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Thread: Anglo's Promissory Notes

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    Default Anglo's Promissory Notes

    Still plenty of ifs and buts in determining final cost to taxpayer - The Irish Times - Wed, Sep 01, 2010

    Simon Carswell notes that €19bn of the €23bn committed to Anglo is in the form of promissory notes (IOUs) rather than cash up front. He also notes the following:

    "It is also notable that Anglo used some of the €10.3 billion in promissory notes it held at the end of June as collateral to draw funding of €11.6 billion from the Central Bank on a special loan."

    My read on this is that Anglo borrowed money from the Central Bank (ie the State) and used an IOU from the Government (the State) as security.

    As such, if Anglo defaulted on its loan from the Central Bank (and use the money to pay off some of its debts), the Government (the State) would owe the Central Bank (the State) €10.3bn.

    Given that one arm of the State is lending to t'other, why not just call it quits?

    I'm guessing that the Central Bank has to meet its liabilities, but where does the Central Bank get its funds from? It doesn't have depositors, or bondholders. Did the money it gave to Anglo just come from its reserves?
    A demagogue is someone who will preach doctrines he knows to be untrue to men he knows to be idiots.

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    The Central Bank has cash reserves of 20 Billion Euro which are loaned to from various means. It also holds all the deposits of the registered banks.
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

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    The balance sheet has hardly changed since 2008 except for the following :

    About €30 Billion in real customer deposits have fled - replaced by the €10 Bill promissory note and the Central bank deposits.

    The Government is replacing 'The Bank's' liabilities with 'The Taxpayer's' liabilities.

    The assets upon which these liabilities are collateralised are in bits.

    That's my moronic take on it anyway.
    Redacted.

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    It had already given the money to Anglo, this is not a new loan, it is a rollover of a previous arrangement for which the collateral was a hodge-podge of stuff Anglo couldn't get anyone else to take. Just the collateral backing the loan has changed. It is explained here:

    The Irish Economy Blog Archive Anglo Interim Report for 2010:H1

    and (in english) here:

    The Irish Economy Blog Archive Anglo Interim Report for 2010:H1

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    Quote Originally Posted by goosebump View Post
    Still plenty of ifs and buts in determining final cost to taxpayer - The Irish Times - Wed, Sep 01, 2010

    Simon Carswell notes that €19bn of the €23bn committed to Anglo is in the form of promissory notes (IOUs) rather than cash up front. He also notes the following:

    "It is also notable that Anglo used some of the €10.3 billion in promissory notes it held at the end of June as collateral to draw funding of €11.6 billion from the Central Bank on a special loan."

    My read on this is that Anglo borrowed money from the Central Bank (ie the State) and used an IOU from the Government (the State) as security.

    As such, if Anglo defaulted on its loan from the Central Bank (and use the money to pay off some of its debts), the Government (the State) would owe the Central Bank (the State) €10.3bn.

    Given that one arm of the State is lending to t'other, why not just call it quits?

    I'm guessing that the Central Bank has to meet its liabilities, but where does the Central Bank get its funds from? It doesn't have depositors, or bondholders. Did the money it gave to Anglo just come from its reserves?
    It was just a way for Anglo to get the cash up front from the promissory note.
    You can't just call it quits because Anglo needs the capital and cash.

    so for all the talk of spreading the cash payments over 10 years we have effectively given the cash to Anglo already

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    Quote Originally Posted by Dreaded_Estate View Post
    It was just a way for Anglo to get the cash up front from the promissory note.
    You can't just call it quits because Anglo needs the capital and cash.
    Well yes, that would be somewhat optimistic.

    I'm more curious about where the Central Bank is getting this money to lend to Anglo.

    From what I can see, its coming from their reserves, or from deposits that are placed with the Central Bank by the registered banks.

    I guess what I'm gunning at is why the Central Bank can't 'chip in' re. the Anglo debt.

    Does it have a balance sheet in the same way as a normal bank?

    Who are its creditors? Presumably the State is its largest creditor.
    A demagogue is someone who will preach doctrines he knows to be untrue to men he knows to be idiots.

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    Quote Originally Posted by Cassandra Syndrome View Post
    The Central Bank has cash reserves of 20 Billion Euro which are loaned to from various means. It also holds all the deposits of the registered banks.
    So the CB has loaned out over 50% of its reserves to Anglo?
    A demagogue is someone who will preach doctrines he knows to be untrue to men he knows to be idiots.

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    remember - if the european commission blocks the restructuring then the govt will have to withdraw the promissory notes and take back any cash that it has given to Anglo

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    Quote Originally Posted by jacko View Post
    remember - if the european commission blocks the restructuring then the govt will have to withdraw the promissory notes and take back any cash that it has given to Anglo
    Are you sure about that?

    Is it not that they will prevent further issuance?

    The other thing that puzzles me is why the Central Bank needs reserves. It doesn't support a currency any more, or lend money.

    Why is the Central Banks sitting on billions of unused Euro while we are borrowing at 5.7% to fund recapitalisation projects?
    A demagogue is someone who will preach doctrines he knows to be untrue to men he knows to be idiots.

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    Quote Originally Posted by goosebump View Post
    So the CB has loaned out over 50% of its reserves to Anglo?
    For some reason the Central bank has stopped showing its Balance sheet since May of this year. Its monthly report used to be 26 pages. Now its just a 6 page executive summary. In the appendix are spreadsheet links to tables, but none of them show th complete balance sheet.

    The government would have excess cash on deposit in the Central Bank of between 20 and 30 Billion. This cash is the proceeds of commercial papers used by the government to borrow money to run the country (€160 Billion rollover every year) and also from bonds and bills issued. The Central Bank has about 150 Billion Euro of deposits from its registered banks, which represents all the depoists of Irish residents and non financial Irish companies. It also has 50 Billion Euro in Capital and reserves, which it never illustrated what exactly that it is made up of. It only has 250 million of Gold reserves and a further 1 Billion of Foreign Exchange Reserves.

    There is enough in there for the government to tap into to lend to Anglo.

    The states actual savings body is the National Pension Reserve Fund. It has about 15 Billion Euro net of bank recaps lent.

    The NPRF is a very good idea and few Western countries have a separate institute dedicated to savings.
    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich A. Hayek

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