Can people please differentiate between the bank *guarantee* and *recapitalization*?

hatrickpatrick

It is the LATTER which has got us into the hideous position of the bank's debts being our government's debts, not the former.

Nationalizing Anglo is why, for example, we have to pay for their €30bn debt ourselves. Not guaranteeing it.

Reneging on the bank guarantee will do absolutely nothing whatsoever to lessen our national debt. Now that we own those banks more or less, their debts are our debts.

The only possible way I can see that we could get rid of the banking debt would be to sell the banks, in which case the bailout wouldn't be necessary, right? But the guarantee won't make too much difference?

If this is incorrect please do point it out, but this is how I understand it. The guarantee is fairly irrelevant. The recapitaization (IE nationalization), though.... That was the disaster.

bleg

The banks are for sale.

Edit due to infarction: The banks are for sale according to the Governor of the Central Bank.


http://www.irishtimes.com/newspaper/breaking/2010/1123/breaking8.html

hatrickpatrick

^^^^ If the banks are indeed for sale, why are we having to pay their debts? Why is our national debt now 32bn higher than it should have been?

If we sell the banks, is it possible that we will no longer have to pay that?

oppenheimer1

hatrickpatrick wrote: »

^^^^ If the banks are indeed for sale, why are we having to pay their debts? Why is our national debt now 32bn higher than it should have been?

If we sell the banks, is it possible that we will no longer have to pay that?

We had to put 32bn into Anglo because all its bad loans have eaten up its capital reserves. No one would want to buy the bank and then find themselves on the hook for billions. We invest money to fill the hole created by the bad debts then put in another 12%. This 12% is to act as a capital reserve for the future losses and is a prudent value. It will then be ready for sale. The sale price will be some multiple of the annual profit (usually x10) in addition to the capital reserves. This total will come in at less than €32bn


So in other words in order to save Anglo and return it to a sound footing fit for sale, the sale price will be considerably less than what we put into it.

Liam Byrne

oppenheimer1 wrote: »

We had to put 32bn into Anglo because all its bad loans have eaten up its capital reserves. No one would want to buy the bank and then find themselves on the hook for billions. We invest money to fill the hole created by the bad debts then put in another 12%. This 12% is to act as a capital reserve for the future losses and is a prudent value. It will then be ready for sale. The sale price will be some multiple of the annual profit (usually x10) in addition to the capital reserves. This total will come in at less than €32bn

So in other words in order to save Anglo and return it to a sound footing fit for sale, the sale price will be considerably less than what we put into it.

Which begs the blatantly obvious question......why not put that amount of money into creating a NEW bank and then sell that for more than we put into it ?

oppenheimer1

Liam Byrne wrote: »

Which begs the blatantly obvious question......why not put that amount of money into creating a NEW bank and then sell that for more than we put into it ?

To do that would mean total losses for those that had invested or loaned to Anglo, which we were told would have had catastrophic consequences for the sector and the country. That said the remaining banks at this stage have been all but nationalised...

The idea for a new bank is FG idea, perhaps that will happen too?

hatrickpatrick

oppenheimer1 wrote: »

To do that would mean total losses for those that had invested or loaned to Anglo, which we were told would have had catastrophic consequences for the sector and the country. That said the remaining banks at this stage have been all but nationalised...

The idea for a new bank is FG idea, perhaps that will happen too?

If Anglo had fallen the only people to suffer would have been the a$$holes who caused this mess in the first place, namely the developers who took out the loans and the bankers who approved them. I still don't see how the average taxpayer would have suffered because of this.

oppenheimer1

hatrickpatrick wrote: »

If Anglo had fallen the only people to suffer would have been the a$$holes who caused this mess in the first place, namely the developers who took out the loans and the bankers who approved them. I still don't see how the average taxpayer would have suffered because of this.

Actually the developers wouldn't have suffered any more than they are suffering now. They had already spent the loans they were given. A collapse in anglo would have meant losses for those who loaned Anglo money, namely other banks, pension funds and investment houses both in Ireland and abroad. Companies who use Anglo to provide their banking services would also have been affected, with their current accounts frozen. Considering Anglo was the third largest bank it is not unreasonable to assume they had a substantial business customer base in addition to developers.

Its a misconception, and a popular one, that the developers would have been hurt if Anglo went under. They owed money to Anglo, and they would still owe money to Anglo or whomever bought the loanbook after a bankruptcy.