Nash Equilibrium Fail: Ireland Wants Senior Bondholder Haircuts

Tyler Durden's picture

And so the great decade + old eurozone game theory project of Europe is about to come crashing down. Following Europe's decision to leave Ireland out in the cold, due to the country's ongoing unwillingness to pander with unilateral concessions to the global banking syndicate, the Emerald Isle has apparently decided to call the EU's bluff. Reuters reports: "Ireland's government wants to impose losses on some senior bondholders in Irish lenders to reduce the burden on taxpayers from a prolonged banking crisis, a senior minister said on Sunday...Analysts widely expect the government to impose losses on senior
bondholders in nationalized lenders Anglo Irish Bank and Irish
Nationwide because they have sold their deposits and are being wound
down. Hitting any unsecured unguaranteed senior bonds in Bank of
Ireland and Allied Irish Banks (AIB), which amount to over 11 billion
euros, would be more controversial
." Yet most controversial would be the fact that the Eurozone is now unable to control its wayward son, which seems set on actually following the will of its people than that of the plutocrats. And just like Tunisia set a precedent to the MENA region with an act many thought was unthinkable, should Ireland follow through with this near-revolutionary act of a debt impairing chain-reaction, most other countries are set to follow suit, leading not only to the inevitable end of the one currency block, expected for so long by many euroskeptics, but yet another US taxpayer funded bailout, as was revealed on Thursday of last week, when we observed the upcoming "threat to the international monetary system" as predicted by the IMF.

More from Reuters:

Dublin wants to impose losses on banks' senior unsecured bonds not covered by a state guarantee, which currently amount to over 16 billion euros, as part of a new deal with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF).

"A sustainable and comprehensive solution for Irish banking that involves recapitalization but also involves an element of burden-sharing ... That is certainly the outcome that the government is looking for," Simon Coveney, minister for agriculture, told state broadcaster RTE.

Under an EU-IMF bailout agreed late last year Ireland can impose losses on banks' junior debt, but the ECB is opposed to treating senior bondholders, which are ranked on a par with depositors, in the same fashion for fear of a contagion risk.

Ireland's new government, elected in February, has said the state cannot afford the current EU-IMF bailout deal and European finance ministers will decide on what sort of concessions they can offer Dublin in coming weeks.

They are awaiting the results of fresh stress tests on Ireland's banks, expected to show a capital hole of around 25 billion euros, on March 31 before deciding on any new deal.

This latest batch of bad news comes just in time for Merkel to suffer her latest political crushing defeat in today's Baden-Wuerttemberg election:

Chancellor Angela Merkel's party on Sunday faced a possible loss of power in a state that has been a conservative stronghold for six decades — as German voters appeared increasingly skeptical about her stance on nuclear plants.

Eight million Germans were voting in a closely watched race in the wealthy western state of Baden-Wuerttemberg, where recent polls suggest Merkel's Christian Democrats are poised to lose by a narrow margin in an election clouded by Japan's nuclear crisis. The issue could help the anti-nuclear opposition Greens win their first-ever state governorship.

The chancellor's abrupt about-face decision to order a temporary shut down of seven of the country's older reactors has raised doubts about her credibility in a country that remembers well Ukraine's 1986 Chernobyl disaster that spewed radiation across Europe.

The Baden-Wuerttemberg election is viewed as the most important of Germany's seven state ballots this year. The prosperous southwestern region around Stuttgart — home to carmakers Daimler AG, Porsche SE or software house SAP AG — is the only state where the same center-right coalition that governs Germany has to face state voters.

For Merkel's coalition partner, the Free Democrats, the stakes in the state are equally high. The party is fighting for its survival, with polls putting them around 5 percent — the minimum threshold to enter parliament.

We can't wait for the EURUSD reaction at 4 pm today on this double whammy of rather horrible eurocurrency news.

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Hulk's picture

No counterparty risk based assets bitchez!

Janice's picture

That's what I want to know ....the effect on gold & silver.  To the moon because of fiat volatility or to the floor because of debt consolidation, reduction and repudiation.

Hulk's picture

fiat always fails, always. We now have first hand experience on the money will continue the move into PM's

Doña K's picture

This is to the new Irish leaders and the Irish people. My congratulations for showing off your brass bollocks.

You already threw out your landlords once before.

Time to do it again. Defauly default default. Start over and be lean and mean. The whole world is with you. Show Greece, Portugal and Spain how it's done.

Italy should be able to get out of it selling factory pre-rusted Fiats to the Americans.

Pegasus Muse's picture

I'll have you know the Fiat 500 is one fine auto.  It's fun to drive.  We've enjoyed the hell out it.  Germans like 'em too. 

Go pick on a Mini Cooper, a Kaa or Smart Car.  Don't be bad mouthing my Fiat!

contrabandista13's picture

1979, Fix It Again Tony, 2000 Spider here...  Love it with passion like a work of art...

Thanks for the easy math question.....

Doña K's picture

Mine was factory pre-rusted. Mind you that was sometime ago. I also owned an Autobianchi made by Fiat. Rust all over popping the paint out in 18 months or so. 

bigkahuna's picture

Hulk, I think the smart money has already jumped ship. We must be dealing with semi-enlightened money now. It is getting difficult to afford. I wonder how long until it is impossible?

Withdrawn Sanction's picture

fiat always fails, always. We now have first hand experience on the money will continue the move into PM's


Indeed, fiat always fails…temptation being what it is and human beings being what they are. 

As for smart money fleeing into PMs, if that’s true (and I don’t doubt that it is), then it begs the question, out of what are they fleeing?  Whatever they are fleeing, the assets being sold are the ones that will be deflating—a process BB and his bankster cronies are desperately trying to thwart. 

So the Nash reference in the article's title is quite apt; in that, should Ireland become the first (or second if one counts Iceland), to defect from par payment, the debt deflation tsunami will, in all likelihood, become ustoppable. 


scatterbrains's picture

If the smartest money with the deepest pockets have moved into PM's then dosn't game theory infer that they are now looking for ways to crash the fiat system and make their PM investments all the more valuable ?


Hulk's picture

Feels like a tug of war between two giants at this juncture...

Popo's picture

How does EUR/USD play out is what I'm curious about.

Does Ben eat the European shit-sandwich, or does Brussels?

pyite's picture

What I don't get in this whole ridiculous "crisis" is why bondholder haircuts are off limits - when bankrupting the entire government is just fine.

I understand that the default chains are a real problem but it has been 3 years since this situation has gone critical - by now the central banks should have a better picture of how to unwind these bonds as painlessly as possible.


tallen's picture

About GOD DAM TIME. I just hope England follows down the same route.

Can't wait to see how my short positions and Vix calls open up monday. Happy days.

Then again, the dow will probably open up 100 points. Lack of common sense at the moment is at a record high.

Subprime JD's picture

OK, say that Ireland imposes haircuts on senior bond holders, cant the ECB simply buy the bonds from the Irish Banks? Basically what the FED did over here, cash for MBS trash. So long as central banks have power to issue currency, it matters not who makes the laws.

Convolved Man's picture


Abracadabra, Presto Chango...

Your trash is now CASH!!!


Lend it wisely.

InconvenientCounterParty's picture

at the moment, I can't imagine why they would not do this. Nothing placates the masses like free notional money. The spectre of alternate currency just won't die for some reason.

Raymond K Hassel's picture

IMF will do it - clearly this is what they started preparing for last week.

Raymond K Hassel's picture

And by IMF, I mean Ben.  Added bonus, he can be one additional layer removed from scrutiny and oversight. 

Lord Welligton's picture

The ECB has run out of road. €130bn of road.

So, they get the ICB (Irish Central Bank) to lend €50bn.

Now the ICB never had that money (not did the ECB).

So the Irish banks have, say, €200bn of Central Bank money that never existed before the crisis.

And the head of the ICB says that it is "manageable".

I think he's a gobshite.

TaxEstate's picture

Guess this means S&P futures will be up 100+ by morning, right? Can't wait until the BTFD robots have their "Harry Mudd" moment.

Ray1968's picture

That's what I was thinking while reading this....just another irrational excuse for a rally.

Headline: Investors "shrug off" Irish situation....... yadda yadda BS.

Clockwork Orange's picture

Yup.  Endgame is good fodder, but it only begins with ending the bankers.  This just takes us one step closer in the awareness of sheeple-ville.

breezer1's picture

it appears that the natural laws of hard money are raising their ugly heads.

traderjoe's picture

But, but Leo said things would be fine just the other day...

Zero Govt's picture

behind every curve head up his arse Leo, that Leo?

Yardfarmer's picture

Analysts widely expect the government to impose losses on senior bondholders in nationalized lenders Anglo Irish Bank and Irish Nationwide because they have sold their deposits and are being wound down. 

channeling Yahoo verbatim. attribution? or is that just Reuters?

High Plains Drifter's picture

bond holder haircuts?  now we are back to square one, no?

Sophist Economicus's picture

I've got a machete I can lend them for them, there haircut. Cuts square and true

Manipulism's picture

It seems that also these dumfucks Schwaben as the aboriginies of Baden-Wuertemberg are called had enough of this corrupt little asshat Mappus.

This gangster has sold out this land.

Die fucker and take Merkel thisd pig with you.

Sadly if this happens the followers will be the same shithats with another label.

Same as in the USA.

Im goin to vomit a bit.

dildo o flaherty's picture

Begorrah,de boys might just be wakin' up in the Emerald bullion will be shoining!

Horatio Beanblower's picture

"German Chancellor Angela Merkel's coalition is set to lose the key state of Baden-Wuerttemberg after six decades in power, exit polls suggest." -


"Angie, Angie, when will those clouds all disappear? 
Angie, Angie, where will it lead us from here? 
With no loving in our souls and no money in our coats 
You can't say we're satisfied 
But Angie, Angie, you can't say we never tried..."


- M. Jagger/K. Richards

cossack55's picture

I'd be happy if Angie just went with the clouds and disappeared.

goldfish1's picture

They might want to keep Angie now that she's figured out the game.

cxl9's picture

but the ECB is opposed to treating senior bondholders, which are ranked on a par with depositors, in the same fashion

If bondholders are "on par" with depositors, then they were receiving the same interest rate on their money, right? I know, dumb question..

lizzy36's picture

Imagine....gasp....what will happen when senior bond holders, are forced to take a haircut, and the world doesn't implode. Perhaps, this will lead to.....shudder.....risk starting to be properly priced (a girl can dream) and an element of TBTF, starting to recede.

Alas one will believe this outcome when she sees it. Because as we all know, once this gate is open, once the MAD thesis is debunked, the citizens of states where austerity is being imposed, are going to start DEMANDING that banks/senior bondholder start sharing the pain.

Summer of 1968, redux in 2011?

wandstrasse's picture

are going to start DEMANDING that banks/senior bondholder start sharing the pain.


Oh! Impossible! in that case, you know, 9 trillion jobs would get lost (just in Europe - worldwide many more!) plus no pensions for nobody, the usual government blabla when sb. tries to restrain banks/big investors.

Hulk's picture

Well stated lizzy, but at what cost does this level of risk price in?

snowball777's picture

Mutually Assured Derivatives? JBETF (Just Big Enough...)?

If you think senior bondholders getting scalped is funny, wait until it's the señor bondholders in Floyd's chair.


css1971's picture

Much as I agree with the sentiment... We have both in the UK and EU, a lender of last resort which removes the need to price risk.


pyite's picture

Standard bankruptcy procedure, it is a no brainer that this must happen at some point.  Admittedly it is a much more complex problem than e.g. the S&L crisis in the 1980's - but behind the scenes every government in the world should have been preparing for this.


scratch_and_sniff's picture

I will be heartbroken if the euro fails, its a peach to trade.

Zero Govt's picture

there will be other 'peaches' to trade

while the so-called 'Eurosceptics' in Britain like MEP Danial Hannan and Old Tory Norman Tebbit are having a field day knocking the Euro and EU both forget the problems of the undemocratic EU are the same problems of Govt everywhere. Similarly they knock the Euro but Sterling is no better having actually lost chunks against the Euro since its inception which gives the lie to Tebbits insistence a currency needs a central bank not 16

Westminster stinks as much as Brussels which stinks as much as Washington and Berlin and the same goes for any currency with a centralised control structure as Hannans and Tebbits beloved Sterling will shortly find out

But at least Irish politicians are shaving a little off the blocks of treason and Keynsianism with these latest (small) moves. Great from these 'Professional' politicians who when they went full-time and were paid professional wages many moons ago was supposed to bring in a new better age of Govt (proved to be BS as usual)

The age of 'professional' politicians has brought us to bankruptcy in every country, truly brilliant! ...and none of them will vote for Christmas (ie. an end to Govt) or to free the currency to the free market ... this Irish move is a baby step, there's a long, long way to go yet

Dr. Porkchop's picture

Shave and a haircut...

A Man without Qualities's picture

The state of Baden-Württemberg was formed in 1952, and held by the FDP for one year, until the elections of 1953, when the CDU won control which they have retained ever since.  They won 44% of the votes in the last election in 2006.  

According to exit polls, the Green Party looks set to win 25% of the votes compared to the 11% they won last time.

Big changes are afoot in the heart of Europe, with even the traditionally conservative and affluent growing tired of the extend and pretend.  I speak with many people in Germany and the mood, especially towards Portugal, is there is no point pretending they can pay their debts any more, and now might be as good a time as any to stop the lunacy.  The boys at the Fed aren't going to be happy...