Bloomberg Economist suggests "No Bailout"

alang184

Matthew Lynn from Bloomberg discusses why he believes a bailout is going to do more damage to Ireland than simply defaulting:

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

What do people here think?

robbyvibes

In the long term, defaulting would be best for Irish people but it's unlikely to happen because it's the French/German and UK banks Ireland owes money to.

Ireland were drawing down from the EFSF up until the Germans basically said "no more"..it was setup to keep companies liquid who could not borrow from the bank, not prop up worthless Irish banks.

If the IMF ever do release a report on Irish finances, (I'm highly doubtful they will) we will see more fraud uncovered on a scale never seen for such a small country.

The latest loan itself is nothing more than a bandaid to prevent financial instability in EU markets.

Future generations of Irish people are being sacraficed to save the financial elite who caused all the problems in the first place through their mismanagement.

Mark my words, you cannot and will not ever resolve a debt problem with more debt.

t0mm13b

robbyvibes wrote: »

If the IMF ever do release a report on Irish finances, (I'm highly doubtful they will) we will see more fraud uncovered on a scale never seen for such a small country.

What fraud is this...?

robbyvibes wrote: »

The latest loan itself is nothing more than a bandaid to prevent financial instability in EU markets.

bandaid... seriously...? we are bust and fcuked...

robbyvibes wrote: »

Future generations of Irish people are being sacraficed to save the financial elite who caused all the problems in the first place through their mismanagement.

Mark my words, you cannot and will not ever resolve a debt problem with more debt.

True... but we got ourselves into this... look at it this way...

If you have 20 euro and spend something valued at 18 euro, equals happiness

If you have 18 euro and spend something valued at 20 euro, that equals misery

It is the second one that got ourselves into this mess....
"Don't spend more than what you cannot afford"...

Cavehill Red

alang184 wrote: »

Matthew Lynn from Bloomberg discusses why he believes a bailout is going to do more damage to Ireland than simply defaulting:

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

What do people here think?

He's spot on. The New York Times ran an article yesterday quoting a load of economists saying the same thing.

But it's hardly rocket science. If you borrow tons of money to pay off someone else's debt, you're hardly in a better place than you began, are you? No. In fact you're severely screwed.

We need to renege on the bank guarantee as a matter of primary national importance. The viability of the country is at stake, and that in no way is hyperbole. That's where we've come to now.

robbyvibes

t0mm13b wrote:

bandaid... seriously...? we are bust and fcuked...

What I'm saying is the IMF/EU loan is intended to help French/German Banks.The UK loan offer is to help UK banks.

That's all..people are under the impression Ireland are being "helped"

Far from it..

Cavehill Red

t0mm13b wrote: »

What fraud is this...?

Off-books loans to directors. Off-books loans from other institutions to inflate the balance sheet. And that's just what we ALREADY know about.

t0mm13b wrote: »

bandaid... seriously...? we are bust and fcuked...


True... but we got ourselves into this...

Speak for yourself. Or are you Seany Fitz?

t0mm13b wrote: »

look at it this way...

If you have 20 euro and spend something valued at 18 euro, equals happiness

If you have 18 euro and spend something valued at 20 euro, that equals misery

It is the second one that got ourselves into this mess....
"Don't spend more than what you cannot afford"...

Brilliant. An economics scholar taking his lessons from Dickens' Hard Times. Well, hard times is accurate enough. But your lesson only covers our deficit, and every country bar China is pretty much running a deficit.

Nothing in Charlie's sage wisdom suggests why we should cover the debts of a corrupt bank that lent money unwisely and is now effectively bankrupt. Let it go to the wall and let the speculative bondholders go hang. Isn't that how capitalism is SUPPOSED to work?

femur61

God we can't default. If we default then we would become alienated from the Germany and the UK. It is very evident we can't go it alone, even though through the Celtic tiger years Bertie had us convinced we could. Now look at the mess we are in. Its not caused by the global environment, which doesn't help, but a lot of it is our own doing. We elected people who we believed but in reality and a stark reality they were lining their own pockets and their friends. And it will happen again. E'g theologian run state for years, Charlie Haughy, P, Flynn's example of the politicians, and finally Bertie.

emptybladder

Caveman, do you mean renege on the guarantee for peoples deposits in banks (i.e. the 100k), and if so, why? Just interested in your opinions.

Cavehill Red

emptybladder wrote: »

Caveman, do you mean renege on the guarantee for peoples deposits in banks (i.e. the 100k), and if so, why? Just interested in your opinions.

No. I mean renege on the bondholders. Depositors are already guaranteed under Irish law up to 100,000 euro per account. The Iceland tactic, you might call it.

t0mm13b

Cavehill Red wrote: »

Speak for yourself. Or are you Seany Fitz?

LOL!

Cavehill Red wrote: »

Brilliant. An economics scholar taking his lessons from Dickens' Hard Times. Well, hard times is accurate enough. But your lesson only covers our deficit, and every country bar China is pretty much running a deficit.

Nothing in Charlie's sage wisdom suggests why we should cover the debts of a corrupt bank that lent money unwisely and is now effectively bankrupt. Let it go to the wall and let the speculative bondholders go hang. Isn't that how capitalism is SUPPOSED to work?

Aye, maybe, but as a learning economics scholar, (aint we all on this boards.ie!) it's common sense, it was all on paper anyway, and we went out our way to overblow it... and boom, teh 5h1t has hit the fan.... c'mon... Dickens hard times me eye.... it's logical and common sense....

digme

robbyvibes wrote: »

What I'm saying is the IMF/EU loan is intended to help French/German Banks.The UK loan offer is to help UK banks.

That's all..people are under the impression Ireland are being "helped"

Far from it..

that's exactly right

SonOfAdam

Came across this 'translation' here



"Look it is becoming obvious that the Paddies are getting less
likely to be able to pay those ****ing bonds that we bought off the
bastards. We could be facing a loss of 90 billion euro because these
donkeys are flat broke. Lets get the ECB to buy this junk so that we
get our cash. Listen lads it has been shown often enough that the
Krauts are just as stupid so we will pretend that they are buying.
We will have our 90 billion and we can tell the thick micks that we
bailed them out and they being gobshythes will never figure out that
they bailed us out instead."

Fairly much sums it up .

digme

SonOfAdam wrote: »

Came across this 'translation' here



"Look it is becoming obvious that the Paddies are getting less
likely to be able to pay those ****ing bonds that we bought off the
bastards. We could be facing a loss of 90 billion euro because these
donkeys are flat broke. Lets get the ECB to buy this junk so that we
get our cash. Listen lads it has been shown often enough that the
Krauts are just as stupid so we will pretend that they are buying.
We will have our 90 billion and we can tell the thick micks that we
bailed them out and they being gobshythes will never figure out that
they bailed us out instead."

Fairly much sums it up .

And the funny thing is they will use this so called bank bailout digital currency to attack Portugal next.

Sand

Defaulting needs to be a serious option, I wouldnt rule it out and (were I dealing with the ECB/IMF/EU on this bailout option) Id certainly be asking the ECB/IMF/EU to present me with a good case for not defaulting.

If we go in there saying "Oh god, we'll never default - that'd be terrible, that'd be unthinkable!!!" then our negotiating team might as well assume the position, strapped across the conference table. The one thing the Germans and the British are terrified of is that we will default and bring down Portugal, Spain or even Italy with us - along with a host of German and British banks. The old adage of if you owe the bank 1,000 euro its your problem, if you owe the bank 100 million euro it's the banks problem is even truer when you owe the bank 350 billion euro.

The nuclear option of default is our bargaining chip, and we need to retain it. If we are going to be good Europeans and play our part for the team (and we have for the past 3 years) then we're going to need to see some European solidarity in return in terms of a bailout that actually merits the term "bailout".

A loan at any interest rate higher than 2-3% wont be a bailout, it'll just be more and more debt loaded onto an economy that cant pay back the existing debt.

Id also note that back in 2008 we had the option of letting the Irish banks go to the wall and default on their debts then. We were told then that this would be the worst possible thing ever, worse than the famine, worse than Cromwell, worse than Jedward.

Instead we unthinkingly socialised the entire debt of the private sector and turned what would have been a default by private Irish banks of private debt into a prospective default of the sovereign on ECB debt. Not only did this paralyse the governments response to the economic crisis, it also badly weakened Irelands own ability to raise funds abroad. Tying an anchor to yourself before you go swimming in rough seas isnt going to end well.

Lets not get bounced into another stupid agreement by ruling out default as unthinkable. Default is very, very thinkable and we need to get the ECB/IMF and EU to present us with good reasons not to default. And if they are unwilling, then we need to default. Because "unthinkable" as it is, we are all out of road to kick the can down.

Cavehill Red

Couldn't agree more, Sand. We have to default. It's a matter of when, not if. You don't resolve a debt crisis with more debt.
Anglo's not our sovereign debt and we should renege on it and the bank guarantee in general. These banks are gangrenous and rotting and the markets know that. Their only interest is to extort some money out of the Irish taxpayer before their investments go kaput.

Sand wrote: »

The old adage of if you owe the bank 1,000 euro its your problem, if you owe the bank 100 million euro it's the banks problem is even truer when you owe the bank 350 billion euro.

I'd extend that further: if you owe the bank a 1000 euro, it's your problem. If you owe them 100 million, it's their problem. And if you owe the bank 350 billion, the bank is everyone's problem.

amacca

Agreed... I think!

but: if we do put that gun to the ECB/IMF/EU heads, would Portugal not do so also....followed by Spain etc

can ECB/IMF/EU afford to offer nice favorable terms (2-3%) to these economies as well?

or if they cant then;

can the ECB/IMF/EU afford to have a europe wide wave of bank collapses/sovereign defaults as the credit merry go round grinds to a halt?

I'm sure above comes across as uninformed but would like to hear your thoughts/corrections

Sand wrote: »

Defaulting needs to be a serious option, I wouldnt rule it out and (were I dealing with the ECB/IMF/EU on this bailout option) Id certainly be asking the ECB/IMF/EU to present me with a good case for not defaulting.

If we go in there saying "Oh god, we'll never default - that'd be terrible, that'd be unthinkable!!!" then our negotiating team might as well assume the position, strapped across the conference table. The one thing the Germans and the British are terrified of is that we will default and bring down Portugal, Spain or even Italy with us - along with a host of German and British banks. The old adage of if you owe the bank 1,000 euro its your problem, if you owe the bank 100 million euro it's the banks problem is even truer when you owe the bank 350 billion euro.

The nuclear option of default is our bargaining chip, and we need to retain it. If we are going to be good Europeans and play our part for the team (and we have for the past 3 years) then we're going to need to see some European solidarity in return in terms of a bailout that actually merits the term "bailout".

A loan at any interest rate higher than 2-3% wont be a bailout, it'll just be more and more debt loaded onto an economy that cant pay back the existing debt.

Id also note that back in 2008 we had the option of letting the Irish banks go to the wall and default on their debts then. We were told then that this would be the worst possible thing ever, worse than the famine, worse than Cromwell, worse than Jedward.

Instead we unthinkingly socialised the entire debt of the private sector and turned what would have been a default by private Irish banks of private debt into a prospective default of the sovereign on ECB debt. Not only did this paralyse the governments response to the economic crisis, it also badly weakened Irelands own ability to raise funds abroad. Tying an anchor to yourself before you go swimming in rough seas isnt going to end well.

Lets not get bounced into another stupid agreement by ruling out default as unthinkable. Default is very, very thinkable and we need to get the ECB/IMF and EU to present us with good reasons not to default. And if they are unwilling, then we need to default. Because "unthinkable" as it is, we are all out of road to kick the can down.

Sand

but: if we do put that gun to the ECB/IMF/EU heads, would Portugal not do so also....followed by Spain etc

can ECB/IMF/EU afford to offer nice favorable terms (2-3%) to these economies as well?

There is a game to be played here. A lot of people have lost a lot of money. The peripheral countries who boomed and busted. And the core economies who gave them the credit card. So long as we refuse to acknowledge the problem as being anything other than a liquidity problem then we dont have to recognise that a lot of people have lost a lot of money.

This is the catch 22: If the bailout is too generous, why bother being disciplined? So the ECB/EU/IMF have an interest in ensuring it is a tough bailout to scare Portugal/Spain/Italy into remaining disciplined - because if they start playing up then the game is up. Thats their angle. And best of luck to them.

However, if the bailout is too harsh, why should Ireland accept it instead of defaulting? Thats our angle, and we need to stand up for ourselves. And we have got a good hand if we choose to play it, because theyve given us a box of hand grenades to play with. If we default, we can take down a couple of British and German banks, plus the Portugeuse and Spanish ability to borrow, and by extension the Euro project. Quite simply, the core powerbrokers have more to lose than we do.

Ireland needs a 2-3% interest rate...tops. We simply cant afford to pay more than that. If we cant get a deal that gives us that or better, then theres no point taking on a "rescue" that will simply land us with more debt we cant pay back. We are and have been good Europeans back in 2007-8 and its pushed us to this debacle. At some point the fantasy that everyone in Europe can somehow avoid the massive losses made over the past 10 years is going to end. We have to ensure Ireland is best placed for this. Thats got to be our bottom line.

If the EU/ECB/IMF cant offer us a deal whereby the cost of the "bailout" is less than the cost of defaulting, then we need to default.

can the ECB/IMF/EU afford to have a europe wide wave of bank collapses/sovereign defaults as the credit merry go round grinds to a halt?

No, they cant. Thats the real power we have in negotiations. If anyone steps out of the game and says "This is ridiculous...a lot of money has been lost, we cant pretend that away" then the whole charade will come crashing down.

david75

Defaulting should be seriously considered but our government wont take that path at all. The euro itself is relying on Ireland to play it's part here, the whole thing could go down if we default and the germans and Brusseles wont allow that to happen and there's no way in hell Cowen is considering it.

Fintan o Toole has a really excellent view on this in his latest article

http://www.irishtimes.com/newspaper/opinion/2010/1123/1224283932871.html?sms_ss=facebook&at_xt=4cec1e2bde1845b7%2C0

wylo

Cavehill Red wrote: »

Couldn't agree more, Sand. We have to default. It's a matter of when, not if. You don't resolve a debt crisis with more debt.

If it really is a matter of when and not if, and dont get me wrong I agree with you, then why not just take the bailout and let the default happen? Theyre not going to get their money back either way so what harm in taking the bit of cash we do get.

th3 s1aught3r

I think the EU/IMF has Ireland covered in terms of what our bailout will cost. Even if its more than 100bn. The worry is if others start to default and the cash gets short. Then clearly the Euro starts to disintegrate
The fact that Portugese and Spanish bond rates are moving higher is a big concern

Cavehill Red

wylo wrote: »

If it really is a matter of when and not if, and dont get me wrong I agree with you, then why not just take the bailout and let the default happen? Theyre not going to get their money back either way so what harm in taking the bit of cash we do get.

Because then we would be defaulting on sovereign debt and not on bank debts.

The bank debts aren't ours. Comical Lenny just said we'd cover them. He never asked me or you about that. It wasn't supposed to be forever anyway. Well, the time has come to pull that guarantee.

If we take this bailout, that makes the bank debt permanently ours. Then, when we default, we default on our sovereign debt, possibly causing the scenario some people fear whereby we cannot go to the markets for bonds again.

But if we default on the bank debts, which aren't truly ours, the markets can see that actually as a nation we are funded into next year and are taking the correct austerity measures to fix our deficit. We'll still get funded in that case.

Our bonds shot up because the banks are going tits up. Ploughing these billions into them is pissing good money after bad.

Little Mickey

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