While Fine Gaelers like “Lord” Varadkar, “High” Noonan and “Where’s” Kenny (along with their fellow travellers in Fianna Fáil like “MyHome.ie” Martin) are publicly sneering about the impossibility of debt-bondage restructuring championed by Sinn Féin, maybe one of these high-and-mighty Lilliputians might actually pick up and read an international business newspaper now and then:
- Wall Street Journal – Ireland Should Consider Kazakh Move: …it seems Fine Gael doesn’t want to abandon the guarantees for Ireland’s less-bad banks, chiefly Bank of Ireland and Allied Irish Banks…. No doubt one of the objections to this course of action is that there aren’t too many precedents for restructuring bank debt… Except in Kazakhstan. Like their Irish counterparts, Kazkah banks got a bit too enthusiastic about property development, particularly given the low cost of borrowing in international bond markets during the middle years of the last decade… By the end of 2008, the government had acknowledged that a number of its larger banks were in a mess, owing large amounts to international bond holders but having made long-term loans to property developments with doubtful futures. International investment banks were hired to advise, and they recommended letting the banks fail. For the Kazakh government, that wasn’t an option. “We realized that if we bankrupted them, the next day we would lose the whole banking sector,” said Kairat Kelimbetov, chief executive of Samruk-Kazyna, the holding company for the state’s stakes in about 400 Kazkah companies. “We had to save those banks.” What the Kazakh government did then is what the Irish government didn’t do, and that was to start to talk to the banks’ creditors.
- Financial Times – Lessons to be learnt from Kazakhstan: A few days ago, Kazakhstan announced that it had completed the restructuring of BTA, one of the largest Kazakh banks, by imposing severe haircuts on investors holding BTA bonds and loans… some of the powerful western creditors who held the debt of BTA and other banks started pushing for a furtive state rescue, of sorts – and warned that if this did not occur Kazakh-style financial Armageddon would occur. However, to its credit, the Kazakh government faced down some of the more aggressive western banks by insisting on something rarely seen anywhere in the world: an orderly restructuring, with creditor haircuts, of a still-functioning bank… another option, as demonstrated in Kazakhstan, is to demand that creditors absorb all, or part, of the losses, even as the bank remains a going concern. And indeed, this is precisely the idea that is now starting to gain traction in some regulatory quarters. In Europe, for example, Paul Tucker, deputy governor of the Bank of England, is one of those who is now championing this idea of creditor haircuts as a way to deal with the “too big to fail” issue… this seems the least bad option. After all, the concept has one big merit: namely it spares taxpayers. There is another: the prospect of haircuts could prod creditors to exercise more badly-needed oversight in the future. After all, it is evident from the last bubble that equity investors are lousy at this, partly because they are incentivised to cheer revenue growth. But if bondholders thought they might face haircuts in the future, they would have a real incentive to impose discipline on banks – and perhaps make them more transparent in the future. This would be better than the alternative: building a system based on ever tighter bank rules and implicit taxpayer bail-outs. Which, unfortunately, is where Europe is heading.
- We see that Martin Ferris is not going to let this bone go – Sinn Féin’s position on the IMF/EU Bailout gathering support: It is now quite clear that the position Sinn Féin has adopted on the IMF/EU bailout, on the need to separate private debt from national debt is being supported by a broad spectrum of economic and political commentators. On Wednesday night’s Prime Time debate which included Sinn Féin’s finance spokesperson Pearse Doherty; economists like Peter Matthews and Constantine Gurdiev all shared Sinn Féin’s position on what the IMF/EU deal will mean for the future of this country. If we do not now deal with the need to separate the debt of private bondholders, who took a risk by investing in private banks, with our own sovereign debt then we are headed towards a sovereign default. The question the other parties, who are all willing to accept the IMF deal, must answer is what is in the interests of the Irish people; making bondholders take the hit, or a sovereign default which would be catastrophic for Ireland and would destabilise the entire Euro zone. It is time for the parties to be honest with the people regarding the IMF deal and what it will really mean for the people and stop pretending that they will get anything meaningful from a renegotiation.