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Why Irish Banks Are Not Smiling

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Great chart from Moody's:

IrishBanks.2012

Ireland's banks received bailouts in the billions of euros in 2009 and 2010, including €67.5 billion from the EU, other European countries, and the IMF as part of a larger overall bailout effort. While the lion's share of these funds have flowed to bondholders outside of Ireland, they have done little to promote real wealth creation and regime certainty in the Irish economy. One wonders how the situation would be today if Ireland had, like Iceland, required its banks to internalize their losses (which would have resulted in some to fail), defaulted on its bond debt, and allowed many of its malinvestments created during the boom to be restructured in a correction.

Regardless, the "best and the brightest"—people like Klaus Masuch and Poul Thomsen—who argued for the bailouts back then envisioned a different situation in Ireland today. If Cypress provides any lesson, Irish depositors should hold cash and be wary of any "bail-in" programs that might be implemented there in response to a banking crisis.

Christopher Westley a professor of economics in the Lutgert College Business at Florida Gulf Coast University and an associated scholar at the Mises Institute.

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