It's fall, and the problems have not disappeared

One of the things I notice about covering the subjects of the real economy, is that there's not a lot of folks who understand this subject—no matter how hard I try to make it understandable.  Educated people take pride in their technological illiteracy.  The technologically literate are often so politically primitive you just shake your head in wonder.  Here's the deal—everyone who likes to work on big and complex projects should be a New Deal Democrat and a Keynesian.  Why?  Because private, for-profit finance capitalism simply cannot afford those big projects, and even if they could, they don't have the necessary imagination.  That takes governments who don't care if a venture turns a profit or not.  You think for-profit rocketry will ever build a Saturn 5?  Or the interstate highway system?

But...look around you.  Find some working engineers.  Chances are they will identify themselves as Republican or Libertarian—precisely the sort of politics that will make it impossible to get decent jobs.  Of course, you cannot blame them—the Democrats haven't been New Deal Keynesians for a long time either.  But they should be using their considerable clout (they run everything important, after all) to advance their economic interests.  But nooooo.  They are still reading Ayn Rand. (sheesh)

Anyway, the traffic at real economics goes down during the summer.  As born worrywart, I have dark thoughts about such events even though I take comfort that my loyal readers are roughly double what they were last summer.  Slow summers mean my sources dry up too.  Europe takes the month of August off.

It is good to take time off.  But the big problems have not gone away.  There's this little matter of whether our sources of food are being destroyed by climate change. And then there are those financial turds dropped by the banksters.  So long as we are diverting our resources to loan sharks, there is exactly zero chance of fixing the real economy.  Michael Lewis writes here about the millstone the banksters have hung around the necks of the Irish.

"When Irish Eyes Are Crying": Michael Lewis On Panicked Politicians, Feckless Bankers And Billion-Dollar Bailouts

Michael Lewis's piece in Vanity Fair tells the tale of the staggering bank losses and subsequent bailouts that precipitated Ireland's bankruptcy and IMF rescue. There's a hint of paddywhackery here and there (did you know that the Irish like to drink and still believe in fairies?), but Lewis tells a story better than anyone and he hits all the right notes with this one: panicked politicians, feckless bankers, corrupt developers and a real estate wasteland. More than anything, Lewis recounts Ireland's version of the now familiar tale of private gains for banks and public losses for you know whom. But, nowhere else are so few being asked to pay so much for the crimes of their banks - in this case $35,000 for every screwed Irish citizen, including the yet-to-be-conceived. If you have a few minutes to set aside for some great writing, this is the piece.
--

When Irish Eyes Are Crying

by Michael Lewis

First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country—from one another. After which their banks and government really screwed them. So where’s the rage?

When I flew to Dublin in early November, the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers decided to guarantee all the debts of the country’s biggest banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a “liquidity problem,” faced losses of up to 34 billion euros. To get some sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.

The two other big Irish banks, Bank of Ireland and, especially, Allied Irish Banks (A.I.B.), remained Ireland’s dirty little secrets. Both older than Ireland itself (the Bank of Ireland was founded back in 1783; A.I.B. is made up of three banks founded in the 19th century), both were now also obviously bust. The Irish government owned big chunks of the two ancient banks but revealed less about them. As they had lent vast sums not only to Irish property developers but also to Irish homebuyers, their losses were also obviously vast—and similar in spirit to the losses at the upstart Anglo Irish.

Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.”

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.

In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—which three years ago was a surplus—is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.

Yet when I arrived, in early November 2010, Irish politics had a frozen-in-time quality to it. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women booted the alpha males out of the banks and government. (Iceland’s new prime minister is a lesbian.) In Greece the business-friendly conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding, but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced “Feena Foil”), would remain in office into 2011. There’s been no Tea Party movement, no Glenn Beck, no serious protests of any kind. The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950. “The problem with Ireland is that you’re not allowed to work with Irish people anymore,” I was told by an Irish property developer, who was finding it difficult to escape the hundreds of millions of euros in debt he owed.

Ireland’s regress is especially unsettling because of the questions it raises about Ireland’s former progress: even now no one is quite sure why the Irish suddenly did so well for themselves in the first place. Between 1845 and 1852, during the Great Potato Famine, the country experienced the greatest loss of population in world history—in a nation of eight million, a million and a half people left. Another million starved to death or died from the effects of hunger. Inside of a decade the nation went from being among the most densely populated in Europe to the least. The founding of the Irish state, in 1922, might have offered some economic hope—they could now have their own central bank, their own economic policies—but right up until the end of the 1980s the Irish failed to do what economists expected them to: catch up with their neighbors’ standard of living. As recently as the 1980s one million Irish people—a third of the population—lived below the poverty line. more