PROMISSORY NOTES TO PROM NOTE BONDS EXPLAINED
Heaven help me, but I'm going to try to explain the deal
done by Ireland’s Finance Minister Michael Noonan last February when he
transposed the contentious Promissory Notes to Sovereign bonds.
THE ORIGIN
In 2010 Anglo Irish Bank and Irish Nationwide weren't just
in serious trouble, they were bust, dead in the water. Between them they had
liabilities of €30.6bn (Anglo with over €25bn of that), didn't have the assets
to cover those liabilities, leaving their various investors seriously exposed
to a major hit.
At this stage both the European Commission and the ECB were
involved, were fully informed of the crisis.
The ECB controls the printing of euro in the various
Eurozone countries. No country can just willy-nilly print additional currency;
before an individual bank can get a cent, never mind billions, it must produce
evidence of solid assets to back up its request. When they went to the Central
Bank of Ireland in 2010 neither Anglo nor Irish Nationwide had any such solid
evidence; in fact they were zombie banks, insolvent in practice (they could -
still can - actually legally hide this, too complex to explain here!) and under
its own rules and regulations the ECB should have refused permission for the
Irish Central Bank to print that money.
Fearing for the euro, fearing for the survival of bigger
banks in the so-called core countries which at the time were hugely exposed to
banks in the so-called peripherary, the ECB accepted as collateral the infamous
Promissory Notes, signed by Ireland's then Minister for Finance, Brian Lenihan.
It should not have done so but because there were no structures
in place for bailing out a bank (there are now), they accepted those notes. And
so it began.
The ECB allowed the Irish Central Bank print those extra
€30.6bn, which went to Anglo and Irish Nationwide, bailed out their
investors.
The ECB then called in those notes, however, insisted that
year by year over the next decade and more the Irish government - the Irish
people - would have to take that €30.6bn back out of circulation; we would have
to borrow those billions, real money which then became real debt on which we
would be paying real interest, and destroy those billions, until the entire
€30.6bn had been taken out of circulation.
By January of 2013 most people in Ireland were beginning to
grasp the obscenity of this neat little arrangement. Though not a single cent
went to the Irish exchequer, not a single hospital bed paid for, not a single
classroom, every March 31st from 2011 to 2023 our government would
borrow €3.06bn, it would end up with the Central Bank of Ireland, who would
destroy it. All to bail out two zombie banks.
From 2024 to 2031 a reducing amount would be borrowed, would
still be burned, until the entire original €30.6bn Promissory Notes plus
interest, was paid. All told it came to €47.58bn but the interest went largely
to ourselves (table 1 & note 1 below).
AWARENESS DAWNS
As the reality of this absurdity dawned on people there was
outrage, rightly so – this was from the Laurel & Hardy School of Economics,
surely?
Pressure mounted on the government to simply tear up the
remaining €25bn Promissory Notes and face down the Troika, the ECB in
particular. But no, Government didn’t have the stomach for that particular
fight. Instead they came up with a new arrangement, a ‘deal’ which transforms
that very debatable debt (‘Totally illegal’, Finance Minister Michael Noonan
admitted on national radio) into sovereign bonds.
THE NEW PROMISSORY
NOTE BONDS
Here is what happens now: as a result of Noonan's 'deal' the
National Treasury Management Agency (NTMA) issued bonds to the value of €25bn
(currently held by Central Bank of Ireland); that money was used to 'buy' the
remaining Promissory Notes, which were then destroyed.
In other words, one €25bn debt was simply exchanged
for another. The actual Promossory Notes - the paper - was destroyed, the
actual debt debt remained, in full.
So what happens with the debt? A new schedule, that's all, a
new schedule of borrowing, burning and payment, the burden shifted from this
generation to the next, and the generation after that.
Before the end of 2014 the Central Bankwill sell the first
of the new P Note bonds, the smallest of the bonds at that, a mere
€500,000,000. Immediately it's sold we start paying interest to the new
bondholder; in 2038, that bondholder comes a-calling - 'thanks for the
interest for the last 24 years, now I'd like my original €500,000,000 back.'
Before the end of 2015, another €500m will be sold, then
another and another and another, 2016/17/18, interest being paid immediately
they are purchased, the principal to be paid sometime into the 2040s.
It gets worse. In 2019, the first of five annual
€1,000,000,000 bonds will be sold, the billions then burned; in 2024 it
increases again, eight years now at €2,000,000,000 per year, every cent
borrowed and burned.
Finally, in 2032 the last of the P Note bonds is sold, this
one for €1,500,000,000, making a not-so-grand total of €25bn, exactly the same as the remaining Promissory Notes (table
2).
DANTE’S INFERNO,
NOONAN’S HELL-FIRE
As explained above, exactly the same thing happens to all
those billions as was happening before the Noonan 'deal', only at a different
pace. Up to March of last year the government was borrowing €3.06bn per year,
now the pace has eased as has the pressure on them. But that is all they've
done, eased the pressure on themselves and their annual budget. The overall
result remains the same; to bail out the failed investors in two bust banks, a
broke nation is borrowing billions to burn, all at the behest of the ECB, all
also because our own government didn't have the spine to stand up for its own
people.
WHAT, ANOTHER
SCHEDULE?
Meanwhile, however, on all those borrowed and burned
billions we’re paying interest (over €40bn in total) but in 2038, a new
schedule kicks in - the bondholders coming a-calling, looking for their
original money back. Yes, that money, the billions we destroyed.
REFLECT
Just pause for a second and take that in. Expecting to make
huge profits, institutional financiers loaned billions to cowboy Irish bankers
in Anglo and in Irish Nationwide. Those investments failed, now we – the Irish
people – are landed with this bill, plus interest, a projected total of €72bn
(all going well!). Rather than fight this odious debt our Finance Minister
converts the questionable Promissory Notes to sovereign bonds, shifting most of
the responsibility for paying that private debt on to future generations.
Would you do this to your own kids? To settle disputed debt
you were being strong-armed to pay, would you take out a huge loan for your
kids and their kids to pay? That’s what Minister Noonan has now done in your
name.
INTER-GENERATIONAL
DEBT
Inter-generational national debt is normal but there’s
nothing ‘normal’ about this. The Promissory Note billions were for the
exclusive benefit of banks, bankers and high financiers; the sovereign bonds
that now replace them are exactly the same.
WHAT THEY DON’T WANT
YOU TO KNOW
Every government spokesperson on this talks about savings -
how do you effect ‘savings’ in paying a debt you never owed? What they’re
diverting you from is this – with the Promissory Notes, we were borrowing to
burn; with these Sovereign Bonds we are still
borrowing to burn, exactly the same amount.
CHOOSE WHO TO BELIEVE
As with so much that he has done since becoming Minister for
Finance, Noonan’s new ‘deal’ has been generally acclaimed in our national
media. Since this government came to power, however, one little boy, then
another and another has been saying – the Emperor has no clothes.
On this deal we’re saying ‘Yes, the Emperor has new clothes
– same as the old clothes’. It’s a sham, it’s a scam.
Choose who to believe; choose what you do next.
Ballyhea Says No, Charleville Says No; a growing number of
towns and villages around the country have joined us in the Ireland Says No
campaign. There is still time for you to join us, but that time is running out.
Those bonds are scheduled to begin issuing before the end of 2014; no matter
what, that must NOT happen.
Twitter: @ballyhea14; @fb_fitz; @fitzcheese; @cathandpat.
Facebook: Ballyhea bondholder bailout protest.
TABLE 1
THE ORIGINAL
PROMISSORY NOTE SCHEDULE
This schedule involved the destruction of billions every
March 31st
TOTAL FOR PERIOD RUNNING TOTAL
2010
€0.2bn
€0.20bn €0.2bn
2011 - 2023
€3.06bn/annum (13
yrs) €39.78bn €39.98bn
2024
€2.1bn
€2.10bn €42.08bn
2025 –
2030 €0.9bn/annum (6
yrs) €5.40bn €47.48bn
2031
€0.1bn
€0.10bn €47.58bn
TABLE 2
THE PROMISSORY NOTE BOND ISSUE SCHEDULE
(yet to be approved by the ECB)
TOTAL
2014 – 2018:
€0.5bn/annum (5
yrs)
€2.5bn
2019 – 2023:
€1.0bn/annum (5
yrs)
€5.0bn
2024 – 2030
€2.0bn/annum (8
yrs)
€16.0bn
2031
€1.5bn
€1.5bn
NOT-SO-GRAND TOTAL:
€25bn
TABLE 3
PROMISSORY NOTE BOND REDEMPTION SCHEDULE
TOTAL
2038
€2bn €2bn
2041
€2bn €4bn
2043
€2bn €6bn
2045
€3bn €9bn
2047
€3bn
€12bn
2049
€3bn €15bn
2051
€5bn €20bn
2053
€5bn €25bn
NOT-SO-GRAND TOTAL AGAIN? €25bn
