IT Analysis - Things are going to get much worse

[What_Goes_Up]

irishtimes.com/newspaper/opi … 15931.html

https://www.irishtimes.com/newspaper/images/2008/1024/1224715115931_1.jpg
Tokyo at night: ‘The liability guarantee leaves Irish banks in precisely the position of Fannie Mae before it was nationalised: alive but economically useless. In effect, the Government has chosen to inflict a Japanese-style lost decade on the Irish economy’

Things are going to get much worse

ANALYSIS: This is the future: without immediate Government funding, bank lending will fall by three-quarters, driving most companies in Ireland out of existence, writes **Morgan Kelly **
BY SHOOTING itself in the other foot over the Budget, the Government has temporarily diverted attention from its botched bailout of the banks, but the problem has not gone away. While financial markets across Europe are beginning to stabilise, Irish banks continue to sink deeper beneath the waves and are starting to drag the rest of the economy under with them.
What makes bank crises economically catastrophic is that they cause credit squeezes which drive profitable firms out of business. Every company in Ireland relies on a credit line to pay wages and other expenses between payments from its customers.
Established firms (outside construction) rarely go out of business because they are unprofitable, but because they have problems with cash flow; and any firm that loses its bank credit line is effectively dead.
The amount that a bank is allowed to lend is proportional to its capital. When a bank loses capital through bad loans, as Irish banks have done spectacularly through their lending to builders and developers, it must reduce its lending. Already many smaller firms are finding it harder to get overdrafts, and the worst is yet to come.

If we suppose that the current stock market valuations of Irish banks are a rough indicator of the true book value of their capital, then in the next year we can expect banks to write off more three-quarters of their capital as bad debts. This means that without immediate Government action to recapitalise the banks, bank lending will fall by three-quarters, driving most companies in Ireland out of existence.

The Government claims that the merit of its scheme is that it costs nothing. Unfortunately, international experience shows that when banks get into trouble, the choice is not whether you spend money, but when. Either you pay the money up front to recapitalise banks; or you pay far more over the next decade in bankruptcies, unemployment and lost output.

[xman]

This is it folks. This is where we are. It’s them or us, and Fianna Fail are on their side.

The medical card fiasco was an amusing sideshow, but there are far deeper and more serious problems afoot that the masses are ignoring.

[the_edge]

It is worth recalling that **the last time **Ireland’s wealthiest businessman and his dodgy personal bank got into financial difficulties - Patrick Gallagher and Merchant Banking Ltd in 1982 - both were allowed to go bankrupt. Gallagher eventually did two years for fraud in Crumlin Road Prison, Belfast.

See what he did there?

[the_edge]

@xman

The medical card fiasco was an amusing sideshow, but there are far deeper and more serious problems afoot that the masses are ignoring.

Spot on. And I would also point out that Kelly was the first to predict the banking problems in Ireland.

Back in September 2007, he was already talking about the banks’ developer bad loans as the place to look at.

[xman]

@the edge

I would also point out that Kelly was the first to predict the banking problems in Ireland.

This borrowing binge is blowing our bubble

Like all bubble economies, it is credit — not tax cuts — which drives spending on cars, lavish Christmas bashes, second homes in Marbella, two golfing trips per year and the Man United away strip from D’Olier Street. Private sector borrowing is probably going to be 10 to 15 times more expansionary than any consequences arising from what Charlie McCreevy announces this week.

Given the storm clouds building in the global stock markets, financial distress on a major scale here in Ireland can’t be far away.

David McWilliams December 3rd 2000

Well David, you weren’t to know at the time what Mr. Greenspan was going to do to keep the show on the road.

[gaius]

the worst is yet to come.

A wee dig at Marc Coleman?

[markf909]

@gaius

the worst is yet to come.

A wee dig at Marc Coleman?

Morgan Kelly is certainly a pin reader.

[ewd3]

@markf909

@gaius

the worst is yet to come.

A wee dig at Marc Coleman?

Morgan Kelly is certainly a pin reader.

I hope he contributes !!!