Ireland’s sovereignty depends on the nation’s biggest banks as the European Union presses the government to accept a bailout.
While the government says it won’t need to raise money in the bond market until the middle of 2011, Irish lenders are depleting the collateral they need to get the emergency funding from the European Central Bank on which they depend. Corporate clients have pulled deposits from lenders including the country’s biggest, Bank of Ireland Plc.
“The problem for the Irish state is that banking guarantee two years ago inextricably merged the country’s banking problems with the sovereign,” said Brian Lucey, associate professor of finance at Trinity College, Dublin. “It’s an omelette that is impossible to un-scramble at this stage.”
This last statement is very similar to discussions a trader friend and I have been having. Look at bank CDS and sovereign CDS. Look at the R2. The egg is scrambled and all governments are bankers now.
This is my effort to help fit the pieces together to get a better picture of the capital markets.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
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