Occupy Galway Group (mod note added)

Predalien

antoobrien wrote: »

Iceland are paying almost 10% for their troubles and have reached targets that we can only dream about - regardless of what we do or don't do with banks after all there's a 14 billion + hole in the exchequer before we start looking at the banks.

So if we started burning bondholders - what would happen. Iceland were also frozen out of the bond markets as well (at those price still should be) when they started burning.

That's what will happen, except this time the EU/IMF won't loan us money to pay for the nurses, guards, children's allowance etc.

I wonder where we'll find the 20 or so billion we'll need (a guess considering the the hit to the tax base of cutting spending by about 1/3 in a single belt) when that happens.

Sorry to be pedantic but that article says the interest rate was circa 4.9%, am I missing something?

I just think the Irish government underestimated our bargaining power and that under threat of funding being withdrawn are pandering to every whim of the EU/ECB. There is the wider issue of the potential collapse of the currency or the potential benefits if we did withdraw from the Euro. Plus there would be the option of IMF only loans, right now I think we're dragging out the pain when we need to take more drastic action.

skelliser

antoobrien wrote: »

The problem is that if we burn bondholders, we open up the entire Irish loan market (not just the banks, but also the government, business & taxpayers) to higher costs all round.

Lets deal with one crisis at a time. the deficit and the bank gaurantee.

The ECB have said they will support our so called "pillar banks".

For them to turn around and say they wont support them if we burn anglo bondholders will open the rest of the european banking system to massive contagion.

They need us and we need them.

Except our "leaders" have shown zero balls in standing up to these people.

Irishgoatman

antoobrien wrote: »

That's not exactly accurate, as usually is the case when people are talking about bonds (especially the Anglo ones).

The bonds are senior bonds, as such don't need to be secured - hence the lower interest rates paid out for these bonds.

One more time, here's the explanation:

A senior bond has legal status as the first money to be paid in the even of a default (senior creditors - like the Revenue commissioners).

They come before depositors (e.g. retail savings - i.e. you and me).

Then comes subordinated bonds (like the Bristol & West bonds that BOI were looking at burning or the Wexford credit union that lost about €3m).

The senior bondholders that you are proposing be burned did not gamble - they were the investors that supplied long term capital that every company needs, reaping modest rewards.

On the other hand the subordianted bondholders - the ones that got extortionate amount of interest to funding Anglo's "financing" of loans (borrowing on the short term markets to give long term loans) did gamble and they were burned (like the wexford c.u.). Oh yeah, throw in the shareholders (a certain mr quinn can tell you about that).

So in summary there's nothing either illegal or immoral about paying these senior bonds - unless of course you'd like to give up the contents of any and all of your bank & c.u. accounts.

This reply was to my statement that I thought the main issue was the payment to the un-secured bond holders. I did not, as he says here propose that they be burned. Please read my post again.
This is the issue that I hear most people talking about.

Antoobrien makes it appear that there are no such things as un-secured bond holders so can someone please tell me what Enda Kenny and Noonan were talking about before the election when they said no money should be paid to these bond holders? and whilst you're at it can you also explain what a reporter and presenter were talking about on the RTE lunchtime news today when they also mentioned un-secured bond holders?.

If these bond holders don't exist why are they mentioned so often in newspapers and on news programmes.

Someone is misleading us and I'd like to know who.

Predalien

Irishgoatman wrote: »

This reply was to my statement that I thought the main issue was the payment to the un-secured bond holders. I did not, as he says here propose that they be burned. Please read my post again.
This is the issue that I hear most people talking about.

Antoobrien makes it appear that there are no such things as un-secured bond holders so can someone please tell me what Enda Kenny and Noonan were talking about before the election when they said no money should be paid to these bond holders? and whilst you're at it can you also explain what a reporter and presenter were talking about on the RTE lunchtime news today when they also mentioned un-secured bond holders?.

If these bond holders don't exist why are they mentioned so often in newspapers and on news programmes.

Someone is misleading us and I'd like to know who.

Senior bondholders are unsecured.

Predalien

FreudianSlippers wrote: »

We are still unable to return to the markets. So I ask, what if we cannot burn the bondholders and why would we burn them when we are also senior bondholders? We own €30billion of what used to be called Anglo after all.

Just on that €30b, we got that through the ICB which got it from the ECB so if my understanding is correct we will be borrowing about €3b a year for ten years (plus all the interest which accumulates, €17b or so) and eventually it'll all just go back to the ECB. So as bondholders it matters not a jot to us whether it gets paid back as we'll never see it anyway?

FreudianSlippers

Predalien wrote: »

Just on that €30b, we got that through the ICB which got it from the ECB so if my understanding is correct we will be borrowing about €3b a year for ten years (plus all the interest which accumulates, €17b or so) and eventually it'll all just go back to the ECB. So as bondholders it matters not a jot to us whether it gets paid back as we'll never see it anyway?

I just had this clarified to me actually by Scofflaw in Politics. We were discussing the alleged concerns now of the ECB in preventing Ireland from burning senior bondholders; although now, it seems that the ECB is saying they are not preventing the burning of bondholders (it's a government decision but one they agree with due to the potential fallout)

the ECB has provided 0% interest money for the Anglo bailout. The €30bn in promissory notes used to bail Anglo out have interest, but it is interest payable by the government to Anglo (or IBRC as it now is), and payable in turn by Anglo to the Irish Central Bank, which is again part of the State. The interest is not payable to the ECB.

Predalien

FreudianSlippers wrote: »

I just had this clarified to me actually by Scofflaw in Politics. We were discussing the alleged concerns now of the ECB in preventing Ireland from burning senior bondholders; although now, it seems that the ECB is saying they are not preventing the burning of bondholders (it's a government decision but one they agree with due to the potential fallout)

But we still need to borrow an extra €3b a year to pay the promissory notes so we'll pay the interest that extra borrowing imposes on the national debt?

biko

Hello World have been permanently site banned as a rereg of forum banned padraig91
Carry on

FreudianSlippers

Predalien wrote: »

But we still need to borrow an extra €3b a year to pay the promissory notes so we'll pay the interest that extra borrowing imposes on the national debt?

The money we are using to buy the promissory notes you mean? We get that from the ECB at 0% interest

antoobrien

Predalien wrote: »

Sorry to be pedantic but that article says the interest rate was circa 4.9%, am I missing something?

probably this line

The debt is due in 2016 and carries a fixed rate 4.993 per cent semi-annual yield.

4.993% paid twice a year is almost 10%

lobes

squonk wrote: »

Party up or shut up IMHO. I don't agree with many government policies but to gain traction I need to get some like minded individuals together with myself to form a party and get elected and use my mandate to get the policies changed.

NUI Galway Literature & Debating Society held a debate on Thurs 19th Jan 2012 entitled ' Civil Disobedience is Not the Solution to Irelands Problems'.
Recorded here are the arguments of some of the audience members who opposed the house motion:




http://soundcloud.com/occupygalway/civil-disobedience-debate

antoobrien

Irishgoatman wrote: »

Antoobrien makes it appear that there are no such things as un-secured bond holders

That's not what I said either - I said that senior bondholders don't need to be secured due to the order or precedence of payment (which is an international convention and as pg633 stated appears to be enshrined in Irish law), as such they are de-facto secured.

The Wexford credit union that lost almost €3m is an example of junior/subordinated bondholders who were unsecured (or who get one of the various forms of insurance) - otherwise we wouldn't have heard about them in the first place.

Now if you want to find out the difference betweens senior & junior bonds I suggest you start here.

Fuinseog

Maybe the occupy Galway group should form themselves into a party. A political one. I am sure they would have the have the support of the people. Everyone is an expert on how to solve the countrys problems, albeit hurlers on the ditch.

These young people seem to be full of energy we need more people in our national parliament wearing t-shirts and looking as if they just got out of the scratcher.

Predalien

antoobrien wrote: »

probably this line



4.993% paid twice a year is almost 10%

Remarkable lack of understanding of how bonds work here. It's 4.993% semi annual yield on €1b, so that's interest of €24.965m twice a year. Not 4.993% twice a year.

Predalien

FreudianSlippers wrote: »

The money we are using to buy the promissory notes you mean? We get that from the ECB at 0% interest

But wasn't the debt converted to promissory notes by the ECB and they then fall due every year at €3b each time, so every year we have to borrow an extra €3b to pay this, which attracts interest as we will inevitably be borrowing to pay it.

beardybrewer

Irishgoatman

antoobrien wrote: »

That's not what I said either - I said that senior bondholders don't need to be secured due to the order or precedence of payment (which is an international convention and as pg633 stated appears to be enshrined in Irish law), as such they are de-facto secured.

The Wexford credit union that lost almost €3m is an example of junior/subordinated bondholders who were unsecured (or who get one of the various forms of insurance) - otherwise we wouldn't have heard about them in the first place.

Now if you want to find out the difference betweens senior & junior bonds I suggest you start here.

Again my post is being mis-read.
as shown on the piece you quoted on, I said you make it appear etc. Appear being the operative word.
What I am trying to get a clear answer to is why are un-secured bond holders still being mentioned if there are none to burn?.
Yes I think I know the difference between senior & junior bonds but that is beside the point.

Predalien

Irishgoatman - There are still unsecured bondholders, but they are senior unsecured. The €1.25b due soon is a senior unsecured bond. The unsecured bit is misleading but technically correct even though our politicians are saying we have to pay it.

lobes

FreudianSlippers wrote: »

Just out of curiosity, what if there is no other solution. The ECB has made it clear that they are not willing to discuss giving senior bondholders a "haircut" advancing the "contagion" argument. Not saying I necessarily agree with the ECB stance on this (and it is not in our memorandum of understanding with them) but it could influence their decision to continue funding us at a low interest rate.

We are still unable to return to the markets. So I ask, what if we cannot burn the bondholders and why would we burn them when we are also senior bondholders? We own €30billion of what used to be called Anglo after all.

Taken from the http://www.notourdebt.ie/ website:
"What are the risks in debt suspension?
1. There are risks. However, the main risk commonly cited that the ECB would ‘cut off funding to our pillar banks’ is simply not plausible as the pillar banks are being maintained to avoid contagion; a contagion that would spread to the core-EU economies if the ECB precipitated their collapse (and they would collapse without ECB funding). Why would the ECB take action to precipitate the very outcome they have been desperately trying to avoid since 2008?
2. Loss of investor confidence – With Government bonds rated as junk, and given that we are not in the international market, this risk is in many respects academic. If anything, it would probably help since we would need less funding and would have less of a debt/interest payment burden.
This is likely to impress the ‘markets’ more.
3. Would there be a retaliation by the troika? – Promissory note repayment is not a condition of the EU/IMF Memorandum of Understanding agreed with the troika and would therefore not directly affect the loan agreements."

For a list of Frequently Asked Questions on the issue:
Why are we responsible for the Anglo/INBS debts?
Who is the money going to?
Who are these bondholders?
How much of the debt is owed to bondholders?
What is a promissory note?
Where does that money go?
How much are the repayments?
What will be the total cost?
What else could we do with this money?
What other option do we have?

See:
http://www.notourdebt.ie/faq

FreudianSlippers - This information was produced with technical assistance from Tom McDonnell, TASC.
Seeing as you are based in Dublin you might be better served trying to organise a public debate - which I presume Occupy Dame Street would be happy to host - with Tom McDonnell or other Dublin based experts of notourdebt.ie on this issue?

antoobrien

Predalien wrote: »

Remarkable lack of understanding of how bonds work here. It's 4.993% semi annual yield on €1b, so that's interest of €24.965m twice a year. Not 4.993% twice a year.

The reporting isn't exactly clear but I take that to mean twice a year

This article seems to agree:

3. Determine the Semi-Annual Yield: Like the coupon rate, the required yield of 12% must be divided by two because the number of periods used in the calculation has doubled. If we left the required yield at 12%, our bond price would be very low and inaccurate. Therefore, the required semi-annual yield is 6% (0.12/2).

Predalien

antoobrien wrote: »

The reporting isn't exactly clear but I take that to mean twice a year

This article seems to agree:

The link provided agrees with what I said, in Iceland's case the required yield is 4.993%, the number of payments doubles as it is a semi annual yield so you divide by 2, so its %4.993/2 every six months. A good rule of thumb is where the word semi is used divide by two, don't multiply.

Irishgoatman

Irishgoatman wrote: »

What I am trying to get a clear answer to is why are un-secured bond holders still being mentioned if there are none to burn?

Because protesters will get more attention and support shouting "Burn the bondholders" than they would shouting "Burn the bondholders and depositors to the same degree"

Being unsecured doesn't mean anything really in this case - it just means there are no specific assets that can be seized in the event of a default. Depositors are equally unsecured.

An example in consumer finance is that a mortgage is secured against the underlying building and the building can be seized in the event of a default, credit card debt is unsecured as it doesn't have a right to seize anything if it isn't repaid.

edit: article calling for depositors to rank ahead of bondholders:
http://www.independent.ie/business/irish/law-must-mind-depositors-not-bondholders-2382109.html

Lockstep

Can also be seen here

antoobrien

Predalien wrote: »

The link provided agrees with what I said, in Iceland's case the required yield is 4.993%, the number of payments doubles as it is a semi annual yield so you divide by 2, so its %4.993/2 every six months. A good rule of thumb is where the word semi is used divide by two, don't multiply.

Can we agree on one thing: the semi annual yield = half the annual yield?

Now I'm going to explain where I get the 10% from.

From the newspaper article:

The debt is due in 2016 and carries a fixed rate 4.993 per cent semi-annual yield

Again from the explanation:

3. Determine the Semi-Annual Yield: Like the coupon rate, the required yield of 12% must be divided by two because the number of periods used in the calculation has doubled. If we left the required yield at 12%, our bond price would be very low and inaccurate. Therefore, the required semi-annual yield is 6% (0.12/2).

The semi annual yield is specified at 4.993% - therefore the annual yield must be twice that (9.986% - very close to 10%).

FreudianSlippers

Predalien wrote: »

But wasn't the debt converted to promissory notes by the ECB and they then fall due every year at €3b each time, so every year we have to borrow an extra €3b to pay this, which attracts interest as we will inevitably be borrowing to pay it.

Yes, but my understanding (and I could be wrong) is that we borrow that money from the ECB at 0% interest.

Predalien

antoobrien wrote: »

Can we agree on one thing: the semi annual yield = half the annual yield?

Now I'm going to explain where I get the 10% from.

From the newspaper article:


Again from the explanation:


The semi annual yield is specified at 4.993% - therefore the annual yield must be twice that (9.986% - very close to 10%).

Fine I can see where you are coming from but the Irish Times phrasing is where the error is, they should have said a fixed rate of 4.993%, with a semi annual yield. The yield on the bond issued was 4.993% see here
http://www.reuters.com/article/2011/06/09/markets-bonds-iceland-idUSN0918698920110609

Predalien

FreudianSlippers wrote: »

Yes, but my understanding (and I could be wrong) is that we borrow that money from the ECB at 0% interest.

But we won't be borrowing more from the ECB to pay back the ECB, we'll be borrowing from the bail out fund and the interest rate attached to that. The ECB money is interest free in a way but we will need to borrow to pay it back and that borrowing will attract interest.

antoobrien

Predalien wrote: »

Fine I can see where you are coming from but the Irish Times phrasing is where the error is, they should have said a fixed rate of 4.993%, with a semi annual yield. The yield on the bond issued was 4.993% see here
http://www.reuters.com/article/2011/06/09/markets-bonds-iceland-idUSN0918698920110609

Grand - fyi i.t. got it from bloomberg.

Predalien

antoobrien wrote: »

Grand - fyi i.t. got it from bloomberg.

No worries, but just to go back to the start, Iceland did decide to not pay back bondholders, and yes deposits were lost but it reduced their overall debt burden and they were able to return to the markets and borrowed at under 5%.

antoobrien

Predalien wrote: »

No worries, but just to go back to the start, Iceland did decide to not pay back bondholders, and yes deposits were lost but it reduced their overall debt burden and they were able to return to the markets and borrowed at under 5%.

But are back in the market (at least partially) because the the ability to devalue the currency vs the Euro by up to 50% - causing an export boom.


It's worth noting a) - we can't devalue the currency & b) most of out exports are buy multinationals so there's less of a tax boost beyond basic employment.

So one of the things that allowed Iceland to get to the point where they can borrow (after they p*ssed off their trading partners) isn't available and the other is keeping our heads just about above water - where do we get the room to maneuver if we p*ss off everybody?