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Why We Need To Follow The Irish And Restructure Our 'zombie' Banks

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http://www.telegraph.co.uk/finance/comment/liamhalligan/8038931/Why-we-need-to-follow-the-Irish-and-restructure-our-zombie-banks.html

In Dublin, early last Wednesday morning, a protester rammed a cement truck – with the words "TOXIC BANK" emblazoned on the side – into the ornate iron gates of the Irish Parliament.

The following day, Brian Cowen's government unveiled its plan to pump an additional €6.4bn into Anglo Irish Bank – the real-estate lender at the heart of the Republic's property meltdown. Having been nationalised in January 2009, the total cost of rescuing Anglo Irish could now be almost €30bn.

An additional €3bn capital injection into the much bigger Allied Irish Bank was also announced last week, with the state becoming majority shareholder in Ireland's second-largest lender. Finance Minister Brian Lenihan also admitted that even more rescue finance could be needed under a "severe hypothetical stress scenario" if Irish property prices fall further, and then fail to recover.

In sum, Ireland's bank rescue, we now know, could cost this relatively small country an eye-watering €50bn – more than a quarter of total annual economic output. So huge are the immediate bail-out costs that the 2010 Irish budget deficit is now on course to hit an astonishing 32pc of GDP – 10-times bigger than eurozone member guidelines.

These are absolutely ghastly numbers, of course. But guess what? The fact that they're now in the public domain, that the government forced the banking sector to "fess up" its losses, meant that Irish sovereign debt rallied after ministers made their move. That's right – borrowing costs fell, a lot, as the all-important bond market signalled its approval at Dublin's determination to impose "full disclosure".

Back in 2009, Cowen and his team were widely praised as they took genuinely decisive action to get Ireland's fiscal house in order. The previous year, the Celtic Tiger had been severely wounded – after Ireland's runaway housing market and related construction boom went bang, the country enduring an economic implosion. This was made worse by the pound's fall against the euro, which meant Ireland lost competitiveness vis-a-vis the UK – still its biggest trading partner.

All this caused an unprecedented 7.5pc contraction in Irish economic output last year. Excluding profits made by the numerous multinational companies operating in Ireland, the drop was an even more shocking 11.3pc. As the economy went into a tailspin, borrowing costs surged, preventing the investment needed for recovery and turning bad debts even worse. As a result, Ireland's budget deficit soared to 14.3pc of GDP last year.

Cowen responded by imposing a one-off fiscal squeeze equivalent to around 6pc of GDP – through a combination of pay restraints, tax rises and curtailed public spending. The Irish were implementing in 12 months cuts roughly equivalent to those which British ministers insisted would take four years.

Jean-Claude Trichet, European Central Bank President, called Ireland a "role model" urging other countries to "face up to their problems, as the Irish so clearly have done – something that's now widely recognized". Sure enough, by April this year, the "spread" the bond markets charge to hold Irish 10-year debt over the German "bund" equivalent was down to 139 basis points, less than half as wide as the year before.

Since then, this spread has widened once more, reaching 450bp prior to Cowen's announcement.

Ireland is now being presented in a very different light. As anti-austerity protests raged across Europe last week, trade unionists argued that Dublin's predicament shows what happens if governments "fail to support the economy", by piling debt on ever more sovereign debt.

In the UK, senior Labour politicians, who earlier in their careers showed signs of economic literacy, are peddling the same economic snake oil. Ireland shows the "extreme dangers of austerity", they say. That's the message, of course, they must deliver to their public-sector union paymasters – manipulative, selfish men who represent less than a fifth of the British workforce. Senior Labour figures should know better – and they do! They've simply allowed their intellect to be trumped by their ambition.

More at the link.

Looks like the Irish rescue is all based on property prices recovering..... No wonder the bond spreads are widening, instead of trying to create real prosperity everything is being staked on property prices recovering the Irish tiger appears sunk unless a miracle happens.

Perhaps they should be asking the Chinese if they want to buy property to help out?

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http://market-ticker.org/akcs-www?post=168093

.......

On Friday it emerged that a small group of hedge fund debt investors were threatening to take Ireland to court if it pushed ahead with moves to impose so-called "haircuts" – or writedowns – on the value of their holdings in Anglo debt.

Oh, we weren't told about that either. That could force a default, which of course is exactly what Ireland (and everyone else on Sir Pumps-a-Lot TV) has told us was "impossible."

Impossible eh? Maybe not so impossible.

Let me ask this question - How does Ireland think it's going to actually pay down this debt?

The problem with bailing out the bank is that it will push the public deficit to about 32% of GDP.

That's insane.....threefold what it was (which incidentally, at ~10%, is about as bad as ours.)

How did it happen? Oh, more looting.....

Finance Minister Brian Lenihan defended the rescue, saying the "nightmare" collapse of Anglo Irish would have pushed the country into insolvency, in remarks redolent of the recent crises in Greece and non-eurozone country Iceland.

"Unfortunately this bank grew to half the size of our annual wealth and the failure of a bank of that scale would render the country itself insolvent," he told RTE state radio.

Again, the regulators didn't regulate, and the Finance Minister was ministering to the bank's executives - under their desks.

An indicator of things to come over here, given what we're finding out about with regard to the actual state of our property markets and all the bogus deals that were done - and the banks and regulators have furiously been trying to hide?

Probably.

Denniger's little rant on it.

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http://www.telegraph...mbie-banks.html

More at the link.

Looks like the Irish rescue is all based on property prices recovering.....  No wonder the bond spreads are widening, instead of trying to create real prosperity everything is being staked on property prices recovering the Irish tiger appears sunk unless a miracle happens.

Perhaps they should be asking the Chinese if they want to buy property to help out?

It would have been kinder and better for their economy to just let Allied Irish fail.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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