Anglo Irish Bank , why?

McLovinit

Please can somebody explain to me what would have happened if the Government had not stepped in and saved Anglo?

I naturally assume that as a private enterprise that a liquidator would have been appointed in the normal manner and such the State and Tax payer would have not been responsible for any default or ensuing €33 billion debt? As it wouldn't have been a nationalized bank our sovereign debt rating might not have been so hard hit. It clearly would have been a mess but who's would it have been

What was the systemic threat that forced the government to take the decision which looks like it has brought us to the economic abyss...?

Somebody asked me and when I thought about it I couldn't think of AN' answer that made any sense.

Liam Byrne

The only conclusion that can be drawn that might even remotely explain Cowen & Lenihan's actions is that the mysterious "senior bondholders" are AIB & BoI.

Note that I'm not claiming the above is true, because frankly FF have been involved in lots of inexplicable behaviour that had no tangible or logical reasoning behind it.

FF did try to claim at one stage that the Credit Unions were involved, but the Credit Unions denied it point-blank; while the Credit Unions would say that (to avoid spooking deposit holders) I'd put more credibility behind what the Credit Unions say than what FF say, even allowing for the possible conflict of interest re the truth.

FreudianSlippers

It's actually quite a simple concept once it's thought about in straightforward terms rather than complex economic language.

Anglo was a very large bank and had a lot of creditors. These creditors included many depositors and if Anglo failed and simply stopped giving funds back to depositors credit would have dried up and that has a knock-on effect. Basically, banks lend to eachother as well as to people and if suddenly a very large amount of credit is removed from the economy then other banks also lose a large chunk of their credit too. Basically, the Government would have had to nationalise the entire banking system overnight rather than over time.

The general consensus is that if Anglo failed it would have brought down most if not all of the other banks. There would have been a run on deposits and there wouldn't have been the cash to give to people (á la the great depression). Nobody disagrees that at the time, it was thought that bailing out Anglo was generally believed to be the best move in order to save not only the good parts of Anglo, but also the other banks and the entire financial system of this country. We had seen what a mess Iceland was in when they let their largest bank fail.

Remember also, that in 2007 Anglo was named the best bank in the world by Oliver Wyman. What we didn't know in 2007 was that the reason that Anglo was so good was that they were fully invested in these dodgy practices that were so common in the US.
It seemed sound and logical to take the plunge and patch the leak rather than replacing the pipe or letting it burst.

What we didn't know at the time was that we were being lied to by Anglo bondholders on the actual state of the company and how much shít they were in. The plan would have still worked, but think of it this way:
If you're planning on going on a trip and your travel agent says you're going somewhere sunny and warm - you know to pack certain items.
If the key information is that you're going to the bloody Sahara and that is left out, you're going to hop on that plane woefully unprepared for what you're going to encounter when you get there. Basically this is what happened with Anglo. We had a plan to save the financial market and the flow of money in this country by saving the good investments that Anglo managed based on information given to us by Anglo themselves. They lied / failed to provide accurate information / understated the level of problems / whatever. But we went in with the wrong plan and have been trying to plug leaks with all our fingers and toes for the past year or so because of it.

The Independent said it would have been like "Mad Max" and we would have transcended from a monetary economy to barter economy overnight. Probably not true, but definitely not far off. If Anglo just failed, we'd have nationalised all banks overnight because they'd all have failed. You probably wouldn't be able to get money out of the ATMs and people would have reacted by running on the banks (withdrawing all their "funds" which are effectively just pieces of paper at the end of the day) not knowing that they were just making matters worse.
Certainly you could say this is an exaggeration bla bla bla... but the truth of the matter is we saw it happen in reality in the great depression and it's something the average person without a degree in economics (and even people WITH degrees in economics) cannot predict - the reaction of the population at large to these types of events.


We basically saw what happened in Iceland and Argentina and if we let Anglo just fail, it would have resulted in all of the banks fail - even relatively healthy ones like Ulster Bank - 75% or more of our companies go go bust within weeks due to no credit, resulting in lost their jobs, resulting in even less money going into banks and the economy, resulting in more banks failing... the cycle continues.

Anglo bailout was botched. We see how it can be done well and intentions were good. On the information we had when we began the bailout the plan was solid. At the end of the day we were deceived, tricked, etc. by the bondholders and directors of Anglo. We went in with what we thought was the right plan but on misinformation it turned out to be the very very wrong plan.
A bailout was necessary and if we had gone in with the correct information we would certainly be in a different boat today.

FreudianSlippers

Just as an addition, to see examples of what we attempted to do with Anglo, look to Fannie Mae and Freddie Mac, Citigroup and GM - all successful versions of the Anglo deal.

The difference being that there were relatively little surprises awaiting the US government in those situations.

It's easy to blame the government because we can put names to faces and they are our elected officials. But realistically the blame is in the banks and the economic practice that has been carried out since the 1940s worldwide.

McLovinit

Hi guys,

Thank you, i appreciate the comments and i dont disagree with your statements much of which appears to be the general concensus. However perhaps i'm missing something here but it still does not explain the "Why"
Taking your points, if we assume the government viewed Anglo as business which would be liquidated then they as a potential buyer should have assumed the role of any entity seeking to buy another other business in so far as they should have undertaken a full due diligence of the business. This should clearly have identified who were the senior debt/bondholders in the company. They could have seen if BOI and AIB were seriously exposed and made a judgement at that stage as to the total exposure, sureley even if both banks had senior debt then it would not have amounted to more than €30billion? At that point the Government could have , as it was planning anyway, guaranteed the deposits with all lending institutions in the state to avoid the "run" which appears to be the spook theory now.
We also have to remember that other banks such as Ulster and National Irish were owned by overseas entities so any exposure they had to senior debt was not really at that point an irish problem.
The Government could have also protected all individual deposits at the bank to say €50k per person. This surely would still have been more cost effective than pumping the initial 1.5 then 6 billion into the bank.
I'm in the camp now that Senior Politicians appeared to know a lot more than what they are admitting and the anglo deal was done to protect a small elite.
If as we are led to now beleive that they were "told" a different story then those that lied should be held accountable for fraud and prosecuted. The people that carried out the due diligence, if any, if they only went on hearsay and conversation should also be fired and held accountable for professional misconduct and negligence. I simply cannot see how an inspection of their books could not have shown the real bond holders.
If the bank had of been allowed to fall and proper mechanisms put in place to shore up the remaining "solvent banks" then I'm certain the mess we are in now would not be anywhere near where we find ourselves today.
The bondholders or senior debt would have been entitled to whatever proceeds came from the liquidation of the assests.
I simply cant beleive that nobody is asking more questions about this initial decision. I'm certain the truth as they say is out there.....

jimmycrackcorm

The problem with guaranteeing deposits is firstly you would have had to guarantee all deposits including corporate deposits. I don't know how much that would have been but it was no small figure. The banks would then not have been able to raise funding because they wouldnt have been repaying their bondholders. So where would they then get their lending funds from?

Once the banks went beyond lending based on deposits we were screwed. We'd probably be in the same situation as we are now.

Having said that, we probably should have just nationalised AIB and BOI and let Anglo go to hell.

McLovinit

I agree with you Jimmy.
I'd still llike to know why some people felt the need to take everyone to hell with Anglo.
So the action by people we elected in trust have instead decided to protect a small number of elite in a golden circle that will mean our children and theirs will be paying for this mistake for years to come. It is white collar collar crime which will go unpunished.

jimmycrackcorm

McLovinit wrote: »

I agree with you Jimmy.
I'd still llike to know why some people felt the need to take everyone to hell with Anglo.
So the action by people we elected in trust have instead decided to protect a small number of elite in a golden circle that will mean our children and theirs will be paying for this mistake for years to come. It is white collar collar crime which will go unpunished.

Here's my theory and I don't believe it would be too far from the truth.
Anglo probably told the government that there was a little problem with their liquidity but it was within a manageable €3-4 billion.
As the banking system is completely built solely on confidence ( e.g. they will only lend money to you if they think you can repay ), then they ignored the potential scale of the losses by hoping that plugging a small hole would satisfy that confidence. Don't forget that during the boom Anglo had that same problem of lending on speculation but nobody cared as long as the party continued.
So for the sake of a few billion the government believed that it was the lesser evil than going full on abandoning Anglo and having to nationalize the other banks i.e. doing this would have immediately led to massive problems, caused by deliberate government action who would have gotten the blame for it. The perceived €3-4 billion loss was a hell of a lot smaller than the value of the deposits being guaranteed, hence it appeared to be the cheapest bailout.

So the gamble failed as the banking system is a shaky proposition even in good times and so here we are.

McLovinit

jimmycrackcorm wrote: »

Here's my theory and I don't believe it would be too far from the truth.
Anglo probably told the government that there was a little problem with their liquidity but it was within a manageable €3-4 billion.
As the banking system is completely built solely on confidence ( e.g. they will only lend money to you if they think you can repay ), then they ignored the potential scale of the losses by hoping that plugging a small hole would satisfy that confidence. Don't forget that during the boom Anglo had that same problem of lending on speculation but nobody cared as long as the party continued.
So for the sake of a few billion the government believed that it was the lesser evil than going full on abandoning Anglo and having to nationalize the other banks i.e. doing this would have immediately led to massive problems, caused by deliberate government action who would have gotten the blame for it. The perceived €3-4 billion loss was a hell of a lot smaller than the value of the deposits being guaranteed, hence it appeared to be the cheapest bailout.

So the gamble failed as the banking system is a shaky proposition even in good times and so here we are.

I think that is probably one of the more plausible theorys that heard. However, I deal regularly with the Dept of Finance and I know how hard on detail they are at the best of times therefore I find it hard to believe that anybody that knew anything about the banking and finance system that carried out proper due diligence of Anglos books could have ever accepted the liquidy excuse as it is clearly more than that.

Inquitus

McLovinit wrote: »

I think that is probably one of the more plausible theorys that heard. However, I deal regularly with the Dept of Finance and I know how hard on detail they are at the best of times therefore I find it hard to believe that anybody that knew anything about the banking and finance system that carried out proper due diligence of Anglos books could have ever accepted the liquidy excuse as it is clearly more than that.

All this was decided in a very short space of time, which is why due diligence couldn't be done, and the word of the Anglo management carried such weight.

Liam Byrne

Inquitus wrote: »

All this was decided in a very short space of time, which is why due diligence couldn't be done, and the word of the Anglo management carried such weight.

That's a bit of a cop-out since there were many, many warnings before the crisis reached tipping point.

Bottom line, OP, is that the whole mess was caused by corrupt and dodgy profit-seeking practices that were not regulated.

The whole mess means that some high-level "bankers" were more untrustworthy than your local thug.

Unfortunately if justice were to be done then the Government would have to admit that they bolloxed it up in order to charge people with knowing collusion and lies about the liquidity.

FF won't do that in a million years, even if it were required so that justice was done; far better to pay off the lying rats and allow them to agree to skulk off into the sunset to far-flung places to declare "bankruptcy" in places where that somehow means getting €250,000 a year.

Inquitus

Liam Byrne wrote: »

That's a bit of a cop-out since there were many, many warnings before the crisis reached tipping point.

September 15, 2008: Lehman Bros files for Chapter 11

September 29, 2008: Crisis meeting at Department of Finance after Anglo Irish Bank loses €4 billion in deposits over a matter of days. Allied Irish Banks and Bank of Ireland push for nationalisation of Anglo.

September 30, 2008: The government announces a €400 billion guarantee of the liabilities of all six Irish banks.

I agree that Anglo was clearly badly run, and a ticking bomb, but to be fair to the Gov there's only 2 weeks between the catalyst for the banking crisis and the guarantee of all Irish banks. They had no choice but to go on the word of the Anglo management who clearly bareface lied to them.

The financial regulator is the one who should have been into Anglo's affairs long before then, and might have been able to advise the Government on Anglo's disasterously precarious position when the bank guarantee scheme was being discussed.

McLovinit

Inquitus wrote: »

I agree that Anglo was clearly badly run, and a ticking bomb, but to be fair to the Gov there's only 2 weeks between the catalyst for the banking crisis and the guarantee of all Irish banks. They had no choice but to go on the word of the Anglo management who clearly bareface lied to them.
d.

I'm sorry i couldn't Disagree more, if you were buying a second hand Toyota you'd probably get a second opinion. When you were going to inject several billion (initially) into something so significant then there was clearly AN' onus on the state to do it's homework and proper due diligence, we have dozens of trained accountants and auditors not including the resources of revenue and the c&ag that could have been seconded to review the books in a very short space of time and certainly give a real opinion in less than 2 weeks. The fact the government neglected it's responsibilities is nothing short of criminal.

To simply say the bankers never told us the truth is just indeed bolox and make a bigger mockery of the intelligence of the average man on the street

Hotblack Desiato

OisinT wrote: »

Anglo was a very large bank and had a lot of creditors.

They had a lot of creditors all right but they were a very small bank, which overtraded in a quite frankly unbelieveable manner. Their retail deposit base was tiny in relation to the business they were writing. Once the flow of cheap money market funds dried up, post-Lehmann, the game was up, but it was only a matter of time anyway.

I semi-agree with the other poster who said the 'mystery bondholders who must not be defaulted upon' were AIB and BOI. They are no doubt in there, but (if they were smart) only piled in once the State guarantee came about. Before that, it would have been, I expect, predominantly French/German banks lending to Anglo and the ECB does not want them to be stiffed by us.

Liam Byrne

Inquitus wrote: »

September 15, 2008: Lehman Bros files for Chapter 11

September 29, 2008: Crisis meeting at Department of Finance after Anglo Irish Bank loses €4 billion in deposits over a matter of days. Allied Irish Banks and Bank of Ireland push for nationalisation of Anglo.

September 30, 2008: The government announces a €400 billion guarantee of the liabilities of all six Irish banks.

I agree that Anglo was clearly badly run, and a ticking bomb, but to be fair to the Gov there's only 2 weeks between the catalyst for the banking crisis and the guarantee of all Irish banks. They had no choice but to go on the word of the Anglo management who clearly bareface lied to them.

The financial regulator is the one who should have been into Anglo's affairs long before then, and might have been able to advise the Government on Anglo's disasterously precarious position when the bank guarantee scheme was being discussed.

Tosh. It's emerging that Cowen knew a lot more about Anglo, and therefore should - if he had an ounce of sense - known that they weren't trustworthy and anything they said needed to be triple-checked before throwing away billions.

You're also implying that the Financial Regulator and the Taoiseach don't talk, which is downright ridiculous considering that the NTMA knew that Anglo shouldn't be touched with a bargepole.

Add in the fact that FF have sat around for 2 years without doing anything to improve the situation (and in fact have made things worse) possibly in the ridiculous hope that it would "solve itself" and they could get back to pretending they were competent (even coming up with NAMA to artificially maintain prices) and you have an obvious reason to believe that FF's "cross fingers and wait until the last second" approach is a major factor.

I fixed my roof 3 months ago. It rained heavily last night. No damage was done.

It is absolutely crazy that one corrupt PRIVATE company that very few people had dealings with can bring down an economy like this. Your soft phrasing of "badly run" is astounding!

McLovinit

Liam Byrne wrote: »

It is absolutely crazy that one corrupt PRIVATE company that very few people had dealings with can bring down an economy like this. Your soft phrasing of "badly run" is astounding!

In a nutshell , this is exactly it.

As a nation of people we are to blame, we've become far to comfortable. No doubt there will be protests if they cut the old age pension and more student cuts, but not one protest againt the people or the institution which has caused this. I'm not advocating anarchy but why are we sitting and just taking this in the backside? The unions brought 100,000 people on the streets to protest against a single company Irish Ferries who like them or loath them were trying to make prudent business decisions to protect their cost base. Where are the unions now, where are the 100,000 bleeding hearts............

aloyisious

Nice... The judge hearing the application from Mr FitzPatrick (retired banker) for his legal costs has thrown out the claim, ruling that the charges submitted (the case) by the DPP against Mr FitzPatrick was good. The judge said there was nothing in law that said (just because the claimant was found NOT guilty) that his claims should automatically be met by the state. Yippee.....

TeaBagMania

FreudianSlippers wrote: »

Just as an addition, to see examples of what we attempted to do with Anglo, look to Fannie Mae and Freddie Mac, Citigroup and GM - all successful versions of the Anglo deal.

Successful? Not so much. The tax payers lost 10 Billion on the GM deal. Our idiot prez did nothing more than buy union votes for his second term with the GM bailout. I will Never buy a GM vehicle