# What will be the impact of this Promissory Note deal?



## Brendan Burgess (7 Feb 2013)

_Moved from another thread - Brendan_

I suspect that the government might need to do sums on this as well. 

At the moment the effective interest rate on the Promissory Notes is either 0% or 0.75%.   (Fiona Reddan has a good article explaining how they work in today's [broken link removed].) 

If this is replaced with a 3% bond, we will end up paying a lot more. 

I am concerned that the government will in effect surrender a 10 year cheap tracker for a 27 year SVR mortgage.


----------



## 44brendan (7 Feb 2013)

To quote Seamus Coffey (From the Nama Wine Lake Blog) on the net effect of this transaction, we do appear to be in line for a net benefit.
"NAMA bonds don’t form part of our debt so I would expect our debt to drop by €16bn or 8% from 122% to 114%. We will pay interest only on whatever instrument we replace the promissory note with and for illustration, if we replace it with a 4% 10-year bond, then on the estimated €10bn, we will pay €400m interest compared with about €1.8bn this year for the promissory note. We will make similar savings in 2014 and 2015, though the savings reduce after that. This consequently means we can potentially cut the adjustment this year by €1.4bn and the Budget in December would be €1.7bn of adjustments rather than €3.1bn.”


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> Hi Firefly
> 
> I suspect that the government might need to do sums on this as well.
> 
> ...


Bit of a sore brainer.  But listening to news at one and Colm McCarthy in particular it seems that these bonds will be essentially six month floating rate loans, SVR if you like.

So that is no different from the current situation except that under the PNs we were paying down the capital rather faster.  Also the high interest on the PNs contributed to the budgetary deficit (the capital had already been recognised in 2010).

So we get extended SVR borrowing and (this is cosmetic I think) our annual deficit reduces from c. 1.9bn to c.7bn.

As Colm pointed out, as an SVR this could look very expensive in a few years time, but maybe then we can afford to start paying them down.

A good deal yes, but a far, far cry from "tearing them up" promoted by Brian Lucey, Peter Matthews, Karl Whelan et al.  At least Fierce Doherty was simply just a crude defaulter, the other geniuses argued that since it was Central Bank money nobody got hurt if we simply tore them up.


----------



## Brendan Burgess (7 Feb 2013)

I think people are overestimating the benefits of this. 



> NAMA bonds don’t form part of our debt


They may not form part of our official debt figures. But we still owe the money. 

At the end of this transaction our total national debt will remain the same. It may be that the official,statistical, debt figures will be different. But that is not that relevant.  



> on the estimated €10bn, we will pay €400m interest compared with about €1.8bn this year for the promissory note.


Again, these savings are a complete mirage. The effective rate on the Promissory Notes is 0.75%.   


The government pays a higher rate on the Promissory Notes
But it pays it to IBRC which it owns
IBRC borrows , ultimately, from the ECB at 0.75%
So IBRC, which we own, makes a profit of the difference between what they pay the ECB and what the Government pays IBRC
It seems from the reports that the long term bond will be issues at 0.75% interest. 



So there is only a small benefit  to the Irish government from this deal. 



The repayment period has been stretched from 10 years to 35 years(?).  



That is good. If I have a 10 year cheap tracker and the lender extends it to 35 years at the same cheap rate, then that is a good deal. 

If they make it interest only for 35 years, then it's a great deal. 

I would be grateful for it, but the annual cost of servicing the mortgage in the earlier years has not changed.


----------



## Brendan Burgess (7 Feb 2013)

44brendan said:


> To quote Seamus Coffey (From the Nama Wine Lake Blog) on the net effect of this transaction, we do appear to be in line for a net benefit.



brendan

You are getting me into serious trouble. I was astonished that Seamus Coffey could get this so wrong that I thought maybe it was I who misunderstood it. 

Séamus was only quoting Nama Wine Lake to correct him!

This is what Séamus actually says in his reply 

"


> There should be no change in the debt.  It is the correct that the  NAMA bonds don’t effect the debt, but the NAMA bonds are being used to  “buy” the IBRC loans.  The NAMA bonds are not replacing any government  debt so the debt ratio will not fall.  Something will be created to  replace the Promissory Notes and the net impact of that change in the  debt ratio will be nil.
> 
> 
> There is no chance that this move will reduce the amount of budgetary  adjustments to be introduced over the next few years.  The adjustment  amounts will be maintained and instead the deficit targets will be  revised.
> We are not going to gain twice from this. There will be funding gains  in the medium term, possible NPV gains in the long term but the deficit  reduction programme will not be altered.  This is supposed to make our  debt more “sustainable”.  Reacting to this by running higher primary  deficits would not achieve that.


----------



## dereko1969 (7 Feb 2013)

I'm not sure how close this mirrors what actually happened but Karl Whelan had a piece in Forbes late last year that spelled out some large benefits from this

http://www.forbes.com/sites/karlwhe...g-the-promissory-notes-with-a-long-term-bond/


----------



## 44brendan (7 Feb 2013)

As far as I can gather from the multitude of information out there on the process, the net effect of the deal will be as follows:
- It will crystallise the promissory notes and ELA funding issues to IBRC into NAMA Bonds (effectively but not practically government debt).
-The rate on these Bonds will be same as Govm't borrowing rate (ie. .75%)
- previous high rate was a condition imposed by the ECB. I note that interest was paid to the ICB, but there was an inference that the payments did not benefit the ICB as the money was effectively taken out of circulation. i.e. similar to burning banknotes.
- New Bonds will be fully Govm't guaranteed but over a longer term. I think NAMA Bonds are repayable by 2020!!
- The net effect will reduce our annual budget deficit, but is not likely to effect the current austerity programme. i.e. The books will still have to be balanced in line with the Troika agreement.
Indications are that while it is better than a slap in the face with a wet fish, it doesn't involve any real extra money in our pockets. However the alternative, could seriously effect our economy and effect any chance of meeting budgetry targets.
I'm hoping someone can explain it all to me in more simplistic terms!!


----------



## Brendan Burgess (7 Feb 2013)

dereko1969 said:


> I'm not sure how close this mirrors what actually happened but Karl Whelan had a piece in Forbes late last year that spelled out some large benefits from this
> 
> http://www.forbes.com/sites/karlwhe...g-the-promissory-notes-with-a-long-term-bond/



Hi Derek

A very good article which backs up everything I say. 

At the moment, we have cheap money with an average maturity date of about 7 years. This is being replaced by cheap money with an average maturity date of 35 years.


----------



## Brendan Burgess (7 Feb 2013)

> - The net effect will reduce our annual budget deficit,



A lot of people are saying this. Apparently the capital repayment element of the €3.1 billion payment is treated as part of our current budget deficit. I don't understand why this would be.  But it has really no impact on our total borrowing.


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> A lot of people are saying this. Apparently the capital repayment element of the €3.1 billion payment is treated as part of our current budget deficit. I don't understand why this would be. But it has really no impact on our total borrowing.


My understanding is that the capital element of the PNs i.e. 30Bn, or whatever, was recognised in the 2010 deficit. So each year the capital element of the 3.1bn is ignored in the budgetary arithmetic (already counted in 2010) but the interest element of c.1.9bn is new deficit. In this sense the rate of interest on the PNs is relevant.

But Seamus Coffey has got it absolutely spot on. This easing of the budgetary arithmetic will not affect one iota the fiscal demands placed on us by the Troika or indeed by the markets if we ever re-enter - there is no relaxation here for our fiscal consolidation requirements. The Government, and Labour in particular, should be careful not to overplay this "victory", for the 2014 budget is still going to be every bit as difficult as the 2013 one was.

Indeed if this in any way gets the Croke Park Beardies to argue that there is now scope to ease off the austerity pedal, the government has shot itself in the foot. 

So is it a win at all? Well, it does amount to long term monetary financing (the ECB's great ideological no-no) and monetary financing is traditionally much cheaper than long bond borrowing - currently 0.75% versus 4%. Under the PNs we were required to quite rapidly ease off the monetary teat, now we can enjoy it for 35 years

Another very obvious benefit is sheer cashflow. That 3.1bn had to be raised, now we only need to raise 0.7bn. That makes it easier to re-enter the market, which is I presume the main reason that the IMF were in support and the ECB has reluctantly conceded.

Finally, for the Fierce Doherty's of this world, we have crossed a Rubicon. In the words of Charlie Haughey we have copperfastened this obligation. The PNs were always a bit dodgy and walking away from them might have got some sympathy from our EU colleagues. There is no walking away from Government Bonds without bringing the house down.


----------



## Brendan Burgess (7 Feb 2013)

This looks like a terrible deal.  From the [broken link removed]



> The average interest rate on the new bonds will begin at just over 3%,  compared with an interest rate of well over 8% on the Promissory Notes.



I am assuming that the 3% is correct. The 8% is not correct. The correct rate on the Promissory Notes is 0.75%. 

It depends on to whom the 3% is paid. If it's paid to the Central Bank, then it doesn't matter.


----------



## Brendan Burgess (7 Feb 2013)

> the interest element of c.1.9bn is new deficit. In this sense the rate of interest on the PNs is relevant.



OK, I get it now. This artificial figure is used instead of the true cost to the state which is around €250 million (€31 billion @0.75%) 

The Promissory Notes were a great deal. This new one looks terrible.


----------



## Purple (7 Feb 2013)

Brendan Burgess said:


> OK, I get it now. This artificial figure is used instead of the true cost to the state which is around €250 million (€31 billion @0.75%)
> 
> The Promissory Notes were a great deal. This new one looks terrible.



Can you explain where/how/why the two figures, 0.75% and 8%, come from?


----------



## Dr.Debt (7 Feb 2013)

The coupon rate on the final tranch of the Promissory notes is indeed 8.2%.
Im not sure where the 0.75% is coming from........


----------



## Brendan Burgess (7 Feb 2013)

Purple said:


> Can you explain where/how/why the two figures, 0.75% and 8%, come from?



  The effective rate on the Promissory Notes is 0.75%.   


The government pays 8% on the Promissory Notes
But it pays it to IBRC which it owns
IBRC borrows , ultimately, from the ECB at 0.75%
So IBRC, which we own, makes a profit of the difference between the 8% and the 0.75%
Fiona Reddan explains it here[broken link removed]

and Karl Whelan explains it here. 



> Consolidating everything, the only interest cost associated with the  outstanding ELA debts stem from the fact that the Central Bank incurred a  large Intra-Eurosystem liability via the TARGET2 system when the IBRC  depositors and bond investors were paid off and moved their money  abroad.  Sourcing funds from abroad to pay off the ELA would have the  effect of reducing this liability.  However, the Central Bank only pays  interest on this liability at the Main Refinancing Operation (MRO) rate,  which is currently only 0.75%.


----------



## Brendan Burgess (7 Feb 2013)

Conor Brophy has explained on RTE that the Central Bank will hold the bond. Therefore the interest will be paid by government to the Central Bank. So again, the real interest rate is 0.75%

So this is a very good deal.


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> Conor Brophy has explained on RTE that the Central Bank will hold the bond. Therefore the interest will be paid by government to the Central Bank. So again, the real interest rate is 0.75%
> 
> So this is a very good deal.


I would drop the "very". Good deal yes. Kenny is completely misrepresenting the situation when comparing the 8% to 3%.

What is at stake here is that we have paid off most of Anglo's depositors and bondholders and instead we owe that dosh to the ECB. The ECB charges 0.75% at present. Now the internal arrangement between the Government and the CBI merely dictates the pace at which the CBI (i.e. the taxpayer) can pay down the ECB liability. Under the PNs we paid that down fairly sharpish and that would imply raising funds elsewhere at say 4%. Under the proposed arrangement we pay down the loan much slower, principal payments hugely delayed and only 3% coupon (notice I voided the word interest, the only interest that matters is what we pay externally).

Let us say that our market (or indeed Troika) funding rate is 4%. What is at issue is how long and for how much can we enjoy ECB monetary funding versus market bond funding, obviously for much longer under the new arrangement. In the end of the day the win is the amount of interest we pay the ECB at the monetary rate versus what we would have to pay the markets (Troika) at the long term funding rate.

There have been references to the rate being a floating 6 month rate but this must refer to the NAMA bonds which are being used to buy IBRC's assets rather than the Government Bonds being given to the CBI in exchange for the PNs.


----------



## Dr.Debt (7 Feb 2013)

"A very good deal"

As far as i can see its the same deal. We still owe 30billion, we will still have to pay a net 0.75% to finance it. The main  difference is that we will pay it back over a much longer period.

Our cash flow will be much improved for the next 20 years but we end up paying a lot more interest in the end. Im not sure we can call it the deal of the century.

After all,we started out with high expectations of having the banking debt written off and now, after all the fanfare we end up with a "well below expectations" extension to the existing debt. Yes we made a huge mistake in allowing Clown Cowen to put ordinary tax payers in the dock for Anglo's commercial debt and in case anyone has forgotten, this was the big fight that Enda was supposed to take to Brussells on our behalf.

If there are some grinning, Fine Gael, faces in Leinster house this evening, Im pretty sure they are laughing their heads off in Frankfurt.We've been check-mated.

In my view its a failure and a failure thats being masked somewhat by the news grabbing IBRC liquidation


----------



## Duke of Marmalade (7 Feb 2013)

_Dr Debt_, I think we crossed postings and are essentially making the same point.

The real danger here is the over-egging of this by the Government partners and especially Labour. The dogs in the street have been expecting something like this for a long time. The rabbit getting all macho on RTE and Gilmore reverting to his Labour vs Frankfurt theme were made in full knowledge that a deal was on - but they will now bask as heroes who have won a great battle.

This should be called for what it is, a welcome relaxation of the crucifying imposition of the Seanie/Fingleton debt, but having negligible implications for the elephant in the room which is that we have the worst budgetary imbalance in the EZ.

We have a target deficit this year of 13bn. That includes 1.9bn on the PNs. The new target should be 12bn (allowing for some interest payment on the new arrangement). We haven't won a billion in foreign adventures to throw to the Bearded Ones in Croke Park.


----------



## Conan (7 Feb 2013)

An analogy:

Currently we own a house worth €30bn and we are paying off the mortgage over 10 years. However because our income has reduced but our outgoings have not, we cannot afford the monthly repayments. We risk losing the house.
So the lender offers to restructure the mortgage over 35 years.
Conclusion:

we have spread out the capital repayments over a longer period (thus more affordable on a cash flow basis)
yes, we will pay more interest over the period
but we get to stay in the house
And on a time-weighted basis, the money we pay in 20 to 35 years time is "worth" less than what we are paying now. 

So, a (very) good deal??


----------



## Dr.Debt (7 Feb 2013)

The big difference between your analogy and our story is that our house is worth zero but our mortgage is 30 billion. The reason we have a mortgage worth 30  billion and a house worth zero,is that our naughty brothers Brian & Brian decided to borrow 30 billion to pay back our next door neighbours gambling debt, which was of no concern of ours. Now our whole family has to suffer......


----------



## Brendan Burgess (7 Feb 2013)

DR Debt



> but we end up paying a lot more interest in the end.



That is not the way to look at this at all. 

Under the Promissory Notes we had to pay 0.75% on the notes but every year we had to repay €3.1 billion. We would have had to borrow that at, say,  4%.  So we will be paying an awful lot less interest over the long-term, although the immediate saving is not much.

The only downside is that some people might think that we are saving billions and therefore we can continue to overpay ourselves and undertax ourselves. That is not the case.


----------



## Brendan Burgess (7 Feb 2013)

Dr.Debt said:


> that our naughty brothers Brian & Brian decided to pay back our next door neighbours gambling debt, which was of no concern of ours.



Not quite. They decided to guarantee all our other Irish brothers' and sisters' and parents' deposits in Anglo and in Irish Nationwide. They decided to pay off our pension funds and credit unions investments in Anglo bonds. And, yes,, they decided to pay off our neighbours deposits and bonds as well.

They shouldn't have done so. However, they have managed to borrow the money at 0.75% to do so. And if I had known at the time that they could borrow it at this price for 40 years, I would have agreed with it.


----------



## Purple (7 Feb 2013)

If we can expect an inflation rate of more than 0.75% on average over the next 20 years then the real cost of this is negative. Yes?


----------



## Dr.Debt (7 Feb 2013)

I just wonder about this 0.75% borrowing rate. I accept that it was the net borrowing rate under the existing arrangement but are we really sure, under the new bond arrangements, that the full 3% will not go to the ECB in its entirety. 
Where has it been disclosed that the cost of the financing to the Irish Central Bank will remain at 0.75%.


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> DR Debt
> 
> 
> 
> ...


That is getting close to the nub.  The fact is we owe 30bn now and we will owe 30bn in 50 years time, when Seanie and Fingers will have been long forgotten.

The issue is who do we owe the 30bn to and at what rate of interest.  At present we owe it to the ECB at monetary financing rate of 0.75%.  Under the PN schedule that got fairly rapidly substituted with more conventional long term funding at, say, 4%.  Under the New Deal (Labour's Way) the rate of substitution is much, much slower.  That is a good thing provided today's very easy monetary conditions persist.  Not so long since ECB rate was 4%.

I think a cold assessment of the benefits would be fairly modest.  Psychologically it cuts both ways.  It makes it harder to keep up the austerity thing, which is still so essential, but it makes it easier to return to the markets (is that a good thing?).


----------



## Duke of Marmalade (7 Feb 2013)

Purple said:


> If we can expect an inflation rate of more than 0.75% on average over the next 20 years then the real cost of this is negative. Yes?


No.  Official money rates tend to follow inflation.  The ECB's prime objective is a 2% inflation target and its main weapon is the interest rate.  Inflation goes up, up goes the ECB rate.  In a sense this extended monetary financing is more exposed to a bout of inflation than long term funding.


----------



## Duke of Marmalade (7 Feb 2013)

Dr.Debt said:


> I just wonder about this 0.75% borrowing rate. I accept that it was the net borrowing rate under the existing arrangement but are we really sure, under the new bond arrangements, that the full 3% will not go to the ECB in its entirety.
> Where has it been disclosed that the cost of the financing to the Irish Central Bank will remain at 0.75%.


The 3% *will* go to the ECB in its entirety. But currently only 0.75% (the ECB universal refinancing rate) will constitute interest, the rest will be a repayment of the loan. So you can see how much slower a repayment schedule this is. Under the PNs 8% was (effectively) paid to the ECB, 0.75% interest and 7.25% loan repayment, now it is 0.75% interest and 2.25% loan repayment.


----------



## Brendan Burgess (7 Feb 2013)

Dr.Debt said:


> Where has it been disclosed that the cost of the financing to the Irish Central Bank will remain at 0.75%.



My understanding is that this bond is issued by the government to the Central Bank. They promise to pay 3% a year to the Central Bank and then they will repay the capital after 30 years. 

So the money goes from one hand of the government into the other. The CB apparently borrows this money at 0.75% or maybe they create it and pay 0.75% to the ECB. In any event it costs 0.75%.

Michael Noonan said at his press conference that the real cost of the new debt is 1%.


----------



## Dr.Debt (7 Feb 2013)

You're losing me now @ Duke .....

Its been very clearly said today that there is a 3% interest rate on the bond and no capital will be repaid in the first twenty years.

My understanding also was that the Irish Central Bank will be the holder of the bond.
The ICB will be paid 3% interest by the Irish Government. The ICB will pay 0.75% financing to the ECB. The surplus 2.25% that the ICB makes on the transaction will flow back to the exchequor which is what gives us the net 0.75% that we have been discussing ???? 

Duke says that the 3% is part capital and my own doubt is whether the full 3% goes to the ECB as interest.


----------



## Duke of Marmalade (7 Feb 2013)

_Dr Debt_,  sorry for my very confusing style.  The CBI owes the ECB a lotta money.  It pays interest on that, currently at 0.75%.  The CBI will have an asset earning 3% - the Government bond.  0.75% of that will go to the ECB in interest.  2.25% will be a profit. But its profits will be used to pay down its ECB loan.  

So you see that the whole 3% finishes up with the ECB, I am not saying the ECB are charging 3%.  All I am saying is that all revenue of the CBI will go to paying interest on its ECB loan with any balance repaying the loan.


----------



## Brendan Burgess (7 Feb 2013)

> 2.25% will be a profit. But its profits will be used to pay down its ECB loan.



That makes sense, but where did you see that? I hadn't heard that mentioned.


----------



## Dr.Debt (7 Feb 2013)

OK Duke, Thats interesting. I  havent heard that version before.

So therefore there is a capital element to the 3% payment (of 2.25%) and the full 3% does go to the EURO creditor.

The original borrowing between the ICB and the ECB was done under the ELA mechanism (the Emergency Liquidity Assistance). Im not sure if the ELA funding still applies when the promissory note debt converts to bonds, and if not, Im wondering if the interest charged between the ICB and the ECB remains fixed at 0.75% or if there are provisions for raising or lowering this under the new arrangements.


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> That makes sense, but where did you see that? I hadn't heard that mentioned.


Fascinating stuff on RTE news. Noonan spells it out quite well. The bond will be a 3.5% floater. ECB interest rates are currently 1%. The 2.5% difference will flow through as CBI profits. I don't see it explicitly mentioned anywhere but one presumes that the profits will go to pay down the ECB loan, it is hardly going to be allowed to be channelled elsewhere - the ECB desperately want paid back.

Back to those 3.5% floaters. Brian Dobson put it to Noonan that when the CBI sell these to the market we will lose the 2.5% profits. Good point. Noonan answers that a 3.5% floater would sell above par giving a capital profit. Good answer. 

We can see that this is a game of arcane rules. The ECB is very keen that this is not subsidised monetary financing and that the Government bonds will be sold into the market and will get a price near par.

I was a bit disturbed that Noonan said he had a billion more to play with in the 2014/2015 budgets (combined I suppose) though he reiterated that we have to target 3% deficit in 2015. That is an easier target without the PNs. So two cheers for this deal.

Even as I write, I hear Fierce Doherty. Put to him that inflation will reduce the loan he said yes but pointed out that the bond was a floater and this would go up with inflation. These Shinners are a bit of a cut above the folk I used to know


----------



## Duke of Marmalade (7 Feb 2013)

Dr.Debt said:


> OK Duke, Thats interesting. I havent heard that version before.
> 
> So therefore there is a capital element to the 3% payment (of 2.25%) and the full 3% does go to the EURO creditor.
> 
> The original borrowing between the ICB and the ECB was done under the ELA mechanism (the Emergency Liquidity Assistance). Im not sure if the ELA funding still applies when the promissory note debt converts to bonds, and if not, Im wondering if the interest charged between the ICB and the ECB remains fixed at 0.75% or if there are provisions for raising or lowering this under the new arrangements.


Dr Debt.  You are confusing the two sides of the CBI balance sheet.  The 3.5% is on the asset side and is all interest.  The loan side is to the ECB which charges 1% (per Noonan), so by implication the profit between these two rates can be used to pay down the ECB loan.


----------



## Dr.Debt (7 Feb 2013)

Duke, I dont think Im miximg up the two sides of the balance sheet (I hope not or im in deep trouble in my personal life)

I do understand the the CBI is earning 3.5% on the asset side.
You also have answered my question regarding the interest rate payable between CBI and the ECB (1% as per Noonan)

Its the last part that I have difficulty with - "so by implication the profit between these two rates can be used to pay down the ECB loan" Why do you assume this instead of assuming that the 2.5% will be paid back to the Irish exchequor by the CBI. Im just wondering if this is your own assumption or if MN has actually said that. You did say earlier that the full 3% will be paid over to the ECB and im just curious why you believe that.


----------



## Duke of Marmalade (7 Feb 2013)

Dr.Debt said:


> Duke, I dont think Im miximg up the two sides of the balance sheet (I hope not or im in deep trouble in my personal life)
> 
> I do understand the the CBI is earning 3.5% on the asset side.
> You also have answered my question regarding the interest rate payable between CBI and the ECB (1% as per Noonan)
> ...


The _Boss_ has queried me on the same point.  I have no definitive statement on what happens to the CBI profit.  It is probably not dictated by the ECB but I presume they would take a dim view if it was used to build a hospital in Reilly's constituency rather than pay them back.


----------



## Brendan Burgess (7 Feb 2013)

Hi Duke

The Central Bank pays a dividend to the Exchequer each year. They will be paying a higher dividend because their profits will be higher from this transaction. 

There is no requirement on the government to begin capital repayments on the new bond for at least 25 years. 

Nor is there any requirement, that I know of, on the Central Bank to start paying capital to the ECB.


----------



## Dermot (7 Feb 2013)

Yes Brendan that is my take on it in a nutshell


----------



## RichInSpirit (7 Feb 2013)

So it sounds like a great deal then. ? 
To me anyhow,


----------



## Duke of Marmalade (7 Feb 2013)

Brendan Burgess said:


> Hi Duke
> 
> The Central Bank pays a dividend to the Exchequer each year. They will be paying a higher dividend because their profits will be higher from this transaction.
> 
> ...


_Boss_ hate to contradict. The CBI profits will be lower, much lower under the New Deal. That is the whole point.  Profits in the CBI go to pay off ECB loans, lets keep them low. 

Currently the CBI earns 8% on their assets and pay 1% on their liabilities. Big profit. But is it all paid back to the Exchequer? I don't think so. It is used to pay down ECB emergency finance. If the Exchequer could pocket this profit as a divi the New Deal would be an irrelevance. 

Imagine you had lent an awful lot of money to a company, far more than you think is safe, would you be happy to see that company pay divies to its shareholder?

All a bit above my pay grade but I feel sure that the ECB has some sort of first call on any surplus in the CBI, otherwise none of this makes sense.


----------



## Brendan Burgess (7 Feb 2013)

The Department of Finance has issued a "Transaction Overview"

Maybe it's late at night, but I find the charts very difficult to follow. 

I don't see anything new in the Overview.


----------



## Homer (8 Feb 2013)

Brendan Burgess said:


> The Department of Finance has issued a "Transaction Overview"
> 
> Maybe it's late at night, but I find the charts very difficult to follow.
> 
> I don't see anything new in the Overview.



It's no longer late at night and they are still very difficult to follow.  I'm none the wiser.

I don't see anything there about a guarantee that the net cost of financing will remain at 0.75% p.a. or 1% p.a. or whatever other rate is being plucked out of thin air by our esteemed leaders.

Is this really a good deal or have we just sold our children and grandchildren down the river?


----------



## RichInSpirit (8 Feb 2013)

Homer said:


> Is this really a good deal or have we just sold our children and grandchildren down the river?



I think that "kicking the can down the road" is a good result.  The Germans themselves have only finished paying back for world war 2. 
Also there are so many unknown things that could happen in the future to reduce the impact of the payments "going forward".


----------



## Importer (8 Feb 2013)

Clear as mud guys........
I noticed it on the various panels last night  on TV. Everyone seems to have their own version of the internal workings of the new scheme and they're all a bit different..................


----------



## RichInSpirit (9 Feb 2013)

Alan Dukes was on Newstalk a while ago. He's lost his job with IBRC but he thinks what happened was well engineered. 
He says that he had no fore warning of the IBRC liquidation.


----------



## mercman (9 Feb 2013)

RichInSpirit said:


> The Germans themselves have only finished paying back for world war 2.



I thing you'll find that they have only finished paying back for World War 1


----------



## RichInSpirit (9 Feb 2013)

mercman said:


> I thing you'll find that they have only finished paying back for World War 1



 That's even worse


----------



## mercman (9 Feb 2013)

RichInSpirit said:


> That's even worse



Which makes a definite interaction to those that say 'People in glass houses shouldn't throw bricks'.


----------

