IBRC: “This bill when finally enacted will bring to an end…. erm..”

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So what happened last night? Well, not the end of history, as the Tanaiste part billed it), but what’s left of Anglo Irish Bank (IRBC) was wound up. That required a piece of primary legislation to close it down and transfer its assets (and, more importantly, liabilities) to NAMA.

Why? Because IBRC’s debt was being paid through the Promissory Note costing a fortune (3.1 billion pa for tens year). The ‘advantage’ of a PN is that it can be unbundled and restructured. Pushing it out to the bond markets means it cannot.

But the government will hope to ease the pressure on the current account by pushing out the term of repayment to thirty years on a Nama bond, which the Nama Wine Lake blog reckons will take the shape of interest only payments, so that the State will save because NAMA just pays 0.75.

Yeah, but what happened last night? Well, if you listen to Sean Whelan on Morning Ireland this morning he tells us that whilst the deployment of the legislation was rapid (committee stage was allocated just 15 minutes) the bill itself winding down IRBC was long and complex.

What are the main criticisms? Well, for the most part, the substantial criticism is economic rather than political. The IBRC may be being liquidated, but its debts are not. This has been the key note criticism of economists both outside and now inside the Dail.

Debt forgiveness is not in the gift of any institution of the country itself, though the transfer from note to bond means that the state no longer has to pay a ruinous interest rate the debt still exists.

In more conventional situations, when an organisation like a bank or a football club is liquidated, there is a fire sale and then the creditors get in a queue and take a proportion of the value realised in such a sale.

So what happened? The Bill passed 113 Yes, 36 No at about 2.30 in the morning. A comfortable majority was augmented by support from Fianna Fail. Micheal Martin made a virtue of laud the judgement of Governor Patrick Honohan‘s central role in negotiating with the ECB over any further refunds.

In the midst of the white noise and politicking, Lorcan Roche Kelly provided a useful summary of the actual real politik last night:

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1st – this deal has nothing to do with economics. It is because the gov had invested so much political cap in not making prom note payment

— Lorcan Roche Kelly (@LorcanRK) February 7, 2013

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2. Originally, the gov (2 weeks ago) asked the ECB to swap the prom note for long term gov debt on CB bal sheet. ECB said no.

— Lorcan Roche Kelly (@LorcanRK) February 7, 2013

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3. so now gov have shot IBRC. CB now have no-one to face on ELA. So ELA has to be replaced by something. Enter gov guaranteed NAMAbonds

— Lorcan Roche Kelly (@LorcanRK) February 7, 2013

It’s a stop gap move. The negotiations over the capital sum will continue. That could take months or more likely years before there’s substantial product. Something that the government’s critics would rather keep everything focused on what’s missing now.

John’s somewhat John O Gaunt view, that this is further selling out of national economic sovereignty is similar to view taken by the Labour Party before the last election. It has not survived the election because, in large it is an entirely anachronistic notion. But it was a handy stick to hit the govt with.

No country, either inside or outside of the EU has economic sovereignty arguably since the abandonment of the gold standard, and probably from a great deal earlier than that.

The worst that can be said of the government’s measures are that they are incomplete. And that is something akin to the anecdote from the late great Michael Foot, and the magician conjuror. I’ll leave the story to him:

The thing to remember is that Ireland is in a difficult place, but unlike countries like Spain it is already well into a programme of managing banking debt that has largely been materialised. Let’s just hope Magician Noonan remembers the end of the trick.

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