Toxic Debt Scare

Teams of economists have detected traces of bank-debt DNA in samples of Irish sovereign debt in portfolios all over Europe. Genuine Irish sovereign debt is believed safe for humans but bank debt is toxic. The economists believe that as much as 30% of all Irish sovereign debt is not genuine. The source of the contamination appears to be a premises in Frankfurt, Germany. The contamination dates from 2010, when a sovereign debt knackering plant was run from the premises by a Monsieur Trichet, a French national. It is alleged that he gathered up large quantities of toxic bank debt and mixed it up with genuine sovereign debt in the middle of the night, when nobody was looking.


There is no licensing or supervision of sovereign debt knackerers at European level and it is understood that the Frankfurt plant was staffed by people with no previous experience in the trade. Genuine debt from several other European countries was processed through the Frankfurt plant in 2010 and 2011 and may also have been infected. The plant, which claims to be the only sovereign debt processing facility in Europe, is now run by a Signor Draghi, an Italian. Monsieur Trichet has retired from sovereign debt knackering and has commenced a new career in the aviation business.    


The Irish Department of Finance has been seeking to return the infected sovereign debt to the Frankfurt plant with a view to removing the toxic component. They are afraid that retailers might remove the sovereign debt from their shelves. Signor Draghi has promised to do his best, but one of his assistants, Herr Weidmann, a German, believes that the toxic bank debt is harmless, and that anyway nobody will notice. He is refusing to operate the decontamination equipment.

148 replies on “Toxic Debt Scare”

Too many people on “filet mignon steak” in Ireland…..Don’t eat burgers (only for the “little people”). Until Ireland addresses “fiscal obeisity” in the ranks of its elites, why should our N. European brethren pay for dinner?

By the way, with recession in Germany, France, the Netherlands, etc, fat chance of unilateral “charity” for Ireland. Speaking with a senior Dutch financial guy yesterday, the Dutch don’t give a toss that Ireland is aggrieved about its 30% odious debt…they have enough day-to-day problems right now. As I indicated in an earlier thread, just like the Irish “haves” in turn don’t give a toss about their “have nots”. If you want debt forgiveness, you take it…not ask for it.

That should read “fat chance of unilateral “charity” for Ireland beyond the charity and welfare already given.”

and “If you want debt forgiveness, you take it…not ask for it.” But there are consequences, so let’s not BS about that.

Still, there are positives commercially happening for Ireland in the wings at present. With a fair wind, that should help. Being conservative by nature (via painful history), most living in Ireland clearly don’t want any more uncertainty and are happy to have some form of lifeboat (some far more leaky than others). So be it, although there are consequences this way also, so let’s not BS about that either.

If the horse meat had been supplied by banks you would have consumers being blamed for eating the burgers in the first place.

Thank god some industries are not banks. Financialism will ruin Europe.

Further investigation reveals that the Irish authorities were adamant about the quality of Irish bank debt even when wholesalers were dumping the stuff as toxic. They blamed it on short sellers, possibly located in Romania, who were trying to undermine the Irish brand for personal gain.

Thanks for that, very enjoyable. You should look up the German for ‘debt knackering plant’ and submit it to Der Spiegel. It might get a laugh over there.

Come to think of it, humour might broaden the reach of the cause more generally, considering the national diplomatic begging offensive hasn’t paid off sufficiently yet.

Shocking revelations of the involvement of the Irish state itself in this fraud are starting to emerge. As early as 2008 the Irish regulator insisted on the quality of Irish bank debt and blamed the whole scare on short selling by foreigners, possibly Romanians. Unbelievably they went so far in September 2008 to guarantee that Irish bank debt was every bit as good quality as Irish sovereign debt.

Jens Weidmann, ‘a German’ Bundesbank President is a man on a mission; he notices alright and his comments this week are to influence the EZB and to protect German interests.
They are perhaps the most powerful lobby group in Europe: Jens Weidmann; Jorg Asmussen, Axel Weber; Josef Ackermann, Hans Eichel, all linked from Studiumzeit in Bonn. Key players in Bank and Politik. Linked to Geithner, Merkel, LaGarde, Draghi.
JW is as cross as a bag of cats with the EZB; he has sent a signal on 130213 through all the press outlets that the ‘taking into account’ of the Irish intermingling of monetary and fiscal policy.
Because he sees any action which may undermine the value of the Euro and cause inflation as a threat:
And said so in Dec last year:

That late night charade on 130206 is one thing; but the circumvention by Govts in ‘Schwellenlaender’ of EU financial partners who won’t negotiate, is seen as a dangerous precedent….by the Bundesbank….and they are letting the EZB know this.

The lobby above is very strong; but an empirical look at German Banks might reveal their weakness: Loans are hemorrhaging out to property ‘assets’ and sovereign bonds; Germany is not necessarily a the postion of ‘strength’ but is extremely exposed.

Tensions between the EUJ and the German Supreme Court don’t reflect some opinion that this is ‘one and the same’.

Nice post, but where’s the beef?

“The source of the contamination appears to be a premises in Frankfurt, Germany. The contamination dates from 2010, when a sovereign debt knackering plant was run from the premises by a Monsieur Trichet, a French national.”

Interesting that those sophisticated economists have come up with DNA sampling as a clever way of alleging this. Those without access to this technology – having had to make do with the papers and the internet along with the telly – might have wrongly got the impression the contamination originated in Dublin when faddy investors stopped ordering certain dishes after detecting the whiff of horsesh!t around them.

Rather than let them go to the slop buckets, the Irish government declared that the country could eat a horse. Not only that, but because they thought investors were too stupid to tell the difference between beef and horse, that not doing so would result in real Irish beef being unsaleable at any price.

Those of us without access to the new fangled DNA detective kits find our attachment to facts prevents us fully embracing the foreigner fingering. Some actual evidence we can understand would be more useful in influencing the recipes to be employed by the new Eurozone Stew Manufacturer.

@ Dorothy
Thanks for the Keiser Report piece. Very good.

Interesting that the likes of Romania, Cyprus, etc are mentioned…No mention of the largest producer of beef in W. Europe…Ireland. “Largest” scandal epicentre in so many spheres! God forbid though that someone will be held accountable in Ireland (“It wasn’t me, Sir”).

The political and “official” language around this stuff is so full of BS! “Where’s the beef”!

The knackeryard was Goldmann Sachs. The time was 2003-8. The dodgy distributors were the banks. The adulteration was with subprime US and sovereign crap. The consumer was Joe soap and his government.
The outcome – severe diarrhoea and vomiting for Joe soap and governments with continued administration of adulterated debt being forced as the purgative medication.
Meanwhile banisters get very rich.
Financialism makes me sick!

Signor Draghi has promised to do his best, but one of his assistants, Herr Weidmann, a German, believes that the toxic bank debt is harmless, and that anyway nobody will notice. He is refusing to operate the decontamination equipment.

OK. We can now talk about German opposition to the debt deal on IE now. So, once again…

The ECB has not agreed to the deal.

We’re looking at the prospect of Weidmann and the Bundesbank torpedoing the entire debt deal in the coming weeks. This country seems entirely unprepared. A public smack-down of the great deal would likely lead to a collapse of the government, a chaotic general election, and given the strain on the public finances with ~€6 billion needing to be paid on March 31st, I believe that the resulting decision making vacuum could accelerate Ireland’s default.

Nobody seems to want to discuss the very real potential consequences of last week’s drunken “Promnight”. Instead the country’s commentariat have embarked on a week long bender of self-congratulation and quip quaffing. But just like the horse meat scandal, this story is getting uglier and more serious as the weeks go by.

In my opinion, Ireland should tell the ECB to get stuffed, tear up the promissory notes, wind up the banks, and leave the euro. However, even I would prefer that the country was over sober and sound mind when doing so. This does not appear to be the case.

Paddy is currently engaged in a drunken charge; obliviously leading the assault in a battle of continental powers. His first sight of rows of Prussian bayonets may come as a terrible shock. That his Italian commander has “taken note” of such bravery will come as little consolation.

Let’s talk about the deal and its consequences; now.

@ OMF, et al

Just a first glance at the papers. One to think about as, er, Anglo’s former CFO Maarten van Eden weighs in:

“An important reason that IBRC was kept alive as a bank was that a bank can obtain cheap secured funding from the Central Bank whilst a government cannot (directly). With the liquidation of IBRC this fundamental rule against monetary financing has been not only practically, but also formally, transgressed against, by the Central Bank becoming an outright owner of /430 billion odd [mistake?] of government bonds at off-market, low interest rates for the very long term (with an overly optimistic hope of selling them without a loss into a sceptical market), which is explicitly against the charter of the ECB (of which the Central Bank is part).

“More and more, I think that the main victim of the crisis in Europe, and more specifically in Ireland, is the rule of law. One could argue that this transgression in itself within the European context is not that big a deal (as Ireland is small within Europe as a whole). Then again what does this precedent imply down the road for countries such as Spain and Italy, or other countries for that matter? What is the implication for the integrity of the euro if all countries were to monetise 20 per cent of national income in debt?”

Meanwhile, Ollie Rehn declares that the confidence fairy is just weeping with frustration as she sits in the wings waiting to fly on, and if only the damaging backstage chatter would cease the public out front will be ready to declare their belief once more.

See para., 3 in particular.


Yes, lets put the secret letters out there, preuming they exist. Let us put all the files on the night of the guarantee in the public domain.
BTW, if this deal is illegal monetary financing then surely the original PN was also of doubiouus legality. Surely the Greek recap is also legally unsound.

Would life outside the EZ and a default on these bonds/PN be such a bad thing?

@ grumpy

Well put!

@ All

One wonders how this latest largely fomented contretemps will influence future developments.

My guess is; not at all. In relation to extending the loan periods, Portugal is luckily also involved. Regling mentioned in mid January that the possibility could be considered. This suggest that a process has beens under way for some time and that those actually involved have their eyes on the real goal i.e. making a success of the adjustment programmes of the countries affected which is in the interest of all, Germany included.

With regard to the legality of what has been agreed in relations to the PNs, and with due respect to barrack-room lawyers everywhere, the ECJ, despite what the Bundesbank or the German Constitutional Court may think, has the final say. If it does not, then Germany is putting herself outside the scope of the treaties, a development for which there is no political appetite except, perhaps, on the eurosceptic fringes of public opinion which, as has been remarked, finds no expression through the political process and has to find an outlet through other avenues.

The ECJ press release in the Pringle Case was unusually detailed and worth a read.

As far back as March 2008 when the stench from one of the plants was noticeable, the Financial Safety Authority issued assurances that the product was perfectly safe and blamed the scare on foreigners, possibly Romanians.

As the stench intensified the government decided in September of that year to take the stuff onto its own shelves and assure everyone that it was just as safe as the government’s own produced stuff. They thought at the time it was only a smell but that inside there was quality but within four months they discovered that it was rotten to the core.

It has also been revealed that the T-Shock played golf with the controller at the plant. A Terrible Shock indeed.

@Colm McCarthy

Unfortunately Paddy The Politician spent too many weeks in a tent at the Galway Races during the Great Celtic Credit Bubble.

Looking out at the runners and racers, through the bottom of a glass, Paddy The Politician became convinced he had a keen eye to spot form.

Come September 2008, six knock-kneed, puss-filled, sore-festooned, rotting nags line up to represent Ireland.

A more rational observer would have done the decent thing and put the things out of their misery on compassionate grounds.

Paddy The Politician, being filled with stronger spirits, decided to bet €440 Billion on them – he will later describe this “selfless act” as being a “Good European”.

Having spent all the housekeeping money, Paddy The Politician now gets told if he, his kids and his grandkids like Irish horses so much then they best get on with it.

Paddy The Politician, wishing to be seen as a “Good European”, tells anyone who will listen that Irish people always clear their plates. Pile it up… we’ll swallow anything.

Other people may have been running the abattoirs and dodgy, foreign-types may be mis-labelling ingredients… but the sludge being served up for the Irish to swallow, was reared at home and served up by Paddy The Politician telling us to eat up and be “Good Europeans” .

Bon Appetit!

As far back as March 2008 when the stench from one of the plants was becoming noticeable the Financial Safety Authority acted quickly to assure everyone that the product from the plant was safe, blaming the scare on foreigners, possibly Romanians.

But the stench got worse and the government were forced in September of that year to actually guarantee that the product was every bit as safe as the stuff produced by itself. It thought at the time it was only the smell and that inside the quality was good. Within four months they discovered it was rotten to the core but by then it was firmly on its own shelves.

We can also reveal that the T-Shock played golf with the controller at the plant.

Colm McCarthy’s post is spot on.

The ECB, under the cover of Article 123 or whatever article, cannot divorce itself from its total mismanagement of the Euro, or from the policy decisions it made in 2008-2011.
Trichet’s exclusive focus appears to have been on the price of a litre of milk, while the whole euro banking area swelled up until it blew apart. He then decided, in company of the much lauded Weber, Stark and Bini-Smaghi, that large European banks should be ‘saved’ regardless of whether it bankrupt smaller banks, or small countries.

Let us see the reasoning behind that decision. One of the most critical European policy decision takes since WW11, but taken in secret enclave by unelected officials, supposedly acting in independence but in reality deciding full-on in the own countries national interests.

Many Irish commentators are now happy to go along with the theory that no smoking gun has been found in ECB HQ, and that the fault is exclusively Irish. I do not buy that line.
Even more commentators are now prepared to go along with the narrative that the ‘monetary financing’ of the Irish deal should be assessed in isolation from the ‘monetary financing’ of the original PN deal, which certainly suited the ECB at that time, and from all other ‘monetary financing’ actions taken by the ECB. I certainly am not buying into that narrative.
So Weidmann, as head of the BUBU is playing to the hard money gallery in Germany, probably for both egotistical and definitely for longer term political advantage. He does so apparently while a property bubble is already brewing in Germany.

Instead of the unremitting focus on ‘monetary financing’, we need and investigation of the decisions made by the ECB pre the euro crisis and those taken in response to the euro crisis.

Either way, Ireland initial and public response on this occasion to Weidmann, should be to ask for full disclosure of all documents and emails etc surrounding the initial PN deal so that Mr Weidmann can give us his learned opinion on whether that deal was ‘monetary financing’ or not.

@ What goes up

I like it! It nicely complements Colms post. It’s a double screwing really. The Guarantee is/was the culmination of everything that is wrong with Irish politics. It followed nicely on from the chute hoor political culture and poor fiscal management/regulation over the decades that preceeded it.

That can’t take away from the fact that the ECB has shafted us.

Of course the consequences of these failings have fell disproportionately on the young, unrepresented, credit bubble house buyers and those skilled for an industry that no longer exists.

@ All

So far I feel the country is suspended, some punters believe we’re on a normal low of the cycle, ‘it’ll come back up again’ etc. They want it to go away, and hope the band aids discussed with do it.

I suggest we stop the National Diplomatic Begging offensive. Start communicating with a nation hooked on the Euro that though it is ‘here to stay’ it needs a little brother. Discuss in Europe the need for a currency to complement the Euro in Ireland, set up an ‘Expert Review Group’ to explore ‘how it would work’. A currency for ‘jobs’, the punt 2.0 etc etc

I imagine the hard currency hawks would freak. It would give us more to negotiate around than spinning the worst decision in the history of the state as European solidarity.


I am in full agreement with you re the need for full disclosure.
You also pose the question,
“Would life outside the EZ and a default on these bonds/PN be such a bad thing?”
Ireland needs a rational assessment of the option of living outside a dysfunctional currency arrangement. If, as you posted on another thread, the hard money men get their way, there will be no EZ, so it is better to start making preparations in time.
In fact there is every possibility that a continuation of the Euro crisis and its principal social and economic effect, unemployment, will bring down not only the Euro, to whjch I say good riddance, but will bring down the EU as well, an outcome that I believe would be very negative.

@ Tull
History is written by the victors. It’s the future that’s the problem not the past.
Losers have no friends.

It beats me why people still think that stamping our little foot will frighten Grumpy’s hardy money men. If we think the EZ is not fit for purpose , we should leave…end of story. At face value that involves leaving the EU.
But after reading Colm’a article today, the project seems doomed to failure anyway.

The Euro is depressingly fit for purpose. It’s inflation proof and a stable currency set against failed qe in US, UK and Japan.

The time for making a break for it is past. Now it’s a question of knuckling down and working with politicians across Europe to change the direction of the EU away from financialism. Ultimately it requires each country cutting to the point where it can run zero deficits and then defaulting on sovereign debt in a co-ordinated way. It’s a slow tedious grind of about 30 years work. Ironically the country with most to lose when financialism fails is the UK – funny how history repeats.

@ GK

Yes, fascinating article and insight by Maarten van Eden. Here is a bitter man who is no friend of Ireland despite his condescending protestations to the contrary. He would have had the Irish government raise the 30bn in the markets rather than write promises. He damns the NAMA bond issues as similarly totally off market. He releases his bitter resignation letter a year late, nice timing Maarten and we note that you are convinced that the PN deal is illegal.

What Maarten’s rant does show, for his comments all have substance, is the enormous forbearance that has been shown to Ireland by the ECB and our EZ partners. We hear often in this blog about how the ECB abused us in 2010. This is the same ECB that facilitated the flight of 150bn from the local deposit base. If the ECB hadn’t bent the rules for us we would have been blasted back to the Stone Age. Okay, our partners would have been put back a few years themselves so it was not entirely altruistic but nonetheless the victim syndrome so prevalent on this site is nauseating.

@ Muppet

You may be facing an uphill struggle in dealing with the victim syndrome as it extends well beyond this blog.

@ All

I came across this ECJ judgement by accident when looking up the Pringle judgement.

All donations gratefully received!

More pertinently, perhaps, those subjecting the PN deal to forensic legal examination might care to explain what exactly is the purpose of the exercise.

@Gavin Kostick

Meanwhile, Ollie Rehn declares that the confidence fairy is just weeping with frustration as she sits in the wings waiting to fly on, and if only the damaging backstage chatter would cease the public out front will be ready to declare their belief once more.

That missive to the faithful from Olli Rehn is a beauty all right, anyone not yet convinced of the cult like nature of mainstream economic thinking in the EU should give this short, unintentionally funny and intentionally frightening document a read (I genuinely thought it was a convincingly laid out joke piece at first).

The shorter version: Our surveys of “Confidence” are confidence inspiring, market sentiment is improving, right minded fiscal consolidation programs are still the order of the day and long term sustainable growth will definitely start at some point around or after the end of 2013. The continued deterioration in the non-metaphysical parts of the European economy is an unfortunate and puzzling detail which most likely stems from impure thinking among non-believers.

It really is that bad.

As well as being notably spittle flecked the paper spends the best part of two pages on a petty and disingenuous attack on the IMF’s conversion to the reality based community on fiscal multipliers. Hearsay, supposition and blind faith.

It is a useful reminder that at least two important European institutions (the ECB and DG ECFIN) have effectively declared war on econometrics, economic theory, recent history and current affairs. The EU has, at least on the matter of economic policy, been taken over by crazed ideologues.

This is the bunker scene in Downfall, except we have no Russians and a cheery Fuhrer is looking forward to the growth that must surely follow from laying waste to the EU’s real economy. Surely.

@ anewdawn

It was big! I’m talking about the Target2 credit here, ie borrowings from the Bundesbank et al, I think it went that high and still is very high.

Signor Draghi, a senior Italian temporarily resident at the Ford of the Franks, recently noticed that although the economic data for the euro area have disappointed, confidence has been restored so we can look forward to Rosie Scenario’s imminent return to the stage.


We will see if nation-states are stronger than multinational corporations (doubtfull) .It is interesting to see that even the British are sick and tired of “tax competition”.In case something comes out of it, Ireland and a few others (Luxembourg ….) will have to invent a new “business model”.

@ OC

I will believe it when I see it! The answer lies in Washington, not London, Paris or Berlin (although they would like to believe so).

@Colm McCarthy

I heard there used to be a tent at some horseracing meeting in Galway where a lot of toxic stuff went on that led to all this. Is there a connection to the horses do you think?

My, my. Swiss chaps I’m currently talking to think the ECB/EU might banjax Ireland’s debt deal….. that would cause more than a storm in the auld Irish teacup. Red faces all round.

Where’s Brian Woods II today? Probably feeling a little down after ‘the end of the affair’ with McWilliams. Pity. Methinks they made a lovely couple.


You make valid points.

@Colm McCarthy

The real “DEAN” would approve!

@PR Guy
One wonders how they will banjax it? A vote of ‘No Thanks’ may hold weight if you take account of it, but what measures are really open to the ECB? Specifically exclude Irish banks from repo operations? The loss of confidence in all periphery banks would be extreme. What can they do that doesn’t result in spillover financial system effects?

Colm McCarthy on Sunday: Under all three headings – monetary policy, budgetary policy and exchange rate policy – the eurozone is pursuing a strategy of tightening when a looser policy would be more appropriate. The reason for this perverse stance, which contrasts with what is happening in the United States and Japan, is that the eurozone does not have any co-ordinated macroeconomic policy. The member states that could loosen refuse to do so, while the financially distressed states can only tighten. The ECB pursues only an inflation target and does not concern itself with output or employment. It also does not appear to care that the euro exchange rate has been floating upwards.

PressEurop agrees – Eurozone crisis:
Austerity plunges Europe into recession again
15 February 2013 PresseuropL a Tribune, Diário económico, NRC Handelsblad & 4 others

The latest statistics on the state of the eurozone economy indicate that, contrary to what political leaders have recently been saying, the crisis is far from over.

The European press blames the economic shrinkage on austerity policies that prevail in most single currency states, with some newspapers advocating a change of course.

“The eurozone has become a recession zone,” remarks La Tribune, which wonders on its front page, if “Europe has been sickened by austerity.” For the French business daily, the figures that were published on February 14 amount to a “Saint Valentine’s Day massacre” —

The latest quarterly report of a 0.6 per cent decline in the wealth of the eurozone is the biggest slump since 1995 — in other words, since Eurostat began to keep statistics on the economic and monetary union.


re: ‘Forebearance’ shown by ECB;
” This is the same ECB that facilitated the flight of 150bn from the local deposit base.”

On whose behalf was the facilitation? As you say 150BN is a lot of money.
Whoever the ECB were forebearing on behalf of, it was not Ireland.

Horsemeat scandal linked to secret network of firmsIntermediaries in horsemeat supply chain seem to be using similar companies to arms dealer Viktor Bout

Europe’s unfolding horsemeat scandal took a new twist on Saturday when it emerged that key intermediaries involved in the trade appeared to be using a similar secretive network of companies to the convicted arms trafficker Viktor Bout.

The Organised Crime and Corruption Reporting Project (OCCRP) identified an intermediary firm, Draap Trading, based in Limassol, Cyprus, as playing a pivotal role in shipping horsemeat across Europe. h/t nakedcapitalism

@ All

This Deutsche Bank piece to which I linked on another thread may be of interest.


Indeed, the rapid progress, from the late 1990s onwards, on labour market flexibility has improved the capacity of German exporters to absorb gyrations in the exchange rate via productivity gains. In addition, since the mid-1990s German industry has engaged decidedly in off-shoring to low-cost countries, in central Eastern Europe as well as in Asia. This has allowed the major German exporters to absorb much more easily changes in the Euro exchange rate by spreading its cost base across several currency zones. Finally, Germany’s growing specialization in high-end products allows the country to enjoy “transitory monopolies” on a large fraction of its export range, which also dilutes the impact of the exchange rate.

The situation of Spain is more surprising. True, productivity gains have been massive since the beginning of the crisis – the flip side of an unemployment rate now in excess of 25% – but we also suspect that Spain benefits from being quite tightly integrated in global industrial networks. We have already pointed in FE to Spain’s capacity to attract large foreign direct investment
over the past 20 years, drawing on the still comparatively low level of labour costs there. Spain for instance has become Europe’s second largest car manufacturer, superseding France and now producing 3 times as many
cars per annum as Italy, thanks to foreign – often non European – operators. Being integrated in these global networks allows some protection against exchange rate gyrations, which can be spread across the various production sites.”

Concentration solely on the ECB’s policy relative to the euro exchange rate is to entirely miss the point with regard to the differences between the major Continental economies in the matter. The French are not that silly. Le Figaro had a leader with the title “Welcome to Club Med” following the most recent growth figures for France. As to Italy!

As Michael Hennigan has pointed out, both Portuguese and Spanish exports to non-EU countries are improving dramatically.

@ PR Guy

For a measured and accurate comment, I would recommend that by Donal Donovan in today’s SBP.

As he points out;

“In any event, the deal is done. IBRC has been liquidated and the promissory notes have been torn up, to be replaced by government bonds. There is no going back”.

Why anyone in Ireland would seek to bolster the views of well-known hawks in the German establishment – as revealed in much of the media and radio coverage this Sunday – escapes me. I put it down to a mixture of parochialism, hubris and naivety.

Not at all he was/is with DOCM at counter summit…
The guys negotiating this deal,arguably the most important one since the Treaty negotiations truly have no game.
Noonan should have take his shoe off and ranted and raved a bit perhaps with a few jingoistic comments throw in for good measure,c above.
Instead,assuming it was/is a half decent deal you get crowing in the papers sh*t eating grins and way too much exuberance from the ‘paddys”.
Result,backlash regarding what they can do….oh how about accelerating the dispo. programme reducing the gains to Ireland but critically removing the stigma,stain and shame in Germany of acquaising to monetary financing.
Who asked for an opinion from an x school teacher,career politician way past mandatory retirement age in most places,his legal opinion on the PN…he’s not exactly Ace Greenburg now is he….time perhaps to spend more quality time with the family…..
This has become a farce,how to snatch defeat from the jaws of victory…

Some of the contaminated burgers are currently being stored in the cut-price refrigerated area of a premises owned by a certain Mr Honahan near Dublin city centre. It is believed that the regulating authorities will shortly insist that the product be moved to a much more secure but also much more expensive storage company at considerable cost to the owners. It is to be hoped that it “will not stink to high heaven” contaminating the entire city while in transit.

Would that be the Ace Greeberg that led Bear over the edge. Perhaps you should learn how to punctuate.

I should have explained that Mr honahan is the person described by Mr Joyce as “a master of arts of Trinity College” but has fallen on hard times.

some lite reading – h/t naked capitalism

Equal Opportunity, Our National Myth

…The gap between aspiration and reality could hardly be wider. Today, the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity. This is especially tragic: While Americans may differ on the desirability of equality of outcomes, there is near-universal consensus that inequality of opportunity is indefensible. The Pew Research Center has found that some 90 percent of Americans believe that the government should do everything it can to ensure equality of opportunity.

@Tull sorry bout the puncation mbl. do you have a link or can you expand a little on Ace and his role ?

Check the Wilki on Wiki. Himself and Jimmy Cayne were on the Bridge at Bear.
Also your Ref to banging shoes. Is that to Nikita Khruschev who had his clock cleaned by JFK.

@Tull I don’t need check the Wiki but thanks,trying reading expands ones mind leads to properly formulatd opinions,yours is the first time anyone has ever “blamed” Ace for the demise of a once great company.

“Whoever coined the adage about hindsight being twenty-twenty didn’t make any allowance for astigmatism or myopia. Whose hindsight? And from what distance? A picture clarifies or blurs with the passage of time, and whatever image emanates at a given instant is colored by the biases of the observer. Knowing that my perceptions of the fall of Bear Stearns are inevitably somewhat subjective, I’ve tried to make sense of exactly what happened when and how this or that development along the way contributed to the ultimate outcome. I’ve wanted to get a fix on the moment when we ceased controlling our own destiny—not out of intramural curiosity but because that loss of control resonated and replicated globally. For those of us who across decades gave so much of ourselves to Bear Stearns, what took place during a single week in March 2008 was a watershed in our lives. With sufficient time and distance, as the context expanded, we could recognize it as the signal event of an enormous disruption that the world will be struggling to recover from for years to come.”

Apologies if my memory plays tricks. I thought Greenberg was still on the board when Cayne took it over the edge.

@Tull did he bang his shoe..any link?
“Also your Ref to banging shoes. Is that to Nikita Khruschev who had his clock cleaned by JFK.”
Why not check your beloved Wiki.

It’s a fake like some posters on here…little less time worrying bout puncation of others…
Though all parties are in agreement that Khrushchev was enraged by both Sumulong’s and Macmillan’s speeches, and loudly denounced them, there are no photographic or video records of the incident available.[6] There is at least one fake photographic depiction of the incident, where a shoe was added into an existing photograph”

In February 2008, a DoF memo warned that guarantees "are not regarded as part of the toolkit for successful crisis management and resolution".  In May 2008 Brian Lenihan succeeded Brian Cowen in this portfolio and on the 30th September 2008 a two-year guarantee of almost every liability in the six ‘covered’ banks was introduced. The genesis of this policy remains unclear.

Around €7 million was paid for advice from Merrill Lynch which was presented on Monday 29th of September did not favour a blanket guarantee and concluded that "the extension of discreet liquidity is important". In a meeting on the previous Friday, Merrill Lynch discussed "dangers with blanket guarantee".

For those looking for a "smoking gun in Frankfurt" the ECB were not in favour of the type of blanket guarantee introduced in Ireland and in a separate opinion published on the 3rd of October stated that:

…the ECB notes that the Irish authorities have opted for an individual response to the current financial situation and not sought to consult their EU partners.


A further point relates to the risks to the Government’s budgetary position arising from any financial support to Irish credit institutions. While the ECB appreciates that any guarantees provided by the Minister under the draft law would be contingent in nature, given that the financial exposure of the Irish State under such guarantees is potentially very large, the Irish Government could be obliged to make significant payments in case these guarantees are called over the next two years. At a point in time when the Irish budgetary position is deteriorating and may risk exceeding the 3 % of GDP reference value for public deficits, as specified under Community law12, this is a cause for concern, even when the provision of financial support would, under the draft law, as far as possible ultimately have to be recouped from the credit institution or subsidiary in question.

It is a little incongruous that as more time passes without any evidence of a "smoking gun in Frankfurt" the greater is the belief in its existence. A missed call and a voicemail does not make a strong case.

This widespread view is not harming the main government party of the time in recent opinion polls and they have absolutely no incentive to correct the view and would undoubtedly be only too happy to confirm it if it was true.  At the time Brian Lenihan described the guarantee as “economic nationalism”.

The liabilities of Anglo Irish Bank on the 30th of September 2008 were:

Retail Deposits: €19 billion

Non-Retail Deposits: €32 billion

Bank Deposits: €20 billion

Senior Unsecured Bonds: €11 billion

Covered Bonds: €7 billion

Subordinated Bonds: €5 billion

Other Liabilities: €3 billion

TOTAL: €97 billion

I don’t recall many calls to burn depositors.  It was stated government policy that “senior debt was fundamental for Ireland” and this held “as long as Ireland was in the markets”.  By the 31st of December 2010 (three months after the expiry of the guarantee and one month into the EU/IMF programme) the amount of senior unsecured bonds from the above total was down to €4 billion.

There is little doubt that the full repayment of these bonds was at the insistence of the ECB though the Commission also held this view.  Jorg Asmussen has told us this was “to ensure no negative effects spilled-over to other Irish banks or to banks in other European Countries.”

It is probably no more than a coincidence but the estimated interest savings from the recent Promissory Note/Government Bond switch have a present value of around €4 billion.

It is close to impossible to tell what would have happened if the guarantee had not been introduced and some form of temporary liquidity assistance was implemented as recommended by Merrill Lynch.  The possibility of using either a Special Liquidity Scheme supported by existing state assets or Exceptional Liquidity Assistance from the Central Bank were discussed in early September.

Would the losses ultimately carried by the State be different?  Would banks have been allowed to fail?  Would the distribution of losses have been different?  Patrick Honohan has said that:

It would have been better had Anglo and INBS been put into resolution as soon as it became clear that their capital was going to be wiped-out by unavoidable losses on developer loans.  This should have been evident before September 2008, but was not, leading the Government of the day to include these two failed entities in its blanket guarantee.

The guarantee and the extent of it “complicated eventual loss allocation and resolution options.”  The impact of the guarantee can be overstated and this impact would conform with subsequent ECB/EC policy but if there is evidence that it was anything other than a solo-run by the government of the time I have yet to see it. 

Any quantification of banking losses imposed on Ireland by the ECB can only begin after the first of October 2010.  Irish sovereign debt has been contaminated by banking debt but the majority of it was done without explicit intervention from the ECB.

In February 2008, a DoF memo warned that guarantees “are not regarded as part of the toolkit for successful crisis management and resolution”. In May 2008 Brian Lenihan succeeded Brian Cowen in this portfolio and on the 30th September 2008 a two-year guarantee of almost every liability in the six ‘covered’ banks was introduced. The genesis of this policy remains unclear.

The genesis is very clear if you read slide 20 of the very same DoF memo, where they call for the introduction of emergency Ministerial guarantee legislation. As to the memo’s warning against this, the Lady doth Protest too Much methinks.

The DoF was angling for a guarantee since Feb 2008. In reality, senior officials had probably conspired with the banks at a much earlier date. If only there was a much forward planning when it came to last Wednesday week’s drunken Promnight,

@Tull you are correct my spelling and puncation is appalling,but was on iPhone not suitable for posting.
The reference to “Ace” was a dig at Noonan’s age and suitability for his job,Ace is still going strong over at JP Morgan.

Shoe banging is a term over used over here to “complain” about how negotiations are or are not going ….as in I seriously thought Noonan should have taken his shoe off…..

The current negotiators and Govt.’s strategy here is lacking,they should have been kicking and screaming banging shoes with the derisory deal they got,sovereign debt,floaters,not in control of sales process,etc.
This may also have garnered some goodwill as it would have distracted the media here,probably some derisory commentary etc.But the objective being to generate goodwill for the next round ….
Instead they just made a b*lls of it all.

Pathetic. Only the Irish will focus on the caligraphy of history rather than engineering the future.
Nobody gives a s**t about what lead to the guarantee. Fact is we have played very badly – we’re about 10 goals down (most of them og’s btw) so nobody gives a toss.

Nobody gives a s**t about what lead to the guarantee.

Except that a lot of people responsible for that guarantee are still in charge of the DoF and ICB and all the rest of the institutions responsible. We’re not talking about history here. This is all current events.

@ Eureaka

You are beginning to sound a bit like the good Professor Honohan, who is “not interested in finding out who did wha”t. Only interested in systems theory and process, as if ignoring the fact that you are using the same people that made the mess will bring about a different set of results. Is that not a definition of madness? I agree with Morgan Kelly on Honohan.

I certainly give a toss and know lots of people who are appalled by the orchestrated attempt to avoid any culpability for practically destroying the country. I for one will not rest until those that brought us here have been stripped of their pensions their privileges and are brought to justice.

Any chance of a thread devoted to Olli Rehn’s letter imploring finance ministers to not challenge the current faith based economic orthodoxy with any pernicious analysis of the results of the policy?

Our mister Kostick is not the only man who thinks Rehn (or which ever team of Austerian zealots feed him his speeches) has now revealed his balder as being dashed.

Krugman: Gratifying Signs of Desperation

Meanwhile, Olli Rehn of the European Commission, a firm advocate of austerity, responds to the disastrous economic news in Europe, which has confirmed the warnings of austerity critics and led to a widespread reassessment of fiscal multipliers; it seems that they are large in a liquidity trap, just as some of us predicted. Rehn’s answer? We need to stop putting out these economic studies, because they’re undermining confidence in austerity!

Krugman also links to Jonathan Portes putting the boot in even more thoroughly here: No debate please, we’re Europeans

We need to talk about how reactionary politics has taken root in European economic policy making institutions and discuss whether the policies can be changed or whether Ireland needs to try and distance itself from EMU, Scandinavian style.

@ RB
Look, bad stuff happens and people get away with it. That’s life – it’s the way things go. How many bankers in the US (big players) will go to jai! Will Blankfein go to jail!

It’s not right but it’s much better investing time and effort in preventing it happening again than through man hunts.
Banking and financialism needs to be tamed. Given that most politicians are in bankers pockets that’s going to be very very hard. It will require politics to become as multinational as business. It’s a long hard grind that will take decades and will lack the immediate satisfaction of a witch hunt but that’s where this has to go

@ Colm McCarthy

On food, in the 1980s, Jim Hacker, the minister of administrative affairs, in ‘Yes Minister’ launches a campaign against implementing European regulations that would mean the British sausage would be renamed as an Emulsified High-Fat Offal Tube.

Hacker ends up in Downing Street and the real PM is invited by Helmut Kohl, the German chancellor, to his favourite pub in his home region of Rhineland-Palatinate. He orders his favourite dish saumagen – – stuffed pig’s stomach.

“Her appetite seemed mysteriously to fade as the German leader went back for seconds and thirds,” recalled Charles Powell, her foreign policy aide, writing for the Daily Telegraph. Later, the party visited the crypt of the Romanesque Cathedral of Speyer where Mrs Thatcher was invited to inspect the tombs of Holy Roman Emperors, precursors of earlier attempts at European union.

Powell writes: “While she undertook this task without visible enthusiasm, Chancellor Kohl took me behind a pillar and said: ‘Now she’s seen me here in my home town, right at the heart of Europe and on the border with France, surely she will understand that I am not just German, I am European. You must convince her.’

“I accepted the assignment with trepidation,” writes Powell. “As soon as we boarded our aircraft for the return to Britain, Mrs Thatcher threw herself into her seat, kicked off her shoes and announced with the finality which was her trademark: ‘My God, that man is so German.’ Gutless, I aborted my mission to persuade her otherwise.”

It’s interesting to contrast the rage against Europe with the baby steps that have been taken at home to address failed systems.

The public drugs bill rose from €332m in 1997 to €1.5bn in 2006 and close to €2bn in 2012 and the struggle to increase generic drugs from 5% of the value, proceeds like most things at the speed of a glacier.

The old sense of victimhood has returned, which John Banville, the writer, referred to in ‘The New York Times’ in November 2010, following the EU-IMF bailout: “There used to be a nice acronym that neatly expressed how the Irish people conceive of themselves: MOPE, that is, Most Oppressed People Ever.”

Ireland and Finland, both members of the euro system, ended 2007 with the same level of GDP. Finland had surplus public funds of €130 billion while Ireland had net debt of €20 billion after offsetting cash balances and the value of the National Pensions Reserve Fund. 

The difference between the Irish crisis of the early 1980s, the current one and Finland is that the latter put in place significant durable reforms in response to its crisis.

As for possibly a greater reason for victimhood, the OECD said in its tribute to the Finnish educational system in 2010:

“Finland is a relatively young country, having only established its independence from the Soviet Union in 1917. Finland had to fight long and hard to preserve that independence through the Second World War. For a nation with a population of less than 4 million, the cost of the war was devastating: 90,000 dead; 60,000 permanently injured and 50,000 children orphaned. Additionally, as part of the 1944 peace treaty with the Soviet Union, Finland was forced to cede 12% of its land, requiring the relocation of 450,000 Finnish citizens. A Soviet military base was established on a peninsula near Helsinki, and the communist party was granted legal status.”

@ Seamus Coffey

Robust stuff. For the sake of record, and this is very rough and all from memory.

The ‘did the ECB do it?’ with regard to the guarantee was oddly restarted by Patrick Honohan recently and is a bit of a red herring. My take on it is that the guarantee was largely a solo run. Certainly LeGarde and Darling were taken on the hop.

Next up were the prom notes which didn’t come all at once. IMO the government should have resigned at this point as the PN were an admission that the country couldn’t afford this by orthodox means, plus the government shouldn’t impose such financial losses on its citizens, and thus the question should have gone to the public. Speculating wildly, the government (including officials), seems to have been gripped by that strange mentality that, as we’re the ones who made this mess, we’re the only ones (or more kindly, we have a duty), to fix it. Not forgetting the intimate relations with Anglo and the rest of the banks that made what was happening an ‘appalling vista’ that couldn’t be truly recognised.

I don’t know the role of the ECB in the creation of the PN notes (and letters of comfort) in the sense of whether they were grudgingly admitted or insisted upon or some point in between, rather than imposing any losses on senior bondholders.

Then it becomes murkier as we get to the bailout, with Honohan (member of the ECB), going public and as yet undisclosed behind-the-scenes action. Certainly the impression of a government being bounced into an action they did not wish to take: “hell was at the gates”. Again, they should have resigned here.

The ECB, pace deGrauwe (h/t John Corcoran), should never have been part of the troika, still shouldn’t, and had an appalling habit of sending out terrible economic ‘advice’, whilst members (LBS), explicitly threatened to pull the plug. Even if the advice had not been terrible – see actual rather than predicted growth rates after implementation of said advice – it still remains that the ECB was where it had no mandate to be.

Morgan Kelly gives a different version. After the IMF said that losses should be imposed on private creditors: after all, it was lending public money to sovereigns, it was Tim Geithner who nixed it on the contagion argument. Our new best friend Asmussen (now said to have changed his position 180 degrees from when he was in Dublin), also says it was to prevent furthest damage to Irish and European banks: though only after he was spotted cutting that bit out on the official transcript.

Certainly the late Lenihan was reported as being delighted at the possibility of cutting away at the bank debt.

After that, I defer to your excellence with figures, but it is seems to be certainly the case the the ECB insisted on unguaranteed senior bondholders being kept whole, while successive Ministers for Finance wished to impose losses. But as this was all reported as ‘nods and winks’ and ‘networds of contracts’: plus there was nothing in the MoU about it and the Irish government has never produced records of this, so it all remains cloudy. But the notion that the ECB should dictate such things to a sovereign government is the line that for many of us should never have been crossed and made the ECB not just the enemy of the state but an enemy of democracy.

We do know, because the Italian’s leaked one, that the ECB is not above sending governments letters with detailed instructions backed by implied threats.

@ Gavin Kostick

The moral of the story appears to be that the ECB should not allow national CBs to provide ELA to banks on the back of government notes created expressly for the purpose.

Nor should the ECB attempt to engage in government bond buying on the back of conditionality informally agreed with that government (i.e. Belusconi’s Italy).

It does seem that Draghi’s ECB has learned both lessons.

Seamus Coffey:

The 2008 bank guarantee was a mistake, as was pointed out at the time by a very small number of commentators. The list of people who pointed out the mistake at the time is considerably shorter than the list of people who came round to this view subsequently. It was an Irish mistake, so far as one can tell, and there is no public evidence that it was done at the behest of the ECB.

There has been no inquiry, so one cannot be absolutely certain.

You have argued (reasonably but not beyond doubt in the absence of an inquiry) that Ireland was not rolled over by the ECB in 2008. I believe that this is probably correct and I have never alleged otherwise.

There is no public visibility as to what went on during the spring and summer of 2010. It is my belief that Ireland was indeed rolled over by the ECB during 2010 and that the damage extends well beyond the €4 billion of outstanding senior debt still on the books of Anglo at the time of the bail-out.

It was clear, even to the folks in charge in Ireland, that the Irish banks were irretrievably bust and that the contingent liability for bank debt would drive the state out of the bond market. This was also clear to the folks in Frankfurt. They proceeded to do what they did.

There should be an inquiry.

@ Skeptic


Trichet’s ECB was too submissive to the Bundesbank, which meant messy, vague and inefficient ad hoc policy responses (cos the Bundesbank wouldnt go “big bang” on anything), so we ended up with a falsestarting SMP, a completely non transperent ELA, weird structures like the promissory notes, unwillingness to deal with defunct banks like IBRC etc.

Draghi’s ECB is far more pragmatic about the outlook and willing to go head to head with the Bundesbank on occasion, but is actually only willing to agree on more formal and transperent structures (although no CB is ever truly transperent) around programs like OMT, LTRO, the Irish prom note deal etc, and wants rid of things like ELA or constant rolling over of dead banks like IBRC.

Haughey was the first to perceive that national sovereignty was a financial asset that could be put into play. It was question of making the fiscal and regulatory regime more amenable to the flow of capital, in keeping with the general international trend towards deregulation and cross border financial integration. Whatever the differences in style, and the differing adjustments to a complex, fluid reality, that trend has not altered under successive ECB Presidencies.
The job of our government, and its senior civil servants, came to be redefined as one of facilitating the flows. Ireland of the welcomes, where a primitive supervisory environment structure presented tremendous opportunities for regulatory arbitrage. As the flows were generating huge upfront spinoffs, and the private rewards were only mighty, the banks were given free rein.

The guarantee was always going to be given. Any other pathway would have risked exposing corrupt lonks between major private and public sector players. It would also have exposed embarrassing professional malpractice in eminent corporate domains. There will be no inquiry.

This is a small jurisdiction. Everything that has occurred since Oct 2008 reflects the continuing need to extend and pretend, but the ECB will continue to boil the state, the state finances, and the government, slowly.

@ Seamus Coffee and Colm McCarthy

What possible move by Ireland on September 30th 2008 would not have led to Anglo going bust the next day other than the blanket guarantee? What option would have led to not letting any of our banks fail as was Trichets demand? Lenihan was stuck between a rock and a hard place and the only person that was able to give him a solution that did not involve bank failure was a maverick economist/ journalist.

The guarantee was McWilliams Idea and he was selling it privately to the cabinet (according to John Gormley) and publicly in his twice weekly newspaper columns but what he proposing was morphing quickly due to the increased seriousness of the Irish banking position.

Most of what you want to find in an inquiry is available by going back and looking at McWilliams articles.

It seems to me that people are still not prepared to accept that one of the most costly economic decisions to be implemented any government was done by a clever well meaning but maverick economist offering what seemed like the only viable alternative to the minister.
Its important to note that McWilliams himself in one of his columns made the point that senior figures in the Dept of finance were against the blanket guarantee move.
The senior figures were over ruled by the minister and they went for the McWilliams option (as Gormley called it). If there was massive pressure from the ECB directed at the government then John Gormley would have told us by now.

Be prepared to be very embarrassed by any inquiry. Not due perhaps to any huge levels of corruption but due to the the sheer panic and ineptitude.

One thing that would be nice to know would be if Lenihan went to McWilliams house of his own accord after reading one of his articles or did someone, perhaps from the banking sector, advise him that what McWilliams was advocating was a workable solution?

@Seamus Coffee

The impact of the guarantee can be overstated and this impact would conform with subsequent ECB/EC policy but if there is evidence that it was anything other than a solo-run by the government of the time I have yet to see it.

As far as I can make out your position is that Ireland’s problems stem from having implemented EU/ECB policy before we were forced to, while acknowledging that if we had asked them the end result would have been effectively the same (and possibly worse).

After all as soon as the degree of instability in the European financial system became apparent both Germany and the ECB became more Irish than the Irish themselves with Axel Weber quickly moving from a laudable position that the Irish state should not have to bear the burden of a systemic banking problem to advocating a full scale Vietnamization of the war against financial market failure.

It seems perverse to argue that Ireland is uniquely responsible for its botched response to the European component of the global financial crisis because we implemented the wrong policy before everyone else did.

Irish sovereign debt has been contaminated by banking debt but the majority of it was done without explicit intervention from the ECB.

It was a little more than “Who will rid me of this troublesome priest?” though, wasn’t it?

Here is an interesting piece relating to the debt deal…From the Indo

“The head of Austria’s Central Bank Ewald Nowotny said today that he thinks the Ireland has found a “reasonable solution” to the Anglo Irish Bank issue.

He noted that the ECB did not decide on Ireland’s ability to relieve its debt burden by spreading out payments to its central bank over more years, but added: “As an outsider I see this as a reasonable solution that was made here”, not least because the ECB had advised against involving investors in Ireland’s debt resolution efforts.”

“had advised” ??????

@ Eamonn

That was a good reminder of some basic historical facts, which tend to get lost in the revisionism of this debate.

Though I am unsure whether you exonerate the blanket guarantee decision or not. On the one hand you ask what would have happened otherwise and on the other you appear to castigate McWilliams for his role.

Not a great fan of McWilliams myself but, to be fair, as a depositor and as a citizen I thought it was a good move at the time. If I knew it was a chronic solvency issue instead of a liquidity one (which those making the decision should have known) I am not so sure. I think I would have let Fingers outfit hit the wall.

Of course with hindsight we would know precisely how that decision should have been fine tuned but would we really have burned any depositors or senior bondholders?

The story of the ECB and its dealings with Ireland in 2010 isn’t a simple one of villains and angels.

It actually took 2 years from the issue of the State guarantee for a realistic estimate of Anglo’s losses to be published by the government. From the Nov 2008 PwC report on the banks, through the slow setup of NAMA, there were about 6 estimates of Anglo’s losses. It was a similar situation with the other banks.

During all this time the intention was to keep Anglo open.

By Aug 2010, in thin markets, the yield on the Irish 10-year bonds began to rise and S&P downgraded Irish sovereign debt.

There was also uncertainty about the extension of the State’s bank guarantee, which was due to expire in a month. Prof. Patrick Honohan, Central Bank governor, suggested it should be extended in quarters not years.

In September 2010, the Central Bank said Anglo might need as much as €11.4 billion more.

The bail-in of senior bondholders was vetoed because of fear of contagion.

In 2011 Denmark with a strong sovereign, bailed-in the senior debt of 2 small lenders. Jesper Berg who helped write the Danish bail-in law while working at the central bank, later warned against pushing through such rules during crises.

Wall Street Journal Nov 2010

[A small team at the debt agency, including Mr. Corrigan, the chief, and a top lieutenant, Brendan McDonagh, pulled together a plan for a new entity, the National Asset Management Agency, to buy €77 billion worth of loans for €54 billion, a 30% discount.

Those estimates shaped public expectations about the rescue bill. But they were based on information from the banks, which told NAMA their loans were well collateralized. In early 2010, Mr. McDonagh’s team got a rude surprise upon diving into the books.

“We opened it up and said, ‘Oh, my God,”‘ Mr. McDonagh said in an interview. “What they are telling us is not the reality.”

The banks had said they had loaned 77% of the value of a property, on average. The other 23%, put up by the borrower, would cushion a default.

The NAMA teams found that banks often piled on “equity releases” that amounted to lending out 100% of the value, and left them fully responsible in a default.

Worse, much of the collateral was shaky. Several times, a developer pledged future profits on other ventures. Many loans were riddled with flawed documentation, leaving banks without solid legal rights to the property they had believed was backing up the loans.]

Jörg Asmussen, member of the Executive Board of the ECB, Dublin April 2012:

The role of the Eurosystem in Ireland over recent years, and more specifically that of the ECB, has often been misunderstood.

Sometimes, it has been misrepresented. I would like to take this opportunity to set the record straight.

Relative to the size of the economy, no other euro area country has received so much support from the Eurosystem. And no other institution has provided more help to Ireland than the ECB. EU/IMF programme finances combined are EUR 67.5 billion in total. Eurosystem liquidity support – to all of Ireland’s eligible banks – has often been more than double that amount. And let me recall that Eurosystem loans currently carry much lower interest rates than the loans from the IMF and EU Member States.

To be clear: ECB support and IMF / euro area member state support are not on an equal footing. They are no substitutes and for good reasons there is a distinction between central bank funding and fiscal financing.
By the time the programme of financial support was agreed with the international lenders in late 2010, the ECB had already been providing extraordinary levels of support for several years. To continue the analogy, the Eurosystem was providing life-sustaining transfusions to the banking system. While this support was fully in line with the general rules applied by the ECB to all euro area countries, Ireland benefited more than any other country as its banking sector imbalances were particularly large.
The ECB was thus an established key partner of the Irish authorities in staving-off the worst effects of the crisis, well before the EU/IMF programme was designed.

This state of affairs is a far cry from the claims that the ECB ‘bounced’ Ireland into the programme in late 2010. By that time, we had already been standing for quite some time with Ireland, and that remains the case today. This support would, of course, not have been possible had Ireland not been in the euro area.

@ eamonn moran

The bailout of Anglo was mainly a bailout of depositors as the ratio of customer deposits to senior debt was 5:1.

If Anglo had collapsed at the end of Sept 2008 during a very febrile time, any government would have given priority to preventing a bank run.

Besides, there was a false confidence that the loan book was good, when it was really a disaster.

It’s not clear why bank debt was guaranteed when the banks had been getting wholesale funding from the ECB since the onset of the credit crunch a year before. The lifting of the limit on the deposit guarantee would likely have been sufficient.

The debt guarantee also removed leverage that could have been used with the ECB.


You pose the challenge

What possible move by Ireland on September 30th 2008 would not have led to Anglo going bust the next day other than the blanket guarantee? What option would have led to not letting any of our banks fail as was Trichets demand? Lenihan was stuck between a rock and a hard place and the only person that was able to give him a solution that did not involve bank failure was a maverick economist/ journalist.

One option would have been to ELA all the banks until a proper weeks-long assessment could be made of their balance sheets — as opposed to leisurely months-long assessment that actually took place. With proper numbers on Anglo and INBS, then it might have been tenable to say to our “partners” (as Biffo kept calling them) that either we get help with the financing burden of dead banks, or we’re Iceland. Instead we committed up front to the financing.

Note: this is not to disagree with your interpretation, just taking up the question.

the argument for not commencing this simply excellent proposal is that it may prejudice some pending cases that are sub judice,making Noonan’s,recent ahem legal opinion on the PN’s all the more he losing the plot or is it all part of some eh crafty master plan.

“The Report calls for such an inquiry. On cost factors alone an inquiry is necessary as there are still too many unanswered questions. The scope of the various examinations to-date have not given the State and its citizens a comprehensive set of answers about:-
1. the bank guarantee
2. what went wrong in our banking sector and
3. how it was allowed to happen.
The Report also calls for the Inquiry to be conducted by the Committee of Public Accounts.
The PAC has the reputation for getting public accountability. It has established a track record which will give a degree of confidence to the public that it will get the full facts. Finally it has a standing that will enhance co-operation from potential witnesses.”—FINAL.pdf

So much for the governments contention that the ECB approved the PN deal..
From RTE..
”This is a transaction between the Central Bank of Ireland and the Government of Ireland, and we did not have to pass any judgement on it. We will pass a judgement on it in our annual assessment of country’s actions and their compatibility with Article 123, but not at this time,” Mr Draghi said.
He noted that the ECB had a huge ELA lending to Ireland for many years. He said the ELA has now disappeared and has been replaced with a marketable instrument which the Irish Central Bank will sell as soon as possible consistent with its assessment of financial stability.
”Crucial will be the disposal policy of the Central Bank of Ireland – we will have this assessment over the course of the year,” the ECB President said.
The chair of the Economic and Monetary Affairs Committee, Sharon Bowles MEP, asked Mr Draghi if the opportunity to object to the promissory note deal has now passed, because the ECB noted the arrangement, the bonds have been issued and the promissory notes swapped.
Mr Draghi said “Not necessarily.
“We will assess the compliance with Article 123 at the proper opportunity, and we will see whether the deal with the Central Bank of Ireland complies and if it does not we will see what legal remediation needs to be taken.”

Now what “legal remediation” could follow?

Btw, did Draghi misspeak when he said ELA had disappeared for Ireland. As far as I know AIB and BOI have bucketfuls of the stuff.

For info of all —

Im Rahmen der letzten EZB-Ratssitzung nahm der Rat die Erläuterungen des Präsidenten der irischen Notenbank zum Umgang mit der kurz zuvor vom irischen Staat liquidierten staatseigenen Bank IBRC zur Kenntnis. Die irische Notenbank hatte der IBRC Notfallliquidität gewährt, und im Zuge der Liquidation fielen ihr die diesbezüglichen Sicherheiten zu. Im Folgenden wurde unter anderem zwischen dem irischen Staat und der irischen Notenbank vereinbart, dass die darunter fallenden Schuldscheine des irischen Staates gegen länger laufende Staatsanleihen mit einem geringeren Zinscoupon eingetauscht werden. Die irische Notenbank verzinst letztlich die zur Verfügung gestellten Mittel gegenüber dem übrigen Eurosystem in Höhe des auptrefinanzierungssatzes, während sie die Zinszahlungen des irischen Staates gewinnwirksam vereinnahmt und diese im weiteren Verlauf zur Ausschüttung an den Staat verwenden kann. Die Vorgehensweise belegt die zunehmend engere und problematische Verflechtung zwischen Geldpolitik und Finanzpolitik in der Europäischen Währungsunion. Im Hinblick auf eine etwaige Erleichterung beim staatlichen chuldendienst einzelner Mitgliedstaaten wurde der Europäische Stabilitätsmechanismus
errichtet, der diesbezüglich in der Verantwortung stehen sollte.

(monthly bulletin, p7)

The IT is spinning furiously…
The headline..
“Draghi hails promissory note deal as ‘positive’ for Ireland”.


That word seems to be missing in the various reports.

Found the actual word in the Indo report
“Speaking in Brussels today the head of the European Central Bank told members of the European Parliament that the Irish deal features “some developments that can be taken as positives.”

It seems that Draghi is at odds with Weidmann over the deal according to the INdo.

@ Fiatluxjnr

I’ve always found the phrase ELA for Anglo/Nationwide/IBRIC problematic. They were insolvent weren’t they?

M Hennigan points out above, at the time they were supposed to be solvent.

But I thought that the ‘wind down’ of IBRIC required a bank license, and thus the ELA was required to make that orderly: and the ‘liquidity’ phrase was just a euphemism. But now it turns out, no, the government can just shut that sucker down.


Draghi clearly meant ‘positive’ for the ECB – the context was the overall reduction in Eurozone ELA since last summer, which he put at 20% and described as an index of financial stress.

Goodhart’s Law would seem to apply.

eamonn moran:

The alterrnative to the bank guarantee in September 2008 was more ELA, as Ml Hennigan points out.

@Colm McCarthy
Thanks…I now understand the context.
Pity the three Irish times correspondents the article is attributed to don’t seem to understand plain English (as spoken by Draghi)

I see Gilmore is at it again on 6.1 news saying that the ECB council agreed unanimously to the PN Deal when Draghi says it was a matter between the CBI and the Government and was “noted” unanimously by the Council.

If the deal breaches Article 123… And it appears as if it does….what legal remedy does the ECB have. I suppose they could sue Ireland at the ECJ ..but then the whole can of worms would be opened as, presumably, we could counterclaim for ECB actions which caused the original situation…or maybe not.


If this deal breaches Article 123 there may have been other breaches, in Greece and elsewhere. The can will therefore be left unopened.


I watched Draghi’s performance. ‘We took note – deal between Irish Govt and ICB etc etc’

The minimum ICB disposal schedule was volunteered by the Irish govt? Of course there was a deal.

Whatever about the details as to why the guarantee (and I don’t know the details), I remember thinking at the time that Anglo’s falling would wreck the rest of the economy….Whatever about contagion to the rest of the European banking system, Ireland’s interconnected domestic (now covered) banks and institutions (including non banking pension, insurance, etc institutions) and depositholders were in serious danger. There was panic at the time. It was very clear too that neither the banks nor the Govt knew at the time what the likely hole would be….except that they were in certain danger /likelihood of collapse. As MH says above, it took a long time and many estiamtes of Anglo’s liabilities before there was some clarity as to the extent of the blackhole that was guaranteed. So, while saving the EU banking system was subsequently rolled out as the main reason for the guarantee (because it suits the Irish request for debt service leniency…and why not?!….others in Europe have also pleased this of course), it was in the first instance actually to save Ireland’s entire system itself (Ireland’s self-interest) and bought time for the Govt when it appeared that there was no time.

There were many wrongs then and subsequently. and there still needs to be accountability on many serious questions (and crimes).

While however one cannot ignore the past mistakes and wrongs in formulating rules for the future, really, it’s the future now that matters. What I take from this below is that Draghi is not going to be pushed around by the Germans’ request for review now…Any review will be dealt with at operational as opposed to policy level, as part of normal ECB business, etc. Good for him… don’t upset the way he has just played that (political) hand. Good man Draghi…..practical as ever, and has again just outflanked the Germans (for now).

@ All

What is, perhaps, of the greatest interest in the hullabaloo this weekend is that it may have caused the attention of the electorate to both concentrate on (i) what is happening at an EU level and (ii) what needs to be done at a national level.

I have posted above a link to the comment by Deutsche Bank on the relative competitive strengths of the major economies in Europe in coping with a euro at varying levels. The politics of the situation at a European level is that the more extreme elements in Germany i.e. those benefiting most from the current situation (800,000 estimated euro millionaires!) are inviting the weaker economies not alone to conduct major reforms in an economic downturn but to also worship at the altar of Bundesbank monetary orthodoxy. Not even the Austrians are willing to buy this!

Ignoring the context, and persistent concentration on the past rather than on what is likely to happen in the immediate future, results in a national debate which borders on the fatuous.

I should add that, while Ireland’s fears and self interest were real at the time, the guarantee was a mistake nonetheless (for many, in retrospect,and for the few enlightened, in advance, as CMcC alludes to). By bailing out the bondholders, the guarantee created a complicated, multi-layered legal and practical straightjacket for the Irish and didn’t help the Europeans either in managing the situation. It is at this point that a mistake became odious for the Irish people. Bondholders were unnaturally and unintentionally enriched by the blanket guarantee…..and the element of underwriting /propping up the European banking system unfolded. Lacking courage to adjust the situation, the Irish Govt (s) continued to dig the hole deeper. There was much arrogance about, from Official Ireland as they “knew better”.

@Colm +1 I remember our previous discussions around EU law where I fundamentally disagreed with you but I agree with you here. Weidmann’s concerns are more about preventing Spain, Cyprus and Greece mirroring the deal than proposing any unwind for us. We have a solid leg to stand on in defending the Art 123 position on this (t’was an asset swap, not a loan), and the ECB is not going to litigate against us, not with the Pringle judgement, not with the risks that the TEU rather than TFEU position which the Supreme Court messed up in the Pringle reference such that the CJEU did not consider the issue, might raise their ugly heads.

@Paul W It’s not Draghi, it’s Asmussen. An Italian ECB president taking on the head of Buba will not play well in Germany so Draghi has to be circumspect, a German Governing council member taking on the Buba head deprives the German press of the ability to make this a nationalistic contest. Asmussen v Weidmann is the overt game, not Weidmann v Draghi. Best step Angela has taken in crisis resolution so far is appointing Asmussen to Stark’s seat.

What do make of Nowotny’s comments today. Is that a tacit acknowledgement that we took one for the team …in 2010? See Fiatlux at 3.39.

“We have a solid leg to stand on in defending the Art 123 position on this (t’was an asset swap, not a loan), and the ECB is not going to litigate against us,”
a mere asset swap…
If that is so why did IBRC have to be liquidated so hastily. From reports the weekend it seems the Act was not as “constitutionally proofed” as we were led to believe and it seems even the liquidators accept it is fundamentally flawed.

Joe Lawlor:

Nowotny has been a member of the ECB governing council since 2008. He would know where various bodies are buried.

@Fiat I think any lawyer reading the Act would have had concerns over Article 43 of our Constitution/ A1P1 of the ECHR (protection of property rights), in that it targets possibly too narrow a class (i.e. those with a case against IBRC) to have any certainty that it’s impediment of their property rights could be justified in the name of the general good.

Will await the ultimate Supreme Court or maybe even European Court of Human Rights decision, but there’s certainly a risk there. A risk which the A-G must have advised the Government was worth taking since the Quinn litigation made certain that it would be tested in court.

But from that side there is no risk to the Irish taxpayer, we (the Irish taxpayers) were already on the hook for the liabilities of IBRC once we (by we, in this instance, I mean the previous Fianna Fáil Government) nationalized it, so trying to negate those liabilities by legislative act can’t lose us money, and might just save us some.

But that is beside the point on the TFEU Art 123 issue. The Art 123 issue is whether this is legal under EU law (which is different from the European Convention on Human Rights), whether we (the Irish people/ State) have managed to pull a fast one on our fellow EU States. I think that that position is much easier to defend, there was no lending from the CBI to the Irish sovereign. The liquidation of IBRC was necessary to give effect to this.

@ Aisling

And her worst error appointing Weidmann to the Bundesbank?

I do not think so. Merkel knows how to balance her constituencies.

This is not an issue solely of personalities but of fundamental economic considerations. Apart from allowing Weidmann to be outflanked, the issue of making Germany the motor of the emergence of the EA from the current slump is the key consideration. A major effort has been made in the context of the long-term EU budget 2014-2020. But German consumers are understandably confused because they simply do not know where Merkel stands.

To be continued….

@Colm McC

Yes, there should be an inquiry, but not one with predetermined beliefs – whether about what went on, or about it being bad taste to consider more than “circumstances”, “systems” and “procedures”. Curiosity, bluntness, and a dollop of financial market familiarity should rule potential inquisitors in, not out.

You say:

“There is no public visibility as to what went on during the spring and summer of 2010. It is my belief that Ireland was indeed rolled over by the ECB during 2010 and that the damage extends well beyond the €4 billion of outstanding senior debt still on the books of Anglo at the time of the bail-out. ”

On the first sentence surely everybody, outside the small group of insiders involved in formulating policy, can agree.

When the guarantee was announced the immediate (ie within seconds) and most common speculation was along the lines of “…and exactly WTF are they going to do when it expires?”

It is your belief as you say, that the ECB ‘rolled over’ Ireland in the months before the 2010 expiration. I can’t persuade myself to believe anything particular about this – and I don’t know what ‘rolled over’ means exactly in this context (in sailing it has a precise meaning). Certainly every competent counterparty had the guarantee expiration pencilled in to their diary as they didn’t want to be last in the queue in case it wasn’t renewed, and I can imagine not only they, but the ECB also, were asking in various channels the by now old question “…and WTF are you planning to do as the guarantee approaches expiry, any thoughts yet?”

Given the form in Dublin at the time, perhaps that was interpreted by some influential people as in itself and being unaccompanied by a super-clever alternative wheeze, equivalent to being ‘forced’ or ‘rolled over’.

Maybe someone looked at an Irish official funny in a meeting, maybe there was a robust two-way discussion during which the Irish made said they thought it was wrong and made clear they wouldn’t do it – until the ECB expressly threatened them with a really convincing financial neutron bomb that would leave the EZ banking system untouched. Who knows? I know I don’t, and I don’t think you or Seamus have much of a clue either.,

The Irish people deserve more than a selection of maybe-plausible scenarios and vague references to sporting tactics (broken field rugby being another).

There is also all the guff emanating from nowhere else but Dublin, about bank creditors’ interests being 100% protected in order to maintain investors’ confidence in Gilts. I’d kind of like to know where that advice came from, wouldn’t you?

The problem with “belief” whether it’s yours or Shea B’s or anyone else’s is first that it isn’t good enough as a matter of principle, and second that in this case it is particularly inappropriate due to the existence of widely varying, plausible versions of might have gone on during 2010 and around the bailout ‘negotiations’ – rendering any-one’s ‘belief’ about as useful as Tony Blair’s belief’ that Iraq had WMD.

As regards this:

“It was clear, even to the folks in charge in Ireland, that the Irish banks were irretrievably bust and that the contingent liability for bank debt would drive the state out of the bond market. This was also clear to the folks in Frankfurt. ”

When do you think this became clear to each of them? By September 2010 it was clear a lot of gilt holders thought there was a realistic possibility that was going to turn out to be the case. It very likely was not clear to the folks in charge in Ireland or those in Frankfurt back in 2008. When it became clear to each – or at least when each were furnished with sufficient information to make it implausible they should have known, is an interesting question.

There has been too much pussy-footing about on the question of exactly how and why Ireland assumed its banking liabilities. I don’t get the impression foreign officials, politicians or voters are even close to believing it was their fault – and they should give Bertieland a dig out. If it is the case that they should be, the inquiry revealing this to be the case should really be started pronto.

@ Aisling
There’s actually a constructive “boardroom” balance at policy level (Weidmann is outnumbered….thankfully). Agree though that it’s important not to rile German nationalism on this. Re the other thread re the WSJ article, the Irish should certainly not overdo the waiving of the American flag in our European neighbours’ faces.

Another amendment (sorry but rushing between other things): “Bondholders were unnaturally and unintentionally enriched by the blanket guarantee” should have simply read “Bondholders were unnaturally enriched by the blanket guarantee.” I think it is quite obvious that the actions of Irish Govt (as opposed to the Irish people) were intentional (and doggedly intransigent). However, the Govt has the authority of the people. In that sense, it’s now difficult to argue legally against the guarantee, particularly with every subsequent, confirming action of the Irish Govt. The recent High Court rejection of Hall made things harder again, legally. Important therefore that the decision be appealed anyway….However, if the local Irish judiciary simply back the Govt and close the (legal) door further, then maybe best if an action goes direct to the ECJ or some such international forum. As has been alluded to many times here already, the restructure of the PNs closes doors in this regard.

Still, the post restructure picture is perhaps more simple. Now it’s a question of debt sustainability….we’re now more confined to debtor /creditor debt service sustainability argumentation…Inability to pay. What I hate about that is that the creditor normally only concedes on a minimalist, “keep the debtor alive to service debt” basis (debtor prison…..we’re going round in circles…!).

@ Aisling

From the Deutsche Bank report.

“We apply our model to the four largest economies of the Euro area. We find that while the pain threshold for Germany, and probably more counter-intuitively for Spain, now stands higher than any level ever reached since the
beginning of monetary union, it is actually quite low for France (1.24) and Italy (1.17), for a world demand pace of 4.2%. It is therefore surprising, at first glance, to observe that most of the recent flurry of comments on exchange rate issues came from Germany. We suggest that the German concerns over currency wars do not primarily stem from a fear of the consequence for German exporters, but rather from the fact that further euro
appreciation could unduly delay the normalization of the ECB monetary policy

@Paul W David Hall has 2 huge problems. The first is that under any normal circumstances he is out of time to take an action for judicial review. The second is that he does not have standing, and introducing members of the current Dáil, but NOT the previous Dáil (who approved the legislation at issue) cannot change that to my mind.

The case has merits, but it should have been taken years ago, and it should have been taken by some of those elected in 2007.

I struggle to see the Supreme Court considering the merits of the case given these two failings, and even if the Supreme Court could manage the intellectual gymnastics required to consider the merits of the case (without risking floodgates of old constitutional arguments re-appearing) I can’t see how they could decide it without asking the CJEU for advice on the correct interpretation of the EU treaties.

@DOCM Touché. Then again the German electorate don’t understand their own history with inflation and the gold standard (over emphasizing the former, ignoring the return to the latter in terms of the rise of the Nazis) or the role that non-German economic policy had on the Buba’s success so I’m happy to take a split in the German vote on the Governing Council for now.

@Paul W One final point. I cannot see any reasonable argument that the restructuring of the PNs into Irish Government bonds changes anything in terms of the amount that the Irish State must pay. The Irish Government (FF/Greens) rightly or wrongly promised to make up the shortfall in Anglo/ INBS.

Most of us think that they wrongly decided that, but they decided that. Once they did, we (the Irish taxpayers) were on the hook.

The notion that Government Bonds are more permanent than the PNs is just daft. The PNs were already permanent based on EU law. If you disagree find a lawyer with expertise in EU law to disagree with me (you won’t).

The fundamental flaw I was referring in the IRBC Act I was referring to was not based on an Article 43 consideration but on the purported ousting of the jurisdiction of the court. There is case law on governments legislating to oust the courts in specific circumstances. I think the sinn feein funds case covers it and from memory there was a case relating to some woolen mills. The state didn’t do too well in either. The Sunday Business post yesterday had an interview with the liquidator of IRBC where he acknowledged the flaw and suggested it was about to be rectified. More legislation at midnight?

As regards the “swap” , the Minister acknowledged that the PNs were illegal and suggested the Sovereign bonds issued last week were “less illegal”. Its all on record. The fact that we issued 28,000,000,000 euro worth of Irish sovereign bonds which were exchanged by the CBI for money would suggest that it is pure monetary financing of government. Draghi said today that he hadn’t examined it but would in due course do so and if it was illegal would look at his legal remedies.

The Professors in Berlin are probably looking at their own remedies.

All the rules of prudent banking had been breached for years prior to 2008. The supposed responsibles, including and especially local fund managers, knew, and certianly should have known, that there was a disaster waiting to happen.

If these individuals, and corporate bodies, had proper regard for the Irish economy, or the society, they would have presured the regulator to rein in Anglo years before, and so prevented other banks from going down that road. They kept schtumm, like the rest of the insiders, because they were incentivised to do so.

The charade had to be maintained that Anglo was not insolvent, until the state had swallowed the hook of long term liability, and the most significant private parties had been protected. The process was riddled with conflict of interest and principal agent problems, because there were no clean hands about the house.

The ECB has run with the deregulatory hare and hunted with the regulatory hounds. Trichet and associates neatly exploited the conflict within the central banks. The ICB couldn’t play its part in a local system of ‘green jersey’ regulation, while fulfilling its ‘hard money’ prudential obligations as a member of the ECB system.

ELA has so far kept the ship off the rocks, but it has been a key mechanism in transforming private banking losses into sovereign debt. Now that is being achieved, ELA is going to be deemed ‘unorthodox’. Draghi may the practical man who helps us with ‘our’ problem, but most citizens will suspect it’s just a fancy version of the Three Card Trick.

Minor point:

Why are we paying ~€30+ BILLION for the debts of 2 rogue banks?

Silly me – I’m sure there is a logic somewhere …. but the feeble mind of a humble serf can only hold so much.


Much appreciated,


@Fiat Meh you’re still talking Art 40 rights and it is not a slam dunk that the Irish State/ taxpayer will lose that but that has nothing to do with Art 123.

The Minister for Finance stated that there were Art 123 issues around the PNs, that the current structure reduces those Art 123 issues.

I wouldn’t take everything he said at face value, he’s a teacher, not a lawyer with any EU law expertise.

But even if there is an Art 123 issue, that is from an EU perspective, not an Irish perspective. The illegality which you speak of, and which I disagree with (as a bachelor and mistress of the laws specializing in EU law) could increase the cost for the Irish taxpayer, but not reduce it.

@Aisling give it a rest…you must practice academic law are you really saying that a yank like me with a pocket full of dollar bills can’t find a lawyer to take this case…yeah right.

@Aisling what your vig 400 or 500 an hour,for a woman with such a wonderful legal mind and encyclopedic expertise in theses legal nuances,gosh all the time in the world to provide very definite legal “opinions” free too!
Is this a public service you are providing here…or are actually representing some “interest” or “interests” cause I think it’s nonsense.
I can get a completely different “legal” opinion than yours if I’m prepared to pay the toll and hire some help..


‘Asmussen v Weidmann is the overt game, not Weidmann v Draghi. Best step Angela has taken in crisis resolution so far is appointing Asmussen to Stark’s seat.

I tend to agree. I view Asmussen as more of a pragmatist than an ideologue – Stark and Weidmann being high priests of the latter.

@John G Get whatever legal opinions you like. I personally think that those of us with some expertise in the area should share our opinions with other interested parties when our State is in crisis, that’s what I assume is the purpose of this site.

You may disagree from the US shores as is your right!

I have to say I cannot see how the necessary public debate in Ireland is helped by foreign tax residents telling us that we made mistakes without offering any understanding as to why or how those mistakes were made. I didn’t vote for FF but I accept that a significant minority did which resulted in them being in power, being our democratically elected government.

I’m paying my higher rate taxes here, which affords me the right to express an opinion on Irish politics informed by my knowledge of EU law.

My question to you is, are you?

A question for any person with Central Bank balance sheet knowledge;

Why has the ‘other assets’ figure on the BUBU balance sheet gone from 332.7BN in Jan 2011 to 746.6BN in Nov 2012. Is this our old friend ELA or is it something else. I seem to recall that the ‘other assets’ figure of the ICB balance sheet was the receptacle for ELA.

Why would the BUBU balance sheet go from ~21% of the ECB balance sheet at Mar 2011 (332BN/2964BN) to ~36% in Nov 2012 (1098BN/3033BN).

Are any of the banks that the BUBU ‘supports’ with funding owned or part owned by either the Federal government or the State governments?

Data ref:

Page 76/77 Assets.

“if you disagree find a lawyer with expertise in EU law to disagree with me (you won’t).”
The case on the PN’s was thrown out on a minor technicality..who made you judge and jury on this?
Great,you have some legal expertise possibly academic in this area….the absoluteness of your opinions,indicates a lack of expertise in representing clients.

@John G You’re so obviously correct. I have never represented a client in my life. Never headed up the EU Tax team in a Big 4 firm in London either, that’s obviously a complete figment of my imagination! I must have dreamed about cases like HSBC v Vidacos Nominees.

However, what is clearly not a figment of my imagination is the fact that I pay my taxes here.

Do you?

I’m well aware of the two distinct issues. Art. 123 and the constitutionality of parts of the IBRC Act.
You say that a challenge to the IBRC legislation would not be a slam dunk. I beg to differ and I am comforted in this view by the apparent concession of the liquidator of IBRC in his SBP interview. Other articles in the same paper acknowledged the flaw.

As to Mickey only being a teacher ( talking through his rear end), I take account of his position as Minister and of the legal advice he obviously received and presumably conveyed to the Cabinet.

As to the cost to the Irish taxpayer..what has that got to do with the legality or illegality of the PNs or Bonds under Article 123?

@Aisling,where did it all go wrong ?
That’s a very impertent question,am you planning on representing me?
Do you then still have skin I’m the game …as in any adverse findings here may adversely impact your no doubt high profile client base ?


While Noonan attempted to portray the latest deal as a step in the right direction from the legal point of view, in practice the inter-linkages between the CB and the government are now stronger than they were before, as there is no intermediating bank in the picture. The shift in focus from 123.2 to 123.1 gives new opportunities and lines of attack to anyone wishing to oppose the arrangement.

Viewing it as an “asset swap” is one way to model most (but not all) of the deal; it can also be shown that the deal is the functional equivalent of the CBI printing 43bn of new money, and using it to buy 25bn of gov bonds and 15bn of NAMA bonds from the government, with the government using the funds to pay off 40bn of ELA falling due as a result of the liquidation, and 3bn paid to BOI to unwind the 2025 bond repo. If something can be shown to be the exact equivalent of an illegal action, then it can be argued that the action itself is illegal.

The second line of attack against the deal is the change in the repayment schedule of CBI funds. The new money printed by the CBI as part of the original PN deal will now live on for 20 years instead of 10. Who is to say that in 10 years time, this will not become 30 years? It is easy to argue that the new arrangement is more illegal than the old one in this respect.

I do not know if the German forces of fundamentalism will choose the latest deal as a Battle of the Bulge moment in their fight against the Allied forces of pragmatism, but they may well view the new landscape as more favourable to making a stand than the old one.

@John Corcoran
Interesting article you linked.
Looks like the ramifications of hasty midnight legislation are only now beginning to sink in. Oh what a tangled web we weave……..

@ All

Some on this blog raised the question as to whether the game in relation to the PNs was worth the candle. The answer is becoming rather pointed.

But that is all by the way. It is a total mess and will take years to work out.

The reality lies elsewhere. Either “front-line services” are entitled to what they think they are entitled or to what the country can afford. Time for decision!

@Joseph Ryan

I believe the “other assets” column represents the TARGET2 claims as a result of deposit flight to Germany and German banks not rolling over wholesale funding to banks in Ireland, Spain etc.

ELA used to be accounted for in the “other assets” column in the CBI reports, but this was changed last year and is now accounted for in “other claims on euro area credit institutions in euro”.

FWIW, I had expected the new long-term gov bonds to show up in the “securities of euro area residents – other securities” category, where they would be subject to so-called “ANFA” rules. However they popped up in the “other assets” category. However the real issue here is not the category, but the fact that the relevant rules under which these securities are held are secret. So not alone does the Irish taxpayer currently owe about 40bn to the ECB/CBI, but the rules relating to these assets are not disclosed. Like much else at EU level, transparency is only for the little people.

@Aisling before the punctuation police get me,apols was mobile again !

‘I have to say I cannot see how the necessary public debate in Ireland is helped by foreign tax residents telling us that we made mistakes without offering any understanding as to why or how those mistakes were made.”

Should MH,Paul W also cease posting their comments too ?
Reminds,me of the stance taken here when a number of very prominent members,of the Irish dispora offered FREE to serve on state boards,the answer…result is NO directors from oversea with vast expertise running successful companies.

“Of course, it is open to any board member to waive their fees should they so wish, but this should be a personal, private choice. The directors who serve on State boards offer their time, commitment and expertise, for a fee that does not in reality equate to the level of work and onerous responsibilities involved. Many accept this fee as they wish to serve the public interest and contribute to society in a meaningful way. This proposal not only undermines their ability but also diminishes their contribution. It is fundamentally wrong.”

I’m fully up to date on my taxes,have file quarterly estimates too..
Proud,NY resident but out of interest i flew back got videotaped by the NTMA for a postion.Not sure if it was my net worth or willingness to work for the Industrial wage to give a ‘hand’ back home,either way still waiting for the call….but the mandatory drug testing did appear a bit draconian,but the net worth and low wage expectations clinched it-feel free to check….

@ Bryan G

+ 1

‘I do not know if the German forces of fundamentalism will choose the latest deal as a Battle of the Bulge moment in their fight against the Allied forces of pragmatism, but they may well view the new landscape as more favourable to making a stand than the old one.’

A bit late for that strategy, but they might yet try. Too may EZ economies are in trouble now,and even the Germans can’t bust out on their own.

@Paul Q, Bryan G

Don’t get carried away, even if the BOTB option is not available there’s always the classic and amazingly stubborn retreat through Italy to fall back on. Watch out if you see any references to “the soft underbelly of the ECB”!

@ Aisling

Apologies for the break….

Re David Hall, time bar and locus standi obstacles shoot Ireland in the foot so to speak in closing potential future legal options. It is of enormous importance to establish whether the granting of the guarantee was legal /constitutional UNDER IRISH LAW. If it was illegal, then the Govt’s decision would potentially (likely) be null and void and so then would the PNs and recent restructuring.

You say “Most of us think that they wrongly decided that, but they decided that. Once they did, we (the Irish taxpayers) were on the hook.” That therefore is not strictly correct in law, as you know. The Govt is not above THE LAW.

Assume that legal result for the moment – the Art.123 issue is usurped as the legality is a matter of Irish law, not EU law. The ECJ cannot easily rule something illegal for being monetary financing, if it is null and void in the first place under Irish law. There may be other forms of deeming the Irish court decision illegal under EU law e.g. some form of estoppel….but not easy for others to succeed I would think.

However, there is nothing to stop the Supreme Court allowing the action if it wishes e.g. for unique public interest reasons, etc. distinguished from any precedent caselaw…Happens all the time, everywhere (where there is rule of law). As you say yourself, you cannot see how the SC justices could decide such a case in any event without asking the ECJ for its advice, on the issue of illegality of the guarantee in the first instance but also, if ruled legal, on the issue of whether the PNs and restructure subsequently constituted monetary financing and were illegal actions under EU law as a result….Bingo. Exactly. That at least would put the issue beyond doubt one way or the other. However, there is at least the possibility of an even part positive ruling for Ireland……Self barring the question in the first instance excludes any possibility of a positive and simply leaves us with the negative end of a “bad wedge”.

This would be a far better route than say setting up another tribunal that will take forever to decide, etc and will have little teeth in law, given that the courts are the only ones entitled to make judicial decisions in Ireland.

You say that the AG must have advised the Govt….I hope so, but do you really expect the politically appointed AG to side with anything other than Govt. policy. No problem with that….provided Govt. policy /action is not illegal in the first instance. This will be tested by the Quinns…and that is their legitimate right, as is their original action questioning Official Legality /Illegality (and it is clear that they at least have a reasonable, arguable case…on that and now this).

So I’m for the SC court to hear the whole thing and then to seek the advice of the ECJ on these matters. The integrity of the rule of law would be hugely enhanced as a result.

Also, there is rarely black and white in these matters (otherwise there would be no need for the judicial function). JG is right on that score….albeit that you are perfectly entitled of course to air your points and opinions here.

Furthermore, there are many ways of skinning the cat – the fact of litigation and ECJ referral would certainly up the ante in negotiations,, all from “the high moral ground” of the law. An out-of-court settlement (with compromise for Ireland) might be another solution. If Ireland’s partners have nothing to fear and are confident in their legal case, let them have it tested in a court of law. Not to allow this is an utter usurption of democracy.

As per John Corcoran’s FT link: ““It’s absolute chaos,” said a lawyer close to the situation. “It appears that the Irish government has taken this step for it own financial benefit with little thought or care for the repercussions.”

Doesn’t auger well for Govt advice /AG advice….

I hope at least that our Judiciary have a better standard.

@ Paul W
I don’t want to take from the excellent debate between yourself and Aisling, butit’s important to have a historically grounded, and less idealistic concept of law. The wrtings of Pierre Bourdieu, especially ‘Language and Power’ are highly relevant.

All top legal officers are political appointees. While the AG is narowly allied to the governing party, and can be expected to defend that party’s interests, the Supreme Court will defend the political system in general. Our constitutional order derives from the Britain’s 1688 Glorious Revolution, which entrenched private property rights, and our dominant political parties have always defended that order. The Supreme Court judges, as lawyers, also have a corporate loyalty to their own professional group.

Adam Posner is a US appellate judge and an interesting author. His book ‘How judges think’ is titled ‘The Supreme Court is a political court’.

‘I think there is a degree of self-deception. A judge is more comfortable in thinking that his decisions are compelled by “the law”—something external to his own preferences—than by his personal ideology, intuitions, or suite of emotions. But there is also a natural tendency to try to reassure the public that judicial discretion is minimal, in order to defend the legitimacy of the judiciary. The tendency is paradoxically most pronounced at the Supreme Court level, the paradox being that it is the most political court. Precisely because it is a political court, its members feel the greatest need to deny that it is that’

Whatever the logic of the excesses which were committed in the Celtic Tiger era, the only principle at work these days is expediency. While tremendous legal earnings are to be had from picking over various corpses, the judiciary will shy away from any matter which threatens to damage public confidence in the politics of ‘necessary and opaque adjustment’. This is a small islans, and our Supreme Court simply will not hear any matter which might expose systemic professional malpractice among the dominant legal or accounting firms.

The ‘chaos’ which is perceived arises from the fact that responsible individuals and bodies lost the run of themselves bigstyle, leaving an unprecedented mess to be cleaned up. The bankers could not have bust the banks without the active and interested collusion of accountants, lawyers, valuers, and so on. The fact that so many respected professionals took equity stakes in highly imprudent, poorly or even fraudulently docuemnted ventures cannot, and must not be acknowledged.

Many of these same processes are operating at EZ level also, so evasion, expediency and fudge is likely to be the order of the day. Continuing economic stagnation across Europe will eventually bring about a crisis in the political order, but it could be a while.

Re Bank guarantee history…

I think it was Morgan Kelly who suggested that we walk away from the guarantee given the level of porkie pies that banks had been telling up to and beyond the guarantee (correct me if wrong here).

The guarantee as I understand it was volunteered (a 1 page letter from Brian Lenihan?), and not tendered as part of a contract with another party. I have never understood how a voluntary agreement cannot be reneged on by simply sending another letter to discontinue.

If this guarantee was used as collateral for new loans/bonds fair enough, but for historical liabilities – I don’t see how the guarantee could be enforced other than on a voluntary basis.

The argument that “once the guarantee was given (by the last crowd) we could not backout” does not make sense to me. Did the letter say we could not back out…

Perhaps I am missing a basic legal point here – I am open to correction.

David McWilliams also suggested walking away from the bank guarantee.

In April 2009, Brian Lenihan wrote a reply in which he said:

“Yesterday’s article [by D. McWilliams] called for the state guarantee to be rescinded. State guarantees have been introduced in many countries in response to the unprecedented stress in global financial markets.

“Is it seriously suggested that the State should break its promise to wholesale international money markets and put our banks at a serious disadvantage in competing for funds in the international marketplace? Such a recommendation is clearly ridiculous, since banks in Ireland remain very dependent on their continuing ability to raise funds from abroad to finance their activities and meet the economy’s needs.

“Reneging on our promises would be very damaging to this country’s credibility, at a time when the Government is working successfully to rebuild international confidence in Ireland and its banks.”


‘State’s priority is helping economy, not the developers’

@ Gavin K

In early 2009 a lot of people thought the crisis would be well over by 2012.
NAMA was going to be the dogsbollocks.

“There there” and “sure it will be grand” still worked as a strategy.

It was still just a big blip. And AIB was still some way away from its Götterdämmerung

Dear Colleague,

The past few days have again seen the banking sector, both at home and internationally, go through an extremely volatile time.
The Irish Government’s decision to nationalise Anglo Irish Bank, together with a variety of other developments here, in the US, the UK and in other parts of the Eurozone, have all had a knock-on effect on share prices and have led to renewed uncertainty and speculation as to what is going to happen next. I can understand that seeing our share price drop severely is worrying and that you may wonder whether some of the speculation might be true.

Share prices continually rise and fall as a result of many factors and the present extreme volatility in the financial sector serves to exacerbate and exaggerate that process. AIB continues to be a strong, sound, internationally diversified organisation which serves a huge range of personal and business customers across a wide variety of sectors. We have the depth and strength required to manage our way through this period of uncertainty as an independent organisation and I believe we will do so. Everyone in AIB Group has a role to play in dealing with these difficult times and I can assure you that the Chairman, myself, my colleagues on the Group Executive Committee and the Board are all focussed on ensuring that AIB remains well equipped to tackle whatever challenges this environment may present.

I know I can, as always, rely on all of you to play your part too. Whether you are working in RoI, Northern Ireland, Britain, Poland, the US or in any of our other locations throughout the world, I would just ask two things of you:-

Firstly, don’t become sidetracked by rumour and speculation. At times like this there is always, understandably, a surfeit of both.

Secondly, and most importantly, maintain your focus on the day to day business of doing your job and looking after your customers. I cannot over emphasise how important that is as AIB has a key part to play in the revival of the economies in which we operate.

Thank you all, once again, for your continued commitment.

Eugene Sheehy
Group Chief Executive (19/01/2009)

@Paul W,great post,SC to rule tomorrow at 11 on 5 TD’s joining David Hall as plaintiffs.

@Gavin K

“David McWilliams also suggested walking away from the bank guarantee.”

Walking away from pre-guarantee time deposits and bonds issued pre guarantee might have been one thing, but any announcement rescinding that for new bonds would have meant trust toward the Irish government among investors would have evaporated. The deposits would by and large have just legged it there and then.

I’ve always had a lot of time for D McW but the guarantee was a bad idea given the risks, and the idea you could just ditch it was naive.

Diarmuid Ferriter on the toxic culture of the party who introduced the guarantee

“Another problem was that Fianna Fáil was simply in power for far too long and the longer it held office and dispensed patronage the more perverted the definition of loyalty became, in order to justify cover-ups and lies. Lightweights were rewarded and promoted well beyond their capabilities, which resulted in a considerable devaluation of politics and the status of public office. Those who called for accountability within this culture experienced fear, menace and intimidation.

As we edge towards the centenary of the events that comprised the revolution of the early 20th century, we face a stark conclusion: this is a State bereft of meaningful sovereignty due to its bankruptcy and a State whose governing culture has been exposed as rotten.”

“That Fianna Fáil has always made control of that destiny an essential part of its rhetoric and appeal makes the magnitude of its defeat particularly notable, but its critics can argue with much justification that its self-serving pragmatism, another essential part of its identity, finally caught up with it. As the UCD historian Desmond Williams once observed, the party for many years was able effectively to manipulate voters by issuing “firm statements followed by intricate qualifications”.

The firm statements emanating from the party during the last Dáil about a viable survival plan, not involving outside intervention, were the most hollow ever, and during that period the intricate qualifications – giving a blanket guarantee of bank liabilities and ultimately opening the door to the International Monetary Fund and the European Union, effectively resulted in a loss of sovereignty.

These developments were perceived as amounting to the abandonment by the party of one of its core commitments at its foundation in 1926 – “to make the resources and wealth of Ireland subservient to the needs and welfare of the people of Ireland”.

@ Brian Woods
I wouldn’t castigate him for his role at all.

He was making a genuine attempt to come up with a solution to a very complex problem. He thought he had come up with a solution that was different (look back at his own articles at the time) and never used before.

@ Gavin

The reason his blanket guarantee of all assets and liabilities solution had never been tried before was because once a sovereign government gives a banking guarantee it cant go back on it. Even if they put a time limit on it, you cant rescind it or the thing you were trying to prevent will happen.

His suggestion in 2009 to do so showed that he was naive in suggesting it in 2008 in the first place. I think he was used in a way.

Colm McC previously compared and contrasted the review/reporting after the “whale” eposide involving JPM.
Another shorter report has been released.
To some degree the losses incurred by AIB with its rouge trader in Baltimore,should have resulted in tighter regulation and better governance,it was the proverbial canary in the coal mine for Irish regulators and boards.

The NYT reporting on this is here.
“Last month, JPMorgan Chase released the internal analysis of the $6 billion loss in its synthetic credit portfolio in 2012. While the losses may seem as if they were aberrations that couldn’t happen elsewhere, the governance recommendations that were released as part of the internal analysis are highly relevant across corporate America, not just financial institutions.”

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