Ireland - Who bankrupted Ireland?
Now across Europe the great blame game will rumble back into play. Our banks, your banks, their banks, or is it your feckless householders or ours, certainly can't be theirs, they're still doing well in Germany. Expect lots more national stereotypes to be wheeled out for ritual defamation.
So let's ask who it was took a dump in Ireland?
First, the suspects.
Ireland has three big insolvent banks and several other smaller, equally insolvent financial institutions we won't bother to mention by name.
Ireland also has a large number of subsidiaries of European, British and American Banks.These subsidiaries are often registered as Irish and therefore on Ireland's tab not the nation of the parent bank. This often gets forgotten in the excitement. But it is KEY.
Ireland also houses a very large chunk of the world's Special Investment Vehicles (SIV's) which are the shell companies which house trillions and trillions of dollars and Euros and pounds worth of Collateralized Debt Obligations (CDOs). These are what Warren Buffett described as "weapons of financial mass destruction'" And they are in their own way as hard to find and disarm as the ones we had a fraudulent war over. Anyway I digress.
These CDOs, in turn, house an equal or greater nominal value of Credit Default Swaps (CDS) written upon the CDOs. I can't tell you the figures because only the Irish Stock exchange has the otherwise completely confidential paper work and I have serious doubts (from what I have been told in the last week by an insider with first hand knowledge) that the Irish regulator and stock exchange have much of a clue themselves.
So, to the crime.
Some of this will, for legal reasons have to be done in generalized terms with names left out to protect the Innocent - me. But to start with let's be reasonably specific. Germany was and is very very angry with Ireland for ruining its banks. That is what a German banker told me this week. She spoke on the guarantee of anonymity as she would suffer all sorts of legal problems if she was identified. I am sorry that this leaves you just having to trust that I'm not just making this up, but I hope many of you know me well enough to go with it.
In fact it was rumoured in German banks that at the time of the collapse of Hypo Real Estate, an angry call was made from the German Premier to the Irish, to complain, to which the answer was ... well it was short. Now this is nothing but a rumour. But it was a rumour in Germany which indicates that some in Germany were and perhaps still are very angry and blame Ireland.
So are they right in their blame?
The same banker told me this. She was aware of instances, and so was everyone else, of banks, German banks, who used to fly their people from Germany to Ireland in order to do deals that were not allowed in Germany.
German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland. But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals.
So the German banks would do the figures and work it all out in Frankfurt, then send a banker over to Ireland, get them to sit at 'their' desk in Ireland, in the Irish bank, and do the deal there. The legal registration of the deal and the 'oversight' were all Irish. This is known in the financial world as jurisdictional arbitrage. You and I would call it cheating if we were feeling charitable and lying if we weren't.
The Banker flies back to Germany, where the German bank hasn't done any deal, and therefore has done nothing wrong. The deal was properly overseen and approved by the appropriate Irish financial authorities and the profits would be banked at a very happy Irish bank. If any management of the 'deal' was required an Irish company would be hired, there are many, and an Irish manager often living not far from Cork, would 'manage' the money in and out. I have spoken to such people. Usually I can hear the sweat coming off them as they ask how I got their number and where did I get my information. To which I would reply that the Internet is a very large place and never, never forgets.
Now my question to you is this. If it's a German bank and a German banker doing the deal is it Germany who made the mess? Or, equally justified, if the deal was actually done in Ireland in an Irish company allowed and no doubt welcomed by Ireland's financial world, and overseen by Ireland's wonderful regulators, is it Ireland who made the mess?
Should Germany, have pulled the plug on this racket? Should Ireland? Whose losses when they finally came, are they?
If the bank is registered in Ireland as an Irish bank/business, then the loss is on Ireland's tab. Depfa was an Irish bank. Just months before its collapse in 2007 it was bought by Hypo, a German bank. Had that not happened the €180 billion euro loss at Hypo Real Estate would have been Ireland's loss, dwarfing all other losses. Why was Hypo Real Estate bought by Germany at that moment?
I can't say for sure. But think about this. Sachsen Landesbank collapsed due to around $30-40 billion in bad sub prime loans its Irish subsidiary called Ormond Quay had made in the U.S. OrmondOrmond's collapse caused the immediate collapse of one of Germany's Landesbanks. Which suddenly sent ripples of fear through all the other Landesbanks as the world woke up to the rampant idiocy that the Landesbanks had been getting up to ...in Ireland.
Germany had to step in and bail Sachsen out. Now lets think about Depfa. Depfa started life as a German bank. It became listed in London and then in 2002 moved to and registered itself in Ireland in the newly set up IFSC (Irish Financial Services Centre) This was like a legal gated community or financial maquiladora. The IFSC was in many ways supposed to be the regulator of what went on in its grounds. I leave you to decide how well it must have done.
By the way the IFSC was created by Dermot Desmond with the help of Charles Haughey.
So Depfa is now an Irish registered bank. But it has very close ties to Germany and many German banks and landesbanks. If ever Depfa went down it would certainly have plunged a vast swathe of German banks and landesbanks into a storm of insolvency, that would have dwarfed the fall out from SachsenLB. . Depfa must not be allowed to go down.
So when in 2007 Depfa was suddenly bought by Hypo Real Estate was it because news of financial problems hadn't reached Germany and they bought it because they thought it was a great deal and were cheated by those crafty Irish? OR might Germany have known that a massive crisis was ticking away in Depfa and could see the clock was running down close to zero hour, and realized that if left in Ireland it would not, could not be rescued by Ireland and so would be left to start a chain reaction that would move straight to Germany? If they thought the latter, do you think it likely that Germany would have just said "Oh Scheisse" and sat waiting for Armageddon, or do you think they would have taken emergency action to bring Depfa under German ownership and jurisdiction where German pockets were deep enough to bail it out and thereby save the rest of Germany's banking system?
You decide.
So let's return to our question? Whose fault? Would Germany be right to be bitter about Depfa/Hypo and others? Or does the blame lie with the Germany banks and Bankers who flew to Ireland to do their mess? Is it Ireland's banks mess or Germany's? I don't think we can disentangle the blame.. maybe when the Irish Banks' books are finally opened we could. But I bet you no one outside the top bankers and politicians, the people who oversaw the creation of the bomb in the first place, will ever be told what's really in there.
I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be, yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now.
They are bankers losses. It is NOT a question of Irish or German. It is question of wealthy bankers from all countries not just Germany (almost every nation, Germany, America, Russia, France Britain, we did dirty work in Ireland) and their corrupt Irish helpers versus the people. It is not a question of should the Irish people or the German people pay. Neither people should. It should be the bankers who made the losses who should take them.
DO NOT allow the bankers to set us against each other as a cover for their crime and guilt.
For anyone interested in a very different take on the financial crisis, the failure of the policy of bailing out the banks and what it means for us, the book, The DEBT GENERATION is now finished and shipping.
Now across Europe the great blame game will rumble back into play. Our banks, your banks, their banks, or is it your feckless householders or ours, certainly can't be theirs, they're still doing well in Germany. Expect lots more national stereotypes to be wheeled out for ritual defamation.
I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.
What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.
Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).
The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.
Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.
The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.
This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.
So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.
Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.
No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.
Ireland bank run
Ireland have a bank run on their hands and they now do not have much time in which to stop it running out of control.
Yesterday I argued that Ireland was resisting a bail out because it does not want to be forced to raise its corporation tax. If Ireland is forced to do it, then all those foreign corporations who have headquartered themselves in Ireland will leave. And when they do they will take their corporate cash flow with them adding to what is now officially a run on Ireland's banks.
According to the Irish Independent, in the last three months Bank of Ireland reported corporations had withdrawn €10 billion and Allied Irish Bank was similar. Today Irish Life and Permanent said its corporate customers has withdrawn 600m Euros which is 11% of their deposit base. No financial institution can withstand that amount of blood loss for long. Once your depositors start wanting their money back you can be sure the bond holders will not lend you another brass farthing.
According to Reuters Breakingview, who have been up all night with their calculators, to 'rescue' Ireland's three big insolvent banks, Anglo, Allied and Bank of Ireland, will require €100 billion. Which means the Irish people are barely half way there. Ireland CANNOT in this universe or any nearby ones, afford this amount.
Ireland has a simple choice. Either they admit that the big three banks ARE TERMINALLY INSOLVENT or Ireland itself becomes insolvent in a stupid, doomed and traitorous attempt to deny reality. I say traitorous because if the cabal of wealthy conspirators continue to run Ireland for their personal profit, they will ruin the lives of every other Irish man woman and child.
When other countries are lining up to get a bail out Ireland is fighting tooth and nail to avoid one. Why?
Does it not seems a little strange to you? I want to suggest that many experts are looking in the wrong place for an answer.
A major part of the reason Ireland is resisting a European led bail out is because of the German led enthusiasm for increasing Ireland's corporate tax rate. The connection may not seem immediately convincing so let me see if I can offer you an argument.
Ireland became the Celtic Tiger for three reasons. First it has a very low rate of corporate tax. Second it had already in place lots of reciprocal tax agreements to avoid any double taxing. So profits booked in Ireland into an Irish subsidiary of a foreign bank or corporation would only get a low rate of tax applied. Third, there was an incredibly lax regulatory system, if one can call a blind eye a system.
Take a look at where the big American corporations have their European or even world-outside-of-America HQ. Ireland every time. The reason is the low tax rate. Very, very large US Companies which I could name but won't for legal reasons and ask you to think of them yourself, as well as a host of Russian companies are based or have their HQ in Ireland for tax reasons. Companies making sales in Taiwan, India or Spain were and still are booking their profit in Ireland.
The Irish exchequer benefits from tax revenue it would never get otherwise. Because without meaning any disrespect there would be few reasons for them to chose Ireland were it not for the tax rates. The company benefits from low taxes and ease of repatriation of the profits back home - where ever that might eventually be.
The Irish banks, both Irish ones such as Allied Irish, Anglo Irish and BoI, as well as Irish subsidiaries of European and American banks would benefit by these huge profits passing through their books giving them huge liquidity and wonderful capital holdings. Much of the money may have only been passing through but like a flow through a pipe, the pipe was always delightfully full. And some of the money stayed.
And the blind man's buff oversight regime meant all sorts of wonderful things could be done in Ireland that home regulators might not allow. More on this in a later post. Put these things together and you have the reasons for and the engine of Ireland's growth and success. And it is the hope, the only hope, of both the previous government of Ireland and its present one, that this miraculous money making magic can be restarted.
Now imagine for a minute that one part of this system, the tax part were to be discontinued. What do you think would happen?
I think Ireland would find that banks and corporations might not be so keen on staying in Ireland and new business might not even look at them. And yet this is what some in mainland Europe are advocating as part of the 'concrete roadmap' they want Ireland to show them as the necessary plan for recovery in order to get a bail out.
On one level you could say it is perfectly reasonable that those who might bail Ireland out should want to see Ireland increasing its tax revenue. Fair enough, but there is also the very obvious and transparent aspect of cutting off Ireland's financial edge and feathering their own nest. Germany and others force Ireland to stop its low tax regime. A regime that undercut their own tax rates. Ireland is forced to raise it tax rate and suddenly Germany and others say, "Well why not some over to us now."
This, I think, is a major part of what is going on in the bail out discussions. This is why Ireland does not want to agree the bail outs being offered.
This also explains one other thing. It explains why so many banks and private corporations were, shall we say 'keen' for Ireland to offer its blanket bank guarantee back in '08. If the banks had gone under those companies would have lost all the revenue they had in those banks and found their world wide banking and corporate structures paralysed. Imagine a very large software company finding its bank, where it had many billions on deposit suddenly not only frozen but GONE. Imagine the same corporation finding it had a world non-US HQ in a country where it had no banking facilities. Imagine what would happen to its own cash flow.
I don't think it unreasonable to imagine said company, and many others you will find listed as domiciled in Ireland, getting on the phone and applying a little pressure, explaining a few consequences. Call this conspiracy if you wish. I think it is more just thinking through the natural consequences and asking yourself what you would do.
This same companies are still in Ireland. But I seriously wonder if their cash is still going through Irish banks in quite the same volume. It may be given that till now the tax benefits are still as attractive as they were. But I would also wonder if part of the reason the Irish banks never seem to heal but seem instead to just bleed and bleed, is because as fast as they are given money by the state, the companies are withdrawing their capital to more stable places. Corporate capital flight on a very large scale.
I think the bail out is being used to try to steal business away from Ireland. We can argue about whether that business has done Ireland any good but you can still see why Irish banks and politicians might feel angry and try to resisit.
Not a nice to feel your friend's knife in your back. Private Bank debt laundering
This is NOT and never was a sovereign debt problem. It has always been a private bank problem which is merely being laundered through some unfortunate nations.
I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.
What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.
Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).
The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.
Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.
The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.
This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.
So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.
Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.
No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.
Ireland bank run
Ireland have a bank run on their hands and they now do not have much time in which to stop it running out of control.
Yesterday I argued that Ireland was resisting a bail out because it does not want to be forced to raise its corporation tax. If Ireland is forced to do it, then all those foreign corporations who have headquartered themselves in Ireland will leave. And when they do they will take their corporate cash flow with them adding to what is now officially a run on Ireland's banks.
According to the Irish Independent, in the last three months Bank of Ireland reported corporations had withdrawn €10 billion and Allied Irish Bank was similar. Today Irish Life and Permanent said its corporate customers has withdrawn 600m Euros which is 11% of their deposit base. No financial institution can withstand that amount of blood loss for long. Once your depositors start wanting their money back you can be sure the bond holders will not lend you another brass farthing.
According to Reuters Breakingview, who have been up all night with their calculators, to 'rescue' Ireland's three big insolvent banks, Anglo, Allied and Bank of Ireland, will require €100 billion. Which means the Irish people are barely half way there. Ireland CANNOT in this universe or any nearby ones, afford this amount.
Ireland has a simple choice. Either they admit that the big three banks ARE TERMINALLY INSOLVENT or Ireland itself becomes insolvent in a stupid, doomed and traitorous attempt to deny reality. I say traitorous because if the cabal of wealthy conspirators continue to run Ireland for their personal profit, they will ruin the lives of every other Irish man woman and child.
Posted by Golem XIV - Thoughts at 09:55 2 comments
Wednesday, 17 November 2010Why Ireland is resisting the bail out.
When other countries are lining up to get a bail out Ireland is fighting tooth and nail to avoid one. Why?
Does it not seems a little strange to you? I want to suggest that many experts are looking in the wrong place for an answer.
A major part of the reason Ireland is resisting a European led bail out is because of the German led enthusiasm for increasing Ireland's corporate tax rate. The connection may not seem immediately convincing so let me see if I can offer you an argument.
Ireland became the Celtic Tiger for three reasons. First it has a very low rate of corporate tax. Second it had already in place lots of reciprocal tax agreements to avoid any double taxing. So profits booked in Ireland into an Irish subsidiary of a foreign bank or corporation would only get a low rate of tax applied. Third, there was an incredibly lax regulatory system, if one can call a blind eye a system.
Take a look at where the big American corporations have their European or even world-outside-of-America HQ. Ireland every time. The reason is the low tax rate. Very, very large US Companies which I could name but won't for legal reasons and ask you to think of them yourself, as well as a host of Russian companies are based or have their HQ in Ireland for tax reasons. Companies making sales in Taiwan, India or Spain were and still are booking their profit in Ireland.
The Irish exchequer benefits from tax revenue it would never get otherwise. Because without meaning any disrespect there would be few reasons for them to chose Ireland were it not for the tax rates. The company benefits from low taxes and ease of repatriation of the profits back home - where ever that might eventually be.
The Irish banks, both Irish ones such as Allied Irish, Anglo Irish and BoI, as well as Irish subsidiaries of European and American banks would benefit by these huge profits passing through their books giving them huge liquidity and wonderful capital holdings. Much of the money may have only been passing through but like a flow through a pipe, the pipe was always delightfully full. And some of the money stayed.
And the blind man's buff oversight regime meant all sorts of wonderful things could be done in Ireland that home regulators might not allow. More on this in a later post. Put these things together and you have the reasons for and the engine of Ireland's growth and success. And it is the hope, the only hope, of both the previous government of Ireland and its present one, that this miraculous money making magic can be restarted.
Now imagine for a minute that one part of this system, the tax part were to be discontinued. What do you think would happen?
I think Ireland would find that banks and corporations might not be so keen on staying in Ireland and new business might not even look at them. And yet this is what some in mainland Europe are advocating as part of the 'concrete roadmap' they want Ireland to show them as the necessary plan for recovery in order to get a bail out.
On one level you could say it is perfectly reasonable that those who might bail Ireland out should want to see Ireland increasing its tax revenue. Fair enough, but there is also the very obvious and transparent aspect of cutting off Ireland's financial edge and feathering their own nest. Germany and others force Ireland to stop its low tax regime. A regime that undercut their own tax rates. Ireland is forced to raise it tax rate and suddenly Germany and others say, "Well why not some over to us now."
This, I think, is a major part of what is going on in the bail out discussions. This is why Ireland does not want to agree the bail outs being offered.
This also explains one other thing. It explains why so many banks and private corporations were, shall we say 'keen' for Ireland to offer its blanket bank guarantee back in '08. If the banks had gone under those companies would have lost all the revenue they had in those banks and found their world wide banking and corporate structures paralysed. Imagine a very large software company finding its bank, where it had many billions on deposit suddenly not only frozen but GONE. Imagine the same corporation finding it had a world non-US HQ in a country where it had no banking facilities. Imagine what would happen to its own cash flow.
I don't think it unreasonable to imagine said company, and many others you will find listed as domiciled in Ireland, getting on the phone and applying a little pressure, explaining a few consequences. Call this conspiracy if you wish. I think it is more just thinking through the natural consequences and asking yourself what you would do.
This same companies are still in Ireland. But I seriously wonder if their cash is still going through Irish banks in quite the same volume. It may be given that till now the tax benefits are still as attractive as they were. But I would also wonder if part of the reason the Irish banks never seem to heal but seem instead to just bleed and bleed, is because as fast as they are given money by the state, the companies are withdrawing their capital to more stable places. Corporate capital flight on a very large scale.
I think the bail out is being used to try to steal business away from Ireland. We can argue about whether that business has done Ireland any good but you can still see why Irish banks and politicians might feel angry and try to resisit.
Private Bank debt laundering
This is NOT and never was a sovereign debt problem. It has always been a private bank problem which is merely being laundered through some unfortunate nations.
I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.
What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.
Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).
The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.
Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.
The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.
This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.
So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.
Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.
No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.
Ireland bank run
Ireland have a bank run on their hands and they now do not have much time in which to stop it running out of control.
Yesterday I argued that Ireland was resisting a bail out because it does not want to be forced to raise its corporation tax. If Ireland is forced to do it, then all those foreign corporations who have headquartered themselves in Ireland will leave. And when they do they will take their corporate cash flow with them adding to what is now officially a run on Ireland's banks.
According to the Irish Independent, in the last three months Bank of Ireland reported corporations had withdrawn €10 billion and Allied Irish Bank was similar. Today Irish Life and Permanent said its corporate customers has withdrawn 600m Euros which is 11% of their deposit base. No financial institution can withstand that amount of blood loss for long. Once your depositors start wanting their money back you can be sure the bond holders will not lend you another brass farthing.
According to Reuters Breakingview, who have been up all night with their calculators, to 'rescue' Ireland's three big insolvent banks, Anglo, Allied and Bank of Ireland, will require €100 billion. Which means the Irish people are barely half way there. Ireland CANNOT in this universe or any nearby ones, afford this amount.
Ireland has a simple choice. Either they admit that the big three banks ARE TERMINALLY INSOLVENT or Ireland itself becomes insolvent in a stupid, doomed and traitorous attempt to deny reality. I say traitorous because if the cabal of wealthy conspirators continue to run Ireland for their personal profit, they will ruin the lives of every other Irish man woman and child.
Posted by Golem XIV - Thoughts at 09:55 2 comments
Wednesday, 17 November 2010Why Ireland is resisting the bail out.
When other countries are lining up to get a bail out Ireland is fighting tooth and nail to avoid one. Why?
Does it not seems a little strange to you? I want to suggest that many experts are looking in the wrong place for an answer.
A major part of the reason Ireland is resisting a European led bail out is because of the German led enthusiasm for increasing Ireland's corporate tax rate. The connection may not seem immediately convincing so let me see if I can offer you an argument.
Ireland became the Celtic Tiger for three reasons. First it has a very low rate of corporate tax. Second it had already in place lots of reciprocal tax agreements to avoid any double taxing. So profits booked in Ireland into an Irish subsidiary of a foreign bank or corporation would only get a low rate of tax applied. Third, there was an incredibly lax regulatory system, if one can call a blind eye a system.
Take a look at where the big American corporations have their European or even world-outside-of-America HQ. Ireland every time. The reason is the low tax rate. Very, very large US Companies which I could name but won't for legal reasons and ask you to think of them yourself, as well as a host of Russian companies are based or have their HQ in Ireland for tax reasons. Companies making sales in Taiwan, India or Spain were and still are booking their profit in Ireland.
The Irish exchequer benefits from tax revenue it would never get otherwise. Because without meaning any disrespect there would be few reasons for them to chose Ireland were it not for the tax rates. The company benefits from low taxes and ease of repatriation of the profits back home - where ever that might eventually be.
The Irish banks, both Irish ones such as Allied Irish, Anglo Irish and BoI, as well as Irish subsidiaries of European and American banks would benefit by these huge profits passing through their books giving them huge liquidity and wonderful capital holdings. Much of the money may have only been passing through but like a flow through a pipe, the pipe was always delightfully full. And some of the money stayed.
And the blind man's buff oversight regime meant all sorts of wonderful things could be done in Ireland that home regulators might not allow. More on this in a later post. Put these things together and you have the reasons for and the engine of Ireland's growth and success. And it is the hope, the only hope, of both the previous government of Ireland and its present one, that this miraculous money making magic can be restarted.
Now imagine for a minute that one part of this system, the tax part were to be discontinued. What do you think would happen?
I think Ireland would find that banks and corporations might not be so keen on staying in Ireland and new business might not even look at them. And yet this is what some in mainland Europe are advocating as part of the 'concrete roadmap' they want Ireland to show them as the necessary plan for recovery in order to get a bail out.
On one level you could say it is perfectly reasonable that those who might bail Ireland out should want to see Ireland increasing its tax revenue. Fair enough, but there is also the very obvious and transparent aspect of cutting off Ireland's financial edge and feathering their own nest. Germany and others force Ireland to stop its low tax regime. A regime that undercut their own tax rates. Ireland is forced to raise it tax rate and suddenly Germany and others say, "Well why not some over to us now."
This, I think, is a major part of what is going on in the bail out discussions. This is why Ireland does not want to agree the bail outs being offered.
This also explains one other thing. It explains why so many banks and private corporations were, shall we say 'keen' for Ireland to offer its blanket bank guarantee back in '08. If the banks had gone under those companies would have lost all the revenue they had in those banks and found their world wide banking and corporate structures paralysed. Imagine a very large software company finding its bank, where it had many billions on deposit suddenly not only frozen but GONE. Imagine the same corporation finding it had a world non-US HQ in a country where it had no banking facilities. Imagine what would happen to its own cash flow.
I don't think it unreasonable to imagine said company, and many others you will find listed as domiciled in Ireland, getting on the phone and applying a little pressure, explaining a few consequences. Call this conspiracy if you wish. I think it is more just thinking through the natural consequences and asking yourself what you would do.
This same companies are still in Ireland. But I seriously wonder if their cash is still going through Irish banks in quite the same volume. It may be given that till now the tax benefits are still as attractive as they were. But I would also wonder if part of the reason the Irish banks never seem to heal but seem instead to just bleed and bleed, is because as fast as they are given money by the state, the companies are withdrawing their capital to more stable places. Corporate capital flight on a very large scale.
I think the bail out is being used to try to steal business away from Ireland. We can argue about whether that business has done Ireland any good but you can still see why Irish banks and politicians might feel angry and try to resisit.
Not a nice to feel your friend's knife in your back.
golemX1V
Source: Argentine Beef Packers S.A.
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