Are we creating money out of MOUNTAIN thin air?

ArtSmart

http://investmentwatchblog.com/irish-banks-are-running-out-of-collateral-they-can-use-to-borrow-from-the-european-central-bank-turning-instead-for-emergency-support-from-their-own-central-bank-on-an-unprecedented-scale/

wrote:

The latest data shows that Anglo Irish Bank and other lenders had borrowed €51bn (£43bn) from the Irish central bank by the end of December, under an obscure progamme listed in the balance sheet as “other assets”. This comes on top of €132bn in loans from the ECB itself, the figure normally tracked by analysts and itself 24pc of all ECB lending.
“This is a horror story: it shows the cataclysmic condition of the Irish banking system,” said Tim Congdon from International Monetary Research. “The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt”.
The actions of the Irish central bank are authorised by Frankfurt, but fall into a grey area of monetary policy since they appear to involve creation of money outside the normal control of the ECB’s governing council.
The use of Ireland’s emergency liquidity assistance programme (ELA) raises further questions since the quality of collateral is unacceptable for normal ECB operations. The volume of borrowing has begun to level off after a surge in November.

i find this weird.

any thoughts?

hinault

ECB has provided €130 billion to Irish Retail banks.
This needs to be repaid by the banks (aka State).

ECB has provided €51 billion to the Central bank, to give to Irish Retail banks.
This needs to be repaid by the banks (aka State).

The State has an existing deficit of approx €90 billion.
This debt needs to be repaid by the State.

Then we have further potential liabilities from NAMA perhaps.

We have additional problems with the existing loan books at the banks possibly deteriorating and which will need to be financed.

We have growing demand on State services which need to be financed (such as unemployment benefit).

All in all we're currently north of approx €300 billion in liabilities at present.

In the mean time, we have a contracting economy.
Falling house (asset) prices.
Growing levels of emigration.

My point?
The financing of the liabilities has been deliberately been parcelled and broken up so :

1.the actual level of liabilities owed by banks, banks/state or both is muddied.

2.the financing of those liabilities by the ECB directly to the banks, ECB loans via CB to the banks, EU/IMF to Irish State, effectively does not address the core issue of how a population of 4 million people will finance debts of €300 billion.

Funny money, loans generated through different agencies to separate parts of the State etc - all have to be met by the taxpayer currently.

Between Brian "cheapest bank bailout in history" Lenihans fatal decision to issue the bank guarantee in September 2008 and the series of
inept/amateurish/expedient decisions since then, have all compounded to transform what was a sizeable debt mountain in to an Everest size
insurmountable problem.

RichardAnd

hinault wrote: »

ECB has provided €130 billion to Irish Retail banks.
This needs to be repaid by the banks (aka State).

ECB has provided €51 billion to the Central bank, to give to Irish Retail banks.
This needs to be repaid by the banks (aka State).

The State has an existing deficit of approx €90 billion.
This debt needs to be repaid by the State.

Then we have further potential liabilities from NAMA perhaps.

We have additional problems with the existing loan books at the banks possibly deteriorating and which will need to be financed.

We have growing demand on State services which need to be financed (such as unemployment benefit).

All in all we're currently north of approx €300 billion in liabilities at present.

In the mean time, we have a contracting economy.
Falling house (asset) prices.
Growing levels of emigration.

My point?
The financing of the liabilities has been deliberately been parcelled and broken up so :

1.the actual level of liabilities owed by banks, banks/state or both is muddied.

2.the financing of those liabilities by the ECB directly to the banks, ECB loans via CB to the banks, EU/IMF to Irish State, effectively does not address the core issue of how a population of 4 million people will finance debts of €300 billion.

Funny money, loans generated through different agencies to separate parts of the State etc - all have to be met by the taxpayer currently.

Between Brian "cheapest bank bailout in history" Lenihans fatal decision to issue the bank guarantee in September 2008 and the series of
inept/amateurish/expedient decisions since then, have all compounded to transform what was a sizeable debt mountain in to an Everest size
insurmountable problem.

I'd agree with this. From my point of view, Ireland is now so in debt that it almost doesn't matter. The interest alone on such an amount of money means we'll probably never even get to hack away at the debt mountain itself. This is not a far cry from what happens to thrid world countries and I see no easy way out of this mess.

IReland, in my opinion, will revert back to what is essentially its true form; a small, unremarkable and generally broke country on the edge of europe. A country like Ireland never should have been allowed climb as high as it did during the boom, we're simply too small.

Sand

@RichardAnd

IReland, in my opinion, will revert back to what is essentially its true form; a small, unremarkable and generally broke country on the edge of europe.

I dont agree with this: I think the most tragic result of the epically poor governance of Ireland has been the breaking of the spirit of the Irish people so that they accept that economic failure and mass emigration are "normal".

catbear

Sand wrote: »

@RichardAnd


I dont agree with this: I think the most tragic result of the epically poor governance of Ireland has been the breaking of the spirit of the Irish people so that they accept that economic failure and mass emigration are "normal".

They were doing that back in the eighties too. This time though the scale of the problem may allow us to brake out of bad habits. What's good for the tribe is not good for business.

gigino

RichardAnd wrote: »

A country like Ireland never should have been allowed climb as high as it did during the boom, we're simply too small.

+1. small or simply not capabable of governing ourselves ?

Citizen_Cutback

hinault wrote: »

ECB has provided €130 billion to Irish Retail banks.
This needs to be repaid by the banks (aka State).

ECB has provided €51 billion to the Central bank, to give to Irish Retail banks.
This needs to be repaid by the banks (aka State).

The State has an existing deficit of approx €90 billion.
This debt needs to be repaid by the State.

Then we have further potential liabilities from NAMA perhaps.

Don't forget about the money we have already paid into the Banks to keep them afloat! Is it €30 something billion or €40 something billion by now?

Don't scaremonger too much! I figure €180 billion approximately is borrowed to replace deposits withdrawn by Irish and International depositors which can be repaid when confidence returns (and deposits) that we will not default as such.

On an EU level we have been screwed over by the "germans". Eventually (within two years) I expect that our EFSF interest rate will be nil and the current EFSF fund will be ponied up by an internal mechanism within the EU leaving our current contribution already paid in to support the Banks as our only liability. I expect that we will default internally within an EU framework with the EU picking up the tab as we are only partially responsible for our Banks liabilities.

Check back in 2013!

BTW National Debt is usually rolled over and rarely paid back in full.

ArtSmart

I find this article on CBI/ ELA ...unsettling.

Banks assets? LOL. But state assets...now that's a different story. Can't help but feel if things go wrong, they'll go very, very wrong.

wrote:

Others, most notably the London office of Citibank, have suggested that our ELA operations are now so out of hand that the Central Bank of Ireland is risking its own solvency to carry out the funding rounds.
Those with intimate knowledge of how Ireland's ELA scheme actually works describe the bulk of the rumours as "ridiculous", "impossible" and "wild speculation".
But some of their insights into the "evolving" nature of Ireland's ELA policy and the central banks' near-absolute certainty of getting back their cash may well give further cause for alarm.

from
http://www.independent.ie/business/irish/state-of-emergency-some-truths-on-the-funds-keeping-our-banks-afloat-2533375.html


ETA
seems like the 'London office' of citibank has since toned down their criticism . gulp. that doesnt bode well.
http://www.independent.ie/business/irish/bank-giant-citi-plays-down-risk-of-ela-assistance-2540407.html

em, well that 'tone down' not quite cheerful in tone either.

wrote:

Citi points out, however, that the Central Bank of Ireland has "limited capital" and that the guarantee covering the "smaller" amount of as little as €18bn is issued by a government that "is illiquid and probably de-facto insolvent".
This means that losses on the ELA operations would ultimately have to be borne by the eurosystem as a whole.

translation = "youse Paddys is knackered you is."

recedite

Citizen_Cutback wrote: »

Eventually (within two years) I expect that our EFSF interest rate will be nil and the current EFSF fund will be ponied up by an internal mechanism within the EU leaving our current contribution already paid in to support the Banks as our only liability..

Perhaps Enda will get Angela Merkel drunk at a party, and then get her to sign off on these things.

RichardAnd

Money from thin air. Hmm, isn't that what we did in the boom?

Citizen_Cutback

RichardAnd wrote: »

Money from thin air. Hmm, isn't that what we did in the boom?

Yes but the money was dumped on us in the boom by Foreign Banks.

Now the ECB has stepped up to the mark but claims the liability is ours.

Eventually the morality of the situation will become clear even to the Eurocrats.

I think Bernanke has a few Sikorskys on standby also.

RichardAnd

Citizen_Cutback wrote: »

Yes but the money was dumped on us in the boom by Foreign Banks.

Now the ECB has stepped up to the mark but claims the liability is ours.

Eventually the morality of the situation will become clear even to the Eurocrats.

I think Bernanke has a few Sikorskys on standby also.

Dumped on us during the boom? If by dumped on us you mean Irish banks borrows horrific amounts to feed a nation addicted to credit then yes, the money was dumped on us.

Citizen_Cutback

RichardAnd wrote: »

Dumped on us during the boom? If by dumped on us you mean Irish banks borrows horrific amounts to feed a nation addicted to credit then yes, the money was dumped on us.

Maybe dumped is the wrong word?

There are usually at least two parties involved in deals and transactions. Those entities that lent to Irish Banks in the latter years of the Boom did so without proper consideration of the risks.

However, a third party, the Irish taxpayer, has now been brought into the transaction to put everything to rights.

Natural Justice will not let this fallacy continue indefinitely.

Nody

Citizen_Cutback wrote: »

Maybe dumped is the wrong word?

There are usually at least two parties involved in deals and transactions. Those entities that lent to Irish Banks in the latter years of the Boom did so without proper consideration of the risks.

You mean Irish, UK and US investors? Because it was not main Europe banks (i.e. German, French etc.) who was the main sources of funding for AIB et al no matter how popular it is to claim and shake the fist at them.

Numbers provided here by Scofflaw as reference.

Citizen_Cutback

Nody wrote: »

You mean Irish, UK and US investors? Because it was not main Europe banks (i.e. German, French etc.) who was the main sources of funding for AIB et al no matter how popular it is to claim and shake the fist at them.

Numbers provided here by Scofflaw as reference.

Does it matter about the identity of the Bondholders?

Scofflaw provides no references, so I will not comment on his figures.

Nody

Citizen_Cutback wrote: »

Does it matter about the identity of the Bondholders?

Well since people keep on claiming that EU (with Germany/France usually as the main culprits) forced Ireland to accept a bailout to save the the mainland banks due to loaning money to Ireland by having Irish tax payers pay back the loans, yes, I think it is relevant. It is also relevant because a great majority of that money is Irish, i.e. Irish pension funds etc. which means "burning them" means that Irish tax payers still need to pay up the difference but simply to another account then the banks account.

Scofflaw provides no references, so I will not comment on his figures.

Scofflaw wrote:

To put figures on that, courtesy of the Central Bank

which to me is a reference but I'm also sure Scofflaw would happily provide more detail if asked nicely.

Citizen_Cutback

Nody wrote: »

Well since people keep on claiming that EU (with Germany/France usually as the main culprits) forced Ireland to accept a bailout to save the the mainland banks due to loaning money to Ireland by having Irish tax payers pay back the loans, yes, I think it is relevant. It is also relevant because a great majority of that money is Irish, i.e. Irish pension funds etc. which means "burning them" means that Irish tax payers still need to pay up the difference but simply to another account then the banks account.

which to me is a reference but I'm also sure Scofflaw would happily provide more detail if asked nicely.

Constantin Gurdgiev has tweeted about more disinformation about Irish bondholders in an article in todays Irish Times:

"The IT article that >50% of B-holders in IRL banks are Irish (domiciled) fails 2 distinguish foreign entities domiciled here that hold IRL banks bonds, custodian & insured holdings - all of which, if burned, will have zero effect on IRL's real economy. In other words, the article really says NOTHING!"

I wonder will Scofflaw stop spinning in a pro Government Policy manner when the Greens are no more?

Sand

Wouldnt the figures of Irish domiciled bondholders includes the value of the bonds that the Irish domiciled banks have been issuing to themselves? They issued 17 billion to themselves only last month alone? Out of a total of 33 billion quoted as being held by Irish domiciled investors. It seems like an artificial figure invented to facilitate cute whoorism at the expense of the ECB.

Im not too bothered who holds the bonds (its a transfer of wealth from taxpayers to a smaller vested interest group either way) but it does seem the figures are being presented dishonestly.

Interesting quote from Mr Coffey

“As time progresses [and more bonds are repaid] the mantra of ‘burn the bondholders’ or equivalent becomes ever less relevant.

“It still has some scope to play a role but pretty soon it will be the country they are setting on fire. All the other fuel will be gone.”

Hes right you know. As more and more and more bondholders cash out and stay out, paid off with funds raised on the back of the Irish taxpayers, eventually its the country that will be burning. Nothing can change that now though, after years of derranged policymaking and can kicking stupidity its too late to suddenly solve the issue.

Anyone on their knees praying for mercy from the EU ought to refer to Mr Rehns comments where he expressed the cold reality: The rest of the EU couldnt care less what happens to Ireland once they manage to protect themselves.

Citizen_Cutback

Sand wrote: »

Wouldnt the figures of Irish domiciled bondholders includes the value of the bonds that the Irish domiciled banks have been issuing to themselves? They issued 17 billion to themselves only last month alone? Out of a total of 33 billion quoted as being held by Irish domiciled investors. It seems like an artificial figure invented to facilitate cute whoorism at the expense of the ECB.

Im not too bothered who holds the bonds (its a transfer of wealth from taxpayers to a smaller vested interest group either way) but it does seem the figures are being presented dishonestly.

Interesting quote from Mr Coffey



Hes right you know. As more and more and more bondholders cash out and stay out, paid off with funds raised on the back of the Irish taxpayers, eventually its the country that will be burning. Nothing can change that now though, after years of derranged policymaking and can kicking stupidity its too late to suddenly solve the issue.

Anyone on their knees praying for mercy from the EU ought to refer to Mr Rehns comments where he expressed the cold reality: The rest of the EU couldnt care less what happens to Ireland once they manage to protect themselves.

Yes, the bondholders are being paid off with almost every passing day but the fact remains that the ECB/EFSF is financing this process with the aim of transferring the liability onto Irish taxpayers.

The ECB will reap what it sows before long. Time is on our side.

Lendahand has played his last hand and not before time.

Lenihan seems to be some form of modern Feudalist as opposed to Federalist.

The Irish people will not be treated like peasants anymore!