One person’s opinion of Irish politics, an opinion which I would agree with!
Anybody who didn’t see tonight with Vincent Browne should take the time and look at the show now
Want to know how much? Want to know the real figure? Want to know what Brian Lenihan doesn’t want you to Know?
Anybody who didn’t see tonight with Vincent Browne should take the time and look at the show now
The Irish are a nation of gamblers. The country may be struggling with the burden of a huge government deficit, soaring borrowing costs and a deeply damaged banking system, but it would be dangerous to bet against Dublin winning its high-stakes game of poker with the European Union over a possible bailout.
Ireland’s aim is to secure a deal on the most favorable terms, including, crucially, the retention of its ultralow corporate-tax rate, a potent symbol of economic sovereignty that the minority Fianna Fail government is determined to protect at all costs ahead of next year’s likely elections.
Dublin still has the strongest hand. The first thing in its favor is that no one can force it to accept a bailout; Ireland has to ask the European Union for help. And given that the Irish government is fully funded until the middle of next year, it can in theory drag this situation out for months. If it did that, of course, contagion would likely spread quickly across the euro zone, as Tuesday’s stock and bond selloffs showed, threatening the survival of the common currency. In that sense, Ireland is armed with a nuclear weapon.
In contrast, the EU is armed only with bows and arrows. There is very little it can do to force Dublin to seek an early bailout. The one pressure point is Ireland’s banks, now able to survive only thanks to European Central Bank funding. But so long as the banks are still able to post eligible collateral, the ECB has little option but to continue accepting it, even though its lending to Ireland now totals €130 billion, equivalent to 80% of Irish GDP, much of it in the form of Irish domestic mortgage-backed securities specifically created to meet the criteria for the ECB’s lending facilities. If the ECB were to impose an arbitrary limit on Irish borrowing, it could spark panic across the euro zone.
This game is due to be played out over the rest of this week, with European Union and International Monetary Fund officials descending on Dublin to thrash out a deal. Ireland has signaled it is willing to consider a deal to recapitalize its banks, allowing them to borrow again in private markets.
That suits the Irish because it enables them to claim the government itself remains solvent and so shouldn’t be subject to any external fiscal oversight that might put its tax arrangements at risk. Legally and practically, this argument is nonsense, because any bailout needs to be channeled via the government, giving the lenders the right to impose any conditions they wish.
That may point to an extended standoff between Ireland and the rest of the EU. If so, this crisis simply would be following the path of every other period of stress over the past three years in Europe and elsewhere. But eventually, the market will succeed in pressuring policy makers into the response it is seeking.
In this case, the market wants Germany and the other leading European economies to agree a quick deal to assist Ireland and, if necessary, Portugal, and it wants reassurance of what will happen to the bonds of bailed-out countries after 2013. In this scenario, Ireland can afford simply to stand firm and wait for Germany inevitably to fold.
Write to Simon Nixon at email@example.com
Simon, one way of looking at the problem!
Brian lenihan and Brian Cowen
Just over the wires , Brian Cowen has acknowledged that talks are now in progress what an idiot
We all know this and have known this since last week the real problems are the banks and the huge derivatives losses that they continue to hide .I have said it and say it again Bank of Ireland Is bankrupt so is Allied Irish Bank and I would not be surprise to find Irish Life and permanent also in the Dog House. This Bail out will necessitate to total nationalisation of these banks. I expect the impaired loans of these banks will be incorporated into the national debt and then the IMF with the EU will bailout Ireland and then can expect to get an avalanche of spin about the two Brains heroic efforts to save the nation and they should be rewarded with some medal or other.
Posted: By Gavin Sheridan
We have warned time and time again that Ireland was facing a massive fiscal crisis, both on here and on Twitter. We took a look back through the archives to see what we might have called right over the last number of months:
September 11, 2009: ‘A floor in the market’
We questioned just how much nonsense Finance Minister Brian Lenihan spoke in September 2009, where he argued that Ireland had neared the floor in the housing market. Of course, NAMA set its floor in November 2009, and prices have fallen ever since – leading to yet more losses for the taxpayer. We quoted him:
“If a flood of property is dumped on the market, it will be utterly unsustainable. That is one of the reasons we must establish NAMA and try to establish a floor in the market. We are very near it on the basis of the figures and data we have about the yield from property. The yield is at an all time high relative to the assets, which is a clear objective economic indicator that we are approaching the trough. We must banish our devils, the suggestion that we have further to go. That is part of the problem and the reason for the illiquidity in the housing market.”
There is no doubt that everything said there was a fiction, and it was patently obvious at the time.
December 24, 2009: Morgan Kelly on how we got here
Morgan Kelly published a paper at Christmas 2009, in which he outlined the looming bank crisis and the coming massive mortgage crisis. It was universally ignored. We highlighted it at the time:
I can’t really add much to Mr Kelly’s excellent analysis. What it says to me is that the next 12 to 18 months are going to be among the most difficult, if not the most difficult, time this country has faced. I encourage everyone to read the entire document.
I will emphasise his conclusion:
Despite having pushed the Irish state close to, and quite possibly beyond, the limits ofits ﬁscal capacity with the NAMA scheme, the Irish banks remain as zombies whose only priority is to reduce their debt, and who face complete destruction from mortgage losses. The issue therefore is not whether the Irish bank bailout will restore the Irish banks sothat they can function as independent commercial entities: it cannot. Rather it is whether the Irish government’s commitments to bank bond holders when added to its existing spend-ing commitments, will overwhelm the ﬁscal capacity of the Irish state, forcing outside entities such as the IMF and EU to intervene and impose a resolution on the Irish banking system.
February 4, 2010: The Coming Crisis?
It might be news to some people, but the purchasing of Irish bonds by Irish banks was highlighted a long time ago. We highlighted along with many others that Irish banks were buying Irish sovereign bonds and using them as collateral at the ECB. We also emphasised that Ireland was in as worse, if not a worse state than Greece – just that the markets had yet to pay attention to Ireland:
If you thought all of the problems had been sorted, then think again. There are really big problems coming down the road, and very few people seem to be talking about them. So let’s look a little closer at the potential fiscal problems Ireland, and our banks, face.
Everyone is talking about Greece right now, but to me Ireland is no different. It is probably worse. So with these deadlines looming, what is happening? Over the past number of weeks you might have noticed various headlines to do with NAMA delays. Why is this important? Could it be that unless the banks can transfer these junk ‘assets’ from their books, they could face funding difficulties on non-ECB markets?
I could well be wrong, or even cynical, but my feeling is that banks are desperate to get this stuff off their books, in order to be better able to fund themselves after the ECB shuts the discount window. If they don’t get them off their books, and onto the backs of the taxpayer, the banks could simply end up going to the wall, or simply being nationalised.
If you’ve read Morgan Kelly’s excellent analysis of the Irish credit bubble you will be aware of the Irish banking system’s over reliance on international money markets for funding. When the financial crisis hit in September 2008, these money markets froze and Irish banks struggled to get day to day funding. This is what ultimately led to the bank guarantee, and to the opening of what’s called the ECB discount window.
Banks all over Europe were struggling with funding, so the ECB essentially enacted emergency measures to help fund the banks. Irish banks were one of the biggest beneficiaries of the discount (the interest rate charged by the ECB is sometimes called the discount or repo rate). Ireland’s banks have effectively been kept on life support by the ECB since 2008, as McWilliams also noted last year. Essentially Irish banks were buying NTMA-issued sovereign bonds with short-term lending, presenting that as collateral to the ECB and then borrowing cheaply from the ECB. Summed up here – 25% of our deficit in most of 2009 was indirectly funded by the ECB.
When you combine the shutting of the discount window, with the delays in NAMA transfers and ultimately our own State borrowing (indeed we have already borrowed €6.5bn so far this year – 33% of our bond issuance for this year was done in January) and with the likely writedowns of not 30% but 50% on the loanbooks, we are facing a serious crisis. And of course the other factor is the ECB raising interest rates at a time we need them to stay low.
My questions is this: how are we going to pay for all of this?
February 22, 2010: Delay and Pray
This actually sums up how the Irish banks, especially Anglo, have been dealing with our property developers. Rolling over interest, not writing down the loans, not crystalising the losses, doing repayment deals with developers – to drag it out – extending and pretending.
Here it is in a nutshell: NAMA is one massive “Delay and Pray”.
Given that our banks are insolvent, that they are facing massive liquidity issues with the imminent closure of the ECB discount window, they cannot keep the pretence of extending and pretending up forever – and NAMA is, or was supposed to be, the answer to their prayers. You could also argue that Bank of Ireland recently changing its fiscal year was part of this tactic.
The Government would take the crappy loans from the banks (rather a lot), and through some financial voodoo, the losses would still not be crystalised, and rather ingeniously – the debt would not appear as sovereign debt for Ireland, or as debt for the banks, but would instead be dumped into this NAMA bad bank.
And NAMA has one sole purpose – keep the pretence going that someday, somehow, the value of the underlying assets will return to peak prices. Delay and pray. Do not write down the loans. Do not accept the reality of the losses. Do not pass go.
Not only is it unlikely that this will happen, it is almost impossible. Morgan Kelly wrote in December that it could take 50 years for the underlying assets to return to 2006 prices. Last week, in the High Court, we saw development lands being written down by 60% to 98% (in terms of valuation, not borrowing). These figures are the reality of the lands that NAMA is taking charge of. And we are overpaying already. How long do you think it will take rezoned agricultural land bought for €13m at peak, revalued at €600,000 in 2010, to return to €13m? The answer is: it won’t. So much land was rezoned that there is no necessity for rezoning for a further 70 years in many counties. Add to that the 300,000 vacant properties. Add to that little demand. Add to that zombie banks unable or unwilling to lend.
This is the reality of NAMA. Delay and pray.
It logically follows that where the banks lent money with no obvious collateral to back the loan, and where the supposed value of derivative is now zero, the bank sustains a massive capital loss.
However the banks are simply delaying and praying until NAMA takes over the loans, and then NAMA continues the praying.
We are in for one hell of a fiscal mess.
If you hear spin that no one saw this coming, don’t listen. There were plenty of commentators and plenty of warning signs. Unfortunately many people chose not to listen.
I too have been warning about this now for the last 20 months and it is with great sadness that I now see come to pass, my worst fears although I believed we would have been past the worst by now the establishment of the greatest fraud in Irish history (NAMA) has in fact help postpone the worst effects of the now oncoming second phase of this financial disaster yet to be faced by Irish people.
The Current economic terrorists in the Department of Finance have successfully placed private debts of a Golden Circle on to the hard pressed shoulders of the Irish people and they have helped these same gangsters whisk away their ill-gotten gains all across the world .They have also compensated some of them by promising to pay them a salary of up to 200,000:00 Euros a year .This is sheer madness!
Why is nobody doing anything about this crazy stuff? Anywhere else in the world these gangsters would be in jail!
We the Irish people have seen out rights enshrined in the Constitution trampled all over because of political expediency, we have been lied to and robbed by people whose job was to protect the and uphold the constitutional rights of all the citizens of Ireland. Instead they have blatantly placed the financial welfare of a select few above the welfare of the nation and are in the truest sense traitors
They have betrayed the trust of people of Ireland and must be removed from office
A general election is desperately needed now and only candidates that promise to bring these traitors to justice should be voted into office.
Sadly the established political parties are remaining quite on this particular point and there are no calls coming from them to prosecute their colleagues in the Dail
Last night on Front line Pat Rabbet hinted that he would consider going into power with the Green Party
These are the same gutless gangsters that have sold out on every one of their own core values just to stay in power with the current government. Let this be a reminder why we need to have a complete change in the political system unfortunately none of the established political parties want to bring about this change, as it would be akin to asking Turkeys to vote for Christmas they are part of the dysfunctional political system we are saddled with and cant wait to get their hands on the lucrative perks and pensions heading there way by default .