Haircut on Bank Debts

del_c

There's been a lot of talk regarding the haircut the govt. is requesting the banks take on the loans they have given to developers that are moving into NAME, but I wanted to clarification on the other side of the banks balance sheets for a moment and ask your views on why it is that we are honouring all money lent to our banks.

I understand what damage could be caused to the economic system within Ireland by defaulting on customer deposits, so I understand guaranteeing these.
Shareholders money was not guaranteed though, and many of them have lost their shirts...that's capitalism and I grasp that too.
Less clear to me is why the banks, who are now state-owned cannot, as David McWilliams alluded to in his column recently, round up the other bank creditors and write down their investmens too...after all they invested in bonds in a private enterprise and not GILT Bond which you would expect to be guaranteed, and which accordingly carries a lower yield.

I heard Eamon Ryan replying to this last week, and he took the line that this would mean Ireland leaving the Euro. He became quite animated on this and therefore the interviewer moved on.
Is this just a short term ploy by the government, in orer to ensure ireland's credibility is not shaken during this period when we need money and there is an international credit crunch in progress.i.e. that a couple of years down the line that this haircut may yet come.

I guess 1,5 years down the line after the bank guarantee I don't really get why the guarantee needs to be all encompassing and why the refusal of what are a couple of private companies to repay borrowed money because of an inability to do so, impacts directly on our credit worthiness as a nation as a whole...would, in fact, the opposite now perhaps be true...i.e. that the writing off of these debts may even improve the ability of the country to pay off commitments in the future.

Thanks.
d.

noodler

The papers recently have been doing both sides of this argument.

McArdle was posting on Thursday in the Times ans he said defaulting on foreign bondholders was "beyond the pale" which I thought was strange as surely this is something gov would honour, like desposits, in the event of a wind-down.

Personally I believe the argument should be about INBS and Anglo.

I could go on and give you personal views etc but the most recent post on Irisheconomy by Karl Whelan is going to do the job much better than I could.

http://www.irisheconomy.ie/index.php/2010/04/03/anglo-what-are-the-options/