Alternative Solution to banking crises

Justin Collery

It is firslty required to acknowledge that the banks will not lend again following NAMA. They still have adverse deposit / loan ratios and a distressed loan book. This will cost money, the debate should be around how the solution is formulated, i.e. how the money is spent. Here is my solution:

1) Identify the amount of money required by the banks to resume lending. Be brutal. This will include recapitalisation and addressing of any deposit / loan ratio imbalance. There is a danger if this number is too small rather than too big.

2) Divide that figure by the population of the country

3) Everyone receives a cheque for the amount calculated, with conditions

These are the conditions:

If you are under 18, the money is used to buy bonds in the banks. When you reach 18 the money can then only be used to fund 3rd level education. If the fund is not used by your 35th birthday, it is converted to a pension.
The banks benefit as this is part of the recapitalisation of the bank. Minors benefit as there is a fund for every child to go to college. The government benefits as there is a reduced requirement to fund 3rd level for the next 18 years.

If you are over 18, and have a mortgage with the banks concerned, the money can be used to pay off the mortgage.
The banks benefit as it removes a large part of the questionable loan book. Joe blogs benefits as it reduces his outgoings and will help him from the higher taxes which are on the way. The government benefits as people will start to 'feel' less poor and so spend more.

If you are over 18 and choose not to pay off the mortgage the money is used to buy bonds or shares in the banks as part of your pension.
Again the banks get recapitalised, however both Joe Bloggs and the government benefit from provision for future pension requirements.

This gives everyone a stake in the solution to the problem and has tangible benefits for everyone, banks, government and general public. It is more likely to get public support as we all get a cheque in the post, but more importantly it solves the problem in a way which helps a generation with silly mortgages, provides for future pension and education costs but doesn't cost a cent more that what the cost will be in any case.

Why can't this happen?

JC

woodseb

jcollery wrote: »

It is firslty required to acknowledge that the banks will not lend again following NAMA.

stopped reading here.....

(actually, i didn't, it's not that bad idea i suppose but i think the government would find it hard to borrow for that type of scheme)

Justin Collery

they're going to have to borrow the money any way to recapitalise the banks.

Mad_Max

I honestly really really hope someone who knows about this type of thing can say this wouldn't work.

Because if this could work I'd be really dissapointed that you weren't involved in the decision making process.

Welease

If I am reading you solution, wouldn't it effectively require double recapitalisation to achieve the same effect? (i.e. we have to borrow twice as much)

The current recapitalisation is intended to get the bank books healthy and that includes leaving the current healthy loans in place.
Your solution seems like just shifting money around, but would result in the banks getting rid of the bad loans (great) but also getting rid of the good loans (mortgages etc.).. so in essence recapitalisation doesn't occur..

Or am i missing something?

jmayo

jcollery wrote: »

It is firslty required to acknowledge that the banks will not lend again following NAMA. They still have adverse deposit / loan ratios and a distressed loan book. This will cost money, the debate should be around how the solution is formulated, i.e. how the money is spent. Here is my solution:

1) Identify the amount of money required by the banks to resume lending. Be brutal. This will include recapitalisation and addressing of any deposit / loan ratio imbalance. There is a danger if this number is too small rather than too big.

2) Divide that figure by the population of the country

3) Everyone receives a cheque for the amount calculated, with conditions

These are the conditions:

If you are under 18, the money is used to buy bonds in the banks. When you reach 18 the money can then only be used to fund 3rd level education. If the fund is not used by your 35th birthday, it is converted to a pension.
The banks benefit as this is part of the recapitalisation of the bank. Minors benefit as there is a fund for every child to go to college. The government benefits as there is a reduced requirement to fund 3rd level for the next 18 years.

If you are over 18, and have a mortgage with the banks concerned, the money can be used to pay off the mortgage.
The banks benefit as it removes a large part of the questionable loan book. Joe blogs benefits as it reduces his outgoings and will help him from the higher taxes which are on the way. The government benefits as people will start to 'feel' less poor and so spend more.

If you are over 18 and choose not to pay off the mortgage the money is used to buy bonds or shares in the banks as part of your pension.
Again the banks get recapitalised, however both Joe Bloggs and the government benefit from provision for future pension requirements.

This gives everyone a stake in the solution to the problem and has tangible benefits for everyone, banks, government and general public. It is more likely to get public support as we all get a cheque in the post, but more importantly it solves the problem in a way which helps a generation with silly mortgages, provides for future pension and education costs but doesn't cost a cent more that what the cost will be in any case.

Why can't this happen?

JC

Take AIB for example, they are owed something like 550,000,000 by Carroll and his Zoe group of companies.
Take Anglo, it is owed a big chunk of the 412,000,000 paid for the Ringsend Irish Glass bottle site when it was bought by mcnamara, his Davy's investor ex friends, derek quinlan, and the DDDA quangoe.

So who repays these debts or gets them off the balance sheets of these banks ?

Is it more a personal debt forgiveness mechanism rather than a way of saving the banks ?

Justin Collery

AIB (Acme Irish Bank!) has

Deposits - 50bn
Loans - 120bn

NAMA buys 20bn of loans from Acme for 10bn leading to a loss of 10bn.

That leaves 100bn of loans, some of which everybody knows are bad, and 50bn of deposits. I don't want to get too hung up on this point, but Acme will not start lending again until the deposits and loans are within 20% or so of each other.

So, Acme needs 10bn from the NAMA loss, plus for the sakes of argument, 25bn to cover losses and bring deposit loan ratio in line so 35bn in all.

The current plan is the government borrows this money and gives it to the bank through shares, bonds and so on (they become nationalised). The government buys and holds the shares / bonds.

My plan is the government borrows the same amount of money, but the public get the bonds / shares that are bought with it.

The net effect for the banks is the same. The net effect for the public certainly isn't. The net effect for the government is also the same as the money is invested in education and pensions which the public will now pay for rather than the government.

The money will be borrowed, and we will all have to pay it back. It will be a lot of money, so I'm saying we should get the benefit. Implicitly if we get the benefit, the government will too.

If the next generation are going to pay for this mess, lets give them something in return!

JC

Welease

Sorry, but it seems like a lot of extra effort for zero added benefit.. The government are not some seperate entity that we are handing the value of these bonds to.. they represent us.. WE ARE getting the bonds essentially.(without the hassle of administering bonds to every man, woman and child in the country)

What would be the advantage of your scheme?

Sand

@woodseb

stopped reading here.....

(actually, i didn't

Tbh, you didnt need to put in the second bit, everyone knows that the chances you stopped reading are pretty much zero.

I dont know what people still bother with it. Its right up there with "FYP!"

@JC

Why can't this happen?

Couple of reasons.

1 - Firstly it presumes that AIB, BoIs and Anglo-Irish's problems are *our* problems, rather than the problem of the stakeholders in AIB, BoI and Anglo-Irish. I have yet to see this case proven convincingly.

2 - Whose writing the cheques that are being wired to everyone in the country? The very same people receiving them, or to be more exact, the long suffering taxpayers who are merely a subset of the country. Its another massive transfer of wealth from the taxpayers to others who arent paying tax.

3 - It seems overly complex for what it is:

Why bother sending people cheques? Waste of time, paper, post let alone the whole bureacracy of tracking that everyone gets one and no more than one. Fraud and so on would be a nightmare.

People under 18 only being allowed to spend it on third level education.
- Problem is this presumes everyone is going to benefit from third level education. Some people just arent. Shoving them in a classroom for three years and hoping some of the mud sticks isnt going to be all that productive.
- Pension idea seems a small bit better, in that everyone will need a pension, but see below:
- Again, it seems a very complex way of trying to spend money on an education budget by bouncing it around someones account, into a bank bond purchase, and assuming it doesnt vanish into another AIB escapade, pouring it into third level education. Why not just spend it where we want it to end up, assuming we can raise the money at all (see point 2).

People over 18 using it to pay off a mortgage
- Problem is this might not actually boost the banks position all that much.
- Performing mortgages are just that, performing. Anyone who has a job and is able to pay their mortgage is an asset to the bank, based on the income flow from the mortgage. If they start paying off the mortgages early, suddenly the banks have somewhat less risk(but giving the mortgage was performing it wasnt all that risky to begin with), but they also have less income.
- Non performing mortgages are also just that. Paying off 5K of 600K still leaves a 595K loss for the banks to suck up on that 2 bed appartment in Athlone whose owner is now unemployed with no prospect of employment for years to come.

4 - Theres massive moral hazard involved. The banks get off scot free, so in fairness the scheme is no worse than NAMA. But also the unemployed (non tax paying) owner of that 2 bed appt gets a free cheque to help him out. Meanwhile taxpayers get to bail out this man, but struggle on with their own mortgages. Meanwhile, all these "cheques" have to be paid for....whose going to pay for them? The taxpayers, struggling with their mortgages, who now can look forward to further tax hikes to raise the money to cover those cheques.


Essentially, this plan has the same basic underlying flaw of NAMA and all the other bank rescue deals. It tries its best to ignore that the banks and developers have lost dozens of billions of euro, and perhaps even more. Its important to stress that they have lost the money. They havent mislaid it. Its gone. If they had taken it out onto Stephens Green and burnt it that would have saved themselves sometime.

The wealth reflected in those billions has been utterly destroyed. Theres no getting over that. Someone has to take the loss. Either its the bankers and the developers and their stakeholders who lent them the money, or its us, the taxpayer. All the plans and schemes cant hide the essential truth - theyre looking for a mug to dump the losses on. Because someone is going to have to suck up the losses. And if it comes down to the state and taxpayer surviving, or AIB, BoI, Anglo Irish and their stakeholders surviving, I choose us.

To be a little more positive, heres my alternative solution:

1 - Play for time until Sept 2010, prep for #3 (legal basis).
2 - Remove Guarantee
3 - Wipe out shareholders, junior debt and force senior debt to take losses on a debt for equity deal. Try to minimise losses to depositors (and there will be some). Fire every single board, and every single banker that contributes to the culture of Irish banking that exists.
4 - Relaunch banks under new, preferably non-Irish management.
5 - Concentrate on dealing with the economic crisis, for the first time in 2 years now that the banking crisis is wrapped up.

Justin Collery

@Welease
The added benefit is to those who now have hugh mortgages, will have to pay for education in the future because the government can't, or have inadequate pension plans.

@Sand
In another discussion I think I would agree with you. First off however don't get fixated on how the accounts are set up etc. It's beside the main point.

What you are advocating is an orderly collapse of the entire banking system. Are you really prepared for the consequences? What happens a month before the guarantee runs out? Panic starts as people take their money out of the banks. Then the money runs out and the banks close. Close every ATM machine in the country run by AIB and BoI of a Friday evening, stop all credit cards from working and what do you think will happen by Monday? Apart from the guarantees on deposits stop economic activity for a week while the problem gets sorted???

The fact is we will all pay for this, those employed will pay more tax, those getting hand outs will get less hand outs.

Under 18s can keep the money for their pension if they do not want to use it in education.

People paying off mortgages, good or bad, reduces the loan book. This has to happen to get loan to deposits ratio back into whack. Lending will be depressed until loans and deposits approach each other.

Moral hazard. I agree, but pulling the temple down as you advocate is not an option. The moral hazard encompasses those in power, the regulator. My solution removes some of the power from them. The bankers, current shareholders, bond holders still have to be dealt with, and I agree we should be tough with them

JC

Sand

@JC

First off however don't get fixated on how the accounts are set up etc. It's beside the main point.

I dont agree its beside the point to note how expensive and difficult the administration of this would be, for benefits that could be achieved far more easily by simply removing the bureacracy and flipping through accounts.

What you are advocating is an orderly collapse of the entire banking system. Are you really prepared for the consequences?

Firstly, I am talking about the orderly collapse of the failed banking institutions and their stakeholders, not the banking system. The staff and facilities will not vanish into a puff of smoke.

Secondly, youre talking like Ireland can sustain an operating loss of 25 billion per year whilst shovelling something like 80-90 billion into the banks and hoping we get even half of it back.

NAMA isnt going to work. Its not going to restart lending. And its going to inflict an epic loss on the Irish taxpayer as they try to make money on property backed loans in the immediate aftermath of the collapse of a credit fuelled property boom.

Your plan isnt going to work either.

Maybe we need to stop fighting the last war, realise our banks are insolvent, that there are going to be losers and that we need to ensure we are not counted amongst them?

What happens a month before the guarantee runs out? Panic starts as people take their money out of the banks. Then the money runs out and the banks close. Close every ATM machine in the country run by AIB and BoI of a Friday evening, stop all credit cards from working and what do you think will happen by Monday? Apart from the guarantees on deposits stop economic activity for a week while the problem gets sorted???

I dont want to worry you but you, and most people reading this post have your money in an insolvent institution. They dont actually have you money. They gave it all to Liam Carroll to buy some magic beans. Theyre skint. The only guarantee you have is from an state shipping 25 billion a year, with no real prospect of actually being able to cover your deposit, and probably facing into a debt default itself.

If you run quickly, you ought to be able to get down to the ATM before the rest of boards.ie!!!!

The point is youve got no credible reason not to withdraw your money right now and spend it all on shotguns and cans of beans (you could probably get a shack in the woods for a steal too) if youre that easily spooked.

A - You dont announce your intentions to every Tom, Dick and Harry. For all I know Brian Lenihan is actually a genius playing the greatest bluff in the history of Irish gambling.

B - When you do it, you do it fast. Brian Lenihan pops up on your screen saying you no longer have 2,000 in your account, you now have 1,000. So what now? Run down and withdraw it....and then what? Does it suddenly grow back to 2,000? Do you take it out of AIB and put it in BoI? Stick it under your bed?

Long story short, youll be pissed, but bar a few crazies no one will be queuing to remove their money from what will finish up as a solvent banking system (perhaps freshly guaranteed by the government when such a claim is far more credible for the remoteness of it needing to be called upon) when they are quite happy to leave it in an insolvent banking system.

People paying off mortgages, good or bad, reduces the loan book. This has to happen to get loan to deposits ratio back into whack. Lending will be depressed until loans and deposits approach each other.

Lending might not actually be depressed? Maybe over the past few years it was overextended? Banks were lending 200% of GDP into the economy at the height of the boom, when even the UK banks were lending only 100% GDP (in the middle of a boom themselves). Maybe halved lending is the proper level. Maybe this is the new normal?

People paying off mortgages is good. But reducing good loans earning income, counted as assets, wont suddenly make the bad loans, written off as bad debts suddenly come good. All it does is reduce the banks income, whilst reducing some risk too.

Under 18s can keep the money for their pension if they do not want to use it in education.

Maybe we can just save ourselves the lottery of investing in Irish banks and hassle of administration and simply put the money into the NPRF to replace the cash looted from it to bail out the banks already...money we will never see again by the way.

Moral hazard. I agree, but pulling the temple down as you advocate is not an option. The moral hazard encompasses those in power, the regulator. My solution removes some of the power from them. The bankers, current shareholders, bond holders still have to be dealt with, and I agree we should be tough with them

Yeah, maybe we should sell their children into slavery or something. Tough enough?

Look - barring some national catharsis, dragging Seanie screaming from his burning mansion and hanging him over the nearest tree wont solve a bloody thing. He is out. Its the current generation of bankers and stakeholders we need to worry about. And the lesson they have learned is simple.

Heads I win. Tails you lose.

And all these plans to socialise *their* losses will only reinforce that lesson. Someone has to lose the money, and its needs to be them, because otherwise, they or the people they train to replace them will only do it again and again and again.

For reference, AIB needed to be bailed out by a struggling Irish government back in the 1980s. How did they repay the Irish taxpayer? By helping people to evade tax. We dont this bank. We dont need its culture. We need to string up the carcass as a warning to all the others - that they had best manage their risks, because it is *their* risk.

Justin Collery

Sand wrote: »

I dont agree its beside the point to note how expensive and difficult the administration of this would be, for benefits that could be achieved far more easily by simply removing the bureacracy and flipping through accounts.

I don't see the difficulty. Everyone has a PPS number. Setup an account for each PPS number. Put the money into it. Money from that account can be transferred to
- a mortgage owned by the person with that PPS no
- a state educational institution
- a fund specifically setup to hold bank shared and bonds
This is all done electronically.

Sand wrote: »

Firstly, I am talking about the orderly collapse of the failed banking institutions and their stakeholders, not the banking system. The staff and facilities will not vanish into a puff of smoke.

Your talking about complete nationalisation, then screw the bond holders, account holders from what you say below, and then a sale to a foreign bank. I don't have a problem with the first bit, or the last bit. But given that we are borrowing 25bn a year at the moment, now is not a good time to annoy bond holders

Sand wrote: »

Secondly, youre talking like Ireland can sustain an operating loss of 25 billion per year whilst shovelling something like 80-90 billion into the banks and hoping we get even half of it back.

No it can't, and I don't believe that there is a credible plan to sort that problem right now. If I was king I'd so some pretty savage things like banning strikes by those making more than double the avg industrial wage, and then set about slashing costs across the public sector.

Sand wrote: »

NAMA isnt going to work. Its not going to restart lending. And its going to inflict an epic loss on the Irish taxpayer as they try to make money on property backed loans in the immediate aftermath of the collapse of a credit fuelled property boom.

Hey, thats my line I agree that it won't work, but I don't see that we can walk from the debts. Whats more, if we try, any reduction in the principle we will end up paying in interest.

Sand wrote: »

The point is youve got no credible reason not to withdraw your money right now and spend it all on shotguns and cans of beans (you could probably get a shack in the woods for a steal too) if youre that easily spooked.

I have the shack and the beans, hope I don't need the gun!

Sand wrote: »

A - You dont announce your intentions to every Tom, Dick and Harry. For all I know Brian Lenihan is actually a genius playing the greatest bluff in the history of Irish gambling.

B - When you do it, you do it fast. Brian Lenihan pops up on your screen saying you no longer have 2,000 in your account, you now have 1,000. So what now? Run down and withdraw it....and then what? Does it suddenly grow back to 2,000? Do you take it out of AIB and put it in BoI? Stick it under your bed?

Long story short, youll be pissed, but bar a few crazies no one will be queuing to remove their money from what will finish up as a solvent banking system (perhaps freshly guaranteed by the government when such a claim is far more credible for the remoteness of it needing to be called upon) when they are quite happy to leave it in an insolvent banking system.

Great! Lets screw the savers. What exactly did they do wrong?

This is a similar argument to leaving the Euro. They are both duds. Maybe CRH or another large company with large amounts of cash would have something to say about such a scheme. What happens to all businesses that trade internationally? How much planning did it take to introduce the Euro. Do you really think that they could do what you suggest secretly? Ireland is too small.

Sand wrote: »

Lending might not actually be depressed? Maybe over the past few years it was overextended? Banks were lending 200% of GDP into the economy at the height of the boom, when even the UK banks were lending only 100% GDP (in the middle of a boom themselves). Maybe halved lending is the proper level. Maybe this is the new normal?

People paying off mortgages is good. But reducing good loans earning income, counted as assets, wont suddenly make the bad loans, written off as bad debts suddenly come good. All it does is reduce the banks income, whilst reducing some risk too.

Lending was over inflated, however, you are failing to make the distinction between lending for property, and lending to regular businesses. I think we both agree there is too much debt, and banks should be able to lend money. The current situation is bad.

Sand wrote: »

Maybe we can just save ourselves the lottery of investing in Irish banks and hassle of administration and simply put the money into the NPRF to replace the cash looted from it to bail out the banks already...money we will never see again by the way.

I don't trust the government to have a pension for me when I retire. I don't expect to see any money 'invested' on my behalf again. I'd rather have control of my own destiny.

Sand wrote: »

Yeah, maybe we should sell their children into slavery or something. Tough enough?

Perhaps cover the actual people responsible in tar and feathers first! Then take their wallets!

Sand wrote: »

Look - barring some national catharsis, dragging Seanie screaming from his burning mansion and hanging him over the nearest tree wont solve a bloody thing.

Heads I win. Tails you lose.

And all these plans to socialise *their* losses

The logical conclusion of your argument is not to socialise their losses. That by reneging on the bank debts the bill to the tax payer will be €0. Somehow we will then magically balance the books, and the next time we have to refinance a government bond everybody will have forgotten about it! I don't buy that.

The government is going to borrow vast sums of cash on our behalf. They are going to spend that money and we will have to pay it back in taxes. Rather than the government owning what is bought with the money I think we the public should. It will lead to a better outcome for society.

MaceFace

Novel idea that I commend you on. It is a pity that others don't follow your lead by championing ideas from left field.

Unfortunately, there are a few problems with this, two of which are quite major:

1) You want the government to borrow ~30 billion to recapitalise the banks, and instead of the banks giving this money back to the government to pay back the people it borrowed the money from, you want to give it to the people of Ireland. How do you propose the government pay back the money it is borrowing for recapitalisation?

2) The problem on how to give this money out to people is full of problems. You could as you say give everyone who has a PPS number an amount. However, what about the 100k non Irish who have PPS numbers and do not live here?
Do you think that if this came into force we would not see a huge amount of immigration of people - people we can not afford to take care of now?

There are many other problems with this idea, but at least you are offering something different.

Sand

@JC

I don't see the difficulty. Everyone has a PPS number. Setup an account for each PPS number. Put the money into it. Money from that account can be transferred to
- a mortgage owned by the person with that PPS no
- a state educational institution
- a fund specifically setup to hold bank shared and bonds
This is all done electronically.

Whose going to write the software? Train people to use it? Troubleshoot? Whose going to verify the data on the system?

Theres no dodging that there will be significant costs in what will be a fairly surplus money laundering exercise.

Your talking about complete nationalisation, then screw the bond holders, account holders from what you say below, and then a sale to a foreign bank. I don't have a problem with the first bit, or the last bit. But given that we are borrowing 25bn a year at the moment, now is not a good time to annoy bond holders

Not talking about nationalisation - I am talking about forcing the stakeholders to take their losses.

As for Irelands funding position, is it improved or disimproved when Ireland doesnt have a 400billion contingent liability on insolvent banks, plus trying to hide another 70 billion nonsensical property investment scheme in an off balance sheet vehicle?

Personally, I think its improved.

I agree that it won't work, but I don't see that we can walk from the debts.

We? Whose this we youre talking about friend? I dont recall owning AIB, BoI or Anglo Irish when times were good. Are my dividends lost in the post?

We arent walking from our debts. We are just refusing to pay other peoples debts.

Great! Lets screw the savers. What exactly did they do wrong?

This is a similar argument to leaving the Euro. They are both duds. Maybe CRH or another large company with large amounts of cash would have something to say about such a scheme. What happens to all businesses that trade internationally? How much planning did it take to introduce the Euro. Do you really think that they could do what you suggest secretly? Ireland is too small.

Savers put ther cash into an insolvent institution. They took a risk, and they lost. I feel this has to be pointed out because I had a similar dispute with another poster who was pointing out their objection to bailing out reckless borrowers when it had always been clear how stupid the whole thing was, whilst demanding the savers be protected.

The problem was, if the borrowers had known how crazy things had been, surely the savers knew the same information. But they were happy to put their money in the banks carrying out the crazy lending because they liked the returns they were getting.

Dont get me wrong, savers losses ought to be minimised, but not because they are some higher form of human being - merely due to the wider economic implications.

As for companies, they might take some losses on the cash reserves - governments should attempt to favour them, but what they lose there, they will make up in a sane economic policy which is no longer attemtping to artificially prop up commercial property prices or raise taxes to pay for NAMA/bank bailout.

The sooner we hit bottom, the sooner we can stop looking down and start working our way back up.

Lending was over inflated, however, you are failing to make the distinction between lending for property, and lending to regular businesses. I think we both agree there is too much debt, and banks should be able to lend money. The current situation is bad.

Bad relative to what? Traditionally Irish banking lent only 60-80% of GDP into the economy. It ballooned to 200% by 2007/2006. Far in excess of international trends. We are going to see a massive drop in credit in the Irish economy, because it is only the reassertion of common sense.

People ought to be grateful that the banks are being somewhat cautious in their lending these days - far too many people are in deep trouble because the banks gave them whatever they wanted, and more, in the past 10 years. Banks are sophisticated market agents, with their own economists on staff - in a very real sense, we want them to be smart with their lending.

We cant reinflate the credit bubble.

I don't trust the government to have a pension for me when I retire. I don't expect to see any money 'invested' on my behalf again. I'd rather have control of my own destiny.

But you trust them to save and reorganise an entire banking system whilst simultaneously keeping track of your income and controlling on exactly what you spend it? Thats a pretty paradoxical world view to be honest.

The state has a role, it can do some things quite well. It ought to concentrate on those things, not playing Bob the Banker with the ruins of the Irish banking system. As an Irish citizen, I thought I was a member of a sovereign state, not a banking/property venture capital fund.

The logical conclusion of your argument is not to socialise their losses. That by reneging on the bank debts the bill to the tax payer will be €0. Somehow we will then magically balance the books, and the next time we have to refinance a government bond everybody will have forgotten about it! I don't buy that.

The government is going to borrow vast sums of cash on our behalf. They are going to spend that money and we will have to pay it back in taxes. Rather than the government owning what is bought with the money I think we the public should. It will lead to a better outcome for society.

I dont pretend my solution is costless. But it will be decisive and it will remove the slow slide gripping the economy. It will also address the reality of the situation - that the Irish banks are insolvent, and the Irish state does not realistically have the resources to recapitalise them to the level required.

Id also stress again, the banks debts are their debts. Come Sept 2010, they are on their own once more (though Id happily repeal the guarantee overnight to pre-empt any nervousness in the markets as Sept approached with no word of a guarantee extension). We can very definitly argue that bank bonds are not, and never were, state bonds.

And I have seen pointed out already this evening by another poster, Donald Trump has been bankrupted twice. People still put their money with him. Markets are far more ruthless and dispassionate than people give them credit for. If there is a return, and it lines up with the risk, they will invest. Theyre interested in making money, not looking to avenge some imagined slights.

Justin Collery

Sand wrote: »

@JC
We? Whose this we youre talking about friend? I dont recall owning AIB, BoI or Anglo Irish when times were good. Are my dividends lost in the post?

Lol, Love it! I can't argue with your logic (yet). I just find it hard to come to terms with. As an aside, I know someone who has already taken their money out of BoI, setup a German bank account and bought German bonds with it. Do you think that is wise, or would you do something else?

SLUSK

You could have tried the Swedish solution which was engineered by Mr Bo Lundgren.

jmayo

SLUSK wrote: »

You could have tried the Swedish solution which was engineered by Mr Bo Lundgren.

Have you ever been to Sweden ?
You do know the first thing the Scandanavian experts asked when they visited to look at the Luas was the logical question "why haven't you joined the lines ?".

Swedes would look at things logically, organise it properly, have people take responsibility for their actions and not stand for any funny sh**e.
Us on the other hand :rolleyes:

oppenheimer1

jmayo wrote: »

Have you ever been to Sweden ?
You do know the first thing the Scandanavian experts asked when they visited to look at the Luas was the logical question "why haven't you joined the lines ?".

Swedes would look at things logically, organise it properly, have people take responsibility for their actions and not stand for any funny sh**e.
Us on the other hand :rolleyes:

Strangely enough I agree with you on this, it was an outright shambles that the two luas lines were not joined when they were built, although there are some technical issues in having trams traverse the winding streets around Trinity College. However thats no excuse and the bowing to pressure of the transport minister to the city centre business lobby, was shameful. As was the city councils over the Bus Gate last christmas. The retailers shoot themselves in the foot, not willing to take some short term pain for what would have been long term gain for the whole city. I am glad they aren't turning the monsterous profits they once were.

MaceFace

SLUSK wrote: »

You could have tried the Swedish solution which was engineered by Mr Bo Lundgren.

How different actually is the Swedish model - they got large chunks of the banks for recapitalising them, albeit a larger chunk than we got.
They gave a blanket guarantee to the banks (but not bond holders).
They paid market value on loans rather than long term economic value()

But their crisis was not as big domestically, and their crisis was not happening in the middle of a worldwide recession.

So, I ask again, how different was this supposed silver bullet Swedish solution to our own?

Justin Collery

The Swedish model is not good for two reasons. 1 - part of the solution was devaluation of their currency, not an option for us. 2 - the scale of the problem. It cost them 4% of GDP, about €6bn in Irish terms. Our problem could end up costing us 40%, it's on a different order of magnitude.

Now to address Sand's points. I have to admit, I wobbled, but I am now convinced a banking collapse is wrong and impracticable. Here's why:

- Moral hazard. The problem in the first instance was not reckless lending by the Irish banks, but reckless lending too the Irish banks. Nice and all as it would be to get Seanie by the short and curlies and cover him in tar and feathers it doesn't get us anywhere. The people who should have lost their money were the ones who gave it to the banks in the first place. But wait, where are they? They're gone, they dissappeared about the same time as Lehmann brothers did. The day before the bank guarantee was put in place, everything Sand says is correct, but this is 2010, the world has moved on, and so have they. The moment the bank guarantee came into force it stopped being 'their' problem and became 'our' problem. We've passed moral hazard, about a year and a half ago.

- Complexity. You are seriously trying to tell me writing a computer program is harder than an orderly collapse of the banking system??? These are the same people you say you do not want to play banker!!! I know a thing or two about writing computer programs. It's not easy, but it is scientific, it has a start middle and end. I don't know how to collapse a banking system, and I bet the great and the good in Leinster house don't either. The risk of failure of writing the software badly is reverting to plan a, the government keeps the money, the risk of failure when collapsing the banking system is a halt to all commercial activity. I'll take the first risk please.

There are two other points also I believe are wrong.

First, your imaginary dividend from owning the banks in the goods times. I liked this comment, it was good. But the fact is you did get a dividend, it built all the nice new shiny things like motorways etc we have today, and made sure our civil servants never lacks for bread!

Account holders loosing money. This harps back to moral hazard above. Personal and basic business banking is a service, not an investment. I own a business. I can't conduct it without a bank account. It's not the same as shares or bonds. Take my money out of my bank account and I think you are not taking it for sound moral or financial reasons, but because it is there and you can.

Finally then, the reason why I think my idea is important. The amount of money that will be spent will be vast. It is too much money to be controlled by too few people in a country so small. With the sums that will be spent, the people should get the benefit, personally. It's a societally good thing to do, and I think will lead to a better outcome.

Sands logic is flawless, but denies the reality of the situation today.

JC

PS I'm on the road from Bristol to Haarlem, will have plenty more time to think about this, can't wait to check back!

MaceFace

jcollery wrote: »

Finally then, the reason why I think my idea is important. The amount of money that will be spent will be vast. It is too much money to be controlled by too few people in a country so small. With the sums that will be spent, the people should get the benefit, personally. It's a societally good thing to do, and I think will lead to a better outcome.

Well, you failed to answer two questions I posed earlier:

1) You want the government to borrow ~€30b and give it to the banks, but instead of the banks giving the money back to the government to pay those loans, you want them to give it to us. How do you expect the government to pay back the initial loan?

2) Who actually gets a slice of this €30b? Everyone with a PPS number? Do you think it is fair that non-Irish nationals who have lived in this country for a couple of years get a cut?

SLUSK

MaceFace wrote: »

How different actually is the Swedish model - they got large chunks of the banks for recapitalising them, albeit a larger chunk than we got.
They gave a blanket guarantee to the banks (but not bond holders).
They paid market value on loans rather than long term economic value()

But their crisis was not as big domestically, and their crisis was not happening in the middle of a worldwide recession.

So, I ask again, how different was this supposed silver bullet Swedish solution to our own?

The Swedish banks that were recapitalized were temporary nationalized and then sold back to private investors later. In Sweden no shareholders were bailed out unlike in Ireland were you essentially bailed out the shareholders because Ireland is a country run by gombeen-men...

MaceFace

SLUSK wrote: »

The Swedish banks that were recapitalized were temporary nationalized and then sold back to private investors later. In Sweden no shareholders were bailed out unlike in Ireland were you essentially bailed out the shareholders because Ireland is a country run by gombeen-men...

The shareholder issue was a political problem. If you remember back in 2008 when the share price of the banks were tanking, the EGMs were full of small investors (read silver haired brigade) who invested their life savings into the banks expecting to live off the dividends and have their lump sum guaranteed.

The problem was that these people were our parents and grandparents and being on the six o clock news worrying about their future, it made it very difficult for the government.
I think we learned a lot as a people since then and educated the masses that shares can go up as well as down in real life rather than just in the commercials on TV.

So, before I get jumped on by others saying that I am a FF'er or claiming that Ireland is different just for the sake of it, you really have to look at where we were/are as a country and what the general public think as opposed to those who engage in discussions and debates on the subject like us.

As for Nationalisation, I honestly think that this was the only alternative to NAMA. It was one or the other, and I am totally against the government having ownership of the banks because then they will come under tremendous pressure to keep interest rates low and loan to more and more SMEs, even those that would be considered high risk.
The bailout would then be extended to private businesses and people who overborrowed for property during the bubble.

SLUSK

MaceFace wrote: »

The shareholder issue was a political problem. If you remember back in 2008 when the share price of the banks were tanking, the EGMs were full of small investors (read silver haired brigade) who invested their life savings into the banks expecting to live off the dividends and have their lump sum guaranteed.

The problem was that these people were our parents and grandparents and being on the six o clock news worrying about their future, it made it very difficult for the government.
I think we learned a lot as a people since then and educated the masses that shares can go up as well as down in real life rather than just in the commercials on TV.

So, before I get jumped on by others saying that I am a FF'er or claiming that Ireland is different just for the sake of it, you really have to look at where we were/are as a country and what the general public think as opposed to those who engage in discussions and debates on the subject like us.

As for Nationalisation, I honestly think that this was the only alternative to NAMA. It was one or the other, and I am totally against the government having ownership of the banks because then they will come under tremendous pressure to keep interest rates low and loan to more and more SMEs, even those that would be considered high risk.
The bailout would then be extended to private businesses and people who overborrowed for property during the bubble.

The Swedish government let the shareholders lose everything because and small time investors lost alot of money too. In a capitalist society I don't see any reasons at all for private profits and socialized losses. Guess we are different that way.

tramor

Sand, I am wondering what your thoughts are on the German bond idea of Jcollery. Also your thoughts on other possibilities. Consider the risk of flucuations in non euro currency values also.

Justin Collery

@Maceface
1) The governement gets the money back when you use the money you got to pay the governement for education or pensions. It's actually a far better bet for the government. They get a defined return over 30+ years (and they will defintely make money) as opposed to a variable return over 10 years (and they will defintely loose money).

2) The hardest part of the plan undoubtedly. PPS no. plus turning up at the bank could be an idea for most people. Everyone under 18 has a PPS number so just use that. Everyone over 65 gets a pension so just use that.

JC

Sand

@JC

As an aside, I know someone who has already taken their money out of BoI, setup a German bank account and bought German bonds with it. Do you think that is wise, or would you do something else?

Germany and the German banks are stronger than Irish ones, but it might not be as diversified from banking risk as your friend might hope.

It is believed that a lot of the backing for Irish banks (and various other PIIGS) came from German bondholders, particularly their banks, so there might still be significant indirect exposure to the Irish banks, and also the struggling economies of other eurozone members. That said, Germany is a safer bet than Ireland.

Moral hazard. The problem in the first instance was not reckless lending by the Irish banks, but reckless lending too the Irish banks. Nice and all as it would be to get Seanie by the short and curlies and cover him in tar and feathers it doesn't get us anywhere. The people who should have lost their money were the ones who gave it to the banks in the first place. But wait, where are they? They're gone, they dissappeared about the same time as Lehmann brothers did. The day before the bank guarantee was put in place, everything Sand says is correct, but this is 2010, the world has moved on, and so have they. The moment the bank guarantee came into force it stopped being 'their' problem and became 'our' problem. We've passed moral hazard, about a year and a half ago.

The guarantee runs out in Sept 2010, and we can repeal it at any time should it be necessary. Its only *our* problem for as long as we make it ours.

You are preaching to the converted re: the value of a public spectacle being made of Seanie - satisfying, but otherwise pointless, and potentially dangerous should is distract from the priority of dealing with the current clowns.

That money was recklessly lent to Irish banks doesnt absolve the Irish banks own completely reckless behaviour in their lending practises. It only explains where they got the money from. The bondholders who lent to the banks ought to take a hit, same for the shareholders, same for the management.

We will definitly have to bail out AIB again. That is simply inescapable because regulators, even strong regulators, have only blunt tools to use. They will not know the internal systems and controls. The bankers will be paid and incentivied to find ways to circumvent the regulators, and they will be paid much more than the regulators will be paid to find them.

Integrity is defined as doing the right thing when nobody is looking. We need to ensure there is integrity in our banks - that they do the right thing when nobody is looking. How we do that is fear. Ensure the bank is afraid for its future if it engages in stupidly risky ventures. Bailing out failed institutions, with corrupt cultures inherent in their business is only ensuring we continue having failed, corrupt banks around instead of allowing new institutions to emerge.

- Complexity. You are seriously trying to tell me writing a computer program is harder than an orderly collapse of the banking system??? These are the same people you say you do not want to play banker!!! I know a thing or two about writing computer programs. It's not easy, but it is scientific, it has a start middle and end. I don't know how to collapse a banking system, and I bet the great and the good in Leinster house don't either. The risk of failure of writing the software badly is reverting to plan a, the government keeps the money, the risk of failure when collapsing the banking system is a halt to all commercial activity. I'll take the first risk please.

Again, we arent talking about the collapse of the banking system. We are talking about crystallising the losses of the stakeholders in a half dozen banks.

This isnt new ground - the US regularly mops up failed banks. 171 in 2009. 30 so far in 2010.. They can do it over a weekend.

It mightnt be simple, but its been done before. And its neccessary so that we can stop obsessing over the milk thats already been spilt and move on to figuring out how we can grow. On the other hand, the administration of tracking individual slices of the bailout pie ( if we allow that we will get much or any of that money back which is wildly optimistic) is complex and unneccessary.

First, your imaginary dividend from owning the banks in the goods times. I liked this comment, it was good. But the fact is you did get a dividend, it built all the nice new shiny things like motorways etc we have today, and made sure our civil servants never lacks for bread!

Im sure the banks paid whatever taxes they couldnt possible avoid (and Irish lawyers seem to have a good old wheeze with our charity laws) but did they pay an appropriate fee for the state underwriting the risk of their entire crazed loan book? A fee appropriate with the risk of that loan book?

Theyve been getting a freebie. I as a taxpayer am on the hook for their losses, and the only thanks I get is whatever taxes the banks werent able to hide from the revenue. Which even Davy stockbrokers has admitted was largely wasted on public sector wage hikes and madcap schemes like decentralisation. And lets not forget the last time AIB was bailed out in the 80s, it thanked the suffering taxpayers/mules by advising and assisting people in evading their taxes in the DIRT scandal. This again ties into the moral hazard - these banks are corrupt culturally. They have been for decades, and bailouts only ensure that they will be in future too.

Account holders loosing money. This harps back to moral hazard above. Personal and basic business banking is a service, not an investment. I own a business. I can't conduct it without a bank account. It's not the same as shares or bonds. Take my money out of my bank account and I think you are not taking it for sound moral or financial reasons, but because it is there and you can.

Look, we're back to trying to pretend there isnt a massive gaping blackhole on the balance sheets of the banks where you put your money. There is. And someone *is* going to pay for it.

I am a depositor myself, but I think it is far more fair (a much abused word these days) and just to apply the loss on the basis of the stakeholders taking the hit first before we start looking to shakedown bemused bystanders. Especially given the state is struggling with its own fiscal crisis.

You think your money isnt going to be taken to cover the loss under a bailout scheme? Through tax hikes? Inflation? Extra bank charges? Higher interest rates? The only difference is that my solution is up front and honest - you notice directly that your money is being taken, you can track back whose taking it and why. Your money is still getting taken under the bailout scheme, theyre just doing it more subtly.

You gave your money to terribly run banks to hold and invest, for which they gave you an interest return. You are a stakeholder in the performance of that bank, even if you didnt realise it. I do think that depositors need to be protected as much as is *possible*, but only because of the economic implications - not because depositors are better, nicer people than bondholders or shareholders.

Also, the bank doesnt actually have your money anyway. You gave them the money. They lent it out to a crowd of eejits with dreams of housing estates plonked down in the middle of nowhere and/or buying houses in those estates for 10-15 times their annual salaries.. All youve got is an IOU. From an insolvent bank. In practical terms all Id be doing is making the IOU credible.

Finally then, the reason why I think my idea is important. The amount of money that will be spent will be vast. It is too much money to be controlled by too few people in a country so small. With the sums that will be spent, the people should get the benefit, personally. It's a societally good thing to do, and I think will lead to a better outcome.

Firstly, we arent going to see much if any of that money back from the banks. Even post NAMA/bailout, they are still going to be reduced to insolvency when the laws of reality reapply to the mass unemployment vs. negative equity/personal debt crisis that everyones doing their best to ignore for now.

Secondly, trying to dress up the bailout as somehow of benefit to ordinary people who are getting enslaved to pay off the losses of others is just putting lipstick on a pig. If you trust the governments interpretation of events, then trust them.

Thirdly giving citizens control or influence over the bailout is the last thing this government or the banks want - suddenly the banks is required to supply cash flow to every kid who hits 18 to pay for their education. These banks are sick and dying, and even after a bailout theyre still going to be on deaths door. Imposing some sort of uncontrollable schedule of payments on them that the banks and government cant fudge somehow would undermine the whole point of the process - its to uphold the interests of the banks, not the citizens. Confusing the two just undermines the whole reason for doing a bailout in the first place.

@tramor

Sand, I am wondering what your thoughts are on the German bond idea of Jcollery. Also your thoughts on other possibilities. Consider the risk of flucuations in non euro currency values also.

Stuck it in.

Re: other possibilities, thats a pretty broad subject matter. Id need something a little more specific.

But I would note that defenders of NAMA often fallback to the last ditch defence of "Well, at least NAMA is doing something - no ones come up with any alternatives", but this discounts the value of "do nothing" as an alternative.

When you arent sure of the situation, sometimes wait and see is the best course. Lenihan underwrote the entire Irish banking system in a panicked, rushed decision without having any idea what it was he was putting the state on the hook for. That was "doing something", but "doing nothing" would have been a far better option as the since that stupid, foolhardy decision the state has been forced to engage in a paradoxical campaign of attempting to improve our economies competiveness whilst also attempting to prop up commercial rent and property prices to try minimise the losses on NAMA.

We have to remember that the banking crisis is something that Lenihan chose to make *our* problem. The main crisis facing us is our economic and fiscal situation - thats the crisis which should be our priority before we go seeking more trouble.

Sand

@JC

Worked example
AIB (Acme Irish Bank!) has

Deposits - 50bn
Loans - 120bn

NAMA buys 20bn of loans from Acme for 10bn leading to a loss of 10bn.

That leaves 100bn of loans, some of which everybody knows are bad, and 50bn of deposits. I don't want to get too hung up on this point, but Acme will not start lending again until the deposits and loans are within 20% or so of each other.

So, Acme needs 10bn from the NAMA loss, plus for the sakes of argument, 25bn to cover losses and bring deposit loan ratio in line so 35bn in all.

The current plan is the government borrows this money and gives it to the bank through shares, bonds and so on (they become nationalised). The government buys and holds the shares / bonds.

My plan is the government borrows the same amount of money, but the public get the bonds / shares that are bought with it.

I've been talking a bit about not being able to avoid the loss on the balance sheets and someone going to have to take the blame - Ive just gone through this. Heres my worked example of my understanding of your scheme.

Current situation:

ACME Bank

Liabilities:
Depositors/shareholders - 20
Scary Bondholders - 80
Total - 100

Assets
Cash/Other - 5
Commercial Loans - 40 (Marked down from book)
Mortgages - 40 (Marked down from book).
Total - 85

Shortfall of 15, bank is insolvent!

NAMA Plan

State "buys" Commercial/Mortgages for 100 in government bonds ( versus their market value of 80).

Assets now look like this:

Cash/Other - 5
Government Bonds - 100

Assets = 105, Liabilities = 100, bank is solvent and can use Govt Bonds as collateral for cash loans to meet short term liquidity needs. Grate success!

Of course, the state has paid 100 for stuff thats only worth 80, but thats no longer the banks problem.

Your plan

Bank is insolvent by 15, so to be safe we give them 20 to recapitalise them.

20 in govt bonds is issued to raise "cash" for cheques. Cheques go to people. People use cheques in two ways:

Paydown mortgage. (We'll say 10 is used for this)
Buy bank bonds (We'll say 10 is used for this)

Banks now looks like this

Liabilities:
Depositors/shareholders - 20
Scary Bondholders - 80
Youngster Bondholders - 10
Total - 110

Assets:
Cash - 25 (5+20)
Commercial Loans - 40
Mortgages - 30 (40-10).
Total - 95

Bank is still insolvent!

If were going to do a bailout, we're going to get mugged. Theres no way around that. We cant stop the loss. Its already happened. Either we, the taxpayer, takes it or the banks take it. Efforts to try make the bailout better for the taxpayer directly contradict the intention of the bailout. The taxpayer has to get burned on the deal, because if they dont, then the banks will get burned and the purpose of the bailout is to save the banks, not the taxpayer.

The only way its going to work is that the Joe gets a cheque for 10,000 and agrees to give it to the bank in exchange for a 5,000 Euro bond, or a 5,000 Euro writeoff in his mortgage. The taxpayer *has* to get mugged under the logic of the bailout. And that just wont play well. As it stands there are plenty of people who are convinced the ECB is paying for NAMA - they have no idea the bill is going to land on them and their children.

tramor

Sand, I agree 100% with your analysis of the situation we are in. I also suspect that it might do the European integration project a great deal of good if a country like Greece (Ireland would do as well, but the pain would be intense) actually went bust, and the bond holders got completely roasted. I believe the bond purchasers are completely underpricing pricing the risk of a soverign default. Rates to Ireland, Greece should be closer to 10-12%. This underpricing of risk is not punishing deliquent countries for their bad behaviour, i.e an important aspect of the bond market is not working and as a result countries such as Germany are being forced to step in with rescue plans and inforced fiscal dicipline, but after the debt mountain (ie damage) has accumulated. If the bond market was doing it's job properly the debt mountain would be much less lightly to build up. I also suspect if for example Greece went bust, the TV coverage of the social chaos would quickly terrify the other PIGS to reduce their borrowing etc. Unions would have to come out of the "alice in wonderland" space they are presently in. We are told that the Euro/EU would be seriously damaged if a member state was allowed to default. I believe this would be short term, especially if the state is small. Greece has definitely set itself up as the fall guy (Ireland is not far behind) with its lies, its public strikes, paid fr 14 months/year (can this be real?), low retirement age etc. The best decisions are the ones that make themselves. This could be one. Lets see what Frau Merkel does. (I know it will most likely be some sort of a rescue with harsh conditions attached, not the above)

Justin Collery

The numbers up above a not right. If the NAMA/NAMA2 plan is to borrow 100 to pay for something worth 80, then my plan is also to borrow 100, not the 20 in your example.

I guess the difference in our thinking is that I am saying to quantify the losses, borrow to pay for them, and then ignore them and have the problem gradually resolved over a 30 year time frame. You are saying quantify and crystalise the losses, borrow to pay for them and pay it off in tax over 30 years.

The logic of taking money out of peoples accounts is essentially to devalue without changing the value of the currency. It's not really mutually exclusive from what I am saying.

Saying that the bond holders should pay misses the point the we are the bond holders. The banks have had no way to raise cash for over a year and a half without using our bonds in the ECB. The people who should have paid are our thrifty European neighbours. We could use your plan as a threat and make the point to rest of the Euro members that they should not have given us the money in the first place, and that everyone in the Eurozone has to pay for their bit of the Irish problem, but I cannot see that being successful.

My main problem is that even if you crystalised the losses in the morning you would still not have a functioning banking system. Simply looking at the deposit / loan ration shows this:

Deposits - €80bn
Loans - €370bn

For the sakes of argument, lets say €100bn of property loans are bad. Write them down. Now we have

Deposits - €80bn
Loans - €270bn

To my mind we are still the guts of €170bn from a functioning banking system. The only way this can be resolved is by getting rid of the loans or increasing deposits. A nice way to do this of course would be to sell the loans, which would bring new entrants into the market and that hopefully would start to achieve your aim of making the people responsible personally pay as they are unlikely to get a job in the new banks. But is this realistic? Is there a group of white night banks out there ready to buy our good loans? If not, we are truly screwed.

Mit freundlichen Grüßen from Dortmund!
JC

MaceFace

This is getting very confusing because you are over complicating the issue.

@jcollery: I am sorry, but the nicest way I put this idea is hairbrained, and I don't need to over complicate by giving examples.

You want the government to borrow say €30b and give it to the banks. The banks will give bonds to a group of people who have PPS numbers. You have not addressed who actually gets the bonds? Anyone who has a PPS number?


And I don't understand how the government gets the money back. I think you are saying that it gets back into government coffers because this money will be used to fund state pensions instead of the current spending? If so, where is the upside for the people? If not, and this money is in addition to the state pension, how exactly does the government pay back this money it was loaned originally?
Where does the government get the money to pay back the loans in the mean time?
You also mention that the money can be cashed in against education instead of pensions, but the problem with that is that all education providers will jack up their price to absorb all the money coming their way. What about people who don't go to education?

What happens if the banks go belly before the bonds are cashed in?


I am trying to be nice about this, but it is so fundamentally flawed that it is impossible to even explain the concept without if falling over.

Sand

@JC

The numbers up above a not right. If the NAMA/NAMA2 plan is to borrow 100 to pay for something worth 80, then my plan is also to borrow 100, not the 20 in your example.

The numbers dont matter because they simply bump up the assets and liquidit by the same amount...if its 20 or 100, its still short by 15. I simply went with 20 because you mentioned under your plan youd only borrow what was needed to recapitalise...banks only short by 15 so 20 seemed safe.

But to demonstrate, with 100 instead of 20 - 50 for youngsters, 50 against mortgages/commerical loan payoffs:

Liabilities:
Depositors/shareholders - 20
Scary Bondholders - 80
Youngster Bondholders - 50
Total - 150

Assets:
Cash - 105 (5+100)
Commercial Loans - 15 (40-25)
Mortgages - 15 (40-25).
Total - 135

Still short by 15. Like I said, the taxpayer has to give the money as a gift with nothing due back. We can get anything back out of it, because we have to boost the banks assets whilst leaving it with the same or less liabilities.

Amhran Nua

Seems like a terribly roundabout way to get to here:

jcollery wrote: »

If you are over 18, and have a mortgage with the banks concerned, the money can be used to pay off the mortgage.

Beyond all the other ojections, why should everyone else be paying your mortgage off? Only people who took out loans in the bubble times would personally benefit from this scheme.

Justin Collery

The problems we have with the banks is a complicated one. The fact we need any solution is harebrained, the fact we are here is bleenin' harebrained, but here we are! The headline issues for the banks are:

- lots of bad loans
- just too many loans

issues for the government (should be) are:

- avoid, as far as possible, moral hazard
- bank reform without such convulsion as to cause excess damage to good businesses
- solve the problem in a way which does not overly impoverish the country, and do it a way which does not make people feel like they are bearing the brunt of it (I know, they will/are, but feelings are important!)

I don't think its a good idea to have a generation saddled with silly mortgages. Sure they made a stupid mistake, but so did the guy who gave the money to the bank, and the bank who gave it to him/her. It will ensure that these people never take risks for the rest of their lives, probably never setup businesses and instead of spending their money in the general economy will be consigned to a life of slavery. I think the current order of who is being bailed out is arse about face, and for selfish economic reasons, not some nice touchy feely reasons.

My personal bent on this is I will not be surprised when this mess costs us between €20k and €50k a head. It's not a small amount of money, it's being borrowed on my behalf, hand it over.

I agree with most of Sands points, particularly about he banking culture which need to be addressed.

So, heres the rub. It would have been much much simpler to have an honest banking system, an honest political / planning system, a regulator will balls. We didn't. No matter how complicated (which I don't agree with) or harebrained you think it, it is better than our present alternative.

Allowing those who got us into this mess to fix it, *WILL* cost us all more money that it otherwise should. Even if the alternative is difficult and complicated.

Just to address the implementation issue, run it like an election, but using PPS numbers. Run it over 7 days, give people 6 months notice. You must turn up a specified location with your PPS number. As each person turns up, an account is created for them. Small teams go to each hospital / old folks home etc. to gather their information. Refine the general principle to make it more secure / cater for special needs. Why am I thinking that if we were in Germany we would just get on with it and it would be done?

MaceFace

jcollery wrote: »

The problems we have with the banks is a complicated one. The fact we need any solution is harebrained, the fact we are here is bleenin' harebrained, but here we are! The headline issues for the banks are:

- lots of bad loans
- just too many loans

issues for the government (should be) are:

- avoid, as far as possible, moral hazard
- bank reform without such convulsion as to cause excess damage to good businesses
- solve the problem in a way which does not overly impoverish the country, and do it a way which does not make people feel like they are bearing the brunt of it (I know, they will/are, but feelings are important!)

I don't think its a good idea to have a generation saddled with silly mortgages. Sure they made a stupid mistake, but so did the guy who gave the money to the bank, and the bank who gave it to him/her. It will ensure that these people never take risks for the rest of their lives, probably never setup businesses and instead of spending their money in the general economy will be consigned to a life of slavery. I think the current order of who is being bailed out is arse about face, and for selfish economic reasons, not some nice touchy feely reasons.

My personal bent on this is I will not be surprised when this mess costs us between €20k and €50k a head. It's not a small amount of money, it's being borrowed on my behalf, hand it over.

I agree with most of Sands points, particularly about he banking culture which need to be addressed.

So, heres the rub. It would have been much much simpler to have an honest banking system, an honest political / planning system, a regulator will balls. We didn't. No matter how complicated (which I don't agree with) or harebrained you think it, it is better than our present alternative.

Allowing those who got us into this mess to fix it, *WILL* cost us all more money that it otherwise should. Even if the alternative is difficult and complicated.

Just to address the implementation issue, run it like an election, but using PPS numbers. Run it over 7 days, give people 6 months notice. You must turn up a specified location with your PPS number. As each person turns up, an account is created for them. Small teams go to each hospital / old folks home etc. to gather their information. Refine the general principle to make it more secure / cater for special needs. Why am I thinking that if we were in Germany we would just get on with it and it would be done?

No it wouldn't be done because it doesn't make sense. Sorry, but it is true.
So, now you say everyone should register for it. Again, what about the non Irish who are living here temporarily, or those that came over, got a PPS and left two weeks later because they couldn't get work. Can these all register?
What about people who are on holiday during your 7 day window?

I don't mean to be an ass about this, but it just simply doesn't work, you want the government to borrow wads of money on our behalf, give it to the banks, but instead of the banks giving it back to the government to pay off their debts, you want to give it to the people, thereby leaving a gaping hole in the government books.

Justin Collery

First lets address the implementation issue. The rules are simple.

- You must have a PPS number
- You must be Irish
- You must turn up at a bank in a 4 week window

The department of Social Welfare / Finance have a database with every PPS number and the nationality of the person associated with that PPS number. From this database, extract all the PPS numbers associated with Irish nationals along with the name and date of birth and put this into a new database. How hard is that? One query. Shouldn't take more than a day, lets make it a week to do.

Now, create a web front end on the database. We will update only four pieces of information, account setup y/n, banking institution, account number and NSC. Again, this should take no more than a couple of days, but hell, there are 4m records which is not excessive, but I'll give 4 weeks to put together the 3 web pages required.

As the banks are being sorted, I'll say that adults must turn up at a bank of their choosing. They bring their PPS number and some photo ID. Not dissimilar to setting up a new account. The teller checks the person is who they say they are by photo ID and verification of the date of birth with the PPS database. The teller creates the account, the PPS number is updated on the database with the account details, and the PPS number is flagged as having an account. You obviously cannot setup another account with this PPS number. If your PPS number is not on the database, no comeback, bad luck.

For children to get their accounts, the parents give the childs PPS number to the bank, the date of birth is verified and the process above is followed.

During the 4 weeks, teams visit each hospital / old folks homes with laptops and 3G cards for internet access and follow the process above.

Setup time? Lets double the 5 weeks above, and give it 10 weeks. This is not technical pioneering, 1 database, 1 table, 3 webpages with restricted access to the banks (VPN between banks and dept of finance, banks are generally good at security). Run time, 4 weeks.

The machanics of the system take no more than 3 months in total and the government ends up with a database with all the institutions, account numbers and NSCs. To put the money into the accounts a thing called an EFT file is generated from the database and the money moves from the government to the people.

I accept Sands assertion that when the banks write down the loans, this creates a hole in the balance sheet which only the goverment can fill, and also that this money is gone, forever. Nothing can be done about that.

Write all the loans down and you still do not have a functioning banking system. Not until loans (currently €370bn) and deposits (currently €80bn) come to within 20% of each other will the banks stop being zombie banks.

JC

woodseb

jcollery wrote: »

Write all the loans down and you still do not have a functioning banking system. Not until loans (currently €370bn) and deposits (currently €80bn) come to within 20% of each other will the banks stop being zombie banks.

JC

where are you getting your figures from? AIB alone has around 90bln in deposits.

Justin Collery

My bad, from here:

http://www.centralbank.ie/data/MonthStatFiles/01-January%202010.pdf

Page 5
Non government Deposits - €170bn
Non government Loans - €368bn

NAMA takes €77bn reducing loans to €291bn. International norms of loan to deposit is 110% with 120% considered high. In this case 120% of €170bn is €204bn. That leaves a gap of €87bn. The obvious solution is for the banks to sell the performing loans, but that hasn't happened, and you would have to ask why?

JC

woodseb

jcollery wrote: »

My bad, from here:

http://www.centralbank.ie/data/MonthStatFiles/01-January%202010.pdf

Page 5
Non government Deposits - €170bn
Non government Loans - €368bn

NAMA takes €77bn reducing loans to €291bn. International norms of loan to deposit is 110% with 120% considered high. In this case 120% of €170bn is €204bn. That leaves a gap of €87bn. The obvious solution is for the banks to sell the performing loans, but that hasn't happened, and you would have to ask why?

JC

i think you really need to firm up on your figures and look at it on a bank by bank basis

take a look at page 22 here on AIB for example http://www.rns-pdf.londonstockexchange.com/rns/8958H_-2010-3-1.pdf

you can see that the loan to deposit ratio is in the region of 123% ex NAMA

These ratios are not really the problem anyway, i can tell you, the people in the market who look at the balance sheets of banks are more concerned with capital than funding at the moment. A lack of equity with tier 1's in the region of 2-3% are the reason the banks are zombies currently