Fianna Fail heading for ‘toxic Government’ status?

There is a lot of anger and speculation about early elections about the way the Fianna Fail led government has conducted itself in the face of the recent crisis. I was particularly struck by commenter Oilifear’s observation that:

Cowen, Coughlan and Lenihan have made a subtle move from calling on someone to take decisive action to realising that they are the Government and that it is up to them to take decisive action. From there, they made the quiet transition to saying nothing more about it while predicting ominous consequence (presumably if no-one takes decisive action).

It chimes with Sarah Carey’s plea to the heavens that any government is better than none

Am I wrong in thinking that in six months time a cruel-looking German in a pin-striped suit will board a plane in Frankfurt bound for Dublin? Flashing an ECB identity card at Government Buildings, will he enter the Taoiseach’s office and announce: “For you Herr Cowen, ze var is over!”? And Brian, rather than protesting, will be rather relieved that the cup has finally passed. Perhaps he will return gratefully and quietly to Clara while the Eurocrats or, God help us, the IMF, get on with running the country we ran into the ground.

Am I wrong in thinking that Cowen hates him so much, he would rather see international intervention than Enda Kenny as taoiseach? Is his belief in Fianna Fáil’s divine right to rule so ingrained that he would rather the country hand over sovereignty to the fund or the ECB rather than the Opposition? Is that why, no matter how much the Sunday Independent demands a national government, we won’t get one, not because Enda or Eamon won’t say yes, but because Brian can’t bring himself to ask?

Am I wrong in thinking that the Taoiseach remains paralysed by a combination of shock and delusion that cute hoorism still has a place in Irish politics? His insistence on outsourcing a decision on tax increases to the Commission on Taxation is surely evidence of both. The commission is due to report in July and the Taoiseach, despite his clear majority in the Dáil, will have the permission he craves to implement the tax hikes everyone else has long accepted are necessary.

A government of national unity argument has emerged over recent weeks from various sources, some of them very close to the Government… If the goes as bad as as some are speculate, Fianna Fail may find itself as isolated as those as yet fictional toxic banks we keep hearing about…

The canary in the mineshaft is the Greens. Unless and until they weaken (Paul Gogarty, for now at least, excepted), it will be business as usual… The rest is hysteria and speculation…

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  • Dave

    “Am I wrong in thinking that in six months time a cruel-looking German in a pin-striped suit will board a plane in Frankfurt bound for Dublin? Flashing an ECB identity card at Government Buildings, will he enter the Taoiseach’s office and announce: “For you Herr Cowen, ze var is over!”? And Brian, rather than protesting, will be rather relieved that the cup has finally passed.” – Sarah Carey

    Senator Dan Boyle said recently that it didn’t matter who ran the country because they’d all have to implement the same policies. Since Irish macroeconomic policy is entirely within the control of the EU’s ECB and since 84% of all new regulations in Ireland originate from the EU, what Ms Carey fails to grasp is that the country has long been under the governance of those she adores.

    Monetary policy directs the monetary system, and that went tits-up. European banks have become the highest leveraged in the world under the direction of the ECB. The ECB’s expansionist monetary policy was that the supply of money banks should be increased by banks lending it cheaply, at a policy rate set by the ECB. European banks were to satisfy this ECB-engineered demand for the cheap money by leveraging upwards to insanely high levels.

    This monetary policy was guided by the belief that spending money creates (borrowed) wealth in the economy instead of simply creating debt. The economic growth then would be stimulated by the borrowing and sustained by it. And indeed it would be, but only until the banks reached a leverage ratio where the sanity of the ECB’s monetary policy was called into question by the markets.

    A safe leverage ratio is 10. None of the major American banks have a leverage ratio above 20 (and they are still overleveraged). But what did leverage ratios of the Europeans banks reach under this monetary policy until reality that the policy had failed to create the wealth it promised hit home?

    Let’s look at the most prominent member of the Eurozone, Germany: the average leverage ratio among its banks is an astronomical 52. Germany’s economy has contracted at a rate of 8.4% and Deutsche Bank, Germany’s largest bank, is predicting this will a higher figure for the full year. Deutsche Bank, by the way, is in a state of concealed insolvency. It has a leverage ratio of 50.5; debts of $2.5 trillion (of which 31% is unstable securities); its shares have fallen by 75%; it requires a government bail-out, and it is losing billions.

    Over at The Telegraph, Bruno Wakefield has details about a secret report circulating among EU finance ministers which says that Europeans banks will require a £16.7 trillion bail-out just to stay afloat.

    It won’t be the ECB, the central bank whose monetary policy is the root cause of the crisis in the EU monetary system, who is required to bail out the banks because we have a monetary union without a political union, and ergo it will be the individual states who have to try to act in unison to bail-out a common entity. And even if those states transfer the debt from the private sector to the public sector, they still won’t be able to do anything about the monetary policy since they have delegated macroeconomic control to an external authority where it is illegal under the Maastricht Treaty for the national government to offer any advice whatsoever to the ECB about what monetary policy would be helpful. These undemocratic elite who now control the policy of Europe’s monetary system are not even accountable to the EU parliament, never mind the parliaments of member states. As is pointed out in the link, just as the ECB set the policy rate too low for too long, they are now setting it too high.

    The EU is an abysmal failure, not the concept of national self-determination. It is only by diverting from the latter and delegating sovereignty to the former do we lose all control over our economy. There is no valid refutation to the argument that retaining sovereignty over monetary policy would have allowed the Irish central bank to stop the overheating in the Irish economy (and the excessive borrowing that fuelled it) by increasing the interest rate and thereby reducing the demand for money. As we had given the sovereignty to the EU’s ECB, we just had to, as Dan Boyle observed, sit back and enjoy the rollercoaster ride until the wheels fell off the cart.

    The same will hold true for a change of government. The EU imposes the regulations and devises the policies which now govern this country, and the national government are just the Viceroy administrators of this neo-colonial control.

  • It was Sammy Mc Nally what done it

    The only thing in favour of FF is that poll ratings are so low that they might as well decide to bite the bullet of unpopularity and go for severe cutbacks/tax rises and challenge the opposition to come up with an alternative – which probably will not be forthcoming and would probably result in the press rowing in behind them.

  • EWI

    There is no valid refutation to the argument that retaining sovereignty over monetary policy would have allowed the Irish central bank to stop the overheating in the Irish economy

    Yeah, right. Apart from the fact that everywhere in the world we find both bankers and their ‘regulators’ – yet more bankers! – as thick as thieves.

  • Greenflag

    ‘The EU imposes the regulations and devises the policies which now govern this country i.e Ireland

    and Belgium , Denmark , Sweden , Italy, Germany , France , Spain , Portugal , Greece , Holland , Slovenia , Austria , Czech , Slovakia, UK, Finland , etc etc etc etc etc .

    Ireland is exceptional only in respect of the larger property melt down here . We can be lucky that we are in the EU . Our ‘bankers’ and ‘regulators ‘ would have been no different from the same shower of financial services ‘gangsters’ whose overweening greed is at the back of this crisis .

    New world economic order on the way . It’s that or ‘red ‘ revolution ‘ When it comes to the crunch the ‘rich ‘ will be eaten rather than any western government having to face a complete societal breakdown .

  • Greenflag

    EWI,

    ‘Apart from the fact that everywhere in the world we find both bankers and their ‘regulators’ – yet more bankers! – as thick as thieves. ‘

    The amount of money ‘spinning ‘ around the world in search of a quick return has grown exponentially over the past decade or more . In 2006 the world’s economic output i.e GDP was some 47 trillion dollars . The market capitalisation of the world’s stock markets was 51 trillion dollars , 10% larger . The total valus of domestic and international bonds was 68 trillion dollars , 50% larger .

    The amount of derivatives (leveraged gambling on asset values ) was 473 trillion dollars more than 10 times larger . The volume of leveraged buyouts (takeovers of firms financed by borrowing surged to 753 billion dollars . The explosion of ‘securitisation ‘ whereby individual debts like mortgages are ‘tranched’ and bundled into and ‘repackaged ‘ for sale pushed the annual issuance of mortgage backed securities to above 3 trillion dollars . The volume of derivatives -contracts derived from securities such as credit default swaps (CDS ) has grown even faster so that by the end of 2007 when the fit finally hit the shan was just under 600 trillion dollars or about 15 times world economic output . In 1990 there were 610 hedge funds with 38 billion dollars under ‘management ‘ Today there are /were over 7,000 with 1.9 trillion dollars to play ‘casino ‘ with .

    The above facts from Niall Ferguson’s ‘The Ascent of Money ‘

    The above gives a measure of what any currency is up against when the above ‘capital ‘ is in the hands of international speculators who can turn any small countries currency to ‘mush ‘ with a few well directed trades . What George Soros did to the UK ‘s currency in the 1990’s is just an example . And remember the powers that control these vast movements of capital have minimal regulation .

    It will take the combined financial clout of all the major economies to bring the financial services ‘thieves’ to heel .

    And remember that all of the above began because the US banks and mortgage companies could find no better way to increase their profits and shareholder value than by lending money to those who could not afford to borrow but who were enticed into the ‘trap’ by rising home prices and accompanying low interest rates .

    The USA and the UK brokered their economic futures on the export of ‘financial services ‘ dressed up as CDO’s and CDS’s . The ‘banking ‘ fraternity in most countries in the world went along for the lemming ride.

    As for the Irish opposition in all of this . Not only outside the tent in a large field but taking aim from another field several miles away 🙁

    No matter how much they (the opposition ) wriggle and prance . They’ll succeed in only wetting their pants 🙁

    And for those who still trust Swiss banks . It seems that these banks used encrypted computers IN THE USA to persuade US citizens that any deposits they made would never be tracked down by the USA Government . Well that was then .

    Greed is a given and the only defence against it is effective regulation and probably capital punishment for capital crimes which destroy people’s pensions and life savings .

  • Dave

    Greenflag, the EU likes to claim that the economic crisis is due to faulty financial regulation while gingerly ignoring the fact that the EU is the author of most financial sector regulation (when not pretending that it is the fault of the Americans or nobodys’ fault because an AIDS-like virsu called ‘globalisation’ germinated on a toilet seat and just sorta spreade from there).

    I suggest you study a wee thing called the Capital Requirements Directive (CRD) that provides the regulatory framework that controls the financial service industry within the EU. While the CRD allows individual member states to impose a more stringent limit on the leverage ratio within that framework, the EU strongly discourages its member states from doing so on the grounds that divergence would tend to distort the level playing field in the EU’s single market for financial services and complicate the goal of a single regulatory framework for the EU. Consequently, all member states adopted the directive without alteration of the core requirement. That is the directive that has allowed the EU’s banks to become the highest leveraged in the world.

    Of course, as it typical practice among the muppets at the EU, they make a big song and dance of slamming the stable door after they held it wide open for the horse to bolt. This is why the European Commissioner is now planning to issue a new directive (amending his previous directive) which will limit the leverage ratio to 30:1. 30-to-1 is still 3 times higher than what the maximum should be for quality assets and 6 times higher than it should be for general banking, but when your banks are the highest leveraged in the world, you can’t be too fussy with the regulation, can you?

    [i]European banks may need massive bail-out
    European banks sitting on £16.3 trillion of toxic assets may suffer massive losses, according to a confidential Brussels document.

    By Bruno Waterfield in Brussels
    Last Updated: 1:51PM GMT 11 Feb 2009

    A secret 17-page paper discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday, also warned that government attempts to buy up or underwrite such assets could plunge the European Union into a deeper crisis.

    National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

    “Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned. “

    “It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

    European Commission officials have estimated that “impaired assets” may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book’ total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

    In addition, so-called ‘available for sale instruments’ worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.

    Banks account for their assets in different ways. Assets put into the “trading book” have to be marked to current market values, while those in the “banking book” are loans and other assets which the institution believes it can hold to maturity. Other assets are classified as “available for sale”, which are also marked to market values.

    The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.

    In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.

    “Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,” the EC paper warned.[/i]

  • EWI

    Am I wrong in thinking that Cowen hates him so much, he would rather see international intervention than Enda Kenny as taoiseach? Is his belief in Fianna Fáil’s divine right to rule so ingrained that he would rather the country hand over sovereignty to the fund or the ECB rather than the Opposition? Is that why, no matter how much the Sunday Independent demands a national government, we won’t get one, not because Enda or Eamon won’t say yes, but because Brian can’t bring himself to ask?

    Carey – as is her wont, I suppose, as a notoriously partisan progeny of a Fine Gael clan – is projecting here, I think. And her “FF won’t join a national gov” rant is particularly clueless in the face of it having been FF partisans (firstly Senator Eoghan “Incitatus” Harris) who have been pushing it!