11-30-2010, 06:57 PM
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Confirmed User
Join Date: Oct 2001
Posts: 1,901
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Krugman's article about ireland and his suggestion of a way the euro could fail was interesting.
http://www.truth-out.org/ireland-and...time-part65532
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... no European nation can even discuss leaving the euro because the anticipated devaluation will lead people to move deposits to other euro-zone banks, leading to the mother of all bank runs. But I?ve been reconsidering this stance, because while the Eichengreen argument explains why nations should not plan on leaving the euro, what if the bank runs and financial crisis happen anyway? In that case, the marginal cost of a nation?s leaving the euro falls dramatically, and in fact, the decision may effectively be taken out of policy makers? hands.
On Nov. 17, the Financial Times reported that the Bank of Ireland admitted it has lost 10 billion euros in corporate deposits since September. Another bank, Irish Life & Permanent, reported an 11 percent drop in customer deposits in August and September. Hank Calenti, a credit analyst at Société Générale, a major European financial services firm, told the Financial Times: ?You don?t see people queueing around the block, but it seems there?s a silent run on corporate deposits.?
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Recently I came to a realization about the true nature of Ireland?s big mistake: It should have been Texas. Think about it. The United States?s savings-and-loan crisis of the 1980s and 1990s was about runaway banks. Loose regulations led to risky investments on the part of hundreds of savings and loan institutions, and then they had to be bailed out at (tremendous) taxpayer expense. And as best I can determine, about half the cost to taxpayers came from just one state ? Texas. Yet the burden was borne nationally.
But, unlike Texas, Ireland bailed out its own banks in 2009. If the European Union had taken over responsibility for the runaway Irish banks that fueled the nation?s devastating housing bubble, the situation would be much less serious. The Irish just picked the wrong continent on which to engage in crony capitalism.
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