59 days of cash left

[Declan]

And remember AIB will need a few billion as well before the end of the year.

Anyway just a few choice quotes to remind people who said what and when:

1. "Our proposal to establish an Asset Management Agency has received the backing of the IMF and the ECB. It is also clear that the proposal has credibility in the financial markets.Since its announcement, the cost of borrowing by the State has fallen by 1.5% for 10 year money; tangible evidence that the Government's strategy is already working."

Brian Lenihan, Sept 16th, 2009

and on the same day

2. "The flow of credit is essential to the proper functioning of the economy and all of the Government's actions to stabilise the banks have been undertaken in order to ensure that the financial system continues to fulfil its essential functions in providing credit for businesses and individuals. The establishment of NAMA and the removal of identified risky assets from the balance sheets of participating institutions should in itself improve credit supply."

Brian Lenihan, Sept 16th, 2009


3."A soft landing is not so much unlikely as contradictory. Suppose that house prices really were expected to level off, then the owners of the tens of thousands of empty houses and apartments can expect no further capital gains and should cash in their investments. Why pay a mortgage on an empty apartment that has stopped rising in value? As speculators rush for the exit, prices will crash.

It is not implausible that prices could fall - relative to income - by 40-50 per cent."

Morgan Kelly, Irish Times, Dec 28th, 2006

4.Finally, our stress-testing of the banking system and our extensive financial stability analysis, all of which is outlined in our Financial Stability Report, indicate that Irish banks are solidly profitable and well-capitalised and with no major exposures.
Opening Statement
by Governor John Hurley
to the Joint Oireachtas Committee on Finance and the Public Service
30 January 2008


5. The bank [Anglo] is large in Irish terms and its assets include around €70 billion in loans and advances to customers. These are not 'bad debts' as some people try to suggest. As with any bank, there is a mixture of mostly good loans and some that are distressed. Many have asked what the implications will be for the State if there are very significant losses on loans in Anglo Irish Bank – and it is clear that there will be losses on some of the loans. It is important therefore that I clarify to the House that in the first instance there are significant monies within Anglo-Irish to take the strain of loan losses arising over the next three or four years, before State support is engaged. There is around €7 billion of shareholder funds and other capital available to offset any losses on the loan book, in addition to ongoing pre-loan-loss profits which have been very significant in Anglo's case. Anglo Irish Bank's position is secured by the nationalisation and the Government can work with the new Chairman and Board to extract the optimal value from Anglo's loan book and to minimise the taxpayer's exposure.

The Government has estimated that, for the Irish banking system as a whole, and allowing for a large degree of stress, it would be appropriate to allow for capital injections into the main banks of the order of €10 billion in total. Within this €10 billion, I would have allowed for a capital injection into Anglo, to offset potential loan losses, maintain its capital base on a sound footing and leave a prudent margin for error in current circumstances.

Brian Lenihan Finance Bill Jan 2009

And finally I leave it to the man himself – Go on Bertie

http://www.youtube.com/watch?v=hfjGSfuSQpA&feature=player_embedded

[seafoid]

Declan

Those quotes are devastating.

[tyroneboi]

Probably a very naïve question but in layman terms what happens when a country goes bankrupt?

[An Gaeilgoir]

There seems to be no shortage of cash in the HSE anyway, the cousin works in a large Ford dealership in south Dublin, he received a call last week looking for 230k worth of Ford Transit Connect vans so the HSE  can use up the remainder of the fleet budget. The HSE was told that that the transits would not be available until Janurary. On hearing that, 230k worth of Ford Galaxys, top of the range were bought, they will be picked up before the end of next week. Who needs the IMF when there is all this spare cash lying around?

[Peter Solan the Great]

Probably a very naïve question but in layman terms what happens when a country goes bankrupt?

First we'll get the EU bail out fund or or as its known the EU stability fund. We are in the Euro so we cant be let fail. The ECB and the IMF will then take control and will put in place draconian cuts. Over 100,000 public sector jobs will be cut and wages will be slashed by about 30-40% Social welfare will be cut by around 50% public spending will be cut by 20-30% and we will enter into a depression for around 20 years.

[Main Street]

That is so pessimistic.
I look forward to a belly-up collapse of the neo-liberal economic dogma.

[Croí na hÉireann]

There seems to be no shortage of cash in the HSE anyway, the cousin works in a large Ford dealership in south Dublin, he received a call last week looking for 230k worth of Ford Transit Connect vans so the HSE  can use up the remainder of the fleet budget. The HSE was told that that the transits would not be available until Janurary. On hearing that, 230k worth of Ford Galaxys, top of the range were bought, they will be picked up before the end of next week. Who needs the IMF when there is all this spare cash lying around?

So the race to spend all of this years budget for each public body has started 

[RMDrive]

What does it really matter? Either the government does it or the EU will. If FF or FG or Lab don't make the cuts then the EU will have to take over. But they are just going to carry out the same cuts as are on the table now. There's a misconception that should the EU take over then they will cut even more. That's not true. They will make the same level of adjustment but won't have to worry about getting reelected when doing so. Therefore they might be willing to make cuts in areas that are pollitically sensitive (CS, OAP).
No matter who's in charge the extent of the cuts will be the same.

[snoopdog]

What pisses me of most about the whole thing is nobody has been made pay fro this. That cnut Ahern is still walking about as if he owns the place. Fingleton and that other boll1x wont get any sentence for their hand in it.
Can we not do anything about it.
It really annoys me that these pr1cks like bertie knew what was gonna happen  they could have slowed everything down when house prices were rocketing and banks were throwing 100% and greater mortgages at people to buy a house in massive estates with no infrastructure or worse still a ghost estate.

[bennydorano]

Have I missed something?  60 days of cash left then bankruptcy?  Doubt it, it'll just (continue to) get more expensive to get funds from Debt markets, EU/IMF money is already cheaper than the debt rates offered to ROI presently, but the loss of face on taking that money is going to mean FF will continue to try and get funds in the debt markets - prolonging and worsening the situation.

[mylestheslasher]

From Mondays Irish Times - the state of the nation laid bare...


THE BIG PICTURE: Ireland is effectively insolvent – the next crisis will be mass home mortgage default, writes MORGAN KELLY

SAD NEWS just in from Our Lady of the Eurozone Hospital: After a sudden worsening in her condition, the Irish Patient, formerly known as the Irish Republic, has been moved into intensive care and put on artificial ventilation. While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover.

It will be remembered that, after a lengthy period of poverty following her acrimonious divorce from her English partner, in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job. Although her increasingly riotous lifestyle over the last decade had raised some concerns, the Irish Patient's fate was sealed by a botched emergency intervention on September 29th, 2008 followed by repeated misdiagnoses of the ensuing complications.

With the Irish Patient now clinically dead, her grieving European relatives face the melancholy task of deciding when to remove her from life support, and how to deal with the extraordinary debts she ran up in the last months of her life . . .

WHEN I wrote in The Irish Times last May showing how the bank guarantee would lead to national insolvency, I did not expect the financial collapse to be anywhere near as swift or as deep as has now occurred. During September, the Irish Republic quietly ceased to exist as an autonomous fiscal entity, and became a ward of the European Central Bank.

It is a testament to the cool and resolute handling of the crisis over the last six months by the Government and Central Bank that markets now put Irish sovereign debt in the same risk group as Ukraine and Pakistan, two notches above the junk level of Argentina, Greece and Venezuela.

September marked Ireland's point of no return in the banking crisis. During that month, €55 billion of bank bonds (held mainly by UK, German, and French banks) matured and were repaid, mostly by borrowing from the European Central Bank.

Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK's Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.

With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.

The German and French banks whose solvency is the overriding concern of the ECB get their money back. Senior Irish policymakers get to roll over and have their tummies tickled by their European overlords and be told what good sports they have been. And best of all, apart from some token departures of executives too old and rich to care less, the senior management of the banks that caused this crisis continue to enjoy their richly earned rewards. The only difficulty is that the Government's open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State.

The Government has admitted that Anglo is going to cost the taxpayer €29 to €34 billion. It has also invested €16 billion in the other banks, but expects to get some or all of that investment back eventually.

So, the taxpayer cost of the bailout is about €30 billion for Anglo and some fraction of €16 billion for the rest. Unfortunately, these numbers are not consistent with each other, and it only takes a second to see why.

Between them, AIB and Bank of Ireland had the same exposure to developers as Anglo and, to the extent that they were scrambling to catch up with Anglo, probably lent to even worse turkeys than it did. AIB and Bank of Ireland did start with more capital to absorb losses than Anglo, but also face substantial mortgage losses, which it does not. It follows that AIB and Bank of Ireland together will cost the taxpayer at least as much as Anglo.

Once we accept, as the Government does, that Anglo will cost the taxpayer about €30 billion, we must accept that AIB and Bank of Ireland will cost at least €30 billion extra.

In my article of last May, when I published my optimistic estimate of a €50 billion bailout bill, I posted a spreadsheet on the irisheconomy.ie website, giving my realistic estimates of taxpayer losses. My realistic estimate for Anglo was €34 billion, the same as the Government's current estimate.

When you apply the same assumptions about lending losses to the other banks, you end up with a likely taxpayer bill of €16 billion for Bank of Ireland (deducting the €3 billion they have since received from investors) and €26 billion for AIB: nearly as bad as Anglo.

Indeed, the true scandal in Irish banking is not what happened at Anglo and Nationwide (which, as specialised development lenders, would have suffered horrific losses even had they not been run by crooks or morons) but the breakdown of governance at AIB that allowed it to pursue the same suicidal path.

Once again we are having to sit through the same dreary and mendacious charade with AIB that we endured with Anglo: "AIB only needs €3.5 billion, sorry we meant to say €6.5 billion, sorry . . ." and so on until it is fully nationalised next year, and the true extent of its folly revealed.

This €70 billion bill for the banks dwarfs the €15 billion in spending cuts now agonised over, and reduces the necessary cuts in Government spending to an exercise in futility. What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?

What is driving our bond yields to record levels is not the Government deficit, but the bank bailout. Without the banks, our national debt could be stabilised in four years at a level not much worse than where France, with its triple A rating in the bond markets, is now.

As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo's losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them.

For a country or company, insolvency is the equivalent of death for a person, and is usually swiftly followed by the legal process of bankruptcy, the equivalent of a funeral.

Two things have delayed Ireland's funeral. First, in anticipation of being booted out of bond markets, the Government built up a large pile of cash a few months ago, so that it can keep going until the New Year before it runs out of money. Although insolvent, Ireland is still liquid, for now.

Secondly, not wanting another Greek-style mess, the ECB has intervened to fund the Irish banks. Not only have Irish banks had to repay their maturing bonds, but they have been haemorrhaging funds in the inter-bank market, and the ECB has quietly stepped in with emergency funding to keep them going until it can make up its mind what to do.

Since September, a permanent team of ECB "observers" has taken up residence in the Department of Finance. Although of many nationalities, they are known there, dismayingly but inevitably, as "The Germans".

So, thanks to the discreet intervention of the ECB, the first stage of the crisis has closed with a whimper rather than a bang. Developer loans sank the banks which, thanks to the bank guarantee, sank the Irish State, leaving it as a ward of the ECB.

The next act of the crisis will rehearse the same themes of bad loans and foreign debt, only this time as tragedy rather than farce. This time the bad loans will be mortgages, and the foreign creditor who cannot be repaid is the ECB. In consequence, the second act promises to be a good deal more traumatic than the first.

Where the first round of the banking crisis centred on a few dozen large developers, the next round will involve hundreds of thousands of families with mortgages. Between negotiated repayment reductions and defaults, at least 100,000 mortgages (one in eight) are already under water, and things have barely started.

Banks have been relying on two dams to block the torrent of defaults – house prices and social stigma – but both have started to crumble alarmingly.

People are going to extraordinary lengths – not paying other bills and borrowing heavily from their parents – to meet mortgage repayments, both out of fear of losing their homes and to avoid the stigma of admitting that they are broke. In a society like ours, where a person's moral worth is judged – by themselves as much as by others – by the car they drive and the house they own, the idea of admitting that you cannot afford your mortgage is unspeakably shameful.

That will change. The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording. Facing a choice between obligations to the banks and to their families – mortgage or food – growing numbers are choosing the latter.

In the last year, America has seen a rising number of "strategic defaults". People choose to stop repaying their mortgages, realising they can live rent-free in their house for several years before eviction, and then rent a better house for less than the interest on their current mortgage. The prospect of being sued by banks is not credible – the State of Florida allows banks full recourse to the assets of delinquent borrowers just like here, but it has the highest default rate in the US – because there is no point pursuing someone who has no assets.

If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful political constituency. There is no shame in admitting that you too were mauled by the Celtic Tiger after being conned into taking out an unaffordable mortgage, when everyone around you is admitting the same.

The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits – there is no longer any such thing – but from the pockets of other taxpayers.

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB's money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

Along with mass mortgage defaults, sorting out our bill with the ECB will define the second stage of the banking crisis. For now it is easier for the ECB to drip feed funding to the Irish State and banks rather than admit publicly that we are bankrupt, and trigger a crisis that could engulf other euro-zone states. Our economy is tiny, and it is easiest, for now, to kick the can up the road and see how things work out.

By next year Ireland will have run out of cash, and the terms of a formal bailout will have to be agreed. Our bill will be totted up and presented to us, along with terms for repayment. On these terms hangs our future as a nation. We can only hope that, in return for being such good sports about the whole bondholder business and repaying European banks whose idea of a sound investment was lending billions to Gleeson, Fitzpatrick and Fingleton, the Government can negotiate a low rate of interest.

With a sufficiently low interest rate on what we owe to Europe, a combination of economic growth and inflation will eventually erode away the debt, just as it did in the 1980s: we get to survive.

How low is sufficiently low? Economists have a simple rule to calculate this. If the interest rate on a country's debt is lower than the sum of its growth rate and inflation rate, the ratio of debt to national income will shrink through time. After a massive credit bubble and with a shaky international economy, our growth prospects for the next decade are poor, and prices are likely to be static or falling. An interest rate beyond 2 per cent is likely to sink us.

This means that if we are forced to repay the ECB at the 5 per cent interest rate imposed on Greece, our debt will rise faster than our means of servicing it, and we will inevitably face a State bankruptcy that will destroy what few shreds of our international reputation still remain.

Why would the ECB impose such a punitive interest rate on us? The answer is that we are too small to matter: the ECB's real concerns lie with Spain and Italy. Making an example of Ireland is an easy way to show that bailouts are not a soft option, and so frighten them into keeping their deficits under control.

Given the risk of national bankruptcy it entailed, what led the Government into this abject and unconditional surrender to the bank bondholders? I have been told that the Government's reasoning runs as follows: "Europe will bail us out, just like they bailed out the Greeks. And does anyone expect the Greeks to repay?"

The fallacy of this reasoning is obvious. Despite a decade of Anglo-Fáil rule, with its mantra that there are no such things as duties, only entitlements, few Irish institutions have collapsed to the third-world levels of their Greek counterparts, least of all our tax system.

And unlike the Greeks, we lacked the tact and common sense to keep our grubby dealing to ourselves. Europeans had to endure a decade of Irish politicians strutting around and telling them how they needed to emulate our crony capitalism if they wanted to be as rich as we are. As far as other Europeans are concerned, the Irish Government is aiming to add injury to insult by getting their taxpayers to help the "Richest Nation in Europe" continue to enjoy its lavish lifestyle.

My stating the simple fact that the Government has driven Ireland over the brink of insolvency should not be taken as a tacit endorsement of the Opposition. The stark lesson of the last 30 years is that, while Fianna Fáil's record of economic management has been decidedly mixed, that of the various Fine Gael coalitions has been uniformly dismal.

As ordinary people start to realise that this thing is not only happening, it is happening to them, we can see anxiety giving way to the first upwellings of an inchoate rage and despair that will transform Irish politics along the lines of the Tea Party in America. Within five years, both Civil War parties are likely to have been brushed aside by a hard right, anti-Europe, anti-Traveller party that, inconceivable as it now seems, will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums.

You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.

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.

Morgan Kelly is Professor of Economics at University College Dublin

[Hurler on the Bitch]

I have a sister whose house in da Nort has been on the market for a year - there is no money about! Wait till the VAT increase comes in in January - we'll all be drinking pish in the house!!!

[Zapatista]

What does it really matter? Either the government does it or the EU will. If FF or FG or Lab don't make the cuts then the EU will have to take over. But they are just going to carry out the same cuts as are on the table now. There's a misconception that should the EU take over then they will cut even more. That's not true. They will make the same level of adjustment but won't have to worry about getting reelected when doing so. Therefore they might be willing to make cuts in areas that are pollitically sensitive (CS, OAP).
No matter who's in charge the extent of the cuts will be the same.

The EU can't take over. They can feck off. We are the EU and we can't walk in and say to Germany 'all right lads we'll look after it from here'.

The EU are afraid that Ireland will f**k the whole thing up for them. It's in the interest of the EU to aid Ireland and if they think they are going to start ordering us about (as they have been allowed to in the past) they can feck off. The Irish political class are using the fear of the EU (which runs deep in Ireland) to push through 15-16bn in cuts over 4 years. If the ECB want to stop lending money to Ireland then I say let them. We'll soon see who's we drag down with us.

[Zapatista]

Have I missed something?  60 days of cash left then bankruptcy?  Doubt it, it'll just (continue to) get more expensive to get funds from Debt markets, EU/IMF money is already cheaper than the debt rates offered to ROI presently, but the loss of face on taking that money is going to mean FF will continue to try and get funds in the debt markets - prolonging and worsening the situation.

I think it was just some mouth on TV in the US who said 60 days.

[RMDrive]

What does it really matter? Either the government does it or the EU will. If FF or FG or Lab don't make the cuts then the EU will have to take over. But they are just going to carry out the same cuts as are on the table now. There's a misconception that should the EU take over then they will cut even more. That's not true. They will make the same level of adjustment but won't have to worry about getting reelected when doing so. Therefore they might be willing to make cuts in areas that are pollitically sensitive (CS, OAP).
No matter who's in charge the extent of the cuts will be the same.

The EU can't take over. They can feck off. We are the EU and we can't walk in and say to Germany 'all right lads we'll look after it from here'.

The EU are afraid that Ireland will f**k the whole thing up for them. It's in the interest of the EU to aid Ireland and if they think they are going to start ordering us about (as they have been allowed to in the past) they can feck off. The Irish political class are using the fear of the EU (which runs deep in Ireland) to push through 15-16bn in cuts over 4 years. If the ECB want to stop lending money to Ireland then I say let them. We'll soon see who's we drag down with us.

If the govt doesn't make the cuts then we won't be able to get money from the bond market. If we can't get money from the bond market we will have to get it from the EU. If we are  being funded by the EU then they will control the budget. If Ireland was lending billions of euro to Greece would you not want us to have a say in how it is spent?