Would we be worse off if the banks went bust

[Bronte]

There are many posts on NAMA etc, no one has explained exactly how we have banks who need so much money and why this is better than just letting them go bust. How much would paying off Irish citizen's 100k of deposits and letting everyone else take a high jump be worse than throwing billions at banks. Why on earth would we give billions to bankers who couldn't manage a tea shop.

 

[dubrov]

I'd say the other Irish banks own a large proportion of Anglo's debt. If Anglo goes, they all go with it

 

[Chris]

I believe the short term problems would be more severe than what we have experienced, but all the bailouts are just postponing the inevitable. Ultimately, fractional reserve, inflationary central banking based on fiat currency will collapse.
The long-term advantage would be that new banks would not make the same mistakes again, as they'd know that there is no bailout. Having 2 lenders of last resort (government and central bank) is a moral hazard for banks.
While I agree with you that our bankers couldn't run a tea shop, it baffles me why bankers of private institutions are getting the majority of the blame for the crisis and almost nobody is pointing the finger at the central banks who provided the money in the first place.

 

[dubrov]

I don't think that banks knowing that there is no bailout would stop this from happening again.

Banking boards will continue to take risks as their salaries are like a call option on the banks performance. If the bank does well, they pay themselves handsomely. If the bank does poorly, they walk away (usually with a nice golden parachute)

If you were the CEO of a bank during the boom and operated prudent lending, you probably would have been fired when ivestors saw there returns well below that of our peers.

Id do agree that it is the job of the regulators to put a system in palce to control this risk taking so that it is measured and appropriate.

 

[Shawady]

Can anyone confirm if the money to re-capitilaise the banks will come from current spending?
In realtion to NAMA I know the banks get bonds which can be exchnaged for cash, but this extra money the government needs - where does this come from?

 

[Chris]

I don't think that banks knowing that there is no bailout would stop this from happening again.

Banking boards will continue to take risks as their salaries are like a call option on the banks performance. If the bank does well, they pay themselves handsomely. If the bank does poorly, they walk away (usually with a nice golden parachute)

As per my post, bailouts, fractional reserve central banking and fiat currency together allow banks to take the risks they do. The behaviour of banks is merely a symptom of the disease that is our monetary system. Regulating banks is like treating the cough of a lung cancer patient.

Id do agree that it is the job of the regulators to put a system in palce to control this risk taking so that it is measured and appropriate.

It doesn't stop amazing me how much faith people have in regulation. Regulators have failed to do anything about passed financial crises (large or small) let alone foresee them. How can you argue that more regulation is the answer when the current regulatory system has failed every time?
Regulators are political puppets. Imagine if the Irish regulator had suggested in 2001 to put a ban on mortgages of over 80%, or stricter qualifications. There would have been uproar in the public and government, even though hind sight suggests that it would have been the right thing to do. Look at lending practices now; it is difficult to get any kind of a loan and the public and politicians are complaining that banks are being too strict, even though they are doing what they should have done to avoid this mess.
Regulation is not the answer and will not make a bit of a difference.

 

[DrMoriarty]

The view from Economix:

Ireland’s difficulties arose because of a vast property boom financed by cheap credit from Irish banks. Ireland’s three main banks built up 2.5 times the country’s G.D.P. in loans and investments by 2008; these are big banks (relative to the economy) that pushed the frontier in terms of reckless lending.
The banks got the upside, and then came the global crash in fall 2008: Property prices fell over 50 percent, construction and development stopped, and people started defaulting on loans. Today roughly one-third of the loans on the balance sheets of banks are non-performing or “under surveillance”; that’s an astonishing 80 percent of gross domestic product, in terms of potentially bad debts.
The government responded to this with what are now regarded — rather disconcertingly — as “standard” policies.
They guaranteed all the liabilities of banks and then began injecting government funds. The government is now starting a new phase: It is planning to buy the most worthless assets from banks and give them government bonds in return. Ministers have also promised to recapitalize banks that need more capital.
The ultimate result of this exercise is obvious: One way or another, the government will have converted the liabilities of private banks into debts of the sovereign (i.e., Irish taxpayers).

 

[Bronte]

That's a truly shocking article and it's what I thought was happening. This is the bit of the article that is really at the nub of how Fianna Fail will do anything to keep themselves in power to the point of financial treason. They don't give one damn about the Irish people.


"But a strong lobby of real-estate developers, the investors who bought the bank bonds, and politicians with links to the failed developments (and their bankers) have managed to ensure that taxpayers rather than creditors will pay. "


NAMA is not about saving the country, it's about saving those who support Fianna Fail.