So what if we had let the banks collapse......

kaymin · 06-08-2018 05:45AM

Phoebas wrote: »

There may or not be 'loads of writings' saying all sorts of things.
Evidence on the other hand ...

We need to be responsible for our own poor decisions.

You seem to absolve professional investors and institutions from all moral hazard when making their investment decisions. They chose to lend to Irish banks. They did their research or maybe they didn't. If you gamble, you may lose. Why did the Irish taxpayer have to make good the losses arising from their poor investment decisions / gambles?

kaymin · 06-08-2018 06:00AM

PeadarCo wrote: »

If the banks hadn't been bailed out unemployment would have been way way way higher. Any business that relied on Irish banks for working capital facilitates such as an overdraft would have gone bust overnight. Anyone with a deposit in an Irish bank would have lost their money overnight. The result of that would have been large amounts of people would have been unemployed suddenly overnight.

Deposits up to 100k per institution were guaranteed. Companies that had borrowed money on overdraft facilities did not suddenly have to replay those borrowings overnight. So much scare mongering at the time and since to justify severe political weakness. Irish unemployment rate reached 14% with massive emigration. Icelandic unemployment rate topped out at 8%.

joeguevara · 06-08-2018 06:56AM

I often wondered instead of bailing out the banks what would have happened instead if the government paid off everyone’s mortgages. The banks would probably have had the same injection of cash but people would not have had the same noose around there necks. That would have allowed them to spend money in the economy which meant businesses would have have more money.

I think a bailout was required but could have been done differently. People could argue that it wouldn’t have been fair on people who didn’t have a mortgage. But they would have been in the same position as the actual bailout. Not sure if it’s an off the wall idea but couldn’t be any worse than what happened.

bear1 · 06-08-2018 07:03AM

I'm more curious what the government has done in order for this not to happens again.
The Irish tax payer was crucified and still is cause of this.
Just looking at the setanta insurance fiasco shows the government isn't exactly up to the task of protecting the tax payer.

joeguevara · 06-08-2018 07:22AM

bear1 wrote: »

I'm more curious what the government has done in order for this not to happens again.
The Irish tax payer was crucified and still is cause of this.
Just looking at the setanta insurance fiasco shows the government isn't exactly up to the task of protecting the tax payer.

I don’t think that is the Irish Governments fault. Under European Law Insuarance firms are allowed to passport in and all the regulator can check is conduct of business rules which does not include solvency. There is nothing they can do. Blame European Legislation for that.

Victor · 06-08-2018 07:29AM

kaymin wrote: »

Iceland allowed their banks to fail and their economy is thriving and they haven't added the bank debts to their national debt.

Realise that the people of Iceland suffered.

Dohnjoe · 06-08-2018 09:29AM

Mike Hoch wrote: »

The question around the much maligned bailout seems to be, what would have happened if we hadn't bailed them out?

I won't speak from an Irish perspective, but from the US perspective - it would have been catastrophic. It's hard to predict exactly, and this is just my opinion from studying the crisis. With zero government assistance, and that includes Fed lending windows and mechanisms which were critical, then it would likely have been similar to 1929, or potentially worse.

Herd panic would have caused the most significant damage, and it's likely the contagion would have spread to the high street banks, where it's quite possible there would have been runs similar to the run on Northern Rock in the UK (first in 150 years!) Banks would have gone into survival mode to "shield" themselves from damage but that would have further seized up crucial credit lines (oil in the system). On top of that, banks were "too interconnected to fail", meaning they were reliant on each other, exposed to each other - when Lehman fell it caused significant fallout on other banks. If more fell then the classic "domino" effect would have been a very real threat - no idea how far it would have gone. One official described potential "soup lines and shanty towns", I really don't think they were exaggerating

It was a systemic crisis, the "fire" had spread to the "core" systems, not just the periphery - there was a run on the shadow banking system (big insurers and so on), which would have worsened. It really was edge of the abyss stuff, a serious meltdown could have occurred. The US banking system was not as big as Ireland's or UK's in relation to the economy, but it was still big - and that entire system grinding to a halt (amid panic and collapsing banks), yeah it would have been pretty insane.

Politicians on both sides in the US vetoed the first bailout proposal, it's only when they saw the potential for the crisis to spread to ATMs, their constituents, did they suddenly get realistic about it and vote in critical measures

With the bailouts, the US pulled out of the crisis in around 2 and a half years and actually made a (small) profit for the taxpayer. Household wealth loss was vast though (5 times higher than 1929 I believe)

Phoebas · 06-08-2018 09:31AM

kaymin wrote: »

You seem to absolve professional investors and institutions from all moral hazard when making their investment decisions. They chose to lend to Irish banks. They did their research or maybe they didn't. If you gamble, you may lose. Why did the Irish taxpayer have to make good the losses arising from their poor investment decisions / gambles?

Not me, but the Irish Government when they introduced the Bank Guarantee.
A poor decision, but you can't just wish it away.

duffman13 · 06-08-2018 09:35AM

Hitman3000 wrote: »

PTSB sold 1050 performing loans in the bundle. So the narrative that it's deflauters and chancers is b.s..

All of which were connected to accounts with BTL properties that had defaulted.

The only accounts not up in that sale were performing loans or houses with long term restructures (warehoused portions of the mortgage)

runawaybishop · 06-08-2018 09:44AM

kaymin wrote: »

Did you do any research whatsoever before making that post? Icelandic unemployment peaked in 2009 / 2010 and fell consistently from then.

https://www.worldfinance.com/special-reports/failing-banks-winning-economy-the-truth-about-icelands-recovery

Employment is only one part of it. It may have peaked after 2 years but it took a lot longer to return to precrash employment. To state that Iceland only had 2 years of problems is stupid, the legacy of their decisions is still being felt.

Dohnjoe · 06-08-2018 09:55AM

runawaybishop wrote: »

Employment is only one part of it. It may have peaked after 2 years but it took a lot longer to return to precrash employment. To state that Iceland only had 2 years of problems is stupid, the legacy of their decisions is still being felt.

Absolutely. It should also be mentioned Iceland is a tiny country with a pop the size of a large town. A larger country would have had exponentially larger issues if it took the same actions as Iceland (where a significant number of bankers actually committed crimes like fraud and money laundering)

hmmm · 06-08-2018 10:03AM

joeguevara wrote: »

I often wondered instead of bailing out the banks what would have happened instead if the government paid off everyone’s mortgages.

The total Irish mortgage market is well over 100 billion. Add to that all the other loans on the bank's books, and the figure is huge. There is not a hope in hell you were just going to "pay off everyones mortgage".

We got ourselves into this mess because most of the population went absolutely mental about property. Parents were telling their kids that "rent was dead money", older people were selling crappy houses for half a million euros, taxi drivers were buying apartments in Bulgaria, and anyone who said it was madness was told to shut up. We then took all this bubble money, and spent it all on public sector salaries and social welfare.

I've very little sympathy for the whingers about the bailout. If you were happy for hospitals and schools to close, and you wanted pensions and social welfare to be cut by 50%, and you wanted mass layoffs of the public service, you could have said that at the time.

kaymin · 06-08-2018 10:07AM

runawaybishop wrote: »

Employment is only one part of it. It may have peaked after 2 years but it took a lot longer to return to precrash employment. To state that Iceland only had 2 years of problems is stupid, the legacy of their decisions is still being felt.

Why don't you elaborate on what you mean by the legacy now suffered by Iceland?

The Irish legacy is nothing to be happy about (entire generation priced out of the housing market and a wage slave to pay their rent - deliberately set up by Noonan so the banks could get back on their feet).

Yet the Irish banks are still zombie like and charging exorbitant mortgage rates compared to banks on the continent. In my view the worst is to come when the next recession hits and the country enters it already up to its gills in debt.

kaymin · 06-08-2018 10:10AM

Dohnjoe wrote: »

Absolutely. It should also be mentioned Iceland is a tiny country with a pop the size of a large town. A larger country would have had exponentially larger issues if it took the same actions as Iceland (where a significant number of bankers actually committed crimes like fraud and money laundering)

Can you elaborate on what these exponentially larger issues would have been?

dxhound2005 · 06-08-2018 10:20AM

kaymin wrote: »

Why don't you elaborate on what you mean by the legacy now suffered by Iceland?

The Irish legacy is nothing to be happy about (entire generation priced out of the housing market and a wage slave to pay their rent - deliberately set up by Noonan so the banks could get back on their feet).

Yet the Irish banks are still zombie like and charging exorbitant mortgage rates compared to banks on the continent. In my view the worst is to come when the next recession hits and the country enters it already up to its gills in debt.

The way to guard against a repeat of what happened is to make the banks give out loans only to people and businesses who intend to repay them. If this results in an entire generation being priced out of the housing market, then the market will soon adjust.

There is no point in giving loans which have a 25 year span, only to find that 1 or 2 years into the term, thousands of borrowers can't make the repayments. I would understand 1% of loans going bad but if there is wholesale default in future then the banks must be made to bear the consequences, no more bailouts.

Dohnjoe · 06-08-2018 11:34AM

kaymin wrote: »

Can you elaborate on what these exponentially larger issues would have been?

There are a good few myths about Iceland, notably that their let their banking system fail - they didn't, they kept the domestic banking system going, at massive cost. They didn't default on sovereign debt. They didn't nationalise the banks either. They also negotiated a key economic programme with the IMF, including billions in loans

To answer your question - if a larger country's banking system is allowed to entirely fail (this is very unlikely to happen in reality) it could have a significant impact on the surrounding countries and could affect entire regions, it would impact their banks which would have knock-on effects on other banks. The "footprint" is larger and the their would be a higher risk of panic doing further damage. Typically government intervention or international intervention (e.g. IMF help with Iceland) will mitigate the damage and reduce fears, but absolutely allowing the banking system to fail would only aggravate those, which is why I use the word "expotential" because, as mentioned, panic is the real damage dealer

Iceland was small, relatively isolated, and it's problems (and solutions) were easier to quantify and contain without causing more drastic knock-on effects or paralysing other systems

Again, just my opinion

eagle eye · 06-08-2018 11:45AM

hmmm wrote:

We got ourselves into this mess because most of the population went absolutely mental about property.

This actually happened but the banks were responsible for it.
They created currency that didn't exist by loaning money on top of 'secure' loans.
I have an email from 2006 from my bank telling me that due my good history I have been pre-approved for a 270,000 euro mortgage. I didn't take them up on it.

At that stage I already had two. I got seriously ill, had to sell one house and while in very bad health they foreclosed on the second one and told me I still owed them 79, 000 euro. Some turnaround in four years.

PeadarCo · 06-08-2018 02:33PM

kaymin wrote:

Deposits up to 100k per institution were guaranteed. Companies that had borrowed money on overdraft facilities did not suddenly have to replay those borrowings overnight. So much scare mongering at the time and since to justify severe political weakness. Irish unemployment rate reached 14% with massive emigration. Icelandic unemployment rate topped out at 8%.

So the banks go bust. People want their deposits back where do you get the money? All the money that's is in business and people's current accounts also gone overnight. Where do you get that money?

hmmm · 06-08-2018 02:48PM

kaymin wrote: »

Deposits up to 100k per institution were guaranteed.

Guaranteed by an Irish government which was bankrupt?

How many hospitals would you have closed to pay all these depositors?

There is so much revisionism on this thread. At the time of the rescue, we faced a choice - slash our spending, or look for a rescue. We chose not to lay off nurses, teachers, guards and slash pensions and social welfare. I don't remember many people disagreeing with this at the time.

Phoebas · 06-08-2018 02:52PM

kaymin wrote: »

Deposits up to 100k per institution were guaranteed.

EVERYTHING was guaranteed.

Drumpot · 06-08-2018 02:56PM

The most important question now is what do we do going forward to protect the state from the banks next crisis?

There has been absolutely no efforts made to protect us from them going forward. We are riding a another wave of optimism, some token regulation but generally full steam ahead.

What can be done now to get more towards an Iceland situation where the banks will be allowed to fail but it won’t have the detrimental effect it has in 08?

Dohnjoe · 06-08-2018 03:02PM

hmmm wrote: »

Guaranteed by an Irish government which was bankrupt?

How many hospitals would you have closed to pay all these depositors?

There is so much revisionism on this thread. At the time of the rescue, we faced a choice - slash our spending, or look for a rescue. We chose not to lay off nurses, teachers, guards and slash pensions and social welfare. I don't remember many people disagreeing with this at the time.

We chose the least worst option

We could have engaged in old testament justice and allowed the banks to fail to satiate populist anger, but ultimately it would have been at our expense. With hindsight, it was the right decision

Dohnjoe · 06-08-2018 03:10PM

Drumpot wrote: »

The most important question now is what do we do going forward to protect the state from the banks next crisis?

There has been a large amount of added/revised regulation, controls, oversight, restrictions, credit controls, capital/leverage ratios, revised stress tests, etc - all of which are constantly ongoing

The difference between the types of controls we had in 2006 and what we have now is night and day. 2007 was a once-in-a-lifetime systemic event (like 1929), could it happen again? yes but we are far more prepared, have more shock absorbers, and we the degree of risk in the system has decreased significantly

jmayo · 06-08-2018 03:15PM

smelly sock wrote: »

Look what has hsppened in Greece.

Greece's problems aren't dodgy banks, but the fact they spent way more money than they ever raised.
Hell you had professionals in Athens with swimming pool villas, island homes and yachts claiming they earned 12k a year.
It was and still is a joke.

Ever been to Greece?
Unlike most every other modern country it is still a cash economy.
And there is a big reason they like dealing in cash.
Nice friendly people though.

PeadarCo wrote: »

If the banks hadn't been bailed out unemployment would have been way way way higher. Any business that relied on Irish banks for working capital facilitates such as an overdraft would have gone bust overnight. Anyone with a deposit in an Irish bank would have lost their money overnight. The result of that would have been large amounts of people would have been unemployed suddenly overnight. The debt relating to the the money people borrowed would also would not have gone away. When you factor in the impact of that on government finances there would have been far far deeper cuts to the budget. That would caused massive social damage. No sane government would let that happen. You didn't need any external pressure to make the decision.

You can argue over the exact method and that's where there is an argument about external pressure. However the bank guarantee was an Irish decision. At one point it was called the cheapest bailout in history. The problem was it took too long for the Irish government to grasp the fact that the banks were insolvent. The only way the bank guarantee makes sense if you think the banks only had a temporary liquidity problem.

Anglo and INBS were trully toxic and were not a core systemic bank.
Hell neither of them were business banks, unless you count well connected leeching developers as businessmen.
They should never have been saved and they have cost the taxpayers tens of billions which will never be seen again.

AIB, BOI and PTSB could have been saved with Ulster and Rabobank being the responsibility of the foreign taxpayers.

Drumpot · 06-08-2018 03:15PM

Dohnjoe wrote: »

There has been a large amount of added/revised regulation, controls, oversight, restrictions, credit controls, capital/leverage ratios, revised stress tests, etc - all of which are constantly ongoing

The difference between the types of controls we had in 2006 and what we have now is night and day. 2007 was a once-in-a-lifetime systemic event (like 1929), could it happen again? yes but we are far more prepared, have more shock absorbers, and we the degree of risk in the system has decreased significantly

Don’t make me laugh. Look at the political presssure being put on the regulator to role back on the CBI rules for mortgages. Most of the controls in place are forced and monitored by our friends in the EU.

That aside the entire system is flawed because it just needs one populist strong political party to undo all the protection mechanisms in place. If 2008 has thought me one thing it’s that we have learned nothing from the crisis. Optical regulation does not equate to meaningful reform.

Are you actually suggesting the banking system won’t need another hand me out in the future? Sure as eggs, while you allow directors at the top of these institutions to be primarily insentivised purely based on company profits and then you don’t hold these same directors to account if the company needs a bail out, it will happen again. Where is the moral hazard? Without that banks can and will be wreckless again and again because why not?

blanch152 · 06-08-2018 03:22PM

Tow wrote: »

They plundered our pension schemes. Only difference is people do not see it directly reflected in their statements.

They saved your pension schemes.

The biggest bondholders were Irish pension schemes. They were rescued by the State. The subsequent small tax on private pension schemes was a small price to pay for the huge gift the State had given pension schemes.

PeadarCo · 06-08-2018 03:27PM

jmayo wrote:

Anglo and INBS were trully toxic and were not a core systemic bank. Hell neither of them were business banks, unless you count well connected leeching developers as businessmen. They should never have been saved and they have cost the taxpayers tens of billions which will never be seen again.

I agree to a certain extent however that's with a degree of hindsight. The biggest mistake the government made was taking too long to figure out the banks were bust and admitting that. There was a period of constant bad news about the banks. If figured it out sooner they could have implemented measures to liquidate the two banks earlier(they ultimately did that through IBRC) and deal with any knock on impacts.

However the biggest issue with the banks was that it have the government and public a good scapegoat. The biggest reason for the austerity measures. They were caused by crazy budgets that decreased taxes and increased spending unsustainably. The bank bailout while a large amount is a small amount compared to the amount borrowed to keep the country ticking over.

While the central bank has learnt from the crash I don't the public has learnt giving that their is no pressure on the government to deliver a budget surplus during our current economic good health.

Dohnjoe · 06-08-2018 03:32PM

Drumpot wrote: »

Are you actually suggesting the banking system won’t need another hand me out in the future?

Perhaps in localised crises, of which there have been many of the past century. But a systemic crisis of the type in 2007? it's far less likely barring some unforeseen cataclysmic event

As mentioned, the changes have been drastic in comparison to the past. I would rate them as pretty effective

Drumpot · 06-08-2018 03:34PM

blanch152 wrote: »

They saved your pension schemes.

The biggest bondholders were Irish pension schemes. They were rescued by the State. The subsequent small tax on private pension schemes was a small price to pay for the huge gift the State had given pension schemes.

Again, when you take away moral hazard you completely distort the entire system, including taking away the risks assodiated with investing. It’s akin to a referee not giving out cards in a match that’s getting out of hand. You never see players or people regulate or reduce their risky behavior and that’s exactly what’s happened here.

Any other private entity would have destroyed its reputation and would of gone out of business. But we are forced to “Trust” a failed banking/financial system that has absolutely no moral compass and has no worries about being held account for the lack of this characteristic.

up for anything · 06-08-2018 03:39PM

Hitman3000 wrote: »

PTSB sold 1050 performing loans in the bundle. So the narrative that it's deflauters and chancers is b.s..

They also sold some personal loans to the vulture fund.

So what if we had let the banks collapse......

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