Senator David Norris' address to Seanad Eireann (the Irish Senate)

In Sept. 2007, fourteen months before Ireland's bank bailout, I resigned from my position as the Risk Manager of UniCredit Bank Ireland. I did that in order not to incriminate myself. I have spent the last 4 years seeking justice. On Feb. 23rd., 2010, I was fortunate to have Senator David Norris raise the matter in Seanad Eireann (the Irish Senate), and request a response from the Minister of Finance, Mr. Brian Lenihan. Senator Norris concluded by stating that:
"...there is ministerial responsibility in this matter. This is a grossly serious matter which has been reported to the Financial Regulator. A man has lost his job as a result. He honourably resigned. The degree of breach was 40 times the accepted margin. This is a disaster. If we are not prepared to face the issue and investigate it when it has been laid before the House, there is absolutely no hope for the financial system or its reputation worldwide...How can the Financial Regulator investigate himself? He was in breach of his responsibility."
In Nov. 2011, Emma Alberici, Europe correspondent for ABC TV, told my story as part of her documentary 'Going Rogue' which featured Nick Leeson and Sir John Vickers among other interviewees. It is ironic that at a time when the Irish tax-payer is bailing out un-secured bond holders, my story which occurred in Dublin, is deemed of interest to the Australian TV license payer. Please click on 'play video' on the following link:
VRT, Belgian state-TV, aired this interview with me on March 6th., 2013. My Interview begins in minute 27:
Het verdriet van Europa: Zeepbellen blazen (The sadness of Europe: Bursting bubbles)
VRT, Belgian state-TV, released extra footage of my interview on March 8th., 2013. (in English):

Thursday, 28 July 2011

'Central Bank Bill published' - Breaking news on the Irish Times website. Once again, Minister Noonan, forgive me for confusing you with some facts.

The show must go on.

Michael Noonan, our Finance Minister, acknowledges regulatory failures and is proud to present the latest attempt at tooth-less legislation. The motivation? it was a demand by our lords and masters - the ECB & IMF as part of our punitive bailout. Read with your own eyes:

Central Bank Bill published -
CHARLIE TAYLORThu, Jul 28, 2011
New legislation that enhances the Central Bank's regulatory powers and provides protection for whistleblowers was published today.
The Central Bank (Supervision and Enforcement) Bill 2011 strengthens the ability of authorities to impose and supervise compliance with regulatory requirements and to undertake interventions when necessary.
The publication of the Bill is a further requirement under the EU-IMF programme of support for Ireland.
Announcing the publication of the Bill this morning, Minister for Finance Michael Noonan said the legislation was a response to the regulatory failures which led to the recent financial crisis.
"The publication of the Central Bank (Supervision and Enforcement) Bill 2011 represents a significant further step in the reform of financial regulation in Ireland. The changes introduced by the Bill will underpin an assertive, risk-based model of regulation supported by a credible threat of enforcement," said Mr Noonan.
Among the provisions included in the Bill is protection from civil liability and victimisation for so-called whistleblowers and a requirement for financial service providers to provide independently prepared reports to the Central Bank for diagnostic, monitoring and compliance purposes.
The power to issue regulatory interventions is included in the new legislation as is the ability to fine or suspend financial services providers where necessary.
The Bill is expected to progress to second stage in the Dáil this autumn.

Once again Minister Noonan, allow me to confuse you with a couple of facts:

1. At my meeting with the Central Bank of Ireland on the 4th. of May this year it became apparent that although the Central Bank told the Sunday Business Post last January that: 

"If any party has specific information they wish to draw to our attention in this matter it will be treated on a confidential basis.",

there seems to great confusion about what the word 'confidential' means. So much so, that the Central Bank officials asked for the meeting to be adjourned. They then left the meeting room and returned only after they check what the Central Bank means when it says 'confidential' (Did they call Honohan's office? Or yours?!?). The conclusion was that merely my identity would be regarded as confidential, not the facts to be disclosed. Therefore, I could potentially be facing criminal charges on account of what transpired at UniCredit Bank Ireland  in 2007.

Yes, I, the person who officially reported a liquidity breach of 1,900% (one thousand and nine hundred percent) to the Financial Regulator, could be facing criminal charges. The fact that this was a year before the entire Irish banking system ran dry of liquidity and required the infamous late-night last-minute guarantee, does not seem to matter. No one is to blame for that, and no one has been convicted of any criminal charges since. The Irish tax payer, and every tax payer trough-out Europe is paying for it.

Here are some more reminders:

2. As our new champion of integrity, Minitser Noonan, would you care to answer my questions to you of last April? I am sure your replies would interest many people in Ireland and abroad:
RTÉ - Noonan demands shake-up of bank boards [Following the Nyberg Report] - 

The Nyberg Report. Minister Noonan, allow me to confuse you with the facts.

Perhaps my previous postings in which I provide proof of my dealings with Fine Gael in June of 2010, which you later completely denied, will help you to refresh your memory:

Here is a copy of my correspondence with a Fine Gael Deputy:

And here is your denial that it ever happened:

Unfortunately for you, there are minutes of the meeting kept safely at a well-known solicitors firm in Ballsbridge, Dublin 4. Although you claim to have no knowledge of my affair, you did actually raise reservations about my telephone conversation with your secretary about the subject.

3. It is somewhat alarming that as a result of my blog post two days ago - 'An open letter to the banker who contacted me'my blog has been inundated by visitors from two of Ireland's major banks. It certainly looks like Pandora's Box is cracking open; despite your best efforts.

Tuesday, 26 July 2011

An open letter to the banker who contacted me:

Dear fellow banker,

I am responding publicly to your email to me as I believe that the dilema you are facing is one that is probably tormenting many others at the moment.

Only you can make a decision about what is the 'right thing for you to do'. Ultimately only you can decide how to negotiate the tension that  you contend with daily between the 'party line' and the REAL figures on the one hand, and your obligations as a family man on the other.

If you decide to take action in view of the gap between 'the party line' and the REAL figures, there is no telling what the future may hold for you. In my case, it took the Financial Regulator 3.5 years to invite me to a meeting. I doubt that meeting would ever have happened had it not been for the fact that my issue was raised in the Austrian parliament, especially so soon after our entire banking system neared complete collapse and required bailout.

As you have probably noticed, not a single banker, nor a single politician, has been held accountable for the flagrant breaches of the law. 'It just broke, it wasn't me' is the infantile excuse they all made, and we have allowed them to get away with it.

You and I both know that the taxes that our families, friends, and neighbours are paying, are disappearing into a bottomless pit called banks. The schools and hospital wards that are shutting down all around us are just part of the 'Belt Tightening' that our Dear leaders are advocating.

Only you can decide what is the right thing for you to do. As you and I both know, the consequences of taking action, or not taking action, can be severe and far-reaching.

I do advise you to read the blog post that I wrote following my  meeting at the Central Bank of Ireland:

With my best wishes, 

Monday, 25 July 2011

Bank of Ireland makes a 'lucky' escape. For the moment. UniCredit to lead cash queue if EU crisis worsens.

Reuters reports:

Bank of Ireland sale keeps it out of state hands

Mon Jul 25, 2011 10:25am BST

DUBLIN, July 25 - Ireland sold a 1.1 billion euro (983.4 million pounds) stake in Bank of Ireland (BKIR.I) to a group of unidentified investors on Monday to keep the country's largest bank out of state hands and provide a rare boost to a battered sector and bruised economy.

The government had been widely expected to take control of Bank of Ireland, the last domestic lender outside of state ownership, after it agreed to underwrite a rights issue, the results of which are due on Tuesday.

However -- after the sale and rights issue -- the government will now own maximum 32 percent in the bank while new investors will hold between 14 and 37 percent, the finance ministry said.
"It has been recited far and wide that it is impossible for Ireland to get money on the markets," Finance Minister Michael Noonan told national broadcaster RTE.
"Now we have significant private sector investors prepared to put money into Bank of Ireland and that's a strong signal internationally."

It is the second significant boost for the Irish government after European partners last week agreed to cut the rate it is charging for a multi-billion euro bailout by 2 percentage points, a change Dublin says could save it up to 1 billion euros per year.

Dublin, which has closed two of its six domestic lenders, merged another two state-controlled institutions and will soon take over a fifth. It has put a 70 billion-euro price on drawing a line under its banking crisis after stress tests in March.

Bank of Ireland was told to raise 4.2 billion euros in additional core tier one capital following stress tests in March. The tests were required under the terms of the 85-billion euro EU-IMF bailout Ireland received late last year.

The state has shrunk the bill for bailing out its banks by around 5 billion euros by sharing losses with subordinated debt holders. Bank of Ireland raised 1.96 billion euros by hitting junior bond holders with losses of up to 90 percent and expects to secure another 510 million from further burden sharing.

The bank's shares, which reached nearly 12 euros in early 2007 when Ireland's property boom was at its height, cost 11 euro cent on Monday, up 8.9 percent on the day...


Analysis: UniCredit to lead cash queue if EU crisis worsens

Reuters) - UniCredit (CRDI.MI), Societe Generale (SOGN.PA) and Deutsche Bank (DBKGn.DE) may have passed the recent health check of Europe's banks, but they are likely to be among the first big lenders in need of cash if the euro zone crisis worsens.
Europe's "stress test" of its lenders was widely derided as too soft, but it shone a light on potential trouble spots.

UniCredit could need up to 5.6 billion euros and both SocGen and Deutsche Bank would need about 3 billion euros to reach new global capital standards in the event of a two-year recession and after applying more realistic losses on their euro zone bonds, according to Reuters estimates.

UniCredit is expected to raise capital when the rules become clearer later this year and analysts reckon it could be looking for 5-7 billion euros. Whether more big banks join it is likely to hinge on the speed and severity with which the euro zone crisis plays out.
"Many banks out there will have to raise capital in the event there's contagion due to the Greek, Portuguese and Irish issues," said Guy de Blonay, who runs Jupiter's Financial Opportunities Fund.

A rescue deal for Greece last week eased fears the crisis will spread. But the threat remains real, and some think that because the first selective default has occurred it is now more likely Ireland and Portugal will follow...

Ireland has become the UK's Greece...

So now we have the UK government using its tax-payers' money to bail-out a sinking Irish bank. GolemXIV writes this afternoon:

RBS bailing out Bank of Ireland

The Bank of Ireland saga continues.

Here is an article from
the Irish Independent from Saturday. It begins,
BANK of Ireland (BoI) yesterday raised €2.9bn in fresh short-term funding, believed to be from Royal Bank of Scotland(RBS), as the bank fights to stay out of state control.
And of course RBS is owned by you and me. So a British bank which was nationalized to save it from insolvency, is now lending to an Irish bank to save it from insolvency and being nationalized.

Several questions beyond the simple WHY? First what does RBS get from this deal? Why does the British Government (for their proxies would surely have been consulted)  think this is a good thing to spend money on at a time when our banking sector is not healthy enough to stand on its won feet and our public spending is being cut with a savage glee?

And why does the Irish Government prefer this solution plus selling stakes to unidentified investors in New York, to nationalizing via further Irish State support?

The broad details of the deal are that BoI will pay RBS 2.76% above the Libor rate which banks usually charge to lend to each other. The duration of the loan is for 2,2 years.  So this is short but not very short. It is the kind of debt that before the crash risk managers smiled upon. Swapping out longer loans for shorter ones of this sort of length. But that was then.  These days the banks are a little less sanguine about the brilliance of being dependent on short term loans that have to be rolled. So this is probably the longest RBS would settle for.

The rate speaks for itself.  So this could just be RBS thinking here is a way of placing 2.9 Billion in a profitable deal.  But I don't think that explains it. BoI is not a great bet and neither is Ireland as a whole,  The implicit government guarantee of not letting 'to big to fail' banks go down has to be questioned by the very fact that the Irish government is now hitting bond holders of Junior and unsecured debt for 80-90% losses. (Not that those holding the debt will lose that much since many will have bought the debt more recently at a discount when they [purchased. But this is still making the private bond holders share the pain. So there is no blanket guarantee. So why would RBS want to get involved at such a volatile time?

I think we have to entertain the possibility that RBS is lending to cover larger losses if BoI was to fail. RBS is one of the British banks I have long suspected was heavily exposed to Ireland. I think RBS is trying to save itself via this deal. The banks call it a loan. I see it as a bail out. The two states are using private banks as cover.

The larger question is what the position of the Irish government is and its debt sewer NAMA.  NAMA is the Irish 'bad bank' which has previously bought up a river of effluent from the Irish Banks. More recently it has been buying less. Why?  You could argue, sound business sense. But why would we get an outbreak of that where it has never been seen before.

I think NAMA is hiding its own rising pressure of troubles. This BoI deal suggests to me pressures are growing and options for addressing them are dwindling.

Germany is trying to control an explosive pressure in Greece. The UK is dealing with something so far smaller but potentially larger in Ireland. In Germany the voters are aware of what extra debts and risks they are being forced to shoulder. And they are angry and getting angrier. In the UK the voters are unaware. Unaware of what RBS is doing and what extra risks  that exposes  the UK tax payer to.

Bank of Ireland collapse confirmed- UPDATED

From Golem XIV:

This morning this from Reuters saying that "unidentified" investors have bought a €1.1 billion stake in BoI.  
Why unidentified?
The bank is calling it a vote of confidence in the irish Economy.  Unidentified investors have confidence in Ireland's economy. Confidence that the Irish economy will what?  Recover in a way that benefits the many or that its further collapse will benefit the few?

Here is the Reuters update (the link worked this morning but is now returning an error message):

UPDATE 1-Ireland sells 1.1 bln eur stake in Bank of Ireland

Mon Jul 25, 2011 2:55am EDT
* Sale will keep country's largest lender out of state control
* Bank says major vote of confidence in Irish economy
* Deal will reduce state's recapitalisation bill by 1.1 bln (Writes through, adds background)
DUBLIN, July 25 - Ireland sold a 1.1 billion euro stake in Bank of Ireland to a group of unidentified investors in a deal that will keep the country's largest bank out of state control, the government said on Monday.
The government had been widely expected to take control of Bank of Ireland, the last domestic lender outside of state ownership, after it agreed to underwrite a rights issues, whose results are due on Tuesday.
After the sale and rights issue, the government will own a maximum of 32 percent in the bank, the finance ministry said.
"The bank is very pleased to see this major endorsement ... and the confidence which these investors share with the bank in the future for the Irish economy," Bank of Ireland said in a statement.
Under the deal the investors will initially purchase 241 million euros worth of the state's shareholding. They will then purchase the remainder of up to 882 million euros after regulatory approvals. In all they will purchase 4.2 billion ordinary shares.
The government said the sale would not involve any additional risk sharing for the government.
Depending on the results of the rights issue, Ireland will end up with between 15 and 32 percent of the bank. Existing shareholders will hold between 31 and 71 percent and the new investors will hold between 14 percent and 37 percent.
The sale will reduce the size of a state capital injection into the lender required under a IMF/EU bailout deal by 1.1 billion euros to a total of 2.4 billion euros.
The government will thus be able to recapitalise the bank without recourse to EU/IMF funds, the finance ministry said.
Dublin has closed two of its six domestic lenders, merged another two state-controlled institutions and will soon take over a fifth as it seeks to draw a line under a banking crisis that forced the former Celtic Tiger economy into an EU-IMF bailout. (Editing by David Holmes)

Saturday, 23 July 2011

Irish Government makes a statement on a SATURDAY re Bank of Ireland

Thanks to Golem XIV for his help on this:

Saturday, 23 July 2011

Bank of Ireland collapse confirmed

WhistleblowerIRL's rumour is now confirmed.

Again from Reuters
Ireland says in talks over Bank of Ireland equity investment

DUBLIN, July 23 | Sat Jul 23, 2011 10:02am EDT
(Reuters) - The Irish government on Saturday said it was in talks with potential equity investors in Bank of Ireland (BKIR.I) as it struggles to keep its last major bank out of state control.
They hid this one for as long as they could but once word got out they had no choice but to confirm, hence making a statement on a Saturday. They couldn't let this be a rumour come Monday.

The article goes on to break the inevitable 'shaft the tax payer' news that,

If the lender cannot find an investor or persuade its largely retail shareholder base to participate in a 1.91 billion euro ($2.8 billion) rights issue then the state, which is underwriting the offer, could end up with a 70 percent stake. 
Translation - the banks was indeed in New York on Friday trying to flog it and it's not looking good. If it was the government wouldn't have released this news at all. The big American Investors aren't buying because they don't think the bank is viable or solvent and worry that the Irish government and its EU pimp may not bail it sufficiently to make it profitable to buy in. That leaves asking Irish investors to be patriotic and give more of their money to the people who own the banks bonds. Fat chance.

So it's a goner and guess who will pay? The tax payer of course.

Dublin has closed two of its six domestic lenders, merged another two state-controlled institutions and will soon take over a fifth as it seeks to draw a line under a banking crisis that forced the former Celtic Tiger economy into an EU-IMF bailout.
Seeks to draw a line? Let me rephrase that, " it seeks to draw the noose a little tighter round the necks of its own people for the profit of the few."

See WhistleblowerIRL's comment under the previous blog for the full article and his take on it.

Here is the link to Reuters article above:

Irish Bank Default Rumour - UPDATE

The plot thickens.

This came in yesterday from Reuters and seems to have received almost no notice at all.  Which I find strange as it looks to me that it confirms WhistleblowerIRL's post.
DUBLIN, July 22 | Fri Jul 22, 2011 6:48am EDT
(Reuters) - The International Swaps and Derivatives Association (ISDA) on Friday set July 28 for an auction to settle credit default swaps (CDS) in relation to Bank of Ireland after ruling that the bank had suffered a restructuring credit event.
The ISDA said a restructuring credit event occurred after Bank of Ireland closed an offer to buy back about 2.6 billion euros of Tier 1 and Tier 2 subordinated debt at a discount of up to 90 percent earlier this month.
A credit event is financial industry jargon for default on payment, breach of bond covenants or other event that casts doubt on an issuer's ability to service its debt. (Reporting by Conor Humphries) 

WhistleblowerIRL said he was told one of the last two major Irish Banks to have not yet crashed was about to be nationalized. In my mind that had to be Bank of Ireland. The Bank of Ireland did spend an unusual amount of time on my blog yesterday. But nothing at all in the main stream press. Then late yesterday Reuters says Bank of Ireland had defaulted on payment and was trying to buy back 2.6 billion in Tier one and two subordinated debt.

For those who don't know the ISDA is the body which sets the standards for all swaps deals other than some private over the counter deals done direct between buyer and seller. Any market based deal adheres to the ISDA standards. So the ISDA know what they are talking about. This is a deal they are fully aware of and not in any way just a market rumour.

A "restructuring credit event" is what Greece is trying to avoid. It is, as the article says a default on debt. And this is a LARGE default. 2.6 BILLIONS large and a 90%!! loss for the bond holders. And this was 'earlier' this month.

Now either I have completely misunderstood what this is or I have to ask why this wasn't news back then or even today?  Weeks ago, Ireland's last standing bank tried to buy back at a 90% discount (90% loss from face value for those holding that debt) and no one said a word?

If this is what it seems, then this must be the rumour WhistleblowerIRL had heard. I will try to talk to him later today.

Bank of Ireland has defaulted on 2.6 billion of bonds and is trying to buy them back at a huge discount. Why it's trying to buy them back is then the question and who does it help to do so?

Whoever it helps in the long run, bank or bond holders, the fact is Bank of Ireland is valuing a large chunk of its own Tier one and two subordinated debt as having lost 90% of its original value!

I think the Euro authorities will need to get that EFSF (European Financial Stability Facility) - the European IMF and Plunge Protection Team rolled in to one - fully  funded and looking West to Ireland not just East and South to Greece, Portugal, Spain and Italy.

Thursday, 21 July 2011

Another Irish bank bites the dust - a rumour from across the pond

Today, I was informed by a source in New-York that our very own movers & shakers have been hitting the streets of the Big Apple in a last breath attempt to attract the finance needed to prevent the nationalisation of yet another major Irish bank.

That would be another of the Irish banks that according to Matthew Eledrfield, Head of Financial Regulation at the Central Bank of Ireland, were well on the way to recovery. That would be due to all the generous help they have received - the billions you and I have given to them.  Let's remember that this regulatory genius wrote just last April in the Irish Independent:

"It will take time to recover to a stronger banking sector, backed by more effective regulation, and to sounder public finances. But the road to recovery has started.

The recent Central Bank stress tests are an important milestone on that road....

How much do we pay this man? For those of you who perhaps don't know him. He is a graduate of Cambridge University. He was also the official at the British Financial Regulator, the FSA, who was responsible for Northern Rock in the months before it collapsed (way to go Mathew!). That was apparently more than enough of a recommendation for our government to hire him.

Back in the Independent in April, Mathew went on to gush,

"...I meet so many people in Ireland who want to get on with it and demonstrate a hugely impressive determination to face up to the task. I'm determined that the Central Bank builds a regulatory system that learns the lessons of the past and works hard to rebuild the banking system step by step. And I'm optimistic that the recent stress tests were a very big step in the right direction."

Nice that he was determined.  Sadly not determined enough to stop another bank going under, on his watch just 3 months later. To paraphrase a famous Irishman, Oscar WiIde, "To lose one bank may be regarded as a misfortune; to lose two looks like carelessness, Matthew."

And so here we are with another bank rumoured to be going broke and the financial titans of Dublin desperate to flog it to whoever will take it off their hands. And remember, they've had practice at this sort of grovelling. Our Fine Gael leaders were practising bank-flogging even before they came to power. No sooner had the Fianna Fail government raided our tax payers pockets to resuscitate our defunct banks, our ex Fine Gael Prime-Minister was out in the Arabian Gulf flogging said banks:

Ireland looks to Persian Gulf to buy its banks - Tehran Times, December 2010

"Top Irish officials have approached Persian Gulf sovereign wealth funds to gauge interest in the sale of Ireland’s banks after the €85 billion (Dh412.26bn) bailout from European governments and the IMF.

John Bruton, a former Irish prime minister, is leading a delegation from the country on a whistle-stop tour of the region as Ireland prepares to sell assets...."

So, where are we? We have a new Irish government and a new Financial Regulator. What has changed? Very little.

'Lies and Truths on Greek Public Debt lead to the urgency of Audit' - Guest Post by Maria Lucia Fattorelli

Maria Lucia Fattorelli is Coordinator of Citizen Debt Audit-Brazil since 2001; Member of the Commission of Debt Audit of Ecuador (2007-2008) and Assessor of Brazilian Parliamentarian Investigation of Public Debt (2009-2010): CPI da Dívida da Câmara dos Deputados em Brasília. Citizen Debt Audit-Brazil is part of CADTM international network and Latindadd.

The pressure against Greece is getting stronger every week. Everybody talks a lot about the debt crisis; but it´s important to remark that before being a debt crisis it was a bank crisis. Since 2008, there was a big problem located in the largest banks sector, originating from issuing derivatives and other assets without any support – called toxic assets - putting some of the largest banks of the planet in risk of default. Under secret documentsi, atmosphere of fear and emergency summits, European Union took the countries to a series of “bank bail-out” operations. How European countries saved the banks? By issuing large amounts of sovereign bonds, transforming the bank crisis into a sovereign debt crisis.

The news in all kinds of media follows the “market feelings” and too much is published about the debt crisis, specially Greece´s, but almost nothing about its origin. It´s urgent to audit this public debt, in order to prove the origin of Greek public debt and uncover many lies which have been built against Greece´s situation, that are costing a very high price to its population.

The experience of debt audit in Ecuador showed that when a country owns a strong audit report with all the proofs of illegality and illegitimacy of the “Debt System”, the bond-holders accept any negotiation. When President Rafael Correa announced, on TV and radio, in October/2008, the main findings of the audit commission (CAIC), and suspended the coupon payment due in November/2008, the Ecuadorian bonds in secondary market went down to 30% of their nominal value. In 2009 the President made the sovereign proposal to pay 30% of the nominal value of the bonds - Global 2012 and 2030, that had interest rates of 12% and 10% at the time – putting an end to this debt. Almost 95% of the bond-holders presented their bonds and no legal action was initiated against Ecuador. This experience proved that a country can suspend payments and take sovereign acts anytime, and a safe result can be guaranteed by a deep audit report properly documented.

One of the most cruel lies that has been published is that the only way out for Greece´s debt crisis is submitting to impositions of IMF and EU, making new expensive debt to pay previous debt and privatize all national wealth, including the historical monuments! That´s not true. First, it is important for Greece and other European countries to look back to Latin American history, because what is happening in Europe now is very much like what happened here in the 80´s, with an aggravating circumstance: we were still under dictatorship and had no right to protest and absolutely no access to documents and information. Second, it is important to remember that if in theory nobody can obligate a country to make new loans to pay the previous debt, in reality, the creditors do pressure and coerce nations to get into the “Debt System”. That happens when the creditors organize themselves as a cartel composed by largest banks oligopoly, international financial authorities (IMF, EU, ECB), and other creditorsii. This situation can be considered illegal, for the evidence of the asymmetry between parts. Besides, the manipulation of the "country-risk" by the risk agencies - lowering the classification of the Greek debt exactly in refinancing days - is also a clear manipulation with the participation of the same banks oligopoly that contributed to push Greece into IMF and EU agreements. The illegality of the circumstances can nullify the debt operations.

The truth is that the “Debt-System” is a very profitable business and has many privileges. One of their main privileges is the possibility to negotiate the sovereign bond in any market, globally, and many times without the knowledge of the country. This has been a real large difficulty since the 70´s, when the international banks used to sell parts of the debt-contracts in secondary market. The important argument for us is that anytime a country can make a call of holders of its public debt. Even if the contract doesn´t have this prevision, this is always a sovereign act of a country that is called to pay for all disasters done in its name in secondary markets that includes tax heavens and all deregulated international finances. Another thing that can be done is a call for all stock markets to show up the operations with Greek sovereign bonds. They´ll probably argue that the bank secrecy impedes them to give the information, what can´t be accepted as public debt. In reality, the country must have the control of its own creditors, otherwise, to whom the interest will be paid?

Another very common comment in media is that some bond-holders have sold Greek bonds in the secondary market for a low price, like 60% of their value for example, and have already suffered the consequences – a “haircut”. Then, the new holders talk like they have helped Greece.

Is that comment true?

First of all, to evaluate how much someone lost or gained on a bond operation, we must know some information that a debt audit will answer:

  • How much the bond-holder paid when he bought these bonds in the first place? Most of the times, the market-price is different from the bond nominal-value. But always the interest rates are calculated over the nominal-value. Combining these two factors, when someone buys an amount of bonds for a price under its nominal-value, this bond-holder is surely making a lot of money. That is, the yield – the real income of the bond, calculated by dividing the interest coupon by the market-price – can be enormous. For example: If someone buys bonds for 60% of its value, instead of an interest rate of 7%, this person will have an income (yield) of 11,67%!

Bond-Nominal Value
Market Price
Interest coupon
60% = 600

In this case, the country registered a debt of 1.000, but in fact received less than 600, because of all costs involved on the emission of the bond. For this reason, it’s very important to investigate the real value the country received when the bonds were issued, in order to calculate the yield and reveal the true damage caused by the speculators, which also influence the continuous increases of the interest rates, submitting the nation under the market’s humor.

  • To give an idea of how a comment that is sold like true can be a big lie, let´s put it in numbers. We read that on April 14thiii the interest rate required by the “financial market” to buy Greek bonds was 18.3% per year! We don´t know the market-price that Greek bonds have been sold then – the audit would answer. If it was 100% of the nominal value, and the interest rates were 18.3% per year, the coupon the bond-holder will gain is €183 for each thousand! That can be considered an abuse against any Nation, and that´s why an audit is so urgent in Greece.
In case this holder had bought his bonds for 60% of its value, he is still making a lot of money, gaining with Greek bonds almost 100 times he would gain with US-Treasure bonds, for example.
If the bond was bought for 90% of its face-value, the yield goes up to 20.33%! In case of 80% of face-value, the yield goes up to 22,88%!

Bond-Nominal Value
Market Price
Interest coupon

This simple example shows that it´s not true that the new bond-holders who bought the bonds with a “haircut” would have “helped Greece” and have the “right” to force the country to implement policies to guarantee their payments, selling out and privatizing the national wealth, or shifting bond-loans to burdensome mortgaged debts. They are already taking extreme advantage.

Looking at the examples above, we can figure out that when a bond-holder sells its bonds with the so called “haircut”, the one who buys these bonds makes a lot of money. As the market-price goes down, the higher goes the yield, which is a complete attraction for speculation. So, if someone “suffers” a haircut by selling bellow the nominal-value, the one who is buying will have an extra-gain over the enlarged yield of the bonds. Considering the two parts of this operation in secondary market can easily do their attached business, these actions can be characterized as “market manipulation” and “abuse” against Greece. While Greek workers are desperate, losing their jobs and even their lives, many people are making a lot of money against Greece.

This situation leads to the urgency of an audit that should be integral, which means that the audit must take care not only of the numbers of each bond issue, the accountability, but also look at all aspects and circumstances that took Greece to this point, like:
  1. How much sovereign Greek debt was issued to bail-out failed banks?
  2. What is the responsibility of European Central Bank and European Commission on Greece indebtedness process evolution?
  3. What is the responsibility of the rating agencies for downgrading the Greek bonds, causing the elevation of interest rates?
  4. What is the responsibility of IMF and EU on their impositions to Greek government to implement reforms against the people, benefiting the Banks?
  5. What is the responsibility of the Banks for:
    1. not telling the truth about the amount of Greek Debt in order to impulse more and more new loans, turning it exaggerated?
    2. speculating with Greek bonds, in order to make the interest rates go up continuously to force an intervention from IMF?
    3. playing with derivatives, “Credit Default Swaps” and other “toxic” papers?
  6. What is the origin of Greek Debt? Did Greece receive this amount of money? Where did it go? Who got the benefit of these loans? For which purpose?
  7. Which private debts were transformed into public debts? What is the impact of these private debts to the budget?

When we have this information all clear, we can tell what part of Greece´s debt is illegal, supported in many legal aspects, like:

    • Co-responsibility of creditors and international financial institutions
    • Asymmetry between parts
    • Violation of general principles: Reasonability, Rebus sic Stantibus
    • Right to Development
    • Right of Sovereignty
    • Violation to Human Rights

Other legal studies are necessary to match, in the country’s legal structure, the prohibition for procedures like “market manipulation” and “abuse”, because it´s evident that Greece is assuming abusive interest rates, as shown with the above examples.

Every legal system includes the notion of the Abuse of Rights. In general, the main characteristics that define an abusive act are connected to the case when the act produces damage, harm or injury; when there´s excessive prejudice to a part; when there´s evidence of the intention to produce prejudice or to obtain excessive benefits; when the act is against the social and economic rights; when the act doesn´t obey the reasonability cast in terms of social interests, among others.

During the Ecuadorian Debt Audit, besides applying the country legislation, the audit commission – CAIC - also searched for principles of International Public Right, International Pacts, like the International Pact of Civil and Political Rights and the International Pact of Economic, Social and Cultural Rights. We found out that most of the negotiations of Ecuadorian external debt had violated those treats.

The CAIC also utilized some General Principles of Law that can also be useful for Greece, like:
  • Enrichment without cause
  • Principle “contractus qui habent tractum successivium et dependientium de futuro rebus sic stantibus”, which determines that an obligation can be revised and become not eligible if the circumstances have substantially changed (interest rates, for example);
  • Usury, known as the illegal practice of charging excessive, unreasonably high, and often illegal interest rates on loans.
  • Anatocism
  • Vicious in origin
  • Good Faith (like in the United nations Convention)
  • Equity (The laws do not deal with other forms of abuse such as financial abuse)
  • Solidarity and Cooperation (also part of UN Convention)
  • Public Policy

Besides that, the CAIC deepened the studies about the doctrines of Odious Debt and Illegitimate Debt that can also be applied to Greece, because there are many subjects to be investigated, as Eric Toussaintiv resumed:
The Greek public debt made the headlines when the country’s leaders accepted the austerity measures demanded by the IMF and the European Union, sparking very significant social struggles throughout 2010. But where does this Greek debt come from? As regards the debt incurred by the private sector, the increase has been recent:  the first surge came about with the integration of Greece into the eurozone in 2001. A second debt explosion was triggered in 2007 when financial aid granted to banks by the US Federal Reserve, European governments and the European Central Bank was recycled by bankers towards Greece and other countries like Spain and Portugal. As regards public debt, the increase stretches over a longer period. In addition to the debt inherited from the dictatorship of the colonels, borrowing since the 1990s has served to fill the void created in public finances by lower taxation on companies and high incomes. Furthermore, for decades, many loans have financed the purchasing of military equipment, mainly from France, Germany and the United States. And one must not forget the colossal debt incurred by the public authorities for the organization of the Olympic Games in 2004. The spiraling of public debt was further fueled by bribes from major transnationals to obtain contracts, Siemens being an emblematic example.
This is why the legitimacy and legality of Greece’s debts should be the subject of rigorous scrutiny, following the example of Ecuador’s comprehensive audit commission of public debts in 2007-2008. Debts defined as illegitimate, odious or illegal would be declared null and void and Greece could refuse to repay, while demanding that those who contracted these debts be brought to justice. Some encouraging signs from Greece indicate that the re-challenging of debt has become a central issue and the demand for an audit commission is gaining ground.

When we start to investigate the public debt of any country, the first step to take is to know the origin of this debt. In Ecuadorian debt audit (CAIC) and also during the parliamentarian investigations in Brazil (CPI), only when we went deep on documents and data we could prove, for example the explicit practice of anatocism, for its evidence on the transformation of interest into capital. That happened during the Brady Plan – the same plan was adopted for many countries in Latin America. This plan transformed the previous debt in new sovereign bonds. The previous debt had a part of capital and a large part of interests that had been accumulated because they got just so high that our countries couldn´t pay them. Some of the new bonds issued under the Brady plan were the unequivocal transformation of the accumulated interests into capital and were called Interest-bond!

The Brady plan took place in the early 90´s and all kinds of media and even some people from academia believed that the Brady plan was a good step, because it was widely presented as a plan that would bring our countries back from insolvency to the market operations. Besides that, it was said that the transformation was “giving” our countries a discount. In fact, one of the new bonds issued under the Brady plan was called “Discount Bond”. Only when we did the audit in Ecuador and the investigations in Brazilian parliament and had access to the contracts we could see the reality was totally different from the propaganda.

The documents proved that there was a “Debt System” under a continuous refinancing of previous debt; a mechanism of creating new debt to pay previous debt in a way that the new debt was always much bigger than the previous one, besides the huge payments of capital, interests, commissions, fees, taxes, costs, and all kind of extra bills. The audit also proved that the negotiations were made abroad and in many occasions – like in the Brady plan - the money registered as debt on the contracts and bond issues never arrived into our countries, because the exchange of the previous debt into the new bonds was made by the creditors themselves, in the Luxemburg stock market, with no registration in the SEC - Securities and Exchange Commission in United States of America – besides the law and jurisdiction were the North American ones. The interest rates, costs and clauses of the contracts were completely illegal and abusive. Resuming, the audit uncovered the complete misinformation about the real meaning of the Brady plan for our countries. And this was possible by reaching the documents of the negotiations: contracts, records of meetings, writings, proceedings and all registers of each operation, besides the statistics and data available.

This is only one of the examples of how we proved the anatocism and the illegality of the process. The main conclusion of the 30 years audited in Ecuador and 39 years investigated in Brazil is that the “Debt System” benefited only the large international banks, and did not serve as a mechanism to finance our countries, as the economic theory defines public debt. The instrument of public debt has been usurped by the “market”. Our job is to reveal the truth, by reaching the documents and proofs that can unmask the many lies that have being told about our countries public debt. We can not keep paying illegal debt with our jobs and our lives. Feel encouraged to start Greece´s debt audit urgently, and count on our help.

In Ecuadorian Debt Audit we proved by documents (clauses in contracts, letters and telex) the coordination between all creditors – international private banks organized in Committee, IMF and Paris Club - in 1982/1983, forcing the country to get into a new deal that transferred private and public debts into the responsibility of Central Bank of Ecuador.

iv - Greece: the very symbol of illegitimate debt, by Eric Toussaint


Another interesting article by M.L. Fattorelli is 'Why A Debt Audit in Greece'. The beginning of the article reads:

After 6 days in Greece, all I could hear from many Greek people is: “we don’t know what is our public debt; we can’t understand how come it became so immense, because we don’t see it’s correspondence in investments, benefits, or anything to the country; workers only know we are paying too much taxes and having our rights being cut down every day with closing of schools, hospitals, kindergartens; employee going high and we’re are hit every day with terrorist information about the future of our country’s economy and even risk for our historical monuments”.
The women are the main victims of these measures, because they are the first ones to be filled from their jobs, and the last ones in line for new jobs. Also, when social services are cut down or eliminated, it’s expected that women will take care of services like health, education, assistance, children care, and many others, without any payment.

To read further, please go to: