Bailout vs buyout

cerebus

Just came across this tongue in cheek article from the WSJ - covering the merits of a leveraged buy out of Ireland instead of a bailout.

Worth a read, if only for the last line.

http://blogs.wsj.com/deals/2010/11/17/save-ireland-why-not-lbo-it/?mod=djemDeal_h

WSJ wrote:

Save Ireland? Why Not LBO It?
Article
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By Gregory Corcoran

Roughly €110 billion here. €100 billion there. After a while, when does this start adding up to real money?

Today, England’s Chancellor of the Exchequer, George Osborne, said the U.K. is ready to help Ireland tackle its mounting debt problems, as the Continent prepares a rescue that some have pegged at roughly €100 billion, or $136 billion.

That is a startlingly large number. Consider that South Korea’s 1997 rescue package of $55 billion was about 11% of the country’s GDP at the time, as this table from the Progressive Policy Institute from 2008 makes clear.

And the discussed rescue of Ireland is even more expensive, at more than half the country’s estimated 2009 GDP of $227.8 billion and nearly 50% more than the estimated government revenue of $76 billion. Its public debt is 57.7% of GDP, according to the CIA factbook, but its budget deficit is a hefty 14.3% of GDP.

Daniel Patrick Moynihan used to talk about how society had “defined deviancy down” in the decades since the 1960s. Clearly, bailouts have been defined up. Heck, according to Barry Ritholtz, the U.S. spent an inflation adjusted $115 billion in 1947-51 to help rebuild the entire European continent.

And remember, Portugal (GDP: $227.9 billion, public debt: 76.9% of GDP) is waiting in the wings.

At this rate, perhaps it makes more sense to just buy all of Ireland outright. Valuing all of Ireland–its 6.2 million inhabitants, 70,273 square miles, one Dublin Castle and the St. James Gate Guinness Brewery and the whole shebang (but with discount for the discouraging loss of Waterford crystal–at its book value (annual GDP), makes it possible to construct just such a scenario. The €100 billion would be more than a 50% equity component, in keeping with the higher ratios being employed by private-equity firms these days. One would have to, um, borrow the rest, and then build a business case that justified even more debt.

Using the private-equity model, one could start by splitting up the country’s hundreds of islands. Sell off the underperforming (or uninhabited) ones. Lay off 10%-20% of the government workers. Maximize the value of the remaining property, one of the more literate populations on earth and what’s left of the more than 850 miles of coastline on one of the most beautiful seas in the world. In three to five years, flip it.

England certainly showed an abiding interest in the past 500 hundred years.