This piece has confused me. Is the author really arguing that Ireland (a small nation comprising a fraction of the European population) should blackmail the rest of Europe by threatening a continent-wide financial meltdown? And we should approve of this behaviour because it “sticks it to the man”?

@1 Or should the bankers (a very small, privileged elite) hold us all to ransom by asking us to pay for the consequences of their mistakes?

I would be interested to know the author’s views on whether it would be wise for European sovereigns to step up their borrowing programmes, as espoused by the TUC and Labour?

@2 at the moment, the UK taxpayer is set to profit from the bank bailout. Moreover, the UK in general saw its GDP swelled vastly over the 16-18 year credit boom. If you want to play the blame game, how about an honest discussion about residential property?

If I go to a race track and bet on a horse race and it looses I lose my money.
But in the weird, wingnut free market hoopla the tax payer must step in and bail out the gamblers. Very strange.

I see in Holland the people have forced ING bank to stop paying bonuses to bankers as long as they still owe the tax payer money. Good for them, we need more of this.

Of course the bankers have pulled the old chestnut of threatening to leave the country, but the people have said fuck off then, and we will get some one else to do your job at half the price. Bring the greedy elites to heel.

While we can be very angry with the banks (and with the Labour government that diminished the effectiveness of the regulation of them!), hoping that an Irish default might be a good thing is simply and utterly childish politics!

If — IF! — the Irish State could and did bring about a banking collapse, millions upon millions of (often the most vulnerable!!!) people would suffer as their pensions and investments disappeared – and that’s just the start!

Much as the OP might wish it, the collapse of capitalism would be utterly catastrophic — for us all. ‘Socialism’ has no viable and coherent alternative economic system to offer. So, as there’s no other economic game in town, the issue is not whether we abolish capitalism – but how we regulate it. And so crippling the banking system would hurt us all! *Doh!*

And what should be the principle by which we order society? My preference (following John Rawls, the great US political philosopher) is to ensure we maximise the minimum, not minimise the maximum! But that’s another story…

Amidst the frothing, does it help to learn that most senior bondholders are pension funds and insurance companies?

Stick it to them old folk and savers. Yeah! Fuckers. cough cough convenient political scapegoat cough cough

The Irish government were damn fools to bail out their banks the way they did. But that doesn’t mean that another, and Europe-specific, financial crisis is a good way out of it. European growth has lagged the rest of the world for a year now largely because of its inability to agree a way forward on its bloated sovereign debt. I can’t see how anyone, particularly the poor, will benefit from further years of financial collapse and uncertainty. Irish intransigence is another nail in the coffin for European solidarity.

@7: most senior bondholders are pension funds and insurance companies…Stick it to them old folk and savers…

DM: you seem to revel in the possibility of economic collapse, or perhaps you naively believe that ‘banks’ are somehow separate from the rest of our lives! @7 above is spot on!

A banking collapse would be catastrophic — which is why Gordon Brown stepped in to stem it, even though he had helped create the conditions for the collapse in the first place!

Longer term, we must no longer have banks that are to-big-to-fail, as providing any government guarantee results in a moral hazard. But how we get there from here surely requires careful judgement…

“which is why Gordon Brown stepped in to stem it, even though he had helped create the conditions for the collapse in the first place!”

Did Brown create the conditions for the collase in Holland? Ireland? Iceland? USA?

Clearly senior bond holders should have shared the pain by having a haircut imposed upon them. However, no one forced the Irish government to give a blanket guarantee, they did that freely trying to gain an advantage on other states. I think you overestimate how much power the Irish and other periphery states have in this situation. None is the correct figure. The Irish state is only functioning through the EU/IMF bailout. What planet are you on where they renege on the terms of the bailout and the EU/IMF still give them the money anyway? The private sector will not give them the money and that is why they needed the EU/IMF bailout. The Irish banking system and by implication the Irish government is effectively a ward of the ECB. No one but the ECB will give the Irish banks liquidity. Considering the ECB and EU could send the Irish state back to the 18th century if they cut them adrift, why do you think they have any power in this situation? It can’t be emphasised enough that the Irish state does not have access to private sector sovereign debt markets. All they have is the EU and ECB. Therefore, threatening would not be very wise move.

The terms of the bailout were punitive and an interest rate of 5.9% is too high. However, the Irish were screwed by their European partners and not the IMF. The IMF would have recommended haircuts for bondholders and a lower interest rate for the state. However, that would have meant pain for the German and French banks and the German and French government were the ones calling the shots in the EU. On here the EU are always cuddly and the IMF are evil.

” The implication is that the IMF were the good guys: an unusual position for them to find themselves in, perhaps, and one with political implications in a country whose relationship with the European Union has been uneasy in recent years, and which has conserved close ties with the United States. On Monday night, an opposition spokesman made it clear that he would be much happier negotiating with the IMF, who are reasonable people, than with our European partners. ”
http://www.eurointelligence.com/index.php?id=581&tx_ttnewstt_news=2973&tx_ttnewsbackPid=901&cHash=484db55c3a

The EU/ECB does not give a shit about the periphery, they only care about what is good for the euro-core. The Irish should try and renegotiate because 5.9% is too high. However, they will not do it by threats which are effectively empty as they have nowhere else to go to finance the state. Germany and France are in control and doing their best to make a bad situation even worse.

And we should approve of this behaviour because it “sticks it to the man”?

Not only should they force bondholders to take some of the pain – Portugal should default.

I don’t see how the austerity programme will do anything other than putt off more bailouts. There is a need to restructure the debt – simple. Ireland, Portugal, Greek et al should stop being held ransom by the same people who got us into this mess.

@9 “Did Brown create the conditions for the collase in Holland? Ireland? Iceland? USA?”

Not directly, I concede; but, as Chancellor and PM, he went with the flow of international opinion (and so reduced the effectiveness of City regulation) in order to maximise tax revenues from the City to fund his (often dingbat) social programmes…And so we are where we are…borrowing furiously (even under the Coalition!) to fund a massive budget deficit…

**************************************************************.

As a percentage of GDP, the national debt was higher during the Napoleonic wars and also (as I recall) WW1 and at the end of WW2. Sooner or later, and however calculated, the massive national debt (£1.1 trillion??) will have to be paid….by future taxpayers

Meanwhile, we now have a massive budget deficit of 10-11% bequeathed to us by an incompetent and spendthrift Labour government, when in the 1970s a Labour government declared the UK bankrupt and went cap in hand to the IMF with a budget deficit of (only!!) 6%!

We are teetering on the brink!

11. Sunny Hundal

” Not only should they force bondholders to take some of the pain – Portugal should default. ”

It is an easy thing to say to just default on their obligations, Sunny. However, they all have deficits that need to be funded. Who is going to fund their deficit while they default on previous obligations? Have you any idea the scale of capital flight that they would suffer as their domestic banking systems imploded?

@10 Richard W

Was that blanket guarantee part of a legal contract or some blather in a speech that was intended to stave off disaster? I recall the latter. It was no more than Lamonts infamous green shoots.

The point of bondholders is to some extent that they are gambling, isn’t it? Surely it’s fair in this case that they lose a bit?

@ 12. paul ilc

I suppose it would be too much to ask to discuss the issue as it relates to Ireland rather than partisan points scoring.

Sunny @11:

Some of the pain, yes; default, no. Debtor countries should renegotiate their repayments – default would be catastrophic!

Meanwhile, let us give thanks to Gordon Brown who —- for all his failings (including that triumph of idiocy, the selling off the UK’s gold reserves at the bottom of the market!!!) — kept the UK out of the Euro, despite the naive liberal euro-enthisiasm in No. 10!

“We are teetering on the brink!”

Not according to those people who hold UK debt.

“Not directly, I concede; but, as Chancellor and PM, he went with the flow of international opinion (and so reduced the effectiveness of City regulation)

This fairy tale nonsense that the banking crash would not have happened under the old regulatory system is so much hot air. The tories were calling for more Banking deregulation before the crash.

At the very least, there is political will in Ireland to oppose the cronyism and desperate illogic of ‘privatised profits, socialised losses’ which has gone largely unchallenged in much of the West – primarily because the political class has sold out so utterly to big finance.

Without such a step by a significant player (at least, Ireland is more significant than, say, Iceland), nothing will change and the worldwide banking system will continue to rely on the complicity of elected officials in hiding their fraudulent activities.

I fully support such a move and hope the Irish have the courage to see it through. Of course there will be ‘consequences’ – but none as dire as maintaining the status quo until next time, when the collapse will be even more painful.

@17: “We are teetering on the brink!” Not according to those people who hold UK debt.

Errrr…post hoc ergo propter hoc? The Coalition has (just!) re-established confidence — with its debtors, mainly pension funds — in the ability of UK to repay its debt with interest. The only way forward for the UK is to balance its budget —ie not spend more than it receives in taxation and revenues — and use any surplus to pay off the national debt, thereby reducing interest payments.

But I imagine you believe, like too many on here, in the magic socialist money tree!

There was no problem with the debt holders before the election dipstick.

As for the “magic socialist money tree!” I think tory bankers know more about pretend magic money trees. “Lets gamble lots of the banks money, then when we lose it all, get the tax payer to bail us out.”

Too big to fail is the magic money tree sucker.

Readers here may be interested to learn of this outcome of a US Congressional inquiry into the recent financial crisis:

“Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (Public Affairs US, 2011)
http://www.amazon.co.uk/Financial-Crisis-Inquiry-Report-Commission/dp/1610390415/ref=sr_1_2?s=books&ie=UTF8&qid=1301339033&sr=1-2#_

One useful byproduct of the report is that it reduces the credibility of the myth that the crisis was all due to Gordon Brown and Ed Balls.

@ 14. Cherub

I agree that the bondholders should suffer losses. The blanket guarantee from the state had legal status that ran out last September. Bondholders have different seniority with senior bondholders having equal seniority with depositors in Irish law. Just imposing haircuts would be subject to legal challenge so it is better for the Irish government to try and negotiate haircuts. Unfortunately most of the senior bondholders are German and French banks and their governments do want their banks to suffer losses. I suppose all debt instruments are gambling but senior bank bonds should almost be as safe as sovereign debt. Almost be as safe because if the senior bank bonds fail it is likely that the sovereign will also be in trouble.

Without bondholders you do not have a functioning private sector banking system. No one is going to buy Irish bank bonds except at punitive interest rates until what is happening with existing bondholders is resolved. If someone defaults on you then it is not realistic to expect them just to keep lending you money. That means the Irish are entirely dependent on the ECB, who at the same time want to reduce that dependency.

@22 – “… senior bank bonds should almost be as safe as sovereign debt.”

What, like the AAA-rated CDOs that the American financial establishment was flogging to pension funds the world over?

Caveat emptor, unless you’ve got a room full of lawyers and the politicians in your pocket…

@ 23. J

Your point is what? It does not seem to relate to anything discussed on this thread. Institutions flogged instruments that were not truly triple A and other people foolishly bought them at the wrong price. Yes, and what? You appear to be saying that pension holders should suffer a lower pension because fund managers bought a load of crap. Umm, they will.

@24 – “Institutions flogged instruments that were not truly triple A and other people foolishly bought them at the wrong price. Yes, and what?”

“Unfortunately most of the senior bondholders are German and French banks and their governments do [not?] want their banks to suffer losses.”

French, German (and UK) banks foolishly bought shit at stupid prices. They should suffer a loss – boo fucking hoo. Why should it be any different for “senior” bondholders than holders of AAA-rated CDOs, or small shareholders in, say, Northern Rock?

Why should the sub-prime borrower who defaults on their mortgage suffer foreclosure whilst the buyers of the debt get trillion dollar bailouts?

It is really to the point – someone in the Irish government has the guts to challenge the established ‘certainty’ that losses are socialised whilst profits are privatised; this is a good thing, and should be universally supported.

“There was no problem with the debt holders before the election”

Errr…then why is Labour committed to cutting the deficit? But only half as fast the Coalition?

Errrr….*Sally’s mono-cellular brain strains*…because…because…because they are all brownshirts!

Applause! *The sound of one hand clapping*

“Why should it be any different for “senior” bondholders than holders of AAA-rated CDOs, or small shareholders in, say, Northern Rock? ”

Because they are not the same thing and they have different legal status. This is where all simplistic solutions tend to breakdown when they require the law just to be made up to fit with the simplistic solution.

” It is really to the point – someone in the Irish government has the guts to challenge the established ‘certainty’ that losses are socialised whilst profits are privatised; this is a good thing, and should be universally supported. ”

I agree that the senior bondholders should suffer losses. However, say the Irish government unilaterally imposed losses on the senior bondholders. What are they going to do if the ECB stopped financing the Irish banking system? They are 100 per cent dependent on the ECB. The silent capital flight would become a flood and the Irish banking system would collapse within hours. What would they do if if the EU and IMF cut off funding under pressure by the Germans and French? Who would finance their huge deficit? The Irish state would be unable to pay any of their public sector workers as the state would effectively be insolvent and collapse. The power in this situation is Germany and France so threats are empty.

Sorry not have joined in earlier. Been a busy day.

“Another Tom” asked if I approved of the idea of European nations increasing their borrowing as suggested by Labour and the TUC. I do not agree that nations can go on borrowing and printing far as long as they wish and think it has no adverse consequences. So I suggest we chose more carefully to who and to what we give all the borrowed and printed money.

The decision was made to give almost all of it to teh banks and then ask them pretty please if they would consder helping the broader economy in return. This was stupidity number one. The banks used the cash to replace the cash flow they were no longer getting from their bad loans. The cash is gone.

So far, by the government’s own figures the bail outs and general support of the banks has cost above a trillion. Since so many here make it quite clear they think the bank bail outs were essential and quite the correct course of action we’re not really talking about wanting to cut borrowing at all, are we. We are arguing about priorities. Many of you seem to regard it as a proven fact that the best or only course of action was to give all the money to the banks. I disagree. It did not make the banks solvent. And it starved teh real economy of any investment.

If teh government had wanted to invest in teh rest of the economy the very worst way of doing so was to try to do it via insolvent banks.

I would rather have used the money to stimulate growth in the real economy directly while forcing the banks private bad debts out of the financial system. Why people think it a right or proper use of public funds to bail out entirely private debts I do not understand. The banks made stupid lending decisions. That is their free market right. It is also their free market right to die from the wounds tehy inflicted on themselves with those stupid decisions. It is not their right to insist that the public bail them out.

We need banks and a banking system. We do not need the banks we have, particularly those who were so incompetant as to bankrupt themselves. Capitalize new banks.

Pensions would all be doomed! Yes, yes. I’ve news for you they are doomed. Pensions will suffer far more from a decade of stagnant low growth and impovrishment thatn they would have done if they had taken an almighty fall, found teh solid bottom, with the swamp of bad debts cleared and had been able to re-invest with confidence in a solvent banking system starting two years ago.

Sorry to disagree with so many of you here on so many points. Many of you seem to accept a whole raft of received wisdoms which I do not. I do not because events have shown them, in my opinion, to be fundamentally and dangerously stupid and wrong. Not only that but fundamentally undemocratic. The decisions taken in this crisis were taken without any discussion of alternatives – of which there are many. There was a chorus of certainty about the only course of action that had to be taken, whose echoes are still here on this thread.

I believe the current certainties about bailing out the banks are wrong. But like any paradigm, especially one in which huge fortunes and great power is vested, it will resist criticsim and change till the death.

The article and the thread was about what the Irish should do now, David. I suppose it is only to be expected a few years after the banking crisis that we now get the invented revisionary history If we had just let them collapse everything would have been fine seems to be the claim. The bank creditors and shareholders would have lost and that would be fine if that is all that happened. However, in the real world of planet earth the hundreds of thousands of unconnected firms who banked with them would also have collapsed. It really defies belief that people actually believe that politicians risked the tsunami of unpopularity of bailing out the banks just because they at one time shared a few prawn sandwiches with some bankers.

I like the idea of being more democratic in the midst of the North Atlantic banking system being hours from collapse. Maybe they should have arranged a referendum.

You do know where the debts end up when they are forced out of the financial system? One way or another they end up as losses for the sovereign. Even if the sovereign does nothing the losses will end up on the national balance sheet through a drop in economic activity. ‘ Capitalise new banks ‘ ? Yes, and the losses from the old banks still end up on the balance sheet of the sovereign, so you save nothing.

“general support of the banks has cost above a trillion ”

Guarantees is not a cost. An insurance company that insures one million cars has a liability for the value of the insurance, it is not a cost unless the liabilities are incurred. Guarantees are like a liability rather than a cost.

” And it starved teh real economy of any investment. ”

The BoE favoured money supply measure, broad money M4, is growing at 4.9%. Does that sound like an economy starved of money? Considering money velocity will rise when real interest rates are negative, 4.9% is actually too high to be consistent with 2% CPI.

@27 – “Because they are not the same thing and they have different legal status.”

I am well aware of that. However, whether you decide to invest money with some absurdly leveraged Icelandic bank, purchase senior (or subordinated) debt in some absurdly leveraged Irish bank, buy a wonky American CDO or invest in obscenely overvalued British banking shares, you really ought to accept and understand the risks inherent in such a transaction.

As stated, the sub-prime borrowers lost their homes; small shareholders were wiped out almost overnight and depositors were only saved from their own stupidity by a government desperate to save face (plenty of local authorities made the same mistake, after all).

Legal status doesn’t eliminate risk – and yet, senior bondholders have (so far) escaped the worst of the financial crisis relatively unscathed. How many of us can say that?

I accept your point that Ireland is effectively held hostage by the ECB, but I propose a different solution: given that the alternative is a generation (or two) of debt slavery, I advocate immediate withdrawal from the EU, capital controls, the reintroduction of an Irish national currency (and subsequent devaluation a la Iceland), the liquidation of any privately owned central bank, printing money (for the people, not for the banks) and 98% – or thereabouts – haircuts across the board on sovereign debt.

Oh, and criminal prosecutions to be brought against the directors of the companies concerned (and probably several politicians).

Your comments about insolvency are well made, but the Irish government is pretty much insolvent anyway – and if it’s a choice between a lifetime of austerity for 95% of the population or a few years of torment before recovery, I’d choose the latter every time.

It is outrageous that the Irish people, most of whom benefited only incidentally from the fraudulent financial services sector at the heart of their nation, should be held hostage at the whim of a European central bank, for crimes they did not commit.

It is undemocratic.

The parties who were the biggest winners in the election stood on a platform of renegotiation of the terms of the bailout – now get on with it!

@28 David

The current crisis exposes the inherent weakness of capitalism. Once expantion has reached it’s max if has nowhere else to go but implode but rather than allow that the problem is not resolved just moved via money markets. Until we deal with the problem by allowing some of the vested interest financial institutions to fail we are just kicking the can further down the road. While pursuit of this policy continues by whover is in power there really is no alternative unless a brave nation challenges the conventional wisdom?

@J

You will not get me disagreeing that investors ought to suffer the consequences of their bad investments. I invest in biotech and alternative energy firms and on lots of occasions have lost the full investment. However, that is the way the system is supposed to work that you win some and lose some. I just don’t see any good options for the Irish and there is no scenario where they are not going to suffer badly. Maybe their best option is to leave the EZ and even the EU. There must be a tipping point somewhere where the costs of leaving are less than the slow torture inflicted by staying in. It is the intransigence demonstrated by the German and French governments over the last 18 months that has made the European sovereign debt crisis worse. They show no indication of relenting. Investors can see the Europeans are just coming up with patched solutions and asking impossible things of the peripheral nations. Therefore, they will only lend to the periphery at huge interest rates that they can’t afford.

I totally agree that the Irish financial system was the worst criminal crony capitalism in the advanced world. People ought to go to jail.

Richard W,

I think you’ll find we are having a drop in economic activity due, in my opinion, to the folly of bailing out the banks and protectiong the wealth of their senior bond holders.

It is my opinion, that your “Oh the sky would have fallen in” certainties not withstanding, the drop in economic activity and the losses from it will be greater pursuing the policy you defend. Look at Japan. They have followed the path you insist on and two decades of stagnation later how are they doing?

Compare Iceland with Ireland. One says “boo!” to your banks and bond holders and fantasitcally is still there… and growing. While Ireland, the poster boy for your solution is raped and raped again, by its banks, our banks everybody’s banks.

You wrote “If we had just let them collapse everything would have been fine seems to be the claim.” Actually it was not my claim at all. You wrote it not me. If you want to have an argument with your pet straw man, don’t let me detain you. But leave me out of it.

There never was and isn’t now any pain free exit. I happen to believe the exit we have been herded into is one of the worst. You disagree. Fine.

@32 – “However, that is the way the system is supposed to work that you win some and lose some.”

I think the system needs reminding that this should apply to everyone, not just those who can’t afford to buy the government!

I agree with much of what you say, though.

I’m really not certain what might have happened had the government not bailed out the banks. However, I am convinced that government action was only prescribed in this instance because of previous actions this government – and others – took, in liberalising the financial services sector to such an extent.

Hence I said in another thread:

“I would like to see retail banking divorced from casino capitalism, fractional reserve lending prohibited and no government guarantees whatsoever beyond a slightly-increased £100K FSCS limit.”

This, in my opinion, would reduce the risk of meltdown in the event that absurdly leveraged and obscenely risky financial institutions collapse – as is, perhaps, inevitable, given their structure.

Chancellor and PM, he went with the flow of international opinion (and so reduced the effectiveness of City regulation)

The very same regulation that Conservatives were criticising for being too stringent?

Wasn’t your ideological buddy Daniel Hannan MEP praising Iceland’s regulation at one point? Wonder how that worked out….

@12

Well if you’re going to play political point scoring:

Not directly, I concede; but, as Chancellor and PM, he went with the flow of international opinion (and so reduced the effectiveness of City regulation) in order to maximise tax revenues from the City

And who exactly started this “flow of international opinion”. My, I think it was the right who in the 1980s and 90s, spearheaded by Thatcher and Reagan told everyone that deregulation was a really good idea. New Labour foolishly went along with the flow. So prey tell me how many Conservatives were calling for more banking regulaltion before 2008?

Meanwhile, we now have a massive budget deficit of 10-11% bequeathed to us by an incompetent and spendthrift Labour government,

Meanwhile the Conservatives crystal ball was functioning so well, that David Cameron in 2007 pledged to match Labour’s spending plans. http://news.bbc.co.uk/1/hi/uk_politics/6975536.stm

when in the 1970s a Labour government declared the UK bankrupt and went cap in hand to the IMF with a budget deficit of (only!!) 6%!

Ah that old chestnut. If you read your history books you’ll discover that the IMF loan was never actually needed. And they only thought it was because of a calculation error by the civil service.

‘@ 33. david malone

Japan has stagnated for two decades because the BoJ has followed a tight money policy for most of that two decades and their awful demographics are not conducive to growth.

Look, I agree that the Irish bailout was a terrible decision by their government and was beyond the capacity of the state.

I can understand in the British bailout if people argue that the government could have imposed harsher terms. That is a credible argument. They could have fully nationalised RBS. Again a credible argument. However, they would have had to account for their full liabilities on the national accounts. Skyrocketing the national debt because RBS at the time had a $2.5 trillion balance sheet. Moreover, it is wrong to think that investors got off scot-free. Shareholders were completely wiped out in nationalised banks or suffered huge losses in part-nationalised ones. Furthermore, bank bondholders in British banks have taken massive losses. The bondholders don’t go away even if the bank is nationalised. Northern Rock although nationalised still make coupon payments to their bondholders because they are creditors of the bank. What was needed was a mechanism to force bondholders to swap debt-for-equity. That would see the bondholders being forced to bailout the institution and not the taxpayer. However, there was no legal means to do that at the time.

The difference between the situation in Iceland and the UK or even Ireland is most of the exposure to the banks in the UK and to a lesser extent Ireland was domestic. The British economy was exposed to the British banks. In Iceland most of the exposure was external to Iceland. Although, Ireland on balance should have gone down the Iceland route.

36. Graham

” when in the 1970s a Labour government declared the UK bankrupt and went cap in hand to the IMF with a budget deficit of (only!!) 6%!

Ah that old chestnut. If you read your history books you’ll discover that the IMF loan was never actually needed. And they only thought it was because of a calculation error by the civil service. ”

Paul has obviously never heard of the reckless ‘ Barber Boom ‘, Graham. It was the Barber Boom that helped to create the conditions that required the IMF.

” During his term the economy suffered due to stagflation and industrial unrest. In 1972 he delivered a budget which was designed to return the Conservative Party to power in an election expected in 1974 or 1975. This budget led to a period known as “The Barber Boom”. The measures in the budget led to high inflation and wage demands from Public Sector workers. He was forced to introduce anti-inflation measures in September 1972, along with a Prices Commission and a Pay Board. The inflation of capital asset values was also followed by the 1973 oil crisis which followed the Yom Kippur War, adding to inflationary pressures in the economy and feeding industrial militancy (already at a high as a result of the struggle over the Industrial Relations Act 1971). ”
http://en.wikipedia.org/wiki/Anthony_Barber

http://www.davidmcwilliams.ie/

is an informed and entertaining commentator on the Irish economy.

While the scale of the haircut might be up for debate, it is bizarre and outrageous that the bondholders be bailed out 100%.

@28 David

Your response appears as confused as your original piece. That implicitly suggested the Irish should blackmail the rest of Europe to force senior bank bondholders to take losses. I and others called you out on this, and asked if that’s what you really meant.

Your response seems to be a long whine about how terrible it is we don’t agree with some of your other escoteric (but largely unstated) views on economics. And I’d really love an attempt to get a democratic mandate behind the argument that all pensions should be wiped out, as you suggest.

There are real consequences to senior bondholders taking losses. One of which is that these losses will mostly be felt in German banks and other financial institutions (who hold the money on behalf of German savers and taxpayers). These are, not coincidentally, the same group that are writing the cheque to bail out the Irish state. Germany has its own democratic issues about handing out cash to people. Quid pro quo and all that.

“I think you’ll find we are having a drop in economic activity due, in my opinion, to the folly of bailing out the banks and protectiong the wealth of their senior bond holders.”

In the real world, there has been year-long European sovereign debt crisis.

Ambrose Bierce defined a corporation as an ingenious device for obtaining individual profit without individual responsibility. Let’s introduce unlimited liability for losses incurred by bankers who go grovelling to the state for handouts. They constantly bleat that they deserve the stratospheric rewards they give themselves because of their financial brilliance, fine lets see them take some real risk. No transfers of assets or stashing money overseas in the wife’s name just a trip to the Job Centre and a wait for a council flat.

Or we could adopt the solution tried about a thousand years ago. England suffered from dishonest money changers who had one hand and one testicle cut off as punishment. Very fair. Anyone for Fred Goodwin and a cleaver?

Oscar winning documentary Inside Job comes to DVD in June, http://www.amazon.co.uk/Inside-Job-DVD-Matt-Damon/dp/B003LPUMHM/ref=sr_1_1?ie=UTF8&qid=1301385651&sr=8-1 If you’re rich enough to want it on blu ray you’ll have to import (its already out in America). Its centred on America but its unmissable though it will raise your blood pressure

Morning Another Tom,

I wrote a reply earlier but it never appeared. I must have done something wrong. If it does finally appear then appologies for the double posting.

You “called me out” – what is this, the OK Corral?

I do think the Irish should force the senior bond holders in their banks to take some of the losses. You call this blackmailing Europe. I think it is Ireland’s sovereign business. I also think there is a good argument that in fact it is Europe blackmailing Ireland. Europe is affraid of what will happen if the idea that Senior bond holders can be made to accept losses gains popular traction in other countries. I notice this mornings news of share price losses and possible downgrades in Italy’s banks. Long overdue in my opinion.

I think UniCredit is a ticking bomb.

As for my view being…what did you call them, “esoteric”, “confused”, “along whine” and “mostly unstated” (suggesting I have something to hide)…wouldn’t it be simpler, more honest and less arrogant to simply say you disagree? Instead of reaching for the silly “You’re stupid” rejoinder?

As it happens my opinions and my reasons for them are not “mostly unstated”. You can find my opinion and my reasons for them in a book which you can find at
http://www.debtgeneration.org/index.php

and on my blog which I write most days which you can find at – http://golemxiv-credo.blogspot.com/

AnotherTom said: “Amidst the frothing, does it help to learn that most senior bondholders are pension funds and insurance companies? Stick it to them old folk and savers. Yeah!”

Does anyone actually have evidence on this? I’m routinely told that every time anyone suggests anyone defaulting on anything that this is really only hurting pension funds and therefore poor old pensioners on desperately low incomes. I’d be very interested to see any evidence of how true/false this is. It seems a suspiciously convenient assertion for advocates for wealthy investors / financial sector interests to make.

It also occurs to me that “old folk and savers” could possibly be bailed out rather more directly, should they be affected.

Jungle,

Here is a partial list and analysis of the Bond holders of Anglo Irish.

http://golemxiv-credo.blogspot.com/2010/10/who-are-bond-holders-we-are-bailing-out.html

The comments below are worth a read as well, I think. I thought it was a good discussion.

Another Tom,

I have so far I have submitted a reply to you twice and both times it has not appeared. I will try one more time.

You called me out? What is this the OK Corral?

To answer your question, I do think the Irish should insist that the Senior Bond holders in their banks should take some of the losses. You characterize this as Ireland blackmailing the rest of Europe. I’m not sure how you come up with blackmail when a nation makes sovereign decisions regarding its own banks.

I also think there is a good argument for seeling that it is actually the rest of Europe blackmailing Ireland. Germany in particular is mightily afraid that the idea of making Senior Bond holders pay, might get some popular traction in other countries besides Ireland. This would be a very large problem for German banks as well as others. As I see it other nations are simply trying very hard to force Ireland to make good on losses so that banks in other nations don’t have to come clean about the true state of their insolvency.

You describe my opinions as “confused”, “esoteric”, “a long whine” and then finish off by saying my opinions are “largely unstated” hinting thereby that I might have something I am hiding. You’re just being silly. How can anyone provide a complete alternative theory in every article they write?

As it happens I have put my opinions in both my book, “The Debt Generation” which you can find on Amazon or the debtgeneration web site, or on the Golemxiv blog I write most days.

@44 Frankly I’d be embarrassed if I’d written a book about a subject I knew so little about. In the link you provide to the holders of Anglo bondholders it’s pretty clear you don’t understand the difference between assets held under management (AUM in the jargon) and a company’s own assets. The numbers appear large (larger than lit’le ole Ireland …) but they are fund managers not companies; they invest on behalf of others.

In the comments, @11.56 there is the appearance of a response to this criticism but it’s largely ideological waffle. The only concrete assertion is that “much of that wealth is entirely fictitious” and based on CDOs. Hmmm. I’ll believe your earlier comment more: “You accuse me of propaganda. Quite so.”

I think the fact stands, the vast majority of senior (and sub) bank bondholders are asset managers (ie insurers, pension funds and bancassurers), investing savers’ money. Moreover, and more relevantly, Ireland is trying to renegotiate the terms it borrows from the exact same group of people it is simultaneously trying to force to take losses (and then will seek to borrow from again).

With reference to the “calling you out”, you’ve avoided the question three or four times now so I don’t expect any change in your approach. Here it is again:

Is the author really arguing that Ireland should blackmail the rest of Europe by threatening a continent-wide financial meltdown?

A simple yes or no would suffice.

In the real world, this is all going on while Solvency II threatens to prevent the biggest block of senior bank bondholders from investing in banks at all!
http://www.bloomberg.com/news/2011-03-28/european-bank-funding-threatened-as-basel-iii-rules-clash-with-solvency-ii.html

This is the danger of this kind of ideological stuff – it tends to blind people to what is really going on.

Another Tom,

I know the difference between Assets Under Management and a company’s own assets, and while we’re at it between Assets Under management and GDP. I addressed both these questions and many others in the comments under the article. Sorry you didn’t read them.

You are a great one for declaring what are ‘facts’ and what aren’t. Sadly you are wrong. You have no proof at all of whose assets are iunder management in what funds. And teh vary large amount of money under management at the private Swiss banks who are prominent among bond holders do not manage money for ordinary people. You know that. To ignore it is a tad dishonest.

I also answered your question with a clear yes. I also took issue with your characterization of the situation. You define it as Ireland blackmailing Europe. I think your characterization is biased and flawed.

The bottom line is you are convinced like chicken little that if Ireland defaults the sky will fall in. I think you are wrong. Many countries have defauilted. They are all still in business. They have all returned to the bond market.

I am fascinated by how your anger overwhelms you each time you write and you descend into name calling and insults. It does you no credit.

Mr Malone, you write poorly argued, weakly researched but intensely accusatory articles about important subjects, and yet you are surprised your outpourings provoke a response? Pur-leese. And my response “do me know credit” yet you accuse me of being dishonest? Well, you’re clearly a hypocrite.

“I addressed both these questions and many others in the comments under the article. Sorry you didn’t read them.”

I did. And you didn’t. I quoted the only relevant bits I could find.

“The bottom line is you are convinced like chicken little that if Ireland defaults the sky will fall in. I think you are wrong. Many countries have defauilted. They are all still in business. They have all returned to the bond market.”

This is simply not the point as well you should know. The point is not about sovereign solvency but about bank solvency. I’m not holding my breath for you to understand the difference.