Lost Pot of Ponzi Gold!

September 20, 2010

Colum Kenny writing in the Sunday Independent, 19 Sept, 2010, Analysis, “Meanwhile those who got us here have had plenty of time to hone their stories and to cover their tracks. Some rude and very precise questions still need to be answered. Not least of these questions is, where exactly did the thousands and thousands of billions go, of which NAMA will recover just a fraction?

Indeed, until NAMA starts selling properties at the prices that it paid for them, it is trading in dreams. It says it has acquired land from banks at a knock-down discount, but half of nothing is still nothing. If the banks took a haircut, taxpayers were scalped…

Freefall seemed seemed to suggest that most of the lost billions ended up with ordinary home-owners. But it gave no exact figures, and this remains an open and vital question. It is handy enough for some people to represent the shambles as simply caused by over-enthusiasm for nice homes.

Lots of money went elsewhere, and the public should be told clearly and in detail the final destination of the reckless lending that has ended up costing taxpayers so much.

Freefall contained little which anyone at this stage could disagree. RTE should now ask able Freefall producer Mike Milotte to turn his attention to the story of where exactly the billions have ended up.”

This week Anglo Irish is to publish the extent of losses on its loan book to reassure markets fearful these losses may range anywhere from €25 – €35 bn. Hitherto we have been given nothing but broad outlines as to the nature of losses. Until this week even the extent of these losses has been given as a moving target. The detail and veracity of any figures given need to be strongly questioned. We need to probe the figures given and treat them with the scepticism found here  http://bit.ly/3uplKP

In a paper titled “The Irish Credit Bubble” ( 21st December 2009 ), Morgan Kelly wrote, “.. it is starting to appear that the Irish banking system is too big to save. As mortgage losses crystallise, the Irish government’s ill conceived project of insulating bank bond-holders from any losses on their investments is sliding beyond the means of its taxpayers.

The mounting losses of its banking system are facing the Irish state with a stark choice. It can attempt a NAMA II for mortgage losses that will end in a bond market strike or a sovereign default. Or it can, probably with the assistance of the IMF and EU, organise a resolution that shares property losses with bank creditors through a partial debt for equity swap. It is easy for governments everywhere to forget that their states are not wholly controlled subsidiaries of their banks but separate entities; and a resolution that transfers bank losses from the Irish taxpayer to bank bond holders will leave Ireland with a low level of debt that, even after several years of deficits, it can easily afford.

The question of whether we can afford the bailout is the front issue, not the detail of the losses. Given we are already facing a bond market strike,  disbelief we can borrow or penalise through austerity our way out of this, we need the detail; and not accept figures at face value that maybe the result of a conjuring trick coverup. It would appear taxpayers expected to pay for socialism of the banks are also being asked to provide a blank cheque, no QUESTIONS asked.

So, lets dream a little and use our imagination to probe the Anglo loan book while demanding answers to some pertinent questions. For example, lets look at the Isle of Mann Anglo accounts which make up to 20% of anglo’s depositor base. Let’s ask Anglo to ‘show us the money!’.

The Isle of Mann branch of Anglo Irish could possible be responsible for up to €20 bn of Anglo losses. Forgive the intemperate language here, but an important point is made http://bit.ly/aFWT62

“What bit didn’t he notice? Well you see, Anglo sent €7 billion to Irish Life. And then Irish Life transferred the money to one of its own subsidiaries, Irish Life Investment Managers which lodged the money in an Anglo account just like any ordinary customer who happens to have a spare €7 billion lying around.”

Bock the Robber goes on to speculate there may only be one single lump of money that gets transferred around the Irish banks on their annual accounts’ day, which differs from one bank to another, but this may be too far-fetched? But perhaps there’s fraud at Anglo that runs deeper that the floating fund evidence we already have.

Another possible fraudulent scenario may be more worthy of investigation.

Apart from the Revenue/Tax/CAB aspects of the depositor money in the Anglo Isle of Mann Accounts, could there be a deeper fraud at work? Could it work like this?

Developers get billion euro loans for developments, for which documents exist, or not, they may indeed be ghost developments at home or abroad. The funds are lodged in Anglo depositor accounts awaiting draw down, but they are never used.

These funds boost the share price of Anglo and become a boon to shareholders plus the Isle of Mann depositor interest, one of the highest in the British isles, becomes a boon to depositors. Anglo’s access to bondholders on the international market coupled with a cheap rate of return on these bonds gives Anglo an unlimited supply of money?

We have an instant ponzi scheme whereby Anglo’s share price becomes artificially inflated and becomes a mark that supports the depositor interest and, because of lack of regulation, gives access to unlimited funds borrowed at a cheap rate on world markets.

This borrowing inflates depositor base which inflates borrowing which inflates depositor base…Borrowing which should make the bank riskier instead feeds a scenario building into an unsustainable 38% growth rate for Anglo where borrowings get magically transferred into assets and shareholder stock and bonuses goes through the roof!

Many questions similar to above should be asked of Anglo. Is there evidence for the above?

Here’s a method that can avoid the Moriarty Tribunal madness of €250 ml cost. We need people of the calibre of Mike Milotte, Morgan Kelly, Colum Kenny and David McWilliams to do a fast track Ventner Genome investigation of Anglo. Not every loan needs to be investigated.

As owners of Anglo Irish we are entitled to this information.

Take the top 10 – 20 billion plus property loans as a sample. Read summary documentation on the loans. Then interview the developers. Same should be done with a representative sample of depositors in Isle of Mann, to account for the legality of transactions and probing of issues such as raised above. Get answers. Ask them to ‘show us the money’, where it came from, what its for? Keep the CAB on standby.

Issues of confidentiality? No problem, our investigators can sign an NDA and their reports can disguise identities. If fraud is found, then everything goes public!

Then we may have transparency, responsibility and accountability.

Until we do this, the taxpayer does not know what’s been paid for?

The coming budget, where arguably by 2012 the percentage of tax required to service government debt including that of the banks will rise to 37% of the taxes raised, will have transparency. At least we will we know, where our money is being spent. Its horrendous enough for the taxpayer to have to bear these costs in the first place; its worse when the taxpayer is asked to pay for something they will not be told exactly what the money is for.

Taxpayers should demand that taxpayer money spent on the banks be accounted for! In the preferred option of orderly wind-down for Anglo with debt renegotiation with senior and subordinate bondholders, whatever scenario emerges,  sight should not be lost of the urgent need for taxpayers and the Regulator, to show taxpayers, what taxpayer money is actually being spent upon!

Until we have such answers there is no reason to disbelieve frauds at Anglo do not run deeper than have already been exposed.

End

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Colm Brazel is a Dublin web developer and Adobe usergroup manager, http://www.meetup.com/augdublin , http://www.cbweb.net

Contributor to online blogs/user forums including forums on economics as ‘cbweb’ e.g http://www.DavidMcWilliams.ie

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