The big picture is that the Irish debt crisis has put the banks into lines of business that they never planned to be in. With the result that significant sectors of the Irish domestic economy are now being run by them. But there is a strange flip side to this situation. There is exactly one sector of the economy that the government has declared off-limits from the process of debt distress, restructuring, and external management — the banking sector. And so it is that unlimited public funds are available to keep solvent what would otherwise be insolvent banks, the €24 billion or so directed to Anglo Irish Bank being the epitome of this problem." [...]
Why did the government’s favourite bedtime scary monster, “the markets”, react so badly to the European Commission approving the €24 billion for Anglo, a figure that has been known in general terms for months and was, within a couple of billion, confirmed by the Minister of Finance to the Dail a few months ago? Was it the first time that the headline number crossed the Reuters screen, or was it the government’s inability to say that it’s this €24 billion and not another eurocent more into a dead bank? [...]
The banks haven’t yet made a big move on distressed home mortgages and no one is clear what will happen when forebearance is no longer a viable strategy.
via Paul Krugman
