Circling Sharks !

September 15, 2013

Is it too much to ask of Dail reform that ministers be required to sign a pledge not to take any position in the financial services or banking industry upon leaving the Dail to prevent a dual mandate situation?

Ministers may go easy on banking and the financial industry if they hope to follow the path of so-called ex politicians such as eg Dick Spring, John Bruton, Peter Sutherland or Alan Dukes.

Politicians serving a dual mandate of democracy and the financial services industry do not serve democracy.

http://en.wikipedia.org/wiki/Savings_bank_(Spain)

“Collapse of the cajas[edit source | editbeta]

Central Bank of Ireland

Central Bank of Ireland (Photo credit: Wikipedia)

In the aftermath of the global financial crisis, the Spanish real estate market collapsed, taking Spain into its very own financial crisis.[1] Out of the 45 cajas in existence at the start of the crisis in 2007, only two survived in their initial form; the rest were either taken over by other banks or by the government or forced to merge and taken over by the government, wiping out existing equity holders.[2] “

There is a black hole in Irish banking composed of personal, business and mortgage debt that has yet to be filled. New regulatory rules and pressure from Europe want this resolved and pressure is mounting to do this quickly.

This problem has been shoved under the carpet for quite some time now.  http://machholz.files.wordpress.com/2010/04/conclusions.pdf

“In the aftermath of this bubble, the Irish banking system faces three inter-related problems. The first is that it has made large losses on loans to property developers. The second is that it has large wholesale liabilities to international bond holders and, increasingly, to the European Central Bank. The final problem is that it faces likely further large losses on mortgages and business loans.”

A lot has happened between Kelly writing those words in 2009 suffice it to say we are under pressure from our lenders at the point of taking the hit from the hidden stockpile of ” further large losses on mortgages and business loans”

Instead of a banking inquiry Prison we have the Central Bank’s PRISM that is tightening the ligature around the neck of the Irish economy.  There are a number of economic forces that indicate an endgame is in sight.

http://www.businesspost.ie/#!story/Home/News/Honohan+says+Central+Bank+looking+at+bank+risk+models/id/19410615-5218-5231-5805-1cbfb5199048

According to Honahan

“Governor Patrick Honohan said the Central Bank is examining how banks measure the riskiness of their assets when deciding how much capital they need to hold.

“The risk weighting of assets is a matter which we at the Central Bank of Ireland are looking at in the context of the ongoing SSM balance sheet assessments and the EBA stress tests scheduled for 2014,” Honohan says in an article prepared for a conference in Vilnius.”

EBA stress testing here: http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing

The Irish ‘pillar bank’ titanics, their water ballast tanks holed beneath the waterline, are grasping at straws hoping an upturn in Europe or the global economy will save the inevitable day.

Their partner, the ECB preying mantis could force the annexation of the Irish credit union sector in a foul regulatory swoop to guarantee all credit union deposits within their grasp.

The prospect of a Cyprus like swoop on depositors in a Cyprus type showdown forcing losses on the money too terrified to spend in a 40% scalping of Irish deposits should not be underestimated.  Irish depositors money in the so-called pillar banks is not safe.

Basil 111 monitoring reports here: http://www.eba.europa.eu/risk-analysis-and-data/quantitative-impact-study/basel-iii-monitoring-exercise Basil 111 is forcing a stress testing on Irish banks that under current conditions Irish banks should dread.

Irish economic polyanna shape shifters forecasting more employment and an improved local and global economy are having cold water thrown on them even by the Polyanna based forecasting model of the OECD.

http://www.businesspost.ie/#!story/Markets/Economics/OECD+sees+flat+economy+this+year%2C+calls+for+job+creation/id/19410615-5218-5231-82f5-3fbaa0527046

“The OECD believes Ireland’s economy will remain flat in 2013 but GDP will rise 1.9 per cent in 2014, below government forecasts, and called for more to be done to get the economy back to “full health”.

In a report on the Irish economy released today, the Paris-based Organisation for Economic Co-operation and Development forecasts the economy will fall short of the government’s growth forecast of 1.3 per cent this year and 2.4 per cent next year, recording no growth before expanding slightly in 2014.”

http://www.businesspost.ie/#!story/Comment/Opinion/COMMENT%3A+To+be+austere+or+not+austere+%E2%80%93+that+is+the+question/id/19410615-5218-5231-5c01-149a23272990

“The Irish government, including Gilmore, previously agreed to abide by a commitment to have a further fiscal adjustment of €3.1 billion in 2014 and €2 billion in 2015 in order to get borrowing to three per cent of GDP by the end of 2015.”

http://www.businesspost.ie/#!story/Home/News/EU+lawyers+clash+over+legality+of+transaction+tax/id/19410615-5218-522f-3b08-a08621409222

So another fiscal adjustment of total of €5bn against a backdrop of a slowing global economy and further easing of QE in the US would have us believe minus is now plus.  PIGS don’t fly.

But trouble for the Irish economy doesn’t end there with black holes in banks and stress testing with new regulatory requirements, another income source in the financial sector where Ireland has operated as a tax haven, is now under scrutiny.

” The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations that have so far signed up. The plan would charge a 0.1 per cent rate for stock and bond trades and 0.01 per cent for derivatives transactions, with some exemptions for primary-market sales and trades with the ECB….

The feud centers on proposals for worldwide tax collection on trades involving a bank or financial security based in one of the participating nations. The council’s September 6 legal opinion said the EU can’t justify such an aggressive approach just to keep traders from moving outside the zone of participating nations.”

The IFSC(Irish Financial Services Centre) already experiencing a rash of banks not renewing their licenses to trade there, could be constricted more!

Meanwhile globally the rush is on to stop the runaway train that led to the deregulated train of shadow banking going off the rails.

But globally the €700 trillion monster market in derivatives in the shadow banking sector instead of being regulated and disinfected with plasters such as

” http://en.wikipedia.org/wiki/Volcker_Rule

“The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers”

…is now experiencing the shadow banking market dive beneath the radar of even the TBTF and the Central Banks further destroying the reliability of fiat currency

Banks share of shadow banking declining http://www.ft.com/intl/cms/s/0/b98ec11c-1b07-11e3-a605-00144feab7de.html?siteedition=intl#axzz2efcnkU4l

Even TBTF Banks are under attack, with shadow banks, such as hedge funds and other non-bank financial institutions now taking more than 50 per cent of both interest rates and FX trading for the first time, according to data by the Bank for International Settlements.”

Not good news for the Irish IFSC minnows swimming in shark infested waters.

More trouble for the Irish economy is current investigation by  EU of Ireland’s tax haven status with EU investigating tax rules ..Ireland as tax haven ..Double Dutch sandwich facility under Irish tax laws of tax dodging for multinationals…subject of earlier blogs here.

http://www.dailymail.co.uk/news/article-2418464/EU-investigates-Ireland-Luxembourg-Netherlands-corporate-tax-sweeteners.html

A way out:

The way forward from this morass should include preparation by Ireland for a new local emergency currency, a parallel bitcoin currency that could exist independently of any bank.

http://en.wikipedia.org/wiki/Bitcoin

The ‘pillar banks’ in the event of the removal of Ireland from the EMU through an IMF and International Bank of Settlements resolution of its banking debt, could adopt the model Public banking with real reserves that include debt write down.

The credit union movement is under imminent threat from the Irish Central Bank.

http://www.independent.ie/business/personal-finance/latest-news/credit-union-savers-vow-to-risk-jail-in-fight-against-merger-plan-29466919.html

NB

One wonders if the new fitness and probity regulations imposed on credit unions will not see some credit unions sink and merge with other credit unions.

The ‘pillar banks’ have their eye on the capital base of some large credit unions with a view to improving the capital base of the major banks in a merry go round similar to what has been seen seen in the local, community and family based, caja banks in Spain.

https://www.centralbank.ie/regulation/industry-sectors/credit-unions/Pages/default.aspx

Unfortunately politicians are not spear heading the way ahead, leading lemmings over the cliff is more to their liking.

How about testing yourself by guessing how many of the current Labour party ministers following failure at the next election will instead get jobs in banking or the financial industry.

That would be in the Labour tradition of eg Dick Spring who landed the plum job as a director of Allied Irish Bank and lives comfortably from annual pension repayments…Perhaps a new rule for politicians to avoid the Sutherland and John Bruton legacy of Irish political equivocation with the financial sector, would be to ban Irish politicians from lucrative payoffs in the financial after politics, are their pensions not expensive enough?

But to get your mind into a better zone to understand the emerging end game for Ireland’s banks, an exercise would be to reread Morgan Kelly here or reread Michael Lewis links below.

http://www.irishtimes.com/debate/ireland-s-future-depends-on-breaking-free-from-bailout-1.565236

http://www.finfacts.ie/biz10/Michael-Lewis-on-ireland.pdf

http://www.politics.ie/forum/economy/142131-i-have-no-solutions-morgan-kelly-times.html

(See pic of titanic below)Slight difference being those leaving the Titanic and the 1000 per week now leaving Ireland: they are not the old and weak and ladies before men but include some of Ireland’s best graduates from its leading universities with those most able to make it elsewhere.

It would be remiss of anyone looking at the circling shark portents and the failure of Fine Gael and Labour to achieve a satisfactory result on burden sharing our banking debt with the ECB preying mantis, to look for other safety net guardians of Irish interest.

Alternative currency model such as the puntnua should be looked at. Another model for our banking system as represented in the public banking model of The Bank of North Dalota should be looked at. A parallel currency model that could be used in an emergency situation should be looked at.

Ellen Brown who is visiting Ireland shortly, more details shortly, is a leading light in the analysis of Public Banking as a new banking model.

In her latest blog http://webofdebt.wordpress.com/2013/09/11/public-banking-for-wales-ireland-and-scotland-promise-and-possibilities/ she highlights the work of Dr Ian Jenkins who has written 2 articles on the question of such a public banking model for Wales.

Ireland would do well to explore the public bank model proposed for Scotland in this article by Ellen Brown:

http://www.webofdebt.com/articles/scotland.php

http://webofdebt.wordpress.com/

“True economic sovereignty means having control over the national currency, credit and debt….”

In Ireland we have still to fully rue the day we joined the failed experiment of the EMU under the euro.

In a commonwealth alliance with England/Scotland/Wales and a single 32 county economic area, we may have had some clout to promote the aspirations of independent self determination.

Instead of which we are to endure relegation to the 1/27 demoted membership of the EMU circled by sharks without the kindness of strangers; Irish money that remains is at high risk.

According to Sunday Independent today, in the early days of Irish meltdown”In the course of only 2 days, the bankers speculated that Ireland’s wealthy could have put as much as €500m into Germany.

Is it too much to ask that a new national Irish Public bank be set up free from the speculative interests of private banking interests, to serve the needs of Irish depositors to reverse this flow….?

We have yet to hold a public banking inquiry aportioning true responsibility for the above on those in the Irish Central Bank, the Irish Department of Finance, the political parties, the Regulators office.

To the degree we have not done so, Ireland remains toxic deep in its bones.

End

titanic

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