Giving up a tracker

In articles over the last couple of days, Simon Carswell reports/speculates on the technical discussions that are on-going on the promissory notes question.    See here and here.

From Simon’s reporting, one proposal seems to be along the following lines:  AIB/Permanent TSB would swap their trackers for a long-term government bond.   (There is no magic value creation there; presumably the value of the bond would match the value of the trackers.)   The trackers would be moved to IBRC, where they would be used as collateral for a long-term, low-interest, Government-guaranteed loan from the EFSF/ESM.   (The loan might have to be provided directly to the Government given EFSF/ESM rules.)   The funds would be used to pay off the ELA and the promissory note would be cancelled.   I would guess that the ECB would welcome this, as the promissory note/ELA arrangements have a more than a whiff of monetary financing of a government.   The various swaps would be designed to be “capital neutral” for the various entities involved. 

Of course, this is all speculation, and might not even be one of the multiple options under consideration.   But I think the Government needs to proceed carefully if it is.   For all the criticism of the promissory note/ELA arrangement, stripped of the complexity it amounts to an interest-free loan from the euro-system to the Irish State.   (I say interest free because the Central Bank of Ireland’s profit on the ELA goes to the Exchequer.)    The advantage of restructuring the promissory notes is that it reduces the heavy near-term funding requirements facing the Exchequer.   Such funding requirements will complicate the return to the bond markets.   But any improvement in the funding situation would need to be weighed against any higher ultimate interest rate cost.   (One complicating factor could be the dependability of ongoing ELA.)

Holders are low-interest trackers are told to be wary of giving them up.   The Government needs to be similarly wary in any complex multi-swap deal.   An arrangement that leaves the EFSF/ESM out but extends the maturity of the promissory notes looks preferable. 

67 replies on “Giving up a tracker”

There is a political dimension to this:

It will become increasing difficult for the ECB and the government to justify to the Irish electorate the payment of €3bn+ to the central bank, which then flushes the money down the toilet. That is not sustainable politically.

It would be must easier for the ECB/EU (and our supine government) to insist that we have to repay a loan to the ESM.

@ John McHale,

That’s a complicated set of transactions. Setting aside potential interest savings and moving of trackers, is it fair to summarise the net effect as converting ELA to sovereign debt? (my thinking: the only thing created is new gov debt; the only thing destroyed is the ELA. i.e. does this not just bring the sov debt on to the gov’s balance sheet?).

@John McHale,

Good point and happy to see it being brought up.

As bad as the PN scheme is it should see the majoirty of the 17bn in interest coming back to the State eventually. This point has been missing from mainstream media coverage for weeks (since John McManus wrote an excellent article a month or so about it in the Times).

Most media seem to deem the 17bn in interest to be a net outflow rather than a circular transaction. That said, I would like to hear about the Government on the matter since, as far as I am aware, they have never mentioned that the 17bn in interest would likely come back to the State. Almost suspicious that they have not mentioned this point in an attempt to sugarcoat the overall situation.

@ Ahura

i think you’re basically right – convert amortising 10yr ELA into bullett 30yr sovereign debt. But seeing as ELA is already collateralised by a government guarantee (the PN), isn’t its collateral therefore already government debt?

@Ahura Mazda

The promissory notes are very much on the balance sheet — and indeed part of gross government debt. The promissory note ELA nexus is important because it determines the the actual interest cost to the State. As Karl Whelan and others have pointed out, the interest paid on the promissory notes to IBRC is really a wash in terms of the consolidated balanced sheet — including IBRC — of the State. What really matters is the ultimate interest cost of the ELA. (Of course, the interest rate of the promissory notes does matter in so far as it affects the measured General Government Deficit.) In my view, the big things we need to keep our eye on in any complex deal are: (i) the maturity of the overall debt profile; and (ii) the ultimate interest rate.

I know that all this is enough to make your head ache.

Potentially daft analysis alert!
Could this be because the ECB is concerned that Ireland won’t be able to make the PN repayment at some stage in the future?
So do they think that private households are a better bet than the govt?
And another question – where does the govt get the money to buy the trackers off the banks (or give them that long term bond thingy..)
And another thing. I cannot have my house used as collateral for somebody else’s loan – it does not sound very legal. It infringes my property rights.
End of alert!

@ All Very interesting. Keep an eye on the transfer price of the trackers as well….NAMA II with the taxpayer picking up the bill.

@ John

if we truly believe we are illiquid (ie cashflow) rather than insolvent (ie total debt), then it makes sense to go with the new restructure being suggested, as it pushes cashflow way out, not to mention the discounting/inflation effect.

@ Eureka

“And another thing. I cannot have my house used as collateral for somebody else’s loan”

Eh, covered bonds? Your house isnt being used as collateral, the loan on your house is. Your house is the collateral on that loan.

@John McHale

“As Karl Whelan and others have pointed out, the interest paid on the promissory notes to IBRC is really a wash in terms of the consolidated balanced sheet — including IBRC — of the State”

I’m glad you included IBRC in there, because IBRC depends on the ~8% interest it gets from the government to fund its substantial expenses and substanitial payroll.
Any saving in PN interest paid by the Govt, however restructured, will leave a deficit in the income statement of IBRC, that ‘will have’ ? to be filled.
I’m sure you know this but it has not always been clear in discussion re the PN note.

@ Bond
Look it was clearly flagged as potentially daft. But there’s something about this that seems different.
In the covered bond scenario isn’t my mortgage (contractual agreement) still with the original bank. In this situation isn’t that actual agreement changing. Don’t I have a right on that? Is my mortgage (as opposed strictly my house) not also my property?


I don’t disagree on the maturity question. I suppose my main point is that we have to keep an eye on the interest rate implications as well, and not lose sight of the cheapness of the funding we have on this score at the moment. Just heard Minister Noonan on the News at One. Although it is obvious enough, it was good to hear him say that the ECB have their own interest in restructuring the promissory notes, and eyes would be firmly on ensuring Irish interests are protected.

@ John McHale,

My understanding from a reading of Karl Whelan’s submission to the Oireachtas Finance committee is that the ultimate finance cost to the State (i.e. the ELA which is “burned” on repayment to the CB) is 1%?

I have one more question. When the promissory payments are paid by the State to the IBRC (another State institution) is the IBRC obliged to repay the ELA immediately or can it hold on to it. What I am getting at is: is there a separate repayment schedule for the ELA to the promissory note payment schedule?

It would seem to me that the ELA repayment schedule is much more important than the Promissory note payment schedule since the real cost to the State is the cost of the ELA. The promissory note payment schedule is a cash flow loss to the State and a cashflow gain to the IRBR (i.e. net cashflow for the State = zero).

The last sentence should read: “The promissory note payment schedule is a cash flow loss to the State and a cashflow gain to the IBRC (i.e. net cashflow for the State = zero).”

@ John McHale

A very good post. It seems that care may be required to avoid jumping from the frying pan into the fire.

@ Tim Says

I read that article earlier and I wondered why the author had not pointed out that the Irish CB is part of the European System of Central Banks and it is solely for this reason that it was capable of issuing euros!

Were this not the case, it would not be capable of issuing even wallpaper given the current state of the finances of the Irish goevrnment.

@ BEB Agree with your comments and with John’s “I would guess that the ECB would welcome this, as the promissory note/ELA arrangements have a more than a whiff of monetary financing of a government.” Replacimng the arrangement puts real money in….replacing all those lost deposits!

Beyond the primary liquidity management aspect, obviously the other main feature is to get the trackers off the bank’s balance sheets. I am highly sceptical of the comments which say “The various swaps would be designed to be “capital neutral” for the various entities involved.”. Yes, there will be consolidated neutrality (and opaqueness)…..but valuation risk on the trackers is being moved, out of the banks to get them “fit for purpose” and attractive to 3rd party investors. Everyone knows that the carrying book values of the trackers are a joke…..have not been sufficiently written down. So if book value is used as the basis, the Irish taxpayer will ultimately get stuffed, as we are seeing with NAMA I…..the valuation gap has to go somewhere. It’s going to be tricky for them to get the EFSF people to accept book value as the basis for collateral valuation…

@ Eureka

“In the covered bond scenario isn’t my mortgage (contractual agreement) still with the original bank.”

You are correct about a mortgage remaining on a bank balance sheet via a covered bond, but the mortgage is still collateral that could potentially be seized in the event of default. So i dont see how thats different to this situation.

Secondly, a securitisation is pretty standard and sees the mortgage leave the balance sheet of the bank altogether. The bank just acts as a servicing agent, which could actually end up being the case here as well.

Genuinely, i don’t see any problems here so long as your t&c’s don’t change and you are not worse off.

@ John, BEB Isn’t the credit risk also being shifted to the EFSF /ESM (the existing risk is Irish Govt)? So, yes, that and the collateral valuation point is likely to impact pricing (interest rate)….perhaps to be disguised in the interest rate on the LT liquidity “solution”.

@John Martin

Thanks for the point on the interest rate: In his briefing paper (p. 15), Karl does say:

“Given that the Central Bank is currently paying out interest of 1 percent on both money held in reserve accounts and on Intra-Eurosystem liabilities, this raises the question of what happens to the profits incurred via the estimated 75 basis point spread charged on ELA.

Profits relating to Eurosystem monetary policy operations are shared among the various national central banks. However, as far as I can tell, this is not the case for profits associated with ELA operations. If this is case, then the 75 basis point margin can be remitted at some point by the Central Bank of Ireland back to the Exchequer.

This means that the ultimate interest cost to the Irish state of the ELA funding that is supplied to the IBRC is the main ECB refinancing rate, which is currently one per cent.”

Not being a monetary expert, I must admit that I missed the cost to the CBI given “the Central Bank is currently paying out interest of 1 percent on both money held in reserve accounts and on Intra-Eurosystem liabilities”. Can someone shed additional light — Karl? — on how this works?

However, the basic point about the cheapness of current arrangement compared to even a low cost loan from the EFSF/ESM stands.

@ John McHale / Eoin,

Re gov balance sheet. At present the general media discussion often mentions the possibility of radical action on the ELA/PN debts. If you convert this to government bonds, such options are closed off. Depending on how you view the future, losing the ability to differentiate could be costly.

Re interest rates/payments. I simplify the current PNs ‘interest costs’ as the interest costs on the additional government debt issued to make scheduled payments on PNs. E.G. delaying 3bn payment on PNs by 1yr would save the state the interest costs on 3bn of government debt. I think ,at this stage, it’s accepted that the interest rate on the PNs is a red herring.

So the equation is the (pv) interest costs of sov bonds given (upfront) to AIB/PTSB versus the (pv) of stepped increase of interest costs on national debt to meet scheduled payments on PNs.

oops, it could be good (depending on the details). I forgot that if we assume AIB and PTSB remain state-owned a similar circular arrangement would apply to interest paid to them.

Is there any reason PTSB in particular didn’t fill its boots with 3-year LTRO secured on trackers – 1% money from the ECB to support mortgages paying 2.5% would surely have helped PTSB until 2015, and with a fair wind, the property market and wider economy might be more benign, even robust, by then?

Great to see a largely mature debate on this subject away from “tearing up PNs”, “CBs being bust doesn’t matter” etc.

I am not sure that the point about ELA being interest free. When the CBI gets its ELA repaid it will effectively see its Target 2 debit balance reduce and this does charge interest. However, it is not a huge issue.

It is clear that whatever comes out of this Ireland is going to have to pay all its banking and sovereigning loans. Seems the main point is what will be the interest rate on these loans, how much is ECB 1%/1/75% or how much is EFSF 5%? There is also the issue of what is classified as fiscal deficit? A deferral of PN payments may make it easier to reach that 3% FD requirement.

The other bit that is hard to get your head round is that by moving Tracjers out of AIB etc. makes it more saleable, is that a transfer of value?

@ AM Yes. However, your analsys still appears valid…..there will be an external payment to the EFSF on the (tracker-collateralised) LT facility. What is the likely all-in rate….presumably adjusted for /reduced by the all-in interest flows on the tracker portfolio….for 30 yr bullet Irish sovereign debt (on say Euro 34m) versus the small interest cost (or effectively zero interest cost as per John) on the net annual borrowing to service the PN annual payments?

Sorry, is there any adjustment for interest flows on the tracker collateral? The trackers are supposedly negatively performing?

Complicated alright!

@Brian Woods @John McHale @Jagdip Singh

A further question I have is whether the removal of tracker loans off balance sheet from PTSB, AIB and potentially Bank of Ireland would reduce their LDR’s to the 122.5% targets and if so wouldn’t that mean that the €8 billion of assets which remain to be sold in AIB, the €10 billion of loans in PTSB and the €1.5 billion or so of loans in Bank of Ireland would no longer have to be sold.

Or what am I missing, would the arrival of a long term government bond as replacement for trackers as outlined by @John McHale in his assessment mean that the LDR’s remain the same?

If the Tracker Mortgages are performing loans, why could they not simply be taken off the balance sheet of PTSB, AIB and Bank of Ireland and transferred to IBRC using the CISA 2010 Act and replaced with nothing. Why do assets which are burning holes in the bank need to be replaced if they can be transferred at par value to IBRC in an auction similar to the auction of INBS deposits and NAMA bonds to AIB and PTSB in 2011?

If we could remove €50 billion of loss making loans off balance sheet from the three banks at par value with no capital loss to the bank, because they are performing and then dumped into IBRC, wouldnt that dramtically reduce the LDR’s of all of the banks?

Would this not be a remarkable stroke which could immensly improve the funding postions of all three banks, potentially a much more immediate benefit than restructuring of prom notes as fiscal deficit targets unlikely to changed with or without prom note payments over next 3 years.

Transfer of trackers could actually boost profits of the banks, afford banks to eat more of their capital through taking hits on their mortgage losses and put the banks in a much stronger position to lend into the real economy?

@ John Kennedy

“A further question I have is whether the removal of tracker loans off balance sheet from PTSB, AIB and potentially Bank of Ireland would reduce their LDR’s to the 122.5% targets”

They are, per Irish Times, to be given government bonds or something similar in return – as such, their balance sheet would remain the same. So unless the issue is down to “govt bonds” are different to “loans”, then i don’t think this will help them. But im not 100% on that differentiation issue.

@ Jagdip

i though PTSB had most of its trackers in securitisations already, so already being used at ECB (one would assume)?

What an amazing coincidence. The proposals that the ECB are agreeable to are good for the banks and bad for the citizens and future citizens of Ireland.

@John Mchale
“(I say interest free because the Central Bank of Ireland’s profit on the ELA goes to the Exchequer.)”
I (like Joseph Ryan) thought the Profit on ELA went to IBRC rather than the Exchequer.

I also thought the reason the government haven’t being coming out claiming that the 17 billion was not a circular transaction was because they planned on letting IBRC keep the profits and make their losses look smaller.
@ Karl Whelan
Am I right in assuming this proposal is not at all what you were hoping for?

For a cautionary tale on how bad loan deals can go a lot worse the more you renegotiate them take a look at what Goldman Sacks did to Greece.

@ John Kennedy/BEB

Absolutely, this would dramatically reduce LDRs as reported by Simon Carswell. Government Bonds are not classified as Loans in the LDR AFAIK. I think that’s because they are regarded as liquid and essentially the LDR is about measuring liquidity. But will this government bond be liquid i.e. easily sellable at its par value?

John K, there may be something in what you say but we must be intuitively suspicious of win/win/win situations. Is it all smoke and mirrors?

Accounting conventions also seem important here. PNs had to carry such a high coupon so that they could be given a market value of “par” i.e. they had to compensate for the perceived sovereign risk. But if the sovereign does not default then, as pointed out by others, the high coupons will be superfluous and will allow the government to wind up IBRC early and tear up the remaining PNs. So maybe, unlike PNs, low yielding performing Tracker Mortgages can be recorded at face value, a clear accounting arbitrage.

As always it is difficult to see the substantive as opposed to the apparent wins with all this shifting of the deckchairs.

@Brian Woods II

Thanks for that clarification, well I reckon the transfer of €50 billion of tracker mortages from all of the banks into a wind down bank thus preventing need for further deleveraging in AIB, PTSB, BKIR would be one of the best policy achievements of this government in renegotiating the bailout.

Of course, we’d need to know how many tracker mortgages are performing v’s non performing and then there is always the risk that if Ireland hasn’t sufficiently recovered before ECB interest rates are raised significantly that those trackers could become non-performing pretty quickly.

However assuming vast majority of tracker mortgages are not in arrears given the current low interest rates, and given that we are liable as a state for these loans in any case through our ownership of AIB and PTSB and semi ownership of BKIR, the transfer of these assets to another state entity doesn’t increase our liabilities in any form but what it does do is enable AIB and PTSB have a massively slimmed down balance sheet and similarly if BKIR where to get in on a piece of the action, all three banks would have a lot of capital to deal with their mortgage arrears issues and be in much stronger position to lend thus increasing their capacity and appetite for risk.

If our banks start lending again and no longer have to continue to de-leverage, this clearly will have a very significant impact on the real economy and thus improve the position of the sovereign and improve our capacity to meet our sovereign debt obligations.

A small portion of the assets which have to be sold by the AIB, PTSB and BKIR to meet 2013 deadline are Irish Assets and would likely have to be sold at deep discount which could have detrimental impact on property market in Ireland and equally cause greater capital losses on the bank than may be necessary if they worked out the loans on their balance sheet for a little longer.

I can only see positive things about taking trackers off balance sheets of the banks and can’t see any negatives but happy to hear counter arguments to my dovish assessment of tracker proposals….


im not sure, LDR is really just a rough gauge, dont think it has any regulatory impact, the Troika just picked it as a good headline figure to try and attain as its watched by a lot of market investors (Scandinavian banks have very high LDR’s, but this is due to much larger covered bond holdings, for instance, and they are classed as liquid assets by most regulators i think – this was one of the Scandi complaints about Basle III)

@David G.
Thanks for link. Dr G has answered my question above.
It appears that dodgy pn’s are really not worth the paper they are written on. Has anyone seen these notes? Are they legal and enforceable?

@ John Mc Hale

Re ” An arrangement that leaves the EFSF/ESM out but extends the maturity of the promissory notes looks preferable ”

I note the struggle in John McHale’s piece above to settle on a means to extricate us from the ELA trap set by the ECB to ensure the ECB gets its money back. I note the Stockholm way Noonan speaks of the difficulties faced by the ECB regarding the repayment of the PN’s. I did laugh out loud when I heard Noonan announce that the ECB were also not happy with the Promissory Notes; awaiting the next breath to say a deal was done was instead dashed by the absurd announcement that ECB wished instead to secure a stronger collateralized repayment structure to replace promissory notes. They clearly don’t trust the Irish political system to make good on its word. It appears the more the FG/LB team negotiate, the worse the deal becomes.

If this were the France of Francois Hollande or the Spain of Mariano Rajoy or the Greece of Papandre(i)ou, or the world of Olli Rehn, the European Economics Commissioner, the technical discussions surrounding the matter would already have curtains drawn on the matter. For example, Olli would have said FO politely in terms of Pacta Sunt Servanda (oops, he already said that). Laughably, Irish sources have been unable to get the message stating Olli was just having an off day 🙂

However, whatever method is chosen, its really not up to us to design. Neither do I believe there is any great appreciation in the ECB for our efforts to become involved in the design of such a solution.

So, what’s the answer then?

Our position should be a simple refusal in the manner of Mariano Rajoy, simple ‘no’ to paying it, to pay the unconscionable and odious debt of IBRC.

Thereafter, it is a matter for the Troika, the ECB, the IMF to design the means to provide for this.

I’ve got it clear in my own mind why it shouldn’t be paid. It has to do with Odious Debt and has nothing whatsoever to do with Pacta Sunt Servanda. Any rebuttal of this can be referred to International Bank for Settlements

For Odious Debt, more here:

@ BK In principle, it is of course possible for Ireland to “recapitalise” /deleverage the banks by transferring out the assets (trackers) at a favourable valuation (as was partially done via NAMA). However, that would of course blow away Sovereign Ireland’s balance sheet, etc….How then does Ireland perform to its Austerity Programme, etc.? In that sense, the formal National Accounts (used for official performance measurement) are a bit contrived in any event.

Presumably, the disposal programme would still have to be implemented, just not by the banks.

In return for Ireland Inc’s assumption of the risk /downside, at what price should these banks subsequently be offloaded to 3rd party investors? Presumablly this is also part of the overall plan.

Re ” AIB/Permanent TSB would swap their trackers for a long-term government bond. ”

Finally, we get a proposal for something like an ENRON toxic OTC.

Bundle a load of toxic subprime mortgage debt trackers that nobody would touch with a barge pole, except negotiators of the calibre of LB/FG, to whom you can sell it in the form of a long term government bond they can stick taxpayers with…….!

Sell it to them and tell them they are back in the bond market 🙂

not exactly a ‘tracker’ … merely a ‘track’

just to get into the mood for an ECB bulletin …. after Dear Lorenzon in the FT and his note on a 2nd Irish ‘loan’ ….

Tune of the Month – released on the Ides of March




I am not sure whether you are querying my definition of the LDR or its interpretation. For clarity, from AIB’s 2010 Annual Report, total balance sheet was 145, loans to customers were 86 and customer accounts were 52 with an LDR of 86/52=165%. Clearly if Tracker Mortgages are removed from the 86 and replaced by government bonds which definitely are not counted as loans to customers, the LDR falls dramatically.

@ John K

I am not sure removing Tracker Mortgages shrinks a bank’s balance sheet as these will be replaced with government bonds. Shrinkage would only happen if these bonds could be sold to pay off depositors and bondholders.

@ All

What we do not want to happen is for the PN payments to be deferred and for the government to have the same access to the bail out fund. That simply translates as continuing primary deficits at a silly level.

The government would love this as it puts off that dreadful day when they really do have to apply austerity by way of reduced public service pay and pensions, reduced social protection and increased income and property taxation.

So far all we have had from this government in the way of austerity is a €100 household charge and a promised crackdown on social welfare fraud.

@Brian Woods II
The goverment could only apply austerity if it had divorced itself from credit deposits and their “assets” – thats not a complicated idea to get your head around Brian.
For example the Dole money pays down internal debt most effiecently.
This debate illustrates the central problem – the functionaries running this kip consider finance capital a end in itself and not a mere utility.
The wealth withen these assets is no more – its gone….. kaput – these desperate attempts to save a banjaxed financial system is not dealing with the physical economy breakdown.
Deferring rational / sustainable physical capital formation to sustain a stock of credit money is criminal.
How much human & physical capital must we depreciate before this activity ceases ?

Presumably also the PN arrangement was written subject to Irish law, but that the EFSF LT facility will be some other law?, emphasising even less flexibility going forward.

sorry Dork, as usual I find your posts above my pay grade despite your touching confidence that I would be able to “get my head around it”

Under EFSF collateral arrangements, is delivery of physical collateral envisaged /optional in satisfaction of obligations (e.g. when default or credit event is triggered) or is the collateral in effect overcollateral of Irish Govt debt obligations? So many different pricing factors are possible. Unless great detail is given, it will likely be very difficult /impossible to see the trees from the wood re pricing on the LT facility in any event.

The transfer of CRE loan assets to NAMA at favourable values (to the banks) has resulted in the current very difficult market situation where a.o. there isn’t sufficient Govt. capital available to cover remaining asset valuation gaps to facilitate sufficient level of asset disposals at market prices. The Bid /Ask has been completely distorted. The valuation of the transfer of the Trackers is therefore an equally important item, given some of the numbers quoted above.

Hang on- this would replace the PN’s which are of arguable state debt nature, wth actual real loans from the Exx which would be of INarguable state debt nature. Doesnt seem like a good idea to do that.

“It seems the ECB want “stronger collateral” on the promissory notes….”

The ECB already has Ireland by the ‘collaterals’. They seem intent on continuing to squeeze!

LBS is back in full voice. But he is now singing to the tune of a different master. With a track record like his at the ECB, you need to be able to whistle lots of tunes.

Its simple stuff – I am not trying to be patronising or obtuse.

Especially without capital controls the Dole stays inside – the guy goes to the pub , buys bread & butter , plays lotto or something.
Some of that money pays back a mortgage somewhere – lets say a shoppkeeper gets a few bob from him – he has a mortgage – he pays off the mortgage……..
Very little credit money is being produced because the assets of the banks are virtually worthless – but you need money tokens for commerce to continue – otherwise we go back to barter.
But so what – the assets were fictitious anyway – what gives goverment money its value is the productivity of its country but we don’t have a national currency – its a currency for the banks “assets” by the banks.
Hence the forthcoming ban of new money production as if extreme limits on its production was not bad enough……..

Anyway “You go in the cage , cage go in the water , shark go near the cage………….”

@Kevin Donoghue

“We may be getting new evidence on the burning question: are the guys who run the ECB evil or merely stupid?”

Incredible. There really is only one answer to these people.
Do not pay one red cent.
I do not go along with the ‘error’ suggested.
This is clearly a deliberate and provocative removal of Ireland from the list.

I hope RTE ring up Prof Honohan and ask him to comment before the nine o’clock news.

Well of course they want stronger collateral. The (real) credit risk is to be shifted to the EFSF from the PNs (Irish Govt). That will certainly cost.

In cleaning up the banks’ residential property tracker loan books, they are in danger of making the same mistakes as they made with the Irish CRE market, which is completely stuck – going nowhere soon (for the foreseeable future!).

The quote from Karl above: “as far as I can tell, this is not the case for profits associated with ELA operations. If this is case, then the 75 basis point margin can be remitted at some point by the Central Bank of Ireland back to the Exchequer.” Why is it so difficult to get clarity on this (political nonsense aside)?

@Kevin Donoghue

ECB are now reporting the matter as an IT error. A new database.
I do not believe one word of it. Ireland was being sent a message.
A rather crude one.
The explanation given is not adequate.

@Joseph Ryan

Who knows? The eagerness of the CBI to endorse the ‘IT’ story might indicate that somebody in Dublin screwed up. Shit happens.

But I suspect a Frankfurt IT nerd would have spotted something amiss if the ‘n/a’ was Austria or Finland. ‘Peripheral’ describes Ireland pretty well. What pisses me off is that we don’t factor that into our own policy-making and take advantage of the flexibility it gives us. We could go our own way more than we do, without threatening any vital interests.

final off thread …

Picture of the Month – and a must_read

Luxembourg Prime Minister Jean-Claude Juncker (right) with Spain’s Economy Minister Luis de Guindos at the finance ministers’ meeting on Monday: Despite recent progress, the euro crisis isn’t over yet.

The other euro-zone governments have at most a few more months, perhaps only a few weeks, before the situation in Greece worsens again. They must use this time to make clear that Greece is the exception within the euro zone, not the rule. The other euro states must quickly arrive at a point at which the fate of Greece simply isn’t relevant for the future of the euro — which of course doesn’t mean that the Greeks should be left to their fate.

That means that Portugal, Spain and Italy, the three other problem countries in the south of the euro zone, must perform the magic trick of stimulating growth while reducing their budget deficits. That can only succeed with a lot of pragmatism — austerity without growth is as pointless as growth without austerity.

That pragmatism also means that the other European finance ministers should keep calm in reaction to the news that Spain has revised up its projected 2012 budget deficit to 5.8 percent from a previously forecast 4.4 percent. Spain, too, is in a deep recession. It is an impressive feat even to have reduced new borrowing at all — in 2011, Spain’s budget deficit was 8.5 percent of GDP.,1518,821404,00.html “congratulations Iceland. We can only hope even one other country had the testicular fortitude to follow in your footsteps and realize that all hollow threats of mutual assured destruction if one dares to turn their back on the banking supercabal, are just that. Hollow.”

Problem with Ireland’s strategy appears to be the absence of “testicular fortitute”. For Icelanders and their Scandinavian cousins, eating reindeer, etc testicles keeps them warm through the winter.

GeneMarchbanks: “Huge Balls Iceland. Stone cold icey balled Scandanavians.”

@ John McHale 12:48

Re ” I know that all this is enough to make your head ache. ”

I think most of us have a grasp of simple Math that makes these matters comprehensible. The math of interest repayments on government bonds vs similar on compound interest rates on an indexed mortgage, for example, is easily grasped. Alas, some of the players would rather the math re Government debt be consigned to ‘complicated obscurity the subject of technical negotiations protected by rules of commercial sensitivity’. But the Math of ¢3.1 bn repayments annually for next 12 yrs and further repayment beyond that to the tune of ¢47 bn is simple to understand. Its even easier to grasp the concept of odious debt and making a determination not to repay the penalty of interest and principal on Irish taxpayers. To prevent decisive action and run for cover under the sway of banking interests with a pro ECB agenda, its easier to persuade the public that simple matters such as the above, are too complex for the public to understand ! Its not working though, those emigrating and the general public know whose interests are being served; these are those of the banks, the Troika, the ECB, the current political crew of the Mary Celeste.

In light of the forthcoming referendum in particular, in my view the following [again] needs a serious public discussion on its own…I don’t have control over that here. However:-

Is the current Irish Govt strategy correct?

As per Mickey Hickey on another thread:
“As long as our school teacher and the biis keep on acting as one would, expect there is not going to be a scintilla of fear instilled in our creditors or their governments……No fear, no bargaining power. As to the morality, respectability and reputation aspects…if it was moral for our government to bail out the debtors of privately owned failed banks and other financial institutions, then dooming the country to twenty years of poverty is also moral. To me it is very plain that what our gov’t did was a perversion of all that is right and to continue on the wrong course is to rub salt on the wounds. Even worse it is a grievous mortal sin, where are the parish priests on the pulpits now when we need them.”

CB above: “Its not working though, those emigrating and the general public know whose interests are being served; these are those of the banks, the Troika, the ECB, the current political crew of the Mary Celeste.”

Timely to revisit still relevant parts of Morgan Kelly’s article in May 2011:

“a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed……..Lending to an insolvent state, which has no hope of reducing its debt enough to borrow in markets again, breaches the most fundamental rule of the IMF, and a heated debate continues there over the legality of the Irish deal.

Irish insolvency is now less a matter of economics than of arithmetic. If everything goes according to plan, as it always does, Ireland’s government debt will top €190 billion by 2014, with another €45 billion in Nama and €35 billion in bank recapitalisation, for a total of €270 billion, plus whatever losses the Irish Central Bank has made on its emergency lending. Subtracting off the likely value of the banks and Nama assets, Namawinelake (by far the best source on the Irish economy) reckons our final debt will be about €220 billion, and I think it will be closer to €250 billion, but these differences are immaterial: either way we are talking of a Government debt that is more than €120,000 per worker, or 60 per cent larger than GNP.

…..Ireland is so far into the red zone that marginal changes in the bailout terms can make no difference: we are going to be in the Hudson.

….While the ECB does not want to rescue the Irish banks, it cannot let them collapse either and start a wave of panic that sweeps across Europe. So, every time one of you expresses your approval of the Irish banks by moving your savings to a foreign-owned bank, the Irish bank goes and replaces your money with emergency borrowing from the ECB or the Irish Central Bank.

…….At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe.”


Are people here /in Ireland willing to really debate the related, personal, uncomfortable (more moral, yes) topics for Official Ireland:

Again, as per Morgan Kelly in May 2011: “However, our current slump is not temporary: Ireland bet everything that house prices would rise forever, and lost. To borrow so that senior civil servants like me can continue to enjoy salaries twice as much as our European counterparts makes no sense, macroeconomic or otherwise.”

Where is Ireland’s moral courage and backbone on this aspect? Nothing much has changed in the last year. How can the Irish negotiating position be credible in light of this kind of thing?

“Stupid Irish.We will get our money back.”

@ Paul W: “Are people here /in Ireland willing to really debate the related, personal, uncomfortable (more moral, yes) topics for Official Ireland:”

No. I have formed the opinion that the majority are either ignorant (of the actual facts), or are confused or in the case of those who do understand, they have tried but have annoyed their listeners to the point that they no longer wish to engage.

The Boucher situation is obscene in the darkest Orwellian sense. But its merely a public one. The unseen are there.

““However, our current slump is not temporary:” I accept this as fact – for somewhat different reasons to MK. Long, nasty and brutish. But folk do not want to listen to reason – just pap and sentiment. But if its morality (catholic version, not the human one) you seek – just mention Pregnancy Termination. The Croziered will appear so fast that your head would spin. Their abject sielnce in the face of the misery being caused by this economic regression is so shameful it beggers description.

JC got up the noses of two groups of social looters: the bankers and the religious elite. And see what happend to him!

Nah. This can’t possibly fly with the ECB. If we replace IBRC’s PNs with TMs the result will be a much longer dependence on ELA. It would be as if on rewind the CBI had printed a stack of dosh and given it out to punters on Tracker Mortgages. I don’t need a Dork to tell me that is not sound money.

@ PAul W 3:16am

+ 1

“Instead, Honohan seemed unperturbed by the possible scale of bank losses, repeatedly insisting that they were “manageable”. Like most Irish economists of his generation, he appeared to believe that Ireland was still the export-driven powerhouse of the 1990s, rather than the credit-fuelled Ponzi scheme it had become since 2000; and the banking crisis no worse than the, largely manufactured, government budget crisis of the late 1980s.”

Full link to Kelly article here:

I think the above is a key concept:

In Ireland, our growth was predicated on an unsustainable economic model based on a property bubble. That economic model has gone.

We do not have an economic model sufficiently viable to drive growth. We do have through austerity a model that will cut ‘growth’ of the Ponzi bubble , drive emigration and unemployment, lead to higher taxes and charges.

But these abstemious behaviours have already been scuttled by the Troika and the ECB simply because money raised by such measures gets exported out to pay interest on debt, eg the ¢3.1 PN repayment end of March.

You don’t have to be Archimedes to understand when liquidity from a bucket of milk is scooped out of the the bucket, it gets quickly empty, if there are no property booming cows to fill it.

Debt write down through default is inevitable. We should leave the euro project, it too is in terminable decline; leaving sooner rather than later will be easier. We should be optimistic that a lot of growth has been achieved in Ireland over the past 20 yrs notwithstanding terrible error; cutting our losses now and rebuilding a viable alternative to the ludicrous euromess state we’re in, is something useful to give our minds to, rather than delusory ‘Compact’ annexation in some principality
of the ECB and Deutschbank 🙂

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