IMF Chief - Unfair to bail out bondholders over taxpayers

Cuttlefish

RTE.ie link
http://www.rte.ie/news/business/2013/1219/493919-imf-chopra-bailout/


So Mr Chopra agrees with most rational thinking people that the burden imposed by the FF led Government AND continued by the FG/ Lab was unfair.

Bit late now eh!

So final review - "hey you have impoverished your ordinary working man and their children for years to come but in reality it was he wrong approach!"

But all good saying this now as Mr Renn said - "water under the bridge"

End of the day - working man will always pay.

Will you see any bank official in jail over this ? NO

Bits_n_Bobs

Cuttlefish wrote: »

R
Will you see any bank official in jail over this ? NO

What have the bankers got to do with paying the bondholders back??

The gubermint decided to pay back the bondholders. With sound and no doubt cautious and above all prudent advice from the geniuses in the department of finance...who are all probably destined for promotions to the EU or ECB.

the.red.baron

What bonds were they paying back exactly?

srsly78

Bits_n_Bobs wrote: »

What have the bankers got to do with paying the bondholders back??

The gubermint decided to pay back the bondholders. With sound and no doubt cautious and above all prudent advice from the geniuses in the department of finance...who are all probably destined for promotions to the EU or ECB.

The americans dictated it, not the ecb. Specifically Timothy Geithner. Why do people keep blathering on about the ecb forcing us?

dlouth15

Trichet, head of the ECB at the time, was alleged to have contacted the then minister for finance with the message that the banks must be saved at all costs.

flutered

chopra stated that the first time that he arrived in dublin, the biggest booba was the permissory note fiasco.

Carpet diem

All a bit late now saying this after successive harsh budgets with savage tax hikes all the while costs of living staying generally high ( except for the odd good offer on food in restaurants )

I've lost faith in the whole system to be honest and society is very much dog eat dog.

Just my tuppence.

Cuttlefish

Agree dog eat dog.

The recession did not bring the best of of people or society

and pretty soon you will see in shopping centres near you stands selling holiday homes in Bulgaria and the likes as "Paddy" gets ahead of himself and thinks I should be a landlord.

One thing this recession and the harsh budgets highlighted in my opinion is the lack of fight in the Irish Man and Woman against the harsh measures brought in by the Government.

Anti Water rate and Property tax rallies - poorly attended but thousands will turn up for the turning on of the Christmas lights!!

No more can we say "The Fighting Irish"!


But back to the topic - it is galling to read this (Chopra comment) on the RTE website, it really shows that we were sold up the river on that dreadful morning at 4am, or thereabouts

antoobrien

srsly78 wrote: »

The americans dictated it, not the ecb.

Actually no, Irish law did (and unless it has been changed it still does).

It sickens me that nobody making these statements will mention will the consequences of burning the senior bondholders is a hit to ordinary deposits (i.e. the current account that your wages/social welfare gets paid into). If we'd have burned senior bondholders, depositors would have had to gotten hit for at least as much proportionately. To take 10% off the seniors, we'd potentially have been talking about have to have taken 18bn off Irish households & pension funds.

Now bear in mind that despite the 100k deposit protection, we have less than €400m to fund it. There are over 2,000,000 people with bank private accounts in Ireland, we're talking about roughly €200 per account.

So bearing in mind that to burn the bondholders is to potentially burn your own money, still up for it?

dlouth15

antoobrien wrote: »

Actually no, Irish law did (and unless it has been changed it still does).

I agree but I don't think this is a huge obstacle. If the government had seen fit burn the bond holders they would have rushed through legislation to do so. They have done emergency legislation in the past. I don't think the Green Party who were in coalition with them would have had ideological objections.

I think the real reason they didn't do it is because to do so you need the backing of your central bank. Ireland doesn't have its own and the ECB, especially under Trichet, would not have wanted a country like Ireland to set a precedent by doing it. Money would have started leaving Portugal, Spain etc. in anticipation of similar actions there.

Sound reasons from the ECB point of view but unfortunately it has left us with what is probably unsustainable debt.

sarumite

dlouth15 wrote: »

I think the real reason they didn't do it is because to do so you need the backing of your central bank. Ireland doesn't have its own.

We still have a central bank

http://www.centralbank.ie/Pages/home.aspx

antoobrien

dlouth15 wrote: »

I agree but I don't think this is a huge obstacle. If the government had seen fit burn the bond holders they would have rushed through legislation to do so

Not really, ask Argentina what happened when they tried something similar. Several court judgements against them in multiple countries upholding the original contract.

The only way of legally "burning" the bondholders would have been to offer them a buy back for less than the par value of the bond, but over the current market value. There are at least three problems with that approach:
would they have taken the offer (some may have as they were not allowed hold non-investment grade bonds)?
did we have the money to do it (categorically no)
what's the impact on our long term ability to borrow (probably would have screwed us entirely)

dlouth15

sarumite wrote: »

We still have a central bank

http://www.centralbank.ie/Pages/home.aspx

Well we have something that calls itself a central bank but it doesn't have the full range of functions independent of the ECB.

323

antoobrien wrote: »

Actually no, Irish law did (and unless it has been changed it still does).

It sickens me that nobody making these statements will mention will the consequences of burning the senior bondholders is a hit to ordinary deposits (i.e. the current account that your wages/social welfare gets paid into). If we'd have burned senior bondholders, depositors would have had to gotten hit for at least as much proportionately. To take 10% off the seniors, we'd potentially have been talking about have to have taken 18bn off Irish households & pension funds.

Now bear in mind that despite the 100k deposit protection, we have less than €400m to fund it. There are over 2,000,000 people with bank private accounts in Ireland, we're talking about roughly €200 per account.

So bearing in mind that to burn the bondholders is to potentially burn your own money, still up for it?

Would very much still have been up for it, €200 per bank account? pennies compared to what we have paid for Anglo bondholders alone. With interest considered, about €47 billion, that's approximately €26,000 per person working in the country.

OK. I know our EU/ECB masters pass this off as "water under the bridge" nowadays.

dlouth15

antoobrien wrote: »

Not really, ask Argentina what happened when they tried something similar. Several court judgements against them in multiple countries upholding the original contract.

The only way of legally "burning" the bondholders would have been to offer them a buy back for less than the par value of the bond, but over the current market value. There are at least three problems with that approach:
would they have taken the offer (some may have as they were not allowed hold non-investment grade bonds)?
did we have the money to do it (categorically no)
what's the impact on our long term ability to borrow (probably would have screwed us entirely)

Or Iceland where there were a number of court cases most of which were subsequently resolved in Iceland's favour. But whatever the outcome of court cases these must be weighed up against the consequences of unsustainable debt which is the situation we are likely in at present.

If it were such a bad idea as you make out, why are the EU about to agree on proposals to allow countries in the future to burn bondholders of banks?

The reason is that by letting bondholders take a hit, less money needs to be pumped in to the system by the tax payer to maintain the banking system. Since the state is on the hook for less money, lenders are more likely to lend than otherwise.

Idbatterim

Anti Water rate and Property tax rallies - poorly attended but thousands will turn up for the turning on of the Christmas lights!!

No more can we say "The Fighting Irish"!

If they didnt get it this way, they would get it through cuts or tax hikes elsewhere. Personally I prefer this method...

antoobrien

dlouth15 wrote: »

If it were such a bad idea as you make out, why are the EU about to agree on proposals to allow countries in the future to burn bondholders of banks?

The idea is as bad as I make out because there was no mechanism to burn senior bondholders at the time.

That and the fact that Irish people & companies would have taken a far bigger hit than the senior bondholders.

Both of those make it an absolute last resort.

The current proposals are still just proposals, there have to be a lot of law changes across many EU countries to make them a reality.

dlouth15 wrote: »

The reason is that by letting bondholders take a hit, less money needs to be pumped in to the system by the tax payer to maintain the banking system.

So instead of taxpayers paying for it indirectly through capital injections they pay for it directly because their bank accounts get written down.

dlouth15 wrote: »

Since the state is on the hook for less money, lenders are more likely to lend than otherwise.

A trader from bloxham/davy (can't remember which) repeated a story around the time of a bailout of the potential consequences of burning senior bondholders. It was raised jokingly but he was told by everyone on the call that their companies would never do business in Ireland again if they were burned.

So I'd love to see how anyone can justify stating for definite that burning bondholders will be cheaper without knowing the economic consequences of people refusing to do business with us over it.

antoobrien

323 wrote: »

Would very much still have been up for it, €200 per bank account? pennies compared to what we have paid for Anglo bondholders alone. With interest considered, about €47 billion, that's approximately €26,000 per person working in the country.

That's not a cost of €200 per account that's the average of what's left after we flush the banks!

Will €200 keep your household in food, light & heat in January?

flutered

antoobrien wrote: »

The idea is as bad as I make out because there was no mechanism to burn senior bondholders at the time.

That and the fact that Irish people & companies would have taken a far bigger hit than the senior bondholders.

Both of those make it an absolute last resort.

The current proposals are still just proposals, there have to be a lot of law changes across many EU countries to make them a reality.



So instead of taxpayers paying for it indirectly through capital injections they pay for it directly because their bank accounts get written down.



A trader from bloxham/davy (can't remember which) repeated a story around the time of a bailout of the potential consequences of burning senior bondholders. It was raised jokingly but he was told by everyone on the call that their companies would never do business in Ireland again if they were burned.

So I'd love to see how anyone can justify stating for definite that burning bondholders will be cheaper without knowing the economic consequences of people refusing to do business with us over it.

bondholders = gamblers, they buy and sell stocks, shares currency etc, the win, they loose, it is not set in sstone that they have to win all the time, if it was each and every one on earth would be a gambler because they would never loose, it would be ching ching all day every day, of course this is impossible, which makes the burning of the bondholders a reasonable action, if one assumes that the bondholders were of south american origen, from iraq or iran or perhaps outher mongolia, ask your self what would have been the concquencses.

Carpet diem

antoobrien wrote: »

Actually no, Irish law did (and unless it has been changed it still does).

It sickens me that nobody making these statements will mention will the consequences of burning the senior bondholders is a hit to ordinary deposits (i.e. the current account that your wages/social welfare gets paid into). If we'd have burned senior bondholders, depositors would have had to gotten hit for at least as much proportionately. To take 10% off the seniors, we'd potentially have been talking about have to have taken 18bn off Irish households & pension funds.

Now bear in mind that despite the 100k deposit protection, we have less than €400m to fund it. There are over 2,000,000 people with bank private accounts in Ireland, we're talking about roughly €200 per account.

So bearing in mind that to burn the bondholders is to potentially burn your own money, still up for it?

How would deposit holders get burned proportionately if there is 100k protection in place ?

Why should ordinary people be paying back bond holders for a risk ordinary people did not take on ?

Corporate bonds come with an extra yield over an above that for government bonds because of the extra risk of default.

So what you have is bondholders getting paid yields of corporate bonds but with almost risk free government status.

Someone mentioned traders would not buy again - the market has no memory. If the prices is right a market will exist. Iceland are getting back and up and running again and they can't be compared to Argentina ( who is clearly a basket case and has an economy nothing like Ireland )

realitykeeper

Cuttlefish wrote: »

RTE.ie link
http://www.rte.ie/news/business/2013/1219/493919-imf-chopra-bailout/


So Mr Chopra agrees with most rational thinking people that the burden imposed by the FF led Government AND continued by the FG/ Lab was unfair.

Bit late now eh!

So final review - "hey you have impoverished your ordinary working man and their children for years to come but in reality it was he wrong approach!"

But all good saying this now as Mr Renn said - "water under the bridge"

End of the day - working man will always pay.

Will you see any bank official in jail over this ? NO

A common mistake people make is they tend to forget who was originally to blame when circumstances change. It was FF and FG/Lab who took the bank debt and gave it to the taxpayer. It was not Mr Chopra. It was not Sean Quinn. It was not Anglo Irish Bank. It was not the Brits. It was not the Catholic Church. It was not unmarried mothers or the whirligig witch.

It was FF and FG/Lab.

Therefore, our European partners should not have to pay retrospectively for the Irish government bailing out the Irish banks. It was FF and FG/Lab who did the deed. All I can suggest is that they undo the deed. Re-privatize the banks and give them their debt back.

View

realitykeeper wrote: »

A common mistake people make is they tend to forget who was originally to blame when circumstances change. It was FF and FG/Lab who took the bank debt and gave it to the taxpayer. It was not Mr Chopra. It was not Sean Quinn. It was not Anglo Irish Bank. It was not the Brits. It was not the Catholic Church. It was not unmarried mothers or the whirligig witch.

It was FF and FG/Lab. Lets not forget that.

Therefore, our European partners should not have to pay retrospectively for the Irish government bailing out the Irish banks. It was FF and FG/Lab who did the deed. All I can suggest is that they undo the deed. Re-privatize the banks and give them their debt back.

Labour opposed taking on the bank debt and issuing the guarantee at the time. So, they clearly opposed it being "given to tax-payer".

Cuttlefish

realitykeeper wrote: »

A common mistake people make is they tend to forget who was originally to blame when circumstances change. It was FF and FG/Lab who took the bank debt and gave it to the taxpayer. It was not Mr Chopra. It was not Sean Quinn. It was not Anglo Irish Bank. It was not the Brits. It was not the Catholic Church. It was not unmarried mothers or the whirligig witch.

It was FF and FG/Lab.

Therefore, our European partners should not have to pay retrospectively for the Irish government bailing out the Irish banks. It was FF and FG/Lab who did the deed. All I can suggest is that they undo the deed. Re-privatize the banks and give them their debt back.

Interesting thought of handing back the banks debts what if....?

Cuttlefish

antoobrien wrote: »

Actually no, Irish law did (and unless it has been changed it still does).

It sickens me that nobody making these statements will mention will the consequences of burning the senior bondholders is a hit to ordinary deposits (i.e. the current account that your wages/social welfare gets paid into). If we'd have burned senior bondholders, depositors would have had to gotten hit for at least as much proportionately. To take 10% off the seniors, we'd potentially have been talking about have to have taken 18bn off Irish households & pension funds.

Now bear in mind that despite the 100k deposit protection, we have less than €400m to fund it. There are over 2,000,000 people with bank private accounts in Ireland, we're talking about roughly €200 per account.

So bearing in mind that to burn the bondholders is to potentially burn your own money, still up for it?

So in summary your point is


**** flows downhill

Senior bond holders would pass on the costs and hit to the ordinary man again.

Just like the banks are doing now with increased charges and fewer services/personnel

Sand

antoobrien wrote: »

The idea is as bad as I make out because there was no mechanism to burn senior bondholders at the time.

So legislate for one. The government was well able to rush through emergency legislation (after a session in the Dail bar) when it suited.

That and the fact that Irish people & companies would have taken a far bigger hit than the senior bondholders.

I appreciate the use of "us" and "we" when losses are being divvied up, almost makes me feel like a citizen. Though they do seem strangely absent when gains are being apportioned. As an Irish citizen and taxpayer, I really couldn't care less what happened to Irish people and companies who made poor investments in bankrupt banks. They take their hits like anyone else, pick themselves up and move on (I am very practical when it comes to bankruptcy legislation btw).

Basically the "Irish people & companies" took money out of the pocket of all the other Irish people and companies who didn't make their mistakes. That's not a win for the Irish people. It is a win for certain people at the expense of the Irish people.

A trader from bloxham/davy (can't remember which) repeated a story around the time of a bailout of the potential consequences of burning senior bondholders. It was raised jokingly but he was told by everyone on the call that their companies would never do business in Ireland again if they were burned.

Oh, bloxham/davy - those dribbling idiots who were happily telling anyone who would listen Irish banks were a safe bet all the way into 2007 and 2008?

Let me share a little insight of my own. Investors are inhuman entities which thirst for profit. They don't get angry. They don't get sad. They don't forget, but they don't brood over it either. The measure risk vs. reward, and if it lines up they invest.

So I'd love to see how anyone can justify stating for definite that burning bondholders will be cheaper without knowing the economic consequences of people refusing to do business with us over it.

Why not support your own preferred policy first seeing as it was the one embarked on and the one we are *actually* paying for? I mean, all any of the Green Jersey brigade seems to have to support their strategy is anecdotes about what someone might have jokingly heard on a call. Maybe. I really hope the policy was based on stronger ground than that, but its unlikely knowing what we do about Irish policy-making.

As it goes there has been some interesting comments of late coming out from the various parties involved which demonstrate how poorly the Irish government negotiated since 2008. Despite the very strong denials of some at the time, it does appear we had some cards to play and even the people we were negotiating with were puzzled as to why we didn't play them.

Mody of the IMF has obviously gone on record as referenced in the OP. But I believe Mody has made similar comments before - indeed I recall him stating a year or two ago that he was very surprised when, during the Nov 2010 bailout discussions, he attempted to argue with the ECB/EU that bondholders should face losses and it was the *Irish* representatives who sided with the ECB against him. He found that very puzzling as he was trying to reduce the burden on the Irish taxpayer.

Meanwhile, the Irish government was bullied by Trichet's ECB in Nov 2010 in what even the Germans found a disquieting abuse of the ECBs power. Carsten Schneider (SPD Finance Spokesman) told the Irish Times as much “I think the Irish were more or less blackmailed by Jean-Claude Trichet using a competence he didn’t have. They should never have accepted it,”. You'll remember last year that the competence of the ECB to use its power to influence or induce a sovereign governments policymaking was raised briefly by Colm McCarthy, with the suggestion that the government ought to refer the ECBs actions to the ECJ to see if the ECB overstepped its boundaries. That advice was ignored - as Mody found to his surprise, Paddy doesn't like confrontations.

Speaking of Jean Claude Trichet, anyone notice how the Euro crisis seemed to abate after his departure? It certainly helped that he and LBS weren't threatening to suicide bomb the Eurozone banking system every other week I suppose. I do remember JCT being praised as a stern, paternalistic figure on these forums. Rather than a fool bolting the door long after the horse had fled. History I think will lean towards the latter view.

Meanwhile, the news in the Irish Times today is that the various EU figures are miffed that the Irish are not suitably grateful for all the assistance rendered to them. (When I say rendered I mean lent. At interest. And under stern rebuke). Hence Barroso's rather remarkable outburst late last week. Apparently in response to some mistaken Irish views that the Euro caused Ireland woes, Barroso decided to go one better and try to insist that actually it was Ireland that caused the Euro's woes. :pac:

Its fairly amazing that less that 1% of the Eurozone can apparently cause a death spiral only averted by the appointment of Draghi, but there you go. Apparently Ireland has the power to destroy the entire Eurozone. And by extension, by Irish taxpayers taking on the entire bill for saving Irish banks with no assistance, Ireland really has taken one for the Eurozone team. It ought to be the EU who are grateful to us by Barroso's logic.

Barroso is clearly a fool, but its a narrative that our government is apparently allowing to blossom at a senior EU level which demonstrates just how poorly our case was negotiated.

But all this is in the past - the Green Jersey strategy was tried, with little discussion or evidence, an this is the result. Alternatives are in the past. The worst case scenario has been reached. The economy will eventually return to mean over time - that is inevitable. Just hang on in there Ireland.

PRAF

Cuttlefish wrote: »

RTE.ie link
http://www.rte.ie/news/business/2013/1219/493919-imf-chopra-bailout/


So Mr Chopra agrees with most rational thinking people that the burden imposed by the FF led Government AND continued by the FG/ Lab was unfair.

Bit late now eh!

So final review - "hey you have impoverished your ordinary working man and their children for years to come but in reality it was he wrong approach!"

But all good saying this now as Mr Renn said - "water under the bridge"

End of the day - working man will always pay.

Will you see any bank official in jail over this ? NO

Agree that there should have been more losses imposed on bank bond holders. Unfortunately we did not have the support of the ECB or the US govt to do so. Once that argument was lost (and it was lost not just by The Irish govt but by the IMF as well), what could we have done?

I suppose we could have acted unilaterally but that would've been very risky

- potential loss of funding for our enormous current budget deficits

- potential cut off of ECB emergency support for our banking system

- reputational damage to a country so dependent on international trade, FDIC, etc.

Under the circumstances, I think the govt probably took the least worst option.

When your entire banking system is bust and when the govt was borrowing 500m per wk to keep the show in the road, you're not exactly negotiating from a position of strength