[Marxism] The Irish crisis - any comments???
sartesian at earthlink.net
Mon Nov 15 17:24:00 MST 2010
1.Essentially, the Irish government turned the entire country into a "bad
bank" to take over the non-performing assets of Anglo-Irish and other banks.
The government created the National Asset Management Agency [NAMA] to buy
the non-performing instruments from the banks. The banks themselves were
less than candid about the quality of the loans, and their own exposure, and
the government being a sucker never got the even break, paying about 75% of
the face value for the equivalent of euro 77 billion in "assets."
The asssets have since been devalued, requiring further injections from the
government to keep the banks afloat. In October 2008, the govt. state that
it would need to inject euro 1.5 billion into Anglo-Irish bank to
"stabilize" the institution. As of October 2010 the actual amount has been
about euro 23 billion, with another 11-12 billion to come.
The "haircut" now on the assets the banks still hold is now at 56% and the
amount the Irish govt will need to supply the banks to me its collateral
obligations and maintain day to day operations is expected to reach euro 46
billion, an amount equal to 33% of all goods and services produced in
Ireland this year.
2. Enter Merkel, the arch-Angela of death. Angela was bit perturbed over
being compelled to support the bailout of Greece, and the establishment of
EFSB. I think that's European Financial Stability Board-- that big
"off-balance sheet" funding vehicle designed to bail out any country stupid
enough to turn to it and the IMF for help. The EFSB will issue
"instruments"-- i.e. debt, to provide funds to said country and the debt
will be secured by... by the budgets of the governments of the EU countries
themselves, in essence turning all of the EU into a big bad bank.
Anyway despite the fact that the EFSB has 3 years left to go on its
contract, and has a no-trade clause, Angela tested the market, and roiled
the waters, by demanding that the EU look at a successor to EFSB that would
require the private debt holders, the bond buyers, the banks and their
customers, to shoulder more of the burden, to take a bigger haircut. But
nobody wants to sit in the chair when Sweeney Todd is the barber.
The bond market freaked, or pretended to freak knowing that nothing
separates a fool from his money quicker than fear, and started to drive down
the face value of Irish debt, particularly sovereign debt, thereby driving
up interest rates and the spread in yields between Irish bonds and German
bonds of similar maturities. In addition the price of insuring Irish bonds
against default, those world famous credit default swaps which proved so
problematic for AIG, and made so much money for Goldman Sachs, Deutsche Bank
etc. soared.... soared so much in fact that it effectively swallowed the
interest anyone might earn from insuring a 5 year note against default.
This is the highly leveraged structured investment asset backed paper
version of your house being underwater. Literally and metaphorically.
So.... so those holding the Irish debt can't sell in the secondary markets
without risking a razor cut below the chin line; nor can they purchase CDSs
against default without losing anything they might receive in interest.
Thank you Angela.
Ireland's finance minister, a certain Mr. Lenihan thinks this is all a
tempest in a teapot, that the markets are overreacting, that there is no
cause for alarm because Ireland has enough cash reserve to fund its
operations through the end of the year and into 2011, thus avoiding the
need, the embarrassment, not to mention the expense of going back to the
bond markets to raise cash. Does that sound Greek to you? It sounds Greek
Now to make things even better, while the initial distress was precipitated
by the collapse in commercial real estate, and commercial real estate loans,
Ireland's residential mortgages are faltering with the number overdue 90
days or more increasing by 50% in 2009 to 4.6% of the number outstanding.
What's the big worry? Our friend, Mr. Contagion. If Ireland goes, what
about Portugal, what about Spain? What about Italy, whose debt mass dwarfs
that of Spain, Portugal and Ireland, debt accrued in large part to keep
Berlusconi supplied with underage pole-dancers. Anybody got a lead shoe we
can throw at his recently reconstructed face?
So, on Friday everybody was waiting for markets to open on Monday and how
the market would value Irish debt since Angela Lansbury Merkel Lovett opened
up her new meat pie take out shack featuring Irish meat. Apparently the
opening was a success, and the patient is close to dying.
And that's just Act 1.
----- Original Message -----
From: "Gary MacLennan" <gary.maclennan1 at gmail.com>
To: <sartesian at earthlink.net>
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