Irish EU bailout spooks bank holders; banks lose 17pc deposits amid bank run

bank bailout ireland

bank bailout ireland

“Allied Irish Banks announced Friday it has lost a staggering euro13 billion ($18 billion), or 17 percent, of its total deposit base since June in the latest evidence of cash flight from Ireland’s debt-crippled banking sect.”

As a result, the bank said it now planned to try to sell euro6.6 billion ($9.05 billion) in new shares next month – an offer likely to have only one buyer, the government. The expected sale would take the government’s stake from 18 percent to more than 90 percent. Source

Ireland’s tax rates are among the lowest in the world; no wonder they’re in trouble. They have to raise them in order to pay for universal education, health care, etc. It is unreal how they can pay their bills when they don’t have the necessary income. No wonder debt levels spiral out of control. Taxes and general revenue must go higher to meet the levels of expectation of service levels. Mired in a recession or not, a corporate tax rate of 12.5% simply isn’t enough, every corporation in the world should be HQ’d in Ireland if that was what mattered most to them.

They have followed the American banking model of using debt as a means to drive the economy. The housing market which has been leveraged to the extreme is the first casualty. Real Estate speculation in Europe has been rampant as home prices are tumbling from prices that a few years ago people thought they would never go down. This debt has been packaged and sold as investments or securities in the hundreds of billions. One person in England was featured on a news program where he had leveraged debt and equity across 60 homes. He was viewed as an example of a typical shrewd player of the “market” — we can only ask how he is doing now.

How does modern banking work?

Under the Fractional Reserve Banking model, banks are only required to keep a certain percentage of all deposits, say 20%, in physical currency, it can relent out the rest, with the net effect of increase the total amount of commercial money without increasing the amount of physical currency in circulation. Under this practice, ~80% of total commercial money available actually does not exist in physical currency, it only exists as a digital representation on a server sitting in some Head Office building. However, this also has the net effect of increase the amount of total commercial money by ~450% of total physical money.

If all of a sudden there was a bank run on all of the banks, all of the banks would immediately go bankrupt, resulting in the disappearance of over 80% of the wealth in the country because there is no physical representation of that 80% in real currency. This means that a major majority people would lose all of their savings because there is only enough physical currency to represent ~20% of the total wealth of the public. It doesn’t matter how much banking insurance is available because only ~20% of total commercial money is available as physical currency. This doesn’t mean that the government will lose the next election, it means civil war.

The PIIGGS as they have come to be known (Portugal, Ireland, Italy, Greece, Great Britain, and Spain) are all broke. The government is broke and the people are broke. The “solution” is to print money. The result of printing money will be inflation. The result of inflation will be higher interest rates. The result of higher interest rates will be more bankruptcies. This is economics 101. The governments know this and are responsible for it. They simply seek to defer, slow, lengthen, and in the end worsen the collapse.

Many other countries, the USA to name a big one, are on the verge of collapse. The solution on an individual basis is an easy one. Pay off your debts, stop borrowing money, and you at least will do very, very well. If, on the other hand, you continue to borrow and live beyond your means you will have a really “unfair” retirement of poverty since the banks will, eventually, consider you too old and too risky to lend more money to.

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