Default and the ordinary man.

ei.sdraob · 12-05-2011 09:18AM

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 · 12-05-2011 11:08AM

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 · 12-05-2011 11:52AM

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 · 12-05-2011 11:56AM

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 · 12-05-2011 12:04PM

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 · 12-05-2011 12:24PM

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 · 12-05-2011 12:38PM

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 · 12-05-2011 01:38PM

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 · 12-05-2011 02:35PM

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 · 12-05-2011 02:43PM

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

Scofflaw · 12-05-2011 02:45PM

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 · 12-05-2011 03:12PM

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 · 12-05-2011 07:11PM

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 · 12-05-2011 09:53PM

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 · 12-05-2011 10:22PM

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 · 12-05-2011 11:04PM

KM88 wrote: »

Should I have paid off my mortgage?

Regardless of anything else you said: Yes

douglashyde · 13-05-2011 02:29PM

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 · 13-05-2011 02:41PM

douglashyde wrote: »

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

andrew · 13-05-2011 03:16PM

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 · 13-05-2011 04:01PM

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

ei.sdraob · 13-05-2011 05:00PM

OnTheQT wrote: »

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

We are no more a first world country any more than someone with a million euro mortgage is "rich".

Lookup defaults back when the world was using gold or gold standard, the euro is more or less same constraints.

OnTheQT · 13-05-2011 05:34PM

Oh please. Even after several more budget adjustments we'll still have services/standard of living far superior to most. People just got so used to being at the top of the pile. Its now time to take our proper standing in society. Not at the top but sure as hell not that far down.

Without the euro the adjustments we would have had to make would have been far more savage and destructive to our standard of living

ei.sdraob · 13-05-2011 05:57PM

OnTheQT wrote: »

Oh please. Even after several more budget adjustments we'll still have services/standard of living far superior to most. People just got so used to being at the top of the pile. Its now time to take our proper standing in society. Not at the top but sure as hell not that far down.

Without the euro the adjustments we would have had to make would have been far more savage and destructive to our standard of living

And we still have a large deficit gap after all that scratching of the surface.

later12 · 15-05-2011 12:25AM

liammur wrote: »

There can be no doubt but that the ECB have gone beyond their remit.

Not for me!

This point has been repeated, mistakenly in my opinion, a number of times on this thread. My own response is quite pedantic, I grant you, but providing ELA, even extraordinary levels of ELA is not outside the remit of the ECB. Certainly it is beyond what we could call 'normal practice'. The ECB is not the lender of last resort sensu stricto, and the policy of liquidity provision to the NCBs, where there is no contradiction with monetary intereference in Europe and no question of damaging monetary policy in the relevant economy, but simply to support illiquid banks downstream, cannot be seen as outside of the bank's official or legal remit.

Buying up sovereign bonds in order to boost sovereign economic strength, now that is a case of the ECB operating outside of its remit.

ELA, on the other hand, is an example of the ECB operating outside of normal practice, but certainly not outside of its remit. Now explanding the ECB's balance sheet but not increasing interest rates in the current inflationary period - that would very likely lead to justified criticisms of the ECB operating beyond its remit, and is an event about which we ought to remain cautious; that would damage the ECB, the Euro and debt sustainability across the entire zone. At the moment, from a policy standpoint, there is nothing really outrageous or unacceptable happening.

later12 · 15-05-2011 12:40AM

Shelflife wrote: »

Let's say we default, what are the repercussions for the ordinary man?

Can I just add one health warning to your question...

There is default, restructuring, and in particular, voluntary restructuring. The latter is a bit of an oxymoron, but the difference is important not so much to our debtors, but to our selves and our economic future.

It is unhelpful to refer to default as one broad blanket of choices facing us.

From the history books: Argentina went into a state of default. Latin America at large went into a state of restructuring (my beloved Brady Bonds). The rest is history.

The difference is immense in practical terms. This isn't just polite wordplay by those of us who are allergic to default. An 'event of default' as it is written into bond indentures (contracts) is a legal process that has lots of nasty repercussions like radioactive debt ratings, all debt becoming immediately payable, bond insurance (all of which which cannot realistically be paid) being called up, and so on, leading to lots of further unappealing and messy repercussions.

Voluntary restructuring, although unpalatable, does not result in this in itself - it is an agreement reached with our debtors who do not declare our default, and will not have all of those messy repercussions. It's a rather important distinction, and I get the feeling that some people, quite mistakenly, believe that it is simply a choice of words. In practical terms, defaulting and restructuring are miles apart.

Default and the ordinary man.

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