Promissory Notes deal with ECB will require "special financial legislation"

Mr.Micro

Scofflaw wrote: »

Yes, it was, at least roughly, although the actual interest rates were conjectural - to some extent it looks as if what has been eliminated is simply the IBRC leg of the promissory note triangle.

In one sense, Sand is correct that manipulation of the promissory notes arrangement has lain in the hands of the Irish government all along, and that the ECB has not so much "given us a deal" as permitted a particular manipulation - but since that permission was required, it is no less a deal for that.

cordially,
Scofflaw

Well given we have had a lot of bluster for some months now that Ireland was not going to pay the 3 billion in March...... it may have worked, in that the ECB was actually afraid Ireland would not pay, and thus another euro crisis would have ensued. A bit of brinksmanship I would say by the Government in forcing a deal.

micho

Yes they may have been a bit of brinkmanship on Ireland's part alright but the easing of the Euro crisis apparently, may have contributed to a deal which six months ago seemed impossible.

kippy

Sorry lads, been up to my ears all day and missed almost everything. Last thing I head the ECB had taken note of the Irish actions last night. It appears a deal has been done since.
Does anyone have a shortened version of the deal or is there a link to it anywhere?
Appreciated.

Scofflaw

Mr.Micro wrote: »

Well given we have had a lot of bluster for some months now that Ireland was not going to pay the 3 billion in March...... it may have worked, in that the ECB was actually afraid Ireland would not pay, and thus another euro crisis would have ensued. A bit of brinksmanship I would say by the Government in forcing a deal.

Bloomberg has the interesting take that Ireland forced the ECB's hand by rushing through the legislation to liquidate Anglo, making the ECB's "unanimously taken note of Ireland's actions" as a grudging "well played":

The matter had become a flash point in Irish politics and a source of bitter resentment at the EU. In recent weeks, the ECB had reportedly rejected a debt-relief plan identical to the one Ireland is now executing, arguing that converting the notes to bonds would amount to illegal “monetary financing” -- that is, printing money to finance the Irish government’s budget deficit.

Ultimately, Ireland forced the issue by moving ahead with the liquidation of the toxic remains of Anglo Irish, a decision that also triggered immediate action on the promissory notes. Presented with a fait accompli, ECB President Mario Draghi said the debt restructuring had been “noted,” a wording that has been widely interpreted as grudging acceptance from the ECB.

It's true that the ECB were reported as rejecting an extremely similar-sounding plan involving a 40-year bond, and it's pretty hard to see any significant difference between this plan and that plan.

I see the Commission have welcomed the move:

Statement by Vice-President Rehn on the conclusion of the ninth review mission to Ireland

I welcome today's successful conclusion of the ninth review mission to Ireland. The mission has found that the programme remains on track and that the budgetary targets for 2012 look set to be comfortably met. The government's strong determination to meet its fiscal targets has been crucial to rebuilding confidence in Ireland's economy.

Ireland has made good progress to consolidate its public finances and recover much of the competitiveness that was lost in the boom years. After a deep recession, the Irish economy has been growing since 2011 and we expect its expansion to gradually become more robust later this year and in 2014. Significant progress has also been made in repairing the financial sector, though more needs to be done to enable banks to revive productive lending to the economy. Another key priority is to tackle unemployment, not least by strengthening employment services and accelerating the implementation of key investment projects, including those co-financed by the European Investment Bank.

Market conditions for Irish bonds have been steadily improving and confidence growing. Ireland is on track to exit from the EU-IMF programme as planned. The Commission stands by Ireland and its people and supports them in this objective. In this context, the major steps taken by the Irish authorities regarding the Promissory Notes should further boost confidence and help to facilitate a successful outcome.

cordially,
Scofflaw

edanto

Scofflaw wrote: »

Bloomberg has the interesting take that Ireland forced the ECB's hand by rushing through the legislation to liquidate Anglo, making the ECB's "unanimously taken note of Ireland's actions" as a grudging "well played":

Bloomberg? That well respected organ of the common man and voice of the citizen. Never known to frame a story to advance the agenda of the Bilderbergians....

Has anyonen seen numbers for the total amount to be repaid under the new deal and net present value of same, compared tothe old deal?

This may be a good deal but Michael 'don't worry about the details' Noonan has not inspired confidence nor shown any outward signs of courage.

coolshannagh28

coolshannagh28 wrote: »

Is this an attempt by the government to force the ECBs hand on a deal ,they could have to default on the promissory notes if the ECB does not agree to their deal.

Agree with Bloomberg ,I would suspect this was orchestrated late in the day so that the ECB would be faced with a fait accomplit by morning .
The ECB could never let Ireland default so credit to Noonan and co they played a reasonable hand very well in this regard .

Some glaring contradictions about Irish political life shines through from this legislation:

How come we could have a referendum on judges pay but not about this (or NAMA or about nationalising the banks....)
when this affects us far more. An open public debate on the entire banking issue would of been great.

We can have company law swept aside and the minister for finance given executive powers (the liquidator is essentially powerless) but they couldn`t make the simpler changes for upward only rents.......!!

They can make 800 people unemployed in the middle of the night and given statutory pensions at the stroke of a pen but they wouldn`t touch the golden handshake pensions for all the top bankers & co who actually destroyed these peoples and many others jobs.....

One other point....NAMA is not subject to the Freedom of Information act. This is where all associated with the promissory notes are going i.e Anglo Irish Banks dealings are to disappear into the ether without a trace.

Mark200

Deleted User wrote: »

How come we could have a referendum on judges pay but not about this (or NAMA or about nationalising the banks....)
when this affects us far more. An open public debate on the entire banking issue would of been great.

Because reducing Judges pay needed an amendment to the constitution, which can only be done through a referendum.

Deleted User wrote: »

We can have company law swept aside and the minister for finance given executive powers (the liquidator is essentially powerless) but they couldn`t make the simpler changes for upward only rents.......!!

Changes to existing upward only rent review agreements would have been unconstitutional. It would have meant tearing up existing private contracts, which would be a big problem and not "simple".

Deleted User wrote: »

They can make 800 people unemployed in the middle of the night and given statutory pensions at the stroke of a pen but they wouldn`t touch the golden handshake pensions for all the top bankers & co who actually destroyed these peoples and many others jobs.....

Completely incomparable situations.

Deleted User wrote: »

One other point....NAMA is not subject to the Freedom of Information act. This is where all associated with the promissory notes are going i.e Anglo Irish Banks dealings are to disappear into the ether without a trace.

Anglo wasn't subject to FOI either, so no change there.

kippy

Deleted User wrote: »

Some glaring contradictions about Irish political life shines through from this legislation:

How come we could have a referendum on judges pay but not about this (or NAMA or about nationalising the banks....)
when this affects us far more. An open public debate on the entire banking issue would of been great.

We can have company law swept aside and the minister for finance given executive powers (the liquidator is essentially powerless) but they couldn`t make the simpler changes for upward only rents.......!!

They can make 800 people unemployed in the middle of the night and given statutory pensions at the stroke of a pen but they wouldn`t touch the golden handshake pensions for all the top bankers & co who actually destroyed these peoples and many others jobs.....

One other point....NAMA is not subject to the Freedom of Information act. This is where all associated with the promissory notes are going i.e Anglo Irish Banks dealings are to disappear into the ether without a trace.

I totally agree with the majority of this post and there are some serious questions to be asked (perhaps not about the judges pension per se) but the rest of it.

Mark200

Mark200 wrote: »

Because reducing Judges pay needed an amendment to the constitution, which can only be done through a referendum..

The point is the judges pay has less of a financial impact.

Mark200 wrote: »

Changes to existing upward only rent review agreements would have been unconstitutional. It would have meant tearing up existing private contracts, which would be a big problem and not "simple".

They have no problem interfering with property rights with this legislation. Let me quote some of it:

AND WHEREAS IN THE ACHIEVEMENT OF THE WINDING UP OF IBRC THE COMMON GOOD MAY REQUIRE PERMANENT OR TEMPORARY INTERFERENCE WITH THE RIGHTS, INCLUDING PROPERTY RIGHTS, OF PERSONS;

page 4
http://www.oireachtas.ie/documents/bills28/bills/2013/913/b913d.pdf

Mark200 wrote: »

Completely incomparable situations.

You really think there is no contradiction there? Letting 800 or so people go in the middle of the night while they were asleep enforcing statutory redundancy on them while giving golden handshakes and huge pensions to those who caused the whole mess?

ah heyor!

Mark200 wrote: »

Anglo wasn't subject to FOI either, so no change there.

Correct, but that does not make it right.

http://thestory.ie/2010/04/19/anglo-irish-bank-a-request-for-information/

Anglo has not become a prescribed body under the Freedom of Information Act 1997/2003. This would require the signature of Finance Minister, Brian Lenihan. Given the sheer volumes of public money already given to the bank, and the volumes of public money due to be given, it is outrageous that the public has no recourse to information as to how this money is being spent. We cannot quantify expenditure by the bank, nor has the Government made any effort to inform the public about how much public money has been given to the banks, and how it is exactly spent.

So now we have more of that crap. Take our money but hide what they do with it.

Mark200

Deleted User wrote: »

The point is the judges pay has less of a financial impact.




They have no problem interfering with property rights with this legislation. Let me quote some of it:


page 4
http://www.oireachtas.ie/documents/bills28/bills/2013/913/b913d.pdf



You really think there is no contradiction there? Letting 800 or so people go in the middle of the night while they were asleep enforcing statutory redundancy on them while giving golden handshakes and huge pensions to those who caused the whole mess?

ah heyor!




Correct, but that does not make it right.

http://thestory.ie/2010/04/19/anglo-irish-bank-a-request-for-information/


So now we have more of that crap. Take our money but hide what they do with it.

We're just going to go round in circles, but "financial impact" has nothing to do with whether or not a referendum is needed on an issue. If the constitution needs to be changed, then a referendum is needed. If the constitution does not need to be changed, then a referendum is not needed. There's nothing more to it than that.

And on the FOI issue, no it doesn't make it right but to claim that the dealings are now going to disappear without a trace just because NAMA isn't under the FOI does not make a shred of sense since the dealings were always in an organisation with no FOI.

antoobrien

Deleted User wrote: »

The point is the judges pay has less of a financial impact.

Totally irrelevant - the independence of the judiciary from government in enshrined in the constitution, which includes their pay.

We didn't need a referendum to change their pay, we needed a referendum to change the constitutional protection slightly.

Comparing it with NAMA, the process is totally different as NAMA was created by legisation - which does not require a referendum. And if you believe some, NAMA is the reason why a great many people will never vote Green/FF again.

Deleted User wrote: »

You really think there is no contradiction there? Letting 800 or so people go in the middle of the night while they were asleep enforcing statutory redundancy on them while giving golden handshakes and huge pensions to those who caused the whole mess?

Is it any different to being called into the factory canteen at 4pm and being told you're being let go? I don't think so.

hyperborean

So, if it is what it looks like and we called their bluff then fair play, but that throws up another question

Who played this hand?

Its well known Noonan is not at the races, so is there a talent in the finance office? or did some other sneaky feckers(imf) give them some advise on the putting it up to the ECB? Or was it private sector advise....

Im not looking for an answer, it will come out in 10 years time but

Scofflaw

hyperborean wrote: »

So, if it is what it looks like and we called their bluff then fair play, but that throws up another question

Who played this hand?

Its well known Noonan is not at the races, so is there a talent in the finance office? or did some other sneaky feckers(imf) give them some advise on the putting it up to the ECB? Or was it private sector advise....

Im not looking for an answer, it will come out in 10 years time but

Or you could accept the possibility that the current government is behind it, given that the composition of the DoF will hardly have changed much in the last few years.

amused,
Scofflaw

D1stant

Can someone correlate the numbers being thrown around

1bn savings per year.... but we are not paying 6bm this year, and 3bn each year after for `10 years.... so where does the 1bn come from?

20bn reduction in national debt - where does this come from?

Chips Lovell

The €1 billion is the difference between what we were paying on the prom notes and what we're now paying on the new bonds.

The €20 billion refers to how much less we are expected to need to borrow in the next 10 years.

K-9

Noonan did seem very solemn in his declaration that this bill was just to wind up the IBRC. I suppose if we ever did find out where the leak came from we could guess at some conspiracy theory.

D1stant

Vladimir Kurtains wrote: »

The €1 billion is the difference between what we were paying on the prom notes and what we're now paying on the new bonds.

The €20 billion refers to how much less we are expected to need to borrow in the next 10 years.

By that logic we are then paying 2bn a year for these new bonds rather than 3... but the first payment is in 2038?



How did they arrive at the 20bn?

hyperborean

Scofflaw wrote: »

Or you could accept the possibility that the current government is behind it, given that the composition of the DoF will hardly have changed much in the last few years.

amused,
Scofflaw

very amusing(seriously)

Thats stretching things now? As you put it the DoF will hardly have changed over the last few years and knowing what we know about the crisis and the events that lead up to it do you really think the DoF officials involved played this hand?
Especially considering the way they have handled finance through the FF and FG years?

My point is that you dont just turn from useless financial eunics to big balled bulls,

Scofflaw

For anyone who missed Geuze's link: http://economic-incentives.blogspot.ie/2013/02/interest-costs-under-debt-deal.html

A number of assumptions, but, having also plugged figures into a spreadsheet, there's no real way of this being anything other than an improvement - in particular, it's an improvement right now, when we definitely need it.

cordially,
Scofflaw

Scofflaw

hyperborean wrote: »

very amusing(seriously)

Thats stretching things now? As you put it the DoF will hardly have changed over the last few years and knowing what we know about the crisis and the events that lead up to it do you really think the DoF officials involved played this hand?
Especially considering the way they have handled finance through the FF and FG years?

My point is that you dont just turn from useless financial eunics to big balled bulls,

Again, it's worth looking at the possibility that the terms "useless financial eunuchs" and "big balled bulls" are both irrelevant, and it's a question of negotiating until the reluctance on the other side of the table is at a point where a push gives you what you want.

The whole "liathroidi" business has been attached to the notion that if only we "stood up for ourselves" the consequences of our mistakes would go away, which has never really been something that was going to happen, since we fastened the millstone in place round our own necks. Notwithstanding which, I imagine a good number of people will still march tomorrow to demand paradoxes.

cordially,
Scofflaw

Scofflaw

There is also a McWilliams' "analysis" - the term is used loosely, since it's fundamentally a populist rant rather than an analysis of the figures:

"The deal on the table is a complete defeat for the Irish government and the Irish people, because at its core, when you strip away all the technical details, it is about transferring bank debt to sovereign debt."

"So, it is game set and match to the ECB. Now it is rid of the promissory note – which was only an IOU written by the last Finance Minister with a vague undertaking to clear things up eventually -converting it into Irish sovereign debt, which means you and me are definitely on the hook. The ECB must be sniggering up its sleeve, if it is not actually laughing in our face, at the inability of the Irish negotiators to act on our behalf.

Yet again, our negotiators have sold the people short and given the ECB everything it wanted."

http://www.davidmcwilliams.ie/2013/02/08/lets-get-something-very-clear

Ah, McWilliams also manages to see the promissory notes as some kind of "vague undertaking" like Sand's view of them as "merely a sort of statement of income". If that was the case, why on earth was the government doing anything as hugely unpopular as actually paying them? Could it be because, far from being some kind of "vague commitment" they were, in fact, a government-backed promise to pay?

McWilliams continues to impress me, really - just when I think he can't possibly be any sillier or sloppier with facts, he manages it.

cordially,
Scofflaw

Sponge Bob

Oh I dunno about McWilliams...but he writes better on complex economic matters than anyone in this forum does.

The next fight will concern the other €35bn or so that we put into the banks we 'want' <ugh> to keep. Part as equity and part as 'recapitalisation' of Tier 1 and Tier 2 capital.

These would be AIB BoI PTSB and possibly EBS to make PTSB take it over I think.

We need to ECB/ESM to reimburse us for some of these funds under some Eurobank Stabilisation scheme or other ...ideally the Recap amounts not the Equity of course. I would be most averse to using it for anything other than straight government debt writedown me. I think that needs to be made clear from the outset.

Scofflaw ...where are those figures again coz I know you had most of them to hand,...... and can you link to that assertion of yours that ALL the equity portions of the recaps for 'pillar banks' came from the NPRF not from borrowings ????

Scofflaw

Sponge Bob wrote: »

Oh I dunno about McWilliams...but he writes better on complex economic matters than anyone in this forum does.

The next fight will concern the other €35bn or so that we put into the banks we 'want' <ugh> to keep. Part as equity and part as 'recapitalisation' of Tier 1 and Tier 2 capital.

These would be AIB BoI PTSB and possibly EBS to make PTSB take it over I think.

We need to ECB/ESM to reimburse us for some of these funds under some Eurobank Stabilisation scheme or other ...ideally the Recap amounts not the Equity of course. I would be most averse to using it for anything other than straight government debt writedown me. I think that needs to be made clear from the outset.

Scofflaw ...where are those figures again coz I know you had most of them to hand,...... and can you link to that assertion of yours that ALL the equity portions of the recaps for 'pillar banks' came from the NPRF not from borrowings ????

...came from NPRF funds and "Exchequer cash", not from troika loans: http://debates.oireachtas.ie/dail/2012/07/17/00085.asp

cordially,
Scofflaw

antoobrien

Sponge Bob wrote: »

Oh I dunno about McWilliams...but he writes better on complex economic matters than anyone in this forum does.

I Dunno about that Sponge Bob, McSilly has been doing a beautiful imitation of a clueless politician with his claims that he never supported the guarantee (his hindsight is legendary), despite the fact that it was almost word for word what he said it should be just two days before it came to be:

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.

When you combine his assertion that this deal converts the PN into sovereign debt - which it has been been since 2010 - there's only one approach for reading his columns - have a large box of snuff handy.

dahamsta

Mark200 wrote: »

If the constitution needs to be changed, then a referendum is needed. If the constitution does not need to be changed, then a referendum is not needed. There's nothing more to it than that.

That's trotted out a lot, but it doesn't preclude the government from calling one, as far as I'm aware.

Chips Lovell

On one level I'm kind of in awe at McWilliams' sheer neck with his embrace of populism.

Sponge Bob

Scofflaw wrote: »

...came from NPRF funds and "Exchequer cash", not from troika loans: http://debates.oireachtas.ie/dail/2012/07/17/00085.asp

I remember discussing that. Lets leave out the 'orgins' of the last few billion on which we didn't wholly agree.

Pre Pcar = €46.3 Bn - €31.6bn Promissory = €14.7 bn
Pcar = €17.8bn

Our 'Investment' in the Pillar Banks is therefore €32.5bn split

NPRF €20.7bn
'Exchequer' = €11.8bn

So getting some of that €32.5bn back is the next objective. Does anyone demur ????

Chips Lovell

I'd say next priority is selling off Irish Life.

Scofflaw

Sponge Bob wrote: »

I remember discussing that. Lets leave out the 'orgins' of the last few billion on which we didn't wholly agree.

Pre Pcar = €46.3 Bn - €31.6bn Promissory = €14.7 bn
Pcar = €17.8bn

Our 'Investment' in the Pillar Banks is therefore €32.5bn split

NPRF €20.7bn
'Exchequer' = €11.8bn

So getting some of that €32.5bn back is the next objective. Does anyone demur ????

This has always been an objective, given most of that is theoretically 'investment' in live banks. We have already recouped €1.5bn from BOI through a sale of government-owned shares, so the question becomes what the State can make out of its remaining stakes, which are 15% in BOI and 98% in AIB.

Two routes are open - ordinary market sales such as took place with BOI, or a sale to something like the ESM at some kind of pseudo-market value. I'd say the former is a realistic possibility in the case of BOI, and very optimistic in the case of AIB, but not impossible if we're looking 4-5 years down the road. Currently the NPRF values its stake in AIB at €2.5bn, so we'd want to wait a bit whichever route we went, assuming, that is, that things aren't going to get worse for AIB.

Something I find curious, by the way, about the whole crisis, is the relative lack of criticism of AIB. It has cost us about 2/3rds of what Anglo cost us, yet while Anglo is so reviled as to make its disappearance something many people are glad of for its own sake, AIB seems to attract only the pretty standard level of opprobrium currently reserved for banks.

cordially,
Scofflaw

amandstu

Scofflaw wrote: »

There is also a McWilliams' "analysis" - the term is used loosely, since it's fundamentally a populist rant rather than an analysis of the figures:



http://www.davidmcwilliams.ie/2013/02/08/lets-get-something-very-clear

Ah, McWilliams also manages to see the promissory notes as some kind of "vague undertaking" like Sand's view of them as "merely a sort of statement of income". If that was the case, why on earth was the government doing anything as hugely unpopular as actually paying them? Could it be because, far from being some kind of "vague commitment" they were, in fact, a government-backed promise to pay?

McWilliams continues to impress me, really - just when I think he can't possibly be any sillier or sloppier with facts, he manages it.

cordially,
Scofflaw

Might I be right (recollection and grasp of events quite/very hazy) that the PN was intended at first to be a loose committment (a bluff noone expected would be called) but was pulled apart and over analysed by European partners who were acting in an unfriendly way at the time.

Don't ask me to back that up but is/was there anything to that at all?

Sponge Bob

Scofflaw wrote: »

...assuming, that is, that things aren't going to get worse for AIB.

Something I find curious, by the way, about the whole crisis, is the relative lack of criticism of AIB. It has cost us about 2/3rds of what Anglo cost us

AIB got plenty of it from me ( a non shareholder ) especially as they had not even finished paying off their 2 ICI bailouts when they crashed again .....and never mind Rusnak and their other micro fiascos in between.

AIB have,(IMO), realised more of their losses than BoI. AIB were heavily exposed to dodgy developers (most especially 2003-2007 era loans that are long written off) but are less so to dodgy mortgages. I think PTSB and BoI will suffer far more writeoffs yet to come on that front, overall.

So I think 'writebacks' of value are likely to be more significant for AIB than BoI over the next while. Still does not excuse their appaling culture of serially arrogant 'too big to fail' ineptitude. We should never have saved AIB in 2008.

Unlike the unlamented Chairman of Anglo the last 2 AIB Chairmen ( or two of the last 3 but that putative third was not around long) when it was not clamped on the public teat were the brother of a CURRENT Cabinet Minister and a former Attorney General to the selfsame Cabinet Minister.

This may well explain some of the lack of urgency. and may very well explain why one of them was appointed as Chair of the board of a large semistate by a party colleague of the Cabinet Ministers only last month.


Good detail on "Septic" AIB here and surely time for Ml Noonan to publish the three reports referred to in the article.

http://www.irishtimes.com/newspaper/finance/2012/0309/1224313063474.html

The three unpublished reports into past practices at AIB, seen by The Irish Times, pull back the curtain on the failures at the bank.

O’Connor’s analysis and the later reports by London-based consultant Michael Foot from the Promontory Financial Group and accountants Deloitte reveal what went wrong with AIB’s lending, notably in the ROI division.

This was the sector that dealt with developers who accounted for most of the €17 billion in bad debt provisions at AIB taken in the three and a half years to the end of June 2011

Predalien

D1stant wrote: »

By that logic we are then paying 2bn a year for these new bonds rather than 3... but the first payment is in 2038?



How did they arrive at the 20bn?

We were to pay capital (3.1) plus interest for ten years which would have been 48 billion over the ten years, now we are interest only until 2038.
So overall we are paying more, but short-mid term we are paying less and hoping that inflation/growth cancel out the extra. It may be problematic when it comes to refinancing all these bonds in 25 years time if our economy isn't doing well.

Scofflaw

amandstu wrote: »

Might I be right (recollection and grasp of events quite/very hazy) that the PN was intended at first to be a loose committment (a bluff noone expected would be called) but was pulled apart and over analysed by European partners who were acting in an unfriendly way at the time.

Don't ask me to back that up but is/was there anything to that at all?

I don't think so - the "unfriendly" element, or the unwelcome surprise from the EU, was that they had to be booked as part of the general government debt, and government deficit, when issued, which meant our debt/GDP ratio and our deficit immediately looked really bad, even though they represented money the government hadn't actually spent. The other unwelcome part was the decision that in order to fit with "no state aid" rules, the unpaid portion of the notes had to carry a market-rate interest charge, although that was, again, essentially optical, given the interest travelled round in a circle back to the State.

And that "hadn't actually spent" is a result of them being, as you say, a sort of a bluff, or rather a commitment the government didn't expect to have to honour. It was expected, as far as I can see, that the liquidity crisis would blow over, Anglo would hand the notes back to the government before any installments had been paid on them and say "thanks", and the government would tear them up - thus getting Anglo through the credit crisis without the government actually putting any money in. Same principle as the guarantee - and the same problem, which was that you couldn't let a bank fail once it was guaranteed, otherwise the guarantee would get called in.

Unfortunately, it didn't work out like that - Anglo turned out not to have a passing liquidity problem, but a fatal solvency problem, which meant that suddenly the notes were the only thing keeping Anglo technically solvent, while Anglo's technical solvency was the only thing keeping the notes from being called on by Anglo's creditors - having stuck its notes into Anglo, the government found it could not withdraw them, and that meant that the promises to pay that the notes represented, but which had not been expected to actually be called on, had materialised, and had to be honoured.

I suppose you could say that in the absence of the ECB, it's possible that the government might have issued the notes, and then if they had found themselves in the same sticky position with respect to Anglo, which as far as I can see they would have done, they could have prevailed on the Central Bank to print the money to meet the notes instead of borrowing or using tax money, resulting in everyone in Ireland taking the hit by devaluation of the punt, or through extra costs in maintaining any existing currency peg, instead of through taxation/cuts as they are currently doing.

Overall, though, once the government had committed state-backed promises to pay money to a bank which turned out to be insolvent, the promissory notes were going to cost us one way or the other.

cordially,
Scofflaw

View

Sand wrote: »

Great - a breakthrough. You might remember that the reason the government issued a promissory note was because it had no money and couldnt borrow any money. So the CBI simply "invented" some money. They cant go bankrupt because they can just "invent" more money. That's what a central bank does.

The Promissory Note was a legal commitment by the government to pay Anglo Irish a specified amount of the State's (i.e. tax-payer's) income every year - a commitment that, even allowing for the state's poor finances, it was free to enter into even if stupid to do so.

Once Anglo gave a commitment to the CBI to hand that government Promissory Note money over to the central bank every year, the CBI had an "asset" on their balance sheet and to balance it recorded a "liability" - money for Anglo - which they then were free to dispense.

Their balance sheet balanced. Nothing was "invented" out of thin air.

Sand wrote: »

Accounting was invented for corner-shops, not for Central Banks. The Central bank just prints the money. You go to a central bank to get paid....you get paid They have a money printing machine. They just print whatever it takes to pay you. I cant make it simpler for you.

Central Banks don't just "print money". They have corresponding transactions - sometime complex ones - to balance the printing.

This is a link to the "vanilla" basics of such transactions.

Were it otherwise, then, we could all live in a Socialist Workers Paradise with unlimited - and cost free - money to pay for the fantasy economics of the paradise. Instead though governments tend to avoid such measures and suffer the abuse that goes with trying to balance their books and central banks tend to be cautious about staying up at night churning out such invented money.

Scofflaw

Gurdgiev's analysis:

As I understand it,

We have converted quasi-governmental debt into pure Government bond.
Maturity profile is very good - long dated, no restriction on NTMA raising funds at 20 year +
We are gaining some cash flow improvements up front (where they matter most), but
We are not getting a major write down on the debt overall.
Deficit impact is one-off 500mln, that will be absorbed into improvement over 2014 Budget and that's it as it becomes 'repeated measure' equivalent in 2015 and after.
So material saving to the economy is really 500mln and that is at the peak (2014-2015), after that the savings will decline, until finally, around ca 2020-2025 (needs more precise calculations here) the savings will become negative as we will be paying more in interest than we would have been paying before.
Additional second order effect is that improved bond markets profile is likely to result in slightly lower borrowing costs over time, but this impact is off-set by the reduced Central Bank revenues remittable back to the Exchequer.

The deal is not putting any final closure to the Anglo or INBS 'odious' debt, but simply constitutes an extension of the debt.

It can result in the lower real value of the debt over the period of time, assuming Ireland can issue bonds at negative real interest rates (bond coupons below inflation rate), which is unlikely.

Neither is the deal reducing the debt overall, which means the deal has no effect on the adverse impact of debt drag on growth. The Government never asked for a debt writedown (reduction in the overall debt levels).

The deal is a net positive, but materially not significant enough.

http://trueeconomics.blogspot.ie/2013/02/722013-trading-debt-for-cash-flow-relief.html

I can see how you can get those numbers, and I can see how you can get Coffey's too, although I think Coffey's is the more fully worked version.

My own figures suggest the odd possibility that the actual cash flow impact in the short term - purely in terms of cash, now - is actually small but negative, but the impact once you consider borrowing needs is large and positive, while the cash flow turns positive in 2016. That is, because the government is issuing bonds to the CBI for the full amount of €25bn, and paying interest on that amount, the interest it is paying is larger initially than the interest it would be paying on the money borrowed to meet the March 31st payment of €3.1bn. Assuming an equivalent interest rate of 3.025% on each (it's probably higher for the PN borrowings, actually), we pay €810m on the long-term bonds this year versus €100m in interest if we borrowed €3.1bn.

The difference, however, is partly that the €3.1bn would be "real borrowings" - that is, we'd have to source it from the markets and pay the full interest, assuming we could raise it - whereas the €25bn is non-market borrowings where the government issues a bond to the Central Bank and the interest is paid to them (and thus back to the State in some degree again). Plus the amount we borrow for the notes mounts up each year, as well as being open market risk in terms of the possible interest rates, whereas the payments on the long-term bonds is steady.

cordially,
Scofflaw

Sponge Bob

Leaving aside cashflow the LTEV of the investments in AIB and BoI continue to decline. ( DIRECTED Investments line)

http://www.nprf.ie/Performance/performance1Qtr12.htm

From €9.4bn

http://www.nprf.ie/Performance/performance3Qtr12.htm

To €8bn ( latest)

In only 6 months. A reduction of 30%+ a year. The NPRF does not hold Permo shares.

Karl Whelan expects no ESM recap activity until such a figure stabilises first.

http://karlwhelan.com/blog/?p=471

Even if ESM was allowed get involved in directly recapitalising banks in this manner, that does not mean it will be allowed to simply acquire shares in banks that are already recapitalised. And even if it was, it is wildly optimistic to believe that the EU would sanction acquiring these shares for the €28.1 billion we spent on them rather than what they are currently worth.


All told, I think we should welcome the prospect of ESM acquiring AIB and ILP as well as our shares in Bank of Ireland. We could use the funds obtained (perhaps €9 billion if my guess above is correct) to reduce debt and perhaps implement some well-judged capital programmes

antoobrien

Scofflaw wrote: »

This has always been an objective, given most of that is theoretically 'investment' in live banks. We have already recouped €1.5bn from BOI through a sale of government-owned shares, so the question becomes what the State can make out of its remaining stakes, which are 15% in BOI and 98% in AIB.

How does the sale by the government of 1bn of BOI convertible contingent capital (CoCo) instruments last months affect the shareholding?

Zubeneschamali

Scofflaw wrote: »

Something I find curious, by the way, about the whole crisis, is the relative lack of criticism of AIB. It has cost us about 2/3rds of what Anglo cost us

Ordinary Joe Soaps had money in, a mortgage with or shares of AIB, so they were inclined to think it should be saved.

Anglo was not a "normal" bank, so from the get-go "normal" people did not see why they should bail it out.

antoobrien

Zubeneschamali wrote: »

Ordinary Joe Soaps had money in, a mortgage with or shares of AIB, so they were inclined to think it should be saved.

Anglo was not a "normal" bank, so from the get-go "normal" people did not see why they should bail it out.

That and we're used to hearing crap about AIB, from ICI to Rusnak to fees. Shure what's another little scandal, we know they're a right shower anyways :mad:

Scofflaw

Impact Analysis from the Department of Finance: http://finance.gov.ie/documents/publications/other/2013/pronotestatefinimpact.pdf

And their briefing note: http://static.rasset.ie/documents/business/anglo.pdf

The cash flow impact here is derived by comparison against paying the promissory note directly rather than through a bond as in 2012 - which is, I suppose, fair enough, since that's a trick that can't be constantly repeated - and while the government could borrow to do it, that still increases the deficit.

cordially,
Scofflaw

Sponge Bob

I fully accept their cashflow point.

My lingering concern is with what Eurostat does. Many of the 'analysts; who sit in the back offices of our friends 'the markets' with d'oul Excel macros a chugging will rely on how Eurostat classifys the auspiciously 'noted' operation. Eurostat cannot really classify it as anything other than GGD to my mind.

If 'the markets' 'see' aggregate GGD jumping by 20% odd simply because of how Eurostat classifys these 'bonds' then all hell will break lose.

However had the Irish government carefully managed a sophisticated scoping exercise to glean whether the PMs were already loaded in the Excel sheets within a number of key institutions as a crypto GGD ( as they were given the backstop) and had they found that on aggregate that it was, then a reclassification cannot change the net position on the bottom line.

But we won't know till Eurostat sings. And then we may collectively go 'whew'.

Scofflaw

Sponge Bob wrote: »

I fully accept their cashflow point.

My lingering concern is with what Eurostat does. Many of the 'analysts; who sit in the back offices of our friends 'the markets' with d'oul Excel macros a chugging will rely on how Eurostat classifys the auspiciously 'noted' operation. Eurostat cannot really classify it as anything other than GGD to my mind.

If 'the markets' 'see' aggregate GGD jumping by 20% odd simply because of how Eurostat classifys these 'bonds' then all hell will break lose.

However had the Irish government carefully managed a sophisticated scoping exercise to glean whether the PMs were already loaded in the Excel sheets within a number of key institutions as a crypto GGD ( as they were given the backstop) and had they found that on aggregate that it was, then a reclassification cannot change the net position on the bottom line.

But we won't know till Eurostat sings. And then we may collectively go 'whew'.

Actually, we'll almost certainly go "eh", because the promissory notes are already booked on GGD.

cordially,
Scofflaw

Sponge Bob

Scofflaw wrote: »

Actually, we'll almost certainly go "eh", because the promissory notes are already booked on GGD.

On the NTMA measure which had always been the key metric. Are you quite sure ????

http://www.ntma.ie/business-areas/funding-and-debt-management/debt-profile/historical-information/?keywords=debt

General Government Debt

2011 169.3 108.2 119.1
2010 144.2 92.5 93.4
2009 104.6 65.1 75.2
2008 79.6 44.2 50.4

http://www.ntma.ie/news/ntma-issues-eight-new-floating-rate-treasury-bonds-in-exchange-for-promissory-notes/

BOHSBOHS

the old GGD ~186bn was comprised of:
the national debt 136bn +prom notes 28bn + other adjustments 22bn

the prom notes now become part of the national debt but no increase in the GGD

antoobrien

Sponge Bob wrote: »

On the NTMA measure which had always been the key metric. Are you quite sure ????

http://www.ntma.ie/business-areas/funding-and-debt-management/debt-profile/historical-information/?keywords=debt

General Government Debt

2011 169.3 108.2 119.1
2010 144.2 92.5 93.4
2009 104.6 65.1 75.2
2008 79.6 44.2 50.4

http://www.ntma.ie/news/ntma-issues-eight-new-floating-rate-treasury-bonds-in-exchange-for-promissory-notes/

Do you really think that the NTMA would count the PNs in GGD if they could have kept them off the books?

The promissory notes were accounted for under GGD by eurostat in 2010.

hatrickpatrick

Scofflaw wrote: »

Sorry - you believe I've defended the party whip system? Have you ever read my posts? I've defended representative democracy, but for you to believe that I've defended the whip system when on the contrary I've probably been its most consistent opponent here would make me a little glum were it not for certain mitigating circumstances.

baffled,
Scofflaw

Scoffy I must offer you a (rare) apology. It would appear that in my tired and emotional (read: hungover) state the other day, I in a moment of madness confused your political beliefs with those of Permabear.

thebman

Noonan was quoted (in the Irish mail on Sunday) as roughly saying that the leak requiring the liquidisation of IRBC in a rush prevented a larger deal been done and that they were hoping to have a full deal done then and there but this has delayed the rest of the deal.

Which would suggest that the source of the leak might not have been Irish but maybe from a source with an upcoming election in a country in which it might not look good to be giving deals to bankrupt countries on the fringe of Europe in the run up to an election...

That is of course if I read what he said correctly as it was earlier this morning.

Closest thing to a link I could find online... :
http://www.highbeam.com/doc/1G1-284126844.html

Promissory Notes were Illegal:

9 minutes 55 seconds into the pod cast

http://podcast.rasset.ie/podcasts/audio/2013/0208/20130208_rteradio1-patkenny-irelandsde_c20152678_20152685_232_.mp3
Pat Kenny interviewing Michael Noonan

oscarBravo

Deleted User wrote: »

Promissory Notes were Illegal:

9 minutes 55 seconds into the pod cast

http://podcast.rasset.ie/podcasts/audio/2013/0208/20130208_rteradio1-patkenny-irelandsde_c20152678_20152685_232_.mp3
Pat Kenny interviewing Michael Noonan

That sounded like a rhetorical device to me.