Irish Eyes are Smiling: Bail in Rather than Bail out

June 17, 2011
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Greece is not the real story. Europe is like a cancer patient being debilitated by an infection called Greece, among others that are worse. Greece alone may not bring Europe down. After the EU via the Corrupt 3 mechanism ( the Fed, ECB and IMF) is further weakened by “shock and awe” treatment of the  Greek bailout,  the real knockout punch will come from Ireland.

The government of Ireland is on the hook for up to $560 billion in bank guarantees, obviously ludicrous for a country that size.  So far, NAMA, set up as a government-backed, bad bank to pick crappy loans, has acquired assets of about (U.S.)$100 billion, of which 23% is performing. Worse, these loans were typically discounted by about 40%, requiring the government to further plug holes for the difference. Unbelievable! In additional loans to these banks from Ireland’s CB has ballooned to over $250 billion, all for a country with less than a $200-billion GDP. Meanwhile, Ireland’s borrowing cost (with ECB involvement) is over 11%. Incidentally, Ireland collects 34 billion Euros in tax revenues versus 30 billion Euros in interest expenses. Ireland is acabado.

Notice that the exposure of foreign creditors to Greece is not that serious, but more of a debilitation situation. The institutions most exposed have had plenty of time to socialize the losses by dumping them on the Corrupt 3, who in turn dump it on future generations and taxpayers. Ireland is much bigger and Germany and the UK are very exposed. France probably doesn’t really care that much, but don’t think they are off the hook. Just look at the exposure to Italy and Spain, the big elephants in the room. This will help you understand the pressure points of the countries involved. The U.S. supposedly has little direct exposure, but what about default insurance? You will recall that AIG was the dump site for default insurance during the mortgage criminal rackets. Is there an AIG-type firm out there, over-trading and over-insuring European sovereign and banking defaults? You can bet your bottom dollar.

The concept of a bail in is not even mentioned in the MSM. It’s just a round-the-clock mantra of how default hurts the country involved. I think these commentators have the tenses misplaced. These countries have already been hurt via debt traps, and now face endless pain inflicted on them by banksters and kleptocratic warlords. That’s when they come for anything of value in your country that they can haul off [Lee Camp - The Evil Have Plans]. Outside the Corrupt 3, Sweden and Denmark tried a different approach via a very straight forward haircut policy, referred to as the “bail in.”

In this scenario, the senior bondholders of sick moral hazard infected banks take the loss rather than the government, which is there to facilitate the process. Since these countries are outside the bankster-controlled EU, these policies can be aptly applied. Incidentally, Iceland, which indeed did default two years ago, is back into the credit markets borrowing at a reasonable 5%. Whodathunk? Ireland, inside of the EU, is trying to seek a way of implementing its own form of the bail in. We can only wish them luck in their struggle against the rentier class.

 

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