Hands up all those who said you can’t burn senior bondholders.
Anyone? No? You’re all very quiet over there.
When even the Financial Times was saying Ireland should impose burden-sharing on the failed banks’ bondholders by insisting on a debt-for-equity swap, there was a clamour, not only from European politicians and from the European Central Bank, but also from our own domestic doomsayers, predicting the end of the world if we didn’t bail out these mega-rich investors and save them from the consequences of having made a bad business decision.
And so we duly went and put Irish citizens into hock for generations to come so that unimaginably wealthy business people might not suffer any loss when their bet went bad. I’ll keep repeating this until they physically hold me down and gag me. The money poured into Anglo and Irish Nationwide was not a bank bailout. Why? Because those banks were dead and had no hope of ever trading again. It was the rescue of gigantic hedge funds and private investors all over the world and it was heaped on the shoulders of the Irish people by two idiots, Brian Cowen and the late Brian Lenihan.
As a result of bailing out these speculators, our country is on its knees. Imagine it. These two buffoons took it on themselves to turn private-sector losses into public debt. Did you ever hear the like of that?
B&B invented a new political ideology that was the very opposite of capitalism. It was more like a demented form of communism in which the State took over not the means of production, but the means of making a loss. Where it came closer to Soviet-style communism was in the fact that the private citizen mattered not one iota. Lenihan even had the effrontery to tell us that this was our patriotic duty.
Our patriotic duty, to subject ourselves to penury so that no gambler in the betting shop of the markets might lose a wager.
And if B&B were inept, they were enthusiastically egged on by Jean-Claude Trichet in the ECB. When Trichet issued his instructions, his two bumbling marionettes in Dublin danced to his tune. Even when the Danish government inflicted losses on bondholders, the mantra went on: you can’t burn the bondholders.
Well guess what? You can. Suddenly, since Spain and Italy ran into trouble, since Francois Hollande ascended to power in France and since Mario Draghi took over from Trichet at the ECB, it now becomes possible to do what the FT, Joseph Stiglitz and every other person of sanity has been saying. Suddenly, it’s possible to stand back and let investors take their losses in true capitalist style. That’s what Spain will be doing, with the blessing of the ECB. No bank guarantee for them. They’ll be saying this is a private-sector problem, with private-sector companies failing and it has nothing to do with the sovereign government.
Great news for Ireland, you’re probably thinking.
Eh — no, Ted. Unfortunately, all the Anglo and Nationwide bondholders have already been paid off. They’re gone and so is the money. Gone, including Abramovich who bought Anglo bonds at ten or 20% of face value on the secondary market and insisted on getting the full price from our government. How many Chelsea players did the Irish taxpayer fund with that handout?
Abramovich threatened to sue the government for going back on its commitments. The threat was hollow, since the government was never obliged to stick with a unilateral guarantee that carried no reciprocal benefit for the Irish State and which was based on false information provided by the banks. More on that another time as we begin to peel back the onion-layers on the night of the incorporeal cabinet meeting. A virtual cock-up in every sense.
So where are we going with this? What’s the end-game?
Well, we still have the issue of the promissory notes. If you remember, these are debts owed by our government to the Irish central bank. You see, in order to pay off the bondholders, the central bank created money out of thin air, as it’s fully entitled to do. But our government must then pay yearly sums into the CB to write down that funny money. Now here, as I see it, is where there might be scope for manoeuvre. Because the ECB has accepted the principle of burden-sharing for Spain and Italy, Ireland is the only country left swinging in the breeze. Up to now, at the insistence of the Germans who have a pathological fear of inflation following their experience with the Weimar Republic, there has been no possibility of quantitative easing, which is a nice way of saying printing money. But Ireland’s money is gone and our government is on the hook to pay it back, so what I would do in Baldy Noonan’s shoes, is look for a derogation.
Let us be the exception in two ways. First, we’re already the exception in having guaranteed the failed banks 100% at the insistence of the ECB, which now agrees that such a policy is insane. Therefore, for a quid pro quo, let us also be the exception by permitting cancellation of the promissory notes, effectively increasing the Eurozone money supply. The fig-leaf can be that it’s a once-off deal involving a piddling sum in European terms, to acknowledge that Ireland went far beyond what Spain or Italy are prepared to do and to recompense us for the pain caused by the obduracy and stupidity of Trichet’s policies.
That’s what I’d be looking for, but then again, I’m not an economist and I’m not a politician.
Maybe smarter people than I am might be able to explain it better.