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.
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.
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.
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.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.
Citizens are neither bondholders nor depositors. They do not think they are taking an investment risk, but they have been left holding the can.Firstly "depositors" are not like Equity or Bond investors. They do not think they are taking an "investment" risk.
But what exactly is the problem, and is it worse than the existing problem of leaving taxpayers to cover a €25-33bn bill?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.
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.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.
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.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.
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.Firstly "depositors" are not like Equity or Bond investors. They do not think they are taking an "investment" risk.
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.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.
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.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.
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.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.
Well said Complainer, especially the above!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.
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.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.
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.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.
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.Based on your logic banks would not exist unless the guarantee existed.
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.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.
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.Comparing the Northern Rock (a small UK building Society) to AIB, BOI etc makes no sense.
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.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.
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.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 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.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.
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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.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).
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.
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.
£22 billion relative to a total GDP of £1451 billion - right?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?
Let's compare like with like, Ireland's total figure is somewhere around €90bn afaik.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.
But they did manage to wind down an overexposed bank at minimal cost to the State. We didn't.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.