Manny Mondays: Why are Irish Eyes Not Smiling at Tim Geithner?

Morning all! First of all, I hope all of the mothers out there had a very Happy Mother's Day yesterday. After yet another busy weekend (spring has finally sprung here in Minny, so it was a very active weekend mostly outdoors for me), one article that caught my eye late Sunday afternoon was the following most excellent Op-Ed by Morgan Kelly that appeared in the Irish Times on Saturday, 5/7:

Ireland's future depends on breaking free from bailout

One real eye-opener in the piece was the assertion that Ireland actually had a deal in place with the IMF for haircuts on their debt, but that Tim Geithner stepped in and killed it. Although not that surprising when you think about Geithner's continual policy of save the banks at all costs to all things Global Sheeple, it is still somewhat stunning to see it confirmed in such fashion. Here a few key excerpts from the Op-Ed:

Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.

The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.

In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.

The bailout represents almost as much of a scandal for the IMF as it does for Ireland. The IMF found itself outmanoeuvred by ECB negotiators, their low opinion of whom they are not at pains to conceal. More importantly, the IMF was forced by the obduracy of Geithner and the spinelessness, or worse, of the Irish to lend their imprimatur, and €30 billion of their capital, to a deal that its negotiators privately admit will end in Irish bankruptcy. Lending to an insolvent state, which has no hope of reducing its debt enough to borrow in markets again, breaches the most fundamental rule of the IMF, and a heated debate continues there over the legality of the Irish deal.

Kelly further asserts that the main reason for onerous terms of Ireland's bailout was to send a message to Spain.......and frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland – an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer – or mending their ways, the Spanish have understandably chosen the latter.

But why was it necessary, or at least expedient, for the EU to force an economic collapse on Ireland to frighten Spain? The answer goes back to a fundamental, and potentially fatal, flaw in the design of the euro zone: the lack of any means of dealing with large, insolvent banks.

It's well worth reading the entire thing. The question that still lingers with me is just how long will the Global Sheeple continue to idly stand by while our so-called "leaders" throw us under bus, forcing us to accept having to sacrifice disproportionately more than our banking brethren in the name of "shared sacrifice", while bankers, who largely caused this debacle in the first place, are not only not being asked to sacrifice anything, but are back to raking in record pay (and in some cases more than they were making pre-bubble bursting) again, while everyone else limps along en masse?