Tuesday, November 23, 2010

Ireland Et All

Ireland Et All

Now it’s Ireland’s turn to seek a bailout from Europe and the IMF.
Actually it’s not the government that has the problem - though for sure
the country has a very large budget deficit and public debt - but it’s big
banks. Gotta save those big banks and the big money people who are
invested in them. If we just give them all the money they need to be
solvent, then they’ll start lending again and all’s right with the world.
They’ve already gotten $178 billion from the European Central Bank and $48
billion from the Irish government; about $5000 for every person in the
country. But that was not enough so there must be no end to feeding the
banksters. The Irish government is now about to get another $130 million
to help out banksters in need. Considering all the ‘financial instruments
of mass destruction’ - in the words of Warren Buffet, one of the world’s
richest men - floating around the system there will never be enough money
to make them right.

Why not just let them go broke, pay off depositors, the people who had no
role in their recklessness, avarice and malfeasance, and screw the rest.
If you invest in a bank, you are gambling on its value rising. If the bank
is worthless then you lose: It’s very simple, it’s called the free market;
or unfettered capitalism, you know, the kind that makes everybody rich,
except when it doesn’t. In that case, pure capitalism requires that you
make sure nobody on top loses money, otherwise the whole financial edifice
comes crumbling down. And where would we be then?

Well, why not let the greedy bastards go bust and then start some new
untainted banks. The world would still be awash in investment cash, what
with the great transfer of wealth in the past thirty years from the lower
classes to the upper, so there’d still be plenty of money to start new

Ah, but the greedy bastards own the governments, so that can’t be allowed
to happen. If a little guy runs into a string of bad luck, maybe loses his
job in a market where there is no replacement work, or has his house
foreclosed and winds up on the dole in Europe or on the street in America,
then that’s the breaks; government can’t be responsible for the comfort
and happiness of every citizen, besides, if you help the little guy too
much he’ll lose his incentive to work.
For the fat cats, on the other hand, it doesn’t matter how much you give
them: since they’re already rich, it doesn’t impact their desire to have

We heard the term moral hazard quite a bit back in 2008 when governments
in much of the developed world rushed to the rescue of the banksters. If
you bail out banks that have taken excessive risks, then they’re likely to
do it again. Makes perfect sense. There’re lots of profits when things are
going well and free money from the state when your speculations go awry.

Back in 2008 when Lehman Brothers investment bank went bust without
government help, the media characterized the result as chaotic even
catastrophic for the markets. Chaotic for who? Well, the people who
gambled on the bank and lost and further, there was a loss of confidence
in the markets which caused a lot of stocks to go down and people to lose
money. The magic of the free market again. Is it the responsibility of
government to protect investor money? Evidently yes. So now, to avoid the
turmoil of its big banks failing and causing hardship for their owners,
Ireland is going to borrow tens of billions more to shore them up.
Meanwhile the people are seething with contempt for the banksters and
their government.

Ireland levies very low corporate taxes, which along with property
speculation caused the bubble that has since burst, but is refusing to
consider raising those rates in spite of the country’s terrible financial
straits. However, if you don’t levy taxes where the money is, you’ll never
have sufficient revenues to pay your bills except in extreme bubbles.
Those low taxes have been a problem for other European countries right
along who are now expected to put up the money to rescue Ireland’s banks.
They are demanding changes before they hand over the cash. When you are
out there hat in hand seeking a bailout, you don’t get to keep all your
prerogatives, so it’ll soon be faced with a hard choice.

America’s financial situation; huge budget deficit and national debt, is
equivalent to Ireland’s and its solutions quite similar. Obama’s Deficit
Reduction Commission, aka Catfood Commission – let them eat catfood – is
recommending large cuts in Social Security, Medicare and every program
that helps the people at large, while also recommending tax cuts for
corporations and the wealthy. After nine years of Bush tax cuts not
reviving the economy and not resulting in a balanced budget, it seems pure
insanity to imagine further cuts will now reduce the deficit.

But that’s where the US is at. The American people have just elected a
House of Representatives that has as it’s top priority screwing the
commoners so the wealthy can have more. And the country still has a
president who’s will to fight for you and I is as resolute as a wet

Sometimes I look back at what I’ve written in the past and wonder why I
keep doing it. I sound like a broken record and expect maybe you are bored
by now. Over the years I’ve written a succession of times that the
American people won’t smell the shit – that stuff that’s just been
liberally spread around after hitting the fan - until it’s right in their
faces, and yet it still keeps coming and they still can’t smell it. I keep
writing that things won’t change until the situation gets really bad and
yet things keep getting progressively worse and the only real response is
the Tea Party which is proactively dedicated to making things even much
worse. Meanwhile, no matter how bad it gets, I can’t even imagine a
scenario in which the people will rise up to demand real changes.

Moreover, in contrast to Ireland which has instituted severe austerity
measures and raised taxes for many, the US is working on a tax cut. It’s
as if the two countries were not on the same planet. Forty percent of the
US budget now comes from borrowing. Imagine where you as an individual
would be if you earned $60,000 a year but borrowed so you could spend
$100,000. How long would it be before you had to make painful adjustments
and started paying that debt off.

As a government, you have another option, you can print money, though that
too is fraught with peril. If you go too far, your money becomes worthless
and that is especially problematical for a country that’s dependent on the
wealthy and other countries to buy your debt.

Some leftist economists downplay the deficit problem saying it’s most
important to get the economy moving because that brings in additional
revenue and thus brings the deficit down. But without adequate taxation
the deficit can never be brought under control. The other problem with
giving tax breaks to the wealthy, and personally I consider someone making
$200,000 per year to be wealthy, is that they will speculate with part of
it - something which has no redeeming value for society – and since they
already have everything they need, what extra they do spend will
unnecessarily tax the world’s resources and environment.

We need to encourage people who are already wallowing in plenty to work
less, earn less and spend less. This of course is impossible for the
leadership to contemplate since they are locked into endless growth as the
be-all and end-all of civilization. The fact that endless growth is a
theoretical impossibility doesn’t seem to register.

It’s all ass-backwards. You rescue the big banks so they can go on the
business of foreclosing people’s homes and charging outrageously usurious
interest on credit cards even though they are now able to borrow money
from the Fed at zero percent interest. You save them from their own
disastrous and dishonest actions and thus keep them from bankruptcy by
plying them with public money so they can pay themselves record bonuses.

It’s all bass-ackwards and it sounds like I keep repeating myself just to
have something to say. You’ve heard it all before. Why aren’t you on the
streets like the French protesting against sacrificing benefits for
commoners so the opulent class can have more? Why aren’t you all seething
with vitriol at the great bankster ripoff? Or if you are, what are you
doing about it? Why is it that only imbecilic Tea Partiers care enough to
take a stand?

I have no idea: well, maybe I do but hardly anything about American
politics seems to make any sense anymore. The only things that would make
a difference for the American people; single payer health care, true
banking reform, a solid effort to tackle climate change and approaching
resource depletion with a carbon tax and a massive program to convert the
US to sustainable energy are nowhere on the horizon; truly inconceivable,
truly unimaginable. A truly fucked up state of affairs. So be it.


Shane Lee said...

Stan, a fair analysis. A couple of points to note from the coalface. The essence of what is going on here is that the French and German governments must protect their banks who are the major bondholders in the Irish banks. Instead of bailing out their own banks they are transferring the obligation onto the Irish people. Whilst the sums involved comparative to the size of their economies are relatively small, for us it is the nightmare scenario. That said our elected government chose this path...

Regarding the Corporate Tax rate that is one area where I would disagree. If they raise the rate income from corporation tax will fall (this has been proven here in the past), inward investment will slow and many of the associated jobs will be lost. With the exception of the skills available in our economy it is the only competitive advantage we have got and it will not be lost in these negotiations. If the Germans were to insist on it the Irish would likely look at nuclear options both because it may then make more economic sense to and because it would be political suicide to agree to any raising.

Stan Kahn said...

I agree with the first part but not with the need to provide a tax haven for corpses. Ireland has a lot going for it besides gifting corpses. If industry slows down a little bit it'll just mean less bubble to break later. Heavy taxes in other Euro countries haven't led to industry exodus and besides if they don't pay the little guy has to.
It has to come from somewhere.
Anyway the nuke option is the best... let the greedy bastards pay.