The People's Economy - Bank Debt vs Sovereign Debt: What's the difference?

dlofnep

https://www.youtube.com/watch?v=7-cLDKl8XhI

Discussion by Kevin O'Rourke, Ronan Lyons, Constantin Gurdgiev & David McWilliams on the banking debt, and the options available too us. Certainly worth a watch.

‎"The last time I looked at my passport, it had a harp on the front - It didn't have the logo of the AIB."

Hear hear David McWilliams. It's about time we ended the burden on the Irish people.

ei.sdraob

from same site

https://www.youtube.com/watch?v=Dm3Wk-ZGlCk

ei.sdraob

dlofnep wrote: »

Hear hear David McWilliams. It's about time we ended the burden on the Irish people.

How do you feel as SF supporter himself saying that we need to bring down the deficit over 4-5 years, considering your party doesn't want to do that and continue to spend spend spend.

Do you just agree with the default part of the argument and ignoring the readjust part?

later12

"It looks as though we are being set up to default?" (Kevin O'Rourke)

"We have nothing to fear?" (David McWilliams)

No mention of any distinction between senior and subordinated debt in that entire clip? Only three types of debt?

Unfortunately, people buy into this. That's a significant problem. There were some very valid points but I imagine a lot of people are going to take the more controversial points of that clip and assume them to be gospel.

Euroland

According to NCB/Bloomberg our 6 banks currently own BEUR74.8, of which only BEUR 29.3 are government guaranteed. The rest, BEUR 45.5, is junior subordinated (BEUR 1.6), senior subordinated (BEUR5.7), senior unsecured (BEUR17) and senior secured (BEUR21.2). Therefore, we could allow our banks to default on the first 3, and restructure/re-negotiate deep discounts (haircuts) on our senior secured, i.e. 70% haircut. So, at the end BEUR 45.5 would be reduced down to only BEUR 6.4, saving to our country BUSD 39.1.

As alternative, even without defaulting, we can demand 95% haircut on the first 3 types of debt and 70% discount on the senior secured, paying in total BEUR 7.6, and saving to our country BEUR 37.9.

jimmycrackcorm

Euroland wrote: »

According to NCB/Bloomberg our 6 banks currently own BEUR74.8, of which only BEUR 29.3 are government guaranteed. The rest, BEUR 45.5, is junior subordinated (BEUR 1.6), senior subordinated (BEUR5.7), senior unsecured (BEUR17) and senior secured (BEUR21.2). Therefore, we could allow our banks to default on the first 3, and restructure/re-negotiate deep discounts (haircuts) on our senior secured, i.e. 70% haircut. So, at the end BEUR 45.5 would be reduced down to only BEUR 6.4, saving to our country BUSD 39.1.

As alternative, even without defaulting, we can demand 95% haircut on the first 3 types of debt and 70% discount on the senior secured, paying in total BEUR 7.6, and saving to our country BEUR 37.9.

And what will the ECB have to say about that when they are effectively funding us?

BrendanRyan

I don't know a huge amount about economics, but it seems like it wouldn't take a genius to figure out that at current state of things, Ireland will default, because it can't pay back those debts...like never. Did we even experience 6% growth during the "boom" don't think so. Worrying times, everyone wants to input and knows the best solution but...from that new film "inside job" the American guy didnt respond to the question 'what do we do now' because they were completely merciless to the banks. Now Ireland is even more so.

I'm afraid I'm not as optimistic as McWilliams final comments, we think it'll be all better when the new government get in... but really there's **** all any of em can do.

and that's why to put in bluntly, I'm getting the **** out of here!

Ghost Estate

ei.sdraob wrote: »

How do you feel as SF supporter himself saying that we need to bring down the deficit over 4-5 years, considering your party doesn't want to do that and continue to spend spend spend.

Do you just agree with the default part of the argument and ignoring the readjust part?

If SF got in they could just repeatedly rob a bank and then 'pay' it back to them as a way of shedding sovereign debt.

"We'll get the money alright!"

Scofflaw

Ghost Estate wrote: »

If SF got in they could just repeatedly rob a bank and then 'pay' it back to them as a way of shedding sovereign debt.

"We'll get the money alright!"

I think we've had enough of that particular joke, thanks.

moderately,
Scofflaw

dlofnep

ei.sdraob wrote: »

How do you feel as SF supporter himself saying that we need to bring down the deficit over 4-5 years, considering your party doesn't want to do that and continue to spend spend spend.

Sorry for only getting back to you now - this thread didn't list in my archives for some reason. Sinn Féin wants to reduce the deficit over 6 years. Bearing in mind, it was Sinn Féin that suggested that the original 4 year plan was unfeasible, and would be too much of a hit to the public. Most economists now agree with this, and are now discussing 5 year plans, opposed to a strict 4 year plan.

Sinn Féin wishes to implement cuts like any other party - We just want ot implement cuts where it won't affect the least vulnerable in society. Healthcare, education etc.. We are looking for a top down approach. We will be looking at waste reduction, ending welfare fraud, and caps at top salaries. The average Joe is already sharing enough burden as it is. I speak to them routinely on the canvass, and they are just fed up with paying for the woes of others.

ei.sdraob wrote: »

Do you just agree with the default part of the argument and ignoring the readjust part?

I obviously agree with many parts of their argument. keep in mind, that economists are generally looking out specifically for the economy - while politicians are also trying to look out for the citizen's welfare. Not to say that economists don't take it into account - but they aren't running for elections, and don't have the same levels of pressure to deliver specific issues.

I think the main argument is that Ireland will not be able to afford the levels of debt that we are incurring. Sinn Féin recognises this - Why doesn't any other party?

Irish Slaves for Europe

jimmycrackcorm wrote: »

And what will the ECB have to say about that when they are effectively funding us?

Europe won't be too happy about contagion within the eurozone (in other words, other European countries having to take loses which are rightfully theirs). Having Irish taxpayers pay for their loses, plus charging the Irish taxpayer interest for this privilege, is a much more comfortable solution for the EU. Unfortunately for them the world doesn't work like that.

Time for them to start living in the real world. Some sort of default with the current terms and conditions is a 100% certainty. Taking billions out of a struggling economy through cuts and taxes and then expecting that economy to grow at a rate of 5.7% is real pie in the sky stuff.

Scofflaw

Irish Slaves for Europe wrote: »

Europe won't be too happy about contagion within the eurozone (in other words, other European countries having to take loses which are rightfully theirs). Having Irish taxpayers pay for their loses, plus charging the Irish taxpayer interest for this privilege, is a much more comfortable solution for the EU. Unfortunately for them the world doesn't work like that.

Time for them to start living in the real world. Some sort of default with the current terms and conditions is a 100% certainty. Taking billions out of a struggling economy through cuts and taxes and then expecting that economy to grow at a rate of 5.7% is real pie in the sky stuff.

Contagion in the eurozone has nothing to do with Irish taxpayers paying for the losses of other European countries. Our banks owe European banks next to nothing, and have not owed them very much at any point. The vast mass of money owed by Irish banks - and paid back under the guarantee - was owed to US and UK investors.

To put figures on that, courtesy of the Central Bank - the greatest amount of domestic Irish bank debt ever held by eurozone investors was €17bn, while the corresponding figure for the rest of the world (primarily US and UK) was €86bn. Irish investors held €30bn of Irish bank debt at that stage (Irish investors now hold more, both proportionally and actually).

At this stage, there is roughly €60bn of bank securities outstanding, and that breaks down as €33bn Irish held, €10bn eurozone held, and €20bn rest of world held. That €10bn will not make any kind of hole in the eurozone.

Of those who have been paid off under the original guarantee, eurozone debt holders have been paid back €6.2bn, while US/UK/etc investors have been paid back €49.7bn.

We are not paying for the losses of European banks or investors - those are the facts. The contagion threatened by an Irish default has nothing to do with the amount of money involved.

regards,
Scofflaw

Irish Slaves for Europe

You just said out of the 60bn outstanding, 10bn is eurozone held, how is that not paying for the losses of European banks/investors?

ei.sdraob

dlofnep wrote: »

Sorry for only getting back to you now - this thread didn't list in my archives for some reason. Sinn Féin wants to reduce the deficit over 6 years. Bearing in mind, it was Sinn Féin that suggested that the original 4 year plan was unfeasible, and would be too much of a hit to the public. Most economists now agree with this, and are now discussing 5 year plans, opposed to a strict 4 year plan.

The current 4 year plan up to 2015 is the SECOND time we got an extension, original plans was 2013, according to treaties we signed up to we where never suppose to have such a deficit in first place.

Extended up to 2016 means we would have to borrow for another 2 years, which means even more in debt repayments, and borrow from whom and at what rate? the current EU/IMF fund runs out in 2.5 years, then what? of course SF plan to tell EU/IMF where to go which raises even more questions.

dlofnep wrote: »

Sinn Féin wishes to implement cuts like any other party - We just want ot implement cuts where it won't affect the least vulnerable in society. Healthcare, education etc.. We are looking for a top down approach. We will be looking at waste reduction, ending welfare fraud, and caps at top salaries. The average Joe is already sharing enough burden as it is. I speak to them routinely on the canvass, and they are just fed up with paying for the woes of others.

Wait aint robbing Paul via taxes to pay Frank is a form of "paying for the woes of others" The SF economic policies dont make sense, and more importantly they simply do not add up.

dlofnep wrote: »

I obviously agree with many parts of their argument. keep in mind, that economists are generally looking out specifically for the economy - while politicians are also trying to look out for the citizen's welfare. Not to say that economists don't take it into account - but they aren't running for elections, and don't have the same levels of pressure to deliver specific issues.

you mean to say they are outside the parish pump system which SF have no issues with

dlofnep wrote: »

I think the main argument is that Ireland will not be able to afford the levels of debt that we are incurring. Sinn Féin recognises this - Why doesn't any other party?

Good question, and I agree with you, BUT your own plans the calls to BORROW MORE for 2 more years, no inconsistency there?

Nody

ei.sdraob wrote: »

Good question, and I agree with you, BUT your own plans the calls to BORROW MORE for 2 more years, no inconsistency there?

But you forget, once SF tells the bond holders to go stuff themselves the global bond community gets so impressed that they decide to cut interest rates for Ireland to never seen rock bottom levels which makes the borrowing cheaper. They would not in any way see a default on the bank bonds as part of a process of Ireland's debt spiralling out of control even faster and refuse to lend to Ireland/charge very high rates for it...

ei.sdraob

Nody wrote: »

But you forget, once SF tells the bond holders to go stuff themselves the global bond community gets so impressed that they decide to cut interest rates for Ireland to never seen rock bottom levels which makes the borrowing cheaper. They would not in any way see a default on the bank bonds as part of a process of Ireland's debt spiralling out of control even faster and refuse to lend to Ireland/charge very high rates for it...

The way I see it if we are going to default (in one form or the other) lets say in 2013

then at least get the deficit under control so don't have to go back to borrow again in the short to medium term

Nody

ei.sdraob wrote: »

The way I see it if we are going to default (in one form or the other) lets say in 2013

then at least get the deficit under control so don't have to go back to borrow again in the short to medium term

Sadly I don't see a "proper" default; I expect something along the lines of the Dubai one with extended terms on the loans by a couple of years etc.; maybe with some marginal (<10%) reductions (i.e. removing some of the accumulated interest).

That will let the government to continue to spend borrowed money and the bond market to keep on getting money ouf of their loan book (for another decare or two at least).