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a nation of people looking for anyone to blame but themselves.
“Democracy destroys itself because it abuses its right to freedom and equality. Because it teaches its citizens to consider audacity as a right, lawlessness as a freedom, abrasive speech as equality, and anarchy as progress.”
But the place does not behave as a collective; it lacks the monks’ instincts. It behaves as a collection of atomized particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good.
The Irish budget deficit—in 2007 the country had a budget surplus—is now 32 percent of its GDP, the highest by far in the history of the euro zone.
As recently as the 1980s 1 million Irish people, in a nation of a mere 3.2 million, lived below the poverty line.
real estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than people’s expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become, and flee the market, and the market will crash.
The Irish construction industry had swollen to become nearly a quarter of Irish GDP—compared to less than 10 percent or so in a normal economy—and Ireland was building half as many new houses a year as the United Kingdom, which had fifteen times as many people to house.
(“A price/earnings ratio above Google’s,” as Kelly put it.)
The Irish had discovered optimism.
The comparisons that sprung first to Morgan Kelly’s mind were with the housing bubbles in the Netherlands in the 1970s (after natural gas was discovered in Holland) and Finland in the 1980s (after oil was found off its coast),
“There is an iron law of house prices,” he wrote. “The more house prices rise relative to income and rents, the more they will subsequently fall.”
Kelly had predicted the future, with uncanny accuracy, but to believe what he was saying you had to accept that Ireland was not some weird exception in human financial history.
What the crazy egghead came up with next was the obvious link between Irish real estate prices and Irish banks. After all, the vast majority of the construction was being funded by Irish banks. If the real estate market collapsed, those banks would be on the hook for the losses.
In 1997 the Irish banks were funded entirely by Irish deposits. By 2005 they were getting most of their money from abroad.
Since 2000, lending to construction and real estate had risen from 8 percent of Irish bank lending (the European norm) to 28 percent. One hundred billion euros—or basically the sum total of all Irish bank deposits—had been handed over to Irish commercial property developers.
The stocks of the three main Irish banks, Anglo Irish, AIB, and Bank of Ireland, had fallen by between a fifth and a half in a single trading session, and a run on Irish bank deposits had started.
A banking system is an act of faith: it survives only for as long as people believe it will.
They disapproved of the loophole, but rewarded the guy with the wit to exploit it. This, she claims, is very Irish.
The Irish nouveau riche may have created a Ponzi scheme, but it was a Ponzi scheme in which they themselves believed.
The Irish bank debt is now Irish government debt, and any suggestion of default will only raise the cost of borrowing the foreign money they now can’t live without.
The finance minister might as well be standing in front of Pompeii and saying that the volcano wasn’t really worth mentioning. Just a little lava!
The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and AIB came, in that order, first, second, and third.
We don’t have any subprime.’” What they meant was that they had avoided lending to American subprime borrowers; what they neglected to mention was that, in the general frenzy, all of Ireland had become subprime.
Anglo Irish’s stock had fallen 46 percent that day; AIB’s had fallen 15 percent; there was a fair chance that when the stock exchange reopened one or both of them would go out of business.
In any case, if the Irish wanted to save their banks, why not guarantee just the deposits? There’s a big difference between depositors and bondholders: depositors can flee. The immediate danger to the banks was that savers who had put money into them would take their money out, and the banks would be without funds.
On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that had gone wrong and didn’t expect to be repaid in full were handed their money back—from the Irish taxpayer.
Their debts were private—owed by them to investors around the world—and still the Irish people have undertaken to repay them as if they were obligations of the state.
A political investigative blog called Guido Fawkes somehow obtained a list of the foreign bondholders: German banks, French banks, German investment funds, Goldman Sachs. (Yes: even the Irish did their bit for Goldman.)
In Greece the money was borrowed by the state: the debts are the debts of the Greek people, but the people want no part of them. The Greeks already have taken to the streets, violently, and have been quick to find people outside of Greece to blame for their problems: monks, Turks, foreign bankers. Greek anarchists now mail bombs to German politicians and hurl Molotov cocktails at their own police. In Ireland the money was borrowed by a few banks, and yet the people seem not only willing to repay it but to do so without so much as a small moan.
There is an ancient rule of financial life—if you owe the bank 5 million bucks, the bank owns you, but if you owe the bank 5 billion bucks, you own the bank
“I remember the CEO coming in and saying, ‘We’re going to grow at 30 percent a year,’” O Brien told me. “I said how the fuck are you going to do that? Banking is a five-to-seven-percent-a-year growth business at best.”
As the Germans were not only the biggest creditor of the various deadbeat European nations but their only serious hope for future funding, it was left to the Germans to act as moral arbiter, to decide which financial behaviors would be tolerated and which would not.
June of 2011 the Greek government started selling islands, or at any rate created a fire-sale list of thousands of properties—golf courses, beaches, airports, farmlands, roads—that they hoped to auction in order to help repay their debts. It’s safe to say that the idea of doing this had not come from the Greeks.
Perhaps Hitler was so persuasive to Germans, Dundes suggested, because he shared their quintessential trait, a public abhorrence of filth that masked a private obsession.
Germans longed to be near the shit, but not in it. This, as it turns out, is an excellent description of their role in the current financial crisis.
As a result, for the past year or so the financial markets have been trying and failing to get a read on the German people: they can obviously afford to pay off the debts of their fellow Europeans, but will they actually do it? Are they now Europeans, or are they still Germans? Any utterance or gesture by any German official anywhere near this decision for the past eighteen months has been a market-moving headline, and there have been plenty of them, most of them echoing German public opinion, and expressing incomprehension and outrage that other people can behave so irresponsibly.
THE SECRET OF SUCCESS IS TO UNDERSTAND THE POINT OF VIEW OF OTHERS. —Henry Ford
The Greeks needed to change their culture. He couldn’t have put this more bluntly: if the Greeks and the Germans were to coexist in a currency union, the Greeks needed to change who they are.
The ECB itself might face insolvency, which would mean turning for funds to its solvent member governments, led by Germany.
The bigger problem with a Greek default is that it might well force other European countries and their banks themselves into default.
That was what the currency union always implied: entire peoples had to change their way of life. Conceived as a tool for integrating Germany with Europe, and preventing the Germans from dominating others, the euro had become the opposite. For better or worse, the Germans now control the financial fate of Europe.
When I asked another prominent German civil servant why he hadn’t taken time out of public service to make his fortune working for some bank, the way every American civil servant who is anywhere near finance seems to want to do, his expression changed to alarm. “But I could never do this,” he said. “It would be illoyal!” Asmussen echoes this sentiment when I ask him why he hasn’t bothered to get rich.
Much of Europe had borrowed money cheaply to buy stuff it couldn’t honestly afford. In effect, lots of non-Germans had used Germany’s credit rating to indulge their material desires. The Germans were the exception. Given the chance to take something for nothing, the German people simply ignored the offer. “There was no credit boom in Germany,” says Asmussen. “Real estate prices were completely flat. There was no borrowing for consumption. Because this behavior is totally unacceptable in Germany. This is what the German people are. This is deeply in German genes. It is perhaps a leftover of the
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Germans, through their bankers, used their own money to enable foreigners to behave insanely.
during the boom German bankers had gone out of their way to get dirty. They lent money to American subprime borrowers, to Irish real estate barons, to Icelandic banking tycoons, to do things that no German ever would do.
In their own country, however, these seemingly crazed bankers behaved with restraint. The German people did not allow them to behave otherwise.
The contrary turned out to be the case. German banks ended up being among the most affected in continental Europe and this despite relatively favorable economic conditions.”
What Germans did with money between 2003 and 2008 would never have been possible within Germany, as there was no one to take the other side of the many deals they did that made no sense.
The global financial system may exist to bring borrowers and lenders together, but, over the past few decades, it has become something else, too: a tool for maximizing the number of encounters between the strong and the weak, so that the one might exploit the other.
“The American salespeople are much smarter than the European ones. They play a role much better.”
