Tomorrow sees the start of our now routine quarterly review “mission” by our Troika of creditors from the IMF, EU and ECB. We learned last week that we now have permanent representatives of the Troika on the ground in the Central Bank ofIreland and at the European Commission’s own offices in Dublin. And of course, we have had the voivod fromHungary, Istvan Szekely in situ at the Department of Finance since November 2010 – nothing xenophobic intended, and if the tables were turned and we were installed in government buildings inBudapest, you could be sure the notoriously sarcastic Hungarians would have some choice words about us. It’s been just under a year sinceIreland sought and received approval for the €68bn bailout from the Troika, but somehow it seems like forever since we were a producer country for missionaries.
The Troika review mission is scheduled to last until 21st October, 2011 and we look set to get another pat on the back, much as we did in May 2011 (publication of staff report on first and second reviews) and August 2011 (publication of staff report on third review). Not only are our national finances more or less on target but a briefing prepared by the Department of Finance last week portrays us as making good progress with rebuilding our banking system; it even claimed that in September 2011, retail deposits in the covered banks (AIB, Bank of Ireland and Permanent TSB, effectively) increased which, if confirmed later this month by the central bank, will be first increase since March/April 2011. But how well are we doing with the other tasks set for us by our benefactors? This was our list of chores as detailed in the third review staff report.
(Click to Enlarge)
Beyond the meeting of banking and budgetary targets, the review missionaries should start to expose the lethargy with implementing other aspects of the programme. If you cast your mind back to the last review, there was quite a flurry of activity at the last minute, in June and early July; the Fiscal Advisory Council, for example, seemed to mushroom up overnight on 7th July, 2011 and I’m willing to bet that three months on, the Council is still unsure about what it’s supposed to be doing – after all the Fiscal Responsibility Bill which puts the Council on a legal footing still hasn’t been published. There was a sense back in July that superficial action was being taken at the last minute, so as to approximate some degree of accomplishment of a bailout requirement.
What about progress in the last quarter beyond the banking sector?
Where is the Legal Services Bill which was apparently “pushed through Cabinet” just last week? The Bill will reportedly deal with some aspects of cost transparency in the legal profession, but is seems weak in the extreme as a means to drive down costs – the 260-page Bill may be published today but press reporting suggests its focus is on the creation of an independent costs adjudicator to deal with costs disputes and an independent complaints body to deal with all complaints; just imagine if the Government and state agencies which apparently account for 50% of all cases before the courts, were to signal a new benchmark in pricing and possibly engage solicitors and barristers from smaller, more cost effective practices, then that might tangibly reduce rates but the advertised reforms seem to be minimal. Despite that, we hear that not surprisingly, the legal profession is lobbying to water down whatever reforms are in fact proposed. So on the face of it, the Government has failed to introduce “legislative changes” by the end of September 2011, and we wait to see what reforms the Bill actually contains.
And where is the reform to the medical profession? Where is the abolition of restrictions on the number of GPs qualifying, and GP advertising? Shouldn’t health minister, James Reilly have spent his August overseeing the drafting of a new bill, rather than building sandcastles on the beach? Indeed, rather than distract the good minister from his holliers, he might have delegated the drafting of a bill; God knows his department pays enough for consultants.
And where are the reforms to strengthen labour market participation, particularly those aimed at weaning the long-term unemployed – latest figures released by the CSO last week showed that 42% of claimants on the Live Register, which includes part-time workers and others in receipt of benefits, were claiming for more than 12 months, up from 33% a year ago in September 2010 – off social welfare and helping them back to work?
Where are the recommendations from the Department of Finance which were due to be delivered by 30th September 2011 to the Minister for Finance, Michael Noonan on “the quality and availability of credit information available to credit providers”? Maybe something was delivered but it hasn’t made it into the public domain. This recommendation was aimed at improving the quality of credit scoring information so that our lending market could operate more efficiently, both for lenders to be able to assess credit risk and to prevent borrowers becoming over-extended.
The Comprehensive Spending Review was to have been completed in September 2011, yet Deputy Micheal Martin was told during Leader’s Questions last week that it wasn’t yet complete. Government was also supposed to have put in place effective measures “to cap the contribution of the local government sector to general government borrowing at an acceptable level”. Again, nothing.
So I’m expecting a little more criticism from the Troika when they hold their departing press conference, probably on 21st October, 2011. And although there will be some back-patting for the not insignificant feat of keeping the finances on track and delivering the required actions in the banking sector, there should also be more than a hint of criticism at the foot-dragging elsewhere.
This review mission would also seem to be the last opportunity to broach the burning of senior bondholders in Anglo and Irish Nationwide Building Society. There is a USD $1bn (€737m) senior unsecured unguaranteed bond payable by Anglo on 2nd November 2011. Anglo is no longer a bank, though it curiously retains a banking licence, it sold its deposits, it doesn’t engage in original lending, it has closed its branches, it is in run-off mode. The ECB has steadfastly held to its position that all senior bondholders be repaid lest there be contagion to other EuroZone banks which might lead to immediate losses in the EZ banking system as well as a general increase in interest rates demanded by senior bondholders to compensate them for perceived higher risks. The IMF on the other hand seems to have gone as far as it can in its diplomatic language to promote burden-sharing of senior bondholder debt. The EU has a schizophrenic position. The matter of “burning” bondholders was raised by Minister Noonan during the third review in July 2011 as a “discussion matter”. Tomorrow’s review gives Minister Noonan to raise it as a “negotiation matter”.
And finally in terms of the business of the review, Taoiseach Kenny has said that in order to meet his promise of no income tax or social welfare cuts in 2012, he will need get agreement from the Troika. Get ready for what’s likely to be one of the more memorable U-turns from this Governnment.
Beyond the bailout programme, it’s worth saying that former USpresident Bill Clinton told the diaspora gathering in DublinCastlelast week that the number one financial challenge facing Irelandwas its mortgage crisis. Taoiseach Enda Kenny who shared the platform with Bill seemed to elevate the mortgage expert group which was cobbled together in late August following a Professor Morgan Kelly broadside, to the status of “special commission”. Taoiseach Kenny promised changes in the “next two weeks” to address the mortgage crisis. Again, it had the feel of last minute scrambling, and I will be (pleasantly) shocked if changes are announced by 22nd October 2011 to help deal with the mortgage crisis. It is disappointing in the extreme that the legislative programme recently published for this current Dail session which ends at Christmas does not commit to new legislation for personal insolvency (bankruptcy) reform.
NAMA Wine Lake 
How about we get to review the two thirds of Troika’s masters and their performance. ( the IMF has at least talked sense some of the time.)
Given that their ECB/EU masters have been wrong in virtually every action forecast and denial they made about banking and the Euro will they be conducting a quarterly review of the mess that their masters have helped get us into. (Properly regulated banks would not have given billions to the likes of Anglo).
How about a review of that the illustrious well paid experts in the EBA that told us 3 months ago that Dexia passed the stress test with flying colours.
Any chance that our Irish media will ask searching questions of these yahoos.
Nah…. I expect we will get the usual savaging by the dead sheep.
About time we got off our knees and stopped taking advise from idiots who can’t manage their own patch.
@nwl
I for one, and probably the only one actually agree with Bill Clinton. Solve the mortgage mess and Ireland grows at rates that will make Merkel blush.
A blanket write off across the board is required. And the unguaranteed bonholders pay for the bill. It’s not complicated, it’s fairer but not fair to all, it’s a fix and fixes are by their nature unfair. Bigger question – will it work? For me – without question.
@Yield
+1
Private consumption will never increase while being dragged down by this debt. Not only the mortgagees will not spend, their parents, their children and some of their siblings will not spend either.
But the Troika are here to get money back. The bottom line is if there was a straightforward choice between a further 25% fall in GNP, with all loans paid and a 0% fall in GNP with 90% of loans paid, the Troika will go for the 25% fall in GNP.
That is how relevant the welfare of Irish citizens now is to its foreign masters.
Why would mortgage debt write off be good for the economy?
A debt write off is really a debt transfer. If the mortgage borrower does not repay then who will? The taxpayer?
Some of us chose not to invest our money in leveraged property plays. If we are penalised, then there is no net gain to society. Greedy foolishness would be rewarded with the savings of the temperate – but there would be no extra cash in the economy. Debt cannot be destroyed in that way.
If we compensate people for their failed investments, then we will encourage the avaricious allocation of resources back into housing with the understanding that, unlike equities or bonds, property losses are underwritten by the state.
Yes we need personal insolvency legislation but not ‘debt forgiveness’ at the expense of the prudent. The German economy seems to be doing just fine with a property market that has long been moribund and of no interest to the average Fritz.
re:this article
The government appears to have missed several programme targets now without good reason. The actions designed to remove cartel features from doctors and lawyers are modest and long overdue. A brave government would have introduced them without the need for an IMF gun to the head.
re: Kirsten
“unlike equities or bonds”.
This is the usual right wing clap trap where we have no rules for the corporate elite but are aghast at potential for moral hazard for the little people.
“unlike bonds” ….. the words un-guarenteed spring to mind.
“If the mortgage borrower does not repay then who will?”
As Yields or Bust pointed out ” the unguaranteed bonholders pay for the bill.”
It sounds like you would rather protect the German and French banksters. The idiots who grabbed the high interest bonds from Anglo rather than the mortgage holders who were hyped by the Irish elite and their lackie media buddies into buying overpriced property.
@paddy 19
As a holder on unsecured Lower Tier2 bonds in AIB and BOI I can assure I did suffer the consequences of market movement.
But the media loves to ignore that.
The IMF doesn’t really give a fiddlers about reforms to the medical and legal professions, etc. All they care about is that the Paddys are rendering up the cash to pay for the banks, foreign and domestic. Everything else is window dressing and entirely subjective.
@Kirsten
‘Why would mortgage debt write off be good for the economy? ‘
Are you for real? I said its the unguaranteed Bond holders who pick up the tab – I agree the average taxpayer should not be sent the bill – the banks made a bad bet and its them and their financiers who shoulder the costs. The PCAR document was the basis for the citizens to stump up €24bn (now down to €16.bn) its worth noting the size of the unguaranteed bondholders is still c€16bn. There is a better and fairer way to solve this issue.
But part of the assets of the bank are the deposits. So ultimately the state and tax payers have to pay the shortfall in recovery of those sums.
That is why banks aren’t liquidated/restructured like “normal” countries. Depositors are unsecured senior creditors and the bondholders invested on that basis. The problem is the state keeps changing the goal posts.
JJ
The goalposts are being changed all the time. Not by the State but by the banks at the insistence of the ECB. This is being done on a Europe wide basis.
What is happening in all EZ banks is that unsecured bondholders are being paid off on a weekly basis and banks are replacing the unsecured funding with secured funding from other banks or the ECB.
This means that the assets that depositors depended on to back their deposits are being continually eroded in favour of new secured funders.
It is nothing short of a massive fraud being perpetrated on unsuspecting small depositors. Again and again the ECB has prevented by delay the introduction of a US style resolution scheme (FDIC). The ECB and all EZ bankers are fully aware that depositors are being downgraded in their security on a daily basis but they are choosing to do this in favour of the large investors i.e bondholders.
The actions of the ECB are in fact removing the very foundation stone of traditional banking based on deposit security.
This is being done knowingly and deliberately so that all bondholders will be paid back. At that point with the bondholders fully paid and all the residual losses left in the banks, the various governments are left with Hobson’s choice.
Close the banks affected and burn the depositors or pump more funds into the banks.
Note [Deposits are liabilities on a bank balance sheet. They consist of money that must be paid out by the bank. The loans issued by the banks are assets, (well not the ones issued to developers)]
@ Joseph Ryan
I don’t disagree with that analysis of the outcome – not sure I agree it is done on the basis of improving bondholders returns over depositors. It was done to support the banking system (in my opinion), all banking systems have at their corner stone a lender of last resort (ECB) and the ECB has forced losses on subordinated bank debt and forced additional equity injections, which are all in favour of depositors.
What do commentators keeping linking senior bondholders and depositors.
You don’t have to be an economist to see that these all two totally different groups.
Senior bonds are largely bought by professional investors who are supposed to understand risk. Depositors are financial innocents taking what’s on offer at a supposedly well run, well regulated bank.
Why do we pay professional investment experts if they are guaranteed the same as Joe Blogs on the street.
Who needs them!
Fire the scoundrels.
They invested on that basis and there is no way they would have lent at such low rates if they did not believe they were pari-passu with depositors.
For example, the ANGIRI 11/11 (Anglo bond maturing in November 2011), which was raised in 2006, the coupon on that debt is the massive 12.5bps over US LIBOR.
That is a rate of 38bps at the last coupon set.
(I know the next question is why bother lending to them at that rate, and I agree, but that leads to the core root problem – credit was/is too easily available, and it was/is a decision of international central bankers, namely Bernanke and Greenspan, to keep credit cheap. And now it is difficult to unwind and nobody is willing to take the pain of deleveraging)
re JJ: pari-passu my ass.
When the bank gives me money there is no “pari-passu”. It’s write large and in legalese that I will pay. In fairness to the mad developers they had to give the uniquely Irish approach to company law, written personnel guarantees.
These raw swashbuckling hard assed free traders are depending on pari-passu to justify been paid and getting their million Euro bonuses.. Sounds more like something the wimpy lefties would dream up.
That’s the best you can come up with!
No written guarantee, no legal recourse, nada, except pari bleedin -passu.
But of course when you are big enough to blackmail governments you can get away with this sort of rubbish. This is not about justification this is about raw power and how it is applied just watch Goldman playing both sides of the game.
So you believe we should pay these free marketeers because they had sorta thought they had some unwritten guarantee justified by pari-passu.
It’s is true amazing how the free marketeers always have somebody else to blame when they make crazy investment decisions. They didn’t have to invest. Nobody put a gun to their heads.
But of course no investments no juicy bonuses…
Re: paddy19
Read the terms and conditions of the specific bonds and the program prospective of their Euro Medium Term Note Programme. It specifically states the pari-passu with other senior obligations.
So that is a written guarantee, that is legal recourse, and nothing to do with blackmail, but the rule of law.
And I am not sure why you are getting aggressive with me – I don’t work for a firm that lends to financials.
re jj “aggressive with me”
I hope you never have to deal with that darling of the free market, GE, when your mortgage is overdue.
That would give you whole new understanding of what aggressive means.
@ jj
OK, you want to play the “pari-passu” game. Then you make dam sure that every depositor is aware of it and see what kind of banking system you end up with. Please see chart below to get an idea of what is going on with the “big boys”. Every citizen in Ireland should take their deposits out the “pillar” banks today. Then see how much your precious bonds are worth.
guys you are ‘spooking’ the nervous ‘unsophisticated’ bondholders with this talk……….
‘The interest rate demanded by investors in order to hold Irish government bonds has spiked dramatically’
http://www.rte.ie/news/2011/1011/imf-business.html
If there is a run on the banks it is the directors responsibility to close down the ATMs and branches i.e. should not give preference to one creditor over another – like Northern Rock.
There will be a few more down at the Central Bank in that scenario.
But every depositor is aware of it in kind – i.e. the government guarantee of deposits is separate from the bank itself. And that is how governments world-wide have got round the issue.
But am tired of this particular line of argument.
The resulting of any of these solutions, plus Basel III, tighter regulation etc is making credit more expensive. Yet politicians will not accept this. Many calling on banks to lend more and get credit moving.
This is a bigger issue in the US than in Ireland frankly, and perhaps the last 10/15 years of consumer led (credit led) economic growth will be shown to be temporary and is required to be reversed (with pain).
But a pet hate of mine of Irish and UK politicians is complaining about the tightness of credit yet they require better capitalised banks and more security for depositors but don’t see the inherit conflict in their arguments./
even if we get the ecb to agree to hit snr bondholders and we find a way to navigate pari passu and say we burn a couple seniors, then that money belongs to the taxpayer who owns the banks which have been recapitalised at taxpayer expense. There is still no economic argument for taking the proceeds and using them to give mortgage holders a leg up.
kd never mind a leg up how about taking the foot off their throat-predatory lenders were VERY active in Ireland coupled with ‘property porn’ financially uneducated Irish people were taken advantage off.
,….. and just when you think things couldn’t
get any worse, you lose your home as well.
This is precisely what happened yesterday
when an order for possession was granted
at the High Court against a couple who lost
their jobs when Waterford Crystal closed
down. “Mary”, the mother of the 17-year-old
special needs boy told the High Court
yesterday that the family had been to “hell
and back” with lender Stepstone Mortgage
Funding. ‘
Click to access Debt_Part_1_Mortgages.pdf
interesting same group of ‘lenders’ seem to be most active in securing possession orders.
‘They involved mortgage lenders including Secured Property Loans Ltd, EBS Building Society and GE Capital Woodchester Home Loans Ltd as well as Start Mortgages’
“Some 36 of the 83 cases lists before yesterday’s court sitting were being taken by subprime lender Start Mortgages’
http://www.irishtimes.com/newspaper/ireland/2011/0712/1224300558563.html
‘Government Regulator Sues Wall Street Banks For Fraud In Subprime Mortgage Deals’
‘The FHFA’s targets include General Electric, an international beacon of American business ….’
http://www.huffingtonpost.com/2011/09/02/banks-sued-subprime-mortgage-deals_n_947349.html
‘LAST-DITCH attempt to halt the eviction of a Dublin family failed at the High Court yesterday.
The order was granted to subprime lender GE Capital Woodchester Homeloans Ltd after the couple, who have three children, went into arrears..’
http://www.irishtimes.com/newspaper/ireland/2011/1011/1224305578716.html
@ KD
“There is still no economic argument for taking the proceeds and using them to give mortgage holders a leg up.”
I think you are more to be pitied than laughed at. It is fine to use trillions, yes trillons, of taxpayer money to bail out practically the entire worldwide financial system, including the little Irish banks; but economically and morally bankrupt to save a family’s home.
On top of this, there is ample evidence that there was a vast amount of outright fraud going on in the financial sector. This is being played out everyday in the US courts, not so much in Ireland. Unfortunately, no major political leader has the cojones to do anything about it because they are bought and paid for by the financial boys. Please see chart below to see how the cash flows:
‘Counsel for the lender, Gavin Miller,
‘But asked by Mr Miller for his costs, the judge refused. “The defendants are losing their home; that’s enough punishment for them,” he said.
http://www.lawlibrary.ie/barristers/Mr_Gavin_P_Miller_/3663/
@Jake Gavin Miller certainly has ‘some’ ‘cojones’ he asked the Jude to award COSTS to GE.
same link
“Why would mortgage write off be good for the economy?”
Really, Kirsten – you disappoint me. If people buy less in order to pay off a mortgage that they cannot cope with, they stop buying consumer goods and their mortgage payments just fill the coffers of the EU bank bondholders. As a consequence of this, aggregate demand in the economy falls to little or nothing.
The Government receive much less revenue because if people are not spending, there is substantially less tax coming in from VAT and retail employment.
This is compounded when the State is faced with this and the tight budget targets stipulated by the IMF/EU. It either has to raise alternative taxes or make further cuts in spending, which again reduces total demand in the home economy, leading to a continuing downward spiral in demand.
That is why we need and why we will have debt forgiveness. And that is why it is good for the economy. It’s a necessity, not a choice.
Your suggestion is that if two things happen:
1. we burn bondholders and
2. we use the proceeds to reduce mortgage debt
this would stimulate the economy.
I agree. However I don’t think that item 2 is a good use of the proceeds of item 1
People with large mortgages have proven themselves bad at allocating capital. The state would be better transferring the proceeds of a bond write off to those who chose not to buy properties at the peak of a bubble.
I fail to see how the economy will suffer if the state hands money out to the debt free like me rather than to my indebted neighbour. Anyone dumb enough to get hocked up for a house in ’06 is probably safest as a wage slave rather than an investor.
15bn in Irish bank sub debt has been burnt to date. The proceeds have gone to the exchequer to be shared fairly amongst all citizens according to the spending priorities of the Dáil. Would the country be better off had that 15bn been used to write off mortgages?
Some people are in trouble but they are adults and they are the authors of their own misfortune.
Re: Kirsten.
The concept of punishing those that “have proven themselves bad at allocating capital.” is interesting. I think most of them thought they were buying a house.
The elite of Irish society and their media lackies told them this was a couldn’t loose investment. We can’t all be financial wizards like you.
So the real question is do we develop a economy based on rewarding the best investors and letting the majority who are not financial wizards swing in the breeze. Or do we want a society where we allocate resources for the benefit of all.
On your logic we should eliminate all social welfare and unemployment benefits since clearly these people cannot manage their resources.
Doesn’t sound like a place I’d like to live in.
@kd and if you had modern BK laws they would file and move on with their “wage slave” life’s and perhaps rent for a while and maybe if they received better financial education and could identify the ” peak” learn from their mistake instead you have draconian BK laws that “punish” ordinary people who were exploited.
But rest assured none of them are planing bike rides in the south of France
Here’s Johnny. . . tycoon back in the saddle again
“The property magnate ditched the jet, hopped on his bike, lost weight and seems happier than ever”
A cheeky grin spread across the buccaneer’s face. “Where did it all go wrong?” he shot back, breaking into warm laughter.”
It felt good to be back on home soil. To see his old circle of friends, spend time at home with his family”
A touching tale indeed!!!
http://www.independent.ie/opinion/analysis/heres-johnny-tycoon-back-in-the-saddle-again-2334546.html
@Kirsten; Unless there is debt forgiveness (and there will be) people will rebel against being “wage slaves” to the banks and will eventually flood the banks with “jingle mail” i.e. they will hand the keys back. They will then become a burden on the State, opt for rental or emigrate.
This will only make the situation worse for the banks – and they are already on their knees. It will cost the banks more in the end to repossess the properties, secure them and resell into a market that is non existent than to come to an arrangement with the mortgagor that would allow them some respite. The banks haven’t grasped it yet, but their current mortgagors are their best option.
You are lucky. You resisted the charms of the old tarts as they raised their skirts way above their knee to entice any and every passerby. Others were not so astute or fortunate. You don’t need the help. They do. And they are entitled to it, as the banks were more culpable than the borrowers.
@ KD
It must be very lonely in your little circle of financial geniuses. Do you count the developers, bankers and politicians among the investing ignorant? Because they were all there, bright and center. I would suggest you might want to emigrate to a more financially intelligent island, like Bermuda or Grand Cayman.