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

[Bogball XV]

No, it won't come to that - not when we have the 5% option from the EU bailout.  Apparently the 7.5% to 8% being signalled means that there wouldn't be any take up if we actually went to the market anyway.  The phrase junk bonds might be bandied about!

I don't think we'd get 5% from an EU bailout, Bogball.  5% was back in April when Mayo were being touted as all-Ireland runners and Irish Life was trading at €3.  Ni bheidh  a leithéid arís ann.

  Wolfgang Munchau had a few articles about the likely rate a few months ago. The rate is more likely to be closer to 7% . If Portugal falls into the vortex Spain can't be far behind.  So anything could happen. 

Apparently yields are rising because bond wallahs are repricing to take account of the risk of restructuring of EU periphery bonds. The additional yield  they got to reflect sovereign risk isn't enough. That in itself is going to drive up the rates the bond markets charge for debt and would also be reflected in the cost of any bailout.
[/quote]
Right, makes sense.  There must be a chance then that the rates could be hitting double digits regardless of who we go to?  Can we really take on more debt at the level we need at that sort of price though?  Admittedly we probably have no other choice, but does it not vindicate the consensus that cutting the deficit and cutting it quick is the best option, regardless of how that will impact on growth?

[Bogball XV]

I cant wait until budget day when Brian Lenihan walks into the Dáil and unveils his latest plan - magic beans.

No, it's going to be a turnip economy.  We're going to get 20Bn from the EU bailout and buy a massive turnip with it.
A cunning, cunning plan!!!

[seafoid]

Right, makes sense.  There must be a chance then that the rates could be hitting double digits regardless of who we go to?  Can we really take on more debt at the level we need at that sort of price though?  Admittedly we probably have no other choice, but does it not vindicate the consensus that cutting the deficit and cutting it quick is the best option, regardless of how that will impact on growth?
[/quote]

Bogball
I don't think anyone knows what will happen over the next 6 months. There is a very sobering analysis of the forthcoming death of the Euro in the FT today.
Frontending makes economic sense but it is like amputation of a limb. Cowen said taxes are back at 2003 levels and spending has to go back to 2007 levels. The disaster that is FF freakonomics  is about to impose a economic trauma on the country which will hurt many people. 100,000 emigrants FFS. How many hurling and football teams will be affected?  There was no need to expand public spending in the way FF did since they won the last election. 

[seafoid]

AIB down to 28 cent.
Irish Life 1.10
Bank of Ireland 42 cent

Compare the sad decline of the major financial institutions :

http://www.irishlifeandpermanent.ie/investor-relations/share-information/share-chart.aspx

[Bogball XV]

AIB down to 28 cent.
Irish Life 1.10
Bank of Ireland 42 cent

Compare the sad decline of the major financial institutions :

http://www.irishlifeandpermanent.ie/investor-relations/share-information/share-chart.aspx

it's difficult to know how there's any value attached to AIB at this stage?

[Declan]

http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

What Morgan Kelly thinks about the situation

[seafoid]

Hard to disagree with this :

"Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.  From here on, for better or worse, we can only rely on the kindness of strangers".

I watched that Primetime programme about Ballina. The pain that people there and elsewhere around the country are going to have to endure because of the neoliberal folly of FF is heartbreaking.

[seafoid]

Bank shares taking another hammering today

[Zapatista]

I wonder how economical with the truth Lenihan will be with Mr Rehn?

[muppet]

Bank shares taking another hammering today

Even IL&P falling rapidly. The Bank Guarantee a decision taken to avoid nationalising the banks will end up having bankrupted us AND having nationalised the banks.

As someone on p.ie said 'I wouldn't put Lenihan in charge of an empty pram'.

[Bogball XV]

I don't think we'd get 5% from an EU bailout, Bogball.  5% was back in April when Mayo were being touted as all-Ireland runners and Irish Life was trading at €3.  Ni bheidh  a leithéid arís ann.

  Wolfgang Munchau had a few articles about the likely rate a few months ago. The rate is more likely to be closer to 7% . If Portugal falls into the vortex Spain can't be far behind.  So anything could happen. 

According to Morgan Kelly's article, the 5% would be punitive and would be enough to push us over the edge.

Good article, there's not much that can be disagreed with.  I never knew that the guarantee could have been rescinded by virtue of the fact that the banks hadn't given accurate disclosure of their financial positions - i don't imagine that would have gone down without a massive court battle, it might have ended up in the EU Courts anway, and sure, not doubting the impartiality of judges, but the 'right' decision would probably have been reached anyway.

[Zapatista]

Would the fall in share value relate to many of the bondholders being paid already? Have we lost the 'smoking gun' now that Lenothan went ahead and paid them?

[Bogball XV]

Would the fall in share value relate to many of the bondholders being paid already? Have we lost the 'smoking gun' now that Lenothan went ahead and paid them?

wouldn't have thought so.  AIB are insolvent and in 90% ownership of the state, what assets they have are domestic loans secured against domestic properties, and as Kelly points out, we really have no idea as to what the level of default there will be as the economy deteriorates.   All the banks are in similar positions, the worse the outlook for the economy, the higher the default rates, the higher theire realised losses, the less likely that anyone other than the state/ECB will lend them money to pay off other short term bonds that are coming due (presumably on a very regular basis).
Seafoid, what would the usual period for banks short term borrowing have been?  Or does anyone know what the various banks' funding requirements for the next year or so are?

[Declan]

http://www.irishtimes.com/indepth/how_we_spent_the_boom/index.pdf

Read them and weep

[seafoid]

Would the fall in share value relate to many of the bondholders being paid already? Have we lost the 'smoking gun' now that Lenothan went ahead and paid them?

wouldn't have thought so.  AIB are insolvent and in 90% ownership of the state, what assets they have are domestic loans secured against domestic properties, and as Kelly points out, we really have no idea as to what the level of default there will be as the economy deteriorates.   All the banks are in similar positions, the worse the outlook for the economy, the higher the default rates, the higher theire realised losses, the less likely that anyone other than the state/ECB will lend them money to pay off other short term bonds that are coming due (presumably on a very regular basis).
Seafoid, what would the usual period for banks short term borrowing have been?  Or does anyone know what the various banks' funding requirements for the next year or so are?

Bogball
Irish Life and Permanent have some info on short term borrowing here
http://www.irishlifeandpermanent.ie/~/media/Files/I/Irish-Life-And-Permanent/Attachments/pdf/presentations/2010-ir-slides.pdf

Presumably short term just means less than 2 years duration or such. It will be interesting to see the IPM update later this month to see how the ECB proportion has changed- slide 28
The problem with the banks is that they all went beyond their deposits in the race for market share and ended up borrowing on the money markets when money was flúirseach and then got stuck when the money dried up after Lehman. My understanding is that they are all rolling over their short term borrowing with the European Central Bank since nobody in the private sector will lend anything to them now given what is going on in the bond market.
Any sort of a recovery would need the banks to be able to stand independent of the ECB again but that seems way off.

Irish Life& Permanent  is worth €240m today. The embedded value of Irish Life Group in 1990 was £458m before privatisation.