In simple terms...what happened? How bad is it?

Worztron · 15-04-2011 10:16AM

The bond holders risked money to make a lot more money. They should be told where to go. Ireland simply cannot pay back the bond holders and avoid a sovereign default.

later12 · 15-04-2011 06:07PM

Worztron wrote: »

The bond holders risked money to make a lot more money. They should be told where to go. Ireland simply cannot pay back the bond holders and avoid a sovereign default.

A minor matter but just to add two facts.

Senior bank bonds are generally bought by funds (often including pension funds) as a way of sheltering the overall fund from the dangers of a more profitable investment elsewhere on non senior paper.
Senior paper such as this has a low coupon value (like an interest rate the holder earns), because it also has a low risk.
To illustrate: recovery of investment from senior paper held on a corporation which has gone into default is often said to work out at €50 per €100 of senior debt. A man holding the same amount in subordinated debt, which is riskier, might recover €30 of the €100 he holds, and the man holding junior unsecured paper on a claim of €100, would at best hope to get maybe €15 euro back.
The problem with this rather orderly and gentlemanly scenario arises when we apply the same rule to banks. Bank depositors sit, in legal terms, on the same footing as senior debt. This might mean depositors taking a 50% hit on their deposits, for example.
The difficulty that the Government is grappling with is, firstly, how does it legally separate senior debt from depositors without being sued by senior bondholders. Secondly, can it do this without hugely impacting upon its ability to raise future funding, i.e. return to the markets.
I'm don't have the answer to either of those questions. I don't have the legal knowledge to answer the former, and I don't have a crystal ball to definitely answer the latter. But we all have our educated guesswork for what it may, or may not be, worth.

beeftotheheels · 15-04-2011 07:51PM

later10 wrote: »

A minor matter but just to add two facts.
Senior bank bonds are generally bought by funds (often including pension funds) as a way of sheltering the overall fund from the dangers of a more profitable investment elsewhere on non senior paper.

Senior paper such as this has a low coupon value (like an interest rate the holder earns), because it also has a low risk.

To illustrate: recovery of investment from senior paper held on a corporation which has gone into default is often said to work out at €50 per €100 of senior debt. A man holding the same amount in subordinated debt, which is riskier, might recover €30 of the €100 he holds, and the man holding junior unsecured paper on a claim of €100, would at best hope to get maybe €15 euro back.

The problem with this rather orderly and gentlemanly scenario arises when we apply the same rule to banks. Bank depositors sit, in legal terms, on the same footing as senior debt. This might mean depositors taking a 50% hit on their deposits, for example.

The difficulty that the Government is grappling with is, firstly, how does it legally separate senior debt from depositors without being sued by senior bondholders. Secondly, can it do this without hugely impacting upon its ability to raise future funding, i.e. return to the markets.
I'm don't have the answer to either of those questions. I don't have the legal knowledge to answer the former, and I don't have a crystal ball to definitely answer the latter. But we all have our educated guesswork for what it may, or may not be, worth.

And to add a little more this is further complicated by the existence of so called "Distressed debt funds" aka Vulture funds who buy debt trading at a discount and then sue for repayment at par. They are most often associated with the sovereign debt of developing nations but their entire business case rests on their legal prowess in the court room/ ability to play hardball and hold up any negotiations. If any vultures are holding Irish Bank senior paper, and we burn them (despite the fact that they themselves have lost nothing since they bought the debt well below par), they will sue. But not in our courts who might be slightly biased in our favor. Probably in London. That's where the vultures do most of their business.

McWilliams & Co don't mention it, but creditors of the Icelandic banks are threatening litigation http://www.bloomberg.com/news/2010-11-16/iceland-creditors-threaten-to-fight-debt-relief-that-depletes-bank-assets.html

Worztron · 15-04-2011 10:05PM

Yes but the simple fact is this; if Ireland continues to pay back all bond holders and pay back the EU/IMF loan + interest then we WILL have a soverign default. The government seems to be in total denial about this fact. It is as if they are waiting on a miracle. I don't trust the IMF for one second, they have many alteration motives.

I hate this capitalist system so much. Everything seems to be about economies and banks, whilst society is going down the drain.

beeftotheheels · 16-04-2011 02:47AM

Worztron wrote: »

Yes but the simple fact is this; if Ireland continues to pay back all bond holders and pay back the EU/IMF loan + interest then we WILL have a soverign default. The government seems to be in total denial about this fact. It is as if they are waiting on a miracle. I don't trust the IMF for one second, they have many alteration motives.

I hate this capitalist system so much. Everything seems to be about economies and banks, whilst society is going down the drain.

We don't know that yet. Some commentators, from their Ivory Towers, would have us believe that default is unavoidable, but others don't believe it is so.

Let's not accept the position where we mistake opinion for fact

Worztron · 16-04-2011 09:45AM

beeftotheheels wrote: »

We don't know that yet. Some commentators, from their Ivory Towers, would have us believe that default is unavoidable, but others don't believe it is so.

Let's not accept the position where we mistake opinion for fact

And even if we dont have a soverign default, the country will barley limp along and the Irish people will be crucified with debts that are not theirs. The whole setup is extremely unjust. Essential services will suffer so that greedy bond holders will get 100% of their cash back and the suicide rate in Ireland (which increased by about 50% in 2009) will remain high. It seems that fascism is alive and well. :mad:

later12 · 16-04-2011 12:33PM

beeftotheheels wrote: »

And to add a little more this is further complicated by the existence of so called "Distressed debt funds" aka Vulture funds who buy debt trading at a discount and then sue for repayment at par. They are most often associated with the sovereign debt of developing nations but their entire business case rests on their legal prowess in the court room/ ability to play hardball and hold up any negotiations.

That's true; it would be rather incorrect of us to somehow presume that those who sought shelter in AIB from their other investments have largely held on to them since AIB's share price collapse and eventual takeover by a country that has the credit rating of Iceland or Romania.

And so it makes perfect sense that those private funds who have since taken this paper off their hands are exactly are the kind who buy to litigate, and are well experienced in doing so.

This is something that so rarely, if ever, gets mentioned and I would love to see our TV economists, for example the VB regulars, actually engage with it. Unfortunately, whenever (what appear to be) genuine difficulties are put to some of these people, the response is almost always to ignore it and set off on a soapbox about something equally irritating but completely irrelevant.

Worztron · 16-04-2011 02:08PM

Since nobody has been brought to justice for the many fraudulent activities that have caused the ruination of Ireland; this mess is bound to be repeated. The greedy white collar crooks that caused this mess are playing golf and laughing at the Irish public. Those that are guilty must be brought to justice!

The problem with our government is that it is far too conservative.

This capitalist system of ours rewards greed.

beeftotheheels · 16-04-2011 02:56PM

later10 wrote: »

That's true; it would be rather incorrect of us to somehow presume that those who sought shelter in AIB from their other investments have largely held on to them since AIB's share price collapse and eventual takeover by a country that has the credit rating of Iceland or Romania.

And so it makes perfect sense that those private funds who have since taken this paper off their hands are exactly are the kind who buy to litigate, and are well experienced in doing so.

This is something that so rarely, if ever, gets mentioned and I would love to see our TV economists, for example the VB regulars, actually engage with it. Unfortunately, whenever (what appear to be) genuine difficulties are put to some of these people, the response is almost always to ignore it and set off on a soapbox about something equally irritating but completely irrelevant.

Ironic, is it not, that the low yield/ low risk investments suitable for the pension funds of many aging Irish people are now high risk/ high yield and suitable only for hedgies.

I suspect Irish pension funds will have stayed in whether they should have or not to avoid crystallising the loss on the assets subject to a State guarantee, but I suspect that many foreign pension funds would have accepted that they should have exited by now.

The moral case for burning hedgies (or not burning them as the case may be) is much more palatable than that for burning pension funds, yet the hedgies will no doubt prove themselves more difficult to burn.

robd · 19-04-2011 11:03AM

As far as I'm aware (at least it's been reported elsewhere) the senior bond holders of the Irish banks have been largely paid back at this stage. The money has been replaced by short term funding from the Irish Central Bank, itself guaranteed by the Irish government, which is of course the taxpayer. So the "burning the bond holders" argument is somewhat academic at this stage.

In regard to sovereign default. It should be somewhat obvious at this stage, by the various positioning and by the government bond rates, that this is an almost certainty. Although it will probably take the form of "restructuring of the debt", in effect an orderly default. To a certain extent what's going on at the moment is a case of kicking the can down the road.

later12 · 19-04-2011 03:41PM

robd wrote: »

Although it will probably take the form of "restructuring of the debt", in effect an orderly default. To a certain extent what's going on at the moment is a case of kicking the can down the road

That's true. It should also be mentioned that while "kicking the can down the road" as people call it, i.e. delaying a restructuring of bank and sovereign debt is usually not ideal, there are cases where delaying restructurings make sense. An example would be in a situation where you have a shared interest in seeing your creditors survive, and you wish to give them time to build up capital cushioning to offset against future losses (which European banks are all doing) or to offload some dodgy paper to non-systemically important entities, such as those outside of the EU, for example.

This is just one school of thought on delaying restructuring to 2013 or 2015 even. I'm not saying it's right or wrong, I'm just saying it's a response to 'kicking the can down the road'.

By the way, I have a question. Does anyone know who on earth introduced that desperately overused phrase to Irish economic discourse? Rarely can some of our more zany economic commentators pass up the opportunity of whipping it out, and now it infiltrates mainstream dialogue. Putting off paying a parking fine has become 'kicking the can down the road'; careful now, you be buying them houses, otherwise you're kicking the can down the road. Oh God; it literally bores me to tears. Never before have I heard of a nation in such a state of urgency.

paddy0090 · 19-04-2011 08:10PM

By the way, I have a question. Does anyone know who on earth introduced that desperately overused phrase to Irish economic discourse? Rarely can some of our more zany economic commentators pass up the opportunity of whipping it out, and now it infiltrates mainstream dialogue. Putting off paying a parking fine has become 'kicking the can down the road'; careful now, you be buying them houses, otherwise you're kicking the can down the road. Oh God; it literally bores me to tears. Never before have I heard of a nation in such a state of urgency.

I agree. I hate "burn the bondholders" myself. Just sounds a bit 60s Ian Paisley. Just a bit too theatrical. BURN THEM

Delaying the restructuring is something the US did in the 80s with the South American debt Crisis. It was called the Brady Plan. I read an article about it in Der Speigel. We'll know for certain where we stand in two years, whether or not we can pay all or most of our debts.

10-06-2011 01:04AM

:DThe Monetarist / Oligarchical Banking System is Crashing.

Who will survive? We, The People? Or, The Rulers of The World who have brought us to this point thus far and are desperately trying to manage this collapse in their favor at the expense of you and your family (I'm assuming you do not belong to the fraction of a percent of the world's population that actually control this game).

http://www.larouchepac.com/node/18398

Armin_Tamzarian · 10-06-2011 06:02PM

My understanding is that personal deposits in Irish banks are guaranteed to be protected up to a maximum of 100,000.

In the event of a default how solid will this guarantee be?
Realistically are such deposits ever likely to become under threat?

Kevint30 · 05-07-2011 08:03PM

Michael Noonan saying today another tough budget ahead....!!!.as if.!!!!.
Another 4 billion haircut needed for the year. roll on 2012.

Worztron · 05-07-2011 08:17PM

1776 wrote: »

:DThe Monetarist / Oligarchical Banking System is Crashing.
Who will survive? We, The People? Or, The Rulers of The World who have brought us to this point thus far and are desperately trying to manage this collapse in their favor at the expense of you and your family (I'm assuming you do not belong to the fraction of a percent of the world's population that actually control this game). http://www.larouchepac.com/node/18398

Yep, the capitalist world is in a sorry state (expect of course for the top few percentage). Any system that really only benefits the few is a nonsense.

Karl Liebknecht: "The basic law of capitalism is you or I, not both you and I."
Karl Liebknecht: "For capitalism, war and peace are business and nothing but business."

The_Joker · 09-07-2011 09:05AM

The only solution

.....we still get squatters rights too

ei.sdraob · 11-07-2011 10:45AM

Worztron wrote: »

Yep, the capitalist world is in a sorry state (expect of course for the top few percentage). Any system that really only benefits the few is a nonsense.

Karl Liebknecht: "The basic law of capitalism is you or I, not both you and I."
Karl Liebknecht: "For capitalism, war and peace are business and nothing but business."

Because communism is a much better alternative :rolleyes:

ml.meriwether · 11-07-2011 06:59PM

The_Joker wrote: »

The only solution .....we still get squatters rights too

€10 quadrillion? really? I think it's more in the region of a mere €85 billion.

Fowler87 · 20-07-2011 04:11PM

[QUOTE=ml.meriwether;73240915]€10 quadrillion? really? I think it's more in the region of a mere €85 billion.[/QUOTE]

Plus 10 cent

Worztron · 25-07-2011 02:29PM

We are all still waiting for the bankers and other white collar crooks to be jailed. The investigation into the financial mess must be the slowest ever (the "investigation" took so long to begin with so that the evidence could be shredded and deleted by Cowen and his cronies -- what a messed up country).
Silence from the government about it (I guess they want us all to forget about it). They seem more concerned with cutting the wages of the lowest paid. :mad:

DOCARCH · 27-07-2011 01:32PM

This explains nicely (on a global scale) in approx 3 minutes where it's all gone wrong!

http://www.youtube.com/watch?v=NOzR3UAyXao&feature=player_embedded

andrew · 27-07-2011 05:23PM

DOCARCH wrote: »

This explains nicely (on a global scale) in approx 3 minutes where it's all gone wrong!

http://www.youtube.com/watch?v=NOzR3UAyXao&feature=player_embedded

I'm at work so I couldn't watch that video, but just looking at the words with which it has been tagged on Youtube makes me seriously doubt it's accuracy.

DOCARCH · 27-07-2011 08:57PM

It's a funny! My post above was meant tounge in check but there is an underlying truth to the video and why we are all in such a mess.

easychair · 22-08-2011 08:11PM

ei.sdraob wrote: »

Because communism is a much better alternative :rolleyes:

The evidence shows that the mess Ireland is in is much worse because capitalist principles were abandoned, with the Government rewarding failed banks by propping them up. If the government was capitalist, they would have let those who are bankrupt fail, and allow other banks to emerge or come from elsewhere to properly run the banking system.

That may have not been easy, but was achievable. The route the government has chosen ensures Ireland will be depressed for many years, as the country struggles to attempt to pay even the interest on the vast sums involved, with no prospect of repaying the capital.

Ireland is led by a political class whose backgrounds are, in the main, lawyers and teachers, or politically educated university graduates, who are career politicians. The country is badly led by these politicians who have no meaningful experience of work in the real world, and who in practice rubber stamp much of the decisions of either the domestic or EU civil service. There appears to be little or no strategic thinking, and most of what the politicians do is window dressing for short term political gain, and medium term or long term detriment.

The engineers and business leaders and scientists and techno classes have no input into politics (beyond lobbying), and no input into policies which are usually made for the wrong reasons, perhaps to please the unions, or the banks, or many vested interests, and not for the betterment of the country and the people.

Goose77 · 24-11-2011 07:34PM

I read a blog that may not explain whats going on but it give us a idea on how "We The People" can turn it in our favour.
As to whats going on, its simple, were mushrooms. No expansion on that. Just look at what's going on with Kevin Cardiff.
Sanjuro, your in the private sector, if you did your job in the manner in which he did his would you still be employed. I think not.
But him, he is basically going to be promoted to a €260,000 a year position.
Sure isn't it great to be Oirish.
The link to the blog is www.rightorwrongway.blogspot.com There is a interesting post on the FAI.

melekalikimaka · 02-12-2011 12:26AM

Worztron wrote: »

Silence from the government about it (I guess they want us all to forget about it). They seem more concerned with cutting the wages of the lowest paid. :mad:

or returning it to pre-boom minimums, depending on how you phrase it

The_Joker · 02-12-2011 01:34AM

ml.meriwether wrote: »

€10 quadrillion? really? I think it's more in the region of a mere €85 billion.

No no the €85 billion is a deposit

Hermy · 02-12-2011 03:06PM

As I see it at the moment all that is being done is that the government are doing everything they can to help the banks but doing nothing to help the people. What good is it to have a secure banking sector if the banks customers are still all in debt up to their necks?
Would a better approach not be to help all the people who are in debt who in turn can service their debts to the banks and who in turn can start returning to profit?
I'm no expert on these matters and I'm sure it's not nearly so simple as my post describes it but any comment on the above would be appreciated.

K-9 · 03-12-2011 12:18AM

Hermy wrote: »

So I was right. Thought so.

I suppose the point is, the money has to come frome somewhere. I think Latvia had a similar idea and the IMF said grand, as long as the country can finance it by saving elsewhere and it doesn't get too big.

In simple terms...what happened? How bad is it?

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