# If someone founded a new lending bank, would you support it



## onq (2 Mar 2010)

I went to Frontline last night and had a ringside seat to Brian Lucey and the Government rep having a frank exchange of views.

The Third Option to be discussed by the panel was an outside bank taking shares in the Irish Banks.

Predictable nonsense about how this might not be good for Ireland followed.

I was a bit miffed when no-one suggested wht people have been talking about for months here, and what several of my clients have suggested:

Start a new lending bank for business.

Lucey suggested I start one myself when I spoke to him later.

So I'm posting here to air the idea once again:

Here is a link about starting a bank €5M will do the trick according to this website:

[broken link removed]

They question is, in a conservative nation would people support this new bank,

Remember, no baggage, no debts, just funding to be lent out straightaway, letting credit flow back into the Irish Economy.

According to Lucey even €5Bn in capitalisation wouldn't be enough, we'd need €60Bn, but I cannot see why so perhaps someone could advise here.

From where i'm standing Lucey's position seems like telling a starving man that the fish is off the menu, when all he needa to stay alive is a crust of bread and a drink of water.

What say you?

ONQ,


----------



## Brendan Burgess (2 Mar 2010)

The short answer is no.

The long answer is...no. 

There is something which I just don't understand and people have not been able to explain it to me. We have come through around 10 years of unprecedented economic growth. Businesses have made huge amounts of profits and generated huge amounts cash.

Some businesses have held on to these profits to fund them through the bad times. 

Other businesses have
1) either not been profitable during a boom
2) have been profitable but have squandered the cash

I have asked a few practising accountants this and they have told me it's mainly the latter. 

Most business people have reduced their personal expenditure in response to the lower profits. Some have not. They are still taking high salaries to fund their lifestyle and are criticizing the banks for refusing to fund good businesses.

I would love to know the full story of the agricultural contractor on FrontLine last night. He gave the impression that he was up to date with all his repayments. He missed and the bank seized his tractor. This is very unusual behaviour by the bank. Normally they work with people for a considerable time and only repossess after months of failed agreements.

So the people who want to borrow now have not been great financial managers during the boom. Do you really expect them to be profitable during the bust? 

The well run businesses are not finding it difficult to raise money if they need it.  ISME claims that 50% of business loan applications are being refused. That means that 50% are being accepted. I would imagine that these are the well run businesses.

If the government wants to set up a "Good Bank" to donate tax payers' money to badly run businesses, that is a political decision for them to make. 

There is an argument for the government to donate more money to businesses to get the country going again. But I don't think that indivduals should.


----------



## tiger (2 Mar 2010)

I would tend to agree.  While there does appear to be alot of general stories about how banks have tightened credit, any specific examples I see in the media are usually cases of business that don't look very healthy.


----------



## number7 (2 Mar 2010)

We cant have it both ways.

We as a nation are chastising the banking system for reckless lending while at the same time we are hounding them for not lending to sme sector.

I cant think of too many business sectors I would lend my cash to (if I had any) in this climate.

Banking is business, lending for profit to generally low risk areas, Ireland is not low risk at the moment, as the risk declines the lending options will increase.


----------



## Sunny (2 Mar 2010)

Why on earth would anyone put deposits into or lend to a bank with €5m of share capital?


----------



## onq (2 Mar 2010)

Brendan said:


> The short answer is no.
> 
> The long answer is...no.
> 
> ...


 
 Granted you have done the research Brendan, even if only anecdotally and perhaps with a less that relevant population number, but I accept what you say.

 However you forget two other kinds of businesses.

 3) developers who rolled their profits over into purchasing land banks at what now seem to be extortionate prices or into developments affected by the crisis - there was a programme late last year that detailed at least two first time developers who were caught like this and say their equity acquired over many years in other businesses vanish. The money originally came from well-run businesses.

 4) people who traded profitably and well, not extravagantly and who put their money [unwisely in retrospect] into Bank shares, Blue Chip Investments, or property to avail of double digit growth to maximise their returns, only to see their investment obliterated. There is no suggestion their money came from anything other than well-run businesses.

 Neither of these accord with the stereotype of the profligate spender, although I accept some were. There was a strongly expressed opinion last night on Frontline - that was not contested by the government representative - that banks were not lending.

 The government representative admitted as much and when Kenny closely questioned him as when they would start lending he answered 
 " ... sometime this year."

 That, quite frankly, isn't good enough - not by a long shot.

That doesn't square with ISME's 50% comment or the comments from the accountant's you spoke to and it was made on the national carrier, so I assume if a well-prepared government representative was aware of even anecdotal evidence supporting your comments above, he would have made the case your research reflected - he didn't.

 So if, by the admission of the government representative, and based on questions thrown up by a team of expert researchers, the banks have no money to lend - what's to be done?

 Continue to fix the broken banks, to reach some arbitrary capital ratio designed to cater for normal levels of runs on deposits in normal times?

 We're not in normal times, Brendan, and the attempts to re-capitalise as opposed to lend funding businesses and raising the level of transactions is what's holding back our recovery.

 Nor do I think its fair to go from a torrent of credit to a drip for private purposes, so long as people are able to pay back their loans. 

 I accept we've seen a few instances of overstretched credit ratings here and on other websites, but I have heard several anecdotes of people with normal/good current cash flow not being able to get car loans, last year for example.

 In one case it was a business person with an excellent credit rating who couldn't get a car loan. He could get a loan to extend his property, but not to replace his car. Utter nonsense in the context.

 Then there are the people I've spoken with this year in networking meetings and functions. Two people confirmed they'd love to go forward with extensions to their property but can't arrange finances.

So I'm saying that while you may have some anecdotal evidence to support bank lending - and I have to admit our our bank is very supportive of our office - the show last night really affected me, presenting as it did the widely held opinion, not refuted, that banks aren't lending - yet!

 My understanding of the gist of the comments from the government representative was that it would take time to bring them back to a level of capitalisation - involving the injection of many more billions of Euros from either the taxpayer or private investors, that lending would only be beginning this year, and would not be up and running for another couple of years.

 So if we have three years to wait for credit we won't see a recovery this side of 2013 and possibly 2015 - and that's unacceptable.

 We need credit to start flowing now, and not be putting fig leaves on banks who were part and parcel of the profligacy that went on.

 In the words of one banker I know "we went from lending money, to selling money - that's where we went wrong."

 I'm nut suggesting a return to profligate spending with no checks and balances - OTC I think that banks customer relations managers should take a far more pro-active and invasive role in relation to the monies they lend, resist lump sum handovers, encourage staged drawdowns and payments and at all times minimize the banks and their customers exposure to the negative effects of being in a loan or credit-supported situation.

 But the fact is people do need credit, not least because they haven't been paid for services they have rendered or goods they have supplied.

 Builders are underbidding to get tenders, knowingly intending not to pay certain suppliers to break even.

 Clients are refusing to honour fee agreements and themselves have gone bust owning millions.

 Look at the situation Traynor O'Toole architects ended up in last month. This may well be repeated across the architectural profession, where both award winning practices and tight commercial concerns are suffering.

 So when I say that finance isn't available its not off the top of my head and when I suggest a new commercial lending bank its not because I believe the banks will recover or are recovering to what is needed.

 We probably need 60Bn in deposits to fund a minimum of 30Bn in lending according to one source - I'm not dropping names.

 But if we have zero or next to zero billions, then even one new lending institution with no strings attached will prosper and help the economy to grow. The big banks will eventually over take it [and possibly overtake it], but the trickle of credit it supplies will help us move forward in the short term and offer hope to potential borrowers to keep going through this.

And of course once its built up a network of say 50 or so outlets, it becomes a national footprint and that might attract some foreign investors to a small bank going places.

Regardless of what transpires, all it not as well as your accountants make out Brendan, and someone needs to be seen to be doing something effective, and soon.

 FWIW

 ONQ.


----------



## onq (2 Mar 2010)

Sunny said:


> Why on earth would anyone put deposits into or lend to a bank with €5m of share capital?



Its not about "would anyone put deposits into or lend to a bank with €5m of share capital".

Quite the contrary.

We need a bank that can lend and this is the minimum amount you need to set up a bank, according to a link I visited last night.

Feel free to contradict this figure, but its lending from I'm talking about, not depositing in or lending to it.

Apart from the initial capitalisation, of course.



ONQ


----------



## onq (2 Mar 2010)

number7 said:


> We cant have it both ways.
> 
> We as a nation are chastising the banking system for reckless lending while at the same time we are hounding them for not lending to sme sector.
> 
> ...



Lending to SMEs does not equate to reckless lending and I would ask that you withdraw that comment.

The lack of lending is increasing the risk, as the number of transactions falls and the economy contracts.

Banks know there is a degree of risk to every loan and once the get their actuaries out of whatever shock or headshop induced paralysis they're in we can start taking a balanced, not a panicked view.

ONQ.


----------



## canicemcavoy (2 Mar 2010)

onq said:


> Then there are the people I've spoken with this year in networking meetings and functions. Two people confirmed they'd love to go forward with extensions to their property but can't arrange finances.


 
Are these extensions related to business or to private property? If the former, that is of concern. If the latter, I hardly think that building kitchens is one of the more pressing issues facing the nation's banks at this time.


----------



## Brendan Burgess (2 Mar 2010)

> In one case it was a business person with an excellent credit rating who couldn't get a car loan. He could get a loan to extend his property, but not to replace his car. Utter nonsense in the context.
> 
> Look at the situation Traynor O'Toole architects ended up in last month. This may well be repeated across the architectural profession, where both award winning practices and tight commercial concerns are suffering.



Hi Onq

You asked if we would invest or deposit in a small bank? The answer is clearly no.

There is a separate issue as to whether the government should donate money to businesses to get credit and employment going.  Well definitely not for car loans or extending properties. 

I don't think that they should lend to architects either - even if they are prize winning. 

You don't mention them, but they should be closing down hotels, not lending to them. 

There is huge oversupply in many industries - the legal profession, architecture, hotels etc. They have to be allowed to contract to a size appropriate to the economy. If the taxpayer props up the weaker ones, the whole sector is weakened. If they let them go, then the remaining ones will be more viable long-term. 

The problem with NAMA is that it won't get the credit flowing of itself. But without NAMA , there will be no credit or banking system. It's a very difficult problem to solve. 

On the guy building the extension. If the banks lend to him that will create jobs for the builders and suppliers. So maybe it should be encouraged.

One of your friends could get a loan for an extension. Two couldn't. That is the way credit works. It depends on his income and his level of borrowings. The banks have taken huge losses on car loans so they are probably trying to cut their exposure to this at the moment.


----------



## DerKaiser (2 Mar 2010)

onq said:


> Its not about "would anyone put deposits into or lend to a bank with €5m of share capital".
> 
> Quite the contrary.
> 
> ...



What happens once you lend out the first €5m?  A large part of the current problem is that the banks, like you have just done, felt they could operate a lending business without having sufficient deposits backing it.

I am, however, starting to have sympathy for the view that we could end up blowing more money than we need to get the economy going again through re-capitalising AIB and BoI.

I accept the stability of the banking system and our ability to attract continued external funding are a very delicate matter but I'm getting the impression that the banks incentives from here will be to make themselves bombproof by building up their capital ratios.  This is at odds with the requirement to get economic activity going again.

Perversely, I think payments to the banks arising from NAMA and any recapitalisation payments need to be made on the basis that the banks should hold a weaker solvency position than they would otherwise choose.


----------



## onq (2 Mar 2010)

canicemcavoy said:


> Are these extensions related to business or to private property? If the former, that is of concern. If the latter, I hardly think that building kitchens is one of the more pressing issues facing the nation's banks at this time.



You can refer to Brendan's reply above also, but the issue isn't what the extension is for.

Anyone with the finances to service a home improvement loan should be in a position of accessing credit to allow them to carry out these works.

The point being that the work so done will help sustain in a small way the competent building industry we have developed and this in turn will help the economy through the multiplier effect.

If you cannot see the importance of having a lot of small loans that people can afford to pay back going around at this time you may be missing the point.

The spin-offs support the economy, the banks get supported - even the other banks - through microcharges on transactions and everything starts to grow again.

Being dismissive of any enterprise is not appropriate at this time.

This is prudent lending we're talking about, regardless of whether its is "business" or "private" and its exactly what the economy needs at this time to help get it back on its feet.

ONQ.


----------



## onq (2 Mar 2010)

Brendan said:


> Hi Onq
> 
> You asked if we would invest or deposit in a small bank? The answer is clearly no.
> 
> ...



Actually, Brendan, that wasn't what I asked and I wasn't trying to be clevreor trap people with words or assumptions.

I was very specific - I asked:

_"If someone founded a new lending bank, would you support it"_

I specifically didn't intend it to be a deposit-taking bank per se becase I was concerned that taking deposits might harm the trading porfitability of the larger banks that are in such trouble.

I designed this primarily [in my head at least, although obviously I didn't communicate this well enough ] to be a bank to supply liquidity to the Irish economy.

Your argument about apropriate sizing of market sectors seems oddly inappropriate given the scale of the economic problem and the investment professionals make to become trained.

Merely telling people to disappear, emigrate or go back to college  isn't good enough, although a direction and a strategy as to how to export the oversupplied skills and competences would be useful.

---------------------------------------------------------

In relation to Traynor O'Toole I said this.

_"Clients are refusing to honour fee agreements and themselves have gone bust owning millions.

Look at the situation Traynor O'Toole architects ended up in last month. This may well be repeated across the architectural profession, where both award winning practices and tight commercial concerns are suffering."_

This wasn't intended as a plea to lend money to architects per se.
This was intended as part of the rebuttal to your comments noted below:

_"Some businesses have held on to these profits to fund them through the bad times. 

Other businesses have
1) either not been profitable during a boom
2) have been profitable but have squandered the cash

I have asked a few practising accountants this and they have told me it's mainly the latter. "_ 

This seemed to me to unfairly suggest that most people were imprudently spending. 

In the case of these architects they didn't receive the profits - expenses and costs were incurred in good faith for which they could reasonably expect to have receive fees following later billing points - this didn't happen and they paid the price for working for several large clients who are now in difficulty.

--------------------------------------------------------

It is a very unwise government that allows obliteration of a professional class, whether it is solicitors or architects. The numbers were increased at a screaming rate during the boom and now there is not enough work to support them - temporarily.

It is quite clear that professional firms which are viable should be supported to a degree to maintain our skillsets and competence in this country which have reached world-class standard in the last five years or so.

It is also quite clear that we need help to assist those still willing to practice - and many are sodiscouraged that they have given up - a total indictment of our society IMO.

I find the suggestion that the professions should now "contract" to match a diysfunctional economy unhelpful.

Let this economy heal its wounds, but lets market ourselves on a global scale - not every country is experiencing this crisis.

As far as I can see it is necessary to push ourselve beyond nimbyism to reach inspired solutions to leverage our open economy and global reach to ensure that our economy thrives again.

---------------------------------------------------------

Today I spoke to a builder based on the west coast about getting costs in for a house. In passing he told me of his company name and mentioned another, then corrected his statement to say it doesn't trade here, but in the middle east.

A rural Irish building company with a sister company supplying building services in the middle east.

In a country completed untouched by all of this crisis situation.

That is an intelligent, sustainable option.

Crises do not hit all countries equally.

That is a sustainable international marketing strategy that could provide sustainable employment for the tens of thousands of unemployed Irish building workers who are on the dole.

We have world-class designers and world-class builder and we need to export their skills.

Doing things like this [and I accept I am commenting on my sector of industry] is one way to leverage our position as an open economy  and repatriate profits where these companies choose to be based here for tax reasons to support Ireland.

This is the hook for future business lending - it cannot just be about lending ot indigenous companies - some proportion of the total monies lent must be lent to exporting companies who agree to repatriate profits and that is a decision only government policy can enforce.

And for that we need a business lending bank which I call on you to support.

ONQ.


----------



## number7 (2 Mar 2010)

onq said:


> Lending to SMEs does not equate to reckless lending and I would ask that you withdraw that comment.
> 
> The lack of lending is increasing the risk, as the number of transactions falls and the economy contracts.
> 
> ...


 
Dont see anywhere I suggested that lending to sme's is reckless (That could only be decided on a case by case basis) so there is nothing to withdraw.

I did say the banks were being chastised for reckless lending. Am I incorrect? 

I did say that Lending was not low risk in Ireland at the moment, do you disagree?

The only way I can see funds being released into the SME sector is if it is government backed by way of a stimulus as they are the only ones who have the countries greater good (I know debatable, but they should have) as their aim.

I am a small business owner, I would be delighted if what you are proposing was realistic but I am sorry I cant see it. Hope I am wrong.


----------



## onq (2 Mar 2010)

Number 7,

Perhaps you could parse this for me:

_"We as a nation are chastising the banking system for reckless lending while at the same time we are hounding them for not lending to sme sector."_

This appears to suggest that lending to SMEs is on a par with reckless lending.
If that is what you intended, I would ask that you withdraw that comment.
If that is not what you intended, please clarify.

TIA

As for the rest of your comments above, I too am a small business - a very small business as it happens 

I want to take the government out of the lending equation in terms of administering it and make this the responsibility of a dedicated business lending bank staffed by persons competent to oversee the lending and the loans as describe above.

The initial deposit can be a deposit the government or the monies a minimum of 20 private individuals put in to start the bank.

ONQ.


----------



## sunrock (2 Mar 2010)

There are banks,credit unions,venture capital companies,rich individual investors.
I am sure one or more of the above would invest in a promising enterprise with a realistic earnings potential.
However as our economy is contracting and a few more billion is going to be taken out of peoples wallet by Mr Lenihan next year,there is going to be less purchasing power in the irish economy and so why would anybody lend money to set up a new pub,hotel,hairdressers or any small buisness sector where there is overcapacity. Let the existing buisnesses fight it out for market share and let the uncompetitive ones go out of buisness.Even architects offices must compete with each other and it is survival of the fittest.


----------



## onq (2 Mar 2010)

sunrock,

What happens if all the businesses go under?

Unless people in authority stop quoting misplaced Darwinism and provide a working credit facility and an appropriate level of credit that's what will happen.
The knock on effect of big players will take out little players reeling from unpaid debts, as well as a lack of credit.
There will be no orderly winding down of companies, there will be mass extinctions.

Evolutionists will say this is normal, but read the fossil record again - whenever the dieback was extreme it became that much harder to achieve diversity and growth again.
In business terms, you can deal with poor trading conditions, an unusual level of bad debt, or a low availability of credit but not all three conditions at once.
Banks normally clean up in a period like this, by screwing us when we're down, citing the increased risk as a factor in setting interest rates.
This time they are caught feathering their nest with ridiculously loan interest charges, ten percentage points over the base lending rate.
Thsi was another thing mentioned on Frontline last evening and has nothing to do with increase in mortgage interest rates.


Merely allowing dieback on such a massive scale will in and of itself damage - not strengthen - the economy.
Weeding out presumes decimation - a 10% reduction - which leaves a large population of survivors and a reasonably rapid return to growth.
I have no figures for elsewhere but in the architectural profession this has equated to well over 50% unemployment - in a profession, for goodness sake!

The mass lay-offs in the legal and architectural professions aren't resulting in the usual natural progression of a lot of smaller leaner companies fighting for survival and driving down costs - why is that, do you think?
Because amongst other factors, the normal start up capital loans aren't available AND the credit for people to undertake small building works which are theri bread and butter - such as extensions - ALSO isn't available!
The Darwinian "survival of the fittest" that applies to species over hundreds of millions of years is inappropriate to the business sector when all the conditions are critical.
You won't see survival of the fittest - you'll see extinction of the population.

Something has to give unless someone offers a ray of hope - that's really what my idea of a business lending bank is- just  a ray of hope.

ONQ.


----------



## jack2009 (2 Mar 2010)

In what manner are you asking us to support this new bank if you are not looking for deposits?

The link you post says that one of the rules to open the bank is to have IR£5million in paid up share capital but it does mention that further funds should be available.

It also mentions that certain liquidity ratios have to adhered to, I would assume this means that the full €5million would not be available for loans.  Perhaps someone would know the exact ratio.

Obviously, if you could find 20 people to invest in your bank what rate of return would they expect to see and how would you plan to make this possibly high risk idea appeal to these investors.

How high would your interest rates have to be on loans cover expenses and return on investment for investors and also possible bad debts.

What rules will you apply in vetting people applying for loans?

I could go on but I dont see a new bank as being a solution.

Banks are lending, the only problem for many is that now the banks are really looking for security, rounding figures down and being prudent (what they should always have been doing).  Granted this does not really help start up companies but in the past banks did not lend to risky start up companies either, these people had to seek funding elsewhere. 

So I guess your bank would be getting applications from people who were rejected by the main banks and therefore more of a risk.

I think you would be better investigating setting up a venture capital company.


----------



## number7 (2 Mar 2010)

onq said:


> Number 7,
> 
> Perhaps you could parse this for me:
> 
> ...


 



I am suggesting (badly) that lending to sme's is suffering because the overall risk of lending into this country, regardless of sector, is now high (mainly caused by reckless lending, not necessarily to the SME sector) and until this stabalises I cant see a new or existing institution starting to lend to any significant extent unless it is government funded.

I accept that it was badly written and open to misinterpretation.

I was interested in the idea, last year, of a gov sme bond, set up along the lines of the ssia's where Joe Average could save in a fixed rate fixed period bond and the money would be loaned to the sme sector through the Credit Union system. A 1 billion fund for sme's administered via the cu set up. Could this not have the same effect as what you are suggesting but not have the same issues of ratio attached.


----------



## PaddyBloggit (2 Mar 2010)

Simple answer .... if I needed a loan and the rates were good I'd take out the loan so in essence I'd be supporting a new lending bank.

My answer - yes I would.


----------



## Sunny (3 Mar 2010)

onq said:


> Its not about "would anyone put deposits into or lend to a bank with €5m of share capital".
> 
> Quite the contrary.
> 
> ...


 
And where do you get the money to lend? You might want to read up more on how banks work. Banks are leveraged institutions and you wouldn't get the leverage on €5m share capital to make it work. Halifax and Postbank were too small to make it work during this crisis and they had a lot than €5m.

By the way I know one person who looked into getting a banking licence during the crisis and he had a lot more than €5m. It was a non-runner for numerous reasons.


----------



## Brendan Burgess (3 Mar 2010)

> Being dismissive of any enterprise is not appropriate at this time.



Hi Onq

You asked a question and we tried to answer it. 

You were told to go off and set up a bank by Brian Lucey. But you don't want deposits?  I would prefer to deposit in it than invest in it. 

I understand that you are trying genuinely to help. Rather than trying to set up a bank, could you get involved in your local Credit Union and push their commercial lending? 

Brendan


----------



## onq (3 Mar 2010)

number7 said:


> I am suggesting (badly) that lending to sme's is suffering because the overall risk of lending into this country, regardless of sector, is now high (mainly caused by reckless lending, not necessarily to the SME sector) and until this stabalises I cant see a new or existing institution starting to lend to any significant extent unless it is government funded.
> 
> I accept that it was badly written and open to misinterpretation.


And I apparently misinterpreted it... 

Thanks for clarifying. 


> I was interested in the idea, last year, of a gov sme bond, set up along the lines of the ssia's where Joe Average could save in a fixed rate fixed period bond and the money would be loaned to the sme sector through the Credit Union system. A 1 billion fund for sme's administered via the cu set up. Could this not have the same effect as what you are suggesting but not have the same issues of ratio attached.


Let's leave it a 1 billion fund for SME's with the initial money put in by the govenment.

I don't see this as being enough, but you offer a starving man sustenance, not rich food.

Thanks for the suggestion.

ONQ.


----------



## onq (3 Mar 2010)

Brendan said:


> Hi Onq
> 
> You asked a question and we tried to answer it.
> 
> ...



The function of the bank would be to lend money to businesses to allow them to continue to trade where they are viable.
That was my stated intent and I also intended to make money on the loans and the transactions, but leave the deposits in other banks alone because they still haven't reached their capital lending ratio requirements and I understand that money on deposit affects this.

Credit Unions may be the way forward for all of us and the pressure to led may in fact turn them into large banking institutions in time.
At the moment their ability to lend is very limited accordingly to Lucey.
But again according to my own logic, anything is better than nothing so I will pursue this option. Thanks for suggesting it, Brendan.

People with money might prefer to deposit in the proposed bank, but I get the feeling that people looking to deposit money are in short supply nationwide right now.

It would be useful of course if we had a census done showing the numbers of people in difficulty and due to what reasons so we could have an informed debate ant not one that relies totally on anecdotal evidence, whether from accountants or RTE researchers or the apparent lack of rebuttal from government spokespersons.

People whose businesses are going under because they are owned money yet cannot take people to court to get it - even when they aren't dealing with straw men - I think they'd like a loan.

ONQ.


----------



## Sunny (3 Mar 2010)

onq said:


> The function of the bank would be to lend money to businesses to allow them to continue to trade where they are viable.
> That was my stated intent and I also intended to make money on the loans and the transactions, but leave the deposits in other banks alone because they still haven't reached their capital lending ratio requirements and I understand that money on deposit affects this.
> 
> Credit Unions may be the way forward for all of us and the pressure to led may in fact turn them into large banking institutions in time.
> ...


 

But where do you find the money to lend? Sorry, but I am really confused! You want to lend but you don't want to borrow?

Setting up a bank to help SME's to the extent that you are suggesting would require billions of euro of shareholders equity.


----------



## onq (3 Mar 2010)

Sunny said:


> And where do you get the money to lend? You might want to read up more on how banks work. Banks are leveraged institutions and you wouldn't get the leverage on €5m share capital to make it work. Halifax and Postbank were too small to make it work during this crisis and they had a lot than €5m.
> 
> By the way I know one person who looked into getting a banking licence during the crisis and he had a lot more than €5m. It was a non-runner for numerous reasons.



That's very interesting but it tells me nothing useful.
It would be great if you could offer some insight into the why's and wherefores.
But would people stop focussing on the €5M figure?
That was me just pointing out that I had done the level of research required to support the original post and concept.

With your other comments we go from the "too big to fail" concept to "too small to succeed".
The apparent failures of Halifax and Postbank could have been based on a judgement based on a lack of return, not imminent failure - greed suggested it wasn't profitable enough.
For all we know, they could have been pressured to leave the market to leave the banks in the effective monopoly position they  currently enjoy to maximise their recovery by being the only place most Irish people could do business or keep deposits.

Did I forget to mention that my Bank didn't need to be outrageously profitable, just to fulfil a lending requirement for this country?

ONQ.


----------



## jack2009 (3 Mar 2010)

from what you appear to be saying a bank is the wrong vehicle to be using.

Unfortunately, many companies failing is the harsh price that is being paid for a 'price correction' from salaries to cost of goods etc.


----------



## onq (3 Mar 2010)

Sunny said:


> But where do you find the money to lend? Sorry, but I am really confused! You want to lend but you don't want to borrow?
> 
> Setting up a bank to help SME's to the extent that you are suggesting would require billions of euro of shareholders equity.



I'm tot suggesting any "extent" - are you Brian Lucey in disguise?
Because I can't solve all the problems I should sit around and do nothing?

I'm trying to start some that can offer some bread to starving people, as many as I can.
I won't be able to feed them all, but I'll feed who I can.

And yes discernment will have to play a part in who to lend to.
The hard part will be deciding who to lend to.

As for the money, our government apears to have no problem making long term donations to institutions that anecdotally seem unable in many cases to provide short term loans.
They can donate a couple of billion to a business bank.
If they don't shortly we won't have a business sector.

ONQ.


----------



## canicemcavoy (3 Mar 2010)

onq said:


> You can refer to Brendan's reply above also, but the issue isn't what the extension is for.


 
Of course it is! Good lord, there is only so much credit to go around right now, and generating sustainable businesses should be the priority for banks loaning credit. Ireland is being charged for credit more than any other country bar Greece. And you want to borrow money at high cost in order to build extensions.

We've already had a bank which thought it could generate wealth by loaning for property. It's called Anglo Irish Bank.


----------



## Sunny (3 Mar 2010)

onq said:


> I'm tot suggesting any "extent" - are you Brian Lucey in disguide?
> I'm offering some bread to starving people.
> Iwon't be able to feed them all, but I'll feed who I can.
> And yes discernment will have to play a part in who to lend to.
> ...


 
If you just want to lend money that you have to SME's, there is no need to set up bank.


----------



## onq (3 Mar 2010)

Brendan said:


> <snip>
> 
> There is huge oversupply in many industries - the legal profession, architecture, hotels etc. They have to be allowed to contract to a size appropriate to the economy. If the taxpayer props up the weaker ones, the whole sector is weakened. If they let them go, then the remaining ones will be more viable long-term.
> <snip>



I love how you apply this Darwinian logic to everyone else but the banks.
You comments here - read as they are by thousand daily (!) will only serve to prove to laypeople that there is one rule for us and one rule for the Banks.
If you strictly applied this naturalist approach to businesses, the Irish Banks would be extinct and we would be waiting for new species to populate this island.
Some would say, you'd be waiting a long time, but at least a new bank wouldn't carry the stigma of potential defaulting on debt or mortgaging our future like we have done.
And there would be nothing to stop up prinitng our own money as Ellen Brown has suggested State Banks have done in the United States to fund local needs and growth while earning from our exports.

ONQ.


----------



## sunrock (3 Mar 2010)

We have had our boom when there was plenty of money around. Now there is less money because the banks are bankrupt and are much more careful with their lending and also because many people have lost their jobs and the government need to take in billions more in tax. So in reality everyone has less money to spend so  alot of buisnesses won`t be able to survive.There is no point in interfering in this scenario or trying to prop up the struggling buisness. To do this would just penalise the buisness rival who got its house in order and could benefit with the shutting down of its competitor.
Why are architects any different from carpenters? They can hardly expect the same amount of work and remuneration now that the building boom is over. Some practises will go under, others will survive by offering a better service or price for what work is available.Granted it is not as easy for an architect to set up his own buisness as a carpenter , with issues like insurance,registration etc.The unemployed architects and many more leaving colleges every year will have to consider if there is a niche elsewhere for them.The legal system needs to be shaken up to allow more competition and to stop preventing qualified solicitors from getting the necessary experience to start practising.


----------



## canicemcavoy (3 Mar 2010)

onq said:


> I love how you apply this Darwinian logic to everyone else but the banks.
> You comments here - read as they are by thousand daily (!) will only serve to prove to laypeople that there is one rule for us and one rule for the Banks..


 
It's a fair point. We're still propping up Anglo Irish Bank which has already swallowed €4 billion of our money and now still has a loss of €12 billion. The bank was nothing more than a piggy bank for politically-linked developers, and the wider world wouldn't give a toss it was shut down tomorrow.


----------



## Brendan Burgess (3 Mar 2010)

As Canice no doubt well remembers what I have already said on this topic on the RTE News to the astonishment of many: 



> Dobson: Is it not unthinkable that an Irish government or any government would allow a retail bank, a major retail bank with all these branches and with all these customers to go under?
> 
> Me: I don’t think it’s inconceivable at all. The Government regulates Irish banks but the government does not and should not guarantee Irish banks and that is a very , very important distinction.
> 
> ...



http://www.askaboutmoney.com/showpost.php?p=1009452&postcount=15

I did think that Anglo and Irish Nationwide should have been allowed fail. The government argument was, I think, that they would also have brought down the entire banking system. Letting a lot of architects or solicitors go actually helps out the remaining ones. 

So maybe it is one law for an industry with many independent suppliers and a different one for an industry with a few interdependent suppliers.

Brendan


----------



## onq (3 Mar 2010)

Re-reading this thread, the irony is that I once suggested that all the banks should be allowed to fail regardless but I've changed my position.

I then reviewed the matter anecdotally and formed the opinion that and there was so little competition, so little divergence of policies and situations between the main banks and so many investors, depositors and bondholders in the banks - who are still in position - that allowing them to fail would wipe out much of middle Ireland at a strike.

The destruction of the middle classes, the massive erosion of the professions and the destruction of their political power base is a prelude to destroying a society - look at the rise of the Khmer Rouge if you don't believe me.

Mind you, when I read of Enda "Pol Pot" Kenny today in the paper predicting people would take to the streets if Anglo was given any more Billions of Euros I finally understood where the first volley would be fired - Mayo!

ONQ.


----------



## canicemcavoy (3 Mar 2010)

Brendan said:


> As Canice no doubt well remembers what I have already said on this topic on the RTE News to the astonishment of many:
> 
> http://www.askaboutmoney.com/showpost.php?p=1009452&postcount=15
> 
> I did think that Anglo and Irish Nationwide should have been allowed fail.


 
I agree with you there. But at the time, were you talking about a hypothetical situation, rather than an imminent danger? We didn't quite how bad things in Anglo Irish were, and you yourself claimed that banks were very well regulated and sound - I presume you included Anglo and Fingerscorp in this category.

My personal belief is that the main two banks should have been nationalised, the rest allowed to go to the wall. You *cannot* have a situation where privately-run concerns are of so-called "systemic" importance. It's a recipe for recklessness, since the business can carry out a high-risk high-reward strategy (as Irish banks did for the last decade) with the reassurance that they will be bailed out if anything goes wrong. And not one law has yet to be passed to ensure that banks cannot go back to their old ways.


----------



## onq (3 Mar 2010)

canicemcavoy said:


> It's a fair point. We're still propping up Anglo Irish Bank which has already swallowed €4 billion of our money and now still has a loss of €12 billion. The bank was nothing more than a piggy bank for politically-linked developers, and the wider world wouldn't give a toss it was shut down tomorrow.



I thought the point of transferring the debts to NAMA was to avoid bailing out the banks.

Are we paying for the debts through NAMA and ALSO bailing them out by pumping money in?

How does that work?

ONQ.


----------



## onq (3 Mar 2010)

canicemcavoy said:


> <snip>You *cannot* have a situation where privately-run concerns are of so-called "systemic" importance.<snip>



Canice,

Can you point to a single western democracy where this does not occur with the banks?

Is their permanence and systemic pervasiveness not the product of the multi-generational corporate entity?

Is this not in and of itself proof that in these entities, to which we have given rights _*as a person*_, we have superseded ourselves?

Look at the rush to protect "dead" banks, re-invigorate them, restore them, all at the expense of the society they supposedly serve.

Everyone knows looking at this that there is something intrinsically wrong with the boom-and-bust free market capitalist system.

Capitalism is a way to create the most money - for whom?

The élite few - and the Banks.

ONQ.

"Serfs ye were and serfs ye remain."


----------



## canicemcavoy (3 Mar 2010)

onq said:


> Everyone knows looking at this that there is something intrinsically wrong with the boom-and-bust free market capitalist system.


 
Well, exactly. As a social democrat I appreciate that the capitalist system can work well in some circumstances to leverage the competitive spirit of humans as a great generator of wealth. In other circumstances, it simply leads to monopolies which are far worse than any state monopoly since theyare unrestrained by any sense of social responsibility.


----------



## onq (4 Mar 2010)

PaddyBloggit said:


> Simple answer .... if I needed a loan and the rates were good I'd take out the loan so in essence I'd be supporting a new lending bank.
> 
> My answer - yes I would.



Thanks Paddy.

One on board - two million to go!



ONQ


----------



## sunrock (4 Mar 2010)

I am sure you will find plenty of prospective borrowers . However you may find it a lot harder to get depositors.


----------



## onq (6 Mar 2010)

To be honest Sunrock, that isn't the basis for the bank.
Despite "Darwinian" comments in this thread, we need to help people to get going again.
If the existing banks cannot or will not do it, we need an institution that will be able to shoulder that load, a little at a time.

ONQ.


----------



## onq (6 Mar 2010)

canicemcavoy said:


> Well, exactly. As a social democrat I appreciate that the capitalist system can work well in some circumstances to leverage the competitive spirit of humans as a great generator of wealth. In other circumstances, it simply leads to monopolies which are far worse than any state monopoly since theyare unrestrained by any sense of social responsibility.



Its their broader lack of moral sense that is their most toxic aspect.
As corporations they have been given rights similar to a corporeal human.
As entities go they do not have the characteristics of ordinary human beings.

There are obvious implications in this.

ONQ.


----------



## sunrock (7 Mar 2010)

I appreciate your intentions ONQ, but I feel you are misguided.
First of all what is credit? Well it is other peoples savings.
We have accessed these savings during the boom times when credit was easy.
Now we have huge personal debt and government debt and bankrupt banks which owe billions.
Now that there is a recession and much reduced demand for all goods and services, you feel that the banks should turn on the credit tap again to stimulate the economy.
You may think that credit is at the discretion of the bankers but the banks are dependant on foreign lenders for the money and these lenders are imposing stricter conditions.The money the banks got from the government is not for the purpose of lending but for NAMA which is to try to cover them for their losses to developers.
What type of enterprises do you think should get credit. We have a massive oversupply of most buisnesses to serve a market with much reduced spending power.
If there was a good and viable buisness that had serious potential....maybe an exporting company that had a product with strong demand...I am sure that company would be able to get the required credit.


----------



## onq (13 Mar 2010)

sunrock said:


> I appreciate your intentions ONQ, but I feel you are misguided.
> First of all what is credit? Well it is other peoples savings.
> We have accessed these savings during the boom times when credit was easy.
> Now we have huge personal debt and government debt and bankrupt banks which owe billions.
> ...



==========================================================

Really Sunrock, Darwinian Economics do us little credit when we're trying to salvage and economy.
We need liquidity, common sense and cop on.
Here's some of mine for you.


*Q. From Where or Whom do Banks get the Money they lend: A. its Magic:*

Most of it is not from the deposits they take in.
If they were so limited they could only lend a percentage of this to cater for the time you might want to withdraw some of your own money.

Nowadays banks operate on the Fractional Reserve Banking System.
Banks with a deposit of say €100,000,000, are allowed lend a multiple of this, say 10 times or so or €1,000,000,000
The money they "lend" to you is virtual money, created by keyboard entry in your account and regulated by laws and agreements.


*Q. How Do Banks Make Money: A. Lending:*

They don't make their money by investing deposits, or else they'd be making very little with the current low interest rates.

One way Banks may a profit, even in a recession, is to screw money out of the population they say they are "serving".
When times get bad, like they are now, they lend less to fewer borrowers [the safest bets] and charge them higher interest to make up the difference.

Businesses go to the wall - the banks stay safe.
"Its the market", they blithely say.
It isn't - its the Banks.

Look at the difference between the interest rates the banks pay and lend at.

You can see the people on the edge of the game, the foreign exchange offices in every tourist resort.
People get annoyed when they're down to their last 100 EURO and they see the exchanges marking up the deal a couple of percentage points.

Look at the difference between what Banks can buy money at and what they lend at - even to regular customers who have excellent credit rating.
They take _several_ percentage points over the current exchange rate, claiming: " it must be done - its risky to lend to people..."

Firstly, its not that risky.
Secondly, that's why insurance was invented.

That's doesn't stop Banks taking two cuts of the pie on every loan - don't believe me?
Have you ever taken out an insurance policy in case of default on a loan you took out and seen the interest rate they're charging you fall?
Me neither.

But lending and charging interest on the loan is not where Banks make their Billions.
It only seems like that to the little people, who use their Bank to borrow from as opposed to do business through.
Lending is actually only the icing on the cake.



*Q. How Do Banks REALLY Make Money: A. Transaction Charges:*

The big boys, the multinational corporations and the like, carry out thousands, perhaps hundreds of thousand or small transactions every day.
Every time a Bank does something to an account, there's a little thing called a transaction charge, charged to the account, or to a charging account.
These are micro-payments in relative terms, but over the course of a trading year for a multi-national they can run into billions. 

Think of writing a cheque, the OLD way of doing business.
Physical paper gets collected and sorted and accounts get processed and debited.
The Banks had to pay people to do this and decided they weren't paying out of their annual profits - transaction charges would do instead.
Even after the introduction of Credit Cards and Virtual Direct Debits and Inter Account Transactions and 24-hour Banking - those charges still remain.

For giant corporations, able to shift their money and beggar countries, their leverage allows them to negotiate better rates.
But they still get charged by the Banks for doing similar things - moving and clearing money on a scale so vast we cannot imagine it.
One corporate clearing house is suggested to have cleared over 30 Billion one year - one year, one of the firms - and all of those Billions were charged for.

Transaction Charges: remember this.



*Q. No, Seriously How Do Banks REALLY, REALLY Make Money: A. Black Magic:*

No one really knows the extent of this, probably not even the Banks, but there is a market between Banks called the Inter Bank Market.
Banks Trade with Banks and with virtual corporations, specially constructed to undertake these trades.
These trades happen 24/7/365 using advanced instruments of trade.

Hedge Fund, Credit Default Swaps, Derivatives - we hear only about the common-or-garden varieties of trading instruments.
There are others, with more being invented all the time by people whose grasp of mathematics, probability theorem, International law and corporation law makes the people who invented Fractional Reserve Banking look like mere Apprentices.

But even leaving the derivatives Market in the hands of the like of Walls Street and the London Stock Exchange is like handing the keys of the Worlds nuclear weapons arsenal to HAL the super-computer from 2001@ A Space Odyssey.
Look at the Nama-ization of Bank Loans, less than 60 Billion and we're wetting ourselves over how we'll pay for it going forward.
Anglo Irish had over 210 BILLION EURO of Derivatives on its loan book.

210 BILLION EURO.

How much?

210 BILLION EURO

One Bank.

Brendan published the end of year Report from Anglo a while back and I pointed this figure out to him.
He corrected me assuming this like all the other columns was denominated in Millions.
I went and checked and found it was denominated in Thousands of Millions.
Billions - 217 of them or so If I recall correctly - from just one Bank.

Let me tell you Sunrock, I'm not the one who's misguided.
I'm the one who has started looking at this seriously last year and who's begun to see what's going on.
When I say we need a bank to lend money and not take deposits - apart from the initial deposit - I don't need Darwinian Economics and 1st principle reasoning.

We need this Bank because it will be able to lend from the get-go without having to worry about reaching an arbitrary Capital Reserve Ratio.
This is the 1 to 10 ratio mentioned above as an example that is the actuarial rule-of-thumb for fractional reserve banking.
Banks that don't reach this ratio are technically Bankrupt in Banking terms because they cannot lend.

This means they cannot lend to themselves, cannot make REAL money, cannot therefore PROSPER.
The biggest customer of this Bank may be the Banks themselves.

We need liquidity.
The Banks need liquidity.
And we all need to take a hard look at the Banking Systems because its out of control.

ONQ.


----------



## jack2009 (13 Mar 2010)

great stuff, set up your bank so best of luck at setting it up and very interested to how such a 'small' bank will be able to offer competitive rates and returns considering the few transactions it will be undertaking. Also very interested to see which banks your new bank will be able to borrow from in order to achieve the multiple of 10 you mention.


----------



## onq (15 Mar 2010)

jack2009 said:


> great stuff, set up your bank so best of luck at setting it up and very interested to how such a 'small' bank will be able to offer competitive rates and returns considering the few transactions it will be undertaking. Also very interested to see which banks your new bank will be able to borrow from in order to achieve the multiple of 10 you mention.



I note you're not denying any of the above information jack2009.
Profitability of THIS bank isn't an issue - its intended to service a ravaged economy, not screw it.
The multiple of 10 stems from the initial [probably Government, as discussed above] deposit amount.

ONQ.


----------



## Bronte (15 Mar 2010)

There is a new bank starting in England.  It was on the BBC this morning.  It sounded just like what you'd dream about having as a bank.  A customer focused bank.  The day one opens in Ireland I'll be first in the queue.  Until then I settle for the bank I have.


----------



## jack2009 (15 Mar 2010)

onq said:


> I note you're not denying any of the above information jack2009.
> Profitability of THIS bank isn't an issue - its intended to service a ravaged economy, not screw it.
> The multiple of 10 stems from the initial [probably Government, as discussed above] deposit amount.
> 
> ONQ.


 
Still think you will have a hard time offering competative rates. No point argueing with your quotes as they are quite selective and you have a long way to go before you hit the ground with the idea.  Very much blue sky at the moment.

Who will invest in your bank if there is not a return.

I would not call banks who make money by playing margins and charging for fees as "screwing" as I grew up and appreciate that there is no such thing as a free lunch.


----------



## Kine (15 Mar 2010)

Bronte said:


> There is a new bank starting in England. It was on the BBC this morning. It sounded just like what you'd dream about having as a bank. A customer focused bank. The day one opens in Ireland I'll be first in the queue. Until then I settle for the bank I have.


 
Is that the American guy who used to have the majority stake in some US chain, before they were bought out? I remember reading about this last year.

Ireland's main problem is that it is a _very_ small economy, and there's only so many banks that can operate profitably. Just look at all the UK banks pulling out, as their Irish operations weren't deemed good enough to warant the capital required. However, they all suffered from "Anglo" syndrome by following them. "Look at the insane profits they're making....let's do what they're doing". Shareholders wanted similar numbers to Anglo....unfortunately for them (and me to a little extent!!) other banks numbers are still a bit close to Anglos..in the wrong direction!

I have anicdotal stories from colleagues in business banking etc, and have heard some interesting stories of SMEs looking for money, but literally having a business plan on a page. I strongly agree that the more professionally run businesses have a better chance of obtaining credit. I can't comment from my own experiance, I only deal with (very) large institutions so have no exposure to SMEs. 

A new bank would be interesting, but I can't see it being a player in Ireland for many many years (no branch network etc). But I'd love to see someone try.


----------



## sunrock (18 Mar 2010)

Well ONQ it looks like I`ve really got you going!
You are quite right about the problem being liquidity. I am sure many people every weekend at pub closing time have that problem in that they have run out of cash.
I presume you will tell me that buisnesses with liquidity problems are solvent so liquidity is the only problem. That may well be , but bankers are not stupid and they in their wisdom have decided to curtail lending because the banks have only so much to lend and secondly the banks know that in a contracting market,a certain amount of these buisnesses will fail anyway so it is a risky lend. 
Take a town with 10 hairdressers all having a liquidity problem and all claiming to be solvent.Well they are not doing as much buisness so some will have to close down or reduce in size. This may be darwinism in action as you say but in a contracting market if you were a bank you would bide your time and wait for the shake out and then might lend to the "winners" in what looks like a viable buisness.
That is assuming the bank had the money to lend.
The irish banks have to borrow abroad for their money and are part owned by the government who themselves are borrowing 500million a week just to keep going.
When the banks and the government go looking for this money ,as i said strict conditions are imposed...that is why we had all these cutbacks and more to come, otherwise we would lose our credit rating and would find it harder to borrow....
The banks in their turn are getting money from the government and more strict conditions. 
I `ll ask you a question...if the government own the banks and the banks aren`t lending , who is making that decision? After all the government can`t very well say they are telling the banks not to lend to small buisnesses..it wouldn`t be politically popular. The banks hands are tied in that they actually haven`t got the actual money to lend anyway. The salaries and pensions are still very good however, thank you very much ,for the top managers , who are now dependant on the government , and these bankers know who their new paymasters are,  so they are not going to rock the boat with loose lending.
You seem to believe that because of fractional reserve banking and various financial instruments the banks can lend 10 times their deposits or even more but this is not possible for the irish banks. First the government cannot print money so that is excluded.And the irish banks aren`t selling financial instruments that foreigners are buying as far as i am aware.
It is only countries with their own currency can do that. Secondly the Irish banks have to borrow money from abroad and from the government and have to toe the line as regards lending etc That is why the government have put their own people on the banks management.


----------



## onq (21 Mar 2010)

Sunrock,

Much as I hate to quote McWilliams on anything, he got one thing right.
If we don't take charge of our own financial destiny, we can kiss our collective asses goodbye.
The fractional reserve limit was put in place to stop disasters happening to the bank.
I have some news for the banks - the disaster has happened and their slavish adherence to a standard is holidng us all back.

The fractional reserve limit was a prudent limit, not an absolute limit.
The reason the banks cannot lend is that they are nowhere near this arbitrary but prudent ratio limit.

We effectively have the worst of both worlds:
A single currency, limiting our financial instruments yet without real Europe-wide banking facilities.

You OTOH, appear to have gone beyond teh Headland of Financial Darwinism deep into The Land of the Self-Fulfilling Prophecy.
Believe Ireland Inc will default - lend it less at higher rates - and it will default.

Here, see how the yanks are dealing with it on their side of the Atlantic.
http://seekingalpha.com/article/194487-the-growing-movement-for-publicly-owned-banks?

ONQ.


----------



## sunrock (21 Mar 2010)

Onq
You now also suggest abandoning the euro so we can devise financial instruments to to get us out of a hole. You have rowed in behind Mcwilliams , whose motives are unclear despite his absolute craving for popularity.Without the euro we would be in a very sorry mess and financial discipline would have meant that our currency would be very volatile and seriously devalued meaning much reduced spending power .Our ability to borrow abroad would be impared as we would have much higher rates.
The government has made transparent cuts while still retaining the benefits of the euro.
I don`t know much about the fractional reserve limits or what ratio of deposits to money market money our banks had , but I assume that with "self Regulation" that it was totally ignored.
Anyway it had or has nothing to do with why the banks won`t lend. Granted they can`t lend what they haven`t got, and even if they had they wouldn`t lend to bad risks and in this downturn , most loans to struggling buisnesses which need credit to survive are very high risk.This is especially the case when there are many buisnesses serving a shrinking market.
There is nothing to stop you going to a bank in the U.K. or Germany and asking for a loan there. Of course I doubt if you will get any joy as news of Ireland has spread worldwide. However if you were a viable multinational operating in Ireland I`m sure they would be accomadated.
You seem obsessed with "darwinism" as if it was a bad thing. The term has no moral compass....it just describes the way animals evolve in the natural world. It is the same with buisness. We are now in a situation where there is now less money in the economy after our recent credit fuelled boom has ended. The government officials are not going to "interfere " by going into every town and saying for example ...this town only needs only 5 hairdressers instead of 12, or this town is now only big enough for 3 chippers instead of 6.If anything else our politicians don`t like to pose besides closing down buisnesses. Instead they will let the failing buisnesses go the natural way and go out of buisness.They will then cynically "call " for the banks to lend more to struggling small buisness,deflecting the blame from themselves and fooling the gullible. At the same time Lenihan and the other top politicians who own the banks on behalf of the taxpayer have told the banks not to engage in risky lending.
I for one don`t believe Ireland will default even though the government is borrowing 500 million from abroad every week to keep going. The government has lots of tools in its arsenal. It can raise taxes on income and property or cut spending and welfare.And no one is really badly off as we still have a very generous welfare system and plenty of goods in the shops.
I don`t know much about the american banks,but what I will say ..is that the time to start up a prudent local bank is during the good times. We still have credit unions so what is wrong with them?
Even if you got 10 million e to start up your bank who would you lend the money to? 
And what guarantees would you expect?


----------



## onq (21 Mar 2010)

Sunrock, I swear I didn't deliberately set a trap for you, but you'll notice the one thing I didn't suggest was abandoning the Euro experiment.
I endorsed McWilliams basic point but didn't suggest what he did.
The issue of fractional reserve banking is at the heart of all financial institutions today so I suggest you get a handle on it - I'm only limping along at thsi stuff myself, so you may well overtake me, but at least I'm starting to see behind all the waffle the banks spew out.

_"Anyway it had or has nothing to do with why the banks won`t lend."_

OTC, this is at the heart of why they claim they won't lend but I agree with you in a funny kind of way - they are scared to lend because of the mess they created in the first place.
Some institution with balls needs to step into the breach to do the job they banks can't or won't - the Government will soon be faced with this task.
My idea of a Bank would have allowed the Government to lend NOW, in the ope it will save jobs and skills acquired during the boom.
Doing thsi direct lending will be supporting the economy while costing them far less than it is going to cost to economise the main banks.
They can demand higher standards and achieve better results by requiring enforcement of governance on each and every loan.
But simply pretending to lend and then not lending to "safe" risks will stop and the economy can start growing again.

_"You seem obsessed with "darwinism" as if it was a bad thing. The term has no moral compass....it just describes the way animals evolve in the natural world."_

You're correct again sunrock, but again for reasons that are different from the ones you assume.

Darwinism attempts to describe a process of natural selection - what's going on in Ireland is anything but "natural".
Natural selection assumes critical factors a population can recover from - extended inclement weather, food shortages, a new predator.
What is doing on in Ireland is a poisoning of the economic well-water by banks refusing to lend to people who can repay them.
If this is allowed to continue we'll become involved in an Extinction Level Event - and ELE for short - and that doesn't lead to selection.

And please don't parrot that stupid American Judge who decided that the only responsibility of a company is to its shareholders.
If we are giving company entities the same rights as people - to hold property, make transactions, acquire loans - then they can be held to account for their "moral lapses" as well - and a single industry [Finance] causing world-wide poverty that inevitably leads to disease, famine, depression, suicide and death is a "Moral Lapse" if ever there was one. 

_"Even if you got 10 million e to start up your bank who would you lend the money to?
And what guarantees would you expect? "_

Outside my experience sunrock.
I'm simply seeing the need for liquidity in the Irish economy.
There will have to be rigorous assessment, but once someone can prove they can pay they should get the loan

The anecdotal evidence offered on this thread of lending doesn't match my and others' anecdotal experience of the Banks.
I'm rejecting the easy fig leaf of "too risk lend" that the banks have put forward as their excuse for not lending.

Why? Are they afraid that if they lend a billion or two they might see a percentage of these loans - _*go bad*_?

Don't make me laugh!

The damage is not _*about*_ to occur.
Their actuaries have wholly failed in their task.
Their assessors of securitized debt have been grossly negligent.
The horse is gone and taken the barn door with it - the parrot is deceased!!!
If these clowns in the big banks suffer a 20% medium term default - so WHAT??!
Its the least pain they might suffer for having landed us in the hell hole that we're in!

But what I worry about is the suspicion that they know something we don't.
Are these guys privy to something nasty in the books of one bank?
Like the final resolution effect of Anglo's derivatives Loan Book?
Is there something in that s***pipe that may ye destroy us?

Because other than that the housing market is stabilising this year - assuming someone in NAMA doesn't flood the market with houses in stupid places.
With the longer days and sunshine people are starting to feel more confident and spend again.
So if there's something coming down the pipe I'd really like to know something about it.
I don't want to sit there like a Muppet watching the banks stifle the recovery.

ONQ.


----------

