Someone explain the whole financial state to me?

SeanMadd

Don't know if this is the appropriate forum to post in, but meh..

Anyway, I really don't know much about the whole financial crisis(Yeah I've been living under a rock), all I know is that the country was broke and borrowed billions from Germany. I just want to know more about it, so could someone explain to me how we got in the crisis(and are we out of it yet? and why are/were we in one?) Will tourism get Ireland back on it's feet?

Sorry for my stupidity and not knowing about this already, but it didn't really interest me before

MagicSean

Developers borrowed money from Irish banks. Irish banks borrowed money from european banks to fund this. Developers defaulted on the loans leaving the Irish banks unable to pay the european ones. Instead of the Irish banks defaulting the government accepted their debts.

dr.bollocko

Moved from after hours.

DJLJ

Good thread about it here, even as a sticky:

http://boards.ie/vbulletin/showthread.php?t=2056098165

gigino

SeanMadd wrote: »

Don't know if this is the appropriate forum to post in, but meh..

Anyway, I really don't know much about the whole financial crisis(Yeah I've been living under a rock), all I know is that the country was broke and borrowed billions from Germany. I just want to know more about it, so could someone explain to me how we got in the crisis(and are we out of it yet? and why are/were we in one?) Will tourism get Ireland back on it's feet?

Sorry for my stupidity and not knowing about this already, but it didn't really interest me before

Apart from the bank crises, we have the problem of the government - in round figures - spending 20 billion a year more on public servants, social welfare, public expenditure etc than its taking in taxes. It was different when the taxes from the boom eg stamp duty, capital gains tax etc was paying for spending. Now those taxes have reduced, we are left with the situation where we have one of the most bankrupt countries in the world still having some of the highest paid public servants and social welfare recipients etc in the world. More than a few of our retired public servants are getting paid nearly as much of a pension as Barack Obama gets paid for doing his job 24/7 as president of the USA. Its not sustainable, hence the IMF is here.

Mike 1972

k_mac wrote: »

Developers borrowed money from Irish banks. Irish banks borrowed money from european banks to fund this. Developers defaulted on the loans leaving the Irish banks unable to pay the european ones. Instead of the Irish banks defaulting the government accepted their debts.

While this is correct it doesnt come to explain how the developers came to default.

You need to cover the housing market bubble. how it came about. How it was perpetuated by Governments, the media, banks, other vested interests and large swathes of the general public. The role played by low interest rates and the tax system (particularly incentives for developers) And the reasons why some countries were affected far more than others.

erictheviking1

EU developement funds kick started the irish economy in the late 90's. Banks then loaned to developers and speculators who made massive profits hoovering up all this money. They then took the money to Eatern Europe etc. and lost their bollix. they are all still nice and comfortably off but have told the banks they can't pay them back so the ordinary joe has to spend his working life paying back their debts while these cnuts live it up and laugh at us.

SeanMadd

Hm, okay. Thanks for all your replies. So.. basically our Government are r*tards? Is there anyway to make the country.. not so poor? E.g. More tourism, Like I mentioned above?

MagicSean

Mike 1972 wrote: »

You need to cover the housing market bubble. how it came about. How it was perpetuated by Governments, the media, banks, other vested interests and large swathes of the general public. The role played by low interest rates and the tax system (particularly incentives for developers) And the reasons why some countries were affected far more than others.

Ah of course. Well in a nutshell, Irish people got greedy and bought more than they could afford. Now they want to blame the government and banks for letting them do this. Although if the government had stopped them we would have had to listen to the same people going on about the nanny state being in their way.

RichardAnd

SeanMadd wrote: »

Hm, okay. Thanks for all your replies. So.. basically our Government are r*tards? Is there anyway to make the country.. not so poor? E.g. More tourism, Like I mentioned above?

The county isn't poor by any real definition of the word. It's not wealthy either, though wages here would make you think otherwise.

Drakar

If our tax revenue for a year is around 30bn, and our debt is 90bn, isn't this somewhat similar to someone on 30k a year getting a 90k mortgage?

Max Power1

Drakar wrote: »

If our tax revenue for a year is around 30bn, and our debt is 90bn, isn't this somewhat similar to someone on 30k a year getting a 90k mortgage?

only if the person on 30k was spending 50k a year.

EarlERizer

It's as simple as that really!! :mad:

Laois_Man

Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, they can no longer afford to patronise her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar. Soon she has the largest sales volume for any bar in Dublin.

By providing her customers' freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Mary's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
Since, Mary cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%.

The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The continental suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

All of Mary's creditors were the owners of the French and German vineyards who brewed the wine she served out - because the governments of those countries had the cop-on to see schemes like this were hair-brained and likely to collapse, they had implemented legistlation to prevent their vineyard owners from loaning out wine in this way to French and German bars.

So they decided to look at Ireland instead where they knew there was a government with no cop-on and where they knew they could throw all their wine at Mary on credit and pay their running costs by borrowing from their own local banks who saw their own opportunity to invest in these non-regulated DRINKBONDS

But knowing that this was normally a risky strategy, they decided in this case, it wasn't really a big risk to take because if all the European vineyards start going bust just because Mary's bar has, and they're no longer getting paid, they can just get their government to bully the soft Irish government into making sure they get paid anyway - by the Irish public - with extorsionate interest - just to make sure the European economies don't crash cos of the vineyard industry collapse, their banks losing a load of dosh, and knock-on collapse of other industries that would happen and bring their whole countries down!

And those governments can, while they're at it, pretend they're being really friendly and generous to Ireland and pretend what they care about is saving Mary's bar, all the workers employeed there, and all the rest of us poor poor little Irish.

So the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.


Now, do you understand economics in 2011?

Voodoo_rasher

SeanMadd wrote: »

Don't know if this is the appropriate forum to post in, but meh..

Anyway, I really don't know much about the whole financial crisis(Yeah I've been living under a rock), all I knGermanyow is that the country was broke and borrowed billions from . I just want to know more about it, so could someone explain to me how we got in the crisis(and are we out of it yet? and why are/were we in one?) Will tourism get Ireland back on it's feet?

Sorry for my stupidity and not knowing about this already, but it didn't really interest me before

read

http://www.irishcentral.com/news/Debt-is-so-large-that-default-is-the-only-option-for-Ireland-116563618.html

thanks to the bank guarantee Saoirse and Seoirse (the State) owes over €400 thousand Million

ixtlan

Voodoo_rasher wrote: »

read

http://www.irishcentral.com/news/Debt-is-so-large-that-default-is-the-only-option-for-Ireland-116563618.html

thanks to the bank guarantee Saoirse and Seoirse (the State) owes over €400 thousand Million

The situation is bad, but some people are being some excessive in their commentary.

Of that 400b only approximately 230b is guaranteed to be liable. The rest is based on an assumption that all loans owing to all Irish banks will default and never pay anything back again. Do you have a mortgage? Do you intend never to pay another cent to the bank?

There may be some further slippage, if NAMA can't recover all it's costs or if there are more loan defaults, but NAMA will not lose ALL the money it has paid in bonds, and ALL the loans will not default.

The question is whether the 230b is impossible to pay back. Probably not, but it will be painful. With a change in terms for the bailout, extremely painful might change to very painful.

ix.

ixtlan

And just to go into further detail to see if I understand this correctly, since maybe I'm naive..

1. Ireland’s Foreign Borrowings: 90 90
a real debt.

2. Borrowing over next 4 years: 80 170
a real debt, but some of this is for the banks so I wonder if it's counted twice in the bailout section? Also some of this comes from the NPRF so 80 is too high, it's actually 67 (or 70 to round it up)

3. Bonds guaranteed to NAMA: 40 210
Backed by developer loans/properties. Most commentators seem to think NAMA did aggressively discount these, so most of this money will come back. Even if you think there will be a loss, to suggest the loss is total indicates to me that you have no idea, so 100% loss might just as well be 10% profit.

4. Current /Future Bank Bailouts: * 50 260
a real debt. If there is a recovery in the fortunes of the country we might get a few billion back from sales of the banks, but yes, most of this is gone. But... again, some of this came from the NPRF, and is not therefore debt.

5. Owed To Irish Central Bank:** 45 305
6. Owed to ECB: ** 130 435
These if I understand correctly, are to cover the banks for the loss of deposits. In theory at least this money should be mostly covered by their loan books. While they have taken massive losses on those loan books, these losses should be mostly covered by the bailout money that has gone into or will go into the banks, and eventually this money will be recovered either by selling the loans, or acquiring new deposits.

Now, I am no expert, but an expert who values a loan book at zero doesn't get much respect from me. If they say 20% and here are my estimates, then maybe, but to say zero suggests no estimate at all.

And again, I say, I'm not saying things are good, but to look at options we need a realistic look at the situation, and I think that is not a realistic look at the real liabilities that will end up getting owed.

ix.

Voodoo_rasher

ixtlan wrote: »

The situation is bad, but some people are being some excessive in their commentary.

Of that 400b only approximately 230b is guaranteed to be liable. The rest is based on an assumption that all loans owing to all Irish banks will default and never pay anything back again. Do you have a mortgage? Do you intend never to pay another cent to the bank?

There may be some further slippage, if NAMA can't recover all it's costs or if there are more loan defaults, but NAMA will not lose ALL the money it has paid in bonds, and ALL the loans will not default.

The question is whether the 230b is impossible to pay back. Probably not, but it will be painful. With a change in terms for the bailout, extremely painful might change to very painful.

ix.

is this article being excessive then?

http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-were-broke-but-still-buying-rounds-that-we-cant-afford-2561601.html

best not to have little VR's in this cvntry..

ixtlan

Voodoo_rasher wrote: »

is this article being excessive then?

http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-were-broke-but-still-buying-rounds-that-we-cant-afford-2561601.html

best not to have little VR's in this cvntry..

I don't really know if it's being excessive, in the context of subjective opinion. I do think that the total debt that would end up getting paid or owed is not going to come close to 400b.

That is not to say that we can afford it. After all paying back 200b or 400b might be like asking someone if they want to be stabbed or shot. A normal person might be allowed to freak out and take flight.

However experts like McWilliams are supposed to be more analytical. Maybe the 200b is impossible to pay back too, so it doesn't make any difference to the conclusion, but when you throw around the 400b figure it (IMHO) takes away some credibility.

I think he feels that even the 200b is not manageable under the current circumstances, and that might be correct, but rather than argue that, he chooses to double the eventual cost so that it's not just unmanageable but so insanely unmanageable that it makes anyone who wants to discuss any option seem like idiots.

Also, like SF he suggests a default as a painless option. Again, while I disagree, there could be a discussion on this, but that discussion would have to outline exactly what would happen if we choose to default, and that would not be pretty. By all means lets compare the options, honestly.

ix.

Mike 1972

k_mac wrote: »

Well in a nutshell, Irish people got greedy and bought more than they could afford. Now they want to blame the government and banks for letting them do this. .

And all Irish people did this or is this one of those sweeping [URL="tp://www.boards.ie/vbulletin/showthread.php?t=2056177474"]generalisations[/URL] that Irish people love to make ?

MagicSean

Mike 1972 wrote: »

And all Irish people did this or is this one of those sweeping [URL="tp://www.boards.ie/vbulletin/showthread.php?t=2056177474"]generalisations[/URL] that Irish people love to make ?

All Irish people. Every last one. From the person with the condo in Spain to the drunk with the bar tab.