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Comment by martythemaniak | Hacker News Reader

Pretty much proving today's field of Economics to be a bunch of quackery.

In every respectable field of study there are certain basic scientific expectations - supporting your positions with evidence and data, reversing your views when your theory has been disproved etc. At the onset of the 2008 crisis, some people very accurately predicted the type of crisis it was (a financial panic) and recommended policies that were tested and proven to work. The mainstream camp however, thought otherwise and most of the world followed their advice.

With 4 years of data we now know who was right and who was wrong, and yet that has done almost nothing in the field of Economics. Few high profile economists have reversed their deeply flawed views and the views of those baked by data and correct predictions are still not taken seriously. It's as if the LHC found the Higgs, yet most physicists still denying it exists - the situation really is THAT absurd.

Economics is deeply corrupted by politics and the financial interests of its practitioners. If the quacks and charlatans aren't purged soon, the either field will be discredited. You can't practice alchemy or voodoo and expect people to treat you like a scientist.

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Indeed it is odd that many people can agree the best way forwards for GM was to give the shareholders a total loss and the bondholders a severe haircut. But when it comes time for a country to do the same thing - everyone disagrees and says what is needed is for the original bondholders to be made whole by issuing new debt. There is not some miracle line where obvious solutions jump over to being wrong based on size. Defaulting on payments is a scalable strategy, from the underwater home owner to the overly-indebted bank to the hopelessly over-borrowed national government. It's not pleasant for anyone involved, but confronting the problem is far better than trying to sweep it under the carpet.

There has arisen a pervasive myth that only debtors should lose when creditors are unable to keep a loan performing. For sure, the rights of the creditor exceed that of the debtor, but it's plain wrong to expect a creditor not to suffer losses when extensive bad loans are found.

The problem is that, by being locked into the Euro, Ireland was unable to use the shock-absorber of a floating exchange rate. People rightly dumped their Icelandic currency, because they got burnt. The Icelandic people lost a lot of wealth. The Icelandic government rightly stripped the banks of their independence. But now the decks are cleared and people can get back to working and being productive, and getting their economy growing again.

Why people will continue to insist that the best measure for an indebted government is to borrow more money and hope for a miracle of growth to fix the payments is beyond me.

The only result from drunkenness is a hangover. You can resume drinking to postpone the symptoms, but they will always arrive, and the further you push it out, the worse it gets.

Ireland is in the EU and it was the EU that apparently decided that losses for senior bank debt holders were not going to happen. This is because of externalities it would probably have bankrupted most banks due to increased borrowing costs and upset the cosy setup where most government debt is funded by banks in southern Europe. But it was not Ireland's problem and Ireland should have made other countries pay to bail out the bond holders.

Ireland really could have chosen to let some banks fail. There was a lot of pressure from countries that were trying to pretend their banking sectors were healthier than they were (esp. Germany), but several people then on the Bank of England Monetary Policy Committee (e.g., Willem Buiter) said it was a mistake for Ireland to guarantee all creditors.

> Ireland really could have chosen to let some banks fail.

And the funny thing is the Irish Government still could wipe out the bank bondholders (with no repercussions apart from a ding to our credit rating for a few years).

The real issue is they lack the political will to look bad to the EC, ECB and Merkel. It's a fucking joke. The Irish taxpayer will be paying for this disaster for decades. If we didn't have the sovereign debt burden, the country would be doing pretty ok, as exports in Ireland are doing reasonably well given the anemic global economy.

Ah now, that is somewhat true and also somewhat false.

I lived in Ireland for most of this period, and really what caused the problem was the blanket bank guarentee which was introduced against the advice of Goldman Sachs. More specifically, the attempt to save a bank known then as Anglo Irish Bank (http://en.wikipedia.org/wiki/Anglo_Irish_Bank).

Now, Anglo Irish really only lent for construction development, and were majorly tied up with the ruling political party of the time, Fianna Fail.

This bank was not systematically important, but they were politically important. The government put approx 30 bn into this bank, and tried to pass it off as a loan. Eurostat, quite rightly said no, you'll never get this money back, and ordered Ireland to count it as debt in 2010. This spiked the irish debt levels, spooked the markets and led to the bailout of Ireland by the IMF and EU.

The worst part is, even though the agreement with these external bodies was to cut costs everywhere (in profession such as law, accountancy and medicine) the brunt of the cuts have so far fallen on poor people.

If one could go back to September 2008, a blanket guarenetee had not been issued and Anglo had been allowed to go bust, then ireland would be in a very different position.

That being said, Irish people appear to be taking austerity quite well, and given the demographics, will probably recover over the next ten years. This all could have been avoided, and while the EU certainly didn't want banks to fail, the majority of the problems were caused by Irish political corruption.

The worst part is, the party responsible for this will be back in power within ten years, where they will have a fourth shot at bankrupting the country. Ireland, my country, has serious issues with stupid governance which is mostly disguised by the willingness of the people to work hard and ignore the stupidity.

https://www.rte.ie/news/2010/0716/banks-business.html

It was Merrill Lynch, not Goldman Sachs. Goldman Sachs role in the guarantee is murky, several ex members of their staff have been associated with the events, e.g. Geithner, who it is claimed torpedoed efforts to default on bank debt.

Timothy Geithner really screwed Ireland. He was probably under a lot of pressure to maintain the illusion that banking debt was more secure than it actually was in that time period (along with his colleagues in the ECB), but it was still no excuse for the Irish Government to bow to the external pressure. My generation will be paying for this mistake for decades. The correct move was to "do an Iceland" and wipe out the unsustainable bank debt.

Here's one article (not the best source but there are others available):

http://www.irishcentral.com/story/roots/the_american_in_irel...

And another: http://www.businessinsider.com/morgan-kelly-irish-default-20...

And here's the story of how a dodgy deal lead to the former (now deceased) Irish Minister of Finance enacting the blanket bank guarantee (this single meeting is the reason the country is so screwed):

http://www.vanityfair.com/business/features/2011/03/michael-...

I would say: morally, the creditor has greater rights, but economically, the debtor must have greater rights. When a guarantee exists that creditors will always be made whole no matter what must be done, debt-slavery becomes possible and profitable.

Interest rates should then also be fixed to central bank AAA rates...no risk, no fun.

Could someone help me out why this Middlebrow Dismissive Comment has been voted up? It contains no information, takes no position, and merely lobs cynical derision at everyone.

Marty's other comment in this thread was cogent and interesting, comparing Iceland's actions to earlier crises Sweden and Argentina. But this comment, useless.

What am I missing here?

It would indicate that others share his lack of faith in mainstream Western economics.

It makes a great deal of statements, and does take positions. Factual positions no less. For example:

"At the onset of the 2008 crisis, some people very accurately predicted the type of crisis it was (a financial panic) and recommended policies that were tested and proven to work."