why do we need these toxic banks or NAMA for that matter?

ei.sdraob

decided to start a new thread in order not to go offtopic in others

an often quoted reason for bailouts and NAMA is that credit needs to be available to businesses, which is fair enough, but the banks are hoarding any cash they get as they are insolvent due to their own shortsighted lending

an idea of "good bank" was proposed in a parallel thread, with the current sorry excuses of banks left to fend for themselves and learn a lesson about free markets and capitalism


on further tinkering with idea

can the credit unions not be used to channel money towards business in need of new loans?

they are local and the profit motive is to make profit for shareholders, who are local people, hence the locals would hold the CU responsible and in keep in check to whom they lend

basically if its your savings at risk you would want to know where its being invested, something thats not possible with nama where and not only savings are at risk but theres a risk of taxpayer mopping up the mess made by others for the next few decades

also CUs offer transparency to local shareholders, somethings thats badly missing in NAMA

as a small business myself i would rather go to a credit union for a loan than a bank, and im sure large companies can tap into credit abroad (especially the american MNCs) or cut themselves nice deals with other financial institutions for credit due to their sheer size, and of course if the local business who borrowed from local CU can be named and shamed in local papers if they decide to not repay money on time or default


i think people can see where im going with this, a local level solution, thats distributed across the country using an existing network of CUs which offers more transparency and gives more power to savers/shareholders and saves the taxpayer from a nightmare scenario

what yee think?

P. Breathnach

Does that mean that we should simply let the banks collapse? Can you imagine the consequences if we did?

squod

P. Breathnach wrote: »

Does that mean that we should simply let the banks collapse? Can you imagine the consequences if we did?

People have already seen the consequences for themselves in Iceland. Really you shouldn't confuse NAMA with other legitimate strategies.

Start the NAMA tribunal now I reckon. Before we let it happen.

RealityCheck

P. Breathnach wrote: »

Does that mean that we should simply let the banks collapse? Can you imagine the consequences if we did?

Probably not as apocalyptic as you might fear. If it was'nt for the guarantee of all deposits, loans and bonds .

However, if we were to let it expire one possible solution is to yes let the banks fail.

The banks could be allowed default. The bad parts will be allowed to go bust, while the good parts could be taken over.
Domestic operations of the banks could be taken over by the state or a foreign bank could take them over.
Most creditors could be left parked in the old "bankrupt" bank, while solvency levels could be increased in the good bank to robust levels, allowing a functioning banking sector.
In the future should any surplus value emerge beyond public capital, bonds or shares could be given to the creditors in the old "bankrupt" banks.
The cost to the public might be higher in the short term but would probably not require our children or grandchildren to pay for the mess.

Seems to work in Iceland :cool: :eek:

sharky86

RealityCheck wrote: »

Probably not as apocalyptic as you might fear. If it was'nt for the guarantee of all deposits, loans and bonds .

However, if we were to let it expire one possible solution is to yes let the banks fail.

The banks could be allowed default. The bad parts will be allowed to go bust, while the good parts could be taken over.
Domestic operations of the banks could be taken over by the state or a foreign bank could take them over.
Most creditors could be left parked in the old "bankrupt" bank, while solvency levels could be increased in the good bank to robust levels, allowing a functioning banking sector.
In the future should any surplus value emerge beyond public capital, bonds or shares could be given to the creditors in the old "bankrupt" banks.
The cost to the public might be higher in the short term but would probably not require our children or grandchildren to pay for the mess.

Seems to work in Iceland :cool: :eek:

+1

Sand

Does that mean that we should simply let the banks collapse? Can you imagine the consequences if we did?

Why should he have to imagine it? Clearly someone has figured out the consequences? Right? Right?

People talk about the collapse of BoI and AIB as if the sun would refuse to rise over a land evil enough to leave a bad bank to fail. Banks have failed before, they have failed very recently, and they will fail in the future. The world will trundle on.

The Irish economy is more important than AIB and BoI shareprices. This shouldnt have to be stated, but sometimes I wonder.

ei.sdraob

exactly we keep hearing about the end of the world if the banks die

but really what would be the consequences especially if deposits are guaranteed and money is flowing to good businesses?


somehow if left to own devices i dont see BOI or AIB collapsing, they are cute whoors and would find a way to survive

if anything it might force ECB to bail them out/give direct credit line in order to ensure euro is not damaged by them or they get bought out by bigger fish


basically what im proposing is achieving the aims of nama/bailouts while bypassing the rotting corpses, think of it as heart bypass skipping the damaged areas of the heart in order to keep the body functioning

P. Breathnach

ei.sdraob wrote: »

exactly we keep hearing about the end of the world if the banks die

No. We hear about our economy being desperately badly damaged, on a scale far greater than it now is.

but really what would be the consequences especially if deposits are guaranteed and money is flowing to good businesses?

The exchequer would be wiped out in attempting to honour the guarantees; our borrowing capacity overseas would be zilch; all payment clearing arrangements would be destroyed; need I go on?

somehow if left to own devices i dont see BOI or AIB collapsing,

How could they survive if they owe billions more than they can pay?

they are cute whoors and would find a way to survive

Such cute hoors that they put themselves into the situation they are now in.

if anything it might force ECB to bail them out/give direct credit line in order to ensure euro is not damaged by them or they get bought out by bigger fish

No. The ECB has plenty of reason to support the Irish exchequer, but far less reason to support failing banks.

basically what im proposing is achieving the aims of nama/bailouts while bypassing the rotting corpses, think of it as heart bypass skipping the damaged areas of the heart in order to keep the body functioning

It's rather like a bypass of the entire heart, not just of a blocked blood vessel. The body won't function without it.

jetfiremuck

If the banks get nationalised then the ECB get involved and more direction from Europe. Thats all we need at this stage. If all the toxic assets are transferred to the Gov paid by the taxpayer the assets will have value as time goes by. 20 years is nothing regarding property and loans held by Governments and the like.

RealityCheck

ei.sdraob wrote: »

if anything it might force ECB to bail them out/give direct credit line in order to ensure euro is not damaged by them or they get bought out by bigger fish

That's already happening. They are the lender of last resort as none of the money markets are giving them zilch. The Irish banks in their present state are in a 'zombie' or 'vegative' state.

ei.sdraob wrote: »

basically what im proposing is achieving the aims of nama/bailouts while bypassing the rotting corpses, think of it as heart bypass skipping the damaged areas of the heart in order to keep the body functioning

Agreed.

P. Breathnach wrote: »

No. We hear about our economy being desperately badly damaged, on a scale far greater than it now is.

Not sure paying 60 + billion plus to suppport the failed banking system is conjusive to daming the economy less than if we were to let the guarantee run out and let the banks fail.

P. Breathnach wrote: »

The exchequer would be wiped out in attempting to honour the guarantees; our borrowing capacity overseas would be zilch; all payment clearing arrangements would be destroyed; need I go on?

Not the case if only deposits were guaranteed. Let the bondholders and shareholders get roasted. Not so sure about our borrowing capacity being zilch as the money markets are a dog eat dog world, as in bondholders might be willing to lend the state money as they will be confident in the knowledge that we wont be as crippled with debt as if we had bailed out the failed banks. Also ,they'd probably realise we wont make the same mistakes again.

P. Breathnach wrote: »

How could they survive if they owe billions more than they can pay?

As above, just guarantee deposits. It probaby would'nt cost anything if we just let the banks fail and took over the good parts of the bank i.e deposits and mortgage loans, just forget about loans and bonds.

P. Breathnach wrote: »

No. The ECB has plenty of reason to support the Irish exchequer, but far less reason to support failing banks.?

I dont understand that point as they are supporting the failed banks currently and will do in the future with the cash they will give the banks from the 60 billion or so bonds we will give the banks for the NAMA assets.

P. Breathnach wrote: »

It's rather like a bypass of the entire heart, not just of a blocked blood vessel. The body won't function without it.

Not true.

Sand

The exchequer would be wiped out in attempting to honour the guarantees; our borrowing capacity overseas would be zilch; all payment clearing arrangements would be destroyed; need I go on?

- As pointed out the guarantee is not a law of nature. Its terms can be adjusted or it can be removed altogether. The original mistake was to issue a blanket guarantee - but we are not chained too it. It should not dictate all our current and future policy in this issue.

- Our borrowing capacity ( I am speaking about the state here, you might be talking about Bank of Ireland and AIB) will actually improve if AIB and BoI are cut loose. Bank of Irelands and AIBs borrowing capacity would be wiped out if the state wasnt standing behind them, but that wont harm the state if lenders see we arent borrowing the money to prop up zombie banks...which can only increase our ability to repay it.

- Bank services would simply migrate to another service provider, a healthier one. There might be a short term shock of adjustment ( which there need not even be if there is an orderly windup of the failed banks) but god will not smite Ireland from the face of the earth.

No one is saying AIB and BoI collapsing would be completely painless, but it would be better than staggering into a 15 year depression like the Japanese did when they went down the NAMA route at the end of their own property bubble, with their zombie banks. They destroyed their economic growth for 15 years to save their banks. We need to learn from that, not ape it.

P. Breathnach

Sand wrote: »

- As pointed out the guarantee is not a law of nature. Its terms can be adjusted or it can be removed altogether. The original mistake was to issue a blanket guarantee - but we are not chained too it. It should not dictate all our current and future policy in this issue.

The guarantee is pretty well a law by now. The state has made a commitment. If it reneges on that commitment, then the reputation of the state and every financial institution in it would be toast.

- Our borrowing capacity ( I am speaking about the state here, you might be talking about Bank of Ireland and AIB) will actually improve if AIB and BoI are cut loose. Bank of Irelands and AIBs borrowing capacity would be wiped out if the state wasnt standing behind them, but that wont harm the state if lenders see we arent borrowing the money to prop up zombie banks...which can only increase our ability to repay it.

See my previous point.

- Bank services would simply migrate to another service provider, a healthier one. There might be a short term shock of adjustment ( which there need not even be if there is an orderly windup of the failed banks) but god will not smite Ireland from the face of the earth.

No one is saying AIB and BoI collapsing would be completely painless, but it would be better than staggering into a 15 year depression like the Japanese did when they went down the NAMA route at the end of their own property bubble, with their zombie banks. They destroyed their economic growth for 15 years to save their banks. We need to learn from that, not ape it.

A huge number of business and personal customers of the banks are in debt to the banks. They would not be able to migrate easily to other service providers. Who would lend a sum of €100k or €10m to a BOI customer to enable them to transfer their business? Businesses that are marginal would lose their funding and collapse -- and that would be a great deal of Irish business, especially in these straitened times. I am not thinking particularly of property-related businesses, but of retail traders and small manufacturers and so on. The knock-on effect of such business failures would be damage to other firms that do not use BOI and AIB, and the other banks could be badly damaged -- that is part of what is meant by "systemic importance".

If BOI and AIB were to collapse, the deficit would be enormous. Whose pockets do you think would be hit?

is_that_so

Sand wrote: »

-

No one is saying AIB and BoI collapsing would be completely painless, but it would be better than staggering into a 15 year depression like the Japanese did when they went down the NAMA route at the end of their own property bubble, with their zombie banks. They destroyed their economic growth for 15 years to save their banks. We need to learn from that, not ape it.

The Japanese zombie banks and their zombie companies were the result of the denial of a problem and they continued to lend them money. When they did finally address it, it was far too late and they'd lost a decade. Good summary from Forbes from some months back of a variety of financial crises back to the 1980s.

Whatever else we may end up doing, the cases against Carroll's firms and our own possible solutions; NAMA or otherwise, acknowledge who the main culprits are.

dresden8

P. Breathnach wrote: »

The guarantee is pretty well a law by now. The state has made a commitment. If it reneges on that commitment, then the reputation of the state and every financial institution in it would be toast.

Indeed, our trainee Minister for Finance pretty much destroyed the country when he bent over for the bankers on their late night booty call.

Is it me or does anyone else think it's all getting "Quantum of Solace" around here?

International financiers must be protected, they will get their money, or they will destroy you.

RealityCheck

P. Breathnach wrote: »

The guarantee is pretty well a law by now. The state has made a commitment. If it reneges on that commitment, then the reputation of the state and every financial institution in it would be toast.

Only one year left. The banks could for the next year attempt to clean themselves up until it runs out, while a state owned bank could be set up to keep the economy functioning. After that, if they fail they fail. Then on to the point below.

P. Breathnach wrote: »

A huge number of business and personal customers of the banks are in debt to the banks. They would not be able to migrate easily to other service providers. Who would lend a sum of €100k or €10m to a BOI customer to enable them to transfer their business? Businesses that are marginal would lose their funding and collapse -- and that would be a great deal of Irish business, especially in these straitened times. I am not thinking particularly of property-related businesses, but of retail traders and small manufacturers and so on. The knock-on effect of such business failures would be damage to other firms that do not use BOI and AIB, and the other banks could be badly damaged -- that is part of what is meant by "systemic importance".

If BOI and AIB were to collapse, the deficit would be enormous. Whose pockets do you think would be hit?

I dont think you realise that the good functioning parts of the banks dont need to migrate anywhere. All we need to do is once the banks default take over the good parts of the bank, forget about the bad parts. It really is as simple as that.

RealityCheck

dresden8 wrote: »

Indeed, our trainee Minister for Finance pretty much destroyed the country when he bent over for the bankers on their late night booty call.

Is it me or does anyone else think it's all getting "Quantum of Solace" around here?

International financiers must be protected, they will get their money, or they will destroy you.

Oh yes the World Union of International financiers will kill us. The money markets are really a dog eat dog world, not some kind of inner circle of investors :eek:.

P. Breathnach

RealityCheck wrote: »

... I dont think you realise that the good functioning parts of the banks dont need to migrate anywhere. All we need to do is once the banks default take over the good parts of the bank, forget about the bad parts. It really is as simple as that.

It's not at all as simple as that: you can't cherry-pick in such a way.

Het-Field

In reality, there were no contingency plans anywhere. Thus, the banks needed to be sustained. If they collapsed, Ireland's international reputation would have been obliterated far beyond the point that it is already. However, as Anglo Irish was not a central plank of the structure, one has to be suspicious as to the motives of the Government.

From an ideological, and business perspective, the banks should have fallen. In a private business environment, reckless decisions will snap back on the perpertrators, and the business will wind up, or be placed in examinership (which is a death sentance for 95% of businesses which enter the process).

NAMA, is unclear, its untransparent, and its clear that the only thing which will occur is a virtual nationalisation of the debt in an attempt to restart the banks, and the taxpayer will be forced to place his hand in his pocket.

In reality, it should NOT be happening. If jobs had been done corretly, the taxpayer would be far less impacted by the NAMA

RealityCheck

P. Breathnach wrote: »

It's not at all as simple as that: you can't cherry-pick in such a way.

Of course you can :cool:.


Explained here, obviously we would apply whats below to the Irish scenario. It is what could have been done, and could be done in the future.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4424418/Let-banks-fail-says-Nobel-economist-Joseph-Stiglitz.html

P. Breathnach

RealityCheck wrote: »

Of course you can :cool:.

Explained here, obviously we would apply whats below to the Irish scenario. It is what could have been done, and could be done in the future.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4424418/Let-banks-fail-says-Nobel-economist-Joseph-Stiglitz.html

Stiglitz says that the banks should be allowed fail, but "the Government should underwrite all deposits". What would that cost? Even more than NAMA, I would guess.

I have no problem with bank shares becoming worthless (well, no principled objection to it) but the situation is that the banks are in such trouble that not only are the shares worthless, but all other bank liabilities (including any money you or I have in the bank) are no longer covered by the banks' assets.

Imagine a scenario: a bank has €150m in unimpaired loans and a further €80m in impaired loans. That is funded with the aid of €210m in deposits. So you remove the €150m in good loans and the €210m in deposits. What other bank would want to take on a package with an inbuilt deficit of €60m?

RealityCheck

P. Breathnach wrote: »

Imagine a scenario: a bank has €150m in unimpaired loans and a further €80m in impaired loans. That is funded with the aid of €210m in deposits. So you remove the €150m in good loans and the €210m in deposits. What other bank would want to take on a package with an inbuilt deficit of €60m?

That is a poor enough picture of fractional reserve banking. A reasonable guarantee of ordinary deposits would not be much greater than 30 billion. The ratio of ordinary deposits to loans would never be that high.

P. Breathnach

RealityCheck wrote: »

That is a poor enough picture of fractional reserve banking. A reasonable guarantee of ordinary deposits would not be much greater than 30 billion. The ratio of ordinary deposits to loans would never be that high.

No. It's a simplified picture. I am not that interested in going into the details of the funding of banks, or the different classes of liabilities that they have. [I suppose you noted that I left €20m for Capital & Reserves, which could go unpaid.] I am supposing that any failure in the system to meet obligations, whether it be the credit in my current account or a bond from an overseas finance house, is in one way or another damaging to Ireland's interest.

There is also the more general point is that you cannot walk away from your liabilities, while retaining assets.

dresden8

P. Breathnach wrote: »

There is also the more general point is that you cannot walk away from your liabilities, while retaining assets.

That's so ironic it's not even funny.

population

Good to see Ray McSharry weighing in with the truth:rolleyes:

http://www.independent.ie/national-news/builders-to-end-up-in-social-housing-1873241.html

Poor builders...........

Sand

The social housing thing is a load of ****e. The bricklayers out of work might be looking for social housing, but the developers wont be - theyll have taken loans out against their company, not against themselves as individuals (so their family mansions will be safe) unless they are criminally retarded. Oh wait...

His comments about "banks taking the hit" are also stupidd. Banks havent taken a hit. NAMA is specifically designed to ensure the banks avoid taking a hit. If banks were to take the hit, the losses would be applied against bank shareholders and bondholders. Instead the losses will be laid at the door of the taxpayer.

Not only that, economic growth for the next 20 years will be written off to sustain zombie banks. TINA! TINA!

Sand

Stiglitz says that the banks should be allowed fail, but "the Government should underwrite all deposits". What would that cost? Even more than NAMA, I would guess.

Given we are seeing declines in property prices of 90% from market peak it would probably cost a lot less to let the banks manage their own problems and only intervene as needed to protect desposit holders. In any bank failure, the shareholders and bond holders (both liabilities) will get wiped out first, so whatever remaining assets ( branch offices, cash, performing mortgages and so on) are left to protect deposit holders. The government would only have to intervene for the difference, if any.

Indeed, the advocates of NAMA are so confident that a minimal loss or even a profit can be turned it is hard to see how they can argue that the banks cannot turn that profit themselves once they take the initial hit. The LTEV is clearly a sound model, which the banks can employ themselves, removing the unecessary bureacracy of a NAMA organisation ( NAMA wont manage the loans day to day, AIB and BoI will continue to manage them as a service to NAMA so NAMA is even less useful apart from being a vehicle to socialise risk). I am sure the international markets will agree with the NAMA view...afterall, the best international advice has been sought.

I should clarify, given its the internet, that the last paragraph there was what we in the trade call sarcasm.