Forget Nationalizing: An Irish Renege on Bailouts?
Call it The Big Renege:
Last month, I discussed what a horrific decision the Irish made when it came to their bank bailouts. They foolishly placed the entire liability for reckless bankers onto the taxpayers.
Well, the Irish voters tossed out the entire lot, and the new government has been looking for an excuse to renege on that deal. It looks like they got it after their most recent stress tests, when the government uncovered a €24 billion ($33.9 billion) capital shortfall:
In a bid to end a 30-month banking crisis that forced Ireland to accept a €67.5 billion international bailout package and contributed to the ousting of its government, Finance Minister Michael Noonan said Thursday that he will reorganize the sector around two heavily capitalized “pillar banks,” Bank of Ireland and Allied Irish Banks PLC. At least three other lenders will be shut down or merged into other banks, he said.
The government already has pumped €46.3 billion into its banks since 2009, meaning the tab could swell to €70 billion if the government has to foot the entire bill. That would represent more than €15,000 for each of Ireland’s 4.5 million residents. Some of the new cost will ultimately be covered by the €67.5 billion bailout, but some funds may also come from either private investors or capital-raising actions by the banks.
Understand that this is about more than merely temporarily nationalizing the banking sector. The absurdity of the panic decision to rescue bankers by screwing taxpayers was simply untenable. The bailouts are pushing Ireland to the brink of insolvency.
Hence, we may be seeing an early look at not only these banks getting nationalized, but a near future reboot: A pre-packaged bankruptcy reorg for every Irish bank.
The alternative is liquidation — of either the banks, or Ireland itself.
Good for the Irish to have finally figured this out! (Too bad we Americans have not)
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Source:
Irish Banks Move Toward Nationalization
DAVID ENRICH
WSJ, March 31, 2011, 4:28 P.M. ET
http://online.wsj.com/article/SB10001424052748703806304576234180828120692.html
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March 31st, 2011 at 5:53 pm
So the French, Enlish and German bankers may have to take a hit? Good! And God Bless the Irish. If only we could import some of their courage to the United States of Goldman and and their cohorts.
March 31st, 2011 at 6:02 pm
‘Too bad we Americans have not’
Many have…. thanks to this site and others. The problem is that the condition of insolvency has been obfuscated by the powers that be in order to maintain the status quo of the banking hegemony. The small tidbit of information out today by the Fed on the emergency lending and other giveaways to the banks should shed light on the massive scheme.
March 31st, 2011 at 6:10 pm
The 70B Euro bailout would be about $7 trillion on US scale. It will cost them about 20K per capita or 80K per household to bail out the European bankers who funded their RE bubble. Their RE values haven’t stopped falling yet so the Euro bankers will be demanding more pounds of flesh from the Irish. Maybe the Brits weren’t so bad after all LOL!
Terrible decision making by the preceding gov, they bankrupted their nation
March 31st, 2011 at 6:24 pm
The Icclanders look pretty smart right now. I do hope the Irish give haircuts and the finger to the big lenders, esp. the sanctimonious Germans.
March 31st, 2011 at 7:02 pm
Liquidate bankers, liquidate bondholders. Boo yah!
March 31st, 2011 at 7:11 pm
…time for a haircut, finally…
…although, ironically, it sounds like a consolidation of the major banks,
…hence, even more so – TBTF – for the few banks left standing…for now
March 31st, 2011 at 7:40 pm
Could it be true? Will the new Irish government listen to the Irish people, the international fiance community, and their own survival instincts and actually tell the irresponsible German, French and British banks that Ireland refuses to be reduced to serfdom due to the foolish lending of the banks, European to Irish banks, and Irish banks to speculative, dodgy builders? Is this possible?
Or will the new Irish government get some minor concession from Europe and thus agree to continue to waste its now scarce revenues on propping up the Irish zombie banks and their European lenders?
We shall see.
March 31st, 2011 at 7:44 pm
Totally agree that Ireland should have followed the Icelandic model from the outset. However, as I understand it, the Irish Banks have already been largely Nationalised with public funds, except for some bonds. If so, would it not already now be “Too Late”?
To that extent also, European Banks holding Irish debt SHOULD already have written down the asset value, were it not, of course for Global Government sanctioned “Mark to myth” accounting standards?
This is all reminiscent of “Musical chairs” and will end the same way, with more Bums than chairs!!
March 31st, 2011 at 8:10 pm
Considering the events in Portugal this week I’d expect the Portuguese to follow and the Greeks will throw in the towel after that. What ever happened to all those Polish mortgages that were in Swiss Francs? Maybe them too, who knows! Germany has been preaching austerity while practicing stimulus, so imho things are going to get very, very interesting for their banking sector and by extension their economy very, very soon. Couple weeks before the shit hits the fan?
March 31st, 2011 at 8:17 pm
For quite a few years now, I’ve been hearing about the socialist Europeans. If they allow banks to fail, and let investors take a well deserved loss, they are more capitalist then we are.
March 31st, 2011 at 8:48 pm
Damn right Bill. I’m so tired of our hypocrite “capitalists.” Good for the Irish.
March 31st, 2011 at 8:52 pm
I love the smell of fear of the Euro banksters in the morning.
It smells…http://www.youtube.com/watch?v=sBksHaTQCbU
March 31st, 2011 at 8:59 pm
Well said, Barry. Bailouts are not a part of capitalism.
March 31st, 2011 at 9:06 pm
…i have some irish in me, f ‘em
March 31st, 2011 at 9:07 pm
…the euro bankers, that is
March 31st, 2011 at 9:56 pm
Good for the Irish! Hopefully other Euro countries will follow suit, as well as us Americans! Neither the banks nor the government really have taxpayers’ interests in mind. We all have to look out for ourselves. these guys have a lot of insight like Ritholtz does, check out
March 31st, 2011 at 10:59 pm
We need a reboot too.
Nationalize the banks, fire the crooks err management.
Rebuild from the ground up.
A REAL Tea Party [ not the fake Koch Joke Party ] against the Crooks at the Top, and NOT Real Americans like Teachers and Firefighters and Police.
April 1st, 2011 at 12:14 am
Happy St. Pattys day all! Toss the snakes out once and for all..
April 1st, 2011 at 1:26 am
Good for the Irish people, I be drinkin’ the Guinness tonight
While they are at it, they should boot the EU the hell out, reboot Ireland by re-establishing Irish sovereignty and start issuing Irish money, with a big FU to the cartel of central bankers.
—
We americans need to take a bold step to demand the gov’t take back control of the monetary system and get rid of our CB insanity. USA is a sovereign nation that issues its own money based on the full faith and credit of the US, which in turn is based on the productive (even unproductive) output of our workforce. There is no need to borrow from anyone to spend.
#1. Allow the Treasury to run a deficit (aka no more bond issuance REQUIRED). Account at Treasury to track accumulated deficits – in reality this would track the amount of money injected into the private sector, increases when gov’t spends, decrease when taxes are received. Not debt based, no interest on money issued.
#2 shut down and phase out US Bond market; Shut down the FED, absorb FED operational responsibilities into the US Treasury. (Replace Geithner with a serious leader for the new regime)
#3 Establish neutral inflation/deflation, maximum employment fiscal and tax policy with automatic pro/counter cyclical stabilizers.
#4 shrink gov’t and focus on attacking waste, fraud and abuse.
April 1st, 2011 at 2:19 am
This is encouraging. It is good to see that people can figure out that a bunch of slips of paper that were sold to them and pretty much shoved down their throats in fraudulent way are not particularly obligatory. They really don’t need to sell their children into literal slavery for a few pieces of paper
C’mon America, it is your turn. Learn…..LEARN!
April 1st, 2011 at 3:05 am
Perhaps my “GOOD BANKS” original proposal made in October 2008 was not a bad idea…Are we now back to the future? Good ideas take always years to be understood…
April 1st, 2011 at 4:08 am
Except it’s not really a renege because there is still no talk of any senior debtholders taking a haircut – the extra €24bn is going to come from the National Pensions Reserve Fund (our rainy day fund), and from the originally announced EU/IMF package. So the Irish taxpayer will continue to carry the can and its associated interest burden for this, and from the point of view of the social and economic future of Ireland it is hard to see how this refusal to ‘share the pain’ is anything but a negative development.
April 1st, 2011 at 4:56 am
http://www.eurozine.com/articles/2009-08-20-graeber-en.html
very relevant for our current times
April 1st, 2011 at 5:07 am
Bueno has it right. Sorry, the liabilities of the banks have already been shifted onto the Government’s balance sheet. So the government could bankrupt the banks and so what? They still owe the money. The horse left the barn long ago.
April 1st, 2011 at 5:13 am
As a regular reader of this blog I’d like to say that it is mildly disappointing to read a post which seems to deliberately misunderstand the relevant article, followed by 18 comments which are either off point or which simply echo the initial misunderstanding.
To recap: the idea that the Irish will renege on the bailouts is in no way supported by the WSJ article and so far has been proposed by Barry Ritholz, but by no Irish minister.
April 1st, 2011 at 8:33 am
Ive never really understood the cries against nationalization that were taking place in this country 3 years ago. If your going to own all the bad debt of the bank, keeping it solvent, you SHOULD own the bank!! Our prescription, to pay full price for the worthless assets via our central bank and then keep asking the public to endure more austere living conditions, is just state sanctioned robbery.
Nationalize the bad banks, keep the lending going to people who need it and can afford it and throw people in jail who can shown to have acted knowingly outside the law.
April 1st, 2011 at 9:03 am
Maybe they will do like the Danes and let the bondholders and rich (>100,000 Euros) depositors get a haircut (darn socialist Danes). I sure hope the Irish look to the US and understand that in real capitalist societies you protect the rich and fock the poor, not the other way around.
April 1st, 2011 at 9:37 am
Fit the Irish taxpayers for tighter hairshirts, the bondholders escape the pain again, 5th restructuring for the dead Irish banks the pattern of private gain at public expense continues unabated.
The combo of falling RE and social austerity to keep the Euro bankers whole will ultimately lead to a national default but apparently not until the bankers have completely field stripped the Irish.The Euro bankers keep making the Brits look better and better!
http://www.irishtimes.com/newspaper/breaking/2011/0401/breaking1.html
April 1st, 2011 at 10:52 am
the way the system-lets call it debt capitalism– used to work was,…..
debt grew faster than the econ for a while,
there was a crisis
there werewritedowns,
and debt shrank compared to the econ for a while
modern debt capitalism–debt grew way too fast beyond any reasonable expectation of cashflow.
On the crisis all the bondholders are guaranteed,
and the debt oustanding doesnt go down– or much.
experts and officials all assure us the debt must be guaranteed, writoffs would be a vast unknown threat.
but there is, curiously, no scholarly or academic support whatsoever i am aware of– none– for this.
OR definition of the threat. i have mentioned my view of the academics before, but be happy to look at anything in its merits. There aint none.
gains from rescue?
the bondholders spend more, and they keep lending in the future at risk subsidized rates.
OR you could just spend those bondholder rescue dollars on tax cuts or “good” works.
That looks better to me on the face of it
April 1st, 2011 at 10:55 am
Write down some of the debt
and you wont be strangled by debt service….
April 1st, 2011 at 12:52 pm
Here’s a peiceless clip of Michael Noonan addressing the Dail last Nov, as Shadow Minister for the Treasury. His party is now in power, and he became Finance Minister:
http://www.youtube.com/watch?v=RO_rSwM4ueE
To the former government, he says, “This budget is the budget of a puppet government, who are doing what they have been told to do by the IMF, the EU commission, and the European Central Bank…”
April 1st, 2011 at 1:54 pm
Priceless, I meant. Sadly, in office Noonan has backed down:
“…Mr Noonan signalled junior bond holders who invested in Irish banks should be hit for €5bn to €6bn in plans to finance the restructuring. But he said Europe was unwilling to budge on senior bond holders – lenders at the top of the repayment queue when a bank fails. The Finance Minister told RTE that the debate on burden sharing for senior bondholders at Allied Irish Banks and Bank of Ireland was now over.”
http://www.independent.ie/business/irish/noonan-denies-reneging-on-election-debt-promise-2604274.html
April 2nd, 2011 at 8:12 am
When those senior bonds are due they should be paid with an IOU. Just give them a bond that has same face value and no interest or maturity date. Then start negotiating with them again and see if they are ready to be reasonable.
April 20th, 2011 at 9:55 am
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