Banks Bust By Christmas?

[no mo do yakamo]

The banks are currently insolvent and hanging on by the flimsy thread of government help. I suspect that the situation in the banks is significantly worse than we or the government are being told. As more information comes to light I think the public will start to lose faith in the banks and the government will realise it is not in a position to keep throwing money into a black hole. We are probably close to that situation now. I believe there is a chance that the two main banks will go belly up in the near future. I think AIB will fall first and fall hardest.
Opinions Welcome.

[Caid]

Have you heard about NAMA?

[boojangles]

Nationalise. At least then when the Banks start making money again the Taxpayer can gain something.At the moment,the taxpayer is propping up the banks and we will gain nothing from it.

[no mo do yakamo]

Have you heard about NAMA?

Even after nama has bought the bad loans the banks remain insolvent. And Who's to say the shareholders will vote for nama. And it may well not happen fast enough.

[Caid]

NAMA's a great deal for the banks, their director's, shareholders and bondholders.  They would be foolish not to ratify it.

What do you mean by insolvent?  Surely the whole point of NAMA will be to ensure the banks have sufficient capital

[rosnarun]

Nationalise. At least then when the Banks start making money again the Taxpayer can gain something.At the moment,the taxpayer is propping up the banks and we will gain nothing from it.

the solution to the current recession and Financial crises is hardly communism .
came back to me when your queuing for bread . if your not already in a gulag

[Caid]

Nationalise. At least then when the Banks start making money again the Taxpayer can gain something.At the moment,the taxpayer is propping up the banks and we will gain nothing from it.

the solution to the current recession and Financial crises is hardly communism .
came back to me when your queuing for bread . if your not already in a gulag

Nationalisation is hardly communism.  If the taxpayer is going to support the banks (via NAMA it appears) then they should share in any upside rather than giving this to the private sector and giving the banks freedom to make the same mistakes again.  The lack of changes at board levels among the big banks in the UK and Ireland is concerning

[Hardy]

I've been reading about it and thinking about it for a long time now and I still can't figure it out. Why are we pumping all these millions into these few banks?

All the experts can tell me is that it's because we must have a functioning banking system. Well, of course. But why is this the only way we can have a functioning banking system? Why does it have to be obtained by throwing unthinkable gazzillions of money into malfunctioning commercial entities run by people about whom we know only two things - they are crooks and they can't run banks?

Why do we have to have "Irish" banks to survive? We don't have an Irish car industry, but we all manage to get around in cars built in Germany, Japan, etc. We don't have an oil industry, but we keep the cars running and the houses heated. We don't have a steel industry, but we get  by grand enough on imported stuff.

Why does it not make more sense to wind up AIB, BOI, etc.? Pay their shareholders the few bob they're worth. In return, we get their assets, including their branch network. Now invite say four foreign banks (working ones, well chosen) to come and set up here. If necessary make it sweet for them with incentives - tax breaks, nominal pricing for the assets, whatever. How much that would cost would be a matter for negotiation, but I'm damn sure it would be a tiny fraction of the I've-forgotten-how-many-billion we're squandering on NAMA and bank guarantees.

Apart from saving all that money and avoiding the risk of NAMA, we'd be getting a banking system run by people chosen for their demonstrated ability to do the job.

What am I missing?

[no mo do yakamo]

NAMA's a great deal for the banks, their director's, shareholders and bondholders.  They would be foolish not to ratify it.

What do you mean by insolvent?  Surely the whole point of NAMA will be to ensure the banks have sufficient capital

By insolvent i mean their liabilities outweigh their assets. This the case now, And will be for the near future.  The only thing thats propping them up is the govt guarantee. nama will not ensure capital for the banks. Both the major banks admit the will need further capital post nama. That kind of insolvent. You know the If we all wanted to withdraw all our money tomorrow and the banks could only give us about five percent of it situation. Thats what i mean by insolvent. Same as it means for a regular business, that doesent have the cushion of a probably worthless govt guarantee.

[Hereiam]

The one thing you are missing hardy is the mind set of the people. Would you feel safe having your money in a bank that for arguments sake is a Japanese one with some sort of obscure name. Its all to do with people thinking that their money is in Irish banks on this Island (which its not) owned by Irish people (which its not in most cases). The government know this which is why they are wasting millions to keep them afloat. One final thing is that I really don't see Joe soap ever seeing any return for his tax money that is going into NAMA, in a couple of years this Island really is going to be on its ass.

[Rossfan]

, in a couple of years this Island really is going to be on its ass.

It already is meboy.

[boojangles]

Nationalise. At least then when the Banks start making money again the Taxpayer can gain something.At the moment,the taxpayer is propping up the banks and we will gain nothing from it.

the solution to the current recession and Financial crises is hardly communism .
came back to me when your queuing for bread . if your not already in a gulag

Explain how nationalisation of a bank equates to communism?
Explain how I will be queuing for bread after this?
Explain what you will do when I 'came' back to you?
And most of all explain what a gulag is?

[Caid]

I've been reading about it and thinking about it for a long time now and I still can't figure it out. Why are we pumping all these millions into these few banks?

All the experts can tell me is that it's because we must have a functioning banking system. Well, of course. But why is this the only way we can have a functioning banking system? Why does it have to be obtained by throwing unthinkable gazzillions of money into malfunctioning commercial entities run by people about whom we know only two things - they are crooks and they can't run banks?

Why do we have to have "Irish" banks to survive? We don't have an Irish car industry, but we all manage to get around in cars built in Germany, Japan, etc. We don't have an oil industry, but we keep the cars running and the houses heated. We don't have a steel industry, but we get  by grand enough on imported stuff.

Why does it not make more sense to wind up AIB, BOI, etc.? Pay their shareholders the few bob they're worth. In return, we get their assets, including their branch network. Now invite say four foreign banks (working ones, well chosen) to come and set up here. If necessary make it sweet for them with incentives - tax breaks, nominal pricing for the assets, whatever. How much that would cost would be a matter for negotiation, but I'm damn sure it would be a tiny fraction of the I've-forgotten-how-many-billion we're squandering on NAMA and bank guarantees.

Apart from saving all that money and avoiding the risk of NAMA, we'd be getting a banking system run by people chosen for their demonstrated ability to do the job.

What am I missing?

The US Congressional Panel agrees with you http://www.bloomberg.com/apps/news?pid=20601087&sid=aJJ_MkIv9VvA&refer=home

Also there is a good emprical report from 10 years ago that weighs up all the options available and looks at what happened in previous situations http://fic.wharton.upenn.edu/fic/papers/98/9805.pdf

"Regulators have often shown great reluctance to liquidate banks. Perhaps this is
because in many countries liquidation must proceed through the court system. However, it may
also be because banks are seen as unique in their importance to a countries' financial base. A
loss of confidence in banking could result in a severe economic contraction as we noted above.
However, as we also point out above, this aversion to liquidation can lead to perverse
incentives. If aid is offered, it is essentially rewarding an inefficient bank. It is for this reason
that many economists and politicians have concluded that if a bank is poorly run, it should be
allowed to fail. It is felt that resolution decisions should be based solely upon a least cost basis,
taking into account franchise value but nothing more

While many would argue that this perspective ignores the cost of bank failure to the economy
as a whole, there are clearly cases where closure is a preferred solution. In such cases, if a
bank chooses an unaided liquidation, regulators must ensure that bank management and
shareholders do not profit from the liquidation. Their primary loyalty is supposed by charter to
be to depositors. A shortfall in assets may lead to some insured and all uninsured depositors
not being compensated. The government will then be left to step in so as to pay off the insured
depositors, where direct explicit insurance exists, and decide whether the uninsured depositors
should be compensated at all or in part.

However, in most cases liquidation occurs with some government resources.
Government assistance in the liquidation is usually provided in order to give the bank time to
efficiently dispose of assets and clearly satisfy its liability holders of various types. Help may
come in the form of an advance or a permanent cash infusion. The latter is done reluctantly and
only when it is deemed to lower eventual payouts.

A more extensive and expensive liquidation procedure results when regulators eject
bank management and oversee the liquidation themselves. Insured deposits are paid-off or
transferred to another institution. A decision is then made as to what if anything uninsured
depositors should receive. Assets are sold individually or sorted into pools in order to make
valuation and disposal easier. Bids are then accepted for the disposal contract. A proviso is
usually made in such cases that liquidation should not unduly affect local markets"

Key points are (1) Liquidation will cause a run on the bank (2) The Government must be able to cover deposits (3) Bank lending to enterprises is likely to fall stunting economic growth (4) Establishing credible new banks (attracting overseas banks) (5) Could be bad PR for the government and lead to civil unrest, high unemployment etc etc

[Caid]

The one thing you are missing hardy is the mind set of the people. Would you feel safe having your money in a bank that for arguments sake is a Japanese one with some sort of obscure name. Its all to do with people thinking that their money is in Irish banks on this Island (which its not) owned by Irish people (which its not in most cases).

I don't think that's true at all

One final thing is that I really don't see Joe soap ever seeing any return for his tax money that is going into NAMA, in a couple of years this Island really is going to be on its ass.

I think that is true

[muppet]

The Irish Banks won't be allowed to fail. That would send shockwaves through the European Banking sector and probably pull down a few German/French/UK banks with it. (Where do you think the Irish Banks borrowed the money from?)

So the EU loan money to the Irish Government to put into our banks to save the European banks. And the Irish taxpayer picks up the tab because he/she is the only one in Europe stupid enough to do it.