bondholders

have2flushtwice

who are they?
it cant be the bank buying their own bonds, so who are they?

Scofflaw

have2flushtwice wrote: »

who are they?
it cant be the bank buying their own bonds, so who are they?

Nobody ever seems to know. Although one would assume that people in the finance industry have some access to the details, there seems to be some kind of omerta in place. I have dug as much as I can without being in the finance industry, and there are still only a couple of scraps that are definite, plus two lists, one published by British blogger Guido Fawkes, which is almost unusably redacted, and another published by Declan Ganley, which was almost immediately withdrawn.

And, in a sense, it's meaningless anyway. Diarmuid O'Flynn's Bondwatch blog does a fine line in outrage, and also manages to make it sound like vast amounts of money are constantly being sucked out of the banks to the detriment of the tax payer:

Bondwatch Ireland wrote:

When most in our media talk about the bank bonds at all (which is rarely) they say they've nearly all been paid at this stage. Not true of course - over €10bn already paid out by our five banks this year, €9bn to go before year's end; a total of €55bn over the years 2012-2015 (incl.) which averages out at nearly €14bn/yr, all bled from the crippled banks of an ailing economy - this sum does NOT include the truly odious Promissory Notes of €3.1/yr.

Actually, what the media is saying is true, or at least as true as what Diarmuid is saying, in a different way. The original bondholders have been paid off - 90% or more were paid off during the operation of the original Guarantee from 2008 to 2010.

Bonds are debt, though, and none of the Irish banks are in a position to clear their debts, so while the original bonds have matured, and been paid off, they've been paid off by issuing new bonds, mostly but not entirely under the
Eligible Liabilities Guarantee which replaced the original Guarantee (contrary to popular myth, the original Guarantee was neither extended nor renewed), or by borrowing money from the ECB.

So what's in there is new debt, raised since then. Bonds are constantly maturing, being paid out, and replaced with fresh bonds or ECB borrowings. To sum this up, as Diarmuid does, as "nearly €14bn/yr, all bled from the crippled banks of an ailing economy", is nonsense. €14bn a year may be being paid out, but very similar sums are being raised - Diarmuid is, in effect, complaining about bond turnover.

If the covered banks paid out twice as much, and raised twice as much, their actual debt figures wouldn't change, but Diarmuid would be quoting a figure of €28bn/year, which would mean just as little.

If someone like Aviva Insurance is a bondholder in our covered banks - and they might well be - then what they are doing is lending money to our banks, money which would otherwise be borrowed from the ECB, or possibly from the Irish taxpayer to further recapitalise the banks when they no longer had anything to offer the ECB as collateral.

There was a time when we could have wound up the banks, and burned the bondholders, rather than keeping the banks going through recapitalisations and paying the bondholders. That time is well past. If we did it now we would achieve nothing at all - we would wind up the banks, and as part of the resolution the bondholders would have to settle for only what they could be paid out of realising (selling) the assets of the banks. Since almost certainly there isn't really enough in their assets to cover the banks' debts, they would suffer a haircut. But so too would the Irish State - indeed, the Irish State, as a shareholder, would simply lose all its money. And nothing would come out of it except an absence of banks.

The important decision, then, was the decision in September 2008 to keep the banks alive, to treat them as solvent when they fundamentally weren't. Out of that flowed the need to recapitalise them in order to keep them solvent - it's that, not bondholders, which has cost us money, because we only paid the bondholders as part of keeping the banks alive. Junior bondholders have been burned, but there are no more of them to burn. We could burn the current senior bondholders, but trying to do so would produce a legal challenge to the banks' solvency, which could easily result in the banks being declared insolvent, at which time the house of cards collapses and the State loses all the money it has put in.

We're not propping up European banks or foreign investors through our banks - on the contrary, our banks are being propped up by European and foreign investors, and particularly by the support of the ECB.

The short, TL;DR version of this is as follows: it doesn't matter any more. In a sense, it never really did, because, as far as I can see, paying bondholders was something that was done as part of the government's strategy of keeping the banks open, not vice-versa. And the identity of the people who made that decision is not a secret.

cordially,
Scofflaw

antoobrien

have2flushtwice wrote: »

who are they?
it cant be the bank buying their own bonds, so who are they?

Ultimately anybody can buy bonds - prize bonds and savings bonds are an example of bonds. Government bonds are traded on the Irish Stock Exchange.

Who owns the bonds in the banks - other banks, credit unions, hedge funds, insurance companies, billionaires - essentially any person/organization with enough money.

You may be able to get more information on who originally bought bonds through regulatory filings.

pacquiao

have2flushtwice wrote: »

who are they?
it cant be the bank buying their own bonds, so who are they?

The question you should be asking is, why does a government need to issue bonds.

antoobrien

pacquiao wrote: »

The question you should be asking is, why does a government need to issue bonds.

It's a mechanism for securing funding into the future that allows for forward planning of expenditures, allowing to plan how much they'll pay teachers, nurses etc

Scofflaw

pacquiao wrote: »

The question you should be asking is, why does a government need to issue bonds.

That seems slightly irrelevant to the OP's question about bank bonds.

cordially,
Scofflaw

pacquiao

antoobrien wrote: »

It's a mechanism for securing funding into the future that allows for forward planning of expenditures, allowing to plan how much they'll pay teachers, nurses etc

I guess we better learn how to use excel? Teach a man to fish and all that...

antoobrien

pacquiao wrote: »

I guess we better learn how to use excel? Teach a man to fish and all that...

Excel won't help (and openoffice/libre office is cheaper).

With bonds issued you know how much money will be available, at what cost, for how long.

At best we can estimate what taxes will be available, and even then taxes aren't paid consistently every month. VAT gets paid one month, Corp tax another etc etc. PAYE's biggest month is October.

So unless we run at a significant surplus for several years so that we get about 1 years expenditure in the bank, which given current expenditures would take at least 14 years with the best surplus of boom years), we're stuck with bonds to even things out.

pacquiao

antoobrien wrote: »

Excel won't help (and openoffice/libre office is cheaper).

With bonds issued you know how much money will be available, at what cost, for how long.

At best we can estimate what taxes will be available, and even then taxes aren't paid consistently every month. VAT gets paid one month, Corp tax another etc etc. PAYE's biggest month is October.

So unless we run at a significant surplus for several years so that we get about 1 years expenditure in the bank, which given current expenditures would take at least 14 years with the best surplus of boom years), we're stuck with bonds to even things out.

We still have the ability to issue our own currency.
A government's decision to issue bonds is voluntary. And taxes wouldn't fund such a government.
Taxes fund governments that have given away their power to issue a currency.

antoobrien

pacquiao wrote: »

We still have the ability to issue our own currency.
A government's decision to issue bonds is voluntary. And taxes wouldn't fund such a government.
Taxes fund governments that have given away their power to issue a currency.

This kind of rubbish is the reason why loopers like rbb, ming and sf have followers

Taxes have always funded governments. Bonds are issued when governments don't have massive surpluses of money to spend (which are only the extremely oil rich ones).