Colm McCarthy in the SBP

[yoganmahew]

Deserves it’s own thread:
sbpost.ie/commentandanalysis … 46195.html
(Courtesy Mr. Lane on IrishEconomy).

Lots of interesting stuff about private sector credit and its contraction:

It is important to understand that this process is inevitable, and desirable. Ireland indulged in a credit fuelled property bubble larger, relative to the size of our economy, than occurred inmost other countries, and this has to be unwound. The banks will end up smaller, with less reliance on external borrowing or central bank money.

On mortgage books, as suspected, the good stuff is already securitised:

Most of the older, and presumably performing, residential mortgages seem to have been shifted off balance sheet through securitisation, and what remains consists mostly of mortgages advanced in the final years of the bubble.

So that 2.9% greater than 90 days arrears in the securitised book is the best bit…

The exchequer costs of the bank rescue need to be minimised ruthlessly, and any opportunities to impose cost on bond-holders exploited in full when the guarantee runs out in September next year. Compensating providers of risk capital to failing businesses infuriates taxpayers, and gives capitalism a bad name. In approaching bank re-capitalisation next year, there should be no nervousness about revealing fully the capital losses which have occurred.

The extent of the country’s budgetary problem is daunting, but the parameters are well established and a substantial start has been made in dealing with it.

If there is a further exchequer cost looming in sorting out the banks, better to know about it and get started on reconstructing the system. The capital markets will not be shocked: the pricing of government debt suggests that they already expect recapitalisation costs.

Also, the failures in bank regulation and supervision, and in the governance of the Irish banking system, have been colossal and home-grown.

The public are entitled to a thorough and public investigation into what went wrong.

Fuckin’ brilliant.

[LynchNeary]

@Colm McCarthy

The exchequer costs of the bank rescue need to be minimised ruthlessly, and any opportunities to impose cost on bond-holders exploited in full when the guarantee runs out in September next year. Compensating providers of risk capital to failing businesses infuriates taxpayers, and gives capitalism a bad name.

Dead right!

[dduff442]

He’s one of a handful of public figures to come out of this whole fiasco with any credit.

Unlike Alan Ahearne, McCarthy was too canny to be out manoeuvred by FF. Any FF dirty work he did was done by choice.

[bungaloid]

McCarthy is a Public Servant in the true sense.

[Negative_Covenant]

An excellent article by CMcC

[jamesblonde]

Questions: if the bank’s bondholders are to feel some pain in Sep 2010 when the guarantee expires, how would that work with AIB, BOI and Anglo?
The govt owns Anglo - so would it be liable if Anglo defaults on its bonds?
BOI and AIB would need to go into receivership, I assume, then the govt would buy them up.
Previously (due to the success of SI’s pleading), letting the big 2 be nationalised was considered a no-go.

Can NAMA be delayed as long as possible (up to Sep 2010) to try and maximise pain for bondholders?

[yoganmahew]

@jamesblonde

Questions: if the bank’s bondholders are to feel some pain in Sep 2010 when the guarantee expires, how would that work with AIB, BOI and Anglo?
The govt owns Anglo - so would it be liable if Anglo defaults on its bonds?

Probably not. But I don’t think ‘default’ in toto is what is being talked about. Haircut is more like it.

BOI and AIB would need to go into receivership, I assume, then the govt would buy them up.
Previously (due to the success of SI’s pleading), letting the big 2 be nationalised was considered a no-go.

Not really. A haircut from bondholders would not require nationalisation, particularly if it was in return for an equity stake.

Can NAMA be delayed as long as possible (up to Sep 2010) to try and maximise pain for bondholders?

I doubt it. I suspect that an argument that may be used is “the government has done what it can. It is up to the bondholders to do the rest”

[Rarely]

Good to see at least one individual who is clearly an insider call it as it really is. Shame that he appears to be the only insider doing so…

BTW i wonder if he feels he needs to protect his reputation. Given that he has received such a roasting (on frontline etc.) and is regarded as such a bogeyman amongst some quarters - public sector workers etc. - he might feel that he needs to be just as tough on the banks etc. in order to look unbiased - still even taking that into account good stuff

[dduff442]

If McCarthy is like most academics, his primary concern is the respect of his peers. This means his statements have tremendous credibility.

[The_Unwelcome_Guest]

@dduff442

If McCarthy is like most academics, his primary concern is the respect of his peers. This means his statements have tremendous credibility.

Not according to Brian Lenihan.

[jamesblonde]

@yoganmahew

@jamesblonde

Questions: if the bank’s bondholders are to feel some pain in Sep 2010 when the guarantee expires, how would that work with AIB, BOI and Anglo?
The govt owns Anglo - so would it be liable if Anglo defaults on its bonds?

Probably not. But I don’t think ‘default’ in toto is what is being talked about. Haircut is more like it.

BOI and AIB would need to go into receivership, I assume, then the govt would buy them up.
Previously (due to the success of SI’s pleading), letting the big 2 be nationalised was considered a no-go.

Not really. A haircut from bondholders would not require nationalisation, particularly if it was in return for an equity stake.

Can NAMA be delayed as long as possible (up to Sep 2010) to try and maximise pain for bondholders?

I doubt it. I suspect that an argument that may be used is “the government has done what it can. It is up to the bondholders to do the rest”

But can you not only negotiate a hair-cut (and optional equity stake) if the alternative is bankruptcy?
Not a good outlook for AIB/BOI shareholders if McCarthy’s views swing public opinion and ultimately govt.

[dduff442]

@The Unwelcome Guest

@dduff442

If McCarthy is like most academics, his primary concern is the respect of his peers. This means his statements have tremendous credibility.

Not according to Brian Lenihan.

As a barrister, Lenihen is trained to maintain credibility in front of twelve people for a few days or weeks. As I’m sure you agree, he could learn a thing or two from McCarthy about stretching this out a bit.

[yoganmahew]

@jamesblonde

Not a good outlook for AIB/BOI shareholders if McCarthy’s views swing public opinion and ultimately govt.

There hasn’t been a good outlook for shareholders since this debacle became evident (and probably before then if you knew what you were looking at).