Burning Bondholders

aftermn

On burning bondholders. Do any of these bondholders ever lose money? When the loans into private companies in other countries go sour do these other countries taxpayers cover the losses? You might argue that our regulation was part of the problem, but it was known to the lender, not hidden. In fact many foreign banks had sections here to avail of that very regulation. They lend, not only to Irish private companies, but to private companies throughout the world. They assess the application, apply a rate they consider appropriate and do the business. They did this prior to the crash and profited, both here and elsewhere. This time they lost. Why are we covering the loss? Is any other european taxpayer covering the losses of private firms within their countries? We are not burning bondholders by refusing to pay private company debt.

Scofflaw

aftermn wrote: »

On burning bondholders. Do any of these bondholders ever lose money? When the loans into private companies in other countries go sour do these other countries taxpayers cover the losses? You might argue that our regulation was part of the problem, but it was known to the lender, not hidden. In fact many foreign banks had sections here to avail of that very regulation. They lend, not only to Irish private companies, but to private companies throughout the world. They assess the application, apply a rate they consider appropriate and do the business. They did this prior to the crash and profited, both here and elsewhere. This time they lost. Why are we covering the loss? Is any other european taxpayer covering the losses of private firms within their countries? We are not burning bondholders by refusing to pay private company debt.

Yes, every other bank bailout in Europe, bar the Icelandic one, has involved European taxpayers covering the losses of private firms. Same in the US, with the exception of WaMu. The UK taxpayer has footed the bill for HBOS, Lloyds, RBS amongst others - a bailout bill currently estimated at £512bn. A significant part of the trouble with those banks was and is their Irish subsidiaries, because Irish deposits in the Irish subsidiaries of those banks are guaranteed by the UK rather than Ireland - UK taxpayer's money poured into banks like RBS is being used to shore up their Irish operations. For extra laughs, RBS' exposure to Ireland is largely in the form of Irish mortgages, so when Irish mortgage holders default, the UK taxpayer will be picking up the bill.

Same story with Germany, where the German state had to bail out Hypo Real Estate with taxpayer's money to the tune of €100bn after Hypo's Irish IFSC subsidiary Depfa collapsed. As far as I know, it was the first time since the 1930's that the German state has had to nationalise a bank.

The US taxpayer also gave money to our banks in their Federal bailout - €20bn to AIB, for example.

cordially,
Scofflaw

nesf

The problem is, these banks of ours will need to return to the bond market again to borrow money once we've patched them up. If we ruthlessly burn the bondholders now (as opposed to moderate haircuts on debt) we'll reap the rewards of that when our banks (and us ourselves) return to market.


In simple terms, it's like there's only one bank to get loans from and you have a car loan from them and need a car to work. You can default on that car loan and burn the bank on the debt and it's damn tempting because you've lost your job and are broke at the moment. The problem is you know you'll get another job in a few years and you know you'll need another car at some point and you know you'll need a loan from that bank to buy that car so you can work. So while defaulting on your loan now seems to make initial sense once you take a longer term look at the problem you can see that you're only screwing yourself over if you default on that loan.

femur61

If we burn the bondholders will that effect savings people have in the banks?

Noreen1

Scofflaw wrote: »

Yes, every other bank bailout in Europe, bar the Icelandic one, has involved European taxpayers covering the losses of private firms. Same in the US, with the exception of WaMu. The UK taxpayer has footed the bill for HBOS, Lloyds, RBS amongst others - a bailout bill currently estimated at £512bn. A significant part of the trouble with those banks was and is their Irish subsidiaries, because Irish deposits in the Irish subsidiaries of those banks are guaranteed by the UK rather than Ireland - UK taxpayer's money poured into banks like RBS is being used to shore up their Irish operations. For extra laughs, RBS' exposure to Ireland is largely in the form of Irish mortgages, so when Irish mortgage holders default, the UK taxpayer will be picking up the bill.

Same story with Germany, where the German state had to bail out Hypo Real Estate with taxpayer's money to the tune of €100bn after Hypo's Irish IFSC subsidiary Depfa collapsed. As far as I know, it was the first time since the 1930's that the German state has had to nationalise a bank.

The US taxpayer also gave money to our banks in their Federal bailout - €20bn to AIB, for example.

cordially,
Scofflaw

So, just how much money have Irish banks lent recklessly, then?

Liam Byrne

nesf wrote: »

In simple terms, it's like there's only one bank to get loans from and you have a car loan from them and need a car to work. You can default on that car loan and burn the bank on the debt and it's damn tempting because you've lost your job and are broke at the moment. The problem is you know you'll get another job in a few years and you know you'll need another car at some point and you know you'll need a loan from that bank to buy that car so you can work. So while defaulting on your loan now seems to make initial sense once you take a longer term look at the problem you can see that you're only screwing yourself over if you default on that loan.

Except that it's not our car loan.

Tea drinker

Noreen1 wrote: »

So, just how much money have Irish banks lent recklessly, then?

The figures seem impossible. I don't understand how much is actually lost, how much is stressed, how much is simply negative equity.
How much would they have to be trading for these to be the loss?
i.e. what % of their trade does the loss represent.

I can't fathom how the business model is so wrong, especially as we are always told the guys have to be paid big bucks to get the best talent

ei.sdraob

@OP

see here


we will be handing over 750 million in a few days, when we dont have too :rolleyes: more to come after that

these people made a bad investment, tough titty

Scofflaw

Noreen1 wrote: »

So, just how much money have Irish banks lent recklessly, then?

That depends on what you mean by "Irish banks" and "recklessly". Do you mean the extent of the impaired loans on the books of the state-guaranteed Irish banks? Or the difference between what they valued those loans at and what NAMA valued them at?

Or are you actually asking - given the context - how much Irish banks borrowed?

cordially,
Scofflaw

P. Breathnach

Liam Byrne wrote: »

Except that it's not our car loan.

That doesn't matter: staying with the analogy, if a credit provider gets burned by one occupant at a particular address, then it is likely that no credit application from that address will be accepted.

Life's a bitch. Nearly everybody on the Titanic could claim to have no responsibility for its hitting the iceberg. That didn't enable them to sit in their staterooms or steerage dormitories and expect to arrive in New York.

ei.sdraob

P. Breathnach wrote: »

That doesn't matter: staying with the analogy, if a credit provider gets burned by one occupant at a particular address, then it is likely that no credit application from that address will be accepted.

News for you, No "applications" from Irish Banks are being accepted anyways :rolleyes: since any prospective creditors are afraid of existing levels of debt.
Hence the IMF being in town, ECB supporting these banks by up to 130 billion and now our own central bank extending another 50+ billion.
No is willing to lend to the country and its banks (which are now the same thing anyways)

P. Breathnach wrote: »

Life's a bitch. Nearly everybody on the Titanic could claim to have no responsibility for its hitting the iceberg. That didn't enable them to sit in their staterooms or steerage dormitories and expect to arrive in New York.

The captain of the Titanic went down with the ship, the people in charge of the Irish banks and the Regulator on the other hand ... .. erm yes :rolleyes:

later12

I think it is important that people distinguish between bondholders of senior debt or of junior and subordinated debt.

There is a big, important difference and it isn't sure which is being referred to here.

Scofflaw

later10 wrote: »

I think it is important that people distinguish between bondholders of senior debt or of junior and subordinated debt.

There is a big, important difference and it isn't sure which is being referred to here.

True - junior and subordinated debt holders are already being given haircuts. Currently, senior unsecured debt ranks as equivalent to deposits in the case of an insolvency wind-up. That is an international legal norm, and the current legal position in Irish law - forcing senior unsecured debt to accept a haircut on what's owed is on the same legal footing as forcing depositors to take a haircut on their deposits.

The question of how much senior debt is actually in the system seems to produce different answers depending on the source. Newspaper estimates from November last year suggest about €20bn, but at the same time, there's this parliamentary exchange in the Dáil:

To ask the Minister for Finance the amount of senior and subordinated bonds outstanding in Anglo Irish Bank as at 29 September 2008; the amount of senior and subordinated bonds outstanding in Anglo Irish Bank as at 30 September 2008 which were covered by the Government guarantee; the amount of senior and subordinated bonds in Anglo Irish Bank which matured between 30 September 2008 and 29 September 2010 and since 29 September 2010; the amount of senior and subordinated bonds in Anglo Irish Bank bought back by the bank, and the capital gain registered as a result between 30 September 2008 and 29 September 2010 and since 29 September 2010; the amount of senior and subordinated bonds currently outstanding in Anglo Irish Bank covered by the eligible liabilities guarantee and outside the scope of the eligible liabilities guarantee; and if he will make a statement on the matter.

- Joan Burton.

* For WRITTEN answer on Wednesday, 27th October, 2010.

Ref No: 39395/10

REPLY

Minister for Finance ( Mr Lenihan) : The information required by the Deputy is set out in the tables following:

1.The amount of Senior and Subordinated Bonds outstanding as at 29 September 2008:

Debt Amount

Senior Bonds: €10,770,669,707

UK Covered Bonds: €1,512,660,000

Subordinated Debt: €4,791,653,500

2. The amount of Senior and Subordinated Bonds outstanding as at 30 September 2008 which were covered by the government guarantee:

Debt Amount Senior Bonds: €10,763,531,707

UK Covered Bonds: €1,512,660,000

Subordinated Debt: €2,108,760,000

3. The amount of Senior and Subordinated Bonds which matured between 30 September 2008 and 29 September 2010:

Debt Amount Senior Unsecured Debt: €14.6bn

Subordinated Debt: €0

4. The amount of Senior and Subordinated Bonds that have matured since 29 September 2010:

Debt Amount Senior Unsecured Debt: €91m

Subordinated Debt: €0

5. The amount of Senior and Subordinated Bonds bought-back by the Bank and the associated capital gain(s) for the period of 30 September 2008 – 29 September 2010:

Debt Amount Gain

Senior Unsecured Debt €177.6 m €6 m

Subordinated Debt €2.45bn €1,752 m

6. The amount of Senior and Subordinated Bonds that have been bought-back by the Bank and the associated capital gain(s) for the period commencing 29 September 2010:

There has been no buy back of either senior or subordinated bonds in this period.

7. The amount of Senior and Subordinated Bonds currently outstanding in the Bank that are covered by the ELG scheme:

Debt Amount

Senior Unsecured Debt: €2.68bn

Subordinated Debt: €0

8. The amount of Senior and Subordinated Bonds currently outstanding in the Bank that are not covered by the ELG scheme:

Debt Amount Senior Unsecured Debt: €4.00bn

Subordinated Debt: €2.36bn

That suggests a very much lower figure of €2.68bn covered by the ELG, and €4bn not covered by it - plus €14.6bn which has already matured, and which has been met. The total of that is suspiciously close to the newspaper figure of "€20bn", which suggests they're probably the same thing, give or take a billion for journalistic rounding.

Now, presumably, that €14.6bn of senior unsecured debt that has already matured and been met (and, I take it, rolled over) has been met by Government cash and government promissory notes - which means that it is on the State's books now. If the banks were wound up - which is when all debts would fall due - defaulting on senior unsecured debt seems to me to be a case of the goverment defaulting on government promissory notes, which presumably has implications for the reliability of sovereign debt.

Open to correction/clarification there!

cordially,
Scofflaw

Duke Leonal Felmet

ei.sdraob wrote: »

News for you, No "applications" from Irish Banks are being accepted anyways :rolleyes: since any prospective creditors are afraid of existing levels of debt.
Hence the IMF being in town, ECB supporting these banks by up to 130 billion and now our own central bank extending another 50+ billion.
No is willing to lend to the country and its banks (which are now the same thing anyways)



The captain of the Titanic went down with the ship, the people in charge of the Irish banks and the Regulator on the other hand ... .. erm yes :rolleyes:

It never fails to amuse me when people find the inevitable holes in analogies and then hold them to prove the argument's original premise demonstrably false.

Whether the Captain went down or not is actually irrelavent. His point is sufficiently clear and holds up.

Liam Byrne

P. Breathnach wrote: »

That doesn't matter: staying with the analogy, if a credit provider gets burned by one occupant at a particular address, then it is likely that no credit application from that address will be accepted.

Life's a bitch. Nearly everybody on the Titanic could claim to have no responsibility for its hitting the iceberg. That didn't enable them to sit in their staterooms or steerage dormitories and expect to arrive in New York.

At a particular address, maybe (although that's not even a definite if the second applicant isn't related and has a job) but not on the same street or in the same town, and if they don't engage in the same dodgy practices there's no precedent for an automatic refusal.

Also, re the "life's a bitch" paragraph; those people voluntarily engaged in a contract that tied their fates to that of the ship; we did no such thing.

Duke Leonal Felmet

Liam Byrne wrote: »

At a particular address, maybe (although that's not even a definite if the second applicant isn't related and has a job) but not on the same street or in the same town, and if they don't engage in the same dodgy practices there's no precedent for an automatic refusal.

Also, re the "life's a bitch" paragraph; those people voluntarily engaged in a contract that tied their fates to that of the ship; we did no such thing.

Do you have a bank account of any type?

Liam Byrne

Duke Leonal Felmet wrote: »

Do you have a bank account of any type?

Whether or not I had a bank account would make no difference to the fact that FF have saddled me with other people's debts.

shadowninty

Liam Byrne wrote: »

Also, re the "life's a bitch" paragraph; those people voluntarily engaged in a contract that tied their fates to that of the ship; we did no such thing.

we did; by voting the government that caused the property boom (and who lightly regulated the banks) back into power
Twice

Did you tell canvassers when they came calling to your door that you wanted proper regulations on banks and an end to government fueling of an obvious property bubble?

Duke Leonal Felmet

Liam Byrne wrote: »

Whether or not I had a bank account would make no difference to the fact that FF have saddled me with other people's debts.

You engaged in the banking system, you sat in steerage on H.M. Titanic. It doesn't matter whether the captain was a robot or whatever, the fact is that the ship is going down. As PB said, it's like you are now on the sinking ship, demanding that you be taken to New York.

It's not fair, but the ship is sinking nonetheless. You are now asked to paddle and pump the water out. You sit there, insisting that you had nothing to do with it and be brought to New York.

Liam Byrne

shadowninty wrote: »

we did; by voting the government that caused the property boom (and who lightly regulated the banks) back into power
Twice

"We" didn't.

shadowninty wrote: »

Did you tell canvassers when they came calling to your door that you wanted proper regulations on banks and an end to government fueling of an obvious property bubble?

Yes. Mind you, I also told them that I wanted an end to corruption, and they ignored that too, and walked off in a snot mid-sentence because said I wouldn't give them a vote unless they sorted those - and the rising cost of living - out.

So quit trying to implicate me, thanks; I'm lucky enough to be here because if I'd followed Ahern's advice I'd be six feet under now.

ei.sdraob

Duke Leonal Felmet wrote: »

It never fails to amuse me when people find the inevitable holes in analogies and then hold them to prove the argument's original premise demonstrably false.

Whether the Captain went down or not is actually irrelavent. His point is sufficiently clear and holds up.

Ah yes the captain didnt steer the ship into an iceberg, it was "destined" to happen, sure the soldiers of "destiny" had nothing to do with it,
it was all the fault of the Lehman's sure wasn't it :rolleyes:(The same Lehmans who ironically had the same auditors as Anglo)

2011 and we still have FFers crawling out of the woodwork.

Duke Leonal Felmet

ei.sdraob wrote: »

Ah yes the captain didnt steer the ship into an iceberg, it was "destined" to happen, sure the soldiers of "destiny" had nothing to do with it,
it was all the fault of the Lehman's sure wasn't it :rolleyes:(The same Lehmans who ironically had the same auditors as Anglo)

2011 and we still have FFers crawling out of the woodwork.

I never voted for FF, but judging by your response there is nothing on earth that would change your mind on that one. It was amusing to see that you completely missed the point again.

The point of that analogy is entirely based on the fact that the ship is sinking, it really doesn't matter who drove it into the iceberg.

I know you will continue to ignore that point, because you don't have anything else to offer.

Well, except for assuming to know who I vote for...

Liam Byrne

Duke Leonal Felmet wrote: »

You engaged in the banking system, you sat in steerage on H.M. Titanic.

Ridiculous! People have no choice but to "engage in the banking system", and it is completely disingenuous to compare someone who "engaged" with someone who borrowed way more than they could afford.

Duke Leonal Felmet wrote: »

It doesn't matter whether the captain was a robot or whatever, the fact is that the ship is going down. As PB said, it's like you are now on the sinking ship, demanding that you be taken to New York.

That is a ridiculous extension of the analogy, because I never asked to be taken to New York, let alone "demanded" to be taken there.

Duke Leonal Felmet wrote: »

It's not fair, but the ship is sinking nonetheless. You are now asked to paddle and pump the water out. You sit there, insisting that you had nothing to do with it and be brought to New York.

Again, I am not insisting on being "taken" anywhere. I simply wish to live my life without being expected to pay other people's gambling bills.

Duke Leonal Felmet

Liam Byrne wrote: »

Ridiculous! People have no choice but to "engage in the banking system", and it is completely disingenuous to compare someone who "engaged" with someone who borrowed way more than they could afford.



That is a ridiculous extension of the analogy, because I never asked to be taken to New York, let alone "demanded" to be taken there.



Again, I am not insisting on being "taken" anywhere. I simply wish to live my life without being expected to pay other people's gambling bills.

It's ridiculous, it's unfair. But it's true.

Liam Byrne

Duke Leonal Felmet wrote: »

It's ridiculous, it's unfair. But it's true.

Well if any incoming government wants to have any shred of credibility they will need to start implementing some fairness, and sharply.

They own the cesspit that is Anglo, and the non-guaranteed bondholders and the sickening bonuses are a damn good place to start ensuring that those of us who were sensible don't keep paying hand-over-fist for the behaviour of those who acted recklessly.

Duke Leonal Felmet

Liam Byrne wrote: »

Well if any incoming government wants to have any shred of credibility they will need to start implementing some fairness, and sharply.

They own the cesspit that is Anglo, and the non-guaranteed bondholders and the sickening bonuses are a damn good place to start ensuring that those of us who were sensible don't keep paying hand-over-fist for the behaviour of those who acted recklessly.

Yes, I agree, but the ship is still filling with water. You are on it, whether you like it or not.

Scofflaw

Can I try to stop this degenerating, perhaps, since I've seen it before and know where it goes? Liam, Duke Felmet is not saying you are responsible, he's not seeking to make you responsible - he is saying that you are on the ship. That is true whether or not you are responsible, for as long as you don't leave the country. Please try to respond on that basis, rather than on the assumption that he's trying to do something he's not.

moderately,
Scofflaw

RachaelVO

The bond hold should be left burnt to a cinder!

It's a simple fact a lot of the bail out is going to the banks. That's pretty well documented. It's all going to pay the bond holders, that's pretty much established. Those bonds shouldn't be worth a cent. The bonds were an investment and there was a risk attached to that investment, and it not being paid or loosing value was a risk they took when they bought the bonds. Tough sh1te! If we as individuals invested in a business and it lost money we'd not get bailed out would we? Eh, I'm not inclined to think so. Look at all the poor sods who had all their life saving in bonds from Anglo! They lost everything and they aren't getting it back, so the bond holders should go shag off and cut their losses.

Scofflaw

RachaelVO wrote: »

The bond hold should be left burnt to a cinder!

It's a simple fact a lot of the bail out is going to the banks. That's pretty well documented. It's all going to pay the bond holders, that's pretty much established. Those bonds shouldn't be worth a cent. The bonds were an investment and there was a risk attached to that investment, and it not being paid or loosing value was a risk they took when they bought the bonds. Tough sh1te!

They took a very specified risk, though - the point of the debate is whether the government can unilaterally change the amount of risk involved.

RachaelVO wrote: »

If we as individuals invested in a business and it lost money we'd not get bailed out would we? Eh, I'm not inclined to think so.

Assuming it was in a bank, then you would in fact be 'bailed out' if the bank collapsed, up to €100k you hold in any given bank (or all of it if it was a temporary arrangement for a mortgage or the like).

RachaelVO wrote: »

Look at all the poor sods who had all their life saving in bonds from Anglo! They lost everything and they aren't getting it back, so the bond holders should go shag off and cut their losses.

I think you'll find the people you refer to in your first sentence are exactly the same people you refer to in your second sentence. Perhaps you mean Anglo shareholders in the first sentence? If so, shareholding is also a risk - as indeed is depositing money with a bank.

cordially,
Scofflaw

Liam Byrne

Scofflaw wrote: »

Can I try to stop this degenerating, perhaps, since I've seen it before and know where it goes? Liam, Duke Felmet is not saying you are responsible, he's not seeking to make you responsible - he is saying that you are on the ship. That is true whether or not you are responsible, for as long as you don't leave the country. Please try to respond on that basis, rather than on the assumption that he's trying to do something he's not.

moderately,
Scofflaw

Fair enough, but I would draw attention to the post above where they asked me - singularly and directly - whether I personally had a bank account.

But it is unfortunate that the only option that FF have left us with in order to get away from being crippled by others debts is precisely what you have outlined above - leave the country.

Guilt by association used to be related to what you did, not who you were or where you lived.

FF have turned the whole natural justice on its head.

Scofflaw

Liam Byrne wrote: »

Fair enough, but I would draw attention to the post above where they asked me - singularly and directly - whether I personally had a bank account.

Which is about involvement with the system rather than responsibility. I too have a bank account - I fail to see how it could possibly make me responsible for the government's decision to guarantee Anglo!

cordially,
Scofflaw