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

[whiskeysteve]

A few months old but this blog article explains why the Germans are pissed off with Ireland. Well worth a read.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

Interesting article, certainly, with some thought-provoking insights etc.

But I'm not sure he is justified in drawing his central conclusion, thus:
"I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be,  yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now."

For when the Republic's Government opened the doors to its nice, shiny new Casino IFSC and said "Come on in" etc , it wasn't just being sociable towards German bankers et al  for the sake of it.

Rather the Government was knowingly colluding in the "Regulation Arbitrage" so attractive to such people and pocketing the 12% Corporation tax etc, thank you very much.

Now of course the ordinary Irish citizen had no idea of the details of what was going on and I genuinely don't want to seem to be sticking the boot in on all such people who must now be extremely fearful for what the future holds.

But in the end, it was crooks like Charlie Haughey and Bertie Ahern etc who were arranging* all this, with the consistent and enthusiiastic endorsement of the Irish electorate at election after election.

And if that electorate is honest with itself, not only did they know that such people are/were out-and-out rogues, but it was precisely their roguery (aka "cute hoordom") which got them elected in the first place.




* - No doubt for a suitable "Arrangement Fee"  for themselves

ah come on EG, I think its clear that the blogger is specifically referring to the blanket guarantee for which the people had no say as well you know.

Its an almighty stretch from arguing that the electorate supported berties chicanery to suggesting that were was an element of endorsement from the people for the blanket guarantee that has doomed Ireland to penuary.

His central conclusion is correct.

[Evil Genius]

A few months old but this blog article explains why the Germans are pissed off with Ireland. Well worth a read.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

Interesting article, certainly, with some thought-provoking insights etc.

But I'm not sure he is justified in drawing his central conclusion, thus:
"I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be,  yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now."

For when the Republic's Government opened the doors to its nice, shiny new Casino IFSC and said "Come on in" etc , it wasn't just being sociable towards German bankers et al  for the sake of it.

Rather the Government was knowingly colluding in the "Regulation Arbitrage" so attractive to such people and pocketing the 12% Corporation tax etc, thank you very much.

Now of course the ordinary Irish citizen had no idea of the details of what was going on and I genuinely don't want to seem to be sticking the boot in on all such people who must now be extremely fearful for what the future holds.

But in the end, it was crooks like Charlie Haughey and Bertie Ahern etc who were arranging* all this, with the consistent and enthusiiastic endorsement of the Irish electorate at election after election.

And if that electorate is honest with itself, not only did they know that such people are/were out-and-out rogues, but it was precisely their roguery (aka "cute hoordom") which got them elected in the first place.




* - No doubt for a suitable "Arrangement Fee"  for themselves

ah come on EG, I think its clear that the blogger is specifically referring to the blanket guarantee for which the people had no say as well you know.

Its an almighty stretch from arguing that the electorate supported berties chicanery to suggesting that were was an element of endorsement from the people for the blanket guarantee that has doomed Ireland to penuary.

His central conclusion is correct.

Not that "almighty" a stretch, imo.

For who do you think it was who benefited from the blanket guarantee etc?

Answer: Bertie and Biffo etc, plus the Friends of Bertie and Biffo etc.

Or did you honestly think that when the s h i t evntually hit the fan, as it inevitably had to, that they and their cronies would get covered in it?

Or, to put it another way, when you vote for someone on the basis of his ability to swindle others out of their money etc, should you really be surprised when they turn round and start swindling money out of you? 

[whiskeysteve]

Bear in mind the conclusion you specifically addressed and refuted:

"I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be,  yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now."

Now, are you asking me to believe that the Irish electorate, in May of 2007, should have forseen as large scale a disaster as a ~250bn bill placed on the country as is now apparent and further to that are you asking me to believe that by their support for Bertie at that time, the electorate (to some degree) endorsed the guarantee for such losses?

[Bogball XV]

not that almighty" a stretch, imo.

For who do you think it was who benefited from the blanket guarantee etc?

Answer: Bertie and Biffo etc, plus the Friends of Bertie and Biffo etc.
Or did you honestly think that when the s h i t evntually hit the fan, as it inevitably had to, that they and their cronies would get covered in it?

Or, to put it another way, when you vote for someone on the basis of his ability to swindle others out of their money etc, should you really be surprised when they turn round and start swindling money out of you? 

Well if their friends are german, french and UK banks, then yes you are correct - i think this time you're miles off the mark though.

[Evil Genius]

Bear in mind the conclusion you specifically addressed and refuted:

"I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be,  yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now."

Now, are you asking me to believe that the Irish electorate, in May of 2007, should have forseen as large scale a disaster as a ~250bn bill placed on the country as is now apparent and further to that are you asking me to believe that by their support for Bertie at that time, the electorate (to some degree) endorsed the guarantee for such losses?

To answer your question (bold), no, not at all.

My point is that when you cast your vote in an election, you are entrusting your chosen representatives to handle such matters on your behalf, in a diligent, responsible and competent manner (i.e. following the qualities which they, as candidates, purported to uphold).

But if you know (or should know) that those representatives are fundamentally untrustworthy and when push comes to shove, liable to put their owm personal interests ahead of yours, then it's a bit late to cry "Foul!"

Or to put it another way, if you buy a load of cheap deisel from a dodgy source, at an unfeasibly cheap price, you can't complain when your engine suddenly packs up.

[Evil Genius]

not that almighty" a stretch, imo.

For who do you think it was who benefited from the blanket guarantee etc?

Answer: Bertie and Biffo etc, plus the Friends of Bertie and Biffo etc.
Or did you honestly think that when the s h i t evntually hit the fan, as it inevitably had to, that they and their cronies would get covered in it?

Or, to put it another way, when you vote for someone on the basis of his ability to swindle others out of their money etc, should you really be surprised when they turn round and start swindling money out of you? 

Well if their friends are german, french and UK banks, then yes you are correct - i think this time you're miles off the mark though.

Not what I'm saying (bold). The only rational explanation I can conceive for the way Biffo and Co cravenly shifted responsibility for the bank debts etc from the bondholders to the taxpayers was in order to protect certain of those bondholders.
And the only reason they will have done that is because those certain bondholders are/were their "friends".
And I think we all iknow why the politicians and those certain bondholders were so friendly, don't we?

Of course, there might still be an excuse for the electorate claiming that they weren't to know what was going on at these secretive Lunches in 5 Star Hotels etc.

But the graft and corruption which has characterised successive recent Irish Governments was not confined solely to matters of high finance.

In the private sector it pervaded the world of construction, planning and development etc, in the public sector it encompassed govenrment spending, subsidy and employment etc.

And no voter can reasonably claim to have been unaware of all the dodgy dealing which was going on there, can he?

As I say, if you elect someone on the basis that he's a cute hoor to be dealing with the Germans, French and Brits etc, don't be surprised when (not if) he ends up acting the cute hoor with you.

Or does anyone really believe eg that Charlie Haughy won it all on the horses , or that Bertie Ahern didn't have a bank account?

There's a saying about "sipping with the Devil" and "long spoons" which comes to mind...

[Declan]

Here's what our European masters think of us:

Irish taxpayers 'should foot bank bill'

Irish taxpayers should not complain about having to bailout the country's crisis-hit banks and, in future, regulation should be steered at a European level, according to ECB executive board member Lorenzo Bini Smaghi.

In an opinion piece in today's Financial Times,  Mr Bini Smaghi said Ireland's taxpayers should foot the bill as they are the ones that benefitted during the pre-crisis boom years and elected the governments that regulated the banks as the problems built.

"The principle of 'no taxation without representation' should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences," Mr Bini Smaghi wrote.

"As long as the accountability of supervisors to taxpayers is primarily a national affair ... then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens."

Before taking power earlier this year, the new government said it wanted to restructure the debt of the country's battered banks so that bondholders accepted losses on their loans.

The ECB has been strongly against the idea, as it fears it could spark a chain reaction in the banking system and trigger a new Lehman Brothers-style crisis.

Mr Bini Smaghi said that while in theory, shareholders, managers and bondholders should bear the costs of a bank being restructured, in an open system like the euro zone's such problems were never black and white as they could pose systemic risks.

The situation where banks are based in one country but have subsidiaries carrying risks in another also creates the danger that they are not properly controlled by anyone.

Ireland's problems showed pure national regulation was flawed and in future needed to be steered at a euro zone level or wider, he said.

"Ultimately this would mean the integration of independent prudential supervision at the European, or at least euro area, level - to match the way burdens are shared when a systemic crisis strikes. Such a move may seem politically unpalatable, as taxpayers around the euro zone fear having to bail out the banks in other countries. But these taxpayers would at least have the assurance that banks in different countries would henceforth be subject
to uniform and independent supervision," Mr Bini Smaghi said.

Talk about a straw man argument but it just shows the opinions out there

[Bogball XV]

Well if their friends are german, french and UK banks, then yes you are correct - i think this time you're miles off the mark though.

Not what I'm saying (bold). The only rational explanation I can conceive for the way Biffo and Co cravenly shifted responsibility for the bank debts etc from the bondholders to the taxpayers was in order to protect certain of those bondholders.
And the only reason they will have done that is because those certain bondholders are/were their "friends".
And I think we all iknow why the politicians and those certain bondholders were so friendly, don't we?
[/quote]
I still think you're wrong on this one, i think that initially the genesis of the idea was that this was the cheapest way of helping out their buddies in anglo (both borrowers and bankers), but I don't think they considered for a minute that they might have to pay up on these promises.

I think they actually believed that the banks were experiencing a short term liquidity problem, which a state guarantee would overcome and that in 6 months or a year's time, everything would be rosy in the garden again, property prices would have risen to their real values and the tiger would be roaring louder than ever.

In a way therefore, maybe you are right, maybe the electorate should have to bear the brunt of the losses for electing such economically inept people into power.

[Bogball XV]

Here's what our European masters think of us:

Irish taxpayers 'should foot bank bill'

Irish taxpayers should not complain about having to bailout the country's crisis-hit banks and, in future, regulation should be steered at a European level, according to ECB executive board member Lorenzo Bini Smaghi.

In an opinion piece in today's Financial Times,  Mr Bini Smaghi said Ireland's taxpayers should foot the bill as they are the ones that benefitted during the pre-crisis boom years and elected the governments that regulated the banks as the problems built.

"The principle of 'no taxation without representation' should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences," Mr Bini Smaghi wrote.

"As long as the accountability of supervisors to taxpayers is primarily a national affair ... then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens."

Surely everything he has written similarily applies to the people of the countries whose banks invested in Irish bank bonds?

What really annoys me about this and similar articles is the hypocrisy, yes Ireland fcuked up, but no more so than the eejits who lent us money because they believed the premium interest rate on offer was sufficient with regards to the risks being taken.

[muppet]

Here's what our European masters think of us:

Irish taxpayers 'should foot bank bill'

Irish taxpayers should not complain about having to bailout the country's crisis-hit banks and, in future, regulation should be steered at a European level, according to ECB executive board member Lorenzo Bini Smaghi.

In an opinion piece in today's Financial Times,  Mr Bini Smaghi said Ireland's taxpayers should foot the bill as they are the ones that benefitted during the pre-crisis boom years and elected the governments that regulated the banks as the problems built.

"The principle of 'no taxation without representation' should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences," Mr Bini Smaghi wrote.

"As long as the accountability of supervisors to taxpayers is primarily a national affair ... then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens."

Before taking power earlier this year, the new government said it wanted to restructure the debt of the country's battered banks so that bondholders accepted losses on their loans.

The ECB has been strongly against the idea, as it fears it could spark a chain reaction in the banking system and trigger a new Lehman Brothers-style crisis.

Mr Bini Smaghi said that while in theory, shareholders, managers and bondholders should bear the costs of a bank being restructured, in an open system like the euro zone's such problems were never black and white as they could pose systemic risks.

The situation where banks are based in one country but have subsidiaries carrying risks in another also creates the danger that they are not properly controlled by anyone.

Ireland's problems showed pure national regulation was flawed and in future needed to be steered at a euro zone level or wider, he said.

"Ultimately this would mean the integration of independent prudential supervision at the European, or at least euro area, level - to match the way burdens are shared when a systemic crisis strikes. Such a move may seem politically unpalatable, as taxpayers around the euro zone fear having to bail out the banks in other countries. But these taxpayers would at least have the assurance that banks in different countries would henceforth be subject
to uniform and independent supervision," Mr Bini Smaghi said.

Talk about a straw man argument but it just shows the opinions out there

I agree with him. Until we have had the opportunity to elect our new masters in the EU we should pay no taxes.

[Evil Genius]

I still think you're wrong on this one, i think that initially the genesis of the idea was that this was the cheapest way of helping out their buddies in anglo (both borrowers and bankers), but I don't think they considered for a minute that they might have to pay up on these promises.

I think they actually believed that the banks were experiencing a short term liquidity problem, which a state guarantee would overcome and that in 6 months or a year's time, everything would be rosy in the garden again, property prices would have risen to their real values and the tiger would be roaring louder than ever.

In a way therefore, maybe you are right, maybe the electorate should have to bear the brunt of the losses for electing such economically inept people into power.

Your generosity of spirit in ascribing the politicians' various failings to naivety, inexperience and ineptitude etc does you credit.

But at the risk of being dubbed a tired old cynic, I simply cannot believe that there weren't brown envelopes and numbered Swiss Bank Accounts etc somewhere in the mix.

Or do you imagine that Bertie, Brian and Biffo etc were bestowing their favours upon the Bankers, Brokers and Bondholders for free? 

[Denn Forever]

We need to tighten our belt more.

http://www.guardian.co.uk/business/2011/apr/15/irish-credit-rating-cut

The euro dropped against the dollar after credit ratings agency Moody's delivered another negative verdict on Ireland on Friday morning.

Moody's cut Ireland's rating by two notches to Baa3 and left the outlook negative. The agency said the country may need to take further austerity measures to meet its fiscal goals and that its financial position could suffer because of higher European Central Bank interest rates.

[muppet]

http://www.economist.com/node/18560535?fsrc=scn/tw/te/ar/followthemoney

Europe's banks
Follow the money
Is Germany bailing out euro-area countries to save its own banks?
Apr 14th 2011 | BERLIN | from the print edition

IF THE euro zone were an old-fashioned family, Germany would be the stern father telling his wayward children to go to bed early and not to spend all their pocket money at once. It has resisted efforts to ease the conditions attached to the bail-outs of Greece and Ireland, and is insisting that Portugal, which started negotiations on a bail-out this week, also gets licked into shape. (The European Central Bank, too, has a ring of the stern German in its insistence that banks in weaker euro-zone countries, Ireland's in particular, pay back their debts in full.) That seems fair: Germany is putting more money at risk in funding the errant trio than any other country. But some observers argue that the real bail-out is of Germany's own banks.

That depends, in part, on the assumptions you make about what might happen if one of the peripheral countries were to default. Start with government debt. Germany's two biggest banks, Deutsche Bank and Commerzbank, have a surprisingly low direct exposure to Greek, Irish and Portuguese governments. They held less than €6 billion ($8.7 billion) in government debt from the three bail-out recipients at the end of last year, according to company disclosures. But the total exposure of the German banking system is a lot larger, at almost €27 billion.

This suggests that the bulk of these sovereign-debt holdings are buried in small, not very savvy German banks. Germany's publicly owned Landesbanken would fit that bill nicely. They are already beset by low profitability, so cannot easily earn enough to offset losses, and their capital cushions are thin and partly composed of hybrid debt that under new rules will soon no longer count as capital. Many will have to raise equity to pass the next round of European stress tests. Among the first out of the gate is NordLB, which announced plans this week to convert hybrid capital into equity.

Sovereign defaults would also harm Hypo Real Estate, a bust German property and public-finance bank that is now owned by the state. In July last year it said it was owed almost €8 billion by the Greek government and €10 billion by Ireland.

Sovereign exposures nevertheless look manageable when set against total assets in the German banking system of some €2.5 trillion. Most of the burden of a peripheral default would fall on banks in the defaulting countries themselves. A deep home bias has made many of them the largest holders of their own governments' debt. Calculations by the Bank of England on losses that would arise from haircuts to Greek, Irish, Portuguese and Spanish debt suggests that a 50% haircut would wipe out 70% of the equity in Greek banks, almost half of it in Portuguese and Spanish banks and about 10% of the equity in German and French banks.

That spells trouble of a different kind. Sovereign defaults would entail much more than just a haircut on German banks' government-bond exposures. It could easily lead to a slew of bank defaults—and corporate ones, too. German banks are owed twice as much by banks in the three bailed-out countries as they are by governments. Once corporate loans and other exposures are included, Germany's vulnerability is clear: its banks are owed some €230 billion. These numbers would ratchet up further were Spain to default. German banks have an exposure to Spain that is about three-quarters as great as it is to Portugal, Greece and Ireland combined.

Not all of these debts would be affected by a sovereign default, let alone be wiped out. Derivatives exposures are already marked to market, for example. But compared with the potential costs of full-blown default, the amounts that Germany and other countries are likely to put into the three bail-out packages look like excellent value (see chart). The rescuers need not be quite so sanctimonious.

[Main Street]

Here's the chart from that Economist article

[seafoid]

http://www.ft.com/cms/s/0/d5f9926c-61ca-11e0-88f7-00144feab49a.html#ixzz1Ja103xf2


EU regulators outline stricter stress tests
By Patrick Jenkins in London

Published: April 8 2011 12:01 | Last updated: April 8 2011 16:55

European banking regulators have set up a dispute with German authorities, pressing ahead with a tight definition of capital for planned stress tests and making it more likely that Germany's state-owned Landesbanken will fail.
The European Banking Authority on Friday disclosed that it had set a 5 per cent core tier one capital ratio as the passmark for the stress tests in which 90 banks would take part.

Five new banks – Ireland's Irish Life & Permanent, Norway's DNB Nor, Denmark's Nykredit, Slovenia's Nova KBM and Austria's Oesterreichische Volksbank – will be tested this year. The 2010 exercise involved 91 banks, but several of those, particularly Spanish savings banks have since merged.

Last year's exercise, designed to restore market confidence in the health of Europe's banks, proved farcical, with the Irish banking system collapsing only four months after the country's banks passed the test.

EBA stress test predictions
● Minimum 5 per cent core tier one capital under stressed scenario

● 0.75 per cent rise in interest rates on European sovereign bonds

● 1.25 percentage point impact on short-term bank financing costs

● 0.5 per cent fall in eurozone gross domestic product in 2011

● 15 per cent fall in European stockmarkets

● No losses on sovereign bonds held to maturity

● Results to be announced in June
The EBA insists this year's test, which will be conducted over the next month with the results to be published in June, is tougher, with more pessimistic projections of gross domestic product growth and property market prices. However, critics point out that several measures are more benign, and that the parameters are too narrowly focused on the issue of eurozone sovereign debt.

There is also a repeat of last year's refusal to admit the possibility of a sovereign debt default, even though Portugal has just become the third eurozone country, after Greece and Ireland, to appeal for bail-out funding. The EBA has spent the past three weeks battling with national regulators, particularly in Germany, over the definition of core tier one capital.
The EBA has concluded that the consistent pan-European definition should comprise equity and little else cannot allow the inclusion of so-called silent participations, instruments typically held by German regional governments as part of the capital structure of Landesbanken. The authority believes the banks are legally obliged to participate, but they cannot be forced to allow publication of the results.

Two Landesbanken – Hannover's NordLB and Frankfurt's Helaba – will be the hardest hit, though NordLB is negotiating a plan to convert some of the state's silent participations into full-blown equity.

The Bundesbank issued a barbed response to the EBA announcement, saying it "would have welcomed it if the EBA had respected the relevant law when deciding on the definition of capital deemed as valid for the stress tests."
Andrea Enria, the EBA's chairman, is keen that the stress tests are followed through, with national regulators forcing banks that fail or nearly fail to come up with credible plans to raise capital or otherwise boost capital ratios via restructuring by the end of the year.

The cut-off point for banks' capital positions will be the end of April, so recently announced capital-raisings by Italy's Intesa and Germany's Commerzbank will not count towards the stress test result, although there will be added disclosure clarifying post-April capital raising plans.

Mr Enria believes that the 2011 public stress test exercise may be the last one of its kind, given the US has now switched to a behind-closed-doors process. However, he is keen to use the EBA as a vehicle to prompt far greater disclosure by banks on an ongoing basis of their composition of capital and assets.

The results of the test will be published in June after a period of peer review by national regulators.