Banking bail out and crisis.

kjkkments

Firstly I am not a banker or an economist but I have a question about the above. My basic understanding of what happened is that the banks lent out loads of money to people who wanted to buy extremely overpriced property. This money came from a number of global banks. Then as the world realised that property in Dublin was not as valuable as property in New York and London these international banks wanted to increase the interest rate being charged to the Irish banks. The Irish banks said woah we cant afford that and we have no money left to keep things going so they came to the State to get a loan instead, but the numbers were so large that no one wanted to give the state money at the AAA rate and so the states rate went up too bankrupting the state but only after the banks were bailed out.
Now the question is this Joe bloggs got money from the bank to buy his overprided house. The bank went bust and went to the state. The state paid the bank for joe's overpriced house. So in effect the banks have already been paid for Joes mortgage. So why do the banks still want joe to pay his mortgage and kick him out if he doesn' pay shouldn't it be the state that owns the property. Or are the banks effictively getting paid twice for the same property?

Hootanany

The latter.

kjkkments

Hootanany wrote: »

The latter.

Nice work if you can get it.

Stereomaniac

Does anyone know how I could get involved in receiving twice as much money for something?

kjkkments

Stereomaniac wrote: »

Does anyone know how I could get involved in receiving twice as much money for something?

Maybe they just misunderstood the idea behind the 2 for 1 deal . Poor things.

hmmm

kjkkments wrote: »

The state paid the bank for joe's overpriced house. So in effect the banks have already been paid for Joes mortgage.

The State i.e. taxpayers propped up the banks by buying some of the loans off the banks, which meant the banks didn't close. The state borrowed the money to pay for this.

So why do the banks still want joe to pay his mortgage and kick him out if he doesn' pay shouldn't it be the state that owns the property.

The taxpayers want as much of their money back as possible so we can repay the loans the government took out. The banks still manage the mortgage & the repayments - the fewer people who pay, the more money it will cost taxpayers.

That's a very simplified overview. The banks are not "getting paid twice".

kjkkments

hmmm wrote: »

The State i.e. taxpayers propped up the banks by buying some of the loans off the banks, which meant the banks didn't close. The state borrowed the money to pay for this.

The taxpayers want as much of their money back as possible so we can repay the loans the government took out. The banks still manage the mortgage & the repayments - the fewer people who pay, the more money it will cost taxpayers.

That's a very simplified overview. The banks are not "getting paid twice".

I agree we do want as much back as possible but with the fall in share prices and property value that is not going to happen. So the government I would imagine will have to write off most of that debt which is essentially giving the banks the money that is owed to them by mortgage holdees. So again in my view the banks have been paid already? I think that essentially the state bought the banks debt from the ECB so that now the state owns the debt but not the collateral which has stayed with the banks?

hmmm

kjkkments wrote: »

I agree we do want as much back as possible but with the fall in share prices and property value that is not going to happen.

Most people are paying their mortgages. Just because the value of your property goes down doesn't mean you can't pay your mortgage.

So the government I would imagine will have to write off most of that debt which is essentially giving the banks the money that is owed to them by mortgage holdees.

The banks would write off any money, which would reduce their reserves. The state has provided much of those reserves, and would have to step in to provide more if writeoffs got too high.

So again in my view the banks have been paid already? I think that essentially the state bought the banks debt from the ECB so that now the state owns the debt but not the collateral which has stayed with the banks?

You need to do some more reading as your understanding is way out. The State partly borrowed from the ECB on an emergency basis, the ECB had nothing to do with the banks debts.

kjkkments

hmmm wrote: »

Most people are paying their mortgages. Just because the value of your property goes down doesn't mean you can't pay your mortgage.

The banks would write off any money, which would reduce their reserves. The state has provided much of those reserves, and would have to step in to provide more if writeoffs got too high.

You need to do some more reading as your understanding is way out. The State partly borrowed from the ECB on an emergency basis, the ECB had nothing to do with the banks debts.

Yes but didn't we but the majority or that money into the banks to recapitalise them.

CelticRambler

It's too late now, but at the time I suggested (to no-one of influence ... ) that the state should have put in place a mechanism to buy mortgaged property directly from the owners with a corresponding write-down in the value of the outstanding mortgage. This would have channeled the same amount of money to the banks but *after* indebted households had been given a way out. The state could have offered many families the option of staying in the same house rent-free for three years, or more, while they sorted themselves out, then moved to other rented accommodation, emigrated or whatever. This would have corrected the overinflated house prices in a much shorter period and enabled everyone - including the banks and estate agents - to get back to work with realistic new figures. Of course some banks might not have been able to survive in the Brave New World of True Market Value ... but that's capitalism for you.

Instead, the government gave the money straight to the banks, and then a bit more, and then a bit more, and a bit more again, and the banks are still paying their chief executives six-figure sums.

kjkkments

CelticRambler wrote: »

It's too late now, but at the time I suggested (to no-one of influence ... ) that the state should have put in place a mechanism to buy mortgaged property directly from the owners with a corresponding write-down in the value of the outstanding mortgage. This would have channeled the same amount of money to the banks but *after* indebted households had been given a way out. The state could have offered many families the option of staying in the same house rent-free for three years, or more, while they sorted themselves out, then moved to other rented accommodation, emigrated or whatever. This would have corrected the overinflated house prices in a much shorter period and enabled everyone - including the banks and estate agents - to get back to work with realistic new figures. Of course some banks might not have been able to survive in the Brave New World of True Market Value ... but that's capitalism for you.

Instead, the government gave the money straight to the banks, and then a bit more, and then a bit more, and a bit more again, and the banks are still paying their chief executives six-figure sums.

You see thats pretty much what I was getting at the state should have taken control of the asset when the bail out took place.. the above seams like an immeasurably better solution than what we have now. All the leverage is still with the fools who created the problem.
As I see it at the moment we own a large part of the banks at the moment surely the government have the right as shareholders to dictate new terms to the banks rather than trust them to resolve the problem

hmmm

CelticRambler wrote: »

It's too late now, but at the time I suggested (to no-one of influence ... ) that the state should have put in place a mechanism to buy mortgaged property directly from the owners with a corresponding write-down in the value of the outstanding mortgage.

We (the government) did buy the loans from the banks at a discount. Inside in those loans is a mixture - people who can't pay, those who won't pay and those who will pay their mortgages. In order to buy those loans the government had to borrow the money.

If we had said to everyone "we'll write off your debt so you only need to repay the value of the property", we would have had to borrow tens of billions more. In the meantime, those people who could afford to pay their mortgages would have celebrated their unexpected windfall subsidised by the taxpayer. I'm not personally interested in paying extra tax just because someone who bought a 500k apartment in Dublin 4 feels hard done by.

kjkkments

hmmm wrote: »

We (the government) did buy the loans from the banks at a discount. Inside in those loans is a mixture - people who can't pay, those who won't pay and those who will pay their mortgages. In order to buy those loans the government had to borrow the money.

If we had said to everyone "we'll write off your debt so you only need to repay the value of the property", we would have had to borrow tens of billions more. In the meantime, those people who could afford to pay their mortgages would have celebrated their unexpected windfall subsidised by the taxpayer. I'm not personally interested in paying extra tax just because someone who bought a 500k apartment in Dublin 4 feels hard done by.

Just means test them if you want the write down submit to means test those who need it get it those that dont dont. I dont begrudge anyone who fell on hard times a helping hand to keep their home. Sure some people would be pissed because they have to pay while others pay less but if everyone has a roof over their and their kids head let them bitch. So happy I didn't get involved in all that madness at the time.

dudara

You're looking at it a little too simply. Better to look at it on a macro rather than a micro basis. Banks failed because of a liquidity crisis. The banks made bad investments in things like 1derivative products, and when push came to shove, the daily flow of cash they depended on to stay liquid ceased. This is what the government had to provide. In addition, banks had to show adequate capitalisation (i..e ability to withstand withdrawals), so money was required for that.

realitykeeper

Poor investments, combined with the cost of servicing its accumulated debt ultimately would have caused Anglo to collapse even without the credit crunch. What many people do not realize is that the Irish state is now making the same mistakes as Anglo Irish Bank.

kjkkments

dudara wrote: »

You're looking at it a little too simply. Better to look at it on a macro rather than a micro basis. Banks failed because of a liquidity crisis. The banks made bad investments in things like 1derivative products, and when push came to shove, the daily flow of cash they depended on to stay liquid ceased. This is what the government had to provide. In addition, banks had to show adequate capitalisation (i..e ability to withstand withdrawals), so money was required for that.

I agree but the macro is made up of loads and loads of microproblems. The liquidity crisis was caused by lack of banks willing to lend our banks cash because they did not believe that collateral value covered the value of the lending so the state became the lender of last resort. I like simple if leaves less room for bullsh**what I would like to know is if you added up the value of all the impaired mortgage's in the country not the performing ones would the value be less or greater than the total amount of money pumped into banks by the state. If it is greater then the state owns all the mortgage's and it should be working with the people to come up with solutions not the banks who are lets face it parasites at this stage.