Irish Election are pleased to announce our collection of Irish 
Irish banks on the frontline
Read more about: Economy
Part of the UK’s new short-selling rules is to require that investors disclose short positions in quoted financial institutions. The list reveals that some big investors are looking negatively at Irish banks –
[Wall Street Journal, subs. req'd] Lansdowne and Blue Ridge Capital disclosed short positions in Anglo Irish Bank. Kynikos Associates held a short position in Allied Irish Banks.
On the liability side, we already have Brian Lenihan’s sudden extention of the deposit guarantee scheme up to €100,000. Yet despite the attempts to put a fence around the banks, it’s far from clear that the problems are over. The $700 billion bailout may not pass the US Congress. Even if it does, it might not work. And Irish banks are no doubt being undermined by concerns about the Irish property market, for which the US scheme is essentially irrelevant. Yet another key link in the economy that needs a close look.
The 700 billion is probably greater than the direct lossses on the subprime mess.I estimate that the subprime loss is in the region of 400 million ,if you assume a provision of around 35% against losses on ‘toxic’housing assets.So the obvious question is what is the extra 300 billion for..
How can you solve a problem if you dont know what the problem is.The regulators of the world economies need to establish exactly what is the extent of the problem in companies under their juristiction.Only then can we work a way out!.
Ciarán O’Kelly of Draw Breath has a very good article on the state of Irish banking on Irish Left Review at the moment, and suggests that the problems were:
The current situation with Irish banks has also been highlighted by Morgan Kelly in a series of articles in the Irish Times which were published throughout the year. They make for essential reading and its interesting how he was attacked when he started making the argument back in January.
“Give me control of a nation’s currency and I don’t care who makes the laws”
Everyone who has ever sat in a school history class should know who said this and why. They should also know just how true it is. But they do not tell us such things at school or indeed anywhere else. We had to wait for the world wide web in order to make some sense of the world.
Not for nothing is the “science” of economics known as the “dismal science”.
Each year the questions stay the same but the answers change. No surprise there. Okay agreeing to abide by the rules of a ball game.
But what happens when the owner of the ball walks onto the pitch and takes away the ball?
God be good to poor George Lee.
stevo,
There’s 11 trillion of personal debt in the US. It’s not unreasonable to expect 3 trillion, or more, of write offs. Hence, 700bn will only go some of the way. The hope is that the banking system has enough capital left over to absorb trillions of write offs, with a mere 700bn required to top up the balance sheets of the most troubled banks; but I’m not so optimistic.
If you lend an average person 10 times their salary for a hovel, as happened in Ireland in the end, then you should write most of it off. Much of the English speaking world is in the same bind.
Most of these types of mortgagee were never able to repay the debt. They were paying more than half their disposable income on the mortgage, and were only able to temporarily make ends meet by refusing to pay into a real pension and by running up credit card debts. Their plan was to sell at a massive profit within a year or two and take a profit. But now they realise the obvious truth - they have no pension and massive debts. It’s cheaper and wiser for them to go bankrupt because in due course they’ll be able to spend their income on themselves and on a real pension. In many US mortgages all the mortgage debt is written off with repossession, even if the there was negative equity.
And don’t underestimate the ability of banks to create massive debts between themselves. Idiots like AIG would insure massive debts for a low premium (thanks to stupid ratings agencies) allowing small banks to borrow stupendous amounts of money from each other. Therefore Small Bank A could borrow billions from Small Bank B, lend it to the public or to smaller banks, then have to write some of it off, plunging them into bankruptcy because they were a small bank with small reserves. The lender, Small Bank B, is also screwed and has to write off the huge loan.
And with the various slicing and dicing of repayments possible by CDOs, it’s easy for a single bank to expose itself to hundreds of billions of losses caused by just a single percentage point increase in unemployment. Some banks are incredibly leveraged; its was possible to buy the repayments of the last 1% of mortgagees to repay each month. You might pay 1bn for this, but unless 99% of the mortgagees successfully repay every month (which is very optimistic even in the best of times), the realistic value of this is practically zero.
And you don’t need CDOs to destroy a bank. The Irish banks have massive home grown bad debts coming crashing towards them.
Doh! I should have said ‘mortgagor’ instead of ‘mortgagee’. I was trying to say “most of these types of mortgagor were never going to be able to repay the mortgage”.
As P O’Neill suggests , the US bail out(if it works) will have little effect on us, George Lee and Frances Ruane spelled it out clearly on Morning Ireland—-40 year mortgages on 10 times annual income screwed us and that is Ireland’s problem and no amount of repeating”we are a small open economy”will solve it.
The below link is a clue as to why (and how) the Govt. stepped in to guarantee all of the debt of all of the banks - not just deposits but holders of their bonds, notes etc.
http://www.goyax.de/anleihen/bk-of-ireld-00-10-mtn/anleihe-wkn-452054-isin-XS0107515198-frankfurt-597af.html?span1=MONTH3&span2=DAY1
It is one thing for the share price of a bank to go down but when the price of the short term debt starts heading south, the market believes it may be game over. In theory short term Bank of Ireland debt should have now have the same rating as Irish government debt. The problem is Irish government debt suddenly got a whole lot riskier and therefore more expensive to issue more. And with a ~7 billion deficit, they need to issue a lot more.
Dead right PT. Next stop for us, Iceland?