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.