McWilliams: There is a way out of this

cozzy121

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While “great leaders” like bertie offer us nothing, the man who bertie and ff wanted to die gives us some options.

There is a way out of this | David McWilliams

Again, the solution begins and ends with the banks and the nature of the bank bailout.
If the IMF/EU simply follow the course of action that the present shambolic government is pursuing, we are doomed.
That policy of paying every creditor in full is flawed and will lead to a further crisis down the road.
....the humiliation of the IMF can be turned to our advantage. Can we do it?
Yes we can. But it can only be executed by people who have the interest of Ireland at heart, who can see clearly in the crisis and who understand that, in these negotiations, everyone needs away out. We need a way out, the EU needs away out, the ECB needs away out and the IMF needs a way out.
 


adrem

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.
 

tempest

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Irish officialdom are in denial, no one is brave enough to look at the alternative to the EU/Banker narrative while caught in the headlights of this manufactured crisis.

I've said in another thread I think we are being railroaded into taking on a further mountain of debt by the same myopic thinking that has led this Government to make disastrous decisions at every turn.

The EU will just pile on the pressure and fear while our politicians are distracted with the election issue.

The consensus among most international commentators and economists (not just McWilliams) seems to be that some form of organised debt restructuring is the only alternative to this "bailout" and eventual default or Euro collapse on close to 1/4 Trillion of debt by the end of this.

Are they all wrong, I don't know, but I'm more inclined to believe their case than the spin lies and scaremongering of the bankers and politicians that got is into this.
 

Franzoni

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.
Deposits are only guarenteed up to 100 grand......

Bondholders get more returns on the investment for taking the risk plus the markets asked years ago for the loosening of the rules so they have to take the rough with the smooth...now take the hit......can't have it both ways...
 

Libero

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.
Goosebump made similar aggressive, personalised claims on another thread but ran away when I invited him to explain the reasons why a bank resolution scheme - one that imposes losses on senior bondholders - would be illegal, as you claim.

Maybe you'll hang around and let us know your reasoning?

It can't be illegal under European law, or else this wouldn't fly: Bank of England | Financial Stability | The Bank's Financial Stability Role | Risk Reduction | Special Resolution Regime

So in your references to illegality, you must have in mind some principle of Irish constitutional law, right? Do you want to share that with us?
 

MPB

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.
You hit the nail on the head. It is a contract between the Bank and the Bondholder, not the State and the Bondholder.

Let them refuse. The state can guarantee whatever it wants.

It can distinquish between Deposits and Bonds.
 

Malbekh

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Deposits are only guarenteed up to 100 grand......
Not correct. Under the current guarantee (to be in place until June 2011) all deposits are guaranteed regardless of the amount in Irish financial institutions who applied to the scheme.
 

cozzy121

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.
Is he not suggesting that we CHANGE the law?

First, we have no bank resolution law in Ireland, so we can do what we want from here. We could now pass a law that says the Irish approach to bank resolutions will be based on debt/equity swaps, where shareholders and subordinated debt holders take the first hit.
Anyone who knows anything about banks will know that the only things of value in a bank are core deposits.
The reason is very simple: core deposits are what makes a bank a bank.
And when all the fancy stuff is done, the only things a bank will buy from another bank are deposits, because deposits are the type of capital you want: steady, cheap and largely sticky.
A bank with a good deposit base has strong foundations.
This is why Anglo Irish Bank was a boiler house: it had little by way of a real deposit base, at least as we traditionally understand the term deposit.
So the resolution law protects depositors with an ECB-backed deposit insurance scheme.
Once the law is passed, expect some legal challenges, but as these challenges will be in Irish courts, it will be difficult for us to lose.
Creditors will then split into realistic creditors, who take the deal constituting the new reality and get on with the business of forward-looking capital, and rogue creditors, who will try to drag us to court threatening all sorts of sanctions.
Well, frankly, let them at it.
This will not matter after awhile.
 

Nipper

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Unfortunately its not a good article it's more rubbish.

We can't force senior debt to accept an equity swap. We can ask them but if they say no we can't force them. This then becomes a straightforward insolvency situation - we close the bank(s) in question. Under the law senior debt ranks pari passu with deposits - that is not a view that is a fact. Senior debt is a contract between the bank and the bondholder - it isn't a vague conceptual thing it is a legal factual contract.

What's most annoying is that McWilliams knows all this. He knows his article is a load of rubbish but it is populist.

Are you worried bondholders will sue a private company?

Seriously what is in it for you?

It's a shame some of these bondholders weren't forced out into the open before a big chunk was paid off

there are a few well known locals with their funds hiding behind these Asset Management Companies that have been mentioned.

So again what is it to you?

The country is bankrupt, the banks are bankrupt , who do they sue and why should we care?
 

Malbekh

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Goosebump made similar aggressive, personalised claims on another thread but ran away when I invited him to explain the reasons why a bank resolution scheme - one that imposes losses on senior bondholders - would be illegal, as you claim.
Again, we've been here before. There's only a small number of pre-guarantee scheme bondholders left. Last reckoning was c. €4b in Anglo, probably less now. Up until Spring of this year, the banks were selling bonds through the NTMA which are guaranteed by the State. To all intents and purposes it is sovereign debt. Ergo, the bondholders cannot be burnt as ultimately their contracts are beholden to the state.

On another topic, I am bored with McWilliams, in fact he's getting quite irritating. His latest, much repeated story about the café owner in Kilkenny losing sleep about his deposits in the banks, smacked of scaremongering in the worst extreme. We have a duty, particularly when the international attention is on this country to moderate our thoughts. That is not to say we shouldn't be critical, nay scathing, but silly stories like that one are totally irresponsible.
 

MPB

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Again, we've been here before. There's only a small number of pre-guarantee scheme bondholders left. Last reckoning was c. €4b in Anglo, probably less now. Up until Spring of this year, the banks were selling bonds through the NTMA which are guaranteed by the State. To all intents and purposes it is sovereign debt. Ergo, the bondholders cannot be burnt as ultimately their contracts are beholden to the state.

On another topic, I am bored with McWilliams, in fact he's getting quite irritating. His latest, much repeated story about the café owner in Kilkenny losing sleep about his deposits in the banks, smacked of scaremongering in the worst extreme. We have a duty, particularly when the international attention is on this country to moderate our thoughts. That is not to say we shouldn't be critical, nay scathing, but silly stories like that one are totally irresponsible.
The scare stories are eminating from those who are stating the world will cave in if we do not accept responsibility for 100 billion of private debt.

We are back to square one, with Banks trying to pressure us into accepting responsibility for the debt of others.

We need to take a step back and not make the same mistake Cowen and Lenihan made in Sept 2008.
 

sking81

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Not correct. Under the current guarantee (to be in place until June 2011) all deposits are guaranteed regardless of the amount in Irish financial institutions who applied to the scheme.
Just for interests sake what do you think could happen in June when the bank guarantee expires?

Im thinking we could have a very worrying situation if (as its looking like now) Portugal or Spain is next on the chopping block, and we are all going to the same fund to secure our banks. Im thinking that the ECB\IMF will raise interest rates on funds drawn down, which will screw us over further-or is that an option for them?
 

Libero

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Malbekh said:
Again, we've been here before. There's only a small number of pre-guarantee scheme bondholders left. Last reckoning was c. €4b in Anglo, probably less now. Up until Spring of this year, the banks were selling bonds through the NTMA which are guaranteed by the State. To all intents and purposes it is sovereign debt. Ergo, the bondholders cannot be burnt as ultimately their contracts are beholden to the state.
Yes, we have been here before.

And I've acknowledged previously that after September 29th last (when a vast amount of bank debt was redeemed in full), the amount of senior bondholders available for "burning" had reduced dramatically.
And yes, McWilliams is guilty of confusing the position of the legacy bondholder with those who hold bonds issued under the ELG scheme. The latter can't be touched without effectively defaulting on a sovereign guarantee.
If McWilliams wants to argue that should happen anyway (and I'm growing more sympathetic to the need for overall debt restructuring and resisting the ECB's preferences), he should state that clearly, rather than making out we're only dealing with legacy non-ELG bondholders.

All that said, adrem is spoofing. The spoofing is less relevant now than back before September last, but it's equally offensive, relying as it does on the glib, matter-of-fact and legally incorrect insistence that bank bondholders have some imprescriptible right to liquidate a bank the moment they fail to receive 100% of their due.

As MPB pointed out, the clowns who engage in that "analysis" will be the same clowns puffing out their chests and claiming with all the certainty they can muster that Ireland's only option is to go along with what's on offer from the ECB/IMF.
 

Malbekh

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The scare stories are eminating from those who are stating the world will cave in if we do not accept responsibility for 100 billion of private debt.

We are back to square one, with Banks trying to pressure us into accepting responsibility for the debt of others.

We need to take a step back and not make the same mistake Cowen and Lenihan made in Sept 2008.
That private debt is now public debt. I've yet to hear anyone explain cogently how we can decouple ourselves from the foolishness of the bank guarantee scheme.

As for the banks, well they are like the carcasses of a particularly unsuccessful breed of dumb dinosaur on the Jurassic age, having gorged itself on low lying fruit and unable to move when the carnivores moved in.

We as the public, are the last scavengers to arrive when all the predators have subsumed everything of value.
 

Squire Allworthy

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(and I'm growing more sympathetic to the need for overall debt restructuring and resisting the ECB's preferences),

Utterly essential. If not now then it will happen a few years out.


As MPB pointed out, the clowns who engage in that "analysis" will be the same clowns puffing out their chests and claiming with all the certainty they can muster that Ireland's only option is to go along with what's on offer from the ECB/IMF.
That aspect is truly depressing. What Ireland needs now is a change of government, one with no baggage and a strong mandate. One that can face down threats and introduce emergency measures if need be. If would be in a much better position to negotiate.
 

Malbekh

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Just for interests sake what do you think could happen in June when the bank guarantee expires?

Im thinking we could have a very worrying situation if (as its looking like now) Portugal or Spain is next on the chopping block, and we are all going to the same fund to secure our banks. Im thinking that the ECB\IMF will raise interest rates on funds drawn down, which will screw us over further-or is that an option for them?
This is why the IMF/ECB/EU are looking to downscale the banks into the provincial backwater institutions they will become. Delusions of international stature are just that. I was banging on for weeks that selling off the assets of AIB (like the Polish subsidiary) was short-sighted lunacy. Far better in the long term would have been selling the entire bank to Santandar on a debt for equity scheme. In technical terms an easy kill. We still would have made a loss on AIB, but al least we could fire and forget and it would have pleased the markets.

You are right about Portugal and Spain. The EU can take a Portuguese hit, but Spain kills the Euro project. The interesting element is that if it gets to that level, what happens to the contract we have with the stability fund when we try drawing down funds.

There is an element of the markets needing to cop on to themselves. Do they really want to make countries default on their debt and take a massive hammering, or do they want to preserve the status quo where possible?
 

MPB

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That private debt is now public debt. I've yet to hear anyone explain cogently how we can decouple ourselves from the foolishness of the bank guarantee scheme.

As for the banks, well they are like the carcasses of a particularly unsuccessful breed of dumb dinosaur on the Jurassic age, having gorged itself on low lying fruit and unable to move when the carnivores moved in.

We as the public, are the last scavengers to arrive when all the predators have subsumed everything of value.
We might have undertaken responsibility for the the debt but we have not yet accepted the terms and conditions.

The guarantee can be revoked in the morning.

A new Govt would have no obligation to retain it. Why do you think they are pressuring us into accepting a deal before an election?
 

Harmonica

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So he takes a whole article to say stop the bank bailout. Quality of his pieces is very poor recently, he doesn't seem to have anything new to say.

I din't want the banks bailed out but what happens to my money in AIB if the guarantee is revoked overnight? As long as I have access to my money I don't care if all the banks close (which won't hapen anyway) as we don't all them to survive.
 

Malbekh

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We might have undertaken responsibility for the the debt but we have not yet accepted the terms and conditions.

The guarantee can be revoked in the morning.

A new Govt would have no obligation to retain it. Why do you think they are pressuring us into accepting a deal before an election?
I don't agree. The bank guarantee scheme (which FG signed up for) cannot be simply revoked in the morning. You cannot undo what has been done. Bondholders who bought Irish financial bonds under the scheme would have legal redress in international law, we would become a (bigger) joke. But in particular, the people we are currently borrowing money from (the EU/IMF) are not going to permit a volte face.
 

Interista

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malbekh

On another topic, I am bored with McWilliams, in fact he's getting quite irritating
I agree. He's turned into a chest-thumping one-trick pony - virtualy a parody of himself. He is so smug about being 'the guy who saw all this coming long before it was fashionable to do so' (which is true) that he doesn't seem to feel the need to do any intelligent thinking any more.

And his last book was really annoying. Of course, you don't expect - or want - high-brow economic analysis from McWilliams, but all the over-contrived "merchant of Ennis' type characters got very old very quickly and patronise his readers. And every other page seemed to be about self-serving name dropping of the "When I was working in the ECB..." or "When Brian Lenihan called round to my house" type.
 


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