Wednesday, May 5, 2010

Economics 05/05/2010: Third Force's Burn-out Bench

The news stream is getting thicker and thicker with Irish financials and sovereign / fiscal debacles stories. Reuters is reporting (hat tip to Brian) (here) that the Third Force now looks more like a Burn-out Bench and that there is little prospect for growth or profitability for BofI and AIB.

All's fine, as far as the arguments go, except, there is that silly ending to the article putting blame for the crisis on 'too much competition' in the Irish banking sector. I'd say this pure rubbish. Here is an earlier note I wrote on that subject. In simple terms, it does not matter what profit margins could have been were we to have lower competition. Irish banking crisis was caused by excessive willingness to take risks, spurred on by the Government, the Regulator, the Central Bank and ECB. May be there was too much competition amongst the incompetent cooks in that kitchen?


Oh, and Nouriel Roubini puts a clear number on the fear of European contagion: "European banks hold claims of US$193 billion on Greece and more than US$1 trillion of further claims on Portugal, Ireland and Spain. It cannot be ruled out that the ECB will eventually have to resort to more aggressive measures such as buying government bonds in the secondary market in order to stop the contagion."

So the next stage of contagion can cost Germany (and make no mistake - Germany will be paying for this in the end) upwards of 5 times what the Greek bailout will cost.
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