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Irish government strategy for dealing with Anglo’s promissory notes – thanatosis

March 18, 2012 by namawinelake

“If the Anglo bondholders are paid, they will be paid from their own resources. This will not come from the taxpayer.”  An Taoiseach Enda Kenny replying to a question in the Dail from Sinn Fein leader Gerry Adams, on 28th September, 2011.

“It is a complex and technical issue. There are quite a number of moving parts.” An Taoiseach Enda Kenny speaking in the Dail on 14th March, 2012 justifying his position of “Is binn béal ina thost” in respect of explaining what is happening with the Anglo promissory note negotiations

“Pacta sunt servanda” European Commissioner for Economic and Financial Affairs, Olli Rehn speaking on Tuesday last 13th March, 2012, using the Latin for “agreements must be respected” when referring toIreland’s payment of Anglo’s promissory notes

“It lies on its side, mouth and eyes open, tongue hanging out, emitting a green fluid from its anus whose putrid odour repels predators. The opossum will enter a near coma, which can last up to four hours”  The Virginia opossum playing dead, giving us the expression “playing possum”

Here’s a word that might be new to some of you – “thanatosis” –  though it’s more commonly called “apparent death”. The phenomenon covers two separate behaviours by animals : “playing dead” is where an animal deliberately feigns death, like the possum, but thanatosis also includes an animal involuntarily appearing motionless, like rabbits caught in headlights. So on one hand there’s the Virginia opossum, which pretends to be dead if injured or threatened so as to escape predators which have evolved to sense that dead prey carries more risk of infection. On the other hand, there is the hunting practice of “lamping” foxes or rabbits where a bright light is used to immobilise an animal so that it can be shot or caught – the animal is so surprised and threatened that it thinks remaining immobile will prevent predators seeing it.

What has all of this got to do with our Government? In two weeks time, Ireland is set to pay €3.1bn in cash – and this time, there is no possible way for An Taoiseach to claim that the money is not coming from taxpayers, as he embarrassingly did with Anglo’s bondholders. The cash will be paid by us to Anglo, or IBRC as it is now known. Anglo will then pay it to the Central Bank of Ireland, who will do the electronic equivalent of taking it outside, dousing it in lighter fluid and setting it ablaze. Why? Because on 29th September 2008, the elected parliament of this country gave a guarantee to six Irish financial institutions, and subsequently €30bn in IOUs were given to Anglo and also Irish Nationwide Building Society to make up losses made by those two institutions. Anglo used the IOUs to get money from the Central Bank of Ireland which did the electronic equivalent of starting up the printing press and printing new euros. Not only did we give Anglo these IOUs, but we also gave the Central Bank so-called “letters of comfort” giving a solemn pledge to repay the IOUs. Not only that, last July 2011 when we got the interest rate reduction on the EU portion of our bailout, we gave another commitment – we “solemnly reaffirmed our inflexible determination to honour fully our own individual sovereign signature”. And above we can see the scheduling of the payments with €3.1bn in cash being paid over by this nation each year for the next 12 years and then a further €2.8bn thereafter.

These IOUs comprise nearly half of the €64bn being used to bailout our banks, a bailout that, in total, amounts to 40% of our GDP with the promissory note component alone amounting to 20% of GDP.

By footing the bill for these bailout costs,Irelandis abandoning any notion of safe debt levels and allowing debt to rocket to 120% of GDP. Our debt would have gone from 25% of GDP in 2007 to 80% of GDP anyway to cover borrowing for the deficit, that is, the fact that we collect less in cash than we spend on public services and welfare. And 80% debt is bad enough, but what we have done and what we are doing is piling on more debt so as to bailout the banks. Now AIB, EBS, PTSB and Bank of Ireland still serve this economy, but the €34bn – comprising €4bn of cash and €30bn of promissory notes – that is being shovelled into Anglo/INBS or IBRC, will not serve the economy in any conventional sense.

The ECB is no longer providing Ireland with unprecedented levels of support to our banking system. Yes it is true that a year ago, Irish banks relied on ECB lending on a disproportionately high basis, for example we had €138bn in direct lending to our banks in November 2010 which was reckoned to be one quarter of all ECB lending. But on 25th February, 2012 Irish banks had just €87bn of direct support from the ECB which is just 3% of the €3tn of support overall from the ECB, including over €1tn provided in 3-year lending in December last and in February. With Irish GDP comprising 2% of the EuroZone’s, the level of ECB support is roughly proportional to our economy within the EuroZone and can no longer be considered “unprecedented”.  But what other country inEurope is sticking 20% of its GDP on its national debt to support a completely bust bank?

What the ECB is now concerned about, is the robustness of the IOUs, the promissory notes, and there seems to be a real fear that these notes will be reneged upon, or indeed disowned by a nation that has already shouldered 20% debt to bailout banks, which has consequently maintained the stability of the EuroZone and has seen billions paid back to non-Irish financial institutions which are equally at fault for the crazy lending in the noughties. So the ECB is now sniffing around for Ireland to provide collateral to back up the IOUs.

Against this background, Fine Gael TD Peter Mathews is seemingly villified for tabling a motion which summons the person apparently responsible for leading Ireland’s negotiations with the ECB on the Anglo promissory notes: governor of the Central Bank of Ireland, Professor Patrick Honohan. In the past few days after Wednesday night’s committee drama, Deputy Mathews has been described as “naïve”, “erratic”, “renegade”, “maverick” on a “solo run” who “has opened himself up for a kick in the balls” and there’s an impression that fists are being cupped in anticipation by party colleagues in advance of the next parliamentary party meeting on Tuesday. This is all very amusing because Peter Mathews is one of the most conservative deputies in the 166-member Dail, a man with strong religious beliefs, who treats the business of the Dail with the deepest of respect, and a man who has been absolutely consistent for four years in his warnings about the scale of bank losses. And “naïve” might be a term better applied to those who ignore the colossal damage that the remaining bank bailout cost will do to this society.

Ireland has apparently been trying to reduce the burden of paying the promissory notes since at least last September 2011 – Minister Noonan told an Oireachtas committee on 1st September 2011 “I have not raised the issue [Anglo’s promissory notes] in specific terms with any of the authorities yet but I have raised it in general terms with the troika – pointing out the difficulty of meeting the €3 billion payment every year and what it does to the fiscal figures” Minister Noonan attempted some negotiation with the ECB in mid September 2011 but was apparently rebuked. An Taoiseach keeps saying that it is the Troika’s initiative to progress a deal on the notes but the Troika has been half-hearted in its response. And when asked the status of negotiations, An Taoiseach now says what you might expect an unscrupulous car mechanic to tell a ditzy blonde – “It is a complex and technical issue. There are quite a number of moving parts”

For all intents and purposes, this Government is displaying thanatosis in its supposed attempts to reduce the burden of bailing out two busted banks. On one hand, it is like the rabbit being lamped, accepting without question that the €87bn of “unprecedented” lending to Irish banks will be placed at risk if the promissory notes are not repaid, when the truth is that ECB support to Irish banks is no longer as disproportionate as it was even a few months ago and what other country in Europe would succumb to threats that would see their national debts rocket by 20% of GDP to pay for two bust banks. On the other hand, there is something of the possum in the way arguments about fairness and ethics are suggested, with the hope the ECB will take pity on this nation and forget about the promissory notes. Neither approach has, or will, work. The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.

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Posted in Banks, IMF, Irish economy, Politics | 16 Comments

16 Responses

  1. on March 18, 2012 at 8:56 am Joseph Ryan

    @NWL
    Je**s, that was my breaking I was enjoying, before I read about the Virginia opossum. And now that we are on the subject of Thanotisis, could we use the word necrophilia to describe how Ireland is being treated by the ECB!


    • on March 18, 2012 at 11:31 am Seanán Kerr (@seanan_kerr)

      The term “necrophilia” implies “love of,” on one hand we’re the “good boys,” on the other they’ve not shown us much in the way of love in thanks for it.


  2. on March 18, 2012 at 8:57 am Michael

    I am starting to think that this blog should be compulsory reading every Monday day morning and Friday evening. I can’t claim credit for the idea, I was inspired by that recent FF Ard Fheis motion about the national anthem in school.

    With regard to ‘balls’ it certainly is time someone grew some, someone who is directly negotiating on our behalf. Bit of a coup up in Sandyford?, take over the printing presses and crank out the 3.1bn payment in cash, that might worry the ECB a bit…..

    As always thanksgiving your work in keeping us informed and educated.


  3. on March 18, 2012 at 9:18 am Vincent

    Of course they could always be trying to pummel us into a stupor. Remember we are five years into this thing now. And with 1950 levels of people getting out there isn’t a snowballs hope. They should just bring on the personal bankruptcy that allows the people to dump debt. Then just sell the whole lot over a few months.
    These idiots, fools and knaves actually believe that wealth is the thing. As does the German and French premiers. It’s not wealth it’s trade. And all this controlling shite is stifling trade.
    To all this rubbish about default and there being no money in the ATM. And there being no cash to pay nurses, Garda and a collection of whoever. Who gives a hoot. IF the cost of living drops as it would once the property value arrives to a level based on realism then the requirements that the ‘first responders’ are paid a kings ransom above those in Europe would cease.
    The ONLY people that the government needs to actually worry about are those at the very bottom, who are existing on €188(€9776.00pa) a week. Everything else is just smoke and mirrors.


  4. on March 18, 2012 at 10:01 am Sinabhfuil (@Sinabhfuil)

    Superb piece.


  5. on March 18, 2012 at 10:29 am camella cummins

    vincent-the government does worryabout people on welfare ! They worrry about how they can take more from them without causing riots.


  6. on March 18, 2012 at 1:20 pm John Gallaher

    The appropriate response in enshrined in law,one of the schoolteachers should be familar with it.
    But,then again there really has been no changes,now has there!

    “In public international law, clausula rebus sic stantibus (Latin for “things thus standing”) is the legal doctrine allowing for treaties to become inapplicable because of a fundamental change of circumstances. It is essentially an “escape clause” that makes an exception to the general rule of pacta sunt servanda (promises must be kept).”
    http://en.wikipedia.org/wiki/Clausula_rebus_sic_stantibus


  7. on March 18, 2012 at 3:07 pm otto

    1. On the PNs, perhaps you could spell out more specifically what you suggest by “The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.”

    2. On TD pay, allowances etc, I have come to the view that, rather than fiddling with the rules for this payment, that allowance etc, the best approach may be to add an overall “cap” on payments, including all allowances, office support payments, toner, salary etc. That “cap” can then be used to restrict total costs.

    3. Did you see re. Yates in the Indo that he is drawing a 70k pension at age 52? I am still in favour of a prohibition on TD / Ministerial pensions until age 66, including for current recipients. Indeed, someone might ask a Dail question about how many ex TDs and ex Ministers are receiving pensions but are under 66 years of age?

    http://www.independent.ie/national-news/yates-ponders-his-next-move-as-aib-closes-in-for-the-kill-3053890.html


    • on March 18, 2012 at 3:28 pm Vincent

      How’s about we cap payments at what we pay them. And then tax them like anyone else. The way it’s working at the moment means we are paying them and then making absolutely certain that they never ever ever have to put a hand into their pocket again. One or the other FGS. Then if they were off to Washington on a skite on their own dime who cares.
      And further we’ve that self same situation with the civil service and the professions.


  8. on March 18, 2012 at 9:09 pm who_shot_the_tiger

    The problem that Peter Mathews has is that he is too honorable and to financially knowledgable for Irish politics. Surprisingly, in spite of the conservative verbosity and appearance, he has a deep social conscience – which a dyed in the wool capitalist like me, who only watches Fox News Channel, finds confusing.

    Totally off topic, but Kennedy Wilson seems to be carried away by the success of its investment in BoI. One way to dissipate most of the profits is to pay €42 million for the gasworks.


  9. on March 18, 2012 at 9:18 pm John Gallaher

    That would be almost twice what they actually “invested” in B of I,but most likely not all cash.
    http://www.pehub.com/113631/fairfax-financial-wl-ross-take-18-of-bank-of-ireland/


  10. on March 18, 2012 at 9:42 pm who_shot_the_tiger

    @JG, Well that’s all the profit from the B of I deal gone then.


  11. on March 18, 2012 at 10:01 pm John Gallaher

    @WSTT,it takes a good photograph,decent going in yield,diversified and attractive income base.Good size,think fees,comparable in US 5 to 6 yield.


  12. on March 18, 2012 at 10:58 pm who_shot_the_tiger

    @JG, Rents due to soften. Residential prices still a falling knife..


  13. on March 19, 2012 at 12:13 am John Gallaher

    Perhaps,NAMA has some serious competition.Hopefully,more details on the deal structure become available,but they may have gottent “staple” financing,maybe not.But,all cash purchase unlikely with interest rates where they are.Its a decent deal,easy to explain and understand,no development or tenant risk,yes some market exposure.Can the market get much worse…..


  14. on March 21, 2012 at 9:06 pm Noonan announces deal on Promissory Note | Stephen Spillane

    […] Irish government strategy for dealing with Anglo’s promissory notes – thanatosis (namawinelake.wordpress.com) […]



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