# Ponzi Nation



## Purple (30 Sep 2010)

Ponzi scheme; a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned.

Ireland has been run and then ruined by a succession of what can only be described as Ponzi Schemes and the biggest of them is still running.
For at least ten years our government, our banks, our property developers and our unions have all been aware of this and have all actively and knowingly participated in them.

Here’s a few examples;
1)	Building/banking. Developers borrowed to buy land. The value of the land was determined not by any real commercial value but by the amount they could borrow. The banks then underwrote their commercial banking risk by giving out private mortgages in order to recover their initial loan from the developer. The income multiples allowed by the banks were staggering. Since the whole transaction only made sense when the next phase of the build/ next development started it was fundamentally unsustainable.
2)	Public sector pay. Pay increases were given based on tax receipts that were swollen by the property bubble so commitments were given for long term current expenditure based on short term capital tax receipts; the pay rises were only sustainable as long as the government maintained the property bubble using tax breaks for builders and Stamp Duty exemptions for buyers.
3)	Public sector pensions. This is the ultimate Ponzi Scheme. Current pension requirements are funded using levies and taxes on current employees. The guys going out can only get paid as long as there are guys coming in. The real reason for the public sector pension levy is because of the public sector pension bill. Since there was no actual pay cut the cost of pensions is now proportionately greater. In short public sector employees are getting screwed to pay for their retired colleges and since the ratio of working to retired is going to get significantly worse over the next 10-20 years the chances are that they will get significantly more screwed as time goes on.


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## Romulan (30 Sep 2010)

Bang on the nail.

And do you notice how no-one talks about where the money has gone?

Say I lent Person A €500 million for "development". I now have to take the 50% haircut so have lost €250 million.

I transfer that loss to the taxpayer.  Nationalise it!

But no one mentions that someone somewhere has received that €500 million.
It has not disappeared.  

And then you hear Pat Carey on the radio today describing AIB as a reputable bank.  Must be some other AIB that was not involved in scandal after scandal.


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## soy (30 Sep 2010)

If you compare our situation to Iceland, it says a lot.

In Iceland the bankers and government ministers have left their positions and are now facing criminal charges. None of our lot have anything of the sort to fear, (not even Seanie Fitz whom the rest are trying to paint as the bogieman to save their own skins).


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## TLC (30 Sep 2010)

Soy - it'll never happen here - we've put up with TD's, FAS, Fingers etc doing what they like when they like, nothing happened - except they left with golden handshakes & I can't see anything happening to them.  We've taken tax hikes (no matter what the gov call them they are taxes), increases in carbon tax (for the future "greening" of our power needs), cutbacks in teaching, nursing etc.  We as a people have done nothing about it.  Complaining about the government is seen as being "unpatriotic". Our young people & older people are planning to leave the country (a Canadian visa company had a seminar in Cork the other night there & they had a massive crowd). I'm despairing at the moment & don't know what the future holds for all of us - I'm not usually so pessimistic.


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## DerKaiser (30 Sep 2010)

soy said:


> If you compare our situation to Iceland, it says a lot.


 
Plus they have cheaper access to international funds, this is capitalism

Brian Lenihan has said:

_..... there were no plans to impose losses on holders of senior debt in through legislative measures._ 

This is not capitalism.


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## roker (30 Sep 2010)

Romulan. Exacly what I was thinking, I know nothing about finance, but if some one borrowed money, where is it now?


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## Protocol (30 Sep 2010)

Romulan said:


> And do you notice how no-one talks about where the money has gone?
> 
> Say I lent Person A €500 million for "development". I now have to take the 50% haircut so have lost €250 million.
> 
> ...


 

The land sellers and building contractors got it.

Sean Coulson / South Wharf / Dublin port sold the Glass bottle site.

JurysDoyle sold the hotels in Ballsbridge to Sean Dunne.

Many farmers made millions from land sales to the NRA for our motorways.  The Ennis bypass alone cost 37m in land alone.

And on, and on, and on.


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## Duke of Marmalade (1 Oct 2010)

Fascinating point on where the money has gone - must have gone somewhere. Farmers, Doyles etc. yes, but a lot went abroad since our banking sector has huge international indebtedness. Whether that money gone abroad is matched by foreign assets (holiday homes, shares etc.) it is hard to tell. I would like to see more evidence that the people who lost the money are being pursued to the ends of the earth and haven't used all sorts of dodges like giving assets to their mistresses and then claiming they are broke.

_Purple_, the NPRF will pay for the public services pensions after its investments in banks comes good.



			
				derkaiser said:
			
		

> _there were no plans to impose losses on holders of senior debt in through legislative measures._
> 
> This is not capitalism.


Don't follow you. Capitalism relies on a set of rules - like shareholders can't lose more than their investment, bondholders have a right to sue if not paid etc. A change of law, euphemistically known as a Resolution Scheme, is changing the rules of capitalism retrospectively. You can see that if the rules can be changed at the drop of a hat people will be reluctant to play the game in the future. 

They *are* going to change the rules for Anglo's subbies but not its seniors. That is a fine judgment of what you can just about get away with and have (foreign) punters still prepared to play the game.


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## Purple (1 Oct 2010)

Duke of Marmalade said:


> _Purple_, the NPRF will pay for the public services pensions after its investments in banks comes good.



LOL, yes, what was I thinking!


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## Chris (1 Oct 2010)

roker said:


> Romulan. Exacly what I was thinking, I know nothing about finance, but if some one borrowed money, where is it now?


First it went to landowners. Some of them invested it in banks and lost most/all of their money. Others put it on deposit which was used by banks to make loans for houses, holidays, TVs. Basically, the majority of the money will have found its way into either assets that have fallen in value, or consumables that always fall in value to zero. There are very few people who put their money into non-consumable assets that have increased in value. And some of it went abroad on foreign "investments" in some resorts in the next guaranteed property boom in Bulgaria.



Duke of Marmalade said:


> _Purple_, the NPRF will pay for the public services pensions after its investments in banks comes good.


HAHAHAHAHAAHHAHA



Duke of Marmalade said:


> Don't follow you. Capitalism relies on a set of rules - like shareholders can't lose more than their investment, bondholders have a right to sue if not paid etc. A change of law, euphemistically known as a Resolution Scheme, is changing the rules of capitalism retrospectively. You can see that if the rules can be changed at the drop of a hat people will be reluctant to play the game in the future.


I actually took the point DerKaiser was making to indicate that investors, i.e. bond holders were not allowed to take a loss on their investment. The fact that the government stepped in to bail out bond holders was not playing by the rules of free market capitalism. 
I agree that changing rules in retrospect should not and cannot be allowed, but there was never a *rule* that said bond holders would be bailed out, only a *precedence* that this would happen.




Purple said:


> 3)	Public sector pensions. This is the ultimate Ponzi Scheme. Current pension requirements are funded using levies and taxes on current employees. The guys going out can only get paid as long as there are guys coming in. The real reason for the public sector pension levy is because of the public sector pension bill. Since there was no actual pay cut the cost of pensions is now proportionately greater. In short public sector employees are getting screwed to pay for their retired colleges and since the ratio of working to retired is going to get significantly worse over the next 10-20 years the chances are that they will get significantly more screwed as time goes on.



Actually it's not just public sector pensions, but state pensions and all social welfare benefits that are run as a pay as you go, i.e. ponzi scheme. I fully agree with calling all these state payment programs ponzi schemes. And the government actually has the neck to differentiate the state pension as "contributory" and "non-contributory". I am paying for pensioners of present, not for my own pension. And if the next one or two generations pull the wool from over their eyes and see what has been repeatedly done for decades, they may well say enough is enough, and I wouldn't blame them. Which is why my retirement plans are not based on receiving any state pension; better safe than sorry.


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## Shawady (1 Oct 2010)

Purple said:


> The real reason for the public sector pension levy is because of the public sector pension bill. Since there was no actual pay cut the cost of pensions is now proportionately greater. In short public sector employees are getting screwed to pay for their retired colleges and since the ratio of working to retired is going to get significantly worse over the next 10-20 years the chances are that they will get significantly more screwed as time goes on.


 
+1.
The pension levy was a fudge and the fact that PS pensions were not cut in line with PS pay makes a mockery that this government 'make the difficult decisions'.


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## Duke of Marmalade (1 Oct 2010)

Chris said:


> I actually took the point DerKaiser was making to indicate that investors, i.e. bond holders were not allowed to take a loss on their investment. The fact that the government stepped in to bail out bond holders was not playing by the rules of free market capitalism.


That is a different point. I agree that there has been government intervention. The primary purpose of this intervention was not to bail out bondholders. It was not even to preserve Ireland's credit rating. It was to prevent a collapse of the banking system which would have torpedoed us back to the Stone Age and not merely to the early nineties.

If it was legally possible to keep Anglo alive and default on bondholders then the government would have jumped at it, notwithstanding the damage to credibility. But the bondholders' nuclear button was always that if they are defaulted upon they can sue and push the bank into bankruptcy and Ireland back to the Stone Age.

_DerKaiser's_ point should in fact be made in reverse as follows: "If the government has already intervened why doesn't it intervene again by changing our laws retrospectively?" It is a credible question and the judgement has clearly been that for the few billion that would be ostensibly recouped from Anglo seniors, the damage to credibility and creditability would be inestimable.


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## Complainer (1 Oct 2010)

Duke of Marmalade said:


> But the bondholders' nuclear button was always that if they are defaulted upon they can sue and push the bank into bankruptcy and Ireland back to the Stone Age.


How does one bank going bust push Ireland back kto the Stone Age?


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## Duke of Marmalade (1 Oct 2010)

Complainer said:


> How does one bank going bust push Ireland back to the Stone Age?


70bn (assuming Anglo) of assets on firesale. Property and other asset values collapse. Other banks assets lose value collaterally and besides Anglo owes them money, so all banks collapse. No money transmission. No credit. Deposits worseless. 

After you have used up the stuff in the freezer, and remember the electricity is probably cut off by this stage, its back to hunting for rabbits and collecting berries.


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## roker (2 Oct 2010)

If landowners etc got the bulk of the money, it would be back in to the banking system in their name. On a point of private pensions, my annuity is not guaranteed if the company which holds it colapses


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## Chris (2 Oct 2010)

Duke of Marmalade said:


> 70bn (assuming Anglo) of assets on firesale. Property and other asset values collapse. Other banks assets lose value collaterally and besides Anglo owes them money, so all banks collapse. No money transmission. No credit. Deposits worseless.
> 
> After you have used up the stuff in the freezer, and remember the electricity is probably cut off by this stage, its back to hunting for rabbits and collecting berries.



I think you are exaggerating the consequences of a bank failure and buying too much into the spin put on this by politicians the world over. When a company is forced into liquidation it doesn't automatically result in a firesale of assets. 
I'm not saying that there would have been no bad side effects of banks going bust. But bankruptcy proceedings do not result in the the companies evaporating into thin air. What happens is that their viable businesses, like day to day money transactions for individuals, would be sold off to a new or existing company. This happens all the time with companies of various sizes, and there is no evidence that a large scale bank failure would result in a total collapse of the the banking system.


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## Complainer (2 Oct 2010)

Duke of Marmalade said:


> 70bn (assuming Anglo) of assets on firesale. Property and other asset values collapse. Other banks assets lose value collaterally and besides Anglo owes them money, so all banks collapse. No money transmission. No credit. Deposits worseless.





Chris said:


> I think you are exaggerating the consequences of a bank failure and buying too much into the spin put on this by politicians the world over. When a company is forced into liquidation it doesn't automatically result in a firesale of assets.
> I'm not saying that there would have been no bad side effects of banks going bust. But bankruptcy proceedings do not result in the the companies evaporating into thin air. What happens is that their viable businesses, like day to day money transactions for individuals, would be sold off to a new or existing company. This happens all the time with companies of various sizes, and there is no evidence that a large scale bank failure would result in a total collapse of the the banking system.



One of the strange things about our current financial mess is that occasionally, those on the edges of the right and left find themselves in agreement. I'm with Chris on this. The consequences outlined by the Duke are exaggerated. Let's go one step deeper on the analysis.

1) The €70b assets are not all in Ireland. Anglo was heavily involved in the UK and Europe. I don't know what this split is, but it definitely wasn't €70b in Ireland. So the impact would be considerably smaller.
2) As the Duke says, there is no automatic firesale. The Govt could fairly easily and quickly have created a mini-NAMA to take over the Anglo assets and manage them out, to avoid a firesale.
3) Whatever remaining impact there might be on property prices will have an upside. Businesses are collapsing daily due to rent costs. Hard-working young couples are still finding it very difficult to get their first house in the current market. Property prices need to drop further. This will cause problems for those in or near negative equity, so we need some kind of solution there.

Just for the record, the deposit guarantee of €100k per person was already in place, so the only benefit of the broader guarantee for Anglo was for those holding more than €100k.


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## Firefly (4 Oct 2010)

Complainer said:


> Just for the record, the deposit guarantee of €100k per person was already in place, so the only benefit of the broader guarantee for Anglo was for those holding more than €100k.


 
Having a guarantee in place is one thing, actually delivering on it is another. That would have resulted in 70bn being provided by the government _immediately_.


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## Complainer (4 Oct 2010)

Firefly said:


> Having a guarantee in place is one thing, actually delivering on it is another. That would have resulted in 70bn being provided by the government _immediately_.


Have you taken the €100k per person limit into account in your calculation?


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## Firefly (5 Oct 2010)

Complainer said:


> Have you taken the €100k per person limit into account in your calculation?


 
No - but does anyone know how much of the 70BN is made up of deposits > 100K? Even so..there would be a run on the banks - anyone with deposits even less than 100k would withdraw as they would fear that (a) the government wouldn't be able to guarantee their deplosits or (b) that the 100k would be reduced.


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## Complainer (5 Oct 2010)

Firefly said:


> No - but does anyone know how much of the 70BN is made up of deposits > 100K? E


Perhaps you should have asked this question before you came to your definitive conclusion that "would have resulted in 70bn being provided by the government _immediately_"?


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## DerKaiser (5 Oct 2010)

Chris said:


> I actually took the point DerKaiser was making to indicate that investors, i.e. bond holders were not allowed to take a loss on their investment. The fact that the government stepped in to bail out bond holders was not playing by the rules of free market capitalism.



That was my intended point.

The government stepping in to make the state shoulder the remainder of the losses after the shareholders have been hit, completely bypassing depositors and senior debtholders in the process, is grossly unfair.

I'm with Chris and Complainer here.

The same dopey logic that saw us give Roddy Molloy a golden Parachute (thinking we'd save money on a legal challenge) have resulted in us sustaining a €34bn loss on Anglo (to avoid having to pay a fraction of that in Deposit Guarantees).

Senior debt holders are more concerned about our future capacity to pay (which we've now severely curtailed) than our past record of paying.  In any case, Ireland could surely have distanced itself from Anglo.

A €4bn cost of bailout scenario would have been justifiable in avoiding the remote scenario of bank runs or looking good for our banks not defaulting on bondholders.

Brian Lenihan made the decision when the potential losses were estimated as a fraction of what they are now. It would have been the right decision if the information was correct.  It wasn't though, and I'd question anyone who says they'd take the same decision knowing what we know now.

If there's still anyway of hitting the depositors/senior bondholders for €5bn, €10bn or even more rather than the state taking on the full loss, the that is the reasonable course of action.

We somehow financed NAMA to the tune of €40-50bn up front.  If we'd used a fraction of that to pay the deposit guarantees on Anglo we could have started the process of rebuilding by now.

Taking a certain €30-35bn loss onto the state balance sheet will paralyse the country more than letting Anglo go Bankrupt without state backing.


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## Firefly (6 Oct 2010)

Complainer said:


> Perhaps you should have asked this question before you came to your definitive conclusion that "would have resulted in 70bn being provided by the government _immediately_"?


 
The vast majority os people would have deposits less than 100k. Those with more than 100k, I would imagine, have the necessary steps in place to protect their deposits.


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## Complainer (6 Oct 2010)

Firefly said:


> The vast majority os people would have deposits less than 100k.


This is your guess -right? The really important question is not 'what proportion of Anglo depositors had less than €100k'. The really important question is 'What proportion of Anglo deposits was made up from depositors with less than €100k'?


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## Firefly (6 Oct 2010)

Complainer said:


> This is your guess -right? The really important question is not 'what proportion of Anglo depositors had less than €100k'. The really important question is 'What proportion of Anglo deposits was made up from depositors with less than €100k'?


 
I was thinking more of the deposits in the other banks, which IMO would have had queues out the door & around the corner if Anglo was left to fail.


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## Complainer (6 Oct 2010)

Firefly said:


> I was thinking more of the deposits in the other banks, which IMO would have had queues out the door & around the corner if Anglo was left to fail.


Not if AIB & BOI were guaranteed - right?


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## Duke of Marmalade (6 Oct 2010)

It is of course a major source of public chatter these days how we should deal with Anglo, seniors, subbies etc. WADR aren't we all amateurs. Today Mathew Elderfield came out strongly against legislation to torch seniors. I think he is best placed to judge and I see no reason why he would have a hidden agenda.

_Chris_ I was kinda joking when I said dumping Anglo would quickly lead us back to hunting rabbits but, following on the above point, those who are much more informed about these matters and actually have to make the decisions have always argued that Anglo is systemic and dumping it would have catastrophic ramifications for our banking system and our economy. 

I accept their analysis, not because I too came to the same conclusion (I am not informed enough to be able to do that) but because they are the ones with the expertise, the inside knowledge and the profound desire to do what is right for Ireland.  I certainly have no truck for the academic circus who have promoted themselves to rockstar status on the back of the country's misfortunes nor for opportunistic opposition politicians.


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## Firefly (6 Oct 2010)

Complainer said:


> Not if AIB & BOI were guaranteed - right?


 
As per post #20

anyone with deposits even less than 100k would withdraw as they would fear that (a) the government wouldn't be able to guarantee their deplosits or (b) that the 100k would be reduced.


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## DerKaiser (6 Oct 2010)

Duke of Marmalade said:


> It is of course a major source of public chatter these days how we should deal with Anglo, seniors, subbies etc. WADR aren't we all amateurs. Today Mathew Elderfield came out strongly against legislation to torch seniors. I think he is best placed to judge and I see no reason why he would have a hidden agenda.


 
The point here is that we seem to need legislation to hit the bondholders whilst leaving depositors intact.

Why not have the depositors lose a percentage?

It would have been wrong to set such a precedent if the total losses were €4bn i.e. the cost of maintaining 100% confidence in the system would have been worth it.

Is it still wrong to contemplate burning depositors in the knowledge that the magnitude of the bailout is pushing the country close to bankruptcy?



Duke of Marmalade said:


> those who are much more informed about these matters and actually have to make the decisions have always argued that Anglo is systemic and dumping it would have catastrophic ramifications for our banking system and our economy.


 
The trouble is that decisions were originally made without anything like the required knowledge. I just wonder if these decisions are capable of being at least partially reversed to give some relief to the state.

Can we really believe that the people who took the decisions in the first place are capable of continuously reassessing the situation and reversing the decision, if appropriate, at the appropriate time?


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## Shawady (6 Oct 2010)

Duke of Marmalade said:


> Today Mathew Elderfield came out strongly against legislation to torch seniors. I think he is best placed to judge and I see no reason why he would have a hidden agenda.


 
Seems like he hasn't ruled out negotiating with them though.



[broken link removed]


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## Duke of Marmalade (6 Oct 2010)

_Shawaddy_, yes that was interesting. Seems a game of poker is being played here. We dare not actually press the button but we vaguely hint that we might do. Elderfields statement that Resolution legi could be passed but he was personally against it would put the fear of god in me if I was an Anglo senior. 

_DerKaiser_, deposits are guaranteed until 31st December. If the guarantee is not renewed the deposits will fly. Ergo deposits are now untorchable - unless one is suggesting welching on the guarantee itself.

My confidence has indeed been shaken by the catastrophic continual upward resizing of the problem. I still think they did the right thing given the knowledge they then had and that includes at present. One would have niggling fears that a reversal becomes unconscionable simply because it is a reversal or worse they dare not reveal the real scale of the problem and just hope something turns up. What scares me is that suppose they believed in their heart of hearts that non-NAMA loans were likely to bring down AIB and BoI they simply couldn't admit that - it would be an appalling vista. But if it was that bad one might as well tough it out - nothing to be gained by waving white flags.

These are scary times.


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## Chris (6 Oct 2010)

DerKaiser said:


> We somehow financed NAMA to the tune of €40-50bn up front.  If we'd used a fraction of that to pay the deposit guarantees on Anglo we could have started the process of rebuilding by now.


This is a very key point. At the end of the day, the market will always get its way and bottom out. Anything done to fight the recession/depression is prolonging the bottom. The sooner you get to the bottom the sooner you can start over again from a cheaper cost basis.
Thank god Ireland cannot print money



Duke of Marmalade said:


> _Chris_ I was kinda joking when I said dumping Anglo would quickly lead us back to hunting rabbits but, following on the above point, those who are much more informed about these matters and actually have to make the decisions have always argued that Anglo is systemic and dumping it would have catastrophic ramifications for our banking system and our economy.
> 
> I accept their analysis, not because I too came to the same conclusion (I am not informed enough to be able to do that) but because they are the ones with the expertise, the inside knowledge and the profound desire to do what is right for Ireland.  I certainly have no truck for the academic circus who have promoted themselves to rockstar status on the back of the country's misfortunes nor for opportunistic opposition politicians.



I kind of thought that alright 

As for Elderfield and his ability, expertise and knowledge, he is employed by politicians and therefor will not stray too far from what they want things to shape out like. Taking action against Quinn may well have been necessary from a solvency point of view, but it was more importantly a political move to show the public how "tough" the political elite has got.
Look at what happened to the McCarthy report, a report sanctioned by the government. Pretty much all the recommendations would have been very beneficial to the public finances, but would have been political suicide. So what did the government do? Everything to discredit the report and its author. I heard some time ago on the radio that less than 5% of McCarthy's recommendations have even been considered, let alone implemented.


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## DerKaiser (6 Oct 2010)

Duke of Marmalade said:


> _DerKaiser_, deposits are guaranteed until 31st December. If the guarantee is not renewed the deposits will fly. Ergo deposits are now untorchable - unless one is suggesting welching on the guarantee itself.


 
Sure people would be too concerned with Christmas to check whether the Guarantee was rolled over, the banks would be closed in any case.  Perfect time to do a bit of torching - if they're going to do it it's certainly unlikely to be flagged....


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## Complainer (6 Oct 2010)

Firefly said:


> As per post #20
> 
> anyone with deposits even less than 100k would withdraw as they would fear that (a) the government wouldn't be able to guarantee their deplosits or (b) that the 100k would be reduced.



I don't remember any mad panic on other banks when NR was in trouble in the UK. There is no basis for assuming that problems in Anglo would cause widespread panic.


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## Duke of Marmalade (6 Oct 2010)

DerKaiser said:


> if they're going to do it it's certainly unlikely to be flagged....


It's not a question of flagging. If they have not extended the guarantee beyond 31st December all the deposits will have naturally left. Nobody is going to rollover a deposit unless it is guaranteed. Perhaps you are referring to a strategy which announces on Christmas Day that all deposits are frozen and then on New Year's Day announces they are no longer guaranteed. Pretty Armagedon stuff.


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## Chris (6 Oct 2010)

Duke of Marmalade said:


> It's not a question of flagging. If they have not extended the guarantee beyond 31st December all the deposits will have naturally left. Nobody is going to rollover a deposit unless it is guaranteed. Perhaps you are referring to a strategy which announces on Christmas Day that all deposits are frozen and then on New Year's Day announces they are no longer guaranteed. Pretty Armagedon stuff.



Wow, I thought I had some pretty bad scenarios in my head, but that one hadn't occurred to me yet. Armageddon indeed, but I wouldn't put it past them.


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## Duke of Marmalade (7 Oct 2010)

_Chris_, I don't think that armagedon ruse would work. People who had their deposits frozen could legitimately argue that they matured before 31st December, it was just that they were prevented from withdrawing.

The fact is that the government *has* flagged when the guarantee expires - it is 31st December. I think _DerKaiser_ has in mind that the next guarantee will be of the form _"guarantee continues until further notice"._ How many would roll-over into that sort of guarantee?


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## Chris (7 Oct 2010)

Duke of Marmalade said:


> _Chris_, I don't think that armagedon ruse would work. People who had their deposits frozen could legitimately argue that they matured before 31st December, it was just that they were prevented from withdrawing.
> 
> The fact is that the government *has* flagged when the guarantee expires - it is 31st December. I think _DerKaiser_ has in mind that the next guarantee will be of the form _"guarantee continues until further notice"._ How many would roll-over into that sort of guarantee?



Yeah, that's the big question indeed. Not saying that this forum is anything to base an overall trend on, but there has been an increase in the number of people making enquiries about moving deposits abroad, and not only people with large amounts. 
Personally I don't trust any bank, but least of all I trust the Irish ones and their "guarantees".


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## Complainer (9 Oct 2010)

DerKaiser said:


> The point here is that we seem to need legislation to hit the bondholders whilst leaving depositors intact.
> 
> Why not have the depositors lose a percentage?


Do we really need new legislation? What was the legal - position prior to Sept 2008? Deposits were guaranteed, up to €100k. Is it the case that the State could not have paid out on this deposit guarantee without also paying out to senior bond holders? Surely not - that would defeat the whole point of the guarantee.


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## Duke of Marmalade (9 Oct 2010)

Complainer said:


> Do we really need new legislation? What was the legal - position prior to Sept 2008? Deposits were guaranteed, up to €100k. Is it the case that the State could not have paid out on this deposit guarantee without also paying out to senior bond holders? Surely not - that would defeat the whole point of the guarantee.


The guarantees operate *post* wind up. During the wind up process, depositors share equally the pain with the seniors, but post the wind up the State makes the depositors good.

What is being suggested is that legislation would be passed which would rank the depositors as senior *during* a wind up. Clearly then bondholders would suffer the lion's share of the pain of a wind up and the state guarantee to depositors post the wind up will be minimal, in fact zero if bondholders got anything back.


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