Banking sector- The trouble with Tribbles

Dob74

oceanclub wrote: »

Because it wasn't in the vested interests of either the government or of the media. Anyone who questioned the status quo was told by our previous Taoiseach to commit suicide.

Consider these facts:

* In 2006, direct property tax revenues amounted to 17% of total tax revenues. This could exceed 30% when the indirect impact on income tax and VAT was included.

* 60% of the Irish Times advertising revenue came from property. The business editor of the Sunday Tribune was sacked for pointing out the hypocrisy of a property agent who was talking up the market while unable to sell his own house.

* 1 in 5 of the private workforce depended directly on construction.

* The number of residential mortgages _doubled_ between 2003 and 2006_.

P.

The numbers are scary. Was just on the central banks website. 55 billion in 2003 in mortgages. 2008, 123 billion in mortgages.
When you could make a fast buck by buying a house, holding it for a year or two then sell and make a massive profit. Its easy to see how things got out of hand.
What does the finanicial regulator do?
Nothing I suppose!

gurramok

First priority in a recession is survival. That means have as much money in the bank to make sure you will not be poor if you lose your job.

Buying a home is a bonus now, thats an advantage of renting, you will always have those savings to fall back on.
Of course if you lose your job, rent allowance won't cover the rent for a single person, but some savings will help tie you over to your next job.

Blackjack

Dob74 wrote: »

All of us tax payers have bailed out these dead beats out.

Please do outline the precise cost to date of the Governments Guarantee of the 6 participating banks?. In taxpayers money.

Dob74 wrote: »

we should let the banks crash.

Sorry to single you out, but this is something I've seen and heard a few people say. I'm sorry - but it's an absolutely ridiculous statement.

Letting one of the banks fail (Lehman Brothers) is what's made this whole Global financial crisis worse. Letting one of the Irish ones fail "to teach them a lesson" would have catastrophic results for the Irish Economy as a whole. The idea that it's only Bank employees that would lose their jobs is naive in the extreme.

SimpleSam06

Blackjack wrote: »

Please do outline the precise cost to date of the Governments Guarantee of the 6 participating banks?. In taxpayers money.

The cost of government borrowing has increased.

Blackjack

SimpleSam06 wrote: »

The cost of government borrowing has increased.

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

gurramok

Points you to the Economics forum http://www.boards.ie/vbulletin/showthread.php?t=2055436326
Look at the CDS ratings, they are worse than Italy or riot torn Greece. It's all a hefty cost down the line.

Blackjack

gurramok wrote: »

Points you to the Economics forum http://www.boards.ie/vbulletin/showthread.php?t=2055436326
Look at the CDS ratings, they are worse than Italy or riot torn Greece. It's all a hefty cost down the line.

Fair point. However, the Bloomberg screen in that particular attachment shows Greece as being ahead of ours. Admittedly it's over a 12 month period but the trendline is pretty much the same for the 5 countries graphically represented.

Announcing a 9BN budget Defecit and issuing 4BN in debt
- at the time First European Government back to the Debt issuance market since Lehman's collapse - during the period of ascendancy will have had a significant factor also.
The event itself was heavily subscribed (I believe oversubscribed in fact).

If that was the cost of the Guarantee, it was money well spent, and in essence, it was bugger all.
Would it have been cheaper to let one of the banks go to the wall?. I don't think so.
My initial point now seems a bit lost - people are under the assumption that the Government are propping up the banks (they're not) and that the government should have let one of the banks fail (they shouldn't).

gurramok

Which means the economy is suffering at the behest of not 'saving' the banks.

Anglo's share price hit 43c tonight, a new low ever for a bank. If one does go bust, the economy will suffer as this banking(Irish) crisis is a long way from over yet hence those calls from certain quarters for capitalisation of some sort.

Hence all this continuing banking crisis will continue to affect house prices as per the topic!

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

Blackjack

gurramok wrote: »

Which means the economy is suffering at the behest of not 'saving' the banks.

I don't follow you here - the Economy is suffering for not saving the banks?. Does this not contradict what you've just said?.

gurramok wrote: »

Anglo's share price hit 43c tonight, a new low ever for a bank. If one does go bust, the economy will suffer as this banking(Irish) crisis is a long way from over yet hence those calls from certain quarters for capitalisation of some sort.

Hence all this continuing banking crisis will continue to affect house prices as per the topic!

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

No doubt. I think we're likely to see a few developers go to the wall and a fairly serious "correction" in residential property in the new year, which is no doubt going to have a negative effect on the banks.

As regards Ammo the Govt has, I don't see much in their own coffers. Not sure that the suggestions from some quarters of using the NPRF and some of the local Asset Management companies would ever come to fruition.

Personally I'm not a big fan of the Private equity fund option.

SimpleSam06

Blackjack wrote: »

If that was the cost of the Guarantee, it was money well spent, and in essence, it was bugger all.
Would it have been cheaper to let one of the banks go to the wall?. I don't think so.

There are no guarantees that one of the banks would have gone to the wall had the government not intervened.

Lehman bros went under because of a practice known as "naked shorting" (since mostly banned) in US stock markets, which is like normal shorting except you don't borrow the stocks before you sell them, you just say you can get them at some stage in future. So there were many more stocks out there than actually existed, driving the price of real stocks down.

The possibility of this happening to an Irish bank was negligible.

20goto10

Eric318 wrote: »

My point is that things are bad, in fact very bad. Denial is one strategy and may actually be the best one as there is nothing much we can do at our level. It is not mine, I like to know.

OK fair enough I take back what I said about you moaning. Its hard to tell on this form of communication but thats just what I read into it. But my point still stands - its time to get on with things. You can do that without burying your head in the sand and I still think to do anything other than get on with things is ironically what I would call burying your head in the sand.

Eric318 wrote: »

I am not too sure about the argument that one might be worse off renting right now.

I'm not talking about which is the better investment. I'm simply saying if you're worried about losing your home if you lose your job, well you're more liklely to lose rented accomodation than you are a mortgaged home when you lose your job. So that argument doesn't stand. If you're holding out for a better "investment" then fair enough.

Dob74

Blackjack wrote: »

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

I think the government lost its triple A rating, so the cost of borrowing has gone up for the G. If the banks are flawed business models let them fail and the assets will be bought for what they are worth! Let the free market rain? Thats what we where told by all the big shots when the little guy was being screwed. Now that big business has failed its dole for the fat cats. "Something is rotten in the state of Denmark".

Danimalito

gurramok wrote: »

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

well, they have

- nationalisation

doubt we can afford it. May turn profitable longterm for the taxpayer if the government follows, then improves upon the swedish model

- raiding the NPRF

gonna be difficult to push that through the Dail, but it's an option

- consolidation

sounds like a good option, but not sure it's going to work. 2 insolvent banks merging into one big insolvent bank isnt going to help things :rolleyes:

- private equity companies aka sharks

If they're interested, there /must/ be something of value in the banks. They usually go for badly run companies with considerable assets to be chopped up and sold of

Consolidation, followed by PE companies stepping in would be my bet.

ravendude

Blackjack wrote: »

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

This is one of the biggest myths going around at the moment.
ie. That the government guarantee is some kind of "master stroke" in that it costs the taxpayer nothing.
It costs us very significantly in a very direct, tangible manner. As a result of this guaranteem, Irish government bonds are deemed by rating agencies as having much more risk attached to them. Hence, the government must pay higher interest premiums to compensate for the higher risk rating.
Our borrowing costs have risen significantly, at the worst possible time; ie. a time when we will borrow more than ever.

This government guarantee is a very costly thing for the taxpayer indeed

Blackjack

SimpleSam06 wrote: »

There are no guarantees that one of the banks would have gone to the wall had the government not intervened.

watch this space.

SimpleSam06 wrote: »

Lehman bros went under because of a practice known as "naked shorting" (since mostly banned) in US stock markets, which is like normal shorting except you don't borrow the stocks before you sell them, you just say you can get them at some stage in future. So there were many more stocks out there than actually existed, driving the price of real stocks down.

The possibility of this happening to an Irish bank was negligible.

Not entirely true. Lehmans went to the wall because it's debts were about to exceed it's assets. It was mainly a Fixed Income house and Lehman was killed off by the weight of about $60 billion in toxic bad debts. It went under holding assets of $639 billion against debts of $613 billion. Added that and the market stopped trading, it did have a lot of reliance on the Repo market for its funding. If no one is willing to trade then you're screwed.

Blackjack

Dob74 wrote: »

I think the government lost its triple A rating, so the cost of borrowing has gone up for the G. If the banks are flawed business models let them fail and the assets will be bought for what they are worth! Let the free market rain? Thats what we where told by all the big shots when the little guy was being screwed. Now that big business has failed its dole for the fat cats. "Something is rotten in the state of Denmark".

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

Blackjack

ravendude wrote: »

This is one of the biggest myths going around at the moment.
ie. That the government guarantee is some kind of "master stroke" in that it costs the taxpayer nothing.
It costs us very significantly in a very direct, tangible manner. As a result of this guaranteem, Irish government bonds are deemed by rating agencies as having much more risk attached to them. Hence, the government must pay higher interest premiums to compensate for the higher risk rating.
Our borrowing costs have risen significantly, at the worst possible time; ie. a time when we will borrow more than ever.

This government guarantee is a very costly thing for the taxpayer indeed

the last Bond issuance by the Government was for 4Billion euros. Allowing one of the banks to fail would cost a whole whack more than that.

Trust me, this guarantee is a damn sight cheaper than the option of letting one go to the wall.

ravendude

Blackjack wrote: »

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

ravendude

ravendude wrote: »

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

Here is a more recent article, - while Ireland has managed to retain its AAA rating, there are considerable risk premiums

http://www.tribune.ie/business/news/article/2008/nov/30/irelands-risk-level-now-ahead-of-italy-slovakia/

Blackjack

ravendude wrote: »

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

You're right, the link was incorrect.

However, this link still shows the rating as being triple A, so unless you can provide me with one that shows there has been a ratings downgrade, I'll just have to believe it hasn't happened. S&P have made no changes to the ratings........:rolleyes:

SimpleSam06

Blackjack wrote: »

watch this space.

So you're saying that regardless of guarantees, one of the banks might fail anyway? Then what was the point?

Blackjack wrote: »

As regards letting one of the banks fail, it's really not a good idea.

Once again, had there been no guarantees, its quite unlikely that an Irish bank would have failed. There are also other routes that could have been taken.

Blackjack wrote: »

Lehmans went to the wall because it's debts were about to exceed it's assets. It was mainly a Fixed Income house and Lehman was killed off by the weight of about $60 billion in toxic bad debts. It went under holding assets of $639 billion against debts of $613 billion.

A couple of points here. In banking parlance, debts are a positive thing, the more debt you have the more people have to repay to you, so leveraging to the hilt makes sense. Secondly are you saying that Irish banks have similar performance ratios to Lehman bros, and what are you basing this on?

Dob74

Blackjack wrote: »

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

Danimalito

Dob74 wrote: »

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

With the irish state guaranteeing to honour the banks debts during the next 2 years, it's going to be extremely costly for the taxpayer to allow any of them to go under. Ireland could very well end up in IMF-bailout territory.

Blackjack

SimpleSam06 wrote: »

So you're saying that regardless of guarantees, one of the banks might fail anyway? Then what was the point?


Once again, had there been no guarantees, its quite unlikely that an Irish bank would have failed. There are also other routes that could have been taken.

At the moment the Government are making noise about changing legislation as to how the National Pension can be used to recapitalise/invest in the banks. Writing is on the wall there.
As regards the guarantee, I personally think it was a low cost solution to a high cost problem. Other people here would seem to disagree.

SimpleSam06 wrote: »

A couple of points here. In banking parlance, debts are a positive thing, the more debt you have the more people have to repay to you, so leveraging to the hilt makes sense. Secondly are you saying that Irish banks have similar performance ratios to Lehman bros, and what are you basing this on?

Not when the debts are becoming increasingly toxic, and can't be collected. I'm not saying that the Irish banks have similar performance ratios, or anything like. The initial point relating to Lehmans was to illustrate the cataclysmic effect of "allowing" a bank to fail, which is what some posters here think is an appropriate response to the situation.

Blackjack

Dob74 wrote: »

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

Do you happen to have any savings, or even an account with any of the banks?. Just wondering how you would manage if your bank went down the tubes and you could not access any cash, pay any bills or the like for a few weeks/months/years until the liquidators sort that out for you, while in the meantime ensuring that the Taxman is first to get paid and yourself afterwards?.

Apply that on a wider scale (i.e. - not just for you but any company or individual who depends on a collapsed bank for their day to day requirements), let me know what you come back with. Waterford Crystal weren't in the process of funding loans, making payments on behalf of anyone who needed payments to be made, providing mortgages or car loans to those who needed them. Unfortunately for Waterford Crystal's employees and shareholders, their company is a bit more expendable than the banks, by virtue of the fact that Glass Ashtrays and expensive wine glasses aren't vitally important to how money moves about the financial system.

SimpleSam06

Blackjack wrote: »

As regards the guarantee, I personally think it was a low cost solution to a high cost problem.

If the problem was the need for the government to rush into a course of action so as to be seen to be doing something, which has proven little benefit and considerable expense, then it certainly was a solution of sorts.

Blackjack wrote: »

Not when the debts are becoming increasingly toxic, and can't be collected.

Given that they had no idea which ones were toxic and which weren't, naked shorting played a considerably more important role in the downfall of Lehman. The FTD rates daily were in the billions of dollars - utter madness.

Blackjack wrote: »

The initial point relating to Lehmans was to illustrate the cataclysmic effect of "allowing" a bank to fail, which is what some posters here think is an appropriate response to the situation.

Once again though, if the government had not issued guarantees, I doubt very much that any major Irish bank would have failed. All they really did was make themselves look good for a week or two and cost us another pile of cash we don't have.

Blackjack

SimpleSam06 wrote: »

If the problem was the need for the government to rush into a course of action so as to be seen to be doing something, which has proven little benefit and considerable expense, then it certainly was a solution of sorts.


Given that they had no idea which ones were toxic and which weren't, naked shorting played a considerably more important role in the downfall of Lehman. The FTD rates daily were in the billions of dollars - utter madness.


Once again though, if the government had not issued guarantees, I doubt very much that any major Irish bank would have failed. All they really did was make themselves look good for a week or two and cost us another pile of cash we don't have.

Actually what the Guarantee did do was allow the banks have a more stable credit environment and ensured that there was less concern and credit risk for them by counterparties. This meant that they were able to collect more deposits and prevented a run.

Joe Duffy himself caused a Run on the retail side with people running to the banks to take their money out and put it in Prize bonds and the like (I'm not joking).
Imagine that on the level of large cash deposits (which have increased considerably as people fly for Cash which is currently king) from the Corporate and the Institutionals - if you're not getting these deposits, you have no source of funding.

The guarantee gave the market a level of confidence that the Irish Banks were a safe haven for funds, which at the time the banks here were getting hammered and having to offer ridiculous rates in order to try to attract these large deposits.
Now they don't have to and they're getting far more in as a result of the guarantee. Without the guarantee, I strongly doubt that one or 2 particular ones would still be around. in their present form.

The_Conductor

We're currently paying fully 1% extra (and it looks like this will further increase) on our national debt as a result of the government action (prior to the government guarantee, Irish sovereign debt was rated about .1% above German debt- its now at 1.2% above German debt- despite the fact that both have been downgraded in a similar manner). This action will ultimately cost the taxpayer a hell of a lot more than the banks are ever going to pay for the government guarantee.......

Blackjack

smccarrick wrote: »

We're currently paying fully 1% extra (and it looks like this will further increase) on our national debt as a result of the government action (prior to the government guarantee, Irish sovereign debt was rated about .1% above German debt- its now at 1.2% above German debt- despite the fact that both have been downgraded in a similar manner). This action will ultimately cost the taxpayer a hell of a lot more than the banks are ever going to pay for the government guarantee.......

Would allowing one of the banks to fail have been cheaper do you think?.

SimpleSam06

Blackjack wrote: »

This meant that they were able to collect more deposits and prevented a run.

Would allowing one of the banks to fail have been cheaper do you think?.

The accumulation of deposits is neither here nor there. The main thrust of your argument is that the guarantee prevented a bank run. I would strongly debate that there was a run in the offing, or that the public was going to try to withdraw their deposits en masse.

Blackjack

SimpleSam06 wrote: »

The accumulation of deposits is neither here nor there. The main thrust of your argument is that the guarantee prevented a bank run. I would strongly debate that there was a run in the offing, or that the public was going to try to withdraw their deposits en masse.

There were a lot of people taking money out of the banks.

If you think a run was not in the offing, then fair enough. I disagree, but I think we'll just have to agree to disagree.