Morgan Kelly on Bank Robbers

[Brendan Burgess]

While I accept that he did not write the headline, this is the actual quotation taken from the article. As you see the headline reflects it accurately:

With likely losses of this magnitude, the Government's proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish's liabilities. For all it will achieve, the money might as well be piled up in St Stephen's Green and incinerated.

The government cannot repudiate Anglo's liabilities. It's liabilities are its deposits and interbank loans which we have guaranteed.

It is nonsense to write:

"the money might as well be ...incinerated"

As far as I am concerned, there is no point in listening to any arguments from someone who writes such rubbish.

 

[smiley]

I must say that it was a terrible piece of writing.
I am surprised that the Irish Times published it.
Brendan

I couldnt agree more. This is the sort of dribble that you would expect to see in the tabloid press---daily mirror, the star etc. I think Morgan is looking for his moment of fame. It must get kind of lonely been locked up in UCD.

 

[dewdrop]

as a retired and obviously naive bank official will someone explain to me what mr. kelly means when he speaks ab out Senior Managers looting the assets which find their way into their brief cases etc.

 

[Carramore]

as a retired and obviously naive bank official will someone explain to me what mr. kelly means when he speaks ab out Senior Managers looting the assets which find their way into their brief cases etc.

Thank you dewdrop. That was my original question when I started this particular thread and no-one as yet has attempted to answer it.

In fairness to Morgan Kelly, over a year ago he predicted much of what is now being played out. At the time, I and most others thought that he was talking a load of rubbish. Therefore, I'm not that inclined to dismiss his views now.

 

[Slash]

Whatever about the merits or otherwise of Mr. Kelly's suggestions, the most important sentence in the article is this:

"Anglo Irish funds developers, and developers fund Fianna Fáil."

This is what is driving the Government's decision making and it's about time someone said it. The Govt needs to start making decisions based on what is good for this country, not what is good for FF. It will make no difference, I guess, since this Govt has become so arrogant.

 

[bankrupt]

The government cannot repudiate Anglo's liabilities. It's liabilities are its deposits and interbank loans which we have guaranteed.

It is nonsense to write:

"the money might as well be ...incinerated"

As far as I am concerned, there is no point in listening to any arguments from someone who writes such rubbish.

I accept that it may not be possible to avoid it but is it really nonsense to suggest that this money will be wasted on Anglo? Presumably you think otherwise? Can you explain why?

 

[conor_mc]

While I accept that he did not write the headline, this is the actual quotation taken from the article. As you see the headline reflects it accurately:



The government cannot repudiate Anglo's liabilities. It's liabilities are its deposits and interbank loans which we have guaranteed.

It is nonsense to write:

"the money might as well be ...incinerated"

As far as I am concerned, there is no point in listening to any arguments from someone who writes such rubbish.

Giving them this money now allows them to continue as a bank and to continue to contribute further to the liabilities of the guarantee.

Better to wind them down in an orderly fashion starting immediately. That's the point of the "incineration" comment. Give them €1.5bn now and you effectively add €1.5bn-plus in terms of the eventual overall liability to the guarantee as it only allows Anglo to continue their policy of rolling up interest on non-performing loans.

The incineration comment is perfectly valid in this context. This bank should not be permitted to continue trading with it's reckless history.

 

[charliemacck]

I for one admire the chutzpah of those who were completely and catastrophically wrong about the property bubble airily dismissing the view of someone who has been proven right about it. I only wish I had testicles of such magnitude.

 

[Simeon]

Why do people believe something because it is in the IT? Most contempory banking stories should be taken 'cum granis'. Nobody has a clear idea of how things will pan out. This article (like any others) deserves to be analysed - even if it is a work of fiction (or faction). Believing that Goldenballs will be able to pay back the E87m is also an interesting aside ......... which makes me think that bankers are not the only ones living in a parallel universe. The idea of most banks being able to withstand a severe run is just a conceptual system. (All the above IMHO!)

 

[Brendan Burgess]

I have said it repeatedly on Askaboutmoney that the right strategy is to run down Anglo Irish Bank. It is not of systemic importance unless it is believed that it's demise would damage AIB and Bank of Ireland.

I assume that the government is actually going to run down Anglo.

But let's say that the government is not going to run down Anglo. That it will allow it lend again to new clients. Presumably it will not be new loans to new property developers. It is more likely to be some form of lending which takes the pressure off existing loans.

This might not be a great use of €1.5 billion - but it's a far better use than burning it in St Stephen's Green.

The fact that someone claimed that there would be a property crash does not mean that they are infallible. I agree that someone who gave a well argued analysis and prediction should be given more weight than someone who predicted that the boom would last forever. But if someone claims that it is better to incinerate cash in St Stephen's Green, then I am not going to read the article any further.

Brendan

 

[Robin Banks]

It's a total waste of money, but hopefully that €1.5 billion will be enough to see Anglo through the next 20 months when the government guarantee runs out. At that stage Anglo can go bust and private bondholders (like Mr S Fitzpatrick) and shareholders can wear it instead of the Irish taxpayer.

I would support extending the government guarantee for depositors only.

 

[Carramore]

I'm loath to disagree with Brendan, but I think he's wrong in his assumptions about the €1.5 billion of government money being ploughed into Anglo. One alternative was to leave the bank stew, to let it burn through shareholers' funds (which the balance sheet says amount to over €4 billion but which we all know are zero - or probably less - after we allow for the true incidence of bad loans), then to let it burn through the €4.9 billion of subordinated loans, which I understand are NOT covered by the government's guarantee scheme, and only then would the government have to put money in. In this scenario, the government would have the consolation of having the shareholders and subordinated note/ bond holders taking the pain first, before it got caught on the hook. As it is, it gives some protection to those holders of subordinated debt, which is completely unnecessary and a stupid waste of taxpayers' money. If the bank were by any change to survive untill after the expiry of the guarantee period, it could then let the holders of debt securities (over €17 billion of them) go down before putting any depositors at risk. I realise that it might prove difficult in practice to let the latter group in particular be hit, but I can't see why we as taxpayers should come after them in the pecking order.

 

[Simeon]

I'm sure the 'incinerate bit on St Stephen's Green' was purely metaphorical. But if not, then he should have included "after first removing any plastic folders etc", so as not to excite the PC brigade.

 

[Padraigb]

It's a total waste of money, but hopefully that €1.5 billion will be enough to see Anglo through the next 20 months when the government guarantee runs out. At that stage Anglo can go bust and private bondholders (like Mr S Fitzpatrick) and shareholders can wear it instead of the Irish taxpayer.

I would support extending the government guarantee for depositors only.

The market has already judged that shareholders' funds are worth nothing. The action now is the protection of depositors' interests, which amount to tens of billions of euros. Let the bank collapse, and those funds will be in some jeopardy, and the knock-on effect would be very big.

The only things that are not fully obvious are
- how much jeopardy depositors' funds are exposed to;
- what other institutions would be damaged by a collapse, and how severe the damage would be.

 

[Brendan Burgess]

Carramore said

I'm loath to disagree with Brendan

Why? I have no monopoly on the correct answers or opinions. Few others seem to be loath to disagree with me.

Your post makes a huge amount of sense.

I am trying to sort out the fact from the opinion in this thread

Brendan

 

[webtax]

Giving the Government the benefit of the doubt maybe they want to keep Anglo's loan book alive for another two years until the state guarantee runs out in the hope that the world and Irish economy will be recovering by then.

If that doesn't happen they could let the guarantee expire for Anglo to avoid paying out the remaining €13.5 billion guessed by Morgan Kelly as the potential final liability.

It would be great if this were true, but I fear the reason that the govt don't want to foreclose on Anglo is because of the knock-on effect for the golden circle. If Developer A is forced into liquidation by an examiner appointed to Anglo, then all his assets will be sold off (at a loss) and the other banks who have also lent to him will be scrambling to recover some of their money. The other banks will then be forced to recognise their crystalised losses in their books, and the true reality of the damage to the banks' loan books will become clearer to the markets, pressuring them to liquidate other developers. I think this is what Lenihan means when he says Anglo is of systemic importance.

Anglo might become the new Waterford Wedgewood - continuously looking for more money to cover it's losses as it share price dwindles down to near zero. Except this time the government will be the owner...

 

[Brendan Burgess]

More sensational stuff from Morgan Kelly in yesterday's Irish Times:

[broken link removed]

Apparently we are going to be demolishing houses now instead of building them.

But I suppose it gets headlines.

 

[Bronte]

They demolish property in the US and rebuild continuously as far as I know. I believe a lot of the apartments built in the last 10 years are likely to be demolished and rebuilt. They were not built large enough for families and the future will be to demolish these and build with more thought as to storage, space and amenities. Maybe that sounds crazy but I believe it will happen. Also what is going to happen with the many estates that are semi finished. Eventually something will have to be done to them and probably the local councils will end up razing them to the ground. Why not it makes sense rather than letting people live on building sites for the next 20 years. Going back to the original query about the fact that a bank staffer could remove a piece of paper (personal guarantee), well if they have access to it and a developer offered 100k for it, mighty tempting in these difficult times for someone on 30k about to be made redundant. Also the latest article by Morgan wherein he says that property will drop 80%, why not, I've a property that went up 800% in the last 10 years or so , if I (or anyone) told someone 10 years ago that my property would go up 800% they would have been sectioned. So who's crazy.

 

[shanegl]

It wasn't so long ago that it was sensational to claim there would be a housing crash and a recession (as Kelly has been claiming for quite a while).
Now we have a housing crash and our Taoiseach talking about the IMF bailing us out.

 

[webtax]

More sensational stuff from Morgan Kelly in yesterday's Irish Times:

It's hard to argue with the susbtance of his article though:
"Mr Kelly said Ireland’s “reputational capital” had been damaged by “chancers” such as ex-Anglo Irish Bank chairman Seán FitzPatrick, who had been abetted by “buffoons” such as former financial regulator Patrick Neary, Minister for Finance Brian Lenihan and the Taoiseach."
How much harder will IDA's job be in trying to attract investment here when we are starting to look like a bankrupt banana republic?

The global financial crisis may have been positive for the Irish economy as it “stopped us dragging ourselves even deeper into our hole,” he said. “If it had taken another year or two, we would have ended up in an Icelandic-shaped hole, which is not to say that we won’t end up in one.”
And to think some in government & the media were calling for stamp duty cuts which would have led to an even bigger bubble busting. The only positive is that we are in the Eurozone, which has saved us from becoming the new Iceland.