Just default

Austerity

Why don't Ireland just default on it's debt? Why should future generations be held liable for debts that they didn't incur? The obvious sollution is that Ireland should default on its debts. Yes this will lead to a few years of pain and suffering but after that you will start over fresh with a clean sheet. Future generations will not have to be burdened with the debts incurred by a small minority of people.

Countries have defaulted on their debts in the past and it's not the end of the world.

George Orwell 1982

Sometime after Ireland avails of the EU/IMF bailout our debts will be restructured, which is effectively a default. The same thing will happen with Greece. The ECB wants to put it off until the Eurozone economy is in better shape. So we are going to default.

We can't just default all of a sudden because we need to borrow money from the bond markets to keep the country going. It has to be done in a structured way with the help of EU/IMF.

Austerity

George Orwell 1982 wrote: »

Sometime after Ireland avails of the EU/IMF bailout our debts will be restructured, which is effectively a default. The same thing will happen with Greece. The ECB wants to put it off until the Eurozone economy is in better shape. So we are going to default.

We can't just default all of a sudden because we need to borrow money from the bond markets to keep the country going. It has to be done in a structured way with the help of EU/IMF.

Why become an IMF slave? Just default. The IMF came in to "help" Jamaica. Look at where they are now...

Argentina just defaulted... I'm not saying Argentina is doing great but Argentina is doing way better than Jamaica. I think Ireland would be better of just defaulting than getting "help" with strings attached from the EU and/or IMF.

George Orwell 1982

Austerity wrote: »

Why become an IMF slave? Just default. The IMF came in to "help" Jamaica. Look at where they are now...

Argentina just defaulted... I'm not saying Argentina is doing great but Argentina is doing way better than Jamaica. I think Ireland would be better of just defaulting than getting "help" with strings attached from the EU and/or IMF.

We would be defaulting on bondholders. We need to borrow from the bond market to run the country. If we simply defaulted now we would be able to find any lender. There would be no cash in the atm's. The government would have to try and issue a new currency. It would be chaos.

The time to default was in 2008 before the bank gaurantee. We could have at least let anglo go to the wall. Instead we took all the bank's liabilities onto the states balance sheet. We can't go back on it now.

liammur

Austerity wrote: »

Why become an IMF slave? Just default. The IMF came in to "help" Jamaica. Look at where they are now...

Argentina just defaulted... I'm not saying Argentina is doing great but Argentina is doing way better than Jamaica. I think Ireland would be better of just defaulting than getting "help" with strings attached from the EU and/or IMF.

If we did default, who would lend us money to get us through the next month? (bearing in mind that we need c €20bn p.a)

dan_d

This has kind of been done to death around here...

I do however have a question. I read today that 2 more banks had been "closed down" in the US, bringing to 127 the number of banks that had been closed down.

How is it that that can be done, and how is it different from defaulting/what we are doing with Anglo? Would it have been an option for us?

liammur

dan_d wrote: »

This has kind of been done to death around here...

I do however have a question. I read today that 2 more banks had been "closed down" in the US, bringing to 127 the number of banks that had been closed down.

How is it that that can be done, and how is it different from defaulting/what we are doing with Anglo? Would it have been an option for us?

Anglo should have been let go, that's very evident. It wouldn't have been classed as a default then. Too late now though.
Nice work lenihan & co.

jkjhngk

Austerity wrote: »

Why don't Ireland just default on it's debt? Why should future generations be held liable for debts that they didn't incur? The obvious sollution is that Ireland should default on its debts. Yes this will lead to a few years of pain and suffering but after that you will start over fresh with a clean sheet. Future generations will not have to be burdened with the debts incurred by a small minority of people.

Countries have defaulted on their debts in the past and it's not the end of the world.

Ireland borrow like 70 million a day in the last year, if we default, who will then lend us this money?

FreudianSlippers

liammur wrote: »

Anglo should have been let go, that's very evident. It wouldn't have been classed as a default then. Too late now though.
Nice work lenihan & co.

That's your opinion and many economists believe the opposite to be true. Who is to say you're opinion is correct and "Lenihan & co." was not?

Only time will tell!

johnnyskeleton

Austerity wrote: »

Why become an IMF slave? Just default. The IMF came in to "help" Jamaica. Look at where they are now...

Argentina just defaulted... I'm not saying Argentina is doing great but Argentina is doing way better than Jamaica. I think Ireland would be better of just defaulting than getting "help" with strings attached from the EU and/or IMF.

Countries don't default like companies. A company can be wound up but a country cannot. So in a default the debt doesn't simply go away.

In Argentina's case the default was a devaluation of their currency. That is not available to Ireland. So we can either have an agreed partial default i.e. say to bondholders we will only pay you x cent in the euro, or else we simply stop borrowing money.

Now, if we do either of these things, we will not be able to borrow money in the short term. This means that regardless of the rights and wrongs of it, expenditure must be cut to meet tax receipts. It is not possible to run a deficit without borrowing money.

Therefore, the cuts that would follow a default would be much bigger than any of the "strings attached" that the IMF or EU would impose.

I don't think you understand the position the Irish budget is in now, nor do you understand what defaults or IMF intervention mean. As suggested above, there are many threads on this that you can read instead.

Suffice it to say that the "debts being run up" are not run up by a small minority but by everyone who benefits from government spending (PS workers and SW recipients being the main two, more recently there are the banks).

I'm not sure that you realise that "taking the pain now" doesn't mean some anomalous pain, it means literal cuts of government expenditure and tax increases. If we defaulted tomorrow social welfare and public sector pay would be cut by a half or more and taxes would shoot up. There would also be a fair amount of exodus of Irish people with money and multinational corporations.

So simply saying that we are in default and are not going to pay back any of the money owed is not a solution.

The default solution that people talk about are along the lines of:
1) ask IMF/EU for assistance;
2) revoking the bank guarantee and offering partial default of bank incurred public debt; or
3) leaving the euro, printing our own currency and inflating our way to kingdom come.

Of the three, I prefer a combination of options 1) and 2).

RealityCheck

George Orwell 1982 wrote: »

The time to default was in 2008 before the bank gaurantee. We could have at least let anglo go to the wall. Instead we took all the bank's liabilities onto the states balance sheet. We can't go back on it now.

liammur wrote: »

Anglo should have been let go, that's very evident. It wouldn't have been classed as a default then. Too late now though.

Honestly that is pure rubbish. Remind me when is the guarantee due to expire? Its not indefinite. It could have run its course by now. We can let the Bondholders take some pain, in fact the likes of the Financial Times are calling for it.

jkjhngk wrote: »

Ireland borrow like 70 million a day in the last year, if we default, who will then lend us this money?

Think his idea is to default, take the pain and don't take a bailout just like Argentina did in 2002. Would be messy alright, but longterm we could be better off, but then again probably not due to the fickle and open nature of our economy. I doubt our economy could survive years of economic isolation. However, certain bank debt must be renogotiated, we will default in some way regardless of whether we try to or not.

Also I might add we might have more leverage to default completely if it was'nt for the welfare state that is in operation here. The reason Iceland could default in 2008 was due to low spending on welfare and the public service. In the end they did not even require an IMF bailout and were able to work things out by letting their currency devalue. It devalued a lot, making everyone there relatively poorer to the way they were. It did however allow their economy to bottom out. Thats something that still has'nt happened here and while we are in the Eurozone probably wont for another few years. Our situation is remarkably different to situations gone previous. I feel the IMF/EU bailout is inevitable. I think our best route to follow is the South Korean IMF bailout of the 90s. They have recovered and done qiuet well since. The IMF does'nt have to spell disaster. Remember our economy is structured a lot better than basket cases like Argentina and Jamaica ever were, even considering the hash we made of it with our reliance on construction.

johnnyskeleton

OisinT wrote: »

That's your opinion and many economists believe the opposite to be true. Who is to say you're opinion is correct and "Lenihan & co." was not?

Only time will tell!

In one sense yes. Who knows what will happen? Maybe they'll find oil and diamond deposits under stephen's green and we'll all be rich as Croesus.

Only time will tell.

However, it is possible to give an accurate analysis of the best approach to a difficult situation. The options were to either leap blindly into the guarantee and trust to hope that everything will be alright (the "cheapest bailout ever" strategy), or there is the alternative of recognising the sovlency problems, forcing Anglo to cease trading and then examine the remains. Once that is done, the government is still free to decide whether to repay Anglo's debts or not, but it is done in a transparent and senible way.

Thus he is entitled to hold that view.

Also, very few economists now believe that guaranteeing Anglo was a good idea, and those who did at the time usually had vested interests or were misinterpreted.

FreudianSlippers

johnnyskeleton wrote: »

In one sense yes. Who knows what will happen? Maybe they'll find oil and diamond deposits under stephen's green and we'll all be rich as Croesus.

Only time will tell.

However, it is possible to give an accurate analysis of the best approach to a difficult situation. The options were to either leap blindly into the guarantee and trust to hope that everything will be alright (the "cheapest bailout ever" strategy), or there is the alternative of recognising the sovlency problems, forcing Anglo to cease trading and then examine the remains. Once that is done, the government is still free to decide whether to repay Anglo's debts or not, but it is done in a transparent and senible way.

Thus he is entitled to hold that view.

Also, very few economists now believe that guaranteeing Anglo was a good idea, and those who did at the time usually had vested interests or were misinterpreted.

I agree that things have gotten worse since the initial decision, yes.
But, I still believe NAMA was/is a good idea. Now we're having honesty problems with Anglo and we may have to cut ties and take a loss... but it's too late to go back in time and change everything now.

I agree he is entitled to hold any view... I stated that.

katkin

Ya but havent we apparently borrowed enough until the middle of next year? or did I hear that wrong. So having borrowed that (is it in our kitty) couldn't we tell the subordinated anglo bondholders to eat **** (it's them or us) and yes cut unnecessary expenditure (all those quangos and overpaid first by the way), and then the more unpalatable cuts to social welfare etc and then get on with it. As it is now it's death by a million cuts, I'd rather the crisis now, bring it on, so we could look forward to a real recovery, not be looking into a black hole as we are now.

George Orwell 1982

katkin wrote: »

Ya but havent we apparently borrowed enough until the middle of next year? or did I hear that wrong. So having borrowed that (is it in our kitty) couldn't we tell the subordinated anglo bondholders to eat **** (it's them or us) and yes cut unnecessary expenditure (all those quangos and overpaid first by the way), and then the more unpalatable cuts to social welfare etc and then get on with it. As it is now it's death by a million cuts, I'd rather the crisis now, bring it on, so we could look forward to a real recovery, not be looking into a black hole as we are now.

We have time and space to consider options. The government has enough in the kitty to keep us going for about a year if we were shut out of the markets. Still we can't default on bondholders without EU support as we would have to go back into the markets at some point.

Liam Byrne

OisinT wrote: »

Now we're having honesty problems with Anglo and we may have to cut ties and take a loss

What do you mean "Now" ?

johnnyskeleton

OisinT wrote: »

I agree that things have gotten worse since the initial decision, yes.

No, things haven't gotten worse since the initial decision. What has happened is that we have found out what the politicians knew then but didn't tell us. A completely different thing.

OisinT wrote: »

But, I still believe NAMA was/is a good idea.

I didn't and don't. Here's why: http://www.thepropertypin.com/viewtopic.php?f=50&t=24543&start=79

OisinT wrote: »

Now we're having honesty problems with Anglo and we may have to cut ties and take a loss...

No. We are still having honesty problems with the people who are bailing out Anglo i.e. the government.

OisinT wrote: »

but it's too late to go back in time and change everything now.

True, but that's all the more reason why we should have a change of government. It's not too late to try and undo some of the damage and retain some sort of a functional state afterwards.

OisinT wrote: »

I agree he is entitled to hold any view... I stated that.

Again, no, you said that it was not clear who is right or wrong and only time will tell. But I think his view is demonstrably true that Anglo should have been allowed to fail back then and that doing so would be prefereable to us now having to consider defaulting on soverign as opposed to private bank debt.

Whether you agree that private losses should be socialised or not is a matter of opinion. That Ireland would be at lower risk of default if it had let Anglo Irish Bank fail is utterly beyond question. The Irish sovergin bond rating is a function of our borrowings relative to our ability to repay them. No one can deny that a huge part of these borrowings and inability to repay them stems from Anglo. Proof of this is that funds raised by Anglo privately carries a yield of over 20%. That risk premium has increased the Irish soverign debt premium.

These are not opinions, they are facts.

Liam Byrne

P.S. I don't think I've ever seen the phrase "honesty problems", and it's so unbelieveably vague as to have me stumped!

Is the "problem" that those involved now need to be honest, for a change ?

Because otherwise I'd phrase it as "now we've found out that Anglo were lying through their teeth"......and that's not a get-out-clause for Lenihan & Co because anyone competent would have checked their facts - or put in a caveat - before signing away tens of billions.

Even my insurance cert has a disclaimer that - paraphrased - means "if you're lying this is null and void".

How a so-called "Barrister, Senior Counsel, lawyer" (as per the heading on his website) didn't include a similar clause is beyond comprehension.

johnnyskeleton

Liam Byrne wrote: »

P.S. I don't think I've ever seen the phrase "honesty problems", and it's so unbelieveably vague as to have me stumped!

What was the phrase the bishops used for why they didn't do anything about clerical sex abuse? An honesty reservation or something like that.

Liam Byrne wrote: »

Because otherwise I'd phrase it as "now we've found out that Anglo were lying through their teeth"......and that's not a get-out-clause for Lenihan & Co because anyone competent would have checked their facts - or put in a caveat - before signing away tens of billions.

Anglo weren't lying, they simply weren't asked to provide accurate information. But what makes you think Lenihan & Co didn't know or reasonably suspect that they were insolvent? The political fallout from bailing out Anglo is bad, but the consequences for FF and their supporters if they had let Anglo go would be worse.

Liam Byrne wrote: »

How a so-called "Barrister, Senior Counsel, lawyer" (as per the heading on his website) didn't include a similar clause is beyond comprehension.

Or how he could ignore expert opinion saying that they shouldn't guarantee everything and presume that he knew better? Or how he could tell us that his views were supported by those same experts when it now turns out that they did no such thing. And yet he is well liked by the media and apparently a lot of people besides?

FreudianSlippers

johnnyskeleton wrote: »

No, things haven't gotten worse since the initial decision. What has happened is that we have found out what the politicians knew then but didn't tell us. A completely different thing.


No. We are still having honesty problems with the people who are bailing out Anglo i.e. the government.



True, but that's all the more reason why we should have a change of government. It's not too late to try and undo some of the damage and retain some sort of a functional state afterwards.

Fair enough, I agree with this.

johnnyskeleton wrote: »

Again, no, you said that it was not clear who is right or wrong and only time will tell. But I think his view is demonstrably true that Anglo should have been allowed to fail back then and that doing so would be prefereable to us now having to consider defaulting on soverign as opposed to private bank debt.

Whether you agree that private losses should be socialised or not is a matter of opinion. That Ireland would be at lower risk of default if it had let Anglo Irish Bank fail is utterly beyond question. The Irish sovergin bond rating is a function of our borrowings relative to our ability to repay them. No one can deny that a huge part of these borrowings and inability to repay them stems from Anglo. Proof of this is that funds raised by Anglo privately carries a yield of over 20%. That risk premium has increased the Irish soverign debt premium.

These are not opinions, they are facts.

Yes, it is riskier, but perhaps that's a risk that we needed to take. I don't know all the ins and outs of what Anglo had and could have. None of us know what went on behind closed doors (why we need transparency in government) and so I don't think we can say whether or not that decision was correct or not yet.

That is the opinion one is entitled to hold... you may think it was a bad idea or a good idea. You can even say it is a fact that it is risky, but you cannot say it's a fact that it won't work. Unless you have some crystal ball that you aren't telling me about?

FreudianSlippers

Liam Byrne wrote: »

How a so-called "Barrister, Senior Counsel, lawyer" (as per the heading on his website) didn't include a similar clause is beyond comprehension.

Obviously you are cranky but to say he is a "so-called" Barrister, Senior Counsel, lawyer" is a bit snide and ridiculous.

Mr Lenihan has 2 first class LL.B. degrees and a degree of Barrister-At-Law from the Honorable Society of King's Inns. He has been a Barrister since 1984 and Senior Counsel since 1997.
Say what you want about his recent decisions, but to call into question his achievements shows the lows you're willing to go to support your own views.

I don't see anything "so-called" about his pre-politics career.

Liam Byrne

johnnyskeleton wrote: »

Anglo weren't lying, they simply weren't asked to provide accurate information. But what makes you think Lenihan & Co didn't know or reasonably suspect that they were insolvent? The political fallout from bailing out Anglo is bad, but the consequences for FF and their supporters if they had let Anglo go would be worse.

Or how he could ignore expert opinion saying that they shouldn't guarantee everything and presume that he knew better? Or how he could tell us that his views were supported by those same experts when it now turns out that they did no such thing. And yet he is well liked by the media and apparently a lot of people besides?

Oh, believe me, giving Lenihan & Co any benefit of the doubt is pushing me to the limit.

But while I'd agree with you that some suspicion is justified, the fact remains that there isn't any "proof" of the above (probably because no-one looked and because there were - astoundingly - no minutes taken at that fateful meeting in September 2008).

Given the lack of any evidence whatsoever, I would be wary of accusing Lenihan of the above, but will leave it up to anyone objective to make up their own mind.

So either
a) Lenihan is hopelessly incompetent as I outlined above, not even including the necessary and beyond-doubt legal caveats that were required to protect our country (despite his legal background)

- OR -

b) Lenihan is implicated as you outlined

It's definitely one or the other, so why some people and some media insist on liking him or proposing him as the next Taoiseach is beyond me.

Liam Byrne

OisinT wrote: »

Obviously you are cranky but to say he is a "so-called" Barrister, Senior Counsel, lawyer" is a bit snide and ridiculous.

Mr Lenihan has 2 first class LL.B. degrees and a degree of Barrister-At-Law from the Honorable Society of King's Inns. He has been a Barrister since 1984 and Senior Counsel since 1997.
Say what you want about his recent decisions, but to call into question his achievements shows the lows you're willing to go to support your own views.

I don't see anything "so-called" about his pre-politics career.

The "so-called" was because no barrister worth their title would have overlooked the required legal caveats.

So if you want to label something "ridiculous" then ask why my insurance cert has more safeguards than a €25,000,000,000 to €45,000,000,000 contract that we're footing the bill for.

johnnyskeleton

OisinT wrote: »

Yes, it is riskier, but perhaps that's a risk that we needed to take. I don't know all the ins and outs of what Anglo had and could have. None of us know what went on behind closed doors (why we need transparency in government) and so I don't think we can say whether or not that decision was correct or not yet.

That is the opinion one is entitled to hold... you may think it was a bad idea or a good idea. You can even say it is a fact that it is risky, but you cannot say it's a fact that it won't work. Unless you have some crystal ball that you aren't telling me about?

OK, but honestly, what do you think the odds are that the risk will pay off and Anglo will manage to not only pay off all its debts but also make a profit? Considering that it is a fact that they have already made losses of nearly €25bn, it is a fact that they are going to make more losses on the further NAMA transfers and it is a fact that after NAMA they will effectively stop writing new lending and be wound down over a period of about 10 years or so. They will have losses in the region of €36bn a loan book of €39bn (much of which will still be toxic loans) and ongoing operating costs.

If they recover 50% of the €39bn they will be doing well considering the risk profile and the lack of proper collateral. But in order to reverse the losses, repay the government and make a profit they will need to recover approximately 200% of the remaining loan book i.e. if joe owes them €1m they will need to recover €2m from him (somehow).

Honestly, do you think that that is even remotely possible? Is there a 1 in a 100 chance that that will happen? 1 in a thousand? 1 in a million (i.e. finding a load of gold reserves that they had forgotten about).

So if you want to say that no one knows the future for certain, which as an absolute proposition is true, tell us instead how likely you think it is that Brian Lenihan will have been proven to be right to guarantee Anglo and that it was just a mere liquidity problem after all?

johnnyskeleton

OisinT wrote: »

Mr Lenihan has 2 first class LL.B. degrees

Why would anyone get two LLBs (batchelor of law)? Two primary degrees maybe?

Liam Byrne wrote: »

The "so-called" was because no barrister worth their title would have overlooked the required legal caveats.

So if you want to label something "ridiculous" then ask why my insurance cert has more safeguards than a €25,000,000,000 to €45,000,000,000 contract that we're footing the bill for.

Maximum exposure is c. €400bn, but considering how much has already been spent and including the consequences of NAMA, €45k is probably a minimum figure for bailing out the banks (all stemming from the guarantee). Most would put total cost at €80bn+

Scarab80

RealityCheck wrote: »

Honestly that is pure rubbish. Remind me when is the guarantee due to expire? Its not indefinite. It could have run its course by now. We can let the Bondholders take some pain, in fact the likes of the Financial Times are calling for it.

You have to differentiate between the different guarantees in place. The CIFS guarantee was the original blanket guarantee which covered all liabilities from Sept 29 2008 - Sept 29 2010, this guarantee is still ending at the end of this month.

The ELG guarantee is being extended to Dec 2010, this covers short term debt (such as bank and customer deposits) aswell as specific issues of debt securities made under the scheme from Jan 2010, a list of issuances under the ELG scheme can be found here. Securities issued under this scheme are guaranteed until they mature/out to a period of 5 years.

At 30 June 2010 Anglo had 56bn in customer and bank deposits, 16bn in senior bonds and 2.5bn in subordinated bonds. Of the 16bn senior bonds, 4bn are already covered under the ELG scheme and another 8bn are due to mature before the end of September so they will have to be rolled over into ELG scheme or repaid under the CIFS guarantee. That leaves possibly 4bn of unguaranteed senior debt and the 2.5bn in sub debt will which will not be covered come October.

If you wished to now default on the unguaranteed bondholders they always retain the right to apply for an immediate wind up through the courts if they are being selectively defaulted on. A sub bondholder is unlikely to get anything in a wind up, a senior bonholder would get something so if their debt was defaulted on it would make sense for them to apply for a wind up.

If a successful petition for wind up was made by a creditor before the end of the year, the 56bn bank and retail depositers would be able to demand repayment from the state under the ELG guarantee, further the majority of senior bondholders would be able to demand repayment under the ELG scheme, another 12bn, to be funded immediately. If the depositers are not assured of the safety of their funds by the end of the year they will withdraw while still under guarantee.

There will no doubt be some savings to be made from buybacks of debt, probably about 2bn on the sub debt where bonds are trading at about 20c. Hopefully some savings on buyback of senior unguaranteed debt.

However the amount of unguaranteed debt is not as big as one would initially think and the scope for inflicting losses less so.

FreudianSlippers

Liam Byrne wrote: »

The "so-called" was because no barrister worth their title would have overlooked the required legal caveats.

So if you want to label something "ridiculous" then ask why my insurance cert has more safeguards than a €25,000,000,000 to €45,000,000,000 contract that we're footing the bill for.

I haven't seen the NAMA contract(s) so I can't tell you if the caveats exist or not. Perhaps if you can supply me with a PDF of your copy of the contract(s) I can look through them and give a more informed opinion.
Until then he is still "so-called" for a reason - and that reason is that he has had around 20 years experience as a successful Barrister. I think it's wrong to question his abilities when you have no backing to this.

johnnyskeleton wrote: »

OK, but honestly, what do you think the odds are that the risk will pay off and Anglo will manage to not only pay off all its debts but also make a profit? Considering that it is a fact that they have already made losses of nearly €25bn, it is a fact that they are going to make more losses on the further NAMA transfers and it is a fact that after NAMA they will effectively stop writing new lending and be wound down over a period of about 10 years or so. They will have losses in the region of €36bn a loan book of €39bn (much of which will still be toxic loans) and ongoing operating costs.

If they recover 50% of the €39bn they will be doing well considering the risk profile and the lack of proper collateral. But in order to reverse the losses, repay the government and make a profit they will need to recover approximately 200% of the remaining loan book i.e. if joe owes them €1m they will need to recover €2m from him (somehow).

Honestly, do you think that that is even remotely possible? Is there a 1 in a 100 chance that that will happen? 1 in a thousand? 1 in a million (i.e. finding a load of gold reserves that they had forgotten about).

So if you want to say that no one knows the future for certain, which as an absolute proposition is true, tell us instead how likely you think it is that Brian Lenihan will have been proven to be right to guarantee Anglo and that it was just a mere liquidity problem after all?

Because I firmly believe that some if not all of the properties they have received have development potential. I have not seen them all, so I'm open to correction.
But I believe there is potential to recover the losses. I don't know the chances, but I don't know how anyone can say for sure if the assets will still be toxic in the years to come. There is some information that have been released and much more that is still totally unknown - we need to know more to make informed decisions, but I believe the economic basis for NAMA is sound.

Scarab80

Liam Byrne wrote: »

Because otherwise I'd phrase it as "now we've found out that Anglo were lying through their teeth"......and that's not a get-out-clause for Lenihan & Co because anyone competent would have checked their facts - or put in a caveat - before signing away tens of billions.

Even my insurance cert has a disclaimer that - paraphrased - means "if you're lying this is null and void".

If that caveat had been put in, the guarantee would have been useless.

You are basically saying to bondholders - give money to this bank and in the event of default the irish state will pay you back, however if it transpires that Anglo management were lying to us and they are insolvent and going to have to default on your debt then we won't pay you back. The whole point of the guarantee is that it is to be used when there is a default.

FreudianSlippers

johnnyskeleton wrote: »

Why would anyone get two LLBs (batchelor of law)? Two primary degrees maybe?

Not sure, it could be that in the 80s he did an LL.B. in Irish Law in Trinity and then LL.B. in some other law in England. It would be strange today certainly.

liammur

OisinT wrote: »

That's your opinion and many economists believe the opposite to be true. Who is to say you're opinion is correct and "Lenihan & co." was not?

Only time will tell!

Well Lenihan & Co. thought Anglo's liabilty would be €3bn. Any donkey on the street would have known it was going to be much much more. So his opinion is definitely wrong.

Liam Byrne

Scarab80 wrote: »

If that caveat had been put in, the guarantee would have been useless.

You are basically saying to bondholders - give money to this bank and in the event of default the irish state will pay you back, however if it transpires that Anglo management were lying to us and they are insolvent and going to have to default on your debt then we won't pay you back. The whole point of the guarantee is that it is to be used when there is a default.

Bull.

If Anglo went under through no fault of its own, then fair enough - the guarantee stands.

However those bondholders and investors should invest in a company that doesn't lie and defraud; if they did, then it's their own fault - they shouldn't have invested in a dodgy company.

I mean, if I reply to a Nigerian spam email and deal with the resulting con-man, then I lose, and rightly so.

Scarab80

Liam Byrne wrote: »

Bull.

If Anglo went under through no fault of its own, then fair enough - the guarantee stands.

However those bondholders and investors should invest in a company that doesn't lie and defraud; if they did, then it's their own fault - they shouldn't have invested in a dodgy company.

I mean, if I reply to a Nigerian spam email and deal with the resulting con-man, then I lose, and rightly so.

How exactly does Anglo go under through no fault of it's own? It goes under because of the deterioration of it's loan book, they gave out the loans - who else's fault is it? At what point does it move from no fault of their own into fraud?

johnnyskeleton

OisinT wrote: »

Because I firmly believe that some if not all of the properties they have received have development potential. I have not seen them all, so I'm open to correction.
But I believe there is potential to recover the losses. I don't know the chances, but I don't know how anyone can say for sure if the assets will still be toxic in the years to come. There is some information that have been released and much more that is still totally unknown - we need to know more to make informed decisions, but I believe the economic basis for NAMA is sound.

Ah I see the problem.

Let's say that we have a new property boom and the parcel of land currently worth €1m with 20m of debt against it is developed into a new development worth €40m. So in that sense, it is possible that the assets could do a complete volte face and be worth several times what they are worth now.

But we don't own the underlying assets, we own the loans. So in the above example, if we repossess and sell now we will get €1m back, or a loss of 95% on the loan. But if we wait and it is worth €40m in the future, we will still only get €20 or 100% of the loan (plus some interest, although this will only repay the interest we borrow to keep Anglo alive if even that). We will not be entitled to the beneficial ownership of the land, nor will we get a "thankyou" share of the profits.

We will only get the loan back.

So back to what I said earlier. Anglo has lost 23bn+ and may have lost 35bn when NAMA is finished. This is accepted by the Duke. They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

Now, in the best case scenario above, Anglo simply doesn't make any more losses than it already has. Let's also say that the NAMA loans do the same thing - but we are still then left with 10 years worth of interest plus losses on unsecured loans plus higher cost of borrowing plus losses on any land that can't be developed.

So in the very best of all possible worlds, we will only make a slight loss on Anglo and we will pay higher interest on our national debt because of the uncertainty it has brought. Therefore, in this best case scenario the guarantee has had caused at least some damage to the Irish economy.

Also, let's be real about this. The chances of the Anglo and NAMA loans recouping full value are so remote as not to be worth considering. I appreciate that you don't want to put a figure on it, but you can't realistically hold a view that it could work out alright but then refuse to even consider the quality of the loans and their likely future market.

For a start, we have more empty homes than we know what to do with. Those are fully finished homes, not the Anglo "huge development potential" empty fields. We also have a declining population, decreasing average wages, increasing taxes and falling rents. All these things point to lower property prices in the future. As historical precedents go, Japanese property peaked in the early 90s and 20 years on is still nowhere near what it was. It took almost 30 years for the NASDAC to reach its pre-1929 high. So after a credit bubble, it takes a long long time to return to that level (unless of course you follow it with an even greater credit bubble).

Let's look at the Irish Glass Bottle Site, purchased for 412m, currently worth what, 40m? How is that going to grow by 1000% any time soon? It's a rubbish piece of land that needs to be cleaned up before development can take place, and with 16,000 empty apartments in Dublin and commerical space to beat the band, there is simply no demand for any property of sufficiently high density to make it worth its while in the next 10 years.

So there are two things:
1) Anglo will make a loss. That is to say, it is simply not possible for it to make a profit without finding a pot of gold or completely changing the entire legal system and contract law. Both of these things are so remote that any rational person can discount them. So I think it is fair to say that this is a fact.

2) the level of that loss is a matter of opinion. I have proffered my opinion backed up with reasons and examples of why I think that. Just because I cannot know for certain does not discredit my opinion. Moreover, I think it is fair to say that my opinion carries more weight than an opinion which is not based on an analysis of Anglo as it actually is and is instead based on a belief that it will somehow come good in the end.

Liam Byrne

Scarab80 wrote: »

How exactly does Anglo go under through no fault of it's own? It goes under because of the deterioration of it's loan book, they gave out the loans - who else's fault is it? At what point does it move from no fault of their own into fraud?

http://www.rte.ie/business/2009/0213/ilp2.html
http://en.wikipedia.org/wiki/Anglo_Irish_Bank_hidden_loans_controversy

Note the date of the articles

johnnyskeleton

Scarab80 wrote: »

If that caveat had been put in, the guarantee would have been useless.

You are basically saying to bondholders - give money to this bank and in the event of default the irish state will pay you back, however if it transpires that Anglo management were lying to us and they are insolvent and going to have to default on your debt then we won't pay you back. The whole point of the guarantee is that it is to be used when there is a default.

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

If you are coming at it from the point of view of save Anglo at all costs, then an unqualified guarantee is the way to go. If, however, you have a care for the people that you (as Taoiseach and Minister for Finance) represent, then you would not be so imprudent as to buy a pig in a poke. You would want to save Anglo but not at all costs. Only if Anglo was worth saving.

In any event, the choice was never guarantee or don't guarantee, there are many options they could have done. A sort of administration process with an implication that some government funds may be used to buy Anglo's assets could have been initiated, especially since the other banks were so willing to help Anglo out at that time.:cool:

FreudianSlippers

johnnyskeleton wrote: »

Ah I see the problem.

Let's say that we have a new property boom and the parcel of land currently worth €1m with 20m of debt against it is developed into a new development worth €40m. So in that sense, it is possible that the assets could do a complete volte face and be worth several times what they are worth now.

But we don't own the underlying assets, we own the loans. So in the above example, if we repossess and sell now we will get €1m back, or a loss of 95% on the loan. But if we wait and it is worth €40m in the future, we will still only get €20 or 100% of the loan (plus some interest, although this will only repay the interest we borrow to keep Anglo alive if even that). We will not be entitled to the beneficial ownership of the land, nor will we get a "thankyou" share of the profits.

We will only get the loan back.

So back to what I said earlier. Anglo has lost 23bn+ and may have lost 35bn when NAMA is finished. This is accepted by the Duke. They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

Now, in the best case scenario above, Anglo simply doesn't make any more losses than it already has. Let's also say that the NAMA loans do the same thing - but we are still then left with 10 years worth of interest plus losses on unsecured loans plus higher cost of borrowing plus losses on any land that can't be developed.

So in the very best of all possible worlds, we will only make a slight loss on Anglo and we will pay higher interest on our national debt because of the uncertainty it has brought. Therefore, in this best case scenario the guarantee has had caused at least some damage to the Irish economy.

Also, let's be real about this. The chances of the Anglo and NAMA loans recouping full value are so remote as not to be worth considering. I appreciate that you don't want to put a figure on it, but you can't realistically hold a view that it could work out alright but then refuse to even consider the quality of the loans and their likely future market.

For a start, we have more empty homes than we know what to do with. Those are fully finished homes, not the Anglo "huge development potential" empty fields. We also have a declining population, decreasing average wages, increasing taxes and falling rents. All these things point to lower property prices in the future. As historical precedents go, Japanese property peaked in the early 90s and 20 years on is still nowhere near what it was. It took almost 30 years for the NASDAC to reach its pre-1929 high. So after a credit bubble, it takes a long long time to return to that level (unless of course you follow it with an even greater credit bubble).

Let's look at the Irish Glass Bottle Site, purchased for 412m, currently worth what, 40m? How is that going to grow by 1000% any time soon? It's a rubbish piece of land that needs to be cleaned up before development can take place, and with 16,000 empty apartments in Dublin and commerical space to beat the band, there is simply no demand for any property of sufficiently high density to make it worth its while in the next 10 years.

So there are two things:
1) Anglo will make a loss. That is to say, it is simply not possible for it to make a profit without finding a pot of gold or completely changing the entire legal system and contract law. Both of these things are so remote that any rational person can discount them. So I think it is fair to say that this is a fact.

2) the level of that loss is a matter of opinion. I have proffered my opinion backed up with reasons and examples of why I think that. Just because I cannot know for certain does not discredit my opinion. Moreover, I think it is fair to say that my opinion carries more weight than an opinion which is not based on an analysis of Anglo as it actually is and is instead based on a belief that it will somehow come good in the end.

No, I fully understand your point and perhaps I'm being overly optimistic.

My point is this is: In the very best of all possible worlds, we do only make a slight loss on Anglo and we will pay higher interest on our national debt.
Isn't that better than allowing Anglo to fail and causing a severe shock to our already fragile economy?

There may be 16,000 empty apartments in Dublin, but they're crap and overpriced crap at that.

If you're an economist and have insider knowledge of the transactions then certainly you're more informed than I am, but I can only know what I have been told by our government regarding the transactions and apply my degree in economics to it.
It might be a bit rusty, since I haven't really used it in a few years, but I understand the concept economically of what NAMA is trying to accomplish.
It may not work as we all had hoped it would, but the alternative was also a harsh reality. A decision was made and that decision will have repercussions, no matter what the decision was.

liammur

johnnyskeleton wrote: »

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

If you are coming at it from the point of view of save Anglo at all costs, then an unqualified guarantee is the way to go. If, however, you have a care for the people that you (as Taoiseach and Minister for Finance) represent, then you would not be so imprudent as to buy a pig in a poke. You would want to save Anglo but not at all costs. Only if Anglo was worth saving.

In any event, the choice was never guarantee or don't guarantee, there are many options they could have done. A sort of administration process with an implication that some government funds may be used to buy Anglo's assets could have been initiated, especially since the other banks were so willing to help Anglo out at that time.:cool:

Almost all involved knew Anglo was insolvent. That's why the hedge fund co's in london were lining up short positions v the misguided S Quinn.

Scarab80

johnnyskeleton wrote: »

.... They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn. Therefore in the impossible event of another property bubble within the 10 years of NAMA 41bn in profit could be made plus the interest margin.

NAMA are not restricted to recovering what they paid on the loans, they are restricted to the original loan amount....

Maybe I have taken you up wrong here.

FreudianSlippers

Scarab80 wrote: »

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn. Therefore in the impossible event of another property bubble within the 10 years of NAMA 41bn in profit could be made plus the interest margin.

NAMA are not restricted to recovering what they paid on the loans, they are restricted to the original loan amount....

Maybe I have taken you up wrong here.

I believe you are correct on this. It's debts purchased for €39bn worth approximately €80bn with a max of €80bn realisable.

Scarab80

johnnyskeleton wrote: »

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

When Anglo approached the government it wasn't on behalf of their current investors, it was because on-demand deposits were being withdrawn and they had to roll over bonds into new issues.

What good is a guarantee only if the bank is solvent? It changes nothing for those with their funds in the bank. The guarantee is completely irrelevant as it will never be used, if the bank is solvent it is not used if the bank is insolvent it is not used.

Scarab80

Liam Byrne wrote: »

http://www.rte.ie/business/2009/0213/ilp2.html
http://en.wikipedia.org/wiki/Anglo_Irish_Bank_hidden_loans_controversy

Note the date of the articles

Neither of these transactions affected Anglo's solvency only it's liquidity which was the problem in the first place.

Liam Byrne

Scarab80 wrote: »

Neither of these transactions affected Anglo's solvency only it's liquidity which was the problem in the first place.

Both show that they were engaged in unacceptable transactions.

What those transactions affected is irrelevant.

Would you have invested in a company that engaged in those practices ?

johnnyskeleton

OisinT wrote: »

No, I fully understand your point and perhaps I'm being overly optimistic.

My point is this is: In the very best of all possible worlds, we do only make a slight loss on Anglo and we will pay higher interest on our national debt.
Isn't that better than allowing Anglo to fail and causing a severe shock to our already fragile economy?

From the point of government policy it depends. Do you believe that if you make a bad investment you should lose money or do you think that if you make a bad investment the government should reward you for it. If the former, then no, it would have been better to let Anglo fail. If the latter then yes the government were right to bail out Anglo and the only thing they did wrong was not give out more money to everyone who lost money on property deals, share deals, scams etc. In short, bailing out Anglo is only right if you believe a goverment should give out free money to everyone all the time. As the aul cow from across the water said, Socialism is great until you run out of other people's money.

As for effect of allowing Anglo to fail on our already fragile economy, since you assert this please let me know what effect you think this would have been. In terms of lending, we would be in the same or a better position if we let Anglo fail, because Anglo aren't lending at the moment, and if they weren't nationalised then there is a chance (however small) than an international bank like Santander which is fully solvent would come in and lend to the Irish market. In terms of the property bubble, despite the government's best efforts they just couldn't put humpty dumpty back together again. The Irish solution is to go back to the heady days of selling overpriced property to each other on borrowed money. But we cannot go back to that time.

In terms of the overall economy, I fail to see how benefits Anglo is giving us now, so it is not like we would miss anything. Finally, the only way it could possibly have affected the overall economy is because of interbank deposits to Irish banks. However, if that was the only problem it would have been much cheaper to let Anglo fail and provide funding to the other banks. That is the strategy the US and UK took, and while it is not ideal it is certainly a better one.

Some banks fail so that others survive is a good deal. All banks crashing because we are too proud to let the green jersy down, or because politicians don't want their dirty linen on the streets is a very bad deal.

OisinT wrote: »

There may be 16,000 empty apartments in Dublin, but they're crap and overpriced crap at that.

How does this advance you argument? You think that the property which was bought to build crap overpriced apartments on has a chance of making money in the future, but yet you think the 16,000 apartments already built are no good? Do you honestly think we can survive as a country by constantly building overpriced apartments that no one lives in?

OisinT wrote: »

If you're an economist and have insider knowledge of the transactions then certainly you're more informed than I am, but I can only know what I have been told by our government regarding the transactions and apply my degree in economics to it.

That's the thing though. I ain't no economist and know nothing about it other than what I have informed myself about. There is a wealth of information on the internet, much to the chagran of Mr. Lenihan who wants us all to be good sheep.

But you can't just accept what the government says at face value, and perhaps as part of your economic degree you learned a little bit about the difference between capitalism and socialism? Although this is something different, it's Bertie Socialism - sweeties for his constituents, bags of wonga and planning permission for his buddies and ashes for everyone else.

Brian Lenihan is a barrister. Barristers question things, they don't just take them on trust. You should never take anything anyone says on trust, especially not what the government tells you.

OisinT wrote: »

It might be a bit rusty, since I haven't really used it in a few years, but I understand the concept economically of what NAMA is trying to accomplish.

What, economically was it trying to accomplish. We know that NAMA was not going to get the banks lending again, but we also know that BL knew that NAMA would not get the banks lending again, and once he had railroaded it through dail eireann on the basis that if we don't do it the banks won't lend ever again, he admitted as such. If you look at the link I put up earlier it will give you my reasons why NAMA can't work. The link also discusses Brian Lucey's comments on why NAMA can't work.

So please explain to me what NAMA was "trying to accomplish" other than to hide the dirty laundry and if that is to get the banks to lend again, please explain to me how that would work.

You might be referring to a case study of the Sweedish "bad bank" policy, but that worked due to high inflation and even still made a nominal loss (albeit slight). How in the name of all that is holy was NAMA ever going to make a profit, which it was supposed to do? The only way was if we reinflated the bubble, but may as well try to get blood from a stone.

OisinT wrote: »

It may not work as we all had hoped it would, but the alternative was also a harsh reality. A decision was made and that decision will have repercussions, no matter what the decision was.

Eh? Are you suggesting it makes no difference? The reality is that the economy was headed in this direction anyway, and the choice was whether the loss is taken by the investors or by the government. Unless your economics degree is from People's University of Habana, I think you know the answer to that one.

liammur wrote: »

Almost all involved knew Anglo was insolvent. That's why the hedge fund co's in london were lining up short positions v the misguided S Quinn.

Exactly, which is why they should have been more cautious or let it fail.

Scarab80 wrote: »

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn...Maybe I have taken you up wrong here.

OisinT wrote: »

I believe you are correct on this. It's debts purchased for €39bn worth approximately €80bn with a max of €80bn realisable.

No. The remaining Anglo loan book will be c. 39.5bn AFAIK after all NAMA transfers have taken place. These are property and development loans of less than 5m, commerical loans (e.g. shopping centres) and miscellaneous other loans (e.g. simliar to the billions lent to Quinn and the golden circle, except that Quinn's losses have been factored in rather neatly in the six monthly results).

Scarab80 wrote: »

What good is a guarantee only if the bank is solvent?

If you'll forgive me, that is one extraordinary comment to make. Governments shouldn't be giving private enterprises guarantees at all. And if they do, it should only be for solvent companies with a viable future that are for one reason or another experiencing difficulty obtaining credit to supply liquidity issues.

Are you saying that because Anglo was insolvent that it was right and proper to bring in the guarantee? And conversly that if they were solvent then the government shouln't have guaranteed them?

:eek::eek::eek:

Scarab80

johnnyskeleton wrote: »

If you'll forgive me, that is one extraordinary comment to make. Governments shouldn't be giving private enterprises guarantees at all. And if they do, it should only be for solvent companies with a viable future that are for one reason or another experiencing difficulty obtaining credit to supply liquidity issues.

Are you saying that because Anglo was insolvent that it was right and proper to bring in the guarantee? And conversly that if they were solvent then the government shouln't have guaranteed them?

:eek::eek::eek:

No what I am saying is that a guarantee with an opt out in the case of insolvency is meaningless, it is in itself an oxymoron.

It leaves the creditors in exactly the same position they were in before as it offers nothing, and therefore will have no effect.

Liam Byrne

Scarab80 wrote: »

No what I am saying is that a guarantee with an opt out in the case of insolvency

Who suggested that ?

I suggested that the caveat be "on condition you're telling the truth".

Please don't throw in red herrings in order to prove a point that wasn't even raised.

Scarab80

Liam Byrne wrote: »

Who suggested that ?

I suggested that the caveat be "on condition you're telling the truth".

Please don't throw in red herrings in order to prove a point that wasn't even raised.

johnnyskeleton wrote: »

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

In relation to your point, you are linking two seperate things.

We will guarantee your money if the banks corporate governance is up to scratch. It's a very strange caveat to make without prior knowledge of what was going on.

Now the creditors risk is not just based on the solvency of the bank but on the trustworthiness of management. The former bondholders continuously attempt to quantify to manage their risk, not so the latter.

Given such a strange caveat I would expect most creditors to continue to withdraw their money on the basis that their risk is not quantifiable.

Liam Byrne

Scarab80 wrote: »

We will guarantee your money if the banks corporate governance is up to scratch. It's a very strange caveat to make without prior knowledge of what was going on.

I would view that it's a prerequisite for any contract, and any large investors would be well used to checking out the books of any organisation they were investing in.

If not, then that's their tough.

By guaranteeing a corrupt bank FF have sent a signal to the markets that they don't care what way things are run, and therefore EVERY bank makes for a nervous investment.

A strong statement that "we don't allow and take a dim view of dodgy banking" would have INCREASED confidence, IMHO.

FreudianSlippers

Liam Byrne wrote: »

I would view that it's a prerequisite for any contract, and any large investors would be well used to checking out the books of any organisation they were investing in.

If not, then that's their tough.

By guaranteeing a corrupt bank FF have sent a signal to the markets that they don't care what way things are run, and therefore EVERY bank makes for a nervous investment.

A strong statement that "we don't allow and take a dim view of dodgy banking" would have INCREASED confidence, IMHO.

What/Where is the "contract" you keep mentioning?

FreudianSlippers

johnnyskeleton wrote: »

From the point of government policy it depends...

Don't have time to reply to this tonight, but I'll get to a reply on Tuesday

Liam Byrne

OisinT wrote: »

What/Where is the "contract" you keep mentioning?

:rolleyes: The "contract" to guarantee the banks.

FreudianSlippers

Liam Byrne wrote: »

:rolleyes: The "contract" to guarantee the banks.

Ok, well let's see it!