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Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe, and Ireland in Particular!

Reggie Middleton's picture




 
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Wed, 03/31/2010 - 23:38 | 282684 M.B. Drapier
M.B. Drapier's picture

Ireland has finally admitted the horrendous condition of its banking system.

Not entirely. For one thing, this is just another downpayment on the full truth, neither the first nor the last. It's not as if the assets were marked to market or anything.

Thu, 04/01/2010 - 07:31 | 282832 THE DORK OF CORK
THE DORK OF CORK's picture

Amen to that - Ireland has only two choices , burn the bankbondholders or leave the euro and pay them in punts.

It is that simple really.

 

Sun, 04/04/2010 - 13:06 | 285768 Miles Kendig
Miles Kendig's picture

Clarity from Cork and M.B. Drapier. One thing is certain, we can never believe that we have heard it all or have cleaned it all out when the source is related to those that created the matters at hand.

Thu, 04/01/2010 - 02:00 | 282633 M.B. Drapier
M.B. Drapier's picture

A short dump of Irish links:

  • A retrospective on the Irish credit bubble by economist Morgan Kelly. Kelly is one of the good guys who predicted the crash in advance (2006 in his case).
  • A muckraking history of Irish banking by politician/journo Shane Ross. The madness goes back long before the last property bubble. You may think that you've heard all this before from other countries, but I promise you things you probably couldn't make up.
    Flynn resigned as chairman of Bank of Scotland (Ireland) immediately. It would hardly be appropriate for the chairman of a division of a publicly quoted bank to be linked to the armed robbery of £27 million from one of its rivals.

    (Ross himself recommends fellow hack Matt Cooper's Who Really Runs Ireland? as a more scholarly option.)

  • A group econoblog from Karl Whelan and other economists.

Note that the drapier is not associated with any of the above. I'm happy to talk someone else's book.

Am I missing something important?

Thu, 04/01/2010 - 07:22 | 282828 THE DORK OF CORK
THE DORK OF CORK's picture

Morgan Kelly - he made the mistake of speaking truth to power ,quite a guy really.

Shame we do not recognize integrity in this sad little country.

Shane Ross generally speaks a lot of sence but I always felt he represented London interests in this colony - although my gut instinct could be incorrect. 

Wed, 03/31/2010 - 16:57 | 282184 THE DORK OF CORK
THE DORK OF CORK's picture

A interesting analysis of the Irish experience of the boom years - by Fintan o Toole

He is very socially liberal and I do not share all of his politics but he is one of the most incisive and well researched journalists on this small island and is always worth a listen

Scroll down somewhat and look to the right video boxes

 

www.progressive-economy.ie/

also note the enormous private debt in both Spain and Ireland - this is a on a much bigger scale the the Greek fiasco and will kill these sovereigns very quickly if the state insures these dead banks

www.progressive-economy.ie/.../irelands-private-debt-is-it-time-to.html 

Thu, 04/01/2010 - 00:33 | 282696 M.B. Drapier
M.B. Drapier's picture

That should be http://www.progressive-economy.ie/2010/02/irelands-private-debt-is-it-time-to.html I think. Good article.

To be fair to the Germans we did help to torpedo their public finances, so they could almost be forgiven for marking the offence. Come to think of it, maybe we might be better off by now if Depfa had exploded in our hands. There would have been no question of keeping a squeaky-clean record, so we would probably have quietly bundled some or all of the rest of our privately-issued debt in with the Depfa default.

Speaking of which, I'm still far from convinced that Germany (or the UK or whoever) is the main reason for our no-default kamikaze strategy. I'm pretty certain that Deutsche, Angela Merkel etc. are shouting that they want their money back, but I suspect the main reason we're dead-set on paying it all to them is because that's the perfect excuse for the Department of Finance and friends to do what in their hearts they really long to do anyway. Namely, patch the Humpty Dumpty of our cozy little banking world back together again and damn the cost. (Entirely aside from the fact that you can't put all the blame on Eurozone imbalances, or any other iniquitous foreign imposition, for why we went quite so hog-wild loading up on German debt in the first place.)

Thu, 04/01/2010 - 07:10 | 282821 THE DORK OF CORK
THE DORK OF CORK's picture

Ah yes Depfa I almost forgot about that gem of a bank - if Dublin had spittoons in the pubs ,sidearms on the bankers and stagecoach taxis to Dublin airport it would have been better fun.

One of the strangest things about this whole mess is that the Irish taxpayer is being asked to bail out nameless bondholders - could we at least find out who are these nameless financial houses before they bugger us to infinity, or is that asking too much.

I agree Fianna Fail and the gang have dead bodies lying everywhere but I am not sure if they wield any power now as I think Dublin Castle has gone into automatic mode with occasional instructions coming from higher up the food chain.

Wed, 03/31/2010 - 14:53 | 281988 captain sunshine
captain sunshine's picture

What do you mean by not being pessimistic?

Wed, 03/31/2010 - 16:58 | 282227 Reggie Middleton
Reggie Middleton's picture

Call it realism!

Wed, 03/31/2010 - 13:19 | 281835 MarketFox
MarketFox's picture

RM,

There is no way that an economy recovers when there is 0% reason to save.

It is not the job or responsibility for the savers to pay the losers.

This is truly a bizarre and wrong phenomena.

However something tells me that when the rewards come back, they will be larger than normal.

 

ie 1980's style rates.

"Volcker rates" are just around the corner.

It seems to me that it will not be long that $100,000

cash will be more than most have in savings.

Maybe even 95% of the population will not $100,000 cash ?

And thus what are the implications ?

 

Wed, 03/31/2010 - 13:49 | 281792 Miles Kendig
Miles Kendig's picture

Great read Reggie.  We are now witnessing what "man up" & the "law of the street" means for those that led and supervised these horrendous conditions.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

Classic you pay us when we do right and double or triple when we fail... That is the state of financial & political leadership and if this step by Ireland can be considered a victory of sorts then that in itself says all we need to know.  My desire to see these folks dressed out like these Beasties operating as world societies pooper scooper detail cleaning up after the monsterous squid until their losses are worked off.

http://www.youtube.com/watch?v=Mk0xmCZQWmk

One thing is certain, the Catholic Church not only taught their politicians how to molest well in Ireland, but how to assume personal responsibility as well.  Happy Easter!

Thu, 04/01/2010 - 07:34 | 282640 M.B. Drapier
M.B. Drapier's picture

Pah, we in Ireland already knew all this. Allied Irish Bank[s] (known as AIB - not to be confused with Anglo Irish Bank) is one of the big two Irish banks. It extorted a bailout from the Irish government back in 1985. During the late '80s it ran a systematic and widespread tax-evasion scam on behalf of its customers.* (Most of the other banks in Ireland joined in.) Then it ran a systematic overcharging scam at the expense of its customers. And they all lived happily ever after.

And ... look, what can I say but 'read the book'?

* A digression: The chairman of AIB 1989-2003 was this chap.

Sun, 04/04/2010 - 13:01 | 285767 Miles Kendig
Miles Kendig's picture

Pah, we in Ireland already knew all this.

Nice to know we Americans are not alone

Wed, 03/31/2010 - 12:27 | 281751 Rogerwilco
Rogerwilco's picture

There is a difference between keeping "the current oligarchy in power", and making it through a dislocation without ending up swinging on a rope. These central bankers are smart people who understand the dynamics and the risks. I have to assume the bankers and other financially-powerful entities want to maintain viable assets, so where is their parking place for wealth when the inevitable dislocation occurs? The oligarchs might hold huge sums of notional debt, but what have they accomplished? If they try to enforce their claims and collect after a collapse, then they will face retribution from a lot of angry, penniless people - that rope thing.

 

Wed, 03/31/2010 - 12:02 | 281706 Attitude_Check
Attitude_Check's picture

He who panics first "wins".  It looks like the Irish understand the game of chicken very well.  They get to sell there assets near the "top" tanking everyone else's.  Say HELLOOOOOO DEFLATION.

Wed, 03/31/2010 - 11:41 | 281670 eludog
eludog's picture

Reggie, with the stock market doing what it is doing, do you think there is something us realists don't see?  It seems so clear that a global depression is at some point inevitable.  All it will take is one of a number of problems to rear its head.  What I as a MM constantly ask myself is if there is a global coordinated plan that may make this debt discussion moot. 

Wed, 03/31/2010 - 11:47 | 281677 Reggie Middleton
Reggie Middleton's picture

What I see is collusion among the central bankers to push enough liquidity into the system to reflate as much as possible. I don't recall this ever working, and I personally believe this to be an inefficient way of going about things, but it is the only way to do it in order to keep the current oligarchy in power. For more on this concept, see http://boombustblog.com/Reggie-Middleton/1199-Youve-Been-Bamboozled-Hoodwinked-and-Lied-To-Heres-the-Proof.-What-Are-You-Going-to-Do-About-It.html and http://boombustblog.com/Reggie-Middleton/751-Super-Brokers-are-forming-to-push-broken-products-to-make-those-with-High-Net-Worth-Super-Broke.html

Wed, 03/31/2010 - 12:06 | 281710 B9K9
B9K9's picture

I don't recall this ever working

Reggie, that is a very polite way of stating things. What we have right now is an historical apex resulting from a confluence of past events.

The two key elements are the original creation of the Fed, and the other being the gradual process by which all governments came to be fully invested in the FIRE economy. If the credit-leveraged asset-inflation model fails (which it will), then entire governments will fail.

The end result is that governments have capitulated to their central bankers as some sort of saviors. At this point, it's all about Ben. Out of this planet of 6b souls, he has been granted the sole & exclusive power to pit his wits against global markets.

The techniques he is employing have no basis in any economic school of thought. It's all seat-of-the-pants in a desperate attempt at finding anything that just might stick. As you said, it hasn't been done before.

I don't think anyone should be counting on those odds, but rather begin preparing for the alternative.

Wed, 03/31/2010 - 11:13 | 281624 Alexandra Hamilton
Alexandra Hamilton's picture

Thanks for filling in the blanks. This explains why Bank Vontobel, a Swiss private bank recommends:

Government
bonds from Greece, Ireland, Sweden and
Portugal appear as attractive purchase opportunities.

http://www.vontobel.com/runappl.cfm/Vontobel_Studie_zur_Schuldenkrise_en....

Obviously, they want to get rid of that stuff and fast.

Wed, 03/31/2010 - 11:12 | 281621 Ripped Chunk
Ripped Chunk's picture

Reggie, thanks for another great piece.

I have to agree with you.  What purpose has this period of extend and pretend accomplished other than to allow the looters to fortify and hide?

Wed, 03/31/2010 - 12:35 | 281772 deadparrot
deadparrot's picture

I think you just answered your own question.

Wed, 03/31/2010 - 11:09 | 281616 williambanzai7
williambanzai7's picture

My God, why don't you publish a book!

Wed, 03/31/2010 - 11:04 | 281606 Rogerwilco
Rogerwilco's picture

And yet the DX is down while the Euro rallies on this bit of good news. Oh yeah, Greece is getting a "loan" from the ECB at 1%. Move along now, nothing more to see here.

Wed, 03/31/2010 - 08:24 | 281460 MarketFox
MarketFox's picture

RM, all I can say is wow.

Just awesome.

Destruction of debt in effect is the only way up.

The politicos that want to postpone the day of reckoning are not doing their constituents any favors, as they are only making the truth grayer, and costing more money, and creating more confusion as to "what is".

I give Ireland kudos as well.

.........................

The constant across the board is a large loss component for each country, including the China bubble.

Since there is this loss "constant", then currency shifts would seem to equilobrate, fiat or not, in a globalized world economy.

The "tide" raises and lowers all ships.

It is just not happening at the same time. 

Wed, 03/31/2010 - 09:31 | 281496 Reggie Middleton
Reggie Middleton's picture

I must admit that I sit in awe as much of Europe looks to near self-destruct, insolvent US companies soar on the back of the most debt this country has ever had in a slackening macro environment, and China, the macro-economic savior of the world is blowing a bubble that everybody can see, yet no one (in the markets, that is) apparently wants to recognize. Methinks that if these chips fall in a synchronized fashion, we may face a global depression. That is not my being pessimistic, either.

Wed, 03/31/2010 - 13:24 | 281838 RossInvestor
RossInvestor's picture

Reggie, another great post.  However, with all of money printing by CB's around the world isn't asset deflation with monetary inflation/hyperinflation a more likely scenario than just global depression?

Wed, 03/31/2010 - 11:24 | 281640 GoldSilverDoc
GoldSilverDoc's picture

Does anybody have the gonads to play these swings?  Or is it "buy a farm and hunker down" time?

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