Irish Finance Minister Flip-Flop: Yesterday Noonan Vowed to Screw Irish Taxpayers; Today Seeks Haircuts on Senior Irish Bonds; Lessons From Iceland

Irish finance minister Michael Noonan is one confused soul. Let's compare his position yesterday to his position today.

Yesterday, Bloomberg reported Noonan Says Greek Crisis to Be Resolved Without Credit Event.

Irish Finance Minister Michael Noonan said European authorities will find resolution to the Greek debt crisis that isn�t classed as a default.

�A satisfactory resolution will be brought about, which will not be a credit event,� Noonan said in an interview on CNBC television in New York today. �But Ireland will be watching very closely.�

The Irish government does not want a solution for Greece to amount to a �credit event� that could have a �contagion effect for Ireland,� Noonan said. �We�re totally different to Greece. We have our bank restructuring in place, we have our fiscal programs in place.�

Pledge to Rape Irish Taxpayers

Those statements are tantamount to a pledge to rape Irish taxpayers. Is that what taxpayers voted for in the last election?

Noonan aims to target senior Anglo bondholders

Please consider Noonan aims to target senior Anglo bondholders

Finance Minister Michael Noonan has said Ireland will go to our European partners with a plan to impose significant losses on some senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society.

He was speaking in Washington after meeting the IMF and the US Treasury Secretary Timothy Geithner.

Mr Noonan said the Government will seek to impose losses on some senior bondholders in Anglo Irish Bank. He said that around �3.5 billion in senior unsecured, unguaranteed bonds issued by Anglo Irish Bank and Irish Nationwide Building Society should have losses imposed on them.

Mr Noonan said he had discussed this with the IMF, who supported the strategy.

The Finance Minister said these banks are no longer normal entities and are more like warehouses for bad debts. In that context, he would be going to our European partners to propose significant cuts in the money to be paid to the bondholders.

Pissy Starting Point

Bear in mind, �3.5 billion is a pissy starting point. Noonan should be seeking haircuts on a major portion of Irish debt.

Lesson of Iceland

The "Lesson of Iceland" is to screw the bondholders and get on with life.

Please consider Iceland�s �no bailout� stance hasn�t chilled investors

Iceland�s method of coping with the financial crisis had a brutal charm about it. In essence, the country hoisted its middle finger to the owners of bank bonds, and a few other people it owed money to, and walked away.

It worked. For evidence, note that Iceland made a triumphant return to the international bond markets late last week, and that its tiny economy is growing at a fair clip, both remarkable achievements when you consider its punishing economic and banking collapse in late 2008.

And therein lies a lesson. Make that two. The first is that bond holders of clapped out banks can, and should, take losses for the greater good of the recovery. The second is that keeping your own currency is a terrific idea when you�re going through economic hell -- it gave Iceland the fiscal freedom that Greece, Ireland and Portugal entirely lack.

Iceland�s sale of 5-year bonds raised $1-billion (U.S.) at 5 per cent, not cheap but a bargain compared to the outrageous yields of comparable Irish and Greek bonds (though neither is able to borrow and is relying on emergency European Union and International Monetary Fund loans stay afloat).

Given the way Iceland treated bondholders, it seems a miracle that the government was able to push the new bonds out the door. Three of Iceland�s banks collapsed in October, 2008, shortly after the Lehman Bros. implosion tore the global financial system apart. Iceland refused to bail out the bank bond holders -- they took �haircuts,� to use the argot of the debt markets.

Iceland determined that it was under no legal or moral obligation to underwrite the reckless behaviour of its commercial banks, whose assets soared to 10 times gross domestic product, making them grenades ready to explode. Ireland took the opposite view and guaranteed its banks, much to the rage of the taxpayers. As a result, Ireland�s debt-to-GDP has climbed four-fold since the financial crisis.

Iceland also refused to compensate Britain and the Netherlands for reimbursing the more than 300,000 depositors of Icesave, one of Iceland�s dud banks. The depositors should have received the money from the Icelandic government�s depositor protection scheme, but the country did not have a kronor to spare (proceeds from the liquidation of Landsbanki are expected to meet much of the liability, which explains why Britain and the Netherlands, though angry, have not gone berserk).

Tale of Two Countries

Ireland is stuck in muck Iceland is in recovery. Noonan and Irish Prime Minister Enda Kenny, elected to do one thing, have done something else.

Both should be doing everything they can to lift the burden off Irish taxpayers and on to senior creditors where it belongs.

Today Noonan flip-flopped, but not in a major way, at least in terms of dollar amounts.

Noonan and Kenny are a disgrace to the voters who elected them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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