Interesting video clip. Hadn’t seen it in a while. BOH.

http://designcomment.blogspot.com/2010/11/foreman-on-canvas.html

I don’t think the rating agencies give adequate consideration to bank liabilities. More lip service than modelling. ‘Risk committee reviews’ type fudge. I agree that the US have a system that mitigates much of this risk. Certainly the prevalence of bond issuance helps as much of the risk has been removed from bank balance sheets.

I wouldn’t agree that Ireland was the exception. UK? and others.

Ms Sarah Careys comment does have weight. The term “we all partied” does not necessarily literally mean what it says. I suspect that in this general sense “we all benefitted as a collective entity”. Banks could give away cheap credit, property boom ment that more lower paid workers could be removed from the tax net, social welfare benefits increased etc etc.

Obviously as you mention there were certain areas such as Cystic Fibrosis sufferers who were ignored, so there were some areas which could not party.

Moving forward to the present and looking back now (hindsight being a great thing and all that) I am not too sure if we really benefitted at all. A lot of people are locked into huge mortgages for small substandard pokey apartments / houses etc. Money is now tight and getting tighter. Some people are not only losing their jobs, but their house. Unfortunately the strain of which is also putting some marriages at risk. Dare I say it but some people adopted the final solution and have taken things into their own hands.

“this was our own fault” means (as i am sure you well know) this was the fault of the Irish state for not properly regulating its banks.

I reject Sarah’s “1. This was our own fault”. The notion that “ah sure we all partied and everyone’s to blame not just the guys making the decisions” makes me uncomfortable. Many OAPs were living in desolate conditions during the boom and cystic fibrosis kids suffered. They didn’t party.

Dave McWilliams took certain credit for the guarantee idea and said it was basically a bluff&the bluff’s been called. The political spin has not helped one iota as the guarantee has had the opposite effect to what they claimed “stable banking system” etc.

Alan Dukes hinted on VinB a few months ago that if the guarantee wasn’t given or if Anglo was let go to the wall then this would somehow be seen as sovereign default and borrowing rates would shoot up somehow by proxy. I can’t being to even contemplate the thinking of some of the guys in the system. The shitstem.

I think UBS is still on a bit of a shaky scraw with its US exposure and most of the Swiss banks seem to be exposed to the property bubble that is ongoing (according to the NZZ 67000 new apartments build this year, fed by incredibly low interest rates) so maybe we could leave it to the Scandinavians.

It won’t stop at Spain. The usual suspects for contagion would be the German landesbanken which are carrying stuff at par from previous crises. I would also worry about one or two of the French banks & insurance companies given their cultural prediliction for derivatives, the carry trade and exposure to exotic places. The Austrian banking sector is also in the firing line. The safest banks in euro are the Scandis and the Swiss. At least policy makers are rational in these countries.

Paradoxically, the US lage cap banks are safe. The loan books are now deposit funded due to the Fed buying up most of the mortgage books in QE1. They also raised a ton of capital and the economy seems to on the up due to loose policy & a competitive currency.

How are the banks in the core EZ states regarding Q1 funding? Eoin mentioned 2 trillion for the whole of the EZ over the next 2 years I think.
Everything is linked through the glory of diversification. Why would it stop at Spain ?

The banks in the US are in no better shape either, judging by their addiction to QE.

(http://audiovideo.economist.com/ - look for “Ireland’s economic troubles” in the second row.)

wind up Anglo, INBS & burn the subbies in AIB.

I doubt it matters though. I suspect the markets will doubt the inability to pay and force Irish yields over 10%. Portugal then heaves into view & Spain starts heading for 6%. The Spanish banks have huge Q1 funding requirements.

I think we are looking at a potential banking crisis unfolding in Europe.

The ECB is going to have to get off the fence. Either it is going to do something about the problem or it is just another creditor.

I suspect liquidation for Anglo and INBS…

If you read my post properly you will see that my ref was to BBVA Spanish book having an L-D of 200%.

essentially, you are seeking to exonerate the ECB/Ecofin etc of culpability in the Irish crisis by blaming it on the dumb Paddy who granted an incredible guarantee to his own banks and bankrupted his own country.

I try to deal in facts; I spend quite a lot of time at it; not a lot of people bother including I would think the majority of journalists.

For example when the Innovation Taskforce produces a report based on aspiration and opinion, I try and counter it with facts.

It’s the same here - - I am an outsider as I was during the bubble as the facts suggested I should be: some were even crazy at the time– an overstretched developer buying part of the hq of the then biggest bank in the country.

The ECB had no power to force the state to absorb losses of the private Anglo Irish Bank.; if the Eurogroup had insisted on it, then it would have put itself on the line.

By issuing the guarantee without any consultation, Ireland left itself exposed.

We nationalised Anglo without raising the issue of burden sharing; why would others volunteer to help?

BBVA’s loan to deposit ratio in Q3 was 141% but it and Santander remain strong banks.

But the guarantee? Well, that’s a different story.

essentially, you are seeking to exonerate the ECB/Ecofin etc of culpability in the Irish crisis by blaming it on the dumb Paddy who granted an incredible guarantee to his own banks and bankrupted his own country. The second pary of that sentence is certainly true. The granting of a blanket guarantee to a “known to be” insolvent bank was little short of treason.

But there is a big flaw in your logic. If the Eurocrats thought that the guarantee was going to bring down the Irish state and render it insolvent, they have had two years in which to intervene and demand a resolution regime and a scheme of arrangement with creditors. They have also had an oopportunity to let the guarantee mature and not replace it. Instead the Commission approved new ELGs which still protect seniors. Moreover, we are led to believe that the IMF are at loggerheads with the ECB over the issue of burden sharing. I presume it is a yes/no argument rather than a 20/30% argument.

Your logic proposes that if the guarantee did not exist we would have put Anglo and possibly AIB into resolution and reached a scheme of burden sharing with bond holders. But this logic fails because this is precisely what the ECB has never wanted. Every time the issue of seniors is mentioned, the bond vigilantes play “who’s next” and this scares the living daylights out of the powers that be.
Three years into the crisis one of the good Spanish banks BBVA has a loan deposit ratio of 200% in Spain while the two well managed French giants are at 150%. All are hugely dependant on volatile wholesale funding (lots in USD). So any action which raises issues on quantum and price of this funding is very damaging for the EZ financial system.
That is why the Eurocracy was happy that the Irish taxpayer took one for the team to preserve the system.

There was no official ECB policy in Sept 2008 on issuing blanket guarantees and neither had EU finance ministers promoted it.

Ireland was the ONLY Eurozone country to issue a blanket guarantee and a week later Denmark made a similar move.

According to the IMF, the median across 12 advanced countries of government-guaranteed debt issued by banks during the crisis or in the case of Denmark/Ireland including existing debt, was about 6% of GDP.
In ascending order, US (2.5% of GDP), Germany (3%), Portugal, Spain, France, Austria, Sweden, Netherlands, UK, Australia, Denmark and Ireland.
Denmark’s exposure was 20% of GDP and Ireland was the outlier with an exposure of 55% of GDP — all the others had an exposure below 10%.

See chart here:

http://www.finfacts.ie/irishfinancenews/article_1017903.shtml

The news on the Irish guarantee was presented as a fait accompli to the ECB, Ecofin and Eurogroup heads on the morning of Sept 30, coinciding with the issue of the news to the markets.

Once the announcement was made, it would have been very difficult to reverse it.

As regards the Lenihan-Trichet phone conversation, as I said before, I doubt if Trichet gave the go-ahead on a blanket bailout. Unlike his gaffe-prone predecessor, he is always measured when speaking on policy issues.

This story is akin to a unit of a multinational making a major decision without any consultation with headquarters but assuming that everything would be grand because of a conversation a week before with the CEO.!

Decisions made in a panic situation seldom turn out right.

The banks had access to the ECB’s emergency liquidity program which was in place since Aug 2007.

The unlimited deposit guarantee could have been issued and the issue of guaranteeing debt could have been discussed with the ECB in a calmer atmosphere.

If the blanket guarantee was issued to save Anglo, it was an absolutely reckless move to make in the absence of detailed information on the state of the bank.

Remember the context - - yes the crisis had intensified in the previous 2 weeks after the collapse of Lehman - - but it had been 13 months since the onset of the credit crunch; the world’s biggest insurer had to be rescued by the US government and the prospects of an Irish soft landing had evaporated and what did the Department of Finance have?

A Sept 18th PowerPoint presentaion prepared by Anglo and the financial regulator chanting his mantra on ‘resilient’ banks.

Forgive me if this is posted elsewhere, it looks too good to escape attention.
I could not find a podcast of his radio interview Saturday morning.

http://neweconomicperspectives.blogspot.com/2010/11/celtic-chimera.html

Bill is a victim of his own success in the savings and loan but we could do with him.

Are you on the bandwagon then?

http://media.newstalk.ie/podcast/21519/popup

No doubt M. Trichet has a private number, so that’s why neither Lemmy nor the rest of the jaffas in the DoF rang him back to ask “howdja mean?” and to add “shure we can’t save Anglo or INBS boss, they’re wrucked”

To be credible, that as a basis for the guarantee would have to assume that the minister and the DoF were knavish fools.

1. This was our own fault
2. The guarantee really bugged the furriners.

BUT

3. The consistent line from Dof to ALL queries about ALL aspects of their crazy policies was ” but we have to pay back the German credit unions”.

AND

4. The negotiations going on right now don’t appear to be between US and THEM but the IMF and the EU. The IMF want their money back so want to charge us a lower interest rate and make bondholders share the burden. The EU wants to contain contagion, protect the euro and pay back the german credit unions.

So all furriners are not the same, but some furriners are worse than others.

And furthermore

If they’re so clever, and warned us so often about our crazy credit explosion and property bubble, then why did they buy the bonds? and why should they get their money? And don’t they have it insured anyway?

I’m just saying - either they were virtuous and right and good conservative wise Germans who didn’t make the same mistakes as the Irish or just as greedy as the Irish sinners and bought the bloody bonds thinking they were onto a good thing? Do they get to have it both ways?

hic.