Four self dealing Irish banks issue fictional loans and use those loans as collateral for borrowing from the ECB

During the heyday of the dotcom bubble, websites like would have crazy valuation based upon revenues from banner ads.  The problem is, the companies that were advertising were not paying in cash, but in kind.  Then the company booking the revenue would place a banner on the other site.  Since it was a simple banner exchange, they could book any number they wanted as revenue.   This revenue would go into valuations, until the lack of cash in the system brought the whole deck of cards crashing.

The same thing is happening in Ireland with the explicit approval of the ECB.  Four Irish banks are issuing loans to each other, such that the payments all net out to zero.  Then they are using these loans as collateral to borrow money from the ECB.

This is about as fishy as it can possibly get.

Imagine the possibilities in your own lives.  You and John Smith live next door.  Your houses only sell for 150,000 each.  But, if you sell your house to Mr. Smith and he sell his house to you, the payments net out and you can make up a fantasy price, say one million dollars each.  You can take out the equity and use that to buy another house and do the same thing again.

They call it a mini quantitative easing or printing money.  I call it fraud.  If it perpetuates, the whole deck of cards will come down, but this time, it will mean the default of the Irish government (which has guaranteed Irish banks) and the EFSF (which has guaranteed Ireland) and perhaps Brussels ( which has guaranteed the EFSF).  Via Irish Times:
Four banks issued bonds worth €17 billion to themselves last month under the Government’s extended guarantee, the Eligible Liabilities Guarantee, to use as collateral to borrow from the ECB.

“What you have here is micro-quantitative easing, or money printing,” said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers. “The banks are issuing unsecured loans to themselves.”
All the bonds mature in April and May when the details of the banks’ plans to sell off assets and shrink the size of their businesses must be agreed under the EU-IMF bailout deal.

Bank of Ireland issued the largest amount, €9 billion, on four bonds on January 26th. AIB issued €2.63 billion on January 25th, Irish Life and Permanent €3.1 billion the following day and EBS building society €1.7 billion on January 28th.

Bank of Ireland raised a further €980 million on another bond on February 10th.
The bank said that the issuing of the bonds represented “a technical adjustment” replacing sterling bonds backed by UK mortgages as the ECB stopped accepting sterling loans as collateral from the start of the year.

AIB said that “own-used” bank bonds could be used as collateral from the ECB if Government guaranteed. The banks have leaned more heavily on central bank funding from Frankfurt and Dublin due to the loss of deposits and the closure of the markets to Irish-issued debt.

The Central Bank said that access to ECB operations allows the banks obtain funding that is not available in “the continued stressed market conditions”.


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