Frontline 14/12

imme

nesf wrote: »

We can't leave banks fail.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

Do you see no implications for the failure of Anglo?

Cufflink

oceanclub wrote: »

Ah, it's amazing how all the people who were telling us that the good times will never end - or at worst, there would be a soft land - now say sure they always saw it coming and it could never last.

P.

It's not amazing. Everybody knew that the Celtic Tiger would not continue to roar at the volume it was going in the first three or four years of the decade; what staggered everyone (David McWilliams included) was the 1930s scale of the collapse. That was my point. A lot of people think McWilliams was warning against such a collapse, but he no more saw it coming than anyone else. Most people thought that we would just settle at a level of growth that was normal for a modern western state.

oceanclub

Cufflink wrote: »

It's not amazing. Everybody knew that the Celtic Tiger would not continue to roar at the volume it was going in the first three or four years of the decade

Oh, "everyone" did, did they? So, noone was saying that house prices would continue to rise 'til 2020, or that the average house price would be €500,000 by next decade? Sorry, but there's plenty of quotes from vested interests out there, if you care to look, to suggest they thought the good times would go on forever. Remember the mythical soft landing everyone was going on about? Sorry, but the ideal that McWilliams was as bad as the rest of them is sheer revisionism.

P.

ei.sdraob

imme wrote: »

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

Do you see no implications for the failure of Anglo?

in US when banking buddies became part of government > http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

in Ireland when brown envelopes got heavier


Anglo should have failed while the BOI and AIB had their consumer/deposit sections separated, while the investment/insurance arms were severed or made into separate companies altogether

actually they should do to banks what was done to ESB, where the grid was given to Eirgrid and ESB was split into ESB Group consisting of several loosely connected companies

imme

ei.sdraob wrote: »

in US when banking buddies became part of government > http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

in Ireland when brown envelopes got heavier


Anglo should have failed while the BOI and AIB had their consumer/deposit sections separated, while the investment/insurance arms were severed or made into separate companies altogether

actually they should do to banks what was done to ESB, where the grid was given to Eirgrid and ESB was split into ESB Group consisting of several loosely connected companies

It is the nature of banks to diversify, a bit of insurance, a bit of stockbroking, a bit of a Polish bank, a bit of a UK mortgage provider, a bit of this, a bit of that. Should they be restricted in the future of diversifying. Is that 'allowed' in the economic model we use in Ireland.

If you were to force AIB for example to sell off some of their non-core banking business, what is to stop them in 5 years time going back into that business to Maximize Profits.

3DataModem

nesf wrote: »

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.

This is what I've been saying for a long time. Banks cannot be run as pure commercial enterprises, the same way the ESB cannot be run as a pure commercial enterprise. If the ESB fecks up we can't let them just shut up shop - we need the power as a basic utility - same as retail banking is a basic utility. I'll never forget the Little House on the Prairie episode where the town's bank was at risk of closing and Paw said "Town'll go under without a bank". How right he was.

ei.sdraob

imme wrote: »

It is the nature of banks to diversify, a bit of insurance, a bit of stockbroking, a bit of a Polish bank, a bit of a UK mortgage provider, a bit of this, a bit of that. Should they be restricted in the future of diversifying. Is that 'allowed' in the economic model we use in Ireland.

If you were to force AIB for example to sell off some of their non-core banking business, what is to stop them in 5 years time going back into that business to Maximize Profits.

thats a very good point

its a thin line to thread, one one hand too much regulation is bad for business on the other hand bad things can happen

having smaller more specialized banks surely cant be a bad thing? tho yes they will tend to grow and expand and we could endup at square 1

Cufflink

oceanclub wrote: »

Oh, "everyone" did, did they? So, noone was saying that house prices would continue to rise 'til 2020, or that the average house price would be €500,000 by next decade? Sorry, but there's plenty of quotes from vested interests out there, if you care to look, to suggest they thought the good times would go on forever. Remember the mythical soft landing everyone was going on about? Sorry, but the ideal that McWilliams was as bad as the rest of them is sheer revisionism.

P.

That's right, oceanclub. Vested interests like developers and estate agents certainly claimed that what goes up does not neccessarily come down. Those who were lucky enough to have had even temporary access to the national brain cell (of whom McWilliams was undoubtedly one) knew better. There are some fundamentals that never change, and the law of gravity, be it phyisical or economic, is one of them. McWilliams was clever enough to realize that, but if he had been really clever he would have been able to warn us of the specifics of what was coming, not just general 'watch your step' and 'keep your eyes peeled' injunctions: that's good advice at any time.

imme

ei.sdraob wrote: »

thats a very good point

its a thin line to thread, one one hand too much regulation is bad for business on the other hand bad things can happen

having smaller more specialized banks surely cant be a bad thing? tho yes they will tend to grow and expand and we could endup at square 1

eh wasn't Anglo Irish Bank a specialised bank?, they couldn't have been described as a smaller specialised bank.

ei.sdraob

imme wrote: »

eh wasn't Anglo Irish Bank a specialised bank?, they couldn't have been described as a smaller specialised bank.

and thats exactly why they shouldn't have been given a cent

i dont see what damage would have occurred to average person if they failed

now if AIB or BOI fail there be war

Sleepy

Dannyboy83 wrote: »

Given the failure of our legislation, the banks repeated reckless behaviour and bailouts from the last century to this, why not just make private banks illegal and allow only heavily regulated state banks to operate here?

Ok, so assume we do this. Within a few years the average wage of a bank employee is around 80k a year (assuming an ESB type set-up).

Now, how do we pay for that?

If we reduce the interest levels on savings to pay for it, money will stream out of the country to places it can get a better return.

If we increase the interest on loans, business suffers due to a lack of affordable credit and consumers whinge because getting a loan is very expensive.

Governments can't run businesses efficiently (especially our one). That's why we leave it to the private sector wherever possible.

nesf

imme wrote: »

Banks were allowed to fail before. Throughout history banks have failed. When did we get to the position where they were to protected at all costs.

In the Great Depression initially anyway banks were allowed to fail. It's generally agreed among economists that have studied the area that the banking failures lengthened and deepened that recession and made things worse. One of the major things to come out of it was that while yes banks that were "bad" failed, other banks that weren't "bad" also failed because of the drop in confidence over bad banks failing causing bank runs on good banks.

You can't limit bank failures to the bad banks unlike other businesses! This is a really serious problem!


Anglo being left fail, I don't know to be honest. It would have undermined confidence both at home and internationally in Irish banks. This would have been a bad thing. The issue is whether international investors and Irish people would believe the Government if they said "No more banks will fail" after letting Anglo fail. So long as you believe that they would believe the Government, letting Anglo go under is reasonable. If you believe that the Government mightn't have been believed after it (i.e. if they leave one bank go, then they could be willing to let Permanent TSB or another small Irish bank go) then letting Anglo collapse could have been a very bad thing. Invariably some investor confidence would have been lost and some Irish banks would have found it even harder to borrow money on the international markets which would have worsened their situation.

Anglo wasn't a major clearing bank, it going down wouldn't have had a very severe effect on the financial infrastructure of the economy. The problem is whether Anglo going under would screw over the clearing banks in the State and this is an open question.

Tipp Man

nesf wrote: »

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

All very true, I would also add the impact of letting banks fail has on the international business community in this county. I work for a multi national which has some large cash balances, should anything happen to these then the company would be out of the country faster than you could say w##ker bankers, that is a simple fact. Every time the top dadies are on the phone, first question is how safe is our money in Ireland.

Now it is very hard to stomach having to bail the banks out but the simple fact is that there is absolutely no choice in it, the method used can be debated but not the actual choice of whether to do it or not

Fact is if the government left AIB and/or BOI fail then we would be in a hell of a lot worse position then we currently are in.

johnnyskeleton

nesf wrote: »

Dear God, I want to throw things at the television.

Quote of the week so far:

So-called economist David McWilliams: "Capitalism should reward good behaviour, not bad behaviour"

How the hell did this guy pass first year economics, capitalism has never been about rewarding good behaviour. Ever.

Good=profitable. That's capitalism 101.

johnnyskeleton

nesf wrote: »

He's done enough economics to know that you can't treat banks like normal businesses. If we leave a car dealership go bankrupt, some people lose their jobs and there's little misery. If we leave a bank go under, then loads of people lose their savings or parts thereof (ignore the guarantee scheme for the moment), businesses lose their cash (so businesses that run perfectly well suddenly lose the money they had put aside for wages, paying suppliers and so on), businesses who don't bank with the bank but whose customers do bank with the bank start losing money since their customers can't pay them and so on.

We can't leave banks fail. The Great Depression taught us this. Because we can't let them fail we need to treat them utterly differently to other businesses. They require regulation that no other sector (apart from perhaps insurance) would be subject to (such as minimum reserve levels and so on). The problem is we didn't, we let the banks have little oversight (or the oversight wasn't conducted correctly) and now we're ****ed because we have to bailout the bastards otherwise the entire economy goes belly up.


Arguably Anglo could have been left fail but AIB and BoI failing would have meant the endtimes had come for the Irish economy and I really mean that.

I disagree. Without the banking system or banks in general we wouldn't have modern capitalism. But that doesn't mean we need to keep the current banks afloat. Don't forget that the Irish banks could easily have been divided into the profitable and non-profitable sections. If AIB was insolvent, their branch network, credit card infrastructure and savings book could be sold off at a nominal amount to another bank or even to a new bank starting up. Their profitable loans could be sold at a small (e.g. 10% discount) while their less profitable or loss making loans could be sold at a greater discount.

Sure it would be a bit inconvenient at the moment, and sure a lot of people would lose a lot of money, but the economy would bounce back and the long term consequences would not be as dire, in particular the moral hazard that banks believe because they are continuously bailed out that they can take any kind of risk they want.

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland. The problems we face are caused by over reliance on externally sourced capital, so the cure is certainly not going to come from them. Therefore, if the international banks and investors who lent/invested in the Irish banks lost their shirts, it would teach them not to do it again.

The deposit guarantee would cover ordinary savers up to a point (and if any taxpayers money is paid out due to the banking crisis this is the best way of paying it) and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

At least letting the current banks fail and working on building up a new group of banks from the profitable parts of the banking system would ensure that by now we would have experienced a much more severe time over the last 2 years, but we would be in a much better position to rebuild our economy or, as BL put it "turn the corner".

But we didn't do that, and so we are faced with the spectre of slow decline

Hotblack Desiato

johnnyskeleton wrote: »

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland.

We bloody well have to take notice of their view when our government is having to borrow 20+ billion euro a year off them and 'their view' is what dictates the interest rate we pay.

Flamed Diving

johnnyskeleton wrote: »

Good=profitable. That's capitalism 101.

Define good and bad, in the context of this module.

Flamed Diving

johnnyskeleton wrote: »

Don't forget that the Irish banks could easily have been divided into the profitable and non-profitable sections.

Ok.

If AIB was insolvent, their branch network, credit card infrastructure and savings book could be sold off at a nominal amount to another bank or even to a new bank starting up.

Credit card default is high and rising, peoples deposits are on the liabilities side of the balance sheet, no one wants to purchase liabilities. Any bank that inherits this delightful bundle will be instantly insolvent, with no capital reserves.

Their profitable loans could be sold at a small (e.g. 10% discount) while their less profitable or loss making loans could be sold at a greater discount.

NAMA, then. So far we have a solution to create more insolvent banks and then implement NAMA. Sounds great!

Secondly, I think too much emphasis is placed on international money markets and their view of Ireland. The problems we face are caused by over reliance on externally sourced capital, so the cure is certainly not going to come from them. Therefore, if the international banks and investors who lent/invested in the Irish banks lost their shirts, it would teach them not to do it again.

We do indeed rely heavily on foreign capital, but that is because our government is running a huge deficit. If you would like to have every international investor to lose their shirt with Ireland, so be it. But how do you propose we pay to keep the lights turned on? Sure, in the long-run, bond markets soon forgive and forget, but it will be a few years of massive budget cuts. Not the garden variety we just saw last week.

The deposit guarantee would cover ordinary savers up to a point (and if any taxpayers money is paid out due to the banking crisis this is the best way of paying it) and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

No, it would be much worse, if we implemented everything you said, to this point.

At least letting the current banks fail and working on building up a new group of banks from the profitable parts of the banking system would ensure that by now we would have experienced a much more severe time over the last 2 years, but we would be in a much better position to rebuild our economy or, as BL put it "turn the corner".

I have already explained why this is wrong. Take a few deep breaths before you respond, I'm not in the form for responding to straw men arguments.

nesf

johnnyskeleton wrote: »

Good=profitable. That's capitalism 101.

So owning and running a sweat shop is good behaviour now is it?

nesf

johnnyskeleton wrote: »

and sure a number of businesses would have liquidity problems, but to be honest, no worse than the problems that they suffer now.

Sweet mother of God, no. Just no.

Diarmuid

oceanclub wrote: »

Oh, "everyone" did, did they? So, noone was saying that house prices would continue to rise 'til 2020, or that the average house price would be €500,000 by next decade? Sorry, but there's plenty of quotes from vested interests out there, if you care to look, to suggest they thought the good times would go on forever. Remember the mythical soft landing everyone was going on about? Sorry, but the ideal that McWilliams was as bad as the rest of them is sheer revisionism.

P.

And if that doesn't make you barf, check out all who turned up at the launch.

oceanclub

Diarmuid wrote: »

And if that doesn't make you barf, check out all who turned up at the launch.

Ker-rist. My respect for Ruairi Quinn just went down a few notches there.

Not surprised by Tom Parlon of course.

P.

ei.sdraob

johnnyskeleton wrote: »

Good=profitable. That's capitalism 101.

good is a relative world in business

something thats good for you might not be good for society

ethics in business is a relatively new invention, in meantime the schemes are getting bigger and more impact-full like Enron and Maddoff

edit: and Anglo "scheme"