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The financial truth hurts Ireland

Robert Peston | 19:08 UK time, Tuesday, 23 November 2010

European governments hoped that their unambiguous signal on Sunday night of their intention to provide around £75bn of rescue loans to Ireland would calm investors - and stop the fall in the price of debt of the more financially challenged eurozone states.

It hasn't happened.

Irish government bond prices fell sharply today, to levels almost as low as at the height of the recent crisis - which would mean that the Irish government would have to pay a prohibitive 8.4 per cent rate on a ten-year loan, if investors were prepared to lend to it, which they're probably not.

And there was contagion to the debt of a much bigger economy, Spain, whose bonds also dropped - such that the gap between what the Spanish government would have to pay in interest and what the German government pays widened to a record.

That means investors are more worried than they've ever been about the ability of Spain to honour its debts.

As for Ireland's fragile banks, their share prices fell - and there was contagion to the prices of overseas banks, including the UK's.

What caused the global tremours, which also saw stock markets fall?

Well it was largely the fear that Ireland's political instability would de-rail the international rescue - which may seem extraordinary, in that Ireland's economy is tiny.

But it only goes to show, again, how dangerously and intricately intertwined are global banks and national economies.

By the way, I don't know whether it adds to or detracts from financial stability that Ireland's central bank governor, Patrick Honohan, has again been refreshingly frank today, in an address to the Chartered Accountants Ireland Financial Services Seminar (yes, I know it's not fair that we weren't all able to get tickets).

Mr Honohan admits that Ireland's banks have been hopeless at making adeqate provisions for expected losses on their poor loans or in keeping investors abreast of the risks they take.

Little wonder then that the Irish banks' creditors trust them so little, and have been pulling out their money by the tens of billions of euros, till the banks - and the Irish state that stands behind them - have been taken to the brink of collapse.

Mr Honohan also points out that Ireland's official GDP and unit labour cost statistics have consisently overstated the size of the Irish economy and its productivity respectively - largely because that economy is so dependent on multinationals with headquarters in the Republic, whose high profits acrrue to the overseas owners of those multinationals rather than to Irish residents.

That overstatement of the magnitude of the output of Irish residents, which in some real sense is attributable to those residents, could be as much as quarter, he says.

Which implies of course that the ability of Ireland to repay its enormous bank and state debts is even worse than the eye-poppingly high ratios of borrowing to GDP would imply.

Comments

  • Comment number 1.

    Patrick Hoonan is hardly pulling his punches is he?

    Let me interpret: the Irish banks, whilst technically not fiddling the books (probably), are certainly not producing believable accounts and the Irish economic stats are totally inflated.

    This is of course totally different to Greece who simply fiddled the books.

    Any wonder that international lenders have decided that they do not believe any figures that comes from the Eurowonderland.

    The bail out is nothing more than a delaying tactic - a haircut is required although trying to delay the trip to the barber until the western economy is stronger is not an unreasonable idea.

    From what I have been reading it does look as though Portugal is being somewhat unfairly treated but that Spain really does have problems.

  • Comment number 2.

    When it comes to statistics, you're trusting the source ...

  • Comment number 3.

    One would think that Ireland aren't on their own at guilding the economic lily, and they were only using practices commonplace in the banking sector, so its understandable that investors are pulling out their money as fast as they can.

    This of course exacerbates the problem , and will make it impossible to ever get their banks back into shape.

    Now for my question how does this now affect us, as , if i understand it correctly 2 of our banks are in deep with these banks, and the Post Office is run by one.... is this the reason for the extra money we offered ??? to keep the Post Office going ???

    Its astonishing and something i had never thought could happen and all the culprits will walk away scot free..

  • Comment number 4.

    "By the way, I don't know whether it adds to or detracts from financial stability that Ireland's central bank governor, Patrick Honohan, has again been refreshingly frank today, in an address to the Chartered Accountants Ireland Financial Services Seminar"

    So these would be the people who audited the bank's accounts? The banks overstated their financial health. Their auditors, who approved the accounts and certified that they show a true and fair view of the company's (bank's) affairs, owed a fiduciary duty to the Regulator and shareholders who trusted them.

    If that isn't a special relationship of trust and confidence, I don't know what is!

    Are they not liable for "dishonest assistance" in equity, at the very least?

    Easiest way to refinance the Irish economy would simply be to claim against the Chartered Accountants' insurance policies. Bad for us outside of Ireland but good for them.

    Or are auditors exempt from their fiduciary duties and consequent liability in equity?

  • Comment number 5.

    I still don't get how we can ever get over the property bubbles of the UK, Ireland and Spain, without the bubble actually busting.

    I know that "moral hazard" is an unfashionable term these days, but just like all those wild and wacky bubble schemes, we now have the same people doing the same madness and expecting different results.

  • Comment number 6.

    Robert

    Surely the Italians or the Portugese will be in need of EU/IMF assistance before the Spanish? Which countries banks have made the greatest provision against (property) losses? I get the impression you expect more EU action but are like the rest of us bereft of 20:20 foresight

  • Comment number 7.

    "Well it was largely the fear that Ireland's political instability would de-rail the international rescue - which may seem extraordinary, in that Ireland's economy is tiny."

    Does chaos theory and that butterfly in the amazon rain forest have something to explain this?

    If all the smart money has been pulling out of the Irish banks in the last few weeks, where has it been going. I expect the international banks with the strongest reputations are seeing inflows.

    The losers seem to the average 5/8 ths who trusted the deposit guarantees of the government who can't afford to make good on their promise.

    In addition to losing bank deposits, the shareholders and bond holders likely to lose out are the insurance companies, pension funds and investment funds. These are the accumulated savings of the same people who had deposits in the bank.

  • Comment number 8.

    And one has to wonder which country will be after Ireland. Spain and Portugal must realise that they are living on borrowed time.
    Thank God Crash Gordon didn't take us into the Euro, and New Labour's financial mismanagement now seems to diminish slightly.

  • Comment number 9.

    "Tremours", Robert? Is that just a shaky rumour?

    We need to ask who's trying to destroy the Euro. In whose interest is it to have these ruinously high returns on bonds? Mmm, tough call that - and as someone said recently, the banks are just privatising Governments, when it should be the other way about.

  • Comment number 10.

    #9 Gleckitloon
    You make it sound like a conspiracy that the interest rates are kept high. It is in the interests of investors to actually receive their money back plus a bit extra. If they are less likely to receive that money back then they demand a bit extra. Simple economics, no conspiracy there.
    The destroying the Euro was done by the likes of Greece and Spain and the other PIIGS, not by the markets.

  • Comment number 11.

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

  • Comment number 12.

    you ask whos trying to destroy the euro

    the ans is Ben bernanke financial hitquad the federal reserve through the imf through ecb
    follow the money ...........

  • Comment number 13.

    The Euro is a right wing device designed to enslave a continent. They will do everything they can to keep it going. The market is actually helping for once in bringing down this disgusting currency.

  • Comment number 14.

    What is really worrying is the poor level of auditing in these banks.

    One time the Directors had to sign the auditors statement that they were a true and fair view if the cimpany's accounts.

    Have those days gone when Directors had to be held to account if they dishonestly signed such a statement.

    If that is so then no-one can trust any of today's filed accounts.

    Perhaps the auditors are no longer equipped to cope with today's computerised accounting and that is the real cause of the whole global mess.

  • Comment number 15.

    All this user's posts have been removed.Why?

  • Comment number 16.

    As Robert Peston points out globally economies are inextricably linked.

    We read it but do we understand what this means and the implications?

    It means our economy cannot be separated, uncoupled or disconnected from other nation’s economies.

    The gigantic American economy sneezes we catch a recession - the minnow Ireland runs into debt and we suffer substantial falls in the value of our businesses, pensions and fall further into debt by using money we haven’t got to bail them out.

    Implications of the UK being inextricably linked to larger, similar and smaller economies dictates the only possible winners will be the largest economies such as America, China and Germany.

    Where will we finish up at the end of all this? Simple in debt to the powerful countries and forced to adapt the role and strategic disciplines they place upon us.
    If you want an analogy then we will be like a supplier dependent on one or more large powerful supermarkets - nowhere to go - trapped and continually squeezed.

    Maybe Robert would consider this and comment

  • Comment number 17.

    Robert, I'm not knocking you, but we really didn't need this latest revelation.

    When everyone's desperately trying to see some light at the end of the tunnel, we are to believe that these .... experts ... are incapable of reporting statistics within a 25% margin of error? This goes beyond incompetence.

    I just don't know where we go from here. I shudder to think what tomorrow's market reaction will be to this disclosure.

    But hey, maybe it will be seen as the first shoots of recovery!

  • Comment number 18.

    RP wrote: And there was contagion to the debt of a much bigger economy, Spain, whose bonds also dropped - such that the gap between what the Spanish government would have to pay in interest and what the German government pays widened to a record.

    That means investors are more worried than they've ever been about the ability of Spain to honour its debts.

    -------------------------------------------------------------

    We (the public / taxpayer) keep taking the commentators view of this.

    Is this really what it is all about or is it a money-go-round of intentional instability created by those that can then suck tax revenues out of the system?

    Is there a true independent narrative?

  • Comment number 19.

    If the going rate for lending to Ireland is 8.4 percent - then why would the UK lend to it at less than this ??

  • Comment number 20.

    If a heavily indebted person went into the CAB I am pretty sure that the advice would not be to take out a larger loan.

    Ireland's problems are not principally the fault of the euro, it is of spending far more than you have. The UK will prove this point before too long.

    Can I also suggest a 100 word limit to posts?

  • Comment number 21.

    The first Kilkenny Economics Festive (Kilkenomics) was held last week.

    http://kilkenomics.com/

    That must have been a laugh.
    In fact it was because they combined economics with comedy.
    The Irish know what has to be done once the laughing is over.

  • Comment number 22.

    #15

    A better measure than both GDP and GNP is to compare the annual deficit, total debt and interest payments with the total tax take. This is similar to comparing a persons income to their debts.

    For example, consider a country with an annual deficit of 150 bn, total debt of 850 bn.

    If GDP is 1,200 bn, government spending is 600 bn and the tax take is 450 bn (600 -150).

    The interest on the debt at 5% of 850 bn is 42.5 bn per year.

    The problem Ireland and the UK have is the total tax take is likely to go down faster than government spending. Meanwhile the total debt and interest payments increase.

    The pressure is on interest rates to rise making things even worse.

  • Comment number 23.

    listen folks - the establishment does not give away an extra Bank Holiday unless they have nothing to lose.

    You can be pretty certain by April 29th 2011 all the Banks will be on a permanent holiday and that particular 3 day week will be commonplace

  • Comment number 24.

    To answer a number of questions.

    Post 6 The Portuguese will be forced to take the EU's money next not because they are in any worse position than Spain or Italy but because it takes less effort to force them into the EU's arms. The hot money coming out of Ireland and the EU money coming in will surely repay more foreign debt allowing more hot money to push Portugal and Spain into the EU's arms.

    If people think the Irish property boom and bust is bad Spain makes it look like a walk in the park. There will be a huge problem in Spain before too long.

    Post 19 the 8.4% is what the commercial banks are charging to allow for a profit and also to give a risk premium for the perceived higher risk of default. The UK and EU is lending at 5% because that is a rate that Ireland can possibly afford and the EU and UK are not looking to make a profit out of the deal. The aim is to try and get out of this all with the Irish in one piece and the banks that lent them the money not bankrupt.

    The UK is in a position where it can borrow money at a far cheaper rate than Ireland and is assisting partly to help the Irish out but also because it in in the UK interest to do so.

    To use an analogy if Ireland was a UK customer and they couldn't afford to pay their bill would you either

    a) demand repayment which they cannot afford and they say can't pay won't pay and you probably lose up to 40% of the money you have lent them as the assets the loans have been secure on are sold.

    b) say pay what you can and actually rather than pay us back at 8.4% interest we can live with 5%. In the current situation we stand a better chance of getting all or most of our money back if we cut the interest rate.

    Ireland currently owes a huge amount and has to pay 8.4% to get new credit. This deal effectively consolidated some of those debts owed to many banks to one "more affordable loan" with the EU & UK. Its all a bit Ocean Finance but on a international scale.

  • Comment number 25.

    Time for haircuts and popping bubbles is approaching. The cracks in the dam are getting ever wider. The students are out tomorrow. I'm joining them in support. Iceland showed the way. Ireland is following. So will we when the time comes.

  • Comment number 26.

    Has Anyone else noticed that when the world heads into winter time everyone starts to scream about how the sky is falling in, no body seems to care so much in the warm summer time... could this actually be another case of a self fulfilling prophecy?
    tell yourself enough times you are doomed and pretty soon, well you are doomed!
    after all its easy to point the blame at governments and banks etc.. yet who are the ones with the over leveraged credit card debts and oversized mortgages? Just because the banks offer it doesn't mean we need to take it.. maybe whats really needed is a little more constraint and self control instilled into us. hmmm sound like any neighboring country called China?

  • Comment number 27.

    Message 26 from pjagoe....

    Well you'd better thank all those in debt because with the debt-based money supply imposed on us, for you to have £100 somebody must be £100 in debt.
    And if there is no debt, there is no money.
    Happy with that are you?
    A lot of people need to do a lot of serious thinking.

  • Comment number 28.

    Debt is Debt and the world is awash with debt.

    Banks and now individual Countries seem to be the most affected.
    Yet there are Billions being saved by citizens in all these countries.
    Therefore there is a disconnect between the savers and the borrowers.
    That disconnect is caused by the financial institutions and banks who are driven by greed.
    The cancer of debt started by these financial institutions is now spreading fast and is now affectiing Nations.

    The Governments of these Nations are hell bent on saving these very institutions that are primarily the cause of this debt...The too big to fails.
    This cancer will continue to spread until the root cause is surgically removed...How can this be done.??

    By letting the free market operate and letting the rot die...i.e. these banks and financial institutions which are failed...Just as the dinosaurs died out.
    Else if not the people will suffer...It's either the failed financial institutions or the people will have to prop them up by austerity....far into the future.

    There must be a process by which failed financial institutions can be busted without affecting everyone.

    Unfortunately some governments are hell bent on saving the precious financial institutions...Biggest mistake ever...

    In the UK, the governments are propping up the City...Status quo is paramount...As a result everyone else, not in the city has to suffer.
    So as far as the City is concerned it is business as usual...i.e. the party continues.

    So obviously there is a massive divide between the "City" and the general population....The "City" must continue to operate as usual, seems to be the message from the governments.

    This is a form of corruption of the free market...But this corruption is only making the patient worse not better, because this debt is not going away..it is only getting bigger....and these stupid/ clever/ rubbish or whatever Governments have taken over the debt from these failed institutions instead of writing them off as junk....

    The junk is still there...It is time to ditch the junk...Is Ireland junk or is it's City spivs junk...Given the choice, I would say ditch the spivs.

  • Comment number 29.

    Didn't FDR use an extended bank holiday to close a lot of banks?

  • Comment number 30.

    http://www.lewrockwell.com/north/north909.html

    To understand why something happened you have to follow the money.
    The real reason for the bailouts is so the rich don't lose their money.

    To change things people have to act in voluntary co-operation, to peacefully break the power structures. Marching is not going to cut it - they don't care. Violence never solved anything, in fact it would give them the ideal opportunity to remove civil liberties and blame the public. It is time for the quiet revolution.

    The solution lies in radical stuff. Get out of debt. Take your money out of the banks. Buy some physical silver - if enough people did it the naked shorts (big financial institutions) would be in serious trouble. People are watching gold but silver is the bigger play as it gets used up in all kinds of technology, and it is a relatively small market. Things cannot continue as they are.

    If you continue to feed the monster it will one day eat you.

  • Comment number 31.

    29 - yes and to also steal the peoples' gold.

  • Comment number 32.

    before they start pulling down the blocks of flats in ireland could we not send all our
    people who are claiming houses benefits of £10,000 and more.to pay the irish government a fix fee of £7000 per year solving two problems in one go. tel

  • Comment number 33.

    There is only one answer - pull the plug on the banks. If national governments are borrowing eye-wateringly large amounts of money to prop up banks, and other banks have no confidence in the ability of national governments to repay those borrowings and further financial instability (or "contagion") is the consequence, then the only logical course of action is to let the banks collapse.

    We need to decide who is "too big to fail" - banks or nations?

  • Comment number 34.

    Look up George Osborne on wikipedia.
    I quote "Osborne is part of the old Anglo-Irish aristocracy, known in Ireland as the Ascendancy. He is the heir to the Osborne baronetcy (of Ballentaylor, in County Tipperary, and Ballylemon, in County Waterford)."

    7 billion is what we have to save and 7 billion is what we are stumping up for Ireland.
    The peasants say peasants and the rice stay rich.

  • Comment number 35.

    The EU will have no peace until they deal with the fundamental issue. United in terms of exchange rates and monetary policy but fiscally divided.

    Are they capable of fixing that - we will see.

    And to think that the Eurocrats undertook stress tess in the summer trying to assure everyone all was ok. They were a joke and in a fair world those responsible would be sued for negligence.

  • Comment number 36.

    this is what securitization leads to - banks hire smart phd profs to design these risk products to earn fees on excessive derivative trading resulting in excessive leveraging. Everyone joins in the lie.
    At the end of the day, the total private & commercial & govt debt levels are plain enough to see, but noone can politically say STOP - incase our house prices don't go up in value. It is our personal greed that drives this, we really do think that house prices are real.

    Now we trash currencies and savings in order to subsidise borrowers and lenders - in UK its a £10billion/month subsidy thro low interest rates that goes to mortgage holders including btl landlords. Its a crime all to support house prices and thro them the banks.

  • Comment number 37.

    If high profits of multinationals are acrrue to the overseas owners of those multinationals rather than to Irish residents, then how about multinationals making their profits or based in the UK? Boots comes to mind.

  • Comment number 38.

    Angela Merkel:
    "The primacy of politics over the markets must be enforced."
    With this sort of self-serving Alice-in-Wonderland thinking at the core of European policy making there really is no end to the difficulties Europe is likely to get into.

  • Comment number 39.

    Phew!
    I thought someyhing had changed for a minute.
    Anybody out there want to lend Ireland any money at 8%.
    Anybody out there want to lend Ireland any money at 100%. Didn't think so.
    The Irish are just going to have a huge drag on a big fat Havana cigar and wait.
    They will wait to see how much everybody else is going to lose in this charade and make their mind up then. I think all this market driven rubbish is exactly that, rubbish. What happens if the entire banking system collapses? How much are the markets going to have then. Answer not a lot.

  • Comment number 40.

    Let the banks fail.
    Let the stinking rich lose all their money.
    Let a £10 note be worth tuppence.
    Let the mega bucks market drivers do their conkers big style.
    Let the blood sucking none working financial manipulaters wake up with a few pence equivilant.
    Let the new currancy be called anti gobshite.
    Let them all lose and start again the whole lot is stupid and flies in the face of decency and honest hard work.
    Look after the old and the infirm as a right and let the entire rest of society work for living.

  • Comment number 41.

    Is the statement that "Spain is too big to bail" true? If so what happens if France slides under? What would it take to bail out France or Britain or both.

  • Comment number 42.

    It hasn't happened.

    Well it wouldn't would it?

    The government has just accessed funds. The bankers will simply stuff it in their pockets.

    And then demand more.

  • Comment number 43.

    What we are seeing now is the same process that has happened around the world over the past few decades.

    First you make sure the country is in debt, then you make sure they can't meet the payments, then you move in and take control, and you line the pockets of the global wealthy even more.

    The IMF apparently told the African countries they shouldn't even provide primary schools, health care, etc because the loan payments came first.

    According to Stiglitz, there was even a plan for when the riots broke out - yes, they have a plan for that, because they know that what they are dealing with will lead to riots. In comes the army, and the company selling batons, tear as etc will be gleeful. Then there is the private prison builders - they'll be even happier.

    The very idea of imposing austerity on the poor for the benefit of the rich is an outrage. Get those placards, people.

  • Comment number 44.

    Post 41. Spain will fail and I reckon sometime between March and May next year. The bad news for the Spanish is that much of their debt is locally owned. Ireland was very multinational in who it owes money to.

    Many of the Spanish Caja's will fail and the local life and pension property funds will never recover. Expect millions of people to lose huge amounts off their pensions and millions to have mortgages they may never be able to pay off. Both will be condemned to twenty years or more of penury.

    With 20% unemployment; huge debts and a job market that won't reform Spain is in a real mess.

    I expect Spain to be the first country where there are haircuts in the debt as the amounts will be so huge. The burden will have to be shared between the banks, the financiers, the developers, property owners and the tax payers. My gut feeling is 20% to 25% write off on the debts.

  • Comment number 45.

    In Robert's previous post, AnotherEngineer wrote:

    '211. At 13:30pm on 23 Nov 2010, AnotherEngineer wrote:
    186. At 10:35am on 23 Nov 2010, copperDolomite wrote:
    There's an old guy in the US who apparently has announced in an interview on ABC TV (US) that the rich should be taxed and that trickle down doesn't work. His name is Warren Buffet - the rich old guy.
    It would be interesting to see this in context. Although he is rated as the second richest person in USA his income is modest as he only takes a small salary from Berkshire Hathaway and it has never paid a dividend on the Class ‘A’ shares which he owns. So his wealth is not trickling down, not even to him, and he would pay little in tax. He could have been advocating a tax on capital of course, but I doubt it.'

    The comments made by Warren Buffet are reported here: http://www.democracynow.org/2010/11/22/headlines

    He was talking about Bush's tax cuts due to expire - not sure if those include corporate taxes as well as personal taxes.


    No one, no one should forget what brought this global financial scandal about. I hope every Irish man woman and child are demonstrating this coming weekend, and refusing to bailout out these usesless bankers

    Things are beginning to happen in the US, though the legal fights which seem to be increasing in number will take years.

    http://rt.com/programs/keiser-report/episode-97/

  • Comment number 46.

    It's fascinating, and it all seems to point more and more to one rather fundamental, inescapable truth.

    This 'passing of the parcel' between the main actors, with them desperately hoping at some stage that the 'parcel' will miraculously disappear, (going from banks to government to central banks), does rather show up the inadequacy of debt as a basic financial instrument - it being an agreement between people that assumes control of the future, and allows for no sharing of the ups and downs that anything involving human beings will inevitably suffer.

    Yes, I think you could call it - the very idea of debt, that is - a fundamental con for both parties.

    For the lender, it's the belief that, in all instances, they will get back 100% of their money.
    And for the borrower, it is the belief that, in all instances, they will always be able to pay the money back.

    Equity is clearly a much better mechanism. A more suitably 'human' one, where a fundamental basic acknowledgement is implicit in the arrangement, that unexpected things may happen in the future.

    Maybe the western capitalist system should take more notice of some of the great religions of the world, who have known this all along?

    If the very concept of debt is a con, and if we want to address the problem at its heart, I guess we should:
    - move from government guarantees of 100% of the first fixed amount (£50k) of your savings, to a government guarantee of 85% of all the money you deposit in a bank?
    - and legislate to the effect that only 85% of the value of any debt based transactions are ever enforceable?
    This would mean that absolutely no-one would be under any illusion - it would be transparently clear that debt really does carry risk. And it would follow that any government such as Irelands, when in an enormous hole, would never do such a stupid thing as to guarantee all bank deposits.





  • Comment number 47.

    Morning Robert,
    wasn't it only a month ago that Mr Cowan stated that Ireland didn't need any more money, it had plenty of CASH and was fully funded until June 2011?
    So why is it that he insists on hanging on to power and the new borrowing facility must be put in place by December 7th 2010?
    What has changed? Could it be that the IMF (who have a lot of experience at looking at failing countries balance sheets) took a look at Ireland's books and said "Holy bailout batman"?
    The Irish people are still not being given the whole truth in my opinion or maybe the Irish Government didn't understand the figures that they were being given and were too inexperienced to ask the right questions?
    This has parallels for the UK Government also, are they asking the right questions?
    With regard to the rate of interest on any bilateral loan, this should in all concience be base rate plus let's say 1%, to charge 5% (because you can) is totally immoral and the UK Treasury should be ashamed of themselves again.
    Is there any truth to the rumour that the Treasury are to be renamed "the Scrooge department" just before Christmas?

  • Comment number 48.

    The British and EuroLand taxpayers are being forced to foot the bill for the Irish financial crisis even if George Osborne says "it's only a loan", we know that it is probably impossible to Eire to afford to pay it back.

    But it was pre eminently British banks that fuelled the Irish property bubble, so we need to ask the massed ranks of accountants, central bankers, financial services regulators and EU "stress test" authorities how they managed to get their assessment of the situation so wildly wrong.

    There are three possible answers:

    They were all incompetent - possible

    They were lied to - also possible

    They colluded to conceal the real situation - also possible

    The level of risk exposure of the UK banks in lending to the Irish banks cannot IMHO be squared with the rules of the UK bank regulation system - their accountants, boards of directors and the BoE must all put up their hands to the yawning chasm between the reality and how the system is supposed to be policed - so choose your reason from the three above!

    I'd say that the banks should now all take the full hit on this by writing down the loss and accept that far from making any money they have lost billions, by restating their accounts for recent years, hand back all their bonuses paid since the start of the credit crunch and accept that for the foreseeable future until the bad debt is written off there will be no more bonuses at all.

    This situation uncovers a new form of "moral hazard" - once UK PLC has a substantial shareholding in the banks we are effectively part of the problem, not standing outside it anymore - so we are sucked into the situation to try and protect the value of the investment the government put in to prop up the banks the last time they nearly imploded.

    Forcing the banks to accept that the huge gamble they took in Ireland has gone bad and virtually all the money has gone down the drain dramatically changes their P&L and destroys their claims to have turned the corner.

    Failing to take the loses on to their books would send a very clear message to us all - that there is no distinction between the government and the banks - they are effectively a single entity shifting debt around from banks' balance sheets to countries' sovereign debt with the government putting its hand into all our pockets to fund bank loses whilst thier friends in the City carry on paying themselves vast salaries and bonuses.

    Osborne talks about "helping friends" - the inference being that it the Irish who are being helped, but I think his "friends" are much closer to home in the City of London. The level of personal involvement in the City amongst leading Tories is substantial - in many ways they are the Banker's Party with many MPs having worked in the City or having substantial family links with it.

    Funny old thing, isn't it?

    If the full hit from Ireland was to be taken it would be the Tories' friends, family and supporters who would suffer -so it's just a coincidence that we can fiund £7 Bn to "lend" to Eire which they then "lend" to their banks, who then "pay back" the UK banks - £ 7 Bn of new UK soveriegn debt that ever since the election we have been told over and over again we cannot afford to support our own investment needs in the UK.

    That £7 Bn is in effect a direct handout to the banks from every man, woman & child in the UK - socialism for bankers is putting it mildly - whilst the public spending cuts that we were told are "absolutely essential" rip the guts out of our communities.

    This is obscene - it's Robin Hood in reverse and we must insist that the banks restate their accounts so that their remaining private shareholding taking the hit for the loses rather than it being shared with public shareholding and that the reality of the bottom line in recent years feeds through into bonus calculations - i.e. NONE - and that we move to full control over the banks by taking them into public ownership and dispense with the current pretence.

  • Comment number 49.

    Since June 2009 the banks have been deliberately playing down the size and scale of this toxic debt. Governments around the world have colluded with the city folk to mask the problem and present a rosy picture to the general public in each country.
    At some point the deceit has to come out, the general public are not dumb, if it was any other private sector industry the call would be close it down stop trading.
    So whats the difference with a private sector bank?, the only difference is it will be the extremely wealthy that take the hit. Hence we dumb these huge debts on the general public to spread the load. Time to take the bitter pill and let some of these banks fail, let them suffer the same fate as the steel workers, miners, auto workers what a reality check that would be for them. And please no golden golden hand shakes for the incompetent idiots that got us all in this mess. Mind you most of them have had a big bonus already.

  • Comment number 50.

    Every individual will be robbed - either from there house equity, pension plans, life insurance policies, taxes increased, homes foreclosed to deliberately release capital from every nook and cranny to prop up these failed institutions.
    While the wealthy with there off shore accounts will have all there investments protected by the ordinary general public. It is Robin Hood in reverse as the previous poster has stated.

  • Comment number 51.

    #49: At some point the deceit has to come out, the general public are not dumb

    Yes. Yes they are. Two words : Royal Wedding.

  • Comment number 52.

    #49. Sorry to be the one to tell you keith but Golden hand Shakes have already happened.Three Years salary on average, according to one ex BOI employee.

  • Comment number 53.

    "As soon as this pub closes!
    As soon as this pub closes!
    As soon as this pub clooooossesss!
    ...the revolution starts"

    We'll shoot the aristocracy and confiscate their brass!
    And make a fine democracy that truly working class!

    Oooooohhhhhh........
    "As soon as this pub closes!
    As soon as this pub closes!
    As soon as this pub clooooossesss!
    ...the revolution starts" (continued for 76 verses)

    Perhaps all the armchair economists and unemployed revolutionaries out there should be very careful what they wish for. It might actually come true and might just be very scary and uncomfortable!

  • Comment number 54.

    @48 Richard - Well said!

    This and the longer clip are worth a look if you haven't seen them

    http://www.youtube.com/watch?v=_WOz1nFOJPo

  • Comment number 55.

    Well, to a degree the analysis is depending on the point of view you take.

    If you take the point, that countries in dept need fresh money, Peston's arguments are correct and Ireland will have to pay a higher price.

    If you take the point, that enormous amounts of money around the world are looking for somebody who pays interests to them, than it's a total different thing.

    I think, with securing that countries like Ireland will get the money they need in case of doubt from friendly countries or directly out of the ECB printing press, you can expect, that the price for fresh money for Ireland will fall.

    Germany or other low interest, high security bond countries simply cannot absorb all the money of all investors in the world. There will be investors left, that in the end have to sell to, as example, Ireland.

    We all heard, that Ireland is not in need of fresh money theses days, but only in the middle of next year. Actual ratings that rise obviously have not much substance, they are part of poker game.

    The real fact is: If Ireland needs the next money infusion sometime next spring, all investors that didn't get bunds from Germany or equal countries, will be happy to sell to Ireland. And if they try to raise there interest, the EU emergency mechanism will tell them: if you want to have too high interests, Ireland will not buy to you, as it is under the umbrella of the Eurozone and can get money at 3 or 4 % from the ECB, IMF, Eurozone partners.

    It's rather poor from Peston, to join these alarmism of the speculators, as the facts are open to anyone and they are different.

  • Comment number 56.

    Hi Robert,

    The problem stems from a sovereign taking on the debt of a number of corporates who have got caught indulging in reckless activities, and socialising the losses for their population.

    It never fails to astound me that governments the world over have taken to heart the bs put out by the big banks that they are too big to fail. It is outrageous and simply not the case. I challenge anyone to a logical debate about the to big to fail myth. All companies should never be considered to big to fail. If any firm makes dodgey investments they must be allowed to goto the wall. For too long there has been a cushy relationship between institutional investors and senior management and if more banks going bust will mean investors being more active in managing their companies then this is an extremely good thing. Yes there may be reverberations and some bondholders and shareholders will lose a substantial amount of money, but there are also a number of well managed, large firms out there, with substantial cash reserves, which could cherry pick the best assets of these failed banks/firms and start fresh without the dodgey debts of the old failed structure. (Nomura did extremely well out of buying the UK operations of Lehmans.)

    As long as governments buy into 'the too big to fail myth' and refuse to allow investors to realise actual losses, this problem in Europe and the globe is not going to improve.

  • Comment number 57.

    awcrikey wrote:
    "Surely the Italians or the Portugese will be in need of EU/IMF assistance before the Spanish?"

    Italian banks have, historically, been stingy in their mortgage lending and so are less exposed to property bubbles. The healthy state of many Italian banks has led BNP, Credit Agricole to buy them to cover their losses. Italian private debt is relatively low and it's only government borrowing that's a problem. In addition, state handouts for the unemployed are low. People fall back on their families if they lose their jobs.

  • Comment number 58.

    Governments and banks fiddling the books...whatever next?? Now that Ireland has restated its debt/GDP ratios to closer reflect reality, how long before the UK government include its "off-balance sheet" PFI liabilities to make ours a little more credible?

  • Comment number 59.

    The financial shenanigans remind me of Mickey Mouse in the Sorcerer's Apprentice. The more Mickey tried to control things the worse they got.

 

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