What losses for lenders to Irish banks?

Textbook stuff - pass the huge financial losses onto the people and only then does anyone take a haircut

Robert - bit confused - you say that this debt is trading at :"Market prices for debt imply that no more than two-thirds and perhaps as little as half" therefore the banks and other lenders to Ireland would have already accounted for this in their books so global banks have already taken these losses. There could be the situation where some of these lenders have over provided on these loans in recent times (for example taken a significantly higher provision against the loan) and therefore will actually be in a position to write-back a proportion of the loan if a funding guarantee is in place (you mention some discounts of 80%)

…sooner or later, too much credit always turns into a giant debit as borrowers crumple under the burden of escalating interest payments…
Melchior Palyi, economist, 1892-1970

Capitalism, a system of credit and debt that produced 300 years of growth is now dying. The bankers’ debt-based money has created such levels of debt that even 0 % credit can no longer induce growth. In the endgame, the problem is not the lack of credit—it’s the excessive amount of debt.

Capitalism’s problem has always been debt, the inevitable byproduct of credit-driven expansion. In times of economic growth, merchants of debt, i.e. bankers, sell debt to those seeking returns; but, in the endgame when economies contract, IOUs cannot be repaid as defaulting debt overwhelms the ability to pay what is owed.

Today, central bankers are caught in a trap of their own making. Removing gold from the international monetary system in 1971 allowed governments and bankers to expand their balance sheets to historic heights. The price, however, was the debasement of their currencies, a price which is now being exacted.

In truth, bankers are self-serving parasites whose dispensation of credit ultimately leaves societies, businesses and nations bankrupt on the gallows of compounding unpayable debt.

By keeping interest rates low, central bankers are trying to force investors to take on more risk to keep their economies functioning. By so doing, however, central bankers are distorting underlying free market dynamics as investors should be reducing, not increasing risk, in such times.

Finally, where is “Foundation X” when you need a shadowy organisation with 30,000 tons of gold to play with. ( 50% of all gold in existence has been produced since 1960. That same 50% has been withdrawn form the private domain and disappeared into private hands - it is my guess that the 30,000 tons belong to “Foundation X” - how else could they have offered to help the UK?)

Wont affect British banks though 'cos Osborne says the reason we are spending 7bn on helping bail-out Ireland is to avoid difficulties because of the exposure of our own banks. If our banks are exposed it would make a complete mockery of Osborne borrowing 7bn to pass on to Ireland. Plus, he would have to admit that his previous statements are wrong (something he could never bring himself to do).

Man alive this is serious stuff! Does anybody know what to do about it? No, I thought not. O well.

Go on go on go on go on. Go on.

Sorry to sound a bit of a numpty, when all this money was flying back and forth, were there not insurance companies involved, Robert did give them a slight mention, but this sort of exposure surely will send some of them to the wall ?

As I've said before, for every reckless borrower there is an equally reckless lender.

It is about time those who so recklessly lent get what is coming to them. Passing the entire debt on to the general populace was always morally bankrupt.

Wow. Is this the start of the start of the end for the end of the financial markets as we know them to replace capitalism 2.0 with capitalism 3.0?

RP:'.....why to do so might turn a calamity into financial disaster'

++++++++++++++++++

Can we have a list of these misfortunes like a Richter scale, please?

n: Calamity
n+1:financial disaster
n++ 1929 All Over Again
n+++ Euro is loo paper
-And so on?

To those that say the BBC should move on i say you wish, This coalition government as been poor bashing, they will be forced to open their accounts so that their council houses can be taken away. but bankers need not let them know there incomes,so much for fairness and the big society, so much that the measures are fair and equal for all, yet a another broken promise from clegg, New politics my A.....

haircuts all round

except for small savers

and with the proviso that all loans from the Irish banks must either be repaid on the agreed terms or if secured, the security taken and sold off, if the loans are non performing.

That way you preserve the idea of money and capitalism - any half measures - in particular the forgiving of loans due to the Irish banks will inevitably lead to the collapse of capitalism.

But about all, get on with it. (and ignore Mervyn King for obvious reasons)

Good piece Robert, what a mess! The situation with regard to making the banks pay for their irresponsible behaviour is a bit like the WW1 reparations, it will make you feel good that they have been made to pay but will undoubtedly end up costing more in the long run when those banks fail.....
As for the Irish Government, surely if Ireland ends up effectively defaulting it's position is untenable given it's previous insistence that it is vital to the credibility of the Irish banking system that all investors' money is safe?
I think the fallout from this crisis and those that will almost certainly come from the other PIG economies will lead to a second, far deeper economic crisis.

The financial sector being asked to pay towards the cost of its own incompetence? Surely not!

A nice headline-grabber for the close of the week - but it's not going to happen.

Bankers are humans and deserve respect and understanding. If they were a minority race or religion this message board would not carry the abuse but it seems abuse of bankers (a minority as a percentage of the total population) is allowed. Is that the double standard we have created. Abuse is OK if race and religion is left out. What next abuse of estate agents?

RP:
....There is, as I've written here many times, a powerful moral case for imposing some of the costs of rescuing Ireland on those banks and financial institutions which fuelled Irish banks' reckless lending binge by lending to them

+++++++++++++++++++++++

Will they not be punished sufficiently when they lose all/most the money they lent?

A powerful moral case is something we all like and expect our bankers to ignore. We just want a profit and a tax payment from them. Morals are for the weekend.

Robert, I'm all for doom and gloom, but it sounds as though we are going to have a very cold winter.

Do you think that the grandees in Brussels will allow one of their kind to sink below the waves of insolvency?

You are under-estimating the will of the European Commission to hang on to the Euro and their generous 'wine allowance'.

Get that ball rolling and keep it going!
Good news.

8. At 14:45pm on 26 Nov 2010, Arrrgh wrote:
"Wow. Is this the start of the start of the end for the end of the financial markets as we know them to replace capitalism 2.0 with capitalism 3.0?"

"This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

This comment is awaiting moderation. Explain.

Well, what this means is the messsage can not be posted until after it has been checked for anything that could or does cause offence. If it does not offend it will be posted on the messageboard. If it does offend or could offend it will not be posted on the messageboard.

I hope thats clear.

Now going back to Peston and his sources, Ireland is hopeful. Well thats me feeling a lot better. And, those that lent the money may have to take a hit. Wow, lending money without risk. Who would have thought it possible.

Irish Banks eh?

Der Spiegel reports that the exposure of Germany's banks amounts to $138 billion, with Hypo Real Estate leading the way with €10.3 billion in debt.

British banks are also exposed to the crisis, holding $150 billion in Irish debt.

The significant ones identified by Morgan Stanley being:

Lloyds: £21.7 billion in loans, £11.7 billion in impaired loans.

RBS: "Significant" exposure, according to Morgan Stanley, £51.9 billion in loans.

Our governments miserly £7bn is but a drop of debt in an ocean of debt

shamelessly lifted from ZeroHedge.

Mary is the proprietor of a bar in Dublin . She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she
comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin .

By providing her customers' freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's
borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled
and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He
so informs Mary.

Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.Since, Mary cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic
activity in the community.

The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never
been in Mary’s bar.

Now, do you understand economics in 2010?

Robert, using your figures that gives an outstanding debt of about £250bn the working population of Ireland is at best 2 million. Being optimistic that they all pay tax, that means that each worker has an outstanding debt to repay of £250,000 as opposed to £500,000 per head with no write downs. I know the financial whizz kids can produce all sorts of alternative sources of income but there is no way the Irish population will ever repay even a small proportion of this money.

This is surely a non-story Robert?

It’s really no different to investors in Northern Rock seeing their shares become worthless. Non guaranteed debt is effectively equity.

Why should the taxpayer take on board the losses of the bondholders? When did I, as a taxpayer, agree to be the "put" option? Who said that it is OK to nationalise the losses, but privatize the profits? These highflying, oh-so valuable to the economy, money-lenders need to remember that they accepted a rate of interest on their money above that offered by deposit accounts on the basis that for every percentage point received above it came an implicit risk. They gambled, they lost, so they should pay. Not a complicated concept is it?

This implies that global banks will have to swallow losses of between £150bn and £230bn on the credit they've provided to Ireland, either in formal write-downs over the coming days or through a pernicious process of bankruptcies and rescheduling over the coming months and years. And, by the way, those would only be the losses for banks: there would be additional pain for other financial institutions - money market funds, hedge funds, pension funds, insurers and so on - which have also lent to Ireland.

-----------------


And they didn't swallow the losses three years ago because?


Answers on a postcard. Those read out will receive the Blue Peter Badge still in demand after all these years later. We'll make sure you have the badge at home and ready to open on Christmas morning because we know so many of you will have no presents this year in your sacrifce to save the rich bankers..

The first winner will get to name our new pet too, isn't that wonderful!! We've never had this type of animal as a Blue Peter pet before but we thought we'd give it a try - we should have lots of fun. It's a spider - Tidarren argo - with very interesting behaviours.

Now children, we've started this year's christmas appeal. Please send in all your used stamps. Please, children. The people of Europe need shovels to dig deep deep holes and they need all the help we can give them. It's a good cause so start collecting as many used stamps as you can. Every one helps a poor European.

19 - Surely it's the beginning of the start of the end of the begininng of the end for the start of the beginning.

Ok, I’m no expert economist, but surely the worst of the global economic crisis is now over? The markets suggest this is the case, as do corporate reports on turnover and profits this year, with steady (occasionally stagnant) growth now reported in the vast majority of economies. People are still out buying houses, cars, going on holidays, the high street where I live (outside London) is as packed with shoppers as it ever was.

These articles strike me as just scaremongering and talking down the economy.

It wasn’t long ago that ‘Credit Default Swaps’ were going to somehow unravel the whole global economy. Then it was expose to the faltering Dubai economy (funny – that’s all gone quiet in the media), then it was massive defaults in the UK commercial property sector that were supposedly going to happen….and now it’s moved on to ‘Euro Zone sovereign debt’.

Do me a favour – this worst is clearly over – and now the global economy will do some rebalancing of course, but ultimately continue to grow slowly for the next 10-15 years until it probably happens all over again.

Why is it that every week there seems to be some new reason for apparent global economic armageddon?

24 you are correct. Most reports by mass media are non-stories that quote unknown sources or press releases. It takes a lot of staff to fill 24 hour news agenda. Staff have not the time or capacity so rely on press releases to fill the void. A source is another word for press release.

22. At 15:27pm on 26 Nov 2010, PRELOAD wrote:
shamelessly lifted from ZeroHedge.
Mary is the proprietor of a bar in Dublin ...
Now, do you understand economics in 2010?
---
Excellent!

Robert you are bringing the fragile economy down with your predictions, the run on the banks followed your "reports" surely you have done enough to cripple this country.
I thought reporters were supposed report news not create it. You are as bad as Damian in Drop the Dead Donkey in the 80s, perhaps this is how you learned your trade.
For God's sake give us a break from your doom and gloom it isn't helping anyone - in fact it's harming everyone.

#22

Very good, I like it.

And so the merry-go-round continues, as fictional money is piled upon fictional money to create huge losses on the books of people who never had it anyway. When are we going to realise that allowing banks to lend several times the deposits they hold is a recipe for disaster? At the very least it needs to be scaled back to something sensible, like 1 for 1. Arguably that would reduce the money available for investment, but it would also prevent farces like we have here where gambling against future earnings leaves us all in the proverbial.

It sticks in my craw that the buyers of all this sovereign debt are likely to include a fair scattering of the institutions baled out by its issue in the first place. The only people who seem to be making a profit out of all this are the bankers themselves, with the usual round of eye-watering bonuses due and the rest of us picking up the tab.

#27 - arrrgh

Very good!

Loftgoov - the difference between the up and down, the good story bad story, the worse is over O no we are doom, etc, is the ground where the profit is made. Talk it up, leak a story to knock it down - profit.

#27. Arrrgh wrote:
19 - Surely it's the beginning of the start of the end of the begininng of the end for the start of the beginning.
_____________________


Are you a relative of Donald Rumsfeld?

Then the pressure must be growing on the ECB to print money.

The bond holders will want it, nations in substantial debt will want it, and the Euro politicians will want it, but the prudent won't.

I wonder if the prudent have the metal to resist the bondholders, the profligate and the politicians.

Usually the prudent pay, and I'm a traditionalist, so I still reckon the ECB wil print money in the end.

It will be disguised, probably poorly, but may be just enough to flummox the prudent.

------------------------------------------------------

"28. At 15:35pm on 26 Nov 2010, Loftgroov wrote:

Ok, I’m no expert economist, but surely the worst of the global economic crisis is now over?"

------------------------------------------------------

So then, clearly not an economist. Look here:

World GDP £50 - £60 trillion
World Debt £100 - £120 trillion

Now how in the world is that kind of debt ever going to be repaid? It just cant. Therefore defaults and write downs will flourish like a snow storm Armageddon. Result of all this? No loans, no money creation, no inflation, mega deflation, paper currency worthless. See Germany 1920 - 1924 for a map of what is to come, blow by blow.

If most of the debt is on property and the like, with the Irish leaving to find a future life without debt, who is going to buy up the property? Will the existing stock in the country is worth anything?
Some one some where will have to take a loss.
And it seems to be the jolly old honest, mostly, UK taxpayer being austere for the rest of the world.
What actually do we make money on outside the banks, who in a previous post you said they did not deliver the return on investment or return for the banks?

#38 – sensationalist predictions like yours a two a penny, and have been peddled for some time now.

Never actually happens though does it.

This is indeed, serious stuff Robert.
What a precedent.

#31 quote
Robert you are bringing the fragile economy down with your predictions, the run on the banks followed your "reports" surely you have done enough to cripple this country.
I thought reporters were supposed report news not create it. You are as bad as Damian in Drop the Dead Donkey in the 80s, perhaps this is how you learned your trade.
For God's sake give us a break from your doom and gloom it isn't helping anyone - in fact it's harming everyone./unquote

You mean all this is caused by Robert Peston!

All he has to do is shut up and we'd be fine?!

You'd better tell George and Dave PDQ..

28 - Experts know they don't know so would never express an opinion without a disclaimer stating that other opinions are also valid and of all probability more valid than the expression contained within the argument.

37. At 15:55pm on 26 Nov 2010, Dempster wrote:

'Then the pressure must be growing on the ECB to print money.'

You might be right but I suspect Germany might resist this; considering their history of printing money.

Maybe Germany will return to trading in 'marks' soon and leave the Euro - would be easier than the PIGS leaving.

#37. At 15:55pm on 26 Nov 2010, Dempster wrote:

"Then the pressure must be growing on the ECB to print money."
-------------------------------------------------------------------

Will definitely happen, if not immediately it will be before summer 2011.

----------------------------------------------

40. At 16:14pm on 26 Nov 2010, Loftgroov wrote:

#38 – sensationalist predictions like yours a two a penny, and have been peddled for some time now.

Never actually happens though does it.

-----------------------------------------


Did you not look up Germany 1920 - 1924 then?

How about Argentina 1990's

Or these bubbles:

· tulipmania (1634-1638)

· the mississippi bubble (1719-1720)

· the south sea bubble (1720)

· the bull market of the roaring twenties (1924-1929)

· the japanese "bubble economy" (1984-1989)

The Dot.Com and Housing bubbles of contemporary times.

Notice the time period shortens each time?

We are in a debt bubble and that is the mother of all bubbles.

Providers of so-called subordinated debt to Allied Irish Banks will be asked to write off a significant proportion of what they're owed. Well, who caused these bad debts in the first place? Were they not due to bundled derivatives, sold without audit, and hiding explosive dynamite debt?
There are those who bet against Ireland's sovereign debt; you can bet these guys will not take a haircut; in fact, they are laughing. The financial instrument used was the negative credit default swap...and yes, these were often directly against the soverign debt of STUPID PIIGS e.g. Portugal,m Spain, Greece, Ireland...
One country caused the devaluation not only of Ireland's sovereign debt, but also that of several other EU economies and that country was the one that is so loosely-regulated a whale could fall through its economic net. The United States of America allowed its banks (too big to fail) to bundle derivatives (not audited) and sell them to STUPID PIIGS. Do you need me to name them?
This goes to show you how deep goes the greed and corruption of those banks too big to fail.
Who holds these debts?
Were they involved in the selling of derivative bundles?
Did they issue negative credit default swaps (i.e. negative betting against sovereignty)?
Perhaps we could see a list?
Also I would like to know why China's offered assistance tol EU countries to buy any and all soverign debts is being ignored - I mean not one journalistic article, not one news program!
I suspect that the Americans are behind the silence. Their hatred of China runs that deep. Meanwhile QE2 is rising inflation fears, growing talk of a “bond bubble,” especially in Treasury and municipal bonds. The US Fed is pumping $110B per month into to financial markets by buying Treasury bonds, while investors in those bonds are fleeing to other financial assets, like corporate bonds.
While the rest of the world prepares to hike interest rates to try to squelch inflation, the Fed is continuing its 0% interest rates, printing billions of dollars to lower Treasury bond yields. What effect do you think this will have on China, a country hoping to dump its American holdings?
Net result:
Weak US dollar, likely to compete with China's yuen.
Closing in on a Bond Bubble; time to Sell Bonds and Bond Funds?

Lenders to banks benefit from any bail out of banks by the IMF, EU or ECB. So they should certainly be required to pay part of the cost of the bail outs.

If there are legal difficulties about imposing a write down on some types of loan, then a capital tax on holdings in banks by corporate bodies or by individual holders of more than, say 50000 EUR, could be imposed. It is a well established principle that activities which harm other people should be discouraged by taxation.

This all seemed so recent.

https://news.bbc.co.uk/1/hi/world/europe/6657787.stm

I found the idea of Brian Cowan riding the Celtic Tiger a particularly unappealing vision.

Most people have realised that this day must come some day. There has got to be a day of reckoning.

If there is no haircut now this will only ensure that the Irish like the Greeks will pay the price of bankers arrogance and the folly of a relatively small percentage of the greedy and the chancers and the political elite.

There will come a time when there will be haircuts but the big banks will have been long gone by then having taken the EU and IMF money at face value.

There is a high stakes game of pass the parcel going on and I don't expect to see the banks left high and dry. Much of this will disappear into the EU fund and be slowly written off. We will all pay for it in increased VAT and increased contributions to the EU over the next 25 years.

A few have pointed out quite rightly that there is no way that Ireland can repay the debts that Brian Cowan so unwisely guaranteed 100%. The question is simply when will the haircut come and who will pay?

I expect bread and water for the Irish for five years or so and then some will be written off but don't get me wrong the Irish will be paying ahuge bill for the phoney Tiger economy mistakes for decades to come.

#40. At 16:14pm on 26 Nov 2010, Loftgroov wrote:
#38 – sensationalist predictions like yours a two a penny, and have been peddled for some time now.

Never actually happens though does it.

--------------------------------------------------------------------------

Yet.

"This implies that global banks will have to swallow losses of between £150bn and £230bn on the credit they've provided to Ireland....."

Do we know who these global banks (and the other banks who are presumably involved as a consequence) are Robert?


"45. At 16:27pm on 26 Nov 2010, NorthSeaHalibut wrote:
#37. At 15:55pm on 26 Nov 2010, Dempster wrote:

"Then the pressure must be growing on the ECB to print money."
-------------------------------------------------------------------

Will definitely happen, if not immediately it will be before summer 2011."


It's going to be an interesting time (and probably a little hectic for some too) around April-July 2011. Money printing, loan renewals, rising costs, falling demand.......


"38. At 15:57pm on 26 Nov 2010, Seer wrote:
------------------------------------------------------

"28. At 15:35pm on 26 Nov 2010, Loftgroov wrote:

Ok, I’m no expert economist, but surely the worst of the global economic crisis is now over?"

------------------------------------------------------

So then, clearly not an economist. Look here:

World GDP £50 - £60 trillion
World Debt £100 - £120 trillion

Now how in the world is that kind of debt ever going to be repaid? It just cant. Therefore defaults and write downs will flourish like a snow storm Armageddon. Result of all this? No loans, no money creation, no inflation, mega deflation, paper currency worthless. See Germany 1920 - 1924 for a map of what is to come, blow by blow."

I see it as an unique opportunity to experience a rich period of history which, under different circumstances and without the steadfast assistance of the pillars of our political and financial institutions, I wouldn't have had. I will write myself a note and stick it on the wall as a reminder.

Explosive entrails indeed - a haircut on sovereign debt.

Who'd have believed it, eh?

That'll teach 'them' to lend money to institutions which can work the extremes from haircuts on one hand, to printing more of the stuff when they are a bit short on the other.

Maybe 'interested parties' will take financial risk management a bit more seriously in future or maybe not.

20. At 15:18pm on 26 Nov 2010, Arrrgh wrote:
This comment is awaiting moderation. Explain.

Well, what this means is the messsage can not be posted until after it has been checked for anything that could or does cause offence. If it does not offend it will be posted on the messageboard. If it does offend or could offend it will not be posted on the messageboard.

I hope thats clear.
=====================
That is clear, however I have been quite fascinated over the past year at posts of mine that have been withdrawn, and what is interesting is that , avowed enemy of many 'Socialists' (not personally, but I've had to put up with Socialism and Socialists for nigh on all my life, and a more disastrous creed for the working class I've yet to meet - but that is another story) and so I've posted many anti quotes, but, I notice that it isn't the 'anti-socialist' responses of mine that have been pulled, it was always the ones that involved companies, or their directors, and it seemed to be only if I named them, if I used 'pseudonyms' - eg Trainset man for the man who ran an ex mutual off the rails (I couldn't resist that one) and only a few months before hitting the buffers (nor that one) took more money from shareholders 'not because it was needed but because he was being prudent' (No wonder Prudence is missing believed murdered or being held to ransom - she did hang around with a lot of really dodgy blokes - although I think it was that bloke who used to run the Treasury was the one that dun it) so I wonder if there are 'spiders' built to traverse these blogs, pick up company or director names, and automatically report. A conspiracy theory I know, but just because I'm paranoid, doesn't mean they are not out to get me.

OK – so what we have here is a situation whereby the world’s financial institutions in partnership with governments are continuing to gallop relentlessly onward towards the precipice before diving headlong into the bottomless pit of oblivion !!.

Why should that be surprising when Capitalism is nothing more than a sophisticated game of monopoly for ‘adults’ and cannot possibly survive long term without both infinite raw materials and infinite markets – and guess what – the human race has neither.

Seems like the human race need a plan ‘B’ and preferably not actually devised or implemented by the human race itself !!

Does this mean that some bank executives will have to get by without bonuses?

It's difficult to be sympathetic. If banks don't do due diligence, they deserve to lose more than their hair.

The real question isn't how much the banks stand to lose, but why they were ever allowed to set policy in the first place - for Ireland, for Iceland, for the UK, for the Eurozone, and for the world as a whole.

Clearly, aside from the moral arguments, good government is something bankers have absolutely no talent for.

The problem with the Eurozone is that the main driver of the economy (labour) has been driven down to the value of the lowest common denominator while corporations have increased their profits by retaining high end prices. This influenced credit by necessitating higher risk ratio lending in both personal and commercial sectors to maintain consumer driven growth and prevent asset devaluation, this created huge inflationary property bubbles. Banks couldn't resist the temptation of easy profit by financing the bubbles despite the knowledge they were fragile due to relatively low interest rates high and risk loans on overvalued assets. Banks and other corporate investors in these bubbles knew the risk because it was of their own making, I know this because ten years ago I was helping create these bubbles, so they should take a hit.

Not just the Eurozone, what about the Good ole' USA I hear you cry. Well in general the US has lent to unstable high risk borrowers while the Eurozne and UK overburdened what would normally be stable low risk borrowers, there is some poor lending to unstable borrowers evident in the UK but most of the risky lending is overburdening of stable borrowers as shown by low defaults while rates are nil. Either way it was just too much for the banks to miss out on so they should now suffer for their actions.

@29

Do me a favour – this worst is clearly over – and now the global economy will do some rebalancing of course, but ultimately continue to grow slowly for the next 10-15 years until it probably happens all over again.

Whilst i have probably the same understanding of economics as you. i see the problems as only starting its like the warm up to the main event...with Irelands problems highlighted, more and more people are starting to realise the web of deceit the banking industry and governments are valiantly trying to hide and that a tiny economy like Irelands can cause mayhem to economies many times their size.With a domino topple effect taking place.

Its so complex that i cant see a solution, but i certainly dont see the refinancing and taking on more debt as being anything other than a stop gap measure .

I hope I am wrong and you are right . I really do but until the present crop of bankers, investors and politicians are split apart then i see absolutely no hope of anything other than a 1930's style depression.

"@ At 14:43pm on 26 Nov 2010, nametheguilty wrote:
As I've said before, for every reckless borrower there is an equally reckless lender.

It is about time those who so recklessly lent get what is coming to them. Passing the entire debt on to the general populace was always morally bankrupt."

I agree and the reckless lenders are getting something - £1m+ bonuses (each). Oh to be a banker. Failure in any other job tends to mean a visit to the Job Centre but in a bank ...

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.



And that, Ladies and Gentlemen, is how the bailout package works

51. At 16:57pm on 26 Nov 2010, Duxtungstu wrote:
World GDP £50 - £60 trillion
World Debt £100 - £120 trillion
Now how in the world is that kind of debt ever going to be repaid?
======================
A number of people have asked this question. The answer is very easily (assuming that the estimates are reasonably accurate) if the will is there. I think that you are overlooking the fact that the GDP is produced every year while the debt is (I am struggling for the words) 'fixed'?

6. At 14:42pm on 26 Nov 2010, AudenGrey wrote:
"Sorry to sound a bit of a numpty, when all this money was flying back and forth, were there not insurance companies involved, Robert did give them a slight mention, but this sort of exposure surely will send some of them to the wall ?"

You're not a numpty, have a look at the ftalphavile.co.uk today and you'll see there are some too big to fail insurance companies in for a pasting!

likewise they had an interesting artilce on there yesterday - if say Ireland had to leave the euro, first thing that would happen, new punt devalued by say 30%..........which would reduce the value of RBS €40bn of irish assets by 30%!! (?) think about it.

23. At 15:28pm on 26 Nov 2010, Gerry Lynch wrote:
Robert, using your figures that gives an outstanding debt of about £250bn the working population of Ireland is at best 2 million. Being optimistic that they all pay tax, that means that each worker has an outstanding debt to repay of £250,000 as opposed to £500,000 per head with no write downs. I know the financial whizz kids can produce all sorts of alternative sources of income but there is no way the Irish population will ever repay even a small proportion of this money.

================
But if you were to elect Sinn Fein, they have people with a lot of experience of taking money out of banks, as opposed to putting it in.

Capitalism as we know it is finished, once the Investment and retail banks are separated (and they surely will be, for the ponzi cannot continue mathematically) a new age will dawn and banksters will be running for their lives.

As previously posted, I'm sick of bailing out every other banker!

I disagree with Arrrgh.

Morals are for weekdays. One only has to travel through a city centre on a Friday or Saturday night to realise this.

I also think that in these austere times you could maybe look at your user name and reflect on whether you really need to use the letter 'r' three times.

Perhaps Argh would work just as well?

If this is true - that holders senior debt issued by Irish Banks are going to take a haircut. Then watch out, Depositors will loose money too. In the UK (uk banking act 2009) there is a provision for this. As I understand it, the senior debt holders and the depositors all get torched together. The Government can then use public funds to compensate the depositirs - up to the depositor protection limit.

I do not know what Irish law says, and this will be important if this story turns into fact. However the Irish parliament can probably be forced to rush some legislation through if the current wording is not to the liking of the ECB/IMF overlords.

So IF this is true, those dancing with glee at the idea of the evil Bondholders taking a loss on their reckless investments might be in for a nasty suprise. Depositors will loose too.

Perhaps it is not by chance that this possible outcome first sees the light of day on a friday afternoon. Bank run? - Bank Holiday monday anybody?

Uk banks are on the hook for easily enough to make them insolvent - instantly.

#59. At 17:32pm on 26 Nov 2010, Norwichduo:

Brilliant analysis. Thank you. ROFL

53. At 17:11pm on 26 Nov 2010, DevilsAdvocate wrote:

In some ways I prefer your pseudonym ridden version. It has something that's so often missing in straightforward, direct writing. The art of indirect discourse. "Trainset man". Classic.

36. At 15:51pm on 26 Nov 2010, Toldyouitwould wrote:
#27. Arrrgh wrote:
19 - Surely it's the beginning of the start of the end of the begininng of the end for the start of the beginning.
_____________________


Are you a relative of Donald Rumsfeld?


================

That is an unknown, for me it is an unknown unknown, but for him it may be a known unknown, whether it be an unknown unknown or a known unknown, it may be a Knoweable unknown, if he but knew were to look, but don't ask me as I don't know.

Talking of haircuts ..... if they have to go further than a haircut, where are they cutting?

Through the neck, the jugular. You're guillotined! Ouch!

Is this a good analogy to what's going to happen?

This looks like big trouble, nice reporting RP.

Once again the bankers are in the crosshairs for a haircut. They are but one of the benefactors of the boom years. What about the others who keep a low profile and never hear about? Yes the property speculators who creamed it in the good years, well good for them and left the can for the next generation to pay for.
Isn't it time the Irish tax man gave them a hair cut or make them make good on the current mess?

What losses for lenders to Irish banks?
..........................
Full!
Crash that Euro!
Take that EU straight-jacket off Ireland and the UK!

71. At 18:15pm on 26 Nov 2010, nautonier wrote:

What losses for lenders to Irish banks?
..........................
Full!
Crash that Euro!
Take that EU straight-jacket off Ireland and the UK!
--------------*******************----------------------

Sorry, but if your wishes come true, we will all be in the mire and, for most of us, the muck will be way over our heads. There will be chaos everywhere.

Politicians won't know what to do; but there was a solution after the 1930s - it was called WWII. I don't want to go anywhere near that direction.

I want the euro to succeed, however, although the reasons aren't ever discussed here , I do not want the euro to be the UKs currency. The UK should maintain its fiat currency and all it implies; joining the euro would remove that status.

------------------------------------------------------------

60. At 17:40pm on 26 Nov 2010, AnotherEngineer wrote:
51. At 16:57pm on 26 Nov 2010, Duxtungstu wrote:
World GDP £50 - £60 trillion
World Debt £100 - £120 trillion
Now how in the world is that kind of debt ever going to be repaid?
======================
A number of people have asked this question. The answer is very easily (assuming that the estimates are reasonably accurate) if the will is there. I think that you are overlooking the fact that the GDP is produced every year while the debt is (I am struggling for the words) 'fixed'?

----------------------------------------------------------------

Me thinks you forget the trade deficits. That's how all this debt got there. No deficit, no debt. If debt were to be fixed, then no probs. However, it is not fixed and just gets bigger and bigger. I wish I lived in your world though, it sure does seem cosier.

73. At 18:42pm on 26 Nov 2010, Seer wrote:
------------------------------------------------------------

60. At 17:40pm on 26 Nov 2010, AnotherEngineer wrote:
51. At 16:57pm on 26 Nov 2010, Duxtungstu wrote:
World GDP £50 - £60 trillion
World Debt £100 - £120 trillion
Now how in the world is that kind of debt ever going to be repaid?
======================
A number of people have asked this question. The answer is very easily (assuming that the estimates are reasonably accurate) if the will is there. I think that you are overlooking the fact that the GDP is produced every year while the debt is (I am struggling for the words) 'fixed'?

----------------------------------------------------------------

Me thinks you forget the trade deficits. That's how all this debt got there. No deficit, no debt. If debt were to be fixed, then no probs. However, it is not fixed and just gets bigger and bigger. I wish I lived in your world though, it sure does seem cosier.
===================
Well of course 'World Debt' could mean anything, but I took it to mean excess spending by governments and individuals rather than trade defecits. I did also say 'if the will is there' which of course it is not!

59

And the hotelier is still €100 down if you work it through...

Interestingly, if they all had to write off their debts then the "global" write off is:

€100 loss by the Butcher
€100 loss by farmer
€100 loss by the hooker
€100 loss by the hotelier

So the local "financial press" would report that the town had lost €400 and everyone would be pessimistic wondering where all the money had gone and how there could be €400 worth of losses (read global debt) when GDP is only €100 (the "external" sale to the German if it ever went through - strange how the reporting on the negative side also doesn't reflect reality...

59 - Is not the hotel owner now out of pocket?

48. At 16:53pm on 26 Nov 2010, stanblogger wrote:
Lenders to banks benefit from any bail out of banks by the IMF, EU or ECB. So they should certainly be required to pay part of the cost of the bail outs.

If there are legal difficulties about imposing a write down on some types of loan, then a capital tax on holdings in banks by corporate bodies or by individual holders of more than, say 50000 EUR, could be imposed. It is a well established principle that activities which harm other people should be discouraged by taxation.
============
taxation discourages a great many things which are beneficial to people too.

#72. SleepyDormouse:
I do not want the euro to be the UKs currency.
The UK should maintain its fiat currency and all it implies; joining the euro would remove that status.

+++++++++++++++++++++

Yes, let us stay out! Never mind the technicalities of joining it. But wait! Weren't there five golden rules once ? Are they still valid?

Could we meet them?
Does anyone remember Decimalisation. There was HUGE inflation due to price rigging. I can see us all getting another birching if we change the currency. Sufficient reason alone not to join.


It seems to me we are going to hell in a handcart and the path is getting steeper. I see Portugal is more vocal about not needing help today. They do protest too much?

Those of you who think RP is the cause of this give him too much credit, worthy as he is. This is too big for one person's making.

#73. At 18:42pm on 26 Nov 2010, Seer wrote:
------------------------------------------------------------

60. At 17:40pm on 26 Nov 2010, AnotherEngineer wrote:
51. At 16:57pm on 26 Nov 2010, Duxtungstu wrote:
World GDP £50 - £60 trillion
World Debt £100 - £120 trillion
Now how in the world is that kind of debt ever going to be repaid?
======================
A number of people have asked this question. The answer is very easily (assuming that the estimates are reasonably accurate) if the will is there. I think that you are overlooking the fact that the GDP is produced every year while the debt is (I am struggling for the words) 'fixed'?

----------------------------------------------------------------

Me thinks you forget the trade deficits. That's how all this debt got there. No deficit, no debt. If debt were to be fixed, then no probs. However, it is not fixed and just gets bigger and bigger. I wish I lived in your world though, it sure does seem cosier.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

So if every pound of global GDP was directed to repaying global debt it would take a mere two years to clear. Easy then lets get to it eh! I think Seer has spotted a flaw there.

Additionally, GDP is not all exchangeable currency and much of the debt is a PRODUCT of generating GDP i.e. GDP begets debt

Time to turn comments off Mr BBC. Gone are the days when you found some insightful comments amongst the chaff. It's pretty much all conspiracy loons and political activists now.

The idea that the taxpayer and not the lender or shareholder should take any losses incurred by banks or indeed any other business is quite simply fraud on a grand scale.

If global debt is so much greater than global GDP - can't we get a loan from Martian Banks?

60. At 17:40pm on 26 Nov 2010, AnotherEngineer wrote:
51. At 16:57pm on 26 Nov 2010, Duxtungstu wrote:
World GDP £50 - £60 trillion
World Debt £100 - £120 trillion
Now how in the world is that kind of debt ever going to be repaid?
======================
’A number of people have asked this question. The answer is very easily (assuming that the estimates are reasonably accurate) if the will is there. I think that you are overlooking the fact that the GDP is produced every year while the debt is (I am struggling for the words) 'fixed'?

Struggle no longer, fixed is a most excellent way of describing it AE.
Debt is indeed absolutely fixed, albeit in its accelerating motion.

72. At 18:36pm on 26 Nov 2010, SleepyDormouse wrote:

71. At 18:15pm on 26 Nov 2010, nautonier wrote:

What losses for lenders to Irish banks?
..........................
Full!
Crash that Euro!
Take that EU straight-jacket off Ireland and the UK!
--------------*******************----------------------

Sorry, but if your wishes come true, we will all be in the mire and, for most of us, the muck will be way over our heads. There will be chaos everywhere.

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

Something approaching chaos is what we have now!

If my wishes come true ... the EU project will be re-negotiated and something better and workable and fairer and realistic will emerge and all and sundry will be better off and have more control over our own lives.

The Euro is on its way ... and we should all ensure that it is finished off ... the current EU is not what was originally intended when British citizens got a vote in 1975 ... it has become something else and it is unsustainable

All those grain mountains - remember those while millions of people starved in e.g. Africa?

All those handouts for continental farmers ... Why? Encroaching on every aspect of our lives ... Why?

Now - trillions of euros in aid for a currency that is over-valued and unsustainable.

Crash Crash Crash ... and it may be the Germans and Irish that come to our aid! Hooray!

Robert, Isn't Europe living in financial near bankruptcy? The working population cannot support the expanding retirees across Europe without a common pension age of, 70 which we reach at the rate of 3 months a year, starting NOW. If retiring in 2011, you'll need to delay 3 months, if 2012, then 6 months. Life/Retirement expectancies have outstripped our ability to pay for everyone's old age.

@82 No - there has to be writing off or default. So it has been since Roman times if not before. Inflation is also a form of default - if controlled it can be a way of partly resolving the contradictions of usury and fractional reserve banking.

#82. At 19:27pm on 26 Nov 2010, zorba wrote:
If global debt is so much greater than global GDP - can't we get a loan from Martian Banks?
--------------------------------------------------------------------------------

There are proviso's
. Exchange Rate
. Martian Undewriting Criteria
. Interest Rate
. Are Martians good lenders or just fly by profiteers
. Have they ever heard of Credit Default Swaps
. Can I go back with them
. Is Arnold Schwarzenegger still there

68. At 17:55pm on 26 Nov 2010, DevilsAdvocate wrote:
Are you a relative of Donald Rumsfeld?
That is an unknown, for me it is an unknown unknown, but for him it may be a known unknown, whether it be an unknown unknown or a known unknown, it may be a Knoweable unknown, if he but knew were to look, but don't ask me as I don't know.


It is clear that a known unknown cannot be known until that which is unknowable is with the comprehension of the knowing. And an unknown unknown must always be known by all, as two unknowns always make a known.

And you of all should know that.

Wonder what Michael Ryanair O'Leary has to say about all this? Quick enough to take the UK government to task when it suits. Perhaps he could make a contribution..?

Lots of comments about capitalism, actually I think we know the problems with capitalism pretty well, the role of government (as I am led to believe) is to 'ameliorate the excesses of capitalism'. (probably got the word wrong, but you know what I mean).

Clearly this is a failure of Government, or democracy as we call it. Whilst we have an X-factor approach to choosing our governments then we will get this daft excessive behaviour. I note that the Chinese are doing OK, hope they didn't listen to daft David's recent lecture on democracy.

Reality is that you can blame the markets (quite right), but the real culprits are poor governments who refuse to take decisions and will run our country and climate into the ground unless we change something.

The basis of the problem in Ireland, as I see it, was corrupt government letting their mates in Finance make a lot of money.

Question - should we allow such small states as Ireland to exist, their ruling class is so small that they all know each other and will help each other (they all went to the same schools and married each other, any similarities to the Conservative Party are your decision).

Is this healthy for the population of the country or the wider market - observing the fall out from Ireland????

If your income is £30,000 can you afford a £60,000 mortgage????

If there is no debt what do we do with our savings????

Seem daft questions and concerns????????

Robert

Good analysis. However, I think there are caveats around the figures you quote for bank exposure to Ireland, which I think come from the Bank for International settlements. A good chunk of this exposure is to subsidiaries that were established in Dublin for tax purposes but whose assets are generally unrelated to the Irish economy. For example, the Bundesbank has said in its Financial Stability Report (published yesterday), that of the EUR140bn exposure of German banks that shows up in BIS figures, only EUR25bn or so is exposure to the Irish economy. The rest is to subsidiaries that are domiciled in Ireland but primarily invest in non-Irish assets. One needs to be very careful with BIS figures, particularly when it comes to tax havens such as Ireland.

#91. At 20:13pm on 26 Nov 2010, Andywr wrote:
If your income is £30,000 can you afford a £60,000 mortgage????

If there is no debt what do we do with our savings????

Seem daft questions and concerns????????

-------------------------------------------------------------------

Yeah true, but what if you're spending £45,000 with a mortgage of £60,000 and an income of £30,000 and can't rein it in because you have to spend £45K to earn your £30K.

Good to hear that at last someone is insisting on investors taking a hit. So they should - remember the health warning "the value of your investment can go down as well as up"?

Well they took the risk, they should take the hit. Good on the IMF. Ultimately this may save the taxpayer footing the whole bill, perhaps we should do the same in the UK.

To prevent this hapening again, we could have a tax on any financial institution that has an investment element (investing using the money of their depositors or investing credit/loans. This would apply to all transactions carried out by that institution, so...

The banks would break themselves up, since they would not want to be paying that tax on retail banking activities as well. Job done?

"Bankers are humans and deserve respect and understanding"

I think Maximilian Kolbe had a similarly generous attiude to his persecutors at Auschwitz, but they didn't get quite the same bonuses.

84. At 19:44pm on 26 Nov 2010, nautonier wrote:

---------------------------
If you think this is chaos, please just wait; remember this blog. I really hope I am wrong, totally wrong. You may get what you want, I hope you don't regret it. I am afraid you may, along with the rest of us.

38. At 15:57pm on 26 Nov 2010, Seer wrote:
!....So then, clearly not an economist. Look here:

World GDP £50 - £60 trillion
World Debt £100 - £120 trillion........"

Who do we owe it to then - the Martians, or the Men in the Moon?

Ultimately chaps, it's like when you borrow £10 of your mum, and eventually she tells you not to worry about it. The lender has to realise they're not going to get it back. It's not as though writing it off means the worlds (real) assets are being depleted, or the martian baillifs are going to come and take all our tellys and dvd players. Reality check.

Doom mongers out there - really, saying it's the end of the world as we know it, all bankers need stringing up and we need to reset to year zero as subsistence farmers does your cause no good at all. I respect people with heartfelt views to make the world a better place, but honestly, going on like some of you do just turns this blog into a laugh for people wanting to read some daft rants.

22. At 15:27pm on 26 Nov 2010, PRELOAD wrote:.....
shamelessly lifted from ZeroHedge

A brilliant piece of agitprop.

Call me thick-headed, but since when did the partygoers get to sue the makers of the punch for taking the punchbowl away? (Alright, maybe here in America, but not in any civilized country.) The idea that bondholders--senior unsecured lenders, specifically-- should be punished for lending to profligate banks is completely to rewrite the laws that govern capital structure. The bondholders accepted a fixed, limited rate of return with the understanding that they effectively owned a put option struck at the liquidation value of the corporation or the sovereign. If a company goes bankrupt, bankruptcy court works straightforwardly: the equity holders get zero, and whatever assets remain after the secured lenders take possession of assets they have a lien against go to the senior unsecured lenders.
Setting the dangerous precedent of changing the rules--and the law--when it doesn't suit risks turning Ireland into a pariah on a par with Argentina. You're basically saying to the bondholders: "Despite all legal covenants, we have decided to flout the law and convert 40% of your bond's face value into equity worth zero. Think you should punish the lenders for lending too much money? Don't worry, if they don't know what they're buying, you can be sure Ireland will not have the chance to borrow too much at too low a rate for a very, very long time.

"with investors currently putting a price of 73 cents in the euro on 10 year loans to the Irish state, and 30 cents in the euro for subordinated loans to AIB, it's probably reasonable to assume that direct loans to Irish households (for example) are fundamentally worth somewhere between those two numbers."

er, isn't that utter drivel? Surely there is no link whatsoever between the solvency of the Irish state and the solvency of individual Irish households? Both in general economic terms, and in this particular crisis in which the property boom and bust was to do with commercial investment in commercial property, and little to do with household property or debt?