Good Banks, Bad Banks and Other Fairytales

They have a new idea for breaking up Anglo-Irish Bank.

Call me a stick-in-the-mud if you must, but I preferred the first idea: splitting it into a good bank and a bad bank.    I’m not saying it was a good idea.  I’m just saying I preferred it for its old-fashioned Hollywood values.  At least with a good bank and a bad bank, we knew who wore the black hat.  We knew who to boo and whistle at.  The bad bank would think nothing of tying a heroine to railway tracks and twirling its moustache as it laughed.  The good bank would rescue the hapless maiden and perhaps even marry her.

But now what are we looking at?  They’re going to split Anglo into an asset-recovery agency and a savings bank.   Repo Bank and the First Bank of Noddy.

I know you’ll correct me if I’m wrong, as usual, but don’t we already have an asset recovery agency called Nama?  And didn’t we, until recently, have a deposit bank called the Post Office?

Look, I’m not a banker.  I’m not an accountant.  I’m not an economist.  I’m just a regular Joe trying to understand what the hell is going on, much like Lenihan and Cowen.  I don’t understand how all this works, but sometimes that can be an advantage.  You see, it isn’t always necessary to understand what’s happening under the bonnet.  Does it go or doesn’t it go? That’s all I want to know as I kick the tyres.

So forget about all the technical talk.  I’m not interested, and you probably aren’t either.

We know that a big ball of money was lent out by Anglo and we know that a lot of it isn’t coming back.  The world and his dog in the street know that the money lost is about €35 billion, even though the government won’t mention a figure, just as you don’t say hello to the Devil if you happen to meet him in a graveyard at midnight.  He might just go away, because Satan is like that: stupid.  Right?

Anglo has lost €35 billion and we, taxpayers, are on the hook for it whether we like it or not.  After splitting Anglo into the Repo Bank and the First Bank of Noddyland, do we now owe less than €35 billion?

The answer, obviously is No.  We don’t.  The debt didn’t just evaporate.  The people who are owed the money didn’t suddenly forget, just because Lenihan changed the name of Anglo to …

… to what?

What are they going to call the new bank?

How about the Aviva Bank?  Oh, wait a minute.  We’d better not go there after today’s grim news that the FAI has totally screwed up on pre-sales of tickets for the re-vamped Lansdowne Road stadium.  John Delaney, it seems, is uncontactable, which is hardly surprising. He’s in a huddle with Lenihan and Cowen, heads under the blanket, all chewing their favourite Noddy dolls and trying to find a way not to talk about the monster under the bed.

Or the O2 Bank?  Would that be missing the Point?

I already suggested the Schrodinger bank, and I’m sticking with that, although it might challenge poor President Bert’s limited repertoire of vocalisations.

But enough.

Changing the name isn’t going to help.  Splitting it into two isn’t going to reduce the debt, unless it implies something else, and I’m hoping it does.  Perhaps the idea of the deposit bank is to create a clear distinction between depositors and bondholders, with a view to stiffing the latter, or is that too much to hope for?

Everyone was on message today.  Nobody wanted to talk about a wind-up of Anglo, even though there has never in the history of banking been a more appropriate description of the shenanigans engaged in by the affable, businessman-looking Seanie Fitz and his little glove puppets. Everybody wanted to talk about a work-out instead of a wind-up.

You say Tomayto, I say Tomahto.

What’s a work-out?  What’s a wind-up?

Will either of them make the €35 billion debt go away?

No.  They won’t.  It will still remain no matter how many million splinters they shatter Anglo-Irish into.

It seems to me, subject to correction, that a wind-up and a work-out are both ways of saying that  we’ll pay off the debt bit by bit.  Every last penny of it, to every gambling panhandler who hitched a ride on the stinking gutcart driven by Ahern, McCreevy, Cowen, Fitzy, Fingers, Goggin and all the other plum-pullers who created the debacle.

And by “We”, I mean “We”.


Elsewhere: Dermot Carmody

Morgan Kelly telling as it was two years ago, and nobody listened to him:

23 replies on “Good Banks, Bad Banks and Other Fairytales”

The genius of it all. A bad bank for the entire banking sector sector, called NAMA, which bought around €36bn of Anglo’s debt, if i recall correctly.

And now a new bad bank specifically for Anglo, to deal with the €25bn the government said was necessary to cover the dodgy loans (which rose to €30bn today and could go higher).

Excellent jiggery pokery the like of which has never been seen.

Maybe you’ll get a third bad bank in 12 months to deal with the really bad shit and liabilities that no one has discovered in Anglo.

All good things come in threes.

What i also love about it all is that the Irish taxpayer was told that guaranteeing all the loans in all the banks would instill confidence in Ireland’s “system” and allow its government to continue to borrow money properly (i.e. at good rates) in bond markets.

Then everyone was told the taxpayer needed to prop up Anglo specifically because letting it fall (leaving the risk-taking annoymous bondholders out of cash, god love them) would constitute a sovereign default. Which was, and is still, a load of shite.

And now creating a second bad bank is being hailed as a way of installing further confidence in the Irish system. But, as any market observer knows, the slight reduction in the cost of Irish government borrowing today had fuck all squared to do with the nonsense announced by the chaps in Dublin and everything to do with the ECBs purchase of government debt.

And the net result of all this thus far – Irish Government borrowing is the most expensive in Europe. And until we all know just what shit is in Anglo, it shall remain so – and could get worse when further details are announced.

Doubles and triples all round to the political masters.

We know what shit Anglo is in, but not because Lenihan told us. Much thanks to Standard & Poors for telling us. €36 billion. Everybody knows, as Leonard Cohen occasionally sings.

What can I tell you?

Just like Brian Lenihan, I have no access to the real figures, but this is the number S&P are suggesting, and they are far better informed about such matters than the government.

“Hey there, little debt-slave. We have a new colour collar for you. Be grateful or else!”

The clip is interesting and it seems like an age ago. You have a meeja eedjit (who is probably still in post) incuriously lapping up the press releases, a stock broker licking his lips, and a man trying to tell the truth.


30th September 2008.

Again I disagree with you.

“Call me a stick-in-the-mud if you must, but I preferred the first idea: splitting it into a good bank and a bad bank.”

That was never my preference.

My preference was to shot the rabid dog in the head on day one.

Then circle the wagons around what’s left and prepare for the savages to attack.

What did Brian Clown do? What did Brian Lend-a-Hand do?

They let the rabid dog live and invited it and the savages into your home.

Here’s the thing Bock.

The savages now know that you have allowed the rabid dog into your home. The savages have the rabid dog on a leash.

That dog is dribbling poison.

The savages say

“give us the money or we will let this rabid dog devour your six month old baby, and then we will make sure that the rabid dog bites you”.

“In your madness you will begin to wonder whether you even had a six month old bay”

“and that’s exactly how we want you to be”.

Welcome to the ECB.

Welcome to the IMF.

Welcome to Fascism.

O2 bank is also potentially a good name – especially since the money appears to have vaporised into thin air.
Perhaps we can start a major construction project and separate The Pale from the rest of the island of Ireland, to sell it off to Germany as a holiday resort. They could offer the Complete Paddy Experience, a bit like Disney Land. Cowen can be the equivalent to Goofy, Lenihan – Scrooge McDuck. Kenny and Gilmore will be like Chip ‘n Dale.

“We’re in the eye of the storm Brendan Keenan”

Isn’t Miriam great all the same?

Someone who knows fuck all about anything but can convince you that she has something to say.

I love Pravda.

Can I get a job there?

I know stuff and can convince you of the exact opposite of the stuff I know.

Can I have Joe Duffy’s salary?

And if not why not?

Two items, neither of which are exactly surprising:

1. From yesterday’s Wall Street Journal: “Ireland has already spent well over 20% of its gross domestic product rescuing its banks”

2. The World Economic Forum’s annual rankings, known as the Global Competitiveness Report 2010/2011, released today, ranks Ireland’s banking system as the least sound of the 139 countries surveyed

As I said, no surprises there, but I like reading it from these types of media – they tell it like it is, as opposed to our own dear Pravda

@Rick Banker. Good canine analogy. Why not call Anglo RABID BANK. Miriam’s salary is good. But if you really want megabucks, go for John Delaney’s ‘because I’m worth it’ salary from the FAI. Close to €500,000 all in but I’m subject to correction on the exact amount. The FAI as I recall also gets a nice cheque or cheques every year from the good old taxpayer.
It seems if you want real money work for State funded organization that in the shit or a State monopoly.

@Bock. I have a little knowledge of the finance area but I haven’t a clue what is now proposed with Anglo. You are right. The figure lost will not change. About €35 billion if we’re lucky.

However there is one reason and one reason only for keeping a savings bank. National bankruptcy is around the corner. When there is no more money in the State coffers, its good to have somebody else’s funds in a savings bank. Its the last piggy bank before starvation. Even if the money is not your own. It might manage to pay the salaries of the top ranks when everybody else does not get paid.
These boys look after number one.

Okay, somebody needs to explain this to me about Anglo.

Anglo is *owned* by the state, but Anglo *isn’t* the state. If Anglo is let fail tomorrow, we the owners go from owning a pile of shite to owning nothing. Just like would happen any other shareholder of any other company, yes?

So the real problem is the state guarantee that says no matter who owns it, the taxpayer picks up the tab. So can somebody explain why the government didn’t let the guarantee lapse just for Anglo so we can just forget about it? If AIB or BOI went bang tomorrow we might care, but for Anglo we simply don’t.

I really don’t buy all this bull about how letting Anglo fail will cause a crisis. Is €35 billion debt + interest + €x billion in lawyers fees to administer it all not a crisis? Prolonging this pain and sticking with Anglo tells the markets “we don’t care how bad it is, we’d rather scuttle the ship than admin we fucked up and just can’t afford to pay it all back”. A clean break says “we’ve all lost a pile of money, but we hope everyone’s learnt something about dealing with shysters called Fitzie and we’ll start again a bit more carefully now”.

Am I crazy?

@Andrew. No you’re not crazy. You just need to live in a different country. I will have look at the Anglo numbers later today and will reply on how I think it would work out if we let the guarantee lapse. Either way we should not bail out this bank. Do you recall getting dividend cheques from these banks when they were making billions?

Rich Banker — A small clarification. I didn’t say the good bank-bad bank proposal was a good idea. I said I preferred it to the latest one. For aesthetic reasons.


“A clean break says “we’ve all lost a pile of money, but we hope everyone’s learnt something about dealing with shysters called Fitzie and we’ll start again a bit more carefully now”.”

That suggests that such a thing is possible. If Ireland did default, do you really believe for one minute that that would break the cosy links between the Dáil and the business elite?

In reality, it would not. The result of either scenario involves the government continuing to toady up to the same conmen who caused the crisis to begin with; the difference being that a default means they might have their shady dealings revealed.

My misreading Bock.

To be clear the Good Bank / Bad Bank was nevertheless a nonsense.

If there are “Good” loans in Anglo they should be transferred to BofI.

Why is the citizen/taxpayer paying the bloated salaries of Anglo staff many of whom directly contributed to this mess.

alan dukes last nignt said 39 billion could well be the cost.
thats 39,000,000,000 euros if my zeros are right.

@Andrew. The Anglo Balance Sheet at June 30 2010. Its a bit technical but I did say I would try to analyse it.

An Analysis of Anglo Balance Sheet at June 30th 2010.

The Irish Government have already put in the following. Cash €4 billion for shares followed by an IOU of €18 billion as a capital reserve to keep pretending that a bank exists. That’s €22 billion.
Then we have a bit of help from NAMA.
NAMA bonds already issued for loans sold to NAMA €4 billion.
NAMA bonds on the way for loans ready to go to NAMA €17 billion. That €21 billion.

So far that’s €22 billion gone plus €21 billion”help” by buying loans.

NAMA say they will recover the value of these loans. Lets wait and see. It could be a long wait. Dial Morocco 666 to get the money from Johnny Ronan. But that is still not the end of it.
Then there are “Customer Loans” still left of €30 billion. On the books at €37 billion less a reserve of €7 billion, Paddy Power might be the best place to get a value for these. Conservatively there is a further direct loss there of €15 billion.
That means a total of €37 billion loss plus €21 billion “help”.

Can the rot be stopped right now. Yes it can. It just means deciding who not to pay or to use the jargon ‘who takes the haircut’.

Subordinated bondholders are owed €2 billion. Stiff them. Other bondholders €17 billion. [Almost €8 billion of these are due at the end of Sept and virtually all are government guaranteed]. Stiff them. If the government decided not to pay these, then that would probably sort the Anglo problem.

Alternatively, one could say to the Central Bank/ECB that we can’t pay back the above bondholders and ask both Central Banks to convert their loans to Anglo which amount to €26 billion into “equity”. Magically the bank would be best capitalised in Europe. However the Germans who control the ECB may not be too happy. Nevertheless that is the whole idea of Central Banks.

There are therefore three obvious solutions.
Burn the holders for approx 17 billion.
Burn the ECB /Central bank for the same €17 billion (no need for full amount).
Burn the Irish taxpayer until he or she sizzles trying to get another €17 billion.

Guess what the government has chosen.

@Tumbrel Cart, excellent post. The debt needs to be haircut, or the overhang will be a burden on our society for years. Debt slavery is not the way forward for us.

Finally, why this insane need to constantly prop up asset prices? It doesn’t create wealth, it only transfers it from one group to another. The property boom benefited landowners and borrowers at the expense of renters, savers and the young. Stable prices (relative to personal income) would have been a far better path. Of course, there’d have been a few less quid in it for the boys at Anglo and their friends and benefactors.

Finally, on the name. I like the canine names, but may I suggest Parrot Bank, in honor of the Monty Python sketch, with the taxpayers in the John Cleese role:
Taxpayers: Look, matey, I know a dead bank when I see one, and I’m looking at one right now.
Lenihan: No no he’s not dead, he’s, he’s restin’! Remarkable bank, the Anglo Irish, idn’it, ay? Beautiful headquarters!
Taxpayers: The headquarters don’t enter into it. It’s stone dead.
Lenihan: Nononono, no, no! ‘E’s resting!

Isnt it amazing that up to this week ,Alan Dukes when asked to estimate the final cost of Anglo,repeated ad nauseam that anyone trying to do so was “only taking a punt” (his words). All of a sudden hes able to arrive at this figure despite refusing to engage in crystal ball gazing heretofore. Nothing,I suppose, to do with the EU telling him and Lenihan and their ilk where to go with their good bank,bad bank plan. Dukes is another shyster and proof,if proof was ever needed,that there is no difference between FF and FG. 150,000K Anglo salary whilst being paid a ministerial pension. Puts Ivor in the halfpenny place.

Somebody should tell those naughty people at the FT that they’re being negative.

“But Irish leaders are prolonging the uncertainty in the hope that zombie banks will, Lazarus-like, come back to life.”

“Dublin fears that cutting loose Anglo’s bondholders will kill demand for Irish sovereign debt. The opposite is true, as record-high sovereign spreads show. Its huge fiscal deficits are manageable – just. It is the open-ended exposure to private liabilities across the banking system that drives up sovereign yields. Dublin must get its priorities right.”

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