Not our debt

Godge · 08-07-2015 4:08pm

howamidifferent wrote: »

The shareholders of the banks would have lost their investments and we'd not be â‚¬64 billion more in debt.

The shareholders did lose their investments. Completely wiped out they were.

Depositers were the biggest beneficiary of the bank bailout - you know, pension funds, old peoples' savings etc. Bondholders, again pension funds and credit unions were also beneficiaries.

It is hard to believe that this level of ignorance of what happens still exists seven years on.

Aka Ishur · 08-07-2015 4:23pm

Godge wrote: »

The shareholders did lose their investments. Completely wiped out they were.

Depositers were the biggest beneficiary of the bank bailout - you know, pension funds, old peoples' savings etc. Bondholders, again pension funds and credit unions were also beneficiaries.

It is hard to believe that this level of ignorance of what happens still exists seven years on.

Very true, so little understanding that the mysterious bondholders are often the average joe's pensions bundled into group schemes and funds.

20Cent · 08-07-2015 5:00pm

Godge wrote: »

Maybe you would explain to me in simple short sentences where this occurred in Greece. A list of Greek banks that failed and whose debt was taken over, perhaps? Even better if you could outline how much was involved.

As this is a serious forum, we can't just be expected to take the word of Paul Murphy's Facebook page that this happened in Greece.

Thought it was common knowledge that 90 odd percent of the bailout money Greece received went into Greek financial institutions then straight back to the banks that lent it to them.
Since it isn't and the media line is the "everyone partied" it is understandable that some find it confusing.

FreudianSlippers · 08-07-2015 5:38pm

Godge wrote: »

Maybe you would explain to me in simple short sentences where this occurred in Greece. A list of Greek banks that failed and whose debt was taken over, perhaps? Even better if you could outline how much was involved.

As this is a serious forum, we can't just be expected to take the word of Paul Murphy's Facebook page that this happened in Greece.

I totally agree. Paul Murphy is barely a serious politician and the talking points on his facebook page are nothing more than that.

BoJack Horseman · 08-07-2015 5:51pm

- 'Country 1'borrows hundreds of billions to finance state.
- 'country 1' needs other countries to help roll this debt over.
- "but its not our debt" bleats 'country 1'

Godge · 08-07-2015 5:57pm

20Cent wrote: »

Thought it was common knowledge that 90 odd percent of the bailout money Greece received went into Greek financial institutions then straight back to the banks that lent it to them.
Since it isn't and the media line is the "everyone partied" it is understandable that some find it confusing.

What a load of rubbish. You really have no understanding of what happened.

The 90% was to refinance Greece's then existing debts, apply a 65% haircut to those debts leaving the foreign banks and private sector creditors to swing for their money and at the same time to re-capitalise the Greek banks that suffered because of the haircut.

Therefore that 90% ultimately paid for the decades of free-living that the Greeks had already had. The other 10% went directly into the Greek public's pocket (who had just been let off around 65% of what they owed to foreign and private sector creditors) and whose democratically elected leaders had lied for years about the size of GDP.

It is absolutely incredible that because the bailout money went to pay off the debts (at a steep discount) that the Greek people had run up while they parties that somebody can idiotically claim that the money only went to the banks!!

20Cent · 08-07-2015 6:04pm

BoJack Horseman wrote: »

- 'Country 1'borrows hundreds of billions to finance state.
- 'country 1' needs other countries to help roll this debt over.
- "but its not our debt" bleats 'country 1'

But it didn't go to finance the state. It's estimated that only 10% was used by the state. Private banks lent to other private banks yet the state picked up the bill.

BoJack Horseman · 08-07-2015 6:11pm

20Cent wrote: »

But it didn't go to finance the state. It's estimated that only 10% was used by the state. Private banks lent to other private banks yet the state picked up the bill.

You are deliberately missing the point.

A country doesn't have to repay a loan it didn't take out!

Eugene Norman · 08-07-2015 6:11pm

Aka Ishur wrote: »

Very true, so little understanding that the mysterious bondholders are often the average joe's pensions bundled into group schemes and funds.

Well that's the nature of private pensions. The private pensioners ( often foreign, richer than average) or the Irish or Greek tax payer.

Eugene Norman · 08-07-2015 6:12pm

BoJack Horseman wrote: »

You are deliberately missing the point.

A country doesn't have to repay a loan it didn't take out!

Ireland is definitely repaying loans the sovereign didn't take out.

20Cent · 08-07-2015 6:25pm

BoJack Horseman wrote: »

You are deliberately missing the point.

A country doesn't have to repay a loan it didn't take out!

It does when it's threatened with a "financial bomb" going off if they don't.
Read a bit about Brian Cowans testimony today see how it works.
Right wingers celebrating private debt being made public is absurd they should be as annoyed about it as the lefties.

BoJack Horseman · 08-07-2015 6:27pm

20Cent wrote: »

It does when it's threatened with a "financial bomb" going off if they don't.

Prove that government debts accrued by Greece year on year for the past 40 years & financed by selling bonds didn't get spent on the running if the state/social welfare etc....

Should be easy for you.

K-9 · 08-07-2015 6:30pm

Mod:

Cut out the load of rubbish and amount of ignorance stuff please, there's no need for it and will be seen as attempting to wind up others to reply in kind or worse.

Also who posts in the journal is of no relevance to boards.ie, post deleted, any reoccurrence will get a ban. Boards users are anonymous posters and privacy is taken seriously.

20Cent · 08-07-2015 6:31pm

BoJack Horseman wrote: »

Prove that government debts accrued by Greece year on year for the past 40 years & financed by selling bonds didn't get spent on the running if the state/social welfare etc....

Should be easy for you.

Didn't say that.

Point is the vast majority of the bailout money went straight back to private banks very little went to the Greek state about 10%.

Godge · 08-07-2015 6:38pm

20Cent wrote: »

But it didn't go to finance the state. It's estimated that only 10% was used by the state. Private banks lent to other private banks yet the state picked up the bill.

Not true. I have already explained to you the sequence of events.

Godge · 08-07-2015 6:39pm

20Cent wrote: »

Didn't say that.

Point is the vast majority of the bailout money went straight back to private banks very little went to the Greek state about 10%.

It went to pay back the private banks some of what the Greek state owed them. The banks had to swallow the loss of the rest of what the Greek state owed them.

Seth Brundle · 08-07-2015 8:42pm

FreudianSlippers wrote: »

I totally agree. Paul Murphy is barely a serious politician and the talking points on his facebook page are nothing more than that.

I disagree with your use of the word "barely" as this implies that he is somewhat of a serious politician.

08-07-2015 10:15pm

Dave! wrote: »

Hi there,

I come here in search of knowledge. Can someone please explain the "not our debt" argument that the AAA/PBP and so on have been putting forth for the last 7 or 8 years? I've never really understood it, and I see it is coming up again now in relation to Greece – commentators are saying that the bailout Greece received actually went to Italian(?) and French banks.

There are two distinct arguments there.

Illegitimate or odious debt is a doctrine which is today associated with post-conflict African and Latin American banana republics. However, it comes from very capitalist origins. The idea was first properly developed by the bould Aleksandr Sak, an up-and-coming Minister in the Russian Empire, who fled the Bolsheviks. The Bolsheviks declared all Tsarist debts illegitimate, which rightly annoyed Sak, who saw the need for clear rules on odious debts. He promptly fled to Paris and developed his famous doctrine.

The idea is that debt can only be considered odious and illegal if it (1) was imposed without the consent of the people and (2) it was not to their benefit, but to the benefit of some corrupt regime.

The doctrine was actually pro-capitalism at the time, but nevertheless it fell out of favour, and is now almost obsolete. It briefly returned around the Millenium, with the Millenium Development Goals ... perhaps you recall Bono sauntering down the Corridors of Power asking a lot of bemused politicians to make poverty history. Well, that's one of it's pillars.

Well it's difficult to see how the doctrine of Odious Debt applies to Greece, where a legitimate, democratic government has contracted a huge debt which it considered to be in the interests of the Greek financial system and presumably, the wider economy.

However, there is a different, less formal, pragmatic reason why ownership of some Eurozone bank debt should be reassessed.

In some countries, sovereign governments were provided with loans that were largely designed to refinance obligations to benefit bank creditors in other Eurozone countries, particularly Germany.

The argument goes that this refinancing was mostly a bailout for German and other wealthy creditors, with some or little public benefit for the local taxpayer. For example, German exposure to Greek banks was around 30 billion euros in 2010; these have been repaid to German banks at the expense of Greek taxpayers, with money that Greece borrowed, mostly from ... guess who ... Germany.

You can see some sense in the argument that Germany should share some of the burden of the benefit that its banks derived. At the very least, it seems wrong that Germany and its banks make a profit on it.

The situation with Ireland is more contentious, but there's a similar argument being advanced in Ireland too.

noodler · 08-07-2015 10:19pm

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.

Well that's a lie anyway.

We guaranteed the banks.

The ecb didn't think us coming to our sense when it was too late (and burn the last 5bn) of senior bondholders was worth the risk.

Shouldn't be forgotten that we had already committed the 64bn by this time.

20Cent · 08-07-2015 11:33pm

noodler wrote: »

Well that's a lie anyway.

We guaranteed the banks.

The ecb didn't think us coming to our sense when it was too late (and burn the last 5bn) of senior bondholders was worth the risk.

Shouldn't be forgotten that we had already committed the 64bn by this time.

The testimony from the banking inquiry confirms that the troika were originally in favour of burning some bondholders but this was quashed when they realised it was German and French banks.

08-07-2015 11:52pm

20Cent wrote: »

The testimony from the banking inquiry confirms that the troika were originally in favour of burning some bondholders but this was quashed when they realised it was German and French banks.

I haven't been able to catch up on all of the witness evidence yet.

Which accounts are you referring to?

On a side-note, I must say from what I have seen that the Irish Banking Inquiry is an invaluable primary resource for Irish history. Any concerns about its provenance must surely be overcome by the sheer depth of information being provided, and the genuinely non-political nature of its fact-finding mission.

What a pity that this honest, rational inspection of economic policy followed economic ruination instead of preceding, or forecasting it.

Amirani · 09-07-2015 12:01am

20Cent wrote: »

The testimony from the banking inquiry confirms that the troika were originally in favour of burning some bondholders but this was quashed when they realised it was German and French banks.

You really think there was a point where the ECB/EC didn't realise the exposure that Eurozone banks had to Irish banks?

Browney7 · 09-07-2015 12:09am

What gets me is on what information did Cowen, Lenihan etc rely on when deciding about issuing the blanket guarantee?

What we're told is that it was a "liquidity" crisis. Who adjudicated on this? If they were told by the banks is this not fraud? Did they just take the banks at their word - is this not criminal and just stupidly negligent if nothing else? If they used the final accounts as a determination of solvency is there recourse against the auditors. Arthur Anderson didn't exactly survive the Enron controversy. Basically what I'm trying to say is, if they gave a guarantee knowing the banks were insolvent why in gods name did they do it?

Once they made the blanket guarantee the cat was out of the bag. Ball burst, game over.

20Cent · 09-07-2015 12:09am

A Tyrant Named Miltiades! wrote: »

I haven't been able to catch up on all of the witness evidence yet.

Which accounts are you referring to?

On a side-note, I must say from what I have seen that the Irish Banking Inquiry is an invaluable primary resource for Irish history. Any concerns about its provenance must surely be overcome by the sheer depth of information being provided, and the genuinely non-political nature of its fact-finding mission.

What a pity that this honest, rational inspection of economic policy followed economic ruination instead of preceding, or forecasting it.

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.

alias no.9 · 09-07-2015 12:10am

Eugene Norman wrote: »

Not ever letting banks fail means that there is no real financial capitalism, just a state backed oligarchy. If banks can't fail because they would bring down the economy the sane thing to do is regulate them to the extent they can't ever fail, or nationalise them for good. Either way capitalism has failed.

I'm pretty sure the Irish guarantee was of deposits and wouldn't have been seen to apply to bonds.

I did always wonder why, even though in the event of a bank liquidation senior bond holders rank pari passu with depositors, that a government insurance scheme for depositors had to offer the same protection. It's all moot as the gob****es of the day in Leinster house put in place a blanket guarantee.

KingBrian2 · 09-07-2015 12:30am

Dave! wrote: »

Hi there,

I come here in search of knowledge. Can someone please explain the "not our debt" argument that the AAA/PBP and so on have been putting forth for the last 7 or 8 years? I've never really understood it, and I see it is coming up again now in relation to Greece – commentators are saying that the bailout Greece received actually went to Italian(?) and French banks. Are these banks that are operating in Greece, or the money went abroad for some reason? Did the Greeks (and Ireland) not get loans to save their (domestic) banking system, and thus their economy?

I gather this has a lot to do with the European banks being so connected, and everything being dictated by the ECB. But it's very complicated stuff, I'm fairly out of my depth, even though I follow it closely every day.

Anyone able to explain it like you're explaining to an infant? And any good articles to read would be good too.

Thanks!

edit: Ideally someone who is not completely blinded by ideology would be able to help a brother out..

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.

KingBrian2 · 09-07-2015 12:34am

A Tyrant Named Miltiades! wrote: »

I haven't been able to catch up on all of the witness evidence yet.

Which accounts are you referring to?

On a side-note, I must say from what I have seen that the Irish Banking Inquiry is an invaluable primary resource for Irish history. Any concerns about its provenance must surely be overcome by the sheer depth of information being provided, and the genuinely non-political nature of its fact-finding mission.

What a pity that this honest, rational inspection of economic policy followed economic ruination instead of preceding, or forecasting it.

That's because the enquiry is not for profit and in the public domain. All you have to do is look and be curious. Something shareholders did not do in their banks.

K-9 · 09-07-2015 4:19am

20Cent wrote: »

The testimony from the banking inquiry confirms that the troika were originally in favour of burning some bondholders but this was quashed when they realised it was German and French banks.

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

dlouth15 · 09-07-2015 4:55am

Dave! wrote: »

Hi there,

I come here in search of knowledge. Can someone please explain the "not our debt" argument that the AAA/PBP and so on have been putting forth for the last 7 or 8 years? I've never really understood it, and I see it is coming up again now in relation to Greece – commentators are saying that the bailout Greece received actually went to Italian(?) and French banks. Are these banks that are operating in Greece, or the money went abroad for some reason? Did the Greeks (and Ireland) not get loans to save their (domestic) banking system, and thus their economy?

I gather this has a lot to do with the European banks being so connected, and everything being dictated by the ECB. But it's very complicated stuff, I'm fairly out of my depth, even though I follow it closely every day.

I think most people will agree with the principle that private investors take responsibility for the investments they take. If a supermarket opens in your area but fails to find customers they have no right to expect the local area to compensate them for their loss.

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.

So really the "not our debts" argument with relation to Ireland should not be that controversial. The banks were private sector companies dealing for the most part with private sector entities, developers, property speculators, depositors, homeowners and such like.

It is really more for those who think that private organizations should be compensated for bad business decisions to justify their position.

With regards to Greece, that is a different situation. Can you give some examples of how it has been applied to the Greek situation? Yes, about 90% of money currenty being lent to Greece gets paid out fairly quickly, in many cases back to the same lenders! But this isn't really a "not our debt" arguement but rather one about debt sustainability. If you find yourself lending to someone in order primarily to services debts including servicing debts you yourself have made earlier, it is time to look at the question of debt sustainability.

Those who make the debt sustainability argument hold the position that further lending to a country in order to service existing debts does not make financial sense and is primarily done for political reasons. The political reason is that it is easier to lend more and more than face the fact that you have been lending unwisely. Of course the other party has also been borrowing unwisely but that does not take away from the fact that your lending has also been unwise. If debt is unsustainable as the IMF thinks it is, then further bailouts where debt is added to makes no sense. It neither helps the country in the programme (who mainly use the money to service existing debts) and neither does it help you recover any money already lent. All it does is put off the day of default.

But whether or not you agree with the above, it is not the same argument as the Irish "not our debt" argument which most people regard as being about socialising private losses.

dlouth15 · 09-07-2015 5:01am

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.

Although some might argue that all the national debt is "not our debt" I don't think that is what most people mean by it. They mean the adding of what was once private losses onto the public debt.

Not our debt

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