What Honohan actually said re the Guarantee

Sucker Punch

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Primetime just covered it. Here's the relevant section from Honohan's report. Mr. Cowan and FF always aim to derail the questions of reporters by offering the decoy that, if they had it all to do again, 3% of the total banking liability (Junior debt) may have been avoided should they have had Honohan's recomendations close to hand:

What Honohan actually said:

The scope of the Irish guarantee was exceptionally broad. Not only did it cover all deposits, including corporate and even interbank deposits, as well as certain asset backed bonds (―covered bonds‖) and senior debt it also included, as noted already, certain subordinated debt.

The inclusion of existing long-term bonds and some subordinated debt (which, as part of the capital structure of a bank is intended to act as a
buffer against losses) was not necessary in order to protect the immediate liquidity position.
Arguments voiced in favour of this decision, namely, that many holders of these instruments were also holders of Irish bonds and that a guarantee in respect of them would help banks raise new bonds are open to question: after all, extending a Government guarantee to non-Government bonds has the effect of stressing the sovereign to the disadvantage of existing holders of Government bonds; besides, new bonds could have been guaranteed separately.
Finally, Commenting on Blanket guarantees in general:

Studies have shown that blanket guarantees have typically been associated with crises that resulted in larger fiscal costs which in turn reflected the underlying gravity of the situation that called for such a drastic step. However, there are indications that a regime that is prone to introducing a blanket guarantee is also more likely to have been associated with less adequate regulation that can result in large banking and fiscal losses.
 
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hammer

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"The inclusion of existing long-term bonds and some
subordinated debt (which, as part of the capital structure of a bank is intended to act as a
buffer against losses) was not necessary in order to protect the immediate liquidity
position. These investments were in effect locked-in. Their inclusion complicated
eventual loss allocation and resolution options.159 Arguments voiced in favour of this
decision, namely, that many holders of these instruments were also holders of Irish
bonds and that a guarantee in respect of them would help banks raise new bonds are
open to question: after all, extending a Government guarantee to non-Government
bonds has the effect of stressing the sovereign to the disadvantage of existing holders of
Government bonds; besides, new bonds could have been guaranteed separately"
 

adrem

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Interesting that he also highlighted the difficulty in burning senior debt holders and the key difference between us and the US in that regard

When considering the allocation of losses in the case of an insolvent bank, there is an important difference in the law between the United States on the one hand and Ireland
(and the UK) on the other. Since 1993, US law gives depositors priority over
bondholders and general creditors in their entitlement to be paid out of the proceeds of a
bank liquidation. Irish and UK law make no such distinction: unless explicitly
subordinated, bond-holders are entitled to share pari-passu with depositors and other
general creditors. This is an important distinction presenting complications to the idea
of discriminating between such creditors in a liquidation.
 

Mitsui2

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Yerra how would Honahan know what he meant? He only wrote the bleedin' report!
 

Sucker Punch

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McGrath on Primetime misrepresenting the Honohan report. Let's bump this thread every time FF wheel out their bogus version on what Honohan actually said.
 
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MPB

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Let,s hope Mehole is hit over the head with this section of the report, by Kenny and Gilmore in the next debate, as he also misquoted Prof Honohan in the TV3 debate on this issue.
 

Sucker Punch

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It has always amazed me that FF get away with their bull crap to such an extent. What Honohan said is not complicated nor long winded.

FF depend on peoples' ignorance to peddle their sh1te, & none are more ignorant then the party faithful, whom probably have never read the report and just blurb the press release that comes out of HQ instead.

FF however are right in one respect, if the opposition cannot even achieve to use such high caliber ammo as the factual truth surrounding the matter, then what bloody hope is there for the country?:roll:
 

Aristodemus

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we are where we are, let's move on. we've turned the corner and can see green shoots.
 

Broke

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I think primetime might just have put the last bit of muck on FF coffin tonight. FF just cannot escape the bank guarantee even with a change of leader.
 

goosebump

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The Guarantee that Honohan refers to ended on Sep 30 2010.

A good deal of the Senior Debt that it covered is still outstanding, but is no longer guaranteed.

And yet we are paying it.

Why, because the ECB requires us to. If we don't, they will withdraw their money from our system, leaving us with no banks and no public finances.

The original Guarantee is meaningless at this point. The ECB was always going to insist that the senior debt was covered, Guarantee or no Guarantee.
 

GDPR

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Honohan's report.

FF didn't make it up, it's there in black and white.


“it became clear that Anglo could not survive another day. Decisive action that evening was
inevitable and the top officials from the agencies prepared for another round of meetings.”

"That afternoon, the two main banks, Bank of Ireland and Allied Irish Banks (AIB), also
came to the conclusion that decisive and immediate action by Government was called
for. They foresaw otherwise the imminent collapse of Anglo Irish Bank – in effect its
inability to meet its immediate payment obligations. Such an event would be
devastating for all the remaining Irish banks, and result in an accelerated outflow of
funds which, although neither of them was at that point close to having exhausted its
eligible collateral, would nevertheless quickly bring them also to the edge."

“The Governor and DG of the Central Bank and Chair and CEO of the FR participated in
some of the meetings that evening. Before the meeting they had all, with varying
degrees of enthusiasm, come to the conclusion that a general guarantee was necessary
and unavoidable.”


"A question that has been the subject of considerable discussion following the guarantee
decision is whether the authorities should have allowed a disorderly bankruptcy of
Anglo Irish Bank or bailed it via the guarantee. As is confirmed in Box 8.4, which sets
out current international thinking on what makes a bank systemically important, Anglo
was clearly systemically important in the prevailing conditions at the end of September
2008"


"given the perceived lack of a solvency problem at Anglo (or the other banks) on balance a guarantee seems to have been the best approach, not least because no other clear and effective medium-term solution appeared available."
 

Dreaded_Estate

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Honohan's report.

FF didn't make it up, it's there in black and white.


“it became clear that Anglo could not survive another day. Decisive action that evening was
inevitable and the top officials from the agencies prepared for another round of meetings.”

"That afternoon, the two main banks, Bank of Ireland and Allied Irish Banks (AIB), also
came to the conclusion that decisive and immediate action by Government was called
for. They foresaw otherwise the imminent collapse of Anglo Irish Bank – in effect its
inability to meet its immediate payment obligations. Such an event would be
devastating for all the remaining Irish banks, and result in an accelerated outflow of
funds which, although neither of them was at that point close to having exhausted its
eligible collateral, would nevertheless quickly bring them also to the edge."

“The Governor and DG of the Central Bank and Chair and CEO of the FR participated in
some of the meetings that evening. Before the meeting they had all, with varying
degrees of enthusiasm, come to the conclusion that a general guarantee was necessary
and unavoidable.”


"A question that has been the subject of considerable discussion following the guarantee
decision is whether the authorities should have allowed a disorderly bankruptcy of
Anglo Irish Bank or bailed it via the guarantee. As is confirmed in Box 8.4, which sets
out current international thinking on what makes a bank systemically important, Anglo
was clearly systemically important in the prevailing conditions at the end of September
2008"


"given the perceived lack of a solvency problem at Anglo (or the other banks) on balance a guarantee seems to have been the best approach, not least because no other clear and effective medium-term solution appeared available."


Nevertheless, the extent of the cover provided (including to outstanding long-term bonds) can – even without the benefit of hindsight – be criticised inasmuch as it complicated and narrowed the eventual resolution options for the failing institutions and increased the State‘s potential share of the losses.
A guarantee was needed but not the blanket guarantee that was given.
That is the point you keep glossing over tonic.
 

ppcoyle

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A guarantee was needed but not the blanket guarantee that was given.
That is the point you keep glossing over tonic.
+1 Agreed.

In his paper published in the ESRI's Summer 2009 edition of The Economic and Social Review Professor Honohan stated:

"Some have suggested that the Irish scheme served as a demonstration effect for other national authorities who brought in guarantees, albeit more limited, in subsequent days and weeks. But these guarantees fall short of the comprehensive blanket guarantee provided by the Irish government which even extended to some explicitly subordinated debt (the dated kind was covered, but not the undated)."
 

GDPR

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A guarantee was needed but not the blanket guarantee that was given.
That is the point you keep glossing over tonic.
I'm not glossing over anything.

In the report he states the reasons why a blanket guarantee was thought necessary by those involved on the night, he doesn't disagree strongly with those reasons, but is of the opinion that ideally the guarantee could have been refined somewhat, but not greatly.

The bottom line of his report is as already shown "on balance a guarantee seems to have been the best approach, not least because no other clear and effective medium-term solution appeared available."

That's what his report says, in black & white, indisputable.

His opinion coupled with the ML opinion that the blanket guarantee was "the best/most impactful, from a market point of view" tells you exactly why that particular form of guarantee was chosen on the night.
 

hammer

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Why did the Anglo boys arrive unannounced at Alan Gray`s offices on Friday before the guarantee ?

Why did BIFFOon ring Alan Gray the night of the guarantee when John Hurley Governor of the Central Bank was in the room ?

Clarity please :) :)
 

GDPR

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Why did the Anglo boys arrive unannounced at Alan Gray`s offices on Friday before the guarantee ?

Why did BIFFOon ring Alan Gray the night of the guarantee when John Hurley Governor of the Central Bank was in the room ?

Clarity please :) :)
Honohan,

"Anglo was clearly systemically important in the prevailing conditions at the end of September 2008"

Honohan was in on the conspiracy, was he?
 

Dreaded_Estate

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I'm not glossing over anything.

In the report he states the reasons why a blanket guarantee was thought necessary by those involved on the night, he doesn't disagree strongly with those reasons, but is of the opinion that ideally the guarantee could have been refined somewhat, but not greatly.

The bottom line of his report is as already shown "on balance a guarantee seems to have been the best approach, not least because no other clear and effective medium-term solution appeared available."

That's what his report says, in black & white, indisputable.

His opinion coupled with the ML opinion that the blanket guarantee was "the best/most impactful, from a market point of view" tells you exactly why that particular form of guarantee was chosen on the night.
It depends on the parts you read tonic.

Here is a comment from Patrick Honohan on the guarantee before he was appointed as governor of the central bank

The Irish Economy » Blog Archive » Holding our nerve

At the time of writing, the Irish bank shares have fallen by about 50 per cent since last Friday’s closing price. The last time there was a one-day fall of comparable percentage size was at end-September, 2008 and it was immediately followed by the announcement of a blanket guarantee.

Let’s not have any knee-jerk reaction this time.
 


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