WILLS COMMENTS :
Now is as good as time as ever to now outline the backstory to the Ireland IMF marriage in order for us all to retrieve our coordinates on the nature of the fast moving events underway presently.
The main thrust of todays news appears to be the further clarification under way in the mainstream media over why it is that the irish citizenry are been unjustly forced to pay for private banking industry bondholders risk. The picture is now emerging that the Irish banking industry is mere a plank in a tightly knitted together global banking superstructure through which a *global POnzi tower of babel* built up over the last 30 years and it is now threatening to collapse itself into a mountain of rubble. This is the reason why governments ran to the aid of private banking industry to provide buttressing to stop the *global POnzi tower of babel* collapse because of the dire effect this collapse may have unleashed. Once the State buttressing in place the insiders now bust trying to, on the huff, reinforce, re construct the tower to prevent it collapsing in a heap and so we have a situation whereby the Irish citizenry are been used in the way they are to service and facilitate and support the State s effort along side all other international governments to prop us this *global POnzi tower of babel*.
Due to the backstory just outlined above it means that certain narratives are at play as a narrative dynamic inevitable consequence to the central story itself, again, outlined above. Lets take a deeper look below.
Lets start with BBC Robert Peston Blog surmise so far : BBC – Peston’s Picks: What losses for lenders to Irish banks?
1 Firstly, momentum for a *bondholder* bonfire is now gathering storm in Ireland. This is becoming a narrative under its own steam minute by minute. IRISH TIMES headline leads with ‘EU – IMF in push to make bondholders share burden’ ; EU-IMF in push to make bondholders share burden – The Irish Times – Fri, Nov 26, 2010.
Dan O Brien writes a very strong piece in the IRISH TIMES relating to this gathering steam narrative burn the bondholders. In this piece Strongest argument against a State default has disappeared – The Irish Times – Fri, Nov 26, 2010 Dan argues that the strongest argument against a State default has disappeared.
FT today scribes the following on burning bondholders : FT Alphaville » Setting sights on senior (Irish bank) investors
Consider that senior debt sacred cow heading for the abattoir.
On Friday the Irish Times reported that officials’ sights had switched from sub-debt investors in Ireland’s banks — to senior ones. From the paper:
OFFICIALS IN the EU-IMF mission to Dublin are examining how senior bondholders could be compelled to pay some of the cost of rescuing Ireland’s banks.
As talks on the €85 billion bailout deal intensify, the Government is trying to reduce the cost to the State by minimising the interest bill on the emergency loans.
The negotiators are taking legal advice on the steps required to ensure all classes of bank bond investors assume a burden in the restructuring process. One of their prime concerns is to avert the threat of an immediate court challenge from any senior bondholder or a court objection at a later date.
Several proposals are on the table, said a source. At present attention centres on two similar schemes. In the first, bank debt would be converted into equity shares. In the second, bond investors would be given the choice of injecting fresh capital into banks or face a cut in their investment.
The source said there was a “common understanding” between delegations from the EU Commission, the European Central Bank and the IMF that senior and junior bondholders should each pay a share of the rescue costs.
The first step would be to seek to “persuade” senior bondholders to participate in the bailout, said the source. “If that doesn’t succeed, the question is how can you force them in a legally-sound way.”
As we noted on Wednesday – this is quite a change to the current state of (bond) affairs. Senior debt investors have traditionally ranked above sub-debt and pari passu (the same) with depositors in a bankruptcy — which is why that legal angle is so important for regulators to take account of (or, dare we say, work around?)
And to date they have been quite creative in this respect — just look at thatdiscounted exchange for Anglo Irish sub-debt investors. Forcing losses on senior investors will no doubt be more difficult — and even more controversial — but we imagine it can probably be done in the current environment.
Sovereigns are keen to ‘burden share’ bailout expenses with investors — rather than just assume the costs of funds and liquidity themselves. Even BBC business editor and ball-of-pure-energy, Robert Peston figures Irish debt is now so sub-par that “that the government’s obsessive opposition to … haircuts looks eccentric to some.”
So, why bother to protect it at all?
A senior debt restructuring is not without its own costs. Even the whiff of it will likely trigger a senior debt sell-off which would tend to up the cost of funding for European financials. And that in turn could (ironically) feed into sovereign costs.
From Marc Ostwald at Monument Securities on Friday:
… This [news] sets a nasty, if situationally understandable, precedent which highlights two other points about the current situation: i) the constant “goal post moving” in terms of regulation, which does enormous damage to investor and entrepreneurial confidence, and ii) that for all that governments have used their balance sheets (budgets) to shore up financial sector balance sheets, the liabilities that this creates will over the short or the long run be passed back to the financial sector and the general public. At some stage govt bond markets in the G7 will suffer the consequences of this via a sharp rise in yields.
2 Meanwhile the second narrative rattling down its tracks with its own unstoppable energy otherwise know as *the contagion* is now headed in the Iberian peninsula direction and fixed like a toxic debt nuclear bomb on target to potentially explode over SPAIN and ITALY rigged economies. TRUE ECONOMICS BLOG posts data regarding this contagion next attack : True Economics: Economics 26/11/10: Contagion is spreading to Spain & Italy.
3 Third narrative firing along of course is the instable political situation in Ireland concurrently and the gathering revulsion with the Irish electorate over the mess the banking industry in Ireland has inflicted on the average citizen and the Irish economy and the integrity of the Irish State internationally. Paul Krugman today in the NEW YORK TIMES opines on this third narrative and it is scathing in its damnation of how the Irish people are been coerced and strong armed and forced against the will of the people to take the hit, the cost the bill for private banks and their property pyramid scam they sold to the Irish people : Eating the Irish – NYTimes.com and David Quinn: Moral of this sad story is greed must be regulated – Analysis, Opinion – Independent.ie