3.6 Billion or 7.2 Billion?

[Hardy]

According to the Department of Finance an error has been found whereby the national debt is €3.6 Billion less than we thought because of an accounting error. Apparently, a transfer of money from the NTMA to the Housing Finance Agency was treated as a liability by both organisations.

I’m not versed in the wonders of double-entry bookkeeping, but I was taught in school that when you add -3.6Bn to -3.6Bn, as seems to have been done in this case, you get -7.2Bn and when you correct that and do the transaction as it should have been done by adding -3.6Bn to one organisation’s balance sheet and +3.6Bn to the other’s you get zero. In other words, the books of the state (which owns both organisations)  were mistakenly debited by €7.2Bn when the actual effect should have been zero. Therefore, we’re €7.2Bn, not €3.6Bn less badly off than we thought we were.

What am I missing?

[Shamrock Shore]

Now, just let me make this clear.

That money was just resting in me account................

[mayogodhelpus@gmail.com]

Are we trying to pull a Greece here? 

[orangeman]

How do you make an "error" like this ?  Somebody on TV3 picked it up apparently.

Who is to say what Ireland really owes ??

[the Deel Rover]

How do you make an "error" like this ?  Somebody on TV3 picked it up apparently.

Who is to say what Ireland really owes ??

fair play David Brady

[J70]

Didn't both agencies treat it as a liability? If one should not have, then that agency is 3.6B less in the hole, as is the state, so it goes from 7.2 to 3.6. One agency now owes X whereas before it thought it owed X + 3.6B.

[Hardy]

How do you make an "error" like this ?

Who is to say what Ireland really owes ??

I'm resisting the temptation to be jumpin round the garden, firstly because I don't know whether to be doing 3.6Bn or 7.2Bn worth of leppin and secondly because I'm wondering what's the chance we won't be told next week about another error, but this time in the wrong direction? And the week after that?

[Hardy]

Didn't both agencies treat it as a liability? If one should not have, then that agency is 3.6B less in the hole, as is the state, so it goes from 7.2 to 3.6. One agency now owes X whereas before it thought it owed X + 3.6B.

I don't think so. The agency that shouldn't have treated it as a liability should have treated it as an asset. So that agency's books don't go from -3.2Bn to zero. They go to +3.6Bn - a difference of 7.2Bn.

But that's only maths. Anglo Irish taught us that maths don't really matter much. At the end of the day, like.

[J70]

Didn't both agencies treat it as a liability? If one should not have, then that agency is 3.6B less in the hole, as is the state, so it goes from 7.2 to 3.6. One agency now owes X whereas before it thought it owed X + 3.6B.

I don't think so. The agency that shouldn't have treated it as a liability should have treated it as an asset. So that agency's books don't go from -3.2Bn to zero. They go to +3.6Bn - a difference of 7.2Bn.

But that's only maths. Anglo Irish taught us that maths don't really matter much. At the end of the day, like.

Are you sure it should be treated as an asset? Was it not borrowed money in the first place and thus a state liability?

[Hardy]

My understanding is that everything on a balance sheet has to be an asset or a liability. Nothing is neutral.

I presume it was an asset of NTMA, a liability of HFA and, since both organisations are part of the state, this balances to a zero sum for the state (by comparison to the situation pre the transfer when this may have been borrowed money, but is neither here nor there as regards the incremental effect that was mis-accounted in the transfer).

[J70]

I've no idea. I only know what you posted. My interpretation is as follows:

If I borrow 100 euro from you and then give it to my mate, we don't owe 100 each to you, which appears was the mistake here. I transfered the debt, so only my mate owes 100. That doesn't leave me 100 in the black however.

[orangeman]

How do you make an "error" like this ?

Who is to say what Ireland really owes ??

I'm resisting the temptation to be jumpin round the garden, firstly because I don't know whether to be doing 3.6Bn or 7.2Bn worth of leppin and secondly because I'm wondering what's the chance we won't be told next week about another error, but this time in the wrong direction? And the week after that?

Fianna Fail in their time in office started of with low debt figures - I think 10billion was the figure first mentioned that we needed - then it went to 15billion - then 30billion, then 40 billion, all in a matters of weeks - and in the middle of that they denied that they even needed a bail out.

Maybe Fine Gael / Labour are doing the complete opposite by giving us bad news and then giving us a bit of good news every few weeks to lift the gloom ??  Good thinking if true !!

[seafoid]

My understanding is that everything on a balance sheet has to be an asset or a liability. Nothing is neutral.

I presume it was an asset of NTMA, a liability of HFA and, since both organisations are part of the state, this balances to a zero sum for the state (by comparison to the situation pre the transfer when this may have been borrowed money, but is neither here nor there as regards the incremental effect that was mis-accounted in the transfer).

Hardy

There iare 1 billion dollars of real money leaving the State tomorrow to pay off in full unsecured Anglo bondholders who bought their bonds in the market at knock down prices. The accounting shenanigan is a nice distraction.   

[Hardy]

I've no idea. I only know what you posted. My interpretation is as follows:

If I borrow 100 euro from you and then give it to my mate, we don't owe 100 each to you, which appears was the mistake here. I transfered the debt, so only my mate owes 100. That doesn't leave me 100 in the black however.

I'm struggling, too. the maths are clear, but accounting is a bit of a mystery. Here's how I see it. (Remember, we're only discussing whether the state is 3.6Bn or 7.2Bn better off than it thought it was):

To continue your personal loan analogy, take a family situation and replace the state, NTMA and HFA with my family.

Let's say my family's total assets are made up of  -3,000 of mine, +1,500 of the wife's and +250 owned by each of the two lads. That adds up to -1,000 as the sum total of all the family's assets. We're 1,000 in the red.

Now my eldest son lends 100 to the other lad. He enters this in his accounts as a debit and the other lad enters it in his accounts as a debit also. So now the books show that they now own 150 each. We do the accounts and we now find that I still have -3,000, herself still has +1,500 and the lads now have 150 each. That's a total of -1,200 now owned by the family. We're now 1,200 in the red, or so we think.

Then we get Shamrock Shore in to do the accounts and he sees the mistake. The accounts should read: Me, -3,000, her, +1,500 Son A, 350, Son B, 150, making a total of -1,000.

The family as a whole is 200 better off than we thought we were, not 100.
[Edit - the difference between this and your loans to your mate is that the assets of both these organisations belong to the state (I think).]

[Hardy]

My understanding is that everything on a balance sheet has to be an asset or a liability. Nothing is neutral.

I presume it was an asset of NTMA, a liability of HFA and, since both organisations are part of the state, this balances to a zero sum for the state (by comparison to the situation pre the transfer when this may have been borrowed money, but is neither here nor there as regards the incremental effect that was mis-accounted in the transfer).

Hardy

There iare 1 billion dollars of real money leaving the State tomorrow to pay off in full unsecured Anglo bondholders who bought their bonds in the market at knock down prices. The accounting shenanigan is a nice distraction.   

Don't be trying to confuse me.