Prom night

This post has been written in 4 goes, each time adding a new bit to the end as things change. Sorry about the lack of coherent style.

According to the movies, it is that amazing time in every teenagers life. The dorky boy asks the shy girl to the dance, they both turn into beautiful swans and the cheerleader falls into the punch bowl in a fight with her quarterback boyfriend. Prom night - it's awesome. Except in Ireland when it refers to the overnight emergency legislation to appoint a liquidator to IBRC, that wonder financial institution that used to be called Anglo.

I got home last night just in time to watch the stage 2 "debate" in the Dáil and ended up not getting to bed until the committee stage was complete and the bill went down the corridor and up the stairs to the Seanad. While it may not have been high drama, you certainly got the feeling at times that you were watching something important. I'm not going to go into the details of the IBRC bill, as there are many more qualified finance and legal people out there. However I do want to make some observations about the events.

The biggest question is why did it happen last night? Well it seems as though our friends in the ECB couldn't keep their gobs shut and let it out that the Government might be about to liquidate IBRC. With so many other creditors, it became crucial that we got to appoint the liquidator rather than have an application heard from, say, Sean Quinn in the High Court this morning appointing a liquidator more amenable to him. So in that sense the government got the tactics right and just played the nuclear option of emergency legislation. But it does question how good friends we really have in Frankfurt.

Another surprise to me was the length and detail of the bill. This has obviously been sitting in a drawer for a while waiting to be dusted off at the right time. You can't announce a liquidation until it is already happening, otherwise people will panic and run to the hills or courts. But the fact that it hadn't leaked from Dept of Finance or AG's office is testament to the tight ship being run there at the highest levels.

On the debate itself, Noonan, Doherty and Donnelly all performed well. Poor contributions from both Taoiseach and Tánaiste and some pretty awful stuff from parts of the technical group. On that, the technical group would actually have been best served by giving all their time to Donnelly as he has the best grasp on the issue and some really pertinent questions and lines of attack on the bill. For example the issue of temporary interference with the property rights of people is a potential pandora's box. This seemed an unacceptable idea when it came to upward only rent reviews but now seems to be fair game.

The worst part of the debate was the continued heckling and jeering at both Sinn Féin speakers by senior members of the government side. Both Pat Rabbitte and Brendan Howlin did themselves no favours by their carry on. I found it quite embarrassing that seemingly intelligent ministers resorted to school yard behavior just because they didn't like what was being said across the chamber.

Then at lunchtime today we had Mario Draghi's non event of a press conference. In his 15 minute speech he didn't mention Ireland or the Pro Notes once. When asked about them he just said that the council had unanimously noted the events in Ireland. I guess that means tacit approval because the deal still lets the ECB get all it's money back, just quicker than they thought.

I missed Enda's announcement as I was in a meeting this afternoon, but the deal seems to be a reasonable one. We get to turn the pro-notes and their 3.1B every year into an interest only loan at about 4% for 25 years and then start paying down the capital. This reduces our annual cost by over a billion and we get the benefit of 25 years of inflation to turn the capital sum into something a bit less daunting. It is still really annoying that we have crystallized privately generate debt into fully fledged sovereign debt and that not a single bondholder has been burned. But given all that, it's probably as good a deal as we can expect. It will certainly make next December's budget easier and/or allow for additional investment in growth strategies.

I'll let the dust settle now and come back to this in a day or so once things are clearer.

Tomorrow's referendum

So the media moratorium has finally arrived. Tomorrow I get to go to the polling station and vote on the fiscal compact/stability treaty/austerity treaty and I am going to tick the No box on the ballot paper. I have stayed out of this campaign for all sorts of reasons, limiting my contributions to a few tweets here and there and arguments in the pub over a few pints.

It feels strange to have a vote and to not have knocked on a single door. Even during the Presidential, despite moving house and having a 7 month pregnant wife to look after, I managed to get out for a few canvassing sessions. But for the compact I couldn't bring myself to doing it. Canvassing on this topic would either be an exercise in 20 second glib soundbites that are inaccurate at best and false at worst, or require spending half an hour at each house explaining the full consequences of a yes or no vote and discussing the actual text of the treaty.

The problem is that the media coverage of the referendum has also descended into the former. Both sides playing the soundbite and the ad-hominem rather than debating the contents of the treaty and the grand picture of the Eurozone we would like to see in the future. Personally, I am quite in favour of the European project, leaning towards the federalist end of the spectrum. But it needs to be full federalism, not the half way house we currently have. But that seems unlikely to happen, or be proposed by any of the current political leadership across the EU, so we need to find another solution to our current crisis but the Compact and the ESM are not the silver bullet we are all waiting for.

I'm assuming the vote will be carried by about a 60-40 margin and in a year's time we'll be right back in another crisis, with Spain having sucked most of the money out of the ESM. I hope I'm wrong.

Back in bonds!

Not quite as catchy as an AC/DC song with a similar name, the Irish Times reports that Ireland was back in bonds yesterday.The NTMA managed to swap about €3.5B of bonds that were due for repayment in 2014 into new bonds that are due in 2015. This is a good thing, as it reduced the amount of refinancing that will need to be done by NTMA in 2014, the first year of Ireland's post Troika existence.
However, to call it a massive success and claim that it shows an "appetite for Irish Government paper" is stretching things a bit. As opposed to you or I getting a term extension on our mortgage which reduces our monthly repayment, we have actually increased the cost of this borrowing from a 4% coupon to a 4.5% coupon. So this postponement of a year will cost us an additional €35M in 2012 and 2013. That crafty bond market doesn't give stuff away for nothing.
I am sure that it is just coincidence that the NTMA carried out this bond swap on the exact same day as yet another huge, un-guaranteed Anglo bond was repaid. Likewise I'm sure that the arrest of Ivor Callely yesterday was also just another coincidence, just like the arrests of Sean Fitzpatrick were in the past. I wonder what poor unfortunate will be perpwalked the next time the Rothschilds come looking for their cash back.

Bonds and loose change

Tomorrow sees the repayment of about $1,000,000,000 of unguaranteed bonds owed by the rump of Anglo. This is the money that Dana was mentioning at every opportunity during the last few presidential debates. This equates to about €730,000,000 or in some more manageable terms, heading towards twice the total spend on Special Needs Assistants for a full year or about 20% of the cutbacks that are going to be announced in the upcoming budget.

The argument for paying goes along the lines of this: the EU/IMF deal has us going back to the market next year. If we don't pay back this bond the reputational damage done to Ireland will so great that we won't be able to afford to go back to the market at a reasonable rate. Therefore we must pay back these bonds at face value to have credit available to us in the future. Sounds reasonable, doesn't it?

Except it isn't. These are unguaranteed bonds that have been traded multiple times since issue with the current owners probably paying somewhere around 10c in the euro to mop them up. So the original lenders have already taken losses on these bonds. The current owners are hedge funds and the like who are looking to make a killing when Ireland Inc foolishly pays back face value on bonds that are effectively junk.

Of course I am just guessing that these bonds are held by hedge funds as nobody will actually say who holds these instruments. We have no idea who the owners are and whether they are the same institutions who will be our lenders in the bond market in the future. However, the cloak of secrecy surrounding their identity suggests to me that they are not the same people.

I'm also getting sick of Ireland trying to be the best boy in the class while Greece gets 50% hair cuts, second bailouts and a referendum on their financial future. while I wouldn't suggest becoming the rebellious punk that is Greece, we could at least ruffle our hair once in a while, open the top button on our shirt or wear mismatching socks. We still are, despite the best efforts of Fianna Fáil, a sovereign nation and should play that card once in a while. We have made some progress on the reduced interest rates, you just get the feeling that we're still sucking up to teacher in the hopes that someone else will get into trouble before us.

Speaking of trouble, I really can't believe that €3.6B was mislaid in a transfer between two state agencies, namely NTMA and the Housing Finance Agency. How someone doesn't immediately notice that rather than going up by €3.6B that their overall balance went down by the same amount is outrageous. I would certainly know if my wages were taken out of my current account on the 20th of every month rather than deposited. It makes you wonder what sort of quality control and monthly account reconciliation is going on over at the HFA.

PS - now that #aras11 is over I'll be getting back into more regular blogging. Huzzah say the masses!

The Bailout

This EU/IMF bailout stinks for a whole lot of reasons. Our great leaders went into the discussions and seemed to be happy to give away everything as long as corporation tax wasn't touched. I am not at all convinced by the arguments around corporation tax and the reasons for keeping it at 12.5% but I am pretty sure that flushing the country down the toilet isn't one of them. And even after the draconian measures being imposed on us I'm pretty sure that the bailout isn't going to fix Ireland, Irish banks or stop the spread of "contagion" to the rest of the EU.

As I have harped on about before, the entire mess goes back to the disastrous bank guarantee in September 2008. Turning private debt in the banks into sovereign debt owed by the tax payer was the single most stupid thing ever done by Fianna Fáil and it's not like there aren't plenty of other options to choose from. This has left the tax payer on the hook for the banks' massive borrowings still outstanding to European banks. This is where the biggest stink in the bailout comes from.

We are being loaned €22.5B from the IMF and a further €45B from two EU funds. On top of that we have to immediately throw most of the contents of the Pension Reserve Fund into the black hole of the banks. All of this bank funding is required to enable the German, French and UK banks as well as the ECB to be repaid at some point in the future. So the net result of the liability to the Irish tax payer is that other EU banks remain solvent. Seems to me like that's pretty good leverage to have in negotiating terms on these loans. Instead the government played meekly and took whatever was offered without flexing any muscle at all.

Secondly we have to ask, what is the price being paid for this money? We the tax payer are being lumped with an average rate of 5.8% for the €67.5B external bailout. That's just under €4B per year in interest to the EU/IMF. But when you look at long term financing costs for Germany they come in at around 2.67% on their 10 year bonds, so we are being gouged by our EU partners by over 3%. Hardly, seems like a community coming together to help each other out. Again we should have turned around and say that unless the rate was closer to 3% that we would just default and bring the whole Euro house of cards tumbling down.

Finally, how will this bailout actually help Ireland and our deficit in current spending? The fastest way to close the gap between taxation and spending is to get sustainable growth back in the economy and the best way to do that is via targeted stimulus using the NPRF. Having now blown our main avenue for growth on the banks we are now stuck in a zero/low growth scenario with higher and higher interest payments swamping any increase in taxation due to growth. That means we have to raise additional taxes and since corporation tax is sacrosanct, that means extra income tax, PRSI, property taxes, VAT, excise and the like for the ordinary punter.

We are now in a downward spiral from which there appears to be very little hope of exiting. Thanks a bunch Soldiers of Destiny.

Green Flags and Crocodile Tears

I really don't know where to start on this one. Yes, the EU-IMF bailout that we all thought was going to happen has come to pass. Yes, the banks and our governments (mis)handling of them over the last 3 years or so has dug us into a hole. Yes, people are emigrating in droves not seen since the 1980s and it government policy seems to rely on this continuing. In short, Ireland is banjaxed.

But would people ever give up with the maudlin appeals to Yeats, 1916, Wolfe Tone, Brian Boru and Diarmuid Ua Duibhne. Wrapping the green flag around you, while somewhat cathartic, does nothing for you, for Ireland or in fact pretty much anyone. We the people have landed the country in its current state through a decade or more of gorging on the supply of cheap credit made available since the introduction of the Euro. Government policy encouraged this mass orgy of financial decadence through various tax breaks, hair-brained schemes such as the SSIA and Decentralization, and pro-cyclical spending but we have to also take some level of personal responsibility.

It is a disgrace that a relatively wealthy, 1st world country such as Ireland has need of the services of an organization such as the IMF. It is a disgrace that such an organization needs to exist at all in the first place. But people are people and greed is greed and the world keeps turning. The crocodile tears of the booms greatest cheerleaders should not make us loose sight of the fact that we are still in a far better place than probably 90%+ of the worlds population.

The End

In 1967 The Doors released their debut album featuring the hits "Break on Through" and "Light My Fire". During the late 80s and early 90s I went through my Doors phase and became quite the fan of the album and especially the final track, the epic "The End". On the bus into work today the song popped back into my head and I noticed how prophetic Jim Morrison had been in that song with regard to the Irish economy in 2010 and it could be interpreted as a lament being sung by Lenihan and his Fianna Fáil comrades.

This is the end, beautiful friend
Fairly obvious opening line on the current state of chassis.

This is the end, my only friend, the end
So who is this only friend? At this point the public have turned on FF as have the bond markets. Who is left? The EU, the ECB, the IMF? Or is it just the Irish bankers and developers?

Of our elaborate plans, the end
Plans to dump €60B+ of additional debt on the shoulders of the Irish tax payers without a whimper from the coping classes.

Of everything that stands, the end
From a FF point of view, the only thing that counts is being in charge. Here Morrison/Lenihan is lamenting the imminent destruction of the party. The trappings of power will come crumbling down as the deFFification of society begins starting at the top with the TDs.

No safety or surprise, the end
No surprise, we've known for a long time how banjaxed the country is but we've decided to keep the populace in the dark and there is no safe route back to prosperity. It's the EU, the IMF or default and darkness.

I'll never look into your eyes again
Cowardice from those FF TDs who will decide to retire before the next election rather than face the wrath of the electorate.

Can you picture what will be
So limitless and free
Limitless national debt as billions are pumped into banks while schools and hospitals are left rotting. Perhaps a touch of irony with the use of the word free.

Desperately in need of some stranger's hand
In a desperate land
Again a reference to the strangers of the IMF coming in to this desperate land to sort out the mess left behind.

After this point, the song meanders into various psychedelic images of Roman wildernesses, highways, snakes and a blue bus. Not really sure how this fits with my chosen narrative so I'll just skip on ahead. The Oedipal section is even more open to interpretation but I'm just going to say the role of the Father is played by the Irish economy and the Mother is the Irish people. Morrison/Lenihan winds up the song with a return to the main theme - this is the end of the Republic of Ireland in its current state.

The end of laughter and soft lies
The end of nights we tried to die
This is the end

This analysis probably makes it clear that I wasn't so good at the old English poetry for the Leaving Cert. Best stick to facts and figures in future!