Author: Karl Whelan

Anglo: What Are The Options?

The public debate of the past number of days has focused on the question of whether Anglo Irish Bank should be wound up and whether that could save the government money. However most of the political discussion and, unfortunately, much of the discussion on this blog, has failed to shed much light on what are the real choices available to the government and what the relevant tradeoffs are.

Both the pro- and anti-windup supporters have produced unhelpful arguments. The government have a stronger case for their actions than most people think but they have undermined themselves by citing cost figures for a windup that are literally incredible. Meanwhile, pro-windup advocates have often given little consideration to the nature of Anglo’s liabilities.

This post is an attempt to describe the issues at hand in a reasonably comprehensive way without trying to fully endorse either government or opposition positions.

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The World’s Slowest Recap: A Cunning Plan?

I think it is widely agreed that undecapitalised banking systems saddled with bad loans are a threat to the efficient functioning of the economy. I think it’s also widely agreed that, whatever the mechanism, the goal of any banking plan is to return the sector to a healthy well-capitalised condition.

Given that, I find it very disappointing that eighteen months after the Irish banks were thrown into crisis and at least a year since it was clear that losses threatened the solvency of the banks, we are still taking our time getting the banks recapitalised.

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Promissory Notes, Real Money and Borrowing

This is hardly the most important issue right now with so much going on but it’s a two cents I’d like to toss out there all the same.

Last year, I regularly heard the following argument on this blog, in the media and in private. “Overpaying for assets via NAMA is actually the best way to recapitalise the banks. This is because we can purchase the property assets with “NAMA bonds” that we can just print off. They’re not real money, just IOUs. But if we paid a low price and had to recapitalise nationalised banks, we couldn’t do this. We’d have to borrow the money expensively on sovereign debt markets and then hand over real money to the banks.”

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March Unemployment Figures

The standardised unemployment rate for March was 13.4 percent (release here) having been revised up in previous month’s due to last week’s QNHS release. The Live Register based unemployment rate was flat over the first quarter but there are questions now about whether this reflects tightening of benefit coverage rather than underlying labour market conditions.

Today in LTEV Mysteries

Ok folks, let’s have a competition. According to page 3 of this document, we’re paying €8.5 billion for the first tranche of loans, which are backed by property with a calculated long-term economic value of €10.5 billion. First person to provide full details of how exactly this works gets a copy of the old NAMA protest article signed by all 46 guys. Should be worth a fortune in years to come. Zhou is doing trojan work on this right now and has been installed as odds on favourite by Paddy Power.