The bank bailouts made very little sense, the biggest toxic bank, Anglo Irish Bank, was not a retail bank. They specialised in property financing. Letting them go under would not have resulted in the Irish Government having to cover huge amounts of deposits. The current majority party (Fianna Fail) has a history of connections to property developers and this connection is what a lot of people though spurred the saving of Anglo. Now more information is bubbling up about the exposure of European banks to Anglo and the other Irish banks. Europe (especially Germany) wants this mess cleaned up because if the Irish Government drops the guarantee then their own banks will have a huge hole in their finances. These were essentially risky investments made by foreign banks that the Irish taxpayer is now being forced to pay back.
Bank of Ireland and Allied Irish Bank were profitable (extremely so in the context of the Irish economy) and if kept in government hands would eventually make back their losses. Anglo made it's profits on the back of the property bubble, not something that will be repeated any time soon.
I'm in Berlin now and it appears the Germans feel these so called bailouts are rescuing countries that don't have their affairs in order. I think these bailouts are mostly to prop up German and French banks. Banks in Europe and the U.S. have finally figured a way to socialize their losses and privatize their gains. Big bonuses are still the norm at American banks even though it was their bad bets that led the U.S. to its current economic mess.
That was my general perspective too.. ie. that Anglo was the biggest source of the problem. So I was surprised to read this line:
"In October 2008, the Irish Independent published a list of the five biggest real-estate deals in each of the past three years. A.I.B. lent the money for 6 of the 15, Anglo Irish for just 1, as a co-lender with A.I.B."
Clearly the bank guarantee was a disastrous decision, and in hindsight could have been handled very differently. But at the time, as Lehman and AIG and Fannie and Freddie were in chaos, it didn't seem all that outrageous.
Anger is certainly an appropriate reaction in circumstances like this, but I find articles like this really gloss over the nature of the shared responsibility for what happened.
Yes, banks and governments (including the US! - we just haven't felt the full brunt of it yet) engaged in many unsustainable and downright fraudulent practices. Asset bubbles are breeding grounds for such things. On the other hand, no one forced homebuyers to take on loans they knew they could not afford, or spend borrowed money at unpayable rates.
Now, everyone wants a bailout. Neither banks nor consumers should get them. Iceland actually did the right thing by taking its banks into receivership and breaking them up. The banks screamed bloody murder and threatened national chaos, and the Icelandic economy did grind to a halt for almost a year. Now, they seem to be on a road to sustainable recovery. This is not true in either the rest of Europe or the US, where the bailouts came fast and generous. Look at today's job report. Is that the sign of economic growth?
While the decisions were justifiable at the time, TARP, TALF, and the like need to be admitted as mistakes and corrected. If this means recognizing all of our largest institutions as insolvent, so be it! The nation requires a banking system, but not any individual bank. It will hurt badly, just as it hurt in Iceland, but the alternative is Ireland and Greece.
On the other hand... for the equivalent square feet in Tucson, my rent went up 50% over a decade for the same square footage. When you see your rent go up so drastically, while everyone is getting low interest rate mortgages, you start to question your "fiscal responsibility." If I had bought in 2006, I couldn't have sold my property today. However, we didn't know where the "new normal" would even out.
People took on these home loans, in most cases, because of the fear of rent increasing past their ability to pay. If you buy, you may not be able to afford it now, but eventually inflation will bring the numbers into line, especially not knowing where the "new normal" would be.
The total domestic residential mortgage book kicks in around 750,000 contracts for a total of 100bn EUR in the Republic. 3% of that is according to a Goldman Sachs report a pessimistic default rate. 3bn EUR sounds to us like pocket change these days.
The responsibility is not shared as evenly across Ireland as is commonly thought.
Most of these are high street banks (equivalent to S+L) that were making housing loans. You want to tell pensioners that their life savings are gone and the government is not going to do anything?
It might work - but it also means people will stop putting their money into banks, which means no credit cards, no business loans, no mortgages, no saving, no insurance.
So everybody will only deal in cash which means no taxes.
Admittedly ireland is probably closer to a 12th century barter economy than the rest of europe - but I don't think it really wants to go there.
I live in Ireland, and it was quite disheartening when the last budget cuts appeared. Taxes were increased across the board. If you were earning 25,000 Euros a year, you would pay an extra 1000 Euros in tax (and surprisingly enough, this low earner class was the worst beaten income group by hike in tax in percentage terms - 4+% more tax!).
Since its general consensus that banks, govt. etc are at fault (to which I agree), I want to say something which generally is ignored, just a theory. The Celtic Tiger years, due to low Corporation Tax rates, have had the similar impact on the economy as Resource Curse (http://en.wikipedia.org/wiki/Resource_curse). Ireland got rich so fast with all the incoming money that lots of careless spending by government as well as people was ignored. The property prices went up crazy, things became awful expensive etc etc. When nobody cared about how much govt spent or how much banks are landing real estate developers, this was bound to happen IMHO. If Ireland had gotten rich slowly and on its own (by increasing exports, productivity etc), such rackless spending bubble economy would probably never have manifested itself.
As someone currently living in Ireland, I found the subtitle of this article particularly appropriate: "Where's the rage?". The Irish government bankrupted the country many times over by putting the debts of the banks on the backs of the people. But, unlike France, for example, where people have taken to the streets and brought the country to a halt to be heard, in Ireland there is nothing like the level of activism that one would expect given the depth of the economic quagmire.
I find it quite sad to see how a country that was once such a hotbed of political unrest has become so passified by the recent wealth that it experienced. My guess is it has to do with people having the feeling that they are stakeholders in the system now, with mortgages and fungible assets, and so they are less willing to want to subvert the system itself rather than muddle along even with unsatisfactory political solutions.
You're advocating unrest? The government has disbanded and elections have been called. They're in for a kicking, which although short of full-on political reform, is something several hundred people had to die for in Egypt.
Would it satisfy you if we burned a few cars? Where do you live? I'll meet up with you later and we can tear your street to shreds if you like.
Ireland is the old sow that eats her farrow. It's no new thing for the old cronies to eat, in advance, the productivity of the younger generation. They'll sell off the country's future to protect what they have today. The only way around it is to leave; there will be no tolerance of a revolution.
Also Ireland vs. Iceland. Both got massively screwed over not by the government, but by mismanaged banks. Ireland's stuck its own taxpayers with the debts of its profligate banks, and done the "austerity" thing to pay for it. Iceland let the banks go broke, and let the banks' overseas debtors take the hit. And even though the Icelandic banks screwed up worse than anybody's, Iceland's doing as well as Ireland in total output (better than the Baltics), and a lot better in unemployment, which is kinda relevant if you're an Icelander.
Ireland and Greece are COMPLETELY different. Greece's government budget is wildly fraudulent. Ireland's government was responsible, but decided to encumber taxpayers with private banking losses. Irish voters, like those in Iceland, may yet reject this deal.
I know I would. The international banking cabal has captured the "democratic" processes across most of the West and is using those governments to plunder their people.
One of the few positive things to have come out of the financial crisis of 2008 is that it has probably killed any prospect of Scotland becoming independent - we used to be promised that we could share in the same kinds of success as Ireland and Iceland if only we had the courage to go it alone!
I doubt if many people have the appetite for being stuck in a small country with a financial monster like RBS or HBOS.
Whenever I hear about people wanting to break away like that I'm always reminded "There's strength in numbers". As the world economy starts to flatten out, we're all learning that it comes down to a population game. I wonder if we'll see a point where two countries vote to merge together to create a stronger economy.
"Which way entire nations jumped when the money was made freely available to them obviously told you a lot about them: their desires, their constraints, their secret sense of themselves. How they reacted when the money was taken away was equally revealing."
Wow, great to see Michael Lewis, one of my favorite authors, coming to little ol' Ireland and do such an in-depth piece on us. I had no idea that the insane decision to bail out Anglo Irish was so directly linked to Merrill Lynch's 'advice'.
Interesting fact: I was sitting less than 50m away from the heroic egg-thrower when he went for the kill. Wasn't in the same room unfortunately. We were warned to hide our bank ID badges that day going in and out of work :-)
One fundamental problem we have in Ireland is the way in which we elect our Dáil (parliament).
There's a 4 minute section in this video (43m45s onwards ) http://www.rte.ie/player/#v=1090239 which explains better than I can, but here goes:
In short:
1. There are multiple seats (often with a few candidates running from the same party) per constituency.
2. It doesn't take many votes to get elected (Any more than 8,000 votes got you elected in my constituency of 86,000 people).
Politicians don't compete on the differences between their parties because they're also competing against another locally running party member. Instead, they wage very local personality based campaigns. Since they only need a few thousand votes, they can and do call door-to-door to chat with everyone they can. Pothole need filling? Let your local candidates know and by god it'll be fixed immediately.
This means that the people who end up making important decisions on whether or not to take on 100s of billions of euros worth of debt are the people who came across best on a few thousand house calls.
this seem similar to the system we had in italy up to some years ago. It was changed so that the party decides who is running, and people cannot vote on the person.
The result is, of course, that people who would be ineligible because of obvious incapacity (or any other reason) still get elected when people vote for the color instead of the person, and the parliament is full of lackeys who don't dare to disagree with the leaders for fear of not being put on the safe list the next time around.
Be careful when you wish for a better system, you may end up with a worse one :)
There's a great book written by a civil servant in Ireland's foreign ministry in the 80s.
He said he had two maps on his wall, one of the eastern bloc enemy and a bigger one of his minister's constituency - a crisis (eg a pothole) in the constituency was the priority.
Australia also has had a long, rolling property boom, with bank lending behind it all.
It didn't pop when expected because our economy was propped up by mineral/metal prices, due to China's demand and surprisingly little supply from other countries. Both may change.
the underlying demand is far different though, the demand for the new housing being built is high. The rental market is also very expensive and has almost zero vacancy. Whereas Ireland sounds like they were struggling to fill the housing being built in Australia the demand for new housing is higher than the rate at which they can be supplied. Maybe at some point things will go backwards but things still look very good in the short to medium term.
Banking seems a lot like a gambling except that it's heads you win and tails they lose.
Lend big into a property bubble and you'll be rewarded with colossal bonuses.
The bubble bursts, loans go bad and the share price collapses.
However the main banks banks are considered too big to fail and the taxpayer has to bail them out.
Bonuses (smaller ones) for exceptional performance continue to be the norm, rolling heads the exception.
Why don't the shareholders get rid of their employees, the bankers who have overseen the collapse of their asset?
The shareholders are Pension funds who, while they ostensibly have the little peoples'interests to preserve, are actually run by people from the same gene pool as the bankers themselves.
These people sit on one anothers remuneration committees.
"Too big to fail" is a classic perverse incentive, and a mockery of the idea that the financial industry can somehow self-regulate.
Unfortunately, if you remove deposit insurance (or any of its variants), people's savings once again become subject to the self-fulfilling whims of insolvency or the unfounded rumour of insolvency.
[+] [-] duke_sam|15 years ago|reply
Bank of Ireland and Allied Irish Bank were profitable (extremely so in the context of the Irish economy) and if kept in government hands would eventually make back their losses. Anglo made it's profits on the back of the property bubble, not something that will be repeated any time soon.
This is the perspective of an Irish economist on the debacle: http://www.ronanlyons.com/2011/01/18/the-irish-bank-sandwich...
[+] [-] yequalsx|15 years ago|reply
[+] [-] bsandbox|15 years ago|reply
"In October 2008, the Irish Independent published a list of the five biggest real-estate deals in each of the past three years. A.I.B. lent the money for 6 of the 15, Anglo Irish for just 1, as a co-lender with A.I.B."
Clearly the bank guarantee was a disastrous decision, and in hindsight could have been handled very differently. But at the time, as Lehman and AIG and Fannie and Freddie were in chaos, it didn't seem all that outrageous.
[+] [-] abrenzel|15 years ago|reply
Yes, banks and governments (including the US! - we just haven't felt the full brunt of it yet) engaged in many unsustainable and downright fraudulent practices. Asset bubbles are breeding grounds for such things. On the other hand, no one forced homebuyers to take on loans they knew they could not afford, or spend borrowed money at unpayable rates.
Now, everyone wants a bailout. Neither banks nor consumers should get them. Iceland actually did the right thing by taking its banks into receivership and breaking them up. The banks screamed bloody murder and threatened national chaos, and the Icelandic economy did grind to a halt for almost a year. Now, they seem to be on a road to sustainable recovery. This is not true in either the rest of Europe or the US, where the bailouts came fast and generous. Look at today's job report. Is that the sign of economic growth?
While the decisions were justifiable at the time, TARP, TALF, and the like need to be admitted as mistakes and corrected. If this means recognizing all of our largest institutions as insolvent, so be it! The nation requires a banking system, but not any individual bank. It will hurt badly, just as it hurt in Iceland, but the alternative is Ireland and Greece.
[+] [-] ebiester|15 years ago|reply
People took on these home loans, in most cases, because of the fear of rent increasing past their ability to pay. If you buy, you may not be able to afford it now, but eventually inflation will bring the numbers into line, especially not knowing where the "new normal" would be.
[+] [-] hessenwolf|15 years ago|reply
The responsibility is not shared as evenly across Ireland as is commonly thought.
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] fdghjkh|15 years ago|reply
Most of these are high street banks (equivalent to S+L) that were making housing loans. You want to tell pensioners that their life savings are gone and the government is not going to do anything?
It might work - but it also means people will stop putting their money into banks, which means no credit cards, no business loans, no mortgages, no saving, no insurance. So everybody will only deal in cash which means no taxes.
Admittedly ireland is probably closer to a 12th century barter economy than the rest of europe - but I don't think it really wants to go there.
[+] [-] bhavin|15 years ago|reply
I live in Ireland, and it was quite disheartening when the last budget cuts appeared. Taxes were increased across the board. If you were earning 25,000 Euros a year, you would pay an extra 1000 Euros in tax (and surprisingly enough, this low earner class was the worst beaten income group by hike in tax in percentage terms - 4+% more tax!).
Since its general consensus that banks, govt. etc are at fault (to which I agree), I want to say something which generally is ignored, just a theory. The Celtic Tiger years, due to low Corporation Tax rates, have had the similar impact on the economy as Resource Curse (http://en.wikipedia.org/wiki/Resource_curse). Ireland got rich so fast with all the incoming money that lots of careless spending by government as well as people was ignored. The property prices went up crazy, things became awful expensive etc etc. When nobody cared about how much govt spent or how much banks are landing real estate developers, this was bound to happen IMHO. If Ireland had gotten rich slowly and on its own (by increasing exports, productivity etc), such rackless spending bubble economy would probably never have manifested itself.
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] fdghjkh|15 years ago|reply
There is no limit to how much government's can spend, however they get the money!
[+] [-] greenmachine|15 years ago|reply
I find it quite sad to see how a country that was once such a hotbed of political unrest has become so passified by the recent wealth that it experienced. My guess is it has to do with people having the feeling that they are stakeholders in the system now, with mortgages and fungible assets, and so they are less willing to want to subvert the system itself rather than muddle along even with unsatisfactory political solutions.
[+] [-] pjriot|15 years ago|reply
Would it satisfy you if we burned a few cars? Where do you live? I'll meet up with you later and we can tear your street to shreds if you like.
[+] [-] barrkel|15 years ago|reply
[+] [-] fdghjkh|15 years ago|reply
"We will just do what we have always done when the government fucks-up - we emigrate!"
[+] [-] dpapathanasiou|15 years ago|reply
Greece was profligate, openly cooking the books since at least 2002 (http://en.wikipedia.org/wiki/Greek_Financial_Audit,_2004) whereas Ireland was doing the noble thing by imposing austere measures on itself.
Yet both needed bailouts by the EU recently, and both will probably wind up defaulting.
[+] [-] rst|15 years ago|reply
Everyone's favorite economic lightning rod posts graphs here: http://krugman.blogs.nytimes.com/2011/02/01/comparative-peri...
[+] [-] watchandwait|15 years ago|reply
I know I would. The international banking cabal has captured the "democratic" processes across most of the West and is using those governments to plunder their people.
[+] [-] arethuza|15 years ago|reply
I doubt if many people have the appetite for being stuck in a small country with a financial monster like RBS or HBOS.
[NB I am a reformed Scottish Nationalist]
[+] [-] seanalltogether|15 years ago|reply
[+] [-] jmount|15 years ago|reply
[+] [-] fdghjkh|15 years ago|reply
[+] [-] Jun8|15 years ago|reply
So true, for countries and people.
[+] [-] billjings|15 years ago|reply
[+] [-] patrickk|15 years ago|reply
Interesting fact: I was sitting less than 50m away from the heroic egg-thrower when he went for the kill. Wasn't in the same room unfortunately. We were warned to hide our bank ID badges that day going in and out of work :-)
[+] [-] Padraig|15 years ago|reply
There's a 4 minute section in this video (43m45s onwards ) http://www.rte.ie/player/#v=1090239 which explains better than I can, but here goes:
In short: 1. There are multiple seats (often with a few candidates running from the same party) per constituency. 2. It doesn't take many votes to get elected (Any more than 8,000 votes got you elected in my constituency of 86,000 people).
Politicians don't compete on the differences between their parties because they're also competing against another locally running party member. Instead, they wage very local personality based campaigns. Since they only need a few thousand votes, they can and do call door-to-door to chat with everyone they can. Pothole need filling? Let your local candidates know and by god it'll be fixed immediately.
This means that the people who end up making important decisions on whether or not to take on 100s of billions of euros worth of debt are the people who came across best on a few thousand house calls.
[+] [-] riffraff|15 years ago|reply
The result is, of course, that people who would be ineligible because of obvious incapacity (or any other reason) still get elected when people vote for the color instead of the person, and the parliament is full of lackeys who don't dare to disagree with the leaders for fear of not being put on the safe list the next time around.
Be careful when you wish for a better system, you may end up with a worse one :)
[+] [-] fdghjkh|15 years ago|reply
He said he had two maps on his wall, one of the eastern bloc enemy and a bigger one of his minister's constituency - a crisis (eg a pothole) in the constituency was the priority.
[+] [-] albemuth|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] 6ren|15 years ago|reply
It didn't pop when expected because our economy was propped up by mineral/metal prices, due to China's demand and surprisingly little supply from other countries. Both may change.
[+] [-] robryan|15 years ago|reply
[+] [-] j2d2j2d2|15 years ago|reply
[+] [-] staticshock|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] VB6_Forever|15 years ago|reply
Lend big into a property bubble and you'll be rewarded with colossal bonuses.
The bubble bursts, loans go bad and the share price collapses.
However the main banks banks are considered too big to fail and the taxpayer has to bail them out.
Bonuses (smaller ones) for exceptional performance continue to be the norm, rolling heads the exception.
Why don't the shareholders get rid of their employees, the bankers who have overseen the collapse of their asset?
The shareholders are Pension funds who, while they ostensibly have the little peoples'interests to preserve, are actually run by people from the same gene pool as the bankers themselves.
These people sit on one anothers remuneration committees.
Dog does not eat dog.
[+] [-] RyanMcGreal|15 years ago|reply
Unfortunately, if you remove deposit insurance (or any of its variants), people's savings once again become subject to the self-fulfilling whims of insolvency or the unfounded rumour of insolvency.
[+] [-] yummyfajitas|15 years ago|reply
Financial institutions fired 800,000 people nationwide between Jan 1 2008 and Jan 1 2011. That's about 10% of their total workforce.
http://research.stlouisfed.org/fred2/series/USFIRE?cid=11
[+] [-] unknown|15 years ago|reply
[deleted]