In simple terms...what happened? How bad is it?

Sanjuro

... can somebody please explain to me, or point me in the right direction, an explanation as to what's happening, what's the likely next move, and how screwed we all are with the current political environment.

I'm certainly no economist. I'm just a guy with a lower-end of the scale job. I have a mortgage I can manage, and a job that's as safe as any job can be at the moment. Private sector. But I am actually a bit concerned as to what's going on at the moment. It seems that all the talk that's going on, be it on the news or the political programs, or, god forbid, the pub is all doomsday frenzied talk. I just want to understand the situation a bit better.

I just need a black and white explanation without all the technical jargon that is just confusing me. I know we're in trouble, and it's something we're going to be dealing with for a long time. But I'm hazy on why we're here and what are the likely out comes of the upcoming budget, election and IMF intervention. I'd greatly appreciate a little help so I can get my head around it. I'm sure there are other people as confused as me.

Thanks in advance, and mods, if I'm in the wrong forum, please redirect.

[MOD]This thread has been stickied - feel free to ask questions & respond to them. Do not post clever one-liners, rants, or other rubbish, because it will earn you an instant ban.[/MOD]

wylo

I saw this today, you may like it
http://www.bbc.co.uk/news/business-11766346

Put really simply , a combination of using tax payers money to help failed banks and rising unemployment means we have no money to pay for ourselves. So we need to borrow, but now that isnt an option anymore because its too expensive so the IMF have come in to give us a massive chunk of money with strict conditions that we make the cuts they ask for, we pay them back over time + interest.

liam365

Basically suffered from a combination of global recession, huge property bubble burst, incompetent government and now a MASSIVE bill to bail out the banks who lost all their money.

Greens have now stated they want a general election after the budget so Fianna Fáil forced to agree to general election after budget, being January or later.

That answer your question or did you want something more specific?

wylo

Sanjuro wrote: »

... can somebody please explain to me, or point me in the right direction, an explanation as to what's happening, what's the likely next move, and how screwed we all are with the current political environment.

I'm certainly no economist. I'm just a guy with a lower-end of the scale job. I have a mortgage I can manage, and a job that's as safe as any job can be at the moment. Private sector. But I am actually a bit concerned as to what's going on at the moment. It seems that all the talk that's going on, be it on the news or the political programs, or, god forbid, the pub is all doomsday frenzied talk. I just want to understand the situation a bit better.

I just need a black and white explanation without all the technical jargon that is just confusing me. I know we're in trouble, and it's something we're going to be dealing with for a long time. But I'm hazy on why we're here and what are the likely out comes of the upcoming budget, election and IMF intervention. I'd greatly appreciate a little help so I can get my head around it. I'm sure there are other people as confused as me.

Thanks in advance, and mods, if I'm in the wrong forum, please redirect.

To answer it more directly, what it means for us , is massive public service cuts, massive drop in dole/allowances etc, possibly more expensive costs because of taxes , possibly a massive rise in unemployment because of a potential rise in corporation tax (by raising this tax multi national companies will want to leave).

The last bit about the corporation tax is still being argued about though with some people claiming it will rise and others claiming it wont.

Sand

A Q & A on this should be stickied - the question comes up time and time again, along with its partner: "What would have happened if the banks had been let go"

Scofflaw

So far, this thread is a good basis for that. Stickied to replace the IMF thread, initial warning added.

moderately,
Scofflaw

Sir Oxman

Why:
Unsustainable property bubble fuelled by cheap credit. Govt did not cool the situation but added to the heat (low taxes, huge public spending, little to no financial regulation)
Budget(s):
Annual income/expenditure deficit is currently -19billion or 12% (32% in real terms beecause of the banks, a world record I believe) the target for 2014 is a 3% deficit or lower, so tax increases, PS pay/pension cuts, SW cuts, basically every public service will be cut and taxes will rise to bridge the gap and service the socialisation of private debt ie, the bank bailouts
Election:
*IMO, needed to mandate a new govt that will oversee cutbacks and hopefully stimulus package because cutting and taxing without stimulating the economy will never allow Ireland recover.
Current govt has completely lost credibility and this is paralysing the country.
EU/IMF:
Will set targets to reduce deficit and will insist on huge cuts to achieve this over a four year period but are also handing Ireland a posioned chalice* in return (100billion of more debt, basically a second massive bank bailout which the Irish citizen will have to pay back on top of the tens of billions already pumped into the banks)

Some people feel the IMF is a good thing to happen (considering the state we are in) and that Ireland needs outsiders to target the untouchables of the PS and SW.


*my opinions specifically

here is an alternate view to taking an EU/IMF bailout

http://www.bloomberg.com/news/2010-11-23/bust-is-better-than-a-bailout-for-irish-patient-matthew-lynn.html

K-9

Thought this was a good piece from the Tribune:

So what did our government do wrong? Answer: everything

Facing into two bailouts, Irish government policy evidently failed. Now we ask if there was anything the government could have done differently? The answer, almost everything.


Tell the truth



Not just in the last two weeks, but during the last two years. Here's one for future researchers – does Ireland have the largest public relations industry employed by private companies, banks and government in Europe?


Bankers got so used to telling lies during the boom that they carried on lying to the government about the insolvent banks. The government then evidently baulked at telling its citizens the truth over the last two years and obscured the status of our insolvent lenders. By so doing, the hole for future generations may be even deeper. This sickness was shown in the last two weeks. Had the government told the truth about the insolvency of the banks two years ago, the debts that needed to be repaid may have consequently been lower.


Ten days in September



This is not a reference to the infamous September late night two years ago when the government, after meeting with its advisers and Ireland's top bankers, mortgaged multiples of what it gets from us in annual tax revenues to guarantee a huge tower of private debt built by the same private bankers.


In September 2010, the scale of the catastrophe became clear: the Irish authorities had allowed the banks to dangerously bunch huge amounts of bond debts into a few days in September. Banks keep their doors open week-by-week by deciding how much cash is coming in and calculating how much they need to raise by issuing bonds to other banks. But cut off from the so-called inter-bank markets, the Irish banks were forced to turn to the European Central Bank, the lender of last resort, by pledging their loans or assets as security to get cash in return.


As the original guarantee was coming to a close, the Irish authorities inexplicably allowed the guaranteed banks to erect a so-called 'wall of money' in tens of billions of euro that required rolling over during a few days in September. The ECB had earlier this year looked on in horror as AIB hit a huge road bump in refinancing when Ireland's largest bank failed to tap some sort of loan. It is becoming clearer that the strain was much greater than anyone could have suspected because some lenders soon exhausted the assets the ECB was prepared to accept.


September's 'wall of money' may have been the reason the ECB finally called time on Ireland by telling the Irish Central Bank to cap its funding lifeline. Irish banks together were getting between 15% and 25% of all the funding provided by the ECB to banks across all the 16 countries in the eurozone.


But the bunching of the banking finances across a few days in September led to the explosion of the sovereign bond rates, as sovereign bond holders realised that the ECB was worried aboit funding the banks. The bluster of government ministers last weekend denying any bailout talks was designed to disguise the evident nature of the interlinked banking and sovereign blowouts. But why did the Irish authorities over the last two years allow a banking crisis turn into a sovereign blowout by failing to manage more smoothly the Irish banks funding needs? As the banking guarantee came up for renewal, they instead allowed the banks to erect a huge insurmountable wall of money that needed refinancing. September days will take on a new meaning for generations to come.


Late nights, September 2008



What should they have done differently with the blanket guarantee? Not listened to the advice of the bankers, of course, and bought time by introducing a partial guarantee. The bond debts of Anglo could have been guaranteed, say, to March 2009, buying time to examine the other toxic bank, AIB, too.


Former US treasury secretary Hank Paulson wrote in On The Brink, his diary-like account of the Wall Street crisis, as he learned about our blanket guarantee early Tuesday morning on 30 September, 2008. "Ireland said it would guarantee payments on as much as €400bn in bank debt. The figure guaranteed nearly the entire Irish banking system and amounted to twice the country's gross domestic product, " he pointed out.


Taoiseach Brian Cowen and finance minister Brian Lenihan have quoted the 'bible' on the September 2008 blanket guarantee, the report written by Central Bank governor Patrick Honohan into the domestic banking implosion. The new governor should not have commissioned himself to write a report on the failed watchdog and he pulled his punches. Nonetheless his report said that the government was blindsided by the true nature of the banks' debts when it agreed to introduce the blanket guarantee.


Nationalise the banks



Here's the puzzle. The theory of nationalising banks is that the government has to step in when the shareholder equity has evaporated. The real purpose is for the state to find out what is going on before, during and after it pumps public money into private institutions. That is what happened in Sweden in the mid-1990s. Yet, the government here pumped money in, took small chunks of ownership and kept the banks open. And the banks continued to lie to them.


Many were taken aback to hear EU monetary affairs commissioner Olli Rehn say in recent days that the EU had to establish the facts and discover the real state of Irish banking. Like any good lender, the EU, before bailing out Ireland, wants to find what it is getting into with the Irish banking scandal. So, how did the government not know the losses in the banks a full two years after guaranteeing them? Why did banking directors, who have a legal responsibility to produce real figures, never mind the minister for finance, report on the real value of the banks' accounts? Consultants and auditors have done well out of the banking crisis that has led to the loss of our national sovereignty.


Burn the private bank bondholders



Not just the subordinated but the senior debt holders. This could have been done two years ago, but it may be too late now. Put simply, the government saved the banking bondholders and betrayed its sovereign bond holders. Betraying sovereign bondholders means that the government betrayed current and future generations because they will have to pay back much larger sovereign interest rates. Worse, Ireland may, with Greece, be forced into defaulting on its sovereign debts, with consequences for generations of Irish people.


Nama



Nama did not cause the banking crisis but it was led down a blind alley. The theory of setting up a so-called asset management agency is that it quickly takes the bad loans off the banks. Sweden achieved this by setting up a bad bank and taking bad loans from lenders in quick time. But Nama was neither a bad or a good bank, it was a strange hybrid that took out both the good and bad loans. It was hindered from the start because the banks were not nationalised. But Nama itself has complained it has continued to be misled by bankers.


Anglo Irish Bank



This is where government policy got truly bizarre. Anglo was allowed to draw up a business plan to the European Commission earlier this year that proposed that the toxic lender would boost its balance sheet to levels of the boom.


The move was one step from insanity and Ireland's credibility in Brussels started to fray. Then the government let the bank revise its plan. There would be a good Anglo and a bad Anglo, not forgetting that part of Anglo that was already marked off to go into Nama. The bank then bluffed about the additional costs of closing down the bank. All the time, the private banking bondholders of the nationalised bank were still getting repaid by Irish taxpayers. So, what could have been done differently? The model was there by the actions of Bank of Scotland Ireland. It did the conventional thing by closing for new business and hived off the deposits. Anglo's whole loan book ought to have been shifted into Nama overnight.


AIB



Instead of setting up a banking commission, the government should have investigated the toxic bank, AIB. The puzzle is the power that insolvent AIB has continued to wield over the past two years. Former AIB executive and non-executive directors have had a good banking crisis. Some have been re-appointed to other insolvent banks and as government advisers. Minister for Finance Brian Lenihan showed flawed judgment in listening to advice and then failing to clear out the boards of AIB and Bank of Ireland. There are plenty of senior managers in the banks and outside the banks who could have done the job better in the last two years.


Government officials need to understand markets



We live in a world of markets, yet the civil service was designed for an economy of the 1950s and few in the public service seem to understand them. The guardian of the EU statistics, Eurostat, did not allow the government to spread its banking recapitalisation over 10 years.


Officials then faced the near-impossible task of presenting the largest 'kitchen-sink' budget deficit in peacetime Europe – 32% of GDP – because of the huge debts of the insolvent banks. Our national sovereignty was under risk from that moment on.


Fight for the 12.5%



The game was up when on the day before the IMF officials arrived here the Latvian president offered Ireland its moral support on CNBC.


'Éireann Go Broke' and 'How did Ireland Go So Wrong' were only some of the articles to be read by the influential business leaders in the international business press.


We will have to grin and bear pictures of beggars, ghost estates and film crews in Irish pubs, all of course explaining our indolence.


But our only goal now is to save the 12.5% corporation tax rate. The government has not only steered us into national bankruptcy, but it has put at risk our only means of getting out of it. Let's lose the attitude, and build a coalition of Baltic, Iberian and Greek states.

The guarantee brought in 2 years ago was just too big. We seemed to have been continuously misled by banks in denial at the extent of the losses ahead.

Banks were finding it extremely difficult to raise funding on the markets. BOI did raise some a month or so ago, but even that was Govt. guaranteed. Hence all the major banks became reliant on the ECB for funding.

Basically, the ECB called, they want their money back!

The Anglo mess just kept getting bigger and bigger, taking the headlines away from the problems of AIB.

The banking sector here needs huge restructuring.

bauderline

Question

If the economy can be run on a balanced basis without the need for borrowing does it really matter if we default or at least renegotiate the debt ? If we are not actively borrowing to finance the government what can they really do to us ?

Morebypasses

In simple terms we ran the country on stamp duty from property sales. So we employed more public servants, paid the existing public servants more, increased all social welfare payments, gave medical cards to wealthy pensioners, etc etc etc etc..... Now we have no property sales and we are 19 billion short when we come to pay all of the above!!!! Thats it in a nutshell re our economy. So we need to cut back on every item of expenditure with no exceptions!!!!! Pensioners included.
Add in the reckless lending by the banks are we are screwed.
That means we have to borrow money to get us out of a hole. Tough but thats it. End of!!!!!

dan_d

An excellent piece by the Tribune.....and further evidence of what came out in the Public Accounts committee this week about the strong likelihood that the banks lied to Nama aswell.

As for what are the possible outcomes in terms of how this affects ordinary people, here's a link with some brief ideas.

http://www.breakingnews.ie/ireland/imf-position-paper-suggests-ways-to-stimulate-employment-482855.html

I've posted it elsewhere, but it might be useful here. As someone who is unemployed, I, like you, want to know what this all means for me. I think it will mean higher taxes - not sure by how much - and I hope it will mean that we tidy up our public service and create far more accountability in our banks and political circles. In terms of everyday life, I would hope that we become closer to Europe in terms of how we do business. I would hope that the minimum wage drops, even slightly (not the place for an argument over the whys and why nots on this) and I would hope that our unions have less control over Government policies. I would also hope that the Financial regulator rules with an iron fist and that Irish people finally begin to understand the saying "everything in moderation".

That's a lot of hoping, I know, but it's a lot of billions we'll be given......:o

In short, I hope (sorry!) that it will not hugely affect the ordinary Irish person, but it will impact heavily on our banks and politicians and as a result, create a society that lives on a more even keel, with more financial stability, rather than the hysteria of the last 10 years.

(I should add that I'm an eternal optimist!!!)

bauderline

dan_d wrote: »

An excellent piece by the Tribune.....and further evidence of what came out in the Public Accounts committee this week about the strong likelihood that the banks lied to Nama aswell.

As for what are the possible outcomes in terms of how this affects ordinary people, here's a link with some brief ideas.

http://www.breakingnews.ie/ireland/imf-position-paper-suggests-ways-to-stimulate-employment-482855.html

I've posted it elsewhere, but it might be useful here. As someone who is unemployed, I, like you, want to know what this all means for me. I think it will mean higher taxes - not sure by how much - and I hope it will mean that we tidy up our public service and create far more accountability in our banks and political circles. In terms of everyday life, I would hope that we become closer to Europe in terms of how we do business. I would hope that the minimum wage drops, even slightly (not the place for an argument over the whys and why nots on this) and I would hope that our unions have less control over Government policies. I would also hope that the Financial regulator rules with an iron fist and that Irish people finally begin to understand the saying "everything in moderation".

That's a lot of hoping, I know, but it's a lot of billions we'll be given......:o

In short, I hope (sorry!) that it will not hugely affect the ordinary Irish person, but it will impact heavily on our banks and politicians and as a result, create a society that lives on a more even keel, with more financial stability, rather than the hysteria of the last 10 years.

(I should add that I'm an eternal optimist!!!)

I really do not understand why people keep saying that Irish people need to understand moderation and statements to similar effect, as far as I understand it the current debt crisis has been caused by commercial debt caused by wreckless lending policies in our banks and government debt caused by wreckless government spending.

I really don't think the Irish public should be footing the blame or the bill for this mess.

dan_d

I'm not sure if this is the right place to have this discussion, but I'll keep it as short as possible..

I suppose what I'm saying is that we are all looking what's going on and fiercely resisting any cuts or changes. I accept your point that we have been put in this position by the Gov and the banks, but we also need to accept we pay ourselves too much money, that our minimum wage needs to drop and that SW is too high, and we hand out too many benefits. It is no longer a viable situation. Taking that into account....and the fact that we no longer have any money in the country....it stands to reason that we do have to accept some cuts. And that's what I mean by moderation. It's okay to earn a decent wage, have a decent house, whatever, but it's not really okay to accept (and demand) as the norm, 4 or 5 holidays a year, dabble in "property investment" and drive the latest model of car of your choice. I know everybody didn't do this, I know some people were very prudent, which is fine. But a lot of Irish people went nuts with credit cards and created an image that they now cannot afford to maintain (and realistically never could).And we were very good at awarding ourselves payrises and bonuses just because or for time served. Which is not a viable way to do business in the long term.And we are fiercely resisting any change to the current status quo, which is not really realistic.

That's what I mean by moderation.Have holidays, have a car, whatever. But we have to accept the last 10 years (and particularly the last 5 years) were a colossal bubble. And to be aiming to get back to those levels of expenditure and income, with low tax is completely unrealistic. We need to accept that slightly lower levels are actually okay, that we live life and run our economy on a more even keel. We can't demand that our banks are fixed and our problems solved, but flatly refuse to accept any changes in our own lifestyle.

Sorry, that could have been shorter....I won't go further as this is not the point of this sticky.

locomo

Basically what has happened is that the IMF + EU are here because nobody else will lend us money any more, and our government is spending 50 billion + taking in 30 billion. We have proved that despite the tens of billions of grants / handouts received in EC structural funds, + from Europe already, we are incapable of governing ourselves. The reason we are the laughing stock of the world is that our government and public servants give themselves - and have done so for many years - probably the highest pay and pensions in the world. Even the social welfare ( dole , old age pension etc ) in Dundalk is over double that in Newry, which is part of a G7 economy which has economy of scale and part of a major industrialised country and which is helping to bale us out. Cowen, the present leader who was minister for finance during the artificial boom , is just regarded as a white version of Mugabe throughout the world.( maybe not at 3.30 am in a hotel in Galway though before addressing the nation at 8.30 ! ).

bauderline

dan_d wrote: »

I'm not sure if this is the right place to have this discussion, but I'll keep it as short as possible..

I suppose what I'm saying is that we are all looking what's going on and fiercely resisting any cuts or changes. I accept your point that we have been put in this position by the Gov and the banks, but we also need to accept we pay ourselves too much money, that our minimum wage needs to drop and that SW is too high, and we hand out too many benefits. It is no longer a viable situation. Taking that into account....and the fact that we no longer have any money in the country....it stands to reason that we do have to accept some cuts. And that's what I mean by moderation. It's okay to earn a decent wage, have a decent house, whatever, but it's not really okay to accept (and demand) as the norm, 4 or 5 holidays a year, dabble in "property investment" and drive the latest model of car of your choice. I know everybody didn't do this, I know some people were very prudent, which is fine. But a lot of Irish people went nuts with credit cards and created an image that they now cannot afford to maintain (and realistically never could).And we were very good at awarding ourselves payrises and bonuses just because or for time served. Which is not a viable way to do business in the long term.And we are fiercely resisting any change to the current status quo, which is not really realistic.

That's what I mean by moderation.Have holidays, have a car, whatever. But we have to accept the last 10 years (and particularly the last 5 years) were a colossal bubble. And to be aiming to get back to those levels of expenditure and income, with low tax is completely unrealistic. We need to accept that slightly lower levels are actually okay, that we live life and run our economy on a more even keel. We can't demand that our banks are fixed and our problems solved, but flatly refuse to accept any changes in our own lifestyle.

Sorry, that could have been shorter....I won't go further as this is not the point of this sticky.

See new thread...

senordingdong

wylo wrote: »

I saw this today, you may like it
http://www.bbc.co.uk/news/business-11766346

Put really simply , a combination of using tax payers money to help failed banks and rising unemployment means we have no money to pay for ourselves. So we need to borrow, but now that isnt an option anymore because its too expensive so the IMF have come in to give us a massive chunk of money with strict conditions that we make the cuts they ask for, we pay them back over time + interest.

Thanks for the link, it was a great read.

BoatMad

whats lost in all these arguments is the following

We are now borrowing to pay for borrowed money, if we draw down the expected 100 billion we will need to find an additional 5 billion a year in interest paymenst. Thats on top of the fiscal adjustments and the soverign borrowing.

Secondly we now have a massive hard currency debt to the IMF ( for example south korea only borrowed 19 billion $), so that currency devaluation or inflation isnt available to us. We will simply be unable to pay off these debts. The rule of thumb is that you need growth of at least the rate of interest in a bailout to pay off the debt. Thats 5% growth , not going to happen.

Thirdly we have to shrink the banks, that an IMF requirement, thats means the banks capital is lowered hence it has to stop lending completely , this is wat happended in Japan and it took 20 years to recover them. With no new mortages ( Currently there is lending at 4-5% to frst time buyers) , this will now cause a massive house price crash, virtually down to cash trading values ( as these will be the only people in the market). Virtually everyone with a loan will be in negative equity, hence there is a real moral hazard of massive mortgage default, hence spining the looses in the banks even more, requiring either more IMF or soverign default. ( which means banks fails as well)

We are now paying for the stupidty in joining the Euro, a low interest regime, when at the time we needed to restrict credit growth using money supply rates, which we lost control over.

In two - three years the IMF money will need to repaid, thats assumes that the banks dont require further injections to counter the forthcoming mortage defualt crisies. Currently the banks cannot even get their liquidity requirements from the markets, they ll need that from the state as well. IN other the words the losses will continue unitil the state defalts, leaves the euros, competitively devalues and seeks massive debt restructuring.

What we are doing at the moment is merely "pray and delay". we're pushing the problem out a year or two ( exactly what we did in September 2008). where it will come back to bite us tenfold over.

I predict we will be out of teh Euro within three years, the state will have defaulted, the ecomony and its banks will be ruined completely. Look at by comparison with the UK , a country that had has similar problems with banks and fiscal debt, the pound has weakened ( in general). Equally the UK is using quantative easing ( printing money) to effivetively dilute its debt. We cant becuase were tied to the Euro and more importantly the German monetary view, which for historical reasons, is a low inflation, low interest, hard currency perspective, we need exactly the opposite.

Only then can we rebuild.

Dave

tinofapples

Anyone watch the Fall Of The Republic lately ?? Alot of it seems applicable to our current situation.

bauderline

BoatMad wrote: »

whats lost in all these arguments is the following

We are now borrowing to pay for borrowed money, if we draw down the expected 100 billion we will need to find an additional 5 billion a year in interest paymenst. Thats on top of the fiscal adjustments and the soverign borrowing.

Secondly we now have a massive hard currency debt to the IMF ( for example south korea only borrowed 19 billion $), so that currency devaluation or inflation isnt available to us. We will simply be unable to pay off these debts. The rule of thumb is that you need growth of at least the rate of interest in a bailout to pay off the debt. Thats 5% growth , not going to happen.

Thirdly we have to shrink the banks, that an IMF requirement, thats means the banks capital is lowered hence it has to stop lending completely , this is wat happended in Japan and it took 20 years to recover them. With no new mortages ( Currently there is lending at 4-5% to frst time buyers) , this will now cause a massive house price crash, virtually down to cash trading values ( as these will be the only people in the market). Virtually everyone with a loan will be in negative equity, hence there is a real moral hazard of massive mortgage default, hence spining the looses in the banks even more, requiring either more IMF or soverign default. ( which means banks fails as well)

We are now paying for the stupidty in joining the Euro, a low interest regime, when at the time we needed to restrict credit growth using money supply rates, which we lost control over.

In two - three years the IMF money will need to repaid, thats assumes that the banks dont require further injections to counter the forthcoming mortage defualt crisies. Currently the banks cannot even get their liquidity requirements from the markets, they ll need that from the state as well. IN other the words the losses will continue unitil the state defalts, leaves the euros, competitively devalues and seeks massive debt restructuring.

What we are doing at the moment is merely "pray and delay". we're pushing the problem out a year or two ( exactly what we did in September 2008). where it will come back to bite us tenfold over.

I predict we will be out of teh Euro within three years, the state will have defaulted, the ecomony and its banks will be ruined completely. Look at by comparison with the UK , a country that had has similar problems with banks and fiscal debt, the pound has weakened ( in general). Equally the UK is using quantative easing ( printing money) to effivetively dilute its debt. We cant becuase were tied to the Euro and more importantly the German monetary view, which for historical reasons, is a low inflation, low interest, hard currency perspective, we need exactly the opposite.

Only then can we rebuild.

Dave

Well said, hopefully the reality is starting to hit home for everyone that the country just cannot afford any more debt, moreover I cannot see any reason to push this out for another of couple of years and prolong the agony.

We need to get out of the euro, take full control of our economy, and renegotiate the debts to some sort of rational level. I don't see any alternative unless some can explain a way that Ireland will be able to repay upwards of 200bn euro....

krd

bauderline wrote: »

Well said, hopefully the reality is starting to hit home for everyone that the country just cannot afford any more debt, moreover I cannot see any reason to push this out for another of couple of years and prolong the agony.

We can't afford the debt now. We even can't afford the interest.

And what is this expectation that the general public should foot the bill for debts run up by private individuals and private enterprises.

It's like having someone run out of restaurant without paying and the restaurant owner forcing passers-by to pay.

We need to get out of the euro, take full control of our economy, and renegotiate the debts to some sort of rational level. I don't see any alternative unless some can explain a way that Ireland will be able to repay upwards of 200bn euro....

And how do you propose we leave the Euro without turning into Zimbabwe?
Have we hidden some magical leprechaun gold somewhere?


I don't believe we can pay the debt as things stand. But there is a huge debt problem in many countries at the minute. And a fantasy persists that the "free market" will resolve all the problems by itself.

It won't. And what's free about this market if innocent agents are made to pay for the misbehaviour of other agents.

The debt needs to be wipe out. And how much of this debt was simply pulled out of thin air in some bank somewhere?

rodgered

Great thread!

A kinda of financial crisis for dummies

Ive a few questions, any help appreciated.

Who bought the Irish bonds?

Why are they saying 'we must do this to save the euro etc' How would the euro depreciate, is it if our banks failed etc?

Oh yeah, and this is an old point? How much and where from did the money come to bailout the banks??


I realise they are daft questions but I am a small bit hazy regards them.

Thanks

wylo

BoatMad wrote: »

whats lost in all these arguments is the following

We are now borrowing to pay for borrowed money, if we draw down the expected 100 billion we will need to find an additional 5 billion a year in interest paymenst. Thats on top of the fiscal adjustments and the soverign borrowing.

Secondly we now have a massive hard currency debt to the IMF ( for example south korea only borrowed 19 billion $), so that currency devaluation or inflation isnt available to us. We will simply be unable to pay off these debts. The rule of thumb is that you need growth of at least the rate of interest in a bailout to pay off the debt. Thats 5% growth , not going to happen.

Thirdly we have to shrink the banks, that an IMF requirement, thats means the banks capital is lowered hence it has to stop lending completely , this is wat happended in Japan and it took 20 years to recover them. With no new mortages ( Currently there is lending at 4-5% to frst time buyers) , this will now cause a massive house price crash, virtually down to cash trading values ( as these will be the only people in the market). Virtually everyone with a loan will be in negative equity, hence there is a real moral hazard of massive mortgage default, hence spining the looses in the banks even more, requiring either more IMF or soverign default. ( which means banks fails as well)

We are now paying for the stupidty in joining the Euro, a low interest regime, when at the time we needed to restrict credit growth using money supply rates, which we lost control over.

In two - three years the IMF money will need to repaid, thats assumes that the banks dont require further injections to counter the forthcoming mortage defualt crisies. Currently the banks cannot even get their liquidity requirements from the markets, they ll need that from the state as well. IN other the words the losses will continue unitil the state defalts, leaves the euros, competitively devalues and seeks massive debt restructuring.

What we are doing at the moment is merely "pray and delay". we're pushing the problem out a year or two ( exactly what we did in September 2008). where it will come back to bite us tenfold over.

I predict we will be out of teh Euro within three years, the state will have defaulted, the ecomony and its banks will be ruined completely. Look at by comparison with the UK , a country that had has similar problems with banks and fiscal debt, the pound has weakened ( in general). Equally the UK is using quantative easing ( printing money) to effivetively dilute its debt. We cant becuase were tied to the Euro and more importantly the German monetary view, which for historical reasons, is a low inflation, low interest, hard currency perspective, we need exactly the opposite.

Only then can we rebuild.

Dave

I think you should copy and paste this into its own new thread cause itll get missed in here, it may be locked cause this kind of thing is often being discussed but id like to hear some counter arguments for it, I cant really come up with any myself.

Edit: i guess if theres one good thing that could be taken out of it is that afaik we are going to be given the money in dribs and drabs so if there is any sort of 'movement' to leave the Euro it wont be too late in a years time or whatever.

swampgas

rodgered wrote: »

Great thread!

A kinda of financial crisis for dummies

Ive a few questions, any help appreciated.

Who bought the Irish bonds?

Why are they saying 'we must do this to save the euro etc' How would the euro depreciate, is it if our banks failed etc?

Oh yeah, and this is an old point? How much and where from did the money come to bailout the banks??


I realise they are daft questions but I am a small bit hazy regards them.

Thanks

The following link gives more of the international background to the current problems. It does have some opinions and analysis about Ireland's current situation and might give you some idea as to why the whole world seems to be caught up in it.

http://golemxiv-credo.blogspot.com/

Scofflaw

rodgered wrote: »

Great thread!

A kinda of financial crisis for dummies

Ive a few questions, any help appreciated.

Who bought the Irish bonds?

They're bought by institutional investors (pensions funds and the like), banks, other governments, trading companies.

rodgered wrote: »

Why are they saying 'we must do this to save the euro etc' How would the euro depreciate, is it if our banks failed etc?

The euro will fail if the political or economic costs involved in keeping it in being exceed the gains - so it's not so much a case of the euro depreciating, but of the euro countries deciding they all need to cut free to manage their own interest rates. You can think of the euro as a raft made by tying together the boats of all the different countries involved - as the sea grows rougher, more of the individual captains will start thinking they might do better by cutting their boat free, particularly if their concern is that some of the boats they're tied to are sinking.

As to how we blow the euro up - essentially, while we're small beer, our banks aren't, really. Their chain of debts extends well beyond Ireland, and the fact that the state has basically nationalised them means we're now responsible for those debts. The combination of the debt chains leading from Irish banks, and the way that the state cannot possibly pay them but has taken them on, means that if we defaulted, the implosion of our banks would take down other countries' banking sector, leading to them having to further bail out their banks, which again they generally can't afford to do. Even the fact that we're in the market creates unease, and other eurozone countries have to go to the bond markets for their state debts very much sooner than we do.

rodgered wrote: »

Oh yeah, and this is an old point? How much and where from did the money come to bailout the banks??

We don't yet have a final figure, and the basic answer is that it comes from the taxpayer. The hope is, I presume, that the banks can be returned to some form of normal operation, and can then be sold to recoup the money put into them.

When I say "the taxpayer", it's not the case that the government has literally sent truckloads of cash round to be put in the bank - instead, the government has issued 'promissory notes', backed by the Irish government. The banks are able to treat those as "as good as cash". However, if the Irish government is felt to be likely to be unable to pay back financial obligations like debt, then it's also considered likely to be unable to deliver on those promissory notes.

cordially,
Scofflaw

anoble66

Taken from http://golemxiv-credo.blogspot.com/

An interesting read on how complex and screwed up this actually is.




Who bankrupted Ireland?
Now across Europe the great blame game will rumble back into play. Our banks, your banks, their banks, or is it your feckless householders or ours, certainly can't be theirs, they're still doing well in Germany. Expect lots more national stereotypes to be wheeled out for ritual defamation.

So let's ask who it was took a dump in Ireland?

First, the suspects.

Ireland has three big insolvent banks and several other smaller, equally insolvent financial institutions we won't bother to mention by name.

Ireland also has a large number of subsidiaries of European, British and American Banks.These subsidiaries are often registered as Irish and therefore on Ireland's tab not the nation of the parent bank. This often gets forgotten in the excitement. But it is KEY.

Ireland also houses a very large chunk of the world's Special Investment Vehicles (SIV's) which are the shell companies which house trillions and trillions of dollars and Euros and pounds worth of Collateralized Debt Obligations (CDOs). These are what Warren Buffett described as "weapons of financial mass destruction'" And they are in their own way as hard to find and disarm as the ones we had a fraudulent war over. Anyway I digress.

These CDOs, in turn, house an equal or greater nominal value of Credit Default Swaps (CDS) written upon the CDOs. I can't tell you the figures because only the Irish Stock exchange has the otherwise completely confidential paper work and I have serious doubts (from what I have been told in the last week by an insider with first hand knowledge) that the Irish regulator and stock exchange have much of a clue themselves.

So, to the crime.

Some of this will, for legal reasons have to be done in generalized terms with names left out to protect the Innocent - me. But to start with let's be reasonably specific. Germany was and is very very angry with Ireland for ruining its banks. That is what a German banker told me this week. She spoke on the guarantee of anonymity as she would suffer all sorts of legal problems if she was identified. I am sorry that this leaves you just having to trust that I'm not just making this up, but I hope many of you know me well enough to go with it.

In fact it was rumoured in German banks that at the time of the collapse of Hypo Real Estate, an angry call was made from the German Premier to the Irish, to complain, to which the answer was ... well it was short. Now this is nothing but a rumour. But it was a rumour in Germany which indicates that some in Germany were and perhaps still are very angry and blame Ireland.

So are they right in their blame?

The same banker told me this. She was aware of instances, and so was everyone else, of banks, German banks, who used to fly their people from Germany to Ireland in order to do deals that were not allowed in Germany.

German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland. But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals.

So the German banks would do the figures and work it all out in Frankfurt, then send a banker over to Ireland, get them to sit at 'their' desk in Ireland, in the Irish bank, and do the deal there. The legal registration of the deal and the 'oversight' were all Irish. This is known in the financial world as jurisdictional arbitrage. You and I would call it cheating if we were feeling charitable and lying if we weren't.

The Banker flies back to Germany, where the German bank hasn't done any deal, and therefore has done nothing wrong. The deal was properly overseen and approved by the appropriate Irish financial authorities and the profits would be banked at a very happy Irish bank. If any management of the 'deal' was required an Irish company would be hired, there are many, and an Irish manager often living not far from Cork, would 'manage' the money in and out. I have spoken to such people. Usually I can hear the sweat coming off them as they ask how I got their number and where did I get my information. To which I would reply that the Internet is a very large place and never, never forgets.

Now my question to you is this. If it's a German bank and a German banker doing the deal is it Germany who made the mess? Or, equally justified, if the deal was actually done in Ireland in an Irish company allowed and no doubt welcomed by Ireland's financial world, and overseen by Ireland's wonderful regulators, is it Ireland who made the mess?

Should Germany, have pulled the plug on this racket? Should Ireland? Whose losses when they finally came, are they?

If the bank is registered in Ireland as an Irish bank/business, then the loss is on Ireland's tab. Depfa was an Irish bank. Just months before its collapse in 2007 it was bought by Hypo, a German bank. Had that not happened the €180 billion euro loss at Hypo Real Estate would have been Ireland's loss, dwarfing all other losses. Why was Hypo Real Estate bought by Germany at that moment?

I can't say for sure. But think about this. Sachsen Landesbank collapsed due to around $30-40 billion in bad sub prime loans its Irish subsidiary called Ormond Quay had made in the U.S. OrmondOrmond's collapse caused the immediate collapse of one of Germany's Landesbanks. Which suddenly sent ripples of fear through all the other Landesbanks as the world woke up to the rampant idiocy that the Landesbanks had been getting up to ...in Ireland.

Germany had to step in and bail Sachsen out. Now lets think about Depfa. Depfa started life as a German bank. It became listed in London and then in 2002 moved to and registered itself in Ireland in the newly set up IFSC (Irish Financial Services Centre) This was like a legal gated community or financial maquiladora. The IFSC was in many ways supposed to be the regulator of what went on in its grounds. I leave you to decide how well it must have done.

By the way the IFSC was created by Dermot Desmond with the help of Charles Haughey.

So Depfa is now an Irish registered bank. But it has very close ties to Germany and many German banks and landesbanks. If ever Depfa went down it would certainly have plunged a vast swathe of German banks and landesbanks into a storm of insolvency, that would have dwarfed the fall out from SachsenLB. . Depfa must not be allowed to go down.

So when in 2007 Depfa was suddenly bought by Hypo Real Estate was it because news of financial problems hadn't reached Germany and they bought it because they thought it was a great deal and were cheated by those crafty Irish? OR might Germany have known that a massive crisis was ticking away in Depfa and could see the clock was running down close to zero hour, and realized that if left in Ireland it would not, could not be rescued by Ireland and so would be left to start a chain reaction that would move straight to Germany? If they thought the latter, do you think it likely that Germany would have just said "Oh Scheisse" and sat waiting for Armageddon, or do you think they would have taken emergency action to bring Depfa under German ownership and jurisdiction where German pockets were deep enough to bail it out and thereby save the rest of Germany's banking system?

You decide.

So let's return to our question? Whose fault? Would Germany be right to be bitter about Depfa/Hypo and others? Or does the blame lie with the Germany banks and Bankers who flew to Ireland to do their mess? Is it Ireland's banks mess or Germany's? I don't think we can disentangle the blame.. maybe when the Irish Banks' books are finally opened we could. But I bet you no one outside the top bankers and politicians, the people who oversaw the creation of the bomb in the first place, will ever be told what's really in there.

I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be, yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now.

They are bankers losses. It is NOT a question of Irish or German. It is question of wealthy bankers from all countries not just Germany (almost every nation, Germany, America, Russia, France Britain, we did dirty work in Ireland) and their corrupt Irish helpers versus the people. It is not a question of should the Irish people or the German people pay. Neither people should. It should be the bankers who made the losses who should take them.

DO NOT allow the bankers to set us against each other as a cover for their crime and guilt

howamidifferent

I've been reading similar stuff since 2004 and I firmly believe that this is the truth. Nations are being manipulated and ordinary people paying the price.
But where I struggle with this on a national level is where does Biffo come into this. I dont believe for one second that he or his ilk are any part of such an international group, he doesnt have the brains to be in it and he's not mean enough to be part of its army so are these people aware they are being handled? ie, Why or how is it organised that they play along and play the part required of them to make it happen? This is where it comes apart for me on a national level.

Scofflaw

howamidifferent wrote: »

I've been reading similar stuff since 2004 and I firmly believe that this is the truth. Nations are being manipulated and ordinary people paying the price.
But where I struggle with this on a national level is where does Biffo come into this. I dont believe for one second that he or his ilk are any part of such an international group, he doesnt have the brains to be in it and he's not mean enough to be part of its army so are these people aware they are being handled? ie, Why or how is it organised that they play along and play the part required of them to make it happen? This is where it comes apart for me on a national level.

That's because it's fundamentally a conspiracy theory. The whole thing can be explained without the intervention of some secret manipulative group - all that's required is a lot of relatively unimportant people making fundamentally unsound financial decisions, and then doing their level best to cover their backsides afterwards with the assistance of their superiors and national politicians. Incompetence explains much more than conspiracy ever can.

Conspiracy theories of why we are where we are belong in the CT forum, not on this thread or in this forum.

moderately,
Scofflaw

iffy_2007

Have seen that the IMF are talking about cutting the dole for people who have being on it along time, i agree with that to an extent, the extent being people who have being on the dole during the boom times when there were jobs for everyone, but in the current situation, how can you cut someone's dole because they cant get a job when there are NO jobs??? Punishing someone because they are in competition with another 350,000 or so for very few jobs...

Also interest rates, will they be likely to go down with this rescue package or up??

Hopefully they will be lower, as I cant see how hiking interest rates, lowering wages, increasing taxes & lowering social welfare payments will take this country out of recession...

I dont really understand the whole in's and out's of this either but I'm so worried about the implaications of this bailout for the normal person...esp with this budget comming up...surely they can't make cuts to the average person beyond their means, can they???

gandalf

Great thread learnt more in the first two pages!

The question I would like answered in as clear as fashion as possible without dramatic language is what would the scenario be if we refused the bailout and defaulted on our debts. Maybe more specifically allow the banks default on their debts to international bondholders?

dan_d

I would hope that the IMF are aware of the level of personal debt that people have in this country, in terms of mortgages, and would take that into account when considering tax hikes etc. If people default on their mortgages, it hits the banks, and they are what the IMF is trying to shore up. Which would seem a bit pointless....I'm not saying they won't cut anything, they will. I just hope they are aware that we have massive mortgages in this country and like it or not, it's something that has to be taken into consideration (in response to iffy2007 question)

senordingdong

dan_d wrote: »

I would hope that the IMF are aware of the level of personal debt that people have in this country, in terms of mortgages, and would take that into account when considering tax hikes etc.

I doubht it.
They have probably been told everything they wanted to hear (lies, probably) to ensure the bailout was paid.

Furthermore, I can't imagine how and IMF or EMF predictions can account for the potential emmigration.
FF have fallen short on every budgetary expectancy in the past two years, likely due to people holding onto/having less money.

I have a question though...what would have happened if the state had not bailed out the banks?
What sort of effect would that have had on the ordinary Joe Soap?

K-9

dan_d wrote: »

I would hope that the IMF are aware of the level of personal debt that people have in this country, in terms of mortgages, and would take that into account when considering tax hikes etc. If people default on their mortgages, it hits the banks, and they are what the IMF is trying to shore up. Which would seem a bit pointless....I'm not saying they won't cut anything, they will. I just hope they are aware that we have massive mortgages in this country and like it or not, it's something that has to be taken into consideration (in response to iffy2007 question)

Fair point.

Latvia has a programme for mortgage arrears. The IMF there has ok'd it but have obviously questioned if it is a good long term use of scarce tax payer resources.

Scofflaw

Defaulting is something that seems to be put forward as a pain-free option, or at least one that causes only short-term pain. Were that the case, countries would default regularly. However:

Sometimes it is wise for a person to declare bankruptcy but the same is almost never true for a nation. When debts are overwhelming and bills unpayable, an individual or a company can seek the mercy of the courts and obtain protection from aggressive creditors. In the case of Argentina, which declared a moratorium on its debt repayments in December 2001 and within days defaulted on $93 billion (£59.6 billion) in sovereign borrowings, it was the beginning of a nightmare.

When the default was declared in 2002, foreign investment fled the country, and capital flow towards Argentina ceased almost completely. The Argentine government met severe challenges trying to refinance the debt. The state had no spare money at the time, and the central bank's foreign currency reserves were almost depleted.

The Argentine government kept a firm stance, and finally got a deal in 2005 by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms. In 2008, President Cristina Fernandez de Kirchner announced she was studying a reopening of the 2005 swap to gain adhesion from the remaining 24% of the so-called "holdouts", and thereby fully exit the default with private investors.

There is no bankruptcy court for nations. Defaulting sovereigns pay the ultimate price; they are sent to Coventry, shunned by commercial banks until, somehow, they can purge their debt. The only recourse is to the International Monetary Fund, which can provide emergency loans. Currently, the IMF has a pot of money, some $200 billion from contributing states, which is almost certainly inadequate to the scale of the potential demand that might emerge in the months to come. Iceland has already secured $2 billion, Ukraine has been promised upwards of $16 billion and Hungary is expecting double-digit billions. We have commitments for about 15 per cent of the kitty and the dominoes are tumbling.

For Argentina, the months that followed its "bankruptcy" were horrendous. The country went into a brutal downward spiral of inflation, currency collapse and the rationing of cash by the banks. In a nation that is a big agricultural exporter, children went hungry and and the economy imploded, shrinking by 13 per cent in a year. Unable to borrow to pay its bills, the state was forced to cut public sector wages, slash the state pension and unemployment soared to 20 per cent. Unable to pay for goods with cash, many Argentinians resorted to barter.

A sovereign default forces a nation into self-reliance mode and, if the Government lacks the will to reform its economy, it will tempted to print money to pay wages and pensions. When the choice is between paying Citigroup and paying pensioners, the political choice is obvious. However, it is no solution as the result is hyperinflation and more chaos.

The default on Argentina's commercial loans was bad enough but what followed a year later was the default on an $800 million loan from the World Bank, which left it precluded from further help by international agencies. It became embroiled in lengthy negotations with the IMF and debtors clubs. The country had borrowed too much in foreign currencies and it made matters worse for itself by pegging the value of its currency to the dollar. Argentina became uncompetitive and slipped into recession. When the currency peg was finally severed, the peso collapsed and the country was unable to repay its debts.

Where is Argentina nearly a decade later? It has paid off most of the debt - so it wound up doing that anyway, and is still haggling with the last few creditors. It managed that because it has a large internal market, and a lot of commodity exports. We have neither - instead we have a tiny domestic market and exports from an FDI-reliant MNC sector. Its bonds trade at 9.82% ten years after the crisis compared to our 8.3% mid-crisis.

For a eurozone country, would one leave the euro?

What if one of the member states of the eurozone were to default on its debt? On the occasion of the euro’s 10th birthday, this has become the most frequently asked question about the single currency zone.

Before I answer the question, it is best to consider what would not happen. For a start, the eurozone would not fall apart. A government about to default would be mad to leave the eurozone. It would mean that, in addition to a debt crisis, the country would also face a currency and banking crisis. Bank customers would simply send their euros to a foreign bank to avoid a forced conversion into a new domestic currency.

And, again, in respect of Argentina:

An outright default by Greece or any country facing a similar situation would mean exclusion from capital markets, as happened with Argentina when it defaulted in 2001. The South American country has not issued any euro or dollar-denominated debt since then as it has yet to come to an agreement with international creditors.

Essentially, default means we're entirely on our own, with no way to balance the government's books except by immediate cuts and tax hikes sufficient to make spending and income meet if we keep the euro - or a combination of that and printing money at a mad rate by the Irish Central Bank to meet the government's domestic obligations if we leave. That would mean galloping inflation - and that would immediately erode the buying power of the very wages and social welfare payments they were printing money in order to be able to fund, at the same time as import costs shot up drastically because of the devaluation of the currency. Within a couple of years of defaulting, a little over a quarter of the Argentine population was in extreme poverty, and 57% of the country was below the poverty line - unemployment was at 25%. Further, Argentina almost completely froze bank deposits, and restricted withdrawals, at the same time as inflation eroded the value of them.

Again, it's worth pointing out that one-sixth of tax revenue going to service debt interest is not unsustainable - we were paying one-quarter of tax revenue to service debt interest only 20 years ago.

Default is not the easy option by any means - that's why it's the option of last resort. Bond markets will always consider the possibility of default in any future difficulties as more likely once a country has defaulted once - and default risk is largely what drives bond spreads.

A bailout gives us more time to get things in order - a default gives us less. If we can't borrow, we have to balance the government's books immediately, not over the next four years. And we'll still be paying for the default for at least a decade, maybe longer. As far as I can see, therefore, default actually creates the very nightmare scenario people appear to think it avoids.

cordially,
Scofflaw

senordingdong

So leaving the euro would be a bad thing.

Basically, the other eurozone countries could keep us afloat untill things recover?>

Sir Oxman

The IMF will continue to lend to a country after it has defaulted as long as it is making a 'credible' effort to adhere to austerity. This is particularly important because IMF programs, aimed at long-term solvency, may even mandate a maximum percent of GDP that can be devoted to interest payments. In this way, the IMF has been viewed as a sponsor of a default, usually at the expense of private creditors.

http://www.fxstreet.com/fundamental/analysis-reports/daily-global-commentary/2010-05-13.html



From this, does it look like the EU/ECB are the bogies not the IMF?
Is it a case of the EU/ECB keeping Ireland on the path of private debt socialisation?

Permabear

This post has been deleted.

K-9

donegalfella wrote: »

This post has been deleted.

These cuts resulted in our growth figures slowing for this year.

Same will happen with the €6 Billion Budget package.

If we had brought in these severe cuts you are talking about, we probably would be back in full grown recession and the markets would have killed us quicker.

Permabear

This post has been deleted.

GampDub

Hi,

I have a couple of simple questions that I am unsure of in relation to the impending Bailout and the new 4 year budget plan:

1. I see this morning that the bailout is amounting to €85bn, will all of this money be used straight away to plug the holes in our economy or is it just something that is there in the back pocket to dip into as an when we need it?
2. If the latter is the case above, say we only use €40bn of the money and we have our out **** together (unlikely I know just hypatheical) can we just say thanks and give back the remaining €45bn and just pay off the €40m we used?
3. The new four year plan aim to cut the budget by €15bn is that after 4 years or €15bn a year for 4 years?

I know some of these questions may be basic but I'm just not too clear on them. Maybe others could use this thread to ask similar questions they are unsure of on the matters above and hopefully those of your that are more informed on the matter can help us out!

Cheers

Scofflaw

GampDub wrote: »

Hi,

I have a couple of simple questions that I am unsure of in relation to the impending Bailout and the new 4 year budget plan:

[*] I see this morning that the bailout is amounting to €85bn, will all of this money be used straight away to plug the holes in our economy or is it just something that is there in the back pocket to dip into as an when we need it?

It's in the form of the latter - a facility we can draw against. The question of whether, when, and how much will be in the hands of the government of the day.

GampDub wrote: »

[*]If the latter is the case above, say we only use €40bn of the money and we have our out **** together (unlikely I know just hypatheical) can we just say thanks and give back the remaining €45bn and just pay off the €40m we used?

Yes.

GampDub wrote: »

[*]The new four year plan aim to cut the budget by €15bn is that after 4 years or €15bn a year for 4 years?

The former - €6bn of cuts this year, €3bn a year in each of the following three years.

cordially,
Scofflaw

Sea Sharp

I'll just copy-paste a post I wrote that got lost in one of the other threads.

Sea Sharp wrote: »

This whole European banking crises can be largely traced back to burst property bubbles.

What is happening in Ireland now IS going to happen in Spain and Portugal. This is a European problem and the solution for this country needs to be part of a solution for Europe.

The EU needs to start printing a series of stimulus packages to buy up the toxic property in Ireland Spain, Portugal and Italy.

The French and Germans are reluctant for stimulus packages because of the inevitable inflation and currency devaluation that comes with printing money.

I say, screw 'em. The European property bubbles that caused this mess were fuelled by interest rates that were designed to help the French and German economies to grow.

It's absurd that the economies of one half of Europe should be crippled for decades to come because of narrow minded policies that were designed to stimulate growth in the other half of Europe.

I'm being optimistic and saying that things are so bad for us, Spain, Portugal and Greece that unless debt is written off a series of defaults will cause the Euro to collapse.

JohnMc1

Not sure whether or not this is appropriate for here but was there any word on any cuts to the VEC or will that be addressed in the Dec 7th budget?

swampgas

Scofflaw wrote: »

Defaulting is something that seems to be put forward as a pain-free option, or at least one that causes only short-term pain. ( ... Snip ...)

Thanks for those points, Scofflaw. Either way, it seems we're looking into the abyss - the question is only how deep.

It appears that there may be a tiny window of opportunity over the next few days or weeks for the country to figure out how best to get out of this mess (and there will be extraordinary pain whatever outcome is achieved) and actually make it happen.

Right now the options of either of (a) ruinous default, possibly with a domino effect into Europe, or (b) staggering debt for decades, seem so awful that I wish there were an option (c) - a way we could deal with what seems to be the core problem - the rotten banks - and separate our fate from theirs.

Is there any feasible way the country could undo the bank guarantee, let Anglo (and other banks perhaps?) go under, and not default on sovereign debt? No way at all?

Would it even be worthwhile if we could?

iffy_2007

dan_d wrote: »

I would hope that the IMF are aware of the level of personal debt that people have in this country, in terms of mortgages, and would take that into account when considering tax hikes etc. If people default on their mortgages, it hits the banks, and they are what the IMF is trying to shore up. Which would seem a bit pointless....I'm not saying they won't cut anything, they will. I just hope they are aware that we have massive mortgages in this country and like it or not, it's something that has to be taken into consideration (in response to iffy2007 question)

Well that's exactly what I thought that the last thing that the Government will be wanting to happen, people defaulting on their mortgage but after today's announcements I'm not so sure. I have no problem in taking cuts in wages, it has to be done but what I dont understand is how does the Government expect the economy to grow by increasing VAT?? So lower people's wage, increase cost of living...doesn't make sense, the Government have done nothing in these announcements to stimulate growth in the economy. People will be holding onto their pennies to buy a one way ticket off this sinking ship...:(

dan_d

I think the VAT increase is a big mistake.Whatever about anything else they've said, I don't understand the VAT increase.

My post was what I'd hope they do, nothing more...I don't know what they'll actuallly do.....

Kintarō Hattori

A few days ago before we knew about the bailout, just how much it was and how much interest we'd have to pay back I asked a question.

I asked was it a wise time to buy a house with a relatively low mortgage repayment (€600pm and say an extra €100 for insurance and assurance). The answer I got back then was yes that it shouldn't be an issue, it's a manageable amount, you need somewhere to live and prices can't go much lower (the house in question is €135,000).

So after all that has happened is it still a wise decision to want to buy a house? I know I've asked the question already but I'm sure there are plenty others like me in this position.

JohnMc1

dan_d wrote: »

I think the VAT increase is a big mistake.Whatever about anything else they've said, I don't understand the VAT increase.

My post was what I'd hope they do, nothing more...I don't know what they'll actuallly do.....

The VAT alone wouldn't be too bad its the fact that the Carbon tax which jacks up our heating and electricity and petrol prices is going up too which will cause an even bigger problem because people effected by the minimum wage cut and whatever SW cuts will take place will be spending alot less which kill businesses and assure us that we repeating this spectacle of seeing our elected officials cap in hand asking the EU and IMF for more money.

K-9

Kintarō Hattori wrote: »

A few days ago before we knew about the bailout, just how much it was and how much interest we'd have to pay back I asked a question.

I asked was it a wise time to buy a house with a relatively low mortgage repayment (€600pm and say an extra €100 for insurance and assurance). The answer I got back then was yes that it shouldn't be an issue, it's a manageable amount, you need somewhere to live and prices can't go much lower (the house in question is €135,000).

So after all that has happened is it still a wise decision to want to buy a house? I know I've asked the question already but I'm sure there are plenty others like me in this position.

I would have thought, the events of the last week or so would have made wiser to delay.

It looks like the banks are going to be asked to have even more capital, which will mean increased mortgage interest rates and the ECB are rumoured to be considering raising theirs in the foreseeable future.

The other side of that is, you mightn't get low interest rates again for a while.

gollem_1975

Kintarō Hattori wrote: »

A few days ago before we knew about the bailout, just how much it was and how much interest we'd have to pay back I asked a question.

I asked was it a wise time to buy a house with a relatively low mortgage repayment (€600pm and say an extra €100 for insurance and assurance). The answer I got back then was yes that it shouldn't be an issue, it's a manageable amount, you need somewhere to live and prices can't go much lower (the house in question is €135,000).

So after all that has happened is it still a wise decision to want to buy a house? I know I've asked the question already but I'm sure there are plenty others like me in this position.

don't know how your post ended up in this sticky post but if I was you I would wait until after the budget/finance bill anyway.

don't share your confidence that prices cant go any lower.

one way to find out is to go in with a lower offer

swampgas

Kintarō Hattori wrote: »

A few days ago before we knew about the bailout, just how much it was and how much interest we'd have to pay back I asked a question.

I asked was it a wise time to buy a house with a relatively low mortgage repayment (€600pm and say an extra €100 for insurance and assurance). The answer I got back then was yes that it shouldn't be an issue, it's a manageable amount, you need somewhere to live and prices can't go much lower (the house in question is €135,000).

So after all that has happened is it still a wise decision to want to buy a house? I know I've asked the question already but I'm sure there are plenty others like me in this position.

I would have to say wait a while. If you can afford to rent somewhere (even for more than 700) you will avoid over-committing yourself. Job / income security should be a major concern in the current circumstances. Do you really want to be tied to a mortgage on a potentially unsellable house if you need to move to find work?

maninasia

bauderline wrote: »

I really do not understand why people keep saying that Irish people need to understand moderation and statements to similar effect, as far as I understand it the current debt crisis has been caused by commercial debt caused by wreckless lending policies in our banks and government debt caused by wreckless government spending.

I really don't think the Irish public should be footing the blame or the bill for this mess.

This current crisis was caused by commercial and developer lending, yes. But it is linked with private debt as consumers were the ones willing to borrow such large amounts to fund the chain. The next crisis, not even talked about yet, is private consumer debt- meaning mortgages, credit cards, personal loans.