‘This Is A Moral Issue’


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Last night, on RTÉ’s The Week In Politics,  Tánaiste Joan Burton, above, was asked about the possibility of junior bondholders in the former Anglo Irish Bank being repaid from the liquidation of IBRC.

She said:

“It is completely unlikely to happen because in the queue before the junior bondholders are the Irish people.”

Her comments came after Finance Minister Michael Noonan made comments about repaying junior bondholders in the Dáil last week.

Following Ms Burton’s comments last night, Brian Lucey, professor of finance at Trinity College Dublin, spoke on Morning Ireland this morning about the situation.

Gavin Jennings: “Brian Lucey, good morning, who are junior bondholders? Why would they be paid? And how much could they expect to be paid?”

Brian Lucey: “They can expect to be paid around €280 million. These are people who would have put capital into Anglo Irish Bank in return for a high yield. And because of that high yield, the accepting risk and that risk would be that the bank might fail. And, guess what, the bank failed. The reason they might think they might get paid now is because the economy is picking up and particularly property prices are picking up and they do have a claim under liquidation law, under the companies and bankruptcy laws, as they stand at the moment, they have a claim if, after everybody else is paid off, there’s money left in the pot, then they will get it. Joan Burton is a little bit loose with her language there. The implication people here is, ‘oh, once again, €35billion back, we’ll get it, they might get something’. The reality is the State can only recoup a maximum of €1.1billion which is fees outstanding as part of the guarantee system, that Anglo Irish Bank didn’t pay. So there’s an issue here. The reality is most of the people involved here are not the credit unions, the pension funds, etc, that had money with Anglo Irish Bank in this junior debt, they’re people, they were sold because they couldn’t hold on to it, they were junk bonds. They were bought up by vulture capitalists who are now expecting, having paid 2c, 3c, 5c, 10c on the Euro to get 100c back.”

Jennings: “So these are people who wouldn’t initially have been bondholders in Anglo?”

Lucey: “No.”

Jennings: “They would only have become so in the last couple of years, yes?”

Lucey: “Yes.”

Jennings: “Now when Joan Burton says that the people of Ireland come ahead of junior bondholders, is that true in terms of..”

Speak over each other

Lucey: “…except of €1billion that Anglo owes us. The €35billion is not going to be recouped. In fact we’re continuing to burn €25billion for Anglo over the next 20 years and that’s a greater immorality  than this €280million. €280million is two thirds of the total stand planned for next year for capital in the health system – in other words building hospitals. [Finance Minister] Michael Noonan should have stood up, in my opinion, and said, ‘Under absolutely no circumstances, whatsoever,  will a penny ever be paid out to these people’.

Jennings: “But what he did explain in the Dáil last week was, and you might be able to parse this for us, that the sale of loans assets so far has gone – I’m paraphrasing here – better than expected. So that all the people who were owed money would be written to, there would be ads put out, a deadline put and anybody, essentially, who was entitled to their money back, who wanted their money back would get their money back.”

Lucey: “That is what he said but I think that it’s economically unwise, politically foolish and morally reprehensible for these people.”

Jennings: “But there’s no precedent of us having done otherwise, so far?”

Lucey: “Well of course there isn’t – this government has been buckling all along under the mildest pressure from Anglo or people related to Anglo and, you know, it flabbergasts me and I think others that they would even contemplate this as opposed to saying, ‘get up the yard’.”

Jennings: “But without a precedent so far, why would they change their minds now?”

Lucey: “Well they won’t, so they’ll do this if they have to, if they think they have to. They could walk into the Dáil tomorrow and they could change the bankruptcy and liquidation laws. It might be that people would then, in the fullness of time, take a legal case against the State. The State should defend that to the hilt. They should run this clock out as long as is necessary. The State’s resources are ultimately, infinitely greater than anybody who bought these bonds at 7c on the Euro and who are now trying to get 100c back. And they should not ever pay these people. It is, fundamentally, it’s not an economic issue for me, it’s a moral issue.”

Jennings: “There’s also a legal issue though isn’t there…”

Talk over each other

Jennings: “But Michael Noonan pointed out in the Dáil last week, a high court case taken in Britain over two years ago which I think involved a similar case of essentially bondholders looking for their money back when they were entitled to..he pointed this out in the Dáil last week, right?”

Lucey: “He’s technically correct, which is the best kind of correct when you want to do something unpopular. Look, we are a sovereign nation and we can make a decision to do pretty much anything we like. People can then take legal action, if they wish, and in the fullness of time, the Irish and the  European courts say you must pay this, if that’s 20, 30, 40, 50 years down the line then that’s fine. But it would be incomprehensible that in the time, when last night, when people were sleeping in sub-zero temperatures on the cities and towns of this country, that we would think of doing anything like this. It’s not an economic issue, it’s not a legal issue for me, as a citizen of this state, it’s a moral issue and we should, as citizens, take a moral perspective. Economics and finance got us into trouble and got the rest of the world into trouble because we lost sight of the fact that it’s a moral issue. Adam Smith, the founder of modern economics, was not just an economist, he was a moral philosopher.”

Listen back in full here

The Week In Politics (RTE)


32 thoughts on “‘This Is A Moral Issue’

  1. MUlch

    This right here could fold the government and bring about the early GE that’s being muted, assuming they pay out. Surely they are not stupid enough to think this will go down well with anyone?!
    Public sentiment is already hugely against them right now and this would be the straw that breaks the camel’s back. Its an issue Labour can highlight and say enough is enough, thinking it will save them in an election, like the Greens taking a stand when in government with FF. I’m pretty sure it will have the same electoral response though.

    1. Mark Dennehy

      This is the straw that breaks the camel’s back? Not the SI that was just signed into law allowing any police force in the EU to wiretap Irish citizens and drag any telecoms company that doesn’t want to do so into a secret in camera court to force them to comply (and won’t even let them say they’re being dragged to court)?

      Not the firearms legislation crap that has thousands of people protesting to their TDs?

      Not the haystack that is the Irish Water debacle?

      Not the bale of hay that is the Universal Social Charge -vs- Top Level of Tax fight in Cabinet?

      If this is the straw that does it, we have a seriously fecked-up system indeed…

      1. MUlch

        I dont agree Mark.
        The firearms bill does not affect all Irish citizens as very few own firearms.
        IW is what has whipped up this whole backlash, so it would have a huge part in their downfall.
        The USC vs TLOT fight is posturing from both parties, nothing more. Both agree the tax level needs to be reduced, they just have different ways of going about it. ID prefer to see USC gone personally.

        This will break it as there is nothing more frustrating than having to take our medicine, then have government swear blind the junior bondholders won’t see a cent and having to back-track, in a time when the national services across the board are breaking/broken. As mentioned, these are not long term holders, these are vultures who bought them up and took a punt. These are the purest form of gamblers out there, and if they get paid, people will lose it.

        1. Mark Dennehy

          The firearms bill does not affect all Irish citizens as very few own firearms.

          Just 100,000. Although, that does include a lot of farmers and thus the IFA.
          But. I did describe that as a straw, while describing other problems as bales and haystacks, so I’m think you just missed the implication that there was a difference in magnitude there.

          But seriously, the vulture investors raking it in like this shouldn’t be the straw that breaks the camel’s back, there are larger things happening than that (like the surveillance SI being signed without mention, like the recent “oh, that US military aircraft that I said to the Dail four times had never been in Ireland despite a TD providing pictures of it landing in Shannon”, like the rise in homelessness to the highest levels ever seen, like the food banks running full-tilt, like the hundred other things that affect people directly on a daily basis.

          1. MUlch

            You’re right, i did miss your point on magnitude, apologies.
            Whilst i agree there are problems with surveillance and Shannon, these issues will not mobilise the people as much as handing over our money to chancers when we badly need it in so many other areas. Homelessness, overstretched food-banks, days on trollies in hospitals are all major issues, but unless it affects all citizens at the same time, it simply wont be enough to down the government.
            This is why IW has seen such a large response, no-one escapes.

          1. Mark Dennehy

            Okay, for the cheap seats.
            It takes a lot of straws to make a bale. And lots of bales to make a stack.
            So a Stack is bigger than a Bale. And a Bale is bigger than a Straw.

            So if I say something is a straw, and something else is a bale and something else is a stack, then in context, those three things affect different numbers of people and have different importance levels nationally (which is different to their importance to individuals).

            I’d explain it in terms of your ma, but I’ve tried three jokes on that riff now and they all fell flat.

            Like your ma.

          2. Spartacus

            I wonder if there’s anything to be said for the employment of a Father Ted “this one smaller, this one far away” analogy? For the Atticus’ hard of thinking amongst us, that is.

  2. delacaravanio

    Lucey is very emotional and illogical in his line of argument. Maybe morals have a place in economics, but they don’t have a place in law.

    It seems this will probably have to be paid as the bondholders not only have a contractual right, but also have, over the years of payouts to everyone else who owned junior bonds in Anglo, gained a legitimate expectation to be paid.

    The government could have probably cut a deal with the bondholders a couple of years back to pay them a percentage of the outstanding amount on the basis that Anglo was a criminal enterprise that manipulated its annual returns, and thurs had breached the terms of the guarantee, but they didn’t.

    Showing up over five years later with a legal argument of not a penny more “because Adam Smith said so” would be laughed out of court.

    1. Mark Dennehy

      Maybe morals have a place in economics, but they don’t have a place in law.

      That’s not what he was saying. He’s saying morals ought to direct how you use the law, which is just a tool as far as the government of a sovereign nation is concerned. After all, they happily fight far more appalling cases for years, as McGarrs Solicitors have commented on in the past:

      In that case a child was catastrophically injured at birth, requiring critical care for the rest of its life. The State fought for 5 years.

      Lucey is just saying that they ought to be applying that pigheadedness to this case in the defence of the voters, rather than the defence of the investors.

      And yeah, they’d probably lose, but they’d lose when they had the money to pay for the loss. As opposed to now.

      1. delacaravanio

        In the McGarr solicitors examples the state at least had precedents to argue.

        The problem I have with Lucey’s logic, or, more accurately, lack thereof is he gives no reasons why we shouldn’t pay beyond its the right thing to do. And as much as I, you, and everyone else agrees with him, it would not stand up in court.

        If the state could come up with a valid legal argument to contest the inevitable claim then fighting it in court would be worthwhile, but unfortunately I don’t think they have one. Arguing we might have more money in the future to pay this is grounds for a negotiated settlement with the bondholders, as I point out above, but they have no reason to settle due to the fact the government has paid everyone else.

        Look at the actions of the vulture funds against African governments or the more recent judgements against Argentina in the US courts to see how nasty government refusal to pay can get. It won’t go away, you know.

        1. Mark Dennehy

          You’re missing the point completely.

          In the McGarr’s case (in that specific one), there was precedent – in others there hasn’t been. The point was that the state in those cases took legal action because the will to do so was there. The legal arguments all followed on long after the decision to go to court.

          In other words, the government makes a decision before the lawsuit and it’s not based on legal argument, but political policy. Lucey is arguing that in this case, that policy should put voters ahead of investors. All the legal aspects to the case are things that you worry about after that decision.

          You can agree with him or disagree with him, but at least agree or disagree with the point he made and not some other point he never tried to make. Unless, of course, you just *want* to waste your time…

          1. delacaravanio

            Maybe I’m not making myself clear: the courts wouldn’t entertain the state’s case. I’m not missing his point, rather it’s that he doesn’t have a clue how this would be dealt with by the courts and its operating under the impression that this will pan out like some Bleak House saga. He actually suggests it could take forty to fifty years to finally emerge from litigation. He doesn’t have a clue.

            Here’s what will happen if they fight this: without a valid legal argument judgment would be quickly granted in favour of the bondholders. Any appeal would have to be on a point of law, and there isn’t a valid one that I can see, so they might not even get to argue any appeal. Tops it might buy them 1-2 years, enough to get them past the next election, but costing the taxpayers literally billions more in court interest and legal fees. Fighting out in court will make things worse for us.

            Therefore I think it’s not worth contesting it, except for political reasons.

    2. ahjayzis

      “Maybe morals have a place in economics, but they don’t have a place in law.”

      Yet. Maybe it’s a MAD idea, but maybe the people concerned, i.e. the lawmakers, could find it within themselves to maybe insert it into law?

      There SHOULD be a law putting the state first in the wrapping up of an enterprise it poured a years worth of tax revenue into. There SHOULD be a law that bars any government from mortgaging the country to protect a private enterprise without at the very least a referendum of the people who will pay the debt for the rest of their lives.

      I’m sick of the idea that an entire country of 5 million people is on legal par, or lower, than a niche bank or a single wealthy individual. It’s madness, the definition of anti-democratic.

    3. Sancho

      Agree. No place for these type of silly emotional arguments on the national broadcaster. It doesn’t help anyone- except Lucey, who gets to play the “man of people” card.

      1. Nigel

        If only the people would submit to the cold grey logic of their overlords who understand only one emotion, the fear of poll numbers.

  3. JunkFace

    THIS is what people should be marching against all over the country, not the water charges. There’s Billions at stake

  4. Anne

    The implication people here is, ‘oh, once again, €35billion back, we’ll get it, they might get something’

    As incoherent as ever, Brian Lucy, is.
    Even Frilly, more sense than him makes.
    Seriously, I find it frustrating reading his writing and listening to him.

    What I don’t understand I suppose, (and I’m not sure you could expect the ‘erudite’ Prof. Brian to explain it in any meaningful way, as he probably doesn’t understand company law enough himself) is in the normal run of things, if Anglo went into liquidation, there’d be nothing there for any bondholders, nevermind junior bondholders, so do the rules of liquidation apply, when it’s the taxpayer’s money?
    (same point as ‘ahjayzis’, above really)

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