peterms

I agree with you that systemic failure of some sort looks inevitable, and in fact almost all of what you say, but not the bit about "Ireland's bailout". It's bailing out European banks. Or rather, making token efforts in that direction, without actually accomplishing it. If it was a case of bailing out Ireland, the problem would look a bit more manageable. Instead, the problem seems to be far, far bigger, and there are three things which together are really scary. First, the sheer size of the amount of lending - something like $2.6 trillion lending to Greece, Spain and Portugal. Second, the interconnectedness of all this lending, with so many countries being exposed. I think this graphic may have been posted before, showing things like Germany having $700bn lending to the PIIGS countries and Italy owing France 20% of French GDP, for example. And third, that no-one appears to know exactly what loans these enormous figures are made up of, as discussed here. We know that banks have frequently deliberately lied about their exposure, and sought to conceal what they were doing (see for example this Irish whistleblower, or the House of Lords committee complaining that auditors were systematically presenting false assurances about the solvency of banks, or German bankers flying to Dublin to do deals which they're not allowed to in Germany, or banks doing shadow transactions which they conceal from regulators, or even CVB's comments earlier). Banks stopped lending to each other, it seems because they knew they couldn't believe what they were being told about each other's solvency. So we seem to have the most enormous mess, but at the same time we don't know which part of the debt mountain is toxic. In the face of that, things like taking money from the Irish pension funds on the pretext that it's Ireland's problem rather than an international banking catastrophe, an amount which is in any case trivial in relation to the size of the problem, just seems incredible.

Well firstly my bank. My friend works in the ROI division, so it's his area where the property loans etc were lent. He was moved to work on the transfer of property development loans to Nama. He's still been saying since he got there that the loans are far worse than the bank has been reporting. Basically the attempt to keep the bank from being nationalised was doomed to failure yet people in high placed tried their best to save it for their own reasons. Anyway it failed and now he said the new board is doing a purge as in almost anyone in a high position is is being got rid of. My division was being run as a separate entity it is relatively new, only 10 or so years old and grew from college recruits not from recruits from the rest of the bank, hence the differing culture I mentioned. Anyway it has been untouched as it has remained profitable, we've had loads of extra auditors and regulators around but they haven't had any cause for complaint or concern. But we have been told the bank must be downsized, the sole concern now is to sell assets and get the bank is as good a shape as possible as soon as possible. The government will strip everything bad out and into nama. then the bank will have the base to return to profitibility, then as an almost brand new cleaned up bank it is sold back into the market. There will be a demand for it as it is clean and is a clearing bank so almost cannot fail to make money off regular old school banking. Next, by rolling back to 2005 levels tax bands increase, as the government has spent the past 15 years cutting taxes and incresing spending year on year. So by rolling back we simulatniously reduce expenditure and increase tax. But by picking a level in the past people will readily accept it more, we went too far, we need to go back. It will be easier to sell to the people. But the recovery will be reliant on Europe. We are an exporting country. We need a world recovery to revive our economey. Thanks, that explanation makes perfect sense and fits what I'm hearing from elsewhere, especially about trying to clean out banks and reduce them to a clearing function. Still don't see how tax revenue will grow in a shrinking economy, but maybe the locals are better placed to see this. As for exporting, I wonder who you will export to, when all the previous export markets are retrenching. The problem with the UK (well, one problem) is that our projections are about growth while reality is about cutting back. Who will Ireland export more to, if its traditional markets are shrinking?

OK, that's a really interesting, and honest, set of comments. I wonder if nama will be rigorously stripping out bad loans. Your point about subordinated bond holders taking a loss sounds entirely accurate, however. Rolling everything back to 2005 levels may reduce expenditure, but will also reduce tax income (why do you say it will increase it?) You clearly have a real insight into how one financial institution is approaching this, and that's really interesting. But I don't think they can buck the wider economy.

Oops! The real story tucked away in the last para. How often does that happen? So despite all the talk, there is still no agreement that anyone other than the general public should pick up the tab for casino losses made by **** bankers.

_________________ Apartment to rent in S/E Cyprus right by the beach. My God! It's even snowing in the Med!

If only someone could invent something that allowed people outside of the country the ability to access the media inside the country. There is a huge huge difference between the amount of reading and exposure to the situation abroad as there is to people living here, is there not? Yes you can access it, but you have your own news to absorb too. I'm sure you are not devoting all your time to the irish economic mess. Nor do you know the feeling in the country from the mainly silent majority. I suppose you do get outta touch a bit, not been back for a few months. But speaking to colleagues who work in the country and people like my brother (in the city) or even me ma and dad (out in the sticks) on a regular basis tends to give an insight to how people feel. You don't know what the silent majority feel, though. That's because they're, er, silent.

Is a metaphor for what's happening to Ireland?

So, let me see if I've understood this. Ireland will get €85bn loans. The loans are to be repaid, and attract interest at 5.8%. That means that what the country does with the money must not only retain the value of the loan, but also generate a level of profit sufficient to repay the interest. A rate of return larger than what most private companies would regard as a good return. At a time when the economy is shrinking. Because the cuts made in public spending will both directly and indirectly reduce GDP. And national income equals national spending, as an accounting identity. And of the money that's being borrowed, €10bn will go straight into the banks, including €3bn of UK money going straight to the banks. But this will never again see the light of day, because the banks have repeatedly lied about their assets, and in fact what they "own" is a trifling proportion of the debts they have. So this money, real money, will partially offset the massive debts they have. They need real assets to make up the gaping hole that their lies and subterfuge have created in their own balance sheets. And the rationale for doing this is that it will "restore confidence", though it doesn't even match the €13bn outflows from AIB alone this year, as depositors take their cash and head for the door; and this in spite of the established fact that previous injections of far larger sums have signally failed to restore "confidence". But this is now a new debt which the Irish people owe. The money has already gone, written off against balance sheets which have more holes than a Swiss cheese. But public spending will be cut, people thrown out of work, to pay in real terms for this paper adjustment that doesn't remotely cut out the cancer or stem the flow. Meanwhile, the economy is having the legs cut from under it, but will have to grow at unfeasible rates to repay the debt which the public have taken on (they didn't choose to) in order to partly bail out the bankers. Though in fact the economy is being shrunk, not expanded, because of the cuts. It would have been more useful to load the cash into a rocket and send it into outer space. It would have about the same effect on the economy, but would at least have provided 15 seconds of entertainment.

It was started by a Englishman who is definitely not a socialist and it is intended to address a far wider issue than your country alone. Besides we are affected, to the tune of 7 billion pounds that we'll never see again. That's the same as all welfare cuts over here combined. I'd say that at least entitles us non-Irish folk to an opinion. It's funny how that £7 billion figure keeps coming up, isn't it?

The rogue trader is an interesting one. It seems there was little management oversight and internal audit was ineffective, with the trader being dealt with on the basis that his employers should trust him. This was several years after Nick Leeson, when you'd think banks would have learned lessons and put proper management systems in place. I gather Societe Generale have been hit more recently with another one.

Some interesting insights into regulation of banks, here.

I'm not familiar with the staffing structure of banks, but I would have thought the issues I listed cover a range of parts of the business, involving different groups of staff. That's why it sounds like a problem with culture, not just a localised problem (nor a problem to do with one bank).

So it's the level of lending on property determined by bank boards that's the problem? Not the risk management undertaken by bank staff in making the loans? It's clearly the case that bank boards have a very large share of responsibility for the problems, but looking at some of the problems associated with, say, Allied Irish, from the £400m bailout in 1985, to the €90m payout for tax evasion in 2000, to the $700m fraud in 2002, to the €34m overcharging of customers revealed in 2004 (which had been going on for several years, illegally), to the illegal deal practices of 1991-93, to the improperly favourable treatment of Charlie Haughey's €1m overdraft, to the recent mess, it's also clearly the case that many employees have been closely involved in a range of things from poor judgement to downright illegality. I would say this catalogue suggests there's something of a culture problem, and bank employees are not all innocent bystanders in this; some of them, perhaps many of them, are also part of the problem.

Didn't you tell us, before all this blew up, that you work in a bank on derivatives, trying to make them sufficiently obscure that the regulators wouldn't be able to understand them and therefore would be unable to control them? Are you still doing that, or has that stuff been stopped? Do you think this activity was any part of the problem?

Police always understate the numbers. It's what they do. It's an astonishing number of people for the size of the population, on the coldest day of the year. Even more so if you consider, as people are saying, that the Irish don't have much recent history of street protests, it's not something which is part of the culture. The equivalent in the UK would be something either side of a million, about 1.2m if you go with the 100k figure. Perhaps people are starting to realise they shouldn't pay the price for the bankers' mad gambling with money they never had. It's like some kids playing monopoly, running up fantasy numbers, and asking their parents to replace the iou's with real money. Of course you wouldn't give your kids real money to replace the imaginary assets they claim they owe to other players of the game. That is what bailing out the bankers would be like. It's not real money, it never was, and it will only become real money if the rest of us choose to join the fantasy and bail them out. The only sensible act is to tell them to sort out their own debts of notional money between themselves, while the rest of us get on with real life.

Estimates of the crowd today seem to vary from "up to 50,000", to 100k+. I see RTE and at least one paper seem to be retailing the police version as fact, ie something less than 50k. In the UK, we generally double or triple police figures to get a picture of how many turned up. In a population the size of Ireland's that pretty impressive. And I've also heard several people challenging the official line about there being no alternative to bending over for the bankers, eg some people interviewed on the demo, and this piece of wisdom from abroad in a national paper.

So, any predictions for tomorrow's demonstration? Fifty Sinn Fein and a lone Garda? Ten thousand for an hour then off to the pub? 100,000 and gridlock for hours?

Isn't that exactly what is worrying the Germans right now? The idea that their credit gets debased by being seen to bail out much weaker currencies?

So, I see Fianna Fail have lost this seat for the first time ever and are now trying to get the loan agreed before Monday morning. Ratings downgraded, depositors panicking, interest rates on bonds at unsustainable levels. It's like the last days of Saigon, people on the roof of the US embassy pleading for the helicopter to lift them out. Still, in the face of all this madness, Spain has issued a call for calm: That'll work, then. Even now, traders will be thinking, "Hmmm, I was going to try to make millions tomorrow from the misery of others. But in view of the call for restraint from that chap in Spain, I think I'll go litterpicking instead, or maybe read stories to underprivileged children".

Has it been prevented, I wonder? Or just delayed a little, at enormous cost? The mental model that people seem to be following is one of mending something which has experienced some problems. I think it may be a little more serious than that.

There's a run on the Irish banks. It's every man for himself. What can or should the government do about that? Borrow more money at absurdly high interest rates to shore up the collapsing banks, in the hope that they can somehow pump it in quicker than people can take it out? So that what's left is a shell comprising a lot of debt-funded government money, a pile of toxic debt, and not much else? There is panic, and it will continue. But the scale of the problem far outstrips the ability of the government to deal with it. The choice is this. Either let the banks collapse which deserve to and attempt to manage the situation, or else create massive public debts, hack away at public services, and still see the banks fail. It's throwing good money after bad. The government has a clear duty in this, and that is to protect the position of the people they govern, not the owners of the banks. So, again, there are two arguments. You may or may not agree with what I think the government should do, but I think it's becoming clear to all that trying to prop up these collapsing structures simply isn't going to work. The problem is too great, and the resources too small. The government needs to concentrate on assuring lenders that it can and will repay sovereign debt, not banks' private debts, and it should also do what it can to create conditions for growth, rather than hacking away at the budget and making a bad situation even worse.

An example here from a blog, giving an illustration of how it continues to spiral down, even after intervention to "fix" the problem.

Indeed but do you think Brown knew that at the time? If so why would he take the course of action that he did? Its one thing to say it didn't work, that in hindsight it was wrong, it doesn't though mean it was the incorrect course of action at the time with the facts known at the time. Hard to say, but my guess would be that it was known the banks were lying about the scale of the problems they had created, but the extent and depth of the lying was probably not realised. If the proposal put to Brown had been to throw many millions at the banks, but still fall far, far short of resolving the problem, the I suppose the rationale for doing so might have been a gamble that an action like that might restore confidence so that things would pick up. That would sound like a very flimsy argument though, in the face of what the markets were doing and what was already known about the success of previous attempts to bluff the markets. I think it's more likely that the banks were continuing to lie about what was really happening, but people didn't realise at the time the full extent of their lying, and that Brown and others probably thought the intervention would have some effect, where in fact it was just pissing in the wind.

The bailing out has not worked. That is because the extent of the problem is so vast. More money will be needed, and more on top of that, and there just isn't enough. That's quite apart from the bigger issue, which is this: these losses are a sole and direct result of private arrangements made between different private institutions. There is no reason whatever for the rest of us to shoulder the burden of these losses, any more than if a construction company buys a dodgy piece of land or a manufacturer makes a product which doesn't sell. The effect of bailing them out via taxes and cuts in services will be to protect the wealthy from the losses which are rightfully theirs, by pushing the burden onto the poor. That is, plain and simple, wrong. And as well as that, it hasn't been working, and won't work. Yes, there's going to be a mess. No way round that. Many of these banks are ****. Write them off, and get on with rebuilding.

Do you not think though this is unrealistic? As you say this would have to the a European solution and as such in reality was never going to happen. It might be okay in theory but so are lots of things including communism but the reality is often very different. I'm not saying I think bailing out the banks was the right thing but that faced with the choices available it was perhaps the best available because better options such as the one you suggest weren't really ever an option. We were told there was no option, but there was, though it would certainly have been messy. The banks stopped lending to each other because they knew that the assets they were lending against were in many cases virtually worthless. Since they knew that about other banks' assets, of course they were fully aware of the extent of their own toxic debt. Successive bailouts with public money didn't work, because the scale of the fantasy assets they had been misvaluing was so extreme that the money pumped in was nowhere near enough. In that situation, there are two choices. The losses can either be shouldered by the people who caused the problem, or else it can be dumped on some other poor mugs. Of course the banks prefer to dump it on us, and with compliant governments who have just rolled over, we are in a situation where we are being hit massively through increased taxes and cuts in services, increased unemployment and falling demand, years of recession and burdens for years to come, in order to protect the wealth of the already wealthy. Ireland is about to do just this, because the alternative is not being seriously discussed. It's utter madness. Banks do go bust without the world ending. It requires protection of depositors (not bankers and owners), not the blank cheques which have been handed out to protect what is basically a corrupt system built on a black hole of enormous debt. Let them go bust. Let the people who own the banks take what I understand is called a "haircut". Protect the depositors. Protect ourselves from the damage. Put resources into a more stable and less corrupt system. If we bail them out, they will just carry on as before. The bonuses are just the most visible form of this, an insouciant two fingers to the rest of us. The real problem is bigger, it's the casino mentality coupled with the vast extent of the gambling losses they have run up. I don't see a better way out than treating them like any other bankrupt business.