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Anglo Irish Banks - a new addition to Public Sector
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This is my very last post on this thread, honest.:D
Stepbar you have given me a laugh. I quoted from the BBC but you could not even do that. No hard feelings.:)
Well done you. Copy and paste must be the order of the day round here. Good to know you have no opinion to make. I'm very happy with that TBH.0 -
I dont agree with the point you've made - "There doesn't have to be any security". That is just totally wrong TBH. I can't see how you could put a restriction of the amount of money a director can borrow if they have the assets to back same up.
I mean it in this way. If I'm the sole director of a company I can loan myself whatever I want and it doesn't affect the books so long as it's paid back within the company's tax year. I don't need to provide security against the loan or any collateral. This is fine, I'm the director of the company and I can make the company do what I want so long as it's legal.
However, I don't think allowing this kind of situation with banks is a very good idea purely down to their central nature in the economic system. It all works fine so long as the director can pay the money back, but imagine a bank losing tens of millions simply because of a few bad bets made by a director on the side.0 -
This all goes back to the government guarantee provided in 1st Oct 2008.
This was put together either for Anglo or BOI (its never been confirmed which institution), now I agree BOI cannot be let fail however lets assume Anglo was the patient on that faithful night so before the blanket deposit and loan guarantee the government could have let Anglo fail.
That would have involved:
- 100K max compensation for depositors
- Aggressive sell off of the loan book leading to some big property players & insurance players going bust
- Widespread Upper & middle class unease because of this turmoil.
However it would have been a swift relatively cheap treatment of this banks reckless lending practice. It would have also let the other banks know who is in charge and the finance minister could have called for the other institutions to fire on mass their entire boards with some strength. The unknown is the effect on the system however Anglo has no retail presence and does not handle current accounts for payroll so the high street effect like northern rock would not happen.
Instead the finance minister is behind events with no power to deal with the banks as they have their golden ticket guarantee without one head rolling.
No all that’s left is the taxpayer paying 60% income tax to pay for this golden banking parachute, make no mistake taxes will RISE AND RISE because of this mess.
I would have preferred a few ruined upper & middle class individuals (Shareholders are ruined under both scenarios) instead of us all sharing their burden. I believe in a welfare society for the poor and needy not one for the rich elite.
Remember these are the folks who paid 50million plus for an acre of land in Dublin; a city with a population of just over 1 million, dearer than New York, Tokyo & Hong Kong with 10 times the population (and potential footfall). These people deserve to be broke; so let the market prevail on the downside, since there was no market intervention or control on the upside during the boom years.
Since we now have the bank lets have some honesty so Brian Lenihan you are fooling no one with you claim that the bank has over 4Billion worth of net assets. The stock market did not believe it, developers do not believe it; so stop with the bad PR spin. I also do not buy the story that the Sean Fitzpatrick loan issue forced the government’s hand and caused the nationalisation, I prefer the FF property developer link, is the government saving some large businessman?
Plus as Brendan Keenan said on the news at one can we have full publication of the current PWC report into the bank since it’s now a state entity with no commercial issues to worry about; or is the report to scary for public consumption?
Also like Alan Greenspan, Bertie Ahern is now having his place in Irish history reviewed downwards by the day.
Lastly Enron sank Anderson Consulting; could Ernst & Young go the same way I think disgruntled shareholders have grounds for a class action lawsuit. Remember ignorance is no defence in a court of law interesting to see how this plays out.
Interesting times indeed……0 -
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Evan Davis explains securitisation
The rise and fall of the financial services industry in recent years is really a story of several appealing financial innovations falling into the hands of institutions ambitious to defy the natural gravity of their business and to push profits into the stratosphere.
The rocket scientists they employed were among the cleverest people on Earth, but their technology was complicated and fragile. It was bound to end in tears.
Tricky task
You can see this pattern in the world of hedge funds and derivatives, and perhaps even more plainly in banking and the rise of securitisation.
A bank is fundamentally a rather dull old business.
It keeps a small amount of its own money - capital - ready on stand-by should anything go wrong.
But on that modest base, it builds an enormous balance sheet of two huge towers of cash: one of money borrowed, and the other of money lent or invested.
It is hard to make serious money this way. The trick is somehow to charge more for the money the bank lends than it pays for the same money it borrows.
Bankers know how to drive that vehicle into modestly profitable terrain - you make it your business to borrow short-term and lend long-term. But it is still not a terribly exciting money-spinner.
Over the generations they have found there are ways to push profits higher, but experience suggests the higher they push them, the more vulnerable their institution.
FIND OUT MORE...
The City Uncovered
Wednesday, 14 January 2009
2100 GMT, BBC Two
For example, they can economise on capital on stand-by. But then they have less to protect them if things go wrong. Or they can lend at higher rates to riskier people. Again, they make more money but then they stand to lose more.
You can see how anyone with a bit of nous might want to smarten the business up and find a way to build a bank that is both more profitable and more secure.
Well, that is what the technology of securitisation promised.
It allowed banks to lend in copious quantities without carrying all the risks of their loans, which they could sell off as securities. It appeared to be a magic bullet, enabling them to shed risks and make some of their lending margin.
Suffice to say banks took the magic bullet and fired it upon themselves by allowing the quality of their loans to be absurdly degraded.
Plus to cap it all, they bought securities as well as selling them, so when the loan defaults came, it was the banks who were suffering from them. They had not got rid of risk after all.
It is every bit as silly as confusing metric and imperial units. But only bankers who could see beyond the pedestrian world in which they operated would have tripped up in these ways.
Essentially, it is just one example of the way our natural human instinct to be innovative has served us very badly in finance.
It is too easy to allow optimism and self-interest to cloud the judgement and to foster confusion between the very occasional genuine advance with the more common illusions that apparently allow profits to be conjured up from nowhere by disguising the risks that are being taken.
The answer is not to ban innovation, but to be wary of it.
Interestingly, some of the Wall Street rocket scientists behind securitisation were actually real rocket scientists, from the very lab in Pasadena which had managed the Mars Climate Orbiter project.
The real lesson is not that we need to find even cleverer people to take over the world of banking. It is that we would be more likely to avoid mistakes if we could breed them a little stupider.
http://news.bbc.co.uk/2/hi/business/7826431.stm
Ok, seriously read this for a far more sober, balanced and intelligent analysis of the problems in the market: http://www.economist.com/finance/displaystory.cfm?story_id=12552204. It's not so easy reading and lacks all the nice buzz words and the clever rocket scientist reference but it's far better than the kind of sensationalism that that article represents. Also this article on the topic of market re-regulation should be enlightening: http://www.economist.com/specialreports/displaystory.cfm?story_id=12373748
Actually just use the Economist or the Financial Times as a source of information on the markets and you'll improve your knowledge, opinions and arguments immeasurably.0 -
I mean it in this way. If I'm the sole director of a company I can loan myself whatever I want and it doesn't affect the books so long as it's paid back within the company's tax year. I don't need to provide security against the loan or any collateral. This is fine, I'm the director of the company and I can make the company do what I want so long as it's legal.
However, I don't think allowing this kind of situation with banks is a very good idea purely down to their central nature in the economic system. It all works fine so long as the director can pay the money back, but imagine a bank losing tens of millions simply because of a few bad bets made by a director on the side.
What you're saying is a totally different thing. The director of a bank is not the total owner of the bank per se. As in the Sean Fitz case, the lending was given on commercial rates secured against the asset he had at the time. There is a difference TBH.0 -
As a sole director of a company, the discretion lies with you. As a director of a bank there is a collective responsibility by the board, and beneath them the credit function to decide on a facility to a director - so it should be less open to abuse.
Fitzpatrick epitomised Anglo, he held sway over everyone as far as I can decipher and that was a substantial weakness.0 -
What you're saying is a totally different thing. The director of a bank is not the total owner of the bank per se. As in the Sean Fitz case, the lending was given on commercial rates secured against the asset he had at the time. There is a difference TBH.
Ah ok, I thought that he got a director's loan in the sense of what a director's loan is for a limited company. My mistake.0 -
Well the situation here is very different. Irish banks aren't being crippled by the amount of toxic CDOs etc on their balance sheets. We don't have the same pressing need to get a certain form of debt out of the market. Also, thankfully, the sub-prime market in Ireland never really took off and while the banks are loaded down with mortgage debt, they at least don't have enormous amounts lent to people who managed to have bad credit records in boom times.
Our problem is developer loans and rising unemployment which could result in high bad debts.I dont agree with the point you've made - "There doesn't have to be any security". That is just totally wrong TBH. I can't see how you could put a restriction of the amount of money a director can borrow if they have the assets to back same up.
Do we know what the assets where/are?Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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Our problem is developer loans and rising unemployment which could result in high bad debts.
Along with a general economic downturn caused by exogenous factors, illiquid money markets that put an even tighter squeeze on our banks than they would have faced otherwise and a high value Euro which is putting a lot of pressure on sectors of the economy that export outside of the EU. These, to lesser and/or greater extents are combining into a very nasty situation where many private sector companies badly need financing but cannot get it despite them having solid credit records which feeds back into creating even bigger problems for our banks. (This list is nowhere near exhaustive)
If it was only developer loans and rising unemployment we'd be lucky. Even if there had been no housing bubble, our banks would be beset by troubles at the moment (though not close to the same level).0 -
Our problem is developer loans and rising unemployment which could result in high bad debts.
Do we know what the assets where/are?
Well the Sunday Business Post stated that Sean Fitz had a part share in a Irish bar chain in Las Vegas and a share in an oil field somewhere in Africa. I suspect that security was offered against shares he personally owned in Anglo. As for other security offered, I cannot comment because I have no knowledge of same. However, one must remember that he sold a tranche of shares in Anglo ( can't remember the year) which amounted to 20-30 mil. So additional security could have involved a lien on deposits held with the bank.0 -
Along with a general economic downturn caused by exogenous factors, illiquid money markets that put an even tighter squeeze on our banks than they would have faced otherwise and a high value Euro which is putting a lot of pressure on sectors of the economy that export outside of the EU. These, to lesser and/or greater extents are combining into a very nasty situation where many private sector companies badly need financing but cannot get it despite them having solid credit records which feeds back into creating even bigger problems for our banks. (This list is nowhere near exhaustive)
If it was only developer loans and rising unemployment we'd be lucky. Even if there had been no housing bubble, our banks would be beset by troubles at the moment (though not close to the same level).
Indeed, I accept all that, but if we didn't have the above problems, bad developer loans and a reliance on Construction for tax receipts and economic activity would have us fecked anyway.
The soft landing was never going to happen.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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Well the Sunday Business Post stated that Sean Fitz had a part share in a Irish bar chain in Las Vegas and a share in an oil field somewhere in Africa. I suspect that security was offered against shares he personally owned in Anglo. As for other security offered, I cannot comment because I have no knowledge of same. However, one must remember that he sold a tranche of shares in Anglo ( can't remember the year) which amounted to 20-30 mil. So additional security could have involved a lien on deposits held with the bank.
The year would be very interesting. Did he borrow to buy the shares he sold?Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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The soft landing was never going to happen.
Actually, if global economic conditions had been favourable the landing could have been "soft"* (i.e. if we got lucky). All it would take is other sectors growing strongly to take some of the slack left by the contraction in construction (both in terms of jobs and revenues). There'd be plenty of pain but it wouldn't be economy wide etc.
What actually happened was the exact opposite, the bubble starts to burst and six months into the correction the worst global economic crisis in 20 years starts brewing.
*to clarify, I'm talking about impact on the economy rather than house prices here, the estates they tacked onto little villages around the country for no good reason were going to have their value decimated in pretty much every scenario.0 -
Actually, if global economic conditions had been favourable the landing could have been "soft". All it would take is other sectors growing strongly to take some of the slack left by the contraction in construction (both in terms of jobs and revenues). There'd be plenty of pain but it wouldn't be economy wide etc.
YEP, but you are assuming. Unfortunately there was no sign of other sectors growing strongly. Do you have stats to show they where?Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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YEP, but you are assuming. Unfortunately there was no sign of other sectors growing strongly. Do you have stats to show they where?
I was talking hypothetically about the conditions necessary for a soft landing (I interpreted your statement as soft landings can't happen). My mistake.0 -
I was talking hypothetically about the conditions necessary for a soft landing (I interpreted your statement as soft landings can't happen). My mistake.
And I was saying there was no signs of these hypothetical situations happening. We where reliant on Construction for growth.
So yes, NO soft landing was going to happen here, US Sub prime crisis, US Bank collapses etc. or not.
Yep. Your EDIT is correct, unfortunately our economy was dependent on the little villages just as much as apartment blocks on the suburbs of Dublin.
When you strip even these away, very little was happening otherwise.
I don't think your theory applied to Ireland as the other sectors where not taking up the slack regardless of where houses where being built. We where totally reliant on Construction for growth. In fact it was hiding our uncompetitiveness.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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ok iv scanned threw the thread and besides everyone being 'outraged' at the supposed increase in the national debt there is not much else so i want to ask a few questions.
firstly after listening to the head of economics in ul and ruairi quinn on newstalk last night i have to say that this sounds like a good idea to me.
firstly we nationalise. we are going to have to pay the shareholders for their shares and thats what is happening now. share trading has been suspended and a revaluing of the company is going on. there will be massive pressure to undervalue the company so i dont see the cost of paying the shareholders as too high. do i have this right? whatever the company is valued at we still have to actually buy it off the shareholders dont we?
then after we own it we soak up boi's and aib's bad debt. this restores confidence in those banks at home and abroad and they can carry on trading as normal and putting money into our economy threw lending which will help us come out of this recession by helping growth. as far as i can tell those two banks arent in really really dire straights and seem to have been run fairly well. i say this because they have not yet needed to draw down on the guaranteed money set forth by the government. is there anything wrong with my thinking on this?
after that we look threw the bad debt (most of which is probably going to be developers) and we can basically pick what we want out of the assets and aproach them with offers. for example a developer has a large planning permission approved undeveloped patch of land that he may default on the loan. the government offers him a guaranteed market in the local authourity if he builds social and affordable housing. he will be able to do this because there are thousands of unemployed building sector workers who would most likely be willing to come back to work at much lower rates than they previously received. this benefits the public and the private sector and obviously the economy overall. is there anything wrong with this?
finally any loans that are defaulted have collateral on them so it is not like we are getting nothing in return for shouldering the risk. do people see potentially large amounts of developer friendly land in prime areas in the control of the government as a problem?
now i just want to add that i dont trust the current government to do anything right but the above is leaving the unknown quantity of ineptitude aside and assumes they know how to implement it. but is there anything wrong with these thoughts?(they are not mine they are the economist from ul's i just think they sound like great ideas and could help our economy go a long way)
edit; and the only thing wrong with the director loans as far as i can see is the fact he was hiding them every year from the auditors and the shareholders0 -
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PeakOutput wrote: »Firstly we nationalise. we are going to have to pay the shareholders for their shares and thats what is happening now. share trading has been suspended and a revaluing of the company is going on. there will be massive pressure to undervalue the company so i dont see the cost of paying the shareholders as too high. do i have this right?
It would seem right to me.
However, remember that this is Ireland, the land of vested interests, not the national interest. Putting your nest egg/retirement savings into the stock market can be a risky business at the best of times. While the potential for a nice, healthy return exists, there is always the risk that you will lose everything.
This is what many of the more small-time (if they even exist) Anglo shareholders are now facing. They took a gamble and lost heavily. I see no reason why the taxpayer should have to compensate such investors over and above the current deflated share price. This being Ireland though he who shouts loudest gets the "mostest"!
It's therefore very likely given the profile of some of the shareholders that a more than generous package will be offered funded by the taxpayer.after that we look threw the bad debt (most of which is probably going to be developers) and we can basically pick what we want out of the assets and aproach them with offers. for example a developer has a large planning permission approved undeveloped patch of land that he may default on the loan. the government offers him a guaranteed market in the local authourity if he builds social and affordable housing. he will be able to do this because there are thousands of unemployed building sector workers who would most likely be willing to come back to work at much lower rates than they previously received. this benefits the public and the private sector and obviously the economy overall. is there anything wrong with this?
do people see potentially large amounts of developer friendly land in prime areas in the control of the government as a problem?
Most people wouldn't see that as a problem. In fact wasn't that type of idea mooted on several occasions at the height of the property bubble, i.e. state regulation of the price of building land, which sort of has the same effect, i.e. state control of developer profiteering for the benefit of the majority.
However, do you really see that as even being a remote possibility? Do you really think that a puppet government whose strings have been pulled by those very same developers for the past 10+ years, with the senior coalition party (FF) being primarily funded by bribes/donations from the same people, is really going to now turn around and put the national interest ahead of the corrupt sectional interests of the speculators and snake oil purveyors of our property "boom"?
Not a chance!
If the above is even suggested, our great Minister for Finance will inform us in hushed tones that even though he'd love to do it, Article 43 of the constitution prevents him from doing so. The property rights of the developers will have to be vindicated at all costs. This will be claimed notwithstanding the existence of Art 43.2 which provides for the regulation of these rights "by the principles of social justice" and "reconciling their exercise with the exigencies of the common good"
As I pointed out in my post (no. 91) above the insertion of section 8(8) into the draft Anglo Irish Bank Bill 2009, whereby the Minister can act in secret and not publish certain Ministerial Orders issued pursuant to the legislation (where such orders relate to "commercially sensitive material", with the term "commercially sensitive", as pointed out by Oracle, being so broadly defined in the Bill as to cover almost anything), is confirmation, if confirmation is even needed, that the nationalisation of AIB is not being done to further the national interest or prevent the remnants of our shattered economy floating down the swanny, but rather to protect the large-scale investors such as Sean Quinn and the troubled developers using the money of the very same people who have been sucked dry by these leeches over the bubble period.edit; and the only thing wrong with the director loans as far as i can see is the fact he was hiding them every year from the auditors and the shareholders
Indeed. The dosen't seem to be anything wrong per se with a company director getting loans from his own company. However, hiding those loans from the true owners of the company (i.e. the shareholders), which effectively misrepresents the true financial status of the company, could be seen as fraud , or at the very least misrepresentation?0 -
Fraud!!!! Lol are you for real :rolleyes:
Credit standards were perfectly fine (for some banks). However unless there was a bank employing "Mystic Meg" no one would have been able to predict (for argument sake) that a loan approved in 2005 would be in default in 2008.
www.independant.ie/business/
There is a nice article about anglo chiefs heading to court.0 -
Now that the government owns the loans for so many commercial properties, would it be a cost saving measure to foreclose on the loans underpinning government offices? They're probably in negative equity territory & ripe for exploitation.
The buildings could be taken in lieu of bad debts (at current-market, knock-down prices) and we then would no longer have to pay rent on them to the private sector.0
It's nice and easy to quote other people's opinion without actually providing your own.
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