that should scare the living daylights out of any thinking Irish person.

In Kelly’s own words, Ireland is facing economic ruin.

Tracing the source of the economic disaster back to Brian Lenihan’s absurd banking bailout in 2008, Kelly describes how Professor Patrick Honohan, the incoming governor of the Central Bank, could have used his international stature to reverse Lenihan’s original act of stupidity, but instead compounded the error by taking the ECB’s side and insisting that the banks’ losses were manageable.

A fool’s pardon might be available for Brian Lenihan, a man who manifestly failed to understand the fundamentals of the brief he held, but Kelly leaves no such room for Honohan.  Accusing his fellow academic of the costliest mistake ever made by an Irish person, Kelly has laid responsibility for the unfolding Irish disaster at Honohan’s door.

This is a very grave charge to make against the man everyone hoped would rid the Central Bank of its complacency and incompetence, but Kelly doesn’t stop there.  He goes on to accuse Honohan of undermining Lenihan when, for once, he was doing something right in resisting the so-called “bailout”.  As Kelly puts it, Lenihan was deftly sliced off at the ankles by his central bank governor.

He goes on to provide an interesting insight into who Ireland’s real friends were among the powerful nations.  The IMF’s plan to impose a savage haircut on bondholders was shot down by none other than the United States, in the form of treasury secretary Timothy Geithner, while the only voice in our defence came from the old enemy in the person of UK chancellor George Osborne, though of course, a word of caution is in order here.  Sir Humphrey might well have advised the chancellor to speak up in Ireland’s defence knowing that his position would be defeated.

But still.  A topsy-turvy world indeed when  some of our citizens will shortly turn out to protest against the visit of the English Queen, while others will flock by the thousand to fawn over the leader of the country that consigned us to our doom, and to prance about like leipreacháns while he holds up an embarrassing half pint of Guinness for the cameras.

That’s Ireland for you.  Never mind the reality.  Stick with the illusion.

In the end, Ireland’s bankruptcy was guaranteed by the European Central Bank, which had no thoughts of rescuing this country.  Ireland will be destroyed in order to frighten Spain into behaving as Trichet wishes it to, and it seems his strategy is working.  The bailout could never work, because the sums don’t add up.  We will shortly be facing debts of €250 Billion (with a B).  As Kelly says, try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

An apt analogy indeed, since the citizens of Newcastle had about as much responsibility for the recklessness of Northern Rock as the average Irish person had for the six private banks that killed our economy through their greed and stupidity.

While it’s too late to make the bondholders carry their share, since Lenihan rushed to pay them all off last year, Kelly offers a solution that he concedes wouldn’t be painless but might at least avoid the coming disaster.  First, withdraw the bank guarantee immediately, and force the ECB to deal with the  issue of insolvent banks.  Second, cut government borrowing to zero, right now.

Does he think the politicians will have the guts to confront the ECB?

No.  He doesn’t.

I wish Morgan Kelly didn’t have such a way with words, but unfortunately, he’s on the button with his brutal analysis of the political reality.

It is easier to be led along blindfold until the noose is slipped around our necks and we are kicked through the trapdoor into bankruptcy.

Brace yourself for the drop.   It will be short and unpleasant, but its consequences will be permanent.

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Previous posts containing “Morgan Kelly

 

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Postscript.

I thought GW Bush had imposed an extreme burden on US citizens when I wrote this.  Little did I think that our government would soon go on to impose a far bigger burden on the Irish people, perhaps three or four times as large.

 

 

 

Categories
Banking

Banks, Bondholders and Bastards

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.

Categories
Economy

Before the Deluge

Germany, in the years between the wars, was a hedonistic ferment of creativity and a boiling pit of intolerance.  It gave birth to the Bauhaus, to Gropius and Mies van der Rohe, to Brecht and Weill.  Josephine Baker danced on the burlesque stages of Berlin.  It gave birth to the Brownshirts, to Hitler, Rohm, the Brownshirts, the SS and ultimately the Holocaust.  It gave birth to its own destruction.

The reason Germany was so insane is the intolerable burden of debt placed on it as a consequence of the Treaty of Versailles, which was France’s revenge for the Franco-Prussian War.

That revenge turned out to be far from sweet as Hitler and his thugs swept to power and set about destroying the world.   They also set about destroying European culture, held in trust and guardianship by the Jews, of whom at least six million were murdered by the Nazi know-nothings.

It was an obscenity on a scale unknown in recent history, referred to by the Jewish people as the  Shoah, or Catastrophe, and when the ugliness broke out, we discovered that it wasn’t unique  to Germany, nor was it confined to Nazism.  Hitler had simply tapped into a vein of  ugliness that ran deep in the seemingly-tolerant European people.  Despite what revisionists tell us, the extreme intolerance was widespread throughout Europe.  Even after the liberation of the death camps in Auschwitz, Maidanek, Treblinka and Sobibor, Jews who returned to their homes in Polish cities were murderd by the Polish people who had moved into them.

We are never far from animals.

But that was Germany, that was mitteleuropa, and this is just a tiny island off the coast of Europe, so at least the world need not fear our wrath, even though our debt burden exceeds that imposed on the German people interbellum.

Why is this not a good thing?

Because we are so insignificant that Europe can afford to ignore the consequences of what Brian Lenihan  and Brian Cowen have done to this nation.

These two men agreed to guarantee the main banks of this country on the basis of information supplied to them by the heads of those banks, and those men lied.

On the basis of that gigantic lie, Brian Cowen and Brian Lenihan took a gamble with the entire future of Ireland, and they lost.  They threw this country like tumbling dice down the green baize, and the stake went to the house.

They blew on their hands and threw away our future in one drunken toss.

Why did they do this?

Nobody knows, though recent straws in the wind suggest that the head of Anglo-Irish bank — the main culprit — might have been far closer to our current prime minister when he was in charge of finance than we previously suspected.  It has even been suggested that Sean Fitzpatrick, and not the department of finance, was the guiding hand behind all Irish fiscal policy for the last three years.

Think about that.   The head of a bank that has turned out to be one gigantic scam was dictating what our sovereign government did.  And our sovereign government duly did what this snake-oil salesman told them.  Is it any wonder that Cowen reacted with such exaggerated hurt in the Dáil when Eamon Gilmore accused him of economic treason?  What else could he do when Gilmore spoke nothing more than fact?  To respond any other way would be to acknowledge the truth of the accusation.

Folks, the game is up.  As you know, for the last four years I’ve been urging positivity, and I still do that.  But Irish bond yields are now at 8%, which is greater than the level that triggered the Greece rescue.   This is due to the treason perpetrated by Lenihan and Cowen.

Until two months ago, the option was available to cancel the bank guarantee.  Why?  Because it was based on false information.  On lies.  On fraudulent deceit supplied to the government by the heads of the banks we are called upon to rescue.

Lenihan and Cowen didn’t take the opportunity to repudiate their guarantee which had been obtained on false pretences.  The burden on the Irish taxpayer will turn out to be about €70 billion for the fraudulent and incompetent activities of three or four private companies and this is a burden the Irish taxpayer will simply be unable to carry.

In the case of Anglo, it isn’t even a rescue, since the company will never again trade as a bank.  It’s a rescue of the investors.  It’s a gigantic transfer of Irish people’s money to the extremely wealthy, by a government with no mandate.

When I was growing up, I thought an investment carried a risk.  Didn’t you?

Why is it that Lenihan and Cowen can’t contemplate the idea of investors in Anglo carrying their own risks?

I think it’s because neither of this pair can bear the thought that the Fianna Fáil cronies owned by Fitzpatrick and Fingleton should have to face the glare of public exposure and, God forbid, prosecution.  Neither Cowen nor Lenihan care that an extreme Irish form of intolerance might emerge to fill the moral and political void their party represents.  They’ll be all right and so will their cronies who have salted away the profits of their boom years.

Cupboard-man will be fine too.

To these two, Lenihan and Cowen, to the corner-boy Ahern, to the imbecile NcCreevy who started the feeding frenzy and to the criminal conspiracy they represent, it was more acceptable to bankrupt an entire nation.

Right up until September of this year, iut was possible to make the debt go away.

How?

By forcing the investors to accept a debt-for-equity swap.  IN other words, by making them the new owners of the failed banks.  This is what the British did and this is what our government could have done.

It didn’t and that, in my opinion, is treason.

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Read Morgan Kelly in the Irish Times

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Previously on Bock: Stiffing the Anglo Bondholders

Categories
Banking

Good Banks, Bad Banks and Other Fairytales

They have a new idea for breaking up Anglo-Irish Bank.

Call me a stick-in-the-mud if you must, but I preferred the first idea: splitting it into a good bank and a bad bank.    I’m not saying it was a good idea.  I’m just saying I preferred it for its old-fashioned Hollywood values.  At least with a good bank and a bad bank, we knew who wore the black hat.  We knew who to boo and whistle at.  The bad bank would think nothing of tying a heroine to railway tracks and twirling its moustache as it laughed.  The good bank would rescue the hapless maiden and perhaps even marry her.

But now what are we looking at?  They’re going to split Anglo into an asset-recovery agency and a savings bank.   Repo Bank and the First Bank of Noddy.

I know you’ll correct me if I’m wrong, as usual, but don’t we already have an asset recovery agency called Nama?  And didn’t we, until recently, have a deposit bank called the Post Office?

Look, I’m not a banker.  I’m not an accountant.  I’m not an economist.  I’m just a regular Joe trying to understand what the hell is going on, much like Lenihan and Cowen.  I don’t understand how all this works, but sometimes that can be an advantage.  You see, it isn’t always necessary to understand what’s happening under the bonnet.  Does it go or doesn’t it go? That’s all I want to know as I kick the tyres.

So forget about all the technical talk.  I’m not interested, and you probably aren’t either.

We know that a big ball of money was lent out by Anglo and we know that a lot of it isn’t coming back.  The world and his dog in the street know that the money lost is about €35 billion, even though the government won’t mention a figure, just as you don’t say hello to the Devil if you happen to meet him in a graveyard at midnight.  He might just go away, because Satan is like that: stupid.  Right?

Anglo has lost €35 billion and we, taxpayers, are on the hook for it whether we like it or not.  After splitting Anglo into the Repo Bank and the First Bank of Noddyland, do we now owe less than €35 billion?

The answer, obviously is No.  We don’t.  The debt didn’t just evaporate.  The people who are owed the money didn’t suddenly forget, just because Lenihan changed the name of Anglo to …

… to what?

What are they going to call the new bank?

How about the Aviva Bank?  Oh, wait a minute.  We’d better not go there after today’s grim news that the FAI has totally screwed up on pre-sales of tickets for the re-vamped Lansdowne Road stadium.  John Delaney, it seems, is uncontactable, which is hardly surprising. He’s in a huddle with Lenihan and Cowen, heads under the blanket, all chewing their favourite Noddy dolls and trying to find a way not to talk about the monster under the bed.

Or the O2 Bank?  Would that be missing the Point?

I already suggested the Schrodinger bank, and I’m sticking with that, although it might challenge poor President Bert’s limited repertoire of vocalisations.

But enough.

Changing the name isn’t going to help.  Splitting it into two isn’t going to reduce the debt, unless it implies something else, and I’m hoping it does.  Perhaps the idea of the deposit bank is to create a clear distinction between depositors and bondholders, with a view to stiffing the latter, or is that too much to hope for?

Everyone was on message today.  Nobody wanted to talk about a wind-up of Anglo, even though there has never in the history of banking been a more appropriate description of the shenanigans engaged in by the affable, businessman-looking Seanie Fitz and his little glove puppets. Everybody wanted to talk about a work-out instead of a wind-up.

You say Tomayto, I say Tomahto.

What’s a work-out?  What’s a wind-up?

Will either of them make the €35 billion debt go away?

No.  They won’t.  It will still remain no matter how many million splinters they shatter Anglo-Irish into.

It seems to me, subject to correction, that a wind-up and a work-out are both ways of saying that  we’ll pay off the debt bit by bit.  Every last penny of it, to every gambling panhandler who hitched a ride on the stinking gutcart driven by Ahern, McCreevy, Cowen, Fitzy, Fingers, Goggin and all the other plum-pullers who created the debacle.

And by “We”, I mean “We”.

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Elsewhere: Dermot Carmody

Morgan Kelly telling as it was two years ago, and nobody listened to him:

Categories
Banking

Cancel the Bank Guarantee or Cancel Ireland

Eamon Ryan is to stupidity what Mozart is to genius.

This is the man who told us we couldn’t wind up Anglo-Irish Bank or we’d be thrown out of the Euro zone.

This man’s idea of explaining policy is to repeat the words “smart economy” until everyone is asleep.

This man is an absolute cretin, and yet, at the same time, infallible: he’s always wrong.

Eamon Ryan is the single most stupid politician I have ever seen in my entire life, and if Eamon Ryan says the bank guarantee will work, then we are doomed, because as sure as eggs is eggs, this fool will be wrong, as he has been about every single thing he has ever said.

He’s dim.

Two extremely worrying articles appeared in the last week.  One, in the Irish Times, was written by Morgan Kelly, professor of economics in UCD, and the other, by Peter Boone and Simon Johnson, appeared in the New York Times.

They say much the same thing.  In 2010, Ireland will have one of the highest budget deficits in the world and the banking bail-out is going to sink us.

It’s that simple.

If the government persists with its bank guarantee, public finances will collapse and Ireland will default on its sovereign debt.

Morgan Kelly puts it even more starkly: It is no longer a question of whether Ireland will go bust, but when.

Now, I don’t know about you, but I’m prepared to believe Kelly, Boone and Johnson before I believe some Fianna Fáil hack with a vested interest in shouting them down, and in any case, I have strong evidence of my own to support their thesis that the bank bailout will sink Ireland.  Eamon Ryan thinks it will all be fine.

To put the problem in numbers, Kelly compares Ireland to the USA, where the government put €557 billion into buying the banks’ bad debts.  Half a trillion! And the American taxpayer is likely to lose €150 billion.

But wait.  Scale the figures down to the size of Ireland per head of population.  That’s the equivalent of the Irish government spending €7 billion on NAMA and the bank recapitalisation combined, with a loss of just under €2 billion.

Seven billion invested. Two billion written off.

But what are we actually spending on NAMA and the bank capitalisation so far?

Will I tell you?

It’s €70 billion.  Seventy billion euros.

That’s ten times as much as the USA, per person.  And the loss on that is likely to be at least €50 billion which is proportionately twenty-five times the cost to the American taxpayer.

There’s only one reason for this.  Our present Taoiseach and Finance Minister decided to underwrite the gambling debts of of dodgy bankers who came with lies in the middle of the night, and high-risk investors, instead of explaining to them that their bad business decisions were not our problem.

As a consequence, you and I now face years of savage cuts in public services, including schools and hospitals.  In addition, we also face huge tax increases.

By contrast, the bankers and the bondholders stay fat, perhaps having to pull in their belts half a notch, but still of ample girth.  It will be IMF rule, and all because this government, Fianna Fáil, the Republican Party, when it came down to hard-faced ideology, proved that its slogan is nothing more than that: an empty slogan.

Republics are for the little people when times are easy.  This is all about the big boys — the ones who matter.  This is all about bailing out the pals who run the banks, and the other pals who own the banks and the politicians.

I know it isn’t nice to be thinking about uncomfortable concepts like treason, but what we have seen in Ireland over the last two decades is nothing short of treason.  A small cabal of very wealthy men have bought a government and used it to suck the life-blood out of a small country.

And when their pyramid scheme collapsed, as it always must, the government stepped in with a guarantee to save the wealthy circle, but they didn’t use just money.  They pledged your future, your children’s future, their education, welfare, health, peace and happiness for all time.

That was some guarantee for a bunch of small fat sweaty men in baggy suits to make, wasn’t it?

Unless this criminal guarantee is rescinded somehow, Ireland will sink without trace.  There will be no investment for generations.  You, I and our children will be screwed, and people had better start waking up to this very tangible reality.  Make your decision now.

Eamon Ryan thinks it won’t happen, but that’s because Eamon Ryan is a blithering cretin.

There’s only one remote chance of saving this country from obliteration, and that’s to let the banks collapse — all of them if necessary.  Every single, crooked, scumsucking, embezzling, thieving one of them, and set up new, unencumbered banks on the rubble.

If this doesn’t happen, we’ll end up having to build a new country on rubble, and nobody wants that, except perhaps a small bunch of pudgy, tanned men in some Portuguese golf resort.

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Previously on Bock

What is the Anglo secret?

NAMA millstone will sink Ireland

Paying for the Celtic Tiger

Property Speculators and Treason

Irish Bank Guarantees

Bankrolling a Bank

Categories
Economy NAMA

“No to NAMA” Street Protest

Public protest against the establishment of NAMA.

Where: Dublin city centre

When: Saturday 12th September 2009, from 2pm to 7pm.

What : March from the Garden of Remembrance to the Dáil.  Non-partisan, non-party event.

grand theft Nama

Elsewhere:

Brian Lucey asks the hard questions about NAMA.

Put the burden where it belongs, argues Morgan Kelly.