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...