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As "Proper Venue" Becomes The Chief Senior Debt Restructuring Topic, Look For Populist Hatred To Shift To The World's Army Of Lawyers
The biggest news of the day is that in what has to be one of the most inexplicable moves by the financial oligarchy, the Irish Times reports that EU and IMF missions in Dublin are looking at ways to impair Senior bondholders in Ireland - the first time such a move is even being considered. Whether this will actually occur is open to much debate as banker rhetoric of guaranteed "end of the world" intensifies as the possibility of reduced year end bonuses (particularly for European banks) becomes all too real, and the time will come to revert to the trusty old stand-by threat that deep down bankers are just much smarter than all of us, and if they don't get their way the apocalypse is sure to follow. Yet even assuming this proposal passes, the next (long overdue) question is just how will such an impairment take place? After all, we have progressed over 2 years in the depressionary crisis without one institution being forced to restructure its balance sheet in an out of court fashion. And as Paul Mason of the BBC summarizes it best, the real unknown will be one of "proper venue" - just under whose jurisdiction will such a restructuring occur? When one considers the complete cllusterfuck of a foreign bank operating out of Dublin, whose senior debt holders are tens of international banks, most of which based in various European countries, a problem further compounded by the fact that Irish law has no relevant provisions for impairment, just what is correct jurisdiction? If Europe relents and banks are at least on paper forced to take haircuts, what will be the last bastion before an all out domino collapse? Why millions of lawyers of course.
Which is why we believe that as restructuring questions (especially of the prepack, "out of court" variety) become ever more tangible, we expect that bankers will increasingly hide behind the shadow of their armies of lawyers who will now have years to advise the general public that despite the banking elite's desire to finally advance the proper cause, there just isn't a suitable legal framework in which to achieve this. Keep in mind - the whole point of the global insolvency game is now to merely buy time. But this action will have another much more important effect - as legal opinion becomes increasingly more front page news, popular anger will shift from where it rightfully deserve to be (bankers), to that tried and true receptacle of populist hatred - the world's army of lawyers.
More from Paul Mason:
If the Irish Times story is true - and it's being given credence in the City - some actual investors look set to share the burden of an EU bank/sovereign debt bailout - to cries of pain from then and delight from that now ubiquitous rostrum in the Deutsche Bundestag, from which Euro policy is now dictated.
OK. Some problems here.
First - under whose legal system do you do this? I am told the Irish legal system contains no provisions for such action so it is being partially discussed under the British legal system. This may be why Britain has to stump up - to create a legal umbrella to do any kind of deal at all.
But under anybody's law the problem is this: junior debt will get wiped out. But senior unsecured debt is, legally, I am told ranked alongside the money of depositors. So how if you cannot persuade the senior unsecured creditors to take a hit (and it's a big hit) you then face legal action where the negative outcome of the court case is, potentially, the loss of some depositors' money?
If we assume the European banks are persuaded to take a stake in the Irish banks, in return for, say a 15% loss on their outstanding debts, then that loss could amount to several tens of billions of Euros, says one investor.
We are increasingly confident that what this means is that as the next logical step in the global depressionary collapse is being evaluated, the legal ramifications will now take front and center stage, and with inside and outside counsels beginning to spar for proper position, the legal escalation will be one of delay, delay, delay, as it becomes all too clear that Europe is just not equipped for this kind of drastic escalation. The end result of course will be that as banks put off the inevitable out of court restructuring, virtually all of them will eventually be forced in court in what becomes the biggest freefall bankruptcy escalation in history. And the winner of all this? Why lawyers again, only this time of the restructuring variety. Keep in mind- the advisory fees in the Lehman bankruptcy have now topped well over $1 billion.
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How can one impair senior debt without destroying te Mez, Pref and Equity? I mean if the senior debt is not money good, then everything else below the line is toast??
That IS the reality of course. But my question is if the capital base is worthless then the bank in question is worthless. What happened to that Basel III thing that said it was supposed to be 10%??
More importantly on the asset side, deposits will have to be impaired. Good thing Ireland has an insolvent cousin to the FDIC... Oh wait.
senior unsecured debt is, legally, I am told ranked alongside the money of depositors.
More terrorism. Don't come after us, plebians, we've got a gun to your bank account. I don't see this hand-waving working though.
Depositors always come first.
In practise, maybe; but not in UK (or Irish) law, it seems. (Search for 'depositor preference'.)
of course the banks are worthless. And I am sure they will think of some way to legally shaft senior debt without taking money from the depositors (who are the voting public...).
Iceland rings a bell....
I believe the operative word is "unsecured" as in senior unsecured debt.
+++
I don't know my European history too well, but in today's era of seperate countries, what does Britain have to do with Ireland's debts? Besides the inter-connectedness of who-owes-who, i find it ridiculous the Brits have to step up with their legal system..
Self interest and self preservation. Banks up to nostrils in Emerald isle debt, crappy trade prospects iff Eire deflates (how??) and contracts further (very likely now) under IMF strictures and the 'Neuwe Einige Deutchland input.
Brit legal sys is older, deeper than most, has more exceptions and workarounds and the UK has no WRITTEN constitution, just body of law. Such a situation may allow senior debt fudging.
The (more) comical answer as voiced last week when Ireland was up for sale was that:
"The neighbours are cunts."
HTH
Kill the banksters! No, kill the lawyers! Well, kill 'em all and let God sort it out!
I don't like lawyers any more than the next guy, but I don't see how this essay holds water. "Sovereign immunity" means that the state has the guns and can change the rules in the middle of the game.
It can also default. If Ireland had not extended a blanket guarantee to the holders of bank bonds in 2008, all the world's lawyers could not conjure the money to make good on those losses. Did Argentina need a 'legal framework' in order to default, or did they just announce that they weren't paying?
I love ZH, but some recent articles appear to suffer from qualitative deflation.
The point is not to default. The point is to find a scapegoat which will tell the public default is impossible, until it becomes inevitable. And the whole point of the "essay" is to speculate that anger redirection may be imminent, now that impariments are being floated. Impairments are impossible as that is the endgame.
I think that you will soon find out that Ireland surrendered its "sovereign immunity" by signing up for the bailout. Greece did the same, ie., the old bonds which had Greek law jurisdiction where switched over to UK law.
Along with the other 15 sovs they surrendered by first joining EMU - then by fixing a set, teminal exchange vs the ecu, and finally adopting the €uro at which point someone else (trans ECB, ) was setting their interest rates and printing their dosh.
Of course, borrowing @ Bund-like rates was super.
Beware Germans bearing grifts
It's actually both sad and funny to see the panicked rats (bankers and EU apparatchiks) trying to postpone, kicking the can long the road to gain a few more months. What do they expect, seriously? Maybe they're just planning their escape to a private island.
Bankers are the devil incarnate. Lawyers are the devil. They both can have their little party in hell.
What is the difference between a carp and a lawyer? One is a bottom feeding scum sucker, the other is a fish.
Where's the sodding IRA when you need them?
Down'a pub.
The Hague, of course, like most war crimes.
"Back at the beginning of the year, the staff at Naked Capitalism caught a glimpse of the massive presence of shadow banking funding vehicles in Ireland, during our attempt to dig into into GS’s Abacus programme. Such public listing particulars as there are, are to be found on the Irish SE’s web site, along with scrillions of other shadow-banking-related entities. One imagines there’s a tax angle, as well as a disclosure and reg-arb angle. I have no idea how much has run off in the last couple of years, perhaps lots, which would rather deflate my point; and finding out what’s still there might be hard. But anyway, there do seem to be *tons* of liabilities for international banks via Ireland: to the tune of $500Billion, according to Eurointelligence, who explore what happens if this unconvincing bailout of the very possibly hopelessly insolvent Irish state goes ahead."
http://www.nakedcapitalism.com/
not entirely fitting with the vibes in the air, but a placeholder for now. a throwback, my dark house-y playlist
the source (a playlist): http://www.youtube.com/view_play_list?p=7BC8462BBFDD9D02
new playlist on Sunday mornin :)
http://www.youtube.com/watch?v=YO9KEKnnlKs
deep brutha man, i feel it
Jack is the one that can bring nations and nations of all jackers together under one house... Thanks for your list. Early 90's house.
http://www.youtube.com/watch?v=UauMoUy1fso
http://www.youtube.com/watch?v=xtpi-KsMO1g
Steak-o-licious - always good for lunch! :-)
http://www.youtube.com/watch?v=39qrVHKYVUo&feature=related
i prefer BBQ for lunch :D
first one is da shizzy...i'm all about some funk in my beats
I am Jack's deep proto-groove.
Germany bailed out Ireland before the bailout. Love to hear their bullshit- German bankers doing biz in Ireland bought the biggest failed bank, Depfa. Depfa dwarfed this current mess. It's all incest with one common denom. Best article on the web...I've found. http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html
Thanks for the link: great article.
I know the MD of the `structured products group` of one of the large German banks. He is London based, but travelled frequently to Dublin. No secret as to why, what the article said. He created a plethora of SIV`s mostly stuffed full of Russian originated `Asset backed` paper, CDO and CDS.
great article. worthy of investigation
this guy's blog is outstanding, thanks. he would be a worthy contribution to ZH methinks. serious forensic analysis he's doing.
this post is also quite illuminating:
http://golemxiv-credo.blogspot.com/2010/10/who-are-bond-holders-we-are-b...
question: WHO are these special people called Bond Holders that they must be so carefully protected even at the cost of despoiling a nation?
answer: The bond holders being protected, in every nation, on the advice of the banks and financial class, are THE BANKS AND THE WEALTHIEST OF THE FINANCIAL CLASS.
Reading the blog marketoracle today a very dirty bail out is in the mix, The UK government is in a process of covering the Irish governments bank insurance promise over its Post office accounts,
When the Irish bank goes bust all the UK savers money pays off the connected in the black hole, Then the UK taxpayers cover these deposits, Thats a dirty way but hey nothing supprises me.
Germany bailed out Ireland before the bailout. Love to hear the German whine like they had nothing to do with this- German bankers doing biz in Ireland bought the biggest failed bank, Depfa. Depfa dwarfed this current mess. It's all incest with one common denom. Best article on the web...I've found. http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html
The bailouts are for the German,French banks that are on the hook' for many of the npl's...
Europe's Web of DebtBanks and government in these five shaky economies owe each other billions of euros and have many large debts to Britain, France, and Germany.
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html
The first thing that comes into my mind are the GM Chrysler debt holders. Govt's can change the rules almost by fiat so yes the venue methodology is critical but only in the sense the burgler's choice of tools is critical.
It seems more likely that public anger will fall hardest on the politicians and by turns the governmental institutions themselves. One of these failures will lead to a fundamental redescription of some unfortunate nation or more likely, pairs of nations.
To the best of my meagre knowledge:
I believe some of the bank debt was issued under UK law, so that's likely the reason why UK jurisdiction comes into it. You can be sure that whatever bank resolution law is necessary will be rammed through the Irish parliament in advance of the restructuring. I thiink the UK Act requires the UK legal system to recognise similar resolution regimes in other countries?
Under UK law (basically, its Banking Act 2009) it seems that the state is free to do things like (roughly speaking) burn both seniors and depositors equally, then compensate the depositors' but not the seniors' losses away using public money. The Act's "no creditor worse off" principle dictates that unsecured seniors can't be left any worse off than if the bank went into straightforward liquidation. But the purpose of the Act is that seniors aren't shielded from the losses they would have taken in a liquidation by the state's desire to avoid a liquidation or protect deposits. (Though it certainly doesn't oblige the government to burn creditors down to even that level.) Of course any new Irish resolution law might or might not enshrine that principle. I suspect it will, though, partly because in the EU expropriations are forbidden under (yes!) the European Convention on Human Rights, while there's also a similar provision in the Irish constitution. If any of this does happen under the UK law, then I'm pretty sure this will the UK's inaugural senior-burning too - subs were burned under the Banking Act 2009 when the Dunfermline Building Society went down, but the losses didn't reach the seniors.
If you click on the link/chart I posted above the U.K. banks are owed 188 Billion in regards to Ireland.
I think there are 2 possibilities if the banks are forced to take a haircut, the first is that the bankers pay themselves enourmous bonuses, followed quickly by declaring bankrupcy or secondly they sell the all the bonds to pension funds at par, and private pension funds take the hit, I mean it wouldn't be difficult to pay some pension fund manager $50M signing bonus after they have bought the billions in bonds and resigned would it?
re: possibilities ...that the bankers pay themselves enormous bonuses...
Proof is in the pudding. A glance at bankers' personal wealth will show they have already benefited majorly. Banks may go bust, but the banker-humanoids laugh all the way to their next debt-holder feast. The SOP is to hollow-out a pool of OPM.
Banker-bags are the original bug-out-bags.
We shall see who controls what. And what the insolvency lawyers think about it will have nothing to do with the finale.
BTW, note that depositor flight has already begun in the Irish banks, and has now reached the retail depositors, but only quietly: there are no queues outside banks (yet?) So since the ECB is now trapped propping up the banks' deposits, its plan to start withdrawing support from the Irish banks in order to force the EU (and really, of course, Ireland) to take the losses for Frankfurt is backfiring beautifully.
The fact remains that once the buttons start popping it is game over. Our propensity to fix the blame will invariably lead, in part, to justice and those who populate its organs. Lawful plunder is what it is and this process couldn't survive without a whole set of systems & subsystems to support it.
Still, no one profession is the bag holder here. The whole of the major societal systems & subsystems seem impaired so the law & justice are not alone.
So who will be the equivalent of the Alvarez & Marsal LLC, for the banks of Ireland? Are there enough law firms in Ireland that there are currently any law firms not already entangled by current deals with Ireland's largest banks?
This will be fought out in the UK's courts.
It is my understanding that the governing law of most of the defaulted instruments is UK law and venue will be the UK courts of appropriate jurisdiction.
Lawyers vs. Banksters, with full employment guaranteed for both the Inns of Court and the securities bar on both sides of the Atlantic.
My bet is on the lawyers, although I don't know which bunch of scum-sucking shitbags I hate worse.
You will never find a more wretched hive of scum and villainy
Orrrr maybe not. Apparently the negotiators want to wrap up a deal before Monday morning, but they still haven't decided whether to burn seniors, or for that matter what the interest rate should be. Doesn't look good for haircuts, I'd say.