Why should bondholders pay?

Welease · 30-09-2010 11:17PM #1

We've heard numerous times how it's scandalous they are not being forced to take the hit...

Lets look at what happened..

We decided to have a property bubble
We decided to pay way over the odds for property and land
We decided to bump wages and costs across the board
Our banks decided to throw caution to the wind with regards to prudent lending
Our government/regulators decided to turn a blind eye to the banks dealing
We voted the government back in based on bubble populist policies
We etc etc etc etc etc...

Why shouldn't we pick up the tab for our rediculous mistakes, considering we still need to go back cap in hand asking for more?

CoalBucket · 30-09-2010 11:21PM

They decided to make an investment. If you make an investment and the company you invest goes to sh*t then so should your investment and you should lose.

Justin Collery · 30-09-2010 11:22PM

becuase 'they' decided to take a punt and lend to us, and make some money while they were at it.

Would you lend €1,000 to someone you did not trust. Lets say €10,000. You'd check them out pretty carefully first, make sure you would get your money back. Now say you lent to an eegit and didn't get the money back. Who's really the eegit?

Welease · 30-09-2010 11:26PM

But isn't that the typical Irish attiude? It's always someone else's fault...

So many calls on here for someone to take ownership of the problem.. why has noone been taken to court? why did Neary get paid off ? Why can Fingers walk away?
But we seem to think we should be able to walk away?

If you want accountability it goes top to bottom.. we borrowed, shouldn't we pay it back?

evercloserunion · 30-09-2010 11:28PM

Burning the bondholders is picking up the tab for our mistakes, because it would be reflected in future interest rates. It's just picking up the tab tomorrow, rather than today. And I suppose the argument is that we can afford it tomorrow, but not today.

There's also of course the fact that all investments carry risk, and some would view letting the bondholders off the hook as guaranteeing return while removing risk.

For the record, I don't support burning the bondholders, but these are the arguments put forward.

ted1 · 30-09-2010 11:30PM

i decided not to buy as i saw the bubble burst. I'm mortgage free have been living in an area i want too. Paying less than i would on a mortgage and still saving as i'm not in negative equity. i was told i was mad for not getting on the property ladder by friends who work in property and banks. Why should i have to pay for their mistakes? Screw the bail outs make people responsible for their actions. If people can't repay their loans then jet the banks collect their collateral if they can't recoup well then they should have been more care ful. If my business was losing money it would close and i.'d be on the scratcher. Why can't they be the same?

20Cent · 30-09-2010 11:31PM

Welease wrote: »

But isn't that the typical Irish attiude? It's always someone else's fault...

So many calls on here for someone to take ownership of the problem.. why has noone been taken to court? why did Neary get paid off ? Why can Fingers walk away?
But we seem to think we should be able to walk away?

If you want accountability it goes top to bottom.. we borrowed, shouldn't we pay it back?

We are paying it back.
Bondholders on the other hand seem to make bad investments and we pay that back too.

View · 30-09-2010 11:33PM

Bondholders didn't "make an investment" in Anglo-Irish. They loaned it money. Naturally, they'd like the money they lent repaid (with interest).

Luckily for them, we seem to be keep doing so...

20Cent · 30-09-2010 11:34PM

View wrote: »

Bondholders didn't "make an investment" in Anglo-Irish. They loaned it money. Naturally, they'd like the money they lent repaid (with interest).

Luckily for them, we seem to be keep doing so...

Isn't loaning money expecting interest an investment?

Welease · 30-09-2010 11:35PM

evercloserunion wrote: »

Burning the bondholders is picking up the tab for our mistakes, because it would be reflected in future interest rates. It's just picking up the tab tomorrow, rather than today. And I suppose the argument is that we can afford it tomorrow, but not today.

There's also of course the fact that all investments carry risk, and some would view letting the bondholders off the hook as guaranteeing return while removing risk.

For the record, I don't support burning the bondholders, but these are the arguments put forward.

Agreed, but we seem to want to remove the risk from the transactions we made..

It could be argued that the bondholder took what normally be considered somewhat safe risks given the information we provided.. WE were the ones who cooked the books, and transferred loans in and out to make the books look balanced (and by We, I obviously mean institutions in the country and the lax regulations which allowed/encouraged it)

WE decided to do all the above...

Liam Byrne · 30-09-2010 11:37PM

Welease wrote: »

We've heard numerous times how it's scandalous they are not being forced to take the hit...

Lets look at what happened..

We decided to have a property bubble
We decided to pay way over the odds for property and land
We decided to bump wages and costs across the board
Our banks decided to throw caution to the wind with regards to prudent lending
Our government/regulators decided to turn a blind eye to the banks dealing
We voted the government back in based on bubble populist policies
We etc etc etc etc etc...

Why shouldn't we pick up the tab for our rediculous mistakes, considering we still need to go back cap in hand asking for more?

I can honestly say that I am not part of any of the groups that you describe as "we" above.

And the bondholders invested in a company that did dodgy deals; who in their right mind invests in a company like that ?

Of course, they may have known that that's the way it was run, and decided it was worth it because the bigger risk made for bigger profits.

Their gamble did not pay off. And yet they get off scot-free.

P. Breathnach · 30-09-2010 11:37PM

How can you make a legally-defensible distinction between bonds and other funds held in banks?

Things like your elderly aunt's life savings, balances held by credit unions, sinking funds of property management companies, credit balances of SMEs, your month's pay that has just been transferred to your account, the money you have borrowed to pay for an apartment that is temporarily held in your solicitor's client account, and so on.

Liam Byrne · 30-09-2010 11:38PM

Welease wrote: »

WE were the ones who cooked the books, and transferred loans in and out to make the books look balanced (and by We, I obviously mean institutions in the country and the lax regulations which allowed/encouraged it)

WE decided to do all the above...

Unless you are part of Anglo Irish Bank's management team, the word "WE" doesn't fit into that post either.

hinault · 30-09-2010 11:38PM

I take the view that the bondholders should pay something.

The bondholders took the decision to make an investment - an investment in the management team and the management policies of Anglo.

The management of Anglo have been found to be derelict.
The State is now the new management team - so new rules should be applied.

It's like me going down to Paddy Powers (Anglo) and placing a bet on a horse.
I invest my money with Paddy Power (Anglo) and if the horse wins Paddy Power (anglo) pay me my bet and the odds on that bet.

If my horse finishes last, i don't expect Paddy Power to refund me my bet.

In the Anglo instance, i am not suggesting that we don't pay the bondholder anything - we should pay a proportion of what they're owed.
But only a proportion.

Which brings me back to the guarantee.
By guaranteeing all forms of deposits at Anglo, the MoF made sure that all Paddy Power bets were to be refunded regardless of the race result.

Welease · 30-09-2010 11:39PM

jcollery wrote: »

becuase 'they' decided to take a punt and lend to us, and make some money while they were at it.

Would you lend €1,000 to someone you did not trust. Lets say €10,000. You'd check them out pretty carefully first, make sure you would get your money back. Now say you lent to an eegit and didn't get the money back. Who's really the eegit?

If I was in the money markets, and expecting institutions to be properly regulated, and their books appeared fine, then yes I would lend..

If however, we allowed banks to ship money in and out to essentially beef up their accounts, and all that money was being blown domestically (or the bulk of it).. then why shouldn't we take the big hit?.. after all... it wasn't the bondholders or anyone outside Ireland that caused this mess.. it was us and us alone...

Welease · 30-09-2010 11:42PM

Liam Byrne wrote: »

Unless you are part of Anglo Irish Bank's management team, the word "WE" doesn't fit into that post either.

As I said, be We I mean (loosely) the Irish public.. People seem to have an issue with the foreign bond holders being repayed the money they loaned Ireland (although I for one believe there is a lot more Irish money tied up in Anglo etc than people wanted to believe.. Irish pension equity funds for example).

Welease · 30-09-2010 11:45PM

hinault wrote: »

I take the view that the bondholders should pay something.

The bondholders took the decision to make an investment - an investment in the management team and the management policies of Anglo.

The management of Anglo have been found to be derelict.
The State is now the new management team - so new rules should be applied.

It's like me going down to Paddy Powers (Anglo) and placing a bet on a horse.
I invest my money with Paddy Power (Anglo) and if the horse wins Paddy Power (anglo) pay me my bet and the odds on that bet.

If my horse finishes last, i don't expect Paddy Power to refund me my bet.

In the Anglo instance, i am not suggesting that we don't pay the bondholder anything - we should pay a proportion of what they're owed.
But only a proportion.

Which brings me back to the guarantee.
By guaranteeing all forms of deposits at Anglo, the MoF made sure that all Paddy Power bets were to be refunded regardless of the race result.

If you found that Paddy Power had fixed the race would you be so willing to lose your deposit? and that's essentially what happened.. due to chronic failures of governance and regulation in Ireland (plus incredible risk taking) we allowed the banks to completely misrepresent the situations... and that contined long after the crash (as per the NAMA debacle) where we were continually lied to about the solvency of the banks..

Liam Byrne · 30-09-2010 11:51PM

Welease wrote: »

we allowed the banks to completely misrepresent the situations

Do "we allow" drugs gangs to sell drugs and murder people too ?

You're allocating blame where it doesn't belong.

"We" didn't even vote for those who were supposed to be ensuring this was done.

If you want to look at where the buck stops, check with a certain Mr Ahern who appointed someone as Financial Regulator not based on qualifications or experience, but "because he was his friend".

Welease · 30-09-2010 11:57PM

Liam Byrne wrote: »

Do "we allow" drugs gangs to sell drugs and murder people too ?

You're allocating blame where it doesn't belong.

"We" didn't even vote for those who were supposed to be ensuring this was done.

If you want to look at where the buck stops, check with a certain Mr Ahern who appointed someone as Financial Regulator not based on qualifications or experience, but "because he was his friend".

I'm not allocating blame.. Others are trying to lay blame elsewhere, I am merely asking why we who voted in the government, who allowed this regulation, we created this property boom, who drove wages up, who built and bought property far in excess of any reasonable value, who cooked our banks books.. should not pay back the money we borrowed in order to do so.

Did we (loosely) not give those people the power to appoint regulators etc?

I'm not talking about individual blame here... but we as a country borrowed and wasted the money we requested in spectacular fashion... Plenty of people are asking for responsibility to be taken, but yet we don't seem to want to take the responsibility to paying back the money we decided to borrow..

Welease · 01-10-2010 12:03AM

And I should clarify before the usual round of I am a member of NAMA, FF, Anglo, Nazi Youth starts..

I left Ireland in '88 and returned in '07 (from recession to recession.. no Celtic Tiger for me).. I have never voted FF, I have never worked for a bank.. I don't work for NAMA or in any property type ventures, and I am definately not an member of the Nazi Youth..

I am just asking why the collective WE seem to be clambouring for people to take responsibility, but so few of US actually seem to take responsibility for our choice of government, who we vote in as TD's, how we allow them to government and regulate, how they allow their "galway tent" friends to work, the properties we bought, the wage increases we accepted, the loans we took on etc etc etc..

But at all costs the bond holders must be made to pay for their gamble...
(while we ask for more)... We gambled far more.. and far bigger..

Just doesn't add up to me.. /shrug

hinault · 01-10-2010 12:04AM

Welease wrote: »

If you found that Paddy Power had fixed the race would you be so willing to lose your deposit? and that's essentially what happened.. due to chronic failures of governance and regulation in Ireland (plus incredible risk taking) we allowed the banks to completely misrepresent the situations... and that contined long after the crash (as per the NAMA debacle) where we were continually lied to about the solvency of the banks..

If Paddy Power fixed a race the Jockey Club (regulators) would be all over them in a flash.

But this denies the principle.
I'm risking my capital (subordinated debt holder) by giving it to the bookie (Paddy Power) to make a return.
If the horse finishes last, I get nothing.

But it's worse than this in reality.
Not only do I place a bet with Paddy Power (Anglo), Paddy Power goes bellyup and Boyle Sports (the taxpayer) takes over Paddy Power (Anglo) and pays out my bet to me even though the horse finished last!

Welease · 01-10-2010 12:07AM

hinault wrote: »

If Paddy Power fixed a race the Jockey Club (regulators) would be all over them in a flash.

But this denies the principle.
I'm risking my capital (subordinated debt holder) by giving it to the bookie (Paddy Power) to make a return.
If the horse finishes last, I get nothing.

But it's worse than this in reality.
Not only do I place a bet with Paddy Power (Anglo), Paddy Power goes bellyup and Boyle Sports (the taxpayer) takes over Paddy Power (Anglo) and pays out my bet to me even though the horse finished last!

Thats the point though.. Our jockey club were not all over them. They ignored the race fixing..

viclemronny · 01-10-2010 01:12AM

Listen lads, I stuck a 50 on spurs to take the league this season. If this doesn't pan out for me, could we all have a bit of a whip 'round and cover the bet?

Interest rates are charged on money lent for several reasons. Firstly and most obviously, part of the interest payments cover the inflation that occurs between when the lender lends the money and the borrower repays it.

Another part of the interest rate is considered to compensate for default risk. This is why for example, Tom the prudent businessman pays lower interest rates than Jim the unlucky gambler. It's less likely that Tom'll default so he pays lower interest rates.

Now, if the lenders (bondholders in this case) have taken correct account of all the information presented, then they should be alright, as interest from preforming loans will cover the cost. Remember, the risk premium is built in.

If they did not take account of all of the information correctly, then they will be punished for careless/sloppy/imprudent/risky work.

If they were given the wrong information, they can either blame their own people who provided it or they can blame the outside sources by either taking appropriate legal action if they believe that a fraud has been perpetrated or by refusing to give them business in the future if they believe incompetence was at fault.

The important thing however, is that at no point did they sign a document saying that for no extra charge, the Irish government would use taxpayers money to compensate their stupidity/laziness/poor luck/or being the victims of fraud. See first sentence.

waitingforBB · 01-10-2010 01:21AM

The thing is that bondholders are paid a premium for 'risk'
The institution sells bonds which are essentially IOUs to a market who, taking into account the risk premium decide whether or not to invest.
Those institutions buying Irish gov bonds at the moment are being paid a hefty coupon because there is a percieved high risk of default. Those who bought bonds in Anglo took a punt, got a premium for their investment (subordinate bondholders more so).
They speculated so shouldnt be immune to losses. its crazy if they are immune as essentially they receieved a premium above the risk free rate, but are they supposed to get the risk free return? crazy if they do

hinault · 01-10-2010 01:31AM

waitingforBB wrote: »

The thing is that bondholders are paid a premium for 'risk'
The institution sells bonds which are essentially IOUs to a market who, taking into account the risk premium decide whether or not to invest.
Those institutions buying Irish gov bonds at the moment are being paid a hefty coupon because there is a percieved high risk of default. Those who bought bonds in Anglo took a punt, got a premium for their investment (subordinate bondholders more so).
They speculated so shouldnt be immune to losses. its crazy if they are immune as essentially they receieved a premium above the risk free rate, but are they supposed to get the risk free return? crazy if they do

No Lenihan has told us that he's paying our money out regardless of the race result.

We're the only bookie in the world that will pay out whether the horse wins, finishes last or doesn't run.

Mr Benevolent · 01-10-2010 01:56AM

This is nuts. The concept of us paying for someone else's bad investment is ludicrous.

Wait a second...

waitingforBB · 01-10-2010 01:56AM

Not so sure now.
Seems to be an appetite to share some pain with subordinate bondholders (which is absolutely correct). Senior bondholders will remain untouched.

If there is no risk to subordinates, why take the lesser coupon that the seniors take for less (percieved) risk?

If the bondholders dont get burned to some level, then ALL bonds should be issues on a risk free coupon rate as if the gov are guaranteeing (indirectly) all bondholders, then there is zero risk to investors.

Thats what Brian was talking about, but now reality is hitting and those that took the highest risk look like they will get some form of haircut

SkepticOne · 01-10-2010 03:07AM

Welease wrote: »

I'm not allocating blame.. Others are trying to lay blame elsewhere, I am merely asking why we who voted in the government, who allowed this regulation, we created this property boom, who drove wages up, who built and bought property far in excess of any reasonable value, who cooked our banks books.. should not pay back the money we borrowed in order to do so.

Did we (loosely) not give those people the power to appoint regulators etc?

I'm not talking about individual blame here... but we as a country borrowed and wasted the money we requested in spectacular fashion... Plenty of people are asking for responsibility to be taken, but yet we don't seem to want to take the responsibility to paying back the money we decided to borrow..

I think the key issue is that a private company is a private company. If you lend to a private company you must weigh up all the risks involved in that decisions. If there's a dodgy government in power, the you to take that into consideration. Legally there is no obligation for a government to compensate lenders if the company they lent to goes bust.

SkepticOne · 01-10-2010 03:17AM

evercloserunion wrote: »

Burning the bondholders is picking up the tab for our mistakes, because it would be reflected in future interest rates. It's just picking up the tab tomorrow, rather than today. And I suppose the argument is that we can afford it tomorrow, but not today.
[...]For the record, I don't support burning the bondholders, but these are the arguments put forward.

I don't think anyone opposed to the bailouts has ever used the notion that it would cost the country more tomorrow if we did not bail out the bond holders. Can you supply some examples?

Seems to be a view more of those who support the bailouts than those opposed to them. It never really made much sense to begin with, but now we are seeing how wrong it really was.

imme · 01-10-2010 05:33AM

OP,you seem to very fond of speaking for others with your we
Please dont speakfor me. Thanks;)

Bondholders are investors, every investment carries a degree of risk.

Austerity · 01-10-2010 05:58AM

Does the OP really think it's fair to have a system of private profits and socialized losses?

Why should bondholders pay?

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