IMF warns Ireland will pay highest price to secure banks

zootroid

IRELAND WILL pay a higher price to stabilise its banks than any other developed country, the International Monetary Fund (IMF) has warned.

The Washington-based organisation estimated the cost of stabilising Irish banks will be the equivalent of about €24 billion, the highest government bailout as a proportion of economic output.

The IMF said yesterday that “financial stabilisation costs” would account for 13.9 per cent of Ireland’s estimated €171 billion in annual gross domestic product (GDP), the value of all the goods and services produced in the State this year.

The cost of bailing out the banks in the UK and the US fell slightly behind that of Ireland as a share of the value of their economies, totalling 13.4 per cent and 12.1 per cent of GDP respectively, in a list of 19 developed economies.

“The United States, United Kingdom and Ireland face some of the largest potential costs of financial stabilisation (12 to 13 per cent of GDP) given the scale of mortgage defaults,” the IMF said in its biannual Global Financial Stability report.

Worldwide losses on distressed loans and investment assets may reach $4.1 trillion ($4,100 billion) by the end of 2010, the IMF said in the report published ahead of its spring meeting. Losses on loans and related securities originating in Europe and Japan – which will total about $1.3 trillion – were included by the IMF for the first time.

The report estimates that banks face $2.5 trillion in losses between 2007 and 2010, insurers $300 billion and other financial institutions $1.3 trillion. US banks have taken more radical action, writing down about half of their anticipated losses, while euro-zone banks have only written down about 17 per cent and British banks about a third of theirs.

Ireland was named as one of a number of countries with large banking sectors relative to the size of its economies or with concentrated exposures to the property sector that could face substantial bank bailout costs as a result.

The report predicts the crisis is likely to be “deep and long lasting” and banks may have to make more write-downs and could require fresh equity.

It noted that government action throughout the world had helped to restore market confidence but warned against excessive optimism, adding that more action would be necessary.

“Continued decisive and effective action is needed to preserve and strengthen these first signs of improvement, and to help provide a more stable and resilient platform for sustained global growth,” said José Vinals, director of the IMF’s monetary and capital markets department.

The IMF says governments should consider temporarily nationalising financial institutions, a move the US government and some others have until now shied away from. “A government should aim to ensure that banks can return to private ownership as expeditiously as possible. Banks that are not viable should be resolved promptly,” the fund says.

The IMF estimates that Irish government debt will increase by more than any other developed country over the three years from 2008 to 2010, rising by 41 percentage points. The expected amount of debt in issue guaranteed by the Government would total $641 billion (€495bn), amounting to 2,700 per cent of the average debt issued by the State between 2003 and 2007, it said.

US treasury secretary Timothy Geithner told a congressional committee yesterday that the Obama administration’s financial rescue policies were showing signs of progress, including increases in the number of refinanced mortgages and signs that credit conditions have improved.

“Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,” the treasury secretary said.

http://www.irishtimes.com/newspaper/frontpage/2009/0422/1224245137788.html

Things are looking bleak. If it really does take 24 billion to bail out the banks, where will this money come from?

deadhead13

Sky news is running a story - that the above IMF figure for UK is wrong and has been withdrawn. The IMF acknowledged that a mistake had been made and as a result it was reviewing one of the tables in the report.

There may have been a similiar mistake with regards Ireland.

weiss

zootroid wrote:

Things are looking bleak. If it really does take 24 billion to bail out the banks, where will this money come from?

Literally, out of thin air.

Lemming

weiss wrote: »

Literally, out of thin air.

Anyone got Paul Daniels number? :pac:

af_thefragile

weiss wrote: »

Literally, out of thin air.

Yup, its the fiat money.
Government goes to a bank (probably the ECB here in Ireland) and asks for 24billion euros. The bank enter 24billion euros into his computer, the computer prints out 24billion worth of cash, or i guess now in this digital age its starting to just stay as a number in the computer. The government uses the 24billion to bail out banks. The government now owes 24billion + interest to the ECB or whichever bank it borrowed those 24billion from.

Its money the government will never be able to pay off anyway. Cuz in the fiat money system all the money has been created out of thin air. Hence all the money the government, businesses and people have made is basically money they or someone has borrowed from a bank, which they have to work and pay off back to the bank eventually. But when you compile the total amount of money circulating in the state, you'll realise the state will never be able to get out of debt cuz the state (which includes all the people in the state) have borrowed "P" amount of money from the banks. But they have to pay back "P+I" amount of money to the banks, principle + interest. And as the state only has "P" amount of money running in its system, it'll never be able to generate the "I" amount. Hence businesses go bankrupt, people lose their jobs and homes, natural resources get ravaged. All to pay off the "I" amount. Amount that has all been created out of thin air. In this system the only winners are the Bankers as they're thriving on a system where they have the power to create money from debt out of thin air!.

oscarBravo

How do you propose money should be created?

af_thefragile

I'm an advocator of sound money. Money that holds some absolute value instead of a value decided by the financial institution. If a full monetary reform is too much to ask, atleast the Bretton Woods system of 1944 would be a good system to base a new system on.

Creating money out of thin air with no absolute value is a ridiculous concept and is the reason for all of this economic turmoil we're facing now days.

oscarBravo

af_thefragile wrote: »

I'm an advocator of sound money. Money that holds some absolute value instead of a value decided by the financial institution.

Are you talking about a finite supply of money? No possibility to create new money, just moving it around the world in a zero-sum game?

If a full monetary reform is too much to ask, atleast the Bretton Woods system of 1944 would be a good system to base a new system on.

If Bretton Woods was such a good system, why did it disappear more than 30 years ago?

af_thefragile

oscarBravo wrote: »

1.Are you talking about a finite supply of money? No possibility to create new money, just moving it around the world in a zero-sum game?
2. If Bretton Woods was such a good system, why did it disappear more than 30 years ago?

1. That system worked great since the beginning of history till Bretton Woods was abolished. I wonder why it can't work in the future. There are many more concepts for sound money than just a gold standard. There's a money system based on more than one standard. There's a money system based on assets.
It doesn't mean no possibility to create new money. Most of these new concept standards do give the room for creation of old money while getting rid of things like inflation and perpetual debt! Who wouldn't want that?... lemme think... oh yeah, the bankers!!

2. Bretton Woods was abolished because of the Vietnam War. To fund the war more and more money was being printed, inflation was running wild. President Nixon realised he had lent out far more money to countries than the value of gold there was in the Federal Reserve, so when UK decided to pull out its share of gold in the value of paper money it had, from the Fed, as promised by the Fed, Nixon realised it wasn't possible and declared "promises don't need to be kept", he closed the "gold window" which led to the abolition of the Bretton Woods standard giving the Fed now the power to print money literally out of thin air.

Bretton Woods disappeared because America's incompetence to remain within the bounds of the system. Instead it had to go to war and waste all of its money in Vietnam. Sound money cannot be wasted unlike the fiat money which we can see is being unlimitedly produced to fund the "Wars on Terrorism"!
Now the whole theory of America going to Vietnam so that it could waste money and eventually get rid of the limiting Bretton Woods system is a different story.

LoveDucati2

None of this makes much sense to your ordinary person.


Only 1/40 of the total asset value in this country is in physical currency.


The current worldwide value of derivatives is 8 times the GDP of the planet.

eamonnm79

deadhead13 wrote: »

Sky news is running a story - that the above IMF figure for UK is wrong and has been withdrawn. The IMF acknowledged that a mistake had been made and as a result it was reviewing one of the tables in the report.

There may have been a similiar mistake with regards Ireland.

Either that or they faced a lot of political pressure for releasing the horrible truth!