At Trinity College last night, Joe Stiglitz repeated his criticism of NAMA. The Irish Times reports:
He said Nama is likely to “burden this generation for 25-50 years or more. I am very uncomfortable with a government with such a minority support making such a decision.”
He said the view there is no alternative is “just wrong”.
“There is an alternative. Play by the rules of capitalism – if you can’t pay back your debt, shareholders and bondholders lose. If the Government puts in money, it needs to get control commensurate with the money put in. It also should get a return proportionate to the risk involved – in this case, it’s a big risk.”
The Minister for Finance has responded to Stiglitz’s criticisms. According to Bloomberg:
Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.
“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”
Of course, the US TARP bank package, which Minister Lenihan is referring to as a tremendous success, started life like NAMA as a plan to overpay for troubled assets but was changed to become a plan in which the US government made equity investments in the leading financial institutions.
Stiglitz has argued that the terms of the TARP equity investments were insufficiently generous to the US taxpayer—see here for a report from TARP’s Congressional Oversight Panel which endorses this viewpoint. It would be misleading, however, to characterise the Stiglitz’s criticisms of TARP as being directly related to his views on NAMA. On this issue, see here for an interview with Joe from Feburary in which, among other things, he discusses proposals then being floated for the US government to purchase bad assets—he characterises Paulson’s orginal TARP plan as “cash for trash”.
56 replies on “Lenihan on Stiglitz”
Lenihan’s response is a bit worrying.
Does he understand what he’s doing?
Someone should ask Stiglitz to produce a model on his “let-capitalism-work” theory for Ireland.
Stig simply states “let the banks go bust” as an article of capitalist faith. None of the main political parties and, as I understand it, only a minority of anti NAMAers think we should let the banks just go bust.
He suggestes that the 55B being invested should get a proper risk/reward trade off. This is extremely naive. He sees this move as some sort of portfolio investment strategy. This is a move to save the country (whether you think it will work are not). It’s risk/reward should be judged against doing nothing, or at least against some alternative. Versus doing nothing NAMA is far less risky and far more rewarding. We can debate whether there is an alternative which is even less risky and more rewarding.
This simplistic nonsense from the very top of the global economics profession must give great comfort to those who are a bit rattled by a letter written by 46 local hacks.
Per Stiglitz’s theory, shouldn’t a load of international banks and pension funds now own the entire sovereign state of Iceland?
I’m with Stiglitz (and McWilliams): Save the necessary banking functions and let the rest go bust. It is pure madness to throw taxpayer money at the banks as they are. Give capitalism a chance!
Stiglitz has been missing some of the local debate.
It is not the claim that “there is no alternative to NAMA”, but rather that “NAMA is the only game in town”. An important distinction.
This is the Irish way of doing things.
Okay, all you diehard capitalists. Does that mean letting depositors getting toasted?
The pro-NAMA camp needs to stop throwing up straw-men, which insult the intelligence of Stiglitz and leading independent economists like Karl above.
Being opposed to NAMA is not like letting the global capitalist system go bust, nor does it mean that depositors must be sacrificed on the alter of “diehard capitalism”.
It means that subordinated bond debt and share value is wiped out, before the govt is forced to step in and do the necessary.
“The necessary” can be achieved through a recapitalisation which effectively places the banks under state control. Then the banks can be cleaned up (first part of that means sacking the clowns who ran them into the ground) and refloated.
Nothing clears through the morass of FF propoganda like a Nobel-Prize winning economist.
After all, if NAMA is the only show in town – Joe is from Out of Town.
“As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”
Its a bit early to make that kind of judgement? What this crisis has proved without any doubt is that we should be wary of making judgements on short term upticks. Weren’t bank executives bonus schemes (based on short term results) one of the prime causes of the meltdown.
Even Nama could be judged a success on some short term measurement scale (wow look at AIB, and BOI shares go!) even before it has got off the ground! We should never underestimate the capacity for irrationality of the investment community, nor the deviousness of FF ministers.
“It means that subordinated bond debt and share value is wiped out, before the govt is forced to step in and do the necessary.”
How do you make out that Stiglitz thinks that senior bondholders shouldn’t suffer. He only differentiated between depositors and bondholders.
Well stated and I agree with you.
One problem now is the malign interaction of the continuing liability guarantee and NAMA alternatives such as short-term nationalization. At a minimum, short of nationalization, NAMA asset purchase terms should be tightened drastically and membership in any renewed guarantee scheme should be dependent upon acceptance of those stringent terms. The liability guarantee scheme (and its planned renewal) is acting as an effective block on bank cleansing.
How can “leading economists” be so opposed to NAMA. If the argument is that tax payers are taking the hit, we are. Not an option, it’s something that has to be done.
Debt from failed assets are shelved into a “garage” for someone else (NAMA) to deal with allowing banks to flow credit.
The options for the bank are, either use 53 Billion (approx) to allow credit to flow and the other is to just cut their liabilities, which we don’t want.
Its then simple, you have to trust the banks and NAMA works. Credit (viable and real credit this time) flows and the job sector gets the necessary ingredients it needs.
Obviously we don’t trust the banks so what’s missing for NAMA to function is deep regulation from a body that has NO STAKE OR SOMETHING TO LOOSE by NAMA winning or losing.
The argument for someone who is saying that there was regulation before is false, there was regulation but by people who had a lot of money invested in such a corrupt system. They had a lot to lose.
Regulation in the banking financial sector is key, if this is introduced NAMA can succeed.
Oh and Stiglitz saying we are going to take a Burden for 25-50 years is horse****
October 8th, 2009 at 2:25 pm
“How can “leading economists” be so opposed to NAMA.”
With considerable ease apparently.
“ If the argument is that tax payers are taking the hit, we are. Not an option, it’s something that has to be done.”
Why are you so anxious to spend my money?
It amazes me why people think the banks are suddenly going to start lending again because of NAMA while in the middle of the deepest recession in history. Banks have a legal obligation to carry on business for the benefit of their shareholders end of story so why would they take the risk of lending to small businesses when they will still be in need of capital after NAMA. Am I missing something?
Because you’re on ridiculous Money Greg, that why. I’m sure you can spare the few cents. Joke.
Look we have to take a hit for this to work, I mean come on whewre else are you going to source 53 Billion. The tax system in Ireland is progressive. Taxing the wealthy more and the less well of on a smaller scale. It’s done so wages and wealth don’t fluctuate so much and we don’t have complete inequality in income.
To finance NAMA this taxing system had to be increased slightly. If we don’t do this now the social effects of having lingering “bad assets” and a inefficient flow of credit and an inefficient banking system will have a greater negative social impacts on living standards for years to come.
We need 53 Billion to finance our own INTERNAL problem, and it has to sourced INTERNALLY = taxpayers.
This problem won’t just disappear, it needs to be dealt with now.
I know it might not be fair but I want this to work I don’t want my kids dealing with this in years to come. No one (despite the many post by the “genius’s” on IE) have come up with a viable alternative (and having a discussion about “the crisis” in seminars in Trinity and UCD don’t count by the way.)
I will say one thing on the government’s part, there should be regulation on pricing in Ireland, in economic principle they should fall with income levels. Despite that half price offers you see in Tesco there isn’t actually any change in pricing of general products, an increase if any.
This is where regulation steps in. It prevents small business’s from having a weak bargining power when dealing with Banks.
As I said strong regulation is key.
Ths usual measure of general prices, the CPI, is down 6.5%, September to September – see front page of CSO website.
The harmonised measure has Ireland showing the largest price drops in Europe, down 2.4%, part of a general fall of 0.2%.
What has not shown (yet?) is a decrease in the published statistics on average earnings. In the ‘Comment’ part of the Central Bank Bulletin (see link in Phillip’s post of a few days ago) they suggest this could be do with the earnings profile of those losing jobs.
“I know it might not be fair but I want this to work I don’t want my kids dealing with this in years to come. No one (despite the many post by the “genius’s” on IE) have come up with a viable alternative (and having a discussion about “the crisis” in seminars in Trinity and UCD don’t count by the way.)”
You must be a “genius”yourself, if you think your kids will not be dealing with this NAMA-as-is for the foreseeable future.
Perhaps you sat beside Lenny in school and some of his “genius” rubbed off?
Who else but you and him could dispense with very well-intentioned advise from Independent Economists both Irish and non-Irish, Nobel winners, etc.
If you “know it might not be fair”, presumably to Taxpayers and Citizens of this Republic, why not embrace a solution from the many which have been advanced, despite what you say, which would be fair and equitable, and which would protect those who did not cause this “crisis”, and yes it is a crisis of monumental proportions.
Another point, where did you get this figure of €53 Billion which would be available to loan out?
Have you taken account of the €24+ Billion which will be given to Anglo +Irish Nationwide for their toxic assets (loans).
When do you expect Anglo and IN to start lending to SME’s and others again?
Conor all the regulation in the world cant force the banks to lend if they dont want to, unless you bring in a law that says they must lend. The best form of regulation in any case would be for the government to take a large equity stake in the bank. Anyway It may be all academic as the way I read it the Greens are looking for an escape route from one of the most scandalised governments in the history of the state and who can blame them. NAMA loooks like being that escape route.
Also Its funny the way people are prepared to put full trust in a gombeen fianna failer like Brian Lenihan while at the same time trying to ridicule a nobel prize winning economist with a worldwide reputation, very Irisih
[…] Update 1: Nobel Laureate economist Joseph Stiglitz had some very harsh criticism of the government’s bad bank on RTE1 last night, watch here. Apparently the Minister for Finance has criticised Stiglitz here. […]
Nama is the biggest financial decision in the history of the state. So before we set it up we would want to have no doubts about the process that has led to it being selected and whether it can be improved. Instead:
Have independent experts been allowed to do due diligence on Nama? No they have not. The government have deliberately released as little information as possible.
Have the Minister for Finance and other politicians conducted the debate honestly? No. I follow politics closely and I have never seen such a dishonestly conducted debate, in any democratic country. Academics who made constructive criticisms were smeared in an organised fashion.
Have the minister and his colleagues demonstrated a clear grasp of the issues? Again the opposite.
Is Nama being created by people who have proven track records and no involvement in our country’s financial collapse? No it isn’t. Quite the opposite.
Have independent experts approved Nama?
46 of them took the unprecedented step of writting a public letter against it.
David McWilliams opposes it. Joseph Stiglitz opposes it. Sean Barrett opposes it. As against that, qualified support from Garret Fitzgerald and Alan Dukes.
Has it got cross-party political backing?
George Lee, Richard Bruton, Joan Burton and all the opposition oppose it.
Is there considerable evidence for its assumptions about property market values? No there isn’t. Morgan Kelly completely disagrees. Other property bubbles have been followed by decades long busts. We are at the end of a global property bubble.
Is there considerable independently scrutinised evidence for the quality of the loans taken over?
No. And we aren’t being given any.
So the whole process that has led to Nama could scarcely be more flawed. The longer the debate has gone on the more the behaviour of the government resembles the dishonesty of the Bush administration in the lead up to the Iraq war.
Can Nama be improved?
Independent experts and the opposition have suggested many, many alternatives. Stiglitz, George Lee, Patrick Honohan and per Karl Whelan many alternatives from around the world. Independent experts have also suggested many straight-forward improvements to Nama, particularly on risk-sharing and not paying over the market value. Understandably but ominously the whole issue of transparency has been little addressed.
I have seen no evidence that the government has seriously considered the alternatives. From an early stage the outcome has been predestined. Where we thought we would end up before the summer is exactly where we have ended up. They have entirely ignored constructive criticisms and smeared those who made them.
Given the flawed process leading to it and the obvious flaws in it any fair-minded person cannot support anything but a hugely amended version.
We cannot afford to waste scarce resources at this time of economic crisis
and poison our politics for a decade or more.
Guys, please write another letter.
Sean Barrett claimed that the DART would be a huge white elephant and that the monies should be spent on roads instead.
Dave McWilliams argues that Ireland should scrap the euro to deal with our current crisis.
Brian Lucey predicted a soft landing for the Irish housing market.
These are all smart people but they should not be regarded as clairvoyants.
the McWilliams “we should leave the Euro” piece was the biggest ego-trip in the short history of our new set of economentariat (economic commentators? geddit?). It probably cost this state a couple of hundred million in long term permanently higher bond yields.
Also, Morgan Kelly, per his “house prices will fall 80%” line reckons the average house is gonna cost €62k by the end of this crisis. Anyone else actually expect this to happen?
Joseph Stiglitz is in danger of being afflicted with the same syndrome as the once famed Maestro, Alan Greenspan – – believing himself to be infallible.
If he’s not on a world tour, he’s on some media outlet and the problem about his criticisms of the Obama administration, is that one can only wonder about the impact on his own judgment, that his old sparring partner Larry Summers is in a role he must have aspired to.
I attended Stiglitz’s ESRI lecture in Dublin a few years ago and all I can recall from it, is the number of times he waved his then recently published book on globalisation.
In America in particular, bankers weren’t the only ones on the money train.
In his two-and-a-half-year stint as a banker, Rahm Emanuel, President Obama’s chief of staff and former adviser to President Clinton, made $16.2m, even though he had no financial experience.
In April this year, the White House released records, which showed that Summers, earned nearly $5.2m in just two years at one of the world’s largest hedge funds – – working one day a week.
In April 2008, investment bank Goldman Sachs paid Summers $135,000 for a one-day appearance at a company event.
I’m not saying that earning lots of money necessarily implies that it influences stated views but some scepticism is required.
Stiglitz was reported to have been given a hero’s welcome by students in China last summer. There is always a temptation to play to the gallery when there is such a fan club for one’s views.
Ah, Eoin & Conchubar O’Caolai, why am I not surprised to see you two? Where are Conor, Homer and zhou_enlai?
46 independent economists. David McWilliams. Joseph Stiglitz. Sean Barrett. Morgan Kelly.
Some of these could be wrong but all of them at the same time?
That is enough to make me stop & re-examine the entire project.
It’s simple: bank bondholders & shareholders versus the general public. We are about to embark on several years of cutbacks. Every ADDITIONAL: hip replacement operation delayed, every oncology appointment and every mental illness treatment delayed with fatal consequences, every child who leaves school illiterate & innumerate as a result of bailing out bank bondholders & shareholders is too high a price to pay.
If Nama had a fixed cost I might be able to swallow it. But give a blank cheque to the shysters who ruined the country and the people who lent money to them and bought their bonds and shares during what they all knew was a run-away property boom? No thanks.
That’s my final word to you on this thread.
“As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”
BL should read the list of bank failures so far-
In addition, with 416 banks on the watch list for failure and with
CITI and BOA still on life support, I think the Minister is a bit premature in his judgement of the TARP scheme
Eamonn – I think it’s safe to say that a good pecentage of the medical procedures you refer to you in your post that are currently financed by money borrowed from international bond markets because the Irish taxpayers aren’t paying enough to meet the outgoings of the State.
If the Greens reject NAMA on Saturday and the government collapses, my view is that the Irish state will be plunged into a much more serious financial crisis than the one we’re in, with a drastic impact upon our ability to fund these procedures.
The bond markets like NAMA – for any number of reasons – and if we are plunged into a general election, which will lead to huge uncertainty as to how we propose to resolve our banking crisis, I believe that in the fickle mind of the bond markets we will then be relegated to Iceland status.
If the Government falls and Fine Gael lead a coalition government and decide to proceed with their ‘good bank’, how long can it reasonably be expected to take to get this good bank up and running?
‘Also, Morgan Kelly, per his “house prices will fall 80%”
Hopefully the drop will not be as steep as predicted by Prof. Kelly but I note a report in the FT today saying Latvian house prices have fallen by 70%.
Latvia’s GDP is about to fall 18% or so THIS YEAR and they’re probably about to devalue the currency by up to 50%. As bad as our situation is, it’s not at the same extreme as Latvia.
given that we are currently borrowing 20bn against actual tax income of 33bn, i think its fair to say that roughly 40% of those medical procedures are being financed by the generousity of foreigners. These are the very same foreigners Eamonn wants to inflict losses on via a route (sudden large scale nationalisation of the banking sector and enforcement of losses on senior debt) that no other developed country has so far attempted. Good luck with that.
Concubhar, we need facts to support your view of Armageddon in the bpnc markets. Without factual evidence your view is just an opinion. And you know the saying about opinions being like….
This is just scaremongering. Iceland’s problems were vastly greater than Ireland. We are in the EU and the IMF. We are small & rich. If we can’t take a little off bondholders no one can.
Wipe out the shareholders. Offer the subordinates 15% (Eoin is happy with thirty so I think we can divide by two). Then take 10% off the Senior bondholders. If that doesn’t cover the gap take a bit more. We keep being told by Nama fans that the property market will recover. Great! The bondholders will lose even less as our banks will recover quickly. Any money we put into the banks should be in return for ordinary shares. The bondholders read the papers. They are financial people who were financially destroyed in Iceland. They know Ireland’s economy hit the wall.
A small hit will not spark a new world depression.
If we don’t do Nama and do a Stiglitz variation instead we have a much greater chance of a quick recovery.
We all want the lowest cost to the taxpayer?
We all want the country to recover as quickly as possible?
None of us want additional unemployment, emigration and poverty?
Then hit the shareholders & the bondholders.
“this is just scaremongering” needs to be banned as a reason for rejecting pro-NAMA talking points. Its lazy and idiotic. Sometimes there are real things out there to be scared of, such as the sudden shutting off of the funding of the financial sector and the sovereign itself. It happens. If we had followed McWilliams’ truly insane proposal to leave the Eurozone it’d have already happened. But lets cross our fingers and hope he’s right this time, yeah? I’d rather spend a bit of money on a process which the people who are giving us the money to keep the lights on at the moment seem to accept as a decent proposal, instead of risking it all on something which has never, i repeat NEVER, been tried on a systematic basis before, anywhere.
and also, “we’re small and rich”? If there was a website called icelandeconomy.ic last year, im almost sure someone would’ve posted the very same comment and been equally as surprised when it turned out to mean nothing a few weeks later…
[…] as much last night but try explaining it to whiz kid Minister for Finance Brian Lenihan, from irisheconomy.ie, “At Trinity College last night, Joe Stiglitz repeated his criticism of NAMA. The Irish Times […]
I think we can only ban “scaremongering” from the pro-NAMA talking points in return for a corresponding concession from the pro-NAMA side. 😉
How about we drop scaremongering and you guys drop “no viable alternative”?
If that worked, we could look to deepen negotiations. We could see if our crazies would stop talking about developers if your guys would stop talking about free money from the ECB. Or equal risk sharing. Or international support. Or IOUs. Or “They did this in Sweden.”
And if you could stop people saying “Only Game in Town”, who knows how far I’d be willing to go?
October 8th, 2009 at 12:17 pm
“Okay, all you diehard capitalists. Does that mean letting depositors getting toasted?”
Hmm. Your ideas are intriguing to me and I wish to subscribe to your newsletter.
The report in the Indo http://www.independent.ie/business/irish/state-should-have-let-banks-fail-says-nobelwinning-economist-1907525.html about Joseph Stiglitz’s view that the banks in Ireland and worldwide should have been let go to the wall rather than saved also included the following:
“But his comments came as a security analyst in London said troops would have had to be deployed on the streets if the government in Britain had let large banks there fail.
“You are talking about a situation with mass disorder and panic,” said David Livingstone, a fellow at the Royal Institute for International Affairs, and a former adviser to the UK government’s Cobra crisis response committee.
“There would have been riots, pandemonium, everyone fending for themselves,” he said.
It is a year since Royal Bank of Scotland and HBOS came to the brink of collapse, one week after the same fate befell the Irish banks and the Government introduced the blanket guarantee. “You would have had unmitigated panic and a bank run,” claimed Tom Kirchmaier, a fellow at the London School of Economics.”People would not have been able to buy bread. The cost to the economy would have been catastrophic.””
This page has info on David Livingstone in case you want to see who he is.
This was also reported separately in Bloomberg. where the below comments were also made
“If RBS hadn’t been propped up as it was, in practice it would have been nationalized the following week,” former Bank of England deputy governor John Gieve said in a Bloomberg Television interview. “If RBS, HBOS, Lloyds had gone down, that would have had huge contagious effects throughout the rest of the world.”
The failure of Edinburgh-based RBS and HBOS would have had a domino-effect with customers seeking to take out their deposits from other lenders and causing a wider run on U.K. banks, said Vicky Redwood, an economist at Capital Economics Ltd.
“Trust in the banking system would have completely collapsed” and would have generated civil unrest, said Redwood. “People would have been rushing to take their money out of the other banks and you would have been heading back to the depression era.””
I am sceptical, given the panic that was around at the time, that we would have had the orderly wind downs of banks that some people think would have been possible.
““this is just scaremongering” needs to be banned”
Even Brian Lenihan would have been proud with the amount of scares you came up with in the rest of your post. This financial fear mongering is not a good basis for policy.
“Sometimes there are real things out there to be scared of, such as the sudden shutting off of the funding of the financial sector and the sovereign itself”.
Maybe in the unprecedented atmosphere of Sept 08 but you will agree that things are hugely more stable now. The fact that our banks are insolvent is now an accepted fact, not a dreadful surprise. I have just said it and I bet you haven’t batted an eyelid. After Iceland it is also now understood that when things go really wrong, and everyone on the planet knows Irish banks are insolvent, bondholders may be hit.
You talked about buying the subordinates out at 30 cents in the Euro. If someone as fearful as you is happy then fifteen cents should not spark an international panic.
I presume you agree that the shareholders of bankrupt banks should not be given free gifts from a hard-pressed exchequer. That really would make outsiders think this is a banana republic.
Your main concern seems to be the senior debt. I agree, we have to tread carefully. We need to announce ASAP a proposed tidy trim to them and then negotiate. We should specify it will be just a little bit for AIB and BOI. In return they can have shares and benefit from the upswing that Nama relies on. We can put in money in return for shares in the cleaned up banks. We can boost their lending as much as they are willing to give out. That keeps our systemic banks and there will be no panic.
The second announcement will be about Anglo and Nationwide – they can go to the bondholders. Every shareholder & bondholder in Anglo & Nationwide is now aware that they were property casinos that took deposits. This will not be a shock especially if we prepare the ground in advance. We should give the Seniors the companies and perhaps a minimal compensation. Again, when the uplift in property that Nama backers predict comes they should be fine.
“I’d rather spend a bit of money on a process”
If I knew upfront what the final costs of Nama were I’d be much readier to consider it. But I don’t and neither do you. 5, 10, 15 Billion – pretty soon were talking about real money, as the US senator joked.
“risking it all on something which has never, i repeat NEVER, been tried on a systematic basis before, anywhere.”
Save BOI negotiate with AIB from position of strength. The sytem is saved.
Individual banks go bust all the time in the US. Let the bondholders have Anglo & Nationwide. The sun will still rise the next day.
Repeal the guarantee legislation & amend the constitution to prevent legal action. Protect the deposits. Stiglitz has written the script.
Lenihan has suckered us. He really has. Instead of us wondering why we might have to give some money to senior bondholders, he’s got us begging him not to hand money to shareholders of insolvent companies. In a way I would be more angry with him if he dropped the premium over current “Lenihan market” value. We would still have the huge risks of buying in an uncertain property market but Slippy Brian would be able to say, pompously as usual, that he had resolved his critics major criticism. I think I’d commit suicide – and I have no vested interest in this debate, except as a citizen.
If the property market does not recover and Nama racks up huge losses the bitterness in this country, already high after scandals in all areas of public life, will not have been higher since the civil war.
If Nama keeps land prices too high it may well turn out to be more costly to the society and the economy than agreeing to cover the losses on the banks property loans or giving them an even bigger once-off huge gift.
I am tired of debating within the parameters Lenihan has suckered us into. Lets have a sane, cost-minimising solution.
Now I am off to write to the Green TDs in advance of their conference. Thank you for helping me to write my letter.
since the nama bill went to the dail. aib and bank of ireland have raised ung’teed senior debt at levels unthinkable 6-8 weeks ago. the start of the process were the govt’s contigent liability for the ENTIRE debt of the banking systems begins to get termed out.
irish sov cds has tightened dramatically and the country issued its longest dated govt bond this week (issuing almost one third of next years funding requirements in one go).
a sense of normality is pervading the interbank markets and foreign banks are reopening wholesale lines and extending credit beyond the govt gtee date to irish banks.
i dont think the greens voting no and a potential collapse of the govt will be the best thing for a fragile economy looking for a managed workout of a blown up economy. 15-20bn contingent risk of loss is very little over a 10-15 year period to protect an economy that could easily be worth 350bn in 10years time. i genuinely hope we’re not re-entering the vortex on monday. i just wanna move forward. i dont have a pubic sector job or international speaking engagement to fall back on. (and for the record i dont work for any of the irish banks)
@ Michael Hennigan
Ever since this NAMA “only game in town plan” has been rolled out I have been asking myself, what the hell, does Brian Lenihan think he is infallible or what?
But yesterday he told us that the manner of John O’ Donoghue’s parting “was a black day for the Irish people”. The game was up! I knew right away that he was not “infallible”. Now, I am more worried by NAMA than ever before!
“Joseph Stiglitz is in danger of being afflicted with the same syndrome as the once famed Maestro, Alan Greenspan – – believing himself to be infallible”.
His clear statement that “Over paying for assets with tax payer money is criminal” hardly necessitates, by any stretch of the imagination, invoking the concept of infallibility. Sure my two children have told me that!
So what if he waved his book around he was obviously proud of it! Was it any good?
Like Bookworm, I read that fair and balanced piece in the Indo today. It quoted Nobel-laureate Stiglitz on the one hand, and then gave equal prominence to some guy going on about tanks in the street.
So that’s our choice is it, NAMA or Lord of the Flies?
And apparently the IT tomorrow identifies the members of Anglo’s Golden Circle.
Someone remind me again why spending 30 billion euroes to bail out this financial cesspit is……
….here we go…..
THE ONLY GAME IN TOWN!
October 8th, 2009 at 10:49 am
Lenihan’s response is a bit worrying.
Does he understand what he’s doing?
Short answer. Yes!
But, unlike Andy Warhol’s “15 minutes of fame” Lenihan is not content, he wants to spend the rest of his life in ignominy as the man that …..
@ thomas c
“since the nama bill went to the dail. aib and bank of ireland have raised ung’teed senior debt at levels unthinkable 6-8 weeks ago. the start of the process were the govt’s contigent liability for the ENTIRE debt of the banking systems begins to get termed out.”
We don’t need Nama. Buy BOI then negotiate with AIB. The markets only want the banks fixed. It is up to us to find the cheapest, fairest way to do it.
“irish sov cds has tightened dramatically and the country issued its longest dated govt bond this week (issuing almost one third of next years funding requirements in one go).”
That’s great. We have borrowed enough to cover our needs for the next six months. The world is getting back to normality. Lets take advantage of it.
“a sense of normality is pervading the interbank markets and foreign banks are reopening wholesale lines and extending credit beyond the govt gtee date to irish banks.”
They just want our banks fixed. Give them two clean banks and they will lend like billy-o. We really are far away from the dark days of last year. Lets not give in to financial terrorists. Shareholders knew what they were doing. The subordinates got higher rates of interest to cover their higher risk. The senior debt holders in Anglo & Nationwide are unfortunately suffering from the collapse of the Irish property bubble, the more reckless local subsidiary of the global property bubble. But Nama advocates tell us of a rosy future for property so they might well make much of it back. They are in the same boat as many home owners.
“i dont think the greens voting no and a potential collapse of the govt will be the best thing for a fragile economy looking for a managed workout of a blown up economy.”
All the things you say point to a rapidly improving credit market and steadily greater confidence. Now is the time to cash in on that. Moodys(?) in their analysis thought a change of government would clear the air. Many analysts will take the same view. The unpopular government for obvious reasons disagrees.
“15-20bn contingent risk of loss is very little over a 10-15 year period to protect an economy that could easily be worth 350bn in 10years time.”
We can’t afford to throw money away. A billion a year extra for foreign aid (a lightly target for cuts) would give clean water to thousands annually, saving many lives.
” i genuinely hope we’re not re-entering the vortex on monday. i just wanna move forward.”
We can do that now. We don’t have to pay a ransom. Gerhard the Fund Manager from Frankfurt will not kidnap us and put a Luger to our heads.
We should give the senior bondholders justice by allowing them to take over AIB, Anglo and Nationwide, fire the reckless managers and pursue the developers like ACC on steroids. And by bringing in independent veteran foreign investigators. Paul Appleby is out of his league and will be trying Seanie’s grandchildren.
” i dont have a pubic sector job or international speaking engagement to fall back on. (and for the record i dont work for any of the irish banks)”
Exactly the same for myself. Where did we go wrong!
On another matter, I have read about Angela Merkel threatening us about bondholders and threatening the Czech and Polish presidents about Lisbon.
She has also gone after the US and UK over their financial services industry and is telling her coalition partner she is not going to accomodate him. She’ll end up behind the bar of The Queen Vic in Eastenders!
I think if we stand up to her now we will get a lot of support – and she will be distracted by her many other feuds.
All of your plans are well-intentioned, but how much time do you think they will take to implement?
Do you have any idea of the logistics of what your are proposing?
We are in the middle of a grave financial crisis – do you think that any of your plans are implementable – from scratch – within a twelve month period – subject to such minor details as the Constitution, the IBOA etc.
And in addition to all that, none of what you are proposing can take place before an election.
Do you really think that twelve months of complete paralysis and limbo is going to improve oncology treatment in Ireland?
“We can’t afford to throw money away. A billion a year extra for foreign aid (a lightly target for cuts) would give clean water to thousands annually, saving many lives.”
Ok folks, well intentioned n all as this is, the lunatics are off their meds and setting fire to the asylum cos they think they can build a better one, funded by the guys who put up the capital to build the existing one. Im outta here…
Stiglitz says bondholders should take pain.
Bair of FDIC says secured senior bonds who rank above depositors need to have some skin in the game (HT YM on the ‘pin).
How much of the senior bonds of US banks which have gone wallop have been secured senior bonds, i.e. how much pain have senior bondholders in the USA taken to date?
Should Stiglitz’s comments about bondholders taking pain be taken as referring to subodinated bonds only?
btw, “Moodys said a change of govt would clear the air”. Incorrect. Indeed, extremely incorrect. S&P said the following back in April:
“In its report downgrading the Irish economy, published on Monday, SP said it was “concerned” that a “credible” strategy would not emerge until after the next general election.
Explaining these comments on Newstalk radio early yesterday, Mr Gill said: “In order for there to be a buy-in into what are going to be inevitable tax hikes in order to stabilise the debt-to-GDP ratio, you are going to need new faces in Government . . . This is typically the case in the aftermath of an economic crisis.”
This isn’t advocating a change in government, merely that a change in faces might be needed in order to get people to buy in. It can be read in a number of ways and cannot be used as a the full on assertion which you decided to put on it.
And here’s what Moodys actually said this morning.
“Analyst Dietmar Hornung, who was in Dublin yesterday, is reported to have said that while the Green Party leaving the Government would increase political uncertainty, this in itself would not affect Ireland’s rating.
He said Moody’s ratings were related to policies, not politics.
He said that it was essential that the Government delivers on its promise to cut expenditure by €4 billion in the December budget.”
“nd also, “we’re small and rich”? If there was a website called icelandeconomy.ic last year, im almost sure someone would’ve posted the very same comment and been equally as surprised when it turned out to mean nothing a few weeks later…”
Anyone see the letter from the foreign minister of Iceland in yesterdays FT letter column.
I thought it remarkable and sad that the minister was reduced to putting his case in a letters column. If this is what the IMF do to Sovereign States then I would prefer to deal with our buddies in the ECB.
You quoted me as saying ““Moodys said a change of govt would clear the air”. Incorrect. Indeed, extremely incorrect. S&P said …”
I said, “Moodys(?) in their analysis thought a change of government would clear the air. Many analysts will take the same view. The unpopular government for obvious reasons disagrees”.
Where did my question mark go after Moodys? Was it subject to the massive cutbacks you want from the little people, which Nama will make a lot worse. Reading your quotes from S & P you make a good case for what I said. Looking from abroad any fair analyst would see a change of government as beneficial. The incumbents caused the problems.
“Im outta here…” Please post on bondholder.com. You, Brian Lenihan & his cheery property valuer will have no problem in convincing them they will make money from converting to shares in Anglo & Nationwide.
“Should Stiglitz’s comments about bondholders taking pain be taken as referring to subodinated bonds only?”
Well we can give the seniors the banks. That’s quite a lot of compensation. Its not like they’re getting nothing, like the shareholders. For BOI and AIB they will just get a tidy trim. Overall things are much worse here than they are in the states. We won’t be going remotely as far as Iceland.
“And in addition to all that, none of what you are proposing can take place before an election.” Well, the government could change its policies in response to circumstances & enlightened criticism – it seems astounding given this government’s behaviour on Nama, but it has happened before.
“Do you have any idea of the logistics of what your are proposing?”
Some preparation work, some legislation, a constitutional amendment, a nationalisation and negotiations with AIB.
It’s not the Apollo project, it’s not even the Luas! There will be much less man hours involved. We know the banks well now. We have already nationalised one (the wrong one). Revoking the guarantee is easy. We can put in a mini guarantee for bonds issued since Sept 08. Blanket amendment to constitution. I repeat, the guarantee was given before the public knew the state of the banks and the corruption therein.
“We are in the middle of a grave financial crisis”. The financial crisis has greatly eased. Read thomas c’s post. If you think this is still Sept 08 in international finance you are utterly wrong. Reread that magazine article Karl linked. That was grave financial crisis.
“Do you really think that twelve months of complete paralysis and limbo is going to improve oncology treatment in Ireland?”
Stopping Nama will save lives. I think we could do it all in 4 weeks.
An election would be another 4. But it would be worth it to get Richard Bruton as Minister for Finance, George Lee as his Deputy, Karl Whelan as his chief adviser, Stiglitz and McWilliams as consultants.
That sound a lot better then Lenihan, Mansergh and Alan Aherne.
Thanks Eamon for the job reference but I’ll be staying right where I am, election or not! I don’t have any political affiliation nor would I ever take a job as an official government adviser. If I have advice to dispense, I’d prefer to do it in a manner that allows me to disagree with the Minister for Finance if I feel like it.
@Homer “Okay, all you diehard capitalists. Does that mean letting depositors getting toasted?”.
Are you suggesting that the type of people who contribute on this website have still got their money in Irish banks? Streuth. I moved mine out of Ireland almost a year ago.
I have my humble little deposit with INBS. A hopelessly insolvent enterprise, I know, but 6% guaranteed by the AA rated Irish Government seems better than anything I could get abroad. Besides DIRT is far lower than the higher rate of income tax that would apply on foreign deposits.
“Okay, all you diehard capitalists. Does that mean letting depositors getting toasted?”
Nope. Create the “State Bank of Ireland”. After bankfail, create accounts for all depositors in said failbank crediting them with the guaranteed amount and the State Bank would be assigned as creditor whatever is realised from bank assets against the prior deposits. The State Bank would not lend to anyone under any circumstances (see NAMA Mission Creep), it would merely be a way to ensure that depositors were paid their due with minimum fuss. Back in the day we could probably have leveraged the An Post bank structures to handle payments to depositors but now there would be tendering issues.
Ideally the State Bank would be the front end of an FDIC style body which would try and preempt calls on the guarantee by arranging shotgun marriages.
Now this would require a large capital infusion to set but think about it – isn’t this cheaper than trying to keep entire edifices afloat with even larger capital infusions, not least given the ECB commentary on foreign owned subsidiaries in respect of Cyprus?
“How much of the senior bonds of US banks which have gone wallop have been secured senior bonds, i.e. how much pain have senior bondholders in the USA taken to date?”
Well, there’s a distinction between secured and senior bonds, as far as I am aware. Secured bonds have specific collateral on which they call in the event of a payment default. So what they lose is dependent on the value of the assets they are secured on. Senior bondholders provide cash at lower rates of interest than subordinate bondholders because subs take losses first – they are higher in the great chain of being.
Am I right so far?
Anyway, looking at the losses of US banks so far. The second biggest was Washington Mutual with assets of $327 bn. From what I can see:
(apologies if it is not a reliable source, it’s late and I’m lazy):
“JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.”
But it looks like there was only about 7 bn of senior unsecured debt in WaMu?
So, moving on to the biggest collapse:
“The company capital structure as of Q2 08 are
equity: 26 bil
junior subordinate bond: 5 bil
subordinate bond : 12.6 bil
senior unsecured: 110.5 bil”
That’s a fair amount of senior unsecured (again from a random blog, sorry! – don’t use it in your thesis!). My understanding is that this ended up being worth in the teens of cents on the dollar?
The situation is, I believe, repeated up and down the US. Every bank that fails and is FDIC’d has itself resolved in the following order:
2. General Unsecured Creditors
3. Subordinated Debt
(Look at any of them).
The secured debt walks away with the assets they’re secured on. The FDIC makes the depositors whole and sells them on for what it can get to another bank. And then it is left with the remainder of the assets. It sells what it can and pays its own bills (for moving the assets on). Mostly the banks fail even to cover their depositors so everyone else gets nothing (i.e. it is a cost to the FDIC).
The FDIC has had to start an unsecured senior bond guarantee program it has gotten so bad (i.e. the losses are now so great, there is a shortage of bank capital (as in lending capital)).
Anyway, I hope I haven’t gone wildly wrong anywhere and have provided some reference as to why senior unsecured bond holders would be willing to take a 20% asset transformation rather than a 40% loss. Oh and if there are lots of senior secured – marvellous. They can take the assets instead of NAMA! Drinks all round. Mines a gin. Tanks.
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