How do we reduce the risk to the taxpayer?

Hi ClubMan

At this stage we don't know if Anglo or The Irish Nationwide is insolvent. This won't be established for a few years because of the nature of their lending.

To minimise the risk to the taxpayer, a process of winding down should begin. When it transpires that they are not insolvent and when the guarantee expires, then they can start trading again normally.

If it transpires that they are insolvent and that the government guarantee is going to be called upon, the earlier we start the winding down process the better.

Brendan

Not being an accountant I have a simple outlook on this.
If the govenment buys shares in a bank when they are down, then the taxpayer will gain when the shares go up.
For existing share holders they know the risk the same as buying shares in any other company and will lose out.
It is the deposit that has been prudent and should be protected. If depositors stop depositing then the bank has nothing.

one point that puzzles me is; where does the €400 bn come from if the government is looking for money in the buget?

The Govt is NOT spending 400 bn.

Many people think they are.

They are not.

They are lending their reputation to the banks, to allow the banks borrow on the intl money markets at a lower cost.

If you lend 1 bn to AIB, etc. now, then you know that the Irish Govt insure or stand over that liability.

In the worse case scenario, if a bank is insolvent, then the Govt will bridge the gap between the bank's assets and their liabilities.

The max size of this gap is estimated at 40bn.

Whereas total liabilities of the banks are 400 bn.

Enforcing the 3timesSalary rule would bring us back to houses costing €150,000. The sooner we get there the better.

However a write down of property assets to this much reduced valuation could render all the banks insolvent. Plus we - the tax payer would have to pick up the bill.

Its a hell of a dilema.
But would getting to rock bottom fast kick start things again?
I - for instance could/would be left with a house worth less than I paid for it. I dont mind. I'm not planning to move. If I was I couldn't.
So therefore house movers would be eliminated out of the market. On the other hand new house buyers would be right back in as would 2nd house buyers.

Yep - definitly good I reckon. Lets get to the bottom sooner rather than later.