Financial Crisis

[osarusan]

The Japanese government have come up with a unique spending programme whereby everyone is given $200 to spend as they wish, in order to get the economy going again. It's better than anything I've seen from our government yet.

It is actually 12,000 yen, which is about 90 euros.

And the Japanese aren't too thrilled about it.

http://www.japantoday.com/category/lifestyle/view/cash-handout-stupid-wasteful-idea-japanese-say

Also, it will be sending millions and millions of euro directly into the hands of the Yakuza.

[John83]

Didn't the Americans already do something similar with a big tax rebate for everyone?

[OneRedArmy]

Wouldn't matter whether you gave people 100, 1000 or 10k to spend, the majority would save it. Lots of evidence the savings rate is rocketing after a decade of credit growth. De-leveraging ( at a personal level as well as amongst banks) is an inevitable, necessary and unfortunately painful consequence of what's gone on.

[Bald Student]

Does de-leveraging mean borrowing less?

[pete]

Wouldn't matter whether you gave people 100, 1000 or 10k to spend, the majority would save it. Lots of evidence the savings rate is rocketing after a decade of credit growth.

If the money went straight into peoples pockets instead of directly to the banls they would get it back through savings accounts?

[Macy]

The state should also start selling the family silver (i.e. state assets.) so it has money to spend on core role like education, police etc...
2 things...

1) Because it's worked so well everytime they've done it before? Part of the reason we're in a poor position to compete is because our telecoms infrastructure has been asset stripped, and drasticly underinvested in because of privatisation and profit maximisation.

2) Even if you think losing control of assets is a good thing, why on earth would you sell at the bottom of the market? That only suits the buyers (such as O'Reilly who made millions out of eircom - no surprise his papers have pushed the sale of others), not the state or the public.

[pete]

The ESB could easily be sold as long as we keep the infrastructure in state control. The Eircom mistake was selling the infrastructure.

The reason to sell is we are broke as a country. We don't have luxury of waiting to sell at the top of the market.

[monutdfc]

If the money went straight into peoples pockets instead of directly to the banls they would get it back through savings accounts?
Yes, but it would be on the other side of the banks' balance sheets - ie a liability not an asset

[Macy]

The ESB could easily be sold as long as we keep the infrastructure in state control. The Eircom mistake was selling the infrastructure.

The reason to sell is we are broke as a country. We don't have luxury of waiting to sell at the top of the market.
But the ESB makes a profit so it actually contributes to reducing our need to borrow? It'd be very short term thinking to sell state assets, never mind profitable ones.

[superfrank]

Didn't the Americans already do something similar with a big tax rebate for everyone?
Australia did it. Handed out nearly $300 per head.

[John83]

Australia did it. Handed out nearly $300 per head.
Yeah. I was right though, the US did it a year ago:
http://www.usatoday.com/money/perfi/taxes/2008-03-17-irs_N.htm

US$600 per person, $300 per child.

No idea whether it's considered to have done any good.

[OneRedArmy]

Yeah. I was right though, the US did it a year ago:
http://www.usatoday.com/money/perfi/taxes/2008-03-17-irs_N.htm

US$600 per person, $300 per child.

No idea whether it's considered to have done any good.Generally viewed as a complete and utter failure for the reasons I quoted above.

http://newsblogs.chicagotribune.com/steve_chapman/2008/08/the-failure-of.html

[John83]

I can belive that. It sounds like a crap solution with a decent PR upside for the government.

[OneRedArmy]

I can belive that. It sounds like a crap solution with a decent PR upside for the government.If you could force the people to spend the money it would have a positive effect undoubtedly, but short of issuing people gift vouchers its almost impossible to do this.

In the US case it was a desperate effort by a government on its last legs.

[mypost]

Generally viewed as a complete and utter failure for the reasons I quoted above.

Certainly worth a try, compared to the tax, tax, tax attitude of our government.

Not much point in having a Celtic Tiger and wage increases in a boom, when the government intends to take it all back from you when the rainy day comes.

But as long as JC Trichet is happy, everything's fine. :rolleyes:

[Stuttgart88]

Wouldn't matter whether you gave people 100, 1000 or 10k to spend, the majority would save it. Lots of evidence the savings rate is rocketing after a decade of credit growth. De-leveraging ( at a personal level as well as amongst banks) is an inevitable, necessary and unfortunately painful consequence of what's gone on.The definitive piece on the Japanese experience of the 90s is by Nomura economist Richard Koo, called "The Holy Grail of Macro Economics". In this book he coins the phrase "balance sheet recession". He makes exactly your point. In fact he goes on to discredit one of the really simple and most accepted axioms underpinning classical economic theory, namely that firms seek to maximise profit. Far from it in a deep post-bubble recession, Koo argues, it's more like firms seek to maximise likelihood of survival as their main motivating factor.

That's exactly where we are now, both corporates & consumers.

The same book contains a very oriental analysis, a really descriptive "ying phase" and "yang phase" diagram, the upshot being that, as usual, economies will self heal but it gives no timescale.

[Stuttgart88]

Does de-leveraging mean borrowing less?Yes, it's paying down your debt until it becomes more manageable.

The situation ORA describes is what I think is called a "liquidity trap". It's the situation that Keynes likened to "pushing on a piece of string" - i.e., no matter how hard the authorities try to stir activity by pumping in money it'll have no impact.

That's why I can't comprehend the 2.5% reduction in VAT in the UK. What a moronic gesture that was.

The only difference it made is to give retailers up and down the country a pain in the hole because they had to adjust the price of every single item for sale, and restaurants all had to pay to have their menus reprinted and so on...

[Bald Student]

Yes, it's paying down your debt until it becomes more manageable.
Thanks,
I agree with you. I think the country has followed the business model of the LoI and we'll just need to get used to having less money. Since money is getting scarcer, the people hardest hit will be those who borrowed to buy stuff at yesterdays' prices but will have to pay that back with tomorrows' earnings.

[Scrufil]

The real plus side of all this is seeing twits who have borrowed stupid money now down on their knees. Ha! Ha! Now they know what it felt like for those of us who never made any money during the so called Boom. If they choose to take a short time view and live beyond their means and are now suffering I'm glad. That will teach them a valuable lesson.

[Macy]

Certainly worth a try, compared to the tax, tax, tax attitude of our government.
It was actually their cut tax, cut tax, cut tax attitude that has us in the bloody crapper in the first place. Only right that it's the same idiots that have to reverse their own brainless policies.

[pete]

It was actually their cut tax, cut tax, cut tax attitude that has us in the bloody crapper in the first place.

I disagree. Failure to keep public spending in check is what has us where we are. In the good times we were up around 8-10% annual public spending growth. Ireland has no future if it looks to match tax levels of UK or Germany - we can only thrive in low rate economy as foreign investment with dry up if we raise taxes.

[Dodge]

I disagree. Failure to keep public spending in check is what has us where we are. In the good times we were up around 8-10% annual public spending growth. Ireland has no future if it looks to match tax levels of UK or Germany - we can only thrive in low rate economy as foreign investment with dry up if we raise taxes.

What public spending though? Has infrastructure improved? Has education? There's absolutely no way you can say that public spending has been excessive. Certainly not on any of the basic services.

[NeilMcD]

I think the issue is that we did spend lots of money but not on the right things and did not get value for money.

[pete]

EBS Results (http://www.irishtimes.com/newspaper/breaking/2009/0310/breaking51.htm)



EBS building society has announced the resignation of its chairman Mark Moran and finance director Alan Merriman after the lender posted an annual loss of €38.2 million for 2008.

The loss was incurred after the building society took a bad debt charge of €110 million, which included €69 million on the lender’s €512 million property development loan book. The write-off represented 13.5 per cent of the development loans and the building society anticipates further losses on these loans this year.


I don't know if their "development loans" are any different than the banks but that seems a very high write-off percentage. Anything like those numbers from AIB & BOI would surely bankrupt the country?

[Macy]

I disagree. Failure to keep public spending in check is what has us where we are. In the good times we were up around 8-10% annual public spending growth. Ireland has no future if it looks to match tax levels of UK or Germany - we can only thrive in low rate economy as foreign investment with dry up if we raise taxes.
It's the over reliance on indirect taxes that has us where we are. If we'd widened bands instead of cutting rates, and put more away for this rainy day we would be in a much better position. Scheme's like the SSIA's, which had to be implemented due to ECB pressure because of inflationary direct tax cuts, show that the policy was wrong from the get go.

Yes, there was obviously wasteful spending and yes obviously things could be done more efficiently, but our spending isn't and never was out of line with other european countries. It was our bang for our buck, and that isn't totally down to wages - many areas of waste are down to Government decisions (evoting and decentralisation are only tips of the iceberg).

We can't possibly compete on cost with eastern european and asian countries.


I don't know if their "development loans" are any different than the banks but that seems a very high write-off percentage.
EBS entered the commercial development market late, so has been stung more.

[NeilMcD]

Interesting response and contribution to whether we should cut or increase taxes. I agree that you should not decrease taxes in a boom and then increase them in a recession which we appear like we are going to do. As someone said its like putting on the brakes going up a hill and pushing down on the accelerator going down a hill

http://www.davidmcwilliams.ie/2009/03/08/who-will-take-the-blame-for-the-great-depression-of-2010

[OneRedArmy]

EBS Results (http://www.irishtimes.com/newspaper/breaking/2009/0310/breaking51.htm)



I don't know if their "development loans" are any different than the banks but that seems a very high write-off percentage. Anything like those numbers from AIB & BOI would surely bankrupt the country?Once this is all done and dusted I would expect Irish property development loan write offs well in excess of 50%. Thats probably a best case scenario.

To show this isn't just scaremongering or hyperbole, one of the Sunday papers asked a panel of experts to anonymously value the Jury's and Irish Glass Bottling sites (which sold for over €300 and 400m respectively). Consensus current valuation was €80m for the former and €100m for the latter, but even this was caveated as being optomistic as with banks closed to development business, nobody could get a loan to buy either site.

FYI Pete, AIB have property development loans circa €20-25bn and BOI €12-€15bn. So not enough to bankrupt the country (on its own), but enough to mean another bailout is inevitable (a la US and UK who are on their 2nd and 3rd round of bailouts).

At this stage, consideration really should be given to the formation of a new system of "good" banks.

[dahamsta]

I think the issue is that we did spend lots of money but not on the right things and did not get value for money.Look, it's an over-budget development, with builders and consultants going back to the pump not once but twice! Such a rare thing in Ireland.

[Bald Student]

Interesting response and contribution to whether we should cut or increase taxes. I agree that you should not decrease taxes in a boom and then increase them in a recession which we appear like we are going to do. As someone said its like putting on the brakes going up a hill and pushing down on the accelerator going down a hill

http://www.davidmcwilliams.ie/2009/03/08/who-will-take-the-blame-for-the-great-depression-of-2010
What you're saying is economically correct but there's no way that it could ever have happened politically. The public budget had a surplus of 5 billion or so every year during the boom and the government took a lot of stick for not spending it. There's no way they would have been allowed to maintain a surplus of 10 to 15 billion.

Democracy doesn't guarantee that the public gets what's right, it only guarantees that the public gets what it asks for.

[pete]

FYI Pete, AIB have property development loans circa €20-25bn and BOI €12-€15bn. So not enough to bankrupt the country (on its own), but enough to mean another bailout is inevitable (a la US and UK who are on their 2nd and 3rd round of bailouts)..

I know but doesn't Anglo have something like 70 billion? Lets just say 100 billion total. Could this country raise 50 billion in loans? Bare in mind that does not include mortgage & other loan defaults.

[OneRedArmy]

I know but doesn't Anglo have something like 70 billion? Lets just say 100 billion total. Could this country raise 50 billion in loans? Bare in mind that does not include mortgage & other loan defaults.Remember that banks make profits on performing loans and have a capital buffer as well.

But your core point is correct, it will put immense strain on the public finances, which are already creaking.

Another black mark against the Government for allowing banks individually to take on excessive concentrated risk and the Irish banking sector as a whole to be much too big and too highly correlated.

[Macy]

So not enough to bankrupt the country (on its own), but enough to mean another bailout is inevitable (a la US and UK who are on their 2nd and 3rd round of bailouts).
Surely, and especially given their share prices, it's nationalisation that's inevitable. From the very start, the Governments been peeing on the fire instead of getting out the fire hose...

[OneRedArmy]

Surely, and especially given their share prices, it's nationalisation that's inevitable. From the very start, the Governments been peeing on the fire instead of getting out the fire hose...
Nationalization of the existing banks is only half the solution. The Government need to work out how banking is going to work going forward. Since the Swedish model worked before (with no long-term cost to the nation, yes, that is correct, no cost!) I think we should follow that.

This involved nationalising all the bad banks, firing the senior management and trying to sell the toxic assets over time. Meanwhile, the performing assets (loans) and liabilities (deposits) were transferred to newly set-up "good" banks. Crucially, the good banks were run by a new management team and subject to enhanced supervision.

[NeilMcD]

I think ICTU have suggested this in their play. Not saying the plan is the perfect plan but it does have the Swedish model as the bed rock to its way forward.

[Macy]

Nationalization of the existing banks is only half the solution. The Government need to work out how banking is going to work going forward. Since the Swedish model worked before (with no long-term cost to the nation, yes, that is correct, no cost!) I think we should follow that
I wouldn't disagree, but first the must accept that Nationalisation is inevitable and just get on with that, and on to the longer term solutions. Unfortunately there is no indication they've spotted their tinkering and no upside guarentee aren't working, and they're happy for the same people to be in charge.


I think ICTU have suggested this in their play. Not saying the plan is the perfect plan but it does have the Swedish model as the bed rock to its way forward.
Aye, ICTU have been quite open about it being the Swedish model, with a twist of Danish with flexisecurity.

[pete]

I think the government are delaying making decision on Banking restructuring until last possible moment. They might be waiting to see how it works out for other countries. It is a difficult decision because if they jump too soon & make the wrong one it will make matters worse. They also have the problem of not acting...

[Fr Damo]

ORA.....You know more about this than me but I think the difference between now and the 90s is our banks here have bought bonds of which some are from the subprime in the states, where as the Norics pretty much lent to themselves during the 90s, and certainly wern't exposed to the extent our banks are now. i.e We couldn't give the toxic assets away! Therefore, should we not just write the lot down over the next three-five years and start again?? It is going to cost us bigstyle all ends up, lets get on with it.

[pete]

ORA.....You know more about this than me but I think the difference between now and the 90s is our banks here have bought bonds of which some are from the subprime in the states, where as the Norics pretty much lent to themselves during the 90s, and certainly wern't exposed to the extent our banks are now.it.

I am open to correction on this but I don't think Irish banks have much if any exposure to the sub prime junk packages from the US. Irish bank loses are Irish loan loses.

[OneRedArmy]

ORA.....You know more about this than me but I think the difference between now and the 90s is our banks here have bought bonds of which some are from the subprime in the states, where as the Norics pretty much lent to themselves during the 90s, and certainly wern't exposed to the extent our banks are now. i.e We couldn't give the toxic assets away! Therefore, should we not just write the lot down over the next three-five years and start again?? It is going to cost us bigstyle all ends up, lets get on with it.The Nordic countries experience was almost identical to Ireland, the main difference was they had their own currency (which has positives and negatives). Irish banks actually didn't invest much in US subprime, most assets of the main Irish players would be overwhemingly Ireland and UK.

In terms of writing the assets off, nationalization would effectively make this irrelevant. But that is not to say we shouldn't over time seek to recover the most we can from each asset. So whilst property loans are vastly over-valued, they certainly aren't worthless, particularly in the medium-long term.

[Fr Damo]

Thanks for the enlightenment, but they still should be writing down at a more realistc level, (Did AIB write off 1.5% of it's loan book?) as I know our company has increased it's bad debt provession from about 5% to 10% of debtors and we are fairly sure we will get the other 90% of debt back. AIB seem to think that the other 98% of their book is safe. Aint going to happen, and that's why the markets reckon they are all but finished as PLCs, that is to say, won't survive without Government intervention.

[NeilMcD]

once again I find myself in total agreement with Mc Williams in this article.

http://www.davidmcwilliams.ie/2009/03/15/this-is-not-the-time-to-panic

[Billsthoughts]

The “Pride Construct” of the Irish mindset is a massive obstacle to it happening.

We should drop the ‘pride contruct’ - and try and get back our self-respect. We lost our self-respect when Charles J.Haughey became Taoiseach - and we have to regain it yet. You only have to look at the way things operate in Ireland in both the public and private sector, to realise that Ireland is a society structurally designed to accomodate the gombeen mentality.

Being Irish is all about obedience, going with the herd, believing all sorts of fairytales, and myths. There is a whole heap of stuff about Ireland that is complete nonsense. We spent the last fifteen years ‘celebrating’ like as if that was somehow or other an acheivement superior to the Dutch draining the Zuider See, or the Chinese building the Great Wall. And now we see the result. There is not one single Irish bank capable of functioning properly. We are Iceland six months on. There are people in Ireland who think that a drunken stupor is a cultural event. And they will not under any circumstance consider the fact that such a mentality might be incerdibly flawed - and even idiotic.

With all the addictive and psycho-delusional tendencies in the Irish population, is it any wonder that this country is suddenly a bankrupt, depressed place, full of social problems and utter chaos ??

I have read the work of James Kunstler and his critique of America. All I can say - is Thank God, he has not seen Ireland. Ireland has all the defects of the current American social model, and an insiduous layer of Irish problems in addition. The Americans have the 1000 mile Ceasar Salad, Ireland has the 1000 mile drinking binge. Americans have the mall, we have Liffey Valley, etc. bankrupt and being paid for by the taxpayer. Michael Moore has critiqued the US healthcare system. But at least it works. The HSE is failing, and is 18% filled with management. Americans fire their incompetent regulators, and jail the corrupt bankers. In Ireland both constituencies slip quietly out a side exit, claim full pensions and all have a get together in an exclusive golf resort in Portugal owned by the biggest tax avoider in the country.

I actually think that the entire ‘celebrating’ culture is to prevent us from actually thinking. Thinking is dangerous in Ireland. It makes you all sorts of enemies. Thinking is supposed to be a privelege of the gombeen classes - the sloggers are told to amuse themselves and not do too much thinking - in case they might realise what is happening, and end up causing some sort of revolution !!!

I like this guy more.

[forza rovers]

after receiving a letter from one of the local counsellors,I was discussed to see that it was government letter surly this would be the first things stopped in this financial crisis wasting government money on this rubbish.

[dahamsta]

It's an absolute disgrace that individuals and parties are allowed to use envelopes and postage paid for by tax money. They're all at it, I complained to Labour about it and their response was that "everyone does it"! That makes it ok?

[Bald Student]

It's an absolute disgrace that individuals and parties are allowed to use envelopes and postage paid for by tax money. They're all at it, I complained to Labour about it and their response was that "everyone does it"! That makes it ok?

The problem is that if they stoppe doing it, they'd likely loose the next election and be about as useful as the Crack Suicide Squad in The Life of Brian. If they campaign for the system to be changed while using it themselves, they have their head bitten off in the media for the hypocrisy.

That's left us in a situation where anyone who disagrees with the system is forced to stay quiet. When questioned, all TDs will claim to be in favour of reforming the system to remove the abuses but we know that more than half of them are lying since the system remains unreformed. What we don't know is which TDs, if any, genuinely want to see the system changed. Any who speak out, without committing electoral suicide by refusing the allowances themselves, are attacked by those outside of politics who should be their allies.

There's a whole other argument to be had about whether we should have public or private funding of politics. I've never known any radio or tv conversation of the topic to consist of anything other than politicians and journalists shouting insults at each other. I actually don't think we're mature enough as a society to discuss this type of thing reasonably, so we're likely to keep the system we have for want of the ability to change it.

[pete]

after receiving a letter from one of the local counsellors,I was discussed to see that it was government letter surly this would be the first things stopped in this financial crisis wasting government money on this rubbish.

Usually they send these letters just to be seen to be sending something. I remember Bertie sending me one about 2 years ago saying he would add filter light to traffic light where our side road joins the main road. This was at the time when he was Taoiseach & I am sure had more important things to do than waste time on such triviality. Needless to say no such light was added.

[dahamsta]

Sure they're the same with renumeration.

[NeilMcD]

Usually they send these letters just to be seen to be sending something. I remember Bertie sending me one about 2 years ago saying he would add filter light to traffic light where our side road joins the main road. This was at the time when he was Taoiseach & I am sure had more important things to do than waste time on such triviality. Needless to say no such light was added.

Do you honestly think he wrote it or probably even knew about it. Waste of resources I would agree but not his time and energy.

[pete]

Do you honestly think he wrote it or probably even knew about it. Waste of resources I would agree but not his time and energy.

You mean that was not his signature? :eek:

[osarusan]

My idea for a step to help this economy in an admittedly tiny way -

Require all purchasers to pay a 50-cent deposit on every glass bottle of alcohol sold anywhere in the country. The deposit can be recovered in full at certain centres / shops.

The positives are that a certain percent of the bottles will never be returned, and the money earned by the government will be millions, I'd imagine (easily enough to run the scheme and have a lot left over). Added positive is a reduction in the amount of broken beer bottles littering our streets every day of the year.

A drop in the ocean I know, but I think it is a decent idea.