Contrary to the spin, we do have a choice. In fact, it is probably the most important choice for years
Do you feel like you are sleepwalking into yet another banking disaster? Tomorrow’s stress tests are likely to result in you and me lumbered with another €20bn bill for Ireland’s dysfunctional banks. Why? Will this make a jot of difference to the economy? Is there a cheaper way of doing this? Why do we have to pay anyway? The banks are bust and yes, they can be made solvent by throwing billions of our euros at them, but to what end? To fatten them up for sale so someone else — some investor — gets all the upside?
Remember NAMA was supposed to “get credit flowing”? Now we know it is a fee fest for the same auctioneers, accountants and lawyers whose fingerprints were all over the collapse of the economy, the property market and the banks in the first place. They got paid enormous sums in the boom and now they are getting paid enormous sums in the bust and they are being paid with your money. NAMA hasn’t gone away you know!
Maybe just consider one thought on NAMA: the very auctioneers who overvalued Irish property in the boom and were instrumental in feeding the frenzy have been rewarded for their part in this mess by being made valuers for the very same property that they once overvalued. How does that make you feel?
Now let’s consider the banks. The stress tests will tell us just how bankrupt the banks are now, after five previous injections of cash. So the stress tests give us a chance to decide how are we, in this country of ours, going to deal with the banks. Contrary to the spin, we do have a choice. In fact, the choice is probably the most important policy choice faced by any government for many years.
We are being told from all quarters — by the vested interests who insecure commentators refer to as “serious people” — that we have no choice but to put more money into the banks. This is cobblers and overlooks legislation, which is actually in place to deal with bankruptcy.
There is a different way of doing things and there is a normal business way of dealing with bankrupt banks which doesn’t endanger deposits and keeps the banks’ doors open for business without lumbering you and your children with a huge bill which was never yours to pay.
But as usual the ordinary Joe — who is paying the bill — is being so bombarded by half-fictions, quack economics and financial propaganda by the “insiders” — who will benefit from his largesse — that he is totally confused and doesn’t know which way is up at this stage.
Let’s clarify things. There are three ways of dealing with bankrupt banks. There is the present Government/ establishment’s way; there is the nuclear option of receivership and there is the logical, business-like procedure which is called “examination”.
The present option means that no bondholders will be touched or, if they are, their pain will be modest and you, the taxpayer pays. Even the new language is duplicitous. ‘Burn the bondholder’ was ridiculous when the bondholders burned themselves by their stupid investments. But now we have a new expression ‘burden-sharing’. Think about the meaning of ‘burden-sharing’; I will share a burden with someone if we are both culpable; that sounds fair. But why should I share the burden of a loan that was never mine and was always his? Every cent of citizens’ money given to a bondholder is a subsidy from the poor to the rich. This is corporate welfare for the banking classes — the very people who regularly rail against social welfare for the working classes. It is grossly unfair and financially incoherent.
The second option or nuclear option is receivership. This is where the losses are so big and you conclude that the bank has no future so you close the bank down. Here is where we get into the ranking of who gets paid and in what order in a receivership.
In a receivership, the receiver comes in and looks at a balance sheet and assesses the difference between assets and liabilities. He then tries to sell the assets and pay back the creditors. The creditors form a queue and will be paid in the following order.
The first to be paid in a bank closure are secured and trust creditors. Secured creditors might be other banks that have lent money to the bank in cash. And trust creditors are depositors who deposited money into the bank based on trust.
After secured and trust creditors, if there is more money left, the next in line are super-preferred creditors. These are the employees and the Revenue Commissioners.
If there is any money left after the secured, the trust and the super-preferred creditors are paid, the unsecured creditors will get paid. These are the bondholders and the trade creditors. We know who the bondholders are and the trade creditors are people like the IT supplier or the landlord and the like. Finally, if there is anything left after this, it goes to the lowliest creditor — the shareholder.
The receivership approach is deployed if you think that there is no future for the company. As such, it is the nuclear option. But we know that for some of the banks, there is a future. So why not go down the examinership route?
Examinership is in Irish company law. It is already there. The aim of an examinership is to keep the company open. It is designed to restructure all the debts, clean the company up, find a new buyer and start again. The main aspect of an examinership is that historical debts are not paid in full. The line is drawn in the sand at historical debts. The company undertakes to pay all its overheads and trade through the difficulties.
The historical debts are treated like a receivership. The new owners decide who gets what and how much. The same priorities apply. So the secured creditors and trust creditors get most. In the case of a bank, deposits could be guaranteed by the Government. After that a haircut is applied to all the other creditors. It could be 40 cents in the euro or 10 cents depending what the stress tests reveal.
This is exactly what Obama did with General Motors. In the US examinership is called “Chapter 11”. There are various different ways of sweetening the pill for the creditors who get whacked. For example, you could give them 20 cents on the euro and then a ‘kicker’ later if the banks’ profits improve in a few years. So you tie payment to future profits. You could involve debt-for-equity swaps in this too.
There is always a buyer.
Ask any liquidator whether they have ever failed to get a buyer after a proper examinership. Who wouldn’t buy an Irish bank if it were cleaned up? There will be any number of suitors both from Europe and further afield, and the taxpayer doesn’t have to pay a cent more. The depositors would be safe and one part of the great Irish financial crisis would be solved.
This is the way out. It is the business solution to a business problem and it works all over the world.
Tomorrow’s stress tests only reinforce the logic of examinership for the Irish banks. Let’s hope the new Government is open to persuasion.
Time earlier provided some insight to the reality of these stress tests.
http://www.bloomberg.com/news/2011-03-30/bank-of-ireland-two-smaller-banks-said-to-need-12-7-billion-of-capital.html
The bailout part II could be north of €33 billion, the societal consequences unknowable.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/03/the_unbelievable_truth_about_i.html
Some form of debt write down/structured default has to be the way forward, cut a deal and lets move on because this is like a slow death for a failing State with Lowry sideshow in the background while Sarkozy and Merkel are in deep political trouble and focused on re-election, while Rome burned…………
I really would NOT recommend anything Obama does. Just another shill for the banks, an enemy of the rule of law.
David, I just listened to your February interview with Bill Black. Thanks for bringing his views to bear on the Irish situation.
Black’s views are clear – investigate and prosecute. There is no way out of this for Ireland until the banks are killed stone dead.
This seems to make sense but, in the case of IL&P what of the tracker mortgage holders? If the bank goes into examinership can the new owners force tracker mortgage holders to go variable? If not who’d want to buy? Particularly after they have sold off the profitable bit of the company: http://bit.ly/fUdd3n
Yes, valuers “over valued” property in the past but everyone knows that the market is set at what a willing buyer and seller agree on. Valuers couldn’t turn around and say “actually I don’t think you can afford this” to the buyer and “you’re ripping him off to the seller”, most of them did their jobs by the book. So of course they will be the ones to revalue the NAMA properties. Who else would?! Other then this I agree the Banks should be examined but, the stark reality it that if they were examined from the start most of… Read more »
“Let’s hope the new Government is open to persuasion.”
Its time we bent down on our knees and started praying for that.
Good article as always. And always holding out hope. I’m just watching a not very swashbuckling version of Robin Hood with Russel Crowe. Gladiator it ain’t. But as usual the rich are getting richer and the poor are getting poorer. Robin Hood is running around stealing from the rich to feed the poor. And in this country the black market will be alive and thriving if things don’t improve or if people don’t think things will improve. I don’t mean the illegal cigarette smugglers, I mean ordinary people. Who can blame them. I really resent paying taxes to a government… Read more »
Could somebody offer an educated guess on the following for me please;
1. Does such an “Examinership” automatically represent a complete rebuke of the entire EU/IMF bailout package?
2. What would be the likely bond-market reaction to such a move?
submit.
Maybe you did have some crook valuers over there, David, but as a director of a valuation firm in Australia, that’s doesn’t seem to be the nub of the issue to me. The market value in a bubble still remains the market value, but here in Oz, at least, a mortgage valuation is also required to comment on the likelihood of the market price declining (a) within a year and (b) within 3 years. But our bank lenders, wanting to do a deal at any cost, usually ignored these additional comments, considering them to be remote and speculative – almost… Read more »
If your company wants to take the Examinership route the Directors decide . If your Irish Bank or Banks should professionally have to be going the examinership route the Directors ‘do not’ discuss it and whisperpass the blame to the Regulator who whisperpasses it to the DOF who whisperpass it to the Minister …who whisperpasses it to the Taoiseach …who whisperpasses it to the EU …who declare they were never told . No Irish Bank will discuss this strategy because …’there would be a run on Deposits ‘.You cannot expect the Bord of Directors of an Irish Bank to do… Read more »
David.
What we got here is *Disaster capitalism*.
The free market system for the moment is on pause.
Corporatism rules.
So we get told TSB, the latest shock, will be fine and its normal now for taxpayers to be used to bail banks toxic debts out to keep the private banks in business.
Its got to be some type of cultural phenomena underway, we are all living through.
David.
All the insiders have to do now is just announce the sky is falling in and bobs your Uncle they can use the sky falling in to switcheroo private debts onto the public purse.
David.
Technology and paper and no moral scruples.
Bubble making software.
And now government has been absorbed into bubble making pyramid scams.
Business and government and finance and insurance hand in hand addicted to the get rich quick fix of bubble scams.
Humankind has hit the bricks on new frontiers.
No new frontier is there to exploit.
The jig is up.
And western society is merely speeding up to force it to be there.
Oh sh1t !!
The orders from Brussels and Berlin are, “Put more money in the banks.” The orders will be followed.
As Churchill once said of Americans, but now certainly applies to the Irish political class, they naively believe that “if something does not work, then more of it will work.”
Any Irish bank in the future should be regulated by Ireland, but with the regulatory agency being a branch of the bank regulators in Sweden. Sweden let its bank managers, incompetent or corrupt, failures in either case, suffer the consequences of its actions. Ireland needs strangers to its cozy political culture overseeing its banks. Otherwise favors will be done, with clever little narratives to make the favors appear to be either absolutely necessary or admirably in the best interests of the people.
Noble View Leaders use the experience from the top of their local hill to view the vast expanse of their domaine in olden times .It was an experience to feel and seek wisdom of the ways in life at the time and to make better decisions to show the the best directions that the goodness of the local toil and hard labour should take for the welfare of all the local families. Today , ruteless deceptive toxic and treasonable Irish Bank Management look behind themselves and wear many hats and move lips without words ,cast glancing eyes in coded nuances… Read more »
Prism of this Forum We are still in Denial what is happening .We have invoked our senses that nothing more can be said as we have said it all before .We feel that we are only repeating what went on and will be the same that will continue .We have numbed our senses believing we cannot be shocked anymore and that the circus is over . You have not started yet .You have not seen anything yet .You have not known any pain yet .A new moment will arrive soon and your Denial will be raised to a new level… Read more »
Mike Aynesley of Anglo dropped the canard on Morning Ireland that ‘no one could have predicted the changes in the property market over the past few years’ Bullshit, I’m no genius, but I along with many others called the craziness of NAMA’s ‘Long Term Estimated Value LTEV’ We knew property asset values would collapse and government NAMA and taxpayer injection of funds into the banks would be a disastrous socialisation of the banking sector, taxpayers would be raided to pay for bank losses exposing them to a black hole. For at least the last decade our economy was controlled and… Read more »
All in one day in Ireland
Stress tests to reveal extra funds needed by Irish banks
http://www.irishtimes.com/newspaper/breaking/2011/0331/breaking5.html
Anglo reports 2010 loss of €17.7bn
http://www.irishtimes.com/newspaper/breaking/2011/0331/breaking6.html
Lowry to face Dáil censure motion
http://www.irishtimes.com/newspaper/breaking/2011/0331/breaking1.html
Hard to see things improving when potential talent like this is allowed walk out the dooor to the U$A.
What was that about the innovative?
http://www.irishtimes.com/newspaper/frontpage/2011/0331/1224293434440.html
David – Your idea (as usual) seems logical. One q – I understand the banks are borrowing on a daily basis from the ECB to keep cash in the ATM’s – in an examinership situation – would the ECB continue to fund the banks? Where would we get the cash from to meet banks day to day requirements?
{ The banks are bust and yes, they can be made solvent by throwing billions of our euros at them, but to what end? To fatten them up for sale so someone else – some investor – gets all the upside? } It is getting more absurd by the day. And of course we CANNOT have a firesale of assets. Why not ? I mean if you increase capital gains tax, you get half the money back eventually anyway. And it might help drive down the cost base, and make the economy more competitive. I am also reminded of the… Read more »
Anglo Banglo. Is leatsa E. http://www.breakingnews.ie/business/anglo-irish-bank-announces-another-record-loss-499310.html 17.7 Billion in the red. The bank of Drumm and Drummer is on a roll. Beating more records. How much is that when divided by the number of people who work in the export sector. (Multinationals, SMEs, Farmers, Hotel workers, Fisheries, Mining etc…). A lot of money to be pulled in from abroad so that it can be sent back to the Anglo Bondholders. Alright, time for a break. Going for a round of golf in Druid’s Glen with Seanie Fitz, Fintan Drury, a bank economist, and Biffo. But we are certain that we… Read more »
Folks Here is that Bloomberg bank stress-test leak link:
http://www.bloomberg.com/news/2011-03-30/bank-of-ireland-two-smaller-banks-said-to-need-12-7-billion-of-capital.html
Keynseian economic stimulus planning in the PRC.
http://www.businessinsider.com/china-ghost-city-documentary-2011-3
Anybody who thinks the Chinese will buy empty real estate in Athlone might want to consider why they Chinese are using all the real estate under their own noses.
Wills – it sounds kind of familiar – yet another Ponzi scheme.
The construction is continuing. Keynesian expansion. Ditherer would be impressed.
David,
Were you not the one who advocated the bank guarantee and a bad bank solution?
Today’s Mail says the mean wage in Anglo is 100k ! FG/Lab will be as despised as FF in 4 months.Anglo has announced the biggest loss, relative to it’s size in corporate history.RBS is in better shape !
http://www.independent.ie
Shameless Brendan Griffin.
Nice Article David There is a slight problem however In this article you advocate that some banks have a future and that people would be queueing up to buy some of these banks and that examinership is the way forward. These are also the same banks who robbed us blind and bet with our money. In an article some time ago you poined out in detail the dangers of Irish banks being owned by foreign corporations. It seems that you are changing tack somehow and saying things from both sides of the coin. Whose side are you on ? Is… Read more »
should be …grip of deflation
Folks, ECB likely to raise int rates in Apr after EZ Mar inflation of 2.6%, what int rates will be assumd in stress tests today?
wp.me/pNlCf-1dy
(via Namawinelake)
Link:
http://namawinelake.wordpress.com/2011/03/31/a-stressful-day-%E2%80%93-running-commentary/
(apologies for my pasting of links being wonky these days – must fix)
Also, don’t forget Lorcan’s blog site will be broadcasting the press conference and figures/updates/etc for stress tests here:
http://blog.cornerturned.com/2011/03/30/bailouts-last-stand/
What do I know, but I still have the gut feeling that once a critical mass of Irish depositors have offshored their dosh then the case for default will be articulated with increasing urgency and become irresistible. By ‘critical mass’ I mean not too many, but just enough to tip the balance (that’s what democracy is after all). Hell, why stop at default, why not throw Euro exit into the bargain, just to prove to our European partners that we won’t shrink from our responsibilities. Once domestic savings have been trashed those foreign deposits will be worth a lot more… Read more »
Quotes from Brian Lenihan since the bank guarantee: On Breakfast with Newstalk, April 26 2010. First of all, that’s the position in 2009, Eurostat hasn’t decided it yet, that’s our assesment of how they will decide it, we’ll still argue the toss with them. We have to deal with 2010 yet, but let’s assume that you’re right for a minute and that all the €8bn has to be added on in 2010. Let’s assume that. We won’t be borrowing the money, we’ll be borrowing the money over a period of ten or fifteen years. We’ll actually be upfronting — in… Read more »
So no pension fund left then….next is we sell our national assests…esb, oil fields, gas fields, forests and people.
Thanks FF/FG/LP and Greens…smashing job :-(
Josey
Republic of Missouri, The Change Your Founders Believed In… http://www.youtube.com/watch?v=57UJmlj5BgI&
Will the last person to leave Ireland please turn out the lights!!!!!!!!
Something fishy going on in the rent world. I am currently moving house as the lease is up. The current place we got 3 years ago for €1050 per month,they now want €1200 for it, after looking around and viewing for the last few days prices seem to have gone up. Another friend with a lease ending who has his place for €900 is now being asked for €1000. Most of these places are now being handled by an estate agent for a receiver as the original company is out of business and I guess the properties are now ultimately… Read more »
Some perspective on the Irish banks debts; the Irish 80 billion is approximately equal 960 billion per capita in the UK and un the US it would be 5.75 trillion on the up side our GDP was the same as that of the Egyptians with a population of 80 million. So each Irish person is being forced to pay 16,000 the equivalent in Egypt would be 1,000. Greed like poverty is relative.
cbweb, coldblow, …. please keep posting boyos. We must try…..
Let’s keep at it……..
The international finance community is reporting, and cheering on, that the Irish government is going to nationalize the Irish banks, and then put them into bankruptcy, thereby disowning their debts and putting no more capital into them?
Could this really be true?. Or will some minor concession from the Brussels/Berlin Axis of Exploitation induce the government to continue the bailouts?
Read about it here:
http://zohfutei.notlong.com
I’m just after watching Richard Bruton’s ‘performance’ on Vincent Browne’s Tonight programme and what it reminded me of was that he’s now talking exactly the same way that Lendahand and Clowen did during the last 2.5 years!!!I know the new government have been left a complete and utter mess by the last shower of idiots, but the way that Richard Bruton was talking they’re just carrying on with the same old mantra that had been spouted by FF since the introduction of the bank guarantee. The ECB are making complete and utter fools of us and this new crowd simply… Read more »
Well is it not time now to let the people decide on this bailout, or dose this new goverment of ours still think the people are not smart enough to think for them selfs
The Good Room I think before the ECB arrives to town with their printing presses to rubber stamp every paper euro in the country’s banks we should decide where is the ‘good room’ that we can call our own and free us from the dominance of this invasion and where we all can feel safe . If we could only occupy it and try to feel the way we once knew what it was like ‘to be real’about ourselves and ‘to feel free among ourselves’. I have in my own memorabilia of old stamps I collected as a kid many… Read more »
24 billion. If we sent out lotto sellers to the whole world we would need every single man woman and child to buy a 5 euro ticket each.
David, Don’t become an Obama Zombie. Obama’s “rescue” of GM was basically a corporate mugging the aim of which was to funnel money to his auto union backers. In doing so he totally abrogated the “creditor waterfall” which is an integral part of a chapter 11 filing. What this basically means is that he screwed the senior creditors (“the bondholders”) and gave any upside to the unions. His “Auto Czar” Rattner later resigned to fight a “pay to play (aka bribery)” charge in NY. GM, like the Irish banks, should have been allowed to go under. They make a crappy… Read more »
Nice article by George Soros, saying that the Germans are being unreasonable and the German Public has been mis-informed and is confused.
He thinks a Europe should deal with Irelands banking problem not the Irish government to make it clear to the Germans that their banks are being bailed out.
http://www.project-syndicate.org/commentary/soros66/English