Ireland’s Banks Face 35 Billion Euros In Losses

[Deckard]

http://www.bloomberg.com/apps/news?pid=206...id=apCaPXrLOcmI

June 25 (Bloomberg) -- Ireland’s banks face losses of as much as 35 billion euros ($49 billion) through 2010 as the economy shrinks at an “unprecedented†pace, according to the International Monetary Fund.

Ireland “is in the midst of an unprecedented economic correction,†the Washington-based lender said late yesterday in a report. “The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history.â€

Lenders led by Bank of Ireland Plc and Allied Irish Banks Plc are facing mounting bad debts as property loans sour. Finance Minister Brian Lenihan is planning a so-called bad bank, known as the National Asset Management Agency, to buy loans with a face value of as much as 90 billion euros from lenders, and will lay out details of the agency this month.

I love the terminology: National Asset Management Agency - sounds good, doesn't it?

Is it an open investment vehicle? Can I put a few quid in?

[canny man]

I thought it was bad banks that got us into this mess. Wouldn't it be preferrable to start a few good ones instead?

[interestrateripoff]

I thought it was bad banks that got us into this mess. Wouldn't it be preferrable to start a few good ones instead?

Your just being ridiculous.

[NotMyHouse]

http://www.bloomberg.com/apps/news?pid=206...id=apCaPXrLOcmI

I love the terminology: National Asset Management Agency - sounds good, doesn't it?

Is it an open investment vehicle? Can I put a few quid in?

Amazing how enormous losses = assets

Debt is wealth, innit?

How about the National Liabilities Management Agency?

or the Liabilities and Assets Management Executive (LAME)

[The Masked Tulip]

Thank goodness we are not in the same mess as Eire

[Fishman]

http://www.bloomberg.com/apps/news?pid=206...id=apCaPXrLOcmI

I love the terminology: National Asset Management Agency - sounds good, doesn't it?

Is it an open investment vehicle? Can I put a few quid in?

A better acronym would be

Management Agency for National Irish Assets or MANIA.

A far better reflection of the manic behaviour of the Irish Govt.

[SarahBell]

So what's the Ireland mortgage debt total?

[shedfish]

http://www.bloomberg.com/apps/news?pid=206...id=apCaPXrLOcmI

I love the terminology: National Asset Management Agency - sounds good, doesn't it?

Is it an open investment vehicle? Can I put a few quid in?

this would be a much more suitable vehicle

http://images.google.co.uk/images?hl=en&q=biffa

[Seydel]

Thank goodness we are not in the same mess as Eire

We are!

It's a toss-up whether the US dollar or UK pound gets devalued first. I say British savers and the poor on fixed incomes get crushed before theirs mainly because millions of clued-up Americans have rushed to buy guns and ammo.

Thank Gawd that our caring government has built this massive state surveillance system in readiness.

[drrayjo]

Well, a relative at Anglo Irish in London is 'avin 'appy days. No redundancies so far and has just been moved 'up' to the property section where he's advising investors in new build apartments.

Is there another version of this zombie film? I want the Director's cut with the happy ending.

I wish my relly all the best as he's all in; so it causes me some discomfort to be wishing a Coppola Curse on him and this whole stupid farce of pretending a zombie version of the boom times is what we need.

[leicestersq]

Sometimes we need to have something to compare with, so we can see what to do and what not to do.

Ireland, foolishly joined the Euro. The rest of the world should be thankful, as it is a lesson in why you should not join the Euro. The Irish are now unable to print money, only the European Central Bank can do that, and even then they have to be careful. Why? Because with no central political masters, the ECB could print the money and give it to one or more countries in the Eurozone, effectively using severeignty to transfer wealth from one country to another.

This transferrence of wealth from one region to another is acceptable if you have a central government carrying out this for the greater benefit of the people, for example taxing rich people in London and subsidising services in Newcastle. It isnt right though for an unelected body to do this, transferring money from nation state to nation state. Mind you, doesnt mean that someone wont try and do it.

The policy prescription for a deflationary spiral, as being experienced in Eire, is to print money, and spend it. Poor Eire cant do it. All they can do is show the Austrian economists how daft their ideas are.

Luckily here in the UK we can print. Personally I think that the money should be given to the government to spend on projects that will be of great future use to our nation, I particularly like the idea of building broad gauge railways, something that could employ hundreds of thousands of people who would otherwise be idle. But any excess of government expenditure over receipts will stimulate our economy.

Interestingly, the extra activity that a judicious increase in the money supply can cause, can lead to a currency actually appreciating in value. I guess that a rough calculation of the value of money is Total output of a currency area divided by total amount of currency. If by increasing the money supply you can stimulate output by a greater amount than you increase the money supply, your money becomes worth more!

I am sure that a lot of people have been wondering why the pound has recently been rising at the same time that the Bank of England is increasing the money supply.

Just why anyone would want to join the Euro is beyond me. Hopefully the Irish will see sense and leave the Eurozone before their country is bankrupted. We dont really need another Iceland on our doorstep.

[interestrateripoff]

The policy prescription for a deflationary spiral, as being experienced in Eire, is to print money, and spend it. Poor Eire cant do it. All they can do is show the Austrian economists how daft their ideas are.

Can you please give sources as to who said printing money is the solution to a deflationary spiral.

Deflationary periods are perfectly normal in an economic cycle and should not be avoided.

[Fishman]

Sometimes we need to have something to compare with, so we can see what to do and what not to do.

Ireland, foolishly joined the Euro. The rest of the world should be thankful, as it is a lesson in why you should not join the Euro. The Irish are now unable to print money, only the European Central Bank can do that, and even then they have to be careful. Why? Because with no central political masters, the ECB could print the money and give it to one or more countries in the Eurozone, effectively using severeignty to transfer wealth from one country to another.

This transferrence of wealth from one region to another is acceptable if you have a central government carrying out this for the greater benefit of the people, for example taxing rich people in London and subsidising services in Newcastle. It isnt right though for an unelected body to do this, transferring money from nation state to nation state. Mind you, doesnt mean that someone wont try and do it.

The policy prescription for a deflationary spiral, as being experienced in Eire, is to print money, and spend it. Poor Eire cant do it. All they can do is show the Austrian economists how daft their ideas are.

Luckily here in the UK we can print. Personally I think that the money should be given to the government to spend on projects that will be of great future use to our nation, I particularly like the idea of building broad gauge railways, something that could employ hundreds of thousands of people who would otherwise be idle. But any excess of government expenditure over receipts will stimulate our economy.

Interestingly, the extra activity that a judicious increase in the money supply can cause, can lead to a currency actually appreciating in value. I guess that a rough calculation of the value of money is Total output of a currency area divided by total amount of currency. If by increasing the money supply you can stimulate output by a greater amount than you increase the money supply, your money becomes worth more!

I am sure that a lot of people have been wondering why the pound has recently been rising at the same time that the Bank of England is increasing the money supply.

Just why anyone would want to join the Euro is beyond me. Hopefully the Irish will see sense and leave the Eurozone before their country is bankrupted. We dont really need another Iceland on our doorstep.

If Ireland still had their 'Punt' they would have fallen just as Iceland did.

Printing your own currency is only an advantage if it's part of the reserve basket of Dollars, Yen, GBP, etc.

[drrayjo]

All they can do is show the Austrian economists how daft their ideas are.

Oh, I know, if we had listened to the Austrian's we wouldn't have had any burst bubble to clear up with whizzo measures like printing money. And where would a generation of banksters, gougers and all their dirty shills have got their massive quantities of treasure then? eh? well?

Exactly.

" Ignoring the Austrians Got Us in This Mess "

"...the Austrians were the ones who could see the seeds of collapse in the successive credit booms, aided and abetted by Fed policies, especially under former chairman Alan Greenspan"

RANDALL W. FORSYTH for Barron's

http://online.barrons.com/article/SB123680667244600275.html

Edited June 25, 2009 by drrayjo

[CokeSnortingTory]

If Ireland still had their 'Punt' they would have fallen just as Iceland did.

Printing your own currency is only an advantage if it's part of the reserve basket of Dollars, Yen, GBP, etc.

But wasn't the punt tied in with the GBP?

[Fishman]

But wasn't the punt tied in with the GBP?

Don't think so.

I remember selling to Irish customers at a time when the exchange rate fluctuated maybe 5-6% either

way over a period of time.

IIRC.

[leicestersq]

If Ireland still had their 'Punt' they would have fallen just as Iceland did.

Printing your own currency is only an advantage if it's part of the reserve basket of Dollars, Yen, GBP, etc.

Iceland had problems because its banks borrowed huge amounts of money in US Dollars, something that the Icelandic government could not print. When a nations private banks borrow too much money in a foreign currency, and they get into trouble, the government has to let them go under. There is no way that they should even try to make their own taxpayers pay back those who lent money to the private banks.

If you lend money to a private bank, and it goes bust, well, that is just part of the risk of investing. You may try and get the government to make you whole, but if they dont, you cant really begrudge the taxpayer that. After all, as far as I know, until recently no loans made to a bank were guaranteed by any state.

As for printing money if it is a reserve currency, not quite. Printing large quantities of money is only a useful policy when you have a deflationary spiral, in particular in the currency you have control over the supply of. What is happening in this financial collapse, is that banks are deleveraging, ie lending less money for the capital they have. Total money = base money * leverage. If leverage is collapsing, then printing money is attempt to keep total money the same, and as long as you dont go too mad, it should be non-inflationary. That can apply to all currencies, not just reserve ones.

What Ireland cannot do, and should not do, if it still had the punt, is attempt to take the foreign currency obligations of its private banks on to its books. Instead it should let the banks go under, and then buy them out of bankruptcy, free of their foreign currency obligations.

As to what it should do now, well they dont really have many options. Risking the state to try and bailout its private banks seems like an exercise in stupidity to me. But then again, all options for Eire (or is it Ireland) seem pretty parlous.

[R K]

I shouldn't worry. As soon as they've ratified the Lisbon treaty the IMF will be permitted to bung 'em a few quid to tide them over.

[leicestersq]

Can you please give sources as to who said printing money is the solution to a deflationary spiral.

Deflationary periods are perfectly normal in an economic cycle and should not be avoided.

Recently Stephen King in the Independent wrote about printing money. I understand Ben Bernanke is himself a scholar of the events of the Great Depression, or I guess you could try Milton Friedman.

As for Deflationary Periods being quite normal, well I guess that they were in Medieval times when gold was the currency. As most people lived close to the land, if they ran out of money, they could eat what they grew.

Now we arent talking about a normal Deflationary Period with this event though, we are talking about a spiral. That is where the collapse in bank credit causes a total fall in the money supply. That makes it more and more difficult for debtors to pay back what they owe, as the real value of their debts rises and rises. As debtors go into default under such a scenario, the banks they owe the money too find themselves in trouble as well. If things continue, banks go under, trade doesnt get financed, all of the worlds production and trade grinds to a halt. And if you hadnt noticed, people in the main dont live too close to the land anymore.

It is possible under such circumstances, to get a complete meltdown. Lack of trust that you are going to get paid for what you do, means that economic activity collapses. Food doesnt get to supermarkets, etc etc. Things really could get that bad. If it wasnt for the huge IMF loan to Iceland, the country would be starving, and it was recently one of the richest countries per capita in the world.

[Meerkat]

The policy prescription for a deflationary spiral, as being experienced in Eire, is to print money, and spend it. Poor Eire cant do it. All they can do is show the Austrian economists how daft their ideas are.

Luckily here in the UK we can print.

Which idea of Austrian economists is exactly daft? That you fooking got to move ur ar5e around and work to generate wealth rather than steal or print it? Roll up ur sleeves mate and stop moaning. And you better turn a bull and buy a property if you believe printing is the solution and money will be dropt by helicopters from the sky in the near future.

[CokeSnortingTory]

If it wasnt for the huge IMF loan to Iceland, the country would be starving, and it was recently one of the richest countries per capita in the world.

No. It was recently one of the most indebted countries per capita in the world. As I've pointed out before, printing money is OK only for as long as your creditors allow you to do it. The bond market may start to call a halt to your printing escapades long before the stimulus effort is effective.

[Meerkat]

Just why anyone would want to join the Euro is beyond me. Hopefully the Irish will see sense and leave the Eurozone before their country is bankrupted. We dont really need another Iceland on our doorstep.

And, by the way, do you know anything about the currency of Iceland? Was it euro? So much for your printing tricks.

[leicestersq]

Which idea of Austrian economists is exactly daft? That you fooking got to move ur ar5e around and work to generate wealth rather than steal or print it? Roll up ur sleeves mate and stop moaning. And you better turn a bull and buy a property if you believe printing is the solution and money will be dropt by helicopters from the sky in the near future.

The idea which is daft is that markets will naturally adjust to any situation.

What that idea doesnt take into account is that humans act in a very herd like behaviour, which may appear irrational in some ways, but is also not so irrational in others.

A good example would be where we are all afraid to go out and spend, because we think that everyone else is afraid to go out and spend. In an extreme case, where everyone was holding on to their cash, we would all become unemployed and have no income, because no one was spending anything. Any assets we had, such as a machine say, also becomes worthless, as it only provides an income if people buy what it produces.

In this frightening situation, a single individual cannot act against the tide. If that person spends all he has, then someone else will get his money, and that will be the end of the boost to demand that person has provided. Now that spender is penniless, and a lesson to all to be careful with their money.

The only solution to this problem, is for another party to make up the spending shortfall, and that is the role of government. They should spend where individuals will not. Once people are receiving an income again, they will feel more confident that the income will continue, and the more inclined they are to go and spend some of it. That is the basic idea of Keynes. His ideas show how the rush of the herd to hoard money can be overcome by a third party. Printing money is also part of the policy mix, a credible threat by the government to devalue your money by printing it, should cause people to go out and spend it, ironically taking away the need for the government to carry out its threat.

The important thing with all economic policies is to keep people confident enough to trade. Trade always makes us wealthier.

And we can see just how well the Austrian policy prescription works in Eire, where they face public spending cuts, no monetary printing, and compare that with the UK. Lets watch what happens.

My bet is that Eire will have to call in the IMF and leave the Euro.

[interestrateripoff]

Recently Stephen King in the Independent wrote about printing money. I understand Ben Bernanke is himself a scholar of the events of the Great Depression, or I guess you could try Milton Friedman.

http://en.wikipedia.org/wiki/Chicago_school_(economics)

Milton Friedman

Main articles: Milton Friedman and Monetarism

Milton Friedman (1912-2006) stands as one of the most influential economists of the late twentieth century. He was a student of Frank Knight and he won the Nobel Prize in Economics in 1976, among other things, for A Monetary History of the United States (1963). Friedman argued that the Great Depression had been caused by the Federal Reserve's policies through the 1920s, and worsened in the 1930s. Friedman argued that laissez-faire government policy is more desirable than government intervention in the economy. Governments should aim for a neutral monetary policy oriented toward long-run economic growth, by gradual expansion of the money supply. He advocated the quantity theory of money, that general prices are determined by money. Therefore active monetary (e.g. easy credit) or fiscal (e.g. tax and spend) policy can have unintended negative effects. In Capitalism and Freedom (1967) Friedman wrote,

http://en.wikipedia.org/wiki/Quantity_theory_of_money

Money can lose its value through excessive abundance, if so much silver is coined as to heighten people's demand for silver bullion. For in this way, the coinage's estimation vanishes when it cannot buy as much silver as the money itself contains […]. The solution is to mint no more coinage until it recovers its par value.[10]

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

Decline of money-supply targeting

An application of the quantity-theory approach aimed at removing monetary policy as a source of macroeconomic instability was to target a constant, low growth rate of the money supply.[17] Still, practical identification of the relevant money supply, including measurement, was always somewhat controversial and difficult. As financial intermediation grew in complexity and sophistication in the 1980s and 1990s, it became more so. As a result, some central banks, including the U.S. Federal Reserve, which had targeted the money supply, reverted to targeting interest rates. But monetary aggregates remain a leading economic indicator.[18] with "some evidence that the linkages between money and economic activity are robust even at relatively short-run frequencies."[

Can you please link to some articles where Friedman has advocated printing money.

I've not come across any work he has done where he has said printing money was the solution, I didn't think he was that sort of an economist.

If I get time I'll comment on Bernanke and S King.

[Traktion]

The only solution to this problem, is for another party to make up the spending shortfall, and that is the role of government. They should spend where individuals will not. Once people are receiving an income again, they will feel more confident that the income will continue, and the more inclined they are to go and spend some of it. That is the basic idea of Keynes. His ideas show how the rush of the herd to hoard money can be overcome by a third party. Printing money is also part of the policy mix, a credible threat by the government to devalue your money by printing it, should cause people to go out and spend it, ironically taking away the need for the government to carry out its threat.

The important thing with all economic policies is to keep people confident enough to trade. Trade always makes us wealthier.

And we can see just how well the Austrian policy prescription works in Eire, where they face public spending cuts, no monetary printing, and compare that with the UK. Lets watch what happens.

My bet is that Eire will have to call in the IMF and leave the Euro.

It isn't just about the government devaluing our money, but the money of our creditors too. Those gilts bought by other countries will also be worth less. Why would you continue to buy gilts at low rates if you knew they would be devalued? Either the yields will go up (making government borrowing expensive) or investors will refuse to buy them (trigger massive spending cuts). I don't believe we can fool the markets for long, by printing the shortfall.

Also, this whole talk of replacing leveraged money with printed money doesn't make sense to me. Unless we force the banks to hold larger capital reserves for the long term, this money will escape back out and leverage up even higher sooner or later. This would cause massive inflation as borrowing becomes too easy again, followed by an even bigger bust. What is the solution then? Give them yet more printed money and hope it works? IMO, this is short termism, yet again.

The problem with Ireland is that Irish people were leant too much in the first place, causing the credit boom and inflation (mostly via property prices). Why was this allowed to happen? Had it not happened, then we wouldn't be discussing the resulting bust and deflationary spiral. However, a floor will be found and their recovery may be much swifter than our dragged out, recovery. As the decline will likely be sharp for them, they may learn the lesson, rather than repeating the same mistakes too.

The west needs to learn to live within its means. We need to stop borrowing to spend, but rather to spend less. Printing money to keep up the spending does not solve the problem, but just puts it off for another day.