David McWilliams: Deposits in Irish Banks Should be Converted into Share Capital

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Lightning

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In what Brian Lucey has described on Twitter as:

Perhaps the best piece iv read from @davidmcw in a very long time : excellent work David
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Totally agree.

David has some radical idea's on how to solve the Irish banking mess. It needs radical ideas.

An incredibly well thought out article:



 
Just read McWilliams article. It's a great piece of work. What's the chances of getting FG, Lab to adapt his suggestions? I particularly like his idea about having a referendum on the debt ( Step one). It is completely immoral that we have to pay the private debts of others, and it is surely beyond the moral remit of any gov.t to bind us ( and future generations) to such a vile deal. This is the result of a gov.t and a political system that operates minus any moral principles . Thomas Paine, in "The Rights of Man" written in 1791 said " ... if the present generation, or any other are disposed to be slaves, it does not lessen the right of succeeding generations to be free. Wrongs cannot have legal descent. (P. 138)." Thus we cannot and should not accept this immoral burden on behalf of the unborn, let alone ourselves. As for how the present gov.t has handled the crisis Paine gives an equally damning indictment of 18th Century Britain that despite all the intervening centuries and differing circumstances has lost none of its bite or relevance. He described them as darkness attempting to illuminate light. There needs to be a root and branch overall of the political system and we as citizens also need to take responsiblity for putting FFand the rest in power for so long. It's not enough to just blame them, as Williams points out we need to face reality, and part of that reality is that we got what we voted for, and we voted for what we thought we wanted. If we want to change them we got to change us . Responsibiility like charity begins at home.
 
The long and the short of it is that McWilliams is commentating from the sidelines and his hypotheses will never be put to the test. He has the luxury of never possibly being proven wrong as his daft ideas will never be implemented.

Even the Labour party will have to put their ideas to the test soon enough, making McWilliams and even bigger waffler than them!!

As long as there is a remote possibility of the Irish bailing themselves out of this banking crisis the ECB will not permit default of any kind (which is what an equity for deposits/debt swap amounts to)
 
Why not have the referendum on the bailout in conjunction with the general election?
Makes more sense than balloting on a measly 25M the Seanad costs.
 
A few Quotes:

We reintroduce into the diplomatic discourse the capitalist premise of "co-responsibility" where both the creditors and the debtors are responsible in a crisis.

Yep, same chance of working with the ECB as I'll have with AIB when I explain same with regards to my mortgage.

People argue that without the guarantee, Irish banks would never again be able to borrow on international markets. Well great. That's what we want to see. We want a return to deposit-based banking, where banks lend out what they have in deposits.

Is this really a runner for a country whose banks have been hemorrhaging deposits? Sorry David, but this will make the banks insolvent, starve the flow of credit to the economy and generally destroy the country. It sounds like a real nice ideal though.

When the time is right, the €97bn of deposits or some of that sum, should be converted into share capital. This has never been done before, but necessity is the mother of all invention and -- at a stroke -- the funding and capital position of the Irish banks would be solved, and the ECB would have taken a hit. But that's what central banks are there for. What part of risk of 'lender of last resort', do they not understand?

Simple, again the ECB will just go along with this. By the way lender of last resort means they provide liquidity to be paid back, not free money. The clue is in the name David, "Lender" not "Giver", the lender bit implies they want their money back. What part of that don't you understand?

In order to liberate those trapped in negative equity, I would make all their mortgages "non-recourse" as is the case in the US. This means that they can hand the keys back to the bank and that will be the end of it.

Because the situation in the US is so much better than here? The theoretical advantage of "non-recourse" is that is should make lenders more conservative. The reality is that this did not happen in the US and it's seen as less of a deal for someone to lose their home, a situation much worse than the reality here, where very few people lose their homes.

Extend the vote to everyone who is an Irish citizen no matter where they live.

Reverting to meaningless soundbites and impractical ideals yet again. There would be more voters whose lives and interest have only the most tenuous link to Ireland than voters who actually choose to spend our lives here.
 
This is utter and total self indulgent hogwash from McWilliams. The reason Prof Lucey is cheering him on is that he hopes the McWilliams nonsense might get so wild as to balance up his own totally GUBU gaffe of selling 28bn of Anglo deposits for 21bn cash - a 49bn windfall. Strange that this 49bn windfall is not one of the Ten Steps. I suppose McWilliams reasoned that having swindled the ECB out of 97bn, the senior bondholders out of say 50bn and blackmailed US MNCs into ponying up 80bn we would have enough to be going on with. Just think after those three strokes of grand larceny we would have a national balance sheet that would embarass the Sultan of Brunei and McWilliams says we would get away with it - he is away with the fairies.

Then he invokes morality, I reach for the sick bowl. He is going to exchange ECB cash support and bondholder debt for shares in our banking system but not before he absolutely devastates the assets of that system by forgiving 400,000 people their negative equity.

Why do papers indulge this stuff? We have seen on this very thread how naive people fall for it. Lucey's sham praise I have already exposed for its attempts at deflecting attention from his own ridiculous spoutings.
 
I'm interested in his referendum idea..

How would ordinary citizens force a referendum on the banking bailout?

I've done some reading but am not clear whether there is a way outside of the Dail and Seanad
 
I liked his idea of offering a deal to the US Multinationals that have €800 billion on deposit in the IFSC.
 
CiaranT said:
An incredibly well thought out article:
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I really can't believe that you mean that. McWilliams is taking the mickey big time and the media lap it up. He must really get a good laugh when he reads comments like the above. BTW I am not belittling your intellect - Ann Harris on the front page of today's Sindo, similarly drools on McWilliams "putting people first".

I agree with everything DerKaiser has said though I think his tone is far too gentle - it gives the impression that McWilliams' ideas merit some sort of rational debate.

I will make a point which DerKaiser didn't bother alluding to.

Back in 2008 [broken link removed] yet yesterday he joins the bandwagon to say how foolish it was:

McWilliams yesterday said:
Step three
Rescind the guarantee. The guarantee was required, 28 months ago, to prevent a total bank collapse. This guarantee should not have been open-ended and all-encompassing.
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One of DerKaiser's observations is worth emphasising. Whilst most of McWilliams' points are just wild populist soundbites which, as DerKaiser points out, will never be put to the test the claim that the ECB, as lender of last resort, is required to ultimately take the hit of bank failures is plain wrong and not just in some arcane technical sense. McWilliams would cynically be fully aware that this is a gross misrepresentation of the role of the lender of last resort.

In the same paper our MoF takes McWilliams to task for what he rightly described as "nonsense" that the latter had spouted earler in the week about the evils of a current account surplus'. It is demeaning to the Irish people that our Minister feels the need to publicly correct the populist rantings of a megalomaniac self publicist (and unfortunately we know he also had garlic chewing sessions with him) but with the media and others so in the thrall of this guy I can understand the Minister's frustration.
 
It is complete rubbish. The problem I have with McWilliams is that he is actually a clever guy who knows better. I would almost be suspicious that he might be looking at a political career!
 
Sunny said:
It is complete rubbish. The problem I have with McWilliams is that he is actually a clever guy who knows better. I would almost be suspicious that he might be looking at a political career!
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I think you are right. The question has been put to him several times and rather than deny it he has said that he wouldn't be good at fixing the drains but he would be good at the big picture. In other words the long slog is beneath him but he is not above being parachuted in as Taoiseach by popular demand. Paddy Power has a quote of 20/1 a Technocratic Government after the next election. I think this is one of Paddy's familiar gimmicks but McWilliams might actually be fantasising of a situation where none of the parties can agree and they go for somebody technically capable to bring us to the Promised Land - enter David on his fiery steed.
 

The Taoiseach had to be a TD, as does the minister for Finance. Any of the rest of them can be a Senator (who could be appointed by the Taoiseach).
 
Duke of Marmalade said:
McWilliams sees a way around that. He would hold a referendum.
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Also heard rumours a while back that Brian Lucey was approached by a political party to run in the next election. God help us all. This is the guy who said sub-prime lending was a great idea at the height of the bubble and yet our lazy media think he is worth listening to now. I think it is time to put the majority of economists back in their boxes. There are a few economists well worth listening to but these tend not to have self indulgent opinion pieces in the national media.
 
Sunny said:
I think it is time to put the majority of economists back in their boxes. There are a few economists well worth listening to but these tend not to have self indulgent opinion pieces in the national media.
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Couldn't agree more. RTE are still wheeling out the same idiots that told us we were in for a soft landing a few years back, expecting us to now believe what these 'experts' are forecasting for the next few years.
 
Yeah, like Jim Power. He was one of the advocates of a soft landing. Now he always on Prime Time or Pat Kenny show telling us what the government should be doing.
It would be interesting to see which economists were talking up the economy before 2007 and how many of these were employed by banks/estate agents/building societies etc. I seem to remember an econmoist from one of the banks was alwyas quoted on the news (Dan McLoughlin I think) and he is nowhere to be seen now.

When the econmists with vested interests are excluded, I wonder if there were a significant number of independent people like Kelly and McWilliams voicing concerns?
 

Anyone who doesn't have the appetite for the hard slog won't get far. Look at George Lee.

As an aside, I don't believe when people give you guff about the big picture. You need to understand everything from first principles before you can set to work on the big picture.
 

The EU appears to expect us to give their stockmarket gambler bondholders ''free money.'' The EU seems to expect us to commit financial suicide acting against our own best interests to support their stockmarket gamblers so turnabout is fair play.




To back up what I wrote above : look here at the transcript of the imf conference call on Ireland. The imf and by extension the international community wasnt against us burning the bondholders but the EU was. Its' pretty clear. This wasnt about ensuring we would get funding into the future. This was about protecting the selfish greedy interests of the EU core members even if it destroys Ireland.



and an extract from the link


The EU has no business telling us to destroy our country by putting gamblers first, gamblers who understood the rules as surely as I understand the rules when, after passing age and identify verification I enter a casino and put my hard earned cash on the roulette wheel.
 

It is somewhat disingenuous to categorise senior bondholders as gamblers. They advance funds at modest rates on the presumption (admittedly, sometimes mistaken) that their investment is safe. They are on a par with ordinary Joe Soaps who have their savings on deposit.

The gamblers are the subordinated bondholders, who invested for a higher return, but accepted more risk as part of the deal.
 
Whats the point of a referendum? Nobody is ever going to vote for the banking bailout. It would be liking having a referendum for the budget.
 
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