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

[Bogball XV]

Beat me to it muppet, I rushed straight here as soon as I saw this:

The Government believed the risk to the taxpayer from its €400 billion bank guarantee scheme was offset by €500 billion in assets held by the banks, according to financial documents released by the Oireachtas Public Accounts Committee this morning.

A briefing document compiled by Department of Finance officials for the Taoiseach, dated September 30th - one day after the guarantee was announced - suggested the financial exposure to the taxpayer was mitigated by a "very substantial buffer" of assets.

The asset quality in the financial institutions, the document said, was good with a strong concentration in residential mortgages with a relatively low loan-to-value ratio.

"There is therefore, a significant buffer before there is any question of credit impairments on the Exchequer on foot of the guarantee," the briefing note said.

http://www.irishtimes.com/newspaper/breaking/2010/0716/breaking2.html?via=mr

[give her dixie]

Credit agency Moody's has downgraded Ireland's government bond ratings to Aa2, blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.

However, Moody's lead analyst for Ireland Dietmar Hornung said it was a "gradual, significant deterioration, but not a sudden, dramatic shift", and the agency believed Ireland has "turned the corner".

The general government debt-to-GDP ratio was at 64 per cent at the end of last year, up from 25 per cent before the financial crisis took hold, and is continuing to rise.

"Today's downgrade is primarily driven by the Irish government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability," said Mr Hornung.

The support provided to the banking system, which includes the transfer of billions of euro worth of loans from banks to the National Asset Management Agency, was also cited as a key factor in the rating downgrade. Recapitalisation measures already announced may reach €25 billion, the agency said, but Anglo Irish Bank may require further support.

"While we do not expect the government - not even in a moderately stressed scenario — to incur permanent losses in excess of 25 per cent of the country's 2009 GDP as a result of these obligations, we believe that the uncertainty surrounding final losses would exert additional pressure on the government's financial strength," the agency said in a statement.

The move comes just over a year after Moody's last downgraded the country's rating. On July 2nd 2009, the agency gave the bonds a Aa1 rating, with a negative outlook.

However, the outlook was today changed to stable, with Moody's now viewing the upside and downside risks as evenly balanced at the current rating level.

The agency said it expect expects economic growth to be below historical trend over the next three to five years due to the weak banking and real estate sectors, and the fall in private sector credit.

"If the GDP growth trend were to exceed Moody's expectations - with a quick resumption of domestic credit flow and a supportive global economic environment — then the government's debt metrics could stabilise earlier than is currently being assumed," said Mr Hornung.

General government debt-to-GDP ratio is expected to stabilise at 95 per cent to 100 per cent over the next two to three years, Moody's said.

"Given Ireland's wealthy and flexible economy and its very high institutional strength, these debt levels are commensurate with a Aa2 rating. Ireland's demonstrated adjustment capability and its economic vitality — reflected for instance in its ability to attract foreign direct investment — are important characteristics that support the rating," the agency said.

Fine Gael's deputy finance spokesman Kieran O'Donnell said it was a vote of no confidence in the Government's economic and banking strategy.

"The Government's disastrous banking strategy already means that Ireland now has the highest deficit in the EU since the Second World War," he said.

"Now Moody's decision shows that international markets appreciate the massive costs associated with the Government's plan to pour €25 billion into the black holes of Anglo Irish Bank and Irish Nationwide."

Sinn Féin finance spokes man said the downgrade would be crippling for the whole economy, with the higher cost of borrowing leading to further restrictions in credit for small businesses and households.

"The cost of borrowing will increase for the Irish Government as a result of their unfettered allegiance to an ailing banking system and especially the zombie Anglo Irish bank. Once more, the inadequacy of Government policy concerning the banks has been revealed," he said.

"The Government's home grown crisis, which has produced weak banking and property sectors, is once more curbing economic growth."

Despite the downgrade of bonds, Ireland is likely to sell the full allotment of up to €1.5 billion of 2016 and 2020 bonds tomorrow, ING Groep NV said today.

The sales "are likely to go well in line with the Portuguese auctions last week, given the large concession priced in", senior debt strategist Wilson Chin wrote in a research note today.

"The supply will be rather light this week."

The spread between Irish and German 10-year government bonds was at 286 basis points this morning.

[seafoid]

The spread shows no sign of reducing. Ireland can only afford to pay that sort of difference for so long. A lot of the problem relates to the black hole that is Anglo Irish.  Will it drive Ireland into default?

[muppet]

The spread shows no sign of reducing. Ireland can only afford to pay that sort of difference for so long. A lot of the problem relates to the black hole that is Anglo Irish.  Will it drive Ireland into default?

http://www.rte.ie/news/2010/0810/anglo.html

This is semi-old news but it just got approval from the EU. It is worth mentioning though as the actual figure needed has increased yet again.

€10bn Anglo Government injection approved
 
The European Commission has approved Government plans to inject up to another €10bn into Anglo Irish Bank.

The Commission said the Government had notified it at the end of June that it wanted to put just under €8.6bn into Anglo.

This brings the total up to the €22bn figure already indicated by Minister for Finance Brian Lenihan.

But today's decision allows another €1.4bn to be given to Anglo, depending on how much the National Asset Management Agency pays for loans it is taking on from the bank.

The Commission said the approval was temporary, pending a final EU decision on Anglo's restructuring plan, which the bank has indicated it expects in September.

Competition Commissioner Joaquin Almunia said the measure was necessary to preserve financial stability in Ireland, but warned that Anglo Irish Bank would have to 'restructure profoundly'.

This is the third emergency injection of funds approved by the EU, following €4bn in 2009 and €10.44bn in March this year.

[muppet]

It seems Lenny's claim that his advisors recommended the blanket bailout doesn't convince some experts:

by Dr. Constantin Gurdgiev

http://trueeconomics.blogspot.com/2010/08/economics-1810-merrill-lynch-minister.html

[Zapatista]

It seems Lenny's claim that his advisors recommended the blanket bailout doesn't convince some experts:

by Dr. Constantin Gurdgiev

http://trueeconomics.blogspot.com/2010/08/economics-1810-merrill-lynch-minister.html

O'toole doesn't give that much credit either.

http://www.irishtimes.com/newspaper/opinion/2010/0810/1224276469748.html



http://www.rte.ie/business/2010/0810/anglo.html

The European Commission has approved Government plans to inject additional money into Anglo Irish Bank. But the final amount depends on the value of the bonds it eventually receives from the National Asset Management Agency in return for loans.

The Commission said the Government had notified it at the end of June that it wanted to put just under €8.6 billion into Anglo, which would bring the total up to €22.9 billion. Finance Minister Brian Lenihan had indicated in March that Anglo may need €22 billion in total


It won't end there either.

[mayogodhelpus@gmail.com]

Has there been any calculations of what the unemployment rate if the increases in emmigration since 2007 had not taken place.

Also you need to factor in the increases in the numbers of people who have returned to education and the increases in figures of people classified as being sick/unable to work.

So add the increases in emmigration, take up of third level education and increases in the sick/unable to work figure. The true shadow of unemployment has to be several hundred thousand higher.

[Zapatista]

Has there been any calculations of what the unemployment rate if the increases in emmigration since 2007 had not taken place.

Also you need to factor in the increases in the numbers of people who have returned to education and the increases in figures of people classified as being sick/unable to work.

So add the increases in emmigration, take up of third level education and increases in the sick/unable to work figure. The true shadow of unemployment has to be several hundred thousand higher.

You can add in emigration and those who returned home to their home countries but those who are in (or returned to) third level education can't be included. A return to 3rd level education is a good thing. You can't include the sick either as they are sick and unable to work. We need a real figure not the positive view of the facts the Government want to show or the negative view the opposition want to show. I'd guess somewhere in between what is being said.

[Declan]

Another 2 billion since the weekend. Enough to pay every Garda in the country for a couple of years or every Primary School teacher for a year according to Brian Lucey on the radio this morning. It's a joke but sure we'll just take it and whinge on Liveline rather than actually doing anything

[Zapatista]

Another 2 billion since the weekend. Enough to pay every Garda in the country for a couple of years or every Primary School teacher for a year according to Brian Lucey on the radio this morning. It's a joke but sure we'll just take it and whinge on Liveline rather than actually doing anything

Atleast we have the next 50 years to pay for it. I'd say my share will end up as evey one in five days i work will be to pay for this, another day to pay for the running of the country, another day to pay for fuel to run my house, another day for my rent, a half day for TD expences which leaves me with a surplus. Over 50 years then I can retire at 80 and die at 81. The future's bright.

[Banana Man]

Any more word on the policing board chairman being investigated for alleged irregularities with the Housing Executive???

[mayogodhelpus@gmail.com]

Has there been any calculations of what the unemployment rate if the increases in emmigration since 2007 had not taken place.

Also you need to factor in the increases in the numbers of people who have returned to education and the increases in figures of people classified as being sick/unable to work.

So add the increases in emmigration, take up of third level education and increases in the sick/unable to work figure. The true shadow of unemployment has to be several hundred thousand higher.

You can add in emigration and those who returned home to their home countries but those who are in (or returned to) third level education can't be included. A return to 3rd level education is a good thing. You can't include the sick either as they are sick and unable to work. We need a real figure not the positive view of the facts the Government want to show or the negative view the opposition want to show. I'd guess somewhere in between what is being said.

A yes but what about the figures for return to education because they have been made unemployed, these people may have emmigrated or gone on the dole instead, but by financing themselves through college they are relieving both the unemployment figures and the department of finance. They are hiding the extent of the problem.

[muppet]

http://www.bbc.co.uk/news/world-south-asia-11049985

The Pakistan government has said that the cost of rebuilding after the floods could be as high as $15bn (£10bn).

I don't mean to belittle the devastation of the floods in Pakistan in any way but the figure quoted above is around half of what Anglo and Irish Nationwide are likely to cost the Irish taxpayer. Just to put our banking crisis in a financial context versus a natural disaster.

[Hereiam]

What is it going to take for Ireland to get out of this one. The money involved is ridiculous, is it a fact that the Irish people don't understand the figures involved i.e cant relate to them as it is such a large amount, anyone care to guess what will cause the public to start panicing cos at the minute my guess is that people are just saying "sure we will all right" What has happen here will not make pretty reading in the history books. Ireland will be begging of countries for years to come.

[muppet]

http://www.rte.ie/business/2010/0825/ntma.html

Downgraded again by S&P meaning borrowing (of which we have to do a huge amount for the foreseeable future) is getting even more expensive. Heard a professor on Newtalk getting annoyed saying that the Government need to stop the creative accounting. That sounds very worrying but I didn't hear the full thing so not sure what he was getting at. If the markets start to believe we aren't being straight with them (Anglo/IL&P deposit swaps for example) it is game over.

Interesting posts here on an economist's blog. Some reckon Anglo will ultimately cost over €35,000,000.
http://www.irisheconomy.ie/index.php/2010/08/25/sp-downgrade-irish-debt-put-on-negative-watch/

Also just reading Matt Cooper's book at the moment. He points out that despite Anglo's collapse Fitzpatrick was very thorough about getting securities for loans, for example Sean Quinn had to offer the Quinn Group as security hence the mess recently. I read this as meaning that those that owe Anglo money (except the Golden 10 which was a panic move) are probably screwed if Anglo go after them. As those people would certainly include most of corporate Ireland (and possibly include many politicians) it is obvious why some people would want to artificially keep it afloat. Of course the fact that keeping it afloat means that a couple of generations of taxpayers suffer job losses, loss of income and wealth doesn't seem to bother them.