Irish red flag

Reggie Middleton observes that AIB and the Irish banks look ripe for a bail-in:

It appears that AIB is stating that they have given ‘certain segregated securities’ as security to the ECB whereas the ECB actually decides which securities will be designated as ‘eligible’. The charge is in favor of the Central Bank and is over ‘all present and future liabilities whatsoever’ of AIB. This charge is a floating charge over repo agreements, aka Eligible Securities – securities that the graphic above demonstrates can go on ad nauseum and way beyond the entities prudent ability to repay, yet not appear on the balance sheet or in its regulatory reporting!!!. These securities have been purchased by the ECB through the repo agreements.

Thus, it appears as if this floating charge granted to the ECB is over assets that the ECB already owned. The floating charge was given to the ECB by AIB for emergency funding (emergency liquidity). Do you see a circular argument here? A potential Ponzi even???!!!! I warned my paying subscribers three years ago, Beware of the Potential Irish Ponzi Scheme!

For those who don’t get it, AIB is essentially asset/equity broke. All properties considered as marketable/acceptable collateral (in other words anything of real, tangible value) has already been pledged to the ECB. EVERYTHING!!! To the prudent depositor, this is all that needs to be said, but there’s more, much more, Irish men and women, prepare to be CYPRUS’D!!!

I don’t know how many Irish readers I have – actual Irish, not “wear green on March 17” Americans – but you might want to consider holding cash rather than bank deposits for a few weeks until the picture becomes more clear.

There will be more Cypruses.  Both the EU and the USA have enshrined the principle into policy after it became clear that it is easier and less problematic than hitting up the taxpayer via the various parliaments and congresses.  The only question is where the next one will be.