Nationalisation Watch / Govt. rethinking 3.5 billion bailout for the banks?

cactus flower wrote:

I addressed the points to expatgirl as she suggested that joe and jill soap were as responsible for this situation as the big lenders and borrowers. I don't think that's the case. People who borrowed ten times their salary to buy a house were cracked in my view, but the Regulator and the Banks who approved these loans were far more guilty as they knew it was bad practice....

Ah, I see where you are soming from. We are in agreement about the innocence of the borrowers. Be that as it may, it is not the Germans or the Saudis fault - we still got the money and we still have to pay. When I say "we" I mean people like me who have a young mortgage on an overvalued house.

Zhou_Enlai wrote:

youngdan wrote:

Why are the banks OUR problem. Start new banks....

Why is the holocaust Germany's problem - let them re-arm themselves in full. Why are the Commonwealth's problem's England's problems? Keep the immigrants out. Why should the state compensate sex abuse victims? Let the priests pay. Why should I have to abide by my marriage vows? You grew old and put on weight. Why should I be concerned about the state of society? I am an individual who looks after himself. Why should I pay more income tax than a lower earner? If I don't get any more state benefits then I shouldn't pay any more.

Wrong. Reputation matters. The sins of the Father are visited upon the son. One is one's brother's keeper. Wishing it were otherwise because one was spoilt as a child won't make it otherwise.

I have never seen such shythe.

So what are we looking forward to then with Anglo nationalised like this ? Better terms and conditions for all and sundry ?

Squire wrote:

Zhou_Enlai wrote:

My read on this is that Tier 1 debt is largely unsecured debt which we may be able to delay or avoid coughing up for in terms of interest payments or redemptions. The plot thickens.

I would read that as meaning that repayment of interest can be missed but that this does not mean that it is not due eventually and eventually the loans will have to be repaid.

Whilst agree with your point that we all do have responsibilities, sometimes that concept can be a shade too inclusive. Why should I or anyone else pay for someone else's gross financial errors? If they had made a fortune would the saying no no I don't deserve this I think that the elderly need this money? No! This really is not the problem of those who will end up with the liability.

One of the basic requirements for a country to be taken seriously as a location for international trade is that it protects property rights with an effective trading legal system. Another is that its regulation is proper and effective and is largely free from corruption.

If we let Anglo collapse we would then have to enforce the property rights of the international lenders through our legal sytem. This will involve the wholesale firesale of all Anglo loan assets even if the borrowers are capable of meeting their commitments. It will also involve huge swathes of assets being tied up in foreign ownership for some time and the courts being absolutely swamped. All banks assets would likely be devalued by the firesale and all banks would likely become technically insolvent. That is my amateur analysis. Furthermore, Ireland would be seen as somewhere that the international money markets should avoid. This would trigger a run on AIB and BoI of mammoth proportions. The result would be that one could not write or cash a cheque or go to the hole in the wall for cash.

It is our country and our regulatory system. We have had a bubble as many other countries have had at this time and have had in the past. If there was some corruption then it was because our country's regulation failed and it is in our country's interest to ensure this does not affect lenders on the international money markets who are retrenching from foreign countries as things stand. Bond holders are a different kettle of fish. Youngdan's suggestion that we can tell [edit - delete typo - "them"] all lenders to F-ck off and sort themselves out while we set up another bank is beyond nonsense.

If there was corruption and crime in our country then it is up to us to sort it out. Personally, I think that the whole idea of cliques is overstated. I saw many people bidding ridiculous amounts at auctions and they weren't member of any clique other than the clique of clowns who thought they were smarter than everyone else in the county town. They wouldn't have known Sean Fitzpatrick if he asked them the time of day. I wouldn't have either for that matter. The reasons for failure were systemic. This is not to suggest that we shouldn't give welly to anyone who behaved wrongly. I think that would be a worthwile PR exercise. However, trying to fit the current crisis fully into the pre-existing bitterness against elites and uber wealthy is taking it too far. Half the country was on the gravy train.

Zhou_Enlai wrote:

One of the basic requirements for a country to be taken seriously as a location for international trade is that it protects property rights with an effective trading legal system. Another is that its regulation is proper and effective and is largely free from corruption.

I think that's debatable wrt the property rights, particularly for developing nations. Some judicious patent and IP ignorance can go hand in hand with economic growth. Switzerland is a very good example of this historically* but recently see China.


*
http://www.prospect-magazine.co.uk/article_details.php?id=9653

Quote :

Of course, there were exceptions. The Netherlands and pre-first world
war Switzerland did not adopt many tariffs or subsidies. But they did
deviate from today's free-market orthodoxy in another, very important
way—they refused to protect patents. Switzerland did not have patents
until 1888 and did not protect chemical inventions until 1907. The
Netherlands abolished its 1817 patent law in 1869, on the grounds that
patents created artificial monopolies that went against the principle
of free competition. It did not reintroduce a patent law until 1912, by
which time Philips was firmly established as a leading producer of
lightbulbs, whose production technology it "borrowed" from Thomas
Edison.





Even countries that did have patent laws were lax about protecting
intellectual property (IP) rights—especially those of foreigners. In
most countries, including Britain, Austria, France and the US,
patenting of imported inventions was explicitly allowed in the 19th
century.

Bondholders are told to fuck off every day of the week. Bonds default all the time. Why do you think bondbuyers buy Credit Default Swaps.

Also some posters seem to be confused over which liabilities are the cause of concern. They seem to think that the millions owed to Anglo are liabilities. They are assets and the problem with them is they are approaching zero. The liabilities are what Anglo owes to others.

On the Dáil Debate, did any else notice Brian Lenihan's rather pointed observation that he had never been in the tent at the Galway Races?

eoinmn wrote:

On the Dáil Debate, did any else notice Brian Lenihan's rather pointed observation that he had never been in the tent at the Galway Races?

Not a racing man, then?

cactus flower wrote:

eoinmn wrote:

On the Dáil Debate, did any else notice Brian Lenihan's rather pointed observation that he had never been in the tent at the Galway Races?

Not a racing man, then?

There was always an anti-tent wing in Fianna Fáil. Eamon O'Cuiv for example, though living in County Galway, studiously avoids attending the Races.

Zhou_Enlai wrote:

#
One of the basic requirements for a country to be taken seriously as a location for international trade is that it protects property rights with an effective trading legal system. Another is that its regulation is proper and effective and is largely free from corruption.

Effective clear regulation, transparency and an end to cronyism I am all for it but it does not exist does it? One very possible reason for the action on Anglo is to hide!!

Zhou_Enlai wrote:

#If we let Anglo collapse we would then have to enforce the property rights of the international lenders through our legal sytem. This will involve the wholesale firesale of all Anglo loan assets even if the borrowers are capable of meeting their commitments. It will also involve huge swathes of assets being tied up in foreign ownership for some time and the courts being absolutely swamped. All banks assets would likely be devalued by the firesale and all banks would likely become technically insolvent. That is my amateur analysis. Furthermore, Ireland would be seen as somewhere that the international money markets should avoid. This would trigger a run on AIB and BoI of mammoth proportions. The result would be that one could not write or cash a cheque or go to the hole in the wall for cash.

You are taking one huge jump and are making all sorts of assumptions there. It would go into receivership and the receiver would decide the best course paying due regard for the interests of the bond and share holders. There are many options, it could be sold off in its entirity or in part and indeed the government could still at that point intervene in some way. However one thing you can be sure of is that the receiver will have total unhindered access!

Zhou_Enlai wrote:

#It is our country and our regulatory system. We have had a bubble as many other countries have had at this time and have had in the past. If there was some corruption then it was because our country's regulation failed and it is in our country's interest to ensure this does not affect lenders on the international money markets who are retrenching from foreign countries as things stand. Bond holders are a different kettle of fish. Youngdan's suggestion that we can tell them all lenders to F-ck off and sort themselves out while we set up another bank is beyond nonsense.

Agree bond holders take a hit. If a lender has borrowed from that bank I would assume that they owe the bank money? They have contracts and terms on their loan agreement, you would have a devil of a job if you tried to change them.

Zhou_Enlai wrote:

#If there was corruption and crime in our country then it is up to us to sort it out. Personally, I think that the whole idea of cliques is overstated.

Totally agree it is a major problem in Ireland. Trust me get a good receiver in and you will soon get clarity.

Zhou_Enlai wrote:

# I saw many people bidding ridiculous amounts at auctions and they weren't member of any clique other than the clique of clowns who thought they were smarter than everyone else in the county town. They wouldn't have known Sean Fitzpatrick if he asked them the time of day. I wouldn't have either for that matter. The reasons for failure were systemic. This is not to suggest that we shouldn't give welly to anyone who behaved wrongly. I think that would be a worthwhile PR exercise. However, trying to fit the current crisis fully into the pre-existing bitterness against elites and uber wealthy is taking it too far. Half the country was on the gravy train.

I am one of the people who gained out of this bubble, I bought land with the intention of building, saw the values leap and decided to complete what I had started and get out fast. Some of what I sold was probably bought with loans from Anglo. I warned many many people not to get out. Few paid any heed, some thought I was up to some move and was perhaps bidding against them! I told politicians that they needed to raise tax to specifically take heat out of the property market. I was told that it could only be done by increasing interest rates and that was out of their control. Utter nonsense, so moved most of my money out. I ever warned Banks, but was probably considered a nut case. No one wanted to hear, so many were doing very nicely thank you. Commissions and taxes flowed in and the average person got well and truely mugged. So now I am in Yen and Swiss and my activity (what there is of it) is out East and will probably increase there.

I feel very sorry for the average person who bought a home and who was basically forced, by a dysfunctional market, to pay more than value. I would sooner see these people assisted than I would the Banks.

youngdan wrote:

Bondholders are told to fuck off every day of the week. Bonds default all the time. Why do you think bondbuyers buy Credit Default Swaps.

Also some posters seem to be confused over which liabilities are the cause of concern. They seem to think that the millions owed to Anglo are liabilities. They are assets and the problem with them is they are approaching zero. The liabilities are what Anglo owes to others.

In fairness, a typo made my post confusing.

I think we can default or delay on bonds.

I think we cannot default on the loans form the lenders on the international money markets whom Anglo had to turn to after ISTC. These are the entities I was referring to as lenders.

When I referred to bank assets I was referring to loans and the property assets they are secured against. A fire sale will reduce the value of both. I think this correlates with YD's statement.

When I referred to borrowers I was referring to borrowers form Anglo.

Perhaps Squire is right about a receiver dealing with stuff in chunks. I would have thought that most inernational lenders would want ot crystallise losses, purge their books and move on never to return to Ireland. Perhaps they would sell the whole bank to vulture capitalists and move on. I was more focussed on the foreclosure on individual borrowers. I accept it would be more complex than my analysis reveals but I believe the net effect for Ireland would be the same.

It is a bad idea to mess with bonds, and the bond market. As Youngdan himself was saying a few weeks ago, when it suited him. There is a moral issue with Government bonds, in that the Western ones have always been seen as rocks of stability; the advice to pension funds is that they should pile into them. Especially now.

So if you want the default of gazillions of pension schemes on your hands, then perhaps you should suggest large scale bond defaults. Needless to say, I am not advocating this course of action.

The most stupid thing we could possibly do with bank assets/loans is to force firesales. Perhaps the collateral behind the loans (land, houses, commercial property, whatever) should be seized by the State or the banks, but selling it right now would be very inadvisable. The State is possibly the only entity that could get away with holding such collateral until such a time as the prices pick up again. Then the taxpayer actually makes money.

As the writer of one of todays IT articles says, Morgan Kelly may have "misunderestimated" the effects on the credit default swaps markets (currently very fragile) if banks start going down. Do we really want to be that domino??? Worsening the financial armageddon that's out there at the moment would be sure to come with consequences.

I completely agree with everyone that bank bosses that have been negligent/criminal should be seriously held to account. The regulator and the Government should also share blame for what has happened in terms of the spiralling loans lent out to sustain the bubble.

But I refuse to absolve Joe and Josephine Soap entirely. Our bank manager in the UK told us one sorry tale of a man on 70-80k sterling who discovered himself to be 80k in unsecured debt (never mind his mortgage) because of his wife's appetite for Manolos and other types of bling; the manager here, when meeting us to discuss mortgage lending, was telling us up front that he was having huge trouble with people on 100K expecting to borrow a million and that the limit was 5x salary (needless to say, we were not thinking to borrow 10X salary and told him so immediately). And these were not the poor struggling to live within their means and afford a house, these were the wealthy whose status anxiety made them financially overreach themselves.

Anyone making 70k Stg/100K euro per annum is probably well educated enough to be held accountable for their actions. Sorry!!

I know few people here who did not benefit from the boom. 96% of us were in work.....

There is a difference between bonds issued by the state and those issued by a company. If you follow that line of thinking we are responsible for all failures.

Receivership does not in itself result in a fire sale and does not exclude intervention at that stage, but the benifit is you know exactly what you are getting into. The receiver is there to maximise value, and companies have been known to continue to operate whilst in receivership.

With regards Credit Default Swaps and similar. That is Pandora's box and where the real problem is. There is a whole tale to be told about regulation avoidance and activity that many would consider very questionable.

expat girl wrote:

It is a bad idea to mess with bonds, and the bond market. As Youngdan himself was saying a few weeks ago, when it suited him. There is a moral issue with Government bonds, in that the Western ones have always been seen as rocks of stability; the advice to pension funds is that they should pile into them. Especially now.

So if you want the default of gazillions of pension schemes on your hands, then perhaps you should suggest large scale bond defaults. Needless to say, I am not advocating this course of action.

The most stupid thing we could possibly do with bank assets/loans is to force firesales. Perhaps the collateral behind the loans (land, houses, commercial property, whatever) should be seized by the State or the banks, but selling it right now would be very inadvisable. The State is possibly the only entity that could get away with holding such collateral until such a time as the prices pick up again. Then the taxpayer actually makes money.

As the writer of one of todays IT articles says, Morgan Kelly may have "misunderestimated" the effects on the credit default swaps markets (currently very fragile) if banks start going down. Do we really want to be that domino??? Worsening the financial armageddon that's out there at the moment would be sure to come with consequences.

I completely agree with everyone that bank bosses that have been negligent/criminal should be seriously held to account. The regulator and the Government should also share blame for what has happened in terms of the spiralling loans lent out to sustain the bubble.

But I refuse to absolve Joe and Josephine Soap entirely. Our bank manager in the UK told us one sorry tale of a man on 70-80k sterling who discovered himself to be 80k in unsecured debt (never mind his mortgage) because of his wife's appetite for Manolos and other types of bling; the manager here, when meeting us to discuss mortgage lending, was telling us up front that he was having huge trouble with people on 100K expecting to borrow a million and that the limit was 5x salary (needless to say, we were not thinking to borrow 10X salary and told him so immediately). And these were not the poor struggling to live within their means and afford a house, these were the wealthy whose status anxiety made them financially overreach themselves.

Anyone making 70k Stg/100K euro per annum is probably well educated enough to be held accountable for their actions. Sorry!!

I know few people here who did not benefit from the boom. 96% of us were in work.....

People who took out daft personal loans and bought pensions that are now close to worthless did so at their own risk and are not getting bail outs. In the main they were buying a house or consumer goods for their own use. They had no particular reason to anticipate that they would also end up paying through their taxation for billions of euros / pounds of "get rich quick" speculative errors of a handful of individuals.

Re default on bonds, I was referring to bond issued by Anglo, not bonds issued by the Government. The bonds issued by Anglo are the ones Morgan Kelly had a mickey fit over.

In other news

Brown on "Financial Isolationism" - 17/1/09 FT

"The prime minister repeatedly stressed the need for international co-operation to revive the global credit market and identified a new risk of “financial isolationism” as big banks retrench into domestic markets.

The British Bankers Association says that even if high street banks were to lend more, many overseas banks have pulled out or reined back on lending in the UK, including Icelandic banks, European banks such as Fortis and Irish banks.

Mr Brown said that pattern was being reflected around the world, admitting that the part-nationalised RBS was among those pulling back from overseas investments."

Brown practising what he preaches against:
(Guardian 20/1/09)

"British savers who placed their money in Irish banks have been warned they are longer covered by the UK's compensation scheme."

The bonds issued by anglo should have been defaulted. With the gaurantee the state promised to pay them. The state will likely be unable so default by the state is the result.

youngdan wrote:

The bonds issued by anglo should have been defaulted. With the gaurantee the state promised to pay them. The state will likely be unable so default by the state is the result.

Lenihan appeared to indicate the opposite in the Dail. He said not all debts were covered by the guarantee. He was addressing the point made in Morgan Kelly's article. I took him to be referring to bonds issued by Anglo. Can anyone clear up this point definitively?

I understood him to say that nationalisation of Anglo does not make the state liable for such bonds either (paraphrasing). He said the State was stepping into the shoes of the shareholders in the bank, not into the shoes of the bank itself.

If you want a job done right...


S.I. No. 411 of 2008.
CREDIT INSTITUTIONS (FINANCIAL SUPPORT) SCHEME 2008
....
3.3 “covered liabilities” shall be construed in accordance with paragraph 10 of the Schedule; and
....
10. The covered liabilities are those liabilities existing from 30 September 2008 or at any time thereafter up to and including 29 September 2010, in respect of the following:

10.1 all retail and corporate deposits (to the extent not covered by existing deposit protection schemes in the State or any other jurisdiction);
10.2 interbank deposits;
10.3 senior unsecured debt;
10.4 asset covered securities; and
10.5 dated subordinated debt (Lower Tier 2),

excluding any intra-group borrowing and any debt due to the European Central Bank arising from Eurosystem monetary operations.
The Minister shall publish the total covered liabilities of the covered institutions in aggregate quarterly in Iris Oifigiuil.

11. The Minister shall impose specific restrictions on a covered institution in respect of dated subordinated debt (Lower Tier 2) covered by the guarantee, so as to prevent the unwarranted expansion of capital and lending activity during the guarantee period. Such restrictions shall include but not be limited to those set out at paragraphs 36 to 43.

In particular the Regulatory Authority shall require that where new dated subordinated debt is covered by the guarantee, the covered institution benefiting from such a financing will also maintain at least the solvency ratio initially obtained when this financing takes place during the whole duration of the guarantee period.

The details of the restrictions imposed by the Regulatory Authority on a covered institution benefiting from a guarantee on new subordinated debts will be transmitted each six months to the European Commission.
....

Why don't you explain to the other readers what that jargon means

I am not sure but I think it means that Tier 1 debt being certain types of bonds are not covered. Perhaps Expat Girl or somebody more knowledgable could clear it up for us?

I'm sorry, Zhou, legalese ain't my strong point. However, it is clear that some debt isn't covered, I guess.

Intra group presumably means debt owed by a subsidiary (AIBs US and Polish operations??, BoI and ICS??) to the parent company and vice versa??

Debts owed to the ECB seem to not be covered either (is the ECB motto, " the buck stops here"???). I'm not sure what Tier 2 debt is....

Zhou_Enlai wrote:

Brown on "Financial Isolationism" - 17/1/09 FT

"The prime minister repeatedly stressed the need for international co-operation to revive the global credit market and identified a new risk of “financial isolationism” as big banks retrench into domestic markets. ...

Brown practising what he preaches against:
(Guardian 20/1/09)

"British savers who placed their money in Irish banks have been warned they are longer covered by the UK's compensation scheme."

This makes me really angry. They howled and yelled that our bank guarantee was a beggar thy neighbour scheme, having already issued an implicit guarantee wrt to Northern Rock. Now, they are basically trying to persuade British savers to put their money in British banks only, despite his warnings of financial isolationism.... but has he said anything about guaranteeing the Irish subsidiaries of UK banks?? Like, most importantly, Ulster Bank, which is owned by RBS?? Seriously anti-competitive behaviour and me feinery of the first order. Hypocrite. He just wants foreigners subscribing to UK banks, not vice versa

And on another slightly unrelated note, the UK press just discovered all the new evil shrapnel bombs and white phosphorous used in Gaza was most likely shipped through Lakenheath in "East Angular", as poor Jade Goody would have put it.

Honestly, they make Fianna Fail look like the assembled angels of Our Lord by comparison. Especially Micheal Martin, who tried to get cluster bombs banned. Course, the UK and US didn't sign.

Ya know I feel absolutely betrayed. Those of us with family and other links to the other island had a major hooley in Dublin in 1997 when they finally dumped the Tories. Soo naive to think they'd be ANY different. I hope we are not making the same mistake with Obama. It's not New Labour, it's Tory Lite. Funnily enough, I moved to the UK as the build up to the Iraq war started, so I never actually voted for them; thanks to Elfyn Llwyd's principled attempts to get Bliar impeached as a war criminal, we spent our latter years religiously voting for Plaid Cymru. Despite not speaking a word of Welsh!!!

On a point of information, what you say is factually incorrect, expat girl. The UK did sign the Convention on Cluster Munitions in which was agreed in Dublin last May, along with 120 other countries excluding in particular the USA and Israel. They signed along with all other participants on 3 December 2008. Perhaps we can get the facts straight before we make such comments in future.

I refer you to the Treaty itself:
http://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&id=22&chapter=26&lang=en

and

To an article in the Los Angeles Times of May 2008 making specific reference to the British move to support the Treaty:
http://articles.latimes.com/2008/may/29/world/fg-cluster29

en.wikipedia.org/wiki/Seniority_(financial)

From wikipedia, that most dubios source of information

In finance, seniority refers to the order of repayment in the event of bankruptcy. Senior debt must be repaid before subordinated debt is repaid. Bonds that have the same seniority in a company's capital structure are described as being pari passu.
The levels of bond recognised in FpML (Financial products Markup Language) are as follows:


FpML ValueDesription

Senior	Top precedence
SubTier1	Subordinate Tier 1
SubUpperTier2	Subordinate, Upper Tier 2
SubLowerTier2	Subordinate, Lower Tier 2
SubTier3	Subordinate, Tier 3

However, BusinessWorld.ie says otherwise

....
S & P said Anglo has five perpetual hybrid bond issues outstanding, including three sterling-denominated and two euro-denominated bonds, which in total amount to around USD2.5 billion.

These bonds are the lowest ranking Tier 1, or hybrid, bank debt and have perpetual or very long maturities and its holders are last to be paid out before shareholders in the case of bankruptcy. Tier 1 bonds also have fewer rules on coupons, meaning that interest payments could be missed by Anglo.
....
To make matters worse, S & P also yesterday downgraded to “default” status the £300 million Tier 1 preference shares issued by Anglo Irish Bank last year that were included in the bank's nationalisation.
....

johnfás wrote:

On a point of information, what you say is factually incorrect, expat girl. The UK did sign the Convention on Cluster Munitions in which was agreed in Dublin last May, along with 120 other countries excluding in particular the USA and Israel. They signed along with all other participants on 3 December 2008. Perhaps we can get the facts straight before we make such comments in future.

I refer you to the Treaty itself:
http://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&id=22&chapter=26〈=en

and

To an article in the Los Angeles Times of May 2008 making specific reference to the British move to support the Treaty:
http://articles.latimes.com/2008/may/29/world/fg-cluster29

Oops, sorry. Did they delay signing or something?? There was a question mark for a time, I remember that much. And they were certainly used in Afghanistan, although I could not say by which of the coalition. Apologies anyway