Frontline 14/12

nesf

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

How the hell did this guy pass first year economics, capitalism has never been about rewarding good behaviour. Ever.

imme

nesf wrote: »

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

How the hell did this guy pass first year economics, capitalism has never been about rewarding good behaviour. Ever.

I take it you're not a fan so Nesf?

dfbemt

What was said that the crowd all gasped at? I missed it.

Was it something Lenihan said?

Don't have sky box

Liam Byrne

nesf wrote: »

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

I've highlighted the key word in what he said.

Has it ever ? Probably not. Has it recently ? Definitely not (the worse your behaviour - even in supposedly "regulated" areas like banking, the more you're bailed out; no recriminations, no penalties, no rules for future ethical behaviour).

Should it ?

YES.

Behave ethically and responsibly, and take acceptable risks with your investments, and you deserve your reward.

Behave like a drunken idiot in a casino, and you should be hung out to dry.

Cufflink

nesf wrote: »

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

How the hell did this guy pass first year economics, capitalism has never been about rewarding good behaviour. Ever.

On the best day of his intellectual life, David McWilliams was never more than a middleweight; in fact, I would only class him as a blown up welter. He is this country's most noted economist for two reasons. The first is sheer, dumb luck. It is often said that he was the Jeremiah in the wilderness warning of the storm to come. Bollox. During the tiger years he constantly mumbled vague forebodings about what goes up always coming down, but he gave no specifics and had not the slightest clue when or how big the crash would be. Any fool could have done what he did, and most of us fools did. Just like him, we were blown away when the crunch came; the difference was that for some incomprehensible reason people started rewriting history to convince themselves that McWilliams had warned us of what was to come, and, oh, woe is us, if only we'd listened to David, blah, blah, blah.

The second reason for his eminence is that he's the prettiest economist in Ireland, male or female, and it really shows what a nation of whores we have become that such considerations hold such weight in our minds.

ntlbell

missed this, how long does it take rte player to get it these up? 24 hours or?

BrianD3

He was talking about the banks when he mentioned capitalism and behaviour. The point he was making was that banks have been rewarded (bailed out) despite engaging in bad behaviour (bad business practices) This isn't how things should work. In the absence of bailouts, bad business practices should and do result in failure.

Cufflink

BrianD3 wrote: »

He was talking about the banks when he mentioned capitalism and behaviour. The point he was making was that banks have been rewarded (bailed out) despite engaging in bad behaviour (bad business practices) This isn't how things should work. In the absence of bailouts, bad business practices should and do result in failure.

No, they result in bankruptcy, which, as I have said before, is a soft landing for business people which the state itself cannot avail of. When your company goes bankrupt, you simply walk away from your debts; if you default on HP, you go to jail. The cossetting and protections available to business have been in place so long that people don't actually think about them anymore. They are perceived as the natural order and they go unquestioned in the public mind.

starbelgrade

Cufflink wrote: »

The second reason for his eminence is that he's the prettiest economist in Ireland,

Get away out of that.. Eddie Hobbs is much sexier by a long shot.

Liam Byrne

Cufflink wrote: »

Any fool could have done what he did, and most of us fools did.

So you're saying that FF (the people who were supposed to be managing the country) aren't just your average ordinary fools, but even worse ones ?

nesf

BrianD3 wrote: »

He was talking about the banks when he mentioned capitalism and behaviour. The point he was making was that banks have been rewarded (bailed out) despite engaging in bad behaviour (bad business practices) This isn't how things should work. In the absence of bailouts, bad business practices should and do result in failure.

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

nesf

Liam Byrne wrote: »

I've highlighted the key word in what he said.

Has it ever ? Probably not. Has it recently ? Definitely not (the worse your behaviour - even in supposedly "regulated" areas like banking, the more you're bailed out; no recriminations, no penalties, no rules for future ethical behaviour).

Should it ?

YES.

Behave ethically and responsibly, and take acceptable risks with your investments, and you deserve your reward.

Behave like a drunken idiot in a casino, and you should be hung out to dry.

He said,

"We've forgotten how capitalism is supposed to work, it's supposed to reward good behaviour"

This is arseways. What happens is that bad businesses fail. The problem is as I said above banks don't fall into the same category as other businesses where failure brings limited destruction to the economy so it's really not something that someone with an education in economics should say. Banks are different, so we need to treat them differently because we're forced into having to save them.

nesf

imme wrote: »

I take it you're not a fan so Nesf?

He's ok as a social commentator. His economic ideas are often quite crazy but you need someone making crazy suggestions I suppose. My issue is that he has a good education in economics, he has a large audience yet he peddles simplistic stories instead of educating the public on economics and the economy.

starbelgrade

Any thoughts on their "10 stories that had the biggest influence on the decade" .... (apart from the cash they hope to make from the text votes)..

1. 9/11

2. Roy Keane sent home from Saipan

3. The Property Boom

4. Immigration

5. The Smoking Ban

6. IRA Decommissioning

7. Bertie Ahern and The Mahon Tribunal

8. The Banking Crisis

9. The Catholic Church and Child Abuse

10. The Floods

I'm surprised Henry didn't get a shoe in!

starbelgrade

nesf wrote: »

Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

I'm sure the ginger one really meant what he said too, but really meaning something doesn't actually mean that you are correct. I don't really have the knowledge to know who is right or wrong.. personally, I don't like the guy, but I can't believe that the only reason that he has so much airtime is that he's a pretty boy. (And if he is the fairest of them all, Ireland's economists must be a serious bunch of mingers).

Liam Byrne

starbelgrade wrote: »

I'm surprised Henry didn't get a shoe in!

Don't you mean a glove ?

starbelgrade

Liam Byrne wrote: »

Don't you mean a glove ?

Gotta hand it to you for that one!

nesf

starbelgrade wrote: »

I'm sure the ginger one really meant what he said too, but really meaning something doesn't actually mean that you are correct. I don't really have the knowledge to know who is right or wrong.. personally, I don't like the guy, but I can't believe that the only reason that he has so much airtime is that he's a pretty boy. (And if he is the fairest of them all, Ireland's economists must be a serious bunch of mingers).

He apparently has quite the following on magicmum and other Irish pregnancy sites.


We've known banks can't be treated like other companies since the early part of the 20th century. There's nothing ambiguous about it. Economists squabble about how to save banks not whether (with the exception of true hardcore free market types but they're a different story). The people moaning about the banks costing billions don't get it, we've no option but to save the bastards and it's utterly sickening. It's why we need to restrain them during the good times but good luck convincing an economy going through a boom of that (seriously, imagine all the sob stories about "we can't buy a house because the Government won't let the banks loan us the money" during the boom if the Government had stepped in and set a maximum allowed multiple of earnings ceiling for mortgages). It wasn't just the developers lobbying for more of the same during the boom it was half the bloody country doing it.

nesf

starbelgrade wrote: »

Any thoughts on their "10 stories that had the biggest influence on the decade" .... (apart from the cash they hope to make from the text votes)..

1. 9/11

2. Roy Keane sent home from Saipan

3. The Property Boom

4. Immigration

5. The Smoking Ban

6. IRA Decommissioning

7. Bertie Ahern and The Mahon Tribunal

8. The Banking Crisis

9. The Catholic Church and Child Abuse

10. The Floods

I'm surprised Henry didn't get a shoe in!

Long term affect on Ireland? Probably the banking crisis/property boom (same thing, let's be bloody honest about it!), followed by IRA decommissioning for me.

Stark

Has to be "soccer player sent home". None of the other 9 stories compare to that.

starbelgrade

The biggest story for me - just on a personal level - was getting rid of 100watt light bulbs. God be with the days when you could switch a light switch & not have to wait until the bulbs warmed up before you could actually see where the hell you were.

starbelgrade

Stark wrote: »

Has to be the "millionaire, borderline sychophantic, soccer player sent home for throwing his toys out of the pram". None of the other 9 stories compare to that.

Fixed.

nesf

Cufflink wrote: »

The second reason for his eminence is that he's the prettiest economist in Ireland, male or female, and it really shows what a nation of whores we have become that such considerations hold such weight in our minds.

Sir, you definitely need to check out some of the talent available in Economics departments around the country.

starbelgrade

nesf wrote: »

Sir, you definitely need to check out some of the talent available in Economics departments around the country.

Pics or GTFO.

(Am I still in After Hours?!!)

oceanclub

Cufflink wrote: »

Any fool could have done what he did, and most of us fools did. Just like him, we were blown away when the crunch came;

Ah, it's amazing how all the people who were telling us that the good times will never end - or at worst, there would be a soft land - now say sure they always saw it coming and it could never last.

P.

ei.sdraob

nesf wrote: »

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

it was ironic and hypocritical of himself talking about the budget and cuts

when he recently proposed that we switch currency and devalue (north of 30%) while somehow preventing the economy from flat-lining altogether

devaluation makes everyone poorer by an equal amount, both responsible and irresponsible/productive and unproductive

nesf

starbelgrade wrote: »

I'm sure the ginger one really meant what he said too, but really meaning something doesn't actually mean that you are correct. I don't really have the knowledge to know who is right or wrong..

Actually I should expand on this (not so much for you but for others I think, I'm in a lecturing mood today ):

It doesn't take much knowledge to know that banks aren't like other businesses and need to be treated differently to be honest. The issue is with complete failure of an economic entity and the impact it has on other economic entities.

When a normal business fails there is misery and loss but it's limited to the suppliers of that business (who mightn't be repaid in full for monies owed to them), the owners of the business (who lose whatever time and money they've invested in the business) and the employees who lose their jobs. It's not nice but it isn't systematically dangerous generally speaking.

A bank is different. A bank acts as a conduit between other economic entities for the transfer and storage of money. It also lends money out to economic entities and allows (in theory) for the matching of long term debts like mortgages and business loans with short term deposits (i.e. current accounts for both businesses and individuals). If a bank fails it brings down all this and a sufficiently large bank will affect everyone in some way, i.e. I may bank at AIB but the company that pays me might bank with BoI so if BoI comes down I won't get paid and the company I work for might go under, so I'm not protected by personally banking with a different bank.

A bank in extremely loose terms is an entity that takes deposits and loans them out in some way. Now there are non-bank financial entities that act as de facto banks in essence but this is a separate problem and thankfully not one Ireland has to deal with.


We can't allow bank failure because of three reasons:

a) It's really bad if a major part of the financial infrastructure of the economy collapses. A lot of people lose money and there is chaos and if there is a deposit guarantee scheme the State has to pay out a lot of money instantly. Imagine suddenly not getting paid next week, not being able to access any of your money in accounts and your credit cards not working. It really wouldn't be pretty. Now imagine all the businesses being in that position, not being able to lodge money, able to pay wages and so on. It'd be a lot worse than anything we've seen so far, a lot worse. People who can remember the banking strike can tell you what it's like when you know your money is safe!. And that was in a time when people still dealt mostly in cash or by cheque. It would be far worse if it happened now with our reliance on debit and credit cards.

b) If one bank fails it can undermine confidence in other banks and start a bank run on them (all it takes is a rumour to start that "AIB will be next" to start a bank run). Now the problem with any bank is this, it will never have enough money to hand to pay out all depositors if they all withdraw their money at once. Now this isn't a problem normally because this almost never happens under normal business conditions. A bank run is where this does happen and this can bring down any bank if the bank run isn't stopped! It doesn't matter how sensible a bank has been, if there's a bank run on it, it can be brought under. This is crucially important to understand. People are very predictable in some ways, if everyone else is doing it then we feel compelled to do it too and if a large enough group of people start queuing outside AIB/whatever looking for that money that queue is guaranteed to get longer especially if the online banking services they provide go down (as happened with Northern Rock!). If a bank is left fail it can only be let happen when you can be pretty damn sure it won't start a domino effect and this is very hard to know.

c) The other problem is like the second one but is concerned with long term confidence and stability. If a major Irish bank failed it would scar a generation with the losses suffered. It would undermine the future workings of banks by reducing our ability to trust that our money will be safe and if we don't trust that our money is safe then bank runs can suddenly start (this is why we have deposit guarantee schemes by the way, not for the sake of borrowers!). The problem is guarantee schemes are a gamble, so long as confidence in banks remains high, they don't cost any money. As soon as a bank fails they cost a lot of money. There was a time, in the States, where some banks financed their own insurance style schemes to protect against bank runs (if one of the group suffered a bank run the other banks would band together to make sure that bank had enough cash to meet demand and by doing so hopefully avert bank runs before they even happened because if people believe that the other banks will fund the bank during a bank run they won't bother to queue outside it for money and because of this no bank run happens etc). The issue was this, a second group of banks started in operation which didn't pay into these schemes and because they didn't pay into them they could offer savers a higher rate of interest on deposits and so on. So the State needs to enforce the guarantee scheme on all banks or it won't work.

The other half of this is stability. Instability means outsiders won't lend to our banks and people in the country might opt for shares, bonds or whatever instead of deposit accounts. This reduces the pool of potential loanable funds. This reduces potential investment in a country. This is a really bad thing as any business owner could tell you because when there's a shortage of liquidity then running a business suddenly becomes a lot harder. It's more complicated than this but again it's a confidence issue. Stability encourages confidence in the system, confidence in the system averts the possibility of bank runs that could bring down otherwise healthy banks and further than this confidence increases the liquidity available in a country by allowing for capital inflows to occur, be they through MNCs setting up here or money loaned to Irish banks or whatever.

ei.sdraob

nesf wrote: »

A bank is different. A bank acts as a conduit between other economic entities for the transfer and storage of money. It also lends money out to economic entities and allows (in theory) for the matching of long term debts like mortgages and business loans with short term deposits (i.e. current accounts for both businesses and individuals). If a bank fails it brings down all this and a sufficiently large bank will affect everyone in some way, i.e. I may bank at AIB but the company that pays me might bank with BoI so if BoI comes down I won't get paid and the company I work for might go under, so I'm not protected by personally banking with a different bank.

A bank in extremely loose terms is an entity that takes deposits and loans them out in some way. Now there are non-bank financial entities that act as de facto banks in essence but this is a separate problem and thankfully not one Ireland has to deal with.

and there lies a problem

the banks used to be specialized (investment bank, consumer deposit bank, business only bank)

but they grew and merged and became less regulated with looser criteria on how much they have to hold

so a disease in one place spread elsewhere



so a possible solution would be to have separate banks, lets say:
* Irish Investments Bank
* Irish Deposit Bank
* Irish Business Bank
* Irish Mortgage Bank

you see where im going? so if a bad investment is made in the the Investment bank (lets say a rogue trader) it doesnt bring down the mortgage/business banks and so on

nesf

ei.sdraob wrote: »

and there lies a problem

the banks used to be specialized (investment bank, consumer deposit bank, business only bank)

but they grew and merged and became less regulated with looser criteria on how much they have to hold

so a disease in one place spread elsewhere



so a possible solution would be to have separate banks, lets say:
* Irish Investments Bank
* Irish Deposit Bank
* Irish Business Bank
* Irish Mortgage Bank

you see where im going? so if a bad investment is made in the the Investment bank (lets say a rogue trader) it doesnt bring down the mortgage/business banks and so on

Yeah the whole reason for separating the banks in the US into investment banks and commercial banks and barring the latter from engaging in the former was because of the experiences in the Great Depression. We just had a long period of stability in the financial system post-1930's in Western Economies and we got lax about it.


One of the many issues for Ireland was this. The same guys were loaning the money to the people buying houses were also loaning the money to the guys building houses so after giving a loan to a developer a bank had a perverse incentive to give mortgages out to people buying those homes so they could get a return on their original loan. This is a bad situation and raises the question of whether we should banks into entities that loan to developers and companies and entities that loan to private individuals so we avoid this incentive though this division isn't as easy and clean as it first appears (what happens to sole traders operating out of their personal accounts? Do they get loans from like a private individual or will they have to go to the commercial bank?).

ROS123

starbelgrade wrote: »

The biggest story for me - just on a personal level - was getting rid of 100watt light bulbs. God be with the days when you could switch a light switch & not have to wait until the bulbs warmed up before you could actually see where the hell you were.

+1 for the light bulbs

Dannyboy83

nesf wrote: »

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

Interesting post NESF.

1. Why could we not have set up a new state bank with the NPRF funds/Nama funds from ECB?
Let the banks fail and buy their network branches.
Surely then, people would not panic given their guarantees, it would leave savings & reserves as is, no chance of a run and the liquidity problems would have been avoided meaning a much lighter recession.

2. Given the failure of our legislation, the banks repeated reckless behaviour and bailouts from the last century to this, why not just make private banks illegal and allow only heavily regulated state banks to operate here?

I think its cost the German Tax Payer €105billion to bail out HypoRealEstate after they bought Depfa. As you said yourself "You can't treat banks like normal business". So why do we apply that only post-bust, but never pre-bust? We don't do it with the Judiciary or the Army or the Police.

imme

nesf wrote: »

We can't leave banks fail.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

Do you see no implications for the failure of Anglo?

Cufflink

oceanclub wrote: »

Ah, it's amazing how all the people who were telling us that the good times will never end - or at worst, there would be a soft land - now say sure they always saw it coming and it could never last.

P.

It's not amazing. Everybody knew that the Celtic Tiger would not continue to roar at the volume it was going in the first three or four years of the decade; what staggered everyone (David McWilliams included) was the 1930s scale of the collapse. That was my point. A lot of people think McWilliams was warning against such a collapse, but he no more saw it coming than anyone else. Most people thought that we would just settle at a level of growth that was normal for a modern western state.

oceanclub

Cufflink wrote: »

It's not amazing. Everybody knew that the Celtic Tiger would not continue to roar at the volume it was going in the first three or four years of the decade

Oh, "everyone" did, did they? So, noone was saying that house prices would continue to rise 'til 2020, or that the average house price would be €500,000 by next decade? Sorry, but there's plenty of quotes from vested interests out there, if you care to look, to suggest they thought the good times would go on forever. Remember the mythical soft landing everyone was going on about? Sorry, but the ideal that McWilliams was as bad as the rest of them is sheer revisionism.

P.

ei.sdraob

imme wrote: »

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

Do you see no implications for the failure of Anglo?

in US when banking buddies became part of government > http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

in Ireland when brown envelopes got heavier


Anglo should have failed while the BOI and AIB had their consumer/deposit sections separated, while the investment/insurance arms were severed or made into separate companies altogether

actually they should do to banks what was done to ESB, where the grid was given to Eirgrid and ESB was split into ESB Group consisting of several loosely connected companies

imme

ei.sdraob wrote: »

in US when banking buddies became part of government > http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

in Ireland when brown envelopes got heavier


Anglo should have failed while the BOI and AIB had their consumer/deposit sections separated, while the investment/insurance arms were severed or made into separate companies altogether

actually they should do to banks what was done to ESB, where the grid was given to Eirgrid and ESB was split into ESB Group consisting of several loosely connected companies

It is the nature of banks to diversify, a bit of insurance, a bit of stockbroking, a bit of a Polish bank, a bit of a UK mortgage provider, a bit of this, a bit of that. Should they be restricted in the future of diversifying. Is that 'allowed' in the economic model we use in Ireland.

If you were to force AIB for example to sell off some of their non-core banking business, what is to stop them in 5 years time going back into that business to Maximize Profits.

3DataModem

nesf wrote: »

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.

This is what I've been saying for a long time. Banks cannot be run as pure commercial enterprises, the same way the ESB cannot be run as a pure commercial enterprise. If the ESB fecks up we can't let them just shut up shop - we need the power as a basic utility - same as retail banking is a basic utility. I'll never forget the Little House on the Prairie episode where the town's bank was at risk of closing and Paw said "Town'll go under without a bank". How right he was.

ei.sdraob

imme wrote: »

It is the nature of banks to diversify, a bit of insurance, a bit of stockbroking, a bit of a Polish bank, a bit of a UK mortgage provider, a bit of this, a bit of that. Should they be restricted in the future of diversifying. Is that 'allowed' in the economic model we use in Ireland.

If you were to force AIB for example to sell off some of their non-core banking business, what is to stop them in 5 years time going back into that business to Maximize Profits.

thats a very good point

its a thin line to thread, one one hand too much regulation is bad for business on the other hand bad things can happen

having smaller more specialized banks surely cant be a bad thing? tho yes they will tend to grow and expand and we could endup at square 1

Cufflink

oceanclub wrote: »

Oh, "everyone" did, did they? So, noone was saying that house prices would continue to rise 'til 2020, or that the average house price would be €500,000 by next decade? Sorry, but there's plenty of quotes from vested interests out there, if you care to look, to suggest they thought the good times would go on forever. Remember the mythical soft landing everyone was going on about? Sorry, but the ideal that McWilliams was as bad as the rest of them is sheer revisionism.

P.

That's right, oceanclub. Vested interests like developers and estate agents certainly claimed that what goes up does not neccessarily come down. Those who were lucky enough to have had even temporary access to the national brain cell (of whom McWilliams was undoubtedly one) knew better. There are some fundamentals that never change, and the law of gravity, be it phyisical or economic, is one of them. McWilliams was clever enough to realize that, but if he had been really clever he would have been able to warn us of the specifics of what was coming, not just general 'watch your step' and 'keep your eyes peeled' injunctions: that's good advice at any time.

imme

ei.sdraob wrote: »

thats a very good point

its a thin line to thread, one one hand too much regulation is bad for business on the other hand bad things can happen

having smaller more specialized banks surely cant be a bad thing? tho yes they will tend to grow and expand and we could endup at square 1

eh wasn't Anglo Irish Bank a specialised bank?, they couldn't have been described as a smaller specialised bank.

ei.sdraob

imme wrote: »

eh wasn't Anglo Irish Bank a specialised bank?, they couldn't have been described as a smaller specialised bank.

and thats exactly why they shouldn't have been given a cent

i dont see what damage would have occurred to average person if they failed

now if AIB or BOI fail there be war

Sleepy

Dannyboy83 wrote: »

Given the failure of our legislation, the banks repeated reckless behaviour and bailouts from the last century to this, why not just make private banks illegal and allow only heavily regulated state banks to operate here?

Ok, so assume we do this. Within a few years the average wage of a bank employee is around 80k a year (assuming an ESB type set-up).

Now, how do we pay for that?

If we reduce the interest levels on savings to pay for it, money will stream out of the country to places it can get a better return.

If we increase the interest on loans, business suffers due to a lack of affordable credit and consumers whinge because getting a loan is very expensive.

Governments can't run businesses efficiently (especially our one). That's why we leave it to the private sector wherever possible.

nesf

imme wrote: »

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

In the Great Depression initially anyway banks were allowed to fail. It's generally agreed among economists that have studied the area that the banking failures lengthened and deepened that recession and made things worse. One of the major things to come out of it was that while yes banks that were "bad" failed, other banks that weren't "bad" also failed because of the drop in confidence over bad banks failing causing bank runs on good banks.

You can't limit bank failures to the bad banks unlike other businesses! This is a really serious problem!


Anglo being left fail, I don't know to be honest. It would have undermined confidence both at home and internationally in Irish banks. This would have been a bad thing. The issue is whether international investors and Irish people would believe the Government if they said "No more banks will fail" after letting Anglo fail. So long as you believe that they would believe the Government, letting Anglo go under is reasonable. If you believe that the Government mightn't have been believed after it (i.e. if they leave one bank go, then they could be willing to let Permanent TSB or another small Irish bank go) then letting Anglo collapse could have been a very bad thing. Invariably some investor confidence would have been lost and some Irish banks would have found it even harder to borrow money on the international markets which would have worsened their situation.

Anglo wasn't a major clearing bank, it going down wouldn't have had a very severe effect on the financial infrastructure of the economy. The problem is whether Anglo going under would screw over the clearing banks in the State and this is an open question.

Tipp Man

nesf wrote: »

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

All very true, I would also add the impact of letting banks fail has on the international business community in this county. I work for a multi national which has some large cash balances, should anything happen to these then the company would be out of the country faster than you could say w##ker bankers, that is a simple fact. Every time the top dadies are on the phone, first question is how safe is our money in Ireland.

Now it is very hard to stomach having to bail the banks out but the simple fact is that there is absolutely no choice in it, the method used can be debated but not the actual choice of whether to do it or not

Fact is if the government left AIB and/or BOI fail then we would be in a hell of a lot worse position then we currently are in.

johnnyskeleton

nesf wrote: »

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

How the hell did this guy pass first year economics, capitalism has never been about rewarding good behaviour. Ever.

Good=profitable. That's capitalism 101.

johnnyskeleton

nesf wrote: »

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

I disagree. Without the banking system or banks in general we wouldn't have modern capitalism. But that doesn't mean we need to keep the current banks afloat. Don't forget that the Irish banks could easily have been divided into the profitable and non-profitable sections. If AIB was insolvent, their branch network, credit card infrastructure and savings book could be sold off at a nominal amount to another bank or even to a new bank starting up. Their profitable loans could be sold at a small (e.g. 10% discount) while their less profitable or loss making loans could be sold at a greater discount.

Sure it would be a bit inconvenient at the moment, and sure a lot of people would lose a lot of money, but the economy would bounce back and the long term consequences would not be as dire, in particular the moral hazard that banks believe because they are continuously bailed out that they can take any kind of risk they want.

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland. The problems we face are caused by over reliance on externally sourced capital, so the cure is certainly not going to come from them. Therefore, if the international banks and investors who lent/invested in the Irish banks lost their shirts, it would teach them not to do it again.

The deposit guarantee would cover ordinary savers up to a point (and if any taxpayers money is paid out due to the banking crisis this is the best way of paying it) and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

At least letting the current banks fail and working on building up a new group of banks from the profitable parts of the banking system would ensure that by now we would have experienced a much more severe time over the last 2 years, but we would be in a much better position to rebuild our economy or, as BL put it "turn the corner".

But we didn't do that, and so we are faced with the spectre of slow decline

Hotblack Desiato

johnnyskeleton wrote: »

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland.

We bloody well have to take notice of their view when our government is having to borrow 20+ billion euro a year off them and 'their view' is what dictates the interest rate we pay.

Flamed Diving

johnnyskeleton wrote: »

Good=profitable. That's capitalism 101.

Define good and bad, in the context of this module.

Flamed Diving

johnnyskeleton wrote: »

Don't forget that the Irish banks could easily have been divided into the profitable and non-profitable sections.

Ok.

If AIB was insolvent, their branch network, credit card infrastructure and savings book could be sold off at a nominal amount to another bank or even to a new bank starting up.

Credit card default is high and rising, peoples deposits are on the liabilities side of the balance sheet, no one wants to purchase liabilities. Any bank that inherits this delightful bundle will be instantly insolvent, with no capital reserves.

Their profitable loans could be sold at a small (e.g. 10% discount) while their less profitable or loss making loans could be sold at a greater discount.

NAMA, then. So far we have a solution to create more insolvent banks and then implement NAMA. Sounds great!

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland. The problems we face are caused by over reliance on externally sourced capital, so the cure is certainly not going to come from them. Therefore, if the international banks and investors who lent/invested in the Irish banks lost their shirts, it would teach them not to do it again.

We do indeed rely heavily on foreign capital, but that is because our government is running a huge deficit. If you would like to have every international investor to lose their shirt with Ireland, so be it. But how do you propose we pay to keep the lights turned on? Sure, in the long-run, bond markets soon forgive and forget, but it will be a few years of massive budget cuts. Not the garden variety we just saw last week.

The deposit guarantee would cover ordinary savers up to a point (and if any taxpayers money is paid out due to the banking crisis this is the best way of paying it) and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

No, it would be much worse, if we implemented everything you said, to this point.

At least letting the current banks fail and working on building up a new group of banks from the profitable parts of the banking system would ensure that by now we would have experienced a much more severe time over the last 2 years, but we would be in a much better position to rebuild our economy or, as BL put it "turn the corner".

I have already explained why this is wrong. Take a few deep breaths before you respond, I'm not in the form for responding to straw men arguments.

nesf

johnnyskeleton wrote: »

Good=profitable. That's capitalism 101.

So owning and running a sweat shop is good behaviour now is it?

nesf

johnnyskeleton wrote: »

and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

Sweet mother of God, no. Just no.