Outrageous: Geithner Blocked IMF Deal to Haircut Irish Debt

[girl gone mad]

Ireland is suffering with the burden of unmanageable debts because Geithner didn't want any of his banker friends to lose money on their foolish speculative investments? That guy is really a piece of work.

From http://www.nakedcapitalism.com/2011/05/geithner-blocked-imf-deal-to-haircut-irish-debt.html#Search">naked capitalism:

Now what, pray tell, does this have to do with Ireland, and Geithner? Geithner is as doctrinaire and short-sighted a defender of bankers’ privileges as the Allied Powers were of their rights to make Germany pay for the costly and bloody Great War.

We had noted that the Irish could have stared down the EU and held out for a bailout of its banks only, and were mystified at the quick capitulation. Consider this section of a very instructive op-ed by Ireland’s highly respected economist Morgan Kelly in the Irish Times (hat tip reader disgruntled observer):

Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan’s refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown….

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.

[RUMMYisFROSTED]

1. But Geithner is dreamy!

:loveya:

[dkf]

2. You don't think that may have spooked people about our debt?

I am thinking this is an effort to preserve our access to funds.

Look what Meredith Whitney did to the whole class of Muni bonds earlier. She freaked people out on the entire class.

If Sovereign debt fears start spreading a contagion won't we be affected?

[girl gone mad]

4. What does this have to do with our debt?

We're a sovereign currency nation. Our debt is denominated in our own fiat currency. This issue has nothing to do with us. Geithner interfered solely to save the skin of his pals on Wall Street.

[dkf]

6. Because defaults in an asset class change people's perceptions.

And then people start looking at who is next and it rolls down the line.

Even the Greeks are denying they are looking at a haircut.

[girl gone mad]

7. We are not in the same line as Greece and Ireland.

Our debt is denominated in our own currency.

[On the Road]

9. dkf, I'm Inclined to Believe You Have a Point

but could you elaborate a tad? I don't understand the bonds markets that well. In particular, if investors were scared away from bonds of sovereign governments, where would that money go?

[xchrom]

3. Geithner - the one man wrecking ball. Nt

[Metta]

5. His bad karma is unimaginable.

And will continue for soooo long.

[slipslidingaway]

8. kick for later n/t

[suffragette]

10. Very interesting piece

K&R

Meanwhile, Iceland, which refused to take the path pushed onto Ireland, has been recovering.

There's a lesson there.
http://www.guardian.co.uk/commentisfree/2011/apr/12/iceland-ireland-portugal-markets
Iceland broke the rules and got away with it
Now Ireland and Portugal wish they too had got tough with the markets


Aditya Chakrabortty
The Guardian, Tuesday 12 April 2011

Remember Iceland? In the autumn of 2008, it became the first national casualty of the financial meltdown; the first rich country in more than three decades to take an IMF bailout. Commentators declared it the Icarus economy, which had finally come crashing back down to earth. It became both parable and laughing stock. What's the difference between Iceland and Ireland, joked traders – one letter and a few months.

You don't hear much about the insolvent island any more – apart from occasions such as this weekend, when Icelandic voters were asked to repay the £3.5bn owing on collapsed bank Icesave, and replied with a firm "Nei".

Unnoticed it may be, but Reykjavik now serves as a very different kind of parable, of how to minimise the misery of financial collapse by ignoring economic orthodoxy. And in those other broke European economies – from Dublin to Athens to Lisbon – politicians and voters are starting to pay attention. After its three biggest banks – 85% of the country's financial system – failed in the same week, Iceland did two remarkable things. First, it let the banks go under: foreign financiers who had lent to Reykjavik institutions at their own risk didn't get a single krona back. Second, officials imposed capital controls, making it harder for hot-money merchants to pull their cash out of the country.

These policies were not just controversial; they represented a two-fingered salute to the polite society of academics and policy-makers who normally lay down the laws on economic disaster management

[Donnachaidh]

11. Timmeh the Sachpuppet strikes again. n/t