Monday, 30 August 2010

Pluck of the Irish?

Jim Stewart: Have they been reading Progressive Economy posts on Anglo Irish Bank? You can read the Financial Times editorial here.


Anonymous said...

It would provide a modicum of reassurance if the FT were indeed reading the posts on this site given the egotistical and self-serving contributions in the media and elsewhere around the ongoing global crisis that has stemmed from the foolish embrace of the fundamentalism of free market economics.

Paul Hunt said...

The FT says: “European institutions are exposed and EU partners must be consulted.”

I think the FT leader-writer - presumably writing in a country which retains some measure of sovereignty over monetary, fiscal and bank system matters - is underestimating the challenge facing the Government.

Consultation with EU partners is probably the least of it. Any move to wind-down the insolvent banks will require the full sign-off of the institutional EU - and that includes the Commission, Council, probably a Parliament Cttee, the ECB, the Stability Fund and the Cttee of Bank Supervisors (which conducted the stress tests).

And the 'political' part of the EU - in particular the Council - will not budge unless it is forced to do so by the bond market and feels it is able to sell write-downs in the savings and pension funds to voters in the core EZ countries.

Anonymous said...

Hunt’s reference in the previous comment to write-downs in savings and pension funds is bizarre.

It reminds one of the scare tactics that were employed by Wall Street after the US Congress first voted down the TARP proposal (to bail out the banks to the tune of several hundred billions) as they screamed that individuals’ savings and pension funds would be decimated if Congress did not change its mind and approve TARP.

It is certain that no individuals hold any of Anglo’s bonds in any savings investment vehicle. It is equally certain that the majority of Anglo’s bonds are held at this stage of the game by vulture funds whose interests are completely at odds with the financial interests of Irish and other Eurozone taxpayers. These vulture funds bought these Anglo bonds fully aware of the risks involved.

Requiring Irish and other Eurozone taxpayers to bail out these gamblers would be tantamount to political suicide for any politicians foolish enough to insist on such.

Paul Hunt said...

Is there evidence that there are no senior bondholders in Anglo/INBS investing ordinary savers' funds? And that they all have bailed out and taken a hit?

If that is the case, fine. But even then I would contend this haircut can only be imposed by the institutional EU wth full support for sovereign funding. There is also the issue of the large amounts of money owed to the Irish Central Bank and to the ECB.

Anonymous said...

It is time for holders of Anglo debt to share the pain. Some have misleadingly suggested that this pain will fall disproportionately on ordinary citizens.

It is certain, unless bondholders have been as foolish as our banks, that institutional bondholders seeking relatively risk free returns (such as pension funds) have either already exited from Anglo or have purchased risk protection in the form of CDS instruments in which the risk of default is borne entirely by the seller of the instrument such as the likes of Goldman Sachs.

We should note that as a result it is in the vital interests of the sellers of these CDS instruments to loudly object to any steps that would result in the diminution of the value of the underlying debt.

Paul Hunt said...

Fair comment (assuming you're the same Anon.), but in the absence of any EU-wide approach to selective debt-restructuring in the troubled countries the choice narrows down to two options: (1) the good bank/bad bank split (further (unrevealed) details of which the MoF announced were sent to the Commission today) with a long drawn-out wind-down of the latter or (2) EC/ECB/IMF Greek-style administration which provides the sovereign funding support to enforce selective debt write-downs.

The Commission will be unlikely to sign-off on an Anglo restructuring until it has an enforceable limit on the state capital transfers. This may be enough to appease the bond market. But it could keep going, as it did with Greece, until it forces Ireland into Option (2) above.

The net discounted full cost of this option could be much lower than that of Option (1); the difference is the value placed on retaining a measure of sovereignty.