Portrait of a man who opposed haircuts

US treasury secretary’s book ‘Stress Test’ sheds little light on his Irish bailout role

US treasury secretary Timothy Geithner: is said to have scuppered attempts to make bondholders lose out in the Irish bailout. Photograph: Alex Wong/Getty Images

US treasury secretary Timothy Geithner: is said to have scuppered attempts to make bondholders lose out in the Irish bailout. Photograph: Alex Wong/Getty Images

 

The generally accepted narrative of the €85 billion Irish bailout holds the International Monetary Fund proposed that bank bondholders should be bailed in as part of the rescue. The Government was said to be delighted at the prospect, as it would greatly reduce the burden that was going to be put on the taxpayer.

However, the story goes, that Tim Geithner, the US treasury secretary at the time scuppered the move because of concerns for the stability of the wider banking system. Geithner has never commented directly on this assertion.

Anyone hoping for clarity in his recently published book, Stress Test, will be disappointed but may still find their appetite whetted. He does not discuss Ireland directly but he does admit that he warned the Europeans that making haircuts “a necessary condition” of rescues was a bad idea.

It would “be like announcing that no loans to the weaker European banks or governments were safe”.

“‘You just cannot afford all this loose talk about haircuts,’ I said.’’

We are left to draw our own conclusions as to whether such friendly advice from the US treasury secretary was tantamount to a veto.

To Geithner’s credit, he does say he was not opposed to haircuts in principle and thought that weaker government and bank debt could be restructured at a later date.

His objection to doing it at the time was that it could not be done without having some sort of backstop or firewall to prevent contagion, and one did not exist.

The Americans, he points out, had learnt this the hard way when they let Lehman collapse triggering panic in the global markets.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.