The government has spent more than it can afford on Anglo, a bank of no value, so when a proper bank comes begging, there will be nothing left to give
Writing on a bus can always be a bit tricky, particularly on a dodgy stretch of road outside Charleville. But, bumps apart, the 12.30 Citylink bus from Galway to Cork is making good time, and the fact that all these buses have free wi-fi means it’s far preferable to the hassle of driving.
Traffic doesn’t faze you and you end up chatting to neighbours and watching the beautiful countryside – unfortunately blighted by ghost estates – as it flies by outside on a beautiful late summer’s day.
The bus is jammed, mainly with students. These people are the future of our country. I couldn’t help wondering, as I listened to the news about the latest losses in Anglo Irish Bank – another €8.2 billion racked up in the first six months of this year alone —what would happen to this bus service if we applied the basic rules of capitalism to Anglo. Would the Galway-to-Cork bus service stop if we called the creditors of Anglo into a room and said: ‘‘Sorry, we cannot pay you for your mistakes’’?
Would a repudiation of Anglo’s debts make a jot of difference to the day-to-day reality of life in our country? If the answer is no, then the right course of action would be to do an adult deal with the creditors. And what if closing down Anglo now and forcing the creditors to take whatever a liquidator instructs would actually make life better here?
What if forcing the bondholders of Anglo to become shareholders in Alan Dukes’ new business bank signalled the beginning of the end of Ireland’s banking crisis?
The government’s current stance is that Anglo and the Irish state are one and the same thing. By extension, defaulting on the bondholders would be tantamount to a default on Irish sovereign debt. This is what is terrifying the markets. The signal from them is clearly that we should go in the opposite direction: cut Anglo off from the state and let it go. Yes, this change of policy will demand difficult negotiations with everyone, including the European Central Bank (ECB), but that is what being grown up is all about.
Jean-Claude Trichet, governor of the ECB, is also wrong when he says that Anglo is an Irish problem- and he knows this. He is bluffing. Anglo and the rest of the Irish banks borrowed from other European banks, so the counterparties of all these trades are banks on Trichet’s watch.
The problem for Trichet is that his ‘‘you are on your own’’ stance – which might sound tough – is actually very childish from a serious central banker, as it brings the prospect of a sovereign debt crisis closer. By suggesting that Anglo and Ireland are the same legal entity – which they clearly are not – the state is contaminating itself.
The amazing thing about the government’s stance is that it is prepared to risk the financing of the entire country for the sake of this notion.
Quite apart from the Anglo fiasco, there is the little problem of AIB. Paying full whack for Anglo might mean that the state will have no money left for AIB, when AIB comes looking for cash in a few months.
Think about what is now happening in the country Figures published last week by the Financial Regulator show some pretty stark realities in the mortgage market. In the second quarter, 4,117 more mortgages fell into arrears, bringing the total number to 36,438.By value, e 7 billion-worth of mortgages are now in arrears. This is 5.9 per cent of the total outstanding mortgage debt in the country.
The banks have no way of recovering this money. The entirely political decision not to allow banks to foreclose on delinquent mortgage holders means the banks have no way of recovering their losses. Their only hope is that the delinquent borrowers will sort out their finances (presumably by getting a new, well-paid job) and be able to pay their arrears. With unemployment up again this month, we can discount that idea.
Thus, the banks will have to raise more capital to cover their mounting losses. But, hang on: they already need to raise more capital to pay for the writedowns on their Nama-bound loans. AIB is still going on about raising €7.4 billion by December by selling some overseas assets. It is now September and, while talks are being held with some interested parties, nothing has yet been concluded. If it hasn’t managed to get the money together by the regulator’s cut-off date in December, it will most likely have to turn to the government for funds.
But AIB (or any other bank that comes knocking for more capital) could be in for a shock. The cupboard may well be bare by December – all available funds having been written off in Anglo.
If it doesn’t happen in December, it may be next March or next June or whenever. But it will happen because, as long as unemployment is high, mortgage delinquency will continue to rise; and as long as delinquency continues to rise, the banks will continue to need more capital.
Add to this the fall in savings, as people use their nest eggs to survive the recession (household savings are down €2.5 billion since January) and the banks will also be coming under pressure on the funding side.
Adding to the problems is the likelihood of the ECB rolling back on its generous liquidity operations in 2011.And, as if things weren’t bad enough, there are also going to be rises in ECB interest rates at some stage. Last week the ECB raised its growth forecasts for the EU, a precursor to a rate rise if there ever was one (remember, the ECB looks at Germany, not Ireland, when setting rates).
For the bankers, the next couple of years are going to very difficult, and it is the exchequer that has promised to help them through it. That is the same exchequer that spent €12.1 billion more than it earned in the eight months to the end of August this year, an overspend of €1.5 billion per month. Where is the room in that account for further bailouts for the banks? The answer is simple. There isn’t any.
The government might be faced with the choice between Anglo or AIB before a full-blown debt crisis. One bank is a black hole and of no value at all. AIB, in contrast, is systemically important.
I can guarantee some of the students on this bus have accounts with AIB. If the government is prepared to risk AIB for Anglo, the lunatics are clearly on the loose and running the asylum.
Great article, thanks! Almunia: How much Anglo owe? Almunia: You give dem blank cheque?.. Lenihan: Yes, we spread all debt onto the future for 10-20 year. Only 2 billion per year? In ten years NAMA(genuflects) will know what everybody owes! Almunia(takes out calculator): Let me see figures? Is all manageable, no problemo? Then we make new Anglo compete with BOI and Allied Irish and the other Irish banks and we whack them with new bank with all our money.(winks at Lenihan) You think me crazy? Almunia: You know I train national judges in EU Competition Law and judicial co-operation between… Read more »
It is very sad how right you have been david but no one within Power in Dublin wishes to listen! ALL those many Billions wasted ? The Greeens / Labour & the current Government ALL do not deserve power again, when the next elections arrive ? we need a true Independent Movement- to see Justice prevails ! As for this good bank bad bank? it is a scam? as mates of the present CEO who was taken from Philipines last year will be running the new Bank ! what a conflict has been running these past months! & many deals… Read more »
Sorry David, but Mr Trichet is right. Anglo is an Irish problem. The ECB is not a bank regulator and has no banks “on its watch”. It was the Irish regulator alone which had all the Irish banks on its watch – and it failed culpably, as did the Irish government. While this was going on, lots of Irish prople enjoyed their status as paper millionaires and borrowed and paid themselves handsomely under the illusion that this paper wealth was real wealth. By withdrawaing the bank guarantee from some or all the Irish banks and precipitating a sovereign debt crisis… Read more »
David’s excellent article needs to be read in the context of this information:
http://www.finance.gov.ie/viewdoc.asp?DocID=5507
What is going to happen to Anglo Irish long term debts on 30th September when the initial CI(ELG) scheme runs out?
What is the plan for the rest of its debts when the prolongation to 31st December 2010 of the issuance period expires?
Please David can you unscramble the implications of this?
David. is it not the case that Anglo loaned out all the depositers savings. And so it is the case the taxpayer is fitting the bill on this, reimbursing the depositers their deposits that Anglo loaned out to its crony networks / insiders / developers and god know’s who else. Any further loans lent out originate from the Fractional Reserve banking system and inter bank loans alongside building the POnzi property bubble house of cards. Thus, surely, the bottom line here with Anglo is the Irish gov are using the taxpayer to ensure Anglos depositers get their deposits. It seems… Read more »
David.
The real story here with Anglo, is, the following, why are the interbank loans of Anglo been paid for by the taxpayer.
There is a rational to be had with ensuring Anglos depositers get their deposits. But, thats it. Why are we the taxpayer footing the bill on the loan black hole of Anglo from its borrowings on the inter bank market?
This is what you guys ought to be focusing on now surely, and home grown journalists are not honing in on this and investigating it.
With the cost of borrowing rising, I think the government is being optimistic about the numbers for bailing out Anglo let alone any other banks.
“For the bankers, the next couple of years are going to be very difficult” Interesting one, think their troubles are nothing like the trouble coming for the State (i.e. the people). FF and God knows who else must have been heavily involved in Anglo for it to warrant so much support and so much secrecy. Some useful stats in the article which hint at things to come, especially on savings being down, reserves are being eaten up. Sept 10 – Sept 11 is show time, cash is king. Perfect economic storm gathering off-shore, don’t foresee a happen ending more Somme-like… Read more »
Epic discussion of options re Anglo:
http://www.irisheconomy.ie/index.php/2010/09/02/lucey-on-anglo-loss-sharing/
If you have 3 hours spare to read it.
Many strong arguments were advanced for not shafting Anglo, but as David has reminded us it seems to be a choice between some kind of managed, voluntary bankruptcy (with all its dangers) vs one that’s thrust upon us. An irresistible force is about to collide with an immovable object. My money’s on the irresistible force.
Just a few weeks ago the ECB approved an extra €10 billion for Anglo (bringing the total so far to more than €24 billion) but it is now considering plans to wind it down within a few years. So why put €10 billion into a company that you are going to shut down? And last week their boss Trichet described it as just “a bank which is owned by the Government” and “so it’s a responsibility of the Government of Ireland and of the Irish authorities” (in other words, nothing to do with him). So how can something be a… Read more »
Econarchist, You say, ;Just a few weeks ago the ECB approved an extra €10 billion for Anglo (bringing the total so far to more than €24 billion) but it is now considering plans to wind it down within a few years. So why put €10 billion into a company that you are going to shut down? I say, because it is a slush fund been used to ensure depositers get their deposits. The real question is, the stats on the depositers and on the black hole from the interbank lending and why did the taxpayer get to fit the bill… Read more »
The lunatics already run the asylum as is evident from out national debt clock. It is astounding how they have systematically plodded on in their dim witted ineptitude, their dense little minds are closed to reason, at any level. Every economist with a brain in their head has been telling them to cut the rotten Anglo bag of pus out. We are already in too deep. It is only a matter of time (maybe 12 months) before we have a full blown debt crisis in Ireland. They have been measured, weighed and found seriously wanting. See lesson 101 in borrowing… Read more »
It’s becoming more and more obvious that some sort of default will be unavoidable, whether it’s by Anglo or by the Irish state. The Irish economy just does not have the capacity to keep on pumping billions into a black hole. And as the years go by, there’s also the increasing probability that Nama will make a huge loss. The best that the government can do is to choose very soon between either an Anglo default or an Irish sovereign default. Most people would agree that it’s better to pay off their own debts before they start paying other people’s.
@Wills
YOU WANT “THE BIG WHY” OR “THE SMALL WHY”???????????
THE “SMALL WHY” IS a little piece of LEGISLATION CALLED “THE BANK GUARANTEE!!”
The “BIG WHY” IS “WHY DID THEY CHOOSE TO COVER DEBTS AT ALL”?
hmmmmmmmmmmmm. Tick TOCK.
REMEMBER THE SMALL PRINT…..
IT IS THE ECB’s JOB TO GUARANTEE LOANS BETWEEN BANKS!!!
BUT THE ECB SAID “NO WAY JOSE”… NOT AAA+ BUT THE GOVT CHOOSE TO ANYWAy…WHY????
TRICHET IS A HYPOCRITE – ANGLO IS A PRIVATE ECB REGULATED BANK.
VOLUNTARILY GUARANTEED DEBTS BY THE IRISH STATE FOR JUST 2 YEARS.
THE SOUP THICKENS AS THE SHEEPLE AWAKEN.
subscribe.
@NO HOPE.
The financial regulator does have a clue. For jaybus sakes dont be so taken in by the fact that no one had a clue.
The insiders and networks inflated the property bubble to get rich quick and used the banking system to do it and made sure any one in the way where on side.
@Wills
EXACTLY.
WE ARE NOT LIABLE BUT THEY CHOSE TO MAKE US BY PASSING BANK GUARANTEE LAW. LAW OF THE LAND.
THE BANK GUARANTEE SAYS STATE WILL BE TEMPORARILY LIABLE FOR DEBTS DUE IN 2 YEAR PERIOD.
WHY????? THE BIG WHY. HOLD ON TRICHET ON THE PHONE
Posters. Simon Johnson, ‘This misunderstanding stems from Ireland’s success as a tax haven. Many years ago Ireland cut corporate taxes to attract business. This created one of Europe’s most impressive tax havens — it is possible to set up a corporation in Ireland, channel sales through that head office (with some highly complicated links to offshore tax havens in order not to pay Irish tax) and then pay a minuscule corporate profits tax. Ireland boasts a large industry of foreign “tax minimizers” that do this, but these tax minimizers hardly employ any people. Nearly one-quarter of Irish G.D.P. comes from… Read more »
URGENT! URGENT! URGENT! MESSAGE FROM MERRION STREET Defining the LEAST WORST Option A Chara, You must understand that the Government has always said that it was looking at the WORST options — “worst” in the sense of putting the greatest possible sharing of the burden on the maximum number of citizens who ALL* happen to be taxpayers, and we, the Irish Nation, have accepted the fact. Having decided to look only at the WORST options — preordained by the Minister’s secret appointment of a pro-developer-lobby economist to bring home the bacon, and accepted by the public at large — the… Read more »
Finally somebody has pointed out Trichet as bearing responsibility for this mess. I have seen us commentary ridiculing Bernanke and it seems that everybody has made a target out of Greenspan. Mervyn King in Britain has also managed to escape censure despite Northern Rock, RBoS, Bradford and Bigley and other calamities beneath his radar. But there is no criticism of Trichet, from the Irish media. With the creation of the Euro, there was a sharp drop in interest rates because the ECB, to get approval from the Germans, and Benelux. However this drop created an interest regime that was historically… Read more »
Anglo issued bonds on the international markets to raise funds, Anglo then lent these funds to property developers to buy property. Developers then paid other developers for the property who in turn borrowed more from Anglo to buy more property. It all relys on property top to bottom. I would borrow money to get a roof over my head but I would not borrow to speculate. Nobody knows how far commercial property has fallen since 2007 but it is not over yet, we are not at the bottom. What happens when NAMA is forced to sell more property….it is going… Read more »
Very late after an 18 hr day so not capable of logical debate but some questions arise from this fine article. 1. Is Anglo best described , not as a Black Hole, but as a worm-hole leading us to the real black hole of default? 2. Would a repudiation of Anglo’s debts make a jot of difference to me at the moment? (Hint – No. I’m not in the club.) 3. What reality dictates that the Public Representative on Anglos board has the credence and international financial kudos to form a silk business bank purse out of a sows arse,… Read more »
Folks,
to those who saw the Freefall RTE broadcast, I have a question.
Do you remember the one scene where they showed a closeup of Brian Lenihans face with a tear developing in the corner of his eye?
It might seem a funny questions, but I am curious to learn how many people remember this cut.
Thanks
Georg
SOME COMMENTS RELATING TO TV TONIGHT It is so easy for someone who earns many multiples of the average worker to say that the banking situation is MANAGEABLE and this is what we have heard from the Lenihan on tonight’s news. The issue of BONDHOLDERS has not yet been touched upon in the FREEFALL documentary. It also remains to be seen if the series will highlight that the Government has released only 30 of the 80 documents relating to what happened on the fateful night of September 29 (our 9-29 fiasco?!) and most of the 30 documents released were heavily… Read more »
LENIHAN HAS A NERO COMPLEX.
THE LEMMING WORSHIP IS PURE HOPE.
FEELS GOOD BUT WONT PAY THE PIPER.
WHEN THIS BLOWS UP THE FINGER POINTING WILL MAKE IT ALL THE WORSE.
PASS THE SICK BAG MAN.
March 30th 2010, Dail votes on MOtion on Stability of Banking System, see my ‘commented’ snapshot here: http://dl.dropbox.com/u/4914840/competence.jpg On April 2nd NAMA transfers Euro 8.,5 billion, Bankers were overpaid to the tune of 1,2 – 3,1 billion. On April 5th I started a petition that called for the immediate closure of Anglo and NO extension of banking guarantee after September 2010. Within 20 days more than 230 people signed this, and it was just a internet petition with no exposure in the media at all. The independent polled 25,000 people in July, and I think it was around 95% that… Read more »
In my view Wills is right in his arguments here. What is happening is not capitalism, if it has a name at all you might call it ‘desperatism’. This is just politicians trying to maintain the status-quo, and is no different to the efforts of other politicians, at other times, and in other countries, when everything is falling apart. The fall of the Soviet Union was one I watched with considerable fascination. The structure of the economy before 2008 was the cause of the troubles that started in 2008, so trying to maintain the status quo will merely result in… Read more »
Anglo Irish bank should be declared bankrupt. The depositors of Anglo Irish up to 250,000 should be refunded and the other secured and unsecured creditors left to fight over the rest. In the States, many pension funds were lost in the Chrsyler and GM bankruptcies and the hundreds of banks (140 US banks declared bankruptcy in 2009).Bondholders also had to take losses. Why don’t these states decide to spend all their money on keeping these failed businesses afloat? Interestingly even though the pension funds were unsecured creditors Obama lobbied for them to recieve more compensation than what he saw as… Read more »
It is never to late for change or is it!!!
http://www.youtube.com/watch?v=N3Kkw5Bze7k&feature=player_embedded#!
http://www.thevenusproject.com/
Incidently on the pension fund question the The pension fund of the state of Indiana and the Indiana State Teacher’s Retirement Fund both took the US government to court over the Chrsyler banckruptcy – lost, appealed to the supreme court – lost. A pension fund is a form of gambilng. Risk is taken to try and procure high returns than having your money in cash. “Past performance is on indication of future performance”.
David once again plays to the gallery. Week after week he headlines ‘the banks’ ‘Anglo’ … but never highlights the biggest waste of space of all.
The vast waste of money by the Irish state on non-bank related items – wages, numbers of public servants, pensions, benefits, makey-up jobs, out of control spending.
This is an even bigger problem than Anglo.
Why not tackle this problem David?
Dont Look Back – soon we will all be running to a somewhere and with our families .We all will have to look ahead to reach where we want to go .To otherwise will change that person into a pillar of salt. This month is a moment we have been waiting for , for it will change the course of history forever .Where will the Rubicon river be? Who will cross it? What happens everyone else? Will we have memories and if so do we want them ? Will our colours change? The Time is Now and yesterday will be… Read more »
I was talking to an Irish person in the 50-60 age group the other day to get the general opinion of tht cross-segment which has been and is in power, the Seanies and Berties Etc. They told me that they never had any money growing up and they really enjoyed the boom years cause it was the first time they had a bit of money. They didn’t regret spending any of it even if it means huge debts now cause they had a great time. In other words money management is not their strong point. Asked about their young grandchildrens… Read more »
Contributors on this thread say Australia will end up in a mess like Ireland due to its current property ponzi scheme. If so the arguement that the low interest rate factor is the key problem does not hold because in Oz the interest rate was reduced to a low 3.25% during the GFC. It’s now back at 4.5% and on the way up. People are paying 7% or 8% on mortgages. As far as I can see it’s the two-speed Aussie economy (mining & other) and the impacts of negative gearing that were responsible for and are currently holding up… Read more »
Many factors lead to the boom, but external control of interest rates was definitely a major one in Ireland. In Oz, lower interest rates HAVE lead to a further housing boom, and the reserve is correctly using interest rates to try and slow it down, probably too late. The reason it doesn’t exactly mimic what happened in Ireland, is that there is greater consciousness of the potential rise in interest rates in Oz, and historically higher rates than in Europe. Before anyone brings up high interest rates in Ireland in the early 90’s, most people with new and existing mortgages… Read more »
Watched RTE’s Freefall program last night. To tell you the truth it was fairly predicatable. In fact, I reckon is is a copy of a BBC documentary that was on air about 12 months ago. I was reminded of this when Alistair Darling showed up. It was descriptive, but not particularly analytical. In fact it blamed everything on lack of regulation. This was the key flaw of the program. We had regulation in Ireland. The problem with the Irish regulations was not the regulations per se – but the clowns put in charge of implementing them. But this is a… Read more »
Re ‘Freefall’ last night on RTE, first of 3 episodes on the Irish banking crisis. Hopefully other episodes will be different. What we got was Pravda RTE, Ireland’s Fox Network, at its sanitised, propaganda best. We got airbrushing out of the FF responsibility for the incentivization of the property bubble through widespread crony system of tax evasion, planning deregulation/decoupling, tax incentivisation, high salary incentivisation. Poor 70’s graphics everything speeded up to give the illusion of speed whereas for almost a year Anglo was on the ropes hiding behind the scenes and aware of its imminent demise. Lehmans provided blame cover.… Read more »
Slash salaries of Tubridy/Kenny. This small island can’t afford them. If they want more, they can I’m sure go to the BBC etc.
RTE should be about nurturing talent and media jobs and high standards to protect our damaged democracy.
How about a series on the Banks to give more actors a chance?
Same old faces on RTE, presenters and reporters, who’ve all had a good innings, new talent/ideas based on creative excellence, should be given their turn.
When you borrow a few euro, the bank owns you. When you borrow a few billion, you own the bank. Anglo is a major pain in the ass for the ECB.
Wall st Journal reports, European bond marketing tanking today. Have we finally gone over the cliff.
I saw this quote on one of the comment submitted on the following article http://baselinescenario.com/2010/09/02/irish-worries-for-the-global-economy/#more-7965
“Have we not seen, at pleasure’s lordly call,
The smiling long frequented village fall?
While, scourg’d by famine from the smiling land
The mournful peasant leads his humble band;
And while he sinks, without one arm to save,
The country blooms — a garden and a grave…
Ill fares the land, to hast’ning ills a prey,
Where wealth accumulates, and men decay…”
— Oliver Goldsmith, The Deserted Village
http://www.zerohedge.com/article/domino-2-ireland-set-topple
Closing the income gap (not cutting the minimum wage as members of the the Irish Chamber of Commerce have been advocating)…..
Robert Reich – How to End the Great Recession
http://www.nytimes.com/2010/09/03/opinion/03reich.html?_r=1&scp=1&sq=robert+reich&st=cse
The ‘ebbs and flows’ of a financial tsuanmi?
http://www.rte.ie/news/2010/0907/economy_bonds.html
We are starting to reach a cusp where the yield spread will explode to infinity just like the mass of an object approaching the speed of light. You simply run out of the means to go any further. Chucking more debt at it merely is an act of printing money which will attract more shorting and so on and on and that will cripple the ECB. Looks like we are close to calling the bluff. Come on lads…let’s crystallise the losses and get a move on. Trouble is, the cronies could turn very nasty and in a bid to preserve… Read more »
Deco.
Low interest rates are merely a return on a loan.
Its out of control *profiteering* and manipulation of rigged market s which induce, like a blister, the asset bubble into its short term life before it bursts and retreats.
Whatever happens next, reform is needed.
Come on, get your thinking caps on & get your comments in on True Economics: Economics 27/8/10: Manifesto I (?) http://goo.gl/b/Gnn3
@BriMcS
Folks, After all of today’s (not-really news)”News”,a cogent summing up of FF/Green economic policy –
http://www.youtube.com/watch?v=V8vINCq_IAI
(via @tomcosgrave)
I was away for a few days job hunting. So only catching up on blogs.
Right on the mark. There is no truth except what they decide to tell us.
The markets are going to go into meltdown again unless we see “Print, baby, print”. And if this happens it will create massive social upheaval and a dramatic increase in the cost of living.
Maybe the solution to the problem is to let the markets meltdown. Is this not what happened in the East Asian crisis in 1998, and those countries rebounded fast ?