Dead Cat Bounce

August 25, 2014

We have a rail strike on at present that is countrywide. Rail ticket prices are already ridiculously expensive. Both bus and rail tickets are ridiculously expensive though intercity coach tickets are competitive. In Dublin a single journey by bus of a couple of miles from suburb to center city is getting closer to €3 compared to say Nice to Cannes for €1 not long ago.blackCat

Transport subventions are the norm in other countries. In Ireland austerity is reducing same with a hidden agenda to break up and privatise both the rail and bus systems. A more efficient rail system makes sense to take passenger traffic off the road system and save energy costs. It makes sense to expand the rail system and make it cheaper and more attractive for users but government privatisation policies would appear to be heading for a situation where the only government employees still in ‘full time’ jobs will be politicians. They won’t be rail workers.

The slice and dice of employment statistics continues unabated. Most of the public service has a recruitment ban. If a job comes available and every effort to avoid replacing the individual has failed, there is now imposition of a rule that the full-time job is divided into 2 part-time jobs. There are many such opaque rules that define what is a job or define lack of a job.

Perhaps the ESRI can publish a report defining what these rules are. It would allow us to see through false employment statistics. Even a report based on a statistically meaningful random selection of people classified as both having a job and another cohort unemployed focusing on the definition of the term ‘employed’ would throw light on the current unreliability of analytical tools used currently.

http://www.esri.ie/about_us/the_institute/independence/?

“About the ESRI’s Independence

From its foundation in 1960 the Institute’s role has been to provide a strong, independent source of research evidence for policy and civil society in Ireland. That it would be funded by government and yet independent of government was precisely the mandate it was given.”

ESRI is long overdue an audit to decide if it has failed the mandate it set itself. A lot of its cash comes from government-funded research and one wonders if this has swayed independence into being a propaganda arm of the state. Recent growth forecasts of 4% have yet to be bettered by any other institution in the state’s financial sector.

As Ireland descends into a long painful depression fueled by austerity, rising taxes and higher charges for utilities, water, waste and property, its time to give considered thought to the prospect of Ireland leaving the euro. Even growth rates of 4% are not good enough to stave off the deflationary inevitability of economic decline based on our link to the euro. Wishful thinkers in the financial sector who have form in fuelling the boom in Celtic tiger years are cited regularly fuelling the propaganda of economic recovery.

Our link to the euro has produced a flight of euros from Ireland as Ireland’s import bill has risen alongside a progressive loss of industrial infrastructure and employment. Our recent property boom collapse was largely fed by efforts to stimulate construction to take up the slack of unemployment fed by lack of real growth in the economy.

“In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. In the early 2000s, some EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards.[5] This allowed the sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions as well as the use of complex currency and credit derivatives structures.[5]

http://en.wikipedia.org/wiki/Eurozone_crisis

In Ireland private debts were transferred to sovereign debt led by politicians celebrating their actions in so doing, or otherwise claiming blindness or poor advice. The real problem for the euro zone is that banks in the euro zone own a significant portion of sovereign debt; these banks are themselves  closely allied to the solvency and liquidity of the states in which they reside. Thus it is in the absence of a true fiscal union, that the inner core members of the euro zone are now in a master slave relationship with countries such as Greece, Ireland, Portugal.

The european union is now a divided currency zone holed beneath the water. The repatriation or some would say extortion of odious debt from the outer core is now the main aim of fiscal policy across the EU. The problem is that the goods and services previously purchased in these debtor nations no longer fuel their economies and they are in a slow path downward. The negative reinforcement of deflation and slowing growth rates in the inner core especially Germany is evidence of this:

From http://en.wikipedia.org/wiki/Dead_cat_bounce

A “dead cat bounce” price pattern may be used as a part of the technical analysis method of stock trading. Technical analysis describes a dead cat bounce as a continuation pattern that looks in the beginning like a reversal pattern. It begins with a downward move followed by a significant price retracement. The price fails to continue upward and instead falls again downwards, and surpasses the prior low.[7]“

““Richard Bruton promised us that this would not happen when he was here three years ago,” said Foley. “Look around you. There are eight units in this business park and the other seven are empty. Leitrim and Roscommon have been forgotten about and we expected more from a west of Ireland Taoiseach.”” 160 recent job losses by MBNA from previous peak circa 2000 jobs in Carrick On Shannon from http://www.irishtimes.com/news/social-affairs/carrick-on-shannon-mourns-loss-of-mbna-call-centre-1.1898596

Same story replicated across the country, “Since the start of the current recession in 2008, almost 2,500 local jobs have been cut at IDA Ireland-backed companies, according to Independent TD for Waterford John Halligan, while about 500 have been created.” http://www.irishtimes.com/business/economy/waterford-believes-job-losses-have-hit-it-harder-than-most-1.1814327

Property taxes, water charges, and pay cuts with another €2 bn next budget earmarked for more austerity cuts pillage the countryside accompanied by deteriorating public services. In a ludicrous piece of statistical hermeneutics that stretches the imagination, the ESRI has published a forecast predicting in the face of the above growth of 4% in the economy next year.

Let’s get back to dead cat bounce:

Growth rates projected come from a very low base and are on foot of losses in negative equity, unemployment and property transfers to vulture capital in NAMA already sustained, along with other losses

http://www.economist.com/blogs/freeexchange/2007/01/dead_cat_bounce

Recently FF have mooted renegotiation of the IMF portion of our bailout levied at odious 5% repayment rates but cold water was thrown on this with assertion the rest of our EU bailout  partners would object as this would increase their exposure to sovereign risk.

A more productive engagement with the IMF would be to press for an extend/pretend arrangement  http://en.wikipedia.org/wiki/1998%E2%80%932002_Argentine_great_depression

Notice the devastation caused in Argentina by “In June 2000, with unemployment at 14% and projections of 3.5% GDP growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases.” Austerity did not work for them; it will not work for us.

Consider the following:

“When a short-lived boom in the early 1990s of portfolio investment from abroad ended in 1995, Argentina became reliant on the IMF to provide the country with low-interest access to credit and to guide its economic reforms. When the recession began, the national deficit widened to 2.5% of GDP in 1999 and its external debt surpassed 50% of GDP.[29] Seeing these levels as excessive, the IMF advised the government to balance its budget by implementing austerity measures to sustain investor confidence. The De la Rúa administration implemented US$1.4 billion in cuts in its first weeks in office in late 1999. In June 2000, with unemployment at 14% and projections of 3.5% GDP growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases.[30] Following vice president Carlos Álvarez‘ resignation in October 2000 over bribery suspicions in the Upper House,[31] the crisis accelerated.[citation needed]

GDP growth projections proved to be overly optimistic (instead of growing, real GDP shrank 0.8%), and lagging tax receipts prompted the government to freeze spending and cut retirement benefits again in November 2000.[32][not in citation given] In early November, Standard & Poor’s placed Argentina on a credit watch, and a treasury bill auction required paying 16% interest (up from 9% in July); this was the second highest rate of any country in South America at the time.[33]

……..

Cavallo also attempted to curb the budget crisis by instituting an unpopular across-the-board pay cut in July of up to 13% to all civil servants and an equivalent cut to government pension benefits—De la Rúa’s seventh austerity round[40]—triggering nationwide strikes,[41] and, starting in August, it paid salaries of the highest-paid employees in I.O.U.s instead of money.[42] This further depressed the weakened economy. The unemployment rate rose to 16.4% in August 2001[43] up from a 14.7% a month earlier,[44] and it reached 20% by December.[45]

In October 2001, public discontent with the economic conditions was expressed in the nationwide election. President Fernando de la Rúa‘s alliance lost seats in both chambers of the Argentine National Congress, leaving it in the minority. Over 20% of voters chose to enter so-called “anger votes”, returning blank or defaced ballots rather than indicate support of any candidate.[46] “

The parallels are self-evident with austerity measures tracing out in Ireland and across the euro zone outer core. But an important difference is that Ireland is tied to the euro and there is a belief in the bond markets that ECB will print money and do whatever it takes to prevent Ireland and fellow outer core default threats collapse.

Such belief is inconsistent with the facts. The euro zone is a bucket with a large hole in it. Printing money will lead to inflation and perhaps hyper inflation. Inflated bond markets are not having the desired effect in Japan or the US. Eventually, the more fiat is printed, the more it is likely to fall under the weight of its own gravity.

1. John Bruton, former Taoiseach, has spoken of the funding difficulties of pensions across the EU suggesting such obligations may not be realised.

2. Budget cuts are already causing chaotic repercussions in Ireland.

3. Ireland has already entered its own anger pattern of voting with a backlash due to broken promises awaiting the present government in the next round.

4. Ireland has made miserable  progress  in dealing with the troika on question of reducing Ireland’s debt repayment of €67.5 bn of odious bailout, €30bn of this should have been torn up promissory note funding of Anglo bailout, instead this was secured into long-term bond repayment schedules with the compliance of government falsely persuading the public it had an achieved ‘savings’ under this ruse.

5. Ireland in education and now in transport is embarking on a policy of pay cuts.

Property Sector Mess

Ireland’s property sector remains a mess with a plethora of remedies including promised 54000 units to be constructed to kickstart supply of residential demand. Government with years to do this already have dismally failed to do anything but let the sector get into a worse mess.

It’s a curious business illustrating the tectonic plate difference between the real economy and the managed economy. On the one hand, we have the managed economy led by the banks. The banks face imminent stress tests and the requirement that their capital base is sound. Much of this capital base is lending based on the property sector.

If property prices fall further this can damage the security of such lending driving up the number of defaulters as their portfolio falls into negative equity. If prices rise by way of property bubble or other means, this takes pressure off the banks.

However, in the real economy the rising price of property has put the concept of a home beyond the ability of young people to obtain or invest in this pricing that is beyond the safety valve of 3 times the main salary of couples contemplating setting up a home.

Propaganda can therefore be cut both ways by Enda Kenny who can say there is no property bubble at present, a lie; but point to a raft of solutions to the housing crisis that will be a litany of broken promises over the coming years.

Ireland is an economy managed by the banking sector, by the banks, for the banks, of the banks.

However, in a curious twist to this uncompromising reality, it doesn’t much matter as banks are not lending and construction is at a very low-level. It behoves the banking sector to claim on the basis of a small dead cat bounce fed by cash investors seeking to capitalise on a bottoming out of the property sector, that property prices are not only sustainable, but due to rise again, an illusion fed by propaganda.

Ireland faces other headwinds, reduced corporation tax as our tax haven status is tackled; a weakened financial sector as Financial TransactionTax is mooted; a world requiring a global financial reset as rising debt levels overwhelm even leading economies.

The consequence of all of this is a more divided Europe, a more divided society in Ireland, a greater difference between the have’s and the have-nots; a looting of the Irish public sector led by banks in Ireland and Europe.

Its long past the time for Ireland for Ireland to consider leaving the euro. Ireland’s main population centers, its cities are being looted of their public services in health, education, transport, water, energy and property. Now the countryside, Ireland’s agricultural  based rural economy is beginning the realise their future in Europe is to be a Neill Blomkamp’s District 9 http://www.imdb.com/title/tt1136608/.

 

till Next Time.

 

Fugue and Fog

August 5, 2014

With much fanfare the ESRI produced the following report last week https://www.esri.ie/UserFiles/publications/WP487/RN20140201.pdf

“The improvement in negative equity is important in the context of financial
stability, (Hellebrandt, Kawar and Waldron, 2009). The reduction in the value of
mortgage based assets can lead to a reduction in the availability of credit to
both households and firms as banks make provisions for an anticipated increase
in expected losses. The more mortgages that exit negative equity, the stronger
the balance sheets of Irish credit institutions.”

“The recovery in prices experienced in 2013 reduced the number in negative equity
to 268,000 by the end of the year, a fall of approximately 45,000.”

The report was followed by blanket coverage from RTE heralding the news as very positive.

The news is quite the opposite.

As stated in previous blogs, the return of a housing bubble upon which the above stats are based may be good news for the banks, but it is bad news for the general population. Housing bubble in Dublin has led to an increase in rents by 14% over the past 6 months with accompanying homelessness many losing their homes as they cannot afford such rises. Young couples cannot afford the asking prices to get themselves on the property ladder.

Vulture funds and cash buyers have propped up the housing market but a market that cannot provide housing for 3 times the main salary plus another salary, prices housing outside the range of young people starting on the housing ladder, is a property market that is dysfunctional. Today the Institute of Architects in Ireland have recommended a new approach to building of apartments, larger and more family friendly. To date there is a shortage of housing in Dublin in spite of 7 years of planning opportunities to respond to Ireland’s property crash.

What is good for the banks is based on misleading propaganda that blurs the truth.

ESRI have played a key role in propaganda that has misled the Irish public. Their Irish unemployment statistics have become impossible to fathom even to the point of deciding who is unemployed, or who is not. For example, http://www.citizensinformation.ie/en/social_welfare/social_welfare_payments/unemployed_people/self_employed_and_unemployment.html

“Self-employed people can become unemployed if their business has to close down. It may also be the case, though you continue to be self-employed the amount of work you are getting has reduced so much that it no longer provides you with a sufficient income.

If you find yourself unemployed or you are getting less work than before you may qualify for a job seeker’s payment. You do not need to de-register as self-employed to get a payment.”

http://www.irisheconomy.ie/index.php/2014/02/28/some-very-positive-labour-market-numbers/

According to Michael Hennigan: “The number of self-employed persons increased by 33,400 or +11.5% to 324,500 — likely including the assumed surge in farm numbers but maybe former construction workers who were part-time farmers are now treated as entrepreneurs.”

Over 2013, likewise there was a surge of numbers in the farming sector that were argued to be additional jobs due to statistical understating of numbers, criteria in previous years. This is the stuff of propaganda, folks.

Recent news that NAMA had sold large chunks of its property portfolio to vulture funds was hailed as great news for the economy. This weekend however we read of property developer, John Flynn, “comparing the state agency to North Korea and describing it as a cancer on the Irish economy” Sunday Independent, Aug 3, 2014.

The story of NAMA, employment statistics, housing bubble all point to a concerted effort to support Irish banks and their need to protect their capital base. Protecting the capital base of Irish banks instead of protecting the interests of Irish taxpayers who are prey to these banks is the story of broken promises, of government parties the Irish public trusted with this task, who have failed.

Irish banks are playing tough at the moment and seek investment and confidence from everywhere. One of these “pillar”  banks has been in the news posting return to profitability. According to Shane Ross  “In the near future there is likely to be a consolidation or another similar financial acrobatic for AIB.

What does this mean? As Noonan and AIB prepare for privatisation, small shareholders could be given one share in return for every six shares held.” Sunday Independent 3 August, 2014, Business 2. Ross is very much a lone voice in his efforts to throw light on the financial sector.

He makes the point if AIB had maintained their provision for bad debts at last years level at €738m instead of reducing the provision to this year’s $92m, they would have had to declare a loss of over €200m. Instead they posted a profit of €437m fanfared by RTE throughout the week. Needless to say any write-offs of mortgage debt fed into the lower figures on negative equity afforded by the ESRI above.

Its clear the fanfare fugue is taken up by all members of the titanic orchestra, RTE, ESRI, and others more of anon. If you are wondering what fugue means, “a contrapuntal composition in which a short melody or phrase (the subject) is introduced by one part and successively taken up by others and developed by interweaving the parts.”

Conor O Brien in Business 4, same paper, writes a defence of Ireland’s corporate tax code. He is head of tax at KPMG Ireland. he should go back to school.

https://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp375.pdf

Table 4 he might look at before initiating a misleading discussion on the ludicrous:

“Similarly for companies, they are taxed where they are resident or where they have a presence in the form of a branch”

I refer the reader to previous blogs here on corporate tax inversion. There’s obviously a lot of money a lot of money to be gained on how to set up a mailbox. In order to make this money, you need to leave your brain behind.

Being misled is becoming the new normal. According to the Israelis its normal to return fire leading to the death of 300 babies in recent Gaza conflict, to argue civilians are fair targets in a built up population where there is nowhere without civilians, to hunt people from their homes, decimate their economy and their property. Talk of sanctions against Israel and war crimes is off the table.  I digress on behalf of innocent lives lost.

Likewise, being misled is the new norm in international finance.

Mysterious Belgian buyer:

The establishment view is that the action by Mario Draghi in 2012 to introduce unlimited bond buying to bolster peripheral countries of the emu….

http://www.theguardian.com/business/2012/sep/06/eurozone-crisis-ecb-unlimited-bond-buying

…was achieved without a shot being fired. However, speculation is increasing on a 2 hander between the FED and ECB with ECB taking up the slack of the FED’s slowdown in QE with ECB making large USTY purchases, story by Schiff and bloggers below.

It’s conceivable as part of quid pro quo, such purchases extend to the purchase of bonds of EU peripherals, but you’ll have to follow the trail yourself for now:

More bond purchases will be required with news BES has collapsed:

“Novo Banco, or New Bank, will be recapitalised to the tune of €4.9bn by a special bank resolution fund created in 2012. The Portuguese state will lend the fund €4.4bn. All of BES’s depositors will be protected as well as the bank’s senior bondholders.

Portugal’s central bank, which only days ago said that BES could be recapitalised by private investors, said the plan would involve no cost to the public purse because the loan would be temporary.

The Bank of Portugal expects the state to be reimbursed when Novo Banco is eventually sold to private investors.

- See more at: http://www.independent.ie/business/world/portugal-eyes-49bn-banco-espirito-santo-rescue-in-days-30482465.html#sthash.etReliRp.dpuf

Obviously those private investors changed their minds. Only private investors left are the governments of emu countries who freely fill from their taxpayers’ well.

It will be interesting to see if Irish taxpayers are asked to follow suit this Autumn following the stress tests of Irish banks.

http://www.zerohedge.com/news/2014-05-15/russia-dumps-20-its-treasury-holdings-mystery-belgium-buyer-adds-another-whopping-40

http://www.economicpolicyjournal.com/2014/05/peter-schiff-belgian-bond-buying-mystery.html

until next time:

End

PS Property Scam

July 27, 2014

An Taoiseach, Enda Kenny, has told us there is no property bubble. Over the past year property prices in Dublin have risen by 20-25% . A professional couple with 3 times the main salary plus salary of the other salary won’t hack it. They are being outbid by cash buyers.

Of these how many are local and how many represent vulture fund capital of domestic or foreign based interests, no one knows.

Reasonable property valuations of around the €200,000 mark have disappeared with prices skyrocketing far beyond the ceiling that can be afforded by most young people aiming to start a family.

Let’s think about this problem and approach it from a new angle. Without getting into the nitty-gritty of why we are not building the 15000 housing units annually, why the government is slow to act, why planning permission for these units is in the hands of developers cocooned by their problems with the banks, NAMA and the courts, might there be other reasons for the debacle?

Property tax is resented in Ireland and regarded as a bondholders and banker tax to fund repayment of odious debt. http://www.irishtimes.com/news/politics/resentment-over-property-tax-is-palpable-1.1793551

However it has been mooted by tripling the amount of property tax, in excess of €2bn could be raised that would allow taxation to be reduced. Alarmists have pointed out, this would be akin to giving with one hand and taking it away with the other and have derided and scorned the proposal.

However, there is method in this madness. Consider the following scenario: with QE providing plenty of collateral for banks to purchase/invest in property in Ireland with money from abroad, let’s say this money rushes to Ireland to purchase vast portfolios of land/commercial property from NAMA and property in the domestic private market?

Add to this, the savings of those unaffected by the recent property bubble wishing to cash in on rising rents to avoid low-interest rates. Add in lack of supply, and voila, we have our housing bubble?

Who gains? The banks gain. In oncoming stress tests due this fall, Irish banks will be scrutinised on their capital balances, how secure their lending is. Banks will point to rising property values as security against their lending return on domestic loans. Falling property values would lead to more falling into negative equity to tarnish the loan book of Irish banks.

Rising property charges will mean government can reduce taxes if these taxes can be offset and levied against property owners instead.

Cash rich buyers and external vulture funds can swoop in and control the market. Unable to compete, domestic buyers, young people hoping to start a family, will be priced out of the market and forced to rent.

'I don't get it...after all the budget cuts to streamline the work force, why aren't we moving faster.' Rental prices increase with domestic property charges handed on by a new slave class forced to pay whatever rent is decided by a new rentier class. Divisions between rich and poor increase.

Is there an alliance between government, the banks, vulture fund capital, a new rentier class of local and foreign capital with a Greek chorus of ECB, bondholders, to scam young people betrayed in the recent housing bubble collapse?

There is no commitment to bring down housing prices to reasonable levels. Instead there is a denial this problem even exists.

So, first you sign up all Irish taxpayers to pay for odious debt. In order to keep property prices high and safeguard the capital base of banks and continue to make returns on bondholders odious debt, you flood the market with vulture fund money: for example, purchase anything on NAMA’s books. You need to force young people out of the property market and into the rentier controlled sector.

Once you have young people there, you can make them pay any rent you like. Government can force any amount of property charges it wants. Landlords simply raise the rents and the new class of young Irish rent slaves will pay whatever is asked of them. Troika is happy, their odious lending has been securitised.

Those with a fertile imagination can imagine Mr Magoo with his puppet strings controlling Mr Kenny and all his rent slaves in a world without private property,  everything in Mr Magoo’s ownership.

Mr Magoo may turn out to be much more unkindly than George Orwell’s Big Brother!

End.

 

 

 

http://www.theguardian.com/commentisfree/2014/jul/17/brics-development-bank-africa-world-bank-tyranny

http://www.belfasttelegraph.co.uk/news/local-national/northern-ireland/garth-brooks-taoiseach-enda-kenny-rules-out-emergency-legislation-to-allow-croke-park-concerts-to-go-ahead-30419227.html

I’m not a fan of Garth Brooks and bought no tickets for his concerts in Dublin. But I do respect the 400,000 disappointed fans who purchased tickets for his concerts in Dublin. They’ve suddenly received notice the shows are cancelled.

Poor licensing regulation in this area led to a lot of mistakes being made by various bodies involved in the organisation of the concerts. I will not go into the detail of evaluating or enunciating the opposing rights and perceived infringements. They all point to greater clarity and clearer rules for all concerned for future venues.

An Taoiseach, Enda Kenny, has stated intervention by him to save the expected loss of castleintheairrevenue of €50m to the city with cancellation of the concerts would expose him to, “certainly be accused of coming the heavy on an issue like this”.

Failure to act means he is coming the heavy on 400,000 people who’ve purchased tickets.

A smarter option would have been to acknowledge that a mess has been made; facilitate legislation that enables the concerts to go ahead on a one time basis;  compensate the local residents in a big way for their inconvenience; guarantee this was only a once-off subject to clearer licensing rules in this area.

This would gain kudos for An Taoiseach who has squandered this opportunity once again to show leadership that is worthwhile and not less than worthless.

This is but more evidence of Kenny’s blindfold mess of eg property charges that discriminate against city dwellers, water charges that discriminate against everyone, privatisation of refuse collection that has ended in the Greyhound mess, expulsion of key party members on their conscientious objection to certain aspects of party policy, medical cards debacle, water debacle, energy grid mess.

But most of all dunce failure to deliver on a debt deal for Ireland that is not less than derisory. But you will often hear him in self-congratulatory mood as he deliberates on the crumbs the ECB has bought him with.

Happily the result of the European elections showed a rejection of the Irish public of FF/FG policies in spite of massive propaganda to persuade them otherwise of the Kenny agenda. Blind indifference to Kenny’s agenda informs  most of the electorate who experience another world of falling standards of education and public health, increasing taxes, emigration and few jobs.

In a vacuous way the Kenny agenda is to ignore  the debt ridden nature of Irish state’s private and public liabilities, to pretend these are sustainable, that a trickle of new jobs can be nurtured into a river of growth. To celebrate when there is no cause for celebration. To bestow confidence with a smile wherever caution signals action required more than a smile.

Kenny’s is a light weight, shallow, head in the sand agenda, that hopes against hope that a rising tide will lift all boats: Even when there is no tide.

Ireland requires a growth rate of 8% to be sustainable under its present conditions of odious debt. But growth rates above 2% would be cause for celebration. Inflation has turned into deflation and growth will be sponged up to pay for increasing incapacity to repay debt.

Austerity is the name of the game led by Germany. This is aimed to suck the marrow from the bone of peripheral countries such as Ireland. Austerity requires puppet governments to be bailiffs and Kenny’s certainly serves the mark.

http://www.irishexaminer.com/archives/2012/0609/opinion/enda-kenny-is-failing-in-role-as-taoiseach-196756.html

“Enda’s strategy in Europe has been to align with Germany, which is bizarre as economically we are faced with different circumstances entirely to Germany. Enda has failed to make any case for Ireland and has instead bought into Germany’s own misconception of the Irish people and the Irish economy.”

A little over 2 years ago the writer of that letter wrote ” Last night I attended the launch of the FF Futures Group in Dublin and it stuck out a mile who the real Taoiseach is. We need to get a Cork man back in the driving seat, it seems.

Would that we could elect Micheál Martin to the job. He would do us all proud.”

On the contrary, both Martin and Kenny are joined at the hip when it comes to Europe. Both need to be replaced by leaders of more depth and insight who will not disappoint in leading this country through difficult times ahead.

But even Micheal Martin has the wit and insight to this week suggest enabling legislation to allow the Garth Brooks concerts proceed. Clearly FF/FG are worse than FF.

It’s a curious case of deja vu that the ‘come the heavy’ argument from Kenny has been heard before. It was used to defend the rights of bondholders over the rights of the people of Ireland, its taxpayers and public services, who were levied with the liabilities of bankers and bondholders and the €67.5 bn odious debt levied on the people of Ireland by the troika.

These arguments should be examined in another forum, the Banking Inquiry promised by Kenny. It too is currently embroiled in a mess.

Kenny  cannot learn from mistakes made in the past. Ireland joined up to a flawed EMU with its flawed euro currency that did not suit our needs and was poorly if not recklessly administered in favour of Germany.

While EMU peripheral countries sold the fool’s gold of debt by Germany are witnessing the painful legacy and extraction of their liabilities,  Germany continues to grow with enviable growth rates of 4% +. Germany’s bondholders safely secured against the liabilities of Irish taxpayers.

The original European Union was an aircraft carrier with all members having a say in its running. That ship was sunk 6 years ago. In its place is a poorly defended and organised convoy led by a German battleship towing with fraying tow ropes the economies of peripheral zone members.

So far, Kenny’s reign is mindful of a tale told by an idiot, full of sound and fury, signifying nothing.

Tomorrow Enda Kenny reshuffles his pack. Its difficult not to be indifferent and to regard this as nothing more than the swapping of seats of another orchestra on another titanic.

End

http://www.enotes.com/shakespeare-quotes/tomorrow-tomorrow-tomorrow

Macbeth:
To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
Life’s but a walking shadow, a poor player,
That struts and frets his hour upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

 

 

 

 

 

jean-claude juncker“Mr Juncker is seen as an ‘arch federalist’ by the Government because of his record of wanting more power for Brussels over national Parliaments” Jean-Claude Juncker is no Santa Clause.

“Mr Cameron added: ‘There are times when it’s very important that you stick to your principles … even if the odds are heavily stacked against you rather than go along with something that you believe is profoundly wrong.’

He said the recent European elections had shown that there was ‘huge disquiet about the way the European Union works’. “

Cameron is campaigning for reform of Europe and the election of Juncker will be viewed as a step back for reform and a step forward for the status quo of austerity for taxpayers and no austerity for lenders.

…”

Support for the EU is wafer thin in the UK and the Tories have pledged an IN/OUT referendum in 2017 if the Tories remain in power.(1)

At the heart of this dispute in Europe is fears over growing centralisation. However, it is ironic that growing centralisation does not include the centralisation of bailout debt of peripheral debtor nations such as Ireland.

Meanwhile former Luxembourg Prime Minister Jean-Claude Juncker will become next president of the European Commission following  European Council vote 26:2 on June 27 with UK and Hungary voting against.

The question is will David Cameron now lead a eurosceptic campaign for Britain to leave the EU. Will he regard his reform agenda as dead?

The vote comes in the wake of the routing of pro European parties in the recent European elections May 26/27.

http://www.economist.com/blogs/charlemagne/2014/05/european-elections-0

European parliament elections saw the rise of  the neo-Nazi Golden Dawn party in Greece now set to enter the European Parliament. On the far-left, meanwhile, the anti-troika Syriza party leads the ballot. Its clear people voted on the basis not of extreme ideological far left or far right on a racist agenda, but simply on for or against the Europe project.

Many of those who do not hold the extreme views of extreme left or right voted for such parties on the basis no mainstream  parties articulated their anti EU views.

In France Marine Le Pen, trumped  both the centre-right UMP party and the Socialist Party of François Hollande. The National Front won about a third of the seats allocated to France. “One half of the Franco-German motor of EU integration thus appears to have gone into reverse, with unforeseeable consequences for the whole European project.” However mainstream parties still control up to 2/3 of seats in the EP.

“In Britain, always more sceptical of the European project, Mr Farage’s UKIP seems to have beaten the traditional parties, with the opposition Labour party coming second and the Conservative party of the prime minister, David Cameron, coming third. “I don’t want Britain to leave the EU. I want Europe to leave the EU,” declared Mr Farage.”

Cameron for the Tories at home has let some of the air out of the tyres of the eurosceptic wing of the Tory party and the rise of Farage UKIP.

It will be interesting to observe if Cameron transmogrifies from a position out to ‘reform Europe’ to outright eurosceptic supporting UK unilateral withdrawal.

In Ireland there was no support for the Cameron anti Federalist position in spite of Enda Kenny’s continuing failure to negotiate a debt write-down. Kenny,  a golden boy of the troika is ‘glowing testimony’ to the policies of the soldiers of austerity, he hopes to obtain a commissionership or two for Ireland out of his support for Juncker.

Kenny lost opportunity to play the debt card and make his support for Juncker contingent on a reworking of Ireland’s odious debt profile with Irish people saddled with approx €40bn out of the troika’s €67bn losses that ought to have been shared by external banks. Clearly FG and Labour policy is to be poodle for Europe and the banking financial industry.

Meanwhile John Bruton chairman of IFSC, a former Taoiseach and Fine Gael hack, has espoused the view election to presidency of the European Commission should be by vote of the people directly not merely by members of the European parliament.

Ironically, Juncker’s EPP in its electoral manifesto for 2009

http://en.wikipedia.org/wiki/European_People’s_Party

also called for ” direct election for the President of the European Commission “. EPP also supports, ” Increasing transparency and surveillance on financial markets. “

Kenny’s other political initiative, the banking inquiry, would appear to be dissolving before our eyes before it even gets to take place.

Cabinet confidentiality may prevent certain records surfacing if they exist. Restrictions surrounding the inquiry limiting it to a showcase trial around the guarantee already limit investigation of the poor management of Ireland’s bailout deal led by representatives of the central bank/dept for Finance and political representatives.

The curious case of Brian Lenihan’s repeated visits to the Dail with the bill for the banks leaping from €3bn to €30bn + is major cause for investigation as to who misled who with the bill passed to Irish taxpayers, a story that demands to be told.

Reform in Europe has been put on the back-burner. Juncker’s backing by Merkel will further consolidate a federalist Europe with growing powers of centralisation and growing control of the European parliament by Germany.

As austerity and lack of growth continues to haunt the EMU, is it now time for Ireland and the UK to consider leaving the EU? Its long past time for Ireland to adopt a strong position in renegotiating its debt profile.

To do so, do we need to leave the euro and join those countries outside the euro such as Switzerland and the UK ?

Currently the following countries do not use the euro.

United Kingdom
Bulgaria
Croatia
Czech Republic
Denmark
Hungary
Lithuania
Poland
Romania
Sweden

Ireland outside the euro could return to its own currency, the punt,  using the euro as a base.

Deflation in Europe is about to make our debt profile worse. Calls in Europe for more investment to stimulate jobs come against the backdrop of a growing austerity that puts more brake on growth.

There is less and less money to go round. Devaluation would help restore our national finances. An open, flexible country with a large dependence on exports, could offset any disadvantages and quickly restore order to Ireland’s finances. Day by day our prospects in Europe diminish.

Whatever there is looted from starving the public services of funding in education and health gets exported back to large banks in Germany, France and US by way of €8bn in interest payments on our ‘bailout’ debt. An alliance with UK under a commonwealth free trade agreement the Switzerland way could yield an excellent alternative to our current debacle.

http://ec.europa.eu/trade/policy/countries-and-regions/countries/switzerland/

“The cornerstone of EU-Swiss relations is the Free Trade Agreement of 1972.

As a consequence of the rejection of the EEAmembership in 1992, Switzerland and the EU agreed on a package of seven sectoral agreements signed in 1999 (known in Switzerland as “Bilaterals I”). These include: free movement of persons, technical trade barriers, public procurement, agriculture and air and land transport. In addition, a scientific research agreement fully associated Switzerland into the EU’s framework research programmes.

A further set of sectoral agreements was signed in 2004 (known as “Bilaterals II”), covering, inter alia, Switzerland’s participation in Schengen and Dublin, and agreements on taxation of savings, processed agricultural products, statistics, combating fraud, participation in the EU Media Programme, the Environment Agency, and Swiss financial contributions to economic and social cohesion in the new EU Member States.

In 2010 an agreement was signed on Swiss participation in EU education, professional training and youth programmes.

In overall, around 100 bilateral agreements currently exist between the EU and Switzerland.”

Ireland could well take a leaf from the Swiss book. With a similar bilateral trade agreement with the UK, there is another way to the austerity path.

With lack of inflation, anchored to the euro, our situation worsens. However, with results from recent local elections it appears most now reject the FG/LB view that we are living in a paradise with 70,000 new jobs with the tide turning.

Many experience such a fool’s paradise differently, especially those on hospital trolleys.

End.

 

1. Read more: http://www.dailymail.co.uk/news/article-2671985/Angry-Cameron-warns-European-leaders-consequences-Cognac-breakfast-Brussels-fixer-Jean-Claude-Juncker-given-EUs-job.html#ixzz361HE77UF

2. http://en.wikipedia.org/wiki/Croatia_and_the_euro

3. http://www.economicshelp.org/blog/1299/economics/advantages-and-disadvantages-of-devaluation/

 

 

Shudder Island

June 15, 2014

Currently Ireland is reeling from revelations regarding the 796 babies buried in Tuam. Lists of names and cause of death of all who died between 1925 and 1960 are published in today’s Sunday Independent. Babies were buried in an unmarked grave. Poor healthcare, neglect or worse caused a mortality rate sometimes between 5 and ten times the normal mortality rate in the wider population. Further investigations and inquiries will reveal more. It’s thought such high mortality rates occurred in similar homes for unmarried mothers across the country during the same period.

Some of these homes appear to have been run along the lines of Japanese prisoner of war work camps and were populated by those regarded as members of Ireland’s lowest caste, unmarried mothers. Religion, politics and foot soldiers in the civil administration provided the lethal conditions under which such abuse flourished.

Archbishop Dermot Martin probed on his reaction to such revelations wondered why there were not people of insight, whistleblowers, within the church who rang alarm bells. I’m sure he equally questions reasons for genocide and ethnic cleansing in Ruanda and Nazi Germany.

Let me partially attempt an answer. Organisations and institutions can go bad for many reasons. Organisations are living organisms with foot soldiers  to follow and defend the status quo. Those who threaten the status quo are summarily executed in a worse case scenario. In a lesser context they are shown the door. Those ambitious for power like Frank Underwood in House of Cards know how to tow the line. They are rewarded for such loyalty card actions and guard the doors.

Unfortunately those with the greatest critical faculties can become victim of a zombie takeover. This can lead to a less than healthy competence emerging among leadership contenders. This may explain the government’s hand maiden of the troika, soldier- of – austerity performance in dealing with our economic collapse.

Perhaps this is also a clue to what is happening to our long-delayed Banking Inquiry. Government has already stopped the PAC committee headed by FF John McGuinness acquiring the job and instead it has given the inquiry to a new committee with a new chairman, Ciaran Lynch, Labour TD.puppets

Through mismanagement the FG/LB led government lost its overall majority on this committee and now has reimposed its own political majority stating it must have power to impose its “terms of reference”. We should shudder.

But the so-called banking inquiry was already holed below the water line. Its flaws go back to a referendum where Irish people decided politicians were not to be trusted. As a result Oireachtas committees are prohibited from holding non-public office holders to account. The difference with this inquiry and previous ones eg Honahan, Regling/Watson , Nyberg is that hearings will take place in public, not in private.

If it goes ahead, some of its hearings could prove to be farcical, with those probed in attendance with their solicitors, stonewalling and pleading the 5th Amendment. Worse still, those “terms of reference” will come from handmaidens of the troika infected with a deep compliance and subservience to bankers.

This government has defended the rights of bondholders over the rights of taxpayers. Sutherland, Bruton, Honahan, and Department of Finance officials have a lot of banking secrets to hide and are likely to use such terms of reference to steer attention away from bankers and towards political adversaries who have little to confess other than compliance, subservience and incompetence.

The fact that Oireachtas committees are already hobbled in the above way should point to the only way forward for a real Banking Inquiry to take place: it should be a proper judicial inquiry led by a high Court judge, a person of competence and good standing with proper powers of compulsion to get answers we need.

Stephen Donnelly TD was correct to spot the political stage-show trial and resign from the committee before this Banking Inquiry could manipulate him towards a darker agenda.

In a previous inquiry I suggested some terms of reference.

Some Suggestions for the Inquiry

1. Follow the money.

This should not be too difficult. Ideally, the ten largest loans handed out by each bank could be trawled through to examine the precise mechanics involved in these developer loans: who dealt with them, how were decisions made, documents in support of the loans obtained and examined. This would quickly reveal a seam of rich information that will quickly unravel the culture of lending in the banking system.

2. Examine the bonus system.

Word has it that the traditional method of classical banking with local managers intimately knowledgeable re financial matters in the local community with lifetimes of experience overseeing lending patterns responsibly, was set aside. Instead such managers were replaced by whiz kids of the bonus culture pressing loans on everyone they could find. Lending standards were lowered, the bottom line was the bonus, prudential lending was the big casualty. As long as property rose in value nobody cared.anglo

3. The role of the central bank and regulator.

Specific interest should target the Central Bank personnel who were witness to Anglo’s meteoric rise to unsustainable levels of growth during the Celtic Tiger.

4. The case against Europe.

Particular interest should focus on ECB(European Central Bank) and ICB(Irish Central Bank) relationships, correspondence and communication by email, phone, video, meetings where regulatory brakes should have been considered and monitored by ECB and ICB. Note this has already been ruled out of order by the probe.

5. The Guarantee.

The inquiry should not conclude its deliberations until full and final discovery is made of the personnel and role of ECB, ICB, Dept of Finance and the political representatives  who played a role in the Guarantee.

I find it difficult to swallow the commonplace assumption the Irish Dept of Finance, Irish Central Bank, Irish politicians and representatives of the Irish financial industry acted alone in opting for the state guarantee.

The Guarantee would have been new territory. In hindsight it was a rash and incompetent idea. It would be therefore easy to assume incompetent rashness on the part of that group from a relatively large background in banking and politics. But, were there other compelling forces at work? Who, where this did the ‘Guarantee’ come from?

The inquiry should examine closely the possibility of other outside influences on the Guarantee. It’s incredible to believe the ECB was not consulted on such a momentous decision.

6. The role of the credit rating agencies?

It’s incredible to believe the high credit rating afforded to Ireland and to its banks at the height of the Celtic tiger as it increasingly became more exposed to dangerous lending practices and icebergs.

7. The role of financial auditors

Anglo Irish Bank auditors, Ernest & Young, their role needs to be scrutinised.

8. The planning authorities and the role of planning legislation that fueled the boom?

There are plenty of issues not covered here, but the above is a sample of what a banking inquiry should deliver answers on so that we can learn for the future. It’s not sufficient that opaque, broad generalisations be used to obscure the truth.

The inquiry needs to yield positive results that discovers hard factual evidence that will form the concrete base of any conclusions it makes.

In the US financial meltdown has been the subject of detailed inquiries:

http://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapse

“The Report cites investment banks as a major player in the lead up to the crisis, and uses a case study of two leading participants in the U.S. mortgage market, Goldman Sachsand Deutsche Bank. The case study found that from 2004 to 2008, banks focused their efforts heavily on RMBS and CDO securities, complex and high risk financial products that they could bundle and sell to investors who did not necessarily know the composition of the product. Financial institutions issued $2.5 trillion in RMBS and $1.4 trillion in CDO securities. They created large trading desks that dealt strictly in RMBS and CDO securities. More alarmingly, their trading desks began to take out insurance policies against the RMBS and CDO securities, allowing them to wager on the fall in value of their own asset. They acted in many instances as an intermediary between two opposing parties who wished to bet on either side of the future value of a security. This practice led to a blatant conflict of interest in the securities market, as the banks used “net short” positions, in which they wagered on the fall of a security, to profit off the failure of a security they had sold to their own client.[10].”

The cause of financial meltdown in Ireland was different with focus on  banking and housing bubble meltdown. Will our inquiry into Ireland’s financial meltdown comprehensively answer the questions  explaining the legacy of financial meltdown still with us.

9. Many other areas not covered here require investigation as well.

Can such an inquiry competently deliver the answer as to why young people in Ireland cannot afford housing, cannot afford to begin families, why the financial services industry, the banks, austerity, continue to extract from them through falling social services in health and education, a future that comes through Ireland eating its young; a politics of vampire bailiffs masquerading as democratically legitimate politicians defending the people!”

Meanwhile Enda Kenny, Taoiseach, trendy handmaiden of the troika, a soldier of austerity, a poster boy of austerity and postboy for how jobs can flow from austerity, can count the days before his government breaks.

It’s not often the Irish Central Bank’s sometimes Pollyanna forecasting agrees with the views of this writer,

With another €2bn to be taken out of the budget, unease re Ukraine, disinflation in EMU, global slowdown in growth, further instability in government, there could be a perfect storm in the Autumn:

In its latest macroeconomic financial review, the Irish Central Bank points to concerns regarding our banks as a result of forthcoming ECB stress testing:

http://www.centralbank.ie/publications/Documents/Macro-Financial%20Review%202014.1.pdf

“…outcome of the ECB Comprehensive Assessment (CA), which includes a point-in-time Asset Quality Review (AQR) and forward-looking stress tests, will be important in determining the resilience of the major banks to future shocks, notwithstanding the substantial capital injections of recent years. The results of the AQR and the stress tests are due to be published simultaneously in November 2014 at the time that the Single Supervisory Mechanism (SSM) enters into force.

….The low-yielding tracker mortgage loan book and high share of impaired loans will
also limit domestic banks’ ability to increase margins on existing business

…The outcome of the ECB’s CA may also impact provisioning and,
in turn, the profitability of the domestic banks. The ECB and
relevant national authorities commenced the CA in November
2013. The assessment exercise comprises three distinct
elements: an Asset Quality Review (AQR); a Supervisory Risk
Assessment; and a stress test. This exercise will be completed
before the Single Supervisory Mechanism (SSM) enters into
force on 4 November 2014. In total, the CA will be carried out for
128 banking groups in the Eurozone. Five credit institutions in
Ireland will be subject to this assessment – AIB, Bank of Ireland,
Permanent TSB, Ulster Bank and Merrill Lynch as the ECB will
directly supervise them under the SSM. Subsidiaries of
Eurozone banking groups, such as KBC and ACC, also fall
indirectly within the scope of this CA, as they may have loan or
asset portfolios subject to the AQR.”

Banks have large bonds that are due in 2015 and a downward assessment may affect Irish banks to raise capital on external markets. But no doubt the inward rush of pirate QE vulture funds supporting our virtual zombie economy’s NAMA property sector, will attempt to buffer the financial system. Vulture fund money is the only buyer at the moment, the domestic market priced out for both commercial and residential development.

Government break up, further austerity in our budget, stress tests on our banking system, a perfect storm indeed.

Enda Kenny, trending austerity across Europe, may bail out for a job in Europe as clouds gather. Currently, Alan Dukes, Fine Gael doyen, former chairman of Anglo Irish bank, soldier of austerity and friend of bondholders, is on radio pontificating on our banking inquiry shenanigans. You may shudder! Directing the searchlight away from bankers and Department of Finance officials towards political enemies in Fianna Fail would be up his alley.

Crumbling support in polls for government incumbents shows the Irish electorate is far more sophisticated than our political masters who’ve betrayed trust.

Having been shafted by the ECB, a €67bn sinkhole loan billed to us from the troika, to bail out the euro not Ireland,  a badly designed and unworkable ECB  that sent freefall confetti  lending of euros into Ireland’s banks, setting off a false property lending boom bubble, its long past the time we ditched Europe and set up a new alliance with countries such as UK, Norway, Sweden in a new sterling zone. Other moves are worthy of consideration also.

As well as confronting our past, we need to be prepared to ditch it and not prolong its legacy of austerity and misery.

Until next time!

The Scott Expedition!

May 25, 2014

Part 11 (from prev blog)

The US government’s own data shows a net worth of minus $16.9 trillion, over 100% of GDP in the red.  And even in their most optimistic projections, the government tells us that growth in debt will outpace growth in tax revenue. US has not freed itself from the debt catch 22. 

The US has struggled with the impact of the crash of 2008 with reforms that have stopped short of the Glass Steagall response to the crash of 1929 in its principal reform compelling the separation of investment banking from commercial banking built around the protection and securitisation of depositor funds. Mario Draghi’s imminent stress testing of European banks is reminiscent of Timothy Geithner’s stress testing of US banks that arguably restored confidence in banks.

The more debt is paid down through austerity, the more the economy takes a loss. The critical point of 90% debt to GDP has been passed by US and many members of the EMU: http://www.economist.com/news/finance-and-economics/21576362-seminal-analysis-relationship-between-debt-and-growth-comes-under “This Time is Different”. In their paper Ms Reinhart and Mr Rogoff sorted the figures into four categories of indebtedness and took average growth rates for each.

They found that public debt has little effect on growth rates until debt reaches 90% of GDP. Growth rates then drop sharply. Over the entire two-century sample (from 1790 to 2009), average growth sinks from more than 3% a year to just 1.7% once debt rises above the critical level. In a shorter post-war sample the decline is more dramatic; average growth drops from around 3% to -0.1% after the 90%-of-GDP threshold is attained.” Ireland’s debt to GDP is 123% and we’re struggling with correspondingly low growth levels of >1% struggling under projected growth levels of 2-3% that are never realised.

But hey, the troika are there to bail us out further, so markets believe. We have a coalition government  of  bailiffs willing to superimpose on taxpayers austerity measures to pay the crippling interest repayments circa €8bn/pa looting Irish public services while the wealthy are protected from having to pay a fair share of such bills. Economic stagnation is buffered by propaganda efforts to persuade the public that a small increase in employment levels recovering from 15% to 12% means such austerity methods are succeeding. Not unrelated to the success of austerity, If you can have a look at this John Stewart/Tim Geithner interview of recent days. Its elsewhere on YouTube and other places in spite of efforts to prevent it viewable for Irish audiences: http://www.youtube.com/watch?v=9R7OL2ZyZKQ  Geithner is the man who faced down our Minister Noonan telling Noonan he had to pay up on senior bondholder debt.

Geithner played the same ruse in the US insisting derivatives of AIG worth €60bn be paid back at 100% on the dollar. So-called recovery in the US has meant the return of profits to the banks without the trickle down benefits of a growing economy. Instead wealth has been concentrated and consolidated for the TBTF banks with the wealthy 1% given even more power.

The printing of money invested in stocks and shares has led to inflation of wealth for the rich and contraction of economic freedom and asset participation by the poor. This is an economic recovery sparked by fools gold that will not end well. Dodd Frank and Volcker have not defused the financial weapons of mass destruction that have built up in the shadow banking deregulated toxic world of global financialisation since the early 1970’s. Instead Geithner has revived the monster that gave us 2008.

“Most first time homebuyers can’t afford a home in the US. They are overburdened with college student loan debt, and the ‘sins’ of the fathers who delivered them over 200 years of servitude. There is no way those people will fill the mortgage gap and create a true and sustainable housing market without, once again, interest rate fixing and more fraud to prop up a goofy system.”

Similarly in Ireland property through financialisation of the property market still remains a speculative bubble that the present government refuse to lance. Property prices are simply too high to be affordable except by cash rich speculators. It is conceivable that a future beckons with speculators overcoming the property sector where family home buyers will be squeezed out of the market entirely.

This has already happened in some states of the US where hedge funds rich on QE and Geithner handouts, have bought left right and center squeezing out local homebuyers. Homebuyers are now forced to rent and with a cornered market those rents can be set at any price. This is a consequence of the financialisation of the economy destructively consuming the real economy. http://online.wsj.com/news/articles/SB10001424052702303661404579177873015074830   ireland-government-debt-to-gdp While radical financial moves have been made led by Paulson/Geithner(see below) to counteract the effects of Wall Street 2008 that led to imminent financial meltdown , in Europe it is believed losses incurred by the crisis in 2008, have been largely concealed by regulators ‘successfully’ hiding the losses of large banks in many EMU jurisdictions.

Stress tests across banks in the EMU some Friday next October will see phone calls made to each of the chief executives of every bank in Europe to reveal the findings of those tests. No one knows the full details of the formulae being used to calculate any shortfalls in these banks. Any bank found to be short will have until the following Monday to procure the money. Speculation on this blog surround the recent arrival circa last December of hedge fund miracle buyins to large tracts of the NAMA portfolio.

Is the Irish bank book currently being sterilised by such investments being groomed for the imminent stress test appraisal involving property and commercial/private loan exposure to marked down losses? Prof Morgan Kelly recently drew attention to the large exposure of Irish SME’s to outstanding levels of loan obligations that have yet to be written down. Are we currently being recreated into a new financial entity spawned by global financialisation rather than real economics? Have Irish banks marked down losses and how will they fare in oncoming stress tests?

Is a world of appearances dumping and triumphing over the real world?

According to Iain Dey writing in Sunday Times, 25/05/14, Business 8, European banks including Irish banks face the following scenario in regard to Mario Draghi’s ECB bank stress tests: “”..big banks have already started to brace themselves for the fallout. deutsche Bank launched an €8bn share issue last week to bolster its bank sheet, partly due to fears the probe will expose the fault lines in the German financial system.

Italy’s banks have raised cash, and France’s BNP Paribas may follow soon” “”The market thinks about 30% of Europe’s banks should fail the stress test,” said a senior director at a large European bank. “If only 5% are told they have to raise more capital, the test will look soft and it will be dismissed as a political fudge. – which means the whole exercise has been pointless. “But if 40% fail that’s a lot of money to find.”

Global shadow banking excesses deregulated have covered up real economic realities hedged beneath a false economy built upon illusion and farcical casino gambling bubbles in stocks and shares and paper derivatives not worth the paper they are written on.

The Geithner solution to global crisis built upon creating more paper and more illusion with soft pedal reform, is a recipe for global recession and a worsening of the global economy. More economic activity could have been generated if TARP assets were handed out to ordinary american taxpayers in tax benefits and social welfare entitlements with Hooveresque dam building programmes  designed to improve US infra structure, roads, schools; rather than handouts to gambling bankers playing derivatives and the stock market pretending they are building the real economy instead of a global toxic paper dump of appearances as the world eats its young.

In Ireland Fine Gael pride themselves and publicise at every opportunity their willingness to take the tough decisions to save the Irish economy. These decisions have meant denial of medical cards to the long-term disabled and the imposition of odious debt upon Irish taxpayers. The tough decisions have not been to stand up to Timothy Geithner to refuse to pay senior bondholder gamblers; they have caved in to the dictats of the troika; they have failed to renegotiate our debt to involve burden sharing and debt write down.

http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program The Public Bank solution Some radical alternative solutions to our banking crisis have emerged in Ireland and US involving the proposed setting up of a more sanitised form of banking, namely, Public Banks. In the US there has been debate around the question of the constitutionality of Public Banks vs Private Banks. So-called “public banks” as we know them today are not Public Banks in the strict sense of the term. If they were, they would be issuing ‘greenbacks’.

Instead they trade in dollars backed by the Fed just as private banks do. Public banks are a hybrid version of public savings banks or chartered banks.They lend out deposits under regulations that claim to favour depositors rather than lenders or bank shareholders. You could regard them as private banks who claim they operate more in favour of the public interest. ‘Public’ Landesbanken German banks operating in the framework of Sparkassan German public savings banks, have gotten into deep trouble through derivative speculation (reform of shadow banking and unregulated derivative gambling is more urgent than ever) proving public banks tend to move from a hybrid model to a private commercial one before they crash.

Its likely though Angela Merkel has moved to protect Public banks in Germany by ensuring they will not be subject of stress tests (an ominous omission in regard to the fairness of stress testing), Landesbanken strategic lenders of the Sparkassan public bank model, have lost badly through derivative speculation during the Wall St meltdown.

The public bank model offers more than it can deliver and it may be unfit for purpose in a world increasingly dominated by global financialisation and looting due to Shadow banking practices. Public banks rely on the dollar and may represent  more prudential forms of lending practice but they operate in a world whose rules favour private banking.

The pro banker republicans in fact were the ones who opposed the 1913 Fed Reserve Act. The act provided for a committee that would run the 12 regional reserve banks owned by commercial banks and the committee would be appointed by the President. ‘Bankers would run the twelve Banks, but those Banks would be supervised and by the Federal Reserve Board whose members included the Secretary of the Treasury, the Comptroller of the Currency, and other officials appointed by the President to represent public interests.’

Examination of the constitutionality of the Fed Reserve Act 1913 needs to be seen in light of the reforms of Glass Steagall Act in the 30’s and removal of regulatory controls in the 70’s and Dodd Frank Reforms and Consumer Protection Act that already may be proving too little and too late to save the dollar.

The world of shadow banking and global financialisation reveal contamination that threatens to overwhelm and destroy capitalism and democracy with growing signs of extreme right, nationalistic backlash both political and economic. What is required to reform the global economic system are deeper changes than those provided by Dodd Frank with its Volcker Rule amendment:  http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act

“Comprehensive regulation of financial markets, including increased transparency of derivatives (bringing them onto exchanges);” has yet to be fully implemented. Separation of commercial banking from investment banking as in the Glass Steagall Act is matter of urgent reform. Preventing this are TBTF entities such as Goldman Sach’s whose ruthless manipulation of financial markets allows them to manipulate the commercial aspects of banking activity with permeable Chinese walls giving them permanent access to business information they use to exploit investment opportunities( see last blog re Libor rigging)

There are quite a few ideas out there masquerading as solutions to the global financial crisis that are in effect worthless. You’ll find them paraded as success stories, look for wide grinning faces of arrogant disdain among politicians who promoter austerity. Austerity for the people and not austerity for bankers!

Lose money at the financial casino tables of Wall Street. Solution, give them more money to play with and replenish losses of the compulsively addicted. In Europe the solution is to introduce austerity and give the bill for the losses to taxpayers and the public sector. Reward the bad and punish the good. Steal from the poor to pay for the odious losses of the wealthy under threat of financial Armageddon.

The growing divide being rich and poor gives more power to the rich to prey upon and loot the fallen assets of those who’ve lost out in the crash. Thus hedge funds rich on QE from Wall Street bailout like to launder the proceeds by scooping up the proceeds of great deals provided by NAMA who’ve done the work in sterilising property portfolios and packaging them into nice economic ribbons and bunting ready to be picked clean by loose hedge fund money.

This is a world where virtual money has now become the new real.

Flushing The Toilet

In Europe things are not going that well. Interesting times are with us. France and Italy and Spain going under with deteriorating growth rates indicating recession.

In Ireland we face the problem of no affordable for the young. Solution 100% mortgages.

In the US Federal debt has been rising, and will soon exceed 90% of GDP. That should ring the alarm bells. According to Reinhart and Rogoff, author of the 2011 book, This Time Is Different: Eight Centuries of Financial Folly. Reinhard and Rogoff are of the opinion that when government debt exceeds 90% of GDP, the economy will contract at a 0.01 annual rate. This is now known as “The 90 Percent Rule.” The concept is that giant debt levels will crowd out economic activity and hamper growth. Incidentally, debt levels in Europe are close to the 90% threshold. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/5/13_R._Russell_-_I_Saw_Bread_Lines,_Babe_Ruth_&_The_Graf_Zeppelin.html

What’s wrong with this picture?

Maurice+McCabe001 http://www.independent.ie/irish-news/elections/kenny-shakes-hands-with-whistleblower-garda-mccabe-30287155.html

Answer A: Unfortunately Garda McCabe has been relegated to directing traffic while an Taoiseach Kenny is delegated to run a country. (reader, you need to be Irish to get the context) http://en.wikipedia.org/wiki/Scott_Medal

Answer B: Garda McCabe deserves a Scot Medal; An Taoiseach leads  ‘Irish economic recovery’ Scott expedition heading for disaster.

Answer C: Garda McCabe’s actions have led to imminent reform of the Department of Justice.

Enda Kenny’s government presides over the destruction of the state through austerity. (Each  of above correct) Sometimes in spite of all the propaganda re ‘tide is turning’, ‘growth returning’, hard decisions courageously made by this government, a small number of new jobs for those young people left behind who have not emigrated yet, massaging of employment statistics, the truth will out.

Launcelot GobboNay, indeed, if you had your eyes, you might fail of 
the knowing me: it is a wise father that knows his 
own child. Well, old man, I will tell you news of 
your son: give me your blessing: truth will come 
to light; murder cannot be hid long; a man’s son 
may, but at the length truth will out.”(The Merchant of Venice)

Lets look at some home truths: Signs of a new property bubble in Dublin already covered in this blog. how is government responding: http://www.merrionstreet.ie/wp-content/uploads/2014/05/Construction-Strategy-14-May-20141.pdf A highlight of the document is the insane suggestion that State guarantees be provided to boost loan to deposit ratios of borrowers from 80% to 95% on new mortgages.

The bank extends 80% based on the property and the ability of the borrower to repay and the state jumps in with a further 15% leaving the borrower to get a 5% maybe from elsewhere, a credit union perhaps; end result 100% mortgages, a prime cause of the recent property bubble meltdown….

The 2020 property document above was obviously written by bankers for bankers. We have a government of bankers for the bankers.

The solution to the property crisis in Dublin is regulated management of the sector. There is adequate levels of serviced land available in industrial areas of Dublin that would welcome a docklands type regeneration. Planning laws require overhaul to release this land into state ownership.

Opportunity and enterprise stimulus with investment using the floatation of a state investment bond to finance an immediate large-scale building programme for the Dublin region could begin immediately.  Pension Fund investment could be used.

The most important regenerative aspect of such a project would be to fix prices to three times the average industrial wage. Many other creative responses are available.

However its in the interest of vampire banks to keep property prices high to keep toxic assets primed.

The most problematic aspect of the housing crisis in Dublin is the problem of affordability.

The stated objective of reducing prices, introducing affordability, regulating costs of land, materials, building costs, and matching these to what people can afford, needs to be the bottom line for recovery to take place.

Instead the empty government strategy is to try to stimulate demand for cash rich investors, to make large profits for ballyheabanks, both selling large loans and profiting from them at the expense of Irish taxpayers,  indicative of  disastrous failure of this government.

Tough Decisions

Often touted in unison by both Fine Gael and Labour is how they saved the Irish economy from financial Armageddon and in order to do so they had to take the tough and courageous decisions.

Unfortunately the decisions referred to did not amount to showing some backbone and standing up for Irish taxpayers against the dreadnought troika demands for odious reparation of our debts.

It’s quite incredible to believe that an Irish government was so subservient to the EMU that it undertook a bailout of €67 bn forced on it by the troika to payback losses made by private Irish banks to banks in Germany and France and elsewhere.

In the US questions are raised re how ethical it is to have used TARP money generated out of thin air to bailout banks and not home owners. In Ireland, the so-called ‘tough decision’ by government parties has been taken to have Irish taxpayers  landed with the bill. Compliance and obedience mix with incompetence in defending the best interest of Irish taxpayers is the new norm.

It’s incredible to believe lack of regulation on the part of the ECB being partly responsible for the debacle, was not stimulus of a collective response to bail out Irish taxpayers by freeing them from this debt that was not theirs.

Instead this debt was saddled on Irish taxpayers. Irish taxpayers not only suffered the personal loss of falling property prices and the meltdown of the Irish economy, but Irish taxpayers were forced to pay the losses incurred by foreign banks and bondholders. Fine Gael and Labour claimed a small reworking of our promissory notes into legalised commercial debt and not the tearing up of the promissory notes, as a success. Reworking of debt into longer term obligations has been touted as ‘success’ by negotiators who failed the test of acquiring debt write down of even a portion of our debt.

Looking at this more closely its clear the majority of Irish politicians are not responsible for this state of affairs. In fact most Irish politicians would not be informed enough on economic matters in general even less so on macro economic policy. Responsibility for these matters is taken out of their hands and resides in a small group who dictate policy:

http://www.taoiseach.gov.ie/eng/Taoiseach_and_Government/Cabinet_Committees/Economic_Management_Council_for_attachment_.html

Taoiseach (Chair)
Tánaiste & Minister for Foreign Affairs & Trade
Minister for Finance
Minister for Public Expenditure & Reform
– See more at: http://www.taoiseach.gov.ie/eng/Taoiseach_and_Government/Cabinet_Committees/Economic_Management_Council_for_attachment_.html#sthash.qnzXCdYu.dpuf

The evidence points to policy being formulated by the banks and handed to the above to execute? How else to explain the ludicrous mistakes of mismanagement that has led to bondholder payouts, compliance to odious and extortionate rates of interest without share burdening of troika bailout, the current 15% insurance deal for first time buyers and ongoing austerity burdens crippling taxpayers.

Philippe Legrain used to be head of the team of strategic policy advisers to the president of the European Commission, José Manuel Barroso. In his new book, European Spring, Philippe Legrain writes: “had Irish banks defaulted on all their debt at the end of September 2010, German banks would have lost €42.5 billion, British ones €27.5 billion and French ones €12.3 billion.”

Legrain describes how Jean Claude Trichet blackmailed the Irish government by threatening to cut off liquidity to the Irish banking system which would mean forcing it out of the euro. Unfortunately, second-rate Irish politicians charmed and entranced by Europe did not have what it takes and they fell in with European demands.

Following the dictats of bankers has led to massive emigrations and massive unemployment and an unconscionable debt burden that is increasingly more unmanageable.

So-called reforms of the health service currently amount to a programme to replace nurses with ‘care assistants’. Our schools are 50% filled with part-time posts with embargos on appointment of fulltime teachers with many schools filled with teachers unqualified to teach subjects they are required to teach on a daily basis.

‘Reform’ ‘hard decision’ regulation through external examination to Junior Certificate level in our schools is being abandoned under the false flag of ‘reform’. Property charges and water charges with falling salaries and rising taxes are bleeding the country dry.

A proposal to solve water supply problems in a country awash with water amounts to the setting up of an expensive and wasteful quango without one leak being fixed. Hopes rest on the quango being sold to a hedge fund who will privatise Irish water and extort further water levies from taxpayers who already pay taxes for their water.

The energy sector is a mess with proposals for pylons and energy reform under hold with the refusal of Pat Rabbitte to publish a white paper. Endless inquiries and committees of investigation in energy, Justice a mess.

Tough decisions amount to attacking the old, disabled and the crippled. They do not mount to tough decisions to face up to those responsible for odious debt foisted on Irish taxpayers.

In a white is black propaganda world even the word ‘tough’ has lost its original meaning.

End

http://www.theguardian.com/money/2014/may/22/tim-geithner-book-financial-crisis-banks-bailout

 

Part 1

Senator Finance Committee chairman Ron Wyden, a Democrat, said he wants to make it harder for U.S. companies to move their headquarters abroad to lower their taxes for inversion deals that take place on or after May 8, 2014.”

“A recent bid from drug-maker Pfizer Inc to acquire AstraZeneca Plc, renewed attention on corporate inversions. The potential deal would allow U.S.-based Pfizer to re-domicile in Britain to take advantage of a significantly lower corporate tax rate there.Crash_Zeppelin_LZ18_(LII)

In April, days after the potential Pfizer deal was made public, the Obama administration said it was seeking ways to curb inversions.”

Its becoming more difficult to provide welcoming tax haven arms to lure MNC’s and others to our shores with financial services provided by the IFSC. Greater regulation of the tax avoidance shenanigans of corporates is on the cards.

http://www.reuters.com/article/2014/05/09/us-usa-tax-inversion-idUSBREA4801M20140509

Financial Transaction Tax

Concerns about jobs at the IFSC and concern MNC’s may wish to relocate to other jurisdictions are behind Ireland’s opposition to FTT. It’s also likely the question of FTT has not been sufficiently grasped by the Department of Finance. Much as Department of Justice ignored alarms from whistleblowers through reliance on advice from Callaghan, Department of Finance relies on advice from stakeholders in the banks both political and otherwise.

In its opposition to FTT Department of Finance is in need of some serious overhaul. It will be a matter of some unsurprise (my word) if deficiencies in the Department of Finance are found by the oncoming banking inquiry to be of such gravitas to have led us to such debacles such as the ill-fated ‘Guarantee’. We shall see.

On Europe’s side FTT is seen as a way to dismantle Ireland’s status as a tax haven, a financial weapon of mass destruction, a tax haven luring companies to Ireland with low tax rates and low corporation tax. It’s not so much the MNC’s that are of concern here but the vast array of shelf companies many no more than a post box that avail of IFSC services. Regulation of financial trading abuses could spell the end of financial services reliant on global freedom from regulation.

In Ireland’s case this could see the departure of IFSC clients to London to avail of freedom from regulation.

It’s ironic our membership of the euro prevents us from going the way of sterling. London’s capacity to reject this tax and place London’s financial services on a better competitive edge  to Dublin behoves the question whether we should have joined the sterling area rather than the eurozone.

Such exodus could stir  opportunity to reject odious debt, leave eurozone, rejoin sterling as our difficulties deepen under our weight of indebtedness as we escape the toxic brand of the euro.

We need a worldwide financial transaction tax.

Rigging of the Global Financial system

http://www.forbes.com/sites/greatspeculations/2014/03/18/fdic-sues-16-global-banks-for-roles-in-manipulating-libor/

The FDIC filed the lawsuit on behalf of 38 banks which went bankrupt at the peak of the downturn in 2008, as a considerable part of the losses for these banks were incurred on interest-rate derivative products sold to them by the bigger banks. As the bigger banks were in a position to influence the benchmark rates in a manner suitable to them when the crisis hit, the losses on these products were exaggerated for the failed banks, including Washington Mutual and IndyMac. The lawsuit names U.S.-based banks Bank of AmericaJPMorgan Chase and Citigroup, as well as other globally diversified banking groups as well as the British Bankers’ Association which oversaw the LIBOR fixing process at the time.”

Can real markets survive the  financialisation of the ‘real economy’  masquerading as the new real? The global financial system has many more balls to keep in the air and risk of slippage is increasing rather than falling. Quantitative Easing, subprime lending, rigging of the derivative market, skyrocketing stocks and shares as the real global market undergoes austerity, now has another market manipulation device in rigging of the price of gold:

Throw into the mix accusations of the fixing of global currency rates

http://dealbook.nytimes.com/2014/05/05/banks-sued-on-claims-of-fixing-price-of-gold/?_php=true&_type=blogs&_r=0

One is reminded of the plot of Clash of The Titans(Simpsons)250px-Dump

 Mayor Quimby denounces him for spending the Sanitation Department’s yearly budget of $4.6 million in only a month. To solve the budget crisis and pay the workers for their services, Homer gets cities all over the United States to pay him to mash their excess garbage into the abandoned mine shaft on the outskirts of Springfield. The rest of the family warn Homer that this will be endangering the town, but he claims there is nothing to worry about. Eventually, despite the budget crisis having ended and the workers receiving their salaries as promised, the garbage builds up underground and begins to erupt, pouring trash all over the town. At a town hall meeting, Homer gets fired from his post and replaced with Ray Patterson, but Patterson declines reinstatement to the position, expressing his amusement at them “wallowing in the mess [they] made.” With no one else to fill for Sanitation Commissioner to clean up the trash, Quimby then takes extreme measures by moving the entire town five miles down the road from its current site, but Lisa points out that even though they are transplanting Springfield, they will just start littering again when they finish moving.”

http://en.wikipedia.org/wiki/Trash_of_the_Titans

Those Searching for Plan B

With a failed Department of Justice, proposals to seriously undermine education by doing away with the Junior Cert, proposals to fill GP waiting rooms with free health care for the under 6 yrs paid for by austerity for the majority, selling off resources such as water heading for an Enron Californian Energy nightmare; hapless failure to deal with odious debt foisted on us by the troika, will gravity bring about the inevitable? Ruinous plans of the previous administration have not only been compounded, but have been exponentially made worse by the present administration.They have no plans other than making hay (jobs) while the sun disappears behind the clouds of austerity.

http://en.wikipedia.org/wiki/Tobin_tax300px-European_Union_financial_transaction_tax.svg

Direct supervision and stress testing of banks in Germany has been watered down with the news it will be limited to banks with more than €30bn and the Sparkassan are happy.

http://online.wsj.com/news/articles/SB10001424052702303661404579177873015074830

Stress testing of banks in 2014 with growing austerity, low inflation could be a watershed. Its becoming more difficult to keep the financial Zeppelin balloon in the air. Not all is bad, fears of the consequences of financial Armageddon have seen the hawks depart from confrontation over Ukraine and efforts to find a solution have found renewed impetus.

The problem with the global financial system is a systemic one.

Tobin proposed:

The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied – let’s say, 0.5% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties’ crises in Mexico, Southeast Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets.[3][4][5][6][7]

http://businessetc.thejournal.ie/10-eu-states-to-bring-in-financial-transaction-tax-legislation-646984-Oct2012/

Given 10 EU member states already have a form of a financial transaction tax in place, the proposal would effectively introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. According to the European Commission this would also “help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises”.

It’s a useful device that would put a spanner in the works in many of the financial algorithms in software used by the TBTF banks to raid financial markets.

http://en.wikipedia.org/wiki/European_Union_financial_transaction_tax

Overhaul of world financial markets is long overdue. Very little progress has been achieved though many support change:

“The Obama administration leans to the first view, saying the crisis showed the vulnerability of the financial system to activities beyond the scope of regulation. Part of its remedy is to standardize most derivatives, instead of relying on the arrangements many companies favor, which users negotiate privately with banks. The administration would force trading of those standardized derivatives more into the open, in some cases onto exchanges, with settlement handled by clearinghouses.

The administration isn’t alone. The Group of 20 major economies last year supported trading standardized derivatives on exchanges by the end of 2012.”

This is 2014 More of this in Part 11  ……..(next time)

End

http://online.wsj.com/news/articles/SB10001424052748703685404575307034252253118

Banking Inquiry

May 4, 2014

 

Have you observed everywhere you go the preponderance of self aggrandising large posters at circa €10 a pop presumably pandering to and inflating the egos of all the political hopeful faces smiling collectively down upon us?image_1

On a local walkabout I recognised none of the faces. I mentally noted our post box was empty of leaflets setting out the political aspirations, beliefs and promises of candidates. I was interested in their position on water charges, property taxes, banks and bondholders, education, health, austerity and taxation in general. The media hasn’t bothered to question or elicit their views in any form of comprehensive way.

I guess they are leaving it up to me to call and connect with them to grill them on some issues. I wont be doing so. Democracy is hanging on by a thread it appears. Appearance is threatening to replace the real; real matters less and less, only appearance matters, your picture on a poster. I suppose its sufficient to gather from the banner under which the candidate seeks election, their political hue.

One way democracy can be felt and have its integrity restored is by much sought banking inquiry into our financial collapse. The demand for answers by the third estate has been grudgingly capitulated to by the current political class. Cynics may suggest it’s a political ruse and diversion to take attention away from ongoing austerity and the further €2 bn in cuts due in our next budget.

We’ve had an inquiry led by Peter Nyberg and a review by Central Bank governor Patrick Honahan both telling us what we already knew, that loose regulation and poor governance in a context of global financial meltdown led to banking collapse, but we needed substantially more than abstract conjecture based on withheld information, so we’ve a new inquiry.

Mr Lynch, who chairs the Finance Committee, will lead the nine member inquiry. There will be two members from each of Fine Gael, Labour; one from each of Fianna Fail, Sinn Fein and the independents.

In a rather ludicrous twist to the selection process those who have expressed most knowledge and interest in the issues under examination, will be excluded as ‘their bias’ will be grounds for compromising themselves during debates. Instead membership of the inquiry team will be biased in favour of those who because of disinterest, lack of informed knowledge, or some other politically inspired reason, will not compromise themselves in debates.

Ignorance and indifference may be the modus operandi of the investigating team. Lets hope this will not be so.image

In scoping out territory for specialised investigation of the intriguing subject matter in this banking inquiry, one hopes each elected member sitting on the committee will set up their own backroom investigative, research team to research and scope leads for investigation and to draw up a comprehensive list of questions to be put to those appearing before the inquiry.

The inquiry will make conclusive recommendations arising from its investigations on how mistakes made in the past, can be avoided in the future. Without speculating on the results of the inquiry, its hard not to point a finger at poor governance structures in the Irish Central Bank, The Department of Finance and the role of political interference in the banks.

The relationship between financial circles in banking and political cartels in Ireland is worthy of close examination. Sutherland, Bruton, Dukes, Spring are names that conjure up an image of this close relationship. The banking and financial world has been a lucrative head hunting ground for certain politicians whose political nous has been much coveted by the banks and turned to good use to lobby politicians from within, by those who have strong political connections.

One recommendation for this inquiry would be to strongly consider legislation requiring all politicians to undergo a period of amnesty of 5 years following their years in office, before they can be seconded to a position in the financial services industry.

This would prevent the abuse of political power by lobbyists in the financial services industry.

Some Suggestions for the Inquiry

1. Follow the money.

This should not be too difficult. Ideally, the ten largest loans handed out by each bank could be trawled through to examine the precise mechanics involved in these developer loans: who dealt with them, how were decisions made, documents in support of the loans obtained and examined. This would quickly reveal a seam of rich information that will quickly unravel the culture of lending in the banking system.

2. Examine the bonus system.

Word has it that the traditional method of classical banking with local managers intimately knowledgeable re financial matters in the local community with lifetimes of experience overseeing lending patterns responsibly, was set aside. Instead such managers were replaced by whiz kids of the bonus culture pressing loans on everyone they could find. Lending standards were lowered, the bottom line was the bonus, prudential lending was the big casualty. As long as property rose in value nobody cared.anglo

3. The role of the central bank and regulator.

Specific interest should target the Central Bank personnel who were witness to Anglo’s meteoric rise to unsustainable levels of growth during the Celtic Tiger.

4. The case against Europe.

Particular interest should focus on ECB(European Central Bank) and ICB(Irish Central Bank) relationships, correspondence and communication by email, phone, video, meetings where regulatory brakes should have been considered and monitored by ECB and ICB.

5. The Guarantee.

The inquiry should not conclude its deliberations until full and final discovery is made of the personnel and role of ECB, ICB, Dept of Finance and the political representatives  who played a role in the Guarantee.

I find it difficult to swallow the commonplace assumption the Irish Dept of Finance, Irish Central Bank, Irish politicians and representatives of the Irish financial industry acted alone in opting for the state guarantee. The Guarantee would have been new territory. In hindsight it was a rash and incompetent idea. It would be therefore easy to assume incompetent rashness on the part of that group from a relatively large background in banking and politics. But, were there other compelling forces at work?

The inquiry should examine closely the possibility of other outside influences on the Guarantee. It’s incredible to believe the ECB was not consulted on such a momentous decision.

6. The role of the credit rating agencies?

It’s incredible to believe the high credit rating afforded to Ireland and to its banks at the height of the Celtic tiger as it increasingly became more exposed to dangerous lending practices and icebergs.

7. The role of financial auditors

Anglo Irish Bank auditors, Ernest & Young, their role needs to be scrutinised.

8. The planning authorities and the role of planning legislation that fueled the boom?

There are plenty of issues not covered here, but the above is a sample of what a banking inquiry should deliver answers on so that we can learn for the future. It’s not sufficient that opaque, broad generalisations be used to obscure the truth.

The inquiry needs to yield positive results that discovers hard factual evidence that will form the concrete base of any conclusions it makes.

In the US financial meltdown has been the subject of detailed inquiries:

http://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapse

“The Report cites investment banks as a major player in the lead up to the crisis, and uses a case study of two leading participants in the U.S. mortgage market, Goldman Sachsand Deutsche Bank. The case study found that from 2004 to 2008, banks focused their efforts heavily on RMBS and CDO securities, complex and high risk financial products that they could bundle and sell to investors who did not necessarily know the composition of the product. Financial institutions issued $2.5 trillion in RMBS and $1.4 trillion in CDO securities. They created large trading desks that dealt strictly in RMBS and CDO securities. More alarmingly, their trading desks began to take out insurance policies against the RMBS and CDO securities, allowing them to wager on the fall in value of their own asset. They acted in many instances as an intermediary between two opposing parties who wished to bet on either side of the future value of a security. This practice led to a blatant conflict of interest in the securities market, as the banks used “net short” positions, in which they wagered on the fall of a security, to profit off the failure of a security they had sold to their own client.[10].”

The cause of financial meltdown in Ireland was different with focus on  banking and housing bubble meltdown. Will our inquiry into Ireland’s financial meltdown comprehensively answer the questions  explaining the legacy of financial meltdown still with us.

Can such an inquiry competently deliver the answer as to why young people in Ireland cannot afford housing, cannot afford to begin families, why the financial services industry, the banks, austerity, continue to extract from them through falling social services in health and education, a future that comes through Ireland eating its young; a politics of vampire bailiffs masquerading as democratically legitimate politicians defending the people!

Other politicians have no need to masquerade, they openly serve the financial services industry. The control of democracy and freedom is now vested in the financial services industry.

So perhaps the election posters you see about you are less meaningful than first they appear.

End

 

 

 

Global Financialisation and QE in USA and UK

http://www.positivemoney.org/how-money-works/advanced/how-quantitative-easing-works/

“…money created through QE was used to buy government bonds from the financial markets (pension funds and insurance companies). The newly created money therefore went directly into the financial markets, boosting bond and stock markets nearly to their highest level in history. The Bank of England itself estimates that QE boosted bond and share prices by around 20% (Source). In theory, this should make people feel wealthier so that they spend more. However, 40% of the stock market is owned by the wealthiest 5% of the population, so while most families saw no benefit from Quantitative Easing, the richest 5% of households would have each been up to £128,000 better off (according to Strategic Quantitative Easing, p28, by the New Economics Foundation).

Very little of the money created through QE boosted the real (non-financial) economy. The Bank of England estimates that the £375 billion of QE led to 1.5-2% growth in GDP. In other words, through QE it takes £375 billion of new money just to create £23-28bn billion of extra spending in the real economy. It’s incredibly ineffective, because it relies on boosting the wealth of the already-wealthy and hoping that they increase their spending. In other words, it relies on a ‘trickle down’ theory of wealth.

http://en.wikipedia.org/wiki/Quantitative_easing

In the USA we’ve had QE1, QE2 and QE3 with $1.7 trillion alone spent on QE1

http://www.opendemocracy.net/openeconomy/ross-heard/qe-timeline-of-quatitative-easing-in-us

Note above the effect of QE to boost the bond and stock markets. “40% of the stock market is owned by the wealthiest 5% of the population”. Actually the real figures could be closer to 60% of the stock market is owned by 1% of the population.

How did this come about?

Well the global financial system came close to collapsing in 2008. Apart from Lehman’s most of the leading players were bailed out by QE.

Some took the view this was a good thing as the global financial system due to deregulation was infected with a corrupt takeover managed by a global banking system grown “too big to fail”.

Without regulation of the global banking system, global banks decided to use the opportunity to ‘regulate’ themselves:

Rigging of Libor Rates

http://www.acfcs.org/in-landmark-lawsuit-fdic-tries-to-make-institutions-that-rigged-libor-rate-pay-for-failed-bank-losses/

“The “London Interbank Offered Rate,” or Libor, was intended to be a daily snapshot of the interest rates at which banks would lend money to each other. The rate is tied to an estimated $300 trillion in securities and financial products worldwide.

Banks fixed the rate to reap profits, hide their own weaknesses, FDIC says

It was set each day by a poll of the world’s 16 largest banks, administered by the British Banker’s Association. Rate-setters at each institution were supposed to provide a neutral, independent assessment based only on market forces. Instead, the FDIC alleges the 16 financial giants who set the engaged in “fraudulent and collusive conduct” to fix the Libor to their own advantage for a period of about four years between 2007 to 2011.”

Note above “The rate is tied to an estimated $300 trillion in securities and financial products worldwide.”

Some may raise  eyebrow at the figure of “$300 trillion in securities and financial products”. Some may argue these financial products are a good thing providing stability and reliability to world financial markets.

A farmer might want finance to invest in his farm based on collateral around his crop of next year that’s just been planted. So he gets investment using collateral derived on the projected sale price of the crop the following year. The investment derives from projected calculations. The investment firm is happy, the farmer gets his money.

Everybody profits unless the crops are always ruined by bad weather or schenanigans.

That “$300 trillion in securities and financial products” is a scary figure involving casino bets across the world’s financial system requiring payouts in certain circumstances that must be avoided at all costs otherwise the global financial system is in danger of collapse.

Right now the casino world of shadow banking has become a global casino industry involving 100’s of thousands of employees earning fat fees betting on paper products. Individuals and companies such as those that reside in the Irish IFSC (Irish Financial Services Center) operating Ireland as a global tax haven, just as their colleagues work the monopoly game in London and Wall St.

Global financialisation of the derivatives market has become the dominant player of the global economy and it threatens to extinguish real markets and real economies with a false economy similar to that operated under the demised USSR. This is capitalism threatened by the socialisation of the financial sector.

Global financialisation is decoupling from the real world of the real economy of science/medicine/health/education/manufacturing/enterprise/new products/food production or new invention contributing a fair deal for all who occupy earth.

Democracy itself is being overwhelmed. New global economy based on financialisation of paper products aided by high frequency trading algorithms is now pulling all levers ruining democracy and the economies of formerly free nations hoovering up all to the 1%.

How the financial market is rigged by the large banks and institutional investors.

Plenty other youtube videos on the same topic you should be familiar with. The algorithms are rigged. See here:

https://www.youtube.com/watch?v=NYWrtvSCziQ

Part 11

How deregulation came about and the global financial casino was born.

‘A Short History of Financial
Deregulation in the United States’

Matthew Sherman

You might like to study how the scary dependency of world financial markets came about to that figure of $300 – $350 trillion shadow banking derivative trading, start here:

http://www.cepr.net/documents/publications/dereg-timeline-2009-07.pdf

The deregulation beast that led to 2008 financial meltdown has been revived with QE and is busy further looting and pillaging the global economy.

Instead of proposed revival of the world economy, next meltdown could end in worse than what was experienced in 2008. The omens are not good.

Let’s look at the antics of the world of global financialisation in regard to Ireland’s economy

Unfortunately rich people dont tend to spend their money in the real economy, they tend to invest in stocks and shares. Especially when they see stocks and share values rising and it does not mattter if QE is the artificial cause of this.

Note government propaganda extolling a turnaround in Ireland’s economic affairs is false unless you consider sitting in the back seat and allowing the driver to take you where they will, of benefit to you. Instead of chasing ambulances, you will find many politicians chasing job announcements, if they can be found.

Hedge Funds and their global reach and power are increasing their grip on the global economy. What are they up to in the case of Ireland?

Awash from funds from QE they’ve been on a spending spree in Ireland. They’ve bought left, right and center from NAMA and purchased large amounts of commercial and private property creating the artificial illusion of the return of a mini boom in Ireland’s property sector.

These hedge funds have been active in many states in the USA cornering the property market and making it impossible for local property buyers to compete with their prices. Its believed they hope to make a profit by turning the population of these states into lucrative rent  controlled serfs.

Without access to the FOI(Freedom of Information) facts on the identity of cash buyers in the property sector in Ireland, it’s impossible to know how much investment of this kind is taking place. But certain large commercial property deals give evidence and proof of such activity.

Some effort has been made to argue returning emigrants have pushed up property prices in depressed areas, but the evidence to support this, is not there unless you consider one offs.

http://www.investopedia.com/terms/h/hedgefund.asp

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).”

Lets say Hedge Funds are simply grouped portfolios of stocks and shares, orca whales in a sea of derivatives. Do they benefit from QE as well? Yes, they do.

Banks like companies trade in the real economy as well and for the most part they are private companies that for large investment purposes banks for Hedge funds represent opportunities.

Here’s the deal, its a modern version of Monopoly. For the creative out there its time to build a modern version of the game of Monopoly based on the rules of the stock exchange, QE, the FED…

Consider this scenario. A large reservoir of cash has been poured into the banks and resides on their balance sheets.

Its too dodgy to lend that cash into the real economy as people are stricken with negative equity, austerity with no champagne. And there’s more of this to come.

The champagne from the Fed gets poured from above onto glasses piled high in a pyramid and Hedge funds are among the first recipients to have  glasses filled.

The question for Hedge funds is what to do with their money? Well, simple really, they look around and see QE being soaked up by banks and financial institutions inflating  value  by between 20%-40%, so its time to get on the bandwagon and invest in rising share prices to benefit even more, from the upswing.

Lets follow the money and look at how Ireland is faring under new dominion of global financialisation…

You might think Ireland with its debt/gdp profile is a basket case even if you don’t take into account the amount of leveraged debt circa €120 trillion owed by its economy public and private. However, in this new post democratic financialised global economy, the old rules of trade based on manufactured goods has been replaced by the exchange of financial paper daffodils(my neologism).

So why does David Tepper(see below) look at Ireland’s banks as investment opportunities? Its no brainer maths really. With QE the value of eg BOI shares are undervalued by 20% as long as they don’t fail or the Irish economy does not go under. QE and troika bailout has been poured into BOI underpinning a resolve not to let it fail. The troika have extended Ireland a loan facility of €67.5 bn, so banks are safe for the moment.

Note all QE injections are applied across share prices, bond prices, stocks irrespective for the most part of the underlying real value of those stocks and shares underpinned by the real economy.

It matters little the underlying economy in Ireland is weak, the retail sector is dying, austerity is drying up the remainder of debt free assets in Ireland

http://www.financedublin.com/debtclock.php

It matters little our debt to GNP approaches 125% and we owe approx €180 trillion or that our local economy is dying under the crippling weight of debt; or that NAMA and government keep property prices highly inflated beyond the reach of local consumers.

These facts simply do not matter anymore in this new era of global financialisation. A decoupling has taken place between the real economy and the new globalised economy based on financialisation.

A Short History of Financial

Deregulation in the United States

Matthew Sherman

http://www.cepr.net/documents/publications/dereg-timeline-2009-07.pdf

The above is worth a look examines how deregulation led to financial meltdown in 2008.

QE and global financialisation has consumed the Irish economy and swallowed it live and whole.

Hedge funds have swept in as vultures and consumed large stakeholdings in the property sector and in the Irish banks looting a stricken economy with stakeholder funds provided to them by QE and the world of shadow banking.

Enter David Tepper….. “You look at the world and you make an investment…So, that’s what it is:

How can this guy sweep in and grab a one third stake in an Irish ‘pillar bank’ in a couple of months that Irish people have bailed out paying for it with the looting of their public service?

https://www.youtube.com/watch?v=ax5SK9ckC_Q

http://namawinelake.wordpress.com/2013/01/24/hedge-fund-manager-blows-whistle-on-bank-of-irelands-subordinated-bonds/

Welcome to the global casino

By investing in an Irish bank the future of the bank will be secured? All members of the casino have had their chips inflated in value by between 20-40% to help them play at the tables. Stocks and shares rising due to QE investors and hedge funds on the domino train look for a good punt from their rigged vantage point.

champagne

http://www.irishtimes.com/business/markets/wilbur-ross-to-sell-part-of-bank-of-ireland-stake-1.1712038

An unregulated financial sector beginning in 1970 instead of being detoxified and disarmed of their financial weapons of mass destruction aided by the false principle of banks too big to fail, has been allowed by QE to blossom like a Frankenstein on the world’s stage.

This country has been looted and pillaged by the nefarious dealings of a corrupt global financial system aided by corrupt and incompetent governments feathering their own nests. We are now owned by global hedge funds and rents are rising…

http://beginnersinvest.about.com/od/stocksoptionswarrants/a/what-is-a-derivative.htm

We enter interesting times and the game is rigged by those who pull the levers and strings.

Governments need to impose austerity not on their populations but on those who rig the game.

End

1. http://video.about.com/beginnersinvest/Beginners-Guide-to-Derivatives.htm

 

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