If an Irish bank goes down? So what?

[gullmacm]

I'm a bit of a novice here but can somebody explain why anybody, other than shareholders and those with deposits above €100k,would worry about an Irish bank failure?
In such circumstances why would the government pump millions of euro of taxpayers money in to support it in such circumstances?
Would they not be better just to let it fail?
Does the wider economy really suffer as a result? How?

 

[MugsGame]

Imagine an economy based on moving wheelbarrows of cash around. That's what you'd have without banks. It would grind to a halt. Banks are at heart of our economy. We need stable trustworthy banks for the economy to function. One big bank failure would erode trust in all banks. Much as I hate the "moral hazard" of a bail-out or the "Too big to fail" doctrine...

 

[gullmacm]

Yes, but if one of the banks is operating in a wreckless manner, over-extending itself with poor investment choices, is it not better to let it fail? If there is a consequent market opportunity for some other bank to fill the gap, then that will happen if it make business sense.
so, no need for any taxpayer to get involved. Where is the problem?

If all the banks were to go down then I can see an issue with the wheelbarrow.

 

[csirl]

If BOI or AIB went bust, I could see problems due to the high % of transactions that go through each of these banks. But one of the smaller banks - I know it would be inconvenient for their customers, but I personally think it would be better to let them fail.

Banking is an essential service, not an optional one. People and businesses need to use banks, so "losing confidence" is not a big deal as people will NEED bank accounts regardless of whether they have confidence in the system or not.

 

[Guest124]

Let a small bank fail but protect the big ones? - if this happened you would take out all the other little small banks as well. Anyway it's all 100% guaranteed now!

 

[Sunny]

Let a small bank fail but protect the big ones? - if this happened you would take out all the other little small banks as well. Anyway it's all 100% guaranteed now!

Unless of course things get really really bad and this turns out to be a bank solvency problem as well as a liquidity problem. I reckon the Government has just provided a guarantee of €400 billion on outstanding liabilities plus what money the banks borrow in the next two years. Thats a multiple of 8-10 times our current national debt. This plan could be a masterstroke but if this goes wrong, it could take the country with it. The guarantee won't be much use then! There are risks even if they are remote. But then people would never have said we would be in this position so who really knows.

 

[mayway]

Surey the guarantee is all but worthless as we don't have that kind of cash just lying around??

Can anyone explain why the bank shares are going up on the strength of this meaningless promise?

 

[annette mac]

It seems to me that so much of the world's markets operate on the basis of perceptions and not on any objective reality. That's hardly surprising because a lot of individuals operate on that basis too, i.e. if they actually sat down and compared what they own with what they owe they'd get scared and drop the balls, instead of which they keep on juggling and everything goes on more or less ok. It seems to me that what the government has done has enabled the banks, and by extension, all of us to keep on juggling. In the present circumstances I think that is as much as we can hope for in the short-term. I think it should be viewed as an opportunity, firstly to bring the banks into line by imposing whatever controls are deemed necessary to cut out their riskier lending practices. If there are large numbers of houses/apartments out there without buyers there are also large numbers of people who cannot afford housing, long local authority waiting lists for housing and huge amounts of money being wasted on bed and breakfast accommodation for some on those housing lists. For instance why doesn't our HSE and Universities buy unsold apartments in suitable locations to use as nursing and student accommodation? It seems to me that what we need in this situation is a little vision and imagination.

 

[ubiquitous]

For instance why doesn't our HSE and Universities buy unsold apartments in suitable locations to use as nursing and student accommodation?

If buying such properties is not a good idea for private investors (judging from the fact that private investors have failed to do so) what makes you think it is a good idea for the State?

 

[annette mac]

There is a difference in buying a house/apartment as a home and buying a house/apartment as an investment, different criteria apply and that's why our housing market has become so distorted. Most of the speculative apartment building was for investment purposes. It is now a buyer's market and real housing needs can be satisfied at realistic prices. If local authorities, universities and the HSE bought those unsold houses apartments it would mean that pressure would be taken off the building companies and the banks to whom they owe money. The building companies might be able to continue to trade (there's still a lot of infrastructural projects in this country which need to be done), redundances might be reduced and having had their fingers burnt both builders and banks might be little less arrogant and greedy in future.

 

[oceanclub]

For instance why doesn't our HSE and Universities buy unsold apartments in suitable locations to use as nursing and student accommodation?

What a wonderful idea. After all, our health service is simply awash with cash. When my father was lying on a hospital trolley a few months ago for 16 hours, the nurses were insisting that he smoke some cigars they had fashioned from €50 notes. And the trolley was made of gold. Rather than waste all that money, we should use it to buy overpriced apartments at above the market rate. We could call it the "Help Donal Caulfield Buy Another Ferrari Fund":

([broken link removed]).

It seems to me that what we need in this situation is a little vision and imagination.

Your ideas are intriguing to me and I wish to subscribe to your newsletter.

P.

 

[annette mac]

Well, hello to you Oceanclub I hope your "wit?" or sarcasm doesn't choke you! Really what I'm trying to get at is that we stop thinking about housing as investments and we think of them as we used to - as homes! The homes are there and the people who need them are there and now there are opportunites for real housing problems to be solved more economically than at any time in the past decade. It is a more sensible use of public money to have ownership of a property than to pay a landlord for bed and breakfast accommodation. Please don't lecture me on the realities of hospital waiting lists as I'm well aware of them through personal experience and have a daughter who's a doctor working at the coalface. I'm also aware of the percentage of the HSE budget which goes on wages and salaries and how lowly paid trainee nurses are, would it not make sense for those trainees to have access to accommodation owned by the hospital, it was the norm that every hospital had a nurses home until relatively recently.

 

[Simeon]

Yes, annette mac's idea deserves looking into. It worked very well years ago. Now that prices are heading south, the HSE should have a second look. The difference of paying someone 'accomodation provided' as opposed to normal employment would help pay the mortgage.

 

[oceanclub]

It is a more sensible use of public money to have ownership of a property than to pay a landlord for bed and breakfast accommodation.

I've no problem with that. As long as public money -that is, our money, is used to buy these property at the market rate - not at the presumably over-inflated rate you are talking about.

P.

 

[annette mac]

You are completely missing my point!!! The point is precisely that these houses/apartments HAVE come down in price and if they were to be bought in bulk you would have builders on their knees willing to do deals! What I am advocating is that public money be used to buy them now to remove people from waiting lists and to end the scandal of vast amounts of public money being spent on bed and breakfast accommodation (a lot of which is sub standard) with no long-term benefit to anyone (except the landlords). We need to think in a join-the-dots way - leaving aside perhaps justifiable prejudice against builders and banks, it is in all our interests that builders do not go under, it is in our interests that our banks do not go under. The two things are connected, if builders go bust, we have more public money going on redundancy payments and unemployment benefit and because people will have to subsist on benefits, spending decreases and the tax revenues from PAYE and VAT decreases and it all becomes a vicious circle and the recession becomes a reality and we all feel it. We all need to keep our nerve and instead of seeing unsold "investment properties" to see potential homes and find a way of getting them to the people who need them.

 

[oceanclub]

You are completely missing my point!!! The point is precisely that these houses/apartments HAVE come down in price and if they were to be bought in bulk you would have builders on their knees willing to do deals!

If the prices had come down to the market value, people would be buying them. (It's sort of a circular definition.) Yes, the price has come down, a little. Do you honestly think they have come as far as they will?

P.

 

[Meathman99]

Do you really want the market value of houses to drop dramatically? Why is it necessary to rub the noses of hard working entrepreneurs in the dirt? That ll surely help the spirit that the government is constantly harping on about wanting to foster.

 

[oceanclub]

Do you really want the market value of houses to drop dramatically?

Yes, if it means that Ireland's international competitiveness will improve. Do you think that the fact that the size of house prices here may have a relationship to that wages here are high?

Why is it necessary to rub the noses of hard working entrepreneurs in the dirt?

Why is it necessary to make hard-working wage-earners spent huge proportions of their salaries to find a place to live?

That ll surely help the spirit that the government is constantly harping on about wanting to foster.

Which spirit is that - the spirit of the Galway Races tent?

P.

 

[annette mac]

I think it's irrelevant whether or not I want prices to go down, the fact is they are going down. There are apartments in Dublin which have been reduced by 100,000 which is a lot on an apartment now costing 320,000. Apartments are only worth what someone is willing to pay for them and decisions to buy or not to buy are made not only on price alone. The availability of and size of mortgages (the credit cruch) and the worries individuals now have about job security are also deciding factors. My point is that it's now a buyer's market and if you are an individual with money in your back pocket you are now in a position to negotiate a good deal when buying from a builder or arranging for building work to be done. That also applies to the Government, and all state bodies. If they bought "unsold investment properties" and used them to provide homes for people who need them and reduce our housing waiting lists it would also have the effect of relieving pressure on builders and banks which in turn would have an effect on other aspects of public spending. Fewer redundancies mean less public expenditure on redundancy payments and unemployment benefit. If people lose their jobs they have less disposable income, buy less and therefore PAYE and VAT income decreases too. It becames a vicious circle and the recession becomes a reality and really bites. We need to keep our nerve and see this situation as an opportunity to solve our housing problem which we weren't able to do when land and houses were at inflated prices. We should look to achieve the best possible outcome from this downturn and if we end up reducing our housing lists and getting the roads, schools and hospitals we need built at realistic prices - then that's a result! If we also learn the hard lesson that hype and greed always gets it's come uppance then so much the better!

 

[oceanclub]

I think it's irrelevant whether or not I want prices to go down, the fact is they are going down. There are apartments in Dublin which have been reduced by 100,000 which is a lot on an apartment now costing 320,000.

That's still almost 10 times the average industrial wage. Comparisons such "a lot" are meaningless at the end of one of the world's biggest housing bubbles.

Apartments are only worth what someone is willing to pay for them

And guess what - people aren't currently willing to pay for them! Mortgage buying in the UK has gone down to 2% of its previous level.

My point is that it's now a buyer's market

.

No, it's not. Builders and developers are still in a state of denial. Rather than cutting prices to a realistic level, they're playing around will silly gimmicks in order to to allow prices to drop to their natural market prices.

If we also learn the hard lesson that hype and greed always gets it's come uppance then so much the better!

Sorry, this is just fricking bizarre. You're advocating that we remove all responsibility for the current mess we are in from builders and developers. You're advocating that taxpayers finance their greed by buying up their unwanted stock. You're advocating that we use we do this when it looks like there will be huge cutbacks in public services already. And then you say its us who need to learn a hard lesson? I certainly don't need one, as I've been arguing that there's been a housing bubble going on for years. I put my money where my mouth was and didn't buy a place. And I for one don't want to spent that money bailing out either idiots or greedy developers.

P.