# If an Irish bank goes down? So what?



## gullmacm (29 Sep 2008)

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?


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## MugsGame (29 Sep 2008)

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...


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## gullmacm (29 Sep 2008)

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.


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## csirl (30 Sep 2008)

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.


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## Guest124 (30 Sep 2008)

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!


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## Sunny (30 Sep 2008)

BroadbandKen said:


> 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.


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## mayway (30 Sep 2008)

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?


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## annette mac (30 Sep 2008)

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.


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## ubiquitous (30 Sep 2008)

annette mac said:


> 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?


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## annette mac (30 Sep 2008)

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.


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## oceanclub (30 Sep 2008)

annette mac said:


> 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.


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## annette mac (30 Sep 2008)

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.


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## Simeon (30 Sep 2008)

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.


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## oceanclub (30 Sep 2008)

annette mac said:


> 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.


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## annette mac (30 Sep 2008)

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.


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## oceanclub (30 Sep 2008)

annette mac said:


> 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.


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## Meathman99 (30 Sep 2008)

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.


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## oceanclub (30 Sep 2008)

Meathman99 said:


> 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.


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## annette mac (30 Sep 2008)

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!


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## oceanclub (30 Sep 2008)

annette mac said:


> 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.


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## Meathman99 (30 Sep 2008)

oceanclub said:


> 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.
> 
> P.


What is a realistic level?  Just exactly how much profit do you think most builders are making on each sale?
There isnt much more to cut.  Unless of course the government will allow builders not to pay stamp duty, VAT, council contributions, highly inflated wages to staff etc




oceanclub said:


> 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.
> 
> P.



The government has been bailing out farmers and fishermen for years.  And today they bail out the banks.


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## oceanclub (30 Sep 2008)

Meathman99 said:


> What is a realistic level? Just exactly how much profit do you think most builders are making on each sale?
> There isnt much more to cut.


 
So, builders and developer got into dick-swinging battles for land and paid way over the odds for it, as Matt Cooper has said, why are they entitled to be bailed out?

Sean Dunne paid €57 million per acre for his Ballsbridge site, and will have to make over €1million per apartment to break even. If he can't, is this my fault, and am I expected to bail him out?



> The government has been bailing out farmers and fishermen for years. And today they bail out the banks.


 
When I was very young, I was told by my aunt not to jump off a cliff because someone else does it. Good advice.

P.


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## Meathman99 (30 Sep 2008)

My point is that why should the government be bailing out some groups
Farmers How many 100 million per year
Fishermen  
Banks
and not not provide some support for others 
Builders
All the support jobs that construction creates

It is sickening to see the begrudgery that some people have against builders.
Others have also benefited massively, farmers sold land that they never worked a day in thier life on for massive money. They collected thier government cheque every month.


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## oceanclub (30 Sep 2008)

Meathman99 said:


> Others have also benefited massively, farmers sold land that they never worked a day in thier life on for massive money. They collected thier government cheque every month.


 
Did I even *mention* supporting these people? It's a pretty poor argument to say that we should throw money at group A merely because we previously threw money at group B. It's an especially idiotic argument when group A consists of people who boast to the Irish Times about their Ferraris.

Also, you seem to be misuing the word "begrudgery". It does *not* mean "to be annoyed by the fact that a group of people vastly richer than yourself are sending you the equivalent of begging letters".

P.


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## Fearbocht (30 Sep 2008)

Have to agree totally with Oceanclub on this.  For the past few years the developers have been pulling numbers out of the head when it came to making up house prices.  And the banks were the reason they could do this.

Whatever number the developer thought up, the banks supplied the funds, regardless of the intrinsic value of the property.  Instead of making a modest profit of 10 or 20%, the developers were making 100%, 200% or 300% at a minimum. 

The reason the banks operated unchecked was because the politicians had a serious confilict of agreement.  The bigger the profits the bigger the donations. While we may feel sorry for the poor man who has been tricked by the craziness, it is no reason to mug other poor unfortunates into buying overprices houses. 

Many intermediaries had the hands well greased by the unprecented flow of profits cumulating with an annual tribute to the arch facilliators in the tents of Galway. Sadly the real suckers were the people who were pressurised into buying for whatever reasons. Their houses are now worth at best half what they paid for them.  If they dont believe me, let them try and sell. The main reason being, the banks simply dont have the sort of money to maintain the artificial prices.  

Worringly the government has now come to the rescue of their good friends,  the banks and the developers.   One suspects it is an attempt to prop-up inflated property values. The reality, however, is that money or credit, call it what you will, has evaporated and I suspect the deadweight of an overvalued Irish property market will prove too much to bear for the flimsy shoulders of a sovereign bankrupt state.


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## CGorman (30 Sep 2008)

Currently watching prime time coverage... just had a notation - is it a possibility that the global credit crunch could end up, ironically, saving the irish banking system?! Here's my logic...

Any other year: Irish Housing market collapse, banks face massive bad debts, depositors run on banks, and they collapse one by one.

2008: Irish housing market collapses, banks face prospect of massive bad debts, government (thanks to international circumstances) implements massive gaurantee for bank deposits, and due to international collapses, foreign depsoitors rush to put funds into Irish banks... hence Irish banking system survives and indeed may gain long term international market share!!

This is just a beermat notion... but would'nt it be highly ironic if Irish banks end up surviving partly due to the credit crunch that is destroying foreign banks!


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## Simeon (30 Sep 2008)

AFAIK money has already been shifted from abroad. Even with the original guarantee there was money from John Bull.


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## ClubMan (30 Sep 2008)

No man or banking system is an island. If things continue to slide internationally even the Government guarantees might not be of much help. _Ireland _is unlikely to prosper regardless of what goes on elsewhere - especially in the _USA_.


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## darag (30 Sep 2008)

> My point is that why should the government be bailing out some groups


Because handouts to farmers and fishermen have minimal impact on the rest of us.

Property is an input cost for nearly all businesses outside of construction and indeed for nearly all young individuals who pay the most tax and receive the least subsidy from the state.  Propping up a housing bubble screws the entire economy.  Let it pop and then let us get back to normal where people through work and saving can accumulate wealth instead of being sucked into the childishly stupid fantasy that everyone - simply by sticking 10k down and getting a mortgage to buy an average priced home - can become 30k a year wealthier by doing nothing except sitting on their This post will be deleted if not edited to remove bad language.

Given that deposit conditions for getting a mortgage have already gotten more stringent and that salary multiples are being reigned in, how do you think any non-home owner could even think about buying a property if the current price levels are maintained?  It's quite likely mortgage lending could return to the historic norms of requiring a 20% deposit and offering only 3.5 times gross salary.  Now your 320K appartment would require 70K cash and a salary of 75K a year.

Every attempt to "protect" property producers, screws property buyers.  It's a zero sum game and so the best the government can do is to step back and let people decide, voluntarily, how much money they want to exchange a piece of property for.  The Japanese government tried to "protect" property prices which just lead to a long painful slow 15 year slump.

Even from a moral point of view I would find any measure introduced by the government to aid or encourage first-time buyers to buy at this time to be repugnant.  It would effectively consitute a subsidisy (paid for by every tax payer) for sellers and builders at the expense of the poor young saps who'd be burdened with a life sentence carrying bubble sized debt.

The suggestion that our public sector should start a Canute like attempt to prop up current prices using public funds at the expense of everyone else is similarly repugnant.


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## annette mac (1 Oct 2008)

Oceanclub, you've a great line in righteous indignation but I'm not sure where that gets us!  We (all of us) have a problem which needs solving and what I'm suggesting is rational.  I'm more concerned about keeping people in employment than bailing out builders but the two are interconnected so if you are intent on punishing builders and bankers you also punish their employees, that's a fact and there's no getting around it.  I've always felt that you could divide the world into those who talk about problems and those who try to solve them.  You and I fall on opposite sides of that divide!


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## oceanclub (1 Oct 2008)

annette mac said:


> Oceanclub, you've a great line in righteous indignation but I'm not sure where that gets us! We (all of us) have a problem which needs solving and what I'm suggesting is rational. I'm more concerned about keeping people in employment than bailing out builders but the two are interconnected so if you are intent on punishing builders and bankers you also punish their employees, that's a fact and there's no getting around it. I've always felt that you could divide the world into those who talk about problems and those who try to solve them. You and I fall on opposite sides of that divide!


 
You don't solve problems by throwing money at them, and that's the only thing you're suggesting. In fact, you're suggesting we throw money at developers *twice*, directly and indirectly - directly by the government using public funds to buy property at the existing inflated prices that developers are lookng for, and indirectly by allowing those purchases to artificially inflate prices even more so that FTBs are handing even even more money over to developers. If a company was failing, would your advice be for the government to buy shares in said company to artificially inflate its price?

It would be far better to channel all this money you're proposing we waste into training and job-finding for ex-construction workers. Many of these workers weren't even originally in the construction industry - my wife works as a recruitment consultant and says that many current job-seekers are people who spend the last few years in construction because of the bubble, but were previously in other sectors such as hospitality.

You're in the same position of denial as many in the country - that Ireland was special, that the housing boom would go on forever with the existing level of employment, that somehow we had achieved a new paradigm. The party is over. The construction bubble is gone, those construction jobs are gone. We have way too many houses as it is, so even if we do throw money at developers, they're not going to use it to more employ to staff - they will simply pocket the money and sit on their existing stock. 

P.


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## oceanclub (1 Oct 2008)

Here's a priceless example of what happens when the government gets involved in bumping up the housing market:

http://www.thepropertypin.com/viewtopic.php?f=10&t=13913

To summarize:

* The council bought apartments for a certain price and currently values them at €345K
* It attempts to sell them to tenants for €281, and refuses to sell for any lower
* The banks *now* judge those apartments to be worth €280K and refuse to supply the tenants with the cash
* On the open market, the apartments are currently worth €270K

The Affordable Housing Scheme has now become a farce, and should be renamed the Developer Bailout Scheme.

P.


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## Davidmul (6 Oct 2008)

*Re: If an Irish bank goes down?*

A bit of a novice but from what i understand the irish banks have now one of the safest..

I have a situation were a relative just moved back from abroad after spending many years away. As he is building a house in the UK the builder will not take the money for the house till he completes the job - he (the builder) does want have such a large amount of cash just in case the banks in the UK go belly up..So my relative asked me to if he could put the funds into my account here in Ireland till Jan 09 - that is when the house shall be completed.

So would anybody know the following 

Am I liable for anything by putting those funds into my account for 3 months? If so what?

What options are available...

Thanks


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## iPoker (7 Oct 2008)

*Re: If an Irish bank goes down?*



Davidmul said:


> A bit of a novice but from what i understand the irish banks have now one of the safest..
> 
> I have a situation were a relative just moved back from abroad after spending many years away. As he is building a house in the UK the builder will not take the money for the house till he completes the job - he (the builder) does want have such a large amount of cash just in case the banks in the UK go belly up..So my relative asked me to if he could put the funds into my account here in Ireland till Jan 09 - that is when the house shall be completed.
> 
> ...


 
totally off point, but anyway, why doesn't the builder or the other bloke put in Northern Rock, or British Post Office, which I understand is run by BOI, and covered by the Irish Government 100% guarantee? Alternatively, he could buy gold, silver or cigarettes as an alternate currency!


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## Sherman (7 Oct 2008)

*Re: If an Irish bank goes down?*



Davidmul said:


> A bit of a novice but from what i understand the irish banks have now one of the safest..
> 
> I have a situation were a relative just moved back from abroad after spending many years away. As he is building a house in the UK the builder will not take the money for the house till he completes the job - he (the builder) does want have such a large amount of cash just in case the banks in the UK go belly up..So my relative asked me to if he could put the funds into my account here in Ireland till Jan 09 - that is when the house shall be completed.
> 
> ...


 
Absolutely no need to move the money to Ireland.  Your relative could just put the money into one of the Irish banks in the UK - their UK subsidiaries all benefit from the Irish Government guarantee.  Also, Northern Rock is 100% backed by the UK Treasury, which would be another option for your relative.  By keeping their money in the UK they avoid exchange rate risks in transferring the sum to/from Ireland.


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## Sunny (7 Oct 2008)

*Re: If an Irish bank goes down?*



Sherman said:


> Absolutely no need to move the money to Ireland. Your relative could just put the money into one of the Irish banks in the UK - their UK subsidiaries all benefit from the Irish Government guarantee.


 
For the moment! Don't be surprised if they remove the guarantee from UK subsidiaries of Irish banks. All depends on how tough the EU want to get with Ireland


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## Maximus152 (13 Oct 2008)

Wrote:
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.[/quote]

Well seems like a great idea, why ddont we also set up a fund for them in summer for there Holidays so they can have 2 weeks in the sun for free as well, perhaps a Christmas club with donations from the Tax payer (mandatory of course) would be a lovelly idea.
Yes the rest of us can just slave through the week save in the knowledge that we are reducing some one elses burden. Makes me feel all warm n fuzzy.


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## mainasia (21 Oct 2008)

annette mac said:


> Oceanclub, you've a great line in righteous indignation but I'm not sure where that gets us! We (all of us) have a problem which needs solving and what I'm suggesting is rational. I'm more concerned about keeping people in employment than bailing out builders but the two are interconnected so if you are intent on punishing builders and bankers you also punish their employees, that's a fact and there's no getting around it. I've always felt that you could divide the world into those who talk about problems and those who try to solve them. You and I fall on opposite sides of that divide!


 
You're suggesting a solution through giant retro tinted Celtic Tiger Raybans.
Let's get things straight here, the government is broke. There's no money for further bail-outs as you suggest. There is NO money. Apart from the fact that the construction industry doesn't need our money as they made off with plenty in the last 10 years.

Keeping people in employment can be done by constructive industries to our economy that also bring revenue in from outside rather than ones that boom and bust and cause environmental damage and ruin our country's economy and young people's future.

You are not proposing any solid solution whatsoever, your solution is to try and prop up the whole sorry mess with more taxpayers money. Finally people don't need to buy houses they can't afford, they can rent.


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## PaulHoughton (21 Oct 2008)

Does anyone want to discuss the original question? What would happen if an Irish bank went down?

Would this not be a healthy thing? 
Shareholders would lose their money and learn not to invest in banks that overlend.
Bank management would learn to be more prudent.

Customers would switch to another bank that had invested more wisely.

I thought bad companies had to fail for capitalism to work. In the dotcom crash of 2000, many companies went to the wall including listed companies. All staff were fired, shareholders lost everything, some were acquired for a fraction of their former valuations, survivors had their share prices cut down and acted more cautiously. And most people would see that as a healthy process. The industry survived with more realistic business models. 

Should world governments have stepped in to save these broken companies? Buy their shares, guarantee their loans? I don't think so.


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## mainasia (22 Oct 2008)

'Too big to fail'. The consequences of multiple major banks failing in the US and worldwide would have been horrendous. Most of the Irish banks would already be dead (one or two will probably fall by the wayside anyway) as would a lot of major European banks. But not only that, millions would have lost everything, millions of companies would have no credit to operate and would have to immediately shut-down and wouldn't be able to pay staff.
Sure it could be done like this and things would recover eventually, but what would be the point of that?


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## grahamo (22 Oct 2008)

*Does anyone want to discuss the original question? What would happen if an Irish bank went down?*

some fat cats would get poor! The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!


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## z103 (22 Oct 2008)

> The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!


Um, yes but that could quite possibly be our money!


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## JohnBoy (22 Oct 2008)

grahamo said:


> *Does anyone want to discuss the original question? What would happen if an Irish bank went down?*
> 
> some fat cats would get poor! The remaining fat cats would quickly head for the hills with suitcases full of money in small denominations. Good Riddance!


 
Also note that a disproportionately large slice of Irish pension assets are invested (still) in the Irish banks. This is not like Northern Rock where the hit to the equity holders is spread far and wide. If an Irish bank's shares were to become worthless many tax payers will get hit twice - once via their pension and again via their taxes.


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## PaulHoughton (22 Oct 2008)

some answers to what would happen...





mainasia said:


> But not only that, millions would have lost everything


Do you mean the customers? If so the customers had a deposit guarantee scheme for 90% of deposits up to 20K. So the customers would not have lost everything. An insolvent bank would still have assets (loans, mortgages, buildings) and would sell these on to compensate depositors.



			
				mainasia said:
			
		

> millions of companies would have no credit to operate and would have to immediately shut-down and wouldn't be able to pay staff.


There is an open market for credit and if a bank drops out of the market a company can seek credit elsewhere. Not all companies are dependent on bank credit for their existence. Other avenues for obtaining credit include issuing bonds, arranging terms witrh suppliers and even paying the staff late. Debt should only be required by companies in a growth phase. It's a bet on future increased earnings. If some credit dependent companies go bust then so what? Living on debt is a risky business.



			
				mainasia said:
			
		

> Sure it could be done like this and things would recover eventually, but what would be the point of that?


The point would be to correct the market and return to more realistic future expectations asap. A world where banks don't offer seven year car loans and mortages at 5 times gross annual income on 92% of a bs asset value. (both of these offers are still available see NIB and BoI). The point would be to encourage the efficient allocation of our wealth to realistic profitable ventures rather than into lunatic schemes.



JohnBoy said:


> Also note that a disproportionately large slice of Irish pension assets are invested (still) in the Irish banks. This is not like Northern Rock where the hit to the equity holders is spread far and wide. If an Irish bank's shares were to become worthless many tax payers will get hit twice - once via their pension and again via their taxes.


Irish banks are down about 80% on a a year earlier. So any pension fund that invested heavily in these bubble stocks has lost most of their money now. Pension funds are long term investments. They will now invest in more profitable companies resulting in a more efficient allocation of resources. 

The national answer to the current correction seems to be that the government will attempt to turn back the market tide by taking all our money and injecting it into failed limited companies. They have turned the banks' debts into national debt overnight. This policy will fail as it always does. It will just take time to fail. I'm looking at you Alitalia, Irish Steel, GM and every other limping business that substituted government largesse for the money it couldn't raise through the markets because its operation was not viable..

Saying the Irish economy is short of credit is like saying that an alcoholic is short of booze. Clearly this is the accepted wisdom as we rush to find ways to enable irish house buyers and companies to borrow against falling asset values.

I think we are throwing the furniture on the fire when we should be having a banking shakeout and a dose of reality.


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## mainasia (23 Oct 2008)

PaulHoughton said:


> some answers to what would happen...Do you mean the customers? If so the customers had a deposit guarantee scheme for 90% of deposits up to 20K. So the customers would not have lost everything. An insolvent bank would still have assets (loans, mortgages, buildings) and would sell these on to compensate depositors.
> 
> There is an open market for credit and if a bank drops out of the market a company can seek credit elsewhere. Not all companies are dependent on bank credit for their existence. Other avenues for obtaining credit include issuing bonds, arranging terms witrh suppliers and even paying the staff late. Debt should only be required by companies in a growth phase. It's a bet on future increased earnings. If some credit dependent companies go bust then so what? Living on debt is a risky business.
> 
> ...


 
Regarding insolvent banks selling property and assest, who would they sell to? Also, many Irish banks lease their own buildings. They are effectively worthless taking into account all the property bad debts they are holding, only held up because the government is propping them on. The government says it will back up all the deposits but where will the money come from if one really goes under, plus if one goes under it could easily knock on. Sounds sensationlist but if you look at the numbers could happen.
Without banks giving credit where can the company go to credit, at what cost? Only a fool would invest in a company with no bank credit and no customers. I think there would massive shutdowns and layoffs and it would quickly spiral.


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## Irish Guru (31 Oct 2008)

I have a mortgage with Irish Permanent. If they go down is my mortgage then null and void? Probably too good to be true.


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