Alternative (this is gonna be shot down in flames but why not)

johnmcdnl

Well I'm not expert in economics or anything but can anyone tell me why the government couldn't have just let anglo irish bank fail... All it was doing as far as I can see is lending extortionate amounts of money to the big developers without any questions being asked as it seems... so the only people that would suffer are those big developers anyways...

instead of pumping billions and billions into trying to save anglo.. and all the other banks for that matter why couldn't they have set up a nice big nationalised bank that they could regulate and wouldn't be in debt to begin with etc etc etc etc...

instead of having a county full of banks in debt we could have had a nice big bank with loads of money that wouldn't make the same mistakes as all the other banks and wouldn't give 100% mortgages on a castle to someone working in mcdonalds:rolleyes:

just think what we could have had - but no :rolleyes::rolleyes:


... on a serious note.. why are the government so adamant to bail the banks out even if it means closing every school and hospital and basically everything else in the country.. I just can understand there thinkin.....

toughbuttfair

Because from their point of view, a system, that is truly nothing more than a vastly over-rated game of monopoly; is more important than educating people, or treating illness and saving people's lives.

MaceFace

Oh boy, prepare for a lot of crap comments where people don't try to answer a very serious question but just spout the usual crap......

Realistically, no one knows why they done it because there is still a lot of information not made public, and most of the decisions made were judgement calls at the time that could be argued as being the best approach.
Remember, when NAMA was announced, it was nearly two years later before we knew what the discount would be. Same goes for Anglo - no one knew it was going to cost €25bn at the time, and even now Morgan Kelly thinks the whole thing could cost between €50bn and €115bn but its very difficult to prove when you have such strong vested interests wanting the public hidden from the truth.

I personally believe that the government were hoodwinked and played by the bankers and civil servants. The regulator was non existent so when the banks went to Lenni and demanded a guarantee on 28th September 2008, he was told by all the bankers that if he didn't introduce the guarantee, the whole banking system would fail in Ireland. If that was true (and no one can prove either way), then we would be in a much much worse place.

I have been concerned lately as I read a story of a lady who was duped by Internet fraudsters and lost £300k. The story is that she lost a fraction of this money by giving the money to someone she should not have, but lost the majority of it trying to recoup the original loss. I am worried that the government are chasing their loses and could end up losing it all. There has to be a time to shout stop, but unfortunately, no one in power seems to agree.

There is a huge amount of other details that I won't go into in this post, but you have to consider the following if you let the banks fail:
* What happens the depositors of the banks?
* If you only guarantee the first 100k, what about pension funds or businesses who have 100m on deposit?
* If a bank fails, whats to stop the liquidator selling the mortgage book to a a company that will rape and pillage the mortgage holders by jacking up their rates to 20%?
* Considering the government have a scheme that if you are turned down by four banks for a mortgage, they guarantee to give you one, why would you think the government would hold back on giving out stupid mortgages? They could bring in a law now about prudent lending, but they would love to see property prices increase so the NAMA project will work.

One final note: Try not to associate the problems with the banks and the problems with the State deficit. We are spending about €20bn more a year than we are taking in, and regardless of what goes on in the banks, we have to fix that problem independently and that either means raise income or lower expenditure.

Banned Account

My own opinion is that the current situation was born out of post-Lehman's hysteria. Following the collapse of Lehman Brothers, there was a widespread fear in the markets that Banks were no longer safe. The EU effectively told it's member states to ignore the rule book on state aid and do whatever was necessary to save their own banking systems. Shortly after the Guarantee was announced though, there seemed to be a roll back on this and foreign owned banks operating within the state were offered the aoption of enrolling in the scheme - they refused due to the costs involved.

The government here came to the conclusion (perhaps illogically - but that's another story) that if Anglo were allowed fail, it would have drastic effects on the ability of AIB and BO etc. to continue to function as the market may take the view that they too could be let go to the wall.

Added to this was the fact that there could have been very strong legal challenges to depositors who would have lost their cash with the demise of Anglo due to the state favouring AIB and BOI. So we now have a bank that does no banking but devours money instead - excellent.

As regards the OP's comments re education and healthcare spending, my own opinion is that this is a moot point, the bank bail-out money is being borrowed, had there been no bail out, the state would not have borrowed for healthcare and education so to say that there is money being diverted is somewhat wide of the mark.

Should the state borrow more for healthcare and education? - That's another thread.

SkepticOne

They can't wind it up without adding up the cost. Depositors and bond holders have been guaranteed by the state so if they wound up Anglo they would have to make up the difference after selling a lot of next to worthless developer loans. The (political) problem with this is that the true cost would then be known.

Keeping Anglo going, of course, doesn't save the state any money but keeps the cost uncertain for the time being.

It is like if you bought a house in 2006. You might know that it has lost some value since then but provided you don't put it on the market you can pretend that the losses have been minimal.

Interestingly the phrase used when you do sell an asset for less than you bought it is "realising the loss". The word "realise" is very apt here. If you don't sell you have still made a loss but you don't "realise" it yet!

This is what is happening with Anglo. By not facing up to the losses made, the government is able to pretend that losses have not been made to the extent that they have.

astrofool

Because if they failed, we would have been on the hook for the 20k guarantee anyway (most deposits are less than this).

Permabear

This post has been deleted.

RichardAnd

Interesting. What about when the guarantee expires, which is soon enough I believe. Could Anglo be wound down then?

Scarab80

Can someone please explain who they think is going to buy Anglo's loan book?

AIB are having trouble finding buyers for Bank Zachodni WBK, which is a hugely profitable bank in an emerging market, what kind of price is someone going to pay for the Anglo loan book?

Anglo / The Government submitted their restructuring plan to the EU yesterday indicating that a good bank/bad bank split would be the most cost effective and this is after discussing other options with the EU such as a 10 year and 20 year wind down.

As much as we would like to be able to walk away from Anglo the fact is that most of the money is not owed to bondholders, it is owed to Europe and to irish businesses.

seamus

MaceFace wrote: »

I personally believe that the government were hoodwinked and played by the bankers and civil servants. The regulator was non existent so when the banks went to Lenni and demanded a guarantee on 28th September 2008, he was told by all the bankers that if he didn't introduce the guarantee, the whole banking system would fail in Ireland. If that was true (and no one can prove either way), then we would be in a much much worse place.

What I think happened in this case is that one of the major banks flagged themselves as being on the brink of going under and the other major banks said that they were in trouble, but not floundering.

Rather than single out one bank for guaranteeing and risk a run on that bank (remember Northern Rock?), they thought it prudent to set the guarantee on all of the banks while they got their **** together.

Unfortunately at this point we weren't aware of the complete joke of an institution that Anglo was and we've been suckered into looking after them at least until the end of September.

MaceFace

seamus wrote: »

What I think happened in this case is that one of the major banks flagged themselves as being on the brink of going under and the other major banks said that they were in trouble, but not floundering.

To lazy to look it up, but if I remember correctly, Anglo was about to go under when the markets opened Monday morning and the heads of the other banks said if they went, there would be a run on their banks and thus the whole thing could go under.

seamus wrote: »

Rather than single out one bank for guaranteeing and risk a run on that bank (remember Northern Rock?), they thought it prudent to set the guarantee on all of the banks while they got their **** together.

Could they have done that? Anything they offered one bank would have to have been offered to all. Therefore, they offered the guarantee to all, some took it and others didn't.

seamus wrote: »

Unfortunately at this point we weren't aware of the complete joke of an institution that Anglo was and we've been suckered into looking after them at least until the end of September.

I wonder what happens after this though, because there have been a lot of bonds issued under the government guarantee, so I can only assume that these bonds would have to be paid back by the government if the bank don't.

astrofool

RichardAnd wrote: »

Interesting. What about when the guarantee expires, which is soon enough I believe. Could Anglo be wound down then?

The 100k scheme may expire, but the 90% ofr 22k scheme will still be in place. All countries guarantee deposit account of banks, to greater or lesser levels (I presume that Ireland won't drop the guarantee all the way to 22k either when it expires).

DublinWriter

Two basic reasons:

- a run on Anglo would have led to a run on *all* Irish banks
- the Government borrow money from the same people Anglo borrow money from

Banned Account

astrofool wrote: »

The 100k scheme may expire, but the 90% ofr 22k scheme will still be in place. All countries guarantee deposit account of banks, to greater or lesser levels (I presume that Ireland won't drop the guarantee all the way to 22k either when it expires).

You are confusing two seperate guarantees. Following the Northern Rock issues and a Joe Duffy programme, there was widespread speculation that there could be a run on the banks so the governmnent increased the depositor protection scheme from €20,000 per individual per institution to €100,000 per individual per institution. This guarantee does not have an expiry date and will be here for the forseeable.

Whilst this quelled panic amongst depositors, it did little to remedy the fact that the money markets were unwilling to lend to the Irish banks due to the percieved risk, should the banks fail to secure short term funding, a collapse would have been inevitable. It was at this point that the Government introduced a second guarantee which was unlimited and covered depositors as well as subordinated debtors. This was initially offered to the Irish owned banks but, on fears of anti-trust challenges was subsequently offered to foreign owned banks operating in the state (the latter group opted out due to the charges involved).

It is the second guarantee above which is due for consideration later this year and it is this one which hemmed us in with Anglo - if the bbak fails, under the guarantee the Government is now liable to all of the banks creditors.

The first guarantee only applies to those banks who are regulated by the Irish regulator. There are a few in operation who have chosen to remain regulated by the regulator in their country of origin (Rabo and NIB IIRC) these schemes may be more or less comprehensive than our €100k scheme.

Japer

DublinWriter wrote: »

Two basic reasons:

- a run on Anglo would have led to a run on *all* Irish banks
- the Government borrow money from the same people Anglo borrow money from

and if the govt did not bail out the banks it would not be able to borrow the 2o billion plus a year it gives to the public servants. They would go unpaid, like the unemployed, the old age pensioners etc

johnnyskeleton

MaceFace wrote: »

There is a huge amount of other details that I won't go into in this post, but you have to consider the following if you let the banks fail:
* What happens the depositors of the banks?
* If you only guarantee the first 100k, what about pension funds or businesses who have 100m on deposit?
* If a bank fails, whats to stop the liquidator selling the mortgage book to a a company that will rape and pillage the mortgage holders by jacking up their rates to 20%?
* Considering the government have a scheme that if you are turned down by four banks for a mortgage, they guarantee to give you one, why would you think the government would hold back on giving out stupid mortgages? They could bring in a law now about prudent lending, but they would love to see property prices increase so the NAMA project will work.

The government could have sent in an administrator to estimate the likely consequences of the wind-up. For example, if the administrator came back and said that there would be net losses of €20bn, the government could then decide whether it was worth saving or not. Moreover, they could then realistically assess what proportion of each person's deposits should be paid back to them, from the sale of the debts and/or government bailout. Crucially, they could negotiate with the bond holders and institutional investors (including the ECB) for a substantial write down of their deposits so that the "ordinary" deposit holder gets to keep theirs.

Moreover, they could set this in motion and if it turns out to be worse than expected, they still don't have to fork over until it is done. Finally, they can sell off assets in an open, transparent market, and would most likely have made more money selling off these assets in 2008 than in 2010 or whenever.

The costs of this approach are logically no greater than what they are paying now, with the following benefits:
1) taxpayer can know in advance exactly how much it will cost;
2) taxpayer can negotiate a better deal on risky debt as opposed to guaranteeing 100% of all debt;
3) taxpayer can know that the assets are not being sold back to the same developers at a discount;
4) taxpayer can back out at any stage and will not be on the hook for neverending losses.