Sept 2008. Anglo, AIB, BoI, etc all turn up to a late night meeting with the two Brians. They give the country an ultimatum. Guarantee us or if we go down, the country goes down with us. The govt reluctantly agrees. So far, so plausible.
Over the course of the following year the govt realise the 'data' given by the banks was basically lies, nowhere more so than from Anglo. The govt are told that ALL of the banks have broken financial regulations in their dealings with the public, each other and the govt. These breaches offer the govt a way out of the guarantee. But they don't take it. Puzzling.
Also over the course of the that year the govt never approach the bondholders of the banks to discuss, negotiate or inform them that their investment/bet hasn't panned out and that they will have to take a hit. The govt don't do this because they say if we did then these same bondholders wouldn't lend to us. Meanwhile, the bond yield hits 9.2%. More puzzlement.
And so we see that the reasons for the guarantee were bogus. The reasons to maintain the guarantee were bogus. The reasons for the bailout of bondholders were bogus.
So why did they do it? Follow the money. The bondholders, as we've discovered, were all German, French and British banks and pension funds. If we'd insisted on the bondholders taking the pain, the contagion would have destroyed their economies. Therefore, Occam's Razor applies. The most obvious reason is most often the truest. We did a deal with the Devil. The Germans, British and French made us an offer. Be good, take the medicine, and we'll ensure you won't go under. It started with making ECB funds available for promissory notes to actually pay the bondholders. Then, they made ECB funds available to buy Irish govt debt on the bond markets to push down our yields. This is in direct contravention of ECB rules. Why? Occam's Razor. The Deal.
So, what's the next step of the deal? The ECB bailout will cover all of the new national debt caused by the bondholder bailout, €60-80Billion. But, still why would the govt take that on if they didn't have to? Watch the interest rate we're charged. If it's 2-3% it means our growth and/or inflation over the next ten years will eat into the debt. In other words, we just cover the interest and the capital will dwindle in relative terms over time. But still, you say, why would we do it? My hope is it enshrines our Corp Tax rate and will probably get us some minor goodies like the return of fishing rights etc, but my fear is that the Brians were panicking so much, and being intimidated so much that they did it just to keep the Devil happy. The only problem is when you play cards in the Devil's casino, the house always wins.