pumpkinstrokemarrow

And a propos of the collapse of certain Irish banks, I have been wondering where all the money went. Who are the winners and losers in this collapse? Which leads to the following train of thought. Suppose farmer O'Reilly owns the fishing rights to a bit of a stream running through a bit of his rough pasture. Suppose further than speculator FitzJames (of dodgy Norman, rather than decent Celtic, descent) decides that these fishing rights are worth £1m and persuades the Bank of all Ireland (BOAI) of same. BOAI agrees to finance his purchase of the fishing rights for said £1m with the O'Reilly winnings being loaned back to the bank. So BOAI is now in debt to O'Reilly to the tune of £1m and in credit with FitzJames to the tune of the same £1m. No money has changed hands although the title deed of the fishing rights has changed hands.

After a while O'Reilly decides that he would like a shiny new Ferrari to bang around his land in and wants to call in some of his debt with BOAI. But that is not a problem as the Ferrari people are quite happy to take their money in the form of debt with BOAI. So far so good; no real money needed. But then O'Reilly wants a loft conversion done on his pig shed and he finds that the people who do loft conversions on pig sheds want to get paid in washers, not debts. So O'Reilly calls in some of his debt with BOAI who now have a bit of a hole in their balance sheet.

Meanwhile, FitzJames has parlayed his fishing rights up from £1m to £2m. Rising market. Actual income this year from paying fishers not that hot, but the capital value is doing nicely thank you. So he decides to sell half his share to the Bank at Dubai (BAD). Luckily BAD has lots of real money available as a result of selling lots of oil and are able to pay FitzJames in real money, thus bringing a bit of liquidity into the system. FitzJames pays off a slice of his debt to BOAI and the BOAI balance sheet is now hunky-dory. FitzJames PLC pays FitzJames the person a hefty management fee for all his fine organisational work.

I have not bothered to work into the story the way in which BOAI charges fees and interests on all this and does not appear to be doing too badly. Let's keep the numbers simple. Nor the bit about how FitzJames was big mates with the Taoiseach, in whose gift rest three of the six directorships of BOAI. I leave this last bit of scuttlebutt to the 'News of the World'.

Then, all of a sudden, the fish in the fishing rights all catch malaria and snuff it. Value of fishing rights drops from £2m to £2 overnight. FitzJames PLC goes into administration where the administrators find that all the company owns is half the fishing rights, that is to say £1. All the rest of the wonga has vanished. This triggers a run on BOAI and BOAI goes bust.

Farmer O'Reilly loses what is left of his money with BOAI but he has got a Ferrari and a loft conversion. He has unloaded at a good price some fishing rights which are now more or less worthless and which no-one will now tramp over his land to use. Speculator FitzJames lived happily ever after in the Cocoa Islands where he was the mainstay of the local lap dancing industry, womens' liberation not yet having reached these particular islands. BOAI is no more and its employees are unemployed and off the dole as Ireland can no longer afford to pay the dole. But they have got what they deserved. The Ferrari people have taken a bit of a hit unless they managed to pass it on in time. BAD has lost £1m. These last are the big losers, but, luckily, they can afford it. However, they are a bit cheesed and are not going to buy any more bonds which say Fitz something on them.

After all this, I think I am safe with the line that there are winners and losers in these stories. Maybe there is a lot of paper money in the system but there is also some real money. Quite enough to keep the FitzJames's in clover.

Clearly an economist manqué. Which, as it happens, is something I once wanted to be.