Make the depositors who were bailed out contribute to the retrospective guarantee?

[Brendan Burgess]

Morning

Small point. A week before the general bank guarantee, the limit for the ordinary deposit guarantee was raised from 20k to 100k per depositor. This was applied to 100% of each individual deposit in the banks covered by the scheme.

SM

Good point SM - but same principle

Charge the tax on the date the ordinary deposit guarantee was increased.

Same principle - those who benefited, should pay.

Howitzer said

Err, shouldn't you apply these haircuts to the bondholders of these institutes first before you apply them to the depositors? That's what would have happened if those banks had failed.

Agree. Charge the bondholders as well.

In practice, I suspect it would have to be limited to Irish resident depositors and bondholders

jpd and others said

Yup, guaranteed bank run for all amounts over the €20k. This is certainly what I would do if I had any money left in the country.

This is a retrospective charge on the amounts on deposit in September 2008. It would be charged whether you have money on deposit now or not. There would be no advantage in taking your money out now other than to evade your tax liability.

 

[Brendan Burgess]

Brendan, I always thoughts your posts had credibility - until now. You sound like Michael O'Leary trying to stir things up.

How did the depositors gain anything? The banks gained as the money remained in Ireland instead of moving abroad. Are you seriously trying to suggest if somebody had 50k in a bank that the Government can just take 3k? These are the people who did NOT borrow during the so called Celtic Tiger. Not everybody who have deposits gained through property price increases - some people were simply careful.

Am I missing something here? Please explain.

Hi Fender

Yes, you are missing a lot. But so have most commentators. If the government had not upped the €20k guarantee, those who had money on deposit in September 2008 in Anglo and Irish Nationwide would have lost everything in excess of €20,000. The other banks would have crashed too, but I suspect that there would have been something for the depositors eventually.

People say we "we bailed out the banks" but this is a meaningless expression. We bailed out the depositors and bondholders who would have lost out if there was no guaranteed. A lot of people are saying that we should not have bailed out the bondholders, but rarely say we should not have bailed out the depositors.

 

[Ceist Beag]

Removed comments - I've re-read what Brendan said in his original post and that coupled with his clarification above actually does make some sense to me now! I think it might be hard to actually put this into practice tho (applying a tax retrospectively).

 

[Brendan Burgess]

Hi Ceist

I am proposing that those who had their savings retrospectively guaranteed by the Irish government should contribute to the cost.

At the moment, all taxpayers and citizens are paying for the cost of guaranteeing the amounts over €20,000. Most people who have in excess of €20,000 on deposit are better off. So you have the poor subsidising the rich. It's crazy.

 

[aristotle]

Its one thing to increase taxes but to take away a portion of peoples savings (which were already taxed when earned) would lead to riots.

 

[aristotle]

Hi Ceist

I am proposing that those who had their savings retrospectively guaranteed by the Irish government should contribute to the cost.

At the moment, all taxpayers and citizens are paying for the cost of guaranteeing the amounts over €20,000. Most people who have in excess of €20,000 on deposit are better off. So you have the poor subsidising the rich. It's crazy.

The poor subsidising the rich? Its not that simple, there are many people with 20k+ on deposit that also have huge negative equity and other big loans.

 

[Firefly]

If the government had not upped the €20k guarantee, those who had money on deposit in September 2008 in Anglo and Irish Nationwide would have lost everything in excess of €20,000.

Brendan, By that rationale, as the guarantee is now 100k does this mean that those with deposits > 100k have lost everything > 100K?

People say we "we bailed out the banks" but this is a meaningless expression. We bailed out the depositors and bondholders who would have lost out if there was no guaranteed. A lot of people are saying that we should not have bailed out the bondholders, but rarely say we should not have bailed out the depositors.

I made this point a few months ago and it was rubbished. I still think it's the case.

 

[Brendan Burgess]

Brendan, By that rationale, as the guarantee is now 100k does this mean that those with deposits > 100k have lost everything > 100K?

Hi Firefly

I am proposing that those with deposits/bonds in excess of €20k would lose half their investment in Anglo and Irish Nationwide. Not that they lose everything. If the 20k had not been increased to 100k, and then guaranteed, they would have lost everything.

I made this point a few months ago and it was rubbished. I still think it's the case.

I certainly hope that I did not rubbish this? I have said it a lot, but people don't seem to want to face up to it. If you look at some of the earlier posts on this thread, two posters have seriously suggested that the guarantee hasn't benefited the depositors. It's very strange.

Fender: How did the depositors gain anything?

Gulliver: I, as a depositor on a guaranteed bank have not benefitted in any way

 

[rekhib]

The devil is in the detail here. The second the Irish government announces that all depositors will have to pay a percentage of their deposit to ensure their money is guaranteed, you should start writing the country's epitaph. I can't think of a quicker way to bleed the country dry. Ridiculous.

@Howitzer - Agreed, it's the bondholders who benefited most because they'd come before depositors when losses on defaults are being absorbed.

@Chris - The banks are already charged a rate for the deposit guarantee, i.e. CDS prices pushing up their borrowing rates. If CDS prices weren't being held because of EU/ECB funding for these banks (as aristotle said) you're right, they wouldn't be able to pay the rates that their actual position demands.

@Brendan - Do you think the deposit guarantee scheme would have more credibility or less if the government had access to 10% on >E20k? Aside from a run on deposits in anticipation of similar antics in the future or an increase in the percentage, the country's cost of borrowing would increase because it implies that the guarantee is worth(less). Taxing capital over income is very red.

 

[Sunny]

The devil is in the detail here. The second the Irish government announces that all depositors will have to pay a percentage of their deposit to ensure their money is guaranteed, you should start writing the country's epitaph. I can't think of a quicker way to bleed the country dry. Ridiculous.

@Howitzer - Agreed, it's the bondholders who benefited most because they'd come before depositors when losses on defaults are being absorbed.

@Chris - The banks are already charged a rate for the deposit guarantee, i.e. CDS prices pushing up their borrowing rates. If CDS prices weren't being held because of EU/ECB funding for these banks (as aristotle said) you're right, they wouldn't be able to pay the rates that their actual position demands.

Bondholders wouldn't come before depositors.

I don't understand your point about CDS prices.

 

[canicemcavoy]

Hi Ceist

I am proposing that those who had their savings retrospectively guaranteed by the Irish government should contribute to the cost.

At the moment, all taxpayers and citizens are paying for the cost of guaranteeing the amounts over €20,000. Most people who have in excess of €20,000 on deposit are better off.

I imagine many people like myself with deposits are those who didn't get involved in the property bubble frenzy. So you're basically saying that those who were wise and didn't buy should now pay for those who did. €20,000 on deposit isn't necessarily someone rich saving for a yacht - it might be the 20 year saving of those waiting to buy a house.

And leaving aside whether or not it's right or wrong - you do realise as soon as this is announced, such deposit would flee?

 

[Firefly]

I certainly hope that I did not rubbish this?

Not by you and perhaps "rubbished" was a bit strong, but it was certainly argued against a bit.

 

[Gervan]

I was horrified when I first read Brendan's suggestion, but now I see what he's getting at.
As someone who went round in the months before the "unforeseeable" crash repositioning funds to take best advantage of the original guarantee I did feel a bit peeved that people who had not had that foresight were "rewarded".
But I am afraid to agree with this proposal in case the blow would fall on current deposits. Hang on a bit while I move some more offshore.

 

[ontour]

Is there not more benefit is encouraging people to put their savings in Irish banks at low interest rates rather than instilling fear that they could and should lose some or all of that money?

A run on deposits will either force the bank to borrow internationally at very high rates or collapse the bank. The depositors are the people who were prudent but now it seems de rigeur to vilify anyone who has savings.

The banks won't collapse because of the depositors, they will collapse because of mortgage default.

Do the opposite, introduce an 8 year SSIA underwritten by the state which gives a bonus interest of 8% at the end of 8 years. The banks involved have to fund it but the state underwrites it and sure if all the banks go bust, the state probably will too so the underwriting is unlikely to cost anything. Positive is a potential rush of funds in to Irish banks.

 

[Brendan Burgess]

So you're basically saying that those who were wise and didn't buy should now pay for those who did.

That seems very convoluted.

You had money in an Irish bank. it was guaranteed up to €20,000.

I don't want to pay for your guarantee and I have been forced to do so.

You are not paying for those who did buy? They have not only lost money on the value of their homes but now they have to subsidise you as well.

 

[Howitzer]

It was guaranteed up to 100K.

 

[ontour]

They have not only lost money on the value of their homes but now they have to subsidise you as well.

It is a matter of opinion, you see the mortgage holders as the victims, others see them as the idiots that caused this mess by spending more than they could afford on property with inflated prices.

Savers in credit unions are getting no dividend because of the actions of the borrowers. Are those savers subsidising the borrowers?

Borrowers with tracker mortgages are paying less for their loans than it is costing the bank to fund the debt, if the banks do survive...(pause for air..) the gap will have to be filled somehow and lower deposit rates will form a part of that. Depositors paying for the perks of the borrowers again.

 

[Sarn]

As pointed out above, the banks were already contributing to a guarantee prior to the extension of the guarantee to all funds. I know that my deposits were spread around in order to be covered by various guarantees (Irish, UK, Danish, Dutch). The thought of losing any of my hard earned and saved money made me cautious.

However, can anyone see the government picking a particular date? In all probability they would simply look at the maximum funds held at some point in time in an Irish financial institution, and apply it. The extension to the guarantee (and higher rates of interest) encouraged me to move money back to Irish banks/building societies which would have resulted in sums over €20,000 at particular stages.

Most people who have in excess of €20,000 on deposit are better off. So you have the poor subsidising the rich. It's crazy.

Yes, I might be better off, but I worked damn hard for that money and paid my fair share of tax on it. To retrospectively target people who were given no choice to opt in or out would be unfair. Also, people may have had in excess of €20k at some point, but due to changes in their circumstances that balance could now be nil or worse. Where would they get this 10% from? A lot can change in two years as we all have witnessed. If they want to introduce this tax going forward, fair enough. My money will not be here to be taxed further.

 

[scrooge1]

this wouldnt work as depositors would remove their money and there would be a run on the banks causing a total banking collapse.

 

[Brendan Burgess]

It is a matter of opinion, you see the mortgage holders as the victims, others see them as the idiots that caused this mess by spending more than they could afford on property with inflated prices.

Hi ontour

Not at all. Canice raised the issue of mortgage holders and I responded to it. He seems to think that he is being asked to pay for the mortgage holders which I am not doing.

The people who had money on deposit got a retrospective guarantee which has cost the taxpayers a fortune. I am just saying that those who benefited, should contribute to the cost.