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The Irish bail-out explained

06 December 2010
Written by rosalind renshaw

Now there are lots of things EAT doesn’t understand (apart from fiscal retrenchment and the RICS survey).

And one of them is bailing out the Irish economy.

So here, we think, is the explanation, courtesy of one of our readers.

“It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.
 
“On this particular day, a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
 
“The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
 
“The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
 
“The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
 
“The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub.
 
“The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him ‘services’ on credit.
 
“The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
 
“The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything.
 
“At that moment, the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money and leaves town.
 
“No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
 
“And that is how the bail-out package works.
 
“Except, of course, when the bank gets involved.”

Comments

  • icon

    That is corporate win/win Wardy.
    They get your money and you get rogered all day every day.

    • 08 December 2010 11:27 AM
  • icon

    nope still dont get it, so irish pub landords are geting free sex? and what sort of prostitute charges £100 when the room costs £100? i cant see any profit in it. The prostitute needs to do a deal with the hotel. No wonder they are all skint.

    • 08 December 2010 10:25 AM
  • icon

    Well Jonnie think of it in terms of corporate accounting.

    If you are the boss of a loss making company you buy up lots of smaller ones that are making a profit.

    Take all the profit from the good companies and pass it over to the loss making one.
    While you haven't actually made any more money you end up with less tax to pay, its not proper profit but it is still spendies!
    When the once profitable company becomes desperate for cash to keep it in business /profitable, transfer a bit of its cash back to itself or some of the left over spendies. Of course there will be times when both business are desperate for cash so what you do then is borrow money short term relying on the previously good credit rating of the good company. So long as a bit of business comes in to cover the repayments all is well otherwise what you do is start letting go of the staff that generate the profit in order to save costs and increase profits.

    Now instead of one loss making company you have 2 or 3 or 4 or 5 so what happens next, Buy another profitable company and divvy out the profits! Yay, magic
    The corporate world continues to spin (pun intended!)
    Now if you are smart you will realise by now that this way of going on is unsustainable in the long term, so what happens next. Here is the corporate clever bit, take one of the now least crappy parts of the empire let it show a profit or a bit of potential if run by folk who are .... not corporate, and flog it off, sometimes for no money at all as long as the new owners take on the debt. The not corporate folk get themselves a bargain knowing that they will flog the company to another corporate in 5 years time for xxxx% more, the current corporate owner gets a desperately needed paddle, or gets rid of a pile of debt and sometimes enough cash to seek out another profit making company.

    EAT wasn't around when the Pru gave the principals of Independant agents a wad to clear off to France or Spain. Every £1,000,000 spent on that purchase turned into not much when the Pru sold the companies back to the well tanned agents. (That is where your endowment money went)
    GA, Halifax, Royal life the list is endless.

    Run through in your own mind people who have sold out a decent business and bought back the carcass a few years later for a £1.

    • 08 December 2010 08:21 AM
  • icon

    Nope,

    I can't figure it out, van someone cleverer than me explain it please.

    Jonnie

    • 08 December 2010 00:00 AM
  • icon

    .....erm

    • 07 December 2010 16:39 PM
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    and the German got the 100 euro from the EU via our tax.

    • 06 December 2010 13:45 PM
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