It is deja vu all over again. To little media fanfare the dire financial situation in Ireland is nothing less than a repeat of the Lehman collapse in those dark days of September 2008. With the recent nationalization of half of the country's six big banks, and the blanket guarantee over the rest of them, the Irish government has effectively made sure that bondholders in all banks, even those which such as long insolvent Anglo Irish bank will be made whole by the long-suffering Irish taxpayers. And despite rumors of haircuts for at least sub debtholders, actual facts validating this possibility remain unseen. Which begs the question why is everyone in the world so terrified of taking mark to market losses on even a few billion in debt? Simple: as all of the world's banks, but Europe more so than anyone else, are now caught in the biggest circle jerk ever imaginable, with one entity's liabilities making up another's assets, which in turn are someone else's liabilities, and so forth in a MC Escher (or is that HR Giger?)-esque flow chart of the surreal (as can be seen here), even one dollar of write downs can spiral and affect tens if not hundreds of billions of downstream assets (and thus liabilities). Which explains why the ECB and everyone else in Europe is so intent on preventing a failed auction in Ireland (we previously disclosed that virtually every September auction of Irish bonds was purchased by the ECB, either directly and indirectly): should the banks that are on the hook actually validate their impairment, Europe is one step away from activating its own $1 trillion TARP package. Yet what is amusing is that inbetween the cracks of exclusively European-bank based senior and subordinated bondholders in such bankrupt banks as Anglo-Irish, a familiar name emerges: Goldman Sachs.
Yes, nested quietly inbetween the €4,034,756,880 in face value of Anglo Irish bondholders is the name that managed to pull the strings (via its puppet Hank Paulson) and get bailed out when AIG threatened to make Goldman management and investors insolvent. Is Goldman, via its UK-based Goldman Sachs Asset Management Intl. subsidiary, currently petitioning Brian Lenihan to be the only US-based bank to receive a direct bailout on its Anglo bond position? Or is it, as always behind the scenes, negotiating on behalf of 80 other European banks, among which Lombard Odier, Rothschild, and Deutsche, and achieve what it always succeeds in: escaping scott free, and stuffing taxpayers with the bill? We are confident Irish taxpayers, and drivers of cement trucks, would be fascinated in getting the correct answer.
Guido Fawkes, who managed to obtain the Anglo Irish bondholder list, shares the following commentary:
Anglo-Irish Bank did not represent a systemic risk to the Irish economy, it wasn’t a high street bank like AIB or the Bank of Ireland. If it had been allowed to go the way of Lehmans the only losers would have been shareholders and bondholders. The Irish state stepped in and nationalised a bank that was basically run by crooks lending to property speculators. The Irish people are taking losses that should rightly have been shouldered by bondholders.
Every child in Ireland is being bequeathed a huge debt at birth to protect the interests of foreign, mainly German, bondholders – why? Guido was once a bond trader, it was always understood that sometimes the bond issuer defaults. That is the risk investors take.
So why is Dublin’s political establishment so keen to protect foreign investors at the expense of future generations? Guido has obtained the list of foreign Anglo-Irish bondholders as at the close of business tonight. These are the people whom Dublin’s politicians really seem to care about.
Between them they hold Anglo-Irish bonds with a face-value of €4,034,756,880. Shouldn’t they take the hit rather than future generations of Irish taxpayers? Capitalism is a system of profit and loss, they took the risk of investing in Anglo-Irish Bank. Is the Irish government under pressure from the European Central Bank in Frankfurt to protect German investors?
Spot on question. And as the highlighted area in the chart below demonstrates, we would like to add Goldman Sachs to the list of bailoutees. Surely, few firms in the world deserve to be redeemed as much as god's little helpers.
Little else that can be added here... except for this amusing anecdote of another Goldman Sachs International Chairman, one Peter Sutherland, former Ireland attorney general and EU commissioner who just so happens was a chairman of British Petroleum (remember those guys?) previously. To wit from the Irish Times:
[Sutherland] and [recently heckled] Lenihan have remained in contact through the financial crisis. On one occasion, Sutherland visited Lenihan to tell him what a great job he thought he was doing and to say that Lenihan had the potential to be one of the great taoisigh of the 21st century. Lenihan was taken aback, he says.
Surely, this great son of Ireland, who obviously has Lenihan in his back pocket, is in active negotiation on behalf of his current employer, Goldman Sachs. Yet something tells us Mr. Sutherland will be the last person to share light on Goldman's twilight relationship vis-a-vis the Irish government.
One look-back Sutherland opposes is the banking inquiry. This is hardly surprising from a former chairman of AIB who appeared at the 1999 public inquiry into the Dirt tax evasion scandal.
“It would have been better not to have an inquiry at this time because we have limited resources and a diversion of those limited human resources into an ex post facto analysis of the past is far less important than remedying the immediate problem that we have now,” he says.
“It is a very difficult subject and to have all of these civil servants sitting in listening to bloody evidence on the past when they all know broadly what happened. We know what happened – we know it all. A political football is not what we need. We need to look to the future to get it right.”
Lack of revisionism is not too surprising coming from a person whose personal, and future, fortune, is based on the past generosity of American, and now Irish taxpayers. Because his wealth is certainly not due to his skill at anything related to his actual career:
Sutherland was also a board member at Royal Bank of Scotland (RBS) during the financial meltdown when the UK bank collapsed into state arms after a frenetic, debt-fuelled growth. Of the bank’s 2007 role in the €71 billion acquisition of Dutch bank ABN Amro, the biggest ever banking takeover, Sutherland says it made “the mistake of buying at precisely the wrong time when the world was falling off the back of a bus”.
Perhaps instead of driving trucks full of cement into Parliament, Irish taxpayers can be a little more proactive, and ask one of their most respected "leaders" just on whose behalf he is working on in this latest bailout, which could easily be Ireland's last.