Sharing the Burden of Adjustment

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From the IMF report:

  • Sharing the burden of adjustment: the authorities’ commitment and performance to date give confidence that fiscal targets will be met, and the authorities are working to develop a medium-term fiscal framework and supportive fiscal institutions. It should be recognized, however, that there is a strong sense that burden-sharing between taxpayers and creditors for the cost of supporting the banks has been unfair. In this respect, the authorities have reiterated their absolute commitment to servicing sovereign debt and the debt of the pillar banks (AIB/EBS and BoI) that will meet the banking needs of the Irish economy. Regarding the banks in resolution (Anglo and INBS)—which have received €34.7 billion (22 percent of GDP) in capital from the government—the authorities have stated that any burden sharing with holders of unsecured and unguaranteed senior debt (about €31⁄2 billion remaining) would be undertaken in consultation with the European authorities. Staff stressed that to effectively mitigate contagion risks such burden sharing would need a robust legal and institutional framework that strikes a reasonable balance between creditor safeguards and flexibility.

70 Responses to “Sharing the Burden of Adjustment”

  1. ObsessiveMathsFreak Says:

    When even the IMF is telling you that gave too much money to the banks, you know you really gave too much to the banks.

    Staff stressed that to effectively mitigate contagion risks such burden sharing would need a robust legal and institutional framework that strikes a reasonable balance between creditor safeguards and flexibility.

    I believe this is not too thinly veiled PR speak for: You need to get your s**t together and pass bank resolution/liquidation legislation before it hits the fan!!

    Not surprising really as we are three years into this crisis at month’s end and there has been no new legislation to deal with bank defaults or wind-downs, structured or otherwise(Maybe the Credit Institutions bill, but I doubt it.).

    This is a pity because at the moment, unlike the US, ordinary bank depositors at currently totally unguaranteed where as institutional bondholders, like–just to pick an example at random–the ECB, are the first creditors in line in the event of a bank liquidation, even for stuff like the short term deposit loans. I suspect situations like these are what the IMF is alluding to here.

    Hopefully the government will recover enough from its long holiday by mid-November in time to think about new legislation for some time in late 2012. That way we might actually have a legal framework in which to deal with the banks by the time, say, the EU/IMF money is scheduled to run out? Don’t hold your breath!

  2. Brian Woods II Says:

    @ OMF

    That is not how I read that quote. What I read in this is “we sympathise with the desire to burden share with Anglo’s unsecured unguaranteed seniors but tread carefully in case the cure is worse than the disease through contagion effects”. This to me is a slight rebuff of the Government’s desire to burden share in this space even though we were told that originally the IMF were sympathetic.

  3. Kevin Donoghue Says:

    I always regarded the destruction of Nelson’s Pillar as a shameful act of vandalism, but the more I hear of the “pillar banks” the more I think we could use a few vandals around here (but no explosives please; just jail the bastards).

  4. Dreaded_Estate Says:

    @Brian Woods II
    Can’t see how you could that from the quote.

  5. The Dork of Cork Says:

    I hate that phrase – “sharing the burden”
    God its awful – I cringe every time I hear it.
    This country is full of teachers pets.
    Show me the boy and I give you the man and all that lark.
    The ball breaking humiliation of it all is just too much.
    Still I guess most Irish men like that sort of thing.

  6. Eureka Says:

    Europe is like the Titanic. The Troika is like the captain. The countries are like rooms and European citizens are the passengers.
    A few gaping holes in the structure – in cabin 1 Greece is taking on loads of water, in Cabin 2 Ireland is not far behind.
    The captain has one strategy – confine the passengers to their cabins and get them to bail out water (debt) as quickly as they can.
    Ireland has a nice little cabin – one of the first to take on water but it’s inmates are doing Trojan work. They’re tired, they’re weak, all around them the water is rising but keep them busy and they won’t notice.
    But we do notice. 500 jobs lost today. No new ones coming.

    Our leaders have let us down. It’s time to give up on this ship and head for the lifeboats – Europe is sunk

  7. Philip ii Says:

    Dreaded
    Reading brian woods 2 nothing the government does is bad, the banks bondholders must be saved at all costs, troika knows best etc etc. Trying to parse his views is futile

  8. seafoid Says:

    @ Dork

    Re : humiliation

    “This tired, abstract anger –inarticulate passive opposition –always the same thing in Dublin”

    > Beckett

  9. David O'Donnell Says:

    @All

    So this is what we are reduced to! Fumbling in the greasy vichy_banking_tills and texts in futile attempts to decipher and deconstruct one of our overlord’s … er … [pardon Christine; Ou est DSK?] .. our mistress’ voice.

    Any more boats in Rathmullen?

    @The English

    Any chance you might give us a hand to create a little havoc in continental Europe? And a loan of the port of Dover for a few months would be greatly appreciated … a polaris or two might also come in handy ….

  10. Brian Woods II Says:

    @ Philip 2

    You are right. This crowd were calling for all sorts of magic solutions when in opposition. Now in government they face the real world and do what has to be done.

    Yes, by and large the government, guided by the civil service, are doing their best. Commentators like Morgan Kelly, Gurdiev and McWilliams can propose the most fantastic schemes knowing they will never have to account for them.

  11. grumpy Says:

    @David od

    @ Phillip L

    Read your headline and thought you were posting about the way the adjustment was being shared between public and private sectors. Some day?

    “@The English

    Any chance you might give us a hand to create a little havoc in continental Europe? And a loan of the port of Dover for a few months would be greatly appreciated … a polaris or two might also come in handy ….”

    I think the influential English have not forgotten the way Ireland responded to the need for the use of the Atlantic ports when the war was on the verge of being lost through the U-boat offensive. I wouldn’t bother asking.

    I also suspect there is some resentment about both Germany and Ireland engaging in what they regard as “security freeloading” for the last half a century. They might hire out a submarine for a very large amount of money which the state doesn’t have.

  12. Gavin Kostick Says:

    @ All

    On a what does it all mean level, I take it as follows:

    “From Queen Christine
    Of Bretton Woods

    To

    My Little Chap
    M Noonan
    Champion of the Irish People

    As you know, the great dragon Anglo lies dead upon a pile of gold amidst a great wasteland of its making, which used to be the fair city of Dublin.

    If you wish for any of this gold, you must do exactly as I say – exactly or I will not be able to protect you.

    You must bring this note with you.

    As you approach the great carcass of the beast Anglo, a mighty voice with a slightly French accent will roar from the skies:

    “Be off with you foolish little Irishman. Who dares challenge the powerful and mighty JCT! This is no place for you. There’s a systemic risk here. Systemic! Away!”

    “To which you must say: ‘There is no systemic risk, as the dragon is dead!’ Do not try to undertsand the meaning of these magic words – just say them boldly.

    The voice will then say:

    “Would you dare cause a crisis of confidence across Europa, for such a tiny sum? A crisis of confidence!’

    To which you must say:

    ‘National banking matters are a matter for the national state.’

    And the voice will howl.

    ‘You’ll get not a coin more from me.’

    And finally you must say:

    ‘One month to retirement JCT, do you want to bring the whole pack of cards down?’

    And the voice will fade away, sighing: ‘systemic crisis, systemic crisis’ on the lonely wind.

    But your adventure is not over.

    As you approach the vast, decompsoing carcass of the dragon, – you will know the path by the sign ‘Best Bank in the World’, this way – you wll meet a number of tiny little men, with top-hats, waistcoats and shiny shoes, shovelling the gold away in boxes to ‘foreign parts’.

    No these are not leprechauns, but banking gnomes.

    At first, one will be very polite, and offer you tea and a chat, and will sound terribly reasonable, and soon you will feel that this little chap’s interest is everyone’s best interest.

    Shake off slumber now – or you will sleep for a whole term in office, and when you awake the gold will be gone.

    I must warn you now, as you take your share of the gold, this chap will turn nasty and say horrible words:

    “Garn. We’ll cut you to fahkin’ ribbons, Micky. You’ll never get another coin from us if you touch any of this. Feck off back to you bog, bog boy. Me and my mates will never lend to you again’

    Remind yourself that is only a middle class boy pretending to be hard – just like you.

    Do not attempt to argue, do not mention something David McWilliams said, just take the money and walk away.

    On no account look back – in time they will come to you, but not strangely, if you look too hard at them.

    My best wishes on your terrible quest.

    C.’

  13. Chris Says:

    What they have done with Anglo and the vocabularly they use is deliberatly meant to confuse.
    Let me put it simply.
    Anglo is a bankrupt bank. It is no longer in business.
    When a bank becomes bankrupt the depositors are refunded by whatever garantee is in place and other creditors assume control of the companies assets.
    In Ireland there are many people who do not want creditors to own Anglos assets. Basically Anglo lent to the Golden circles and those guys do not want to be put out of business by creditors coming in and telling them to pay up or sell up. These guys are very powerful within Ireland.
    At the same time you have the ECB and wall street/Imf worried about not taking anything off senior bondholders afraid of credit events – let’s see what Mr. Stiglitz thinks about that
    “The ECB argued that taxpayers should pick up the entire tab for Greece’s bad sovereign debt, for fear that any private-sector involvement (PSI) would trigger a “credit event,” which would force large payouts on credit-default swaps (CDSs), possibly fueling further financial turmoil. But, if that is a real fear for the ECB – if it is not merely acting on behalf of private lenders – surely it should have demanded that the banks have more capital.”

  14. Al Says:

    @ Gavin
    Excellent
    All this is missing is a place prior to the dragon called the catamites dungeon where the Irish civil service management are trained.

  15. paul quigley Says:

    @ BW2

    ‘Yes, by and large the government, guided by the civil service, are doing their best’
    Indeed they are, but their best won’t be nearly good enough. The parties and civil servants are boxed in by their various constituencies and institutional vested interests.
    Cuts without reform is the road to nowhere.

  16. Philip II Says:

    Grumpy
    http://www.youtube.com/watch?v=7Z3-yBlDckY
    may as well enjoy the show coz thats as close as I suspect we will get in Ireland

  17. seafóid Says:

    @ Gavin

    Den scoth

  18. Joseph Ryan Says:

    The exerpt below summarises both the position of subservient Ireland and the equally powerless position of the IMF:

    the authorities have stated that any burden sharing …would be undertaken in consultation with the European authorities.

    The European authorities!

    From an IMF report dealing with Ireland.

  19. Brian Woods II Says:

    @ OMF again

    Ireland has the most sweeping resolution powers in the world under the emergency legislation. The government have made no secret that they want to use those powers to burn Anglo unsecured unguaranteed seniors, the next big payout being in November.

    But they have to have the Troika onside. Conventional wisdom to date has been that the ECB were dead against, the Commission probably the same, but with the IMF supportive. We now see that the IMF support is lukewarm at best. November Anglo seniors look like a good buy to me.

  20. Yields or Bust Says:

    @BWII

    ‘.. Anglo seniors look a good buy to me’

    For the love of God what have we become, it’s now seen as a more profitable venture to bet on the bonds supporting a dead bank that it is to invest in the future of our children’s education and healthcare systems (bad and all as they are).

    How am I seriously meant to explain this to my six year old when she struggles with the fact that her school was deprived of a special needs teacher because the bonds of a dead institution required full repayment instead. In the words of Monty Python – ‘the parrot is dead’.

    No sane person, be they on the right or left of the political or economic divide can justify what’s going on here. Contagion me arse. This is theft by the front door – it so blatant is enough to make me vomit all over JCT.

  21. Joseph Ryan Says:

    @Yield

    This is theft by the front door – it so blatant is enough to make me vomit all over JCT.
    +1

  22. Kevin Donoghue Says:

    @Yields No sane person, be they on the right or left of the political or economic divide can justify what’s going on here.

    I don’t think I’ve ever seen anyone actually try to justify it. The nearest thing we get to a justification is: the ECB has the power, don’t argue, just do what you’re told.

  23. Robert Browne Says:

    @ Gavin Kostick

    + 1
    Indeed, your tale is the blue print!
    Noonan is putting his toe in the water today and regardless of the temperature he should keep going! The crunch, as you say is, when JTC throws his hands to the side then high in the air and says, “you would do this to me for 1bn?” At this point, he needs to more than feign redemption fatigue. He needs to say “Oui” and give one of his famous Jack Nicholas grins. Of course JCT will look at him aghast as if he were “deranged” and the trick is to just turn and stroll away!

  24. Brian Woods II Says:

    @ YoB

    I sympathise.

    But how also do you explain to your six year old daughter that so many foreign nationals stay here even though the work is gone, simply to sponge off the most generous social welfare system in Europe?

    How do you explain why we pay public servants the best wages and pensions in Europe?

    Your daughter is entitled to ask what is the real reason we can’t afford that special needs teacher.

  25. Shay Begorrah Says:

    @Brian Woods II

    But how also do you explain to your six year old daughter that so many foreign nationals stay here even though the work is gone, simply to sponge off the most generous social welfare system in Europe?

    That is a good combination of racist dog whistle and simply wrong you have there Brian.

    http://www.eapn.ie/documents/1_Social%20Welfare%20How%20Ireland%20Compares%20in%20Europe.pdf

    http://www.progressive-economy.ie/2009/07/mythbusters-201-are-social-welfare.html

    Please feel free not to post on the matter again.

  26. Yields or Bust Says:

    @BWII

    Paying billions to risk taking financiers whose horse died on the track is irrelevant to the questions you pose.

    The questions you pose are largely political choices made by Govt – the issue here is a fundamental obstruction to the workings of basic capitalism. No one including you can deny the fact, and it is a fact, that when you place a bet the expectation of a bad outcome is foremost in your mind, or at least it should be.

    What the ECB have done and are continuing to do is to undermine that fundamental creed. The truth of the matter is that not allowing losses to fall where they ought to is the actual contagion – not the other way around. It gives oxygen to the daft notion that you’re proposing here that a dead horse is a better bet than a living one.

    I’m no historian but when in the history of economics can a dead corporate, be more influential and carry more say in how we shape all our futures than a living equivalent? On every level the stance by those supposedly in charge with regards to this issue is flawed, is lacking common sense and personally is deeply hurtful.

  27. seafóid Says:

    JCT has one month left to go. He is very like Franco. Nobody questions him. But Franco eventually died and so did his worldview.

  28. Brian Woods II Says:

    @YoB

    This is of course well worn territory. But let’s take your analogy that these seniors placed a “bet”. What were they betting on?

    Equity holders and junior bondholders are betting on the performance of the bank.

    Depositors and senior bondholders are making a completely different style of bet, if you want to call it that. They are betting that the Irish Regulator is making sure that they will get paid in all foreseeable circumstances. They are betting that even if the bank itself fails the government will feel honour bound to make good its shabby oversight. So far the depositors and the seniors have made a shrewd bet.

  29. Kevin Donoghue Says:

    @BW2

    If the government feels “honour bound to make good its shabby oversight” of Anglo it is remarkably good at disguising the fact. Noonan knows that the ECB has him in the Chuck Colson grip and that’s all there is to it. Anglo bondholders are simply betting that his heart and mind will follow.

    Honour has nothing to do with it. Indeed honour is a concept with little relevance to modern banking, in Ireland or elsewhere. That’s why the industry needs to be drastically pruned, however frantically its defenders seek to divert discussion to other tasks that need attention.

  30. Shay Begorrah Says:

    @Kevin Donoghue on banking

    That’s why the industry needs to be drastically pruned, however frantically its defenders seek to divert discussion to other tasks that need attention.

    Surely you are forgetting the key role that the Croke Park agreement played in the global financial crisis?

  31. Brian Woods II Says:

    @ KD

    Good point. I suppose they didn’t foresee teh ECB factor, they got lucky. Nonetheless rating agencies used to give these bonds top rating partly on the basis that they would be allowed to be defaulted upon by the government.

    I agree honour has nothing to do with it. It is all about credibility.

  32. David O'Donnell Says:

    @seafoid

    You appear to be miss_informed: Franco (similar to Anglo-Irish Bank) is not really dead – he is alive and kicking, living in a walled estate in north county Dublin, and at times is reputed to blog under the pseudo_nom de guerre of BWoods_II

  33. Yields or Bust Says:

    @BWII

    The law may group seniors and deposit holders into one ‘pari parssu’ cohort, but do you really believe that to be an accurate reflection of their original risk taking positions? I know I don’t.

    Ask the normal deposit holder to explain the implications on his floating deposit position if the ECB had cut rates today. Universally I’d safely suggest the vast majority would understand the effect would have been negative.

    Those who look at these things on a daily basis however know that in fact a surprise rate cut would have been a significant boost to capital prices on underlying bonds, particularly longer dated positions for a whole pile of reasons – none that I nor most reading this require explaining. And that’s the critical issue. Those buying bonds and making such bets are in every way not your average deposit holder – in virtually all aspects they represent a more sophisticated investor compared with their deposit holder brethern.

    So in simple terms a more sophisticated investor and a higher expected return relative to vanilla deposit holders translates into a HIGHER risk taking cohort. Higher risk also means a higher probability of losing money – it is not the same probability as those taking a lower risk, otherwise the laws of mathematics need a serious overhaul, which is not a call I’ve recently heard.

    Mixing bonds holders and deposit holders and pretending they are one, is a nonsense. I know you know this to be the case – but you continue to argue about the prowess of bond holders decision making capabilities. In a normal corporate envirnoment this may in fact be the case. In this instance it simply cannot be.

    In Anglos bondholders case a higher risk bet has morphed into a no risk bet, this is patently a nonsense situation where the punters downside has been guaranateed despite the fact that the horse has fallen and died at the first fence, exactly why should the bondholders be expected to be repaid given this actual outcome, regardless of what the Regulators believe. What do you believe?

  34. grumpy Says:

    @bw2

    ” They are betting that the Irish Regulator is making sure that they will get paid in all foreseeable circumstances.”

    Quite a lot of them are just buying whatever is in the index, including the investments made through bond ETFs. They have a really minuscule percentage of their capital at risk to bonds in Anglo or even BOI.

    I wouldn’t have refused to buy SLXX a couple of years ago for example just because it might have had a trivial % investment in AIB. It was trivial and there is always something dodgy in an index based investment anyway. You just take a tick down on the price if something goes large sub-par.

    As for managed portfolio bond investors, erm no. The competent ones would not invest on the basis of betting on the regulator. They are not amateurs. It might suit some of the incompetent bond investors to claim they should have to do nothing more than check a regulator exists before buying bank seniors, as a means of trying to blame someone else for them not doing their job competently, but hey, they would be really dim not to try it on.

    The truth is that the stale bulls bought the bonds because they analysed the prospects for the banks and the Irish economy and concluded there was almost no risk. They fucked up their analysis.

    The hedgies and the distressed bond funds that have been buying more recently are have done so primarily through the correct analysis of Irish and EZ politics, and the correct analysis of the way the Irish side has been out of its depth all along and would be incapable of taking any meaningful initiative.

    @Philip 2

    Which bit do you mean, the determination to pretend inconvenient facts about the state’s history exist, or the determination to pretend we haven’t noticed the adjustment is being disproportionally dumped on the private sector?

  35. grumpy Says:

    ..or don’t exist.

    Actually, I think the willingness to disregard inconvenient facts in the country has contributed meaningfully to the mess that it finds itself in – and there is no sign that this trait will change.

  36. David O'Donnell Says:

    @grumpy

    ‘… there is no sign that this trait will change.’

    Fact. UpperEchleons in Irish Governance have simply circled the wagons – same as it ever was, same as it ever was …: One of the Greatest Bank Heists in World History.

    p.s.
    Blind Biddy would still like the loan of a polaris :lol:

  37. grumpy Says:

    This, of course, is Noonan’s doing – has Trichet on the run you see:

    http://insider.thomsonreuters.com/link.html?cn=share&cid=260559&shareToken=MzozNmI0MmFhZC1jYmU0LTRlYWQtYmI2Zi05Y2IxMDY3ZDFlMjI%3D

    Trichet seems unaware that his proud achievement in keeping inflation low is happening in a deflationary time. Not a hint of irony from him at all.

    I thought the bit about the SMP (including Ireland) being in response to “governments behaving badly” was quite interesting

  38. john o'brien Says:

    @ Shay Begorrah & Brian Woods II

    Re: “…foreign nationals..” etc.
    What about a debate a few of weeks ago, a chap called ‘Sean’ contributed and there were some replies, but I don’t think it got a full treatment:

    http://www.irisheconomy.ie/index.php/2011/07/28/some-cheerful-demographic-statistics/#comments

    ‘sean Says:
    July 29th, 2011 at 9:04 pm

    If someone drives drunk a hundred times and does not crash they are hurting no one.
    If an illegal immigrant works a job and keeps his head down he hurts no one.
    We are supposed to be equal before the law and be responsible in upholding the law even if no one is watching.
    Idealogical extremism, evident in some posters such as Richard Fedigan above ensures that issues of race etc. are used as a battering ram to override the legal and political system when the issue is illegal immigration.
    And extremism is an accurate depiction if a matter of public concern and policy can’t be even alluded to without some people going over to the dark side of human history.

    @Garo.

    The 25% of births to non-nationals comes from this years Census.
    Troll through the figures for work permits on the Department of Enterprise website by Nationality (exclude EU states) and match same up with the totals of PPS numbers (ref: Department of social welfare) issued by nationality, numbers granted refugee status (ref:Department of Justice) and you will find major asymmetry in the figures.

    For example if you take two nationalities Nigerian and Brazilian you will find an extraordinary number of PPS numbers issued as against a tiny number of work permits issued and refugee status granted. The anomalies cant be explained as students because month over month throughout the year ( you would not expect students to enroll in March say) there are steady numbers of PPS numbers issued to these nationalities.
    One possibility is they are producing a huge number of children but that does not explain the high numbers of adult Brazilians and Nigerians.

    Also the final figures from census 2006 show some Non-EU nationals are hugely dependent on social welfare. 35 % of adult Nigerians were then on social welfare out of a population of over 16,000.

    This was evidenced by immigrants rights groups at the time of a danger of intra-generational poverty developing amongst these non nationals.

    @Livonian.

    ”I do accept however that many East Europeans who possess advanced university degrees with very good command of English do not come to Ireland but this is probably due to the fact that they are happpy to take up positions in their own countries”

    These are the type of people who would be most beneficial. So Ireland is excluded by very well educated east europeans as an attractive destination. I think this supports rather than detracts from my assertions.

    We have a rapidly expanding population to match a rapidly contracting economy whose existing infrastructure is under severe strain (hospitals, schools etc.), an unsustainable national debt, a bust banking system and an annual budget deficit which is frightening (over 60% of state revenue is expended on social welfare payments).

    Where is the evidence this type of expanding population is good for our future? ‘

  39. Bond. Eoin Bond... Says:

    Oh excellent, another futile “let’s burn the bondholders” debate. We’ve been thru this on numerous occasions, and I’m sure we’ll end up at the same point again this time – it’d be great and fair in theory, but there’s little or no chance of it happening in practise.

    Re legals – despite Anglo now being a depositless bank, there is still no effective resolution regime in place (here or anywhere) that has been tried and tested thru the courts that can effectively liquidate a banking institution in an orderly manner.

    Re ECB – they’re not going to agree to let us burden share with senior debt, a class of bank funding (note: it’s not capital) that is already on it’s knees across the Eurozone (issuance of senior debt is effectively zero, Eurozone bank funding needs are effectively 175-200bn per month and now dominated by covered bonds which has hard ceilings that will eventually be hit)

  40. Bond. Eoin Bond... Says:

    Whoops, wasn’t finished…

    Re ECB cont – ….not going to allow burden sharing for the relatively (in the bigger context) minor amount of 3.5bn or so, given obvious contagion risks. Is this fair? No. Is this the reality we have been faced with for the last couple of years? Yes, but still we fuss and feud. Better to use the issue of Anglo seniors to get concessions elsewhere, as Noonan suggested happened at the July 21st summit. Better to keep raising it as the trump card in our pocket, even though everyone involved knows we can’t really use it. Better to use it with the ECB to try and restructure the promissory note ala Karl Whelans suggestion and which has also been mentioned by Noonan recently. Better to use it to try and secure some form of term funding facility from the ECB for the Irish banks. Better to use it for lots of far better thought out ideas than most of the usual bunk posted on here about “burning seniors”. Move on people.

  41. The Dork of Cork Says:

    @John
    Think of 1801 / 1992 act of union / maastricht – before that it was a very imperfect but functional country, after a larger wetter Easter Island in the making.

    We are in the 1820s period now , only another 20 years before things really hit the fan me thinks.
    And they will say people never saw it coming…………………..

  42. Yields or Bust Says:

    @Bond.

    With respect – complete horseshit.

    The rate move happened inspite of Noonan it was all about Greece at the time and our rate relative to the others – and the small matter that the ECB having to potentailly intervene to support Italy and Spain were all factors at play. Suggesting that becuase we didn’t burn bondholders bought us the rate cut is pure and utter speculation and without foundation.

    The rate cut was a function of the IMF pressure on the ECB as much as anything else. The IMF had previously indicated that they were open to the bond holders taking a bath.

    No fact is the ECB don’t want this to happen because they fear the floodgates will open. Whilst they recognise its correct and proper to do so. They fear it can’t. I believe they are wrong – and in time the market will eventually find them out – it always does – passing the bad bets onto ciitizens for so called fig leafs which are a fraction of what the write downs would be is not a good enough reason to suggest we simply take it and move on.

  43. Joseph Ryan Says:

    Trichet is looking for congratulations
    from Reuters:
    http://www.reuters.com/article/2011/09/08/us-highlights-trichet-idUSTRE78730V20110908

    “We have delivered price stability… impeccably, impeccably. I would like very much to hear the congratulations for an institution, which has delivered price stability in Germany over 13 years…

    Congratulations for an institution that has presided over the mess that is the European banking system fo a full three years now.
    The ECB has failed miserably.
    1. No attempt to insist on a deposit protection scheme for depositors.
    2. Full on insistence that other large creditors/ bond holders be protected.
    3. No recognition that the interbank system is finished for years to come.
    4. Naive and stupid assumption that the achievement of price stability and reduction of deficits will bring back the interbank system. It won’t.
    5. No attempt to seperate commercial and retail banking, despite a 1930s template from the last great recession.

    Trichet was the right man in the right place to protect the interests of the large French banks.
    That is his principle achievement during this crisis. I am quie certain that French banks will congratulate him.
    Irish people owe this man nothing except contempt.

  44. Bond. Eoin Bond... Says:

    @ YoB

    I’m quoting Noonan on the rate cut. You can call him a liar if you want, but let’s not claim that the theory is one based on either “horseshit, speculation or lack of foundation”. My guess (note, it’s just a guess!) would be it was down to a combination of needing to make debt sustainability a more likely scenario for Ireland (foolishly ignored throughout this mess by Merkel and Sarko) and an issue of rewarding Ireland for being the “good European” by saving it’s banking system and adhering to austerity drives early on and without the prodding required elsewhere.

  45. David O'Donnell Says:

    @The Dork

    What about 1607? IF we are regressing, get your pike in order as we are tooling up for another crack at Kinsale once Blind Biddy gets the nod on the Polaris – then onto the Seine and the Kiel Canal. Oh Happy Days! 100 year promissory notes at 0.001% interest, small write off of at least €50 billion and we will move the Polaris to the Med …

    BTW – when are BoI giving us back that fine building on College Green – BoI has polluted its tradition and heritage … we can surely find some better use for it …. if only on standby for 1801 Revisited …

  46. The Dork of Cork Says:

    @David
    I thought it was 1601 but I could be wrong – I am thinking of moving into Charles Fort to wait this implosion out to be honest.
    The walls are thick enough but maybe its a bit damp.

  47. David O'Donnell Says:

    @The Dork

    1601 was Kinsale I; 1607 was the tactical retreat from Lough Swilly – now that the European walk-about is coming to an end, and tribalism on the rise throughout north africa and the peripheral barbarian territories, the Earls will be returning and setting up HQ on that building on College Green. Once the Brehon Laws have been legitimately re-constituted, the few thousand upper-echelon gurriers and vichy_bank collaborationists and expropriators sent via extraordinary rendition to the Tower of London [by agreement between Patricia the Irish Sovereign_in_Exile and HRH] for immediate dispatch, the International Irish Brigade in situ to command The Pale, then and only then will this ideological asinine tautology of ‘burden-sharing’ be done.

    Blind Biddy sending two banks of dry prime turf to Charles Fort …

  48. Robert Browne Says:

    @ Joseph Ryan

    RTE news … Trichet said. “underlying momentum in the euro zone economy appeared to be dampening.” He blamed this on, “the euro zone debt crisis and weakening global growth.” You don’t say?

    Appeared to be dampening? Well you might sat that since most of the top European banks have seen their share prices collapse by 50% since february. I suppose you could call that “dampening” or you could call it a substantial manifestation of European bank weaknesses including over exposure to sovereign debt. The mind boggles they could not have anticipated this and actually put up interest rates. Can someone also explain this infantile use of “code words” it sounds to me like a bluffers charter. They hide behind weasel words.

    I suppose, this was another “unanimous” decision by the ECB council of governors.

  49. The Dork of Cork Says:

    Touche – Pre Cromwellian Ireland is strange to me – I can’t get my head around the tribalism , must have been a interesting but dangerous place.
    PS was in Bandon the other day and I could have sworn I seen zombies – I saw NOBODY.
    The Pigs are not Protestant down there no more ( Cork Saying) – as even the livestock is thin on the ground.
    Seriously the lack of activity is shocking in our market towns.
    Its neutron bomb economics – the buildings remain but the people are irradiated.

  50. Joseph Ryan Says:

    @Robert Browne

    +1
    They are finally aware of the ‘dampening’.
    The ECB has been completley wrong on two critical occasions.

    July 2008 with a disastrous rate increase.
    Again early 2011 with more increases.
    And economic forecasting is supposed to be their area of expertise.

    The ECB is a failed institution. It is also a rogue institution.
    And Trichet was in the right place at the right time for the French banks.

  51. David O'Donnell Says:

    Transcript of a Conference Call on the Third Review under Extended Fund Facility Arrangement for Ireland

    http://www.imf.org/external/np/tr/2011/tr090711.htm

  52. paul quigley Says:

    @ Dork

    ‘Seriously the lack of activity is shocking in our market towns’

    It’s all a Lidl worrying.

  53. paul quigley Says:

    ‘I am thinking of moving into Charles Fort to wait this implosion out to be honest. The walls are thick enough but maybe its a bit damp’

    Do you still have all those tomes on the Efficient Market Hypothesis or have you burnt them already ?

  54. The Dork of Cork Says:

    @Paul
    Burn them burn them all
    http://www.youtube.com/watch?v=ApDI1UTLcx4

    I have heard from a good source that the Cork fire department will be in serious shortage of manpower soon.
    If Cork burns down again will that rouse the masses or are they too busy with their facebook pages now ?
    Every Irish economist should be screaming about the GNP decline per head.
    JCT : “we will peserve price stability at all costs even it means the destruction of industrial society.”
    Wage Deflation / job reduction is inflation by other means.

  55. Chris Says:

    @ Eoin Bond,
    Please refer to this link re liquating banks in an orderly manner.
    http://www.fdic.gov/bank/individual/failed/banklist.html
    Bascially the in the U.S. over 200 banks have been liquated in an orderly manner, including almost some carbon copies of Anglo. The depositors have been refunded their 250,000 garanteed deposits. The taxpayer has not payed any money.
    In Iceland we had banks liquated, the senior bondholders received an average of 7 cents in the euro.

  56. Chris Says:

    In fact letting failed banks go under is why the States are going to get out of the financial crisis quicker than Europe, despite being in a much worse situation before. The same reason Iceland passed Ireland despite being in a much worse situation before.

    The reason is simple. Ireland, the Eurozone and the U.K. have attemtped to save every bank and bank creditor with taxpayers money, causing austerity and other knock on effects. Meanwhile it hasn’t worked for the banks who still have large skeletons in their closets according to Ms. Lagarde.

    I think the reason for this was best summed up by the presenter of CNBC who suggested that it is all about saving the European upper claases when he said ‘when was the last time you saw someone in Europe move up their social class’

  57. Chris Says:

    http://www.fdic.gov/bank/individual/failed/
    Here is a video explaining the FDIC progam for failed banks. The FDIC is funded by other private banks. We need an FDIC for Europe.

  58. Chris Says:

    and here “general creditors receive little or no recovery”
    http://www.fdic.gov/consumers/banking/facts/priority.html

  59. PR Guy Says:

    @Robert Browne

    re. dampening

    There is a standard vocab. list in the ‘consistency’ guide for EU PR Guys. I daresay words like ‘dampening’ appear in it. I don’t have access to a copy unfortunately. I once tried to seduce an EU PR Girl just to get my hands on a copy I knew she kept on her memory stick but it didn’t work :-(

  60. Joseph Ryan Says:

    @PR GUY

    A stick swop, so to speak.

  61. Kevin Donoghue Says:

    @Eoin Bond: …the usual bunk posted on here about “burning seniors”. Move on people.

    The first commenter to refer to “burning” was BW2. The second was yourself.

    Requiring people who have made losses on lousy investments to take their losses like men is not remotely akin to burning them. That whining, tendentious meme really needs to be phased out. Likewise the notion that Anglo seniors were ever investments for risk-averse people: Sean Fitzpatrick’s senior IOUs — what a load of rubbish.

    And where do you get the notion that comments here should be restricted to policies that the ECB might be prepared to adopt — do you seriously think they are looking to this blog for guidance?

    But go on; do tell us again that it ain’t gonna happen, as if we were idiots who hadn’t figured that out for ourselves.

  62. Ceterisparibus Says:

    @Joseph Ryan
    I watched Trichet deliver his speech and I was amazed to hear him claiming he delivered price stability “in Germany”.
    Was it a simple gaffe or is this how he views his mandate. I’m surprised there is very little comment on this.

  63. Ceterisparibus Says:

    @Kevin
    “But go on; do tell us again that it ain’t gonna happen, as if we were idiots who hadn’t figured that out for ourselves.”
    The bit that I find curious is why did MH or his minions float this at this particular juncture when the bullshit brigade is in full flight telling us how good we are. Just listen to RTE this am.
    Nobody mentions the little matter of how we are going to repay 200-250 billion or is this set to disappear?

  64. Joseph Ryan Says:

    @Ceteris

    Re Trichet on Germany.

    I had noticed that one. He was responding, I believe, to a German reporter (per Arthur Beesly, Ir Times).
    But it was not a gaffe. A freudian slip perhaps.
    If anybody did not know periphery meant up to now, they should listen to that answer from Trichet.

  65. Bond. Eoin Bond... Says:

    @ Chris

    The US is not a good example of how to enforce losses on bank bondholders because of the fairly unique corporate and legal set up of banks there. Usually they are set up as a holding company that owns a federally licensed bank operating company. If a bank gets into trouble, the FDIC does not “liquidate” a bank in the manner we’re talking about re Anglo. It comes in, scoops out the assets and deposit liabilities held in the bank operating company, and transfers them into a new entity or trade buyer. Senior bondholders are left behind in the holding company, as there is no legal obstacle to separating them from the liabilities of the bank operating company. With Anglo the problem is that bonds, deposits (while they were there), derivatives, and other miscellaneous liabilities are all on the same balance sheet and all legally on a par with each other. You can’t just “scoop out” the parts you want to protect like the FDIC do with small vanilla operations. You’d end up with a situation more like Lehmans, which is still being untangled in the courts at the moment 3 years later.

    And as for Iceland “passing Ireland”, they still have capital controls that remain in place, most of the pre-crisis wealth of the country has been destroyed, the only reason they have economic growth now is because (a) they were able to devalue their currency by over 50% and (b) they are selling off vast tracts of land to the Chinese for next to nothing, so I’d be careful about holding the country up as a ‘good’ reason to follow their lead in letting their banks implode in on themselves.

    @ Kevin

    Ugh. My point is that we’re rehashing the exact same arguments that have been discussed on here 50-60 times over the last two years. We’re entering deep law of diminishing marginal return territory at this stage.

  66. Yields or Bust Says:

    @Bond

    Did it ever strike you as odd why we are still rehashing the same arguments 50/60 times over? And importantly did it ever strike you as odd why certain folk feel the way they do? If I may I’ll tell you why.

    1. Right thinking folk believe the answers provided to the 50/60 discussions are a crock of dung – they simply don’t stand up to scrutiny and they want it stopped. Right thinking people believe that ‘ throwing good money after bad, is economically unsound’.

    2. Ordinary folk feel the way they do because it’s potentially robbing their children of a viable future.

    Got it now?

  67. Kevin Donoghue Says:

    Apparently Trichet is as fed up of hearing about this as BEB. Pity about him. When he settles down to be the leading bore of some affluent retirement community, I sincerely hope there is some enraged taxpayer there to bend his ear about the way he and his like caused private debts to be foisted on the public.

    Politics is the slow wearing down of hardened bores, as somebody almost said. If we must bore them too, so be it.

  68. grumpy Says:

    Banks do collapse and they are supposed to – that’s what disciplines people to not feed endless credit to every bank that has a regulator.

    I recall there were at least 5 banks that went under in the UK about twenty years ago and I think the business effectively got sold off and the owners of the capital (that is invested capital as opposed to the narrow definition of “capital” from the bank’s accounts perspective) that was on deposit had to go the the government and be compensated up to the limit at the time.

    B&C was a salutary lesson for those who invest capital in deposits, senior, or junior bank bonds – ie for fund managers. Too many bankers were living in a fantasy world where they got risk free return no matter what the risk. They are doing their best to make that fantasy come true. Greece will be interesting.

    Anglo stank of B&C and BCCI in 2008 to those that recognised the smell. Nobody at the time could believe that Local Authorities lost money when BCCI went down because they did not understand that the very slightly higher interest rate on offer was a risk premium. Nearly twenty years later they were at it again with the Icelandic banks – but this time Gordon the Prudent decided he would be unpopular if anybody lost money.

    History never repeats itself, but there are strong echoes. Does this ring any bells?

    “The Deposit Protection Board, the Bank’s sinking fund for paying out on failed banking institutions, was already in bad health in the wake of B& CMB’s collapse. It has borrowed pounds 50 million from the Bank and there had been fears of a levy on British banks. Now a levy seems a certainty. It could not come at a worse time for big UK banks, most of whom are already reeling from bad-debts, the property crash and the recession.

    The SFO and overseas investigators will be focusing their investigations on the suspicions of Price Waterhouse that too many BCCI loans appeared to be concentrated among a fairly small number of borrowers, many of whom had connections with top BCCI personnel. In addition, there are suspicions that some of these ‘loans’ may have been effectively pre-arranged ‘bad debts’, written off by complicit BCCI officials and thus never repaid.”

  69. Chris Says:

    @Eoin,
    If the EU had an FDIC system like the States then we would be better off. Anglo’s assets would most propably have been acquired by Danske or RBS in 2008, the genral creditors would have lost out and the Irish taxpayer would have been saved the pain. In fact the abcence of a proper Eurozone wide system for dealing with failed banks in a major weakness in the Eurozone.
    I am not a lawyer, however in a bankruptcy there are different priorities for creditors and depositors should come ahead of bondholders in the case of bankruptcy under Irish law.
    Anglo is not as big as Lehmans. Most of the lehmans bondholders had CDS protection, that is what bought down AIG. The CDS sellers now have to chase up the creditors of lehmans. Sure its complicated, that is the reason CDS sellers get paid, they don’t get their insurance premiums for nothing.
    Finally weren’t Anglos deposits already ‘scooped out’ to some one else?’.

  70. Chris Says:

    @Eoin
    International investors and rating agenices think Icelands debt is a safer bet that Irelands. The reason for that is that they did not stick banking debt onto the public balance sheet. Iceland started from a much worse position than Ireland.

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