Default is inevitable. Discuss.

PeterIanStaker

Ok everyone, its time to acknowledge the elephant in the room.

No point in getting carried away with artificial optimism just because there'll be a new government in the Dail soon. It doesn't matter a damn what party sits in Leinster house.

Nor does it matter if its a coalition or a majority/minority single party administration.

I reckon the country will have to default sooner rather than later.

Thoughts?

goz83

I don't think we should default, but I do think there needs to be a balance here. People who were sold unsuitable/unsustainable loans (primarily mortgages) should be in receipt of a negative equity drop. Yes, I am one of those people, but I would be saying the same thing if I wasn't. The banks should not get paid extra profits because of the lies they forced upon us.

mydogjack

Agree strongly. What will happen to mortgages since that money is effectively owed to the E.C.B too? Hopefully, prob not realistic, we all default to Europe and start from scratch with a new currency.

SkepticOne

There's been a fair amount of arguments from economists and financial experts that Ireland can't pay back its debt on its own and that therefore default is inevitable at some point. Most recently was the article in the FT by Martin Wolf in the FT that is being discussed here.

I think when discussions of default come up, those advocating continuing on the current path set out by the government don't really appreciate the full extent of the mess that same government has put us in.

Duke Leonal Felmet

It probably will happen, or rather a major restructuring of debt.

iPlop

I personally think defaulting is the best way forward tbh.Then and only then can we get the EU ,IMF to the table to start thrashing out some sort of agreement.I do think because the way we are on the job front there should be some sort of relief for mortgage holders ,what I mean is a reduction in the size of the mortgage ,maybe 30% ,if there were jobs out there I wouldn't think this.

BTW I didn't buy in the boom ,and before anyone starts with the "shouldn't have bought it" ," throw 'em to the streets" nonsense ,lets not derail the thread about who should have done what ,sure we could say the same for the banks and the government.We need to fix what has happened ,Ireland will default the same way Mortgage holders have been ,why?

Because Ireland is broke the same way mortgage holders are ,simple!

bhovaspack

Another (related) elephant in this by now overcrowded and rather squalid room, is the non-existent discussion on precisely what is likely to occur in the short term after default. Even the parties calling for default are evasive on this subject, with the standard being a few rote responses about Argentina and Iceland (countries that have nothing in common with Ireland in terms of population, natural resources or potential for self-sufficiency). And that's where these parties lose a lot of credibility in my eyes.

People are less fearful of abstract economic outcomes than they are about the idea of short-term shutdown of hospitals, food shortages, breakdown of law and order. By failing to elaborate on concrete post-default practicalities, the default crowd leave people's imaginations at the mercy of doomsayers and rumour-mongers, and until those practicalities are addressed people will continue to look the other way as far as default as a viable option is concerned.

RonMexico

It is increasingly looking like not a case of if, but when.

Europe seemingly want to drag this out as long as possible to save face.

jimmycrackcorm

What's amazing is that people are responding to sinn feins call for default and not realizing that it means huge cuts in public pay and welfare.

Not even those in the private sector arguing about over paid ps workers would want to see those scale of cuts introduced.

SkepticOne

bhovaspack wrote: »

Another (related) elephant in this by now overcrowded and rather squalid room, is the non-existent discussion on precisely what is likely to occur in the short term after default. Even the parties calling for default are evasive on this subject, with the standard being a few rote responses about Argentina and Iceland (countries that have nothing in common with Ireland in terms of population, natural resources or potential for self-sufficiency). And that's where these parties lose a lot of credibility in my eyes.

People are less fearful of abstract economic outcomes than they are about the idea of short-term shutdown of hospitals, food shortages, breakdown of law and order. By failing to elaborate on concrete post-default practicalities, the default crowd leave people's imaginations at the mercy of doomsayers and rumour-mongers, and until those practicalities are addressed people will continue to look the other way as far as default as a viable option is concerned.

We're going to have it worse than Iceland (which did not really default on sovereign debt) and Argentina, both of whom have their own currencies which can devalue. But this isn't about the desirability of default but the inevitability of default without large scale restructuring.

iPlop

jimmycrackcorm wrote: »

What's amazing is that people are responding to sinn feins call for default and not realizing that it means huge cuts in public pay and welfare.

Not even those in the private sector arguing about over paid ps workers would want to see those scale of cuts introduced.

It's not Sinn Fein's call to default ,it's the realisation that we can't continue the way we are ,it's not sustainable ,Ireland trying to pay an over priced mortgage and it's residents doing the same with unemployment in double digit figures.We could do it if we had a substantial number of people employed ,but with the wages being reduced by employers and a reduction with everything else ,it's inevitable that Ireland will default.

How in the name of God can Ireland pay money it doesn't have? The Over priced mortgage holders don't have it ,and there's not enough tax money from PRSI workers to plug the hole ,so default is on the cards.

jimmycrackcorm

Default is not an inevitably though. Debt restructuring is more likely the outcome which will include some form of debt mitigation.

SkepticOne

jimmycrackcorm wrote: »

Default is not an inevitably though. Debt restructuring is more likely the outcome which will include some form of debt mitigation.

Would you agree that it is an inevitability under the current bailout package?

zig

I dont think theres ever going be a default as we know it , i.e. there isnt going to be a big news day where the headline is "ireland is defaulting". I think it will be a gradual process where perhaps bond holders will begin to take some cuts , there will be probably be another gradual process where there is some equity swap, I reckon our ECB debt will probably be slowly restructured, but I dont think were ever officially simply not going to pay it back. I think this will also be a gradual progress as economic events unfold. There will probably be a cut and then the rest will be spread out over a longer period of time or something. I think the main group that will get all their money back will be the IMF. Not sure about the EU part of it, they may also waive some of the debt in the long run.

But as I said, I dont think we'll ever simply default. At least thats not how its going to be presented to us by politicians.

jimmycrackcorm

SkepticOne wrote: »

Would you agree that it is an inevitability under the current bailout package?

If we're not defaulting today then when? We're going to be saddled with huge interest payments. Dmw wrote that 85% of paye income would go towards paying the interest.

However I remember the same argument in the 80's when paye all went on interest on the national debt. We didn't default then...

iPlop

jimmycrackcorm wrote: »

Default is not an inevitably though. Debt restructuring is more likely the outcome which will include some form of debt mitigation.

Debt mitigation for Ireland ,Yes I would agree ,and the source of income for Ireland ,ie: the tax payer ,debt mitigation equally! Let's do this on an even keel ,you cannot expect the tax payer to give 2006 levels of tax when Ireland cannot support it's own citizens ,and the citizens cannot support themselves and theres double digit figures unemployed.

We need to start again..

hardcore

I think a deposit based bank is now needed and seperated away from AIB and BOI, also it should include good loans and then be privtised. Keeping our banking system the way it is exposes too many tax payers deposits, mortgages and loans to a future default. We are loseing enough deposits out of the country and a run on the banks is halfway in process.

SkepticOne

I would agree with zig earlier in the thread that most likely there won't be headlines stating that Ireland is defaulting on its loans. However what I would assume this thread is about is the inevitability of default under the current arrangements (the EU/IMF deal and so on). If these continue as they are then what are the chances of default?

Most likely the conditions will change. But in order for this to happen, those lending us the money must be incentivised to make this change. Right now, as far as they are concerned, we are being assisted. As far as they are concerned we are being given the help that we need to recover.

Therefore, if we are inevitably going to default under the current arrangements, we must bring this to their attention. In other words the threat of default must be made. But in order to make a threat of something you must be prepared to go through with it.

This is why the threat of default should not be dismissed as populist. Threatening default may be the only way to spur the EU into action and we want this action to happen sooner rather than later. It is not that default in itself is desirable, but rather that it is inevitable under a particular set of conditions and, if it is inevitable, it needs to be used to bring about a change in those conditions.

SkepticOne

jimmycrackcorm wrote: »

If we're not defaulting today then when? We're going to be saddled with huge interest payments. Dmw wrote that 85% of paye income would go towards paying the interest.

However I remember the same argument in the 80's when paye all went on interest on the national debt. We didn't default then...

I think he said 85% of all income tax not paye tax as was the case in the 80's. But if you are correct and we will not default under the current EU deal, then why should they agree to restructure anything.

Scofflaw

jimmycrackcorm wrote: »

If we're not defaulting today then when? We're going to be saddled with huge interest payments. Dmw wrote that 85% of paye income would go towards paying the interest.

However I remember the same argument in the 80's when paye all went on interest on the national debt. We didn't default then...

This is kind of my problem, too. I see a case for default or restructuring, if it's cheaper in the long run. I don't see any inevitability, though.

cordially,
Scofflaw

iPlop

Scofflaw wrote: »

This is kind of my problem, too. I see a case for default or restructuring, if it's cheaper in the long run. I don't see any inevitability, though.

cordially,
Scofflaw

But ,how long can Ireland maintain this false deficit based on 2006 tax levels ,we should never be trying to make up the impossible ,this is what the bond holders expect ,and in order to achieve their levels of return ,we need to cripple the public and pay back a stupid level of interest that will ultimately result in relinquishing our 12.5% corporate tax.

Scofflaw

Sink The Banana wrote: »

But ,how long can Ireland maintain this false deficit based on 2006 tax levels ,we should never be trying to make up the impossible ,this is what the bond holders expect ,and in order to achieve their levels of return ,we need to cripple the public and pay back a stupid level of interest that will ultimately result in relinquishing our 12.5% corporate tax.

That's the case for default - but doesn't make default inevitable. For default to be inevitable, there has to be a position in which we cannot pay interest or the debts, rather than just preferring not to.

Or does "default is inevitable" just mean "I believe that at some point the political choice will be taken to do it"?

cordially,
Scofflaw

Idbatterim

I think this is one of the funny thing about the election, in the scheme of things I dont think it really matters who gets in, they are not going to be able to dodge the inevitable. It says something about the ignorance of a significant number of the electorate, that they think defaulting is just a case of saying were not paying you back and carry on like business as usual! of course these same people dont want welfare cut, taxes increased etc! let someone else pay, let the rich pay etc... At the very least Id imagine a debt restructuring is inevitable, total default would be avoided at all costs by the government here and by Europe Id imagine... Also nobody had to buy s**t, whats wrong with renting? I mean people are calling for a bailout for certain mortgage holders, I want to know what mortgage holders would say to me as a taxpayer now, if their homes went up in value and I wanted a share of the profit?

goz83

Idbatterim wrote: »

Also nobody had to buy s**t, whats wrong with renting? I mean people are calling for a bailout for certain mortgage holders, I want to know what mortgage holders would say to me as a taxpayer now, if their homes went up in value and I wanted a share of the profit?

Being at the mercy of a landlord, as you may well know is not a very comfortable thing at all. You can do sweet feck all to turn a rented property into your home, unless of course you've been given a council house. And with 40 year mortgages and higher repayments than rental costs, I would say the cost balances out over a life time (with the exception of subsidised rents). When you have a family, the thing to do is buy a house and have your home and life insurance etc etc. God forbid you were renting a 3 bed semi in Dublin with your partner and 3 kids and you croaked it! What then?

I don't really understand your point about houses going up in value either. If you're living in it, what does it matter? If you sell a house, which increased in value, then most likely, every other house has incresed in value too, so there is no gain, unless you downgraded. People have problems with being sold mortgages by lying two-faced bankers at huge profits, who knew what was coming and offered 110% mortgages to add fuel to the out of control fire, which was our economy. This is why people want their mortgages to be re-adjusted by taking away the negative equity. This seems fair when you consider that the bankers are also the people who cost hundreds of thousands of people their jobs, their livelihood, their means of putting food on the table for their families. Instead, they raise interest rates AND take our money from the exchequeur. Oh, lets not forget that most of them got nice bonuses AFTER fecking up everything for us.

danbohan

goz83 wrote: »

Being at the mercy of a landlord, as you may well know is not a very comfortable thing at all. You can do sweet feck all to turn a rented property into your home, unless of course you've been given a council house. And with 40 year mortgages and higher repayments than rental costs, I would say the cost balances out over a life time (with the exception of subsidised rents). When you have a family, the thing to do is buy a house and have your home and life insurance etc etc. God forbid you were renting a 3 bed semi in Dublin with your partner and 3 kids and you croaked it! What then?

I don't really understand your point about houses going up in value either. If you're living in it, what does it matter? If you sell a house, which increased in value, then most likely, every other house has incresed in value too, so there is no gain, unless you downgraded. People have problems with being sold mortgages by lying two-faced bankers at huge profits, who knew what was coming and offered 110% mortgages to add fuel to the out of control fire, which was our economy. This is why people want their mortgages to be re-adjusted by taking away the negative equity. This seems fair when you consider that the bankers are also the people who cost hundreds of thousands of people their jobs, their livelihood, their means of putting food on the table for their families. Instead, they raise interest rates AND take our money from the exchequeur. Oh, lets not forget that most of them got nice bonuses AFTER fecking up everything for us.

People have problems with being sold mortgages by lying two-faced bankers at huge profits, who knew what was coming and offered 110% mortgages

people have a problem accepting the reality , ie personal responsibility or in many cases lack of

PeterIanStaker

Scofflaw wrote: »

Or does "default is inevitable" just mean "I believe that at some point the political choice will be taken to do it"?

Perhaps there will be no choice in the matter? In maybe 18 months the financial situation will be so dire that the only alternative is to run out of money enitrely?

Scofflaw

PeterIanStaker wrote: »

Perhaps there will be no choice in the matter? In maybe 18 months the financial situation will be so dire that the only alternative is to run out of money enitrely?

Why, though? We have €35bn coverage for the banks, and €50bn coverage for the budget deficit. How do we blow all that in 18 months?

cordially,
Scofflaw

kenrr

SkepticOne wrote: »

I would agree with zig earlier in the thread that most likely there won't be headlines stating that Ireland is defaulting on its loans. However what I would assume this thread is about is the inevitability of default under the current arrangements (the EU/IMF deal and so on). If these continue as they are then what are the chances of default?

Most likely the conditions will change. But in order for this to happen, those lending us the money must be incentivised to make this change. Right now, as far as they are concerned, we are being assisted. As far as they are concerned we are being given the help that we need to recover.

Therefore, if we are inevitably going to default under the current arrangements, we must bring this to their attention. In other words the threat of default must be made. But in order to make a threat of something you must be prepared to go through with it.

This is why the threat of default should not be dismissed as populist. Threatening default may be the only way to spur the EU into action and we want this action to happen sooner rather than later. It is not that default in itself is desirable, but rather that it is inevitable under a particular set of conditions and, if it is inevitable, it needs to be used to bring about a change in those conditions.

The IMF-style hawkish view ..... default is nowhere near 100% inevitable under the current arrangements (the EU/IMF deal and so on) if everything is implemented in full i.e. including cutting the Govt deficit by at least 15bn a year within 4 years and subsequently maintaining that level of cuts and also possibly selling off assets to further reduce Govt debt levels. At this stage, when loans have only just started to be drawn down, it's highly improbable that Govt could convince the EU of that inevitability.

Of course, you can project forward scenarios involving varying levels of pessimism that may possibly, but not necessarily inevitably, verge on default. But that would be a situation unfolding over an extended period of time as the loans are drawn down over the years and repayments have to be made some years in the future.

Default is only inevitable if we don't get the EU/IMF assistance. If we're not bluffing, we can threaten not to make the 15bn cuts and/or not to sell off assets; which means the EU/IMF will not allow the progressive drawdown of the loans; which results in default. But there's no convincing way of "threatening" that default is inevitable with the current package until we're perhaps near the end of the 4 year period of cutting 15bn annually and the major part of the borrowing/re-payment is in progress.

I'd also add that most views on this appear to assume that Ireland can just stop paying money owed to the EU, foreign bondholders etc etc. Ireland undoubtedly has assets in overseas jurisdictions that could possibly be frozen etc to cover payments to overseas entities.

Scofflaw

kenrr wrote: »

The IMF-style hawkish view ..... default is nowhere near 100% inevitable under the current arrangements (the EU/IMF deal and so on) if everything is implemented in full i.e. including cutting the Govt deficit by at least 15bn a year within 4 years and subsequently maintaining that level of cuts and also possibly selling off assets to further reduce Govt debt levels. At this stage, when loans have only just started to be drawn down, it's highly improbable that Govt could convince the EU of that inevitability.

Of course, you can project forward scenarios involving varying levels of pessimism that may possibly, but not necessarily inevitably, verge on default. But that would be a situation unfolding over an extended period of time as the loans are drawn down over the years and repayments have to be made some years in the future.

Default is only inevitable if we don't get the EU/IMF assistance. If we're not bluffing, we can threaten not to make the 15bn cuts and/or not to sell off assets; which means the EU/IMF will not allow the progressive drawdown of the loans; which results in default. But there's no convincing way of "threatening" that default is inevitable with the current package until we're perhaps near the end of the 4 year period of cutting 15bn annually and the major part of the borrowing/re-payment is in progress.

And there's the rub - if default is not "inevitable" because we cannot pay, then default is clearly voluntary because we will not pay. And at this stage, when we've barely even tried to implement the programme, a claim that we cannot pay is hardly credible.

How much of the "oh god we can't pay this!" is just shock?

cordially,
Scofflaw

PeterIanStaker

Scofflaw wrote: »

Why, though? We have €35bn coverage for the banks, and €50bn coverage for the budget deficit. How do we blow all that in 18 months?

cordially,
Scofflaw

Trust me, they'll find a way.

Idbatterim

In relation to the mortgages "caveat emptor" AFAIC! Also the cuts & tax increases are based on growth rates that seem quite unrealistic, meaning there most likely will have to be even more cuts and taxes! Leading to a further deterioration in the moral, consumer spending etc. The thing is, this isnt a quick shock for a year or two, this is going to takes years, possibly decades to rectify, look at the debt we are taking on just to keep the show on the road, and even at that the "savage cuts" are pretty negligible...

Permabear

This post has been deleted.

goz83

danbohan wrote: »

People have problems with being sold mortgages by lying two-faced bankers at huge profits, who knew what was coming and offered 110% mortgages

people have a problem accepting the reality , ie personal responsibility or in many cases lack of

When you consider that financial institutions (the ECB, ICB and the banks in general), as well as all the advice available to the first time buyer between 2004 and 2008, it would only be fair to say that getting a home for ones family was the responsible thing to do, before prices got so high, that nobody could afford to buy. It looked like society was going to become the poor renting homes from the rich if you didn't buy on time. That's the propaganda we were being fed. With 2 at the time, it would be fair to say I had a "responsibility" to put a roof over their heads. We didn't take out the 110% mortgage either, we took only what was needed to purchase the average 3-bed semi in Dublin. I actually bought the house from my dad and paid separately for the contents he was leaving behind. It's easy to call someone else irresponsible when you have your own unfounded opinions of of someone elses circumstances and reasons for buying an over priced house. I don't care that it cost €400k and would have no issue paying back a loan for the rest of my life it it had been sold honestly. Throw on top the insult that everyones wages are slashed to bits thanks to the banks and many others lost their jobs because of it. Maybe then you might see why I, and countless others are angry and suffering needlessly.

I wonder how happy you would be if for example you bought a nearly new car with only 15 thousand kilometres on the clock from your local dealer, paying 20k in cash and part exchange. Great bargain, because that particular type of car is selling at 30k everywhere else. Then the engine seizes after a week of light driving. It will cost 3k to replace. Then the mechanic you hire tells you that the car has been clocked and finds an old service sticker under the dash with 180 thousand kilometres on the sticker. Then you get a letter from the bank to say that 20k is owed on the car for finance, which is now your responsibility. You phone the dealer, but the sales rep no longer works there and the dealer claims no responsibility, and says that you were told everything at the point of sale and got a bargain. The car was clearly advertised as an ex-company car with outstanding finance. Would you be angry? Would you think perhaps you were lied to? Would you so quickly dismiss someone who was sold a loan 20 times bigger using similar unethical practices?

maninasia

It's a tough one, but nobody would have complained if the price went up. At least I never heard any house owner complaining 'oh my house is worth 50, 000 euro more than last year...I feel sorry for the guy I'm going to sell it on to', just telling how much imaginary money they had made that year and the last. Prices go up and prices go down, it's a basic fact. That they went down so quickly and things change quickly, well things changed quickly before that and they went up so quickly too.

PeterIanStaker

Permabear wrote: »

This post had been deleted.

Which is exactly what will happen at the next GE.

ei.sdraob

SkepticOne wrote: »

then what are the chances of default?

still 50% chance of default in next few years

glass half empty or half full

danbohan

goz83 wrote: »

When you consider that financial institutions (the ECB, ICB and the banks in general), as well as all the advice available to the first time buyer between 2004 and 2008, it would only be fair to say that getting a home for ones family was the responsible thing to do, before prices got so high, that nobody could afford to buy. It looked like society was going to become the poor renting homes from the rich if you didn't buy on time. That's the propaganda we were being fed. With 2 at the time, it would be fair to say I had a "responsibility" to put a roof over their heads. We didn't take out the 110% mortgage either, we took only what was needed to purchase the average 3-bed semi in Dublin. I actually bought the house from my dad and paid separately for the contents he was leaving behind. It's easy to call someone else irresponsible when you have your own unfounded opinions of of someone elses circumstances and reasons for buying an over priced house. I don't care that it cost €400k and would have no issue paying back a loan for the rest of my life it it had been sold honestly. Throw on top the insult that everyones wages are slashed to bits thanks to the banks and many others lost their jobs because of it. Maybe then you might see why I, and countless others are angry and suffering needlessly.

I wonder how happy you would be if for example you bought a nearly new car with only 15 thousand kilometres on the clock from your local dealer, paying 20k in cash and part exchange. Great bargain, because that particular type of car is selling at 30k everywhere else. Then the engine seizes after a week of light driving. It will cost 3k to replace. Then the mechanic you hire tells you that the car has been clocked and finds an old service sticker under the dash with 180 thousand kilometres on the sticker. Then you get a letter from the bank to say that 20k is owed on the car for finance, which is now your responsibility. You phone the dealer, but the sales rep no longer works there and the dealer claims no responsibility, and says that you were told everything at the point of sale and got a bargain. The car was clearly advertised as an ex-company car with outstanding finance. Would you be angry? Would you think perhaps you were lied to? Would you so quickly dismiss someone who was sold a loan 20 times bigger using similar unethical practices?

you can blame all and sundry , but the reality is you choose to buy , you paid the going price at the time and you were happy to do so , if the house was worth 800k now would you be blaming the bank for "tricking you"

sold honestly , thats just claptrap . in every country their is or has been property booms and crashes and anybody buying property in 2002-2008 that did not realise that were blind or burying their head in the sand

RichardAnd

PeterIanStaker wrote: »

Which is exactly what will happen at the next GE.

Agreed. FG will get in this time around but after 3-5 years of trying to get this country to a state of normality, Joe Public will be riving to see spend thrift FF back into power. After that, the whole cycle kicks off again

Sand

@Scofflaw

And there's the rub - if default is not "inevitable" because we cannot pay, then default is clearly voluntary because we will not pay. And at this stage, when we've barely even tried to implement the programme, a claim that we cannot pay is hardly credible.

How much of the "oh god we can't pay this!" is just shock?

cordially,
Scofflaw

Well, the cant pay/wont pay argument can be confused - but it can also reflect political realities, which cant be ignored either. Default is always voluntary. We could always close down schools, end health care, ration food, send the army in to loot wealth from homes and factories so unless we had exhausted all efforts to find any fraction of wealth left on the island then a default would be a case of "wont pay", not "cant pay". The rest of the EU quite easily *could* pay for the Irish banking losses by recapitalising their own banks, but they *wont* pay until we give them reason to. Thats a political reality too that we cant ignore.

The problem that makes default inevitable is that the government has guaranteed both the entire banking system and has a fiscal crisis to handle plus a massive property investment fund in the shape of NAMA. Theres a whole host of contradictory objectives across all these areas:

- The guaranteed banks need to return profitability so they can trade their way out of trouble, they must increase variable mortgage rates.

- The government must cut spending, they must cut public sector wages and/or employment

Both in their own right make perfect sense - taken together,the end result is public sector mortgage holders being sacked or taking wage cuts whilst their mortgages are going up and up and up. In the end they default, and the banks must write down the loss, hitting their balance sheet and putting the loss back on the taxpayer. And given Irelands bankruptcy laws, any economic potential of that worker is written off for the next ten years, if they stay in the country at all. The same is true of NAMA's attempts to prevent commercial property being sold at market prices, and thus limiting the potential for economic activity or recovery - "Zombie Hotels" for example are strangling actually viable businesses and employers, at taxpayers expense.

Irish taxpayers cant cover *everyones* losses, and given the way the government has rushed about recklessly guaranteeing everyone default on at least one of those guarantees is inevitable, even if the fiscal situation is brought under control. And thats a mighty big if: spending has increased every year since 2007 despite several "austerity" budget, growth projections being cut and interest rates increasing.

We arent Greece, this isnt a liquidity crisis and this isnt a fiscal crisis - its a solvency crisis and a banking crisis at its core, and Ireland stupidly tied the anchor of the banks around itself before it went swimming in rough seas. Ireland could balance its budget in 2016 and *still* be forced to default. NAMA has already taken an 8-10% writedown of their portfolio in 2010, and Irish (taxapayer's) banks mortgage books are looking uglier and uglier as more and more mortgages go into arrears by at least 90 days, or are defaulted on altogether. And we havent even seen the ECB raise rates yet to try combat inflationary threats which will accompany a wider economic recovery in the EU.

I know people think it impossible that Irish people would default on a mortgage, but you cant beat gravity - cut wages, reduced jobs, higher and higher interest payments...the fantasy of Irish people never defaulting on a mortgage will eventually give way to the reality. I think a lot of moral horror around default (John McHale noted it would be immoral not to repay the debt, and I think the cant pay/wont pay betrays a similar line of thought in that it is based on the view that debt can always be repaid if necessary sacrifices are made, and thus it would be selfish not to repay it at any cost, another line of thought is worry over what foreigners/neighbours would think about us) is based on the traditional Irish view of debts and bankrupts.

We are going to have to default (people can call it what they like - we'll not be paying people what we agreed on the schedule we agreed, if at all) and we arent powerless in the negotiations (and whatever form the default takes it would be better if it was negotiated) if we dont crawl into the negotiating room, bowing and scraping. The logic was laid out very clearly in a piece by Anatole Kaletsky:

This month, the European Central Bank produced such an analysis.. Its main conclusion, presented in a lecture at the London Business School by Lorenzo Bini Smaghi, an ECB executive director, was predictable enough. For every European country, the costs of defaulting — what Mr Bini Smaghi called “Plan B” — would far exceed the costs of imposing severe budgetary cutbacks and faithfully servicing all debts (Plan A)....

....All these arguments make eminent sense, but raise a crucial question that the ECB, for obvious reasons, prefers not to answer. If debtor countries such as Ireland start to view the choice between default under plan B and belt-tightening under plan A as a strictly financial calculation, won’t creditor countries such as Germany carry out a similar analysis? Indeed, won’t the EU as whole work out the costs and benefits of allowing one member to default?

Applying cost-benefit logic at the pan-European level, it becomes clear that the cost for the EU as a whole of subsidising, or bribing, a small country such as Ireland to stick to Plan A, will always be much smaller than the cost of letting it default and disrupt the entire eurozone. The potential defaulter’s calculation becomes even more favourable if, as in Ireland, most of the national debt takes the form of bank guarantees that benefit bondholders in Germany, Britain and France....

....Ireland should realise that, when the chips are down, the EU as a whole and Germany in particular will agree to relieve its entire debt burden, which is small in relation to the EU and German economies, if the only alternative is a sovereign default that would trigger a pan-European crisis and a possible break-up of the euro. Ireland can therefore drive a hard bargain with Germany and Europe.

Now that doesnt mean we can walk in and dictate terms to the Germans and tell them we want gold plated sports cars and swimming pools in every Irish back garden - if theyre aggravated, their "cant pay/ wont pay" thinking would swing very heavily into "wont pay", regardless of the maths. But it does mean that its to our advantage to be open about the unfeasibility of the current path. What we need for them is to take on the Irish banks/NAMA losses which we cant handle and leave the Irish taxpayer to deal with the fiscal crisis, which we can handle. There is a deal that can be worked out there - if we are willing to stand up for ourselves, and stop the very Irish embarrassment and shame with regards to being in trouble with debt.

Afterall, whats the alternative to default thats offered by supporters of the current strategy of hope and pray?

goz83

danbohan wrote: »

you can blame all and sundry , but the reality is you choose to buy , you paid the going price at the time and you were happy to do so , if the house was worth 800k now would you be blaming the bank for "tricking you"

sold honestly , thats just claptrap . in every country their is or has been property booms and crashes and anybody buying property in 2002-2008 that did not realise that were blind or burying their head in the sand

At what point in my post did you find where I said I was "happy to buy". I believe I said I felt it was a responsibility I felt to put a roof over my families head. I wouldn't complain at all if the house doubled in value, but what difference does that make? It is a home to me, not just a house. This would simply be imaginary money and I may have already pointed out that if my home went up in value, then it is an almost certainty that everywhere else has gone up in value too. The difference I see with the house doubling in value, is that I would be able to sell it and pay the mortgage, which is crippling people in negative equity. Because of the equity issue, it is not really a possibility to sell and move on, or out. Do you suggest that people who needed homes between 2002-2008 should have sat and waited until prices went down? I think it's pretty arrogant to say that and is an insult to alot of people. You must be a Banker and if you're not, then replace "B" with "W" and that's what you are. The people in charge of the banks lied, that's been established. Should they get away with this? Sure why not, we live in Ireland....land of crooks in suits. Owe a few thousand, get screwed to the wall. Owe a few million, get a golden hand shake.

Scofflaw

Sand wrote:

Afterall, whats the alternative to default thats offered by supporters of the current strategy of hope and pray?

Urging the government to look for an EU-level solution while not pushing them to do anything stupid like unilaterally defaulting.

Those who want default are actually in the same position as those who don't when it comes to "hoping and praying" - just hoping and praying for something different.

cordially,
Scofflaw

SkepticOne

From the article quoted by Sand:

....All these arguments make eminent sense, but raise a crucial question that the ECB, for obvious reasons, prefers not to answer. If debtor countries such as Ireland start to view the choice between default under plan B and belt-tightening under plan A as a strictly financial calculation, won’t creditor countries such as Germany carry out a similar analysis? Indeed, won’t the EU as whole work out the costs and benefits of allowing one member to default?

This is one of the points I've been trying to make. Although defaulting is not something Ireland would necessarily want to do, it is also something that the EU as a whole really does not want to happen in any member country. Therefore it becomes a negotiating tool.

When you further factor in the likelihood of Ireland defaulting anyway at some stage, the argument is further strengthened. If you know you are going to default down the line, you gain nothing from putting it off. We don't have that much to lose really and this strengthens Ireland's hand.

When the next government goes to the EU to renegotiate the deal made by the tired outgoing one of the things it can bring to the table is the threat of early default.

What it should be looking for here for the EU to take over some of the banking debts which originate not with the Irish state but with private corporations that happen to operate within it.

SkepticOne

Scofflaw wrote: »

Urging the government to look for an EU-level solution while not pushing them to do anything stupid like unilaterally defaulting.

On what basis would these negotiations take place? What would we bring to the table?

Nothingbetter2d

personally i think we should have a referendum on the whole "should we default" issue

it wasn't fair for Fianna fail to sell out our future by guaranteeing the banks without first asking the people

The people didn't cause the problem. The bond holders & banks did.

maninasia

goz83 wrote: »

At what point in my post did you find where I said I was "happy to buy". I believe I said I felt it was a responsibility I felt to put a roof over my families head. I wouldn't complain at all if the house doubled in value, but what difference does that make? It is a home to me, not just a house. This would simply be imaginary money and I may have already pointed out that if my home went up in value, then it is an almost certainty that everywhere else has gone up in value too. The difference I see with the house doubling in value, is that I would be able to sell it and pay the mortgage, which is crippling people in negative equity. Because of the equity issue, it is not really a possibility to sell and move on, or out. Do you suggest that people who needed homes between 2002-2008 should have sat and waited until prices went down? I think it's pretty arrogant to say that and is an insult to alot of people. You must be a Banker and if you're not, then replace "B" with "W" and that's what you are. The people in charge of the banks lied, that's been established. Should they get away with this? Sure why not, we live in Ireland....land of crooks in suits. Owe a few thousand, get screwed to the wall. Owe a few million, get a golden hand shake.

Do you suggest that people who needed homes between 2002-2008 should have sat and waited until prices went down?

Well yes actually. I know that would have been difficult and going against peer pressure and spouse pressure but that's what was required. We've all got to try and use our critical faculties and think things through before signing up for for huge debts. Now I know Ireland has an island mentality and renting is not great but all the same..there was a choice there. You took the choice and were a bit unlucky on the outcome, it happens to us all. Many citizens had too much blind trust in the popular media, the government and what their friends/family were saying (all vested interests in one way or other, media-property supplements, government-stamp duty and property owners, friends/family-get in quick and don't go against the tide).
Property booms-busts happen all over the world all the time. The UK had a big one in the 1980s.

As for the other matter about bankers etc., I'm sure most of us agree. I for one am not against some type of write-down of some mortgages, but the problem we now face due to gross government ineptitude is that this will end up being more public debt that the public has to service!
The problem the government/FF has created is that they always put the hard decisions on the long finger, they have NEVER faced making a tough decision now for better times later (although I have to say large parts of society seem to agree with them). This is like cancer, it needs radical surgey to root it out, not 5% here, 10% there, postponing till 2 years later etc. It can't be fixed like that.

As for the point of negotiation, negotiation is an art and a science. When you negotiate you don't take anything off the table, although you don't stick it in people's faces either. No ruling this or that out at the start. Many in government (and I believe in Irish society again, because we are a consensus society at heart) have no skill in negotiation from long years of social partnership and bribe the masses rule. The negotiators job is to go in and get the best possible deal using any means neccessary, period.

Scofflaw

SkepticOne wrote: »

On what basis would these negotiations take place? What would we bring to the table?

The fact that we can't handle the necessary measures/debt without serious political unrest and/or general misery. That's basically all we have, and is exactly what we're saying when we threaten default as well, since that's why we'd be threatening default.

I'll say again in respect of default that the other European countries would still have a lot more to worry about by accepting an Irish bank default than by Ireland doing it unilaterally. An Irish sovereign default is obviously somewhat different.

cordially,
Scofflaw

SkepticOne

Scofflaw wrote: »

The fact that we can't handle the necessary measures/debt without serious political unrest and/or general misery. That's basically all we have, and is exactly what we're saying when we threaten default as well, since that's why we'd be threatening default.

Unfortunately, this does not make a huge amount of sense as a negotiating strategy.

Ireland: Give us a better deal on on the loan or else...
EU: Or else what?
Ireland: Or else we'll have general misery.
EU: So? How is that our problem?

I'll say again in respect of default that the other European countries would still have a lot more to worry about by accepting an Irish bank default than by Ireland doing it unilaterally. An Irish sovereign default is obviously somewhat different.

No, the thing that would be offered is prevention of an Irish sovereign default (which would hurt Ireland - and may happen anyway - but would hurt the EU more) in return for sharing in the cost of the Irish banks (which if they want to prevent banking failures they should be doing anyway).

So assisting with the banking problem in Ireland would be presented to them as the lesser of two evils from the EU point of view.

I think the hardest thing for certain people to get their heads around here is the idea of Ireland negotiating against the EU as this requires giving up cherished notions. It necessitates deciding which side you are on at least temporarily. You cannot in this situation be on both the EU's side and Ireland's side at the tame time even though, like me, you are pro-EU generally.

Duke Leonal Felmet

goz83 wrote: »

When you consider that financial institutions (the ECB, ICB and the banks in general), as well as all the advice available to the first time buyer between 2004 and 2008, it would only be fair to say that getting a home for ones family was the responsible thing to do, before prices got so high, that nobody could afford to buy. It looked like society was going to become the poor renting homes from the rich if you didn't buy on time. That's the propaganda we were being fed.

There were precedents of housing market collapses before 2008, take the UK in the late 80s, for example. Further to that, you had the likes of McWilliams shouting from the sidelines and even selling his house, in his case. Furthermore, a well known statistic is that most of Germany, Austria and Switzerland is comprised of renters. Just 22% of Swiss own a house, for example.

It isn't like this was hidden knowledge in 2005. Stop blaming everyone else.

kenrr

SkepticOne wrote: »

Unfortunately, this does not make a huge amount of sense as a negotiating strategy.

Ireland: Give us a better deal on on the loan or else...
EU: Or else what?
Ireland: Or else we'll have general misery.
EU: So? How is that our problem?

No, the thing that would be offered is prevention of an Irish sovereign default (which would hurt Ireland - and may happen anyway - but would hurt the EU more) in return for sharing in the cost of the Irish banks (which if they want to prevent banking failures they should be doing anyway).

So assisting with the banking problem in Ireland would be presented to them as the lesser of two evils from the EU point of view.

I think the hardest thing for certain people to get their heads around here is the idea of Ireland negotiating against the EU as this requires giving up cherished notions. It necessitates deciding which side you are on at least temporarily. You cannot in this situation be on both the EU's side and Ireland's side at the tame time even though, like me, you are pro-EU generally.

With respect, I have an alternative view that the hardest thing for certain people to get their heads around here is that patience pays in dealing with this sort of situation. I don't have a hope and pray attitude based on the current EU/IMF package being cast in stone for the next 10 years - I think it's certain that the package will evolve and be amended as the situation unfolds, not only in Ireland but in other EMU countries. However I think it's a very poor strategy, both politically and pragmatically, to be impatient and rush into negotiations when we've hardly started to implement the package. Obviously the Govt/EU/IMF were all of the opinion only a few months ago that there is a possible scenario where the package will be successful and will not lead to default. However much you might think they're wrong, going back and telling the EU/IMF that, in effect, they're stupid and of course it's inevitable Ireland will default, is not likely to lead to much of a concession in the terms when we have hardly started implementation. Usually you get one good shot at negotiations... wait a while, say, perhaps 2 or 3 years to see if a pessimistic scenario actually develops; show that we've fully complied with deficit reduction criteria; show that bank debt problem is far worse than assumed in the original package; show that economy is far worse than assumed in the original package; consequently present a convincing argument that default is inevitable within a couple of years unless the package is substantially amended/supplemented.

I don't think it's a question of being for/against the EU and it's not a moral question of evil bankers or of being ashamed of debt ... from my point of view it's entirely a pragmatic appraisal of what might be the cheapest and least painful way out of the mess. Going with the current package for a while, perhaps for a couple of years or so would allow time to see whether things are at the optimistic or pessimistic end of the range of possible scenarios. Also it gives time to consider the measured re-structuring of banks etc ... something which FF should have done in the two years following the 2008 guarantee.

P. Breathnach

kenrr wrote: »

With respect, I have an alternative view that the hardest thing for certain people to get their heads around here is that patience pays in dealing with this sort of situation. I don't have a hope and pray attitude based on the current EU/IMF package being cast in stone for the next 10 years - I think it's certain that the package will evolve and be amended as the situation unfolds, not only in Ireland but in other EMU countries. However I think it's a very poor strategy, both politically and pragmatically, to be impatient and rush into negotiations when we've hardly started to implement the package. Obviously the Govt/EU/IMF were all of the opinion only a few months ago that there is a possible scenario where the package will be successful and will not lead to default. However much you might think they're wrong, going back and telling the EU/IMF that, in effect, they're stupid and of course it's inevitable Ireland will default, is not likely to lead to much of a concession in the terms when we have hardly started implementation. Usually you get one good shot at negotiations... wait a while, say, perhaps 2 or 3 years to see if a pessimistic scenario actually develops; show that we've fully complied with deficit reduction criteria; show that bank debt problem is far worse than assumed in the original package; show that economy is far worse than assumed in the original package; consequently present a convincing argument that default is inevitable within a couple of years unless the package is substantially amended/supplemented.

I don't think it's a question of being for/against the EU and it's not a moral question of evil bankers or of being ashamed of debt ... from my point of view it's entirely a pragmatic appraisal of what might be the cheapest and least painful way out of the mess. Going with the current package for a while, perhaps for a couple of years or so would allow time to see whether things are at the optimistic or pessimistic end of the range of possible scenarios. Also it gives time to consider the measured re-structuring of banks etc ... something which FF should have done in the two years following the 2008 guarantee.

Good post.

But it won't appeal to headless chickens.

SkepticOne

kenrr wrote: »

Usually you get one good shot at negotiations... wait a while, say, perhaps 2 or 3 years to see if a pessimistic scenario actually develops; show that we've fully complied with deficit reduction criteria; show that bank debt problem is far worse than assumed in the original package; show that economy is far worse than assumed in the original package; consequently present a convincing argument that default is inevitable within a couple of years unless the package is substantially amended/supplemented.

However if we know that the we've got a bad deal now, what are we doing drawing down the loan in the first place? Remember a new government is taking over shortly. It will expected that it will seek to rectify the mistakes of the old one. Furthermore, if the new government draws down the loan it will be interpreted as agreeing with it. A window opens in the next few weeks that will be closed afterwards for the rest of the term. I agree with you that you get one shot but that shot is now.

The other point you made that we'd essentially be calling the EU/IMF idiots I don't think applies. The deal was a result of negotiations between two parties, one of which was our government on its last legs on the way out. This is not the sort of government you want negotiating the future of the country, yet this is what we had. I new government reopening negotiations is merely acknowledging that fact and I believe it will be expected.