Irish Zombies

From Bloomberg:

Irish Ask How Much Is Too Much as Bank Rescue Trumps Austerity

It may just be a few billion euros too far for Ireland’s beleaguered taxpayers.

Anglo Irish Bank Corp. said Aug. 31 it needs about 25 billion euros ($32.1 billion) in state funding, equivalent to about two-thirds of this year’s tax revenue. Standard & Poor’s, which last week cut the country’s credit rating to AA-, said the state may have to inject as much as 35 billion euros.

“It’s like a bad dream where you’re chasing something you can’t catch up with,” said Micheal O’Cearbhail, a retired television producer shopping in O’Connell Street, Dublin’s main thoroughfare. “Eventually they’ll have to close it down.”
My Comments:
Holy Cow! This bank needs 2/3 of annual tax revenue to stay afloat??  This bank is going down big time.
“Ireland had been seen as leading the way for the rest of Europe in terms of austerity measures, but now the market isn’t too keen on this black box that’s been opened up by the banks,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Investors don’t doubt the willingness of the Irish to accept the pain, but they are beginning to ask if the scale of the banking problem is just too big to handle.”
I think they did not open a black box, but instead opened Pandora's box.  How many other banks are connected to this.  I whimsically addressed this topic in the post If Banks Were Cars.
“At this point, the taxpayer has paid enough,” said Brian Lucey, associate professor of finance at Trinity College Dublin. “It’s time to consider strongly if the senior bondholders should bear some pain. The only group that should be totally protected should be the depositors.”
Depositors are also going to take a hit if this one goes down.
“When you talk about letting a bank collapse or fail and imposing losses on the lenders, you would be imposing losses on depositors and imposing losses on the European Central Bank,” Alan Ahearne, an adviser to Lenihan, said in an interview. “It is unthinkable.”

The problem with central planning is that almost any negative event is "unthinkable".  With this attitude, banks are given a license to rob not only depositors and bondholders, but the taxpayer as well. 
The global banking system needs massive overhaul if it is to survive and avoid collapse.


  1. PW, I do not see an overhaul of global banking being achieved. Do you actually see that occuring?

  2. This too is my concern. In fact it is more than a concern for me. We continually see more misguided thinking that bailing out insolvent banks will somehow magically fix our banking problem. All zombie banks do is consume taxpayer cash and the structural reforms needed are not addressed. My concern is that the path we are on take us to global credit freezing, and ultimately, collapsing.

  3. Sauve qui peut!

    Save yourselves!

    The deposit bit emulates my advice on There is far more to come and no piece of paper is safe to any degree in any country.

    Argentina confiscated deposit funds. Expect mopre of this as time goes by.

  4. I met with IAB's senior management in the mid '00 and I left with the impression that these guys were crazy. First off was their love affair with Hedge Funds and Private Equity to a level that left me surprised. Second was their appetite for foreign assets.

    I came back from these meeting with one objective: cut all relationship with these guys, or make sure that we had 100% collateral on all our treasury deals. Funny enough it didn't stop the from doing business with us, so we finally wound down all business.

    When you impose punitive condition on a counter party and he still deals with you, its time to cut him loose. We stopped dealing with them in mid 2006.


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