Morgan Kelly in Irish Times 7/5/11

dan719

http://www.irishtimes.com/newspaper/opinion/2011/0507/1224296372123.html

I'm not going to post for mobile users as it is mega long, but I genuinely think everyone in the country needs to read this.

In brief, Morgan Kelly advocates walking away from the bailout, forcing the ECB to accept ownership of Ireland's zombie banks "eventually a €160 billion loan must be relabelled capital", provides a rather startling account of he negotiation talks where IMF plans to force Bank bondholders to take a 30% haircut was torpedoed by US Secterary of the Treasurary and Lenihan was "cut at the ankles by (Central Bank Governor) Patrick Honohan" when he stated Ireland needed a bailout in the tens of billions. He points out the contradictory incentives presented to Honohan as Governor of Central Bank and Board Member of ECB, while claiming he made the costliest mistake by an Irishman ever.

Of course, walking away from the bailout requires our budget deficit to go to 0. Now. Today.

Kelly's argument is that this extreme pain will be better for us now, rather than waiting for inevitable bankruptcy once German and French banks are sufficiently recaptialised to let Ireland's Pillars go to the wall.

My opinion? I think there is a possibility that the IMF bailout could be maintained, but politically it won't happen. (Friction between ECB and IMF). I think that Kelly goes OTT on Honohan, but that could be my TCD bias. Basically, I think he's right.

Rumours of Greece leaving the euro (however unfounded) and now the presentation of a stark choice to teh FG/Labour govt in full view of an Irish public suggests the endgame is here. Kelly has the best strategy for us to win.

Edit Should have indicated I meant winning in the sense of minimising losses and pain. Thanks skellsier.

skelliser

dan719 wrote: »

Kelly has the best strategy for us to win.

There will be no winning.

His path offers us the least worst option. We will still lose, just not as bad.

I fully expect the political class and yes men here to once again ignore whats coming.
Sure why stop now?!

dan719

skelliser wrote: »

There will be no winning.

His path offers us the least worst option. We will still lose, just not as bad.

I fully expect the political class and yes men here to once again ignore whats coming.
Sure why stop now?!

twitter wrote:

@AlanFarrell Alan Farrell TD
My Friday evening has been very nice. I'm not going to read Morgan Kelly until at least lunchtime tomorrow. #merchantofdoom

Quicker than I expected tbh

skelliser

dan719 wrote: »

Quicker than I expected tbh

lol!
Im not surprised in the least.

Expect some vigorous personal attacks on Kelly also.

Inverse to the power of one!

#merchantofdoom

And quite a well qualified and experienced one at that.

Kelly is really saying more about the cost of the current path of events then predicting the future.....the fact is there is no plan on the part of the ECB and Irish govt than to hold on and hope for the best........3 years in to this crisis we know that to be a failed strategy.



My bets are 10-15 years when the dust has settled, we'll have regretted having not taken the actions required by now despite despite the severe shocks experienced over the last three years. It's a car crash in slow motion at this stage IMO.....

jank

Good read. I think most people in the know are aware of all this but Morgan Kelly has a good way of writing and expressing it in a easy to understand manner where anyone can piece it all together. Expect this to be the talking point of the weekend.

Of course we just have to wait for the politicians on the sunday radio shows to have their say ....!:rolleyes: all denials I suppose. Honohan comes out terribly but his reputation was shot 6 months ago.

Yet still though we have the Croke park agreement... well reality will bite soon enough for the unions and PS.

JupiterKid

This latest article from Kelly is pure dynamite. It totally savages Patrick Honohan's reputation.

I also think this is essential reading. Yes, it's highly sobering and depressing, but people need a dose of hard, cold reality in this sleepwalk Irish society is in the midst of.

I posted it up on the message boards where I'm a mod.

raymann

the terrifying things is that, as someone has already said, this is the least worse option.

the implications of balancing the budget overnight alone are mind boggling. its what, a 40% cut in government spending? so many businesses and families will go to the wall compounding the situation.

and yet, terrifyingly, as he lays out the alternatives, its the least bad option.....

cavedave

dan719
Of course, walking away from the bailout requires our budget deficit to go to 0. Now. Today.

Back of the envelope what would this look like?

As in we would have to go from Government spending of 60+ billion to 30? Which would mean roughly halfing public sector wages, social welfare payments and the government stopping renting of all land. Sounds like a huge step.

*This article gives figures of 50 in 70 out. http://www.irisheconomy.ie/index.php/2011/05/01/government-revenues-and-spending/

Amhran Nua

Bankers, bankers, all roads lead back to the bankers. Honohan double jobbing and Cardinal Trichelieu's own dubious past are not news at this stage. One is put in mind of a couple of salient quotes:

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.” — Thomas Jefferson

“Let me issue and control a nation’s money and I care not who writes the laws.” — Mayer Amschel Rothschild, 1790

Are we looking at a power struggle between democratic society and financial institutions?

cavedave wrote:

Which would mean roughly halfing public sector wages, social welfare payments and the government stopping renting of all land.

That's too much of a blanket cut, you could achieve savings by getting rid of or merging most of the quangos which are only political bargaining chips anyway, and introducing modern information systems to enhance efficiency. But yes jobs are going to be lost and pay is going to be cut. Happily if we proceed on a footing of default, it may be possible to reduce mortgage amounts at a cost only to upstream lenders. If managed properly large scale cuts need not have an utterly devastating effect.

I wouldn't envy the job of the current government, talk about stuck between a rock and a hard place.

whatawaster

Interesting what he says about the furore surrounding the bailout.

Lenihan did not want it and felt we were in a strong negotiating position, only for Honohan to barge in and ruin everything.

It certainly puts a new perspective on the chaos of that week

cavedave

Amhran Nua

That's too much of a blanket cut, you could achieve savings by getting rid of or merging most of the quangos which are only political bargaining chips anyway, and introducing modern information systems to enhance efficiency. But yes jobs are going to be lost and pay is going to be cut. Happily if we proceed on a footing of default, it may be possible to reduce mortgage amounts at a cost only to upstream lenders. If managed properly large scale cuts need not have an utterly devastating effect.

It could well be too much to do practically but I think the figures are roughly accurate about what immediately getting the budget deficit to 0. Quangos and better IT have to be done but they are not 30 billion now fixes.

The point about mortgages is a good one. Can you really cut nurses/teachers/garda wages in half without also cutting their mortgage in half?

Amhran Nua

cavedave wrote: »

It could well be too much to do practically but I think the figures are roughly accurate about what immediately getting the budget deficit to 0. Quangos and better IT have to be done but they are not 30 billion now fixes.

Welfare is the most visible expense, along with a sort of lurching "poor because they are lazy" mentality that seems to surface from time to time - this is a mistake. There are plenty of other pickings to be had, €2.7bn on public staff pensions, science budget €2.5bn, public procurement at €16bn, public legal bill at €500m etc, courtesy of Finfacts.

cavedave wrote: »

The point about mortgages is a good one. Can you really cut nurses/teachers/garda wages in half without also cutting their mortgage in half?

Yes you can, but that leads to a lot of bankrupt nurses and guards, and the banks in a worse position. In the case of the guards it also leads to them losing their jobs. Ideally amounts due need to be reduced at the level of the upstream lenders, whether or not they are in the mood for it.

meditraitor

This article is quite disturbing, Patrick Honahan is the new bogey man!!!!

An unelected "academic" destroys any chance of a better deal......

At this stage, with Lenihan looking set to exploit his strong negotiating position to seek a bailout of the banks only, Honohan intervened. As well as being Ireland’s chief economic adviser, he also plays for the opposing team as a member of the council of the European Central Bank, whose decisions he is bound to carry out. In Frankfurt for the monthly meeting of the ECB on November 18th, Honohan announced on RTÉ Radio 1’s Morning Ireland that Ireland would need a bailout of “tens of billions”.

Rarely has a finance minister been so deftly sliced off at the ankles by his central bank governor. And so the Honohan Doctrine that bank losses could and should be repaid by Irish taxpayers ran its predictable course with the financial collapse and international bailout of the Irish State.

There is a word for this, traitor


Pitchforks at the ready folks

Wheelie King

Nothing we don't already know in all honesty. We are royally screwed for many years and continue to be in denial. Sad.

Wheelie King

raymann wrote: »

the terrifying things is that, as someone has already said, this is the least worse option.

the implications of balancing the budget overnight alone are mind boggling. its what, a 40% cut in government spending? so many businesses and families will go to the wall compounding the situation.

and yet, terrifyingly, as he lays out the alternatives, its the least bad option.....

It's as things stand our only option.

ei.sdraob

Morgan Kelly wrote:

While most people would trace our ruin to to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable.

Very good point there

Why is the EU/ECB despite making claimes that they where "horrified" of the original guarantee, but then insist that it is extended and more importantly that no bondholders are hurt? fairly hypocritical stance.

meditraitor

ei.sdraob wrote: »

Very good point there

Why is the EU/ECB despite making claimes that they where "horrified" of the original guarantee, insist that it is extended and more importantly that no bondholders are hurt?

There are many questions that need answering!

Reading that article has completely changed my view of the EU project, we are officially bollixed. The yanks and the ECB are against us. Time to go it alone

Raskolnikov

cavedave wrote: »

It could well be too much to do practically but I think the figures are roughly accurate about what immediately getting the budget deficit to 0. Quangos and better IT have to be done but they are not 30 billion now fixes.

The point about mortgages is a good one. Can you really cut nurses/teachers/garda wages in half without also cutting their mortgage in half?

I agree completely. This isn't just a case of cutting public sector pay by 10% or culling a few quangos, this is a case of major surgery. To achieve what we want, we're looking at closing hospitals, schools, etc. More people will have to die on hospital trolleys and rates of illiteracy will have to increase. This is our future.

ei.sdraob

Raskolnikov wrote: »

I agree completely. This isn't just a case of cutting public sector pay by 10% or culling a few quangos, this is a case of major surgery. To achieve what we want, we're looking at closing hospitals, schools, etc. More people will have to die on hospital trolleys and rates of illiteracy will have to increase. This is our future.

I dont remember voting for a future of debt servitude for debt I have not incurred and was opposed to being socilized.

xflyer

He's right, this has all been obvious to even the most of us even an economic dunce like me for quite a while. He has spelt it out for all to see. There's no hiding from it. It's only a question of when the collective head in the sand attitude dissipates and the grim reality is spelt out for everyone to see.

He's dead right to about the ECB attitude and that of the US. We are being made an example of. They honestly don't give a damm about Ireland. It's all about the Euro. We are expendable economically.

Amhran Nua

Raskolnikov wrote: »

I agree completely. This isn't just a case of cutting public sector pay by 10% or culling a few quangos, this is a case of major surgery. To achieve what we want, we're looking at closing hospitals, schools, etc. More people will have to die on hospital trolleys and rates of illiteracy will have to increase. This is our future.

I believe we can maintain services at an appropriate level while reducing the deficit to nominal levels. Many areas in Irish public sector institutions are extremely inefficient and not up to date with technology - an example would be Singapore, where they saved 98% of the overheads involved with health administration by moving to electronic patient records.

Of course, that leaves one question - what do we do with all the unemployed former public sector workers, or those that wish to move on greener pastures? This is why job creation must be a number one priority for the government, rather than a footnote halfway through the year. We'll see sure.

MrMatisse

The country is really on the brink

HellFireClub

Morgan Kelly at this stage is turning out to be the Banshee of the Irish economy, great to see someone calling it as it is...

Monty Burnz

ei.sdraob wrote: »

I dont remember voting for a future of debt servitude for debt I have not incurred and was opposed to being socilized.

Enough people did. We had two elections to get rid of Fianna Failure and didn't bother. Also, the general public has been lagging about 5 years behind the times due to a lack of interest and expecting someone else to sort everything out for them. As long as they had two cars outside, a few foreign holidays and money for booze and showing off, most people didn't give a rat's ass what the government was actually up to.

Sure everyone knew that Ahern was corrupt and they kept voting him in anyway. What does that tell you? "Just keep the good times rolling, and don't bother me with exactly how you are doing it" - this was the message that the Irish people spent the last decade sending to the politicians.

Raskolnikov

Amhran Nua wrote: »

I believe we can maintain services at an appropriate level while reducing the deficit to nominal levels. Many areas in Irish public sector institutions are extremely inefficient and not up to date with technology - an example would be Singapore, where they saved 98% of the overheads involved with health administration by moving to electronic patient records.

Of course, that leaves one question - what do we do with all the unemployed former public sector workers, or those that wish to move on greener pastures? This is why job creation must be a number one priority for the government, rather than a footnote halfway through the year. We'll see sure.

To meet current taxation levels, we would need to cut spending almost in half. Considering it has only taken a very minor level of cuts to throw the health service into chaos, I have grave doubts that this is a case that we can match our current level of services with just improvements in efficiencies.

ei.sdraob

Monty Burnz wrote: »

Enough people did. We had two elections to get rid of Fianna Failure and didn't bother. Also, the general public has been lagging about 5 years behind the times due to a lack of interest and expecting someone else to sort everything out for them. As long as they had two cars outside, a few foreign holidays and money for booze and showing off, most people didn't give a rat's ass what the government was actually up to.

Sure everyone knew that Ahern was corrupt and they kept voting him in anyway. What does that tell you? "Just keep the good times rolling, and don't bother me with exactly how you are doing it" - this was the message that the Irish people spent the last decade sending to the politicians.

I asked this several times in other threads
Now that we have voted those bastards out, now what? do we continue paying for their mistakes? do we continue with their failed policies??
Did the German people continue to pay for choices made by Nazis before VE day? Did they continue with the policies of East German politicians after the Berlin wall fell? me arse they did they got a shiny Marshall Plan to rebuild the continent they destroyed, tho the East Germans did get screwed by the Soviets but several years later which half of Germany was the better one to live in? the one that got a new start and a plan or the one which was asset stripped and made pay for the mistakes of its politicians and people who got involved (as if there was a choice!) with the nazi party.

Raskolnikov wrote: »

To meet current taxation levels, we would need to cut spending almost in half. Considering it has only taken a very minor level of cuts to throw the health service into chaos, I have grave doubts that this is a case that we can match our current level of services with just improvements in efficiencies.

Look current deficit is a huge problem and will have to be solved one way or another (Only SFers, unionistas and extreme left wingers argue that it is not a problem!), but that is only half of the total debt, the rest is banking debt ran up by private banks who should have got a lesson in capitalism.

Monty Burnz

ei.sdraob wrote: »

I asked this several times in other threads
Now that we have voted those bastards out, now what?

It looks very much like we pay for the disastrous blunders of the clowns and crooks that we chose to govern us.

(Don't blame me, by the way - I never voted for Fianna Failure)

ei.sdraob

Monty Burnz wrote: »

It looks very much like we pay for the disastrous blunders of the clowns and crooks that we chose to govern us.

(Don't blame me, by the way - I never voted for Fianna Failure)

Ok I grudgingly accept paying more taxes for the failures of the welfare/public systems gone wild.
I do not accept paying more taxes for the decision to not allow private entities fail and investors take losses. And I am very pissed of with EU/ECB for continuing this "no losses" policy (against IMFs recommendations too!)

Amhran Nua

Raskolnikov wrote: »

Considering it has only taken a very minor level of cuts to throw the health service into chaos, I have grave doubts that this is a case that we can match our current level of services with just improvements in efficiencies.

Sure we can. Not all of the expenditure is going into wages, so wages would not need to be halved. In fact if expenditure were at 2004 levels right now, we'd be breaking even. I don't recall the collapse of society in 2004.

Cutting smart and enhancing services on one hand, with an all out push to create jobs on the other (poof goes your social welfare bill, up go your tax revenues) is a quite doable method to get to a surplus. The problem is even with the most optimistic projections you're talking about three to five years to achieve that.

Can we hold off the banking cartel that long?

liammur

Raskolnikov wrote: »

To meet current taxation levels, we would need to cut spending almost in half. Considering it has only taken a very minor level of cuts to throw the health service into chaos, I have grave doubts that this is a case that we can match our current level of services with just improvements in efficiencies.

Correct. Whilst the article is very good, his solution is unfortunately laughable.

Taking the drastic measures he proposes would crash the private sector instantly.