I have summarised the answers provided to the question in the thread title. I have also added counterarguments that have been posted. Please post any more reasons you have not to let the banks go bust and any more counterarguments.
People with large honestly earned cash deposits may lose out
Counterarguments:
1. There will be enough money to pay all depositors in full once the subordinated debt and shareholder debt is written off. eg AIB has 180bn in assets and 85bn in depositor/senior debt.
2. Putting money in a bank is not the same as locking it in a box. The bank lends it out and if they lend it stupidly then it's gone.
It shouldn't be seen as a gamble to keep your life savings in a bank
Counterarguments:
1. It is a gamble. A low risk gamble. Risk free banking is impossible. Keeping your money in a box is also risky.
We need Irish banks because foreign banks may not supply credit.
Counterarguments:
1. Banks lend money to make a profit. They don't lend out of patriotism or kindness. If Irish people are starved of credit the market will supply credit at a price.
2. It would be better to have foreign than Irish banks in Ireland because then nobody would suggest we save them if they become insolvent.
Senior debt ranks equally with depositors so they can't be hit
Counterarguments:
1. senior debt is only 7% of AIB assets so they can afford to repay it along with depositors.
Knock on effects on Irish govt borrowing
Counterarguments:
1. Banks are rated separately from governments by rating agencies
2. Irish govt debt might be better rated if it wasn't lumbered with 70bn of bonds issued to save the banks.
3. Bondholders understand they have risks - that's reflected in the coupon and tradable value.
4. Some junior bondholders are insured with credit default swaps so will not care if the bonds are cancelled
Many bank staff would lose jobs
Counterarguments:
1. Many new jobs would be created in the new banks that enter the market
2. job losses are bad but the alternative is far worse
Pension funds invested in Irish banks would lose value
Counterarguments:
1. They have huge losses from peak already so not much further to fall.
2. No pension should be heavily invested in one sector in one small country
3. The alternative is far worse.
Foreign banks appear to be pulling out of Ireland
1. Yes that's because we are planning to stuff their competitors full of money as a reward for insolvency.
A run of funds out of the country
Counterarguments:
1. This has already happened.
2. New clean banks would attract depositors more than the current shower.
Cross collateralised loans would bring down all the banks if the small banks fail
Counterarguments:
1. Yes, so we let them fail if needs be. Their mistake for accepting securities that were already spoken for.
If depositors lose money it will disincentivise people from working hard and saving money in future
Counterarguments:
1. The alternative is a bigger disincentive to work as it will require lower salaries and higher taxes for worse services for decades. Our children will be wage slaves toiling to repay the debts incurred by the banks.
Banks are systemic national service providers like utility companies. We wouldn't let a utility company fail.
Counterarguments:
1. We do let utility companies fail and when they do, their assets are sold to new companies that provide the same service without any of the debts of the old company. The shareholders and the creditors of the utility company lose their investment but the consumer is protected.
Bank failure would be disruptive to the economy: no cheques, credit cards, no atms, general panic.
Counterarguments:
1. We have had interruptions in banking service for months at a time in the past during strikes.
2. The alternative is far worse, costs much more and takes longer.
The max cost is 20bn over 10/15 yrs which is affordable.
Counterarguments:
1. The IMF says its 35bn
2. Nobody really knows what it is.
3. 20bn is a lot to pay and get nothing in return
People will stuff money in mattresses if they don't trust the banks, drying up the credit supply
Counterarguments:
1. You get no return for mattress stuffing
2. matresses are not risk free
3. liquidity for credit does not have to come from Irish people.
We can't rely on foreign banks - look at how nasty accBank behaves / Everyone else is engaging in banking nationalism so we should too
Counterarguments:
1. accBanbk is doing what is right. No foreign bank will operate here if we tell them that their loans aren't repayable.
2. Foreign banks will lend to Irish people if they think they will repay the loans with interest. The same way that foreign car companies sell cars to Irish people.
3. New banks can start in Ireland to capture marrket share.
NAMA is not immediate cash out the door and it keeps out the IMF
Counterarguments:
1. NAMA is 60bn of added debt plus interest
2. Doubling our debt (again) is not a good way to keep the IMF at bay
The IMF would be running the country - and as a result minimum wage and social security would be a fraction of what they are now, and half the public sector would have been made redundant
Counterarguments:
1. Half the public sector is already redundant but still drawing salaries
2. Minimum wage is higher than the equivalent in france, germany or the UK. We can't afford it and it's preventing companies from hiring staff.
3. Some welfare rates are comparatively high such as JSA (3X the UK rate)
4. The IMF have to be invited in by us
Small banks can fail but some are too big to fail
Counterarguments:
1. 'too big to fail' is just a slogan.
2. by the same token we could say that the banks are 'to expensive to save'