Confused? Scared? Filled with a sense of dread and foreboding? You are not alone. Time for a spot of hug therapy, writes ROISIN INGLE
OH, HELLO. Listen, I’m washing my hair, ironing tea towels, watching Celebrity Bainisteoir. Do we really have to talk about this now?
Yes, I’m afraid we do.
But why? Can I not just put my fingers in my ears, go “la, la, la, la” whenever anyone mentions bonds or deficits or Anglo or Nama and then take them out again when it’s all over?
Well you could and I’d understand why. But the “fingers in the ears” strategy is possibly unwise. The Bible says “a wise man is strong; yea, a man of knowledge increaseth strength”.
The Bible, eh? Very Armageddon. What’s the latest?
The Government has outlined the likely cost of the banking bailout. Brian Lenihan says it’s going to be about €30 billion but this could rise to €50 billion under what’s called SHSS (severe hypothetical stress scenario).
This includes the bailout of Anglo and the AIB, which will soon become the fourth financial institution under State control.
Okay. Just remind me why we are bailing the banks out again?
The banks went on a mad lending spree during the boom, handing out billions to property developers. Then the boom went bust leaving the banks with all these unpaid loans.
Is there any silver lining at all?
Lenihan says the Government has raised enough money to last until March, which means it doesn’t have to go auctioning bonds until at least January.
Woah there. Auctioning bonds? I think you are confusing me with someone who understands the lingo.
Bonds are debt securities, basically posh IOUs. Governments and banks raise money all the time by selling bonds and the bondholders receive interest in return.
And are the big bondholders in the likes of Anglo going to share some of the pain?
No. It’s unfair. It’s why your man drove a cement truck up to the gates of the Dáil. The pain will be mainly shouldered by us, the taxpayers. Lenihan says the Government doesn’t want to scare the markets by defaulting on the bank’s senior debt.
Senior debt?
A bond or other form of debt that takes priority over other debt securities. There’s subordinated debt too, which is lower priority debt. But I sense I am losing you.
Hmmm, fascinating. Can’t we just be rescued?
The IMF and the EU have a financial rescue package, but being rescued would mean allowing them to make the kinds of spending cuts even our politicians would be loath to introduce.
What do the experts on the outside think?
Opinion is divided. “How Ireland will manage to dig itself out of the manure will remain the eighth wonder of the world,” says David Buik of BGC Partners. “The headline of a deficit of 32 per cent [of GDP] is somewhat scary . . . the newsflow may not be as bleak as some of the headlines,” says Christoph Rieger, a strategist at Commerzbank.
How is this going to affect me?
We will know more when the Government outlines its four-year plan to cut spending. We are probably facing into years of higher tax rates, property taxes and water charges to name a few.
Will my children still be paying for this in 20 years?
Yes. The scale of the burden that falls on future generations will be determined by how the economy grows in the meantime.
I knew I should have kept my fingers in my ears. I think I’ve caught a bad dose of SHSS. What would you recommend?
Deep breaths. Fresh air. Exercise. Homemade soup. Also Amma, “the hugging saint” from India is due here in a couple of weeks. A hug from her is said to be deeply comforting. And it’s free.