Categories
Economy

Moodys Ratings Agency Downgrades Irish Debt to Junk Status

Moodys ratings agency downgraded Irish sovereign  debt to junk.  Can it be long before the other miserably-named agencies, Fitch and Standard & Poors, follow suit?

Obviously, the so-called bailouts haven’t fooled anyone.  The bank bailout was a sham, and so was the EU / IMF bailout which was in reality just a loan at high interest rates. Lenihan’s insane gamble has failed, and now we face the consequences.  Ireland is broke.  We’re out of money and nobody will lend us a single penny after this downgrade.  Irish sovereign bonds no longer have even minimal investment status.  Many investors are forbidden to hold junk bonds and will be forced to sell them off, making the situation worse.  The ECB can’t pretend forever that Irish bonds have value and sooner or later will have to stop lending to us as well.  The IMF has no obligations at all to Ireland and is free to pull whenever it sees fit to do so.

What does this mean?

Very soon now, the government will have no money at all.  Not a cent.  And it will have no access to borrowing because nobody will lend money to a state whose IOUs are considered junk.  There will probably be a run on the Irish banks as people rush to get their money out of a collapsing economy, making the credit squeeze even worse.

We could be looking at complete financial collapse in an uncomfortably short time, and yet our only plan at the moment is to fling our last remaining reserves of cash into the criminal enterprises that caused the catastrophe.

As Colm McCarthy has advised, fasten your seatbelt.

For once, I think he’s understating things.

Categories
Banking

Ballsy Baldy Burns Bank Bondholders

Michael Noonan has decided to make the the bondholders carry a share of the losses, thereby restoring capitalism to its proper place: a risky business, conducted for profit with the corresponding danger of losing money.

We don’t think the Irish taxpayer should have to redeem what has become speculative investment, Noonan is reported to have told the IMF.

It’s ironic that it took a member of what would traditionally be considered a party of the Right to articulate this obvious point.  The decision of Lenihan and Cowen to shoulder the debts of Anglo and Irish Nationwide was insane, and should never have been inflicted on the general public.

If you think this is the 20-20 vision that comes with hindsight, let me remind you that people were saying this right from the start.  Anglo and Irish Nationwide were not banks in any sense you might ordinarily understand.  Anglo was a funding operation for speculators, while Nationwide was a building society taken far beyond its remit by Fingleton.  The debts of neither institution properly belonged to the State.

Even the Financial Times, a bastion of orthodoxy, urged the government to impose a debt-for-equity swap on the bondholders, but Lenihan and Cowen stuck to their original script even as the problem grew to cataclysmic dimensions, threatening the survival of Ireland as a country.

If Anglo and Nationwide had been allowed to collapse, it would have made not the slightest difference, except that we and our children wouldn’t now be saddled with enormous debts.

It’s too early to say if Noonan is just sabre-rattling or serious, but I hope he means what he says.   When it comes down to it, he’s defending the principles of capitalism, and therefore, in theory, he should have the support of like-minded politicians throughout Europe.

 

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