Bailout situation (plain English anyone?)

Mr Marston

I tend to steer clear of news items regarding the financial crisis. I listen to a bit of Matt Cooper, George Hook, and an occasional bit of the Frontline but I've really been none the wiser as to the actual situation. Apart from "we're all fooked 'cause of the banks". Anyway, I came across an article on Yahoo US that I felt I must share. 2 minutes reading and I know more than a couple of years worth listening to Cooper and Hook. Apologies if people feel this has been done to death.

http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0

You may not have to worry about Ireland in a week, or a month. But at the moment, the Emerald Isle is causing global investors a whole lot o' anxiety.

On the surface, it's reminiscent of the problem Greece had with its unmanageable federal debt early this year, which shook world markets, ended a global rally in stocks and ultimately led to a $146 billion bailout by the European Union and the International Monetary Fund. Greece spent more money than it took in for years, papered over the gap, and essentially became insolvent when it could no longer borrow the money needed to finance its debt.

Ireland is on the brink of insolvency too, which has helped drive down the S&P 500 stock index by nearly 4 percent over the last few days. But unlike Greece, Ireland is a relatively wealthy country, with per capita GDP of nearly $38,000. That's 21 percent higher than per capita GDP in Greece, and in the top third for European countries. Low corporate tax rates and a skilled workforce have made Ireland a haven for some of the world's biggest companies. And its public debt, about 65 percent of GDP, is far below Greece's crushing load, which is 126 percent of GDP. Ireland's debt levels are even lower than those in France, Germany and the United Kingdom.

But Ireland has one huge problem that may soon make it a supplicant to its European brethren: A failed banking sector that Ireland's government can no longer rescue on its own. Ireland is in the midst of a real estate bust that could trump even the ruinous downturns that turned parts of southern California and Nevada into suburban ghost towns, with home-grown banks stoking it all. Now, those banks are trying to manage catastrophic losses. The Irish government has effectively nationalized the nation's biggest banks by guaranteeing their debt, which would be akin to the U.S. government taking over Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo.

That means the Irish government is also on the hook for the losses those banks endure--which have risen far beyond initial estimates, and may have a lot farther to go. So far, the Irish government is obligated to cover losses amounting to 175 percent of Irish GDP, which is becoming an unsustainable burden. "If the Irish banks go down, the Irish government also goes down," says economist Jacob Kirkegaard of the Peterson Institute for International Economics.

As estimates of Irish bank losses have gone up, pressure has mounted on Ireland to do something decisive--and panicky markets may now force a solution. Ireland wants the European Central Bank to continue lending money to Irish banks at low interest rates, but the ECB has different ideas. Inflation has been creeping up in Europe, and the central bank said recently that it wants to end its program of pumping liquidity into banks, not continue or expand it. Cutting off those loans to Irish banks could force defaults, which the Irish government would have to cover or essentially be in default itself. Germany, meanwhile, wants to hurry a bailout of Ireland, to prevent worries about sovereign bonds from spreading to Portugual or Spain, which would be a much bigger problem.

A European bailout of Ireland would be manageable, and probably cost less than the Greek rescue. But Ireland doesn't want it, because the EU and IMF would force austerity measures onto the island nation that could effectively end its appeal as a business-friendly nation with a high standard of living. Since Ireland is wealthier than other European nations that would essentially be lending it money, social programs would end up gutted, and taxes would soar. And Ireland's 12.5 percent corporate tax rate--one of the lowest in the developed world--would almost certainly go up, taking what's left of the roar out of the Celtic Tiger. If multinational businesses abandon Ireland, it could fall quickly down the list of Europe's most prosperous nations.

The standoff is what worries the markets, since a protracted bailout battle darkens the clouds over Europe's other deeply indebted nations. Portugal and Spain aren't in serious danger of default at the moment, but as Ireland's cost of borrowing goes up, so does the cost of borrowing in similarly stressed nations. That gets passed through to businesses operating in those countries that do need to borrow money--and they could face more urgent funding needs than their own governments in the weeks ahead. That's how Ireland's problems ripple outward to other indebted governments, the real economy and ultimately to the global stock markets.

A bailout might seem tough to swallow in Ireland, but it would most likely calm global markets. Moody's Analytics points out that there's plenty of money available for a bailout, and also that the ramifications of a sovereign default are so severe that even nationalistic politicians would never let it happen. "We still believe the probability of default by a euro zone member state within the next two years is not significant," Moody's wrote in a recent analysis.

Kirkegaard of the Peterson Institute sees three possible options. One is that a large bank, probably in Asia, could sweep in and buy up the Irish banks, if it got sufficient guarantees against losses by the Irish government. Prognosis: Unlikely. There's also a tiny chance that the European Central Bank will change its policy to accommodate Ireland. But that's even more unlikely.

What's most likely is some kind of Irish bailout, with tough negotiations over when it happens and the conditions Ireland must agree to. Ireland will fight hard to put off a bailout--at least until parliamentary elections on Nov. 25--and to retain its right to make its own fiscal decisions. But Ireland's luck may be about to run out, with other European nations likely to insist that Ireland face austerity measures at least as tough as those in Greece. Maybe tougher. "That would have very signficiant long-term growth implications for Ireland, and other euro zone countries know that," says Kirkegarrd. "But given the politics of bailouts, that simply doesn't matter." After all, there may be other bailouts that need to be addressed.

mikom

In my day a bailout was what a Welger did.

James Bong 79

please.....no... seriously please stop......:rolleyes:

conno3001

Ah, now I get it.

We really are f**ked. Thanks for the handy link anyways.

Biggins

conno3001 wrote: »

Ah, now I get it.

We really are f**ked. Thanks for the handy link anyways.

Here's another one/two!

http://www.ehow.com/how_4898789_build-underground-bunker-shelter.html

http://www.ehow.com/how_6114805_build-underground-bunker.html

I'm thinking sooner or later we might need one! LOL

karlog

AHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!

chucken1

NOOOOOOOOOOMOOOORRREEEEEEE

K-9

That's a decent summary actually!

Any Rich Saudi Billionaire's out there?

chucken1

http://www.studentcook.co.uk/HowToCookPotatoes.html

Biggins

Some lame bank jokes.

I walked into the bank with stick of butter and said "Stick 'em up!
Give me all of your bread."

I went to the drive-thru teller window and the teller said, "Would
you like some fries with that?"

I took my wife to the bank to tell her something, but the teller told
her something instead. So I let the teller teller!

A robber went up to a teller and demanded a dye pack thinking money
was included. The left without a red cent.

I stood in the long line at the bank and yelled, "This is a hold up!
I haven't got all day. Please keep the line moving!"

I sat in the drive-thru lane at the bank for a few days waiting for
the red light to turn green before I could go. They never told me the
light was stuck on red.

I drove backwards thru the bank's drive-thru lane to see if I could
get any money back.

I was going to rob a bank, but decided that it was far easier to take
out a 1000 year loan.

A bank robber met a hot, horny blonde teller in the bank. She
demanded sex for money!

A bank robber walked up to a 24-hour teller. She had just quit her
job because of the long hours and she could not help him.

Two tellers were overhead talking about the good looking guy on the
new dollar bills One teller said to the other teller, "Now that's a
hunk of money."

I know there's more to this story, but I am lacking the funds to
continue.

alwaysadub

Yep Biggins, they are lame :pac:

And that is actually an interesting article OP.

chucken1

Biggins,you've just been waiting all night for the next one,have'nt you!?
Ok..I'll read your post now

EDIT..200 posts for me. Fech you government,I'm keepin em

msg11

Seems like, if we go down, Europe is coming with us ..

Lockstep

Good find OP

dvpower

That article didn't mention the deficit which exists regardless of the bank bailouts.

phasers

The IMF walk into a bank




... You think they would have seen it...

Donal Og O Baelach

Funny but precise skit about the EU lending crisis from u-tube

http://bit.ly/bQhBUa

mandrake04

Irish eyes are not smiling
By Peter Switzer
Nov 18 12:03pm
Save to MyWebPrint


Peter SwitzerHey, who was it who thought it was a good idea to form a union - the European Union - made up of countries that have never had a history of getting along with each other?
Just when you might have thought we were out of the woods with fear and loathing on the stock market, along comes another European debt drama but this time the 'starring' economy is Ireland. And the finger pointing from the Europeans wasn't only directed at the Irish, with the Austrians pondering how committed the Greeks are to reforming their profligate ways.

Hey, who was it who thought it was a good idea to form a union - the European Union - made up of countries that have never had a history of getting along with each other? Considering their patchy past for diplomacy and avoiding hostilities, the efforts of the EU haven't been all that bad, however this GFC and post-experience is the group's first real test.

Not so impressive

So far, the ruling bodies connected to the EU haven't been impressive at first blush in handling any of its challenges, starting off with their reaction to the GFC. The European Central Bank's boss Jean-Claude Trichet was virtually dragged kicking and screaming to cut interest rates sufficiently to avert a recession becoming a depression.

It was the former UK prime minister, Gordon Brown, who was smart enough to work out that his banks needed to be propped up by his government's AAA-rating, though, ironically the Irish were the first to move in this direction, which quickly prompted the Poms to see the logic in the move.

Ireland added to the list

The Europeans failed to address the concerns of the Greek debt debacle earlier this year and the debt contagion concerns over Portugal, Italy, Greece and Spain. These countries were unfairly tagged the PIGS by some cynical Pommy economist I suspect, who resented their better weather and lifestyle.

Another irony was that in coining the term, which linked four economies famous for their tourism and sometimes sneeringly referred to as Club Med economies, Ireland, initially, was left out of the group of disastrous debt delinquents. Eventually some fairer media-types gave in and replaced PIGS with PIIGS.

Another debt disaster

The Europeans were again at their worst with the handling of their bank stress tests, which at first created market consternation but once again, eventually delivered a result that soothed the jumpy investors that inhabit stock markets.

And so again we have a debt disaster and again our European buddies did not look like they were in control and the Dow Jones dived 1.6% and the local stock market followed in a similar vein.

In fact, I deliberately delayed the writing of this column to see how another day on the stock market would play out and the fact there wasn't another down day was a good sign.

So, how concerned should we be this time?

The positives

Reports said that hotshots from the European Commission, the International Monetary Fund and the European Central Bank - a Euro-A-Team - had set off for Ireland and that news calmed the markets but there has to be a fair way to go before investors will be relaxed about debt in the EU.

Another positive sign was that the euro gained strength after hitting a seven-week low against the greenback.

This economic challenge will undoubtedly pay dividends to Aussies travelling to Europe and even the UK over Christmas, while those America-bound should be sweating on a quick and satisfying solution if they want to go to parity parties in the USA.

“European shares finished higher after declines in the previous session, but concerns over the Irish debt crisis were lingering,” CNBC reported. “Meanwhile, the European Union will deliver its next aid package for Greece on time, said European Union Economic and Monetary Affairs Commissioner Olli Rehn.”

Groundhog Day

As you can see, there's a fair way to go before this Groundhog Day experience where the Greek debt drama looks like the new Irish debt drama is put to rest. And what spooks market players is that this repeated debt debacle could eventually feature in Portugal, Italy and other smaller economies, which each time would unsettle investors.

The big fear is that all of this might play out in Spain, which unlike Ireland or Portugal is a significant economy that would really rattle the windows and walls of the investment houses which contain the big Kahunas who can make or break bourses.

The UK's The Telegraph newspaper says a bailout for Ireland is inevitable and imminent. It reported, “In the words of Christine Lagarde, the French finance minister: 'Is it six months or a few days away? I'd say it's closer to days.'”

That looks like progress for the procrastinators of Europe.

Question marks

Ireland is trying to save face saying it has funding in place until mid-way through next year but the experts think Portugal is an even more worrying basket case. It's these question marks that are holding back stock markets and Investors Mutual founder Anton Tagliaferro believes this kind of uncertainty will dog markets next year as well but he still thinks we'll muddle through.

For the moment we have to wait for the European A-Team to come up with a rescue. Once again, let's hope it's sooner rather than later or else Irish eyes will definitely not be smiling.

http://au.pfinance.yahoo.com/b/peter-switzer/320/irish-eyes-are-not-smiling

Mr Marston

I really have to stop listening to the radio. You'd think there was German tanks rolling down O'Connell street.

x in the city

Mr Marston wrote: »

I tend to steer clear of news items regarding the financial crisis. I listen to a bit of Matt Cooper, George Hook, and an occasional bit of the Frontline but I've really been none the wiser as to the actual situation. Apart from "we're all fooked 'cause of the banks". Anyway, I came across an article on Yahoo US that I felt I must share. 2 minutes reading and I know more than a couple of years worth listening to Cooper and Hook. Apologies if people feel this has been done to death.

http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0

erm,

cool story bro/.*








*first instance of using this

Run_to_da_hills

The state paying off an IMF loan is like taking out a mortgage using your credit card . :eek:

up for anything

This is beginning to have the feel of voting in the Eurovision. At the moment Royaume Uni are giving us douze pointe for our swan song and every other country in the EU are fucking us up the ass in order to make sure they can still enter their fecking awful melodies in next year's competition. :mad:

AlmightyCushion

Run_to_da_hills wrote: »

The state paying off an IMF loan is like taking out a mortgage using your credit card . :eek:

Is it not the opposite. Cost of bonds are running at 8%, cost of borrowing from IMF is 5% so it's cheaper for us to borrow from IMF.

Run_to_da_hills

AlmightyCushion wrote: »

Is it not the opposite. Cost of bonds are running at 8%, cost of borrowing from IMF is 5% so it's cheaper for us to borrow from IMF.

T&C's are a lot more demanding with IMF loans, something one would not like to default on.

General General

We just need to 'leverage' somehow the current boom we are experiencing in 'bailout threads' so that we can hear the tiger's engines roar again...

mandrake04

Just thinking

If I return to Ireland will I have to learn to speak German or god forbid...French.

Run_to_da_hills

Back on topic, there is a similar thread on this in CT ATM.

I mentioned about the IMF being called into this country in the economics forum two years ago. (If I could dig up the thread), I was ridiculed and told that we were a long way from it. How things have changed.

The IMF are the same shower that have been crippling 3rd world countries for decade with very strict t&c's to secure any of their their loans. They dictate to governments on how they want to run the country.

I believe it will be this shower that will eventually force governments across the world with the introduction of smart cards and the global cashless currency that can be used to track and trace all transactions in the name of fighting terrorism, eliminating the black economy, revenue fraud and securing their loans.

In the book the "New Money system" which was first published in 1981 Mary Stewart Relph predicted the IMF take over of nations in the western world and the fortcoming cashless system.

........The wolf is now at our doorstep.