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

[whiskeysteve]

Lads, hypothetically speaking, what would happen if the very worst came to the very worst and the country goes down a similar road to Iceland? Anyone read anything on the impacts on their country since their collapse?

[Rossfan]

The US has trillion dollar rescue packages now for the big banks/insurance companies/car companies etc, it is kind of like they are just making up numbers now.  Is there ever a number that it gets to where the government says we don't actually have any more money?

The US Government owes untold "Quadrillions" of dollars to US Banks.
Then when the Banks run out of money the US Government says it will help them out with trillions of dollars it hasnt got.
Now if the US Government paid its debts to the banks in the first place, the banks would have loads of money but to do that the US Govt would first have to borrow it from the Banks etc etc.
So yes they are making up numbers as they go along.

[muppet]

Lads, hypothetically speaking, what would happen if the very worst came to the very worst and the country goes down a similar road to Iceland? Anyone read anything on the impacts on their country since their collapse?

Iceland aren't in the Euro so it is hard to know. We would devalue our currency now as we did in 1992 except we cant as we are in the Euro. If we left the Euro we would be Iceland so I dont see that happening.

There are dangerous storm clouds gathering though.

We started with a credit crunch and it caused a property market collapse, which continues. The banks are still struggling with access to credit and liquidity. All the time the bricks and mortar which the loans they gave out were secured against falls in worth bringing on the spectre of negative equity.

Possible things to happen next:

* The Goverment could go ahead as it is hinting and reduce public pay while at the same time increasing taxes. That will put an end to any chance of the property market bottoming out as many new people wont be able to afford their mortgages.
* There will be strikes all over the place and more businesses will close. Then we may even see street protests.
* I dont see how the government can last for long if any of that happens so expect an election or two.
* If all that happens we may need the IMF at which point I would probably emigrate.

Anyone else see a light at the end of this tunnel?

[Bogball XV]

The US has trillion dollar rescue packages now for the big banks/insurance companies/car companies etc, it is kind of like they are just making up numbers now.  Is there ever a number that it gets to where the government says we don't actually have any more money?

The US Government owes untold "Quadrillions" of dollars to US Banks.
Then when the Banks run out of money the US Government says it will help them out with trillions of dollars it hasnt got.
Now if the US Government paid its debts to the banks in the first place, the banks would have loads of money but to do that the US Govt would first have to borrow it from the Banks etc etc.
So yes they are making up numbers as they go along.

I'm a bit lost on this one Rois, how and why does the US govt owe quadrillions to US banks and what debts has it not repaid to US banks? 

[Bogball XV]

* If all that happens we may need the IMF at which point I would probably emigrate.

Anyone else see a light at the end of this tunnel?

I read somewhere that the ECB would not allow the IMF to come in, they however could enact their own version of the IMF, basically being in the euro may at least save us that ignominy, the cost will be self determination (but given how we've done on our own, that's probably a bonus!!).

Light at the end of the tunnel - not much at present, it's tough to see us getting out of this, and if we do have to accept handouts from the ECB we can say bye bye to fiscal stimulus packages and we'll have huge swathes of public sector cuts, so that'll hardly help.
Apparently this year see's Anglo having to borrow approx 6bn, BOI 11bn and AIB 6bn, since there's no chance of the capital markets funding that we'll have to (since we're now guarantors).  We may not be able to borrow that however as we already need 10bn for budgetary needs, so it might have to come via a special bailout from Europe, fun times ahead people. 

[muppet]

On the plus side I predict a new music genre will emerge from the bowels of the economic blues.

[Main Street]

The US has trillion dollar rescue packages now for the big banks/insurance companies/car companies etc, it is kind of like they are just making up numbers now.  Is there ever a number that it gets to where the government says we don't actually have any more money?

The US Government owes untold "Quadrillions" of dollars to US Banks.
Then when the Banks run out of money the US Government says it will help them out with trillions of dollars it hasnt got.
Now if the US Government paid its debts to the banks in the first place, the banks would have loads of money but to do that the US Govt would first have to borrow it from the Banks etc etc.
So yes they are making up numbers as they go along.

I'm a bit lost on this one Rois, how and why does the US govt owe quadrillions to US banks and what debts has it not repaid to US banks? 

Much of the US debt is internal debt.
I think that means ,that it will be one of the last to collapse.
Most of Irelands debt is external debt, the size of this debt means it is in the equivalent of the front line troops, to go over the top in trench warfare, to be wiped out.
This is not just the national debt but also money borrowed from abroad to fund the business and personal credit.
The level of this debt has shot through the ceiling, the ratio per person is the highest in the world after Monaco and some 4 times higher ratio than Zimbabwe.

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

[lynchbhoy]

maybe I am not getting he full picture, but banks IMO are shooting themselves in the foot (slitting themselves in the throat more apt maybe) by stopping conducting business.

There may be a number of businesses out there that are risks and should not be lent to, but this clamming up and lending to nobody is not going to help. It will make things worse.

Imo by not lending, a reasonably secure business coul dhit the rocks, the employees lose jobs, they cant pay the mortgage- it hits the bank full pelt in the stomach there !

While people are paying mortgages, even those in negative equity, as long as they keeppaying the equity will become positive, the money circulates and the banks, businesses etc all get paid - as long as the banks open some bit for business again.


I disagree with what that ucd 'economist ' says as well.
While he is correct in his opinion that most building workers dont have an education (and are as thick as feck) , the gov could as they are hinting at, start/continue to build new schools, railways, roads etc and a lot of these unemployed builders can be re-employed in this.

Also I have mentioned prev that there could be a lot more jobs created in eco industry, but alas I fear its too soon for that technology to create many jobs as yet.

to overcome this problem , clamming up and hoping it will go away wont work.
We need to trade out recession away. Stopping doing business will destroy any amount of money being thrown around thats supposed to help.

Lynchboy,  property was massively overvalued.  We have seen in the last 10 years(take out the last 18 months), the biggest rise in house prices here yet wages did not keep pace.  The fall in property prices has to be as big as the fall IMO.  Add to this more and more people becoming unemployed , it may take an awful long time for people to clear negative equity.  Whats the point of repaying an interest only mortgage where you're house is worth £70000 less than the mortgage.
I would just give back the keys.
And that is the problem for the banks.  They do not just have the toxic assets of the mega rich, they also have a huge portfolio of First time buyers who the lent out interest only mortgages to.  These are just as toxic.

I'd agree that there are cases like this, but as a guess, three woul dbe many more , the majority that woul dbe slightly down, and as they have to live somewhere - with only a slight saving if they were just paying rent, they will soldier on while they are still employed and living.
So I still reckon its heads down and try to trade through the bleak time.

As I said beofre the only thing that can really scupper all this is if we lose a lot more jobs...

gov should be trying to create more too

[muppet]

The Grim Reaper (Turlough O'Sullivan) wants the public sector to shed 70,000 jobs. I dont think that will help some how.

[Bord na Mona man]

The Grim Reaper (Turlough O'Sullivan) wants the public sector to shed 70,000 jobs. I dont think that will help some how.

We might as well have those 70,000 doing a bit of work for the state, sack them and you'll be paying their dole anyway.

[Bord na Mona man]

The banks lent people money based on there salaries x 5.  Madness.

If only that was the height of the madness.
People were getting 9 or 10 times their salary at the peak.
That's the problem with pyramid schemes though, you have to keep shovelling more and more money into it to keep it alive.
God knows when the banks would have stopped if had managed to keep getting people coming in from the bottom of it.

[Declan]

Nationalise the real banks, foreclose on the developers, take the land banks back into public ownership, start building affordable housing and other national infrastructure projects, let the property market continue to fall back into realistic prices, bring in a "war" time like investment bond and a scheme to minimise the effect of negative equity on recent first time buyers. Take to the streets, sack the government and try and take the first steps in realising the promise of the declaration of independence in time for 2016.
Radical I know but I have heard nothing from any of the commentating class that inspires me with any confidence- See your revolution and raise you 1?

Interesting analysis in the times today froom Morgan Kelly in UCD
Piling Anglo losses on to national debt risks bankrupting the State

ANALYSIS: Anglo Irish is poisoning the banking system and is of no systemic importance. It must not be nationalised; it must be allowed to collapse and with it the developers at the heart of the problem, writes Morgan Kelly

YESTERDAY'S CATASTROPHIC collapse of Irish bank shares stems directly from the Government's proposal to nationalise Anglo Irish Bank. With the Government's finances already buckling under the collapse of our bubble economy, financial markets began to fear that with the added burden of Anglo's debt, the Irish State cannot afford to finance itself, let alone support the remaining national banks.

Facing the imminent collapse of the national financial system, the Government needs to perform a ruthless triage. The worthwhile banks need to be maintained by any means necessary, including nationalisation, while Anglo Irish and Irish Nationwide must be allowed to collapse.

What began as farce has turned swiftly to catastrophe. Last September the Government casually decided to give a small dig-out to some developer pals by guaranteeing the liabilities of Anglo Irish Bank. This spiralled into a proposed nationalisation that would saddle Irish taxpayers with Anglo's bad debts, which could easily exceed €20,000 per household, and starve the other, worthwhile, banks of the capital they need to survive.

At the original crisis meeting on September 29th, Brian Cowen claimed that the blanket guarantee to all six banks was given "on the basis of the advice from those who are competent to so advise the Government".

That does not appear to have been the case.

According to a source of mine very familiar with what happened at the meeting, extending the liability guarantee to Anglo Irish and Irish Nationwide was strongly opposed by representatives of the Central Bank and the Department of Finance (who reportedly came into the meeting with a draft Bill to rescue only four institutions). However, I am told they were overruled by the Taoiseach and the Minister for Finance, who were supported by the Financial Regulator and the Governor of the Central Bank on the grounds that a sudden liquidation of Anglo's assets would not be in the national interest.

It is still worth asking what would have happened if Brian Cowen had listened to the Department of Finance and allowed Anglo Irish to sink? The answer is: very little.

Developers would have gone bust and commercial property would have become more or less worthless, but that is going to happen anyway, with or without Anglo Irish. Depositors of Anglo Irish would have been paid off in full, and the hit would have been taken by the international financial institutions that hold around €22 billion of its bonds.

These bondholders are professional institutional investors who signed up for higher returns on Anglo debt in the knowledge that they were facing higher risks. They are, moreover, insured against their losses through insurance contracts called Credit Default Swaps.

This is the central point about the bailout of Anglo Irish, and one that has not received any attention: the only effect of a bailout is that the Irish taxpayer will make up the losses of Anglo Irish's bondholders instead of the insurers who had already been paid to underwrite the risk.

Why it is necessary to transfer Anglo's losses from the writers of Credit Default Swaps to the Irish taxpayer is something that the Government has not thought to justify.

Indeed, what has been disturbing about the entire Anglo affair is that at no stage has the Government felt it necessary to explain why any bailout was needed, beyond inchoate mutterings about the "systemic importance" of Anglo Irish.

The reality is that Anglo has no importance in the Irish financial system. It existed purely as a vehicle for a few politically connected individuals to place reckless bets on the commercial property market. These property speculators may be of systemic importance to the finances of Fianna Fáil, but their significance ends there.

In ordinary times, piling €30 billion of Anglo Irish losses on to the national debt would be painful and pointless but not impossible. These however are not ordinary times. International debt markets are flooded with governments trying to borrow. The other Irish banks are dangerously short of capital. Most importantly, the Irish economy and government finances are collapsing.

Ireland's growth during the last decade was largely illusory, generated by a property bubble fuelled by reckless bank lending. In 2007 an incredible 20 per cent of our national income and employment came from building houses and commercial property. Next year, the percentage will be approximately zero.

The only industrialised economy that has endured a property and banking crash remotely comparable to what we are beginning to experience was Finland in 1991, where national income fell in total by 15 per cent and unemployment rose by 12 percentage points. As the private sector haemorrhages jobs it is hard to see how Irish national income will fall by less than 20 to 25 per cent in the next few years. Unemployment will easily reach 15 per cent by the end of the summer, and 20 per cent by next year, and will not start to fall until recovery in Britain and elsewhere permits mass emigration to resume. The economy will not begin to grow until real wages fall to competitive international levels, a process that will probably take a decade.

In other words, the Irish economy is facing a decade of stagnation and mass unemployment of the same magnitude as the 1980s, with the difference that the unemployed now have mortgages, car loans and maxed-out credit cards. Faced with an irreversible contraction on this scale, the Government will have grave difficulty borrowing to fund its ordinary expenditure, even after draconian cuts in spending and increases in taxation. In the view of international investors, piling Anglo Irish's gambling losses on top of a spiralling national debt could easily suffice to sink the Irish State into bankruptcy.

In this national crisis, what should be done? The answer is simple. The State must do everything to rescue AIB, Bank of Ireland and Permanent TSB, and let Anglo Irish and Irish Nationwide sink.

The Government must continue to guarantee all deposits at Anglo Irish while announcing that, in the light of continuing revelations of misconduct in the bank and shortcomings in its auditing procedures, it will enter into negotiations with senior and unsecured bondholders.

The proposed Anglo nationalisation marks a decisive watershed in Irish democracy. With it, an Irish government has coolly looked its citizens in the eye and said: "Sorry, but your priorities are not ours."

It is to be hoped that the collapse of other bank shares will serve as a warning to deter the Government from this catastrophic course. I would therefore urge any TDs and Senators who still believe that the Irish State exists to act in the interests of its people to vote against the nationalisation of Anglo Irish and do everything to protect the other banks.

[Hound]

Shush will yis!!! Our leader has just said (through a spokesman of course) no negative comments allowed!!

And to think there are countries in a worse state than us!

Spain has just lost is Triple A credit rating.
Greece is now six notches below Triple A.

[armaghniac]

As the private sector haemorrhages jobs it is hard to see how Irish national income will fall by less than 20 to 25 per cent in the next few years. Unemployment will easily reach 15 per cent by the end of the summer, and 20 per cent by next year, and will not start to fall until recovery in Britain and elsewhere permits mass emigration to resume. The economy will not begin to grow until real wages fall to competitive international levels, a process that will probably take a decade

Well that's something to look forward to.
This guy makes George Lee and David McWilliams look like crazy optimists. 

[give her dixie]

With the Irish banks taking another hammering today, and Anglo Irish down another 27%, it doesn't look too good.
I feel that Anglo are in a very bad position, with nearly 80% of their lending involving property, and before the end of this week something radical will happen.
Will they be taken over, or will the Gov bail them out?
Things don't look too rosey this Monday eh?

I was off the mark by a few months.......................