10 replies on “The FG Plan for the Banking Sector”
Finally, a strong emphasis on the moral hazard of bailing out insolvent institutions. Failed institutions must be allowed to fail. A managed wind down process makes a lot of sense, not Lehman Brothers process! Equity and bond holders must lose their shirts before we put taxpayers money in, that’s what it’s there for after all.
I wonder what economist, George Lee thinks of the FG plan?
This plan makes more sense, to me at any rate, as a means towards solving the banking crisis and easing credit for businesses and families than either the NAMA or temporary Nationalisation proposals.
It is widely agreed that Ireland needs a fully functioning, well-capitalised, properly regulated banking system to facilitate the initial stabilization of the Irish economy and hopefully in time the re-emergence of a more sustainable economic path.
I know it’s a tall order to put a reformed banking system in place after the reckless/negligent action/inaction of some property developers, some bankers, financial regulators (including the Department of Finance) and the neoliberal leaning FF/PD governments since 1997.
The analysis in this plan of the situation to date is plausible and the criticisms of NAMA and temporary Nationalisation are reasonable. In both cases the ability to put a fair value on the banks’ distressed loans and underlying assets is a major worry for taxpayers and in a worst case scenario for the solvency of the state. The 2-Track approach in this plan has the merit of separating two important issues at this stage ;
•Ways to support resumed lending to enterprises and households and
•The working out over time of the banks’ bad loans.
This FG proposal is an excellent contribution to the ongoing debate on the best way out of the banking fiasco (caused by the few) , the cost of which will be borne by many Irish people for years into the future.
I have that awful queasy feeling that usually indicates an Irish Times phillipic is festering…
@Brain Lucey, and the public service hiring freeze won’t help. Maybe they’ll have to move some dept. of agriculture inspectors to NAMA, they are quite good at spotting BS..
Interesting that Dr. Somers was so aware of the Anglo risk that he would curtail the NTMA deposits at that bank though.
So what is the verdict on their plan?
I don’t think it is perfect but it is by far the best i’ve seen so far.
Forcing the banks to renegotiate their unguaranteed debts is a very easy way to get €20B to help the taxpayer cover the losses.
It’s funny how a major plan like this from Fine Gael barely makes the newspapers today, if at all. You’d have to wonder how the press could miss a debate that is this important. The press weren’t exactly wide awake in reporting the conditions leading up to this crisis either, both here and abroad.
Irish guaranteed bad banks defaulting on debt obligations may look good on paper – let’s whip equity and bond holders first ! The argument is it seems, clean good new banks will attract fresh funding. But will private investors see the clear water between the bad bit and the good bit? What will new AIB or new BOI look like ? The FG plan is like bits of a jigsaw but the box with the picture is missing. Providing a funding mechanism won’t guarantee banks will lend nor customers borrow – what should a reconfigured shrunken banking systm look like? And what of the three runts of the litter?
@ Brian Lucy. Of course nobody talked to Mr.Somers but he has now effectively pulled the plug on NAMA. Somers should not put his considerable career and legacy on the line for Lenihan’s back of the envelope calculations which he conveniently even forgot to give Somers.
NAMA is another illusion that the government had a plan!
There is no plan, the plan is to borrow and borrow and hope for an economic recovery in America. As we know, there will be no recovery in the US any time soon. American bank balance sheets continue to show major underlying weaknesses. I hate to say it, but the Irish electorate loves buying into the next big mistake. Changing FF for FG will give us a substitution effect. It appears however, that the elasticity of demand of the Irish people is constant whether the product is FF or FG. In other words, they show an equal propensity and willingness to be fooled by either party.
Shame on us, as the country goes down, all we can think of as a people is to move the deck chairs on the Titanic. We need a GNU!
10 replies on “The FG Plan for the Banking Sector”
Finally, a strong emphasis on the moral hazard of bailing out insolvent institutions. Failed institutions must be allowed to fail. A managed wind down process makes a lot of sense, not Lehman Brothers process! Equity and bond holders must lose their shirts before we put taxpayers money in, that’s what it’s there for after all.
I wonder what economist, George Lee thinks of the FG plan?
This plan makes more sense, to me at any rate, as a means towards solving the banking crisis and easing credit for businesses and families than either the NAMA or temporary Nationalisation proposals.
It is widely agreed that Ireland needs a fully functioning, well-capitalised, properly regulated banking system to facilitate the initial stabilization of the Irish economy and hopefully in time the re-emergence of a more sustainable economic path.
I know it’s a tall order to put a reformed banking system in place after the reckless/negligent action/inaction of some property developers, some bankers, financial regulators (including the Department of Finance) and the neoliberal leaning FF/PD governments since 1997.
The analysis in this plan of the situation to date is plausible and the criticisms of NAMA and temporary Nationalisation are reasonable. In both cases the ability to put a fair value on the banks’ distressed loans and underlying assets is a major worry for taxpayers and in a worst case scenario for the solvency of the state. The 2-Track approach in this plan has the merit of separating two important issues at this stage ;
•Ways to support resumed lending to enterprises and households and
•The working out over time of the banks’ bad loans.
This FG proposal is an excellent contribution to the ongoing debate on the best way out of the banking fiasco (caused by the few) , the cost of which will be borne by many Irish people for years into the future.
I have that awful queasy feeling that usually indicates an Irish Times phillipic is festering…
Note: Nobody has talked, it seems, to Mr NAMA Boss, Dr Somers…
http://www.irishtimes.com/newspaper/finance/2009/0515/1224246568484.html
devils, details, making it up as one goes along, demi-culs etc etc etc
@Brain Lucey, and the public service hiring freeze won’t help. Maybe they’ll have to move some dept. of agriculture inspectors to NAMA, they are quite good at spotting BS..
Interesting that Dr. Somers was so aware of the Anglo risk that he would curtail the NTMA deposits at that bank though.
So what is the verdict on their plan?
I don’t think it is perfect but it is by far the best i’ve seen so far.
Forcing the banks to renegotiate their unguaranteed debts is a very easy way to get €20B to help the taxpayer cover the losses.
It’s funny how a major plan like this from Fine Gael barely makes the newspapers today, if at all. You’d have to wonder how the press could miss a debate that is this important. The press weren’t exactly wide awake in reporting the conditions leading up to this crisis either, both here and abroad.
Irish guaranteed bad banks defaulting on debt obligations may look good on paper – let’s whip equity and bond holders first ! The argument is it seems, clean good new banks will attract fresh funding. But will private investors see the clear water between the bad bit and the good bit? What will new AIB or new BOI look like ? The FG plan is like bits of a jigsaw but the box with the picture is missing. Providing a funding mechanism won’t guarantee banks will lend nor customers borrow – what should a reconfigured shrunken banking systm look like? And what of the three runts of the litter?
@ Brian Lucy. Of course nobody talked to Mr.Somers but he has now effectively pulled the plug on NAMA. Somers should not put his considerable career and legacy on the line for Lenihan’s back of the envelope calculations which he conveniently even forgot to give Somers.
NAMA is another illusion that the government had a plan!
There is no plan, the plan is to borrow and borrow and hope for an economic recovery in America. As we know, there will be no recovery in the US any time soon. American bank balance sheets continue to show major underlying weaknesses. I hate to say it, but the Irish electorate loves buying into the next big mistake. Changing FF for FG will give us a substitution effect. It appears however, that the elasticity of demand of the Irish people is constant whether the product is FF or FG. In other words, they show an equal propensity and willingness to be fooled by either party.
Shame on us, as the country goes down, all we can think of as a people is to move the deck chairs on the Titanic. We need a GNU!