Reports on Ireland

Max Kaiser did a very good job summarizing the current state of matters in Ireland in a video report available on YouTube in two parts: part 1, part 2.

A few things you knew already:

• The bailout was really a bailout of the foreign banks which held the debt of the Irish banks.
• European banks who have been bailed out are actually lending the money for this bail out, so they are making a double whammy for being stupid enough to lend money to these insolvent institutions.
• That debt is not going to be paid out, default/massive haircut is the only solution given the massive amounts of debt involved.

A few things that might be new to you (they were new to me):

• There are currently more than 300,000 excess properties in a country of 4.5 million people
• There are many ghost towns spread around Dublin
• If you default on your debt and your home is repossessed, you can be jailed, as the debt is not erased.
• As a consequence of the previous point, there have been, and are still, waves of emigrations. People who cannot afford their homes anymore — or who do not want to be a debt slave for the next 20-25 years — are now emigrating in mass to the US and Australia

Michael Lewis also wrote a great report on Ireland, available on VanityFair:

When Irish Eyes Are Crying
First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country—from one another. After which their banks and government really screwed them. So where’s the rage?

By Michael Lewis, March 2011

Finally, as a sign of how mad the markets participants have become, here's a nice story published by Bloomberg a few weeks ago. One must be seriously mad to believe that this is the beginning of the sovereign debt crisis in Europe. Just a quick look at the sovereign yields would confirm that. And of course, the fact that RBC bought BlueBay is yet another sign that the banking sector is still very much entrenched in its willing to speculate...

April 8 (Bloomberg) -- BlueBay Asset Management, which oversees $39 billion in assets, is buying Irish government bonds because pessimism surrounding the country’s finances has reached “unrealistic” proportions.
[...]
Dowding began buying Irish bonds last week after the government said it wouldn’t penalize investors in Irish bank debt. BlueBay now holds more Irish debt than the level recommended by the index it uses to measure performance, a so- called overweight position.

“Ireland’s economy has more competitive advantage compared with Portugal’s,” Dowding said in an interview. “We like the fact that the interests of European Central Bank and European Union policy makers are very much being observed by the new government. A near-term restructuring of Irish government debt is extremely unlikely.”
[...]
“There is a sense in the market that the European authorities may have managed to engineer the beginning of the end of this stage of the euro-sovereign debt crisis,” he said. “The outlook for peripheral countries is turning somewhat more positive. However, our long-term assessment on Portugal remains one where we are very concerned about its growth prospects.”

BlueBay was bought by Royal Bank of Canada in December.