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  • irishtimes.com - Posted: August 27, 2009 @ 10:35 am


    Harry McGee

    The row between the Government and Fine Gael over Nama is good old-fashioned toe-to-toe political pugilism. The subject matter of the debate is complicated (class exercise: explain the difference between senior, and subordinated, debt in one sentence) but the intensity and adversarial nature of it is unmistakable.

    Richard Bruton made what seemed to be a mistake last Sunday on RTE when he said that EU had asked the nationalised Anglo Irish Bank to  to stop paying interest to senior debt holders. Of course, it was a slip of the tongue. Bruton should have said subordinated debt holders (whose debt carries a much higher risk rating than senior debt holders who enjoy, to shorthand it, a similar status to deposit holders).

    It was a simple mistake. Nobody thought much of it and there was zero public reaction to it.

    But it did not go unnoticed in Merrion Street. Brian Lenihan (looking nothing like the corpulent tooth fairy that Morgan Kelly described him as) came out fighing yesterday with the most gloriously disproportionate response (the full text of the letter is here).

    The language of the three-page letter  is totally OTT. You have to look at it for what it is. The letter provides the basis for an all-out attack on the Fine Gael good bank/bad bank solution; and represents the Government’s first volleys in the battle for hearts and minds over NAMA.

    Lenihan described Fine Gael’s policy as a mirage and one that was unreal. At its heart, he said,  it involves Ireland defaulting on its international loans. The Government position has been that senior debt (it said yesterday that the lenders included intennational insurances companies; pension funds; foreign soverign governments; and central banks) is sacrosanct and can’t be defaulted on. They say that the same doesn’t apply to subordinated debt and point to Anglo buying back that class of debt at deep discounts. It claims that the logical conclusion of the Fine Gael position is a default on senior debt, a turn of events that it claims would transform Ireland into an international pariah.

    There was a milder attack on Labour. Its call for preemptive nationalisation is understandable, Lenihan said, given its ideology. The reason he has set himself against it is that some markets simply don’t lend to nationalised banks. He went on to say that Anglo had difficulties in certain markets when it became nationalised. But then Lenihan slightly undermined his own argument by saying that those initial difficulties the nationalised Anglo had were subsequently ironed out.

    The real reason seems to be that he wants both the big banks (which are the two that really matter) to be “ship-shape” as he puts it when the Government guarantee comes to an end at the end of 2010. It seems he believes this won’t be easily achieved if both banks are nationalised.

    It’s going to be like Lisbon. A lot of the arguments will be dense with detail, the kind of detail that washes over the public. There does seem to be a public antipathy out there to NAMA. My own guess is that there are three motivations behind it. The first, from the Government’s perspective, is unavoidable. There is lingering resentment over the way that Fianna Fail (and its Green sidekicks) have steered us into this mire.

    The second is that there’s a belief that the Government is bailing out the bankers. That’s a myth.

    The third is that the Government is giving a ‘Get out of Jail Free’ card to developers. That’s also a myth.

    But Lenihan and Co have so far failed to nail those lies emphatically. They will have to do so now. And if the alternatives suggested by the opposition parties are as flawed as the Government portrays, they need to bring out the big guns now.

    And that’s what we saw yesterday: A propaganda slugfest. Expect much more in the weeks and months ahead. This will be a fifteen-rounder.

    • Robespierre says:

      Bruton may well have made a mistake but look it at least he understands finance and is trained in it. Lenihen although he is performing better is heavily depenedent on advisors. He is a lawyer. His capacity to understand financial instruments and distinguish between different treatments of debt, how it recognised and financed is quite understandably limited.

      Unfortunately for Lenihen, no matter what he says, the people hate this plan. They know something must be done. I am reliably informed by debt traders that I know that the 6 banks are all heavily exposed to each other so there would be very bad consequences were one of the six to fall on its sword. Anglo and Irish Nationwide are widely looked upon as the ones that should go (especially IN) but if they did collateralising loans to the same lenders or lenders in a chain to the other banks would be compromised.

      It is a honeycombed web of debt and deception and frankly there are few if any in the regulator let alone the government who could wade their way through this and resolve it.

      There is a separate but related question however in relation to NAMA. If this is to be the scheme that is pursued the perception that bankers and builders are being bailed out would be far less persuasive had this abismal administration instructed An Garda Síochána and the DPP to move quickly on the crooks that nearly bankrupted the country a year ago.

      Twelve months on – not a single senior official has been held to account in a court of law for abuse of their office. None have been disqualified as acting a directors, some have been allowed to expatriate themselves from the country and none have had the assets investigated and fortunes frozen.

      The government has done nothing to disabuse the people of the notion that they are their to rule for all of the people. Instead fairly or unfairly they appear to many people to be ruling for the golden coterie of pals long associated with Fianna Fáil.

      They could have taken steps to prevent this perception taking root. They haven’t. That in itself says something about their judgement.

    • John Butler says:

      I hate to be pedantic Harry but I trust that you mean subordinated debt rather than coordinated debt in your second sentence?

      Of course such a slip does point out the inaccessibility of banking jargon!

    • Liam says:

      Lenihan is dead wrong. In less then 5 years the natioal debt rating will be lower then today and the state will have to borrow at punitive rates for day today spending. I think it was Einstein that marvelled at the power of compound interest. I wouldnt expect a politician or a lawyer to have the same intuitive perspective.
      The moral hazzard involved in bailing out a private bank is mind boggling. He has guaranteed that a national defalut will occur in the future or the collapse of state spending when the bond market refuse to lend anymore.

    • Dan Sullivan says:

      So who is going to take on the task of trawling through all the interviews that Cowen, Lenihan and Coghlan have done in the last 12 months for misspeaking and write up letters calling for their heads because. Didn’t we have Lenihan bemoaning his misfortune in becoming minister for Finance just as the bubble burst. What sort of ‘signal’ did that send to the money markets? “Minister in charge of Irish economy says it’s a bad time to be in government in Ireland.”

      Brian Dowling referred to Eamon Ryan as Eamon Gilmore on the 6.1 News last night. Will he be shot for this mistake?

      What a pity the opposition aren’t offered the same chance as government spokespersons for do-overs by the taxpayer funded national broadcaster.


    • Diarmuid says:

      The fourth is that there’s a belief that the Government is bailing out the bank shareholders and bond holders. That’s NOT a myth.

    • El Leader Maximo says:

      Which is it Harry – a myth as per your first sentence and then in the next one a lie ? slightly biased perhaps ?

      Please explain how it’s not bailing out the bankers. Without NAMA both AIB and BOI are insolvent so giving them money to keep them afloat could reasonably be desribed as a bail out.

      Please explain how it’s not a get of jail card for the developers. Without it the vast majority of them will go into receivership, lose all of their equity in any project and most likely lose their businesses. With it they have a change to work out their projects in a way that would not normally be supported. You can argue whether it’s free or not but it’s certainly a get out of jail card.

    • Harry says:

      I have corrected the typo – replacing coordinated with subordinated. Richard Bruton just made a simple, and harmless, error that the Governmetn monstered.
      Will the developers walk away unscathed from all this? I don’t see how they will. Sure, ACC (which is Dutch-owned) is chasing Liam Carroll but if something like NAMA wasn’t done, would we not be in a zombie bank situation, with debt being rolled over and no bank willing to dispose of assets or seek collateral? Would it not have been stasis.
      My own view is that NAMA is as strong a fix as we have seen but that politically it’s the wrong crowd that is pushing it through.

    • Liam says:

      Harry, do you not accept that if something is insolvent it’s insolvent? You break up the banks and liquidate the debt.

    • Robespierre says:

      So Harry – after Mr. Bruton’s article in today’s paper – do you still hold that view? I have had a long conversation with one of the “46″ and am economically literate.

      The end objective from both proposals is similar. The key question is where you load the risk. My own personal view is that were a Venture Capital group or a receiver to be appointed the precise manner in which they would tackle this is the way put forward by Fine Gael.

      You should examine how Lehman is being done and how they would like to have been able to do it. The answer I’ll wager will be startlingly similar to today’s article and the original plan put forward by them some five months ago.

    • Maurice O'Leary says:

      We had a repeat of the slugfest this morning with Frank (look at the size of my member’s interests declaration) Fahy against George Lee.
      Fahy continued to spead the lie that FG wants to take out the senior bondholders. FF are also pretending that FG have just appeared with a policy whereas the policy has its origins last year and was fully developed in the early April proposal.

      If this is the best FF can do, it is hard to see them lasting much longer.

    • Dan Sullivan says:

      It is interesting that it is Frank Fahey leading the charge against this. Just where does his primary interest lie in all this, with his constituents or with his considerable property portfolio? As highlighted in the letters page in the Times today, August 29th


      this is a matter of concern to voters.

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