Cyprus : The Burning Season

Cast your mind back four or five years, to when the full extent of our banking collapse became apparent.  In particular, look at that fateful night in September 2008, when the two Brians decided to guarantee the entire Irish banking system, including two of the worst banks in the history of finance: Nationwide and Anglo.   Nobody knows why they chose to commit an act of such monumental stupidity, but we’ve been living with the consequences ever since.

Barely a month ago, the government was claiming a great victory for renegotiating the repayment schedule of the Anglo promissory notes, and it’s worth pausing here  to remind  ourselves what exactly that means.

We’re no longer paying the Anglo bondholders.  They have all their cash.  They’ve already been given their money back, even though the  business they lent it  to went bust.  The Irish State made sure that no bondholder would lose out, even though they had taken a risk in advancing the money to the failed bank.  In order to finance this, the government issued promissory notes enabling the Central Bank to print money, and each year the government agreed to pay several billion back until eventually the value of the promissory notes was written down.  That’s still the case.   We’re still on the hook for thirty-something billion euros which we borrowed  to make sure those who gambled on Anglo didn’t suffer.

Enda Kenny’s great victory was nothing more than getting a concession over the length of time we have available to pay back the money.  But we still have to pay it.

Contrast this with the Cyprus bailout, which involves burning even the senior bondholders who, in all likelihood, will be lucky to get away with a haircut, and who, more probably, will lose everything.

Why was it impossible to do this in Ireland in 2008, but five years later, perfectly acceptable in Cyprus?

Could it have to do with the fact that the Cypriot politicians were outraged at the injustice being inflicted on their citizens and pushed the ECB to the brink?

Lenihan didn’t do this, and neither did Cowen.  When Trichet was making his midnight phone-calls, Lenihan, so proud of his French language skills,  didn’t tell him va te faire foutre, as he should have done..  When Kenny and Gilmore took over, they were just as craven, continuing to pay off debts we, the Irish people, did not incur, until every last bondholder was looked after.

trichet cowen

Cyprus might be in serious trouble right now, for various reasons, but when they get out of this, they won’t have the legacy of a debt raised to pay off international investors who knew they were taking a risk and factored that into their calculations.

We, on the other hand, will be paying that kind of debt for generations because our politicians didn’t have the guts to say no to the ECB, even when the IMF was saying that bondholders didn’t necessarily need to be paid in full.

It’s true that the Cyprus situation is robbery, but no more so than the robbery that continues  in Ireland to ensure that vast hedge-funds are protected from their own mistakes.

9 thoughts on “Cyprus : The Burning Season

  1. And yet Fianna Fáil are gaining in popularity yet again???
    I can work out that the answer to the question ‘why is that’? is because people are now becoming disillusioned with Fianna Gael and Labour. But really, why go back to a Party that made such a Monumental cock-up as they did in their decision making. Not forgetting that yes it was 2 or 3 persons that made that decision, but it was also agreed and ran with by the whole party afterwards, even though noted economists were shouting ‘Hey hold on now a second’ and being ignored by the Ignorant collective. I despair also at the fact that there are no viable alternatives to either Party. Which also begs another question…Why has there not been another PD like birth in Irish politics in the last 6 years? That Party was borne out of a recession! I mean WTF!! like.
    I have become so disillusioned with Irish Politics.

  2. Maybe the quoted politicians were fretful of their multiple concurrently pensions taking a severe hit; that the said pensions’ rely on the continued performance of pension funds that were screwing with Anglo, Nationwide. Lets face it, one of them is/was an apparent alcoholic hence impaired judgement, and another browbeaten into impaired judgment by a ‘celeb media economist.. Forgive the rudimentary argument; think you know what I was getting at. Feel free to edit.

  3. My understanding was always that the money on deposit belonged to the depositors. The banks’ debts belonged to the banks (any moneys owed to the bank by debtors notwithstanding).

    How has it become the depositors’ (or taxpayers’) duty to subsidize the banks’ debts? Just because Frau Merkel said so??

    A national good bank should have been created to take all monies on deposit into it and let the banks default.

  4. I get the feeling that most governments are petrified that banks can fail because we rely on the banking system for just about everything. No bank system to them equals anarchy back to survival of the fittest and lets face it there isn’t many politicians that could do much more than talk shite all day that’s why they are politicians. They will make up there own laws as they go along they will do ANYTHING!!! to prevent the collapse of the banking system.

  5. I suppose you have to assume that socialism works.

    One example? Just one? PLease anybody? JUst one?

  6. Still nothing. Still no reply of a fully working and functioning socialist system.

    My example:-
    Sweden, Denmark, etc, etc. 60% taxes, the best living standards in the world and why? Small economies and everybody reading from the same page.

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