Never play the wild rover, no more

Last week, the Irish government announced that the Irish banks would require another E24bn in capital in order to put them back on their feet..  This would be in addition to the E46bn that the Irish people through the previous Fianna Fail government had injected.  The total of E70bn was equivalent to over 45% of Ireland’s currently falling national output, the largest bailout of a national banking system in history, apart from the cost of restoring Iceland’s equally reckless banks last year.

The people of Iceland, just 220,000 in number, had banks with assets worth 12 times national output, because Iceland’s greedy bankers with the connivance of their conservative government which had ‘deregulated’ them, had not only made loans to their various shady business people, but had also invested hugely in property and businesses throughout the world, particularly in the UK.  Iceland’s banks offered higher deposit rates to customers around Europe than any other banks and so took in big deposits.  Even so, they lent multiple amounts and bought securities all over – way more than the extra deposits they collected (at a high cost).  When the credit crunch came and the Great Recession followed, they imploded, leaving Iceland’s people to suffer big losses in their savings, home repossessions, jobs and also a huge debt to pay back to depositors in England and Holland who had greedily invested in their banks, but demands their money back.  They are still picking up the pieces.

It’s broadly the same story in Ireland, only worse, in the sense that it affected not 220,000 people but over 6m.  Ireland’s banks did all the same reckless things that Iceland’s did,  but the absolute amount was way bigger.  Now the examination of their books (yet again), called stress tests, have revealed yet more dodgy investments and bad debts.  Now Ireland’s domestically-owned banks will be reduced to just two large conglomerates, both publicly-owned with taxpayers money, while the others will be folded up and their assets sold off.

Now those of who read this blog might be tempted to think that, in a way, the public takeover of the Irish banks is good news.  It could lay the basis for a proper banking service that could help businesses and households expand and survive with credit at reasonable rates.  Wrong!  The new coalition government in Ireland of the conservative Fina Gael and Irish Labour has no intention of keeping these banks in the public sector for one moment longer than necessary.  It is looking to sell them onto private investors, probably foreign banks, once the taxpayer has spent billions in cleaning them up.

And also the huge cost of this bailout is totally unnecessary.  The E70bn figure is only that large because investors in the Irish banks, who greedily put their money there to make higher returns are to be protected.  Those who bought bonds of the banks are assured of 100% repayment.  And their investments add up to more than half the cost of the bailout for taxpayers.  Ireland’s people are being asked to ‘tighten their belts’ over the next four years through huge cuts in public services, higher taxes across the board, 30,000 job losses in the public sector and more from the private sector, forcing thousands to emigrate out of the country yet again.

None of this would be necessary if the bondholders (who are mainly other big banks in Europe and speculative hedge funds) were not being compensated.  The government says it has been forced to agree to protecting the bondholders or the EU would not provide funding for the bailout.  But that’s nonsense.  If it had taken over the banks without compensation to the bondholders, then it could have adequately capitalised the banks with the funds of the National Pension Reserve Funds which had some E50bn in cash before the crisis began.  With the state pension funds backing, Ireland’s banking industry could be put on a firm footing and controlled and directed to provide credit for an expansion of public investment.  As it is, the pensions funds are being directed to pay for the speculative bondholders investments.

This outcome is very much a repeat of what happened in the US when they bailed out their banks.  Under the troubled asset recovery program (TARP), the former head of Goldman Sachs, Hank Paulson, made sure that over $700bn of taxpayers money was put aside to provide capital for the banks and ensure that their investors did not lose a cent.  AIG, the world’s largest insurance company was bailed out with over $150bn, most of which ended up in the accounts of Goldman Sachs, JP Morgan etc  to which AIG owed money.

Thus bank bailouts and nationalisation during the Great Recession have delivered ‘socialist handouts’ to the rich and ‘capitalism’ for the poor.  Profits are rocketing and wages are falling.  Taxes on personal incomes are rising, welfare benefits are falling and yet corporation tax is being cut.  Ireland is a classic example of who is paying for this crisis.