Jeremy Corbyn’s economics 1

corbynimages (12)I hadn’t even gotten out of my scratcher yesterday morning when I looked at my mobile and the BBC news web site to see what was happening in the world, only to see yet another attack on Jeremy Corbyn’s campaign for Labour party leader.  This time the Brlairite was Blair himself, looking skull-like and definitely not very well – all that chasing after money mustn’t be good for his health.  “Labour must come to its senses” he apparently said.  I didn’t read any more.

Corbyn has been criticised in just about every way imaginable, from the Mail prophesying a return to the “dark ages”, riots and intervention by international peace keepers, to the oh so condescending approach of Janen Ganesh of the ‘Financial Times’: that Corbyn’s policies, “eccentric” and a “joke” as they are, are not really the problem, it’s the “soft left” and Andy Burnham and Yvette Cooper who are the ultimate problem.  Poor Jeremy, he’s either responsible for a new dark ages or he’s such a joke he doesn’t deserve consideration, even as a problem.

At the centre of all this dismissal is contempt and ridicule of Corbyn’s economic proposals for “quantitative easing for people instead of banks.”  Our local biggest daily ‘The Irish News’ had its own columnist to hurl his own critique, this time mixing both dire prediction and condescending ridicule.

The author, Newton Emerson, thinks that fewer than 1% of the population will understand “why Corbynomics is ridiculous” even though “it takes little more than an A-level to understand why.”

Emerson is normally an acute commentator on politics in the North of Ireland, frequently exposing the hypocrisy of political culture here and the rottenness of the political arrangements.  Unfortunately he has two problems.  First, when it comes down to it he actually supports the rotten political arrangements, and secondly, he gives every indication of having been educated in the dismal science of economics as taught in the universities.

He is undoubtedly correct that the general population is seriously under-educated in economics and this is a real problem for them identifying their interests in any debate.  On the other hand I don’t believe that Corbyn’s ideas are very radical and certainly not ridiculous, so going to university or doing an A-level really isn’t the answer.

So let’s see if we can understand what the issues are in this case.

Quantitative easing as practiced by the Bank of England involves the bank loaning newly created money (created as an electronic entry in the bank’s accounts) to a fund which has to pay it back, so theoretically it’s a loan and not just giving away newly created money.  This fund then uses these loans to buy government issued bonds (IOUs payable by the Government) that are held by pension funds.  These pension funds now have money instead of these bonds.

The theory is that these pension funds will then want to use the money to buy other assets from banks such as bonds to replace the ones just sold back to the government or buy other sorts of securities such as private debt instruments (IOUs issued by private corporations to raise money for investment).

The end result is that money has been created electronically by the Bank of England and it now rests in the banks which, it is hoped, will use the new money to buy debt issued by private firms that will in turn help them invest directly through the money just received.  This investment will create jobs and economic growth.   That’s roughly the theory anyway.

However, once the banks have the money they can do what they want with it.  They could buy bonds or securities issued by other countries; they could buy existing shares or securities which would give no more money to firms to invest but simply increase the price of these pieces of paper; they could buy commodities or property and cause inflation in these assets or they could simply sit on the cash.  In each case there would be no increased employment or contribution to economic growth.

Even if they bought newly issued debt from private companies, these too could decide not to invest the money in new factories, offices or equipment and instead do any of the above and join in the great speculative boom in property or share prices etc.  Many banks and companies appear to have done just this, which has made them richer but not helped economic growth.

In other words the ‘money printing’ that has been carried out has helped the banks and made the rich who hold financial assets richer by increasing their price.

Hence the alternative proposed by Jeremy Corbyn in which the newly created money, which is also in the form of a loan, is given to a State investment bank who then loan it out to state agencies which would invest in state-owned infrastructure such as “housing, transport , digital and energy networks.”  The objective would not only be to create jobs in the short term and promote economic growth, so reducing the debt burden, but also contribute to the longer term productivity of the economy, which is recognised as going through something of a productivity crisis.

To be continued.

ICTU Congress Ennis 7th and 8th July – David Begg & ICTU should answer for his role on Central Bank Board‏

ICTU_david_beggs_Dec282009When the Irish financial system collapsed in 2008 bringing down the finances of the State with it there were plenty of people to point the finger at.

The banks who lent recklessly; the property developers who speculated wildly, the politicians for having encouraged and benefited from the bubble, the Regulator for having fallen asleep at the wheel, the Finance Ministry for having fuelled the fire with tax breaks, the auditors for having signed off on bankrupt organisations and sanctioning absurd valuations, the European Union for making us pay for  the bankers, the IMF for not warning about the danger, the economists who saw nothing wrong and assured everyone of a ‘soft landing’, the press and media for eulogising the Celtic Tiger miracle economy that fed it ever growing revenue from property advertising, and of course  the current Taoiseach Enda Kenny who told the people that they were to blame – “What happened in our country was that people simply went mad borrowing” he told the rich and powerful at Davos in 2012.

cartoon_independent_284347d

Have I missed anyone?

Well actually I have.

The following appeal was sent by a reader of the blog in Dublin.

“There is an opportunity to highlight the need to end the culture of collusion between full time trade union bureaucrats and Government/Troika at the Irish Congress of Trade Unions biennial conference on Tuesday and Wednesday next week. We the victims of austerity should let the bureaucrats and delegates attending know the collusion must end. They have sold out Irish workers.

It has been rumoured that David Begg former General Secretary of ICTU who sat on the Central Bank board for 13 years and never uttered a word of warning to Irish workers about what was happening will be receiving a send off as he retired last year. Mr Begg was formally representing ICTU on the CB board and crucially was chair of the Central Bank Audit committee during the crucial years of the boom and subsequent bust.  He’s due to appear before the banking inquiry on 22nd July.

Activists could leaflet delegates to demand that Mr Begg compile a report answering to Irish workers and their families for his failure to alert us about what was going on and for which we’re now paying. He and ICTU had a watchdog role on the CB and owe us an explanation for their failure in fulfilling that role. Some of the responsibility for water charges, cuts, misery, poverty, homelessness and plundering of resources falls on their shoulders because of their inaction in the years leading up to the crash and bail out.

 
ICTU have other questions to answer –Mr Begg’s role on the Central Bank board was raised on RTE’s Liveline, following the programme ICTU complained and RTE immediately took down the podcast of the programme and issued a disclaimer the following day.

Can ICTU now reveal what their role was in this episode of censoring entirely legitimate questions and debate on Mr Begg’s role on the Central Bank Board? Perhaps Denis O’Brien has just been following in their footsteps in demanding censorship. In case anyone wants to get in contact I have a page Stop Union Sell out which I’m promoting and would be more than happy for you to post on it.”

‘Sins of the Father’ by Conor McCabe – a book review

downloadThis book sets out to explain why the banking crisis in the Irish state developed the way it did and how property and financial speculation has been so prominent a feature of its economic development.  It is therefore an argument against the view that the crisis has been the result of some sort of moral collapse in certain sections of society.

Along the way the author, Conor McCabe, disposes of some common beliefs about the role of property in the Irish psyche, convincingly demonstrating that property ownership is not hard-wired into the Irish but has been consciously and repeatedly promoted by the state and employed as a means of strengthening particular class interests.  Thus the first Cumann na nGaedeal government promoted – as a solution to the notorious condition and shortage of decent housing for the working class – better housing for the middle class!

In an earlier version of the recent bailout of the banks he notes that helping the middle classes and property speculators with state money was the way the first Government decided to deal with tenements and slums.  As if proving there is truly nothing new in the world he notes the development of Dublin suburbs in the 1930s with little or no infrastructure or amenities.

The effects of this over the decades was to create a situation in which if you wanted a house you needed to buy one.  Public housing was neglected, a choice of last resort, and the earlier desire of workers to rent was blocked.  Even so the relatively recent and rapid rise in the proportion of home ownership is surprising, rising from 25 per cent in 1961 to 75 per cent in 1986. So much for property ownership being in the DNA!  In fact, as the author shows, it has been consciously promoted as a means of preventing “social unrest”, “revolutionary change” and because “there is no greater barrier against communism.”

McCabe points to the argument that the property boom at the turn of the century crowded out investment in productive activities and shows that State tax breaks helped fund the speculation that fuelled it.  Just as the State helped pump up the bubble it then stepped in to prop up the same interests that were behind it when it burst.  In this sense the State’s response to financial collapse was no turning point.  He effectively shows that British landlordism of the 19th century was replaced by a native version for the 20th and 21st.  Government policy helped create huge overproduction: in 2010 the number of empty housing units was counted as 302,625 – excluding holiday homes!

Conor is aware that all this is a description of the property boom and bust but is not an explanation (see page 56).  To do this he then presents a fuller history of Irish economic development.  It is not the case however that further, fuller and more complete description is explanation either.

If particular and contingent historical factors are not the explanation of the deeper causes of the boom and bust, but rather the concrete form in which the underlying contradictions played out, then it is only these fundamental processes which can provide a satisfactory explanation.  Or at least one that seeks to advance an argument that the causes of the crisis were in some way more than accidental.  Being more fundamental they can explain similar phenomena in more varied, concretely different circumstances – in countries as different as Japan, Spain, the USA and UK.  In fact the very variety of situations giving rise to similar symptoms of crisis point to systemic contradictions.

What the book does do very well however is show the particular features of Irish economic development, including the weakness of an economy which was governed as if it was still a region of Britain but which was cut off from the potential supports that this might have involved.

Nor did this change with the election of a Fianna Fail government in 1932, which introduced tariffs: at this point the State was described as virtually the last free-trading economy in the world.  There was no introduction of a separate currency or Central Bank and parity with Sterling was maintained.  In important ways the economy remained a region of Britain no matter the declaration of a Republic after World War II.

The resulting failure led to the new policy of promoting multinational investment, which was seen by the State as the least disruptive way of responding to international pressures to develop while protecting the existing class structure and minimising economic change.   McCabe emphasises the limits of multinational investment and the fact that money flows from it enter and exit the State with relatively modest impact. He quotes an assessment that this foreign investment did not develop a manufacturing base ‘comparable’ other small countries and argues its real importance lay in the opportunities provided to native property developers and financial and banking interests which service the investment.  This process fed into a property bubble in the 1960s which burst in the 1970s, again fuelled by state tax incentives but also state demand for the property developed.

He gives examples of the extraordinary tax incentives given to foreign investment and how State policy allowed the companies involved to do more or less what they wanted including at Bantry Bay where, in 1979, over 50 lives were lost in an oil explosion.  It transpired that the necessary safety measures had not been implemented and Gulf Oil had been allowed to regulate itself.  The Treaty Ports had been returned from the Brits but the Irish State had connived in the creation of another; all under the banner of economic development.

The policy was held up as a success but it was still recognised that it was a qualified one and accepted that indigenous industry had failed to create self-sustaining industrialisation.  Foreign investment remained largely divorced from local industry and the government sponsored Telesis report noted that only 8 per cent of components and sub-assemblies in the foreign engineering sector were sourced locally.  However, like inquiries and reports before it (and after) the Telesis Report was “greeted with fanfare and followed with silence.”

The major innovation came instead in the financial services sector where State policy had always been to maintain the parity link with sterling.  For Conor McCabe parity also meant poverty: the value of the Irish currency was maintained at too high a level to facilitate the development of competitive industry.

He does not delve into what a lower level would have meant for Irish workers as a lower valued currency would also have meant lower wages and a lower standard of living, all else being equal.  All else not being equal would have depended on the Irish State having a successful policy of state-led industrial development, not just throwing tax breaks and grants at private capitalists. In part his history is designed to show the strength of those class interests in the State who made their money through agriculture, property and banking and for whom all this would have been, at best, an unnecessary experiment.

That this ultimately was a feature of continuing imperialist domination – expressed in the relatively weak native capitalist development; in state institutions and policy and in other cultural traits – is not developed in the book.  The book is relatively short so this is not a criticism.  This subject raises political questions that have bedevilled an understanding of the relationship between ‘national oppression’ and capitalist exploitation and it is no criticism that this is not gone into.  It was not the purpose of the book. The State maintained the link with sterling until joining the Exchange Rate Mechanism but devaluation drove home the lesson that the link was more than just a policy decision but reflected a deeper economic relationship.

The book repeatedly shows the linkage between State policy and class interests.  Conor shows that the setting up of the Irish Financial Services Centre (IFSC) represented no exception to the state’s patronage of banking and financial interests, or a radically new economic development, and accepts the case that the IFSC is a tax haven, reporting its reputation even before the crash as the “wild west of European finance.”

He records the almost forgotten fact that the bank bail-out of 2008 was not the first and that tax payers had already bailed out Allied Irish Bank (AIB) before – in 1985.  While it has become fashionable to excoriate Anglo-Irish Bank at least it only went bust once.  The Fine Gael led Government of the time included Alan Dukes who, in the latest banking disaster, reprised his role by impersonating a Director of Anglo-Irish supposed to represent the public interest.  In 1985 AIB was saved from going bust by the tax payer who then watched seven days later this same bank announce unchanged dividends to its shareholders!  There followed years of law-breaking by the whole banking industry for which not one banker paid any penalty.  Put into context, the bail-out of 2008 becomes both more shocking and less surprising.

The book pulls together the various aspects of Irish economic development to show how the State’s policies, especially tax breaks and almost non-existent regulation, came together in the 2008 crisis. Property speculation fed on a limited boom partly fuelled by foreign investment which, boosted by state policy, became super-charged by credit speculation.  It was, in this sense, not at all new but rather the culmination (until the next time?) of the sins of the father. And the sins were many.

The book ends too summarily and in doing so appears to endorse more state spending on infrastructure as part of the solution: a liberal, Keynesian answer to the crisis.  One is compelled to ask in what way this is an alternative to what has gone before.  In so far as construction paid for by the state is designed to boost private capitalist investment there appears no major difference. (This is by no means the only similarity.) It is yet another tribute to the forces and policies described in the book, the power of the existing system and status quo, that those who are popularly viewed as its most vocal critics often simply echo it.

In the conclusion Conor McCabe notes that the new state did not have an independent economy.  What he has done is give a good account of the internal structure of this subordination and the class and state that constituted its structure.  But this is obviously only half the story.  If the economy was not independent a full description or analysis would have to describe and explain the much stronger international forces on which this subordination rested.

This itself would only be possible by recognising, as we have said, that the Irish State was not the only one to suffer a financial crisis and that, whatever its peculiarities might be, other crises in the US and Spain and before that in Japan, and perhaps tomorrow in China and Britain, point to a systemic crisis; in other words a crisis of capitalism.  Explaining how the Irish crisis took the form it did is impossible to do fully without also explaining why there was a crisis in the first place, one shared with other countries with a very different historical development.

Although beyond the scope of the book it is nonetheless a necessary task for Irish socialists.  Conor McCabe is not to be criticised for not doing what he did not intend and which others have not done.  Rather it is to be hoped that he can play a significant role in this collective task.  It will therefore be interesting to see what he writes in future because while the bad news is that the first edition of ‘Sins of the Father’ has sold out the good news is that the second is on its way.

Revealing the truth about Anglo-Irish Bank – RTE censorship and ICTU complicity

David BeggThe release of the tapes recording the Executives of Anglo-Irish bank conspiring to rob billions from the Irish people has led to a clamour for an enquiry so that the full truth can be revealed.  In my last post I argued that this truth includes the plain and obvious fact that it has been the State that has made the reckless gambles of Anglo the burden of the people.  These Executives showed no great concern that the organs of the State would prove any barrier to their plans.  In this they were of course proved exactly right.

I argued that what is required is that workers should fight for their own inquiry to reveal this and other truths that remain obscured, not least by the media that presents itself as the vehicle for revealing the truth.  I suggested that workers should fight in their trade unions to launch such an inquiry.

I have just received an email that throws light not only on the role of the media but also that of the trade unions.  In particular it shows that the leadership of the trade union movement in the person of its General Secretary, David Begg, has questions to answer over his complicity in the complete and utter failure to regulate Anglo-Irish bank.

The text below recounts the intervention of a reader of the blog into RTE’s Liveline radio programme, which addressed the Anglo tapes.  She questioned the role of David Begg, which subsequently led to a complaint by him and the removal by RTE of the podcast of the programme.  The alacrity with which Begg moved to defend his reputation can be compared to his apparent inactivity in ensuring the Central Bank performed all the roles it was responsible for and which he presumably was on its Board to ensure were discharged.

Anne has written a draft letter of complaint to RTE and has asked for signatures to a petition, both of which are set out below.

This episode highlights the need for a workers’ campaign to highlight the full truth of the banking collapse and hold all those guilty to account.  Not least the system itself.

————————————————————————————————–

On Liveline 27th June I got the opportunity to speak about my reaction to the Anglo tapes. I mentioned the protests organised each Sunday by ‘Dublin says No’ and encouraged people to attend protests that are organized around the country by the ‘Say No’ campaigns. So listen in to a podcast for the item. It is the first on the play list. Overall it was a good programme and showed the anger people feel.

I mentioned a few issues. Firstly that in Feb 2009 a group of teachers picketed Anglo-Irish bank in protest against the bail out of the bankers/speculators and to show our anger at the massive cuts that were taking place in our schools and in public services. I said a group of us went into the bank briefly to ask workers to tell us the truth about the real state of the bank as we were supposed to own this bank yet we were not allowed to even know what was going on.

I mentioned that David Begg head of ICTU sat on the Audit Committee of the Central Bank during the most damaging years of the credit bubble. He had access to what was going on in the Central Bank and that Mr Begg knows the true story and should make a detailed statement of what went on. He was supposed to be representing our interests.  Either he was happy the way the Central Bank was fulfilling its obligation to oversee the banks or he was sleeping on the job and knew nothing. Either way he should RESIGN. Begg then should have acted like the whistleblower Edward Snowden today, and in that case we might not have the present devastation to our lives.

I also mentioned that at the time of the Anglo take-over public services were being massively cut; huge cuts in education, my area of work, in our pay and pensions and that at the time Waterford Crystal workers were occupying the company as it was closing but there was no rescue for them. Mr Begg did nothing to organize a national campaign to save a flagship company while the nest of thieves in Anglo was being bailed out by the organisation of which he was a leading figure.

I contrasted what had happened to 1913, when Dublin workers stood up against the employers. They were able to gain their dignity and build the trade union movement as a real force while today when we are being ground into the dust and the trade union leaders are committed to working within the injustice and tyranny of the Troika programme. I said it was time to stand up for our right for a civilized way of life for ourselves and our children and that people should come out and join the ‘Dublin says No’ to the Bailout protests. I commented on our small numbers and the thousands of Brazilians who were protesting on O’Connell St 2 weeks ago against corruption in Brazil. It was time for people to act for themselves.

I also said that the contracts of public sector workers were torn up and emergency legislation enacted to steal our pay while nothing is done to take the massive pensions off the politicians such as Bertie Ahern. He should be stripped of his pension and the assets of the perpetrators of the crimes against us seized.

Letter of Complaint to RTE

I wish to formally complain to RTE regarding the disclaimer statement carried at the beginning of the Liveline programme 28th June 2013. It stated that RTE accepted that comments on the Live Line programme of 27th June relating to ICTU General Secretary David Begg were wholly untrue and without foundation and we also accept that Mr Begg was never a member of the Banking Regulatory Authority. We want to make clear that there was no suggestion on Live Line part that David Begg  is or was responsible or aware of any of the wrongdoings of Anglo Irish Bank which he condemned in the strongest possible terms.

RTE in acting in the manner in which it has are neglecting their duty to deal with a perfectly legitimate call from me. They are curtailing an important discussion on the role of people who held senior positions on the Board of the Central Bank leading up to and during the nationalisation of Anglo. A major scandal has blown up regarding Anglo Irish Bank where we are learning day by day of the deeply scandalous behaviour of senior executives at the bank.

Mr Begg made his complaint on the narrow base that he was not a member of the Banking Regulatory authority but I made no reference in my comments on Live Line to this.   It is a matter of record that Mr Begg had a number of major responsibilities as a member of the Board of the Central Bank, of which he was a member between 1997 and 2011. These are outlined below and as such he should have been aware of what was going on in Anglo.

Report of the Central Bank and Financial Services Authority of Ireland for the year ended 31 December 2006

Board Procedures (Page 62)

The Board holds eleven regular meetings each year. A quorum of seven normally applies for all meetings. The Governor approves the agenda and papers, which are circulated to the Directors one week in advance of meetings. Additional Board meetings may be called by the Governor at short notice either on his own initiative or at the request of any two Directors.

The Secretary of the Bank keeps minutes of meetings.

The agenda for meetings typically includes:

_ Reports on monetary and financial developments;

_ Reports on various issues relating to the Irish economy, the European economy and the international economy;

_ Reports on regulatory developments to keep the Board informed on policy issues and where decisions by the Board are required;

_ Management of the investment assets of the Bank;

_ Substantial financial contracts to be placed by the Bank for the procurement of goods and services;

_ General management, planning and budgetary issues;

_ Quarterly and annual financial statements and results.

Board Sub-Committees

The Board established three sub-committees on 30 June 1994 as follows:

_ The Audit Committee; The Remuneration and Budget Committee; The Investments Committee.

Board regulations detail the terms of reference of each sub-committee and membership in each case is comprised of Directors — of whom one is appointed as Chairman — and a further member of the Regulatory Authority with observer status. The Secretary of the Bank, or a nominee, minutes all meetings of the subcommittees and, when approved, these minutes are circulated to the Board. The members of the sub-committees, as at 31 May 2007, were as follows:

The Audit Committee members; David Begg (Chair), Martin O’Donoghue, Deirdre Purcell*, Alan Ashe**

( *Members of both the Board and the Regulatory Authority. **Members of the Regulatory Authority who are not also members of the Board but who participate at meetings of the above CBFSAI Board committees with observer status.)

It is clear from the agendas of the meetings that the Board members had a responsibility in overseeing the state of the banks which would have included Anglo Irish Bank, the 3rd largest lender at that time.  It is inconceivable that Mr Begg was completely unaware of whether the Central Bank was fulfilling its obligation to oversee the banks considering the agenda of Board Meetings and also given that he was Chair of the Audit Committee.

As General Secretary of the ICTU he is expected to represent the interests of workers/ordinary tax payers and I called Liveline as a long time trade union member concerned at the devastating consequences of the bail out of Anglo and the shocking revelations in the tapes.

RTE as a public service broadcaster should be to the forefront in lifting the veil of secrecy that has surrounded the bail out of Anglo, instead it has in this instance censored an important discussion and is failing in its duty to investigate or allow discussion on how the members of the Board of the Central Bank have fulfilled their role the role.

The refusal to podcast the programme is a further example of failing in its duty

Furthermore the disclaimer statement is an attack on my integrity and the truthfulness of my contribution to the programme. As you can see from the above excerpt on the operation of the Central Bank, I did not stray from the facts surrounding Mr Begg’s role on the Board of the Central Bank.

I request a copy of the transcript of my comments on the Liveline programme as my good name has  been brought into question by the disclaimer.

I expect an apology for the aspersions cast on my character on national airwaves.

 

Statement condemning RTE censorship on the role of General Secretary of ICTU David Begg in his capacity as a Board member of the Central Bank

We the undersigned strongly condemn the censorship of discussion by RTE of comments and questions raised as to the role of the General Secretary of ICTU David Begg in his capacity as a board member of the Central Bank and chair of the audit committee of the Central Bank during the period covering the boom years and the subsequent collapse of the banking system.

This gross self censorship by RTE on these legitimate questions and the subsequent erasure of the podcast of the Liveline programme of 27th June 2013 is a shameful and disgraceful episode for RTE as national broadcaster.

The role of the ICTU in demanding a disclaimer on the narrow basis that David Begg was not on the regulatory authority, (a claim that was never made) is an issue of concern for trade union members and all those affected by the criminal activity within the banking sector.  The role of a senior member of the trade union movement in these catastrophic events should not be and cannot be censored.

Anglo-Irish bank tapes – a rotten bank in a rotten State

swf+Anglo-Irish-BankRevelations by the ‘Irish Independent’ newspaper of taped telephone conversations between two senior Executives in the recently deceased Anglo-Irish Bank have aroused rage amongst a population already angry with bankers.

The expletive strewn – “we have to get the money in . . . get the fuckin’ money in, get it in” – and sometimes juvenile conversation – singing a comedy version of Deutschland Uber Allies – appears to show the two Executives planning to rope the Irish State, through the Central Bank, into bailing out Anglo to the tune of €7 billion, a number “picked out of my arse” as one Executive put it.  (The real figure proved to be over four times this amount!)

The cynicism and arrogance on display is summed up by their bragging that their losses are greater but that,  once hooked, the state will have to keep on paying  – “The reality is that, actually, we need more than that. But you know the strategy here is you pull them in, you get them to write a big cheque and they have to keep, they have to support their money” – while boasting that they would never pay it back.

On last nights’ ‘The Last Word’ radio programme the presenter Matt Cooper asked,in a tone of utter exasperation, whether this was a tipping point in the Irish population’s restrained reaction to the crisis, a crisis that has caused riots in other countries.   Would it lead to them . . . demanding a real inquiry into the banking crisis . . . because they needed someone to BLAME.  One of the interviewees however explained that inquiries are about finding out the facts.

The Government and opposition politicians have now rallied round a demand for another inquiry and the debate now will focus on what sort of inquiry will result.  Already however the call for an inquiry is being predicated on the view that the taped conversations demonstrate that the State was hoodwinked into bailing out the banks, particularly the exceptionally rotten Anglo-Irish.

I’m reminded of the words of the song from Alanis Morissette – “It’s the good advice that you just didn’t take. Who would’ve thought… it figures”.  That is because the State was not hoodwinked.  The State may well have been lied to, but the State turned round and lied to the Irish people.  Now the Irish State wants an inquiry, perhaps, all of five years afterwards so it can blame those already reviled and hated. This, so that it can continue to play the lead role in defending the banks and the economic system they sit upon.

The Irish State, its politicians and bureaucrats, claimed in September 2008 that the banking crisis was simply one of liquidity – the banks weren’t bust, they simply needed some cash to tide them over and then everything would be alright.  Basically the banks were solvent.

I claim no great powers of insight or clairvoyance when I say that I knew at the time that this was crap.  There were numerous voices, with no inside information, who knew it was crap and said so.  The inside information known to everyone that mattered would have proved it.  The Irish State was lying to save the bankers, the banks and the system.  This should not be a surprise for this is what the State is for.

And not just the local State, because the last five years have revealed that not only was it in support of bailing out banks that could not be saved but this was also the view of the European Union and the US Treasury.

Certainly, blame the banks for reckless and stupid lending but it was not the banks who made their debts the crippling burden on the people.  It took the State to do that.   Blaming the banks is a way of avoiding this, much harder to accept, reality.  Much harder to accept because we have just proved that you can change the government at the top of the State but you won’t change its role.  For the bleeding-heart liberals, and I include the leaders of the trade unions in this, this is especially a problem because the State is their only hope of making things better.

But there is an even more important reason to agree with the interviewee in the Today FM programme: that the point is to understand.  And what we have to understand is that the Irish bankers were not the only bankers to indulge in reckless lending.  It happened in the US, in Spain, in the UK and many other places right across the world.  It is happening in China today.  Criminal speculation is an inevitable part of economic booms under capitalism and cycles of boom and bust are an inevitable part of capitalism.

Blaming excessive credit expansion is fine, except that such expansion is inevitable in a boom – the bigger the boom the bigger the expansion of credit.  The problem is the system that makes credit expansion necessary.  No amount of regulation in a boom will prevent it.  New financial products, such as derivatives, or new institutions, such as a shadow banking system, are inevitable in a system defined by private property in the means of producing the wherewithal to live.   Blame greed – ok, but what other social pathology makes sense in the current economic system?  Blame the politicians – but how is the state to function without funding from the finance system?

In any new inquiry we will be invited to blame individuals, to which the implied answer is – ‘lock them up’, more power to the state, and individual banks, to which the answer is – ‘close them down’, when the real solution is to dismantle the economic system that makes such events inevitable.  Anglo will be made the focus of attention and held up as a rogue bank but Allied Irish cost almost as much and Irish Nationwide appears to have been even more rotten, however hard that may be to believe.

This view that the core and fundamental problem is the economic system and that the financial crisis and all its consequences are a result of it is not widely shared.  Yet the crisis demonstrates this dramatically.  Understanding this is an important and vital step to putting things right.  It is obvious that no State-backed inquiry could arrive at such conclusions.  We have had inquiries already which have been more soporific than enlightening.  That means the opportunity and necessity exists for the working class, or part of its movement, to launch their own inquiry to demonstrate the truthfulness of these claims.

Trade unionists should demand the unions launch their own inquiry.  The Left should campaign for this and if this fails it should launch its own inquiry, inviting evidence from workers in the banks and from left economists who can set out the mechanisms by which capitalism inevitably produces such crises.  An open forum of hearings and invitations to give evidence could provide the platform to educate workers and ourselves.  It might also invite proposals for alternatives.

In this respect the Left would do well to ponder the lessons to be derived from one part of the taped conversations.  In one recording, a Mr Bowe and another senior executive of Anglo, Peter Fitzgerald, are heard laughing about the prospect of nationalisation. They see it as “fantastic” and are delighted at the prospect of becoming civil servants.  This, of course, is exactly what happened. Why then would nationalisation be proposed by people calling themselves socialist?

G8: The Mafia Empire Part 1

putin in glasses

by Belfast Plebian

‘We shall not shock anyone, we shall merely expose ourselves to good-natured or at any rate harmless ridicule, if we profess ourselves inclined to the old fashioned and simple opinion according to which Machiavelli was a teacher of evil.’ Leo Strauss

 

The wiseguys are again meeting at a secluded location, not at the Apalachin retreat in upstate New York as depicted in the Godfather movie, they did that one back in 1957, but at a lakeside hotel in Fermanagh. The world’s most feared political gangsters are holding two days of much needed sorting out talks, for their dark mutterings and latent rivalries have reached a point of near breakdown in diplomacy. The quarrels between them have become so heated that they imply in an undeclared war over the future of Syria and beyond that you can see through in the ongoing currency war between them.

It is my contention that there is a strong correspondence between the politics of the G8 and the Mafia politics of the recent past.  When I say correspondence I do not mean identity.

The political gangsters of today are therefore obliged to acknowledge a debt to the late great mafia boss Salvatore Luciano, the mobster who dreamt up the idea of a Mafia Commission to settle intense quarrels over criminal opportunities. Lucky Luciano established the Mafia Commission in 1931, a corporate body to mitigate the violent disagreements among the warring crime gangs.  Luciano wanted to end the chaos that had led to a bloody and self -destructive gang war in New York and Chicago during the 1920s. In 1925 he was grossing over 12 million dollars a year and had a net income of around 4 million dollars after the cost of bribing the politicians, judges and police was deducted.

But his private fortune was put in jeopardy by the intense gang rivalries, which escalated into a fierce street battle known as the Castellammarese War, that raged from 1928 to 1931 and resulted in the deaths of at least 60 top mobsters. So he looked for a way to lessen the strife and violence and found it in the Commission, a corporate body that has endured for over seventy years.

Lucanio did not want to be an Italian- American Caesar. He realised that the best way for him to stay alive and rich was to let the most powerful crime families run there own internal affairs, but establish an administration to settle their differences and to mobilise enough combined muscle to crush any new rivals. He established a mob board of directors known as the Commission to oversee all criminal and business activities and to mediate strife between the contending families. It was to meet every five years and its decisions were non-negotiable.

The Commission officially comprised seven crime families; the heads of the New York five plus, the Chicago Outfit of Al Capone and the Buffalo based crime family led by Stefano Magaddino. The Commission did not stop all gang warfare, but it did reduce the number and scale of them; when one gang transgressed against another it would often find itself at war with all the rest. There was no single ruler of the Commission, but there was a nominated chairman who was oath honoured to stand for the common good.

The Commission largely succeeded, for what we find is that while the personnel of the ‘FAMILIES’ frequently changed, over time the same crime families stayed on top of the underworld from then until today: The Bonanno crime family, the Colombo crime family, the Gambino crime family, the Genovese crime family, the Lucchese crime family, the Philadelphia crime family and finally Al Capone’s Chicago outfit.  They established a better capitalist crime model for themselves than the current rather shaky G8 one and it is the reason why Time Magazine once called Lucky Luciano one of the most influential Americans of the twentieth century.

“I learned too late that you need just a good brain to make a crooked million as an honest million. These days you just apply for a license to steal from the public. If I had my time again I’d make sure I got my license first.”  Lucky Luciano.

The G8 – the people who got  the licence first.

If you succeed in politics you can usually surpass anything a Crime Family Boss can do in almost every division of life including killing and enriching yourself at the cost of others. Take Tony Blair for example.  Everyone knows about his illegal and immoral acts of killing, but what of his wealth? Here is a report just picked up from reading yesterday’s newspaper (Daily Mail Saturday 15, 2013). Depending on how you cut it Blair is now worth £60 million or £80 million.  He has set up a Byzantine network of inter-related companies to funnel his vast tribute for being a useful Prime Minister. Useful for whom you might ask, well useful for the Banksters.

His first tribute after leaving office came from the world’s leading investment bank JP Morgan Chase.  He has been a senior adviser for the last five years on a £2.5 million salary and his preferred mode of transport these days is a rented Gulf Stream V private jet. He says he was able to facilitate the bank’s clients due to high-level political contacts made with the Rwanda government when he was Prime Minister. The former PM has also done a deal to promote the dodgy government of Kazakhstan, he apparently gives it advice on good governance and this has already netted him £16 million

He has been receiving £1 million a year for advising the Abu Dhabi sovereign wealth fund where it is safe to invest their oil money. He is said to be as thick as thieves with the super rich Sheikh Hamad bin Jassim bin Jaber al Thani, the PM of Qatar. One of his other rewards for once holding political office came from the Kingdom of Kuwait – this netted him a swell £27million and his think tank was asked to produce a report on the future of the Kingdom called Kuwait Vision 2035.

There is plenty more of that sort of stuff in the newspaper article. Tony Blair is an example of a political mobster of the very successful type. The thing that makes these ‘democrats’ different is that they have to wait to leave political office before collecting the readies rather than taking it while they are in office, say like ‘oligarchs’ like President Putin, another of the G8 stars.

President Putin officially lists his salary at 5.8 million rubles, about $190,000  a good deal less than Obama’s official salary of $400,000.  He also claims that he has very little personal wealth.  During his election campaign he claimed he had $180.000 in his bank account, owned three Russian made cars and a small apartment in Moscow, so a lot less than Obama’s personal wealth estimate of $12million.

Here is an independent assessment of his personal wealth made by a celebrity magazine:

‘So what evidence is there of Putin’s secret obscene fortune? Let’s start with the small stuff. Putin is known to sport a $150,000 Patek Philippe watch on most occasions and his total collection has been valued at at $700,000.  He also has full access to a $40 million ultra luxury yacht that features a wine cellar, Jacuzzi, helipad and outdoor barbecue area   In terms of living accommodations, Putin has access to 20 mansions throughout the world including a lavish ski lodge and Medieval castle.  The crown jewel of his property portfolio is a $1 billion palace overlooking the Black Sea that he allegedly owns through an anonymous trust.  Furthermore, Putin makes frequent use of 15 Presidential helicopters and more than 40 private jets, many of which feature gold plated interiors . If Vladimir Putin’s net worth truly sits at $70 billion, that would be enough to make him the second richest person on the planet right behind Carlos Slim Helu. It would likely also represent one of the largest personal fortunes ever accumulated by a sitting President. The only other world leader who possibly looted more cash from his country was Muammar Gaddafi who after 40 years of power stashed away a reported $200 billion in ill-gotten oil money.’

It might of course be argued that Tony Blair is a rogue politician, that the Heads of States of our Democracies are usually very different from him and therefore different from the Bosses of the Mafia Families. Yet ex-President Clinton has trousered a lot more tribute than Tony Blair and Obama will certainly get filthy rich when he finally hangs his coat up on the White House door.

Some of our more notorious mobsters believe they have a good handle on the entire thing. Here are a few quotes from Al Capone about living in the world’s purest democracy.  Al didn’t ever get too caught up in the whole democracy thing ‘capitalism is just the legitimate racket of the ruling class’. . . ‘This American system ofours, call it what you will, gives each and every one of us a great opportunity if only we seize it withboth hands and make the most it’. The mobsters can never fathom how they are doing anything different from the politicians and that often is their weakness, the bankers and lawyers of the democracies get the law on their side before they commit the crimes, or if they do the crime without the assistance of the law they get the politicians to amend the law to make sure they avoid the normal consequences of the law.

In every episode of the Max Keiser show on Russia Today evidence is produced to demonstrate how the law is broken and amended to help the financial criminal elite of Wall Street and the City of London. In March of this year a US Senate committee compiled a 300 page report documenting the fraudulent and criminal practices sanctioned by Mr Blair’s favourite bank and the largest dealer in derivatives trading in the world.  Despite all the evidence, no legal action was deemed appropriate, and the CEO Jamie Dimon remains a Consigliere to the President concerning the financial markets.

The late John Gotti was once the Boss of the powerful Gambino family.  is advice to the young included the following: ‘be nice to the bankers. Always be nice to the pension fund managers. Always be nice to the media. In that particular order.’  The Mafia ‘philosophy of self enrichment without conscience’ is perfectly suited to the present condition of finance-dominated capitalism.  It is certainly difficult to spot the difference between what the law calls loan sharking and current legal lending.

The loan shark figures a lot in Mafia books and films, the person or business that offers loans at extremely high interest rates and the smaller the loan the more onerous the repayments. In the early days of Mafia loan sharking it was confined to payday lending on potential wages with most of the customers being office clerks and factory workers. The 1952 film ‘Loan Shark’, featuring mobster favourite George Raft, depicts the whole payday loan racket.

In the 1960s the Mob shifted their loansharking to small businesses as they had assets that could be confiscated if payment was overdue. The irony is that the Mafia historians tell us that payday lending to workers largely disappeared by the 1970s.  Now of course they are back with the sanction of the law and the backing of the politicians. In Britain the Campaign group Debt on our Doorstep campaigns against the practice, if you are interested go to their web site for some horrific stories.

One of the big players in the payday loan racket is Wonga, the sponsor of Blackpool football club.  Last year it declared £45million in profit, by advancing over 4million loans. The annual interest rate on its payday loan is 4,214 percent.  One of Wonga’s main stockholders is Dawn Capital, whose chairman is called Adrian Beecroft who is a donor to the Conservative party.  The Prime Minister David Cameron asked his friend Mr Beecroft to prepare a report on the future of employment law and he recommended that employers be given the right under the law to sack workers at will and without explanation.  The oily rag PM liked the idea but the Liberals thought it was a bit strong for now so it did not become law. Once again the immoral activities of the Mafia mobsters have been superseded by the legal activities of the political gangsters.

Lets move on to tax. The Mafia bosses never like to pay tax, they are very much in the low tax political camp. This brings us to Al Capone; in 1927 it is estimated he made about $100 million, the equivalent of about $1.2 BILLION today.  Despite his profession the authorities could never pin a serious crime on him with the Treasury Department attributing this to his ‘natural Italian secretiveness.’  He was maybe helped by the fact that no witnesses would testify against him, but the main reason was he was generous with his money.  It is estimated he spent over $30 million in 1927 on gifts to politicians, judges and police chiefs.

Al Capone was eventually convicted and sent down because he was a tax evader, yet how was this conviction lawful?  Capone had this to say: ‘the income tax law is a load of bunk. Thegovernment can’t collect legal taxes from illegal money.’  When he was sent down it was the toughest sentence ever imposed on a tax evader. Capone told the newspaper guys: ‘I’ve been made an issue, I guess I’m not complaining. But why don’t they go after all of those bankers who stole the savings of thousands of poor people and lost them in bank failures? How about that?  Isn’t it a lot worse to take the last few dollars some family has saved-perhaps to live on while the head of the family is out of a job-than to sell a little beer.’ 

This of course is an example of trying to get the victims of the capitalist system on to your side when you have just become undone and disgraced politicians frequently play this populist card, nevertheless we appreciate the point. Many respectable people got rich during the prohibition era by selling alcohol as a legal medicine.  The fine novel ‘The Great Gatsby’ is a fictional account of a legal medicinal bootlegger. The father of the Kennedy political dynasty held such a licence and he used it to stock his warehouses in the period just before the end of prohibition.

But what about tax evasion and tax avoidance?  Davis Cameron says this is to be one of the big-ticket items on the agenda of the G8 summit. He claims he wants to see companies pay their fair share in tax but he doesn’t try to define fair. One can just imagine him raising the matter at the G8 to the annoyance of the French President.  Here is what he had to say one year ago to the very day: “If the French go ahead with a 75% top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else.”

Let’s now add a little bit more beef to his speech from the G20 meeting in Mexico 2012: “Every country sets its own tax rates, but I think in a world of global capital, in a world where we’re competing with each other, in a world where we want to send a message that we want you to build businesses, grow businesses and invest, I think it’s wrong to have completely uncompetitive top rates of tax.”  The oily rag PM is just playing with the public over tax.

Consider this snippet from a recent white paper covering the status of the UK oversees territories: the UK’s parliament has “unlimited power to legislate for all its overseas territories and crown dependencies”.  He is putting on a show as if to say all he can do is try to persuade Bermuda, Cayman Islands and the Channel Islands etc to play fair on tax, when he could command them to do so.  They will of course carry on as before and Cameron will stand back and shrug his shoulders. You should not be fooled into thinking that the British government is responding to the campaigns of the NGO’s to make tax on companies into a social issue.  What he is defending Britain from is criticism from the other G8 political leaders, especially that coming out of the Congress in Washington who think the political class in Britain have effectively turned the country into one big Tax Haven to the detriment of Uncle Sam and others. 

The new bank deal and the working class

debt maturityThe most important aspect of the deal that has replaced the promissory notes is not what it entails but what it does not entail. It does not involve a write off of any of the debt so that less would have to be repaid and interest burden on the debt lowered. It does not involve the European Stability Mechanism, in effect the EU, directly funding the banks which appeared to be the deal offered last June and it does not affect all the bank debt.

The deal on the promissory notes affects €28 billion of a total debt at the end of last year of €192 billion and relates to less than half that incurred in bailing out the banks. The Government has not changed its austerity targets. The editorial in the Financial Times stated that ‘restructuring the promissory note does not make the public liability for bank losses lower, just easier to bear.’ Easier to get workers to pay is more accurate. All the questions regarding how the deal will work have not been answered, which also demonstrates continuity with the promissory note arrangements that were understood fully by very few despite the enormous impact on people’s lives.

Never mind, the Taoiseach proudly told us that the “stains on our international reputations and dents to our national pride, have now been removed from the financial and political landscape”. This is a statement so revealing of the shallow moral argument for the deal, so instructive of the concerns of the elite as distinct from the majority and illuminating of the poisonous demands of national identity that despite its odious character it would be good to see it repeated again and again and again. The Irish people have decades to ponder how satisfying it is to pay for so long to erase such an embarrassment.

As for the new deal itself, it involved the liquidation of IBRC, which was the combination of Anglo-Irish bank and the Irish Nationwide building society. The Government will still pay €1bn to the bondholders of Anglo, as part of the 2008 guarantee, so no bondholder is left behind, and more rotten loans in Anglo will transfer to NAMA, which promises further losses down the road. Loans left in Anglo totalled €15bn.

It involves tearing up the promissory notes that provided the means for the State to get money from the Irish Central Bank (ICB), the local branch of the European Central Bank (ECB), to be replaced by ordinary government bonds, which are really just a more regular IOU used by states. This allows the state to keep the money loaned to it on the back of the promissory notes instead of having to pay it back when the notes were torn up. The state will still have to pay the money back and pay interest but will have much longer to pay and with what appears a lower rate of interest. Both of these are good things – having longer to repay and being charged less for the loan, but both are not as good as they appear.

The longer you have to pay the more you have to pay back, just like any mortgage. The lower interest rate is not such a change for the reason explained in the last article. This is because the high rate of interest paid by IBRC (8.2 per cent) to the Irish Central Bank, which the taxpayer ultimately funded, was used by the ICB to pay the ECB which charged a much lower rate of interest. The difference was returned to the Irish State so the effective rate of interest was not they headline rate of the promissory note. The reduced interest cost between the promissory notes and the government bonds is therefore not what it might appear.

But this is not the only reason the savings might not be so great. The ICB will have an asset, the bonds, the ownership of which entitles it to receive interest every year and receive repayment of the principal. Part of the deal is that the bonds are sold to private capitalists, €6.5 must be sold by 2022. How quickly they must be sold is not at all clear and thus neither is the cost of the deal, although this has not prevented the Government, media and commentators continuing to welcome the deal and proclaim its savings as if they were hard fact.

In selling the bonds the Government will in effect be raising new loans. If for example it attempts to sell €1bn worth of these bonds and investors don’t think the interest they would get on them is high enough they may be willing only to pay €980m, €950m or €930m instead of the €1bn. In other words the bonds would be sold at a loss and the tax payer would foot the bill. To replace the loss would require more loans costing more.

The rate of interest charged on the bonds over their lifetime is not known so calculations of how much the new deal will cost must make more or less educated guesses of how much the deal will actually cost over the long term. The longer the term the more the ‘educated’ guess becomes ‘pure’ guesswork.

Nevertheless within a couple of days estimates of savings on an NPV basis were quoted and savings of €8bn announced. Net Present Value (NPV) analysis allows one to calculate and compare amounts over different time periods recognising that someone would rather pay €1 in 10 years’ time than pay €1 today. It allows one to say whether it would be better to pay €1 for each of the next 9 years and €11 the following year or pay €2 for the next 10 years. In both you pay €20.

The money paid in the future is discounted so that €1 paid in ten years’ time is less than €1 paid in 5 years’ time which is calculated as less than €1 paid in 3 years’ time. How much you reduce the amount depends on the discount rate and this rate can have a big effect on the result. The rate chosen is another variable that is a guess, first educated and then pure.

The higher the discount rate the less costly future costs become which offsets the fact you are paying longer and on the face of it more. So one could be paying €21bn equally over 20 years instead of €19bn equally over 12 years but because the first means the money is paid off later it is worth less and the total cost on an NPV basis is less. In the example above an NPV calculation at a discount rate of 6 per cent shows that the first payment schedule costs €11.2 in NPV terms, where €11 is paid in the last year, and €14.7 in the second where equal yearly payments of €2 are made.

In the new deal the first repayment of principal is not until 2038 and the last in 2053. The NPV savings in the new deal were worked out by one economist as €8bn and then by a couple of others as €4bn, a whopping difference of 50 per cent of the first estimate. Another economist has stated that almost all of the calculated savings disappear if the timing of the sale of the government bonds to the private sector is accelerated. Factor in the loss on sale to the capitalists plus increased interest costs and the deal might very well cost more.

A final argument has been much quoted, and certainly more often than the lack of robustness of the savings estimates. This is that inflation will erode the real value of debt repayable by our children, who will be middle aged when they might finally pay it off. This means that, if say the interest rate is 5 per cent and inflation is 3 per cent the effective rate of interest is only 2 per cent. Also the real value of the money repaid in thirty years’ time will be less because of the cumulative reduction in the real value of the debt by this inflationary process.

It might otherwise be amusing to listen to these experts, who gave us a property ‘soft landing’ and now the wonderful benefits of inflation, except that we can state with absolute certainty that they will also be lecturing us in the future on the evils and futility of seeking pay rises to compensate for inflation because these will only increase it. Not only will interest rates rise in response to higher inflation thus limiting the effect above, which will also put up the cost of mortgages, car loans and credit card debt etc. but higher inflation will also erode living standards. What workers might gain from erosion of the real value of the debt they will surely lose by the reduction in living standards caused by an increased cost of living.

By now it should be apparent that the deal’s main benefit is putting off repayment of the loan principal thus making it less likely the state will have to default. In other words the main beneficiaries are the State and the ECB, which is sanctioning the lending of the money and protecting the European banking system. What is good for the state, that it continues to pay and does not default, is bad for workers who will really do the paying.

The second benefit is that the low interest rate charged for the money the state gets in exchange for the bonds will be around longer. However as we have seen, how much longer we don’t know. It won’t be our decision when it goes up (through selling the bonds to the capitalists) because this is a decision of the European Central Bank. Such a decision will cost us billions but we have absolutely no say in the matter. Yes, we live in a democracy.

Once again it is necessary to educate workers that they must distrust the state as much as they would distrust an email from Nigeria asking for their bank details. (The power of the state means it doesn’t need them.) We need to remind them that the state is able to foist the debt of Anglo and Nationwide on them because it nationalised these institutions. We need to inform them that both the Irish Central Bank and European Central Bank are institutions of the state deliberately designed to be protected against any kind of democratic pressure.

This brings us to a couple of questions a reader asked me about the promissory note deal. He asks how the government borrows from the central bank as if it is separate institution. “To me it looks like the government is borrowing from itself, but if that is the case why doesn’t it borrow some more?”

The first answer is that with so much debt the Irish State cannot borrow more from the markets (private capitalist funds) which is why the EU and IMF stepped in to loan the money. It can’t borrow more from these institutions because they want the state to reduce its indebtedness and pay them back their existing loans.

The second answer is that the Irish Central Bank is a branch of the state and a normal central bank can both provide loans and ‘print money.’ There are limits to the former if, as we have just noted, the state won’t be able to pay the loan back. In this case it is if it makes a loan that isn’t repaid just printing money. Printing money will at some point lead to a devaluation of the currency meaning that the Euro will be worth less and buy less making everyone across the Eurozone worse off when it has to buy goods from countries that don’t sell in Euros.

To protect against this the ECB has a firm grip on money printing and the deal on the promissory notes and the new one involving the issuing of bonds required its approval. The Irish state is part of the Euro so doesn’t control its own currency or it could try to get away with printing some money, although in reality it is too weak to be able to do so even if it went back to the Punt.

The ECB is taking control of the timing of selling the bonds because printing money in exchange for bonds that don’t have to be repaid for years is so close to money printing it really is printing money.

The rules of the ECB prevent it funding states and public institutions directly for this reason. It has however ended up with Irish government bonds in exchange for funding the IBRC. Because it ended up in this position indirectly by funding a bank (public banks must be treated just like private ones)rather than a government and through the receipt at first of promissory notes rather than regular government bonds this has to a very little degree been hidden.

This is why they’re not very happy with the deal and might also be why they will quickly ensure the bonds are sold to private capitalists; thereby entailing an interest cost more reflective of the market. As I have said, this will cost the Irish people a lot of money.

In the next post I will look at whether the new deal has solved the debt problem.