The Government: Have they failed?

oscarBravo · 18-11-2008 3:27pm

How many companies can you name that have a current share price higher than it was six months ago?

jmayo · 18-11-2008 3:30pm

I will not argue with you on who the founders or initial developers of free market economic theory were since of course you as it's champion woudl know it's history to a much greater degree.
Would you consider the policy of Laissez Faire adopted by the British government during the 1840s to be a form of free market economics ?

Well they adopted free market economics. Reagan's policies in Central America resulted in thousands of people being subjugated, tortured and murdered by tin pot dictators. Are you seriously asking how a huge majority of Irish people view Thatcher ?

Why do we need to discuss the worldview of the government, they have little control over our own since we are part of the greater EU/eurozone ?

You appear to have a rather pretentious assumption about people on this forum, are we just some quaint unintellectuals, who of course do not understand the higher principles offered by your greater intellect.
Maybe since you cannot have serious intelectual debate of ideas on this forum then why not trundle off to some Republican right wing think tank where everyone agrees with your opinion and probably rehashes the same references/sources.

I fundamentally disagree with a system that hasn't a problem with placing certain natural resources of the state, needed by the citizens of the state for an adequate quality of life itself, in the hands of private individuals/companies who operate on a for profit basis.
Does that mean I believe in communism ? NO.
Do I believe in capitalism ? Yes.
Private enterprise provides development, research, growth but it shoudl not be the owner nor provider of certain resources.

So becuase we had a bad government that did not manage the economy well we should throw out the system and instead install one where rich companies can control the very ingredients necessary for life e.g power and water.
Yes I do think that the quality of our water supplies in some part of the country are atrocious, but that does not mean I want someone like Tony O'Reilly, Sean Quinn or Dermot Desmond et all controlling it.

Hang on you haven't answered my question, if Free Markets are the way to go how come banks that were affectively given carte blanche, have managed to reach a point where they have had to beg states for bail outs in order to survive.
Of course we could have let the free market rule, let them go out of business, but as pointed out even by our inept idiotic politicans if banks go bust they take everything else with them.

No it doesn't make me feel better. It makes me angry that we will be carrying the can for the ineptitude of both our politicans, the regulators and the bankers themsleves whose greed led us to this point.
Does it make you feel better that the free market pillars need to be propped up by the state ?

Permabear · 18-11-2008 3:41pm

This post has been deleted.

oscarBravo · 18-11-2008 3:44pm

Then you shouldn't have any trouble explaining to me what's intrinsically unstable about it as a business, and what you would be doing differently if you were running it.

While you're at it, you can explain how allowing the second-biggest bank in Ireland to collapse won't have any negative consequences whatsoever for any other businesses in Ireland, or for the wider economy.

Permabear · 18-11-2008 4:05pm

This post has been deleted.

Permabear · 18-11-2008 4:16pm

This post has been deleted.

Mr.Micro · 18-11-2008 5:07pm

The fundamentals of good/prudent lending practices went out of the window some years ago. The BOI may be exposed to more bad debt than others or bad management or both. Like most banks wordwide they got involved in speculation re property and borrowing massive amounts from eg Japan with its cheap base rate at near zero and loaned that money to other institutions and individuals at higher rates. No harm in that one might say, but its the amounts of money borrowed and who the loans were made to, maybe even sub prime lending.

Where were the balances and checks? There were none, and even a most optimistic person would suspect that nothing lasts forever, and prepare for the rainy day, yet even such a simple concept was not considered by the banksit appears. It is truly shocking that these sober money men worldwide fell into a trap of their own making throwing even basic fundamentals to the wind.

kraggy · 18-11-2008 5:44pm

Increasing taxes will only prolong the recession. If it's income tax you're talking about, then people will have less disposable income. And if it's VAT you're talking about, then people will buy less goods because they will have become too expensive.

The Government needs to take action and take it now. They need to scrap the budget and start from scratch. All unnecessary spending should be abolished e.g. anything sport or arts related to name just 2 areas. People are dying on hospital trollies with no dignity whatsoever.

A massive study of each department should be conducted immediately with a limited time-frame to recognise areas in which each department could save money. In particular, the HSE should be particularly studied and analysed to see where staff can be laid off and belts tightened.

Finally, the union representatives should be slowly tortured, sliced and burnt for even thinking that their members get a pay increase in current climate. Lunatics the lot of them.

molloyjh · 18-11-2008 6:01pm

I hope you don't seriously believe that a potential bail out, because at this point thats all it is, of BoI would be worse than their collapse can you? How do figure that? How many customers do BoI have and how much of peoples money do they have that would be lost if we left them alone? How would that affect the market overall? Its madness to think we'd be better off letting them go down the toilet.

Permabear · 18-11-2008 6:10pm

This post has been deleted.

ART6 · 18-11-2008 6:50pm

The problem, I suspect, is that the Irish government simply does not have the means to do any bail outs. We are already heavily in debt for such a small country, and the piggy bank is empty. So the question is how many billions would it need to keep BoI from collapse? Bear in mind that the financial industry talks money that is way beyond the resources of smaller countries. If the government borrows to do a bail out, Ireland's credit rating will hit the floor, and we will vastly exceed the debt provisions of the Single Currency, with all of the potential penalties that implies. Our current borrowing requirement is peanuts compared with the commitments of most of the banks.

In any case, what is the actual effect of the BoI share collapse? All it means is that the shareholders have been selling off their shares, theoretically decreasing the shareholder value but not actually affecting the profitability or financial stability of the bank. The shareholders are losing out big time, but that's all that's happening unless international banks take fright at why they are selling.

oscarBravo · 18-11-2008 6:51pm

Let's say BoI collapses. This will force the government to make good on their guarantees, which will (a) cost a fortune, and (b) as you've pointed out before, still leave some depositors short. The inevitable consequence is a run on every other bank, as depositors there panic and start demanding their cash. Several of those banks will collapse in turn. Outstanding debts will be called in, forcing many businesses into bankruptcy, leading to a sharp increase in unemployment.

Explain to me how this is better than the alternative?

I've answered this before: the government puts equity into the bank, in return for a say over executive remuneration (and indeed survival).

The accountability comes when the government says "we're rescuing your bank. Now, bugger off: you're fired."

Permabear · 18-11-2008 7:05pm

This post has been deleted.

nesf · 18-11-2008 7:23pm

The shareholders aren't the concern really, if BoI's share price collapses it indicates that the market views it very negatively, if the market views it negatively BoI are going to find it extremely difficult to raise funds in the money markets and elsewhere. If BoI can't raise funds to meet it's day to day running it collapses itself, if it can meet these but not raise anymore then it isn't in a position to lend funds to anyone, no matter how good their credit record which sees the problem transferred further down the line and you have companies in different sectors being unable to raise funds to meet their day to day running or fund expansion which has a broad negative effect on the economy. If BoI collapses, it could bring down the other Irish banks with it since their business models are fairly similar and they're exposed to mostly the same risks and if they go down as well it would paralyse the economy.

The shareholders losing their money is neither here nor there really when it comes to why we need to prop up banks and yes it leaves a bad taste in my mouth too that they get away with their overly risky behaviour of the past decade but that's the way it is unfortunately.

nesf · 18-11-2008 7:31pm

The moral hazard comes from the situation where we both poorly regulate banks and allow them to get big enough that we can't afford them to fail. They aren't like other businesses, if one fails it can bring down businesses in completely uncorrelated sectors, this means we can't treat them like ordinary businesses. Basel I is essentially why the house of cards collapsed, we left large loopholes in the regulation and are now paying the price of allowing banks to move things off the balance sheet.

I'd agree in principle that most of the time propping up a failing business or industry with public funds is a bad idea but banks are a different proposition to other businesses whether we like it or not.

Permabear · 18-11-2008 7:40pm

This post has been deleted.

nesf · 18-11-2008 7:44pm

They should recapitalise, punish the banks by taking a fair amount of preferred shares in the bank as well as charging interest on the the debt incurred by the bank. Regulation will have be fixed at international rather than national level given the nature of the global markets. There is only moral hazard if the bail out is free or cheap for the banks to avail of.

Permabear · 18-11-2008 7:59pm

This post has been deleted.

nesf · 18-11-2008 8:03pm

I agree, that's why we need both a bail out and strengthened regulations that force banks to keep more realistic reserve levels in the boom times. We can't leave them fail, so we need to hold them to a higher standard etc.

Permabear · 18-11-2008 8:12pm

This post has been deleted.

nesf · 18-11-2008 9:14pm

Increased regulation is needed to fix the problems of Basel I though. If we're going to regulate we need to do it properly and ensure reserve requirements reflect the real risk profiles of the banks and don't ignore certain kinds of activity. This has to be fixed and while Basel II did deal with some of the problems it might need revisiting. It is also something outside our direct control so again, something we can't really blame our politicians for.

Permabear · 19-11-2008 12:17am

This post has been deleted.

Riddle101 · 19-11-2008 12:27am

No Bertie wasn't great either but Bertie was a more efficient manager. He knew what needed to be done, maybe not for the right reasons but if you look at Berties compared to Brian you can see Bertie was more organised and was able for the job. Cowen strikes me as the type of guy who's office is littered with Cigarette butts on the floor and desk is full of stacks of papers, constantly pacing around the room like a mad yoke and repeating himself over and over again. He also strike me as the type of guy who looks as if any day now he's going to run away and never comeback to Ireland ever again, and leave Ireland to rot. Then who will we turn to. All i'm saying is Brian needs to get his act together before Ireland implodes

BenjAii · 19-11-2008 1:03am

The opposite side of that coin is Iceland; a country who's fate we might be sharing if it were not for the protection offered by the Euro.

I have never quite understood the argument against the Euro that there can never be "one size fits all" interest rates for the eurozone, as inevitable they will too high or low for different regions.

This never seems to be a problem for the US which has exactly the same issue to deal with.

I would disagree with you on regulation. If banks are so stupid that they threaten themselves with bankruptcy through bad business practices, then I'm afraid regulation it is. It would only be forcing them to stick within parameters of good lending that they agree with anyway.

ninty9er · 19-11-2008 1:11am

This:

What information is the market looking at, and more importantly is the market qualified to make the judgment that this info means that BOI is going down the tubes, if there are benefits to the market of such an occurrence, be it even so petty as an "I told you so" victory.

Which is the perfect argument for the private/family owned, organically grown company, with no equity to **** around with confidence, because it's not a matter of confidence if no more than 2-3 handfulls of people own the company, like Mars, or Fexco for example.

Permabear · 19-11-2008 12:09pm

This post has been deleted.

oscarBravo · 19-11-2008 1:37pm

Meant to pick up on this. I'm assuming he's talking about the laissez-faire economic policies of the government of the time, which greatly exacerbated the effects of the famine in Ireland. The government were extremely reluctant to provide aid to famine victims, reasoning that to do so would have a distorting effect on free trade.

Permabear · 19-11-2008 2:31pm

This post has been deleted.

BenjAii · 19-11-2008 3:07pm

The logic in saying that seems a bit like asking which came first the chicken or the egg.

If the banks hadn't followed unsound business practices at the most basic level (US - lending to subprimes, IR - lending based on vastly overvalued collateral of property developers) then he wouldn't have the problem either.

In any case is not the suggestion you are proposing, controlling money supply, just another form of regulation ?

oscarBravo · 19-11-2008 3:21pm

In this context I'm blaming laissez-faire for one thing only: the government's delay in responding to a massive humanitarian crisis.

Eventually, and reluctantly, yes.

"Useful investment which could have improved agricultural output" doesn't feed people who literally haven't eaten anything whatsoever in days.

I'm not getting into an argument about the causes of the famine - you're right that they are many and varied. The main point for me is the sacrifices that must be made on the altar of free-market ideology: a century and a half ago, it was preferably that hundreds of thousands of people die than that market-distorting measures be taken. At least these days it's just small and medium businesses and people's pensions.

The Government: Have they failed?

Comments