RECESSION AND THE BANKS

In the mind 1990’s in the 2000’s, the German Economy was going from strength to strength. But due to the problems that occurred when Germany became reunified, many people began to hoard their savings, and weren’t spending per head as folks in other countries were.  Also with Many big German companies making big profits, they could afford to expand, build bigger factories and the like using it’s own money, and not needing bank loans and so forth.  So where were the German banks to make extra money? They decided to lend money to the likes of Bank of Ireland, Santander in Spain and so forth at a 3% interest rate, who in turn lent it to their customers at 6-7% rates. At this stage these banks in Italy, Ireland Spain Portugal, Greece were paying back the instalments due on those loans, plus the interest as agreed.  But the German banks (surprise surprise) were greedy. They wanted to make more profit, but had no more spare money to lend the PIIGS. 

Along came China and most particularly Japan. Japan suffered a horrendous economic crash after a phenomenal bubble burst in the last 80’s-early 90’s.  ( EG In 1987 a site of land close to the Emperors Palace in Tokyo of about 5 acres was valued at the same value as 30% of the land of the state of California. Madness!)   Things were picking up in Japan, and the country was seeing some signs of growth.  But despite this, nobody was spending, never mind taking out bank loans. The Japanese were essentially hoarding their money like possessed squirrels. So the Japanese banks had all these masses of cash, as did the Chinese and their balance sheets were at bursting point.  So along came AAA+ rated country Germany, who’s economy and banks were safer than houses, looking to see if they would be willing to lend to them. It was a no brainer. Sure Germany did not become such a strong economic powerhouse out of nowhere, they were prudent, and conservative in their economic policies, and shied away from reckless stuff that other countries might engage in. There was no safer pair of hands to place that money into.  So off they went lending German and French banks a pile of money.  But the banks the money was then lent onto, in Ireland, Portugal and Greece etc, were in reality far from safe, and shook more than the hands of a person with advanced Parkinson’s.  These banks were constantly taking risks to bump up their balance sheets throwing previous safeguards out the window, and kept driving their loan books at 100 miles an hour regardless of what road lay ahead. Per head of population, the biggest bank to fall in the entire world, by a long mile was Anglo Irish bank!

So the big recession hit. These banks started to miss their payment dates, and didn’t look like they’d be making any new repayments anytime soon.  The German banks were meeting their repayments to the Japanese and the Chinese, but this was essentially using their own reserves, and not merely a case of skimming the top off money handed to them by AIB or Banco Espanol de Credito., and handed the rest to Tokyo or Beijing. IE AIB could hand over €275M, which would be the amount borrowed + 3%.  The Germans, who would have initially borrowed it at 1.5% interest, would take 1.5% of that, and hand the rest to the Japs or Chinese.  So The German government was able to do some deals with the banks related to money loaned out to the PIIGS, that was 110% owned by German banks.  For the sake of the overall German economy, it was deemed better to pump liquidity in the banks there, to enable to cover some “hits”. So Deutsche Bank could agree to cut 30% off a loan owed by a Portuguese bank, take a bit of a “hit” on it itself, and the German Government and/or the ECB reimbursing them part of the 30% now written off.  But it was a different matter to the stuff borrowed from China and Japan.  They were simply told “You borrowed this money at 1-1.5% interest rates off us, so long as you pay us back the money, in full + the 1.5% in the timescale agreed, we don’t care what you do with Greece or Ireland”.  So this became a hot topic in Germany. If a German bank agreed to write off 30% of a loan given to a bank in Greece, that in return originated in Tokyo, the German bank would have to pay the full 100% amount, including the 30% haircut out of it’s own pocket to the Japanese bank.  (In fact the institution with the vast bulk of savings accounts in Japan, far outweighing the banks, is the State owned Post Office! People lost all faith in the banks and wouldn’t touch them no matter what. It lent a lot of Money to other nations, specifically Germany.) “The German banks acted responsibly, they didn’t engage in the mad stuff the others were doing, they broke the rules, we strictly played by them, why the hell should we give them any special treatment?” was a widespread sentiment in Germany.  Hence we have a situation were these is a phenomenal massive pile of debt currently fenced off by the ESM/ECB. The fence is bulging, and the debt pile could burst infecting everything in it’s path. The Capitalist Establishment know this, but are unable to come up with a solution with a Capitalist Framework, that won’t cause widespread anarchy all over Europe.

Many countries, particularly, Canada, Australia, and the likes of Sweden benefitted massively from China’s sporadic growth, and insatiable hunger for their natural resources.  Steel factories doubled in size, thousands more workers were hired at mines, with all this extra product going to China.  But alas, it is all starting to come crashing down.  These Chinese Economy, in real terms has slowed significantly.  The Government is pumping ever larger amounts of money into the economy in a desperate attempt t create artificial growth. Cities have been built in Northern China that can accommodate hundreds of thousands, but only a couple of thousand live there. There are now more than 6.5m Apartment Lying Idle in China, with no sign of them being sold anytime soon! There are huge warehouses at the docks stuffed to bursting points with goods that cannot be shipped, as none else wants them.  This has lead to a massive slowdown in demand from China for stuff like minerals and steel and the like.  Hence this has meant a lot less money coming into the Australian economy for example, and a slowdown in job growth, and mining companies have laid off staff.  House prices if Australia have rocketed too, and are now much dearer then here. So with less jobs available, the country has, naturally tightened up it’s work visa system.  So Irish people, and quite a few of them at that, have ended up homeless in Australia, because they are unable to get a job, as they are not now qualified enough in their chosen skill to get a visa. Wheras in the past they would.  Yes most people planning to go over would secure their visa in advance, but some (stupidly in my book) went over technically as tourists & only applied for the work visa after a few weeks spent sightseeing etc. They didn’t get it, the cost of living is now higher than here, and many are now homeless.

So over the next while Canada and Australia enter recession, and the issuing of work visas for both countries stops, meaning the thousands of people who currently leave Ireland to work in either country now cannot do so.  So instead of working their asses off in Toronto or Adelaide, and sending money home to keep their families going, they are stuck here, trying to get by on smaller dole payments, mortgage reliefs etc. It gets harder and harder to afford the bare essentials.  They look at their kids shivering in bed because they cannot afford to put the heating on in the middle of winter. They can’t even afford to take the kids to their grandparents in Donegal for a few days during the summer, be it by car or bus.  Holidays spent in Spain and France are but a long distant memory.  There is no sight of a job coming up anytime soon, and the future just seems bleaker and bleaker. 

Sadly, many more people will opt to take their own lives.  But others, thankfully will realise their back are well and truly to the wall, and the only option is to fightback. The only sad thing is, that it will take a good while before this really comes into fruition.  Many people at the moment are full of demoralised anger.  They are pissed off with things, but just walk on with their heads down snarling to themselves. The left forces will definitely make some gains in the Local Elections next May, but will it be in anyway as successful as some of the left wing forces are predicting? The evidence at present says no, but I really and truly live in hope, and will do my bit to try and make it happen!