Not our debt

Browney7

K-9 wrote: »

There was supposed to be pressure from the US and UK at the time as well, globalisation at its finest.

Why risk bailing out our own banks even more when we can ride to the rescue of the Irish, lend them money at an alright rate and they'll pay our banks back and they'll have to pay us back too!

Godge

20Cent wrote: »

Mostly John Moran and Kevin Cardiff.

http://www.irishtimes.com/business/economy/banking-inquiry-trichet-stopped-burning-of-bondholders-1.2254806

Former European Central Bank President Jean Claude-Trichet was the only person stopping the current Government burning the bondholders in Anglo Irish Bank and Irish Nationwide, the banking inquiry has heard.
Former Secretary General of the Department of Finance John Moran said discussions were ongoing with the ECB up until the minute Minister for Finance Michael Noonan announced the restructuring of the banks in the Dáil in 2011.

http://www.irishtimes.com/business/economy/banking-inquiry-cardiff-to-challenge-trichet-evidence-1.2249320

“Unless all our information was wrong, the ECB actively engaged in an international discussion and was, though not on its own, directly influential in forcing the hand of Ireland in relation to the issue of burden sharing for senior bond holders. Yes of course, it was formally Ireland’s decision, but it was far from Ireland’s preference.”
Indeed, Ireland had made secret preparations to take the alternative route.
“Specialist legal expertise was quietly brought into Ireland to advise on how to make the burden-sharing process work, and our own legal advisers were working on the matter also. It seemed feasible, despite some significant legal obstacles, to impose some losses on senior bondholders, but [this] could not work if the European partners and the Commission were opposed.
“At the time, we were led to believe that Dominique Strauss-Kahn, head of the IMF, was not only in favour of this approach but believed he could persuade other major players in world finance, including the major European governments, the Americans and the ECB to go along.

You are misinterpreting the testimony and the sequence of events in order to fit in with a conspiracy theory.

In September 2008, Ireland guaranteed the banks on its own initiative, and made a promise to the depositers and bondholders. It was criticised by its European partners for doing so. By 2011, Ireland had realised the massive mistake it made and tried to row back on its promise. The ECB made Ireland stick to the promise that Ireland itself had made. Why? The risk of contagion. If a Euro country could break solemn financial promises, faith in the promises made by other countries would be shaken in the financial markets, thus pushing up bond rates for all Euro countries. The question in retrospect is whether the fear of contagion was sufficiently realistic and strong to justify the costs that Irish taxpayers had to bear (which as above, they had originally promised to do anyway).

The conspiracy theory of paying back German banks as the reason is just that - a racially motivated anti-German conspiracy theory.



P.S. At least you seem to have stopped peddling the Greek nonsense

dlouth15

Godge wrote: »

You are misinterpreting the testimony and the sequence of events in order to fit in with a conspiracy theory.

In September 2008, Ireland guaranteed the banks on its own initiative, and made a promise to the depositers and bondholders. It was criticised by its European partners for doing so. By 2011, Ireland had realised the massive mistake it made and tried to row back on its promise. The ECB made Ireland stick to the promise that Ireland itself had made. Why? The risk of contagion. If a Euro country could break solemn financial promises, faith in the promises made by other countries would be shaken in the financial markets, thus pushing up bond rates for all Euro countries. The question in retrospect is whether the fear of contagion was sufficiently realistic and strong to justify the costs that Irish taxpayers had to bear (which as above, they had originally promised to do anyway).

The conspiracy theory of paying back German banks as the reason is just that - a racially motivated anti-German conspiracy theory.

P.S. At least you seem to have stopped peddling the Greek nonsense

Highly emotive to suggest that it is racially motivated, imo. Sounds to me like you don't really believe your own argument and need to bolster it in this way.

Scofflaw

20Cent wrote: »

ECB were fine with Anglo and Irish nationwide to go bust until they realised how much they owed German and French banks then "capitalism" went out the window.

Browney7 wrote:

Why risk bailing out our own banks even more when we can ride to the rescue of the Irish, lend them money at an alright rate and they'll pay our banks back and they'll have to pay us back too!

Having said for several years now that German and French banks were a minor part of the funding of our bank system during the boom, that the supposed exposure of German banks to Ireland related to German bank subsidiaries based in Ireland, that the BIS stats used by journalists were unreliable in respect of the Irish banks, and that Irish bank funding came primarily from the US and UK where the Irish banks had their subsidiaries, I'm delighted to be confirmed in every particular by new research by Philip Lane at TCD.

Relevant quotes:

However, the headline BIS dataset includes all resident banks (including the IFSC banks), while the BIS 'locational by nationality' dataset is distorted for Ireland during this period by the inclusion of the German Pfandbrief banks that were foreign-owned and externally-orientated but registered as Irish-headquartered banks whereas this new dataset is confined to the main locally- owned domestically-active banks

Figure 21 plots the interbank share in external deposit liabilities over 2003.Q1-2008.Q4. It shows that foreign banks were the primary source of external deposit funding, with the inter-bank share climbing during 2003- 2006. However, the relative decline in this type of deposit funding began in early 2007 and continued throughout 2007-2008. Within the inter-bank category, Figure 22 shows that much of this funding came from the foreign affiliates of the local banks, especially during 2007-2008.

The high reliance on non-euro external liabilities is consistent with the strong linkages between the Irish banks and the UK and US Önancial systems. Figure 24 affirms this by showing the currency shares of the euro, the US dollar and Sterling in external liabilities. The expansion in the US dollar share from 2005 onwards is striking.

Figure 25 plots the share of euro-denominated deposits in interbank external deposit liabilities. While this share climbed during 2002-2006, non-euro deposits accounted for the majority of interbank deposits throughout the sample period. Figure 26 shows that the euro-denominated share was especially low for inter-o¢ ce external deposit liabilities: most of the funding raised through inter-office channels was in foreign currencies. This is consistent with the geographical location of the foreign offices of the Irish banks, which were orientated towards the United Kingdom and the United States

and conclusions:

Our data analysis highlights a number of patterns. First, the boom period was relatively short: 2003 to mid-2007. From mid-2007, multiple indicators signalled that the funding conditions of the Irish banks were deteriorating. Second, foreign-resident banks were a primary counterparty for much of the foreign funding. Importantly, this category includes the foreign offices of the local banks, with inter-office funding growing in relative importance as market conditions tightened during 2007-2008. Third, much of the funding was in US dollars and Sterling, which is consistent with the strong links between Irish banks and these financial systems. Undoubtedly, the capacity of Irish banks to raise considerable non-euro funding can be linked to the hedging opportunities provided by the large euro-dollar and euro-Sterling derivatives markets. Fourth, senior and subordinated bond issues were an important source of funding during 2003-2006 but banks increasingly relied on interbank deposit funding during 2007-2008. While the broad nature of these funding patterns are captured in the narrative reports of Honohan (2010b), Regling and Watson (2010) and Nyberg (2011), this paper provides supporting quantitative evidence, while the importance of non-euro funding sources and the role of foreign offices of local banks has received relatively little attention.

http://www.philiplane.org/SSISI2015LANE.pdf

I appreciate this will do little to change the minds of those whose minds can't be changed, obviously, and who will now go and hunt for anything that can be made to sound as if it still supports the original narrative. Still, facts are facts.

cordially,
Scofflaw

dlouth15

I would be interested in hearing the op Dave!s comments now that there's been a few responses to his query.

20Cent

There is an understandable desire and reaction people have to complex situations to simplify them. Probably comes from how we evolved. Good/bad, black and white etc.
Unfortunately this doesn't work in many situations but we still do it. It can be seen in the narrative about the generous, parent like institutions helping out and cleaning up the mess made by the "naughty children".
Though it is a nice narrative and who wouldn't like to have some omnipotent guardian watching over them to help them out?
Anyway the truth is that there are inherent flaws in how the euro was set up in the first place. This was warned about at the time but they were ignored and now there is the possibility of the eurozone breaking up. All this under the watch of the institutions. Europe has been a disaster zone for the last five or so years now. Going from one emergency to the next with no end in sight. The truth is all the countries are out for themselves there is no fairy godmother the Germans and the French in particular have stuck the bill for their failings onto the weaker countries. There is no solidarity or "union" just a bunch of greedy bankers getting the most out of it as they can.

Godge

20Cent wrote: »

There is an understandable desire and reaction people have to complex situations to simplify them. Probably comes from how we evolved. Good/bad, black and white etc.
Unfortunately this doesn't work in many situations but we still do it. It can be seen in the narrative about the generous, parent like institutions helping out and cleaning up the mess made by the "naughty children".
Though it is a nice narrative and who wouldn't like to have some omnipotent guardian watching over them to help them out?
Anyway the truth is that there are inherent flaws in how the euro was set up in the first place. This was warned about at the time but they were ignored and now there is the possibility of the eurozone breaking up. All this under the watch of the institutions. Europe has been a disaster zone for the last five or so years now. Going from one emergency to the next with no end in sight. The truth is all the countries are out for themselves there is no fairy godmother the Germans and the French in particular have stuck the bill for their failings onto the weaker countries. There is no solidarity or "union" just a bunch of greedy bankers getting the most out of it as they can.

The bit in bold is about the only thing that is true about your post.

The simplistic infantile analysis of the crisis is the one that says the bailouts in Greece and Ireland went to French and German banks.

K-9

Browney7 wrote: »

Why risk bailing out our own banks even more when we can ride to the rescue of the Irish, lend them money at an alright rate and they'll pay our banks back and they'll have to pay us back too!

Then again most of the debt has gone to finance our budget deficits and not holes in banks balance sheets.

While I take the point about the local supermarket, banks are seen as systemic to the economy, rightly or wrongly. My argument on that is if that is the case, they should be held to high regulatory over sight, something that wasn't the case especially in Ireland. Then you've the absurdity of Government's not being able to bail out companies like Irish Steel or whoever like they did in the 80's but banks seem to a special exemption.

But even then, while a big chunk of our debt went to banks, even more has gone to finance the day to day running of the country over the last 6 years or so.

Oddly enough maybe if we hadn't paid down our national debt so much during the Celtic Tiger and the bubble, we might have had less room to just throw money at the banks, which seemed to ve the case at the start of the unravelling of the crash.

K-9

Godge wrote: »

The bit in bold is about the only thing that is true about your post.

The simplistic infantile analysis of the crisis is the one that says the bailouts in Greece and Ireland went to French and German banks.

Mod

Cut out this infantile stuff, plus alleging anti-German sentiment. Attack the post, not the poster. Any more of this stuff will be seen as an attempt to goad somebody into a response.

Eugene Norman

K-9 wrote: »

Then again most of the debt has gone to finance our budget deficits and not holes in banks balance sheets.

While I take the point about the local supermarket, banks are seen as systemic to the economy, rightly or wrongly. My argument on that is if that is the case, they should be held to high regulatory over sight, something that wasn't the case especially in Ireland. Then you've the absurdity of Government's not being able to bail out companies like Irish Steel or whoever like they did in the 80's but banks seem to a special exemption.

But even then, while a big chunk of our debt went to banks, even more has gone to finance the day to day running of the country over the last 6 years or so.

Oddly enough maybe if we hadn't paid down our national debt so much during the Celtic Tiger and the bubble, we might have had less room to just throw money at the banks, which seemed to ve the case at the start of the unravelling of the crash.

The deficit is a necessary evil in recessions. We had a big recession and decided not to follow the Hoverist response of balancing the books. At the moment the debt to GDP ratio is 110%. Remove the bank guarantees and we would among the least indebted in Western Europe.

KingBrian2

dlouth15 wrote: »

I
Most people will agree that not only should the supermarket not be compensated but if it goes bust, those that had shares in the supermarket or who lent it money should also take a hit. eason is that it is easier to lend more and more than face the fact that you

This should apply to the pristine Clery's Department store. It failed to turn a profit and had to fold. Employees who invest the most in the company will lose out the most. Provided they have been well reimbursed via a pension no argument is necessary to demand yet more compensation for their hard work. This comes across as vindictive trying to receive special pay outs.

Eugene Norman

KingBrian2 wrote: »

The "not our debt" argument is used to largely eradicate the National Deficit we built up over the Celtic Tiger years. While a substantial amount of that debt was never truly ours to begin with, we still have the highest deficit in Europe. People believe wrongly that we would all be doing ourselves a favour if we just dismiss the debt as a clerical error. In reality Ireland is part of a currency union therefore by repudiating this much debt without fellow European states it would have consequences across the €zone.

Some states are more responsible than others. Germany has a robust system and is getting the blame because it does not have the problems that others do but France and Spain have histories of national bankruptcy. Suggesting a path to wipe out the entire deficit is inviting trouble. Putting in place guidelines that can avert bank runs are in fact more practical measures that will help the average depositor plus it reassures investors and the market that your country can handle volatile situations.

The deficit over the tiger years? We had reserves coming into the recession. Debt to GDP was 20% or less.

K-9

Eugene Norman wrote: »

The deficit is a necessary evil in recessions. We had a big recession and decided not to follow the Hoverist response of balancing the books. At the moment the debt to GDP ratio is 110%. Remove the bank guarantees and we would among the least indebted in Western Europe.

Well yeah, that wasn't really my point. The vast majority of the bailout went on financing the deficits.

K-9

K-9 wrote: »

Well yeah, that wasn't really my point. The vast majority of the bailout went on financing the deficits.

These attempts to ringfence the government debt ratio from the banking crisis is always very suspicious.

The banking crisis created not only direct costs for the state through recapitalisation, it created massive contingent exposures through the first bank guarantee and the ELG. At one stage, the State had guaranteed 350 billion euro of bank liabilities.

When people divide the Irish debt into bank recapitalisation and public spending, they deliberately ignore that point. The recapitalisations were relatively cheap. That wasn't the problem. The problem was the implication of further capital injections in light of the state's guarantee and the precarious situation in the global financial system.

It's no wonder GDP plummeted when economic activity dried up, which increased the relative size of the deficit. We cannot ignore that. Ireland's crisis was primarily a banking crisis.

Sam Russell

The Euro started to go wrong the day the markets started charging different rates to member states. The ECB should have noted this and pointed out that that was not right and corrected the problem by whatever was needed - capital controls or mandatory reserve levels or big bazookas. That would have nipped the potential crash in the bud.

But this is Europe - and we compromise after the fact.

K-9

The banking crisis played a big part, but for me that's short term thinking.

The big problem was not having a sustainable tax revenue base, which meant a huge, almost over night drop in income.

That's one of the reasons I looked for a party not offering tax cuts in the 07 election, twas a fruitless search!

I'm sure those more right wing than me would also suggest the expenditure side was too high and badly structured, all this stuff pre banking crash.

Kommunist

It is not really genuine to appropriate this campaign to the AAA/PBG. The Communist Party of Ireland has virulently opposed the EU and the EEC [you can check their literature] and then launched a campaign entitled 'Repudiate the Debt'. You can read more about it if you google 'Repudiate the Debt: Communist Party of Ireland'. Can't link stuff as I'm a new user.

Akrasia

I don't know how anyone can really trust the debt statistics from the Irish government. NAMA is excluded for one, we have all kinds of off balance sheet 'special purpous vehicles' designed to make our debt obligations look smaller than they really are.

The Greeks are regularly accused playing creative accounting with their national debt statistics but they probably learned half their tricks from Ireland. The main purpose of Irish water, is to keep the cost of rebuilding the irish water infrastructure off balance sheet too, we had using 'public private partnerships' to build hospitals and roads and toll bridges, these are little more than off balance sheet loans from private corporations. Instead of paying back loans at low interest rates, we pay back rent to private investors at much higher rates, sometimes indefinitely.

The irish GDP and GNP stats have also long been distorted by transnational financial transactions like transfer pricing to artificially inflate the value of irish productivity

The cause of the crash was an overheated economy caused by poor regulation of the banks who were fueled by inappropriately cheap money from the ecb.

It was obvious to anyone who wasn't trying to feather their own nest, from 2006 onwards, the irish property market was in a bubble and it was a crash waiting to happen. It was like watching a train wreck happening in slow motion after that.

The ordinary people of ireland had their deposits guaranteed up to 100k. When the government proposed the blanket guarantee, they protected the unsecured investors, the gamblers, at the cost of the tax payers of ireland.

dlouth15

KingBrian2 wrote: »

This should apply to the pristine Clery's Department store. It failed to turn a profit and had to fold. Employees who invest the most in the company will lose out the most. Provided they have been well reimbursed via a pension no argument is necessary to demand yet more compensation for their hard work. This comes across as vindictive trying to receive special pay outs.

I haven't been following the Clery's story closely but I think you may have missed the point of what I was trying to say.

jimmycrackcorm

Akrasia wrote:

The ordinary people of ireland had their deposits guaranteed up to 100k. When the government proposed the blanket guarantee, they protected the unsecured investors, the gamblers, at the cost of the tax payers of ireland.

The banks lent out multiples of money as a function of their reserves. Their reserves comprised of both our own deposits and bondholder and inert bank loans. The primary problem as we see in the Greek banking system over the last period of time, is when confidence disappears, first the large depositors withdraw their money, then the bondholders normal repayments occur and won't get replaced. That leaves whatever low reserves comprised of ongoing bonds and your and my deposits.

The problem is that when the banks lent the money that is lost in bad debts, they didn't hand it out in Euro notes that were marked with some being from bondholders and some being your and my deposits. Essentially the bail-out was to protect our own money, and private debt wouldn't have become public debt if we had all taken out our own money before the bondholders took out theirs.

We could have refused the bail-out but then the government would have been on hook for the €100k deposit guarantee and where would they get that from?

KingBrian2

jimmycrackcorm wrote: »

The banks lent out multiples of money as a function of their reserves. Their reserves comprised of both our own deposits and bondholder and inert bank loans. The primary problem as we see in the Greek banking system over the last period of time, is when confidence disappears, first the large depositors withdraw their money, then the bondholders normal repayments occur and won't get replaced. That leaves whatever low reserves comprised of ongoing bonds and your and my deposits.

The problem is that when the banks lent the money that is lost in bad debts, they didn't hand it out in Euro notes that were marked with some being from bondholders and some being your and my deposits. Essentially the bail-out was to protect our own money, and private debt wouldn't have become public debt if we had all taken out our own money before the bondholders took out theirs.

We could have refused the bail-out but then the government would have been on hook for the €100k deposit guarantee and where would they get that from?

The public and private debt was not separate. When the collapse came confidence fell away as you said but institutional players i.e. the bondholders remained and they were the largest lenders to the state. In my opinion is was prudent to apply the guarantee as this allowed the gvt to take the necessarily measures to correct the national finances in order to restore them to health.

Fratton Fred

20Cent wrote: »

Private German bank lends money to a private Irish or Greek bank which subsequently goes bust. With capitalism that's a bad investment and tough luck money is gone. The ECB has forced governments to take in this debt run up by private banks and made it sovereign.
Hence "not our debt".

And Ireland has no functioning banking system.

hatrickpatrick

ThisRegard wrote: »

If banks were let go bust then people who support the argument that they should be let, presumably have no problems with losing their money in those banks, or the business they work for shutting down as they too lose all their money?

In my view the ECB should have been able to cover that, but of course again would come the objection to monetary financing which has made this whole banking crisis hundreds of times worse than it should have been.

The Corinthian

Not our debt, but is our problem is the long and the short of it.

Private banks face massive bad debts and as a result go bust. Pretty bad if it's one bank, but pretty disastrous if it's pretty much all of them.

To begin with, without the bank guarantee which in effect was already taking on 'not our debt', your personal savings are gone. Poof.

Then if you have a company, then you might as well close up shop. Any money for this months wages - gone. Ability to pay other bills or even take in payments - gone. And the company you work for would likely follow suit. Poof.

Try leaving your bank card at home for a week. Need to go to an ATM? Tough. That's what would happen, but for longer than a week. Plus no way to pay rent, bills and so on. Gone.

So, yes; it's not our debt, but unless we took action we were effectively fücked. There's no nice way of putting it than that. So ultimately, while not our debt, is was our problem.

Sam Russell

But we did not need to guarantee every debt and every bond in every bank.

And we did not need to do it all on our own.

And we could have declared a number of bank holidays to give time to put the ducks in a row. [The British Government/The Bank of England did this in their crisis in 1967].

Emergency legislation could have been introduced to minimise the crisis before the blanket guarantee was introduced or even instead of a blanket guarantee. For example move deposits away from one bank and into another bank or to the NTMA. I'm sure other measures could have been introduced - I know little about this level of banking.

landofthetree

So how much would a debt write off actually save us?

Currently the national debt interest bill is €8.25 billion.

The bank debt part of that is €1.8billion per year.

So we have to pay interest of €6.4billion per year even if we get a total write off of bank debt. So all our problems aren't caused by the banks. Most of our debts have been accumulated because of day-to-day spending.

A saving of €1.8billion a year is nothing to be sneezed at but it wont solve all our problems.

K-9

Sam Russell wrote: »

But we did not need to guarantee every debt and every bond in every bank.

And we did not need to do it all on our own.

And we could have declared a number of bank holidays to give time to put the ducks in a row. [The British Government/The Bank of England did this in their crisis in 1967].

Emergency legislation could have been introduced to minimise the crisis before the blanket guarantee was introduced or even instead of a blanket guarantee. For example move deposits away from one bank and into another bank or to the NTMA. I'm sure other measures could have been introduced - I know little about this level of banking.

Has anything come out in the banking enquiry that we had anything near that type of preparedness and planning available?

It seems we sleep walked into the night of the guarantee.

Sam Russell

K-9 wrote: »

Has anything come out in the banking enquiry that we had anything near that type of preparedness and planning available?

It seems we sleep walked into the night of the guarantee.

It would seem so.

I think some planning was done on the golf course in April 2008 by the then Minister for Finance, Biffo, and a deputation from Anglo who discussed the economy . Of course, despite most of the others with him were from Anglo, they did not discuss Anglo's then problems - which were massive.

ardmacha

K-9 wrote: »

Has anything come out in the banking enquiry that we had anything near that type of preparedness and planning available?

It seems we sleep walked into the night of the guarantee.

This. The dark clouds were on the horizon for quite a while (e.g. Northern Rock), but no planning seems to have taken place whatsoever. If those months have been used wisely then the damage might have been mitigated.

The Corinthian

Sam Russell wrote: »

But we did not need to guarantee every debt and every bond in every bank.

Nope, we didn't. Problem was that we had not prepared for the possibility. There was no contingency plan; had someone suggested we should have had one, it would have been suggested they commit suicide.

That we handled it badly and ended up talking up more debt that we probably should have seems fairly evident - but we did ultimately decide to take it up, even if it was a bad deal. Caveat emptor.

What do you expect if you keep on reelecting what is largely a bunch of schoolteachers to run an economy?

My response above was more for those who believed that letting the banks burn would have been a better alternative.