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It Looks Like Ireland Is About To Get Those Leprechaun Clippers Ready – Haircuts, Here We Come!
Ireland has been one of the weakest points in the EU from a
financial standpoint, and is well positioned to quickly and efficiently
transmit contagion to its economic and geographic neighbors. I have been
warning about Ireland for well over a year now and things are
unraveling pretty much as I anticipated. Our modeling and research
should have left all interested parties quite prepared. Going through
the BoomBustBlog warnings in chronological order as excerpted from the Pan-European Sovereign Debt Crisis series…
- Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
- Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
- Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
- Beware of the Potential Irish Ponzi Scheme!
- Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor!
Amsterdam’s VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the “overbanked” status of many European sovereign nations
As excerpted from Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe:
Now, notice how prescient my post of several months ago was, The Coming Pan-European Sovereign Debt Crisis:
I will attempt to illustrate the “Overbanked” argument and its ramifications for the mid-tier sovereign nations in detail below and over a series of additional posts.
Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they’re domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.
Notice how Ireland is the nation with the second highest NPA to GDP
ratio. This was definitely not hard to see coming. In addition, Ireland
has significant foreign claims – both against it and against other
countries, many of whom are embattled in their own sovereign crisis.
This portends the massive exporting and importing of financial
contagion. Reference my earlier post, Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
wherein I demonstrate that Ireland’s banking woes can easily
reverberate throughout the rest of Europe, affecting nations that many
pundits never bothered to consider. Irish banks will be selling off
assets, issuing assets and bonds in an attempt to raise capital just as
the Irish government (contrary to their proclamations) will probably be
issuing debt to recapitalize certain banks. This comes at a time when
the Eurozone capital markets will be quite crowded.
To make a long story short, Ireland is basically all bank, no physical economy. That leveraged facade of progress was bound to come crashing down, and it currently is. The scary part is that Ireland is in no way alone in this predicament. Now, with that out of the way, let’s see what’s happening in today’s news…
Irish Stress Tests May Leave Government in Control of Banks
The Irish government may be forced to take controlling stakes in Bank of Ireland Plc and Irish Life & Permanent Plc, the last of the country’s biggest lenders to escape state control, following tomorrow’s stress tests.
“They’ve clearly got most to lose,” said Oliver Gilvarry, head of research at Dublin-based Dolmen Securities, who has “sell” rating on both banks. “It’s difficult to see how either will end up less than 50 percent owned by taxpayers.”
The Irish Central Bank will at 4:30 p.m. tomorrow publish its third round of stress tests. The results will determine if the two can avoid joining four of the country’s biggest banks in majority state ownership after they all logged record losses as the country’s decade-long real estate bubble burst.
Ireland may require banks to raise an additional 27.5 billion euros ($39 billion) of capital, according to the median estimate of 10 analysts surveyed by Bloomberg News. The government has pledged to provide that money if banks fail to raise it themselves from a 35 billion-euro fund set up under the country’s international bailout in November. Shares of the two lenders have declined by more than 50 percent since that rescue.
Also, Irish Bank Suspends Shares in Nationalization Fears. Boys and girls, this potential nationalization of the remaining banks essentially means that Ireland will be taking the clipper to bondholders. The new government made it very clear in their campaign and actually published their intentions after being elected…
As excerpted from “Moody’s
Tardily Cuts Spain’s Rating After Greece Gets Put In The Trash Bin,
All The While Ireland Plainly States That It Will Default!“:
For the hopium smoking, ratings agency
following crowd who still believe such an event may not take place,
reference the new government over in Ireland. Our friends over in
Ireland have issued a new roadmap for the country which is not very
different from what they can campaigned on when they were running from
office. It’s good to know politicians can keep their word for more than
a few weeks… Check this out though… “Towards Recovery: Programme for a National Government 2011-2016 – as excerpted and annotated (click, then click the image that opens up in new page again to enlarge):
following crowd who still believe such an event may not take place,
reference the new government over in Ireland. Our friends over in
Ireland have issued a new roadmap for the country which is not very
different from what they can campaigned on when they were running from
office. It’s good to know politicians can keep their word for more than
a few weeks… Check this out though… “Towards Recovery: Programme for a National Government 2011-2016 – as excerpted and annotated (click, then click the image that opens up in new page again to enlarge):
You better get those clippers ready… The new government is gonna’ get
to cuttin’! Of course, we anticipated this about this time last year as
well – a little more than a year ahead of the ratings agencies –
remember that timing thing! Subscribers should see 
Ireland public finances projections.
We have prepared BoomBustBlog subscribers for said haircuts nearly a
year ago. I suggest all interest parties delve into the models again. Professional/institutional
subscribers can go through the multitude of haircut scenarios and the
economic losses to be taken under each scenario by the respective
bondholders here: Ireland Default Restructuring Scenario Analysis with Sustainable Debt/GDP Limits and Haircuts.
We all (or at least all who read BoomBustBlog) saw this as a forgone
conclusion. The key question is “What happens next”? My chips are put
on the inevitable square. Do
Black Swans Really Matter? Not As Much as the Circle of Life, The
Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!
conclusion. The key question is “What happens next”? My chips are put
on the inevitable square. Do
Black Swans Really Matter? Not As Much as the Circle of Life, The
Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!
I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…
The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.
All four corners of the globe are currently “hobbling along on one leg”, under the pretense of a “global recovery"
Those who are interested can follow my posts on Twitter: http://twitter.com/ReggieMiddleton.
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Excellent article! Thank you.
GDP is a limited metric in the Irish state when considering the domestic economy - the GNP is a far more refined view of the activity withen the state - and its much Bad real Bad.
A economic neutron bomb as been dropped with very little private credit produced and the ECB providing a very thin gruel for the Sov.
Bank's bond holders face serious cuts, sovereign debt drives countries to slide over the abyss, tax payers revolt, governments fall.... Markets all higher this morning.
Have a great day.
sunny
There's a difference between having the will to keep something alive and the abiity.
This crisis hasn't fully developed yet. Throwing debt at the problem and completing faux stress tests is not a long term strategy.
I love Reggie and his analysis is usually spot on,but he now beginning to sound like Ambrose Evans Pritchard of the Daily Telegraph, who has been predicting daily the demise of the Euro from almost the day it was introduced. After a few years people start to consider maybe there is something else going on here to propel the Euro ever higher against the Dollar and Sterling. Yes the fundamentals of the Eurozone are awful,but when you look at the prospects for the US economy where most of the government spending is structural and therefore cannot be cut,requiring the Bernank to monetise the defecit until the government decides to balance the budget-anyone ever see that happenening?Or the UK which as Reggie points out is a series of bust banks with a bankrupt country attached,you can then see why the Euro is stronger than most analysts would like.
Come on Reggie,give it a rest,we all know Ireland is a basket case,but the ECB will keep it alive because the alternative is Ireland and maybe others leaving the Euro,flies once caught in the spiders web rarely escape.The ECB will print and print to keep the PIIGS on board,German politicians and law professors can rant and scream about the bailout being against the German constitution as long as they like, but the ECB runs Europe and that includes the courts and as a result Germany will pay the biggest contribution towards keeping the Euro monster alive.
I always wondered what went through people's minds in the moments before they ran into a wall, or walked off a ledge, or pulled the trigger playing Russian Roulette.
Now I know.
Rest easy and sleep well. I'm sure many will agree with you...
Uh, what is "NPA"??? Non-paying accounts??? Non-performing accounts??? National Public Accruals??? Please remember "There are no stupid questions" OK???
Squeeky Fromm, Girl Reporter
Reggie, no idea if you are a NYer, but I'll bet you on this one. some drinks at a bar, besides i've follwed you a long time and would
like to meet.
my prediction, as a last resort IMF steps in if EU doesn't. Now, I agree on an economic basis it should have happened a long time ago, and also on a moral basis. But, understanding the oligarchy, I predict it ain't happening. to do this means have to do to others, "it will have to be done to preserve the monetary system". the same way we had to pay off AIF 100 cents to the dollar. Then they ill all pat themselves on the back for heros they are, it will be in the press, etc. LOL, I have seen the scenario, and it is a script they do over and over again.
By the way prop desks and banks will do their part and start the market dropping, panic, etc.
hello we see this with every reform effort they don't like, with the bernanke reappointment trouble, etc.
I can be offensively honest, if need be. Reggie Middleton <=== me loves
What a truly wonderful line!!!!!
Yes, Reggie leaves alot of stuff out- he leaves out the nonsense you see in MSM and thank you for that! A famous writer once said, "I try to leave out the stuff most people skip over". Huh. Leprachaun Barbershops are cool.
did anyone actually speak all 3 required languages to get that video in its entirety? Luckily I speak Italian and could understand the funny parts.
Let's see if the markets actually give a fuck...
"And shove one of dese praties up his arsehole for me,will you,Mr Clancy?
"By cripes,I will indeed,Mrs Murphy."
Soidways-like.
@sno7: beauty
Mr. Murphy: Top o' the morning, Mrs. Clancy.
Mrs. Clancy: Top o' the morning to you Mr Murphy. and where are you rushing to this fine day? You seem upset. Come in now and have a nice cup of tea.
Mr. Murphy: No time for tea, Mrs Clancy. I need to give me banker a stress test.
Mrs. Clancy: Oh really now. Do you know more than all experps at the ECB and the Irisk government who are running stress tests on the Irisk bank.
Mr. Murphy: I don't think you need a PhD from the London School of Economics to know how to stress a banker. I'm going to stress test my banker by spitting on him.
Mrs. Clancy: Well now, I won't be keeping you. Seeing as your going into town, will you do me a favor?
Mr. Murphy: Sure, Mrs Clancy, anything for the sweetest colleen in the Emerald Isle.
Mrs. Clancy: Please give the banker a stress test from me...spit on the banker with one of those big gooey gobs I have seen you cough up when you have a mind to.
Mr. Murphy: Consider it done, Mrs Clancy. And an honor it 'tis to have your support for the stress test of the Irisk banker.
Today's word of the day: urineboarding!
You Sir, are a true fan of deep throat treatment meeted out to a banker. But its not receivership as for Linda Lovelace, its true donorship of primal celtic kind.
C'mon Erin go ballsy!
Well, Erin Burnett has been referred to here as boyish-looking.
I could swing in that case.
Watching Bob "Piss-Ant" Pisani get a woody about some Chinese IPO.
Sorta deflates the one I was getting for Erin.
Lord Amighty, ain't there no sanity out there.
Did anyone else see the 60 minutes episode about businesses moving to Ireland because they pay less tax? WTF? Perhaps default is a good thing? Comments please.
I saw it and was sickened by the blatant campaigning for a break on repatriation of foreign cash it represented.
The idea that allowing these scumbags to bring money back from their shelters will create jobs is a bad joke and the "we're just tryin' to remain competitive" bullshit is disingenuous and disgusting.
Even if Ireland doles (pun!) out some haircuts, they'll still have the "neutral" Swiss to play their games.
Businesses moved out after 2008/2009. Now maybe the pickings are more juicy...everything is so much lower today...
Well Reggie you have two hobby horses and one stallion in your stable :
Hobby horse #1 : Android over Aapl.
Hobby horse #2 : Euro going belly up first and foremost.
Stallion : The US real estate ongoing bubble.
Now I wonder how these hobby horses will fare in the race with the others. That is the comparative analysis question. Who will beggar thy neighbor first to whom. Who will win the margin vs MS share race most successfully. Requires unbiased analysis.
The stallion will stay in the stable for the next ten years. Irish soup will go sour and it'll be back to spuds for the Celts. But will the Germans be wearing crew cuts for ever? I doubt it.
I don't know the answers and I know you ask a lot of good questions. I just doubt that you paint the whole comparative narrative, or the real see-saw of ebbs and flows and the mind sets that dictate them. Amen. I've hee-hawed enuff.
Falak, what is the point you are trying to make? It sounds like you are inviting someone to reach into your pocket and take what they like...
My point is that the EURO crisis, as treated by RM, is an analysis of the financial disaster being waged by hedge funds/PD on the populations of European countries, as a consequence of Criminal financial rape having been waged on a world scale by these same elites since donkey's years, but deflagrating in our collective faces in 2008. Now, it's financial war being waged by Benocide on the world; to protect this same elite that raped us all. Euro attack being the collateral damage that Europeans must pay for these past private sector, real estate shenanigans. The EU fights for political survival against a financial vulture caste that hides behind USA's exorbitant privilege of USD reserve currency. Imagine if the USD were not protected. Would we have the same blood letting that QE prevents today from occurring on USD? You bet we would! And How! THe US situation is much worse than in Europe. Here we have private savings at very high levels in consumer sector. So neglecting that the Europeans are being raped for being unsuspecting collateral victims of US private sector criminal actions gets diluted by this simple, clinical, statistical analysis of rabbits being lined up to be shot in an impotent Euroland. We could be looking on a Katyn execution of Poles by the KGB. Not presenting this part of the story is an omission of rational ethical reporting. I'm not defending the ECB actions. But they are prisoners of this tsunami that was initiated in USA and to which undoubtedly the Euro financial private sector participated. As did stupid PIGS governments by their excessive spending, often under advice of same PDs and IMF whizz-kids. I would like to see comparative statistics between Euro imbalances and USD imbalances. But it's a free world...of manipulated market economics...
The Europeans are not being raped. It is a business transaction to them. Ambivilance, apathy and a good cigarette get them through the night.
For all the talk of rabbits, donkeys, vultures, I get a sense that you are "short" on the euro...
Remember, the Europeans have put all their "stock" in banks and the banking institution since medieval days. European banks are sinking and taking the "cues n' chairs on deck" with them.
You may want to develop/implement a personal wealth plan to handle the coming storm.
B-- T-- F------ D--
sorry, I don't trade. I leave it to others. I do invest. But not in this current environment. I'll sit it out as far as the stock market is concerned.
I think you realize there is a time value to fiat currency. It should be invested in something better that low interest bonds or a bank savings account.
"I canna' wait to take me' shears to the poor darlins' ! Aye, fools, ye get whats ye voted for. Time to pay the piper -- and said piper's ME !"
http://collider.com/uploads/imageGallery/Leprechaun/leprechaun_movie_ima...