Urgent call to stop Anglo Irish rescue

The initial mistake is the guarantee and its scope. It is that that ties the government to these entities. I see nothing wrong with letting the bond holders take a loss.

If you don't know the liability, and commitment needed you don't get involved. You don't write guarantees for unknown liabilities and especially if you don't have the funds to cover those guarantees. You don't sink money into a business unless you know exactly the extent of the commitment required and have clear reason.

There are two possible explanations, they are stupid or they have a reason. For the reason to be benign there would need to
be a constructive purpose, a greater good and in the case of Anglo that would be hard to find. So are they stupid or complicit?

There is a lot of confusion about the importance of Banking to business generally. In times like this you only need one functioning, solvent
Bank not two, three or five and that Bank does not have to be any of the existing Banks.

Why should Irish taxpayers be saddled with these liabilities? To my eyes it is fraud. It is the misappropriation of government funds.

With regards inflation, it is clear that many governments see inflation as the way out of this mess as it depreciates the value of money and by this slight of hand increases apparent asset value. Easement has started but the scale of the recessionary pressure is so great that it will be quite a while before inflation kicks in. The person who can anticipate when that will happen is indeed inspired. Probably won't happen in 2009, but towards the end of 2009 who knows?

cactus flower wrote:

According to Vincent O'Brien, on the night of the Bank Guarantees John Gormley was wakened in his bed by a Garda to attend the meeting and he refused to go.

The Greens need to walk out of this government and they need a new leader.

expat girl wrote:

If we default, we'll never be lent another penny again, and the government has social welfare bills and wages to pay. Defaulting is the short cut to national bankruptcy; nationalisation might give us more time.

Ourselves and our next door neighbours may well be joining Iceland in international pariah land fairly shortly, though, regardless

Yes, the wealthy speculators are vampires, but they have ways and means of punishing the State's ability to borrow tomorrow if we start defaulting on stuff. A pity the States let Lehman go, or we may have managed to avoid this.

One point I would like to make is that it is not "us" that would be defaulting it would be one investment bank. Only the lunatic Guarantee gives us any obligations there.

The damage was done over the last three years. We are now arguing about which cup of water (or possibly petrol) we will throw over the inferno. The Government clearly cannot be trusted to act in the national interest and the Banks Guarantee made that clear.

At this stage, I would lock three or four of our best economists in a room and listen to all of them, along with the Central Bank: the main aim we should have no is at all costs to keep the IMF out and to maintain our economic sovereignty such as it is.

We need to prepare our minds for taking on the running on emergency basis of public services and essential industries. If the IMF come in it will be slash and burn and they'll drive us back to colonial living standards.

Who are Cowen and Lenihan listening to? They appear are clearly lying when they say this bank is systemic.

Auditor #9, Labour voted against the Guarantee, it was FG voted for it.

Well said JohnFas.

Plenty of private sector workers on the average industrial wage along with struggling self-employed have pensions tied to "bluechip" stocks like Anglo.
I know of a credit union who has a fair percentage of its money tied up in Anglo too.

I don't like the nationalisation of Anglo Irish Bank, which I view as part of the Builders-FF-Anglo unholy trinity, but I'm not sure the alternative is any prettier.

Squire wrote:

cactus flower wrote:

According to Vincent O'Brien, on the night of the Bank Guarantees John Gormley was wakened in his bed by a Garda to attend the meeting and he refused to go.

The Greens need to walk out of this government and they need a new leader.

Good to see you Squire: a happy new year to you

Squire wrote:

The Greens need to walk out of this government.

I can't see the benefit of this.
Well there would be an electoral benefit to the Greens, but I'm more concerned about my country than my party.

Walking would be the coward's way out. I said before I'd no respect for Joe Behan leaving because things got tough and he didn't get the bypass he wanted. My view hasn't changed.

Calling for a national multi-party government, would be a brave option and perhaps a good one.

johnfás wrote:

Aragon wrote:

As I understand it, Kelly is recommending what he is because it leaves the liability lie where it can be best absorbed - with the very wealth[y] risk takers who will have to take their chances on the markets on which they knew they were risking their money.

It isn't quite as simple as this and I think the statement is a little naive. The average Irish investor is not very wealthy. The average Irish investor in banks is merely self employed, without the benefit of a company sponsored pension. Such people range yes from doctors and lawyers but also down to taxi drivers, plasterers and labourers. The average man on the street with an investment in an Irish bank is not wealthy and these investments were chosen on the basis that banks were the safest place to put your money. This was the advice given to people, up to now, by the brokers who people trusted encouraged by the Government. That aside, there are huge swathes of the self employed who are virtually reliant on stocks for their pensions. If you destroy their wealth, which is not great, you merely cause them to be more reliant on the State. For every action there is an equal and opposite reaction. It is not as simple as just turning our nose up at "wealthy" people, most of whom aren't particularly anyway.

Except we are not talking about 'averagely wealthy' people/investors. Anglo Irish was/is a stable of very wealthy risk takers by and large - that was more or less the point of it in the first place. It's a large part of the reason why he is recommending what he is too. But even on the face of it, it is only fair that people who place bets should wear the cost of losing them. It's certainly not a matter for the rest of us. It's just another form of benefit scrounging - only vastly more expensive.

A national government sounds in principle like a decent idea but is it practical? It seems more practical in a war-like situation where there is at least something resembling a consensus as to the way out of the problem. There is no such consensus at the current time in regard to how we dig ourselves out of this crisis. Obviously it would give an air of stability but is there really any likelihood that it would get things done any better? Perhaps FF, FG and Lab could work together but I don't think Sinn Féin would be able to agree with the way forward.

eoinmn wrote:

Well said JohnFas.

Plenty of private sector workers on the average industrial wage along with struggling self-employed have pensions tied to "bluechip" stocks like Anglo.
I know of a credit union who has a fair percentage of its money tied up in Anglo too.

I don't like the nationalisation of Anglo Irish Bank, which I view as part of the Builders-FF-Anglo unholy trinity, but I'm not sure the alternative is any prettier.

'Plenty' Eoinm? Have you any figures for the number of people on average wage with shares?

Aragon wrote:

Have you any figures for the number of people on average wage with shares?

Most of us with private pensions don't even know how much of that is in Anglo. We leave it to the pension fund management.
So, no. But how could I?

Also, Aragon.
Have you savings in the credit union?
How much of that is invested in Anglo?

Aragon wrote:

Except we are not talking about 'averagely wealthy' people/investors. Anglo Irish was/is a stable of very wealthy risk takers by and large - that was more or less the point of it in the first place. It's a large part of the reason why he is recommending what he is too. But even on the face of it, it is only fair that people who place bets should wear the cost of losing them. It's certainly not a matter for the rest of us. It's just another form of benefit scrounging - only vastly more expensive.

Again, this is naive in the extreme. The DEBTORS of Anglo Irish Bank are of course, in large part though not exclusively, big developers who were taking serious risks. Nationalise or not these guys are going to get away relatively scott free. All their debts will be held in limited liability companies and I am quite sure they have extracted most of the profits to a personal holding at this stage. On the other hand, the average INVESTOR in Anglo Irish Bank, as a stock exchange listed company, is much like the average investor in any company on that exchange. These are not rich people.

Based on your latter point, here is a question for you. There have been great calls for the Government to ease the burden on mortgage holders. Why bother? Going by your logic above, they took a risk to get into the market when there was ample media comment, even popularised media comment from McWilliams, that this whole thing was going to go pear shaped. People were proactively saying that the property bubble was not going to last. This was not the popular consensus regarding the banks until this fiasco occurred. If anything, those investing in banks, using the conventional wisdom of the time, were being far more prudent than those buying houses which they could not afford. I presume young mortgage holders are also "certainly not a matter for the rest of us"?

johnfás wrote:

. There is no such consensus at the current time in regard to how we dig ourselves out of this crisis.

FF and FG seem to be on the same page. Sure Richard Bruton has leveled some criticism at Lenihan, but its actually pretty mild. And the Greens would like to do some things differently but have supported Fianna Fail so far.

I still think the 'bad bank' idea is the only credible way of securing the future of the other banks. The government is not strong enough to underwrite the bad debts of BoI and AIB. If we want a bad bank then we should pick the dodgiest one to start.

I presume that if you nationalise you are still only a shareholder and are not directly liable to creditors? If that is the case then the nationalisation does not necessarily materially reduce our position. However, Lenihan has said our exposure will be increased so I must have this wrong. Can anyone tell me how our exposure will be increased?

The devil is in the detail of the guarantee and of the nationalisation. If there is anyway we can default on Anglo's debt without breaching the terms of the Guarantee then we should do it. However, it seems that is wholly unlikely given the public reassurances at the time. Has anyone read the Act?

Also, Morgan Kelly is suggesting we take a Lehman Brothers type gamble. The consequential affects could be anything up to immediate bankruptcy of the country. He is hurling from the ditch in an extraordinary manner and his tone is more political by the day.

If I was Cowen I would appoint a Council of Economic Advisers and he would be the first name on the list. I would want his acerbic views pitted against the others in the room. I would make a genuine effort to get him on the team and if he declined I conclude that he is a man who does not like his ideas put to the test. However, I think he would accept.

Lastly, I do not agree that the Government are out to save the developers. The developers go down if we go down. Furthermore, all politicians go with the tide and seek to preserve power. The time for saving the developers is long past and there is nothing the Government can do about it. Furthermore, most of the "builders" in trouble are small time guys who never saw the inside of the tent at all. The conspiracy theory is b_llshit even if it does have its roots in real corruption of the past. FF may pay for the sins of the past now but I do not believe that Cowen or Lenihan are trying to act in the interests of developers or donors now.

The reasons Anglo were included in the Guarantee were:
(i) The Regulator and the Central Bank, being the main Civil Servants responsible for the area, advised it, and
(ii) the Government was given little time to think about it, and
(iii) Lehman Bros had proven such an international disaster that a crashed bank was likely to destroy all confidence in the country notwithstanding the mathematics of the situation, and
(iv) the only people advising against it were private companies with a vested interest in saving their own skin.

I am not saying the Guarantee was a right decision. I am simply saying that the reasons for the decision are clear and there is no justification for attacking the reputation of our Government at this time when such a commodity is so crucial to the future of the country.

johnfás wrote:

Aragon wrote:

Except we are not talking about 'averagely wealthy' people/investors. Anglo Irish was/is a stable of very wealthy risk takers by and large - that was more or less the point of it in the first place. It's a large part of the reason why he is recommending what he is too. But even on the face of it, it is only fair that people who place bets should wear the cost of losing them. It's certainly not a matter for the rest of us. It's just another form of benefit scrounging - only vastly more expensive.

Again, this is naive in the extreme. The debtors to Anglo Irish Bank are of course, in large part though not exclusively, big developers who were taking serious risks. Nationalise or not these guys are going to get away relatively scott free. All their debts will be held in limited liability companies and I am quite sure they have extracted most of the profits to a personal holding at this stage. On the other hand, the average investor in Anglo Irish Bank, as a stock exchange listed company, is much like the average investor in any company on that exchange. These are not rich people.

Based on your latter point, here is a question for you. There have been great calls for the Government to ease the burden on mortgage holders. Why bother? Going by your logic above, they took a risk to get into the market when there was ample media comment, even popularised media comment from McWilliams, that this whole thing was going to go pear shaped. People were proactively saying that the property bubble is going to last. This was not the popular consensus regarding the banks until this fiasco occurred. If anything, those investing in banks, using the conventional wisdom of the time, were being far more prudent than those buying houses which they could not afford.

John fas, it is you who is beig naive. Why were banks lending money to people who could not afford them? This mess is a mess of Anglo's own making, the vast sums of money it is exposed for are as a consequence of ridiculous property speculation by poperty developers much of it funded through money from investors supposedly insured on the CDS markets. But now because those markets have failed or are likely to fail the investors we are being asked to pay the bill!!!!! Because more houses were built than there were people to buy them, or money to pay for them, we have to pay that bill too. We are paying for both the debtors and the investors.

Aside from that, there is a huge difference between a couple buying a house and doing what these wealthy risk takers are doing. Jeez, buying a home is hardly a crime. David McWilliams was howled out of court for saying what he said, in fact - pilloried right across the spectrum for mentioning the very black storm cloud on the horizon. Very few people heeded his advice until the shit had already hit the fan.

Again, you miss the point. The wealthy risk takers are in large part the DEBTORS of the bank, not the ordinary SHAREHOLDER. The average SHAREHOLDER isn't a Seán Quinn owning 15% of a bank. There is an old lady who lives on my road who has lost basically her life's savings as a result of this bank thing. The dividends which allowed her to visit her grandchildren who live in American have now dried up and equally they cannot afford to come over and visit. What is the difference between her and the young couple buying a house? Her investing the money she earned over the years is hardly a crime either, is it? Or is your argument based on more pseudo-classist lines which don't hold up in any case because of your misinformed belief that most people who own shares are "wealthy risk takers". We're being asked to pay the bill in interest and tax relief for "risk takers" who bought houses in a failed market as well.

According to last week's EGM there are approximately 20,000 shareholders in Anglo Irish Bank. Given that roughly 30% of the stock is owned by a combination of Seán Quinn and three large institutions and about 10 other investors own another 5% you are left with about 19,985 shareholders owning 65% of the bank's ordinary share capital. Based on the value of the bank at nationalisation of roughly 170 million we can assume the value of the average investor stands at something like €8,500, though the median would obviously be much lower again, you could perhaps even half that figure as there will be a curve of other investors with much larger holdings. This shareholding probably cost the average investor something in the region of €50,000 to €70,000, again the median would be much lower. These are not huge figures by any stretch of the imagination and are not the demesne of the "super rich".

johnfás wrote:

Again, you miss the point. The wealthy risk takers are in large part the DEBTORS of the bank, not the ordinary SHAREHOLDER. The average SHAREHOLDER isn't a Seán Quinn owning 15% of a bank. There is an old lady who lives on my road who has lost basically her life's savings as a result of this bank thing. The dividends which allowed her to visit her grandchildren who live in American have now dried up and equally they cannot afford to come over and visit. What is the difference between her and the young couple buying a house? Her investing the money she earned over the years is hardly a crime either, is it? Or is your argument based on more pseudo-classist lines which don't hold up in any case because of your misinformed belief that most people who own shares are "wealthy risk takers". We're being asked to pay the bill in interest and tax relief for "risk takers" who bought houses in a failed market as well.

We shall have to agree to differ Johnfas. Your not reading my posts accurately and are too cross, I suspect to notice what Ive actually said. Talking risks is taking risks - I dont expect anyone to subsidise my losses for me if I take out bets. It is a great pity if your friends cant see each other but as long as they have a roof over their heads and are able to feed and clothe themselves then they are relatively well off in comparison to what this bailout will require of other people - ones that will lose their jobs - and who had nothing to do the risk-taking, what is more. I'll save my tears for them.

Buying a house is also taking a risk, why should we subsidise that loss through tax relief etc? People could have rented. You have repeatedly failed to properly address this issue and differentiate it from people who invest in shares be that for pensions or any other reason, such as provision of healthcare or to look after relatives, all of which are as relevant as ownership over the dwelling you live in.

What if my child suffered as a result of medical negligence and was awarded damages to pay for his ongoing care to which I am the trustee. In this situation it is likely that the money would be invested in something in order to maintain a return to pay for the ongoing provision of care. Until 18 months ago the prevailing wisdom would be to invest this money in banks. I presume such parents are irresponsible, super wealthy gamblers?

I'm not cross at all but I think your dichotomy of sympathy for people who buy houses, but not shares, or feeling sorry for people who lose jobs, so long as they are not working at banks, is frankly devoid of any sense of morality or logic.

THE BILL

5.—(1) On the commencement of this Act, all the shares in Anglo
Irish Bank are transferred to the Minister.
....
6.—(2) On the commencement of this Act—
Anglo Irish Bank becomes a private company limited by 25
shares, under the name of “Anglo Irish Bank Corporation
Limited”,

I don't see anything in the Act which prevents us negotiating with bond-holders or allowing Anglo to default as Kelly suggests.

No doubt any roll over of debt will have to be guaranteed by the Government but that is the case anyway. It will be interesting to see if such debt is rolled over or if it is secured form different parties.

I also note that all regulations must be laid before the houses of the oireachtas.

I further note that the Ministers powers are limited to certain purposes.

Jesus lads this thread is breathless and it's not even three pages

Zhou_Enlai wrote:

THE BILL

5.—(1) On the commencement of this Act, all the shares in Anglo
Irish Bank are transferred to the Minister.
....
6.—(2) On the commencement of this Act—
Anglo Irish Bank becomes a private company limited by 25
shares, under the name of “Anglo Irish Bank Corporation
Limited”,

I don't see anything in the Act which prevents us negotiating with bond-holders or allowing Anglo to default as Kelly suggests.

No doubt any roll over of debt will have to be guaranteed by the Government but that is the case anyway. It will be interesting to see if such debt is rolled over or if it is secured form different parties.

I also note that all regulations must be laid before the houses of the oireachtas.

I further note that the Ministers powers are limited to certain purposes.

Thanks for the Bill, Zhou.

We are between a rock and a hard place. Anglo is a sink and AIB and BOI are zombies. I think tonys points about Morgan Kelly's figures are a distraction, as the amount of information coming out is limited and peoples' grasp of the scale of the thing has improved, not got worse, as time has gone on. Personally I think if anything he is underestimating. expatgirl is right though in that if it is feasible to hold on to the land and buildings long enough something would be salvaged.

Where are the personally signed letters of guarantee at this stage, I wonder? Has anyone checked? If they are not to be found, we should not nationalise.

It would have to be a two pronged approach. Something can be salvaged if land values go up but equally land values will only go up if the cogs of the economy start to rotate again, which is to a certain degree, although not exclusively, reliant on the banks. Thus, the Government needs a strategy to deal with toxic debts but to do so in a way which does not cripple the economy's potential to stimulate both. It is a difficult balancing act.

tonys has a point - we simply do not seem to know what the cost of this thing will be so why are we rushing into it ????
WE NEED TO EXAMINE THEIR BOOKS

Zhou and Cactus have the valid points and angles - get a rake of economists of all persuasions and put them in a room for 6 weeks if necessary to come up with something - we need to get this right, there's too much rushing.

johnfas and Aragon
I kind of agree with Aragon here though I feel sorry for those people who did gamble on the shares. In the end, it WAS gambling and it was gambling on value of property unseen before in this state. If anything, older people who presumably would have made the connection between shares and property were more than qualified with their age to be cautious about the crazy property values we saw.

They weren't though.

Auditor, it was the management of the bank which gambled. I have no sympathy for the management of the bank. The 20,000 odd shareholders weren't the gamblers and it is quite clear from the Fitzpatrick revalations that they couldn't have had a clue about half of what went on. Half them wouldn't even know they had shareholdings there. How do we differentiate these from the people who mortgaged themselves up to the hilt in with obligations which they could barely afford in a market which was obviously saturated and had been for a fairly long time.