Robert Peston writing on the Irish Economic struggles

Sync

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Robert Peston's the Business Editor for the BBC and Author of the excellent "Who owns Britain?". He's been writing on the struggles Ireland faces, and gives a good grounding for people in the technicalities of it, as well as dealing with the realpolitik that form the basis for some of the current govt's actions. Really top stuff, and something anyone interested in having an educated opinion on what's going on should read.

BBC - Peston's Picks: Ireland: How much punishment for British and international banks?

Certainly it is very difficult to see - under the current law - how the senior debt holders could be punished in the absence of some dramatic events. First the two weakest of the big banks, Anglo Irish Bank and Allied Irish Banks, would probably have to be declared insolvent. And second, almost all the many billions of euros that Irish taxpayers have already pumped into these banks would have to be written off, which would be extremely painful.

What would then be triggered would be enormous payments by underwriters of credit default swaps (CDSs), the debt insurance contracts taken out by lenders and speculators. These payments would generate enormous losses for the financial institutions, including banks, which provided the CDS cover.

Ouch.

Sources close to the Irish government tell me that the US authorities are deeply concerned at the idea that CDS payments would be triggered in this way. The implication (yet again) is that insurance contracts designed to reduce risk are in fact a source of systemic instability. Which, of course, has been the hideous norm in the Frankenstein markets that have been engineered over the past decade or so.
BBC - Peston's Picks: Will the ECB pull the plug on Ireland?

Arguably, Mr Honohan has given the game away, by saying that investors are taking the view that Ireland's banks need bigger injections of capital from taxpayers, but that Ireland's taxpayers cannot afford to invest any more in the banks.

What follows from that?

Well, it means that if the Irish can be persuaded to take funds either from the European Financial Stability Fund or from the European Financial Stability Mechanism or from the International Monetary Fund, that money should probably be invested in the banks, to provide them with more protection against future losses. As Mr Honohan pointed out, investors don't believe that Irish banks have seen the worst of losses on residential mortgages taken out when Ireland's housing market was booming (them were the days), even if they believe that the worst of the banks' commercial property loans are being shipped out to a taxpayer-backed, specially created toxic bin, the National Asset Management Agency.
BBC - Peston's Picks: Why Ireland can't afford to punish reckless lenders to its banks

An economy as open and as dependent on foreign finance as Ireland's cannot afford to alienate its creditors. If those overseas lenders asked for their money back now, Ireland's recent fall back into a modest economic contraction could spiral into dark deep prolonged recession or even depression.

There are two big conclusions to be drawn. First Ireland's inability to let market forces take their course will be seen by many as another example of why the banking industry has lost any semblance of right to operate according to normal commercial freedoms.

Second, the Irish economy is hideously and perilously balanced between recovery and Armageddon.
 


picador

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Robert Peston on the Irish Crisis: How Much Punishment For International Banks?

The BBC's coverage of the financial storm that is currently centred over Dublin has been very good. Newsnight has dicussed the issue with sobriety and detachment as well as a focus on the wider European picture. In a similar vein the blog of Robert Peston, the BBC's Business Editor, examines who, other than the beleagured Irish taxpayer, will pick up the tab for the banking crisis.

BBC - Peston's Picks: Ireland: How much punishment for British and international banks?
 

former wesleyan

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Looks from what Preston says that we're capable of crashing half of the worlds banking system. Fancy that eh ? Little old us !!
 


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