Anglo-Irish: the bank that broke the euro?

Scofflaw

Interesting working paper from the IMF here: http://www.imf.org/external/pubs/ft/wp/2011/wp11269.pdf

The authors, Ashoka Mody and Damiano Sandri, suggest that the decision to nationalise and guarantee Anglo in September 2008 and keep the bank running, rather than winding it down, was the event that caused the separation between the sovereign and the financial sector to disappear, which in turn turned the weakness of the banks into the weakness of eurozone sovereigns.

The authors rather convincingly argue that the decision to save Anglo had a very much larger impact on eurozone sovereign debt markets than did Lehman or Bear Stearns.

The significance of the Anglo Irish nationalisation as the other turning point is, at first, less evident. This was a small bank in a small eurozone country. But, it came in the wake of Lehman bankruptcy in September 2008 with banks worldwide in an elevated state of vulnerability and a widespread sense of interconnections in bank balance sheets, as seen in the heightened comovement of banks’ credit default spreads (Eichengreen, Mody, Nedeljkovic, and Sarno, 2009). Reporting the nationalisation of Anglo Irish on January 16, 2009, the British newspaper, the Independent, noted that the event had generated “talk of further state control of U.K. and U.S. banks.”

Much of the paper is technical, so some highlights:

Second, and more importantly, the correlation structure between sovereign spreads and the financial sector index changed markedly after the rescue of Anglo Irish. A weakening of the financial sector was now contemporaneously associated with higher spreads, while the lagged coefficients of the financial index turned statistically insignificant. How do we interpret these findings? While recognizing that lagged correlations cannot prove causality, we believe the econometric results suggest a plausible and interesting progression of the crisis.

After the introduction of the euro in January 1999, the fall in risk premia on the bonds of eurozone sovereigns compressed them into a narrow range across the member countries (Ehrmann et al., 2011) within which shortterm movements were essentially random. Markets judged the probability of default by eurozone sovereigns to be negligible. That changed with the start of the Subprime crisis in July 2007, at which point a eurozone crisis took shape as an offshoot of the global crisis. But soon thereafter, starting in March 2008 with the rescue of Bear Stearns, the presumption that sovereigns would ride to the rescue of their domestic banking sector, linked the projection of a eurozone member’s sovereign debt to its domestic financial vulnerabilities: sovereign spreads now rose in response to perceived weakness of domestic banks. And when the fiscal space to deal with those vulnerabilities narrowed, as appears to have occurred around the nationalisation of Anglo Irish, the fates of financial sectors and sovereigns became intertwined.

The immediate aftermath of the Anglo Irish nationalisation brought a short period of relief. Financial prospects seemed to improve and so did those of the sovereign. However, with the untenable nature of the Anglo Irish rescue becoming evident and the Greek fiscal concerns in Fall 2009, a rapid and virtually relentless increase in sovereign and banking vulnerabilities ensued.

...

Until the nationalization of Anglo Irish, the nature of crisis was rather straightforward, primarily driven by financial shocks. Policies targeted to supporting the financial sector had therefore a clear potential to alleviate the crisis. Such policies carried the risk of perpetuating the incentives of bankers to behave irresponsibly in the future, and were especially prone to errors in judgment on the scale of help needed. The size and scope of the guarantees provided by the government to ensure liquidity for banks has indeed proved controversial. And an orderly winding down of Anglo Irish, rather than its nationalisation, would certainly in retrospect have been the superior course of action. But most countries had at the time enough fiscal space to finance these interventions, and the reductions in spreads after the rescue of Bear Stearns and even after the nationalization of Anglo, tended to support such activism.

It's interesting to contrast this with Noonan's remarks today that Ireland has borne a "disproportionate share of protecting the European banking system". If the authors' contention is right, then Ireland - or, rather, two or three Irish men at the core of the 'Cabinet' decision to rescue Anglo - may well have taken the decision that broke the camel's back.

And what is Noonan asking for - why, a reduction in the repayments on the money Ireland borrowed from the ECB to rescue Anglo with. Nobody can claim we lack chutzpah.

cordially,
Scofflaw

R P McMurphy

Nobody can claim we lack chutzpah.

Definitely, must be the culmination of what the Bertie cabinet constantly referred to as us punching well above our weight on the European stage?

Scofflaw

R P McMurphy wrote: »

Nobody can claim we lack chutzpah.

Definitely, must be the culmination of what the Bertie cabinet constantly referred to as us punching well above our weight on the European stage?

I think you could probably call the near-destruction (and still possibly yet destruction) of a multi-trillion currency used by 375 million people "punching above your weight"...

amused,
Scofflaw

syklops

Well first off, their kind of jumping the gun, the Euro is not broken(yet), but in a game where confidence is really important articles like this don't help.

Scofflaw

syklops wrote: »

Well first off, their kind of jumping the gun, the Euro is not broken(yet), but in a game where confidence is really important articles like this don't help.

Not sure why that would be the case - it's an analysis of the growth of the crisis, that's all. Or is there a newspaper article I'm missing?

cordially,
Scofflaw

syklops

It's interesting to contrast this with Noonan's remarks today that Ireland has borne a "disproportionate share of protecting the European banking system". If the authors' contention is right, then Ireland - or, rather, two or three Irish men at the core of the 'Cabinet' decision to rescue Anglo - may well have taken the decision that broke the camel's back.

Thats twice in this thread, including the title that 'broke' has been used when describing the euro. As I said before it is not broken. It is in crisis, it is in turmoil, but many people are working very hard to fix things and until they fail I dont think it is correct to talk about the Euro in the past tense.

The term "The straw that broke the camels back is usually reserved for the final straw, not the first or one of the middle ones. Ireland recapitalised Anglo, and a year ago, almost to the day, Ireland got a bail out. Since then we have elected a new government and begun stringent austerity measures, meanwhile the governments of Greece and Italy have hummed and hawed. The Greek PM rather than be decisive and either accept or reject a bailout has called for a referendum instead. So we are still waiting to see what will happen with them.

Meanwhile Italy looks set to be headed for financial crisis also. They could be the straw that breaks the camels back. Anglo was just a bump in the road.

Scofflaw

syklops wrote: »

Thats twice in this thread, including the title that 'broke' has been used when describing the euro. As I said before it is not broken. It is in crisis, it is in turmoil, but many people are working very hard to fix things and until they fail I dont think it is correct to talk about the Euro in the past tense.

The term "The straw that broke the camels back is usually reserved for the final straw, not the first or one of the middle ones. Ireland recapitalised Anglo, and a year ago, almost to the day, Ireland got a bail out. Since then we have elected a new government and begun stringent austerity measures, meanwhile the governments of Greece and Italy have hummed and hawed. The Greek PM rather than be decisive and either accept or reject a bailout has called for a referendum instead. So we are still waiting to see what will happen with them.

Meanwhile Italy looks set to be headed for financial crisis also. They could be the straw that breaks the camels back. Anglo was just a bump in the road.

I admit I was thinking more in terms of the camel's back being a non-crisis euro, rather than the euro itself. It's not necessary for the euro to have been destroyed for it to be "broken", though - if it isn't broken, what exactly are they trying to fix?

Have you read the paper?

cordially,
Scofflaw

V_Moth

syklops wrote: »

Thats twice in this thread, including the title that 'broke' has been used when describing the euro. As I said before it is not broken. It is in crisis, it is in turmoil, but many people are working very hard to fix things and until they fail I dont think it is correct to talk about the Euro in the past tense.

The term "The straw that broke the camels back is usually reserved for the final straw, not the first or one of the middle ones. Ireland recapitalised Anglo, and a year ago, almost to the day, Ireland got a bail out. Since then we have elected a new government and begun stringent austerity measures, meanwhile the governments of Greece and Italy have hummed and hawed. The Greek PM rather than be decisive and either accept or reject a bailout has called for a referendum instead. So we are still waiting to see what will happen with them.

Meanwhile Italy looks set to be headed for financial crisis also. They could be the straw that breaks the camels back. Anglo was just a bump in the road.

Where have you been the last two weeks? It's game over for the Euro. Even the Eurobonds could not save it anymore. Current crisis:

• German bond auction fails (http://www.irishtimes.com/newspaper/frontpage/2011/1124/1224308057852.html)
• Belgium heading for trouble (http://www.irishtimes.com/newspaper/world/2011/1123/1224307999105.html)
• Greece running out of money (http://www.irishtimes.com/newspaper/world/2011/1123/1224307999110.html)
• France heading for downgrade (http://www.irishtimes.com/newspaper/world/2011/1122/1224307948107.html)

And that is before you even consider the ever increasing bond rates for Italy and Spain.


As for Anglo Irish, I think the analysis is correct in that the action taken completely changed the landscape.

Scofflaw

I don't think we're at 'game over' for the euro any more than we have been in the three years since people started saying it. Until the political decision is made to terminate the euro, there's no reason for it to cease to be. I don't think we're there yet - failure to successfully cure the crisis because of national reluctance isn't the same as there being a good reason to dissolve the euro, and the idea that dissolving the euro would in any way cure the crisis is one for which nobody has really put forward a good case.

The euro's problems are more simply that it has been treated all along as implicitly backed by Germany, and Germany wants to stop that becoming formally and fully the case. On the other hand, it has a lot to lose by losing the euro, so it essentially comes down to the question of whether Germany decides to formally backstop the euro or pay the costs of exiting it - currently they're pursuing a strategy of avoiding that decision in the hopes that it will go away, and with the risk that by the time they decide to backstop the euro - if they do so decide - they may lack the credibility to do so.

The eurozone has the capacity - several times over - to see off any real challenge to the euro, as long as they're willing to pay the costs involved. The only question that determines the fate of the euro is whether they are.

cordially,
Scofflaw

cavedave

Can we put the blame where it obviously lies? With Joe Duffy :eek:

I said at the time that Lenihens phoning into Joe to give out about people claiming there was a bank run and giving out to Joe for allowing them air time might ultimately be seen as a world changing event. Rather oddly it now seems to have more then a grain of truth in it.

was the event that caused the separation between the sovereign and the financial sector to disappear,

Blaming Joe Duffy aside was it ever not a sovereign issue?

ponder the lesson of this crisis (and the Great Depression): bank crises are ultimately sovereign debt crises. Given the size of modern states, and the complexity of modern economies, a broad banking crisis forces the sovereign to step in (and if they don't, it vaporizes so much tax revenue that from the perspective of their creditors, they might as well have).

seamus

cavedave wrote: »

Blaming Joe Duffy aside was it ever not a sovereign issue?

Strictly speaking I think that line was referring to our current predicament where the state and the banks are now one and all debts are one, whereas previously at least it could be claimed that banks are independent institutions at the whim of market demands and a state could always just let a bank go and see what happens. That option is now gone though.

As to whether Anglo "broke" the euro, I think the alternative possibilities need to be looked at before absolute fault can be placed at Anglo's door.

That is, what would have happened if the Irish government left the banks to the wolves? At least Anglo and AIB would be gone. BOI might come out of it badly scarred and a shell of what it was. NIB, PTSB, gone. Run on the banks, billions in savings lost, companies collapsed (no money), economy collapsed?

Around mid-2009 I was thinking that Anglo should have been set adrift and the others given a guarantee, but it's been made clear since that the worldwide banking system is just this spaghetti mess of banks investing in banks investing in banks who are investing in banks. If they'd just let Anglo go, then we still would have been left holding Anglo's mess in the form of a guarantee on BOI and AIB.

Maybe that's the advice that was received in 2008 - "If one goes, they all go, then europe goes".
Maybe he thought that if stability could be maintained, the issue could resolve itself?

Scofflaw

seamus wrote: »

Strictly speaking I think that line was referring to our current predicament where the state and the banks are now one and all debts are one, whereas previously at least it could be claimed that banks are independent institutions at the whim of market demands and a state could always just let a bank go and see what happens. That option is now gone though.

As to whether Anglo "broke" the euro, I think the alternative possibilities need to be looked at before absolute fault can be placed at Anglo's door.

That is, what would have happened if the Irish government left the banks to the wolves? At least Anglo and AIB would be gone. BOI might come out of it badly scarred and a shell of what it was. NIB, PTSB, gone. Run on the banks, billions in savings lost, companies collapsed (no money), economy collapsed?

Around mid-2009 I was thinking that Anglo should have been set adrift and the others given a guarantee, but it's been made clear since that the worldwide banking system is just this spaghetti mess of banks investing in banks investing in banks who are investing in banks. If they'd just let Anglo go, then we still would have been left holding Anglo's mess in the form of a guarantee on BOI and AIB.

Maybe that's the advice that was received in 2008 - "If one goes, they all go, then europe goes".
Maybe he thought that if stability could be maintained, the issue could resolve itself?

I don't think the alternative to rescuing Anglo as was done, as a going concern, was letting it collapse - the authors explicitly suggest immediately taking it into a wind-down process in which it would have been made clear that bondholders would suffer losses. Nationalising and guaranteeing the other banks would have clearly have demarcated them from Anglo.

I think the problem was that Anglo represented itself as solvent, and its problems as temporary liquidity issues that could be solved by a guarantee, rather than a complete collapse of its business model with the property bubble bursting - and the government believed them.

cordially,
Scofflaw

ianuss

seamus wrote: »

Strictly speaking I think that line was referring to our current predicament where the state and the banks are now one and all debts are one, whereas previously at least it could be claimed that banks are independent institutions at the whim of market demands and a state could always just let a bank go and see what happens. That option is now gone though.

As to whether Anglo "broke" the euro, I think the alternative possibilities need to be looked at before absolute fault can be placed at Anglo's door.

That is, what would have happened if the Irish government left the banks to the wolves? At least Anglo and AIB would be gone. BOI might come out of it badly scarred and a shell of what it was. NIB, PTSB, gone. Run on the banks, billions in savings lost, companies collapsed (no money), economy collapsed?

Around mid-2009 I was thinking that Anglo should have been set adrift and the others given a guarantee, but it's been made clear since that the worldwide banking system is just this spaghetti mess of banks investing in banks investing in banks who are investing in banks. If they'd just let Anglo go, then we still would have been left holding Anglo's mess in the form of a guarantee on BOI and AIB.

Maybe that's the advice that was received in 2008 - "If one goes, they all go, then europe goes".
Maybe he thought that if stability could be maintained, the issue could resolve itself?

Apologies for going slightly off topic but why would NIB (Danske Bank) be gone?

seamus

ianuss wrote: »

Apologies for going slightly off topic but why would NIB (Danske Bank) be gone?

I was thinking of Irish Nationwide. Stupid acronyms.

Sand

I'm curious if Im taking this right - this paper is trying to argue that the decision to guarantee the debts of banking sector in general, and to nationalise Anglo-Irish in particular was really dumb because it was too big for the Irish sovereign to save and the debts taken on by plucky little Paddy ended up strangling us.

Fair enough. Its a very long winded way of saying that if you take on the debts of others, dont be surprised when people wonder if you can cover your own debts too. It was for this reason back in 2009 people were saying "We've got to reverse this stupid banking policy before its too late - its going to sink us!" whilst others were saying "Nah - it'll be grand. Stop being alarmist. It's never as bad as people say. Trust the plan. Anyway, there is no alternative".

It's interesting to contrast this with Noonan's remarks today that Ireland has borne a "disproportionate share of protecting the European banking system". If the authors' contention is right, then Ireland - or, rather, two or three Irish men at the core of the 'Cabinet' decision to rescue Anglo - may well have taken the decision that broke the camel's back.

Scofflaw I think you're really, really stretching what theyre saying to try and portray Anglo-Irish as the bank that broke the Euro. And I've looked through the document and been unable to find any mention of where the the report makes that contention.

They're using it as an example. The implicit link between an insolvent, overextended financial sector and the domestic sovereign's own liability was already well understood.

Markets judged the probability of default by eurozone sovereigns to be negligible. That changed with the start of the Subprime crisis in July 2007, at which point a eurozone crisis took shape as an offshoot of the global crisis. But soon thereafter, starting in March 2008 with the rescue of Bear Stearns, the presumption that sovereigns would ride to the rescue of their domestic banking sector, linked the projection of a eurozone member’s sovereign debt to its domestic financial vulnerabilities: sovereign spreads now rose in response to perceived weakness of domestic banks. And when the fiscal space to deal with those vulnerabilities narrowed, as appears to have occurred around the nationalisation of Anglo Irish, the fates of financial sectors and sovereigns became intertwined.

What happened was the markets became more and more aware of just how badly screwed banks across Europe were by their poor investments in periphery property bubbles and stupid US derivative shennanigans and "riskless" bankrupt governments - Germany was happy enough to allow for the riskless pricing of periphery debt until it became possible they might actually have to pay for it.

The powers that be refused to either allow for inflation, default or fiscal transfers to solve the problem and instead played for time - kicking the can down the road hoping something would come up. Well something has come up...

I think if its fair to say we are responsible for our own mess (and largely, it is) then the rest of the Eurozone is going to have to man up and take the responsibility for a mess of their own creation.

Scofflaw

Sand wrote: »

I'm curious if Im taking this right - this paper is trying to argue that the decision to guarantee the debts of banking sector in general, and to nationalise Anglo-Irish in particular was really dumb because it was too big for the Irish sovereign to save and the debts taken on by plucky little Paddy ended up strangling us.

Fair enough. Its a very long winded way of saying that if you take on the debts of others, dont be surprised when people wonder if you can cover your own debts too. It was for this reason back in 2009 people were saying "We've got to reverse this stupid banking policy before its too late - its going to sink us!" whilst others were saying "Nah - it'll be grand. Stop being alarmist. It's never as bad as people say. Trust the plan. Anyway, there is no alternative".



Scofflaw I think you're really, really stretching what theyre saying to try and portray Anglo-Irish as the bank that broke the Euro. And I've looked through the document and been unable to find any mention of where the the report makes that contention.

They're using it as an example. The implicit link between an insolvent, overextended financial sector and the domestic sovereign's own liability was already well understood.

No, I don't think they're using it as an "example". They're more saying that it was the spark that lit the powder, I would say, and I think that's clear enough even from the bits of the report I've quoted. They're very definitely saying Anglo represents a watershed, in and of itself.

Sand wrote: »

What happened was the markets became more and more aware of just how badly screwed banks across Europe were by their poor investments in periphery property bubbles and stupid US derivative shennanigans and "riskless" bankrupt governments - Germany was happy enough to allow for the riskless pricing of periphery debt until it became possible they might actually have to pay for it.

The powers that be refused to either allow for inflation, default or fiscal transfers to solve the problem and instead played for time - kicking the can down the road hoping something would come up. Well something has come up...

I think if its fair to say we are responsible for our own mess (and largely, it is) then the rest of the Eurozone is going to have to man up and take the responsibility for a mess of their own creation.

Sure, but that doesn't really have much to do with the view being put forward by the paper. I don't think anyone is claiming that if it hadn't been for Anglo nothing bad would have happened, or that Ireland is somehow to blame for the crisis - given the complexity of the crisis that's either a straw man or a dreadfully simplistic reading.

Having said that, I admit my thread title is over-dramatic, but surely even I'm allowed an occasional indulgence in the dramatic!

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

The eurozone has the capacity - several times over - to see off any real challenge to the euro, as long as they're willing to pay the costs involved. The only question that determines the fate of the euro is whether they are.

I never realised that.

Could you tell me how much it will cost to see off any real challenge and where the "several times over" monetary capacity to do so will come from?

Some numbers would be nice.

liammur

Scofflaw wrote: »

Interesting working paper from the IMF here: http://www.imf.org/external/pubs/ft/wp/2011/wp11269.pdf

The authors, Ashoka Mody and Damiano Sandri, suggest that the decision to nationalise and guarantee Anglo in September 2008 and keep the bank running, rather than winding it down, was the event that caused the separation between the sovereign and the financial sector to disappear, which in turn turned the weakness of the banks into the weakness of eurozone sovereigns.

The authors rather convincingly argue that the decision to save Anglo had a very much larger impact on eurozone sovereign debt markets than did Lehman or Bear Stearns.



Much of the paper is technical, so some highlights:







It's interesting to contrast this with Noonan's remarks today that Ireland has borne a "disproportionate share of protecting the European banking system". If the authors' contention is right, then Ireland - or, rather, two or three Irish men at the core of the 'Cabinet' decision to rescue Anglo - may well have taken the decision that broke the camel's back.

And what is Noonan asking for - why, a reduction in the repayments on the money Ireland borrowed from the ECB to rescue Anglo with. Nobody can claim we lack chutzpah.

cordially,
Scofflaw

It wasn't the bank that did the damage, it was the decision to guarantee it against the wishes of everyone, that did the damage. Iceland had toxic banks but they just let them go.

liammur

Amberman wrote: »

I never realised that.

Could you tell me how much it will cost to see off any real challenge and where the "several times over" monetary capacity to do so will come from?

Some numbers would be nice.

Nobody knows what that cost is, but I don't think they have the firepower to see off the challenge, let alone several times over. If the countries involved weren't haemorrhaging cash at an unprecedented level, then maybe there would be a solution.

Sand

@Scofflaw

I cant see where they say that Anglo "was the spark that lit the powder". And neither can you or you'd have supplied a direct quote. Both the Bear Stearns rescue and the Lehmans non-rescue were far more significant - even the authors say Anglo is only notable in that context. No important precedents were set in the wake of Anglo that hadnt already been set by Bear Stearns and Lehmans.

Even the quote from the Telegraph dwells entirely on UK, German and US banking woes

“Bank shares fell heavily in the U.S. and Europe yesterday on fears that more big lenders would have to ask for state help. Speculation mounted that Bank of America and Citigroup could be fully nationalised. In the U.K., where the government now owns part or all of five banks, concerns increased that Royal Bank of Scotland could be fully nationalised after a dire profit warning from Deutsche Bank. Germany's biggest lender admitted to a disastrous fourth quarter in the wake of the Lehman Brothers bankruptcy that spelt bad news for U.K. banks such as RBS and Barclays.”

No evidence here that Anglo "was the spark that lit the powder".

And if they *did* say such a thing, then Id have to question their competence. Id class the idea that nationalising a *tiny* bank in a peripheral eurozone state as "the spark that lit the power" across the entire Eurozone up there with the popular Fianna Fail notion that "It wuz Lehmans wut done it!".

At best, youve taken a view, and youre using their work to give it some credibility. Thats fine, in and of itself, but dont misrepresent the reports authors conclusion - which is, as I said, a very long winded, technical way of proving common sense.

If Anglo is a watershed, its only in so far as Ireland is one of a handful of Eurzone states to nationalise their banks. The rest of the Eurozone managed to get into trouble without any help from Ireland.

I accept you have somewhat overegged the pudding with the title. The spark was the design of the Euro. We ****ed up royally, but we are 1% of the Eurozone - nobodies. As you have repeatedly reminded the alarmists, Ireland is essentially powerless, adrift on a vast ocean of apathy, directed only by the wake of our more powerful Eurozone "partners".

It seems disingenuous to portray us as simultaneously powerless, and yet powerful enough to bring down the entire Euro project and its sovereign states.

Are you admitting that we actually did have a bargaining chip to play in our negotiations then?

I don't think anyone is claiming that if it hadn't been for Anglo nothing bad would have happened, or that Ireland is somehow to blame for the crisis - given the complexity of the crisis that's either a straw man or a dreadfully simplistic reading.

*Checks thread title
*Checks quote:

And what is Noonan asking for - why, a reduction in the repayments on the money Ireland borrowed from the ECB to rescue Anglo with. Nobody can claim we lack chutzpah.

Scofflaw

Sand wrote: »

@Scofflaw

I cant see where they say that Anglo "was the spark that lit the powder". And neither can you or you'd have supplied a direct quote. Both the Bear Stearns rescue and the Lehmans non-rescue were far more significant - even the authors say Anglo is only notable in that context. No important precedents were set in the wake of Anglo that hadnt already been set by Bear Stearns and Lehmans.

Even the quote from the Telegraph dwells entirely on UK, German and US banking woes

“Bank shares fell heavily in the U.S. and Europe yesterday on fears that more big lenders would have to ask for state help. Speculation mounted that Bank of America and Citigroup could be fully nationalised. In the U.K., where the government now owns part or all of five banks, concerns increased that Royal Bank of Scotland could be fully nationalised after a dire profit warning from Deutsche Bank. Germany's biggest lender admitted to a disastrous fourth quarter in the wake of the Lehman Brothers bankruptcy that spelt bad news for U.K. banks such as RBS and Barclays.”

No evidence here that Anglo "was the spark that lit the powder".

And if they *did* say such a thing, then Id have to question their competence. Id class the idea that nationalising a *tiny* bank in a peripheral eurozone state as "the spark that lit the power" across the entire Eurozone up there with the popular Fianna Fail notion that "It wuz Lehmans wut done it!".

At best, youve taken a view, and youre using their work to give it some credibility. Thats fine, in and of itself, but dont misrepresent the reports authors conclusion - which is, as I said, a very long winded, technical way of proving common sense.

If Anglo is a watershed, its only in so far as Ireland is one of a handful of Eurzone states to nationalise their banks. The rest of the Eurozone managed to get into trouble without any help from Ireland.

Er, the point that Anglo is important is the whole point of the paper. That is, in case there's any misunderstanding, it's what the paper is about. The econometric models etc are all about showing Anglo as a highly important turning point. So I'm forced to completely reject your charge that it's my claim and that I'm stretching the paper to back it! On the contrary, it's the authors' claim, and I'm only drawing attention to it.

The authors divide the crisis into phases, and one of their major turning points is Anglo:



I don't see how you can possibly argue that the authors aren't really considering Anglo as important, bar not actually having read the paper!

Sand wrote: »

I accept you have somewhat overegged the pudding with the title. The spark was the design of the Euro.

No, that's either simply wrong or very badly put - the design of the euro, in such an analogy, is rather obviously the powder keg.

Sand wrote: »

We ****ed up royally, but we are 1% of the Eurozone - nobodies. As you have repeatedly reminded the alarmists, Ireland is essentially powerless, adrift on a vast ocean of apathy, directed only by the wake of our more powerful Eurozone "partners".

It seems disingenuous to portray us as simultaneously powerless, and yet powerful enough to bring down the entire Euro project and its sovereign states.

It seems contrary to common sense, but I suggest you read the paper.

Sand wrote: »

Are you admitting that we actually did have a bargaining chip to play in our negotiations then?

*Checks thread title
*Checks quote:

What, that we could have not guaranteed Anglo? Hard to see how one could use that as a bargaining chip?

cordially,
Scofflaw

Sand

@Scofflaw

Er, the point that Anglo is important is the whole point of the paper. That is, in case there's any misunderstanding, it's what the paper is about.

Nope - the purpose of the paper is described in the abstract.

We use the rise and dispersion of sovereign spreads to tell the story of the emergence and escalation of financial tensions within the eurozone. This process evolved through three stages. Following the onset of the Subprime crisis in July 2007, spreads rose but mainly due to common global factors. The rescue of Bear Stearns in March 2008 marked the start of a distinctively European banking crisis. During this key phase, sovereign spreads tended to rise with the growing demand for support by weakening domestic financial sectors, especially in countries with lower growth prospects and higher debt burdens. As the constraint of continued fiscal commitments became clearer, and coinciding with the nationalization of Anglo Irish in January 2009, the separation between the sovereign and the financial sector disappeared.

As you would no doubt know yourself correlation does not imply causality. So putting that to one side, we are then left with two possibilites: That Anglo was some sort of signal for inexplicable mass panick, or that the simultaneous terrible news being published in interntaional papers regarding UK, US and German banks and peripheral sovereigns like Greece (bailed out only 4 months later) was far more important.

Well actually, we only have one possibility, because the idea that a the nationalisation of an *already guaranteed* tiny peripheral bank by a tiny peripheral sovereign was important on a global scale is just not worth entertaining.

Look - you have your view that Ireland deserves everything it gets, and you've siezed on this paper to support that view. Thats fine - but it is not the conclusion of the paper that it was Anglo that "was the spark that lit the powder". That sort of claim would be up their with Berties heartfelt view that it was Lehmans that destroyed his economic miracle.

What, that we could have not guaranteed Anglo? Hard to see how one could use that as a bargaining chip?

Hey, its your illogical view that we are simultaneously powerless and yet powerful enough to bring down the Euro.

Maybe we could have threatened to nationalise a bank every month until Germany surrendered? :pac:

irish brit

http://www.thisislondon.co.uk/standa...edit-crunch.do