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Let the Bondholders Pay

There’s an increasing amount of comment calling for bank bondholders to help pay for the crisis that their investments caused. Writing in the Financial Times, Dr. Jim Stewart and Prof. Louis Brennan proposed that the government consider “negotiating the purchase (at a fraction of face value) of the bonds from the reckless lenders that funded the banks’ foolishness.”

The New York Times Econmix blog features a post from Simon Johnson and Peter Boone, who point out that the path taken was not chosen due to an absence of alternatives, but was a political decision, where powerful interests shaped government policy, damning generations of Irish taxpayers to debt and austerity.

“Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens. But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers, rather than creditors, pay. The European Central Bank, the European Union and the International Monetary Fund share some responsibility; they advocate these unlikely programs so that European and global banks, which provided the funds to the Irish banks, do not suffer losses from such bad lending decisions.

The Irish government plan is – with good reason – highly unpopular, but the coalition of interests in its favor seems strong enough to ensure that it will proceed, at least until it either succeeds and growth recovers, or ends in failure with the default of banks or the nation itself.

Under the current program, we estimate that each Irish family of four will be liable for 200,000 euros in public debt by 2015. There are only 73,000 children born into the country each year, and these children will be paying off debts for decades to come – as well as needing to accept much greater austerity than has already been put into force. There is no doubt that social welfare systems, health care and education spending will decline sharply.”

Brian Lucey proposes in the Irish Times that the government  “seek the assistance of the EU in restructuring our fiscal position.” However, as Donagh from Irish Left Review comments, the EU’s policy will likely be determined by the needs of their own dominant interests.

The EU has accepted almost all of the governments plans so far – and as Johnson and Boone argue, do so largely to protect the interests of the larger banks within the Eurozone (mainly French and German) do not suffer unduly.

Posted in Money Systems, News, Site Value Tax.