Wednesday 17 November 2010

Follow The Money

This whole 'bail out' thing is getting mighty confusing, even for an accountant like me; Irish banks (who made appalling losses in the land price bubble, the main beneficiaries of which were the Irish Home-Owner-Ist élite, i.e. property developers and politicians) were bailed out by the Irish government and the European Central Bank (part of the EU); current thinking is that the Irish government will in turn be bailed out by the EU itself and the International Monetary Fund.

The EU is using two funds, a €60 billion one (the 'EU emergency fund') to which the UK has to contribute 13% and a €440 billion one (the 'EFSF') to which only Euro-zone countries have to contribute. The UK also has to chip in 4% to the IMF (from memory).

But as we know, banks, governments, the EU, the ECB, the IMF etc have no money of their own, they are just middlemen, who channel money from bondholders, taxpayers or depositors to somebody else. We know that bond holders are not being asked to take too much of the losses on the chin, neither are depositors (but most depositors are also taxpayers, so that cancels out), so ultimately, it's taxpayers - whether Irish, British, or from the wealthier EU countries (France, Germany etc) who are bailing out the bondholders.

But who are these mysterious 'bond holders'?

David Malone must have spent hours or even days trawling through all the accounts and starting with the Anglo-Irish Bank has followed the money upstream, and concludes, in this splendid though rather lengthy post, that rather unsurprisingly:

The bond holders of Anglo Irish are a very good guide to the identity of the bond holders of ALL OUR BANKS. The bond holders being protected, in every nation, on the advice of the banks and financial class, are THE BANKS AND THE WEALTHIEST OF THE FINANCIAL CLASS.

THEY are screwing YOU!

For anyone interested in a very different take on the financial crisis, the failure of the policy of bailing out the banks and what it means for us, the book, The DEBT GENERATION is now finished and shipping.


David Malone appears to be a bit of a lefty, but that still seems a fair summary to me - this is what Home-Owner-Ism is ultimately all about!* Further, the figures for the UK are basically the numbers for Ireland but multiplied by ten i.e. Irish banks needed €80 billion in bail-outs or guarantees; UK banks needed £800 billion in bail-outs or guarantees etc etc.

* Yer average homeowner is not a beneficiary of Home-Owner-Ism at all; these are the foot soldiers, many of whom think that they become richer when house prices rise; or when they prevent the construction of new housing or new infrastructure; or even when Council Tax is 'frozen', but these gains are largely illusory.

22 comments:

Old BE said...

Aren't the bondholders ultimately the pensions and investments of everyone?

Mark Wadsworth said...

BE

a) That's the whole point of the linked post - the bondholders are not 'widows and orphans' or 'pension funds', they are just rich people generally, foreign banks, sovereign wealth funds etc etc.

b) The bitter irony is, even if it were true that the bondholders are pension funds, the Irish government wants to use Irish state pension fund money to bail itself out, so that it in turn can bail out Irish banks, so best case, the pension funds are bailing out themselves (or being forced to throw good money after bad).

Captain Ranty said...

Mark,

I have a great South Park clip over at mine that explains this beautifully.

Many a word said in jest, and all that...

CR.

Mark Wadsworth said...

CR, that clip is spot on, but things are a bit simpler in the USA - over their it is straightforward embezzlement; it's all a bit more complicated in the UK/the EU.

In the UK alone, I am prepared to give our politicians the benefit of the doubt and put it down to sheer stupidity, and failure to hold their nerve when there was a 'run' on NR (there was no real risk that depositors would have lost a penny, of course).

Our banks are in relatively good health (it was all shroud waving, FFS), there was never a need for a bail out - debt-for-equity swaps would have sorted out the men from the boys.

Tim Almond said...

Am I a lefty or a righty? I don't know, but I don't mind the Steve Jobs, Bill Gates and Sergey Brins of this world being as rich as Croesus.

I used to identify as a righty, but I think I'm more of a lefty who accepts people for how they actually are, rather than how I'd like them to be.

Mark Wadsworth said...

JT, me too :-)

It's called being small govt, free market liberal, or Libertarian in the old fashioned Victorian sense of the word (who cared about economic freedom far more than whether you were allowed to smoke in pubs, which I would allow, of course).

As opposed to the modern day Faux Libertarians, who want entirely conflicting things: the freedom to do what they want; the protection of government against others doing what they want; no obligation to pay for that protection; and who oppose state-imposed economic slavery (income tax) while having no moral objection to economic slavery by The Private State.

Old BE said...

MW, I have a pension pot and I am certain that at least some of it is invested in bank shares and government bonds.

You are probably right that by quantity, most of the bonds are owned by rich people. That is because rich people tend to have more money than less rich people. That doesn't mean that if the bondholders were left out in the cold that less rich people's pensions and investments would not be affected.

Now, whether people should be held responsible for their choice of pension fund and investments is another question.

Mark Wadsworth said...

BE, sure, some people own banks bonds, others don't. But they are all taxpayers.

But what moral justification is there for some taxpayers to be forced to bail out others? What if I made the sensible decision that pension comapnies are thieveing, incomptetent shits and have never trusted them with a penny of my money? What if it turns out that I am correct? Does that mean that I have to bail out the naive and the corrupt anyway? If you go this far, then why not just give the government ALL your money and let them make ALL the decisions?

Mark Wadsworth said...

BE, more fundamentally, there was no need to bail out the UK banks in the first place, see my mini series, as to the Irish banks, why should I care?

Jill said...

And in the meantime, we should be in a deflationary period, but Bernanke and King are busy printing money so commodities are on the rise because investors want returns. It's a double whammy on the taxpayer, who is seeing the cost of food and warmth rising exponentially.

It's a heist.

I have also given up on left and right. I'd see myself as an extreme social libertarian. Where the economy is concerned, my thoughts are much less philosophical. Something that worked (that is to say, achieved wellbeing and fulfilment for as many citizens as possible while acknowledging humans come in many different guises) would do me. I couldn't care less what label it has on it.

Old BE said...

MW I am largely in agreement with you. I was just saying that your "them/us" point that the banks are not owned by "us" is just not realistic.

The giveaway in my comment was where I wrote "Now, whether people should be held responsible for their choice of pension fund and investments is another question."

Mark Wadsworth said...

Jill, there is a tried and tested system that should tick your boxes called 'Georgism'.

BE, yes, I appreciated your giveaway comment, but the point is I do not want to own shares in UK banks (but am forced to, as a taxpayer); I do not want to own Irish government bonds; I do not trust pension funds with my money (sod the 'tax reliefs', they are illusory); I don't want to bail out the Home-Owner-Ist elite; I barely trust the government etc.

I have made my investment decisions - if they are wrong, then I lose money, fair enough.

But if I am right and everybody else is wrong, then what good does it do me if I have to pay extra tax to subsidise all the other crap? I don't mind paying tax to pay for other people's proper state pension etc, that's fine, but how much more do they want?

James Higham said...

The bond holders of Anglo Irish are a very good guide to the identity of the bond holders of ALL OUR BANKS. The bond holders being protected, in every nation, on the advice of the banks and financial class, are THE BANKS AND THE WEALTHIEST OF THE FINANCIAL CLASS.

Oh yes, incest is alive and well.

Mark Wadsworth said...

JH, indeed, the Home-Owner-Ist élite (see the last post I did on your 'blog or first link in my post above) are very much another facet of "Them".

Unknown said...

That's right if your are a home owner and lose your job which in the current climate is a disaster, you may lose your home.
So the financial elite buy low then sell high.
Can't go wrong can they.
We are cash cows and wealth creators for them ,nothing more.

Mark Wadsworth said...

McG, the good news is, you get to keep the lovely mortgage debt, even if you lose your home.

Golem XIV - Thoughts said...

Very kind of you to mention the bond holder piece.

You mention I am a bit of a leftie. And I wanted to say that one of the very few good aspects of this banking crisis is how it seems to be re-drawing old divisions.

I find I often have much in coomon with people who identify themselves as right wing because we are united in oposition to those who are simply dishonest.

I don't mind honest bankers and honest traders. I abhore those who have taken to corrupting not only the banks and markets but our governments as well.

I fear for the health of our democracy. It seems to me this is a cause where right and left are less important than whether one wants democratic control or are happy with a financial oligarchy.

Thanks again.

Mark Wadsworth said...

G, my pleasure, your post was the 'missing bit' that we needed.

From where I'm standing there is no left/right divide any more, all the major parties are exactly the same, big state, high taxes on everything except land, bail out your friends, cave in to the EU, etc etc.

Old BE said...

Am I right in remembering that Ireland abolish property taxes completely in favour of an additional income tax to be distributed to local government?

Mark Wadsworth said...

BE, it appears that they do not even have Council Tax.

I covered the topics of the massive tax breaks for land ownership and property development and the former PM's frank admission that a property or land value tax would have prevented the house price bubble in earlier posts.

formertory said...

From where I'm standing there is no left/right divide any more, all the major parties are exactly the same, big state, high taxes on everything except land, bail out your friends, cave in to the EU, etc etc.

Precisely the conclusion I'd reached, with some reluctance. Just a few closely matched shades of grey.

In a logical world, it'd be treasonable because it stems directly from the desire of a political bloc to be in power at any price. That came originally from the socialist end of the spectrum and has infected all the rest. Principle is dead, unfortunately.

Robin Smith said...

Yeah I know David Malone. He's made some very good films. We spoke a few years back about just ignoring the elites as being the best option.