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:
http://www.dailymarkets.com/stocks/2008/09/27/washington-mutual-bond-holders-wiped-out/
(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:
http://remington-work.blogspot.com/2008/09/how-much-is-lehman-senior-unsecured.html
“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:
1. Depositors
2. General Unsecured Creditors
3. Subordinated Debt
4. Stockholders
http://www.fdic.gov/bank/individual/failed/banklist.html
(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.

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?

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.

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.

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.

@Eoin
“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.

@Zhou
“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.

@Conchubar
“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.

@Conchubar
“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.

“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.

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.”

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?

“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…

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?

“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.

Greg Says:
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 …..

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!

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?

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)

““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.

“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.
http://www.chathamhouse.org.uk/about/directory/view/-/id/105/

This was also reported separately in Bloomberg. where the below comments were also made
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMfETcYI2t7Y

“‘Contagious Effects’

“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.

“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.

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?

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…

“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.

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.

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.

@ CoC

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.

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%.

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?