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Thursday, February 07, 2013

Ireland bolts the stable doors

Long after the horses escaped with all the money:
Ireland's government rushed through emergency legislation early on Thursday to liquidate the failed Anglo Irish Bank as it tries to secure a deal with the European Central Bank to ease the country's debt burden....

President Michael D. Higgins will sign the bill into law later on Thursday. He cut short a state trip to Rome to ensure he could consider it. Anglo Irish and its casino-style lending were at the heart of Ireland's financial crisis. The bank's near collapse in 2008 pressured the government into guaranteeing the entire financial sector, sucking it into a downward spiral and in late 2010, a €67.5bn EU-IMF bailout.

Three of the bank's former executives, including its former CEO, will go on trial next year on fraud charges. Under Dublin's plan, the €28bn in promissory notes will be replaced with long-term government bonds, meaning that Ireland can make more gradual repayments, a source familiar with the discussions told Reuters. 
So, instead of simply letting the bank go into liquidation in 2008, the Irish government saddled the Irish people with nearly $100 billion in debt, and now the bank is going to go into liquidation anyhow.

In contrast, thanks primarily to the courage of the Icelandic prime minister, Iceland let its casino banks go bankrupt and resisted the global pressure to saddle the Icelandic people with the bankers' debts.  Iceland has now put the debt bubble behind it and is growing again; the Irish can't even make the upcoming payments on a debt that extends for another 10 years.

This is why the bankrupt US banks should have been allowed to fail back in 2008.  Bank bailouts are seldom a solution, they are almost always a simple matter of delaying the day of financial reckoning long enough for the parties responsible to successfully abscond with the gains they have collected from gambling with other people's money.

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26 Comments:

Blogger Laramie Hirsch February 07, 2013 4:42 AM  

First.

I wonder if there's a way to invest in the Icelandic currency as a hedge against American financial collapse. I often hear about gold and silver, but it's nice to have other alternatives.

Anonymous zen0 February 07, 2013 5:40 AM  

Back to the world of the sensible.

The article says the Irish Gov. has been negotiating over debt restructuring for 18 months, with no deal yet.

If debt doesn't matter, why does everyone spend so much time haggling over it?

Anonymous Toby Temple February 07, 2013 5:56 AM  

Nuked!

This is why the bankrupt US banks should have been allowed to fail back in 2008. Bank bailouts are seldom a solution, they are almost always a simple matter of delaying the day of financial reckoning long enough for the parties responsible to successfully abscond with the gains they have collected from gambling with other people's money.

Heads of states are never going to listen.....

Anonymous Stilicho February 07, 2013 6:09 AM  

Bank bailouts are seldom a solution, they are almost always a simple matter of delaying the day of financial reckoning long enough for the parties responsible to successfully abscond with the gains they have collected from gambling with other people's money.

Bank bailouts are the perfect solution to the banskters' dilemma. Then it just becomes a matter of lather, rinse, repeat. Hell, banks purposefully overextend credit with the express purpose of receiving a bailout, There is no other logical explanation for their actions.

Anonymous willneverpostagain February 07, 2013 7:01 AM  

This is why the U.S. Gov is going after the guns: greedy politicians would rather bail out the bankers and get a cut of the money as long as their lives are not in danger in doing so.

Blogger LP 999/Eliza February 07, 2013 7:28 AM  

Sure, 4 and 5 years LATER they too have seen the bank plan was disaster and a half. Even though they all knew better. Horror show doesn't even describe the level of depression, ruin and desperation they too have been thrown for.

Blogger LP 999/Eliza February 07, 2013 7:58 AM  

The NJ band MCR has a possibly applicable song; http://www.youtube.com/watch?v=NkMdWLK5RPg&list=FLr9zNdMnq7sbYy-hJ1hngRg

Tomorrow's Money; http://www.songonlyrics.com/my-chemical-romance-tomorrows-money-lyrics

Blogger James Dixon February 07, 2013 9:30 AM  

> I wonder if there's a way to invest in the Icelandic currency...

WisdomTree was considering offering a Krona fund in 2008, but it doesn't look like they did so.

So you'd probably need and actual currency trading account. See http://www.forex.com for the details.

Anonymous Anonymous February 07, 2013 9:34 AM  

What would have happened both to the U.S. and the global economy if the U.S. gov't had allowed the various banks to fail?

What if the rest of the world followed suit? Would we be better off today?

- Apollyon

Anonymous Daniel February 07, 2013 9:46 AM  

The horses may be all gone in Ireland, but at least they are addressing the problem now, by saddling the coneys.

Anonymous Stilicho February 07, 2013 9:49 AM  

Here's a very interesting piece from Prof. Antal Fekete regarding the coming collapse of trade.

It includes some rather dire predictions that will sound familiar to the regulars here:

Yet unknown to the general public a very great danger is looming, the like of which has not threatened the world since the collapse of the Western half of the Roman Empire more than fifteen hundred years ago. This danger, should it materialize, would mark the end of our civilization and the beginning of a new Dark Age. I am talking about a threat of the sudden and complete collapse of world trade. It would be heralded by permanent gold backwardation, something that allegedly could never happen. Hard on its heels would follow the collapse of the dollar payments system. Barter, of course, would take place between neighboring countries, but world trade as we know it would disappear altogether.

And a theory regarding why the Bundesbank is repatriating part of its gold:

This brings me back to the German gold reserve. As sporadic backwardation in gold becomes ever more frequent, the gentlemen in charge of running the world’s fiat money system get alarmed. The only way to pacify the market is to release more and more central bank gold. Physical gold. The beast must be fed. Paper gold will not do (although, of course, these gentlemen will keep trying to flood the market with it).

Releasing American gold to the futures market directly from the Fed is out of the question. It would confirm the suspicion, already rampant, that the dollar is a colossus of clay feet standing in knee-deep water. So let the client states of America do the releasing. The Germans have a reputation of favoring hard currency. They are reluctant to join the currencies’ ‘race to the bottom’. Germany is the natural choice to feed the gold futures markets in an effort to protect the dollar against the last assault that is shaping up.


Vox may be a bit of an optimist.

Anonymous zen0 February 07, 2013 10:07 AM  

Appollyon said:

Would we be better off today? According to Austrian Theory, yes.

Anonymous JartStar February 07, 2013 10:52 AM  

The good news is kicking the can gave us all time to pay down debts, save, and prepare. The bad news is that if it crashes it will be much worse.

Anonymous John Regan February 07, 2013 10:57 AM  

All true, but then again delay, delay and yet more delay has this advantage: it attenuates the perception of cause and effect. If cause and effect were more readily perceptible, mobs would be rioting and hanging banksters and politicians with some frequency. This kind of disintegration of the social order is at the very least, let us say, very unpleasant for everyone.

If you let one big bank with lots of depositors go under, all the depositors lose their life savings, you have readily identifiable victims and readily identifiable perpetrators and it's not going to end well.

There needs to be a jubilee by law. A constitutional amendment, for example, in the US. Iceland admittedly addressed their problems better than Ireland has, although Ireland - or indeed any other place - could enact a jubilee at any time and do just as well or better than Iceland has.

In fact, if memory serves Iceland's government actually did do some kind of debt cancellation. Good for them. But it's politically very tough.

Blogger Bob February 07, 2013 11:21 AM  

I would like to hear that someone is preparing a list of names of all those banksters that did this to us, so when the bottom does fall out we will know which doors to knock on.

Wouldn't want any lynch mobs going to the wrong addresses, would we?

Anonymous Stilicho February 07, 2013 11:28 AM  

John, the current plan is jubilee by inflating away the debt. It will makes things worse than simply recognizing the inevitable defaults.

Anonymous WinstonWebb February 07, 2013 11:40 AM  

Three of the bank's former executives, including its former CEO, will go on trial next year on fraud charges.

That's the most shocking part of the story. Such would NEVER happen in the "rule of law" United States.

Anonymous dh February 07, 2013 11:57 AM  

That's the most shocking part of the story. Such would NEVER happen in the "rule of law" United States.

And on top of it all, actual good strong economic actors - the type of investor that favors countries with the rule of law, are not likely to reward countries that don't punish the banksters. They are more inclined to sit on capital than to try to build it into productive enterprise - why risk it when someone is willing to flaunt the law, and sell you toxic garbage, or finance you into the ground with complex products that only the banksters are able to comprehend?

The fact that the government and the banks acted lawlessly and were not held accountable is not a feature to people who would like to build things, and be productive.

Anonymous dh February 07, 2013 12:09 PM  

I wonder if there's a way to invest in the Icelandic currency as a hedge against American financial collapse. I often hear about gold and silver, but it's nice to have other alternatives.

For a small number of Americans, Icelandic could be a good refuge. I've been twice, and I will tell you that the average Icelander could adapt to being cut off from society and self-sufficient in very short order. Reykjavík and Kopavogr are amazing little communities, with a great atmosphere and very livable by any standard. The countryside is stunning and vast.

Loss of fishing and ocean going would be damaging, but even then not catastrophic. The cultural identity and ethos is such that I think they would handily adapt to any loss of economic spirit. Many older natives remember life before post-WWII modernization, or remember their parents talking about it.

Other than a very few banksters they seem to have no problem living within their means.

Anonymous Anonymous February 07, 2013 12:55 PM  

What would have happened both to the U.S. and the global economy if the U.S. gov't had allowed the various banks to fail?--Apollyon

1.)Stock values of the insolvent banks would be zeroed out, then bond holders would take remaining losses amounting to 20-30% of the capital assets (embarrassing a few Saudi sheiks).

2.)Interest rates would rise as a consequence of real savings being revealed as somewhat less than the banks' inflated and falsified balance sheet indicated.

3.) Diminished loan demand as a result of higher-priced credit would create an economic slow-down.

4.) Unprofitable lines of production would be stopped or reduced.

5.) Recapitalization of values would occur and recovery would ensue.

Would you be better off today? Sure, unless you are a debt addict, Saudi prince or Wall Street bankster.

MALTHUS

Anonymous dh February 07, 2013 1:13 PM  

Would you be better off today? Sure, unless you are a debt addict, Saudi prince or Wall Street bankster.

The debt addicts would be bankrupted, which is a net long-term positive.

Too many Americans are spending too much on their overvalued homes.

A person who went bust in 2006-2007 would have been better to liquidate, live modestly, and reset. By now (2013), they would have been almost entirely rehabilited in the eyes of lenders, and able to easily secure financing for a new home, at the much more reasonable post-crash prices.

Instead, so many Americans have been conned into holding onto "their home" when they should have simply let it go. In fact, they really should have gone into foreclosure defense mode, lived mortgage free for 12-36 months, stashed that cash (literally), waited for foreclosure, and then gone through bankruptcy.

The country would be better off.

Anonymous JartStar February 07, 2013 1:16 PM  

The DHS just purchased another 21.6 million rounds of ammo and now Iran has backward engineered our drone. The horizon, it has storm clouds.

Blogger Jamie-R February 07, 2013 1:34 PM  

The Irish are not stupid. Just stupid drunk.

Blogger Jamie-R February 07, 2013 1:39 PM  

Alcuin of York and Clement of Ireland powered along Christendom under Charlemagne, who was itching to secularise all of his power.

The Isles! So fuck what ya heard!

Anonymous Anonymous February 07, 2013 3:35 PM  

The debt addicts would be bankrupted, which is a net long-term positive.--dh

The primary debt addict is our own US gov't. This is the real reason banks were kept from writing down their bad loans: it would have made US borrowing much more expensive.

MALTHUS

Anonymous Toby Temple February 07, 2013 11:54 PM  

Vox. If the bailouts where directed to the citizens who lose their jobs due to the recession instead of the banks and other corporations would it yield better results?

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