Why should the govt. save the banks?

ang1170

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Can someone please educate me on this?

I can understand why the govt. would want to protect depositors, but why would they feel the need to protect an individual bank?

What other business gets a state guarentee?
 
I can understand why the govt. would want to protect depositors, but why would they feel the need to protect an individual bank?

If a bank, Anglo Irish for the sake of argument, went bust then the liquidator would look to call in its loans to developers, the developers would be unable to pay, they in turn would declare bankruptcy and the whole house of cards that is the Irish economy follows soon after.

The whole scheme was devised to prop up the banks and hide the horrible state of the Irish banks loan book. Protecting depositors was just a fig leaf to cover the governments complicity in the under regulated marketplace that has lead us all to this hell.

In years gone by heads would have rolled for this; literally!

http://en.wikipedia.org/wiki/Guillotine
 
If a bank, Anglo Irish for the sake of argument, went bust then the liquidator would look to call in its loans to developers, the developers would be unable to pay, they in turn would declare bankruptcy and the whole house of cards that is the Irish economy follows soon after.

That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.

So what if over-extended developers go bust, and drag a couple of banks down with them?

Really, really tough on the vast majority of the bank's employees of course, but it's nothing different to those employeed by assorted muti-nationals that have closed up shop over the years.

Just why are the banks different?

By the way, I do know the answer of course (govt. complicity and protecting their pals in the construction industry), so I guess the real question is why isn't everyone up in arms?
 
That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.

So what if over-extended developers go bust, and drag a couple of banks down with them?

Do you really want to see our banks go bust like Northern Rocks with people scrambling to get their money out? I think it was a very smart move by our government guaranteeing our banking system and smart timing too. All the same, 400 billion is a staggering amount of money, it shows you how much greedy faith our bankers had in property developers, nobody saw it coming. Since inter bank lending has dried up the banks had no alternative but to seek governments help. I do think that the heads of these banks should be held accountable, the signs have been there up to a year ago, were they all caught up in the spiral of greed? The financial regulator should also be held accountable. However its happened and we have to move on, hopefully to better times and more regulation and accountability, but B. Cowen and B. Lenihan did the right thing, not like the bumbling Gordon Browne who has/is handling their own financial affairs disastrously...and who was raging when people started putting money into irish banks.........great to get one over on the Brits though:)
 
No Elphaba, I don't want to see our banks go bust like Northern Rock. I want to see our banks go bust like Lehmans Brothers, where the government only has responsibility up to the 100k deposit limit and the rest is liquidated.

There are plenty of banks in Europe or the rest of the world that the retail operations of out banks could be sold off to. Or the post office could be beefed up to run a banking system while the current crisis plays out.

Oh, and by the way, lots of people saw it coming.

And before you get too smart criticising Gordon Brown, he is refusing to take on a liability of 1.9 trillion STG. That equates to 2.43 trillion EUR or 39k EUR per head of population as the risk to public finances is too great. Our government has taken on a liability of 400 bn EUR or 100k per head of population. Now, who is the clever one in this? 2Brians or 1Brown?

Oh, and your "great to get one over on the Brits" comment makes me feel quite queasy.
 
Right now it looks like the government has made the right move. Love them or hate them, the banks are the heart of our economy. Last week that heart was close to failing. The move by the government creates stability and restores confidence.

Finally, any talk of 'getting one over on the Brits' is pure rubbish. Britain is the largest export market for Irish traders. We depend on them more than they do on us.
 
That's what staggers me: taxpayers seem quite happy to prop up the very people who caused the problem in the first place.

So what if over-extended developers go bust, and drag a couple of banks down with them?

Much and all as most people would like to punish the banks, there is no point in cutting off our nose to spite our face. I think most people fail to appreciate how serious this crisis is. If the banks and developers were to fail, we might well gloat because of their past greedy antics, but we would be gloating from a sinking ship. Our economy is already in serious trouble. We need to do everything we can to prevent our economy going bust. And this government move will more than likely end up costing us nothing anyway. Something had to be done, and I am sure politicians didn't delight in 'bailing out the banks' - but they knew they had little choice. I for one am glad they had the guts to stand up and do something. It increased my (very little) faith in politicians.
 
An article in last Sunday's Mail on Sunday showed all the TDs that had shares in Irish banks. Quite interesting reading.
 
An article in last Sunday's Mail on Sunday showed all the TDs that had shares in Irish banks. Quite interesting reading.

To be fair, I would be surprised if there were many people in this country who weren't shareholders in Irish Banks either directly or through their pensions. Were they implying some conflict of interest or something?
 
To be fair, I would be surprised if there were many people in this country who weren't shareholders in Irish Banks either directly or through their pensions.
Including occupational schemes, private policies (RACs, PRSAs, buy out bonds) and the NTMA managed Pensions Reserve Fund for state pensions. And don't forget the many people with non pension based direct or indirect (e.g. unit linked funds etc.) shareholdings in banks too.
 
Well the ISEQ is simply falling with the rest of the equity markets. In addition, the competitive advantage currently enjoyed by Irish banks when it comes to attracting deposits may well disappear if the UK makes a similar guarantee (and there is considerable pressure for Darling to do so).

As I see it the bank rescue/bailout, or whatever you call it, can play itself out in one of two ways.

1: The banks use this period of state protection to clean up their balance sheets so they can borrow again without state support. This would involve a lot of economic pain for the country as the banks renegotiate with those companies/developers/individuals who are behind on their repayments. If the loan losses are sufficiently large from this process then you can expect the banks to cancel dividend payment and also seek to raise new capital.

2: The banks muddle along and only only admit/acknowledge a minimum of loan losses hoping that ECB rate cuts and an eventual upturn in the global economy will eventually stabilise/lift property prices. If this is the case then the state guarantee would probably need to be extended because no one would lend to the Irish banks at whatever markets rates are at that time.
 
Much and all as most people would like to punish the banks, there is no point in cutting off our nose to spite our face.

Agreed.

I think most people fail to appreciate how serious this crisis is.

I would include the taoiseach, the minister for finance, the financial regulator and the governor of the central bank among these people. Anyone with any appreciation of the seriousness of the crisis would not have put the solvency of the entire country on the line.

If the banks and developers were to fail, we might well gloat because of their past greedy antics, but we would be gloating from a sinking ship.

This statement implies two things, neither of which I concur with

1. That it is possible to prevent over-leveraged banks and developers from failing.

2. That to somehow rescue the banks and developers would solve the economic problems of the country.

Our economy is already in serious trouble. We need to do everything we can to prevent our economy going bust.

Or, if we consider it certainty that banks and developers will go bust, we need to minimise the fallout and prevent it from bankrupting the country. The state guarantee of banks has the opposite of this effect.

And this government move will more than likely end up costing us nothing anyway.

I disagree. Many of the €100 billion in loans made to developers are practically worthless and are unlikely to ever be repaid. Perhaps you could outline some of the reasoning behind your statement.

Something had to be done, and I am sure politicians didn't delight in 'bailing out the banks' - but they knew they had little choice. I for one am glad they had the guts to stand up and do something. It increased my (very little) faith in politicians.

Nothing scares me more than to hear a politician state that "something had to be done". In this instance I would have preferred if they did nothing.
 
room305

From reading your post it looks like you believe only banks and developers would suffer if a bank or part of our banking system collapsed.

What about the other not construction related business with money on deposit or invested in the banking system are you saying they should loose all their money as well? What about all the jobs? If one of the banks collapsed you could easily be talking 10s of thousands of job losses.

The government stepped in because contrary to what you seem to be saying the banking system is the life blood of nearly all business activity not just the bloody builders.

I think the people who were in charge of the banks and the regulators need to be reprimanded, but right now the number one priority is saving our economy.
 
room305

From reading your post it looks like you believe only banks and developers would suffer if a bank or part of our banking system collapsed.

What about the other not construction related business with money on deposit or invested in the banking system are you saying they should loose all their money as well? What about all the jobs? If one of the banks collapsed you could easily be talking 10s of thousands of job losses.

The government stepped in because contrary to what you seem to be saying the banking system is the life blood of nearly all business activity not just the bloody builders.

I think the people who were in charge of the banks and the regulators need to be reprimanded, but right now the number one priority is saving our economy.

The argument put forward by Alan Dukes on RTE Questions and Answers was because pension funds are invested in the banks and if the banks go belly up then pensions will suffer but this is nonsense because stocks and shares around the whole world are suffering and pensuion funds are supposed to diversify across a range of asset classes and sectors. No pension fund should have more than a tiny % invested in banks after the last 2 years of stock market turmoil.
 
I think the people who were in charge of the banks and the regulators need to be reprimanded, but right now the number one priority is saving our economy.

"You've been a very naughty boy!"

I can see that working, OK........
 
The argument put forward by Alan Dukes on RTE Questions and Answers was because pension funds are invested in the banks and if the banks go belly up then pensions will suffer but this is nonsense because stocks and shares around the whole world are suffering and pensuion funds are supposed to diversify across a range of asset classes and sectors. No pension fund should have more than a tiny % invested in banks after the last 2 years of stock market turmoil.

Your statement is true to a point. Many Irish fund managers do not adequately diversify. Despite the relatively small weight of Irish equities in any of the pan-European equity indices, most Irish fund managers are still heavily overweight Irish equities (read the banks).

Indeed, just look at the list of shareholders in the main banks. Bank of Ireland Asset Management is a top three shareholder in AIB, BOI and Irish Life. Writing down the equity of the Irish banks to zero would have significant impact on Irish pensions.
 
There was a good analogy in the Sunday Times when discussing how people say banks should be allowed fail and they deserve what they get. They pointed out that it was like not allowing the fire brigade put out a house fire caused by the owner smoking a cigerette and therefore putting the neighbouring houses at risk of burning down just to teach the houseowner a lesson for his carelessness.

I know it galls people but banks are an integral part of the economy. They are not ordinary companies and hence they should have in theory being strongly regulated to make sure this mess didn't occur. They weren't and now we are in trouble. Do we let them all go to teach them a lesson and face the consequences? Does anyone really realise what the consequences are for a Country that doesn't have a functioning financial system? Do you really think you could allow Anglo Irish Bank fail and the other banks could continue on fine and dandy?

By the way, when books are written about this crisis in a couple of years, the US decision to allow Lehman Brothers default on its obligations will be seen as a major mistake.
 
"You've been a very naughty boy!"

I can see that working, OK........

They were very naughty boys indeed.
But what do you propose?
My gut feeling is that no heads will roll because of this.
It would be very difficult to identify any law that has been broken.
Unfortunately being greedy alone is not against the law, if it was half the country would be in prison.

The Irish banks know they can blame the whole crisis on American sub prime lending. They probably feel pretty lucky to have been given this get out of jail free card.
 
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