We SHOULD Default!

[johnmcork]

Argentina is to hold talks with the International Monetary Fund (IMF) about financial backing for the country's volatile economy, according to its president.
Mauricio Macri said the move would help Argentina to "strengthen our programme of growth and development".
The peso has lost a quarter of its value in the past year amid President Macri's pro-market reforms.
Last week the central bank raised interest rates from 33.25% to 40%.

http://www.bbc.com/news/business-44047113 (8 May 20188)

Maybe not......

 

[Dick Holder]

I'm not an ecomonist so I don't know a whole pile about this. To me though, the link between those problems and a default on IMF debt is a bit tenuous surely? How would one cause the other?

In any event, defaulting on an IMF debt would be a bad idea if you ever wanted to borrow money from anybody ever again. If my memory serves me though, such things were never considered here. Left wing parties advocated burning the bank's bondholders - a very different thing. Of course that would have had a ver negative affect in that it would have collapsed all of our banks and burned pensions and deposit accounts to a very large degree. The question is, would that massive short term negative be less than the massive long term negative whereby we are now stuck srvicing a massive national debt that we will never pay back? To my mind it is obvious that buring the bondholders and consequnetially collapsing the banks would have cost far far far less than gauranteeing matured bonds with billions of borrowed money. The only issue really was that the people would have gone nuts! Sorry Mrs Murphy your savings have gone, but bear with us and we might be able to get some of them back to you in a few years. Oh by the way, that pension you dependied on - well that's just gone and it'll never be coming back.

But the idea that FF/FG 'did the right thing' will gain traction now. And really, it's not at all a proven thesis. They took a course of action. Arguably the only course of action the Irish people would have tolerated. But that doesn't make it the right course of action. And given that deposit savings may have been underwritten by government bonds (though that's be a complex process) burning the bondholders may have been an option. But it was an option that FF/FG didn't have the balls to pursue.

 

[Conan The Vegetarian]

I'm not an ecomonist so I don't know a whole pile about this. To me though, the link between those problems and a default on IMF debt is a bit tenuous surely? How would one cause the other?

In any event, defaulting on an IMF debt would be a bad idea if you ever wanted to borrow money from anybody ever again. If my memory serves me though, such things were never considered here. Left wing parties advocated burning the bank's bondholders - a very different thing. Of course that would have had a ver negative affect in that it would have collapsed all of our banks and burned pensions and deposit accounts to a very large degree. The question is, would that massive short term negative be less than the massive long term negative whereby we are now stuck srvicing a massive national debt that we will never pay back? To my mind it is obvious that buring the bondholders and consequnetially collapsing the banks would have cost far far far less than gauranteeing matured bonds with billions of borrowed money. The only issue really was that the people would have gone nuts! Sorry Mrs Murphy your savings have gone, but bear with us and we might be able to get some of them back to you in a few years. Oh by the way, that pension you dependied on - well that's just gone and it'll never be coming back.

But the idea that FF/FG 'did the right thing' will gain traction now. And really, it's not at all a proven thesis. They took a course of action. Arguably the only course of action the Irish people would have tolerated. But that doesn't make it the right course of action. And given that deposit savings may have been underwritten by government bonds (though that's be a complex process) burning the bondholders may have been an option. But it was an option that FF/FG didn't have the balls to pursue.

Ireland did what the Germans told it to do, and always will.

End of story.

 

[outdagap]

Ireland did what the Germans told it to do, and always will.

End of story.

Thankfully so, when it mattered.

 

[Drucker]

Ireland did what the Germans told it to do, and always will.

End of story.

Thank God.

?

 

[Dick Holder]

Thankfully so, when it mattered.

This is a great example of what I'm tallking about. I suspect there's a general consensus that burning bondholders would have been a terrible idea. And that if anything like the Irish banking problems ever occur anywhere, the answer is the Irish answer - ie prop up the banks with as much taxpayers money as it takes. The whole thing was a huge victory for the rich at the expense of the poorest.

There's no 'wrong' or 'right' here and there were no easy solutions in 2008. So I'm not really able to 'argue' with you and am not trying to. But as a matter of interest, if you've the time, could you try and speculate what might have happened if we'd burned the bondholders, and why that might have been better or worse than the action we actually took?

 

[Pantsonfire]

This is a great example of what I'm tallking about. I suspect there's a general consensus that burning bondholders would have been a terrible idea. And that if anything like the Irish banking problems ever occur anywhere, the answer is the Irish answer - ie prop up the banks with as much taxpayers money as it takes. The whole thing was a huge victory for the rich at the expense of the poorest.

There's no 'wrong' or 'right' here and there were no easy solutions in 2008. So I'm not really able to 'argue' with you and am not trying to. But as a matter of interest, if you've the time, could you try and speculate what might have happened if we'd burned the bondholders, and why that might have been better or worse than the action we actually took?

This is Draghi's take....
https://www.irishexaminer.com/business/paying-bond-holders-saved-deposits-313393.html

 

[Dick Holder]

This is Draghi's take....
https://www.irishexaminer.com/business/paying-bond-holders-saved-deposits-313393.html

A good article and I think the guy is giving a fair analysis. But he doesn't cover two key aspects:

1. Could the government have issued bonds to depositors in lieu of the savings that went up in smoke? I suspect they could have, but that would have involved speculation that the ECB wouldn't have been comfrtable with. What would happen if the bonds matured and Ireland was still in the toilet?

In any event (to be fair to him) he doesn't mention that pensions would have seen millions shorn off of them too. And that would have had consequences for retirees in Ireland and (perhaps more significantly) elsewhere. But the major question that he and the rest of the centre right will chose to avoid is:

2. Would the cost of buring bondholders be less than the cost of borrowing money to pay back matured bonds? A child could answer that. The answer is yes. We have borrowed money to pay back loand and attached profits to corporate entities across the world. AND the money we borrowed, came from the same (or similar) entities, and will be paid back with interest. It's a real 'win win' for the so-called bondholders. And few would suggest that this kind of racketeering on their part, is anything other than shamefully wrong.

BUT - what the left wing won't admit is that money makes the world go round. As bad as this was, the intital financial chaos that was ineveitably involved in burning bondholders may have been a better long term option, but would the Irish people have tolertated it? We'll never know.

But making out that the decision to facilitate huge profits on the backs of Irish taxpayers, and the sick people sitting in our hospital corridors was a great thing, makes me deeply uncomfortable. This was an appalling thing. It was probably the greatest wealth transfer since the land league - but this time it went from peasant to landlord, and much/most of it actually left the country. Dreadful stuff.

 

[CaptainSensible]

A good article and I think the guy is giving a fair analysis. But he doesn't cover two key aspects:

1. Could the government have issued bonds to depositors in lieu of the savings that went up in smoke? I suspect they could have, but that would have involved speculation that the ECB wouldn't have been comfrtable with. What would happen if the bonds matured and Ireland was still in the toilet?

In any event (to be fair to him) he doesn't mention that pensions would have seen millions shorn off of them too. And that would have had consequences for retirees in Ireland and (perhaps more significantly) elsewhere. But the major question that he and the rest of the centre right will chose to avoid is:

2. Would the cost of buring bondholders be less than the cost of borrowing money to pay back matured bonds? A child could answer that. The answer is yes. We have borrowed money to pay back loand and attached profits to corporate entities across the world. AND the money we borrowed, came from the same (or similar) entities, and will be paid back with interest. It's a real 'win win' for the so-called bondholders. And few would suggest that this kind of racketeering on their part, is anything other than shamefully wrong.

BUT - what the left wing won't admit is that money makes the world go round. As bad as this was, the intital financial chaos that was ineveitably involved in burning bondholders may have been a better long term option, but would the Irish people have tolertated it? We'll never know.

But making out that the decision to facilitate huge profits on the backs of Irish taxpayers, and the sick people sitting in our hospital corridors was a great thing, makes me deeply uncomfortable. This was an appalling thing. It was probably the greatest wealth transfer since the land league - but this time it went from peasant to landlord, and much/most of it actually left the country. Dreadful stuff.

Not necessarily, a large part of the rate a country can issue bonds at is dependent on the confidence investors have in said country, if Ireland had burned everyone then we would have been a pariah and it is probable we would have had to borrow at high double digit rates, so for example borrowing at 20% as opposed to current low rates of an average 1.5% or the bailout rate of about 4% on average may have worked out more costly in the long run, remember after the recession hit the economy reached a practical standstill so even disregarding the funds needed to bail out the banks the government was running a huge deficit. As you say it is a question no one seems to want to answer but it is not as simple as your analysis either.

 

[outdagap]

This is a great example of what I'm tallking about. I suspect there's a general consensus that burning bondholders would have been a terrible idea. And that if anything like the Irish banking problems ever occur anywhere, the answer is the Irish answer - ie prop up the banks with as much taxpayers money as it takes. The whole thing was a huge victory for the rich at the expense of the poorest.

There's no 'wrong' or 'right' here and there were no easy solutions in 2008. So I'm not really able to 'argue' with you and am not trying to. But as a matter of interest, if you've the time, could you try and speculate what might have happened if we'd burned the bondholders, and why that might have been better or worse than the action we actually took?

No, if they'd done it right at the absolute start (and told Paulsen to fuck off), then that's one thing. The markets wouldn't have liked it but in the shitstorm of having to do something, they'd have taken it and moved on. The problem is that the Government at the time were rudderless/clueless and the moment passed. Pressure and threats got through, and that was that. What happened with the IMF coming in was fantastic, although they left too soon imo. People here slag them off but they were a better help to us than the ECB in those early days and months.

Relatively speaking the middle class came off worse than the already poor.

I do agree that there were no easy solutions, but they had no solution. It would be too much to hope that they have an SOP for the next time this happens, and it will happen.