David Malone: “Ireland should default – How?”


From David Malone (“The Debt Generation“) – Ireland, Greece and Portugal should Default:

The problem with saying that is that as soon as you do, a great clucking flock of Chicken Littles come speeding out of their corners, kicking up dust and confusion and drowning out any attempt to discuss the issue beneath a frenzy of shrill cries of “Don’t listen to the madman. If you do the sky will fall on our heads…

So before they get here I want to say the sky would not fall in. There is, in fact, a history of sovereign default and restructuring of debt and there are recognized and tried methods for doing it…

The questions then are: How, who decides how much, and what happens then?

Recently a campaign has been started in Greece and now in Ireland as well for what is called a Debt Commission and Audit. The idea is simple and has legal precedent. The nation which decides to restructure its debt forms a Debt Commission. Such a Commission is generally made up of experts in debt, bond and Swaps contracts, forensic accountants, prominent civil servants, members of various civil society groups (Charities etc), interested NGOs and representatives of Labour Unions as well as employers organizations. Commission have to be nationally based with wide and varied roots in the broader civil society. A wide representation is essential to prevent it becoming the tool of any one group.

The purpose of the Commission is first to simply find out who is owed and by whom. What debt was private, what public and in each instance what was the debt for? Would you like to know what debt has been bought by the Bank of England, or the Fed or the central Bank of Ireland? I would. Or what debts we are insuring? I would, considering I am personally expected to pay for it out of my taxes.

The Commission’s next job is to establish if any of that debt was Odious, Illegitimate, Illegal or Unsustainable. Each of these has legal standing and precedent and each is enough to send a cold shudder through board rooms of banks and their lawyers…

there isn’t any evidence that nations get locked or priced out of the bond market after default. There is a short term spike and then a fairly rapid return to a rate that is in line with the FUTURE prospects of the country. Sure, the country defaulted and some of the bond market players lost money. but not all. And those who didn’t lose are likely to simply say, ‘glad it was them and not me, but now let’s talk business, shall we?’. The fact is, once a country has got rid of its debt overhang and, as a consequence, is much better placed to do well in the future, it becomes a much better prospect for lending to. The market isn’t monolithic and has no loyalty to its own.

Read more.

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This entry was posted in Accountability, Bankers' Bailout, Debt Default/Restructuring, Debt for Equity, ECB/IMF, Economy, Housing Bubble, ireland, Solutions and tagged , , , . Bookmark the permalink.

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