I presume you mean any guilty senior bank official. When your wish comes true you might find that paying for others sins is still hard to swallow. We are definitely burying our heads when we keep looking for heads to roll before we get on with taking the necessary cuts.
Any views on yesterdays news (Bail out )
- Thread starter thedaras
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I presume you mean any guilty senior bank official. When your wish comes true you might find that paying for others sins is still hard to swallow. We are definitely burying our heads when we keep looking for heads to roll before we get on with taking the necessary cuts.
It was the collective 'we', didn't necessarily mean you and me.
I know many people were sensible, perhaps like you. I know I was. I didn't go out of my way to make a killing on my home, only to accept a bigger mortgage and massive house. But an awful lot did.
Plus many partied like it was 1999, drinking champagne on Fridays after work, jetting off to NY to shop, and having 4 holidays a year. The 'we' did get caught up in all the hype, and spent like there was no tomorrow.
I find this argument a bit ridiculous. Basically if you went crazy in the last few years you have more pain now - lifestyle debt, more likely to be in deeper negative equity.
BUT the majority of people didnt profit from the housing boom, more likely they overpaid for a house. Now ok, no one forced them to buy, but its a legitimate aspiration for any family and to say that, basically, they've dirtied their hands and been complicit in the whole problem is nuts.
Sure even if someone kept renting a cramped kip they'd still have to take this medicine thats coming.
In the ranking of blame I think it runs:
1. Financial Regulator - Abject failure in his only role, kept telling us all was well in the months pre meltdown, what a fool.
2. Fianna Fail - Bertie with his "they told me not to worry" - do your bloody job man, its your business to get to the truth/facts. All they do is accentuate the economic cycle - fuel the boom and cut the gloom - good thinking lads
3. Bankers - ok its their job to make profit and shareholders wanted more and more, but they didnt achieve much profit in the end did they?, roll over loans like theres no tomorrow, credit committee - whats that?, personal fiefdoms with huge bonuses for paper profits and no accountability. Probably the worst run era of banking the world has seen.
4. Developers - in fairness to them they do what they do, buy land, build and sell. They were greedy in the good times and if they were let take their fall now then it would be fair enough.
So even apart from the recent recklessness, at the best of times you cant expect bankers and developers to self regulate and act for the good of the country, its regulators and policy makers (government) who are supposed to put the checks on unbridled capitalism, but we're taken a twisted view on that where we allow capitalism to truly run amok (no assistance when house prices spiralled beyond reasonable levels), but then FF volunteers us to pay for the clean up, twould make you sick.
I agree, a society that punishes everyone for the mistakes of a few is a society that will continue spiraling from crisis to another, because the few that take the highest risks, will be encouraged to take on more risk.
I think the problem is that no banker actually broke a law. What they did was perfectly in the rules of the game called fractional reserve banking.
I slightly disagree with your rankings, here are mine and their reasoning:In the ranking of blame I think it runs:
1. Financial Regulator - Abject failure in his only role, kept telling us all was well in the months pre meltdown, what a fool.
2. Fianna Fail - Bertie with his "they told me not to worry" - do your bloody job man, its your business to get to the truth/facts. All they do is accentuate the economic cycle - fuel the boom and cut the gloom - good thinking lads
3. Bankers - ok its their job to make profit and shareholders wanted more and more, but they didnt achieve much profit in the end did they?, roll over loans like theres no tomorrow, credit committee - whats that?, personal fiefdoms with huge bonuses for paper profits and no accountability. Probably the worst run era of banking the world has seen.
4. Developers - in fairness to them they do what they do, buy land, build and sell. They were greedy in the good times and if they were let take their fall now then it would be fair enough.
1) Central banks: Without the increase in the money supply and reduction in reserve requirements consumer price inflation and huge assets bubbles would not be possible. All that money commercial banks lent out originated in central banks, and banks can only lend out what is supplied to them
2) Government: Firstly for lack of control on the central bank. I know Ireland does not have any deciding control over monetary policy, but the Irish central bank is a member of the ECB and therefore can recommend a different monetary policy. I have searched the web for any reference to the Irish government or central bank actually advocating higher interest rates during the boom and didn't find a thing. Secondly for basing the majority of the budget on income from construction. And thirdly for bailing out financial institutions or more importantly their bond holders.
3) Commercial banks: For taking on too much risk and only looking at the probability of risk and not the value of risk. Even if the probability of a banking system collapse is very low, you prepare for it. The likelyhood of my house being broken into is low, but I am prepared for it if it happens.
4) Regulator: not for missing this crisis, but for pretending that regulations can actually contain the financial industry; and for making it impossible for new small enterprises to enter the financial system. The cost of even basic regulatory compliance makes it impossible for a small bank to open business with a very simple deposit and loan book.
5) Developers: for overleveraging on their "investments", but other than that they just offered a product that thousands of people wanted.
If by capitalism you mean crony-capitalism or statism, then I agree. But the crisis is not a failure of free market capitalism, as our markets are not free from government intervention. The reason the whole financial system ran out of control and into a massive credit bubble is because those people investing most in banks, i.e. bond holders, put no restraint on the risks banks took (the way they normally do this is by asking for higher interest rates). The reason they did not do that is because they knew 100% that even if the risks were too big and the banks failed, governments would step in and guarantee their investments. Every one of at least the last 4 decades has seen a financial crisis, and every time governments have stepped in to essentially bail out bond holders. The crisis was a failure of preceding and present government interventions, not of free market capitalism, which would punish those that make the biggest mistakes most severely.
What exactly do you mean by "no assistance when house prices spiralled beyond reasonable levels"? Is it maybe all the things government actually did to in the name of helping home buyers, like increase mortgate interest relief, reduce/abolish stamp duty, tax free real estate investment? All these things fueled the demand for housing causing prices to rise even more. If this had not been done, house prices would have become unaffordable a lot earlier resulting in prices going down. If government had done nothing to fuel demand, prices would have peaked a lot sooner.
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Making more money available doesnt necessary have to lead to a crash, its what people do with it that matters. A bit like a garage selling petrol shouldnt be curtailed because some people will sniff it and others will make petrol bombs.
Agree with your other 2 points on government but on the above, realistically Ireland is not going to shape ECB policy. OK they should have had the wisdom to have their say but I dont think they would have gotten their way.
You're being overly kind to him there. Did he not have the bould McWilliams in his face?, did he not watch "Futureshock" a few years back? If, for some reason, systemic risk to the system had never dawned on him up to then well there were a few reminders publicly available. As to the effectiveness of regulation, I think it can be effective if the political will is there and the regulator is given "teeth".
Isnt it now the time to correct that trend, "them 'em a lesson" if you will.
I agree with what you're saying here. What I was referring to was things like the Bacon Report(s), one the key planks of which was to disallow a tax break for interest on investment property. The bubble was grown to a fair extent by speculators. If speculators were driven out of the housing market by no interest relief, higher stamp, higher 2nd property tax that we now have, no tax relief properties to shelter rental income,then the market would have been primarily left to homeowners (or at least the competing speculator would be well disadvantaged, levelling the pitch and keeping the price down).
You could have had "use it or lose it" provisions (by lose it I mean lose planning permission/lose zoning/incur higher future tax rate - as opposed to seizing land) to get people hoarding landbanks to get them on the market. The demographic trend was always going to increase demand (baby boomers buying houses), the government should have seen to it that once the free market was failing (house prices gone beyond reasonable multiples of income) they would step in with measures such as the above to reduce the risks of negative equity, property bubbles and crashes.
More radical things would have been capping the value of land or property - thats a bit too left wing for my liking - but the above measures would probably have been sufficient.
Making more money available doesnt necessary have to lead to a crash, its what people do with it that matters. A bit like a garage selling petrol shouldnt be curtailed because some people will sniff it and others will make petrol bombs.
Agree with your other 2 points on government but on the above, realistically Ireland is not going to shape ECB policy. OK they should have had the wisdom to have their say but I dont think they would have gotten their way.
You're being overly kind to him there. Did he not have the bould McWilliams in his face?, did he not watch "Futureshock" a few years back? If, for some reason, systemic risk to the system had never dawned on him up to then well there were a few reminders publicly available. As to the effectiveness of regulation, I think it can be effective if the political will is there and the regulator is given "teeth".
Isnt it now the time to correct that trend, "them 'em a lesson" if you will.
I agree with what you're saying here. What I was referring to was things like the Bacon Report(s), one the key planks of which was to disallow a tax break for interest on investment property. The bubble was grown to a fair extent by speculators. If speculators were driven out of the housing market by no interest relief, higher stamp, higher 2nd property tax that we now have, no tax relief properties to shelter rental income,then the market would have been primarily left to homeowners (or at least the competing speculator would be well disadvantaged, levelling the pitch and keeping the price down).
You could have had "use it or lose it" provisions (by lose it I mean lose planning permission/lose zoning/incur higher future tax rate - as opposed to seizing land) to get people hoarding landbanks to get them on the market. The demographic trend was always going to increase demand (baby boomers buying houses), the government should have seen to it that once the free market was failing (house prices gone beyond reasonable multiples of income) they would step in with measures such as the above to reduce the risks of negative equity, property bubbles and crashes.
More radical things would have been capping the value of land or property - thats a bit too left wing for my liking - but the above measures would probably have been sufficient.
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You could go back to the 1974 Kenny report that recommended ensuring that any benefit arising from rezoning/planning came to the State, and not to private developers.
Increasing the money supply, reducing interest rates and reserve requirements are all monetary actions that create inflation. Inflation will always lead to a bubble somewhere, but it is impossible to know where it will happen in advance. I made a post about inflation and what it actually is a while back: http://www.askaboutmoney.com/showthread.php?t=141913
Bubbles and the boom bust cycles are direct results of government's monetary and fiscal policies.
I also doubt it. But it should have been perfectly clear before joining the Euro that this would be a huge risk.
Every time there is a financial crisis it is in some way or another believed that the simple solution is to just have better or stronger regulation. But this never ever happens. All this does is increase the cost for new entrants into the financial industry, which at this stage is so high that you will never see new small banks with a very basic deposit and loan book. Regulation always fails.
I fully agree. Bond holders along with all other investors should face the full force of the profit and loss system that is at the center of free market capitalism.
I agree that government interventions caused increased demand from speculators. But the main reason for prices of houses going through the roof was the demand from individuals.
I think that government should neither discourage nor encourage demand from any group. As you say, this would level the playing field.
A very quick side effect of discouraging investors is a lack of supply in rental properties. The market is perfectly capable of keeping things in balance as long as no one interferes with demand and supply.