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collateralised debt

Well yes. Collateralised by the worthless assets of the irish banks.

by IM on Fri Feb 4th, 2011 at 02:04:19 PM EST
[ Parent ]
No, collateralised by "eligible collateral" by the ECB's own definition.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 04:11:45 PM EST
[ Parent ]
You see, the worthless assets have been packaged into NAMA and sold to the irish government.

The good assets, those that there are, are being repo'd at the ECB's discount window.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 05:02:58 PM EST
[ Parent ]
collateralised debt

Well yes. Collateralised by the worthless assets of the irish banks.

That is not the Irish public's problem. Any creditor who accepts crap collateral accepts the risk of a haircut. That's the whole point of the term "due diligence" when applied to collateral. The haircut can go all the way to 100 % if the collateral turns out to be worthless. That is not a problem. That is a perfectly normal bankruptcy, such as which happens every day somewhere in the OECD.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 12:56:01 AM EST
[ Parent ]
The ECB is accepting more and more worthless collateral nowadays as lender of last resort and as quantitative easing.
 The ECB is not a creditor. It is a central bank, in this case the Irish central bank. You don' lecture your own central bank about due diligence at time when it helps your banking system existing.
by IM on Sat Feb 5th, 2011 at 05:55:24 AM EST
[ Parent ]
Conducting monetary policy through the discount window is not an excuse for bailing out insolvent banks. Insolvent banks should be put through bankruptcy. Keeping them alive is not "helping."

And anyway, this isn't about the Irish banks anymore. It's about the Irish government debt. Why is this so hard to understand?

Incidentally, if the ECB were doing its job as a central bank and fixing the price of government bonds, then we wouldn't be having this discussion in the first place.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 06:07:04 AM EST
[ Parent ]
In this case, the ECB should just end lending to Irish banks.

What exactly are you propagating here? Austrian economics?

by IM on Sat Feb 5th, 2011 at 06:32:34 AM EST
[ Parent ]
No, the ECB should not "just end lending to Irish banks."

The ECB should resolve those banks which are insolvent. That means reimbursing their depositors, up to the limit of the deposit guarantee (say, € 20.000), and then attempting to recover whatever value can be recovered from their assets. Any value that can be recovered from their assets beyond what is needed to cover depositors is then paid out to their creditors, in order of seniority. The remaining creditors get to fuck off and die.

The ECB should lend at the discount window to those banks which are solvent. That does not involve taking on crap collateral. If the bank is not able to post collateral that is not crap, then it isn't solvent and should be resolved.

The Irish state should spend money in order to support demand and restore full employment. The ECB should support this policy by purchasing all newly issued Irish bonds at the ECB's policy rate of 1 %.

The Irish state should attempt to claw back the money that was unjustly paid out to the creditors of insolvent banks. To the extent that money was ever actually paid, this is going to be hard. But I'm betting that most of that money was never actually paid, in the sense of being moved from one reserve account at the ECB to another. I'm betting that most of the money "paid out" in the Irish bank bailout was actually just the Irish government buying the debts of Irish banks using newly issued Irish government bonds. In which case it is a matter of supreme simplicity to declare those bonds void. Bonds are numbered and notarised, after all.

The Irish state should not, under any circumstance, engage in austerity. Not now, not ever.

But what is actually happening is that the ECB is telling the Irish government that the ECB will not support a sane Irish recovery policy, because the ECB is concerned about the Irish national debt. Instead, the ECB will only refinance Ireland's existing national debt, and only if Ireland engages in certifiably insane macroeconomic policies.

The logical response to that - indeed the only sane response - is to say "well then, fuck the national debt." If there is no national debt, then there is no need to refinance, and then the ECB cannot impose its austerity insanity.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 06:49:33 AM EST
[ Parent ]
That actually makes some sense. There is a little problem, though: The ECB doesn't have the legal authority to resolve anything.

That is the duty -please don't laugh - of the Irish bank regulators.

In other word of the people who allowed this whole problem to happen.

But instead of laying the problem at the foot of the Irish authorities, you like to blame others.

by IM on Sat Feb 5th, 2011 at 07:02:05 AM EST
[ Parent ]
That excuses the ECB from the first paragraph. It does not excuse the ECB from anything else on that laundry list of indictments of poor performance.

In fact, it does not even excuse the ECB from the first paragraph. Because the ECB has been lobbying for the banks to not be resolved since the first day of this crisis. The ECB decided to be a part of the problem, where it could have been a part of the solution.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:14:29 AM EST
[ Parent ]
And this is difficult because some here tend to jump around: If I talk about the debts of the Irish public they talk about the banks and their creditors. If I point that the "punish the bank creditors" idea is much to late, they talk about the Irish public debt.

So its public debt now and  all public debt hold by "foreigners" - that is fellow europeans - is per se odious debt.

by IM on Sat Feb 5th, 2011 at 06:38:29 AM EST
[ Parent ]
There are multiple factors/aspects involved in the situation; and in the normal, condensed give-and-take of these types of discussions, different answers are given in response to the various points made.

I was tempted to down-rate your remark for willful mis-characterization, but I'll simply make this comment instead. The thread proves that you are incorrect.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat Feb 5th, 2011 at 12:21:31 PM EST
[ Parent ]
The thread proves nothing of the sort. And you shouldn't threaten people who are arguing with you.
by IM on Sat Feb 5th, 2011 at 01:18:36 PM EST
[ Parent ]
The ECB is not carrying out quantitative easing, since they insist on "sterilizing" all their sovereign bonds purchases, which effectively draws liquidity from the private sector in order to fund the bnod purchases.

There are indications that there's no more private liquidity to be drawn.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sat Feb 5th, 2011 at 06:10:15 AM EST
[ Parent ]
They are accepting these under terms that stifle the respective economies, especially if you are not very high up in the ladder. They are buying up bad debt to protect private bankers from a EU periphery default, and at the same time imposing (and that is exactly the word, they are actively taking part in these discussions in Greece) a neoliberal agenda that destroys among other things labor rights, collective bargaining and any vestiges of a social state - this is a politically unaccountable yet activist ECB. And if you look at the Merkel / Sarkozy "competitiveness agenda", which is about to be rammed down the throats of pretty much every one in the EU, it turns out that this was a part of a very aggressive Shock Therapy strategy.

This is most definitely not what a Central Bank should be doing. The ECB is acting literally as an enemy of the people. Of all countries.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 06:13:22 AM EST
[ Parent ]
What neoliberal agenda?

 Look, I am hardly a expert on Irish politics. But as far as I know every Irish government and party since twenty years has happily pursued a neoliberal agenda: Fianna Fail and the Greens, Fianna Fail and the Progressive Democrats, Fine Gael and Labour, Fianna Fail and Labour.

And now you want blame "Europe"? Mighty convenient.

by IM on Sat Feb 5th, 2011 at 06:43:09 AM EST
[ Parent ]
What was, pales in comparison to what is coming. I mean Ireland had collective bargaining? Public schools? I'm not sure these are part of any plan for the future that the EU elites have in mind.
And I see this as an opportunity to get the Irish (and European) people to reject neolib policies once and for all versus the opportunity for the elites to completely destroy any vestiges of a social state anywhere in Europe. You somehow see the crisis as some sort of game of moral rewards and punishments. However this is about how the future EU will be structured, on whether, say, the ECB will become a democratically accountable institution and not a clearing house for banker domination in the European economy.

If one thinks that ECB/IMF austerity should be rejected on principle in this case, then I don't see how else Ireland can help this cause other than by doing something like what Jake is saying.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 06:53:13 AM EST
[ Parent ]
"Europe" is not to blame for causing the Irish crisis, but they are to blame for having completely botched their policy reaction to the sovereign debt crises of 2010. And for writing neoliberal (well, not even neoliberal, actually Austrian) economics into the EU constituent treaties.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Feb 5th, 2011 at 10:07:23 AM EST
[ Parent ]
As I've said before, for economic purposes, the upper levels of the banking sector in Europe and elsewhere tends to act as a quasi-independent nation state.

It's not so much about "Europe", but about European elements in international banking sector joining in with the collective financial nervous breakdown, and demanding that Europe's real economies should pay to clean up the vomit and replace the carpets and the furniture.

The only possible mature and democratic response to this is "no."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Feb 5th, 2011 at 10:15:49 AM EST
[ Parent ]
What neoliberal agenda?

Why, Merkel's so-called "competitiveness pact".

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Feb 6th, 2011 at 03:39:10 PM EST
[ Parent ]
Why are the citizens not responsible for due diligence in electing their officials, and pressing for jail for crooked ones who drop regulations for their cronies?

Align culture with our nature.
by ormondotvos (ormond no spam lmi net no spam) on Sat Feb 5th, 2011 at 09:55:24 PM EST
[ Parent ]
They are.

But killing the Irish economy in order to make a point about the consequences of electing crooks and liars to high office is overkill and collective punishment. What about the Irish citizens who were shouting bloody murder about their corrupt and in-bred politicians? They'll be punished too if the economy goes into the crapper.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 10:03:32 PM EST
[ Parent ]
That is a good question. 80% or so of the Irish voters voted in 2007 for openly neoliberal parties.
by IM on Sun Feb 6th, 2011 at 11:48:36 AM EST
[ Parent ]
So did 80 % of the German voters at the last election. Does that justify telling all German bondholders to take a hike?

No, it does not. Bondholders should be given haircuts in order of their importance for the productive economy, and in a manner that is distributionally reasonable. Widows and orphans should be protected. Bankers should lose their shirts.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:32:18 PM EST
[ Parent ]
Now that is a lie.
by IM on Mon Feb 7th, 2011 at 09:26:30 AM EST
[ Parent ]
I suppose whether the SPD is neoliberal is in the eye of the beholder.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Feb 7th, 2011 at 09:29:10 AM EST
[ Parent ]
True. But you cuold say the same about Labour in Ireland. That is why I said openly neoliberal: FF, FG, PD.
by IM on Mon Feb 7th, 2011 at 09:37:25 AM EST
[ Parent ]
IM:
True. But you cuold say the same about Labour in Ireland.
And that proves what exactly?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Feb 7th, 2011 at 10:23:12 AM EST
[ Parent ]
I wouldn't call Labour neo-liberal. Certainly centre-left at best though. Their manifesto for the last election was about things like transfers to the poor and centre-left stuff like that.
by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:31:30 AM EST
[ Parent ]
After Hartz IV?

After sabotaging the SPD/Linke coalition in NRW for absolutely no gain?

After preferring a Grand Coalition over an SPD/Linke coalition at the federal level?

No, not really.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:43:01 AM EST
[ Parent ]
I was trying to be polite...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Feb 7th, 2011 at 10:31:02 AM EST
[ Parent ]

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