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Ireland was Germany’s off-shore tart

Now that Mr Cowen has lost control of his party, coalition and country, the Irish can expect to be bullied and hectored from all sides. It is more important than ever for Ireland to defend herself against the claims that she owes the rest of us. She doesn’t.

Every European bank exposed to Irish loans, every bond holder holding Irish debt – both bank and sovereign, and every foreign central bank concerned for the solvency of its own banks will start to crank up a barrage of propaganda and threats.  It will be top of everyone’s propaganda agenda to make sure the Irish election offers no choices that could destabilize the unexploded ordinance of European bank insolvency.

The European financial class will be desperate to ensure that the Irish have an election that is carefully constrained so as not to offer anything that might actually help them. As far as the banks, the ECB and all the leaders of nations whose banks would suffer losses if Ireland were to default or restructure, the Irish people are NOT to be exposed to ideas of default.

All parties must be told,  and if that fails to convince, made to feel directly via the bond market, the consequences of any alteration of the course followed so far. And, of course, it has already started. Here   is what senior ECB banker, Lorenzo Bini-Smaghi, said on January 15th regarding Ireland’s electoral choices.

“It would be dramatic for Ireland if just by changing government you renege on the promises that Ireland as a sovereign has made.”

Not that he would dream of making veiled threats to try to frighten Irish public opinion into choosing what would be best for the banks over what would be best for the Irish people.

“Look at those countries which defaulted, like Argentina, Pakistan, Ukraine, Zimbabwe, Cote d’Ivoire. Do the Irish people want to go through the same experience?”

No mention of Iceland there. Funny that.

The foreign press will run story after story about the dangers of ‘contagion’, of the need for responsibility and resolve.  The Irish Central bank will step in to make grave pronouncements if the political parties seem not to be holding the line.

Foreign leaders such as , Merkel, Olli Rehn, Barosso, Trichet and our British clowns, all with their own national interest, will give talks and be quoted in their papers about the need for steady fiscal responsibility and the unthinkable consequences of any waivering.

If there is any rumbling of popular discontent, then scape goats will be found – people upon whom some anger can be harmlessly vented.  But if that does not work then the rhetoric will get more pointed. Ireland will be reminded that ‘it’s their fault’ and they ‘have no one to blame but themselves’.  In the German press any hint that Ireland may be thinking of restructuring will be met with dark reminders of how ‘Ireland’ in the form of Depfa had to be bailed out by Germany.

In short I don’t think the Financial class is pleased that the politically unreliable (when it comes to European questions) Irish are going to have an election at this delicate time.  I think the run up to the elections will involve a lot of propaganda designed to shout down any opposition to bail outs and debt payments.

So I thought this might be a good moment to get a few things on record regarding Depfa, HRE (Hypo Real Estate) and the banking crisis blame-game.

For those who aren’t already familiar with the Depfa and HRE story, here it is in a very small nut shell.  Hypo Real Estate was the huge German bank which we were all suddenly told, back in 2008, had to be bailed out by the German State at vast cost. But, they said, they had no choice, because Hypo (HRE) was so large and its debts so huge that if it collapsed it would, at the very least, bring down German banking.  It was Europe’s AIG – to big to be allowed to fail. Then the back story emerged.  HRE had bought ‘Irish’ bank Depfa at the top of the market at almost the same time as RBS bought ABN Ambro.  Both purchases were insane and both killed the purchasing bank.

It was then put about that the collapse of HRE was in fact due to a huge funding crisis at Depfa always referred to as ‘its Irish subsidiary’.  From that came the notion that Depfa must have hidden its true state from HRE. Why else would HRE have bought a bank which couldn’t fund itself?

And that is how the story firmed up.  Irish Depfa must have lied about its true state in an effort to sell itself to Hypo, so that when Depfa’s hidden financial problems surfaced, the cost of them killed Hypo and then fell upon the German rather than the Irish tax payer.

It is sometimes easy to forget with all the sordid and ruinous business of Anglo Irish, that the beginning of the whole crisis in Ireland and in Europe was intimately tied to Depfa and HRE. Thus I think it is worth reminding ourselves of some of the misinformation and perhaps offering a few less well known facts. Facts which might help the Irish defend themselves.

It was often said, particularly in the German press, that Depfa ‘brought down HRE’. Had HRE not bought Depfa when it did in 2007, then it would have been the Irish, who had incubated the problem, who would have had to pay for it, not the Germans. There is always this undertone that somehow Depfa must have lied to or misled HRE.

Was DEPFA really an Irish Bank which the Irish should have bailed out?

Less than 1% of Depfa’s business was Irish. Virtually no Irish Banking money flowed into Depfa or its deals.  Depfa was not a major employer in Ireland. A couple of hundred jobs at most.  Few of its senior positions were held by Irish people. Thus in purely bloodless financial terms there was virtually no reason for Ireland to bail out Depfa. Depfa was not systemically important to Ireland or the rest of its banking sector. Depfa was, however, vital to the continued health of the German banking sector.  Add to this that the size of any bail out of Depfa was quite beyond what Ireland as a nation could have done. Ireland’s total IMF bailout stands at €85 billion. All on its own the HRE/Depfa bail out has already cost Merkel well over €100billion. Depfa, like one or two other banks in Ireland, was simply too big for its host. It was a financial cuckoo in the nest.

The German’s, however, would have bailed out Depfa even if it had not been bought by HRE because Depfa’s failure would have crippled something essential to the entire German banking sector – the Pfandbrief business.  The Pfandbrief is a German ‘covered bond’.  A covered bond is simply a super safe kind of bond. It is considered as safe as Sovereign bonds but gives a higher return. Germany invented the Pfandbrief and its banks relied on it.

The Pfandbrief/covered bond is considered super safe because, unlike other bonds, the Pfandbrief is backed by a ring-fenced set of assets which cover the total value of the Pfandbrief/bond. So even if the bank issuing the Pfandbrief were to go under, the Pfandbriefs themselves would never default.  And it has been the bed-rock of the Pfandbrief’s reputation that in 250 years no Pfandbrief has ever defaulted.

At the time of the Depfa bail out there were €806 Billion in Pfandbrief outstanding. The third largest chunk of the German bond market and the section that had been growing rapidly and which everyone wanted to be a part of. The German banking sector wanted to grow and compete with the British and the Americans on the international stage. They saw the Pfandbrief as an important part of their strategy. This article from 1999 gives a great feel for how the markets were then, as they stood on the cusp bubble years.

If Depfa had gone down, it would have taken the AAA rated dependability of the Pfandbrief with it.  Ireland could let that happen, Germany could not. That is why, I think, Germany would have bailed out Depfa no matter who owned it.

Why did Depfa move to Ireland if it was still a ‘German’ bank?

Depfa was always a German bank, that had simply chosen to locate itself in Ireland for funding and regulatory reasons. Does this mean that Ireland was stealing Germany’s banking sector?  No.  The best way to think of Ireland is as German’s off-shore tax haven banking centre with one significant feature – it was within the Euro zone.  Every country has one.  The UK has many. Germany needed one and Ireland was happy to oblige.  Thus it suited Germany as much as it did Ireland. It was a partnership.

Of course Ireland made itself everyone’s honey. But I think it is fair to say that of her many customers she had a special relationship with Germany. Think about it. Depfa, HRE and HVB (Now UniCredit), Deutsche Bank, LBBW, DZ bank, Commerzbank, Bankgesellschaft Berlin, Landesbank Sachsen, WestLB all gravitated to Dublin.

The fact that this arrangement/partnership has fallen apart in acrimony doesn’t alter the fact that when the money was flowing the Germany banks, German bankers and all their politicians were every happy with what was going on in their Irish subsidiary. Ireland does not owe Germany an apology.

In fact I think Ireland should be asking Germany some hard questions over the sometimes abusive relationship German banks have had, and some still have, with Ireland.  See here for how WestLB after it collapsed created an SPV called Phoenix, as a means for parking/dumping €23 billion of toxic ‘assets’ in Ireland.   This, it seems to me, is the Toxic Debt Wasteland I wrote about, becoming real.

How did the Irish Funding work?

Depfa had always raised its cash through its own Pfandbrief bank. It’s source of funding were the Landesbanks who in turn got the cash from the bottom of Germany’s banking system the Kasse, deposit banks.  They had all the cash.

But there were limiting factors. German money was the spur to Depfa’s early growth but the bank, according to a former board member I have spoken to, wanted more.  They wanted better access to international funding and international customers. Neither, as more than one German banker has told me, was readily available in Germany.

Ireland made itself a meeting place for those with money in need of investing and those looking for loans.  For Depfa in particular it was an attractive place. Depfa had decided to target Russian and East European public investments (investing in publicly funded works) and Ireland had made itself attractive to Russian and Eastern money. Money in various shades of shadiness flowed to Ireland.  The timeline of German banks and for that matter all European banks (thinking of UniCredit here) going to Ireland runs parallel to East European and later Russian money beginning to flood out of the former soviet states looking for a new home in the West.  Ireland met that need.  Ireland become THE favourite investment destination for Russian money.

Money was placed in the East. There were and are plenty of subsidiaries there who could pass it along to be funneled westward through Austria (Bank Austria) or Cyprus onward to Ireland where it could find its way to the heart of European banking in Ireland.

Depfa set up a brand new bank Depfa ACS bank, specifically to tap into all this new money.  It even got the Irish parliament, in agreement with the European authorities and German banking sector, to write a new law making it possible.  Ireland created its own version of the Pfandbrief – the Asset Backed Security. This allowed lots of new money to join with the steady flow of Germany money from the Landesbanks to unite in Ireland to the benefit of Ireland AND Germany.

Of course Europe has access to all sorts of Off Shore Banking so what made Ireland special? Ireland was physically close, was already a corporate centre, was English speaking (good for the Americans), was low tax, used English Law (good for London) and had the same ‘we can do if for you’ attitude of Luxembourg.  What gave Ireland the edge over Luxembourg was it offered faster turn arounds on setting up deals and far more lax regulation.  Ireland was perfect.

Ireland and Luxembourg are banking competitors.  But Luxembourg is not English speaking, is slower and worst of all has a regulator who occasionally regulates. The Luxembourg regulator has all his own teeth. Ireland’s had his removed along with his balls a long time ago.

As long ago as 2005, Charlie McCreevy, Ireland’s former Minister of Finance, (another Fianna Fáil man who was at the Ministry of Finance before Brian Cowen took over that job and showed everyone how it should really be done!)  who then became European Commissioner for Internal Market and Services (nothing like failing at one job  in order to get a better job…) addressed an esteemed EU/UN gathering in New York in 2005 in which he famously stated

“As Finance Minister in Ireland I saw what great entrepreneurial energies that a “light touch” regulatory system can unleash. 25 years ago we were the sick man of Europe. Today we are among the richest countries in Europe. Ireland is indeed testimony to the fact that you don’t need to be rich in natural resources to generate real wealth.”

That was shortly before someone shouted ICEBERG!

For those of you whose German is better than mine you will enjoy this German television (ZDF) expose of German Banking in Ireland and Depfa/HRE in particular.  Apart for revealing interviews with senior people in the German banking world, it also contains a brief interview with David McWilliams who famously referred to the fact that the German bankers behaved in Ireland “like men in a brothel” – with the blind eye of the Irish Financial Regulator seeing no evil. WhistleblowerIRL’s roller coaster experience as UniCredit Ireland’s risk manager  illustrates the extent of the Irish regulator’s incompetence and/or criminality, and refusal to actually enforce regulations.

You can find more on Ireland’s regulatory cess pit and WhistleblowerIRL’s story in  Why Bank Regulation is a Joke, and Who Bankrupted Ireland.  For more the details of WhistleblowerIRL’s very much ongoing story see his blog here.

Of course if you want no regulation why not just go to the Caribbean?  The answer comes back to the German banks again.

Much of the money flowing into Europe looking to be invested would end up in Special Purpose Entities/Vehicles (SPE, SPV) or Structured Investment Vehicles (SIVs). These are the legal containers which house and run the securities in a Collateralized Debt Obligation.  You securitize debts, you  put them in a CDO you  house the CDO in an SPE/V or SIV and you need somewhere to set up and domicile the SPE/SIV.  What Germany wanted was to have the dubious advantages of off shore combined with the above board respectability of Europe. German investors, the Landesbanks, wanted their money inside the OECD cordon of respectability while getting all the perks of off-shore. Ireland provided both.

A former, very senior banker from Depfa told me the Landesbanks could not buy Depfa’s debt/Asset Backed Securities fast enough.  Any issue Depfa made would be pre-sold to and wolfed down by the landesbanks before the ink was dry.  This was a partnership.

Now before I wrap this first part up, I would just like to note that,

Another banker, based in Germany, has recently pointed out to me that in all of the discussion about the Greek-Ireland-Spain/Portugal bailouts, the debate over the tax-payers’ money that was, and still is, being poured into the now-nationalised HRE/Depfa has mysteriously been silenced. I wonder why? The banker referred me to this documentary which raises some interesting questions about why and how HRE was bailed-out. It makes the importatnt link to Akerman at Deutsche Bank and how he appears to have told, not advised, but told, Merkel what to do. Merkel might be more of a tin wind-up model of an Iron lady rather than the real thing.

As I have very basic German-language skills, I would welcome any comments readers might have about these documentaries. This would help me to learn more about the HRE/Depfa saga.

On that note I am going to break the story here to stop this becoming too large.  I will continue in the next part with the question:

So what went wrong?  And why did HRE buy Depfa when it was already going wrong?

In which we will meet once again our old adversaries AIG and Goldman Sachs.

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41 Responses to Ireland was Germany’s off-shore tart

  1. The MacPuddock. January 24, 2011 at 2:59 pm #

    Very interesting post, but the thing that stands out for me at first reading, is the failure of the Irish regulators and politicians. This failure seems to be so systematic and extensive that it cannot be an accident or oversight. There is much dirt underneath this and, as you point out, all the big players here have no interest whatsoever in letting the Irish public have a full understanding of the depths of the mendacity as they consider how to vote.

  2. Goalscoringsuperstarhero January 24, 2011 at 5:20 pm #

    Enter the one-week-window of political chaos where – in theory – political calculus can safely be thrown overboard in favour of doing-the-right-thing(TM). We already see the two parties (Fine Gael/Labour) likely to form the new government ensuring their support for the finance bill which they so vehemently opposed 6 weeks ago.

    They want the finance bill to be passed, favourably rushed through the Daíl, if necessary without meaningful debate. How INSANE is this?! Just to wash their hands clean so they can refer back at any point in time saying 'well it wasn't during our watch when this was implemented'. What happened to their threat of tabling a motion of no confidence? It surely was good enough last week, but now all that matters appears to be to fast-track the finance bill.

    And of course the voices around Europe have started suggesting how important it is for Ireland to keep her promise, and how catastrophic it would be to disobey. But sure, 'Ireland is a sovereign country and it is ultimately a process of domestic political negotiation'.

    Ironically, it appears now it's only Sinn Féin who are standing between this bill and it becoming law. Or perhaps a time of public chaos in combination to the political chaos. Markets don't care, at least not in a way that would be favourable The People(C), so we may as well set a precedence (apart from Iceland) and drive the default from the grassroots.

  3. richard in norway January 24, 2011 at 5:34 pm #

    golem this post was dynamite

    the byline is perfect

  4. The MacPuddock. January 24, 2011 at 5:45 pm #

    goalscoringsuperhero is neatly describing the sleight of hand conducted in the name of democracy-the serious deficit of accountability created when power transfers from one subservient group to another.
    The reflex hopping from one establishment party to another is becoming more and more obvious as a means of creating a fiction of representation, in Ireland, the UK and the US and no doubt elsewhere but I sense that it could all become very dangerous if there was any real attempt to become independent-minded by voting for too radical an alternative.
    The craven mutual back covering indulged in by the mainstream parties is for a reason- mainly threats and bribery I imagine.

  5. Golem XIV - Thoughts January 24, 2011 at 5:47 pm #

    Very glad you liked it. Thanks.
    I hope the second half will have more surprises.

  6. 24K January 24, 2011 at 6:22 pm #

    We need that German copper Derrick on the case.

    I searched for a graph I saw a while back, for all the Irish who think Iceland did the wrong thing HERE

    To me it looks like everybody is on the same bandwagon except one. Check out Iceland and Ireland. Now either Iceland is right or all the others are. You better check yo'self if you think it's the latter.

  7. Southofdub January 24, 2011 at 6:39 pm #

    Lenihan silent on issue of Anglo’s Austrian depositors

  8. princesschipchops January 24, 2011 at 7:08 pm #

    Great post Golem. I am reading my way through the book. Some great insights and it is good to follow the events as they unfolded and your thoughts on them.

    The one thing that always surprises me (and it was highlighted reading the book) is how well it is all holding up – relatively speaking. I had really thought that we would be tipping headlong back into disaster by now. I still feel though that it is coming – my worry is by being delayed with endless injections of taxpayers money and smoke and mirror tricks – the end when it comes will be even more dire.

    I was also struck the other day by just how dangerous this is getting – what is good for Ireland is bad for us and Germany and vice versa. You can see the same tensions between nations everywhere, and at every single level of economy and society within nations.

  9. Golem XIV - Thoughts January 24, 2011 at 8:22 pm #


    Glad you are enjoying the book.

    It is getting more dangerous. The tension will soon be over the global collapse in state and local funding. It is the same in the US as it is here. States, municipalities and cities are all going broke very rapidly.

    In the US the muni bond holders are in shock. The city of Valejo, I think it was, declared bankruptcy and told its bond holders they would only get between 5 and 20 cents on the dollar back.

    If other cities do the same it will be a blood bath.

    Cities in Europe are suing teh Big Banks over swaps contracts and the banks are suing back through the English courts. But a decision here would have to be enforced by local courts. Which pits the legal system in one country against the legal system of another country.

    And in every nation local and state governments are cutting jobs as fast as they can. Which will mean lower taxes which will necessitate more lay-offs. Unemployment will soar followed by house repossessions. And who will bear the cost of re-housing the homeless? The local authorities who don't have the money to pay for it. Then what?

    It ends in political blood letting

  10. Whistleblower IRL January 24, 2011 at 9:16 pm #

    Just in case we were under the false impression that Ireland is still a democracy, our so called 'opposition' hurried this evening to the Finance Ministry to agree the terms of the Finance Bill dictated by the ECB/IMF:

    "Agreement reached on Finance Bill – RTE.ie

    Updated: 19:08, Monday, 24 January 2011

    The Minister for Finance Brian Lenihan has said opposition parties have agreed a timeframe for the passing of the Finance Bill.

    …At a briefing in Brussels today, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn described the Bill as 'crucial' to ensuring the 2011 budget is implemented, as agreed under the EU-IMF deal.

    Amadeu Altafaj also noted there was a large consensus among political parties in Ireland that the Finance Bill should be passed.


    In his blog posting above, Golem predicted the pressures quite accurately. He was less precise in predicting the lightening speed with which our 'opposition' capitulated.

  11. GoPug January 24, 2011 at 9:26 pm #

    Tyler Durden @ Zerohedge on Business Insider…
    It becomes very clear why the current status quo is unsustainable absent a major global corporate and sovereign liability restructuring: In the bankruptcy business, this process is known as “growing into your balance sheet.” Yet the main reason why the kleptocratic elite has been so opposed to this act is because no debt impairment is possible without eliminating the equity tranche below it.
    Read more: http://www.businessinsider.com/zero-hedges-tyler-durden-the-us-is-free-falling-into-bankruptcy-2010-12#ixzz1BzLampiC

    Thus, the Irish should really consider the fact that ALL DEBT EVERYWHERE IS IMPAIRED! There will be restructuring everywhere eventually. So for the IRISH, doing it now, even if it means getting kicked out of the EC and a collapse of the economy (bad for TPTB) will mean at least defining a finite period to make their rearrangements. I mean, what are they (TPTB) going to do, Nuke Ireland?! IRELAND'S CREDIBILITY will be lost from their move to guarantee the crazy bankers back in 2008 w/ McAleese and their version of GOV INC. But the people didn't make this move – the lawmakers did. I never heard of a referendum or a popular vote for this. Eamon Gilmore said Labour voted against the 2008 government plan "because, we refuse to sign a blank check," and because it imposed no sanctions on the banks'… I believe all people should start studying exactly what transpired in Iceland. TO THE IRISH… "SAVE YOURSELVES!!! IT IS NOT YOUR FAULT!!! GET YOUR LAWMAKERS TO ACT IN YOUR COUNTRY'S INTERESTS, INSTEAD OF TPTB'S INTEREST. THE ECB AND THE IMF ARE NOT YOUR SAVIORS… THEY DON'T EVEN LIKE YOU AND THEY ARE DEFINITELY NOT YOUR FRIENDS."

  12. forensicstatistician January 24, 2011 at 11:06 pm #


    I agree that tensions are rising, but they way I see it is this is the culmination of a strategy that has been in place for nearly 100 years, so maybe things will play out much slower than many of us anticipate.

    Michael Hudson's "Super Imperialism" tells the real history of the 20th Century, through power and economics.

    It all begins with the US lending money and armaments to the European countries to fight each other in WW1. The "done thing" at the time was to write off debts when assisting a partner nation (France had waived debts when supporting US Independence). The US did no such thing and insisted on reparations. This Modus Operandi (of debt enforcement) just grew in breadth and depth, through Bretton Woods, IMF, 1980s LatAm, current bank bailouts etc.

    Everything about our current economic and financial circumstances at the moment is precisely about this – Debts are being prevented from being written off as the Creditor assumes no responsibility for the quality of his investments, and therefore the Debtor must pay, no matter how crushing.

  13. RichGB January 24, 2011 at 11:18 pm #

    Hi Golem

    HERE is a very good analysis of the Depfa / HRE relationship. The article reveals that Depfa used short-term funding markets to bank-roll long-term infrastructure projects, and about 22% of Depfa's funding came from unsecured lending.

    The timing of HRE's take-over is interesting too, coming just 8 weeks before the sub-prime crisis hit.

  14. RichGB January 24, 2011 at 11:27 pm #

    Hi forensicstatistician

    That has a deafening ring of truth to it. It's like science if all the financial problems can be explained by one fundamental law: Debts are prevented from being written off.

    Nice! No, bad!

  15. forensicstatistician January 24, 2011 at 11:49 pm #


    Bad it is. If you have a spare 45 minutes then check out Rob Newman's "History of Oil" on Youtube.

    This is part 7 where Rob explains global economics & geopolitics accurately and succinctly (i.e. <4 minutes). "Imagine the world as a Bronx housing project":

    History of oil (7 of 9)

  16. princesschipchops January 25, 2011 at 12:04 am #

    Golem – It is pretty worrying because all I can hear is the drums of war beating ever so softly (right now ) but insistently in the background. When we talk about social collapse and political bloodletting the end game is always war. The book though – its the anger I like the most. We need the anger and the passion right now!

    Forensicstatistician – Those Rob Newman pieces are great. I remember watching them and just thinking wow.

    I agree with RichGb when he says – that your observation – 'debts cannot be written off' as summing up the whole crux of the matter. I'll look up that book. Just when you think you have a handle on the reasons behind what is going on another one pops up. I'd never thought of the way the US ran its foreign policy – and the reparations it placed on France and the UK – and global finance, as being interlinked in the way you made clear, but it's like scales falling from your eyes when you see the bigger picture.

    All these facets, bank bailouts, the financialisation of capitalism, global warming and environmental degredation, oil, US policy, the IMF. It is this complex, deadly tapestry.

    Oh I need a drink!

  17. soloist82 January 25, 2011 at 12:07 am #

    Hi Golem
    Saw your interview on the Keiser Report last week and this has lead me to your blog. Keep up the good work my man an informative society is essential to uncovering the greed and corruption that has lead us all into this financial malaise.

  18. ujohnn January 25, 2011 at 6:02 am #

    This is a good blog with interesting information. In my personal opinion everyone should stop trying to make profits by being dishonest and corrupt. I would prefer to be poor and honest than rich and corrupt.
    I hope that Ireland makes the right decisions, it is dishonest to take taxpayers money and give it to bankers and investors who took a risk and lost. As with Iceland you might be poorer in the short term but youll be honest.

  19. MrShigemitsu January 25, 2011 at 11:49 am #

    Hi Golem, just digesting this superb piece of investigative journalism.

    You should have a column in Private Eye!

  20. Golem XIV - Thoughts January 25, 2011 at 11:55 am #

    Mr Shigemitsu,

    You are too kind. It's always a pleasure to know you are around.

    0.5% contraction! And due to the snow!? How thick do these tools think we are?

    Soloist82 and ujohn,

    Thank you both and welcome. Hope you'll both stick around.

  21. Whistleblower IRL January 25, 2011 at 2:09 pm #

    Here is a different opinion voiced in Dublin today:

    Cllr. Richard Boyd Barrett, People Before Profit and ULA candidate for Dun Laoghaire said
    "The posturing by Fine Gael and the Labour Party over the Finance Bill almost puts Fianna Fail and the Greens to shame. The Finance Bill gives legal effect to the budget. Therefore you can’t be against the budget and at time express a willingness to ‘facilitate’ it passing through the Dail [parliament] in a week. This is utter hypocrisy.

    “If they were really opposed to this budget they would be demanding an immediate general election where the budget could be debated. The truth is that both the Labour party and Fine Gael have no alternative to budget cuts and austerity policies and are committed in principal to the EU/IMF bailout agreement. They may be willing to play around with the details of the budget cuts but they are committed to implementing €15 billion in cuts because they argue there is no alternative. We say there is an alternative and it begins with tearing up the EU/IMF Memorandum of Understanding and burning the bondholders. It certainly does not involve pouring money into a failed banking system and the private pockets of property developers.

  22. Unclear January 25, 2011 at 2:23 pm #

    "0.5% contraction! And due to the snow!? How thick do these tools think we are?"

    About as thick as we've demonstrated we are over a long time. That's a general UK "we", not a Golem's blog "we".

    The UK has just demonstrated it can't, and won't be able to, balance the books. What do you expect him to say, "The UK has just demonstrated it can't, and won't be able to, balance the books."?

    People don't want to hear it. Politicians don't want to say it. We get what we deserve. (Same "we" as above).

  23. ahimsa January 25, 2011 at 3:06 pm #

    I am reminded of a quote, by Churchill methinks. Paraphrasing, it went something like:

    Nothing amazes me so much as the injustices the masses will suffer silently, except, that is, their power when they decide to actually do something about it.

    Ultimately all power is derived from we the people.

    As clichéd as it may be:

    United we stand, divided we fall.

    The word continues to spread.

    It's a matter of when(not if) we reach collective mass.

  24. Golem XIV - Thoughts January 25, 2011 at 3:22 pm #

    Hello Unclear and ahimsa,

    I think you are both correct. We do get what we are willing to put up with and are willing to put up with too much for the sake of not having to face unpleasant truyths, but we can also and do also sometimes do somethong about it.

    The great thing about change is that not every clod has to vote in favour of the landslide.

  25. richard in norway January 25, 2011 at 5:59 pm #


    i've been wondering about the irish printing euro's. no one seems to think this is a big deal, but if all the PIIGS did the same then the euro could tank plus a risk of hyperinflation. but the day after the euro gained in value, and i thought it must be that the market thinks that a default is less likely……

    i wonder what the reaction in ireland would have been(public reaction)if instead of "printing" 51B euro, the irish had been forced to borrow another 51 billion to prop up their banks

    with an election on the way the "powers that be" will be anxious to hide any new bad news

  26. sheila January 25, 2011 at 6:22 pm #

    Hi Golem,

    I watched your interview on Keiser report, and had to check out your blog, very interesting reading, you sure seem to know your stuff (don't suppose your looking for a job, we are in need of a new taoiseach LOL, would be great to get someone who knows what he is talking about, a luxury we have not had thus far!!) Needless to say I am Irish and of the opinion that we should definitely default as at no time were we, 'the ordinary people' asked about bailing out the banks or inviting in the IMF. This whole monetary system is beyond a joke at this stage and WE, ALL OF US need to WAKE UP!!!! before it is too late. I believe there are more and more people starting to question 'the system', they are looking for answers, as am I. In my quest I have found great inspiration from 'Venus Project'
    http://www.thevenusproject.com/ and 'Zeigeist Movement' http://www.zeitgeist.com/ I post these links in the hope that others may gain more insight and together we can ultimately make a difference

  27. Tam January 25, 2011 at 7:55 pm #


    'The one thing that always surprises me (and it was highlighted reading the book) is how well it is all holding up – relatively speaking.'

    I know what you mean. That's the thing about learning from history books. Part of the reason they're gripping reading is because years can pass in the turn of a page and they edit out the days, years or decades where nothing much seems to be happening. It's easy to forget that real life passes at a much slower pace 99% of the time!

  28. hoolighan January 25, 2011 at 9:10 pm #

    @ Tam
    "That's the thing about learning from history books. Part of the reason they're gripping reading is because years can pass in the turn of a page and they edit out the days, years or decades where nothing much seems to be happening. It's easy to forget that real life passes at a much slower pace 99% of the time! "

    Unfortunately ever since man/woman got behind the wheel of a car history sped up inexorably – however with limited understanding of all the dangers and barriers on a highway we travel our journey preventing, if possible, any personal crash. It is only if a sudden revelation of real facts make us slowdown and think about our direction that we begin to realise that we are all on the same road and can benefit from knowledge and the guides of those among us who like Golem clarify matters. Thanks

  29. thrawn pop January 25, 2011 at 9:28 pm #

    Hey Golem
    Thanks for all your work over the past couple of years. I've been following your posts daily since the CiF days when I found myself reading the articles less than the comments.
    Finally got sorted out to get a profile up here to be part of it!

  30. Golem XIV - Thoughts January 25, 2011 at 9:35 pm #

    thrawn pop,

    Glad you did. We need all the brain power, courage and collective dissent we can muster.

  31. princesschipchops January 26, 2011 at 12:07 am #


    Fair point about history however you could look at it another way. During the Great Depression there were years of growth – just not enough growth to really kick start employment – it wasn't that things weren't happening or that the economy wasn't collapsed – its just that unless it was happening to you or someone you knew many didn't really think about it. And many politicians even denied it was happening. I would argue that at least now due to blogs like this one – we are aware of what is happening and have other points of reference than the mainstream media and lying politico's.

    The other point I would make is that we often don't recognise history as it is happening – unless it is really momentous like world war two. I read an article that was linked to here – in The Atlantic about the new super rich – and the writer of that made a really interesting point – that what happened with Reagonomics and Thatcherism – will be shown in the future to be as seismic as the industrial revolution. Interesting point of view.

    Golem – have you seen this in The Guardian about the banks and the coalition purposefully trying to subvert EU policy to toughen up on them? It was linked to on the UT (apols if it has been linked to here before). http://www.guardian.co.uk/commentisfree/2011/jan/24/curb-the-banks-government-propped-them-up

    Do you think you might ever get to Sheffield for a talk? I know there would be a fair few interested people.

  32. dah_sab January 26, 2011 at 6:00 am #

    Interesting references to war here. The EU, of course, was set up in response to, and in order to prevent, another devastating European war. It's hard to imagine a shooting war happening again, but if just one country stands up & says "no, we're not paying these debts," it would be very interesting indeed.

    Maybe a trade war, a currency war, some kind of non-shooting war, could occur. Nobody wants to be left holding the bag. Right now they're all desperately trying to hold the bag together. Who's going to let go first?

    Michael Hudson has also talked about how over the past 100 years or so the tax burden has been gradually shifted from FIRE (i.e., unproductive income) to the middler & lower classes via income taxes. They justify it to themselves by saying the people who use the services should pay for it.

    Of course, not taxing FIRE leads to what we have today, a combination oligarchy/aristocracy. But empires don't topple in a day. It'll have to be baby steps. Perhaps starting with Ireland.

    What they're doing in Ireland now, though, is similar to what was tried (it failed) in the US, when the lame duck congress tried to pass social security "reform." Voting after the election, but before the newly elected members had taken office, the aim was to avoid having anyone held responsible for the vote.

    Those who'd lost reelection wouldn't pay, and everyone else figured in 2 years time (next election) no one would remember. So in Ireland the period between governments is a perfect time to pass unpopular legislation. The gall, the nerve, they have to do this is almost to be admired for its sheer brazenness.

  33. Fungus FitzJuggler III January 26, 2011 at 6:02 am #

    Actually, Ireland is really in trouble as we all know, but only if we believe we are? Money and the love of it, is the root of our evil. No, not a morality lesson, but a practical one.
    Given the gravy train for politicos, it was natural that they would fall under the sway of the EU paymasters, mainly the Germans. So money is a disaster. But Ireland has gained massively from the boom, in housing stock at least. Those who own it are only lamenting this because they have to repay.

    The obvious thing then is to follow Iceland. Forgive those who trespass against us and repudiate the debts we continue to take on. We have, with the apparently poor strategy adopted by the GFF, taken on more debt. Good. This should continue, making the default even bigger when it comes?

    OK, it is less moral than going the Iceland route now, but we know that no one has in terms equity lawyers love "clean hands".

    What we must do then as the wise who lead the masses, is prepare for this day? Will we leave the EU? Will other countries also go this route? Free trade has been helpful to Ireland allowing the economy to grow but on borrowed money. If the EU is taking away our CT rate we will not grow as fast as we did and in fact as we shed the malinvestments made during the boom we will shrink, particularly as we knuckle under to our masters in Europe.

    If we leave the EU, we still have that CT rate but we lose all those lovely banks or do we? In the meantime we enjoy all those capital transfers from those in the EU fearful that we default now. We defer default and help them drive down the euro. They must expect to pay for this co-operation! We are only 1% of the EU economy or even less. The realities will eventually make default more acceptable even to those who still hog the gravy train as their electorates realize what needs to be done and as Iceland prospers.

    This is after all the likely outcome as the masses awaken they will send some message via voting, but as in the USA, they can vote only for those on the ballot! (In the USA they will accept write ins not in Ireland!) The massage goes both ways and dep[ends on earlier messages but tax increases will eventually cause a rethink as will service curtailments, suicides and emigration.

    This takes time. We enjoy the funds from the ECB and the extra housing. We rectify the economy by taxing land and reducing the price. Eventually, we become more competitive. But as the tax base dwindles, so the budget deficit will eventually balance but only if we default on interest and repayments are out of the question!

    The international turmoil will smother this little hiccup as other countries also default. The idea that Ireland must contribute to their reconstruction is merely a rentier's fantasy, not a moral position!

    In the meantime we languish and some suffer disproportionately, cause: Bad regulation by those who were ignorant or in the pay of others!

  34. Tam January 26, 2011 at 7:46 am #

    @rincesschipchops – Good points and I didn't mean I disagreed with you although I think it's a bit unrealistic to expect government politicians to admit the economy's fucked; that's just not how 'democracies' work…

    @hoolighan – 'Unfortunately ever since man/woman got behind the wheel of a car history sped up inexorably'

    Rubbish! I know what you're getting at, (like that planes / world trade centre incident) and technology has definitely changed things but it's much more complex than that. To take one example, look at how the boom – burst cycle in the west since ww2 happened at seven year intervals but the last boom lasted far longer, (which is why Gordon Brown, admittedly naively, thought he'd managed to end boom and burst) so things can slow down as well as speed up…

  35. Tam January 26, 2011 at 9:18 am #

    Although, (thinking about this a bit more…) none of that's to deny stuff can also happen very fast at certain critical times as recent events in Ireland illustrate

  36. princesschipchops January 26, 2011 at 12:30 pm #

    Hi Tam – I wasn't necessarily disagreeing with you either. I think it is a really interesting point.

    The thing is we just can't know how this will play out or really – while we are in the middle of it – how 'serious' it is. We have our gut instincts – some of us think it is nothing more than a normal recession that is over (not many on here of course) while others feel something is deeply amiss.

    But it could well be that we bump along like this for another year or two then pull out of it and have a sustained period of real growth in the economy. I hope that does happen, I really don't want to live through some sort of major depressionary cycle – there are no jobs already where I live if it gets much worse it will be dire for some parts of the country.

    But I don't think it can – or at least not in any sustainable way – while the banking sector is still in such a state. One of the things that seem to be happening – as Golem predicted back over a year ago – is that we now have a two tier economy. All the elite in Davos are apparently full of confidence – over 80% of normal US citizens don't believe the recession is over.

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