Paying off unguaranteed bondholders

MungBean

Whats the reasoning behind the sale of Anglo American assets being used to pay off un-guaranteed bondholders ?

They are not guaranteed and according to Varadkar on VB there is no stipulation from the IMF/ECB that unsecured bondholders be paid.

Why cant they let the bondholders take the hit ? Why is the sale of assets of a collapsed bank being used to pay off investments that dont need or wouldnt normally be paid from a bad venture ?

I dont know much about the situation so looking for some clarity on it as Constantine Gurdiev seemed pretty adamant that they didnt have to nor should they get a penny and the proceeds of the sale of Anglo assets should be going back to the state.

Godge

MungBean wrote: »

Whats the reasoning behind the sale of AIB American assets being used to pay off un-guaranteed bondholders ?

They are not guaranteed and according to Varadkar on VB there is no stipulation from the IMF/ECB that unsecured bondholders be paid.

Why cant they let the bondholders take the hit ? Why is the sale of assets of a collapsed bank being used to pay off investments that dont need or wouldnt normally be paid from a bad venture ?

I dont know much about the situation so looking for some clarity on it as Constantine Gurdiev seemed pretty adamant that they didnt have to nor should they get a penny and the proceeds of the sale of AIB assets should be going back to the state.

I was interested until you mentioned Constantine. The man is wrong about most things.

MungBean

Godge wrote: »

I was interested until you mentioned Constantine. The man is wrong about most things.

Forget about Constantine then. Regardless of who said it, why would 700 million be paid to unguaranteed bondholders when they could be given nothing legally and and the IMF/ECB not bat an eyelid. And the money be sent to the state.

Why is Anglo still paying off bondholders that were never guaranteed ? The venture was a dud, the thing collapsed. Why are investors still getting paid ahead of the state who will be left heavily indebted because of it ?

Good loser

These are senior bonds which rank equal to deposits.

The ECB insists we repay.

All concerned parties know Greece can't pay; this is not so with Ireland - if we say we can't pay those concerned will not believe us. Because we can pay.

Like the mortgages - Govt wants to separate the 'can't pays' from the 'won't pays' and will/may help the former.

Cavehill Red

We can't pay anymore than Greece can, and if we don't obtain parity with Greece in terms of a debt 'haircut' I will be disgusted at our political representatives and advance my plans for emigration.
We have the EU over a barrel on this. We're mugs to be paying back bank debt that the state did not accrue. Iceland at least is already in recovery whereas no matter how many cuts we implement we are mired and drowning in debt not of the state's making.
We should demand the same deal as Greece, or threaten a unilateral default.

Scofflaw

MungBean wrote: »

Forget about Constantine then. Regardless of who said it, why would 700 million be paid to unguaranteed bondholders when they could be given nothing legally and and the IMF/ECB not bat an eyelid. And the money be sent to the state.

Why is Anglo still paying off bondholders that were never guaranteed ? The venture was a dud, the thing collapsed. Why are investors still getting paid ahead of the state who will be left heavily indebted because of it ?

In order to show that the Irish State is a good debtor and a safe place to invest money. Greece will not have that rather hard-won distinction, but then apparently they have nothing to invest in anyway - their economic model relied on tourism and faking the accounts, whereas ours relies on being seen as a good place to do business.

The balance between defaulting and not defaulting is based on the long-term consequences of each choice.

cordially,
Scofflaw

dlofnep

Good loser wrote: »

These are senior bonds which rank equal to deposits.

The ECB insists we repay.

All concerned parties know Greece can't pay; this is not so with Ireland - if we say we can't pay those concerned will not believe us. Because we can pay.

We are already paying, at the expense of our public services.

dlofnep

Scofflaw wrote: »

In order to show that the Irish State is a good debtor and a safe place to invest money.

Or, to show that Ireland is a good lapdog - always willing to service the debt of private institutions anytime they make a mess of it.

Scofflaw

dlofnep wrote: »

Or, to show that Ireland is a good lapdog - always willing to service the debt of private institutions anytime they make a mess of it.

Yes, it's fundamentally the same thing. Ladies of the night are also 'business-friendly'...and indeed those who have enjoyed Ireland's business services are very much concerned about contagion.

cordially,
Scofflaw

hatrickpatrick

Bondholders are part of the 1%. Their needs and wellbeing comes before absolutely anyone else's.

The powers that be would happily close down every school, hospital, Garda and Fire station in this country before taking even a cent away from the almighty bondholders

Scofflaw

hatrickpatrick wrote: »

Bondholders are part of the 1%. Their needs and wellbeing comes before absolutely anyone else's.

The powers that be would happily close down every school, hospital, Garda and Fire station in this country before taking even a cent away from the almighty bondholders

No, their view is almost certainly that closing some of those now is better than closing all of them later. It's really not a class war or friends of Fianna Fáil thing, which is why it has continued exactly the same under Fine Gael and Labour, who have quite different sets of friends to Fianna Fáil.

It's the result of the current more or less global belief that the economy, and the economic performance of governments and nations, is the only measure of anything.

cordially,
Scofflaw

theghost

Scofflaw wrote: »

No, their view is almost certainly that closing some of those now is better than closing all of them later. It's really not a class war or friends of Fianna Fáil thing, which is why it has continued exactly the same under Fine Gael and Labour, who have quite different sets of friends to Fianna Fáil.

It's the result of the current more or less global belief that the economy, and the economic performance of governments and nations, is the only measure of anything.

cordially,
Scofflaw

But if we close more schools, hospitals and garda stations we encourage more unemployment/emigration and therefore less of a tax take for the government. Remember the Haughey "we are living beyond our means and must tighten our belts" era? The health service is still trying to recover from that time.

I don't know much about finance but it seems to me that bondholders can be equated with someone who puts their money on a horse in the horse race. They're gamblers taking a risk with their money. When I put a bet on the race (and given my ability to pick losers I'm thankful I only do it once a year) I usually lose but that doesn't mean I can go into the bookies and demand my money back because my horse lost. If I did I'd be laughed off the premises. Why are the gambler bondholders exempt from losing even when their horse loses?

Scofflaw

theghost wrote: »

But if we close more schools, hospitals and garda stations we encourage more unemployment/emigration and therefore less of a tax take for the government. Remember the Haughey "we are living beyond our means and must tighten our belts" era? The health service is still trying to recover from that time.

I don't know much about finance but it seems to me that bondholders can be equated with someone who puts their money on a horse in the horse race. They're gamblers taking a risk with their money. When I put a bet on the race (and given my ability to pick losers I'm thankful I only do it once a year) I usually lose but that doesn't mean I can go into the bookies and demand my money back because my horse lost. If I did I'd be laughed off the premises. Why are the gambler bondholders exempt from losing even when their horse loses?

Unfortunately, there isn't really a parallel that works with that analogy, partly because the analogy isn't right.

The banks aren't bookies, and the bondholders aren't gamblers. Instead, they're people who loaned their money to a scheme supposedly regulated by the Irish government, and supposedly safe (that is, low risk, meeting a set of quality criteria, with safeguards supposedly watched over by the government). Except that it turns out that the scheme wasn't safe, at least partly because the government didn't really regulate the scheme.

The problem for the government is that they're now in a position where (a) it's clear they were asleep on the job; and (b) they need to run exactly the same kind of scheme now and in future.

Take a non-banking analogy. The government decides that in order to meet health targets, they're going to issue a health bond, which constitutes an investment in Irish hospitals etc. The scheme is run by private consortia who are shareholders in the various hospitals etc - the bond is basically a loan to the scheme, which will be paid back out of health charges and insurance. The government regulates the scheme.

So, happy days, health bonds are selling like hot cakes - everybody needs healthcare, after all. And then the bubble bursts, and it turns out that the government hasn't really been regulating the scheme in any meaningful way. Instead, some of the hospitals only exist on paper, some of them are useless, some of them are apparently owned several times, and so on.

There is then a situation in which there isn't going to be anything like enough money to meet the maturing bonds - the government can recover some money by taking over the scheme and forcing the private consortia of shareholders to lose their money, but there's going to be a huge shortfall. Worse, the government still needs healthcare, so it's going to need to sell more health bonds next year.

What can the government do? Clearly it's wrong to expect the taxpayer to stump up to cover the losses of those who voluntarily chose to 'gamble' on health bonds...but clearly if all those who invested in the bonds get burned, the takeup of health bonds in the future is going to be a big fat zero, unless the government can convince people that any future scheme will be regulated to within an inch of its life by a virtually paranoid government.

The government would very much prefer not to use tax money to cover the losses - after all, it could be much better used buying elections - but the chances are that it will in fact do so, and will burn the bondholders to the smallest extent possible. Because short of a huge upsurge in trust in the government to do a good job there is no other way in which it's going to persuade people to invest in health bonds again.

cordially,
Scofflaw

maninasia

Scofflaw wrote: »

In order to show that the Irish State is a good debtor and a safe place to invest money. Greece will not have that rather hard-won distinction, but then apparently they have nothing to invest in anyway - their economic model relied on tourism and faking the accounts, whereas ours relies on being seen as a good place to do business.

The balance between defaulting and not defaulting is based on the long-term consequences of each choice.

cordially,
Scofflaw

Hold on a second, unless we are talking about government bonds most investors invest in company stocks and private business. Even if Ireland defaulted and left the Euro it would still be in the EU. It would still have it's preferential tax rate. In fact it would be more competitive not less. The problem I see is linking the two together (a country defaulting and it's private companies getting a 'bad reputation'), that's really a big stretch and it is the taking of private debt into public debt that is really stretching this country.

Scofflaw

maninasia wrote: »

Hold on a second, unless we are talking about government bonds most investors invest in company stocks and private business. Even if Ireland defaulted and left the Euro it would still be in the EU. It would still have it's preferential tax rate. In fact it would be more competitive not less. The problem I see is linking the two together (a country defaulting and it's private companies getting a 'bad reputation'), that's really a big stretch and it is the taking of private debt into public debt that is really stretching this country.

The bank guarantee linked the two together.

cordially,
Scofflaw

Permabear

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brownswiss

Godge wrote: »

I was interested until you mentioned Constantine. The man is wrong about most things.

...

I actually thought that he was the only panel member last night who understood the reality of the situation the EU is in at the moment..

The ordinary people who are paying to get us out of this mess can not afford to continue doing so.

From day one I thought we should have burned the gamblers.....

There is no resolution in sight and there is no money in the economy to support growth

MungBean

But they are private banks and private investments. Anglo is gone, the investments are effectively gone right ?

Paying off the investors of a bad investment rather than using the money to secure the state finances or the other banks that are still going when they are not obliged to do so by anything other than the fact that they dont want to deny investors their profits because it looks bad.

If that 700 million went to the state and we showed we were doing all we can to get out of this mess then state bonds would surely become more enticing. Thats what its all about isnt it ? Growing so that we can enter the world market with our bonds again ?

Paying out private debts and continuing to do so is good for the bondholder of failed banks but doesnt reflect well on the state as are left bankrupt because of it and puts strain on the still operating institutions.

Surely this "makes us look good to investors" cop out isnt enough of a reason to fleece the people any longer. I mean 700 million will be paid out to private bondholders to ensure investors never lose a cent while austerity measure are being drafted for the people. I thought the entire point of this was to protect the Irish economy ? All we have is 2 failed banks paying off its debts with public money because it "looks good". While the country goes to hell around them. Whatever about the guarantee to hold up the banks for its over two of them are gone, why the hell are investors still getting paid from failed ventures ?

Permabear

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Scofflaw

MungBean wrote: »

But they are private banks and private investments. Anglo is gone, the investments are effectively gone right ?

Paying off the investors of a bad investment rather than using the money to secure the state finances or the other banks that are still going when they are not obliged to do so by anything other than the fact that they dont want to deny investors their profits because it looks bad.

If that 700 million went to the state and we showed we were doing all we can to get out of this mess then state bonds would surely become more enticing. Thats what its all about isnt it ? Growing so that we can enter the world market with our bonds again ?

Paying out private debts and continuing to do so is good for the bondholder of failed banks but doesnt reflect well on the state as are left bankrupt because of it and puts strain on the still operating institutions.

Surely this "makes us look good to investors" cop out isnt enough of a reason to fleece the people any longer. I mean 700 million will be paid out to private bondholders to ensure investors never lose a cent while austerity measure are being drafted for the people. I thought the entire point of this was to protect the Irish economy ? All we have is 2 failed banks paying off its debts with public money because it "looks good". While the country goes to hell around them. Whatever about the guarantee to hold up the banks for its over two of them are gone, why the hell are investors still getting paid from failed ventures ?

They're not investors, though - they're lenders. The investors - those who had shareholdings in Anglo - have lost their money, and nobody has suggested they get it back. The bondholders are those who lent to Anglo, and who the government devoutly hopes will lend to Irish banks in future. That's why they're being paid back.

cordially,
Scofflaw

MungBean

Permabear wrote: »

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700 million to the state is 700 million they dont have to save by cutting necessary programs in the budget, draw down from the IMF/ECB loan or they could invest it in creating jobs.

Are you saying the state spends that in 4 days so its irrelevant and doesnt matter that its given away ?

Permabear

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MungBean

Scofflaw wrote: »

They're not investors, though - they're lenders. The investors - those who had shareholdings in Anglo - have lost their money, and nobody has suggested they get it back. The bondholders are those who lent to Anglo, and who the government devoutly hopes will lend to Irish banks in future. That's why they're being paid back.

cordially,
Scofflaw

But it that enough of a reason ? They are being paid back in the hope that they will re-lend. Unless the state guarantee the debt of the future banks then it doesnt make a difference. These people lent to failing institutions they take a hit and they get on with it.

We have bankrupted the country to keep these banks up, two of them have collapsed. And we are still paying out based on the hope that the people we give the money to will someday lend a bit back to the banks.

All well and good for a private institution to take that risk and base their future on hope but when your dealing with a sovereign states finances and future you dont skin the people to pay the banks in the hope that they lend a bit out in future.

They will lend if theres money to be made, regardless of what happened before. Unless the state is planning got guarantee ALL bondholders at all times. In which case wouldnt they be better off keeping the money and investing in the banks themselves ? Seeing as any failed bank will be backed by the state ? But they wont will they ? So the bondholders know this is a get out of jail free card and to pick wiser next time and wont run the risk of lending to strained Irish banks.

MungBean

Permabear wrote: »

This post had been deleted.

One is private debt the other is public expenses. Dont try drag this thread off topic, theres plenty of places to have a rant about those on the left or the cost of welfare.

jimmycrackcorm

MungBean wrote: »

One is private debt the other is public expenses. Dont try drag this thread off topic, theres plenty of places to have a rant about those on the left or the cost of welfare.

Unfortunately Permabear is correct and to the exact point, relevant to this thread. The only, single reason we cannot burn any bondholders is because we still need to borrow to pay Social Welfare and Public servants. I.e. we don't live within our means.

jimmycrackcorm

MungBean wrote: »

But it that enough of a reason ? They are being paid back in the hope that they will re-lend. Unless the state guarantee the debt of the future banks then it doesnt make a difference. These people lent to failing institutions they take a hit and they get on with it.

The fact that the state is not burning them now, is, essentially the 'Guarantee'. It does rule out the fact that Bondholders are businesses and such could be subject to some negotiation, only for the fact that Europe won't really let us try.

Scofflaw

MungBean wrote: »

But it that enough of a reason ? They are being paid back in the hope that they will re-lend. Unless the state guarantee the debt of the future banks then it doesnt make a difference. These people lent to failing institutions they take a hit and they get on with it.

We have bankrupted the country to keep these banks up, two of them have collapsed. And we are still paying out based on the hope that the people we give the money to will someday lend a bit back to the banks.

All well and good for a private institution to take that risk and base their future on hope but when your dealing with a sovereign states finances and future you dont skin the people to pay the banks in the hope that they lend a bit out in future.

They will lend if theres money to be made, regardless of what happened before. Unless the state is planning got guarantee ALL bondholders at all times. In which case wouldnt they be better off keeping the money and investing in the banks themselves ? Seeing as any failed bank will be backed by the state ? But they wont will they ? So the bondholders know this is a get out of jail free card and to pick wiser next time and wont run the risk of lending to strained Irish banks.

No, people won't necessarily lend "if there's money to be made", because these guys are not gamblers. They are not seeking a quick buck despite a risk - they are looking for safe investments for pension funds, insurance funds, etc.

As I said, the whole "I go into the bookies and..." analogy is wrong. This isn't gambling with money people can afford to lose - it is the investment of money that people want to see yield a return, but which they would rather see yield no return than lose. That means they are risk-averse, and they will not put their money where there is appreciable risk. Nor will they put their money where the risk can't be quantified, no matter what the return.

Sure, there are speculative investors and risk-hungry high-stakes investors in the market, but the big money is institutional, and the primary aim of those who control that money is not to lose it. That's why the money taps aren't flowing right now, because the big money investors are scared. Gamblers have an appetite for risk - these guys absolutely don't.

cordially,
Scofflaw

MungBean

jimmycrackcorm wrote: »

Unfortunately Permabear is correct and to the exact point, relevant to this thread. The only, single reason we cannot burn any bondholders is because we still need to borrow to pay Social Welfare and Public servants. I.e. we don't live within our means.

We are borrowing from the IMF/ECB. The deal is done, the money is available to be drawn down upon conditions non of which mention paying unguaranteed bondholders.

This has nothing to do with welfare or the left. Its about why are these bondholders being paid off when there is no obligation to do so.

Scofflaw has pointed out that its solely for the purpose of keeping those bondholders happy and hoping they will re-lend in future.

This is the issue we are discussing and which I am looking for clarity on, not what Permabear's issues with the left wing opinions of social welfare.

MungBean

Scofflaw wrote: »

No, people won't necessarily lend "if there's money to be made", because these guys are not gamblers. They are not seeking a quick buck despite a risk - they are looking for safe investments for pension funds, insurance funds, etc.

As I said, the whole "I go into the bookies and..." analogy is wrong. This isn't gambling with money people can afford to lose - it is the investment of money that people want to see yield a return, but which they would rather see yield no return than lose. That means they are risk-averse, and they will not put their money where there is appreciable risk. Nor will they put their money where the risk can't be quantified, no matter what the return.

Sure, there are speculative investors and risk-hungry high-stakes investors in the market, but the big money is institutional, and the primary aim of those who control that money is not to lose it. That's why the money taps aren't flowing right now, because the big money investors are scared. Gamblers have an appetite for risk - these guys absolutely don't.

cordially,
Scofflaw

I know its not gambling as such but its investment. Whether long or short there is risk involved and in normal private conditions they lose their money. The reason the government stepped in is to stop the entire economy collapsing due to the fiscal problems. Cant argue with that, its done and we have to live with it.

But now when that danger has passed we find that we are still paying off the banks debts to keep the bondholders sweet. Effectively burning the states credit to protect that of a collapsed bank.

Regardless of whether the state pays bondholders or not there will still be the same risk. Past losses dont affect future risk in this respect as the bank itself is gone, its no longer operational. If the government wanted to secure lending for the remaining banks they just have to guarantee future bonds, not pay off previous unguaranteed ones to set a precedent.

MungBean

jimmycrackcorm wrote: »

The fact that the state is not burning them now, is, essentially the 'Guarantee'. It does rule out the fact that Bondholders are businesses and such could be subject to some negotiation, only for the fact that Europe won't really let us try.

What has Europe done to stop us negotiating or burning these unguaranteed bondholders? From what Constantine and Varadkar said last night on VB theres nothing from the ECB that stops them dealing with this in whatever manner they please. So my question is why are they paying them off ?

If the ECB have dictated that they been paid then it would be clearer why they did it, but they havent have they ? I'm just going on what I've heard from Varadkar and Constantine, if there is stipulations in the deal or orders from the ECB that unguaranteed bondholders must be paid then enlighten me.

Scofflaw

MungBean wrote: »

I know its not gambling as such but its investment. Whether long or short there is risk involved and in normal private conditions they lose their money. The reason the government stepped in is to stop the entire economy collapsing due to the fiscal problems. Cant argue with that, its done and we have to live with it.

But now when that danger has passed we find that we are still paying off the banks debts to keep the bondholders sweet. Effectively burning the states credit to protect that of a collapsed bank.

Regardless of whether the state pays bondholders or not there will still be the same risk. Past losses dont affect future risk in this respect as the bank itself is gone, its no longer operational. If the government wanted to secure lending for the remaining banks they just have to guarantee future bonds, not pay off previous unguaranteed ones to set a precedent.

We're burning the state's credit to protect that of a collapsed bank because the state took responsibility for the bank before it collapsed, though. What's at issue is whether any Irish bank is a safe risk - that's why the government was so enthusiastic about the private investment in BoI.

It's worth remembering that when banks fall into the hands of governments, governments have a habit of burning the remaining private sector 'partners'. In order to get the Irish banks back off the State's hands, the State needs to show that it will not do so, because it's unlikely the government stake in the banks will be bought out 100%, at least for a price the government can accept.

As a result the State is seen as - and is - bending over backwards for the remaining private sector involvement in the mostly State-owned banks, because the aim of the State is to make those banks attractive for private sector investors.

cordially,
Scofflaw

MungBean

Scofflaw wrote: »

We're burning the state's credit to protect that of a collapsed bank because the state took responsibility for the bank before it collapsed, though. What's at issue is whether any Irish bank is a safe risk - that's why the government was so enthusiastic about the private investment in BoI.

It's worth remembering that when banks fall into the hands of governments, governments have a habit of burning the remaining private sector 'partners'. In order to get the Irish banks back off the State's hands, the State needs to show that it will not do so, because it's unlikely the government stake in the banks will be bought out 100%, at least for a price the government can accept.

As a result the State is seen as - and is - bending over backwards for the remaining private sector involvement in the mostly State-owned banks, because the aim of the State is to make those banks attractive for private sector investors.

cordially,
Scofflaw

I get what your saying and your last two paragraphs makes sense but only in relation to AIB or BOI. Anglo is gone, it doesnt need to be gotten off the states hands as its being wound down. All its doing is clearing its books right ?

And it didnt take responsibility for the bank, it tried to stop its collapse and guaranteed a lot of bondholders. That alone shows all we need to show on the matter. It shows we will put the state behind Irish banks. Paying off unguaranteed bondholders in a failed bank doesnt show anything more. Except maybe encourage more reckless lending if the bondholders think they cant lose as the state will pay if the bank doesnt.

They lost on Anglo and wont reinvest in what they think will be another Anglo no matter what they may think the state will do. So paying off Anglo bondholders at this point is irrelevant to future lending. Its private losses in a private company and hasnt been linked to state debt as they were never guaranteed.

jimmycrackcorm

MungBean wrote: »

What has Europe done to stop us negotiating or burning these unguaranteed bondholders? From what Constantine and Varadkar said last night on VB theres nothing from the ECB that stops them dealing with this in whatever manner they please. So my question is why are they paying them off ?

If the ECB have dictated that they been paid then it would be clearer why they did it, but they havent have they ? I'm just going on what I've heard from Varadkar and Constantine, if there is stipulations in the deal or orders from the ECB that unguaranteed bondholders must be paid then enlighten me.

THE European Central Bank yesterday categorically ruled out allowing Ireland to force any losses on the banks' senior bondholders -- just hours after Finance Minister Michael Noonan said he planned to raise the issue in the autumn

We are borrowing from the IMF/ECB. The deal is done, the money is available to be drawn down upon conditions non of which mention paying unguaranteed bondholders.

All the ECB has to do is cut-off funding at any point they don't like what we are doing. Again, by our own choice we have decided to play this game by their rules instead of making a decision that allows us to play by our own rules.

Social Welfare and the Public sector are the biggest single expenses that prevent us from choosing our own destiny.

MungBean

jimmycrackcorm wrote: »

THE European Central Bank yesterday categorically ruled out allowing Ireland to force any losses on the banks' senior bondholders -- just hours after Finance Minister Michael Noonan said he planned to raise the issue in the autumn



All the ECB has to do is cut-off funding at any point they don't like what we are doing. Again, by our own choice we have decided to play this game by their rules instead of making a decision that allows us to play by our own rules.

Social Welfare and the Public sector are the biggest single expenses that prevent us from choosing our own destiny.

So there is a stipulation from the ECB that burning unguaranteed bondholders in whats now the IBRC will lead to refusal of the IMF/ECB sticking to the deal that was agreed upon ? Constantine, Varadkar and Vincent Browne were wrong when they said there wasnt and the reason they cannot burn bondholders is because they cannot as part of the deal with the ECB/IMF ?

Or is it just fear that they will do that without anything actually written down that the result of burning senior bondholders is not in accordance with the deal. ?

As I said I am only going on what was said on Vincent Browne by himself, Constantine and Leo Varadkar, that there is nothing in the deal that ties our hands when it comes to burning the unguaranteed bondholders in what is now the IBRC.

Cool Mo D

MungBean wrote: »

So there is a stipulation from the ECB that burning unguaranteed bondholders in whats now the IBRC will lead to refusal of the IMF/ECB sticking to the deal that was agreed upon ? Constantine, Varadkar and Vincent Browne were wrong when they said there wasnt and the reason they cannot burn bondholders is because they cannot as part of the deal with the ECB/IMF ?

Or is it just fear that they will do that without anything actually written down that the result of burning senior bondholders is not in accordance with the deal. ?

As I said I am only going on what was said on Vincent Browne by himself, Constantine and Leo Varadkar, that there is nothing in the deal that ties our hands when it comes to burning the unguaranteed bondholders in what is now the IBRC.

The ECB have no obligation to keep funding our banks, it is not part of any deal. If we decided to burn the bondholders, they could withdraw their emergency funding tomorrow. The funding to the banks is different to the EU/IMF bailout deal.

Scofflaw

MungBean wrote: »

I get what your saying and your last two paragraphs makes sense but only in relation to AIB or BOI. Anglo is gone, it doesnt need to be gotten off the states hands as its being wound down. All its doing is clearing its books right ?

And it didnt take responsibility for the bank, it tried to stop its collapse and guaranteed a lot of bondholders. That alone shows all we need to show on the matter. It shows we will put the state behind Irish banks. Paying off unguaranteed bondholders in a failed bank doesnt show anything more. Except maybe encourage more reckless lending if the bondholders think they cant lose as the state will pay if the bank doesnt.

They lost on Anglo and wont reinvest in what they think will be another Anglo no matter what they may think the state will do. So paying off Anglo bondholders at this point is irrelevant to future lending. Its private losses in a private company and hasnt been linked to state debt as they were never guaranteed.

Anglo certainly was guaranteed. Whether it should have been is a separate matter, but it was included in the original Lenihan Guarantee.

MungBean wrote:

So there is a stipulation from the ECB that burning unguaranteed bondholders in whats now the IBRC will lead to refusal of the IMF/ECB sticking to the deal that was agreed upon ? Constantine, Varadkar and Vincent Browne were wrong when they said there wasnt and the reason they cannot burn bondholders is because they cannot as part of the deal with the ECB/IMF ?

Or is it just fear that they will do that without anything actually written down that the result of burning senior bondholders is not in accordance with the deal. ?

As I said I am only going on what was said on Vincent Browne by himself, Constantine and Leo Varadkar, that there is nothing in the deal that ties our hands when it comes to burning the unguaranteed bondholders in what is now the IBRC.

There's no mention of senior bondholders in the Memorandum of Understanding which forms the basic contract with the Troika, so in strict terms they may be correct.

However, as the link jimmycrackcorm gave shows, it remains ECB policy not to burn senior bondholders, guaranteed or otherwise:

The ECB’s failure to explain itself has made the injustice suffered by Irish citizens of picking up bank losses all the more difficult to bear. It also allows the perception to take hold that the bank is sadistically punishing Ireland or that it is doing the bidding of foreign banks at our expense.

Its rationale for not burning bondholders is as follows.

The ECB believes the euro zone’s financial system is so weak and fragile that a serious shock could lead to cascading defaults, bringing the entire edifice down and, with it, the continent’s real economy. It does not believe that default can be “orderly” in the current circumstances. Rather, it feels that those who believe an orderly default can be engineered hugely overstate the capacity of the authorities to manage such events.

For these reasons, it has been consistently and implacably opposed to default in either of the two largest and most important debt markets – those of government and senior bank bonds.

There has not been a sovereign default in a developed country since the middle of the last century. There has not been a senior bank bond default during the euro era. As a result, both asset classes have been considered by market participants to be effectively risk-free.

Economic and financial realities have eroded that belief but the ECB’s position since the beginning of the crisis has been that, if the authorities were to permit a default in either of those multitrillion euro debt markets, it would have serious consequences. At best, funding costs would rise for all issuers of sovereign and/or senior bank debt. At worst, it could trigger a panic that could precipitate total meltdown. Thus far, the ECB’s position has been supported by developments each time the euro area authorities have weakened their commitment to the no-default position.

It's perhaps worth adding to that that something like 80% or more of the senior debt, both guaranteed and unguaranteed, had already been paid off by the time the ECB was in a position to make policy for Ireland on the matter. What was left was worth somewhat less than the interest rate reduction we were given instead, even at relatively drastic haircut rates.

cordially,
Scofflaw

Scofflaw

Cool Mo D wrote: »

The ECB have no obligation to keep funding our banks, it is not part of any deal. If we decided to burn the bondholders, they could withdraw their emergency funding tomorrow. The funding to the banks is different to the EU/IMF bailout deal.

True, although to be honest they wouldn't do so for exactly the same reason they won't allow the burning of senior bondholders. In fact, of the two, the withdrawal of emergency liquidity assistance would be very much the larger shock to the system.

They could, on the other hand, make it more expensive for us, or exclude Ireland from their bond-buying programme.

cordially,
Scofflaw

MungBean

Cool Mo D wrote: »

The ECB have no obligation to keep funding our banks, it is not part of any deal. If we decided to burn the bondholders, they could withdraw their emergency funding tomorrow. The funding to the banks is different to the EU/IMF bailout deal.

So far I've heard three different explanations for this.

1. We need to keep the bondholders happy in the hope their re lend to AIB and BOI.

2. We cant burn bondholders in case the EU/IMF deal is rescinded.

3. We cannot burn the bondholders because the ECB might withdraw the emergency bank funding.


Is it based on fear, hope, what ifs and maybes ? Or is there a clear statement from the ECB or IMF built into the deal or otherwise that says "this is what will happened if senior unguaranteed Anglo bondholders are burnt......" ?


Edit: Hadnt seen your last post Scofflaw.

Scofflaw

MungBean wrote: »

So far I've heard three different explanations for this.

1. We need to keep the bondholders happy in the hope their re lend to AIB and BOI.

2. We cant burn bondholders in case the EU/IMF deal is rescinded.

3. We cannot burn the bondholders because the ECB might withdraw the emergency bank funding.


Is it based on fear, hope, what ifs and maybes ? Or is there a clear statement from the ECB or IMF built into the deal or otherwise that says "this is what will happened if senior unguaranteed Anglo bondholders are burnt......" ?


Edit: Hadnt seen your last post Scofflaw.

Hope it helps. The ECB basically give reason 1 - that burning the bondholders would reduce confidence in the Irish banking sector, and by extension the eurozone banking sector. If we're seen to be burning senior bondholders with the nod from the ECB, senior bondholders across the eurozone will panic that every eurozone government is about to do the same thing.

Again, whether they're right is open to debate, but the downside risk of a collapse in confidence across the eurozone is...well, enormous doesn't begin to cover it.

cordially,
Scofflaw

A Primal Nut

Scofflaw wrote: »

They're not investors, though - they're lenders. The investors - those who had shareholdings in Anglo - have lost their money, and nobody has suggested they get it back. The bondholders are those who lent to Anglo, and who the government devoutly hopes will lend to Irish banks in future. That's why they're being paid back.

cordially,
Scofflaw

I think the best summary was that if we just let Anglo collapse and burn the bondholders, we would have a bad couple of years, but then people would start lending to Ireland as we could actually afford to pay back those loans. Right now, paying off these old bondholders means nobody will lend to us anyway because we haven't the means to pay if back.

Seems to me the bondholders aren't going to do much more lending either way. So we may as well have just let Anglo collapse and not back pay back any bondholders and at least after a period we might go back to normal. Right now we have no chance of getting back to normality even if we reduce social welfare and public servant pay.

20Cent

Michael Noonan has said that most of the Anglo bondholders at this stage are speculative investigators.. Anything conservative like a pension fund will have sold them ages ago. The 700m will be going to speculators who bought them at a fraction of the price and will be getting 100% back. They must be laughing their asses off at us.

Scofflaw

20Cent wrote: »

Michael Noonan has said that most of the Anglo bondholders at this stage are speculative investigators.. Anything conservative like a pension fund will have sold them ages ago. The 700m will be going to speculators who bought them at a fraction of the price and will be getting 100% back. They must be laughing their asses off at us.

Probably so, unfortunately. It doesn't change the facts, though, which include that payment of debt is a legal obligation that exists even without being specifically mentioned in an international agreement.

I think the best summary was that if we just let Anglo collapse and burn the bondholders, we would have a bad couple of years, but then people would start lending to Ireland as we could actually afford to pay back those loans. Right now, paying off these old bondholders means nobody will lend to us anyway because we haven't the means to pay if back.

Seems to me the bondholders aren't going to do much more lending either way. So we may as well have just let Anglo collapse and not back pay back any bondholders and at least after a period we might go back to normal. Right now we have no chance of getting back to normality even if we reduce social welfare and public servant pay.

We'd still have a very high debt load - something like 75% of the current/projected figure - as well as a history of default.

As to whether Anglo should have been allowed collapse - I'd certainly much rather it had been, but preferences and consequences are two different things.

cordially,
Scofflaw

20Cent

Scofflaw wrote: »

Probably so, unfortunately. It doesn't change the facts, though, which include that payment of debt is a legal obligation that exists even without being specifically mentioned in an international agreement.

Giving children a proper education is a legal obligation and they don't seem to mind cutting SNA's.

The debt on Nov 2nd is unsecured.
In finance, unsecured debt refers to any type of debt or general obligation that is not collateralised by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.
In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors, although the unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors.

Anglo is insolvent and so is the government so tough luck bondholders.

Time this gov grew a pair.

MungBean

Scofflaw wrote: »

Probably so, unfortunately. It doesn't change the facts, though, which include that payment of debt is a legal obligation that exists even without being specifically mentioned in an international agreement.

What is the state in relation to the banks ? Just a shareholder ?

I assume if theres a legal obligation to repay senior bondholders from the sale of assets but the fact that we can burn junior bondholders the state comes after senior bondholders but before anyone else when it comes to reclaiming money ?

Scofflaw

MungBean wrote: »

What is the state in relation to the banks ? Just a shareholder ?

I assume if theres a legal obligation to repay senior bondholders from the sale of assets but the fact that we can burn junior bondholders the state comes after senior bondholders but before anyone else when it comes to reclaiming money ?

Shareholder and guarantor. In the case of Anglo, it owns it outright, and therefore is responsible to the maximum extent permitted by law for the debts of Anglo. The government have chosen not to declare Anglo insolvent - because doing so means realising all the bank's assets in a firesale during a banking crisis - which means that we're not in a position where it's simply a case of dividing up the assets.

Whether the course the government is pursuing is necessarily the best course in terms of trying to minimise the long-term costs to the Irish state is obviously open to argument, but not really open to simplistic claims that the government lacks certain parts of male genitalia and that this somehow explains their choice of strategy.

cordially,
Scofflaw

Worztron

Is Portugal paying off unguaranteed bondholders or are the Irish public the only ones being treated like mugs.

Scofflaw

Worztron wrote: »

Is Portugal paying off unguaranteed bondholders or are the Irish public the only ones being treated like mugs.

Everybody bar Greece is paying off senior bondholders involved in bank bailouts. Heck, the US paid off subordinated bondholders and shareholders, courtesy of Geithner.

cordially,
Scofflaw

20Cent

Am I reading this right?
According to this case Anglo is a foreign state" for purposes of a U.S. law and is immune from lawsuits by American bondholders?

Anglo Irish wins dismissal of U.S. bondholder case
http://newsandinsight.thomsonreuters.com/Legal/News/2011/11_-_November/Anglo_Irish_wins_dismissal_of_U_S__bondholder_case/

11/28/2011COMMENTS (0)
Nov 28 (Reuters) - Anglo Irish Bank Corp, a nationalized lender being wound down by Ireland's government after huge losses, on Monday won the dismissal of a lawsuit by a New York investment firm concerned it may lose its $200 million investment in the bank's debt.

U.S. District Judge Paul Gardephe in Manhattan said the bank was a "foreign state" for purposes of a U.S. law, the Foreign Sovereign Immunities Act, and that Ireland did not waive the bank's immunity from lawsuits.

More here:
Anglo Irish Bank, sovereign immunity, and the Eurozone crisis

http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=33384&terms=@ReutersTopicCodes+CONTAINS+'ANV'

Permabear

This post has been deleted.

zero_hope

Hey Scofflaw the markets seem to think debt is safer with Iceland and they gave their middle fingers to the bankers and defaulted. So your argument doesn't make sense.

Scofflaw wrote: »

In order to show that the Irish State is a good debtor and a safe place to invest money. Greece will not have that rather hard-won distinction, but then apparently they have nothing to invest in anyway - their economic model relied on tourism and faking the accounts, whereas ours relies on being seen as a good place to do business.

The balance between defaulting and not defaulting is based on the long-term consequences of each choice.

cordially,
Scofflaw

Scofflaw

zero_hope wrote: »

Hey Scofflaw the markets seem to think debt is safer with Iceland and they gave their middle fingers to the bankers and defaulted. So your argument doesn't make sense.

Put like that, I suppose it wouldn't. Ask me again when we've done three years of our IMF programme, as Iceland have, and are running a budget surplus, as Iceland are.

cordially,
Scofflaw