The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Zapatista]

We have gone to far to just stop banking. We rely on the movment of money as much as we rely on the movement of people. It would be like taking every mode of transport (public and private) out of the country and then asking the Germans to step in and start again to provide that transport for the people. It would cause mahem. However, if they were to be replaced gradually we would prob be better off.

[magpie seanie]

We have gone to far to just stop banking. We rely on the movment of money as much as we rely on the movement of people. It would be like taking every mode of transport out of the country and then asking the Germans to step in and start again to provide that transport for the people. It would cause mahem. However, if they were to be replaced gradually we would prob be better off.

Not being smart Zap but in your instance above my money would be on the Germans doing it better than Irish Rail/Bus Eireann etc after perhaps an inconvenient transition period.

[Zapatista]

Not being smart Zap but in your instance above my money would be on the Germans doing it better than Irish Rail/Bus Eireann etc after perhaps an inconvenient transition period.

Absolutely I'd agree. You would be house bound untill such a time though. Not only would you be house bound but the transport of foods and material would be almost impossible. Do you have a veggy patch and a cow that can keep you going?

[muppet]

As of today the market cap of our banks is as follows:

   
AIB €2.251 Billion
BOI €2.610 Billion
IL&P €1.101 Billion

That is after today's rally which shows how excited the market is at the taxpayer taking on all the toxic debt.

Despite that the total value of the 3 banks is still less than €6 Billion. €10 Billion would buy them (which is close to what we have had to put in to Anglo so far).

Why could we not nationalise the 3 banks, restructure them and when the stock market recovers (which will be in months as against decades for the property market) sell them off (at a profit to the taxpayer) in IPOs to the market again?

The dreaded fire sale could be avoided as the Government could do a slow recovery of assets from beleaguered developers. The beloved developers would be dealing with Government appointees rather than the now hated market appointees. The critical and potentially disastrous decision of how much NAMA will pay for the loans would be avoided. Finally when Lenihan moans about bans putting up interest rates he would be able to do something about it.

[Bogball XV]

If NAMA is not the right way to go then can someone not come up with a better idea

It's easy to knock other peoples proposals and just letting the banks go to the wall is not a viable one. We are responsible for the banks deposits now so its looks to me we are between a rock and a hard place. Our only option is to keep the banks afloat.

There is 3 ways of doing this, either nationalize them which means that foreign banks are very wary about lending to them , just give them the money (which we end up doing anyway if NAMA doesn't work) or give them the money through NAMA.
At least through NAMA we get something in return, bad as it may be.

This is my understanding of it.

I don't like any of these options but I have yet to see an idea that looks like it would work any better

NAMA is not intrinsically a bad idea, the problem with NAMA is the price paid and the fact that it's being based on a long term economic value (how the f**k can a value be put on that?).  The reasons for adopting NAMA as opposed to nationalisation appear (on the face of it anyway) accounting sleight of hand, in that the country won't be borrowing to facilitate the long term funding needs of the banks, but the banks will be meeting their own funding requirements, based on the bonds (issued by the govt) being lodged with the ECB.  This way it appears to outsiders that our national debt is lesser and probably has something to do with staying within the paremeters laid out for membership of the euro.  Of course Lone Shark has alreay pointed out an alternative rationale behind NAMA, which, given this country's past, it'd be impossible to disagree with.

There it is in black and white. This rubbish talk of a 2010 recovery is just that - complete fairytale. Perhaps in the US and Briatain and some of the relatively properly run countries in the world but we here are fcuked.

and even those economies are not going to get off as lightly as they're starting to think, you can't just keep on printing money with no long term consequences, but again, this calls into question the concept of 'long term economic value'.

As of today the market cap of our banks is as follows:

   
AIB €2.251 Billion
BOI €2.610 Billion
IL&P €1.101 Billion

That is after today's rally which shows how excited the market is at the taxpayer taking on all the toxic debt.

Despite that the total value of the 3 banks is still less than €6 Billion. €10 Billion would buy them (which is close to what we have had to put in to Anglo so far).

Why could we not nationalise the 3 banks, restructure them and when the stock market recovers (which will be in months as against decades for the property market) sell them off (at a profit to the taxpayer) in IPOs to the market again?

The dreaded fire sale could be avoided as the Government could do a slow recovery of assets from beleaguered developers. The beloved developers would be dealing with Government appointees rather than the now hated market appointees. The critical and potentially disastrous decision of how much NAMA will pay for the loans would be avoided. Finally when Lenihan moans about bans putting up interest rates he would be able to do something about it.

it would seem to make the most sense, not without drawbacks, but has to be a more transparent solution than NAMA.

[bcarrier]

Can someone explain this to me. Everyone says we can't let the banks go to the wall. I feel a bit silly saying this but - WHY? Surely if the Irish banks fail the foreign banks will take their place? Am I completely off beam? I know it would not be good but obviously I'm missing something when 90 billion of debt is better.

Its a fair question.

I believe the reason Ireland cant let the banks fail at this point is the bank guarantee put in place last September. Frankly Lenihan made a pigs ear of that . My understanding (which isnt perfect) is that the capital the banks have and lend back out falls into three broad categories :

Shareholders funds
Bondholders funds
Customer deposits

Lenihan should only have guaranteed the deposits but somehow got sucked into also guaranteeing the bonds...or as George Lee in linked article says :

At the height of the crisis last September, the Irish banks came cap in hand to the Government begging for a lifeline because international credit markets had entirely seized up, and they were unable to access the funds they needed to keep operating.

Basically, they were bust. It was a terrifying moment. The minister had to make a decision in a hurry. He guaranteed all deposits in Irish banks and all loans to Irish banks for an initial period of two years.

That was far too generous.

Specifically it guaranteed investors, such as Sean Quinn who had bought bonds issued by Irish banks, that under all circumstances the Irish taxpayer would pay back the full value of those bonds regardless of what happened to the banks. Nobody else in the world did that.

The bonds arent a risk free investment - they get paid a premium to government stock and anyone buying them ( it will mainly be institutions) should be fully aware of the risk. Basically as banks they invested in mismanaged their affairs the bondholders should in ordinary run of events expect losses . With NAMA they and the shareholders ( who should be wiped out at this stage) transfer this liability to the taxpayer.

But there is a way out . The guarantee expires in September next year. George again...

Fine Gael has a proposal which would address many of these shortfalls in double-quick time. Firstly, we want to give the banks the next 13 months, until September 2010, to sort out their debts.

During this period, we expect that they will try to renegotiate the amount that they owe to their bondholders. There would be no change in terms of the guarantee for depositors.

Most interpretations of this I have seen talk about bondholders taking equity for debt. Basically the bonds get converted to shares. There is a bit of a tightrope to be walked here though ... if a bank failure was precipitated before September next year then the state is on the hook for the bonds.

[tyronefan]

tell me Muppet  if we can buy the banks for 10b  why are we paying 90b

Am I missing something

Surly this just can't be to keep the developers in business

[muppet]

tell me Muppet  if we can buy the banks for 10b  why are we paying 90b

Am I missing something

Surly this just can't be to keep the developers in business

If we buy the banks now for €10 Billion or whatever we also buy the toxic loans anyway so we get the €90 Billion or so debt regardless. The difference is that we won't have overpaid for it. We can then liquidate the developers at a controlled rate that won't further depress the market. Once we sort out these toxic debts we can then re-float the banks, ideally at a profit.

Right now NAMA means that the profit that will be gained from the banks offloading the toxic debt will go to the market and the taxpayer will pick up the tab. Do it as above and the taxpayer will get any profit.

Having been burned by a property boom as individuals the Government are very likely to force us to buy more property based on a reduction from the peak price. We are seriously likely to get burned again by over paying even though we now know it was a bubble and we not only know bubbles burst we have watched it burst. But they are trying to re-inflate this burst bubble with our money.

[tyronefan]

But are we not going to give the banks a reduced rate for the property (as yet unknown)  looking like to be in the region of 60b, seemly if we pay much less we will have to give the banks the money another way anyway.

If we buy or nationalize or buy the banks we get the debts at the full rate but also have the same problem, ie still cant sell them for years.

[Hardy]

Surely the deposit and bond guarantees don't amount to anything near €60Bn. Even if they do, can I ask a simpler question? Is there not a way to make sure we have a usable banking system without spending €60Bn to €90Bn?

[muppet]

Surely the deposit and bond guarantees don't amount to anything near €60Bn. Even if they do, can I ask a simpler question? Is there not a way to make sure we have a usable banking system without spending €60Bn to €90Bn?

We have already guaranteed the banks so we are liable already.

Nationalisation would guarantee any benefits to the institutions would be return to the taxpayer, which will not happen with NAMA.

BTW anyone see the article which said the night the guarantee was drawn up, Lenihan and the Attorney General represented the Government as they met delegations from the various banks? Who represented AIB? Why their Chairman former Attorney General Dermot Gleeson.

[Hardy]

Surely the deposit and bond guarantees don't amount to anything near €60Bn. Even if they do, can I ask a simpler question? Is there not a way to make sure we have a usable banking system without spending €60Bn to €90Bn?

We have already guaranteed the banks so we are liable already.

Nationalisation would guarantee any benefits to the institutions would be return to the taxpayer, which will not happen with NAMA.

BTW anyone see the article which said the night the guarantee was drawn up, Lenihan and the Attorney General represented the Government as they met delegations from the various banks? Who represented AIB? Why their Chairman former Attorney General Dermot Gleeson.

I know we have a certain liablility (but we don't necessarily have to realise the liability, though that's a secondary issue). But our liability is for the deposits and for the bonds (i.e. investments  of some, not all of the shareholders, as I understand it). It's not for the loans to developers, which, again as I understand it, constitute the €90Bn risk. That liability belongs to the banks. Why are we undertaking it beyond the share of it that is ours by virtue of our part-ownership of the banks?

Is there not a way we can limit our risk to that we've already (rashly) taken on - the liability for deposits and bonds - while finding a mechanism to ensure we have institutions capable of lending to industry that doesn't cost an additional €60Bn?

[bcarrier]

The government would be well out of this and let the banks sort out their own mess.

I think there are 30bn of tier 2 bondholders not even covered by the guarantee getting a free ride of the taxpayer.

Here's another solution for you  ( assuming the banks bond liabilities and developer loan asset are more or less the same).

Let the bondholders set up a NAMA lookalike.

Transfer the developers loans to the bondholders in settlement of the bonds and let them sort it out. They can pay for the valuations too.

[muppet]

The government would be well out of this and let the banks sort out their own mess.

I think there are 30bn of tier 2 bondholders not even covered by the guarantee getting a free ride of the taxpayer.

Here's another solution for you  ( assuming the banks bond liabilities and developer loan asset are more or less the same).

Let the bondholders set up a NAMA lookalike.

Transfer the developers loans to the bondholders in settlement of the bonds and let them sort it out. They can pay for the valuations too.

That isn't well known publicly.

[Lone Shark]

I know we have a certain liablility (but we don't necessarily have to realise the liability, though that's a secondary issue). But our liability is for the deposits and for the bonds (i.e. investments  of some, not all of the shareholders, as I understand it). It's not for the loans to developers, which, again as I understand it, constitute the €90Bn risk. That liability belongs to the banks. Why are we undertaking it beyond the share of it that is ours by virtue of our part-ownership of the banks?

Is there not a way we can limit our risk to that we've already (rashly) taken on - the liability for deposits and bonds - while finding a mechanism to ensure we have institutions capable of lending to industry that doesn't cost an additional €60Bn?

The problem is that the 90bn loans to developers aren't the liabilities of the banks, they are the assets of the banks. The bank took all this money off their depositors, the bond market and the interbank market and lent it to developers. Now the developers can't pay, and in turn the banks must repay what they owe.

Having said that, the idea that we're paying all this while bondholders and shareholdes continue to have value is abhorrent. Every cent onto an AIB share is a cent that the taxpayer is paying for in the current system.

We have credit unions, post offices and a wide network of ATM machines. I'm damned if we couldn't work something out to get rid of the existing banks, given that we actually wanted to of course.