Some calm reflection on the Anglo saga

If we lined a few bankers up against the wall would that help?

Yes, probably.

To all on the pin - no personal attacks on other posters. Play the ball not the man please.

+1

We are losing sight of the remark made by Morgan Kelly and the OP.

Suppose the guarantee had covered clearing banks only, deposits only, or the guarantee had been restricted to a short workout period like 4 months.
Anglo would now be bust, we would now be rid of a cabal of parasitic developers. Yes, a bunch of professional bond holders and credit derivatives
dealers would have lost a lot of money. Some might end up owning prime Dublin real estate.

So what? They understood and are paid to take these risks. They invested in a ponzi scheme were caught out.

Instead we got the guarantee. Instead we, the suckers, are stuck with the stupid bank, we are still refinancing bust parasitic developers. More ridiculous, we handed a fortune to the holders of Anglo credit.
And finally we shafted the holders of Irish Sovereign Credit, who fucking hate us for it.

The guarantee of Anglo will cost more, and has done vastly more reputational damage that the normal scenario of letting a ponzi scheme go down in short order.

Poker-playing bankers at BOI/AIB used the situation at Anglo to bounce government into this move.
Government complied because the four cute hoors thought it provided a smokescreen for Anglo’s problems.

All of them were wrong.

Bungaloid, would it also be fair to say that the likely capital requirements at Anglo are going to severely limit the recapitalisation of the other banks/any investment spending that might otherwise have been made? (That we will be borrowing a packet just to pay off Anglo bond-holders and depositors?).

[Mod edit: Which bit of “back on topic please” is unclear?]

Sorry to ask a few silly question here but these CDS’s (credit default swops) that were behind the loans in Anglo, who are they held with, or do we know? Is it likely they are with multiple insurance co’s throughout the world, not just with Irish ones? Just wondering who would have been paying up, or at a loss (however it works?) if they had let Anglo fail. Excuse my complete lack of knowledge about how these things work.

It’s a good question - there are two sides to it - the people who buy the insurance (CDS) and those who sell it. The buyers are of two sorts (as I understand it) those who own debt in Anglo and naked people (people taking a punt on Anglo failing - hedge funds mostly?). As to who sells it? AIG seem to have been a favourite in the past, but their activities may be limited these days and I believe other hedge funds sell it. It’s been said that it is mostly offset, but I don’t see how that works without someone, somewhere eventually holding the bag!

Let you give you the simplest possible example.

*Anglo issues a bond.

Bond Fund Investor buys this high yielding bond.

At some stage Investor wants to dump Anglo credit risk. Enters into CDS swap with credit desk of an investment bank to hedge some of the credit risk.

Now credit risk at resides at Investment Bank.*

If it stops here, on 30 Sep Ireland bailed out Investment Bank. :open_mouth:
Dealer receives fat bonus.

Of course it won’t stop there in practice. It quickly gets really complicated.

For example it might continue,

*Marketer at Investment bank calls Hedge fund and asks if they want to Buy Anglo bank credit.

Hedge fund says “No. But I would like to buy AIB credit.”

Dealer at investment bank says OK and writes new CDS on AIB credit with Hedge fund.

Now AIB credit risk resides at Hedge Fund, and Investment Bank is long Anglo vs short AIB credit as a hedge.

Dealer at Investment banks finally sells Anglo credit in interbank market. Now Investment Bank is short AIB credit.

Marketer at Investment Bank finds a Bond Investor who is long AIB bonds and who wants to sell AIB credit.

Dealer at Investment Bank buys AIB credit from Bond Investor and is now flat. *

You might have noticed how fresh toxic waste has been created in the process of off-loading Anglo credit.

Welcome to world of derivatives baby. :wink:

Oh, ok… :open_mouth: Thanks for the explanations, yoganmahew & bungaloid, it’s awfully complicated stuff.

Just another question, could this Investment Bank that were saved by the gov guaranteeing Anglo debt have been another Irish Bank then?

*If it stops here, on 30 Sep Ireland bailed out Investment Bank. *

I’m not sure that any of them have large CDS books or a trading desk for them. Could it have been an entity in the IFSC? Maybe, but I don’t think that’d be relevant.

Sorry to ask a few silly question here but these CDS’s (credit default swops) that were behind the loans in Anglo, who are they held with, or do we know? Is it likely they are with multiple insurance co’s throughout the world, not just with Irish ones? Just wondering who would have been paying up, or at a loss (however it works?) if they had let Anglo fail. Excuse my complete lack of knowledge about how these things work.

Likely AIG (sorry I meant the American taxpayer) could have been holding some of this crap but MR Cowen (The Sage of Offally) allowed them to dodge this hit. :angry:

Do you think IB’s were creating CDO’s after Lehman’s collapse on 12 Sept? So you’re saying CDO’s on a sovereign (ie: guaranteed Irish Banks) were still being created?

There was a 4 page spread better advert in the paper copy IT today. Do you have any info on how much they traded off the the guarantee and if they were able to handle both sides of the trade inhouse or sold it outside? I’m just curious.

That would be CDSs, rather than CDOs (Collateralised Debt Obligations) and yes, CDSs are still being written.

Awesome poster.

A bit of a “war propaganda” theme going on at the moment!

:smiley:
You can’t find anything from the “National Emergency” can you? You remember, the time when one part of the world was committing genocide and the other part of the world was trying to stop them, while we worried about who to sell butter to…

I have some dig for victory booklets I must scan in (as soon as I get my scanner back from the menders)…

Brilliant! Never even thought of that. Too busy raging at the banks and the government. Off to search…

There’s some lovely WWI stuff here:
theeasterrising.eu/230WorldWarOne/ww1.htm