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In the above piece Kelly argues that we must negotiate with the bondholders in order to sort out the mess our banks, and by extension we taxpayers, are in. He argues, quite convincingly in my view, for a debt for equity swop.
A similar case has been put forward in the last few months by just above every Irish economist who isn't on the government's payroll - an overwhelmingly number of them, in fact.
In all cases (though I'm open to correction on this) those economists have implicitly argued that these bondholders are foreign financial institutions who knew exactly what they were getting into and, therefore, should be negoitated with accordingly.
However, a few weeks back, on the back page of the Irish Times business section was the following piece.......
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To me, this article, which passed almost unnoticed, was a revelation. The following extract is key........
“In Ireland, half of the funding for the Irish banking system comes from within the country. So, a default is a default on ourselves. Everyone accepts that depositors have to be paid.
“Then there is a case of the bondholder, who is often portrayed as some anonymous banker with a brolly in the City of London. The reality is that credit unions in Ireland commonly take bonds in banks, senior debt bonds."
If this is correct then........
1. Why hasn't Lenihan been screaming this from the rafters from day one?
2. Doesn't it blow the cases made by the likes of Kelly/McWilliams/McDowell clean out of the water?
3. Do we really have no option then but to put up and shut up? Or should we still pursue a debt for equity swap even if it means the likes of the credit unions owing the banks instead of all of us?
I'd be interested to hear the views of the experts on this forum.
D.