Bank debt crisis: “….what happens when the Irish taxpayer stiffs the German taxpayer?”

Riffing off John’s nicely subversive theme, there’s another subversive version in Vanity Fair by Michael Lewis, which has a useful perspective on the similarities between Ireland and Iceland:

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another.

Hmmmm…. And here’s the total perspective vortex on where it’s brought the country:

One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.

And on the strange political incontinence that’s followed:

There’s been no Tea Party movement, no Glenn Beck, no serious protests of any kind. The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950.

A bit like the Nigerians who would rather consume goods from Ghana rather than those made by other Nigerians they don’t know, the levels of trust in Irish banking and finance have taken a beating. A situation that was very long in the making, some would say. And now there is a desperation to find some convenient way out.

Here’s Lewis on Bloomberg yesterday. He points out the big fat flaw in a lot of the magical thinking current in Irish economics: much of the private money is already gone. In other words, it’s the old switcheroo. Where two years ago you had specific bondholders you could easily identify and burn, you now only have the ECB and to a lesser extent, the IMF.

A situation which leads Lewis to the obvious question: “….what happens when the Irish taxpayer stiffs the German taxpayer?”

Answer: Any new government that’s led by Fine Gael and Labour won’t, because they cannot face the political and economic consequences burning two of the world’s biggest fundholders.