Looking for answer to 3 financial questions on INBS/Anglo, National Debt and EU bond.

[irishguy]

Sorry if they were already answered, but I couldnt find any sufficiently detailed answers.

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

2. What would the impact of a partial/full default/renegotiation on national debt mean to Ireland? in terms of the economy, tax rates, private sector employment and interest rates charged by the banks?

3. Why dont the EU create a bond backed by the EU so Euro countries (i.e. the PIIGS) can reduce the amount they pay in interest?


What do people think?

 

[goosebump]

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

Its currently EU wide policy not to let any eurozone bank go under, for fear that it might trigger a wider contagion that would undermine the entire eurozone banking system, as the Lehmans collapse did in the US.

Truth is that nobody knows what will happen when the first eurozone bank goes under, but for now, the prevailing view is that its better to suffer the consequences of not finding out than actually finding out. That may change however.

2. What would the impact of a partial/full default/renegotiation on national debt mean to Ireland? in terms of the economy, tax rates, private sector employment and interest rates charged by the banks?

The problem is that we don't know, but once we kick off the process of finding out, there's no way back.

3. Why dont the EU create a bond backed by the EU so Euro countries (i.e. the PIIGS) can reduce the amount they pay in interest?

They've already established a fund to assist countries. Greece is currently borrowing money from it. The problem is that if you access it, you have to accept their fiscal directives.

What do people think?[/QUOTE]

 

[Chris]

Sorry if they were already answered, but I couldnt find any sufficiently detailed answers.

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

Well, politicians would have us believe that the world would end. In reality, what would have happened is a sudden sharp correction, that would have liquidated lots of assets and made a lot of capital available to better investment. The market will force the economy to the bottom, one way or another. Fighting it will only prolong the downturn. This is what happened in the Great Depression, and is what is likely to happen now. I don't think it is a matter of if, but rather when.

2. What would the impact of a partial/full default/renegotiation on national debt mean to Ireland? in terms of the economy, tax rates, private sector employment and interest rates charged by the banks?

Exact impact is hard to predict in any level of detail. But take a look at countries that have defaulted in recent history, e.g. Russia and Argentina. They are far from the basket cases they were predicted to be at the time they defaulted. Default helped their economies!

3. Why dont the EU create a bond backed by the EU so Euro countries (i.e. the PIIGS) can reduce the amount they pay in interest?


What do people think?

Why should anything be done to fight the market's punishing effect of high interest rates on countries that messed up. The PIIGS messed up in their fiscal ineptitude, and should pay the price ofr it. Otherwise you would encourage taking fiscal risks.
The EU/IMF has created a fund of €750b to be accessed by troubled countries for this very purpose you suggest.

 

[aristotle]

Sorry if they were already answered, but I couldnt find any sufficiently detailed answers.

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

There wouldn't be enough money in the bank to pay the depositors if the bank was liqudated. The tax payer would have to step in and pay depositors as a result of the bank guarantee.

 

[jpd]

The taxpayer hasn't the money either, so it would have to be borrowed - from the very people whom who just defaulted on - it would be hard to imagine how you could borrow the amounts required in this case.