Tuesday 20 February 2018

U-turn on bondholders has hurt our democracy

Using taxpayers' money to gift vast profits to speculators is indefensible, writes Stephen Donnelly

At midday on Wednesday, one billion dollars was paid by Irish taxpayers to unguaranteed bondholders in the now non-existent Anglo Irish Bank. Less than one year ago Michael Noonan described such an act as "indefensible" and "obscene". Next year he intends to pay another €2.7bn, with the first €1.25bn coming up in January, straight after the Budget cuts.

The reasons for not paying these bondholders are well known. So let's take a look at the background to these bonds and the reasons given for paying them.

In November 2006, Anglo Irish Bank issued a five-year bond for $1bn (€725m). Professional investors should have known that Anglo was a risky bet. The IMF warned in 2004 of the "possibility of an abrupt unwinding of the housing boom". The Economist magazine and the OECD warned that Irish property was seriously overvalued. By September 2006, even the Irish Central Bank was warning that the economy was "overdependent on the construction sector". So why did they buy them, rather than buying safer sovereign bonds? Profit.

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