Stephen King tells it as it is. Read this and get depressed.

Bailout plan is just another attempt to kick the can down the road
By Stephen King
Thursday, November 25, 2010
THE daily dosages have been administered since February. At times the strength and vigour has been pumped up.
I refer to the diet of admonitions and lectures that I have received from a range of sources in business, politics and the media — not to be so negative. The genuine views were that if the media was more positive, consumer sentiment and recovery would quicken apace.

As an employer of 237 people, depending on discretionary spending power in the services sector of the economy, no one is more eager to believe in better times. Simultaneously, I have listened to a coterie of respected captains of industry, investment analysts and academics who tell me otherwise. An unusual feature of our economic meltdown has been two distinct separate narratives throughout. People who were shocked by current events of our international bailout have been listening to the wrong story.

All of what has unfolded has been predicted accurately. The downturn started in August 2007, but was not officially recognised until the autumn of 2008. Market estimates of Anglo Irish losses are up to €38bn, whereas Merrion Street started with €4bn and has only got as far as €26bn. I was told in August that the sum total of the exchequer borrowing requirement, plus liquidity and recapitalisation needs of our banks, were unsustainable by markets, ergo an external intervention was unavoidable.

With aviation, tourism and access transport issues, who did you believe, Noel Dempsey or Michael O’Leary? In relation to the viability of Anglo, did you take Brian Cowen’s assertions before the actions of Dr Michael Somers, as the NTMA wouldn’t deposit their cash with that bank? In the context of finance, would you trust in Dermot Desmond or Brian Lenihan on NAMA’s effectiveness?

Credibility is earned through performance and track record. 42% of the electorate underwrote Bertie Ahern’s narrative for 12 years. There was no consensus about social partnership, benchmarking and pro-cyclical policies. We should be more selective in whose advice we take.

The official whipping boys of our morass have been media, rating agencies and the markets. This is perverse. The obligation of these is to be accurate and fair. The acceptance of bluff, bluster and bullshit has to stop.

A few weeks ago I sent a text to one of these wise gurus to enquire when the bailout might happen, to which I received the following reply “Join up the dots…” Let’s think through the logic of our fiscal situation, Ireland Inc, the national debt and the euro. Whatever the scale of the IMF/EU line of credit and the parameters of the four-year national recovery plan, there is a significant central flaw in the overall rationale.

If Ireland is out of all bond markets, it can only be for a finite period of two to three years. It is simply unsustainable to live on life support indefinitely. Let’s assume that point is reached in 2013.

After all the quarterly and annual reviews of austerity and growth, there will be a chunk of public debt which will suck the bone marrow out of Ireland. It’s probable Greece, Portugal and Spain will also face a residual mountain beyond their climbing ability. This bailout package is yet another attempt to kick the can down the road.

Instead of deriding Angela Merkel, we should listen. European leaders have an overriding obligation to safeguard the competitive future for the euro currency. By 2013, the fundamental choices will be stark. Either a two-tier euro currency will emerge or there will be massive burning of the bondholders.

The cumulative wall of debt, starting with subprime and ending in mortgage default, has an inescapable endgame. Massive nationalised banking and state debts will have to be restructured, with a formal default mechanism. Losses of the banking nightmare are unaffordable to the European taxpayer.

Domestically, we need to join up the dots of what the key consequences will be from the IMF/EU rescue mechanism. It is pointless continuing with the denial that it will be business as usual in terms of budgetary autonomy now that a receiver has been called in to run our affairs as a going concern. In Athens, the government continues with the pretence that they are in charge.

The public knows otherwise. Here The biggest implication is for 307,000 public servants and €19bn payroll. The security of their pay and conditions is currently underwritten by the Croke Park agreement. What can we expect? Radical change within a year — an enforced exit for supernumeraries.

The crucial clause in this deal is “no compulsory redundancies”. Any private sector HR manager will tell you it’s impossible to reduce pay costs without potential termination of employment contracts. The Labour Relations Commission and Labour Court will sooner or later be told “if you don’t like the way we do things around here, you can leave”.

Paying €300,000 to purchase early retirement will be baulked at. The kindness of strangers will not extend as far as cheque book severance. The reduction of 30,000 personnel in government services can only be negotiated within the context of strict departmental cash limits. Tumultuous tidings that have led to the shaming and humiliation of the Government have brought forward the usual chorus of euro critics. They claim this is all a conspiracy from Brussels to diminish our sovereignty. This flawed analysis needs to be confronted.

Who would want to colonise bankrupt Ireland? Do people really think Franco-German leaders and taxpayers enjoy extending us endless lines of credit? If we were not part of the euro we would be totally reliant on the IMF.

EUROPEAN solidarity is one of the few safety nets we have left. Some Eurosceptics even argue that the low interest rate regime (1% cost of funds) from the ECB actually caused our crisis. This is akin to blaming the barman for going on a binge. We need to get a grip, appreciate our friends and admit our own errors.

Finance Minister Brian Lenihan is a trained barrister. His forte is communications. His greatest failing has been that his rhetoric was too convincing. Instead of caution in his assertions, he used hyperbole. Many have followed suit.

References to the blackest day of the blackest week, the corner is turned, rockbottom day and the worst is over have been devalued. Diminished credibility inevitably leads to distrust. Have we reached our darkest moment?

What are the ultimate horrors? There are precedents for our plight. Take Argentina. The final disaster would be the banks not opening, ATMs dysfunctional and online banking closed. The other doomsday event would be state cheques bouncing. We should reserve judgement on calling the bottom of this debacle.

When property prices stop falling, it will have genuinely stabilised. For 30 consecutive months, auctioneers and estate agents have continuously heralded this happening. These remain false dawns. Prospects for property assets remain weak. This explains why all previous ‘cash for trash’ schemes to date have proved insufficient to steady balance sheets of the banks. Further falls in house prices and commercial unit values will add extra impairments. As the tailspin continues, all we ordinary folk can do is exude mutual kindness and empathy as we wend our weary way through the mire.

This story appeared in the printed version of the Irish Examiner Thursday, November 25, 2010

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