NAMA Presentations

For good measure, how about this report published by DAVY today:

http://www.davy.ie/content/pubarticles/econcr20100917.pdf

The (unwelcome for many people) heading of the report is:

REPORTS OF IRELAND’S DEBT GREATLY EXAGGERATED; SOLVENCY AND LIQUIDITY CONCERNS MISPLACED

It seems to back up most of what I’ve posted here in recent weeks. In fact, some of the points they make are almost identical to points I’ve made on this site in the past month. Of course, that in itself doesn’t prove that Davy are correct. I’m hardly the Gold Standard for judging the accuracy of economic reports by. Nevertheless, the Davy report is food for thought for those claiming that Ireland is about to go bust.

It is not difficult to predict that lots of posters will now come on here, and even more so on other sites like Politics.ie and Property Pin, and say that the Davy report should be dismissed out of hand because Davy failed to predict the global recession, that Davy are in the pay of the government, that a Davy economist was spotted in 2003 at the wedding reception of Willie O’Dea’s cousin, and so on. Fair enough, but those attacking the Davy report should do so by detailed statistical rebutting of their arguments, not by the usual childish smears.

Being impartial for a moment, it is clear that there now exists a major difference of opinion in Ireland between academic economists and economists working in stockbroking firms like Davy. Only time will tell which group will triumph. Whichever side turns out to be wrong will have lost all credibility for future say in running the Irish economy. So, the stakes are high.

I had already written in an article published early Friday that solvency is not a short term probem.

There is less certainty in the medium to long term as to what the engine of growth will be.

Ireland in a state of chassis

@JTO

“Being impartial for a moment, it is clear that there now exists a major difference of opinion in Ireland between academic economists and economists working in stockbroking firms like Davy. Only time will tell which group will triumph.”

Perhaps a gentle reminder that “academic economists” are not a homogenous grouping all adopting the same opinions might be worthwhile.

To paraphrase, perhaps those attacking academic economists should do so by detailed rebutting of specific claims made by specific economists rather than by rolling out the usual childish dichotomies.

Davys appear to be saying that we’re grand for the forseeable future, no worries here mate. Their forseeable future extends to the end of Q2 next year. Hardly the medium term horizon that the solvency debate is revolving around.

On the fiscal adjustment, they reckon 15.9 billion in savings and revenue raises which have reduced the deficit by, eh, 1.3 bn? They allocate not spending money yet as a saving (postponing the social partnership pay rises) and there is 3.3 bn that is counted as ‘other measures’ without a specification as to what these are.

NAMA is “off balance sheet and self-funding”; there is no evidence for this assertion. The rating agencies (gormless though they may be, they are systemic in the use of their ratings) don’t see it as off balance sheet. As to the self-funding aspect, that remains to be seen. So far, only the exchequer has provided cash to NAMA.

“Growing confidence will encourage spending and a reduction in private sector savings accumulation, even as the public sector continues to save, while a forecast return to current account equilibrium will reinforce Ireland’s ability to finance its own debt. Fiscal consolidation, by reassuring
consumers about the health of the public’s finances, can be expansionary
in its overall impact. Having already absorbed much of the planned
spending cuts, unlike many of our European peers who lag Ireland on
the adjustment path, there is potential for the forward-looking consumer
to increase spending over the next two years.”
Who are these super-hero consumers who are going to stop paying down their debt and start buying imported bling-und-tat again? How does this square with a current account equilibrium? (Which is still the only positive that one can draw from the current situation).

I believe table 2 contains two errors – in the first place, the GDP figures for 2009 and 2010 appear to be reversed. Otherwise we are going to see near 6% GDP growth 2010-11. The second is that the Exchequer Balance figures for 2009 include the cost of bank capitalisations and NPRF pre-funding, but the figures for subsequent years do not. This is simply not a credible way to present the figures.

“Ireland entered the crisis with a relatively low debt to GDP ratio,
amounting to as little as 25.1% gross in 2007 or 13.9% net. The ratio
has expanded sharply in the wake of the decision to count promissory
notes as government debt, but even the revised 2010 figure of 92% is
well below the corresponding figures for the worst European offenders.”
So we are better than Greece and Italy? Whoopdedo. In case anyone has forgotten, Greece went bust.

I could go on, but the export economy demands my attention.

NAMA needs modest economic growth. What if the permagrowth model is busted and the last 30 years of debt expansion have just been covering up a longer term tendency for the Western economies towards stagnation ?

@ Seafoid

The credit/debt expansion has been keeping the American middle classes quiet since the 70’s.

http://www.ft.com/cms/s/2/1a8a5cb2-9ab2-11df-87e6-00144feab49a.html

@ Karl

I think this sheds some light on; “there now exists a major difference of opinion in Ireland between academic economists and economists working in stockbroking firms like Davy.”

“Academic economists do a rather different kind of economics than their cousins in industry and government. One important difference is that the great majority of academic economists hold Ph.D.s.
Doctoral training makes for intellectual output (“research”) that usually looks quite different from that produced by business and government economists.”

http://www.theeconomicconversation.com/book/ch34.3.php
.

The main problem with NAMA is that the outsourcing of management of the delinquent loans to the banks is not working because the banks have very limited autonomy, are being micro managed. There appear to be extremely low levels of trust. This suggests the subirdinated part of the consideration is not large enough.

@zhou_enlai

“The main problem with NAMA is that the outsourcing of management of the delinquent loans to the banks is not working because the banks have very limited autonomy, are being micro managed. ”

Why do you say that? Would NAMA not say that the banks had their chance to resolve the loans but through a mixture of corporate inertia, clientelism (in the true sense of cozy unquestioned relationships between bankers and developers), recognising losses etc etc, the banks need to be micromanaged.

Capita have been awarded the contract to manage loans at the banks. I for one will be interested to see how Capita manage their contract which includes loan resolution should that be appropriate.

..oh, and I forgot to add. Davy still had Anglo Irish on its ‘focus list’ in early January 2009.

Allegedly, and one never know this with certainty the FG talk of stiffing Anglo senior bondholders is worrying the markets. The sellers smell an election and a change of policy. The resultant default on Senior bank debts in broken banks was supposed by some here to lead to lower risk to the sovereign. Hence it would lead to lower spreads.

The market in its infinite wisdom or idiocy may have taken a different view. This culd be that Irish banks will not know be able to refinace. Balance sheets will contract taking the economy down and tax revenues with it. Hence the Sov. would be weaker.

one is always worried about over-extapolation (if that is a word) but it could be yet another example of be careful what you wish for.

Something strange going on with the ISEQ off 2.3% and the 10yr bonds continuing south even through lunch time. yield now 6.27%. whats up Eoin.

@ Christy

“availing of anoynomity i would add”

sweet irony!!

“but suggesting that people actually wish the irish economy ill is just more drama drama drama”

well, actually….

http://www.irisheconomy.ie/index.php/2009/12/29/morgan-kelly-on-the-irish-economy/#comment-29751

“Where to go then? I have said before, in public and private, that unless the system crashes, visibly, painfully and for all, we are unlikely to see meaningful change.”

The Barclays research piece suggests that the Irish government does not need to draw on outside financial assistance unless…’further unexpected financial sector losses materialise or macroeconomic conditions deteriorate beyond our baseline forecasts in the coming months’.

What is worrying is that people in positions of responsibility within debt capital markets apparently read the Indo….

Thanks Eoin. The article by Roubini suggesting a 70b shortfall in the infamous Irish bank cannot have helped. ECb needs to act fast and get the yield down.

There is zero liquidity in Irish bonds over the past few days. People are also positioning themselves ahead of Tuesday’s auction. Using hour by hour updates on bond yields as proof of some impending default or something is pointless.

@Eoin
“but suggesting that people actually wish the irish economy ill is just more drama drama drama”

well, actually….

http://www.irisheconomy.ie/index.php/2009/12/29/morgan-kelly-on-the-irish-economy/#comment-29751

“Where to go then? I have said before, in public and private, that unless the system crashes, visibly, painfully and for all, we are unlikely to see meaningful change.”

Eoin you are trying to protect the staus quo as the best method to ensure the long term benifit of the Irish Economy.
Morgan Kelly believes that a visibly painful crash in the system that leads to the possibility of meaningful change in society is the best method to ensure long term benifit of the Irish Economy.
I’m with MK

would anglo coming in at 35 be a ‘further unexpected loss’ or is it allready factored in as expected?

@ Eamon

for clarity, that was actually Brian Lucey’s comment

@ Christy

pls add Eamon to the list

DoF forced into statement

http://www.rte.ie/business/2010/0917/ntma.html

@Eoin

Fair point – but i’ve told people what I do and trust me nobody cares who I am.

But my point is that John paints himself as an outsider but doesn’t tell us what he does – for all we know he works at a stockbroking company – for all we know in 2007 he was one of those guys telling us all will be well.

I know that may sound far fetched (or irrelevant) but given his impressive and useful use of stats i dont think its unreasonable to suspect he is not as much as an outsider as he would have you believe.

On the second point – I take your point. Perhaps there is a bit of dram on both sides of the argument

@ Christy

JtO has told us he works for a US MNC i think, specifically on statistical type stuff (right?). No reason to not believe him.

@Jagdip

NAMA does not have the resources to micro-manage the banks. That is not how it is designed. NAMA is supposed to be able to trust the banks because they have a stake in the recovery of the funds paid by NAMA via the subordinated bonds.

I am not clear what exact rolw Capita will fulfill. Hopefully they can improve the situation.

In the meantime, a section of the economy which deals with the subject of the assets being managed by the banks is practically grinding to a halt.

Whether this is the fault of the bankers for past behaviour or NAMA for requiring too much detail and taking too long to make commercial decisions is irrelevant. The fact is that the system does not appear to be working.

Apart from the need to keep credit flowing there is an economic need to have a functional commercial banking system where bank consents are available in a timely manner.

Apart from the damage to the wider economy caused by delay in banks issuing consents, unless NAMA can make timely prudent commercial decisions they will not be able to properly protect and recover asset values.

@hogan

Ireland did not guarantee Depfa. Ulster is covered by the BOE. the Danish Central bank is responsible for Danske. Deutche Bank London is covered by the BUBA, the Fed is responsible for Goldmans London. Buiter is wrong on this score.

In short, if Deutshe dropped 40bn in London on some dodgy trade, it is the BUBA that worries not the BOE. Similarly if RBS drops 40billion in Ireland and becomes insolvent it is the Old Lady’s problem.

Let the 10 year do what it wants. We don’t need to issue in that space if we don’t want to as seen in the next auction and we are pretty much fully funded. Not in the office today. What’s happening in the short end of the curve?

Enda F
from reuters : 5y 4.9%, 2y 4.26%.

Ouch! Cheers.

Any good jokes Brain, what about an oul verse or two?

No, not you, An T. I wonder would his party piece calm markets

@Tull & Eoin

Fair enough – my attempt to the play the man was misplaced

I still think JTO is too shrill. Particularly with respect “to his attempt to be impartial”.

@ Tull

i’d prefer a Philip Walton impression over the singing…

@Christy

Posts crossed – mea culpa with respect to my suspicions

JTO again:

I’m not in the least offended, Christy. I come from the North, where the concept of the impartial bias-free observer is unknown. As for being suspected of working as a secret agent on behalf of the government (any government), I find that very flattering.

JTO
“Zero marks for presentation – cluttered, confusing and way too busy.”” was my comment (and a reiteration of a tweet I did last week) on NAMA .

@ JTO Mc Bride

Thanks once again for your input. Anyway I took the trouble to print off the Davy Report which I find is always the best way to read these reports – old way. Jebus it made my day rather than the drivel we wade through everyday in the media and sometimes on here. It is truly amazing when S & P and others of their ilk do their sums they always seem to miss the assets like cash at bank – €20 Billion, NPRF another €20 Billion etc etc . These are the same useless credit agencies that got it so wrong on the US Banks etc but when they have a cut at Ireland we have no problem with anything they spew out of their wordprocessors.

Have a good weekend on the exporting front as you have an uphill battle here to get any help which might get the economy going forward. The past is dead money but then the Irish always like to have their head up their posteriors and hurl on the ditch.

@Karl

“To paraphrase, perhaps those attacking academic economists should do so by detailed rebutting of specific claims made by specific economists rather than by rolling out the usual childish dichotomies.”

I seem to recall an academic economist, I forget his name or whether he has a PhD or not, suggesting that the answer to all our woes was to offload our 28bn of Anglo deposit liabilities in exchange for 21bn of assets, a 49bn windfall which would solve not only the banking crisis but also the fiscal deficits.

Is that detailed enough of a rebuff?

@Eoin

This is Frank Galton 🙂

http://en.wikipedia.org/wiki/Francis_Galton

A little more obscure than Zhou Enlai, or Tull McAdoo as pseudonyms go, but for economists, its quite funny 🙂

@Michael Hennigan

Thank you for this article http://www.finfacts.ie/irishfinancenews/article_1020590.shtml

You say There has been no reform of the failed governance system

Equally, the Regling/Watson report speaks of, in my own words, massive failures in corporate governance, and a complete lack of interdepartmental confrontational culture.

In other words, i guess you could speak of the behind closed doors policies.

You also wonder about growth and where it may come from in the midterm.

This is deed is the biggest puzzle I have not been able to find any convincing proposals. We are loosing young professionals who are forced to leave the country, the very brains we would need to rebuild.

To me a lot of these developments have a vicious cycle character.

What I observe is a lot of headless chicken running around, and it seems to become worse, on days like today, utter chaos reigns, and war of words.

One of the key characteristics of the Irish governance system is the pass the buck culture, where accountability is hard to pin down.

Literally not existing! …. and the longer I think about it, the more I am convinced that it might be a good idea to start from scratch and debate a new constitution.

@AMcGrath
Well, they are replacing a supposedly inferior race :p

@ Eoin
It is not that people wish the Irish economy ill, it is just that some of us realise that the structural reforms needed in almost every area of the economy will not happen unless politicians of whatever hue can blame someone else for ‘having’ to make the hard decisions. Our government will be a proxy for the EU and IMF do you think FG and Labour will care about this? Not a bit, it makes their job easier.

Lenihan gave us the blanket guarantee which gave us nationalization of Anglo and the rest, his next big move was NAMA another mechanism to further socialise the losses. Lehihan has sacrificed us on the alter of his own expedient, “only game in town” policies. Policies formulated by the same men that caused the disaster. He grossly underestimated the losses and his limited mind set, made him believed that he had no other choice, as his “policies” necessitate continued, further borrowing from the same sources. Now those policies have been shown to be foolish and threadbare. This country was not even paying itself out of the till it was borrowing the money to put in the till to pay itself.

The only thing that will change this country is the bond markets and the swaps. They will cleanse not just the economic system but the political system.

“once customs are established and prejudices ingrained, it is a dangerous and futile enterprise to try and change them. The people cannot bare to have the disease treated, even in order to destroy it”.

In boom times, there is always a niche market for books on the next crash, particularly for the paranoid in the US.

Following exuberance, there is a tendency to overdo the doom and gloom and the vacuum in political leadership encourages it.

This vacuum is not just at government level; it is also very evident in the Oireachtas.

There was an outcry by independent senators on the proposal for abolition of their talking shop. But beyond the ministers in the group of 216, who among them have dared propose significant change and challenge the people to embrace reform?

Shame on them as they act like the other vested interests that have brought the country to this sorry pass.

It is not surprising that some people would view the swift change from feast to famine, as an existential crisis.

A crash and extreme solutions like exiting the euro made by relatively wealthy people, would inflict most mayhem on the people at the bottom of the pyramid.

I do believe however, that an IMF involvement is the best way to bring significant change; a positive factor for Ireland is that the FDI sector has operated over the decades in a parallel world to the gombeenism of domestic politics.

The motorway services issue is just another illustration of a serious problem in the way we do things; build motorways but pander to local demands and do not provide service areas.

In 2005, Minister for Transport Martin Cullen asked the National Roads Authority to review its policy on service areas. Now the NRA has no money and Reuters reports via a South African site:

Drive Ireland from sea to sea, but don’t stop to pee:
http://www.ioltravel.co.za/article/view/5647745

Back to NAMA…

It’s reassuring from Brendan McDonagh that NAMA only needs modest growth over the next 7/10 years to break even.

That of course ignores the costs elsewhere.

Given that €60 – €70bn that was invested by the Irish in overseas commercial property in the decade before the recession, there will of course be developers who go bankrupt in Ireland but who will retain overseas properties that have been ringfenced in foreign companies, have an income stream and have been also been funded overseas.

@ Sarah Carey

I note from wiki that the real Frank Galton wrote a novel which described a utopia organized by a eugenic religion, designed to breed fitter and smarter humans.

Gender and race studies can be a minefield and in the early 1970s, London-based Professor Hans Jürgen Eysenck, who had fled Nazi Germany in the 1930s, in Race, Intelligence and Education (in the US: The IQ Argument), linked genetics with IQ differences and identified the Irish, blacks and Poles, as having lower intelligence than other racial groups.

For its high IQ readership, the London tabloid, The Daily Mirror, headlined a story on Eysenck’s work: Irish not as brainy as Brits says Prof.

@ Karl Whelan

Karl,

Just wondering would you or other colleagues consider opening a thread on the C&AG’s report on the third level sector?

A true test of the propensity for change is the willingness to confront the sacred cows in our midst!

I acknowledge that you do more than your fair share in keeping this blog going.

Interesting that the payroll bill at UCC exceeded Trinity’s in 2007/08.

http://www.audgen.gov.ie/viewdoc.asp?DocID=1239

@Jagdip Singh – “Capita have been awarded the contract to manage loans at the banks. ”

You are kidding me…. now we are really in the doo-doo. My first hand experience of them is that they are very good at selling and very bad at delivering.

@JtO – there are no secret agents in Ireland. Even I know who they are so it’s not a very well kept secret. The few that exist like to meet up in the Horseshoe bar (do they still call it that since the refurbishment?) in that expensive hotel on the green. I believe they still call their unit the ‘IIS’ (Irish Intelligence Services)… and people can do whatever they like with oxymorons etc.

They used to make a damn good bloody mary in the horseshoe. It’s the celery salt that is the difference that makes a difference.

Hi Jto
I’ve been using Davys as my broker for nearly 10 years. I end up looking at their comments and reports most weeks. They have always been on the overly optimistic side. Mind you I’ve noticed a bit of pessimism creep in recently.
Personally I’d like to see a more ruthless Nama in operation and see the process of disposals speeded up and let the Market find its true value.
Expanding my own business and taking on our first employee so not all doom and gloom out there. Lower commercial rents and prices would help.

http://www.project-syndicate.org/commentary/johnson12/English

Peter,

Who are the zero coupon bonds to be issued to?
Could you explain the following statement pls
“together with a €6.5bn discounting of face value of Bond Liabilities on Bank Balance sheets”. Are you talking about a debt for equity swap?
Could you explain the difference between your capital requirments and Mr Eldefield’s stress test. Is it due to bigger losses & more capital?
Do you envisage abandoning the guarantee?

@Peter Mathews

What specific mechanism are we to use to impose losses on these bondholders?

@ Georg R. Baumann

As for fiat money, credit has given people a modern life billions across the world.

Too much of most things, is not good!

It’s interesting that before the last ice age, most humans in Europe had migrated from the plains of Central Asia.

Then about 1,000 years ago, the ancestors of the Roma people moved to Europe from India and they have been badly treated since.

Given the treatment of the Jews by the Vichy regime, it’s a shame that a French leader would seek to target Roma migrants for political purposes.

It should be recognised that most populations have a significant number of people who in particular at times of economic stress, scapegoat migrants.

Governments of course cannot allow unchecked migration from poor countries and inspired integration policies are important to avoid tensions with existing citizens.
It is a universal human trait to seek the perceived weak or negative characteristic in another to seek to humiliate him or her. When my son was ten years old, I took him to a Munster Gaelic football final between Cork and Kerry. I was among Cork supporters who viewed the referee as a lackey of Kerry. He was an individual on the field, dressed in a black kit and nobody knew him from Adam. Whether his grandfather had stolen sheep in days past, nobody could tell. However, there was one feature which provided fodder for the red-shirted Corkmen who were baying for his blood. A Cork supporter beside me kept spluttering with venom: ‘You baldy fucker!’ It brought to mind the story of the tumultuous Democratic Party Presidential Convention in 1968, in the city of Chicago. Protesters against the Vietnam War were battling police on the streets and long time mayor Richard J. Daley (father of the soon to be retired current mayor) was on the main floor when Senator Abraham Ribicoff of Connecticut began speaking from the podium. Ribicoff called on Daley to withdraw his ‘Gestapo troops’ from the streets and bedlam was let loose. Amidst the din, an incandescent Daley shouted towards the podium: ‘You Jew son-of-a-bitch! You lousy motherfucker! Go home!’

My son who is a Filipino by origin, has very seldom encountered racism. Young people give the world hope.

@ Peter Mathews

can you also clarify the BoI recap figures – you have still not adequately explained why you are using a NAMA-bound figure of 16bn vs the actual figure of 12bn. All you actually did was complain, via a vague insinuation about dodgy accounting, about BoI reducing down the figure.

@Michael,

thank you for sharing this personal experience! It is our world today, hence our generation, that does not give a lot of hope to our young people, unfortunately.

Yes, the history of genocides and the events that lead to them, a very important lesson to remember!

It is good to hear that your son was spared the traumatising experiences of racial hate attacks.

@Eoin

It is my strong impression that all banks, not only in Ireland, were playing tactical games by methods of ‘Fog of War’, drip feeding us with ever increasing demands, whole shortly after receiving bailouts paying obscene amounts of boni to their upper management.

This did not change from what I can see. In Germany the Hype Real Estate reported Losses of 2,2 billion in 2009, while managers recently threatened legal actions to enforce 2009 bonus payments of 25 million to them, and of course HRE payed out 25 million.

@Robert Browne

The only thing that will change this country is the bond markets and the swaps. They will cleanse not just the economic system but the political system.

JTO again:

What exactly is the nature of the cleansing you have in mind for us after the crash. Is it to be a Pol Pot-type cleansing perhaps? You are a bit short on specifics. More detail please so we can assess whether it will be worth having the economy crash for.

@Stuart Blytheman

Delighted to see you posting here again. Also delighted your business is picking up a bit. You haven’t been on much recently. We need voices of sanity from the business world, as opposed to BrowneStuff about wanting an economic crash so that foreigners can cleanse us of our sins.

@Simpleton

As we have agreed on other threads, it all comes down to growth. If we assume decent growth, we can, at the very least, kick this can a long way down the road. Key sentence from the Davy report. Alternatively, we might also note that we are one recession away from a default.

JTO again:

Totally agree. Growth is the key. But, note that Davy are only assuming 3pc annual growth from 2011 on, which is well below Ireland’s long-term growth rate since 1958. So, it is a reasonably cautious assumption and not over-ambitious. We are in good company. Garret Fitgerald’s article in this morning’s Irish Times is making exactly the same point.

Re ‘one recession away from a default’, by the same token, I’m probably only one heart attack away from sudden death, but I don’t plan on the assumption that I’m going to have one and hope to be around a long time yet.

@joseph

There are no secret agents in Ireland. Even I know who they are so it’s not a very well kept secret. The few that exist like to meet up in the Horseshoe bar. I believe they still call their unit the ‘IIS’ (Irish Intelligence Services).

JTO again:

And there also used to be quite a few of them (Irish Intelligence Services) in a
certain bar near the university in Belfast in the early 1970s. Many an evening I spent in their company. I won’t name it, as these things are still not joked about quite as much in Belfast as in Dublin.

@Michael Hennigan

When my son was ten years old, I took him to a Munster Gaelic football final between Cork and Kerry. I was among Cork supporters who viewed the referee as a lackey of Kerry. He was an individual on the field, dressed in a black kit and nobody knew him from Adam. Whether his grandfather had stolen sheep in days past, nobody could tell. However, there was one feature which provided fodder for the red-shirted Corkmen who were baying for his blood. A Cork supporter beside me kept spluttering with venom: ‘You baldy fucker!’

JTO again:

Disgraceful! Shows how primitive GAA fans are. You’d never get English, German or Dutch soccer fans insulting a referee because he was follicly challenged. I do hope that those same Cork fans get their comeuppance at Croke Park tomorrow at the hands of the second best team in Ulster. Up Down!

@the loan arranger

The point is that the capital replacement requirement for Bank of Ireland should be based on €16bn of course!! That’s why the whole question of “economical” accounting and loans classification and re-classification underscores the smoke and mirrors aspects of this very sorry mess that is the Banking Sector.

Please refer closely to my letter published in the Irish Times on Wed 15th Sept. If Bank of Ireland was / is standing on solid ground it would have responded to my letter. Their silence is deafeningly instructive! Frank Daly and his slide-deck is a distraction form the valid point made in my letter.

Yes, the banks would receive the Bonds / Pro Notes in return for issuingf shares which would nationalise the banks. Note that the banks can use these bonds / pro notes as security / collateral for borrowing from the ECB, thus creating some of the the liquidity the banks need.

Of course I’m not advocating just a bland default on senior debt. The recommended solution would be intelligently tailored to achieve optimum restructuring e.g. perhaps a fractional increase in the interest rate, a token / minimal equity swap element. But remember this is a restructuring (a) because the banks are essentially bust [only the blanket guarantee keeps them open, thereby providing a somewhat false “prop” to the nominal value of the senior bonds] and (b) the blanket guarantee was issued under duress conditions and arguably might be voidable.

In summary, it shouldn’t be beyond the capabilities of an intelligent, robust, fair, factually well armed Financial Sector Strategy and Action Plan Task Force (say max 5 capable, qualified non-compromised people) to present and successfully negotiate an Overall Banking Sector Restructuring for this country.

Peter,
I understood the pro notes were repoed to the Irish CB not the ECB. The authority or capacity to just create thes out of thin air must be limited
So the nationalised banks would not have any capital as such, just unfunded pro note a la Anglo. How would debt investors and corporate depositors have nay confidence in a capital structure like that, particularly when you have just defaulted on them.

@ Hugh Sheehy:

Agreed.

bjg

@JohnTheOptomist

It’s true that Ireland’s debt was 1t 90% in the 90’s. But what was the cost of our borrowing back then.

I have no doubt that Ireland can grow a couple of percent in 2011, and NAMA can be made to work, but is time against us?

Peter,
a pity you did not have the time to answer my pro-note question. If I understand correctly what you propose to do is issue zero coupon promissory notes to the banks as consideration for shares. The banks would then repo these notes with the ECB (not the CB). This would constitute the capital base of the banks. Is this correct?

@ JTO
“More detail please so we can assess whether it will be worth having the economy crash for.”

Well for starters, I believe the choice is no longer in our hands as you infer, I believe that the crash is all but inevitable. Even if flinging 30bn into Anglo was somehow “manageable” how manageable is flinging another 41bn into NAMA which is just another version of a black hole? Lately, I have heard a lot about the 14bn remaining in the NPRF. I hate to remind people, but there was a reason why that money was there in the first place Honohan and Lane predicted that the NPRF if not ring fenced would be toast at the first crisis and they were right.

I have more faith in the international markets crying halt to our reckless borrowing than I have belief that our government will eventually stumble on a solution. As McWilliams says we need to actually “bring the crisis forward”. These markets will be the catalyst that makes us finally face reality and reality means facing problems now not producing more reports. Left to ourselves we just come up with report after report and crack pot ideas like the Croke Park agreement. Almost everyone from the low paid to social welfare recipients straight through to 400,000 state workers are well “OVERPAID”. The axe has to be wielded and not by Irish people because we are too squeamish.

Your reference to Pol Pot is OTT but hints at the level of paranoia that exists when it is evident that the political and legal hegemonies days of of raiding our exchequer are numbered. In India the “untouchables” are the poorest class in Ireland the “Untouchables” are the richest class. The way out of this is that nobody becomes “untouchable” otherwise, it won’t be too long before people start demanding truth and reconciliation mechanisms.

Any normal observation of the Irish economy, where a dog gets chaffuered to Kerry and back, and where we pay almost 350,000 for two chapters of OPW history must surely admit that we have gone past the point of no return, we are an immature, irresponsible delinquent people. I am surprised that our spreads are not already 7% and there is plenty of statistics to support that proposition as Mr Gurdgiev has shown. The response of our government after fostering greed and recklessness has been to reward inevitable failure and incompetence with ransom money. Unfortunately, for this government and us, the ransom has turned out to be too high.

Government must be made seriously smaller and the cost of government made seriously cheaper even while achieving efficiencies. Decoupling of unions and government and killing Croker are all necessary acts followed by the deep excisions into the world of the quango. Ireland = no regualation but Ireland was also allowed to run riot within the Eurozone who must now share the bill if they want their beloved Euro to be around in 5 years time. We need to reform our judicial and political systems as well as coming up with an economic model based on growing employment and which does not give away our natural and export our human resources, one which puts agriculture, tourism and clean water at the heart of our strategy rather than the micro idea of the smart economy. Surely, it is not my job to design all of this, is it?

@ Brian Woods

At least with me it is only a moment not a lifestyle.