Why do we need a central bank?

realitykeeper

Traditionally, central banks were a tool governments used to print money. They would borrow the money from the central bank and the taxpayer would pay the central banker interest on these loans. The central banker would put this interest (or profit) in his own personal bank account and call it his salary.

This was of course a bad deal for the tax payer (even more so nowadays given that most money is just electronic) but it would not be the first time politicians have done deals with the devil. In any event, we no longer have our own currency and so there is no real justification for wasting taxpayers money on propping up such an institution.

Of course, central bankers would be quick to point out that they also have a role in dealing with the financial regulator but this is just another reason to dispense with the central bank. The regulator failed to regulate when it mattered. Consequently, the country cannot afford those institutions. Perhaps we could use the money we save by not having a central bank or financial regulator to launch a new bank instead of rescuing the old banks when the banks get in trouble next time. Within weeks of its launch, this new bank could be privatized and the government would get its money back.

One final point. The reason the government bailed out the banks was so that the flow of credit could continue, ATMs would continue to issue cash etc. Well, most depositors have moved their money to safety by now so there is no need to bailout the banks anymore. The government could simply print a letterhead re-launching Anglo, put Sean Fitzpatricks mobile phone number on it and wish the creditors happy hunting.

johnnyskeleton

No. Just no.

antoobrien

realitykeeper wrote: »

Well, most depositors have moved their money

Most of my eye, I wish people would stop spreading lies like this.

The total Irish private sector deposits at the time of the Guarantee were €180.7bn, the lows came in December 2011 where the value of deposits were €162bn. It's back up to €180bn (as of end of april).

Household i.e. Irish families deposits are up €8bn since the guarantee and have always been at least 50% of the deposits.

realitykeeper wrote: »

so there is no need to bailout the banks anymore.

Yes there is, if we write off the senior bonds, depositors must lose the same proportion or more. So, if we were to say write off 10% of senior debt (which will be in the order of €2.5bn) we will have to write off at least 10% of deposits - that means taking a bear minimum of €9bn off Irish businesses and another €9bn off families. It''ll be pretty hard for those businesses to pay employees and families to put food on the table if your policies ever see the light of day.

realitykeeper

antoobrien wrote: »

Most of my eye, I wish people would stop spreading lies like this.

The total Irish private sector deposits at the time of the Guarantee were €180.7bn, the lows came in December 2011 where the value of deposits were €162bn. It's back up to €180bn (as of end of april).

Household i.e. Irish families deposits are up €8bn since the guarantee and have always been at least 50% of the deposits.



Yes there is, if we write off the senior bonds, depositors must lose the same proportion or more. So, if we were to say write off 10% of senior debt (which will be in the order of €2.5bn) we will have to write off at least 10% of deposits - that means taking a bear minimum of €9bn off Irish businesses and another €9bn off families. It''ll be pretty hard for those businesses to pay employees and families to put food on the table if your policies ever see the light of day.

Not necessarily. You see, savers with savvy will have moved their money to safety by now so they will not be affected if the banks go belly up. So, why bother with propping up these failed banks to the tune of billions when there`s no real need. Admittedly the government think a debt deal will come from Europe because we bailed out the banks but that will never happen - why should the Europeans forgive us our debts. I know I wouldn`t. Eventually, when this reality dawns on the Irish government, that is when they will let the banks go bust.

antoobrien

realitykeeper wrote: »

Not necessarily. You see, savers with savvy will have moved their money to safety by now so they will not be affected if the banks go belly up

So I see you've totally ignored the fact that to hit the senior bonds we have to crucify the significantly higher proportion of savings.

I see you've also studiously ignored the fact that for the past 5 years the Irish banks were actually the safest place in the world, given that we guaranteed every penny up until the end of march.

One final point for you to ignore - why do you assume that it's only savings that are at risk. Let me tell you that current accounts are at risk as well. The monthly wage, pension & SW bill is somewhere in the order of €6bn-€8bn. Food is hard to put on the table when your bank account has nothing in it because someone decided that senior bondholders can't be paid without thinking of the consequences.

realitykeeper

antoobrien wrote: »

So I see you've totally ignored the fact that to hit the senior bonds we have to crucify the significantly higher proportion of savings.

I`m not suggesting we hit anyone. We don`t owe the bondholders anything, the banks do. (Please don`t say we own the bank`s debt now because we don`t).

antoobrien wrote: »

I see you've also studiously ignored the fact that for the past 5 years the Irish banks were actually the safest place in the world, given that we guaranteed every penny up until the end of march.

The guarantee it not protection. Cypriots thought their money was guaranteed but their government told them their savings were still taxable at 7% - in the end it turned out the Cypriot government took 40% of deposits over 100k.

antoobrien wrote: »

One final point for you to ignore - why do you assume that it's only savings that are at risk. Let me tell you that current accounts are at risk as well. The monthly wage, pension & SW bill is somewhere in the order of €6bn-€8bn. Food is hard to put on the table when your bank account has nothing in it because someone decided that senior bondholders can't be paid without thinking of the consequences.

Lets not be disingenuous my semantically challenged friend By savings, I refer to all bank accounts not just saver accounts.

Scortho

realitykeeper wrote: »

I`m not suggesting we hit anyone. We don`t owe the bondholders anything, the banks do. (Please don`t say we own the bank`s debt now because we don`t).


The guarantee it not protection. Cypriots thought their money was guaranteed but their government told them their savings were still taxable at 7% - in the end it turned out the Cypriot government took 40% of deposits over 100k.


Lets not be disingenuous my semantically challenged friend By savings, I refer to all bank accounts not just saver accounts.

Was Cyprus not guaranteed up to 100 k on deposits?

Also your point about savvy savers moving their money is wrong.
The vast majority of depositors in Irish banks are not savvy. They wouldn't be capable of reading reports and finding that bank x is in trouble from these reports.
Like a lot of pensioners who bought blue chip shares in the banks, they thought their investment was safe and only started to get worried when the dividend was stopped.
I remember one chap being asked about the share price falling at the time on the news and his reply was so long as I keep getting my dividend I'm fine.
Likewise depositors: so long as they keep getting their interest theyre not going to mind.
You make the point that they will have moved their money by now which is fair enough. But the banks aren't in trouble as much as they were in 2007-2009. Most of these banks have had senior bond holders paid back by now.

Do we need a central bank like the one we had prior to the euro. Definitely not as they don't have as many functions or roles.
However they will play an important role in the future regarding regulation.
Personally I think we should have 2 types of regulation. One for the likes of bank of Ireland, providing services and products to the Irish public and a much more lax regulation system for the likes of Investment banks to attract them here instead of the city of london.

View

Scortho wrote: »

Was Cyprus not guaranteed up to 100 k on deposits?

Only in the event of a bank closing. Governments are free to levy taxes on bank accounts anytime they want.

realitykeeper

Scortho wrote: »

Also your point about savvy savers moving their money is wrong.
The vast majority of depositors in Irish banks are not savvy.

If the vast majority of depositors in Irish banks are not savvy then how could I be wrong by saying that those who are savvy have moved their money?

Scortho

realitykeeper wrote: »

If the vast majority of depositors in Irish banks are not savvy then how could I be wrong by saying that those who are savvy have moved their money?

True.
However this would wipeout a lot of family deposits.