Capital is being hoarded in America?

The EU knows that economic warfare is being waged. Capital is more important than a few of these jobs.

As it is broken, there is a potential worse problem than contagion. Incapacity. When lil’ ol’ Irelan’ comes a callin’ the cupboard be bare!

This is unlikely, as the derivatives can be kept flying for a very long time, but as the big players are cashing in their chips and buying commodities, for cash, it is a possibility. Not just a difference in rates, but a completely bare cupboard, especially since Basle II.
Any assessments?

I am afraid you do have a point. They do conflict.

Viewing it in the Irish context alone, all you have to do is switch on your radio on Sunday morning, tune to Today FM Business show, and listen to a Dolmen securities broker explain how credit spreads have narrowed. But what he doesn’t explain, regardless of how cheap it is to service debt, is how much debt Ireland has outstanding. For instance, €3.0 billion in credit card debt alone. €3.0 billion! At what interest rate? ? ? I mean, we talk about Liam Carroll’s €3.0 billion in debt on property and development land loans. But isn’t it time, that Ireland as a nation also took collective responsibility, for the debt it is accummulating? How in the name of ? ? ? is Ireland going to pay down €3.0 billion in credit card debt. And I don’t care an iota, what the credit spreads are. It is simply too much. We are too exposed to collosal swings and roundabouts of the said markets. BOH.

Unfortunately, all the capital markets need is a single large captive. They appear to have it in the US Treasury with the result that they will be able to play regualatory arbitrage one more time… and this time with feeling?

I think if Patrick Honohan and Mr. Klaus Regling should examine the concept I outlined in this post:

http://www.irisheconomy.ie/index.php/2010/03/26/the-canadian-banking-fallacy/#comment-41546

The tremendous attempt by the FF government in 1997-2002 and 2002-2007 to create a new wealth owning class, to underpin solid and sustainable growth in Ireland over the long period. I believe this thesis amongst many others from that era, though nice as a thesis no doubt, in reality has proved to be disasterous. It would be nice to those same governments held properly to account for that, and asked to explain exactly why they thought their plan was so attractive. BOH.

Tuesday, March 30, 2010. The Day the Music Died.

Wednesday, March 31, 2010. Nothing Happens.

Thursday, April 1, 2010. A Nation of Sold Serfs Chained by Bought Fools.

I note that formerly strident voices that cautioned against scaring the horses are now strangely silent.

I think that attitude was informed by Ireland’s reality of being per capita, the most indebted country in Europe. The fact is the bill of interest on personal debt in Ireland reduced from €10 billion in 2007 to €5.5 billion in 2010. That is the ’stimulus’ Ireland received from low ECB rates. Of course, the more indebted you were, the more of that €4.5 billion worth of indirect subsidy you received into your pocket.

That is how we took advantage of 10 years of economic growth. We leveraged ourselves up to the hilt. What we did in Ireland, was exactly the same as what the United States did in the 1920s with buying common stock on margin. (You could lay down $25 dollars and your broker would loan you $75 dollars to buy a total of €100. When the market rallyed, your investment became worth $200, $300 etc) Great when the market is going up, equally devastating when the market plummets. We tied all of the faiths of our 4.5 million population, to that of the property market. In the 1920s, it is estimated that 40 cent in every dollar loaned to society, was used to buy common stock on margin. That is how leveraged the US population was. It took the US the entire decade of the 1930s to de-leverage painfully (or re-inflate both confidence and growth). What we need in Ireland, is a left wing government who will institute the public works necessary to get Ireland’s population through the great recession.

At the same time as we allowed our government to construct a taxation policy around property transactions, which temporarily injected stimulus into the public service. Which of course injected stimulus into the real economy at a time when it wasn’t needed. We are unwinding that investment into our public service now, when the economy is least able to take the shock. (Yeah I get Colm McCarthy’s argument for competitiveness ahead of flimsy innovation task force reports). BOH.

Just heard eammon Ryan on radio one equating pulling the plug on Anglo with leaving the euro.

Presumably at the Green party conference in Waterford too, to make it even more surreal. An expression comes to my mind, never bring a boy to a gun fight. Maybe Eamon Ryan should look at the constructive work he has done in publishing reports about energy security and so on. And work from there, in terms of how he approaches the dire problem of money supply (lack of it)? BOH.

I’m still amazed that we had domestic cheerleaders for the AIB and BOI buybacks this time last year. I note that formerly strident voices that cautioned against scaring the horses are now strangely silent. Is it possible that the Anglo bill has prompted them to recalibrate their assumptions? Somehow I doubt it.

Over the next weeks these erstwhile soothsayers could face the appalling vista of Danish sovereign debt spreads tightening in response to the plan to remove the implicit guarantee so beloved of our bond holder and CDS writing bretheren.

I look forward to the gyrations that will be unveiled to square such an outcome with the predictions of a bondholder strike were any such measure enacted here.

@All
For Anglo in the above posts read Anglo/Nationwide and add €2Billion. Nationwide, the establishment’s own building society, is Anglo’s toxic twin sister. I wonder if Nationwide got any money from the Central Bank?

‘As I say, burning repo counterparties would be a dangerous thing to do. They do take a risk and take collateral in return, but it is structured as a no-risk situation and the price reflects that’

A risk which is ’structured like a non-risk’ is obviously not a risk. It is a non-risk which is falsely sold or presented as a risk, on the principle of caveat emptor/vendor. The opposite also occurs, as with the CDS scam, where risks were concealed by slice and dice etc.

Isn’t that the core of the capital markets problem ? There is competition, but the competition, and pricing, is always structured (gamed) in favour of the dominant. An insiders game. ‘Burning creditors’ is a most heinous crime, but ‘burning citizens’ seems to be fine, if you can get away with it. Money naturally has to spent on lobbying and spin, but that’s part of the ‘business’ model.

Assymetric information, and trust, takes many forms. There is no economy which is not also a political economy. ‘Soft data’ of the cultural, political and social variety is often decisive in risk assessment, because status and ‘respectability’ matters hugely to people. The forms differ from place to place. Knowing about that is all part of the game.

When the gamers are also ‘government advisers’, we get systemic conflict of interest. Because it is so widespread, and globally prevalent, it cannot be acknowledged. To admit it is to blow the gaff on the the pretence of ‘objective capital markets’ and of ‘objective advice’.

Default risk was ’structured/gamed out’ pretty effectively in the lending to Irish banks. Creditors knew our institutional leaders would close ranks to protect their own if (when) things went sour. They were dead right about us. A few ‘bad apples’ are mentioned, but the responsible institutions and professions are basically untouched. Ireland is doing the Right Thing. AAA for compliance with gaming.

As I read Rogoff and Reinhardt, Ireland has never defaulted on sovereign debt. There are doubtless good reasons for that, but the bad reasons probably have to do with our banks tradtional dependence on the City of London. They always preferred to deposit passively there, and lent only for ’safe’ property. It was a thoroughly conservative and institutional orientation which retarded economic development here for decades. We don’t trust ourselves enough.

Even though, or perhaps precisely because, they were not state banks in the formal sense, our main banks were able to consolidate, and embed themselves in our state. A seamless web of personal, state and business connections grew up around the powerful clans with family members or close associates in all the relevant sectors. Informal channels is our style.

Creditors to the Irish boom knew they had an implicit but cast-iron guarantee. ‘Solid repectable’ folk exercising their ‘natural’ function and doing what they feel is right. Formal regulation seems unnecessary, as they have unwritten rules of conduct. People who went to good schools just wouldn’t mess with banking, legal or audtiing rules. Now that the secret is out, ‘heads down, close ranks and keep mum’ is the watchword.

Irrespective of the rhetoric, austerity, deflation, unemployment and emigration still is the ‘ recovery plan’. Any other route would threaten our institutions and our dominant players. We have been, and remain a marginal state, so the costs of economic adjustment MUST be crammed down onto the general population. Move on, get along, nothing to see here.

It will be interesting in coming years to see whether education and the decline of religion will have changed that traditional dynamic.

In the mean time I’ll continue to pray for a snap election.

I summarised it as follows:
“So we begin with bank resolution legislation to give us a stick to threaten the bondholders with. Then:

1. Recognise losses (NAMA may have done some good).
2. Haircut subordinates.
3. Recapitalise through NPRF
4. and selling stakes.
5. Wind up Anglo/Nationwide. (OV: FG Plan?)
6. Create third force

Result:
“Overall, this would leave the State with a new investment of some €25 billion or more, cheaper than Nama as planned… [And it] would result in healthy banks and a healthy banking system [instead of NAMA's zombie banks].”

Alternative:
The Neverending Zombified Banks Story
(Author: Mr. B. Lenihan).”

“NAMA is liquidity methadone”
Absolutely. It is not so much pretend and extend, it is more “look over there, I thought I saw the dead corpse of the banking system twitch” shortly followed by “oh dear, it’s bitten the state in the aras and now the state is a zombie too”

Not the European Community. It has a tiny budget and no discretionary taxation or borrowing powers. Presumably the burden would fall on the Eurozone national treasuries, but in what proportions would they participate in the recapitalising the ECB, should the need arise?”

It comes at it from the other angle, who would rescue the ECB, but the implication is clear. It is up to the national government to rescue the NCB…

As I say, burning repo counterparties would be a dangerous thing to do. They do take a risk and take collateral in return, but it is structured as a no-risk situation and the price reflects that. It is a situation where liquidity to other banks would disappear if one of them collapsed. This is, after all, what happened with Bear Stearns.

The reliance, over-reliance would be the only way you could call it, of Irish banks on repo for day-to-day liquidity operations lies at the heart of their failure. They are little different from Northern Rock and this has been evident from the time that Northern Rock got into trouble. Nothing that has happened in the intervening two years has improved that situation one iota. The banks are still gorged on liquidity provided now by central banks (both the ECB and the Irish NCB) at well below market rates. As that dries up over the course of the year something will have to replace it. Something that is acceptable to the interbank repo market. About 54 bn of something.

I have a lot of time for “the progressive and realistic Danes the implicit assumption that senior debt is guaranteed by the government and taxpayers is no longer valid.” Think they were hit for 20%GDP (not certain where) and think we are >50% GDP - but does anyone really know? Open to better informed on these percentages?

@Zhou
“Do others agree that the subbies must be dealt with prior to recapitalisation if losses are to be enforced on them?” Seems to make sense - maybe why some of got out early on a cut.

@LorcanRK
“… the Master Loan Repurchase Agreements with the Central Bank, valued at €10bn last Mar were backed by assets with a book value of €14.8bn.” Anglo! + Book Value = Big Red Flag (add it to sovereign debt via NAMA/ECB bonds] - who can believe what out of Anglo? Call it a ‘time penalty’ for the Gov … and …
@yoganmahew ‘The state is responsible for making up any shortfall at the Irish Central Bank… @ Brain Lucey + Oliver Vandt nuff said. everything to do with Anglo ends up in black hole ……… CB will be burnt ………

@Brian Lucey - go front page of The Sun & The Star Brian …Photo Op etc. the Times readers don’t do revolution ……..

@All …….. good thread ….. we are way beyond polite letter writing ….

1789

If it was viewed as a temporary situation, the ECB could transfer some reserves in, I suppose. But I can’t find an law governing it. The problem is that the NCBs are shareholders in the ECB, not the other way round.

In the event the losses at the Irish Central Bank are not made up, the Irish Central Bank would go bust. The result would be a withdrawal of the marginal lending facility for Irish banks. This, I believe, would see them instantly collapse as they would have no lender of last resort.

(The IT retains its subtle sense of humour)

The fact is, the minister for finance Brian Lenihan made too many promises to senior bondholders at that stage, because he viewed them as part of his solution - to improve the liquidity situation of Irish banks. Bear in mind at that stage, people in Ireland still thought that property would remain stable and in fact recover. That is, it made sense to keep the liquidity on the books, in the form of deposits and senior debt, which presumably balanced up in some far out way, with the Irish banking assets. On the other hand, in early 2010, as Ireland really fights at last for its economic survival, the liabilities presented by bondholders and depositors is actually a problem. We are having to move to that side of the equation, very late in the game. The liabilities are getting in the way, of Ireland assessing the problem of solvency in Irish banks - which in turn in hurting the real economy very badly. What we have really is arrogance on the part of consultants to the government, and to be honest, the government themselves behaved more like consultants than leaders. BOH.