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Government undertakes to underwrite all domestic financial institutions
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I'm guessing he reacted well to criticism from the studentDavid McWilliams wrote: »I heard he got burned by a student in class today. How did his morale look?
I thought he came across quite well on the programme. A bit aggressive, though. I think you guys pepped him up for it :pac: 0 -
Everybody is focussing on this 400bn number. I think we should move away from this given that in a doomsday scenario if the govt had to assume these liabilities they would also take on the assets.
Also the more the govt guarantees the more confidence there is in the Irish banking system, the more the banks can dig themselves out of any hole they may be in, and as a result the less likely the govt will have to pay anything.
The alternatives to this plan would be very unpalatable - In theory do they let a bank go under - this would undermine confidence in the other banks and there would be a domino effect. What then? - Thousands unemployed - reduced tax revenue - how would the economy get going again given that there would be no funding available to businesses/individuals?
The best plan that other countries have managed prior to the Irish one was that of Nationalisation or at least partial nationalisation. The Irish plan is being applauded internationally as "getting it right" and other nations are looking at doing the same0 -
It seems from today’s reading that this Vladimir Putin style secret deal was done to save 1 bank in particular.
The one with little or no retail presence, heavily involved in management of the money of the rich and elite in our society, lender to large commercial property interests in Ireland & the UK and backed by some of our richest people in insurance.
Why the government did not choose to nationalise, then leave the other banks pick over the carcass, as has been done everywhere else only they can answer. This is not without risks however we are not betting the whole country on one sector; so much for that famous nugget of financial wisdom a diversified portfolio. Where is the “moral hazard” of bad management?
Instead we have adopted the approach of one pupil behaving badly in class and we will give sweets to the whole class as a reward! Just look at today’s bank share price rises while other stocks in the market get no assistance; C&C bad summer cider sales down, tough similar Waterford Crystal; recession luxury goods market down, dollar killing Competitiveness, tough, I could go on and on
As of this morning we have what they call “primary legislation” which basically gives our minister of finance full powers of use as he sees fit behind closed doors with his pals in the central bank & financial regulator to do what he likes, no dail supervision, no reporting to any dail subcommittee, no public disclosure until after the event.
This is like what Paulson originally asked for in the US, he did not get it. But or lame democracy will just toe the line run with this media wave that it has to be done for the good of the country without quibble. This is too much power and money for 1 man.
This should not be voted into legislation until every tiny detail is trashed out to the last sentence, regulations doubled and every bank CEO reporting to the bi-partisan dail finance committee every 4 months with up to date details of their current balance sheets and loans books provided, then this committee reports to the minister for finance where a decision can be made; I would have no issue with this being kept secret however the committee has to be across all parties.
The simple problem I have is we do not have any real facts; this bill was not published on the Internet like the US so us ordinary peasants we just have to do as our leaders instruct, socialism for the rich and capitalism for the poor the new mantra.
I assume worst case scenario would be its addition to our national debt where we would have to try and sell government bonds and borrow to finance?!
Does anyone not see these issues with our new secret society?0 -
andrewdeerpark wrote: »It seems from today’s reading that this Vladimir Putin style secret deal was done to save 1 bank in particular.
Does anyone not see these issues with our new secret society?
so in the interests of transparency you would rather have let that bank go under and the knock on effects filter throughout the economy? do you have any ideas of the woes it would cause to the economy should one of the big Irish banks go under?0 -
rrpc
The government will never have to pay out on this. The problem was not that banks are about to collapse, but that the banking system had become completely dysfunctional with no long term money being available to Irish banks on the interbank market.
If the government will never have to pay what are they offering? There must be some probability they will have to pay.
So if banks do not trust each other enough to lend money why should we trust them? Surely they know lending better then us.0 -
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In short Yes.
We either have a true free market or socialism. We could then cleanup the residue with nationalisation of the one failed bank.
Where did this myth come from that ONE bank failing in Ireland would collapse the entire system, banks have failed in countries worldwide however the banking system remained, are we so different?
Remember at the height of the property boom the central bank was pleading with the banks not to give large multiple of earnings loans, 100% mortgages and stupid lending however the banks just ignored these guidelines and turned in huge profits
No in times of banking hardship they are running for cover to the central bank and minister.
I stand corrected on the legislation it is at
http://www.oireachtas.ie/viewdoc.asp?DocID=10023
Only 10 pages and all powers to the minister, what a sham.0 -
Security. Banks operate on trust and confidence. Without these, the system fails and the economy with it. It's a simple stark reality.If the government will never have to pay what are they offering? There must be some probability they will have to pay.
It's not just trust in the banks, but trust in the Irish economy that's at stake here. The banks are at the frontline of that trust equation because they have invested their funds in the economy through business loans. If other banks don't trust the viability of those loans and by extension the Irish economy, the first thing to shut down will be the banks swiftly followed by the economy.So if banks do not trust each other enough to lend money why should we trust them? Surely they know lending better then us.0 -
leninbenjamin wrote: »so in the interests of transparency you would rather have let that bank go under and the knock on effects filter throughout the economy? do you have any ideas of the woes it would cause to the economy should one of the big Irish banks go under?
I agree. If we were in normal times with no international credit crisis this may have been the correct approach. The reality is that if one bank (let's just say the one with no Retail presence that was suggested) was allowed to go there would be huge impacts on the others and they too would fall like dominos (See Fortis/Dexis, Northern Rock/HBOS/Bradford and Bingley, Lehmans/Washington Mutual/Wachovia...)0 -
do you have any ideas of the woes it would cause to the economy should one of the big Irish banks go under?
He suggested nationalising that particular bank, not letting it fail.0 -
Banks failing in isolation are not new or cause for concern. The collapse of the entire banking system for no good reason other than lack of trust should be worrying.andrewdeerpark wrote: »In short Yes.
We either have a true free market or socialism. We could then cleanup the residue with nationalisation of the one failed bank.
Where did this myth come from that ONE bank failing in Ireland would collapse the entire system, banks have failed in countries worldwide however the banking system remained, are we so different?
And who was at the forefront of these 100%+ mortgages? Irish arms of UK banks were the first to start that ball rolling and other banks had to jump in or lose business. I'd say if you went through these forums you'd find plenty of poeple complaining that some Irish banks were not following suit.Remember at the height of the property boom the central bank was pleading with the banks not to give large multiple of earnings loans, 100% mortgages and stupid lending however the banks just ignored these guidelines and turned in huge profits
Eaten bread is indeed soon forgotten.0 -
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I agree. If we were in normal times with no international credit crisis this may have been the correct approach. The reality is that if one bank (let's just say the one with no Retail presence that was suggested) was allowed to go there would be huge impacts on the others and they too would fall like dominos (See Fortis/Dexis, Northern Rock/HBOS/Bradford and Bingley, Lehmans/Washington Mutual/Wachovia...)
[FONT="]Sorry the banking system in Belgium, UK, US and Holland is still working last time I heard. Ok the governments have a bit of work to do cleaning up the system (US in particular), however the domino failure theory has not been proven with any substantial argument so what makes it likely in Ireland right now?
How do you reconcile keeping bad business standing in a free market? Are we going down the Japanese banking model of the 90's with defunct banks propped up by the government? [/FONT]0 -
He suggested nationalising that particular bank, not letting it fail.
And how much would that cost? Why wait for disaster when you can head it off quickly?
I think the Minister has done a fine job here. In one move he has restored faith in the Irish economy (and that's what this is about, make no mistake) which could create a 'bubble' of economic stability within an unstable world market.
If people want to run from their own banking systems for fear of collapse, then we have provided somewhere for them to go safely.0 -
And who was at the forefront of these 100%+ mortgages? Irish arms of UK banks were the first to start that ball rolling and other banks had to jump in or lose business. I'd say if you went through these forums you'd find plenty of poeple complaining that some Irish banks were not following suit.
Eaten bread is indeed soon forgotten.
so the peasants should be glad that irresponsible lending by the banks - who are the experts in this situation - pushed up housing prices, and forced the increasing necessity of 100*+ mortgages. Now the peasants pay up.
There is a case here for massive criminal negligence. I am paid less than bankers, have more intelligent work to do, but am held to account if things fail. Doctors can be sued. A banker who puts the system at risk, and his own bank at risk ( sending shareholder value to zero if it fails, or get nationalised) needs to be subject either to criminal charges of negligence, or at the very least civil damages ( shareholders should get the bonuses back, dont you think?)0 -
andrewdeerpark wrote: »In short Yes.
We either have a true free market or socialism. We could then cleanup the residue with nationalisation of the one failed bank.
Where did this myth come from that ONE bank failing in Ireland would collapse the entire system, banks have failed in countries worldwide however the banking system remained, are we so different?
Myth? do you have any idea how large the Irish banks market share are? are you completely ignorant to how dependent this economy is on the large banks here? if one goes under there simply will be no one big enough to be able to clean up the mess.andrewdeerpark wrote: »Remember at the height of the property boom the central bank was pleading with the banks not to give large multiple of earnings loans, 100% mortgages and stupid lending however the banks just ignored these guidelines and turned in huge profits
No in times of banking hardship they are running for cover to the central bank and minister.
your understanding of the current situation for Irish banks is very poor (mine isn't fantastic either but i'll give it a stab nonetheless)
so far the toxic debt situation has yet to really hit us like it has the U.S. The current situation is that Irish Banks cannot get money on the international financial markets (hence the 'credit crises') as banks have lost confidence in each other, and Ireland looks particularly bad due to the dependency on the construction sector. as an example; this means they cannot fund their day to day activities. that means small to medium sized businesses cannot get access to an overdraft which means they cannot meet their payroll and the company goes under. The governments move restores confidence in the Irish banking system and now, hopefully, normal trade will resume with the Irish Financial system. letting one bank go under simply isn't an option, as no bank would be in a position to take over if the current market conditions remained the same. instead it would just drag down a large proportion of the economy with it. would you like to see that then?0 -
[FONT="]asdasd point is bang on, where is the moral hazard for these CEO and banking boards. All they have to do now is turn up at a few meetings sign some documents have a few rounds of golf and enjoy the good life.
With fear of failure removed I believed I am qualified to run a bank. Knowing my business cannot fail, I won't go to jail and I will have the minister of finance’s mobile number in my phone when any problems arise.
How many distressed homeowners & small businesses can call the minister of finance late at night with their problems and get a bailout?
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And how much would that cost? Why wait for disaster when you can head it off quickly?
I think the Minister has done a fine job here. In one move he has restored faith in the Irish economy (and that's what this is about, make no mistake) which could create a 'bubble' of economic stability within an unstable world market.
If people want to run from their own banking systems for fear of collapse, then we have provided somewhere for them to go safely.
+1
And it hasn't cost a cent.so the peasants should be glad that irresponsible lending by the banks - who are the experts in this situation - pushed up housing prices, and forced the increasing necessity of 100*+ mortgages. Now the peasants pay up.
There is a case here for massive criminal negligence. I am paid less than bankers, have more intelligent work to do, but am held to account if things fail. Doctors can be sued. A banker who puts the system at risk, and his own bank at risk ( sending shareholder value to zero if it fails, or get nationalised) needs to be subject either to criminal charges of negligence, or at the very least civil damages ( shareholders should get the bonuses back, dont you think?)
I believe the point was it was the UK banks Irish operations that started the ball rolling, and they aren't being covered by the guarantee, so they hardly being rewarded for it. The Irish banks were playing catch up and as a result they managed to make a bad problem worse.
It's a sh!t storm that was caused by lack of specific legislation, or at the very least, more central bank oversight. Everyone fcuked up, the banks, the regulators, the government.... I don't think anyone is going to debate that.
But it's done now. There's no point in letting things get even worse to prove a point. We fcuked up. All of us. Everyone here knows it. All we can HOPE to do is learn from those mistakes. The thing is tho, letting a bank fail isn't going to make us any less likely to change our behaviour in future, imo. I reckon all it'll do is create public resentment towards the banking sector in general. Which we don't want.0 -
The number of 100%+ mortgages in the Irish system are so small in the overall scheme of things as to be meaningless in the current discussion. If every second mortgage held by - for example: AIB were to default, it still wouldn't impact on their viability as a going concern although it would hurt their bottom line for a while. That's not what this is about, most banks here are highly diversified and not completely exposed to one particular market as is the case in the US.so the peasants should be glad that irresponsible lending by the banks - who are the experts in this situation - pushed up housing prices, and forced the increasing necessity of 100*+ mortgages. Now the peasants pay up.
What issues of negligence? No bank here is saying they have to be bailed out. What they are looking for is government backing for the Irish economy which is in need of cash, which at the moment is not forthcoming because of serious problems in other jursidictions.There is a case here for massive criminal negligence. I am paid less than bankers, have more intelligent work to do, but am held to account if things fail. Doctors can be sued. A banker who puts the system at risk, and his own bank at risk ( sending shareholder value to zero if it fails, or get nationalised) needs to be subject either to criminal charges of negligence, or at the very least civil damages ( shareholders should get the bonuses back, dont you think?)0 -
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andrewdeerpark wrote: »[FONT="]asdasd point is bang on, where is the moral hazard for these CEO and banking boards. All they have to do now is turn up at a few meetings sign some documents have a few rounds of golf and enjoy the good life.
With fear of failure removed I believed I am qualified to run a bank. Knowing my business cannot fail, I won't go to jail and I will have the minister of finance’s mobile number in my phone when any problems arise.
How many distressed homeowners & small businesses can call the minister of finance late at night with their problems and get a bailout?
[/FONT]
So tell us, how much has this "bail out" cost so far??
Because I'd be personally willing to put my hand into my pocket and give the exact same amount to any homeowners or SME's who are in trouble.0 -
So tell us, how much has this "bail out" cost so far??
Because I'd be personally willing to put my hand into my pocket and give the exact same amount to any homeowners or SME's who are in trouble.
Another major point in my argument we simply do not know? We are sewing 2 year seeds in the dail right now with uncapped powers being given to the minister for finance.
I would love some solid details as I asked in my original post with serious regulation.
It seems to me we are giving the guarantee before the regulation. Bad and all as the banks were they at least checked people out some bit before handing over money.
We are giving a blank cheque book to the banking system with no amount filled in and no name just fully signed. Kinda like the olde FF days!
Madness0 -
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Having the ability to call in the Minister and actually doing it would be worlds apart in terms of a bank executives ideal choices. This guarantee only lasts for two years. Any bank that would have to call on this guarantee in that time would most likely not continue to exist in it's current form.andrewdeerpark wrote: »asdasd point is bang on, where is the moral hazard for these CEO and banking boards. All they have to do now is turn up at a few meetings sign some documents have a few rounds of golf and enjoy the good life.
Your view of banking is extremely narrow and prejudiced. It's easy to demonise the golf club chief executive, but you forget that many thousands of ordinary men and women work within the banking system under as much pressure as the rest of us with the same hopes and dreams the rest of us have. All of them have to make important decisions every day which have consequences for their customers, themselves and their employers.
It's strange to me that people can on the one hand denigrate the banking industry while at the same time have good relationships with the people in their bank branch who they meet every day.
They are one and the same you know.0 -
andrewdeerpark wrote: »Another major point in my argument we simply do not know? We are sewing 2 year seeds in the dail right now with uncapped powers being given to the minister for finance.
I would love some solid details as I asked in my original post with serious regulation.
It seems to me we are giving the guarantee before the regulation. Bad and all as the banks were they at least checked people out some bit before handing over money.
We are giving a blank cheque book to the banking system with no amount filled in and no name just fully signed. Kinda like the olde FF days!
Madness
If a bank had failed before this legislation, we'd have bailed them out anyway so it won't cost anything extra. The figures for a bailout were unknown last week and are unknown this week. What has changed is that the chance of a bank failure has decreased as the banks can now access funds. Zero extra cost to the government and major gain. Bravo!0 -
andrewdeerpark wrote: »[FONT="]
How many distressed homeowners & small businesses can call the minister of finance late at night with their problems and get a bailout?
[/FONT]
Well you don't have to ring the Minister of Finance.
If you lose your job, Go to your Community Welfare Officer and you'll get your Mortgage Interest paid.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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andrewdeerpark wrote: »[FONT="]Sorry the banking system in Belgium, UK, US and Holland is still working last time I heard. Ok the governments have a bit of work to do cleaning up the system (US in particular), however the domino failure theory has not been proven with any substantial argument so what makes it likely in Ireland right now?
How do you reconcile keeping bad business standing in a free market? Are we going down the Japanese banking model of the 90's with defunct banks propped up by the government? [/FONT]
The ultimate proof of the domino theory is Lehmans - it's very likely if they were saved and not allowed to go to the wall that we wouldnt be in the same sort of trouble as we are. Hundreds of banks had exposure to them (and non banks like AIG). That failure set a new bar - if you are an investor and see one institution like Lehmans you question the safety of your investments in others. Investors start looking at who's next. Washinton Mutual are gone, Wachovia had to be taken over, Dexia apparently were one day away from collapse without the French and Belgian intervention, Fortis had an effective wholesale run on the bank and would not have survived long without govt intervention, Bradford and Bingley & HBOS can hardly be described as functioning properly given they are effectively in wind down mode.
(CNBC currently reporting a Unicredito extraordinary board meeting today - which also cant be good news)
The key here is that govts have to intervene - its just a matter of what form it takes. Its just too simple an argument for people to make that the fat cat bankers should suffer. The point has already been made that when lax lending practices made their way to this side of the Atlantic what were the banks to do - not give 95% or 100% mortgages? When things looked solid in the economy if banks had not done this they would have lost market share - profits would have suffered, share prices and shareholders would have suffered, and thats a lot of peed off people (given most pension schemes would have been exposed to the domestic banks aswell). It was rational at the time for banks to do this.0 -
And you don't think the Minister had the wit to check first before he gave the guarantees? He never struck me as being a stupid man - perhaps you are anthropomorphising?andrewdeerpark wrote: »Another major point in my argument we simply do not know? We are sewing 2 year seeds in the dail right now with uncapped powers being given to the minister for finance.
I would love some solid details as I asked in my original post with serious regulation.
It seems to me we are giving the guarantee before the regulation. Bad and all as the banks were they at least checked people out some bit before handing over money.0 -
I remember the bad days in the 80's when banks called in loans and they did not show much mercy. Fast forward 15-20 years they became your best buddy with mortgages, equity release schemes, buy to let interest only... I can go on and on. Now anyone defaulting is facing their legal attack dog branch who if they cannot get their money will ruin your life.
Remember the bogus Non- Resident account scheme sold to unsuspecting customers by all the major banks as a secure private dirt tax avoidance scheme (hot money deposits included); also highly illegal. Again move forward 10 years, what do the banks do; appoint a member of staff at each branch, list all accounts, hand these over to the revenue and here’s the best bit give the staff member who compiled this list a golden handshake of 100K+ coupled with a confidentiality agreement so no legal proceedings could take place again the top brass in the organisation.
It was only the customer who ended up paying, in general five times the max amount in the account when penalties were included.
Not one banking CEO, board member and chairman was fined our jailed for what was the largest organised taxation fraud in the history of the state.
So to summarise I see no one going to jail this time, the cosy golf club business elite resuming normal business when the dust settles and we may all have to pay.
Do I trust bankers and the sector in general with a blank cheque from the state, would you?0 -
andrewdeerpark wrote: »I remember the bad days in the 80's when banks called in loans and they did not show much mercy. Fast forward 15-20 years they became your best buddy with mortgages, equity release schemes, buy to let interest only... I can go on and on. Now anyone defaulting is facing their legal attack dog branch who if they cannot get their money will ruin your life.
Remember the bogus Non- Resident account scheme sold to unsuspecting customers by all the major banks as a secure private dirt tax avoidance scheme (hot money deposits included); also highly illegal. Again move forward 10 years, what do the banks do; appoint a member of staff at each branch, list all accounts, hand these over to the revenue and here’s the best bit give the staff member who compiled this list a golden handshake of 100K+ coupled with a confidentiality agreement so no legal proceedings could take place again the top brass in the organisation.
It was only the customer who ended up paying, in general five times the max amount in the account when penalties were included.
Not one banking CEO, board member and chairman was fined our jailed for what was the largest organised taxation fraud in the history of the state.
So to summarise I see no one going to jail this time, the cosy golf club business elite resuming normal business when the dust settles and we may all have to pay.
Do I trust bankers and the sector in general with a blank cheque from the state, would you?
Can I just run through what your solution would be? Taking everything you have said above into account, and assume we are in a position where one of the Irish banks is effectively facing a liquidity problem so much so that if nothing is done they will become insolvent, close and make thousands jobless? (just to reiterate that any possible run was caused by the international credit crisis and the freezing of wholesale money markets)0 -
The reason the minister feels confident to give the guarantee is because he has been assured that the Banks Assets are worth more than the 440 billion.
Here is my worry.
What if Mortgage Defaults start going through the roof due to huge rises in unemployment? I know we do not have a history in this country for repossessions on a large scale but It could change. The banks could argue that by not repossesing they are putting tax payer money at risk.
First result is that there are a load more houses added to the huge amount of empty houses already for sale. This would lead to downward pressure on the housing market as would more frugal lending conditions. Even before this credit crises some economists were saying the bottom of the housing market was another 40% away.
The reason banks would not lend to each other is because they did not believe in each others balance sheets. what they seem to be saying is "We are cooking our books so they probobly are too". So the initial assumption that the assets will cover the losses could be wrong and as Eamonn Gilmore said, the country could be sunk.
This seems like a slight of hand trick that the government are trying, it may work but it was this kind of slight of hand trickery (especially in America) that got us here.
In my opinion we may be only delaying a huge fallout, the likes of which we have never seen.
Its important to remember how young the capitalist system is. Its only around about 150 years.
The current calls in the US to change the "mark to market" rule they brought in after enron show that the financial guys just dont get it.
We need to stay in the real world not try to escape again and try and get away with it for another while.0 -
just to reiterate that any possible run was caused by the international credit crisis and the freezing of wholesale money markets
The Irish banks were being targetted because of suspicion that the had huge outstanding debts related to our own property crash - i.e. potentially defaulting developers who - had their debt been called in - would have been unable to meet it, nor can they meet repayments. Whats left then is assets, if unsaleble housing is an asset.0 -
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The Irish banks were being targetted because of suspicion that the had huge outstanding debts related to our own property crash - i.e. potentially defaulting developers who - had their debt been called in - would have been unable to meet it, nor can they meet repayments. Whats left then is assets, if unsaleble housing is an asset.
If it hadnt been for the international credit crisis would they have been targetted in the same way? All international banks are being affected by the crisis not just Irish. What about Fortis/Dexia - they didnt lend into the Irish property boom yet they were targetted.
I have said already that if there was no international problem and just a housing slowdown in Ireland - then you would see larger arrears, some increase in bad debts, a reduction in profits. You would not have seen a freezing of the wholesale funding interbank markets for Irish banks. Most of the assets on Irish banks balance sheets are performing assets.0
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