What was the alternative to the blanket bank guarantee?

Trotter

Excuse me first of all for the 'simplistic' nature of my question, but its something I hope to learn a bit about here.

I've heard so much today from the media that the alternative to guaranteeing the banks would have been an atrocity for the Irish nation. What I cant understand is why? Would allowing Anglo and its investors to deal in full or part with its own problem have caused a run on the banks that Joe Soap and me use to pay our ESB bill?

What I constantly hear is "The alternative was unacceptable to the nation".. but yet I just dont understand why.

Again, sorry for the basic nature of the question but I think its about time I understood the nature of this point of view.

The_Honeybadger

Trotter wrote: »

Excuse me first of all for the 'simplistic' nature of my question, but its something I hope to learn a bit about here.

I've heard so much today from the media that the alternative to guaranteeing the banks would have been an atrocity for the Irish nation. What I cant understand is why? Would allowing Anglo and its investors to deal in full or part with its own problem have caused a run on the banks that Joe Soap and me use to pay our ESB bill?

What I constantly hear is "The alternative was unacceptable to the nation".. but yet I just dont understand why.

Again, sorry for the basic nature of the question but I think its about time I understood the nature of this point of view.

I'm no expert, but I believe we would have had to guarantee deposits in Anglo no matter what happened, most depositors in Anglo were MNC's and other banks. This would have led to a run on bank deposits once the full scale of the crisis became clear, leaving us with an enormous and urgent bill that we wouldn't have been able to pay. I have heard commentators argue that the big mistake was not the guarantee itself, but the guaranteeing of subordinated bonds, which are by nature high return and high risk. In other words the guarantee had to be provided but it just went too far. Others will of course be able to explain it better and will have more knowledge but thats my understanding.

Dubh Geannain

Merrill Lynch proposed an alternative to the guarantee scheme in the form of “secured lending scheme” for banks whereby commercial property could be exchanged for Government bonds or cash.

http://www.irishtimes.com/newspaper/breaking/2010/0716/breaking33.html

I haven't trawled through the released documentation to find the exact record but this is what the Sindo picked up.

ei.sdraob

remember that any money paid out if a bank collapsed by the insurance (lets say the old 20K per account protection) would endup most likely being lodged in the more secure/trusted of the banks (lets say Rabo) making them stronger and not just disappear into a black hole that Anglo is

also the EU/ECB would have stepped in with a rescue deal (now that we know of the Greek situation) holding up the banks, and unlike Greece we would have had much more goodwill

the guarantee was a real **** up, worlds cheapest bailout me arse

Welease

Trotter wrote: »

Excuse me first of all for the 'simplistic' nature of my question, but its something I hope to learn a bit about here.

I've heard so much today from the media that the alternative to guaranteeing the banks would have been an atrocity for the Irish nation. What I cant understand is why? Would allowing Anglo and its investors to deal in full or part with its own problem have caused a run on the banks that Joe Soap and me use to pay our ESB bill?

What I constantly hear is "The alternative was unacceptable to the nation".. but yet I just dont understand why.

Again, sorry for the basic nature of the question but I think its about time I understood the nature of this point of view.

The core belief (and issue) as I understand it, was that once people started to see issues arise they would try and withdraw their deposits (a la Northern Rock), because of the lax practices within the banks and non existant regulation the money to fund these withdrawals simply did not exist in the quantities required.. Hence the banks, and probably all our banks would have collapsed, grinding the economy to a halt (as per your example, how you pay your ESB bill if you didnt have a bank account, and they didnt have an account to receive any form of payment into etc.)

In order to stop a run on the banks the government felt the only way to prevent this, was to guarantee deposits.

The_Honeybadger

ei.sdraob wrote: »

remember that any money paid out if a bank collapsed by the insurance (lets say the old 20K per account protection) would endup most likely being lodged in the more secure/trusted of the banks (lets say Rabo) making them stronger and not just disappear into a black hole that Anglo is

also the EU/ECB would have stepped in with a rescue deal (now that we know of the Greek situation) holding up the banks, and unlike Greece we would have had much more goodwill

the guarantee was a real **** up, worlds cheapest bailout me arse

Thats a good point, and the government have been doing their best of late to dress up the guarantee as the right thing to do, and almost expecting a pat on the back fro the electorate. Do you really think the EU would have stepped in if Anglo had collapsed? I believe some major MNC's that are major contributors to our economy had / have very significant deposits in Anglo, and it would have been a very controversial decision to leave them behind. What do you think would have been the end result of a run on our banks that we couldn't pay out, very interesting topic.

Dubh Geannain

Welease wrote: »

In order to stop a run on the banks the government felt the only way to prevent this, was to guarantee deposits.

Ah, but there was already a deposit guarantee scheme in place which was raised to €100,000 in 2008 (from 70,000 I think.)

Their mistake was guaranteeing everything else.

Welease

Dubh Geannain wrote: »

Ah, but there was already a deposit guarantee scheme in place which was raised to €100,000 in 2008 (from 70,000 I think.)

Their mistake was guaranteeing everything else.

Yes, but my answer is in response to Op's question, as I understood what the government meant by "the alternative is unacceptable".

I don't necessarily agree with their decision or thought process

Dubh Geannain

Welease wrote: »

Yes, but my answer is in response to Op's question, as I understood what the government meant by "the alternative is unacceptable".

I don't necessarily agree with their decision or thought process

Fair enough. They said the alternative was unacceptable because they didn't choose it as the time. Simple as. If they had gone with the alternative then they would now be telling us that a blanket guarantee was unacceptable.

Their argument all along was there was no alternative :rolleyes:

Another thing (off topic a little), it emerged three days before that famous night in September that Anglo was having a liquidity crisis. Yet they claimed to only have found out on the night in question.

http://www.oireachtas.ie/documents/committees30thdail/pac/reports/documentsregruarantee/document6.pdf

jmayo

Welease wrote: »

The core belief (and issue) as I understand it, was that once people started to see issues arise they would try and withdraw their deposits (a la Northern Rock), because of the lax practices within the banks and non existant regulation the money to fund these withdrawals simply did not exist in the quantities required.. Hence the banks, and probably all our banks would have collapsed, grinding the economy to a halt (as per your example, how you pay your ESB bill if you didnt have a bank account, and they didnt have an account to receive any form of payment into etc.)

In order to stop a run on the banks the government felt the only way to prevent this, was to guarantee deposits.

Yes, but did people start withdrawing their money from Barclays, Llyods TSB, Hailfax, etc when people were withdrawing from Northern Rock ?

If the government had backed deposits in Anglo and nothing else they could have guaranteed much more with the two big players and also include IL&P, EBS who would have small time borrowers and depositors.

Anglo and INBS should have gone and the CB, IFRSA knew enough about them to know they were in trouble. They had ideas of their lending practices and dodgy deals.
Now claiming neary never told the Dept. of Finance/CB is about as credible as believing he thought they were perfectly safe.

The one bad outcome form letting Anglo go might have been pension fund losses and the quinn affair.
I think it was those two fears and the amount of ffers tied up with friends of Anglo that swung it's inclusion.

Dubh Geannain wrote: »

Ah, but there was already a deposit guarantee scheme in place which was raised to €100,000 in 2008 (from 70,000 I think.)

Their mistake was guaranteeing everything else.

It had only been 20,00 and only due to panic, in part publicised by joe duffy, that it was upped to 100,000.

ei.sdraob

mickeyk wrote: »

Do you really think the EU would have stepped in if Anglo had collapsed?

Yes! especially now that we seen what happened in Greece

they would have had to step in to prevent "contagion" (yada yada) and prevent other bank runs here and rest of EU and prevent a hit on the euro

but as I said we would have had more "goodwill" than the Greeks in 2008

mickeyk wrote: »

ThI believe some major MNC's that are major contributors to our economy had / have very significant deposits in Anglo, and it would have been a very controversial decision to leave them behind. .

Thats the thing:
* we dont know how many "normal" customers Anglo had then (if any!)
* we dont know who owned and kept what in that bank (i find it hard to call it a bank because it was more of a gambling operation)
* all the stats we got now are a year later and after a large drive to get normal customer deposits

mickeyk wrote: »

What do you think would have been the end result of a run on our banks that we couldn't pay out, very interesting topic.

lets say Anglo went down there and then

and overnight the government would have been liable for lets say 30-40 billion to insure depositors (forget about bondholders they would have had to suck it up), im pulling a figure out of thin air (see next paragraph why)

the government (with help of ECB) could have transferred all the depositor accounts into Post Office lets say, and issue IOUs and then repaid these people over course of few years, could be creative here and allow to write off tax against this (so if you owe 10K tax and govt owes you 10K in IOUs they cancel out)

basically real money (that the bank never really had) would have been converted into IOUs (think bonds etc) ironically we have to issue billions in bonds at high rate anyways...

and thats without EU/ECB help

i still think that EU/ECB would have been "forced" to offer a scheme like has occured after Greece

just thinking out loud here


Anglo failing would not have been the end of the world, someone already mentioned Iceland in another thread as an interesting comparison

Dubh Geannain wrote: »

Ah, but there was already a deposit guarantee scheme in place which was raised to €100,000 in 2008 (from 70,000 I think.)

Their mistake was guaranteeing everything else.

it was 20,000 then 100,000 then complete+bondholders i thought...

Dubh Geannain

ei.sdraob wrote: »

it was 20,000 then 100,000 then complete+bondholders i thought...

Yep that was the order. I couldn't recall what the previous guarantee value was though.

ei.sdraob

Dubh Geannain wrote: »

Yep that was the order. I couldn't recall what the previous guarantee value was though.

i remember it well because i had quite a bit more than 20K saved those were quite nervous days

but whether it was 20,000 or 100,000 didnt make much difference in an event of a bank run the govt wouldn't have had (and is almost pointless nowadays) the money anyways

now moving on to protect the bondholders was the real mistake me thinks


lets say for some reason there is a bankrun tomorrow (i dont know lets say triggered by some major bank or war or something) the govt guarantee would be truly worthless since we would end-up being paid in IOUs as per my earlier post

woodseb

ei.sdraob wrote: »

Originally Posted by mickeyk View Post
Do you really think the EU would have stepped in if Anglo had collapsed?

Yes! especially now that we seen what happened in Greece

they would have had to step in to prevent "contagion" (yada yada) and prevent other bank runs here and rest of EU and prevent a hit on the euro

but as I said we would have had more "goodwill" than the Greeks in 2008
..

Anglo was systematic to Ireland not Europe, it is not true to say the EU would have stepped in and protect the Euro - the UK had to bailout Northern Rock, RBS, Germany had to bailout hypo, belgium had to bailout Fortis, Spain its Cajas -> if there was an EU 'put' why didn't at least one of them use it?

The EU only stepped in at the last minute to prevent a sovereign default from Greece - to equate this to how they might have acted if a small Irish bank went under is completely wrong as the consequences of a sovereign default is much bigger

woodseb

ei.sdraob wrote: »

Thats the thing:
* we dont know how many "normal" customers Anglo had then (if any!)
* we dont know who owned and kept what in that bank (i find it hard to call it a bank because it was more of a gambling operation)
* all the stats we got now are a year later and after a large drive to get normal customer deposits

the information is there if you look for it. At end 2007 Anglo had around 20bln in retail deposits , 33bln in non-retail

Retail customer balances now stand at €19.4 billion, adding
over 7,000 new customers per month through the Bank’s
phone and postal platform. Market-leading customer
retention ratios, at close to 98%, reflect the strength of
our franchise. The quality and consistency of our product
offering was recognised by Moneyfacts, the UK consumer
finance advocate. In 2006, and again in 2007, we were
awarded ‘Best Product’ in our key categories. This business,
which continues to grow apace, will form a key pillar of the
Bank’s diverse funding over the coming years.
In 2007 the Bank’s non-retail customer deposit business
grew strongly to €33.3 billion, an increase of 29%1. This
strong, relationship focused business provides a deep vein
of core funding across a diverse customer base, comprising
small and medium sized corporates, charities, investment
managers, local authorities, credit unions and other long-term
holders of cash in Ireland, the UK, the Isle of Man, Jersey
and across Europe. We continued to develop this business in
2007, adding significant numbers of new clients in all markets
and ending the year with in excess of 10,000 customers. This
deposit base is highly granular with an average balance of
under €4.0 million.

ei.sdraob

woodseb wrote: »

Anglo was systematic to Ireland not Europe, it is not true to say the EU would have stepped in and protect the Euro - the UK had to bailout Northern Rock, RBS, Germany had to bailout hypo, belgium had to bailout Fortis, Spain its Cajas -> if there was an EU 'put' why didn't at least one of them use it?

The EU only stepped in at the last minute to prevent a sovereign default from Greece - to equate this to how they might have acted if a small Irish bank went under is completely wrong as the consequences of a sovereign default is much bigger

They would have stepped in if the other banks looked like they were about to fall and bring down the banking system of a country as you and Lenihan were saying (and keep claiming) would happen :rolleyes:

yes all these banks in other countries were bailed out
but our bail out is 10x - 20x as large per head of population than every other case in the world

but of course your ignore the facts to continue defending the indefensible

hinault

woodseb wrote: »

the information is there if you look for it. At end 2007 Anglo had around 20bln in retail deposits , 33bln in non-retail

Retail customer balances now stand at €19.4 billion, adding
over 7,000 new customers per month through the Bank’s
phone and postal platform. Market-leading customer
retention ratios, at close to 98%, reflect the strength of
our franchise. The quality and consistency of our product
offering was recognised by Moneyfacts, the UK consumer
finance advocate. In 2006, and again in 2007, we were
awarded ‘Best Product’ in our key categories. This business,
which continues to grow apace, will form a key pillar of the
Bank’s diverse funding over the coming years.
In 2007 the Bank’s non-retail customer deposit business
grew strongly to €33.3 billion, an increase of 29%1. This
strong, relationship focused business provides a deep vein
of core funding across a diverse customer base, comprising
small and medium sized corporates, charities, investment
managers, local authorities, credit unions and other long-term
holders of cash in Ireland, the UK, the Isle of Man, Jersey
and across Europe. We continued to develop this business in
2007, adding significant numbers of new clients in all markets
and ending the year with in excess of 10,000 customers. This
deposit base is highly granular with an average balance of
under €4.0 million

What were Anglo's liabilities at the end of 2007?

I'm not interested in what Anglo says were it's assets and liabilities at the end of 2007, because Anglo's claims regarding profitability/solvency have been proven to be horsehit.

We know now that Anglo was never profitable on the basis that €22b that our politicans want this State to transfer to Anglo, dwarfs the "profits" made during the 2000-2009 period.

I've never heard of a profitable company having to claim €22b bailout to shore up it's balance sheet.

woodseb

hinault wrote: »

What were Anglo's liabilities at the end of 2007?

I'm not interested in what Anglo says were it's assets and liabilities at the end of 2007, because Anglo's claims regarding profitability/solvency have been proven to be horsehit.

We know now that Anglo was never profitable on the basis that €22b that our politicans want this State to transfer to Anglo, dwarfs the "profits" made during the 2000-2009 period.

I've never heard of a profitable company having to claim €22b bailout to shore up it's balance sheet.

Deposits are liabilities and its very difficult to massage deposit amounts because there are so easily auditable and there has never been any suggestion that these figures on the retail side are wrong (apart from the irish permanent transfer that we now know about). The problem with Anglo was the value of its assets which we know were wrong because the value of a property for example is always open to debate - my post had nothing to do with the profitability of the company

woodseb

ei.sdraob wrote: »

They would have stepped in if the other banks looked like they were about to fall and bring down the banking system of a country as you and Lenihan were saying (and keep claiming) would happen :rolleyes:

yes all these banks in other countries were bailed out
but our bail out is 10x - 20x as large per head of population than every other case in the world

but of course your ignore the facts to continue defending the indefensible

They are not facts, they are suppositions - by both me and you :rolleyes:

The evidence was that the EU was not going to go in by itself and help Anglo, instead it set up a program by which any country could borrow through the ECB to fund their bank bailouts. What we have seen with the Greek bailout is a huge amount of procrastination by all EU states who were unwilling to pay for Greece's mismanagement until their hand was forced - from this I don't think the Germans would have agreed to pay up to save Anglo - to do this at the end of Sept 2008 would have set a very dangerous and expensive precedent given how the banking system continued to fare after that

we don't know for certain what would have happened it the Irish government would have stepped aside and said to the EU this is not our problem - you deal with it.

ei.sdraob

woodseb wrote: »

Deposits are liabilities and its very difficult to massage deposit amounts because there are so easily auditable and there has never been any suggestion that these figures on the retail side are wrong (apart from the irish permanent transfer that we now know about). The problem with Anglo was the value of its assets which we know were wrong because the value of a property for example is always open to debate - my post had nothing to do with the profitability of the company

The peace you quoted does not provide the number of customers, it just mentions how many they were gaining


heres a simple math:


~ 22 billion (money spent on Anglo) / 20K (old deposito protection) = 1.1 million accounts, did 1 in 4 Irish people have an account at Anglo? NO directly or indirectly via CUs for that matter!

~22 billion / 100K (the larger guarantee) = did 220,000 people have accounts at Anglo?


for that matter if that money did have to be forked up at least it would have ended up in other Irish banks proping them up

instead where did all the Anglo money go?

ei.sdraob

woodseb wrote: »

They are not facts, they are suppositions - by both me and you :rolleyes:

The evidence was that the EU was not going to go in by itself and help Anglo, instead it set up a program by which any country could borrow through the ECB to fund their bank bailouts. What we have seen with the Greek bailout is a huge amount of procrastination by all EU states who were unwilling to pay for Greece's mismanagement until their hand was forced - from this I don't think the Germans would have agreed to pay up to save Anglo - to do this at the end of Sept 2008 would have set a very dangerous and expensive precedent given how the banking system continued to fare after that

we don't know for certain what would have happened it the Irish government would have stepped aside and said to the EU this is not our problem - you deal with it.

Excuse me,

you and other Anglo employees here, make it out that the country would have ground to a halt and economy fell apart (which it did anyways) if Anglo failed
if that was the case EU/ECB would have had no choice but to step in since it would have dragged the Euro down and triggered an European bank run


BTW you have it arseways

the Germans wont have to be saving Anglo (saving Anglo is FF idea)!

They would have been saving the Irish depositors who hold the same currency as them,
inaction would cause this currency to loose value and them loosing out a larger amount indirectly

as has happened with the Greek situation and Germany dragging feet, this foot dragging and certain rhetoric from politicians cause the euro more damage than the Greek situation in the end


eitherway we would have been long over the Anglo ****e by now and might have actually had real growth, instead we have a noose around our necks for a very long time

Liam Byrne

Dubh Geannain wrote: »

Fair enough. They said the alternative was unacceptable because they didn't choose it as the time. Simple as. If they had gone with the alternative then they would now be telling us that a blanket guarantee was unacceptable.

Their argument all along was there was no alternative :rolleyes:

Their argument THEN was that there was no alternative.
Their argument RECENTLY was that it was "based on the best advice available"
The release of the Merrill Lynch document suggests that this, too, is a lie

Dubh Geannain wrote: »

Another thing (off topic a little), it emerged three days before that famous night in September that Anglo was having a liquidity crisis. Yet they claimed to only have found out on the night in question.

What do you expect at this stage, the truth ?

I used to think that way, but not anymore.

OP - the real alternative to the blanket bank guarantee was not allowing Ahern to "appoint his friends" (= nepotism = corruption) to important key positions.

The "we are where we are" brigade won't allow that to be raised, though, because it demands accountability and punishment for the little **** who admitted nepotism live on air with Brian Dobson.....the fact that NO-ONE batted an eyelid shows just how this country operates. :mad:

Sad and sickening, but true.

http://bocktherobber.com/2010/05/dublin-docklands-development-authority-bertie-ahern

hinault

woodseb wrote: »

Deposits are liabilities and its very difficult to massage deposit amounts because there are so easily auditable and there has never been any suggestion that these figures on the retail side are wrong (apart from the irish permanent transfer that we now know about). The problem with Anglo was the value of its assets which we know were wrong because the value of a property for example is always open to debate - my post had nothing to do with the profitability of the company

The deposits that you quoted would have formed it's capital base.
(deposits being liabilities on the banks balance sheet).
Therefore the figures that you quoted €55b in deposits directly affect
Anglo's solvency, if Anglo's assets were lower in value than it's liabilities.

For Anglo (or any company for that matter) to be solvent, it's assets have to be greater than it's liabilities.

And with regard to your point about figures being massaged - Anglo were massaging figures for years.
How do we know that what they claim as their deposit base, was true and honest?
We know it's "profits" between 2000-2009 were not profits because the size of the bail out dwarfed
accumulated profits for the period - therefore those "profit" figures were lies.

We also know for example Anglo resorted to Guinness-type share support scheme ie.by it's own shares with it's own funds.

You do know that people in the Guinness share support scheme went to prison in the UK for that deception also?

woodseb

ei.sdraob wrote: »

Excuse me,

you and other Anglo employees here,

there's no point in discussing this with you if you continue to spout ****e like this