2. drewster said...

Interest rates in Eire were lower than the UK because of the Euro; the banks shovelled cash to happy borrowers; and the net result is possibly the only country in the world with a worse ratio of household debt to GDP than the UK. Poor Ireland.

4. mark wadsworth said...

Serve 'em right. This illustrates nicely various points that I have been making for years:

1. Ireland's 'miracle economy' had little to do with corporation tax rate (if so, how come it has suddenly stopped working?) which wipes the smile off the face of the rabid right wingers who think that corporation tax is the worst tax (VAT and Employer's NI are the worst taxes).

2. Ireland's miracle economy was NOT based on Euro membership. All this did was reduce interest rates, which as we know, in the absence of a Land Value Tax, merely create property price bubbles. These facts irritate lefties who want us to join the Euro and NIMBYs who are opposed to Land Value Tax.

3. Ireland 'miracle economy' probably was based, to some extent, on massive EU subsidies. Once these dry up ... (etc) which wipes the smile of faces of Europhiles.

6. jack c said...

@drewster (Thursday, September 25, 2008 02:50PM) - good points - they will literally become "poor Ireland"

In addition some of the cheap money sloshing about found it's way into the UK - Newcastle upon Tyne & Sunderland are examples where the "Irish crowd" bought into city centre new builds - it will be interesting to see if Niall Quinn and the The Drumaville Consortium (who back Sunderland FC) get caught short in all of this.

8. drewster said...

@jack c,

There was certainly a lot of Irish investor buying in Liverpool's new build apartment blocks. Worst affected though was Belfast and N.I. in general, where property prices became the least affordable in the UK.

@mark w,

Interesting point about Employers NI being one of the worst taxes, I googled your blog and found your full page on it. Are you familiar with the bloggings of Tim Worstall? He seems to be like-minded; or at least he understands economics as well as you do!

10. Neo-serf said...

In a nutshell...

http://uk.youtube.com/watch?v=sLGygoQQnzs

12. planning4acrash said...

NI is a cover for Income Tax, it being a tax to pay international bankers interest on loans to government for money they could generate for free, or that would be unecessary with a sound money system. It is a modern version of slavery. Council Tax is a total evil that forces pensioners from their homes and is basically a version of the poll tax.

Bring our troops back, stop funding the EU and put tariffs on country's that manipulate trade with exchange rate manipulation, i.e. China, get sound money, and our tax could be halved overnight.

14. drewster said...

p4ac and jack,
There's a difference between Employers NI and Employees NI. Mark W and I were discussing the former. Most of us aren't even aware of it as it is paid by the company directly and doesn't appear on payslips. The latter is shown on payslips.

Mark W,
There's nothing left- or right-wing about being correct. If VAT and Employers NI are inefficient taxes then that is pure fact. The political decision is whether a party heed those facts, or ignores the facts in order to appeal to their core vote. The LibDems, with their local income tax idea, are unfortunately appealing to their core electorate rather than to reason.

16. drewster said...

Forgot to mention, a couple of days ago I posted this article from the New York Times which suggests a tried and tested solution:

NY Times: How Sweden Solved Its Bank Crisis

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

.........