"Irish lawmakers passed a controversial emergency law guaranteeing bank deposits Thursday, despite protests that the move gives its financial sector a competitive advantage over neighbouring countries.
The guarantee, estimated to be worth over 400 billion euros (563 billion dollars), safeguards retail and commercial deposits, as well as bonds, for two years. It is designed to protect Irish banks amid the global economic turmoil."
What the French are saying:
"Ms Lagarde - French Finance Minister - said "a measure decided in one [European Union] member state has to be shared in advance with other member states".
"Because when something happens in one member state it affects everybody else around, so there needs to be that level of cross-sharing of information," she added."
So Ireland is passing a bill that is about two times GDP! Why did they do that? because suddenly the credit default swaps (CDS) went to the roof in the past few days. CDS are financial contracts conceived to protect bondholders against default.
In a nutshell, the risk of debt defaulting of Ireland suddenly became greater than the one of Mc Donald... We are currently witnessing something very dangerous.
Some are pointing out the finger on the over leveraged financial institution, highlighting the fact that the trigger was the abolition by the American congress of the Glass Steagal act
"The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation.
Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, which passed in Congress with a 343-86 vote in the House of Representatives"
So we will have to come back to a period where leverage will slowly disappear. It will as well mean that the recovery will not be as phenomenal as in the past. So do not expect stock market return of over 20 % per year or house price going to the roof as they did in the past decade and a half.