Economy Favourites

Burning the Bank Bondholders. ECB Changes Position.

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.



What Will Happen When the Eurozone Collapses?

As political dithering continues, it looks more and more likely that the euro zone will break up, if not completely, then perhaps with some countries being cut loose.  Ireland is one of those countries, which may explain why the government is so diligently adhering to the terms of the troika agreement, and even going beyond it in the case of last week’s payout  to the unsecured Anglo bondholders.  It could be intended to placate those who will ultimately decide who gets kicked out : Germany and France.

In other words, Germany.

In a disturbing piece published in today’s Examiner, and in an expanded version on his own blog, Brian Lucey explores some of the consequences for Ireland if we have to abandon the single currency.

He argues that if any country leaves the Euro, it will cause a cascade effect leading to the disintegration of the the eurozone.  Alternatively, if the Germans decide not to bankroll the system, the euro is also doomed, and Lucey argues that any sensible government ought to be planning how to deal with the consequences, which will be extreme.  A sharp rise in the cost of imported goods and services.  More expensive oil and gas.  Savage cuts in government spending to create a balanced budget immediately.  Big increases in the interest we have to pay on sovereign debt.  High inflation.

The scenario that Lucey outlines would, in my opinion, cause widespread hardship and civil unrest, leading to an inevitable crackdown by government, limiting all sorts of civil liberties, including free speech. Websites like this one might not be permitted to exist in the harsh financial winter we face.

Read what Brian Lucey has to say and take it on board.  He isn’t making it up.




IMF / ECB bailout will cost Ireland €5 billion interest every year

In future, before the government decides on a single penny of expenditure on vital services, it will have to take out more than €5 billion to pay the interest on the IMF / ECB loan at the penal interest rate of 6.7%.  That’s €5 billion less to spend on health and education, so that the banks can be sheltered from their criminal mistakes, and so that the speculators who invested in them can be spared the pain of an investment gone wrong.

Free market economics, Lenihan-style.

Five billion every year in interest on a loan that would not be needed but for the decision to guarantee banks that failed due to mismanagement.

Every sane commentator in the world is saying this is a mistake.  Even the Financial Times, hardly a bastion of left-wing dissent, is advising against it.

The alternative?  Force the creditors to take ownership of the banks, so that they have no option but to recapitalise them if they want their money back.  After five or ten years, the banks will be back in profit and perfectly capable of repaying the investment.

Instead, in the most extreme example of moral hazard ever seen, the Irish government has taken upon the Irish people responsibility for mistakes they did not commit.  The argument that we all borrowed too much is utterly spurious because, for the most part, we all still continue to pay our debts, and are therefore not part of the problem.  It doesn’t matter what you or I borrowed if we make the repayments. In fact, we’re a major asset to the banks, so let nobody lecture you about how you lost the run of yourself.  It’s nonsense.

This punitive deal is being forced through over the weekend so that it can be completed before the markets open on Monday.  Ireland is being sacrificed to appease the spivs and money-dealers because the EU and the IMF are worried about Spain.

Let me repeat: the Irish people did not cause this problem.  What caused this problem was the greed, dishonesty and incompetence of the bankers.  What brought the catastrophe on Ireland was the decision by Lenihan to guarantee the. whole lot of them.

You might have heard Peter Bacon on the radio recently saying that he advised Lenihan the banks were in hock to the tune of about €158 billion.  A week later, Lenihan told the Dáil the figure was about €75 billion.

A lie. One lie among many, from a liar

By such lies, the Irish people have been led gently through a maze of deception to the point where we are now to be sacrificed for something we did not do.  The world is baffled.  Nobody can believe that an Irish government would willingly allow its country to be destroyed, and yet that’s precisely what Cowen and Lenihan are doing.

Why?  Because they’re serfs.  Forelock-tugging peasants lacking the courage to face up to those who are attempting to force this disaster on the country.