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Why Ireland can't afford to punish reckless lenders to its banks

Robert Peston | 07:02 UK time, Monday, 27 September 2010

The only time I was taken aback when interviewing the Irish finance minister Brian Lenihan on Friday was when he said - with striking passion - that he did not wish to see losses for international banks and other financial institutions that have lent to Ireland's bloated, ailing banks.

More or less the same point, that Irish banks' wholesale creditors must be protected from the error of their lending ways, was delivered to me with equal vehemence by Peter Sutherland, the grandest of Ireland's globetrotting financial grandees (at various times chairman of BP, chairman of Goldman Sachs International, a European commissioner, director-general of the precursor of the World Trade Organisation, and so on and so on).

We can assume this is the view of the Irish political establishment, since Sutherland is not a supporter of Lenihan's weakening Fianna Fail government.

Which may strike you as a bit odd, given that Ireland's economy has been taken to the brink of bankruptcy, by the reckless lending of its banks to property developers, home builders and house buyers - and that this reckless lending wouldn't have been possible if the banks themselves had not been able to obtain cheap money from overseas banks and institutions.

So there is a strong argument that since Irish taxpayers are incurring huge and rising losses to clear up this mess, the pain should be shared with all the guilty parties, who surely include the sophisticated financial professionals at foreign banks that foolishly provided Irish banks with the means to mortgage an entire economy.

Brian Lenihan

 

But here's why for Lenihan, Sutherland and Ireland's mainstream political class it is heresy to adopt a policy of caveat emptor (or buyer beware) to the distribution of banking losses: Ireland's dependence on credit from abroad is so great that the economic consequences of that credit being withdrawn would be catastrophic.

Take a look at the latest figures from the central bankers' bank, the Bank for International Settlements, on just the exposure of overseas banks to Ireland (in other words, credit provided by pension funds, hedge funds and wealthy individuals would be on top of this).

Total foreign bank exposure to Ireland's economy is $844bn, or five times the value of Ireland's GDP or economic output. Of that, German and UK banks are Ireland's biggest creditors, with €206bn and €224bn of exposure respectively.

To put it another way, German and British banks on their own have each extended credit to Ireland greater than Irish GDP. Which doesn't sound altogether prudent, does it?

As for direct bank-to-bank lending, overseas banks have provided Ireland's banks with €169bn of loans, which is also greater than Irish GDP.

Here's the point: an economy as open and as dependent on foreign finance as Ireland's cannot afford to alienate its creditors. If those overseas lenders asked for their money back now, Ireland's recent fall back into a modest economic contraction could spiral into dark deep prolonged recession or even depression.

There are two big conclusions to be drawn. First Ireland's inability to let market forces take their course will be seen by many as another example of why the banking industry has lost any semblance of right to operate according to normal commercial freedoms.

Second, the Irish economy is hideously and perilously balanced between recovery and Armageddon.

The Irish government has extended till the end of the year its formal guarantees to protect from losses more than €400bn of retail and wholesale loans to Irish banks (banks' subordinated debt is excluded).

But, to state the obvious, those guarantees are only reassuring to creditors if the Irish government is perceived as able to honour its own debts.

The credit-worthiness of the Irish government is largely dependent on two related factors: the delivery of its promise to reduce the public-sector deficit from an unsustainable 14.3% of GDP in 2009 to less than 3% of GDP by the end of 2014; the stabilisation of losses at Irish banks that are being underwritten by the government.

Here's one of many paradoxes about the Irish crisis: the losses at Irish banks are being crystallised by the activities of a fund set up by the Irish government, called the National Asset Management Agency (NAMA), to buy an estimated €80bn of bad loans from the banks.

NAMA tries to buy these loans at the price which captures how much will eventually be repaid by overstretched borrowers. And the average price it paid for the first €27bn of transfers was 47.5 cents per euro of debt.

Which means that the banks on average lost €14.2bn on these transfers to NAMA.

In one way, it looks like good news for the Irish taxpayer that NAMA is purchasing these dodgy loans at the market price.

Except for one thing. The huge losses incurred by the banks on the NAMA transfers deplete banks' capital - which then has to be topped up by (you guessed it) Irish taxpayers and the National Pension Reserve Fund, a state pension fund created for the long term benefit of Irish citizens.

The government has already nationalised the most breathtakingly imprudent lender, Anglo Irish Bank, into which it has injected €23bn. And later this week, Mr Lenihan is expected to announce how much more capital needs to go into Anglo Irish (Mr Lenihan wouldn't disclose the size of the future financial injection, but it'll certainly be a good few billion euros).

There is also a reasonable probability that the state, through the National Pension Reserve Fund, will end up as the majority owner of Allied Irish Banks: AIB is being obliged to raise the ratio of its equity capital to assets to 7%, and may only be able to achieve this if the National Pension Reserve Fund converts all or part of its €3.5bn of preference shares into ordinary shares.

All of which is to say that the banks and the Irish state are more-or-less one and the same thing right now. And the greater are the banks' losses, the greater the strain on taxpayers.

What will determine those losses - in part - is whether house and property prices stabilise after their 40 to 60% falls since the end of 2006. It hasn't happened yet, though the rate at which prices are falling has slowed down.

Of course, the great fear for the Irish government is that its putative virtue in making deep public spending cuts - and Mr Lenihan conceded that there are some big and painful decisions ahead - will further undermine confidence in the value of Irish assets, triggering further losses at banks, and thus eliminating the fiscal benefits of the deficit reduction programme.

Or to put it another way, it will be many months yet before Ireland can be certain it's over the worst.

That's presumably why Mr Lenihan didn't rule out in his interview with me that the Irish government might eventually be obliged to ask for financial support from the European Financial Stability Facility, the special €440bn fund set up by eurozone members to lend to financially challenged eurozone states.

Naturally Mr Lenihan doesn't want the national humiliation for Ireland of being the first eurozone member to tap the special bail-out fund set up after Greece went to the brink of insolvency in the spring.

Nor does he expect it.

But he daren't say no, nay, never - for fear that those all-important overseas creditors lose confidence in the existence of backstop insurance to cover their cripplingly huge claims on the Irish banks and the Irish state.

Comments

Page 1 of 4

  • Comment number 1.

    If the debts were incurred on properties and developments and now the Irish government owns the debt, when things are slightly better or talked up more won't the debts be able the be repaid?

    The Irish debt seems to be more of the industrial kind as opposed to the American toxic debts to people on 100% with no chance of payment or has the news shown us all cherry picked items to show how bad the world is?
    As if!
    How much of the debt in the world is due to to banks and governments talking up the debt? If repayment is the issue how can dumping people out of work, closing down shops, offices and factories then putting out of business all the service firms to them all be a good idea to keep the flow of money going?

    50 words or less please on this one..

  • Comment number 2.

    I wish Barry were right. Part of the issue in Ireland is indeed loans to people who are in temporary distress, and these will be fine in a year or two.

    However, a large part, maybe two thirds, maybe a little less, are loans for development. For example, sums of €70m an acre for eight acres of development land in South Dublin to two builders; smaller sums, €3m to €5m and acre for agricultural land, zoned for housing, in remote rural areas.

    It will be at least thirty or forty years before this land is worth anywhere close to what was paid for it.

  • Comment number 3.

    One of the Irish Republic's main Creditors is the UK tax payer ... as directly and indirectly susbsidising the Republic and its individual citizens as including pumping money into the UK banking sector and which massively benefits the Irish banks with their having massive bad debts in the UK economy.

    The UK subsidy to the Republic is worth (?) £10Bn + a year ? as including education and other govt services provided to Irish citizens as freely available to them in the UK?

  • Comment number 4.

    Which may strike you as a bit odd, given that Ireland's economy has been taken to the brink of bankruptcy, by the reckless lending of its banks to property developers, home builders and house buyers - and that this reckless lending wouldn't have been possible if the banks themselves had not been able to obtain cheap money from overseas banks and institutions.
    ------------------------------------------------------------------------
    Or does it just mean some honour and decency remains in Ireland?

  • Comment number 5.

    To No.1; 08:10am on 27 Sep 2010, barry white

    In 2007 I was working on six large apartment blocks all Anglo Irish Bank funded. After the Northern Rock went down in September 2007:
    One went to completion, because it was well underway. One was stopped after foundations had been laid, and the other four are still empty sites. And the developers have ceased trading

    The land was bought based on an end value of the flats being around £120,000. The same flats are now changing hands around £70,000.00 and will likely drop to around £60,000.00, the reason being:
    In the past investment property was valued as follows:
    Gross annual rent x Years Purchase multiplier = capital value.

    This method of valuing investment property was basically thrown out of the window during the boom.

    For example, buy a flat for £100,000, next year it’s worth £120,000; you didn’t need to rent it out to make money.

    The boom ended in September 2007 and we have now drifted back to the traditional method of valuing property.

    For example a flat in the Northwest of England capable of generating a gross annual rent of £6,000.00 should be around £60,000 (for investment purposes).

    £6,000 annual rent x 10 YP = £60,000.00 capital value.

  • Comment number 6.

    1 wrote:

    'If the debts were incurred on properties and developments and now the Irish government owns the debt, when things are slightly better or talked up more won't the debts be able the be repaid?'

    I watched this tv programme once (on BBC I think), this women had gone shopping at lunchtime. Guess what she bought? TWO Flats, as they were 'going cheap'. She bought them at the height of the boom, shopping bags and all.

    As far as Irish debt goes, if you can't call that 'Toxic' then what is?

  • Comment number 7.

    Morning Robert,
    If ever there was vindication of Gordon Brown's decision to stay out of the Euro, then surely this is it. Gordon made many mistakes, but he got this decision absolutely right. Ireland's positions would be less precarious if it had retained it's own currency as it's interest rates would have been more relevant for it's own economy. Stuck in the Euro it can't deflate so it has to reduce it's fiscal outgoings.
    Imagine the situation in the UK if we hadn't had a 20% devaluation of Sterling over the last 3 years!
    With Mervyn King steering a steady course, we should avoid the Irish Armageddon.

  • Comment number 8.

    The severe austerity measures introduced by the Irish will exacerbate the debt problem - on the one hand put people in a more likely position to default on loans even those not described as toxic and on the other create additional demands on state finances through rising unemployment. The effects of austerity are working their way through economy now and it is likely that we are seeing a more extreme form of what cleggmeron are about to inflict on us. In Ireland it is the upward spiral of deficit in relation to a declining GNP that will be the outcome.

  • Comment number 9.

    So, speculators pay billions of €'s for
    Assets which are now almost worthless. The speculators were provided with the funds by ' to big to fail bankers'. The individuals involved in this process, the winners, have left the scene with bonuses, fees, expenses  etc. 
     The tab will be picked up by the 'soon to be unemployed' individual, or loser, whose family depends on this income.
        The current solution, is to increase the loser's to the required number. 
    From an individual's viewpoint it's " every man for himself" 
         

  • Comment number 10.

    As I understand it Ireland’s problem stems from mainly the Anglo Irish Bank. The Anglo Irish Bank funded many apartment schemes.
    And here’s a typical example of why it went wrong in NW England.

    Plot of land in industrial use (two and three storey mill type premises), value around £2.5 million. Planning permission obtained for a large ten storey apartment complex, sold for £7.5 million (Anglo Irish funded). Apartments due to credit bubble predicted to sell for £120,000 each but cost £75,000 each to physically build them, let alone buy the land.

    Old industrial buildings demolished. Credit crisis hits.
    By 2008 the flats no longer rising in value, instead they’re falling. Now investors have to work on a rate of return, and given say a £6,000 a year rent they opt for a multiplier of 12.5, making the flats worth £75,000. But it costs that to build them. There’s no profit for the developer so he goes into receivership.

    By 2010, ‘investors’ now find that to fund purchases, they have to pay high interest rates or find 25% deposits. The rents remain unchanged at say £6,000, but the multiplier drops to 10. Which in turn means the flat value for investment purposes is now £60,000.

    Until such time as the ‘property assets’ are valued according to conventional investment practices, the Anglo Irish Bank, along with many other banks, are still sitting on an enormous pile of debt secured against hopelessly over-valued assets, and dubious promises to pay.

    In my view Ireland, and for that matter, probably the UK to, have a long way to go before this is truly over.

  • Comment number 11.

    Thank you for an interesting article Robert which gives a idea of the sheer scale of Ireland's problems. No wonder bondholders have taken fright. They may also be concerned that the austerity programme may not be as austere as they may have previously though,as according to notayesmanseconomics.
    "As more information has been released about matters such as the Croke Park Agreement where in effect Irish public servants were promised that austerity would be temporary one has to now question as to how austere Ireland’s plans actually are."
    Also according to him Gross National Product is more importane for Ireland than Gross Domestic Product. This is important as it is lower.
    http://notayesmanseconomics.wordpress.com

  • Comment number 12.

    How about every country in the world going bankrupt at once? Then we could all start again. Obviously China wouldnt do too well.

  • Comment number 13.

    Part of the issue not mentioned in the excellent article is some of the other pressures the current government is coming under. Bondholders are part of the problem but you also have a bloated public service with approx 338,000 working in a country with a smaller population than Manchester and their numbers have been increased by in excess of 50,000 over the last decade.
    These public servants have very strong and somewhat militant unions who hold the government to ransom on ocassion. The governments need to borrow €20 Billion just to keep going each year is as a result of paying the public sector and the high cost of the dole in Ireland €200 per person per week and this cant go on.
    As someone who lives in Ireland and who watches the ongoing developements daily I cant see how Ireland wont default on its debts and this leaves us with one question on a decision to be made by the current government.
    A/ Should the governing Fianna Fail party do the right thing and negotiate with the bondholders who will listen or B/ bankrupt the country by continuing to pay the bondholders thus inviting the IMF or IMF by proxy in the form of the ECB and passing the blame unto them. A or B for this government will decide whether they are out of office for one term or a generation.

  • Comment number 14.

    continuing the theme of what the UK can learn from the Irish experience...

    #5. Dempster wrote "Northwest of England capable of generating a gross annual rent of £6,000.00 should be around £60,000" NOTE this 60K is what the average property cost in the NW in 2000.

    The Irish banks have seen a 50% drop in property prices, yet in the UK prices have essentially remained stable. There are good and bad consequences for the UK from this 'stability'.

    First: the UK banks' balance sheets still 'LOOK' good (or at least not too bad), when in reality there is a gaping hole that we are not allowed to talk about!

    Second: the income multiple to buy a home in the UK are still 4 times what it should be for a stable economy!

    It is critically necessary that the relationship between wages and house prices is altered to about 3 times. [This reality is reflected in the 'investment' valuation in property in the NW of England. (see above)] The situation in London if far far more damaging as it is in the outer commuter belt of farmland around the south-east which is even worse than London.

    I yet again attack the regulators and other incompetents who were supposed to be running the Nation's finances - they 'caused' this impossible economic situation and their incompetence and 'letting things slip' will be felt for the next thirty years, unless we take drastic steps. We must start by putting up interest rates substantially, to re-establish regulatory control over the creation of money. Without this first essential step nothing that is done by government or regulators will have any effect or be of any benefit to the any part of the Nation.

  • Comment number 15.

    So -The banks in the UK lent out a huge multiplier of their actual assets, to greater than the value of Irish GDP. It seems reasonable to assume they did the same round the world and that actually getting their money back is a long shot in many of those cases. The banks created money (not wealth) to do this to generate deals to generate fees and bonuses which they have already turned into cash (salary/bonuses) and assets (imported luxury goods). They have then bundled these debts up - good and bad - in bewildering derivatives they don't understand and have sold these on to other suckers, again takeing their cut as cash. Its only failed to lock up altogether because of the trillions of QE and guarantees we as taxpayers have been forced to pour in at gunpoint.

    A significant proportion of the value of the assets financed with the invented money will wither away to effectively nothing or will be locked up for decades till it clears the debt - though as the Irish government is trying to keep things afloat so there will presumably be a continuing though reduced stream of Irish taxpayers money against the debts.

    To keep the UK bankers in their accustomed lifestyle the banks are going to have to really sweat the small amount of real money they have - which means us, our public services (PFI deals, privatised utilities) and what's left of UK industry. Doesn't get any better does it?

  • Comment number 16.

    Looks to me like the Irish property market was one big ponzi scheme and that the mug holding the asset last is the one who gets burned. Unfortunately, the Irish government decided that this was not a good idea and that the mug with the mortgage should be substituted by the mug paying taxes in the form of the Irish government. So now we know that the mortgage holders can't pay. What we will find out pretty soon will be if the Irish government can't pay. For Irish government, read Greek, Spanish, Portuguese, Italian and oh, I nearly forgot, British and US. Hell and handcart come to mind. Have a nice day.

  • Comment number 17.

    Everyone was a 'developer' here. I live in a 'luxury' 4 bed on a new estate. It has all the fittings but the house itself is a nightmare of cost cutting and will fall down before 30 years have gone by. Half our estate is still not built. Company is bankrupt, owner is still driving a lovely BMW M3 though. Still lives in a big house in the country.

    The boom here was self sustaining, open door migration policy meant migrants flooding in, plenty jobs in construction, (no experience required) building their own houses, renting them back from the people who paid their wages. When the credit crunch hit nearly all my friends lost their jobs in a week. They had no choice but to go back to Poland, Lithuania etc. Hence the empty housing everywhere.

    The government has been wrong in not offloading some of the responsibility onto the bond-holders of Anglo. When did they perform due-diligence? Did they notice the loans to directors? Did they see the cosy links between Ahern and Anglo on the Dublin docklands rezoning scam? Didn't they notice the crazy prices in Ballsbridge?

    Did they let Sean Fitzpatrick write off his million euro debt? yes. Did he go with a pension. Yes. Did he then squirrel away the money to his wife etc so it can't be touched? Yes. Did they let him remove €15m that was supposed to be security for a loan from his bank? Yes. Did he get to keep his (enormous) 'family home' Yes. Has he still got a mercedes or two? Yes. Is he now in court bankrupt. Yes. Is he claiming his income is a few hundred euro a month? Yes Will he walk away from court laughing? He has so far.

    The protection for these people should be removed, he was corrupt, he doesn't care about the damage he has caused. On paper he is broke. In reality he is a millionaire just with the money spread to places and people where it can't be touched.

    he should be made to sell his house and live in one of the urine poor excuses he helped to fund his friends to build in the boom times. He should be selling his cars and taking the bus. The money should be taken from his family but it won't be.

    He'll be working again in no time, meanwhile ireland is doomed to the IMF. They are talking up the recovery but when there used to be 16 pages of jobs a week in the paper, now there are 16 jobs if we are lucky. Taxes have rocketed and cuts have been severe. the unemployment figures are being distorted downwards by the migration out and the back to education allowance scheme, (which I am on) The universities and colleges are bursting at the seams with people collecting the dole but being allowed to study. they come straight off the live register. My guess would be a third increase in the unemployment figures if these were declared. Shops are closing, most have 70% sales and footfall has fallen through the floor. Tourism is dying a slow death with most hotels built on a mountain of debt in the boom years and the rest massively refurbished (on a mountain of debt) to keep up. The BTLers are now renting to anyone they can find and we have had some 'interesting' neighbours recently to say the least. Lots of calls to the police in our 'luxury' family estate.

    Meanwhile, families suffer at the expense of the jobs for the boys brigade which is much worse here in Ireland than Britain, here one family still owns each town, (sometimes two) and the folks at the top are paid huge sums to line their own pockets.

    Take this one for size. I hear people in Britain complaining about Darling's 'expensive' car tax, my car tax is €1290 per year yet every new road that has been built while I have been here has been tolled. There is something wrong at the top of society.

    Sean Fitzpatrick is on the top of my list.

  • Comment number 18.

    This is deeply depressing.

    For every reckless borrower there is an equal and opposite reckless lender.

    These reckless lenders should have suffered the consequences of their actions. If that is deemed to be impossible, then the reckless lenders have been given the green light to carry on regardless. They do not need to bother checking if their loans are prudent - they will get their money back anyway.

    Something has to be done here - the risks of the crisis recurring in the future are much higher if the reckless lenders are not forced to face up to the consequences of their actions.

  • Comment number 19.

    And don't even get me started on the public sector. That lot are living in cloud cuckoo land and I tell them so at every opportunity, I watched an interview of a single man saying he couldn't afford to live on €55000 a year. That is close to me and my partners income combined and we have 3 kids. We do NOT consider ourselves poor.

    The public servants here need to take a hit too. their wages are outrageous, not all. The garda and nurses etc could get more but the pen pushers and decision fudgers should be cut down to size.

  • Comment number 20.

    High valuations of undeveloped sites mentioned in earlier comments have always been a feature of generating loans that are subsequently distributed among a seller, a valuer, an intermediary and a buyer. High valuations may be the result of unfounded optimism but may also be the basis of fraud. If a site is undeveloped who can say what value it might have? An example from the past is the Blue Arrow and Canvey Island scandal when the buyers shareholders lost out - there are many similar cases but no laws are broken. In the present, gains from loans accrue to the players including bonuses to the the bank staff authorising loans, losses are for shareholders in the lending and borrowing institutions. It is difficult to stop the practice, but criminalising such transactions based upon the outcome and not the intermediate steps might be a start.

  • Comment number 21.

    > British banks on their own have each extended credit to Ireland greater
    > than Irish GDP. Which doesn't sound altogether prudent, does it?

    The sense of entitlement shared by arrogant bankers is almost beyond belief. After reading this article, I've never been more sure that we are right to hobble bankers by breaking up their nests down in London. I expect they're fretting about the current situation in Ireland, while simultaneously pleading that banks should not be broken up because of the damage they've done here.

    What hypocrites these bankers are, and what short memories they have.

  • Comment number 22.

    #14 John_from_Hendon usually makes good sense and I agree with a lot of his arguments, but I don't understand how substantially increasing interest rates will do anything but bankrupt the country: hundreds of thousands will no longer be able to afford their mortgages and will default; businesses will go bust because they can no longer afford to pay the increased interest on their bank loans; businesses going bust will lead to a marked reduction in productivity (which means less tax flowing to government coffers); unemployment will increase as the businesses go bust; and increased unemployment will mean an instant increase in state-funded benefits, exacerbating the situation still further.

    It looks like a downward spiral to me John, but I know you've thought it through and you clearly understand the bigger picture, so what am I missing?

  • Comment number 23.

    The overpriced buying was mainly as the big developers HAD to keep buying at any cost to keep the tax breaks, there's only so much stuff to buy, loans were being rolled over and taxes not paid, demand caused the prices to skyrocket till the whole edifice collapsed. Meanwhile, the taxes were still not paid.

    I'm paying them now with my kids college fund, cheers.

  • Comment number 24.

    @22 bob

    What you're missing is that that is what is going to happen anyway, all that's happening now is we are throwing taxpayers money into the breach first so when it comes it's coming with bells on.

  • Comment number 25.

    I thought the tories said that Ireland was a shining example of how - so long as you made enough cuts - everything would be fine?

  • Comment number 26.

    # 22. At 10:46am on 27 Sep 2010, Bob wrote:
    "#14 John_from_Hendon usually makes good sense and I agree with a lot of his arguments, but I don't understand how substantially increasing interest rates will do anything but bankrupt the country: hundreds of thousands will no longer be able to afford their mortgages and will default; businesses will go bust because they can no longer afford to pay the increased interest on their bank loans; businesses going bust will lead to a marked reduction in productivity (which means less tax flowing to government coffers); unemployment will increase as the businesses go bust; and increased unemployment will mean an instant increase in state-funded benefits, exacerbating the situation still further."

    You're not missing anything, this is what John is advocating, short sharp shock treatment in the hope that the pain suffered now will be considerably less than the pain suffered later. There are a couple of problems here for me, only the wealthy will survive unscathed propogating much the same financial malaise we have now to protect their future interests while the over indebted will crash into poverty and possible oblivion. You have to believe the indebted will be suffering at the hands of their own stupidity to push such an agenda, I don't subscribe to this philosophy, the public were sold a "good life" delusion of ever increasing wealth based on value not hard cash and they fell for it. It was corporate muscle that sold the dream and financed it with easy money to hump up their consumerist profits in the safe knowledge when it goes belly up the proletariat will pay and suffer - as usual.

    While John is totally correct in his assertions he is basing his calculations on maintaining the current system and harsh medicine for foolhardy borrowing, a bit like treating a grazed leg by amputation, we need a new system not fixing a broken one with sticky tape. Whatever the outcome there will be pain but how we lessen this is the question and I believe only massive state intervention not austerity can provide the impetus. We will also need to find ways of deleveraging debt as John advocates but this should be done with bank contribution over time not mass default. How do you get banks to agree, well the state owns two, maybe the clue is there. Instead of hoping to get money back through impossible share issues deleverage through the banks, i.e. steal their profit.

  • Comment number 27.

    @25 112dk

    The cuts are NOT working, but just like the tories, the government here is squaring up for a minimum €3bn more in December.

    The problem with the taxes and cuts are they are targetting the wrong people. We have had €13m taken out of our local hospital budget and a 2% income levy on our wages. Reductions of child benefit. They even tried to take free healthcare off the over 70s. Disgusting!

    Meanwhile the developers, politicians and bankers are laughing.

  • Comment number 28.

    #25. At 11:04am on 27 Sep 2010, jon112dk wrote:
    "I thought the tories said that Ireland was a shining example of how - so long as you made enough cuts - everything would be fine?"

    That's what they said, what they meant was - "We musn't brass our pals in the markets off, we need to keep our rating intact so we can borrow cheaply" - well, that's worked for Ireland too hasn't it. Doh!!!!

  • Comment number 29.

    No. 22 I share your concern and await JfH to provide the complete answer. There is no question public and private debt is a massive problem but a sudden large increase in interest rates would be catastrophic for many who are in a short term fantasy world of meeting debt repayments and interest charges. The answer is direct management of the economy dispensing with the MPC and staging gradual increases in base rate combined with direct stimulation. Remember it is one thing to cut public sector budgets but another thing to achieve a reduction in the deficit. The Irish are being helpful in conducting an experiment with the relationship of their state finances and the economy as a whole.

  • Comment number 30.

    21. At 10:45am on 27 Sep 2010, Jacques Cartier wrote:

    I'd confiscate every penny and every item belonging to everyone of them just like we do with drug dealers. Either they were a) morally corrupt and knew exactly what they were doing, or b)too stupid to be left in charge of even a mop!
    IMHO.



  • Comment number 31.

    I'm no economist, in fact i'm fairly uneducated but even I can see when you are borrowing at 6% to refinance debt that was at 3%, your tax reciepts are falling and the economy is contracting rather than growing then it's time to call in Ocean finance, (IMF)

  • Comment number 32.

    I often see people saying that just closing down the state spending won't help as it dumps people out of work and then you have to pay them benefits. I see the point of this but I don't think it holds water - if you took the opposite view, carried on government spending on the basis that the taxes will pick up eventually and it is better to encourage growth then, assuming you can still sell bonds to fund it, your growth would have to be so immense to pay back the debt plus interest and you would have to tax it so heavily that you couldn't actually sustain that growth.
    Hopefully we can get to a new generation of fiscal responsibility, reasonable and sustainable growth, benefits for the truly needy but aspiration to create wealth amongst the population as a whole.

  • Comment number 33.

    #22. Bob wrote:

    "It looks like a downward spiral to me John, but I know you've thought it through and you clearly understand the bigger picture, so what am I missing?"

    Consider this: apparently 70% of property is held without or with a negligible mortgage. Given all mortgages will on average will be half (or nearly so) paid off. Then nly some 15% of property debtors will be seriously challenged by reducing property prices substantially. Now as the boom (inflation) in property prices was caused by the availability of money that was too cheap it surely follows that putting the price of money up will have the opposite effect. Now during this process of reducing property prices first time buyers will eventually start to be able to buy again (and create families on a sound economic basis of houses costing 2 to 4 times income in London).

    What is lacking is the imagination from the regualtors that caused this catastrophic problem. They need to think through to the UK in a World of competing economies with competitive cost bases. Our present situation is completely untenable and will without question destroy the country (just as it is destroying Ireland). Increasing interest rates is the only credit limiting market operation available to us, and it has to be used. I do not see any of the alternative mechanisms as effective, efficient or fair.

  • Comment number 34.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 35.

    27. At 11:18am on 27 Sep 2010, szjon

    I think the cuts are working and doing exactly as intended. We're being told they are intended to 'fix' the economy by politicians.

    How many truthful politicians have you ever met in your life or seen on telly?


  • Comment number 36.

    Soon it will be our turn.

  • Comment number 37.

    What Robert fails to mention is the utterly corrupt and corrupting nature of Dublin politics which is paramount to an incestuous and insidious Mafia organisation which will ensure that the families in government will always come out OK, and damn the rest.
    Read Ship of Fools, by Fintan O'Toole.

  • Comment number 38.

    @34 further consideration

    Merely trying to point out how many 'government' officials in important departments used to work high up in Goldman Sachs. Is there one on the board of the BBC?

  • Comment number 39.

    33. At 11:29am on 27 Sep 2010, John_from_Hendon wrote:
    "#22. Bob wrote:

    "It looks like a downward spiral to me John, but I know you've thought it through and you clearly understand the bigger picture, so what am I missing?"

    Consider this: apparently 70% of property is held without or with a negligible mortgage. Given all mortgages will on average will be half (or nearly so) paid off. Then nly some 15% of property debtors will be seriously challenged by reducing property prices substantially. Now as the boom (inflation) in property prices was caused by the availability of money that was too cheap it surely follows that putting the price of money up will have the opposite effect. Now during this process of reducing property prices first time buyers will eventually start to be able to buy again (and create families on a sound economic basis of houses costing 2 to 4 times income in London).

    What is lacking is the imagination from the regualtors that caused this catastrophic problem. They need to think through to the UK in a World of competing economies with competitive cost bases. Our present situation is completely untenable and will without question destroy the country (just as it is destroying Ireland). Increasing interest rates is the only credit limiting market operation available to us, and it has to be used. I do not see any of the alternative mechanisms as effective, efficient or fair."


    Ah but John, this will wipe billions off bank balance sheets and we can't have that can we, bailouts will abound when they can't realise their false assets.

  • Comment number 40.

    @35 copper dolomite.

    Nail, head, great shot!

    If governments were fish we would have the choice of red herring or stitched up like a kipper.

  • Comment number 41.

    21. At 10:45am on 27 Sep 2010, Jacques Cartier wrote:
    > British banks on their own have each extended credit to Ireland greater
    > than Irish GDP. Which doesn't sound altogether prudent, does it?

    The sense of entitlement shared by arrogant bankers is almost beyond belief. After reading this article, I've never been more sure that we are right to hobble bankers by breaking up their nests down in London. I expect they're fretting about the current situation in Ireland, while simultaneously pleading that banks should not be broken up because of the damage they've done here.

    What hypocrites these bankers are, and what short memories they have.


    ===========================

    Of course what we do not know, given that these are loans to individuals and businesses is what is the basis of the loans and what is the security.

    I suspect a lot of loans are entirely prudent, currently being serviced in accordance with terms and ultimately will be paid off on time. After all lots of people could have borrowed more than their income to fund mortgages but are paying off the mortgage on time in the UK. Similarly if the loan is to an Irish company but to fund the purchase of foreign assets then the assets and income that produces may not be in GDP (which is of course domestic product) but the borrowing is.

    The figures Robert has given out are entirely meaningless without context.

    I must admit though I do not understand the Irish wish to ensure foreign banks are kept whole. If the lending was to the Irish govt then fine I can undestand why govt would not want to default, but if lending is to individuals and businesses then surely it is right to let the banks take the consequences.

    As for those who suggest that the Irish cuts clearly demonstrate the Tories are wrong are barking up the wrong tree for a couple of reasons.

    1. Irish probably had no choice. They do not control their currency but are part of Euro. Therefore unless markets carried on lending to Irish govt how exactly would they pay for goods and services (Irish private economy would continue but the Irish people are not stupid, you can guarantee in this situation most would move money abroad in case govt took it which would lead to a complete collapse of Irish banking).

    2. You need to give policies time to work through. It is a bit early to tell whether the policy will work or not. It is a bit like having a major illness where you are giving two choices of medical treatment. One involves surgery, will hurt a lot and you will be in agony for 6 months but could return to full fitness, the other is more gentle, will still hurt but the hurt will be less than option 1 but will last longer and may not lead to full recovery. Which option to take is a difficult judgment particularly when your doctor has to tell you that neither is guaranteed to give the outcome predicted.

    Economic policies of the type needed to bring countries back into economic balance will take time. Irish are less than 2 years into their policy changes. I would guess they need another 2-3 years before we can come to any sort of conclusion as to the success or failure and only then can we compare to other economies which took a gentler route to see which policy was more successful.

  • Comment number 42.

    Ireland is in much more trouble than has been stated so far in this blog. It not only has massive debt, toxic loans and a property portfolio which values in the hundreds of billions less than it was when purchased it also has an economy built on grants from the EU. Grants which have now ceased to flow as they were supposed to be now a net contributor into the EU. All the way through the rise and roaring of the Celtic tiger Ireland was receiving grants, loans and subsidies from the EU. These enabled them to run a minimum corporate taxation policy which did attract a number of companies. Many of which have now moved on or are in the process of doing so. There are so many white elephants around this nation where once organisations were operating from.

    There is one thing that Ireland can do and that is bring down a number of other countries property markets. The Portfolio as I said earlier is immense and includes property outside Ireland. Not only in Northern Ireland but also the UK Europe and further afield. They have large swathes of land, property in Eastern Europe and if they release these in bulk onto the market it can do but one thing and that is bring down the markets in these nations. The problem is that they do not want to have to do this as it will a direct affect on what they can recoup however their hand may well be forced if the IMF are called in. There is also the issue that they need to raise funds as their banking industry is still is dyer straits.

  • Comment number 43.

    Thanks Robert. I've seldom read an article that packs so much food for thought into so few words.

    The Irish predicament seems to crystallise just about all the miseries our financial system is inflicting upon us, and the guilty parties are, as always, the usual suspects - the ones who walk away with their pockets bulging with their ill-gotten gains.

    When it's difficult to see how any worse damage to our society's welfare could be done than is already being caused by the present system, it's hard to understand why there should be resistance to the idea of reforming that system - radically. And I'm not talking about just tinkering with it.

    Systemic reform would not be a panacea. For a start it wouldn't address Ireland's (or our) problems in the here and now. But IMO it could certainly be a step in the right direction towards preventing damage like this being inflicted in the future (which otherwise it most certainly will be, because there are always people who gain from it in the short term).

  • Comment number 44.

    #33. At 11:29am on 27 Sep 2010, John_from_Hendon wrote:

    "Consider this: apparently 70% of property is held without or with a negligible.........."

    Interesting statistic seeing as I don't know a single person without a mortgage, and I can count on one hand those with more than 20% equity at last valuation. I don't live in an inflated area either, north Warwickshire isn't exactly the most desired location on earth.

    Like I said the wealthy will benefit, the rest will be "Eating Cake." Pity it's come to this, I was enjoying my quiet life.

  • Comment number 45.

    They should look through the records of these loans made by the banks and say pick the 20 most ridiculous loans made then find the bankers who authorised them and bring them to account the penalty being they themselves should incur the losses instead of the taxpayers. I am sure this model could be expanded to say the ten thousand most ridiculous loans and so on. Likewise, regardless of whether they are banks, governments, bond houses or hedge funds or whatever if they don,t take all necessary precautions to ensure they will get their money back then they too should be suffering because they are inept and shouldn't be let loose with anybody's money.
    I doubt i would be too keen lend the Irish government much if i were in charge but no doubt our financial 'whizz kids' are convincing themselves any further loans will come with the implicit guarentee of the Irish government so thats O.K. I have to ask why !!! If the Irish government can get loans from the E.C.B. at less interest than they can sell bonds on in the market then they are placing a further unneccesary burden on their taxpayers whilst other institutions who buy their bonds on the open market are taking an unnecessary risk with their investers money. Why would they do that?

  • Comment number 46.

    Its clear that Ireland will need the same bail out as Greece. Which will simply delay the inevitable default, by 'kicking the can down the road'. The bail out of the banks created a sovereign debt crisis, and what we are seeing is a world wide house of cards beginning to fall. The level of worldwide debt has hit a critical level that cannot be repaid. Growth will never be enough to pay the debt. This is an inevitable result of all countries have debt based monetary systems. Until this is resolved through monetary reform, the problems will not go away.

  • Comment number 47.

    FINISHED!

    It's all over for the Irish Economy I'm afraid. This is what happens when you 'take the advice' of the IMF - they end up lending you money to bail you out.

    This is very similar to the Greek situation - who I am now convinced are in stagflation - 0 or negative growth and fast rising prices. The irish are not going to get export growth because of the strong Euro countries (I mean why do you think the Japanese are fiddling with their currency) - and the Euro is in a bind because lowering it will make German exports cheaper too - which will destroy the US's hopes of a recovery - it's just like I have been saying for a while - it's a race to the bottom of the currency pmarket in order to boost your exports - but they can't all have an export led recovery

    Lenihan is living in a fantasy - and has been for sometime now. Where does he think the 'miracle' he needs is going to come from? How many more times does he think he can bail out the irish banks?
    Ireland is going to be sucked down - I don't know if it's a fair comparison - but Iceland are just showing signs of recovery - but they went bust and fast - the poor old Irish thought they could stave it off - but it will cost them in the long term.

    This is the part the Capitalists cannot see - they think a new market is about to open up and bail us all out any second now....

  • Comment number 48.

    @ 19. At 10:36am on 27 Sep 2010, szjon

    I think you'll find that the single chap was most likely the ex-husband of the woman mentioned in post #6.

  • Comment number 49.

    #39. NorthSeaHalibut wrote:

    "Ah but John, this will wipe billions off bank balance sheets and we can't have that can we, bailouts will abound when they can't realise their false assets."

    True, but...

    It is not the balance sheet that matters it is our ability to trade profitably in a competitive market.

    Consider this: Housing costs absorb the majority of individuals' incomes. So wages/salaries are essential paying for housing. Our currency could in consequence be seen as overvalued by a factor of 4! For if it was a quarter of its present value then we could quadruple wages and salaries and houses would then be at multiples of 3 to 4 of income and our international competitiveness would have improved substantially. We could again make things here and productively employ our people.

    The forward position is what matters not the historic. Busted banks are inevitable - one way or another. They lent poor quality loans that cannot be repaid. They did this because money was far too inexpensive for the last ten or so years. This is the true cataclysm caused by duff regulation (see Mervyn King!)

    However, we have to look froward and that means engineering a situation where we can regain our international competitiveness. To regain our international competitiveness wages have to come down to(or at least towards!) Chinese and Indian levels (- I expect this statement to generate 'feedback'.) The major expenditure which wages are used for is housing and in consequence to regain competitiveness housing costs must fall too. 12 times average earnings in London is totally unacceptable so it must drop (to 3 to 4 times)!

    Another way to look at this is that the bankers should have worked out that their actions would inevitably result in this catastrophe - unfortunately they were encouraged and rewarded for absurd levels of risk taking by the regulators. This has to stop and as the only way to ration credit is through price - interest rates must rise. The housing market is already excluding first time buyers because the bankers realise the truth of this market analysis and until there is a substantial correction the market will get worse and worse. This correction must be forced, in a controlled manner through raising interest rates. If the regulator does not raise rate there will be an uncontrolled correction which will be far more damaging.

  • Comment number 50.

    44. At 12:11pm on 27 Sep 2010, NorthSeaHalibut wrote:

    "#33. At 11:29am on 27 Sep 2010, John_from_Hendon wrote:

    "Consider this: apparently 70% of property is held without or with a negligible.........."

    Interesting statistic"

    Heard it from some housing chapie on BBC TV news at breakfast today!

  • Comment number 51.

    The Irish problems are likely to become small potatoes, if an all out trade war between the US and China is about to start.
    http://www.bbc.co.uk/news/business-11415036

  • Comment number 52.

    #33 John_from_Hendon
    "Consider this: apparently 70% of property is held without or with a negligible mortgage. Given all mortgages will on average will be half (or nearly so) paid off. Then nly some 15% of property debtors will be seriously challenged by reducing property prices substantially."

    ========

    Really? That's a huge surprise if it's true. I don't know anyone of working age who is without a mortgage, and I don't know anyone who bought in the past 10 years who doesn't have a considerably large mortgage. Where do your stats come from?

    Even if it those figures are correct though, I suspect "seriously challenged" equates to bankrupt and therefore 15% of mortgage-holders (and only the most massively in debt ones) would default on their loans. The banks wouldn't be too happy with that, and neither would the government, I suspect.

    It also doesn't take into account the effect of interest-rate rises on business and the knock-on effect that would have on employment and tax revenues.

    Interest rates are at an all-time low which is clearly not sustainable in the long term. And I agree that we cannot continue with a system which created such a situation in the first place. But a massive shock to the system by increasing interest rates dramatically would surely sink any possibility of a recovery before it had the chance to emerge?

  • Comment number 53.

    # 22

    Bob, increasing interest rates is all John talks about! How could you have missed it? Methinks his savings aren't performing. He should invest in equities instead rather than moaning about cash isas for the last few years.

    My equities have made me more money during the last two years than any previous period - did you all miss the opportunity?

  • Comment number 54.

    My Belgian friends used to say to me that Belgians were born with a brick in their stomach i.e. they all HAD to own property. It would appear, with $844bn owed to foreign lenders, that us Irish now have a cement block up our xxxx.s.

  • Comment number 55.

    @46 hugh jarse.

    Ha ha! That made my day! You could well be right.

  • Comment number 56.

    35. At 11:34am on 27 Sep 2010, copperDolomite

    Indeed.

    There is a readable article from Martin Wolf here from yesterday which I don't think is behind the pay wall. Keeping in mind Wolf's general views on economics it lays out (indirectly) where we might be going in a fairly stark manner.

    http://blogs.ft.com/martin-wolf-exchange/2010/09/26/we-can-only-cut-debt-by-borrowing/

  • Comment number 57.

    5. At 08:36am on 27 Sep 2010, Dempster

    I finally answered your question from Friday.

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/commission_tackles_too-big-to-.html

  • Comment number 58.

    44. At 12:11pm on 27 Sep 2010, NorthSeaHalibut

    Like I said the wealthy will benefit, the rest will be "Eating Cake." Pity it's come to this, I was enjoying my quiet life.


    The New Economics Society say bankers take away £7 for every £1 they earn. Hospital cleaners create £10 of economic value for every £1 they earn.
    http://www.neweconomics.org/press-releases/hospital-cleaners-worth-more-society-city-bankers-says-new-nef-research

    Let the bankers eat cake, I suppose....

  • Comment number 59.

    7. At 08:57am on 27 Sep 2010, Roger Knight wrote:

    "Imagine the situation in the UK if we hadn't had a 20% devaluation of Sterling over the last 3 years!"

    Cheaper imports?

    In the race to the bottom - there are no winners, only losers.

  • Comment number 60.

  • Comment number 61.

    19. At 10:36am on 27 Sep 2010, szjon wrote:

    "And don't even get me started on the public sector. That lot are living in cloud cuckoo land and I tell them so at every opportunity, I watched an interview of a single man saying he couldn't afford to live on €55000 a year."


    ...but isn't that the 'market rate'? - I mean this is the consequence when you allow the market to set wages. The public sector organisation who appointed him would argue that in order to get that level of ability / experience then you have to pay that rate.

    ...otherwise he'll be off to one of those 'wealth creating banks' where he can earn (skim) ten times that amount.

    This is a tangled web of market integration with public services - exactly what the Neo-liberal nitwits in Government are advocating more of.

    You wait until you're taxes are being spent on the extravagant lifestyle of the CEO of a private company doing public sector work - at least you know this fellow can be got rid of - how are you going to dictate the salary of a private company CEO?

    Messy - all very messy.

  • Comment number 62.

    Wonderful.

    http://www.bbc.co.uk/news/business-11414386

    How to make a non-story sound like a good thing. The headline reads...
    "UK banking sector grows at fastest rate since 2007"

    However the detail reads.

    "More than a third of UK banks increased their business volumes over the last three months compared with just 9% who saw volumes fall."

    So that means around 2 thirds saw no change at all? - I'd say the headline needs to read
    "2 thirds of banking does nothing in the last 3 months" - but of course this wouldn't help the minions believe in their recovery (which there is very little evidence for)

    Never mind, wait until they find out the banks profits (the BBC are so keen to promote) were all created from cost cutting measures and fleecing customers (because revenue is not changing much) - both of which are unsustainable and will begin to turn - providing 'shocks' and 'surprises' for the Economists.

  • Comment number 63.

    So it was a Celtic paper tiger all along.

  • Comment number 64.

    @53 Lindsayfromhendon

    I think John is talking about saving the country, not short term individualistic profiteering while the majority burns. Plenty funny money in equities. Soon to be more. I would keep the champagne on ice for now.

    As someone before me called it.

    The b*stard child of the mother of all bubbles.

  • Comment number 65.

    Trade and currency wars continue....
    http://www.bbc.co.uk/news/business-11416470

    Shhh...nothing to see here....move along...move along...

  • Comment number 66.

    If the irish government need to cut start with the job of the clown who decided to borrow money from the bond markets when they could have borrowed from euroland at cheaper rates. How can he justify his job when his country is teetering on the brink. Of course this extra cost on the taxpayers will cost others their jobs in the next round of cuts.

  • Comment number 67.

    He is on the steering committee of the Bilderberg Group,
    - enough said!

  • Comment number 68.

    53. At 1:04pm on 27 Sep 2010, Lindsay_from_Hendon wrote:

    "Bob, increasing interest rates is all John talks about! How could you have missed it? Methinks his savings aren't performing. He should invest in equities instead rather than moaning about cash isas for the last few years."

    ...unlike your debts of course - which are performing nicely with the taxpayer subsidy you enjoy (I mean that's a bit rich, having your UK debts subsidised while you do not contribute your taxes as you're an exile)

    "My equities have made me more money during the last two years than any previous period - did you all miss the opportunity?"

    Really? - well that's some stock picking you have done as dividends have been well down and some of the 'safe as houses' investments everyone had in their portfolio are almost gone (Lloyds, RBS etc) - and in any other period? - so you didn't make more during the equity boom of the last 20 years or so? - that's some very bad stock picking there.

    Surely you're not exaggerating your success in order to improve your status on this blog? rbs_temp tried a similar thing before and now he's not coming back - because he was found out.

    Be careful with that - untruths often come back to haunt you.

  • Comment number 69.

    He is on the steering committee of the Bilderberg Group, nuff said.

  • Comment number 70.

    Peter Sutherland is on the steering committee of the Bilderberg Group, nuff said.

  • Comment number 71.

    41. At 12:05pm on 27 Sep 2010, Justin150 wrote:

    "Of course what we do not know, given that these are loans to individuals and businesses is what is the basis of the loans and what is the security."

    ...yes we do - the basis of the loan is "I want my bonus this month / year" and the security is now something worth a lot less than the original loan.

    That is the problem, and it's not going to go away - no matter how often the media roll out another story on 'recovery' - it's simply not happening. Those loans are bad, and thanks to unemployment they wil stay bad until they default.
    Only a tiny proportion of borrowers will eventually pay off that debt - there simply isn't the wealth in the Economy for the rest to get paid.

    This is why they call it a depression - just like the mental condition - you simply don't realise you're in it - until you come out the other side.

  • Comment number 72.

    WOTW wrote "but they can't all have an export led recovery"

    Actually that is logically not true. If each country exports different things then you can have a situation where all countries experience an export led recovery. Now I will admit that factually the concept that all countries export different things to every other country is absurd but what is normally the case is that different countries tend to have certain goods or services that they are better at than most others and therefore export that - even that can lead to an export led recovery for the overwhelming majority of countries although probably not all.

    There is a problem when you assume that someone exporting means someone must be importing and then equating it to winners and losers. Economics is not that simple

  • Comment number 73.

    ...and here's one of those 'well run banks' we keep hearing about...

    http://www.dailymail.co.uk/news/article-1315340/Bournemouth-Barclays-bank-bricked-businessman-furious-refusal-lend.html?ito=feeds-newsxml

    Classic - it's almost like a revolution (I say almost like because it can't actually be a revolution unless the people of Hendo-switzerland would know about it)

    Good to see people taking matters into their own hands - this is not what the coalition expects - we're supposed to line up with our cash as George Osbourne sails through to see his rich banking buddies.

    Expect to see more of these types of incidents as people find that final straw has just been pulled.

    ....but there's no ongoing credit crisis here - it's just a recession.

    Alison's comment has the right idea:

    "Lets turn this into a national movement and brick up a bank in every town.

    - Alison, UK, 26/9/2010 16:44"

    Not now Alison, the Capitalists are telling us about their recovery..!

  • Comment number 74.

    60. At 1:19pm on 27 Sep 2010, szjon wrote:

    "In steps moodys.

    http://www.zerohedge.com/article/moodys-downgrades-unguaranteed-senior-debt-anglo-irish-bank-three-notches-baa3-a3"

    ...now remind me again, are we supposed to be listening to these agencies or not? It seems that when they have bad news - we're supposed to ignore them as they as rampantly inaccurate - however when they have good news we're supposed to claim the ratings game is a good indicator of the market.

    With so much flip-flopping going on I can't keep up!

  • Comment number 75.

    @49. At 12:46pm on 27 Sep 2010, John_from_Hendon wrote:
    "The major expenditure which wages are used for is housing and in consequence to regain competitiveness housing costs must fall too. 12 times average earnings in London is totally unacceptable so it must drop (to 3 to 4 times)!"
    Could you explain how you reach "3 to 4 times" as being an acceptable ratio? Not criticising your tome, but it does seem somewhat arbitrary. Which salary average are you choosing to illustrate this point, mean, median or even modal? Why 3 times? Why not 5, or 2, or pi, or e^x (where x is a rational number between 1 and 2)? By average earnings, is this gross pay prior to such top-ups as London Weighting, bonuses, shares, or does average include a "mean wage" including all bonuses and other wotsits received over a period of 3 to 5 years and inflation-adjusted?
    Perhaps the price of any house should be fixed at 3.5 times the wages on the lower quartile throughout the country (which would be what, £50-60K)?

  • Comment number 76.

    @68. At 1:54pm on 27 Sep 2010, writingsonthewall wrote:
    "...unlike your debts of course - which are performing nicely with the taxpayer subsidy you enjoy (I mean that's a bit rich, having your UK debts subsidised while you do not contribute your taxes as you're an exile)"
    Er, that's "non-domicile", before you make the lawyers at the BBC have palpitations, and Carter-Ruck to rub their hands with glee (always keep a pot handy).
    0:-)

  • Comment number 77.

    @61 WOTW

    Agreed, two slices of the same pie. We already pay the exhorbitant price of the private sector doing the public sector work, consultants, outsourcing etc. The public service appears to have turned into a talking shop concerned only with how they can pass our taxes off to the private sector profit machine rather than spending it on much needed services. The public service has been into a dis-service by governments obsessed with private sector contracts.

    When is the last time a project came in on budget? On time? Working?

    These are the arguments I hear all the time against the state running projects themselves. Is it not the same news from the private sector tendering?

    I've never understood how a profit making company can do a job cheaper than a not for profit government operation.

    I would argue they never do. Scottish parliament was a cracker.

  • Comment number 78.

    @70 Thanks for that, that might explain my my previous post was removed. Personally I think if we put the bilderbergers in guantanamo bay and closed down goldman sachs we might find the world a much easier place to live in IMHO.

  • Comment number 79.

    ....and here's our own little Economy going down - for at the risk of repeating myself, a lot of the 'wealth' we've been spending for the last decade has come from rising house prices (and the willingness of banks to lend against it)

    Now the banks are unwilling and the prices are falling - it's almost inevitable that we'll see a long slow decline in house prices over the next year - I mean summer is a peak time in the market - who knows what winter will look like.

    Still, if you choose to ignore fundamental logic then you'll never see the train coming down the tracks.

    http://www.housepricecrash.co.uk/graphs-mortgage-approvals.php

    Deary, deary me....

  • Comment number 80.

    Whichever way you look at it, there is one hell of a day of reckoning heading our way.

    Growth rates are likely to be very low (1%-2%) for the foreseeable future. Interest rate policy has been exhausted. Central banks are fearlessly printing money. Property prices have a long way to fall yet. Politicians have been totally outgunned by the banks. Unemployment and its associated costs are likely to increase significantly when the 'cuts' arrive. Tax receipts will dwindle etc.etc.

    And of course, the 'Quick Buck' culture is still very much alive and kicking!

    There again, perhaps I'm just totally misreading the situation.

  • Comment number 81.

    > This is why they call it a depression - just like the mental
    > condition - you simply don't realise you're in it - until you come out
    > the other side.

    Does that mean you could be clinically depressed right now and not know it? By extension I may also be depressed. I need a drink.

  • Comment number 82.

    @ 53. At 1:04pm on 27 Sep 2010, Lindsay_from_Hendon

    Picking out a graph from google of some shares and saying you 'saw the opportunity' and picked the bottom as if it was utterly obvious doesn't strengthen any argument btw. I could say I'd cut out of my hugely leveraged housing portfolio in 2007 and transfered it all into gold and have made many many millions and too live in Switzerland and now spend my spare time attending yacht club parties, skiing and holidaying in the bahamas while my many companies all pay zero tax to any government since they are based in the cayman islands. It does not however, lend any credibility to anything I say since there is a chance I've made it up with that sole intention.

    If such opportunities are glaring us all in the face, please do enlighten us as to the next one which we'll undoubtedly otherwise miss. Maybe you could front run it and we can all help push the prices your way if you are so sure you know which way it will go?

  • Comment number 83.

    "Which may strike you as a bit odd, given that Ireland's economy has been taken to the brink of bankruptcy, by the reckless lending of its banks to property developers, home builders and house buyers" (R Peston)

    Robert when will you get it? The Banks could NOT have lent any money had the reckless property developers, home builders and house buyers not wanted to borrow it.

    It is reckless borrowing which has caused the problems NOT reckless lending

  • Comment number 84.

    72. At 2:02pm on 27 Sep 2010, Justin150 wrote:

    "There is a problem when you assume that someone exporting means someone must be importing and then equating it to winners and losers. Economics is not that simple"

    ...oh but it is that simple, for the people within these nations begin to find substitute goods and services (remember that from economics lessons) and in addition to that Governments find 'reasons' not to import - or to delay the imports of goods.

    Somebody somewhere has to consume - to replace the consumption of the lost internal consumer (fuelled by debt) - but seeing as this is a developed world phenomenon (consumption fuelled by debt) - you're only hope of the third world deciding it want's to buy a lot of stuff - which of course it cannot afford - maybe we could lend it some????

    If you remember, each nation can be export and import independent - I know this because before seafaring and the compass - there wasn't any international trade and tnere was still a society. We will head back towards this model - how far we go? - I do not know, but soon you will be making price decisions in the shops which automatically prejudices expensive imports.

    ....or in your world we all find a real desire for Ipads which we can't live without and are prepared to sacrafice much more to obtain them than we should - unlikely as the choices narrow to be essentials only - which on the whole can be produced here.

    It's what happened in 1929 and it's happening again now. I should have guessed from when Obama stated "we must not let the world return to protectionist policies which damaged the recovery so badly in the great depression" (or words to that effect)

    I mean I was a bit naieve and forgot that when a politican promises something - you're going to get the opposite.

    The Republic of Ireland must "honour its obligations" to retain the confidence of the global money markets, Irish Finance Minister Brian Lenihan has said.

    http://www.bbc.co.uk/news/business-11418562

    Greece won’t restructure its debt and will stick to austerity measures it pledged as part of a 110 billion-euro ($140 billion) bailout, said Petros Christodoulou, head of the nation’s debt management agency.

    http://www.businessweek.com/news/2010-09-09/greek-debt-head-christodoulou-rules-out-restructuring.html

    politicans eh? - they even have me convinced sometimes....

  • Comment number 85.

    John from Hendon wrote
    Second: the income multiple to buy a home in the UK are still 4 times what it should be for a stable economy!

    Income multipliers are a red herring used by lazy journalists.
    Lets say for example you earn 20K net. You belong to a gym costing £1k PA a golf club costing £1k PA drive a car the loan repayments of which are £3K PA and spend £3K PA on drink and meals. Leaving you £12k net

    I do none of the above. Why should I be on the same income multiplier??

  • Comment number 86.

    (Vulgar) Marxists used to be accused of thinking in terms of advancing socio-economic "stages" ~ slavery, feudalism, capitalism, communism. However, Marx didn't quite foresee capitalism REVERTING to a New Feudalism c/o finance capital. Welcome aboard, touch the forelock, abandon all hope.

  • Comment number 87.

    I find it a little disturbing that the BBC promotes obvious 'managed' headlines as per 'banking grows at it's fastest rate in the history of Time' when patently the banks haven't.

    Yet in all the excitement they forget to mention the fact that house prices fell across the country in every area (even London). No doubt they'll post a link sooner or later.

    I'm not holding my breath.

  • Comment number 88.

    83. At 2:33pm on 27 Sep 2010, Decentjohn wrote:

    So the marketing department for let's say, the new super duper crisp flavour, crayfish, has no effect on sales because all the kids spent years sending letters to Santa demanding the 'crayfish flavour' crisps did they?

    It was just the crisp manufacturer was given the nod from Santa, I suppose and the crisp factory made a mint because all they were doing was meeting a pre-existing demand.....

  • Comment number 89.

    83. At 2:33pm on 27 Sep 2010, Decentjohn wrote:

    > It is reckless borrowing which has caused the problems NOT reckless
    > lending

    I agree that one requires the other. But the lenders deal with lending every day, whereas borrowers may only borrow large a few times in their life. I would therefore argue that the lenders were way more reckless relative to the knowledge they can be reasonably expected to have had.

    Also, in theory the lenders should be dispassionate and lending based on sound principles. Whereas borrowing is always going to be more emotionally affected.

    Finally I would argue that the desire to borrow was driven by the bubble of cheap credit. IE it was self perpetuating.

  • Comment number 90.

    Those siren voices saying that cuts will send us into a depression like Ireland are forgetting one thing.

    Ireland is in the Euro and cannot manage its affairs as we can by having our own currency.

    Ireland is only one of 27 countries in the Eurozone and as we begin to see into the real problems caused by overlending and subsequent depreciation of real assets not yet written down in the books and we start to multiply that by the number of others in the Eurozone the scale of the problems begins to look unmanageable.

    There is just so much pain that the taxpayer can take.

  • Comment number 91.

    73. At 2:10pm on 27 Sep 2010, writingsonthewall wrote:

    ...and here's one of those 'well run banks' we keep hearing about...

    http://www.dailymail.co.uk/news/article-1315340/Bournemouth-Barclays-bank-bricked-businessman-furious-refusal-lend.html?ito=feeds-newsxml

    And if there's any justice in the world Barclays will get done for not getting planning permission!

  • Comment number 92.

    89. At 2:59pm on 27 Sep 2010, Dale_Lemma wrote:
    83. At 2:33pm on 27 Sep 2010, Decentjohn wrote:

    > It is reckless borrowing which has caused the problems NOT reckless
    > lending
    ------------------------------------------------

    Surely reckless borrowing can only be satisfied by a reckless lender?

  • Comment number 93.

    41. At 12:05pm on 27 Sep 2010, Justin150 wrote:
    > I would guess they need another 2-3 years before we can come to any
    > sort of conclusion

    Drains, water, electricity are all important, like banking. But imagine your reaction if I told you that it will be two years before we get your electric back on! It would be mad to think this should take 3 years.

    I'll only say this once, so please listen up. Banking is a utility, like water or electricity, or an Internet connection. Linesmen don't get paid the earth, neither will bankers. Drain cleaners don't get paid the earth, neither will bankers. We need them to operate their low-tech, simple industry like a utility. Just cut out all the rubbish and get it working properly. And quit making excuses for those boneheads.

  • Comment number 94.

    92. At 3:08pm on 27 Sep 2010, Kit Green wrote:

    > Surely reckless borrowing can only be satisfied by a reckless lender?

    Yep - that was my point also. I think you may have mistook some quoted text for my opinion.

    To my mind it's like parents allowing kids to eat sweets until they throw-up. Sure the kids wanted the sweets, but the parents are _supposed_ to be the experts. And the parents are supposed to be interested in keeping the carpet vomit free.

    But my analogy breaks down, because parents don't usually have financial incentives to give more sweets to their kids.

  • Comment number 95.

    Although this shows that the lending banks in the UK and Germany were really stupid I expect the bankers who lent these sums received huge bonuses on top of their huge salaries and will retire on huge pensions. Furthermore it is no good the authorities blaming others they could easily have put in place legal restrictions upon the Irish banks borrowing so much. Until such mistakes cost bankers their own money and freedom they will continue in their actions, and why not, as the taxpayer will always be made to pay up.

  • Comment number 96.

    @ 95. At 3:54pm on 27 Sep 2010, Keith wrote:

    > Until such mistakes cost bankers their own money and freedom they
    > will continue in their actions, and why not, as the taxpayer will
    > always be made to pay up.

    That's right, Keith. We have to move back a few steps before we can move
    on, and get their assets. They're acting like they want to forget the
    damage they've done through their greed.


  • Comment number 97.

    from 82...Well, I've still not heard of any trading opportunities from Lindsay which in due course I expect we'll be informed we were blind to have missed. Could it be that hindsight can only be masqueraded as foresight after the event or are there no more glaring opportunities left in the world?

  • Comment number 98.

    ...and the dark lords of the Syth confirm that what we're doing is "the right thing" - despite the problems of Greece and Ireland.

    http://www.bbc.co.uk/news/business-11419937

    ...so why aren't the US up to the same austerity measures? - They seem to be going hell for leather in the inflation route.

    Who are these unelected bodies who are now dictating our futures? - It seems someone allowed the IMF to become supreme economic czar because they were all too busy stuffing their fat faces with the wealth they skimmed from the working man.

    Nothing to see here - repeat after me - austerity is good for you, austerity is good for you....you will be thankfull, you will be thankfull

  • Comment number 99.

    77. At 2:18pm on 27 Sep 2010, szjon wrote:

    "These are the arguments I hear all the time against the state running projects themselves. Is it not the same news from the private sector tendering?

    I've never understood how a profit making company can do a job cheaper than a not for profit government operation."

    Please take your logical thinking elsewhere - that sort of talk is not welcome in La La fantasy capitalism land!!

  • Comment number 100.

    80. At 2:25pm on 27 Sep 2010, Tony wrote:

    "There again, perhaps I'm just totally misreading the situation."

    Sadly your assessment is highly accurate - there will be a day of reckoning, we just don't know when it's going to happen.

    What is certain is that the world cannot sustain another economic crisis as it has no weapons left with which to fight it.

 

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