# organized bank default. Only a matter of time."



## monagt

"Irish banks are defaulting everywhere now by buying old bonds back at big discounts, so the principle of default has obviously been breached. Clearly, this leads the way for the big one, which is an organized bank default. Only a matter of time." 

http://www.facebook.com/davidmcw

What are the implications for Deposits, Loans , etc??

M


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## Jim2007

monagt said:


> "Irish banks are defaulting everywhere now by buying old bonds back at big discounts, so the principle of default has obviously been breached. Clearly, this leads the way for the big one, which is an organized bank default. Only a matter of time."



Irish banks are not defaulting by doing this, it is common practice for all companies to enter the market and by back their bonds when they are trading at less than face value, in fact many companies even issue new bonds at lower rates in order to redeem older bonds, in order to save money.

By doing this Irish banks will reduce their capital requirements and the amount of bail out funds that they will require.  This is the correct and prudent thing to do.

Jim.


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## monagt

Good reply Jim but is McWilliams wrong??


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## Jim2007

monagt said:


> Good reply Jim but is McWilliams wrong??



I've always considered McWilliams as light entertainment, not to be taken too seriously, esp. now that he is running for election!

The reality is that the more debt the banks can buy back at a discount the better for the country, so keeping things shaky could actually be in our own interest as it will encourage the bondholders to dump the bonds at discount rates.

For all practical purposes the banks are nationalized and with the IMF & ECB in the background it is hard to imagine a situation where some kind of wholesale default would occur.... 

I can't help but feel that this coming election will result in a very silly Dail, where nothing gets done and we'll end up having a second election very quickly after wards, perhaps even at the direction of the IMF.  I think the time line does not allow for the kind of debate that would lead to a solid parliament.

As regards savings and deposits, I believe the rules have not changed at all: you can't avoid financial risk totally, but you can reduce it by diversification - don't put it all in one place, even consider foreign travellers cheques and money market funds as an alternative to banks.

Good luck with that,

Jim.


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## aristotle

I dont McWilliams has said he is running in the election?


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## Jim2007

I saw somewhere that he was intending to run in Dun Laoghaire.....


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## stefg

He was on the radio today and said he was NOT running...


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## Chris

Jim is correct, what Irish banks are doing is buying up their own bonds at a discount on the open market. They are not going to the owners of maturing bonds and telling them they will not get the full amount back. Only such an action would fall into the realms of default.


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## horusd

Interesting article in today's Irish Times by Arthur Beesley. 



> ECONOMISTS NOURIEL Roubini and Ken Rogoff, two of the most prominent academic commentators on the financial crisis, said the Government should compel senior bondholders to bear some of the cost of rescuing Ireland’s banks


 
Dr Roubini (nicknamed Dr Doom for being one of the 1st to predict the crisis) says:



> “I think that there has to be burden-sharing and that means that the senior unsecured creditors of the banks have to participate in that pain, there has to be an orderly restructuring,” he said.
> “If you don’t do it you’re putting on the balance sheet of the sovereign even more of the social cost and the losses of the financial system. Then you are going to break the back of the sovereign and lead to insolvency at the sovereign level. Therefore, we need an orderly restructuring of that unsecured bank debt.”


 
Dr Rogoff adds:


However, he said it will be difficult for Ireland to avoid some form of debt restructuring. Asked if he was referring to sovereign or bank debt, he said “I’m afraid it might be the sovereign debt”, since the sovereign had guaranteed bank debt.




> “It’s not reasonable to say that senior bank bondholders should get bailed out and I think it undermines the whole sense of justice, the whole social fabric in Ireland and elsewhere to have these massive bailouts,” he said.


 

Agree totally with these gentlemen.


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## Smart_Saver

Chris said:


> Jim is correct, what Irish banks are doing is buying up their own bonds at a discount on the open market. They are not going to the owners of maturing bonds and telling them they will not get the full amount back. Only such an action would fall into the realms of default.


 
And exactly where are they getting this money to buy them back ? Are they drawing it down from the ECB/IMF loan or is it coming from assets sold to NAMA ? Because either way it seems to be coming from the taxpayer. Or is it somewhere else ?


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## Chris

GoMayoGo said:


> And exactly where are they getting this money to buy them back ? Are they drawing it down from the ECB/IMF loan or is it coming from assets sold to NAMA ? Because either way it seems to be coming from the taxpayer. Or is it somewhere else ?



I would say mainly from the funds directly received from the government, who are getting it from the EU bail out fund and therefore the taxpayer is ultimately underwriting and paying for it. While the actions of the banks are improving their liabilities, I think this is merely a drop in the ocean. It is also totally wrong that this is being done at the expense of the taxpayer.


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## steviel

There is absolutely no doubt in my mind that there will be an orderly restructure (which some would call a default) of sovereign and bank debt across Europe at some point in the next two years, managed centrally by Frankfurt and Brussels

You can listen to all the well reasoned, sensible arguments from economists whose opinions should be respected, but all these arguments are trumped by the fact that the numbers dont add up, and are so far from doing so that the situation across the Eurozone is completely unsustainable.

Buying back debt is just snipping away at the edges of the problem - cannot be done in large enough quantities to make a material dent in the overall debt burden.

People are daft to suggest that Ireland should burn bondholders or restructure on its own, thereby becoming a pariah.  We would get crucified by the markets, and there is no way out given that we cant devalue.  So we should wait for the pan European solution to this and go with the crowd


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## Smart_Saver

steviel said:


> Buying back debt is just snipping away at the edges of the problem - cannot be done in large enough quantities to make a material dent in the overall debt burden.


 
Why not? If the funds are made available to buy back these bonds at a reasonable reduced rate isn't it wise to do so rather than go down the road of a declared default ? Or are you guys here just talking about the subordinated debt and not senior bonds ?


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## Chris

GoMayoGo said:


> Why not? If the funds are made available to buy back these bonds at a reasonable reduced rate isn't it wise to do so rather than go down the road of a declared default ? Or are you guys here just talking about the subordinated debt and not senior bonds ?



I would be in favour of this happening if the banks were doing it with their own money. All that is happening now is that taxpayer guaranteed funds are being used (to borrow steviel's term) in order to be "snipping away at the edges of the problem", which will not solve the overall problem. All this is doing is funneling more money through to bond holders (senior or subordinate) who should be taking not just a hair cut but an amputation on their investments.


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## Jim2007

Chris said:


> All this is doing is funneling more money through to bond holders (senior or subordinate) who should be taking not just a hair cut but an amputation on their investments.



Do you know who the bond holders are???  From the details I've seen, I believe  the majority are pension funds, local and regional banks and credit union type organisations across Europe, do you seriously believe that the average workers and pensioners of Europe should take responsibility for Ireland's mess, or for that matter that their governments will allow it to happen, with out a fight????

One of the main reasons why the EU governments were so quick to provide financing for the bail out is because it is in their own best interests to do so.

Jim.


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## Chris

Jim2007 said:


> Do you know who the bond holders are???  From the details I've seen, I believe  the majority are pension funds, local and regional banks and credit union type organisations across Europe, do you seriously believe that the average workers and pensioners of Europe should take responsibility for Ireland's mess, or for that matter that their governments will allow it to happen, with out a fight????
> 
> One of the main reasons why the EU governments were so quick to provide financing for the bail out is because it is in their own best interests to do so.
> 
> Jim.



I fully agree with you that it won't happen without other € members putting up a fight, but the bottom line is that Ireland as a country cannot and should not repay the debt of private banks, at least not in full.
Yes, people will get stung, but it is not the case that there are pension funds who are only invested in Irish bonds and that people will large amounts of their wealth. I would imagine that, given the size of Ireland, the exposure of individual pension funds is quite small. Another advantage of partial default is that bond holders in future will take a closer look at what Irish banks are doing with the money, and if it is deemed risky then higher coupon rates will be demanded. This will keep a check on the risks taken by banks, which has been pretty much absent.


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## Westie123

Jim2007 said:


> Do you know who the bond holders are???  From the details I've seen, I believe  the majority are pension funds, local and regional banks and credit union type organisations across Europe, do you seriously believe that the average workers and pensioners of Europe should take responsibility for *Ireland's mess*, or for that matter that their governments will allow it to happen, with out a fight????
> 
> One of the main reasons why the EU governments were so quick to provide financing for the bail out is because it is in their own best interests to do so.
> 
> Jim.



Most of it is not Ireland's mess, it's the private bank's mess.


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## monagt

Buiter: [broken link removed] 

Sovereign defaults will happen in Ireland and Greece & EU funds so far have only delayed the inevitable

But how will the Irish Sovereign defaults affect a person directly or their savings accounts - anyone ????


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## monagt

also:

http://www.bloomberg.com/news/2011-01-28/irish-give-51-billion-more-reasons-to-avoid-bonds-euro-credit.html


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## kdoc

"What are the implications for Deposits, Loans , etc??"

I'd imagine that's what most people on AAM would like to know. On another thread a contributor made the point that there's no distinction between bondholders and depositors. What I'd like to know: does it make a whit of difference in the event of a default whether your money is in an Irish bank or in an Irish subsidiary of a foreign owned bank?


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## monagt

Greece and Ireland — thought to be “saved” by the European Union and the International Monetary Fund (IMF) — are likely to ultimately default on their debts anyhow, according to a majority of economists surveyed by Bloomberg last week. Meanwhile, Portugal, Spain, Belgium, Italy, and other weak links in Europe are still reeling toward disasters of their own.
http://swingtradingdaily.com/2011/0...as/?utm_source=twitterfeed&utm_medium=twitter


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## kdoc

Leo Varadkar, on the Week in Politics, reckoned that Ireland would default. I wonder is that the official view of the soon-to-be new government? 
As things stand, it seems that depositors will be hit, unless there is a change in legislation. The situation, apropos deposits in Foreign banks based in Ireland, is less clear, or at least nobody is spelling it out.


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## monagt

Roubini on CNBC : Orderly restructuring of Iriish bank debt is not question of If but when - ref: Paul Sommerville Twitter


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## onq

kdoc said:


> Leo Varadkar, on the Week in Politics, reckoned that Ireland would default. I wonder is that the official view of the soon-to-be new government?
> As things stand, it seems that depositors will be hit, unless there is a change in legislation. The situation, apropos deposits in Foreign banks based in Ireland, is less clear, or at least nobody is spelling it out.



I thought Veruka was a doctor of medicine, not finance.

Another layperson offering opinions...

ONQ.


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## Complainer

onq said:


> Another layperson offering opinions...


Far be it from me to defend the bould Leo, but the words pot, kettle and black are springing to mind!


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## onq

Happy to shine my gunmetal in public Complainer.

Veruka is a climber and nothing sells like bad news.
We need some encouragement to climb out of this mess.
Not one of the deputies who say they will lead us out of it telling us we'll umtimately not succeed in the endeavour in the way we hope to.

BTW I am not a staunch defender or NOT restructuring our debt - this is common practice in business, but it needs to be presented as such, not as a negative.
Veruka sounds like nothing more than a doomsayer, and remember - he and hsi ilk were suppsoedly the watchdpgs when all this went on.

Personally I hope to see a 10% Tobin tax on the derivatives market to recapitalise the banks.
That market is estimated to be worth $14 Quadrillion - not one person in any forum to which I have posted it- not one TD, and I have made this suggestion to all of them - has run with this idea.
Perhaps you can help - is this laypersons missing something here?
Because the legalised gambling that is the futures and derivatives markets are sucking money out of an impoverished world economy still, and I think they need to be made pay at least a nominal smount back to support us in our hour of need.

I'd value your comment, even if it needs a separate thread.

ONQ.


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## horusd

onq said:


> I thought Veruka was a doctor of medicine, not finance.
> 
> Another layperson offering opinions...
> 
> ONQ.


 
In fairness, Vardakar is stating considered opinions by some of the world's top economists who correctly called the crisis (Roubini , Krugman et al). There is also a wide divergence of opinion among other so-called experts. Knowledge is power, and experts often like to preserve this power by telling us ordinary folk that it is beyond our ability to understand. Trust in these so called experts is misplaced. Recall that some actuarial experts suggested that the chances of an economic meltdown were billions to one. A good scepticism about "experts" selling snake-oil is neccessary. 


There is a tendency to believe economics is magically mysterious, & beyond the ken of mere mortals.  This is a fallacy.  Basic economics is well-within the grasp of anyone with a rudimentary understanding & capacity  for mathematics and markets. Mrs Merkel relies on the economic common-sense of the German housewife. She hasn't gone far wrong.


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## Sunny

onq said:


> Personally I hope to see a 10% Tobin tax on the derivatives market to recapitalise the banks.
> That market is estimated to be worth $14 Quadrillion - not one person in any forum to which I have posted it- not one TD, and I have made this suggestion to all of them - has run with this idea.
> ONQ.


 
People have responded to you on other threads when you brought this idea up but and you ignore it. I am sure if you go back through your posts on the subejct you will see why no sensible person in the world is going with it.


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## Chris

onq said:


> Personally I hope to see a 10% Tobin tax on the derivatives market to recapitalise the banks.
> That market is estimated to be worth $14 Quadrillion - not one person in any forum to which I have posted it- not one TD, and I have made this suggestion to all of them - has run with this idea.
> Perhaps you can help - is this laypersons missing something here?
> Because the legalised gambling that is the futures and derivatives markets are sucking money out of an impoverished world economy still, and I think they need to be made pay at least a nominal smount back to support us in our hour of need.



Yes, you are missing something, and it it is something that has been repeatedly pointed out to you:
http://www.askaboutmoney.com/showpost.php?p=1122011&postcount=6
http://www.askaboutmoney.com/showpost.php?p=1109023&postcount=18
http://www.askaboutmoney.com/showpost.php?p=1019310&postcount=3
http://www.askaboutmoney.com/showpost.php?p=1091081&postcount=51

But let me repeat it: there is no untaxed pot of gold and certainly not one worth $14 Quadrillion!!!! To claim so is blatantly ignorant of economics and the way derivatives work.


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## darag

Onq's claims regarding derivatives on this forum pretty much fit the definition of trolling.  Repeated verbatim on regular basis - presumably knowing that it will provoke some sort of response - but always without the slightest attempt to actually engage in discussion about the validity of the claims.  I've made the mistake in the past of responding - attempting to gently explain a little about derivatives - but the effort was wasted (and ignored).


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## onq

Why don't I believe two such learned posters as you guys?

Possibly because I found your rapid fire denials to pat.

Something doesn't smell right in all of this.

ONQ.


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## Chris

onq said:


> Why don't I believe two such learned posters as you guys?
> 
> Possibly because I found your rapid fire denials to pat.
> 
> Something doesn't smell right in all of this.
> 
> ONQ.



A very valid argument, but in that case I assume that you went and found ways to refute our explanations and claims, in which case it would would have been to our, and other posters', benefit to share that information.


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## Smart_Saver

Is this the first step towards the organised default ?

*Bondholders are exposed: Lenihan*, *Sale of Anglo and Nationwide deposits will force investors to take writedowns*
                                                       By DANIEL McCONNELL and LOUISE McBRIDE

              Sunday Indo February 13 2011


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## kdoc

GoMayoGo said:


> Is this the first step towards the organised default ?
> 
> *Bondholders are exposed: Lenihan*, *Sale of Anglo and Nationwide deposits will force investors to take writedowns*
> By DANIEL McCONNELL and LOUISE McBRIDE
> 
> Sunday Indo February 13 2011


 

Judging from the article it looks like depositors will be saved by moving their loot to other institutions and the bondholders will feel some pain.


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