'The Irish will cut off their own arms in order to pay bondholders'

Sat, Dec 22, 2012, 00:00

THE READERS:What you said on irishtimes.com this week

The Michael Hasenstab interview

Earlier this year CNN Money picked the American bond trader Michael Hasenstab for its 40 Under 40, calling him “one of the biggest winners from the eurozone crisis”.

In an interview in California with Suzanne Lynch of The Irish Times, published on December 14th, Hasenstab said the turnaround in the Irish economy would be “one of the best investments of the decade”.

Hasenstab began buying Irish bonds in July 2011, when they were downgraded to junk status. Franklin Templeton, the investment company Hasenstab works for, now owns 10 per cent of Irish sovereign bonds.

In the interview, Hasenstab said Ireland should get relief on its bank debt because it deserved it, pointing out that his own funds would not be affected either way.

Responding on Monday to Hasenstab’s comments, Irish Times Business Editor John McManus wrote that “his endorsement of Ireland is a vote of confidence in the approach adopted in Ireland towards restoring order to the national finances and should steady the hand of the Government”.

The reaction on irishtimes.comin the week since the interview was published has been broadly positive, despite some people pointing out that the Government’s refusal to “burn the bondholders” contributed to Hasenstab’s success.

What follows is a selection from the comments that readers have posted. DAVID COCHRANE, Communities Editor

Hasenstab may be sitting on huge paper profits right now, but that doesn’t change the fact that his buying spree has driven the improvement in our bond spreads. Huge positions distort markets. Irish Government debt is benefiting from his faith in it right now, but if anything happens to upset that the fallout from a sell-off by Franklin Templeton could be disastrous. Leicheru

How is it even possible to write about this and not categorically state that this chap made a killing buying discounted stock in the secondary markets? It’s not rocket science. Incredible that bottom feeders are now the pinnacle, to some IT readers at least, of modern society. Go, Has, go: you da man! GerardCarthy

Why is he talking to the public? Is he trying to sell it? groggerz

Why wouldn’t he? The Irish will cut off their own arms in order to pay bondholders. They will starve their young, stop educating their youth, stop curing the sick, beggar the pensioners, throw thousands into abject poverty, condemn many tens of thousands to emigration in search of hope in order to pay bloody bondholders. So why is it any surprise that some financial “whizz” thinks Irish bonds are a good bet? ZackLeeWright

“The sharp increase in the value of Franklin Templeton’s Irish bonds means the fund is sitting on billions of euro of paper gains.” Not just paper gains but real gains! Unlike a share, which is basically a piece of paper whose price could collapse the day before you want to sell it, a €100 bond with a 5 per cent coupon is the equivalent of a €105 note, albeit one that can be cashed in only on the day the bond matures. The only risk is of default – but, really, Ireland was never going to default on its public debt.

Finally, anyone begrudging Mr Hasenstab and Franklin Templeton their profit (burn the bondholders!) should recognise that they are in fact unsung heroes of the Irish public finances. By stepping in and buying Irish bonds when they did, they helped stabilise the market at a crucial moment and counteract the negative influence of the rating agencies. Ciaran Dearle

I hope Hasenstab and Franklin Templeton are very profitable indeed. Commentators may argue their viewpoints. These guys put the money in. The open market is there for anybody who wants to invest, so let’s hope more people make good profit by investing in Ireland. cboregan

Reading the posts here, one wonders if many of the people commenting understand the principles of capitalism. The comments in the mode of “He’s only trying to make a profit out of Ireland” are ridiculous. They are pronounced almost as if this is some sort of mystical revelation that the rest of us didn’t understand.

Of course, he’s trying to make a profit. Making profit is the fundamental principle behind capitalism. Almost every single business in existence is there to make profit. Along the way they provide employment and wages that most of us are quite happy to take in order to live.

If you are are in employment practically anywhere you are contributing towards somebody making a profit. Every time you buy something you are contributing towards somebody making a profit. Do you feel dirty now? Are you somehow appalled at what you are doing?

So, yes, he’s trying to make a profit, and if by doing that Ireland gets some benefit out of it then that’s the good we take out of it. This is the real world. It’s not that I don’t think capitalism has its drawbacks, but if somebody can come up with an alternative system of managing the world economy then I’d like to hear about it. JimWalsh

Yeah, there will be lots of great “investments” in Ireland: namely asset-stripping and the repackaging of debt. Meanwhile, I am offering a very good line in snake-oil futures. MichaelMichael

Mr Hasenstab failed to mention that by 2015 the Irish State will have to find €10 billion interest per year, taken from Irish taxpayers and transferred to the bondholders, of which he is a major one, and the lenders of last resort. How in God’s name can a country with 1.8 million employed transfer the country’s wealth to outsiders without running the country into abject poverty? It suits his purpose to talk up the country, but people living here are not fooled. RichardMcCarthy

This man is an American bondholder. We are cutting grants for respite so he can get his pound of flesh from the Irish tax payer. CiaraNíMhurchú

The entire reason, or at least a large portion of his investment/bet, is based on the fact that the bonds he has purchased will be redeemed at face value by the Irish State. There is absolutely not one piece of evidence to suggest otherwise. I believe that his bond will be redeemed at face value. Why? Because he has been told, either implicitly or explicitly by the Irish Government, the German government, the European Union, the secretary of the treasury and every economist who can read these people’s comments that they will not countenance a default on Irish sovereign debt.

So to suggest, correctly or incorrectly, that he has misunderstood Irish GDP growth is to miss the point of his investment. I can confidently predict that 90 per cent of the “reasons” he bought Irish bonds outlined in this article are, while true to varying degrees, completely dwarfed by the fact that European governmental behaviour thus far has convinced him that, no matter what, he will be getting his money back.

The profit is between the distressed price he paid and the face value of the bond, not any additional increase in the price of the bond. So long as he is sure that default is off the table then it’s shooting fish in a barrel. If he bought Greek bonds – from a government that may not play ball with Europe – I would say that was risky. flinders3

Of course he’s convinced he’ll get his money back. That’s the whole point of buying a national bond. WTF do you want? For Ireland not to be able to return to the international markets and get a lower interest rate than on the bailout terms?

The whole backstopping of the national debts across the EU is an attempt to put investor confidence back on an even keel and get liquidity flowing again. Do that and the recession is over.

Some of the comments here are obtuse in the extreme. Ireland receives renewed investor confidence and a potential path out of recession, and a load of clowns come here to post about how it’s a bad thing and the people should rise up.

How thick and short-sighted can some people be? So busy whingeing over a recession – which is, frankly, a periodic episode in economics, no matter how it starts – that they want to run in and pi$$ on anybody offering a way out. MightyMickey1

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