Ireland should default on the bankers

Support in Ireland for a debt default is gathering pace:

"[T]he demand for default has become a growing theme on radio talk shows and public commentary. The Sunday Independent nationwide telephone poll of 500 people found that 57% were in favour of default on debts to bondholders within Irish banks with 43% opposed.
This reflects an emergent belief among opinion formers that the state simply cannot support the debt burden it has asked to shoulder."

The word "default" is in itself something of a misnomer.  It assumes that the debt is, or should be, the state's - or, more specifically, the public's - responsibility in the first place, something which it is seemingly obliged to 'honour.'

In truth, the crisis is a consequence of the banks' reckless activity and bondholders' own speculations, gambles and losses. So, why should the Irish public be saddled with that debt 'obligation'?

It's a bit like someone going to a casino, gambling away all their money and expecting you to cover their losses.

Indeed, as Michael Burke shows, the banks and speculators have been demanding rather than expecting public bailouts:

"The response of financial markets was both swift and brutal, leading to a buyers' strike of government debt and the inevitable bailout. But it is important to be absolutely clear who is being bailed out. In the case of Greece the total amounted to €110bn, while there are fears that in the Irish case the rumoured sum of less than €100bn will not be enough to repay all the creditors. It is these creditors who are being bailed out. There is not a cent in either package that will be used to stop school or hospital closures or to prevent a single lost job." 

Harry Browne notes how the casual speculations and political indulgence of Anglo Irish Bank was symptomatic of the wider financial hedonism:

 "Anglo was a nouveau riche institution that had essentially become a casino for the country’s property developers as the bubble inflated. The more established banks, AIB and Bank of Ireland, followed its example; but they at least also had functioned as conduits of credit for other parts of the economy. Anglo was more like a private club with no systemic importance. Nonetheless, Lenihan guaranteed it, at a cost to the Irish state that we now expect will top €30 billion.  We now know too that Anglo’s list of bondholders is a who’s who of European capital." 

Mike Whitney echoes the point in his Memo to Ireland:

"Ireland is being asked to cut to social services, slash wages, renegotiate contracts, and dismantle the welfare state so that undercapitalized banks in France and Germany can get their pound of flesh. But, why? They're the ones who bought the bonds. No one put a gun to their head. They knew they could lose money if Irish banks went south. That's the risk they took. "You pays your money, and you takes your chances." Right? That's how capitalism works.

Not any more, it doesn't. Not while Cowen's in charge, at least. The Irish PM has decided to bail them out; make all the bondholders "whole again." But who made Cowen God? Who gave Cowen the right to hand over his country to the IMF?"

 But the case for going bust is also being echoed by elements of the business media, as in this Bloomberg piece from Matthew Lynn:

"It might sound like madness for a drowning man to refuse a lifebelt. But the decision the Irish make in the next few days will shape the future of their nation for a generation. Ireland would be better off going bust than taking a loan. The conditions attached to a rescue aren’t worth it: Once it takes EU money, it will never get off the hook. And the Irish banks aren’t worth saving anyway. Defaulting on your debts is a far less scary prospect than usually portrayed. The real question is whether Ireland’s politicians have the courage to take that step."

That looks increasingly unlikely.  In fact, the pain is compounded by news that Ireland's National Pension Reserve Fund (NPRF) will be used towards the €85 billion bailout package - while the major bondholders share none of the losses.

Again, though, there are other ways of dealing with the crisis.  Whitney again on "Ireland's hammering":

"This is nothing but extortion. If Ireland wants to put its banks on solid footing, there's a way to do it that doesn't involve years of debt-slavery for its people. The government can underwrite the banks with a €10 billion loan from the Pension Reserve Fund that will guarantee deposits while the banks are nationalized and restructured. It is an excruciating process, but it's been done many times before. Ireland does not have to accept indentured servitude if it chooses not to.  And why would the government even consider paying an interest rate of 5.8% per annum? Interest rates should be the same as they are for the banks; 1 percent. Should a sovereign nation get a worse interest rate than a crooked banker who ripped off millions of investors?"

 "Default" isn't the apocalyptic or humiliating process we're encouraged by the financial masters to believe.  It's the viable financial, political and social defence of a country's economy and the people it's supposed to serve.

Let the bankers and bondholders go bust rather than the society and its citizens.

John