Tuesday, December 09, 2014

The first thing we do, let's stop listening to the lawyers

Ireland 2008-2010: Official legal advice says we can't put the banks into bankruptcy because there might not be enough money left in liquidation to pay all the depositors who rank equally with senior creditors.

Ireland 2014: Official legal advice says that bankruptcy may be so effective in recovering value that even after all senior creditors are made whole, some speculative subordinated debt holders may see profits, especially if they bought in when values were depressed by the previous legal advice.

Incidental observation: the junior bondholders who might make money on the bankruptcy recovery are the ones who successfully challenged Ireland's legally-advised attempts to restructure its banks outside of bankruptcy. The latest development shows that Ireland always had a credible threat to put the banks into bankruptcy, and therefore extract better terms from its bondholders than it actually got with one hand tied behind its back -- by its own lawyers.