The pros and cons of nationalisation

canicemcavoy

Registered User
Messages
601
Moderator's note: moved from the thread on Fine Gael's proposal

If AIB and BOI are of systemic importance, they should be nationalised.

If they aren't of systemic importance, they should be left private and treated like any other private firm.

It doesn't seem to me to be tenable to have private firms in a position where, knowing they are "too big to fail", they can continue to essentially blackmail the country into bankrolling them, knowing they can be reckless in the quest for profits during booms, then fall back to begging-bowl mode during the inevitable crash.
 
Re: The Fine Gael alternative to NAMA

If AIB and BOI are of systemic importance, they should be nationalised.

If they aren't of systemic importance, they should be left private and treated like any other private firm.
A logical argument but in practice there are big negatives in nationalisation which IMHO justify keeping the current paradoxical model. But it should (and will) be much more heavily regulated (reflecting the effective State guarantee).
 
Re: The Fine Gael alternative to NAMA

Some arguments against nationalisation are:
1) difficulty in raising international funds (I don't understand that one, but most experts seem to believe this)
2) Politicisation of banking decisions. e.g. why should the government deny mortgage finance to one of its citizens just because they don't like their credit rating?
3) In general, the private sector operates more efficiently than the public sector at least in commercial enterprises (I know, the track record of private sector banking ain't great)
 
Re: The Fine Gael alternative to NAMA

A logical argument but in practice there are big negatives in nationalisation which IMHO justify keeping the current paradoxical model. But it should (and will) be much more heavily regulated (reflecting the effective State guarantee).

I've asked before, many times, exactly what regulation the goverment has proposed for the banks, and have heard zilch.

And that doesn't even take into account the fact that, during boom times, such regulation is inevitably rolled back because, you know, we don't need it anymore.
 
Surely the main point against nationalisation is the cost involved. If AIB/BOI were nationalised, how much would the state have to pump in to sort out the toxic debt situation and get them to a stage where they can start providing credit again?
 
Surely the main point against nationalisation is the cost involved. If AIB/BOI were nationalised, how much would the state have to pump in to sort out the toxic debt situation and get them to a stage where they can start providing credit again?

What????

They have already committed to pumping in the money via NAMA to sort out the toxic debt situation.

Brendan
 
What????

They have already committed to pumping in the money via NAMA to sort out the toxic debt situation.

Brendan

I'm assuming nationalisation as an alternative to Nama, not an add on. What would the Labour party approach cost?
 
Below is a post arguing aganist nationalisation that I posted in May, my opinion remains unchanged- Of course we can nationalise the banks but for what purpose?
The key question is how do we get the banks lending in sufficient volume to meet their own customers needs and additionally replace the 33% of credit that is provided by offshore banks who want to exit Ireland?

"Personally I find the rush to extole the merits of nationalising the banks worrying. Be careful what you wish for is a phrase that comes to mind.
If the primary objective is to protect the system and stimulate/support sustainable lending to businesses and individuals, then the focus should be on the probability of that being achieved. Either way the taxpayer is running risk, either through overpaying for the assets or more dangerously through much higher social welfare as unemployment rises and stays at elevated levels for a long period. Thats why the banks are of systemic importance. A couple of thoughts
1) there have been several examples of situations when banks/banking systems have been technically insolvent, e.g The savings and loans crisis in the U.S in the 80s. What the banks require is time to trade their way out of the current position. Clearly they can not do this on their own and need external support i.e the Govt. on a temporary basis.
2) We as a country rely heavily on external investors to fund our Govt, our banks and our companies. Laterly we have very high reliance on ECB (as do many other countries including Germany). If the banks were nationalised, the damage to our external perception would be huge and in my opinion would have hugely damaging impact on the Govts. ability to fund its self and all the banks liabilities that it would have taken on. This were it to happen will cost the tax payer both in much higher external debt and in much more expensive funding costs. We must maintain international confidence in our ability to manage our debt.
3) There is little evidence that a nationalised bank can or wquld be capable of lending on the scale required to sustain employment. Has Anglo Irish been knocking on doors offering value loans?? obviously not, their immediate priority is to fund themselves
4) Current bank management can and have been replaced, with hopefully more to come, the executives should take personal responsibility for failing their fiduciary duties.
5) The Dept of Finance does not have the resources to effectively run our banking system
6) I find it difficult to imagine a state bank not having to deal with political influence/interference.
7) The Nama legislation wont be passed until near the end of the year, in the meantime all options such as a bank assurance scheme should still be on the table.
8) If Nama pricing requires Capital writedowns that force the banks to seek more Capital, the cost ultimately will I believe be far higher to the taxpayer than in technically overpaying for the assets.
9) We need to be pragmatic and take the steps which offer the highest likelyhood of having a normal/robust and privately held banking system. Once we are there, then we can demand whatever bank levy/dividend the Govt deems to be appropriate.
As politicians, they wont loose any votes chasing the banks once they start making profits again"
 
The problem is - is the function of NAMA to (a) get the banks giving credit or (b) to interfere with the market and artificially halt the fall of property prices? Lenihan himself says (a):

"If we have a flood of property dumped on the market, we will have an utterly unsustainable position, and that's one of the reasons why we have to establish NAMA and try and establish a floor in this market."

Does (b) always lead to (a)? Is (b) in itself desirable?
 
Re: The Fine Gael alternative to NAMA


none of these cons are applicable to chinese banks, which are nationalised (in the true sense of the meaning)... so why should we accept them as being true for irish banks.


http://www.webofdebt.com/articles/secret_of_china.php
 
I hear that Bo Lundgren is on the airwaves critical of NAMA and advocating nationalisation in line with Swedish experience.

I really don't think the public should be fooled by the investor flight arguments. It seems the old FOFOC argument serves many purposes - these bondholders are not currently lending to the banks; rather it is the ECB that is keeping things afloat and this position will continue for the short term regardless of nationalisation or NAMA imo.
 

In economic terms this is known as moral hazard. One of the great flaws of NAMA as proposed is that it does not address this properly. Some folks suggest that putting in lending targets into the legislation will resolve this. Given what we know about the appalling lack of appropriate regulatory design or enforcement in the banking industry on banks lending criteria it would not be beyond the banks to ignore these criteria or simply self certify compliance as per previous practice.
 
It is possible to wipe out the existing shareholders of the banks (thus addressing the moral hazard question) and still avoid full nationalisation.

Remember, when the assets are removed from the banks, they will be clean and probably attractive to private investors. If the government gives them a big enough 'haircut' they will wipe out the shareholders. The state steps in to then immediately underwrite a share placement for the banks on the Irish stock exchange.

Once a sizeable portion of the bank's shares remain in freefloat (even if the state retains a majority stake) then we apparently don't encounter the problems regarding increased borrowing costs for the country etc.

Many people with knowledge of the situation believe that Lenihan is planning for just this scenario. He may surprise some people with the severity of the Nama haircut, and the shareholders of AIB and BOI may yet end up being wiped.