Why are we persisting with the current banks?

ParkRunner

I am wondering why we are continuing to support the current banking institutions depsite their failure to offer credit to small and medium enterprises even after the State guarantee was put in place and billions have been pumped into the banks to enable them to get back to lending money again?

With the very real possibility of a nationalisation of AIB and BOI and the consequential dilution of current share value (not that I have any) would it not make sense just to let them fail along with their toxic debts?

I know we need a banking system in place to have an economy but pumping billions into what seems to be a black hole in the current climate seems daft to me when the banks are doing nothing to help stimulate the economy by failing to provide credit. A new bank free from toxic debt seems like a much better idea.

Dotsie~tmp

LOL i presume because the government went and guaranteed all deposits! If it looked like they were gonna let these institutions fail id have my money outa there in a flash.

ParkRunner

Dotsie~tmp wrote: »

LOL i presume because the government went and guaranteed all deposits! If it looked like they were gonna let these institutions fail id have my money outa there in a flash.

The guarantee doesn't seem to have achieved anything, apart from ensuring that we are stuck with the current banks until the end of next year and have to continue to pump astonishing sums of money into them, despite their failure provide a half decent banking system which could support the economy.

Thomas_S_Hunterson

Lending to small and medium enterprises is extremely risky. Would you want the banks putting your money at risk?

There are two sides to every story.

machintoshlover

If the governemt were to let the banks fail they would have to pay huge amounts because of the guarantee scheme.

The governments way of cleaning up banks balance sheets was the introduction of NAMA. If NAMA can take the toxic debts off banks balance sheets, there should only be the need for one further injection of capital as banks will have clean balance sheets and be adequately capitalised.

Flamed Diving

machintoshlover wrote: »

If the governemt were to let the banks fail they would have to pay huge amounts because of the guarantee scheme.

The governments way of cleaning up banks balance sheets was the introduction of NAMA. If NAMA can take the toxic debts off banks balance sheets, there should only be the need for one further injection of capital as banks will have clean balance sheets and be adequately capitalised.

There are a lot of 'ifs' there, mac. I'm at work, and can't make a decent post, so I will hand it over to the legend that is Paddy Honohan:

http://www.irisheconomy.ie/index.php/2009/04/11/scope-of-nama/

eamonnm79

machintoshlover wrote: »

If the governemt were to let the banks fail they would have to pay huge amounts because of the guarantee scheme.

The governments way of cleaning up banks balance sheets was the introduction of NAMA. If NAMA can take the toxic debts off banks balance sheets, there should only be the need for one further injection of capital as banks will have clean balance sheets and be adequately capitalised.

Why?
Ive heard this a bit in the media but it sounds like scare tactic to me.

I hear many economists saying that the banking industry is like the heart of the economy.
Surely this is reason enough to think about nationalising the banking system.
Lending money is a very simple concept.
It would probobly be a good idea to just bring banks back to doing just that.

this complaint people have about banks not loaning to small businesses is rubbish, they are not loaning to businesses that they should not have been lending to in the first place. Many of the jobs in Ireland have bee created on false economies and bad lending practices that the banks had. We should not be encouraging a return to this, regardless of the consiquences.

Time Magazine

eamonnm79 wrote: »

I hear many economists saying that the banking industry is like the heart of the economy.
Surely this is reason enough to think about nationalising the banking system.

Several prominent economists have called for just that. However it's not because:

Lending money is a very simple concept.

Lending money is actually very difficult. Deciding who's the most likely to bring back a return ("the allocation of capital") is very complicated given the uncertainties that exist. There's very little evidence that government do this better than private banks. And yes, the allocation of capital is absolutely vital to the economy. If the credit stops flowing, so does economic activity, so the "heart" analogy isn't that bad.

machintoshlover

Flamed Diving wrote: »

There are a lot of 'ifs' there, mac. I'm at work, and can't make a decent post, so I will hand it over to the legend that is Paddy Honohan:

http://www.irisheconomy.ie/index.php/2009/04/11/scope-of-nama/

Thanks Flamed Diving he is quite the legend! There are indeed a worrying amount of 'ifs' in the plan.

eamonnm79 wrote: »

Why?
Ive heard this a bit in the media but it sounds like scare tactic to me.

I hear many economists saying that the banking industry is like the heart of the economy.
Surely this is reason enough to think about nationalising the banking system.
Lending money is a very simple concept.
It would probobly be a good idea to just bring banks back to doing just that.

this complaint people have about banks not loaning to small businesses is rubbish, they are not loaning to businesses that they should not have been lending to in the first place. Many of the jobs in Ireland have bee created on false economies and bad lending practices that the banks had. We should not be encouraging a return to this, regardless of the consiquences.

Well the governement has guaranteed deposit holders that the banks will not fail - if the banks were left to fail then they would owe deposit holders whatever they have in the bank (alot).

Nationalisation may be on the cards anyway - but banks balance sheets still have to be cleaned up in order for them to function properly. I believe Karl Whelan is in favour of nationalisation.

The bad loans and toxic assets are mostly due to exposure to commercial and residential property market. SME's do need funding - you are effectively saying banks should not lend to entrepreneurs trying to grow their business.

eamonnm79

machintoshlover wrote: »

Thanks Flamed Diving he is quite the legend! There are indeed a worrying amount of 'ifs' in the plan.



Well the governement has guaranteed deposit holders that the banks will not fail - if the banks were left to fail then they would owe deposit holders whatever they have in the bank (alot).

Nationalisation may be on the cards anyway - but banks balance sheets still have to be cleaned up in order for them to function properly. I believe Karl Whelan is in favour of nationalisation.

The bad loans and toxic assets are mostly due to exposure to commercial and residential property market. SME's do need funding - you are effectively saying banks should not lend to entrepreneurs trying to grow their business.

I think a lot of people on here and many economists are in favour of nationalisation.
Lets get on with it.
NAMA will only redistribute wealth from tax payers through the state to shore up developers losses. Its a bad idea.
The danger about banks failing only holds if we do not nationalise.
Put the guys they were going to put to work in NAMA to work finding the many, many, unneeded people in the financial systems and let them go.
I know this is tough but it has to be done.

eamonnm79

The Economist wrote: »

Several prominent economists have called for just that. However it's not because:

Lending money is actually very difficult. Deciding who's the most likely to bring back a return ("the allocation of capital") is very complicated given the uncertainties that exist. There's very little evidence that government do this better than private banks. And yes, the allocation of capital is absolutely vital to the economy. If the credit stops flowing, so does economic activity, so the "heart" analogy isn't that bad.

I disagree.
If banks returned to much lower leveredged levels and took a lot less risk it would have a detrimental effect on economic growth but it would also make the system a lot safer. Some banks in America a very pissed off now because they were smaller banks who knew their customers did not take to many risks did not get involved in complicated financial products. They are now being tarred with the same brushes as the banking, insurance and pensions giants.

Flamed Diving

I'm not for nationalisation.

Time Magazine

eamonnm79 wrote: »

I disagree.
If banks returned to much lower leveredged levels and took a lot less risk it would have a detrimental effect on economic growth but it would also make the system a lot safer. Some banks in America a very pissed off now because they were smaller banks who knew their customers did not take to many risks did not get involved in complicated financial products. They are now being tarred with the same brushes as the banking, insurance and pensions giants.

This does not address my point - that governments are not good at lending money - at all.

jimmycrackcorm

eamonnm79 wrote: »

NAMA will only redistribute wealth from tax payers through the state to shore up developers losses. Its a bad idea.

The Dept of Social Welfare currently redistributes wealth from taxpayers to shore up non-taxpayers to the tune of > €20billion each year. In the grand scheme of things is there any real difference?

Time Magazine

jimmycrackcorm wrote: »

The Dept of Social Welfare currently redistributes wealth from taxpayers to shore up non-taxpayers to the tune of > €20billion each year. In the grand scheme of things is there any real difference?

Yes. An awful lot of that goes to pensioners, who have paid their dues. Another large chunk of that goes to hard-working people who simply cannot find work at the moment, and who have paid PRSI for years. A further large chunk goes to the sick and the disabled. After ensuring the security of the State, the government collects revenue primarily to look after these people. It's how, as a society, we wish to spend our money.

On the other hand, there are very few reasons to bail out shareholders whose company went bust. Tough sh*t tbh.

nesf

jimmycrackcorm wrote: »

The Dept of Social Welfare currently redistributes wealth from taxpayers to shore up non-taxpayers to the tune of > €20billion each year. In the grand scheme of things is there any real difference?

Yes, the system is abused by a significant minority but the social cost or removing the system is arguably much greater than the cost that these "leeches" inflict. The very fact that the system has existed for so long has ensured that the majority of elderly, disabled and jobless have made no or little provisions for not being able to work. To remove the safety net would be to punish them along with the free riders.

eamonnm79

jimmycrackcorm wrote: »

The Dept of Social Welfare currently redistributes wealth from taxpayers to shore up non-taxpayers to the tune of > €20billion each year. In the grand scheme of things is there any real difference?

You dont see a difference in giving to the poor and giving to the wealthy?