The Anglo Promissory Note and the Fiscal Treaty

Qualz

There’s been much talk lately about promissory notes, the Anglo promissory notes particularly. Having protested the bank bondholder bailout since September 2010, I felt it my duty to offer my proposal to undecided voters.

Canceling the remaining €30bn IOU to Anglo Irish Bank would allow it to go insolvent. At present, Anglo Irish Bank is already a defunct bank so allowing its remaining liabilities fail would do little or no damage. All that's left of it are worthless liabilities which are ring fenced. The fiscal treaty addresses the structural deficit which in Ireland's case is intermingled with banking debts (the most recent being the €3bn in March). Therefore, the treaty should only be passed if there is a clause to allow Ireland let Anglo's remnants fail.

This advice that I offer should be tried here in Ireland once the next "too big to fail" bank flounders. The often heard shibboleth, "oh, if you do that, the whole system will collapse" will be trotted out again, echoing the excuse to support massive bailouts, i.e., that "look what happened when Lehman Brothers was allowed to go down", with the result that enormous amounts of capital will be expended to protect the likes of Anglo and others. Maybe what should happen is that the system must be allowed to restructure these failing banks, and then start over with a fresh slate. Sure, there will be pain, massive pain, but in the end the patient will recover, and regain health. Contrast that to the situation that obtains today in Ireland, where a slow motion train wreck, dumping capital down a sump hold with no tangible result, is in progress. Time to halt this nonsense and stop living in a fool's paradise.

Scofflaw

What does it have to do with the Fiscal Treaty, though? Ireland can allow Anglo to fail. It just crystallises the losses - which we can't afford.

cordially,
Scofflaw

Qualz

Scofflaw wrote: »

What does it have to do with the Fiscal Treaty, though? Ireland can allow Anglo to fail. It just crystallises the losses - which we can't afford.

cordially,
Scofflaw

Letting it fail eliminates the liabilities and reduces Ireland's debt bringing it into line with the 3% limit under existing EU rules. You would need a miracle to bring it down any further to 0.5% under this treaty. Especially when there is no concession made with the promissory note.

Scofflaw

Qualz wrote: »

Letting it fail eliminates the liabilities and reduces Ireland's debt bringing it into line with the 3% limit under existing EU rules. You would need a miracle to bring it down any further to 0.5% under this treaty. Especially when there is no concession made with the promissory note.

I think you may be mixing up debt, deficit, and structural balance there. There's no requirement to bring the deficit down to 0.5%, the limit is 3%, something we're expected to hit as it is. The limit for the debt, on the other hand, is 60%, and one has approximately two centuries to reach that.

But "voting No to the Treaty eliminates the liabilities"? How so?

cordially,
Scofflaw

Godge

Qualz wrote: »

There’s been much talk lately about promissory notes, the Anglo promissory notes particularly. Having protested the bank bondholder bailout since September 2010, I felt it my duty to offer my proposal to undecided voters.

Canceling the remaining €30bn IOU to Anglo Irish Bank would allow it to go insolvent. At present, Anglo Irish Bank is already a defunct bank so allowing its remaining liabilities fail would do little or no damage. All that's left of it are worthless liabilities which are ring fenced. The fiscal treaty addresses the structural deficit which in Ireland's case is intermingled with banking debts (the most recent being the €3bn in March). Therefore, the treaty should only be passed if there is a clause to allow Ireland let Anglo's remnants fail.

This advice that I offer should be tried here in Ireland once the next "too big to fail" bank flounders. The often heard shibboleth, "oh, if you do that, the whole system will collapse" will be trotted out again, echoing the excuse to support massive bailouts, i.e., that "look what happened when Lehman Brothers was allowed to go down", with the result that enormous amounts of capital will be expended to protect the likes of Anglo and others. Maybe what should happen is that the system must be allowed to restructure these failing banks, and then start over with a fresh slate. Sure, there will be pain, massive pain, but in the end the patient will recover, and regain health. Contrast that to the situation that obtains today in Ireland, where a slow motion train wreck, dumping capital down a sump hold with no tangible result, is in progress. Time to halt this nonsense and stop living in a fool's paradise.

(1) What took you so long to join the protest?

The banks were bailed out by Lenihan on the suggestion of David McWilliams in September 2008, most of the bondholders were paid off in 2009, the promissory notes were added to our debt in early 2010.

Seeing as it took you up to two years to wake up to what was going on, why should we listen to your proposals now?

(2) How do you define a slow motion train wreck? Ireland would be better characterised as a robust economy coping with the elimination of the 15% of GDP tied up in constuction by reinventing itself in other export markets.

beeftotheheels

Qualz wrote: »

Canceling the remaining €30bn IOU to Anglo Irish Bank would allow it to go insolvent. At present, Anglo Irish Bank is already a defunct bank so allowing its remaining liabilities fail would do little or no damage.

Here we go again. IBRC (who we own) owes money to the Central Bank of Ireland (who we own). So refusing to put cash into IBRC, as you suggest, means that IBRC cannot repay the Central Bank, making the Central Bank insolvent, so we'll then have to put the money we didn't put into IBRC into the Central Bank.

I know it sounds convoluted and messy, but right now the real cost of the PNs to the Irish State means that they are the cheapest form of funding that we have.

Yes, IBRC should probably have been allowed to fail back in 2008/ 2009 when it was the subject of a bank run.

But having allowed it to replace its deposits with cheap Central Bank funding we now cannot allow it to default on that funding, without causing ourselves an equal sized problem elsewhere.

guinnessdrinker

Godge wrote: »

The banks were bailed out by Lenihan on the suggestion of David McWilliams in September 2008, most of the bondholders were paid off in 2009, the promissory notes were added to our debt in early 2010.

Just on this point, Brian Lenihan did call to David McWilliams house as everyone now knows but McWilliams is in no way responsible for bailing out the banks. In fact a few months later McWilliams called for the bank guarantee to be rescinded but this was completely rejected by Lenihan.

Here is a link to an article written by Brian Lenihan in the Irish Independant in April 2009 dismissing David McWilliams suggestions.

K-9

guinnessdrinker wrote: »

Just on this point, Brian Lenihan did call to David McWilliams house as everyone now knows but McWilliams is in no way responsible for bailing out the banks. In fact a few months later McWilliams called for the bank guarantee to be rescinded but this was completely rejected by Lenihan.

Here is a link to an article written by Brian Lenihan in the Irish Independant in April 2009 dismissing David McWilliams suggestions.

That's the great thing about being a pop economist and not a Minister of Finance. You can just say "I don't want that one" a few months later just like that.

antoobrien

guinnessdrinker wrote: »

Just on this point, Brian Lenihan did call to David McWilliams house as everyone now knows but McWilliams is in no way responsible for bailing out the banks. In fact a few months later McWilliams called for the bank guarantee to be rescinded but this was completely rejected by Lenihan.

Here is a link to an article written by Brian Lenihan in the Irish Independant in April 2009 dismissing David McWilliams suggestions.

And here's what McWilliams said two days before the bank guarantee

The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders who will have to live with the losses they have suffered. However, it applies to everyone else.

He specifically states that only shareholders get burned - no mention of bondholders.

StealthRolex

K-9 wrote: »

That's the great thing about being a pop economist and not a Minister of Finance. You can just say "I don't want that one" a few months later just like that.

Well actually the Minister can. The bank guarantee has a limited life. It is the minister and the Taoiseach who are renewing it.

Scofflaw

StealthRolex wrote: »

Well actually the Minister can. The bank guarantee has a limited life. It is the minister and the Taoiseach who are renewing it.

They're renewing a different one - the Eligible Liabilities Guarantee - not the original Credit Institutions (Financial Support) Guarantee. That one ran for two years and was not renewed.

cordially,
Scofflaw

StealthRolex

Scofflaw wrote: »

They're renewing a different one - the Eligible Liabilities Guarantee - not the original Credit Institutions (Financial Support) Guarantee. That one ran for two years and was not renewed.

cordially,
Scofflaw

The point is that the guarantees are within the control of the minister to decide what will be guaranteed and for how long.

later12

beeftotheheels wrote: »

Here we go again. IBRC (who we own) owes money to the Central Bank of Ireland (who we own). So refusing to put cash into IBRC, as you suggest, means that IBRC cannot repay the Central Bank, making the Central Bank insolvent, so we'll then have to put the money we didn't put into IBRC into the Central Bank.

This isn't an excuse for not paying back the ELA, but as far as I am aware if the ELA oweing to the CBI is somehow repudiated then the loss is absorbed by the 17 NCBs in the Euro area proportionate to their ECB capital subscription, which in Ireland's case is slightly over 1%.

http://www.ecb.int/press/pr/date/2009/html/pr090305_2.en.html

The Governing Council decided that any shortfall, if it were to materialise, should eventually be shared in full by the Eurosystem NCBs in accordance with Article 32.4 of the Statute of the ESCB, in proportion to the prevailing ECB capital key shares of these NCBs in 2008.

beeftotheheels

later12 wrote: »

This isn't an excuse for not paying back the ELA, but as far as I am aware if the ELA oweing to the CBI is somehow repudiated then the loss is absorbed by the 17 NCBs in the Euro area proportionate to their ECB capital subscription, which in Ireland's case is slightly over 1%.

http://www.ecb.int/press/pr/date/2009/html/pr090305_2.en.html

Nope, you're missing the interaction of the two "we own"s.

Because we own IBRC ELA is only not illegal State Monetary Financing prohibited by Art 123 because we've promised to pay it back. Hence we'd have to put the Central Bank in funds to unmake the funny money.

So, if the issue was BoI, then you'd be right. But it is not. It is IBRC (who we own) so the analysis changes.

Sucks, I know, but that's another problem with us acquiring the shares in IBRC, the fact that we acquired the shares means that the ELA acquires a "monetary financing issue" it never had when IBRC was owned by the dog on the street.

By trying to help, we made things worse (for ourselves).

later12

Yes I appreciate the state's obligation here, but I still don't see how any loss (in theory) on the ELA would not be shared across the Eurosystem proportionate to capital subscriptions. Obviously there are good reasons for not doing so, but if one were to let Anglo fold, and default on whatever part of its ELA cannot be repaid from its own assets, then obviously the state would be just as reluctant to pay as a sovereign as it were when it was the owner of a bank.

Again, this isn't something we should do. I'm just talking about the theoretical result of not repaying the ELA in IBRC.

beeftotheheels

later12 wrote: »

Yes I appreciate the state's obligation here, but I still don't see how any loss (in theory) on the ELA would not be shared across the Eurosystem proportionate to capital subscriptions. Obviously there are good reasons for not doing so, but if one were to let Anglo fold, and default on whatever part of its ELA cannot be repaid from its own assets, then obviously the state would be just as reluctant to pay as a sovereign as it were when it was the owner of a bank.

Again, this isn't something we should do. I'm just talking about the theoretical result of not repaying the ELA in IBRC.

The theoretical I would argue would be that rather than sharing the loss, the ECB would instigate legal action against both the CBI and the Irish State for the sum at issue. If they lost then the loss would be shared as you propose, but I wouldn't like to bet on them losing, so rather than it being the ELA we'd be on the hook for, it would be a judgement debt of the same amount.

Cracker_Jack

Qualz wrote: »

There’s been much talk lately about promissory notes, the Anglo promissory notes particularly. Having protested the bank bondholder bailout since September 2010, I felt it my duty to offer my proposal to undecided voters.

Canceling the remaining €30bn IOU to Anglo Irish Bank would allow it to go insolvent. At present, Anglo Irish Bank is already a defunct bank so allowing its remaining liabilities fail would do little or no damage. All that's left of it are worthless liabilities which are ring fenced. The fiscal treaty addresses the structural deficit which in Ireland's case is intermingled with banking debts (the most recent being the €3bn in March). Therefore, the treaty should only be passed if there is a clause to allow Ireland let Anglo's remnants fail.

This advice that I offer should be tried here in Ireland once the next "too big to fail" bank flounders. The often heard shibboleth, "oh, if you do that, the whole system will collapse" will be trotted out again, echoing the excuse to support massive bailouts, i.e., that "look what happened when Lehman Brothers was allowed to go down", with the result that enormous amounts of capital will be expended to protect the likes of Anglo and others. Maybe what should happen is that the system must be allowed to restructure these failing banks, and then start over with a fresh slate. Sure, there will be pain, massive pain, but in the end the patient will recover, and regain health. Contrast that to the situation that obtains today in Ireland, where a slow motion train wreck, dumping capital down a sump hold with no tangible result, is in progress. Time to halt this nonsense and stop living in a fool's paradise.

When Kenny says ''we're not going to have the name defaulter'', you can bet he means fat pay increases and additional expenses for his administration. I suspect that Kenny has simply looked back over the last year and realized that the only time he did well was when he was when he was a teacher, so he's looking for a fight to try to buff out that tarnish that is growing on his taoiseach and his image. And, to an extent, it is likely to work, as the most hard-core Kenny supporters were and still are the professional protesters and agitators who, lacking the discipline necessary to hold down real jobs, spend their days standing on street corners screaming about the cause du jour.