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Politics

Whose Is The Moral Hazard?

If you’re wondering what the Irish debt crisis – and indeed the Euro crisis as a whole – is all about, you could do worse than read this opinion piece, a passionate but clear denunciation of how we are being exploited from independent TD Stephen Donnelly. I wouldn’t have put as much emphasis on the public pay deal, but that aside he puts it so well that it’s hardly worth my while writing about it.

I’ll quote him extensively instead… (Emphasis mine)

The bonds¹ were bought from Anglo and INBS in 2007, at the height of the property bubble. They offered higher profits than buying Government bonds, as they didn’t come with a Government guarantee. If the people buying these bonds did their homework, they would have noticed that Anglo and INBS were massively exposed to the Irish property market. They will have read the IMF‘s warning of the “possibility of an abrupt unwinding of the housing boom”. They would have known that the higher potential profits offered by Anglo and INBS came with the clear possibility of losses. Indeed, some of the bonds will have been sold on by the original purchasers at a loss. When this happened, the European financial system did not collapse, the ATMs did not stop working. This week their gamble pays off. Yet again the Ferrari showrooms in London, New York and Tokyo will toast the Irish.

A commemorative Ulster Bank note. The other si...
Looking back, perhaps there were signs

In a massive irony, the ATMs did stop working this week – though at Ulster Bank, the largest operator here the government didn’t have to buy. It turned out to be due to a software update cock-up and not a bank run, but you know what? People dealt with it. Screaming crowds didn’t surge down the streets, horses didn’t start eating each other. Yet that was the scenario the banks used to frighten ministers into nationalising the liabilities of their profit-drunk industry. They bluffed us.

Donnelly continues:

This comes at an enormous human cost. Recently, the HSE told the parents of disabled young adults in Wicklow that there was no longer any money to fund rehabilitative training for their children. […] But we’ll find the €1.1bn [to pay these investors], and we’ll pay the €40m every year in interest. As of last Monday, there were 19 young adults in this situation in the Dublin/Mid-Leinster region. The €40m would pay for their training for the next 150 years.

The Government has reduced welfare payments to single parents, cut support to the disabled, removed staff from Deis² schools and introduced regressive charges. At the same time it incurs enormous interest payments to cover the losses of private sector investors who knew they were betting on a risky venture.

And who knew, what is more, that their reckless lending was fuelling a destructive property bubble. In 2007, they were clearly out to grab a quick profit off a boom. To use a term from the housing market that you don’t hear so much anymore, they were out to “flip” our economy.

They flipped it all right. Those flippers flipped it good.

And this week we reward them for it, with a further €1.1 billion. Money that decent non-gambling taxpayers will work for years if not generations to repay, while the vulnerable in our country have their lives stolen. Whose exactly is the moral hazard here?

 

  1. Bonds which our government is paying this week, even though they were owed by private financial  institutions that went bankrupt.
  2. Equal-opportunity.