The Immediate Dangers
I am of the opinion that there will be a period of what I have termed ‘Economic Civil War’ before May 2009, in which the public and private sectors will engage in very adversarial and mutually destructive behaviour as it becomes apparent that the private sector refuse to pay for the public service as the public service refuse to accept any further cuts in salary, pensions or job security. The resultant stalemate will take weeks if not months to resolve. There is a very real possibility of a snap election and the biggest danger of all is that we do not take massive and immediate remedial action the IMF will be the lender of last resort. There are two critical components to finding a solution and these are as follows ;
The Banking System.
Why is there a question about whether to nationalise the banking system ? Think about it, were have a Department of Agriculture, Health, Education etcetera because these areas are deemed to be of such national strategic importance that they should not be left to the private sector to operate as we assume, that although such institutions may be more efficient if run commercially the ‘for profit’ motive would compromise the level of ‘service’ to the public i.e. they would pursue financial gain ahead of public service. Now, suddenly it seems, the necessity for the competent operation of the banking system in terms of serving the state and it’s people, has become obvious to everyone. Wow. There is no reason other than greed as to why the profit and public service motives should be mutually exclusive. As we will never eliminate greed from the financial system I suggest that the components of the banking system which are essential for the efficient running of the economy should be nationalised immediately i.e. taking money on deposit and lending money against these deposits. This after all is what banks are supposed to do and were set up to do in the first place. Providing loans to individuals and small business’s will stimulate the economy faster than probably anything else.
The present commercial banks should be debarred from this basic lending (including residential mortgage) activity but be free to engage in providing all the staggeringly complex financial instruments that got us into this mess if they so choose i.e Collateralised Debt Obligations (CDO’s), Contracts For Difference (Anglo Irish?) ‘Sub Prime Lending‘ (simply bad lending?), Credit Default Swaps, bonus based remuneration etc. What you would probably find though is that they would be extremely careful about what activities they got involved in because they would be risking their banks money and that of their investors and not that of innocent depositors. If they were to make a profit on these activities, good for them, if they didn’t, then they should be wound up just like any normal commercial concern that was not financially viable. If they want to pay their CEO millions of euros a year, go ahead. The difference in any case, would be that we would not have jeopardised the entire economy of the country in order that a small cabal of bankers and their friends, could become exceedingly wealthy.
This is potential the most frightening challenge of the entire scenario. Let me be clear and unequivocal about this, it is the electorate that continued to ignore bad governance that is primarily responsible for getting us into this situation, particularly people who did not bother to vote, generally on the mistaken belief that the governing of the country ‘was someone else’s problem’. Of those who did vote in elections, in the majority of cases they voted for the same people election after election. This was even after massive corruption had taken place between builders, bankers and politicians as has been proven in the tribunals. We as a country got ourselves into this mess so we need to personally take responsibility for it and also for being willing to do what has to be done in implementing the solutions. Unfortunately the choices facing us are as horrific as they are limited.
- There will have to be a massive increase in both direct and indirect taxation probably a 5% increase in VAT and 10% increase in income tax.
- There will have to be a colossal cut in Public Services for at least three years.
- The Capital Spending programme will have to be severely curtailed.
- We must be willing to elect people who are qualified to do the job and not just because they once played for the county team or are from the ‘right’ party.
Now is a once in a generation chance to fundamentally overhaul the financial systems which control practically all facets of our lives. We must collectively learn from the mistakes that have been made and ensure that this situation cannot happen again. If we do not take the hard decisions that are necessary and also elect the people who are willing to carry out these measures I predict that the International Monetary Fund will be in Ireland before July of this year and they will be in a position to insist that we do as they say if they are willing to bail us out. This would be the worst of all possible outcomes.
The choice, as it has always been, is ours.