“With every passing day, this Armageddon gets closer.”

RTÉ reports that the Irish government plans a new economic recovery plan for the New Year [it’ll all be over by Christmas? – Ed]. But the Sunday Business Post has a couple of articles worth considering. First up there’s a report on the ongoing discussions on the recapitalisation of the banks, and the disagreements over who needs what, whilst David McWilliams argues that the market’s growing realisation of the default risk of the state, as opposed to the banks, means that Finance Minister Brian Lenihan must act decisively now.

If they [the management of the banks] play ball they might have a chance; if not, they are out. In short, Brian Lenihan is the don and he has to accept this. Any minister for finance who guarantees his banks is the last man. He makes the decisions. If this inconvenient truth hasn’t sunk in at the department, it most certainly is clear to the financial markets. As far the rest of the world is concerned, ever since the guarantee was issued on October 1, the state more or less owns the banks to the extent that, if the banks collapse, the state picks up the tab.

Update In the comments zone George links to this Irish government announcement.
This extract from the government statement indicates the absence of detail at present

In that context, the Government has decided either through the National Pensions Reserve Fund or otherwise and subject to terms and conditions, to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to €10 billion.

The State’s investment may take the form of preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis. In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government.

A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment.

And I’m not convinced that it actually addresses David McWilliams point. From the Sunday Business Post article

Given that the management of the banks is in self-preservation mode, any meaningful bid that comes in now will be hostile, not to the institutions, but to the individuals who ran these companies into the ground. Therefore, in the interests of the state, the minister has to act against the interests of the individuals who run the companies. Things couldn’t be clearer. If the minister wants any progress on the banks and, by extension, the economy, he will have simply to go over to the banks, put a friendly arm around the shoulders of the current bosses and usher them out the door. If not quite out the door, at least in the direction of the foyer, explaining firmly but sensitively that they are part of the problem.

, , , , , ,

  • It’s not really a surprise that the economy is shrinking more dramatically than predicted by the dimwits in government. And we should brace ourselves for even worse news in future; this depression still hasn’t got fully going yet. This depression has been inevitable after the madness up to circa 2006/7.

    Medical cards for the over-70s might seem like an extravagant luxury in a year’s time; feeding them might be the real problem. In a year’s time, it may be Iceland that is sitting pretty, while the EU countries collapse. The UK may be a millstone around Scotland’s neck, boosting the cause of Scottish independance rather than weakening it. Why should Scottish taxpayers have to work hard earning euros in exports just so that those exports can pay the euro- and dollar- denominated debts of the big London banks?

    Iceland’s mistake wasn’t being independent – it’s mistake was allowing their banks to run up large euro-denominated debt; if anything, they weren’t independent enough. Similarly, the City in London will be destroyed because of its euro- and dollar- denominated debts.

    Letting all southern Irish banks collapse, which would write off their debts, might turn out (with hindsight) to have been the best option.

  • Mack

    Aaron M.
    “Letting all southern Irish banks collapse, which would write off their debts, might turn out (with hindsight) to have been the best option. “

    With proper deposit protection, I’m inclined to agree. We’d have had to attract foreign banks to replace them, but it’s unlikely they’d do a worse job. To quote Peter Schiff – “It’s not the bust that is the problem, it’s the boom that is the problem, the bust is the solution.”

    Maybe we can keep them zombied for two years then go down that route?

  • Mack

    It’s our patriotic duty to shop in the north according to economist Jim O’Leary.

    http://www.irishtimes.com/newspaper/finance/2008/1212/1228864709873.html

  • George

    Irish government has just announced that 10 billion of the National Pension Reserve fund will be used to recapitalise the banks.

    http://www.finance.gov.ie/viewdoc.asp?DocID=5604

  • Wilde Rover
  • Mack

    Wilde Rover – Absolutely.

    Given that it’s the excesses during the boom that are the actual problem (the bust merely being the unavoidable, natural outcome), and that the government cheer led rather than reigned in those excesses…

  • Belfast Gonzo

    I feel conned. I thought this was going to be another post about some impending global doom, brought about by some Opik-style meteorite madness…

  • Greenflag

    ‘that the government cheer led rather than reigned in those excesses… ‘

    After several centuries of relative ‘poverty’ vis a vis our European neighbours who wanted to be the ‘party pooper ‘ eh ? Not anybody who wanted to be re-elected anyway .

    It’s one of democracy’s inherent weaknesses . Once people forget or ignore the principle of the fallacy of composition then it’s not a question of if for a coming disaster but merely when !

    I saw it all from Nov 2005 approx . I’m amazed that it took so long to finally burst . And it’s not over yet by any means . With Bernard Madoff’s skiving off 50 billion dollars in the biggest hedge fund ponzi scheme heist in history who knows what fresh revelations will be revealed in the next few weeks .

    It was not just the ‘Governments’ British , Irish , American (mainly ) who were asleep at the wheel . The ‘f****rs ” were nowhere near the wheel but had long since abandoned the vehicle to ‘automatic ‘ control and were partying in the rear of the vehicle as their economies were fleeced to the bone by the biggest shower of Wall St gangsters and financial voodoo merchants the world has ever seen 🙁

  • Mack

    Greenflag –
    “After several centuries of relative ‘poverty’ vis a vis our European neighbours”

    I wonder about that. No doubt we fell behind at various points, and were never at the top. Take a look at this chart of average heights in the mid-19th Century (wealthier nations tend to have taller citizens – as their diet is better).

    http://en.wikipedia.org/wiki/Human_height#History_of_human_height

    The Irish are among the tallest in Europe, and both the Irish and Scots are above the UK average (all of Ireland being in the UK back then). I would guess the reason for being above the UK average is that the agrarian Irish economy fed the natives better than the Industrial English economy. Of course, penal laws had prevented the majority from growing their capital base (and removed them from the land owning class), but the country as a whole seems reasonably wealthy/healthy (imminent disaster & the laissez-faire economics that aggravatedd it not withstanding)…

  • George

    Mack,
    surely our size (hands like shovels and the like) has a lot to do with the fact we were probably the only peasants in Europe gorging on a high carbohydrate diet thanks to the prataí.

  • Greenflag

    ‘I would guess the reason for being above the UK average is that the agrarian Irish economy fed the natives better than the Industrial English economy.’

    Potatoes are very nutritious 😉 As are your ‘other ‘ vegetables . I recall two relatives many moons ago competing in the annual family ‘new potato ‘ eating contest. The winner was the 6’3’ Wexfordman who defeated the 6’4 inch Dub by 38 ‘new ‘ potatoes to 35 . I believe this was not their normal daily intake . The Wexforman was accused later of cheating as he washed down the spuds with copious draughts of Guinness which is renowed for it’s absorbent qualities in the gut – whereas the Dub being a tee totaller could only drink milk with his spuds . Later he put his defeat down to the ‘bloating ‘ effects of the milk 😉

    My reference to relative ‘poverty’ above was in regard to actual money in the bank and income earned , GDP per capita etc and not to physical demeanour or height or complexions or meeting the minimum standard necessary for qualification as uniformed cannon fodder for the trenches 🙁

    I believe that the African Watusi’s and the Dinka’s of Ethiopia/Sudan are some of the world’s tallest people despite having GDP figures at the bottom or close to the bottom of any world country comparisons .

    The ‘human ‘ body /frame /complexion is extremely malleable although not usually in one or two generations . We adapt to the environment just like the rest of the animal kingdom . Sometimes ‘survival ‘ demands shorter stature for the species as a whole . Big bodies need more food and more clothing . Icelanders in the 16th century shared the same fate as the elephants in the Indonesian islands . In response to a ‘restricted ‘ human/elephantine environment each ‘animal ‘ reduced in size . Although the Icelanders recovered the mini elephants did not as somehow their internal survival clock tells them that if they grew to their full potential size on a small island they would soon destroy their ‘food ‘ supply and become extinct . Nature is amazing .

    The same was no doubt through of the population that grew up in the dark satanic mills of industrial revolution England .Textile manufacturers preferred shorter employees who could more easily move in between the moving spindles etc etc . To this day although the effects may have moderated Glaswegians and Belfast folk were renowned for many of them never making it past 5’3″.

    Nowadays with fast food and eating on the go we can expect future generations of Glaswegians and Belfast to once again attain the 5’3″ standard except next time it will be for ‘width ‘ not height 😉 A fried Mars bar a day helps you work , rest and die ten years earlier than you should 🙁

    Fast food makes you fat quick 🙁

  • Mack

    Greenflag, George –

    Aye, thought that too and agree about Ireland & the potato. Still, we managed to feed 8 million well (when the population of England was 16 million), and export significant amounts of food, until it all went wrong.

    I kind of wonder what the rest of agrarian Europe was like when we were taller? (The dutch are the tallest people in the world today, maybe they were still wiped out after the Tulip mania).

    In terms of GDP, while the Gaelic / Catholics definetely didn’t have much wealth after the penal laws – Belfast was a powerhouse in the 19th Century and Ireland was a state in the richest country in the world at the time (but we normally don’t look at it that way)..

    Unfortunately the famine (unfortunate that it occured, and laissez-faire wasn’t dumped for the duration) ensured we have to look at that period with sense of victimhood, rather than any sense of pride.