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How exposed are taxpayers and savers if the banks fail again?

Ludwig Heinrich Edler

According to this recent documentary, a total global economic implossion is a very real and pending possibility.

https://www.youtube.com/watch?v=t6m49vNjEGs

If so, and if the Irish banks fail again, will the savers be wiped out via bank bailins? And, will the taxpayer be prevailed upon to bail them out again? The last bank crisis was sparked by the subprime mortgage crisis in the US and it`s impact on the derivatives markets. The global derivatives market is one quadrillion US dollars in size, i.e. $1000,000,000,000,000 which is a bit scary.

Derivatives are basically financial market bets on the outcome of other bets, and more bets on the outcome of those bets. So, in most cases the institutional investors like pension funds and insurance companies have no clue as to what they are actually buying in the derivatives markets.

With all these financial firms moving to Ireland pre Brexit, will Ireland have to stand over their activities if they go bankrupt?

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Ludwig Heinrich Edler wrote: »

According to this recent documentary, a total global economic implossion is a very real and pending possibility.

https://www.youtube.com/watch?v=t6m49vNjEGs

If so, and if the Irish banks fail again, will the savers be wiped out via bank bailins? And, will the taxpayer be prevailed upon to bail them out again? The last bank crisis was sparked by the subprime mortgage crisis in the US and it`s impact on the derivatives markets. The global derivatives market is one quadrillion US dollars in size, i.e. $1000,000,000,000,000 which is a bit scary.

Derivatives are basically financial market bets on the outcome of other bets, and more bets on the outcome of those bets. So, in most cases the institutional investors like pension funds and insurance companies have no clue as to what they are actually buying in the derivatives markets.

With all these financial firms moving to Ireland pre Brexit, will Ireland have to stand over their activities if they go bankrupt?

We had our own property based crash too. IMO, we were due a crash, (although likely not to the same extent) even without any US/world negative interference.
IMO, it is likely we will stand over losses in such an eventuality and if the EU says we shouldn't, likely we'll argue the case but bow to our lenders in Brussels. Be interesting with 'outside' banks at play, but generally all these institutions come under the same monetary cabal anyway?

blanch152

Rather than people speculating about what might happen and what Europe might tell us to do, they should refer to the actual law in place since 2014 for rescuing financial institutions. Here is the European Directive:

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0059

Here is the Irish regulation on the issue:

http://www.finance.gov.ie/news-centre/press-releases/european-union-bank-recovery-and-resolution-regulations-2015

Here is a Central Bank explanation:

https://www.centralbank.ie/financial-system/resolution

Here is the UK regulations and explanatory material:

https://www.fca.org.uk/firms/recovery-resolution-directive

Now, I don't think any of these have produced YouTube videos to debunk other YouTube videos, but if I am looking for information on what happens when a bank collapses, I will be reading directives and legislation, not watching doomsday YouTube videos or idly speculating.

Jim2007

Ludwig Heinrich Edler wrote: »

According to this recent documentary, a total global economic implossion is a very real and pending possibility.

https://www.youtube.com/watch?v=t6m49vNjEGs

Well first of all that is not a documentary, it is a propaganda film for the Vollgeld Initiative (on which I will get to vote, as I'm a dual citizen). And although they did manage to collect the required 100k signatures, it is unlikely to succeed because it does not have the support of the parties nor the government.

Ludwig Heinrich Edler wrote: »

So, in most cases the institutional investors like pension funds and insurance companies have no clue as to what they are actually buying in the derivatives markets.

This is not true. Because in most countries pension funds etc are prohibited from hold such instruments. And in the case of insurance companies the restriction on holding anything other than bonds and near money market products is even higher.

Ludwig Heinrich Edler wrote: »

With all these financial firms moving to Ireland pre Brexit, will Ireland have to stand over their activities if they go bankrupt?

While we will have to regulate them, most of them are not dealing with the public as such and don't represent any great threat. The really toxic stuff will remain in the UK because it would be prohibited under EU rules.

If I was to guess I'd say that the next crisis will come from Private Credit, people continue to add more and more borrowings, unchecked and if it continues it will become a problem, if not already.

Ludwig Heinrich Edler

Jim2007 wrote: »

This is not true. Because in most countries pension funds etc are prohibited from hold such instruments. And in the case of insurance companies the restriction on holding anything other than bonds and near money market products is even higher.

The next crisis may devalue not just equities but also bonds and major currencies. Commodities will retain some worth of course but because all activity slows in an economic crisis, such assets would need to be carefully chosen. For several reasons, I am not convinced gold is necessarily the panacea either.

An economic tsunami would destroy much of the world`s wealth and to avoid the path of destruction, one would need to find a pocket of capitalism which is uncorrupted but also insulated from the destructive influences of QE, low interest rates and uncontrolled speculation with cheap credit. Any suggestions?

Jim2007

Ludwig Heinrich Edler wrote: »

The next crisis may devalue not just equities but also bonds and major currencies. Commodities will retain some worth of course but because all activity slows in an economic crisis, such assets would need to be carefully chosen. For several reasons, I am not convinced gold is necessarily the panacea either.

An economic tsunami would destroy much of the world`s wealth and to avoid the path of destruction, one would need to find a pocket of capitalism which is uncorrupted but also insulated from the destructive influences of QE, low interest rates and uncontrolled speculation with cheap credit. Any suggestions?

Yes stop listening to the talking heads and do some real fact based research.

Peregrinus

Ludwig Heinrich Edler wrote: »

An economic tsunami would destroy much of the world`s wealth and to avoid the path of destruction, one would need to find a pocket of capitalism which is uncorrupted but also insulated from the destructive influences of QE, low interest rates and uncontrolled speculation with cheap credit. Any suggestions?

Pretty much by definition what you seek is impossible. If there were such an uncorrupted pocket of capitalism in the scenario you describe it would be instantly corrupted by the huge inward flood of capital competitively chasing the necessarily limited investment opportunities available. Can you say "bubble"?

To get buy in the scenario you envisage, Ludo, your best preparation is to stockpile tinned goods, and learn to grow your own vegetables.

Ludwig Heinrich Edler

Jim2007 wrote: »

Yes stop listening to the talking heads and do some real fact based research.

Your quotation reminds me of Bertie Ahern`s infamous assertion a few months before the house of cards collapsed: "Cribbing and moaning is a wasted opportunity. I don`t know how people who engage in that don`t commit suicide."

Deutsche Welle (DW) is a highly respected international broadcaster. Why the German perspective is so casually brushed aside in favour of the countries which have been so fiscally irresponsible is a mystery to me. Especially when one takes into account the German experience of money printing and hyperinflation.

blanch152

Ludwig Heinrich Edler wrote: »

Your quotation reminds me of Bertie Ahern`s infamous assertion a few months before the house of cards collapsed: "Cribbing and moaning is a wasted opportunity. I don`t know how people who engage in that don`t commit suicide."

.

I don't think people are putting your posts and the links in the same bracket. However, what is missing from all the doom and gloom is some hard analysis. It is very easy to post a comment like this:

Ludwig Heinrich Edler wrote: »

. For several reasons, I am not convinced gold is necessarily the panacea either.

However, that is completely unsubstantiated in the rest of your post, and leaves a credibility gap.

Jim2007

Ludwig Heinrich Edler wrote: »

Your quotation reminds me of Bertie Ahern`s infamous assertion a few months before the house of cards collapsed: "Cribbing and moaning is a wasted opportunity. I don`t know how people who engage in that don`t commit suicide."

How is that even relevant? What I have told you to do is put in the time to understand the issues for yourself and stop being led by the opinions of others???

Ludwig Heinrich Edler wrote: »

Deutsche Welle (DW) is a highly respected international broadcaster. Why the German perspective is so casually brushed aside in favour of the countries which have been so fiscally irresponsible is a mystery to me. Especially when one takes into account the German experience of money printing and hyperinflation.

I'm well aware of who DW is, but that does no mean that their talking heads are any better than those of any other network! They are paid to be talking heads and as such their perspective and objectives are not the same as yours. The media's objective is to catch people's interest and sell advertising not help you with your investment decisions. If the talking heads have not got some good sound bites for the show, they will not be there next week.

Successful investing is hard work, very hard work, it involves hours and hours of research - going over economic stats, financial statements, company filings etc.... It does not consist of listen to the talking heads on CNBC or where ever and reacting to them.

CalamariFritti

Ludwig Heinrich Edler wrote: »

According to this recent documentary, a total global economic implossion is a very real and pending possibility.

https://www.youtube.com/watch?v=t6m49vNjEGs

If so, and if the Irish banks fail again, will the savers be wiped out via bank bailins? And, will the taxpayer be prevailed upon to bail them out again? The last bank crisis was sparked by the subprime mortgage crisis in the US and it`s impact on the derivatives markets. The global derivatives market is one quadrillion US dollars in size, i.e. $1000,000,000,000,000 which is a bit scary.

Derivatives are basically financial market bets on the outcome of other bets, and more bets on the outcome of those bets. So, in most cases the institutional investors like pension funds and insurance companies have no clue as to what they are actually buying in the derivatives markets.

With all these financial firms moving to Ireland pre Brexit, will Ireland have to stand over their activities if they go bankrupt?

They could simply not buy these and let the financial product creatives live in their own world.

machiavellianme

Bitcoin and magic beans, that's the future.

Ludwig Heinrich Edler

Jim2007 wrote: »

How is that even relevant? What I have told you to do is put in the time to understand the issues for yourself ...

I have and I do. In time, you too will understand but regretably I think your enlightenment will come at a high price.

Jim2007 wrote: »

I'm well aware of who DW is, but that does no mean that their talking heads are any better than those of any other network! They are paid to be talking heads and as such their perspective and objectives are not the same as yours. The media's objective is to catch people's interest and sell advertising not help you with your investment decisions. If the talking heads have not got some good sound bites for the show, they will not be there next week.

Successful investing is hard work, very hard work, it involves hours and hours of research - going over economic stats, financial statements, company filings etc.... It does not consist of listen to the talking heads on CNBC or where ever and reacting to them.

You say that and yet the investment banks had to be bailed out in 2008. These cry baby capitalists are not the real McCoy. True investing involves taking a hit when you get it wrong, it is not about being bailed out.

Certainly a good analytical accountant can identify the true health of a company if given unrestricted access to their books and documentation but I would not trust a company`s published reports.

Also, given the times we live in, even a profitable company is a perilous proposition as it`s health depends on a system which is fueled by central bank credit and artificially low interest rates. After all, if all their clients and affiliates go bust, so do they.

On investing, it is useful to have a very strong moral compass and a lot of patience.

Ludwig Heinrich Edler

CalamariFritti wrote: »

They could simply not buy these and let the financial product creatives live in their own world.

They could but they don`t. That quadrillion dollars in derivaties is hard to ignore. Who is buying them if not institutions? The regulations would not appear to be working and how could they when the purchasing of derivatives can be conducted offshore by a shell company. (That was mentioned in the DW documentary.)

Marcusm

Ludwig Heinrich Edler wrote: »

They could but they don`t. That quadrillion dollars in derivaties is hard to ignore. Who is buying them if not institutions? The regulations would not appear to be working and how could they when the purchasing of derivatives can be conducted offshore by a shell company. (That was mentioned in the DW documentary.)

IN asking "who is buying them if not institutions?" belies a misunderstanding of the bulk of the derivatives markets - especially post financial crisis. Derivatives are instruments which derive their value from other assets not so much as "bets" on those assets. For example, an Irish food company company wishes to borrow EUR100m but is informed by a Japanese bank that it ca arrange much cheaper borrowings from a Japanese pension fund which wishes to have exposure to European agrifood businesses. The catch is that the Japanese pension fund can only invest in JPY instruments.

In order to benefit from the reduced interest rate, the Irish company issues the JPY bond and enters into

an interest rate swap with a notional principal equivalent to EUR100m and
a forward FX contract for EUR100m vs JPY equivalent at maturity.

So, just to support that EUR100m of bonds were have EUR200m of derivatives.

Perhaps if there were early redemption provisions for the bond we might have to have another EUR200m of options/swaptions to hedge the position.

The quadrillions you see are not really amounts of money at risk.

Further, since the financial crisis, much effort has been moved to reduce the systemic risk with respect to derivatives by creating central counter-tries permitting the effective netting of risks on a default (previously this turned out to be largely theoretical although in Lehman's case it worked reasonably effectively).

Ludwig Heinrich Edler

Marcusm wrote: »

IN asking "who is buying them if not institutions?" belies a misunderstanding of the bulk of the derivatives markets - especially post financial crisis. Derivatives are instruments which derive their value from other assets not so much as "bets" on those assets. For example, an Irish food company company wishes to borrow EUR100m but is informed by a Japanese bank that it ca arrange much cheaper borrowings from a Japanese pension fund which wishes to have exposure to European agrifood businesses. The catch is that the Japanese pension fund can only invest in JPY instruments.

In order to benefit from the reduced interest rate, the Irish company issues the JPY bond and enters into

an interest rate swap with a notional principal equivalent to EUR100m and
a forward FX contract for EUR100m vs JPY equivalent at maturity.

So, just to support that EUR100m of bonds were have EUR200m of derivatives.

Perhaps if there were early redemption provisions for the bond we might have to have another EUR200m of options/swaptions to hedge the position.

The quadrillions you see are not really amounts of money at risk.

Further, since the financial crisis, much effort has been moved to reduce the systemic risk with respect to derivatives by creating central counter-tries permitting the effective netting of risks on a default (previously this turned out to be largely theoretical although in Lehman's case it worked reasonably effectively).

That is like saying the derivatives exist but they don`t really matter. If the original debt cannot be repaid the derivatives will matter a lot. This idea that an obligation to pay is somehow irrelevant as long as it is only based on a potential risk is unwise in my opinion.

The same perspective seems to pervade to future state pension expectations and to things like bank bailins in the case of a bank failure. The assumption that these things will not happen or that they are not real is a big mistake.

Jim2007

Ludwig Heinrich Edler wrote: »

That is like saying the derivatives exist but they don`t really matter. If the original debt cannot be repaid the derivatives will matter a lot. This idea that an obligation to pay is somehow irrelevant as long as it is only based on a potential risk is unwise in my opinion.

Well you clearly know very little about how derivatives are constructed nor how to unravel them...

But hi, you have an agenda and you are clearly someone who does not let the facts interfere with your opinion. So off you go and interst on that basis.

My own view is that an enormous economic depression will hit the entire western world in a matter of months and the EU may not survive the impact.

Ludwig Heinrich Edler

Jim2007 wrote: »

Well you clearly know very little about how derivatives are constructed nor how to unravel them...

But hi, you have an agenda and you are clearly someone who does not let the facts interfere with your opinion. So off you go and interst on that basis.

You are only partly correct. I do have an agenda but it is an entirely selfless one. Trying to caution people who are on the path to ruin is a thankless task. Your error is to assume I stand to gain by a economic downturn. Everyone is a loser if capitalism in the west goes into the sort of terminal decline as Communism did in the east 28 years ago.

Jim2007

Ludwig Heinrich Edler wrote: »

Your error is to assume I stand to gain by a economic downturn

Based on your posts here and else where, my assumption is that you have neither the knowledge nor the ability to be able to take advantage of economic downturn! Now if you had come out and expressed concern about the large block of corporate bonds that need to be rolled over in the next few years, the growth in private credit and the way it is being securitized or one of the many real issues that would be something to debate. And that is where I'm going to leave.

Chips Lovell

OP has been banned for registering a new account to evade an earlier ban.

Korat

Does anyone save these days?

- Investment portfolio

- Bitcoins (might disappear in the morning)

- Stocks

- Mattress

A gold reserve is always good unless you're Gordon Brown.

For Reals

Korat wrote: »

Does anyone save these days?

- Investment portfolio

- Bitcoins (might disappear in the morning)

- Stocks

- Mattress

A gold reserve is always good unless you're Gordon Brown.

I heard negative interest accounts are going to be more common place?

I hear the mattress calling

jmreire

Very interesting read.....
http://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-love-affair-with-euro-apologises-for-the-i/
and for all the talk about excessive borrowing leading to our present "dire financial straits", seems that the lending institutions were at fault too. So for all of Enda's statement that we "Lost the run of ourselves" well, we were not the only ones to lose the "Run of ourselves"...seems that the IMF lost it as well. See above link.

alb

Korat wrote: »

Does anyone save these days?

- Investment portfolio

- Bitcoins (might disappear in the morning)

- Stocks

- Mattress

A gold reserve is always good unless you're Gordon Brown.

I have some euro savings, I have some US and european stocks, I have more bitcoin than both of those combined. Bitcoin will not disappear in the morning.

Jim2007

alb wrote: »

I have some euro savings, I have some US and european stocks, I have more bitcoin than both of those combined. Bitcoin will not disappear in the morning.

Don't forget to add some tulips! For all it's technology and math, in the end it comes down to a question of confidence. Were it to happen, I would expect it to be swifter than any banking crisis we've ever seen, because it is electronic, there is no regulatory authority and no one has ever had to figure out how to stop a run on such a monitor unit before.

Extraordinary Popular Delusions and the Madness of Crowds is still one of the best books to read if you want to understand bubbles and human behaviour, it's as relevant today as it was when it was first published in 1841.

alb

I understand bubbles, I avoided the Irish property bubble and I've been through a couple of bitcoin bubbles and to be honest it's likely in one right now which will correct. Cryptocurrency is very unlikely to go away though, it's too big now.

You mention a run on bitcoin? It's not debt based, it's not fractional reserve and all of my coins are already in my own possession. There might be a large sell off or crash, but there can't be a run in the same sense as a run on banks.

One of the curious things about bitcoin is that the people who have been wrong and continue to be wrong about it will laugh and gloat at you for being right.

HivemindXX

alb wrote: »

I understand bubbles, I avoided the Irish property bubble and I've been through a couple of bitcoin bubbles and to be honest it's likely in one right now which will correct. Cryptocurrency is very unlikely to go away though, it's too big now.

You mention a run on bitcoin? It's not debt based, it's not fractional reserve and all of my coins are already in my own possession. There might be a large sell off or crash, but there can't be a run in the same sense as a run on banks.

One of the curious things about bitcoin is that the people who have been wrong and continue to be wrong about it will laugh and gloat at you for being right.

They might still exist but your Bitcoins could be worth a tenth of their current worth tomorrow. Chances are high that during the crash you won't be able to do anything because the exchanges will be overloaded (or offline while the people running them cash out their own). Their value relies on a constant influx of new money which is why their proponents are always so enthusiastic to tell others what an amazing investment they are.

I'm sure some tulip investor said exactly the same things as you. I know what I'm doing. I've been through bubbles. People who point out the risks are cowards and idiots. I'm making a ton of money, why don't you want money?

A bubble doesn't have to, and rarely does, completely collapse like the tulip bubble did. If (when) the bubble finally does collapse then I'm sure people like you will still declare themselves winners. Maybe you get out before the collapse. Maybe you got in early enough that your initial gamble still shows a good return. The people who just invested, the base of the pyramid if you will and the ones who lose massively. The longer you can put it off the better for the people nearer the top. This is why I consider the constant advocacy of Bitcoin from people like you to be sickeningly self serving.

Jim2007

alb wrote: »

You mention a run on bitcoin? It's not debt based, it's not fractional reserve and all of my coins are already in my own possession. There might be a large sell off or crash, but there can't be a run in the same sense as a run on banks.

Splitting hairs, if people have no confidence in your coins, you can have as many as you like but no one is willing accept them in payment that are worthless.

alb

You're right that if no one has confidence in bitcoin or indeed everyone decides that they no longer care about it, for whatever reason, it would be worthless. But I don't think it's splitting hairs to distinguish between that risk and counterparty risk or institutional risk of the financial system. After all the title of this thread is about exposure of savers if banks fail again, not about exposure of savers if the value of the euro drops. That is not a trivial difference, and bitcoin is relevant if counterparty risk (meaning your funds being withheld from you or given a forced haircut) is your concern.