Tag: ek Politics

Krugman’s piece yesterday was widely quoted and most people chose to focus on this section of it-

Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Which is kind of appalling from a morality standpoint, but it’s also not working on a practical level.

Thanks to Atrios I was able to give you the rest of the story yesterday, but I think it’s instructive to reflect on Krugman’s reporting of the actual factual results-

Strange to say, … confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy – and are fleeing Irish debt because of that economic weakness.

…

Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line – a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

…

(A)t this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?

Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes – approvingly! – “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls – that is, by limiting the ability of residents to pull funds out of the country.

And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump.

…

Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

He did win a Nobel Prize in Economics and stuff.

Iceland Is No Ireland as State Free of Bank Debt, Grimsson Says

By Jonas Bergman and Omar R. Valdimarsson, Bloomberg News

Nov 26, 2010 9:21 AM ET

Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks to the government’s decision to allow the banks to fail two years ago and because the krona could be devalued.

“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”

…

“Iceland is faring much better than anybody expected,” Grimsson said. The Icelandic state’s liability on foreign depositor claims stemming from Icesave accounts at failed Landsbanki Islands hf should be put to a national referendum, he said.

“How far can we ask ordinary people — farmers and fishermen and teachers and doctors and nurses — to shoulder the responsibility of failed private banks,” said Grimsson. “That question, which has been at the core of the Icesave issue, will now be the burning issue in many European countries.”

(h/t Atrios)

I don’t have a Nobel Prize in Economics, but unlike Paul Krugman I don’t think this was inevitable.  I blame people and institutions.

I blame Vacuity and prestige schools that will accept and pass any legacy moron (like George W. Bush).

I blame Vanity and an academic atmosphere that prizes novelty and publication above scholarship, teaching, and facts.

I blame Venality and the greed of our upper class elites who can starve to death on mere millions because they can’t conspicuously consume as much as their billionaire brethren and are disappointed because they think it’s a birthright.

The Instability of Moderation

by Paul Krugman, The New York Times

November 26, 2010, 9:40 am

The brand of economics I use in my daily work – the brand that I still consider by far the most reasonable approach out there – was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention. In the Samuelsonian synthesis, one must count on the government to ensure more or less full employment; only once that can be taken as given do the usual virtues of free markets come to the fore.

…

I’ve always considered monetarism to be, in effect, an attempt to assuage conservative political prejudices without denying macroeconomic realities. What Friedman was saying was, in effect, yes, we need policy to stabilize the economy – but we can make that policy technical and largely mechanical, we can cordon it off from everything else. Just tell the central bank to stabilize M2, and aside from that, let freedom ring!

When monetarism failed – fighting words, but you know, it really did – it was replaced by the cult of the independent central bank. Put a bunch of bankerly men in charge of the monetary base, insulate them from political pressure, and let them deal with the business cycle; meanwhile, everything else can be conducted on free-market principles.

…

Last but not least, the very success of central-bank-led stabilization, combined with financial deregulation – itself a by-product of the revival of free-market fundamentalism – set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock. And Milton Friedman was wrong: in the face of a really big shock, which pushes the economy into a liquidity trap, the central bank can’t prevent a depression.

(h/t Atrios)

Today is a half day trading day in the U.S. and unlike some shills for Wall Street I can’t imagine why you’d want to be long in stocks after Wednesday’s ‘irrational exuberance’.  Sell high, buy low is after all- basic.

Retail investors (it’s hard to call people who own stocks ‘normal’ because they’re a tiny minority) may still hold a majority of corporate equity but they have been leaving the market in droves because after the great financial meltdown of 2008, the Flash Crash, and the recent revelations of systemic Title Fraud and Insider Trading.

As I mentioned, most people don’t own stocks, they invest in mutual funds (Republicans and Blue Dogs like to call them ‘stocks’ to inflate the numbers of the ‘investor class’, but they’re really not), bonds, certificates of deposit, annuities, and other ‘safe’ investments.  Many people just keep their money in a bank because they live paycheck to paycheck and don’t have any surplus to spare.  What savings they have is in the equity of the house they’re living in and in today’s depressed market it’s not what it used to be.

But most people have bank accounts and a lot of them are really, really angry at the banksters.

It’s the same in Europe where ex-soccer star Eric Cantona is urging people to do something about it-

Join a World-Wide Bank Run in December — Move Your Money

Robert E. Prasch, The Huffington Post

November 24, 2010 04:03 PM

(O)rganizers are calling for the use of a new weapon, one available to any of us with a bank account. It is the simple act of removing all of our money from the banks, and doing so en masse on the same day — December 7th.

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Of late, the famously mercurial temper that Cantona exhibited on and off the soccer pitch has been redirected from rivals and unruly fans. A prominent target is French President Nicolas Sarkozy’s proposal to create a ministry, museum, and mass public debate on “national identity,” all of which Cantona publically ridiculed as “idiotic.” His sights are now trained on the banking and financial system that he — correctly — holds responsible for France’s current economic problems. This is important because Sarkozy and the EU leadership is using this crisis to erode welfare state protections even as ostensibly scarce public monies are deployed to shore up the banks most responsible for the problem.

Which brings us to the economics of a mass withdrawal of deposits from the banks. Will it bring about an actual bank run or financial crash? Certainly not. For one thing, an organized and deliberate action such as Cantona proposes lacks the element of panic so characteristic of bank runs. Additionally, the banks and the central banks overseeing them will have time to prepare for the event, and should be able to reallocate their holdings of cash, reserves, and other assets in advance. If necessary, banks can always borrow short-term funds on the inter-bank market or even directly from the central bank. A mass withdrawal should, however, shrink the profitability of banks, as retail deposits are normally considered cheap and stable sources of funds with which to finance loans. Large European banks, relative to their American peers, are more dependent on retail deposits, so they will especially miss these funds when the time comes to calculate profits and bonuses.

But what of the politics? Here in the United States it is now overwhelmingly clear that a dozen or so of the largest financial institutions responsible for the crash and ensuing recession have gained, not lost, by their irresponsible decisions. They repeatedly tell us that they have “learned lessons.” This is true, they have: Learned that their past decisions have enriched senior management beyond belief. Learned that their market share is now substantially larger than before the crash. And learned that the government has deemed them Too Big To Fail (this latter designation lowers their cost of funds and enhances their profitability). Showing admirable “bi-partisanship,” Republican and Democratic administrations have worked hard and seamlessly to bring about these “lessons.” This summer, the Dodd-Frank Financial Reform and Consumer Protection Act enshrined the perspective of financial elites that reform should be primarily symbolic. In a sentence, over $12,000,000,000 of stock market, real estate, and other asset values disappeared, while rates of home foreclosures and unemployment soared, with virtually NO political or legal consequences. I might be a cynic, but I hope to never be as cynical as those who engineered these outcomes.

Now Prasch may not be aware of it, but this is an idea I’ve heard circulated among the blogs since at least early this year.  There’s nothing new about it.

But I would like to encourage my readers to consider it if they haven’t already.  There’s really no reason to keep your money in a major bank unless it’s more than the $250,000 the FDIC will insure, and at that you may be exposed to more risk than you realize.  If your money is in a Credit Union or a Savings and Loan or a Local or Regional Bank your checks still get cashed and your credit and debit cards still work and most of them will change your pennies to folding money without charging you 10% for the privilege.

Fact Sheet: Know Your Passenger Rights on TSA Opt-Out Day

By: Jane Hamsher Monday November 22, 2010 9:42 am

The idea of an Opt-Out day has been picking up steam, and many airline passengers will be refusing to submit to the TSA’s whole body imaging scanners on Wednesday, November 24.  But in the wake of conflicting messages coming out of the TSA, travelers are going to be confused about what to expect at TSA security checkpoints. So FDL has put together  a handy flier about the scanners and the “enhanced” patdown procedures, which explains your risks and rights in the airport:

I’ve talked at other sites about a Serf Strike and while I don’t want to inflict any personal inconvenience on you I equally urge non-violent direct action of the type Martin Luther King practiced–

You may well ask: “Why direct action? Why sit ins, marches and so forth? Isn’t negotiation a better path?” You are quite right in calling for negotiation. Indeed, this is the very purpose of direct action. Nonviolent direct action seeks to create such a crisis and foster such a tension that a community which has constantly refused to negotiate is forced to confront the issue. It seeks so to dramatize the issue that it can no longer be ignored. My citing the creation of tension as part of the work of the nonviolent resister may sound rather shocking. But I must confess that I am not afraid of the word “tension.” I have earnestly opposed violent tension, but there is a type of constructive, nonviolent tension which is necessary for growth. Just as Socrates felt that it was necessary to create a tension in the mind so that individuals could rise from the bondage of myths and half truths to the unfettered realm of creative analysis and objective appraisal, so must we see the need for nonviolent gadflies to create the kind of tension in society that will help men rise from the dark depths of prejudice and racism to the majestic heights of understanding and brotherhood. The purpose of our direct action program is to create a situation so crisis packed that it will inevitably open the door to negotiation. I therefore concur with you in your call for negotiation. Too long has our beloved Southland been bogged down in a tragic effort to live in monologue rather than dialogue.

Now I’ll never fly again unless absolutely necessary, simply because even before 9/11 I found it an unpleasant and tedious waste of time.  I can only imagine how horrible it is today.  And it’s not that I flatter myself that I have much of an audience, yet I’m irresistibly tempted to encourage this endeavour simply because of the Versailles Villagers begging people not to.

Incoming House Transportation chief against ‘Opt-Out’ Day in TSA protest

By Kevin Bogardus, The Hill

11/21/10 10:25 AM ET

Rep. John Mica (R-Fla.) urged airline passengers Sunday to not purposefully slow down airport security lines by refusing to go through body scanners.

Likely the next House Transportation Committee chairman, Mica said he could not support what has become known as National “Opt-Out” Day. During the busy Thanksgiving travel period, passengers may opt-out of the body scanners, which take naked body images, and instead choose to go under invasive pat-downs as an act of protest. That will then likely slow down security lines.

Good.  That’s what it’s supposed to do.

John Pistole, TSA Chief, Pleads With Travelers Against Full-Body Scan Boycott

RAY HENRY, Associated Press

11/22/10 11:13 PM

ATLANTA – The nation’s airport security chief pleaded with Thanksgiving travelers for understanding and urged them not to boycott full-body scans on Wednesday, lest their protest snarl what is already one of the busiest, most stressful flying days of the year.

Transportation Security Administration chief John Pistole said Monday that such delaying actions would only “tie up people who want to go home and see their loved ones.”

…

“Just one or two recalcitrant passengers at an airport is all it takes to cause huge delays,” said Paul Ruden, a spokesman for the American Society of Travel Agents, which has warned its more than 8,000 members about delays. “It doesn’t take much to mess things up anyway.”

Well, since it’s coming up on Thanksgiving Day anyway-

And friends, somewhere in Washington enshrined in some little folder, is a study in black and white of my fingerprints.  And the only reason I’m singing you this song now is cause you may know somebody in a similar situation, or you may be in a similar situation, and if your in a situation like that there’s only one thing you can do and that’s walk into the shrink wherever you are ,just walk in say “Shrink, You can get anything you want, at Alice’s restaurant.”.  And walk out.  You know, if one person, just one person does it they may think he’s really sick and they won’t take him.  And if two people, two people do it, in harmony, they may think they’re both faggots and they won’t take either of them. And three people do it, three, can you imagine, three people walking in singin a bar of Alice’s Restaurant and walking out. They may think it’s an organization.  And can you, can you imagine fifty people a day, I said fifty people a day walking in singing a bar of Alice’s Restaurant and walking out.  And friends they may think it’s a movement.

And that’s what it is , the Alice’s Restaurant Anti-Massacre Movement, and all you got to do to join is sing it the next time it come’s around on the guitar.

With feeling.

Though Brian Cowen and his Fianna Fail (great name dude) Party soon will.

Irish Debt Crisis Forces Collapse of Government

By LANDON THOMAS Jr., The New York Times

Published: November 22, 2010

DUBLIN – The Irish government faced imminent collapse on Monday, only a day after it signed off on a $100 billion bailout, setting the stage for a new election early next year and injecting the threat of political instability into a European financial crisis that already has markets on edge.

Confronted with high-level defections from his governing coalition, Prime Minister Brian Cowen said he would dissolve the government after passage of the country’s crucial 2011 budget early in December.

His announcement capped a grim day for Ireland, as protesters tried to storm the Parliament building in Dublin, and Moody’s Investors Service, the ratings agency, lowered the rating on Irish debt by several notches.

In summary form, Fianna Fail controls the Irish Parliament by a very thin majority.  The Green Party, currently in coalition to provide that majority with 6 seats of its own has officially announced that they’ll vote No Confidence after the signature of the bailout agreement and passage of the new austerity budget.

However up to 5 Fianna Fail members have announced that they won’t wait that long and don’t plan on voting for either the bailout or the budget.

Voter sentiment in Ireland is similar to that in Iceland which was forced to repudiate many offers made by the banksters to safeguard their balance sheets and opposition party leaders are strongly calling for snap elections as a referendum on the government, its policies, the bailout agreement, and austerity.

If elections are held they’ll likely win in a landslide.  It’s not certain Fianna Fail can even continue to survive as a party.

Good riddance to bad rubbish.  You sleep with dogs, you wake up with fleas.

Of course the banksters are making threats-

EU warns Ireland over snap election

By Bruno Waterfield in Dublin, The Telegraph

10:00AM GMT 23 Nov 2010

The European Union has warned the Irish government that snap elections would be “very irresponsible” as post-bail-out turmoil continues to rock Ireland’s political establishment.

Vital to his staying on in power, were EU warnings that Ireland’s £77 billion bail-out would be jeopardised if the government fell Ireland, a situation that would spark a euro zone debt crisis and lead to the value Irish bonds being wiped out by global markets.

…

“From our perspective, it is important that the government is able to represent Ireland in the talks,” said another EU source. “It would be very unpleasant if there was no one to talk to. That would be very irresponsible.”

…

The turmoil means there are question marks over whether the government can pass a four year austerity later this week and a 2011 budget next month, both are preconditions of the EU and IMF rescue programme.

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Declan Ganley, the leader of the successful 2008 Irish No campaign against the Lisbon Treaty, before the vote was overturned last year, accused the EU of destroying Ireland’s political class by pressuring it into an unpopular bail-out to preserve the euro.

“The Irish political class has been sacrificed on the altar of expediency by those they thought were their friends in Brussels, Berlin and Paris,” he said.

Yes, more like that please.  I hope you starve just like the workers you betrayed you arrogant idiots.

Kenneth Feinberg’s plan to settle oil-spill claims met with opposition

By Steven Mufson, Washington Post Staff Writer

Monday, November 22, 2010; 7:16 PM

Tuesday (TODAY!) is the day that Feinberg wants to end emergency payments by BP’s Gulf Coast Claims Facility to individuals and businesses for damage inflicted by the massive oil spill in the Gulf of Mexico. After Thanksgiving, Feinberg will start offering lump-sum payments to people ready to settle all present and future claims – giving up their rights to file lawsuits.

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Earlier this month, Alabama Gov. Bob Riley (R) called Feinberg’s claims process “extortion,” and outgoing Alabama Attorney General Troy King issued a “consumer alert” warning people that Feinberg “works for BP.” Feinberg was named by President Obama, though BP is paying him and four other lawyers at his firm $850,000 a month to run the fund.

BP Gulf-Leak Estimates Slowed Efforts to Kill Well

Jim Efstathiou Jr., Bloomberg News

11/22/10

BP Plc “impeded” efforts to kill an out-of-control well in the Gulf of Mexico by underestimating the amount of oil gushing into the water, the staff of a presidential panel investigating the disaster said in a report.

Estimates of a 1,000-barrel-a-day leak after a drilling rig exploded April 20 delayed planning for techniques to seal the well, staff of the National Commission on the BP Deepwater Horizon Oil Spill said today. A U.S. government-appointed team of scientists in August said the well was gushing about 62,000 barrels a day after the blowout and 53,000 barrels when it was capped on July 15.

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“Had BP not shown such aggressive indifference to the size of the disaster, and the oil industry to preparing for such an event, then perhaps early actions could have made a difference in stopping this spill,” Representative Edward Markey, a Massachusetts Democrat, said today in a statement.

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The Obama administration blocked release of worst-case government estimates of the spill rate, the commission staff said in an Oct. 6 report. The move undermined public confidence in the U.S. response and may have hindered efforts to staunch the flow.

The National Oceanic and Atmospheric Administration “wanted to make public some of its long-term, worst-case discharge models for the Deepwater Horizon spill, and requested approval to do so from the White House’s Office of Management and Budget,” according to the staff paper. “The Office of Management and Budget denied NOAA’s request.”

Do you think Darrell Issa is going to want to investigate this?  Do you think the Obama Administration is blameless?

You may be reading news about the FBI investigating insider trading and think that this is somehow an indication of action against the banksters.

Don’t delude yourself.

Madoff is not Wall Street (though it’s all a Ponzi scheme looking for new suckers at this point) and the people being targeted are by all indications low level employees.

My uncle was a Vice President on the Bond Trading desk and you know what that got him?  A Corner Carrel with a view of the window.  He still had to smoke on the street 20 floors below.

dday’s piece about TITLE FRAUD! is much more significant.

Deposition: Countrywide Never Sent Mortgage Notes to Trust; Mortgage-Backed Securities in Question

By: David Dayen Sunday November 21, 2010 12:01 pm

Now we have documented evidence, beyond anecdote, that Countrywide, one of the largest subprime lenders, which securitized almost all of the loans they made, never sent the notes to the trust. In a deposition provided to a US Bankruptcy Court in the District of New Jersey, Linda DeMartini, a supervisor for Bank of America Home Loans (BofA bought Countrywide in 2008), admitted that the original notes never transferred from Countrywide into the trusts.

Well, this is a multi-Trillion problem for your balance sheets because you just broke your contract with PIMCO, Blackrock, and The Federal Reserve Bank of New York (among other minor players).

The entire court document is below.

CASE FILE New Jersey Admissions in Testimony Notes Never Sent to Trusts Kemp v Country Wide

This is an enormous deal. If Countrywide never gave up possession of the note, then the trust has no standing to foreclose whatsoever. It also means that investors in the MBS don’t actually have securities backed by mortgages. The “allonge” appears to be an effort to clear up this situation, and it was signed years after the fact, well past the deadline of the pooling and servicing agreement, and not even affixed to the note as required by law.

This is a deposition from one supervisor, but it could mean that all mortgage pools that Countrywide sold are suspect. That would amount to perhaps hundreds of billions of dollars in MBS. And the law appears to be air-tight on this, and not governed by the Constitution but New York trust law and the specifics of the pooling and servicing agreement.

Now, tell me again how the banks are planning to get out of this.

ditto.

Ireland: The big uncertainties

Robert Peston, BBC

15:38 UK time, Thursday, 18 November 2010

It would be far cheaper for the Irish government if markets were to be reassured by the existence of a substantial borrowing facility – because Ireland would only pay the full 5% interest rate on drawn down loans.

…

(I)t is the perceived weakness of Ireland’s bloated, lossmaking banks that is the fundamental problem.

That said, is it the case that these hobbled banks would be able to borrow from commercial lenders again, and would become less dependent on the European Central Bank for funds, if all that happened was that a few more tens of billions of euros was injected into them as new capital, as additional protection against losses?

Or would investors and banks still be wary of lending to these banks, if they felt that the entity standing behind the banks – the Irish state – remained a credit of dubious worth?

…

(T)he other huge unknown is over the other strings and conditions that would be attached to the loans or borrowing facilities.

In particular, will Germany get its way and force the Irish government to raise its 12.5% corporate tax rate, which the German government has long seen as unfair tax competition, as a de facto bribe to big international companies to settle in Dublin?

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Curiously the Irish government’s preferred tax-raising measure, I am told by officials, is to increase the number of citizens paying income tax, by lowering the income threshold at which income tax is payable.

I’m not sure whether the economics of keeping corporation tax low while raising more from low-income families quite works. But the politics is certainly very intriguing.

The Debt Problems of the European Periphery

By Anders Åslund, Peter Boone and Simon Johnson, The Baseline Scenario

November 17, 2010 at 12:18 am

Last week’s renewed anxiety over bond market collapse in Europe’s periphery should come as no surprise.  Greece’s EU/IMF program heaps more public debt onto a nation that is already insolvent, and Ireland is now on the same track. Despite massive fiscal cuts and several years of deep recession Greece and Ireland will accumulate 150% of GNP in debt by 2014.   A new road is necessary: The burden of financial failure should be shared with the culprits and not only born by the victims.

The fundamental flaw in these programs is the morally dubious decision to bail out the bank creditors while foisting the burden of adjustment on taxpayers.  Especially the Irish government has, for no good reason, nationalized the debts of its failing private banks, passing on the burden to its increasingly poor citizens.  On the donor side, German and French taxpayers are angry at the thought of having to pay for the bonanza of Irish banks and their irresponsible creditors.

Such lopsided burden-sharing is rightly angering both donors and recipients.  Rising public resentment is testing German and French willingness to promise more taxpayer funds.  German Chancellor Angela Merkel’s hasty and ill thought out plan to demand private sector burden sharing, but only “after mid-2013”, marks a first response to these popular demands.  We should expect more.

Financial crises are actually not rare, and the rules for their resolution are clear. The fundamental insight is that huge amounts of financial losses, of seemingly real value, need to be distributed across creditors, debtors, equity holders and taxpayers.

My emphasis.

Ireland: How much punishment for British and international banks?

Robert Peston, BBC

09:09 UK time, Wednesday, 17 November 2010

Are haircuts in or out for Ireland? Will the putative experts at the IMF, European Commission and European Central Bank, who will spend the next few days examining Ireland’s intertwined banking and fiscal challenges, recommend that there should be losses imposed on the providers of tens of billions of euros of wholesale debt to banks.

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It is that phrase “restructuring of the banking sector” which may alarm the banks and financial institutions which are wholesale creditors of Ireland’s banks, the providers of more senior debt which is supposed to be least at risk of non-repayment. The implication is that consideration is being given to forcing losses on them, such that they would share in the costs of rehabilitating Ireland’s banks.

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(I)t would be a bit odd if the ECB, in the shape of all its senior movers and shakers, were opposed to such haircuts: there is a powerful moral argument, of the sort that normally appeals to central bankers, to the effect that overseas banks and institutions in the UK, Germany and so on should have known better than to encourage Ireland’s banks to lend recklessly and pump up a completely unsustainable property bubble – and that they therefore deserve a bit of a spanking.

What’s more, if Ireland is fundamentally incapable of paying off all it owes – which is equivalent to an oppressive 700% of GDP when banking, public sector and private sector debts are added together -some will say it is grotesquely unfair that the cost should fall entirely on taxpayers in Ireland, the European Union and (if IMF money is drawn) the rest of the world.

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What would then be triggered would be enormous payments by underwriters of credit default swaps (CDSs), the debt insurance contracts taken out by lenders and speculators. These payments would generate enormous losses for the financial institutions, including banks, which provided the CDS cover.

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Even without the CDS loss multiplier, the impact of debt haircuts would be painful for British and international banks. According to the Bank for International Settlements, total lending of non-Irish banks to Irish banks is around $170bn, of which British banks provided $42bn, German banks provided $46bn, US banks $25bn and French banks $21bn.

…

What’s more, if there are haircuts imposed on Irish bank debt, it’s very difficult to see how haircuts could be avoided for Greek and Portuguese bank debt too, and also for plain vanilla Irish, Portuguese and Greek government borrowings.

If you add all that together, it comes to $435bn of exposure for international banks to the banking and public sectors of the eurozone’s three weakest economies. If, say, a third of that were written off (enough to make the residual debt almost bearable) that would trigger not far off $150bn of losses for banks alone.