Category: Current Affairs

As I've been saying, with a bank run:

Corporate clients have pulled deposits from lenders including the country’s biggest, Bank of Ireland Plc.

With its lenders frozen out of Europe’s money markets and with their deposits shrinking, the Irish government may be forced to seek the bailout ministers have so far resisted.

The EU is pressuring Ireland to accept a bailout and Ireland does not (yet) want it; this should give pause to those who think that "no bailout" policies are time consistent.  More generally, the simplest model is that the EU could take care of Ireland and Greece fairly easily, but the spectre of Spanish default lurks in the background.  Spain is a much larger economy and the Germans cannot simply pay up to save it.  All pronouncements and policies about Ireland (or for that matter Portugal) should be viewed in light of this larger "game."  If Spain were fixed essentially the trouble could be paid off to go away, for now at least.  But Spain is not fixed.

The longer-run question is why there should be any Irish or Greek banks at all.

One of the largest of Haiti’s microcredit groups, Finca Haiti, wrote off almost a third of its portfolio after many clients died in the earthquake or lost their homes and businesses. A staggering 53 percent of its borrowers were late on their payments.

Here is much more, about the difficulties of running a micro-credit system in an economy with a negative real rate of return.

Elsewhere, Ireland expands aid to Haiti.  The cholera epidemic is getting much worse rapidly.

Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, fear of contagion emerged again yesterday as the premium on Spanish and Italian debt jumped to record levels.

The article is here.  The Irish have enough funds on hand to finance their government through next summer and they mention this repeatedly.  But is that good?  The lack of an ongoing market test increases uncertainty about market opinion and perhaps leads more people to wonder about the worst.  From other sides it encourages denial about the basic problem.  What will that first bond auction look like when it comes?  (What will China ask for in return?)  Extant bonds are traded, but that market is thin.

Ireland used to say "We are not Greece."  These days it is Greece saying "We are not Ireland."

Here are data on Irish competitiveness.  The unofficial word is that the hat is being passed for the actual bailout.  Merkel is holding tough, which is building pressure on the other weak euro economies.  It is a common mechanism that denying a bailout raises the ultimate cost of the bailout you must make.

It's getting worse.  Here is one bit:

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

That is from Morgan Kelly — read the whole thing.

The real estate bubble is helping out:

Internet chat groups have sprang up where women exchange advice on how to conceive girls.

Rising property prices are driving the change, which is expected to be confirmed by China’s once-a-decade census that started on Monday, because Chinese families must traditionally buy a flat for a son before he can marry.

“My husband and I don’t earn much and I can’t imagine how we can buy a flat for a son,” says Zhang Aiqin of Pujiang in Zhejiang province.

“And it is not only a flat,” says Zhang Yun, a Shanxi province native who lives in Shanghai, alluding to the cost of educating and marrying off a boy. “Sons bring economic pressure†‰…†‰[but] ‘a daughter is a warm jacket for a mother’ when she is old,” she says, quoting an ancient Chinese idiom to illustrate the fact that many urbanised Chinese think daughters are better caregivers.