TheStory.ie

Been a while since I linked to a Boone and Johnson piece around these parts. This one is required reading…

[..] For Ireland, too, sovereign debt, including bridge financing, will rise close to 150% of GNP by 2014, and is mostly external. But a sovereign default would require a much larger bank bailout than in Greece, potentially leaving private debt almost worthless if official debt has seniority. Total haircuts don’t happen historically – except in the wake of communist takeovers – but it is hard to imagine that private creditors won’t suffer huge losses in net present value.

Given this, we should expect Greek debt yields to rise further, despite the current IMF program. Likewise, an IMF program for Ireland – which seems increasingly likely – will not bring down domestic bond yields and reopen credit markets to any kind of Irish borrower.

If people start to think this way, Portugal, whose already high and growing debt is held largely by non-residents, becomes a candidate for default as well. In that case, it makes little sense to hold Spanish debt, either, which is also mostly external. Spain’s financial exposure to Portugal and its housing-led recession don’t help matters.

And, if Spain is at serious risk of default, government solvency is at risk throughout the eurozone – except in Germany. Perhaps Italy can survive, because most of its debt is held domestically, which makes default less likely. But the size of Italy’s debt – and of Belgium’s – is worrisome.

Given the vulnerability of so many eurozone countries, it appears that Merkel does not understand the immediate implications of her plan. The Germans and other Europeans insist that they will provide new official financing to insolvent countries, thus keeping current bondholders whole, while simultaneously creating a new regime after 2013 under which all this debt could be easily restructured. But, as European Central Bank President Jean-Claude Trichet likes to point out, market participants are good at thinking backwards: if they can see where a Ponzi-type scheme ends, everything unravels.

Word has it that a few media outlets have picked up on Gav and Lorcan’s latest post. Welcome aboard if you’re a first-time reader. Make sure you’ve your spinshield at hand, Government ministers are already out talking nonsense. 

It looks likely to be a wild ride over the next few days. We should know a little more following a meeting of EU finance ministers in Brussels tomorrow evening.

Eyes-peeled for a bail-out involving Ireland and An Other which will be spun as a broader European ‘restructuring’ (possibly of the banking system, not the State, as if it’s still possible to seperate the two) by our Government and thus no fault of their own.

Sure, all the correct decisions have been made and all the right corners turned, remember. Cheapest bank bail-out in the world, lads.

Last week we showed how the most recent Irish Central Bank financial statement showed a large jump in the ‘other assets’ of the bank. We’ve been trying to figure out what exactly is going on. Over the weekend, Lorcan noticed that the data we used last week has since been updated to include the October data. It makes for eye-watering reading – hold onto your hats.

The ‘Other Assets’ of the Central Bank are now at €34.606bn, having jumped from €14.378bn in August and from the €21.195bn in September (which we reported last week). That’s a rise of over 140% from August to October. But what, on the face of it, is going on, and what does it mean?

Here is a chart of the ‘Other Assets’ of the Central Bank from the peak of the property bubble in September 2006 to October 2010:

Here is the table:

When previously contacted, the Central Bank of Ireland gave this description of what is captured by the ‘Other Assets’ column of the Irish Central bank balance sheet:

“The ‘Lending to euro area credit institutions in euro’ columns [including “main refinancing operations” and “longer term refinancing operations”] are Eurosystem operations.

Any other lending undertaken by the Central Bank is captured under the ‘Other Assets’ column, also in Table C2. It should be noted that this column is not exclusively lending, but also captures other certain assets of the Bank.

There is no further detailed information we can provide.

[The sheet being referred to is here, note the columns referred to (f) and (g), while other assets is column (r).]

So, what does this mean?

Well, the total amount of ‘assets’ in the Irish Central Bank has risen by a total of €55.3bn from August to October, from €130.310bn to €185.815bn . But only €35bn of that has been captured by the ECB-related columns in (f) and (g) referred to by the Central Bank above.

The other €20bn has been added to the ‘Other Assets’ column.

All of which seems to point to some euro quantitative easing happening on Dame Street in Dublin. How long will the ECB allow this situation continue?

Something to muse on. Here is a timeline chart. I wonder what it represents…

Most insightful press release of the day goes to… drumroll please… Shell to Sea.

Today marks the 4^th year anniversary of the baton charge and violence by Gardaí against protestors opposed to the Corrib Gas Project.

The 10^th of November 2006 was chosen by the Shell to Sea campaign, as a suitable day of action as it marked the anniversary of the hanging of Ken Saro Wiwa and 8 other Ogoni activists who opposed Shell. Over 200 Gardaí were drafted in under the direction of Superintendent Joe Gannon (then Superintendent in Belmullet).

Ironically Superintendent Joe Gannon is now Superintendent at Pearse Street Garda Station, which today will be the focus of a protest march in opposition to Garda brutality against protestors. This protest was called in light of the violence that was dealt out to students in Dublin last week. Supt. Joe Gannon was present and personally involved in the scene at the Dept of Finance when students were violently removed from the building.

Shell to Sea spokesperson Terence Conway stated “In a investigation into Supt. Joe Gannon’s handling of a protest at Pollathomais Pier in which 20 people were injured, the Garda Ombudsman recommended to Garda Headquarters that disciplinary action be taken against him. However nothing happened and instead Supt Joe Gannon was promoted and has continued to police protests in the same manner that characterised his time down here in Mayo”.

Irish Times report on the Garda Siochana’s decision to reject the recommendation by the Garda Ombudsman is here.

Shady’s back. Back again.

The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits – there is no longer any such thing – but from the pockets of other taxpayers.

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

Kate Shanahan, a TV and radio producer and lecturer in the DIT School of Media, has a piece in the ‘Think Tank’ slot on the [paywalled] Sunday Times opinion pages today. The headline is ‘Media can’t chase after squirrels’. The piece chastises the media for following the shiny stories from hour to hour instead of staying focused and providing depth on the important stories over long periods.

I largely agree with her until she begins her conclusion…

“In the Irish context, we may prioritise news values as they apply to the current crisis.

A story about Ivor Callely’s expense claims should not overshadow one about a semi-state that has squandered millions, such as Fas.”

Let’s not forget that the Ivor Callely story is not your average expenses story. It’s not about him being kicked out of the Seanad and going to the courts. It’s not about him claiming travel expenses from a house in Cork which wasn’t his principle residence.

It’s about him allegedly using forged documents to claim money from the taxpayer-funded parliament. That would be fraud.

That’s serious.

Dismiss your politicians’ apparent financial discrepancies as small-fry because it’s only a few quid here and there and watch it happen again and again. Then watch that attitude permeate through society and into – amongst other places – semi-state bodies. “Fair play to him, sure wouldn’t we all do it?”. Well, no.

When it comes to public representatives – those charged with giving direction and providing moral and political leadership – we shouldn’t care how many figures follow the currency symbol.

Ivor Callely isn’t a squirrel… he’s a… let’s not forget that.