Taxpayers will have to pay for bondholder bailout

What_Goes_Up · October 5, 2010, 9:31am

irishtimes.com/newspaper/opi … 00413.html

Taxpayers will have to pay for bondholder bailout
Tuesday, October 5, 2010

There is no State scheme to remunerate private investors when banks are in distress, writes BRIAN LUCEY

IN 1968, Robert Conquest, the historian, published the first edition of a classic study of the purges under Stalin. Called The Great Terror, it was of course reviled by the Soviet state and its fellow travellers for its suggestions of tens of millions of innocents sent to the gulags. In 1990, he published a second edition, this time with assistance from the state archives, in which he substantiated his claim. His publishers asked if he wanted a new title, and he is reputed to have said “how about ‘I told you so, you f*****g fools’?”. While we can in no way equate the meltdown of the Irish banking system with Stalinist purges, the same cycle – independent analysts warn, they get reviled and attacked, and belatedly the official line eventually shows that they were if anything overoptimistic – has been at work on this issue. The reality is the external critics and commentators have been proven substantively more correct than Government in our fears about the cost of the banking crisis.

The events of the last couple of weeks smack of increasing desperation by the Government. First we had the farrago of the announcement of Anglo being split into a bad and a worse bank, with conflicting statements issued on its operation. It is worth noting, by the by, that three weeks on, the Government has not yet seen fit to formally send details of the plan to the European Commission – either a sign of incredible sloppiness or an indication that it was all smoke and mirrors.

The Anglo split, we eventually discovered, involves the exact same situation then – Anglo deposits funding Anglo loans – as now, but with two banks involved instead of one. When it became clear that this was not a solution but a demonstration of the ineptitude of policy, the markets reacted as was predictable – on September 6th, our 10-year bond yield was 5.8 per cent and three weeks later, it was 6.9 per cent. The increasing yield appears to have been the catalyst for the announcements on Thursday, in another attempt to calm the markets. So what do we know from these?

…(cont’d)