Ireland and default again

Yves Smith has a thought provoking article on her Naked Capitalism blog that I’ve only just got around to reading. It includes a useful, if cyncial, analysis of the raison d’être of the current stress tests / banking investigation being undertaken by BlackRock.

Earth to base, this is a garbage in, garbage out exercise You can’t value loans against illiquid real estate by sitting around playing with models. Our Swedish Lex, who worked on the Swedish bad debt liquidation exercise, said a lot of assets were pretty much impossible to value (or more accurately, yes you could come up with a rationale for slapping a number on them, but anyone with an iota of common sense would know it was garbage). So I suspect the reason for Blackrock coming in is completely political: to rationalize whatever number is deemed to be necessary and possibly to prevent one avenue of escape for the Irish, that of putting out an estimate of banking sector cash needs that raises justified concerns about UK and Eurobank solvency

Generally I think the tone is hopeful (in an odd sort of way), she feels our hand is stronger than we’ve been inclined to believe before this. While the language of government parties is much softer than that of Pearse Doherty or Joe Higgins, she gives serious credence to the fact that Government ministers even dare whisper the D word (specifically she quotes Lucinda Creighton).

The solution to this crisis chosen by Europe will ultimately define Ireland’s relationship with her neighbours and determine whether the EU and the Euro will exist in 5 years time. Yves Smith highlights the niave assumption that might be guiding mainstream EU thought, that the costs of leaving are prohibitive, she’s right to also point out that the costs of remaining locked in a deal that destroys our economy and depopulates our homeland may be even more so..

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