# Should the government just buy the banks outright?



## Brendan Burgess (21 Dec 2009)

Given the fall in share prices of the banks, I think it's time to review the nationalisation argument. 


At today's share prices, it would cost the government €2.2 billion to buy the shares of AIB and Bank of Ireland. 

They would have full ownership. 
There would not be the stigma of nationalisation. 

A lot of people are suggesting that the banks will have to be nationalised anyway. If it has to happen, then just do it quickly and forget about all the hassle of valuing the loans being tranferred to NAMA. 

Clean the two big banks quickly and then sell off the good bits - New Ireland and AIB's American and Polish arms. 

One of the big worries over this strategy was that it would raise the cost of borrowing for the government.  This seems to have improved given that we have shown determination to address our problems. 

Brendan


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## onq (21 Dec 2009)

ONe old argument was that the banks should have been allowed to fail, and allow the market ot correct itself, but of course people with huge deposits were afroad of losing their money, so they couldn't.
And exactly who are the people with huge deposits in Irish Banks?

Well, we've moved beyond all that, and you've asked a useful question, since the so-called free market capitalism has failed utterly and we're now in socialist capitalism - whatever that might be - a welfare state for banks?
The Russian TV station on SKY and others are now milking this failure for all its worth and it makes interesting listening and viewing.

At a time when Ireland seems to be beholden to whoever lends us the money to keep going, we need to keep their reactions to this in mind.
Most of these creatures claim to be free marketeers, and nationalising in fact as opposed to effectively do so but not in name, might not sit well with them.

Ireland nationalising its banks might therefore have the unfortunate side-effect of the loans drying up.
That might force us to consider the Ellen Brown solution - loan ourselves the money and print it in Stillorgan.
A bridge to far for those indoctrinated in the World Bank ethos?
[Am I right in thinking that everything with "world" in it means "american"...]

OTOH...

Yet it was arguably the banks fault that we are in this mess.
I think we need to gain some leverage on these lending institutions.
Institutions that lent money to people who couldn't pau it bank, banks who bought such debts without checking, central banks who met and imposed higher capital ratios causing local banks to become insolvent overnight - who are totally unelected and unaccountable - institutions like the B.I.S.

There is a lot of anecdotal evidence to suggest that this crash, like othere before it, was not "inevitable" as those who like to invoke higher powers to cover their tracks might like to claim.
It is a certain fact, for example, that not one of the watchdogs or regulators did their job even moderately well - a statutory body looking the other way in the face of a build up to a bust suggests either they did not know what they were doing [plausible - if so why hire them in the first place] or they did [also plausible and this implies corruption and collusion with those riding the crest of the wave - to keep it going].
That's known as a family fork in chess.

The boom and bust cycle of a free market causes a lot of damage to societies, institutions, communities and considering the world-wide government bail outs perhaps all banks should be nationalisd or at the very minimum brought under government control.
Otherwise the American Experiment - which we all slavishly ape - will be seen for what it is, not - a government of the people, by the people for the people - but - a government of the people, by the banks, for the banks.
And so will ours unless we get a handle on it.
As for the government not knowing how to run a bank - that old canard trotted out when nationalising was first suggested - can you show me a banker who does?

So yes, nationalise the bank,s but not just here. 

Nationalise the B.I.S., make the people wh orun it accountable and make their decisions subject to inter-governmental approval.
Because what they've done to date seems to have caused this crisis and I am open to hearing a contrary argument.
Its not the first time I've raised this in these forums and yet everyone is ignoring the elephant in the in room.
We have a lot of experienced, intelligent financial people here - who controls the B.I.S.? No one.

FWIW

ONQ.


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## Complainer (21 Dec 2009)

Brendan said:


> At today's share prices, it would cost the government €2.2 billion to buy the shares of AIB and Bank of Ireland.
> 
> They would have full ownership.
> There would not be the stigma of nationalisation.


Is the avoidance of stigma really worth 2.2 billion to the State?

Perhaps we could live with the stigma, and keep the 2.2 billion.


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## Kine (21 Dec 2009)

Surely they're still going to have to bankroll the banks, as if they still need capital injected does it matter who owns them?


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## z107 (21 Dec 2009)

What are the banks actually worth now? - are they in fact a liability?


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## Strathspey (21 Dec 2009)

Could somebody please explain the need to even have Irish banks. Let them go to the wall, because the vacuum would soon be filled by continental banks.


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## Brendan Burgess (21 Dec 2009)

Kine said:


> Surely they're still going to have to bankroll the banks, as if they still need capital injected does it matter who owns them?



It matters a lot. 

The recapitalized banks will recover and could be very valuable. This increase in value would accrue to the taxpayer. 

€2billion seems very small in the context of 

1) €10 billion(?) capital injected
2) The risk of NAMA 
3) The cost of guaranteeing all their liabilities


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## Chris (21 Dec 2009)

onq said:


> Well, we've moved beyond all that, and you've asked a useful question, since the so-called free market capitalism has failed utterly and we're now in socialist capitalism - whatever that might be - a welfare state for banks?
> The Russian TV station on SKY and others are now milking this failure for all its worth and it makes interesting listening and viewing.


People are incorrectly assuming that we had/have a free-market economy. The world economy is riddled with government interventions like direct/indirect subsidies, tax (dis)incentives, stimulus packages, etc. That is not a free-market economy but more adequately called interventionism or corporatism



onq said:


> Yet it was arguably the banks fault that we are in this mess.
> I think we need to gain some leverage on these lending institutions.
> Institutions that lent money to people who couldn't pau it bank, banks who bought such debts without checking, central banks who met and imposed higher capital ratios causing local banks to become insolvent overnight - who are totally unelected and unaccountable - institutions like the B.I.S.


Yes the banks had their fair share in causing the problem but they were only doing what the world monetary and banking system allowed them to do. Fractional reserve, central banking is the disease, bankers bahiours and the financial crisis are merely the symptoms.



onq said:


> There is a lot of anecdotal evidence to suggest that this crash, like othere before it, was not "inevitable" as those who like to invoke higher powers to cover their tracks might like to claim.
> It is a certain fact, for example, that not one of the watchdogs or regulators did their job even moderately well - a statutory body looking the other way in the face of a build up to a bust suggests either they did not know what they were doing [plausible - if so why hire them in the first place] or they did [also plausible and this implies corruption and collusion with those riding the crest of the wave - to keep it going].
> That's known as a family fork in chess.


I have spent some time trying to make sense of the wordings of financial regulations (it is very difficult unless you are from a legal background), but I have yet to find a specific regulation or legislation that points to any 'wrong-doing' on behalf of banks. Therefore I do not believe that any past, present or future regulations would have averted the financial crisis. Ultimately, taking away the 'loss' part from the profit and loss system, as has been done with large financial institutions, is paving the way for the same people and companies to take on the same types of risks, as they know they will always be saved.



onq said:


> The boom and bust cycle of a free market causes a lot of damage to societies, institutions, communities and considering the world-wide government bail outs perhaps all banks should be nationalisd or at the very minimum brought under government control.
> Otherwise the American Experiment - which we all slavishly ape - will be seen for what it is, not - a government of the people, by the people for the people - but - a government of the people, by the banks, for the banks.
> And so will ours unless we get a handle on it.
> As for the government not knowing how to run a bank - that old canard trotted out when nationalising was first suggested - can you show me a banker who does?


Boom and bust cycles are a phenomenon of interventionism/corporatism and fractional reserve central banking. Britain invented it, the US copied and perfected it, and it then spread to the rest of the world, as you rightly point out. But it is not free-market capitalism, not even in the remotest sense.



Strathspey said:


> Could somebody please explain the need to even have Irish banks. Let them go to the wall, because the vacuum would soon be filled by continental banks.



I agree. Apoint liquidators to sell off whatever can be salvaged and let the rest wind down. Foreign banks could come in and buy up existing branches to use as their own. Ideally new banks would be formed, but I believe that regulatory requirements pose to high of a cost for new banks to be created.
Bankruptcy does not have to be chaotic. I'm not saying it wouldn't be difficult and without interuptions, but it would ultimately set a precendence for existing or new banks, that if they make mistakes they're on their own.

Nationalising or bankrupting banks is only a viable option if there is viable solution to prevent a crisis from happening again. Many financial crises have occured over the past decades, and every time new regulations are introduced, and every time banks find new ways to mess things up. The only thing these corporations understand is loss of money and bankruptcy, and if they don't fear this as a possibility then we will end up going from one crisis to another.


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## z107 (21 Dec 2009)

> €2billion seems very small in the context of
> 
> 1) €10 billion(?) capital injected
> 2) The risk of NAMA
> 3) The cost of guaranteeing all their liabilities


€2Billion is very large in the context of the last budget. Consider all the pain that taking the €4Billion out of the economy is causing and will cause.
What will we get with this €2Billion? There are far better things to spend this on rather than failed banks. For example, we could build off shore wind farms, and actually get something for our money.


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## BrianODohert (21 Dec 2009)

We can't afford to nationalise the banks (=two main banks), even if we got them for free. Like all banks, they will require tens of billions of euros for re-funding existing loans over the next ferw years. Foreigners will not lend those amounts to the Irish government. We find it hard enough (and expensive) to finance our own budgetary -related borrowings of a billion here, coupla billion there...No way could we borrow , say, 50 billion for bank refunding...and especilly if any part of the logic of nationalisation is to hide the true extent of banks losses, as many commentators have proposed.

Also, depositors would start taking out their funds, as soon as nationalisation was announced. In summary, there would soon be no money to lend to anyone in our economy/ country.

As for the idea that we should hand over our banks to foreign ownership (- the inevitable end result of nationalisaiton-), this would be also very bad for our society and represent an enormous failure of our sovereignty and democracy.

As I argue in www.brianodoherty.ie, the best, only real solution, is to work positively with the two main banks, to ensure their survival, even by financially propping them up in the short term, if required- not much is needed anyway- as all other western governments are doing. Let's not be naive Irish eejits and hand over the most important platforms of our economy and independence to foreign management and control. (Regretfully, that seems to be what our newly appointed and widely celebrated Governor of the Central Bank seems to regard as a rosy future !)


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