Default and the ordinary man.

Shelflife

Let's say we default, what are the repercussions for the ordinary man?
Mortgage with AIB,
Private Pension,
Savings with An Post.

Are his savings and pension at risk or will it be just more of what we are experiencing at the moment?

RichardAnd

The problem with a question like this is just what do you define as an ordinary man?

Do civil servants count?
Do public servants count?
Do the unemployed count?
Do wealthy private citizens count?

There are dozens of layers to the term "ordinary" so the answer to your question is, it depends.

I can't, however, say it will be a good thing for many people.

Shelflife

i was talking about a working man in the private sector with a steadyish job. middle class.

liammur

Shelflife wrote: »

Let's say we default, what are the repercussions for the ordinary man?
Mortgage with AIB,
Private Pension,
Savings with An Post.

Are his savings and pension at risk or will it be just more of what we are experiencing at the moment?

Savings could very well be at risk, it depends on the nature of the default. Boils down to how angry the ECB would become!

Pension would lose a lot of value.

RichardAnd

Shelflife wrote: »

i was talking about a working man in the private sector with a steadyish job. middle class.

Yeah I understand that but my point was that it's not possible to cover all middle class private workers in one blanket. Thus, my original answer of "it depends" really is the most accurate answer you can get.

If you're am extremely skilled IT engineer then you'll have little to fear as you posses skills in high demand. Likewise, if you're a very good tradesman, you'll probably get some work as people know you'll do a good job. People like that will probably come through ok.

Otherwise, workers in jobs where there are plenty of people and few positions (I don't like to say unskilled, it's asinine), might not be so comfortable. But really, it's already a disaster if one loses their job so there probably isn't going to be much of a difference.

A default will simple mean the books need to be balanced and that won't be a smooth ride. Hence, no matter where you are you will notice something but some will more than others. Either way, neither you nor I can do anything about it so worry not and hope for the best.

Shelflife

Richardand, i was asking more as regards the pension and the savings point of view, not so much how the pension would perform, more as to whether the savings and pension could be taken by the govt.

RichardAnd

Shelflife wrote: »

Richardand, i was asking more as regards the pension and the savings point of view, not so much how the pension would perform, more as to whether the savings and pension could be taken by the govt.

Difficult to answer. In the past, cash strapped governments have indeed helped themselves to the savings of private citizens so it's possibly it could happen here. A default would, in all likely hood, trigger a bank run which would mean thousands of people's savings would be put beyond their reach as the banks wouldn't be able to pay out.

I can't say much about pensions as I'm not experienced enough to do so but there are posters here who can answer your questions. Give the thread a while and they might reply.

carrick76

Interested in the answer to OP question too.

Also, does putting savings into Rabobank mean they are safe in the event of default?

RichardAnd

carrick76 wrote: »

Interested in the answer to OP question too.

Also, does putting savings into Rabobank mean they are safe in the event of default?

I'd be interested to know that myself. I doubt it's as simple as that thought

liammur

carrick76 wrote: »

Interested in the answer to OP question too.

Also, does putting savings into Rabobank mean they are safe in the event of default?

Your savings would be secure in Rabobank.

douglashyde

liammur wrote: »

Your savings would be secure in Rabobank.

Your savings would not be safe in Rabobank unless you opened a Rabobank account in another country.

If you open an account with Rabobank Ireland plc. these are under Irish Central Bank regulation. So they are the same as any other Irish bank.

Scofflaw

The simple and unvarnished truth is that nobody has any real idea what would happen if the country went into an unstructured default. The government might leave the euro, reinstate capital controls, and/or institute levies on savings in Irish banks, whether those were domestic Irish banks or banks like Rabobank - one can go further than the point already made by douglashyde, and point out that what would be levied against would be the savings of citizens, and it wouldn't matter a jot who owned the bank your savings were in. If the government can reach it, or you, it may choose to do so.

On the other hand, there's no guarantee that you'd be able to access your money if it was in a foreign bank - there might be a levy and/or limit on money being brought into the country, and the bank accounts of Irish residents abroad might be seized by creditor nations, at least initially. Plus, there's the question of contagion - if an Irish default destabilised the markets, other countries might also find themselves reinstituting capital controls or capital levies, including the country you've placed your trust - and your money - in. At the very least, you can expect to suddenly find that most of the conveniences of access that make having your money somewhere physically far away bearable will disappear, at least temporarily.

So, essentially, in the case of unstructured default, all bets are off, because Ireland, and many other countries, will be looking to their own advantage first, and making up the rules as they go along. At some point the unknown unknowns accumulate to the point where attempting to predict them satisfactorily yields no better result than acting randomly.

cheerily,
Scofflaw

douglashyde

Agreed.
However it would be a cold day in hell before things got so bad that Ireland defaults in such a bad way.
None the less. One look at Argentina's default and bank run might give some indication as to what might happen here if a bad default scenario arose.

Let's assume:
1. With the announcement of Ireland restructuring (defaulting) on its debt there is a surge in business and household deposits leaving all Irish regulated banks.

2. To stop the flow of credit from Ireland and its inability to borrow money the Irish Central Bank freeze money movement out of the country. And withdrawals only of only a €700/week.

3. Over the course of one year the punt is reintroduced at a €1 to £1 exchange, however it quickly jumps to €1 to £1.50. Imported goods now cost a lot more, food, fuel etc..

All these things happened in Argentina.

As for savings outside the Irish State and if this is a safe option. I can’t see how to the Irish State could be granted access to this from a legal point of view and would view International bank accounts safe from an Irish default like the above scenario.

At the end of the day most of your money is an arbitrary figure on a computer screen, it just depends what country that computer screen is in so truly nothing is completely safe.

Personally I would be looking at the UK as a safe bet for savings with a portfolio of long stocks in blue chip companies. You’d want to start stocking up on tinned goods and water to get any safer…….

dan719

Scofflaw wrote: »

The simple and unvarnished truth is that nobody has any real idea what would happen if the country went into an unstructured default. The government might leave the euro, reinstate capital controls, and/or institute levies on savings in Irish banks, whether those were domestic Irish banks or banks like Rabobank - one can go further than the point already made by douglashyde, and point out that what would be levied against would be the savings of citizens, and it wouldn't matter a jot who owned the bank your savings were in. If the government can reach it, or you, it may choose to do so.

On the other hand, there's no guarantee that you'd be able to access your money if it was in a foreign bank - there might be a levy and/or limit on money being brought into the country, and the bank accounts of Irish residents abroad might be seized by creditor nations, at least initially. Plus, there's the question of contagion - if an Irish default destabilised the markets, other countries might also find themselves reinstituting capital controls or capital levies, including the country you've placed your trust - and your money - in. At the very least, you can expect to suddenly find that most of the conveniences of access that make having your money somewhere physically far away bearable will disappear, at least temporarily.

So, essentially, in the case of unstructured default, all bets are off, because Ireland, and many other countries, will be looking to their own advantage first, and making up the rules as they go along. At some point the unknown unknowns accumulate to the point where attempting to predict them satisfactorily yields no better result than acting randomly.

cheerily,
Scofflaw

Hi Scofflaw,

Would you mind if I linked this on twitter just to give non boardsie who are interested an insight into possible consequences of an unstructured default? You wrote it much better than I could.


Danny

Count Dooku

Scofflaw wrote: »

On the other hand, there's no guarantee that you'd be able to access your money if it was in a foreign bank - there might be a levy and/or limit on money being brought into the country, and the bank accounts of Irish residents abroad might be seized by creditor nations, at least initially.

Do you know any examples when assets of foreign citizens have been confiscated without declaration of war to their state of origin?
Levy and limit are more possible, but even after that it will still worst it

Count Dooku

douglashyde wrote: »

3. Over the course of one year the punt is reintroduced at a €1 to £1 exchange, however it quickly jumps to €1 to £1.50. Imported goods now cost a lot more, food, fuel etc..

All these things happened in Argentina.

For majority of PAYE workers it will be not much difference how their disposable income will be reduced - through devaluation of currency or through taxes going through the roof
The only advantages of devaluation that burden will be spread more equally and reduced import will give some chance for growth of local economy

liammur

Count Dooku wrote: »

Do you know any examples when assets of foreign citizens have been confiscated without declaration of war to their state of origin?
Levy and limit are more possible, but even after that it will still worst it

I would agree. If your assets are held in an offshore account you would have little to worry about. Can't see the situation get to that though!

Scofflaw

dan719 wrote: »

Hi Scofflaw,

Would you mind if I linked this on twitter just to give non boardsie who are interested an insight into possible consequences of an unstructured default?

No problem.

Count Dooku wrote:

Do you know any examples when assets of foreign citizens have been confiscated without declaration of war to their state of origin?
Levy and limit are more possible, but even after that it will still worst it

I agree it's unlikely - it's more likely that your foreign accounts wind up frozen as a result of what's happening in the contagion fallout in whatever the other country is, or the wrong side of foreign capital controls - and if your foreign bank collapses, you're less likely to be repaid than their domestic customers.

The main point is that an uncontrolled Irish default won't be a solitary event with all the other countries looking on happily unaffected - if it happens, it's likely to be part of a chain of events that could easily go global.

cordially,
Scofflaw

douglashyde

Scofflaw wrote: »

No problem.



I agree it's unlikely - it's more likely that your foreign accounts wind up frozen as a result of what's happening in the contagion fallout in whatever the other country is, or the wrong side of foreign capital controls - and if your foreign bank collapses, you're less likely to be repaid than their domestic customers.

The main point is that an uncontrolled Irish default won't be a solitary event with all the other countries looking on happily unaffected - if it happens, it's likely to be part of a chain of events that could easily go global.

cordially,
Scofflaw

Absolutaly, however planning for such an event would be planning for complete financial bank collapse.

It's far more likely that any default involving a change to a devalued currency would see the freezing of only Irish regulated banks.

The only real way foreign bank accounts held by Irish citizens could be seized is if the ECB was involved in the Irish default.

Personally, I think money in the UK and America is the best way forward.

beeftotheheels

douglashyde wrote: »

Absolutaly, however planning for such an event would be planning for complete financial bank collapse.

It's far more likely that any default involving a change to a devalued currency would see the freezing of only Irish regulated banks.

The only real way foreign bank accounts held by Irish citizens could be seized is if the ECB was involved in the Irish default.

Personally, I think money in the UK and America is the best way forward.

Prior to the collapse of Icesave none of us thought that the UK would use anti-terrorism legislation to freeze Icelandic assets.

I agree that I can't easily see how another jurisdiction could justify seizing the assets of an Irish individual in settlement of a sovereign liability, but as I said, I never saw the Landsbanki Freezing Order 2008 coming.

m.j.w

I know nothing about this stuff so sorry if this is a stupid question but if there was a default like this and people lost thier savings in a bank what would happen to the debt they owe to that bank. Say if I had 3000 in Band of Ireland and lost that and I had a loan out for 1000 would I still have to pay the loan even though I just lost my savings?

ei.sdraob

beeftotheheels wrote: »

Prior to the collapse of Icesave none of us thought that the UK would use anti-terrorism legislation to freeze Icelandic assets.

I agree that I can't easily see how another jurisdiction could justify seizing the assets of an Irish individual in settlement of a sovereign liability, but as I said, I never saw the Landsbanki Freezing Order 2008 coming.

Iceland are not in EU

If one EU states invokes anti-terrorist laws against another member, then that be the end of the EU as we know it.

beeftotheheels

ei.sdraob wrote: »

Iceland are not in EU

If one EU states invokes anti-terrorist laws against another member, then that be the end of the EU as we know it.

We're talking about a default scenario here so all bets are off, the EU could already be disbanding or we could be well on our way to being kicked out.

My point is that we have no idea what anyone would do in a default scenario, but we certainly can't expect other States to not use every weapon in their arsenal to protect their own interests.

andrew

I think the probability of a Unilateral default by Ireland is slightly overestimated in this thread. Given the damage this would do to the credibility of the Euro, it would essentially be the beginning of the end of the Euro as a currency. As such, the ECB would probably do anything and everything to prevent Ireland (or any other country) from defaulting. Of course, they have to make it appear as though they won't, to avoid moral hazard. But if push came to shove, I don't think the EU and ECB would let Ireland default.

Scofflaw

andrew wrote: »

I think the probability of a Unilateral default by Ireland is slightly overestimated in this thread. Given the damage this would do to the credibility of the Euro, it would essentially be the beginning of the end of the Euro as a currency. As such, the ECB would probably do anything and everything to prevent Ireland (or any other country) from defaulting. Of course, they have to make it appear as though they won't, to avoid moral hazard. But if push came to shove, I don't think the EU and ECB would let Ireland default.

The weight of evidence (€160bn of it at least) is on your side there.

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

The weight of evidence (€160bn of it at least) is on your side there.

cordially,
Scofflaw

Thats 160 billion (its 160 billion now? ) loaned not gifted

160 billion that needs to be paid back (and they want it back) by the banks erm state who owns the banks. Considering that the banks and the state are now joined at the hip, that pushes our debt to GDP ratio where exactly?

I dont understand why you make it out as if the central banks are doing us a favour, its their job to be a lender of last resort, and maybe if they did their (ICB and ECB) other job of regulating in first place we wouldnt be here now.

Count Dooku

andrew wrote: »

I think the probability of a Unilateral default by Ireland is slightly overestimated in this thread. Given the damage this would do to the credibility of the Euro, it would essentially be the beginning of the end of the Euro as a currency. As such, the ECB would probably do anything and everything to prevent Ireland (or any other country) from defaulting. Of course, they have to make it appear as though they won't, to avoid moral hazard. But if push came to shove, I don't think the EU and ECB would let Ireland default.

definitely not now, but they can do it later

Towards the end of the Eurozone?

In the case of France, in the upcoming presidential and legislative elections of 2012 Sarkozy will face a Federation of the Left that could put you in trouble in the first round, but they will avoid their likely victory in the second round and the achievement of French Assembly majority, with the subsequent establishment of a presidential power (Decade Sarkozy) that combined with the intensification of media noise of their interventions in foreign policy will inevitably become a reference of European policy in the next decade and interlocutor for the two major world powers locked in future episodes of the Cold War. Case overcome their apparent lack of empathy co Angela Merkel, we could see on the horizon of 2014 to the beginning of the disintegration of the current European Union and its replacement by a constellation of countries satellites within the orbit of the Franco-Germanic (the so-called Europe of the Twelve), because the ECB's requirements to comply with the limit set for the public deficit of 3% for 2013, (a very complex undertaking for countries like Portugal, Italy, Greece, Spain and Ireland with rates well above the eurozone average and comfortably exceeding the original bar set by the ECB, (3%)), while Greece, Portugal, Ireland and Spain in the more sensitive, putting them at risk of exclusion from the eurozone in 2014.

Debt Restructuring in Greece and Ireland :

The real estate bubble burst in 2008 led to the collapse of the economic house of cards PIGS countries (Anglo-Saxon derogatory abbreviation encompassed Spain, Portugal, Ireland, Italy and Greece). The economy of these countries is based on the last decade in the known 'Mediterranean diet', whose main ingredients were the 'boom' town planning, tourism and domestic consumption, and excellent dishes created minimalist appearance highly suggestive and exorbitant price, but meaningless culinary and dated expiry date printed: 2008.

Thus, the Greek public debt now exceeds 340,000 million euros, and aggravates the economic situation, with a deficit of 10.3% of Gross Domestic Product (GDP) in 2010 and according to Greek media, Athens consult the European Union (EU) and the International Monetary Fund (IMF), which monitor the implementation of an austerity plan to carry out such restructuring, there are fears it could default on their payments (you will need additional 60,000 million, so it will be require a refinancing).


To this, would join the brutal escalation of the risk premium on bonds due to Euroscepticism Finnish Spanish, doubts about the recent bailout Greece and Portugal, all of which have as side effects widespread increases in the required return to debt peripherals (as well as differences between the Spanish bonds to ten years behind their German counterparts stands at 250 basis points, up 13% weekly) combined with a new interest rate hike by the ECB the second half of 2011 , motivated by the fact that the yield differentials between public debt issues between the various first world countries have increased in recent months (leading to a more expensive and more difficult to obtain external financing) and the high risk of runaway inflation in the Eurozone economies, (2, 8% in April and forecast further rises.

This coupled with the declining revenues of the States, could result in a drastic reduction of social benefits that affect the duration and amount of unemployment benefits, pensions and widow's pension and free and universal public health, not being ruled out the use of pension piggy bank to cover the needs of the State on the horizon of 2013.

Scofflaw

ei.sdraob wrote: »

Thats 160 billion (its 160 billion now? ) loaned not gifted

160 billion that needs to be paid back (and they want it back) by the banks erm state who owns the banks. Considering that the banks and the state are now joined at the hip, that pushes our debt to GDP ratio where exactly?

I dont understand why you make it out as if the central banks are doing us a favour, its their job to be a lender of last resort, and maybe if they did their (ICB and ECB) other job of regulating in first place we wouldnt be here now.

It's true that it's a loan, not a gift, but the doing of it is a gift, since it's not really something the ECB should be doing to the extent it is. I appreciate that if one believes the banks should not ever have been propped up in the first place then the ECB is enabling something that shouldn't be happening in the first place, but that's not their call - or wasn't, until we got into their pocket and refused to come out again.

As to the lack of regulation that led us here, I agree about the CB, but the ECB just doesn't have the regulatory functions people ascribe to it. It really was up to our CB and our Financial Regulator (and our government) to ensure that the Irish banks were behaving themselves, not anybody else.

cordially,
Scofflaw

KM88

RichardAnd wrote: »

The problem with a question like this is just what do you define as an ordinary man?
...
There are dozens of layers to the term "ordinary" so the answer to your question is, it depends.

I'm interested in the OP's question too but the idea of "an ordinary man" makes it too complicated.

Let's assume:
I owe €100k to an Irish bank on my only property - which is my principal private residence.
I am meeting the repayments and I have €100k on deposit in an Irish High Street bank.
No other assets, no other liabilities. (It's just hypothetical )

Tomorrow we wake up to Morning Ireland and M Noonan announces that, as of midnight, Ireland has left the Euro and reintroduced the Punt.

He tells us that it makes no difference - because at midnight, €1 was converted to IE£1 so I own and owe exactly the same - it's just denominated in IE£ now instead of € and the new IE£ is free to float on the forex markets.

My pay will also change to IE£.
All bills from Irish companies will from now on be denominated in IE£.
My debts, repayments and savings will all change to IE£.
... so no net change.


That's the scenario - from here is my speculation:

By lunchtime, the value of the new IE£ will have fallen on the forex market to €0.50.
All is well for a day or so until I go to fill up my car and find that petrol has jumped from €1.54 to £3.00.

On the home from work, I stop at the shop and find that Irish cabbage, bread, apples and breakfast cereal are all the same price as before, but imported cereals, detergents, shampoo, soft drinks, canned foods, chicken, most frozen foods, tea, coffee and pretty much everything else has doubled in price - and all in the space of a few days.

Hmm - I can survive on my wages if I switch to buying only the Irish items - no more Walkers crisps, just Tayto; no more Sky TV, just RTE/TV3/TG4; no foreign holidays/just Kerry/Connemara/Dublin/camping/whatever.

Over the following weeks, the price of all imported goods and home-produced ones that require imported fuel to produce double in price.

My family and I gradually adjust our buying habits to buy more home-produced goods, less imports, we walk and cycle more, we do-without more, we holiday at home - in short, we go back to how it was in the 1980's.

Is that the bones of how it might happen?

Should I have paid off my mortgage?
Should I have bought gold with that €100k?
Should I have bought some land to grow-your-own?

lmimmfn

lets look at the current situation:
1. We cant afford to pay the interest when its due
2. We have no money
3. 2013 is when the new ECB burn the bondholders law come into place
4. According to our friend Morgan, German and French banks are recapitalising like crazy for the enevitable
5. Greece will default before us, possibly leaving the euro and whatever the ECB puts in place for that will be what we will also do.
6. Default is inevitable, whether we can slice cash addicted banks from our soverignty is another matter.
7, We will never reach a situation where we are able to pay for services based on tax take( i dont know if you would call that solvent if it happened after a default lol )
8. We cant borrow on international markets from the end of 2012 according to our mate Constantine.
9. Iff German and French banks bulk up on cash reserves until 2013 they will hang us out to dry.
10. Taxes cant be increased anymore
11. We're unwilling to reduce social welfare/HSE expenditure or public sector costs

A lot of this has been obvious for years and mabye some of the above isint 100% accurate, however is there any conceivable reason that we will not default? on top of that our ECB "friends" have a short term interest on it until they bolster cash reserves in european banks.

To be honest if i was a dictator here i would tell them to **** off, split the banks from government, would default, change currency, struggle for years but get back to where we were at in the 90's

The path we are taking, beyond joking has landed us back in the mid 80's and at the moment we are lucky if we can even keep the situation akin to that period.

On the OP's question, well if you remember the mid 80's youll be lucky if you even have that in a few years time.

maninasia

douglashyde wrote: »

Absolutaly, however planning for such an event would be planning for complete financial bank collapse.

It's far more likely that any default involving a change to a devalued currency would see the freezing of only Irish regulated banks.

The only real way foreign bank accounts held by Irish citizens could be seized is if the ECB was involved in the Irish default.

Personally, I think money in the UK and America is the best way forward.

You put your money in Switzerland, Hong Kong, Singapore etc..it will be pretty safe there.

ei.sdraob

Scofflaw wrote: »

It's true that it's a loan, not a gift, but the doing of it is a gift, since it's not really something the ECB should be doing to the extent it is. I appreciate that if one believes the banks should not ever have been propped up in the first place then the ECB is enabling something that shouldn't be happening in the first place, but that's not their call - or wasn't, until we got into their pocket and refused to come out again.

They did not loan the banks all that money out of the goodness of their hearts :rolleyes:
In exchange for the loan they got collateral that pass their acceptance criteria, more or less they got the whole irish banking system assets in exchange for the loan.

Now where you not the one telling us our banks are fine and dandy, that its all a temporary liquidity problem (jaja!), that NAMA will clean out the banks and a wall of money is coming back :rolleyes:

So if we accept your thesis that our banks are fine, that NAMA will clean them, that house prices will grow in 10 years, then there is nothing to worry about right? right?? the ECB/ICB got nice shiny banking system and all its assets in exchange for their loan.

Scofflaw wrote: »

As to the lack of regulation that led us here, I agree about the CB, but the ECB just doesn't have the regulatory functions people ascribe to it. It really was up to our CB and our Financial Regulator (and our government) to ensure that the Irish banks were behaving themselves, not anybody else.

So the ICB is fixing the problem they created and allowed to get out of control, imagine that, responsibility at last!

as for the ECB, it is their job to maintain stability in the whole eurozone, if Irish banks where about to collapse (As you continue to insist) then yes supporting Irish banks is their problem, since the alternative is chaos in the euro (as you keep telling us)

Look Scofflaw, you cant have it both ways, the ECB and ICB are not doing us a favour, they are doing their jobs, for once!


edit: wasn't Frank Fahey the one telling us that NAMA is an ingenious way to tap into ECBs low rates, now that the banks have done just that, it is somehow being considered "a favour for Ireland", once again the ECB did not do what they did out of the goodness of their hearts and they get something in return, and some like Morgan Kelly think they should keep this "something"

Scofflaw

ei.sdraob wrote: »

They did not loan the banks all that money out of the goodness of their hearts :rolleyes:
In exchange for the loan they got collateral that pass their acceptance criteria, more or less they got the whole irish banking system assets in exchange for the loan.

Now where you not the one telling us our banks are fine and dandy, that its all a temporary liquidity problem (jaja!), that NAMA will clean out the banks and a wall of money is coming back :rolleyes:

So if we accept your thesis that our banks are fine, that NAMA will clean them, that house prices will grow in 10 years, then there is nothing to worry about right? right?? the ECB/ICB got nice shiny banking system and all its assets in exchange for their loan.

I've told you before - there is no reason for me to engage with you when you entirely misrepresent my position. I haven't said our banks are fine, I don't think NAMA will clean them, I haven't made any prediction about house prices, and I'm very tired of you misrepresenting what I have said, because it has been explained to you in both long and short ways now. Wise up.

ei.sdraob wrote: »

[So the ICB is fixing the problem they created and allowed to get out of control, imagine that, responsibility at last!

as for the ECB, it is their job to maintain stability in the whole eurozone, if Irish banks where about to collapse (As you continue to insist) then yes supporting Irish banks is their problem, since the alternative is chaos in the euro (as you keep telling us)

Look Scofflaw, you cant have it both ways, the ECB and ICB are not doing us a favour, they are doing their jobs, for once!


edit: wasn't Frank Fahey the one telling us that NAMA is an ingenious way to tap into ECBs low rates, now that the banks have done just that, it is somehow being considered "a favour for Ireland", once again the ECB did not do what they did out of the goodness of their hearts and they get something in return, and some like Morgan Kelly think they should keep this "something"

The CBI is indeed doing their job, as lender of last resort in the Irish economy. The ECB have gone beyond their remit in several ways. That much is generally agreed - it's not a personal opinion on my part.

Now, for the last time - stop misrepresenting my position.

regards,
Scofflaw

ei.sdraob

Scofflaw wrote: »

The ECB have gone beyond their remit in several ways. That much is generally agreed - it's not a personal opinion on my part.

The ECB is doing its job, please stop with the whole "doing us a favour" narrative.

In exchange for the liquidity support the ECB is provided with collateral by the banks and the ECB has high standards for the collateral it will accept

By joining the euro we signed up to the ECB being the lender of last resort. The assets they took over in exchange for the lending do fit their criteria of acceptance. It is not a gift and the ECB has no choice but to provide the funding.

beeftotheheels

ei.sdraob wrote: »

The ECB is doing its job, please stop with the whole "doing us a favour" narrative.

In exchange for the liquidity support the ECB is provided with collateral by the banks and the ECB has high standards for the collateral it will accept

By joining the euro we signed up to the ECB being the lender of last resort. The assets they took over in exchange for the lending do fit their criteria of acceptance. It is not a gift and the ECB has no choice but to provide the funding.

Nope, the ECB, right now, is breaking the rules to keep our banks afloat. I am not suggesting that that action is altruistic, the ECB wants to stop contagion.

But it is breaking the rules in terms of the funding that it is giving our banks, and it has changed the rules on collateral it will accept to keep our banks afloat.

http://uk.reuters.com/article/2011/03/31/ecb-ireland-banks-idUKDEPVEE70W20110331

ei.sdraob

beeftotheheels wrote: »

Nope, the ECB, right now, is breaking the rules to keep our banks afloat. I am not suggesting that that action is altruistic, the ECB wants to stop contagion.

But it is breaking the rules in terms of the funding that it is giving our banks, and it has changed the rules on collateral it will accept to keep our banks afloat.

http://uk.reuters.com/article/2011/03/31/ecb-ireland-banks-idUKDEPVEE70W20110331

Look at the date of the article, they where providing support for months before the recent batch of downgrades reduced the banks and the country to a larger heap of rubbish.
Their action is not altruistic as Scofflaw keeps insisting, their job is to keep the euro together and main objective provide is to stability.

Trichet wrote:

In answer to your second question, I will only say that we are responsible for ensuring price stability for 331 million people, and all the decisions that we have taken since the very beginning of the euro, including today’s, have been designed to deliver price stability to 331 million people.

They are doing what they have to do to keep the show on the road, it is not the goodness of their heart that they are providing the support for. They have to do it. Refusing to provide the support would lead chaos, remember that it was rumours of the support being withdrawn that pushed Ireland towards the bailout as is being discussed in parallel thread.

beeftotheheels

ei.sdraob wrote: »

Look at the date of the article, they where providing support for months before the recent batch of downgrades reduced the banks and the country to a larger heap of rubbish.
Their action is not altruistic as Scofflaw keeps insisting, their job is to keep the euro together and main objective provide is to stability.



They are doing what they have to do to keep the show on the road, it is not the goodness of their heart that they are providing the support for. They have to do it. Refusing to provide the support would lead chaos, remember that it was rumours of the support being withdrawn that pushed Ireland towards the bailout as is being discussed in parallel thread.

Yes their job is to keep the show on the road and yes that is why they are doing this. But there are strict rules which were designed in better times restricting what they can do to keep the show on the road. They are now breaking these rules in order to further the bigger aim of keeping the show on the road hence my comments about them breaking the rules to support our banks.

I don't think we disagree on this at all. I'm more concerned that it will be used by other people as a justification for us f***ing with the ECB when the reality is that we are all in this little petri dish together.

ps to be fair to Scofflaw I don't think he was suggesting altruism at all as a motive, I think he too is of the "keeping the show on the road" school of thought.

Scofflaw

Their action is not altruistic as Scofflaw keeps insisting, their job is to keep the euro together and main objective provide is to stability.

I haven't suggested at any point their actions are altruistic, let alone kept insisting on it. They've gone beyond their remit, and from the point of view of keeping our banks open, that's been of enormous benefit to Ireland.

wearily,
Scofflaw

ei.sdraob

Scofflaw wrote: »

They've gone beyond their remit

You keep saying that, repeating something doesn't make it true.

Where exactly have they gone beyond their remit by providing liquidity to the Irish banks?

Scofflaw

ei.sdraob wrote: »

You keep saying that, repeating something doesn't make it true.

Where exactly have they gone beyond their remit by providing liquidity to the Irish banks?

Primarily in continuing to provide it well past the duration of "short term liquidity support", which is their remit:

Against these lost opportunities for loss sharing we should, in fairness, weigh the value of the extraordinary funding support the Irish banks are receiving, and recognise that the ECB has legitmate goals that go beyond the rescue of the Irish banking system. The funding support is now coming with an interest rate of 1.25 percent. It is not obvious how much of a subsidy in contained in this rate, but I don’t think it comes close to compensating for the continuing default risk being faced by the ECB, and nowhere near the rate that would need to be paid for these funds to be secured on the market – if they could be secured at all. One might argue that the ECB is only doing its job as lender of last resort. But this classic function is to provide liquidity support for short durations to solvent banks on adequate collateral. Even the ECB’s sternest critics must recognise that it has gone well beyond this role.

All things considered, it seems to me the strength of the case for a major grievance against the ECB is less than many suppose.

Source: http://www.irisheconomy.ie/index.php/2011/05/01/is-the-grievance-against-the-ecb-overdone/

In not requiring proper collateral they expose themselves hugely to risks of an Irish default - advocated, after all, pretty widely in Ireland:

As Ireland released results of stress tests of the health of its banks, revealing a 24 billion euro capital shortfall among them, the ECB said it would no longer insist on minimum credit ratings for Irish sovereign debt, or for debt guaranteed by the Irish government, when accepting it as collateral in money market operations.

Source: http://www.reuters.com/article/2011/03/31/us-ecb-liquidity-idUSTRE72U5PR20110331

The ECB is currently exposed to a huge amount of Irish bank debt on poor collateral, while prominent Irish economists advocate defaulting on the liquidity loans. Before you say it, I'm not suggesting they're doing it purely out of the goodness of their hearts - but to claim that they've simply done only what was originally in their rulebook isn't the case.

regards,
Scofflaw

RichardAnd

I think it's time for Scofflaw and ei.sdroab to sit on opposite sides of the play ground

Scofflaw

RichardAnd wrote: »

I think it's time for Scofflaw and ei.sdroab to sit on opposite sides of the play ground

Aw, but the swings and roundabouts are where the action is.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Aw, but the swings and roundabouts are where the action is.

cordially,
Scofflaw

Is this an argument for us needing a playground monitor?:)

irishh_bob

douglashyde wrote: »

Your savings would not be safe in Rabobank unless you opened a Rabobank account in another country.

If you open an account with Rabobank Ireland plc. these are under Irish Central Bank regulation. So they are the same as any other Irish bank.

incorrect , a default by the irish state would not effect rabbo as it is covered by the dutch goverment , same deal with having savings with nationwide uk , however , were ireland to exit the euro , having an account with rabbo would not shield savers from the effects of a currency devaluation but the OP wasnt talking about currency devaluation

liammur

ei.sdraob wrote: »

You keep saying that, repeating something doesn't make it true.

Where exactly have they gone beyond their remit by providing liquidity to the Irish banks?

There can be no doubt but that the ECB have gone beyond their remit. That should be clear to all, but, in this instance, it's also in their interest to do so.

OnTheQT

A default simply wont happen. People comparing us to argentina are being a bit over zealous. We have a large monetary union backing us up which does not want to weaken its purchasing power even further(the euro). If things get worse it will simply mean the ECB will put the squeeze more and more on us. Watch services dwindle even further

Boskowski

KM88 wrote: »

Should I have paid off my mortgage?

Regardless of anything else you said: Yes

douglashyde

OnTheQT wrote: »

A default simply wont happen. People comparing us to argentina are being a bit over zealous. We have a large monetary union backing us up which does not want to weaken its purchasing power even further(the euro). If things get worse it will simply mean the ECB will put the squeeze more and more on us. Watch services dwindle even further

If you read my point you would know I don't think we will default.

The title of the thread is "Default for ordinary man", I was simply making the point that the Argentina default might be an indication as to what an Irish default might resemble.

At any given time there are multiple threads discussion will or won't there be a default or exactly what might happen.

I did what a part of what the OP wanted was some idea what an ordinary Joe might do to hedge for an unlikely default.

ei.sdraob

douglashyde wrote: »

what an ordinary Joe might do to hedge for an unlikely default.

andrew

Regarding the ECB going outside of it's remit by providing cheap loans to Ireland. Formally yeah, this is the case I think. But traditionally, Central Banks have always been lenders of last resort, so in that regard acting as such isn't completely outside of the ECB's remit.

OnTheQT

As there is no precedence of this happening i.e. a first world contry defaulting, anyone commenting would only be speculating. We have enough of that in this country already