Just a reminder of one little corner of the toxic debt fiasco that has plenty of bite still left in it.
The Irish banks got in a big mess with duff RE loans. The government swapped discounted bad loans for government-issued bonds. A new agency, NAMA, monitors the duff loan portfolio. There are half a dozen Irish banks participating in the scheme:
Bank of Ireland
Anglo Irish Bank
Irish Life & Permanent
Here’s the FT’s take from a while back. Applying only a 30% discount to these duff loans is generous, so the whole thing is the usual dump onto taxpayers. Here is some criticism from an earlier stage of the plan. The details have changed and firmed up but the outline is as discussed there.
There’s a bit more to those politically connected developers though. It turns out that loans to no more than ten or a dozen of these developers account for EUR 20Bn of the EUR70Bn face value of the debts exchanged in the scheme. Seemingly this has come out as NAMA identified the counterparties that crop up (in multiple loan books, on the different bank systems that NAMA now have to interface to) and – as part of the exercise of analyzing the loan concentrations – have discovered the interconnections between various companies. One can only guess at the banks’ credit control process; and how much they were currying political favour by making the loans. It looks like huge incompetence at best, or maybe just a race to the bottom, with a side order of utter corruption.
There are something under 2,000,000 Irish taxpayers. The extra national debt incurred (so far) equates to EUR25,000 per taxpayer. And EUR6,500 of that goes to repair damage inflicted by just a dozen well-placed spivs.
Then go for some fairly brutal austerity to sort out the new debt/GDP ratio (Irish unemployment was 13.5% the last time I looked). You will have some pretty discontented citizens, and the debt/GDP ratio will stay the same, or get worse, so you cut again.
The row has plenty of mileage left in it; likewise the loss recognition process (as well as that very friendly 30% haircut going into NAMA, the Irish banks have got CRE loans in UK and US which they haven’t marked down much yet; and Irish banks aren’t the only ones with Irish CRE exposure).
Updated: numbers now reflect ‘taxpaying’ rather than ‘of working age’; oops; thanks Mack. Another mess or two to come – so I hope the context will become more obvious.