Growth through Austerity – An Irish update.

Last week on the Vincent Browne Show on Irish Television I was told by , Mr Brian  Hayes the Minister of State for public works and Public Sector Reform that  things were  improving for Ireland. Austerity was working.

Towards the end of the show the host, Vincent Browne, challenged the Minister to say how exactly they were improving. Mr Browne suggested they compare Ireland with Iceland and asked the Minister if he knew what the rate of unemployment was in Iceland.  The Minister said he didn’t know. Mr Browne enlightened him. Unemployment in Iceland is 7% while in Ireland it is about 14%.  The Minister folded.

I had also been told, though not by the minister, but by a banker, that the Irish government’s plan, as various Ministers had explained it to him, was, and I quote, “To prove to the markets that Ireland is the Best of the Worst.” And having reached those dizzy heights he said, “Their plan is then to become the Worst of the Best.”  All I could think of when he was telling me, was the ‘Best of the Best of the Best” scene from Men in Black.

So how is the growth through austerity plan going for Ireland, who is after all the poster boy for the policy?

The problem is it is often difficult to make any comment as an outsider because we rarely have the figures the government has and so are always told we are uninformed or misinformed…. Then I was given an interesting document.

Last week the IMF, along with people from ECFIN  (the European Directorate for Economic Affairs), was back in Dublin staying at its usual luxury hotel. Why those who are advocating austerity need to stay and dine in a hotel where the wine list is fatter than the bible and contains bottles of wine that cost 1790 euros, is beyond me. But apparently they feel they deserve it. Towards the back of the hotel is a small unremarkable room that requires a key pass to open. Inside are a couple of computer terminals. It is a ‘secure’ office space. Above one computer is a framed municipal Bond for the Ville de Kazar with two coupons missing. I mention these details so that those concerned with the document I received will recognize them.

The document is ECFIN’s Cash Balance Assesment for Ireland over the next months.  I am not sure who in the Irish parliament has seen the document. The headline is stark – at the beginning of March 2012 the Irish government will NOT have enough money to meet its gross financing needs. In March 2012 Ireland will require €10.3 billion in financing but only actually have €9.5 Billion in Treasury cash balance. The document makes it clear that despite all the austerity and all the ‘improvements’ the Minister was convinced the policy had delivered to a grateful/ungrateful people, Ireland was bankrupt unless it got the 10 billion Euros it was due in the 5th installment of the IMF/EU bail out.

As the document says,

This means that a timely provision of the Q1-2012 EU-IMF instalment is of particular importance.

The rest of the document then worries about what would happen if the 5th review did not approve the funding on time. Further on the document has a section entitled,

What could be done in case the EU and IMF cannot disburse by the end of March?

and says,

In this scenario, and without further measures, there is a risk that the Irish sovereign runs out of cash.

That they should worry that this might be a possibility, is either simply prudent or an indication that they think it is distinct possibility. I leave you to decide. The document then looks at what assets Ireland has that the government could use in an emergency. It looks at raiding the pension fund again and at “Liquidation of further assets”.

Finally the document says that the Irish figures are, it feels, robust having been made on what it calls “prudent assumptions”. But I don’t think these assumptions include what is currently unfolding in Europe. A significant Europe-wide downturn, tightening of credit to banks and to Sovereigns, the growing possibility of Greece defaulting, Berlusconi losing his grip on power and therefore his ability to keep the lies going, the truth buried and Italy as one country, and the unravelling of the entire bail out fiasco.

174 thoughts on “Growth through Austerity – An Irish update.”

    1. Iceland had no choice. Ireland is still playing the EU game and getting cashflow. Were it to really embrace austerity and balance the budget, it would be far worse than it is. As usual, the leaders are not leading but lying!

      1. The Dork of Cork

        You are only looking at balancing the budget at the same time that all private debt contracts is honoured.
        But at least in 2008 and even to some extent now Ireland has enough cash to live without experiencing famine like conditions.
        It lies in Commercial deposits………..
        They are being subtracted as people pay off their private debt – and therefore the money supply & subsequent consumption is in constant decline.

        But just seperate the deposits from the bank “assets” by sticking these deposits in the post office bank and we owe this now goverment money to ourselves.

        The private debt contracts would be uncollectible and the money supply would be stabilised.
        Give a new credit licence to a bank – even call it bank of Ireland mark II if you want.
        Job done.

        The strange superioty of private credit over goverment money(Gov bonds) in the euro system (euros are not goverment money) is the most sinister of all phenomena – the darkness at the heart of this is I suspect unimaginable to most people.

  1. Extract from Scottish left Review.

    Authors : Jim & Margaret Cuthbertson

    It is now abundantly clear that there are fundamental problems with the current world economic order – as those on the Left have been arguing for years. The key doctrine of globalisation advocated by neoliberals can now be seen as a means of transferring command of more of the world’s resources to those willing and able to play the system, while producing only limited benefits to many poor countries. In this article we will look at some of the issues which need to be addressed in tackling the current problems.
    The paradox of globalisation is that, while nations have been stripped of powers under GATT and WTO, nevertheless the nation has the final inescapable responsibility when things go wrong, as recent events clearly demonstrate. We will argue that this position of responsibility without power is untenable, and that redressing the failures of globalisation will inevitably involve redefining the role and powers of the nation state. We will not presume to offer solutions to all the world’s problems: but we will give pointers as to how important progress could be made in at least one key area.
    The symptoms of the current world economic malaise are frighteningly apparent. To name just a few:
    • There are grotesque and increasing disparities of wealth between different social groups, in both the ‘advanced’ and ‘emerging’ economies.
    • The world financial system is such that many of the major banks and institutions are technically insolvent on any realistic valuation of their asset bases – and are only propped up by government-organised cheap credit; that is effectively by governments printing money.
    • Many of the states with advanced economies have levels of debt which mean that some form of sovereign default is virtually inevitable.
    • The problems in the eurozone are so severe that it will either break up, ushering in an era of unfathomable chaos, or else some form of European superstate will emerge, to impose a disastrous regime of fiscal discipline upon the European periphery.
    These are the symptoms: but with all this economic chaos going on, the political elite in the US and in Europe seem incapable of rising to the challenge, either of developing a coherent course of action, or of bringing the electorate with them. In the US, the body politic seems to be fatally riven into two camps. In Europe, the basic problem is that the mechanisms which have been set up would require further fiscal, social, and political integration if they were going to have any chance of working: but this was not in the original prospectus, and further integration does not address the problem of underlying structural imbalances.
    We propose a charter which states that the natural resources of a nation are the inalienable property of that nation, which are held in trust for the mutual benefit of that nation, the entire world, and future generations
    While the causes of the debacle are more difficult, an important role has clearly been played by the undue trust which has been placed in some of the tenets of the neoliberal consensus: and these tenets can now be seen to be fallacious. Among these fallacies is the belief in the invisible hand, and that markets, if largely left to themselves, provide optimum outcomes. Another fallacy is that the increased volume of trade and capital flows stemming from globalisation lead to a sustainable increase in economic activity benefiting all countries. There is also the mistaken belief that monetary unions are instruments of convergence: in other words, if a monetary union is set up covering a group of countries which have achieved some adequate degree of initial convergence, then their economies will move forward in increasingly close economic harmony. (In fact, the opposite is the case – since the reduced number of adjustment mechanisms in a monetary union, which are primarily labour and capital flows, tend to be disequilibrating rather than equilibrating.)
    The world economy is so fundamentally broken that it is going to be no easy task to put the bits together again in a more workable fashion. We will argue that to redress the problems an essential role has to be played by the nation state, and that there has to be renewed focus on those functions which the nation is uniquely positioned to perform. But first, it seems clear that any solution should satisfy most, if not all, of the following requirements if it is going to have a chance of success:
    • That there should be protection from the corrosive effects of uncontrolled flows of capital on exchange rates and industry.
    • That there should be some form of protection (not necessarily tariff protection), for local industry, so that it cannot be killed off by dumping, or simply taken over and shipped off shore. But that this should be smart protection – that is, we do not want protective measures which simply encourage inefficiency.
    • That there should be suitable arrangements in place to encourage stewardship of basic resources, (that is, resources like land, water, renewable and non-renewable energy and landscape). Such stewardship should provide an appropriate balance between the needs of national and international interests: and between the needs of current and future generations.
    • That monetary policy should be such that it suits the requirements of each area: that is, interest rates should be set with local (in some sense) requirements in mind, leaving aside for the moment exactly what is meant by ‘local’.
    • That there should be mechanisms in place which can be called upon, if necessary, to correct imbalances in the distribution of income, either between areas, or different social groups
    • And finally, that there should be an effective set of accounting arrangements in place – particularly for governments and the financial sector. These should take a prudent and conservative view on when governments and financial institutions are operating solvently.

    The theme of this article is that the nation state will have to play a fundamental role if these requirements are to be delivered. But first, what do we mean by nation?
    A standard definition would be a geographical entity which possesses sovereignty on decisions like defence, on the operation of the key economic levers, and citizenship. This is fine as far as it goes: but for present purposes, we would argue that a nation proper is defined not just in terms of sovereignty, but that it must also possess some concept of coherence. This is a rather tenuous concept: but a working definition might be that a nation must possess political mechanisms which are capable of arriving at a view on major issues which is accepted by the bulk of the population as expressing the collective will of the people. On this basis, Europe, for example, is not a nation: the UK increasingly fails to satisfy the concept of coherence: but as regards Scotland, one of the gratifying aspects of devolution is the extent to which Holyrood is increasingly regarded as expressing the collective will of the people – in other words, Scotland is, increasingly, a nation.
    Going back to the above wish list, it is remarkable how many of the items on that list can only hope to be delivered at the level of what we have defined as a nation. For example, control of monetary policy for an area, including the ability to set interest rates, requires a currency. And this requires, not just a printing press, but the ability to back that currency with the political will, institutions, and revenues of a state. In the context of the European Union, because of the terms of the anti-competitiveness directives, the ability to control fiscal policy, industrial policy, and competition policy, are all greatly restricted at the sub-national level, as compared with the individual member state level.
    As regards stewardship of basic resources, mismanagement tends to occur when the scale of the resource does not fit well with the scale of the sovereign unit. This can, of course, take place when the scale of the resource is too large, and no-one takes responsibility – global warming, or pollution of the seas are examples. But there are also acute problems when the geographical resource is small relative to the state, and the state therefore regards the resource as expendable. Classic examples would be the UK’s virtual surrender of Scotland’s fisheries as a price worth paying for EU entry. Or indeed, the UK’s decision under Margaret Thatcher to treat North Sea oil as a consumable – a decision which would have been unthinkable if Scotland had been in charge.
    Finally, the use of transfer or fiscal mechanisms is likely to be possible only if the ‘coherence’ test of nationhood is met. A classic example is the refusal of Germany and the northern European states to consider transfers to compensate for fundamental imbalances in the eurozone.
    So what sort of steps can be taken, given the magnitude of the problems the world faces? To see what might be done, we want to look in more detail at one specific area – namely, the question of the stewardship of natural resources.
    The first important step that we suggest needs to be taken is to redefine the rights of a nation in respect of its basic resources. What we propose is that a charter should be developed which states that the natural resources of a nation are the inalienable property of that nation, which are held in trust for the mutual benefit of that nation, the entire world, and future generations. Establishing such a charter would immediately, and fundamentally, change the terms upon which natural resources are exploited. Outright privatisation of resources would be impossible. This does not mean that the private sector, and private capital, would never be involved in developing and exploiting the resources of a state: but the private sector would play a different role. Instead of capital being involved as the owner of privatised resources, henceforward, capital would be involved as a partner in the development and exploitation, under agreed terms, of a resource whose ultimate ownership would remain with the state.
    Secondly, where the state is dealing with private sector operators in the field of basic utilities (like water, or energy), the state needs to do more to formalise and exploit the strength of its own bargaining position. In the face of a major corporation, the individual is virtually powerless: but the state is not. In particular, the state in principle controls the right of the corporation to enter the market at all: and for this right the state should be able to extract a significant price.
    Third, there needs to be a rethink of the way in which capital is provided for investment in major utility projects. At present, in a typical UK utility, the customer pays a double penalty for the cost of the capital involved in the utility. First, because the utility borrows from the market at a higher cost than the state could borrow. Secondly, as a result of the arcane current cost method which utility regulators use to work out the charge for capital, utility operators earn a windfall profit on capital invested, over and above the cost of borrowing. In fact, if we are operating at the relatively large scale of a nation, these extra layers of cost are redundant. At national scale, the requirement for capital investment in a utility is largely stable in real terms from year to year. This immediately removes one of the basic reasons for borrowing: namely, to smooth out lumpy capital payments over time. In the absence of this smoothing requirement, the cheapest approach, from the point of view of the consumer, is to fund capital direct from customer charges. Moving to such a system would cut out both the interest cost premium, and the current cost charging premium, which consumers currently pay. It would also protect investment in vital infrastructure from the vagaries of the capital market. (It might be objected that this approach would lead to misallocation of resources, since it would remove the opportunity cost function which payment of interest on capital provides: but there is no reason why customer financed capital could not have a shadow interest rate applied.)
    Implementing the above three proposals would transform the way in which basic resources are managed, and in which utility services are delivered. If the proposals were implemented, then the natural relationship would be for the private sector to enter into time-limited relationships with the state, whereby the private sector would be able to manage the exploitation of a basic resource for a specific time, and to a specified extent – and for a defined benefit to both the private sector and the state. Ultimate ownership and control would rest with the state. And the need for investment of private capital, and hence reliance on the financial markets, would be much reduced.
    We have taken the area of stewardship of resources as one particular example of what needs to be done. Some of the ideas we developed in that context could in fact be applied more widely. For example, we argued that the state should derive economic benefit in its dealings with individual corporations by extracting an economic rent from its ability to grant or withhold the ‘right to supply’. But exactly the same principle could, and should, apply to the level of interactions between states. To give an example of how this might work, consider China. One of the fundamental imbalances in the world economic order has been the deliberate manipulation by China of its currency, to achieve an extra competitive edge for its industries – and hence to secure a large part of the world’s manufacturing capability. But this strategy would have been impossible if large customer states had exercised the right to control the countries they were willing to be supplied by, and if they had made it a condition of China’s ‘right to supply’ that the Chinese exchange rate was allowed to move closer to a more equilibrium level. Such an approach would have prevented the extreme build up of debt owed to China by some of the main Western economies. But it would also have had a profound effect on the industrial structure of these economies, since they themselves would have been able to maintain a much more balanced industrial base.
    Implementing the strategy outlined in the previous paragraph would not be easy. It would require substantial amendment to the current WTO rules. It would also require substantial education, to persuade people that some offers of supply might be too good to be true in the long term. And, of course, it would greatly help if the national accounting systems in operation were able to detect much earlier than the current system of national accounts just when a country was running into unsustainable levels of debt.
    In general, the state needs to re-think its position, and re-assert its powers, in each of the key areas of economic life. Since the Second World War, there has been an ongoing process, under GATT, WTO, and EU, whereby the individual state has ceded its power to manage and control market forces. What we are arguing is that this process needs to be reversed: and that individual states should re-assert their power against the market. This is not a plea for narrow protectionism. Instead, the ultimate benefit of all will be secured by individual states working together intelligently, rather than by states collectively, and blindly, surrendering their interests to the market. And the benefits of such an approach are not just economic. What would result would be a much more even distribution of wealth: a much more balanced economic structure within each country: and much less need for destabilising flows of labour. All of these things would be to the ultimate benefit of society.

    « Back

    1. This is fine if the economies were not changing, but they most certainly are. Western theft by banking enabled these massive discrepancies to the overall benefit of the west, stripping developing economies of capital.

      TPTB want this to continue, but they have been out thought by a faction that want it to stop and the west had better get used to austerity! If they had kept better care of their banking system then maybe they would not be in this mess. The Chinese are about to experience this too.

      People who think this is new are neglecting history, especially that of Japan. Selfish acts can sometimes be used against the interests of those committing them.

      Another faction of TPTB want war, real war not the Afghan/Libya kind. Let’s see how those fine words go down then?

      1. Quite correct. The transfer of wealth to the West occurs through the acceptance of the US$ as reserve currency and the implicit acceptance of DBFM.

        This dynamic enables the US$ monetary authority to create currency and credit far in excess of their own sovereign needs. In turn, due to the inherent purchasing power advantage enjoyed by those entities that have access to the new currency first (i.e the Primary Dealers followed by, in order, commercial banks, financial institutions, foreign banks, sovereigns, corporations and, lastly, consumers) US financial institutions infiltrate every corner of the globalized economy carrying a disproportionate purchasing power advantage. As countries become members to the US$ monetary system, financial entities led by the Primary Dealers swoop in, buy up and,in return, stoke inflation which feeds more money and credit creation…. Rinse repeat till most productive assets are in the hands of banks…
        Et voila. The magic of DBFM at work!

  2. At 25:38 in the clip David and the junior minister find themselves on opposite sides of a divide that has existed throughout human history; namely, is it better to die on one’s feet, or live on one’s knees?
    Brian Hayes is quite right to point out that the lives of many, many ordinary people could be adversely affected by a “ballsy” decision to face down the European Financial juggernaut. War is always bloody, and the innocent will pay a hideously unfair price.

    David, too, is quite right. Act like a whipped dog, get whipped like a dog.

    What Mr Hayes seems oblivious to are the many, many people for whom a bloody struggle is preferable to an ignominious capitulation, even if said struggle should prove terminal.

    Are we approaching a time when one is forced to take sides; financial collaboration vs financial resistance? And if the struggle should be successful, should the modern-day Maquisards carry the day, where do we start with the “epuration sauvage”?

  3. The Irish people should tell the EU to fuck off the IMF to fuck off their capitulating politicians to fuck off and the bond holders to kiss their arse and then fuck off. It worked with the British government and they were made of sterner stuff than these monkeys.
    This is said by an Englishman living in France.If you want an Irishman to follow look at Rory Mckilroy look at the comeback he made there’s an example for you. Stop procrastinating and get mad.

      1. Ireland will soon receive a demand for 11.9 bilion euros from the European stability mechanism (ESM) treaty. Where will they get that from? The demand will have to be paid within seven days and no arguments are allowed. Check out the proposed legislation at: tinyurl.com/63f55r2 and look at all the “irrevocable” and “inviolable” showing immunity from prosecution by any country for the management and the immunity from freedom of information requests (as I see it).

        Robert

  4. Just finished watching the vid, it reminded me of why I stopped watching such shows a long time ago. The spectacle of yet another politician putting on his used car salesman routine as he basically spews out an argument that consists of nothing more than scare tactics ( I love Tina ) in order to prop up himself & his sell out colleagues is sickening. They are so sure of themselves, they don’t seem to have even considered the bigger picture, wherein Ireland with an economy & population roughly the size of Birmingham will sink or swim because of what happens elsewhere. The tragedy is that like in the other PIIGS countries the ordinary citizen is being pillaged for no good reason, in fact it’s making the situation worse, the whole house of cards is falling anyway, but the citizenry like vampire victims will have less strength to survive it when it does actually happen,

    I liked the whipped dog analogy & I quite liked the architect fella, the other two were a waste of time, sorry if that’s harsh. I noticed the Gobshite managed to end on another scary story, that if Ireland stopped kissing the Troikas arse 250,000 jobs would disappear overnight. I just hope that these creatures of no integrity are actually seen for what they are when the shit finally hits the fan, enough people might finally realise that the present political system is a joke, a club where the promoters of nothing but themselves from left or right get to sit at the feet of those that are really running things. Then somebody might be held accountable for this mess, well, I can still dream.

    Well done Golem for putting it up to them, rather you than me, I don’t know how you keep your composure.

    1. I agree, but the Irish elect these people on the basis that they were working an economic miracle. They were all greedy for cheap credit. Not much moisture in a desert of credit, is there?

      The massive growth of banks, 30%p.a., y.o.y., was a national target!!!! The ignorance of these peasants? Those who hand their brain to politicians get what they deserve…..

      Senior civil servants were NO help! Anyone who had a different point of view, ahem, was shown the door! Are the Irish going to learn? After the first decade many will….. after the second most will.

  5. Yikes

    Extract from ZeroHedge:
    ————————————————————————————————————–
    While the world is awash in liquidity, no one seems to notice that it’s actually in the form of leverage or cheap debt, NOT real capital or equity.
    The US banking system as a whole is leveraged at 13-to-1.
    Then you have Europe’s banking system, which is leveraged at 26-to-1. At these levels, even a 4% drop in asset prices wipes out ALL equity.
    Japan’s banks are leveraged at 23 to 1. France’s are 26 to 1. Germany is 32 to 1.

    However, worse than any of these the US Federal Reserve. With $2.8 trillion in assets and only $52 billion in capital, the Fed is leveraged at 53 to 1. Yes, 53 to 1.
    My question is: if the Fed prints money for itself… is it “raising capital?” More to the point… if that was true why doesn’t the Fed do it? Why maintain these leverage levels?

    THE bank that’s supposed to bailout the world/ fix the problems plaguing the financial system, is in fact even more leveraged that most of the institutions it’s helping.
    The BIG picture is that there is far too much debt in the financial system. Europe’s getting taken to the cleaners today… but these very same issues are going to spread to Japan and the US in short order. Even China, which is considered THE creditor nation of the world, is estimated to post a REAL Debt to GDP ratio of 200%.

    So the idea that somehow the world’s going to pass through this current chapter in its history without some MAJOR fireworks/ systemic failure, seems a little too optimistic … all of this is telling us that the financial system is on DEFCON 1 Red Alert.
    We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding.
    http://goo.gl/LPhmR
    ————————————————————————————————————–

    The problem with this scenario is, as anyone who’s read Naomi Klein’s brilliant Shock Doctrine will recognise, there are a lot of traders salivating at the prospect of economic chaos.

    For the rest of us, preserving the current system isn’t an option, but seeing a disorderly collapse is not going to be pretty either. We know from the evidence already that it is the poorest, the sickest, the most defenceless that will be hit hardest, but few will be spared the dislocation. It’s Spencerian ‘survival of the fittest’ territory – which is just where the ‘fittest’ (those who eat cake in front of the OWS protesters) want us.

    Unfortunately, politicians remain in thrall to the ‘markets’ – i.e. the Too Big To Fail ‘market makers’.

    A few years ago, reading about the Great Depression, it was easy to get complacent. How could they have been that stupid? Clinging to a Gold Standard that couldn’t possibly be maintained and which acted like a dead weight in the bottom of a leaking boat; desperately cutting public expenditure in unison to ‘improve competitiveness’; insisting on the repayment of an unrealistic debt burden even if it meant loaning the debtor the money to pay them back.

    Not long before the crash I remember reading Hamish McRae (who’s pretty reflective of mainstream opinion) of the Independent claiming that we’d finally learned how to run a modern global economy (light-touch regulation, free movement of capital, deregulated credit markets, permanently low interest rates, etc., etc.). Mr McRae continues to lecture us on how to address the crisis (lower wages, cuts in health and education, laying off public sector workers, slashing pensions, reducing benefits – the same old neoliberal prescriptions) and you realise that we’ve learnt NOTHING!

    And we have no statesman of the stature to say:
    “Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish …

    Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live.”
    FDR, March 4, 1933

    1. All true then, now and of John Law’s predation on France.

      This was accelerated by 9/11 and deliberately engineered by American interests, see what that whore monger Spitzer tried to do to stop it!

      This is no accident!!!!

  6. Charles (is the name real or modelled on the great BBC reporter?), yes, I saw that piece, which was a guest post by Graham Summers at Phoenix Capital.

    As I’ve commented on a piece of his before, the figures *may* be accurate, but I would have liked to see some sources for them.

  7. Golem,

    I trust you realised during the programme that the government charged with running our country are nothing more than puppets for the real people in power. To have to listen to these people spout forth every day on how important it is to obey every doctrine that comes from the troika is both sickening and depressing.
    The heart and soul of our country is being ripped out by people who are so insulated from reality that they never have to worry about the consequences of their actions.

  8. Hello Goonermayo,

    I tend to agree with you about the puppet nature of most governments these days. They are nearly all in thrall to and often bought and sold by the financial class.

    1. Hi Golem,

      is it a reflection on the electorate that we continue to tolerate this regime or is the true nature of the financial/political class so well disguised (normally) that we don’t realise it? I know this question may be more of an existionalist nature but perhaps we needed a crisis like this for our eyes to be truly opened.

  9. We all know current Governments have an obsession with public sector debt. It is patently obvious the economy needs stimulating and the Tories only excuse for £120 billion of fiscal tightening in the teeth of a stalled economy is that There Is No Alternative.

    The crazy thing is that there obviously is an alternative. Sitting in a wholly publicly owned subsidiary of the Bank Of England called the Asset Purchase Facility (APF) is £200 billion – over a third – of the UK Governments outstanding debt.

    Cancelling the debts would be straightforward. The APF just retires the Government debts it is holding by communicating that the gilts no longer exists. Job done. No effect on the UK money supply. No raised inflation. No effect on investor confidence. You and I, the tax payer, just don’t have to suffer another £200 billion of “austerity”.

    The only way not to monetise the debt is for the APF to opt to sell the gilts it is sitting on back into the private sector at some point in the future. And here is the kicker – to then cancel the cash it receives for selling the debt by ripping up the money paid to it. This would nullify the £200 billion of QE lent to it from the Bank of England to buy the gilts in the first place but is obviously an act of treason and total insanity. What kind of people contemplate ripping up £200 billion of publicly owned money?

    The Bank of course emphasises that as a principle it will not monetise the gilts the APF owns. Again and again the Gov’nor pleads that he is not being forced to create money in order to cover the gap between the government’s tax income and its spending commitments. Very sensible of the Bank to emphasise this as if this was what was happening, it would be a violation of Article 123 of the Treaty on the Functioning of the European Union. Rather, the Bank promises us that it is undertaking quantitative easing in order to meet its inflation target and will sell the government debt back to the private sector once the economy recovers, thus unwinding the original increase in the money supply.

    Apart from this being treasonous and insane the flaw in this argument is that there is absolutely no prospect of the Bank selling the gilts in the APF in the future.
    Leaving aside that the Bank is currently trying to widen the money supply be BUYING gilts rather than narrow the money supply by SELLING them, how on earth could the Government fund its future normal gilt issues when the Bank was simultaneously dumping an additional £200 billion worth of gilts from the APF onto the market? Leaving aside the nonsense that Governments can run surpluses as a routine policy, the APF certainly won’t be able to dump its stock of bought up gilts whilst the UK Government is running a deficit.

    So if the unwinding of QE can’t happen whilst the UK Government will still need to borrow, can it happen in a hypothetical future when the deficit is paid off? In this impossible future the private banking sector will have to be creating enough lending to allow the money supply to widen at its normal rate. Dumping an additional £200 billion of interest bearing gilts out on the market is at best futile and at worst could be either inflationary or restrict growth if timed badly .

    So for now we are left with a ridiculous situation where the Tories are moaning about the huge and “unaffordable” government credit card bills. At the same time over a third of the debt they are moaning about is stuck in the Government owned Bank of England with no hope of it ever being anything other than cancelled and retired. To add to the hilarity the Treasury, through a wholly government owned agency called the Debt Management Office pays interest on the £200 billion in the APF to the wholly government owned APF.

    This money is just building up and will eventually (as all profits for the Bank are) be returned to the taxpayer. You couldn’t make this up.

    Is this the future you want – where the Bank sells Government debt back to the private sector at some point in the future, causing excess inflation, and then simply rips up any cash it receives in order to demonstrate a point of principle?

    It’s not as if anyone would advocate doing QE to allow higher Government spending as a matter of routine. But if, as we are being told, QE has been undertaken only in the extremis of a liquidity trap in order to ensure growth, shouldn’t the QE be used to some advantage – clearing government debt by “magic” and thereby allowing fiscal loosening to stimulate demand?

    1. There was going to be a depression due to excessive credit, anyway.

      It was deferred and aggravated by 9/11 and ZIRP. That way, most of Europe is in as bad a way as USA.

      The bonuses made interim, were magnificent!

      There is still a lot of profit to be made. Will the counter-parties continue to exist, though?

    2. Well, quite. Unfortunately neither the Bank of England Act 1946 nor the Bank of England Act 1998 stipulate what the Bank’s role or function is beyond making a contribution to

      “protecting and enhancing the
      stability of the financial systems of the United Kingdom (the “Financial Stability Objective”).”

      Interesting phrasing there. Who’s interpreting that phrasing? Why the court of directors of the Bank of whom there are 9. Who are they?

      Well, there is of course Mervyn King who once shared an office with Ben Bernanke at MIT and said in 2007:

      “The regulators around the world have said, and they still maintain this today, and I think they’re right, that for the major banks in the world, they have the ability to cope with this crisis—not without losing money, not without losing bonuses and in the case of some individuals not without losing their jobs—but nevertheless, it isn’t a threat to the banking system as a whole.”

      There’s Charlie Bean whose time at MIT and LSE overlapped with King’s and who seemed to advocate us all running up massive credit card bills to collectively pull ourselves out of economic crisis last year when he said:

      “what we’re trying to do by our ­policy is ­encourage more spending; ideally we’d like to see that in the form of more business spending, but part of the mechanism that might encourage that is having more ­household spending.”

      Paul Tucker was once a corporate financier at a merchant bank.

      Brendan Barber is General Secretary of the Trades Union Congress.

      Sir Roger Carr is President of the CBI which lobbies the government for low taxes, lighter regulation and less red tape while simultaneously holding the position at Centrica plc, if not a monopoly holder in the UK gas market then certainly a large member of a cartel which controls domestic energy prices.

      Michael Cohrs came to the Bank of England straight from his role as Co-head of Investment Banking and head of Global Banking at Deutsche Bank.

      Sir David Lees sits, or has sat, on the boards of several aerospace and industrial companies including GKN and defence technology company Qinetic which formed from the sell off of the Defence Evaluation and Research Agency at a bargain basement price in 2007.

      Lady Susan Rice CBE is the Managing Director of Lloyds Banking Group and is a Senior Independent Director of Scottish and Southern Energy.

      John Stewart is the Chairman of Legal and General Group plc, a ‘multinational financial services company’.

      Mark Tucker is Executive Chairman and CEO at AIA Group Ltd, a former subsidiary of AIG which is traded on the Hong Kong stock exchange and has no mention of any UK operations or employees on its website.

      Lord Turner, or Baron Turner of Ecchinswell, is currently the chairman of the Financial Services Authority but previously was employed by BP, Chase Manhattan Bank and McKinsey & Company where he was a director and where clients included Enron. He was also Vice-Chairman of Merryl Lynch Europe from 2000-2006.

      Harrison Young is Non-Executive Director of the Commonwealth Bank of Australia which does have a UK office here in a building which it shares with seven other companies.

      With all these other interests it’s easy to see how “protecting and enhancing the
      stability of the financial systems of the United Kingdom” could be interpreted in ways which don’t coincide with “protecting and enhancing the economic well being of the United Kingdom” or even “protecting and enhancing the stability of the financial systems for the benefit of the taxpayers of the United Kingdom”.

      But don’t worry. The 1948 Act does allow HM Treasury to “from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest [, except in relation to monetary policy].” The words in the square brackets were added by the 1998 Act. But to date the Treasury hasn’t really seen fit to issue such directions. Possibly because Paragraph 5 of the MEMORANDUM OF UNDERSTANDING BETWEEN HM TREASURY, THE BANK OF ENGLAND AND THE FINANCIAL SERVICES AUTHORITY says

      “The Treasury has no operational responsibility for the activities of the FSA and the Bank and shall not be involved in them. But there are a variety of circumstances where the FSA and the Bank will need to alert the Treasury about possible problems: for example, where a serious problem arises, which could cause wider financial or economic disruption; where there is, or could be, a need for a support operation; where diplomatic or foreign relations problems might arise; where a problem might suggest the need for a change in the law; or
      where a case is likely to lead to questions to Ministers in Parliament. This list is not
      exhaustive, and there will be other relevant situations. In each case it will be for the FSA and Bank to decide whether the Treasury needs to be alerted.”

  10. I am an Irish taxpayer whose pension savings have recently been raided. Can you provide a link to the ECFIN document ? Thx

  11. Telegraph: the new Greek deal is €130bn (previously €109bn), “with the extra money going to foreign banks to smooth “private sector involvement” (PSI)” [i.e. haircuts].

    Merkel: “The old Greek haircut was 21pc of net present value, this haircut is 50pc of nominal, so much higher”…

    The Wall Street Journal’s Matina Stevis tweets:

    “Of EUR130B of new Greek package, E60B is going to banks: E30B to domestic, E30B to foreign in the form of “sweeteners” to make PSI possible.”

    Peston tweets:

    “In strengthening banks, Greek banks to raise €30bn, Spanish €26bn. It €15bn, Fr €9bn, De €5bn, UK 0. Much from EFSF”.

    No mention of Ireland…

    The Centre for Economics and Business Research comments:

    “Europe is providing no new money for the banks which are being expected to find the €115bn for this and the additional €20bn for the writedown of the Greek debt themselves.

    In practice this can only come from restricting lending, which will exacerbate the growth slowdown, or from Asian and Middle East investors who will have a buyers’ market and will probably end up owning the bulk of the European banking system as a result.”

    Try untangling all that…

  12. @sweetnesslight
    Hmm, can you say all that again, but more slowly? What you posted sounds important, but to be honest, even though I usually understand this sort of thing, you lost me about half way through. May be it needs a diagram?

  13. Telegraph:

    “European banks are coming forward in droves to say yes, no, or maybe to whether they need to raise new capital, following last night’s decision that the region’s banks need an extra €106bn to shore up their finances.”

    Courtesy of the eagle-eyed people at FT Alphaville [selected]:

    •Banque of France says BNP Paribas shortfall is €2.1bn.
    •Banque of France says Group BPCE shortfall is €3.4bn.
    •Banque of France says Group Credit Agricole has no shortfall.
    •Banque of France says Societe Generale shortfall is €3.3bn.
    •Commerzbank says has €2.938bn shortfall.”

    No mention of Italian banks so far…

    A key euphemistic phrase in the official communique: “we invite private investors to develop a voluntary bond exchange with a nominal discount of 50%”.

    As somebody has pointed out, an invitation to a haircut is not a haircut…

    1. Is the Greek haircut a credit event or isn’t it? The ISDA (International Swaps and Derivatives Association), the official body which determines these things, says that on current information, it isn’t, because it’s “voluntary”.

      If that’s the case, it will have made the CDSs on Greek debt virtually worthless.

      But if, as noted above, we’re only dealing with an *invitation* to take a haircut, what happens if the invitation is refused? Back to square one?

      I don’t know about anyone else, but I’m beginning to feel like a millenarian, believing the end of the world is nigh, but finding the end continually postponed.

  14. sweetness_light October 26, 2011 at 11:35 pm #
    Some great points. Or introduce Positive Money and be done with government borrowing and the associated interest altogether, whilst removing fraudulent fractional reserve banking and the chaos it causes.

  15. I came across the following quote, it seems to me to resonate with the situation in Ireland, possibly as opposed to Greece and Iceland.

    “Power concedes nothing without a demand. It never did, and it never will. Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue till they have resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they suppress.” (Frederick Douglas)

  16. Just to mention the Vincent Browne programme I just watched it (including the damn adverts)
    ..and I dont know how you felt at the end of your visit David but I would guess that the Irish people are seriously beginning to get it now. Is that how you felt?

    The knock out blow about Iceland’s unemployment was not entirely fair as Ireland’s problem is that it is inside the Euro strait jacket and cant just go unilateral but the overwhelming impression I gained at least is that people now feel that the present government is much like the last and that private banks were saved ( why??) at huge cost to the people who continue to suffer for it. A kind of slow motion awakening?
    It may seem like the blindingly obvious but judging from what was being said six months ago and the lack of real fury that is real progress. Maybe this is a slow build affair. The penny takes a long time dropping and we grow impatient at the age it seems to take but it does keep on falling…

  17. In response to this Irish Independent piece: (hope it passes their ‘moderator’)

    http://www.independent.ie/business/european/lsquoeconomic-catastrophe-on-the-horizon-if-austerity-continuesrsquo-2917951.html

    I posted this:

    Yet universal austerity is all that is planned for Ireland, the rest of Europe, US & pretty much everywhere else. For Ireland & the Eurozone, the so-called ‘solution’ to the euro crisis absolutely copper fastens this strategy. The clearest statement yet of the neo-liberal economic theology that caused the worldwide crisis by removing any impediment to the ‘hose up’ of income from the real economy to the ever more bloated casino of the financial sector that has zero productive value. It goes without saying that the massive increase in inequality over the last 3 decades of neo-liberalism is to continue – further increasing unearned income to the few at the expense of the many.

    For its part Ireland is being sold out +yet again+ by the privileged few at the top. In the official document released from the Eurozone ministers’ meeting in Brussels last night, the only strategies to combat unemployment are such vague terms as ‘structural reform’ & the nauseating old favourite ‘competitiveness’. Anyone familiar with the Thatcher era of neo liberalism should know exactly what that means in practice – the driving down of wages, reduction of public services & race to the bottom privatisation. And long term high unemployment with lower benefits.

    Spain gets a pat on the head for enshrining in its constitution permanent zero budget deficit. So, during the periodic downturns of the business cycles (a natural feature of our economies over, well, centuries), if you lose your job, well, that’s your fault for not being ‘competitive’ enough. Suck it up, your government will do nada to counter the downturn, save giving you a pittance, if you’re lucky, to keep you alive & maybe provide a ‘Rachman’ quality roof over your head. The same decision will be handed down to Ireland in due course by the Euro masters.

    This is what the commandants of euroland call ‘fiscal responsibility’.

    Ireland also gets a pat on the head like a good little doggy. They are pleased with our ‘fiscal consolidation’ – never mind the unemployment & struggling wage earners underwater with their mortgages & negative equity. Ireland is doing so well paying every last cent of interest on the casino loans leant recklessly to the top few wealthy percent, keeping the rich banksters of Europe whole. Just as the lapdog politicians were told to do by there EU/ECB masters – soon to grant themselves even more power over our budgets.

    Irish Economist Constantin Gurdjiev has crunched a few numbers – his politics are hit & miss, but his sums are usually spot on. More than half of Ireland’s public debt is +directly+ related to the banks’, developers’ & politicians’ reckless behaviour – bad loans. On top of that we should add some of the remaining debt as their responsibility also in the costs of such a deep recession they contributed so much to causing.

    My rough estimate is that some 3/4 of Ireland’s public debt is attributable to the misconduct of the European financial sector & their co-conspirators thru’ ignorance or greed, over and above what we might have experienced in a natural downturn of the business cycle.

    Consider, at even the reduced interest rate, granted by ECB only after their hands were forced over Greece (would not have been otherwise), roughly 4 percent of +every+ sales receipt (GDP) in Ireland will be going just to pay the interest on this 3/4 of total public debt. The interest bill, on top, for the private debt of households & businesses is many times larger. This is called debt peonage, a form of slavery. And if you think +you+ are ‘ok’ just now, don’t be thinking your living standards will remain – ‘competitiveness’ & ‘structural reform’ will see to that.

    The growth ‘forecasts’, upon which the ‘recovery plan’ critically depends, have been, & will continue to be a joke. Skewed as they are by a multinational export enclave that employs relatively few people & also exports its profits. But with austerity being imposed most everywhere else now, even the export recovery won’t last.

    There will be no ‘recovery’ – for at least a generation, if at all. With 15% unemployment likely in perpetuity (less those that can leave). It will be kept in a comatose state so long as it can still be tapped regularly for blood to feed the rich & banksters.

    It’s kind of the ‘phony war’ period just now for Ireland. The real ‘coup’ is being applied slowly. A nice quote for ‘labour’ everywhere:

    “Power concedes nothing without a demand. It never did, and it never will. Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue till they have resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they suppress.” (Frederick Douglas)

    (Thanks to Masurian for your quote here!)

    1. Hi Mike,

      your comment got through so you mustn’t have upset the Irish Independent too much.

      I only watched the Vincent Brown programme last night and it took me all my will power not to throw my lap top out the window in frustration listening to Brian Hayes. Have you ever seen such a sanctimonious performance in all your life? He nearly fell off his seat with excitement when the issue of Greece was brought up as he rhymed off all the cuts that the Greeks have to endure because they dared to speak back to the troika. The issue of the reduction in the interest rate on the bailout (God I hate this term) was trumpeted once again as a major victory for the Government which again completely ignores the fact that Greece and Portugal also got a reduction in interest rates on the same day. Didn’t know that our government was also negotiating on behalf of Greece and Portugal as well!
      What really got me though was his explanation for the repayment of the €3.5 billion of insubordinated, unsecured debt. We’re taking on a further €3.5 billion in debt so that we can try to negotiate a payment term of 40 years for the €31 billion of promissory notes owed on the Anglo debacle instead of 15 years. I wonder have they worked out how much the total interest payment over 40 years on €31 billion will be or is that asking too much of our politicians?

      Goonermayo

      1. Yeah, I know what you mean about Hayes – a pretty vomit inducing performance, particularly the bit about their ‘success’ in getting an interest rate reduction from a sheer rip-off level to a mere ‘gouge’. All for ‘odious’ debt that was never the responsibility of, or benefit to, Irish citizens.

        Note to Golem – if you wanted to know what a ‘gombeen’ or ‘cute hoor’ is, you’ve seen one face to face in Brian Hayes. Whatever happens he’s on easy street with his fat ministerial salary & solid gold pension.

        And a lot of people still want to vote for a property developer for President (Sean Gallagher). Just WTF? I’m near speechless.

        1. Hey Michael Dee won! Martin McGuinness is soon to be revealed as his behind the scenes and top secret campaign manager…

  18. Off topic (again, sorry), but the more statsy amongst you out there might appreciate these home truths from Scientific American:

    “Scientists struggle with models in many fields—including climate science, coastal erosion and nuclear safety—in which the phenomena they describe are very complex, or information is hard to come by, or, as is the case with financial models, both. But in no area of human activity is so much faith placed in such flimsy science as finance.”

    Yes, so much “faith” is placed on these financial geeks (and their flimsy “science”) by a naïve public and gullible politicians.

    So how, pray have their models fayred, we wonder?

    “When you have to keep recalibrating a model, something is wrong with it. If you had to readjust the constant in Newton’s law of gravity every time you got out of bed in the morning in order for it to agree with your scale, it wouldn’t be much of a law But in finance they just keep on recalibrating and pretending that the models work.”

    http://www.scientificamerican.com/article.cfm?id=finance-why-economic-models-are-always-wrong

    In fact referring to what financial quants call “models” is an insult not just to science but to Jordan and Kate Moss too.

    1. Hawkeye -I wouldn’t class your comment as off topic at all.

      In fact your post gets to the nub of the matter in as much as the ‘science’ of finance and it’s bedmate the ‘soft science’ of economics have no natural model or function and are in fact purely nurtural.

      Hence my scepticism of any monetary theory having any integrity beyond the scope of money being limited to a means of exchange. Any development beyond that succumbs to a given of human nature to take an inch and stretch it into a mile.

  19. richard in norway

    Hi

    Does anyone have figures for tax increases etc in Greece preferably from a non Lefty source. I mean how bad is it

      1. richard in norway

        Thanks, good site but not exactly what I was after. I’m having a discussion with a conservative on another site who is coming out with the whole bloated public sector big pensions 54 year old pensioners………line. I just wanted some good facts and figures to refute his links with, I know I’ve seen them but where. I’m just too disorganized. I tried Google but I just get neoliberal propaganda.

        1. Here’s one possible source: http://goo.gl/yQS6U

          But good luck with your quest to find an ‘objective’ non-lefty source
          (I thought anyone who questioned the neoliberal propaganda was automatically labelled a ‘lefty’ and therefore suspect? – TINA)

          1. richard in norway

            Your right about that, it seems like all the media outlets are telling the same story but are regarded as non partial

            Strangely in my Google search the best site I found with properly referenced stats was Marxist

        2. it is true for the public sector and state-run enterprises. Big pensions, retirement even with 25 years of work. I know people who retired even after 15 years. Early retirement20 years ago, they get now 400E and complain about their ‘small’ pension.

          The private sector retires at 65 and thus since decades. Average pension of IKA biggest social security fund 600-800E per month.
          In public sector full pension can be 3,000+E per month. How comes? Nobody understands it.

      1. Richard, you could try this, written by an Austrian lawyer with a place in Greece: http://www.presseurop.eu/en/content/article/978261-financial-genocide .

        This describes the situation before the most recent austerity measures.

        More recently, there’s the mixed picture given by a German “executive, entrepreneur, start-up jockey”, resident in the US: http://investmentwatchblog.com/tax-fraud-is-a-national-plague-said-greeces-finance-minister-after-he-found-that-greeks-owed-50-billion-in-back-taxes-but-its-complicated/ .

  20. At the risk of seeming pedantic, the quote is from Frederick Douglass (s x 2). The source is a speech he gave on West India Emancipation on 3 August 1857.

      1. Full text of summit statement here:

        http://www.irishtimes.com/focus/2011/summit/index.pdf

        As to the ZH piece, the lower interest (from the punitive 6%) is old news. That ‘cat’ was out of the bag in the intitial draft deal for Greece back in July. Ireland following the EU/ECB dictats to the letter could hardly continue with a 50% higher interest payment than wayward (meaning the top few of) Greece. Same for Portugal. They will get nothing else. Ireland’s politicians didn’t ‘negotiate’ when we took on all the odious debt of the banks to prevent default contagion in Europe, they just capitulated. The ‘Golden Circle’ could care less – their jobs, incomes & healthcare etc. are not threatened.

    1. Interestingly Frederick Douglass spent quite some time in Ireland and was dismayed at the conditions of the poor in Ireland, for example he wrote that; “The limits of a single letter are insufficient to allow any thing like a faithful description of those painful exhibitions of human misery, which meet the eye of a stranger almost at every step. I spent nearly six weeks in Dublin, and the scenes I there witnessed were such as to make me “blush, and hang my head to think myself a man.””

      It seems to me that there is an appalling symmetry between Douglass’ understanding of the mercilessness of the powerful, what he saw in Ireland 150 years ago and the supine way we have carelessly forgotten that everything we enjoy now was wrestled by force from some of the most ruthless Laissez faire capitalism the 19th Century produced. We are a foolish people to allow it all to slip away from our grasp.

  21. If your free (after registration) access to FT articles hasn’t run out yet this month, here’s an article by Wolfgang Muenchau:

    Europe is now leveraging for a catastrophe.

    http://www.ft.com/cms/s/0/d89b0c32-fb51-11e0-8df6-00144feab49a.html

    If France, for example, loses its triple-A rating, so does the EFSF, making it more expensive for it to borrow. The leveraging envisaged in the EFSF also hugely increases the likelihood of losses for the AAA-rated member states who ultimately underwrite the insurance. The possibilities of a chain reaction are obvious. Likewise the fact that the Germans (who have to consult their own parliament before further bail-out negotiations) have said that their support will be limited casts the credibility of the scheme into question.

    Muenchau concludes that it will end in either fiscal union trampling over democracy or the break-up of the euro.

  22. Marshal Auerback at New Economic Perspectives (the University of Missouri Kansas City MMT economics blog)

    Europe’s Non Solution

    http://neweconomicperspectives.blogspot.com/2011/10/europes-non-solution.html

    Exert:

    “Questions have been raised both about the ECB’s ultimate solvency and the legal constraints which govern its mandate. To deal with the solvency issue first: has anyone bothered to ask themselves what the concept of solvency means for a central bank that creates its own money? Bill Mitchell has addressed this many times (see here), but if one takes the 30 seconds required to ponder this question, surely we can understand that the concept of solvency is totally and thoroughly irrelevant to a central bank with a sovereign currency (i.e. not convertible on demand into a fixed quantity of other currencies or a commodity).

    The ECB and others who resist its involvement in the salvation of the common currency continue to think and act as if it is a central bank operating under a gold standard. That is insane, and certifiably so.

    In regard to the legal requirements:

    The ECB does not have a statutory minimum capital requirement.

    It transfers profits to national governments but in times of losses is can only request a capital injection should its capital be depleted.

    The European Council (which is representative of elected governments) is not compelled to accede to this request.

    Hence, the ECB is a perfect balance sheet to warehouse risk since its losses need not become fiscal transfer as it can rebuild its profits via seigniorage over a number of yrs. In that sense, its role is analogous to that of the Swiss National Bank effectively warehoused its Swiss banks’ bad paper during the height of the crisis in 2008.”

    1. Standard & Poor on its downgrading of Cyprus to BBB, two notches above junk status:

      “We also believe the effect of a Greek government default could reverberate through Cyprus’ economy in the form of private-sector funding costs increasing beyond our previous expectations, thereby reducing investment and overall domestic demand. Furthermore, weaker economic growth could worsen the Cypriot government’s debt dynamics and reduce the willingness of its political leaders to press forward with fiscal and labor market reforms.

      We estimate the exposure of Cypriot banks to Greek debt (sovereign, corporate, and bank combined) at about 165pc of Cyprus’ GDP. ”

      Some haircut for Cyprus if it happens…

  23. i think the EU explanation is simple, it wants full union but can’t do it, due to inconvenient democracy. So, plan an even bigger catastrphe and people will beg for it.

    Some hope, lynch them more like.

  24. More on the Irish austerity by economist Michael Burke

    “From the point of the view of the economy as a whole, this transfer of incomes has been disastrous. The corporate sector has €32bn in unspent (uninvested) income from profits. But the household sector – which spends more than 90% of its income – has had its income reduced.

    The thrust of policy is not to produce an economic recovery. It is to produce a recovery in profitability. In this, it has been a qualified success. The absolute level of profits has recovered from its low and the profit share of output has also increased to more than 50%, even if profits have not recovered their previous peak. The intention is clearly to achieve that goal at the expense of wages.

    In Ireland it has become commonplace to suggest that, while all sorts of investment projects and welfare provision are desirable, ‘there is no money left’. On the contrary, the €32bn level of uninvested profits in 2010 alone is almost exactly equal to the entire reduction in GDP in the recession which began in 2008, €34bn.

    This is the thrust of the entire ‘austerity’ policy across Europe, the transfer of incomes from labour to capital in order to increase profitability. In a subsequent blog SEB will examine the effective of this policy in the leading European economies, including Britain.”

    http://socialisteconomicbulletin.blogspot.com/2011/10/relation-of-profits-and-austerity.html

  25. Commentary on the text of the euro summit concluding document by Cullen Roche:

    Summit statement:

    “All Member States of the euro area are fully determined to continue their policy of fiscal consolidation and structural reforms. A particular effort will be required of those Member States who are experiencing tensions in sovereign debt markets.”

    Translation:

    Austerity will continue. This is more of the same. Trade deficit nations undergoing a balance sheet recession will be forced into further budget consolidation which will continue to put downward pressure on growth and ultimately worsen the fiscal picture. ”

    http://pragcap.com/europe-buys-some-time

    1. Goldman’s 10 Unanswered Questions On The European Bail Out And The Revised EFSF

      http://www.zerohedge.com/news/goldmans-10-unanswered-questions-european-bail-out-and-revised-efsf

      Santander faces £13bn capital shortfall

      Spanish banking group Santander said it faces a capital shortfall of close to €15bn (£13bn), according to the European Banking Authority (EBA), as the country’s banks came under pressure to raise tens of billions of euros in new money.

      Santander said it would be able to fill the hole identified by the EBA without having to go to the markets to raise money, pointing out that the shortfall would be €6.5bn if a convertible bond programme was included in its core capital.

      http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8853812/Santander-faces-13bn-capital-shortfall.html

  26. My comment on the Telegraph piece here:

    http://www.telegraph.co.uk/news/worldnews/europe/eu/8854382/Eurozone-bail-out-holes-emerge-in-the-grand-solution-to-solve-EU-debt-crisis.html

    There is not even the basis of a solution from this eurozone summit.

    It has completely ignored the root cause of Greece’s problems and all those queuing up behind to inevitably follow & fail – lack of growth, made infinitely worse by the draconian austerity programs. The queue in order of austerity driven economic destruction is probably Portugal, Italy, Ireland, Spain over the next 6mths to 18mths. The summit is continuing the policies which have failed thus far. On this basis the eurozone will fail entirely within this timescale.

    The financial crisis, caused by massive banking misconduct (running a massive ‘casino’ ) has created massive debt in both household & public sector. (The latter also as a result of bailing out banks.)

    Without growth, even the interest on this debt is not sustainable. In the case of euro states’ debts, the perceived risk of default increases interest rates & increases the likelyhood of default.

    There is only one solution. The European Central Bank must use its sole ability to create euros free of debt or interest to do two things. One, to reduce the debt burden of euro states. Two, to provide funds to euro governments to create jobs (to create demand & investment & more jobs). Something like a job guarantee scheme for unemployed and/or public infrastructure.

    With households engaged in massive deleveraging, likely for a decade at least, deep recession and high unemployment, this will not result in excess inflation. (No more in fact than if the private sector invested to create these jobs & increase aggregate demand leading to growth.)

    The ECB would disburse funds on a per capita basis – so no question of unequal or unfair state support. And in staged payments conditional on agreed fiscal management & appropriate use of funds.

    China has already used this facility of its central bank to stimulate its economy & maintain rapid growth. Even with such high growth & the rather haphazard & poorly designed spending programs little inflation, over and above that of uncontrollable externally supplied commodities, has resulted.

    It follows also that the gratuitously destructive austerity policies of the UK & US can be similarly alleviated. Again, in such deep recession conditions, without excess inflation.

    The decision thus far not to do this is a result of a combination of vested interests in the financial sector (screwing us all by loan sharking) & failed & ‘bought’ economics so-called ‘thinking’. Not to mention the variously ignorance, stupidity & self-interested complicity of political ‘leadership’.

    Time the financial sector & economics served citizens, not the other way round.

    1. Telegraph:

      “Barely 16 hours after Sarkozy stood in front of the cameras and told the world that all was going to be ok for Greece, international business editor Ambrose Evans-Pritchard says it’s not Greece, or even Italy we need to worry about.

      It’s Portugual.

      He writes:

      Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.

      Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the last six months, buckling violently in September.

      “Portugal appears to have entered a Grecian vortex and monetary trends have deteriorated sharply in Spain, with a decline of 8.4pc,” said Simon Ward, from Henderson Global Investors. Mr Ward said the ECB must cut interest rates “immediately” and launch a full-scale blitz of quantitative easing of up to 10pc of eurozone GDP. ”

      It’s like a dike springing leaks, first here then there, with not enough fingers to plug the holes. Or that scene from Das Boot, where the sub keeps on sinking and the rivets pop out under the pressure. We haven’t reached the bottom yet by a long chalk.

    1. richard in norway

      I just heard on the radio that pay for footsie 100 bosses has increased 49% over the last year mostly bonuses I think

      Unfcuking believable

        1. Share price doesn’t always relate to profit. Most shares tanked but companies are still making billions ( energy, defence,retail etc)
          But I agree that pay is ridiculous for these guys.

  27. “Occupy London” takes on the Corporation of the City of London:

    http://www.guardian.co.uk/uk/2011/oct/28/occupy-london-city-st-pauls

    Activists who have occupied the grounds of London’s St Paul’s Cathedral have published their first list of demands, calling call for the democratisation of the Corporation of the City of London, the effective local authority which controls the UK’s financial centre.

    The page-long list of demands says that democratic reform of The City Of London Corporation is “urgently needed” and describes City institutions as “unconstitutional and unfair”.

    The statement, which has been authored by 17 people over the last six days, also calls for an end to the corporations’s own police force and judicial system which affords the square mile vast amounts of freedom to run its own affairs.

    These guys seem to know their stuff!

    This could get interesting…..

  28. Wolfgang Münchau on that ‘voluntary’ (cough) haircut and CDS

    http://blogs.ft.com/the-a-list/2011/10/27/half-measures-and-wishful-thinking-do-not-a-solution-make/#axzz1c4CSGPdI

    “I do not believe this is going to work. First, the agreement with the IIF is not binding on the banks. The IIF has yet to deliver the voluntary participation. Many banks would be better off if the haircut was involuntary, given their offsetting positions in credit default swaps. The whole point of a CDS is to ensure creditors against an involuntary default. By agreeing a voluntary deal, the insurance will not kick in. In other words, there is a significant probability that we will end up with an involuntary agreement – which is precisely the outcome the eurozone governments, except perhaps a small group of northern countries, had sought to avoid”

  29. Kept on hearing about the IIF recently and wondered what it was. The Institute of International Finance. In other words the ultimate global banking lobbyist community.

    I found their mission statement somewhat comical (if it weren’t so tragic):

    “Our mission is to support the financial industry in prudently managing risks, including sovereign risk; in developing best practices and standards; and in advocating regulatory, financial, and economic policies that are in the broad interest of our members and foster global financial stability.”

    http://www.iif.com/about/

    1. “In fulfilling its mission, the IIF’s main activities are to: […]

      Work with policymakers, regulators, and multilateral organizations to strengthen the efficiency, transparency, stability and competitiveness of the global financial system, with an emphasis on voluntary market-based approaches to crisis prevention and management.

      Promote the development of sound financial systems, with an emphasis on emerging markets.

      […]

      Define, articulate, and disseminate best practices and industry standards in such areas as risk management and analysis, disclosure, corporate governance and regulatory compliance.”

      The do offer a contact link, so perhaps we should all use it to ask them, citing a few choice examples, how well they think they’ve been fulifilling their mission over the last few years…

      1. Telegraph:

        “Currency and bond traders are asking questions about Italy’s bond yields today – the interest rate investors charge to hold the debt has risen again today, suggesting investors consider it to be riskier.

        The yield on the 10-year bond is at 5.943pc – when the figure closed in on 6pc back in the late summer, the European Central Bank started buying Italian bonds to raise the price and push the yield down again.

        The yield figure is telling us that the market doesn’t believe yesterday’s bail-out agreement has made buying Italian government debt any less risky. And if it has to pay 6pc interest on its loans, the Italian government will be in deep water.

        Kathleen Brooks, a research director at Forex.com, said:

        Italian debt yields are higher today, which worries me slightly. Until it is out of harm’s way then Europe isn’t out of the woods.

        Earlier today, Italy succeeded in selling €3.08 bn of bonds expiring in three years time but at a yield of 4.93pc – the highest since November 2000, and up from 4.68pc on Sept. 29.

        10.40 And a bit more Greece – while the country itself gets some breathing space by wiping away 50pc of its debts, what of the people who lent them the money in the first place?

        Unsurprisingly, many of the lenders to the Greek government were Greek banks. Now, the Greek government says it will most likely to have to nationalise large parts of the banks as a result of the write-downs. Shareholders in those banks could lose all of their investment as a result.

        Andreas Koutras, an analyst at InTouch Capital Markets, said:

        Greek banks never had choice on whether to buy Greek bonds, and they’re now being punished. It is possible equity valuations will go to zero. “

    1. Beat me to it Charles 🙂

      It is of course a link to another stunning Bill Mitchell commentary on the euro summit non-solution.

      “It was some sort of Bazooka – aimed at themselves.”

      “….imagine that you come down from Mars and have studied basic macroeconomics.”

      I think all citizens of Europe (& beyond) – at least the 99% – now need to realise that they are being led into a long tunnel of incremental impoverishment. Some will take longer to reach the end.

      But all should realise this inevitability now if there’s no radical change of course. The top few percent are incapable of respecting & representing the welfare of the majority.

      There should be a general strike right across Europe – everybody out on the streets. A non-violent act of mass civil disobedience until ALL the political leaders resign.

        1. Just in: after EU publicly humiliated Italy its debt bonds now at euro-era high yields of 6.06% – it’s become the punishment union.

          6% has been cited before as a critical figure. For the time being, at least, it’s a two-horse race between Italy and Portugal to become the new Greece.

          Meanwhile Spanish unemployment has hit 21%, with around 50% youth unemployment. Appalling.

          But hey, FTSE directors’ pay went up 49% last year, to reach an average £2.7 million…

          1. Neil

            Perhaps the CEOs deserve this pay rise, because they have actually pulled off a miracle.

            We have declining real wages (i.e. inflation at about 4-5%, yet wages rising only 2-3%) yet roughly stabilised unemployment and steady consumption.

            If they can sell goods at 4-5% higher each year without supressing demand, and their pay out to their major cost base (i.e. staff) is rising only 2-3% without creating a revolt, then they are truly miracle workers.

            The reality is of course that thanks to the economic malaise, they have an automatic profit subsidy of about 2% on their gross margins!

            So borrowing is artificially cheap, and profit is artificially enhanced.

            Any old numpty could make a profit in these conditions. The excessive CEO pay is justified for spouting bullsh*t and keeping the trick hidden from the public!

      1. Mitchell writes:

        “Apparently our famous Euro leaders threatened the private banks with “the nuclear option” which would involve Greek bankruptcy. I find this a most repugnant part of the deal.

        “These champions of free markets and entrepreneurship then put on their jack boots and bludgeon the banks and insurance funds, **who we have no reason to assume didn’t invest in good faith** [my emphasis – Ed.], into taking losses. What would you do if you were a funds manager as a result of that bullying nonsense?

        “Given you owe your “investors” due diligence and have a fiduciary duty to them, would you be so keen to invest in these governments again any time soon?” [ENDS]

        But do we have any reason to asume that they *did* invest in good faith and after exercising due diligence, given that Greece’s problems are hardly new?

        GLH comments: “I find it hard to feel sympathy for the banks and pension funds that bought the Greek debt or any other debt that pays such a wide spread. The high interest rates indicate high risks. I wouldn’t have nor will I put any money into those bonds nor with anybody that does. To me those bonds are junk bonds and the creditors knew it, they just expected the authorities to work things out and they would be paid their ill gotten gain.”

        And of course some of them would have had credit default swaps into the bargain.

  30. “And let us be clear: anything less than a United States of Europe will not be powerful enough to prevent the looming disaster.

    Like it or not, the eurozone will have to act as the EU’s avant-garde, because the EU as a whole, with its 27 member states, will be neither willing nor able to accelerate political unification. Unfortunately, unanimous support for the necessary EU treaty changes simply could not be secured. So, what should be done?

    Europeans made decisive progress on integration outside the scope of the EU treaties (but very much in the European spirit) when they agreed to open their borders with the so-called Schengen Agreement (today a part of the EU treaties). Drawing on that successful experience, the eurozone should avoid the EU’s original sin of creating a supra-national structure that lacked democratic legitimization.

    The eurozone needs a government, which, as things stand at the moment, can consist only of the respective heads of state and government – a development that has already started. And, because there can be no fiscal union without a common budget policy, nothing can be decided without the national parliaments. This means that a “European Chamber,” comprising national parliaments’ leaders, is indispensable.”
    Joschka Fischer http://goo.gl/T9HSe

    Discuss
    !

    1. “Without economic growth, no debt deal will work because only growth in the future will pay off the debt. It is beginning to dawn on everyone that the euro is a straitjacket. It makes weak economies like Greece too expensive so they can’t export enough, and it makes strong economies like Germany too cheap so they export too much.

      The currency reinforces the initial inconsistencies. The only way out is either a United States of Europe, where Germany pays the bill and calls the tune, or the reversion to national currencies.
      . . .

      This is a problem at the heart of Europe, and its outcome will define the European Union for a generation. Without growth there is no EU and with the euro there won’t be enough growth. The currency that was supposed to gel Europeans together is driving us apart. When will the penny drop?
      – David McWilliams http://goo.gl/SaBnZ

  31. The Greek Bonds are connected to the Italian Bonds;
    The Italian Bonds to the Portugese Bonds – Now hear the words of the Financial Lords……

    In the end they don’t give a damn as long as we -the bewildered herd – pick up the tab for this concert.

    In truth, the financial shamans are picking off one at a time.

    1. Telegraph: “to recap what parts of the debt crisis rescue plan outlined yesterday still need to be fleshed out:

      • The €130bn second Greek bailout
      • Increase in the bail-out fund to €440bn – we don’t know if how much will be left to leverage after paying for bailouts in Ireland and Portugal.
      • A 50pc haircut on Greek government debt – all bondholders still have to agree and a bond swap to produce the saving still has to be hammered out.
      • Investor interest in participating in a special purpose investment vehicle has yet to be guaged – China is not saying no, but said today it did not want to seen “just as a source of dumb money”.

  32. The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right; a time of mass unemployment, instead of spurring public efforts to create jobs, becomes an era of austerity, in which government spending and social programs are slashed.

    This doctrine was sold both with claims that there was no alternative — that both bailouts and spending cuts were necessary to satisfy financial markets — and with claims that fiscal austerity would actually create jobs. The idea was that spending cuts would make consumers and businesses more confident. And this confidence would supposedly stimulate private spending, more than offsetting the depressing effects of government cutbacks.

    Some economists weren’t convinced. One caustic critic referred to claims about the expansionary effects of austerity as amounting to belief in the “confidence fairy.” O.K., that was me.

    . . .

    But a funny thing happened on the way to economic Armageddon: Iceland’s very desperation made conventional behavior impossible, freeing the nation to break the rules. Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net. Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver.

    So how’s it going? Iceland hasn’t avoided major economic damage or a significant drop in living standards. But it has managed to limit both the rise in unemployment and the suffering of the most vulnerable; the social safety net has survived intact, as has the basic decency of its society. “Things could have been a lot worse” may not be the most stirring of slogans, but when everyone expected utter disaster, it amounts to a policy triumph.

    And there’s a lesson here for the rest of us: The suffering that so many of our citizens are facing is unnecessary. If this is a time of incredible pain and a much harsher society, that was a choice. It didn’t and doesn’t have to be this way.
    – Paul Krugman http://goo.gl/4J8Hf

  33. See this a list of ISDA voting members.Talk about foxes and chickens.
    Greek CDS shenenigans on zreohedge.

    From ISDA’s website:
    website
    EMEA

    Voting Dealers
    Bank of America / Merrill Lynch
    Barclays
    BNP Paribas
    Credit Suisse
    Deutsche Bank
    Goldman Sachs
    JPMorgan Chase Bank, N.A.
    Morgan Stanley
    Société Générale
    UBS

    Consultative Dealers
    Citibank
    The Royal Bank of Scotland

    Voting Non-dealers
    BlackRock (Third Term Non-dealer)
    BlueMountain Capital (Second Term Non-dealer)
    Citadel Investment Group, LLC (First Term Non-dealer)
    D.E. Shaw Group (First Term Non-dealer)
    Pacific Investment Management Co., LLC (Second Term Non-dealer)

    1. It’s a ‘Trade Association’ – not to be confused with a ‘cartel’, or ‘union’.

      Wonder why they don’t want to trigger a CDS payout?

      1. From the second link in the ZeroHedge post, which takes you to an ISDA Q&A on the situation:

        “the total net exposure of market participants who have sold CDS credit protection on Greek sovereign debt is approximately $3.7bn as of 10-21- 2011. […] firms’ net exposures are partially offset by the recovery value of underlying obligations. For example, if the CDS auction showed the recovery value of debt to be (hypothetically) 50%, the maximum aggregate amount payable would, in Greece’s case, be 50% of $3.7bn: $1.85bn. Furthermore, statistics indicate that, on average, 70 per cent of derivatives exposure is collateralised and the level of CDS collateralization is likely to be even higher as over 90% of CDS transactions (by numbers of trades) are collateralised. Thus, in this example, of the $1.85bn payable, about $1.5bn has effectively already been paid.”

        Collateralized? Could someone explain?

        And ZH’s views on what it sees as the global moral hazard unleashed by writing off half of Greek debt, with Ireland first in the queue: http://www.zerohedge.com/news/global-moral-hazard-dawns-merkel-says-it-must-be-prevented-others-come-seeking-haircut-ireland- .

        1. I realize that collateralization is the pledging of an asset or property as collateral (eg you can put your house up as collateral for a business loan, meaning it can be seized if you can’t repay it).

          But are we talking here about assets or property of the Greek state that would be transferred to the bond-holders in lieu of payment?

  34. Frederick Soddy in 1926 warned of the crash of 1929 said;
    “Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well-known mathematical laws of simple and compound interest … It is this underlying confusion between wealth and debt which has made such a tragedy of the scientific era.”
    He advocated ending fractional reserve banking, as an engineer by training his theories sound resonable however I am interested to hear the views of people with a background in economics on what the impact of a 100% reserve requirment would be.

    1. Kenny Boy

      The answer to your question is none, cf Bill Mitchell. A 100% reserve requirement is still fractional reserve banking. The percentage of the reserve is irrelevant.

      The alternative is to be found at positivemoney.org

  35. Former US Treasury Secretary Larry Summers (courtesy Zerohedge):

    “The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending. Most policy failures in the United States stem from a failure to appreciate this truism and therefore to take steps that would have been productive pre-crisis but are counterproductive now, with the economy severely constrained by lack of confidence and demand.”

    http://blogs.reuters.com/lawrencesummers/2011/10/24/to-fix-the-economy-fix-the-housing-market/

    1. The irony is Oakland police have been in the front line of cuts in numbers and pensions. They’re defending a system that is hollowing out the public sector -private affluence and public squalor writ large – and California is #1 basket case according to Michael Lewis in Boomerang
      http://goo.gl/5wWOA

      1. Fortunately Scott Olsen seems to be making a recovery, the police chief & mayor are both in a spot of bother though. I hope that the uproar caused by this incident shows TPTB that they have to be very careful about how they police these demos ( Although #ODenver has since been attacked with pepper spray, tear gas etc). It appears as though it was one cop who shot Olsen with a tear gas cannister from about 10ft away & then was filmed throwing a flash grenade into the crowd of people who were trying to help him. Anthony Bologna the thug from #OWS has suffered some punishment it seems, so I think the authorities are having to be careful. Because the movement is split into seperate entities they can hopefully learn from each other about what works & what doesn’t, they are like the hydra, & they serve as a focus for dissent, but I think their biggest strength is that they have the moral high ground. The London occupation is throwing up some big moral questions within the anglican & other christian communities. I have no mainstream religious beliefs, but even I can guess on which side Jesus would be on.

        http://www.guardian.co.uk/uk/2011/oct/29/christians-defend-occupy-london-protest?newsfeed=true

        Could the little people really bring down BOA ?

        http://dailybail.com/home/move-your-money-bank-of-america-branch-manager-begs-customer.html

        1. One protester at #occupy Dame st. on friday last had his employment benefit stopped, the reason given was, protesting means you are not available for work. He was also arrested for refusing to leave the benefits office.

  36. Oi Golem,

    At some point in the TV3 show the host VB asked the journalist from the Indo/Sindo if we ( the Irish ) had any exposure to Greek debt and she said that the Irish state had none.

    However I believe it was widely reported that Irish institutions hold/ or are owed 6 billion euro or so of Greek government debt. Would it not therefore follow that the Irish banks i.e the Irish state got done by another 2/3 billion last week?…

    I think the Irish state also had to give Greece some money under for its bailout too as did the Greeks have tpo dip into their pockets for the Irish bailout.Really its all just nuts…its like some Marx brothers sketch or the like.

    *In Ireland the Sunday or Irish Independent ( sindo/indo ) is generally Pro- Fine gael ( such as Mr Hayes ) and pro-business establishment middle of the road on FF and they are quite anti-SF / PIRA still, though they don’t attack them directly.They are very anti-Prof. Morgan Kelly. The owner is a powerful media magnate and his agenda is visible in the paper, though hes no Rupert Murdock.

  37. Hi all

    it’s good to come back over here and see you guys still fighting the good fight. Our Golem is going from strength to strength. When will his Alma Mater have him on Newsnight?

    Like Richardinnorway I am also having some debates with conservative types.

    I understand the situation as it is now but could someone fill me in on the roots of the crisis in a) Greece and b) Ireland? Nothing heavy, just a few dates and figures. Id be very grateful. I think those two are key in a way because one is the (supposed) profiligate state (i know from the Naked Capitalism link that that has been massively overplayed) and the other is the neoliberal posterboy. so how did they both end up in the shit?

    Youd be amazed at the appetite for actually understanding this – bit by bit more and more people are asking questions. And things like having David talk to groups and disseminating that is really starting to pay off.

    People say to me all the time, ‘people are stupid, you can’t change anything’. No, people are uninformed and they are subject to fear. Fear makes us do stupid things and go along with bullshit. Let’s have a little freedom from fear.

    1. Hi Phil,

      Well, I’ll chip in a few thoughts about Ireland (where I live) & Greece, but do also note that Portugal, Spain & Italy are moving rapidly toward sovereign debt crises largely first as a result of banking misconduct and/or in combination with the global recession from that, and second the growth & employment killing austerity policies.

      In Ireland’s case, it was fiscally in good shape before the crisis & even had some €25b or so in a pension reserve account. About half the sovereign debt now ~ €95b, according to economist Constantin Gurdiev, directly relates to bank bailouts. I would contend that at least half of the remainder should be placed at the door of the authorities, Irish & EU in creating by their policies a far greater economic contraction than would have happened otherwise in the global situation. Ireland essentially took on the banks’ bad debts at the behest of EU authorities to prevent those losses at other EU banks triggering an EU wide (& possibly further) systemic crisis. The punitive interest rates (~6%) for Ireland’s (really EU banks’) ‘bail out’ was only reduced to 4% after the EU determined that Greece simply could not pay any higher interest on its massive debt when matters there camr to a head in July ’11 (but not sure there’s any formal contracts on that yet). Without this interest rate cut Ireland with its draconian austerity measures & pure fiction ‘plan’ growth forecasts, would certainly be aiming for failure in the next 12 months. Ireland has a truly massive multinational company ‘enclave’ (in relation to GDP) which helps somewhat, but does little for jobs & the rest of the domestic economy. As the countries they export to contract with their own increasing austerity measures, it’s likely Ireland will either stagnate or contract again. Irish households also have very high debt, similar in scale to the public debt.

      As I understand it, Greece’s fiscal position was far worse from the beginning, not least as a result of corruption at the top in such things as non-payment of taxes (which continues) & fraudulently hiding government loans from its balance sheet (aided & abetted by Goldman Sachs apparently). The austerity measures adopted have been even more draconian than Ireland’s & the resulting economic contraction has resulted in their inability to meet debt interest payments without further borrowing – a vicious downward spiral that has brought it to a second crisis in 12 months despite the absurd ideoligically driven belief that something other would happen.

      What Greece & Ireland do have in common is that the leadership in politics, economics advice & media are all either operating in their personal self interest or aquiescing to those that do. Neither country’s authorities show any sign of operating in their majority citizens’ best interests.

    2. Hi Phil

      Once upon a time there was this Celtic tiger which in reality was a Celtic pig, it was given access to a big trough full of lovely swill which it just couldn’t get enough of.
      No seriously, go back through Golem’s archives if you have the time, lots of good stuff, even a vid on who bankrupted Ireland.

  38. Liam Halligan gives the latest eurozone bail-out two weeks before it collapses.

    “Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone’s deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.

    Some say Western governments shouldn’t “accept” what the market says. “Who do these trading people think they are,” I hear from the lips of the educated but financially-illiterate political elite. Let’s be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face. And I’m afraid the only rational response to Thursday’s announcement is that the probability of such undesirable outcomes has just been increased.”

    More at http://www.telegraph.co.uk/finance/comment/liamhalligan/8857518/Why-the-latest-eurozone-bail-out-is-destined-to-fail-within-weeks.html

    1. “Progressives today seem to be falling for the myth that the financial markets are now the de facto governments of our nations. It becomes a self-reinforcing perspective and will only deepen the malaise facing the world.”
      http://goo.gl/2WwiD

      Bill Mitchell argues we are in a straitjacket of our own design.

      For ‘markets’ read ‘a few major banking corporations’ – the same guys that got us into this mess. So why does Halligan think they have any interest other than picking off nations (saddled with the debts they created) one-by-one?

      It may be true that ‘if global bond markets stop lending … we are in the realm of unpaid state wages, pensions…’ – but the conditions for lending impose austerity anyway!

      Mitchell would argue that sovereign governments – and the ECB – that have control of a currency do not have to rely on the bond market. Leaving things to the market will kill us all.

      Perhaps Liam Halligan has his own interests to serve?

      1. I certainly wasn’t quoting Liam Halligan (http://en.wikipedia.org/wiki/Liam_Halligan ) as a “progressive” – he’s chief economist for an asset management company – but rather as an example of how even some mainstream economic commentators regard the current approach to the crisis as sheer folly with potentially dreadful consequences.

        In one sense it may be a myth that the financial markets govern our nations, but as long as governments themselves believe in the supreme power of the markets, act accordingly and can’t see any alternative, it becomes not only a self-reinforcing perspective, but also the de facto reality.

  39. It’s way past my bedtime but I can see a showdown looming which will be bondholders vs governments. As governments have the power (and popular it would be) to confiscate wealth, I would be wary as a wealthy man to confront such power.

    These people must be aware of this surely? Ultimate power still lies with governments.

      1. @ bill40 “Ultimate power still lies with governments.”

        You’d like to think so, but I fear they’re in thrall to the markets, the financial sector and global capital, here and elsewhere.

        “In the UK, the proportion of donations to the Conservatives from the entire financial services sector has now reached 51.4%. […]

        “in its first 15 months of office, the Coalition has introduced several key measures that could benefit its City backers. Policies include:

        A commitment to reduce corporation tax from 28% to 23% by April 2014 for companies whose annual profits exceed £1.5m.
        Exempting UK resident companies from corporation tax on all profits for their foreign branches.
        A reduced tax rate to 5.75% on the treasury functions of large corporations in tax havens.
        Reducing stamp duty tax for bulk purchases of residential property.
        Planning reforms that propose to create a presumption to approval for schemes that are considered ‘sustainable’.
        A firm commitment to oppose a Europe-wide financial transaction tax.”

        http://www.thebureauinvestigates.com/2011/09/30/hedge-funds-financiers-and-private-equity-tycoons-make-up-27-of-tory-funding/

        Cameron: “London is the centre of financial services in Europe. It’s under constant attack through Brussels directives. It’s an area of concern, it’s a key national interest that we need to defend.”

        1. Neil

          So, Cameron is vowing to defend our excessive & fraudulent banking sector!

          Not in my name, I say.

          Honest citizens, tax-payers and savers in this country should unite and declare ourselves as “concientious objectors” against this financial oligarchy.

          Does Cameron understand banking at all? Surely not, for if he did he wouldn’t be so proud as to support a sector which although makes a sizeable contribution to the nation’s GDP, it does this by LEVERAGING 5 times GDP in LIABILITIES !

          The finance sector is not a national treasure to be defended at all costs, but a f*cking great lumbering LIABILITY !!!

        2. Neil

          Exactly so, the people need to take back their govenments which is what i believe all the OWS protests are about.

          Government by the 99% for the 99%

          1. The astonishing thing is how faith in markets has survived such massive market failure. Too Big To Fail banks created huge overhangs of debt that could never be repaid (secure in the knowledge that their losses would ultimately have to be underwritten by government if they threatened systemic failure), subsequently dumped the debt onto government accounts, then turned round and started lecturing nation states on financial responsibility. And still economists trot out the Efficient Market Hypothesis in defence of ‘the market’ – which is simply the interaction of a relatively small number of large institutions, all with an interest which is inimical to the interests of society as a whole, i.e. to wrest as much in fees and interest payments from businesses and individuals as they can get away with.

            The problem we have is not with the 1% who benefit from, and proselytise this ideology, but from those who do their bidding – even when it is against their own self-interest.

  40. The Dork of Cork

    There is something deeply childish at best in the Irish establishment system – 2 of my irish economy posts have been taken down during a robust debate with Karl Whelan about the bank bond thingy.
    My God my entire life’s journey through Ireland was characterised by a loss of faith -this final defence of the holy tabernacle known as bank balance sheets and their hidden equity is absurd.
    Karl makes the argument that I do not understand bank balance sheets and indeed I am not a pro but his arguments consist of stringing out loans / assets as if they have value by themselves.
    Therefore he invents longer and longer time variables to justify such investments – he could do this forever if we could manage to feed ourselfs
    But the rising debt to GDP especially over the past 25 years destroys this argument – it is manifestly untrue.
    The banks are extraxting a rent from money itself which is a natural utility and justify this with arcane bank earning models.
    I just don’t trust anybody anymore – the truth seems to be a foregin country for the establishment.

    In the first post I stated something along the lines that bankers do not understand energy systems & negative feedback loops , they live in a perfect credit / asset backed universe where nothing turns to dust and entropy is some strange Hungarian dish.

    In the second I countered Karls statement to another blogger that “mistakes” were made and said these were not mistakes but banking fraud refering to a recent Bill black video
    market-ticker.org/akcs-www?post=196770

    and asked what would Issac newton have done under the circumstances ?

    I am in dispair really.
    Why would you want to run a shithole of a Kingdom -whats the point of it ?

      1. Telegraph: “Spanish and Italian government bonds are under pressure again this week.

        The yield, or interest rate, on 10-year Italian government debt climbed above 6pc, regarded as the level at which Italy’s debts start to become unsustainable.

        The yield increased 0.12 percentage points to 6.12pc, while the yield on Spanish bonds rose 0.15 percentage points to 5.62pc.”

        And on Greece;

        http://blogs.telegraph.co.uk/finance/ianmcowie/100012894/fast-cars-and-loose-fiscal-morals-there-are-more-porsches-in-greece-than-taxpayers-declaring-50000-euro-incomes/

        “Something can’t be right when the modest city of Larisa, capital of the agricultural region of Thessaly with 250,000 inhabitants, has more Porsches per head of the population than New York or London.”

        Larisa “tops the list, world-wide, for the per-capita ownership of Porsche Cayennes”. (Taken from http://www.athensnews.gr/portal/9/49503 ).

    1. TDoC

      I mentioned “fraud” a few times on the BBC blogs, but mostly got away with it ! (I only got blocked once for saying that JP Morgan had been caught with their hands in the till. It was last summer when they were fined a substantial (but not commensurate) amount of money for blurring the line between their own (proprietary) accounts and their clients’ accounts. Deeply dogdy stuff!)

      Linking to Bill Black though should never deserve to be blocked. That smacks of corrupt censorship. That is not the conduct of an academic.

      Maybe ask Karl Whelan if he’s watched “Inside Job” !!

    2. The website Karl Whelan is associated with removed all my hundreds of posts, over years, along with many posts of others. I avoid it as it is biased and clearly does not favour balance.

      There was no warning, no contact.

      Academic economists teach other economists! Need I say more?

  41. The Dork of Cork

    @Hawkeye
    Not to worry , I am not a sensitive soul Thank God.
    Maybe mentioning Issac newton was a bit in your face given what he recommended be done to counterfeiters.

    1. Recalling the posts about the age-old special status of the City of London and the undemocratic anomalies associated with it, here’s what the Guardian had as its lead story today:

      “Prince Charles has been offered a veto over 12 government bills since 2005

      Ministers sought prince’s consent under secretive constitutional loophole on bills covering issues from gambling to the Olympics”

      http://www.guardian.co.uk/uk/2011/oct/30/prince-charles-offered-veto-legislation ..

  42. This looks nice ; )

    https://submissions.epetitions.direct.gov.uk/petitions/20658

    New Powers to Freeze Current Accounts and Assets of Corporate Bankers

    Responsible department: Her Majesty’s Treasury

    ”The Government should give new powers to SOCA – the Serious Organised Crime Agency – to enable it to seize the assets of corporate bankers and top financiers who were in charge of banks at the time of the banking bailouts. Bankers and financiers should be forced to return bonus money collected by them during the false wealth and fools gold years of 2002-2007. This petition is about establishing new powers to do just that. (The new powers to be used in conjunction with the Inland Revenue in a bid to identify and track down such top earners based on tax receipts.) Ideally, bankers’ current accounts and assets would be frozen and a proportionate amount of money taken from each and returned to the banks that are now technically bankrupt. Legislation is a blunt instrument, but privatising profits and socialising the loss is not on. I believe this proposal deals with the ‘moral hazard’ issue as well. A referendum should be called before enacting the above.”

  43. So Papandreou calls for a referendum on the bailout and austerity measures (well, he has only got a three-seat majority, and faces electoral suicide). But there’s a confidence vote too, so what happens if he loses?

    Regardless of the motivation, though, could Greece follow Iceland’s example?

    Meanwhile, a Cameron spokesperson says there are no plans to change the laws which require the government to seek Prince Charles’s permission to pass legislation which could affect his private interests. They didn’t reveal whether any bills have been changed as a result of this “convention”. http://www.bbc.co.uk/news/uk-politics-15521777 .

    1. “Regardless of the motivation, though, could Greece follow Iceland’s example?”
      Only if they were to ditch the Euro.

    1. Jeremy Warner at the Telegraph: “a vote on the bailout package would also in effect be a vote on continued membership of the euro. If it went against Mr Papandreou, his government would fall, and given that Greece could no longer deliver on the conditions attached to the bailout, public money to pay wages, pensions and bills would soon run out. The country would descend into chaos.

      To restore order, whoever stepped into the ensuing vacuum would have to impose capital controls and leave the euro. It would be a cataclysmic economic event, but very probably better than the death by a thousand cuts that awaits if Greece agrees the bailout. The sudden death of a no vote is what Mr Papandreou will use as his chief weapon in presenting the case for acceptance of the bailout terms. But it is by no means clear he is going to win.

      Things are about to get really interesting.”

      http://blogs.telegraph.co.uk/finance/jeremywarner/100012911/greece-must-vote-no-to-the-bailout-terms/

      1. Apocalyptic, but the Troika have taken enough sovereignty to ensure that some action would be taken. Countries are no longer sovereign, if they ever were. The Greeks and Irish are tails wagging the dog as they are examples of how not and how to behave, respectively. The lessons of restriction have to be learned, not as punishment, but because all these economies have used capital debt as current income! That is the function of the FIRE sector of the economy, impure and not so simple!

        Banks lending becomes GDP!

        When this accounting fallacy is revealed, no one is shocked, but they start to lobby to protect themselves, obscuring the truth!

  44. “Italy’s crisis deepens on eurozone slump, bail-out doubts

    Yields on 10-year bonds jumped to 6.18pc on Monday, while spreads over German Bunds reached 410 basis points, nearing the critical level where LCH Clearnet raises margin requirements. This, in turn, triggers further selling.

    Intesa Sanpaolo Giovanni Bazoli said the spreads are unstainable “not just in the medium run, but in the short run as well”. He warned of a credit crunch in Italy as banks struggle to meet higher capital ratios set by EU leaders.

    The renewed jitters came as the OECD club of rich states slashed its eurozone growth forecast for next year from 2pc to just 0.3pc, implying an outright recession over the winter.

    The body called on the ECB to cut interest rates and deploy its full lending power to head off debt contagion to Italy and Spain.

    The OECD said the world risks a fresh crisis of equal magnitude to the Great Recession if authorities fail to act in time, with GDP contractions of up to 5pc in some big economies by early 2013.”

    More at: http://www.telegraph.co.uk/finance/financialcrisis/8861179/Italys-crisis-deepens-on-eurozone-slump-bail-out-doubts.html

    “MF Global files for bankruptcy after European debt bets
    MF Global has filed for Chapter 11 bankrupty protection in New York, after the scale of its bets on European debt sent its shares and bonds tumbling.

    “The firm rattled investors last week after disclosing a $191.6m quarterly loss and $6.3bn exposure to the debt of several European countries including Spain and Italy. ”

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8860214/MF-Global-files-for-bankruptcy-after-European-debt-bets.html

    Someone Is Going To Jail For This: MF Global Caught Stealing Hundreds Of Millions From Customers?

    http://www.zerohedge.com/news/someone-going-jail-mf-global-caught-stealing-hundreds-millions-customers

    The French and German stock markets are currently both down over 3% this morning, with Commerzbank down over 7% and Societe Generale down over 11%.

  45. Are we seeing the end of the Euro and the start of a banking collapse? The announcement by Mr Papandreou of a referendum seems to me to be a massive buck passing exercise. He knows he has lost, that the situation is getting worse and that the bailout/haircut etc will not work and it simply is buying just a little more time. Looks like it will be held in January which gives the other governments time to try and put in place measures to protect themselves from the Greeks defaulting. But its impossible to predict the outcomes of unintended consequences. I’m glad I have read Feral book on surviving the Argentinean economic collapse!

  46. MORE FRAUD!!!

    Zerohedge on MF Gobal:

    http://www.zerohedge.com/news/someone-going-jail-mf-global-caught-stealing-hundreds-millions-customers

    Or should we call them “MORE FRAUD Global” !

    “But regulators are examining whether MF Global diverted some customer money to support its own trades as the firm teetered on the brink of collapse.”

    In other words, the dubious act of commingling client funds with the firm’s cash. Given what I said yesterday about JP Morgan being caught doing this last year, it wouldn’t be a surprise to suspect that everyone in finance is at it, to some degree.

    FRAUD FRAUD FRAUD FRAUD FRAUD

    There, I mentioned the F-word about 5 times and I think I got away with it.

  47. St Pauls Trustees:

    Chairman
    Sir John Stuttard PWC partner, Former Lord Mayor of London.

    Trustees

    Dame Helen Alexander DBE Deputy chair of the CBI, director of Centrica plc

    Lord Blair of Boughton Former Metropolitan Police Commissioner

    Roger Gifford Investment banker, big in City of London

    John Harvey – Not clearly identified

    Joyce Hytner OBE – Theatre director

    Gavin Ralston Global Head of Product and leading international asset manager at Schroder Investment Management

    Carol Sergeant CBE – Chief Risk Director at Lloyds TSB, formerly Managing Director for Regulatory Process and Risk at the FSA

    John Spence OBE – Former Managing Director, Business Banking, LloydsTSB

    (No conflict of interest there, then!)

  48. Hawkeye November 1, 2011 at 1:30 pm #

    George Monbiot’s latest laser guided ballastic assault on the (occult) City of London:

    http://www.monbiot.com/2011/10/31/wealth-destroyers/
    Thats a brilliant article, thanks for that. I knew relatively little about the Corporation but its more proof of the power that the banking system has over democracy. It also makes it clear that to introduce monetary reform, eg Positive Money, faces an uphill struggle.

    1. Nicholas Shaxson’s Treasure Islands – referenced in Monbiot’s article – gives the lowdown, and is essential reading for anyone interested in the ‘shadow’ banking system (which remains largely off the radar in the mainstream press).

      It’s worth remembering that most of the commentators being quoted are the same voices that were selling us the benefits of ‘light touch’ market fundamentalism before the crisis, failed to see it coming, and are desperately trying to retain some kind of reputation for objectivity while protecting their proprietors’ interests. So their magisterial pronouncements need to be taken with a dose of salt.

      We’re still being sold the idea that it’s a choice between neoliberalism and communism, with nothing in between.

      Who? What? When? Where? Why?

      1. @Charles

        Amazing isn’t it?

        One can implement media censorship, covert civil rights abuse, and revisionist re-writing of history without actually having a physical Stasi / Gestapo / Ministry of Truth.

        Are we any match for their most potent yet subtle weapons?

    1. Telegraph:

      “Pasok party members are dropping like flies in what is an unprecedented Cabinet rebellion. At last count, MP Milena Apostolaki stood down, followed closely by Tonia Antoniou and Eva Kaili, all going independent and leaving the Government with a majority of just 151 out of 300.

      Rumours abound that six further Pasok party members are calling for the Prime Minister to stand down. The referendum is set to be discussed in Parliament on Wednesday, with a final decision by the end of the week. The PM has also called for a vote of confidence that is looking increasingly unlikely.

      Calls for an immediate election abound. Leader of the opposition, Antonios Samaras, stated that a referendum would be disastrous for Greece, jeopardizing the country’s financial future and membership of the eurozone, whatever the outcome.

      In a meeting with the President this morning he called for an intervention and emergency elections, which he described as a matter of ‘national emergency’. ”

      Papandreou seems to have omitted to inform his cabinet, let alone other EU leaders, what he was up to.

      French & German Stock markets both down over 5%, top losers SocGen (16%) and Deutsche Bank (11%).

  49. Imagine if we just got rid of government full stop and everybody took full liabiltity for their actions…

    Adultocracy or Grownupism.

    The place where numpties crash and burn wether they be political, financial, lower, upper, middle or slacker class.

    Wether the theory of evolution is more than theory or just some babble to disguise the Golgafrinchan’s epic landing, evolution would be turbocharged with the thoughts of 7 billion people and not the indoctrinations of the establishment.

    Worth a go surely? If it’s no good we can always go back to voting somebody in 😉

    1. http://www.zerohedge.com/news/how-us-banks-are-lying-about-their-european-exposure-or-how-bilateral-netting-ends-bang-not-whi

      Or basically, how a domino effect threatens to spark off the disaster that’s been waiting to happen.

      “keep a very, very close eye on the Italian bond spread, because if Italy falls, Europe falls, and with it fall not only all the largely undercapitalized French banks (all of them), but the US banks that have not tens, but hundreds of billions of gross CDS exposure facing them, which at that point will be perfectly unhedged as all their transatlantic counterparties will be in the same boat as MF Global.”

      Time for another Golem post, methinks…

      1. Greece: “The heads of the general staff, the army, navy and airforce have been replaced and a dozen army and navy officers have been discharged, the defence ministry said in a statement.” (BBC)

        Were they plotting a coup? (The Greek military, of course, has form in this department.)

  50. The following is a quote from Enda Kenny ( the Irish prime minister and from the same party as Brian Hayes mention in the article ) and is regarding Greece’s debt cutting maneuvers and probable default. This is taken from last Sundays Business Post’s choice of 3 significant quotes of the preceeding week;

    “I cannot say it often or strongly enough, we will not be going down the same road.”

    Apparently Ireland is much better behaved than delinquent Greece, or at least wishes to appear so.

  51. Is it just me being very cynical or could this scenario be playing itself out.

    The banks helped Greece hide it’s true financial situation from public view by helping them set up SIVs. This enabled Greece to join the Euro. As we have seen these same banks have previously been found to offer products to their customers which were crap (their words) and bet against them using Credit Default Swaps.

    Now lots of these banks have been told that they must take at least a 50% haircut on Greek Debt to save the Euro etc.. The deal that has just been agreed would mean that this haircut was not a credit event (not a default because it was an agreement with the banks)…. No payout on the CDSs.

    Now if I was a Bank, I wouldn’t like having to take losses on my loans and also not be able to cash in all my insurance that I took out at the time I realised that Greece was financially screwed when they asked me to help them. I might ask one of my friends who I had tons of dirt on (because I helped him hide the true state of Greece’s finances) to throw a spanner in the works by calling for a referendum.

    If I am right what a bitter Irony using a call for a democratic referendum to screw some more money out of the situation.

    What do you think….I have not been drinking ……. enough

      1. Patrick

        There is certainly a sense of that. Generally speaking Germany retained the successful post-war de-centralised and community based banking model, whereas the Anglo-Saxons spent the last 30-40 years ripping it up and replacing with TBTF monstrosities.

        Main problem for Germany is that France seems to have fallen under the Voodoo spell (i.e. SocGen, BNP etc.).

        In fact you could say that Greece, Spain, Portugal, Italy and Ireland all fell under the Voodoo spell too.

        The German economic might is being neutered by the folly of its neighbours & “allies”.

        They would do well to leave the Euro, and perhaps align with a few Northern European countries too.

        Then launch the “Neuro” currency!

  52. Hard to know quite what agendas – likely Greek domestic ones – are at work with this.

    Always possible of course the primary motivation is a sudden outbreak of democracy. I have thought it possible that it may be dawning on even politicians that the level of financial punishment being inflicted on the innocent majority is simply too much. With EU/ECB attitudes, choosing the worst possible policy options, is there really any point in Greece remaining in such a deeply flawed currency union. Regardless of the likely short term chaos of leaving, I can’t see any.

    Has reality broken out in Greece too?

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