# Bank bailout: twice the cost of the Treaty of Versailles



## canicemcavoy (1 Sep 2010)

An eyeopening comparison:

[broken link removed]



> However, our Irish bank reparations dwarf those of Versailles. The Treaty of Versailles demanded that Germany pay €318bn in today’s money. From a German population at the time of 58 million, this equates to €5,482 per person in today’s money. If bank bailout costs are €50bn, then this will work out at €11,235 per head — or more than twice the cost per head of the Treaty of Versailles to the average German.
> Let that sink in a bit. Remember what we know about how reparations destroyed democratic Germany and just imagine what our bank reparations will do to us.


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## Chris (1 Sep 2010)

Very good comparison indeed, but he does get one thing wrong. The reparations didn't destroy democratic Germany; what destroyed democratic Germany was its Reichsbank and the policies dictated by its president Rudolph Havenstein.
What I like is that McWilliams doesn't account for any value held by the "assets" purchased through the bailouts, as their true market clearing value is far far lower than what has been paid for them, both through direct bailout and indirectly through NAMA. Better to assume these are worth nothing and look at any returns as a bonus.
What he doesn't mention is that Germany's current national debt is equivalent to about €22,400 per person, USA $45,000 per person, UK £15,300, France €25,000, Australia AU$46,500, Japan Yen7200000, the list goes on. The world is so deep in debt, that it baffles me how politicians and some economists are finding support for going even more into debt. Debt is the source of our problems, more of it will only make things worse.


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## serotoninsid (1 Sep 2010)

I heard Alan Dukes being interviewed by Matt Cooper on TodayFM - and Cooper put it to him, why did we have to throw money into the hole that is Anglo.  His answer was..what other alternative was there?  Cooper: Let the bank collapse.
Dukes:  Anglo was too important.

Now, I have no clue about these things - but how the hell is that bank so important?  Why can free market capitalists suddenly have this sort of protection.  With every investment comes risk - thats their loss, not ours????

When you think of the positive things that money could have gone towards(not that it is actually ireland Inc's money anway)....it's truely shameful.

I can't understand how this is not a bigger deal.


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## Chris (1 Sep 2010)

serotoninsid said:


> I heard Alan Dukes being interviewed by Matt Cooper on TodayFM - and Cooper put it to him, why did we have to throw money into the hole that is Anglo.  His answer was..what other alternative was there?  Cooper: Let the bank collapse.
> Dukes:  Anglo was too important.
> 
> Now, I have no clue about these things - but how the hell is that bank so important?  Why can free market capitalists suddenly have this sort of protection.  With every investment comes risk - thats their loss, not ours????
> ...



I completely agree with you. What we have is not a failure of free market capitalism, but a failure of interventionism and crony capitalism. Politicians love to apint the picture that if Anglo had been allowed to go bust, the whole operation would have stoped to exist. But this is not how bankruptcy works. A liquidator would have come in and sold off the remaining valuable assets and business devisions, and the scrap that was left would be folded up.
The most positive thing the money would have gone towards is not increasing debt. It is debt (both private and public) that is dragging this country down, and no matter how much politicians decide to ignore this, it doesn't change the fact.
And I firmly believe that by "Anglo was too important." Dukes actually meant "Anglo was too important *to us*." (and by "us" I don't mean the taxpayer)


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## Duke of Marmalade (1 Sep 2010)

More nonsense from DMcW.

The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn. Let's say our banking bailout will cost 20% of GDP. That makes the Versailles settlement almost 14 times worse not half. Or put another way the equivalent bank bailout would be €400bn, larger than even DMcW would dare suggest.

He has made the mistake (or was it deliberate) of ignoring economic growth and has simply made an inflationary adjustment.

Why oh why did Lenny have a garlic chewing session with this idiot?


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## Sunny (1 Sep 2010)

Well said Duke. Think it was the usual deliberate headline grabbing nonsence.


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## sunrock (1 Sep 2010)

In Germany  after the treaty of Versailles economic impact was felt , alot of people didn`t have enough to eat.Prostitution by women to buy food was commomplace.Comparing the irish ecomic position today and its effect on the irish public to the serious hard times suffered by the germans then is just ludicrous


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## Complainer (1 Sep 2010)

Chris said:


> And I firmly believe that by "Anglo was too important." Dukes actually meant "Anglo was too important *to us*." (and by "us" I don't mean the taxpayer)


Just for the record, Dukes had nothing to do with Anglo prior to the collapse, and has stepped in to lead the rescue mission. Having said that, his current priority and prime duty is to Ango, not to the state.

The huge mistake was made when the Govt wrote the blank cheque in Sept 2008 to guarantee unlimited and unknown Anglo debts. There should have been a clear limit set at that stage. I think I heard that Anglo were looking for €4bn at that time, which seems like chickenfeed today.


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## canicemcavoy (1 Sep 2010)

Duke of Marmalade said:


> The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn.


 
As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.


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## Sunny (1 Sep 2010)

canicemcavoy said:


> As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.


 
Well then use GNP. Still the usual tabloid rubbish headline that he is famous for.


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## Duke of Marmalade (1 Sep 2010)

canicemcavoy said:


> As I'm sure you know, Ireland's GDP figures are artificially inflated due to foreign multinationals. Using that as a comparison is far more nonsenical than a simple figure per head.


Please don't be silly Do you even understand the GDP/GNP difference? I don't know what Germany's GNP was at the time but the reparations themselves probably made it negative or else very small. So using GNP would make Germany's plight look far worse. I am building a bit of a collection of McWilliams outrageous thought pieces. I thought "leaving the Euro" was bad, but this is in a league of its own. The capacity of people like yourself but also many others who should know better (Lenny?) to drool on these wisdoms from McWilliams is itself very disturbing.


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## serotoninsid (1 Sep 2010)

Complainer said:


> Just for the record, Dukes had nothing to do with Anglo prior to the collapse, and has stepped in to lead the rescue mission. Having said that, his current priority and prime duty is to Ango, not to the state.


Agreed.  I guess because of his role, he felt he had to say this - but i still yanks my chain to here this.



Complainer said:


> The huge mistake was made when the Govt wrote the blank cheque in Sept 2008 to guarantee unlimited and unknown Anglo debts.


Agree completely.


Complainer said:


> There should have been a clear limit set at that stage. I think I heard that Anglo were looking for €4bn at that time, which seems like chickenfeed today.


Were they mislead or did they know at that point?  Surely for this type of support, Anglo had to open their books completely?? Even if they didn't know, surely there would have been a point whereby they shouted 'stop'!?


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## canicemcavoy (1 Sep 2010)

Duke of Marmalade said:


> Please don't be silly Do you even understand the GDP/GNP difference?


 
Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).

I don't think you actually know what you're arguing; you're just one of a bunch here who automatically have a knee jerk reaction to McWilliams based on his appraisal of the property bubble. It's rather childish to be still peeved about that.


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## Complainer (1 Sep 2010)

serotoninsid said:


> Were they mislead or did they know at that point?  Surely for this type of support, Anglo had to open their books completely?? Even if they didn't know, surely there would have been a point whereby they shouted 'stop'!?



It really doesn't matter what they were told by Anglo. They should have taken steps to make sure there was an absolute and clear limit to the state exposure. If this limited support wasn't enough to save Anglo, then that should have spoken volumes.


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## ccbkd (1 Sep 2010)

Duke of Marmalade said:


> More nonsense from DMcW.
> 
> The reparations of $33bn should be seen in relation to the then GDP of Germany which was $12bn. Let's say our banking bailout will cost 20% of GDP. That makes the Versailles settlement almost 14 times worse not half. Or put another way the equivalent bank bailout would be €400bn, larger than even DMcW would dare suggest.
> 
> ...


 
Sorry to nit pick but can you flesh out your figures a little i.e you say the cost of our banking bailout is 20% of GDP and then arrive 14 times worse than half...I am a little lost on this because i don't have the 20% figure to arrive at the 14 times worse scenario..I think it the GDP figure missing here.. I like when people analyse Journalist articles and refute them with cold hard logic and in this case maths are the only show in town when it comes to logic, so again if you can flesh out figures i think you're argument would be solid.


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## Sunny (1 Sep 2010)

canicemcavoy said:


> Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).
> 
> I don't think you actually know what you're arguing; you're just one of a bunch here who automatically have a knee jerk reaction to McWilliams based on his appraisal of the property bubble. It's rather childish to be still peeved about that.


 
Actually he is right. Using a GDP/GNP per capita ratio for comparisons especially across different era's is fundamentally flawed. McWilliams is a very accomplished economist. He knows this but is more interested in witty stories than economic fact. That is why people have such problems with him.


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## Duke of Marmalade (1 Sep 2010)

canicemcavoy said:


> Er, yes. You're obviously the one who doesn't else understand it, else you wouldn't have tried to compare Germany's GDP to Ireland's GDP (unless you think there were many foreign multinationals investing in Weimar Germany?).


 
I think we are talking at cross purposes here and on a very minor irritant in my argument.

You want me to use GNP, fair enough. Let me go real slow:

Ireland GNP 2010(E) €140bn
Anglo Bail-out €30bn(?)
As a percentage 21.4%

Germany GDP 1918 $12bn
Reparations $33bn
As a percentage 275%

Versaille/Anglo Ratio = 275/21.4=12.9

_(hope that helps ccbkd)_

_Sunny _is right of course, these comparisons of GDP/GNP between two completely different economic paradigms must be handled with care. But any correction on this score would actually make us consider Versaille far worse. Let me explain. A man earning 100K can far better afford a 100K loan than a man earning 10K can afford a 10K loan.

As _sunrock_ described, post war Germany was pushed into terrible human deprivations. 21st century Ireland starts from a much higher standard of living and can cope with a bit of austerity.


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## Duke of Marmalade (1 Sep 2010)

I was brought up in Northern Ireland.  There was a certain mindset there that liked to think the treatment of  Catholics was on a par with the Nazi treatment of the Jews.

This latest McWilliams outrage is pandering to a similar mindset almost wanting to believe that our banking crisis is worse than the infamous Versaille settlement.

Some good may come of this.  Those media fans who think McWilliams and other academic doomsayers are the fountain of all wisdom may be scandalised by this incredible overtsatement of the problem.


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## Conan (1 Sep 2010)

Am I missing something:


The Govt closes down Anglo
All the depositors (not Bond holders, not equity holders) seek their deposits back
The Bank quickly run out of cash (because they had lent out most of the deposits)
The Govt then have a choice of filling the entire shortfall (much more than €25b) or renaiging on deposits (chaos)
Alternatively they seek to prop up the bank, avoid a run on deposits (plus the unboubted contaigon risk to AIB and BOI), avoid having to sell all the assets in a fire sale and hope over time to sell of the assets in a more orderly fashion (bad banK), thus a hopefully getting back some of the cash injected.

Listening to all the so called economic experts (McWilliams, Lucey et al) I am reminded of the definition of an economist as someone who knows 1000 ways to make love but does not know any women.


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## Complainer (1 Sep 2010)

Conan said:


> Am I missing something:
> 
> 
> The Govt then have a choice of filling the entire shortfall (much more than €25b) or renaiging on deposits (chaos)


Where exactly and what exactly is the chaos? Let's the govt provided a limited guarantee of say €50k or €100k per depositor, and let the 'free market' look after the rest. No-one is going to go hungry as a result of that approach.


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## Chris (1 Sep 2010)

Complainer said:


> Where exactly and what exactly is the chaos? Let's the govt provided a limited guarantee of say €50k or €100k per depositor, and let the 'free market' look after the rest. No-one is going to go hungry as a result of that approach.



Absolutely correct. It is assumed there would be utter chaos, but this is unfounded. Of course it wouldn't be a cake walk, but neither should it be.
Investors took a risk and should pay for bad investments. This happens all the time in most of the economy and doesn't cause any problems. On the contrary, it rids the economy of bad investments quickly and makes tied up capital available for new, more productive projects. Anglo is not and never was of systemic importance.


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## Firefly (2 Sep 2010)

Complainer said:


> Where exactly and what exactly is the chaos? Let's the govt provided a limited guarantee of say €50k or €100k per depositor, and let the 'free market' look after the rest. No-one is going to go hungry as a result of that approach.


 
I think this approach would lead to a mass exodus of money out of this country as people would fear that this 50k or 100k guarantee would be reduced further. Don't get me wrong, I'm very angry about the impact Anglo is having on our country, but think at this point the gov is doing the right thing.


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## Sunny (2 Sep 2010)

Firefly said:


> I think this approach would lead to a mass exodus of money out of this country as people would fear that this 50k or 100k guarantee would be reduced further. Don't get me wrong, I'm very angry about the impact Anglo is having on our country, but think at this point the gov is doing the right thing.


 
That's exactly it. You may not like it but Ireland relies on external funding. I work for a foreign company. You have no idea of the battles I had and still have on a daily basis to keep cash in Ireland.


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## aristotle (2 Sep 2010)

A 50k - 100k gaurantee per depositor is fine for private individuals (well most of them) but you have to consider that pension funds could be exposed as well as businesses where these people work.


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## Complainer (2 Sep 2010)

aristotle said:


> A 50k - 100k gaurantee per depositor is fine for private individuals (well most of them) but you have to consider that pension funds could be exposed as well as businesses where these people work.



Indeed, pensions funds would have been exposed (though presumably they would have a limited amount of funds in cash, and a limited amount of cash in any one institution), and businesses would have been exposed. But how could that have been more damaging than the situation we are left with now, where every man, woman and child is left to pay the bill for bad decisions by the State.



Firefly said:


> I think this approach would lead to a mass exodus of money out of this country as people would fear that this 50k or 100k guarantee would be reduced further.


I think this approach would have led to a mass exodus of money from Anglo to less risky institutions. Anglo may well have folded, and large depositors and pension funds would indeed have got stung badly, but could that really be worse than the current situation.


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## aristotle (2 Sep 2010)

I agree with you Complainer. What started out at a €4bn cost to the taxpayer is turning into 30bn+. I keep hearing that it would have cost more to shut anglo but surely that is only because of the decision to gaurantee ALL deposits.

I just haven't seen a properly thought out analysis of what would have happened if Ireland took a different route and let Anglo go. Maybe no one really knows what would have happened.


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## Conan (2 Sep 2010)

Firstly "depositors" are not like Equity or Bond investors. They do not think they are taking an "investment" risk. 
Secondly, all banks work on the basis that they lend out a % of deposits. So if ever all depositors came looking for their money at the same time.......problem.
Thirdly, if Anglo crashed, a few depositors got their funds out early but the vast majority were left swinging.... what would happen in AIB and BOI? Would their depositors come looking for funds? Would that be worse that the current position? I think so.
Fourthly, Ango depositors are a catholic collection i.e. individuals, companies, pension funds etc. If the vast majority were left swinging, would it be feasable for the Govt to say that only 50k or €100k was guaranteed? Could one reasonably expect that the "contagion" be restricted to Anglo? Could we take the risk? Because if we did, there is no going back from falling over the cliff.


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## Complainer (2 Sep 2010)

Conan said:


> Firstly "depositors" are not like Equity or Bond investors. They do not think they are taking an "investment" risk.


Citizens are neither bondholders nor depositors. They do not think they are taking an investment risk, but they have been left holding the can.



Conan said:


> Secondly, all banks work on the basis that they lend out a % of deposits. So if ever all depositors came looking for their money at the same time.......problem.


But what exactly is the problem, and is it worse than the existing problem of leaving taxpayers to cover a €25-33bn bill?



Conan said:


> Thirdly, if Anglo crashed, a few depositors got their funds out early but the vast majority were left swinging.... what would happen in AIB and BOI? Would their depositors come looking for funds? Would that be worse that the current position? I think so.


No, just to be clear - the State could have guaranteed deposits up to a reasonable threshold per person - say €50k or €100k. So those who are left swinging are (to be blunt) able to absorb their loss without going hungry, unlike those who have currently been left swinging.

And what would happen with AIB/BOI? We'll the first thing is that they'd have got a short, sharp lesson in 'moral hazard', so they would need to stop acting on the assumption that thte state would bail them out. 

Would AIB/BOI depositors have come looking for funds? I guess some would, and some wouldn't. It could certainly have been managed, as was done with Northern Rock in the UK. How exactly would it have been worse than the current position - with the State covering a €90bn bill for the banking sector?



Conan said:


> Fourthly, Ango depositors are a catholic collection i.e. individuals, companies, pension funds etc. If the vast majority were left swinging, would it be feasable for the Govt to say that only 50k or €100k was guaranteed? Could one reasonably expect that the "contagion" be restricted to Anglo? Could we take the risk? Because if we did, there is no going back from falling over the cliff.


We certainly didn't seem to have any problem with taking the other huge risk, by providing an unlimited guarantee. We've already fallen off the cliff.


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## Chris (2 Sep 2010)

Conan said:


> Firstly "depositors" are not like Equity or Bond investors. They do not think they are taking an "investment" risk.


The reason they do not perceive themselves as investors is precisely because of the deposit guarantee, and the fact that you outline in point 2. If depositors funds were actually held on deposit then they would not be investors. But the fact is that their funds are lent out, which makes depositors investors, who, absent a guarantee, would be a lot more careful with which banks they would trust.


Conan said:


> Secondly, all banks work on the basis that they lend out a % of deposits. So if ever all depositors came looking for their money at the same time.......problem.


Yes indeed, and this is the core of the problem I outlined above, that depositors become investors. For fractional reserve banking to work there is an implicit guarantee through the governments/central banks being "lender of last resort", which has now become an explicit guarantee.


Conan said:


> Thirdly, if Anglo crashed, a few depositors got their funds out early but the vast majority were left swinging.... what would happen in AIB and BOI? Would their depositors come looking for funds? Would that be worse that the current position? I think so.


No, the situation would not be worse than we are in now. AIB and BoI are bankrupt and should not be allowed exist in their current form. The disruption caused through an organised liquidation resulting in solvent businesses, with no cost to tax payers, would be a far better situation than we are in now.


Conan said:


> Fourthly, Ango depositors are a catholic collection i.e. individuals, companies, pension funds etc. If the vast majority were left swinging, would it be feasable for the Govt to say that only 50k or €100k was guaranteed? Could one reasonably expect that the "contagion" be restricted to Anglo? Could we take the risk? Because if we did, there is no going back from falling over the cliff.


As Complainer correctly points out, we are over the cliff as it is, with no safety rope. The idea of contagion to other institutions is incorrect, as it implies that the problem is passed on like a virus now, rather than has been present in the banks for quite some time.



Complainer said:


> And what would happen with AIB/BOI? We'll the first thing is that they'd have got a short, sharp lesson in 'moral hazard', so they would need to stop acting on the assumption that thte state would bail them out.


Well said Complainer, especially the above!


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## Conan (2 Sep 2010)

Chris?Complainer,


If banks simply held all funds on deposit, did not lend out the funds etc... where would the interest rate come from. Sticking the money under the matress does not generate an interest payment.
The banking system for the last hundreds of years is based on deposits being used to generate a higher return, out of which interest is apid to depositors.
Based on your logic banks would not exist unless the guarantee existed.
If Anglo went belly-up, deposiitors in AIB and BOI would equally go looking for their funds.Within days we would have seen Anglo, AIB, BOI etc close. No Pass machines, no cheques etc. If I remeember rightly, that plonker Joe Duffy virtually precipated a run on the banks at one time due to his idiotic comments on national radio.
Comparing the Northern Rock (a small UK building Society) to AIB, BOI etc makes no sense.
If you think we are over the cliff now, what would it be like if all the main banks closed, there was no cash in the system, the Govt had to bail-out all depositors etc. Yes Banks would have gotten a sharp lesson in moral hazard and the population as a whole an even sharper lesson.
I am amused at how associate professors in economics (who know all the theory but never have to actually implement anything) are so certain that those who actually have to make decisions are so foolish.
Whilst I accept that Bond holders should have to take some pain (maybe a lot of pain), so sugest that all the Banks be let go under, that depositors be left swinging  and the whole banking system collapse, just seems totally mad.
At the time of the Govt decision, I think they had little choice other than to do as they did. That at least offered breathing space. I expect that in reality we will see an orderly winding down of Anglo, but without the contaigon impact on BOI and AIB.  For the State (taxpayer) to minimise the cost of the Anglo guarantee and maximise the proceeds from the assets taken over by NAMA, it requires time. Simply seeking revenge on the Banks for their stupidity and closing them down would have been chaotic (in my opinion).


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## Chris (2 Sep 2010)

Conan said:


> If banks simply held all funds on deposit, did not lend out the funds etc... where would the interest rate come from. Sticking the money under the matress does not generate an interest payment.


I am not denying that and do not want to deviate into the fraudulent and inflationary effects of fractional reserve banking. But this basically means that depositors are in fact a kind of investor.



Conan said:


> The banking system for the last hundreds of years is based on deposits being used to generate a higher return, out of which interest is apid to depositors.


Yes, but just because something is doesn't mean it ought to be. Fractional reserve banking is plain and simple fraud. And if, as you said, depositors are not investors, then that is because they assume their money is available at all times. However this is simply not true; if there is a run on a bank the bank is legally allowed to stop payments and seek protection from government and central banks.



Conan said:


> Based on your logic banks would not exist unless the guarantee existed.


Fractional reserve banking failed over and over again after its first trials in England by goldsmiths issuing counterfeit (unbacked) warehouse receipts. It was only with the advent of modern central banking and the implicit (later explicit) guarantee through government, that bank failures were stopped.
Without the guarantee banks would still exist, but they would only use capital received through bonds and other direct investment, to loan out. Demand deposits would be exactly that, available on demand 100%.



Conan said:


> If Anglo went belly-up, deposiitors in AIB and BOI would equally go looking for their funds.Within days we would have seen Anglo, AIB, BOI etc close. No Pass machines, no cheques etc. If I remeember rightly, that plonker Joe Duffy virtually precipated a run on the banks at one time due to his idiotic comments on national radio.


But this point only highlights the whole fallacy and fraud of the banking system. That when people actually decide they would rather hold cash in hand this is not possible.



Conan said:


> Comparing the Northern Rock (a small UK building Society) to AIB, BOI etc makes no sense.


Northern Rock is indeed a small version (relatively speaking) of Anglo here. But this makes no difference when it comes to winding down an operation and selling off viable devisions.



Conan said:


> If you think we are over the cliff now, what would it be like if all the main banks closed, there was no cash in the system, the Govt had to bail-out all depositors etc. Yes Banks would have gotten a sharp lesson in moral hazard and the population as a whole an even sharper lesson.


The government does not *have to* bail out any company, and should under no circumstances do so. Look at the mess that this government has created! You are also wrongly assuming that banking would simply stop. Bankrupt/insolvent large businesses do not simply close their doors and stop operating. Look at Quinn, it was declared insolvent and an administrator was appointed to see whether it should be liquidated or could continue (and Quinn Insurance is about the same size as Anglo). The same would have been the case with winding down banks in an "orderly" fashion without tax money injected.



Conan said:


> I am amused at how associate professors in economics (who know all the theory but never have to actually implement anything) are so certain that those who actually have to make decisions are so foolish.


Yes, a lot of economists are indeed very amusing in their statements. But the most amusing thing is that governments *actually* believe that they can plan and steer the economy! It is their very interference and interventions that are causing these continuous bubble/bust cycles. If only they stopped interfering we wouldn't have half the problems we experience.



Conan said:


> Whilst I accept that Bond holders should have to take some pain (maybe a lot of pain), so sugest that all the Banks be let go under, that depositors be left swinging  and the whole banking system collapse, just seems totally mad.
> [/LIST]


Yes bond holders should be affected and depositors would be affected. If you want to protect depositors in the future then make it illegal to fractional reserve on demand deposits; and if people still want to earn money on savings then people should use bonds or debentures. The banking system is such a feeble operation and propping it up with taxpayers money is just plain nonsense. That's not a good system to have, and despite the lenders of last resort it still regularly fails in spectacular fashion.



Conan said:


> At the time of the Govt decision, I think they had little choice other than to do as they did. That at least offered breathing space. I expect that in reality we will see an orderly winding down of Anglo, but without the contaigon impact on BOI and AIB.  For the State (taxpayer) to minimise the cost of the Anglo guarantee and maximise the proceeds from the assets taken over by NAMA, it requires time. Simply seeking revenge on the Banks for their stupidity and closing them down would have been chaotic (in my opinion).


No, there were plenty of choices, and the most beneficial one would have been an orderly wind down of bankrupt businesses. Yes the bailout offered breathing space, but all that has happened is (a) that the exposure to the taxpayer has increased exponentially, (b) the problem has only been kicked down the road and not dealt with, and (c) an explicit precedence has been sent to banks and their creditors that they will never be allowed to collapse. 
Injecting €25b into Anglo is hardly an orderly wind down, especially if little to none of the injected capital will ever be seen again. An orderly wind down would have been taking control and immediately negotiating with bond holders, and not blindly throwing money into a black hole without even knowing what was in it.
Not letting bank investors and creditors feel the full force of the profit and loss system is only encouraging banks to continue making exactly the same mistakes of too high risk and and too high leverage in the future. Absolutely nothing will change now.


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## Duke of Marmalade (3 Sep 2010)

Has this thread gone slightly off topic?  McWilliams says Anglo rates 200% on the Versaille scale.  I have proposed an alternative calculation which indicates that at most it scores 8%.  Interested in others views.


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## Chris (3 Sep 2010)

Duke of Marmalade said:


> Has this thread gone slightly off topic?  McWilliams says Anglo rates 200% on the Versaille scale.  I have proposed an alternative calculation which indicates that at most it scores 8%.  Interested in others views.



I agree with your assessment in general, especially the comparison of someone earning 100k being able to afford a 100k loan as apposed to someone earning 10k being able to afford a 10k loan. The bank bailout in and of itself is not anywhere near as burdensome as the WWI reparations, and McWilliams is very wrong to come to this conclusion. I think it is good that the problem of debt is being highlighted, but singling out the Anglo costs is poor economic analysis, especially from an economist. As you've said before, he should know better.

It makes much more sense to look at total debt, public and private, as this paints a truly awful picture of the burden that lies on western countries. In most countries private debt is the real problem, especially when calculated on a per capita basis. Now of course, not all private debt is the responsibility of all the public, but the level of debt is why I believe Ireland's economy (and many other countries too) will not dig its way out of this mess for a very long time.

While I did have time for McWilliams in the past, as he did deserve some credit for his reporting on "the soft landing", but his reporting in the last two years has been abismal from an economic point of view. In many ways he reminds of Keynes (I'm not saying he is necessarily a Keynesian), in that his opinion changes to suit the mood of the day. On many occasions he comes accross as an advocate of free markets, but can then come out with ideas of total government intervention. How do you start critisizing a two-faced "economist"?

Also, just to reiterate, WWI reparations were *not* the cause of the collapse of the Weimar Rebuplic's economy. This was purely due to the monetary misbehaviour of the Reichsbank and government.


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## Complainer (3 Sep 2010)

Conan said:


> Chris?Complainer,
> 
> 
> If Anglo went belly-up, deposiitors in AIB and BOI would equally go looking for their funds.Within days we would have seen Anglo, AIB, BOI etc close. No Pass machines, no cheques etc. If I remeember rightly, that plonker Joe Duffy virtually precipated a run on the banks at one time due to his idiotic comments on national radio.
> Comparing the Northern Rock (a small UK building Society) to AIB, BOI etc makes no sense.



We're not comparing NR to AIB/BOI, we are comparing NR to Anglo. The UK govt managed to wind down NR without exposing the state to huge liabilities, and without causing a disaster in the rest of the system.


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## Sunny (3 Sep 2010)

Complainer said:


> We're not comparing NR to AIB/BOI, we are comparing NR to Anglo. The UK govt managed to wind down NR without exposing the state to huge liabilities, and without causing a disaster in the rest of the system.


 
Not strictly true. The State continues to guarantee Northern Rock bonds and the company still owes the British taxpayer about £22 billion.


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## Shawady (3 Sep 2010)

The oppostition have suggested negotiating with the bond holders. Is this feasible under the current guarantee?
Also, can the bond holder's names be made public to show how Anglo is systemic to the irish banking system?


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## Complainer (3 Sep 2010)

Sunny said:


> Not strictly true. The State continues to guarantee Northern Rock bonds and the company still owes the British taxpayer about £22 billion.


£22 billion relative to a total GDP of £1451 billion - right?


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## Sunny (3 Sep 2010)

Complainer said:


> £22 billion relative to a total GDP of £1451 billion - right?


 
Well if you want to go down that road, the cost of the bailouts and the various guarantees given to British banks amounts to about £1 trillion last time I looked.

Nothing in the world compares to Anglo and Ireland but the UK taxpayer did not get off lightly or the British government didn't discover some amazing way to save banks that didn't cost anything.


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## Complainer (3 Sep 2010)

Sunny said:


> Well if you want to go down that road, the cost of the bailouts and the various guarantees given to British banks amounts to about £1 trillion last time I looked.


Let's compare like with like, Ireland's total figure is somewhere around €90bn afaik.



Sunny said:


> Nothing in the world compares to Anglo and Ireland but the UK taxpayer did not get off lightly or the British government didn't discover some amazing way to save banks that didn't cost anything.


But they did manage to wind down an overexposed bank at minimal cost to the State. We didn't.


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## Oldira (3 Sep 2010)

Based on population size our bailout of Anglo is similar to the British Government bailing out a bank to the tune of £350 billion or the US spending $1.75 TRILLION! 
And yet the shysters in Ernest & Young who gave Anglo a clean bill of health in September 2008 are still being rewarded with NAMA contracts.


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