Update on cost of bailout

[Brendan Burgess]

How much did the bank bailout cost taxpayers?

The taxpayer put a total of €64.1 billion into the Irish banks during the financial crisis. The key question in 2025 is how much of that has been recovered 17 years after the financial meltdown, writes David Murphy.

www.rte.ie

Net cost about €35 billion - almost entirely the cost of Anglo and IN

Small profit on BoI and small loss on AIB and ptsb

 

[MrEarl]

So, the two "wildest" lenders cost the State about €35bn.

Please remind me, what punishment has been dished out to the former senior management teams of the two entities ?

How about the Regulator that was supposed to be policing the various lenders, how were they held to account for their failures ?

Oh, and let's not forget the Goverment of the time, or subsequent governments, have they really pushed to ensure that justice was served, or even given us confidence that white collar offences will truly be punished, going forward ?

 

[Towger]

Please remind me, what punishment has been dished out to the former senior management teams of the two entities

They lost their status in polite society as the 'Masters of the Universe'.

 

[planck]

Then after the bailout there was the tracker mortage scandal while the state was still a major shareholder and just this week the executive pay cap introduced at the time of bailout was removed.

 

[Brendan Burgess]

what punishment has been dished out to the former senior management teams of the two entities ?

most lost their jobs.
the liquidators are currently pursuing a civil action against Fingleton.
The Central Bank took administrative sanctions against a number of people

reckless lending is not a criminal offence - except in rare circumstances.
stupidity is not a criminal offence - fortunately for a lot of us.

I have been one of the main campaigners for tracker redress, but I have not seen or heard any evidence of criminal behaviour. That does not mean what the likes of AIB did was not wrong. It was wrong. But it was not criminal.

 

[Peanuts20]

Didn't David Drumm do 3 years or so in prison?

Easiest thing in the world to blame the banks but the regulator and the Govt need to take a share of the blame. And no one was forced to buy a holiday let in Cape Verde or rack up huge debts to "keep up with the Joneses" without ever realising that life is about cash flow as much as increasing asset value. We ended up in this mess because our bankers failed to be prudent, the Govt took their eyes off them and a lot of people/citizens acted like morons.

I've sympathy for people who ended up in negative equity through no fault of their own and lost money as a result. But I've no sympathy for a lot of others

 

[Towger]

I have not seen or heard any evidence of criminal behaviour. That does not mean what the likes of AIB did was not wrong. It was wrong. But it was not criminal.

When someone got a Tracker from AIB they were put on a lower (first time buyer) fixed rate for the first year. There was nothing about a Tracker in the mortgage documentation. I had to get a letter from them documenting I was entitled to the Tracker. When the year was up AIB sent out a form with various Fixed and Standard rates. The Tracker was not listed.
I had an argument (with head of mortgages I believe) with them over this. He claimed it was an oversight, as the document has not been updated to include Trackers. This was 2005 and I believe they never updated it. Thus there are people who originally applied for a Tracker, but ended up on a another mortgage type and are none the wiser. The default if you did not reply to the form/letter was Standard Variable.

 

[Laughahalla]

What was the opportunity cost. The 64 Billion invested would have at least doubled in 17 years. The loss was much more than 35 Billion

 

[TomEdison]

What was the opportunity cost. The 64 Billion invested would have at least doubled in 17 years. The loss was much more than 35 Billio

I don't think this is a rational way to look at the question, for at least two reasons.

First, the assumption is that the government had €64 billion sitting around looking for investment so that, if it hadn't been invested in the bailout, it would have been invested elsewhere, where it would have doubled. But that's obviously not right; the government didn't have €64 billion looking for investment, and they wouldn't have made any alternative investments.

Secondly, if you are going to factor in the cost of not making alternative investments, then, for consistency, on the other side of the equation you have to consider the cost of letting the banking system collapse. What would that have cost the exchequer, and the national economy? Whatever that amount is, you have to treat at least the impact on the exchequer as a return on the investment in NAMA.

 

[Dr Strangelove]

But that's obviously not right; the government didn't have €64 billion looking for investment, and they wouldn't have made any alternative investments.

Not true.

For example Metro North had been in genesis for about six years when it was put on ice in June 2010 because there was no money left to pay for it due in large part to bank bailouts.

 

[TomEdison]

Fair point.

But, while it's impossible to know for sure, my guess is that MN would have been iced anyway, in the post GFC financial climate.

More generally, I think it's unsound, when measuring the return on an investment, to subtract the return that I could have made by investing the same money in an alternative investment. When measuring the return on my investment in ABC plc, I don't treat the opportunity cost of not investment in XYZ plc as a loss.

 

[MrEarl]

With regards to the ultimate cost of the bail out, one might also consider:

- current and future income streams from the Banks, by way of taxes and the let's it forget, the annual Bank levy.

- whether or not the Government might have been better to totally nationalise the Banking system, it at least part of it, and establish a Government Dept to look after the money transmission system. Would that have been a better idea ? How much would that have cost the state, over the long term ?

 

[Dr Strangelove]

But, while it's impossible to know for sure, my guess is that MN would have been iced anyway, in the post GFC financial climate.

I knew a fair few people involved at the time. Capital infrastructure was easiest to halt as it is one off in nature. The ballooning debt interest costs after 2009 due in large part to bank nationalisation meant that many capital projects were parked.

@MrEarl - these kinds of projects are never built anywhere without public subsidy.

 

[Brendan Burgess]

What was the opportunity cost. The 64 Billion invested would have at least doubled in 17 years. The loss was much more than 35 Billion

I have discussed this general issue here. https://www.askaboutmoney.com/threa...debt-nama-the-eu-imf-deal.151295/post-1450251

If we owe €133 billion, and Anglo and Irish Nationwide cost us €35 billion, where did the other €99 billion in borrowing come from?

The €99 billion is the gap between what we have raised in tax and what we are spending each year.

Cumulative borrowing up to Dec 2007|€46 billion
Government deficit 2008|€13 billion
Government deficit 2009|€19 billion
Government deficit 2010 |€18 billion
Total at 30 December 2010 | €96 billion
Projected deficit for 2011|€15 billion
Projected deficit for 2012|€12 billion
Projected deficit for 2013 | €9 billion
Projected deficit for 2014 | €5 billion
Expected cumulative deficit by 2014|€137 billion
Add Anglo and Nationwide debt | €35 billion

 

[Brendan Burgess]

While the bailout of the bank depositors damaged the national finances, the years of spending well beyond our tax take, was the main culprit. If we had lived within our means, we could have financed the bailout of the bank depositors comfortably.

And we are doing the same now. We have huge spending financed by an artificially high tax take. And when that tax take returns to normal, we will need more "austerity".

 

[Brendan Burgess]

What was the opportunity cost. The 64 Billion invested would have at least doubled in 17 years. The loss was much more than 35 Billionu

So the cost of paying someone €15k social welfare a year is not really €15k , it's €30k because we could have invested it and doubled it. This is not the way to look at the cost of public expenditure.

 

[joe sod]

First, the assumption is that the government had €64 billion sitting around looking for investment so that, if it hadn't been invested in the bailout, it would have been invested elsewhere, where it would have doubled. But that's obviously not right; the government didn't have €64 billion looking for investment, and they wouldn't have made any alternative investments

Exactly and if the government had 64 billion you can be sure most of it would not be spent on infrastructure, there would be pension increases, social welfare and public sector increases. In other words it would have disappeared into current spending and contributed to the inflationary spiral.
The size of the state was 70 billion in 2017 under enda Kenny now it is 120 billion, are we getting 50 billion extra of infrastructure spending, definitely not.

 

[Brendan Burgess]

Secondly, if you are going to factor in the cost of not making alternative investments, then, for consistency, on the other side of the equation you have to consider the cost of letting the banking system collapse. What would that have cost the exchequer, and the national economy? Whatever that amount is, you have to treat at least the impact on the exchequer as a return on the investment in NAMA.

There were two benefits to the bailout of the bank depositors

1) the banking system did not collapse
2) Irish depositors did not lose their money.

I think that the bailout of the depositors in the main banks was essential, and we got most of the money back.
We should not have bailed out the depositors in Anglo and Irish Nationwide. But the "cost" to taxpayers and mortgage holders was a huge benefit to the depositors and bond holders.