The March 2009 BIS Quarterly Review provides much fascinating reading. This article by Patrick McGuire and Goetz von Peter provides some fascinating empirical analysis of the funding issues in global banking.
Category: Banking Crisis
Written by Patrick Honohan and Philip Lane, there is a new essay posted on the VOX website that seeks to explain the current state of the Irish economy and recommends a shift in fiscal strategy: you can read it here.
Update: A shorter version of the article appears in the March 1 edition of the Sunday Business Post.
Update: The article is also cross-posted at Roubini Global Monitor.
Here is the International Herald Tribune’s description of the local debate.
Update: The New York Times gives the same article a different headline: “Ireland? Iceland? Doubts on Doomsday Scenario in Eire“
RTE is reporting that private-equity group Mallabraca is interested in offering the government €5 billion for a majority stake in Anglo Irish Bank. Now this might sound like good news and RTE is sort of reporting it in this way (For instance the story on the website tells us that Mallabraca “would assume majority control and share risks with the State” and that “It is understood any proposal that would benefit the State and stabilise the bank could be agreed”) Getting the bank back in to private hands quickly sounds like a good idea and hey that €5 billion sure would come in handy.
Before you go getting too excited, remember the old motto about things that look too good to be true. Anglo is undoubtedly insolvent, i.e. its assets are worth less than its liabilities. This means that no private investor would pay a cent to take them over. So, what lies behind the offer? As always, but particularly with this kind of thing, the devil will be in the details. And my guess is that the details aren’t pretty—that underlying this €5 billion offer from Mallabraca is a corresponding €(5+X) billion offer back from the Irish government of good stuff like over-priced loan purchases, and of course, risk insurance, courtesy of the Irish taxpayer.
Beyond the issue of whether this is a good idea, this proposed deal also raises the question of whether the Department of Finance has already worked out its philosophy on things like risk insurance (and is not really waiting for the conclusions of Peter Bacon and the NTMA) or whether the Mallabraca gentlemen have pitched an offer to the government about what goodies they’d like in return for the €5 billion. Anglo is wholly public-owned and has fully government insured deposits and other liabilities. So, we’re not dealing here with any of the sensitivities associated with takeovers of companies listed on the stock market. Given that, I would hope that the full details of this offer could be made public and open to debate before the government makes a decision.
The banking situation is evolving at a rapid pace both here and abroad with a number of important developments having taken place even since I penned the IT piece linked to below. I thought I’d pass on a couple of comments on what’s going on.