Monday, December 17, 2012

17/12/2012: More spin on Promo Notes 2012

Here's the latest saga on Anglo Promo Notes 'non-payment' in March 2012:

This relates to the past here on the topic.

The point raised, allegedly, by the Department of Finance is as follows: Promo Note was 'settled' not in cash, but by issuance of a bond, so that

  1. Irish Government issued a bond (which is to say borrowed money) to the IBRC
  2. IBRC took the bond to the 'market' to obtain cash in exchange for it
  3. Absent a 'market' for this bond, Bank of Ireland took the bond on for one year and paid the IBRC €3.06 billion (presumably, Bank of Ireland borrowed the funds to do so from the ECB using the bond as the collateral)
  4. The IBRC paid down the ELA with the money.
  5. ELA was written down by the required amount in 2012.
Let's re-narrate this in more simple terms:
  1. Irish Government official went to a restaurant for a working lunch without having any money
  2. The official, upon consuming lunch, wrote an IOU for €100 covering the bill to her lunch companion who had a credit card with him.
  3. The credit card was maxed-out, so the second official called his bank and arranged for a 1-day overdraft facility from the bank to cover the bill, using as security the IOU from his lunch companion.
  4. The credit card owner then used the credit card new facility and paid €100 bill.
  5. The restaurant recorded payment of €100 bill.
Now, two questions:
Question 1: was the bill paid? Answer: yes. Proof: if no, then the restaurant could claim that no payment was received, so no tax is due on the proceeds from this payment. I doubt the Revenue will be so keen to allow this.

Question 2: did the original official pay the bill? Answer: it depends on which scenario will take place in 1 day: Scenario A: Original official does not intend to settle the debt (IOU) - in which case she defaults on loan from the second official and no payment by her was made under the IOU agreement. Scenario B: Original official honors her commitment, and the original IOU was a form payment.

However, Question 2 is purely academic from the standpoint of whether the lunch was paid for or not - it was paid. Full stop.

Substitute 'Promo Note' for 'lunch' and you have it. Promo note 2012 was paid. QED
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