Ireland Goes Bust

[Jan Klimkowski]

How very neighbourly of Baron Osborne the Ascendant One:

UK could make £440m from Irish loan

Updated: 15:37, Wednesday, 15 December 2010

The British Chancellor has told MPs that the loan of £3.25 billion to Ireland will be paid in sterling.

The British Chancellor has told MPs at Westminster that the terms of Britain's bilateral loan to Ireland were finalised between the two governments this morning.

George Osborne told the House of Commons the loan of £3.25 billion (around €3.8 billion) will be paid in sterling so that Ireland will have to bear the exchange rate risk in the coming years. Mr Osborne confirmed that the loan would be repaid in sterling.

Read more information on the terms here

The loan will be drawn in eight tranches, each tranche will have a seven-and-a-half-year term.The first tranche is not due to be drawn until September 2011.

The interest rate will be individually set for each tranche at the time of drawdown of that tranche.

The Chancellor said he estimated that the interest rate for the first tranche would be 5.9%. Interest will be charged every six months.

Mr Osborne said the bilateral loan to Ireland would not add to Britain's fiscal deficit and would earn its public coffers £440m in fees and interest.

'If Ireland takes out all the loan that is being made available to them, pays it back with the interest that has been forecast, then they would pay us £440m in terms of fees and interest,' Mr Osborne said.


Mr Osborne said the loan could be adjusted slightly to reflect foreign exchange moves, but not increased substantively unless the government sought the agreement of parliament beforehand. 'I have no intention at the moment of doing that,' he stated.

http://www.rte.ie/news/2010/1215/britain2-business.html

[Peter Presland]

How very neighbourly of Baron Osborne the Ascendant One:

All I can say is that the "Sheeple" status of the mass of the Irish population is no different from our own. Our Lords and Masters will do all they can to present UK actions as generous assistance to a beleaguered (and soto-voce feckless bog-trotting) Ireland and the Britsh Sheeple will lap it up.

The Irish are being Royally screwed and they'd better wake up fast or they'll very soon find themselves back as a vassal British (and Euro-Elite) Dominion once again.

[Magda Hassan]

Almost all foreign aid of any kind is aid for the donor country and their corporate masters with a smiley face.

[David Guyatt]

Well, look at it this way -- it is both our, and Paddy's, assigned duty to keep the filthy, crooked rich in Tehran caviar and vintage Dom Perignon and to pay the bunkering and vittling costs of their luxury super yachts.

[Peter Presland]

Well, look at it this way -- it is both our, and Paddy's, assigned duty to keep the filthy, crooked rich in Tehran caviar and vintage Dom Perignon and to pay the bunkering and vittling costs of their luxury super yachts.

... all the while being systematically stirred up to hate and ridicule the "Bog Trotters" or the "English Oiks" - depending entirely on geography of residence and assumed allegiance. And the problem is that the mass of both populations remain so easily and gullibly stirred, so that that their ire falls on each other rather then its deserving targets.

It reminds me (for example) of the apoplexy aroused by the campaign against so-called 'benefits scroungers'. In their justifiable indignation against such an alleged cohort, nobody, but nobody seems to notice that the money allegedly saved from such ballyhoo-ed "crackdowns" is a pittance compared to what could be raised from an almost trivial tax on wealth (and especially uber-wealth) while those in genuine need are put through ever more draconian hoops.

But attention is diverted - which of course is the real motive behind such campaigns. It is a constant source of amazement to me just how simple it is for our Lords and Masters to create such diversions. A snap of their fingers with appropriate populist emotional buttons duly pressed and the papers are full of it, wall-to-wall for days on end while the real crooks just cruise merrily on their way.

[David Guyatt]

Oh, naughty, naughty Ireland.

Endlessly buggered and raped and traded into perpetual servitude to suit the wealthy elite, it must now increase taxation to deter business, and so sink further into debt.

Sarkozy, you little sweet thing you.

Sarkozy calls for corporation tax hike in Ireland

Ireland should not be allowed to benefit from EU aid while maintaining its low corporation tax rate, French President Nicolas Sarkozy has said.

"I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profit, that is half of what other countries have," he said.


President Sarkozy has said the euro is "too strong" against the dollar, weakening French and European exports as a result.

Ireland received the first €5bn in bailout funds this week, as part of an €85bn rescue package agreed with the EU and IMF in November.

The Irish corporation tax rate of 12.5% has been criticised by governments on the continent who resent the amount of inward investment the Republic has attracted since the 1990s.

Sarkozy also said the euro is "too strong" against the dollar and that the exchange rate is hurting French and European exports.

[Danny Jarman]

for what died the sons of roisin was it greed?

[Magda Hassan]

Oh, Danny Boy, I think you are right. Thought they didn't know it at the time.

[Jan Klimkowski]

So let's do the math: ICB "money printing" has increased by €40 billion. For a country whose GDP is about €160 billion, this means that Ireland has printing the equivalent of 25% of its GDP. Put in American terms, this would be the equivalent of about $3.5 trillion in 3 months.

Capital flight and reckless printing of money.

It's not looking good for the Irish people:

Accelerating Deposit Flight In Ireland Forces Irish Central Bank To Print Money Independent Of ECB

Submitted by Tyler Durden on 01/16/2011 10:13 -0500

It appears that Irish savers are sufficiently smart to realize that their money is no longer safe in a banking system whose existence is now only backstopped merely from referendum to referendum. As it is very unclear what will happen to the IMF/ECB rescue mechanism once the Irish election is held in March, with a material possibility that the whole plan will be unwound, leaving the country's financial system in the wind, a behind the scenes bank run is accelerating. Incidentally while this was the topic of the December letter by Guggenheim's Scott Minerd, which we discussed in a post titled "Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations", his just released January missive deals with precisely the same topic (see chart below). So faced with the prospect of accelerating deposit redemptions, what does the Irish Central Bank go ahead and do? According to the Independent it has gone ahead and proceeded with that traditional recourse to all regimes in the bring: print money. "The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money." In other words, whereas Ben Bernanke may be 100% confident that US inflation courtesy of POMO and inflation printing will be absorbed by the "massive" excess slack in the economy (oddly enough it wasn't in Tunisia, as food prices hit records despite surging unemployment), we wonder if he feels the same way about other countries in the world, which are already part of a monetary union, yet which have decided to boost the "other assets" line in their balance sheets.

(snip)

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.

What is the ECB's response to learning that its own member countries have essentially detached themselves from the ECB monetary mechanism?

A source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.

The volume of those loans surged from €95bn in August 2010 to €136.4bn in November, as Irish banks repaid their bondholders without being able to refinance in the private sector. The ECB loans prevented banks that could not raise funds from the private sector running out of cash after repaying their own lenders and meeting deposit withdrawals.

So let's do the math: ICB "money printing" has increased by €40 billion. For a country whose GDP is about €160 billion, this means that Ireland has printing the equivalent of 25% of its GDP. Put in American terms, this would be the equivalent of about $3.5 trillion in 3 months... In this context we wonder just what the ECB considers "systemically significant."

Tangentially, speaking of "other assets" we can't help by note what we observed during our last comment of the Fed's balance sheet. At $114.480 billion, it may behoove someone to inquire just how the Fed has well over $100 billion in "Other Assets" and what is contained in there. The chart below shows how this number has grown. Frankly, for all we know this could be shares of Amazon and Netflix stock. After all, these are "assets" and they most certainly are "other."

(snip - charts at original url)

There is a plethora of proof that the crisis isn't abating. Greece's long-term issuer default rating was just cut to junk by Fitch with a negative outlook. In addition, the problems in the Irish banking system continue to expand. In November alone, 27 billion euros of domestic deposits (5.4 percent of the total deposit base) fled Irish banks. Total deposits were down 15.1 percent year-over-year and deposits from non-Irish residents declined 28.6 percent. Keep in mind that the crisis in Ireland didn't broadly surface until late in November. I realize that I said the same thing last month about the situation in Ireland, but with data trending like this I cringe thinking about what the next set of monthly data may reveal.

In other words, just like investors in US stocks, so depositors in European banks refuse to be lied to again. And the more money printed by the ECB (or regional banks as we now learn) as a response to deal with this capital shortfall, the greater the inflation threats will be across Europe. Of course, these will merely reinforce already validated inflation in Africa, and most certainly Asia. And somehow the US government and Ben Bernanke is expecting anyone to believe that just because the highly irrelevant Core CPI is flat that America will not be next?

http://www.zerohedge.com/article/acceler...rint-money

[Jan Klimkowski]

As the Irish people get screwed by the bankers again - 70 billion euros is equivalent to almost half of the Irish economy's annual output, or about 17,000 euros per Irish citizen - and the senior bondholders and bond markets demand their kilograms of Irish flesh, it's clear that Ireland has only one viable option. Default.

Here's Market Ticker's Karl Denninger's pithy version:

Irish Citizens: Tell The Bankers To Pizz Off

IRISH REGULATOR SAYS FOUR BANKS NEED EU24 BLN MORE CAPITAL

Where 'ya gonna get it?

Your entire GDP is $200 billion, more or less. That's about €142 billion Euros, which means that the banks "need" about seventeen percent of GDP infused into them in new capital.

I wouldn't do it. You shouldn't do it. That's insane.

The proper position is to tell the banks to **** off. If this results in their bankruptcy (it will) so what? Toss 'em all out. New bankers will show up; it's called entrepreneurship and it's a good thing, not bad.

If you allow your government to bail these jackals out you're dumber than I thought.

Advice to the Irish: Go drink a pint - or some of that excellent Irish Whiskey - and then show the world that you have a pair of balls and will send these banksters to where they deserve to go.

http://market-ticker.org/akcs-www?post=183327

And Golem XIV's more considered analysis:

Ireland, Greece and Portugal should Default

Ireland, Greece and Portugal should all default on their debt.

The problem with saying that is that as soon as you do, a great clucking flock of Chicken Littles come speeding out of their corners, kicking up dust and confusion and drowning out any attempt to discuss the issue beneath a frenzy of shrill cries of "Don't listen to the madman. If you do the sky will fall on our heads. All the banks will burn down, the ATM's will all stop working, our houses will be re-possessed, all our pensions - OH WOE! - all our pensions will be seized and eaten by a rampaging army of angry vengeful Bond Holders and we will never, ever in the whole future of the universe be allowed to borrow money from the bond market ever again, till the end of time."

So before they get here I want to say the sky would not fall in. There is, in fact, a history of sovereign default and restructuring of debt and there are recognized and tried methods for doing it. Those countries that have, Mexico, India, Russia, Argentina, Ecuador to name only a few, are still with us, are able to borrow on the bond markets and generally the sky did not fall on their heads nor on ours.

Somehow the word default has come to be for nations a bit like suicide is for people: terminal and immoral because of the misery it causes to those left behind. We must stop listening and believing those who take this view. They do so because it profits them for us to be afraid of default.

Greece can and, I argue, should default and sooner rather than later, for the reason that it is going to anyway. The bond market knows this. It has been made almost explicit in the newly agreed European Stabilization Mechanism (ESM). The ESM was the product of German and French negotiations for how to augment the EFSF (European Financial Stability Fund) with something more believable and long term. But in the ESM there is the explicit agreement, which Germany insisted upon, that for bonds after 2013, some bond holders would be expected to share in any future losses on these bonds. Which has led to an expectation that 2013 marks the moment at which it will become accepted that Bond Holders in general should take losses and that this might well become retroactively applied. None of this is in the ESM but it is widely expected. And if these expected things came to pass, then Greece would be 'free', perhaps even encouraged, to restructure its debts by making bond holders take their share of the losses.

So default is already on the table it just has a thin cloth politely draped over it for now. Because it is on the table the bond market is, in a way, already pricing it in and that is helping to push up the costs of borrowing NOW for Greece, Ireland and Portugal. Thus it would simply be better for both the Greek and Irish people and perhaps also for the Portuguese, and for the broader Bond market if they all got on with it . Of course it would not be better for Germany nor France and that is the hold up.

Germany and France are trying to put off the moment when their banks will have to deal with more losses. They would rather have a few more years when their banks might raise more capital or make more money or, or...something. And of course it is fine for them to put it off. In the interim it's not their people who are suffering. It's the Irish, the Greeks and the Portuguese.

It would be far, far better for the Irish and Greek people to default because they have already entered a terminal downward spiral last travelled by Zambia. Zambia, was forced principally by the IMF, at the point of a financial bayonet, down the road of crippling austerity cuts and trying to service a debt that grew faster than they could pay it off, forcing the country ever deeper into debt, not getting it out of it at all. The IMF did not care and did not allow any deviation. In the end the IMF's diktats caused Zambia's economic output to collapse by 30% and instead of this solving its debts it caused their debt to GDP burden to double to 150%.

The IMF has learned nothing since then. It is ideologically and intellectually moribund but sadly still very powerful.

SO... Ireland, Greece and perhaps Portugal should default. The questions then are: How, who decides how much, and what happens then?

Recently a campaign has been started in Greece and now in Ireland as well for what is called a Debt Commission and Audit. The idea is simple and has legal precedent. The nation which decides to restructure its debt forms a Debt Commission. Such a Commission is generally made up of experts in debt, bond and Swaps contracts, forensic accountants, prominent civil servants, members of various civil society groups (Charities etc), interested NGOs and representatives of Labour Unions as well as employers organizations. Such Commissions have to be nationally based with wide and varied roots in the broader civil society. A wide representation is essential to prevent it becoming the tool of any one group.

The purpose of the Commission is first to simply find out who is owed and by whom. What debt was private, what public and in each instance what was the debt for? Would you like to know what debt has been bought by the Bank of England, or the Fed or the central Bank of Ireland? I would. Or what debts we are insuring? I would, considering I am personally expected to pay for it out of my taxes.

The Commission's next job is to establish if any of that debt was Odious, Illegitimate, Illegal or Unsustainable. Each of these has legal standing and precedent and each is enough to send a cold shudder through board rooms of banks and their lawyers. For we already know, from a small tidal wave of cases pending in the US alone, that fraud there was. Lots of it. Many cases have already been 'settled' out of court. Time to close the option of settling on the court house steps and haul the malfactors into the public dock. Banker bashing? Those involved in fraud are criminals. Criminal bashing - You bet!

Odious debt is debt that was taken on by a former government that was in no way in the interests of the people or nation and which the people under a new government should not be asked to pay. The USA was considering using the idea of Odious Debt to clear Iraq of Sadam's debts. In the end, when they realized this could open a can of worms for 'people' who were still their friends, they reconsidered.

Illegitimate debts are when debts were taken on that are palpably contrary to the well being and interest of the people. For instance, bailing out Anglo Irish Bank, in which the Irish people had no deposits nor interest, would likely be found to be Illegitmate.

Illegal debts are those where fraud was involved in the selling and buying of the debt. This could be fraudulent mis-selling, by not making clear the risks or liabilities etc. Many such cases are pending against the big banks right now in both Europe and the US.

And the most contentious, Unsustainable debt, is when debt was legally taken on, by a legitimate government but where repaying the debt would cause great harm to the lives of people in the nation who were never involved in the taking on of the debt. An example would be bailing out banks with public money who had made bad loans to some of the people but not all. Such debts cripple the lives of people who were never part of the debt and property bubble but whose taxes and savings are being plundered to bail out those who were, and the banks who encouraged them.

Can such a Commission actually work? One already did in Ecuador. The Ecuadorians had a free and fair election. The winner won on a platform of debt restructuring. He formed the Commission. The Commission found a lot of the debt was Illegal and Immoral and the Ecuadorian government therefore said flatly it would NOT be paying. The price of its bonds collapsed. Once its debt was trading for a few cents on the dollar the government then bought it all back. Meaning it paid those who were holding its debt only a few cents on the dollar.

What happend then? Surely the sky fell in, and Ecuador was never allowed to borrow ever again? Well actually nothing of the sort. You see the there isn't any evidence that nations get locked or priced out of the bond market after default. There is a short term spike and then a fairly rapid return to a rate that is in line with the FUTURE prospects of the country. Sure, the country defaulted and some of the bond market players lost money. but not all. And those who didn't lose are likely to simply say, 'glad it was them and not me, but now let's talk business, shall we?'. The fact is, once a country has got rid of its debt overhang and, as a consequence, is much better placed to do well in the future, it becomes a much better prospect for lending to. The market isn't monolithic and has no loyalty to its own. Think of the Bond Market as a tank of exceptionally greedy gold fish. They are 'short' memory and 'long' greed. They swim up and down looking only forward and forget what happened five minutes ago. Goldfish Sachs.

Ecuador defaulted and within just a few years was back in the market selling debt. The rate wasn't punitive but in line with its actual economic prospects which were improved by having rid itself of much of its old debt. Greece and Ireland would do well to take note.

Of course there would be massive opposition from the IMF, the EU, ECB, Germany on behalf of its banks and France on behaf of its banks. But you know what? A government is supposed to put the interests of its people ABOVE the interests of banks, bankers and Bond holders.

What about Pensions? Pensions will do worse if our economies stagnate for a decade trying to pay off debts they cannot afford to pay, than if they take a huge loss now, AND THEN find they are in better, sounder financial shape going forward. This is what the bond market will think too. As noted above, the bond market players themselves will look forward not back and simply see that going forward the nation that has defaulted is now in better shape to make everyone a profit than it was before. Growth is what sustains pensions NOT paying off old debts. You can't and won't grow if your economy is weighed down paying debts. That is the position we are in now and look at how every nation is reducing its estimates of growth. Portugal just revised their negative growth to be even more negative. There is a hint in there somewhere.

And lastly, the contentious notion of declaring perfectly legally agreed upon debts to be 'Unsustainable'. Surely this is just some woolly, do-gooder, semi socialist notion dreamt up by financial fat heads? Actually it is just saying that just as there are laws against usury for people so there should be for nations. A nation can, because of greed, stupidity or getting advice from bankers about how prices will 'never go down' and 'it's different this time' get in to debt that cannot be paid off. Companies that do it declare bankruptcy all the time. No one bats an eye.

Nation's don't get in to unsupportable debt on their own. Banks and bond holders have to help them. In the standard theory and legal practice of lending it is the duty of the lender to monitor the borrower to make sure too much debt is not being taken on. Lenders to Europe never bothered. Caveat emptor. Don't think you can lend and lend and then tell the debtor it was their fault for taking on too much debt. True they did. But it's also true the lender helped them. Both are at fault, both take the consequences.

You can find out more about this subject and make contact with those running the Debt Commission campaigns in Greece and Ireland here

http://golemxiv-credo.blogspot.com/2011/...hould.html