Trying to untangle the kites flying around the Anglo Irish Promissory Note? A guide…

So, the old chestnut (at this stage so old and withered it’s a conker) of floating a bond to replace the anglo Irish bank promissory note has rared its head once again. The report in the times is fair, if the headline is not. the headline is ” 40-year bond could be issued to save State billions on Anglo” , which is untrue. The report states inter alia  “A long-term bond would not, in iteself, cut the total cost of repaying the State’s debt in relation to Anglo, merely postpone them. ” This is correct . The bond will not save us billions. The overwhelming likelihood is that any bond structure will be such that the present value of the bond represents the present value of the promissory notes. While there might be a liquidity boost in the state paying out < 3.1b per annum that is not a solvency boost. We got into this whole sorry mess by confusing solvency and liquidity.

This smoke and mirrors shell game seems to be consequent on a hardening of the teutonic attitude towards us. In fairness to Frau Dr Merkel, the government keep saying everything is grand, grand..We in ireland know that we would say that even if the state was overrun by parasitic wasps armed with hot stingers, but the germans take people at their word. So, it seems that the prospects for a deal on the debt are receding faster than the chances of the Kerry team winning a three-in-a-row.

Lets step back and untangle this – for much more depth go check out the presentations made by my good self, Professor Stephen Kinsella and Professor Karl Whelan to the Oireachtas in February. Here is  a stripped down version of whats going on.

• Anglo Irish Bank, a private company,  was, is and will be bankrupt, bust, broke, borked… The black sheep of Irish banking its dingleberry Irish Nationwide Building Society was similarly banjacked.  They now live in the zombie called Irish Bank Resolution Corporation, but lets call them Anglo. Or Quanglo, as they also own Quinn Insurance, a smaller black hole…
• It had bonds which in a fit of yet to be explained magnanimity the then Irish government determined to repay.
• It created a promissory note (an iou), which it gave to Anglo.
• We know that this was not real government debt as if it had been then it would have gone to the ECB and got cash. Instead it went to the Central Bank of Ireland, and got…cash. Because that’s what central banks do, they create cash.
• With the cash Anglo paid off its bondholders, and runs the bank (down we hope)
• Every year the Irish government gives money to Anglo, who then give that money to the central bank who then in effect destroy it. That way no net money is created. This is because the ECB say so. Apparently although central banks exist to create money, doing so is bad….Apparently.
• The Irish government either borrows that money from the troika or takes it from its citizens, and instead of doing useful things like giving it to professors of finance or even, god help us, spending on social good, it gives it to Anglo.
• The plan now is to replace the its-not-government-debt ProNote with a you-betcha-its –governemnt-debt, give that to Anglo, tear up the ProNote, borrow money to repay the debt, give THAT to anglo, who will give it to the central bank who will STILL destroy it.

Clear? Great….