Update on cost of bailout

www.irishtimes.com

Why the State ‘breaking even’ on AIB and the banks isn’t the whole story

Department of Finance says State ‘made’ €600m on bailout repayments but interest, inflation and opportunity cost make that far from true
www.irishtimes.com www.irishtimes.com

He makes all the same mistakes about opportunity cost and interest that have been made in this thread.

An investor who bought a dud stock in 2009 and finally got out at break-even might feel relief. However, a $1,000 investment in the S&P 500 in 2009 would be worth over $9,000 by 2025. Time has a cost; so does tying up capital in low-return assets.
The State borrowed to fund the bailout. For AIB alone, the Comptroller & Auditor General put debt servicing costs at €7.1 billion by the end of 2021.
Though in this case, factoring in the interest paid between getting in and getting out might be correct in calculating the "loss"

He does conclude

To be fair, the objective was never to turn a profit. The bailout was about stabilising the banking system and preventing economic collapse, but that makes the implicit “we made money” narrative all the more grating. It reframes an emergency rescue as a shrewd investment, which it wasn’t.

Not sure that anyone claimed it was a shrewd investment? It was a necessary transfer from the taxpayer to the depositors in the banks.
 
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Brendan Burgess said:
An investor who bought a dud stock in 2009 and finally got out at break-even might feel relief. However, a $1,000 investment in the S&P 500 in 2009 would be worth over $9,000 by 2025. Time has a cost; so does tying up capital in low-return assets.
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Again he is cherry picking dates and cherry picking the S&P 500 as a base, probably the lowest point of the stock market crash in 2009 as his entry point, if the pension reserve fund had been invested in the S&P 500 all the way upto the financial crash its value would have been depleted by 50% anyway by 2009.
Also the S&P500 was out of fashion then aswell because of the dot com crash in 2002 so like now everyone had been exiting dollar assets, the pension reserve guys would have been the last ones to have a 100% allocation to S&P500. Therefore using the S&P500 as a base and picking the lowest point of the crash as the entry point is not a proper analogy.
If the state had 20 billion at the start of financial crash, then use that date as the start date late 2007 early 2008 and the msci global index as the base. Lets be realistic not sensationalist afterall I doubt even Berkshire Hathaway achieved that sort of growth since 2009, actually it has only grown by 7 times since the absolute bottom of the crash in 2009.
 
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joe sod said:
hat was an estimate by stockbrokers back in 2011 of the potential growth of the fund by 2025, however if that 20 billion instead of being put into recapitalisation of the banks had been left invested in global markets it would also have been hit heavily like every other pension scheme during the financial crash, therefore there also would not have been 20 billion by 2011 there to grow to 70 billion. The growth rate of 250% over 15 years is a bit rich aswell and is giving way too much credit to the national pension fund managers and future governments for not raiding it anyway, we are not Norway.
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I think the economist was remarkably prescient. If you take e.g. the Vanguard Eurozone Stock Index fund, which tracks a broad index of Eurozone stocks and reinvests dividends, a 20 billion investment in 2011 would have grown to about 78 billion by 2025, not far off Mr. O’Leary’s estimate. Pension pot is almost empty after huge bank bailout raids | Irish Independent .

joe sod said:
Also you are forgetting that the state got 32 billion back so they did get at least half of the pension reserve back and this money has been coming back for years as nama sold down assets and the government sold off its share holdings in the banks. There was nothing stopping them from putting that money back into that amazing pension reserve fund with that huge growth rate over the last 15 years as it came back in, was there?
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No, but they didn’t.
 
PMU said:
No, but they didn’t.
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what do you mean "No" of course they did, did you not read the article, of the 64 billion total cost of bank recapitalisation they got 32 billion back, and that could have been re invested as it returned?

Also you have completely disregarded my point about the pension reserve fund also crashing like every other investment during the financial crash if it had of been left invested and not used to recapitalise the banks. You cannot just cherry pick the periods where it was optimum to be invested and pretend that the pension managers would be so good as to have all their investments in cash just as the financial crash started , they wouldn't have had 20 billion in 2011 because its value would have been reduced by the financial crash like every other pension fund was
 
Brendan Burgess said:
He makes all the same mistakes about opportunity cost and interest that have been made in this thread.
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If anyone in 2009 had said "Let the banks go bust, put the NPRF 100% in US equities instead" they would have been looked at as being crazy (including by me) at the time.

The prolonged equity rally since 2009 doesn't invalidate the austerity strategy of the time.
 
joe sod said:
what do you mean "No" of course they did, did you not read the article, of the 64 billion total cost of bank recapitalisation they got 32 billion back, and that could have been re invested as it returned?
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They couldn’t. That’s not how Government accounting operates. All payments go into the Central Fund. The Government had decided to wound up the NPRF in 2013, and more importantly they couldn’t reinvest any payments from NAMA, because of obligations to pay off the cost of the bank supports, plus the interest fees and professional fees. The priority was to pay off the IMF/Troika support loans early and to reduce interest costs, e.g. 1.4 billion in 2011. Revealed: how troika got €220m fees from taxpayer | Irish Independent .

As of the latest available data, Ireland still owes around €41 billion in bank support-related costs, primarily owed to the European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM). These loans were structured with very long maturities, and the final repayments are scheduled to between 2041 and 2045. So come back in 20 years if you want the total cost of bailout related expenditure.

You can hack through the NTMA annual reports but here’s a simplified summary of what we paid and what we owe:
Then there is the interest costs, e.g. 1.4 billion in 2011. Revealed: how troika got €220m fees from taxpayer | Irish Independent .

Also, if you want the total cost of taxpayer support to the banks, it would be prudent to include the pre-bailout cost of liquidity supports (e.g. ‘promissory notes’, cash injections and related) . Anglo Irish Bank - Wikipedia
 
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"But looking at the recapitalisation of the banks in isolation and funds recovered by the taxpayer, so far the cost is approximately €32b"

thats the quote from the RTE article that Brendan linked in the original post, so by NAMA asset selling or sale of government stake in banks 32 billion came back, are you saying the article is wrong?
PMU said:
You can hack through the NTMA annual reports but here’s a simplified summary of what we paid and what we owe:
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So you are familiar with alot of the technicalities of how the loans were arranged and how some of the money was repaid, but you haven't accounted for it all,
4.5 billion + 3.8 billion +1 billion = 9.3 billion
but 32 billion has come back as per RTE article where is the rest of the money ?
Afterall the state got 19.8 billion came back from its investment in AIB alone as per RTE article last week.
You cant just say Oh well the government still has a 41 billion debt to EFSF which they have not paid back because they have long term repayments, there is still 22 billion which has come back in which you haven't accounted for?

Just because the government has a long term debt of 41 billion with EFSF but decided not to clear some of it with the rest of the money but allow it to go into central spending cannot be pinned on the cost of bailing out the banks.
 
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The gross cost of the re-capitalisations of the six banks was 64.1 billion.

In return, the State acquired six banks.

Two failed completely: Anglo and Irish Nationwide, and the majority of the net costs are caused by them.

We earned dividends from the remaining four banks over the years, and proceeds from selling them.

The net cost is about 32bn, which is sickening.


How we financed that cost is a separate issue. I recall something from accounting in college: don't confuse investment decisions with financing decisions. Post #27 seems to be doing this?


We financed the bank bailout, and the wider financial crisis, by borrowing from the IMF, two EU sources, the UK, DK and Sweden.

We repaid the more expensive debt first, and also re-negotiated the EU loans. We are left with EFSF and EFSM loans. These loan balances do not match the net costs of the bank bailout, as we borrowed for other reasons also.
 
Protocol said:
How we financed that cost is a separate issue. I recall something from accounting in college: don't confuse investment decisions with financing decisions. Post #27 seems to be doing this?
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Only because Post #26 did not account for alot of the money and was trying to suggest that that money wasn't returned and is still oustanding
 
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