Nationalisation Watch / Govt. rethinking 3.5 billion bailout for the banks?

Collapse against gold, silver, land, bullocks, antiques, paintings, a gallon of milk, an apple tree, anything that can not be printed.

Lads, I hate to break it to you, but I have a suspicion that because of the early breaking of the property bubble here (end 2006, in reality), other countries are behind us, and WILL catch up. One in 7 jobs in Germany is dependent on the car industry, and while personal debt is low, German government debt is high. Exporters of high end items such as beamers and mercs are not going to survive this well. End of story. Youngdan is right about the currency crisis; the pound is leading the way but the others WILL follow. The only thing is, if everyone's currency is trying to hit the floor at the same time, what happens?? I differ from Youngdan in one aspect though... deflation to continue badly until the oil inventories start registering losses again. How can you hyperinflate if money is being destroyed by bad debts faster than it can be printed...whoops, quantitative monetary easing, sorry, sorry??? I see the hyperinflation kicking in sometime in 2010 or 2011, when most of the bad debts have been bought up by the Fed/BoE/ECB and they're suddenly printing too much money. If this coincides with the collapse of the Ghawar oil field and an oil spike, the inflation will be virtually impossible to fight.

The speed at which things happen is
likely to take everyone by surprise. The numbers are so great that the switch from
deflation to hyperinflation will be very sudden.
Eventually I see a gold backed currenvy

I think you may be right about the speed of the switch, but I don't see it happening this year. What is your reasoning on this?? When you say credit bubble bursting, I presume you mean credit card debt, bank loan defaults by the army of nouveau unemployed?? But wouldn't that bolster deflation? Should we all be boning up on how the Argentinians stopped hyperinflating in 1989 or whenever their crisis hit??

No. By the credit markets I am referring to the bond markets here. Specifically US Treasuries. The municipal and corporate markets
have seen big losses but US treasuries have had tremendous gains. There was a clip on the front page of this site of a lad on CNBC boasting of the profits he had made by just buying US government bonds but it was removed recently.

Audi if you linked that can you please resurrect it as it is a clip that clearly shows the ephoria that signals a market top. I searched for it and could not find it.

Just a couple of weeks ago on P.ie I said that the rate on 10 years was at 3% and that was likely a top(that is a bottom with regard the rate). Amazingly the market has continued to rise and the rate is now almost 2%. This is definately a bubble top and parabolic rise in price.

When it reverses as it must shortly then the rout will begin and interest rates will shoot up. It is 10 times the size of the stock market and is the biggest bubble of all, if you don't count the derivative market

youngdan wrote:

No. By the credit markets I am referring to the bond markets here. Specifically US Treasuries. The municipal and corporate markets
have seen big losses but US treasuries have had tremendous gains. There was a clip on the front page of this site of a lad on CNBC boasting of the profits he had made by just buying US government bonds but it was removed recently.

Audi if you linked that can you please resurrect it as it is a clip that clearly shows the ephoria that signals a market top. I searched for it and could not find it.

Just a couple of weeks ago on P.ie I said that the rate on 10 years was at 3% and that was likely a top(that is a bottom with regard the rate). Amazingly the market has continued to rise and the rate is now almost 2%. This is definately a bubble top and parabolic rise in price.

When it reverses as it must shortly then the rout will begin and interest rates will shoot up. It is 10 times the size of the stock market and is the biggest bubble of all, if you don't count the derivative market

...I have no idea what any of that means! (though I do know what a tracker mortgage is.)

Why would the bond market bubble bust shove up the Fed's base rate?? I thought interest rates charged on bonds were determined according to the risk of default; they vary by each country. If the US has to pay more to service its debt, why does that affect the internal FED base rate??

Scuse my ignorance

I went over this before elsewhere and should have tagged it.

In short the Fed sets the Discount Rate which means nothing unless you are borrowing short term from the Fed.

It sets a target for the fed funds rate but the market sets the rate so the fed must go into the market and by either buying or selling T-Bills to nudge the rate to close to their target which at the moment is 0 to 0.25%. The Fed controls no other interest rates but they are set by the bond markets 24 hours a day.

As buying of bonds increase the rate decreases as explained before. The heavy buying this year has driven the 10 year rate down to not only 3% but now touching 2%.

The problem will arise when investors will refuse to invest in bonds that only yield 2% when inflation is much higher. They will not buy new debt and will sell old debt. The selling will drive up the interest rates and it will be panic to get out.

For those who have difficulty grasping how the interest rate changes, here it is in simple figures off the top of my head.

Say the Treasury sells 1 billion of 10 year notes at 6%. The price is called 100 and these bonds immediately start trading in the bond market. If the thinking is after a while that they were not a good investment then the price will fall. Now the interest paid by the treasury, 60 million a year remains the same. If the price falls to 90 then the new buyer can buy the 1 billion dollar bond for 900 million. He is getting 60 million interest on his 900 million so the interest rate is now 60 divided by 900 or 6.66%. The interest rate is now 6.66% and new bonds will reflect this. The opposite has been happening and the buying is intense and the interest rate has plummeted

So what you are saying is that the Fed can only successfully massage the interest rates by buying or selling bonds under fairly normal conditions; if there is a sellers panic they won't be able to control the price or consequently the interest rate?? meaning that they have to pay more for new debt??

Interesting. Do ECB and BoE interest rates work the same way? I presume so...

I'm guessing though, that current market conditions favour the largest countries; people are bailing out of the smaller ones faster. There will be an Obama bounce after inauguration... mass psychology; they'll realise he isn't going to be willing or able to fix everything by the summer or autumn at the latest...which may be when you get your bond market panic?? On the other hand, foreign governments who are all too aware of their own failings may see the US as more secure (or may wish to shore up the dollars they hold). I think it might take a while. Especially as I suspect the German economy may start to look more vulnerable as the year goes on....

The Fed can only massage the interest that it has any bearing on at all and that is the overnight fed funds rate. If that rate is higher than their target then they will push cash into the banking system by buy T-Bills from the banks. Vice versa if the rate drops lower but that will not happen with the target being zero to a quarter.

Each Monday the Treasury auctions 3 and 6 month bills. The market sets the rate. Monthly they sell 3 year,
, 1 year, 2 year and numerous cash management bills which can have different maturities all short term. When the Treasuries sell it is called the Primary market. When they are later sold they are traded in the bond market which is called The Secondary Market.

The reason the Treasury has to worry about the secondary market is that their new bonds must compete with those trading daily.

In the improbable event that the Treasury no longer needed to borrow they would not care what happened to the bond market

When investors no longer wish to buy the Treasury debt for 10 years at 2% the bond issue will not be sold. Then the Fed must step in and buy. Instead of raising the price as expected by the casual observor this new buying will lower the price as everyone will recognise that freshly printed fed cash will raise inflation so the holders of old bonds will sell like crasy. A vicious circle.

The English are at this stage. Investors will not buy gilts paying a few percent when they lose that much in a day from currency loss. The B of I are buying and spinning that it is quantative easing.

The EU countries will pay a rate determined by inflation risk and default risk. The inflation risk is the same for them all as a German euro equals an Irish euro so the differential between Germany and Ireland is solely default risk.

You mentioned this to be 1.5% but look for that to widen and the CDSs to increase. Remember the German bond issue of a measly 7 billion almost failed so the lugs in FF can forget about borrowing 20 billion. Unless they pay outlandish interest.

Yes, the real costs of the lunatic Guarantee - which was done in the main to protect the cosy cartel men at Anglo Irish - look very likely to bankrupt the country.

http://www.ntma.ie/Publications/2008/Press_Rel_End_2008.pdf

That makes interesting reading.

The Irish bonds outstanding are still trading strongly at a lower interest rate than when they were issued. They should borrow more while this lasts.

The borrowing needs for next year are very large even taking an optimistic view.

The pension plan is down 30% on the year and all the managers should be fired. I would have made a profit. They are still holding a commodity position of 0.5% as the deflation looks to be ending. There is 16 billion left.

They have purchased 3.5 million carbon credits. I did not see the cost. I bet very few know about this money. While the grannies are dying with no medical cards the government is buying carbon credits.

The people are as stupid as I expected.

When they do figure it out it will be time for trials and quick executions.

Hang a few of the dingbats that are pro EU while they are at it.

Dan, are you saying that the UK is now at the stage that it is finding it VERY hard to borrow more dosh??? There will be fully fledged social unrest as they are expecting 10% unemployment by the end of the year. They have just released figures showing the housing prices have plummeted 16% in the last year; this is an underestimate as the Land Registry does not record sales at auction (all reposessed housing stock). Mind you, in fairness, at least they HAVE a land registry that releases figures, we could use one here. (do the US or Canada have one??). It is also hilarious to see their equivalents of Dan McLaughlin and Austen Hughes on de news claiming that property will lose less value this year....with spiralling unemployment and a bunch of recapitalised banks saying openly that they WILL cut lending??? Shouldn't laugh, sure our vested interests were saying the same last year.....the problem is, the lower sterling goes, the worse off WE are as well. I'm not sure what the answer is, but recapitalisation doesn't appear to be doing the business. Literally. I hope OUR government has the sense to fully nationalise Anglo and to start using it for strategic purposes. Might as well do something, after all.

and at least we have a pensions reserve fund. They'll probably have to spend it, but I suspect anything that buys us time will be good. 30% aint great.... but beats the ISEQ performance, and probably the FTSE/DOW as well...

expat girl wrote:

and at least we have a pensions reserve fund. They'll probably have to spend it, but I suspect anything that buys us time will be good. 30% aint great.... but beats the ISEQ performance, and probably the FTSE/DOW as well...

By anything from 9% to 18% and saved us 500,000 by not investing this years cash, not a bad job in the circumstances.

The problem with being a manager of this fund is that there is no penalty for failure. An 8 year old child could have taken the 23 billion odd and just put it in the bank and would have beaten the so called experts by 34%.

A canary with an average canary IQ would have done better. The reason the fall did not equal the stock falls is because they had 60% invested in over 2600 companies so that portion tracked the stock markets exactly. The 23% which they had invested in bonds would have had a steller year especially if it were weighted towards government and away from corporate and municipal. They submanaged funds out to other managers.

It was A typical gameplan that works fine in a rising market but so would just buying an index fund and saving a bundle in fees. Their best performance was cash and they aim to bring this to zero for 2009. The commodities they intend to raise from 0.5 to 2% of assets.

What they need to do is go 25 commodities. 20% in oil and energy which are well down. 30% in Swiss, Jap Aussie, NZ and Canadian bonds. 15% cash equivalents and the rest they can leave in property.

They need to sell all corporate bonds and about 2000 of those 2600 companies.

Needless to say the canaries be done another 30% this year compared to true inflation.

I will be back about Britain later Expat as it is leading the charge

Expat. The English situation is spellbinding to watch. The whole thing could just fall apart. It is the test case for the rest to follow.

Will it revert to a full scale fuedal police state which is the plan or will the elite crew be put to flight. For sure all but a select few with gold and land will be reduced to subsistance but what happens then remains to be seen.

The Irish situation is just buying time. Nothing matters except Lisbon 2. Wrap that up and the Irish will take whatever medicine is decided for them

I would not like to live in England in 2009 and many Englis
h are fleeing.

Wales, Scotland, Cornwall and anyplace else that can should secede.

cactus flower wrote:

Yes, the real costs of the lunatic Guarantee - which was done in the main to protect the cosy cartel men at Anglo Irish - look very likely to bankrupt the country.

http://www.ntma.ie/Publications/2008/Press_Rel_End_2008.pdf

http://www.tribune.ie/business/article/2009/jan/04/anglo-irish-key-reason-for-irelands-expensive-loan/

Why the Guarantee is costing us - Anglo Irish key reason for Ireland's expensive loan costs

(Eamon Quinn )
Sovereign debt markets are pricing in a growing risk that Irish banks such as Anglo Irish, whose €97bn in liabilities are guaranteed by the Irish state, will need many billions of euro more in taxpayers' money to bail them out, international experts have said.
The cost of servicing Irish debt compared with the interest rate Germany must pay for its debt has widened to its largest for over 15 years as the Irish government faces mounting calls on its resources, including rising unemployment and the still publicly unknown cost of funding the Irish banks.

Overseas governments and investors are now demanding Ireland pay up to 1.5% more than the rate Germany pays for its debt, implying Irish debt is perceived as the second most risky in western Europe, after Greece, according to an analysis by the Economist magazine published on its website last week.
And Slovakia, the eurozone's most recent entrant and relatively poor cousin, now pays only slightly more than Ireland to service its government debt, according to Bloomberg market data published on Friday.

Local economists say the relatively small market for Irish bonds has helped push up the the yield, or interest rate, payable on Irish bond debt as the state, paradoxically, pays a penalty for issuing little debt in recent years.

But international ob­ser­vers, including Alex Potter at Collins Stewart in London, said that the cost of funding Anglo Irish, guaranteed by Irish taxpayers, was rising because Anglo's liabilities were about the same as those of Northern Rock, rescued by the British government in September 2007, but backed by Britain's much larger population.
"The state, which guarantees Anglo, will run it down, you have to hope. It is sometimes better to let [such banks] limp through but that in effect means the government becomes a massive landlord," Potter said. The analyst added he was surprised that the Irish government took control over the bank by issuing preference shares because that denies Irish taxpayers an opportunity to share in any recovery in the Irish banks.
The National Treasury Management Agency, the government agency that manages Irish sovereign debt, said last week that Ireland's general government debt, the most accurate measure of comparing sovereign debt across Europe, currently stood at 41% of gross domestic product (GDP).
That compares with the Budget forecast, made 12 weeks ago, that the debt pile here would only climb to 36% of GDP at the end of 2008, and reach, at worst, about 48% of GDP by the end of 2011.

January 4, 2009

Did Government genuinely believe the Guarantee was just a cost-free form of words, as they said at the time ?

The chief executive of Bank of Ireland, Brian Goggin, is to be the next major casualty of the Irish banking crisis, and is already in talks with the company about his departure, the Sunday Independent can reveal.

Mr Goggin has been in discussions with the bank about his "retirement" for some time, but the State guarantee process has hastened that process and a statement from the bank is expected in the coming weeks.

Meanwhile, several of Ireland's highest-profile developers are boldly planning to exploit a recent High Court decision to force the banks to write down their debts by billions, the Sunday Independent has learned.

If it happens, the move could have implications for Irish taxpayers, who are set to invest in the banks under the Government's guarantee scheme. http://www.independent.ie/national-news/b-of-i-chief-goggin-to-quit-more-to-follow-1598237.html

From the front of the Sindo from today.

Here is a great story.
The Danes are having a bit of trouble with their bankers too,

“My message to the banks is: Well, then you can’t have it. Instead we will establish a state company that lends money directly to businesses,” she says in today’s Jyllands-Posten,

Funnily enough, I was thinking exactly the same thing a few months back.
Why bail out old banks; just nationalise one of them and micro-finance small and medium enterprise.
Makes perfect sense to me.

How could the politicians look at the bankers in the eye at the golf club* if they did that?

*with a bit of luck, the senior bankers new jobs will be waiting tables in the golf club!

Johnny Keogh wrote:

Here is a great story.
The Danes are having a bit of trouble with their bankers too,

“My message to the banks is: Well, then you can’t have it. Instead we will establish a state company that lends money directly to businesses,” she says in today’s Jyllands-Posten,

Funnily enough, I was thinking exactly the same thing a few months back.
Why bail out old banks; just nationalise one of them and micro-finance small and medium enterprise.
Makes perfect sense to me.

It sounds great, and ultimately may be the only option for some, but if they banks go down, they take a lot down with them.

Johnny Keogh wrote:

Here is a great story.
The Danes are having a bit of trouble with their bankers too,

“My message to the banks is: Well, then you can’t have it. Instead we will establish a state company that lends money directly to businesses,” she says in today’s Jyllands-Posten,

Funnily enough, I was thinking exactly the same thing a few months back.
Why bail out old banks; just nationalise one of them and micro-finance small and medium enterprise.
Makes perfect sense to me.

HEAR HEAR

well, folks, you've just come up with a future for Anglo.....the Government should finish nationalising it and then use it as a conduit of funds to business.

As was remarked to me a little while ago, there is no such thing as "re"capitalisation. A business needing funds is one seeking capitalisation. However the little insertion of "re" takes the air of panic out of the word with all that entails.

Smoke and mirrors in the middle of a giant international game of Find the Lady.

Ronald Binge wrote:

As was remarked to me a little while ago, there is no such thing as "re"capitalisation. A business needing funds is one seeking capitalisation. However the little insertion of "re" takes the air of panic out of the word with all that entails.

Smoke and mirrors in the middle of a giant international game of Find the Lady.

I like this post, even though I haven't an idea what it means.