US House votes against $700bn bailout

javaboy

SimpleSam06 wrote: »

Its a fairly ephemeral point, but I'd use the laws on entrapment to support the position of those who bought - if the police leave an unlocked car in a car park and you steal it, they have you. If they meet you in a bar, get you drunk, and actively try to convince you to steal the car, or do something stupid, thats entrapment. The banks and property developers have been buying the rounds for years now.

That's a bit McWilliamsian for my liking. I see your point but to continue the analogy, why let yourself get drunk in the first place? Now if the bankers used Rohypnol or something......

dotsman

As no fan of the current government, I have to be honest and say that they deserve a good slap on the back for what they did today. However, something tells me that they didn't come up with the idea and are just taking the credit!

People are asking how can we afford it, but the fact is we will never need to afford it! This action, which costs the state nothing, will prevent a run on any Irish bank (which is the only reason for an Irish bank to fail). Thus, it will never actually come to fruition, thus not a penny of taxpayer's money will be used.

In fact, the taxpayers gain, because the government a charging a fee for all this!

So credit where credit is due. Compared to America (complete disastrous attempt to solve the crisis), UK (nationalising everything), or the EU (heads in the sand), we've actually done something positive. Of course, it won't single-handedly fix the problem, and a lot more needs to be done to reignite the economy, but it's the first real decision I've seen any government do since the credit crisis started (pity it's a year late!)

CPT. SURF

javaboy wrote: »

That's a bit McWilliamsian for my liking. I see your point but to continue the analogy, why let yourself get drunk in the first place? Now if the bankers used Rohypnol or something......

So either way, more regulation is called for. The lenders are too greedy and some people are too stupid

SimpleSam06

dotsman wrote: »

People are asking how can we afford it, but the fact is we will never need to afford it!

Thats right up there with "they couldn't hit anything at this distance" as far as famous last words go...

dotsman

SimpleSam06 wrote: »

Thats right up there with "they couldn't hit anything at this distance" as far as famous last words go...

Without a run on an Irish bank, how do you see one of them failing?

At the moment, while we wait for other countries to copy us, we're going to see huge funds flow into Irish accounts to take advantage of this and thus, further bolster the liquidity of the Irish Economy.

The_Conductor

dotsman wrote: »

Without a run on an Irish bank, how do you see one of them failing?

At the moment, while we wait for other countries to copy us, we're going to see huge funds flow into Irish accounts to take advantage of this and thus, further bolster the liquidity of the Irish Economy.

How would one fail?
It would fail if it were made to enumerate the extent of its bad debts. At present none of the property related loans, have been depreciated to reflect market conditions and continue to be held on banks balance sheets at face value. This is in stark contrast to the balance sheets of most international banks who have been forced to put current values on their assets (and where they are incapable of valuing those assets- such as mortgage backed derivatives- they have not been trading in those assets and releasing capital to further lending- which is what started the whole mess in the first place).

So- the 6 main institutions have billions in bad debts they are not willing to admit to (Anglo Irish is accepted to have by and far the worst exposure). This is why international financial institutions have not wanted to lend to them (the Irish interbank overnight rate is almost .8% above that of most other Eurozone institutions). What the government guarantee is doing- is guaranteeing that if an international institution lends to one of the 6 named institutions that there is a government guarantee that come what may- their money will be secure.

The guarantee does unblock the international lending markets for the 6 Irish institutions- most probably at rates well below prevailing Euribor rates- which in turn gives them a competitive advantage against their competitors who are unable to access this guarantee.

So- the Irish banks can now borrow international money- what does this do for their balance sheets? Nothing- they are still stuffed with assets at face value that they are refusing to revalue- which means the inherrant worth of the institutions is increased solely by their lower borrowing costs, and not by the performance of their loans.

This has been discussed by the standard committees of accountancy bodies several times in recent years- when its appropriate to put actual market values on the assets on a companies balance sheet. In practice these assets are normally stated at face value- until such time as they are disposed of, at which time an extraordinary gain or loss is declared.

Given the current situation- at very least the financial institutions should be forced to put current market values on their assets- this and this alone will inspire confidence in the stability of the Irish banking sector.

S.

dotsman

smccarrick wrote: »

How would one fail?
It would fail if it were made to enumerate the extent of its bad debts. At present none of the property related loans, have been depreciated to reflect market conditions and continue to be held on banks balance sheets at face value. This is in stark contrast to the balance sheets of most international banks who have been forced to put current values on their assets (and where they are incapable of valuing those assets- such as mortgage backed derivatives- they have not been trading in those assets and releasing capital to further lending- which is what started the whole mess in the first place).

So- the 6 main institutions have billions in bad debts they are not willing to admit to (Anglo Irish is accepted to have by and far the worst exposure). This is why international financial institutions have not wanted to lend to them (the Irish interbank overnight rate is almost .8% above that of most other Eurozone institutions). What the government guarantee is doing- is guaranteeing that if an international institution lends to one of the 6 named institutions that there is a government guarantee that come what may- their money will be secure.

The guarantee does unblock the international lending markets for the 6 Irish institutions- most probably at rates well below prevailing Euribor rates- which in turn gives them a competitive advantage against their competitors who are unable to access this guarantee.

So- the Irish banks can now borrow international money- what does this do for their balance sheets? Nothing- they are still stuffed with assets at face value that they are refusing to revalue- which means the inherrant worth of the institutions is increased solely by their lower borrowing costs, and not by the performance of their loans.

This has been discussed by the standard committees of accountancy bodies several times in recent years- when its appropriate to put actual market values on the assets on a companies balance sheet. In practice these assets are normally stated at face value- until such time as they are disposed of, at which time an extraordinary gain or loss is declared.

Given the current situation- at very least the financial institutions should be forced to put current market values on their assets- this and this alone will inspire confidence in the stability of the Irish banking sector.

S.

But, bar the actual value of their assets, are they still not profitable? By having this guarantee mean that, if you are right and they do have large bad debts, that they will be able to ride it out over time, and that that is what this guarantee is doing? Allowing them to get their house in order, without external factors making it worse, or a customer panic pulling the plug on them?

Run_to_da_hills

Can the Government trust the bank managers to be handing out future loans to any Tom Dick and Harry without their involvement?.

Dose this mean that from now on that the state is going to have an interest in and scrutinise any future loan applications to safeguard its mammoth commitment?.

I appreciate the decision what the government did to prevent a "Run on the banks" but there are other implications one must consider with this move both in the short and long term.

The_Conductor

dotsman wrote: »

But, bar the actual value of their assets, are they still not profitable? By having this guarantee mean that, if you are right and they do have large bad debts, that they will be able to ride it out over time, and that that is what this guarantee is doing? Allowing them to get their house in order, without external factors making it worse, or a customer panic pulling the plug on them?

They are nominally profitable- because they have not been obliged to declare the extent of 1. How the assets their loans are backed against have been devalued, and 2. What extent of their loans are non-performing. They may have increased their provisions for bad debts- but there is no indication as to whether these revised provisions have any bearing whatsoever on the actual state of affairs in the banks.

This guarantee allows the institutions to access international funds at sovereign rates, as opposed to commercial rates. It gives them a distinct advantage over those institutions incapable of drawing on funds in the same manner. It also insulates them from the external market- and far from allowing them time to get their houses in order- it actually gives them breathing space to try to maximise returns for their shareholders (who do not include the taxpayer).

The ability to raise funds does not necessarily have any bearing on the inherent health of an organisation- particularly when their sole manner of raising those funds is a government guarantee. Along with insulating them from the external markets- it also means that they actually don't have to take a long hard look at their core business in order to restructure it in a logical manner.

So we have 6 institutions let loose on the international lending markets with a government guarantee allowing them access to funds at sovereign rates- it would be like kids let loose in sweet shops. If they were really cute- they'd borrow on international markets on the strength of the Irish government guarantee, and then promptly relend the money internationally again at Euribor rates to BNP or whatever institution they felt unlikely to default on the loan. Is there anything to stop them doing this?

Even accepting that the more prudent of them may use the 2 year interlude to attempt to put accurate information regarding their activities and their assets into the public domain- what happens at the end of the 2 year period? You still have 6 institutions there with longterm lending that they are refusing to revalue- indeed they most probably have used the intervening period to try to monetarise those loans or repackage them as alternate products specifically to get around having to admit they have lost vast sums of money on them. Hence you have major developers being told to rent out unsold units in order to service the interest component of property loans, banks refusing to refinance intercompany debts (a la Eircom and its 6 billion of debt which is due for refinancing in December) etc. Should the banks use their newfound financial clout to get back these loans back on track? Why- they don't make commercial sense........?

So- all we have done is moved a major problem 24 months down the road, without any imperative on the institutions concerned to modify their business models and their practices into sane procedures.

It is politically a very good idea to give the Irish institutions access to more liquidity- irrespective of the relative merits or strengths of the businesses. It means more money floating around chasing a finite asset base. Law of supply and demand would infer that this would provide a market support, both to the economy at large, but as also alluded to by Michael Fingleton- to the property sector, albeit on a short term basis. So- the government gives a 24 month reprieve to the property slump, or so the thinking goes- in the hope that things have calmed down somewhat in 2 years time when the institutions are tossed to the wolves again. But will people borrow- and will banks lend- if there is an expectation that all hell will break loose at a pre-appointed date in time? Would you borrow today for a house on the assumption that your apartment or house is going to slump 20% on the 30th of September 2010- or more to the point in the knowledge that your loan was going to shoot up on that date- which would infer a decrease in the value of the asset? A rational person would not. You might argue that the average person is not rational- but a population when sampled will give a rational overall response. The fact of the matter is people have lost their fate in the housing industry. It was sold to people as a sure bet- now they know it quite simply is not. What will change in 2 years time? Their repayments will go up, period. What will happen to the lending institutions- their borrowing costs will increase at very least to prevailing Euribor rates, but most probably to rates well above Euribor- if international institutions have not got confidence in their business models.

Would you buy a company if you had no idea how much it was worth, what its business practices were, whether its historic profits were accurate or whether they were artificially inflated with loans secured against assets which have depreciated to significantly below the outstanding loans? Its all well and go when a private person goes into negative equity on their mortgages- even if they declare themselves bankrupt- a bank can chase those debts forever after, purloining your salary and even your pension should you retire, until such time as the debt is satisfied. Its a different story if Developer X is allowed to go up the wall. The bank then has to try to realise as much as of its loan from sale of the assets on which those loans are backed. That is why banks have not allowed any barr a few small developers go up the wall. It doesn't suit them to have to admit they screwed up, and their shareholders would be in open revolt were the extent of bad debts, non-performing loans and sweetheart deals ever made public.

S.

javaboy

smccarrick wrote: »

So- all we have done is moved a major problem 24 months down the road

Happy days!

dotsman

smccarrick wrote: »

They are nominally profitable- because they have not been obliged to declare the extent of 1. How the assets their loans are backed against have been devalued, and 2. What extent of their loans are non-performing. They may have increased their provisions for bad debts- but there is no indication as to whether these revised provisions have any bearing whatsoever on the actual state of affairs in the banks.

This guarantee allows the institutions to access international funds at sovereign rates, as opposed to commercial rates. It gives them a distinct advantage over those institutions incapable of drawing on funds in the same manner. It also insulates them from the external market- and far from allowing them time to get their houses in order- it actually gives them breathing space to try to maximise returns for their shareholders (who do not include the taxpayer).

The ability to raise funds does not necessarily have any bearing on the inherent health of an organisation- particularly when their sole manner of raising those funds is a government guarantee. Along with insulating them from the external markets- it also means that they actually don't have to take a long hard look at their core business in order to restructure it in a logical manner.

So we have 6 institutions let loose on the international lending markets with a government guarantee allowing them access to funds at sovereign rates- it would be like kids let loose in sweet shops. If they were really cute- they'd borrow on international markets on the strength of the Irish government guarantee, and then promptly relend the money internationally again at Euribor rates to BNP or whatever institution they felt unlikely to default on the loan. Is there anything to stop them doing this?

Even accepting that the more prudent of them may use the 2 year interlude to attempt to put accurate information regarding their activities and their assets into the public domain- what happens at the end of the 2 year period? You still have 6 institutions there with longterm lending that they are refusing to revalue- indeed they most probably have used the intervening period to try to monetarise those loans or repackage them as alternate products specifically to get around having to admit they have lost vast sums of money on them. Hence you have major developers being told to rent out unsold units in order to service the interest component of property loans, banks refusing to refinance intercompany debts (a la Eircom and its 6 billion of debt which is due for refinancing in December) etc. Should the banks use their newfound financial clout to get back these loans back on track? Why- they don't make commercial sense........?

So- all we have done is moved a major problem 24 months down the road, without any imperative on the institutions concerned to modify their business models and their practices into sane procedures.

It is politically a very good idea to give the Irish institutions access to more liquidity- irrespective of the relative merits or strengths of the businesses. It means more money floating around chasing a finite asset base. Law of supply and demand would infer that this would provide a market support, both to the economy at large, but as also alluded to by Michael Fingleton- to the property sector, albeit on a short term basis. So- the government gives a 24 month reprieve to the property slump, or so the thinking goes- in the hope that things have calmed down somewhat in 2 years time when the institutions are tossed to the wolves again. But will people borrow- and will banks lend- if there is an expectation that all hell will break loose at a pre-appointed date in time? Would you borrow today for a house on the assumption that your apartment or house is going to slump 20% on the 30th of September 2010- or more to the point in the knowledge that your loan was going to shoot up on that date- which would infer a decrease in the value of the asset? A rational person would not. You might argue that the average person is not rational- but a population when sampled will give a rational overall response. The fact of the matter is people have lost their fate in the housing industry. It was sold to people as a sure bet- now they know it quite simply is not. What will change in 2 years time? Their repayments will go up, period. What will happen to the lending institutions- their borrowing costs will increase at very least to prevailing Euribor rates, but most probably to rates well above Euribor- if international institutions have not got confidence in their business models.

Would you buy a company if you had no idea how much it was worth, what its business practices were, whether its historic profits were accurate or whether they were artificially inflated with loans secured against assets which have depreciated to significantly below the outstanding loans? Its all well and go when a private person goes into negative equity on their mortgages- even if they declare themselves bankrupt- a bank can chase those debts forever after, purloining your salary and even your pension should you retire, until such time as the debt is satisfied. Its a different story if Developer X is allowed to go up the wall. The bank then has to try to realise as much as of its loan from sale of the assets on which those loans are backed. That is why banks have not allowed any barr a few small developers go up the wall. It doesn't suit them to have to admit they screwed up, and their shareholders would be in open revolt were the extent of bad debts, non-performing loans and sweetheart deals ever made public.

S.

Although you seem to be focusing on the worst case scenarios (though I do accept the general gist of it), you still haven't answered the actual question - how do you see the banks failing? And if they do, do you not agree that a €400 billion bailout is then the least of our worries (I would think, learning how to hunt with a bow and arrow would be far more on the minds of people:D)

The_Conductor

dotsman wrote: »

Although you seem to be focusing on the worst case scenarios (though I do accept the general gist of it), you still haven haven't answered the actual question - how do you see the banks failing? And if they do, do you not agree that a €400 billion bailout is then the least of our worries (I would think, learning how to hunt with a bow and arrow would be far more on the minds of people:D)

How do I see banks failing? By having their profits evaporate into thin air when international investors cop that their asset sheets are vapourware that have no bearing in reality and refusing to lend further funds to them to support stupid business decisions. Fullstop. Its irrelevant really for the 2 year period, as those loans are underwritten by the government. Like to see the representations from the banking sector to have the 2 year period extended?

Is the EUR435 billion bailout the least of our worries? I'm not sure how old you are- but I remember the 1980s quite well, when we had government debt of 130% of GDP. Over 40% of tax revenue went straight towards servicing debt, before anything else happened. We were in penury. Is a 435bl bailout probable? No, its not. What is probable is a demand from the banking sector for a revolving government guarantee- which is a defacto nationalisation of the banks- albeit without any equity vested in the taxpayer. So who benefits? The shareholders of the institutions- no-one else. What is the worst case scenario? From whose perspective? Best case scenario from the taxpayers perspective is the 2 years elapses and the international situation has stabilised sufficiently to allow the financial institutions refloat again. Worst case scenario from the shareholders of the institutions- is quite simply that they are cut afloat again- without the promise of government supported loans........ Its a 2 edged sword.

The imperative is to get the 6 institutions to sit down and accurately put realistic valuations on their debts and assets- so that when that dark day comes for them- that at least people will know what they are really worth. Will they be forced to enumerate the extent of the losses? Will they?

dotsman

dotsman wrote: »

As no fan of the current government, I have to be honest and say that they deserve a good slap on the back for what they did today. However, something tells me that they didn't come up with the idea and are just taking the credit!

If you think its so great then let them have YOUR money.
I think it sucks. Let me keep mine.

MooseJam

more newspapers are sold in times of crises, this more than makes up for the bad stuff thats happening, little known fact but true, every cloud has a silver lining etc

OPENROAD

Deleted User wrote: »

Remember today's date anyway ladies and gents. If the Dow Jones gets hit as bad as yesterday we could be looking at a crash for the first time in 80 or so years. Which will affect everyone. A crash is a 10% loss while yesterday was the closest in Dow Jones history 6.9% .

Well it hasn't DOW up some 4% so far, clawed back over half of yesterdays losses. Re the first crash in 80 years, well, and someone can correct me if I am wrong, but 1987, markets fell 22%- so 21 years.

earlyevening

So if all the trouble is only delayed for 2 years and FF are the master electioneering tacticians everyone says they are, why didn't they give the banks 4 years of back up and thus delay the whole thing until after the next election?
I think I'll have to give the Taoiseach a call tomorrrow to suggest this.

OPENROAD

I wonder will the three Irish banks that operate in the UK see a rush of deposits?

ninebeanrows

This idea is absurd, we are signing this evening the biggest mistake in Irish history, mark this date down.

The day Ireland signed its soul away.

This is a disastrous decision, we are virtually giving a free roll to the banks to run riot. Accepting their terrible loan strategies.

Giving a blank cheque to each bank to fill out when it needs it.

There is a reason why banks are not lending to Irish banks, why are they not?

Come on Brian Cowen tell us why? If these banks are sound then let them be tested and they will stand up.

This is a major coverup and the Irish people have been sold short.

Xyo

Will this affect the price of large prismatics in the auction house?

shenanigans1982

Weathercheck wrote: »

This idea is absurd, we are signing this evening the biggest mistake in Irish history, mark this date down.

The day Ireland signed its soul away.

This is a disastrous decision, we are virtually giving a free roll to the banks to run riot. Accepting their terrible loan strategies.

Giving a blank cheque to each bank to fill out when it needs it.

There is a reason why banks are not lending to Irish banks, why are they not?

Come on Brian Cowen tell us why? If these banks are sound then let them be tested and they will stand up.

This is a major coverup and the Irish people have been sold short.

Can I get your opinions on the following....

Alien Abductions
The JFK assassination
The American governments role in 9/11
The New World Order
Lizard men
Crocodiles in the sewers of New York

OPENROAD

Weathercheck wrote: »

There is a reason why banks are not lending to Irish banks, why are they not?

It seems Banks are not lending to banks,not just Irish banksm, very little trust, one only has to look at current Libor rates.

dotsman

Deleted User wrote: »

If you think its so great then let them have YOUR money.
I think it sucks. Let me keep mine.

They don't want my money. Don't worry, they don't want yours either. It is quiet safe.

Will people stop using the herald etc as the basis of their understanding of this situation.:eek:

The government has given no one a blank cheque. They have given no one a single cent. In fact, it's the opposite. The government are charging the banks for this service. So as a taxpayer - technically the banks are giving you money!

All this is is that the government have put their name behind the banks, allowing them to continue to function. What else should they do - return to the stone age? Money/credit is the life blood of an economy and the banks are the heart. Our/global banks/economy suffered a mild stroke last year. Since then it has been in and out of hospital, deteriorating. Yesterday, it suffered a critical cardiac arrest, with the government(s) currently performing CPR. All the various bailouts (Ireland, the US and everywhere) are the triple bi-pass surgery. It's not exactly a simple procedure, but without it, our (and the global) banks/economy will die. It really is that simple.

Any hippy/anarchist who is looking at this as "bailing out a few rich old men" really don't have a clue about what's going on. And anybody, "thinking" (although I don't think that word should really apply) that - oh, it'll be fine, I don't have much savings/job anyway so I have nothing to lose, really needs to wake up to the simple fact. A person with no money and no job currently in Ireland is very, very far from the bottom and actually has a lot more to lose.

javaboy

dotsman wrote: »

Our/global banks/economy suffered a mild stroke last year. Since then it has been in and out of hospital, deteriorating. Yesterday, it suffered a critical cardiac arrest, with the government(s) currently performing CPR. All the various bailouts (Ireland, the US and everywhere) are the triple bi-pass surgery. It's not exactly a simple procedure, but without it, our (and the global) banks/economy will die. It really is that simple.

I'll light a candle for it.

is_that_so

Dail Debate now live on RTE.

javaboy

is_that_so wrote: »

Dail Debate now live on RTE.

Anyone else notice the ad for AIB mortgages at 92% of purchase price on the RTÉ website?

themont85

javaboy wrote: »

Anyone else notice the ad for AIB mortgages at 92% of purchase price on the RTÉ website?

Ye i had a 'lol' at that actually. Slightly of topic but why is the Dail always empty? Anytime i see it its always about half full max. Is there too many seats or do some just not turn up? I wish we had it like in Britain where its always jammers and they all abuse each other, far more entertaining.

is_that_so

javaboy wrote: »

Anyone else notice the ad for AIB mortgages at 92% of purchase price on the RTÉ website?

I've got Wanderly Wagon. "The most unusual wagon you ever saw."

Earthhorse

javaboy wrote: »

Anyone else notice the ad for AIB mortgages at 92% of purchase price on the RTÉ website?

Well, if it was just you they should really ask for their money back.

ninebeanrows

shenanigans1982 wrote: »

Can I get your opinions on the following....

Alien Abductions
The JFK assassination
The American governments role in 9/11
The New World Order
Lizard men
Crocodiles in the sewers of New York

You can piss around and have a laugh all you want, but what i've highlighted is the truth, this sweeping bill by the dail tonight will come crashing down in the coming year if not in the coming weeks.

It is the most ludicrous and careless piece of legislation that will have ever been passed in this states history.

History will prove this action to be a catastrophic mistake.

Of course i hope it proves a miracle worker, but the ISEQ just got half of its losses back today (on yesterdays losses) on what basically insured Irish banks through the most turbulent times in economic history, if the people really believed this it would have soared.

shenanigans1982

Weathercheck wrote: »

You can piss around and have a laugh all you want, but what i've highlighted is the truth, this sweeping bill by the dail tonight will come crashing down in the coming year if not in the coming weeks.

It is the most ludicrous and careless piece of legislation that will have ever been passed in this states history.

History will prove this action to be a catastrophic mistake.

Of course i hope it proves a miracle worker, but the ISEQ just got half of its losses back today (on yesterdays losses) on what basically insured Irish banks through the most turbulent times in economic history, if the people really believed this it would have soared.

I think the majority of people would consider this the more ludicrous of the two...

http://boards.ie/vbulletin/showthread.php?t=2055315451

I will piss about and have a laugh and if this apocolypse you are talking about comes to pass I will do what everyone else will do....deal with it. But only if it happens not because some of the tinfoil hat club are going ape sh*t at any little bit of negative news.