Depressions are class wars and ours has started.

Ireland Goes Bust, Irish Bank Run

by Mike Whitney

It’s a structural problem in the so-called shadow banking system for which there’s no remedy. Conventional banks exchange bonds with shadow banks for short-term loans agreeing to repurchase (repo) them at a later date. But when investors get nervous about the solvency of the bank, the collateral gets a haircut which makes it more expensive to fund operations. That sends bond yields skyrocketing increasing the liklihood of default. In this case, the debt-overhang from a burst development bubble is bearing down on the Irish government threatening to bankrupt the country. Ireland is in dire straights. Here’s an excerpt from an article in this week’s Irish Times which sums it up:

“Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK’s Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.

With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.” (“If you thought the bank bailout was bad, wait until the mortgage defaults hit home”, Morgan Kelley, Irish Times)

So, the Irish government could have let the bankers and bondholders suffer the losses, but decided to bail them out and pass the debts along to the taxpayers instead. Sound familiar? Only, in this case, the obligations exceed the country’s ability to pay. Austerity measures alone will not fix the problem. Eventually, the debt will have to be restructured and the losses written down. Here’s another clip from Kelly’s article:

“As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s (bank) losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them….

Following the proper Pop Culture script the provocateurs of the class war are rich:

Some proletariat!

I pointed out to a musician friend that in today’s toady environment the Beatles would not get signed to a record contract. They don’t look or sound enough like Notorious B.I.G or a crappy boy band. Martin Luther King would have to have gotten Oprah Winfrey’s — or Ellen DeGeneres’ — endorsement on a teevee show before getting any traction with the brain- dead American public. Our culture of corruption is so perverse and pervasive than Abraham Lincoln would be unelectable because he could not raise money. George Washington would have the money but would lack what ‘Leaders of the Now’ possess, spray- tanned smarm and overweening hypocrisy. Any (political) culture that makes Paul Ryan an ‘intellectual’ is bankrupt- on- arrival.

Workers’ rights don’t exist anymore as the critical mass of unemployed means pressure to conform to employer diktat for those who remain employed. Marxist radicalism shared capitalists’ need for masses of workers to create the necessary investment infrastructure. Once built out and done with, the excess masses shriveled to irrelevance. Automation and the large overhang of existing physical plant obviates the need for masses of anything except as customers. With Fed/Treasury credit @ 0% the need for those vanishes as well .. at least for long enough until financiers can squirrel their ill- gotten gains to Curacao.

The middle- class is DOA, sacrificed on the altar of debt. Beginning a working life underwater and ending in a debtor’s prison is the new American Dream. In another America, this would have provoked rage in the streets but people are beaten down by circumstance and by absorbing the Establishment’s opportunity costs. Those dependent on food stamps and welfare are hardly the raw material for an uprising. What would they rise against, anyway? Who does one fight and for what, to demand larger automobiles? The bald- faced hypocracy of the Tea Partiers who demand cuts in spending but not for themselves would be embarrassing in another America but not this one!

The tumultuous Euro- American non- masses protest austerity as if there is a choice. When you are broke you are broke: towns, businesses, people, states, countries … the world. The rise of the Socialist masses is a hobby for wealthy parvenus, a distraction the same way polo is. The world’s ‘haves’ are the only ones who can afford a Socialist Revolution!

Meanwhile the unraveling is becoming hard to ignore. Peak Oil is starting to sneak out of specialist’s enclaves and into public consciousness. It is hard to imagine any American with the temerity to get in front of a teevee camera and tell Americans the truth, about them and their cars. There is no public figure with the needed gravitas. The high- powered statesmen both here and abroad of the 30’s – 40’s and even 50’s are dead and buried. Jack Kennedy is a cardboard cutout used as a prop for tourists. Who is going to tell America the truth?

Who will listen?