Irish Bank Bailout breakdown

[MrEarl]

On a somewhat related point, I often wonder why so many people forget about the fact that the Banks who participated in the ball out, were compelled to sell large parts of their loan books to NAMA, at too big a discount. That forced the Banks to take even larger losses that they might otherwise have needed to incur, and forgo later income from the related loans they were forced to sell.

We subsequently saw NAMA return billions in "profit", after notable deduction for staff costs etc. I recently read that NAMA are now forecasting a total return of €5.2 billion to the State, befor it closes down, next year.

Had a less severe discount been imposed on the Banks that sold those loan portfolios, they would not have needed the same level of Government ball out, and the State might now be enjoying an even greater potential return on its remaining shareholding.

 

[Dr Strangelove]

I struggle to find any clear evidence, so could you please share your source?

I won’t drag you through 15 years of public finance data

Think of it this way: in a given year there is either an Exchequer deficit or a surplus and in a given year there is always national debt maturing. If there is a zero deficit/surplus, the debt is reissued. If there is a surplus - say for example a sale of bank shares - the surplus is used to repay maturing debt and no new debt is issued.

In reality there are more moving parts but they are the principles.

 

[jpd]

I'm not a shareholder so I've no skin in the AIB game.

are you a taxpayer or receiving payments from the State?

Everyone has skin in this game

 

[MrEarl]

I won’t drag you through 15 years of public finance data

Think of it this way: in a given year there is either an Exchequer deficit or a surplus and in a given year there is always national debt maturing. If there is a zero deficit/surplus, the debt is reissued. If there is a surplus - say for example a sale of bank shares - the surplus is used to repay maturing debt and no new debt is issued.

In reality there are more moving parts but they are the principles.

I'm not buying that...

You made a very clear statement above, but aren't backing it up with any evidence.

Year on year, when the Government sold "X" number of Bank shares and netted "Y" income, you should then be able to refer to a minimum reduction in the national debt, of the same amount ( as "Y"). If you can't, then you must accept that the Government elected to use the funds for other purposes - while leaving the population to carry a higher level of national debt, then it would otherwise have to shoulder. That has long term implications for the nation.

What the Government later elected to do with the sale proceeds of the bank shares, is a different issue - perhaps it was invested in green energy, perhaps it was used to fund a payrise for the civil service etc.

 

[Protocol]

Are you sure about that, I struggle to find any clear evidence, so could you please share your source?

Receipts from selling shares in the banks are not DIRECTLY applied to the national debt.

They are capital income, and are added to all the other sources of capital income.

As a source of income, they help to reduce any budget deficit / or they increase any budget surplus.

As such, they help to reduce the net liabilities of the State.


You question is like this:

If I earn extra income this year, does that reduce my mortgage?
Not directly no, but any extra income helps to boost my net assets, and /or reduce my net liabilities.

 

[Protocol]

I'm not buying that...

You made a very clear statement above, but aren't backing it up with any evidence.

Year on year, when the Government sold "X" number of Bank shares and netted "Y" income, you should then be able to refer to a minimum reduction in the national debt, of the same amount ( as "Y"). If you can't, then you must accept that the Government elected to use the funds for other purposes - while leaving the population to carry a higher level of national debt, then it would otherwise have to shoulder. That has long term implications for the nation.

What the Government later elected to do with the sale proceeds of the bank shares, is a different issue - perhaps it was invested in green energy, perhaps it was used to fund a payrise for the civil service etc.

Proceeds from the sales of any State asset are NEVER applied directly to the public debt.

Capital income is simply added to all other sources of capital income.

The Govt would not like its flexibility to be restricted.

 

[Dr Strangelove]

I'm not buying that...

You can work it all out yourself here.

 

[skrooge]

Had a less severe discount been imposed on the Banks that sold those loan portfolios, they would not have needed the same level of Government ball out, and the State might now be enjoying an even greater potential return on its remaining shareholding.

From the States perspective doesn't this - more or less - even itself out? Both the banks and NAMA were effectively State assets. All the discount decided was the allocation of profit/loss and capital across the two parts. A smaller discount would have meant lower bank losses (at the time) but also smaller (future) NAMA profits. Ultimately its a zero sum game.

If I remember correctly the discount applied was not as severe as it could have been. There was some reference to long term economic value over and above the prevailing market value (not that there really was such a thing given the state of the country). Any lower a discount might have started to look like a breach of EU state aid rules.

 

[Dr Strangelove]

From the States perspective doesn't this - more or less - even itself out?

Yes.

The issue was also around whether the bailed-out banks had the ability and willingness to manage the large debtors. The logic was that Nama would treat the large debtors harshly and consistently in order to maximise the recovery value.

This was the rationale for Nama that many people both in 2009 and afterwards couldn’t grasp.

 

[skrooge]

Yes.

The issue was also around whether the bailed-out banks had the ability and willingness to manage the large debtors. The logic was that Nama would treat the large debtors harshly and consistently in order to maximise the recovery value.

This was the rationale for Nama that many people both in 2009 and afterwards couldn’t grasp.

Agreed, NAMA was the surgery. While it left some scar tissue it ultimately lead to a faster recovery for the banks.

Between hubris and some version of PTSD the banks were not capable of grappling with the problem at the time. No one trusted them with anything.

Back to the earlier point on the State benefiting from it's investment given the banks recovery and current strong position. Maybe it's a little off topic but I think we need to acknowledge the broader role of the State in that and it's but necessarily all good.

That dominant position the Irish banks find themselves in is partly due to foreign banks exiting the market. They've left for a range of factors not all to do with Ireland but one of them is likely to be the ongoing difficulty in accessing collateral here. That reflects government choices when it's come to policy inacted (or otherwise). It was only when the ECB jacked up rates that it gave cover for the Irish banks to really take advantage of their position.

 

[Brendan Burgess]

NAMA had a few objectives.

1) It took the bad loans off the banks' books. It forced the banks to recognise the losses early but it then resulted in the state having to step in to inject capital.

2) It meant that the big property borrowers had one lender to deal with and not 4 or 5. If a borrower has multiple lenders, one of the borrowers might take pre-emptive action to be first in the queue thus causing a scramble. With NAMA, it allowed a strategic and holistic approach to be taken.

It was a huge operation and made some mistakes. But overall, it helped solve the problem.

 

[24601]

Bit off topic, but I don't think it warrants its own thread: has anyone written a book focussed on the work of NAMA that's worth a read?

 

[Purple]

I'm not buying that...

You made a very clear statement above, but aren't backing it up with any evidence.

Year on year, when the Government sold "X" number of Bank shares and netted "Y" income, you should then be able to refer to a minimum reduction in the national debt, of the same amount ( as "Y"). If you can't, then you must accept that the Government elected to use the funds for other purposes - while leaving the population to carry a higher level of national debt, then it would otherwise have to shoulder. That has long term implications for the nation.

What the Government later elected to do with the sale proceeds of the bank shares, is a different issue - perhaps it was invested in green energy, perhaps it was used to fund a payrise for the civil service etc.

Most of our debt was run up paying wages and welfare at rates we couldn’t afford. As everything really just gets lumped into the same pot in effect we are still using income from once off and unsustainable income sources to pay those wages and that welfare.

What we do with shares in AIB or any other assets we have is irrelevant in that context.

 

[MrEarl]

Most of our debt was run up paying wages and welfare at rates we couldn’t afford. As everything really just gets lumped into the same pot in effect we are still using income from once off and unsustainable income sources to pay those wages and that welfare.

What we do with shares in AIB or any other assets we have is irrelevant in that context.

Yup, but that's a problem, imho

 

[Sunny]

Bit off topic, but I don't think it warrants its own thread: has anyone written a book focussed on the work of NAMA that's worth a read?

No but they will. And it will be well worth the read. And probably a public inquiry or two as well....

 

[Purple]

Yup, but that's a problem, imho

It's THE problem, imho.