Anglo Fail

bluecatmorgana · 03-10-2010 10:57PM #1

I'm not very good at economics so was wondering if anyone could tell me what would have happened if Anglo Irish Bank had failed* 2 years ago? Do you think since they owe the EU so much money that the EU would have insisted the government do something?

I just want to know what would be the worst thing that would happen if we didnt bail out Anglo.

*By failed I think I mean defaulted on their loans to the EU and the like.

digme · 03-10-2010 11:03PM

(we(ordinary folk)) wouldn't have to pay 50+billion for the banks poker games.

johnnyskeleton · 04-10-2010 12:25AM

bluecatmorgana wrote: »

I'm not very good at economics so was wondering if anyone could tell me what would have happened if Anglo Irish Bank had failed* 2 years ago? Do you think since they owe the EU so much money that the EU would have insisted the government do something?

I just want to know what would be the worst thing that would happen if we didnt bail out Anglo.

*By failed I think I mean defaulted on their loans to the EU and the like.

Very little money was owed to the ECB (European Central Bank) and unless there was some bizzare reason for the EU itself to set up a deposit account there, you can assume that none was directly owed to the EU.

Mostly the money was owed to customers (often held on deposit in respect of loans recently drawn down) and other banks. Generally money is not borrowed directly from the ECB unless no one else will lend.

If it failed it would have been wound up, the assets sold at whatever value the market would place on them (possibly higher than nama valuations) and the other banks would suffer as, we are told, would "Ireland's reputational value". However, any damage to our reputation would be long since gone because a bank defaulting during a massive world crisis is no big thing.

The other thing that would have happened is that there would have been some transparency as to what exactly Anglo were up to, and all their dodgy loans would be out on the street.

Liam Byrne · 04-10-2010 12:32AM

There is SOME case to be made that SOME of the deposits could have been important, and even though the Credit Unions have denied government claims that they had anything to do with Anglo, I can imagine that some badly-managed pensions, etc, might have been in there.

So writing those off might have opened a can of worms for someone, and trying to give preference to key depositors (while abandoning others) might have caused legal issues with anti-competitiveness and preferential treatment (since I would assume that all bank clients and creditors would have to be treated equally).

However the fact remains that at the time Anglo had approximately €6bn in deposits, and we have paid at least 4 times that amount to keep it solvent which makes absolutely no sense.

Another solution SHOULD have been found.

There is no logical, fair and transparent reason why this cesspit was given unconditional life support.

Scofflaw · 04-10-2010 12:59AM

Probably the most irritating feature of the whole thing is that we don't know. As Liam says, there were almost certainly some worms in the can, but probably not enough worms to justify the approach taken - but that's about as good as it gets in terms of precision.

Even if we had let Anglo go bust, there's no guarantee (sorry!) we'd have known - apart from a few obvious cases - what bits of our disaster would have been attributable to Anglo's collapse. That would have involved a massive exercise in forensic accountancy, comparable at the very least to our longer-running tribunals, and about as useful.

The only way in which I can see Anglo as having been systemic is if its demise would have practically killed off our entire developer and banking class - I appreciate that not everybody would see that as a systemic issue, or a bad thing, but a huge chunk of our economy was dependent in turn on that class, and the whole NAMA game of unwinding our banks' bad debt position slowly and opaquely over the next 10-20 years probably required Anglo as a linchpin. Again, I can see that not everybody would see that as a bad thing either, but we do have a day to day need for a solvent domestic banking sector - the economy genuinely won't function without it.

The thing is, though, that that's guesswork too.

cordially,
Scofflaw

Liam Byrne · 04-10-2010 01:11AM

Scofflaw wrote: »

The thing is, though, that that's guesswork too.

The biggest problem I see is that guesswork is all we have to rely on, since the whole process is so secretive.

Again, that's partially understandable, since if - say - the Government came out and said "well, lads, we actually had all of the future pensions of the country in Anglo" there would be a nightmare scenario of confusion.

However that still doesn't wash when Lenihan & Co come out and say that Anglo had deposits from Credit Unions and the Credit Unions contradict this.

Again, is that Lenihan lying to save his ass, or the Credit Unions lying to maintain confidence ? We don't know.

But someone, somewhere had better start being honest before everyone starts second-guessing everything.

As it is, Lenihan has zero credibility.

And that, combined with the secrecy and lack of accountability, is undermining any chance of peace of mind, while the ridiculous and unjustifiable sums involved are causing anger.

As stated before, this government have made a dire situation a billion times worse because of their choices.

Scofflaw · 04-10-2010 01:45AM

Liam Byrne wrote:

As stated before, this government have made a dire situation a billion times worse because of their choices

So that would be just 40 quid for Anglo, then, under a different government!? Not totally sure about that...

I suppose it's theoretically possible, though, that dire as the situation seems to be, it's actually worse, and the government are doing a very good job of keeping that information from the markets (and us). Maybe that was why we stumped up the cash for Greece - payment for training sessions.

Again, though, realistically, nobody in a modern economy can actually say where all the tendrils of connection go from a bank into the economy. At a push you could trace it in a small town, but at the national level it's not even remotely conceivable. So while there's a level of secrecy and opacity on top of the limits of knowledge here, the knowledge itself is really quite limited too. No real answer to the OP's question is truly possible - the best even the most knowledgeable can do is going to be at least partly guesswork.

cordially,
Scofflaw

Liam Byrne · 04-10-2010 01:54AM

Scofflaw wrote: »

So that would be just 40 quid for Anglo, then, under a different government!? Not totally sure about that...

Ah now, I thought I was the master of semantics!!!

In monetary terms, touché.

In terms of the combined damage done by the monetary factor combined with mistrust, anger, unfairness and despair, though, I think I might still be close enough to the truth.

SkepticOne · 04-10-2010 02:40AM

Winding up Anglo would have involved a process of selling the developer loans on the open market. Whatever money raised would have been used to part pay depositors and bond holders. The subordinated bond holders would have been wiped out but depositors and senior bond holders would have got whatever was raised from the sale of assets. Then the government would have stepped in to compensate retail depositors.

Liam Byrne has pointed out that there was about 6 billion in retail deposits so that would be the maximum exposure to the tax payer in this scenario.

But you have to remember that tat that time the government was pretending to Ireland, the rest of the world and, most importantly, itself that everything was allright with the banking system in Ireland apart from some minor liquidity issues. Therefore allowing something that might cost billions was not politically acceptable.

We went from something small but knowable to something very large but unknowable and this is why we're being punished in the bond markets. When you think about it, it is very similar to the NAMA process.

SkepticOne · 04-10-2010 02:45AM

Scofflaw wrote: »

Again, though, realistically, nobody in a modern economy can actually say where all the tendrils of connection go from a bank into the economy. At a push you could trace it in a small town, but at the national level it's not even remotely conceivable. So while there's a level of secrecy and opacity on top of the limits of knowledge here, the knowledge itself is really quite limited too. No real answer to the OP's question is truly possible - the best even the most knowledgeable can do is going to be at least partly guesswork.

But every business collapse (and there have been tens of thousands in the last few years) has tendrils that extend in ways that can't be fully known. What we do know is that, the bond market being as it is, in the case of Anglo it was largely risk takers outside the country that have been saved at the expense of the Irish economy. That is why it was most likely for political reasons, either that or simply lack of judgement that led to the rescue of Anglo.

johnnyskeleton · 04-10-2010 08:28AM

SkepticOne wrote: »

But you have to remember that tat that time the government was pretending to Ireland, the rest of the world and, most importantly, itself that everything was allright with the banking system in Ireland apart from some minor liquidity issues. Therefore allowing something that might cost billions was not politically acceptable.

And of course, while it is not pleasant for most people to think about it, the reactive nature of Irish politics means that if they had let Anglo fail and there were even the slightest repercussions, FG would be hounding them for letting it fail and FF would probably be less popular than they are now.

So FF took the politically soft option on an issue that, at the time, the majority of people were not prepared to even begin to understand. Of course, had FF done a better job previously or even informed people about the dire state of the banks that would have changed matters...

Saadyst · 04-10-2010 10:01AM

I think it basically came down to saving the bond holders who are mostly external to Ireland. Anglo lent out so much money, that it had to get the money from somewhere to finance all these new developments around the country. So they sought cash from outside the country... and ended up not being able to pay it back.

The thinking is, if the people who invested all this cash into Anglo were not paid back, it would increase the interest on money the government or companies here would pay if they had to borrow money - and/or significantly reduce the potential ability for Ireland to borrow in the future.

And Ireland borrows a lot of money I believe, and has quite a substantial foreign debt.

dan_d · 04-10-2010 11:31AM

If the money was within the country (ie not from foreign investors/large proportions of it not foreign investment), I wonder would it have been more likely to be let fail.
Course that begs the question - would we have been able to borrow that much money without foreign investors?
I'm guessing the answer is no.

recedite · 06-10-2010 10:52PM

Saadyst wrote: »

The thinking is, if the people who invested all this cash into Anglo were not paid back, it would increase the interest on money the government or companies here would pay if they had to borrow money

Thats Lenihan's big lie. The idea that a private bank default equates to a sovereign debt default, in its effect on our reputation. The fact that yields on government bonds went up instead of down proves it.

Even if all our pensions were in the bank, does that justify wrecking the economy, borrowing at over 6%, and possibly emptying the national pension reserve fund?
We would have been better off putting the money into a new compensatory pension fund.

Imhof Tank · 07-10-2010 12:59PM

If Anglo had been allowed to fail on the morning of 29 September the stock markets would have been shorting AIB and BOI within about 5 minutes, prompting a run on AIB and BOI's cash reserves, a refusal by the interbank market to fund their liquidity requirements and the ATMs would have run out of cash within a day or two.

The government would have to have set up some form of national emergency bank overnight and done a deal with ECB for emergency funding (at who knows what financial and policitcal cost) to distribute to the bank's depositors. While they were organising that the looting of the supermarkets would get going.

BingoMingo · 07-10-2010 02:42PM

Liam Byrne wrote: »

However the fact remains that at the time Anglo had approximately €6bn in deposits, and we have paid at least 4 times that amount to keep it solvent which makes absolutely no sense.

Extract from the audited accounts of Anglo Irish Bank as at 30th Sept 2008

Deposits from Banks - 20.453 Billion
Deposits from Customers - 51.499 Billion

Where does your 6 billion come from ?

Page 33
http://www.wholesaleireland.com/news/wp-content/uploads/2010/03/Anglo-Irish-Bank-2008-accounts.pdf

eden_my_ass · 07-10-2010 02:52PM

BingoMingo wrote: »

Extract from the audited accounts of Anglo Irish Bank as at 30th Sept 2008

Deposits from Banks - 20.453 Billion
Deposits from Customers - 51.499 Billion

Where does your 6 billion come from ?

Page 33
http://www.wholesaleireland.com/news/wp-content/uploads/2010/03/Anglo-Irish-Bank-2008-accounts.pdf

Do you actually believe any of these figures anymore though? Audited my arse...we've seen what that means in Celtic Tiger Ireland!

BingoMingo · 07-10-2010 03:00PM

eden_my_ass wrote: »

Do you actually believe any of these figures anymore though? Audited my arse...we've seen what that means in Celtic Tiger Ireland!

Yet you belive the figure of 6 billion then?

Or do you believe what you want to believe cos it suits the argument you are making ?

Without facts people come to the wrong conclusions - simple

eden_my_ass · 07-10-2010 03:13PM

BingoMingo wrote: »

Yet you belive the figure of 6 billion then?

Or do you believe what you want to believe cos it suits the argument you are making ?

Without facts people come to the wrong conclusions - simple

Um, that was my first comment on the thread so I'm not justifying any argument of my own

I meant all figures, the "audited accounts" and the 6 billion...hard to believe anything anymore unless you could sit down and count the beans yourself !

recedite · 07-10-2010 04:20PM

Imhof Tank wrote: »

If Anglo had been allowed to fail on the morning of 29 September the stock markets would have been shorting AIB and BOI within about 5 minutes, prompting a run on AIB and BOI's cash reserves........

Cash reserves? You mean the inadequate cash reserves? They would have needed a (relatively cheap) government guarantee to cover retail deposits, and that would have forestalled all the other melodramatic stuff.

BingoMingo · 07-10-2010 04:40PM

You have a point. It is tough to believe anything about this whole saga.
The accounts I show in the link are all we have. Clearly they were flawed as they report a profit of 600 Milion or so which we all know was rubbish.
It is nevertheless reasonable to assume that the amounts stated in the balance sheet for deposits are correct.

Common sense will tell you that 6bn is absurdly low.

My point is this. The poster I quoted said:

"However the fact remains that at the time Anglo had approximately €6bn in deposits, and we have paid at least 4 times that amount to keep it solvent which makes absolutely no sense."

The FACT is that the figure of 6 bn is completely incorrect. Does not just render his argument invalid. It makes a case for why the bailout was a GOOD idea.

In my view this is not the case. In fact I don't know. Here is the truth as I know it:

Lehman Bros was allowed to fail. This caused a snowball effect in the States and othe banks went bust (Morgan Stanley, AIG etc). The US Goverment lost it's nerve and decided to save these. Afterwards Hank Poulson - Treasury Secretary said letting Lehman's fail was a serious error.

All this went on in Sept 2008.

In Ireland the gurus in the Dept of Finance etc., decided that we had to support the banks. At the time the belief was that letting any Irish Bank
fail would cause a run on the banks. No one knew at the time what an unholy mess Anglo really was. The decision was made to give the "blanket Guarantee".

Once this was given the Goverments hands were tied. They effectively owned all the banks. The subsequent nonsense that went on over NAMA,
Bond Holders etc., was total rethoric. Opportunists stirring it up using hindsight and assumptions that they knew would never be tested.

Personally I think the Goverment had no choice but to give the guarantee
in Sept 2008. (virtually every Goverment in the world were propping their banks up).From then on they have been over a barrell and have had no real options but to keep Anglo and the others afloat.

The real issue is. Why did they let us get into this position in the first place ????

They have allowed a situation to develop where an out of control banking system and an out of control property market has enslaved us in debt and destroyed our economy.

Attack them for this because they have no defence.

Argue nonsense about Bond Holders, paying over the odds for NAMA assets,was the guarantee too broad etc., and you cloud the issues. They can argue hypothetical scenarios all day long and leave confusion everywhere. Worse still, make arguments using false data and you give credibilty to their incompetence.

It's fine to say " WE ARE WHERE ARE."

I want to know

"WHY ARE WE HERE?"

wiseguy · 07-10-2010 05:41PM

PrimeTime mentioned that only 20% of Anglo's deposits are from Irish citizens.
Whatever the value the taxpayers of this country and the country itself are being put on hook for someone else's savings.

Imhof Tank · 08-10-2010 11:05AM

recedite wrote: »

Cash reserves? You mean the inadequate cash reserves? They would have needed a (relatively cheap) government guarantee to cover retail deposits, and that would have forestalled all the other melodramatic stuff.

Except the scenario is that Anglo would have very dramatically "failed" that very day and the stock market would have been going into meltdown on the other Irish banks - do you really think retail depositors would have been happy with words or fancy talk of limited guarantees from the government against that backdrop? No way - the people would have queing outside the bank branches with wheelbarrows looking for their cash

Bits_n_Bobs · 08-10-2010 11:36AM

I think in all probability there would of been a run on AIB and BOI had they let Anglo fail, so in a sense it was of systemic importance. Course there might not of been a run on them, but it would of been a massive bet to make, so they probably took what appeared at the time to be a cautious decision.

wiseguy · 08-10-2010 11:37AM

Imhof Tank wrote: »

Except the scenario is that Anglo would have very dramatically "failed" that very day and the stock market would have been going into meltdown on the other Irish banks - do you really think retail depositors would have been happy with words or fancy talk of limited guarantees from the government against that backdrop? No way - the people would have queing outside the bank branches with wheelbarrows looking for their cash

Now the whole country is on a course to failing :rolleyes:

If Anglo failed following your reasonining, then the EU/ECB would have had to step in to prevent the whole euro system from collapsing {as illustrated in Greece}, as they will have to anyways, just a matter of time.

Imhof Tank · 08-10-2010 12:35PM

wiseguy wrote: »

Now the whole country is on a course to failing :rolleyes:

If Anglo failed following your reasonining, then the EU/ECB would have had to step in to prevent the whole euro system from collapsing {as illustrated in Greece}, as they will have to anyways, just a matter of time.

Exactly - thats why letting it fail in September 08 wasnt an option.

This was at a time when the collapse of the euro project would have been unthinakable.

2 years later, with the benefit of hindsight, after Greece and us, if the same situation presented itself nothing would be ruled out including ditching the euro.

toxicity234 · 08-10-2010 01:13PM

If Anglo fails, it would have destroyed AIB and BOI.
On the Night in Question 3 important thing happened

1. Anglo Lie through there teeth to get Help. (This cannot be forgotten).

2. AIB and BOI were in this meeting as well. They had to have know Anglo problems and how deep they were, but they knew if they open there month Anglo would have sunk them as well.
(If one Irish bank fails, No Irish bank gets money from the markets)

3. The government were in an impossible position, If they did bail Anglo out. They have bail everyone out or have to explain it in court. If they didn't bail Anglo out and it fails them no banks in the country get money from the market of a couple of years and worse still the Euro collapse.

Did The Government Do the right thing? Jesus No.

Could it have being Worse? Yes, We could have sparked a collapse Europe wide.

Could it have being Better? Yes Anglo could have told the truth and any plan would have being better worked out. But I have yet to see a plan that would have being any thing other than a major blood letting.

Who was to blame? Anglo they cause this by giving out loans that would bring down the country, the other bank followed like sheep in a heap. There like a golfer who went around 18 hole arrives back and there scorecard said they got 18 hole in one. The regulation that the experts say should have being done in the banks before the bust is not done in any country in the world. No Business in there right mind would let you do the things that experts say need to be done to make sure the bank were solvent. (at the time now the state owns the bank it can do whatever it wants)

Is there a case for Fraud against the banks. Should be, the bank mostly Anglo Lie to get the Help they need to stay open.

How do we get out of this? The same way you get out of any thing one step at a time. High taxes better and more target spending.

Can the country afford to get out of this hole were in. Yes. But Its going to be a return to the bad day for a while.

I leave you with this. I’m a BOI customer 4 years ago I found a house I wanted to buy it was 357000. I applied for a mortgage no problem I got it. After I got it the estate agent told me that someone have bid 420000 on the house. I knew the repayments would be affordable for me at that moment but just. So I ask the bank and it took 20 mins to get it approved.
I went away for 24 hour and though to myself that if anything happen to my job I be in trouble. I with due my offer and told the bank I didn’t want the loan.
Last week I was out of the country for a few weeks my BOI account went overdrawn by 55 euro for 12 days, I was charged 44 euros for being overdrawn.
I know what I think of that bank. I have closed my account and move to my local Credit Union.

Liam Byrne · 08-10-2010 03:18PM

Bits_n_Bobs wrote: »

I think in all probability there would of been a run on AIB and BOI had they let Anglo fail

Why ?

If Bord Gais Energy goes bust in the morning, people switch to ESB or Airtricity.

Most people in Ireland had nothing to do with Anglo, so why would an Anglo fail have caused a run ?

Re the €6 billion - it's been mentioned a few times in various reports and interviews, so I took it as at least being representative. That said, when it comes to the shady dealings of Anglo, I guess you can't believe a word you hear.

The bottom line is that the secrecy of who has money where is part of the problem; if we knew who we were bailing out and why (and how much, exactly) then we could choose, instead of having shady, lying vested interests decide where our hard-earned cash goes.

BingoMingo · 08-10-2010 03:54PM

Liam Byrne wrote: »

Re the €6 billion - it's been mentioned a few times in various reports and interviews, so I took it as at least being representative. That said, when it comes to the shady dealings of Anglo, I guess you can't believe a word you hear.

Agreed - I would'nt be surprised if you heard it from any or some of these:

Pat Kenny, Miriam O'Callaghan, Vincent Brown, Joe Duffy,David McWilliams,
Joan Burton, Richard Bruton, Eamon Gilmore.

To name but a few.

Scofflaw · 08-10-2010 04:16PM

Liam Byrne wrote: »

Why ?

If Bord Gais Energy goes bust in the morning, people switch to ESB or Airtricity.

Most people in Ireland had nothing to do with Anglo, so why would an Anglo fail have caused a run ?

Confidence in the banks, both by the markets and by people in general. Hearing that one bank collapsed is enough to start a panic - that's without those who've failed to distinguish between AIB and Anglo. More importantly, perhaps, holdings by other Irish banks in Anglo.

Liam Byrne wrote: »

Re the €6 billion - it's been mentioned a few times in various reports and interviews, so I took it as at least being representative. That said, when it comes to the shady dealings of Anglo, I guess you can't believe a word you hear.

The bottom line is that the secrecy of who has money where is part of the problem; if we knew who we were bailing out and why (and how much, exactly) then we could choose, instead of having shady, lying vested interests decide where our hard-earned cash goes.

Don't know whether you've seen this: http://thestory.ie/2010/04/20/anglo-bondholders/

cordially,
Scofflaw

hobochris · 08-10-2010 04:30PM

Would a better solution not have been, put a state guarantee over BOI and AIB, set up an assistance fund(like the EU did for dell) and let Anglo go to the wall.

Anyone who loses out from Anglo going to the wall can apply to the Anglo assistance fund, with bondholder applications being refused as they made a bet and lost, but deposits being taken out of the fund.

Anglo Fail

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