February 28, 2014
The three bailiffs, An Taoiseach, Enda Kenny, Minister for Finance, Mr Noonan and joined now by Minister for Justice and Law Reform, Alan Shatter are at one in their aim to scuttle Senator Quinn’s Upward Only rent Review bill.
They occupy a parallel universe where black is white, musketeers of ignoble, compliant obedience to an unregulated financial sector to which taxpayers are offered as sacrificial lambs.
At European level they’ve failed to free Ireland from bonds of odious bailout with senior bondholders paid in full and levels of debt due to bank bailout suffocating development of the economy.
Ireland of all bailout countries in the EMU, has been dealt with the worst mainly through the incompetent decision of the previous and current government to ‘take a hit for the team’.
Noonan has singularly failed to get debt relief from its odious bailout by negotiating a deal on retrospective recapitalisation of banks.
In an absurd take on Ireland’s debt woes, the level of propaganda and falsification of our debacle has reached new heights with European Commission president José Manuel Barroso’s invited to Ireland to accept an honorary doctorate of Laws from UCC.
(1)”Categorically rejecting suggestions Ireland should now be helped by Europe, at least in the short to medium term, European Commission President Jose-Manuel Barroso cut loose on Ireland.
He added that a deal made by finance ministers earlier this week on a banking union was “for the future” and was “not retroactive”. Clearly Barrosa is at odds with Enda Kenny on this interpretation. Kenny and Shatter interpret black and white differently to the rest of us.
According to Mr Barroso the problems in the Irish banks caused a “major destabilisation” in the euro.
“I am saying this because it would be wrong to give the impression that Europe has created a problem for Ireland and now Europe has to help Ireland.”
“”So the euro was not the cause of the problems of Ireland. The euro was a victim of the problems by some practice, irresponsible practices, in the financial sector, that I repeat were not the responsibility of the European Union that at that time had no competence of all in matters of supervision.”
Barroso in reductio ad absurdum mode is a contradiction stating “European Union that at that time had no competence of all in matters of supervision”. What?
Just as someone throwing petrol on a fire without supervision contributes to combustion, Ireland’s membership of the EMU and adoption of an unregulated currency was caused by ECB poorly designed with lack of a banking union authorisation effectively functioning in the supervision of member Central Banks.
Ireland was fed subprime mortgage finance by ECB ill-equipped to manage its monetary affairs in a badly designed EMS.
ECB’s limited remit of control of inflation while turning a blind eye to corruption, political and banking incompetence in outer core members led disaster.
Indeed Lack of regulation in Ireland is currently used by Barroso as justification of the need for a new banking union, a regulated framework for a new European Monetary System.
Barroso like Pilot washing his hands claims lack of EMS responsibility for a lack in prudential oversight when none existed from ECB….?
Who is fooling who in this tale of puppet masters and glove puppets?
The euro as a credit union currency was built on a foundation of regulatory pyrite; its walls have cracked and continue to crack, in spite of efforts by Barroso to deny this is so.
Similarly in regard to breaking news today from Ukraine, already having given €13bn in grants and loans to Ukraine, Barroso is downplaying talks of further loans and aid.
Consider that Ukraine is in a state of bankruptcy with a huge problem of political corruption and facing the danger of civil war, the mind boggles at the empty logic behind Barroso’s claim to offer Ukraine sanctuary in the EU, without massive state aid from the EMS.
Barroso downplays reports of large-scale aid.
His remit is obviously to defend the EMS inner core for any financial liability for any debt either in Ireland or elsewhere in outer core EMS or, as now, for Ukraine. The EMS is a divided currency union based on debt extraction from the outer core to the inner core, a currency union feeding upon itself.
Bank rolling political corruption and insolvency would appear to be the unregulated role and aim of the EMS. The Bundestag cannot be too happy with the consequent risk to German finance.
The Ukrainian and Irish people deserve better.
“Measurements which use GDP as the benchmark can distort Irish data given that GDP is flattered by the accounting practices of multi-nationals. For instance, when using Gross National Income as the benchmark (which is equivalent to GNP) which removes international flow such as profit repatriation, debt in Ireland is 143 percent of GNI. This is the second highest, only exceeded by Greece. But the fun doesn’t stop there. The ESRI has found that even our GNP/GNI is inflated due to multi-national activities (undistributed profits of headquartering multi-nationals). If this was factored out, we’d be reaching Greek levels of debt.”
In spite of the inglorious efforts of our three musketeers above, Ireland remains an EMS toxic debt dump looted by international hedge funds collecting trophy property portfolios at knock down prices, riven by dreadnought austerity with the future culling of its educational and health and public service.
Future growth is Ireland is not about the piecemeal addition of a slight improvement of the patient on the Irish economy’s death-bed, it’s about dealing with the major obstacle to growth represented by our unsustainable and toxic debt levels.
Our current head in the sand government’s denial of these self-evident facts is a political failure trumped with propaganda claiming success with payback consequences for future generations.
Upward Only Rent Reviews
“You will answer
’The slaves are ours.’ So do I answer you.
The pound of flesh which I demand of him
Is dearly bought. ‘Tis mine, and I will have it.
Minister For Justice, Equality and Law Reform, Alan Shatter and Minister of State Michael Ring are opposed to the Upward Only Rent Review Reform Bill of Fergal Quinn which seeks to curb the rights of businesses to demand a reduction in rent proportional to their falling business levels and proportional to austerity cutbacks imposed on other areas of the Irish economy.
Yes, once again, its one law for the rich, another for the poor.
The modern day version of Shylock’s insistence of payment of Antonio’s flesh from Merchant of Venice(1596) is seen in ‘upward only rent reviews’ in Ireland.
Particularly reprehensible in Shatter’s statement is the attempt to equate the rights of owners of UO’s to their rights under the constitution.
Article 21 gives the power to the Dail to bring forward a Money Bill that could declare the troika bailout terms and lack of retroactive recapitalisation of our banks, as odious, and not in keeping with our sovereign constitutional rights stated in our constitution’s preamble. It could also be a base to defend against the unconstitutionality of UO’s rather than its opposite:
“And seeking to promote the common good, with due observance of Prudence, Justice and Charity, so that the dignity and freedom of the individual may be assured, true social order attained, the unity of our country restored, and concord established with other nations”
Clearly UO’s are unjust. Falling incomes, increasing taxes, smaller business throughput, means the Sheriff of Nottingham’s can only increase rent, not decrease rent?
One law for the financial sector, another for Joe Soap.
Article 43 of the constitution:
“2. 1° The State recognises, however, that the exercise of the rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice.
2° The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.”
Legislation curtailing the odious UO’s needs to be implemented immediately for the sake of the common good. Article 43 could be invoked to defend against the unjust extraction of contract terms negotiated in different times under sets of expectations that have altered and changed.
It’s ironic that Shatter invokes the constitution to defend the rights of the few at the expense of the majority.
UO’s (Upward Only Rent Reviews) in legal terms echo Ireland’s political compliance and obedience to the financial sector, the banks and their well paid legal guardians. The figurative use of the phrase refers to legal at the same time unreasonable recompense.
Members of Seanad Eireann led by Senator Fergal Quinn have published a Bill proposing to ban UO’s .
The odious and constricting weight of the financial system, the banks, is used Oct 2 in an attempt to stifle debate on the matter by Michael Ring TD on behalf of Alan Shatter. Justice, Equality and Law Reform are absent in the following:
“However, it is also the case that not all tenants are in financial or trading difficulties and, notwithstanding some of the baggage that may arise out of our history, regard must be had to the fact that some landlords have their own financial difficulties, for example, a landlord may be dependent on receipt of the contractually agreed rental income in order to discharge a mortgage obligation on the leased property. In purporting to treat all tenants equally by giving them the benefit of the Bill’s provisions there is a risk that some will be given a benefit which they do not need and that some landlords may suffer disproportionate disadvantage. Furthermore, the complexity of the financial arrangements which sometime underpin commercial lease arrangements is completely ignored in the Bill.”
The above approach is in striking contrast to that of Iceland that has recently written down mortgage debt in order to boost its own economy.
A large part of the loan book of Irish banks is served by loans given out into the commercial property sector to landlords with mortgages the banks want paid bank, or banks risk their loan book with their capitalisation in danger of further write down.
This places the financial sector at odds with the requirements of a growing economy imposing an impedance on viability and sustainability for businesses facing higher costs and lower returns across the board.
Higher taxes, lower business activity due to the effects of austerity on the business community and general population should in a reasonable state of affairs reflect lower rental/lease cost for business owners.
Less for the majority feeling the brunt of austerity does not mean less for the financial sector would appear to be the maxim followed by the present government. Ironically they were put in power by the people to defend the people against the banks and financial institutions.
These same arguments were previously used to justify the payoff of senior bondholders who could not believe their luck the Irish paid up on their casino bets on Irish banks following their financial meltdown.
We have yet to get a banking inquiry to get to the heart of the matter to settle the argument between Jean-Claude Trichet in his then role as head of the ECB who argues he did not force the guarantee on Ireland, nor did he demand Ireland should repay all its senior bondholders.
The odious and deeply onerous ligature of residual debt obligations following the Irish bank crisis is exemplified by UO’s and is a signal of the malaise of deflationary tendencies in the Irish economy that will impact and deeply inhibit recovery.
Suffocating and constricting debt levels grow while profits, salaries, expenditure in the retail economy slows.
Deflation in the Irish economy because of its troika bailout terms and lack of retroactive bailout of its banking sector is more severe than at first glance. Its hidden by repatriation of profits by MNC’s distorting figures such as debt to GDP CSO figures. Michael Taft’s charts here attempt to describe debt burden for Irish people in a more revealing way.
Without shared write-down of these OU’s profits on smaller footfall especially in the retail sector will be made uneconomic leading to further business closures. Once again the property and financial sector is being protected while the retail and real economy along with prospects for future generations thrown to the wolves. A property bubble encouraged by the banking sector would appear to be on the horizon, a repeat of past errors.
February 23, 2014
One of the hallmarks of the current government is its servile obedience to the financial sector. Currently up for sale are 13000 mortgages of Irish Nationwide(1) on sale to the highest bidder. Families are terrified they will lose any remaining consumer protection they have under Irish Law, that they will instead face instant eviction in a go tough policy.
In contrast (2)every household in Iceland will have €24,000 worth of debt written off.
“The move was part of the election manifesto of the Progressive Party, led by Prime Minister Sigmundur David Gunnlaugsson.
Iceland hopes this will kickstart consumer spending . Iceland has an unemployment rate heading for 4% while Ireland’s unemployment rate in spite of large-scale emigration is heading for 14%.
Lack of consumer spending combined with dangerous levels of personal and public debt lead to deflation.
(3)”Question: What Is Deflation?
Answer: The standard deflation definition is when asset and consumer prices continue to fall. This may seem like a great thing to consumers, except that the cause for widespread deflation is a long-term drop in demand. Unfortunately, a drop in demand means that a recession is probably already underway, with job losses, declining wages, and an ongoing decline in the value of your home and your stock portfolio. Deflation is a result of businesses dropping prices in a desperate attempt to get people to buy their products.”
VAT receipts for the year 2013 show a drop in consumer demand though this is obscured by the esoteric CSO measurement of giving results measured against expected receipts rather than actual receipts measured against those of previous years.
Government would appear to be adopting the strategy of under spending by circa €400m in capital investment as a buffer against declining tax returns.
Nearly 20% of the total mortgage stock according to the Central Bank are now in arrears (5). Job losses, declining wages, businesses under growing pressure mean debt is more difficult to service in Ireland.
Additionally, growing direct and indirect taxation through property charges, water charges and increasing pressure from Europe to close exemptions and loopholes in the collection of VAT, mean deflation in Ireland is on the increase with consequent further damage and loss to the economy.
The magic figure of 3% growth is held out as a panacea that will allow Ireland to escape its straight jacket of debt, escape the negative effects of deflation and halt economic decline.
The US heading for a debt burden of $60trillion faces the difficult task of unwinding from its current QE commitments. As soon as it withdraws support for QE, as it must, the global economy shivers and signals a fall.
The decline of the middle class alongside the growing divergence between rich and poor in the US show that the burden of deflation has been imposed on the majority of americans while counterbalancing inflation has been exported into stocks and shares making the rich richer and the poor, poorer, a sign of economic decline to come.
QE has benefited the rich with much of that wealth exported out of the US some of it finding its way to Ireland with vulture funds and hedge funds looting the property portfolios of NAMA and Irish Nationwide above.
So, where will worldwide economic growth come from helping Ireland to reach its magic 3% ( in reality it requires 3.8 -4% growth for economic sustainability, but lets work with 3%.
Europe hovers on deflation and 0-1% growth. See last blog “The ECB’s non-standard monetary policy measures amount to the similar print and burn money operation of the US, a feature of EU and ECB policy required to dodge explicit laws at European Treaty level to prevent QE or direct financing of sovereigns.”
This policy is now being challenged in the European Court having been referred there by the Bundestag (7). Clearly ordinary Germans are worried the cost of bailout of members of the EMU may become their burden at some point.
If the response of the ECB and EU and IMF are anything to go by, they clearly have nothing to worry about. The original vision of the EU to bring the outer core members up to the level of economic performance and output and standard of living of the inner core has been abandoned in favour of a new 2 tier Europe with inner core member states transfusion of the lifeblood of outer core members to further economic growth of Germany.
This puts the European project at risk of imminent failure.
Can worldwide engine of growth be kickstarted by China? China’s aims for 7% growth targets have been put at risk recently by moves to curb the explosion of dodgy lending through its shadow banking industry.
Statistics from China are less than reliable in many respects but fears abound re ghost cities that echo apocryphal ghost estates in Ireland with their backdrop of corrupt officials and planning laws.
Can growth come from India, the world’s third largest economy(9)?
“(Reuters) – The World Bank sharply lowered its forecast for India’s economic growth to 4.7 percent from 6.1 percent for the current fiscal year, citing a sharp slowdown in manufacturing and investment as well as negative business confidence.”
Can growth come from Japan, the world’s fourth largest economy?
Japan has succeeded in downplaying the consequences of the Fukushima nuclear plant disaster for its economy. Media reports on the disaster as in the case of Chernobyl usually consist of a single reporter with a webcam describing the devastation. Empirical evidence of a scientific nature is obscured and obfuscated by TEPCO, but we do know they are currently embarked on decommissioning the fourth reactor and that overall decommissioning will take another 40 years.
The cost of this is largely unknown, while empirical data on the cost of the damage from an environmental and human health and plant is speculatively soft, the economic damage of the disaster is even harder to come by.
(10) “100 tons radioactive contaminated water leaked last August from Japan’s Fukushima Nuclear Power plant. Last Wed 19th Feb another 100 tons leaked latest in a long line of problems since the meltdown of March 2011. Doubts are being raised on how sloppy the response has been to this nuclear disaster and questions on its long-term impact still remain difficult to assess.”
Mistrust of TEPCO Tokyo electric Power Company is high. Removal of 1500 spent fuel rods in the dangerous reactor 4 is ongoing entering its most dangerous phase yet. Decommissioning will take another 40 years.
Restarting the silent 50 other reactors subject of safety checking that power Japan’s power grid is a matter of heated debate.
The 9th magnitude earthquake suffered by Fukushima has led Japan to abandon its nuclear program and its having devastating effects on its economy.
“At the moment Japan is entirely without nuclear energy, but that is unlikely to last for long. Shinzo Abe, the prime minister, is pushing for as many of the country’s 50 usable reactors to restart as soon as possible after passing safety checks by the NRA. The need to import energy has pushed up the price of electricity and added to a series of trade deficits since 2011.
………..Most of the public are broadly against restarting nuclear plants even once they pass new checks. “
Japan’s economy, fourth largest in the world, is in trouble.
The Lost Decade
Before Fukushima Japan had endured its Lost Decade. Its economic collapse in 1992 had many echoes and similarities to Ireland’s economic collapse from 2008 onward to today though being the world’s 4th largest economy, economies of scale are different. Japan has circa 30ml living on its 4 main group of islands.
Non performing assets with difficulties in financial institutions and non performing loans did not have the brake of hedge fund and vulture fund activity and troika bailout we currently see hiding meltdown in Ireland and creating a false bottom to its commercial and residential property industry.
“The Japanese asset price bubble (バブル景気 baburu keiki?, lit. “bubble economy”) was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble episode has been characterized by rapid acceleration of asset prices, overheated economic activity as well as uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation over asset and stock prices has been closely associated with excessive monetary easing policy at that time.“
“As of December 2013, Japan’spublic debt was more than 200 percent of its annual gross domestic product, the second largest of any nation in the world. In August 2011, Moody’srating has cut Japan’s long-term sovereign debt rating one notch from Aa3 to Aa2 inline with the size of the country’s deficit and borrowing level. The large budget deficits and government debt since the 2009 global recession and followed by earthquake and tsunami in March 2011 made the rating downgrade. The service sector accounts for three-quarters of the gross domestic product.“
“”Imports have been pushed up by the weak yen and strong demand for fossil fuels to make up for nuclear power lost since the 2011 Fukushima crisis.”
“There are worries in some quarters that the trade shortfalls could pull the current account into the red in coming years, meaning that Japan may start chipping away at its vast pool of domestic savings and increasing the need to rein in its huge public debt.”
Current plans to increase sales tax in Japan in April will further dampen the economy leading to dangers of a stall.
This comes on 2013 Japan’s QE doubling the money supply in the economy that led to weakening of the yen against other currencies and subsequent objections by China threatened by Japan’s competitive edge(16).
QE has not worked for Japan though it may have covered up the economic effects of Fukushima and its rising cost of energy imports and loss of competitive edge.
It would appear economic growth in the world’s global village economy that led to the expansion of fiat money and derivative expansion of the unregulated shadow banking sector is now beginning to contract with such a contraction having unknown repercussions.
QE has made the rich richer and the poor poorer. Austerity has made the divide even deeper.
The world is becoming more entrenched in an Egyptian Pharoah replicant society of Too Big To Succeed pyramid banks.
The maxim being followed in Ireland is AUSTERITY to make sure the show goes on for as long as possible with the losses gained by the rich 1% passed onto the 99%. This may work in the short term, but it wont work in the long term.
Modern day pharoah builders of today’s Too Big To Succeed Investment banks should ruminate on Shelley’s epitaph to their forebears
“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.
QE finance is more permeable and porous than rock or ancient stone.
Ireland’s 1/5 mortgage debt serfs their bondage and servitude exacerbated by government inaction deserve better:
(19)Serf “A member of the lowest feudal class, attached to the land owned by a lord and required to perform labor in return for certain legal or customary rights..”
February 9, 2014
A little like Lord Cardigan telling the Light Brigade to advance yet again against Russian guns, Enda Kenny with little to nothing to show for vindicating Ireland’s right to a debt write-down, continues to bleep Ireland should get a debt write-down corresponding to a recapitalisation of its banking system.
At European level no one listens. Echoing such calls is Minister Noonan. Having carved all the meat from the bone of the Irish Health and Education system; hospitals like Portlaoise with staff doing the work of 2 or more persons, a dangerous trolley service; teaching profession with teachers doing the work of 2 people or more, teachers now expected to draft syllabi, set examinations and correct state examinations, both sectors starved of investment and victim of rundown, both Kenny and Noonan maintain black is white. Both Noonan and Kenny consider their austerity policies a success!
The European Council
The European Council is subject to the wishes of European parliaments. A retroactive bailout of Irish banks funded by ECB would first require the authority and compliance of all member Finance Ministers of the EMU.
Minister Noonan or Taoiseach Kenny are not embarked on a round of visits to European Finance ministers to gain support for their cause. I havn’t heard of any promise of outright support for Kenny’s crusade which so far has proved to be a tilt at windmills.
But austerity is not an illusion. In a despicable intervention in the Tallaght Hospital dispute where frontline staff collectively flagged the danger of inadequate emergency cover, Eamon Gilmore of the Labour Party apparently quoted the CEO of Tallaght in stating the service was safe. (3)
The irony is that the looting of the Irish public service with its consequence of unmanageable burden placed on the smaller and smaller cohort left to service it, has made such jobs unattractive with absurd demands leading to flight of doctors/nurses/teachers joining the emigration trail.
Noonan’s Empty Basket
Finance Minister Noonan has a difficult job at the moment. Under pressure to do more to vindicate the right of Ireland to retrospective bailout of its banks costing at present up to 30% of its debt to GDP ratio, if he shouts louder at European level, he’s in danger of further humiliation from European finance ministers, who’ve said on numerous occasions, there will not be retrospective debt relief for Ireland.
European Finance ministers are adamant they will not be saddled with the bill Ireland has so graciously taken upon itself to pay bondholders laughing all the way to their banks in Germany and France.
Irish government has morphed into Irish Debt sheriffs of the troika. It has not fixed the banks. Kenny continuously alludes to the European Council meeting of 29th June 2012 that made a decision clearly referring to future policy for dealing with future crises in the banking sector.
Kenny though corrected repeatedly still peddles the erroneous and denied promise of retrospective bailout of the Irish banking sector.
Meanwhile mortgage distress has not been adequately dealt with, banks are not lending to SME’s, to prospective property investors or those seeking a mortgage.
QE (quantitive easing) in the US has led to a storm of money available to cushion out/loot property buyouts in the residential and commercial sector in Ireland.
This has created a false bottom to the Irish property market inflating prices and danger of creating a further bubble in property in Dublin. Irish so-called ‘pillar banks’ require high property prices to extort rent from large property loans that still are viable on their books.
QE in the US, a stabilisation of money markets with larger and larger volumes of hot money have made the international money markets nervous and more volatile with plenty of kindling for sudden bush fires caused by eg cutting back of QE.
This financial crisis is not over yet
Looting and pillaging of public services, the safeguarding of the assets of the rich at the expense of defenceless tax payers with unfair burden on the less well off is accompanied by frenzied propaganda that somehow with levels of commercial and private debt approaching 125% of debt to GDP, that we have turned the corner.
The Irish economy filled with the QE of US vulture fund money and troika bailout along with further deleveraging and asset destruction is about as safe as the Hindenberg
The ECB’s non-standard monetary policy measures amount to the same print and burn money operation of the US, a feature of EU and ECB policy required to dodge explicit laws at European Treaty level to prevent QE or direct financing of sovereigns.
The workaround was to directly fund banks in return for promises based on collateralised debt assets.
Returning property bubble pricing in Dublin
The ordinary couple in Dublin besieged by rising taxes and charges and victims of short-term contract labour if they find work, cannot pay the false bottom of property prices fed to them by the banks. On top of that, banks are not lending to such couples.
Propaganda states the property sector has bottomed out in Dublin and a bubble is forecast. The irony is that movement in the property sector is primarily the result of vulture fund activity. An economy being eaten by vulture funds is not a sign of growth.
Guarantee of low corporation taxation in Ireland allied to the promise of low taxation on high salaries including low tax on the wealth assets of the rich leading to an influx of postal box internet companies, is not a sign of growth.
But it is a sign of the transmogrification of the Irish economy into a proto banana republic economy such as those that existed of yore in Latin America or as a newer version of a satellite state of the former USSR with wider disparities in income and extinction of the middle class who witness their offspring take flight through emigration.
Nama is the Irish Borg vessel hiding a huge amount of vulture fund activity cloaked and protected under the FOI act with immunity from public scrutiny. The financial sector has learned to circumvent democracy. Perhaps some of the expensive court case actions against NAMA to be taken by developers protecting their property folios may issue more information on their operations currently cloaked from public scrutiny.
Ireland pays dearly and did not benefit from the ECB’s non-standard monetary policy measures used in the main to protect its inner core banks from the devastation incurred without such supports for banks in Ireland.
Traditional fixes, bailout and burn through austerity measures were imposed on Ireland
Ireland, paying 30% of its GDP in terms of debt repayments to European institutions Ireland is a scarecrow example of new European fiscal policy whereby both the market place and sovereign public institutions and public services are made slave to a new financial services model that both controls and perpetuates the smoke and mirror ball of smoke financial sector show on the road.
Co-opted into the project are the propaganda arms of the state and large parts of the media, who maintain large and growing gaps between the wealthy and the poor in Irish society are to be ignored.
Vulture funds have targeted both Ireland and Spain scooping up property portfolios at bargain prices in Dublin giving the false impression the return of property demand is due to economic growth rather than looting of the Irish economy.
“Vulture funds, such as private equity firms and hedge funds, have descended on Ireland and the rest of Europe since the downturn, seeking assets that have plunged in value and are now under priced.
Traditionally they buy up the debt on companies that are perceived to be on the verge of collapse for cents in the dollar and hope to turn a profit when the company defaults on its debts.”(1)
Already active picking the stressed assets of IBRC and in court to challenge the winding up of IBRC (2)
ECB’s Non Standard Policy Measures
Jean Claude Trichet head of the ECB at the time of Ireland’s bailout, FF ministers and the opposition who allowed the state guarantee of the Irish banking system opposition to go through. Central bank and Irish Regulators have yet to reveal in an Irish banking inquiry their role in support of the Irish economy previous to its collapse.
“ecbwp1528 ”provides an overview of the non-standard measures taken by the ECB (greyed areas) in comparison with measures taken by other major central banks during the financial crisis, and their associated risk profile.”
Though the authors argue against this, their work clearly shows the ECB protection of price and asset and interest rate stability in the euro area has come at the sacrifice of widening disparity between the inner core and outer core of the EU.
In fact, to cushion itself from the economic impacts of the financial crisis it is evident that countries such as Ireland have been sacrificed as pawns to protect the inner core.
Bailouts have extorted disproportionate cost of defending the euro to peripheral countries. This has led to widening gaps between rich and poor in bailout countries and similar widening gaps between inner and outer core countries with extractor bailout funds deleveraging of the outer core and strengthening the inner core.
As is usually the case big banks gain on the upside and gain on the downside.
The inner core countries of Germany and France have sucked wealth out of the outer core and funneled it back to itself damaging the credit union nature of the euro, binding the outer core into a compliant quid pro quo support of elites in programme countries. Democracy has been damaged with member countries reduced to protectorate status.
Bailout involves the conditional liability of supports for dysfunctional states in the euro area.
“ As the euro area is not a federal union, the Treaty on the Functioning of the European Union(henceforth called the Treaty) includes a number of provisions to correct for disincentives to fiscal discipline that the single currency would otherwise imply. These provisions include, in particular, the prohibition of monetary financing by the central bank (Article 123),1 the prohibition of privileged access by public institutions or governments to financial institutions(Article 124),2 the “no-bailout” clause (Article 125),the fiscal provisions for avoiding excessive government deficits (Article 126) and the Stability and Growth Pact (SGP, which is actually separate from the Treaty itself).”
One can admire the casuistry of authors Philippine Cour-Thimann and Bernhard Winkler who argue that outright monetary transactions ECB’s bond purchasing programs are not in breach of European Treaty Law below “OMTs are aimed at ensuring the proper transmission of the ECB’s interest rates to the euro area economy and the singleness of its monetary policy.
Outright monetary transactions ”OMTs are limited to transactions in secondary markets for sovereign bonds: the money goes to investors, not to the sovereign issuer. The transactions are focused on short-term maturities. Finally, and most importantly, OMTs require explicit conditionality attached to an appropriate European Financial Stability Facility (EFSF)/European Stability Mechanism (ESM) programme, to ensure that governments to make the necessary efforts to restore the sustainability of public finances.”
Lets think about this. Bonds rejected as dodgy by the markets are underscored and guaranteed by the OMT programme. Rotten apples become ripe because someone is willing to pay for them!
This contributes to a mirage economy manufactured by the Central banks. Illusion is the new reality, market forces are repudiated. The end of this game will lead to the euro becoming as valuable as a daffodil, a managed economic currency with the credibility of a previous USSR leveraging asset credibility from a time in the past before the distortion of values by Central banks post crisis.
Post crisis sows the seeds of further crises
Credibility and confidence in the euro area is no longer a function of internal markets in the euro area, rather it now becomes the function of esoteric financial markets with unlimited and supposed binding control of the real market place; complimented by the required compliance of democratically controlled institutions now monetized into billable taxpayers.
It would appear that support for financial markets is now driven by the ECB to the point that bondholders are now provided with unlimited guarantees irrespective of any underlying market forces whatsoever.
Indeed the bond market itself is now totally under the remit and control of the ECB. The market no longer controls the ECB, the ECB controls the market.
Countries such as Germany, in particular the German Bundesbank are worried that eventually such a policy will dilute German sovereignty making German taxpayers liable for losses if this policy unwinds.
Restrictions to this policy expressed eg in troika control of Ireland’s economy and similar troika interventions in Greece, Spain and Portugal and even Italy express a watering down of Fiscal policy in the EMU leading to future erosion of the euro if such measures fail to deliver market stability. They will lead to loss of confidence in the euro.
However, on the plus side explicit conditionality is meant to curb the following abuse of the interbank market in the euro area:
“In particular, the banking system of a country with persistent current account deficits could easily fund net cross-border payment outflows associated with net imports of goods and services with money raised in the cross-border interbank market or by means of other forms of funding such as attracting foreign direct investment or placing debt securities abroad. As a result, imbalances in the current and financial accounts of the balance of payments of certain euro area countries were left unaddressed by national policies and continued to grow.”
Its clear the price for monetary reform at ECB level is increased Big Brother oversight of member states. Lack of credibility of such a policy will be expressed by market forces in two ways: 1. political stability in the euro area; 2. economic growth. Without the reward of economic growth this policy will founder.
Eventually economic growth will require expression in terms of employment figures and production of goods and services that adequately address the needs of people: not in terms of support of chimerical bond purchase programmes that provide temporary relief for the super rich in the hope of trickle down crumbs for the extorted poor.
Interest rate policy
On Feb 7, 2014, “Germany’s Constitutional Court will refer a complaint against the European Central Bank’s flagship bond-buying scheme to the European Court of Justice, removing the prospect of it curbing the programme.”
“The court said on Friday there was good reason to think the scheme “exceeds the European Central Bank’s monetary policy mandate and thus infringes the powers of the member states, and that it violates the prohibition of monetary financing of the budget”.
“While the ECB has no immediate need to use the plan, the lack of final clarity over its legality may still crimp its room for maneuver on other measures.”
“The German court said it will rule on the legality of the currency bloc’s permanent bailout scheme, the European Stability Mechanism (ESM), on March 18.”
“The ECB’s Outright Monetary Transactions (OMT) program, announced by ECB President Mario Draught in September 2012 at the height of the sovereign debt crisis and as yet unused, is widely credited with stabilizing the euro.
Any potential curb on it would alarm investors.
The OMT’s power lies in its promise of potentially unlimited sovereign bond purchases – a prospect that provided the necessary backstop to calm fears the euro would fall apart.”
A new politics for Ireland
If we cannot leave the euro and simply leave our relationship with Europe to that of Switzerland’s membership of EFTA, as this writer has advocated, if economic sovereignty with our levels of debt to GDP has been abrogated and capitulated at European level, if Irish politicians are so enamoured of the EMU, EU, ECB and IMF, perhaps its time to reengineer politics in Ireland to reflect new realities.
As a European protectorate Ireland does not require its current levels of political representation. A Swiss canton system with greater local representation with higher numbers of local independents might be more effective than our current banking bailiff system protecting the elite at the expense of the majority.
Propagandists who support forgiving and paying the debts of the super rich have their eye on our public services. Super rich bondholders down to the ‘no tax as I’m a tax exile’ Dennis O Brien’s pay little or no tax and if their casino investments are lost, they get bailed out by taxpayers with no one to pay the debt of taxpayers.
I wonder what the world would be like if things were the other way round.
As public services are pillaged, less public services mean less public investment in education and health. The rich can afford to pay for private health care and private education from their tax savings or other assets.
Further down the pecking order the axiom has developed that the more money you have, the less tax you pay; the less money you have, the more…you said it. Philanthropy ..the desire to promote the welfare of others, expressed especially by the generous donation of money to good causes, is less to do with helping the poor, than grandiose efforts of self glorification.
Robert B Reich in his book, “Beyond Outrage”, Reich writes of ‘the decline of the public good’. 10% of all philanthropic charitable donations actually go to the poor. The rest goes to self aggrandising projects to further the prestige of the donor to win back lost respect. No matter that million dollar dream deals are offered to football managers such as Trappatoni or current replacements, while school funding for sports and culture declines further.
The new mantra of scalping the poor and the public good with the public good masking private gain is seen in the recent unearthing of scandalous payments to those running our charities.
In the US according to Reich, “ total public spending on education, infrastructure, and basic research has dropped from 12 percent of GDP in the 1970s to less than 3 percent in 2011.”(5)
We are familiar with the decline of the middle class as realised by Obama in his ‘boost middle class speech’ speech (6)
In the UK here is a list of salary scales of executive positions in charities:
In Ireland the Cork Examiner did a useful survey though the following charities refused to cooperate “* Six charities — Arthritis Ireland, Bóthar, Unicef Ireland, the Irish Society for the Prevention of Cruelty to Children”
“AN Irish Examiner survey of the pay packages earned by the heads of leading charities shows most are on salaries ranging from €100,000 to €150,000.”(7)
At first glance there is a much broader standard deviation between salary scales in the UK compared to Ireland. The sample in Ireland is much smaller. Population in UK is approx 60ml compared to approx 6ml in Ireland. The fact that the job in terms of population levels must be 10 times harder in the UK is not reflected in salary scales between the two countries.
Obscenely it would appear some Irish charities have matched their salary scales to that of the Irish civil service Assistant Secretary levels of (figures only given up to 2010) €120k – €150k and Principal level €85 – €105k
Salary scales in NI and UK
Elite have too many overpaid TD’s in Ireland
As we have now become a prota pretend state , a protectorate run from Europe with too many TD’s
From wikipedia “Number of members
“Under the Constitution of Ireland there must never be fewer than one TD for every thirty thousand of the population, nor more than one for every twenty thousand. In the 29th Dáil there was one TD for every 25,000 citizens, this is in line with many other European Union member state national parliament ratios with Malta having one MP for every 6,000 citizens and Spain having one MP for every 130,000 citizens. Ireland has a similar MP to Citizen ratio toBulgaria, the CzechRepublic, Denmark, Finland, Hungary, Latvia, Lithuania and Sweden.
With the adoption of the current constitution in 1937 the membership of the Dáil was reduced from 153 to 138, but in the 1960s the number was increased to 144, only to be increased more substantially in 1981 to the current figure of 166. The Electoral (Amendment) Act 2011 provides that the number of members “shall be not less than 153 and not more than 160″. This will come into effect at the next general election.”
In present circumstances we could do with less than 100 td’s and a salary cut of one-third to bring representation and salary lines in line with that of other countries and our circumstances.
In the recent past TD’s have cost the Irish taxpayer billions. At European level they oppose a wealth tax on financial transactions. Their policies protect the wealthy and they prey upon the poor and defenceless. Development of services and infrastructure have been replaced with the transfusion of their lifeblood to foreign creditor puppet masters.
The Public Good is considered bad by the wealthy who regard such interests as against their interests.
“When An Taoiseach came to office in March 2011, one of his first acts was to cut his pay and that of An Tanaiste, ministers and ministers of state by 6.6%, so An Taoiseach’s salary went from €214, 187 to €200,000 which was a gesture of sorts, but nothing like the €82,000 cut to the French president’s salary introduced by Francois Hollande in 2012 which brought the salary for that post down from €253,000 to €171,000.”
“And after today’s decline, An Taoiseach will still earn more than his counterpart in the UK, Sweden, Holland, France and Finland. Bigger economies, which are presently bailing us out. And An Taoiseach will still be earning more than double the salary of the prime minister of Spain, which is subject to a bailout of sorts, but which has an economy 10 times bigger than ours and a population 8 times greater.”
A bit of a laugh really!
Who is fooling you?
5. Reich, Robert B. (2012-09-04). Beyond Outrage: Expanded Edition: What has gone wrong with our economy and our democracy, and how to fix it (Vintage) (p. 31). Knopf Doubleday Publishing Group. Kindle Edition.
January 20, 2014
It should be interesting to observe the results of European stress tests on banks in 2014.
According to Christopher Thompson of the FT, there is a “Flood of higher risk EU bank bonds on way”(1):
“Last year Europe’s banks issued $19bn of Tier 1 bonds, a nearly fourfold increase on 2012 and the highest figure since 2009, and $77.1bn of Tier 2 bonds, a 19 per cent year-on-year rise and the highest amount since 2008.”
“We expect record issuance in Europe of Tier 1 and Tier 2 bonds for banks to meet
their minimum capital requirements – something between €30-40bn would be
manageable,” said Antoine Loudenot, head of capital structuring group at Société
Bonds issued before the currency crisis that no longer fulfill regulatory requirements will have to be replaced with riskier and more expensive bonds costing the European banking sector more.
“Holders of Tier 1 and Tier 2 bonds sustain losses ahead of senior bondholders in the
event of a bank default, and get paid higher interest to reflect that risk.”
Thompson has got it right. Its possible the ratings agencies will lower the credit rating of the EMU on the foot of these policies. Risk of Australian banks through subordinated bonds of imposing creditor bail in has already led to downgrades there.
“Sydney, September 05, 2013 — Moody’s Investors Service downgraded the subordinated debt (Lower Tier II) ratings and selected junior subordinated debt (Upper Tier II) ratings for the Basel II compliant securities of eight Australian banking groups. The banks’ senior obligation ratings and their stand-alone baseline credit assessments were not affected.”
The irony is the methodology to impose greater credit security for European banks allowing European banks to pass regulatory stress tests under Basil 111 for 2014, will allow them to pass stress tests, but at the huge cost of weakening of the overall European banking sector.
If Moody’s acts according to its Australian template, expect European bank ratings and European national ratings to decline further. Growth in Europe is the only way out of this self-perpetuating decline vortex. There is little to show on the periphery or in the core eg in Italy or France of the kind of economic growth required to save the euro from slow decline.
According to Thompson, “Much of the recent issuance in European banks’ subordinated debt has been done using contingent convertible bonds, or cocos, which offer attractive yields on banks such as Barclays and Credit Suisse but are considered riskier investments. Coco investors can have their investment turned into equity or wiped out entirely if a bank’s capital falls below a pre-agreed level.”
“What Is a Convertible Bond?
As the name implies, convertible bonds, or converts, give the holder the option to exchange the bond for a predetermined number of shares in the issuing company. When first issued, they act just like regular corporate bonds, albeit with a slightly lower interest rate. Because convertibles can be changed into stock and thus benefit from a rise in the price of the underlying stock, companies offer lower yields on convertibles. If the stock performs poorly there is no conversion and an investor is stuck with the bond’s sub-par return (below what a non-convertible corporate bond would get). As always, there is a tradeoff between risk and return. (For more insight, read Get Acquainted With The Bond Price-Yield Duo.)”
It would appear Cocos are to be the new European equivalent of US treasury bonds. Perhaps this is a G8 method of structural stabilisation of the euro by providing a means for global investments including investment instruments across forex foreign exchange markets to prop up the euro. Its benefit would appear to be short-term gain against long-term risk.
Wheels are being greased to allow for cocos. Italian and dutch banks prepare to sell riskiest cocos. Investors will be rewarded with higher rates of return 6-8 per cent. But if the deck of cards topples their investment could be burned by bail in.
Cocos would appear to be the means by which those at the casino tables already burned in the high stakes game, are recapitalised in order to play for riskier and higher stakes.
According to Aimee Donnellan, “Under the Basel 3 framework, banks can raise 1.5% of their 6% Tier 1 capital ratio in the form of non-dilutive equity-like instruments, which can also be used to improve banks’ leverage ratios.”
Following UK, Spain, Italy have now raised investment in these instruments as tax-deductible.
“This work appeared to pay off on Monday when the Italian government prepared an amendment, to be inserted in the 2013 budget law, to make it easier for banks to issue hybrid bonds to boost their capital starting from next year, according to a document seen by Reuters.”
There is no doubt the financial casino of shadow banking in order to ‘regulate’ itself more is doing so in a manner that increased tax avoidance for the rich, makes attractive investment strategies that are riskier, reduces regulation while appearing to increase regulation, induces instability to prop up stability in the banking sector.
The world of shadow banking now paints black COCOS white.
January 12, 2014
I listened to a couple of broadcasters from RTE some of whom sounding genuinely surprised our venture into the market place had been such a success.
Aware that there was some irrational euphoria about on our exit from bailout, even neoliberal broadcasters were at a loss to explain Ireland’s bond sale success.
The clue to understanding lies in losing the notion that Ireland retains any semblance of democratic sovereignty consider instead Ireland as no longer independent but a transformed satellite of the EMU with protectorate and/or dominion status run by a rich circle of golden insiders.
“A relationship of protection and partial control assumed by a superior power over a dependent country or region”.
Governments acts in the role of sheriff of Nottingham debt extractors for the troika and in return it maintains its financial perks of salaries and other benefits that go with the trappings of power. Its right-wing neoliberal agenda much like a south American banana republic has seen its interests join with the financial sector in looting the economy. Democracy has become a deficit and casualty.
Markets consider the bailout of Ireland by the troika comes from money the ECB can borrow and owe to itself much in the way Japan with its debt/gdp ratio hovering at 212% borrows a large part of its debt from itself; Ireland is carrying out the austerity programme demanded of it by the troika.
If Ireland did not have de facto protectorate status, it would be in an Icelandic situation and probably better off as a result.
What gets protected in Ireland is mostly the status quo who got us into this financial mess. They are still on the take. Compliant with the austerity driven bailout, they endorse and execute as invisible bailiffs the looting of public services.
Gone are the days of the EMU as a credit union with equal rights shared among members. We have a new monetary union with Germany and inner core towing delinquent members in a union that fails to work.
Similar to a Latin American type of political hegemony of countries wedded to the dollar the European union with its satellites in order to keep its power elite in a dominant position, find politics lurching far to the right.
The lurch to the right
Lets look at an example by choosing the lens to look through that of Ruairi Quinn TD Minister for Education and Skills. No better example of this exists than the case of the Irish Labour Party.
The Labour party instead of defending the people against the financialisation of our economy and its subsequent looting of taxpayers, has betrayed its roots and under the pretext of reform and saving the state, has become a component of right-wing neoliberalism for which control of the public sector has been secured with a dismantled public sector as its main agenda.
A favorite tool of the neoliberal agenda is the term ‘reform’.
Whether it be ‘reform’ of the health sector through the dismantling of health services; or the ‘reform’ of the Junior Certificate through increasing class sizes, doubling the workload of teachers; or deregulation of education through the abandonment of standards measured by state exams; or culling of jobs in both sectors, all point to ‘inefficiencies’ that are being addressed by the destruction and running down of democratic achievements in health and education.
The running down of the health and education sectors in Ireland is the new norm.
Workers in the health and education sectors can tell you at first hand how services are being run down, how their jobs are being made more impossible and difficult to carry out, how their sectors are in a state of massive decline under austerity. Politicians in bailiff/bailout parties will tell you otherwise.
The scandal of the privatisation of state services, a new neoliberal public policy agenda, sees taxpayer money funneled upward to pay bondholders and the troika. Into the breach has stepped the private sector willing to pick rich picking opportunities. There is increasing private sector involvement in education and health.
Both a health and education deficit sees more and more private sector involvement stepping in to collect from those who are able to pay. State services from which we all benefit continue to deteriorate.
School Books Rental Scheme Fiasco
The latest Labour Party fiasco introduces a school books rental scheme nationwide among primary schools throughout the country. But the devil is in the detail. Many schools with hard-working enterprising managers, parents and staff who, in the absence of such a scheme, put in place their own scheme in past years, will be excluded from the new scheme.
Recruitment to the teaching profession is at an all time low. Changes in curriculum at the Junior Cert level disguise the looting of the educational resources in this sector as it becomes starved of the public purse. Teachers in keeping with removal of external supports by way of curriculum development and state examinations, are forced to develop the curriculum, set examinations and manage certification.
With added punishing work loads teaching overwhelmed with administrative duties, suffers. We should expect standards to fall with knock on effects in our universities. Older teachers with valuable teaching experience retire while a new cohort of temporary contract workers provide the band-aid to a sinking profession with sinking standards.
Hedge Fund to hedge school
Ireland is like one of those internet based hedge fund stocks bearing only a loose relationship to the real economy. Their share price is held in place by hot air bubbles of speculation lifting the financial worth of the stock. Not unlike the 2000 internet bubble, but stable enough for investors to reckon the country will prevail protected by the acolytes and protectors of ECB bondholders; the bet is the country will not be left for dead and at a loss should things unravel.
One could also argue the recent successful bond sale was born out of irrational exuberance that Ireland had helped itself to austerity and had successfully exited its bailout.
Such are the levels of media propaganda and education by media of the public on financial matters, many members of the public are of the view that we have paid back the €67 bn of bailout and that austerity has ended. Indeed government has fueled such disinformation by suggesting tax cuts for the next budget.
It was no coincidence the government through the NTMA chose to go to the market place shortly after our exit from bailout.
Ruari Quinn TD in return for this state of affairs awaits promotion to the office of EU commissioner. Charlie McGreevy was made the European Commissioner for Internal Market and Services in recognition of his contribution to the financial meltdown of Ireland. So Quinn for trampling on the democratic left and upholding of the right-wing neoliberal agenda to cocoon Ireland in a web of debt extraction disarming its educational system, should be offered similar job soon.
Question any of these arguments regarding the privatisation of health care, education, the environment, water charges and a myriad other charges for public services you thought were paid in your taxes, and you come up with the problem of commercial sensitivity.
The private financial sector is not only loosely couple with regulation, but it cloaks itself like the Borg and has made itself immune from regulation and scrutiny. NAMA, the banks, Irish water scandals, each throw their hands up into the air and declare ‘commercial sensitivity’ when some regulator or inquisitive person acting on the public’s right to know wishes to examine the financial sector.
Lets have a look at how the ruse of commercial sensitivity works from the top of the shadow banking financial sector down.
Hedge funds across the world have become an extremely popular form of investment for the super rich.
In 2009 estimated size of the global hedge fund industry was US$2.4 trillion. Steven A Coen rose from a simple options trader to found SAC Capital with a track record 60% a year profitability, multi-year profitability. The FBI are concluding a year-long investigation of this fund under the heading of insider trading. Enough prima facie evidence exists to show insider trading by a golden circle is endemic throughout the hedge fund industry.
“Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public.As such, they generally avoid direct regulatory oversight, bypass licensing requirements applicable to investment companies, and operate with greater flexibility than mutual funds and other investment funds. Hedge funds have existed for many decades, but have become increasingly popular in recent years, growing to be one of the major investment vehicles and sources of capital in the world.”
The truth is Ireland got its bailout by being transformed into a Hedge Fund. Most hedge funds are held aloft by speculation/investment in the large part. Loosely coupled to the real economy Hedge funds can be manipulated by disinformation or even fraud.
In a classic economy playing its role in the real market place Dubai politicians would have coughed at the notion of investing in Ireland with its current ratings. A debt to GDP of 124% with employment hovering around the 13-14%, massive emigration, huge levels of commercial and private debt, would lead markets to assume Ireland was a basket case.
If Ireland gets into difficulties, markets reckon the troika will bail out this economy again and their money is safe. The only problem with this scenario is that Ireland is no longer a sovereign economy. IT now resides as a forlorn puppet economy of the increasingly politicised EU in some outer poor boy’s club anesthetized by its EMU paymasters, safely defused with its puppet politicians happy bailiffs of the troika. Its also wedded to a programme of austerity decoupling Ireland from financial independence and leading to a spiral downward.
Ireland can look forward to an anemic future as it tries like Germany after Versailles or the Philippines after its return of colonial tariff to the French, through growth to pay back its odious debt. However, Ireland’s hedge fund managers do not see it quite that way. For them the lure is to attract in further investors to drive up investment and employment.
“A hedge fund is a pooled investment vehicle administered by a professional management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. They are usually distinguished from private equity funds, which use the more illiquid investment strategies associated with private equity. Hedge funds invest in a diverse range of markets and use a wide variety of investment styles and financial instruments. The name “hedge fund” refers to the hedging techniques traditionally used by hedge funds, but hedge funds today do not necessarily hedge. Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public.As such, they generally avoid direct regulatory oversight, bypass licensing requirements applicable to investment companies, and operate with greater flexibility than mutual funds and other investment funds. Hedge funds have existed for many decades, but have become increasingly popular in recent years, growing to be one of the major investment vehicles and sources of capital in the world.“
There is of course the political partnership between the troika representing bailout lenders, the IMF, EU and ECB in turn protecting the vested interests of the banking sector/financial sector.
There are the native banks in Ireland. There is the asset base of the market economy in Ireland within the public sector. In all there is the dominance of the financial sector with puppet politicians and hegemony of a golden circle out to conserve and protect their own interests in the service of the new Irish economy built upon the sands of the EMU financial sector.
Unlike a typical hedge fund the Irish economy is now heavily regulated to protect the assets of its owners. However, insider knowledge used in betting the derivative markets in short and long investment strategies by Coen of SAC, see above, are also critical in maintaining a good result for bonds based on this hedge fund. It’s crucial for buyers to know that Ireland will be maintained financially in order to buy into this fund.
Its less a matter for investors that the Irish economy should show signs of growth, than the belief the Irish economy will not be allowed to fail.
Austerity marks the Irish economy for the deep freeze its investors will expect to ensure taxpayers in Ireland be made to make their full return to their investor funds. Expect to see higher taxes and lower quality public services looted to be fed upward to the owners of the Irish hedge fund.
Do not expect the top 1% in Ireland to make their contribution to the IHF(Ireland Hedge Fund). Taxation will mean less tax for the rich or no tax with accountants hiding profits under capital gains tax or other tax devices to lessen their bill.
High earners in the MNC’s will be protected as government is lobbied and controlled by their financial representatives. Bankers on high salaries, bonuses and perks will be protected from austerity also.
Austerity will fall on the lower paid, on a looting of public services through cutbacks and other downgrades to Ireland’s infrastructure.
The shape of economies such as Ireland, Portugal, Greece dominated by the leveraged buyouts of large bailouts is anemic at best, absurdly misshapen at the worst.
The reality is a golden circle guarding the interests of Ireland’s hedge fund managers who run the show. They use ‘commercial sensitivity’ to hide from prying eyes.
It would be easy enough to address this. The appointment of one of our retiring judges to scrutinise documents on our behalf could decide whether charges should be brought in open court, or whether illegalities have taken place, or other investigations require to take place.
While the banking and financial sector are becoming more dominated by the values of the hedge fund and the financial markets, decoupled from scrutiny and regulation, those of us remaining who cling to democratic values, await patiently our banking inquiry.
It’s useful to study the emergence of the hedge fund as it mirrors the corrosive nature of the financial sector over the past 20 years. See 1 below.
“Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields. “
Maybe this notion has to be revised to include, it matters who the debt is owed to. If the rich daddy is the ECB, well that’s a different matter.
January 1, 2014
There are a slew of legal actions from developers fighting NAMA through the court system. This was expected by those who cautioned against the setting up of NAMA in 2009 eg.
http://colmbrazel.wordpress.com/2009/09/ Here are some. Expect more.
“Central to proceedings is the developer’s bid to have Nama’s appointment of receivers to 36 of its prime Irish property assets overturned.
In taking the case against the State’s so-called ‘bad bank’, Treasury is, according to sources familiar with the matter, prepared to do everything within its still-considerable power to secure victory, and in the process expose what it sees as Nama’s “misleading, unreasonable and entirely unacceptable” behaviour in relation to its business.”
Meanwhile sales of large property portfolios are ongoing at NAMA.
According to Peter Flanagan, Sunday Independent, Dec 1, “A slew of international bidders, including some of the top US funds who specialise in buying so-called distressed debt are believed to have made first round bids for the loan books, known as Project Rock and Project Salt.
Project Rock is worth about €7.8bn in total, but a little over €2 bn worth of those loans - mostly UK commercial real estate – are up to date and are expected to be refinanced by the borrower. That leaves more than 5.5 bn worth of loans that are in arrears.
Project Salt, meanwhile, is made up mostly of Irish commercial property loans, with close to €2 bn worth of lending that is now in arrears.”
Now that Ireland has been sent into cryogenic stasis through its odious bailout, it would appear international vulture funds are ready to make a killing on the Irish property market.
Along with an increase in property prices in Dublin over the past year, a mini property boom in Dublin, this has attracted vulture funds into the Irish commercial property market believing the market has bottomed out. They are ready to takeover at knockdown prices the pyramids built by failed Irish property developers.
This state of affairs has not been achieved without some cost. The Phoenix project below, check out website for articles and stories surrounding the 200,000 mortgages in distress currently. The recent personal insolvency bill has given precious little relief to the vast majority ensuring that mortgage arrears and loan default has still not been addressed satisfactorily by Irish banks.
The Irish property market remains severely distressed. The extend and pretend maxim has given ballast to the view there is a small recovery in the property sector. The extend and pretend maxim of the banks works hard to hand out propaganda to all sides that the balance sheets of the banks can be made good.
Thus letters sent by banks to commercial buy to let defaulters signifying no more than the banks want their money back allow the banks to pretend loan resolution is in progress. The reality is a large part of the loan book of Irish banks is in distress and the banks refuse to mark down realistic losses.
Hopefully in 2014 stress tests on Irish banks will reveal this truth.
A large effort is underway to deny the truth. In Ireland austerity has paved the way for deflation helped by banks not lending coupled with the onerous and odious fact that given Ireland’s cocooning in the euro, unable to devalue its currency, lack of inflation with its debt burden growing not diminishing as a result of this, investment in the Irish economy is becoming more burdensome.
By not facing the truth of debt write down/burden sharing, those in default suffer by not having the reality of their circumstances dealt with realistically by the banks. Repossession would leave the banks with a problem of selling on distressed assets. The property market would see a further collapse in values if its true worth were tested in fire sales.
With extend and pretend Nama benefits, banks benefit, enabling them to set benchmark on property prices pretending doubts about the asset base of the banks are doubts without substance; vulture funds benefit, by seeing their investment yield a return.
Local business investors and the retail sector find it more difficult to pay the scalping rent and property procurement prices, find themselves driven from the market. The retail sector is put under further pressure.
There can even be a small mini boom prices as a result of the NAMA and bank induced coma of the property sector.
The euro has acted like a boa constrictor for the Irish economy. Because the bailout of €67 bn given to the Irish economy is backed by the IMF and the EU and ECB Ireland is subject of a leveraged buyout that can send the Irish economy into a state of permanent stasis.
Any doubts that we received back our economic sovereignty should be banished.
The Poisoned Well
More doubts about the manipulation of property prices by Nama surfaced last Sept:
According to Daniel McConnell/Ronald Quinlan,Roisin Burke, 22 Dec, Sunday Indo
“Nama bosses Frank Daly and Brendan McDonagh have come under fire from Fine Gael’s Eoghan Murphy of the Public Accounts Committee about the agency’s decision to take a 20 per cent equity stake in the €800m Aspen property portfolio, which it also provided the finance for.” “Labour Senator Lorraine Higgins claimed a senior government figure attempted to gag her on NAMA.
One concern is NAMA is setting inflated property prices, it may provide the finance to a private company, it takes an equity stake in that company, so smoke and mirrors, it sets the selling price and is first buyer hoping others will follow.
The whole matter of withholding commercial and residential property from the market in order to avoid fire-sales, once again, the reader can draw their own conclusions.
The dead cat bounce represented by such business activity has many questions to answer. In spite of mortgage lending being down last November on this time last year, there has been a surge in the Dublin property market.
The source of financing for such deals would be worth investigating by the PAC(Public Accounts Committee) to eliminate the possibility of market price manipulation by Bad Bank NAMA.
But PAC have other concerns re NAMA. Darragh O’Brien TD has said, “The case for a sustained public inquiry by the Oireachtas into NAMA is compelling. The volume of complaints being received across all parties is astonishing.”
In August 2009 a list of academics, economists, signatories appeared in the newspapers:
“We therefore urge the Government to reconsider its approach to payment for loans to be taken into Nama, to pay no more than current market value – which can be ascertained even in these times – and to require the investors in the banks to bear some of the cost of restructuring the system.
To do otherwise would be economic folly.”
Government ignored this advice and bondholders were paid off.
In 2009 regarding NAMA I blogged the point:
” An enormous amount of business critical information will be collected if it hopes to manage the toxic assets. The value of this information to interested parties ready to exploit it will be extremely high and sensitive. It could very well be like a sieve with a potential for exploitation exceeding our worst fears.”
A large turnover of staff in NAMA have been snapped up into organisations run by international investors. It’s not inconceivable that NAMA is leaking information like a sieve.
Here’s how the scam might work. You get a portfolio management position in NAMA - gains you access to a lot of information right across NAMA. You see what deals are being made, what sells, what doesn’t, pricing, evaluations. Such information is gold to international property fund managers. Gaining a NAMA man must be like being given a torch in a gold mine.
To be fair to NAMA, its difficult to assess whereabouts NAMA is at present in spite of recent newspaper reports raising doubts once again: it is so cloaked in commercial secrecy laws that virtually no Freedom of Information requests from journalists are allowed.
Sharing concerns re the high turnover in staff at Nama, the PAC recently entertained the chairman of NAMA to give assurances assuaging similar concerns.
Transparency is the key word here ! Who is going to regulate NAMA. How much information will be given, for example, of the developers, bank shareholder investments, the evaluation procedures and nature of the toxic assets under review?
Hopefully coming court cases will ascertain what journalists have been unable to find out.
We do need an inquiry to assess directly if the public are being safeguarded from bad procedures, mistakes, incompetence, abuse, corruption.
Perhaps the most curious issue of all will be the evidence offered in support of the value put on toxic assets by a so-called independent system of independent valuers !!
NAMA may keep property off the market because a fire sale would lower property prices! In this regard, the tax payers and the business people of Ireland get to carry the high cost of inflated property prices thus making us more uncompetitive and returning us to the bubble situation where even professionals could not afford the falsely astronomical prices of recent years.
NAMA currently has no remit to discharge its affairs in a time frame of one or 2 years, it’s a lot more longterm than that! Perhaps it ought to be broken up and chinese walls set in place to protect the interests of the public. Perhaps its disposal of assets are on the basis of the worst wine kept until last.
Realistic targets and goals should be set in place and monitoring should be introduced to regulate its performance and investigate its workings. Currently it would appear the only monitoring would appear to be the monitoring of a casino high roller in Las Vegas.
NAMA at tax payers’ expense will increase the profitability of shareholder stakes in the banks, wipe out the debt of developers, create a gravy train of administrative feeders on NAMA, and burden tax payers of generations to come with a mountain of toxic debt. Though it could yet still cost the banks dearly.
There is still the valuable full blown argument that the toxic assets should have been left in the banks. They still had the best business experience to deal with rogue developers and supposedly have learned from their mistakes. The banks could have dealt much better than NAMA could.
Instead a state bureaucracy was created with developers who ran their toxic portfolios into the ground now on the state payroll. Are you having doubts about the Agency’s methods yet?
Opportunity given to developers working for NAMA to abuse their position and benefit from insider dealing have surfaced in the McKillen case:
The main struts of Paddy’s case hinge on the following:
“1. Paddy’s loans aren’t NAMA eligible assets.
2. Paddy wasn’t given enough time to re-finance his assets
3. NAMA valuations are lower than Paddy’s valuations
4. To be associated with NAMA is damaging to your commercial reputation
5. NAMA offends the Constitution and EU rules with respect to property rights”
Added to above is:
An allegation that NAMA undermined McKillen by selling off property loans he was associated with to the Barclay brothers with whom he is in commercial dispute.
Chief Executive of NAMA, “ Mr McDonagh said he believed there had been “a carefully orchestrated operation” to damage NAMA and undermine the financial interests of the State.”
In the absence of full disclosure of its business model in all its aspects, its impossible to accept the existence of an “orchestrated operation”. So far NAMA has cases ongoing against two of its former employees for leaking information.
Of critical interest is 3 above. Depending how the property market returns, other developers may choose to follow suit. State legal costs range in McKillen to €6-14mil to be borne by the taxpayer.
NAMA as a Hedge Fund?
In many ways NAMA is a hedge fund gamble by the Irish government to lock in investors, the Irish Tax Payer and the Bond Holders who fund NAMA.
While the rest of the world is steering clear of this type of investment having learned from the mistakes of others, we seem to be prepared to go where others have become undone before us!!
According to the Agency it is now making significant progress on managing the €72.3 billion of loans it has acquired from the five participating banks and maximising the return for the taxpayer.
But the taxpayer has few tools to monitor, assess and evaluate progress. An independent inquiry by Ireland’s PAC has about as much chance of coming into being as an open inquiry into Ireland’s banking collapse.
To pin the detail and bring clarity to this, we need to insist on more information, not smoke and mirrors, on how NAMA is going to work.”
Corruption involves more than the misappropriation of assets, eg monetary or property assets. When an institution the state is responsible for or the state itself becomes corrupt or incompetent, power itself becomes corrupt.
I listened ruefully to Stephen Donnelly on NAMA
“Basically, what this note is saying is: we have enough money to last us until the end of 2013. By the end of 2013, we hope to have found a way to go back to borrowing from the private sector. Until then, we’re ok. Under previous plans, there was only enough money to last us until mid-2013, so this means we have six more months to work on the country’s financial situation and come up with a solution.
- €11,882 million: this is the amount of maturing debt that we need to pay back in January 2014. This is a big stumbling block. We have two years to find that amount of money – and to pay it off, Ireland can’t use its remaining assets at that stage, which would only amount to 10 billion euros. Besides, using them would mean we’d be left with nothing at all.
- €67.5 billion: this is the amount we owe the EU and IMF, and it’s only part of Ireland’s huge outstanding debt, which is close to 200 billion euros. The problem is that, for a long time (as long as there was enough money to go around), European governments racked up debt instead of trying to balance their budgets.”
It is not feasible to overcome the debt situation with the range of financial disciplinary measures that will cripple the economy and kill the patient in order to cure the illness….
Raison d’être of NAMA and Ireland’s possibility to pay back its bailout at every juncture hinges on growth of 3-9%. None of these figures are achievable in the current climate in the euro zone.
External Deficit procedure and Fiscal Treaty Rules
Michael Andrew FF ireland-republic-of
Freedom of Information rules….NAMA not obliged to publish itemised accounts only an overall account cost us €30 bn..You can see what is for sale on its website….opportunity for corruption is enormous…..eg selling under the market price
Ireland’s Debt Profile
DBRS, Inc. (DBRS) has confirmed the Republic of Ireland’s long-term foreign and local currency issuer ratings at A (low) and maintained the Negative trends. DBRS has also confirmed the short-term foreign and local currency issuer ratings at R-1 (low) and maintained the Stable trends.
….. The IMF projects the Irish economy will expand 0.6% in 2013 and 1.8% in 2014. However, these supportive factors are balanced by significant challenges: the fiscal deficit is still large, the public and private sectors are heavily indebted, and the banking system continues to face deteriorating asset quality and weak profitability.
The Negative trend reflects DBRS’s assessment that risks stemming from the external environment remain skewed to the downside and that the expected primary fiscal balance in 2014 is still short of its destabilizing threshold. However, the trend could be changed to Stable, potentially in the near term, if there is greater evidence of a sustained economic recovery and fiscal consolidation remains on track.”
There are no signs of the kind of economic recovery that can make Ireland’s debt sustainability prospects more positive than negative.
Winter may see the dead cat bounce, but one swallow won’t make a summer.
Happy New Year.
December 22, 2013
Its untrue what Manuel Barroso of the European Commission states, that it was the Irish who created a problem for the euro; not the other way round.
Barroso, as President of the European Commission, is unaware of the responsibilities of his own job and that of his predecessor.
Both he and his predecessors are bound by articles 121 and 140 Treaty on the functioning of the European Union.
They must have fallen asleep at the wheel when it came to managing Ireland’s Celtic Tiger years:
1. Member States shall regard their economic policies as a matter of common concern and shall coordinate them within the Council, in accordance with the provisions of Article 120.
2. The Council shall, on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Union, and shall report its findings to the European Council. The European Council shall, acting on the basis of the report from the Council, discuss a conclusion on the broad guidelines of the economic policies of the Member States and of the Union. On the basis of this conclusion, the Council shall adopt a recommendation setting out these broad guidelines. The Council shall inform the European Parliament of its recommendation.
3. In order to ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Union as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment. For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary.
4. Where it is established, under the procedure referred to in paragraph 3, that the economic policies of a Member State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Commission may address a warning to the Member State concerned. The Council, on a recommendation from the Commission, may address the necessary recommendations to the Member State concerned. The Council may, on a proposal from the Commission, decide to make its recommendations public. Within the scope of this paragraph, the Council shall act without taking into account the vote of the member of the Council representing the Member State concerned. A qualified majority of the other members of the Council shall be defined in accordance with Article 238(3)(a).
5. The President of the Council and the Commission shall report to the European Parliament on the results of multilateral surveillance. The President of the Council may be invited to appear before the competent committee of the European Parliament if the Council has made its recommendations public.
6. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, may adopt detailed rules for the multilateral surveillance procedure referred to in paragraphs 3 and 4.
Barroso’ comments that the euro was a victim of Ireland is ludicrous. Ireland fell victim to cheap euro credit that was unregulated from the top down.
But some of what he says is true:
The euro flooded the periphery with cheap credit. The ECB was not a FED that could regulate the monetary policy of participating national central banks and their regulators. Unlike the FED the euro is not a true monetary union. It acts more like a credit union pooling the funds of participating member states.
Like a vast Newbridge Credit Union it allowed its members to indulge in profligate lending practices and left its supervisory role a hands-off affair that saw vast quantities of its euros pile into ghost estates and uneconomic commercial property lending in Ireland and Spain and Portugal.
In Greece unproductive wealth was poured into military spending and an unregulated civil service. The periphery bought the exports of inner core EMU countries such as Germany, Finland and France.
Everyone was happy until the unsustainable ponzi scheme fell apart with the Wall St crash of 2008.
In the wake of its economic disasters ECB is frantically trying to hammer out and agree upon a Banking Union that will regulate its banking system.It faces large political obstacles in achieving its goals.
In future, banks that fail will be the subject of bail in by both depositors and bondholders. Many argue persuading the Bundestag to allow its banks to be regulated by a body set up under the proposed banking union will be impossible to achieve.
Chaos exiting the bailout
Ireland did not invite Ollie Rehn or Manuel Barrosa to celebrations marking our exit from bailout. They were told to stay away. Enda Kenny and FG wanted all the political glory they could muster from such an event for themselves.
Rehn and Barrosa must have been very upset. In their minds their bailout of €67 bn and their renegotiation of these loans had been an unmitigated success. These loans advanced to Ireland were performing well and Ireland through a more than appreciative and compliant Enda Kenny was signalling growth heralding future success on foot of improving employment and growth figures.
Furthermore, Ireland was on tap for its annual 20% levy to pay off its loans to European banks. No civil unrest, the troika happy enough with their returns on their investment, that had also avoided a compromising situation for the EMU testing its viability future.
However, Enda Kenny wanted all glory for both himself and Fine Gael. It would be unseemly to dramatically highlight the growing control of the Irish economy coming from Europe with too many foreigners looking to claim center stage, puppet masters showing off their glove puppet status.
Perhaps it was this confidence in the success of bailout along with Kenny’s trumpeting of our emergence from bailout and positive growth prospects, that led Manuel Barrosa to state categorically there would not be any retrospective bailout for Irish banks.
This was a slap down of Kenny and Noonan who argue otherwise and a reminder as to who pulls the strings in Ireland’s puppet cabinet: the troika and Ireland’s creditors in the eurozone.
Put another way there is simply not enough money in the ESM to pay for the retrospective bailout of Irish banks or other banks across the EMU. At most, the ESM will set up a contributory fund contingent on stringent conditions under an emergent banking union that has yet to be agreed, conditionality may include bail-in by depositors and bond holders.
ITs simply ludicrous to think Irish banks given the long quEUe for bailout in other PIIGS countries that include inner core countries in France and Germany, should be given retrospective bailout. We had our chance and we blew it.
Within 24 hours there was clarification from Barrosa, that his comments did not apply to any requests made under the ESM re the retrospective bailout of Irish banks.
At this point we enter the murky world of double speak propaganda from Enda Kenny and FG and also the European Commission.
Nod, nod, wink wink…. It does not matter that there will not be bailout of Irish banks, all that matters is that the Irish and investors in Ireland, think and believe there will be bailout….Suddenly Barroso was not playing the game and letting the mask slip.
It turns out that Barroso is the rabbit Cowslip of Richard Adams, Watership Down , who invites the rabbits to join his warren. Unwittingly Barrosso has let news about the deadly trip wire that lurks in the eurozone for Ireland, that it must pay back all that eg €32bn it ploughed into Anglo. Enda Kenny is no Hazel; Noonan no Fiver.
Its only when rabbits realize the residents of the new warren are simply using them to increase their own odds of survival, that Ireland will consider leaving the euro warren and step out alone to join EFTA or the British Commonwealth or variant.
FG/LB with a disastrous failure to negotiate burden sharing for Ireland, are left with the task of turning disaster into success through doublespeak that black is white. Subservience and compliance to their political masters in Europe has by propaganda been turned into a virtuous circle for them.
They pretend what has been set out for them by Europe is a glorification of their own negotiating powers, rather than lack of same.The order of propaganda must be restored at EU level and locally for FG/LB.
The irony is the more austerity Ireland endures to pay back its debts and its success at punishing its citizens, the less likely Ireland will gain relief from its odious debt obligations with its ill-omened rescue of European senior bondholders. Eurozone banks now fill up at the Irish petrol pump of interest yielding bailout of circa €67bn repayable all the way to 2042.
But this is par for the course in the Eurozone with bailouts from Greece to Ireland bailing out the banking sector and bondholders at the expense of taxpayers.
German elections have shown the Bundestag has made the decision that German taxpayers will not pay one euro more to bail out Irish banks.
Making a banking union operate independently where many see Brussels has already abdicated most of its power to Berlin, is another target the eurozone has failed to deliver. Clearly Angela Merkel calls the shots in post meltdown Europe awaiting its next meltdown.
Angela has not backed a backstop provision for Ireland as it exits bailout. Barroso’s comments on Ireland show he is the mouthpiece of both Merkel and Schauble. The eurozone should be renamed Germania. Clearly Germany is intent on not paying one more euro for what it sees as the self-inflicted wounds of peripheral countries such as Ireland.
Its true what Craig Beaumont of the IMF states that Ireland could have saved itself billions by burning senior bondholders at failed banks such as Anglo or Irish Nationwide. Ireland could also have applied such a policy in banks such as Allied Irish or BOI.
Irish authorities were brought under pressure and weak political leadership capitulated to the pressure. Though ECB policy now includes the future burning of senior bondholders, Ireland’s compliance to odious pressure from the ECB under Trichet will not yield any retrospective bailout of Irish banks, according to Manuel Barrosa.
Crisis in leadership covered in spin and propaganda
We have a crisis in political leadership at the highest levels in Ireland. For too long we’ve been fed myopia and blinkered propaganda typified in this example from Pascal Donohoe FG TD, who is currently Vice-Chair of the European Affairs Committee.
In 2008 he chaired this report:
Sub-Committee on Ireland’s Future in the European Union
“1. The starting point for the Sub-Committee was the Irish people’s democratic
decision on 12 June 2008 to reject a proposed constitutional amendment enabling
ratification of the Lisbon treaty by the Oireachtas.
18. The Sub-Committee has strong concerns about any option that could potentially lead to Ireland finding itself on an outer or second tier of the EU. The option of Ireland leaving the EU is also unthinkable. These scenarios would be catastrophic for Ireland’s national interests, both economically and politically.”
You can visit Pascal’s website and see video of his Dail contributions attacking critics of bailout asking how they could come up with €15bn budget deficit shortage to pay salaries in the public service.
What Pascal means is, how will his inordinate and bloated salary by European/global standards be paid for along with the troupe of his advisors with their top ups; add in bloated salaries of all top echelons of the public service; throw in expensive shambles of the health service with more bloated salaries for both medical personnel and administrators; add in concerns by the troika re the bloated and expensive legal industry in Ireland.
Pascal from his lofty perch of comfort and political preferment has burst that reform balloon by vehemently attacking a wealth tax. His argument is a wealth tax would drive money out of our banks leaving (incredibly) the taxpayer to pick up the bill. In Pascal’s world the low lying fruit of taxpayer money should not come from the wealthy in society. Under the troika the gulf between the rich and poor in Irish society grows with the guillotine of debt burden extracted disproportionately from the poorer in society.
Expect ESRI nonsense propaganda refuting such claims with figures such as 17% clawed back from social welfare recipients compared to 18% for the rich. However 17% for a social welfare recipient may represent a day’s food for their children, whereas 18% for the rich may go unnoticed.
Let me try to answer Pascal’s €15bn question.
We need to leave the EU and default. No more trips to Brussels for Pascal. We can live on the food we produce at home. This will mean a severe correction to our economy for which we require support.
Bric countries, USA, Russia, China, Iceland, especially the UK should be lobbied to purchase our gevernment bonds to help us with this transition. Strong consideration should be given to closer ties between Ireland and the UK if necessary by Ireland joining the commonwealth.
We need to renegotiate our debt with our creditors based on our ability to repay and what we decide we will repay.
No more pliant and subservient propaganda from Pascal or EK.
No more the rubbish about the great achievement accomplished by tearing up the Promissory Notes. Pascal likes to talk about the tearing up of the €32bn promissory notes.
When you forensically examine Pascals’s deluded propaganda, what Pascal actually means is that the PN’s were laundered into long-term government bonds subject to international legally binding contract, that saved €1 bn against what would have been the cost of paying the PN’s in full.
However, we cannot now walk away from PN’s and simply say we’re not paying them. Pascal’s has sold us another pup. They are still celebrating this deal with Brussels champagne in Berlin.
Where will they find €15bn euro from?
Pascal should stay at home and help with reforms. Perhaps an update for 2014 of the above subcommittee to deal with: banks not lending; overpaid politicians and advisors their purses filled with top ups; HSE collapsing; legal industry overpaid; medical industry overpaid; top tier gravy train in the public sector, banks, charities; lack of investment in R&D and instead of investment in education, severe cutbacks that befit a zombie nation.
We should begin bilateral negotiations with the UK with the view to closer cooperation and political ties outside the EU but within a Swiss type membership of the European Free Trade Agreement.
We need to renegotiate with the troika and with the IMF on the basis of an exit from the EU.
Under present odious terms there is no future for this country within the EU. Crippled with a disastrous outcome for the PIIGS nations, with trip wire solutions ready to blow up at any moment, 2014 bank stress tests across Europe, the eurozone has not advanced any prospect of economic progress for peripheral members.
Its time to look for Plan B that involves a medium to long-term solution for Ireland’s debt outside the eurozone. It would make sense to join the sterling area.
December 15, 2013
An Taoiseach, Enda Kenny, will make a state of the nation address this evening on RTE. You will not learn more about the state of the Irish economy going forward than by trying to interpret sign language of Thamsanga Jantiie at the funeral of Nelson Mendela.
According to economist John McHale on Primetime the idea that some other government would not have done what we have done in accepting bailout is beyond belief. This view is arrogant and conceited nonsense. Iceland is an example to us of the nonsense of such views.
According to McHale whatever government was in power would have done the same thing. How bereft of imagination is that?
Comparisons were previously made in this blog between Romanian dictator Ceausescu and Kenny.
More parallels now exist: for example, centralisation of power in his regime, intolerance for dissent, control of the media; mostly the determination to pay off the national debt in full without burning bondholders; fire sales of state industry such as the recent proposed sale of energy provider An Bord Gais; sell off of state assets to pay creditors.
Another signature comparison is the uptick ‘address the nation’ speech. Expect many such speeches enjoining all to take his medicine! This is Nicolae Ceausescu‘s final speech, 1989 http://www.youtube.com/watch?v=Z3lTw0WMhpg Others have made similar parallels: http://www.irisheconomy.ie/index.php/2011/01/27/debt-repayment-and-ceausescu/
Buoyed up by the recent dead cat bounce in the economy expect Kenny to be full of hot air and dreamy golf dates with Joe Biden. Dead cat bounce occurs when investors decide to close out short positions in the belief that the market has reached rock bottom and prices will rise. Evidence for dead cat bounce is throughout the Irish economy at the moment. Helped by another factor where a short recovery is stimulated by people staying at home rather than travelling abroad; they unlock their savings frozen in fear at sudden financial meltdown.
However, when those savings are gone, they’re gone.
Stimulus assisting the DCB is the sudden rise in property prices in Dublin. One factor of price rise is the looting of the Irish property market by external investors. A useful project for the ESRI would be to audit the buyers to see if such property speculators are fleecing Irish buyers out of the market for homes and rental properties.
It would be extremely useful to look at Irish property investors in partnership with international property investors. There may be a smoking gun if it is proven Irish banks are funding Irish developers in such partnerships in order to boost local property asset prices to offset concern at falling property prices in coming bank stress tests in 2014.
This is not the taking off of the Celtic Tiger, but the thud of a DCB.
Put it on the taxpayer bill
There are three approaches when responding to financial meltdown: 1. attempt to pay off all creditors in full; 2. burn all creditors; 3, a mixture of 1/1. We did not have the possibility of devaluation.Whether by hubris or incompetence or a mixture of both, we decided on 1. One approach is guaranteed to fail but is much favoured by creditors and bondholders.
Concerned with our national reputation some incompetents argued that reneging on our debts would damage our reputation in the bond markets. They failed to grasp that failure to burn bondholders would be punished by the markets.
Tricked by Trichet
For Iceland, Sweden, Greece, Argentina, Russia along with thousands of examples throughout human history, it’s a norm that financial meltdown be dealt with by burning bondholders using devaluation a course not open to us because of our failed experiment with the euro: but uniquely Ireland as a member of the EU will pay off its €67bn troika bailout poured into banking black holes by having long maturities on its debt.
I listened with embarrassment to Michael Noonan, Irish Minister for Finance, responding to the question why Ireland, both he and the late Brian Lenihan, caved in to Jean-Claude Trichet of the ECB in refusing to burn senior bondholders.
Cringing with embarrassment, I squirmed as Noonan, stated in self-congratulatory fashion, proud as punch, that ‘we had won the argument’; ‘it was now policy of the ECB to bail in senior bondholders as well as taxpayers’.
A compliant wuda, cuda, shuda serf out of his depth unable to stand up for Irish taxpayers.
We have not been served well by useless politicians who are mouthpieces for even more useless puppet masters in high positions in Ireland. The cat did not get Noonan’s tongue. Unfortunately.
But it will get Kenny’s tongue this evening. We still do not know exactly from whom, under whose decision and advice, Ireland’s supremely incompetent decision to guarantee the banks came about.
Expect Enda Kenny from the ministry for propaganda and cover ups to smile down on us all congratulating us on our sacrifice he will throw upon his bonfire of vanities.
Failure to carry out troika reforms, wild cat out of control costs in the health service through overpaid doctors, nurses and administrative staff giving a poor return in terms of state investment; doctors/nurses Ireland trained emigrate on mass citing better conditions abroad.
The legal profession has not been reformed with some of the highest paid barristers in the world benefiting from state largesse with unproductive, costly and eternity taking tribunals whose findings arrive when we’ve forgotten what they were set up for and all the significant players have been safely retired; at enormous cost to taxpayers.
E(e)K will not be announcing a profound degree of investment in the Irish educational infrastructure and R& D to produce the graduates we need to avoid his mistakes. Measures given high value in finland and other Nordic countries following financial meltdown in eg finland and Sweden in earlier years.
He will leave that to Ruari Quinn to pretend black is white, starving education of investment, denying jobs for new teachers, doing away with the Junior Certificate that at least taught the modicum of literacy to the Irish population, pretending a wreaking ball is innovative reform!
RTE is usually a cheerleader for whoever is in power. It knows where its bread is buttered through licence fees. A bit like Vatican Radio its a spokesperson for the status quo and compliant enough ready to butter up rather than egg down and examine what goes on under the hood in Irish society.
Expect no panorama undercover investigations of blue-collar crime or critique of policy that rattles the status quo.
Kudos to Shane Ross TD who threw down the gauntlet to the CRC board asking for resignations we subsequently got.
RTE should be defenders of the third estate, the common people. However even RTE does occasionally dig somewhat deeper than usual. In an RTE programme marking Ireland’s exit from bailout there were interesting contributions: http://www.rte.ie/news/primetime/ this past week Michael Noonan, minister for Finance, was interviewed by Miriam O Callaghan.
The interview brought out the mindset of those currently in power in Ireland. Noonan, stated the economy predicted to grow by 2% next year, 1000 new jobs a week, economy is growing. Such growth predictions are usually wound down and never reached.
The EU economy will grow at a bare 1% next year but stress tests on the banks make even this projection at risk of not being realised.
Pressed by Miriam on whether he had a Plan B if we failed to meet our targets and were squeezed by the bond markets, Noonan’s response was:“we dont work on the basis of no growth”
Miriam, is the debt burden over 200bn sustainable? (its about 246.5 bn slightly under 124% debt to gdp)
N: if you have long maturities the debt is more sustainable…..if you have low interest rates the debt is more sustainable…we’re holding €20bn in buffers we cant set against the debt, as these buffers come down, our debt gdp comes down in future years..we have big investments in the banks as the banks move towards profitability …we can sell the shares in the banks and use the money to bring down the debt.
The banks are choked with huge levels of property and loan default they still refuse to mark down.
M: have you given up on retrospective recapitalisation of our banks
N: no, havn’t…. Noonan has been refused retrospective bailout of our banks by the ECB who have also refused to backstop our venture into the markets.
But he wont take No for No!
N: We got assistance with the 30bn promissory note debt….no capital to be paid back until 2037 and phase it out until 2055..extending maturities on the €40bn has also been important..we can replace more of the short term stuff with long term stuff 12-15 year paper..stress test will apply to 6 thousand banks across Europe…a lot of the bad debt is helped by property price assets rising..
Wow, clearly Noonan wants another bubble in Irish property prices to get the banks off the hook!
Clearly none of this Iceland taxpayer friendly stuff from him: http://www.thejournal.ie/iceland-goes-against-international-concern-writes-off-debt-1203320-Dec2013/
“Iceland to write €24,000 off every household mortgage”
“The measure has improved the country’s rating with Standard & Poor’s, who upgraded the economic outlook from negative to stable.”
The above measure was attacked by the OECD and Noonan is a useless banker friendly mouthpiece of propaganda to burn Irish taxpayers and give champagne to the banks, so such taxpayer friendly measures, expect only those that benefit the well off, who may have some concern their FDI investments are being compromised by high taxes in Ireland.
N: What would happen under stress if property values went down another 20%?
You can see why added buffers to property prices are being sought for at the moment. For Noonan, debt write down, writing down of assets is not on the cards for taxpayers.
Iceland proves there is another way to the chagrin of economist Alan Ahearne in conceited hubris who aired on Primetime that canard that no other government could have managed our difficulties during meltdown differently.
In spite of the universal acceptance the guarantee was a disaster; the bailout terms disastrously odious and badly negotiated and managed by Professor Honan, Honan’s undermining of democratic elected government under Brian Lenihan announcing bailout before it was officially announced by the Irish government, insiders stand by their useless decisions to bankrupt Irish taxpayers instead of bankrupting their banks.
M: Could we be effected by problems in Italy and Spain?
The answer is Y.
N: Jean Claude Trichet …would not allow me to burn senior bondholders..but now we have won the argument….the norm in future will be bailing in bondholders…rather than being bailed out by the taxpayers.
I cringe in embarrassment. This event deserves a neologism. I invent the new word, ‘goblessness’ meaning what is stupid is stated as a claim for rational, smart thinking:)
Feel free to use it:)
On the same programme Colm McCarthy economist was asked what methods could be used to kick start the economy. He mentioned the 90′s when thousands of jobs in manufacturing were created in Ireland.
Yeah, fine, but our banks are still broken. Personal debt is strangling growth and development. And that’s not the way the EU works. Germans manufacture, they invest in education and R&D and education like the Nordic countries. The inner core extract wealth from the peripheral outer core of which we are a part.
We lack the political and educated nous that Lemass showed at one point in our history in that regard.
Stimulus programs are only for the financial sector, don’t you know.
Noonan.. economy predicted to grow by 2% next year, 1000 jobs a week, economy is growing...
No, its not… “we don’t work on the basis of no growth”
M: Is the debt burden over €200bn sustainable?
Actually its closer to €250bn.
N: ..Slightly under 124% debt to GDP ..if you have long maturities the debt is more sustainable…..if you have low interest rates the debt is more sustainable…we’re holding €20bn in buffers we cant set against the debt, as these buffers come down, our debt gdp comes down in future years..we have big investments in the banks as the banks move towards profitability we can sell the shares in the banks and use the money to bring down the debt ..
We’ve exported our debt to future generations up to 2042. If you went into the future, you might see a decision by government to refuse to pay the Promissory Note of €30bn for Anglo.
Ah sorry, gotcha, you see they’ve laundered the PM’s into a bond we have to repay sealed under international legally binding commercial law.
Incredibly Irish politicians sold this pup to us as a victory they got through negotiating maturities and interest rate payments.
At ECB they must still drink champagne celebrating this one.
M: Have you given up on retrospective recapitalisation of our banks?
N: no, havn’t….
N: We got assistance with the 30bn promissory note debt….no capital to be paid back until 2037 and phase it out until 2055 …extending maturities on the 40bn has also been important… …we can replace more of the short term stuff with long term stuff 12-15 year paper …stress test will apply to 6 thousand banks across Europe …a lot of the bad debt is helped by property price assets rising …what would happen under stress if property values went down another 20%?
We need to use our €20bn of reserves to leave the EU and join the European Free Trade Agreement, but would you give the reins of that to what we got?
Michael Taft of IBEC made the point on Primetime that austerity did relatively little to bring down the deficit leading to rising costs due to job losses higher social welfare etc 1/4 at poverty level and 1/3 of children deprived…investment levels half the Eurozone..poverty crisis.
Michael sees injection of investment by way of higher wages and state building projects a way out. In our post troika bailout state its clear our creditors have different ideas.
Megan Greene , Chief Economist, Maverick intelligence, took part in the discussion.
Erudite and lucid perhaps she can see what others cannot through being too close to the object in their field of view, that the Irish economy is a donkey(my word), a Don Quixote tilting at windmills.
M: Did it work as regards Ireland having a sustainable growth model or debt model?
Megan: I actually dont think it has…Domestic demand has gone away…growth wont come back until the jobs come back and the banks lend and that wont happen for years…for the next year or so Ireland in the clear..Ireland has the biggest budget deficit, the fourth largest debt burden in the EU…OK for next couple of years but medium to long term there’s questions re sustainability….
Miriam: Do you think we will get a deal on our debt…
Megan: Absolutely no way
Megan points out the contradiction in saying on the one hand everything is fine, then asking for a bank bailout…
McCarthy …if we grew 3/4% annually over the next few years
None of these numbers are achievable.
There was a Katie Hannon extended interview with Olli Rehn, European Commissioner for Economic & Monetary Affairs, who poured cold water on any retrospective bailout from the ESM or elsewhere for Irish banks. There is a long queue before us from Spain to Portugal, Greece, Italy.
Its possible as a back stop Ireland may be funded through private loans outside the ECB by German banks further securing Ireland as a serf nation of the Germanic Republic, but little information on this at present.
Ireland’s policy for growth has been to secure its creditors, cloak and protect those who brought upon us financial meltdown, guard the professional classes who loot Ireland, pour Ireland’s economy down a financial black hole and look for European handouts.
Its time to call a halt.
As long as the false propaganda purveyed by John Fitzgerald of ESRI, who also appeared on the same panel discussion, who conjures growth figures you can be assured the economy always fails to realise, remains like the bandaged finger he waved about on the show, we remain in the doldrums.
His unravelling sticky plaster on his finger Makeup must have been horrified to see. Fitzgerald’s crew booted the propaganda of the soft landing during the tiger years with the same frenzy he delivers upbeat announcements re Ireland’s prospects today.
Ireland’s economy, after its dead cat bounce, will continue its looted downward trend. As it unravels, will the financial sector stay or MNC’s like to remain in Ireland in a looted public sector with consequent life choice decisions to be made on education for their employees’ children’s lifestyle, higher taxes with 20% of our tax take not going to investment in R&D and education and investment in manufacturing, but in paying the odious debt of dud zombie banks?
I look forward to seeing E(e)K on RTE this evening in a broadcast national ‘state of the nation’ address.
Tired of his rubbish I will probably dream at the same time of Thamsanqa Jantjie, Don Quixote tilting at windmills, golf with Joe Biden somewhere on the planet, glove puppets, Ceausescu, cowboy bankers, developers and cowboy Hi Ho Silver Away politicians like E(e)K, who cannot stand on their own two feet, who’ve disgraced their predecessors of 1916.
December 1, 2013
The Christian Democratic Union/Christian Social Union (CDU/CSU) of Chancellor Angela Merkel achieved their best result since1990, with nearly 42% of the vote and nearly 50% of the seats in German elections this September.
Their coalition partners Free Democrats(FDP) failed to get over 5% of the vote and are denied Bundestag seats. Merkel’s party reached a tentative coalition agreement with the main opposition party the Social Democrats (SPD) to form a grand coalition this 27/11/13 signing a wide ranging 185 page document.
It’s not good news for Ireland. The document opposes a ”debt union” in Europe. “No new taxes and no new debts.” It’s clear Germany will oppose any retrospective bailout of Irish banks through the ESM or by other means. It’s also clear why Ireland’s bailout tow rope has been cut and we are about to head into stormy, choppy seas without a backstop as we rejoin open bond markets in a few weeks time.
In Ireland local deflation of the economy means falling standards in healthcare and education with rising taxes and falling salaries diminishing our ability to pay off international creditors and kick-start the economy. Emigration provides relief for both tax bodies and the unemployed with unemployment levels hovering around 13%. The debt burden of the Irish economy is unsustainable in the medium to long-term.
The outlook worsens when global recovery from the financial crisis is slowly adding to the medium to long-term effects of the crisis in Ireland. Growth at 3% pitched by supporters of bailout and NAMA now look at revised downward growth rates of far less than 1%.
Things are getting worse in Europe. The deafening propaganda from europhiles in Ireland fills the air. This weekend The Irish Times carried a free poster and pro EU supplement grandiose in its admiration over the EMU project. But the project is failing Ireland.
Exit from the bailout is described in glowing terms as Ireland return to sovereignty. Nothing could be further from the truth. Saddled with a debt burden Ireland’s 126% debt to GDP sinkhole has Ireland wrapped in debt chains.
In an ill omen move for EMU Ukraine has decided to pull the plug on closer trade ties with Europe leading to eventual full membership. Such a deal with the European Union would have cost it dearly. 25% of its trade is to the east. Extra cost for gas, its budget deficit on the brink of disaster would have ensnared the country in a Cyprus or Greek decline in no time. The Ukrainians decided not to join the EMU league of debt.
Instead Ukraine is interested in joining a new competitor for the EMU in the formation of a Eurasian Union.
“Russia, Belarus, and Kazakhstan met in Minsk on October 24 to discuss the formation of a Eurasian Union in 2015, a political and economic alliance which will incorporate other Commonwealth of Independent States (CIS) like Armenia, Tajikistan, and Kyrgyzstan.”
The queue to join the euro is getting smaller and smaller: http://en.wikipedia.org/wiki/Czech_Republic_and_the_euro
“On 29 May 2013 Miroslav Singer, the Governor of the Czech National Bank (the Czech Republic’s central bank) stated that in his professional opinion the Czech Republic will not adopt the euro before 2019.”
The Czechs continually kick that euro can further down the road. Last June Iceland decided to pull the plug on its bid to join the EU.
We should join Switzerland and Ukraine in saying ‘No’ to Europe. Switzerland is a member of EFTA ( European Free Trade Agreement ). It does well. The Swiss are not on tap to contribute to bailouts of fellow members of the EMU.
Its time for Europe to unchain its domino league of debt freeing the citizens of Ireland, Greece, Portugal and Spain to default and recover.
Ireland’s financial sector, its farming sector, its so-called political elite do well out of Europe.
Their will is to bleed citizens in order to preserve bonuses, pensions and unearned salaries in a cloud nine cuckoo land awaiting redemption from legacy bank debt. They are waiting for Godot who never comes.
Europe’s austerity programme brings with it slow asphyxiation of its debtor economies.
Clearly the hoped for ideals of unity in diversity have long since been abandoned by the EU. What we have instead is Europe led by Germany’s Angela Merkel with satellite states reminiscent of the soviet era USSR as the chains tighten.
The difference between the inner core and outer core countries first envisioned as a leveling of the pitch to allow countries like Ireland and Greece to catch up with their European partners has been an abysmal failure.
The cheap money that flowed into these countries was siphoned off politically in a mixture of incompetence and corruption. Ireland is in a worse state now financially than it was when it first entered the EU in 1999.
Its time to declare the experiment with the EU over. The old failed experiment has been replaced with a new one. It’s a new experiment dominated by the will of debt extractor troika members to bleed Ireland dry while leading Ireland into a dismal future of compliance and serf like obedience to bailiffs. Its a signal that the EU debt union has failed.
Ireland’s Banking Sector
Much of Europe’s problems stem from its banking sector. UK, German, Spanish and Irish bank bailouts to name a few have cost an arm and a leg. The UK has struggled:
“….£130bn it spent bailing out Lloyds, Royal Bank of Scotland, Northern Rock and Bradford & Bingley during the financial crisis”
In the US much of the TARP bailout has already been repaid prompting the question US financial crisis was a short-term liquidity crisis for some banks and not an across the board solvency crisis as in Irish banks.
A major part of the US financial crisis was exported to Europe.
It’s rising slowly to the surface. New stress tests in 2014 should highlight it.
The response of governments to protect their financial markets, creditors, bondholders has been through austerity and bailouts across the EMU. Small banking institutions across Europe reveal the process of amalgamation into banks that are too big to succeed TBTS.
Debt writedown, burden-sharing between financial institutions and citizens has been at the expense of citizens.
Greece has been a classic example of European response. Greek debt-to-GDP levels will only fall to 129% by 2020 and could remain as high as 160% while financing needs exceed its ability to repay. Greece remains a debt sump that under present conditions with its unviable economy is a scare crow totem highlighting the failure of the European project.
Current bailouts as in Ireland’s case merrily kick the can down the road. They sacrifice and mug the local economy to the point of destruction, to pay back creditors at all costs. Saddled with unpayable debts to creditors, austerity pillages the local population leeching away their assets while their obligations to creditors become even more onerous and destructive as time passes.
Three quarters of the Irish population find it difficult to get by from month to month as they struggle under debt burdens and cutbacks. Further growth is already swallowed into debt burdens with a long line of creditors ready to pounce before any advantage accrues to the Irish economy.
Greece has been bailed out with financing targeting the repayment of Greek creditors with very little debt write down. But the Greek population has been forced into deeper recession as a result. Inward deflation of their economy cannot occur further without unacceptable human suffering. Its likely Greek will enter into a massive default.
Current retrenchment in the European banking sector is preparation for inevitable default by Greece.
In Ireland the top 1% benefit most from bailout with austerity measures guarding the status quo in high paying professions such as medicine, law and the higher grades of the public service.
In Ireland Public anger systemic across bailout countries has turned against the banks. Some hope for the setting up of new banks run on more transparent and public lines.
The model of public banking has been proposed as an alternative to private banking.
This blog has previously noted the excellent success of the BND Bank of North Dakota whose profits are returned to the local community. Its management model is built on transparency and open information to the public it serves. Run on civil service lines, costs are held low; salaries are not ludicrously inflated as in banking in the private sector with profits creamed on bonuses and salary perks and other shadowy dividends and payoffs.
The axiom ‘pay peanuts and you get monkeys’ is not true for BND. It’s a lesson for Ireland where monkeys were paid a lot more than peanuts and where this continues to be the norm.
However, we should not be blinded by the success of BND in the US. Proponents of the Public banking model in Ireland before importing this model should look at problems with the PB template that have occurred both in Germany and in Spain.
Before stating that the Public Banking should be a categorical imperative we demand all banks follow by looking at the virtuously ethical, rational and objective way BND has been run as an institution, we should examine an ethical distinction between ‘what ought to be’ and ‘what is’.
Fortunately, in Europe we have data to show how the implementation of the PB model has actually turned out in practice. So we can examine ‘what ought to be’ comparing it to ‘what is’.
For European Public Banks the evidence is not terribly convincing that the PB model is without blemish as an alternative in Europe.
In fact, there is evidence to show that the model is being abandoned in favour of a more rigorously inspected private model.
Such banks in Germany are run on the Landesbanken/Sparkassan model.
Ireland’s banks, private banks and Irish Credit Unions should consider themselves lucky not to be run on the lines of the Public Sparkassen savings bank model in Germany.
Neither Landesbanken or Sparkassan have escaped the financial crisis as the following series of links show. Neither has the experience of Ireland with German banks in the private sector hitherto been a good omen for the future.
However the PB sector has perhaps been even more mauled by paper derivative exposure than the German private sector:
Municipal Calamity… http://www.imf.org/external/pubs/ft/fandd/2010/06/dodd.htm
…..”German bank sues Wells Fargo alleging $1.5 billion securities fraud….” http://www.bizjournals.com/sanfrancisco/news/2012/10/02/wells-fargo-wachovia-litigation.html
Corporation Tax and Jurisdictional arbitrage…
“German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland.
But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals.”
“”Hypo Real Estate, run by Chief Executive Officer Georg Funke, 53, since it was spun off from HVB Group in 2003, was forced to seek the lifeline after its Dublin-based Depfa Bank Plc unit, which lends to governments, failed to get short-term funding amid the credit crunch “”
http://en.wikipedia.org/wiki/Depfa_Bank Landesbank contravenes rules re operating abroad:
http://articles.chicagotribune.com/2012-03-30/news/sns-rt-goldmansachslandesbank-update-1l2e8euap1-20120330_1_tcw-cdos-appeals-court implosion that caused a $37 million loss for German state-owned Landesbank Baden-Wurttemberg.
“A three-judge panel on Friday did not make an immediate ruling on a trial judge’s decision last September to dismiss the German bank’s lawsuit claiming fraud against Goldman and TCW, an investment advisor.”
Landesbanken are part of the public bank sector in Germany providing wholesale banking services and investment products to the public savings banks Sparkassan. The public banking sector is the third tier in German banking comprised of private banks eg Deutsche bank; cooperative banks like the Volksbanken and an array of public banks under “German Savings Banks Association, DSGV, “coordinates, promotes and harmonises the interests of Sparkassen”.
“The Landesbanken are mostly owned by the regional savings banks through its regional association and the respective federal state. After several mergers and acquisitions, there are seven Landesbanken-Groups left: BayernLB, Norddeutsche Landesbank (Nord/LB), HSH Nordbank, Landesbank Baden-Württemberg (LBBW), Landesbank Berlin (LBB), Landesbank Hessen-Thuringen - Girozentrale (Helaba), WestLB. Bremer Landesbank Kreditanstalt Oldenburg – Girozentrale belongs with a share of 92,5% to the Nord/LB-Group. The rest is owned by the federal state of Bremen.”
“Based on OECD studies, the German public banking system had a share of 40% of total banking assets in Germany.“ “The total assets of the Sparkassen amount to about EUR1 trillion. The 431 savings banks operate a network of over 15.600 branches and offices and employ over 250.000 people. Savings banks are universal banks and provide the whole spectrum of banking services for private and commercial medium-sized customers.50 million customers maintain business activities with savings banks. Although independent and regionally spread, the savings banks act as one unit under the brand Sparkasse with the famous logo and the well known red colour.”
Landesbanken provide wholesale banking services to the Sparkasse group. All is not well with how they operate.
The German PB sector will come under deep scrutiny in 2014. Many of its banks are on sale. Consolidation and absorption by the private sector for some banks is on the cards.
We can do without a DSGV in Ireland operating to make sure Irish people pay back their odious debt to German banks.
“Bidding for Berliner Bank, valued at around €400m, is seen by many as a dress rehearsal for the sale of Bankgesellschaft Berlin next year. The bidders include banks known to be interested in expanding their retail businesses in Germany, such as Deutsche Bank, Commerzbank, HVB (which is owned by UniCredit of Italy), Citigroup, France’s Société Générale, MBS and the Berliner Volksbank, a co-operative. Berliner Bank has 60 branches and around 300,000 of the capital’s better-off citizens, about 9% of the market.”
“—— Until last July the public banks had a state guarantee, allowing them to borrow and lend more cheaply than their competitors. Many of them are still implicitly guaranteed by their municipal owners. The three-pillar system has obstructed consolidation in an overbanked country and has stifled competition. Some Landesbanken andSparkassen have merged and even taken over private banks. But takeovers in the other direction are not possible: the savings banks are protected by local laws. Berlin may provide the first exception.”
Neither has PB in Germany been immune from losses in the property sector:
“…The prize in this particular battle is the Berliner Sparkasse, which has over 40% of the capital city’s retail market. The savings bank is owned by Landesbank Berlin. This in turn belongs to Bankgesellschaft Berlin, a group that was hit by a property scandal in 2001. Its majority owner, the Land of Berlin, had to bail it out to the tune of €1.8 billion ($2.3 billion) and provide further guarantees of more than ten times that amount. The European Commission approved this state aid on condition that Bankgesellschaft Berlin be sold after the clean-up.”
To what extent political and state interference and private sectional interest operates in the affairs of these banks is impossible to say.
“These Savings Banks are not state banks but are essentially credit institutions operating under public law. Their responsible public bodies (but not owners) are the local municipalities. Savings Banks are not a consolidated group; each Savings Bank is an independent credit institution and is highly autonomous. They, however, come under an umbrella organisation, the Deutscher Sparkassen–und Giroverband (DSGV) that, although it can only exercise control by consent, is able to ensure effective and efficient operation with very low risk.”
That ought to be the case, but what is the case is that PB’s have not gone unscathed by problems in the banking sector.
Sparkasse may be lauded by proponents of the Public banking model in Germany, however, they have been in big trouble for some time.
“When they hit problems, Landesbanken could have turned to a Joint Liability Scheme run by the Deutsche Sparkassen und Giroverband (DSGV), the umbrella group which includes the savings banks and Landesbanken and argues for consolidation.
But taking bailouts from the DSGV would have allowed it to change Landesbanken’s management and merge institutions. Instead, the states footed the bill for the bailouts themselves. “There has been some restructuring, balance sheets have been reduced, the number of institutions has been reduced, but we think it’s not quite enough,” said the OECD’s Fuentes.
“We think there could be more consolidation to keep decreasing the risk of influence of individual states in the management of these banks.”"
We in Ireland though a banking inquiry has yet to reveal it to be so, suspect the political interference in the running of IBRC formerly Anglo, drove it into the ground.
Landesbanken have suffered from state influence across a regionally autonomous national state political structure in Germany. Arguably the term autonomous is a lock and key ‘keep away’ message hiding secrets we may discover revealed in stress tests in 2014.
“CIVIL SERVICE” CULTURE Long-beset by the problems of politically motivated lenders, and cultivating a work culture several employees describe as “civil service like” with a clear-out at 5 p.m., Landesbanken did not begin to build serious problems until 2001. The trigger, several experts say, was a surprise agreement between Germany and Brussels to end a sovereign guarantee on bonds sold by Landesbanken by 2005. The Landesbanken’s response was to sell as much debt as they could before the curtain fell.
They piled into international lending and high-yielding bonds, sponsoring 8.4 percent of the global supply of asset backed commercial paper (ABCP) by 2006, according to a major 2012 study on Landesbanken by four German academics.
The Landesbanken expansion ended in bailout. In 2008, German states began the first of five bailouts totalling 70 billion euros, including the rescue of and eventual shutting of WestLB, which lost heavily on bets on the U.S. subprime market. Others stayed afloat, avoiding deep restructuring.
Next year’s European stress tests will be a seminal moment. “Some people suspect these banks will need to take further state aid or at least further substantial writedowns on their portfolios,” said Robert Montague, senior investment analyst at ECM Asset Management.” “Merging HSH with another Landesbank would “make a lot of sense, but there are a lot of political issues and it is unlikely that they will do it,” a source familiar with J.C. Flowers’ position told Reuters.”
” The 2012 study on Landesbanken lending said that between 2001 and 2005 they loaned money to riskier German companies than other banks, and charged lower rates. Some of these loans are medium term facilities, still on the banks’ books. “They (Landesbanken) have lots of risky loans on their balance sheets, sometimes it can be very difficult to see,” said Joerg Rocholl, the president of the European School of Management and Technology (ESMT) in Berlin and one of the authors of the 2012 study on Landesbanken lending.
Another area of concern is “..if they are zombie banks, if they invest continually in bad companies,” Rocholl added, a concern heightened by their public-spirited ownership.”
“While Germany has weathered the eurozone’s economic headwinds well, 2013′s first half results showed the five remaining Landesbanken had a combined 260 billion euros of international exposure at the end of last year.”
The Landesbanken/sparkassan PB banking model in Germany has been blighted by state interference, cover-ups, blind obedience to sectoral interests and a lack of transparency that is endemic in this sector.
Bank stress tests due in Germany in 2014 will reveal more.
Sparkasse for Ireland and Irish Credit Unions?
Smash and Grab in the Irish CU sector should avoid importing the PB Sparkasse/Landesbanken model for Irish Credit Unions.
If the Sparkasse/Landesbanken model were followed by Irish credit unions its conceivable problems in this sector would be far worse than presently faced in this sector by CU’s such as Newbridge.
Their assets could have been lost not in bad property investments but in useless financial paper speculation. Perhaps this does not augur well for Newbridge Credit Union currently being taken over by Permanent TSB.
PTSB may go the same way as some Landesbanken as PTSB is an Irish zombie bank subject of bailout.
Irish Credit unions are in trouble as they fail to meet their 10% reserve requirements: the question is, are harsh and unrealistic credit reserve requirements imposed in the current financial environment, not only unrealistic.
Are they designed to sabotage the CU’s and grab their deposits to inflate the deposit base of troubled banks adding to further concerns re duopoly in Irish banking?
It would appear the ICB Irish Central Bank is intent on looting this sector.
In the burning of IBRC (Formerly Anglo Irish) CU’s “together carrying a loss of approximately €15m following Irish Government’s decision to liquidate Irish Banking Resolution Corporation (IBRC), formerly Anglo-Irish Bank.”
No relief was given to this broadly well managed sector providing excellent service to Irish communities.
Marian Harkin MEP has complained to Europe rightfully indignant at the purging of this sector by the state.
The state is enforcing stringent regulations on this sector stifling growth leading to extinction through amalgamation and closure.
Irish CU’s are subject to the following set of requirements outlined in these documents.
Central Bank Requirements and Guidance documents:
Onerous conditions combined with huge expense involving IT software products, training in IT, management training and staff training costs, data collection requirements now burden a largely voluntary sector.
One option provided by government should be support to allow for competitive research and improvements while protecting the core activities of CU’s.
Members can contribute to an insurance scheme with profits supported by government providing free upgrade services to help this voluntary sector.
The private sector with its audit and advisory practices can amount to a private sector looting of Credit Union Boards.
Getting rid of credit unions?
According to Greg Allen there is an agenda to get rid of Credit Unions:
Central Bank Guidance notes: http://www.centralbank.ie/regulation/industry-sectors/credit-unions/Documents/2013-08-28%20v2%20Table%20with%20Location%20of%20Requirements%20Circulars%20Guidance%20Notes.pdf
There appears to be one rule for banks and another Credit Unions: capitalisation rules for banks are eased while rules for CU’s are ruinously enforced:
“A group of top regulators and central bankers on Sunday gave banks around the world more time to meet new rules aimed at preventing financial crises, saying they wanted to avoid the possibility of damaging the economic recovery.”
Perhaps CU’s should look to a public banking model such as the BND Bank of North Dakota supported by Irish government to save and enhance the CU sector, develop it to the point of providing Landesbanken wholesale banking services, but can this model avoid the experience of German Landesbanken?
The Irish government instead is wedded to the private banking sector in Ireland.
A future for world banking
It may no longer be science fiction to imagine a world of the future, a world of consolidation and hegemony without diversification, a unity without diversity, a world of banks amalgamated into one single bank; currency paper or metal currency gone, replaced by a central computer.
…Biomed computer chips implanted into you at birth, where a returned wink means your transaction has gone through to the gazillion debt sump.
This may mean you are OK with computer central, or NOt.
November 24, 2013
Margin Call is a 2011 American independent drama film written and directed by J.C. Chandor. The film takes place over a 36-hour period at a large Wall Street investment bank and highlights initial stages of the financial crisis of 2007–08.
In the closing scenes of this movie derivative traders are told to sell everything. The bank is possibly Lehmans but could be AIG and we see a long shot of the trader floor with traders feverishly executing trades.
One wonders if these trades are OTC toxic derivatives sold perhaps to banks in Europe. Is this why Europeans are dragging their feet on financial reform of shadow banking?
The EU is as slow to bring about Banking Union as it is to bring about reform of the shadow banking industry. Proposals regarding a Financial Transaction Tax are hardly debated, never mind agreed.
According to Unfinished_Mission_2013
A Report BY Americans for Financial Reform & the Roosevelt Institute:
Global cooperation to achieve that goal is required.
“When European authorities, together with authorities from a number of other G20
countries, criticized the U.S. CFTC for moving too quickly and aggressively in implementing
its rules. the Europeans objected to the CFTC enforcing its regulations on
U.S.-parented entities trading derivatives outside the U.S.”
In 2008, the U.S. derivatives industry operated along two parallel regulatory frameworks and market structures. The futures and options markets, was firmly regulated; the unregulated swaps market, also known as the over-the-counter (OTC) derivatives market, was toxic.
Its three years since the Dodd-Frank Act was approved. Its aim was to fix the problems posed by the unregulated swaps market. Reforms though clearly visible as to structure and content, still are not in place.
The following reforms are required:
“… At the September 2009 Summit of the G20 Leaders in Pittsburgh, it was agreed that OTC derivatives should come under regulation and oversight, and that:
All standardized OTC derivative contracts should be traded on exchanges or
electronic trading platforms, where appropriate, and cleared through central
counter parties by end-2012 at the latest. OTC derivative contracts should be
reported to trade repositories. Non-centrally cleared contracts should be subject
to higher capital requirements.
This statement points to three major conditions of reform:
- The first is the key principle of universal supervision. There can no longer be a carve out for OTC derivatives that makes them exempt from supervision. Universal supervision represents a reversal of the explicitly deregulatory mandate of the United States’ Commodity Futures Modernization Act of 2000.
- The second is transparency. Moving onto exchanges and mandated reporting are actions designed to help shine light onto the markets, for the benefit of the regulator as well as for competition and the wider public advantages that stem from transparency. Meanwhile, price transparency makes the market work better for all participates, while also giving regulators a crucial tool in examining systemic risk.
- The third is clearing. The mandate to clearing through central counter parties is designed to reduce the amount of credit risk accumulating in the system overall—the well-established purpose of central counterparty clearing—and also to locate credit risk where it is best supervised by regulatory authorities. Requiring capital for non-centrally cleared contracts is both a tool to encourage central clearing and a component of sound banking practice.”
“In the United States, this basic architecture for derivatives reform was quickly codified as Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act and signed into law in July 2010, less than a year after the Pittsburgh G20 summit. The relatively fast legislative action in the U.S. has been followed by slow-moving regulatory implementation. Although the law directed the CFTC and the U.S. Securities and Exchange Commission (SEC) to draft the appropriate implementing regulations within a year, it is now three years later and the job is not complete. Nevertheless, the CFTC in particular has been insistently moving the ball forward. By count, a little more than one-half of the rule-making has been completed. That leaves another one-half yet to be finished. this kind of crude accounting, however, can be misleading. On the one hand, where rules are not yet complete, they are nevertheless substantially underway. On the other hand, where rules are complete, some of the deadlines for changes to market practice lie in the future, so that a completed rule does not yet mean the market is functioning any differently.”
In the EMU that has still to stress test its banking system due in 2014, the long-delayed implementation of above measures makes risk exposure to repeat of 2008 more likely; this risk remains hidden in its shadow banking system.