The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[muppet]

http://www.villagemagazine.ie/index.php/2014/10/economic-hopium-for-the-masses/

Consider our national accounts. Ireland was one of the first countries in the EU to switch from the the ESA 95 to the ESA 2010 accounting framework back in Q1 2014. This means that we started including estimated illegal economic activities (sales of drugs, stolen goods, prostitution etc) as a part of our official GDP, GNP, Gross National Income and domestic demand. We also reclassified R&D spending by companies, including Multinationals (MNCs), and state enterprises, as investment. Under previous standards, R&D spending was treated as a business cost, not adding to the economic activity until it generated actual returns. Now, R&D is labelled as investment and thus counts fully for national income irrespective of whether it produces anything meaningful in the end or is simply written off as a loss.

According to the EU Commission, just three companies account for almost 70% of all R&D 'investment' in Ireland: Accenture (31%), Covidien (24%) and Seagate Technology (15%). So R&D inclusion simply introduced more MNC-driven statistical noise into our aggregate figures. The effect of these accounting changes was not immaterial. Overnight, 2013's GDP was boosted by €10.6 billion or a whopping 6.5 percent. With it, the entire informational content of the national accounts has become unprecedentedly muddied. As actual Government debt continued to climb, the debt-to-GDP ratio fell from 123.7 percent to 116.1 percent. The Government deficit shrank from 7.2 percent to 6.7 percent. Thanks to statistical gimmickry, we were made richer than before without adding a single cent to our actual purses.

Many of you will be much relieved to know that any money you spend on dope, hookers or stolen goods, now counts towards reducing the Government debt to GDP ratio and thus helps our credit rating.

For the rest of you, sorry you had to read this and Tony Fearon will be hearing your confession later at www.urasinr.hell  Enjoy!

[Hereiam]

Muppet the whole thing is one big accounting lie from start to finish. If the governments are at it no wonder the large businesses are at it. Tesco is the latest example of the books been cooked to save face. I laugh when these companies release their accounts to public saying that profits are up blah blah, when any person with a bit of sense knows its all lies to keep the share holders happy.

[TabClear]

Muppet the whole thing is one big accounting lie from start to finish. If the governments are at it no wonder the large businesses are at it. Tesco is the latest example of the books been cooked to save face. I laugh when these companies release their accounts to public saying that profits are up blah blah, when any person with a bit of sense knows its all lies to keep the share holders happy.

Protect bonuses might be closer to the mark!

As far as I am concerned the issue here has to lie with auditors. Our auditors are one of the big four and I know that they sign off on our books, despite us using a different accounting treatment for one of our major revenue lines than our direct peer in the UK. Our peer uses the same big four firm and their office signs off that the alternative treatment is appropriate. Means the two sets of accounts look completely different despite the underlying business being practically identical. Go figure,

And before anyone starts quoting about directors discretion, subjectivity, materiality etc, i am well aware of the accounting guidelines and regulations. I just happen to think that there is way too much discretion allowed by auditors and they are not held to account enough. Ultimately, in my experience they will generally try to accommodate their clients to ensure that the client does not go and find another auditor who will.

[muppet]

http://en.europeonline-magazine.eu/german-retail-bank-announces-negative-interest-rates_361835.html

Berlin (dpa) - A German retail bank announced Wednesday negative interest rates for big deposits, meaning it will charge 0.25 per cent to keep the customer's money if an account goes over 500,000 euros (635,000 dollars).

Last year, the European Central Bank (ECB) began imposing negative interest rates on big banks that lodge funds with it overnight, but this is believed to be the first time in Germany that rates for private customers have gone negative.

Skatbank, a small lender based in the eastern German town of Altenburg, said the negative rate would begin next month. A spokesman said that currently, Skatbank, which has 15,000 customers, advertises zero per cent for any part of a deposit over 500,000 euros.

Interest rates in Germany have tumbled to near zero as the ECB tries to revive the sluggish eurozone economy with cheap loans, so far without any great success.

While financial markets welcome cheap money, wealthy Germans often grumble at the lack of profitable ways to invest money.

An internet portal, Verivox, said some commercial banks had begun imposing negative rates on business customers several weeks ago.

[muppet]

http://www.rte.ie/news/business/2014/1217/667348-banking-inquiry/

Peter Nyberg has told the Banking Inquiry that staff were sanctioned if they questioned the prevailing view in banks during the Celtic Tiger.

Mr Nyberg, who was commissioned by the Government to write a report on the industry following its collapse, was speaking at the inquiry's first day of hearings.

He said he formed this view from interviews he conducted with people who worked in banks, and said that sanctions came in the form of professional advancement and remuneration.

He said if an auditor found a problem it had to raise it with a bank and if the problem was not addressed the auditor would have to resign.

No auditors did resign, he stated.

He said if the problems found by auditors were made public it would have resulted in big problems for banks.

Mr Nyberg added that there were warnings from Department of Finance staff, but they were not very strong and not very insistent.

They were very general warnings about overheating, he said.

Mr Nyberg said he interviewed 140 people for his report but did not speak with the European Central Bank. Any issue which could become subject to a Garda investigation was also not examined in his report, he added.

The Finnish banking expert said he had powers of compelability as part of his investigation, but did not have to use them.  He said people were very co-operative.

He said his report was about the why and not the who. He was not required to name names and he decided not to. It was easier to get institutions when reputations were not under threat, he stated.

It was also easier to avoid legal challenges and the risk of redactions was lessened, he added.

The former IMF economist told Finance Committee members that he believed it was unlikely anything new would emerge from the Banking Inquiry.

However he added that it was important to ensure a similar crisis does not happen again.

The former IMF economist said his investigation understood the bank guarantee decision but did not condone it, adding that it was the culmination of mistakes made previously.

He said the guarantee decision came at the end of a long period after everyone judging risk had told each other and the Government that the banks were solvent and had no problems.

Efforts were made at the last minute, especially in the Department of Finance, to resolve the issues in an orderly manner, but that was not possible.

Sinn Féin's finance spokesman Pearse Doherty asked Mr Nyberg if there was scope for options other than the bank guarantee.

Mr Nyberg said the legal basis for more sophisticated solutions was not there and so nothing could be done on that basis. 

During the night, there were discussions on alternatives -  a shorter guarantee or reducing the scope - but for various reasons, those alternatives were not considered realistic, he told the committee.

In the end, the problems were bigger than foreseen and the efficiency of measures was reduced, he stated. 

Mr Nyberg said the real estate mania in Ireland was unlikely to have resulted in a soft landing, even without the impact of the liquidity crisis in the US.

When asked what role the media played in blowing up the bubble, he said they reported positively on banks and the real estate market, which did have an effect.

Overall Mr Nyberg said the responsibility for the mistakes was obvious - it lay with directors, and senior and junior staff in the banks.

But he added that borrowers were also responsible for debt.

Mr Nyberg also said it was not fair to say we all partied, people just lived a little better than they otherwise would have done.

Fine Gael Senator Michael D'Arcy asked how Mr Nyberg thought the Irish banks were at judging risk.

The banking expert laughed and said he could not answer on the basis of his Commission's report, but he added that the Irish institutions were pretty good at misjudging risk.

Pearse Doherty asked if the crisis was essentially homegrown. Mr Nyberg said it was.

He said the Financial regulator should have been looking at the concentration of credit and how the risk mitigation procedures were not working. 

Mr Nuberg said the Finance Department began to think of a resolution regime - how to wind up a bank - after Northern Rock in 2007.

But he said other institutions did not think it was a good idea because they thought the banks were solvent and that banks could be taken over by Government, he added.

If there had been a common will among politicians of an early resolutions regime it would have been possible to introduce, he said.

The committee will resume with Robert Wright, who wrote a report on the Department of Finance.

Opening today's Inquiry, committee chairman Ciarán Lynch said that "the dark cloud of the banking and financial crisis still lingers over every home in Ireland".

Deputy Lynch said the Inquiry's task is to shed light on how the collapse happened and to ensure its dark shadow never falls on our country again.

He said the purpose of the Inquiry is to "identify and to learn from previous mistakes and to ensure that, as far as is possible, we do not create the circumstances which would lead to a similar disaster in the future".

The committee has the power to compel written and oral evidence, and Mr Lynch said there will be witness testimony, oral evidence, transcripts, detailed records - all presented in public.

The first phase of the inquiry will hear testimony from 30 witnesses and will set the context for the financial crash.

In April, the second phase of the process will hear from bankers, civil servants, politicians and regulators.

The inquiry is expected to conclude by November next year.

It will be the first time many of the key players will be questioned in public. 

While the inquiry will be highly restricted in making adverse findings against individuals, hearing from those who have remained silent is likely to be its biggest contribution.

European Commission willing to attend Inquiry

Meanwhile, the European Commission has contacted the Banking Inquiry and told it that it is willing to provide witnesses to hearings, RTÉ News has learned. 

The development comes after it emerged that the President of the European Central Bank, Mario Draghi, has ruled out participating in the hearings.

It is not yet clear who from the European Commission will appear at the hearings.

It is also understood that the International Monetary Fund has indicated that it will co-operate with the context phase of the Banking Inquiry which will examine the background to the collapse.

[seafoid]

Pearse Doherty asked if the crisis was essentially homegrown. Mr Nyberg said it was.

http://www.ft.com/cms/s/0/2bd925be-0bdb-11e3-8840-00144feabdc0.html

The truth is more banal: the real cause of the expansion that precedes the typical financial crisis is usually a flood of cheap (or relatively cheap) credit, often from abroad. Phase Two of a financial crisis is the downfall itself. It is the moment when everyone realises the emperor is naked; to put it another way, the tide of easy money recedes for some reason, and suddenly the current account deficits, the poverty of investment returns and the fragility of indebted corporations and the banks that lent to them are exposed to view. Phase Three is when ministers and central bank governors survey the wreckage of a once-vibrant economy and try to work out how to rebuild it.

so yeah the banks went nuts and were incompetent but without cheap euro funds the bust would have been much smaller.

[muppet]

http://www.rte.ie/news/2014/1218/667600-banking-inquiry/

Former Canadian deputy finance minister Rob Wright has appeared before the Oireachtas Inquiry into the Banking Crisis on the second day of its hearings.

He was the author of a critical report into the Department of Finance's role in the crisis.

Mr Wright told the inquiry that it was startling that there was very little consistent written advice in the department other than annual memoranda to Cabinet.

He said the Government substantially exceeded this advice in the Budget.

Mr Wright also said the budgetary process was overwhelmed by programmes for government and social partnership.

He said the economy was clearly overheating and to have spending increase by 12% per year was not good.

Mr Wright said the department needed to strengthen its written record of advice.

The inquiry has concluded today's hearing and will return in 2015.

Mr Wright earlier said he would have pushed the red button in the department if he had been there.

He said it could have reined in spending and reined in the construction sector.

It was very dangerous when spending was ramping up that dramatically in an overheating economy.

Mr Wright said there should have been a stronger relationship with the Financial Regulator.

He said he found it incredible that Department of Finance staff went home on Budget night to find out what was in it.

Mr Wright said the department's level of economists was very low by international standards and he was particularly surprised by the low level of those with a Masters in Economics.

He recommended the department substantially increase its number of economists and tax advisers.

Independent Senator Sean Barrett pointed out that at the time of Mr Wright's report, there were only 39 senior economists out of a staff of 500 in the department.

Mr Wright recommended doubling the number of staff with MAs and said the department had not quite done that.

Around 100 people in the department now have an economic background, with almost half at MA level, out of a reduced staff of 300.

He also recommended that the department urgently second expertise, and said it had done so.

Mr Wright also recommended modernising in terms of structure and communication. He said there had been a lot of progress, and there was now much stronger engagement with the EU and that had added rigour.

However, he said less progress had been made in energising the Irish system to help public servants to do their job.

Mr Wright criticised social partnership for letting public sector pay grow too quickly and said there was weak management of the economy.

He said: "There are a lot of negatives that happen when you don't manage sustainable growth."

Labour Senator Susan O'Keeffe asked what Mr Wright thought of Peter Nyberg's view that the inquiry would not find anything new.

Mr Wright said it was good to have a stocktaking exercise, but he said they should be looking forward and finding out what they are learning.

Meanwhile, all of Ireland's MEPs have issued a joint letter requesting that European Central Bank President Mario Draghi agree to appear before the inquiry.

The message, which was coordinated by Independent MEP Marian Harkin and signed by all of her colleagues, is a response to Mr Draghi's contention that he is answerable to the European Parliament and not to the parliaments of members states.

Mr Wright said he did not realise that it was an option not to appear before the inquiry, after he was asked whether he was surprised that the ECB would not appear.

Many of the changes to the Department of Finance recommended by Mr Wright have been implemented, Minister for Finance Michael Noonan has said.

Mr Noonan said "the spirit" of the recommendations have been introduced, but it is an "ongoing process ... you never say that is fixed and that is the end of that".

Mr Noonan also called for the ECB to send a senior official to the inquiry and said it did not need to be Mr Draghi.

He said: "The ECB who were so central to the collapse of the Irish economy should be there.

"At a very senior level they should attend. I regret they are not there."

He said would contact the ECB and ask it to review the decision not to attend and said it should not fear the bank being victimised by the inquiry.

[Rossfan]

Earlier this year "Reeling in the years"had 2001 on. Following a report that the then 14 Other EU Finance Ministers wrote to the Irish Government  warning them about their Budgetary Policy. It was followed by a guffawing McCreevy "If the rest of Europe would do the same as us Europe would be a better place "

[Franko]

Looks like Drumm isn't going to wriggle out of his own liabilities anyway.

David Drumm: Ex-Anglo Irish Bank CEO fails in bankruptcy bid

http://www.bbc.co.uk/news/world-europe-30706483

[seafoid]

Eurozone inflation for december minus 0.2% , brought below zero by the fall in the price of oil. The ecb target is 2%.

http://www.theguardian.com/business/2015/jan/07/eurozone-deflation-pressure-ecb-qe

Central banks missing targets is very fashionable

[armaghniac]

Eurozone inflation for december minus 0.2% , brought below zero by the fall in the price of oil. The ecb target is 2%.

http://www.theguardian.com/business/2015/jan/07/eurozone-deflation-pressure-ecb-qe

Central banks missing targets is very fashionable

There are a variety of sensationalist headlines about deflation, but I think deflation from a collapse in price of oil needs to be looked at differently from one resulting from an internal collapse, some sort of oil free index is needed. If oil suddenly went up and inflation went back to +1% this would in no sense mean that the Eurozone was better, oil going down does not mean that it worse, indeed cheaper oil provides a boost of sorts.

[Rossfan]

The Government borrowed a load of money at under 1% today -- if I heard the News correctly.

[seafoid]

Eurozone inflation for december minus 0.2% , brought below zero by the fall in the price of oil. The ecb target is 2%.

http://www.theguardian.com/business/2015/jan/07/eurozone-deflation-pressure-ecb-qe

Central banks missing targets is very fashionable

There are a variety of sensationalist headlines about deflation, but I think deflation from a collapse in price of oil needs to be looked at differently from one resulting from an internal collapse, some sort of oil free index is needed. If oil suddenly went up and inflation went back to +1% this would in no sense mean that the Eurozone was better, oil going down does not mean that it worse, indeed cheaper oil provides a boost of sorts.

The periphery is supposed to deflate its way to competitiveness and the core is slowing down so it's about more than oil.
Deflation is a big threat.  The ECB's models can't capture what is happening via the ECB's failed policies. 

http://www.ft.com/cms/s/0/c65f18b6-9652-11e4-a40b-00144feabdc0.html#ixzz3OAQ59YRJ

James Ashley, economist at RBC Capital Markets, said that while oil prices were a factor, "the far more important question is why inflation is anywhere near 0 per cent in the first place
"The inconvenient truth for policy makers is that, in large part, that is a reflection of the failure of policy (both fiscal and monetary)," he added

[armaghniac]

It isn't often I watch TV3, but the film The Guarantee passed away a while earlier on (it is probably on the player). The bottom line with these things is not to get yourself boxed in the first place, it is tricky to figure things out in a short time.

[muppet]

http://www.rte.ie/news/business/2015/0115/672720-banking-inquiry-honohan/

Central Bank Governor Patrick Honohan has said the bank guarantee could end up costing €40 billion, even after taking into account amounts recoverable by the Government in selling bank shares.

Professor Honohan told the Banking Inquiry that the original €64 billion cost had been whittled down to €40 billion but there were many "ifs and buts" remaining.

He said the €40 billion could not all have been avoided but it could have been whittled down, adding that civil servants were working very hard on this.

The Professor told the Inquiry that the form of bank guarantee taken by the Government was clearly a mistake, particularly the guaranteeing of subordinated debt. 

With the benefit of hindsight, Anglo Irish Bank and Irish Nationwide Building Society should have been put into liquidation on September 29 2008, he said.

Professor Honohan said he stood over the conclusions made into his May 2010 report into the failings of the Central Bank and the Financial Regulator during the financial crisis.

The Professor criticised central bank supervisors for trusting banks and being too deferential, adding that there was deficiencies in skills and resources among staff.

He said the approach should have been more intrusive and assertive and financial stability reports were too reassuring.

He said this amounted to a triumph of hope over reality. 

Mr Honohan said if Anglo had been liquidated in 2008, it would have been seen as a European Lehman Brothers and the Government would have been pilloried and become pariahs internationally.

He said Ireland got a bad rap for the bank guarantee but it would have been worse if Anglo was liquidated and Ireland said to hell with bondholders. 

He said the financial regulator should have known it was bust.

It should have been wound down but it would have been clearer if they knew the size of the problem, he said. 

Mr Honohan had the greatest sympathy for the political people in the room on the night of the guarantee.

In the context of the advice they were given, the decisions were "quite understandable", he told the committee.

Mr Honohan said Anglo Irish Bank was not an important contributor to the Irish economy, however, liquidating it would have caused a systemic risk.

Asked by Fine Gael TD Kieran O'Donnell about the feasibility of an orderly wind down of Anglo, Mr Honohan said the ECB was in no form of mind to permit wind downs that put losses on senior bondholders.

In terms of when the banks became insolvent, he said this was very difficult as it was hard to put a figure on assets.

He said action should have been taken by authorities to stem the risks in 2004, 2005 and 2006, after that was too late.

Mr Honohan said then Finance Minister Brian Lenihan told him he wanted to have Anglo and Nationwide nationalised on the night of the guarantee.

However, Mr Honohan said the Minister was "over-ruled" on the night.

While he did not say who over-ruled Mr Lenihan, Mr Honohan said the Taoiseach and the Attorney General were the only other political people present.

Mr Honohan told the Inquiry that the Irish authorities were approached for aid from a large German bank in the IFSC at the height of the financial crisis.

He said there were approaches from Depfa to the Central Bank for emergency liquidity.

Mr Honohan said the request was rightly turned down.

Sinn Féin's Finance Spokesperson Pearse Doherty asked Mr Honohan if he believed the Government tried to have a "non-intrusive" environment in the IFSC.

Mr Honohan said the whole regime did not want to interfere, but he added big banks did not mind having regulators examine their books.

Asked about the ECB's refusal to attend the inquiry, Mr Honohan said it was not resistant to sharing its views and he indicated it may participate in some form.

He said he had been talking to several people involved and there may be some possibility that the information and the understanding would be communicated in some way as distinct from his own attempts to do so.

He said the difficulty for the ECB was that it viewed its independence as very important and was accountable to the European Parliament rather than national parliaments.