# Why would it cost so much to close down Anglo?



## Complainer (25 Mar 2010)

Can anyone explain this to me in simple terms;

From [broken link removed]


> A liquidation would cost the State between €27 billion and €35 billion, he said, while running it down over 10 years would cost between €18 billion and €22 billion.



How could a liquidation cost the state €27 billion? If the State stops giving Anglo any more money from today, where does the €27 billion cost come from?


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## Sunny (25 Mar 2010)

*Re: Morgan Kelly on Bank Robbers*



Complainer said:


> Can anyone explain this to me in simple terms;
> 
> From [broken link removed]
> 
> ...


 
Always did want to see the breakdown of their figures. They should release their workings. 
I presume a large part of the €27 billion would come from the fact that a firesale of assets would not cover their liabilities and as the deposits and bonds are guaranteed by the State, the taxpayer would need to make up the difference.


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## canicemcavoy (25 Mar 2010)

*Re: Morgan Kelly on Bank Robbers*

Is the chief of Anglo expecting the public - now his boss - to accept his word without question? I would no more expect a turkey to vote for Xmas than for a well-paid bank boss to suggest that it would cheaper to close his bank down than keep it going. There should be a completely independent, all-party accessment published of the cost of the various options open to us.


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## Duke of Marmalade (25 Mar 2010)

*Re: Morgan Kelly on Bank Robbers*



Complainer said:


> Can anyone explain this to me in simple terms;
> How could a liquidation cost the state €27 billion? If the State stops giving Anglo any more money from today, where does the €27 billion cost come from?


This had me scratching my head as well, but I think _Sunny_ gives the answer. We have guaranteed Anglo's deposits and bonds, so liquidating Anglo only moves these massive liabilities over to us. And think about it, there is no way off this hook for as soon as it is intimated that the guarantee will not be renewed there would be a massive run on Anglo triggering a liquidation triggering the guarantees.

But could the Government, on that fateful day in September 2008, have left Anglo out of the guarantee? It would have triggered a mighty bloodbath with Anglo forced into liquidation but _prima facie_ no claims on the taxpayer. The problem then would have been contagion into the Big Two which would always have needed bailing out.

The more you think about Anglo, this has been a financial holocasut of Nazi proportions - surely there will be some war crime convictions. The new boss says he has never seen anything like it, reminiscent of the Allies seeing the death camps after WWII.


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## Duke of Marmalade (25 Mar 2010)

*Re: Morgan Kelly on Bank Robbers*



Complainer said:


> Time to cut the bondholders out of the guarantee now, and to restore the threshold that was in place for the the deposit guarantee (€100k, iirc).


I don't think either of these courses work. The only people enjoying the guarantee are those whose loans/deposits mature before the guarantee expires. When these loans/deposits do mature they will simply move if the guarantee is not renewed. Similarly if the deposit guarantee is reduced to 100K that can only be done once the unlimited guarantee expires and the excess 100K depositors will simply withdraw their excess. In other words there is no way to get those who are currently protected by the guarantee to bear any losses - they can simply walk when they see any signs that this is the plan.

Any other toasting of bondholders, not covered by the guarantee, requires a declaration of bankruptcy and that simply triggers the blanket guarantee. There is no way oot


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## Brendan Burgess (25 Mar 2010)

I can see how the liquidation would be a disaster. We have guaranteed its liabilities, so we are stuck with them. 

But I don't see how running it down will cost us that much? Presumably they should not make any new loans and over the coming years run down the loan book and repay the deposits. 

If the other banks recover, it could get to a situation where the loan book is sold to another bank. 

The same should be done for the Irish Nationwide by the way. Their loan book should be sold to EBS and the Irish Nationwide closed down.

Brendan


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## Duke of Marmalade (25 Mar 2010)

Brendan said:


> But I don't see how running it down will cost us that much? Presumably they should not make any new loans and over the coming years run down the loan book and repay the deposits.
> 
> Brendan


 I didn't understand that bit myself. All in all this was a very interesting interview but it just begs for explanations of the bland quantification of the other "worse scenarios".


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## Brendan Burgess (26 Mar 2010)

This is a really important question which we have not answered yet.

I have removed all the off-topic posts about what happened back in September 2008. Feel free to start a new thread on them if you wish, but keep this thread for the costs of dealing with Anglo now, given that we have guaranteed their liabilities.

Brendan


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## Duke of Marmalade (26 Mar 2010)

I guess the argument is that if so much has to be invested in Anglo we should try and extract some benefit in the form of developing a going concern "good bank" divorced from the bad bank. This would then have the potential to generate operating profits and/or be fit for resale. Personally, it's hard to see any of Anglo being re-invented as a good saleable bank.


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## Complainer (26 Mar 2010)

Shawady said:


> The way it was explained on Prime Time last night was that the bulk of the money owed by Anglo was depositers (which no one is suggesting we renege on) and sovriegn debt (which if we defaulted on, we would not be able to borrow money).


Can you explain what soverign debt means in this case? Is this money Anglo has borrowed from Irish govt, or other govts or what? 



Brendan said:


> I can see how the liquidation would be a disaster. We have guaranteed its liabilities, so we are stuck with them.


We cannot just accept that 'we are stuck with them'. We were sold a pig in a poke. Isn't there a general legal principal that if one side to a contract is found to have bee untruthful, then all bets are off?

We need to explore every possible opportunity (including rewriting of rulebooks and legislation if necessary) to get the state (and our children and grandchildren) off this hook?


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## Shawady (26 Mar 2010)

Complainer said:


> Can you explain what soverign debt means in this case? Is this money Anglo has borrowed from Irish govt, or other govts or what?


 
Sorry Complainer, a lot of it over my head. I got the impression it was other central banks and if we defaulted on it, it would be extremely difficult to go back to this source of borrowing in the future.
Even Joan Burton was not suggesting default on this type of debt but rather try renegotiate it but was not specific enough.
I think depositors made up 34 billion and soverign debt was 32 billion.


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## csirl (26 Mar 2010)

Shawady said:


> Sorry Complainer, a lot of it over my head. I got the impression it was other central banks and if we defaulted on it, it would be extremely difficult to go back to this source of borrowing in the future.
> Even Joan Burton was not suggesting default on this type of debt but rather try renegotiate it but was not specific enough.
> I think depositors made up 34 billion and soverign debt was 32 billion.


 
But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit. 

And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.


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## Shawady (26 Mar 2010)

csirl said:


> But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit.
> 
> And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.


 
I assumed future borrowing meant the government's borrowing to plug our deficit, and as it now owns Anglo, if it defaulted it would have difficulty raising money in the future.

I agree with second point but there does seem to be a lack of alternatives put forward. Even on Prime Time last night, Joan Burton was asked several times would Labour put more money into Anglo and she refused to give a straight answer.


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## Sunny (26 Mar 2010)

csirl said:


> But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit.
> 
> And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.


 
Anglo cannot default on the debt while the guarantee is in place because it will mean that Ireland as a Soverign has defaulted on it's obligations. It's just not an option and no-one from any political party is seriously suggesting that this should happen.

This isn't just an Irish thing by the way. Look at the UK and Northern Rock. They are doing exactly the same thing. Even after splitting the bank into a good/bad bank, they are assuring senior bondholders who have gone into the bad bank that they will be paid in full if the assets being run down are insufficient. 

Anglo should publish the advice they were given (by all accounts, the figures have been given by more than one source). Without this, it is impossible for us on the outside to know what the true story is. 

I still think taxpayers best chance of recouping money is for some sort of business to be salvaged from the mess. A liquidation will not achieve this. Do that and we might as well burn the €4 billion we have already given as Morgan Kelly might say.


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## csirl (26 Mar 2010)

> Anglo cannot default on the debt while the guarantee is in place because it will mean that Ireland as a Soverign has defaulted on it's obligations. It's just not an option and no-one from any political party is seriously suggesting that this should happen.


 
The guarantee is due to end soon, so this will not be an issue.



> I still think taxpayers best chance of recouping money is for some sort of business to be salvaged from the mess. A liquidation will not achieve this. Do that and we might as well burn the €4 billion we have already given as Morgan Kelly might say.


 
I dont agee - we're throwing good money down the drain - sort of like an addicted gambler chasing his losses. I'd be quite prepared to take the hit on the 4bn now to get rid of the problem permanently. Anglo will never ever be successful - it is doomed. Too much time energy and money is being invested in it. Time to let it go so everyone can move on. 

We should have learned from the UK experience - that nationalising is not a solution, just prolongs the problem, leaves the country with huge debts it cant easily repay and sucks in exchequer funding, which has significant knock on effects elsewhere as exchequer funding is in short supply. If Gordan Browns nationalisation plan had worked, then Labour wouldnt be facing into an election loss to the Conservatives in a few weeks time.​​


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## darag (26 Mar 2010)

Sunny said:


> I still think taxpayers best chance of recouping money is for some sort of business to be salvaged from the mess. A liquidation will not achieve this. Do that and we might as well burn the €4 billion we have already given as Morgan Kelly might say.


It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation.  Anglo was a pure property bubble speculation play.  It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation.  It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits.  It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.

Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value.  Particularly it has NO future as a going concern.  The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered.  Anything else is wishful thinking.  The sooner it is liquidated the better for everybody.


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## Sunny (26 Mar 2010)

darag said:


> It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation. Anglo was a pure property bubble speculation play. It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation. It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits. It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.
> 
> Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value. Particularly it has NO future as a going concern. The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered. Anything else is wishful thinking. The sooner it is liquidated the better for everybody.


 
Without the figures being published, everybody is whistling in the dark about what the best option is. They should publish the breakdown of the costs and the assumptions of the various options and let people see for themselves.


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## darag (26 Mar 2010)

Sunny said:


> Without the figures being published, everybody is whistling in the dark about what the best option is. They should publish the breakdown of the costs and the assumptions of the various options and let people see for themselves.


We have ball park figures from their last published consolidated balance sheets but that's not the point.  I was responding to your suggestion that there was value for the state in trying to maintain Anglo as a going concern.  The ability to generate profit is a different and separate issue to the state of the balance sheet.

Anglo was a one-trick property bubble pony.  How do you suggest Anglo could become a profitable or viable business in the absence of a new property bubble starting before the last one has even fully deflated even if it were fully recapitalized?  They've never made a penny profit doing anything except lending for property development or investment during a bubble.

It was a multi-billion euro mistake not winding down Anglo two years ago.  The case for winding it down is even stronger now and maintaining Anglo compounds the mistake.  It is not just the government money that's being wasted, it's the fact that Anglo is consuming a huge amount of time and the resources which have been applied to fixing the Irish retail banking system; it's the biggest user of NAMA for example.

I've suggested an idea in an earlier post on how to liquidate Anglo in a reasonably controlled manner.  Have you any thoughts on that suggestion?


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## DerKaiser (26 Mar 2010)

darag said:


> It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation. Anglo was a pure property bubble speculation play. It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation. It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits. It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.
> 
> Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value. Particularly it has NO future as a going concern. The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered. Anything else is wishful thinking. The sooner it is liquidated the better for everybody.


 
I'd agree with most of that. I don't believe there's much Anglo can do to reduce its total deficit, all it can do is postpone the funding of the deficit by being kept on life support

If we wind it down immediately won't the depositors and bondholders pretty much have to be paid immediately?

Once the uniformed decision to nationalise had been made (uninformed because of the incompetence and dishonesty of a small group) the only question was how long we could hold on to the funding from depositors and bondholders. 

Having to pay them back immediately from government borrowings rather than over a period of time was always going to cause problems.


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## csirl (26 Mar 2010)

Winding down Anglo will also save the employee and salary costs of their 1,700 workers. Dont know what the salary levels are like, but even if they averaged only 50k and its a good rule of thumb that employee costs are generally twice wages, then we'd be saving 170 million per annum.


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## darag (26 Mar 2010)

Hi DerKaiser; yes we cannot wind down Anglo right now because the guarantee would kick in and the state would be liable for the huge hole in the balance sheet; as described in an earlier post, we have to put Anglo on life support until the guarantee expires and then wind it down.

Csirl, indeed.  I heard a figure of 300 million a year in running costs for Anglo but I cannot back it up and it's probably less now that they've reduced the head count.


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## Towger (26 Mar 2010)

Look at it this way. If we had let Anglo fall, it would have had a knock on affected on the other Irish Banks. Looking at them today, they are not exactly in great shape, with the shares worth F/A and the government pumping money into them as fast as they can raise it. (If only we could print it!) But, would the entire financial system and the economy collapse? Probably not, it may have brought down the euro, which would not be allowed happen. Even looking at Iceland today, things seem to have recovered somewhat. So, would letting Anglo fall have saved each Irish family the €[broken link removed]+ and rising cost to keep Anglo going? I know from talking to a couple of Anglo employees, that at the time of nationalisation they thought there was still a chance of the bank surviving. I am afraid to mention the A word when I meet them now...


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## Complainer (26 Mar 2010)

DerKaiser said:


> Once the uniformed decision to nationalise had been made (uninformed because of the incompetence and dishonesty of a small group) the only question was how long we could hold on to the funding from depositors and bondholders.


If the decision to nationalise was based on dishonesty (or worse), then all bets are off. The Govt is not obliged to continue to provide funding or to fulfil the guarantee which was obtained fraudulently. 

We should be looking for the best route to get out of this situation, without the guarantee in place. This might involve some freezing/limited withdrawal periods to prevent a run on the bank, and after that, leave it to the market.


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## DerKaiser (29 Mar 2010)

csirl said:


> I dont get the connection between selling a loan and a collapse in the property market?


 
Transparency. 

Banks tend to bury their heads in the sand regarding non-performing loans. They might be happy to take the losses on the drip over a number of years.

Selling on the loans capitalises the loss upfront, meaning bust customers being suddenly outed.

The increased scrutiny triggers the repossessions all at once and will lead to mass disposals (and hence a dampening of the market) unless the owner of the repossessed properties has an ability to stay in the game for the longer term rather than being forced to transact immediately.

Property valuations will probably end up in the same place longer term, that doesn't mean that we can't have large wealth transfers in the short term


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## Complainer (29 Mar 2010)

See [broken link removed] for what may be one of the real reasons for not shutting down Anglo.



DerKaiser said:


> Transparency.
> 
> Banks tend to bury their heads in the sand regarding non-performing loans. They might be happy to take the losses on the drip over a number of years.
> 
> Selling on the loans capitalises the loss upfront, meaning bust customers being suddenly outed.


Forgive my naievity, but are there not tight accounting rules in place about reporting and recognising bad debts?


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## canicemcavoy (29 Mar 2010)

The current total for the banks stands at €27 billion:

http://thestory.ie/2010/03/29/e27-billion/

Just to keep score!

That's roughly €9,000 per person.


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## DerKaiser (29 Mar 2010)

Complainer said:


> Forgive my naievity, but are there not tight accounting rules in place about reporting and recognising bad debts?



From my limited knowledge the banks could know well that a developer will never be able to pay off their loans but only have to classify them as impaired subject to certain repayment conditions being breached i.e. short term actions such as repayment holidays, interest only repayments, etc can mean that the loans are not being impaired when they should be

I'm forming an opinion based on articles such as this:


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## canicemcavoy (30 Mar 2010)

[broken link removed]




> IRISH BANKS will require up to €22 billion to cover losses on property loans moving to the National Asset Management Agency (Nama) and higher future losses on other loans as they meet strict new rules set by the Financial Regulator, _The Irish Times_ has learned.


 
I presume this €22bn does not include any money pumped into the banks prior to NAMA.


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## emaol (30 Mar 2010)

Alan Dukes on PrimeTime this week mentioned that a further reason for keeping Anglo open was to provide a third banking force in Ireland, keeping AIB & BOI from regaining the duopoly they had previously


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## csirl (30 Mar 2010)

Duke of Marmalade said:


> _Csirl_ excuse my looseness of language. Under a liquidation Anglo would have to turn its assets (loans) into CASH. No point turning to NAMA, it doesn't do cash, it only deals in long term paper. Nobody is going to buy the loans, so only way to raise cash is to pursue the borrrowers i.e. repossesss and sell etc. etc.


 
Not true, I'll start the bidding - I'll buy their entire loan book for €1 - and I'll buy it as is - I dont want cash. I'll even promise not to repo a single property for at least 10 years. I'm bound to make a profit as I'm sure they must have at least one customer who's going to pay at least €1 more off his loan. 

So there you are, Anglos entire loan book has been turned into cash, albeit a small amount. Anyone else out there going to outbid me?

I think you misunderstand the concept of turning loans into cash - as my bid above illustrates. In a liquidation, the loans are sold for cash to the highest bidder. The loans are NOT cancelled and the borrowers forced to pay back everything. The borrowers terms and conditions stay intact. And borrowers do not have to be up to date with repayments for a loan to be sold - loans can be sold as is.


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## Complainer (30 Mar 2010)

Complainer said:


> See [broken link removed] for what may be one of the real reasons for not shutting down Anglo.


The Quinn plot thickens;

http://www.rte.ie/news/2010/0330/quinn.html


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## Duke of Marmalade (30 Mar 2010)

My read of Lenny's speech is that winding down Anglo would cost €70Bn. 

But we are also told that in addition to the 8.5Bn already flagged in the media a completely new *10Bn* will be needed to keep it afloat. We're talking here another *€20Bn* into Anglo which Lenny himself agrees we would all prefer to see "obliterated". I agree with Richard Curran of the Sunday Business Post (on RTE) that we are at the stage were the Minister really needs to show that a liquidation/wind-down would really cost more than €20Bn. I am dissappointed that he said it would cost €70Bn, that implies a complete wipe out of the asset base, I feel there must be a bit of exaggeration there.

Recalling my earlier metaphor, the "financial war crimes" commited at Anglo are now at least twice has heinous as we thought yesterday.


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## DerKaiser (30 Mar 2010)

Duke of Marmalade said:


> I am dissappointed that he said it would cost €70Bn, that implies a complete wipe out of the asset base, I feel there must be a bit of exaggeration there.



I can't make it out at all.

From my understanding there's €70bn in total liabilities i.e. deposits, ecb, bondholders, etc so that's the max loss if all assets were worthless.

Are the assets really worth €40bn to €50bn more by working through the loans/collateral over time?  I don't think so.

They should stick to one set of figures e.g. they hope to save €10bn by working through the loans/collateral over time rather as opposed to engaging in an immediate fire sale.

Some good comment on Prime Time now.  

We want to largely protect depositors (maybe the €100k guarantee would do this?)

It will be interesting to see who the bondholders are (can we burn them or are they mainly the ECB and other Irish banks - in which case propping up Anglo is  most certainly a means of propping up the system)

Are the government secretly playing it cool until september when they will pull the plug?


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## shanegl (30 Mar 2010)

Still think it was silly to suggest burning that cash in Stephen's Green?


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## bogle (30 Mar 2010)

Duke of Marmalade said:


> We're talking here another *€20Bn* into Anglo which Lenny himself agrees we would all prefer to see "obliterated".
> 
> Recalling my earlier metaphor, the "financial war crimes" commited at Anglo are now at least twice has heinous as we thought yesterday.



*€20Bn* = *€20,000,000,000*

How much infrastructure would that buy - probably two of these www.spiritofireland.org to put things in perspective!

What an absolute waste of money!


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## Complainer (30 Mar 2010)

Duke of Marmalade said:


> My read of Lenny's speech is that winding down Anglo would cost €70Bn.


This is based on the assumption that the guarantee holds. Given that it was based on a tissue of lies, we should walk away from the guarantee.


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## csirl (31 Mar 2010)

Complainer said:


> This is based on the assumption that the guarantee holds. Given that it was based on a tissue of lies, we should walk away from the guarantee.


 
Fully agree - Anglo should be told "you're on your own mates, deal with it". Let all those who were involved in this mess fight over the carcus.


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## Duke of Marmalade (31 Mar 2010)

Complainer said:


> This is based on the assumption that the guarantee holds. Given that it was based on a tissue of lies, we should walk away from the guarantee.


The problem is that the depositors, bondholders, ECB etc. didn't tell lies.  Those who told lies should be pursued for "financial war crimes" but the creditors are innocent civilians.


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## csirl (31 Mar 2010)

Duke of Marmalade said:


> The problem is that the depositors, bondholders, ECB etc. didn't tell lies. Those who told lies should be pursued for "financial war crimes" but the creditors are innocent civilians.


 
But we're not guaranteeing anyone other than Anglo - its up to all these people to do their own due diligence before investing in a bank.


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## Dinarius (5 Apr 2010)

Regarding subordinated debt and Anglo Irish Bank.....

To argue, as Lenihan has done, that to default on this aspect of Anglo's debt would inhibit our ability to borrow in the future.....

a. Subordinated bondholders are the vultures of the financial prairie. Right? They rely on the sweat of others to make a buck. When times are good they do well, when times are bad they starve.  Correct?

b. To say that we would at best have to offer more for government bonds issued (if we defaulted on the subordinated bondholders) and at worst be unable to borrow at all is to, effectively, rank the good name and intent of 4m people as pari passu with that of the dozen or so gougers who sat around an overpriced mahogany table on St. Stephen's Green. This is surely nuts?! Look at the reaction this week to BofI's shareprice to its intention to seek money abroad (by the way, it has come as no surprise to many of my friends that the one bank that has come out of this smelling of roses - relatively speaking!  - is the one with the tradionally Protestant culture. Food for another debate.)

On This Week on RTE radio a few weeks back, when someone from Fine Gael was discussing the issue of not defaulting and saying "Follow the money trail" (i.e. to Frankfurt), Mary Hannafin said (almost sotto voce) "But, other countries are doing the same." This is kernel to this entire lunacy, in my view. Why are Spain, Portugal and Greece along with ourselves, lining up like good ducks in a row? I believe it is because if any of us decided to tell the Euro denominate bondholders to take a hike then the other three would do so, and *this would endanger the entire Euro project*.

I suspect that we would risk expulsion from the EU (or some equally serious sanction) if we reneged and that this is the *real reason* for flaunting one of the traditional rules of capitalism and saving the skins of the bondholders.

We've been down a similar road more than once before with Allied Irish Bank (a shower who should have been put out of their misery a generation ago.) and didn't learn the lesson then. We should stand firm and honour our debts in the normal way letting the gamblers lose their stake.

D.

ps. Anyone for joining Sterling? 

pps. If developers aren't paying Anglo even the interest on their loans, there isn't a hope in hell of them paying NAMA.


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