The Pro-Note Deal: Monday Analysis

This post was written by Philip Lane

Wolfgang Munchau (crediting Karl Whelan) here.

Donal Donovan here.

John McManus here.

63 Responses to “The Pro-Note Deal: Monday Analysis”

  1. John Corcoran Says:

    Extract from “The Fitzpatrick Tapes”(Tom Lyons and Brian Carey)
    Chapter 7 “Massacre” page 123

    ” Our exposure is not to the building it’s to the money that comes from the leasing of it. If the value of the property goes down it doesn’t matter we still get our loan repaid” Fitzpatrick was nothing if not consistent in this ,one of his core philosophies.

    If you examine Fitzpatrick’s core philosophy-if the property was worth zero, it didn’t matter because he wasn’t lending against the properties,he was lending against the feudal leases.
    Ruinous Irish commercial property lease law i.e.upward-only rent reviews tied to long leases,say 25/35 years with no break clauses,were only available in Ireland.No other eurozone country,or any other country in the world allowed this ruinous lease law. These feudal leases were imposed on all Irish commercial tenants because the sovereign had signed them for the corrupt politicians donors/bagmen. No other sovereign in the world would sign these feudal leases and waste billions of it’s citizens resources.

    This is the real Anglo Irish Bank story–systemic political corruption. Follow the Ansbacher men,follow the money ,it always leads to Leinster House.

  2. OMF Says:

    Wolfgang Munchau’s article:

    This is monetary financing for all intents and purposes. The whole structure of this agreement is so convoluted that newspapers do not report all the relevant details.

    Mission accomplished.

    In this case, the purpose of obfuscation would be to hide what would otherwise be a contradictory message. You cannot admit publicly in the creditor countries that monetary financing is taking place – this is sacrilege.

    Not that I ever thought that the German’s wouldn’t consider this MF, but yeah, OK, when statements this blunt get published in FT editorials the jig is pretty much up.

    There is a plan to reduced Irish debt. It is not a great plan, but it is better than nothing and may well save the state from bankruptcy. But there is no deal.

    I see a lot of cheering and whooping from Ireland, anglophone countries, and economic commentators. I hear little from europe in general and there has been a deafening silence from Germany in particular.

    The impending decision of the Bundesbank hangs like the Sword of Damocles over this “deal”. The government’s plans could end up being guillotined even as Kenny and co. revel in their success. In the absence of surety; sobriety , caution, and a continuing political offensive in europe are in order if this deal is not to end up being torpedoed by an unseen U-boat.

  3. Michael Hennigan - Finfacts Says:

    It looks that the switch off of the Anglo respirator was needed to muddy the appearance of monetary financing.

    Such moves are often required in effective diplomacy.

    It may seem convoluted but there were less wildcards involved than trying to devise an enterprise policy that works.

    China begins the Year of the Black Water Snake as the world’s leading goods trading nation.

    In 1793, the emperor rejected the request of a British delegation led by George Macartney, an Anglo-Irishman, to open diplomatic relations with the British.

    Emperor Qianlong in a letter to King George III said: “we possess all things. I set no value on objects strange or ingenious, and I have no use for your country’s manufactures.”

    More than two centuries later, the UK remains on a slow boat to China.

    Stephen King, HSBC’s chief economist, said last week that “The old world has yet to catch the China express with US exports a mere 0.7% of its GDP to China and the UK’s GDP exposure to China barely a rounding error.”

    http://www.finfacts.ie/irishfinancenews/article_1025560.shtml

    All we need is a tiny percentage of this huge market, the armchair experts say! It seems so obvious!

  4. Michael Hennigan - Finfacts Says:

    @ OMF

    So the Bundesbank opposed the OMT bond-buying program and scuttled it???

  5. Peter Stapleton Says:

    At least it takes our minds off the rugby!

  6. David O'Donnell Says:

    @Wolfgang Munchau

    Minor point:

    … of Ireland’s so-called promissory notes would not set a precedent for “sovereign” debt laundering.’ [emphasis added]

    Anglo_Irish and INBS is NOT ’sovereign’ debt - It is ‘Financial System’ debt loaded onto the Irish Citizenry without their consent.

  7. David O'Donnell Says:

    @Donal Donovan

    ‘… Whatever about the sense of “historic injustice” involved, ,,,,

    There is nothing “historic” about the present and the future injustice involved as this state’s governing echelon succumbs to the flawed logic of Lorenzo Bini-Smaghi.

    @John McManus

    ‘… Anglo Irish Bank had to die so that Ireland could be free.’

    Minor point:

    Anglo_Irish & INBS are NOT ‘dead’ - merely reincarnated in the ICB and NAMA - as for freedom - The Irish Citizenry remain chained to their odios debt loads in servitude into the future.

  8. OMF Says:

    @Michael Hennigan

    So the Bundesbank opposed the OMT bond-buying program and scuttled it???

    I don’t know. Neither does anyone else. They wanted three weeks to consider the deal and God only knows what they will say at the end of it.

    According to Pat Leahy in the SBP, DoF officials “in the know” are “howling in laughter” at the likes of myself, Eddie Hobbs, and others who remain perplexed at Draighi’s “taken note” comment. The DoF boys are well in the loop you see, and are well able to read the signs and portents and cyrpic codes of the powers that be in banking — just like they’ve been reading them for the last ten years.

    Presumably someone has also read the signs from the Bundesbank and divined its intentions as well. I’m divining a lot a from the banks repatriation of its gold reserves and I can’t say it portends well. Maybe I’m just not a clever as all the sharp pencils at the DoF.

  9. Michael Hennigan - Finfacts Says:

    @ OMF

    The OMT ‘whatever it takes’ bond-buying program makes the PNs look like Noddy’s playtime by comparison.

    Jens Weidmann was faced down on that issue and would likely have made trouble already on the PN issue but he would look foolish being the perennial Dr. No of the governing council.

    I guess that he doesn’t wish to end up as chairman of UBS?

  10. DOCM Says:

    The articles by Donal Donovan and John McManus are very useful contributions . Unfortunately, the same cannot be said of that by Munchau whose arguments seem increasingly circular. The solution to the PNs is unique to Ireland because they were unique to Ireland. The exercise is most unlikely to be repeated.

    I agree also with the view of MH that the PN issue may have loomed large in the debate in Ireland but is of little significance compared to OMT and the other actions by Draghi which are turning the ECB into a de facto LOLR i.e introducing an opening to eventual debt mutualisation by the backdoor. If anything, the action on the PNs helps reverse this trend which, one assumes, is what enabled Asmussen to win the argument among German policymakers; and the vital nod from Merkel.

    The euro is figuring more and more in the German electoral campaign and the debate getting ever more bitter, the secretary-general of the CSU (the junior Bavarian partner of the CDU) accusing Steinbrueck of disloyalty and failing to defend German interests (!). This helps explain the internal political tug-of-war going on in respect of Cyprus.

    The outcome there is, however, unlikely to meet the expectations of those persuaded by Munchau’s argument.

  11. grumpy Says:

    @OMF

    “According to Pat Leahy in the SBP, DoF officials “in the know” are “howling in laughter” at the likes of myself, Eddie Hobbs, and others who remain perplexed at Draighi’s “taken note” comment. ”

    Could you give us a direct quote from that article please?

    Honohan seems to me to be a fairly straight and honourable guy. I would guess that if he says something it is very likely to be true.

    The question of the details of the agreement or understanding or commitment about what is meant by ‘financial stability’ in the context of the CBI’s holding the bonds is very pertinent to the impression investors should take from the deal (by the way, I think you can assume there was a deal - probably without the core representatives actually boxing themselves in, that’s what the lack of veto amounts to).

    The Central Bank should be telling everyone exactly the same thing - this is price sensitive information. If “people in the know” are leaking information about price sensitive information beyond what the central bank or government have announced then it becomes a regulatory matter. All investors should have access to this information at the same time.

    @docm

    “OMT and the other actions by Draghi which are turning the ECB into a de facto LOLR i.e introducing an opening to eventual debt mutualisation by the backdoor.”

    Not sure I get this. OMT is purchase of short end by ECB. It’s conditional on a ‘programme’. If ECB buys debt and this and/or its commitment to do so suppresses yields it makes funding artificially cheap, but the debt stays debt of the issuing state. Would you mind sketching out the backdoor to mutalisation theme on this?

  12. grumpy Says:

    Depositors have reason to trust Cypriot banks more than they did Irish ones… or is it as simple as that?

    Anyway, Cyprus is resisting the idea of senior bank creditor bail-ins in line with the Irish approach.

    http://ftalphaville.ft.com/2013/02/11/1381222/cyprus-doesnt-want-a-radical-rescue-thankyouverymuch/

  13. David O'Donnell Says:

    @Michael Hennigan

    The present chairman of UBS was strongly in favour of senior bondholders in Irish banks taking a write down - he resigned in protest at taken-for-granted rules of capitalism being usuped by the ’save the bondholder’ clique.

    @Axel Weber

    Blind Biddy says: Hi! Let’s do Oktober Fest together this year .. and drink to Angela’s demise!

  14. David O'Donnell Says:

    Vatican:
    The renunciation
    11 February 2013 Il Fatto Quotidiano Rome

    http://www.presseurop.eu/en/content/cartoon/3393481-renunciation

  15. David O'Donnell Says:

    Orseterity cont.

    Horsemeat found in British supermarkets ‘may be donkey’

    http://www.independent.co.uk/news/uk/home-news/horsemeat-found-in-british-supermarkets-may-be-donkey-8489030.html

  16. David O'Donnell Says:

    Meanwhile - anything but PNs - Back at the Bundestag

    Carnival Climax: Germany Goes Crazy at Rose Monday Parades now that all BondHolders have been paid.

    http://www.spiegel.de/international/zeitgeist/german-carnival-peaks-with-rose-monday-processions-a-882716.html

  17. DOCM Says:

    @ grumpy

    I can lay no claim whatsoever to expertise in the technical area but I may have some understanding of the political and institutional context. As Colm McCarthy has repeatedly pointed out, we are talking about a currency union rather than a single currency. The distinction is, as I understand it, that the risks of participation stay with the participants in the first instance but there is an accepted joint responsibility in the second. It is clear that the institutional foundations for the currency union are faulty. There is no political appetite for publicly recognising this. What has happened instead as that there has been a gradual institutional movement towards a middle position. Munchau identifies it rather well in the following extract.

    “In an ideal world, there would be a political deal on bank resolution and deposit insurance, a eurozone bond, and on economic adjustment. Back on earth, the ECB is all we have.”

    The Bundesbank is doing its utmost to tip the scales back. Luckily for euro, it is headed by an unusually short-sighted individual at the moment cf.

    http://www.ft.com/intl/cms/s/0/5bef28f4-7471-11e2-b323-00144feabdc0.html#axzz2KcUyeY4c

    It is worth noting that both Asmussen and Weidmann might be described, if I am not mistaken, as Merkel protegés.

    The more the majority of voices in the currency union recognise that some sharing of risk is essential, the more there is a move towards a genuine single currency. The markets do not know which we to hop and who can blame them.

    Like anyone else following these issues, I have great respect for the journalists of the FT. But a considerable degree of caution is necessary, it seems to me, when considering the editorial line adopted by newspapers intimately linked with the dominant centres in international finance.

    As to Cyprus, it epitomises the struggle going on between the two viewpoints. This side of the German elections, the currency union is going to win.

  18. paul quigley Says:

    @ grumpy

    ‘If “people in the know” are leaking information about price sensitive information beyond what the central bank or government have announced then it becomes a regulatory matter.’

    Our previous regulatory environment has been a joke. But that was in the 16th century…oh wait, it was only a couple of years ago. No one in authoirty now was even born then…well not exactly….

  19. DOCM Says:

    @ grumpy

    By the way, on the issue of an entire nation waiting with bated breath to be “taken note” of, the appropriate phrase is “a wink is as good as a nod”. But this only applies to those intimately involved. Those reportedly laughing may have overlooked this.

    This is no way to run a railroad or even a corner shop for that matter. Ensuring that the country does not get itself into a similar situation in the future simply has to be the absolute priority.

  20. David O'Donnell Says:

    Are Ireland and Portugal Out of the Woods?
    February 11, 2013, Yanis Varoufakis

    The ECB’s recent announcement of its agreement on the conversion of Ireland’s promissory notes into long term bonds concludes this deal: The Irish taxpayer will continue to be burdened with huge, unsustainable long term debts taken out by bankers who are now defunct and who should never been backed by the Irish state. Austerity-driven self-perpetuating recession, and the resulting stalled recovery, will remain the order of the day. The fact, however, that Ireland’s sovereign debt is unsustainable and that its largely self-inflicted austerity has failed will, from now on, be hidden behind an OMT-created façade. The troika will continue to be the effective government of Ireland and the Irish state will continue, just as it has been since September 2010, to require the direct interventions of the ECB in order to maintain its ‘market access’. All that has changed is the rhetoric, which now rewards Dublin with the Pyrrhic victory of claiming, with a little more self-confidence, that “it is not Greece”.

    http://www.irishleftreview.org/2013/02/11/ireland-portugal-woods/

    A Must Read

  21. David O'Donnell Says:

    & Finally - The Take from The Communist Party of Ireland

    Debt Deal: Smoke and Mirrors, Bluff and Spin
    February 11, 2013, Communist Party of Ireland,

    This is not a deal that will change anything in real terms to the lives of hundreds of thousands of Irish families now struggle to keep a roof over their heads or put food on the table.

    As we have pointed out for some time the Irish internal troika (Fianna Fáil, Fine Gael and Labour) representing the Irish economic elites, has been and continues to be committed to paying this odious debt no matter what the cost to the people. They see no other role for themselves other than as junior partners to the imperialist powers, witness their constant declarations of loyalty to the European Union.

    They are happy to sacrifice the nation’s sovereignty to the interests of the capitalist class to the elites of our society. The government is blatantly seeking to buy time, not a solution to the nation’s debt. This deal serves the international finance houses, not the Irish people.

    http://www.irishleftreview.org/2013/02/11/debt-deal-smoke-mirrors-bluff-spin/

    Read on:

    Nite …

  22. tullmcadoo Says:

    DOCM,

    I presume there is a right way to run a railroad. What way would that be? Would it be to leak sensitive details of a delicate diploamtic negotaition with the intention of scuppering the deal? Is the best way to run a rail road to accept everything that is offered from the centre w/out question?

    The jury is out on this deal. It seems to be cleverly constructed and carefully put together and worth the effort. I do wonder what we would have got had we sent somebody as erudite and well connected as yourself in to negotiate on our behalf?

  23. DOCM Says:

    @ TMD

    You manage to miss the point and add a gratuitous ad hominem comment for good measure. If you have bothered to read other posts, you will know that I have no quibbles with regard to the negotiated deal. What I was adverting to was the situation in which the Irish media and the public in general were hanging on every word from the head of the ECB and did not understand a word that he was saying. If you view this situation to have been satisfactory, you may be in a minority although, of course, I have no way of knowing.

    @ All

    FYI

    Reuters reports on the outcome of the meeting of the Euro Group.

    http://www.reuters.com/article/2013/02/11/us-eurogroup-idUSBRE91A0WZ20130211

    The reference to Ireland and Portugal is of particular interest.

  24. Mickey Hickey Says:

    @O’Donnell

    In the past the scandals related to donkey meat were reported in the Times and the Telegraph. Donkey meat served as venison in Pall Mall clubs. You do a disservice to donkeys when you grind them up and put them in cheap hamburgers.

  25. Michael Hennigan - Finfacts Says:

    @ David O’Donnell

    @Axel Weber

    Blind Biddy says: Hi! Let’s do Oktober Fest together this year .. and drink to Angela’s demise!

    My understanding is that Weber and Merkel had similar views on bail-ins after the ESM would became operational.

    Both said in 2010:

    “We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers,” Merkel said.

    “Next time there is a problem, (bondholders) should be part of the solution rather than part of the problem. So far the only ones who have paid for the solution are the taxpayers,” Weber said.

    His main beef with ECB colleagues was on bond buying in the secondary markets and a proposal that the predecessor to the ESM, the EFSF (European Financial Stability Facility) should buy bonds.

    “The European Union mustn’t become a transfer union,” Weber said, saying that the tendency of all support measures was to put extra burdens on the taxpayers of other countries in the Eurozone.

    Weber said that the discipline of market forces on governments could be increased by incorporating into all bonds issued after 2013 clauses that automatically put back the repayment date if the issuer gets into trouble.

    @ All

    Some good news from Portugal…

    Portugal reports ex-European Union exports jumped 19.8% in 2012

    http://www.finfacts.ie/irishfinancenews/article_1025569.shtml

  26. DOCM Says:

    @ MH

    Your comment on Portugal is very pertinent cf. last sentence of comment by Donal Donovan.

    “This pact only addresses about half of the bank-related debt of €64 billion. Talks will proceed on the other half (relating to AIB and Bank of Ireland) throughout 2013. There may also be the possibility of improving the terms on the EFSF loans used to bail out the regular budget.”

    This would also apply in the case of Portugal.

    Given the availability of information from widely diverse international media sources, it is remarkable that the media coverage in Ireland is so lacking in coherence, a fact that the public appear to be well aware of (if the IT poll results published today are any guide).

  27. Gavin Kostick Says:

    Fintan O’Toole comes out against:

    ‘Debt deal is normalising the Irish freak show’

    “This misshapen troll [the PN] was an uncomfortable presence, a rebuke to morality, decency and even to the rules of capitalism. What had to be done was to make it “normal”, to dress it up in respectable clothes, teach it some table manners and polite conversation and bring it into the realm of the ordinary, the mundane, the unremarkable. And this is what last week’s deal was all about: grand larceny on an almost unimaginable scale has been transformed into a plain, boring old fact. The hideous ogre of the promissory note is now to be banal, ho-hum sovereign debt.”

    http://www.irishtimes.com/newspaper/opinion/2013/0212/1224329948276.html

  28. bazza Says:

    The more I think about this deal, the queasier I become.

    The major unknown is the right that the ECB has retained to force the Government to sell the bonds. They say they will do this if it does not endanger financial stability. However financial stability is not the same as a fair and sustainable debt burden for the Irish taxpayer.

    The schedule of bond sales is key to this deal.
    - At one extreme, if the CBI never sold the bonds, then this would amount to pure monetary financing.
    - At the other extreme, if all the bonds were sold now, then this would amount to a full and final immediate payment of the total Promissory Note principal, which is far worse that the original PN payment schedule.

    So now the schedule has been calibrated to deliver savings of about 5bn. Although I think a better deal could have been achieved by simply defaulting on the PNs, it is arguable that this 5bn is a cashing in of the fact that the PN were de facto junior to, and more risky than, the sovereign bonds that replaced it.

    However, any shortening of the schedule of sale would vapourise any value that this deal has delivered. Therefore it is vitally important that it is crystal clear and well understood how and when this could ever happen.

    JMcH says that an advantage of the new deal is that the ELA does not have to be reapproved every 2 weeks. But the ECB would never have pulled the plug on the ELA, otherwise there would have been a very real danger it got none of its money bank.

    Instead of the supposed guantlet running that was the ELA, we have given the ECB a very real and subtle mechanism for inflicting direct pain on the taxpayer. In fact, it seems the Irish state is going to be at the mercy of ECB until about 2030. Who know what the next ECB President or the one after that will be like. Worse, we have virtually no say in choosing the next President.

    I think this point is very much underplayed and needs to be made crystal clear. I think it is time to send a question to the MoF.

  29. Shay Begorrah Says:

    It’s blogometrics time again. These are the figures for the last thirty posts on the Irish Economy.

    There have been about 576805 characters posted (excluding quotes from other posters), the total number of posts was 843 and the mean length of a post was 684 characters.

    The top author contributed about one eighth of all content to the blog and more than one tenth of all postings.

    Posts [ chars ] [ avg len] [Author/ECB Shill/Agent of the financial sector]
    [ 90 ] [ 72121 ] [ 801 ] ‘DOCM’
    [ 84 ] [ 30429 ] [ 362 ] ‘David O’Donnell’
    [ 41 ] [ 16358 ] [ 409 ] ’seafoid’
    [ 36 ] [ 32695 ] [ 908 ] ‘Bryan G’
    [ 35 ] [ 36292 ] [ 1036 ] ‘bazza’
    [ 34 ] [ 30456 ] [ 865 ] ‘grumpy’
    [ 32 ] [ 35570 ] [ 1111 ] ‘Michael Hennigan - Finfacts’
    [ 28 ] [ 25811 ] [ 921 ] ‘John Corcoran’
    [ 27 ] [ 17332 ] [ 641 ] ‘Aisling’
    [ 26 ] [ 15703 ] [ 603 ] ‘Paul W’
    [ 25 ] [ 7184 ] [ 239 ] ‘Tullmcadoo’
    [ 23 ] [ 20899 ] [ 908 ] ‘Joseph Ryan’
    [ 22 ] [ 8439 ] [ 383 ] ‘Eureka’
    [ 21 ] [ 10308 ] [ 490 ] ‘Brian Woods II’
    [ 20 ] [ 9533 ] [ 476 ] ‘Fiatluxjnr’
    [ 19 ] [ 12917 ] [ 679 ] ‘OMF’
    [ 17 ] [ 16072 ] [ 945 ] ‘Gavin Kostick’
    [ 14 ] [ 11044 ] [ 788 ] ‘Shay Begorrah’
    [ 14 ] [ 21250 ] [ 1248 ] ‘Mickey Hickey’
    [ 13 ] [ 1267 ] [ 97 ] ‘unknown’

    Perhaps some of the traffic might be moved to eu-neoliberal-astroturfing.ie or epp-pr.eu?

  30. John Gallaher Says:

    @Shay aw man,I upped my posting input too.Incorrectly I had assumed that I was blocked on the CoCo thread and took my toys away…it was “hamsters” so apologies to “Seamus” for alluding or inferring that he had any role in it.
    Have cut back on the mau waui in the evenings……
    I enjoy the range of views on here,DOCF provides a valuable counter view point to what otherwise would be a quite boring and one sided discussion.
    He’s never “obnoxious” like I am,provides links and is it quite engaging,polite and can be witty……starting to look a little mean spirited at this point.
    In other news Karl W has provided a new spreadsheet and interesting analysis at his web site and Forbes….Aisling worth a read specifically the legality or otherwise viz a viz Artlicle 123!

  31. Shay Begorrah Says:

    This is mousewheel time for anyone not interested in Astroturfing.

    @John Gallaher

    I upped my posting input too

    Your contributions still seem pretty sparse compared to the top offenders.

    As an exercise why not go over the blog’s number one contributor’s posts and see how many of them appear to be an attempt either to change the subject or dismiss it as irrelevant (if the topic is macroeconomics or EU economic performance, for example) and how many are merely repeating neoliberal cant whenever the Irish government or European authorities fold and do something that supports unrepentant financial capitalists at the expense of social democracy.

    Try the following google search:

    site:irisheconomy.ie fiscal multiplier

    Check out this exemplary post:

    http://www.irisheconomy.ie/index.php/2012/11/11/box-15-stand-alone-pdf-and-data-spreadsheet/#comment-349239

    As to why it should bother you at all, well, you would have to go all the way back to the 2003 invasion of Iraq for that. Do you like being played?

  32. John Gallaher Says:

    @Shay I assume most readers of this blog have formulated their own opinions of how and why the ’system’ works or does not.
    Its hardly ‘hearts and minds’ that are at play here,no amount of linking by DOCM is going change most peoples opinions,should I cancel my subs to the WSJ and FT,because i dont agree with their editorial policy ?
    As regards getting played,I’m in a very fortunate postion,I don’t live in Ireland can post under my own name,and dont give a damm whether people agree with me or not.Ireland,is tiny in comparison and the few courageous souls that post under their own names often come in for the most amount of abuse.
    Again,from my own perspective,DOCM always engages,I have no issues/problems with his views,he’s entitled to them and defends them well often with a wry comment or two.
    As an aside and no more than that I have a FT and WSJ sub and read them every morning so a lot of the links are ‘old’ for me but others may have missed them.

    I have come across some fantastic papers on here and think its a fantastic resource,regards.

  33. John Gallaher Says:

    Hearts and Minds may be a bit ‘yank’,how did it all go so wrong,now I’m an apologist for ‘DOCM’……have i been ‘captured’ or perhaps suffering Stockholm Syndrome….need get out more.
    Shay the numbers are quite compelling as are your links…..perhaps DOCM will answer,its not like he/they are ’shy’ about posting :)

    http://www.foreignpolicy.com/articles/2009/08/13/a_bright_shining_slogan

  34. DOCM Says:

    @ John Gallaher

    Thanks for some of your comments. I normally never bother with this kind of stuff. Anyone who engages in ad hominem comments is, by definition, a troll. Anyone, especially someone blogging under a pseudonym, who appoints himseld vigilante of another’s blog is much worse. He is indulging in cyber-bullying. Bullies never made any impression on me and are not about to do so now.

    Such activity is, of course, the ruination of many lightly moderated blogs. There is no obvious answer.

  35. John Gallaher Says:

    @DOCM oh look i have a 2.00 meeting….i will take my leave from here.
    Well done for answering,many would not and again from my own perspective keep up the posts and links,truly not bothered by them at all.
    Shay over to you guys,but perhaps some of the other commentators may like to post their opinions,no not you Tull or DOD!

  36. DOCM Says:

    @ John Gallaher

    Have a good meeting. By the way, I have a subscription to the FT.

  37. John Gallaher Says:

    @DOCM figured me too….anyway heres a simply excellent paper from Karl W.
    I strongly disagree on the treatment of the interest under the now torn up PN’s.It was my ‘view’ that the old “Anglo” was relying on the spread to run off its book.
    If the ‘interest’ was a pass tru-then the Minister could have told “Anglo’ to make a distribution to its shareholders,you guys….
    A bit esoteric but in calculating the ‘new’ savings not sure if the positive interest spread that was enjoyed should be ignored,still a great paper and spreadsheet.And I’m probably wrong here again………….bit curious that in the year ‘Anglo’ got no interest under the PN’s…voila they closed and we dont get a peek at their numbers.
    http://blogs.forbes.com/karlwhelan/

  38. DOCM Says:

    @ JG

    An interesting comment by Karl Whelan. However, the deed has been done and a book could be written - as the owner of this blog has pointed out - about the process by which it came about and its likely ramifications.

    The EA has other fish to fry and these may include Ireland in the immediate future in terms of the possible easing of the terms of the existing budgetary loans in parallel with Portugal and in line with what was agreed in respect of Greece. (I am basing this comment on what the new chairman of the Euro Group has had to say).

    The possibility of ESM recapitalisation is clearly for the future and in no circumstances can any white smoke be anticipated before the German elections. However, the enormity of the debt being carried by the Irish taxpayer relative to what others have to bear is such that any agreement, in my opinion, must include some element of retroactivity. Probably as grudging a deal as in the case of the PNs.

  39. John Gallaher Says:

    @DOCM are you trying change topics..again…just having some fun.
    Gosh,the savings just keeps getting BIGGER and BIGGER-reminds me of that great line in The Guards where the yank cop typically overstates the amount of drugs.

    “Sergeant Gerry Boyle: You lads always announce seizure of drugs worth a street value at $10 million or $20 million or half a billion dollars. I wonder what street it is you’re buying your cocaine on, because it’s not the same street as I’m buying my cocaine on.”

    No idea where the FT came up with this….an FT link too to cheer you up!

    “By swapping the notes for low interest rate government bonds – held by the Central Bank of Ireland – with maturities of up to 40 years, Dublin has cut its borrowing requirements by €20bn over the next decade.”

    http://www.ft.com/intl/cms/s/0/e5252e50-7509-11e2-8bc7-00144feabdc0.html#axzz2KcfdlP9x

  40. DOCM Says:

    @ JG

    Not at all! I find the post mortem on the PNs a bit of a bore, to be frank. There is definitely a considerable saving but it is dependent on so many variables that it is impossible to establish what it is.

    On the other half of the Irish banking debt - about €25 billion - the German finance minister has gone public on what the limit for possible ESM banking intervention might be; €80 billion!

    http://www.spiegel.de/wirtschaft/soziales/esm-hilfen-schaeuble-will-banken-hoechstens-80-milliarden-euro-geben-a-882989.html

    Another aspect to the current European scenario is the agreement achieved on the long-term budget 2014-2020. While the overall budget has been reduced, Germany’s net contribution will increase by about one billion a year, a fact that the German media are now reporting but which Merkel was not shouting from the rooftops. The main beneficiaries are Spain and Italy. In short, a considerable effort is being made to steady the euro ship.

  41. DOCM Says:

    @ JG

    I will bet you another you FT article.

    http://www.ft.com/intl/cms/s/0/e14a8ac0-743f-11e2-a27c-00144feabdc0.html

    Notably;

    “The eurozone crisis is played out on three different levels – financial, economic and political – each of which affects the others. The financial terrors have clearly lessened since Mr Draghi promised to do “whatever it takes” to save the euro. The ECB’s pledge to make potentially “unlimited” purchases of sovereign bonds acted as a benign confidence trick – just making the promise has so far ensured that it has not had to be kept. ”

    “Damning with faint praise” would be the kindest description.

  42. John Gallaher Says:

    @DOCM thanks for the links,working through them.
    Trying track down a recent paper by the pre-eminent expert on rating agencies,its been widely referenced over here.
    Standars and Poor’s is subject to quite a few lawsuits,somewhat ironic that so much is being made of a possible ratings change,when the ‘word’ is they may not be around !
    “The administration is asking “in excess of $5 billion” in penalties from S&P, an amount it says reflects the losses caused by the erroneous ratings. Law professor Jeffrey Manns of George Washington University notes that the top three ratings agencies (S&P, Moody’s and Fitch) provide 96 percent of all ratings. A $5 billion penalty might put S&P’s parent company, McGraw-Hill, into bankruptcy and force S&P to close.”

    http://www.washingtonpost.com/opinions/robert-samuelson-the-vendetta-against-sandp/2013/02/10/e811820c-7226-11e2-8b8d-e0b59a1b8e2a_story.html

    One their analysts got himself in trouble by utilizing The Talking Heads song Burning Down The House…quite funny but..a little OTT.
    Agree with you on the PN’s,it is actually a way better deal than most expected…the view over here on Ireland Inc. is very very positive…i dont agree but hey you can still make money as a momentum investor-cause the fundamentals are off the charts and not in a positive way…..

  43. David O'Donnell Says:

    @DOCM

    ‘… I find the post mortem on the PNs a bit of a bore, to be frank. There is definitely a considerable saving …’

    There is NO saving - the Citizenry is landed with paying every single cent of this ODIOUS ~30 BILLION debt - no matter how much you spin or play this FACT it remains a FACT.

    The Take from The Communist Party of Ireland

    Debt Deal: Smoke and Mirrors, Bluff and Spin
    February 11, 2013, Communist Party of Ireland,

    This is not a deal that will change anything in real terms to the lives of hundreds of thousands of Irish families now struggle to keep a roof over their heads or put food on the table.

    As we have pointed out for some time the Irish internal troika (Fianna Fáil, Fine Gael and Labour) representing the Irish economic elites, has been and continues to be committed to paying this odious debt no matter what the cost to the people. They see no other role for themselves other than as junior partners to the imperialist powers, witness their constant declarations of loyalty to the European Union.

    They are happy to sacrifice the nation’s sovereignty to the interests of the capitalist class to the elites of our society. The government is blatantly seeking to buy time, not a solution to the nation’s debt. This deal serves the international finance houses, not the Irish people.

    http://www.irishleftreview.org/2013/02/11/debt-deal-smoke-mirrors-bluff-spin/

  44. grumpy Says:

    @Shay B

    You are coming across a tad thought-policey I think.

    Gavin Kostick above has linked to a Fintan O’Toole opinion piece in one of the country’s national newspapers. Docm’s europhile and non-left-wing contributions on a slightly wonky economics blog are likely to have a tiny fraction of the impact on public opinion that the emissions of media darlings/controllers like Fintan have - and in any case, gauging the impact is only relevant if you are convinced he has a hidden agenda. I’m not.

    You’ve previously taken aim at John McH who has more or less retreated to spend his time somewhere more agreeable and other people moaning at Karl W drew his contributions to an end.

    This is an interesting blog for political economy nerds and thats all it is. It is to the Irish political process like a flea to a buffalo.

    I find Docm a useful source of intelligent info from a particular perspective.

    If you compare the content of this blog with that from 18 months or 2 yrs ago you will note a lot of the pro-default type contributions and their authors have disappeared which is not surprising given recent history and Irish bond yields. Its not exciting and dramatic these days and the high water mark of popular interest in Irish economic debate has probably been and gone.

    If David O’D throws in the towel it really will be capitulation of the bears and time to don the tin hats.

  45. John Gallaher Says:

    @DOD,Hi David……lower bond/gilts yields are GOOD for Ireland-there is no appetiate among the voters or political class for the type of radial society/structural reform required or desired by some people.
    Its just not gonna happen in my lifetime.
    Most people i speak with back ‘home’ are tired/broke/worn out or planning on emigrating.Assuming,the current course politically/economically is followed then recent events are good news.Does not mean one has to agree but i think the desire for major change/radical reform is passing…just look at FF numbers OMG.

    “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”
    “Ragin Cajun”/James Carville…

  46. Gavin Kostick Says:

    @ grumpy

    Seeing as I got a mention there, can I ask for your take on the PN deal? I value your opinion.

    I would also value the opinion of Seafoid if he’s reading.

    I’d value those as I think I can make a pretty educated guess as to where other regular bloggers stand - but please chip in.

    On the bigger picture, I actually think that the horseburgers issue is a very good lightning rod for the free-marketeers versus the social democrats.

    Without wishing to start a nit-picky row, I think the @DOCM statement “I find the post mortem on the PNs a bit of a bore, to be frank” really quite remarkable considering the sheer quantity of posts, pre, during and post the deal.

  47. Joseph Ryan Says:

    @Gavin

    Powerful stuff from Fintan O’Toole that you linked to above. It is hard to disagree with him. He mentions the word surrender. I see it a little differently. It is simply the signing of peace terms. But a peace that will not endure. The deal is to be welcomed. It gives Ireland the breathing space to recover sufficiently so that this country can rid itself entirely of the aggressors.

    Ireland was subjected to an Act of War in the imposition of those debts, if not in 2008, then certainly in 2010.
    The PN deal is the best that can be got at present, while the aggressor still has all the power.

    The PN battle is now over. The war to rid Ireland of Europe has just begun.

  48. paul quigley Says:

    @ grumpy

    ‘If you compare the content of this blog with that from 18 months or 2 yrs ago you will note a lot of the pro-default type contributions and their authors have disappeared which is not surprising given recent history and Irish bond yields. Its not exciting and dramatic these days and the high water mark of popular interest in Irish economic debate has probably been and gone.’

    So what happened to John the Optimist ? Of course there has been a lot of fancy financial engineering, but the fundmentals of Ireland, and Europe, are pretty suspect. Asset prices, stock markets, banks and sovereign debt are being propped up but the real economy is in dire trouble. The 34,000 who emigrated have ceased to believe in the chat about ‘recovery’, and it’s a fair bet that the haemorrage in this decade will top the 30s, 50s and 80s.

    There is, for the nth time, no work down the country. My guess is that every provincial crossroads will be riddled with heroin addiction before this shambles is over, because the drugs trade thrives on meaningles and despair. The burglaries and muggings should provide plenty of excitement, because the jails are already bulging and the treatment services are patchy to say the least.

    I don’t agree with all of Fintan O’Toole’s views, but to call him a ‘media controller’ in circumstances where we have the likes of O’Reilly and O’Brien is irrational. He is, IMHO, a cultured man, who expresses many of the tendencies, insights, ambivalences and confusions of the Irish Times readership , and the Dublin or Irish middle classes more generally. As the US general supposedly said in Vietnam, ‘I have seen the enemy and it is us’.

    FWIW, I think this blog is actually fairly important to the Irish political process, and hopefully we will see that in action when the Dr Draghi and his fellow sorcerers have run out of party tricks. You can fool some of the people……

    http://www.creditwritedowns.com/2013/02/european-banking-union-looks-weak.html

  49. David O'Donnell Says:

    @Gavin

    DOCM’s statement ‘I find the post mortem on the PNs a bit of a bore, to be frank …’

    is simpy of one his/her (DOCM) regular devices used to shift the discussion away from anything which might upset the Lorenzo Bini Smaghi ideology which his numerous contributions strongly suggest he/she supports.

  50. grumpy Says:

    @Gavin

    On the detail I’ve suggested the non-obvious point to focus on is the central bank’s holding period as it affects the value of the deal and is a potential candidate for an intra-ECB political football in a game between hard and soft money wings. It looks vague and ambiguous.

    I’d suggest you take the NPV calculations of 4bn with a generous pinch of seasoning. The 1bn cash flow gain is more reliable, but there is a cost in having let the other parties off the tail risk of PN weirdness and in terms of having used up some political capital in the core and possibly among ELA banned periphery states - which may affect the ESM negotiations. There may be a minus on the ESM deal to deduct from the plus on the PN deal.

    I’d also suggest key to kicking off said game of football is the question of monetary financing.

    I find the excitement odd. For many months it has been clear there would be a deal on the PNs, not least because the ECB didn’t like their existence and nobody at all had any incentive to do other than assist Ireland (presentationally, the Austerity Poster Boy) towards bond market rehabilitation. Seasoned observers expected this to fall way short of PN write offs - more likely a grudging accommodation. That’s what occurred, the last minute drama really did the government a favour in damping down public expectations and even suckering some opponents int getting cocky that there would be no deal of any sort.

    I think some holders of Irish gilts were prepared to be relaxed about another delay to the deal - because the assumption is that deals are likely to occur whenever a cooperative state might drift towards possible sovereign bond default, if an excuse can be found. In the bank guarantee Ireland has such excuses. In other words, bond holders’ interests will be protected.

    This is separate to the ESM and retrospective bailing-out of Irish banks - which is what the government actually made all that song and dance about last summer, when they thought Spain was going to get its banking liabilities taken on by the ESM.

    If I were a mercenary advising the government on economic PR, I would suggest they all pipe down about that in public, and try to cement in the public consciousness the understandable assumption that the thing last summer and Enda’s tangle was all about getting the PN deal, but without actually saying it.

    @Paul Q

    Fintan as media controller was meant to refer to his ability to lob in an opinion piece in a national newspaper or get whatever media exposure he likes, more or less whenever he likes - in contrast to Docm, who probably hasn’t even got a twitter account.

  51. grumpy Says:

    That s/b ‘PN banned’ not ‘ELA banned’ btw.

  52. Shay Begorrah Says:

    @grumpy

    You are coming across a tad thought-policey I think.

    It is friendly community thought policing though, and it is to deal with widespread ideological vandalism that has made the neighborhood a very ugly place.

    Do you not think that when one poster contributes twice as much text as the next most frequent contributor that a little naming and shaming might be in order? I think my first two posts above make a good case for the prosecution and that pausing to examine the pattern of the uber-posters contributions suggests that many of them are intended to distract from the matter being discussed rather than contribute to the debate (see Gavin Kostick and DoD above). There has been some pretty natty rhetorical misdirection going on.

    By all means lets have a pro-ECB neoliberal posting here frequently - even being the top poster, but not at the expense of coherent threads.

    If you compare the content of this blog with that from 18 months or 2 yrs ago you will note a lot of the pro-default type contributions and their authors have disappeared which is not surprising given recent history and Irish bond yields. Its not exciting and dramatic these days and the high water mark of popular interest in Irish economic debate has probably been and gone.

    Well, the two most important questions have been answered.

    Question one was how would the losses of the European component of the global financial crisis be allocated?

    The answer was that the citizens of each European state are expected to underwrite the private financial enterprises operating in their countries with the creditor states both recovering all their monies and benefiting from cross border capital flows and lower financing costs in any financial crisis. (Colm McCarthy’s talk at the recent conference on Asmussen’s plans to neuter pan-EU banking regulation and resolution was “EU policy making for Deutsche” writ large)

    Question two was whether the austerians/hard money sect or the reality based community was more influential in setting European economic policy?

    The answer was Merkel and Osborn by way of the Fiscal Compact. Not a good answer by any standards and the comparative economic performance, particularly as regards unemployment, of the Eurozone/UK versus the US or the non Eurozone EU lets you know all you need to about the victory of conservative dogma over liberal pragmatism.

    If David O’D throws in the towel it really will be capitulation of the bears and time to don the tin hats.

    The policy of the dominant national and institutional players in the EU was to gradually cut off options for defaulting on private financial debts and Ireland did capitulate in the end (DoD never will), though the terms could have been worse.

    The ECB and the creditor states have undoubtedly played a good game and Ireland and the other peripherals played a bad one. I think the history books will say that the EU approach to the European component of the global financial crisis was to protect the well being of the states least affected at the expense of the states worst affected. Not terribly progressive or hopeful but thats the new EU for you.

    As Joseph Ryan suggests there may a period of shamed quiet of a defeated people suing for peace, and being glad that the destruction was not worse.

    Then again 1916 looked like defeat too.

  53. Gavin Kostick Says:

    @ grumpy, et al

    Thanks for the informed discussion above. Onwards and upwards.

  54. John Corcoran Says:

    Who regulates the regulators?

  55. David O'Donnell Says:

    @Michael Hennigan

    Ta for update on Axel Weber.

    @John Gallagher

    There is more to life than figs on the bond market! Beware of capture.

    @Shay

    90 BILLION LARCENY REMAINS 90 BILLION LARCENY NO MATTER HOW IT IS SPUN. The Irish Citizenry has been ’screwed’ and sold out twice in the period 2008-2013 by it own Governing Echelon and continuously by the ECB and the modern equivalent of the ‘German Ideology’. This blog has its own equivalent to Lorenzo Bini-Smaghi … and no shortage of them in the Governing Class which protects itself at the expense of the lumpen citizenry.

    Last week will go down in the ANNALS as one of the greatest and most cowardly defeats in Irish History - more so as the terms were written by the Irish Vichy class.

  56. David O'Donnell Says:

    “But not only was sovereign debt restructuring abandoned, governments were forced to assume debt they never signed on to. What is the principle that requires the Irish taxpayer to honour the debts of a rogue bank? The promissory notes deal must not be judged by the relief it provides to the Irish budget; the right benchmark for its achievement is the debt obligations that live on. Why were Irish repayments not reduced further?” [A. Mody]

    What is the principle that requires the Irish taxpayer to honour the debts of a rogue bank?

    What is the principle that requires the Irish taxpayer to honour the debts of a rogue bank?

    Principle?

    Ashoka Mody was the IMF’s mission chief to Ireland and is now Charles and Marie Robertson visiting professor of international economic policy at the Woodrow Wilson school, Princeton University.

    READ IT AND WEEP - THEN FIGHT!

    @all

    Such clarity from an outsider. No spin. Ruthless facts. Welcome.

    http://www.irishtimes.com/newspaper/opinion/2013/0213/1224329979599.html

  57. John Gallaher Says:

    @DOD-capture you assuming anyone wants me-i kinda march to my own drummer even over here.After a ‘lifetime’ in “FIRE’ i pretty much have seen/experienced the good the bad and the ugly…
    Great update from Karl W. new spreadsheet to have fun with too,agrees with grumpy’s analysis but worth a read for PN junkies like myself.

  58. David O'Donnell Says:

    Ta I’ll check out The Jolly Professor!

  59. John Gallaher Says:

    @DOD in summary any benefits subject to future negotiations and the averaging in strategy pursued-but who gets to ‘call’ this is the question and on what terms/conditions.

  60. David O'Donnell Says:

    Karl Whelan on the PN Deal

    http://www.forbes.com/sites/karlwhelan/2013/02/11/irelands-promissory-note-deal/

    His position has shifted … towards the establishmentarian line

  61. John Gallaher Says:

    @DOD this would appear to be the major change..

    “The spreadsheet shows that this faster pace of sales would undo nearly all the gains associated with minimum-sales scenario. In addition to requiring the Irish public sector to find buyers over the next decade for €25 billion in long-dated Irish notes carrying coupons with modest spreads (a funding requirement not so different from what would have been required with the promissory notes) the net present value gain from the new arrangement falls from 34.4 percent to 6.1 percent.”

  62. David O'Donnell Says:

    John - turning PNs inot Sov bonds legalises Grand Larceny.

  63. John Gallaher Says:

    @David no argument from me on that,makes it all the more important and vital to fully understand and comprehend the ‘deal’…very little coverage/discussion off Karl W. revised numbers-they important.

    Just finishing this,its very well done,RTE has reported on the findings,pg 22 onwards Ireland.A little off topic but good read.

    “Caritas Europa is proud to present this comprehensive, timely and in-depth study on the impacts of the economic crisis and austerity policies on the European Union’s most vulnerable people.”

    “It is notable that along with Cyprus, Ireland is the only
    European country where within the last year the greatest
    impact of financial distress in households has been seen in the
    lower income quartiles rather than the upper quartile
    (European Commission, 2012, p.29).”

    http://static.rasset.ie/documents/news/caritascrisis-report.pdf

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