Just default

Scarab80 · 26-09-2010 10:15PM

Liam Byrne wrote: »

Bull.

If Anglo went under through no fault of its own, then fair enough - the guarantee stands.

However those bondholders and investors should invest in a company that doesn't lie and defraud; if they did, then it's their own fault - they shouldn't have invested in a dodgy company.

I mean, if I reply to a Nigerian spam email and deal with the resulting con-man, then I lose, and rightly so.

How exactly does Anglo go under through no fault of it's own? It goes under because of the deterioration of it's loan book, they gave out the loans - who else's fault is it? At what point does it move from no fault of their own into fraud?

johnnyskeleton · 26-09-2010 10:35PM

OisinT wrote: »

Because I firmly believe that some if not all of the properties they have received have development potential. I have not seen them all, so I'm open to correction.
But I believe there is potential to recover the losses. I don't know the chances, but I don't know how anyone can say for sure if the assets will still be toxic in the years to come. There is some information that have been released and much more that is still totally unknown - we need to know more to make informed decisions, but I believe the economic basis for NAMA is sound.

Ah I see the problem.

Let's say that we have a new property boom and the parcel of land currently worth €1m with 20m of debt against it is developed into a new development worth €40m. So in that sense, it is possible that the assets could do a complete volte face and be worth several times what they are worth now.

But we don't own the underlying assets, we own the loans. So in the above example, if we repossess and sell now we will get €1m back, or a loss of 95% on the loan. But if we wait and it is worth €40m in the future, we will still only get €20 or 100% of the loan (plus some interest, although this will only repay the interest we borrow to keep Anglo alive if even that). We will not be entitled to the beneficial ownership of the land, nor will we get a "thankyou" share of the profits.

We will only get the loan back.

So back to what I said earlier. Anglo has lost 23bn+ and may have lost 35bn when NAMA is finished. This is accepted by the Duke. They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

Now, in the best case scenario above, Anglo simply doesn't make any more losses than it already has. Let's also say that the NAMA loans do the same thing - but we are still then left with 10 years worth of interest plus losses on unsecured loans plus higher cost of borrowing plus losses on any land that can't be developed.

So in the very best of all possible worlds, we will only make a slight loss on Anglo and we will pay higher interest on our national debt because of the uncertainty it has brought. Therefore, in this best case scenario the guarantee has had caused at least some damage to the Irish economy.

Also, let's be real about this. The chances of the Anglo and NAMA loans recouping full value are so remote as not to be worth considering. I appreciate that you don't want to put a figure on it, but you can't realistically hold a view that it could work out alright but then refuse to even consider the quality of the loans and their likely future market.

For a start, we have more empty homes than we know what to do with. Those are fully finished homes, not the Anglo "huge development potential" empty fields. We also have a declining population, decreasing average wages, increasing taxes and falling rents. All these things point to lower property prices in the future. As historical precedents go, Japanese property peaked in the early 90s and 20 years on is still nowhere near what it was. It took almost 30 years for the NASDAC to reach its pre-1929 high. So after a credit bubble, it takes a long long time to return to that level (unless of course you follow it with an even greater credit bubble).

Let's look at the Irish Glass Bottle Site, purchased for 412m, currently worth what, 40m? How is that going to grow by 1000% any time soon? It's a rubbish piece of land that needs to be cleaned up before development can take place, and with 16,000 empty apartments in Dublin and commerical space to beat the band, there is simply no demand for any property of sufficiently high density to make it worth its while in the next 10 years.

So there are two things:
1) Anglo will make a loss. That is to say, it is simply not possible for it to make a profit without finding a pot of gold or completely changing the entire legal system and contract law. Both of these things are so remote that any rational person can discount them. So I think it is fair to say that this is a fact.

2) the level of that loss is a matter of opinion. I have proffered my opinion backed up with reasons and examples of why I think that. Just because I cannot know for certain does not discredit my opinion. Moreover, I think it is fair to say that my opinion carries more weight than an opinion which is not based on an analysis of Anglo as it actually is and is instead based on a belief that it will somehow come good in the end.

Liam Byrne · 26-09-2010 10:41PM

Scarab80 wrote: »

How exactly does Anglo go under through no fault of it's own? It goes under because of the deterioration of it's loan book, they gave out the loans - who else's fault is it? At what point does it move from no fault of their own into fraud?

http://www.rte.ie/business/2009/0213/ilp2.html
http://en.wikipedia.org/wiki/Anglo_Irish_Bank_hidden_loans_controversy

Note the date of the articles

johnnyskeleton · 26-09-2010 10:42PM

Scarab80 wrote: »

If that caveat had been put in, the guarantee would have been useless.

You are basically saying to bondholders - give money to this bank and in the event of default the irish state will pay you back, however if it transpires that Anglo management were lying to us and they are insolvent and going to have to default on your debt then we won't pay you back. The whole point of the guarantee is that it is to be used when there is a default.

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

If you are coming at it from the point of view of save Anglo at all costs, then an unqualified guarantee is the way to go. If, however, you have a care for the people that you (as Taoiseach and Minister for Finance) represent, then you would not be so imprudent as to buy a pig in a poke. You would want to save Anglo but not at all costs. Only if Anglo was worth saving.

In any event, the choice was never guarantee or don't guarantee, there are many options they could have done. A sort of administration process with an implication that some government funds may be used to buy Anglo's assets could have been initiated, especially since the other banks were so willing to help Anglo out at that time.:cool:

FreudianSlippers · 26-09-2010 10:45PM

johnnyskeleton wrote: »

Ah I see the problem.

Let's say that we have a new property boom and the parcel of land currently worth €1m with 20m of debt against it is developed into a new development worth €40m. So in that sense, it is possible that the assets could do a complete volte face and be worth several times what they are worth now.

But we don't own the underlying assets, we own the loans. So in the above example, if we repossess and sell now we will get €1m back, or a loss of 95% on the loan. But if we wait and it is worth €40m in the future, we will still only get €20 or 100% of the loan (plus some interest, although this will only repay the interest we borrow to keep Anglo alive if even that). We will not be entitled to the beneficial ownership of the land, nor will we get a "thankyou" share of the profits.

We will only get the loan back.

So back to what I said earlier. Anglo has lost 23bn+ and may have lost 35bn when NAMA is finished. This is accepted by the Duke. They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

Now, in the best case scenario above, Anglo simply doesn't make any more losses than it already has. Let's also say that the NAMA loans do the same thing - but we are still then left with 10 years worth of interest plus losses on unsecured loans plus higher cost of borrowing plus losses on any land that can't be developed.

So in the very best of all possible worlds, we will only make a slight loss on Anglo and we will pay higher interest on our national debt because of the uncertainty it has brought. Therefore, in this best case scenario the guarantee has had caused at least some damage to the Irish economy.

Also, let's be real about this. The chances of the Anglo and NAMA loans recouping full value are so remote as not to be worth considering. I appreciate that you don't want to put a figure on it, but you can't realistically hold a view that it could work out alright but then refuse to even consider the quality of the loans and their likely future market.

For a start, we have more empty homes than we know what to do with. Those are fully finished homes, not the Anglo "huge development potential" empty fields. We also have a declining population, decreasing average wages, increasing taxes and falling rents. All these things point to lower property prices in the future. As historical precedents go, Japanese property peaked in the early 90s and 20 years on is still nowhere near what it was. It took almost 30 years for the NASDAC to reach its pre-1929 high. So after a credit bubble, it takes a long long time to return to that level (unless of course you follow it with an even greater credit bubble).

Let's look at the Irish Glass Bottle Site, purchased for 412m, currently worth what, 40m? How is that going to grow by 1000% any time soon? It's a rubbish piece of land that needs to be cleaned up before development can take place, and with 16,000 empty apartments in Dublin and commerical space to beat the band, there is simply no demand for any property of sufficiently high density to make it worth its while in the next 10 years.

So there are two things:
1) Anglo will make a loss. That is to say, it is simply not possible for it to make a profit without finding a pot of gold or completely changing the entire legal system and contract law. Both of these things are so remote that any rational person can discount them. So I think it is fair to say that this is a fact.

2) the level of that loss is a matter of opinion. I have proffered my opinion backed up with reasons and examples of why I think that. Just because I cannot know for certain does not discredit my opinion. Moreover, I think it is fair to say that my opinion carries more weight than an opinion which is not based on an analysis of Anglo as it actually is and is instead based on a belief that it will somehow come good in the end.

No, I fully understand your point and perhaps I'm being overly optimistic.

My point is this is: In the very best of all possible worlds, we do only make a slight loss on Anglo and we will pay higher interest on our national debt.
Isn't that better than allowing Anglo to fail and causing a severe shock to our already fragile economy?

There may be 16,000 empty apartments in Dublin, but they're crap and overpriced crap at that.

If you're an economist and have insider knowledge of the transactions then certainly you're more informed than I am, but I can only know what I have been told by our government regarding the transactions and apply my degree in economics to it.
It might be a bit rusty, since I haven't really used it in a few years, but I understand the concept economically of what NAMA is trying to accomplish.
It may not work as we all had hoped it would, but the alternative was also a harsh reality. A decision was made and that decision will have repercussions, no matter what the decision was.

liammur · 26-09-2010 10:51PM

johnnyskeleton wrote: »

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

If you are coming at it from the point of view of save Anglo at all costs, then an unqualified guarantee is the way to go. If, however, you have a care for the people that you (as Taoiseach and Minister for Finance) represent, then you would not be so imprudent as to buy a pig in a poke. You would want to save Anglo but not at all costs. Only if Anglo was worth saving.

In any event, the choice was never guarantee or don't guarantee, there are many options they could have done. A sort of administration process with an implication that some government funds may be used to buy Anglo's assets could have been initiated, especially since the other banks were so willing to help Anglo out at that time.:cool:

Almost all involved knew Anglo was insolvent. That's why the hedge fund co's in london were lining up short positions v the misguided S Quinn.

Scarab80 · 26-09-2010 11:18PM

johnnyskeleton wrote: »

.... They will then have loans of 39bn supported by X value assets. If X is less than 39bn then we are likely to make a further loss on that 39bn, but if they are worth more than the 39bn we are not going to recover any more than 39bn. I don't think there can be much dispute as to this but if you've any questions feel free.

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn. Therefore in the impossible event of another property bubble within the 10 years of NAMA 41bn in profit could be made plus the interest margin.

NAMA are not restricted to recovering what they paid on the loans, they are restricted to the original loan amount....

Maybe I have taken you up wrong here.

FreudianSlippers · 26-09-2010 11:27PM

Scarab80 wrote: »

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn. Therefore in the impossible event of another property bubble within the 10 years of NAMA 41bn in profit could be made plus the interest margin.

NAMA are not restricted to recovering what they paid on the loans, they are restricted to the original loan amount....

Maybe I have taken you up wrong here.

I believe you are correct on this. It's debts purchased for €39bn worth approximately €80bn with a max of €80bn realisable.

Scarab80 · 26-09-2010 11:30PM

johnnyskeleton wrote: »

Well when Anglo management came to the government looking for a guarantee they were representing their shareholders ,bondholders, customers and other investors. When Government greeted them they did so on behalf of the taxpayers of Ireland.

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

When Anglo approached the government it wasn't on behalf of their current investors, it was because on-demand deposits were being withdrawn and they had to roll over bonds into new issues.

What good is a guarantee only if the bank is solvent? It changes nothing for those with their funds in the bank. The guarantee is completely irrelevant as it will never be used, if the bank is solvent it is not used if the bank is insolvent it is not used.

Scarab80 · 26-09-2010 11:31PM

Liam Byrne wrote: »

http://www.rte.ie/business/2009/0213/ilp2.html
http://en.wikipedia.org/wiki/Anglo_Irish_Bank_hidden_loans_controversy

Note the date of the articles

Neither of these transactions affected Anglo's solvency only it's liquidity which was the problem in the first place.

Liam Byrne · 26-09-2010 11:40PM

Scarab80 wrote: »

Neither of these transactions affected Anglo's solvency only it's liquidity which was the problem in the first place.

Both show that they were engaged in unacceptable transactions.

What those transactions affected is irrelevant.

Would you have invested in a company that engaged in those practices ?

johnnyskeleton · 27-09-2010 12:04AM

OisinT wrote: »

No, I fully understand your point and perhaps I'm being overly optimistic.

My point is this is: In the very best of all possible worlds, we do only make a slight loss on Anglo and we will pay higher interest on our national debt.
Isn't that better than allowing Anglo to fail and causing a severe shock to our already fragile economy?

From the point of government policy it depends. Do you believe that if you make a bad investment you should lose money or do you think that if you make a bad investment the government should reward you for it. If the former, then no, it would have been better to let Anglo fail. If the latter then yes the government were right to bail out Anglo and the only thing they did wrong was not give out more money to everyone who lost money on property deals, share deals, scams etc. In short, bailing out Anglo is only right if you believe a goverment should give out free money to everyone all the time. As the aul cow from across the water said, Socialism is great until you run out of other people's money.

As for effect of allowing Anglo to fail on our already fragile economy, since you assert this please let me know what effect you think this would have been. In terms of lending, we would be in the same or a better position if we let Anglo fail, because Anglo aren't lending at the moment, and if they weren't nationalised then there is a chance (however small) than an international bank like Santander which is fully solvent would come in and lend to the Irish market. In terms of the property bubble, despite the government's best efforts they just couldn't put humpty dumpty back together again. The Irish solution is to go back to the heady days of selling overpriced property to each other on borrowed money. But we cannot go back to that time.

In terms of the overall economy, I fail to see how benefits Anglo is giving us now, so it is not like we would miss anything. Finally, the only way it could possibly have affected the overall economy is because of interbank deposits to Irish banks. However, if that was the only problem it would have been much cheaper to let Anglo fail and provide funding to the other banks. That is the strategy the US and UK took, and while it is not ideal it is certainly a better one.

Some banks fail so that others survive is a good deal. All banks crashing because we are too proud to let the green jersy down, or because politicians don't want their dirty linen on the streets is a very bad deal.

OisinT wrote: »

There may be 16,000 empty apartments in Dublin, but they're crap and overpriced crap at that.

How does this advance you argument? You think that the property which was bought to build crap overpriced apartments on has a chance of making money in the future, but yet you think the 16,000 apartments already built are no good? Do you honestly think we can survive as a country by constantly building overpriced apartments that no one lives in?

OisinT wrote: »

If you're an economist and have insider knowledge of the transactions then certainly you're more informed than I am, but I can only know what I have been told by our government regarding the transactions and apply my degree in economics to it.

That's the thing though. I ain't no economist and know nothing about it other than what I have informed myself about. There is a wealth of information on the internet, much to the chagran of Mr. Lenihan who wants us all to be good sheep.

But you can't just accept what the government says at face value, and perhaps as part of your economic degree you learned a little bit about the difference between capitalism and socialism? Although this is something different, it's Bertie Socialism - sweeties for his constituents, bags of wonga and planning permission for his buddies and ashes for everyone else.

Brian Lenihan is a barrister. Barristers question things, they don't just take them on trust. You should never take anything anyone says on trust, especially not what the government tells you.

OisinT wrote: »

It might be a bit rusty, since I haven't really used it in a few years, but I understand the concept economically of what NAMA is trying to accomplish.

What, economically was it trying to accomplish. We know that NAMA was not going to get the banks lending again, but we also know that BL knew that NAMA would not get the banks lending again, and once he had railroaded it through dail eireann on the basis that if we don't do it the banks won't lend ever again, he admitted as such. If you look at the link I put up earlier it will give you my reasons why NAMA can't work. The link also discusses Brian Lucey's comments on why NAMA can't work.

So please explain to me what NAMA was "trying to accomplish" other than to hide the dirty laundry and if that is to get the banks to lend again, please explain to me how that would work.

You might be referring to a case study of the Sweedish "bad bank" policy, but that worked due to high inflation and even still made a nominal loss (albeit slight). How in the name of all that is holy was NAMA ever going to make a profit, which it was supposed to do? The only way was if we reinflated the bubble, but may as well try to get blood from a stone.

OisinT wrote: »

It may not work as we all had hoped it would, but the alternative was also a harsh reality. A decision was made and that decision will have repercussions, no matter what the decision was.

Eh? Are you suggesting it makes no difference? The reality is that the economy was headed in this direction anyway, and the choice was whether the loss is taken by the investors or by the government. Unless your economics degree is from People's University of Habana, I think you know the answer to that one.

liammur wrote: »

Almost all involved knew Anglo was insolvent. That's why the hedge fund co's in london were lining up short positions v the misguided S Quinn.

Exactly, which is why they should have been more cautious or let it fail.

Scarab80 wrote: »

I assume you are talking about NAMA here. If NAMA pays 39bn for the loans they are purchasing loans with a nominal value of about 80bn...Maybe I have taken you up wrong here.

OisinT wrote: »

I believe you are correct on this. It's debts purchased for €39bn worth approximately €80bn with a max of €80bn realisable.

No. The remaining Anglo loan book will be c. 39.5bn AFAIK after all NAMA transfers have taken place. These are property and development loans of less than 5m, commerical loans (e.g. shopping centres) and miscellaneous other loans (e.g. simliar to the billions lent to Quinn and the golden circle, except that Quinn's losses have been factored in rather neatly in the six monthly results).

Scarab80 wrote: »

What good is a guarantee only if the bank is solvent?

If you'll forgive me, that is one extraordinary comment to make. Governments shouldn't be giving private enterprises guarantees at all. And if they do, it should only be for solvent companies with a viable future that are for one reason or another experiencing difficulty obtaining credit to supply liquidity issues.

Are you saying that because Anglo was insolvent that it was right and proper to bring in the guarantee? And conversly that if they were solvent then the government shouln't have guaranteed them?

:eek::eek::eek:

Scarab80 · 27-09-2010 12:19AM

johnnyskeleton wrote: »

If you'll forgive me, that is one extraordinary comment to make. Governments shouldn't be giving private enterprises guarantees at all. And if they do, it should only be for solvent companies with a viable future that are for one reason or another experiencing difficulty obtaining credit to supply liquidity issues.

Are you saying that because Anglo was insolvent that it was right and proper to bring in the guarantee? And conversly that if they were solvent then the government shouln't have guaranteed them?

:eek::eek::eek:

No what I am saying is that a guarantee with an opt out in the case of insolvency is meaningless, it is in itself an oxymoron.

It leaves the creditors in exactly the same position they were in before as it offers nothing, and therefore will have no effect.

Liam Byrne · 27-09-2010 12:21AM

Scarab80 wrote: »

No what I am saying is that a guarantee with an opt out in the case of insolvency

Who suggested that ?

I suggested that the caveat be "on condition you're telling the truth".

Please don't throw in red herrings in order to prove a point that wasn't even raised.

Scarab80 · 27-09-2010 12:41AM

Liam Byrne wrote: »

Who suggested that ?

I suggested that the caveat be "on condition you're telling the truth".

Please don't throw in red herrings in order to prove a point that wasn't even raised.

johnnyskeleton wrote: »

If the government had said we will guarantee Anglo if, BUT ONLY if, they turn out to be fully solvent then the investors could decide whether to stick with Anglo or not. If they pulled out, then it shows that Anglo investors knew it was insolvent. If they stayed and took a punt then the government would have a get out.

In relation to your point, you are linking two seperate things.

We will guarantee your money if the banks corporate governance is up to scratch. It's a very strange caveat to make without prior knowledge of what was going on.

Now the creditors risk is not just based on the solvency of the bank but on the trustworthiness of management. The former bondholders continuously attempt to quantify to manage their risk, not so the latter.

Given such a strange caveat I would expect most creditors to continue to withdraw their money on the basis that their risk is not quantifiable.

Liam Byrne · 27-09-2010 12:45AM

Scarab80 wrote: »

We will guarantee your money if the banks corporate governance is up to scratch. It's a very strange caveat to make without prior knowledge of what was going on.

I would view that it's a prerequisite for any contract, and any large investors would be well used to checking out the books of any organisation they were investing in.

If not, then that's their tough.

By guaranteeing a corrupt bank FF have sent a signal to the markets that they don't care what way things are run, and therefore EVERY bank makes for a nervous investment.

A strong statement that "we don't allow and take a dim view of dodgy banking" would have INCREASED confidence, IMHO.

FreudianSlippers · 27-09-2010 12:47AM

Liam Byrne wrote: »

I would view that it's a prerequisite for any contract, and any large investors would be well used to checking out the books of any organisation they were investing in.

If not, then that's their tough.

By guaranteeing a corrupt bank FF have sent a signal to the markets that they don't care what way things are run, and therefore EVERY bank makes for a nervous investment.

A strong statement that "we don't allow and take a dim view of dodgy banking" would have INCREASED confidence, IMHO.

What/Where is the "contract" you keep mentioning?

FreudianSlippers · 27-09-2010 12:48AM

johnnyskeleton wrote: »

From the point of government policy it depends...

Don't have time to reply to this tonight, but I'll get to a reply on Tuesday

Liam Byrne · 27-09-2010 12:51AM

OisinT wrote: »

What/Where is the "contract" you keep mentioning?

:rolleyes: The "contract" to guarantee the banks.

FreudianSlippers · 27-09-2010 12:52AM

Liam Byrne wrote: »

:rolleyes: The "contract" to guarantee the banks.

Ok, well let's see it!

Liam Byrne · 27-09-2010 12:53AM

OisinT wrote: »

Ok, well let's see it!

You'll have to ask Lenihan or Cowen for it - they won't even let us footing the bill see the minutes of the meeting.

FreudianSlippers · 27-09-2010 12:53AM

Liam Byrne wrote: »

You'll have to ask Lenihan or Cowen for it - they won't even let us footing the bill see the minutes of the meeting.

OK, then how do you know that the caveat that "on condition you're telling the truth" is not included?

Liam Byrne · 27-09-2010 12:56AM

OisinT wrote: »

OK, then how do you know that the caveat that "on condition you're telling the truth" is not included?

Er.....because they weren't telling the truth, and the guarantee is still in place.

Either that or - as johnnyskeleton alluded to earlier - Lenihan is lying through his teeth about what they told him.

Either way, Lenihan comes out of it stinking.

Scarab80 · 27-09-2010 12:57AM

johnnyskeleton wrote: »

No. The remaining Anglo loan book will be c. 39.5bn AFAIK after all NAMA transfers have taken place. These are property and development loans of less than 5m, commerical loans (e.g. shopping centres) and miscellaneous other loans (e.g. simliar to the billions lent to Quinn and the golden circle, except that Quinn's losses have been factored in rather neatly in the six monthly results).

Non NAMA loans in Anglo stand at 29.5bn at 30 June 2010.

This is made up of loans with a nominal value of 37bn and a bad debt provision of 7.5bn.

The creditors remain liable for the 37bn amount until all legal proceedings have been completed against them. Once that is done the provision is reduced by the unrecovered amount.

Since 2008 200m has been actually written off in bad debts.

johnnyskeleton · 27-09-2010 12:57AM

Scarab80 wrote: »

No what I am saying is that a guarantee with an opt out in the case of insolvency is meaningless, it is in itself an oxymoron.

It leaves the creditors in exactly the same position they were in before as it offers nothing, and therefore will have no effect.

Only if the guaranteed instution is in fact insolvent and believed to be insolvent. However, if it is believed to be solvent but experiencing liquidity problems due to "international factors" then such a guarantee would make sense.

I'm not advocating such a guarantee, I accept that the guarantee was a foolhardy risk that could possibly have revolutionised the whole concept of international finance but was more probably going to bankrupt the country.

However, it was sold to us as merely being a minor issue to cure some liquidity issues for the banks and that they were fully solvent. Remember "cheapest bailout ever".

Had they included such a clause in the guarantee it wouldn't have worked and exposed Anglo's insolvency, which is a good thing i.e. if they genuinely believed it was a liquidity problem then they could have included it and when Anglo went pear shaped they could have avoided a very expensive disaster.

FreudianSlippers · 27-09-2010 01:00AM

Liam Byrne wrote: »

Er.....because they weren't telling the truth, and the guarantee is still in place.

Either that or - as johnnyskeleton alluded to earlier - Lenihan is lying through his teeth about what they told him.

Either way, Lenihan comes out of it stinking.

There are multiple contractual obligations that may effect this on both sides.

It doesn't matter if that caveat is included anyway - if the government was induced into contract through falsehood there is always legal recourse.

Scarab80 · 27-09-2010 01:03AM

Liam Byrne wrote: »

I would view that it's a prerequisite for any contract, and any large investors would be well used to checking out the books of any organisation they were investing in.

If not, then that's their tough.

By guaranteeing a corrupt bank FF have sent a signal to the markets that they don't care what way things are run, and therefore EVERY bank makes for a nervous investment.

A strong statement that "we don't allow and take a dim view of dodgy banking" would have INCREASED confidence, IMHO.

Investors don't check the books of companies, they rely on the audited accounts of the company released to the stock exchange. Making trading decisions based on access to non-public information in relation to a publicly listed company is insider trading and is illegal.

They also rely on the corporate governance laws in place in a country to ensure that management act appropriately.

Scarab80 · 27-09-2010 01:06AM

OisinT wrote: »

Ok, well let's see it!

http://www.finance.gov.ie/documents/publications/legi/creditinstsupp08.pdf

johnnyskeleton · 27-09-2010 01:09AM

OisinT wrote: »

Ok, well let's see it!

Liam Byrne wrote: »

You'll have to ask Lenihan or Cowen for it - they won't even let us footing the bill see the minutes of the meeting.

The "contract" is basically the statute.

I think it is this one but am not 100% certain:

http://www.oireachtas.ie/documents/bills28/acts/2008/a1808.pdf

Basically, the minister can do what he likes without question. If a safeguard was to be anywhere it would be in there. Separation of powers anybody?

Damn, beaten to it.

FreudianSlippers · 27-09-2010 01:11AM

Scarab80 wrote: »

http://www.finance.gov.ie/documents/publications/legi/creditinstsupp08.pdf

That's the legislation that provides that institutions such as NAMA can be created.
Liam Byrne keeps saying that there were no provisions in the "contract" that allowed an "out" in even of lies.
I'm just wondering what contract he's talking about.

Just default

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