2010 November 30 Tuesday
Ireland's Debt Servitude: Deal Bails Out Creditors

In a column entitled Ireland's Debt Servitude Ambrose Evans-Pritchard gets the Irish debt deal sadly correct:

Stripped to its essentials, the 85bn package imposed on Ireland by the Eurogroup and the European Central Bank is a bail-out for improvident British, German, Dutch, and Belgian bankers and creditors. The Irish taxpayers carry the full burden, and deplete what remains of their reserve pension fund to cover a quarter of the cost.

Why should reckless creditors be so privileged? Why should the Euro elite stand up for the stockholders of their banks when bank management has made such colossal mistakes? Irish taxpayers are not responsible for this disaster. The EU and the banks and bank regulators are responsible. The stock holders of the assorted German, French, British, and other Euro banks should take it in the chin. Instead Ireland is turning into a big debtor's prison. Nigel Farage gets it right too.

I am skeptical that this deal will last. All it would take is another sharp oil price spike, this time well north of $150 per barrel, to bring down the financial house of cards.

Share |      By Randall Parker at 2010 November 30 09:31 PM  Europe Monetary Union


Comments
A.Prole said at December 1, 2010 12:53 AM:

Of course it will be Chinese demand that pushes oil up above $150 per barrel.
Oil at $150 a barrel will finally do-in Europe and America and make the current shit-storm look like a tea-party.
The stupid bastards who pushed free-trade with China are directly responsible for this.Strangely enough thee bastards screamed all the time that free-trade 'enriches' us.

Jeff Maylor said at December 1, 2010 1:09 AM:

This whole continuing economic crisis feels like a person with multiple health problems. As soon as the kidneys recover, the heart fails. Then the emphysema kicks in. Now comes the diabetes. Just like a person who finally pays for years of abusing their body with too much sugar, booze and cigarettes, the US and Europe are going to be suffering multiple convulsions for quite some time.

Wolf-Dog said at December 1, 2010 5:21 PM:


Speaking of the "burden" of saving the creditors that the Irish people are condemned to suffer, let's not forget the horrific fate of the people who cannot pay their mortgages in Spain.

The Spanish foreclosure laws are so cruel that in many years even after confiscation of the whole house, the borrowers still has to pay the interest for the rest of their lives. Vicious extortion.

http://www.metrolic.com/people-in-spain-still-have-remaining-debts-even-after-banks-foreclose-on-their-houses-144231/

TangoMan said at December 3, 2010 12:30 AM:

The Spanish foreclosure laws are so cruel that in many years even after confiscation of the whole house, the borrowers still has to pay the interest for the rest of their lives. Vicious extortion.

If a bank is managing my money by lending it, in part, to someone so that they can buy a house, then that person owes me my money until it's repaid. No one put a gun to their head and ordered them to buy a home, they did so freely and when they entered the deal they thought it was a fair deal. Moreover they were not willing to cut me in on any upside appreciation in their home's value so why should they not bear the full risk of the downside depreciation in the home's value. Why should I, the depositor, or taxpayer, take the haircut?

If people have lost their way from time-tested money management truisms, then you won't get people to think and act sensibly around money by rewarding them for irresponsibility.

Matt said at December 3, 2010 3:26 AM:

It seems to me that these financial crises can be avoided by regulating variable interest rate mortgages out of existence. That would prevent clusters of foreclosures.

no said at December 3, 2010 12:06 PM:

TangoMan,
I would agree with you in a sound money system. But in reality Banks loan out a lot more money than they have on deposit, and therefore those Banks are largely to blame for the mess for fraudulently loaning out money they didn't have to begin with. No one else but a government approved bank can do such a thing, and would infact be arrested if they tried.

Engineer-Poet said at December 3, 2010 6:48 PM:

The Powers That Be bailed out the banks because the banks are supporting the Powers That Be, not the Irish populace.  The Irish just get stuck with the bill for whatever their rulers want.

This will continue until said rulers find, at best, that the people abrogate the EU treaties and repudiate the debt; at worst, brief trials followed by gibbets.

Winston Smith said at December 3, 2010 7:58 PM:

The Real IRA has threatened to attack banksters. I wish them good hunting.

WJ said at December 4, 2010 5:21 PM:

If a bank is managing my money by lending it, in part, to someone so that they can buy a house, then that person owes me my money until it's repaid...Moreover they were not willing to cut me in on any upside appreciation in their home's value so why should they not bear the full risk of the downside depreciation in the home's value. Why should I, the depositor, or taxpayer, take the haircut?"

No, they owe you their money or the collateral, their house. That's the deal you made. The risk you took is that they would default, especially in a real estate crash. And of course they weren't letting you in on the upside of home appreciation. Your upside was the interest they would pay.

That's why lenders traditionally required a 20% down payment, so the borrower had some of his own skin in the game. They felt it was a great idea to offer home loans without down payments because they could sell more mortgages that way. You, the lender got greedy and chose to offer them a mortgage without security.

I can't speak for why the taxpayers should have to take on the responsibility of making the lenders whole. That's just our modern form of debt slavery, I suppose.

TangoMan said at December 5, 2010 12:29 AM:

No, they owe you their money or the collateral, their house. That's the deal you made.

No, clearly the deal is that they owe the money, why do you think that they're being held to the terms of the deal? You seem to have no understanding of Spanish banking law.

WJ said at December 5, 2010 10:30 AM:

"You seem to have no understanding of Spanish banking law."

You spoke generally, without specifically confining your response to Spain. It may be the point of the Spanish banking laws, but it is not the point of US banking laws, or that in most other Western countries. Spain may have such a law in place due to its natives' lax attitude towards debt repayment. I wouldn't be surprised. If so, and if that's what's necessary to maintain a banking system in that country, then so be it. But it was never necessary here prior to the relaxation of traditional lending standards. With 20% of their own money in the game, borrowers had reason not to default unless the home's value fell far, far below its purchase price. Even then they might not, in order to protect their credit rating and their reputation.

In the US system, the lender gets the money or the house. That's the deal they made.

Of course one problem in the US is that lenders are not allowed to take the differing attitudes towards borrowing and repyament of differing ethnic groups into account. As long as the worst of these groups was a small fraction of the overall population that might have been a reasonable burden to bear. It may not be so for much longer.


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