Monday, April 22, 2013

Pensioners savings in Ireland wiped out to fund bank liquidation

Depositors at the bankrupt Irish bank IBRC are being wiped out because their Approved Retirement Funds (ARF) have been deemed by the Irish Central Bank to not be protected by deposit guarantee schemes.

Interestingly, the European Central Bank (ECB) is reported to have "gagged the (Irish) Government from releasing any information in relation to the liquidation of the former Anglo Irish bank, IBRC."

The Cyprus template of appropriating depositors' savings to fund bank liquidations is being utilized so soon.  This should strike fear in every depositor at Euro banks because all the Euro banks are all insolvent to varying degrees.  Perhaps many savers' Euros are stuck in accounts at the Euro banks similar to 401k plans in the US.  

This situation is very interesting and the lessons are applicable to the US because pension obligations of municipalities, state and federal government, and large businesses are much larger than any of those entities will ever be able to afford.  Although it is difficult to imagine depositor insurance such as FDIC not coming through (at least to $250k) there are many other ways to renege on promised pension payment, such as:
- chained CPI or any other benefit inflator that is lower than real inflation
- simply changing or limiting the payout calculation
- declare bankruptcy - such as the recent Hostess corporation bankruptcy
- devalue US treasury bonds since most pension plans are heavily invested in t-bills.

Difficult times lay ahead.  It will become more and more clear that many promises made have no chance or even an intention of being kept.  

The Irish reaction to this gag order will be interesting.  They have a proud history of bucking orders: even those from just across the Irish Sea, let alone from across the English channel.  And, the blarney stone is Irish!

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