Irish Pockets Are Deep

If you thought we had it bad here in the US with the money possibly being given to shore up our own financial system, check out what the government of Ireland just did. That nation has guaranteed 400 Billion euros worth of assets in six of the nation's largest banks. To put that in perspective, that is several times Ireland's GNP.

Now, to be fair, this is not quite the same thing as is being proposed in America. For one thing, it's not actual money at this point. Irish Prime Minister Brian Cowen said "I have not given any money to any bank." This essentially seems to me to be the Irish creating their own emergency version of the Federal Deposit Insurance Commission (FDIC), in case one or more of the banks ends up failing. Ireland, by the way, is already officially in a recession, though the fact that we're not here in the USA points to the problems one gets when one starts using semantics that were made up a century ago.

Still, considering how much money this involves, it strikes me that basically the Irish financial system will be still be very messed up if a major bank fails, just in a different way. Yes, the depositors at the bank will get to keep their savings, but the Irish public will then be left with a heckuva bill. And what if it's more than one?

This brings me to a point I have been wanting to make about the situation here in the States. One of the reasons I have trouble buying this idea that we're on the verge of "another Great Depression" is because of the FDIC, which was made in response to the last Great Depression. What happened in 1929 was that, when the banks failed, people who had their money in those banks lost everything they had. Now, if a bank fails, as happened this week with Washington Mutual, the depositors don't lose their money because it's backed up (up to $100,000 per account) by the FDIC.

So even if banks start failing left and right, it won't hit the average Oklahoman the way it did in the Great Depression because they won't suddenly have "zero dollars," as Mastecard might say. The way it will affect everyone comes in terms of a lack of credit available, which may in turn lead to job losses. However, this is a definite step down in terms of degree.

As for Ireland, good luck with all that. The move has actually caused some controversy already within the EU. The French Finance Minister has said other member states should have had advance notice. After all, if you're going to do something with huge amounts of a currency, it's going to affect everyone who uses said currency. The European Union Competition Commissioner (I wonder what the equivalent USA job title would be?) basically said the same thing. In the meantime, President Sarkozy of France invited EU members to Paris this weekend for talks on the continuing world financial crisis.