# Why should the govt. save the banks?



## ang1170 (4 Oct 2008)

Can someone please educate me on this?

I can understand why the govt. would want to protect depositors, but why would they feel the need to protect an individual bank?

What other business gets a state guarentee?


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## ajapale (4 Oct 2008)

ang1170 said:


> What other business gets a state guarentee?



The ESB!


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## askalot (4 Oct 2008)

ang1170 said:


> I can understand why the govt. would want to protect depositors, but why would they feel the need to protect an individual bank?



If a bank, Anglo Irish for the sake of argument, went bust then the liquidator would look to call in its loans to developers, the developers would be unable to pay, they in turn would declare bankruptcy and the whole house of cards that is the Irish economy follows soon after. 

The whole scheme was devised to prop up the banks and hide the horrible state of the Irish banks loan book. Protecting depositors was just a fig leaf to cover the governments complicity in the under regulated marketplace that has lead us all to this hell.

In years gone by heads would have rolled for this; literally!

http://en.wikipedia.org/wiki/Guillotine


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## ang1170 (4 Oct 2008)

askalot said:


> If a bank, Anglo Irish for the sake of argument, went bust then the liquidator would look to call in its loans to developers, the developers would be unable to pay, they in turn would declare bankruptcy and the whole house of cards that is the Irish economy follows soon after.


 
That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.

So what if over-extended developers go bust, and drag a couple of banks down with them?

Really, really tough on the vast majority of the bank's employees of course, but it's nothing different to those employeed by assorted muti-nationals that have closed up shop over the years.

Just why are the banks different?

By the way, I do know the answer of course (govt. complicity and protecting their pals in the construction industry), so I guess the real question is why isn't everyone up in arms?


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## Elphaba (4 Oct 2008)

ang1170 said:


> That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.
> 
> So what if over-extended developers go bust, and drag a couple of banks down with them?



Do you really want to see our banks go bust like Northern Rocks with people scrambling to get their money out? I think it was a very smart move by our government guaranteeing our banking system and smart timing too. All the same, 400 billion is a staggering amount  of money, it shows you how much greedy faith our bankers had in property developers, nobody saw it coming. Since inter bank lending has dried up the banks had no alternative but to seek governments help. I do think that the heads of these banks should be held accountable, the signs have been there up to a year ago, were they all caught up in the spiral of greed? The financial regulator should also be held accountable. However its happened and we have to move on, hopefully to better times and more regulation and accountability, but B. Cowen and B. Lenihan did the right thing, not like the bumbling Gordon Browne who has/is handling their own financial affairs disastrously...and who was raging when people started putting money into irish banks.........great to get one over on the Brits though


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## z109 (4 Oct 2008)

No Elphaba, I don't want to see our banks go bust like Northern Rock. I want to see our banks go bust like Lehmans Brothers, where the government only has responsibility up to the 100k deposit limit and the rest is liquidated.

There are plenty of banks in Europe or the rest of the world that the retail operations of out banks could be sold off to. Or the post office could be beefed up to run a banking system while the current crisis plays out.

Oh, and by the way, lots of people saw it coming.

And before you get too smart criticising Gordon Brown, he is refusing to take on a liability of 1.9 trillion STG. That equates to 2.43 trillion EUR or 39k EUR per head of population as the risk to public finances is too great. Our government has taken on a liability of 400 bn EUR or 100k per head of population. Now, who is the clever one in this? 2Brians or 1Brown?

Oh, and your "great to get one over on the Brits" comment makes me feel quite queasy.


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## johnvbrennan (5 Oct 2008)

Right now it looks like the government has made the right move. Love them or hate them, the banks are the heart of our economy. Last week that heart was close to failing. The move by the government creates stability and restores confidence.

Finally, any talk of 'getting one over on the Brits' is pure rubbish. Britain is the largest export market for Irish traders.  We depend on them more than they do on us.


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## shnaek (6 Oct 2008)

ang1170 said:


> That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.
> 
> So what if over-extended developers go bust, and drag a couple of banks down with them?



Much and all as most people would like to punish the banks, there is no point in cutting off our nose to spite our face. I think most people fail to appreciate how serious this crisis is. If the banks and developers were to fail, we might well gloat because of their past greedy antics, but we would be gloating from a sinking ship. Our economy is already in serious trouble. We need to do everything we can to prevent our economy going bust. And this government move will more than likely end up costing us nothing anyway. Something had to be done, and I am sure politicians didn't delight in 'bailing out the banks' - but they knew they had little choice. I for one am glad they had the guts to stand up and do something. It increased my (very little) faith in politicians.


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## z103 (6 Oct 2008)

An article in last Sunday's Mail on Sunday showed all the TDs that had shares in Irish banks. Quite interesting reading.


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## Sunny (6 Oct 2008)

leghorn said:


> An article in last Sunday's Mail on Sunday showed all the TDs that had shares in Irish banks. Quite interesting reading.


 
To be fair, I would be surprised if there were many people in this country who weren't shareholders in Irish Banks either directly or through their pensions. Were they implying some conflict of interest or something?


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## ClubMan (6 Oct 2008)

Sunny said:


> To be fair, I would be surprised if there were many people in this country who weren't shareholders in Irish Banks either directly or through their pensions.


Including occupational schemes, private policies (_RACs, PRSAs, _buy out bonds) and the _NTMA _managed _Pensions Reserve Fund _for state pensions. And don't forget the many people with non pension based direct or indirect (e.g. unit linked funds etc.) shareholdings in banks too.


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## z103 (6 Oct 2008)

It doesn't look like the Gov bailout is working;
http://uk.finance.yahoo.com/q/ta?s=^ISEQ&t=1d&l=on&z=m&q=l&p=&a=&c=

ISEQ down 8.74% so far today


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## JohnBoy (6 Oct 2008)

Well the ISEQ is simply falling with the rest of the equity markets. In addition, the competitive advantage currently enjoyed by Irish banks when it comes to attracting deposits may well disappear if the UK makes a similar guarantee (and there is considerable pressure for Darling to do so).

As I see it the bank rescue/bailout, or whatever you call it, can play itself out in one of two ways.

1: The banks use this period of state protection to clean up their balance sheets so they can borrow again without state support. This would involve a lot of economic pain for the country as the banks renegotiate with those companies/developers/individuals who are behind on their repayments. If the loan losses are sufficiently large from this process then you can expect the banks to cancel dividend payment and also seek to raise new capital. 

2: The banks muddle along and only only admit/acknowledge a minimum of loan losses hoping that ECB rate cuts and an eventual upturn in the global economy will eventually stabilise/lift property prices. If this is the case then the state guarantee would probably need to be extended because no one would lend to the Irish banks at whatever markets rates are at that time.


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## room305 (6 Oct 2008)

shnaek said:


> Much and all as most people would like to punish the banks, there is no point in cutting off our nose to spite our face.



Agreed.



shnaek said:


> I think most people fail to appreciate how serious this crisis is.



I would include the taoiseach, the minister for finance, the financial regulator and the governor of the central bank among these people. Anyone with any appreciation of the seriousness of the crisis would not have put the solvency of the entire country on the line.



shnaek said:


> If the banks and developers were to fail, we might well gloat because of their past greedy antics, but we would be gloating from a sinking ship.



This statement implies two things, neither of which I concur with

1. That it is possible to prevent over-leveraged banks and developers from failing.

2. That to somehow rescue the banks and developers would solve the economic problems of the country.



shnaek said:


> Our economy is already in serious trouble. We need to do everything we can to prevent our economy going bust.



Or, if we consider it certainty that banks and developers will go bust, we need to minimise the fallout and prevent it from bankrupting the country. The state guarantee of banks has the opposite of this effect.



shnaek said:


> And this government move will more than likely end up costing us nothing anyway.



I disagree. Many of the €100 billion in loans made to developers are practically worthless and are unlikely to ever be repaid. Perhaps you could outline some of the reasoning behind your statement.



shnaek said:


> Something had to be done, and I am sure politicians didn't delight in 'bailing out the banks' - but they knew they had little choice. I for one am glad they had the guts to stand up and do something. It increased my (very little) faith in politicians.



Nothing scares me more than to hear a politician state that "something had to be done". In this instance I would have preferred if they did nothing.


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## leahcim (7 Oct 2008)

room305

From reading your post it looks like you believe only banks and developers would suffer if a bank or part of our banking system collapsed.

What about the other not construction related business with money on deposit or invested in the banking system are you saying they should loose all their money as well? What about all the jobs? If one of the banks collapsed you could easily be talking 10s of thousands of job losses.

The government stepped in because contrary to what you seem to be saying the banking system is the life blood of nearly all business activity not just the bloody builders.

I think the people who were in charge of the banks and the regulators need to be reprimanded, but right now the number one priority is saving our economy.


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## hatfield (7 Oct 2008)

leahcim said:


> room305
> 
> From reading your post it looks like you believe only banks and developers would suffer if a bank or part of our banking system collapsed.
> 
> ...



The argument put forward by Alan Dukes on RTE Questions and Answers was because pension funds are invested in the banks and if the banks go belly up then pensions will suffer but this is nonsense because stocks and shares around the whole world are suffering and pensuion funds are supposed to diversify across a range of asset classes and sectors. No pension fund should have more than a tiny % invested in banks after the last 2 years of stock market turmoil.


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## ang1170 (7 Oct 2008)

leahcim said:


> I think the people who were in charge of the banks and the regulators need to be reprimanded, but right now the number one priority is saving our economy.


 
"You've been a very naughty boy!"

I can see that working, OK........


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## JohnBoy (7 Oct 2008)

hatfield said:


> The argument put forward by Alan Dukes on RTE Questions and Answers was because pension funds are invested in the banks and if the banks go belly up then pensions will suffer but this is nonsense because stocks and shares around the whole world are suffering and pensuion funds are supposed to diversify across a range of asset classes and sectors. No pension fund should have more than a tiny % invested in banks after the last 2 years of stock market turmoil.


 
Your statement is true to a point. Many Irish fund managers do not adequately diversify. Despite the relatively small weight of Irish equities in any of the pan-European equity indices, most Irish fund managers are still heavily overweight Irish equities (read the banks).

Indeed, just look at the list of shareholders in the main banks. Bank of Ireland Asset Management is a top three shareholder in AIB, BOI and Irish Life. Writing down the equity of the Irish banks to zero would have significant impact on Irish pensions.


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## Sunny (7 Oct 2008)

There was a good analogy in the Sunday Times when discussing how people say banks should be allowed fail and they deserve what they get. They pointed out that it was like not allowing the fire brigade put out a house fire caused by the owner smoking a cigerette and therefore putting the neighbouring houses at risk of burning down just to teach the houseowner a lesson for his carelessness. 

I know it galls people but banks are an integral part of the economy. They are not ordinary companies and hence they should have in theory being strongly regulated to make sure this mess didn't occur. They weren't and now we are in trouble. Do we let them all go to teach them a lesson and face the consequences? Does anyone really realise what the consequences are for a Country that doesn't have a functioning financial system? Do you really think you could allow Anglo Irish Bank fail and the other banks could continue on fine and dandy?

By the way, when books are written about this crisis in a couple of years, the US decision to allow Lehman Brothers default on its obligations will be seen as a major mistake.


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## leahcim (7 Oct 2008)

ang1170 said:


> "You've been a very naughty boy!"
> 
> I can see that working, OK........


 
They were very naughty boys indeed. 
But what do you propose?
My gut feeling is that no heads will roll because of this.
It would be very difficult to identify any law that has been broken.
Unfortunately being greedy alone is not against the law, if it was half the country would be in prison.

The Irish banks know they can blame the whole crisis on American sub prime lending. They probably feel pretty lucky to have been given this get out of jail free card.


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## ubiquitous (7 Oct 2008)

leahcim said:


> It would be very difficult to identify any law that has been broken.



If a one-man-band carpenter or plumber had run their company into the ground in the way that certain banks appear to have been run, the ODCE would be waiting to pounce on them and invoke all sorts of legal sanctions on them. The irony is that most of these cases have been conducted on foot of complaints to the ODCE by either the banks or the State, in the form of the Revenue.


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## leahcim (7 Oct 2008)

ubiquitous said:


> If a one-man-band carpenter or plumber had run their company into the ground in the way that certain banks appear to have been run, the ODCE would be waiting to pounce on them and invoke all sorts of legal sanctions on them. The irony is that most of these cases have been conducted on foot of complaints to the ODCE by either the banks or the State, in the form of the Revenue.


 
Since when is running a company into the ground illegal. Its your company you can run it into the ground if you want. If while running it into the ground you decided that you were not going to pay tax or defraud your investors that would be a different story, you would be breaking the law.

The ODCE would only become involved if the company directors broke the law. What law have the banks broke?

Dont get me wrong I thing the regulator and the bank directors should be in trouble, and made acountable for getting us into this mess but I would say they have their asses well covered. They can blame it all on American sub prime lending.


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## ubiquitous (7 Oct 2008)

leahcim said:


> The ODCE would only become involved if the company directors broke the law. What law have the banks broke?



I am not going to speculate on specifics but I think its fair to state that there is at least some anecdotal evidence of some reckless trading on the part of some of the parties involved in this sorry mess.  I would be amazed if no laws have been broken.


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## Bronte (7 Oct 2008)

leahcim said:


> If while running it into the ground you decided that you were not going to pay tax or defraud your investors that would be a different story, you would be breaking the law.
> 
> quote]  Wow a bank that does not pay tax, never heard of that, though I have a vague recollection of a DIRT scandal nor have I heard of banks that directed citizens to put their money in offshore accounts/schemes/investments to avoid/evade tax and banks overcharging for people buying foreign currency etc, but none of that was breaking the law.


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## Elphaba (7 Oct 2008)

yoganmahew said:


> Oh, and your "great to get one over on the Brits" comment makes me feel quite queasy.



For goodness sake, where is your sense of humour?? All the european banks are taking our lead.. Germany who criticized us, changed their mind pretty quickly...


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## z109 (7 Oct 2008)

Elphaba said:


> For goodness sake, where is your sense of humour?? All the european banks are taking our lead.. Germany who criticized us, changed their mind pretty quickly...


The other European states, apart from Denmark who are outside the euro and facing a banking meltdown, have only protected retail deposits. The Germans have said they will insure 568 bn euro, while Ireland, with one twentieth of the population of Germany is insuring 400 bn euro. Now if you think the deal makes sense and is sustainable that's fine. I do not.


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## leahcim (7 Oct 2008)

> Originally Posted by *Bronty*
> Wow a bank that does not pay tax, never heard of that, though I have a vague recollection of a DIRT scandal nor have I heard of banks that directed citizens to put their money in offshore accounts/schemes/investments to avoid/evade tax and banks overcharging for people buying foreign currency etc, but none of that was breaking the law.


 
I completly agree, the banks can get away with murder. But usually the senior banks officials claim ignorance when these scandals break.
Usually all that happens is that the bank gets fined and is left to go on its 
merry way. You could always argue that the lower level people in the bank who sell these schemes (offshore etc) to clients be prosecuted but because they did not benefit from the fraud personally and only did it make money for the bank it would be very harsh. Many of them mightn't have even understood that they are doing wrong in the first place.

In the end of the day tax evasion in Ireland is a crime that you rarely see people doing time for. If you can afford the interest and penalties imposed by the revenue you are have a good chance of avoiding jail time.


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## ang1170 (7 Oct 2008)

leahcim said:


> They were very naughty boys indeed.
> But what do you propose?
> My gut feeling is that no heads will roll because of this..


 
I'd agree. My point was that a reprimand as you suggest is completely ineffective.

I think there's a world of difference in letting an insolvent enterprise failing (assuming deposits are guarenteed, to stop a run on all the other banks) and the entire financial system collapsing. 

The longer the inevitable is postponed, the worse it will get.


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