Bank bailout: twice the cost of the Treaty of Versailles

[canicemcavoy]

An eyeopening comparison:

[broken link removed]

However, our Irish bank reparations dwarf those of Versailles. The Treaty of Versailles demanded that Germany pay €318bn in today’s money. From a German population at the time of 58 million, this equates to €5,482 per person in today’s money. If bank bailout costs are €50bn, then this will work out at €11,235 per head — or more than twice the cost per head of the Treaty of Versailles to the average German.
Let that sink in a bit. Remember what we know about how reparations destroyed democratic Germany and just imagine what our bank reparations will do to us.

 

[Chris]

Very good comparison indeed, but he does get one thing wrong. The reparations didn't destroy democratic Germany; what destroyed democratic Germany was its Reichsbank and the policies dictated by its president Rudolph Havenstein.
What I like is that McWilliams doesn't account for any value held by the "assets" purchased through the bailouts, as their true market clearing value is far far lower than what has been paid for them, both through direct bailout and indirectly through NAMA. Better to assume these are worth nothing and look at any returns as a bonus.
What he doesn't mention is that Germany's current national debt is equivalent to about €22,400 per person, USA $45,000 per person, UK £15,300, France €25,000, Australia AU$46,500, Japan Yen7200000, the list goes on. The world is so deep in debt, that it baffles me how politicians and some economists are finding support for going even more into debt. Debt is the source of our problems, more of it will only make things worse.

 

[serotoninsid]

I heard Alan Dukes being interviewed by Matt Cooper on TodayFM - and Cooper put it to him, why did we have to throw money into the hole that is Anglo. His answer was..what other alternative was there? Cooper: Let the bank collapse.
Dukes: Anglo was too important.

Now, I have no clue about these things - but how the hell is that bank so important? Why can free market capitalists suddenly have this sort of protection. With every investment comes risk - thats their loss, not ours????

When you think of the positive things that money could have gone towards(not that it is actually ireland Inc's money anway)....it's truely shameful.

I can't understand how this is not a bigger deal.

 

[Chris]

I heard Alan Dukes being interviewed by Matt Cooper on TodayFM - and Cooper put it to him, why did we have to throw money into the hole that is Anglo. His answer was..what other alternative was there? Cooper: Let the bank collapse.
Dukes: Anglo was too important.

Now, I have no clue about these things - but how the hell is that bank so important? Why can free market capitalists suddenly have this sort of protection. With every investment comes risk - thats their loss, not ours????

When you think of the positive things that money could have gone towards(not that it is actually ireland Inc's money anway)....it's truely shameful.

I can't understand how this is not a bigger deal.

I completely agree with you. What we have is not a failure of free market capitalism, but a failure of interventionism and crony capitalism. Politicians love to apint the picture that if Anglo had been allowed to go bust, the whole operation would have stoped to exist. But this is not how bankruptcy works. A liquidator would have come in and sold off the remaining valuable assets and business devisions, and the scrap that was left would be folded up.
The most positive thing the money would have gone towards is not increasing debt. It is debt (both private and public) that is dragging this country down, and no matter how much politicians decide to ignore this, it doesn't change the fact.
And I firmly believe that by "Anglo was too important." Dukes actually meant "Anglo was too important to us." (and by "us" I don't mean the taxpayer)

 

[Duke of Marmalade]

More nonsense from DMcW.

The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn. Let's say our banking bailout will cost 20% of GDP. That makes the Versailles settlement almost 14 times worse not half. Or put another way the equivalent bank bailout would be €400bn, larger than even DMcW would dare suggest.

He has made the mistake (or was it deliberate) of ignoring economic growth and has simply made an inflationary adjustment.

Why oh why did Lenny have a garlic chewing session with this idiot?

 

[Sunny]

Well said Duke. Think it was the usual deliberate headline grabbing nonsence.

 

[sunrock]

In Germany after the treaty of Versailles economic impact was felt , alot of people didn`t have enough to eat.Prostitution by women to buy food was commomplace.Comparing the irish ecomic position today and its effect on the irish public to the serious hard times suffered by the germans then is just ludicrous

 

[Complainer]

And I firmly believe that by "Anglo was too important." Dukes actually meant "Anglo was too important to us." (and by "us" I don't mean the taxpayer)

Just for the record, Dukes had nothing to do with Anglo prior to the collapse, and has stepped in to lead the rescue mission. Having said that, his current priority and prime duty is to Ango, not to the state.

The huge mistake was made when the Govt wrote the blank cheque in Sept 2008 to guarantee unlimited and unknown Anglo debts. There should have been a clear limit set at that stage. I think I heard that Anglo were looking for €4bn at that time, which seems like chickenfeed today.

 

[canicemcavoy]

The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn.

As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.

 

[Sunny]

As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.

Well then use GNP. Still the usual tabloid rubbish headline that he is famous for.

 

[Duke of Marmalade]

As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.

Please don't be silly Do you even understand the GDP/GNP difference? I don't know what Germany's GNP was at the time but the reparations themselves probably made it negative or else very small. So using GNP would make Germany's plight look far worse. I am building a bit of a collection of McWilliams outrageous thought pieces. I thought "leaving the Euro" was bad, but this is in a league of its own. The capacity of people like yourself but also many others who should know better (Lenny?) to drool on these wisdoms from McWilliams is itself very disturbing.

 

[serotoninsid]

Just for the record, Dukes had nothing to do with Anglo prior to the collapse, and has stepped in to lead the rescue mission. Having said that, his current priority and prime duty is to Ango, not to the state.

Agreed. I guess because of his role, he felt he had to say this - but i still yanks my chain to here this.

The huge mistake was made when the Govt wrote the blank cheque in Sept 2008 to guarantee unlimited and unknown Anglo debts.

Agree completely.

There should have been a clear limit set at that stage. I think I heard that Anglo were looking for €4bn at that time, which seems like chickenfeed today.

Were they mislead or did they know at that point? Surely for this type of support, Anglo had to open their books completely?? Even if they didn't know, surely there would have been a point whereby they shouted 'stop'!?

 

[canicemcavoy]

Please don't be silly Do you even understand the GDP/GNP difference?

Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).

I don't think you actually know what you're arguing; you're just one of a bunch here who automatically have a knee jerk reaction to McWilliams based on his appraisal of the property bubble. It's rather childish to be still peeved about that.

 

[Complainer]

Were they mislead or did they know at that point? Surely for this type of support, Anglo had to open their books completely?? Even if they didn't know, surely there would have been a point whereby they shouted 'stop'!?

It really doesn't matter what they were told by Anglo. They should have taken steps to make sure there was an absolute and clear limit to the state exposure. If this limited support wasn't enough to save Anglo, then that should have spoken volumes.

 

[ccbkd]

More nonsense from DMcW.

The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn. Let's say our banking bailout will cost 20% of GDP. That makes the Versailles settlement almost 14 times worse not half. Or put another way the equivalent bank bailout would be €400bn, larger than even DMcW would dare suggest.

He has made the mistake (or was it deliberate) of ignoring economic growth and has simply made an inflationary adjustment.

Why oh why did Lenny have a garlic chewing session with this idiot?

Sorry to nit pick but can you flesh out your figures a little i.e you say the cost of our banking bailout is 20% of GDP and then arrive 14 times worse than half...I am a little lost on this because i don't have the 20% figure to arrive at the 14 times worse scenario..I think it the GDP figure missing here.. I like when people analyse Journalist articles and refute them with cold hard logic and in this case maths are the only show in town when it comes to logic, so again if you can flesh out figures i think you're argument would be solid.

 

[Sunny]

Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).

I don't think you actually know what you're arguing; you're just one of a bunch here who automatically have a knee jerk reaction to McWilliams based on his appraisal of the property bubble. It's rather childish to be still peeved about that.

Actually he is right. Using a GDP/GNP per capita ratio for comparisons especially across different era's is fundamentally flawed. McWilliams is a very accomplished economist. He knows this but is more interested in witty stories than economic fact. That is why people have such problems with him.

 

[Duke of Marmalade]

Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).

I think we are talking at cross purposes here and on a very minor irritant in my argument.

You want me to use GNP, fair enough. Let me go real slow:

Ireland GNP 2010(E) €140bn
Anglo Bail-out €30bn(?)
As a percentage 21.4%

Germany GDP 1918 $12bn
Reparations $33bn
As a percentage 275%

Versaille/Anglo Ratio = 275/21.4=12.9

(hope that helps ccbkd)

Sunny is right of course, these comparisons of GDP/GNP between two completely different economic paradigms must be handled with care. But any correction on this score would actually make us consider Versaille far worse. Let me explain. A man earning 100K can far better afford a 100K loan than a man earning 10K can afford a 10K loan.

As sunrock described, post war Germany was pushed into terrible human deprivations. 21st century Ireland starts from a much higher standard of living and can cope with a bit of austerity.

 

[Duke of Marmalade]

I was brought up in Northern Ireland. There was a certain mindset there that liked to think the treatment of Catholics was on a par with the Nazi treatment of the Jews.

This latest McWilliams outrage is pandering to a similar mindset almost wanting to believe that our banking crisis is worse than the infamous Versaille settlement.

Some good may come of this. Those media fans who think McWilliams and other academic doomsayers are the fountain of all wisdom may be scandalised by this incredible overtsatement of the problem.

 

[Conan]

Am I missing something:

1. The Govt closes down Anglo
2. All the depositors (not Bond holders, not equity holders) seek their deposits back
3. The Bank quickly run out of cash (because they had lent out most of the deposits)
4. The Govt then have a choice of filling the entire shortfall (much more than €25b) or renaiging on deposits (chaos)

Alternatively they seek to prop up the bank, avoid a run on deposits (plus the unboubted contaigon risk to AIB and BOI), avoid having to sell all the assets in a fire sale and hope over time to sell of the assets in a more orderly fashion (bad banK), thus a hopefully getting back some of the cash injected.

Listening to all the so called economic experts (McWilliams, Lucey et al) I am reminded of the definition of an economist as someone who knows 1000 ways to make love but does not know any women.

 

[Complainer]

Am I missing something:

1. The Govt then have a choice of filling the entire shortfall (much more than €25b) or renaiging on deposits (chaos)

Where exactly and what exactly is the chaos? Let's the govt provided a limited guarantee of say €50k or €100k per depositor, and let the 'free market' look after the rest. No-one is going to go hungry as a result of that approach.