Lucey on Anglo Loss Sharing

Brian Lucey makes the case for senior bond holders to bear a share of the Anglo losses post-September.   You can access his Irish Times opinion piece here.

387 replies on “Lucey on Anglo Loss Sharing”

Its time. Walk through the capital structure; firewall only the depositors. If that puts the Seniors in play, oh well. They are not the state.

@ Brian

i assume you are referring to seniors not issued under the ELG, right (ie seniors issued prior to the ELG and so only covered until end-Sept)? How much do you think this is worth? Not disputing doing this or not, just didn’t see a figure for the seniors, just the subs.

Also, and maybe i missed this (i was away a bit last month), but you talk about “renewing the g’tee”, which i can only assume to mean renewing the g’tee on legacy liabilities (as opposed to the ELG extension) – is this being seriously considered? I cant remember seeing anything suggesting this, nor do i believe that the EU would allow it??

@ Brian Lucey

Also, you say, “Some subordinated debt has been (voluntarily) renegotiated, but there remains some €2.5 billion of subordinated debt in Anglo. This should now absorb the next €2.5 billion of losses. It is unfortunate that the Government has guaranteed some of this, but this is a legislative act and can be unwound.”

Why does it have to be “unwound” – it expires in 3 weeks or so. After that its unguaranteed. No one, anywhere, as far as im aware, is suggesting re-guaranteeing the subordinated debt. Explain please?

Thank you, Brian.

A lucid counter to Dan O’Brien’s propaganda piece of yesterday. The bonfire of the bondholders and the guarantee is well overdue.

We have three/four weeks. Time to act. If we let the timeframe slip, we lose the chance. Speed is the essence. Alas, the dail is still on holidays….

@ Brian Lucey

ok, i think i see where you are coming from now (i think) – what you are really advocating is burning not only legacy (non ELG) senior debt that matures after 29/9/10, but you’re also advocating burning legacy senior debt that matures between now and 29/9/10 (ie will have to be repaid by then). So its not about a renewal of the g’tee, but the fact that this stuff has to be repaid in 3 weeks time? Am i reading you right?

@ DE

ok, not necessarily disagreeing (desperate times n all that…), but am i reading the argument correctly?

I’d like to commend Brian for writing this article. Whether you agree with him or not, it may help to recalibrate the public debate of the next few weeks in a useful way.

The insistent focus of the media on the question of is the bank being fully wound-up has probably convinced most of the public that this is they key issue in relation to the cost of the bank to the taxpayer. But it’s not and never has been (I’ve been making this point here since at least June of last year

A good bank\bad bank split would initially cost more money because it would have to be fully capitalised. But the good bank would be pretty small and the recapitalisation figure would be tiny compared to the total losses being inflicted on the State. Plus, if indeed the good bank could be made to work (doubtful, to my mind) the funds invested could be recouped by selling it a later date to the private sector. It’s worth debating but it’s a side issue.

The real question is whether loss sharing can be extended to bond holders. And, as Brian points out (and I argued in my pieces earlier this year on Anglo) it is hard to save much money for the state without reneging on the guarantee to the Anglo bondholders who have debt maturing this September.

Now maybe that’s a bad idea but it’s more worthy of discussion than the wind-up debate.

On the question of “is it a sovereign default?” I think it’s worth distinguishing between debt issued pre- and post-nationalisation. There’s a stronger moral case for someone who knowingly lent their money to Seanie to lose out.

Anyone have an idea of how much of the €14 billion in senior bonds pre-dates nationalisation?

Also, for those who are worried about sovereign bond implications, my reading of Brian’s article is that he is proposing that the Anglo senior debt default be combined with a request to the EFSF bailout fund to help us get through the next few years. Pros and cons of this approach are also worth discussing.

Why? Why not ? Is Xb not worth it? There aint much else up for grabs now. The guarantee was a mistake, at least in the Anglo case in its extent. Rectify it, move on.

I hope, speaking as an ex civil servant, that you arent accusing me of a courageous decision! Sir Humphery would be appaled

Yes, once again you clarify my woolly thoughts : its a twofor. Extracting ourselves from Anglo + inserting ourselves in the EFSF as a comfort blanket in case we are locked out of markets (for which there is scant empirical evidence).

@Brian Lucey,

“It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.”

Courageous – and incontrovertible. In addition to some relief of the debt burden, it is the only way to ensure pursuit of the deep-seated structural reforms that Michael Hennigan and many other on this board have being advocating – and which are badly required. Previously I argued for (and hoped) that the Oireachtas would grasp the authority invested in it by the people and confront these issues rather than being cowed by a failed and over-bearing executive, but that time has long gone.

However, I expect you realise that no government anywhere – and, even more so, not this Government – will voluntarily concede that it has failed to deliver effective governance. The bond market eventually forced Greece to submit to EC/ECB/IMF administration. Things will have to follow the same course here. The Government at all costs will need the figleaf of being able to blame evil and malign external forces for targetting a small, vulnerable economy whose government is straining every sinew in the national and public interest.

The choice is between having some say in how the terms of EC/ECB/IMF administration will be applied and being forced by the market to having none. In a battle between the Green Jersey and rationality, I think we all know which will win.

I’ve been told, but haven’t seen, that there’s a graph in the latest Roubini report that shows that Irish bank debt is exposed to US and UK banks in higher proportions than EZ. Does anyone here have access to that graph? If it is the case, would this have any impact on how funds might have to be drawn down from the Stability Fund ( I mean in terms of EU:IMF)?
Other than pride/sovereignty issues, are there any reasons why we wouldn’t access the Stability Fund instead of borrowing on the open market at higher rates?

dont follow – you saying that US/UK banks hold more irish debt than EZ? Im not sure that this is relevant for the EFSF


not sure this answers your question. There is 7bn of guaranteed debt issued under the Sept 08 guarantee, just under 3bn under subsequent guarantees and there is also covered bonds to the value of 2bn plus included in the 14bn

So the answer appears to be less than 2bn. There may also be another 2bn of shorter term under 1 year stuff issued pre guarantee.

So there is say 2-4bn of paper available. BTW, I am not clear on whether burning the subbies are included in the 22-25bn loss estimate from Dr H. Any ideas.

I think burning the GG paper is problematic for the sovereign, given that he has explicitly guaranteed it.

I also think burning the senior unguaranteed stuff heas a negative read through for AIB in particular & BOI to a lesser extent as they try to term out.

I would also question whether our bosses in Brussels and Frankfurt would permit it at this stage.

I find the article a bit disappointing and polemical, I would have thought that a discussion of the savings from burning along with the potential risks would have been better. That said the op ed from the previous day by O’Brien was an even bigger load of BS.

@ Karl/Brian

direct quote from London this morning fyi – “we know 2 banks in germany who would lobby for a change in germany policy to peripheral support if they torch any of the senior debt…”

Also re the article – it doesn’t paint the picture of whats actually being suggested very well: that we need to rescind the g’tee in the next 3 weeks or so. It talks about the government “renewing the guarantee” which is simply not about to happen on senior or sub debt, so i don’t see why it was thrown in there, only confuses matter. So the unwinding of the g’tee is the big issue which per Lucey needs to be addressed ultra quickley.

In terms of pre/post nationalisation issuance and what matures this side of 29/9/10, only around $250mm and £55m in issuance occured pre-nationalisation (assuming we’re not including the 3.7bn maturing in 7 days time?)

@ Karl Whelan

In the notes to the Anglo accounts (note 26) of the €14.6bn in medium term notes, €7.9bn are Government guaranteed bonds that are due to mature by September 2010. That leaves €6.7bn that predates nationalisation I think?

they would say that, wouldnt they. Carvill-nomics of the bond market tells us that. hell, I’ll say it if im them. But, thats is now, if we torch the seniors, will they? And if they do, can they? Theres scant empirical evidence that even if these are seen as sovereign (which, they are not) there is longterm blowback.
Lets stick to what facts we have, which are scant, not vague threats from unnamed actors. the facts dont support strongly the argument that sov default (which this is not) has a longterm toxic effect on access/cost.
Let the two brians pay it. Along with the cabinet…they guaranteed it, I didnt. Nor did the people. Our representatives did. Anglo IS NOT Sovereign

Based on Eoin’s questions and Brian’s response, I now worry that I read the article wongly. Is it actually advocating default on the guarantee? Brian, please clarify so there is no confusion. If this is the case, then I strongly disagree. The Irish State has made a commitment. I do not want to live in a deadbeat country — can pay but won’t.

Can pay but shouldnt pay. Thats sense. The guarantee was wrong. Lets right that wrong. Theres no economic reason to not do it. So why not do it…

@ BL

in referring to the question of sovereign debt you say Anglo is a private institution etc

it may well have been incorporated as such and re-registered as a plc after the 1983 Companies (Amandment) Act, however, as I understand it we now own it as it has been nationalised and we are on the hook for the debts

@ KW your differentiation between pre and post nationalisation sub debt is spot on and it would be useful to know the split and to whom is it owing


It was done in our name by our elected representatives. We may think it was a huge mistake, but it was done and that shoiuld be the end of it. Post guarantee is a completely different matter.

“it may well have been incorporated as such and re-registered as a plc after the 1983 Companies (Amandment) Act, however, as I understand it we now own it as it has been nationalised and we are on the hook for the debts”

Nationalization of a bank does not infer that the debt is now sovereign.

I find this article arguing in 2 diections

1. That despite the guarantee/nationalisation of Anglo’s debt, a default on Anglo’s bondholders will not be a default by the State
2. The State itself should not be overly afraid of defaulting, given the likely short length of time that it will take for debt markets to offer us more funds again in future.

I’m afraid I don’t share your conviction in either case.

To me the guaranteed funds, must be upheld. I didn’t like the guarantee from day one, but it’s there, it is a commitment by our State to back up these loans, and I cannot just ignore it in the way you are suggesting. The guarantee is more than simply “unfortunate”, it is binding in my mind, and only Force Majeure can free us from it. Whatever worth it actually does have, arises from our publicised, unswerving commitment to upholding it in good faith. If we are able to uphold it then we must, and we have not reached a stage where we can claim it is beyond our means.

Incidentally, the High Court would probably uphold Bondholders claims even if we did unilaterally terminate the guarantee, on the grounds of reasonable expectation.

Secondly, unlike you, I really do think Anglo is part of the State. We nationalised it. We forcibly took it from Shareholders to make it part of the State. I don’t know where you find wiggle room for interpretation in this regard, because it seems pretty cut and dry to me. Defaulting on Anglo’s lenders will mean defaulting on State debt, at a time when we plan to borrow large amounts of money to run the country.

These arguments seem so manifestly obvious to me that they are almost not worth mentioning. Yet, I find this article turns its face away from them.

Finally, I disagree that the downside of default is so easily manageable. We are part of a Common Economic Policy, we must therefore consider the severe implications this would have for our close allies in Europe when they are just beginning to recover from the recent crisis.

Further, I doubt the State would soon be able to reaccess the credit markets after a default. While this has been the case previously for other countries, at the moment, bondholders have so many governments eager to borrow from them that they have little need to deal with iffy cases. Witness Greece. The global bondmarket is a lot more sceptical now, partly because of their recent scare, but also partly because it is a buyer’s market. It is a courageous State that would dirty its copy book now.

@ Brian

im just passing on the info, and its a point which has been made before, that Germany and France may take issue with us inflicting losses on their investors, especialyl as it might encourage Spanish or Greek banks to do likewise. So if you want to tap the ESF, you need to take that into account. Anglo would represent the first senior debt losses of any materially sized bank in Europe as far as im aware.

Anyway, like i said, the real issue here is the rescinding of the guarantee, and what it could save, the rest of the article’s point is essentially down to the speed of the wind down and whether any maturing debt (outside of the ELG) is paid back on maturity or not.

Can we summarise your position as this:

1. unwind the original blanket guarantee before the end of Sept
2. this allows us to not pay back some legacy senior debt
3. wind down the bank in totality, protecting only ELG and depositors
4. this reduces ultimate losses to the taxpayer


Any talk of a g’tee renewal just confuses things, as its not on the table, particularly in regard to the subs (hence why they trade at 30 cents or so). And as Karl said, there is a moral issue over whether bonds issued by a nationalised entity should be protected vs the pre nationalisation issuance.


Seniors rank pari passu with depositors. For some reason you want to “firewall” depositors, many of whom are big time beneficiaries of the bubble. Every € saved from seniors will trigger say €3 call on the deposit guarantee a bit of a Pyrrhic gain.

are we liable for the debts of ESB or Annamara Teo? No, we arent. Ownership is not the issue – we dont own AIB (yet) but we are liable for its liabilities. So, lets be clear. This is a legal decision that we can and imho should undo.

@ Brian Lucey

or in even shorter terms you’re suggesting the following:

A default on senior debt issued by a nationalised entity, issued AFTER nationalisation, issued under an irrevocable sovereign g’tee, which was granted BEFORE issuance.

If it looks like a sovereign default, and it quacks like a sovereign default…


We live in a representative democracy where we delegate authority to elected officials to make decisions on our behalf. This they did, albeit with disaterous consequences. The best we can do is vote them out.
I agree with John McHale and DE on this. The point that we nationalised Anglo post the guarantee further compounds the connection to the Sovereign.

Eoin’s point re bond vigilante’s is also worth consideration. While I doubt a boycott of our debt would last very long, it would mean a massive fiscal contraction & deleveraging of the balance sheet of the banks balance sheets.

You should really stand for election at this stage particularly in the Kingdom as Jackie may be stepping down.

See my post. You have to subract a further <3bn further guarateed issued under ELG (?) and 2bn plus covered bonds.

@ BL

“Even in the rare cases of temporary exclusions, in the sense of not being able to issue bonds, this rarely lasts for more than two years.”

We are not Argentina. We cannot print punts. We need to borrow for everyday living expenses. The government would need to pay public servants, PS pensions and Social Welfare with Promissory Notes. Not sure whether Dunnes Stores would accept these, though I suppose we could pass a law insisting that they do. I would be pretty certain our Euro partners would kick us out not only of the Euro but of the EU.

We’re in for 25Bn, you seem prepared for a pretty hairy gamble to save a relatively small bit more.

“I agree with John McHale and DE on this. The point that we nationalised Anglo post the guarantee further compounds the connection to the Sovereign.”

That is what I meant tull. I think nationalization is irrelevant to the debt.
The guarantee is what ties us down not the nationalization.


I don’t know either! I wondered would it make a difference if we were planning to either restructure debt (least likely still at this stage I know) or draw down funds. It is a joint fund – EU and IMF. How would they decide who was the majority funder. What kinds of things would impact that decision. I presume we’d want the EU to be the lead funder?

Is not the entire case being advanced by Brian Lucey predicated on the following contention:
“The judgment of the bond markets is that the combined banking and fiscal crises are such that Ireland is no longer a sound bet.”?

Four positions then emerge:
(1) Agreement with this contention – and the follow-on: that the bond market will force Ireland, probably quite soon, into EC/ECB/IMF administration (unless Ireland makes the first move);
(2) Disagreement with this contention and support for the Government’s ‘kick the can down the road’ policy;
(3) Disagreement with the contention but a recognition that it is a risk and that the ‘kick the can down the road’ policy could be executed better to minimise this risk; and
(4) Disagreement with the contention but a recognition that it is a risk and a demand that Ireland should act unilaterally on Anglo (without consideration of knock-on effects).

“Seniors rank pari passu with depositors.”
Show me the legal basis for that. Its been asserted for years. Proof please.

@ Brian Lucey

“Show me the legal basis for that.”

Oh dear. Where’s Zhou? He posted the archaic legislation on this previously. Please tell me you argument doesn’t rest on this assumption that depositors and senior debt rank differently? I sense another deposit selling moment…

@ DE

i agree (though i wouldnt use the term “very” easy, but yes there are ways). Im just a little worried when people fail to accept its existence.

Brian Lucey states “Some subordinated debt has been (voluntarily) renegotiated, but there remains some €2.5 billion of subordinated debt in Anglo. This should now absorb the next €2.5 billion of losses. It is unfortunate that the Government has guaranteed some of this, but this is a legislative act and can be unwound.” Were that it was that simple…..

Holders of various Anglo subordinated bonds were offered a buy back at an average of about 30c per €1 in August 2009. Anglo got acceptances in respect of €2,450million of nominal value and thus eliminated that debt in exchange for a payment of €748million. The holders of the residual subordinated debt, largely pension funds one would suspect that don’t mark to market, declined the offer and relied on the State’s guarantee. I understand that residual debt is currently offered for sale at approx 15c per €1. A further offer can of course be put to those holders in the context of a guarantee that must end at some time in the future.

While the mathematics analysis in today’s Irish Times is correct I don’t think that market reaction to the suggested “wipe out” solution would be as benign as claimed. The fact that both State and bank term funding requirement from Ireland is so colossal over the next few months means that suggestions of reneging on guarantees or a speedy windup that would crystallize the near €19billion of the State’s promissory notes to Anglo are simply not realistic. If Ireland can cope with paying 3% pa more than Germany pays for debt, can it pay 8% pa more like Greece. The risk premium may reduce in the medium term future but it is in the short term that Ireland and its banks need to issue new debt securities.

I think the problem is that the ultimate solution to our problems will be a mix of everything.
It will require serious structural changes – but if the savings made through those changes are siphoned off to pay debt we just become a poor country and a thoroughly unequal society.
There seems to be this notion that the public sector is some kind of luxury we can do without. A country without a properly run public sector and without sufficient private wealth becomes quite simply a Kip only serving the elite.
The dichotomy between debt restructuring and public sector reform is absolutely false.
This not saying that we renege on all our debts (that would be just stupid) we welch where we can.
I know people are scared but we are so close to becoming a perpetually indebted impoverished dump that we don’t have a choice.
We should do it while equity markets are still wobbly – once they strengthen Irish bonds with or without default will be worthless.
If there is one fault with this site it’s that people tend to gravitate toward extremes (if you want default you’re assumed to want total default and no public sector reform etc.). Then very sensible proposals get lost in a debate about those extremes. And the debate becomes circular and goes nowhere.
Let the very real prospect of Ireland becoming a poor second world country again unite us.
We need bits of everything to get through this.

@ BL & fellow academics

Ever thought how much you guys have added to Ireland’s funding costs or how difficult you are making it to get off the guarantee hook?

You have made it clear that Senior Debt should be viewed as risk taking and fair game for a torching. Some of this must be sticking; it is difficult to see how Irish banks will ever again get cheap funding without the support of the guarantee.

No? You got an estimate? Would it be as much or less than anglo? INBS? No? There we are then.

Prior to September, 2008, the only entities which had a legal entitlement to statutory compensation were deposit holders, and this was subject to a limit of 30k. This limit was then increased to 100k. Thereafter the blanket guarantee was introduced, which included inter alia deposit holders. The strict legal position therefore is that the State had no liability to bondholders prior to September, 2008. One can argue, as Dan O’Brien did in yesterday Irish Times, that there was some sort of implicit or tacit guarantee.

The ranking of creditors in a winding up is a separate issue, as it relates to the disbursement of the residue within the bank. It may well be that in such a context depositor holders and bond holders would rank pari passu. This is confined however to the distribution of the “pot”, if any, left within the bank. This does not prevent the government from intervening to favour one category of creditor over another, provided the government is injecting external funds, i.e. funds from outside the bank’s “pot”.

@ Brian Lucey

can i get a comment on the cruz of yout position – a default on senior debt issued by a nationalised entity, issued AFTER nationalisation, issued under an irrevocable sovereign g’tee, which was granted BEFORE issuance?

How is this not a de facto sovereign default, regardless of any proposed legislative acrobatics you have in mind?


How much of the €2.5bn in subordinated debt has to be repaid before the end of Sept? After Sept they are no longer guaranteed. If all or some has to be paid back before the end-Sept guarantee ends then obviously the amount we can the Subs pay is actually less than €2.5bn.

Senior bondholders are still guaranteed until December. So the €14bn there isn’t really an option at this time imo.

I’d can’t imagine it is legal to to welch on debt that is currently guaranteed. What about extending the guarantee past December for all banks but Anglo?

A very useful article..

So 7B becomes due before the guarantee expires?

My gut feeling is that Ireland should honour the committments given by its elected leaders on the citizens behalf.

If that means ponying up the 7B, so be it, if we have not guaranteed this 7B of debt then we shouldnt pay it.

Which is it?

If we pay any of it, as a citizen I demand to know who has received public money as a result of this. (companies, names and adresses).


“Anglo has borrowed €14bn from such investors (senior debt holders), of which €7bn is repayable in September”

I know we areonly talking about one type of debt in the above but are we still looking at €70bn due (or to be refinanced) from Irish banks in September?

I think all creditors distinguish between “can’t pay” and “won’t pay”.

Brian Lucey’s new category of “shouldn’t pay” is in fact another version of “won’t pay”.

“Won’t pay” in my view equals “pariah state”. I agree with Brian Woods II that there is not much of a distinction between bondholders and deposit holders. If we are going down the “won’t pay” route we might as well torch the deposit holders as well. You might as well be hung for a sheep as a lamb.

The argument that the bank was not nationalised when it took on the debt will be very interesting for the creditors of Bank of Ireland and AIB.

I favour the current policy which is for Anglo to continue to access capital on the international markets. It has been described dismissively on this site as kicking the can down the road. I don’t see anything wrong with this if the alternative is carrying the can now.

The deposits from the banks and customers amounts to over 56bn. If we start messing around with the guarantee and the bond holders amounting to 16.5bn the 56bn will want to withdraw their money immediately. How will we pay the 56bn? Very little of this can be accessed from Anglo’s assets which are not immediately realisable. So most of it will have to come from the State, which is a little self defeating.

The gains in terms of reducing our liabilities of Brian Lucey’s proposals are, in my opinion, far less than the costs in terms of diminishing our credit rating and restricting our continued access to international capital markets.

@ Rob

“How much of the €2.5bn in subordinated debt has to be repaid before the end of Sept?”

A big fat zero. So you are correct. Don’t understand the reference to it in the article.

“Senior bondholders are still guaranteed until December”

Nope. Two types of senior debt – legacy debt and debt issued under the ELG. Legacy g’tee runs out at the end of Sept, ELG debt is guaranteed up to a max of 5yrs (but has to be ISSUED by end of Dec 2010).

Im going to assume no one anywhere is suggesting touching the ELG stuff (unless we go for all out sov default). As such, the legacy stuff is all that matters in the context of this article/argument.

There a few billion maturing this side of 29th Sept, but almost all of it (excl the 3.7bn maturing on 9/9/10 which is a bit soon for whats being suggested here) was issued by Anglo POST nationalisation and POST the start of the guarantee. As such, its difficult to say “bondholders should have known the risks”, as at that stage they were buying a government g’teed bond issued by a nationalised entity.

@ Garry

re 7bn maturing this side of g’tee – yes, 3.7bn next week, all the rest in the last week or so of the month. But most of that was issued post-nationalisation and post guarantee (see above).

@ Brian Lucey

its in the legislation. So the Irish State did.

“The guarantee is unconditional, irrevocable and ensures timely payment”


If the EU Stability Fund and the EC/ECB/IMF co-operation and support arrangements been in place at end Sep 2008, Ireland would been taken into protection. The blanket guarantee was seen as the only available substitute. Now these EC/ECB/IMF arrangements are in place – forced into being, to a considerable extent, by the bond market – and are working for Greece.

I think Brian is saying – and I’m sure he’ll correct me if I’m wrong – that we should switch from the guarantee to the EC/ECB/IMF arrangements. The debt burden being imposed on citizens now is probably little different from that which existed at end Sep 2008. It’s simply that it was hidden then; it’s being crystallised now.

It’s a simple question: do we want to try and sweat it our on our own or do we seek some help to restructure the burden?


I agree with you. What i was trying to say was the guarantee puts us on the hook and nationalisation reinforces it, not that it needs reinforcing.

If it were nationalisation and reslution, then the question might still be open. If Anglo had been put into resolution, the issue of dealing with the bond holders would stand to be decided. You and I would probably disagee on the outcome.

Handing Anglo over to bondholders? What exactly is being handed over? A huge hole? A business that can trade its way out of its indebtedness?

If the bank guarantee wasn’t in place, the choice of actions would be wider. But the fact is that the guarantee is there (warts and all) and as long as it is in place reneging on the bondholders in a nationalized bank is dreamy. Even without the guarantee, no EU government would renege on the commitments of a state owned bank. An EU government can’t just tear up preference shares without consequences.


“You got an estimate?”

Yep, my econometric model has analysed our 350bp spread and these are the top 5 contributors:

Seanie Fitz: 220bp
Bertie Aherne: 34bp
Brian Cowen: 31bp
David McWilliams: 25bp
Brian Lucey: 17bp

I guess you are proud of this achievement.

@ All

at this stage i think we’re past a deposit selling moment. So far this morning Brian Lucey has suggested, explicitly or implicitly, the following:

– default on senior debt issued by an entity which was nationalised and issuing under a government g’tee. No grandfathering involved here on either score, issuance was done post both events.
– that the guarantee was not termed “irrevocable” even though it was explicitly stated as such in the legislation
– that the bondholders do not rank pari passu with depositors (regardless of the implications or otherwise), even though its accepted by almost all people that they do.
– the blanket guarantee, covering legacy debt, both senior AND sub, would be renewed when no one has suggested that it would.

Folks, the author of this argument, while having some very valid overall points, is in danger of losing all credibility on some of the key facts underlying the argument. Thread carefully here.

Brian, you really need to clarify the positions above, as this article is in danger of falling off a cliff.

Further to my earlier post, I was addressing the pre-guarantee position only. Subsequent to the blanket guarantee, bondholders and deposit holders enjoy equal legal protection. Failure to honour the guarantee in respect of bondholders would constitute a breach of their legitimate expectations and an attempt to rewrite the legislation retrospectively would probably be unconstitutional. It does not follow however that it would also be necessary to torch deposit holders: two legal wrongs do not make a right, and the appropriate legal remedy would be pay damages to the bondholders, not to visit the same legal wrong on the deposit holders.

To put it another way, if the Government decided to dishonour the guarantee in respect of bondholders, the most that a court would ever do is to direct the Government to honour the guarantee: a court would never say that the appropriate remedy was for the Government to commit a FURTHER breach by also refusing to compensate deposit holders.

I’m afraid I must agree in spirit with what Brian Woods is saying. Talk of default is unhelpful unless you are imminently about to do it.

By entertaining this possibility we are only reducing our options and weakening our case to the outside world. Maybe one day we will eventually be forced to default, but we should deny the mere possibility right up until the last moment. Assumng we will never willingly choose to default, flagging the possibility in advance and chattering absently about the pros and cons of it, is harmful to our position without conferring any real benefits of policy decision on us.

Desperate measures should never be discussed, only implemented with minimum notice. Discussion only gives time for others to act to constrain you.

Therefore what purpose does this debate serve?

I have felt for some time, that it would be instructive for economists to spend some time in a mart to see how markets, and price signals really work. Cunning, knowledge, decision and a tight lip are all required. It’s nothing like Ebay.

If it is suggested that the bond guarantee is not irrevocable then should the same logic not apply to the deposit guarantee ? Senior debt and deposits are both unsecured sources of funding and both those providers should consider the risk to return of principal, given that there no proof (in this conversation) are to whether they are pari passu or not. Or have I missed the intorduction of a moral code by those seeking to generate headlines where one euro in deposits from Granny Murphy is different to one euro in senior bond fundign from Evil Bank plc ?

@ Eoin

Accepting your criticisms of the opinion piece, at least it is an effort exerted at solving some of the current problems.
Compare this to the fact that all our turkeys are on holidays and should any legislation be required from what has/may/will happen they are otherwise engaged as para-facilitators between the state and the citizenry.

A snap election and a new government would have the international legitimacy to roll back the (current) government guarantee and initiate a private debt default . Fresh start anyone?


So Two commentators are more to blame, if you combine them, for our zombie economy and international doubts about it than Brian Cowen. What a complete load of horseshit frankly. At least D McW and BL have been doing citizens a service beyond keeping them in the dark, stitching them up and feeding them siad shit.

@gadge I think everyone accepts that the State can favour whoever it likes POST a liquidation provided it is not unconstitutional. It can make good the little guy or make good all retail depositors or all depositors or only the deposits of registered charities etc.

What is in debate is how much differentiation can be applied ANTE liquidation and crucially are seniors pari passu with depositors, to me that is the definition of “senior”.

Eoin has detected that BL is suggesting some fairly breathtaking and cavalier rescindments by the Government.

Strangely he would firewall its depositors. Anglo depositors were not your typical widows and orphans.

Personally if we were contemplating a Final Solution I think it would be fairer not to protect deposits over 100K which can sourced to property gains made between the years 2000-2007.

@ a punter

Oh dear. Should have known to have kept my corny sense of humour in check. People are incredibly sensitive in these parts.

@ Al

“at least it is an effort exerted at solving some of the current problems.”

thats why i said there was valid overall points. But when asked to back them up or clarify them, the underlying reasons seem either sketchy, debatebale or just plain wrong.

@ BW II Sorry! Didn’t get the humour. Guess I’m expecting BL to get the full ‘dissident’ – shut up for the love of the children treatment today.


Are you saying it would be better to burn depositors above a certain arbitrary level than to burn bond holders? Seriously?

You berrate Brian Lucey for maybe scaring the bondholders and then you suggest that the depositors (who can pull out of the bank by lunchtime) should be hit. A little consistancy please..

There seems to be a theme in many of the posts here that the government and the taxpayers should continue to pony up for Anglo, because upsetting the bondholders will led to national penury. Well, look around. We’re heading down that road anyway.

We have been model debt servicers and yet the bondholders are still charging us more than ever for their services. Our economy is not exactly booming either.

We should not worry about the Anglo’s bondholders, it is the people we will be selling our debt to for the next ten years ( and their will be a lot of it) that should concern us. If we continue as we are, our debt/gdp and budget deficits will be such that no bond buyer will touch us, no matter how much we protest.

Surely the primary question is relation to burning the senior bondholders is how this affects the Irish banking system’s ability to borrow the money it requires to continue operating? The argument, from both the Minister for Finance and a number of other commentators, that I have found most persuasive is (and here I’m think I’m very closely paraphrasing Karl Whelan) : “if the name of the game changes in Ireland to one where senior bondholders can be burnt, then the only logical thing is for the bond markets to dramatically increase the interest rate they charge Irish banks for funding, or perhaps to simply cease funding the Irish banking system”. If this were to happen (and I can’t see how it wouldn’t) surely our banks would suddenly be faced with their own special credit crunch, and we would be running a massive risk of causing what we have been trying to avoid – to put it at its crudest: the ATMs stopping working.
Is this not the biggest risk, with the secondary risk being how such a default affects the sovereign borrower?


Anglo have that angle covered. From their last report:

“As the Bank’s reserves of unencumbered liquid assets which it can pledge as collateral are limited, and depending on the timing of the transfer of future tranches to NAMA (and corresponding receipt of NAMA bonds), refinancing may require increased access to special funding facilities with monetary authorities.”


“Should monetary authorities materially change their eligibility criteria or limit the Bank’s access to such special funding facilities this would adversely affect the Group’s financial condition and prospects.”

Basically translates to: The ECB and Irish CB are keeping Anglo afloat at the moment, if they stop, Anglo is in big trouble. Which tells me that Anglo is not relying on the bond market for funding at the moment, and doesn’t expect to be able to call on it for funding anytime soon.

@ LorcanRK

There is also a theme is other posts that abritary decisions can be made re. guarantees / debt holders without any consequences to this action other than reducing the burden on taypayer. That is media friendly, populist advice but as others have pointed out if you delve deeper its not the strongest arguement.


I expect you realise that the logical conclusion of your argument is that Ireland will be forced sooner or later into EC/ECB/IMF administration. The imminence of the second anniversary of the ‘great decision’ provides an opportunity to make the application voluntarily.

Thanks Lorcan, and I understand that Anglo doesn’t have to rely on the bond market, but what affect would an Anglo default have on the ability of the other banks to access funding?

Thats what the debate, in part, should be about. Theres more than a whiff of “dont debate” in some posts. Anglo really IS different.

@Paul Hunt,

That is exactly where I think we are heading.

Also, I think if it is to be done, it should be done sooner rather than later (preferably before Max Webber takes over at the ECB).

There is also the political angle to be considered. If FF have any expectation of continuing as a force in irish politics they need someone to take the hard decisions for them. Blaming the IMF/ECB/EU might just cover it for them.

Irish Life &P has €800m or so of Anglo debt. Where is the rest of it in terms of Irish exposure ? Aviva must have some. Do AIB and BoI have any in the name of Green jersey ?

I saw a chart in the FT a while back that showed German and UK banks with €200bn exposure each to Ireland – would any of this be Anglo ?

The bondholders need to be exposed to the light. If the Anglo cadaver is untouchable because a) it would bring down Irish Life & P and others or b) the EU says don’t go near it because of core EZ bank exposure at least the taxpayer who will ultimately pay for all of this should get the decency of a heads up.

@Cedar Room,

There is no easy solution, and whatever is put forward in the media (due to forced brevity) will never fully flesh out the pros and cons of any argument. That is why this site has become such a valuable resource.

As to which is the strongest argument, unfortunately, given the situation, somebody is going to burn. Either Anglo depositors, Anglo bondholders or Irish Taxpayers.

Personally, I think the opportunity cost to Ireland is lowest in the case of burning the bond holders, but whatever route is taken out of this, there will be pain.

@Donogh, The bright line between guaranteed and non-guaranteed debt is relevant here.   If the credibility of guarantees is retained, guarantees on new funding could be (liberally) used to raise funds in the future.   At the moment, we seem to have a policy to maintain a 100 percent credible implicit guarantee to protect all bank bondholders to maintain access to markets.   If this is the alternative, then we might as well continue with an explicit guarantee on new borrowing.   At least the government can charge for the protection.   But this still leaves legacy debt at risk once the guarantee on that debt expires.   While not minimising the technical issues involved, I believe these creditors should be made to bear the costs of their bad investments as opposed to citizens in general. 

@ Lorcan LK

No disagreement about the messiness of the situation but to me targetting bondholders (specifically senior) smacks of being seen to take a “hard” approach faced with a government that fudges solutions.

Burning the bondholders to help to solve our problems but must be applied to the wider Irish sovereign if you apply it to Anglo

Bondholders are an easy target from an oppressed taxpayers viewpoint but we need them to fund our deficit and refinance our existig debt, debt that was created by ourselves and by our government.

A half baked, short tewm, populist approach helped to get us into the situation I wouldn’t wish to see it as part of the solution.

Cedar Room
Note the papers i link on the IMF reports page re the after effects of sovereign default. In any case thats not what im suggesting here.

@ Brian Lucey

any comment on the “irrevocability” (or otherwise) of the guarantee, the defaulting of a nationalised entity issuing under an explicit irrevocable state guarantee, or the strange mention of the “renewal” of the old blanket guarantee?

Does anyone know what the legal situation is here either (both in terms of Irish or EU law) – if its termed to be “irrevocable”, cannot it actually be revoked? Would bondholders be able to take us to court, either here or at an EU level?


“Are you saying it would be better to burn depositors above a certain arbitrary level than to burn bond holders? Seriously?”

I am being facetious. I really got to control that. I am not in favour of a Final Solution because I accept the bona fides of those currently in charge of Anglo and they say it would be far worse than the long drawn out approach.

But BL is proposing a Final Solution and I just wonder why he thinks Anglo depositors should be completely spared given that a good many of them will have their fingerprints on the holocaust.


“Any talk of a g’tee renewal just confuses things, as its not on the table, particularly in regard to the subs (hence why they trade at 30 cents or so). And as Karl said, there is a moral issue over whether bonds issued by a nationalised entity should be protected vs the pre nationalisation issuance.”

Mike Annesley said yesterday that Anglo could lose 12b of deposits if certain elements of the original guarantee were not extended past the 28th Sept. I presume these are large corporate deposits. He also said something to the effect that this would not be fatal. They have already lost 5b of deposits.
How is he going to replace 12b?. The lack of clarity on the original guarantee could lead to a full blown run at the others. Or am I being too cautious.

Torching anyone at this point in time would appear to be highly dangerous regardless of the merits.

@ Eoin

Of course, but there is a tendency to aim for the first lad that says or does something. Mr Lucey has attracted this a few times. If he was a politician he might get more respect for his efforts.

Yes. Ad Hominum remarks, cuts and digs, snide references and mutterings under the breath are all part of the academic life. I take these, and the setting up of straw men from arguments, as evidence that the posters have little argument to play.
BWII if you want to calm your jets, coz your drifting to Gowdins Law there in the last post?

Is it possible that some of the depositors are multi nationals based here? Doubtful if we would even contemplate burning them.


Well done for writing the article and speaking up. We could do with a lot more of it before the fuse blows on all of this.

Surely one of the issues is the credibility of the guarantee. If it was not credible when given, who is to blame if it cannot be delivered? Should the blame not be shared between those who both give and receive the incredible guarantee?
Surely one of the (other) issues is the consequences of doing nothing but hoping for the best – which, it has to be said, seems to be the only policy pescription of the ‘let’s take Brian Lucey down’ brigade. An adult converstaion would first, criticise Lucey, then offer alternatives, recognising that none of them are palatable and none of them are the course we are on.

The legislation says the guarantee is irrevocable.

That is no reason to extend it, though. Certainly not on the original terms (massive underpricing of the risk the state is taking). Perhaps if it was a properly priced guarantee (running into the hundreds of millions of income for the state). Anglo for example is paying:
“The cost of the CIFS and ELG Government guarantee schemes for the six months to 30 June 2010 was €39m and €38m
(Interim report p.18)

So the total CIFS payment to the state (given Anglo had about 25% of banking system liabilities guaranteed under the scheme) must be under 200 mn euro.

Is there anyone on this earth who thinks that is an appropriate level of payment for the guarantee of 440 (or was it 500?) bn of liabilities? Less than 0.05%!? (of 440 bn).

@Brian Lucey

Re: irrevocability

they are fairly irrevocable, given that within Irish Administrative law the doctrine of reasonable expectations binds the State.

Bondholders under guarantee (even debt issued pre guarantee) can argue that they bought or retained Irish debt because of a reasonable expectation that the State was backing it. The High courts have been extremely strict in this regard.

There is no Act you could revoke that would remove this doctrine.

There may also be an issue of guarantees as property which would have constitutional implications in the Supreme Court.

That doesn’t mean the specific Act is irrevocable, but it does mean that that wouldn’t be the end of our commitment to the guarantee. We would definitely need to have a fairly intrusive reform of Irish administrative law and possibly a referendum on the potential constitutional aspects. Incidentally, it would also require some sort of a patch for pensions which are also protected by reasonable expectations. It’s not straightforward at all.

Finally, we are also in a Common Economic Policy with our EU partners (not just the EZ). We are bound to consult and cooperate with them about a move such as this. They might be hard to convince.

I’m not defending the guarantee, which I thought was wrong from Day 1, but it’s done, and I don’t think we can just walk away from it after extracting x number of billions from bondholders under the guise of a guarantee.

We’re not special.

@Ger – Fair enough ; Hogan I also respect so will take on. Then we are left with ….what now?
Thanks – the point here is to have a debate, to move it beyond cankicking down the road, to some more active policy. I have given one possible one; the arguments against seem more ad hom/shush/THERESASPIDERINYOURHAIR than rational attempts. And then we have Godwins Law coming into force.

Deep breath everyone. The only way these complex guarantee, bond seniority, etc. issues may be resolved calmly and rationally is under EC/ECB/IMF protection – away from the recurring frenzies of the bond markets. Given existing commitments and complex interactions there is very little Ireland can do unilaterally. The domestic economy is in the doldrums – despite efforts by the MoF to talk it up. The next budget will remove an additional chunk of demand out of the economy.

The Government’s choice is to act rationally – or be forced to do so.

We are left with letting the existing guarantee lapse.

Set up an SLS (special liquidity scheme like the UK one) based on NAMA-style bonds/promissory notes so the banks pay us for liquidity to replace lost deposits.

Set up a resolution regime.


Nationalise the banks piecemeal (i.e. in lieu of payments) if it has to be done and dismember them quickly. (e.g. spin off life, mortgage, insurance, private, retail, business etc. set up a national clearing house co. and float that too with a golden share).

Abandon the charades of “getting credit moving in the economy” and “keeping people in their homes to avoid further house price falls” and “cheapest bailout ever” and “manageable”. Get into the bunker and point the guns outwards…

Basically all the same things we were faced with two years ago.

@ Podubhlain

i’m making a distinction between a potential deposit g’tee extention vs one covering either pre existing legacy senior OR sub debt. A renewed deposit g’tee may well be brought in, but there’s no suggestion anywhere of one being brought in to cover legacy debt, yet that appears to be suggested in the article (“any announcement of the intention to force these losses on the senior bondholders would have to come prior to the renewal of the guarantee at the end of September”).

@ Ger

finally someone with some legal background explains the technicalities of it once and for all. Thank you.

@ Brian Lucey

following on from Ger’s remarks (and others), does it seem fair to say that your expert opinion piece is based on a lot of your own poorly conceived and researched assumptions? I know in Trinity it’d be difficult to find someone with a legal background, its not as if its home to the most prominent legal school in the country or anything…

Without a revoking of the guarantee, your piece does not suggest anything new really, save an explicit sovereign default in the next 3 weeks. Eh, interesting…

Do we call this a deposit selling moment mark II, or does anyone want to suggest a new moniker (BWII – have at it sir!)? Will there be a retraction, or should we not hold our breath on that one? Once again, the good reading public of Ireland has had to endure a mismash of inaccuracies and patently false concepts over how to solve our banking crisis.

Trichet at his press conference said its up to the Irish Government and the Irish authorities to take appropriate action on Anglo.

I agree with Paul Hunt, that the ECB will not look at a default by a State-owned entity as a commercial matter.

The spider in the hair again eh. Anglo is not the state. Is that too hard to accept? Its a company. I looked in Bunreacht and its not there. It is however registered at the CRO. AFAIK anglo doesnt even issue passports. But, ifyou want to swear allegiance to Seanie, be my guest….

Ok, I am going to bite AGAIN on this topic.

BL, are you saying that that Anglo should not repay the €7 billion due to bonholders this month?

Even completely ignoring the guarantee, your article does not in anyway describe the consequences of your actions. How do you intend to burn bondholders and not liquidate the bank immediately? If you don’t want to liquidate the bank immediately, where are Anglo going to get funding for their balance sheet? You want to protect the depositors. Where do you get the cash from? How do you think a Nationalised bank defaulting on senior obligations would look internationally? Do you really think it wouldn’t have any consequences for the State? Do you really believe the other Irish banks will be able to access capital markets in the forseeable future following a default by Anglo?

There are numerous other issues but I can’t be bothered. By all means lets have a debate but peddling populist nonsence that you can burn the evil bondholders and save the taxpayers billions is worthy of a politician, not an academic. If you want to get your name in the paper, do a proper analysis with the pros and cons of your idea. I am getting sick of reading rubbish from people who should know better. McWilliams article yesterday comparing the bailout costs to the Treaty of Versaille is a perfect example.


By all means consider it but do you really believe that is the cheapest option? No-one of any political party or serious analyst is suggesting a immediate wind down anymore.

Gavin S
Im saying lets have a debate. But, you seem…affronted….by this concept. Tell me, whats your plan? Muddle on regardless, flinging whatever taxpayer money is required at any stage up to 40b perhaps?
Gavin, this is and always was political economy. Ignore that reality at your peril. Tell you what, why not go one better and write a piece for the times. They are good at balance. I predict you wont.

Okay so bottom line?

Anything taken out during the ELG (Thats December 2009 onwards) can’t really be touched until after December.

Anything taken out between the guarantee and the ELG is the more immediate issue then?

I haven’t heard anyone really calling for the CIFs (Credit Institutions (Financial Support) Scheme) being extended post Sept except from Doherty and Aynsley.

Once you cross the rubicon of torching the bondholders (16bn) you might as well torch the deposit holders (23bn). Your credit worthiness has already been undermined by the first action. Then, what about torching the bank creditors (33bn)? If you don’t torch the latter two you will have to pay them upfront (56bn) because they will obviously want to withdraw their money. There are, of course, all sorts of political implication about torching other European banks.

I don’t think even a mini “final solution” (apologies to Godwin) is viable.

If you go to bond holders not covered by the guarantee (less than 10bn, maybe much less than 10bn) and impose a discount even if such an approach is successful (e.g. 50% discount) the effect on the rest of the banking system (i.e. AIB and BofI’s ability to raise finance) is incalculable.

But it would only take one bond holder to threaten the bank with liquidation/receivership (e.g. ACC bank and Liam Carroll). Once you are into this situation the liabilities crystallize. A bank on liquidation is not like a normal company. Certain categories of creditors (bond holders/deposit holders/bank deposits) have to be paid to avoid undermining the whole banking system.

In a situation where capital is scarce, I tend to think the “kicking the can down the road” option for Anglo is the best one. In other words: keep it going as a going concern until the loans to its customers can be realised while leaving the possibility that the entity that remains will either generate profits for the State (which it is on current business) or can be sold on to some other bank.

@Michael H,

Thank you. The EC, ECB or IMF can’t – and won’t – tout for business. Indeed, they will actively discourage it – e.g., the IMF Staff Paper on defaults for which you provided a heads-up. But I would be very surprised if contingency arrangements were not in place to deal with Ireland joining Greece in the treatment room. I expect they are amazed at the amount of pain the Irish patient has endured for a negative gain.

@John McHale
Very interesting, and very specific, suggestion, John. I suppose the first question is: precisely how much debt would fit into this category (I seem to remember somebody having figures on this site indictating that it was relatively (I stress, relatively) small – am I right? ) and the second is what it might mean in terms of the requirement for any new guarantee.
It would seem that such a default would mean that senior debt would only be lent to the Irish banks, for the forseeable future, when it was under explicit State guarantee. So, in tandem with requiring legacy non-guaranteed senior debt to take a hit, a new, fairly extensive, guarantee would have to be put in place, guaranteeing all deposits, and all future senior debt for an extended period of time. But perhaps that’s not necessarily a disaster, since the banks would have to pay for it.

@ Brian Lucey

nice. Deal with an argument by talking about something else.

Listen, do whatever you want with the unguaranteed Anglo bonds on 1st October, and do whatever you want with the corporate Anglo Irish bank after that. But up until then senior and sub debt are guaranteed. Not only that, but for the bulk of them they were issued under a guarantee after nationalisation, not grandfathered into it on either count.

Your argument basically amounted to “revoke the guarantee”, even if this now seems, after some very brief investigation, to be impossible. Your response to this is more or less “well i didnt know that”, even if, by the very definition of the term, it would always have appeared to be, eh, irrevocable. Ditto how it appears you see the whole ‘parri passu’ issue, your defence is no more than “well prove it”. There’s then some vague reference to a renewal of the guarantee. Basically you’re bluffing your way through this.

You come up with this nice big idea or concept, then create an opinion piece declaring it as fact and easily enacted. On the briefest of investigations we don’t just find holes, we find huge gaping chasm’s in the research and analysis. First deposit selling, now irrevocable guarantees. Both would appear to be straight forward concepts, but you seem to get them completely backward. Do people pass your classes on such poorly constructed thesis? At best this is being extremely clumsy with the key facts, at worst its incredibly ignorant of the subject matter you’re supposed to be talking about, with the emphasis on the “credible” part, or lack there of.

@ Rob S

no – the ELG covers the liability/debt until the maturity of it (say a 2013 bond), or until 5 years from the start date, but you can only issue NEW debt under it within a designated window (opened mid 2009, which currently closes on 31st Dec, though will probably be extended). Given that all of the debt issued under the ELG (that im aware of) matures within 5years, essentially this debt is untouchable, ever. It is essentially as safe and as senior as sovereign debt given the underlying state g’tee.

But your second point is correct, after Sept 29th, anything which was taken out pre-ELG will no longer be covered (except some types of deposits), so if you want to burn somebody (and weigh up the pro’s and cons), thats at least where you can look. There’s a good bit of senior debt there (a few billion anyway) and 2.5bn in subordinated bonds (though you could wipe 70% of that out tomorrow via a buyback anyway). So a full burn of these guys via liquidation could potentially save maybe 4-5bn (though the seniors might bring a lawsuit – much more complicated debate).

@ Brian Lucey

Isn’t it better to debate the realistic implications of a default?

If there is a decision to default, it’s inevitable it would at this stage be rejected at EU/ECB level and Ireland would be forced to use the ECB/EU/IMF mechanism.

@ John Martin

Good point on the power of individual bondholders.

A minority of refusniks have kept Argentina out of international markets for almost a decade.

@ Brian Lucey


Ask Karl or Philip to vouch for me, they should have my full email and name (at some point). I’m going to assume you’re just being playful, or else i’d suggest some form of therapy for your rapidly increasing paranoid delusions. Brilliant, haven’t laughed that much in a while.

I think this debate hinges around three dimensions:

1) Economic – Can we reasonably force bondholders to take a loss without incurring economic consequences which would outweigh the gain to the country of not having to burden their portion of the loss?

It seems to me we can. No one on the bond side has presented any convincing arguments that Ireland or clean banks operating in Ireland would be unable to obtain funds due to the charcoaled remains of bondholders wafting their sulphourous odour in the air. In the absence of such evidence, the assumption should be Ireland as a solvent state, and solvent banks operating therein, will get access to funding when they need it.

Those post 2008 creditors who banked on the irrevocability of the guarantee need to do a course in policital economy. The BGS was a political decision, brought in overnight, as an act passed by parliament. Such acts can always be revoked, whatever is in the wording of the act. That is the nature of political decisions.

As BL noted, it would be different if we had enshrined this obligation in the constitution, but this is not so. Thus, any creditors have to live with the fact that the guarantee – never a good idea to begin with – was always subject to changing policy winds.

2) Moral – Is it morally defencible to torch bondholders? Absolutely. In fact, I don’t recall there ever having been much debate on this. You lend on advantageous terms to a private institution, you bear the consequences of that risk.

3) Legal – Can we legally get away with torching them? This seems to be the most contentious point. With a meddling CJEU and shady German interests, who knows for 100% sure? But that’s true of alot of things that should be tried.

I ran a company in the US and we did alot of things that we weren’t sure would turn out to be legal, until tested. If we hadn’t, for fear of an adverse decision, we would never have made any money.


Perhaps you could enlighten us on how you renege on a guarantee. Do you liquidate Anglo imediately and pay out what you can to the creditors?

What are the consequences resulting on defaulting on the guarantee?

I can guess what they are-you are out of the sovereign bond markets for the medium term. That state has to run a primary surplus= debt service costs. The banks have to run with a loan /deposit ratio =100% which probably means a 20-50% deleveraging. You are probably talking about a 30-40% shock to GDP & all that goes with it. Sure you will recover from there.

Now lets see your model which says this is a good thing?

“Yep, my econometric model has analysed our 350bp spread and these are the top 5 contributors:

Seanie Fitz: 220bp
Bertie Aherne: 34bp
Brian Cowen: 31bp
David McWilliams: 25bp
Brian Lucey: 17bp

I guess you are proud of this achievement.”

i strongly disagree with your model. The impact of BL on spreads=0.

as opposed to getting there (absent the boogyman of exclusion, no evidence on which has been given) over three/five year? Coz, thats kinda where we are heading, minus billions to Anglo

Your question presupposes that we have a choice. Default occurs, usually, because of bankruptcy. Now, bankruptcy has a precise legal definition which can leave room for debate: is the defendant bust or not. Sometimes it is a close call. Cue all the bar-stool lawyers that troll this site.

But when you are very very bust, like, say, your average property developer, you are history. Unless you inhabit an Alice-in-Wonderland world where you can believe in 6 impossible things before breakfast.

Guarantees can only have a point to their existence if they can be described as credible. If they don’t have credibility they have no point. You are as bust as a property developer. Think of this particular sovereign as one rather large bust property devloper.

Keep believing in fairies, keep kicking the can down the road.

I will buy the drinks at the end of 2012 in Doheny’s if we have not restructured and/or resolved.


Can we hold you to that? Is that a credible commitment? Can you post collatoral? The worse case is that we are in the same boat as Greece where restructuring is possible but not certain. However, the guarantee that you have underwritten is definitive. We will be out the other side by 2012.

Everybody should lay that bet partiularly as it is not clear what stake we are laying to. What do you win if you are correct other than getting to say “told ya”?

@ Brian

sorry, the second suggestion was so bizarre as to make the first one irrelevant. If you ask a stupid question and then ask a ridiculous question, i’ll probably only answer the ridiculous question. For the nth time, no i do not have any skin in the game, and yes i purposely delayed posting this second reply just so your head could start spinning paranoidily out of control…

@ Ribbit

pls see Gers remarks on the irrevocability of the guarantee. He quotes actual legal concepts in justifying his comments. I’m not downplaying yours, but they seem to be more like “we can always change any law” – is that your actual contention? Obviously some rights (as Ger says “doctrine of reasonable expectations”) cannot be simply dismissed by the Dail, so we cannot simply change any law that relies on rights that may be enshrined in the constitution.

Re moral – is it moral to torch bondholders who lent to what was at that point a state owned institution issuing debt under a state guarantee? If you believe that to be “moral” then you are implying that a state guarantee is a meaningless concept, no?

@ Ribbit

I ran a company in the US and we did a lot of things that we weren’t sure would turn out to be legal, until tested. If we hadn’t, for fear of an adverse decision, we would never have made any money.

When Lehman’s ex- CEO Dick Fuld gets over his denial stage, he may say something like this but add – – “I got caught.”

Seems a bit too sanguine when it comes to an economy on the rocks but implying that this could be done by giving a PFO to the ECB and IMF, is not realistic.

They are not going to allow Ireland unravel the existing mechanism at a time when the prospects for the Eurozone have increased.

@ All

by the way, doing some basic analysis, the total amount realistically saved by burning (ie just not paying, as opposed to buybacks) bondholders (senior + sub) outside of the guarantee is probably just under 5bn, and which would involve a messy double quick wind-down and a series of ever lasting court cases by bondholders. But thats the real figure to weigh pro’s vs cons etc. This is based on not burning any depositors or elg bonds or covered bonds (given they have underlying assets and that the ECB itself has large enough holdings in them). Its obviously a significant amount, but it is not the 14-16bn suggested by Prof Lucey in the article today.

This is the gross saving of course, and would have to be netted against the discounted good loan sales that were mentioned above. Off a 37bn or so loan book, with a market value of say 20-25bn, what sort of discount would we have to offer to refinance this loan book elsewhere?


“The worse case is that we are in the same boat as Greece where restructuring is possible but not certain.”

This may be the case because governments in the core EZ countires have not confronted their voters with the reality that any bailing out of Greece is also bailing out their savings. They cannot postpone biting this bullet indefinitely. Ireland joing Greece in the treatment room would concentrate minds wonderfully. In addition, Greece is protected from the frenzies of the bond market and the restructuring of its taxation and public spending and of the public and sheltered sectors that is being carried out will stand Greece in good stead.

Ireland could do with a bit of that.

@Eoin. The relevant statutory provisions, in particular the Credit Institutions (Financial Support) Act 2008 (No.18 of 2008), and the statutory instruments establishing the CREDIT INSTITUTIONS (ELIGIBLE LIABILITIES GUARANTEE)
SCHEME 2009, make it clear that the guarantee is unconditional and irrevocable. What BL seems to suggest is that amending legislation be introduced to amend the ELG scheme so as to allow the previously irrevocable guarantees to be dishonoured.

The courts have made it clear that legislation which interferes retrospectively with property rights will generally be struck down as unconstitutional. A relatively recent example is provided by the Article 26 reference on the charges for in-service care in nursing homes. The Goverment was found to have been imposing charges without lawful authority for years, and then in an attempt to avoid having to repay the charges, it sought to retrospectively validate the charges. The Sup Ct struck down the legislation on the basis that it improperly sought to abolish the property rights of the affected patients to recoup the illegal charges.

The Sup Ct rejected an argument based on the financial burden to the State saying as follows:

“Where a statutory measure abrogates a property right, as this Bill does, and the State seeks to justify it by reference to the interests of the common good or those of general public policy involving matters of finance alone, such a measure, if capable of justification, could only be justified as an objective imperative for the purpose of avoiding an extreme financial crisis or a fundamental disequilibrium in public finances.”

The legal issue presented by Brian Lucey’s proposal is whether the extreme action of revoking an irrevocable guarantee is “imperative for the purpose of avoiding an extreme financial crisis or a fundamental disequilibrium in public finances”?

Aside entirely from the legal issues, there is the equally important issue as to the effect of a default on the State’s ability to borrow internationally.

@ Gadge

cheers for that, i have frequently suggested that we need more legal insight/contributions into some of the topics talked about on here (in particular a resolution regime). This is one of the first times we’ve had a few contributors (you & Ger) who clearly know what they are talking about to that end, as opposed to guesswork based on zero actual subject knowledge which we are frequently bombarded with.


I thought the whole point of the IMF paper y/day was that defaults are costly & the effects long lasting. Also, I remember buying Greek debt in my inglorious career as a bond vigilante when it was below investment grade and the highest yielding sovereign in the EU, precisely because it had been in default for 50% of the time since independence from the Ottoman Empire

I put it to you that your contention that default will not result in some exclusion and a higher yield for a time post re-structuring is complete and utter “balderdash”.

Here is a simple fact – a failure to default at a national level will only mean a flood of defaults at the homeowner level.
Absolutely hate the puerile personalization of all these arguments. Dmcw and BL didn’t get us into this mess number II.

@ P O’Grady Walshe “The fact that both State and bank term funding requirement from Ireland is so colossal over the next few months”
This is not fact. This is false. There are relatively big redemptions of guarantees in Sep 2010. Afterwards almost nothing. And anyway, access to ready cash by both the state and the banks is easy. So any reneging on debt can easily be avoided (true, too easy, it could be argued, which allows a deeper hole to be dug). Loose talk does not help at all.
@ Paul Hunt
Like P O’Grady Walshe, you have some ideas that do not quite seem to fit the facts for me
e.g. you claim “The bond market eventually forced Greece to submit to EC/ECB/IMF administration. Things will have to follow the same course here”. In fact, Pasok asked for EU “solidarity” right from the start of its tenure, and the government I think fully understood there would be strings attached.
For Ireland, there is absolutely no inevitability. The government remains sovereign, and still can end up taking sensible – or silly – decisions.
You claim “these EC/ECB/IMF arrangements are . . . working for Greece”. With the benefit of hindsight, I think most would agree that Greece would have been better off (if it had the political means) to never call on “solidarity”. Instead, it could just have announced stringency measures and got on with the job. The collateral damage of its calls for aid have been immense. Entering EFSF would put Ireland on the Greece road. Yet the gain from saving a tad on a little bit of marginal funding would be tiny compared to shutting itself out of markets for years to come, along with the reputational damage.
@ Eoin
You say that “hearsay” would “lobby for a change in Germany policy to peripherals if they torch any of the senior debt…” Bring it on! More realism would do everyone some good – notably if there was an understanding that there would be no more blank checks for irresponsible governments and their banks.
Eoin, are you the same Eoin as the Bond Eoin? Always looking on the bright side over the past 2 years? I suggested to you in a previous chat that there have been sizeable defaults before without the sovereign getting mcuh if any stick. Even individual borrowers and savers in Europe got hit. You have a Bloomberg I believe so can check them out.

@ Eoin,

Yes, on the legal dimension I agree that the issue is contentious. Gadge’s arguments do sound compelling.

I suppose the question is how many billions of additional taxpayer money constitute a “fundamental disequilibrium in public finances”?

On the moral argument – I would say most definitely we can torch them. Com’on Eoin, these are big boys and girls we are talking about. They must have considered this nonsense guarantee could have been in danger at some point, with the right political will?

@ Michael,

Yeah…but that’s why I put in a reference to the moral dimension too. I don’t think the Lehman guys thought much about morality.


Eoin has made a fairly convincing case (to me at least) that the amount to be got from bondholders is around 5bn. Net against that the fire sale losses on the loan book and it looks definitely a losing proposition.

So this seems to back up his assertion that Prof Lucey must have in mind much more serious rescindments e.g. on the guarantees themselves. The latter has not denied this assertion.

Hi all,

I am a little confused by the debate here. In particular, people have been alluding to passages in legislation, but they have failed to cite the legislation itself.

I can only presume that the legislation everyone is referring to is the “Credit Institutions (Financial Support) Act 2008”. (Bear with me, I am talking off the top of my head.)

This legislation stipulates in section 6:

“s 6….

(10) The Minister may withdraw or revoke financial support provided to a credit institution or a subsidiary under this section in accordance with the terms or conditions of the financial support as the Minister thinks fit.”

So, there is a qualified power of revocation in the primary legislation. This power has to be exercised in accordance with the terms and conditions of the Scheme.

The terms of revocation are found in Articles 13, 14, and 15 of S.I. No. 411/2008:

“13. The Minister may revoke the guarantee in whole or in part in relation to a covered institution if:
13.1 the covered institution is acquired by or merges with another institution or person not themselves benefiting from this Scheme, subject to the Minister’s discretion, after consultation with the Governor and the Regulatory Authority, or
13.2 in the Minister’s opinion, after consultation with the Governor and the Regulatory Authority, the covered institution is in material breach of its obligations under this Scheme; or
13.3 if the Minister, after consultation with the Governor and the Regulatory Authority, is of the opinion that the matters set out in section 2(1) of the Act of 2008 no longer apply; or
13.4 if the covered institution, with the consent of the Minister, withdraws from this Scheme.
14. The Minister shall give public notice in Iris Oifigiúil at least 90 days before revoking a covered institution’s guarantee.
15. After any revocation in whole or in part of its guarantee, a covered institution shall continue to pay a charge for the period of the remainder of this Scheme in proportion to any amount of its liabilities which continue to be covered by the guarantee. If a covered institutions guarantee is revoked in whole or in part, covered liabilities with a fixed term outstanding at the date of expiry of the guarantee shall continue to be covered by the guarantee to their maturity date or 29 September 2010, whichever is earlier.”

Article 15 would seem to vitiates any effect that a revocation under the Scheme would have.

There may be, however, a way around this:

– The Minister can vary the terms of the Scheme (See Art. 11) to ensure that they comply with the objectives set out in s 2(1) of the Principal Act (Cited above)

– An exhaustive list of ‘Covered Liabilities’ can be found in Article 10 of the SI.

-Thus, the MInister could vary the terms to exclude certain types of debt (Senior and Subordinated debt, for example) from the Scheme. When they protest, he could argue that he had to vary the terms in order to comply with s 2(1) and to ensure that the Irish State kept its head above water. In a legal context, there is no riposte to this since the Courts have, in the past, taken a deferential approach to the Executive on matters like this.

I have some reservations about the legitimate expectation argument advanced here. Legitimate expectation is a high hurdle to clear. A bond-holder who appeared in the Commercial Court armed only with that would be a very weak position.

A caveat: I have not sat down and analysed the relevant law in great depth. I am speculating on much of this. I welcome any criticisms of the above.

Anglo is a problem because of FF government looting- spending today off unsustainable tax revenues requiring an unsustainable property and consumer spending boom facilitated by run away income inflation and rapid credit expansion. Lax regulation and poor governance could not of themselves have created the conditions required for Anglo’s looting to work.

Anglo’s debts are sovereign not only because the state first issued its guarantee and then nationalised but because the state or its government is directly responsible and accountable for allowing it to trade in the manner it did.

@ Ciaran

Eoin/Eoin Bond = work/home. There’s no particular reason for it, but at least this way you can tell where i am!

I’m not saying a default is the end of life as we know it, but some people seem to be suggesting that either we can do it fairly easily “revoke the g’tee”, or that we do it fairly soonish, without coming up with a realistic suggestion as to what to do next, ie “lets tap the EFSF – yeah the Germans will be grand with us hammering their banks…”.

I’d call the default a nuclear option which we are nowhere near having to play yet, which is exactly what the IMF paper yesterday seemed to suggest. Why not hit Anglo with some opportunistic buy backs, at senior and sub level, once we indicate that the wind down is the preferred strategy?

The only true irrevocable thing is the level of Irish bankruptcy.

Taking a painful shock to the Irish system and allowing it all go bang would have been the right thing to do in 2008. The Armageddon we tried so hard to avoid was exactly what was required.

However is there not an argument to be made for continuing on this can kicking, roll the debt over again, insanity for as long as the ECB/EC allow us?
After all it was the ECB’s no bank left behind policy that left us with little choice when it came to extending the guarantee to Anglo ( fairly sure we wouldn’t have been let).
Why go to the bother of having a small default in a small country on the periphery of Europe when we could just wait for the European central bank to prevent so many of them happening (their own can kicking) that we get a large European one that effects all the pigs at the same time. At least its wont just be the Paddies fault.

@Ciaran O’Hagan,

Thank you. I certainly bow to your superior knoweldge and experience. And I agree with your take on Greece; it was a common-or-garden fiscally incontinent sovereign which should have been resolvable internally. However, in addition to the costs/benefits of protection from the bond markets, the EC/ECB/IMF oversight has driven much needed reforms of taxation, collection and public spending and of the public and sheltered sectors that will stand Greece in good stead.

I would contend, however, that the scale of Ireland’s banking fiasco is simply too large for a small economy to resolve relying mainly on its own resources – even if ECB support has been significant. The additional assistance the EC/ECB/IMF may be able to provide might not be crucial – particularly as core EZ governments have issues to resolve with their own voters, but, similarly to Greece, I think the reform it would kick-start in the state, semi-state and sheltered sectors would have a lasting beneficial impact on the domestic economy. I do not see the existing (or any prospective) government having the guts or gumption to tackle these issues.


“that there have been sizeable defaults before without the sovereign getting mcuh if any stick”

Perhaps you could provide some examples of a financial entity with liabilities expressly guaranteed by the state being liquidated and burning bondholders without a negative impact on the sovereign.

or if you mean sovereign defaults, are there any exaples of sovereigns defaulting where the cost of issuing debt is same or lower after restructuring. Take two Rugby playing commodity producing Southern Hemisphere Economies-Argentina or Australia. which has the higher cost of debt?

@Ciaran O’Hagan

I stand ready to be corrected but B of A Merrill Lynch research note released today has a paragaph titled “September’s Funding Cliff” which asserts “September is a key month for Irish bank refinancing. We estimate that the three main banks (AIB, BoI, Anglo) have in total €22billion to be refinanced. The refinancing cliff reflects the fact that the original maturity for the blanket guarantee of the Irish Government for the Irish banks debt expires this month.” Other research notes I have recently read suggest that the combined September 2010 maturities for EBS, INBS and ILP debt aggregate to over €8billion.

I call that colossal.

….is this right:
1: we don’t restructure national debt and
2: we service all debt through decreased govt spending and tax increases and
3: we increase unemployment and decrease incomes and
4: we increase the number of households defaulting and
5: we have even less healthy banks requiring more bailout and even more debt

what step is wrong?

@ P O’Grady

re the refinancing – i believe the Irish banks already have a lot of this done, so in essence they are over/ultra liquid right now. ILP in their earnings figures this week said they have 3bn maturing this month, but that this was already refinanced, and AIB have said something along the same lines in recent months. Any shortfall in cash could also be temporarily financed via the ECB repo window. Its an issue alright, but its not as collossal as has been suggested by some commentators who have looked at it too bluntly (ie every loan is rolledover right on maturity).

@ Chris. I think you may focussing on the blanket guarantee issued in September, 2008, rather than the subsequent Eligible Liabilities Scheme of 2009. As I understand the concerns being raised by commentators, including Eoin and Ger, that any attempt to revoke a guarantee given in respect of funds given after the coming into force of the ELG scheme (in contrast to so-called legacy bonds). Article 6 of the ELG scheme states as follows:

“Any variation of this Scheme and the terms and conditions of this Scheme, including the rules, shall be without prejudice to the unconditional and irrevocable nature of the eligible liability guarantee in respect of guaranteed liabilities existing at that time.”

Typo’s fixed 🙂

@ Chris. I think you may focussing on the blanket guarantee issued in September, 2008, rather than the subsequent Eligible Liabilities Scheme of 2009. As I understand it, the concerns being raised by commentators, including Eoin and Ger, is that any attempt to revoke a guarantee given in respect of funds given after the coming into force of the ELG scheme (in contrast to so-called legacy bonds) would be invidious. Article 6 of the ELG scheme states as follows:

“Any variation of this Scheme and the terms and conditions of this Scheme, including the rules, shall be without prejudice to the unconditional and irrevocable nature of the eligible liability guarantee in respect of guaranteed liabilities existing at that time.”

It seems to me that a bondholder would have a very strong case before the Irish courts in the case of a default.

BTW, the reference to “legitimate expectations” is a bit of a red herring. Strictly speaking, the concept is only relevant to extra-statutory actions by a public authority: the courts will sometimes require a public authority to confer a benefit on a third party notwithstanding that there is no express duty on the public authority to do so. In the present case, by contrast, there is an express statutory obligation. The legal issue which arises is whether any amending legislation which seeks to revoke the guarantee retrospectively is constitutional. This is a constitutional issue, and not one of “legitimate expectation” in the strict sense.

Seems a little clarification is needed on Anglo’s current funding.

Customer deposit are €23,156m
Deposits from Central banks (ECB + ICB) €26,359m
Deposits from banks €5,089m
Debt securities: €16,518m

The debt securities are further broken down as follows:

Medium term note programme €14,639
Covered bonds €170m
Commercial paper €1,605m
Certificates of deposit €104m

With €7.9bn of Government guaranteed bonds due to mature by September 2010

So, what happens next?

(i) guarantee is not renewed but Anglo is allowed finance itself through the CB (as it outlines in its annual report per my comment above)

(ii) guarantee is renewed and the can gets kicked down the road.

(iii) the eu commission throw a huge spanner in the works.

(iv) the ecb throw a huge spanner in the works.

As listed, these four options lead to:

(i) The end game here is that the liabilities side of Anglo’s balance sheet become ‘Deposits from banks’ and little else. It will be just the breakdown of the deposits that decides how much the Irish CB will be holding the can for.

(ii) As Anglo themselves say, the appetite for their debt (guarantee or not) is not great. A continuation of the guarantee will lead to some sales, but CB support will continue to be needed, and the guarantee will have to be recinded eventually..

(iii) The commission rejects the anglo business plan and asks for an orderly winddown of the bank. Unlikely there will be much bondholder support for the bank in this case

(iv) The ECB changes its liquidity operations, and stops accepting so much Anglo stuff for repo, increasing the burden on the irish cb (this is likely to happen in q1 next year)

In all the options as outlined above, it seems to me that the Irish CB will end up holding much of the can for Anglo, no matter which way this plays out. Is this a situation that we want, or even one that the ECB will allow?

You might want to expand you horizons as to what constitutes a default. An increase in the retirement age, for example, is a defacto default on future obligations. Letting inflation exceed existing bond coupon (where the bonds were bought in that currency at par, if you see what I mean) is another method. I believe there were shenanigans with the Irish Sweepstakes, but it was before my time. Payment in scrip is the California method…

Domestic defaults are far more common than international ones. They take many forms. Given the strictures of the euro, we are likely to be stuffed by the common or garden variety… Watch out…

I am not an economist but just because the Rottweiller sitting on the passenger seat of your car has no right to be there, does not make it sensible to lean over and open the door to push him out.
However if one has that kind of cojones and you think you have the capacity to do so, would it not be a more sensible move to kick the living daylights out of the idiots who put him there. A case of picking your fights.
If it is legal to walk away from a government guarantee, then it is probably even more legal to cut the pay and remove the pensions of those who gave it. And there might even be a possibility that the bond market might get out of our way if they saw us dealing with them as they deserve.

@ Hogan

Destroying the real wealth of bond holders and indeed fixed income liability holders (wages & pensions )through inflation is not a default. Not giving them back their coupon and principal is however a default. That is precisely why govts through the ages have chosen the method of currency debasement to reduce debt burdens.

Ok its cheating but it is fair game. It obviously will cost in the sense that the cost of debt roll over rises.

Personally I think we have gone past the point of defaulting on any guaranteed debt. The mistake in guaranteeing it was made and we now have to live with that.

But I think debt no longer guaranteed after September should face some losses. How this done and how much is up should be debated.

I don’t think defaulting on non-guaranteed debt wold have a negative impact on sovereign debt. I know there is plenty of disagreement on this but I think it could even be a positive for sovereign debt.

The spreads on Anglo senior and sub debt have increased significantly today. So the market clearly thinks the probability of some form of default is increasing. Yet the sovereign spread is narrowing.

How practical would a buy back of senior debt be? And how far below par are these bonds currently trading and how much further would they fall if they were no longer guaranteed?

I think this approach could work not just for Anglo but also for INBS and maybe even AIB when IMO the recap passes the currently estimated €7.4bn.

I also don’t see the same problem as other with future funding of banks post a default. We will still IMO have a future guarantee on new debt issuance so the state’s backing should we enough to get the sales away.

Just on this “expectations” thing as a legal constraint, I have to admit that administrative law is not one of my fortes. However, as I understand it, “legitimate expectations” only become relevant when there is an absence of clarity in the extent of the obligation which other parties can allege that they were led to believe that the State had accepted.

I don’t think that this is relevant to the State’s obligation under what we are calling the Guarantee. The terms of this are set out clearly in the relevant legislation, and the State is obliged to honour those, but only those.

There is no reality in the suggestion that the Guarantee is only a law, and laws can be unmade. No court would deny a bond-holder who claimed under the guarantee simply because the Oireachtas repealed the legislation in the hope of escaping liability. This would certainly apply to post September 2008 bond-holders, but I suspect that it would apply to all, because obviously even pre-September 2008 bond-holders have made decision for the last two years assuming coverage was theirs as well.

Maybe legitimate expectations would be one of the grounds used – especially by the pre Sept 2008 people – but really the position is about as simple as it can get: if we pass a law, it’s the law. We are stuck with the consequences.

If we really can’t pay, we default. But we can’t selectively default – in the private sector, that is known as fraudulent preference.

None of that means as such that the Guarantee has to be renewed, though.


Interesting point.

I don’t think buying back senior debt in the market place counts as a default, even if it is at a discount?

The problem is access to capital to buy back the debt. Could the ECB help? After all there is a mutual interest here. Secondly, once you enter the market place you are indicating that you don’t intend reneging on your debt so the price will go up (less of a discount). So I imagine you would have to act quickly.

But I think this approach should be considered.

@ DE

I agree with you on buy backs of any seniors including covered bonds. You need some stick though to force the price down otherwise why would anybody sell unless they thought they were not money good. EBS did a reverse tender last year for some of its covered bonds, I believe.

The Exchequer could presumably just issue some short term note to fund the buyback. Perhaps, if the EU orders Anglo to be put into run off then you could create the perception of a less than 100% recovery.

@ John/DE

i have long advocated “market friendly” buy backs, primarily for subordinated debt (because they trade so low – 30-35 cents for the better Anglo subs right now, will check the perps tomorrow), but it could work with unguaranteed seniors as well. And it definitely does not count as a default. Its something we shud certainly explore. Some will grumble that these bond holders shud not get anything at all back, but we may have to compromise at least somewhat for our long term good.

@John Martin
More promissory notes – repo’d at 1% (or 1.5% as marginal lending capital from the Irish NCB) used to buy back debt.

This is where talking about a credible threat of default is useful (some of the herd get thundered for the exit). This is why having a resolution process is useful (as the threat becomes credible).

Why are we still in the position that there is nothing useful available to the state?

I don’t think we can credibly renege on the guarantee, however incroyable it is. You can stick that in your next conversation with Ms. Lagarde, Mr. Lenihan.

Well, if we are talking about the risk of higher interest rates in the future because of past defaults, then inflation above expectations is clearly a default. That is, after all, why central banks target inflation and inflation expectations.


“There is no Act you could revoke that would remove this doctrine.”

Nitpicking, I know, but I think that if the government really wanted to do it, it could do so, under Article 28.3.3°, the provisions for a state of emergency:

Article 28

3. 3° Nothing in this Constitution other than Article 15.5.2° shall be invoked to invalidate any law enacted by the Oireachtas which is expressed to be for the purpose of securing the public safety and the preservation of the State in time of war or armed rebellion, or to nullify any act done or purporting to be done in time of war or armed rebellion in pursuance of any such law. In this sub-section “time of war” includes a time when there is taking place an armed conflict in which the State is not a participant but in respect of which each of the Houses of the Oireachtas shall have resolved that, arising out of such armed conflict, a national emergency exists affecting the vital interests of the State and “time of war or armed rebel-lion” includes such time after the termination of any war, or of any such armed conflict as aforesaid, or of an armed rebellion, as may elapse until each of the Houses of the Oireachtas shall have resolved that the national emergency occasioned by such war, armed conflict, or armed rebellion has ceased to exist.

The Oireachtas is entitled to decide that the armed conflict in, say, Ulan Bator is affecting the vital interests of the state and that it can pass whatever laws it likes. The link to Ulan Bator might not be very plausible, but that would be nothing new for Irish government policy.


I am writing from the U.S. Can somebody tell me why the Irish people just don’t vote the government out like the Icelanders did? The U.S. electoral structure is highly undemocratic; in the Senate, a small rural state has the same voting power of a larger state with, maybe, ten times the population. Also, the corporate controlled media dominate any political discussion.

But Ireland should be democratic enough to simply throw the politicians.


It is not. you pay the coupons and refund the principal on time. You are meeting the terms and conditions when you sold the bonds.
The 4.5% IGB of 2020 just contains a commitment to pay a 4.5 euro couponper 100 euros and repay the principal on 18/4/2020. T&C say noting about inflation indexation.

@allan harris
The icelanders forcefully demanded an election. None of the groups here like unions or opposition parties who could lead a popular movement demanding some democracy pressured for an election despite the economic disaster that has followed our last election which was just pre-bust.

@a punter

I guess my question would be, if the Icelanders did it, why didn’t the Irish?

Also, Russia defaulted on its “sovereign” debt in the 90s and Argentina did the same thing in the early 2000s. They both seem to be doing alright, and banks are lending them money again. It seems to me that a “sovereign” debt is nothing more than a debt of a government. In the past if a government defaulted, a country like the U.K. could simply send in the Navy and begin shelling the major seaports to enforce the debt. I suspect the Argentine bondholders in Europe were probably demanding similar action.

If the people change the government (assuming a democracy) then the people can tell the banks that the bonds, whether senior or whatever, are not collectible.


I am just wondering does anyone think BL’s suggestions should actually be acted upon? From what I have read in this blog, it appears they seem baseless and not well researched. The realities of the implications of what you are suggesting are just not set out. Sorry Brian, that is just the overall theme, no offence meant, I am sure your intentions are good but this debate that seems to go on and on and around in circles seems to do no good and in fact it appears that it only makes the difficult job of dealing with the mess harder (ie funding the state). Someone wrote in the Irish times recently that we shouldn’t laud the ntma every time there is a succesful bond auction but I would like to know how that person would feel if we weren’t able to raise
funds abroad? For a start, I am sure college professors’ salaries would be cut. As things stand (and I know they’re not great) but we actually have a lot to be positive about. Would the associate professor do an op-ed piece on that or would that? Please..

@ Allan

Eh, Argentina is only now, 8 years later, returning to the bond markets, and currently pays around 10% on its bonds. And Russia was lucky enough to be sitting on a few billion barrels of oil with which to pay back their debt. We dont have oil and we dont want 10% interest rates, hence we would rather not default…

@ Allan

also, the Icelanders did it because the country literally went bankrupt – the currency collapsed, peoples foreign debt exploded in Krona value, and they couldn’t buy in exports or send money abroad. All international trade basically froze. They had to bring in currency controls and only necessities could be imported. Thats why the Icelandic people dumped their government out. For all the problems here, we are not near that quantum of problems yet.

At time of writing the largest corporate CDS widening spread today is Anglo, and the second largest sovereign CDS widening spread is Ireland. Maybe if this thread hits 400 comments or so we could get a nice number one finish for both tomorrow….

@tull et al.

I’d like to understand better what the options are for the “big stick” to hit the unguaranteed Anglo bondholders with to force selling at a discount? Seems a good solution to me. Would they have any big sticks themselves that they could hit back with?

At what stage will you realize that the current approach is unsustainable!!!!!!!
Unemployment up! Retail sales down! Income tax down!
So annoying.
We have a major card in our hand – membership of the Euro and the risk we could bring it down. Our default should be as potentially chaotic as possible – should scare the living daylights out of Trichet. It is all we got at the moment.
Life is poker – not chess!

@Bryan G
“At time of writing the largest corporate CDS widening spread today is Anglo, and the second largest sovereign CDS widening spread is Ireland. Maybe if this thread hits 400 comments or so we could get a nice number one finish for both tomorrow….”

Firstly I doubt this thread is having any effect on the CDS market.

I also wouldn’t consider driving down the price of Anglo sub bonds to be a bad thing. The further they fall the less we will have to pay the bondholders. The same goes for the senior debt.

The best suggestion here (apart from the original proposal) was to have an armed rebellion to bring us to a state of emergency and then revoke all the guarantees. We should be able to manage that – shouldn’t we. One man with a pitchfork stuck in an efigy of Brian cowen is technically an armed rebellion isn’t it! Bring on the revolution!

@ Bryan G

I query you figures. Irish 10 spreads have tightened by 16bps v bunds this week and CDS looks to be tighter by 3-4 today. Anglo bonds are offered, but that seems to be on the news that Brussels may veto the good bank/bad bank. BL had nothing to do with this.
I wonder how much of the Lucey doctrine does KW agree with or indeed many other of the 46.

I am not sure the stick is that big. I think it would involve convincing Senior unsecured that selling now at 50 or so is a better option than 10-15 years to see if you got back 100. Their stick might be bigger….ok fund your own bank balance sheet and deficit then.


what rate does Iceland borrow at in Euros? I can’t find it on my monitor.


I think you overstimate our power. They could just throw us out & rally the troops around Spain.

I know. It’s just so frustrating. IM beginning to realize how fubard we are. It actually looks like Brian Lenihan made the biggest mistake ever in extending the guarantee to Anglo. Still – he wasn’t to know.

The full story on all this has yet to be told.

In the meantime: here is something interesting, the trailer for Charles Ferguson’s new documentary “Inside Job”

@tull, DE

The numbers I got were just from looking at the front page snapshot – I don’t have access to any professional level data. BTW I don’t really believe this thread can move the CDS market! Am interested in the sequence of events that would have to happen in order to legally hit the unguaranteed bondholders in some manner though.

A good and relevant article in today’s NY Times on Ireland’s economic plight can be found at

extract follows:
“Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens. But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers, rather than creditors, pay.”

@tull mcadoo
“what rate does Iceland borrow at in Euros? I can’t find it on my monitor.”

Can’t see any euro Icelandic bonds. However the Icelandic CDS, which should exclude most currency issues, is also lower than the corresponding Irish CDS.

@ DE

if you can print your own currency, defaulting is never that much of an issue. Hence why Tull was talking about their Euro debt. The issue was whether they would ever default on their foreign debt, which thanks to a rather big foreign aid package, they probably wont default on.

A debate on Primetime about this too.
Looks like we really got to get our thinking caps on.
Straight default looks very problematic.
Leaving the Euro and “defaulting” that way, by comparison, almost seems attractive.

Did anyone catch Prime Time?

Did I hear Alan Dukes say that the gap between the good/bad bank and winding Anglo down was €4bn? It seems to be getting smaller and smaller as time goes on.


Argentina defaulted in 2002, the banks took a deal in 2005 taking losses at about 75% and Argentina started selling bonds immediately thereafter. Also, the official inflation rate in Argentina is 10%; if Argentina can sell bonds at 10% then good for them.

Russia had oil before its default. Ireland may not have oil, and neither does Iceland.

Iceland did not go bankrupt. The Icesave and Kauptthing banks were about to go bankrupt after the 2008 crash. Their depositors, mainly from Britain and the Netherlands demanded the Iceland government bail them out. The government agreed, and the Icelanders voted the government out and let the banks fail. Currency controls came after the government change. The Icelanders don’t appear to be starving. But they are, more or less, in charge of their own economy.

Unlike the Irish, U.K. and the U.S.

@ Eureka

‘It actually looks like Brian Lenihan made the biggest mistake ever in extending the guarantee to Anglo. Still – he wasn’t to know’

The MoF, like so many people in history, did what was expected of him. No more and no less.

@ Paul
Don’t get me wrong. I’m sure he did what he thought was right. Just seems awful that another Lenihan should end up taking the bullet for their leader.

@ Eureka

read Pat Leahy’s expose last year in the SBP-the famous Cowen quote which has never been denied “no XXXXX way is Anglo being nationalised”. This was despite the fact that the officials had info that the bank was possibly insolvent. Why guarantee the liabilities of an insolvent institution?

@ Eureka


‘The best suggestion here (apart from the original proposal) was to have an armed rebellion to bring us to a state of emergency and then revoke all the guarantees’

Bi curamach. Genuinely. It’s not so long since the guns fell silent on this little island.

Hey the guy on Primetime (ex-IMF) reckons we should both leave the euro and default. Now, there’s not much point in doing one without the other, but if we do the other, we don’t necessarily have to do one…

@Eoin and @Gavin s, I expect you both to get onto his blog and disabuse him of that. What would it do to our bond spreads?

@ Allan

Argentina started selling bonds domestically and to a few other Latin American countries in 2005, but only this year has it been able to sell them internationally, as the 26% or so who didn’t agree to the 2005 debt restructure deal were able to keep them shut out of the global markets.

Oil was worth $15 in the mid 90’s, and it was worth $150 in the mid-to-late 00’s, its possible that this has something to do with Russia’s new found prosperity. I’m just saying its a poor example for this reason. If we find a few hundred billion barrels of oil off Galway, im sure we’ll be all right too.

Iceland did go bankrupt, hence why its receiving $4.6bn from the IMF and the other Scandinavian countries. If we compared this to the Irish population, it’d be like us receiving $65bn in aid.

And with all 3 situation above, a massive currency devaluation, and the ability to inflate the debt away via huge currency printing, has of course been a key factor in restoring a somewhat vibrant economy and reducing down effective real debt. We do not have this option available to us.

@ Eureka

It’s not easy to find ways of tackling suh serious issues firmly but peacably. Three cheers for KW andThe Irish

@ Hogan

leaving the Euro has a whole lot of potential implications. As you said, if we exit the Euro we may as well go the full hog and default. I’m guessing it’d be a while before we managed to get anything imported into the country anytime soon though, seeing as we have (i think) an incredibly small amount of foreign reserves. Im guessing inflation would sky rocket, and foreign trade would collapse, which for a small open export-led economy like ours would be a pretty bad situation. And i assume most of the foreign MNC’s with regional headquarters here would be gone pretty sharpish. Basically, bond spreads would be the least of our worries.

What’s that dude’s blog called????


What is al this default gimmickry about. Our debt/GDP ratio will peak at 100-120% -below where it peaked the last time FF blew up the country. Interest rates are about a third of what they were then.

We just have to close down the quangos, shut a few third level institutions, cut transfer payments and public service wages and sell one of the government jets.

@ Eureka

different times my friend:

1. there was no Eurozone, so we weren’t “outside” anything
2. the process of European integration began in earnest in the early to mid 90’s, which definitely played a part in attracting US firms to base their regional HQ’s here around then. If nothing else, there was an ERM in place. If we bail out of the Euro, we will very much be signalling that we are dis-integrating ourselves from the rest of Europe and going it alone. If the entire Eurozone falls apart, thats a different matter, but if its just us i forsee a very bad few years.

“Im guessing inflation would sky rocket, and foreign trade would collapse, which for a small open export-led economy like ours would be a pretty bad situation. And i assume most of the foreign MNC’s with regional headquarters here would be gone pretty sharpish.”
Inflation – check
Imports collapse – check
Foreign trade – fail
MNCs – fail

We’d end up with a two currency economy. Work for an MNC and get paid in foreign currency (or a pegged salary at worst); work locally and get lenny pennies…

Which, of course, begs the question of why both formally leaving the euro… start a new currency for government outgoings, default on external and internal debt by forced conversion. You don’t even need to touch the savings accounts, eventually the euros will all be soaked up…

@Brian Lucey
Completely agree with the sentiment of what you’re proposing for the Anglo Bond Holders, but it feels very inconsequential in terms of the bigger problem of paying back our staggering national debt (including bank bailouts and the 20bn we keep adding each year with the budget deficit). Not being a member of the FF or Hogwarts party, I can’t see where any significant growth is going to come to reduce that deficit – which means I can’t see how we’re on a path to do anything but default due to the weight of servicing the debt. (Despite Tull’s confidence, I’m not sure we have too many governmental 787s to sell.)

So the question is why would we entertain the risk of higher bps to save a few billion in the short term if we’re going to have to do something way more drastic to course correct the country imminently anyway? Unless of course you think that we renege on bond holder debt, but otherwise commit to paying back everything else we owe?


Argentina began selling bonds again late in 2005. Its impossible (except maybe for Cuba and North Korea) to keep any state from selling bonds on the open market. That’s why they call it a “market;” the international bond market is probably the most ruthless market in the world.

Every oil producer in the world was getting $15 a barrel in the 90s. The difference for Russia is that after the default, Russia owned its own oil.

Iceland is not getting “aid” from the IMF. The IMF is not a charity organization. The IMF and other countries are lending money to Iceland, which is odd, considering that Iceland is “bankrupt.”

According to the Iceland government, the inflation rate this year is about 6%. There has been no “massive” currency printing or devaluation. There has, however, been a decision by the Icelanders to not agree to a “massive” bailout of the two Iceland banks.

If the Irish are happy with their newfound status as a third world country, so be it.

Wow, 200 posts. Have to say fair play to Brian lucey for starting a debate! Eoin, Tull and others, you are completely right with your analysis. For all the bluster on this thread, can someone please tell me in plain english how they intend to screw those evil bondholders and save the taxpayer?

@ Allan Harris, you think Argentina had access to international markets since 2005? I would check your facts if I was you.

@ Gavin s

Wall Street Journal Aug 17, 2010:

Argentina plans to sell a new bond internationally next month, local daily La Nacion reported Tuesday, citing an unnamed source at the Economy Ministry…A bond sale would mark Argentina’s return to international credit markets for the first time since its economic meltdown and default in 2001.

Argentina has been blocked from selling new debt overseas since the $100 billion sovereign debt default in 2001. In 2005, the government offered the bond holders about 33 cents on the dollar, and in June wrapped up a similar swap. Between the two swaps, investors have agreed to exchange about 92% of the defaulted bonds. But investors that rejected the offers have consistently sought to seize Argentine assets in the U.S., Europe and Japan, thus preventing the country’s return to overseas debt markets.


Here’s a brief snip from Wikipedia:

In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9.8 billion. The payment was partly financed by Venezuela, who bought Argentine bonds for US$1.6 billion.[48]
In 2006, Argentina reentered international debt markets selling US$500 million of its Bonar V five year dollar denominated bonds, with a yield of 8.36%, mostly to foreign banks and Moody’s boosted Argentina’s debt rating to B from B-.[

As a Bear of Little Brain, it seems to me that Eoin’s position is that There Is No Alternative to burning (is that the mot juste?) taxpayers: (a) it would be illegal to do anything else and (b) all sorts of evilitude would ensue, bringing about the End of Civilisation as we Know it Today.

But (a) can be overcome simply by not accepting it (there is always the pike in the thatch), and the position then resolves itself to (b). Now (b) may very well be true, but its truth is not by itself a convincing argument. What we really need to know is the cost of (b), the calculations to take account of the probabilities of various Awful Fates, compared with the cost to the citizenry of continuing with present policies. If anybody has made that comparison, I seem to have missed it, or perhaps (being a Bear of Little Brain) to have misunderstood it. But the proponents of current policies have not convinced me that they have made the appropriate calculations, so I am not convinced of the desirability of continuing with those policies and am happy to consider any alternative, from taking the pike from the thatch to joining Mercosur and seeking support form the Bolivarian Republic of Venezuala.


While again admitting my comparative lack of knowledge in the area, this article might be an interesting read for anyone considering that default can be painless.

Nine years after default, Argentina is still struggling to borrow money and still trying to negotiate with the 2001 defaultees. Now, to be fair, Argentina’s problems with repaying debt didn’t start or end with the 2001 default and they have a bad history, so the problems might not happen to Ireland to the same extent.

The interesting note in the article is that there are today and have been in the past attempts in US courts to seize Argentine state assets in the US as compensation for US investors burned in the 2001 default. That’d be a bad scene for Ireland in 2020…

@ Allan Harris. Wikipedia is your source? Seriously? It is only in the last couple of months that Argentina has been allowed into the Market. As for Russia, financial institutions and investors needed Russia a lot more than they need some little island on the outskirts of Europe.

@dreaded estate. A buy back sounds good but where do you get the cash to do the buy back? Cost of borrowing new funds is more than they are paying on existing debt. Then how do you fund your balance sheet without resorting to yet more central bank/taxpayers money? We are in a poxy situation and I would love to burn Anglo to the ground (bondholders and all) but there is no magic bullet.

@Gavin S
“can someone please tell me in plain english how they intend to screw those evil bondholders and save the taxpayer?”
I don’t think anyone is suggesting that the bondholders are neccessarily evil. I guess the general feeling is that we (taxpayers) and our children and theirs, have been somehow trapped or conned into paying back money, someone else – i.e Anglo – borrowed and lost. There is something inherently unfair in this situation. Sure the government is elected by us and took the decision “on our behalf” to issue the blanket guarantee which left us in this cleft stick. We may never find out the real reason the guarantee was made to be so all-encompassing but a degree of corruption involving FF, Anglo and others can be reasonably suspected. We have a duty to do all in our power to unwind the guarantee and prevent this fraud on taxpayers, therefore I applaud Brians efforts in this regard.

Any prizes for the millionth post?

It seems an ‘elegant restructuring’ of one’s debt following default is possible. Though perhaps, as bjg has noted, only for poor Latin American nations who have helpful oil-rich neighbours with a penchant for ostentatious displays of solidarity.

It also helps if the President has a PhD. in economics too I suppose. Maybe those academics aren’t too bad…

Perhaps if die Linke and Lafontaine sweep to power in a snap election next week we can have our helpful Red neighbour.

Morgan Stanley in a recent report said that bondholders will have to beware of “financial oppression” – i.e. imposing on creditors real rates of return that are either negative or artificially low) which has been used repeatedly in history in similar circumstances (by USA, UK, France etc.) . An example is reducing debt via inflation or imposing low interest rates on bondholders. Doesn’t seem either of these sticks to beat up the evil bondholders are available to us, except perhaps as part of an overall EU effort way down the road.

Threatening liquidation and buying the debt back at a discount could be one tool of financial oppression – maybe there are others? I suspect we are in an incredibly weak position though – seems quite likely the evil bondholders might mutter something about being savaged by a dead sheep before returning to their croissants and bratwurst. A previous comment seems stuck in the spam queue, but the sense of gross injustice being played out here only seems to increase as it becomes clearer and clearer that we have no decent options at all.

Are there really any depositors left in Anglo? Any half-wit who has left money in that hole even with a govt guarantee deserves to be burned…..

Ireland had more prudent choices.
It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens.
But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers, rather than creditors, pay.

The European Central Bank, the European Union and the International Monetary Fund share some responsibility; they advocate these unlikely programs so that European and global banks, which provided the funds to the Irish banks, do not suffer losses from such bad lending decisions.

Brian Lucey

Thanks again!
Very well put too! Your style, if I may say so, has improved substantially!

When I saw the number of posts to this, I said to myself, that really has brought out the shills, hasn’t it?!


The European dimension in all of this has been neglected, somewhat like the ECB and the EC, including the Irish members, they have left Ireland in the hands of its kleptocracy. Their neglect, or conspiring, has yet to be addressed.


Given what happened in the USA, when a closed session of congress met two years ago, taking all deposits out of all banks would be a very VERY sensible idea. The US has contingency plans to invade the Republic of Ireland. Thjey have them since the fourties at least. They also have a contingency for shutting down their banks again all across the USA. It includes martial law. Argentina had to confiscate all deposits ….. it also faced the inevitable. It defaulted and so shared the pain. No bank or institution is safe!

Bryan G

The weakest party at the table is the one who dare not do anything!


I hear you, Comrade. To the barricades! Pike in the thatch, eh? I must drop round for a sherry.

allan harris

You seem to be annoying the shills! Keep it up?! Thank you.


Chow and LIE! seems to have deserted the ship….. feeling lonely? Eventually those who see the writing on the wall, the smart ones, creep quietly away. They often say to their unknowing, naive buddies, “keep up the fight!” and off they go ……

This WHOLE business is a threat to sovereignty.

The IRB etc mobilized over 6 counties. What about the whole 32? England never cared about Ireland once it was stripped of oak. But those who control banking always wanted England as their unsinkable warren. Papism was a threat to England. So Ireland had to be neutralized.

I hope they are reading these words……. The Baltic Exchange was just one example. Think on…..

@ Allan

the Bonar (dont laugh!) bonds are, yes, domestic, and even the last foreign currency bonar issuance was in 2007. Argentina used to issue tons of “international” bonds (15-20 seperate issues per year) marketed purely at foreign investors and able to clear through foreign clearing houses. Most international investors won’t buy or settle bonds on domestic emerging market exchanges. They had to stop doing these international issues in 2001, and weren’t able to issue an international bond again until a few months ago (on Bloomberg there is a chunk of 2005 issuance, but this relates to the debt deal done with the 74% of bondholders who agreed to the debt restructuring deal).

I know none of this is included on Wiki, but trust me, its the actual situation…

@ Pat

i imagine he’s probably on holiday. You could probably do with a recuperative break yourself.

@Pat Donnelly:
“I must drop round for a sherry.”
Fino, manzanilla or amontillado? I haven’t anything else in the house at the moment, alas.

@ DE/Tull

Iceland Euro 12/2011 bond yields around 6.25% btw (BIG bid/offer!), so about Ireland +325bps…

Some people will fall for it but no matter how many times you say something, if it’s not true it is not true. Anglo is not Ireland.
What is true is that Anglo is infecting the sovereign so the sovereign needs to eliminate the infection. Surgery is never pain or risk free but is often necessary to save life.
We can quibble about whether the amounts of moeny we save are material but this is now almost beside the point. Our inability to deal with Anglo, to effect closure, is now a big part of the problem. We have gone from being lauded for action and decisiveness to being derided for opposite. We are a vacuum waiting to be filled.

@ Simpleton

i didnt say Anglo is Ireland (and could you point out where i allegedly did?), though i think foreign investors dont simply see it as a private corporation in trouble either. I’m actually all for inflicting losses on Anglo seniors where possible, bearing in mind that there will be pros and cons to this idea. I’m simply saying that if Anglo issued under a government guarantee, we really have to back that guarantee up. The guarantee IS Ireland. Yet people on here are basically saying ‘tear it up’.


I am afraid we guaranteed its liabilities (per D McW advice) and then we nationalised it (per the 46 economists). So, it is our baby now.

Moreover M Trichet seems to think it is our responsibility. In the end of the day, his judgement matters most.

What amazes me is that you seem to have no sense of either outrage or the need for political capital to be rebuilt to allow govt to deal with the rest oft the banking mess/the public finances. Myopic loss aversion anyone?

@ Brian

(a) outrage won’t get us anywhere. Maybe it’ll give you a fleeting boost in self worth that you’re somehow one of the good guys, but this is a societal problem (albeit with a huge chunk of the blame to be laid on the banks door). But yeah, keep raging away there and see how we get on, it did the Greeks the world of good.
(b) i imagine the government is more concerned with the political capital it can generate in Europe, because ultimately the Eurozone is, has been and will be for the next decade funding the bulk of this island’s economic activity. Thats not how democracy is supposed to work, but its how the real world works. Come join us here whenever you want.

@Pat Donnelly
“Under the current program, we estimate each Irish family of four will be
liable for 200,000 euros in public debt by 2015. There are only 73,000
children born into the country each year, and these children will be
paying off debts for decades to come”

Indeed, but just on the Anglo debt and assuming a progressive taxation system, grumpy has come up with the salary-based tax for Anglo:

Do try to reread what we suggested (the 27, not the 46 ); recognize losses, recapitalize using govt money if needed but with a mix.. FFS where are you, beside Winston waiting for the next missive from MiniTrue
If your subscription has expired to the Irish Times heres what we said in april 2009

“With the NAMA process charged with meeting the mutually contradictory three objectives above, it is also possible that objective (b), recapitalising, will not be fully met. In other words, a government that needs to be seen to purchase the bad assets at a reasonable discount and that does want to take too high an ownership share may end up skimping on the size of the re-capitalisation program. Thus, rather than create fully healthy banks capable of functioning without help from the state, this process may continue to leave us with zombie banks that still require the state-sponsored lift-support machine that is the liability guarantee.

However, once nationalised and with the promise of future returns for the state,
the incentive for the government will be to create well-capitalised healthy banks that can be privatised and allowed to operate independently from the state as quickly as possible. We believe that full nationalisation now will end up getting the state out of its involvement in the banking business faster than the current approach being taken by the government. In contrast, a circumstance where a dripfeed of recapitalisations is required would be the worst of all possible outcomes.

Anybody want to disagree that we are now where we are?

Normally Anglo would not, indeed, be Ireland, even if the state owned Anglo.

The state could be 100% owners of the shares in any limited liability company and still have a very clear distinction between the state and the company, and the company’s liabilities. The state’s ownership of Anglo is mostly beside the point.

However, in this case the state very explicitly guaranteed the liabilities of Anglo, apparently without really checking whether the net liabilities were very large. It seems they are.

All great lies are wrapped in a kernel of truth. We should stop playing ‘gotcha’.
Let me put a question to you. Or, rather, an assertion. You clearly think the current set of policies twoards the economy and the banks represents the best, the optimal, the most reasonable choices we could make.
If, perchance, this is not true, stop sniping and present an alternative.


I don’t think “the guarantee is Ireland” – I think the guarantee is a knee-jerk decision taken by an incompetent government under poor advice from crony bankers.

“If, perchance, this is not true, stop sniping and present an alternative.”
They havent one. Or rather, they deny the existence of and perhaps the usefulness of discussing one. Hurling on the ditch is not difficult. Its easier again when nobody knows whom you are.

@ Simpleton

there’s no silver bullett. The point of this thread was to discuss Prof Lucey’s article in the IT, where he advocates a revocation of the guarantee. We cant, its quite literally irrevocable. Indeed the bulk of Anglo’s liabilities are fully guaranteed by the government, so any notion of a bumper 14bn hit to the bondholders is pure fantasy. I’ve mentioned doing buybacks, but this is usually seen as some bailout of bondholders. Its all or nothing with you guys, cut their heads off n all that, or die trying.

Myself and Tull are simply pointing out that wishing for impossible things is probably not the best way to go about creating a successful outcome for our problems. But hey, if you want to consider that sniping, then keep dreaming away about the day we stick it to the bondholders…

@ Brian

i tell you what, here’s today’s challenge for you – come up with a solution that is realistic, consitutional and adheres to the basic rules of a bank balance sheet. Do that and we’ll have a grand discussion. Until then you’re more than welcome to keep dreaming on your own time, but try not to con a less knowledgeable public into believing myth and fantasies about what we really can or can’t do with Anglo.

So, Eoin
You dont have any solution. Fairy snuff then. What your saying is that you have literally nothing to add to the debate…Bye..


Thought that might raise your ire. We must have nationalised Anglo in the wrong way so

There are few good options open to us. We operated a no regulation policy. We guaranteed the liabilities of an insolvent bank. We are dealing with the consequences of that now. I see no way, we can weasel out of the sovereign seal we placed on Anglo that does not irreperably damage the economy through cutting us off from capital markets for a decent period of time The loss is going to be 25-35bn and that is it. We have got to learn from the lesson and move on.

Concentrating on Anglo at this stage is to completly miss the next wrecking ball swing in our direction -namely the other bank beginning with A. At the moment the plan is to sell assets & recap from the NPRF. Where is plan B if as is likely the hole is bigger than we think.

In addition we have also taken our eyes off the still extant fiscal crisis as we emote about Anglo.

Bottom line, we elected FF since 1997. They wrecked the country. This has cnsequences for all of us. We must bear the clean up costs. German taxpayers and workers who in many cases earn less than we do are not going to pay much for our hubris.

And you accuse me of putting words in your mouth. I have bent over backwards to acknowledge there is no silver bullet, no easy solution; all our choices our unpalatable. But just because we have to make difficult choices does not mean the only possible one is to continue, without deviation, along the current path.
I put it to you again: what would you do?
Your refusal to answer that question, your silence, is deafening.

Yes Tull, you got it in one. We should have FORCED the losses on the share and bondholders in Anglo wayyyy back when, then put in any capital (at need from the state) that was required to keep it going while we decided what to do. As it is we left the bondies off and…ah, fu[kit, whats the point. Your as blind to history as you are to logic.

Brilliant. You almost argue we shouldn’t start from here.
But your highlighting of the other issue is welcome. There are plenty more unpalatable choices ahead. Plenty more cans to kick down the road. Trouble is, we are running out of road.


Well put. Ironic that you should say that given I am a mythicla Kerryman. But we are here & we have to go from here.

we did wipe out the shareholder to the tune of 4bn, we should have wiped out the subbies but we cannot (I submit) at this stage wipe out the senior bond holders, given that we guaranteed the stuff. I doubt very much that we would have been allowed to at the time because of the febrile nature of markets. The ECB was worried that Anglo would start a negative feedback loop not for BOI but for Deutsche or BNP.

We made stupid decisions since 1997 and these have consequences. I can see you are exasperated but stamping your foot & calling me a FF hack won’t make me change.

in fact, let me let you into a little secret-I never voted FF in my life and never will. the nom de guerre is ironic.

Why not rename the country or have a breakaway republic that includes all of Ireland with the exception of Anglo and a few other places that we never had any time for anyway. Now the only question is – how does one go about setting up a breakaway republic?

Good lord, guys. Are you still at it? A number of things should be clear at this stage:
1. The EC/ECB/IMF don’t want us in the treatment room with Greece because governments in core EZ countries would have to face up to the reality that any restructuring of Irish bank debt would impose losses on some of their not very robust banks and on the savings pots of their voters;
2. The Government won’t voluntarily apply for admittance to the treatment room because the political credibility of FF would be blown for a generation – if not forever. It would prefer to take the country down with it.
3. So the Government is determined to keep kicking the can down the road starting with the EC’s decision on Anglo, then the budget and fingers crossed that the NTMA will be able to get away a sizeable bond issue early in the new year.
4. The institutional EU will do everything it legally can to support the Government’s can-kicking.

It always was, is and will be down to the bond markets and their take on the can-kicking.

@ Brian

sorry, you misunderstand – i have lots of solutions to offer for our current predicament. Unfortunately none of them are legal, realistic, or in any way enactable. You’d like them im sure.

My role here is the big hand of realism with which to keep your whacky ideas in check. I think i serve a very useful purpose, and am particularly busy on your posts simply because they require the heaviest doses of reality, although i am distressed that i keep feeding your paranoid delusions about the nefarious DoF-bondholder cabal thats out to get you…

@ Simpleton

I’ve encouraged market friendly solutions like buy backs, and am more than willing to inflict losses on seniors and subs via the likely liquidation of at least a large chunk of Anglo. My solution is that we ultimately need to work with the ECB and the EU through this entire process, rather than kidding ourselves into thinking we can just do it by ourselves regardless of the consequences for our Eurozone partners. This island will be externally funded for the next decade, so someone at least needs to acknowledge that keeping external funders onside is a key component of whatever solution we ultimately decide on. Revoking a government guarantee does not seem the best way to go about this, and is unlikely to be met with offers of help in response.

Some critical matters need to be addressed urgently, in the national interest. Urgency arises because the State guarantee for Bank liabilities needs to be extended in a couple of weeks time. Brian Lucey’s excellent Article in yesterday’s Irish Times has provoked lively and challenging debate.

The Banking Sector crisis is not just about Anglo….The government and many commentators are missing the bigger picture entirely! A proper understanding of the bigger picture and the composite / overall Banking Sector is CRITICAL ! …. A holistic assessment-appraisal is essential.

AIB and BoI are still severely under-capitalised and are presenting the misleading impression (for their managements’ self-serving purposes and to protect managements’ autonomy as long as possible, if possible) that they are in reasonable operational shape. They’re not! And that includes BoI who are trying to pretend that they’re okay because they’ve more or less raised the capital requirement that was indicated as adequate last March.

What’s wrong is that the last March estimates for both AIB and BoI are not enough. BoI needs €6.5bn not €3.65bn. And AIB needs €10bn not €7.4bn before the year-end. Furthermore, AIB should NOT be selling their stake in either the Polish Bank or M&T at this time. They are the best profitable cash flowing parts of AIB. AIB is only doing this as a panic measure to try and plug the deepening capital shortfall in the bank.

The correct approach to rebuilding the viable parts of the Banking Sector, AIB, BoI and EBS, is being totally over-looked, completely missed. This has happened, to a large extent, due to the over-focus on the colossal Anglo losses which I (and other analysts) had been only too aware of as long as nearly a year ago, well before Mr Lenihan’s Bank loans write-downs and re-cap estimates announcement in March this year. Unfortunately, as David McWilliams might put it, it’s once again, a case of the Insiders [status quo politicians, preferred cosy / crony self-serving professionals more interested in fees than trying to measure truthfully and admit the loans losses in the Banks and related problems, remaining unembarrassed incompetent bankers (the boards and senior managements weren’t sufficiently cleaned out)] continuing their drawn out denial.

A sounder Strategy and Action Plan is outlined in 2 articles I wrote recently which were published in the Irish Examiner on 6th August, “Righting the NAMA Wrongs”
and on 20th August “Time to rethink bank rescue plan”, respectively. [The link to article 20th August will be suppilied on my next comment to this thread]

It’s quite clear that we need immediate fresh thinking, clear thinking, clear and intelligent planning, a decisive Strategy and Action Plan and above all new FACES in charge!

The proposed Strategy and Action Plan can all be put in place in a matter of weeks. NAMA loans transfers should and can be reversed. NAMA is patently not fit for purpose. Increasingly it displays some of the attributes and characteristics of a National Socialist Project (where totalitarian / central planning conduct is disguised in free market language, and full transparency in relation to the operational workings of the Agency is lacking. Worst of all, the NAMA Legislation precludes and prevents inquiry!).

However, the alternative Strategy and Action Plan, outlined in the articles, provides a sounder and more effective approach that would enable the real economy to recover based on a properly capitalised and re-booted Banking Sector. Let’s remind ourselves that the real economy depends vitally on being competitive in our costs of production, distribution and export of goods and services, thereby supporting jobs and employment. And a sustainable recovery in the real economy will also depend on huge downward corrections in rental levels and asset prices as well as across the board loans write-downs and debts forgiveness (subordinated bonds, senior bonds and including perhaps mortgage loans!) so necessary following the unprecedented appalling asset prices Bubble bust caused by the banks led credit cocaine extravaganza actively encouraged by the government and largely ignored by the Regulators during the credit extravaganza years 2002 -2008.

That said……I’m a realist and an optimist. Realism and optimism are essential for recovery. But optimism must be based on reality.

As a country we face a stark reality. The banking industry and official denial must stop!

Unfortunately, the Fianna Fail led government is responsible for recently undermining our economy. And they continue this ignorant (in the truest sense that they just don’t know!) obstinate undermining with their slow motion roll-out of the deeply flawed NAMA / banks bail-out plan, established on faulty information and faulty analysis packaged in false PR spin. And, regrettably, the Green Party has collaborated with Fianna Fail in this obstinate ignorant undermining of our economy. They’re the facts. They’re straightforward facts. No opinions. Facts and correct analysis which are irrefutable. Unfortunately they’ve been overlooked and shunned by the government for far too long. Finally, and only in the last few days, the Minister and the government and (some of) the banks have been forced to admit what is now impossible to deny. What a waste of time! What a shame!

So, firstly, let’s all of us be truthful and honest. Especially the banks, the government, the Minister for Finance and the Department of Finance.

Let’s recognise and acknowledge, truthfully, the awesome scale of financial destruction in the Irish owned Banking Sector, not just the Anglo story. AIB and BoI have not been honest with us. Their loan losses are also a shock and awe story and they’re only being revealed in drawn out chapters too!

Let’s measure and acknowledge, up front (not on a withholding news drip basis….Anglo’s recent half year results are a classic example of dishonest delay tactical reporting), all of the appalling financial damage that has happened.

Let’s insist that AIB and BoI are re-capitalised at the truthful, honest, correct and much more robust levels (thereby resulting in temporary nationalisation and bondholder participation through bond write-downs) to enable them to make the necessary much larger loan loss provisions than they have done to date.

Let’s reverse the nonsensical, unwieldy NAMA project. This can be done fairly quickly and simply. We’ve got to stop what has become a drawn out, slow motion NAMA nightmare.

Let’s roll up our sleeves and face the challenge. And lets’ get on with the recovery work. Now!

Peter Mathews

Not sure if this post is for the appropriate thread but:

I agree with Eoin in that the way to impose losses on bondholders is by buybacks. The governments primary objective/strategy should be (and should have been) to create a strong negotiating position and by doing so getting the best possible deal for the taxpayer when doing the buybacks, recaps etc.

In a previous thread the government was rated a D- for its way of handling the crisis. I’m not convinced that they should have received more than an F.


for what it is worht, I believe your proposals are flawed. From little information you give, I gather that your definition of a well capped bank is assets/equity of 10x. For banks to be attractive to capital markets and generate sufficient capital internally to grow the loan book they shoudl generate a retun on equity in the teens, half of which is paid out in dividends and half of which goes to grow the balance sheet at the rate of nominal GDP.

Irish banks on your ratios would earn a ROE 0f 0.8% ROA x 10 = 8%-based on past history, reduced property exposure etc. This would be insufficient to attract private capital and grow the loan book.

This would lead to a number of perverse outcomes i) they remain in state ownership ii) the cost of credit goes up to increase ROAs iii) they refuse to lend.

it seem to me that your proposal would create precisely what you seek to avoid- a zombie banking industry.

@ All

having spoken with someone who was speaking one of the main credit ratings agencies last night about this subject, i was told the following: “spoke with the CR last night, asked them would a revoking of the g’tee constitute a default. They said the would not comment as the answer was obvious…”. The same person also reckoned semi decent chance that ATM machines would run out of cash soon afterwards if we revoked it, such would the flight of liquidity be from the country. And this is a serious person not prone to fantastical comments.

This is the type of craziness that is being suggested on here, and when myself or others point this out we are told we are stifling debate and adding nothing to it.

We currently have a deficit of fact based rational commentary or opinion on our situation and our outlook. The same thing happened during the bubble.


I think you are completely missing the point. The purpose of this site is to agree with the sponsors. If you disagee, get off and log on to another site where you can indulge your fantasies.

Brian Lucey’s way is TOGIT. The sooner we all learn that the better.

@eoin. Enjoyed the irony of you lamenting “deficit of fact based rational commentary” immediately after your “duirt bean liom go nduirt bean lei” post!

The purpose of debate is to consider the options – wouldn’t be much of a debate if everybody agreed.
This is probably a really stupid question but what happens after there is no money in the ATM?

@ Eureka

eh, revolution?

I completely agree that all options need to be considered, and this is a great venue on which to discuss them. The Irish Times is however not a great venue to discuss options which on more careful analysis are not possible. Most people read opinion pieces as fact, and unfortunately this site has a far smaller readership than the IT, so even though we all “know” what the situation is, most people who read yesterday’s article probably do not.

@ Gadge

fair cop! But the person im referring to really knows his stuff. I take him very seriously, so always pass on his remarks.

“My role here is the big hand of realism […].”

“This is the type of craziness that is being suggested on here, and when myself or others point this out we are told we are stifling debate and adding nothing to it.”

Your hand of realism is very welcome, even if a little depressing, and you add a lot to the debate. However, while I accept that the withdrawal of the guarantee would have very very serious consequences, I have not been convinced (and I accept that my uninformed views on the matter are not deserving of any particular consideration) that those consequences are worse than the results of a continuation of present policies.

Could you perhaps clarify one point for me? In your reply to simpleton you said:

“Revoking a government guarantee does not seem the best way to go about this, and is unlikely to be met with offers of help in response.”

How would revocation of a guarantee differ (in spirit, rather than in law, and in market reaction thereto) from declaring bankruptcy, entering examinership or otherwise attempting to make arrangements with one’s creditors?


@ Brian Lucy,

Your last paragraph in the article..

“It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.”

Who are you referring to…

a) The political opposition parties, i.e. FG + Labour?
b) For the Govt of Ireland to be disolved and the country run from the UN or directly from the EU?
c) For the IMF to take control of the country?

If you are advocating one of these solutions, how would you guarantee the long term interests of Irish citizens?

Perphaps I misunderstand you, but I would not agree with trusting a foreign unelected organisation to control the Irish people.

Current society is the product of innumerable revolutions and calamities. It’s still here.
So the answer of revolution is not really an answer at all. Revolution or not (and I actually think not) we will have a country after it. And if revolution is something that you are afraid of – thing of how they might view it in Berlin. There is a 30% chance that, if the EU were to let us slip into a state of chaos, (the good kid abandoned) that a conflagration of popular discontent could spread across the rest of the austerity hit countries. That consequence is much more useful for us as a fear than as a reality.
So let even if we take your friend’s view as gospel no money in the ATM’s doesn’t kill the argument and his insight might even give us some indication as to the fear that the threat of default might engender at a political level in Europe.

@ Eoin
“I completely agree that all options need to be considered, and this is a great venue on which to discuss them. The Irish Times is however not a great venue to discuss options which on more careful analysis are not possible”

I completely an utterly disagree. This used be a good forum on which to debtae the issues of the day. However, as with all “chat rooms” it gets infiltrated by conspiracy theorists and nut jobs. Gradually the good posters disappear. Morgan Kelly never posted, Colm McCarthy rarely, Jim O’Leary amost never. Instead we are left with the some of the Senior hurlers-(Karl Whelan, John McHale, Philip Lane) who are still worth reading. Increasingly though discourse is dominated a player of junior B Kerry Hurler class.

Nor would I credi the Times. Op-ed in the Old Lady is dominated by the crazies, has beens, wannabes & never beens.

Time to move on.

This is something that people feel passionate about. There are people in their thirties with young families looking at emigrating etc. There are people with elderly parents who worry about them getting healthcare. There are parents with kids falling in with “bad crowds” in areas deprived of hope.
When passion enters, sense often leaves.
So apologies for not being an economics expert.
The point is that all societies have had some form of debt forgiveness jubilees, leaving the gold standard, stimulus whatever – it’s all pretty much the same thing. Where’s our strategy for something similar?
We are desparate for something. Anything.

@ Eureka

I would like to get a bailout as well.

You say “all societies have had some form of debt forgiveness jubilees, leaving the gold standard, stimulus whatever – it’s all pretty much the same thing.”

So you want more foreign aid without any significant change – – the same vested interests milking the system and thousands of time servers with guaranteed mealtickets for life.

Wouldn’t the best strategy be to sort out the mess that led to economic ruin twice in a generation and then maybe we might get a hearing?


Would you please, please do an op-ed piece for the Irish Times on this subject? I think your points are always very well made and clear, no nonsense. That is what people are looking for, not more confusion.


If default was a panacea, Argentina would be one of the richest countries in the world. Instead it has been a serial defaulter, has slipped from one of the top 10 richest countries in the world to a nobody. Australia which started at the same point as essentially a mine on a farm with a bank has grown to be a regional powerhouse with debt/GDP of less than 10% and has never defaulted. I would also note Australia is reasonably well governed while Argentina is a kleptocracy run by a political class that would make FF look like saints.

No country ever defaulted its way to prosperity in my knowledge.

So bottom line, anybody who comes on a prescribes default as a solution to our problems is a charlatan and snake oil salesman. We may end up defaulting but it will be the start of our problems not the end. The only consolation is that the ghettos would produce a few good footballers.

@can kickers
From Boon & Johnson:

“Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens. But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers rather than creditors pay. The European Central Bank, the European Union and the International Monetary Fund share some responsibility; they advocate these unlikely programs in order that European and global banks, which provided the funds to the Irish banks, do not suffer losses from such bad lending decisions.

The Irish government plan is – with good reason – highly unpopular, but the coalition of interests in its favor seems strong enough to ensure that it will proceed, at least until it either succeeds and growth recovers, or ends in complete failure with default of banks or the nation itself.

Under the current program, we estimate each Irish family of four will be liable for 200,000 euros in public debt by 2015. There are only 73,000 children born into the country each year, and these children will be paying off debts for decades to come – as well as needing to accept much greater austerity than has already been implemented. There is no doubt that social welfare systems, health care and education spending will decline sharply.

Watch for renewed emigration from a famously footloose population. If current policies continue, the calamity of the Irish banking system will lead to a much deeper recession and the consequences will be felt for decades. Watch also for further global financial disruption as this kind of deal starts to unravel.”

@Michael H,

“Wouldn’t the best strategy be to sort out the mess that led to economic ruin twice in a generation and then maybe we might get a hearing?”

No surprise that I agree, but whatever political capital or energy the Government has is being used up in its can-kicking approach – and it is only a fear of being forced into EC/ECB/IMF administration that is maintaining backbench support. There is no way it will open a battle on any other front – and I can’t see any alternative government having the guts or gumption either. The Oireachtas is totally ineffectual.

The irony for Greece is that EC/ECB/IMF administration is doing little on debt restructuring, but the IMF is driving the kind of reform which, modified appropiately, is badly required in Ireland.


What is the point of advocating a policy that is incapable in their own admission of being implemented, other than to show how clever the proponents are.

“if me aunt had ball she would be my uncle”


I think you missed their point (remember, these guys are ex-IMF hit-men). They are actually agreeing with you, Eoin and all the other can-can artists. Starting from here there is nothing we can do other than hope for global growth. If it doesn’t come, they forecast, default & all the chaos that goes with it, is inevitable. I thought that was your position?

Ireland is no different than any other country. Australia seems to be different in that it resisted the idea that low interest rates were a good idea. Everyone knows that they lead to an asset bubble.

Spreading asset bubbles means that those who lend credit, stand to make big bonuses. Eoin and Tull may have a conflict of interest here, as their incopme and lifestyle may depend upon spreading malinvestment in this way.

Economic warfare is when one group enrich themselves at the loss of another, if done on a large enough scale. I declare this is large enough for Ireland to have been a victim of EW.

Who are the persons responsible? Government was clearly neglectful. Negligence at best. Developers and bankers were doing their job. The supplier of drugs known to be harmful, is rightly more targetted than a mere user.

Who supplied the ammunition in this economic war?

Who is still getting their spoils? Analyze this from the point of view of history: the victors point of view! We shall overcome! Those who supplied their capital knew the risk. Let them fear the asset bubble if they want to create it!

Let it start in Ireland, negotiating with Iceland and elsewhere. All that excessive borrowing does is cause malinvestment. So stop it! The first response can now be a complete counter attack: utter loss. If those who want to make a profit and who have Irish friendly capital want, they can but up the debt for 10% or so and have it bought by the Government for 15% or whatever.

There is a bargaining stance!

@ tull

‘What is the point of advocating a policy that is incapable in their own admission of being implemented, other than to show how clever the proponents are’

I don’t think Boone and Johnson are advocating a policy. They are merely recognising the hole that Ireland is going down, and the potential for contagion.
Naturally you find some of the posts frustrating, but that’s the way the blog goes. You don’t have to read every one, but it’s surely better to have too much traffic than too little. When all else fails, welcome haws.

@ Gadge

“The legal issue which arises is whether any amending legislation which seeks to revoke the guarantee retrospectively is constitutional. This is a constitutional issue, and not one of “legitimate expectation” in the strict sense.”

Many thanks for that clarification, we are really drilling down into the theory now.

I believe though that my principle conviction -that amending legislation will not on its own suffice to end the legal effects of the guarantee- is still valid.


Wherever Eoin and Tull make their money, I doubt they make enough that they would prefer to destroy the Country for their own selfish reasons. Not everything is a conspiracy.

I freely admit I make my living thanks to the bond market and I should also point out that while I didn’t vote for FF in the last election, they did get my vote on previous occasions.

Professionally, I don’t care if Anglo or even Ireland defaults. I have no skin in that game. I do care as a citizen though.

I don’t find the Boone and Johnson article that credible. In particular I’m curious about the paragraph below.

“Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens. But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers rather than creditors pay.”

Why would a debtor (linked to failed developments) have any interest in seeing a creditor (investor in bonds) being paid? It looks like he’s mixing up his creditors and debtors; his assets and liabilities.

Now they would not be the first economists to do that!

I rather think this discussion has played itself out. Does no-one feel the need to start a thread on the latest Exchequer returns?


I confess, I was on the grassy knoll, I worked in area 56, I knew the Japs were going to attack Pearl. I am Jewish by birth but am now a Templar. I am secretary to the Trilateral Commission.

Any other conspriacies that you would care to attach to my name.

Just so we know the rules of the game, anybody who defies the wisdom of Lucey is evil.

“Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens.”

To my simple mind, this para states we had a choice. Choice consists of the mental process of judging the merits of multiple options and selecting one of them. My contention is that the option advanced was not a feasible option. So therefore, there was no choice.

BTW, it is also technically incorrect, liabilities have actually been haircut. Equity has been written down by 90% and subbies have been haircut.

“Nor would I credi the Times. Op-ed in the Old Lady is dominated by the crazies, has beens, wannabes & never beens.”

Riiight 🙂 Which one am I?


“…there was no choice.”

I agree. But is there a choice now? Is kicking the can down the road and hoping against hope that events don’t conspire to force Ireland into the EC/ECB/IMF treatment room the only option?

fair point. I meant the bottom or RHS of the balance sheet


Actually you deserve a special catagory of your own-“sensible person with impeccable FG pedigree who writes op-ed pieces for Times” but that did not fit with my narrative.

@John Martin
Of course, its totally impossible that a banks debtor (Developer X owes money) could also be a creditor (DEveloper X owns bonds). I mean, that sort of thing is impossible, right? Sure that sort of tunneling only happens in far off lands of which we know little.

At least he didnt imply or infer you were an old lady . Come join me in crazyland…

Its area 51 surely?

At 1230 BC said : close anglo, and the dead will rise to consume the living, there will be darkness o’er the land and it will cost 70b. I notice a spike in the bond yield around then. It now seems to be trading towards 5.9 (acc to my reuters) . The heady days of 5%, then5.25% then 5.5% are long gone.

@ a punter

never voted FF in my life

@ BL

Area 56 is super secret, so secret that tin foil hats never heard of it. Its where the real owners of the Anglo seniors live.

“I confess, I was on the grassy knoll, I worked in area 56, I knew the Japs were going to attack Pearl. I am Jewish by birth but am now a Templar. I am secretary to the Trilateral Commission.”

Phew. I was afraid for a moment you might be a Freemason.


@ Tinfoil Hatted Lucey

” I notice a spike in the bond yield around then”


Cowen comment hit the wires at 1.06pm. Spike (all 5bps of it…) happened at 1.30pm, not coincidentally when a slew of US data came out. Every bond in the Eurozone popped around then, US Treasuries by even more (10bps). Congrats, another epicly misunderstood event in the financial world…

I was hoping that somebody might be able to clear this up.
Uruguay has been cited as as a successful case of default.
Just wondering – is this technically true and if so what made it work there and not in Argentina?

@ Brian Lucey,

Welcome back, but any chance of explaining your last pragraph in your article as per my post above?

Who are the people who can run this state effectively?


“Congrats, another epicly misunderstood event in the financial world”

You come across as a sarcastic t**t with comments like that. Are your points not good enough to stand by themselves without the resort to crassness? Are you 18?

@ Seafoid

you need to keep up with the Lucey vs Bond back-and-forth – it long ago resorted to juvenile remarks on both sides. And just so we are clear, im meant to be a sarcastic twat, its not just how i come across.

On the actual issue of today’s Irish bond yields, Cowen’s remarks seem to have had no effect on them despite what was suggested on here, just like the previous allegation of the governments press release on Anglo on Wednesay did not (but was alleged to have) have any effect on them. Dan Boyle’s tweets are also not thought to be particularly market moving.

@Brian Lucey,

That’s a fair point about the same person being both a creditor and debtor, but I’m not sure that that is what Boone and Johnson are saying. If that is what they are saying it would have been worthwhile developing (excuse the pun) the point.

My understanding is that the bonds are owned by mostly German Pension funds, but if that is not the case I would be very interested to know more details.

For example, there must be many people who made enormous profits on land sold to now bankrupt developers. Where did that money go? Are they now bond holders in Anglo Irish Bank? It would be outrageous if that were the case and the Irish State was, in effect, preserving their profits.

Even more outrageous would be the theoretical possibility that because many of the loans are non recourse loans highly wealthy property millionaires do not have to repay 100% of the loans from Anglo Irish Bank and those same debtors hold bonds in Anglo.

But I don’t know who the bond holders are and I don’t think Boone and Johnson know either.

Regardless of who the bondholders are there is a very strong case for a wealth tax in this country so that the people who were on the other side of the transaction which resulted in massive losses should pay for the crisis.

Also, rather than advocating reneging on the guarantee I think the government should introduce legislation setting aside retrospectively debtors’ entitlement to non recourse loans. There may be constitutional impediments, but emergency legislation can override the constitution. Such a measure would not have the damaging consequences of reneging on the guarantee, which I regard as, in effect, a sovereign default. It would also show the world that we are serious about tackling the banking crisis.

Finally, Brian, like Sporthog I would very much like to know what you meant by the last couple of sentences of your article:

“It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.”

@ John Martin

“It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.”

there are only 2 possibilities
1. Ring = 1 202 623 7000
2. Mr Lucey is adjourning to Cafe en Seine at 5pm to lead a putch. There could be a march up to seize Leinster House. He would look commanding in one of our few Scorpions

When S&P suggested that the €40bn NAMA is spending on loans should be regarded as part of the cost of the banking bailout there was widespread criticism from the NTMA, DoF and others saying S&P’s approach was “flawed” because it implied the loans bought by NAMA were worthless.

Why was that approach regarded as flawed yet BC’s declaration that Anglo would cost €70bn to wind up ignores the fact that much of that €70bn will be recouped in time.

I’m sure John Corrigan will be on the airwaves shortly to take the unprecedented step of clarifying the true cost of winding up Anglo. Maybe something like this:

“Exceptionally, we have taken issue with the Taoiseach It’s something we don’t like to do but there comes a point when the analysis is not robust”

@ Eureka

wow, old skool. And it completely backs up my comment earlier on about the lack of rational debate both now as well as during the bubble.

For the record, i can completely appalled and disgusted at what went on at Anglo Irish Bank, they have put our nation in a truly terrible situation. However, i don’t see the point in going for the moral outrage option which will ultimately yield nothing more than a 5 minute feel good sensation. Certainly raging against the bondholders seems the more bizarre position to take on.

@ Jagdip

the 70bn figure is, at worst, an upfront liquidity charge (ie what we have to pay out). In terms of net cost for an immediate winddown, the best (worst!?) i can get to is more like 50bn, and thats a truly worst case scenario. 40-45bn is probably “bad but possible”.

Btw, BoA had a big piece out yesterday saying that they agreed with the 25bn figure for Anglo losses, fwiw.

@ Eoin
Accepted – it’s a cheap shot.
But God almighty these kind of people really were so full of it!! And wrongly I accept I associate you with them.
Very very hard to purge the emotions from this.
Maybe the ability to be rational is directly proportionate to the distance felt from the threat.

I would say this thread has gone on long enough. All I know as a person in business that if I get burned by a Debtor there is not a hope in hell I will deal with that Debtor again. Ergo if Bond holders get burned by Ireland NTMA or Anglo or AIB or BoI I am pretty certain that no one will want to deal with us in supplying funds for our Deficits/Bank funding in future years. Simple Fact !!!!!!

@ John

for a pint or a revolutionary council?

@ Eureka

no offence taken, always good to take a trip down memory lane so that we can remember the insanity of it all! I’m probably somewhat less emotional simply because im close enough to be de-sensitized to it all from being in the industry!

That’s this businessman’s view as well, Ray. Nobody on this thread has been able to convince me that bondholders are any different from creditors in any other business in this respect.


According to Tull the revolution begins at 5.00pm at Café en Seine. So it looks like I’m already late.


You’re taking all this remarkably well. Should you not be cowering in your cellar dreading the inevitable reign of terror?


“Btw, BoA had a big piece out yesterday saying that they agreed with the 25bn figure for Anglo losses, fwiw.”

fwiw? It’s worth nothing. Bofa also thought that buying CFC was a great idea. Just because it comes from BofA does not make it true. Name-dropping is no substitute for proper analysis and hard evidence.

@ Garo

Name dropping? We had on here from Karl a note that Citi were bearish on Irish debt. Citi were probably the biggest basket case of them all. Putting information out there from professional analysts is never a bad idea, and simply puts it out there for discussion. Btw, in their analysis they asked S&P for the calculations/analysis underlying the “35bn” loss estimate, and S&P wouldn’t provide it to BoA, which is odd as usually the ratings agencies are more than willing to do so.

@ Garo

and the BoA piece was 21 pages long, so i reckon there was a decent bit of analysis done and evidence cited…

“the 70bn figure is, at worst, an upfront liquidity charge (ie what we have to pay out). In terms of net cost for an immediate winddown, the best (worst!?) i can get to is more like 50bn, and thats a truly worst case scenario. 40-45bn is probably “bad but possible”.

Btw, BoA had a big piece out yesterday saying that they agreed with the 25bn figure for Anglo losses, fwiw.”

How are you working out a net cost of €40bn to €50bn?

I am pretty sure than Dukes on Primetime last night said the difference between a wind down and good/bad bank split was just €4bn.

The €25bn figure is very optimistic Eoin. A 60% discount on just the NAMA loans leaves Anglo with just €1bn in capital and that is before you start to look realistically at the non-NAMA loans.
Do you think the IFRS provision of 17% is sufficient?

I have been a little facetious. The serious point about Brian Lucey’s concluding paragraph is that he believes that we or our democratic representatives are not capable of emerging from this crisis. Therefore we should overcome our sense of national pride, suspend democracy and let the IMF take us in hand.

I strongly disagree.


Something is not right with Anglo’s half year results. It claims that 63% of the non-NAMA loans were unimpaired yet there would appear to have been no repayment of capital or interest during the six month period. Don’t unimpaired loans, y’know, pay money back to the bank?

Total Anglo loans before provn at 31 Dec 2009 – 72.1
Advances to borrowers in 6 months to Jun – 1.1
Interest receivable for 6 months to Jun – 0.9
Loans sold to NAMA before provn – 10.0
Total Anglo loans before provn at 30 Jun 2010 – 64.3

Calculated repayments of capital/interest – minus 0.2 (I’m assuming there are rounding differences and the actual repayments were zero as opposed to a minus!).

Odd, no?

@ John Martin

a-ha, you are not a part of the revolution, but in fact a member of the republican counter-revolutionary guard. We meet at 8pm in Dicey Reilly’s where we will make plans to take back the republic.

@ Jagdip

development loans with pre-arranged (as opposed to restructured) interest roll ups could be considered “performing”. I’m not making a judgement on the honesty or otherwise of the Anglo book, but some of them could be legitimate (in theory!).


Indeed but no repayment at all – and remember we’re not talking about 40-year mortgages here, the bulk of these loans were pre-2009 and would have been repayable in what? 3-5 years?

And nothing paid back?

At all.

And yet Anglo would have us believe only 37% of non-NAMA loans are impaired as opposed to 77% of NAMA loans (and I would assume the NAMA loans are more honest as they’re about to undergo the rigour of examination by NAMA and the EU).

Something is not right here.

@ Jagdip

i dont disagree, simply pointing out the possibilities. If you were Lucey-esque you’d be saying im adding nothing, but you are far more reasonable and fair than that, and far more willing to do the hard graft on the analysis. I doff my hat sir.

@ All

This must be the most commented on thread ever. Wouldn’t getting to 400 comments be a fitting farewell to the credibility of Prof Lucey? Note the complete lack of academic support for him. No one non-academic has even tried to stick up for any of his arguments either, merely sticking up for him on an overall level.

Now, now. Your hubris betrays your profession. 400 posts could also be seen as tapping into the national psyche, of stirring debate etc.
This has been an entertaining and informative thread. The arguments against default are indeed compelling. But if Jagdip is right – there could a lot more trouble ahead.

I think Brian lucey should be congratulated for sparking this discussion.

One of the tragedies of blogs is the quick descent into rudeness, intolerance and general incivility. This one is not as bad as some but still pretty bad. And I am as guilty as others of such behaviour. Perhaps we could all reflect on what we are trying to achieve rather than indulge our more atavistic instincts.

I gather pro Lucey was entetained by a troop of bond Vigilantes last might. Perhaps he cd report on the proceedings. First hand info of their reaction . Did he get paid?

@ Eoin
There is a certain vindictiveness in your comments about Brian Lucey.
He has provided an analysis with a slice of polemic.
But your characterisation of his credibility is future dependent.

Say for example, He stands for FG in Dublin south and wins a seat in the Dail, and becomes a minister or junior; and potentially your boss??? Now if this were to happen then you could be on the boat with Mc Nulty.

This may be seen as a step into the political and away from the economical.
So Brian, are you going to declare??


“Something is not right here.”

Just a reminder that Anglo Irish Bank’s derivatives activity during 2007/8 has never been explained. The notional value of their derivatives book nearly doubled during a period of extreme market turmoil. We do know that Anglo management became increasingly desperate and reckless during this period.

What was going on? My professional experience of the swap market tells me that “something is not right here”. Even under optimal conditions, plain-vanilla swap books need skillful oversight and management to avoid blow-ups. The situation at Anglo was, I would suggest, very far from optimal conditions.

Commentators trying to estimate the size of the hole generally assume that Anglo’s 200Bn-odd notional swap book is benign. Let’s hope they are right but …

anglo – away from depositers and direct collateralised borrowing from the ECB there will be E6.8 bn of senior + sub debt left to ”absorb” losses post sep 10 g’tee. thats if u manage to enforce 100% losses on them (in theory possible but will probably involve a long legal process) . not immaterial but the rest of the losses – ( 25-27bn current estimate + 9-11bn further losses on liqudation of the balance sheet) will need to be borne by the irish taxpayer. this is a basic balance sheet argument. not sure what all the fuss is about. ”wind down anglo and save the state”..if only it was that easy.

..also i think its very strange that we compare ourselves to argentina. when argentina defaulted it had a primary surplus. didnt need to borrow any money the next day. ireland would still need to borrow close to 1.2bn per month to keep the lights on. what am i missing? greece will probably start considering some type of default in 2012 when they hit a primary surplus. ireland wont be in primary surplus till 2014 i think based on current projections.

the best thing the many bright people on this blog could do is to generate the debate on the tough choices the country needs to take to stablise the debt/gdp trajectory. the anglo debate is actually a side show.

just sticking up for BL on an overall level. not sure that non-academic support for his arguments would add anything to the debate. but, ‘ordinary folk’ have paid enough. yes to that the guarantee is a croc of s… and is not irrevocable yes to that call in the imf sorry, you’ve lost the plot there, but i sympathise with your frustration

The government’s statement on tonight’s 6 o’clock RTE News that an immediate wind-down of Anglo would cost €70bn is absurd.

Nobody except an idiot would suggest an instant closure of Anglo. Therefore, to inform the public that such a course might happen is idiotic. Maybe the government doesn’t even realise that they are creating the impression that they’re idiots.

At this point the FT is probably gulping with incredulity that our government actually gave such a press release to the media.

It’s actually quite easy to infer where FT got its figure of up to €35bn embedded losses in Anglo which they published in their editorial this day last week. By intelligently observing that the total Loans portfolio in Anglo (prior to transfers to NAMA) was about €72bn, they then intelligently applied a 50% average write-down to the entire loan portfolio. Thus 50% of €72bn is €36bn. And finally, just to hang their hat on a figure, once again, intelligently, they opted to state that loan losses might finally come out at €35bn. All the experience, revelations and facts to date supports such an intelligent analysis.

Just to complete this intelligent line of observation and analysis, I’m confident that FT would intelligently envisage that the wind-down of Anglo would be carried out competently over perhaps a 5-7 year period. That suggests an overall average annual loss range of €7bn (in a 5 year wind-down) to €5bn (in a 7 year wind-down).

I refer now to my comment on this thread at 10:08 am today.

@tull mcadoo 10:23am,

Please note that gross AIB loans listed for transfer to NAMA totalled €24bn. Even only a (light) 40% write-down on this figure amounts to €9.6bn. I suggest rounding this to the €10bn re-capitalisation requirement I mention. Remember, too, AIB is going to have to absorb very significant further losses on its mortgage loan book, its corporate loan book and its SME book and also on its personal lending portfolio. It may also have uncovered exposures on derivatives. Based on extensive experience in every area of lending and loans recoveries I consider myself to be professionally duty bound to state with confidence that AIB very definitely needs re-capitalisation NOW of not less than €10bn. AIB and BoI are not operating in normal economic conditions where traditional capital, Tier 1, Tier 2 Basel guideline ratios might normally apply. Our economy is experiencing drawn out crisis conditions where the country, the government and the professionals who hold the positions of responsibility need to think independently, courageously, clearly. They should not be slavishly beholden to traditional / conventional (Basel etc) minimum norms. We’re not in a conventional situation. This is a financial crisis. Only last week Horwarth Bastow Charlton announced that its recent research revealed that 38% of companies in our economy are now in grave danger of failing due to financial pressure. It’s for all these reasons that AIB needs not less than a €10bn re-capitalisation. NOW!

Similarly, BoI needs not less than a €6.5bn re-cap. Why €6.5bn? Because, likewise, the listed loans for transfer to NAMA were €16bn. Apply a 40% (this may be even be a little light) write down. This amounts to €6.4bn. Round this to €6.5bn. All the additional comments that were applicable to AIB in the above paragraph apply likewise to BoI. That’s why Bank of Ireland needs a minimum re-cap of €6.5bn. NOW!

Just as Anglo should be wound down in an orderly, competent manner over 5 -7 years, so also INBS should be wound down in an orderly, competent manner over 5 – 7 years. The embedded losses in the case of INBS are about €6bn (not the €3.2bn announced for the 1st time by Governor Honohan, on behalf of (?) the Minister in Beijing very recently. The figure €6bn arises on the basis that INBS will only recover, on average, about 65% of its loan book of about €9bn.

My 2 articles “Righting the NAMA Wrongs” and “Time to rethink bank rescue plan” provide the outline of a sounder holistic approach to repairing our Banking Sector. The links to those articles are

and also:-

(Hello there).
Have you noticed the notional size of the swap book has crept back up? And that only 11 bn of it is for hedging now?

The toxicity or otherwise of Anglo’s derivatives has been a topic of much (sometimes v fevered) speculat-analysis on a number of fora. Like much in anglo it reminds one of riddles wrapped in engimas. Transparency and openess would be nice..

okay, i just want to say that i value eoin’s comments and see them as an important counterweight to some currently held opinions. the same goes for many other contributors who take their time, for no recognition, to express their views. this blog is great for airing arguments, and the people who run it and contribute to it should be commended. It is a beacon of what can be achieved when the internet brings people to together. And if you think I’m some sort of oddball for holding this optimistic, benevolent view you can reassure yourself that if I am thinking this there must be a good deal of other people who think the same way but don’t have the time or inclination to say so. the open discussion of facts (even though sometimes they may be disputed), the contribution of knowledgeable people, this is something that is very valuable to a person like me who is trying to navigate through the information that is available. i’m sure we all want what is best for ireland.

Certainly has been a most entertaining and informative thread. Credit to BL for initiating this and FWIW here are the conclusions I have drawn as a non-academic from the discussion, in terms of the possible courses of action:

1) Renege on the guarantee
At first reading of the IT article I hadn’t really appreciated that this was a key element of the proposal, but to me it is inconceivable that this will happen for a whole host of legal, constitutional and political reasons.

2) Soft-default on non-guaranteed debt
Talk down the bank’s future along with voluntary negotiations with the debt holders to buy back the debt at market rates. I’ve also read that some forms of restructuring of the bank could force mutual funds to sell off the debt at market rates as it would no longer be “bank” debt. Maybe there are other mechanisms that could also be used here. Seems a reasonable approach, though taxpayer savings may not be that great.

3) Hard-default on non-guaranteed debt
Just say “Sorry lads, we’re going to cover what we guaranteed, not a penny more and not a penny less”. Would be morally and legally justified, but the consensus seems to be that the downstream consequences probably aren’t worth it. Would likely force liquidation without having a proper legal framework (e.g. the whole senior/depositor preference issue); it could have a significant impact on the interest rate needed to fund sovereign debt, though this isn’t proven; also the amounts involved (4 – 6 bn at best), are only a small percentage of the overall bank bailout, not to mention the huge structural deficit/national debt problem, so that dealing with the political and legal fallout may not be worth it.

A final oberservation is that the blanket guarantee and the subsequent legal framework for the workout (i.e. Nama) look to have been supremely bad decisions that were both very expensive and pre-empted a number of more sensible approaches that would have been possible. The amazing thing is that the political leadership that took these decisions is still there, which is quite a testament to the leadership deficit that exists across the board.

Also @MarkM: +1

Re the revocable nature of the CIFS scheme vs the irrevocable nature of the ELG scheme – did anyone attempt to explain why the minister omitted the clause from the ELG scheme to the effect that the guarantee could be revoked if (among other reasons) the institution is deemed to be “in breach of it’s obligations under the Scheme” and instead included a clause specifically eliminating the possibility.
Seems a strange oversight – or was it a cynical effort to make sure we had no avenue of escape as Eoin and Tull are suggesting.

I have tried to analyse the loans from a ‘bottom up’ type approach and cone up with very similar numbers to Peter Matthews and S&P.

The main issue is that the IFRS provisions are completely inadequate in comparison to the realish NAMA discounts. This is particularly significant on the NAMA loans look completely inadequate at 17%.
Posted elsewhere as well

Existing NAMA loans & provisions
The provisions for losses on the NAMA loans are still on the light side at 38%, given the last 2 tranches have transferred at 55% and 62%. However, through the NAMA process I think these estimate should be more accurate than the non-NAMA loans as more analysis has been forced on the banks for these loans.
I have applied the NAMA % provisions for each loan type and location to the non-NAMA loans to calculate a more accurate provision for these loans.

This results in a non-NAMA provision of 29.1% and a further loss of just under €3.4bn
However, as we know Anglo is under providing for the loans going into NAMA. By using the actual discounts on Tranche 1 & 2 as a more accurate estimate of the true value. The provisions on the NAMA loans would need to be increased to say 55% (lower of two tranches) from the current 38%
This adjustment increases the provision on the NAMA loans to 55% and generates an additional loss of €4.6bn The adjustment increases the discount on the non-NAMA loans to 42% and generates an additional loss of €9.7bn from current provisions.
The future losses under these assumptions is €14.3bn and brings the total Anglo losses to €37.2bn. Against this you need to offset the “excess” capital Anglo is currently holding on its balance sheet. It currently has €7bn in capital and assuming it needs to at least €3bn (€82bn – €20bn ) X 5% then there is €4bn to spare.

That brings the total state funding to €33.2bn.

Not to far off the €35bn than S&P and many others have been projecting.

@ Peter Mathews

“Nobody except an idiot would suggest an instant closure of Anglo.”

Wouldn’t a disgruntled bondholder have the right to petition the High Court under Section 214 of the Companies Act 1963, to wind-up Anglo for failure to meet its debt obligations?

An appointed liquidator wouldn’t have absolute discretion on stringing out the process over several years.

Businesses like the Quinn Group hoping to trade their way out of trouble, would be in a bind.

@ Michael Hennigan 2:57 am

Anglo is currently on State Guaranteed life support. We’re looking at a super extra-ordinary situation, effectively an national financial emergency.

In such circumstances, emergency legislation is an obvious realistic fall back. And yes, it could mean referring the emergency to the Council of State. But at least three’s some dignity in that, before IMF / EU / ECB teams arrive in high visibility suits. Isn’t it a shocking shame that the emergency / crisis is on this scale?

@tull mcadoo Sept 3rd 10:23am

“it seem to me that your proposal would create precisely what you seek to avoid- a zombie banking industry”


We actually HAVE a zombie banking industry ! My proposal would actually change that.

Erosion of capital due to emerging losses has caused the banks to shrink their operations and balance sheets. This is exacerbated by their difficulty in holding onto and rolling over deposits and bond debt funds . Retention and rollover of funds is only possible at present precisely because of the State guarantee for Bank liabilities. That’s the reality. The enormous and INCREASING erosion of the Banks’ capital bases explains why businesses currently cannot even RENEW their working capital facilities, never mind obtain additional facilities from their banks. That’s the whole point.

We’ve now got to ensure that the banks are re-capitalised at a sufficient level to absorb the (increasing) losses staring them in the face. To date they have been consistently denying the scale of their “emerging” losses.

So now it’s high time to give them an elephant does of capital (unfortunately entailing State shareholding control, but fortunately only temporarily) plus a robust infusion of clean and competent boards of directors and senior managements. I think everyone would agree that, soon as all this is put in place, then Depositors and other suppliers of funds might feel more confident about the safety of their money / investment.

As the Banking Sector’s stabilisation is achieved, the banks will then be in a position to grow both sides of their balance sheets at an appropriate, prudent, pace, in line with the economy’s well planned and well managed requirements. That last point requires that we have good government. That’s the bit that’s been missing all along. But we can change that too. Essentially, to put a correct Strategy and Action Plan in place is not that complicated.

Hoolbrook Fields
You appear to be a gentleman. I second what you say.

But none of these words will help stop the disaster approaching. It is baked in. Avoiding the next one, in 50 or so years is my goal as the time for action is now passing.

Bankruptcy can be a volutary or involuntary act. So now it is the second.

Banking is a means of creating money via credit. It creates money and liability, not wealth. Those who forgot that will now remember it, until they die. History can set you free, but not economics!


You mistake someone who works for a living with bankers and providers of made money.

These people make money, out of nothing.

It takes some capital but they risk less than 2% of it in fact. Still think your example is valid?

Have you read anything of Thomas Jefferson? 300 years ago he and others were well aware of what those who push credit do to countries.

Or are you just another shill, anonymous Ray?

“I put it to you that your contention that default will not result in some exclusion and a higher yield for a time post re-structuring is complete and utter “balderdash”.”

Its not my contention. Its the contention of Ugo Panizza (of UNCTAD) , Federico Sturzenegger (Universidad Torcuato di Tella and Banco Ciudad), and Jeromin Zettelmeyer (IMF, now EBRD) in The Economics and Law of Sovereign Debt and Default, Journal of Economic Literature 2009, 47:3, 651–698. In particular, sections 4.4.1 and 4.4.2. its not that htere wont be some time ; its that this time may well be shorter and less apocolyptic than the bond vigilantes/shills suggest.
Tull, if you cant access this, do drop me an email (course, then I would know whom you are…) or do you want to just email the authors and tell them?

@ Peter Mathews

As I understand your solution it is “nationalise the banks and then confiscate, say, 6.5bn from the bondholders”.

Interesting word “say”. Why not confiscate the lot. Might help towards the fiscal deficit also. You don’t need nationalisation to confiscate assets.

This whole debate is about how much can we get bondholders to share losses on a legitimate basis and on a basis which minimises the collateral damage. Your simple statement of “confiscate, say, 6.5bn” has I am sure populist appeal but offers no explanation on how this would be legitimately achieved.

BL’s article suffers from the exact same delusion. It states, again to populist appeal, that we now say “enuff is enuff” as far as Anglo goes, but Eoin has forensically exposed that this is a dishonest fantasy.

@Brian Woods II:
“Eoin has forensically exposed that this is a dishonest fantasy.”

With respect, I don’t think that that is so. What Eoin and others have shown is that “enuff is enuff” would be very costly, and that it might be against some law or other (which latter point is not, in my view, very important: people break laws all the time). What Eoin and others have not shown, as far as I can see, is that “enuff is enuff” would be more costly than a continuation of the current policies.

Just as I don’t necessarily expect Brian Lucey to post complete, peer-reviewed papers in response to blog posts, so I don’t expect Eoin to present complete analyses of the costs of alternative policies (although both of them write so much that …). But, again as far as I can see, the government and its underlings have done no more than issue unsupported assertions about the costs of alternatives to their own policies; they have not issued comparisons that could be discussed and analysed in public.

And given that the government has more or less the same credibility as Ron Ziegler, its assertions are not good enough.


At least I post links to fully peer reviewed papers….not “i met a man who met a man who told me that …” auld nonsense.


Come on. What about that insider in the DOF (or whatever) who told you 5.5% was the breaking point.


The WB & CDS pages on Bloomberg telly me different. There are bond spreads between differant countries reflecting inter alia fiscal track records. Or do you think they are just random?

You refer to one paper, do you think there are any others on the subject that have a counter conclusion.

I gather you dined with bond fund managers on Thursday night. What did they tell you?

I don’t know what your fixation with anonymity is. We are not all attention seeking self publicists. Occasionally the cloak offers us the scope to have a go at our employers or peers.

@ Brian Woods II 10:58am

BW II, the alternative Strategy and Action Plan takes a holistic approach to stabilisation of an entirely broke Banking Sector. It would be a question of sitting down all the Bank Board Chairmen and Chief executives and informing them simply, publicly and transparently and then explaining all the elements of the new Strategy and Action Plan in the context of the now properly measured and acknowledged financial national emergency. There’d be no discussion, just a presentation to them, no reponse required just …listen up! This is what is happening etc!

I’d expect the same sort of approach used by Paulson and Bernanke when in October 2008 (yes, 2 years ago!) they called in and told the 9 CEO’s of the 9 main Banks in the USA that they (the banks) were going to get “elephant” injections of capital. The time had come to just “pull down the trouser belt, lean over and get it over with”.

A bit of that kind of action is needed here. The government, the Minister for Finance, the DoF, Bank shareholders, Bank bondholders, Bank boards and managements have really got stop their charade and wake up to the fact that the financial destruction (banking sector bankruptcy) is larger than they’ve been admitting. For the sake of our economy it’s time to rethink the present bank rescue / NAMA approach which isn’t working.

Allow me to say,again, … it’s a holistic problem, bar no bank, and the scale is much bigger than was admitted. That’s why it spills over the edges of normal legal frameworks. Everyone, including bondholders will be involved in reconstruction. It’s a serious holistic restructuring! The body is infected with gangrene. It’s not responding to “sticky plaster, bandages, ointments, oral medicines and Lucozade” …we’re now in the realm of “serious amputations, under anaesthetics, by skilled surgeons” who don’t have vested interests and aren’t compromised.

Let’s recognise this so that we can get on with the necessary survival operation (Strategy and Action Plan).

Have a good week-end. And thanks to Brian Lucey for “throwing in the ball” with his excellent challenging article in the IT to start this discussion.


You are so right the BIG ISSUE is the Eur 20 Billion annual deficit and the cost of funding same. If more time was spent debating and eliminating expenditure as set out in Colm Mc Carthy’s Snip Report by the Academics we might be making some real progress in solving our economic problems. But then Colm did suggest that there should be substantial cuts in Education Expenditure. Where is the carpet to sweep that Report under…………. In the meantime SMEs and the Middle Classes are being dismembered on a daily basis to pay for the lack of action on this front.

@ Ray,
I’m not sure the situation is entiry the same as you doing business with a defaulting debtor. It’s more akin to you being asked to lend money to the company down the road. You know it’s up to it’s eyes in debt, its staff are demoralized and angry and it’s cutting investment in training, marketing etc.
Would you lend them the money? Or would you prefer to hear that it was in talks with the banks and was looking at getting new management (obviously going to cut costs etc. but in the context of an overall survival plan)?

@ Peter Mathews

“That’s why it spills over the edges of normal legal frameworks.”

I take this is code for “we are past the stage of indulging silly little cissy fetishes like honouring our guarantees”. Your graphic metaphor does indeed make clear that you believe we have gone way beyond the normal paradigm. In contrast Holohan tells us that the situation “is manageable”. I do hope Honohan is nearer the mark than yourself.

@ Brian Lucey

“No, BWII – eoin has show how it may be very very hard.”

Actually, what i’ve shown, is that its quite simply illegal, and therefore impossible (at least until your vague new foreign (?) government takes over). This analysis is only thanks to the legal analysis provided on here by good hard working people with no skin in the game (as most, if not all, contributors on here who post anonymously are).

You treat anyone who disagrees with you with absolute contempt and condescention, even those who have given up nice cushy careers or retirement in an attempt to help this country (A Ahearne, Honohan, Dr Fitz). Most of us on here are just normal guys with day jobs, trying to inform the public in our spare time, or more probably on company time (JtO, Tull, Gavin S, BWII). Your vitriol spreads to allegations, completely unresearched or unfounded (note the theme…), about posters on here (i apparently work for the DoF, as well as a side job buying Irish bonds…JtO is really a group of people…various people are political hacks), about what our real reason for posting is and who we’re really working for. Your delusion has spread to far that you will no longer even consider that anyone who has ever worked for an Irish bank or stockbroker can have an honest and well formed opinion on the current crisis.

We’re not all part of some shady DoF-bondholder cabal hell bent on destroying your career (you’re doing a good enough job at that by yourself). Most of us just like to talk about facts or opinions on an economics blog, rather than have poorly researched ideas published or aired in national media outlets. We’re angry with the banks for taking us to where we are right now, but we’re also angry with people like you who are confusing or lieing about what our real options are and how we can get out of this mess in the most realistic and enactable fashion. You want to rage against the unfairness of it all, but i just want to get the country back on even keel, no matter how we get there. You’ll just have to live with the fact that i quote on a blog the opinions of people in the industry who want to help and who want stay anonymous, but i don’t have to live with you writing in the Irish Times or Irish Independent suggestions which are ultimately false, innaccurate or clearly incorrect. There’s a difference between what we post on here vs what you write in the biggest media venues in the country. As i’ve said before, a retraction in the newspapers (or on the radio, or tv…) would be welcome, but i don’t see it happening unfortunately.

Here’s a suggestion for you to think over the weekend – you’re supposed to be the adult in the room, the Trinity economics professor, why don’t you start acting like it? Ever thought that your media whoring, which has now stretched to writing letters into the IT about the Green Party’s love of animals, actually reduces your credibility, rather than increasing it? Ever thought that being the go-to guy for the media to get a cool headline-making soundbite from might not be a good thing (assuming you don’t have media or political aspirations of course…)? This thread has been as much about you as it has been about Anglo Irish. We’re coming up on 400 comments in a little over 48 hours, a record for Irish Economy i think. I know you love the spotlight, but we’re discussing your credibility as much as the losses at Anglo. Really think thats a good thing? If you want to be the tabloid economist of the country, keep going the way your going. I’d guess many of your industry colleagues feel the same as i and others do, but because of the small circle and cliqueness of it all, many don’t want to say it to you directly (thumbs up to Antoin Murphy).

@ Al

you’re one of the fairest and level headed guys on here, so it distresses me that you claim im being vindictive. I’m really not. I’m just sick and tired of reading complete crap from an alleged expert who abuses his alleged impartialness and independence by spouting falsities in every media outlet that is available to him, and which is not available to 99.9% of the public. This is a guy with a massive track record of getting big things wrong (house prices, subprime lending, deposit selling), but who is still seen as the expert (in the media, and therefore in the eyes of a large amount of the public) in how to solve our banking problems. It seems like a case of whoever shouts the loudest gets heard the most, regardless of what they are saying. As a truely great hero (Spiderman!) said, with great power comes great responsibility. At this point i believe Prof Lucey is acting incredibily irresponsibly to further his own celebrity profile.

@ MarkM & Bryan G

no, i will not be putting out an Op-Ed in the Irish Times. It’s not because i wouldn’t like to, but simply because i don’t know enough to solve our crisis, or have an easy solution for people to consider. Brian Lucey says that this means i have nothing to offer. I beg to differ, i offer reality and humility at both the difficulties we are facing and solutions to our problems. Anyone who thinks they can solve our problems in a half page Op-Ed is nothing more than a snake oil salesman unfortunately.

Whom I dine with is entirely my business. Or private matter. If business, unless its yours, nothing to do with you. If private, nothing to do with you.

Well….im glad you got that off your chest. I also welcome the insight into my psyche. Thanks for that. Yes, my fondest wish is to displace Maccer as the celebrity economist….thats what I want to be. Now, lose three or four stone, dye the hair red…
And, its not about having all the wisdom in the world in an opinion piece Eoin of the two names. Its about provoking debate. Put something into the Times, ; if its cogent, thoughtprovoking and non libellous then they will stack it and print it, usually. I suspect that you cant or wont do that. Cant is fine, wont is cowardice. Your solution, so far as it is, is “more of the same”. I suggest that putting it kindly that is doin the same thing over and over and expecting a different result.

BTW – i was writing letters to the times well before this crisis and will be well after. Go look it up. And i dont take kindly to your suggesting that asking the minority party to take the same concern they exhibit for animals to CF sufferers, some my family (read the letter) is “whoring” . Shame on you.
Take a chill pill Eoin Dha Ainim…youll burst a vessel

@Brian Woods II
I too actually hope Honohan is closer to the mark. I think he isnt but lets see.

@ Brian/Tull

by the way, can i get some clarity on Tull’s pronouncement that you met bond fund managers on Thursday? If so, was it in a paid advisory role? If so, is there not a ridiculous conflict of interest here? Do you not have quite a substantial amount of skin in the game, by writing in the leading newspaper in the morning advocating policies affecting bonds, and then advising bondholders in the evening? The two are massively interrelated. You are not quite as independent as many people would view you.

@ Brian

given the opportunity to clarify, you decided not to. Fair enough, its a free world, but we’re now free to think or suggest what we want.

In my opinion future op-eds or media appearances should not just refer to you as “Brian Lucey, Professor of Economics”, they should also include a mention of your professional consultancy and avisory services. That’s all im saying. People can then make up their own mind on your motives, and won’t have to resort to rumour and innuendo like you use on here about some of us.

As regards the letter on CF, i have no quibble with your argument – CF is a horrible disease and i only have sympathy for you and your family members for having to endure it. In a perfect world we’d have unlimited resources to deal with it. However, we don’t, and your letter was seemingly written in a professional capacity (you use both your title and address at Trinity). As such, its fair game to analysise both this and previous run ins with the Green Party in terms of your overall role and effect on public/economic policy in this country.

As you have zero knowledge of any of my alleged professional consultancey and advisory services, id be cautious about noting same.

@ Brian

i am being careful, hence the reason why im asking pretty fair and innocuous (in my view) questions. Given that you routinely question the motives of people posting on here, i would’ve thought you’d readily understand why people would question yours in this situation. But if you’re answer is simply “No comment”, then we’ll leave it at that.


I note that Eoin has packed a few lead bars into his handbag, contributing to my heightened enjoyment.

I am not going to censure him for that. You are very quick to go ad hominem, or another ploy is to accuse people of basely exploiting some personal misfortune in your family. You gave me the same treatment once when I totally innocently invoked Bertie Aherne’s suicide quip.

This thread is breaking all records. Is it time to close it?

Look can we not just all agree that Prof Lucey is correct. We should burn the bondholders on a big pyre in Stephen’s Geen & while we are at it burn their bonds as well.

Although I suspect when his mythical govt takes power, Tull, Eoin B, all the JTOs will be put up agin the wall and shot. I would not give much for John McHale’s chances either. Karl Whelan should also remember what happend to Trotsky.

Keep eating the dinners.

BTW, If Brian Lucey did write a letter to the Times contrasting the concern of the Watermelon Party for small furry creatures with CF sufferers,he is to be congratulated for that.

Pointing out the hypocrisy and cant of that particular cabal of political whores is fair game. In the end we all have opinions on the Bank guaratee etc but Mr Gormley did not even bother getting out of bed on that fateful night.

I did write that letter and im proud of it. 12m for CF sufferers – and they are concerned about stag hunts? +1 on JG

Ah – can’t we all just agree to disagree. First Axel, then Tony and now Brian. Ireland is just a seething mob waiting to pick on anyone or anything. Thank you Brian Cowen and thank you FF.
With the guarantee they screwed us, so their cronies they could save
A solvent Ireland is dead and gone, ’tis with Anglo in the grave.
At least unite in the recognition of a crap verse.

The difference between Brian Lucey et al on the one hand and Eoin, Tull, JTO and myself et al on the other hand is primarily political. As Sporthog has noticed the most important part of Brian Lucey’s article is the final paragraph which reads as follows:

“It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.”

He has clarified this by saying that he does not necessarily mean “FG/Lab/SF”.

Professor Lucey’s position is basically that the State has failed and is incapable of solving its economic problems. His position is ideological or prior to the facts. He seizes on every adverse movement in CDS or Irish bond spreads to support his thesis. Every silver lining (recent sale of Irish Treasury bills) must have a cloud. Any economic set back is recorded with glee. Signs of economic recovery as outlined by JTO are scoffed at contemptuously. I notice in an earlier thread Lucey ridiculed JTO’s ideas for celebrating the 1916 Rising (putting the Abbey in the GPO).

Lucey can take a rather cavalier attitude to reneging on the guarantee – in effect a sovereign default – because the sovereign or State is worthless in any case.

Eoin, Tull and others take – for want of a better description – a republican line. Although the government might have made mistakes (Tull would like a FG led government), the State or political system is capable of solving its economic problems. For the likes of the “republicans” a sovereign default is therefore a very serious matter indeed. In my view it would involve leaving the Euro zone and returning to the Sterling zone.

Tull has alluded to the role of the Irish Times. For historical reasons it is sympathetic to Lucey’s line. However, in recent years it has realised that the economic consequences of this political line (not least for itself) are very serious. It will be interesting to see that newspaper’s accounts due to be published next month. It appointed Sarah Carey (“impeccable FG pedigree”) as an antidote to Fintan O’Toole. At least as significant is its recent appointment of Dan O’Brien.

Like Brian Woods II I am finding the debate amusing. But the impressive armoury of technical expertise cannot hide the fundamental division which is political and not economic.

@ John
A republic you say!
Where the children of the many end up paying for the mistakes of the few. Where the fastest selling car is a 5 series BMW as unemployment reaches massive highs?
Republicanism is fundamentally about equality.
Wolfe-tone would have a caniption!

Cowen said this week it would cost €70 billion to close Anglo. But on the day the Dail backed the Anglo nationalisation (20-jan-2009) Minister Lenihan said “taking Anglo into state ownership would have no immediate impact on the general Government debt or current deficit. He said there was enough money – €7 billion – within Anglo Irish to take the strain of loan losses over the next three or four years.”

Now by any standards that is some deterioration in 20 months!

That’s capitalism, Eureka.

But the country has made enormous social progress in the last 50 years in terms of social welfare, pension provision, education and even our health system has improved in recent years. But that is a different thread.

@ John
Nope – not capitalism either. In capitalism Anglo would have been let sink.
Dont align this shoddy state of affairs with anything as noble and decent as a political ideology borne out of a desire to bring a better life for people.
I don’t want to put words in their mouths but Eoin and Tull never said this was anything other than a rubbish situation to be in. As I see it they’ve just being doing their patriotic duty to ensure that we don’t embark on a road that makes it worse. And they are to be thanked immensely for that.
I suspect BL is actually motivated by something similar.
It’s a pity that it all got so bloody in the end.

@ John

thats some mighty fine analysis, and i pretty much agree with all of it.

Moreover, you say that “the State or political system is capable of solving its economic problems” – i’ll go one further and suggest that the state or political system, indeed most of our society in one way or another, was responsible for much of the mess we now find ourselves in, so this is why we have to take a large amount of the responsibility for the problems themselves.

@John M
“That’s capitalism, Eureka”
Capitalism is also allowing failed banks go to the wall – not socialisiing their losses while their management continue to pay themselves huge salaries. No amount of crying that we must legally honour guarantees will make the issuance of those guarantees anything other than a defraud of the taxpayer. Where there is a will there is a way – the robbery must stop

You’ve a very idealistic view of the capitalist system.

The system as exists (as opposed to your ideal) considers that banks of systemic importance cannot be allowed to fail. That is the case in Ireland, Germany, Britain and the USA.

@bond eoin

if you don’t feel you have anything to add by doing a piece on this in the op-ed could you write a letter to the Irish Times along the lines of your post at 4.34pm?

@ BL

My last word. Agree with your obs on CF and the Watermelon’s twisted sense of morality.

I would also make this point. Anglo is done and out the gap. It is going to cost us collectively 25-35billion due to massive hubris on the part of the Taoiseach & failure on the part of the public admininistration.

There is an another big problem coming over the hill in the form of AIB. I am that Policy makers are complacent on the scale of losses there. The saving grace will be that there are assets to sell & more equity to write down so it should not be another Anglo. I would prefer a debate on the option we have if AIB is in real trouble.

Selling off the institution lock stock and barrel, including the Irish ops with the NPRF taking a strategic stake in the buyer has to be considered. I am thinking of the Fortis/BNP deal as a model.

The complacent policy making that took place around Anglo can not be repeated.

@ John
As I see it John capitalism is an economic system, republicanism is political. The two are in no way mutually exclusive. In fact the two often work well together. Introducing republicanism is a distraction.

@ Eoin
This boom was created trying to make money from the most fundamental human need to have a home. The boom arose because we became addicted to the idea of economic growth despite the fact that there was not enough new goods or services to drive it. So we got the growth of the oldest business in the book – plain and simple moneylending disguised in bondmarket speak and corporate claptrap. The real snakeoil salesmen were on the Youtube link I posted.
That’s all this is – we’ve been suckerpunched by moneylenders. As you rightly point out there’s no point in blame do don’t you start blaming ordinairy people for wanting a place to live

@ tull

+1 . Anglo is a done deal. It has been systemic in terms of its crippling impact on state finances. AIB is systemic in a Main Street sense and it’s going to be the battlefield for the state.

Hard to disagree aib is far more important. A fear that a lot if scarce political not to mention fiscal capital has been wasted on the wrong battle underlies a lot of recent discourse. Now, how much is there in aib senior debt…

( yes, that was,for now, a joke..)

I’ll just stick my head in the back of the classroom here and say a token ‘howya do’in’. Must get around to reading some of the notes above at a later opportunity. Thanks to contributors efforts above, most appreciated. BOH.

Whilst the arguments here may have got Political because presumably BL is of the opinion we are dealing with Political Economy. The issues raised as far as I am concerned are ones of Finance not Economics because we have moved beyond decisions taken rightly or wrongly at the time two years ago. If we renege on our committments freely entered into to then to save Eur 16 Billion owed to Bond holders now we will be made to pay for it in terms of availability of future funding and the price of whatever money may become available to us. That approach to Finance in my opinion is a major gamble which no Government be it FF/Greens or FG/Labour can take.

@ Eoin

Your right, and I withdraw the charge

Seriously, this is a great thread with plenty of tackles, plenty of shin, but mostly on the ball.

We might find that sending out armies to Anglo we ignore the greater enemy having consumed all our resources.

I was a course recently where we had to practise first aid triage for multiple incident casualty sites. Quite intense, people screaming for attention, fighting, mock deaths etc.
Surely we needed a form of financial triage…

Thanks to all for their contributions to this thread and especially to Brian for getting it started. Maybe it got too heated at times, but I’m sure it has sharpened arguments on all sides. It is probably best to start the week on a fresh note — there will be lots more to debate.

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