Interest Rates Cuts did not stop financial Panic

Yesterday's half percent cut of interest rates by the ECB in Frankfurt (left) and the world's other most powerful central banks has failed to halt a slide on the international stock markets, even though the Asian stock exchanges have reacted with some ease this morning.

After a brief rally share prices in most western countries resumed their fall yesterday afternoon, with Dublin's ISEQ index closing down more than 7% at 3054, its lowest value since early 1997.

In London the FTSE index lost more than 5.2% and closed 239 points lower at 4367.

In a joint effort to stem losses coming from the financial markets crisis, coordinated action had been taken by the world's central banks in the morning.

The European Central Bank (ECB), US Federal Reserve and Bank of England cut their key interest rates by half a percentage point. But - obviously - it did not make a difference to the chaos and panic on the financial 'markets'.

The ECB's interest rate now stands at 3.75%, the Bank of England rate is 4.5% and the US Federal Reserve's key rate is already down to 1.5%. One does not have to be a mathematical or financial genius to see that at least the USA have not much leeway left and are approaching the end of the economic line very fast.

The US Federal Reserve said it cut its rate (of previously 2%) "in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures." Translated into plain and understandable English this means: The US economy is in it deepest and most serious crisis since the Great Wall Street Crash of 1929.

The People's Bank of China, the Bank of Canada, the Riksbank in Sweden and the Swiss National Bank have also cut their interest rates by 0.5% in a solidarity action. If it will do some good remains to be seen.

John Hurley (right), governor of the Irish Central Bank, said that the move was "aimed at addressing the global lack of confidence in financial markets and institutions".
He explained that, at a time of weakness in the Irish economy, the move should help to cut business costs and ease the repayment burden on mortgage holders. He hopes it would also encourage investment and reduce strains on financial markets.

But this is really more hope and wishful thinking than plain economic reality. Far too long have the western economies followed the insane and criminal machinations designed and devised by Wall Street and other US financial centres. Irresponsible executives and greedy traders believed that they were on a never-ending gravy train that would bring them personal fortunes at the expense of the world's nations.

Well, this gravy train has been derailed, and ironically by its own drivers, who were too blinded by greed to see the obstacles on the track they were racing down. Now both the train and track are wrecked, and there are numerous casualties all around.
Only the nations, whose money and future criminal bankers have stolen, can repair the damage. They should make sure to hold the culprits of the crash responsible and recover as much of the stolen money as possible. Otherwise the Earth will be plunged into at least a decade of extreme poverty, hardship and chaos, which could easily lead also to new wars and political extremism.

The Emerald Islander

Mixed Reactions to Ireland's Bank Guarantee

Taoiseach Brian Cowen (on the left), who is currently on a visit to Paris, has said that his 100% bank guarantee scheme has received the full political backing of French President Nicolas Sarkozy (on the right).

Cowen told reporters he thought that President Sarkozy, whose country holds at present the rotating six-month presidency of the EU, "understood precisely" the reasons the Irish government had to act in such a decisive way.

Shares in Irish banks are continuing to recover from their massive losses, after the government's plan to guarantee their deposits and debts has been published.
Dublin's ISEQ index closed 2.5% higher at 3641, with the banking stocks gaining between 8% and 10.5%. They are not out of the woods yet, but the trend begins to look a little more positive.

In London the FTSE closed 1% higher, and other European stocks mainly rallied as well.

Meanwhile, EU Competition Commissioner Neelie Kroes has appealed to national governments "not to act unilaterally" in the current financial crisis, and to consult the commission especially on the question of offering state aid to financial institutions.
Speaking at a press briefing in Brussels, Ms. Kroes said that the EU Commission is in close contact with several governments, including the Irish, but declined to comment on individual cases.

The British government, which has come under pressure from the public and parts of the media to follow Ireland's example, wants the Irish to look closely at their guarantee to make sure it complies with EU law. This is of course a smoke screen. The real reason for British concern is that savers and investors who have their money in British banks might transfer it to Ireland, where it is now absolutely safe, while Britain still guarantees only a sum of £ 20,000.

Prime Minister Gordon Brown (left) said European governments should make sure that whatever actions they took to tackle the global financial crisis complied with EU competition law.

The President of the EU Commission, Jose Manuel Barroso, said that "the EU needs a shake-up of banking deposit insurance schemes", so that there will be more consistency across the Union.

Currently deposit guarantee schemes vary widely across the EU, with some countries offering much greater protection of depositors' savings than others. So far only Ireland has opted for a full 100% guarantee scheme, but it is possible that other countries might follow suit.

The Emerald Islander

Brian is listening and took David's Advice

In the small hours of last Sunday morning David McWilliams, one of the brightest young analysts and commentators in Ireland, posted a new article on his website.

This article made a bold, but very sensible statement: To get out of the current financial crisis the Irish State should go solo - without waiting for models from other countries - and give a full 100% guarantee for all deposits and loans of Irish banks.

"The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders who will have to live with the losses they have suffered. However, it applies to everyone else," McWilliams wrote as the essence of his long and learned article. The complete text can be found on David McWilliams' website under 'Articles' at http://www.davidmcwilliams.ie/

I was probably one of the first people who read this article, right after it was posted online. And I happened also to be the first to leave a comment, at 4:04 am on that Sunday morning.

Then I took the liberty to send a copy of the article to Taoiseach Brian Cowen, Minister for Finance Brian Lenihan and a couple of other ministers who - in my opinion - are able to think for themselves.
Knowing that there was a cabinet meeting scheduled for later that Sunday, I hoped that they might read David’s article beforehand and - maybe - be wise enough to take his advice.

Of course I have no way of knowing if my little initiative helped, if they did read the article before the cabinet meeting, and if it influenced them.

However, the government announcement Minister for Finance Brian Lenihan (left) has made today is exactly what McWilliams advised to do and asked for.

So one could well come to the conclusion that one of the Brians (Lenihan & Cowen) - or someone else in the government - is listening to sound advice. Which means there is some hope after all for Ireland and our economy

Following the biggest drop in share prices the Irish market has ever seen - the ISEQ fell by 13% in one day yesterday, and the especially troubled bank shares dropped between 30% and 45% - this morning's announcement has brought some confidence and stability back to the Dublin stock exchange.

It is early days yet, and the massive financial crisis of the western world is far from over. It will probably even get worse, in particular for the USA, which are now caught in the fast downward spiral all collapsing empires in history have encountered after they overreached themselves and overspent on military adventures and senseless luxuries.

But Ireland might this time get away with only one black eye - metaphorically speaking - if nothing else in our country goes badly wrong.

Following David McWilliams' advice, the government has shown a strong position of leadership and the guarantee of our money by the State is good news for all of us, regardless of wealth and position.

In contrast to programmes initiated elsewhere, this is neither a nationalisation (like the British government's take-over of Northern Rock) nor a bail-out (as attempted by the US administration for Wall Street and rejected by the US Congress yesterday).

This is indeed - as David suggested - an Irish solution for an Irish problem.

The government guarantees the money we have in the banks 100%, but only for two years and not for free. The banks will be charged a fee for this high grade of security (the amount of which is not known yet), so the government creates some extra income for itself. That's rather clever.

And the guarantee is not given willy-nilly to just everyone who happens to have a branch office on the Emerald Isle. Only the six Irish-owned banks will receive the full guarantee, and that is not more than fair. They are: Allied Irish Bank, Bank of Ireland, Anglo-Irish Bank, Irish Life & Permanent, which owns permanent tsb, Irish Nationwide Building Society and the EBS (Educational Building Society).

For all details of the new guarantee rules, and how it affects all banks operating in Ireland, have a look here: http://www.itsyourmoney.ie/index.jsp?1nID=93&2nID=100&nID=153&aID=620

Specific subsidiaries that may be approved by the government following consultations with the Central Bank and the Financial Regulator are also covered under the guarantee.
It also includes all money borrowed by Irish banks from other financial institutions and the statement from the Department of Finance says that all deposits, bonds and debts will now be covered by the State.

Pessimists are already crying 'blue murder' from the roof tops and predict the eventual end of the Republic of Ireland in total state bankruptcy and under a cloud of shame and chaos. Well, in a theoretical way this is quite possible, as much as it is possible that an asteroid falls onto Ireland and makes us all perish in a giant puff of smoke. But realistically you have a better chance to win the Lotto jackpot or even the top prize in the Euro-Millions lottery.

Our bankers - and a lot more so those in the USA - might have been reckless and very greedy in recent years, but they are neither complete fools nor suicidal. So they will recognise what a great and rare gift Brian Lenihan - on the advice of David McWilliams and with backing of Brian Cowen - has bestowed on them. By now they have also realised that they made terrible mistakes, and that they will not have a third chance should they blow this one. So I am with David McWilliams on this, and confident that it will work.

With a little bit luck (of the Irish) thrown in, it might even attract extra money from abroad and perhaps lead to another period of growth and prosperity. By this evening the government will have introduced the necessary legislation in Dáil Éireann, and I can say that I will sleep a lot more sound and confident tonight.

A well-known proverb advises that one should stop digging when finding oneself in a hole. This is - translated into financial terms - exactly what David McWilliams advised on Sunday and Brian Lenihan did today. In fact, it is even a bit more than that. The government is not only telling the banks to stop digging, it is declaring the hole to be a building site.

If we all keep a cool head and use common sense, look out for each other and stick together at all times - hard and easy - the future will be bright again for Ireland in years to come. I am not the kind of person who bestows praise easily, and I have very few heroes. But I want to say today that there is always hope and a future as long as we have people like David McWilliams on the Emerald Isle.

The Emerald Islander

Financial Markets in Freefall and Meltdown

Today the ISEQ share index in Dublin has suffered a record one-day fall, ending down 13% and closing at 3292.

Especially shares in Irish banks plummeted, as a series of US and European bank failures sparked further fears that the massive bailout plan in the USA may not be enough to deal with the problems in the sector.
Shares in Anglo Irish Bank (AIB) were down more than 45% at one stage, while Irish Life & Permanent (who own the permanent tsb bank in Ireland) fell by more than 30%.

Other European shares dropped to a three-and-a-half year closing low. London's FTSE ended down 5.3% - at 4819 - after it was announced that the British government decided to partly nationalise another bank (and former building society), Bradford & Bingley.

Falls in Belgium and the Netherlands were especially steep, following the announcement that their governments, together with Luxembourg, had agreed to nationalise one of Europe's biggest banks - Fortis - in a € 11.2 billion bailout.

Later the US House of Representatives voted against the proposed $ 700 billion rescue package for the financial sector and especially Wall Street, put together by George W. Bush, his Treasury Secretary Henry Paulson and the Chairman of the Federal Reserve Bank, Ben Bernanke. The House rejected the bill with a clear majority of 228 votes to 205, with some conservative Republicans being the most vociferous opponents of a deal.

Subsequently the Dow Jones industrial average in New York plunged more than 600 points as the news reached Wall Street, closing eventually 778 points - 6.9% - lower. This is the biggest one-day drop ever for the Dow Jones.

The massive economic crisis, created by the greed and stupidity of reckless millionaire bankers and stock brokers, is far from over. And two things are becoming ever more evident:
1) Money is not everything, cannot solve every problem, and is actually becoming a big problem itself.
2) Uncontrolled capitalism, praised for decades as the solution for everything and the reason for our wealth and well-being, does not work!

The sooner we find a sensible alternative, the sooner the crisis will ease and a way out of recession will be found. I hope that Brian Cowen and Brian Lenihan have what it takes to lead this nation...

The Emerald Islander